Foster Wheeler AG Q3 2009 Earnings Call Transcript

Nov. 4.09 | About: Amec Foster (AMFW)

Foster Wheeler AG (FWLT) Q3 2009 Earnings Call Transcript November 4, 2009 10:00 AM ET

Executives

Scott Lamb – VP, IR

Ray Milchovich – Chairman and CEO

Umberto della Sala – President and COO

Franco Baseotto – EVP, CFO and Treasurer

Gary Nedelka – CEO, Global Power Group

Analysts

Andy Kaplowitz – Barclays Capital

Barry Bannister – Stifel Nicolaus

Michael Dudas – Jefferies

Will Gabrielski – Broadpoint.AmTech

Steven Fisher – UBS

Chase Jacobson – Sterne Agee

Avi Fisher – BMO Capital Markets

Roger Read – Natexis Bleichroeder

Joe Ritchie – Goldman Sachs

John Rogers – D.A. Davidson

Jeff Spittel [ph] – Pritchard Capital Partners [ph]

Operator

Good morning. My name is Miranda, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Foster Wheeler third quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. (Operator instructions)

Thank you. It is now my pleasure to turn the floor over to Scott Lamb, VP of Investor Relations. Sir, you may begin your conference.

Scott Lamb

Thank you. Good day, everyone, and thanks for joining us. Our news release announcing financial results for the quarter was issued this morning, and has been posted to our website at fwc.com. The presentation that we will use this morning has also been posted to the website in the Investor Relations section.

Before turning to the discussion, I need to remind you that any comments made today about future 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. The company's Form 10-Q is being filed with the SEC today.

Joining us on the call today from our office here in Zug, Ray Milchovich, Chairman and CEO; Umberto della Sala, President and Chief Operating Officer; and Franco Baseotto, who is Executive VP, CFO and Treasurer; Peter Ganz, Executive VP and General Counsel, and Lisa Wood, VP and Controller. Also participating by telephone for Q&A is Gary Nedelka, who is CEO of our Global Power Group.

After our prepared remarks, we will have time to take your questions, and I will now turn the call over to Ray.

Ray Milchovich

Thank you Scott, and thank you everyone for joining us today. I would like to take you through our prepared remarks. I would like to start on slide 3, and with the Q3 2009 highlights.

We enjoyed very solid results in the third quarter with fully diluted adjusted earnings per share of $0.72, adjusted net income of $92 million, adjusted EBITDA of $130 million. We enjoyed continued strong performance in both business groups in terms of new orders and backlog. In our Global E&C Group, we had a light booking quarter due to timing of client decisions on major prospects. However, our backlog remained solid and above the level that we were at the end of Q4 2008.

Turning to our Global Power Group, we've actually enjoyed our best booking quarter since the third quarter of 2008 despite the weak market that we described previously. And our backlog is essentially flat with Q2 of 2009. Turning to page four, Q3 2009 details, Q3 adjusted net income of 92 million or $0.72 per diluted share. We also had non-operating items in Q3 unfavorably impacting pre-tax income by approximately $25 million versus the average quarter of 2008.

The details of these were, approximately 11 million of unfavorable currency translation, 8.5 million in reduction in interest income, and 5 million increase in pension expense. In addition, we had approximately $4 million impact of higher Q3 effective tax rate at 18.7% versus 15.4% in the average quarter of 2008. Turning to page 5 and focusing now on our Global E&C Group performance in 2009.

Once again solid Q3 EBITDA of $114 million. Strong execution in the quarter. EBITDA margin on scope revenue of 22.9% and approximately 10,000,000 of unfavorable currency translation impacting Q3 versus the average quarter of 2008, which was mainly the British pound versus the US dollar.

Page 6, in terms of new orders and backlog in our Global E&C Group at the end of Q3. In terms of our market view, our overall market is obviously not as robust as it was in 2007 and early 2008. However, Foster Wheeler has a very robust list of prospects and we have been very pleased with our booking success so far in 2009.

In terms of an update on selected key projects and prospects, I will turn it to Umberto della Sala. Umberto.

Umberto della Sala

Okay, let us start with Ecopetrol. As you probably know we're executing the FEED/PMC contract for the Barrancabermeja refinery in Colombia, and we are finalizing opportunities for additional work on another refinery for the same client.

For the Vietnamese petrochemical project, we have received in the third quarter a full release to proceed with the FEED portion that they expected to be released in ’09. It is likely there could be additional releases going forward, and we believe we are well positioned to get additional work on this project.

The Far East refinery, we're executing part of EPC, which has been partially released, and we expect the full release of the balance of the work in the fourth quarter. Sorry, on the LNG project in Australasia we are awaiting client decision with FEED [ph]. Thank you Ray.

Ray Milchovich

Okay, Umberto. Turning to page 7, in terms of new orders in Foster Wheeler Scope in Q3, we had a light booking quarter as I mentioned earlier due to timing of client decisions on new orders. However, if you look at the bottom of a slide average quarter in 2009 versus average quarter in 2008 virtually identical in a market that we described as somewhat weaker than we enjoyed in early 2008.

Turning to page 8, Global E&C Group backlog in Foster Wheeler Scope, as you can see we’ve high-quality solid backlog, which even at the third-quarter booking rate is above the level of backlog that we had at the end of Q4 in 2008. Turning now to our Global Power Group in terms of Q3 performance, Q3 EBITDA of $40 million, a volume impact of 52% decline in Q3 scope revenue versus average quarter in 2008. However, that was in large part mitigated by excellent commercial and operating performance in the unit in Q3 with Q3 EBITDA margin on scope revenue of 19.4% versus 14.1% in the average quarter of 2008.

Turning to page 10, in terms of new orders in backlog in Q3 in Global Power, as we mentioned before, the market outlook remains unchanged. We continue to have a weak demand globally for solid fuel boilers. However, we continue to enjoy a very high capture rate when CFB projects proceed and we have two recent examples. The Konin 55 MWe biomass boiler in Poland, which was actually booked in Q3 and we have a twin boiler project in Vietnam. We received the award letter. The formal booking is expected in Q4.

Page 11, Global Power Group new orders in Foster Wheeler Scope, Q3 2009 was our best booking quarter since Q3 of last year, driven by the biomass boiler order in Poland, and you can see Q3 was the best booking quarter we’ve had in all of 2009.

Turning to page 12, Global Power Group backlog in Foster Wheeler Scope we stabilized at a level that is virtually identical to Q2 of ‘09 and with the Vietnam award that we expect in Q4, in large part we expect backlog exiting the year to be essentially consistent with where we are at the end of Q3.

Turning to page 13, we continue to enjoy a strong cash position in Q3 of ’09 as is shown on the chart, and then turning to page 14, looking at the quarter, in summary we enjoyed very solid performance in both business units. In terms of outlook, Global Power Group, we expect EBITDA margin on scope revenues to be in the 16% to 18% range for the full year. We expect weak boiler demand to continue into 2010, but we continue to enjoy a very high capture rate with CFB projects for SEED.

In Global E&C Group, we expect EBITDA margin on scope revenue to be between 21% and 23% for the full year. Our prospect list continues to be very robust, and we are very pleased with the booking success that we have had so far this year.

At this point we are prepared to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from Andy Kaplowitz with Barclays Capital.

Andy Kaplowitz - Barclays Capital

Hello.

Ray Milchovich

Hello Andy.

Andy Kaplowitz - Barclays Capital

Hello, can you hear me okay?

Ray Milchovich

We hear you just fine.

Andy Kaplowitz - Barclays Capital

Great, so Ray your margins in E&C have continued to be relatively stable and good. You know we continue to hear, you know, when you talk to people in the industry people talk about a little bit of competitive pressure, but you know your margins have been fine. So in general can we expect this sort of range of margins? I know you have given guidance going forward, and what are you seeing on the competitive side?

Ray Milchovich

Well, let me give an overall response, and I will ask Umberto for his perspective as well. I mean, I will go back to what I said in Q2, and what I repeated in Q3. Yes, we have a market today in E&C that is not as robust as it was in the first half of ’08. However, we are very happy with the bookings in terms of volume and in terms of margin that we booked so far this year.

Now, I mean yes, we have competitive pressure and our 2010 isn’t yet booked and it is going to be in large part dependent upon how we are able to book in Q4 and in the first half of 2010. But so far we are happy with that, and yes we have been able to stabilize margins at a very acceptable level. Umberto?

Umberto della Sala

Yes, the additional comment I would like to make is that these margins are driven by good execution. I believe that no only we book high quality work, but I think we execute very well. And we enjoy all the profit enhancement opportunities (inaudible). Okay, I just finished.

Andy Kaplowitz - Barclays Capital

Okay, and Ray and Umberto any change in sort of customer, I don’t know behavior in the quarter, you know, they see what is going on around us. We have seen GDP continue to tick-up globally slowly. You know are customers trying to get off the shelf a little bit more. Are they still in sort of a wait-and-see mode with some of these projects?

Umberto della Sala

Well, let us say that we see it a different behavior, if we compare international oil companies with the national oil companies. The international oil companies are taking more time in deciding whether to proceed with investment. It takes more time to go through value creating exercises, cost reduction exercises before the project is launched. We see, let us say more stable approach in the national oil companies. They proceed with the project, because probably the drivers are different. But I will say that we have not seen any major change with respect to the last quarter.

Ray Milchovich

Andy, let me add to that. I would say if I think about client thinking, a year ago, clients were concerned about two major factors, the economy and if they proceeded with a project given the inflation that has taken place in inputs that they were paying too much. I would say the change that has occurred in the last year is there is much less concern about the latter now, because we have actually seen prices come down on major inputs. And so we hear much less concern about that than we did a year ago. Today, I would say the analysis or the extended analysis in some cases, is do I want to proceed right now because of my economic outlook over the next near to medium term. I would say that is the only material change, I have seen in what I would call the customer decision-making process. Would you agree Umberto?

Umberto della Sala

Yes.

Andy Kaplowitz - Barclays Capital

Okay, that is fine. One more quick one if I could, Ray how do you feel about sort of your builddown in your upstream business. I know you made a small acquisition, and you know also I guess dovetailing with that is that diversification into North America, how do you feel about that?

Ray Milchovich

Well, I mean now that we have made the acquisition that we made, if we put this together with the position that we already had in upstream, we are now getting dangerously close to having critical mass such that we can put together a comprehensive approach to the marketplace, we can be a material factor to clients, and most importantly we are getting to the point where we have credibility to recruit additional resource organically versus having to do it via M&A.

So I would say that we're getting very, very close to critical mass. Now that does not mean that we won't continue to be active in M&A because we are very keen to grow this as a major business line, but as opposed to if you will, being in startup, which is where we were a year ago, I would say that we believe that we are getting very close to what I would call critical mass, and most importantly critical mass in the client eyes, especially given what we have announced of late.

Andy Kaplowitz - Barclays Capital

Okay, great. Thank you. I will get back in queue.

Ray Milchovich

Thank you Andy.

Operator

We will hear next from Barry Bannister with Stifel Nicolaus.

Barry Bannister - Stifel Nicolaus

Hi, could you give me the figures on Global Power mix in the sense that you did raise your GP scope margin guidance from 13 to 15 to 16 to 18. Were there any unusual incentive fees or is there a shift towards higher margin engineering and just less construction because of the fewer awards that were made for new boilers in recent years?

Ray Milchovich

I would say there are two major factors, Barry, that have impacted the margin guidance for the year, and what basically was the operating performance on the year. Number one, the guys in that business were having a simply outstanding year. Now what they are benefiting from is not only very good operating performance, but what we are seeing coming through now is the commercial performance that was in place when we booked the business, and it obviously takes time for that to flow through.

Combined with the a lot of the work that they are currently executing, and be mindful this is fixed-price business, was booked at a time that there were much higher input costs. So the estimating that was done was done with higher input costs, and now we are benefiting from the fact that when we were purchasing inputs for these projects, the actual purchasing that is taking place we are buying cheaper.

So given the fact this is a fixed-price business, we are benefiting from that. It is a combination of those two factors.

Barry Bannister - Stifel Nicolaus

Okay, and then a lot of analyst don’t seem to realize that Chilean and Italian joint ventures do flow through the equity earnings line of the two segments GPG and E&C. Could you give me the Chilean and the Italian equity earnings in the quarter?

Ray Milchovich

I can’t but perhaps Franco…

Franco Baseotto

Equity earnings in the quarter were relatively flat compared to the average of the previous year and the Chilean were bit below due to the electricity price reduction that we had in Chile, and you will find the usual breakdown in our Q. But equity earnings were more or less flat compared to the average of 2008.

Barry Bannister - Stifel Nicolaus

And lastly, if I could just squeeze it in, Pluto one is nearing completion. It has been executed very well. It looks like it is ahead of schedule and on or under budget, any chances of an award fee and what would be the due date for that project to complete?

Ray Milchovich

Okay, Barry, just to be specific, Pluto one is proceeding very, very nicely, but we are still ways away from what we would call the RFSU date. We are about a year away from that. And if I go to client disclosure, I think they are claiming first gas in early 2011, I believe, and so that is the timing. Now we're well into the project and we are well along and you are right. I believe it is safe to say that in the client side of the project has gone very, very well, but we are still a ways away from RFSU.

In terms of Pluto two feed award, we have been told and led to believe that it is likely that we will have a decision made in a matter of weeks. I'm meeting with a client this week, and I'm going to be in person two weeks, and I'm hopeful that we will have some new information then.

Barry Bannister - Stifel Nicolaus

I think it is going well. Thank you very much Ray.

Ray Milchovich

Thank you Barry.

Operator

We will hear next from Michael Dudas with Jefferies.

Michael Dudas - Jefferies

Good afternoon gentlemen.

Ray Milchovich

Hello Michael.

Michael Dudas - Jefferies

Ray, could you maybe characterize your current prospect list regarding to the mix of services and customers wanting the contract types, cost plus fixed-price and the customer mix, you have highlighted some of the NOC versus IOC mix. Is that something that we can look forward to as we move forward over the next 12 to 18 months when you look at the rolling prospect list for Foster Wheeler?

Ray Milchovich

I would suggest that we would respond to the question by business group, and that I ask Umberto to deal with E&C first, and I will ask Gary to deal with GPG second?

Michael Dudas - Jefferies

Thank you.

Ray Milchovich

Umberto?

Umberto della Sala

Okay. For E&C the majority of the prospects are in (inaudible). Few lifetime services and probably less than 5 potential (inaudible). But vast majority is steele [ph].

Ray Milchovich

Gary.

Gary Nedelka

Yes, the work in Global Power is almost full fixed price as opposed to reimbursable. And what we're seeing right now for our markets going forward is mostly work for new boilers would be outside of the United States, and obviously we are keen on promoting our CFP and biomass technology in those applications. And that is really mostly what we're looking at.

The other part that we are concentrating on heavily is services, you know, that being the aftermarket portion of the market with the absence of new boilers in the United States.

Michael Dudas - Jefferies

Gary, in terms of fixed price, and I agree with you, your characterization that the work is in large part fixed price. However, you do some design and supply and some design supply and erect. Fair?

Gary Nedelka

Yes, yes.

Michael Dudas - Jefferies

And any shifts there in terms of the distribution of those two or is that pretty much traditional with where we have been?

Gary Nedelka

It is staying pretty much where it has been. Generally speaking in Europe, design supply and erect, and in the US we’ve done some construction and erection work that has had reimbursable and target and bonus elements to it. And we pursue that on an opportunistic basis and done well with it.

Ray Milchovich

And the only thing I would say that Michael is we do erect, where we have got market experience, and we believe we can do it on a risk managed basis, and if we don’t then we take a design supply approach as opposed to an erection approach. And that has been a consistent approach that we have taken over the last handful of years. Okay?

Michael Dudas - Jefferies

Yes, and just maybe the customer mix, maybe on the E&C side of the prospect of that change dramatically?

Umberto della Sala

Well, in terms of -- not dramatically but certainly the recent switch as I said earlier in the direction towards some national oil companies mainly because of the time in national oil companies are taking to arrive to the investment decisions. So, yes, there has been a shift in that direction.

Michael Dudas - Jefferies

And one follow up Ray, given your burn in bookings rate in the boiler side, second half of the year into 2010, do you get the sense that the business is bottoming in here, and is there some reasonable leverage second half of ’10 into ’11 if GDP improves internationally that we can get some acceleration of some CFB decisions next year?

Ray Milchovich

First of all, it would appear though obviously we stabilized in Q3 with Q2, after a pretty significant reduction in backlog. Given the Vietnam award in Q4, essentially the assumption is we exit 2009 at about the Q2 level of backlog. Now, Gary believes that what we see in the market is some signs that we are going to see an up-tick in activity in the second half of 2010, assuming that takes place that is in large part going to be outside North America.

But that is fine. We're well positioned to capture that, and so basically if we can get through the first half of 2010, and it looks like that market continues to strengthen then we will have hit bottom at the, if you will, Q2, Q3, Q4 level. But that has got to continue to materialize. Fair Gary?

Gary Nedelka

Yes, I would agree with that.

Ray Milchovich

Yes.

Michael Dudas - Jefferies

Thank you Ray.

Ray Milchovich

And Mike, let me say this, the guys in GPG have done an excellent job rightsizing the business as we've gone through 2009, and I mean I think that shows in the operating performance that we have had in the business. I mean to have that 50% plus drop in revenue, and still have the performance that we’ve had, they have done just a very, very good job in managing the execution, and my assumption is that they will continue to do that until we get we get a market rebound.

Michael Dudas - Jefferies

Agreed. Thank you Ray.

Operator

We will hear next from Will Gabrielski with Broadpoint.AmTech.

Will Gabrielski - Broadpoint.AmTech

Thank you. Good afternoon. In Switzerland, couple of questions, Sasol, I'm curious what is going on with that framework agreement. We haven't really heard much since you have announced that, Sasol obviously has a pretty robust process. Are you guys doing work for Sasol right now? Is there something we can look forward to?

Ray Milchovich

Yes, you are referring to the announcement, which was recently made on the term agreement. No, they had different type of term agreement with different scope of services and the level of service. So that is not a surprise. There are many companies having -- let us say few companies having this term agreement that we belong to the first group of companies, which have a term agreement to perform a certain level of service, certain amount of service.

So, no surprise. We have good prospects for Sasol. I don't believe we can disclose much about it. But in our prospect list, we have certain very important prospects for this client.

Will Gabrielski - Broadpoint.AmTech

Okay, Ray, if we go back a few years, you were adamant about cleaning and in turning around the power business, and based on the margin performance you guys have clearly done that. Unfortunately you are running into a macro crisis with that, but clearly you have done something well there. When you look at the E&C business, have you done that similar level of turnaround there and do you feel like that that is executing as well as it can or do you still see opportunity there, the kind of levers where you did empower and put that streamline process into E&C?

Ray Milchovich

First of all, power guys are making me look really good. And secondly you put a little pressure on Umberto here. Let me say this, the E&C business was at a much better place when we started the whole turnaround, much better place. And Umberto did in my opinion, restructuring and costs rightsizing in that business well before we were able to get that done in power because we had a much better place to start with, and that work was work we did early on.

I mean, I think our E&C performance over the last number of years in terms of reliability, growth in earnings and margin performance speaks for itself. We had some heavy lifting to do in power that was much publicized, and we did that in ’06 and ’07, and frankly the guys running that business today have taken that as a basis and they have done very, very well for that.

Today, I mean in terms of operating and capturing what the market has to offer us, in my opinion, 2009 is without question the best year we have ever had. Now it is not a strong a market as we have enjoyed in ’07 and ’08, but in terms of achieving the full potential that the market has to offer in both businesses, without question 2009 is the best and smoothest performance that we have had in my tenure here.

Will Gabrielski - Broadpoint.AmTech

Okay, a couple of questions sort of all in one, in upstream, the companies you have acquired have ongoing front-end type contracts in place, and you are inheriting those. Are there EPC opportunities that may not have been available to the target companies that are now going to be available to Foster Wheeler and then what type of reaction are you getting from the big IOC, NOC, about your moving to upstream, and if you could so provide some color on that that will be very helpful?

Ray Milchovich

First, what is most important is when I meet with the people, I have done this now three or four times. When I meet with the people that lead the businesses that we have acquired, and I ask the question, what can you now do as part of Foster Wheeler that you just simply didn't have the bandwidth to do before?

They answer the question. So it is not us making the assertion of what we can do, they obviously forgot more about these businesses than we know yet, and they make a list of the things that they can do because they have the infrastructural EPC support here that they simply didn't have before.

And they put together plans that would show us what they think they can do with the aggregate business over the next three years, and the numbers are very, very impressive. And they have done that without a whole lot of prodding on our part. Now, in terms of client reaction, I think it is too early for us to -- remember, we haven't seen a major client reaction to that, nor do I think we should have expected that.

It is going to take some period of time, and there is going to be a lead and lag before the clients realize that we have got the bandwidth to perform and then what we're going to have to do is we have to book business gradually and increasingly in scope before we are recognized as a full-fledged upstream contractor with a full suite of services.

I fully expect that is going to take some time to prove, and that was our operating assumption going in. So I would say that other than the acquisitions taking longer than we had hoped, the process we expected to go through and the plan that we had to become a force in that business segment is progressing the way we had hoped. The only issue is we had hoped we could have done it faster than we have done it. That is the only negative surprise that we have had.

But the materiality of what we have accomplished, and what we think it is going to be able to grow into is the same as we had assumed.

Will Gabrielski - Broadpoint.AmTech

Okay, there is a weird echo. Lastly, if you could, when you look at your prospect list today, is there a scenario now where you are talking about a robust prospect list. Are you guys considering capacity constraints at this point if you're looking at 12 and 18 months when deciding which projects to bid on and where to really focus your energies right now? Are we not back to that level yet?

Ray Milchovich

No, we're not capacity constrained yet anywhere. Now what we're doing is we're making intelligent investments in, if you will, consolidating the growth gains that we are affected in 2005, 2006, 2007 and 2008, because let us say we grew very, very rapidly and we got pretty thin in terms of the overall managerial infrastructure to support the growth.

We are taking this period as an opportunity to invest back, if you will, consolidating the gains so that when the market moves again, and it will we're going to be ready to enjoy another growth spurt like we did in the previous market up-tick. And I’ve stated that before and we are working very, very hard on doing that. So I would say our work while the market has been off has been to intelligently book as much as we can and so far I think we have definitely done that and then to invest back in the overall supporting infrastructure so when the market strengthens again, and we believe that it will, then we’re going to be ready to -- we will be ready to take advantage of that, and that is the plan we are on.

Will Gabrielski - Broadpoint.AmTech

Okay, great. Congratulations on some of those management changes also this quarter. Looks really good. Appreciate it.

Ray Milchovich

Thank you, thank you.

Operator

We will hear next from Steven Fisher with UBS.

Steven Fisher - UBS

Hi, just on Vietnam, is that booking still about 440 MWe in total?

Ray Milchovich

I will defer to Gary. Gary?

Gary Nedelka

Yes, it is two units of 220 MWe each.

Steven Fisher - UBS

Okay, so the booking there should be quite a bit larger than what you had in Poland this quarter, right?

Gary Nedelka

Well, the booking always depends on what the level of scope is going to be which varies from client to client and geography to geography.

Steven Fisher - UBS

And the answer is no. The Vietnam booking is not materially larger than the Poland booking?

Umberto della Sala

Simply because the Vietnam booking is D&S. Design and supply. The Poland booking is an EPC [ph], design supply and direct to the boiler.

Ray Milchovich

Get back to the response I gave to Michael Dudas, we booked design and supply in some cases and design supply and erect in others, and it depends on our comfort with taking on erection risk in that geography. In Vietnam we did not. In Poland, we did.

Steven Fisher - UBS

Okay, that was helpful because I was thinking that if the backlog was going to be flat coming out of the quarter, then the revenues would have to ramp up pretty significantly in the fourth quarter on a bigger booking, but you know, maybe it is just going to be kind of flattish on the revenues.

Ray Milchovich

The booking is of relatively the same size.

Steven Fisher - UBS

Okay, that is helpful and then on the E&C side, I'll have a broad question, but wondering if you can rank and characterize the E&C geographies around the world in terms of FEED and EPC opportunities over the next year. Really wondering where you see the best opportunities at this point for both FEED and EPC?

Umberto della Sala

Well, certainly Middle East. EPC I would say Far East, and EPC I would also look at Latin America.

Steven Fisher - UBS

Okay…

Ray Milchovich

And I would add Australian LNG related FEED and EPC.

Steven Fisher - UBS

Okay, and then just one housekeeping, what were the E&C man hours and backlog in the quarter?

Ray Milchovich

One minute please.

Franco Baseotto

13.3 million.

Ray Milchovich

13.3 million.

Steven Fisher - UBS

Okay, great. Thanks a lot.

Ray Milchovich

Thank you.

Operator

We will take our next question from Chase Jacobson with Sterne Agee.

Chase Jacobson - Sterne Agee

Hi, guys. Thanks for taking my call.

Ray Milchovich

Thank you.

Chase Jacobson - Sterne Agee

I was just – you’ve talked a lot about the Ecopetrol, additional work in the past. I was just -- I've heard some grumbling that Foster Wheeler could get that project management on the (inaudible) side. I was just wondering if you could just provide any color on that?

Umberto della Sala

I don’t think we can provide much color on it. What I can tell you that it is certainly -- we know about the project, and we are working to see whether we can do some work in that refinery, but there should be some news really soon.

Chase Jacobson - Sterne Agee

Okay that is fair. Also just wanted to ask on the power side of the business, you had talked about opportunities in South America, and I believe that was listed as possible opportunities in past presentations, and I didn't see it in this one. I was just wondering if you still see opportunity there for CFBs, and if so is it on the utility side or on industrial applications?

Ray Milchovich

Gary.

Gary Nedelka

Sure. Actually we do still see a lot of opportunities in South America. The timing is of course going to dependent on the GDP growth in South America and how fast that rebounds. We are actually seeing these opportunities on both the industrial and the utility side. CFB is as large as 340 MWe are in the development stage for utilities and then smaller CFBs in the 50 to 100 MWe size. We are seeing opportunities in development for those on the industrial side.

Chase Jacobson - Sterne Agee

Okay and would that be a design and supply or EPC?

Gary Nedelka

Those are generally design and supply for Foster Wheeler in that area.

Chase Jacobson - Sterne Agee

Okay, thanks.

Operator

We'll hear next from Avi Fisher with BMO Capital Markets.

Avi Fisher - BMO Capital Markets

Hi. Excuse me. Good afternoon. On the Global Power side you had you know, not immaterial booking in the Middle East, an area where you haven't had much penetration. I wonder if you can talk a little bit about the Global Power opportunities there? Is that a big area for growth, was that a one-off?

Ray Milchovich

Gary.

Gary Nedelka

The bookings that we had in the Middle East were for oil and gas-fired large packaged boilers and for heat recovery steam generators, and the Middle East for power generation boilers. These are generally not solid fuel obviously in the Middle East, and solid fuel has been more of our niche and more of our expertise. So we pursue them actively but they've never been a real large part of our portfolio, and I would guess I would characterize these not as necessarily one-off, but maybe they stand out more during a period of low bookings than they would otherwise.

Avi Fisher - BMO Capital Markets

Got you, okay. And staying on global power, Ray given your comments to Barry, I was kind of surprised to hear that you take material price risk as the contract proceeds. I would think you'd sort of lock in price or lock in quantities at the start. I wonder can you give some color on that. I mean do you let the material price fluctuate over the course of the contract?

Ray Milchovich

Well, any time we estimate, anytime we estimate purchase price of commodities and we give a fixed price bid to a client, I mean we are exposed unless we hedge every commodity, which is completely unrealistic. Now, what we have to trust is the sophistication of the estimating process and the process that puts contingency into the bids so that they don't get ourselves exposed. I would suggest that if you look at our commercial performance since we got the commercial processes in both businesses where we wanted that we know how to do that pretty well.

Now, when that happens and you get material pricing, input price reductions like we've enjoyed it late you're going to get a windfall, and we’ve gotten that. Now, what we also do is we protect ourselves in the way up and we try to read the market and where we do fixed-price contracting I think we're able to do that pretty well, but it's in fairness, it's unrealistic to have every input hedged, when we give a bid to a client because the decision-making process around that with the client takes some period of time, and we have a bid validity period where that bid is open, and some of these commodities it's just simply I mean it's unrealistic to hedge.

I mean all the commodities that go into one of these fixed-price bids. So what you have to trust is that there is an adequate level of experience and sophistication in the estimating process so that a fixed-price contractor won't get themselves in trouble, and that's why we are very picky about where we authorize fixed price contracting to take place inside the company.

Avi Fisher - BMO Capital Markets

Okay. It sounds like it sounds like you tried to limit the exposure, and in this case where you're not able to limit it to benefit.

Ray Milchovich

Well, we limit the exposure. We risk adjust our approach, and what we don't do is we don't authorize fixed-price bidding, where we don't have a good experience base and sophistication in the estimating process. If we don't have a robust execution strategy, we don't authorize the bid. So, I mean…

Avi Fisher - BMO Capital Markets

Are contingencies coming down given that material pricing is coming down and just in general?

Umberto della Sala

Well, it depends on the bid validity and on the duration of the project. Because the last thing we want to see is to assume that the market will remain at this level for the next 12 to 18 months and then be caught in a pickup in the market. We have seen in 2004 and 2005, many contractors have lost money exactly because of that reason. So as Ray was saying we have a fairly sophisticated process, in which we run sensitivity on several items to arrive to the point of deciding, which contingency we need to…

Franco Baseotto

And I would also quickly add that in terms of execution in 2009, we were also unable to time the placement of some of this purchase order so that we could capitalize on lower commodity prices.

Ray Milchovich

Yes.

Franco Baseotto

That we’ve seen with execution part of the project rather than the bidding.

Ray Milchovich

But the specifics of your question, I wouldn’t assume that because input commodity prices are down that therefore we take contingency levels down, because implicit in that assumption would be that we assume for the life of the project the commodity prices are going to stay at that level and that would be a trap that we would put ourselves in and we simply wouldn't do that commercially. So we can’t assume that the market is going to stay where the market is for the life of the project, otherwise we run the risk of getting caught on procurement, and we don’t do that.

Avi Fisher - BMO Capital Markets

Okay. Finally, switching gears to consolidate results. You’ve been very good at shrinking your cost faster than revenues and the question is when you eventually start to grow revenues again, are you going to be able to sustain that, or growing revenues as your cost, or is there a period of time where costs have to grow faster to scale back up?

Ray Milchovich

No. Anytime the market is growing, we are adding capacity. We enjoy the benefits of what we refer to is overliquidation. I mean we in a down market, we right size cost and we think we know how to do that well because we’ve had to do that before and we've done that now. Now anytime the market picks up, you're going to see the benefits of over-liquidation just like we saw in '05 to '06, '06 to '07, and '07 to '08. We'll see that again providing we have the infrastructure to support the growth and we're making sure that we have that which is the comment I made earlier.

Avi Fisher - BMO Capital Markets

In '06 that you're growing your direct cost site, I mean not materially but slightly faster than revenues. So it sounds like there might be a little inflection point but otherwise you expect you could?

Ray Milchovich

Yes, I think we can.

Avi Fisher - BMO Capital Markets

Okay. All right, thanks for the questions.

Ray Milchovich

Thank you.

Operator

We'll hear next from Roger Read with Natexis Bleichroeder.

Roger Read - Natexis Bleichroeder

Hi, good morning.

Ray Milchovich

Good morning, good afternoon.

Roger Read - Natexis Bleichroeder

Good afternoon as the case may be.

Ray Milchovich

In Zug.

Roger Read - Natexis Bleichroeder

Actually just following up a little bit on that question about you know, how you deal with the hedging or the inability to hedge certain input costs, given that you've seen a lot of cost inflation go down. Would that imply that the kind of margins we've seen here, and that you've indicated you know would be the right way to look at the full-year '09 will be harder to achieve especially given projects are slower to get awarded, which means you might have a little more slow time in between projects as we look through for the most part of 2010 but maybe even early '11?

Ray Milchovich

Let's be specific. We've had a benefit in GBG because a fixed-price contracting we've seen commodity prices come down. That's only one of the reasons why the margins are up. The other reason is is because number one, the projects were booked. They were booked with very good commercial practices, and number two, the operating performance has been excellent.

As we look at the two things driving margins, number one, we have no expectation. It's commercial practices or the operating performance in GBG in 2010 and 2011 will be anything less than what we've enjoyed in 2009, depending we think it will be better. Now, will we enjoy the same opening up of margins related to purchasing price positive variances probably not, but it would be incomplete to assume that the only benefit we've gotten in GBG in '09 is the purchasing positive variance because that's only a factor in those margins.

Roger Read - Natexis Bleichroeder

Okay, and then kind of on those same lines. On a fixed-price contract what you are or are not able to hedge is a rough percentage. I mean I'm just trying to understand maybe the risk factors going forward more than what happened in terms of the benefits of the recent quarters. What is your -- what is the part you're not able to hedge for yourself?

Ray Milchovich

I don't know the answer to that and even if I answered it, it wouldn't -- in my opinion it wouldn't give you a true indication of the likelihood that we would continue to perform the way we’ve performed because it's not as simple as what we can hedge and what we negate on, because we have certain -- we have a whole list of suppliers that we are in alliances with. We get indicative bids before we bid to the client.

Those indicative bids from the alliance suppliers have validity dates. If the alliance software doesn't honor his bid he no longer becomes an alliance supplier. I mean we're -- so it's not just it's not just you get – you’re back to back hedged or you're completely negative. You're completely naked. There is a whole continuum of risk mitigation measures that are in the middle of that. So I just don't think that's the right way to look at, you know, the risk continuum inside a fixed-price contracting.

Roger Read - Natexis Bleichroeder

Okay. I think we have beaten that one enough. Non-operating question, share repurchases obviously didn't do any in the third quarter. It has been kind of a consistent move across the broader industries. Where do you go with that at this point?

Ray Milchovich

We just continue to evaluate it and deal with it on a case-by-case basis.

Roger Read - Natexis Bleichroeder

Okay, thank you.

Ray Milchovich

Thank you.

Operator

We'll go next to Joe Ritchie from Goldman Sachs.

Joe Ritchie – Goldman Sachs

Good afternoon everyone.

Ray Milchovich

Hello Joe.

Joe Ritchie – Goldman Sachs

Couple of quick questions for you. You know, Ray on your prospect list, you've done a great job over the last couple of years, booking at least one large project award. You look two years back and you booked Pluto. This past year you booked Paradip. You know, is there something in your prospect list for 2010 potentially that the investment community may not be focused on. And if so what's your degree of confidence in potentially booking that project?

Ray Milchovich

I defer to Umberto.

Umberto della Sala

Probably this one, which is -- it's a project which we never understand, because we never got the permission to do it. The project which we are working already, and which is one of the key prospects for 2010.

Joe Ritchie – Goldman Sachs

So it is a project that you're currently working on on the FEED portion side project already?

Ray Milchovich

Yes, and Joe knowing the one that Umberto just described. My comments would be there is at least one.

Joe Ritchie – Goldman Sachs

Okay.

Ray Milchovich

But it doesn't mean that we always have one. It just means, I mean coincidently today based on how we are positioned with clients, we have a couple what would be very large opportunities that could very well materialize in 2010. I would say it's not a function of -- that's not an exclusive strategy to always have one. It's basically positioning ourselves for awards, where we think we're the natural winner, and I would say that we have at least one where we think we have a high probability opportunity in 2010 to book.

Joe Ritchie – Goldman Sachs

Okay, and that is -- when you're talking about you know, large opportunity. It's an EPC project. Is there any color that you can give us on the end market, is it a downstream project?

Umberto della Sala

Downstream.

Ray Milchovich

Well, there's at least one in downstream. There are others that are midstream, and I'll say that to qualify this would be well over 1 million man-hours.

Joe Ritchie – Goldman Sachs

Okay, that's helpful. And in switching gears a little bit into Global Power. You know, notwithstanding that the strong bookings in power this quarter, you know, the market is still challenging and we’ve talked to the reason why your margins were so strong and why you've guided to strong full-year guidance on the EBITDA side as well. My question is really, you know, what's your expectation in your ability to maintain, you know, just double-digit EBITDA margins in 2010 given that you did have a light booking year in the power segment this year?

Ray Milchovich

In GBG?

Joe Ritchie – Goldman Sachs

Yes.

Ray Milchovich

I'm very comfortable we'll be well into double digits in 2010.

Joe Ritchie – Goldman Sachs

Okay, great and then one last question on GBG. For the awards you booked this quarter, how much of that was aftermarket work?

Ray Milchovich

I don't know if we have that.

Joe Ritchie – Goldman Sachs

You've been running at about you know, $80 million to $90 million or so over the last two quarters. Just curious if you have a sense for what it was.

Ray Milchovich

I don't know if we have that. Let me check with my colleagues here, Joe.

Franco Baseotto

I don’t think we disclose that, but it would have been materially different from the previous quarters.

Joe Ritchie – Goldman Sachs

Okay, great. Thanks everyone.

Ray Milchovich

Thank you Joe.

Operator

We'll hear next from John Rogers with D.A. Davidson.

John Rogers – D.A. Davidson

Hi. Good afternoon as well.

Ray Milchovich

Hello John.

John Rogers – D.A. Davidson

At this point up, I guess on couple of things you said earlier Ray, first of all, in terms of pricing in the market. I mean given more potentially 12 months from past peaks in terms of the frenzy of activity, do you think in your sense of the work you're executing now both on the E&C and the power side, the margins that you're realizing our consistent with the pricing that's in the market now?

Ray Milchovich

Umberto.

Umberto della Sala

Well, a good question. Now, first of all let me -- the margins, we get -- the results are a combination of work we have in the backlog, and work which has been booked months ago, work which has been booked very recently, and this started recently. So that's the first consideration we have to make when you look at the market. It is a fact that we see increasing pressure on the margins in the market, but these are natural baby [ph] of the market when you see the market going down with respect to the situation of the market in 2007-2008, but the only answer I can give you is that on average, if you look at the average performance, the margins we are getting reflect what we get on the market over the period.

Ray Milchovich

The only thing I would say John is I don't think what may not be fully appreciated is we obviously across the quarter we enjoy an aggregate margin.

John Rogers – D.A. Davidson

Right.

Ray Milchovich

But the distribution of specific margins on jobs within the aggregate. If you saw it would be much more diverse than I think you would think it is. So in other words, we have an aggregate margin. There may be some much lower margin business in there because we chose to take it for a variety of reasons but there also could be much higher margin business in there that aggregates to that average margin. So that makes it tougher to generalize, when we try to give you, you know, an answer to the question.

John Rogers – D.A. Davidson

Okay.

Ray Milchovich

I'll go back to say what I said before. Given the fact that '09's market is materially weaker than the beginning of '08 when you look at the volume we booked, and the quality that we booked in 2009, I'm very happy with what we booked and I think what we need to do is see how we're booking in Q4, and how we book you know, the first quarter or the first third of 2010 to get a picture of what 2010 looks like, because we think it's very possible this market breaks stronger in the second half of '10, but we'll see.

John Rogers – D.A. Davidson

But Ray you don't need appreciably better pricing in the market to sustain your current level of scope margins. Is that a fair statement?

Ray Milchovich

That's fair.

John Rogers – D.A. Davidson

Okay, okay. And then secondly, you talked about getting to critical mass or being on the verge of critical mass in the upstream market. And you also talked about being able to attract more people. Do you have other or other acquisitions potentially in the pipeline to get you there, especially relative to given your cash position, or is it your intent to grow it.

Ray Milchovich

Yes, the answer is yes to both. Yes we have other acquisitions in the pipeline that we are currently active on, and yes we are cranking up the pressure to grow organically, because we think we have the critical mass to do that. So the answer is yes to both.

John Rogers – D.A. Davidson

Okay. I mean right.

Ray Milchovich

We've got the cash, and quite frankly if we can get the operating leverage with additional acquisitions that we believe we're going to be able to get with the ones we’ve already made in terms of uplift. We're very anxious to put the cash to work to generate that level of EBITDA lift that we believe we'll be able to get in the 2 to 3 year period with what we already acquired.

John Rogers – D.A. Davidson

Okay, okay. One other just last question, tax rate going forward it was higher this quarter. Any comments on that?

Franco Baseotto

Well, 2009 we are going to be between 19% and 20% and that's is our effective tax rate.

John Rogers – D.A. Davidson

Okay. So that stays the same.

Franco Baseotto

Right.

John Rogers – D.A. Davidson

Thank you very much.

Ray Milchovich

Thank you John.

Operator

We’ll go next to Jeff Spittel [ph] with Pritchard Capital Partners [ph].

Jeff Spittel - Pritchard Capital Partners

Thanks. Good afternoon guys. I guess if we could revisit the dead horse question of the day one more time. Understanding that commercial practices and operating performance have been very good in the Global Power Group, and assuming those continue to be very good, when you look at what you have in the backlog today how close would you say you are to having the purchasing price variances favorably run their course this morning?

Ray Milchovich

We still have more to get.

Jeff Spittel - Pritchard Capital Partners

Okay. That's what I was looking for. And then switching over to the E&C Group, obviously we focus a lot on some of these larger high-profile projects. Could you talk about the singles and doubles business, the smaller opportunities out there and how that business has started to evolve over the last six months or so as things have stabilized a little bit?

Umberto della Sala

We have hundreds of projects going through the pipeline. So our performance and our destiny is not only linked to the big ones, but we also need these -- several small and medium-sized projects, which by the way enable us to maintain a stable workload in (inaudible), and from that point of view I think the pipeline is good. We still have many projects under execution, many small prospects in the pipeline. So from that point of view we have not seen any major change.

Jeff Spittel - Pritchard Capital Partners

Okay, great. Is it fair to say that there is potential there for that business to come back a little bit more quickly than some of the larger project opportunities or is that not necessarily the case?

Ray Milchovich

I wouldn't say that because I think investment decisions for small projects are much the same as large projects. They are manifestation of you know, the capital budget of the client, and the clients willingness to spend, the clients willingness to approve projects. So I wouldn't necessarily think it's easier or faster than large projects.

Jeff Spittel - Pritchard Capital Partners

Okay.

Ray Milchovich

But I would reinforce Umberto's point, we can't run this business on just big projects, because we can't efficiently use capacity that way. We have to have a suite of project sizes to be able to feed the machine in an efficient way.

Umberto della Sala

Absolutely.

Ray Milchovich

And we've got that, and we've got that. So --

Jeff Spittel - Pritchard Capital Partners

Great. Thanks guys. I appreciate it.

Ray Milchovich

Thank you.

Operator

We'll take a follow-up question from Barry Bannister with Stifel Nicolaus.

Barry Bannister - Stifel Nicolaus

You mentioned the tax rate, 19% to 20% this year, but since you moved to Switzerland there has been a change in the way tax is calculated from the prior country of incorporation. Would you talk about any possible changes in geographic mix that might affect the 2010 tax rate that would move it up or down appreciably from 19% to 20%?

Franco Baseotto

Barry, first the move to Switzerland did not imply any change in the way we calculate our effective tax rate for growth.

Ray Milchovich

Not at all Barry.

Franco Baseotto

In terms of our effective tax rate, and as you rightly said our tax rate is really very much impacted by geography in which earnings are generated, and I think it's a bit premature at this stage to give you guidance on the 2010 effective tax rate, even though I would be surprised if you're going to see any material differences compared to 2009.

Ray Milchovich

Yes.

Barry Bannister - Stifel Nicolaus

Okay, and then Middle East Economic Digest reports that by the way since you joined (inaudible) FEED that KBR [ph] has been replaced by Foster Wheeler specifically as project manager on the marine work, the tank farm, and the utilities and off-site packages. Is there any truth to that and if you are project manager, would you stand to be in line for the actual EPC work on those large projects?

Franco Baseotto

So I don’t know to which extent I can disclose information on this project Barry, and it is a fact that we are working there, but I don’t believe I'm allowed to tell you more than that.

Barry Bannister - Stifel Nicolaus

That's understandable. I'll just -- I'll follow up later, thanks. Bye.

Franco Baseotto

Thank you.

Operator

And we'll take our final question from Will Gabrielski with Broadpoint AmTech.

Will Gabrielski – Broadpoint AmTech

Sure. Thank you. Just one of the follow-up, I'm not sure if you guys talked about this, I've been hoping call to call. So I apologize, but on the acquisition from going forward excluding you know, the upstream business where you clearly focused. If I go back five years ago or six years ago now you had an environmental business, and that business has prospered under somebody else's control. I'm curious, you know, there was some news this quarter, you booked a water desal [ph] project in the Middle East. Is that a market you might want to get back into as a means of diversification?

Ray Milchovich

Yes, and let's remember we -- when we divested the environmental business, we did that and a couple other things just to gain runway to complete the restructuring.

Will Gabrielski – Broadpoint AmTech

No, under strategic --

Ray Milchovich

That was not a strategic driven move. That was a move to create enough runway to get the restructuring done. So is that a business that we would be interested in the future, the answer is absolutely. It is a good business line. I wish we're still at the business.

Will Gabrielski – Broadpoint AmTech

I understood. Is that something where you're focusing your energies now looking for prospects and ways to grow that business right now?

Ray Milchovich

Yes.

Will Gabrielski – Broadpoint AmTech

Okay, fair enough. You know, the question earlier on (inaudible), or excuse me the question earlier on mega projects for next year, if I exclude the Middle East petrochemical facility that some of us assume is (inaudible) and obviously there is an associated refinery there, which I think is what another question was referencing in terms of the PMC work. If I exclude that as there are one or more mega project opportunities in 2010.

Ray Milchovich

Oh, yes, yes.

Will Gabrielski – Broadpoint AmTech

Okay, great. And then lastly…

Ray Milchovich

And that assumes the market doesn't get any stronger than it is today.

Will Gabrielski – Broadpoint AmTech

Okay, fair enough. Is currency now helping you on bidding, on bids internationally versus some of the competitors, where it may have been a headwind over the last few quarters, obviously the dollars weakness recently?

Umberto della Sala

I wouldn't say that -- because it depends from where we bid, and which combination we used to bid, so no major impact.

Franco Baseotto

But I would say when we were referring to currency as a negative headwind, it was in the context of translation in our US GAAP account. We never intended to say that our bidding would hamper by currency movement, because like Umberto said we have offices in different countries, and therefore we can leverage our international presence in deciding what mix of work and therefore what mix of currency we can bid on. So it was really translation impact rather than anything that could negatively impact our operations.

Will Gabrielski – Broadpoint AmTech

Okay. I mean there is still one more question, if you guys don’t mind, but floating LNG, is that a market you feel you have the capabilities and you're well-suited to go after some of those opportunities, whether it is in South America, Australia, or wherever they may show up?

Ray Milchovich

Not at this time Will.

Will Gabrielski – Broadpoint AmTech

Okay. All right, great. Thank you.

Ray Milchovich

Thank you.

Operator

Ladies and gentlemen that is all the time we have for questions. I'll now turn the call back over to Ray Milchovich.

Ray Milchovich

Thank you. I'd like to thank everybody for joining us and appreciate your interest. Thank you very much.

Operator

Ladies and gentlemen that does conclude today's conference call. We'd like to thank you all for your participation.

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