AMEC plc Preliminary results 2004

1
AMEC plcPreliminary results 2004
2
AMEC plcPreliminary results 2004

• Jock Green-ArmytageChairman

3
Highlights

• Record pre-tax profit 118.1 million
• Total dividends up 5 to 11.0p per share
• Solid performance across all business segments
• Reclassification to Support Services
• Equity Placing well received
• Further progress in 2005
• Before goodwill amortisation and exceptional
  items

4
AMEC plcPreliminary results 2004

• Stuart SiddallFinance Director

5
Agenda

• Results for 2004
• Net debt
• PPP portfolio
• International Financial Reporting Standards
• Outlook for 2005

6
Financial summary million
2003
2004

• Total turnover 4,816.4 4,712.7 2.2
• Pre-tax profit 118.1 112.5 5.0
• Effective tax rate 32.8 32.0
• Diluted earnings per share 25.9p 25.3p 2.4
• Proposed dividends per share 11.0p 10.5p 4.8
• Dividend cover in-line with policy
• Performance in line with expectations
• Before goodwill amortisation and exceptional
  items

7
Total turnoverBy business million
2500
2000
1500
2003
1000
2004
500
0
ETS
Oil and Gas
Project Solutions
8
Engineering and Technical Services million

• Total turnover 2,293.8 1,952.7
• Total operating profit 75.3 69.8
• Margin 3.3 3.6
• Net (liabilities)/assets (8.1) 27.2
• Increased activities in Continental Europe
• Results reflect full year contribution from
  SPIE
• Good performance from framework contracts and
  useful contribution from Iraq
• Good performance despite generally weak North
  American industrial markets
• Margins expected to recover in 2005
• Before corporate costs, goodwill amortisation
  and exceptional items

2004
2003
9
Oil and Gas million
2003
2004

• Total turnover 1,212.1 1,350.0
• Total operating profit 57.2 58.2
• Margin 4.7 4.3
• Net assets 129.2 76.5
• Changes in business model leading to higher
  margins
• Solid overall performance
• Cautious position on certain contracts
• Increased net assets reflect several large lump
  sum contracts Substantial cash received in
  late 2004 Further progress expected during
  first half 2005
• Before corporate costs, goodwill amortisation
  and exceptional items

10
Project Solutions million
2003
2004

• Total turnover 1,368.4 1,487.1
• Total operating profit 41.4 40.2
• Margin 3.0 2.7
• Net assets 65.9 10.3
• Reduced level of activity in UK roads and US
  Construction Management
• Performance underpinned by Investments
  contribution
• Margin in line with expectations
• Before corporate costs, goodwill amortisation
  and exceptional items

11
Total operating profitBy business million
Margin
2003
2004
Margin

• Engineering and Technical Services 75.3 3.3 69.8 3
  .6
• Oil and Gas 57.2 4.7 58.2 4.3
• Project Solutions 41.4 3.0 40.2 2.7
• 173.9 3.6 168.2 3.5
• Corporate costs (24.3) (0.5) (26.5) (0.5)
• 149.6 3.1 141.7 3.0
• Total operating profit increased by 5.6
• Corporate costs reflect reduced North American
  establishment
• Overall margin increased
• Return on capital employed was 16.8 in 2004
• Before goodwill amortisation and exceptional
  items

12
Return on capital employed
Source Company accounts as at 8 Dec 2004
Before goodwill amortisation and exceptional
items Post-tax earnings(excluding goodwill
amortisation, exceptional items and interest)
divided by the sum of shareholders equity plus
net debt
13
Profit and loss account

• Administration expenses 479m (2003 441m)
• Increase reflects full year effect of SPIE (2003
  10 months)
• Remains at about 10 group turnover

• Share of profit from joint ventures 23m (2003
  13m)
• Improved contribution from Developments
  activities
• Urban regeneration and operational PPP
  concessions expected to increase contribution in
  this area

• Exceptional charge - pre-tax
• In line with December update
• Mainly exit from US Construction Management
• Before goodwill amortisation and exceptional
  items

14
Profit and loss account continued

• Interest
• Group interest 18.8m reflects disposal of sub
  debt
• Joint ventures 12.7m reflects increase in
  invested capital
• Joint venture interest will increase in line with
  operating profit
• Taxation 32.8 (2003 32.0)
• 2004 tax charge reflects increased contribution
  from France
• Upward pressure in effective tax rate due to
  increase in overseas oil and gas activities

15
Cash flow million
Payments on account
Interest, tax,dividendsand other
2002
Acquisitions
Trading
2004
0
-50
-100
-150
-200
-250
-300
-350
-400
Includes payments on account acquired with
SPIE of 29.0 million
16
Profit conversion million
250
200
150
100
50
0
1 Jan 1996 31 Dec 2004
1 Jan 1996 31 Dec 2003

• Cash has historically matched profit and will
  move back in line in 2005

Profit excludes goodwill write off and
amortisation Adjusted cash flow excludes
acquisitions, disposals and share transactions,
advanced cash, cash retained in SPIE prior to
March 2003, pensions debtor
17
Financial ratios
2003
2004

• Interest cover (excluding results of PPP
  concessions) 6.1x 6.4x
• Average weekly net debt to EBITDA 2.4x 1.9x
• Total committed facilities 861m 784m
• Financial ratios reflect increased debt and fixed
  rate interest hedging strategy
• Ratios remain good
• Increased level and maturity of committed
  facilities
• Excluding goodwill amortisation and exceptional
  items

18
Average weekly net debt in 2005 million
-200
-250
-300
-350
-400
-450
-500

• Average net debt in 2005 is expected to decline
  to around 350 million

19
Balance sheet analysis million
2004
2003

• Payments on account (177.7) (180.3)
• Trade creditors (1,277.0) (1,163.8)
• (1,454.7) (1,344.1)
• Stocks/trade debtors 1,741.5 1,542.9
• Net current operating assets 286.8 198.8
• Months of turnover in stocks/debtors 4.2 4.0
• Months of turnover in creditors 3.1 3.0
• Ratio of stock/debtors to creditors 1.4 1.3
• Restated for changes in stock/debtor/creditor
  offsets in SPIE balance sheet
• Based on previous six months turnover
  excluding joint ventures

20
Balance sheet

• Tangible assets 528m (2003 549m)
• Capital expenditure of 55m, depreciation of 40m
• Increased investment in financial systems
• Disposal of land and buildings in France
• Investments 113m (2003 97m)
• Increased investment in PPP joint ventures
• Outstanding interest in Spie Batignolles sold
  June 2004

21
Balance sheet continued

• Pensions asset
• FRS17 pre-tax pension surplus of 120m
• No adverse impact on distributable reserves
• January 2005 Placing
• Increases shareholders funds to over 350m -
  pro-forma

22
Project Equity Investments PPP equity profile
million
100
80
Equity committed- preferred bidder status
60
Equity committed - financially closed
40
20
Equity invested
0
31 Dec 03
10 Mar 05
31 Dec 04
23
Project Equity Investments Timing of PPP equity
investment 2005 - 2009
million
0
5
10
15
20
25

• Total equity commitment 56.7 million
• As at 10 March 2005, including preferred bids

24
Project Equity InvestmentsPPP portfolio
valuation

• Net present value of portfolio 77 million
• Net book value 42 million
• Valuation of portfolio undertaken by AMEC
• average discount rate of 10.5 used
  (post-tax/pre-tax basis)
• Substantial value to be generated in the future
• As at 10 March 2005, excluding preferred bids

25
International Financial Reporting Standards
(IFRS)

• Implementation well advanced
• Key issues identified
• Expect to publish restated figures in June 2005
• No changes to contract accounting
• Remaining uncertainties looking forward
• IAS 39 Financial Instruments
• Concession accounting

26
Orders

• Engineering and Technical Services
• Relationship between order intake and sales is
  key
• 2004 order intake exceeded sales

• Oil and Gas
• As at 31 December 2004 1.3 billion (2003 1.2
  billion)

• Project Solutions
• As at 31 December 2004 1.1 billion (2003 1.2
  billion)

27
Outlook for 2005
Movement relative to 2004 profit base

• Rail Maintenance/share options
• North American industrial markets
• Increased contribution from Iraq
• Impact of Placing
• Acquisition of Paragon (Houston Oil Gas)
• Growth across all business segments

Overall AMEC confident of further progress in 2005
28
AMEC plcPreliminary results 2004

• Sir Peter Mason KBEChief Executive

29
Agenda

• Business review
• Engineering and Technical Services
• Oil and Gas
• Project Solutions
• Outlook

30
Engineering and Technical Services75m 43
group operating profit 2004 Before corporate
costs, goodwill amortisation and exceptional
items
31
Engineering and Technical Services (ETS)

• 2004 operating profit 75m up 8
• 43 of 2004 group operating profit
• Multitechnical Services
• Environmental Services
• Design and Engineering Services
• Predictable business model
• Before corporate costs, goodwill amortisation
  and exceptional items

Another strong performance despite weaker North
American margins
32
ETS Multitechnical Services

• Broad range of electrical, mechanical and
  telecommunications services
• Engineering services chain
• Local and international customers

• Robust performance in 2004
• Growth broadly in-line with GDP
• Extended reach and capability

• Volume and margin improvement targeted for 2005
• Further extension of network
• Better performance in Benelux

A highly predictable business
33
ETS Environmental Services

• Almost 100 locations across North America
• Similar model to the Continental European
  business

• Best year on record in 2004
• Increase in US Air Force activity
• Energy contracts in Canada

• Geomelt contract at Hanford progressing well

• Growth expected in most areas of activity in 2005
• New offices from UK to Chile

Some significant contracts in a record year
34
ETS Design and Engineering Services UK

• Detailed design and delivery services for large
  infrastructure clients
• Often through a framework or long-term agreement

• Long-term contracts in 2005 include
• MoD Management of Scottish Estate
• BAA airport runway maintenance and improvement
• Anglian Water and Welsh Water asset support

• Restructuring of the nuclear industry expected
  to produce growth opportunities

Good contract flow and continued strength in
public spending
35
ETS Design and Engineering Services Americas

• Design and project management of industrial
  process plant
• Industrial market not yet recovered
• Mining very busy

• Continued reduction in cost base
• Any upturn straight to bottom line

Outlook mixed
36
ETS Design and Engineering Services Iraq

• Firm awards to-date won in joint venture with
  Fluor total US730m
• Additional task orders direct to AMEC total
  around US130m
• Fully cost reimbursable

• Small contribution in 2004, rising in 2005
• Long-term commitment

Small, rising contribution and no commercial risk
37
Oil and Gas57m 33 group operating profit
2004 Before corporate costs, goodwill
amortisation and exceptional items
38
Oil and Gas

• 2004 operating profit 57m
• 33 of 2004 group operating profit
• Total life of asset support
• Global services business
• Pipelines business
• Canadian oil sands
• Before corporate costs, goodwill amortisation
  and exceptional items

Initial design through to long-term asset
support service
39
Oil and Gas Improved market position

• Increased activities worldwide
• UK North Sea Gulf of Mexico
• West Africa Caspian
• Canada Asia Pacific

• More work from new clients
• KOC, Kuwait
• KNOC, South Korea
• Woodside, Australia

Increasing international activity, range of
services and client base
40
Oil and Gas Strategic acquisition in Houston

• Tier One status in Houston achieved with Paragon
• Strong position in pipeline design and project
  management
• Strengthening of client relationships
• Chevron/Texaco
• Marathon
• Pemex

Improved range of services and tier one status in
Houston
41
Oil and Gas Changing business model

• Trend to fabrication in lower cost regions
• Accelerated change of focus in activities towards
  higher-value services

• Vast majority of upstream lump sum contracts
  completed in 2004
• One-off lump sum contracts being replaced by
  longer-term services
• Margin improved

• Order book up

Improving quality of earnings
42
Oil and Gas Recent contract awards
ConocoPhilips Bayu Undan Operations
maintenance support Timor Sea
KOC Project management 5 years initial
contract Kuwait
Woodside Enfield FPSO Engineering project
management Perth
A wide range of substantial new contracts
43
Oil and Gas Canadian oil sands

• Canadian Natural Resources Ltd
• Horizon projectGreen-field oil sands extraction
  plant
• Deer Creek
• Joslyn project
• Technical assistance
• Imperial Oil Canada
• Kearl oil sands
• Pre-feasibility study

• Shell Canada
• Muskeg River Mine expansion pre-feasibilty study
• Syncrude
• Aurora MineAdditional mining/materialhandling
  system
• North MineAdditional dry oil sand production
  system

Oil sands business strong and growing
44
Oil and Gas Pipelines

• Busy year on BTC pipeline, Georgia
• Cheyenne Plains
• Bids outstanding in
• Australia
• Yemen
• USA

Paragon strengthens pipelines design capability
45
Project Solutions42m 24 group operating
profit 2004 Before corporate costs, goodwill
amortisation and exceptional items
46
Project Solutions

• 2004 operating profit 42m
• 24 of 2004 group operating profit
• Range of activities from project management to
  construction of large infrastructure projects
• Includes our UK Construction Services, PPP,
  Developments and Wind Energy
• Before corporate costs, goodwill amortisation
  and exceptional items

Promise of growth
47
Project Solutions Construction Services

• We do not pursue one-off projects where lowest
  price is key
• Strong client relationships in the public and
  private sector
• Transport
• Healthcare
• Defence

• Growth opportunities through continued strength
  in UK government spending
• Rail continues to offer opportunities in
  Continental Europe and UK

Continuing opportunities
48
Project Solutions PPP

• Excellent progress in project delivery
• Docklands Light Railway
• UCLH Hospital

• Recent preferred bidder status awards gt600m
  value to AMEC
• Colchester Hospital
• DLR Woolwich Arsenal extension
• South Lanarkshire Schools

• Increasing earnings expected

• Growth opportunities anticipated

Real profit potential
49
Project Solutions Developments

• More than a dozen schemes under development in
  the UK
• Major schemes include Reading and Durham
• Awarded major project to regenerate Lewisham
• Planning approval expected for 3 million square
  feet of developments during 2005
• Continuing significant annual profits expected

Activity levels set to increase
50
Project Solutions Wind Energy

• Onshore portfolio under development around
  1,500MW
• Includes 3rd parties share of capacity of around
  400MW
• Offshore portfolio pre-sold
• Planning applications progressed
• Kyle
• Lewis

Portfolio maturing
51
Wind EnergyOnshore portfolio planning status
at December 2004
Potential capacity (MW)
1000
800
Pre-planning
600
Planning application
400
Conditional consent
200
0

• Assumptions
• Reflects projects as set out in supplementary
  slides and includes AMECs share of joint venture
  developments
• Excludes projects developed by AMEC in the past
  and sold-on to third parties
• Based on planning submissions made or
  management estimates where proposals are at an
  earlier stage
• Developments are subject to environmental and
  planning risk until fully consented and to
  delays in the commissioning of the national
  grid infrastructure needed to support renewable
  energy expansion

The planning process is slow
52
Wind EnergyOnshore portfolio development
potential
Potential capacity (MW)
1000
800
Conditional consent
600
Construction
400
In operation
200
0
2005
07
09
06
08
2010

• Assumptions
• Reflects projects as set out in
  supplementary slides and includes AMECs share of
  joint venture developments
• Excludes any additional new developments
• Excludes projects developed by AMEC in the
  past and sold-on to third parties
• Based on planning submissions made or
  management estimates where proposals are at an
  earlier stage
• Developments are subject to environmental and
  planning risk until fully consented and to
  delays in the commissioning of the national
  grid infrastructure needed to support renewable
  energy expansion

.but there are rewards
53
Outlook

• Steady growth in earnings from Engineering and
  Technical Services
• Volume and margin improvement

• Stronger position in Oil and Gas
• Improving quality of earnings

• Exciting prospects in Project Solutions
• Opportunities in Construction Services
• Maturing portfolio of investments

Further growth in 2005 and beyond
54
Preliminary results 2004

• Questions

55
Preliminary results 2004

• Supplementary dataFinancials

56
Whats in where
Project Solutions
Oil and Gas
Engineering and Technical Services
Defence
Upstream
Multitechnical services
Healthcare
Downstream
Environmental services
Transport
Oil sands
Asset support services
Education
Pipelines
Design and Engineering
Industrial
Previous segmental analysis
Developments/PPP
Wind energy
57
Cash flow million
2004
2003
Opening net debt (218.1) (37.3) Cash flow from
trading activities Advance cash (2.6) 14.5
Other (19.2) 56.0 Net profit / (loss) retained
in joint ventures / associates 7.8 3.3 Acquisiti
ons / disposals/share issues 24.5 (177.0) Interest
, tax and dividends (74.9) (72.4) Currency and
other adjustments (1.2) (5.2) Closing net debt
(283.7) (218.1)
58
Financial ratios
2004
2003
EBITDA 189.4m 189.3m Operating profit
(excluding PPP) 138.8m 131.1m Interest
(excluding PPP) 22.6m 20.5m Interest cover
(excluding results of PPP concessions) 6.1x 6.4x W
eekly average net debt 450m 360m Weekly average
net debt to EBITDA 2.4x 1.9x Excluding goodwill
amortisation and exceptional items
59
International Financial Reporting Standards

• Main balance sheet restatements
• IAS 8 Dividends
• IAS 19 Pensions
• IAS 12 Deferred tax
• IAS 16 Plant and equipment
• IAS 17 Leases
• IAS 31 Joint ventures PPP
• IAS 39 Financial instruments

Effect on net assets
60
International Financial Reporting Standards
continued

• Main profit and loss account restatements
• IAS 31 Joint ventures - PPP
• IFRS 2 Share-based payments
• IFRS 3 Acquisitions (net)
• IAS 11 Construction contracts
• IAS 19 Pensions
• IAS 39 Financial instruments

Effect on EBIT
61
Preliminary results 2004

• Supplementary dataProject Equity Investments -
  PPP

62
Investments PPP portfolio financially sound and
profitable

• Share of non recourse debt in projects 544
  million
• Operational 296 million
• Under construction 247 million
• Five projects operational
• Operating profit of 11 million (2003 11
  million)
• Support limited to equity commitments of 57
  million
• Contingent equity arising from adverse events
• AMEC share 11 million
• As at 10 March 2005, including preferred bids

63
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
30 years
50
1998
Inland Revenue Newcastle Estate
Water Treatment
-
1.9m
2002
30 years
25
2000
Ayrshire Wastewater Treatment
64
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
Hospitals
0.9m
8.4m
2005
38 years
33
2000
University College London Hospital
65
AMEC PPP projects Preferred bidder status
Value to AMEC
Equity committed
Net equity invested
Date operational
Concession period
Equity stake
Fin. close
Transport
15m
14.9m
4.9m
2009
30 years
23
Q2 2005
Incheon Bridge, Korea
200m
11.5m
-
2008
30 years
50
Q2 2005
Docklands Light Railway Woolwich Arsenal extension
Hospitals
220m
9.5m
-
2009
30 years
50
Q4 2005
Colchester Hospital
Schools
290m
8.0m
-
2009
30 years
33
Q3 2005
South Lanarkshire Schools
Project management fee
66
Preliminary results 2004

• Supplementary dataProject Equity Investments -
  Wind Energy

67
Wind energy terminology explained Rated
output and quantity of electricity produced

• Rated output is expressed in watts
• A watt is the energy needed to heat up 1 cm3 of
  water by 1oC in 1 second
• We use megawatts (1 MW 1,000,000 watts) to keep
  the numbers manageable
• Quantity of electricity produced is expressed in
  watt.hours
• A watt.hour is the quantity of electricity
  produced in 1 hour by a device generating at a
  rate of 1 watt
• A unit of domestic electricity is 1000 watt.hours
  or 1 kilowatt.hour (1 kWh)
• We use megawatt.hours (1 MWh 1,000,000
  watt.hours) or gigawatt.hours (1 GWh
  1,000,000,000 watt.hours) to express the quantity
  of electricity generated over a year
• In wind, the output depends on rated output and
  availability of wind to drive the turbines (the
  typical wind farm produces about 30 of the
  quantity that it would do if the wind blew
  strongly all year round the capacity factor)
• Example
• For a typical 50 MW wind farm, the annual energy
  production would be 50 times 24 (hours in the
  day) times 365 (days in the year) times 30
  (capacity factor)
• That is 131,400 MWh or 131.4 GWh

68
AMEC Wind Energy

• Total portfolio under development is around 2,500
  MW, broken down as follows
• AMECs share of onshore developments 1,100 MW
• Third parties share of onshore developments
  managed by AMEC 400 MW
• Offshore developments where AMEC is providing
  consultancy/project management services to
  Centrica 1,000 MW
• Value fundamentals
• Recent transaction value for onshore wind
  projects of circa 390,000 per GWh p.a.
• Capital cost of onshore wind farms 650-800/kW
• Confirm pre-tax returns of 20 achievable

69
AMEC Wind EnergyOnshore portfolio
Name/Location Rating No of wind Tip Planning
(MW) turbines height (m) status 1.
Proposals being developed by AMEC Long-term
prospects, various 100 100 100 Pre-planning Kyle
Forest, Ayrshire 300 100 125 Planning
application submitted Q4 2004 Isle of Lewis
(AMECs 50) 351 117 140 Planning application
submitted Q4 2004 Clashindarroch,
Aberdeenshire 130 47 100 Planning application
submitted Q3 2003 Aultmore,
Moray 60 30 100 Planning application
submitted Q4 2003 Minch Moor,
Borders 20 14 100 Planning application
submitted Q2 2003 Edinbane, Isle of
Skye 50 27 100 Conditional consent Q4 2002,
awaiting planning notice Tees Wind North,
Teesside 25 9 140 Conditional consent (AMECs
50) Q2 2002, awaiting Corus decision on
land
70
AMEC Wind EnergyOnshore portfolio continued

• Name/Location Rating No of wind Tip Planning
  (MW) turbines height (m) status
• Clachan Flats, Argyll Bute 16 9 79 Planning
  notice received
• 2. Projects developed by AMEC in the past and
  sold to third parties
• High Volts, Co. Durham 8 3 100 Operational (2004)
• Hare Hill, Co. Durham 5 2 100 Operational (2004)
• Holmside Hall, Co. Durham 5 2 100 Operational
  (2004)
• High Hedley, Co. Durham 2 3 71 Operational (2001)
• Kirkheaton, Northumberland 2 3 67 Operational
  (2000)
• Great Eppleton, Northumberland 2 4 70 Operational
  (1997)
• Blyth Harbour, Northumberland 3 9 41 Operational
  (1993)

• Notes on the above
• Data based on planning submissions made or
  management estimates where proposals are at an
  earlier stage
• Developments are subject to environmental and
  planning risk until fully consented and to
  delays in the commissioning of the national grid
  infrastructure needed to support renewable energy
  expansion

71
AMEC Wind EnergyOffshore portfolio

• Name/Location Rating No of wind Tip Planning
  (MW) turbines height (m) status
• 1. Developments where AMEC is providing
  environmental consultancy/project management
  services to Centrica
• Race Bank, Greater Wash c500 c100 tba Pre-planning
  
• Docking Shoal, Greater Wash c500 c100 tba Pre-plan
  ning
• Lynn, Skegness 90 30 150 Construction
  pending
• 2. Projects developed by AMEC in the past and
  sold to third parties
• Blyth Offshore, Northumberland 4 2 91 Operational
  (2000)

• Notes on the above
• Data based on planning submissions made or
  management estimates where proposals are at an
  earlier stage