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PLANS TO SLASH£85M FROM BOOK VALUE OF ASSETS

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The Board of Amey plc has announced the following financial information in the wake of a report to the Board by Eri...
The Board of Amey plc has announced the following financial information in the wake of a report to the Board by Eric Tracey, acting group finance director, who has completed a preliminary review of the financial affairs of the company. The review anticipates a successful outcome to current discussions with lenders and the completion of a number of transactions before the year end, including the London Underground PPP and the commercial completion of sales of the company's PFI portfolio and the Amey Resource Management and Vectra businesses. The key points arising are set out below.

The group's operating activities in transport and business process outsourcing have continued to perform well and in line with the board's expectations at the time of the interim results.

Amey Ventures' performance in the second half is likely to be adversely affected by the further delay in the completion of the London Underground PPP to the year end, and the recently announced interim funding solution provided by our Tubelines partners which will result in the deferral of recognition of an element of the development income until exercise of our option. Further adverse effects will arise as a result of a decision to exit the millennium settlements partnership, and delays in the closure of some PFI bids until the new year. In addition, the performance of the technology services companies has deteriorated somewhat further during the disposal process. It is estimated that the combination of all these items will reduce EBITA (pre FRS 17 and exceptionals) for the full year to around£35m.

EBITA (pre FRS 17) is also likely to be adversely affected by an exceptional charge of around£15m for the costs relating to the discussions with lenders, the fees associated with the disposal programmes and other reorganisation and redundancy costs.

A rigorous review of balance sheet carrying values throughout the group is estimated to result in an exceptional non-cash charge at the year end of£85m before being offset by a tax credit estimated at£20m. The largest elements of that charge arise from Croydon Tramlink, the effect of the PFI equity disposal and a decision to provide for old construction balances, albeit that recovery of the sums due will continue to be pursued.

A preliminary review of goodwill impairment indicates that a write down of the goodwill arising from the Comax acquisition is not considered necessary. As was made clear in the acquisition documentation, the Comax business was acquired to equip the group with business process outsourcing capability and the intention was to fully integrate the business into the wider company. This has been achieved and the cashflows arising from additional business won as a result of the group's ownership of the Comax capabilities are expected to support the goodwill carried on the balance sheet.

A goodwill write down may prove necessary on the BCN investment and there will be a loss on disposal of Amey Resource Management Services, offset by a profit arising on the disposal of Amey Vectra. In the event that the final reviews conclude that all the BCN goodwill should be written off, the total write off could be£20m. No further goodwill write downs have been identified by the review.

Year end net debt is now expected to be higher than previously anticipated due to a number of significant one off items and the general commercial pressure which the group is experiencing. Before the receipt of the PFI and technology services disposal proceeds which are not anticipated to be received until January, but after the receipt of the LUL development fees net of the sum placed in escrow in support of the interim funding solution, net debt at the year end is likely to be in the range of£190m to£200m. Interest costs will be correspondingly higher than previously expected by some£2m to£3m in 2002.

Amey's discussions with its lenders are proceeding and the group considers that they remain supportive.

The actions determined by the board in the summer, following a strategic review, were designed to reduce the group's cost base and improve future cashflows. Good progress has been made on each of the initiatives taken, with only the completion of the PFI partnership and the sale process of the ATS businesses outstanding, both of which are on course for commercial finalisation before the year end. The strong possibility of the London Underground PPP completing around the year end is also very positive, bringing to an end a long running drain on the group's financial resources.

The sales and profits of the group will be lower in the future as a result of the proposed disposals, however the implementation of the plans drawn up in the strategic review will enable the group to enter 2003 operating from a significantly lower cost base, with an improved focus on its core support services activities.

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