Interim Results 2002

1
Interim Results 2002
2
Interim Results 2002

• Sydney Gillibrand, CBEChairman

3
Interim Highlights

• Pre-tax profit up 7 to 41.6 million
• Diluted earnings per share up 9 to 9.7 pence
• Interim dividend increased by 10 to 3.4 pence
• Good growth and stable margins in Client Support
  Services
• Average level of net debt reduced by 18
• Further progress towards exercising the SPIE
  option

Before goodwill amortisation and exceptional
items Weekly average for the six months
ended 30 June
4
Interim Results 2002
Stuart SiddallFinance Director
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Contents

• Overview of results, cash flow and balance sheet
• Interest and taxation
• UITF 34 - pre contract costs
• Reorganisation and refocusing the business
• SPIE performance
• FRS17 and other accounting principles

6
Financial SummarySix months ended 30 June 2002
( million)
2002
2001
Change
Total turnover 2,109.9 2,069.4 2.0 Total
operating profit 52.6 51.5 2.1 Net interest
payable (11.0) (12.7) - 13.4 Pre-tax profit
41.6 38.8 7.2 Diluted earnings per
share 9.7p 8.9p 9.0 Interim dividend
3.4p 3.1p 9.7 Dividend cover 2.9x 2.9x Average
net debt 180.0 220.0 - 18.2 Net debt
194.4 193.0
Before goodwill amortisation and exceptional
items Weekly average for six months to 30
June
7
Total Operating Profit/(Loss) - By BusinessSix
months ended 30 June 2002 ( million)
2002
Margin
2001
Margin

• Client Support Services 38.7 4.2 35.9 4.2
• Capital Projects 20.1 1.7 21.4 1.8
• Investments 5.0 8.6 6.4 10.2
• 63.8 3.0 63.7 3.1
• E-commerce costs (1.2) (2.8)
• Corporate costs (10.0) (9.4)
• 52.6 2.5 51.5 2.5

• Increased profits in Client Support Services
• Capital Projects benefited from settlements in
  2001
• E-commerce costs falling
• Overall margin stable

Before goodwill amortisation and exceptional
items
8
Total Operating Profit - By Business Six
months ended 30 June 2002 Pro forma inclusion
of SPIE at 100
Before e-commerce and corporate costs, goodwill
amortisation and exceptional items
9
Client Support ServicesSix months ended 30 June
2002 ( million)
Operating Profit
Turnover
38.7
35.9
926.0
857.7
178.9
9.0
205.3
9.6
747.1
29.7
652.4
26.3
Consulting and Design
2001
2002
2002
2001
Operations Support

• Good organic growth, 9 per cent, in Operations
  Support
• Project delays in Consulting and Design but
  margins maintained

Before e-commerce and corporate costs, goodwill
amortisation and exceptional items
10
Capital ProjectsSix months ended 30 June 2002 (
million)
Operating Profit
Turnover
20.1
21.4
1,155.1
1,200.8
(0.3)
0.5
21.7
293.4
19.6
282.1
907.4
873.0
Construction Management
2001
2002
2002
2001
Construction

• Construction benefited from contract settlements
  in 2001
• Construction Management includes Pentagon
  reconstruction activity

Before e-commerce and corporate costs, goodwill
amortisation and exceptional items
11
InvestmentsSix months ended 30 June 2002 (
million)
Operating Profit
Turnover
5.0
6.4
58.3
62.9
14.1
1.2
15.1
48.8
5.2
43.2
1.7
3.3
Public Private Partnerships
2001
2002
2002
2001
Property Development

• Tenant demand soft in UK
• Grand Cayman hotel profits down following
  September 11, 2001

Before e-commerce and corporate costs, goodwill
amortisation and exceptional items
12
Investments Public Private PartnershipsSix
months ended 30 June 2002 ( million)
2002
2001
Operating profit from concessions 3.8 3.1 Overhead
s/ net bid costs (2.1) (1.9) Total operating
profit 1.7 1.2 Net interest payable (2.7) (2.6) Pr
e tax loss (1.0) (1.4)

• Sound performance from existing concessions
• No financial closures in 18 months to 30 June
  2002
• No capitalised bid costs carried at 30 June 2002

13
Cashflow Six months ended 30 June 2002 (
million)
Opening net debt (1 January 2002) (44.6) Cashflow
from trading activities (126.2) Profit retained
in joint ventures (3.3) Acquisitions/ disposals/
share issues 20.9 Interest, tax and
dividends (34.2) Currency and other
adjustments (7.0) Closing net debt (30 June
2002) (194.4)

• Outflow as predicted
• Predicted reduction of payments on account from
  high levels at 31 December 2001

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Balance Sheet Analysis million
30 Jun 2001
31 Dec 2001
30 Jun 2002
Payments on account (135.6) (199.6) (167.3) Trade
creditors due within one year (677.1) (813.6) (73
6.2) (812.7) (1,013.2) (903.5) Trade debtors
due within one year 800.5 887.2 984.6 Net
operating (liabilities)/assets (12.2) (126.0) 81.
1 Months of turnover in debtors 2.9 2.9 3.6 Mon
ths of turnover in trade creditors 2.4 2.7 2.7 R
atio of debtors to creditors 1.2 1.1 1.3

• Underlines volatility of net operating assets at
  any given date
• Payments on account fell from record levels as
  expected
• Fall in debtors/ creditors reflects volume and
  timing issues

Based on previous six months turnover excluding
joint ventures
15
Profit to Cash ConversionSix Year Cash History
( million)

• Net cash flow ahead of retained profit for 6
  years to 31 December 2001

Cashflow excludes acquisitions, disposals and
share transactions.
16
Profit to Cash ConversionSix years ended 31
December 2001 ( million)
Excess of adjusted cashflow over retained
earnings 51.0 Net investment in property and PPP
investments 33.0 Pensions prepayment net of
tax 35.0 Cash retained within SPIE 51.0 Goodwill
amortisation (15.0) Cash in excess of
profit 155.0

• Over six and half years to June 2002, profit
  underpinned by cash
• If SPIE option exercised, AMEC will secure access
  to retained cash within SPIE

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Net Interest PayableSix months ended 30 June
2002 ( million)
2002
2001
Group 6.0 8.5 Share of joint ventures PPP/
Property Development 3.9 3.0 SPIE 1.1 1.2 11.0
12.7

• Beneficial impact from reduced interest rates for
  Group
• Reflects average Group net debt of circa 180
  million down from 220 million in 2001

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TaxationSix months ended 30 June 2002 ( million)
2002
2001
Tax charge - effective rate 31.0 32.0 Implemen
tation FRS 19 prior year adjustment (31 December
2001) Retirement benefits 15.2 Other 2.5 Deferre
d tax liability (31 December 2001) 17.7

• Effective rate expected to remain slightly above
  UK rate
• FRS 19 deferred tax charged mainly relates to
  SSAP24 pensions prepayment

Before goodwill amortisation and exceptional
items. 2001 include prior year adjustment (FRS19)
19
UITF 34 - Pre Contract Costs million
Prior year adjustment (net) 2001 Nil 2000 1.4 1
999 Nil 1998 Nil 1997 1.7
Impact on AGRA goodwill 1.9

• Prior year adjustment mainly reflects costs
  incurred prior to preferred bidder status - All
  reimbursed in cash by concession companies
• 5.0 million to be released to the profit and
  loss account over a number of years

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Reorganisation and Refocusing AMECExceptional
Items ( million)
UK and North America reorganisation
costs 8.0 Business disposals/ closures 10.3
18.3 Tax effect (2.6) Net 15.7

• Reorganisation plans progressing in UK and North
  America
• Full year benefit in 2003
• Disposals/ closures relate mainly to North
  America businesses

21
SPIE Financial SummarySix months ended 30 June
( million)
2002 Total (100)
2001 Total (100)
2002 AMEC Share (46)
Total turnover 453.8 986.5 871.7 Total operating
profit 11.2 24.3 21.5 Net interest
payable (1.1) (2.4) (2.5) Pre-tax
profit 10.1 21.9 19.0 Tax (2.4) (5.2) (4.3) Pos
t-tax profit 7.7 16.7 14.7

• Strong growth in services activities - mainly
  following acquisition in 2001
• Net cash at 30 June 2002 70 million (31 December
  114 million)
• Net exceptional costs (AMEC Share) 3.2 million -
  downsizing SPIEs traditional overseas civil
  engineering activity

Before goodwill amortisation and exceptional
items
22
FRS 17 and Other Accounting Principles

• FRS 17 Retirement Benefits
• Pre-tax surplus 31 December 2001 304 million
• Mandatory adoption now delayed until 2005
• AMECs triennial valuations as at 1 April 2002
  underway
• Implementation of FRS 17 to be reviewed once
  valuation results available
• Adoption of FRS 17 is expected to have a positive
  impact on AMEC

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Accounting Principles

• UITF 34 - Pre Contract Costs
• Standard adopted for 2002 - prior year adjustment
  as expected
• Visibility will be maintained
• Expect to capitalise future bid costs once we
  reach preferred bidder status in line with UITF 34

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Accounting Principles

• Capitalisation of Interest
• Only for Investments projects under construction
• Total capitalised 6 months to 30 June 2002 2.1
  million
• Off Balance Sheet Debt
• No significant change in level of support from 31
  December 2001
• Visibility will be maintained

25
Calculating AMECs Order Book

• Services
• Term/evergreen contracts, option years excluded
  growth only recorded when instructed
• Branch businesses essentially as orders are
  received
• Capital Projects
• At tender values, adjusted for contract growth as
  agreed
• Investments
• Reflected above

Spie Trindel Spie Communications Earth
Environmental
26
Calculating the Order BookDocklands Light Rail
- Example

• Concession income stream
• real value 300m ? or
• with 2.5 pa inflation 500m ? or
• at 6 pa npv 140m ?

• Capital Projects value - 3 year construction
  period
• construction costs 140m ? or
• construction costs plus interest costs 175m ?

• Services value - 27 year maintenance period
• real value 23m ? or
• with 2.5 pa inflation 38m ? or
• at 6 pa npv 11m ?
• first contract break point 8m ?

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Calculating the Order BookDocklands Light Rail
- Example

• Will not book order until financial close
• AMEC does not record concession income stream
• (recognise equity commitment of 8 million)
• Will then book Capital Project value 140 million
  (100 AMEC)
• Do not include interest cost
• Will book Services value 8 million (100 AMEC)
• Real value having regard for market testing in
  year nine

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Controls Over Profit Recognition
Main Board
Corporate (plc) Management
Internal External Audit
External Advisors
Operational Management
Project Management Team

• Established processes exist to support cautious
  profit recognition policies
• Good track record
• Driven by project management team, subject to
  high visibility

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Summary

• Solid overall performance
• Retained profit underpinned by cash over last six
  years
• Average level of net debt reduced by 18
• Well established profit recognition policies
• FRS 17 - overall positive impact expected
• AMEC well placed to acquire balance of SPIE in
  2003

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Interim Results 2002

• Sir Peter Mason, KBEChief Executive

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Agenda

• Market overview
• Order book
• Benefits of synergy
• Restructuring
• Sustainability
• SPIE
• Outlook

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Market Overview Client Support Services

• Good growth in Client Support Services
• North American Consulting and Design
• Maintaining long-term client relationships some
  project drift
• Operations Support Services
• Long-term cost reimbursable contracts provide
  robust base of recurring revenues
• Stable margins
• Relatively unaffected by changes in economic
  activity

Client Support Services business provides base
level of resilience through the economic cycle
33
Market Overview Capital Projects

• Project activity remains high in the oil and gas
  sector
• Upstream oil and gas
• Prospects remain encouraging for infrastructure
  projects
• Healthcare and infrastructure generally
• Transport projects across Europe
• Construction Management
• Strategy focused on increased selectivity
• Order book reduced

AMEC remains confident of winning further large
contracts in its chosen strategic areas
34
Market Overview - Investments

• Opportunity in UK urban regeneration remains good
• Completion on British Waterways
• Public Private Partnerships (PPP)
• UK Government remains committed
• Preferred bidder for 300 million Docklands Light
  Rail extension
• Concerns over timing, costs of bidding and risk
  transfer
• Property Development
• Well balanced portfolio
• Some softening in tenant demand

Outlook for the Investments business remains
encouraging
35
Order Book

• Total order book strong and steady
• AMEC has transformed from a projects-led business
  to a services-led business

36
Order Book - ServicesBranch Businesses

• Turnover approaching 1.5 billion per annum
  (SPIE 100)
• Over 10,000 orders received annually
• The order book at a point in time is not
  informative
• Total turnover increased by 10 in the first half
  
• Growth in turnover matched by order intake

Spie Trindel Spie Communications Earth
Environmental
37
Order Book - ServicesTerm Contracts and Long
Term Clients

• Length of order book is a reasonable indicator of
  future turnover
• However, timing of term contract renewals can
  distort
• Encouraging first half
• Upstream oil and gas rail
• Order book maintained at about 1.7 billion

38
Order Book - Construction

• Order book is a good indicator of future activity
  in short term
• Project portfolio weighted towards very large
  projects
• Order book can be lumpy
• Selective approach
• Right type of work/ clients/ risk profile is key
• Order book maintained during the period
• Underlying demand for UK Infrastructure projects
  good
• Underlying demands in Upstream Oil and Gas strong

39
Order Book - Construction Management

• Nature of contractual arrangements distorts
  levels of order and sales
• Key measure for the business is level of fees
  secured
• Fees cover corporate overhead and generate profit
• Fees down by over 20 per cent in first half

40
Benefits of Synergy
Transportation
Security
Oil and Gas
PharmaChem
Important additional areas of organic growth are
being developed across AMEC and SPIE
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Benefits of Synergy - PharmaChem

• North American operations have added to our
  skills
• Front-end design, engineering, environmental and
  project management
• New PharmaChem office in New Jersey
• Over US50 million of activity in 2002 from
  standing start
• New work in North America
• Apotex Boehringer Ingelheim Ben Venue
• Merck Serono Taro Pharmaceutical UCB
  Bioproducts
• Shire Biologics Wyeth Pharmaceuticals

Over US50 million of activity in North America
in 2002 from a standing start
42
Benefits of Synergy Energy, Oil and Gas

• SPIE pipelines
• Leading international capability
• Common client base
• New projects in UK, Europe, Asia and Australia
• Renewables
• Wind
• Regenesys

Energy related synergies are expected to build
through 2003
43
Benefits of Synergy - Transportation

• SPIE has a leading market position in rail
• Power supply
• Tramway projects
• Projects including Channel Tunnel Rail Link and
  West Anglia Route Modernisation would not have
  been secured without input from SPIE
• AMEC SPIE Rail
• Joint approach to European business

AMEC SPIE are well placed in European railways
44
Benefits of Synergy - Security

• Increased need for specialised security services
  post 11/9
• Safeguarding municipal water supplies
• Early warning systems at nuclear power plants
• Building hardening services
• 100 hold baggage screening
• UK experience being applied in North America
• Project underway in Boston

Growth in security related activities is
expected to continue
45
Benefits of Synergy

• Projects largely at the opening stages outlook
  promising
• Other opportunities with
• Procter Gamble
• General Electric
• General Mills
• International Paper

Important additional areas of organic growth are
being developed across AMEC and SPIE
46
Restructuring

• UK management restructuring announced in January
  2002 now nearing completion
• Streamlined North American structure announced
  August 2002
• Costs associated with restructuring initiatives
  in 2002
• 8 million costs in first half
• Payback less than 12 months
• Full benefit not before 2003

Restructuring of UK and North American management
structures prepares the way for exercise of the
SPIE option
47
SPIE Option Timetable

• June Formal process providing valuation of SPIE
  S.A. shares approved by the AMEC Board
• August Valuation of SPIE S.A. shares confirms
  net cost of remaining 54 at approximately 270
  million
• September Due diligence
• Late November Expected exercise date of AMEC
  option
• Late January AMEC EGM
• February Completion and payment

48
Sustainability

• Progress in measuring key sustainability
  indicators
• Risk management processes updated with respect to
  sustainability-related risk
• Commitment to respect World Bank and OECD
  guidelines for the development of large dams
  confirmed
• Support for values and principles of the World
  Commission on Dams

AMEC views sustainability as an integral part of
its overall commitment to risk management, public
disclosure and accountability
49
Outlook

• Long-term client relationships continue to
  provide robust revenues and steady margins
• Synergy benefits will grow
• Offsetting some of these positive trends
• Sense of uncertainty amongst some clients
• Increased costs of insurance
• AMEC remains on track to make positive progress
  in 2002

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Interim Results 2002