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AMEC CFO engineers a platform for growth

Ian McHoul, CFO of engineering group AMEC

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In an economic climate short on financial good news stories, the £400 million share buyback at engineering group AMEC, announced in February, brought glad tidings for its investors.
“In general terms, it is a move that has been welcomed,” says Ian McHoul, AMEC’s 52-year-old chief financial officer.

“But the great thing about shareholders is they all have different views. Some say, ‘Keep it and expand the business’ and some say, ‘Why don’t you borrow money and return a billion?’ Some say, ‘We want a buyback’ and some want a special dividend.”

The oil and gas multinational’s decision to embark on the 12-month buyback programme was motivated by its desire to return value to shareholders. When considering its options, it had to balance shareholder returns against the need to finance prospective acquisitions.

As at 31 December 2011, the group had net cash of £521 million, but its tidy cash pile wasn’t working very hard. “We had over £500 million in cash earning less than one percent interest. That’s not good for shareholders. We’re custodians of their investment,” McHoul explains.
Nevertheless, dipping into its cash reserves wasn’t a decision the FTSE 100 group took lightly, especially as it has aspirations to grow through acquisition as well as organically.

But despite the buyback, AMEC remains in a position of financial strength and if the opportunity arises the company can still move quickly. Last year, it turned over £3.26 billion (up 11 percent on 2010) and reported EBITA of £299 million, (up 12 percent on 2010) and its order book is at a record £3.7 billion. Looking ahead, AMEC has the capacity to borrow about £1 billion on top of the buyback.

“The buyback does not, in any way, dampen our appetite to make acquisitions,” McHoul says firmly.

“We’re doing it to maximise the efficiency of the balance sheet.”

Wanting to grow is one thing; being able to grow is something else. Unfortunately the financial crisis has had a major impact on AMEC’s ability to expand, and while the group has a strong presence in the US and the UK, its presence in the rest of the world makes up just 15 percent of its business, a proportion that it wants to increase. As a result, it has its eye on opportunities in South America, Australasia, the Middle East and parts of Africa, and at present, its lack of core activities in the eurozone area is a plus point.

Conditions for growth

In 2011, AMEC invested £263 million in acquisitions, double the previous year, but the volatile state of the financial markets means that conditions for mergers and acquisitions remain challenging.

McHoul puts it bluntly: “People don’t want to sell in downturns.” Nevertheless he is optimistic about the acquisition pipeline and also the future prospects of the sector.

“In general, demand for natural resources is going up. That is what our customers do. That drives what we do,” he says.

So while AMEC’s acquisition ambitions remain somewhat frustrated in the short term, the buyback does at least help to keep investors sweet. And McHoul has a strong track record of making shareholders happy. Prior to joining AMEC in 2008, he worked for more than 20 years in the brewing industry, first at Foster’s Brewing Group, then at the Inntrepreneur Pub Company and latterly at Scottish & Newcastle (S&N) where he was group finance director.

He views his biggest career achievement to date as helping to guide S&N through an expansion programme that resulted in it being bought jointly by Heineken and Carlsberg in 2008 for £7.8 billion. The sale took place before the downturn kicked in and was seen as a big success.


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