Foster Wheeler's CEO Hosts Investor Day Conference (Transcript)

| About: Amec Foster (AMFW)

Foster Wheeler AG (FWLT) Investor Day Conference Call November 16, 2012 8:30 AM ET

Executives

Scott Lamb - VP, IR & Corporate Communications

Kent Masters - CEO

Umberto della Sala - President & COO

Gary Nedelka - CEO, Global Power Group

Stephen Culshaw - Managing Director, Global Business Development, Global E&C Group

Analysts

Jamie Cook - Credit Suisse

Scott Levine - JPMorgan

Carey Callaghan - American Trust

Scott Lamb

Good morning everyone and thanks for joining us and welcome to those of you who are tuning in on the webcast. I am Scott Lamb. I handle investor relations for Foster Wheeler. I think we've put together a pretty nice agenda for the day and we will jump right into it here in just a minute, but I want to go through a couple of details.

We are going to have four presentations today. We are going to allow a little bit of Q&A time at the end of each presentation and then at the end of the day around the noon hour, we are going to allow for an extended Q&A with Kent and the whole team.

During the Q&A, if you have a question please raise your hand and one of our assistants Julie or Patty will bring a microphone to you and that's important as you probably know because unless you speak into the microphone it doesn't go out over the webcast. We will take questions from the live audience first and then we will take questions from the web audience if time permits.

We will have a short break at mid-morning after Umberto’s presentation. We will take another short break about noon and at that point we would invite you to pick up box lunch, come back to the room and at that point Kent will provide some wrap up comments and then we will go to an extended Q&A.

Now before we turn to the presentations, I need to offer the favorite part of the presentation here. I need to remind you that any comments made today about further operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ substantially from such forward-looking statements. A discussion of factors that could cause actual results to vary is contained in Foster Wheeler’s annual and quarterly reports filed with the SEC.

So with that, I will turn it over to Kent.

Kent Masters

Okay thanks Scott, good morning everyone. Good morning. Had to look to make sure that there were people there; I didn't get any response. So I think just before I start off, I am just going to make a few introductory comments and then we will get into presentations. I am working the technology the right way, okay.

But before I get into my comments, I just want to introduce the team that is here. Some of which most of you know, others maybe a couple of new faces from Foster Wheeler, but want to introduce them before we start. So Scott Lamb I think you all know. Over on the left, Kevin Hagan is Vice President of our Treasury Group. Lisa Wood is our Controller. Umberto della Sala here, you know is our Chief Operating Officer; Franco Baseotto, CFO; Gary Nedelka is Head of our Global Power Group and Stephen Culshaw is our Managing Director of Global Business Development, our E&C Group. He is going to do a presentation about the markets and our prospects. And then we have two people, I am actually not sure, I don’t see them, but raise your hands if you see them bring the microphones around for questions and will help us out here is [Patty Landsberger] and Julie Stanisz; they may have stepped out, but they are from the organization and supporting us here today. So that’s the team that you have with you from Foster Wheeler today.

So as we get into this, I just want to provide a little bit of backdrop. So I am not sure anything that you are going to see from me in this presentation is particularly new to you. What we're going to try to do today is give you really the latest of what's happening in the organization and a good view of the market and our prospects in both the E&C and the Power Group. We have also reorganized the organization and we're just in the middle of the implementation phase of that and we’ve indicated some of that at the earnings calls. Umberto will take you through kind of the full detail of what we're trying to do about that and I will refer to a little bit of our objectives when we talk about strategy in a moment around that reorganization, but that’s very important to us. I think you will find that very interesting.

Stephen, as I said, runs our Global Business Development Group for E&C and he is going to talk about the key end markets, our strengths and prospects in those markets; I know you are all interested in and Gary will kind of provide kind of a same overview from our Power Group. And as Scott said, you will have the opportunity to ask individual questions at each one of these sessions. So we will go through the material I think we're estimating each presentation as 30, 45 minutes. We will see how we do on the timing, but then we will have questions specific to that and then you will have the opportunity to pull it all together and I'll host the Q&A session at the end where we will all be available for whatever the scope of question might be and if we can answer it, we will do our best. So that’s the agenda of what we hope to revive for you today, as Scott said we will provide lunch and then we distract you a little bit with lunch during the last Q&A session, so that little bit of a challenge for you guys.

So I thought one thing we would start with here, I am just making sure that we are linked that’s a tall screen, so trusting the laptop in front of me. I have been with the organization just a little over a year and we thought it make sense at least to look back and say what are the things that we have done and to put those on one piece of paper, so it’s little bit humbling when you say you have been here and this is the list of things we have done, we have actually done a lot more of this, a lot more than this, but this is I think it’s a strategic level and for investors what’s important.

So we have gone through a strategic process and we have either refined that, changed that, but we have solidified our strategy going forward in both businesses and we have talked about that at different times during the last year for both different businesses; I will summarize that on slide each one of the businesses in a moment, but I don’t believe it will be new to any of you. We continue to tweak those as we go, but there are no big changes really since we have put those out in the last year. Gary will talk a little more specifically about power in his presentation and I will talk about some of the E&C strategy pieces.

As I said just a moment ago, we have restructured the organization in the E&C side of the business and we did that restructuring based on being able to win more business. So we say we have restructured for growth, it’s a lot about being more consistent and operationally and in execution as well, but we talk about it being a restructure for growth because we are really trying to push on the organization to make sure that we can grow the organization, that we maintain our links with our clients and that we can execute where our clients want us to execute.

So we restructured with all those things in mind, Umberto is going to spend quite a bit of time on that; it’s a key milestone for us and we are right in the middle of executing that; we rolled that out about a month ago and we say it will be fully operational by January 1st but we are stepping into it, so parts of it are already in place, Stephen’s role as part of that organization and number of those roles are in place and we are kind of halfway into that new structure we are transitioning to it and by January 1st will be fully operational there. And again, Umberto will give you the details about that.

We have been improved our bookings significantly last year, so $1.5 billion in new orders, scope orders through the third quarter of 2012 and that compares to $1.4 billion for all of 2011. We are proud of that, we continue to push on that by no means resting our laurels, when you win the project, then you have to execute it and then you have to win the next one. So we continue to push on that, but we feel like some of the changes we have made in the organization and the focus we put on it is bearing fruit and we continue to push that. By no means, we are through and part of the new organization that we have in place is really focused on that and we think that will continue to play through and you can make your views on that when you see more of the detailed restructure when Umberto takes you through that.

From a financial standpoint we have reported 19% growth in earnings per share for the first nine months of this year versus last, so we have to put that out there. We think that deserves a little bit of attention and we are continuing to buy stock; we have the program in place, I know some people were concerned when I came in that may or may not have the same attention on that is the previous management did, but I think we have shown that we do focus on and we have a new program in place, we have invested $220 million to purchase of 11.5 million shares since the fourth quarter of last year; and essentially, when I came on board. That program is still in place; we’ll talk a little bit more about it later, but as we say we are opportunistic around that and we balance that between other capital needs, investment in the business, but frankly in this business it’s more about acquisitions and share buybacks.

Okay, so this is the kind of the headline chart we use on our E&C strategy. We have the same looking chart, so we try and define our vision on the left side and then the right side some of the key initiatives in the program we have around that that were focused on from an organizational standpoint. It’s important we think to have this all on one page but we can show this to the organization and we can show it to the market and our investors so you understand where we are.

So I'm just going to spend a few minutes on this. I know everyone has seen this before but on the left. So we are trying to be a diversified business delivering growth across cycle. So we do ride the cycle quite heavily because of our strong presence in the downstream business and the cycles that industry goes through when they make those investments. And we can't drive that but we can be in businesses that have slightly different cycles and we can be more in the service end of the business, some of the operational side of the business and the consulting side of the business that takes some of those cycles out.

So that's what we are trying to do in the business. So we are not afraid of the cycle, so we will always ride those cycles. We are trying to dampen them about it by creating some business that have consistent cash flow and that are strategically linked and consistent with our business so we think we've found a number of those and now we have to just grow those and execute against some of those plans.

And specifically, we want to be the premier E&C contractor in refining and the petchem and the LNG space. We want to maintain that. We think we are a premier contractor in that space and we just want to continue to build and grow on that. We want to build stronger positions. We define that as material positions in upstream, metals and mining and pharma. So those are businesses we all play in at the moment but on a much smaller scale.

Upstream, we do have a pretty strong onshore business. We want to be deeper in offshore. They operate in different cycles and they have a nice profile for investment. So we want to be stronger and grow those businesses. So we can grow them organically like in pharma and in mining and upstream frankly, we think we have to make acquisitions and we will target acquisitions in the other spaces if we find the right ones that work for us, but we feel on the upstream side we have to make acquisitions to really change our footprint.

The next point about integrated product services and technology offering that's more, that's about that revenue that's consistent there. It’s the same customers that we operate with, the same technology, the same client base. We design it. We are the experts in those processes. We should be the ones that help you when you have problems with it. So on a services basis, on a turnaround basis, and trying to expand our technology offering. So it’s less about engineering or we can complement our engineering offer with more of a technical offer.

And then finally, we just want to put, we say out here but so we don't forget, what our core business is the design and execution of projects for value to our clients. So we want the client to see us treating his money like our money and we have to stand for excellence in design and excellence in execution. That is our reputation. That is our bread and butter and we never can [restrain] from that.

Okay, so then on the right side I'm just going through the quickly so some of the things that you will have seen us doing and will see us doing to try and get to those positions that we define on the left side. We are strengthening our business development organization. We have been doing that, our restructure is around that, a lot of things we did early in the year and I think some of the business that we've been signing is a result of that. So we feel like we've done well there and we make sure that we can play at all the different geographies where business is happening. It wasn’t necessarily the case where we had weaker position so we've added people, we've added coverage and we're creating ownership around our clients within our organization as opposed to being opportunistic around projects. Umberto will describe more about that of the organization and I think you will see that come through Steven’s presentation as well.

So, we talked about that reorganization. We're growing our market share about building in those geographic positions. So, part of our clients requiring us to execute on a local basis. So having offices in those geographies does not necessarily our historic strength. We have to have either offices or partnerships in those geographies to execute on a local basis to meet the requirements of the projects that are our clients are pushing on us and we're really driving that through the organization.

We have good success there and we're leveraging our existing technologies in broader EPC offers. So using some of our key skills and strengths that we tend to get always have an advantage and leverage that into bigger businesses and we've done that fairly well delayed coking is our classic example same thing in the power business. Gary and his team do around with CFB boiler.

And then again the key sectors, I talked about and we're talking about the higher level stuff but M&A opportunities particularly upstream and mining, we are focused on those two and pharma as well but we see upstream being the primary one where we require an acquisition. We believe we can grow organically in the other two, doesn’t mean we all look for those opportunities but we see upstream has criticalness where we are really focused.

And again I talked about extending the offer before along the value chain and that’s about reaching into the clients organization, more maintenance, turnaround services, consulting services when they have operational issues and maybe even operational support in certain areas. So this is expertise that we have. We are the experts on the processes that we design and build. We recognized as that worldwide and for us to extend into service businesses, the natural extension for us and it really helps with that riding that cycle, it keeps us close to the client when I do project we would know that first, it’s an interesting models, it’s a natural for us because we don’t have to add any expertise, we have all the expertise around all of those processes, we will just be able to grow our engineering base.

Okay and the same format now for GPG. So, on the GPG business we really want to grow our position as the world leader in fuel flexibility and combustion of difficult to burn fuel. So we have a nice market position around CFB and some of the other peripheral products that we have, and we bring flexibility around the fuels that they burn and the difficult to burn fuels. So it allows them to do fuel arbitrage and it allows them to burn those particular fuels, so when we get into the more sophisticated range of those products, we have a very high market share and we do very well there, now our issue at times is we need projects to go forward for us to win them but generally we actually win them before they make a decision to go forward. Gary will go through a list of those that we have at the moment, which we have won and when they make that investment decision there will be ours.

And in this business, we really we want to expand the size and technical sophistication of that technology that CFB technology to extend that lead because when you have a lead technology like that people are chasing you, you have always got to be doing work and progressing that. We have done very well staying ahead of the curve so far and we need to continue to do that.

We need to grow our position and our product service offers for the aftermarket services. So once we sell these and we still have a service business that we want to leverage, we have done a nice job in GPG around that service offer, we just need to grow that and grow it into other offers other than just our core products as well.

So we do service businesses on other equipment, particularly in the US and we want to grow those businesses more. And we need to expand our footprint because these projects are not happening in US and Europe anymore, I mean, maybe little bit in Europe qualified products in the US and not happening at the moment and the opportunities for us are much further appeal Asia, Middle East, South America and we got to be able to operate and work in those areas. We do quite well there; we just need to be a little closer to the markets so we can continue to do that.

I missed this, that we have on the right, I think we have probably talked about most of these but about diversifying the product offering, I talked about making CFB bigger and that higher pressures so we continue to stay ahead of the curve there penetration into geographies, I mentioned India, Middle East, South Africa and I didn't and then Asia we done very well, in Asia with CFB boiler, Vietnam, Korea, Thailand, we continue to focus on that and we just will have more and more local presence, so its and most of these projects in Asia we would execute out of China anyway.

So we do have a nice footprint, we just to need to grow that better because those of where the opportunities are. Again in the after market services, we already in place we want to continue to grow that because that's an ongoing business, we have also made an acquisition for some environmental technology that can be downstream of the new equipments or retrofits for environmental purposes. We made that acquisition eight, nine months ago and that's integrated and those opportunities we hope to start coming true as environmental regulations continue to move, everything has been a little bit on hold over some political questions.

We think that’s going to start moving now and then we are positioning ourselves. So we always been in this business but we are just pushing more now given where natural gas is going that we have an offer around the natural gas market, its not our big market, solid fuel is going to be our big market and where we really play strong and we still want to have a presence around the natural gas market. So heat recovery steam generators, condensers, heat exchangers and service businesses around the gas business is also a part of our portfolio, and now we want to extend that to give us again more steady revenue stream. And then the last point is key. We think we do that very well. This low cost, high quality fabrication capability, its spread around the world, we collaborate between our different businesses as, who does the design, who does the manufacturing, who does the erection of any kind of project that we do and we just need to make sure that we stay world class with that.

We are we believe well ahead of the curve but we need to keep pushing that, because there are people chasing us and anytime it’s a significant size the equipment that we are selling in the utility market for CFB we do very well but we know there's competition coming so we have to keep getting better on it everyday. Now I mentioned capital allocation that's my first couple of comments and I know this group gets very interested in that so just our tagline, we look to maintain a strong balance sheet, its important in this business. We have to have bonds for a lot of the work that we bid for execution purposes though our balance sheet is strong and we want to make sure that we stay investment grade and probably would consider leverage only in connection with an accretive acquisition.

So we want to be very careful about that. We are still looking now for acquisitions particularly around the E&C strategy. We've been fairly transparent about that and we continue to look for those opportunities. None have come to have come forward that were the right fit for us, so we haven't really pursued those but we continue to look for that and its my hope that we will be able to do one of those in the next year or two a material acquisition and we are also looking at a lot of bolt-on acquisitions, smaller not so high on the radar that you would see but things that add capability or geographic reach within our core businesses, around oil & gas could be small upstream even in the downstream spaces where it either adds a geographic position and gets us in those local geographies or a technology that we can add into our portfolio.

We are continuously looking for those and have a number of them on the radar at the moment and it just depends on how things work out and it is the value of the right thing and whether we do those. And then finally we continue to pursue the share buyback program and those that work opportunistically and that's just a balance between that and the M&A program. We have the authorization from the Board and we will continue to be an active program and we've just balanced that between do we see an acquisition opportunity that's going to happen in the near term or we see that opportunity and we want to hold on to our cash or we don't think its going to be in the frame in the near term and then we will do buybacks. I don't think there's anything magic about it other than that, but we will always use that word opportunistic to give ourselves flexibility.

Okay and then just for ’13 overall we are calling these tactical objectives so we continue to focus on business wins and project execution. That is kind of what we do. We have a lot of things to do in the organization. Other than that but that's what pays the bill. We win business and we execute them well. We've got the E&C reorganization that you are going to hear the details of in just a moment. We will continue to work on that, that's a big focus, we can't take our eye off the ball which is why the first point is the first point. We can't let this, the work that we are doing internally distract us from winning business and executing them. We are also working on cost efficiencies through functional alignment and system alignment. So that's part of the reorganization and we are trying to operate on a broader scale so we get efficiencies across our businesses and there are nice opportunities there and we will do this overtime at the pace that make sense where we don’t disrupt the organization.

We’ve developed roadmaps for each of the functions within the organization. So finance, HR, IT, legal, that types. So we have roadmaps where we want to go and we will execute against those to make sure we don’t disrupt the organization, but we still take cost out of the organization. The share buyback program is still in place, again opportunistically. We need to make sure we have a robust succession plan for the eventual transition of the global E&C group post 2013. So Umberto is confirmed through 2013. We put this organization in place confirmed Umberto through next year and we think that gives us the right time to make the transition to get his successor in place.

And then finally we continue to pursue M&A opportunities, both Bolton acquisitions as I described in our businesses and more significant acquisition that would put us in one of those spaces we’ve identified where we are necessarily today. So we continue to look for those. That is, those are the prepared remarks that I have. So I think we will say we have questions in between and I have to stay here right because this is a microphone.

Okay, so the questions Jamie.

Question-and-Answer Session

Jamie Cook - Credit Suisse

You talked about the E&C business getting in, end markets getting bigger and upstream metals and mining. You talked about doing more service turnaround work, one of the things you haven't addressed is whether or not Foster Wheeler needs construction capabilities and whether or not that puts you at a disadvantage in certain markets. Also, lot of your peers are getting bigger in fabrication and you are looking to your direct tire construction. So if you could start to speak to your thoughts to that as well.

Kent Masters

Okay, so we can talk about that you will get some of that from Umberto as you see what we have done in the organization. But the space that we are in and we think we do fairly well there, and we want to be in the markets that we really need to push into. So upstream is one of those metals and mining we talked about and pharma. And frankly in pharma and metals and mining we have positions, we believe we can grow organically and those would be smaller acquisitions not a big deal. In upstream we have on shore business that is material, but offshore we have some business but it’s very weak. We think we had to do an acquisition to get into that space. And construction is it depends on the geography for us, it is not something that on a wholesale basis we have to create that capability but on a geographic basis depending on what those capabilities are and where we can partner. So I don’t think you will see us going wholesale that way, but it is important for us to have construction capability in certain places and the ability to partner.

Unidentified Analyst

Hey Kent, so you focused on more sales penetration in a lot of this presentation and the reorganization of the group. When I look at the margins of E&C; you have always had sort of industry leading margins and they have come down quite a lot over the last few years and a lot of that is the cycle and what have you. But at the same time I worry a little bit that you have sort of sacrificed sort of these higher margins for more sales penetration. Could you talk about that a little bit? Is it really just the market that’s kept it down, have you had to get more aggressive and sort of lower year threshold for margin performance in E&C or could we - I know you guys have talked about being able to get back to where you are 20% EBITDA margin, it seems kind of far away but maybe its not?

Kent Masters

Well, it does seem a little far away this morning. But I don't its our sales we are trading our sales penetration for margin. I think, we are always trying to balance there is about that risk profile in that margin, much more so I would say than the sales penetration and we need to position ourselves on project to get us in a position to win and then we make those decisions when it comes down to it and we balanced that risk profile that you take on versus the margin that you have and how well and frankly how well you execute those projects will determine what you margins ends up being at the end of many cases.

So I don't know that I wouldn’t say that we are trading that offer with our sales penetrations. I think we are putting up more resources in but we are trying to be more focused and ourselves in a position to win and then we make those decisions around risk management as a project is bid, and I can't say we get back to the margins 20% margin in E&C. It’s possible, it depends on the market and what those opportunities are and what value we bring to clients when we are doing those and we are those bidding those particular projects or what value they see us to bring.

Unidentified Analyst

I guess the only thing and I have hard time with this, I have remember talking of Franco a few years ago and one things that he mentioned was that your trough margins really shouldn’t go below, let say mid teens in E&C and obviously within quite a bit below that, and again I think that's the market but at the same time like I am just kind of wondering if you have the sort of trade-off a little bit, because maybe the market didn’t, and some of it is you just have to win work so are you going to see a big snap now that you start to win work and just sort of the things that I wanted?

Kent Masters

But I think you, I thought you were asking the question about we are adding sales overhead and that's driving those margins down, that was your original question right?

Unidentified Analyst

Yeah.

Kent Masters

And so we have added some costs in there, but we are trying to be very focused around that but that's not the fundamental thing. I think we need to win business and we need to have certain volumes, so we don't have utilization rates and we are going to ride the cycle and its going to go up, its going to go down and its at the moment I mean projects are coming through, we are still down on the cycle. And I think its going to happen like the cycle always happens and there will be another one. But when you are not riding one up, you feel like there won't be. So I can't say where the margin goes, its all about competition, who is bidding what, who is desperate at the moment that brings that same capability or can we convince them regardless of what other people are bidding you want our capability which is where we like to be and when we do a little bit better, doesn't always work.

Unidentified Analyst

One of the beauties with Foster is just turning out cycle this company always tended to have a lot more operating leverage and a lot quicker than the other E&C. So I guess by the end of 2013 and at the end of this reorganization process, how do you think your cost structure changes and especially as you pursue more back end commissioning type work?

Kent Masters

I mean the cost structure, I mean we are going to add cost in certain areas, sales, marketing and things to make us more efficient across the organization. So we are putting some resources in and those will come in before we take cost out. So aligning some of the functional work that we are doing we will align and take cost out of the organization, so over time, over the cycle from these network but over a period of time I think our cost structure will come down, but we’ll have a better sales and marketing, we’ll have more efficient processes. We will be able to leverage our centers in India, Thailand better so we drive down our average man hour rate for the projects that we do and that we are a more efficient organization and working much more globally than we do today. So it will go up and come down, but I don't think it impacts us directly and we will add cost before we get them out, but we will get them out.

Scott Levine - JPMorgan

Scott Levine, JPMorgan. So you've been with the company for about a year or slightly longer than that I was hoping you might be able to discuss how the experience is compared with your initial expectations and where things may have differed in anyway and whether your thoughts on strategy are generally similar to what you were thinking a year ago?

Kent Masters

Well, I think I learned a lot in a year, I mean this is not a business I was, I didn't grow up in this business. I came into this. So I had stepping into a new organization and learning that. I would say what have I learned about the business. As I expected, I have run an engineering business before, but it did not exactly in the same space. But it is a lot as expected. There's a lot of history in the organization and a lot of capability and a lot of relationships with our clients and we get a lot of benefit from that.

I would say it operates more as regional businesses, rather than global businesses, that's not quite fair. GPG operates very globally, E&C operates little bit more as regional businesses that collaborate quite well, to work with a client, that was a bit of a surprise to me; I think we need to operate a bit more globally around that, that's part of what this restructure is about.

And we were a bit opportunistic about going in to do a project and then coming out as opposed to going in and then, are there opportunities there, now hindsight is a great thing, because I am sure people in the organization when we went in and did something, to do a project we did one, we had people on the ground and they assessed the situation and said we don't think there's an opportunity here we are going to step back and it turned out that there was an opportunity there. So we want to be better at assessing those opportunities, so when we built these local organizations we want to keep them in place and grow them.

Now if it turns out we are wrong about a market we will have to step out of that. We can't just build organizations if there's no market there, but and those are the things we are working on, that I see as different than I was expecting when I came in or maybe that's not right, maybe I learned that in the year and now we are working on it.

Unidentified Analyst

Thanks. So upstream has long been an M&A aspiration of Foster Wheeler, but its always been difficult to really achieve; so I am wondering has anything changed in the marketplace that will allow for these acquisitions to finally happen?

Kent Masters

Well, I don't have the history, you probably have it and watching Foster Wheeler look at the space maybe or at least another space. But I think there are opportunities that will come up for or are out there and we have to continue to look at those and not, but we are not going to just do a deal to do a deal. We have to find the right one. We will continue to look. But we are, I have been back over this several times, can we do this, you know is this transact-able, its great to have a strategy that says we want to do it but can we actually do that, I think we can, so we are not changing that at the moment we continue to pursue that. I think its doable.

And we also have aspirations to grow the business that we have now so we are not standing still. We are growing those organically with very aggressive growth rate, its just a small base and its not good enough. So we are not standing still; we are adding to our capability and we can get the catalyst of a significant acquisition; I think we can really make a step change. So I believe we can do it.

I think John’s got his hand over in the corner for a while. Maybe we’ll start over here while we get John a microphone.

Carey Callaghan - American Trust

Carey Callaghan, American Trust. Kent I heard you talk a lot about growth and I did hear you talk about execution, you didn't specifically talk about managing risk. So as you try to push growth in the organization, what do you do to safeguard risk and maybe you can talk a little bit about contract mix and what you are doing there?

Kent Masters

Okay, so you have to be careful when you do these presentations, its not what you say, sometimes its what you don't say, but risk management, I think we are recognized in the market as good risk managers and so I guess I don't focus on that because I don’t want to overplay it, because that's not all we do but it’s a balance. So we do have to grow in our business, but we've got to do risk management quite well. Its built into the culture of the organization now and we want to make sure that we keep that.

I like how we do the risk management. A lot of these deals are at very senior level or very, they are big deal, so the final risk management decisions get made at a high level. We have got an organization, a group that I think has been presented to the investment community before that kind of oversees our bidding processes and procedures across those business, so we get, we capture some best practice learning there and we are very serious about that.

So I think you will continue to see us do the risk management and it may hamper our growth rate; we aren’t growing at all costs, we want to do it with the risk profile that we have had. We will take calculated risk and where we believe we control the risk and can mitigate them, but we won’t just take business to be taking them with, we are not going to close our eyes and sign contracts.

Carey Callaghan - American Trust

Thanks, if you could just go back to the acquisition potential for a second here, what are you looking for in terms of a large acquisition is it diversity or is it extension of what you are already doing and what is that implications for margins and capabilities there? And then the follow-up on that as you go through that process, will it make more sense to sell the company or merge it with somebody else?

Kent Masters

Okay, were you focusing on a particular market or are you said barge?

Carey Callaghan - American Trust

No, sorry acquisition, large.

Kent Masters

Okay, for us, we are in the oil and gas space and very strong in the downstream business, those same clients play in upstream and all of it, a lot of the investment money goes into upstream and as oil gets more difficult, oil and gas gets more difficult to get out of the ground, you have to invest more and more capital there. And that is very close to the expertise that we have in the organization. We can leverage 80% of the resources that we have, probably in to that space. Move them over, you know, there are some differences, offshore you got to be more weight conscious, all those type things, but most of the capability we have in the organization transfers over into that. We just need a platform and a brand and a business that we can then leverage off of to be a catalyst for us to really grow in that space. We don’t have to be everywhere in that space.

Ultimately we get in there, we will build the different element of that business to make it a more robust business, but it’s so close to us, it is with our same client. It's got a nice profile from a cycle standpoint, from the investor, a lot of operating expense type investment from a client’s perspective. So they don’t have to decide to build a new platform for us to get work. It's really just about making things work. It's a good bid for us, it’s what we are missing; not going to be easy, the space, frankly has been picked over. So we got to do a lot of work to be clever and maybe put a couple together to do that. So as I said, I know it looks difficult and I said sometimes, compared to myself that it's doable. I believe it is and we continue to focus on it.

Carey Callaghan - American Trust

What about, as you look to the organization after a year, does it make sense Foster Wheeler independent or would you be better off?

Kent Masters

It would be better off as part of someone else. I think we can be independent. We can grow this business. We’ve got, I mean very good brand, very good capabilities and a very good reputation with our clients, frankly with our competitors. And I think with the investor base and we are big enough that we can grow and really take advantage of some scale pieces we have. We're small in this space, I wouldn’t say we're sub-scaled, but we're smaller in the space and we have to take advantage of the scale that we do have which is some of the organizational things that we're talking about to become more efficient, but we can address those issues and we can grow. If there is a right combination that’s out there, you know, we're not going to say we won’t look at it, but we're not pursuing that.

Okay. I am getting lined up here from Scott, but you have another shot over lunch. So I think now it’s Umberto.

Umberto della Sala

Okay, good morning everybody and thank you for joining us today. I am going to talk about the reorganization of the engineering section. Now every time you go through a strategy definition you had to always ask yourself whether you have the right organization in place to successfully implement the strategy. This is what we have done. And we have concluded that to really support the strategy, we needed to make some substantial changes to the organization talking about the engineering section.

Now what I would like to highlight is that here we are not talking about French Revolution, so this is not a French Revolution, because we pay a lot of attention in making sure that we did not affect the culture and the DNA of the company. We try to leverage the culture and the DNA of the company to develop a more successful organization. Now assuming that we can.

I will start with this matter which shows where our 9,000 people are spread geographically. I am not going to spend time about the different colors shown on this map, the only takeaway here is that all of these offices with just few exceptions they have been developed and grown organically. So I think we have a very successful history of being able to developing offices operations in new countries. And this is part of the DNA of the company and as we forward we will leverage this DNA to expand geographically.

Vision, Kent has already taken you through the vision, I won't spend too much time, here I just want to highlight some of these bullets here. Number one is execution excellence; this is our business. Now the clients come to us because we execute their projects safely, one time and on budget. There are no other reasons why clients come to us, and I am glad that Kent has mentioned that, we are brain washing our people to make sure that whenever we with clients we treat their money as our own money. If we do that we will have happy clients come back to us.

Number two, growing market shares in emerging markets. This is what we have been doing for the last century. I remember Italy was an emerging market in the 50s, we are nothing and now we have a fairly large organization.

Deliver solutions to our clients; this is again an important point. I remember Kent and I were meeting with an Asian contractor, which I will not mention, and they said, we are very good when you give us a broader definition and we have to execute it, but we are not really good when there is a white blank sheet of paper and you have to start working with the client to define the project. And this is where I believe we can bring a lot of value to our clients.

And last point not least is the being an employer of choice our business is a people business, we have to make sure that we develop, we create an environment for our people to be happy, to work with passion, to grow and develop the professional capabilities. What are the drivers of our other organization? Now there are market drivers and there are client expectations and they are changing by the way.

Number one; there is a growth in emerging markets. This is well known. We have to take advantage of this change in the market. And the one comment on your question about the margins. Now, we don't drive the market. We follow the market, and if the market moves to Asia which is generally a lower cost base, we have to go to Asia and even if percentage wise the margins are still good in absolute dollars certainly they are lower than the margins we can get out of [UK] for instance. So in addition to the competitive environment one of the drivers has been geographical division. We follow the clients, we follow the market.

Requirement for local content. There is an increasing demand for local content specifically when you talk to national companies in certain countries, there is a very, very strong push for local content and therefore we need to be able to develop local operation to be able to maximize local content. This has been a part of the DNA of the company. We have been able to do it successfully over the last several years and this gives us a lot of confidence that we can do it again successfully.

And there are also opportunities to grow in the core business and to expand our service. Like I mentioned, the good engineering type, asset maintenance and this is what came to us referring us further leveraging the capabilities we have in our group.

Client expectations, client expectations have changed. When you talk to international companies, global clients their expectation is that wherever they execute projects, they have the same type of service. So they don't want to see different performance from different offices. So we need to make sure that we began globally consistent and cost effective in the way we deliver products to our clients.

As I said, local execution is extremely important. It’s one of the substantial changes in the market we have seen over the last few years. Longer term relationships, I think we mentioned a few calls ago about the increasing demand for these global clients to enter into long-term service agreement and which covered the (inaudible). And they will like to the contractors which can serve them wherever they operate. So you need to be really global.

Last bullet is value adding solution. This is what I mentioned before. We need to be able to sit down with our clients and act when they start conceiving the project to put together solutions which really meet their business objective. Now, to be able to deliver this strategy, we need to change the way we operate. I mentioned global alignment; we need to interface with clients in the same way wherever they operate.

And we need to add flexibility in resource authorization. This is one of the mitigation that we could have to minimize the risk when we start growing operations in emerging countries. So whenever we have developed a lot of local office. We always make sure that we support the local office with resources coming from more mature offices and these of course minimizes the risk of execution and make sure that we satisfy our clients.

Execution excellence, I will never stop saying that this is our business; we should always focus on excellence of execution, lot of focus. That’s again is part of the DNA of the company. Foster Wheeler is a very decentralized organization. Some people use to say that when you are general manager of operation accounts you are the king of account. So you work really independently within a framework, the framework means the governance. So there is no flexibility and that we typically start with very strict governance when we talk about the operation and then gradually we start raising the bar giving more accountability. So this has been part of the today for the (inaudible) of the company. So we can leverage it to nearly grow in these emerging countries. And fostering this entrepreneurial culture, which is somehow part of the DNA of the company. In addition, we need to be able to make decisions faster at the regional level and you will see how the organization is [pressured] to enable it.

Team work, one of the lessons we have learned from the past is that when sales operation, commercial operation don’t work together we start getting troubles. We start getting projects that projects which become worse going on. So this is an another area of focus we had to make sure in the organizational design the operations, commercial and sales work really in a very integrating manner.

Client relationship is about developing solution with them, it’s about managing this peak lines effectively and you will see how we get organized to do that effectively. Now, this is how the organization looks like. So, three regions in the middle the Americas, the EMEA which is Europe, Middle East, Africa, Asia-Pacific. In few words, what we have done is we have taken my job and we have split my job over three regions because these three regions are going to be run by three CEOs who in all effects are the equivalent of the (inaudible). I used to say that even we had put Leonardo Da Vinci and I hope you know who Leonardo Da Vinci was in charge of these organizations, he will not be able to manage organization the way we want to tweet to be managed going forward, and not only then you got another expect whoever somebody in my position 40 years with the company. So to be able to manage this growth and the strategy, we need to split my roll over the regions.

So three regions a global biz and the regions we will have direct responsibility for sales in the region. We will get more details in a few seconds. Global business development is (inaudible) and mainly focusing on strategy and claim management. Upstream is kept as a separate business line, the reason why we do it is because our clients, many our clients are structurally in the same way, actually some of our clients have real (inaudible) between downstream and upstream. You see sometimes it looks like you are dealing with different companies and we need to really reflect the organization of our key clients.

Then you will see on the right side, that this global high value engineering, this is a lower cost in other words. This India and you will know this that India reports to me, why that, because we have to develop India and we have to further improve our work sharing with India to be more competitive in the market and to make sure that, we have the right focus on developing India in low cost, India reports to me.

Then you will see on this yellow box which is execution excellence. This makes sure that the organization keeps the focus on project execution. This is a continuous process. We deliver stock but it makes sure that everybody is focused on execution excellence. We will discuss later on what execution excellence in actual words means.

And then you see on the left side, these functional leaders, the functional leader set to driven the alignment of best practices and cost effectiveness. Start now with some more details on the geographical regions. I said there would be three regional CEOs in charge of the region. Their charter is very simple, they need to grow the business of course in the region and they are accountable for winning the business and executing the business within the region. Now as you will see later, there will be operating units still within each region. The operating units will not change their chart. They will continue to be accountable for execution, for winning the business which is a science to them and for executing the business, and they would have a P&L responsibility.

Now we have spent quite a lot of time discussing whether we needed cost centers. Now personally I'm allergic to cost centers and the DNA of the company doesn't understand cost centers, and therefore we decided that we are not going to change, everybody is going to have a P&L responsibility. And so even in these new model the operating units will continue to have a P&L responsibility. Now last point, we have been very good in developing operating units which can work outside of their domestic territories.

Now we have operations which have worked almost everywhere in the world. We don't want to change it. So even if we have a regionally responsible for the projects within the region, we still want combination of operating units to work in other regions. So we will continue to leverage the capabilities of the revenue that we have grown over the years. Example, rating for instance will not be focused on executing projects only within the EMEA region. But if there are projects in Asia where we could join rating with some Asian operations, we will do that. And they will be aware of the accountability of the CEO of the Asia-Pac region who has to make sure that we properly execute the project and he has to make sure that we do whatever is needed to really satisfy the client.

This is an area where we have introduced I would say a major change. You see that the sales in global business development (inaudible). So what we have done is we have taken the duties and responsibility of the former global sales and marketing organization and we have split it in two parts. One is the global business development which is more strategic, more focused on key client management and providing upfront services to our clients to develop solutions and to develop projects.

While the direct sales responsibility is a sign the two regional sales individuals who are responsible for the sales and business development within the region. And of course there would be the need of a lot of cooperation because within the region these regional head of sales will have to work with the rail unit combustion, we will have to work also with global business development.

Upstream I mentioned that upstream is kept as a separate organization. Now we have made progress. There was a question about upstream. We have made progress. Upstream we have been able to bring on board the senior individual, not only from a technical point of view but also business development. The decision is that the upstream will have its own business development organization, separate from the downstream and of course there would be integration specifically at the regional level when dealing with nationalized companies.

The focus for upstream will be on developing offshore capabilities. This is where we are weaker and we will continue to grow the off, onshore capabilities where we have a very good track record. Actually, we recently mentioned an award on a large onshore project. We don’t have issues in terms of executing non-shore projects. We have all the capabilities required for onshore; offshore, this is where we need to really improve our technical capabilities.

India, as you will see, India, we've been very successful in growing India organically. In fact today we have three offices in India; the largest one is in Chennai. We have an office in Kolkatta, and the other one in Delhi. The reason why we do that is not only because of the project location but because of (inaudible) talent, there are certain talents that you don’t find in Chennai or in Kolkatta. They are more easily available in Delhi and this is why we sit up the operation in Delhi.

What we're going to do is to really grow the capabilities by further integrating what we had within India and developing work sharing model to do as much as possible in India. In parallel, India will start to follow in the local market. We cannot neglected the local market. It’s a difficult market, it’s not easier, do want to underestimate that the issues, but that’s the only way to really grow the capability of is to really go after the local markets. So in parallel why we improve the work sharing trading. We develop the India capability, and we have organized India to be able to go after the local market, which means sales, business win, commercial, legal, this has been already implemented in India.

Execution excellence in a few words what we are doing here is, we are taking the best practices that we have developed in the operating units and we make them common practices and we apply them consistently throughout the organization. This will enable us to make sure that whenever we deal with clients international global clients, they see the same Foster Wheeler performance wherever they operate. These are also a must because this will improve the way we will share with India. So in part of the projects that we have shown excellence initiative is finalizing the work sharing model with India. And last but not least as they say, this is a continuous improvement process this will not stop. So this is not just the specific task which will stop when we have reached the alignment this will continue.

Functional leadership, now after several discussions we decided we needed a full time CFO, because the CFO should support the delivery of our growth strategy and at the same time issue focus on cost effectiveness. There are still areas where we can save cost in our operation and so we thought that to do that we needed to have a full time peso to drive it. We are having some overrates not many as part of the reorganization and we want to compensate the additional cost of these overrates with cost efficiencies throughout the organization and there are areas which we have identified where we can achieve these efficiencies.

As I said the functional leaders will have to drive consistency and cost effectiveness. They are not full time people. So we are not targeting overheads when we accept, with the exception of the CFO we are not targeting overheads. These are individuals who have a similar position in the operation and all in the corporate center which from view is very positive because this will promote the integration between the corporate center and the operation.

This is how the more detailed organization looks like. I’ve shown you the current operations which are part to each region. I like to just focus your attention on the global business development. You will see that there is a position for client account management, this is where we are introducing best practices to be able to manage the global clients, we still have business clients which have a more strategic function telling us where the market is going and dealing with international of global clients.

This planning and coordination that’s important. Whenever you decide globalization you always said to be mindful about not building silos, and that was actually my concern of building regional silos. So we spend a lot of time making sure that the, we are appropriate checking balances in the organization and this global business development, we lift the sanction coordinating the sales. I want to be sure that, we look at all projects all over the world and we look at opportunities, how to win the projects and if needed this we have to combine operations of two different regions we’ll do that. So I don't want the region really believe that they can do everything within the region by themselves and this is the check and balance of the global business development is going to give us.

Marketing Analysis. This is the former part of the global sales and marketing organization and last but not least is the box on the bottom, business consultancy and technology. Now we provide consultancy services to our clients. Actually we have a group which is called business solutions, which is headed in red ink with branches in other operations. They really work with the clients upfront in the very, very early stages of project development. And we believe that this consultancy group should report to global business development, because actually it’s a tool to enable us to sell projects to our clients.

Technology is part of the same because, the business development, because business development should tell us where the technology is going, so they should be the one on the market telling us where the technology is going, which acquisition or technology are available and where we have to develop our capabilities.

And last comment on the blue box on the left you see this functional here, you will see construction, so we have an individual, very senior, who makes sure that whatever that we keep an eye on construction and we develop the best construction execution whenever we bid projects. For instance, modernization. We have built a fairly strong capability in modernization and actually this is becoming very, very important when you execute projects in certain accounts. Its not shortage of labor or you have to really move man hours from the site to remote location. This is what this guy is doing. So he is making sure that whatever, you know we continue to focus on best construction execution.

There was a question about acquisition. I would like to make a comment. Kent said, that entire construction capabilities is very important in certain countries, certainly it is important in some part of US. But if you look at the world as a whole, there are countries in which you know even if you have the entire construction capabilities you cannot use them and this is because you know local content will drive the decision. So many, many times you need to join forces with local construction companies, you have to use local companies as subcontractors. So what is important is that you develop construction management capabilities and this again one of the task of these functional area going through the organization and we are developing a kind of database of our all the capabilities we have so that we can leverage them whenever we execute projects.

Moving to the end, as Kent said, we expect the organization to be fully in place operational on January 1st some of the points have been already made. We are now working on the details. This was a conscious decision with the organization. We took the organization, its business as usual until we figure the new organization, otherwise we would have generated confusion. So now we are adjusting procedures internal processes to make sure that they are understood and we move forward on January 1st.

So we will, plan is to grow our EBITDA and we will grow our EBITDA, because we will be more geographically diversified because we will be more diversified in terms of business line. We’ll be able to address the changing expectations of our clients. We will be more competitive and big because we're going to do more work in lower cost location. We will develop opportunities and these about getting on the projects in the very early stages. We will focus on key clients that we will develop and longer lasting client relationships. And last but not least, I believe that within the organization, we’ll create more opportunities for our people to grow. Just an example, if we start setting up local operations in new geographies, there would be opportunities for some of our people to move there, become general managers and grow their skills and develop their career.

With that I finish.

Question-and-Answer Session

Unidentified Analyst

Hi, I have two questions, first Umberto, can you just talk, I guess the concern I have listening to you guys talk about reorganizing the easy businesses and the costs associated with that and I guess, you know, back to the questions on margins, how much of a headwind is this going to be on 2013; will the margins E&C get worse just because there are costs associated with reorganizing the business; and if you could quantify the dollar amount, that would be great?

My second question relates to, there is a big focus here on execution and execution of projects, you talked about the mature markets helping the emerging markets. My question is this is a function of you being proactive or are you actually seeing some small execution issues in some of these emerging markets and that’s what’s weighing down margins and you are trying to essentially get ahead of that?

Umberto della Sala

Okay, let’s talk about cost, maybe I should have said it at the beginning this is not only a French Revolution, but it is not a big bang. There will be some additional overhead because and take the region, some of the region will have people running the region with a double act at the beginning, so we are not going to simply create this preposition as a three new additions; some of the region will be run by individuals running some large operating units within the region and for a while they will have a double act until we develop the model.

Functional leaders with the exception of the CFO, they are double at, so no addition there. And as I said yes, there are additions, the regional sales we have had the regional sales today in the organization what we are changing there is the reporting line, now they report to the CEO of the region. Yes, there are some costs, but as I said in parallel we will drive cost efficiencies, so we make sure that we finance these additional costs through the cost efficiencies that we can get in the organization.

Unidentified Analyst

But generally, it will take some time to realize those efficiencies, so in the beginning while overtime you will net out…….

Umberto della Sala

There could be some initial costs; it depends on how quick we are able to implement those efficiencies.

Unidentified Analyst

But will it be material in that sense; when Franco gave guidance in January or whenever he is going to give guidance are you going to say there is 30, 40 million of costs associated with…

Umberto della Sala

30, 40

Unidentified Analyst

Whatever, just the number that you are going to say that’s impacting margins?

Umberto della Sala

No.

Unidentified Analyst

No, okay.

Umberto della Sala

No, and actually we also expect, so there is a second question.

Unidentified Analyst

The second question was really to execution, are you actually seeing issues in some of the emerging markets?

Umberto della Sala

No, no, absolutely not, it is a fact however that clients request local execution and we have taken, I don't know what to say that a conservative approach, but we have taken a mindful approach, take Brazil, certainly there is a strong request mainly from Petrobras to maximize the local content. Now we got two fairly large projects in Brazil. Now we have maximized the local content by subcontracting to some local work to local companies and we have learned a lot, really a lot about Brazil. So now we are in a position to decide about the next step. So certainly, we are not going to push back, there is no way, but we need to develop along our operation, but we will do it with the eyes wide open. But so far so good.

Unidentified Analyst

Umberto, so both you and Kent talked about the focus on risk management and how its built into the culture of Foster Wheeler. But you obliviously also talked a lot about growing the upstream business. From our view point, the upstream business is more risky than downstream just given the types of contracts and with more exposure to the [MLPs]. Do you think that your focus on risk management is many way limiting your ability to grow the upstream business and if it is at what point you kind of given a little bit and compromised the risk management on that side, how do you keep it from kind of circling through the rest of the organization?

Umberto della Sala

Okay. I went back to one of those lines and in terms of time I did mention what is not changing and look at what is not changing. What is not changing is of course the safety but is our focus on commercial excellence. This is about risk management. So nothing is going to change there. And as I said even when we start developing local operations with the charter to the individual running the local operation to grow the market, the local market, we will do it without changing the governance. So there is no change in the governance. If any the only change in the governance is that I will raise the bar when it comes to the CEO of the region. They will have, we are talking about a senior individual going to run the region and they would get more autonomy in terms of business meeting and risk management with respect to the past.

But no change at all. So commercial excellence is part of the DNA of the company. It took us many years to develop it. We are not going to change. Talking about upstream, I don't believe that upstream is more risky than downstream specifically if you just provide services for upstream. Actually I have seen many projects upstream which are reimbursable projects in which we had to work in a very integrated manner with your client. So that upstream is not today a concern. The limitation for our growth has not been the risk management. It has been the availability of people talent. This is what is and this is why we look at acquisitions on the market. We many times we acquired; we look at acquisitions just to get technical people. We don't buy a backlog. We buy technical capabilities.

Unidentified Analyst

Can you just talk given the fact the majority of your revenue is actually the non mega projects, can you just talk a little bit about the industry structure for that in terms of how big, what's the adjustable market and how big it is and how they are different qualitatively from the mega projects?

Umberto della Sala

Well, maybe we should discuss a little bit, I'm not saying that we are not going to go after large projects, large complex project. Actually, we believe that this is, we are one of the few companies which can manage large complex projects logistically very challenging. We have done it in the past. So we have a good track record not many companies can do it. All this changing in my view is also the client behavior. Some of the clients who have decided in the past to go through very, very large for instance (inaudible) key projects, all given to just one contractor. They found, they went into problems because you put all your eggs in a basket, if something goes wrong it goes wrong really bad. So I believe that, as I said we just follow the market. We don't say no to large projects. If the conditions are okay, we go after the large projects but it is a fact that there's plenty of work as more medium sized projects which you need to follow because your clients want you to execute their projects. For them even the smallest project is a top priority. So you can not really change bay or so it (inaudible) more for us, we're not going to go after it. If you want to save a client, you have to be able to do that. So you have to be able to switch from a small project to a large project. So but on the line there has been a change in the market but the clients are changed.

Unidentified Analyst

Can you talk about the maturity of your US E&C business? You have been hiring over the last two years. I don't think we debate about the South American business or Europe or Asia for Foster but there is some debate about the US whether you are well positioned or not for petchem CapEx that you will see, refining, just a maturity of your US business?

Umberto della Sala

Well, as you know, our US business almost disappeared. This not 10 years ago, 10 years, 12 years ago the business in Houston will disappear. So we spend a lot of time and attention to make sure that we could re-grow the business in Houston. Now, I think we've been able to grow the business to the point of being a credible player in the market. You know, the size of the office is the right size to execute basically any kind of project. We have good examples of work sharing for instance between Reading and Houston, specifically when it comes to LNG, we've been able to move people from Reading to work in Houston and support Houston.

So I believe we're well positioned to take advantage of the [capital] demand. There is another secret, we are looking at how to get some construction capabilities specifically for the US market, I don’t know whether we have been successful but certainly we are actively looking at them. By the way, this functional leader for construction is in Houston, he is based in Houston which certainly gives a lot of credibility to Houston when it comes to construction. We have been able to hire good people, good people from the market coming from top tier contractors. So I think the office is well positioned.

Unidentified Analyst

Do you need construction to compete in the US for some of the larger contracts?

Umberto della Sala

It depends, I wouldn’t say that in all cases you need construction capabilities, certainly what you need are construction management capabilities and I think we are where we should be.

Unidentified Analyst

Yeah Umberto, so just following on some of these recent questions, so as far as kind of the geographic dispersion of margins you said Asia was one of the kind of the pressure points on margins of cycle but now as things are kind of transitioning over we are talking about North America as starts to pick up and hopefully you will participate in that get a bunch of South America. Can you just give us a sense as far as what the divergence is between regions as far as the profitability of those projects and what you see in front of you and how should that translate into accretion in next couple of years?

Umberto della Sala

Well, let me say that the Asian market is still very active. Actually, if I look at the prospects for tomorrow Asia is still probably the most active market together with Latin America with the cameo of the Latin America sometimes the decision process takes longer than in Asia. US is starting to move, but you have to consider we are talking US about some large projects LNG is a different may be Stephen will talk about it LNG in US is a different issue, we need to see what final decision is about exporting LNG but we are talking about fairly large projects so they will start as usual with the (inaudible). So before we see the full blown EPC or EPCm cycle it’s going to take sometime. So certainly for 2013, I still see Asia and Latin America being the major player in our business, Europe is almost dead and we do have some opportunities fortunately but it is much.

Unidentified Analyst

So but I have a question about accountability, I know you have a slide up there that says accountability is not changing but in light of your organizational chart that you went through its hard to imagine, how you couldn't compromise accountability because you are moving to regional xylose and yet you have a local sales and global sales separate organization, you have regional execution, yes but you are also outsourcing to other regions plus you are outsourcing to India, then you have separate groups on functional groups, operational excellence is separate group I mean it just sounds like lot of moving pieces hard to really maintain integrity of accountability?

Umberto della Sala

Okay, start with the region. As I said whoever runs the region he is the CEO of the region. He has the full accountability which is not different from my accountability; today my accountability is for whatever happens in the world. So if there is an issue in any project, client call me. Actually, I try to get on the project before they call me. So now by splitting my role over three, the accountability of the regional CEO is the same as my accountability. They should know what is going on in their region. So which means that, okay there could be projects that are bid together with others.

They need to be on top of it. Not differently from the way I bid. I'm on top of it whenever we bid projects above a certain level, I make sure that we have the right execution, we have the right commercial strategy. So dealing with global business development, global business development as I said is more strategic. If we bid to one of the key clients managed by global business development that’s a key account, of course they will have to be brought into the picture. But through the sales coordination if you go back to the book there is a sales coordination, they will know whatever happens in the world because they will continue to manage the sales database and weekly we are going to sit down and say okay what's going on in the world.

So there is a project in Brazil. Okay, who is going to follow it? Are we going to win it? What's the business winning strategy? But once we define it through participation of different functions there is one person which is accountable, he is the CEO of the region is accountable. If he is not accountable I don't believe he can last too long in our organization. It’s simple. But we believe that we have the right people who have this accountability as part of the DNA. So there is more coordination yes, but I see a lot more advantages than these advantages, simply because if you want to grow geographically how can one person manage all of it, its simply impossible possible. But the regional CEO, that's all about the regional CEO. The regional CEO has to know what's going on in the region. There is no confusion to the organization or who is accountable for the region.

Unidentified Analyst

Thanks. Just to clarify have you named these three regional CEOs already and have they already started working or was that at January 1 timeframe?

Umberto della Sala

We have named them. And as I said, we have named them so the organization knows who they are. They work together to start finalizing all the details of the organization and they will become effective on January 1 when we will tell the organization guys we are ready to go. And as I said there is some detail work to be done to make sure that all system processes and procedures reflect in the organization, but they are already working.

Unidentified Analyst

When I look at your prospect list I can understand how a lot of that's just client and market driven and things sort of outside your control a little bit. But your scope bookings on a quarterly basis have been roughly around $400 million and $450 million quarterly. Can you just talk about and that's been mostly small medium size. Can you just talk about what you are seeing on some of the smaller and medium type projects that don't get a lot of trade press, is the activity picking up there. And then as a second question, if most of Australian LNG, the modularization done in Asia where our client is looking to do a lot of that and the fabrication when it comes to North America projects?

Umberto della Sala

Okay, the first question is on the small and medium size front. I believe if you look at the number of projects which run through the organization, honestly, I don’t even know all of them. They are so many. But I can tell you that there is a lot of activity and small project is a conceptual study. Conceptual study, is our small project. But it could develop in to a large project. So we have plenty of this initial work on potentially large projects. Others are typical, small EPCM some revamping workers and kind of getting engineer type work. So as we see 2013, we see still plenty of them. So of course on this small projects, your visibility doesn’t go beyond 2015, because some of them are just, the decision process on some of them is very big. So still feel good level of business for small and medium sized projects. But then the other question was about modernization. Well, I believe that modernization in US is going to be required. That’s my view, we have not yet gone in to some of the prospects in the detailed discussion about the execution strategy, but I tend to believe, and may be Steven can comment that modernization is going to play an important part even in US.

[Break]

Scott Lamb

Our next speaker is Stephen Culshaw, he is Managing Director of Global Business Development. Steven.

Stephen Culshaw

Okay, good morning everybody and thank you for giving me the opportunity now to share with you some further thoughts about the global E&C organization, and in particular the various strengths that we believe Foster Wheeler brings in that market and also to give you a little bit more color on where we see our end markets today and in the near term and hopefully where we see our ability to play in those markets.

To begin with I think this has set the context and to make it more relevant as we talk about particular opportunities, it’s just a reminder of what we see as the EMC organization our key strength, and you’ve heard a number of these mentioned both in Kent’s and Umberto’ presentation. But clearly project delivery, I mean at the end of day that is the business we do, we execute and build and execute projects and we have a tremendous track record both starting of the initial life cycle of project in terms of the various studies moving right to receive and EPC delivery, and then more importantly the ongoing support to those assets once they have been build.

Key differentiator for us I think is the technical expertise which we have throughout the global organization and it’s ability and its knowledge that all of the technologies that are involved in the plans that we build and also their ability to actually work very closely with our clients and develop so that what we will call integrated and optimized solutions.

Foster Wheeler has been and will continue to be involved in some very, very large front end design, and we have some significant capability in a number of our operating units to basically handle deals of any size scale or type, and this is particularly relevant where you are dealing now with very large complex projects.

Earlier on you heard of client relationship and the important side is to us. Clearly when we do a good job for somebody then the expectation is that they will come back for more. But I think over the last number of years; we are putting a lot more emphasis now in terms of getting closer to our clients’ organizations and developing and building stronger and deeper relationships and I think that's a reflection now in terms of the increasing number of long-term global type agreements that we are able to put in place to make our ongoing business more efficient and in fact I think as Umberto said, historically Foster Wheeler has grown by organically all over the world. We do have a very good track record and are developing those local operations and in particular ensuring that they have the right capability for us to deliver in the one Foster Wheeler way and this is increasingly now more important as a lot of our clients and particularly in the emerging countries are now demanding local operations.

In terms of the strengths I see in our end markets, I mean on the oil and gas side, we do have a tremendous record of on shore oil and gas and more importantly now a growing expertise on the offshore side. I actually joined Foster Wheeler 30 years ago and I joined because I wanted to be involved in the upstream business and in particular the offshore side of that business. It was a little bit disappointing to me that we having done a lot of work on the North Sea that we actually let that capability for a while fall out of our portfolio, but its encouraging signs now that we have done these things before and I think we are building our upstream offshore capability in a well managed way.

The other key area is what we call the value of gas chain and again we are heavily involved in all elements right through including more recently the modular side of LNG. And we do have a very strong technical partnership with SASO in terms of the gas to liquids and coal to liquids technologies.

Refining, we believe we have the knowledge and the capability of virtually all refining technologies and obviously we have a number of technologies that belong to Foster Wheeler and clearly we look to leverage those in the appropriate opportunities.

And chemicals, petrochemicals we again we have been involved very recently in some of the largest chemical, petrochemical assets that are being built in recent years and we believe we have a very strong capability in terms of the integration skills required in terms of joining refining and petrochemical complexes.

So what are the market drivers that we see today. Interestingly IEA published some statistics the other day. I think the one thing that we always have to focus on here is that global population is earmarked to grow by 1.7 billion people by the year 2035 and obviously with that brings significant demand in terms of energy consumption. And the other important thing to recognize that a lot of our clients, they are looking at project lifecycles in terms of the design and implementation of five to seven years, but clearly with a design life of at least 20 to 25 years beyond. So our clients have to look 30 years into the future.

So in terms of what is generally happening in the market today, you’ve heard that there is by the national oil companies, there is a strong desire clearly to generate local employment and with that brings very strong demand for us to establish more and more local operations.

In terms of oil and gas, I mean, we are seeing almost a sustained oil price now that’s sort of hovering in the range of $80 to $120. Nevertheless, if we did nothing today in the oil industry, then basically the natural depletion of reserves would be something in the region of 30% to 35% over the next 15 years. So there is always a continuing investment just to basically maintain this steady state. Interestingly, here in North America, I mean, obviously the advent of shale gas is generating potentially huge amounts of investment here both in terms of petrochemicals and gas to liquids and LNG.

In terms of the downstream, I think there has been a period of challenged margins for refineries, but that is basically showing a pickup at the moment. We will still see a continued investment in terms of chemicals in Asia and the Middle East and certainly Latin America. And there is always the ongoing upgrading and modifications that are needed to comply with clean fuel legislations or changing product demand etcetera.

An area that we’ve talked about in terms of where we would like to grow a bigger position is in metals and mining. And again although its trouble spots today and particularly in Australia we believe that that market offers us the opportunity to true the exercise our core skills which match the needs there, particularly when it comes to execution excellence and safety and so we are hopeful that the metals and mining will at least allow us to grow a bigger proportion to where we are today.

So more specifically on oil and gas, as I say, we do expect a stronger long-term demand growth and together with the decline in existing assets and so we believe the fundamentals are there for robust investments going forward. I think the key areas basically is really it’s the globe, so obviously I have touched on North America, but opportunities clearly in Latin American, big focus today on the Middle East and in particular in Iraq. Interesting, that we are now seeing Africa potentially emerging as a new hub for LNG with the significant gas volumes there in Mozambique and Tanzania. And then suddenly every parts of the world is an increasing focus these days in terms of enhanced oil recovery and we are seeing a lot of emerging opportunities there particularly in places like Malaysia.

So what does that mean to us and what I am trying to do here is to give you a flavor of opportunities we see in the very near term, so I am talking for a period probably from now through to maybe the start of 2014. The first one I am very pleased to say we were awarded and it was announced yesterday the front end design for this project in Canada that involved basically, it’s an SAGD project. We are currently undertaking a number of pre-season fees for a number of offshore opportunities in Latin America. We have successfully executed a major crude oil expansion project in the Middle East and the indications are that we now basically see additional opportunities there on subsequent phases of expansion of plant.

There are still a number of significant opportunities in the Asia region in terms of upstream and LNG, monetizing gas. I think encouragingly here in North America building on our strengths in terms of the business solutions group, etcetera, we are seeing an increasing number of studies now being undertaken by us both in terms of petrochemicals LNG and GTL, so I think more importantly, a lot of those studies are going a lot deeper and more farther than perhaps we’ve seen in the past as we start to look serious constructability type issues, labor availability and labor surveys, etcetera.

The next one has been previously press released in terms of our role as the owners engineer and hopefully it’s a project just moved into the next phase that will bring with it further opportunities. The LNG liquefaction facility is one we are currently working at and have a long-term relationship with the client. We are doing some early work at the moment and hopefully that will move into EPCm some time in 2013.

But the other important thing as well that my colleagues touched on earlier on, is that we are putting in place now a lot more long-term trained type agreements and with that brings a significant amount of work across all the various regions.

Okay, in terms of refining, I look at this in two different ways. So it’s the OECD countries and the non-OECD. I mean clearly in the OECD side as most of you know it’s highly troubled times, it’s been a lot of different disinvestments and sales of refineries. Nevertheless, we are seeing a number of our key clients here really focusing on what I recall key strategic sites where its fundamental to their business and we will continue to be investments in terms of the necessary upgrades for clean fuel legislations, modifications to the required in terms of changes to the project site, etcetera.

On the less developed and emerging countries, I mean, we are still seeing a tremendous amount of interest to be involved in studies and evaluations for the new refineries. And obviously there are number that have been built in over the last few years but nevertheless there's still a demand as you try and as countries try and grow their local economies and to feed their markets and obviously they are looking as well where it makes sense to look at exports as well.

So, again in terms of the near-term opportunities that we see in refining, clearly still in discussions regarding a very large potential PMC role in the Middle East. In terms of Latin America we are currently working on the early detailed engineering for this particular project. Likewise in Europe, we have undertaken a co-PIPEDA process design and currently undertaking the FEED which should lead to other opportunities and in terms of the grassroots refinery in Asia we at Foster Wheeler did complete the pre-FEED and the full front end design for this facility and subject to it moving into implementation we can see a potential role there.

Likewise in Asia, the (inaudible) facility we have completed the front end design and we're hopeful that that may move in to an EPC opportunity in 2013. And then we're involved in a number of potential upgrade projects particularly in Latin America and with those come, obviously the opportunity for our delayed coker technologies.

Within South Africa, they're going to go to a phase now that virtual all the refineries down there need to be modified to comply with clean fuel legislation and we currently have a very long-term relationship, working of the particular facility and we see the opportunity there to be involved in certainly the study and hopefully front end design phases. As Umberto mentioned, one of areas where our delayed coker technology is useful today is clearly in Latin America and hopefully in places like Russia. We're seeing a lot of interest at the moment to in terms of our technology and bidding various coker licensed packages etcetera.

And clearly one of the things we aim to do and we sell to do coker license is to be involved in elements of the subsequent implementation particularly when it's down to the coker heaters etcetera and basically, we're also selling our hydrogen technology in a number of areas and with that comes the opportunity to be involved in the steam reformer on an equipment and material supply.

Probably, the most significant in terms of our regional and global alliances is in refining and we basically have a lot of these in place all over the globe and they are very obviously used significantly for a number of upgrades and turnaround. So it provides a reasonable base load of work.

In terms of chemicals, based purely on population growth that I mentioned, earlier there is still a continued strong demand and particular being driven in Asia. And as I mentioned to you here in North America we do envisage a strong investment in new petrochemical facilities here because of the basically the cheap gas. Europe and parts of Asia is relatively mature, but there is nevertheless still the necessity to be involved in the bottlenecking and modifications on strategic sites.

We still see there will be a continued investment in chemicals particularly in the Middle East as they basically leverage their advantage low cost feedstock and more importantly as they diversify in terms of growing employment objective. Interestingly, now parts of Latin America and Russia are really starting to look at their own chemical investment plants as a way for them to diversify their economies.

And we still see specialty chemicals which is slightly smaller to tight projects that a lot of interest at the moment as these do, they will come to bring significant value to their producers. So again looking at some of the key opportunities, we see and again the timeframe is over the next 12 months to 15 months, but encouraging in the Middle East. We are involved in a number now with fairly significant studies in terms of petrochemical complexes which we believe are hopeful lead into subsequent FEED opportunities.

We are currently undertaking almost the first of its kind waste-to-energy gasification project where we are currently doing the ECP implementation and there are indications that hopefully that will be, at least another one of this built in the near-term. We continue to see opportunities whereby we have undertaken the FEED and started in some cases I know the detailed engineering particularly in Asia and the former Soviet Union.

We have a number of global agreements and we believe some of those will bring opportunities in terms of being involved a number of cracker rebound pair in the US but then there is a whole series here of FEED and EPC opportunities where we are currently executing work of the various facilities, we have good long-term relationships with the clients.

And then finally, really in South Africa where we are currently executing Phase 1 of this project and its likely will move into Phase 2 sometime in 2013, and again this market, chemicals and petrochemicals is underpinned by a large number of global and regional alliances that we have in place with our key customers. So just for me to finish. So clearly my message to you is that we believe we are very well positioned to take advantage of the opportunities that are available in our certain markets and we do believe we are a full service provider and we can involve from the very early conceptual stages right through the EPCM implementation and the ongoing assets support.

We believe we have a robust pipeline of prospects. I mean nothing is ever certain in our business, but I think the wide range of opportunities that are identified in the various involvements are just give us a degree of confidence in that pipeline and really why the clients keep coming back is that we do really we execute their projects well and Foster Wheeler does have a strong track record of commercial and execution excellence. And I believe the strategic vision that Kent highlighted earlier on followed by the reorganization as described by Umberto really allows us to further strengthen the global footprint for global EMC. Okay on that note I will finish and any questions.

Question-and-Answer Session

Unidentified Analyst

Two questions, my first one is can you talk about the trend that we are all seeing in the North America relative to the Shell gas revolution. How much could North Americans share of global petrochemical at the margin new manufacturing or LNG or gas to liquids take away from opportunities in the Middle East or in Asia where you guys have historically a much greater exposure?

Stephen Culshaw

I mean obviously as you well know there's a lot of debate ongoing in terms of what's going to happen in North America and the various options as to how you monetize the low cost Shell gas. I mean there's no doubt in my mind we are seeing more and more interest to build petrochemical facilities in North America, and I think the confidence level in a number of our clients is increasing. As far as the LNG is concerned, the issue with LNG is whether or not the government here will commit the exporters of gas overseas. But I think the other area that where we are seeing again increasing confidence is using Shell gas also to feed into gas to liquids type opportunities. And its all these areas that we today are involved in some fairly detailed studies, I can't go into specifics but they are detailed in the sense that they are really are drilling down in terms of what is the impact of these facilities on this particular market, what needs to happen in North America to allow these projects to be built and that means a lot of assessment going into labor availability, best way of building these sort of large complex projects looking potentially modernization etcetera.

Unidentified Analyst

So these sets will be either or, you will see more investment western hemisphere at the expense of Middle East or eastern hemisphere. Is that how it could potentially turn out or is I just?

Stephen Culshaw

I think they are different markets, I think it’s just one area that is struggling is really North East Europe. But the Middle East has it's objectives, they know exactly what they are going to build there and it’s very much feeding in to the creation, downstream industries and local jobs etcetera. North America, a lot of the petrochemical investments will probably be in support of some existing assets that are already in place, and if you gas-to-liquids for us putting in a very new product in to the market.

Unidentified Analyst

My second question is when you in the business development and the sales efforts that you are working on going forward, is it, are you trying to get more share, say your top 20 customers globally in the engineering business for their customers from 20 to 40 that you think you connect, penetrate, get a lot more or any type of business that you weren’t looking at in the past, where is the focus. I would guess, everybody would say it’s suppose to be the top players but is it really trying to penetrate that group or is it to try to broaden it and get share maybe because others are paying as much attention to maybe next year level of customers?

Stephen Culshaw

No, no. at the end of the day, I mean every customer is important to us. At the end of the day, our industry is not a large customer base. So with our history and track record, we have generally good relationships with most of the client organizations. What we are now doing there is clearly focusing a lot more in terms of developing those specific what I would may have been historically project type relationships that we have a far more engagement both at senior management level, but also at the project delivery level as well where we have build the network a technical specialist engaging with our client organization. And there is no question, no doubt in my mind that when you do that you do get involved very, very early and now than we have previously in terms of the project life cycle and you do start to get more of an insight into what the clients investment plans or alternatives options are to it.

Unidentified Analyst

Over the past of couple of years you have lost some projects like [Sadara] which you felt quite confident that you were going to get or felt had a high probability of getting whether officially or unofficially. My question is first if you could characterize for the high probability projects that there you have lost if you could characterize why you felt you lost them and secondarily what you felt the key learning or changes that you would make going forward in approaching them?

Stephen Culshaw

I think if I could just correct you slightly and that we didn’t lose Sadara. I mean we lost a part of the Sadara project but I mean subsequent to that we are involved in one of the major process units there on propylene oxide and we have had an ongoing relationship with the customer in terms of a number of their areas of that project. So at the end of the day that we lost our job on price, the original one was a price decision.

Unidentified Analyst

So I just wondering about, if I look at the prospects in your sheets perspective in other words, let's say a time of prospect but how would this have looked 6 to 12 months ago. Would it have been, is that higher now same last like perspective, the prospective is up or down?

Stephen Culshaw

I think, probably a year ago, we would have seen a number of those at an earlier phase. So lot of things I highlighted were involved in those conceptual studies prefeeds, subsequent feeds. So year ago we definitely say we are doing a prefeed probably and we are looking for the feed opportunity. The good news is they are moving, there is never anything certain. Of course one of the big decision gates, its generating overtime at the end of the feed and you go into the - make the final investment decision and move forward.

But the other key areas really being North America, there was a lot of talk about what could happen in North America a year ago, and I think people are gradually getting their head around what can basically happened here in terms of the petrochemical and GTL type investment. I suppose from a client point of view that’s sort of moving in the right direction, there is a degree of confidence coming through.

Unidentified Analyst

So I don’t want to words in your mouth, but I am guessing when try and so like if you look at 3Q you had a kind awards right, but you are kind of saying that you are closer to some bigger awards, so is that telling us that ‘13 should look pretty good in terms of awards I mean yeah lots of prospect slip all that kind of stuff, but just trying to push you like what does it really mean for ’13 in terms of what Umberto said?

Stephen Culshaw

I think the good news is the return of prospects. But all of them you know as we said to you before I mean all of them come with health risks and commercial uncertainties, but the encouraging thing for us is that we have had a successful quarter in terms of booking and indications are that there are other booking opportunities available to us in the near-term and in terms of quantifying that I am not really in a position to do that.

Unidentified Analyst

I was hoping you guys could provide maybe a little bit more color with regard to the chemicals business and maybe are we talking about ethylene projects or downstream derivatives projects, what kind of share do you think you can obtain in that business and also your company that is traditionally derived competitive advantages and technologies within your refining and power businesses; I am wondering how important you see technology as in order to succeed in growing in chemicals specifically?

Stephen Culshaw

I think one of the things in terms of chemicals and particularly petrochemicals is that I see Foster Wheeler has really a step change in that area over the last 10 years from where we were 10 years ago and we've been involved in some of the most largest significant petrochemical complexes that were built in the mid 2000 particularly in Middle Eastern and Asia. The one area we don't have is we do not have the cracker technology. So in terms of the ethane steam cracking, we don't have the cracker technology, but we do have the knowledge and the experience of dealing with all units downstream of the cracker, but also we are able to deal with, where a cracker involves a revamp that's an area that we can play because its not necessarily dictated by the technology.

Unidentified Analyst

(Question inaudible)

Stephen Culshaw

I can't, sorry.

Unidentified Analyst

Yeah, I was just hoping you might be able to elaborate on potential share, do you see yourself within the chemicals business broadly speaking being a major player a regional niche player, how do you view your prospects within that market and its potential size relative to some of your other businesses?

Stephen Culshaw

I see we will continue to play as we do today an important part of that market, I think what's encouraging is that we are involved already in a number of other chemical type projects, not necessarily in terms of crackers and downstream derivatives, but other specialties including rubber and whatever and some of those were announced fairly recently. So I think we are beginning to play in the whole suite of units in the chemicals chain and we are encouraging as well all over the globe. So its not just a regional focus, I mean obviously, we have announced a big one recently in Brazil which is a gas to chemicals type complex and that’s some significant technologies involved in that development.

Unidentified Analyst

As a relates to the US refining, it looks like the crude slates in the process I think turned out, it turned out its head where we're going to have it lighter and lighter crude slate after last 10 years building hydrocrackers and cokers to deal with heavy side of crude. And I am just wondering, whether that discussion with clients because I think ultimately if this trend continues, they are going to have do some things to the refineries to deal with lighter crude slate, whether that’s started, or you’ve seen that yet in the US? And second how big an opportunity that might for you all and what kinds of things, I don't know, that they need to build to handle lighter slate going forward? Thanks.

Stephen Culshaw

I am honest, I’ve not seen much discussion on that particular at this point in time in North America.

Unidentified Analyst

I was wondering if you could comment as to sort of, if you could assess the strength of some of your newly signed deferred contractor relationships, the Dow agreement, the Shell agreement, and how this is different from, I don’t want to say similar types of agreement in the past, but agreements that looked a lot like it in a way. I mean, how did these contract relationships differ from the way you have done business with good clients in the past?

Stephen Culshaw

I think one sort of different characteristic is that clients now are clearly seeing the value of having close relationships with a limited number of contractors. And so a number that won’t and they would be very happy with your performance and happy with what we have done and they sort of prepare to have a limited number of people as maybe a number of years ago they would have had agreements in place for a whole host of people. So I think it’s the relationship value to the client that is encouraging him to just have a fewer number of these agreements and obviously with that we hope we will come more opportunities.

Unidentified Analyst

Hi there, Jonathan (inaudible) from Lloyds; the EU directive to reduce landfill waste, obviously given opportunities for contractors to bid on waste energy projects; I am very interested to hear how far down the road you are in playing that space and are you actively bidding on projects and if so what countries and if not what are you doing to develop technologies and capabilities for waste energy?

Stephen Culshaw

Now as you probably know, we already operate in waste energy facilities which we have developed many years ago in US using grade type boiler and in Italy using our CFB technology. So with our group we have supplied CFB for waste energy facilities fro instances with and we are working on some prospects now. We already selected and we don't want to go and compete land filter key with grade type technology because honestly the market is too competitive. And number two, we prefer be involved in the operation of the play, because when you deal with waste, you can do your best in defining the feedstock, composition of the waste, but they are waste. So rather than being just the contractor we prefer to be well those in the operation so that we can manage the waste. So yes, we look at the opportunities, that's only way we can use our technology, so the plan is not to go and compete with head to head with the others on some conventional technology.

Gary Nedelka

Good morning. It’s always a pleasure to be able to stand in front of this community and talk a bit about Global Power. A little bit of background for some, is the Global Power Group is comprised of six operating groups. Five of them are geographic operating centers located in Finland, the United States, they have operation in Shanghai, they cover Asia, Poland and Spain. The sixth operating group that we have or operating unit we call Power Systems. Umberto referred to this a little bit earlier.

In Power Systems we have plants that we have built, we own and we operate including our garbage facility in New Jersey, a CFB in Chile that burns pet coke and a combined recycle plant in California. We also do some operating and operation and maintenance work in various places around the United States. All-in-all, we have about 3,000 people in GPG and these are dedicated professionals who really do a good job in execution excellence which is one of the cornerstones of Foster Wheeler.

Our products pretty much [centered] on boilers or steam generators and related auxiliaries and services related to boilers and steam generators. Mostly, people will talk about our dominant position in circulating fluidized-bed or CFB technology. But one of the points I want to make is we do have as wider portfolio of steam generator technologies and products as anyone in the industry including pulverized coal, natural gas fired units, waste heat boilers, all sorts of boilers and auxiliaries and recently at the end of our last year of 2011 we acquired a company Graf-Wulff which is German company and gives us SO2 scrubber capability, that’s important to us because it allows us to perform the balance between sulfur removal in a CFB boiler or in the backend with a circulating dry scrubber.

In addition, this technology also will be important for us as we move forward into capturing mercury and other heavy metals out of boiler flue gas streams. So this is a good technology for Foster Wheeler. In addition to the supply of new boilers and equipment, we also have a very, very good aftermarket service organization. And it’s renowned for its quality, for its capabilities and to some of the questions before about construction, we do over a million man hours every year in North America, in construction, direct hire construction. So we do have construction capabilities in GPG and we have manufacturing capabilities in GPG.

Going back to the previous slide, we have a manufacturing facility in China that has about 850 people in it, a large manufacturing facility in Poland that's about 300 people. So we do have large capabilities in manufacturing large organization and construction within GPG.

Going to the CFB for a minute, one of the reasons that I think the GPG has done well even in the face of a tough market is our CFB, its technology driven and you can see that we've had a good degree of market success in terms of capture rate of the CFB globally. And a big chunk of our market share is because we do have the largest CFBs in the market by far. So these large CFBs have given us the lion’s share of the market. We're also the leader in the market for firing difficult or challenging fuels. This also gives us a technology edge and drives the market share. We look at petroleum coke. We’ve got a huge, huge market advantage of petroleum coke. Stephen talked before about how pet coke is popular now or getting very popular in the Middle East and we're starting to see some attraction in South America with cokers.

Petroleum coke fired CFB is right behind that and we're certainly positioned well for participating in that market. In biomass, we're also the market leader. Biomass and the more advanced biomass is called agro biomasses. We have the largest boilers in the world that have done a very good job in capturing the market there. These are difficult to burn fuels and being able to burn these more difficult fuels, we give owners a lot more options in terms of what fuels they want or what fuels they can purchase. You know, that’s in the arbitrage, pet coke versus coal, one particular coal versus another, so this has been what's driven our market shares.

We look at the market environment though right now. It's certainly not been a good market recently for any one in the power equipment supply business. Growth in power basically follows GDP growth. And GDP growth has been flat or just marginally up over the last couple of years.

In fact, this year itself in the United States, what we've seen is electricity consumption or electricity production over this summer was basically the same at the same level as it was in 2008-2009. So that's 4.5 years of flat demand in electricity. Similar situation exists in Europe, so it’s really been Asia that has given us a lot of our opportunities and a lot of our business over the last few years Asia and to an extent parts of South America.

Another thing about natural gas, natural gas certainly being a cheap fuel in the United States has hurt the services business, the aftermarket business in the United States, less reliance on coal equals less service opportunity and aftermarket opportunity. Natural gas has taken a lot of the bloom of the flower of environmental retrofits; it’s a lot cheaper to burn natural gas than it is to put in an SO2 scrubber on the back of a coal-fired unit.

So the point now with natural gas in the United States, it’s probably about 55% of the electric production whereas three years ago 55% of the electric production in the US was coal. So it’s been flip there. That said, Foster Wheeler still does participate and it is a very active participant in the natural gas market, but it’s a different market than what we had in the US several years ago.

We look on the environmental side, probably now with the elections over we will start to get some clarity where regulations are going to go in the US and in Europe with the IED in Europe. The IED will start to kick in 2016 and that just start to give us a lot more opportunities going forward in the environmental retrofit market, but certainly over the last couple of years with the overturn of cash spreads I think somebody mentioned it before where the overturn or the stay in the courts on the match rulings have really put a lot of uncertainty in the environmental retrofit market and we are waiting for some clarity there.

In terms of looking at the market for renewable, there are production tax credits they are still under discussion in the US what’s going to happen with those? What is going to happen with some of the green certificate programs in Europe? The (inaudible) program in the UK, there has been a lot of uncertainty and how the different renewable subsidiaries are going to work around the world and that's also put a little damper on where those markets are, those should start to clarify over 2013 and we should start to see a return to some normalcy in those markets.

Why do we have good market still in Asia? Well, if you look at natural gas, you see in the United States you have natural gas of $3.50 a million and in Japan, China, Korea is still $13, $14 some place is $15 a million. Coal is still a very attractive option in North Asia and this is really where the GDP growth is also.

So the combination of high gas prices and GDP growth has positioned Foster Wheeler very well inside of Asia and that's why we have done very well there. Kent showed this slide before, the strategic directions, strategic directions for GPG, and you could see that what we are looking at, one of the things that differentiates us is our technology and our technology really manifest itself in the CFB and we are going to continue to drive the CFB to larger sizes, more efficient operation, more fuel flexible operation, this is how we are driving that technology.

We are also going to continue to push into new and growing emerging markets. We have been very strong in Asia, we are going into other parts now of Asia, we are starting little bit attraction in India. We are looking now in the Middle East and we see good opportunities for our technologies in the Middle East. So those will be the next places that we start to push geographically. We look at where we are in terms of natural gas. We've over the last couple of years, we've licensed some of our technology for HRSGs which is the boilers and the combined cycle power plant and in fact last year one of our licensees was number two globally in heat recovery steam generator sales, that's worked up very well for us. It gives us in addition to being able to self execute in a natural gas combined cycle power plant, we can take advantage of our licensees and its given us the ability around the world to be a lot more strategic and how it is we want to approach any one given opportunity.

That's worked out very well for us. Another play that we put and we will continue to put into the natural gas market is industrial boilers. There are a lot of opportunities now for people who are moving away from coal fired industrial boilers whether its in manufacturing facilities, paper mills etcetera. and firing instead natural gas. And the more sophisticated natural gas fired boilers our technology an edge.

In all of these, in everyone of these areas though I think looking at the bottom two bullets are critical to us. We've talked before about taking a balanced approach to risk. We will continue to do that. There are a lot of people in this industry who had a lot of problems by not paying attention to risk. And we will also continue to invest heavily in training our technical staff and in improving our manufacturing techniques and our manufacturing quality. Those are the differentiators that will always keep us above the competition.

Just to finish up with, I would like to just show a couple of slides and show the results of what our strategies have been in the past and where are they going in the future. If we look at the size of CFBs you can see that for CFBs over 200 megawatts which is where we start to get into the utility size CFBs, we've had 92% of the market over the last 10 years. In fact if we go over 300 megawatts, we have a 100% of the market.

We've got super critical CFBs that can compete with traditional pulverized coal fired power plants and this has been something that we have continued to push, we've continued to invest in and we've continued to support client in the development of their projects over the years and its paid off for Foster Wheeler quite well.

Last year we signed a contract in Korea for four 550 megawatt super critical CFBs. These are far and way the largest in the world. They will go into operation in 2015. They are in fabrication right now and our facilities in Poland and in China. Also one of our focus points has been biomass. And Umberto I think had a chance until we got our commercial operations certificate for this late yesterday.

So this is a largest biomass plant in the world. This is over, its rated at 190 megawatts, its made 205 megawatts, right so its already made more than its designed name plate capacity, it burns traditional which is called clean biomass but also a high percentage of agrobiomas which is corrosive and high fouling biomass and its one of lot of the places in Eastern Europe are trying to move toward. We've got a great niche in that market and this boiler is on the cutting edge of that.

Spoke a little bit before and Steven spoke a little bit before about the Middle East and coheres. And if we look here, and what the differences are in oil products versus whether it's coal, coke. If you see that, with oil going up in to the $80, $90 $100 barrel range, it doesn't make as much economic sense to burn heavy fuel oil in the Middle East to make electricity.

Instead, you can use and make a lot more money with cokers selling that product and then we're in a position to come in behind and build the power plant to burn the petcoal. We're beginning to get traction on that in the Middle East and we're looking forward to that in 2013, 2014 time period in any of the oil producing regions of the world that this could become a much better solution for them than firing heavy fuel oil, better solution for Forest Wheeler, I think also.

I would like to believe just a few takeaways off of this and that’s it. We have been and we will continue to invest to remain the leader in CFB technology for biomass, coke, other difficult to burn fuels. We want to continue to support our clients and we see an increasing market for clients who want to participate in a fuel arbitrage where they have the ability to buy coal from US, Indonesia wherever else it would be.

So we would continue to invest heavily and continue to participate in that market. We're going to continually invest and extend our global footprint beyond just being in Europe, US, Asia. We want to look lot harder in the Middle East, North Africa, India. We will continue to invest in those geographies.

We have a robust list of opportunities. Andy I can’t just give you the whole list of them, but we do have a lot of situations where we have the boilers will be ours when and if the project goes forward. A lot of projects around the world are built on the back of what’s going to be the combustion technology. If you are going to build a biomass plant or if you are going to build a petroleum coke fired boiler or if you have three or four different sources of coal to make your project finance able, you’ve got to have something that’s proven to go to the bank’s way and a lot of tires and in a lot of cases we have awards basically for projects that are built on the back of our boilers, we are waiting for these to come in and if the financing is right, if the economic conditions in the particular country are right we will be in good shape.

So these are the opportunities we are looking forward in 2013 and beyond. There is a compelling chase for building CFBs in the Middle East where if you went back 20 years ago you will think it will be impossible to build something in a place like Saudi Arabia that would burn solid fuel that could happen, which would be kind of interesting. And we remain a GPG a significant and a high end player in the natural gas market in terms of our HRSG technology and our ability to participate in the natural gas industrial boiler market. We look forward over the next year, year and half to see what’s going to happen in the US and in Europe with the environmental retrofit market and we are certainly poised to participate in that as well.

So that summarizes.

Question-and-Answer Session

Unidentified Analyst

Hey, Gary it’s Mike. Two questions first, when you look at coal globally there is still quite a few coal fired plants being planned, designed and build around the world is correct?

Gary Nedelka

Correct.

Unidentified Analyst

So how is CFB in the technology bit fairing in those decisions and there is other opportunities moving forward because your movement of the size later for some of those new coal fire power plant to be CFB universe ultra super critical PC or just traditional?

Gary Nedelka

Sure, I guess maybe one of the great examples maybe I can give is what's been look that right now in Japan. Certainly Japan in the after map Fukushima there is not really nuke spilt there, and as you saw LNG is $14, $15 a million, they are looking now at coal fire power plants. Where the Japanese buy their coal, it could be from the United States, to could be from Indonesia, it could be from Columbia, it could be from Australia. All these coals are very different and what they would required if you want to build a traditional pulverized coal unit will be four perhaps four different design units, so maybe this unit break this, this unit breaks that, our CFB could burn any of those. So if you built a super critical CFB which we can build and we have built, you can burn any of those calls in a place like Japan, there is strictly unimported coal. This is one of the main drivers that allowed us to sell the same truck units in Korea also importer of coal.

So in places where people want to play the fuel arbitrage the CFB has the huge, huge advantage, even in India where there is a lot of domestic coal, what we've seen is places like over in Gujarat over on that side of India where its just not possible to get all the coal in India to these plants and its actually cheaper for them to look at Mozambique or Indonesia to get coal, and again the CFB allows them to make a decision that they could build a super critical or a large CFB and play the whole fuel arbitrage. So I see a place, there is a place of PC units, but there certainly is a place for CFBs in that type of market as well.

Unidentified Analyst

Could we see an award in the next three years?

Gary Nedelka

Oh, I would think so. I would think so.

Unidentified Analyst

Secondly, turning to the US, your sense from the utilities that you speak to, when do you think will start to see the retrofit market really kick in the gear. I know that's a political and regulatory issue and are utilities still believing that natural gas in the United States over the medium to longer term is going to be an attractive enough fuel where its going to be gas and that's about it or are some starting to think maybe with all the demand for natural gas that maybe coming out of North America that they may get caught like they did in the 1990s when gas spiked? Thank you.

Gary Nedelka

Yeah Mike, I think most of the utilities that we speak to are still a little bit reluctant to put all their chips on natural gas and even in places where we talked to some of the large utilities that have got big shutdown programs for coal, nobody is destroying these plants, nobody is taking these plants down. They are being put over to the side and just kind of held. Who knows what will happen with natural gas. If there is a big push to export gas or a big push to gas to chemicals, gas will go up, gas is not going to stay at $3 forever in the US. So I just don't see that the utilities will put all the chips on natural gas on a go forward basis. It wouldn't make sense. It just wouldn't make sense. In terms of the retrofit market, to actually sit and try to predict what's going to come out of Washington, I don't think, I wouldn't want to try that, okay.

Unidentified Analyst

Hi, so Gary despite the tough macro environment over the past couple of years, your division has put up pretty impressive margins and you've been able to grow your business and its been a huge contributor for Foster’s earnings. I guess my question to you is, how sustainable do you think the margins are that you put up over the past couple of years and why you didn't give a prospect list; do you actually see enough prospects out there that you can at least keep your business flat over the next 12 to 24 months or you can grow your business or should we expect the power business to be down over the next two years or 2013?

Gary Nedelka

Yeah, certainly, from a new business standpoint its not the robust list of prospects that we had, let's say five years ago. So looking at that, I don't see where we are going to into a sustained growth period in the power business, that's for sure, okay. So that means flattish probably that's….

Unidentified Analyst

But is there potential for the business to be down double digit over the next 12 months?

Gary Nedelka

I would hope not.

Unidentified Analyst

No, okay.

Gary Nedelka

Or somebody else would be making this presentation maybe.

Unidentified Analyst

Okay, and then can you just talk about how sustainable your margins are in that business?

Gary Nedelka

Okay, I would like to say something about the margins. The margins are actually a combination of a couple of things. When we sell one of these boilers, it’s a 36 to 42 month project right. So if we sold something in 2008-2009 that was in a period where people were looking at escalating commodity prices. And as such we all put contingencies and put things away to cover us in the event something went to ride. Towards the end of these projects, you start to reap the benefits of that when you have a bad economy. So that's similar to what’s driving the margins, that won't be here on a go forward basis.

Unidentified Analyst

Yeah, but I guess my question is how big of a contributor was that to the margin?

Gary Nedelka

Well, you can look into like in the Q, I guess, we put in the what the FEP adjustments were and I don’t remember the exact numbers for the last quarter, but, 16.

Umberto della Sala

But I would then just use that number and normalize much in that way. I believe that we're getting dangerously close to…..

Unidentified Analyst

I am trying

Umberto della Sala

And the answer is going to be, you will need to wait a few months more to get a bit more flavor on where the (inaudible) is going to go.

Unidentified Analyst

Sorry, I don’t mean to beat dead horse on the margin, but can you just sort of maybe go bit more specific on the cost structure of the power business. How much is the sort of basic overhead that you guys want to cover and also on a per unit basis, just sort of pricing discipline for every order you guys get or every project you’re willing to do what sort of minimum threshold you want to make on a pre-unit or how are you seeing?

Gary Nedelka

We don’t have really hard and fast rules as to what kind of threshold margin we have to make or whatever. We look at each opportunity for what it represents in terms of a strategic value or it's value to a client relationship or to our competitive advantage of it. So that's really what’s going set, we're able to sell at. In terms of our cost structure, we have our own manufacturing faculties, but we don’t manufacture a 100% of what we do, we may be look 40% to 60% of what we manufacture or self manufacture, so that gives us a lot of flexibility in terms of being able to ride capacity up and down and so we do have fixed cost in manufacturing facilities, but again, because we have this program or this strategy of only doing 40% to 60% of our own manufacturing we are able to keep ourselves pretty much fully liquidated. We are not really a group that sells on the basis of man hour rates and so on, it’s a little bit of a different business then the E&C side of the house.

Unidentified Analyst

So just as a follow on to that, in whatever way you measure capacity utilization, whether it’s megawatts of output etcetera and where are you tracking now versus where you were at the peak of the cycle?

Gary Nedelka

Well, I would guess in terms of our capacity utilization report, may be a little bit lower than where we were, but again, because we do a lot of outsourcing of manufacturing even outsourcing of some parts of detailed engineering. In terms of capacity utilization, we are pretty flat, in terms of the tonnage of what it is that we are shipping which might be the one of the better measures, we are down from where we were in the peak, because it’s just less business and that kind of follows what the revenue would look like.

Unidentified Analyst

Can you put a number on that tonnage?

Gary Nedelka

I couldn’t right now, no.

Unidentified Analyst

Thanks. In terms of the pet-coke opportunity in the Middle East, can you talk about what’s the size of some of this boilers that you would be selling there and then I guess, I think you mentioned 2013 and ‘14 possibly is the timeframe, what gives you the confidence around the timing of that; are they related to particular process units that are coming on line for the first time there?

Gary Nedelka

Yeah, when I say 2013 and ‘14, these are the prospect development phases, okay, so I am not looking for immediate booking in any of this stuff. What we will be looking at will be probably initially be in the smaller size is 100 to 150 megawatt, but with the ultimately goal will be to have 300 megawatt class at coke units there, that you can double up on top of the 600 megawatt turbine which will be more a standard size our plant in the Middle East.

Unidentified Analyst

Gary, so you talked about Korea, why are there not more Korean type prospects out there; I mean in another words, it seems like you can do a good job on it, you can scale up the technology, Asia is the big place, there is still lot of coal demand there, even if its down. So why shouldn't you will be able to book some of these larger CFBs over the next year or twp, I mean are you confident that you could or do we have to wait for this one to sort to get into the middle of construction before customers sort of trust the larger CFB?

Gary Nedelka

Well, part of the situation in Korea is, if I look at all parts, it’s one of the most diverse portfolio in energy policies if anybody has seen. So they are not going to go with a huge coal build out or a huge gas build out or a huge nuclear build out. There are in addition to four 550s that we sold, there are a couple of 300 megawatt CFBs also going in down in Busan that are using our licensed technology. So there are other CFBs going in. Right now there just is not the energy plant inside of Korea for that much growth in the coal sector. When it does come I'm sure we will be considered. We are not losing anything there.

Unidentified Analyst

But I mean you are big in Southeast Asia in general. So I mean in all these other countries I mean again there's still growth there?

Gary Nedelka

Sure there is.

Unidentified Analyst

So it’s been about a year or so since you book these larger ones you know more or less?

Gary Nedelka

Right, that's right.

Unidentified Analyst

So why is it so quiet right now and could it get, I mean we know the economies have slowed down a little bit in Asia is that the big reason or is that?

Gary Nedelka

That's a huge reason for it, that's right. In fact when I talk about prospects that we've gotten we have awards for, we know we are selected for, most of those are in Asia and they are not just Korea, they are you know they are several different countries in Asia and there's been a reluctance I think of a lot of the countries to move forward in a lot of the big investment decisions because of the macro factors.

Vietnam was on a real fast expansion. We did a lot of work in Vietnam and now it’s kind of slowed right now. They are taking a wait and see look. The Philippines is a little bit of a wait and see look. Indonesia bit of a wait and see look. And I think once people see where China is going to go from a macro I think then Asia will begin to follow. But there's a lot of activity there but it’s just waiting.

Unidentified Analyst

Gary so we talked a bit about M&A but more focused on the E&C side and upstream, just curious in the power markets I mean do you desire anything within the portfolio that you might go out and acquire, you are talking about getting a little bigger in possibly in gases or something there that you would consider bringing into the portfolio or is that all organic?

Gary Nedelka

Well, most of all we've been able to do has been organic and I think because as I said earlier in the presentation if I look at the technology suite that we have its pretty comprehensive. We've got just about every technology that we would want to have in the power side and I think, really for us its more a matter of where do we want to focus and organically grow any of those technologies as opposed to going out and acquiring something.

Unidentified Analyst

I think Samsung Engineering, they have their own CFB now or there's…

Gary Nedelka

No.

Unidentified Analyst

Okay. Can the Koreans, I mean just competitively how far ahead are you versus the low end guys, can they move upstream over time, maybe not necessarily quantify but just how long would it take for someone else to build this capabilities to come in aggressively and reprise you guys?

Gary Nedelka

Well, certainly what we've seen over the years is that the competition has started to move up the chain in terms of the size of CFBs that they would offer which is why I make the distinction of the one slide there of using the market share for CFBs above 200 megawatts. How rapidly somebody would be able to go up that chain, I don't see why somebody would do and I think we've got a good enough position right now in that market and that, I don't find it easier for somebody just over the period of one year, two years, three years to really move up the food chain in terms of the size of the CFB or in terms of the capabilities for the different fuels of the CFB. There is a lot of experience and we sold hundreds and hundreds of these things. So the ability to move up that chain is going to take sometime for somebody to get years and years of operating experience on smaller units. Just not enough it would be so easy. I don't know if that answers your question. Do I worry about it? Sure I worry about it but…

Unidentified Analyst

I guess, if you look at some of the other industries right, (inaudible) guys, the guys who started the high value to rid of (inaudible) guys gained scale, they move up, they move up, they move up many, many industries. So I just want to kind of curious maybe you should have a strategy where may be you shouldn’t let those guys move up, you should cap it somewhere I am saying you come out as higher value products but more having a separate, having a division or something, doing something that’s tailored towards the low end customers.

Gary Nedelka

We can certainly do that I mean and we certainly do that in some of the natural gas fired boilers. These are pretty simple boilers. You know, comparing natural gas to petroleum coke is, that’s your furnace in the basement versus some pretty nasty boiler. So we do actually play in end markets that are more commoditized and they carry much lower margins obviously too, so we have the ability to do both and when we get into the services business right now. You know, the services businesses, the aftermarket business is low, as I said before this just not much coal being burned so that when that gets low, there is a lot more margin pressure and price competition. We can compete in all of that and we do. That’s one of the reasons why we continue to focus on a high quality, low cost manufacturing in places like China and in Poland etcetera and so that we can compete in the lower margin areas.

Scott Lamb

I think we are ready to start. Again what we are going to do here is, I can come up and give some summary comments and then we will have an open Q&A session for Kent and all the other Foster Wheeler executives who are here, so on that note, I will turn it over to Kent.

Kent Masters

Okay, this is a bit tactical because we are doing this when you in theory are going to have your mouth full. But I just have a wrap up over couple of comments and then we will just go to Q&A. So we will have the team down here, whomever we need to answer the questions we will do that and we had a lot of questions as we went, so I am kind of expecting not to be that many but we will see.

So just and to wrap up and kind of our review of the investment rationale of the thesis for Foster Wheeler now you can take this in a number of different ways but we know, we are hot (inaudible) stock, we have a depressed multiple at the moment and we know we are in cyclical industry so that does present upside.

And we think there is an upside or increased in our margins particularly in the E&C side. Our growth in EBITDA and earnings per share when the market tightens and we think we kind of belong we start to see more activity happening and we think the market is turning up, the global economy doesn't help that really but a lot of projects that are on the books some have move forward others are still sitting there at some point we believe they move forward.

And we think overall we are very established company with investment grade rating today and we have the growth strategy, and nice prospect lift and we've increased our sales effort to be able to capture more of that. We have very nice market leading technologies particularly in refining and the solid fuel combustion and the power side, stock buyback program in place which we've talked about and a strong global brand with a track record of excellent operating results and disciplined risk management. So we think the combination is a nice thesis from investment standpoint which is why we are presenting this year today. We hope you subscribe to that and with that I will open it up to questions and then we have the whole team here that whatever the range of the questions are we hope we will be able to answer those.

Looks like the lunch strategy worked. Okay just a moment we got to get our, bring it right there. Right here, second row.

Question-and-Answer Session

Unidentified Analyst

So strategic question for you, when you are coming in evaluating direction of the company it strikes to me you've got expertise in combustion and heavy process industry whether its refining, petrochemical etcetera. It seems like mining is maybe a little different animal, upstream arguably maybe with the exception of midstream is a little less process oriented. It seems like a little bit of a departure and so that's one question to you. The second question is, I think Jamie mentioned fabrication and if you view your boiler business as having fabrication expertise and fabrication components a lot of these process industry build-outs, why not think about going down that road more heavily into fabrication for process vessels, etcetera.

Kent Masters

Okay, so I will start with that and then I will give Umberto a shot at it. So the mining and upstream, they are a little different, they are less process oriented because that is kind of our historic strength and key. But we also do very well and execute projects complicated projects in far flung places. So we think mining is an easy leverage for us to do that because we allow that and there is some process activity on the mining side as well, although we think to get into it we start with project execution there. But we think we leverage that capability. So we are strong from a process standpoint, but project management is another one of our key skills and we believe our skills leverage is quite well in the mining.

Upstream it is a little different. It is less process again a lot of execution but with the same client base. But its very related. As I said before and you could argue this, but 80% of the skills transfer, a lot of what we do transfer over. There's a piece of it that we don't necessarily have. We know we have to build that, but we don't think it’s a big stretch and most of the people who play in that come from our space and we've been in that business before and we've done this, I mean we have done it, we did let it slip away but to get it back I don't think is much of a stretch from the extreme standpoint. Umberto you want to.

Umberto della Sala

Let me go back to the metals and mine. In addition to logistic complexity of metals and mining project, they are in very remote locations but if you look at the process units, new operations and you look at one of these processing plants looks like chemical plant. Not too much different. And you should consider when we work in chemical projects we work with technologies from different sources so we are able to manage technologies provided by others. So there is a lot of synergy between the [TBR] downstream business and metals and mining.

Upstream, look at the facilities on the top of the platform. You know they are typical facilities that you will find on the offshore pattern. There are technical issues, layout for instance, I think in FPSO the layout is a key condition. Any square centimeter is important. So you need skills but then it comes to developing piping layout, isometrics. This is routine business for us. Manufacturing now the boiler business is different from the (inaudible). Boiler business is about selling boilers. We sell the material and we sell the technologically. So controlling manufacturing is important, quality is important because you realize that if some of the wealth on the operational part is not done correctly, what's going to happen.

Two years later when you start commissioning in to play. So to really make sure that we have an excellent quality, without technology, we have to develop (inaudible) the E&C, we don’t see manufacturing as an important part if you are a global player; because many times you have to go to local manufacturing. You have to come up with a solution strategy which matches the clients, besides lot of complaint and whatever and you may decide to on each specific project to a different location because of the work load because of the timing of delivery. So we believe that we have much more flexibility in outsourcing the manufacturer the modules is an example. For a project in Australia we build the modules in Thailand, but it could have been the Philippines in other cases could have been even Spain. So you look at the best options you have to successfully execute.

Unidentified Analyst

Yeah that’s a kind of factual statement, so when you joined the firm a year ago Kent, I am sure you looked at a five year or 10 year business that was in somebody’s drawer or looking forward is that a fair statement?

Kent Masters

It’s a fair statement.

Unidentified Analyst

Okay. So, given you have been here a year and given this restructuring in the E&C group can you talk to the slope or the delta and change of what the company is going to look like five years from now then what it would have been a year ago when you started to figure out this business and saw what the plans are?

Kent Masters

Yeah, it was difficult to go back and look at a plan that we aren’t pursuing now because plans evolve and you don’t make a plan stick over five years and look back and see how do you did. So I am not sure that’s to use it against that benchmark, but I think what we are seeing, the space that we are in we do well in the space that we are in, we need to do better and we need to play in other spaces and leverage the skills that we have, so we are very capable technical organization and we’ve probably been a little bit of we have had some difficulties because of that success we become very focused on the downstream business because we are very successful there our clients came back, they came to us and so we didn't work so much on our sales and marketing capability and we just executed quite well on that one space, that space became quite cyclical and some of the other growth areas were in different spaces we had moved over there.

So I think we are just trying to change that dynamic keep that technical capability and Umberto, he was talking about the organization, we don't want to change the DNA organization but we want to shift it and leverage the strength in that organization and that strength is a technical organization, we want to make it more outward looking more market oriented drive business development sales a little bit harder and getting to some of those other spaces that's what we are trying to do.

Now, when I compared what it would have done, I am not sure I can make that comparison but I think it will take some of the ride out of the cycle from our standpoint which makes it much easier to manage for the organization for the employees within the organization and I think for our investors as well, just to make it a little easier for us to develop people better, to get into new space, develop more capability, just take some of that cycle, we know we can't take it along and we still have to be good and managing that cycle that we can grow and shrink against those particular cycle, so we like to take some of that out, we think that will make us so much more professional organization.

Unidentified Analyst

My follow up would be, how would you characterize the risk adjusted rates returned on capital investment into the engineering business and then looking at the global power business is one area not adjusted more to risk or to uncertainties than the other. And as you look at the plan over the next few years, do you anticipate more investment in either one or the other businesses because of those returned metrics versus across the camp?

Kent Masters

Okay. I think well they are quite different businesses and Umberto had said in power we look at the overall market we manufacture and sell products into that market and then we have to look at those market dynamics and the market dynamics in certain parts of the world are quite good for the power business. In North America today it doesn't look so good because we are quite focused on coal, our real bread and butter is around coal and with $3 natural gas that's just not, that's not happening for us. Fortunately other parts of the world don't have that same profile.

Risk adjusted, and we spend a lot of time on risk management and with both of these businesses you can get into a lot of trouble quickly and which is why we spend so much time on that. I think from a risk standpoint they are probably quite similar. You’re probably doing bigger projects on the E&C side typically. So there maybe a bit more risk around that, but if we manage it well and mitigate it, I'm not sure its materially different than what we see in the power business.

From an investment standpoint and growth, I think you will see us spending more money on E&C, because that's where we see opportunities to do acquisitions. We want to grow the power business, but as Gary said, we think we have most of the tools, if we see opportunities to make acquisitions there, we will do that, but we don't see big gaps in our power business; whereas in the E&C side we see its probably, I wouldn't say gaps, but opportunities that we want to take advantage of.

Unidentified Analyst

So is engineering earnings power three to five years out will be as a percentage of the total company greater than it is today relative to power?

Kent Masters

I would say so.

Unidentified Analyst

Hi, just a question, you know within the E&C business you are focused on growth, but it also seems like you are focused on being a more cost effective segment and especially in a decentralized business like Foster Wheeler, I would assume there is areas where you've looked at and said, okay we could be doing a better job here. Can you just give us an idea of where you think the cost can come out of like different bucket things that you are looking at just so we can get a feel for where the costs are coming down, in which areas?

Kent Masters

I would say we invest in sales and marketing. We are investing in our engineering capability that allows us to be more consistent across the organization, tools those type of things, that's where we are spending our money. And we think by aligning the organization better, we will be able to take costs out of the functional elements, so the classic functions, finance, HR, IT, those type of things by instead of operating these individual businesses, so independent that we leverage those on a global basis.

Unidentified Analyst

And while you are probably not going to share with us have you guys internally come you know do you have a forecast of how much do you think, what the streamlining, can you quantify the costs that can come out of the business or have you guys done that internally even if you won't share it with us?

Kent Masters

Yeah, we are not going to share that with you and we've done the work.

Unidentified Analyst

Okay, and one of the questions I sometimes get is Foster has overtime had larger projects, especially in I don't want to say strange places, but more difficult political environments and so like you take them as well as an example, I mean you know very large projects in Venezuela I think there's some uncomfortability from clients that one day that project is just going to stop, because the political climate just say it stop or something like that, like how do you look at the political risk as these projects go to these places, and I know you are going to say to me you've done work in lots of difficult places, but some of these places seem a little harder than others?

Kent Masters

There are challenges, but we are not, I mean we are different than someone who goes and build refinery and owns it and operates it in these locations. So that would be quite a different political risk. Our exposure is different. One of these projects stops when we are in the middle of it, it's an issue for us but it's not the same as if someone took our refinery. And we understand what that risk is, exposure is there and we worry about that because we're in some far-flung places and some with more political risk and others been a slight as probably be extreme. Today, most of the places we're offering, we don’t have that kind of political risk that there is there but we've got a lot of experience, we’ve operated for sometime there. (Inaudible) is a good customer for us and we've done good work for them, and we keep coming back. So it's something, as I say, I didn’t worry about it. It's not true. I am concerned about it but I know, it's not something that things are going to fall off the cliff tomorrow and I do think that if something did happen, the exposure that we have there is not as significant as it might seemed given the magnitude of the projects we work on.

Unidentified Analyst

This question might be for Umberto but you know, lots of people ask you about sort of eastern competition but what about western competition. It seems like over the last few years, western competition has become more fierce, I mean some of that is just markets has been weak but you got companies that sort of come into the Middle East, that really warrant in the Middle East and sort of we all know. It seems like they compete on price more than I’ve seen. So how do you look at that? Are those companies behaving themselves now or are they still pretty aggressive, they become more utilized, so they can get a little bit better and maybe a temperature of the market in terms of western competition?

Umberto della Sala

Honestly, we've not seen a dramatic change in the America, you are referring to Middle East then so no, in terms of western competition different western competition we always see that the usual ones. Are they more aggressive, they (inaudible) the market, there is no competition and we have not seen a major change in Middle East, so there are some European contractors which typically are very aggressive on (inaudible) and they continue to be aggressive. In the service type business, we have seen some level of aggressiveness in terms of accepting contract conditions which we will not accept. I think somebody mentioned in data, we lost the first round of (inaudible) because we thought that the contract conditions were not acceptable we have good contingency and loss of price. But no major changes in the market if any we have seen some of the contractors of the western contractors which were used to work compete or run center key stepping back a little bit realizing that bidding the Koreans is almost impossible unless you want to commit suicide. And so we see them trying to get more FEED, PMC some of them established PMC organization in some locations. So if any that’s the only change I have seen.

Unidentified Analyst

Question from the webcast, regarding M&A activity how large of a transaction would you consider and what kind of leverage or financial metrics would you be comfortable with?

Kent Masters

Okay, I will take that. so from an M&A standpoint, I don't really want to talk about the size, I mean, we would as a metric, we would want to stay investment grade and we would want to do that are acquisitions accretive. So those are kind of the benchmarks around that and I am not going to answer the size, specific size question.

Unidentified Analyst

Just sort of building on that, as you look to get into the more offshore component, are you looking for target that has quite a bit of subsea capabilities or just saw encompassing because it seems to be that most of the work is going towards the subsea?

Stephen Culshaw

So the subsea is an attractive part but we know we have to build our way in. So we may do an acquisition that wouldn’t have that we would have the aspiration to add that later, and part of this, we need the platform to work from, it’s bigger than what we have now and particularly offshore, so we do an acquisition that allow us to build ultimately we will like to get to subsea but that doesn't mean we will start there.

Unidentified Analyst

Is there anything that prevents you from joint venturing because it seems like the offshore industry is outside the JV and just the orders that way?

Kent Masters

We have done some things from a joint venture but on an overall basis, I don't think that is going to work and frankly we are not really in the club for [JV] with club members, we are not club member.

Unidentified Analyst

Okay, are there any cash reform grumblings at Washington that might threaten your suites down side?

Kent Masters

No, I don't think so, Umberto.

Umberto della Sala

No.

Kent Masters

The answer is no.

Unidentified Analyst

So I wanted to ask you about LNG and I would suggest that you guys are not on all the bids that we see or not on as many of the bids as some of your peers that are focused on the LNG market tend to be. I am wondering if you view that as more of your strategy as maybe more selective in there or niche oriented and whether you plan on, is your view of that market as a core market or a niche market, and I was wondering if you could also comment on your thoughts on potential growth in that market given some of the changes you have seen in Australia or do you see growth in LNG outside of the US for the legislation and holding things up perhaps there or being an unknown, whether you see that market as being as rosy in outlook as you would have thought maybe two three years ago.

Kent Masters

I think that market has changed, its still a good opportunity but it is a core business for us. Umberto if you want to talk about the specific opportunities. Okay you are looking for that, But I mean there are a lot of things changing, I mean the cost as they have shown up in Western Australia, China demand has changed the away that's viewed, the gas in the US and then frankly what everybody is waiting on in the US is legislation or permitting to see what's really going to happen from an LNG standpoint or monetization of that asset the US has. It isn't clear its going to be LNG, but I think everyone is waiting to see what happens and one permit won't mean that's exactly where its going to go. So I think the industry, our industry and the gas industry is waiting to see exactly how that goes.

Stephen Culshaw

Okay, I will try and elaborate a little bit more but just to reassure that LNG is a co-business at Foster Wheeler EMC. We are actively pursuing a number of LNG opportunities America and Australia and elsewhere in the world. So I don't see our position as diminishing in anyway shape or form. Clearly the overall market dynamics is such that Australia has gone through its first wave and there's a lot of question marks now will they go in a second wave. The one area we are not playing in our part of the world is obviously the floating LNG because of any one player and that project as you know which is probably it has already been awarded to another consortium. But as far as the US is concerned we are actually in LNG today in the USA, a number of different opportunities and as Kent says depending ultimately whether the government allows for the export clearly we still see opportunities here in North America and Canada. And the other area we keep a close eye on will be Tanzania or Mozambique which potentially has potential to become a major LNG hub.

Kent Masters

But based on (part of) that point but you will always see us pick and choose, I mean we will look at the opportunity, assess it in the side whether we go or not because you know get involved in this thing we spend a lot of money and we try and focus that as much as we can so we've, it would be rare to see us everywhere all the time in any given s good morning. So we pick and choose.

Unidentified Analyst

Yeah, just another question on regarding capital allocation. I think many of the shareholders here would probably much rather prefer you to see you doing a large aggressive finishing of buyback as opposed to going out there and do something that's more complicated, a big M&A deal, and I know you are the new CEO and you know you want to show everyone you can do it, you have to whatever skills and M&A, just overtime do you really think you need to be able to go to company, do you think you need to be upstream. Do you think that you need to be in those mining to create ton of shareholder vale overtime. I mean, do you feel like you really need to do that, as oppose to just stay focused on what you are doing, what the company has been doing for the last 100 years and not going to something different, because a lot of time the company did it, they almost went bankrupt 10 years ago. So Umberto della Sala last comment about that.

Kent Masters

I don't think we can still where we are and just kind of play down downstream and focus on our coking technology and in the power business on the CFB and just ride those technologies that are in those cycles. I don't think we can sit still and do that. I don't think and I think we're too small and we're too focus in order to do that. So we need to grow and get in to space where we don’t have such cycles. I like the technologies that we have and I think we want to leverage and play those but we need to add to that. Now do we do that slowly and overtime with Bolton acquisition or do we do a step out. It depends on what's available and what we can do. But I don’t believe we can sit still and just play the technologies and the capability that we have today. I don't think that’s viable.

Okay, if there are no more questions, I want to thank everyone for coming out. It's a good session. Hope you enjoyed lunch but thank you very much for coming out and hope you enjoy the rest of the day.

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