We are on course to deliver resilient trading results for this year and next despite the continuing weakness in some of our key markets. This is only possible due to the diversity of our business and the initial contribution from additional sustainable cost savings we started in June.
We have made good progress on the wide-ranging review we initiated in the summer. This has reinforced my belief Amec Foster Wheeler is a strong brand, with great potential. The review has also confirmed a number of challenges and highlights a range of new opportunities across our markets, as well as a significant and structural cost saving opportunity.
To offset the current market challenges, we need to do more to establish the full potential of these growth opportunities and the optimal configuration of our portfolio, and therefore the best actions to deliver the appropriate balance sheet and sustainable returns to our shareholders.
Operational and strategy review update
We have made good progress on improving the organisation structure and leadership team.
The new structure is designed to bring us closer to our customers, improve the consistency and cost-efficiency of project delivery, and sustainably reduce our overhead costs.
From 1 January 2017, we will replace our existing geographical reporting structure with four market-based business lines: Oil & Gas, Power, Mining and Environment & Infrastructure (E&I).
We are also creating a new “Exco” with 11 direct reports to the CEO, the majority of whom will be in new roles.
The detailed review of our business and our capabilities has identified multiple long-term opportunities to offset the current headwinds in traditional areas such as offshore greenfield oil & gas and mineable oil sands. More work is required to develop detailed plans on how to deliver their full potential.
We have made very good progress in identifying sustainable overhead cost reductions.
Our focus is on delayering management, removing overlapping functions, reducing indirect procurement and investing in new systems and processes that will increase efficiency. Actions taken to date include identifying around 650 surplus roles, closing offices and accelerating plans to outsource back office functions to low cost locations.
The combined impact of proposed investments and reduction in overheads means we are planning to take an additional £100m permanently out of our annual cost base. We expect these savings will have some impact on 2017 trading results, achieving their full run rate by 2019. More details on the timing and costs to achieve these savings will be provided along with the full year results.
We have made further progress on the review of our portfolio, and have identified additional assets and businesses which are now being evaluated as potential candidates for disposal. We will give a further update at the full year results.
We have not yet concluded our thinking on the right mix of investment and funding options which in aggregate will lead to an appropriate balance sheet and create a strong ongoing business.
Agreements in principle have been reached for three assets held for sale, with combined proceeds expected before the year end of around £100m.
We are now in talks to sell the core boiler business and the rest of GPG to separate buyers. We believe this is our best option to achieve an acceptable level of proceeds.
We continue to target £500m of disposals by June 2017.
Investor event update
As a result of the ongoing work in the wide-ranging review, the capital markets day planned for 15th November will now be held on 21st March 2017, along with the full year 2016 financial results.
Nine month trading update
In the nine months to the end of September 2016, revenue was up 3% at £4,110m (2015: £3,985m), and 3% lower on a like-for-like basis.
The order book stood at £6.1bn at the end of September, compared to £6.2bn at the half year.
Outlook for 2016/17
Since the last update, Sterling has continued to weaken against most of our operating currencies, providing a boost to reported numbers, and an equivalent increase in our net debt.
Including the £100m of disposal proceeds referred to above, and updating for recent Sterling weakness and further restructuring charges, forecast year-end net debt is now £1.1bn.
Overall, the Board’s expectations for our trading results for the full year 2016 are unchanged from the update we gave at the half year results in August.
Looking ahead to 2017, we continue to expect another year of Oil & Gas decline and for solar activity to reduce significantly from the record levels seen this year. This is expected to be offset by continued growth from E&I, a better performance from Mining and a significant contribution from cost savings.
This announcement contains inside information.