corporate finance--amec ppt

Coursework Presentation

Group-Work Dhiraj Malik Robert Kanfrah Shekhar Ghanvat

Company brief Highlights Agency Problems Key risks faced by the company

Conclusion

AMEC plc is one of the world’s leading engineering, project management and consultancy companies.

AMEC plc is listed on London stock exchange.

Srno Sources of Agency problems Trend Comments

1% Change in dividends to

shareholders vs. % Change in director's remuneration

SHD- 19%, DR-4% Less chances of agency problems

2 Cash availability Avg. 693 Millions GBP Higher chances of agency problems

3 Board Setup Non-Exe/Exe= 62.6 % Less chances of agency problems

4 Company Growth Sales growth of 9% for past 5 years

Less chances of agency problems

Directors Remuneration & Dividends to Shareholders

Srno Risk Indicators/Factors AMEC Trend Comments

1 Operating Leverage Decreasing trendCompany's trend towards decreasing

proportion of fixed costs in overall costs,hence less increase in EBIT in proportion to sales

2 Financial leverage No debtProabililty of high agency problems

No benefits on leverage effect

3 Market Risk Decreasing trend from 2008 till 2010, 2011 saw rise

Higher beta values in 2011, than competitors, higher risk ,higher risk premiums for investors

Degree of Operating Leverage

Degree of Financial Leverage

Degree of Financial

Leverage 2007 2008 2009 2010 2011

WOODGROUP 0.996 1.096 1.083 0.090 91.013

PETROFAC 1.546 1.163 2.808 2.675 0.102

AMEC 0 0 0 0 0

Return on Equity

(ROE)  2007 2008 2009 2010 2011

AMEC 11% 17% 13% 20% 15%

PETROFAC 41% 47% 38% 72% 47%

WOODGROUP 17% 22% 12% 12% 10%

Risk Indicators/Factors Comments

1 Geopolitical and Economic risksIn to Acqusitions- Diversifying

in to Geographical areas, across energy sectors

2 Project costs Cost Plus contracts

3 Inflation Hedging

4 Exchange rates Hedging

• AMEC uses no debt- Hence no financial risk, however signals that Company not confident of future cash flows.

• High Cash & Cash Equivalents ( £ 696 Million) - Agency Problem

• Acquisitions- For Growth but is the value of company increasing.(£ 3628 Million)

• EBIT drop in 2011 ( - 1.3%) in spite of increase in sales revenue ( + 10.5%)- Challenge for Rappaport model

• Return on Equity (15.5 %) less than cost of equity (16.7%) still investors interested

• Dividend policy of company changes in 2012 with buy back of £ 400 million public shares thus reducing equity. – Target of 100 pence EPS by 2015. Currently ( EPS 70.5)