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Exercise Of Option To Acquire Outstanding Shares In Spie And Trading Update

05 December 2002


AMEC plc, the international engineering services company, will today exercise its option to acquire the outstanding 54 per cent of shares in SPIE S.A. for a net cost of €270 million (£172 million) in cash (including costs), taking its holding to 100 per cent. The transaction will be financed from existing, long-term bank facilities.

The transaction requires EU regulatory and AMEC shareholder approvals, and an Extraordinary General Meeting is to be convened for 5 February 2003. A circular to shareholders containing a notice of meeting will be posted in mid January 2003 and, subject to approvals, completion is expected in early March 2003.

The acquisition is expected to be earnings enhancing in 2003 and will provide AMEC with greater access to important continental European and international markets. It is planned to continue to manage the combined business on the successful management philosophy and relationships established over the last five years.

Commenting today, Sir Peter Mason, Chief Executive, said: "Over the past five years our association with SPIE has outperformed our highest expectations. Now the time has come to bring together AMEC and SPIE to derive even greater benefits for shareholders, clients and employees alike. This acquisition completes the five-year transformation of AMEC into a truly international engineering services group. With leading market positions in infrastructure, oil and gas, transportation and other technical services areas, the combined AMEC and SPIE is well positioned for the future."

TRADING UPDATE
Within AMEC’s Operations Support Services businesses, oil and gas and rail maintenance activities are performing particularly well. Performance to-date in 2002 in the Branch Businesses (which amount to nearly 30 per cent of total group turnover with pro forma inclusion of SPIE at 100 per cent) is proving resilient. Consulting and Design services activity is also robust in the oil and gas, and pharmaceutical markets.

The slowdown in power generation, mining, and pulp and paper markets in North America referred to in AMEC’s interim results in August 2002 has persisted, with industrial clients taking a cautious approach in the current economic climate. Around 20 major projects for clients in the Americas and Europe, with an aggregate value to AMEC in excess of US$500 million, have now been deferred into 2003 or beyond. As a result, industrial Capital Projects activity slowed further in the fourth quarter.

Despite these more uncertain markets, AMEC continues to maintain its strict discipline of selectivity in Capital Projects. The company continues to reject projects with unacceptably low margins or high risks.

Order intake in the Services businesses is steady, although the Construction order book has reduced on the half year position of £2.0 billion to £1.8 billion. Having previously been announced as preferred bidder on projects including the Docklands Light Railway extension, A1(M) Motorway and the UK MoD Regional Prime contract, AMEC anticipates the award of formal contracts with an aggregate value to the company of some £500 million over the next few months. In addition, with significant front-end design contracts in hand for major projects including oil and gas developments in the Caspian and Sakhalin Island, the company expects growth in Capital Projects activity later in 2003 and 2004.

In the fourth quarter of 2002, AMEC has incurred additional costs of £6 million associated with a dispute with the US General Services Administration (“GSA”) stemming from contracts performed by Morse Diesel International Inc in the mid 1990s. The dispute remains unresolved, but AMEC hopes soon to reach an amicable settlement with the GSA.

Cash generation is following the normal seasonal pattern, with an inflow of cash in the second half of 2002.

Restructuring of AMEC’s regional businesses in the UK and Americas continues, with exceptional reorganisation costs in the second half of 2002 not expected to exceed £2 million. Following the sale or closure of a number of non-core or under-performing businesses in North America, AMEC is currently reviewing the carrying value of goodwill related to these businesses. Any adjustment to the carrying value is not expected to exceed £30 million.

In response to enquiries, AMEC wishes to clarify its position with respect to asbestos-related claims. Following an extensive review the company remains confident that, to its best knowledge and belief, its exposure to any such claims is insignificant.

OUTLOOK
AMEC’s order book is expected to benefit from several large contracts in the short-term. This, together with a healthy volume of tenders, a solid balance sheet and conservative accounting policies, leaves the company well positioned for the future.

AMEC’s major markets in oil and gas, rail and government infrastructure, (including PPP projects), remain robust and Operations Support activities continue to be resilient. Despite these strengths, the Board’s expectations for pre-tax profit (before goodwill amortisation and exceptional items) in 2002 have been reduced by around £15 million, primarily as a result of the impact on Capital Projects and Consulting and Design Services of the sharp slowdown in industrial sector investment.

Despite AMEC’s industrial clients generally planning for increased investment in 2003, the Board believes that timing for some of this is presently uncertain and is, therefore, for the time being, taking a cautious view of short-term prospects, particularly for Capital Projects. As a result, it has also reduced its overall expectations for next year and is presently assuming a pause in organic growth. Overall, however, AMEC expects to benefit significantly from the addition of SPIE in 2003. The Board anticipates a return to organic growth in 2004.

Following the acquisition of the outstanding shares in SPIE, AMEC will continue to pursue small strategic acquisitions in key market sectors in 2003.

Editors’ Notes:
In February 1997, AMEC acquired a 41.6 per cent stake in SPIE SA, the international electrical engineering, infrastructure and construction services company based in France for £25.1 million. The investment provided AMEC with access to France principally, but also to other continental European markets, through SPIE’s strong and growing services businesses. SPIE also provides important synergies with existing AMEC activities, particularly in railways, energy, oil and gas and pipelines. In January 2001, AMEC supported a rights issue and increased its holding to 46 per cent at a cost of £23.8 million.

Over the last five years, SPIE has enjoyed a period of sustained growth, with profit after tax rising from €17.7 million in 1997 to €49.5 million in 2001. SPIE reported audited profits before taxation of €70.6 million (£43.2 million) in the year ended 31 December 2001. Net assets at 31 December 2001 were €296.5 million (£181.4 million).

It is planned to continue to manage the combined business on the successful management philosophy and relationships established over the last five years. In addition, SPIE management will drive forward the newly combined AMEC/SPIE rail business, with annual turnover of over €600 million.

Together, AMEC and SPIE employ over 50,000 people in some 40 countries worldwide and generate a turnover in excess of £5.5 billion.

AMEC’s Branch Businesses comprise SPIE’s electrical and communications businesses in Europe and the Earth and Environmental business in the Americas, which together amount to nearly 30 per cent of total turnover with pro forma inclusion of SPIE at 100 per cent.

Following the acquisition the proportion of total operating profit (before goodwill amortisation, exceptional items, e-commerce and corporate costs) generated by AMEC’s Services activities is expected to increase to over 50 per cent, reflecting SPIE’s large Branch Business which supports clients throughout France and increasingly across continental Europe.