1) The document analyzes agency problems and risks faced by AMEC plc, a leading engineering firm listed on the London Stock Exchange. 2) It finds that AMEC has high cash reserves which could enable agency problems, but has less agency risks in other areas like executive pay and board composition. 3) Key risks for AMEC include market risk, project costs, inflation, and exchange rates, which it tries to mitigate through diversification, contract terms, and hedging. However, its lack of debt and dropping earnings raise challenges.

1. Coursework Presentation
Group-Work
Dhiraj Malik
Robert Kanfrah
Shekhar Ghanvat

2.  Company brief
 Highlights
 Agency Problems
 Key risks faced by the company
 Conclusion

3.  AMEC plc is one of the world’s leading engineering,
project management and consultancy companies.
 AMEC plc is listed on London stock exchange.

4. Srno Sources of Agency problems Trend Comments
% Change in dividends to
Less chances of
1 shareholders vs. % Change in SHD- 19%, DR-4%
agency problems
director's remuneration
Higher chances of
2 Cash availability Avg. 693 Millions GBP
agency problems
Less chances of
3 Board Setup Non-Exe/Exe= 62.6 %
agency problems
Sales growth of 9% for Less chances of
4 Company Growth
past 5 years agency problems

5.  Directors Remuneration & Dividends to Shareholders

8. Srno Risk Indicators/Factors AMEC Trend Comments
Company's trend towards decreasing
1 Operating Leverage Decreasing trend proportion of fixed costs in overall costs,hence
less increase in EBIT in proportion to sales
Proabililty of high agency problems
2 Financial leverage No debt
No benefits on leverage effect
Decreasing trend from 2008 Higher beta values in 2011, than competitors,
3 Market Risk
till 2010, 2011 saw rise higher risk ,higher risk premiums for investors

9.  Degree of Operating Leverage

10.  Degree of Financial Leverage

13. 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

14. 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%

15. Risk Indicators/Factors Comments
In to Acqusitions- Diversifying
1 Geopolitical and Economic risks in to Geographical areas,
across energy sectors
2 Project costs Cost Plus contracts
3 Inflation Hedging
4 Exchange rates Hedging

17. • 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)