For Immediate Release
26 February 2003
Circular to shareholders
new banking facilities
appointment of chief executive officer
1. Introduction
On 21 January 2003 the Board of Amey announced that it had signed a conditional
sale contract in relation to the disposal of the PFI Portfolio to Laing
Investments Limited. In addition, on completion of the Sale Agreement, Amey and
Laing will enter into a non-exclusive Co-operation Agreement relating to the
future execution and financing of certain bidding activities across a range of
PFI sectors. Amey will retain its support service contracts relating to each of
the PFI projects.
The total value of the conditional contract is �42.9 million, including the
assumption by Laing of future equity commitments of �13.8 million. The
remaining �29.1 million will be satisfied in cash, less an amount in respect of
any creditors of AVL as at completion.
The Disposal consists of Amey's interests in the PFI Portfolio, and Amey's
right to the equity interest in a defined pipeline of future PFI investment
opportunities, all of which are in the UK road and accommodation sectors.
However, Amey retains the long term maintenance and service contracts that
support the project companies. Further, Amey retains the right to the recovery
of costs incurred and the receipt of development fees in relation to the
Pipeline Projects were those projects to reach financial close with Amey as
preferred bidder. The Disposal excludes Amey's interests in the Croydon
Tramlink Project and the London Underground Project.
It is anticipated that the cost sharing arrangements under the Co-operation
Agreement will make a significant contribution to Amey's cost of participating
in PFI projects in the future, allowing the Group to retain its strong position
in a valuable market.
Due to its size, the Disposal is conditional, inter alia, upon the approval of
Amey shareholders. A circular convening an EGM on 14 March 2003 has been sent
to shareholders today.
The Board is also providing an update on the Company's banking arrangements and
the appointment of a new Chief Executive Officer.
2. Background to and reasons for the Disposal and Co-operation
Agreement
Following a review of the Company's strategic options during 2002, the Board
decided that it should focus on its core strengths, reduce costs and net debt
and improve cash flow, and in particular, to pursue certain initiatives
including:
divesting the majority of the Group's existing equity investments in
PFI companies;
an intention to seek value-adding partners, on a cost sharing basis,
to work with on on-going and future PFI activity;
general non-operational cost savings to be identified and actioned;
and
the divestment of certain of the Technology Services businesses,
including Amey Vectra and Amey Resource Management Solutions.
Many of these steps have been implemented during the course of the last few
months, with the Amey Resource Management Solutions business being sold in
December 2002 and the disposal of Amey Vectra expected to be completed shortly.
In addition, many cost saving initiatives have been put in place, including
staff restructuring where necessary.
The divestment of the Group's ownership of the PFI Portfolio and the formation
of a strategic partnership to support on-going and future PFI activities will
have a number of key benefits, including the realisation of cash and a
reduction in capital employed together with lower expenditure in the future.
Following the announcement in September 2002 of the Board's intention to divest
its equity investments in PFI companies, the Board and its advisers were
approached by a number of potentially interested parties. A formal auction
process was conducted, culminating in the selection of Laing as the preferred
bidder on 19 November 2002.
In considering Laing's indicative offer for the PFI Portfolio and the Pipeline
Projects, the Board considered, inter alia, the discounted value of the
estimated future cashflows of the existing projects in the PFI Portfolio at
various rates reflecting the inherent risks of each project, the value of
allowing Laing to join Amey as equity provider in the consortia bidding for the
Pipeline Projects, and the potential equity value of the Pipeline Projects.
Taking into account the above, the Board resolved that the offer from Laing
represented the best value for Amey shareholders.
Amey's participation in the Croydon Tramlink Project and the London Underground
Project have both been excluded from the Disposal.
The Croydon Tramlink Project is experiencing a shortfall of revenue compared
with the original funding model and, as such, it is the subject of on-going
discussions with the project lenders and Transport for London. Until the
outcome of those discussions are concluded, the Board does not consider that it
is in the Group's interest to commence a sale process.
The London Underground Project is fundamentally different in nature to the PFI
Portfolio, and its potential value to the Group is such that it was excluded at
the outset of the sale process. It is by nature more akin to a business
acquisition, albeit supported by off-balance sheet finance, than a typical PFI
project. The London Underground Project achieved financial close on 31 December
2002 resulting, inter alia, in the full recovery by Amey of all costs hitherto
expensed through the profit and loss account.
Both projects will be carried at nil value in Amey's 31 December 2002 balance
sheet.
Amey's equity stakes in Electronic Libraries for Northern Ireland, Education
Solutions Speke Limited and Unity City Academy have also been excluded from the
Disposal due to the fact that they are essentially service contracts with only
small equity elements.
The Board believes the Group will benefit from collaboration on future PFI
projects through limiting its exposure to the cost of bidding for such
projects, whilst retaining the benefit of providing the support services
activities arising from those projects, and the right to take a minority equity
interest. Furthermore, the Group will, as a result of the relationship with
Laing, have the opportunity to provide support services to projects developed
solely by Laing without Amey's involvement.
The Disposal does not include the support service contracts that members of the
Group perform under the PFI Portfolio, and the terms of those contracts will be
unaffected by the Disposal.
The PFI Portfolio had aggregated net assets of �31.6 million as at 31 December
2001, and generated a profit before tax of �13.2 million in the year ended 31
December 2001. While audited accounts are not yet available for the year ended
31 December 2002, the pre-tax profit relating to the PFI Portfolio is expected
to be substantially lower in 2002. It should also be noted that the profits
reported by Amey from the PFI Portfolio represent its share of the profits when
reported under Amey's accounting policies. However, these do not equate to the
profits when reported under the individual project company's own accounting
policies. In addition they do not equate to cash as there can be significant
timing differences between profit earned and cash distribution to the investors
in such projects.
3. Information on the Co-operation Agreement
On completion of the Sale Agreement, Amey will enter into the Co-operation
Agreement with Laing in connection with collaborating on certain future PFI
projects. Under the terms of the Co-operation Agreement, bidding costs on
future joint projects will be shared with Laing and the Group will provide to
the projects such services as it is capable of providing, including hard and
soft facilities management services. Laing will fund the equity components of
those projects, to the extent that suitable third party investors are not
identified, but Amey has reserved the right to fund up to 25 per cent. of the
equity component of these projects.
The Co-operation Agreement will primarily cover PFI and PPP projects in the
street lighting, local authority and home office accommodation, defence,
health, roads, railroads and education sectors.
The Co-operation Agreement should allow Amey to build upon its historic PFI
success record at an affordable level of expenditure.
4. Effects of the Disposal on the Group
The value of the Disposal is �42.9 million, comprising �29.1 million in cash
(less an amount in respect of any creditors of AVL) payable on completion,
together with �13.8 million of future equity commitments to be assumed by
Laing. The cash proceeds will be used for general working capital purposes and
the assumption of future liabilities by Laing will reduce Amey's demands on
existing debt facilities.
Following the securing of adequate working capital facilities and through
existing strategic partnerships and additional arrangements with Laing, Amey
should be in a position to continue as a leading developer of PFI solutions,
with associated fee, investment and long term support service contract
opportunities.
5. Banking facilities
During recent months the Board has been in regular contact with its lenders.
Amey has agreed with its lenders revised secured facilities for general
corporate purposes amounting to �221.2 million on a committed basis until 1
July 2004. This will enable the Group to approach new work opportunities from a
stable basis. As part of this agreement the Board has undertaken not to pay
ordinary dividends without the prior consent of its lenders. The availability
of the facilities is conditional, inter alia, on the passing of the Resolution.
6. Board changes
Since the interim results announced on 10 September 2002, there have been a
number of changes to the composition of your Board. On 16 October 2002, it was
announced that Michael Kayser resigned as Finance Director, and Eric Tracey, a
partner at Deloitte & Touche, was invited to work as acting Finance Director,
until March 2003, albeit not joining the Board. Eric Tracey will remain as
acting Finance Director until the end of June 2003. In addition, Brian
Staples, the Chief Executive since 1997, resigned on 2 January 2003. However,
he has been asked with the Group until the end of February 2003 in order to
complete certain specific projects.
Mel Ewell (previously Group Director of Operations) became Chief Operating
Officer with effect from 2 January 2003. The Board announces that Mel Ewell
has been appointed as Chief Executive Officer.
7. Recent developments
There have been a number of changes that have significantly affected the Group
since it published unaudited interim results for the six months ended 30 June
2002.
During the second half of 2002, the Group's operating activities in Transport
and Business Process Outsourcing continued to perform well and in line with the
Board's expectations. AVL's performance in the second half was adversely
affected by the delay, until 31 December 2002, of the completion of the London
Underground Project and by the uncertainty caused by the Disposal. Further
adverse effects arose as a result of a decision to exit the Millennium
Settlements Partnership (the Elstow and Cambridge settlements, two state of the
art community projects) and delays in the closure of certain other PFI bids
until this year. In addition, following intense media speculation regarding
Amey's financial position, AVL was also requested to re-submit its bid for the
Redcar and Cleveland local authority contract, after having previously been
named as preferred bidder, and was subsequently not selected. The performance
of the Technology Services companies deteriorated during their disposal
process. The disposal of Amey Resource Management Solutions for �1.4 million
also completed before the end of 2002.
Following the resignation of Michael Kayser as Finance Director as announced on
16 October 2002, the Board invited Eric Tracey, a partner of Deloitte & Touche,
to become acting Group Finance Director and to undertake a preliminary review
of the financial affairs of the Company.
As a result of this preliminary review, the Board announced on 9 December 2002
that it estimated the Group's net debt at year-end to be in the range of �190
million to �200 million. This estimate was made on the assumption that the
London Underground Project development fees would be received (net of the sum
placed in escrow in support of the interim funding solution) by 31 December
2002, but that the proceeds of disposals of the PFI Portfolio and Technology
Services businesses would be received in early 2003. Although these assumptions
have proved to be correct, the Directors believe that improved working capital
management and greater than expected cash in joint ventures will lead to a
lower net debt figure at year end of approximately �159 million, subject to
audit. Nevertheless, average net debt for the second half remained at circa �
190 million.
The Tube Lines Consortium, in which Amey was an equal partner with Bechtel and
Jarvis, announced the completion of the London Underground Project on 31
December 2002. The equity commitment of the three partners was �60 million
each, and on 4 December 2002, Amey announced that it would complete the
transaction with the benefit of an equity support plan provided equally by its
two partners. Under this arrangement, Amey has until the end of June 2003 to
exercise an option to replace the temporary credit support with its own
funding. Amey is currently exploring methods of exercising that option, but
until it does so, or until the option expires, the economic benefits of the
project will be transferred into an escrow account, together with �7 million of
the development fees recovered on closure. If Amey exercises its option, the
funds in the escrow account, less only the costs of the partners in providing
the credit support, will accrue to the Company.
If Amey exercises its option, Amey's revenue from secondment of staff and the
provision of operational expertise to the London Underground Project is
expected to be in the order of �10 million in the year to 31 December 2003. In
addition, Amey would be well equipped to bid for a range of services that will
be outsourced by the London Underground Project in the future, including track
renewal work, signalling and facilities management. Amey would also benefit
from the expected pre-tax profits of Tube Lines, Amey's share of which would be
in the region of a further �8 million per annum in the year to 31 December
2003, rising thereafter.
EBITA (pre FRS 17 and exceptionals) for the full year to 31 December 2002, is
still expected to be �27 million, but exceptional charges at the year-end are
now anticipated to total �115 million. Included in this figure are asset
write-downs totalling circa. �105 million. The largest elements of these
charges arise from the Croydon Tramlink Project revenue shortfall, the effect
of the Disposal and a decision to provide for old construction balances, albeit
the recovery of the sums due will continue to be pursued. �10 million of the
exceptional charges relate to the partial write-down of goodwill relating to
BCN Data Systems and the loss on disposal of a subsidiary undertaking. The tax
credit previously estimated to be �20 million is not now expected to be
realised.
The effect of the write-downs described above do not give rise to a breach of
the Continuing Group's new banking facilities as the revised net assets of the
Group, prior to to any FRS 17 adjustment, will still show a small positive
position as at 31 December 2002. The Directors are not aware of any further
negative adjustments that may be required, but the exact net asset position is
subject to finalisation of the audit.
The Company has not finalised its FRS 17 figures for 2002 due to ongoing
actuarial work. In line with the experience of many other companies, these are
expected to show significant charges which, because Amey voluntarily adopted
FRS 17 last year, will be included in the Group accounts for the year ended 31
December 2002. However, as it is not possible to allocate the pension charge to
individual companies this will not affect the reported results of individual
companies in the Group, including Amey plc. In the event that the adoption of
FRS 17 causes the Group to have net liabilities, this would not cause a breach
of the Continuing Group's new banking facilities.
On 7 November 2002, the Board announced that it had decided to review the
options for rebuilding the value of the Group and that it had appointed
Hawkpoint Partners Limited, alongside the Company's existing financial
advisers, Deutsche Bank, to assist in this process. The Board announced on 21
January 2003, that in the light of press speculation at that time regarding a
possible offer being made for the Company, very preliminary interest had been
expressed in it. Whilst the Board has outlined its strategy to take Amey
forward, the Board is intending to explore further this preliminary indication
of interest.
On 13 January, Amey announced that Network Rail had decided to reclaim its
responsibility for the maintenance of infrastructure in the "Reading Area" when
Amey's current contract expires on 31 March 2003. Network Rail recognises the
benefits from being a well-informed buyer of maintenance services, and
emphasised that its decision was intended to help it to understand better the
operations, costs and associated issues of maintenance. Amey will have the
opportunity to bid for further maintenance work as areas become available on
the expiry of existing contracts. Amey and Network Rail are negotiating an
extension to the "Reading Area" contract to ensure a smooth transition. Amey
does not anticipate any material effect on the Company's 2003 financial
performance as a result of this change.
On 30 January, Amey announced that Amey Highways and Mouchel Consulting
Limited had been awarded the Highways Area 13 project.
8. Current trading
As a result of actions taken during the latter half of last year and the
Disposal, Amey has started 2003 with a newly focused business, a reduced cost
base and a strong forward order book. In addition, the significant cost
reduction measures recently undertaken have resulted in strict cash flow
management.
The Continuing Group's operating businesses, particularly Transport and
Business Process Outsourcing in the early part of the current year, continue to
trade in line with the Board expectations. While the 2002 results will be
affected by the exceptional write-downs referred to above, these are not
expected to recur in 2003. Other than the impact of the Disposal (and other
identified disposals) and the items mentioned above, the most significant item
to affect the 2003 results for the Continuing Group is expected to be whether
or not the Company exercises its option over the one third stake in the Tube
Lines Consortium as described above.
The Board will provide a further update on the financial and trading
performance of the Group with the preliminary results for the financial year
ended on 31 December 2002, on or around 25 March 2003.
9. Prospects for the Continuing Group
The actions which have been taken to enable the Continuing Group to focus on
its core strengths, reduce both costs and net debt, improve cash flow plus the
provision of adequate bank facilities provide the Board with a platform to
rebuild the Company's value. As mentioned above, preliminary interest has been
expressed regarding a possible offer for the Company, and the Board intends to
explore this interest further.
10. Extraordinary general meeting
The extraordinary general meeting of Amey is to be held at 10 a.m. on 14 March
2003 at Deutsche Bank, 6/8 Bishopsgate, London, EC2N 4DA for the purpose of
considering, and if thought fit, passing, the Resolution.
-Ends-
For further information please contact:
Anthony Cardew, Nadja Vetter CardewChancery T: 020 7930 0777
M: 07941 340436
Notes to Editors
Amey is a provider of integrated business support services to the public and
private sector and is working closely with central and local government to
deliver strategic education, health, transport and defence projects. Services
range from managing large-scale transportation infrastructure to delivering
professional and back office services.
DEFINITIONS
The following definitions apply throughout this document unless the context
requires otherwise:
"Amey", Company" means Amey plc and where the context requires its
or "Group" subsidiary undertakings;
"AVL" means Argon Ventures Limited (formerly Amey Ventures
Limited), a wholly owned subsidiary of Amey;
"Continuing Group" means the Group following the Disposal;
"Co-operation means the co-operation agreement which it is proposed be
Agreement" made between Amey and Laing on completion of the Disposal;
"Disposal" means the proposed disposal of the PFI Portfolio and
Amey's potential rights to equity interests in the
Pipeline Projects on the terms and conditions of the Sale
Agreement;
"Laing" means Laing Investments Limited;
"PFI Portfolio" means Amey's interests in eight existing PFI projects,
namely: the MOD Main Building Refurbishment Project, the
Edinburgh Schools Project, the Glasgow Schools Project,
the M6 Project, the A19 Project, the Walsall Project, the
North Birmingham Project and the British Transport Police
Project;
"PFI" or "Private an initiative of the UK Government under which the
Finance provision of certain public services, together with many
Initiative" of the associated risks of providing those services, as
well as the funding requirement risks, are transferred to
the private sector;
"PPP" or "Public a generic term for the development of projects involving
Private both the public and private sectors (with varying levels
Partnership" of involvement and responsibility) of which PFI is one
variant;
"Resolution" means the ordinary resolution set out in the notice of the
extraordinary general meeting despatched to Amey
shareholders, which if passed, will approve the Disposal;
"Sale Agreement" means the agreement dated 20 January 2003 between Amey and
Laing in relation to the Disposal
Appendix 1
Principal terms of the Disposal and information on the PFI Portfolio and
Pipeline Projects
Pursuant to the Sale Agreement, Amey has agreed to sell to Laing:
(a) the whole of the issued share capital of AVL, being the
holder of Amey's shareholdings in the MOD Main Building Refurbishment Project
(19.9 per cent.), the Edinburgh Schools Project (30 per cent.), the Glasgow
Schools Project (25.5 per cent.), the A19 Project (50 per cent.), the Walsall
Project (50 per cent.), the North Birmingham Project (100 per cent.) and the
British Transport Police Project (100 per cent.);
(b) the 77,138 ordinary A shares of 10p each in the capital of
Autolink Holdings (M6) Limited (representing 19.5 per cent. of the issued share
capital of that company), �562,361 nominal 14 per cent. loan notes 2027 issued
by Autolink Holdings (M6) Limited to Amey and the rights of Amey under the
shareholders agreement relating to the M6 Project (representing Amey's interest
in the M6 Project); and
(c) certain proportions of Amey's potential entitlement to
subscribe for equity, loan notes or other subordinated debt in the holding
company of each Pipeline Project, being up to a maximum of 100 per cent. of
such entitlement in the case of the Portsmouth Highways Maintenance Project and
up to a maximum of 50 per cent. in the case of each of the remaining Pipeline
Projects.
The value receivable by Amey is �42.9 million. The aggregate cash payable by
Laing to the Group on completion is �29.1 million, less any creditors of AVL as
at completion. In addition, Laing will procure the release of letters of credit
and guarantee obligations of Amey's future investment commitments in respect of
certain of the PFI investments, amounting to a further �13.8 million in
aggregate.
Amey has given warranties to Laing, and has agreed to indemnify Laing in
respect of all AVL liabilities which do not relate to the PFI Portfolio and/or
which have been hived out of AVL, and also in respect of certain tax
liabilities of AVL and its subsidiaries, and other specific potential
liabilities which were not taken into account in Laing's valuation of the PFI
Portfolio. From the date of completion of the Disposal, with respect to the
Pipeline Projects, arrangements are anticipated whereby from achievement of a
preferred bidder stage award, Laing will meet the subsequent agreed bid costs.
Further, with respect to future projects covered by the Co-operation Agreement,
Laing will meet 50 per cent. of bid costs prior to preferred bidder stage and
100 per cent. of bid costs from the preferred bidder stage onwards.
Amey has retained its right to recover, on financial close of the Pipeline
Projects, the bid costs incurred by it in respect of each Pipeline Project. It
is estimated that if all Pipeline Projects were to reach financial close with
Amey as preferred bidder, then the Group would recover �5.9 million in respect
of costs incurred up to financial close. The Board is optimistic that Amey will
be awarded preferred bidder status on most of these projects and that financial
close of each Pipeline Project should occur in 2003.
The Sale Agreement is conditional upon, inter alia:
(a) the passing of the Resolution;
(b) the formal receipt of certain third party consents; and
(c) certain agreements and obligations currently within AVL
being transferred elsewhere within or outside the Group.
The long-stop date for satisfaction of these conditions is 14 March 2003.
If the one outstanding consent in respect of the sale of the M6 assets is not
received by the time the agreement is otherwise unconditional, there will be a
split completion, with the sale of AVL completing and the sale of the M6 assets
being delayed. The consideration for the M6 assets themselves is �6.7 million
which will be withheld if completion of the sale of the M6 assets is delayed.
The long-stop date for receipt of this consent is 31 December 2003.
END
