- Unaudited trading update for full year 2016 broadly in line with market expectations
- Review of organisational structure, cost base, strategy and financial position completed
- Recommended allshare combination with Wood Group
Unaudited full year trading update
Revenue in 2016 was £5,440m (2015: £5,455m), down 8% on a like for like basis, as a strong performance in solar and E&I was offset by continuing weakness in the oil and gas market.
Trading profit in 2016 was £318m (2015: £374m). Significant progress on our £100m overhead cost reduction programme in the fourth quarter was offset by ongoing challenging conditions in the oil and gas market and the impact of cost overruns on a fixed price US government contract in the Pacific in the E&I segment. Overall, trading margin was 5.8%, 110 basis points lower than 2015.
Adjusted diluted EPS for continuing operations was 50.4p (2015: 67.7p).
The order book at the end of December stood at £5.8bn, compared to £6.2bn at the half year. Since the year end we have seen a number of contract wins which have not been fully recorded in the order book, and which gives us confidence in the outlook.
Net debt at the end of December was £1,021m, benefitting from strong cash collection in Q4 and £70m of proceeds from the non-core disposal programme. Our net debt to adjusted EBITDA at the end of December 2016 stood at 3.3x. At the end of December 2016, our asbestos related liabilities net of insurance recoveries were £334m (2015: £296m), and our net pension liability was £137m (2015: assetof £63m).
Result of strategy review
Under the leadership of Jonathan Lewis, the Company initiated a wide-ranging review of its organisational structure, cost base, strategy and financial position. The initial conclusions of this review were announced in October 2016, including the reorganisation of the Company into four market-based business lines and a focus on delayering management, removing overlapping functions, reducing indirect procurement and investing in new systems and processes to increase efficiency and to enable the Company to reduce its cost base by £100m per annum by 2019. These savings would have achieved their full run rate by 2019. Wood has confirmed to the Company that the synergies announced by Wood as part of the proposed acquisition of Amec Foster Wheeler are separate to these cost savings.
The key findings of the review and the Company's new standalone strategy, which were due to be shared with shareholders on 21 March 2017, were as follows:
- Operational and financial focus: create greater operational and financial discipline through a reorganisation into four marketfacing business lines (as already announced), implementing a single set of operational procedures, enhanced management accountability and ensuring the Company benefits from the scale efficiencies that an organisation of its nature, diversified across markets, should provide;
- Customer focus: improve the Company's customer proposition, enhancing the Company's cost effectiveness and improving the technical and information technology capabilities it can offer to its customers; and
- Financial focus: greater focus on cash generation, principally through improved operational efficiency and lower exceptional costs, with the target of generating free cash flow on a sustainable basis.
In order to provide the Company with financial and operational flexibility to implement this strategy, the Board has been preparing to launch a rights issue of approximately £500m on 21 March 2017, and has decided to suspend dividend payments (including the final dividend for 2016) until the Company is generating sustainable free cash flow. In light of the transaction, the preparations for a rights issue have been suspended. With the proceeds of the planned disposal of the Company's nuclear business now expected in Q3 2017, to ensure continued compliance with its financial covenants, the Company is today initiating a process to increase the leverage covenant in its debt facilities to provide additional headroom prior to the measurement period ending 30 June 2017.
Full year results and investor event update
As a consequence of today's announcement by Wood of a recommended all share offer for the Company, we are no longer planning to release our full year results and host the investor event on 21 March 2017.
This trading update is unaudited and the figures contained in it are subject to amendments that may be required for events that occur after the date of this announcement but which provide further evidence of events that existed at the balance sheet date. The Company plans to release its audited results and publish its annual report and accounts before 30 April 2017.
Outlook for 2017
In 2017, we continue to expect another year of oil and gas decline and for solar activity to reduce significantly from the record levels in 2016. It is also expected that there will be a better performance from E&I and a further significant contribution from standalone overhead cost savings.
Recommended all-share combination with Wood
Earlier today, Wood announced a recommended all-share offer for the entire share capital of Amec Foster Wheeler. Full details of the proposed combination, including the background to and reasons for the Board's recommendation of the Wood offer, are contained in the separate offer announcement that has been published by Wood.
Since the arrival of Jonathan Lewis as CEO, the executive management team has made significant progress towards the transformation of the business. This has been achieved through cost reduction initiatives, the disposal of noncore assets and a reorganisation of the business. The Board have fully supported the revised strategy and the preparations to deliver the appropriate balance sheet to support its standalone prospects.
However, the Board believes that a combination with Wood adds to the standalone prospects of the Company, by accelerating the delivery of the future value inherent in the Amec Foster Wheeler business and, at the same time, helps to realise the full potential of each of Amec Foster Wheeler and Wood. The all-share structure of the offer allows our shareholders to benefit from the significant synergies and other strategic benefits that are expected to be realised from the combination. Amec Foster Wheeler will also be well represented on the Board of the enlarged group, with four of our directors joining Wood's board, including Roy Franklin, who will be appointed Deputy Chairman and Senior Independent Director.
This announcement contains inside information and has been approved for release by Alison Yapp, Chief General Counsel and Company Secretary.