Joe Brent

Joe Brent from Panmure Liberum asked about the extent to which political support helps Fermi secure generating assets amidst competition. He also inquired about when news on construction contracts would be released, specifically what details would be shared once the first tenant contract is signed.

Answer

CEO Toby Neugebauer attributed Fermi's preferential treatment to decades of team relationships in power generation, the superior site with natural gas infrastructure, and tangible political support, citing the 'massive push-push' from the U.S. government for the Siemens F-class units during trade negotiations. Regarding construction contracts, Neugebauer stated they already have many and are focused on streamlining and coordinating them, with weekly meetings planned. CFO Miles Everson clarified that disclosure would be made as required by SEC or FCA securities laws, acknowledging that both parties prefer confidentiality but will comply with regulations.

Joe Brent of Liberum questioned the outlook for U.S. construction margins, asked how the company de-risks its capital in the Gammon joint venture in Hong Kong, and inquired why working capital saw an outflow despite sales growth.

Answer

CFO Phil Harrison stated the U.S. margin should increase in H2 but remain in the 1-2% target range. He explained Gammon risk is mitigated by annual profit distribution and operating it with a standalone balance sheet. The working capital outflow was attributed to the project mix, specifically the unwinding of prior U.S. project advances.

Joe Brent of Liberum asked if any new problem contracts had emerged beyond the legacy portfolio, questioned a specific asset disposal that occurred at book value, and inquired about potential geographical expansion in the U.S. Construction business.

Answer

Group Chief Executive Leo M. Quinn acknowledged that challenging contracts like the Aberdeen Peripheral exist but stated nothing in the current portfolio compares to the issues of two years ago. CFO Philip J. Harrison explained the disposal was a small £2 million U.S. private rental scheme where book value typically matches market value. Quinn confirmed there are no plans for U.S. geographical expansion, preferring to focus on existing strong markets.

Joe Brent of Liberum asked for clarification on the difference between practical and financial completion for legacy contracts, the rationale for delaying PPP asset sales, and any future targets for cash and cost savings.

Answer

CFO Phil Harrison explained that practical completion is when the job is certified complete and the site is demobilized, while financial completion is the final account settlement, expected by 2019 for the legacy contracts. CEO Leo Quinn stated that delaying PPP sales is a strategic decision to maximize shareholder value by only selling a high-yield asset if the cash can be reinvested for a better return. He added that future cost and cash improvements are now embedded within the goal of achieving industry-standard margins.

Joe Brent from Liberum inquired about the achievability of the 2-3% UK construction margin target for 2018, seeking details on the evolution of tender margins, overhead recovery rates, and the timeline for resolving legacy problem contracts.

Answer

CEO Leo Quinn expressed confidence in achieving the 2-3% margin target, citing improved bidding discipline and lower overheads from the cost-out program. He stated that 90% of the legacy projects would be complete by the end of 2016, with only a handful running longer. He also clarified that overhead recovery rates are targeted in the 4-5% range.