20-F 1 c88192_20-f.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 20-F

 

(Mark One)

oREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2016

 

OR

 

oTRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

oSHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report: .........

 

For the transition period from .......... to ..........

 

Commission file number 001-36723

 

AMEC FOSTER WHEELER PLC

(Exact name of Registrant as specified in its charter)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

Amec Foster Wheeler plc, Old Change House, 128 Queen Victoria Street

London EC4V 4BJ, United Kingdom

(Address of principal executive offices)

 

Alison Yapp

Chief General Counsel & Company Secretary

Amec Foster Wheeler plc, 1st Floor, Old Change House, 128 Queen Victoria Street

London EC4V 4BJ, United Kingdom

Tel +44 (0) 20 7429 7500

Fax +44 (0) 20 7429 7550

(Name, Telephone, E-mail and/or Facsimilie number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Name of each exchange on which registered
American Depositary Shares evidenced by American Depositary Receipts,
each American Depositary Share representing one ordinary share of Amec
Foster Wheeler plc
  New York Stock Exchange, Inc.
     
Ordinary shares, nominal value £0.50 per share*   New York Stock Exchange, Inc.*

 

 

 

*Not for trading, but only in connection with the listing of the American Depositary Shares on the New York Stock Exchange, Inc.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Ordinary shares 393,131,813

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

þ Yes o No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes þ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

þ Yes o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

 

þ Yes o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

 

Large accelerated filer  þ Accelerated filer   o   Non-accelerated filer  o

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP o International Financial Reporting Standards as issued by
the International Accounting Standards Board
þ Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

o Item 17 o Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

o Yes þ No

 

Amec Foster Wheeler plc

Annual report and accounts 2016

 

Welcome to Amec Foster Wheeler

 

 

Amec Foster Wheeler serves major corporations and government bodies in the oil, gas and chemicals, mining, power and process and environment and infrastructure markets.

 

Customers choose us because we help maximise the value of their assets by reducing the capital cost of construction and the lifetime cost of operation and maintenance. We do this through concept studies and design work, value engineering, consistent project delivery, developing innovative solutions and adopting technology to enhance efficiency.

 

We are a leading player in our markets and have a strong reputation for delivering and maintaining some of the world’s largest and most complex projects.

 

In March 2017, the board recommended an all share offer for the entire issued and to be issued share capital of the Company by John Wood Group. The board believes that a combination with John Wood Group will accelerate the delivery of the future value inherent in the Company.

Strategic report: overview
01 Performance highlights
02 Amec Foster Wheeler at a glance
06 Our business model
08 Chairman’s statement
09 Chief Executive Officer’s statement
   
Strategic report: strategic review
14 Our markets
16 Our strategy
22 Key performance indicators
24 Key contract wins and order book
25 People
28 Principal risks and uncertainties
33 Sustainability
   
Strategic report: performance review
34 Financial review
 
Governance
46 Chairman’s governance overview
47 Leadership and effectiveness
  47 Our board of directors
  50 Amec Foster Wheeler governance structure
  51 Board role and responsibilities
  52 Board composition
  53 The Chairman and Chief Executive Officer
  53 Senior Independent Director
  54 Non-executive Directors
  55 Board meetings
  56 Conflicts of interest
  57 Professional development
  58 Evaluation
  59 Nominations committee
  61 Our Executive committee
  63 Management committees
64 Accountability
  64 Risk management and internal control systems
  65 Audit committee
  70 Health, safety, security, environmental and ethics (HSSEE) committee
72 Remuneration
  72 Remuneration committee
  74 Directors’ remuneration report
89 Engagement
  89 Relations with shareholders
90 Directors’ report
93 Responsibility statements of the directors
   
Financials
94 Independent auditor’s report to the members of Amec Foster Wheeler plc
102 Report of independent registered public accounting firm on internal control over financial reporting
103 Report of independent registered public accounting firm
104 Consolidated income statement
105 Consolidated statement of comprehensive income
106 Consolidated balance sheet
107 Consolidated statement of changes in equity
110 Consolidated cash flow statement
112 Notes to the consolidated accounts
167 Company balance sheet
168 Company statement of changes in equity
169 Notes to the company accounts
   
Additional information
176 History and development
177 Risk factors
188 Performance measures
191 Prior year operating results
196 Information for shareholders
197 Other information
210 Cross reference to Form 20-F
212 Related undertakings
222 Five-year record (unaudited)
223 Glossary
224 Forward-looking statements
 

Performance highlights

 

 

Amec Foster Wheeler delivered resilient trading results for 2016. Despite continuing weakness in some key markets, we benefited from the diversity of our business, cost saving initiatives and the fall in sterling in the second half.

We have made good progress with our wide-ranging review of our strategy, organisational structure and cost base:

 

New leaner organisational structure introduced from 1 January 2017, focused on four market-facing business lines
   
Business line strategies refreshed, to focus on areas of greatest opportunity
   
Sustainable net cost reductions of £100m per year identified, with the full run rate reached by 2019
   
Progress made in delivering the non-core disposal programme
   

13 March 2017 announcement and offer from John Wood Group

The board has recommended an all share offer for the entire issued and to be issued share capital of the Company from John Wood Group, at an exchange ratio of 0.75 John Wood Group shares for each Amec Foster Wheeler share. Further details are available at www.amecfw.com/investors/offer-by-wood-group-plc

 

The offer from John Wood Group meant that the Company ceased preparation for a rights issue of approximately £500m designed to strengthen the balance sheet. We also announced our intention to suspend future dividends until the Company is generating sustainable free cash flow


 

 


 


 

Adjusted measures used by the Group, such as adjusted profit before tax and adjusted diluted EPS, are explained and reconciled to the equivalent IFRS measures in the section entitled Performance measures on pages 188 to 190.

 

Notes

1 Continuing operations.
   
2 Figures for 2012 have been restated to reflect the reclassification in 2013 of the UK conventional power business as a discontinued operation and the adoption of IAS 19 (Revised 2011) ‘Employee Benefits’.
3 Adjusted profit before tax represents profit before tax before exceptional items, the amortisation and impairment of intangible assets, asbestos-related costs and interest expense (net of insurance recoveries), and the Group’s share of tax on the results of joint ventures.
   
4 Adjusted diluted earnings per share represents profit for the year before exceptional items, the amortisation and impairment of intangible assets, asbestos-related costs and interest expense (net of insurance recoveries), and the tax effect of those items, divided by the diluted number of ordinary shares.


 

Amec Foster Wheeler
Annual report and accounts 2016
01
 

Amec Foster Wheeler at a glance

 

 

What we do

Our customers’ operations rely on their assets, ranging from oil platforms to power plants and mines. We help them maximise the value of these assets throughout their lifecycle.

We offer similar services in each of our markets and many of our capabilities are transferable across markets.

 

We deliver our services around the world through approximately 35,000 highly skilled people, including engineers, project managers, consultants and scientists. As a people-based business, our operating model is low risk and asset light (see pages 6 to 7).


 

 

 

02 Amec Foster Wheeler
Annual report and accounts 2016
 

 

 

 

 

 

 

 

 

   

Our business lines

Since 1 January 2017, we have organised our operations into four global market-facing business lines. This structure aligns our organisation with our customers, helping us to meet their needs more effectively and efficiently.

 

 
         

Oil, Gas & Chemicals

The Oil, Gas & Chemicals value chain has three segments: upstream, which involves exploration and production; midstream, which includes transportation and natural gas processing; and downstream, which is mainly the refining and petrochemical industries.

 

We operate in every part of the project delivery phase of this value chain, except early cycle exploration and drilling.

 

The majority of our upstream activity is currently in conventional oil and gas fields, in particular offshore oil facilities, providing feasibility studies, front-end engineering design, detailed engineering, project management, hook up and commissioning, and asset support services.

 

In midstream, we support assets focused on storage and transport for both onshore and offshore facilities, as well as gas monetisation projects. For downstream customers, we focus on refinery projects and chemicals.

 

We serve a broad range of customers, including international oil companies, national oil companies and independent operators in Europe, the Americas, the Middle East, Africa, the Caspian, Southeast Asia and China.

 

 

Mining

We provide mining consultancy (including ore resource estimation, mine planning and feasibility studies), design, and project and construction management services to a range of mining companies, primarily in the Americas and Africa.

 

The Mining business is intentionally diversified and we have developed technical capabilities in a range of commodities, which differentiate us from our competitors. We have a strong position in the recent growth commodities of potash, gold and lithium, among others.

 

The breadth of our capabilities allows us to respond to growing demand for a particular commodity and to mitigate the impact of market volatility and changing customer focus.

 

Terra Nova Technologies is a project group within the Mining business that designs and builds material handling solutions, such as high speed conveyor belts and crushing plants, for new and existing mines.

 

 

Power & Process

In renewables, our focus is on delivering customer projects, primarily for local utilities. We provide a full-service engineering, procurement and construction solution for wind, solar, biomass and biofuels projects. US solar is our primary market in Power.

 

Within the conventional power market, we work with utilities to upgrade and modify their existing assets, often in relation to environmental or regulatory compliance requirements, by providing consulting and engineering services, as well as project delivery solutions.

 

We also have an extensive track record of serving a broad range of industrial customers, such as the pulp and paper industry, with their process, steam and power needs. We provide them with consulting and engineering services, as well as project delivery solutions.

 

 

Environment & Infrastructure

Our Environment & Infrastructure business focuses on environmental consulting, engineering design and programme and construction management.

 

We offer complete solutions to public and private-sector customers worldwide. Our customers benefit from experts with a broad understanding of local conditions, coupled with easy access to world-renowned technical expertise.

 

By positioning ourselves as a trusted partner at the beginning of a project – often the early site development and permitting stage – we can deliver comprehensive solutions across the lifecycle of our customers’ assets.

 

Our Environment & Infrastructure business consists of the following sectors: water; transportation; civil infrastructure; government; and industrial and pharmaceutical.

 

Customers include the US Federal Government, which is the largest procurer of environmental services in the world.

 


 

Amec Foster Wheeler
Annual report and accounts 2016
03
 

Amec Foster Wheeler at a glance continued

 

 

 

Total revenue 2016  
£5.4bn  

Legacy reporting

For the year ended 31 December 2016, our business was organised into four business units. Three had geographical remits, namely the Americas; Northern Europe and the Commonwealth of Independent States; and Asia, Middle East, Africa and Southern Europe. The fourth business unit, the Global Power Group, had a global remit. Descriptions of these business units, and how each performed during 2016, can be found in the Financial Review on pages 34 to 45.

 

Investment Services

In addition to the business units described above, Investment Services manages the Company’s non-core and legacy assets and liabilities. These now include the European Transmission and Distribution operations and two wind farms in Northern Europe.


 

Where we operate

Amec Foster Wheeler operates in more than 55 countries and is headquartered in London, UK.

 

 

 

Employees 2016                        
35k  

 

04 Amec Foster Wheeler
Annual report and accounts 2016
 

 

The customers we serve

We work for a wide range of customers, from blue-chip companies to national and local governments. Our major customers include:

     
BP   K&S Potash Canada
ConocoPhillips   KOC
Dominion   Kuwait National Petroleum Co
Duke Energy   National Grid
Enel Green Power   Petra Diamonds
Engie   Repsol Sinopec
Enterprise Products Operating LLC   Sempra
ExxonMobil   Southern Company
Georgia Pacific   US Army Corps of Engineers
Hyundai   ZADCO

 

 

 

Order book  
£5.8bn  

Disposal programme

Over the past 12 months, the board has decided to dispose of a number of non-core businesses and assets, including:

 

Our Global Power Group (GPG), which offers a full range of steam generator equipment, clean air technologies, aftermarket products and services to the power, industrial, and waste-to-energy sectors
   
  The sale of GPG, originally announced in March 2016, has taken longer than expected. In November 2016, we decided to split GPG and pursue a plan to sell the parts to different parties. The disposal of the major part, the circulating fluidised bed (CFB) boiler business, to Sumitomo Heavy Industries, Ltd. for £137m, is expected to close in June 2017. We anticipate selling further parts of GPG before the end of 2017. The aftermarket sales business is being retained as part of Power & Process.
   
Our Australian-based specialist consultancy, Aquenta Consulting, which provides cost, risk, project management and asset optimisation services to a broad range of customers, mainly in the property and infrastructure space. The sale of Aquenta to Jacobs Group (Australia) Pty Ltd for £21m closed in early 2017
   
Our equity interests in three infrastructure assets.
These are PetroPower, a waste-to-energy project in Chile; Amec Foster Wheeler Power, which operates two wind farms in Italy; and the Incheon Bridge in South Korea. Subject to final completion, these are expected to realise proceeds totalling £88m
   
Our nuclear business, which supports the full lifecycle of nuclear energy and has experience of a wide range of nuclear technology. Its customers include major utilities, governments, national regulators, reactor suppliers and other significant stakeholders. The sale process is continuing and we are on target to sell the business in the third quarter of 2017


 

 


 

 

Amec Foster Wheeler
Annual report and accounts 2016
05
 

Our business model

 

We follow a three-stage process for winning and delivering work. This draws on our distinct competitive advantages, to enable us to compete effectively and create value.

 

Identify

The first stage in our process is to identify prospective projects.

 

  1

Business Development (BD) is embedded in each of our four business lines to locate it as close as possible to our customers. Each BD team ensures we have a fundamental understanding of our markets and our customers’ needs. This enables the BD teams to create strategic plans aligned to our strategy and the business lines’ overall market strategy.

 

In addition to the prospects we identify, we also learn about projects through invitations to tender. We assess all prospects based on our positioning and capabilities, commercial considerations and their alignment with our strategy. BD then pursues suitable prospects. This stage includes early identification of our execution strategy, the resources required and our capacity to deliver. Our assurance process makes sure we only pursue the most appropriate targets.

 

 

The strength of our long-term customer relationships is a crucial advantage for us, helping us to understand their needs, learn about upcoming projects and win repeat business. Relationships with global key accounts are overseen by key account managers within the relevant business line’s BD team to ensure they have appropriate visibility and we take a consistent approach. Our brand and reputation for delivery are also crucial, helping us to attract new customers.

 

In addition, our Environment & Infrastructure (E&I) business line is an important enabler for us. Its involvement in the earliest stages of proposed projects, for example during permitting and environmental impact analysis, helps us to identify opportunities ahead of our competitors. We therefore embed E&I resources into the other three business lines.

 

       

Acquire

The second stage is to acquire the projects we want to win.

 

  2

The BD teams coordinate the preparation of our proposals, along with the technical, project delivery and commercial teams. This includes aligning our strengths to customer needs to differentiate our proposal against competitors. To benefit from the breadth of our business, we collaborate across business lines, capabilities and geographies to offer customers the best and most competitive solution, sharing expertise and key resource from around the Company. We draw on our ability to create innovative solutions for our customers and, where required, look to develop innovative commercial models.

 

A gated review process ensures we test our proposals at critical points and only progress those that continue to meet our criteria. During the Acquire stage we review our execution strategy and ensure we have identified the project risks and put plans in place to mitigate them. This plays a vital role in ensuring that we win projects with the greatest possible opportunity

 

 

for success, maximising the value we generate from our resources and addressing risks that are part of contracting in our industry.

 

We use a detailed workflow system which addresses the risks associated with tenders (for both lump sum and reimbursable contracts) in areas such as technical challenges, financial and pricing terms, and joint venture and partner risks, as well as a full range of governance issues, such as human rights, safety and environmental risks.

 

All very large contracts, and those where any exception has been flagged in the approval system, are raised through the governance framework to a final decision at the Tender Review Committee, which is attended by the Chief Executive Officer and Chief Financial Officer.

 

Once all aspects of the bid have been reviewed and approved, we submit the bid, negotiate with the customer and secure the work.

 

       

Deliver

The third stage is to deliver excellence to our customers. This means consistently delivering projects and services that meet our customers’ expectations, safely, on time and to budget.

 

  3

Having won the project, we finalise our execution plan and mobilise the people who will deliver it. Delivering a project requires us to put together teams of people who match the precise needs of the project and the customer. Thus, we expect to recruit thousands of people each year, with others leaving us when their projects complete. However, the breadth of our business reduces our need to recruit, since many skills are transferable across our markets. This means we are often able to redeploy people from areas of reducing demand to parts of the business where demand is rising, ensuring we retain their knowledge and experience.

 

Through the strength of our peoples’ delivery, we create the long-term customer relationships and reputation for excellence on which our business depends. Standard processes support consistent delivery across the Company. We incentivise our people to deliver, offering financial recognition through meeting individual objectives, as well as personal recognition and career development. We invest in both technical and leadership training to maintain the pipeline of talented people we need.

 

 

During the delivery phase, we monitor customer satisfaction with our work. Global and local account managers are responsible for account planning and co-ordinating the customer relationship. A project director is responsible for the delivery of our work, in line with our contract and the customers’ expectations. The director leads and manages the project team, with responsibility for running the project on a day-to-day basis.

 

Technical functions – Engineering & Technical, Supply Chain & Procurement, Construction & Commissioning and Project Management & Controls – work with the project teams to ensure project work matches the standards we expect. These technical functions are embedded in the business lines, giving them technical expertise and oversight aligned to the needs of each business line, and driving consistency and predictability of outcomes. Common systems help us to deliver work consistently and share work across offices and time zones.

 

         
06 Amec Foster Wheeler
Annual report and accounts 2016
 

 

 

A low risk, capital light model

The breadth of our market and customer exposure gives us access to more opportunities and reduces the impact of lower levels of activity in any one market. This diversity of our business reduces risk. The footprint established by one business line also provides a springboard for our other business lines in that country or region. Our breadth means our work is spread across a large customer base, through more than 10,000 contracts each year. Our top ten customers accounted for 34% of revenue in 2016.

 

We also have a diversified service offering which partially offsets the cyclical nature of our customers’ capital expenditure plans and reduces our dependence on any one part of the energy mix.

 

Our services can be provided through long-term contracts, giving us the opportunity to provide critical services in partnership with our customers. Many of these contracts have been renewed several times. As a result, our order book is balanced between capex and opex-related work.

 

The majority of contracts reimburse us for our people’s time and materials. We often also receive additional payments by achieving performance targets. In certain circumstances where we are confident of the project requirements, we take on fixed-price work.

 

We have a capital light model. We are a people-based business and do not own significant amounts of equipment. Our profit margin and trading cash conversion reflect the quality of our project delivery.

Our competitive advantages

We believe we have a number of important competitive advantages, in particular:

 

The strength of our brand and the reputation of our people, which help us to deliver excellent work and attract new customers
   
Our long-term customer relationships, which help us to position for new projects and win a high proportion of repeat business
   
Our E&I business, which is involved in the earliest stage of projects and helps to identify opportunities for our other business lines
   
Our ability to create innovative solutions and commercial models, which differentiate our propositions
   
The diversity of our business, as a broad market exposure and service offering reduces risk and opens up more opportunities


 

 
     
 


 

Amec Foster Wheeler
Annual report and accounts 2016
07
 

Chairman’s statement

 

John Connolly

Chairman

 

 

2016 was a year of considerable change for Amec Foster Wheeler and we made very good progress in developing our plans to position the Company for the future. We have also made an encouraging start to implementing these changes.

 

The year began with Samir Brikho’s departure as Chief Executive Officer on 17 January, as I described in my statement in the 2015 annual report. Ian McHoul stepped in to be interim Chief Executive Officer and the board began the search for a permanent replacement. After a thorough selection process, we were delighted to appoint Dr Jonathan (Jon) Lewis, who joined us on 1 June. Jon has 30 years’ experience in the oil and gas industry, including 20 years as a senior executive at Halliburton. He has a track record of safe and ethical operations, market insight, strong leadership as well as commercial discipline. These qualities are already proving highly valuable to your Company.

 

Jon started with a review of the Company’s strategy, organisation and cost base, after which he launched a comprehensive transformation programme to fundamentally improve the performance and growth of the Company. More details on this programme can be found in his statement on the following pages. The board believed that a greater focus on operational performance, cost and delivering excellence for customers was a necessary first step to putting Amec Foster Wheeler back on the path to growth.

 

A critical part of securing the Company’s future was to ensure it has the financial strength and flexibility it needs. At the time of acquiring Foster Wheeler in 2014, the Company believed it would generate sufficient cash to significantly reduce its net debt. The downturn in the oil price and the general decline in the sector however contributed to a combination of lower cash and profit generation that resulted in gearing (calculated as the ratio of net debt to EBITDA) of 3.3 at 31 December 2016.

 

In order to provide the Company with financial and operational flexibility to implement its new strategy and to strengthen the balance sheet, the board was preparing to launch a rights issue of approximately £500m on 21 March 2017, as well as continuing the programme of disposals 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 offer from John Wood Group referred to below, the preparations for the rights issue were suspended. The Company has increased its leverage ratio covenant within its debt facilities to provide additional headroom. Good progress has been made on the non-core asset disposal programme and the board launched a process to sell the Company’s nuclear operations in December 2016 which is expected to conclude in Q3, 2017.

Your Company’s performance

The Company delivered a resilient trading performance in the face of tough market conditions, especially in oil and gas and mining. Our trading profit1 in 2016 was £318m, down 15% from the £374m we achieved in 2015, but in line with our expectations for the year.

 

In August, the board declared an interim dividend of 7.4p per share, which was paid in January 2017. This was half the 14.8p per share paid for the same period in 2015, which is in line with the board’s guidance from the end of 2015. As indicated above, the board has not recommended a final dividend in respect of 2016.

 

Offer from John Wood Group

In March 2017, the board recommended an all-share offer for the entire issued and to be issued share capital of the Company from John Wood Group. Whilst Amec Foster Wheeler, under the leadership of Jon Lewis, has developed a comprehensive strategy and transformation programme to deliver the appropriate balance sheet to support its standalone prospects, the board believes that a combination with John Wood Group will accelerate the delivery of the future value inherent in the Company and help to realise the full potential of both companies.

 

The offer will allow our shareholders to benefit from the significant synergies and other strategic benefits which are expected to be realised from the enlarged group.

 

Your board

Following Jon Lewis’ appointment as Chief Executive Officer, Ian McHoul ceased to be interim Chief Executive Officer and remained as Chief Financial Officer.

 

Neil Carson retired from the board on 31 December 2016, after six years as a non-executive director. In addition, Kent Masters, who was appointed as non-executive director on 13 February 2015, will step down following the conclusion of the AGM. I want to thank both Neil and Kent for their considerable contribution during their time on the board. Colin Day replaced Neil as your Senior Independent Director. Roy Franklin was appointed as Chairman of the Remuneration Committee and also joined the Audit Committee. Bob Card was appointed a non-executive director on 1 March 2017 for an initial term of three years, which will end at the 2020 AGM.

 

Conclusion

Jon Lewis and his senior team have made substantial progress towards the transformation of the business and I want to thank them and all of our employees for their hard work during a challenging year. The board believes that combining with John Wood Group will accelerate the delivery of the results from the transformation programme and allow shareholders to benefit from the synergies which are expected of the enlarged group.

 

John Connolly

Chairman
25 April 2017

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190)


 

08 Amec Foster Wheeler
Annual report and accounts 2016
 

Chief Executive Officer’s statement

 

Jon Lewis

Chief Executive Officer

 

 

 

 

Adjusted diluted EPS1 for 2016

50.4p

 

 

 

Order book

£5.8bn

 

 

Amec Foster Wheeler has many strengths, including the quality of its people, its brand and reputation and the truly impressive core consulting and engineering it offers its customers. However, when I joined last June, it was immediately apparent to me that significant change was required. The Company needed to win more business, reduce its debt and cost base, and refresh its strategy. Most importantly of all, we needed to generate sustainable free cash flow again.

 

We have seen material declines in natural resources markets over recent years and conditions in these markets remain challenging. The oil and gas market is currently oversupplied and customers are curtailing their upstream capital investment, focusing on the most cost-effective resources. Industry forecasts show upstream capex only growing moderately in 2017, with a strong outlook for onshore unconventional plays in the US and a weaker outlook for the rest of the world. Estimates of 2017 capex in mining are equivalent to the spend in 2007.

 

In these conditions, doing nothing was not an option.

We therefore approached our task with a real sense of urgency, launching our Company-wide transformation programme in August 2016.

 

Strengthening the balance sheet

The purpose of the transformation programme is to strengthen the balance sheet and put Amec Foster Wheeler on a sustainable growth trajectory.

 

As part of the programme, we are continuing to dispose of our non-core assets. The disposal of the major part of the GPG, the circulating fluidised bed boiler business, is now expected to close in June 2017. We have completed the sale of a number of smaller assets and announced the disposal of our nuclear business. We also have agreements to sell three infrastructure assets.

 

As the Chairman has outlined in his statement, we were close to launching a rights issue and had decided to suspend the dividend until we are generating sustainable free cash flow when the offer from John Wood Group was announced.

 

Offer from John Wood Group

The proposed combination with John Wood Group means that a rights issue is no longer necessary and we expect our shareholders to benefit from John Wood Group’s progressive dividend payments.

 

The combination with John Wood Group adds to the standalone prospects of the Company and will allow our shareholders to benefit from significant cost synergies.

 

 

   
 

1 Non-IFRS measure (see Performance measures on pages 188 to 190)

 

Amec Foster Wheeler
Annual report and accounts 2016
09

 

 

 

Chief Executive Officer’s statement continued

 

Adapting the business model and delivering excellence

While we have faced tough markets, it is also clear that many of our other challenges can be rectified through the improvement of our practices and procedures in order to increase performance. Delivering excellence is a key theme of our work. We need to be consistent around the world and share best practice across the business. We also need to ensure there is accountability, discipline and operational control.

 

We must be more cost effective, so we never lose work on price alone. This includes making greater use of our Indian engineering operations and sharing work between offices more effectively. We also identified that we need to be more customer-centric, so that rather than going to customers with what we want to sell, we identify the value proposition and pitch for work based on what the customer is looking for. Innovation and technology also have an important part to play, both in enhancing our offering to customers and improving our own efficiency and effectiveness.

 

The new organisational structure is an important step towards achieving these goals. By focusing on our four markets, we are much more aligned to our customers’ needs and better positioned to ensure global consistency in delivering projects and solutions. Business Development, which has been underinvested in the past, is now embedded in our business lines, locating it as close as possible to the customer.

 

Simplifying our business and moving away from the previous semi-autonomous geographical model will help us to share innovation and best practice around the Company. For example, our highly effective More4Less value engineering approach (developed for the North Sea market) gives customers a real solution for reducing their capex and opex, sometimes by as much as 40%. However, we have not effectively internationalised it. The global business lines model holds the leadership of each line accountable for penetrating all of their markets around the world.

 

Our new organisation is also considerably leaner, removing multiple levels of management and duplication of functions, so we are more competitive and better able to bid and win work. We have removed around 650 overhead management roles which will leave us with no more than two layers between me and our projects. The introduction of our new operating model is bringing more operational rigour to the business, with a single set of policies, procedures and systems. The Company currently has numerous back office IT systems which add unnecessary complexity to our operations. We are continuing to invest in our Human Resources planning software where the business case for this investment is compelling, as it will streamline our operations and drive best practice. We have decided to put on hold our planned investment in new enterprise resource planning (ERP) software pending the completion of the offer from John Wood Group.

 

Investment in our functions is another key element of our new structure. We have created four new technical functions which are common across our business lines – Engineering & Technical, Supply Chain & Procurement, Construction & Commissioning and Project Management & Controls. These functions are embedded in the business lines,

 

 

 

The global business lines model holds the leadership of each line accountable for penetrating all their markets around the world.

 

 

 

 

 

 

 

 

 

 

 

Notwithstanding current market conditions, we see long-term growth potential in each of the four markets we serve.

 


 

 

10 Amec Foster Wheeler
Annual report and accounts 2016

 

so they can provide the right support and oversight in each market while driving consistent and predictable outcomes. Business functions such as Finance and HR also now have a direct reporting line into the same functions at Company level. The goal is to drive standardisation and common policies and procedures, and ensure they are embraced across the organisation.

 

In creating our new structure, we have identified in excess of £100m of cost that we can sustainably remove from our overheads. After investing in more efficient tools, processes and systems, this will result in a benefit of £100m to our bottom line each year. We expect a good proportion of these savings to come through in 2017, with the full run rate achieved by 2019.

 

Maximising opportunities

Notwithstanding current market conditions, we see long-term growth potential in each of the four markets we serve. We have refreshed our business line strategies to focus on the areas with the greatest opportunity.

 

An important part of this will be expanding our role on projects, making it routine that we pull through more services than just the original contract scope. We aim to increase our exposure to opex and mature assets and have a globally balanced portfolio of contracts, with a mix of greenfield and opex. Our ability to differentiate ourselves through innovative solutions and sharing best practice, whilst remaining cost competitive, will be key.

 

Creating partnerships will also help us to share risk and enter new markets. For example, we are talking to manufacturers of specialist equipment with a view to providing a joint offering that combines their technology with our capabilities in installation, operations and maintenance.

 

The changes we are making to our short-term incentive plans will reward the behaviours we need to deliver our transformation dependent on delivery of financial and non-financial metrics as well as individual targets.

 

Building Responsibly

The diversity and complexity of our projects across our markets and value chain means that we can encounter degrees of risk relating to modern slavery. In December 2016, we published our first Slavery and Human Traffic statement, as we have a responsibility to ensure that our own employees, together with the workers in our value chain, are not victims of slavery; whether it is human trafficking or forced and bonded labour. The publishing of our statement sets out the baseline from which we can continue to drive awareness and implement a programme of continuous improvement to help tackle this issue.

 

Building upon our commitment to deliver projects and operations safely in the countries we operate in, I am proud that Amec Foster Wheeler was one of the six founding companies within the engineering and construction sector for the Building Responsibly initiative. The initiative seeks to develop and share best practice, as well as agree on common approaches and standards to respect rights and improve the welfare of workers within their operations. We have included a key performance indicator on page 23 which recognises the importance of this issue for the Company.

 

People and culture

As a people-based business, attracting, developing and retaining key talent is at the heart of everything we do. We want Amec Foster Wheeler to be known as ‘the place to work’, where we celebrate talent, innovation, success and diversity, and reward and provide career advancement based on contribution and performance.

 

I believe that businesses with engaged employees perform better, so it is vitally important that we understand the views of our people. In recent months, we have undertaken several surveys to ascertain their views, helping us to design our new organisational model.

 

Our plans for the Company can only succeed if we have the right culture. The People section on page 25 describes the culture we are instilling as a central part of our transformation programme, in conjunction with significant improvements to staff communications.

 

2016 performance

Given the conditions in natural resources end markets, our 2016 trading performance was robust, as we benefited from the breadth of our diverse business – especially the record performance from solar, cost saving actions and the fall in sterling in the second half of the year. We delivered a trading profit1 of £318m (2015: £374m) on revenues of £5,440m (2015: £5,455m), resulting in a trading margin of 5.8%. This contributed to adjusted diluted earnings per share1 of 50.4p (2015: 67.7p). Net debt increased from £946m to £1,021m at 31 December 2016. More information on our financial performance can be found in the Financial Review on pages 34 to 45.

 

We continued to win a wide range of work across our markets. Details of selected contract wins announced in the year and a breakdown of our year-end order book can be found on page 24.

 

Outlook

We made a solid start to our transformation programme in the second half of 2016.

 

2017 will be a year when we embed these changes within Amec Foster Wheeler. Standard policies, procedures and systems across the Company will help us to better serve our customers. In addition, we will continue with the non-core asset disposal programme.

 

We continue to expect another year of oil and gas decline in 2017 and for solar activity to reduce significantly from the record levels seen in 2016. It is also expected that there will be a better performance from environment and infrastructure and a further significant contribution from standalone overhead cost savings.

 

This year, we will continue to leverage the outstanding technical expertise of our people to best serve our customers and deliver projects safely across all the markets in which we operate. This and the improvements we have made to the business will ensure we continue to make significant progress in 2017.

 

 

 

Jon Lewis

Chief Executive Officer

25 April 2017

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190)

 


 

Amec Foster Wheeler
Annual report and accounts 2016
11

 

 

 

 

Our markets

 

Our competitive environment

 We face robust competition from a wide range of companies in each of our markets. However, there is no one competitor operating in all the same markets, with the same geographic footprint and with a similar approach to risk as Amec Foster Wheeler.

 

Oil, Gas & Chemicals

Spending in the Oil, Gas & Chemicals market, and capex in particular, is heavily influenced by oil and gas prices and their respective outlooks. This has had a significant effect on our markets.

 

In the last quarter of 2014, oil prices fell from around $100 per barrel to below $50, largely because the Organisation of the Petroleum Exporting Countries ended its policy of managing output and decided to focus on maintaining market share, to curtail the growth of shale production in North America.

 

Upstream spending fell sharply in the aftermath. While global exploration and production spending hit an all-time high of $780 billion in 2014, investment was cut by $200 billion in 2015 and by a further $140 billion in 2016, representing a 44% reduction from 2014. Discretionary spending was swiftly withdrawn from North American unconventional fields and exploration, and cuts have spread to all resources and almost all geographies over the last two years. New investment in conventional greenfield projects virtually ceased. Upstream capex is expected to resume growth in 2017, but at a modest single-digit rate, and to be concentrated mainly in US shale projects. Opex has proven more resilient, declining by a single digit percentage each year between 2014 and 2016, and is expected to hit a low in 2017 before returning to growth.

 

Constrained exploration and production spending since 2014 has had a material impact on existing production and the timely development of new production to mitigate the natural decline of well productivity. According to the International Energy Agency (IEA), a supply gap of 15.9 million barrels per day will exist in 2025 which will need to be met by new, as yet unapproved, conventional crude oil projects.

 

The IEA expects that upstream oil and gas spending will grow between 2016 and 2040 to total over $17 trillion, averaging $700 billion per year, thus reversing the recent decline. Of the $17 trillion total investment, North America accounts for 25%, the Middle East 15% and Asia 12%.

 

Historically, upstream capital costs have moved in-line with oil prices. However, the IEA highlights that over the next few years, capital costs will only grow marginally. According to the IEA, this dislocation is not permanent and, in the long run, once the excess supply of labour and equipment is eliminated, upstream capital costs are expected to revert to moving in tandem with oil prices.

 

Investment in refining is driven by growth in demand for refined products, which is forecast to reach 0.4% globally, but with regional variations. Other factors include tightening environmental regulations (both for refined products and the refining installations themselves) and feedstock changes. In mature markets, refiners continue to delay major capital investments in favour of smaller and lower-risk refurbishments and upgrades, while capacity additions are concentrated in high-demand growth regions such as Asia and the Middle East.

 

Capex in refining is expected to return to growth, following two years of decline during which integrated oil companies curtailed both upstream and downstream investments. Longer term, the IEA expects over $1 trillion to be invested in the refining space between 2015 and 2040, with non-OECD countries accounting for 71% of the investment, and an additional 16 million barrels per day of new refining capacity being built over that timeframe.

 

Capex in the chemical sector is set to further expand, as companies take advantage of comparatively low oil and gas prices and increasing demand. Frost & Sullivan expects petrochemical demand to be strong in developing nations, with 8% growth annually in India and 6.1% in China until 2020. China, the United States and Saudi Arabia are expected to lead new capacity development, with $160 billion of announced project capital expenditure up to 2020 in the United States alone. Saudi Arabia will also spearhead investment in the sector, as it seeks to transform its economy and generate more value-added products from each barrel of oil.

 

 

Market split

5%

     

 

Market split

41%

 

 

14 Amec Foster Wheeler
Annual report and accounts 2016

 

 

Mining

In mining, forecasts from the major mining firms suggest that expansionary capex around the world has reached the low point in the cycle for some commodities. Significant investment in the period to 2012 led to oversupply of many commodities, such as iron ore, driving down prices and resulting in a sharp contraction in capex. As a result, announced capex spend in 2017 and 2018 is expected to be similar to actual spend in 2007.

 

However, the price outlook for some products, such as gold, lithium and copper, is more positive. Our long-standing reputation for front end consulting, our strong technical skills and asset-light model means we can adapt to changing activity levels in different commodities. In the near term, these metals and minerals are likely to make up the majority of our workload. This has the potential to drive growth in our mining revenues beyond 2017, as our customers seek to take selective advantage of a more beneficial pricing environment.

 

Power & Process

The North American energy market is the key driver in Power & Process. Net demand for electricity is expected to grow at around 1% a year over the next 10 years. By 2040, approximately a quarter of the current installed base of generating capacity will need to be retired. The combination of steadily rising demand and the closing of significant existing capacity means there is robust requirement for power infrastructure spend, which is forecast at more than US$500bn over the next decade.

 

Generating capacity additions are expected in solar, wind, thermal upgrades and gas over the forecast period, although levels of activity for each type of generation vary over time. The spend and mix by generation type is sensitive to the availability of subsidies, changes in regulation and other factors,

 

such as the price of natural gas. For example, at the end of 2015 tax credits for commercial solar installations in the US were extended by a further three years to 2019, after which they will wind down from 30% to reach 10% from 2022 onwards. These credits had been expected to finish at the end of 2016, resulting in projects being brought forward before the extension was agreed and helping us to deliver a record year in 2016. We expect demand will fall in the short term, before recovering later this decade.

 

The abundant supply of gas, as well as shale oil, in North America is also improving the competitiveness of US-based industry by lowering energy, hydrocarbon feedstock and logistics costs. This is forecast to increase demand for industrial power and steam generation.

 

Environment & Infrastructure

The environment and infrastructure markets have shown steady growth in recent years and this is forecast to continue.

 

Environmental consulting spend worldwide is predicted to grow at around 2% a year from 2015 to 2020, double the rate in the preceding five years. In addition, many countries have an urgent need to upgrade their critical infrastructure, particularly in areas such as transport. In North America, for example, transport capex is forecast to grow at 3% per annum in the five years to 2020, with investment in roads making up the vast majority of this spend. Globally, the infrastructure market is expected to grow even more quickly than this, with a forecast growth rate of 4% to 7% a year to 2025.

 

     

Market split

17%

         
         

Market split

26%

   

GPG and Investment Services
make up the remaining 11%
of our markets

 


 

Amec Foster Wheeler
Annual report and accounts 2016
15

 

Our strategy

 

Background to our strategy

 

 

16 Amec Foster Wheeler
Annual report and accounts 2016

 

Our strategic priorities

 

1. We will continue our evolution into a customer-centric, multi-sector consulting, engineering and construction company, making resource allocation decisions across the business lines to benefit from the most attractive growth prospects.

The strategy review has highlighted numerous attractive end markets, where we can provide customers with consulting, engineering and construction services. Our new operating model, with a single set of processes for project delivery, will enable us to make consistent resource allocation decisions, enabling us to take better advantage of the most attractive growth opportunities.

 

There is also an opportunity to increase the scope of services that we provide to our customers, so we capture a greater share of each project, provide more value to the customer and potentially generate further work.

 

The more detailed business line strategies underpinning this priority are described on pages 18 to 19.

 

 

5. We will invest in information technology to differentiate our project delivery capabilities and to help us enhance the management of our customers’ assets.

We plan to create value from our use of technology, starting with two initiatives in Oil, Gas & Chemicals which we will then apply elsewhere across the Company. First, we are building on our existing portfolio of process technologies, including with third-party license owners where we are the exclusive implementation partner. Second, we are developing information, data and data acquisition technologies to identify and deliver step changes in efficiency and productivity across our operations. We will use this to automate and accelerate our design, construction and asset support services to customers. We are also working in partnership with our customers and other innovators from the technology sector to develop new solutions designed to deliver superior outcomes for our customers and their assets. This will help us to continue to differentiate our customer offering and be better positioned to win new projects.

 

2. We will enhance our value-based engineering offering, helping customers to ensure their projects are economically viable.

We are building on our track record and knowledge to strengthen our value-based engineering offering. By working in partnership with our customers, we will look to create solutions that make our customers’ projects more cost effective, so they remain economically viable. By helping our customers to achieve their objectives, we will be better positioned to capture further work.

 
 

6. We will improve the engagement of our people and focus on attracting, developing and retaining the best talent globally

People are our principal asset and we need to ensure we have the right culture for them to succeed. More information about the culture we are looking to create, our investment in talent and our approach to diversity and inclusion can be found in the People section on page 25.

3. Through our lean operating model and leveraging our Indian operations, we will ensure we are cost competitive and better able to bid and win.

Innovative approaches to reducing the cost of delivering our services to customers, such as More4Less, show that we can align our skills and capabilities with a strong value proposition for customers. We can also enhance our proposition by leveraging engineering in India, where operating costs are lower than in many places in the western hemisphere. We will therefore embed these lower costs and roll out innovations across our end markets. This will reduce the cost to serve our customers, potentially increasing our trading margin and better positioning us to win new business.

 

 

7. We will enhance our focus on cash generation; eliminating unnecessary expenditure and increasing efficiency and scalability of necessary costs.

Our programme to reduce overhead costs by a net £100m and our focus on running a lean operating model will improve our cost effectiveness. In addition, we are taking measures to minimise cash outflows, including tighter control of working capital.

4. We will invest in excellence in our technical and business functions, drive standardisation and follow common policies and procedures throughout the Company.

As discussed in the Chief Executive Officer’s statement on page 10, we have created four new technical functions and given our business functions direct reporting lines into the same functions at Company level. This will drive standardisation, reduce our operating costs, simplify governance and minimise the variance in project performance, helping us to generate more consistent financial returns.

 

8. To strengthen the balance sheet, ensuring a stable financial platform to support the business.

With the offer from John Wood Group, the Company announced it had intended to launch a rights issue to raise approximately £500m, and to suspend dividend payments to strengthen the balance sheet. The Company is continuing to make good progress generating proceeds from the non-core asset disposal programme.

 

Executing on the strategic priorities above – which are designed to improve cash flow – will, over time, further strengthen the balance sheet.

 

9. We will provide a safe and sustainable environment for our people and the communities in which we work.

Our sustainability strategy and commitments are aligned to the principles of the UN Global Compact. In alignment with these principles and the commitments set out in our Modern Slavery and Human Trafficking statement in response to the UK Modern Slavery Act 2015, we will continue to raise awareness of modern slavery with our employees and value chain and also collaborate with industry on this issue, sharing best practice, policies and procedure. We will continue to embed sustainability into the delivery of our projects to ensure we mitigate operational risks, respect and protect the environment and the communities in which we work. This will protect our reputation and licence to operate, supporting the delivery of stronger business performance.

 


 

 

Amec Foster Wheeler
Annual report and accounts 2016
17

 

Our strategy continued

 

Our business line strategies

As part of our review, strategies have been developed for each business line based on specific opportunities and challenges.

 

 

 

 

Oil, Gas & Chemicals

 

 

 

As a result of market conditions, our focus is on developing new revenue streams to replace some of our historically strong positions.

 

For the upstream business, this will involve developing a balance of operating expenditure and capital expenditure projects, increasing exposure to lower-cost barrels and turning strong local operations into strong international ones.

 

We will build on our strong presence in upstream asset support and commissioning in the UK North Sea by pursuing opportunities in other locations, and by expanding our asset support solutions for the downstream market.

 

In the downstream business, we will continue to develop our core refining business by strengthening and expanding our consulting, hydrotreating, delayed coking and fluid catalytic cracking positions, along with our extensive experience with complex refurbishments and turnarounds. In addition, we intend to expand our presence in high-growth areas within the chemicals market.

 

We aim to capture a greater share of our customers’ expenditure on projects and carefully grow our exposure to full scope project delivery work. This will require some investment in tools and processes and the hiring of key people, and will often be executed in partnership with local companies.

 

Mining

 

 

 

We expect market conditions to recover from recent lows and we are therefore preparing the business to take advantage of new project opportunities.

 

A key aspect of this strategy is to utilise our early stage consulting expertise to win project delivery work.

A more coordinated approach between consulting, business development and project delivery teams will help us to be more competitive in bidding and to develop enhanced solutions for customers. We are also looking to expand our customer base to increase the share of work from major global miners.

 

We will continue to invest in our mobile materials movement solutions, including our patented ‘Super Portable’ systems, which can lower operating costs in mines by replacing fleets of trucks and their significant support costs.


 

 

18 Amec Foster Wheeler
Annual report and accounts 2016

 

 

 

 

Power & Process

 

 

 

Our focus is to deliver power generating capital projects for customers, using a variety of technologies.

 

We currently have a market-leading position in the utility-scale solar installation market in the US. Although we are expecting a near-term reduction in solar project activity, due to the phasing of government tax incentives discussed in the markets section on pages 14 and 15, we will remain focused on gaining market share through continuous improvement of our cost per kilowatt installed pricing.

 

In addition, we intend to pursue further projects in wind across the Americas and in conventional power plants, delivering projects for utilities and industrial clients, with whom we have strong relationships.

 

 

Environment & Infrastructure

 

 

 

Our priority is to increase market share by bringing together the entire skills of Amec Foster Wheeler to deliver customer-specific solutions.

 

We have identified a number of growth opportunities, including:

 

► expanding our share of radiological remediation and waste management programmes

 

► expanding our environmental liability and asset management services, especially for large companies, with significant legacy reserves and decommissioning obligations

 

► growing our share of the US Department of Defense’s international budget

 

► taking advantage of growing infrastructure spend in the US and beyond, including by pursuing new customers and expanding through our main geographic hubs

 

► enhancing our capability and scale in the UK and Europe, combining our existing positions with our extensive North American expertise and capabilities

 

We will also continue to offer environmental consulting and engineering services across the Company’s other markets, where closer cooperation with Business Development and engineering teams can generate additional project work.

 


 

Amec Foster Wheeler
Annual report and accounts 2016
19
 

 

 

Key performance indicators

 

 

Each of the following key performance indicators links to one or more elements of our refreshed corporate strategy, as described on page 17, enabling us to monitor progress with our strategic priorities. The adjusted performance measures such as underlying change in revenue and trading cash flow presented here provide both management and investors with information about the trading performance of the business, as well as risks and outcomes relating to non-financial key performance indicators on safety, employee engagement, environmental incident rates and respect for human rights.

 

 

 

Definition

The percentage movement in year-on-year revenue, excluding the effect of currency movements and any acquisitions or disposals.

 

Strategy

Links to strategic priorities: 1, 2, 3, 4, 5, 6

 

Commentary

Underlying revenue declined by 8% during 2016, as a strong performance in solar and E&I was offset by continuing weakness in the oil and gas market.

 

 

 

 

 

 

 

Definition

Our share of the total remaining value of secured projects to be executed, up to any break point. Contracts are only included in the order book when they are signed.

 

Strategy

Links to strategic priorities: 1, 2, 3, 4, 5

 

Commentary

At the end of 2016 the order book stood at £5.8bn, down 13% from last year. There was a reduction in oil and gas as lower levels of project sanctions continued and we neared completion of major hook-up contracts in the UKCS, and in Americas Clean Energy as we worked through our record backlog of solar projects.

 

 

 

 

 

 

Definition

Cash generated from operations before cash flows arising from exceptional items, asbestos-related payments (net of insurance recoveries), the difference between retirement benefit contributions and the amount recognised in trading profit, legacy settlements and discontinued operations, and currency translation differences on working capital, but including dividends received from joint ventures.

 

Strategy

Links to strategic priority: 7

 

Commentary

During 2016 Trading cash flow decreased by £13m compared to 2015. The decrease was primarily due to a reduction of £34m in profit before net financing expense which was partly offset by improvements in working capital of £21m.

 

2015 and 2016 are the only two full years that include the results of the legacy Foster Wheeler business.

 

22 Amec Foster Wheeler
Annual report and accounts 2016
 

 

 

 

Definition

Our environmental incident frequency rate is the number of environmental incidents per 200,000 hours worked.

 

Note: Historical data for 2014 and earlier are based on AMEC data only as Foster Wheeler data was not captured prior to the integration of our two companies.

 

Strategy

Links to strategic priority: 9

 

Commentary

During 2016, our employees and contractors worked a total of 140 million man hours, during which we recorded 81 environmental incidents which were within the boundaries of our management system and reported as per the requirements of our mandatory procedure, ‘Incident Reporting, Recording and Investigation’. Our environmental standards provide consistency across our operations, ensuring we protect and enhance both our reputation and the environment in which we work by minimising our environmental risks.

 

 

 

 

Definition

Our total recordable incident rate is the number of recordable incidents per 200,000 hours worked which is in accordance with the standard reporting of the Occupational Safety and Health Administration.

 

Strategy

Links to strategic priorities: 4, 6, 9

 

Commentary

During 2016 our employees and contractors worked a total of 140 million man hours, during which we recorded 184 recordable injuries. This represents a small improvement on the previous year when we recorded 195 recordable injuries. However, we also recorded 35 lost time injuries (LTI) during 2016 giving us an LTI rate of 0.05 per 200,000 hours worked compared to 0.046 in the previous year. Risk management remains one of our key areas of Health and Safety focus. During the year we trained 2,418 frontline supervision staff on hazard recognition and risk management techniques. There were zero fatal incidents during 2016.

 

 

Modern Slavery (Human Rights)

Engagement with employees and resulting awareness of modern slavery and human trafficking risks within our operations and wider sphere of influence i.e. customers, supply chain and joint venture partners.

 

 >95% of targeted employees are to complete awareness training during 2017 on the issues and risks around forced and bonded labour and human trafficking in global supply chains.

 

Continued collaboration and engagement with the industry led ‘Building Responsibly’ initiative, facilitated by Business for Social Responsibility (BSR) with support from Humanity United.

 

Strategy

Links to strategic priority: 9

 

Commentary

In December 2016, we published our first Slavery and Human Trafficking statement in line with the requirements of Section 54 of the UK Modern Slavery Act 2015. This statement is the basis from which we will continue to drive awareness of modern slavery and seek to improve our processes. Our KPIs for 2017 support the commitments made within the 2016 statement. Recognising the need to increase understanding of the risks amongst key employee groups, we have partnered with TRACE (an independent compliance and due diligence firm) to tailor an eLearning module for our employees. Our continued active involvement with the Building Responsibly initiative in 2017 recognises the need for and value of collaboration within and across sectors to have meaningful impact on this issue. Continued outreach to Non-Governmental Organisations on the issue will also ensure we share and learn best practise.

 

 

 

 

Definition

We define engagement as being the extent to which people are connected and committed to their work, their manager, their work team and their organisations because of their work environment2.

 

Strategy

Links to strategic priorities: 6, 9

 

Commentary

Our engagement scores rose steadily for several years. However in 2015, we saw these scores trend downwards. We believe that this was largely due to ongoing concern about our performance in tough markets and the obvious implications for job security, compensation and opportunities. Our score in 2016 was calculated using a new methodology3 that does not directly compare to prior scores. However, we believe it improved slightly, despite these concerns remaining.

 

Notes

1  Adjusted performance measures used by the Group are explained and reconciled to the equivalent IFRS measures on pages 188 to 190.

 

2  Employee engagement was not tracked in 2012.

 

3  The previous methodology used an algorithm to calculate an engagement index by applying factors to each type of response. The new approach adds the ‘agree’ and ‘strongly agree’ responses to give us an overall % agree. Therefore, we are now using % agree relative to a given question or in aggregate as our measure of engagement.


 

Amec Foster Wheeler
Annual report and accounts 2016
23
 

Key contract wins and order book

 

 

 

We faced some challenging conditions during the year, with many natural resources capital projects being delayed or cancelled. Despite this, we benefited from the breadth of our business to win a wide range of work with major customers across our four markets.


 

Selected contract wins announced in 2016

 

Customer Business line Description Country
Grannus OG&C Design engineering for ammonia plant US
Repsol Sinopec OG&C 3-year (plus extensions) labour supply and engineering support services contracts UK
BP OG&C EPC for new refrigeration plant in BP Grangemouth UK
Preem OG&C EPCM of new vacuum distillation unit at Lysekil refinery Sweden
SOCAR OG&C FEED for Heydar Aliyev Oil Refinery modernisation Azerbaijan
Pertamina / Saudi Aramco OG&C Engineering and project management for Cilacap refinery upgrade Indonesia
BP OG&C 3-year framework for concept studies and pre-FEED, Rumaila field Iraq
Sasol OG&C Detailed design and engineering on Phase 1 of PSA development Mozambique
Evonik OG&C Basic engineering and EPCM for methionine facility Singapore
Thai Oil OG&C FEED for Clean Fuel refinery expansion Thailand
India Oil OG&C Supervision of EPC contracts for LNG import terminal, Ennore India
Pakistan Refinery Ltd OG&C Feasibility study for upgrade at Karachi refinery Pakistan
Sonatrach OG&C FEED for three new refineries Algeria
ConocoPhillips OG&C 3-year brownfield services contract for BayuUndan Timor-Leste
KOC OG&C FEED for upgrade of GC24 oil gathering centre Kuwait
Western Potash Mining Potash Solution mining pilot plant Canada
Anagold Madencilik Mining EPCM for the Çöpler Gold Mine Turkey
LG&E / KU P&P Coal combustion residuals project for Trimble County US
Bruce Power P&P 6-year MSA for nuclear engineering and project management Canada
Sellafield P&P 10-year framework agreement on Magnox Swarf storage silo clean-up UK
UK Ministry of Defence P&P 5-year contract to supply nuclear safety and technical advice for submarines UK
ITER P&P 13-year contract for construction management on nuclear fusion reactor project (as part of Momentum JV) France
US AF E&I 7-year prime contractor for environmental services US
US AF E&I 7-year prime contractor for military housing programme US
US ACE E&I Aegis Ashore Missile Defense System construction support Poland

 

Order book

These and other contract wins contributed to an order book of £5.8bn at 31 December 2016.

 

 

  20161
£bn
20152
£bn
Oil, Gas & Chemicals 3.0 3.7
Mining 0.1 0.2
Power & Process 1.1 1.3
Environment & Infrastructure 0.9 0.7
Total 5.1 5.9
(excluding GPG and Investment Services)    

The reduction in order book for Oil, Gas & Chemicals was largely due to the general reduction in project sanctions by customers. In Power & Process, contract wins for solar projects peaked in the fourth quarter of 2015, with those projects in execution during 2015.

 

Notes

1 These figures exclude £0.4bn for GPG and £0.3bn for Investment Services, bringing the total order book for 2016 to £5.8bn.
   
2 These figures exclude £0.3bn for GPG and £0.4bn for Investment Services, bringing the total order book figure for 2015 to £6.6bn.


 

24 Amec Foster Wheeler
Annual report and accounts 2016
 

People

 

 

People are our principal asset. Our business depends upon having a culture that supports successful project delivery for our customers and helps us to attract and retain the best talent. As part of our commitment to being a sustainable business, we look to achieve the highest standards of health and safety, mutual respect and ethical behaviour. More information about our approach to sustainability can be found on page 33.

 

Culture and engagement

In a business that is about people, having the right culture is critical. The transformation programme we are going through will help us to build a real meritocracy, with a highly engaged culture focused on safety, collaboration, technical excellence, high performance and clear accountability.

 

Instilling this culture will enable us to deliver excellence to our customers, safely and consistently, wherever we work. It will ensure that our people know what we expect of them and that their performance will be recognised and rewarded. We have established a transformation office headed by a Chief Transformation Officer and a key part of his remit is to ensure we deliver the cultural elements of our transformation programme. This includes reinforcing our commitment to adhering to our Code of Business Conduct and complying with policies and procedures. During the second half of the year, we employed KPMG to benchmark how well our people comply with ethics and anti-bribery compliance. This showed good performance.

 

Leaders who effectively listen and then act build effective, transparent and trusting relationships with employees. Gathering the views of our people was therefore a major part of shaping our transformation programme. Nearly 3,000 employees responded in detail to our survey asking for their views of our organisation, helping us to understand the strengths we need to make more of and the weaknesses we need to overcome. The results of this research, and several subsequent surveys, helped us to define our new organisational structure.

 

We have committed to continuing to listen to employee views and to improving communication, recognising that good communication is fundamental to driving employee engagement.

 

Adapting to market dynamics

The nature of our business means that we need to recruit large numbers of people each year, as we put together teams to match the needs of projects and customers. Similarly, many people leave us as projects finish or their roles change. As noted in the business model on pages 6 and 7, a key advantage for us is that the breadth of our business often allows us to redeploy people to new contracts, reducing costs and the need to hire and release people, and helping us to keep skills and knowledge within the business.

 

In 2016 we recruited some 8,500 people to our direct workforce, of which 89% were recruited directly by our resourcing teams, who deliver excellent candidates to our business wherever they are needed. Around 9,600 people left the business. This is part of the normal cycle of recruitment and utilisation management on projects. It also includes people who left the business as a result of the transformation programme.

This and changes in our indirectly employed workforce resulted in a total headcount of circa 35,0001 people at year end compared with circa 39,0001 at the end of 2015.

 

Workforce mobility is also key to meeting client expectations and developing our employees. Our in-house mobility team facilitated over 300 cross border moves in 2016.

 

Investing in talent

We aim to build the capability of our people year on year, as ongoing development is vital to both employee engagement and our reputation with our customers. Recently we refreshed the learning strategy we deliver through our global Academy. This involved:

 

giving all our engineers access to high-quality technical applications training, at no cost to the end-user

 

transitioning to virtual classrooms for delivering technical functional training and leadership skills

 

developing an interactive e-learning programme for people management skills, built specifically for our business using relatable scenarios

 

The Academy continues to offer popular on-line learning in management and leadership skill development, with circa 10,000 people accessing the site in 2016. In addition, around 4,000 people took our sustainability e-learning course.

 

During 2016, we rolled out a mid-year development review for all managers and professional employees, following a successful pilot in 2015. The review prompts a conversation between manager and employee around the individual’s longer-term goals, resulting in agreed development to achieve these.

 

We also introduced a Company-wide framework that helps managers identify potential early in employees’ careers. Through development discussions and diagnostic tools, we can then provide employees with the experience and learning they need to accelerate their development through the organisation.

 

In addition to developing our people, we look to attract the next generation of talent into the industry. We therefore engage with schools and universities to stimulate interest in engineering careers and our sectors.

 

Diversity and inclusion

Organisations with diverse employees can create better solutions for customers, which contributes to long-term business success. The table below shows the gender mix of our directly employed workforce at the end of the year:

 

  2016   2015
  Men Women   Men Women
Board 7 2   6 2
Group leadership team 12 2   9 1
Executive grades 338 48   369 41
Total workforce 24,327 7,099   27,610 8,247

 

We assess age, gender and ethnic diversity and use employee surveys to understand harder to measure aspects, such as diversity of thought. We also work with groups such as the Women’s Engineering Society and Stonewall, to build greater awareness of our company and attract a more diverse workforce.

 

1 Figure includes non-employed workers.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
25
 

 

 

Principal risks and uncertainties

 

 

Amec Foster Wheeler operates in more than 55 countries, serving a broad range of markets and customers. As such, the Group is subject to certain general and industry specific risks. Where practicable, the Group seeks to mitigate exposure to all forms of risk through effective risk management and risk transfer practices.

 

The board has overall responsibility for risk management, for determining the risk appetite in relation to the principal risks, for implementation of the risk management policy and for reviewing the effectiveness of the risk management systems.

 

Risk management process

A global mandatory procedure detailing the risk management process has been used at project, operating unit, business unit and group levels to identify the key risks that could have a significant impact on Amec Foster Wheeler’s ability to achieve its objectives. These are recorded in risk registers and evaluated to determine the likely impact and probability of occurring. The procedure is being updated to reflect the new operating model.

 

Control actions are developed to mitigate or eliminate risks that are considered unacceptable. Risk owners are identified and given responsibility for ensuring actions are implemented with appropriate review dates.

 

The risk registers are reviewed and updated at least quarterly with the relevant risk owners.

Reporting and monitoring

The risk committee is chaired by the Chief Executive Officer and meets at least twice each year to:

 

review and advise the board on Amec Foster Wheeler’s risk appetite in relation to the principal strategic risks, taking account of the current and prospective macro-economic, financial, political, business and sector environments
   
review and approve the risk management strategy, policies, procedures and processes
   
review and report to the board on the effectiveness of the risk management systems
   
review the Amec Foster Wheeler plc risk register and make recommendations as appropriate
   
review any new or emerging risks and any potential impact they may have on risk appetite and the ability of Amec Foster Wheeler to manage such risks
   
review any issues raised by other committees of the board that impact on the risk profile of Amec Foster Wheeler
   
review and consider reports on key risk issues such as new business and geographical locations for operations or projects
   
consider any internal or external risk trends and concentrations
   
The terms of reference of the risk committee have been amended to reflect the requirements of the 2016 edition of the UK Corporate Governance Code.


 

 

Roles and responsibilities

 

 

28 Amec Foster Wheeler
Annual report and accounts 2016
 

Principal business and strategic risks

The table below shows Amec Foster Wheeler’s principal business and strategic risks. Each is specific to the Company and could have a material impact on it. Actions have been taken to mitigate these risks and these are also shown.

 

Other financial risks that may impact the Company are shown on pages 146 to 150 – note 19 Capital and financial risk management.

 

Risk   Mitigation

Geopolitical and economic conditions

Amec Foster Wheeler expects to derive the majority of its revenues from Europe, the US and Canada and is therefore particularly affected by political and economic conditions in those markets.

 

Changes in general economic conditions may influence customers’ decisions on capital investment and/or asset maintenance, which could lead to volatility in the development of Amec Foster Wheeler’s order intake. These may also lead to changes in the customer base, competition and in the way customers procure the services we provide. An increase in competition for new contracts may lead to different, less favourable contract terms and conditions.

 

Continuing and escalating unrest and insurgency activity in the Middle East may have a negative impact on existing and future opportunities in the region.

 

The transition to the new presidential administration in the United States may cause uncertainty and unpredictability for a period of time which may impact confidence and spending levels. In addition, following the majority vote in June 2016 for the United Kingdom to leave the European Union, there is uncertainty as to the effects an exit may have on economic or market conditions in the United Kingdom, Europe or globally. Such uncertainty has the potential to lead to decreased or delayed investments in projects in the United Kingdom. The result of the UK general election on 8 June 2017 will also determine the stance Britain takes in its negotiations to leave the EU as well as the future of projects within the National Infrastructure Plan, which could create further uncertainty in UK projects.

 

 

Amec Foster Wheeler seeks to maintain a balanced geographic presence and, through acquisitions and organic growth, will continue to increase its exposure to other attractive regions of the world.

 

The risk associated with economic conditions resulting in a downturn and affecting the demand for Amec Foster Wheeler’s services has been addressed, as far as practicable, by seeking to maintain a balanced business portfolio in terms of geographies, markets, clients and service offering/business model.

 

In light of continuing global economic uncertainties, steps have been taken to assess and monitor any potential impact on Amec Foster Wheeler’s business opportunities and address potential increased supply chain and, more broadly, counterparty risk.

 

In January 2017 we implemented a new operating model, involving the reorganisation of Amec Foster Wheeler into four end markets – Oil, Gas & Chemicals, Environment & Infrastructure, Power & Process and Mining, which will enable us to be more agile and responsive to the customers and the markets we serve.

 

The business development team is focused on realising the synergies across our customers, markets, geographies, service offerings and relationships.

 

Changes in commodity prices

A sustained and significant reduction in oil & gas or commodity prices would have an adverse impact on the level of customer spending in Amec Foster Wheeler’s markets and consequently represents a risk to organic growth.

 

The fall in oil prices has had an impact on the investment behaviour of Amec Foster Wheeler’s customers in this sector, with pressure on capital expenditure leading to a greater focus on smaller projects and operating expenditure and an increase in competition for new contracts.

 

 

This risk is mitigated by maintaining a balanced business portfolio of geographies, markets, clients and service offerings.

 

Improved efficiencies through increased workflow between offices and the effective use of centres of excellence and our India operations also contribute to addressing this risk.

 

Project delivery

Failing to maintain discipline and meet customer expectations on project delivery could result in damage to reputation, loss of repeat business and potentially lead to litigation and/or claims against Amec Foster Wheeler.

 

 

The Technical Functions provide assurance, drive project execution and support the development, training and mobilisation of personnel to enhance execution competencies.

 

In addition, the system of globally applied policies and procedures, combined with comprehensive management oversight, the risk management process, project reviews, internal audit, peer reviews and customer feedback, mitigate the risk to successful project delivery.

 

Lump sum contracts

Lump sum contracts carry different risks than reimbursable contracts, with the contractor agreeing the contract price at the start of the contract and accepting the risk of cost overruns in completing the project.

 

Lump sum contracts have accounted for an increasing proportion of the Company’s revenue and order book and are expected to continue to grow in the medium term.

 

  This risk is mitigated by having skills and competencies fully aligned with the project scope. It is further mitigated by having a clear, delegated authority structure in place, combined with the formal global mandatory procedures relating to contracting principles and the tender review process. In addition, the Technical Functions perform reviews, provide assurance and drive project execution.

Staff recruitment and retention

An inability to attract and retain sufficient high-calibre employees could become a barrier to the continued success and growth of Amec Foster Wheeler.

 

Senior management departures or prolonged absences could also adversely affect our ability to implement our strategy and manage our operations efficiently.

 

The uncertainties about the effects of the recommended all share offer for Amec Foster Wheeler plc by John Wood Group could hinder our ability to attract new employees and retain our existing employees.

 

 

This risk is mitigated with a clear HR strategy, which is aligned to the business strategy and focused on attracting, developing and retaining the best people for the Company with succession planning as appropriate. It is underpinned by an employee framework which describes how we manage our people consistently and we have introduced talent and performance management systems to help us identify and nurture talent.

 

In addition, there is a continual review of compensation and benefits to ensure sector and geographic competitiveness and there are localised recruitment teams capable of recruiting large numbers into Amec Foster Wheeler.

 

The additional recruitment and attrition challenges being faced as a result of the planned takeover are being mitigated by retention measures.


 

Amec Foster Wheeler

Annual report and accounts 2016

29
 

Principal risks and uncertainties continued

 

Risk   Mitigation

Health, safety, security and environment

Amec Foster Wheeler is involved in activities and environments that have the potential to cause serious injury to personnel or damage to property or the environment and damage to our reputation.

 

These activities may involve operations such as design, construction, commissioning and decommissioning, which have potential to cause serious environmental damage, pollution and habitat destruction.

 

 

In order to control risk and prevent harm, Amec Foster Wheeler is focused on achieving the highest standards of health, safety and security management. This is achieved through setting of an effective policy and putting in place clear standards which underpin our health, safety, security and environmental management systems.

 

We have put in place processes to assure that our systems work effectively throughout the organisation and health and safety performance is regularly reviewed against agreed targets to facilitate continual improvement.

 

Amec Foster Wheeler employs environmental and engineering specialists to support projects in implementing comprehensive project management planning at all stages of a project. These processes are governed by appropriate quality management systems and are supported by risk identification tools aimed at identifying and managing all aspects of project environmental risk.

Environmental licences

Amec Foster Wheeler’s build/own/operate facilities and fabrication/manufacturing sites rely on maintaining environmental licences to operate, which includes protecting the environment and achieving legally enforceable operating parameters. Failure to maintain these standards may result in the revocation of all or part of the licence and the suspension of operation, resulting in criminal or civil action and/or financial risk to the business. Failure to maintain assets and/or pollution abatement equipment may result in a failure to meet legally binding objectives and targets for the operation.

 

Environmental management systems are in place to monitor and mitigate this risk.

 

Planned preventative maintenance schedules are in place to further mitigate this risk.

 

Information technology (IT)

Amec Foster Wheeler is exposed to the risk that the IT systems on which it relies fail, are breached or are exploited by cyber attack with a corresponding impact on the confidentiality, integrity and/or the availability of sensitive data held by the Company.

 

  Appropriate controls are in place to mitigate the risk of systems failure and data loss, including systems back-up procedures, data security breach response plans, disaster recovery plans and globally distributed data centres providing a secure and reliable environment for hosting critical applications. There is also appropriate virus protection, malware detection and remediation, network security controls and penetration testing and encryption of mobile devices.

Ethical breach

A substantive ethical breach and/or non-compliance with laws or regulations could potentially lead to damage to Amec Foster Wheeler’s reputation, fines, litigation and claims for compensation.

 

 

Amec Foster Wheeler has a number of measures in place to mitigate the risk of a substantive ethical breach and/or non-compliance with laws or regulations, including:

 

►  embedded policies and procedures

 

►  Code of Business Conduct

 

►  segregation of duties

 

►  management oversight

 

►  financial and operational controls

 

►  independent whistle-blowing mechanism

 

►  appointment of Head of Ethics and Compliance and ethics and compliance champions

 

►  anti-fraud and other internal audits

 

►  legal team advice

 

►  training programmes supporting the Code of Business Conduct, anti-bribery and corruption and competition law

 

►  gifts and hospitality procedure with annual internal audits

 

►  oversight by the HSSEE committee – see pages 70 to 71

 

30

Amec Foster Wheeler

Annual report and accounts 2016

 
Risk   Mitigation

Financial – breach of covenant, counterparty and liquidity

Whilst the Company was, as at the most recent test date of 31 December 2016, in compliance with the unmodified financial covenants in its existing banking facilities there was a possibility that the Company would have breached the leverage ratio covenant under its existing banking facilities at the next test date on 30 June 2017.

 

If a counterparty is unable to repay deposits, fund a loan in a committed loan relationship or fund a position under foreign exchange arrangements then the company faces the risk of capital loss.

 

The Company is subject to liquidity risk from being unable to generate sufficient cash from operations for either growth or to repay debt. If sterling weakens this may impact on our overall liquidity as part of our debt is drawn in currency and our facilities are Sterling denominated.

 

 

The Company had been preparing to launch a rights issue of approximately £500m on 21 March 2017 which would have addressed the risk of a breach of the leverage ratio covenant but as a consequence of the recommended all share offer for the Company by John Wood Group, the preparations for a rights issue have been suspended. To ensure continued compliance with its financial covenants, the Company has approached its banking group and successfully agreed a waiver to increase the leverage covenant in its banking facilities to provide additional headroom through to the reporting period ending 30 June 2018.

 

In the event that the acquisition of the Company by John Wood Group does not proceed, the Company will consider recommencing preparations for a rights issue. The Company has suspended dividend payments until the Company is generating sustainable free cash flow.

 

Amec Foster Wheeler seeks to mitigate the counterparty risk by limiting the amount that can be invested with any one counterparty. Limits are arrived at by ratings and a review of factors such as five year credit default swap prices, economic and national considerations.

 

Bank ratings are monitored to ensure security of counterparty for both deposits and lending.

 

If Sterling continues to weaken and liquidity comes under pressure we would seek additional funding from the banking group.

Pensions

Amec Foster Wheeler operates a number of defined benefit pension schemes, where careful judgement is required in determining the assumptions for future salary and pension increases, discount rate, inflation, investment returns and member longevity. There is a risk of underestimating this liability.

 

 

This risk to Amec Foster Wheeler’s pension schemes is mitigated by:

 

►  maintaining a relatively strong funding position over time

 

►  taking advice from independent qualified actuaries and other professional advisers

 

►  agreeing appropriate investment policies with the trustees

 

►  close monitoring of changes in the funding position, with reparatory action agreed with the trustees in the event that a sustained deficit emerges

 

See note 14 on pages 138 to 142 for further details on our pension schemes.

Legacy risks

Litigation and business claims from divested and non-core businesses remain a risk to Amec Foster Wheeler.

 

Managing non-core legacy assets until divestment may require skills that are not common to the rest of the Company.

 

Ground contaminants remain at some former Amec Foster Wheeler operational localities where the pollutant may have been as a result of the Company’s operations, or the Company is responsible for its clean-up. There is a risk that pollution may result in a risk to human health or the environment. There is potential for civil and/or criminal action against the Company for such pollutants.

 

 

The established legacy team manages these claims with internal and external legal advice. The aim is to seek cost-effective management of litigation and promote commercially sensible settlements where appropriate.

 

Amec Foster Wheeler has made provisions for the legacy issues that are believed to be adequate and is not aware of any other current issues relating to disposed businesses which are likely to have a material impact. Specialist teams with the appropriate knowledge are brought in as required.

 

In the case of any known contaminated land, strategies have been developed to minimise the risk posed by such contaminated land, including asset management and land remediation projects and they remain under continuing review.

 

Asbestos liability

The legacy Foster Wheeler business is exposed to significant numbers of claims relating to alleged exposure to asbestos. The quantum of these claims is actuarially forecast each year and provisions are held against these loss projections. However there is a risk that these loss projections will be exceeded and the provisions could be inadequate to meet the liabilities.

 

 

There is a dedicated in-house finance and legal resource including a team of specialist asbestos lawyers who manage the claims, assisted by National Co-ordinating Counsel (NCC) and local counsel. A claims strategy has been developed with the NCC and regular reviews are undertaken.

 

The team monitors legal developments in these claims and the strategy to deal with them on a regular basis.

 

The quantum of these claims is actuarially forecast each year and provisions are held against the ultimate loss projections.


 

Amec Foster Wheeler

Annual report and accounts 2016

31
 

Principal risks and uncertainties continued

 

Viability statement

The Company was, as at the most recent test date of 31 December 2016, in compliance with the unmodified financial covenants in its existing banking facilities. However, going forward, had the waiver of the financial covenants referred to below not been obtained, it is possible that the Company would have breached the leverage ratio covenant under its existing banking facilities at the next test date on 30 June 2017.

 

The Company had been preparing to launch a rights issue of approximately £500m on 21 March 2017 which would have addressed the risk of a breach of the leverage ratio covenant but as a consequence of the recommended all share offer for the Company by John Wood Group, the preparations for a rights issue have been suspended. To ensure continued compliance with its financial covenants, the Company has approached its banking group and successfully agreed a waiver to increase the leverage covenant in its banking facilities to provide additional headroom through to the reporting period ending 30 June 2018.

 

In the event that the acquisition of the Company by John Wood Group does not proceed, the Company will consider recommencing preparations for a rights issue. The Company has suspended dividend payments until the Company is generating sustainable free cash flow.

 

The directors have selected a three-year period for this viability assessment, in line with the three-year business planning process and this also reflects the average duration of the larger customer contracts entered into by the Company.

 

In accordance with provision C.2.2 of The UK Corporate Governance Code (April 2016 revision) the directors have performed a robust assessment of the Company’s current position and the principal risks detailed on pages 29 to 31 for the next three years.

 

They have concluded, based on the following assumptions, that they have a reasonable expectation that Amec Foster Wheeler will be able to continue in operation and meet its liabilities as they fall due over this three-year period and that Amec Foster Wheeler will remain compliant with the covenants and undertakings contained within its banking facilities over this same period:

 

in the event that the acquisition of the Company by John Wood Group does not proceed and the Company proceeds with a rights issue, that it is approved by shareholders and completes before 30 June 2018
   
dividend payments are suspended until the Company is generating sustainable free cash flow

In making this assessment the directors have also taken into account the Company’s current trading performance and prospects, the stated strategy concerning the disposal of non-core assets and the board’s appetite for risk.

 

The approach adopted for this assessment was a detailed review of the principal risks by a senior management team with representatives from finance, commercial, legal, tax and treasury, strategy, internal audit, compliance and risk to consider which of these risks might threaten the Company’s viability. The assessment of these risks included modelling them in severe but plausible scenarios taking account of:

 

varying impacts of specific risks across business lines
   
any potential risk interdependencies
   
the risk mitigation measures currently in place

 

The analysis of the principal risks has been weighted towards downside risk and a sensitivity analysis has been used to stress test the risk events most likely to negatively impact the Company. Specific scenarios have been tested and include:

 

a further fall in oil prices, increasing pressure on customer spending and impacting prospects for future projects
   
project delivery failure resulting in delayed payments, settlement payments, reputational damage and reduced future work
   
risk of cost overruns on lump sum contracts
   
a substantive ethics breach and/or non-compliance with laws or regulation which could result in reputational damage, fines, litigation and claims for compensation
   
a serious environmental incident causing third party damage and/or injury and reputational damage


 

32

Amec Foster Wheeler

Annual report and accounts 2016

 

Sustainability

 

Working towards our vision of
a Resilient World.

 

 

 

Greenhouse gas emissions          
Year ended 30 September  2016
CO2e
emissions
in tonnes
    2015
CO2e
 emissions
 in tonnes
 
Combustion of fuel and operation of facilities   1,148,118    838,073 
Electricity, heat, steam and cooling purchased for own use   49,799    59,682 
Per employee   33.94    22.83 
Per £1m revenue   220.21    164.57 

 

The figures show scope one and two emissions from our global business where we have operational control.

 

The 12-month period to 30 September (the carbon reporting year), rather than the calendar year, has been used. This ensures actual data can be reported, even for those regions where energy/fuel usage is more difficult to access. By reducing reliance on estimation, a more accurate footprint can be provided in a timely manner.

 

We have used accepted methods of calculation based on the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition). We have used national conversion factor guidelines (e.g. Environmental Protection Agency, Environment Canada, DEFRA) where appropriate.

 

Note: the 2015 data reported incorporates three quarters of a year of data for the legacy Foster Wheeler business as the acquisition was not complete until part way through the 2015 carbon reporting year. 1,120,179 tonnes CO2e emissions from the combustion of fuel and operation of facilities in 2016 relate directly to emissions from two power generation facilities.

 

Our approach to sustainable business

Our growth aspirations will only be achieved by focusing on our customers and how we deliver our projects safely and sustainably.

 

Our sustainability strategy was launched in 2015 and sets out the company’s vision for a Resilient World, where natural resources are cleaner and more efficient, and we work in partnership with others to respond to changing demands for a stable and secure supply of natural resources. Our strategy centres on the opportunities to work with others to help solve these challenges, as well as manage our risks, to deliver value to Amec Foster Wheeler and its customers. Our strategy focuses on three key areas;

 

People

Investing for tomorrow by developing a diverse, inclusive and talented workforce which exhibits our values and behaviours to drive sustainability.

Growth in demand drives the competition for skills and expertise within the industry that we need to deliver a resilient world. We will resource for a diverse and inclusive workforce introducing new people (both experienced and new entrants) to the resource pools in order to create a business with genuine diversity of thought.

 

Innovation

Delivering innovative technologies, solutions and services that add business value for our customers whilst minimising environmental impacts.

 

We will drive long-term growth for Amec Foster Wheeler by developing and encouraging a growing portfolio of innovative environmental technologies, solutions and services which add value to our customers and our business.

 

Delivery

Being a trusted partner by embedding a consistent sustainability standard across our projects.

 

Our customers demand high standards, and sustainability is a fundamental part of this. We will ensure a consistent approach to inherently embedding sustainability into the core of our projects, and implement a value-add sustainability framework to be used for those clients with advanced sustainability objectives.

 

We want to ensure that sustainability is integrated into the very core of our business and within our decision-making processes. We want to be acknowledged as a leader in sustainable business practice, continually validating our social licence to operate by ensuring employees’ behaviours and actions are in line with our values. Further details on our approach and our strategy can be found on our dedicated sustainability site at www.amecfw.com/sustainability.

 

Additionally we:

 

developed and launched our Resilient World sustainability strategy
   
continue to report our approach to sustainability, our sustainability performance and our services via an interactive sustainability report on our dedicated sustainability website www.amecfw.com/sustainability
   
continue to commit to and embed within our business practices the ten UN Global Compact Principles around human and labour rights, environment and anti-bribery and corruption
   
published our first Modern Slavery and Human Trafficking statement in response to the UK Modern Slavery Act 2015
   
undertook a review of our carbon reduction and management strategy using science based target methodology
   
continue to support SOS Children as our global strategic charity
   
donated £368,000 to charities globally as part of our community investment programme
   
continue to build on our partnership with 100 Resilient Cities (100RC) – pioneered by the Rockefeller Foundation to give urban centres across the world access to ground-breaking tools allowing them to better plan for potentially destructive weather events


 


 

Amec Foster Wheeler

Annual report and accounts 2016

33
 

Financial review

 

Ian McHoul

Chief Financial Officer

 

Reported under IFRS          
£m unless stated   2016    2015 
Continuing operations          
Revenue   5,440    5,455 
Loss before net financing expense   (482)   (205)
Loss before tax   (542)   (235)
Cash flow from operations   170    220 
Diluted loss per share   (138.9)p   (66.1)p
Dividend per share   7.4p    29.0p

 

Adjusted measures             
£m unless stated  2016  2015  Change  Underlying
change
7
Continuing operations             
Revenue  5,440  5,455  In line  -8%
Trading profit1  318  374  -15%  -22%
Trading margin2  5.8%  6.9%  -110bps    
Adjusted profit before tax3  254  334  -24%    
Trading cash flow4  375  388  -3%    
Cash conversion5  118%  104%       
Adjusted diluted earnings per share6  50.4p  67.7p  -26%    

 

1 Trading profit represents profit before net financing expense before the amortisation and impairment of intangible assets, asbestos-related costs (net of insurance recoveries) and exceptional items, but including the Group’s share of the trading profit of joint ventures.
   
2 Trading margin represents trading profit expressed as a percentage of revenue.
   
3 Adjusted profit before tax represents profit before tax before exceptional items, the amortisation and impairment of intangible assets, asbestos-related costs and interest expense (net of insurance recoveries), and the Group’s share of tax on the results of joint ventures.
   
4 Trading cash flow represents cash generated from operations before cash flows arising from exceptional items, asbestos-related payments (net of insurance recoveries), the difference between retirement benefit contributions and amounts recognised in trading profit, legacy settlements and discontinued operations, and currency translation differences on working capital, but including dividends received from joint ventures.
   
5 Cash conversion represents trading cash flow expressed as a percentage of trading profit.
   
6 Adjusted diluted earnings per share represents profit for the year from continuing operations before exceptional items, the amortisation and impairment of intangible assets, asbestos-related costs and interest expense (net of insurance recoveries), and the tax effect of those items, divided by the diluted number of ordinary shares.
   
7 Underlying change excludes the effect of acquisitions and disposals of businesses and currency exchange rate movements.
   

Adjusted performance measures used by the Group are explained and reconciled to the equivalent IFRS measures in the section entitled Performance measures on pages 188 to 190.


 

34

Amec Foster Wheeler

Annual report and accounts 2016

 

Basis of preparation

Accounting policies

The Group’s consolidated financial statements for the year ended 31 December 2016 have been prepared in accordance with IFRS as adopted for use in the EU and those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. From the Group’s perspective, there are no differences between IFRS as adopted for use in the EU and IFRS as issued by the IASB.

 

The Group’s principal accounting policies during 2016 were unchanged compared with 2015.

 

Critical accounting estimates and judgements

As outlined in note 1 to the consolidated financial statements, management considers that the most significant areas of judgement and estimation made in preparing the consolidated financial statements arise in relation to the accounting for long-term contracts, business combinations, defined benefit and other retirement benefits, the estimation of liabilities in respect of uncertain tax positions, provisions (including asbestos-related and other liabilities), and in assessing the recoverability of goodwill and other intangible assets and whether businesses identified as non-core meet the definition of held for sale or discontinued operations.

 

Adjusted performance measures

We report adjusted performance measures because they provide both management and investors with useful additional information about the underlying trading performance of the business.

 

The adjusted performance measures that we reported exclude the amortisation and impairment of intangible assets, exceptional items, and asbestos-related costs (net of insurance recoveries), and, where relevant, the tax effects of those items.

 

Continuing operations

Revenue

Revenue for the year at £5,440m was in line with last year (2015: £5,455m).

 

Revenue increased by £52m in AMEASE, by £42m in the Global Power Group and by £5m in NECIS. These increases were offset by a £130m reduction in revenue generated in the Americas.

 

Excluding the effect of currency movements, underlying revenue decreased by 8%. Weakness in the oil & gas markets in the Americas and AMEASE was partially offset by growth in clean energy and environment & infrastructure.

 

Seasonality

The Group’s revenue is generally higher in the second half of the year, principally because weather conditions in the northern hemisphere are typically more conducive to project activity.

Administrative expenses

Administrative expenses were £1,072m (2015: £872m), including exceptional items, intangibles amortisation and impairment and asbestos-related costs (net of insurance recoveries) of £784m (2015: £538m).

 

Administrative expenses before intangibles amortisation and impairment, exceptional items and asbestos-related items reduced by £46m with the benefit of cost savings achieved to date being tempered by adverse currency movements.

 

Corporate costs, which comprise the costs of operating central corporate functions and certain regional overheads, were £10m lower at £44m (2015: £54m) again reflecting actions taken to streamline the cost base.

 

Loss before net financing expense

There was a loss before net financing expense of £482m (2015: £205m) with the increase largely due to impairment charges of £526m in 2016 compared to £315m in 2015.

 

Amortisation and impairment of intangible assets

Intangible assets principally comprise goodwill and identifiable intangible assets that were recognised in relation to acquired businesses. Goodwill is not amortised but is subject to an annual impairment test.

 

During 2016, impairments of £526m were recognised of which £500m was recorded directly against goodwill and intangible assets and £26m against assets classified as held for sale:

 

£246m – impairment of GPG goodwill and intangible assets. During 2016, there has been a further deterioration in the forecast results of the GPG business with further delays and project cancellations and reduced bookings in the year. This has resulted in a further impairment charge of £246m (year ended 31 December 2015: £308m)
   
£200m – impairment of the Americas goodwill and intangible assets. During the first half of 2016 there was a significant deterioration in the trading conditions and forecast outturn for the oil and gas business based in Houston. In the light of current trading conditions and uncertainty over future prospects, impairment charges of £200m (2015:£nil) have been recorded against goodwill and the customer relationship asset that was acquired with Foster Wheeler
   
£20m – impairment charge against the brand and customer relationship assets associated with small acquisitions
   
£34m – impairment of an ERP system
   
£26m – impairment of two operations transferred to held for sale in the period, including the transfer of £16m goodwill attributable to the disposal groups
   

Intangibles amortisation of £129m was in line with last year (2015: £129m).


 


 

Amec Foster Wheeler
Annual report and accounts 2016
35
 

Financial review continued

 

Exceptional and asbestos-related items

Net exceptional and asbestos-related costs totalling £137m (2015: £115m) were recognised in arriving at profit before tax from continuing operations.

 

During 2016, the integration of the AMEC and Foster Wheeler businesses has continued and there has been an ongoing cost savings programme. Costs of £135m have been incurred in achieving the integration and the cost savings. This includes:

 

£54m of onerous lease and other property costs, which was incurred predominantly in the Americas, as the property portfolio has been reviewed and consolidated
   
Severance and other exit costs were £45m. This largely relates to delayering management and removing overlapping functions, but also includes severance costs related to engineers in the Oil and Gas Americas business following the down turn in trading in that business during the year
   
Professional fees of £31m incurred in relation to establishing the new Group strategy and organisational structure, the establishment of a Global Shared Services Centre and IT integration
 
There were also internal costs of £5m in relation to integration and restructuring activities.

 

During the year ended 31 December 2016, the Group recognised net asbestos-related costs of £4m (2015: income of £6m) in profit before tax. There was a credit of £6m relating to a change in the discount rate applied to the net asbestos-related liabilities assumed on the acquisition of Foster Wheeler. This was offset by a charge of £8m in respect of unwinding the discount and costs of managing the liability of £2m. There was no change to the actual liability required following the annual reassessment in 2016.

Trading profit and trading margin            
£m unless stated   2016   2015   Change  Underlying
change
 
Revenue   5,440   5,455   In line  -8%
Loss before net financing expense   (482)  (205)       
–  Amortisation and impairment of intangibles   655   444        
–  Net asbestos-related income   (4)  (13)       
–  Exceptional items   131   108        
–  Share of trading profit of joint ventures    18   40    
Trading profit1   318   374   -15%  -22% 
Trading margin1   5.8%  6.9%  -110bps    
Order book  £5.8bn  £6.6bn  -11%    

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190).

 

Trading profit fell by 15% to £318m in 2016 (2015: £374m). Trading margin decreased by 110 basis points to 5.8% (2015: 6.9%).

 

Excluding the effect of currency movements, trading profit was 22% lower than in 2015 with reductions in each of the operating segments.

 

Within the Americas, trading profit fell by 39% on an underlying basis, as a result of delay or cancellation of contracts in the oil & gas market.

 

Within NECIS, trading profit decreased by 9% on an underlying basis and trading margin was down 90 basis points compared with 2015. A strong performance from oil and gas in the North Sea was offset by the ending of the NMP contract at Sellafield and losses incurred following difficult trading conditions in the Transmission and Distribution business.

 

In AMEASE trading profit was down 22%, reflecting favourable contract settlements in 2015 and cost over-runs on a fixed price US government contract in the Pacific.


 

36 Amec Foster Wheeler
Annual report and accounts 2016
 

Net financing expense

The net financing expense was £71m (2015: £58m). Of this, expenses of £10m (2015: £20m) have been presented separately in the income statement relating to the unwinding of the discount on asbestos-related liabilities (net of insurance recoveries) of £8m (2015: £7m) and costs of £2m (2015: £13m) related to amortisation of the fees and other costs associated with the refinancing of Foster Wheeler acquisition facility.

 

Of the remaining £61m, there was net bank interest payable of £65m (2015: £31m), net foreign exchange gains of £2m (2015: losses of £1m), a net interest expense on pension assets and liabilities of £nil (2015: £2m) and other income classified as financing of £2m (2015: costs of £4m).

 

A net currency exchange loss of £127m (2015: £3m) was recognised in the translation reserve in respect of foreign currency borrowings and derivatives held in designated net investment hedging relationships.

 

Share of results of joint ventures

The Group’s share of joint ventures’ profit for the year was £11m (2015: £28m) with the reduction due to the ending of the NMP contract at Sellafield and the transfer of PetroPower Energia Limitada to held for sale in June 2016, at which time equity accounting ceases.

 

Loss before tax

Loss before tax was £542m (2015: £235m) after intangibles amortisation and impairment of £655m (2015: £444m), exceptional and asbestos-related items of £137m (2015: £115m) and the Group’s share of joint ventures’ tax expense of £4m (2015: £10m).

 

Adjusted profit before tax was 24% lower at £254m (2015: £334m).

 

Taxation

Our tax policy is to manage our obligations in compliance with all relevant tax laws, disclosure requirements and regulations. We seek to ensure that our approach to tax and the tax payments that we make in all territories in which we have operations are fully consistent with local requirements, taking into account available tax incentives and allowances, and are aligned with the Group’s wider business strategy. We seek to develop good, open working relationships with tax authorities and to engage with them proactively, recognising that tax legislation can be complex and may be subject to differing interpretations.

The Group’s effective tax rate on continuing operations (including its share of joint ventures’ income tax expense but before exceptional items, intangibles amortisation and impairment and asbestos-related items) was in line with last year at 22.3% (2015: 22.0%).

 

We expect the effective tax rate to remain below 25%.

 

During 2016, there was a tax credit on exceptional items of £26m (2015: £18m), and a tax credit of £43m on intangibles amortisation and impairment (2015: £27m).

 

The Group’s share of joint ventures’ income tax expense was £4m (2015: £10m).

 

Loss for the year from continuing operations

The loss for the year from continuing operations was £526m (2015: £253m) after intangibles amortisation and impairments of £655m (2015: £444m), the net asbestos-related costs of £4m (2015: income of £6m), net exceptional items of £133m (2015: £121m), and an income tax credit on those items of £69m (2015: £45m).

 

Adjusted profit for the year from continuing operations was 24% lower at £197m (2015: £261m).

 

Non-controlling interests

During 2016, there was a profit of £4m attributable to non-controlling interests (2015: loss of £1m).

 

Earnings per share

The diluted loss per share was 135.6p (2015: 67.2p), comprising a loss per share of 138.9p (2015: 66.1p) from continuing operations and a profit per share of 3.3p (2015: loss of 1.1p) from discontinued operations.

 

Adjusted diluted EPS from continuing operations was 50.4p (2015: 67.7p), the reduction being due to the decline in the profit for the year from continuing operations.

 

Dividend

The board has decided to suspend all dividend payments until sustainable free cash flow is being generated, and, as a result is not recommending a final dividend for the year. The interim dividend of 7.4 pence per share was paid on 4 January 2017.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
37
 

Financial review continued

 

Results by operating segment

Americas

£m unless stated  2016   2015   Change  Underlying
change
1
Revenue  2,516   2,646   -5%  -15%
(Loss)/profit before net financing expense  (203)  94        
–  Intangibles amortisation and impairment  241   46        
–  Exceptional items  71   22        
–  Share of trading loss of joint ventures     (1)       
Trading profit1  109   161   -32%  -39%
Trading margin1  4.3%   6.1%  -180bps    
Order book  £1.6bn  £2.0bn  -21%    

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190).

 

Revenue in Americas was £2,516m (2015: £2,646m), a decrease of 5%. Excluding the effect of currency movements, underlying revenue was down 15%. Growth in the Clean Energy and Environment & Infrastructure sectors offset declines in Oil & Gas and Mining.

 

Trading profit fell by 32% to £109m (2015: £161m). The main impact was in Oil & Gas where key contracts were delayed or cancelled by customers which caused a major decline in utilisation rates in Houston. As a result, trading margin was 4.3%, down by 180 basis points compared with 2015.

 

Northern Europe and CIS (NECIS)

£m unless stated  2016  2015  Change  Underlying
change
1
Revenue  1,497  1,492  In line  In line 
Profit before net financing expense  63  60       
–  Intangibles amortisation and impairment  42  41       
–  Exceptional items  10  13       
–  Share of trading profit of joint ventures  6  20       
Trading profit1  121  134  -10%  -9%
Trading margin1  8.1%  9.0%  -90bps    
Order book  £2.0bn  £2.4bn  -15%    

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190).

Revenue in NECIS was in line with last year at £1,497m (2015: £1,492m), with a higher level of Oil & Gas activity in the North Sea, driven by major offshore hook ups. Excluding the effect of currency movements, underlying revenue was also in line with 2015.

 

Trading profit decreased by 10% to £121m (2015: £134m). Trading margin was 8.1%, down 90 basis points compared with 2015 reflecting last year’s strong performance on contract close outs and the ending of the NMP contract at Sellafield during 2016, along with losses incurred in the Transmission and Distribution business following difficult market conditions in the second half.

 

Asia, Middle East, Africa and Southern Europe (AMEASE)

£m unless stated  2016  2015  Change  Underlying
change
1
Revenue  1,102  1,050  +5%  -5%
Profit before net financing expense  5  13       
–  Intangibles amortisation and impairment  42  23       
–  Exceptional items  10  28       
–  Share of trading profit of joint ventures  4  4       
Trading profit1  61  68  -10%  -22%
Trading margin1  5.5%  6.5%  -100bps    
Order book  £1.8bn  £1.8bn  +3%    

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190).

 

 

Revenue in AMEASE was up 5% year on year at £1,102m (2015: £1,050m). Weaker Oil & Gas revenues, with growth in the Middle East impacted by project deferrals, was partially offset by stronger performances from Mining and E&I. Excluding the effect of currency movements, underlying revenue was down 5%.

 

Trading profit was 10% lower at £61m (2015: £68m), reflecting revenue mix and cost over-runs on a fixed price US government contract in the Pacific. Trading margin was 5.5%, down 100 basis points compared with 2015.


 

38 Amec Foster Wheeler
Annual report and accounts 2016
 

Global Power Group

             Underlying  
£m unless stated  2016   2015  Change  change 1
Revenue   406   364  +12%  In line  
Loss before net financing expense   (234)  (302)       
–  Intangibles amortisation and impairment   275   334        
–  Exceptional items   8   4        
–  Share of trading profit of joint ventures   5   15        
Trading profit1   54   51  +6%  -6%  
Trading margin1   13.3%  14.0%  -70bps     
Order book  £0.4bn  £0.4bn  +2%     

 

1 Non-IFRS measure (see Performance measures on pages 188 to 190).

 

Revenues in GPG increased by 12% to £406m (2015: £364m), primarily driven by currency movements. On an underlying basis, revenue was in line with 2015.

 

Trading profit increased by 6% to £54m (2015: £51m) and trading margin was 13.3%, down 70 basis points, driven by pricing pressure in weak market conditions and lower resource utilisation.

 

Investment Services

During the periods under review, Investment Services principally comprised the Group’s wind development activities, the Group’s insurance captive and a range of other non-core activities. The Group’s interest in the Incheon Bridge PPP project in Korea and Amec Foster Wheeler Power SRL were classified as held for sale during the year.

 

Revenue in Investment Services was £16m (2015: £15m). Investment Services made a loss before net financing expense of £3m (2015: profit of £10m), after deducting impairment charges of £21m (2015:£nil), and an exceptional profit on disposal of businesses of £4m (2015: loss of £2m). Trading profit was £17m (2015: £14m) of which £3m (2015: £2m) was derived from joint ventures.

 

Discontinued operations

Discontinued operations represent the residual assets and retained obligations of businesses sold in prior years, together with the UK conventional power business that was classified as a discontinued operation during 2013.

 

Following favourable contract settlements in the UK conventional power business, there was trading profit from discontinued operations of £6m (2015: loss of £6m) and after a tax charge of £1m (2015: credit of £1m) there was a profit for the year of £5m (2015: loss of £5m).

 

Discontinued operations included a profit after tax on disposals of £7m (2015: £1m) arising from movements in indemnity provisions and costs associated with businesses sold in prior years.

 

Discontinued operations generated an overall profit for the year of £12m (2015: loss of £4m).

Acquisitions

There were no acquisitions during 2016 or 2015.

 

Acquisition of Foster Wheeler in 2014

On 13 November 2014, the Group acquired a 95.3% interest in Foster Wheeler AG by way of a public tender offer. Consideration payable for the interest acquired totalled £1,915m, of which £979m was settled in cash, £919m was settled by the issue of approximately 85m of the Company’s ordinary shares and £17m was settled by the grant of replacement share options and awards.

 

During 2015, management completed its assessment of the net identifiable assets of Foster Wheeler as at the acquisition date. This resulted in the recognition of goodwill of £1,726m on the acquisition of Foster Wheeler.

 

In January 2015, the Group acquired the remaining 4.7% interest in Foster Wheeler AG by way of a ’squeeze-out merger’ under Swiss law for consideration of £85m, of which £51m was paid in cash and £34m was settled by the issue of 4.3m of the Company’s ordinary shares and ADSs.

 

Further details of the acquisition of Foster Wheeler are set out in note 25 to the accompanying financial information.

 

Disposals

In March 2016, the Group announced its intention to reduce net debt via the disposal of non-core assets. During the year the following disposal groups met the definition of assets held for sale as set out in IFRS 5.

 

Disposal Group Location
Incheon Bridge Co. Ltd Korea
PetroPower Energia Limitada Chile
Amec Foster Wheeler Power SRL Italy
Aquenta Consulting Pty Limited Australia
GPG – Core Boiler Business Global

 

On 3 August 2016, the Group signed a sale and purchase agreement relating to its interest in The Incheon Bridge Co. Cash proceeds of £30m were received in December 2016, and reported within current payables. The disposal remains subject to regulatory approval but it is expected to complete in 2017.

 

The disposal of PetroPower Energia Limitada completed in December 2016 with proceeds of £40m.

 

In January 2017, the Company sold Aquenta Consulting Pty Ltd., a specialist consultancy business based in Australia, to Jacobs Group (Australia) Pty Ltd for £21m.

 

On 2 March 2017, the Company signed an agreement to sell its core boiler business to Sumitomo Heavy Industries, Ltd for £137m. The sale is conditional on customary regulatory approvals in certain jurisdictions and is expected to complete during the second quarter of 2017.

 

Also, on 2 March 2017, the Group announced its intention to dispose of its nuclear business. This business did not meet the definition of held for sale as at 31 December 2016.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
39
 

Financial review continued

 

Liquidity and capital resources

Trading cash flow

Trading cash flow of £375m was £13m lower than last year (2015: £388m), with a £34m reduction in profit before net financing income partially offset by working capital movements.

 

Cash conversion was 118% (2015: 104%).

 

Cash generated from operations

Cash generated from operations was £170m (2015: £220m), a reduction of £50m due to the reduction in trading cash flow and an increase of £62m in the cash outflow on exceptional and legacy items. This includes $70m paid following the Longview settlement (see note 21) and principally integration-related costs.

 

Purchases of property, plant and equipment

Purchase of property, plant and equipment and intangible assets (net of disposals) were £24m (2015: £36m).

 

Acquisitions and disposals

During 2016, there was a cash outflow of £2m in respect of deferred consideration arrangements on prior year acquisitions, £2m funding of joint ventures and payments of £5m in respect of businesses sold in prior years. Disposal proceeds of £70m were received being £40m in respect of the disposal of PetroPower Energia Limitada and £30m advance proceeds in respect of The Incheon Bridge Co. Ltd.

 

During 2015 there was a cash outflow of £5m in respect of deferred consideration arrangements on prior year acquisitions. There was a cash outflow of £54m from the acquisition of the non-controlling interests in Foster Wheeler and Kromav. This is presented within financing activities in the cash flow statement.

Movement in net debt

The movement in net debt may be analysed as follows:

 

    2016    2015 
Year ended 31 December   £m    £m 
Trading cash flow   375    388 
Write off of finance arrangement fees       (12)
Net asbestos-related payments   (21)   (22)
Excess of retirement benefit contributions over amounts recognised in trading profit   (4)   (3)
Cash outflow on exceptional items   (82)   (72)
Legacy settlements and discontinued operations   (88)   (36)
Dividends received from joint ventures   (35)   (42)
Exchange rate movements   25    19 
Cash generated from operations   170    220 
Income taxes paid (net)   (32)   (79)
Interest paid (net)   (47)   (35)
Capital expenditure (net of disposals)   (24)   (36)
Acquisitions and disposals (net)   61    (51)
Ordinary dividends   (113)   (167)
Net share movements   (2)   10 
Dividends received from joint ventures   35    42 
Exchange and other movements   (20)   33 
Cash movement in net debt   28    (63)
Non-cash movements   (103)   (80)
Movement in net debt   (75)   (143)
Opening net debt   (946)   (803)
Closing net debt   (1,021)   (946)

 

Net debt comprised:

 

   2016   2015 
As at 31 December  £m   £m 
Cash and cash equivalents   286    307 
Cash deposits   56    33 
Cash deposits >3m   22    23 
Financial derivatives   27    14 
Bank loans (net of facility fees)   (1,375)   (1,264)
Finance lease obligations   (51)   (59)
Net cash classified as held for sale   14     
Net debt   (1,021)   (946)


 

40 Amec Foster Wheeler
Annual report and accounts 2016
 

Cash balances

We manage our cash balances such that there is no significant concentration of risk in any one bank or other financial institution. We monitor closely the credit quality of the institutions that hold the Group’s deposits. Similar consideration is given to the Group’s portfolio of derivative financial instruments.

 

As at 31 December 2016, the Group had cash balances totalling £410m (2015: £363m), of which 78% was held in institutions with a long term credit rating of at least A- (or equivalent) by at least two internationally recognised ratings agencies.

 

Borrowings

Borrowing facilities

We seek to maintain a balanced capital structure comprising a mix of debt and equity, which is determined by considering the Group’s business profile and strategy, financial policies and the availability and cost of funding. The Group’s long-term net debt target is to be no more than two times trading profit.

 

On 1 March 2016 the Group entered into a new credit facility agreement with a syndicate of lenders comprising three tranches: a three-year £650m term loan (Facility A), a five-year £650m term loan (Facility B) and a five-year £400m revolving credit facility. This new facility replaced the Foster Wheeler acquisition facility of $2,260m.

 

In December 2016, Facility A was reduced by £39m following a mandatory repayment from the proceeds of disposal of PetroPower Energia Limitada. There was a further reduction of £20m in February 2017 following the disposal of Aquenta Consulting Pty Ltd.

 

As at 31 December 2016, the Group had committed banking facilities of £1,687m (2015: £1,768m). Including finance leases, there were total facilities of £1,745m (2015: £1,827m).

 

As at 31 December 2016, the Group had headroom of £300m against these committed facilities (in addition to cash, cash equivalents and bank deposits of £410m):

 

   Facility   Drawings1   Headroom 
   £m   £m   £m 
Credit facility agreement               
– Facility A   611    619     
– Facility B   650    667     
– Revolving credit facility   400    100    300 
Project debt   26    26     
Finance leases   58    58     
Committed facilities   1,745    1,470    300 

 

1 Drawings are in excess of the facility as a result of foreign exchange movements.

Interest rate profile

Our policy is to maintain between 30% and 70% of the Group’s borrowings at fixed rates of interest. We achieve this by using interest rate swaps and other interest rate derivatives. At 31 December 2016, after taking into account the effect of interest rate swaps and cross currency interest rate swaps, approximately 32% of the Group’s borrowings are at a fixed rate of interest (2015: 28%).

 

As at 31 December 2016, the weighted average effective cost of the Group’s outstanding borrowings was 3.6% and the effective interest maturity was 29 months.

 

Borrowing covenants

We are subject to customary covenants, representations and warranties in relation to our borrowing facilities. Our debt financing facility contains certain financial covenants as defined in the facility agreement including:

 

the ratio of consolidated net total borrowings to adjusted consolidated EBITDA must not exceed 3.75:1 for periods to 1 March 2018 and 3.5:1 from thereafter
  
the ratio of consolidated EBITDA to consolidated net finance costs must not be less than 3.0 times

 

We were in compliance with the financial covenants for the year ended 31 December 2016.

 

In April 2017 the lenders under the facility agreement agreed to restate the covenant for the ratio of consolidated net total borrowings to adjusted consolidated EBITDA to 4.5:1 for the period to 30 June 2018.

 

Currency profile of debt

We aim to maintain the currency of the Group’s debt in proportion to the currencies in which the net assets of the Group’s businesses are denominated. We achieve the desired currency profile of the Group’s debt by borrowing in the relevant currency and also by entering into currency derivative contracts.

 

As at 31 December 2016, the effect of our hedging activity on the currency profile of the Group’s debt was as follows:

 

   Debt before   Effect of   Debt after 
   hedges   hedges   hedges 
   £m   £m   £m 
Currency:               
– Sterling   1,067    (428)   639 
– US dollar   380    (29)   351 
– Euro   25    226    251 
– Canadian dollar       229    229 
    1,472    (2)   1,470 


 


 

Amec Foster Wheeler
Annual report and accounts 2016
41
 

Financial review continued

 

Other assets and liabilities

Goodwill and other intangibles

As at 31 December 2016, the carrying amount of goodwill was £2,164m (2015: £2,192m), with the reduction during the year resulting from an impairment of £214m recognised against the goodwill attributable to the Global Power Group business and £75m attributable to the Americas. In addition there was £60m of goodwill allocated to disposal groups, which was partially offset by currency movement of £321m. See note 12 for further details.

 

As at 31 December 2016, the carrying amount of other intangibles was £511m (2015: £833m), which comprised acquired identifiable intangible assets of £473m (2015: £753m) and computer software of £38m (2015: £80m). There were impairment charges of £177m recognised against the customer relationship and brand intangible assets and £34m against software. See note 12 for further details.

 

Amortisation of £129m was in line with last year (2015: £129m).

 

Research and development

Our engineering, project management and consultancy businesses seek to develop advanced engineering solutions for our customers targeted towards the achievement of new or improved functions and performance of their assets. Our businesses are involved in front-end and detailed engineering design and implementation and testing activities across a broad range of markets including the Oil & Gas, Mining, and Clean Energy sectors.

 

GPG also conducts research and development activities in the areas of combustion; solid, fluid and gas dynamics; heat transfer; materials; and solid mechanics. GPG licenses its technology to a limited number of third parties in selected countries or markets.

 

In the UK, the US and Canada, the Group claims research and development government credits. Research and development expenditure net of amounts recoverable from customers and government credits claimed is not material to the Group’s operating results.

 

Property, plant and equipment

As at 31 December 2016, property, plant and equipment amounted to £71m (2015: £127m), with a reduction of £56m during the year due as the transfer of assets with a net book value of £57m to held for sale and depreciation and impairment of £29m offset by additions of £17m and currency movements of £15m.

 

We hold the majority of the properties through which the Group operates under operating leases which are for varying periods and on differing terms. The Group has a network of over 350 offices worldwide, which range from regional hubs to smaller offices with more local focus.

 

Due to the geographical spread of the Group’s operations, there is no individual facility the loss of which would have a material adverse impact on the Group’s operations. Equally, there are no plans to construct, expand or improve facilities that would, on completion or cancellation, significantly affect the Group’s operations.

Post-retirement benefits

The Group operates a number of pension schemes for UK and overseas employees. As at 31 December 2015, the two most significant defined benefit schemes were based in the UK: the AMEC Staff Pension Scheme (an open “career average salary” scheme, which also has an associated Executive top-up scheme) and the Foster Wheeler Pension Plan (a legacy scheme that closed to further accrual in 2010). The next most significant was based in the US: The Foster Wheeler Inc. Salaried Employees Pension Plan which was closed to further accrual in 2003.

 

Following an employee consultation exercise at the end of 2015 and subsequent Trustee approval in early 2016, the Company closed the AMEC Staff and Executive top-up schemes to further accrual from 1 April 2016 and replaced them with a new defined contribution arrangement.

 

During 2016, all legacy defined benefit plans in the UK were merged into the AMEC Staff Pension Scheme, which was renamed the Amec Foster Wheeler Pension Plan on 1 April 2016. The merged scheme holds all the pension assets in a separately administered fund and is governed by the employment laws of the UK. The benefits are determined by the member’s length of service and salary each year. Once the benefits are in payment, the pension is adjusted each year in accordance with the scheme’s rules relative to UK price inflation. The scheme is established under trust law and is governed by a corporate Trustee Board (the “Trustees”), which consists of employers’ and employees’ representatives and two independent trustees. The Trustees are responsible for the management and administration of the scheme and for the definition of the investment strategy.

 

As at 31 December 2016, there was a net deficit of £137m on the Group’s defined benefit pension plans (2015: surplus of £63m) with the reduction principally due to changes in actuarial assumptions to reflect financial conditions at the year-end. During 2016, the Group contributed £20m (2015: £36m) to defined benefit pension plans and expects to contribute £23m in 2017, including special contributions of £12m.

 

Further information on the Group’s retirement benefit plans is provided in note 14 to the accompanying financial information.


 

42 Amec Foster Wheeler
Annual report and accounts 2016
 

Provisions

Provisions held at 31 December 2016 amounted to £619m (2015: £664m), with the substantial reduction during the year arising principally due to the release and utilisation of brought forward provisions of £99m and £72m respectively. Otherwise, additional provisions of £32m were created and there was an exchange movement of £84m on the opening balances.

 

Provisions may be summarised as follows:

 

    2016    2015 
As at 31 December   £m    £m 
Asbestos-related litigation   413    378 
Legal claims and actions   89    154 
Obligations relating to disposed businesses   60    78 
Property related provisions   17    19 
Other provisions   40    35 
    619    664 

 

Details of the provisions held by the Group are set out in note 21 to the accompanying financial information.

 

Asbestos-related obligations

The Group is subject to claims by individuals who allege that they have suffered personal injury from exposure to asbestos primarily in connection with equipment allegedly manufactured by certain of the Group’s subsidiaries during the 1970s or earlier.

 

We assumed the majority of our asbestos-related liabilities when we acquired Foster Wheeler in November 2014. Whilst some of these claims have been and are expected to be made in the United Kingdom, the overwhelming majority have been and are expected to be made in the United States. The disclosure below is therefore presented in respect of the US claims of the former Foster Wheeler entities. The estimates and averages presented have been calculated on the basis of the total historical US asbestos claims since the initiation of claims filed against such Foster Wheeler entities.

 

US Claim Activities  2016   2015   2014 
Number of claims:               
Open claims at beginning of year   110,130    118,870    125,240 
New claims received   3,800    3,420    3,730 
Claims resolved   (32,210)   (12,160)   (10,100)
Open claims at end of year1   81,720    110,130    118,870 

 

1 Includes 59,660 non-malignancy claims comprised of claims in inactive court dockets and claims over six years old at 31 December 2016. Mesothelioma and lung cancer claims are considered malignant claims.

The following table summarizes our approximate US asbestos related net cash impact for indemnity and defence cost payments and collection of insurance proceeds:

 

(All US $ in thousands)  2016   2015   2014 
Asbestos litigation, defence               
and case resolution payments   46,000    51,130    52,830 
Insurance proceeds   (17,220)   (17,460)   (21,110)
Net asbestos-related payments   28,780    33,670    31,720 

 

We expect to have net cash outflows of $30.4m as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2017. This estimate assumes no additional settlements with insurance companies and no elections by us to fund additional payments. As we continue to collect cash from insurance settlements, the asbestos-related insurance receivable recorded on our consolidated balance sheet will continue to decrease. We have discounted the expected future cash flows with respect to the asbestos-related liabilities and the expected insurance recoveries using discount rates determined by reference to appropriate risk-free market interest rates.

 

We have worked with our independent asbestos valuation expert to estimate the amount of asbestos-related indemnity and defence costs at each year-end based on a forecast to 31 December 2050. Each year we have recorded our estimated asbestos liability at a level consistent with our expert’s reasonable best estimate. The total asbestos-related liabilities are comprised of our estimates for our liability relating to open (outstanding) claims being valued and our liability for future un-asserted claims to 31 December 2050.

 

For the period to 31 December 2016, total cumulative indemnity costs paid, prior to insurance recoveries, were approximately $912m and total cumulative defence costs paid were approximately $474m, or approximately 34% of total defence and indemnity costs. The overall historic average combined indemnity and defence cost per resolved claim through 31 December 2016 has been approximately $3.1k. The average cost per resolved claim is increasing and we believe it will continue to increase in the future.

 

Over the last several years, annual claim filings against these Foster Wheeler entities have generally trended down. Claims for non-malignancies have decreased while claims for lung cancer and mesothelioma are approximately in line with our expert’s forecast. Together with our independent asbestos valuation expert, we continue to monitor claim filings to determine if any adjustments to our expert’s forecast are warranted.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
43
 

Financial review continued

 

The estimate of the liabilities and assets related to asbestos claims and recoveries is subject to a number of uncertainties that may result in significant changes in the current estimates. Among these are uncertainties as to the ultimate number and type of claims filed, the amounts of claim costs, the impact of bankruptcies of other companies with asbestos claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, as well as potential legislative changes. Increases in the number of claims filed or costs to resolve those claims could cause us to increase further the estimates of the costs associated with asbestos claims and could have a material adverse effect on our financial condition, results of operations and cash flows. See Risk factors on pages 177 to 187.

 

As at 31 December 2016, the Group recognised:

 

an asbestos-related provision of £450m (after the effect of discounting of £84m), which included estimates of indemnity amounts and defence costs for open and yet to be asserted claims expected to be incurred in each year in the period to 2050
  
insurance recoveries of £116m (after discounting of £3m)

 

Non-controlling interests

As at 31 December 2016, non-controlling interests in equity amounted to £11m (2015: £9m), with the increase during the year largely being due to share of profit for year attributable to non-controlling interests.

Distributable reserves

As at 31 December 2016, the Company’s distributable reserves stood at £548m (2015: £564m).

 

   £m 
As at 1 January 2016   564 
Dividends paid during 2016   (113)
Dividends received from subsidiaries   244 
Impairment charges   (64)
Integration costs   (28)
Other costs   (55)
As at 31 December 2016   548 

 

In total, there was a write-down of £571m against the investments in subsidiary undertakings. Of this, £507m was charged against the merger reserve, and so has no impact on distributable profits, and £64m against the profit and loss account reserve.

 

During 2012, the Company generated a significant profit from a Group restructuring which becomes distributable as qualifying consideration is received by the Company in settlement of the associated loan. There were no repayments of this loan during 2015 or 2014, and a repayment during 2016 was not considered to be qualifying consideration.


 

Contractual obligations

As at 31 December 2016, the Group’s contractual obligations were as follows:

 

   Earliest period in which payment due  
      Less than  Between one  Between two  After more  
   Total  one year  and two years  and five years  than five years  
   £m  £m  £m  £m  £m  
Bank and other loans                 
Principal  1,413  106  4  1,299  4  
Interest1  195  50  54  91   
Derivative financial instruments1,2  73  45    28   
Finance leases  58  12  14  23  9  
Operating leases  379  95  91  133  60  
Post-retirement benefits3  23  23       
Total4  2,141  331  163  1,574  73  

 

1 Floating rate interest payments and payments on the floating rate legs of interest rate derivatives are estimated based on market interest rates as at 31 December 2016.
   
2 Payments on foreign currency derivatives are estimated based on market exchange rates as at 31 December 2016.
   
3 Post-employment benefit obligations represent contributions to which the Group is committed and are not subject to potential future adjustment to reflect investment performance and other actuarial factors.
   
4 Future payments relating to the Group’s uncertain tax positions are not included because it is not practicable to estimate reliably the timing of these cash outflows.

 

44 Amec Foster Wheeler
Annual report and accounts 2016
 

Off-balance sheet arrangements

At 31 December 2016, the Group had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Group’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Details of the Group’s operating lease commitments are set out in note 26 to the consolidated financial statements.

 

Outlook for 2017

Given conditions in natural resources end markets, our 2016 trading performance was robust, as we benefited from the breadth of our business – especially the record performance from solar – cost saving actions and the fall in sterling in the second half of the year.

 

We continue to expect another year of decline in oil and gas activity in 2017 and for solar activity to reduce significantly from the record levels seen in 2016. It is also expected that there will be a better performance from environment and infrastructure and a further significant contribution from standalone overhead cost savings.

 

This year, we will continue to leverage the outstanding technical expertise of our people to best serve our customers and deliver projects safely across all the markets in which we operate. This and the improvements we have made to the business will ensure we continue to make significant progress in 2017.

 

Going concern

As at 31 December 2016, the Company had net debt of £1,021m. Committed facilities under the principal Debt Facility Arrangement and other smaller facilities were £1,745m of which £300m was undrawn. The Company has taken steps to reduce its debt including the disposal of non-core assets, cost savings measures and suspending dividend payments until the Company is generating sustainable free cash flow. Despite the actions taken to date, there remained a risk that the leverage ratio would exceed the maximum leverage ratio under the Debt Facility Arrangement of 3.75:1 in the measurement period ended 30 June 2017 and in subsequent periods.

Should there be a breach of the leverage covenant, the lenders could demand accelerated repayment and the Company may not have the funds to make these repayments. To ensure continued compliance with its financial covenants, the Company has approached its banking group and successfully agreed a waiver to increase the leverage covenant in its banking facilities to 4.5:1 to provide additional headroom through to the reporting period ending 30 June 2018. The Directors have a reasonable expectation that the Company and the Group will comply with this revised covenant and will be able to operate within the level of available facilities and cash for the foreseeable future and accordingly believe that it is appropriate to prepare the financial statements on a going concern basis.

 

We outline on pages 28 to 32 the principal risks and uncertainties that may affect the Group’s results, cash flows and financial position.

 

Directors’ approval statement

The strategic report, as set out on pages 1 to 45, has been reviewed and approved by our board of directors.

 

 

 

Ian McHoul

Chief Financial Officer
25 April 2017


 


 

Amec Foster Wheeler
Annual report and accounts 2016
45
 

Chairman’s governance overview

 

Good corporate governance underpins effective long-term company performance. Your board is responsible for the Group’s governance and is committed to delivering the highest standards for the benefit of all stakeholders.

 

Dear shareholder

This section of the report examines the work of your board over the past 12 months and the processes we have implemented.

 

We once again carried out a review of the effectiveness of your board. Best practice is for these reviews to be facilitated by an external specialist every three years, and we had a full external review by Lintstock in 2015. This year Lintstock assisted us with our internal review, which we carried out by questionnaire. Lintstock prepared a report on the findings which was presented at the January 2017 board meeting and which are summarised on page 58.

 

In April 2016, the UK Financial Reporting Council issued a revised version of the UK Corporate Governance Code* (the Code). Although we are not yet required to comply with this version of the Code, our belief in adopting the highest standards means that we have chosen to report against this framework this year. In the opinion of the directors, your Company has complied with the provisions of the April 2016 edition of the Code, in respect of the year ended 31 December 2016. The governance report examines how we have applied these provisions.

 

This was the second year that your Company needed to comply with the provisions of the US Sarbanes-Oxley Act of 2002, which governs management’s assessment of internal controls over financial reporting. We have again successfully achieved compliance by 31 December 2016. This process added further requirements to the activities of your board’s committees.

 

In my Chairman’s report on page 8, I outline the board changes which have occurred since the start of 2016. After a comprehensive search by Korn Ferry, the board appointed Jon Lewis as Chief Executive Officer on 1 June 2016. This followed Samir Brikho stepping down as Chief Executive Officer in January. Ian McHoul, our Chief Financial Officer, was interim CEO until Jon’s appointment.

Since my last report, Neil Carson has retired from the board and Colin Day has taken on the role of Senior Independent Director. Roy Franklin has been appointed Chairman of the Remuneration Committee and a member of the Audit Committee. Kent Masters has indicated his intention to retire from the board following the conclusion of the AGM and he will step down as a member of the HSSEE Committee at the same time. Bob Card joined the board on 1 March 2017 and is a member of the Audit and HSSEE Committees. Bob has over 40 years of experience in the oversight, operations and management of infrastructure, power, mining and energy projects and I am delighted that he has joined our board.

 

In addition to filing an annual report in the UK, we are required to also file our annual report in the US on Form 20-F, which complies with the reporting requirements of the New York Stock Exchange, US securities laws and the rules of the Securities and Exchange Commission applicable to foreign private issuers. We have again produced a combined annual report and annual report on Form 20-F to ensure we provide consistent information to all our investors.

 

As required by the SEC, a summary outlining the significant differences between the Company’s corporate governance practices as a UK listed company and those followed by US companies can be found on pages 208 to 209.

 

As we have explained in the strategic report, your Company is going through a period of significant change. The board has an important role to play in overseeing this transformation and we will continue to apply the highest standards of governance to assure effective implementation to the benefit of shareholders.

 

 

 

John Connolly

Chairman
25 April 2017

 

*Printed copies of the UK Corporate Governance Code can be obtained from www.frcpublications.com


 

46 Amec Foster Wheeler
Annual report and accounts 2016
 

Leadership and effectiveness

Our board of directors

 

Our board members are selected to ensure and maintain an effective balance of skills, experience, independence and knowledge of the areas in which Amec Foster Wheeler operates and in the duties and responsibilities associated with being a director of a listed company.

 

 
     

John Connolly

Chairman of the board, Chairman of the nominations committee and a member of the remuneration committee

A chartered accountant, John spent his career until May 2011 with global professional services firm Deloitte. John joined the firm in 1980, serving in various roles of increasing responsibility. During his time at Deloitte, he held a wide range of senior leadership positions in the United Kingdom and internationally. He was Global Chairman between 2007 and 2011 and Global Managing Director from 2003 to 2007. He was Senior Partner and CEO of the UK Partnership from 1999 until his retirement from the Partnership in 2011.

 

John is chairman of G4S plc and also of a number of private companies.

 

Beyond commercial business roles, John is Chairman of the Board of Trustees of Great Ormond Street Hospital Charity and a member of the CBI President’s Advisory Council.

 

Term of office

John was appointed as non-executive Chairman on 1 June 2011 and was considered to be independent on appointment in accordance with the requirements of the Code.

 

His term of office was extended in March 2015 for a second three-year term to the date of the 2018 AGM.

 

Jon Lewis

Chief Executive Officer

Prior to joining Amec Foster Wheeler, Jon had been employed in a number of senior roles at Halliburton Company Inc since 1996 – most recently as a Senior Vice President and member of the Halliburton Executive Committee, with responsibility, since 2014, for leading its largest division, Completion & Production. Prior roles included leadership of the Europe/Sub-Saharan Africa Region (the largest operating region outside North America) and the Drilling and Evaluation Division.

 

He joined Halliburton following nine years in academia, where he was NERC research fellow at the Royal School of Mines at Imperial College in London and Conoco Lecturer in Petroleum Geology at Heriot Watt University, Edinburgh. Jon holds a BSc in Geology from Kingston University and a PhD in Geology/ Sedimentology from the University of Reading.

 

Term of office

Jon was appointed Chief Executive Officer on 1 June 2016 and has no fixed term of office. His service contract is terminable on six and twelve months’ notice by him and the Company respectively.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
47
 

Leadership and effectiveness continued

Our board of directors continued

 

         
             

Ian McHoul

Chief Financial Officer

Ian qualified as a Chartered Accountant with KPMG in 1984. His early career was spent in the brewing industry. Between 1985 and 1995 he held various positions with the Foster’s Brewing Group, including General Manager, Strategy. He was Finance & Strategy Director of the Inntrepreneur Pub Company Limited from 1995 to 1998 and then served at Scottish & Newcastle plc from 1998 to 2008, first as Finance Director of Scottish Courage and later as Group Finance Director of Scottish & Newcastle plc. Ian holds a BSc in Mathematics from the University of Bristol.

 

Term of office

Ian was appointed Chief Financial Officer on 8 September 2008 and served as interim CEO from 17 January 2016 to the appointment of Jon Lewis on 1 June 2016. Ian has no fixed term of office. His service contract is terminable on six and twelve months’ notice by him and the Company respectively.

 

External appointments

Ian has been a non-executive director of Britvic plc since March 2014 and was a non-executive director of Premier Foods plc from July 2004 to April 2013.

 

 

Linda Adamany

Non-executive Director, Chairman of the health, safety, security, environmental and ethics (HSSEE) committee and a member of the audit, remuneration and nominations committees

Linda has over 40 years’ business experience, with 27 in the international energy sector. Between 1980 and 2007. Linda held a number of executive positions at BP plc in the UK and US. During that time, she held various executive roles in refining and marketing, exploration and production and petrochemicals, including Chief Executive of BP Shipping and Group Vice President and Commercial Director, BP Refining & Marketing.

 

In March 2013, Linda was appointed a non-executive director of Coeur Mining, Inc., a US-based publicly quoted primary silver producer, where she serves as chairman of the audit committee and is a member of the environmental, health, safety and social responsibility committee. In March 2014, Linda was appointed to the board of directors of Leucadia National Corporation, a US-based, NYSE-listed, diversified holding company engaged through its consolidated subsidiaries in a variety of businesses, where she is a member of the audit and the nominating and corporate governance committees. From 2006 to 2012, prior to joining Amec Foster Wheeler, Linda was a non-executive director of National Grid plc and a member of their audit, nominations and safety, environment and health committees. Linda is a qualified accountant (CPA) with a BSc in Business Administration from John Carroll University, Ohio, and has also undertaken post-graduate, non-degree executive programmes at Harvard, Cambridge and Tsinghua universities.

 

Term of office

Linda was appointed a non-executive director on 1 October 2012. In January 2016, her term of office was extended for a second three-year term to the date of the 2019 AGM.

 

Bob Card

Non-executive Director, member of the audit and health, safety, security, environmental and ethics (HSSEE) committees

Bob has over 40 years of experience in the oversight, operations and management of infrastructure, power, oil & gas, mining and environmental projects. Between 2012 and 2015, Bob was the President, Chief Executive Officer and a board member of SNC-Lavalin Group, Inc. Between 1975 and 2012 he spent his career at CH2M where he held a variety of executive management positions, including almost 14 years as a member of its board. While at CH2M, he also served as deputy programme manager for the London 2012 Olympics for the Delivery Partner, CLM. He was also the project manager for one of the world’s largest and most successful nuclear weapons plant remediation projects for the Rocky Flats site in Colorado.

 

Bob was the Under Secretary of the U.S. Department of Energy between 2001 and 2004 responsible for all the Department’s business in Energy, Environment and Science. He has prior relationships with the Center for Strategic & International Studies (CSIS) and the Brookings Institution. He holds a Master’s Degree in Environmental Engineering from Stanford and completed the Executive PMD program at Harvard Business School. He is currently the President of The Card Group, LLC, an executive consultancy.

 

Term of office

Bob was appointed a non-executive director on 1 March 2017 for an initial term of three years, which will end at the 2020 AGM.

 

In accordance with the Company’s articles of association, Bob will retire from office at the forthcoming AGM and offer himself for election.

 

 

Colin Day

Senior Independent Director, Chairman of the audit committee and a member of the remuneration and nominations committees

Colin has more than 25 years of experience of blue chip companies including Aegis Group Plc, ABB Group, De La Rue Group Plc and British Gas. Colin served as Chief Executive Officer of Essentra plc (formerly Filtrona plc) from 1 April 2011 to 31 December 2016 and remained on the board until the conclusion of Essentra’s annual general meeting on 20 April 2017. Prior to Essentra, he was Chief Financial Officer of Reckitt Benckiser Group plc from 2000 to 2011. Between 1995 and 2000, he served as Group Finance Director of Aegis Group plc. He spent six years in a number of divisional finance director positions with ABB Group and served as Group Finance Director of ABB Kent Instrumentation and ABB Kent plc from 1988 to 1994. Colin started his career in 1973 as a trainee accountant at Kodak. He is a Fellow of the Association of Chartered Certified Accountants and holds an MBA from Cranfield School of Management, UK.

 

Colin has been a director of FM Global since January 2014 and was appointed as a non-executive director and chairman of the audit committee of Meggitt plc on 1 October 2015. He was previously a non-executive director of WPP plc from 2005 to June 2015. Colin was appointed to the FRC Audit Advisory Group on 3 July 2014.

 

Term of office

Colin was appointed a non-executive director on 14 October 2010. His term of office was extended in January 2017 for a third three-year term to the date of the 2020 AGM.

 

 

48 Amec Foster Wheeler
Annual report and accounts 2016
 
       
             

 

Roy A Franklin

Non-executive Director, Chairman of the Remuneration Committee and member of the audit and nominations committees

Roy has more than 40 years’ experience as an executive in the oil & gas industry. He spent 18 years at BP, latterly as Head of M&A, BP Exploration, after which he was Group MD of Clyde Petroleum and then CEO of Paladin Resources until its acquisition by Talisman Energy in 2005. Since then Roy has served on a number of international energy boards in non-executive roles, and until recently, was chairman of Keller Group plc.

 

Roy is currently deputy chairman of Statoil ASA and a non-executive director of Santos Ltd. He is also currently chairman of privately-owned Cuadrilla Resources Holdings Ltd, and a member of the advisory board of Kerogen Capital LLC. Roy holds BSc in Geology from the University of Southampton.

 

Term of office

Roy was appointed a non-executive director on 1 January 2016 for an initial term of three years, which will end at the 2019 AGM.

 

 

 

Kent Masters

Non-executive Director and member of the health, safety, security, environmental and ethics committee (HSSEE)

Kent was the Chief Executive Officer of Foster Wheeler AG from 2011 until the completion of the acquisition by AMEC in November 2014. Prior to joining Foster Wheeler, he served as a member of the Executive Board of Linde AG, a world leading gases and engineering company, from 2006 to 2011. At Linde, Kent had responsibility for the Americas, Africa, the South Pacific, the global business unit Healthcare, and the business area Merchant and Packaged Gases. He was employed by BOC Group plc from 1984 until the acquisition of BOC by Linde in 2006. Kent served in roles of increasing responsibility at BOC, including as Chief Executive, Industrial and Special Products, from 2005 to 2006, and as President, Process Gas Solutions-Americas from 2002 to 2005. He also served on the board of directors of BOC from 2005 to 2006. Kent served as the non-executive chairman of African Oxygen Limited from 2005 to 2011.

 

Kent joined the board of Albemarle in January 2015 following its acquisition of Rockwood Holdings, Inc. where he had served as a director since 2007. Kent is a member of the compensation committee at Albemarle and served on the audit and compensation committees at Rockwood.

 

Term of office

Kent was appointed a non-executive director on 13 February 2015. He will be retiring from the board at the close of the 2017 AGM having served over two years as a non-executive director.

 

 

Stephanie Newby

Non-executive Director, member of the audit and health, safety, security, environmental and ethics (HSSEE) committees

Stephanie is the Chief Executive Officer of Crimson Hexagon, a big data social media analytics company. Prior to Crimson Hexagon she founded Golden Seeds in 2004, an investment company that provides investment capital to early-stage, high-growth companies. Previously, she spent 20 years working in the financial services industry in Sydney, London and New York, with the majority of her career spent with J.P. Morgan, where she headed several global businesses serving as Global Head of Futures and Options, Head of International Private Banking, Chief Operating Officer of Global Equities and Head of eCommerce.

 

Appointed in 2004, Stephanie was a member of the Foster Wheeler AG board until the completion of the acquisition by AMEC, serving on the audit and governance and nominating committees. She also previously served as a non-executive director and member of the audit and compensation and HR committees of RiskMetrics Group, Inc. Stephanie also holds a BA in English Literature from the University of Sydney.

 

Term of office

Stephanie was appointed a non-executive director on 13 November 2014 for an initial term of three years, which will end at the 2018 AGM.

 

 

 

We will continue to seek to build upon and complement the board’s existing skills set, including a focus on increased diversity, whether this is through gender, race, nationality, thought or general background.

 

 

Independence of non-executive directors

The board considers that, with the exception of Kent Masters, whose previous employment by Foster Wheeler precludes him from meeting the required independence criteria, the non-executive directors are independent and free from any relationships or circumstances that could affect their independent judgement.

 

 


 

Amec Foster Wheeler
Annual report and accounts 2016
49
 

Leadership and effectiveness continued

Amec Foster Wheeler governance structure

 

 

 

 

50 Amec Foster Wheeler
Annual report and accounts 2016
 

Board role and responsibilities

 

The board is collectively responsible for delivering sustainable long-term shareholder value in line with its obligations to, and the expectations of, the Company’s stakeholders.

 

The board is responsible for setting the Company’s strategic aims and providing the leadership and resources to achieve its objectives. The board’s role is to be distinguished from overall operational management, which is the responsibility of the Chief Executive Officer who, in turn, delegates authorities to the Chief Financial Officer, business line and functional leaders. They have in turn further delegated authorities to their teams.

 

In order to ensure it retains appropriate overall control of the Group, a number of key matters are not delegated to management and as such the board maintains a schedule of matters reserved for its approval. These include:

 

annual strategic and short-range plans
  
financial and treasury policies
  
risk identification, risk appetite, risk management and internal control systems
  
high-value potentially high-risk projects
  
major acquisitions and disposals
  
Code of Business Conduct and Health, Safety, Security, Environmental and Ethics policies
  
full and half-year accounts
  
dividend policy
  
succession planning for directors and senior executives
  
group-wide policy framework
  
ensuring the effectiveness of governance practices
  
appointment and removal of the Company Secretary

 

This schedule is reviewed for continued acceptability on an annual basis. In August 2016, the schedule was reviewed and a couple of minor changes were made in relation to due diligence in HSSE matters. No further changes were deemed necessary.

 

High quality corporate governance helps to underpin long-term company performance and the board is responsible for maintaining strong governance practices and regularly reviewing the Company’s governance structure as illustrated on page 50.

 

The Code of Business Conduct is the cornerstone of the Company’s approach to governance and is applicable to all employees, including the Chief Executive Officer, Chief Financial Officer and other senior financial professionals. The Code of Business Conduct is the responsibility of, and is upheld by, the board; it acts as a guide for our day-to-day working life, providing a practical application of Amec Foster Wheeler’s values and ensuring all those who work for and under Amec Foster Wheeler’s direction understand the behaviour that is expected of them. The Code of Business Conduct, which is available to employees in 14 different languages, complies with relevant UK and US regulations and is available on the Company’s website at amecfw.com/ethics.

A global policies document works in conjunction with the Code of Business Conduct providing further detail and elaboration on matters affecting all of Amec Foster Wheeler’s businesses. The global policies document describes the key policies for directing and managing the Group’s businesses consistently in accordance with our vision and values. These global policies are supported by a set of mandatory procedures, which further explain how the policies are to be applied. Together, the global policies and procedures set the framework within which business, functional and local policies and procedures are set. The board approves the group-wide policy framework. On a day-to-day basis, the board has delegated responsibility for implementation of the global policies and ownership of the procedures to the Executive Committee. The board considers the global policies to be part of the risk-based approach to corporate governance and the maintenance of sound internal controls.

 

In order to discharge its role, the board is also responsible for maintaining sound risk management and internal control systems. The board has a rigorous and comprehensive risk management approach to protect the Group’s assets and the interests of its stakeholders and create an environment for business success. The board regularly reviews the effectiveness and adequacy of the Group’s financial, operational, compliance and risk management systems.

 

The board is supported in its work by four board committees (nominations, audit, HSSEE and remuneration), chaired by either the board Chairman or another non-executive director, and a number of management committees and groups, chaired by executive directors (or other senior individuals), to which specific responsibilities have been delegated. You can find out more about the membership, duties, responsibilities and work of these committees in the dedicated reports that follow. Full written terms of reference for each board committee can also be found online at amecfw.com/aboutus/corporate-governance.

 

The directors believe that the board leads the Group effectively and that all directors act in accordance with what they consider to be the best interests of the Company, consistent with their statutory duties under the Companies Act 2006 and other legislation.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
51
 

Leadership and effectiveness continued

Board composition

 

As at 31 December 2016, the board comprised the non-executive chairman; two executive directors (the Chief Executive Officer and the Chief Financial Officer); and six non-executive directors.

 

On 1 January 2016, Roy Franklin was appointed as a non-executive director of the Company. The Company announced on 18 January 2016 that Samir Brikho had stepped down as Chief Executive Officer. Ian McHoul fulfilled the role of interim CEO, alongside his role as Chief Financial Officer, until the appointment of Jon Lewis as Chief Executive Officer on 1 June 2016. On 31 December 2016, Neil Carson stepped down as a non-executive director of the Company.

 

On 1 March 2017, Bob Card was appointed as a non-executive director of the Company. Kent Masters will be retiring from the board as a non-executive director at the close of the 2017 AGM.

 

 

 

 

Details of the directors, including their biographies, other significant commitments and committee memberships can be found on pages 47 to 49. Details of the directors’ service contracts, emoluments and share interests are set out in the remuneration report on pages 72 to 88.

 

The Company’s articles of association require all directors to seek election by shareholders at the AGM following their initial appointment and re-election every three years thereafter. However, in line with the recommendations of the Code, our practice is that all directors submit themselves for re-election on an annual basis. All of the directors wishing to continue serving, and considered eligible by the board, will offer themselves for re-election at the 2017 AGM.

 

The independence of the non-executive directors is continually monitored and formally assessed as part of the board’s annual evaluation process. The board considers that, with the exception of Kent Masters, whose previous employment by Foster Wheeler precludes him from meeting the required independence criteria, the non-executive directors are independent and free from any relationships or circumstances that could affect their independent judgement.

 

The balance of executive and non-executive directors provides continuity on the board while ensuring no one individual, or group of individuals, dominates the decision-making process.

 

The varied backgrounds and commercial experience of the non-executive directors, and their independence from management, ensures rigorous debate at meetings and constructive challenge and oversight of the executive directors in relation to the strategic direction and performance of the Group.

 

 

 

 

 

 

As part of the Company’s broader diversity initiative, it supports the recommendations of the final report in the Davies Review series. For a short period of time, 22% of our board will be female until Kent Masters retires from the board at the close of the 2017 AGM, after which, 25% of our board will again be female. The board will take into consideration the recommendation of the Hampton-Alexander Review, that FTSE 350 companies should aim to build the representation of women on their boards to 33% by 2020, when considering future candidates for board appointments. Candidates for board appointments are evaluated on merit in light of the requirements of the role, having due regard to the Group-wide commitment to diversity and inclusion. The board recognises the importance of diversity, including but not limited to gender balance across the Group more generally. In recognition of this, Amec Foster Wheeler won the Diversity and Inclusiveness Award at the Oil & Gas UK Awards 2016. In June 2016 we celebrated our first global diversity and inclusion week which focused on ‘thinking differently, together’ and provided our employees with the opportunity to question and challenge themselves and others, to share their views, and to listen to the ideas and thoughts of others on the importance of diversity and inclusion on a global scale. During the year, we also saw the launch of our second series on women in leadership which was an initiative driven to provide support and empower young women across the business to take ownership of their careers. The gender diversity of the Company and its senior management is shown on page 25.

 

 

 


 

52 Amec Foster Wheeler
Annual report and accounts 2016
 

The Chairman and
Chief Executive Officer

 

The Company does not combine the roles of Chairman and Chief Executive Officer. There is a clear and well-defined division of accountability and responsibility between the roles of the Chairman and Chief Executive Officer and these are set out in writing and have been agreed by the board. The consequence of this clear division of responsibility at the head of the Company is such that no individual has unrestricted powers of decision. The Chairman and Chief Executive Officer are committed to ensuring the development and maintenance of an effective and trusting relationship with the appropriate balance between challenge and support.

 

The Chairman is primarily responsible for the leadership and effectiveness of the board. He is accountable for promoting effective board relationships and the participation of all board members, so as to encourage a culture of openness and debate and enable the board to fulfil all aspects of its role. The Chairman has undertaken to ensure that the board discharges its duties to promote the success of the Company for the benefit of all stakeholders and to guide Amec Foster Wheeler’s business and conduct in accordance with the highest ethical standards.

 

Each year the Chairman produces a board plan intended to summarise the board’s activities in executing its duties during the year. The plan highlights the priorities the board has identified for the year, and those of the Chief Executive Officer, and can be modified to take account of any unscheduled developments. In chairing and setting the agenda for board meetings, the Chairman ensures sufficient time is available for discussion and meaningful challenge in areas such as strategy, performance, value creation and accountability.

 

Subject to matters reserved for the board, the Chief Executive Officer is responsible for the leadership of Amec Foster Wheeler’s businesses with the primary objective of creating shareholder value. Consistent with this objective, overall operational management is delegated to the Chief Executive Officer who, together with the Executive Committee, is responsible for the proposal, development and implementation of the Group’s overall strategy, driving execution, growing markets and customers and developing our people. The building and maintenance of an effective executive management team, and the allocation of responsibility therein, are key components of and essential to the performance of the Chief Executive Officer’s role.

 

The Chief Executive Officer also takes the lead role in the promotion of Amec Foster Wheeler, setting the tone in the realisation of the Company’s vision and values and encouraging the highest standards of health, safety, security, environmental and ethical performance.

Senior Independent Director

 

 

Colin Day has acted as the board’s Senior Independent Director since the retirement of Neil Carson on 31 December 2016. Colin was selected for the role on account of his significant knowledge of Amec Foster Wheeler and its operations and his experience as a director of international companies. Both the nominations committee and the board considered that Colin best met the criteria required for the role. The Senior Independent Director is responsible for:

 

providing additional support to and acting as a sounding board for the Chairman on board-related matters
  
acting as an additional channel of communication between the Chairman and the other directors where necessary
  
being available to shareholders for concerns they may have that have not been resolved through the normal channels of the Chairman, Chief Executive Officer or other executive directors, or which are not appropriate to raise through these channels
  
acquiring an objective understanding of the issues and concerns of Amec Foster Wheeler’s shareholders through attendance at a sufficient number of meetings with the company’s major shareholders and financial analysts
  
at least annually establishing the views of the non-executive directors as to the performance of the Chairman
  
following completion of the above evaluation exercise, providing feedback to the Chairman on his performance
  
overseeing the search for a new Chairman, as required


 


 

Amec Foster Wheeler
Annual report and accounts 2016
53
 

Leadership and effectiveness continued

Non-executive directors

 

The non-executive directors are crucial in bringing an external perspective and wide range of skills, experience, expertise and diversity of views to the board’s deliberations and the development of strategy. The membership of each of the board committees is structured to ensure the most effective use of each non-executive director’s time and to reflect their individual skills and experience. The non-executive directors constructively challenge and scrutinise the performance of management against agreed objectives and provide an invaluable contribution to the work of the board’s committees. The board benefits greatly from the contribution and balance they bring and to ensure this continues, the Chairman holds meetings with the non-executive directors, without the executive directors present, immediately following most scheduled board meetings.

 

The board’s policy is that non-executive director appointments are normally for three consecutive three-year terms, subject to assessment by the nominations committee after the end of each term. The committee makes recommendations on reappointments to the board.

 

To ensure their independence and ability to constructively challenge, the external commitments of each non-executive director, including those of the Chairman, are reviewed prior to appointment. In accordance with the board’s policy to ensure that the non-executive directors are not conflicted and are able to commit sufficient time to meet their duties and responsibilities to Amec Foster Wheeler, all additional prospective appointments are also disclosed to the board to determine whether they present a detrimental effect. Each director’s undertaking as to their ongoing commitment to the role, together with an assessment of their continued independence, is reviewed as part of their annual performance evaluation.

 

Amec Foster Wheeler’s non-executive directors are not employed by the Company in any capacity. Kent Masters was the former Chief Executive Officer of Foster Wheeler AG and Stephanie Newby was formerly an independent non-executive director of Foster Wheeler AG.

 

The letters of appointment of the non-executive directors are available for inspection at the Company’s registered office by request to the Company Secretary and will be available for inspection at the company’s forthcoming AGM.


 

54 Amec Foster Wheeler
Annual report and accounts 2016
 

Board meetings

 

The board holds a minimum of six regular meetings throughout the year, scheduled in accordance with an annual timetable. Additional board meetings and telephone conference calls are held as required to deal with specific issues. In 2016 there were 7 scheduled meetings and 6 unscheduled meetings.

 

Directors are expected to attend all scheduled board and relevant committee meetings, unless they are prevented from doing so by unavoidable prior business commitments or other valid reasons. All directors are provided with full papers in advance of each meeting. Where a director is unable to attend a meeting, they are encouraged to discuss any issues arising with the Chairman or Chief Executive Officer as appropriate.

 

Number of meetings attended

 

   Scheduled  Unscheduled
John Connolly  7/7  6/6
Samir Brikho (until 18 January 2016)  0/0  1/1
Jon Lewis (from 1 June 2016)  4/4  1/1
Ian McHoul  7/7  6/6
Linda Adamany  7/7  5/6
Neil Carson  5/7  5/6
Colin Day  6/7  5/6
Kent Masters  7/7  6/6
Stephanie Newby  7/7  6/6
Roy Franklin  7/7  5/6

 

Unscheduled meetings were convened throughout the year to consider such matters as trading updates and director appointments. As these were not scheduled, members were not always able to attend but were provided with full packs of information and were invited to make comments.

 

At least one scheduled meeting each year takes place away from Amec Foster Wheeler’s head office in London. This provides the board with an opportunity to understand more about Amec Foster Wheeler’s business and to meet employees based locally. The October 2016 board meeting and board strategy discussions took place in Kuwait, where the board met with local management and also visited a client clean fuels project site.

In addition to the matters reserved for the board, certain items are considered at every scheduled board meeting. The Chief Executive Officer provides a report on business performance, strategy execution and emerging issues and the Chief Financial Officer updates the board on financial results and progress against the short-range plan. Reports are also received on investor relations and market issues, HR and HSSEE matters. In addition, the Chairman and the Chief General Counsel and Company Secretary provide an update on legislative, regulatory and governance matters and twice yearly the Chief General Counsel and Company Secretary provides updates on material claims and disputes.

 

Senior management is regularly invited to present at board meetings and, led by the business line presidents, provides ‘deep dive’ reviews of each business line. In addition to standing items discussed at each meeting, the board considers a regular schedule of financial and planning matters including the approval of financial results and dividends; special matters including the review and approval of strategy; the determination of major risks and risk appetite and transaction and competitor reviews. The board receives an annual presentation from the Chief People Officer on senior management succession planning and management development. In August 2016, a discussion took place on the strategy for the development of talent and performance and an update on succession planning but a fuller review has been deferred to 2017 due to the new organisation structure and reconfiguration of the senior leadership team. The board has also identified a range of topic reviews that are addressed annually and these include the strategies followed by the corporate functions eg Tax, Treasury and IT, as well as the board effectiveness and composition reviews.

 

The board also holds a separate additional meeting each year to perform a full strategic review of the Group. On account of the overseas visit being postponed until October 2016, the strategy event was held at the same time in Kuwait. During this meeting, the new organisational structure and strategy was presented and discussed, which is designed to bring us closer to our customers, improve the consistency of project delivery and sustainably reduce our overhead costs, thus offering long term opportunities to offset the current headwinds in areas such as offshore greenfield oil and gas and mineable oil sands.

 

The Company Secretary is fundamental in ensuring the efficiency and effectiveness of the board and its committees and is responsible for ensuring that the directors have timely access to full, accurate and relevant information and whatever resources they need to undertake their duties. Agendas and supporting papers for board and committee meetings are circulated approximately one week prior to the meeting date to allow sufficient time for review and enable informed debate and challenge at meetings.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
55
 

Leadership and effectiveness continued

Board meetings continued

 

Where the directors, particularly non-executive directors, require further insight on an issue, the Company Secretary will facilitate this from the business or relevant members of the senior management team. Members of senior management are regularly invited to attend board meetings to present on specific projects and issues. The Company Secretary also ensures that the correct board procedures are followed from both a legal and a regulatory perspective.

 

In addition to the advice and services of the Company Secretary, a formal process exists for the directors to obtain independent professional advice, at the Company’s expense, where appropriate and necessary to discharge their responsibilities. The Company Secretary is responsible for the organisation and co-ordination of access to such advice. The Company Secretary ensures that a timely and accurate record of all meetings of the board and its committees is taken and circulated. In addition, the chairman of each board committee reports fully to the board following each meeting and minutes are made available to the board.

 

If a director had a concern about the running of the Company or a proposed action that could not be resolved, this would be recorded in the minutes. In addition, upon resignation, should a director have any such outstanding concerns, they would be invited to provide the Chairman with a written statement for circulation to the board. No such statements were received during 2016.

 

Conflicts of interest

 

The board has procedures in place for the disclosure and review of conflicts of interest. No material conflicts of interest arose in 2016. Prior to appointment, prospective directors provide information on any conflicts of interest, and thereafter any potential conflicts of interest are considered at the start of each board meeting. Accordingly, each director is aware of their responsibility to avoid a situation where they have an actual or potential conflict of interest, the requirement to keep the same under review and inform the Chairman and Company Secretary of any change in their situation. An effective procedure is in place for the board to authorise conflict situations in accordance with the Companies Act 2006 and the Company’s articles of association, should they arise. In other cases, the conflict is managed by excluding the relevant director from the discussion.

 

The Company Secretary is responsible for keeping appropriate records, including the scope of any authorisations granted by the board, and ensures the board undertakes regular reviews of conflict authorisations. Such matters are normally recorded in the minutes of the relevant meetings.

 

Executive directors are not permitted to accept external appointments without the prior approval of the board. The board will review the nature, scope and complexity of any proposed external appointments, to ensure they will not adversely impact a director’s ability to devote such time and energy to their role as is necessary to discharge their responsibilities effectively or create any potential conflicts.


 

56 Amec Foster Wheeler
Annual report and accounts 2016
 

Professional development

 

The Company Secretary assists the Chairman in the co-ordination of director induction upon appointment and ongoing training. A comprehensive induction programme is in place for all new directors which takes into account their previous experience, background and role on the board. The programme is tailored accordingly to:

 

provide an understanding of the duties and responsibilities of a director and their particular role
   
build an understanding of how the board operates within Amec Foster Wheeler’s structure
   
further their knowledge and understanding of Amec Foster Wheeler’s culture, its business and operations and the markets and countries in which it operates
   
establish a link with Amec Foster Wheeler’s management and people
   
establish an understanding of the Company’s main relationships

 

New directors are provided with key board, operational and financial information and relevant legislatory and regulatory guidance. The programme is designed so as to prioritise and vary the delivery of materials to optimise its effectiveness and facilitate completion in a timely manner. The programme involves a combination of documentation, accessible via the portal used by the board to communicate and share documents electronically, meetings with other members of the board, senior management and their extended teams, key external parties including the Company’s advisers and, where appropriate, major shareholders, and site visits where possible. Where a new director is to serve on a board committee, induction material relevant to the committee is also provided. Progress against the induction programme is reviewed with the director midway throughout the process to ensure a smooth transition into director training and ongoing development.

 

Ongoing training, relevant to each director’s individual development needs, continues after appointment. The Chairman endeavours to review the training and development needs of the directors at least annually. The aim is to ensure the further enhancement of their skills and knowledge of the business, so that they continue to fulfil their role effectively on the board and its committees.

Internally facilitated training is arranged by the Company Secretary on topics and issues relevant to the operation of the board and the responsibilities of the directors. The board receives presentations from management on changes and significant developments in the business. Updates on changes in legislation and communications from the Company Secretary’s office on key developments in corporate governance are also provided. In addition, use is made of external auditor and adviser training programmes. During the year the board received presentations from internal and external experts on such matters as anti-bribery and corruption, information systems, the new Market Abuse Regulations, and the Modern Slavery Act. From time to time the directors individually attend seminars and conferences related to their areas of expertise and responsibility.

 

To further develop the directors’ understanding of the Group’s businesses and culture, the board undertakes visits to various places of Amec Foster Wheeler business. As previously mentioned, during the year the board visited some of the Group’s operations in Kuwait.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
57
 

Leadership and effectiveness continued

Evaluation

 

In line with the recommendations of the Code, each year a formal performance evaluation review is undertaken of the board, its committees and the directors individually. In 2016, the performance evaluation was internally facilitated with the support of Lintstock, a third-party service provider. Lintstock have been the provider of the Company’s insider list management software since 2011 and have assisted with the board evaluation process since 2014, but other than this, have not undertaken any other work of any kind for the board or the Company.

 

This year, the review process involved the completion of a tailored questionnaire by each director which was designed to establish their perceptions in a number of areas considered to be key to an effective board.

 

Lintstock’s report on the findings of this survey of board effectiveness was discussed at the board’s January 2017 meeting. In summary, the results were very positive and engagement and interaction amongst board members continue to be very strong. The main observations from the evaluation were:

 

the appointment of Roy Franklin in the year as a non-executive director was identified as a valuable addition of oil & gas sector experience, providing greater industry experience which was desired by the board
   
the relationships between the board members and the board and wider senior management were rated highly and the non-executive directors’ support and challenge of management was positively rated
   
the management of meetings in terms of setting the annual cycle of work and management of time and input during the meetings was considered to be very good
   
the effectiveness with which the board reviewed past performance and influenced future performance was rated positively, although it was suggested that more time might be spent on strategy considerations and review of large projects
   
the clarity of the articulation of the conclusions reached was positively rated and the importance of monitoring progress noted
   
the board’s overall oversight of the risk appetite was rated highly although it was considered that there should be greater alignment in some areas between risk appetite and post-mitigated risks
   
the handling of the transition to a new Chief Executive Officer and the overall process by which a successor was selected and appointed was rated highly

A number of areas for improvement were identified and these will continue to be addressed over the coming year as part of the board plan. These include:

 

continued exposure to senior management to aid assessment of the broader management team
   
focus on the board’s priorities including strengthening of the balance sheet
   
delivery of the Company’s growth initiatives and cost reduction plans
   
enhancement of the board’s experience in the industries and geographies in which the company operates
   
continued focus on the strategic objectives of the Group and their execution

 

In addition, and as required by the Code, the Senior Independent Director, having taken the views of the non-executive and the executive directors, reviewed the performance of the Chairman. The Senior Independent Director met with the Chairman in April 2017 to review his performance during 2016. The Chief Executive Officer conducts annual performance development reviews with his direct reports.


 

58 Amec Foster Wheeler
Annual report and accounts 2016
 

Nominations committee

 

 

The nominations committee is primarily focused on evaluating the board of directors and on examining the skills, characteristics and dynamics that are needed to run an effective board.

 

Dear shareholder

The Group continues to undergo transformational change and the nominations committee has played a key role over the last 12 months in ensuring your Company has the leadership it needs.

 

Most significantly, the committee led the search process that resulted in Jon Lewis’ appointment as Chief Executive Officer on 1 June 2016. In recommending Jon’s appointment to the board, we noted that he had the strategic vision, operational skills and the values that your Company required, and that he was the outstanding candidate for the role.

 

The committee believes that the board members have a strong blend of skills, experience and length of service, as shown by the chart on page 52. One of the committee’s key tasks is to ensure that the board remains appropriately balanced and to nominate new board members who will add valuable knowledge to the board’s deliberations. With Neil Carson retiring from the board at the end of 2016 and Kent Masters indicating his intention to retire at the conclusion of the AGM in June 2017, the committee has determined that the board would benefit from recruiting additional non-executive directors with relevant industry experience.

 

We were therefore pleased to recommend to the board the appointment of Bob Card, who joined the board on 1 March 2017. Bob has over 40 years’ experience in the oversight, operations and management of infrastructure, power, mining and energy products, and we are delighted that he has joined us.

 

 

John Connolly

Chairman of the nominations committee

25 April 2017

Members

During 2016, the nominations committee comprised the Chairman, Linda Adamany, Colin Day and Roy Franklin. The quorum for the committee is two members. There were six committee meetings held in the year.

 

Membership and attendance of the nominations committee up to 31 December 2016

 

   Meeting attendance
John Connolly (Chairman)  6/6
Linda Adamany  4/6
Colin Day  5/6
Roy Franklin  5/6

 

Meetings of the committee are usually called at short notice to consider matters as they arise. This means that members may not always be available, but they are always fully apprised of matters to be discussed and their views sought and taken into account. Due to prior commitments, Linda Adamany was unable to attend two meetings called at short notice and Colin Day and Roy Franklin were both unable to attend one meeting called at short notice due to prior commitments.

 

At its meeting on 5 December 2016, the board approved the terms of reference for the committee as remaining fit for purpose and no changes were required. The terms of reference of the committee are available to review on amecfw.com.

 

There have been no changes to the membership of the committee in 2017.

 

Key responsibilities

The committee is mindful of the board’s desire to maintain an appropriately diverse and balanced membership, in terms of skills, experience, independence and knowledge of the Group, taking into account the benefits of diversity, so as to ensure the delivery of the Group’s strategy and performance. The committee regularly reviews the board’s structure, size and composition against these criteria and the board selection criteria referred to on page 60.

 

Together with the board, the committee also considers board succession planning in conjunction with reports from the Chief Executive Officer and Chief People Officer on senior management succession planning, so as to ensure that an appropriate balance of skills is maintained both within the senior management team and on the board.

 

As part of the internally conducted board effectiveness review undertaken in 2016, the performance of the committee was also evaluated and this was overall rated highly. As an area for further improvement, it was suggested that there be greater focus on succession planning which would improve the ability of the board to evaluate top management.

 


 


 

Amec Foster Wheeler
Annual report and accounts 2016
59
 

Leadership and effectiveness continued

Nominations committee continued

 

Activities of the committee

Following Samir Brikho’s departure on 17 January 2016, the Company appointed Ian McHoul as the interim CEO and appointed the executive search firm, Korn Ferry, to assist the Company in its search for a new Chief Executive Officer. Both internal and external candidates were considered.

 

A role specification had been prepared to assist in distilling a long list of both internal and external candidates. Both internal and external candidates were interviewed by the Chairman and Chief People Officer and the resulting shortlist of candidates was interviewed by all the board members. After careful consideration of both his academic and professional background and the current needs of the Company, the committee recommended the appointment of Jon Lewis to the board, and he joined the board on 1 June 2016. Jon brings with him over 30 years’ experience in the oil and gas industry, including 20 years as a senior executive at Haliburton

 

Korn Ferry has been appointed as one of the search partners of the Company and a global agreement has been put place in respect of this appointment.

 

In early 2016, the committee recommended Linda Adamany be appointed as a non-executive director for a second three-year term of office on the basis of her significant relevant international experience and her knowledge of the activities of the Group. The board approved the recommendation and her second three-year term will end at the conclusion of the 2019 AGM.

 

In September 2016, Neil Carson announced his intention to retire from the board at the end of 2016 and from his roles of Senior Independent Director and Chairman of the Remuneration Committee. After careful consideration, the committee concluded that Colin Day best met the required criteria to replace Neil as Senior Independent Director and Roy Franklin was appointed as the Chairman of the Remuneration and a member of the Audit Committee, both with effect from 31 December 2016.

 

In October 2016, the Company appointed the executive search firm, The Zygos Partnership (Zygos) to search for two new non-executive directors, with experience in the Oil, Gas and Chemicals industry, or the Mining sector, or who could bring diversity to the board in the form of geography and/or gender.

 

Zygos identified a long list of quality candidates within the Oil, Gas and Chemicals industry from which the committee identified a shortlist of candidates. Several of the members of the board interviewed the candidates and after due and careful consideration, due to his significant relevant experience, the committee recommended the appointment of Bob Card to the board with effect from 1 March 2017. Bob was also appointed a member of the Audit and Health, Safety, Security, Environmental and Ethics committees.

 

Bob Card has over 40 years’ experience in the oversight, operations and management of infrastructure, power, mining and energy projects and is the former CEO of SNC-Lavalin Group Inc.

 

Zygos had previously worked with the Company in respect of its search for a new Chairman in 2011 and in respect of the process that led to Linda Adamany’s appointment in 2012 and Roy Franklin’s appointment in 2016. Other than this they have not undertaken any other work of any kind for the board or the Company.

 

In June 2016, the committee reviewed the board selection criteria and confirmed it remained appropriate to be used to identify any gaps in the overall experience and knowledge of the board as a whole and to assist appropriately in the future board selection process.

 

In early 2017, the committee considered the reappointment of Colin Day as a non-executive director for a second three-year term of office as his first three-year term would end at the 2017 AGM. On the basis of his significant relevant financial experience and his knowledge of running a business as CEO, the committee recommended that he should be reappointed for a second three-year term.


 

60 Amec Foster Wheeler
Annual report and accounts 2016
 

Our Executive committee

 

 

Distinct from the executive directors (shown on pages 47 to 49), the Executive Committee comprises the following senior operational and functional management:


 

 

Eddie Aaron

President, Power & Process

Appointed to this position in January 2017, Eddie previously held the role of Vice President of Business Acquisitions for the Power & Process Americas business. Eddie joined Amec Foster Wheeler in 2008 as Vice President of Construction. In this role, he was responsible for the construction group’s P&L performance and safe execution of EPC (engineering, procurement, construction) projects. Eddie has more than 38 years’ experience in the construction industry with an extensive background in scheduling, estimating, cost control, and project management. His EPC project delivery experience spans many energy market sectors including solar, wind, gas, conventional power, and bio process industries. Prior to joining Amec Foster Wheeler, Eddie held a number of leadership roles, including as President of Watkins Engineers & Constructors and Chief Operating Officer of Milton J. Wood Company. Eddie completed the Construction Executive Program at Texas A&M University.

 

Rod Carr

Chief Information Officer

Rod was appointed Chief Information Officer on 2 August 2016. Immediately prior to that he was Group Chief Information Officer for Centrica Energy. He joined Centrica in 2010 from Scotia Gas Networks plc, where he was IT Director – a role he also performed at AEP Energy Services between 2002 and 2003. Rod is also a former managing consultant with PA Consulting and was a Consulting Director with Arthur Andersen. Rod is a Fellow of the Chartered Management Institute and a Member of the British Computing Society.


 

 

Garry Dryburgh

Chief Transformation Officer

Garry was appointed Chief Transformation Officer on 1 August 2016, immediately prior to which he was President, Middle East & Africa. Previously, he led the integration of Amec Foster Wheeler and prior to that he was Executive Vice President, Asia Pacific for AMEC. Before joining the business in 2006 Garry spent 16 years working internationally for one of the world’s largest drilling contractors. Garry has a strong operations, programme and change management background, with extensive experience across our core markets, acquired over the years on six continents. Garry holds an MSc in Project Management, Lancaster University and a BSc in Mechanical Engineering, Robert Gordon University Aberdeen. He is a Fellow of the Institute of Directors, Fellow of Association for Project Management, Member of Institution of Mechanical Engineers, and a registered Chartered Engineer. Garry remains an active member of a Government / Industry Leadership Set Group following his participation in a UK Cabinet Office Top Management Programme in 2009.

 

Rupert Green

Chief Corporate Development Officer

Rupert was appointed to this position on 11 January 2017, with responsibility for the Company’s strategy, M&A and investor relations functions. Prior to this he served as Head of Investor Relations from 2013. He has almost 20 years’ experience of capital markets and M&A. Before joining Amec Foster Wheeler he was a director in the corporate broking team at Deutsche Bank, where he acted as a company adviser across a number of sectors supporting equity issues and corporate transactions, including for AMEC. He started his career as a trainee in a forensic accountancy practice. Rupert holds a Master’s degree in geography from Oxford University and is currently a member of the UK Investor Relations Society’s policy committee.


 

 

Dave Lawson

President, Mining

Appointed to this position in January 2017, Dave previously held the role of President, Global Mining and Metals Markets. He joined Foster Wheeler in May 2013 as President of Minerals & Metals. Prior to that, Dave held various roles within Ausenco, Aker, Kvaerner, Trafalgar House and the Davy McKee group of companies, accumulating over 35 years of executive management experience in the engineering & construction business in the mining & metals, power, oil & gas and environmental industries. He has considerable international experience including long term assignments in the USA, UK, Australia, India, Greece, South Africa, Brazil and Chile. Dave is currently a Director of the British Chamber of Commerce in Chile. He holds a B.Sc (Hons) in Electrical/Electronic Engineering from the University of Aston, Birmingham and a M.Sc. in Project Management from Cranfield University (School of Management), UK.

 

Ann Massey

President, Environment & Infrastructure

Appointed to this position in January 2017, Ann previously held the role of Global E&I Market President. Ann has over 30 years’ experience in project, programme, operations and business development in the engineering, construction and environmental markets. Prior to joining Amec Foster Wheeler, Ann held various operations and business development leadership roles, including President of the engineering and consulting and construction businesses within MACTEC and as CEO of MACTEC, Inc. Ann holds a B.S. in Geology and an MBA from Tennessee Technological University.


 


 

Amec Foster Wheeler
Annual report and accounts 2016
61
 

Leadership and effectiveness continued

Our Executive committee continued

 

 

Gary Nedelka

President, Global Power Group

Gary was appointed President, Global Power Group on 1 January 2015, having served as Chief Executive Officer of Foster Wheeler’s Global Power Group since January 2009. Prior to this, he served as President and Chief Executive Officer of Foster Wheeler North America Corp., an indirect, wholly-owned subsidiary within the Global Power Group. Previously he was President and General Manager of operating companies in China and he held a variety of positions of increasing responsibility in commercial operations and engineering management. He joined Foster Wheeler in 1979 and is a member of the American Society of Mechanical Engineers. Gary holds a BSc in Mechanical Engineering from Clarkson College of Technology.

 

John Pearson

Division President, Oil, Gas & Chemicals

John was appointed Division President, Oil, Gas & Chemicals on 1 January 2017. Most recently he held the position of Group President, Americas and prior to that Group President Northern Europe & CIS. John joined the company in 1990 and has held a variety of roles in engineering and project management in Aberdeen, Baku and London, John led Amec Foster Wheeler’s oil & gas projects and asset support business streams globally, serving first as Head of Global Oil & Gas Projects from 2001 to 2003 and Head of Global Oil & Gas Asset Support from 2004 to 2007. He joined Amec Foster Wheeler from Chevron, where he held a number of engineering roles. He is former co-chair of Oil & Gas UK, and former chair of the Offshore Contractors Association and Pan Industry Efficiency Task Force. John holds a BSc (Hons) in Engineering from Aberdeen University.


 

 

John Raine

Chief HSSE Officer

John was appointed Chief HSSE Officer on 23 January 2017, prior to which he was Vice President of Quality, Health, Safety, Security and Environment (QHSSE) at Weatherford, based in Houston. He began his career in the British Army, moving after six years to a role in the Prison Service in Peterhead, Scotland, where he worked with some of the country’s most serious offenders. A focus on a more family-friendly profession saw him join the Wood Group in Aberdeen in 2007 – a move that marked the beginning of a distinguished career in oil and gas. John soon moved to Weatherford and into HSSE, where his passion for and dedication to HSSE took him to Australia, Malaysia and the United States. John holds a PgDip in Human Resource Management from the Robert Gordon University.

 

Jeff Reilly

President, Business Development

Jeff is currently serving as President, Business Development for Amec Foster Wheeler, where he leads the Company’s overall business development activities across all market segments globally. Jeff has over 30 years of industry experience and, prior to joining Amec Foster Wheeler, worked for a variety of international engineering and construction firms, including ABB Lummus Global and Stone & Webster, where he served as Vice President at both Engineering and Construction organisations. Most recently, Jeff spent nine years at ConocoPhillips/Phillips 66, ultimately as the group’s Chief Procurement Officer and Global Head of Projects. He has an MBA in Finance and International Business from the University of Houston and a BS in Chemical Engineering from The University of Texas (Austin) where he is an External Advisory Council Member for the Department of Chemical Engineering.


 

 

Will Serle

Chief People Officer

Will was appointed Chief People Officer on 1 January 2017. He has held a number of senior HR related positions including Group Human Resources Director since May 2011, and previously Human Resources Operations Director since 2009. Will is also responsible for sustainability at Amec Foster Wheeler. He joined the Company in 2000 as Human Resources Director for the oil & gas business, moving to the Natural Resources role in 2006. Since 2014, he has served on the board of Engineers Against Poverty. Will holds a Master’s degree in Human Resources from the Robert Gordon University and is a Fellow of the CIPD.

 

Alison Yapp

Chief General Counsel and Company Secretary

Alison was appointed General Counsel and Company Secretary on 1 December 2012. Immediately prior to joining the Company she was Company Secretary and General Legal Counsel of Hays plc, previous to which she was Company Secretary and Group Legal Adviser of Charter plc. She has almost 25 years’ experience as a senior lawyer in industry. She began her career in private practice at Turner Kenneth Brown, advising corporate and commercial clients in M&A before moving in-house to Johnson Matthey plc where she held various senior legal roles. Alison holds an LLB (Hons) from Bristol University and is a qualified solicitor.


 

62 Amec Foster Wheeler
Annual report and accounts 2016
 

Management committees

 

 

The board has also created a number of management committees and groups that deal generally with more operational matters.

These are chaired by executive directors or other senior individuals and members are drawn from senior management within the Group. The minutes of each of these meetings are circulated to each board meeting.


 

Committee  Members  Responsibilities
Corporate transactions committee  Chief Executive Officer (chairman); Chief Financial Officer; Chief General Counsel and Company Secretary; Head of Mergers and Acquisitions.  The corporate transactions committee considers mergers, acquisitions and disposals and approves transactions where the consideration or assumption of liabilities, as appropriate, is £5m or less, and above this level it submits recommendations to the board for approval. In addition it determines transaction guidelines that are in line with Group policies and procedures.
Disclosure committee  Group Financial Controller (chairman); Chief General Counsel and Company Secretary; Head of Risk Management and Insurance; Head of Group Assurance; Director of Tax and Treasury; Director of Communications; Chief Corporate Development Officer.  The disclosure committee assists the audit committee with regard to verifying the information that is required to be disclosed in the Company’s material public disclosures and in its periodic reports. This is intended to ensure such disclosures are in compliance with all relevant laws, rules and regulations, including the UK Listing Authority, the London Stock Exchange, the New York Stock Exchange and the US Securities and Exchange Commission.
Inside information disclosure committee  Chief Executive Officer (chairman); Chief Financial Officer; Chief General Counsel and Company Secretary; Chief Corporate Development Officer.  The inside information disclosure committee assists the Company in its obligations to manage the process of the identification and treatment of inside information, including accurate and timely disclosure in accordance with the Company’s legal and regulatory responsibilities. The Committee also overseas the management of the Company’s insider lists.
HSSE review committee  Chief Executive Officer (chairman); Executive Committee.  The HSSE review committee’s key responsibility is to provide effective oversight of the Company’s performance and management of HSSE issues across the Group. This includes the evaluation of the effectiveness of the Group’s policies and management systems in respect of managing health, safety, security and environmental risk in both current and future operations.
Pensions and retirement benefits committee  Chief Financial Officer (chairman); Chief General Counsel and Company Secretary; Chief People Officer; Head of Group Pensions.  The pensions and retirement benefits committee reviews and recommends the establishment of any new or replacement pension arrangements, any material amendments to existing pension schemes, and the discontinuance, winding up or merger of any existing arrangement. It also agrees with the trustees of those pension arrangements appropriate funding plans to secure the benefits promised.
Risk committee  Chief Executive Officer (chairman); Chief Financial Officer; Chief General Counsel and Company Secretary; Company Commercial Director; Head of Risk Management and Insurance.  The risk committee performs an integral role in the governance of risk within Amec Foster Wheeler by providing advice and assistance to the board enabling it to fulfil its responsibilities in determining the risk appetite of the Group and the effectiveness of the risk management and internal control systems that support it. It also reviews the Amec Foster Wheeler plc risk register and the potential impact of any issues on the risk appetite and the risk profile of the Group. It reports on key risk issues such as new business and geographical locations and also makes recommendations on the insurance programme for the Group.
Share allotment committee  Any two directors or a director and the Chief General Counsel and Company Secretary or the Deputy Company Secretary (the chairman to be appointed from those directors present).  The share allotment committee approves the allotment of new shares or the issue of existing shares held in treasury following the exercise of options under the Savings-Related Share Option Scheme.
Tender review committee  Chief Executive Officer (chairman); Chief Financial Officer; Chief General Counsel and Company Secretary; Head of Risk Management and Insurance; Company Commercial Director.  The tender review committee primarily reviews and approves proposed tender submissions for contracts to be undertaken by the business lines that are outside the delegated authority of the business line presidents. Higher risk contracts with an estimated revenue in excess of US$750m also require the approval of the board.
Transformation steering committee  Executive Committee (the chairman being either the Chief Executive Officer or the Chief Transformation Officer)  To set the ambition and then maximise the value achieved from the transformation programme in each of the workstreams and across the Company operations and functions. Workstreams range from: strategy, organisational design, operating model, driving competitiveness, business development, through to back office systems and global business services.


 

Amec Foster Wheeler
Annual report and accounts 2016
63
 

Accountability

Risk management and internal control systems

 

The board has overall responsibility for setting Amec Foster Wheeler’s risk appetite, and for maintaining sound risk management and internal control systems. Responsibility for risk management activities and practices, and internal control systems, is undertaken on behalf of the board by the audit committee and risk committee, both of which provide reports to the board on their work. Regular reviews of the effectiveness and adequacy of the Group’s financial, operational, compliance and risk management systems are undertaken and considered by the board. These systems can, however, only provide reasonable assurance against material misstatement or loss, as they are designed to manage rather than eliminate the risk of failure to achieve business objectives.

 

The internal control processes are complemented by an annual control self-assessment exercise carried out by the principal businesses. This covers health, safety and environment, legal, commercial and contractual, financial, information technology and human resources. The results are reviewed by the board, through the audit committee, as part of the ongoing internal control monitoring process.

 

Amec Foster Wheeler has interests in a number of joint arrangements where controls may not be reviewed as part of the Group’s formal corporate governance process because of the joint management responsibilities. Responsibility for such reviews rests with the joint venture and joint operations boards and these are reviewed from time to time as part of Amec Foster Wheeler’s normal internal audit process. Details of the Company’s related undertakings can be found on pages 212 to 221.

 

The board and its committees have an ongoing process that is reviewed regularly by the board for identifying, evaluating and managing the principal risks faced by Amec Foster Wheeler, including strategy, major projects to be undertaken, significant acquisitions and disposals, as well as entry into and exit from different markets. This process and the associated internal control systems accord with the September 2014 Financial Reporting Council Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.

 

Where appropriate, business decisions are reached following a structured and documented review of potential opportunities and threats, taking steps designed to manage or mitigate any risk exposure.

 

The threats and opportunities associated with tender submissions are reviewed by commercial review boards at various levels in the Group in line with the delegated authorities. Tenders that are outside the delegated authority of the business lines are also reviewed by the tender review committee and, in addition, tenders for entering into high-risk contracts with an estimated revenue in excess of $750m are approved by the board. The most significant contractual issues in terms of risk require the approval of the relevant business line lead and the business line Company Commercial Director.

 

As a result of its ongoing involvement in and overview of risk management and internal control systems across the Group, the board is satisfied that the systems in place remain effective. Further details of the Group’s risk management process, including reporting and monitoring, and roles and responsibilities, can be found on page 28.

A significant programme of work was undertaken following the acquisition of Foster Wheeler to integrate the control framework and risk and control systems with those of the wider group, and 2015 saw the Group reach full compliance with our obligations under the US Sarbanes-Oxley Act of 2002 (SOX). Work continued during 2016 on the continued development and refinement of the Group’s obligations under SOX. Pursuant to section 302 of SOX, we have again carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) under the supervision and the participation of the Executive Committee, which is responsible for the management of the internal controls, and which includes the Chief Executive Officer and the Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation as at 31 December 2016, we have concluded that the disclosure controls and procedures (i) were effective at a reasonable level of assurance as of the end of the period covered by this annual report in ensuring that information required to be recorded, processed, summarised and reported in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarised and reported within the time periods specified in the SEC’s rules and forms and (ii) were effective at a reasonable level of assurance as of the end of the period covered by this annual report in ensuring that information to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to the Executive Committee, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Pursuant to section 404 of SOX, under the supervision and the participation of the Executive Committee, which includes the Chief Executive Officer and Chief Financial Officer, management is responsible for establishing and maintaining adequate internal control over financial reporting. We have carried out an evaluation of the effectiveness of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that our internal control over financial reporting was effective as at 31 December 2016.

 

Ernst & Young LLP has audited the consolidated financial statements for the year ended 31 December 2016 and has also assessed the effectiveness of our internal control over financial reporting. Their attestation report can be found on page 103.

 

During the period covered by this annual report, we have not made any changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


 

64 Amec Foster Wheeler
Annual report and accounts 2016
 

Audit committee

 

The audit committee’s main objective is to assist the board in fulfilling its oversight responsibilities, by providing independent scrutiny of the company’s financial and non-financial performance, the adequacy of the risk management framework and internal controls, and related governance and compliance matters. The committee members’ wide diversity of experience and knowledge helps to achieve these objectives, and to provide constructive challenge and guidance to the senior management team.

 

Dear Shareholder

I am pleased to present our annual audit committee report and trust it will give you insight to the workings of this committee and the matters we considered during 2016. The committee had another busy year, during which it oversaw management’s refinements to its second year Sarbanes-Oxley compliance programme (SOX). These refinements are designed to make the Group’s SOX processes more resilient and efficient, and this work will continue throughout 2017 as the Group restructures and the announced asset disposals take place.

 

A new Director of SOX, with extensive experience, was appointed in May last year and directly updated the committee at each of its meetings on the Group’s SOX programme. As committee chairman, I also met separately on a regular basis with senior management, the Head of Group Assurance for internal audit and SOX matters, and, the external service provider engaged to underpin the group’s SOX programme. As you would expect, the external auditor reviews our SOX processes throughout the year and has provided regular feedback directly to me and the committee.

As I said in my 2015 statement, bringing two sizeable, complex, and wide ranging companies together makes for a challenging environment, particularly around business culture, systems, policies and procedures. Management continues to consolidate its systems, culture, and mandatory policies, procedures, and controls across the integrated business. Your committee and the board continue to give high priority to these areas and focus strongly on management’s adherence to the revised arrangements. Your committee has a number of inputs that keep it appraised of how well management is doing in this regard, not least the valuable reports the committee receives from the external and internal auditors, which are reviewed at every audit committee.

 

The committee continued to oversee the internal and external audit activities to monitor the capability and resources of both the internal audit and SOX teams. The committee and your board are well aware of the ever increasing cyber threat, and management has appointed a new Chief Information Officer and a new Chief Information Security Officer, to refresh and bring new insights and focus to this area of risk.

 

Our principal objectives are to be proactive and to provide constructive challenge of the information we receive, particularly the integrity of the Group’s financial statements, significant areas of judgement, other relevant financial information and overall risk appetite. Throughout the year the committee has received timely and relevant information from management. These reports have been appropriate, concise, and transparent, which has enabled your committee to discharge its duties effectively.

 

Finally, on behalf of the committee, I would like to thank Neil Carson for his service to the committee over the past six years and to welcome Roy Franklin and Bob Card, who between them bring considerable industry experience to this committee and the board.

 

 

 

Colin Day

Chairman of the audit committee

25 April 2017


 


 

   
Amec Foster Wheeler
Annual report and accounts 2016
65
 

Accountability continued

Audit committee continued

 

Members

The committee meets at least three times each year and the quorum for the committee is two members.

 

Membership and attendance of the audit committee up to 31 December 2016

    Scheduled    Unscheduled 
Colin Day (Chairman)   3/3    2/2 
Linda Adamany   3/3    2/2 
Neil Carson   3/3    1/2 
Stephanie Newby   3/3    1/2 

 

There were three scheduled audit committee meetings in 2016 and two unscheduled meetings. The unscheduled meetings were arranged at very short notice and two members had prior commitments.

 

Colin Day has relevant and recent experience in auditing and accounting and the board considers that he has sufficient financial experience and qualifications to satisfy the criteria under US rules for an audit committee financial expert. The audit committee as a whole has competence relevant to the sector in which the company operates. Biographies of all committee members can be found on pages 47 to 49.

 

Following Neil Carson’s retirement from the committee at the end of 2016 and Roy Franklin and Bob Card joining the committee, the membership of the committee currently comprises Colin Day (Chairman), Linda Adamany, Stephanie Newby, Roy Franklin and Bob Card.

 

The Company Chairman, the executive directors, the Chief General Counsel and Company Secretary, the Group Financial Controller, the Group Chief Accountant, the Head of Group Assurance, the Company Commercial Director and representatives of the external auditor also attended meetings throughout the year.

 

During 2016, the committee met separately with the external auditor, the Head of Group Assurance and the Chief Financial Officer, in each case without others being present.

 

During the year the committee’s terms of reference were reviewed and updated to reflect the 2016 UK Corporate Governance code, updated FRC Guidance for Audit Committees including their revised Ethical Standard for non-audit services, and changes to the Disclosure and Transparency Rules. These are available to view at amecfw.com.

Key responsibilities

The committee’s key responsibilities are:

 

reviewing the annual and half-yearly financial statements with particular focus on key accounting and audit judgements and making recommendations to the board for their approval

 

monitoring the clarity of disclosures, the going concern assumptions, the viability statement and compliance with IFRS

 

reviewing and monitoring the internal controls and risk management systems, in particular internal controls over financial reporting

 

overseeing the relationship with the external auditor including the approval of the engagement letter, letter of representation and statutory and non-audit fees, with particular focus on independence and rotation in accordance with UK and US rules or requirements

 

promoting an effective internal audit function

 

overseeing the Company’s compliance with the London and New York stock exchanges, FCA and SEC requirements

 

reviewing arrangements whereby staff may raise concerns about any suspected or known improprieties and ensuring that such matters are investigated and appropriate actions taken

 

monitoring and reviewing UK corporate governance and US SOX compliance

 

receiving the reports of the disclosure committee

 

Activities of the committee

In 2016, as part of the internal review of board and committee effectiveness, respondents were asked about the perceived performance of the audit committee. This was very highly rated overall.

 

In preparation for each meeting, the Chief Financial Officer prepares an extensive report covering all material financial, tax and treasury matters. Particular areas of focus in 2016 included:

 

consideration of revenue recognition, which is by necessity based on management estimates and assumptions, particularly with regard to timing and consideration of the Group’s policy for aged work in progress and receivables. In conjunction with the external auditor, these judgements were scrutinised, especially with regard to end-life forecast estimates

 

provisions and estimates (including for litigation) within the accounts. The committee, in conjunction with the external auditor, spent time focusing on these areas and on satisfying itself as to their appropriateness, particularly for legacy liabilities


 

   
66 Amec Foster Wheeler
Annual report and accounts 2016
 

 

contract risks and material contracts showing a deteriorating position over time, including the monitoring of management’s early warning system to increase visibility of underperforming material contracts

 

the Foster Wheeler allocation of goodwill and impairment testing arising from the acquisition, in respect of which the committee continued to challenge and stress test the assumptions made within the goodwill and intangible asset impairment review process

 

appropriate accounting for assets identified as non-core and whether they met the accounting definition of ‘held for sale’ or discontinued operations

 

the classification of costs as exceptional, with costs of £135m incurred in 2016 in restructuring and integration activities presented as exceptional costs

 

adequacy of provisioning for legacy liabilities, including the accounting for asbestos and environmental liabilities

 

accounting for taxation including the recognition of deferred tax and assets relating to research and development government credits and monitoring the outcome of recent EU cases on tax rulings and the adequacy of any required contingent liability disclosures

 

reviewing and challenging the papers prepared as part of management’s assessment of going concern and the assurance of the Group’s viability statement

 

holding discussions with the external auditor in relation to going concern and considering the opinion given in its audit report

 

reviewing the disclosures made in the Annual Report and Accounts to ensure that they are fair, balanced and understandable

 

the ongoing quality and acceptability of the Group’s accounting policies, procedures, systems and internal controls

 

the ongoing SOX programme oversight and the risk and control matrices and key controls to meet the SOX control objectives

 

a review of the audit procedures required in order to meet the requirements of the SEC and Public Company Accounting Oversight Board (PCAOB) in the US

 

as part of the Chief Financial Officer’s report, the committee received details of all breaches of treasury policy, which were minor in nature. This enabled the committee to see how these issues are identified and addressed to ensure they do not become more significant matters. In the year, minor breaches were identified in relation to bank counterparty limits, but none was considered to be material
  
In its reviews of the full and half-year results, particular emphasis was placed on contractual issues where the reported financial position was analysed and discussed in the Chief Financial Officer’s report and the findings validated by means of in-depth questioning.

At the request of the board, the committee also reviewed and provided advice on whether the annual report and accounts, when taken as a whole, are fair, balanced and understandable, to enable the Company’s shareholders to assess the Company’s performance, business model and strategy.

 

In coming to its view that it was satisfied with the overall fairness, balance and clarity of the document, the committee took into account:

 

its own knowledge of the Group, and its strategy and performance in the year

 

the comprehensive guidance provided to all contributors to the annual report and accounts

 

a thorough internal verification of the factual content within the document

 

the comprehensive reviews undertaken at different levels in the Group to ensure consistency and overall balance

 

a detailed review by senior management

 

Internal controls and risk management

The committee reviews the processes by which the Company’s control environment is evaluated. A control risk self assessment is undertaken every year, with comprehensive integrity checks, and the exercise in 2016 identified no significant areas of concern. The Group’s senior management is formally required to confirm compliance within their businesses with the Group’s Code of Business Conduct, its policies and procedures and any areas of concern need to be fully explained and addressed. A revised Code of Business Conduct was introduced in 2015.

 

The Head of Group Assurance reports to the committee on any alleged or suspected wrongdoings reported through the independently operated helplines or otherwise. All such incidents in the year were investigated and did not reveal any significant internal control failures or have a material financial impact at Group level.

 

In a few instances, disciplinary action was taken against employees, which led to dismissal where warranted.

 

The committee’s primary responsibilities in relation to risk management are in ensuring that robust processes are in place for managing risk throughout the Group.

 

The Group’s principal business and strategic risks are shown in the strategic report on pages 29 to 31 and the approach to managing risk is shown in more detail on pages 28 and 64.


 


 

   
Amec Foster Wheeler
Annual report and accounts 2016
67
 

Accountability continued

Audit committee continued

 

Internal audit

In 2016, the committee continued to monitor and review the operation of the internal audit function, receiving a full report at each meeting from the Head of Group Assurance. The Head of Group Assurance formally reports to the committee chairman.

 

The findings of each internal audit review are summarised and the committee focuses its discussions on unsatisfactory findings and on the action plans in place to address them. Particular areas of focus during 2016 included a number of identified low level frauds, and a focus on project controls, IT security and shared services. Concerns were also raised about an increase in the number of control-related issues and the reasons for this.

 

Staffing levels of the internal audit function are kept under constant review. A recommendation was made by the committee to increase the team size to meet increasing demands and to augment geographic coverage. This was endorsed by the board.

 

External audit

During 2016, the committee continued to oversee the relationship with the external auditor, Ernst & Young LLP (EY). The committee reviews both the procedure for the engagement of the external auditor and the procedure for the appointment of the external auditor every year. In 2016 both procedures met both UK and US requirements.

 

Each year the relevant audit risks are assessed and EY’s views are presented to the committee. During the year, the significant risks identified by EY were appropriateness of revenue recognition on contracts, legacy liabilities including asbestos, impact of tax planning, recognition of deferred tax assets and R&D tax credits and risk of fraud and management override. Other risk areas included going concern and accounting for disposals and assets held for sale, presentation of exceptional items, valuation of pension assets and liabilities, share based payment accounting and quality of earnings.

 

Throughout the year and in conjunction with EY, the committee challenged management and assured itself that the risks were being addressed and that reporting on the matters was balanced.

 

Examples of these challenges included, the assessment of the accounting position taken on a fixed price US government project in the Pacific, the appropriateness of the liabilities recorded in respect of disputes with customers relating to projects undertaken on a gold mine in Southern Africa and an oil refinery in India and accounting for projects in the Group’s transmission and distribution business. Other challenges included those related to the estimates applied in the performance of the Group’s annual goodwill impairment review, particularly in North America, and those taken in the determination of the Group’s asbestos related liability. The committee also discussed the appropriateness of the Group’s application of accounting policies for the recognition of liabilities for outstanding debtors, work in progress, uncertain tax positions and deferred tax assets.

The audit differences and quality of earnings schedule for the year ended 2016 were presented by EY at the meetings held in February 2017 and April 2017. The value of unadjusted differences and the quality of earnings high-level review of the impact of items that could be considered non-recurring in nature were discussed in detail. The audit differences were not considered to be material and the quality of earnings was considered appropriate overall.

 

On behalf of the committee, the Head of Group Assurance undertakes an annual assessment of the effectiveness of the external auditor. The views of senior members of the finance teams throughout the Group are sought, as well as qualitative feedback. Responses are measured and directly compared with previous surveys, so that progress can be monitored.

 

The external auditor effectiveness review for the 2015 year end was presented to the August 2016 committee meeting, no major issues were identified by management. The 2016 effectiveness review will be undertaken after the year-end process has been completed and the results will be presented to the committee in August 2017. The results of that review will be reported in next year’s report.

 

EY were appointed as Amec Foster Wheeler’s external auditor in 2010, following a formal tender process. As the audit partner responsible for the Group audit had been in place for five years, a new audit partner (Colin Brown) was appointed for the 2015 audit. The committee takes account of and endorses the relevant provisions of the UK Corporate Governance Code with regard to the appointment of the external auditor, which means that the external audit contract will be put out to tender at the latest by 2020, subject to any further regulatory change. The committee also considers that the process complies with the provisions of the Competition and Markets Authority (CMA) Order for UK audit market published on 26 September 2014.

 

Amec Foster Wheeler has formal procedures relating to its relationship with the external auditor including for the provision of non-audit services, to ensure that such work does not impair the external auditor’s objectivity and independence. This procedure clearly outlines the category of work the external auditor is permitted to carry out and the rules governing what is not permitted. The procedure follows the guidelines and requirements set out by the Institute of Chartered Accountants in England and Wales and has been amended to take account of the 2016 FRC revised Ethical Standard for non-audit services, which prohibited certain services previously permitted (including the majority of tax services) and limited the pre-approval of other services at a level of fees which would be clearly trivial with effect from 1 January 2017. In addition, the requirements of SOX and the PCAOB are taken into account. In addition, all non-audit services performed by the external auditor will be disclosed to investors in the company’s periodic reports.


 

   
68 Amec Foster Wheeler
Annual report and accounts 2016
 

 

The process is continually monitored by the Head of Group Assurance and details of all ‘other services’ performed are formally presented to the audit committee twice a year. It is the responsibility of the audit committee to monitor the overall level of non-audit fees relative to audit fees from an independence point of view and to confirm that auditor independence has been safeguarded. If there are any concerns about this, for the avoidance of doubt, the undertaking of such work would not be permitted.

 

Fees payable by the Group to the Company’s statutory auditor, EY, and its associates were as follows:

 

   2016   2015 
   £m   £m 
Audit fees:          
Audit of the Company’s accounts   3.6    4.1 
Audit of the accounts of the Company’s subsidiaries   1.6    1.4 
    5.2    5.5 
Tax fees:          
Tax compliance services   0.2    0.9 
Tax advisory services        
    0.2    0.9 
All other fees:          
Corporate finance transactions   1.2    0.9 
Other non-audit services   0.1    0.2 
    1.3    1.1 
    6.7    7.5 

 

Fees for the audit of the Company’s accounts relate to the audit of the parent company’s accounts and the consolidated financial statements.

 

All EY’s fees for non-audit work in 2016 were approved in accordance with the Company’s policy covering non-audit services. As a result of the application of this policy and additional discussions with EY, the directors do not believe that EY’s independence has been compromised because of this additional work on behalf of the Company.

 


 


 

   
Amec Foster Wheeler
Annual report and accounts 2016
69
 

Accountability continued

Health, safety, security, environmental and ethics (HSSEE) committee

 

The HSSEE committee assists the board in upholding the Company’s principal value of doing the right thing. The committee reviews the HSSE policy statement and satisfies itself that all significant HSSE and ethics risks are identified and controlled.

 

Dear shareholder

This was the HSSEE committee’s second year of operation. The committee provides an additional level of governance in respect of Amec Foster Wheeler’s health, safety, security, environmental and ethics activities, reflecting their fundamental importance to the way the business operates.

 

The Company has embarked on a significant programme of transformation but some things will not change. The first is our absolute commitment to protecting the health, safety and well being of our people. They have the right to work in a safe and secure environment, and we remain focused on our Beyond Zero initiative, which aims to deliver first-class protection from harm for our people, our assets, our environment and our customers.

 

The new operating model will help us to achieve our HSSE goals. Business functions, including HSSE, now have a direct reporting line into the same functions at Company level. This will drive standardisation and common policies and procedures across the organisation, and ensure they are embraced everywhere we work.

 

Our insistence on the highest standards of business ethics is also unchanged and we have zero tolerance for violations of our Code of Business Conduct. The Company has a strong framework to ensure that our employees, and those who work with and for us, act with integrity wherever they are based. Our employees can use a third-party reporting system to report any concerns in complete confidence. All calls are investigated and actions taken where appropriate.

 

This coming year will see us focus on becoming a zero incidents organisation, in line with our Beyond Zero ambition and embedding the HSSE function through the new organisational structure.

 

 

Linda Adamany

Chairman of the Health, Safety, Security, Environmental
and Ethics Committee
25 April 2017

Members

The HSSEE committee comprises only independent non-executive directors. The quorum for the committee is two members. In 2016 there were three scheduled committee meetings held, and no unscheduled meetings.

 

The Company Chairman, the executive directors, the Chief General Counsel and Company Secretary, the Head of Ethics & Compliance and the Chief HSSE Officer also attend each meeting by invitation.

 

The membership of the committee is detailed below.

 

Membership and attendance of the HSSEE committee during 2016

   Meeting attendance  
Linda Adamany (Chairman)  3/3  
Neil Carson  2/3  
Stephanie Newby  3/3  
Kent Masters  3/3  

 

Bob Card joined the committee on 1 March 2017.

 

Key responsibilities of the HSSEE committee

The committee reviews Amec Foster Wheeler’s HSSE policy at least annually to ensure it remains fit for purpose and meets legal and regulatory requirements in all respects. It also examines the processes in place to satisfy itself that all significant health, safety, security and environmental risks are identified and mitigated.

 

The committee oversees the operations and activities of the HSSE review committee which is a management committee, details of which are outlined on page 63.

 

The committee reviews and monitors business ethics within the Group, including compliance with relevant legislation, regulation and current best practice. It also reviews and approves the Group’s Code of Business Conduct at least annually.

 

It considers and reviews the scope and planning of all ethical compliance activity within the Group and reviews the extent and effectiveness of the Group’s internal training and external reporting of compliance and ethics matters.

 

In the event of an actual or suspected material breach of the Code of Business Conduct or any other serious matter, a member of the committee will normally take responsibility for and manage any investigation into the relevant matter with the support of the Chief General Counsel and Company Secretary.


 

   
70 Amec Foster Wheeler
Annual report and accounts 2016
 

 

Activities of the HSSEE committee

The committee reviewed the revised Amec Foster Wheeler Code of Business Conduct in August 2016 and endorsed its content. This document has also been translated into Russian and is now available in 14 different languages.

 

During the year all concerns raised in Amec Foster Wheeler in respect of alleged or suspected ethical breaches, most of which were reported through the independent third-party reporting systems were taken seriously and investigated. The outcome of these investigations resulted in disciplinary action where appropriate as well as enhancements to the existing control environment where necessary.

 

A new Head of Ethics & Compliance joined the Company in 2016 and presented his 12 month strategy to the committee, which included a review and consolidation of the current mandatory processes, a review of the onboarding process for new employees and a review and refresh of the ethics and compliance training materials.

 

The Global Head of HSSE left the business in 2016 and therefore a search for a replacement began. The Occupational Health and Environmental Manager covered the role on an interim basis until the new Chief HSSE Officer joined the Company from an equivalent position at Weatherford International plc at the end of February 2017.

 

Areas of focus during the year included risk mitigation and high potential incidents, particularly those that occurred within joint ventures. The committee was pleased to note the deep dive reviews that were undertaken in respect of each incident and that the outcomes and lessons learned were taken on board throughout the business.

 

As part of the internally conducted board and committee effectiveness review undertaken in 2016, respondents were asked about the performance of the HSSEE committee. The committee’s oversight of business HSSE and ethics within the Company, including compliance with relevant regulations and best practice was rated highly. The importance of setting priorities with management with respect to HSSE matters was noted.

 

The committee also reviewed its terms of reference in December 2016 and recommended to the board that the terms of reference remained fit for purpose and continued to meet the Group’s requirements.

 


 


 

   
Amec Foster Wheeler
Annual report and accounts 2016
71
 

Remuneration

Remuneration committee

 

The remuneration committee’s aim is to operate a reward policy that promotes the future success of the business.

 

Dear shareholder

I am pleased to introduce my first Directors’ Remuneration Report as Chairman of the committee having taken over the role from Neil Carson on 1 January 2017.

 

Board changes

2016 has been a year of change for Amec Foster Wheeler. Jon Lewis was appointed as the new Chief Executive Officer on 1 June 2016. His salary was set at £775,000 p.a. His incentive opportunities are in-line with our policy and the arrangements for the previous Chief Executive Officer. As we previously announced on his appointment an award was made to Jon Lewis to compensate him for remuneration foregone on leaving his previous employer which was structured broadly on a like for like basis. Further details are provided on page 78.

 

Remuneration for 2016

The stretching performance targets set for the annual bonus have not been met and therefore no bonus will be paid to executive directors in respect of 2016. EPS targets set for the LTIP awards made in 2014 under the Performance Share Plan were not met and TSR performance was below median. No portion of this award therefore vested.

 

Remuneration arrangements for 2017

There are no changes to the annual STIP and LTIP opportunities for the year. Base salaries were reviewed with effect from 1 April 2017. There will be no increase in salary for the Chief Executive Officer and Chief Financial Officer.

 

In light of the offer from John Wood Group the committee approved some changes to the annual bonus measures for 2017 to simplify the structure and focus management on key business imperatives for 2017. The performance measures for the 2017 bonus will be EBITA (50%) and Other Key Financial and Operational objectives (50%). Further details are provided on page 74. In line with our past practice, the actual targets and outcomes will be disclosed after the end of the year.

 

As set out in the 2015 Directors’ Remuneration Report, for 2016 LTIP awards we introduced a third performance measure relating to the implementation and execution of our strategy. The measure accounted for 40% of the award, with EPS growth and relative TSR performance each being weighted at 30%. We intend to keep the same performance measures and weightings for 2017 awards.

Since Jon Lewis was appointed, the committee have been working with him to establish strategic performance measures which are aligned with the strategy for the business that he has developed. The metrics against which performance will be assessed for 2016 and 2017 LTIP awards relate to the following areas of the strategy:

 

Operational discipline

 

Competitiveness

 

Balance sheet efficiency

 

Our people and culture

 

The committee believes that delivering in these areas is critical to the long-term success of the business. Further details of the measures are provided on page 75.

 

The arrangements described above will be operated under the existing Directors’ Remuneration Policy. The policy is not due for renewal until our AGM in 2018.

 

Conclusion

The committee believes that the overall approach to the remuneration of the Executive Directors is appropriate to the circumstances of the business. We look forward to receiving your support in the vote on the annual remuneration report at our AGM.

 

 

Roy Franklin

Chairman of the remuneration committee

25 April 2017


 

   
72 Amec Foster Wheeler
Annual report and accounts 2016
 

 

Membership and attendance of the remuneration committee up to 31 December 2016

    Scheduled    Unscheduled 
Neil Carson (Chairman)   3/3    1/2 
Linda Adamany   3/3    2/2 
John Connolly   3/3    2/2 
Colin Day   3/3    1/2 

 

The quorum for the committee is two members. There were three scheduled and two unscheduled meetings held in 2016. The first unscheduled meeting was called to discuss and agree the terms of Samir Brikho’s termination of employment; the second was held in respect of the appointment of Jon Lewis as Chief Executive Officer. Neil Carson and Colin Day were each unable to attend one unscheduled meeting due to pre-existing commitments.

 

The Chief Executive Officer, the Chief People Officer and other members of management attend meetings by invitation but not when their own remuneration is being discussed.

 

Neil Carson continued to chair the committee in 2016 until his resignation from the board on 31 December 2016, after being appointed Chairman of the committee in May 2015. Roy Franklin was appointed as Chairman of the committee from 1 January 2017.

 

In considering the matters within its remit, the committee takes account of recommendations from the Chairman in respect of the Chief Executive Officer and from the Chief Executive Officer in respect of the other executive directors and designated executives.

 

The committee is independently advised by Deloitte. Deloitte were appointed by the committee following a competitive tender in 2015.

 

During the year Deloitte also provided advice to management in relation to market practice relating to various aspects of remuneration and the interpretation of the Remuneration Reporting Regulations. Separate teams within Deloitte provided unrelated advisory services in respect of business model integration, research, development and innovation taxation, treasury taxation, corporate finance and treasury services to the Group during the year.

 

Deloitte is one of the founding members of the Remuneration Consultants Code of Conduct and adheres to this Code in its dealings with the committee. The committee is comfortable that the Deloitte LLP engagement partner and team that provide remuneration advice to the committee do not have connections with the Company that may impair their independence. The committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts. The committee is therefore satisfied that the advice provided by Deloitte is objective and independent.

 

Deloitte was paid £29,280 during the year for the advice provided to the committee on the basis of time expended and seniority of individuals providing the advice.

The committee is also supported by the Company’s human resources department who may from time to time use third parties to provide data and technical advice.

 

The committee normally meets three times a year and has an established annual agenda of items that it considers at the various meetings, the major elements of which are summarised below:

 

March Confirmation of short and long-term incentive outcomes.
  Approval of Directors’ remuneration report.
  New long-term incentive awards.
  Review of individual base salaries and total remuneration.
August Shareholder feedback/consultation.
  Remuneration policy and practice.
  Committee processes and appointment of consultants.
December Incentive plan targets.


 


 

   
Amec Foster Wheeler
Annual report and accounts 2016
73
 

Remuneration continued
Directors’ remuneration report

 

Annual report on remuneration

 

Remuneration policy

There are no changes proposed to remuneration policy for 2017 from that approved by shareholders at the AGM on 14 May 2015. For reference the policy is set out in full on pages 83 to 88. In accordance with the legislation we shall submit a new policy for shareholder approval at the 2018 AGM.

 

Application of remuneration policy for 2017

Changes to base salaries for executive directors

The base salaries of the Chief Executive Officer and Chief Financial Officer are not being increased in 2017. Jon Lewis’ salary was set on his appointment to the board on 1 June 2016. Between the date the previous Chief Executive Officer stepped down from the board to the date of the new Chief Executive Officer’s appointment, Ian McHoul took on the role of interim CEO and received an acting up allowance equivalent to £100,000 for the period (£240,000 per annum). His salary for the role of Chief Financial Officer last increased on 1 January 2014. The effective annualised salaries of each of the directors are shown below.

 

Going forward, the effective date of any salary increases for the executive directors has been changed to 1 April from 2017, in line with all other employees.

 

  2017 2016 % change
Jon Lewis £775,000 £775,000 n/c
Ian McHoul as Chief Financial Officer £530,000 £530,000 n/c

 

Annual bonus measures and targets

The following bonus measures and their weightings (maximum opportunity as a percentage of base salary) have been agreed by the committee for 2017. The committee approved some changes to the annual bonus for 2017 to simplify the structure and focus management on key business imperatives for 2017.

 

Measure Jon Lewis Ian McHoul
EBITA 75% 62.5%
Other Key Financial and Operational Objectives 75% 62.5%
Totals 150% 125%

 

Other Key Financial and Operational Objectives include Cash Flow and Cost Savings for both Chief Executive Officer and Chief Financial Officer and otherwise comprise individual objectives relating to the specific short-term imperatives for their respective roles. The specific targets against these measures are commercially sensitive and may be subject to revision. They will be disclosed retrospectively in next year’s report to the extent that they do not remain commercially sensitive at that time.

 

Long-term incentive awards

Awards with a face value equivalent to 250% of base salary are being made to Jon Lewis and Ian McHoul in 2017 in line with previous years. In line with 2016, 30% of the award will be subject to a comparative TSR measure, 30% to an EPS performance measure and 40% to a strategic scorecard measure, each of which will be tested over three financial years. For each measure, 25% of that part of the award is paid for threshold achievement and 100% for maximum achievement with straight-line vesting in between.

 

TSR will be measured against a peer group comprising Amec Foster Wheeler and UK and international companies against which Amec Foster Wheeler competes directly. Some changes have been made to the comparator group for 2017 awards compared to 2016 to reflect corporate activity in the sector. The comparator group for the 2017 awards will therefore be as set out below. Threshold vesting occurs at median ranking and maximum at upper quartile ranking or higher.

 

Comparator group in respect of 2017 awards

Aecom Technology USA
Aker Solutions Norway
Amec Foster Wheeler UK
Atkins, WS UK
Chicago Bridge & Iron USA
Fluor USA
Granite Construction USA
Jacobs USA
KBR USA
McDermott International USA
Petrofac UK
Saipem Italy
SNC-Lavalin Group Canada
TechnipFMC France/USA
Tecnicas Reunidas Spain
Tutor Perini USA
Wood Group (John) UK
Worley Parsons Australia


 

The EPS target range will be 50.5 pence per share in 2019 for threshold vesting and 67.1 pence per share for maximum vesting. These targets recognise the continuing challenging market conditions, particularly for the oil and gas services sector. In line with policy, the targets and actual EPS will be adjusted to reflect anticipated corporate transactions and may also be adjusted for certain other defined items.

 

74 Amec Foster Wheeler
Annual report and accounts 2016
 

Annual report on remuneration continued

 

The structure for the strategic scorecard measure, which is designed to drive and reward delivery on key aspects of our overall strategy, is set out below. The objectives for the 2017 awards will be based on the same areas of the strategy to reflect an ongoing focus on the delivery of operational excellence and business growth as apply to the 2016 awards. The precise metrics used for each awards, however, reflect the evolving priorities over the relevant performance periods. The measurement bases that will apply to 2016 and 2017 awards are summarised below.

 

Strategic objective Measurement basis  
  2016 awards 2017 awards
Operational discipline Roll-out of new strengthened global mandatory
procedures and controls
Adherence to new strengthened global mandatory procedures and controls
Competitiveness Overhead cost savings Administrative expenses as percentage of revenue
Balance sheet efficiency Net debt to EBITA ratio for 2018 Free cash flow in 2019
Our people and culture Execution of employment aspects of the strategy Execution of employment aspects of the strategy

 

The specific measures against which performance is assessed and the targets against these are not included in this report because of commercial sensitivity. These, together with the outcomes, will be fully disclosed, subject to any continuing commercial confidentiality, in the directors’ remuneration reports for the years in which the awards vest.

 

Pensions

Both Jon Lewis and Ian McHoul receive a cash allowance of 20% of salary in lieu of pension benefit. They also have life assurance benefit of four times their base annual salary.

 

Samir Brikho’s existing pension arrangements (explained below) ceased when his employment with Amec Foster Wheeler plc terminated on 31 January 2016.

 

Illustrations of application of remuneration policy for 2017

The total remuneration for each of the executive directors that could result from the remuneration policy (previously approved by shareholders) in 2017 under three different performance levels is shown below.

 


 

Notes

1 Fixed pay is base salary for 2017 plus the value of the pension cash allowance and an estimate of taxable benefits based on 2016 amounts.
   
2 On target performance is the level of performance required to deliver 66.67% of the maximum annual bonus and 50% of the full LTIP award.
   
3 Maximum performance would result in the maximum bonus and 100% vesting of LTIP award.
   
4 LTIP values do not include any change in share price or dividend equivalents.

 

Changes to Chairman’s and non-executive directors’ fees

The fees for the Chairman and the non-executive directors are not being increased for 2017.

 

  2017 2016 % change
Chairman £318,000 £318,000 n/c
Board fee £60,500 £60,500 n/c
Audit committee chairman £30,000 £30,000 n/c
Remuneration committee chairman £13,000 £13,000 n/c
HSSEE committee chairman £6,000 £6,000 n/c
Senior Independent Director £5,500 £5,500 n/c
Non-UK director (additional travel time) £12,100 £12,100 n/c


 


 

Amec Foster Wheeler
Annual report and accounts 2016
75
 

Remuneration continued
Directors’ remuneration report continued

 

Annual report on remuneration continued

 

The information from this point onwards up to and including the statement of directors’ share interests and shareholding on page 79 is subject to audit.

 

Single total figure of remuneration for 2016

The following table shows a single total figure of remuneration in respect of qualifying services for the 2016 financial year for each director, together with comparative figures for 2015.

 

  Salary/fees
£’000
  Taxable benefits
£’000
  Bonus
£’000
  LTIP
£’000
  Sharesave
£’000
  Pension
£’000
  Acting up
allowance
£’000
  Total
£’000
  2016 2015   2016 2015   2016 2015   2016 2015   2016 2015   2016 2015   2016 2015   2016 2015
Executive                                              
Jon Lewis* 452   165         90     707
Samir Brikho* 44 954   7 53       3   21 255     72 1,265
Ian McHoul 530 530   18 18         123 106   100   771 654
Non-executive                                              
John Connolly 318 318               318 318
Neil Carson 79 72               79 72
Colin Day 91 91               91 91
Linda Adamany 79 79               79 79
Stephanie Newby 73 73               73 73
Kent Masters 73 61               73 61
Roy Franklin 61               61
Simon Thompson* 29               29
Aggregate directors’ emoluments                                           2,324 2,642

 

*Samir Brikho stepped down from the board and his role of Chief Executive Officer on 17 January 2016 therefore the amounts above are in respect of the period 1 January to 17 January 2016. Jon Lewis was appointed to the board on 1 June 2016. Ian McHoul received an acting up allowance in respect of his role as interim CEO between 18 January and 31 May 2016. Simon Thompson stepped down from the board in May 2015.

 

Taxable benefits for the executive directors comprise disability and healthcare insurance, car/travel allowance, working lunches, relocation expenses and tax return preparation assistance. Jon Lewis’ taxable benefits relate largely to one-off contractual amounts which were agreed as part of his recruitment, comprising relocation expenses (£142,000) in respect of his relocation from the US to the UK, and professional fees for pre-employment taxation advice (£5,000).

 

The Sharesave figures shown are the gains made on the exercise of options granted under the Savings-related Share Option Scheme (Sharesave). No Sharesave options were exercised by the executive directors during 2016.

 

Jon Lewis holds no other director roles. Ian McHoul continued to be a director of Britvic plc and received fees of £64,069 during the year. Samir Brikho continued to be a member of the advisory board of Stena AB and a non-executive director of Skandinaviska Enskilda Banken AB; during the period he was a director of the Company he received fees of SEK 45,411 in relation to the first appointment and SEK 30,740 in relation to the second. Such appointments are subject to prior approval of the board. Directors are permitted to retain fees. (These amounts are not subject to audit and are not included in the single total figure table above.)

 

76 Amec Foster Wheeler
Annual report and accounts 2016
 

Annual report on remuneration continued

 

Total pension entitlements

The pension amount shown in the 2016 ‘single total figure of remuneration’ above comprises the following:

 

  Accrued DB pension
at 31/12/16
£’000
Value of
DB benefit
£’000
Cash
allowance
£’000
Total pension
benefit
£’000
Jon Lewis 90 90
Samir Brikho 49 13 7 20
Ian McHoul 123 123

 

Samir Brikho had an historic arrangement that provided for a pension payable from age 60 made up of 4.17% of final pensionable salary in respect of service to 31 December 2007 and one-thirtieth of career averaged revalued earnings in respect of each year of service thereafter until the date of leaving on 31 January 2016. Salary and earnings for pension purposes are subject to a cap, which was £161,000 pa for the tax year 2015/16. Samir Brikho also received a cash allowance representing 20% of salary above this cap in lieu of further pension benefit. The cash allowance above relates to the period up to the date he stepped down from the board; the value of his DB benefit is the accrued amount in the year to 31 December 2016.

 

Jon Lewis and Ian McHoul both received a cash allowance in lieu of pension equal to 20% of base salary during their period of employment in 2016.

 

Annual bonus

The bonus targets and outcomes against the various performance elements, together with the proportion of overall bonus opportunity that related to each, were as follows:

 

Measure Target range Actual Weighting
EBITA* £335-370m £318m 50%
Cash conversion 80 – 100% 118% 10%
Net debt (£1,027) – (£727)m £1,021m 15%
Use of High Value Execution Centre (HVEC) n/a n/a 10%
Other strategic objectives n/a n/a 15%

 

*For bonus purposes EBITA (after exceptional items which may be disallowed for bonus purposes at the committee’s discretion) is normalised for exchange rate movements and cost of share-based payments: the target and actual figures shown above are before any such adjustments.

 

The target for the ‘Use of HVEC’ measure was based on the percentage of addressable man-hours for the company as a whole executed through the HVEC. ‘Other strategic objectives’ comprise of a range of individual objectives; for Jon Lewis these related to strategy development, business refocusing and cost reduction, safety and compliance, and for Ian McHoul these included a range of activities relating to debt reduction and financing, as well as his role as acting CEO for the first part of the year.

 

In the light of the overall company position, the committee has determined that no annual bonus payments will be made to executive directors in respect of 2016, notwithstanding that some of the targets were achieved.

 

Performance Share Plan

The LTIP amount shown in the 2016 ‘single total figure of remuneration’ is the award made under the Performance Share Plan in 2014. Vesting was due to take place on 27 March 2017 and was subject to two performance conditions each measured over three-year periods: (i) earnings per share (EPS*) growth between 2013 and 2016 and (ii) total shareholder return (TSR) relative to a comparator group based on average returns in the final quarter of 2016 compared to those in the corresponding period in 2013. The two performance conditions operate independently on different parts of the award: half of the basic award is dependent on EPS and the other half on TSR; the matched award depends solely on EPS.

 

*EPS for this measure means the diluted earnings per share expressed to one decimal place of Amec Foster Wheeler plc before goodwill and intangible amortisation, the charge or credits associated with executive share awards and exceptional items. ‘Real’ growth means in excess of the change in the UK Retail Prices Index for December 2016 compared to December 2013.

 

The performance achieved against the EPS target and the TSR outcome are as follows:

 

2013 awards performance measure Threshold – 25% vesting Maximum – 100% vesting Outcome Percentage of max achieved
Real annual compound growth in EPS 5% 10% <5% 0%
Total shareholder return ranking Median Upper quartile 21st out of 24 0%

 

Accordingly no shares vested from these awards.


 

Amec Foster Wheeler
Annual report and accounts 2016
77
 

Remuneration continued
Directors’ remuneration report continued

 

Annual report on remuneration continued

 

Details of share awards during year

A share award with a face value of 250% of normal base salary was made to Ian McHoul on 18 March 2016 under the Long-Term Incentive Plan (LTIP) approved at the 2015 AGM. The face value of the award is based on the share price at the date of award which was £4.968. This award was made in the form of a nil-cost option; such awards may normally be exercised up to 18 months after vesting.

 

On 1 June 2016, following his appointment to the board, a share award with a face value of 250% of base salary was made to Jon Lewis under the LTIP. The face value of this award was based on the share price at the date of award which was £4.368. The vesting period for this award runs for three years from Jon Lewis’ appointment date, in line with the remuneration policy.

 

The above LTIP awards granted to Ian McHoul and Jon Lewis will vest in March 2019 and June 2019 respectively, subject to the outcome against the performance conditions measured over the three years 2016 to 2018. 30% of the awards are subject to a TSR performance condition, 30% are subject to an EPS performance condition, and 40% are subject to a strategic performance condition as described on page 75. Any shares delivered on vesting/exercise will then be held in trust and subject to a two-year post-vesting holding period in line with policy.

 

As disclosed when he joined the business in connection with the terms of his recruitment, on 1 June 2016 a further award over 68,681 shares was made to Jon Lewis via a separate award agreement in accordance with the directors’ remuneration policy (the “Recruitment Award”). This Recruitment Award was to Jon Lewis to compensate him for remuneration foregone on leaving his previous employer. This Recruitment Award will vest in equal tranches on the first three anniversaries of Jon Lewis’ appointment to the board (1 June 2017, 2018 and 2019); there are no other performance conditions attached to the Recruitment Award. The Recruitment Award has been structured broadly on a like for like basis with remuneration foregone. The Recruitment Award will normally lapse if Jon Lewis leaves employment with Amec Foster Wheeler plc before it vests, or if he serves or is served notice, or is subject to disciplinary action at the time of vesting. The Recruitment Award was made as a conditional share award and will vest automatically. It is not pensionable and is not transferrable (other than with the consent of the committee), and no new issue shares or treasury shares will be used to satisfy the Recruitment Award. Certain amendments to the Recruitment Awards which are to Jon Lewis’ advantage (other than minor amendments) may not be made without prior shareholder approval. In the event of a change of control and in the absence of an exchange of awards being agreed, the Recruitment Award will normally vest. If there is a variation of share capital (such as a rights issue or consolidation), the number of class of shares subject to the Recruitment Award may be adjusted. The value of this award will be included in the single total figure of remuneration table for the years in which it vests, consistent with our reporting of other share awards.

 

The table below summarises the share awards made during the year.

 

  Plan Type of interest awarded Face value
£’000
Percentage vesting at
threshold performance