Final Results

Babcock International Group PLC 18 June 2002 18th June 2002 BABCOCK INTERNATIONAL GROUP PLC Preliminary Results for Year ending March 2002 Contacts: Gordon Campbell - Chairman Bill Tame - Group Finance Director Babcock International Group PLC Telephone: 020 7282 2940 Until 14.00 thereafter 020 7291 5000 Ginny Pulbrook Rupert Steveney Citigate Dewe Rogerson Telephone: 020 7282 2945/2843 Preliminary Results for Year ending March 2002 Business Headlines • Transformation of Babcock into a support services group virtually complete • Results of the acquisition of the former Hunting Defence Services business exceeded expectations • Faslane contract for £350m concluded • Disposal of Materials Handling businesses almost complete with sales now less than 15% of turnover • Acquisition of SGI opens way into civil market • Order book now stands at £0.6 billion excluding SGI Financial Headlines • Turnover on continuing businesses increased by 17% to £359m • Operating profit (before goodwill and exceptional items) increased 54% to £14.9m (2001 £9.7m) • Earnings per share (before goodwill and non-operating exceptional items) 4.51p (2001 loss of 0.35p) • Dividends increased by 7.5% to 2.85p per share (2001 2.65p per share) • Loss before tax £13.9m (2001 loss of £7.3m) after exceptional charges and goodwill amortisation of £27.3m (2001 £20.5m) Commenting on today's results Babcock Chairman Gordon Campbell said 'I'm delighted with the 50% improvement in operating profit and that we have implemented so much of our strategy of becoming a dedicated support services business. We now have the building blocks in place to grow both turnover and earnings in our core businesses.' BABCOCK INTERNATIONAL GROUP PLC PRELIMINARY ANNOUNCEMENT OF RESULTS TO MARCH 2002 The year to 31 March 2002 saw Babcock make substantial strides towards becoming a dedicated support services business. The integration of the defence services business from Hunting plc, the confirmation of the partnering contract for facilities management at Faslane, and the disposal of the majority of the engineering businesses, resulted in a substantially changed business: one that is characterised by long-term contracts, a service approach, and a people, rather than fixed asset, based business. A further advance was announced two weeks ago with the acquisition of SGI for £21.3m. SGI is a supplier of facilities management services to the Ministry of Defence and the civil market. Group operating profit (pre-goodwill and exceptional items) increased by 54% to £14.9m on a turnover 4% lower at £423m. Turnover, however, for continuing businesses, increased by 17% to £359m. The changes in turnover reflect the disposal of the engineering businesses and the growth of the support services businesses, particularly as a result of the acquisition made in March 2001. To reflect the changed nature of the business, the results are reported under two main segments, Technical Services and Training and Support. In Technical Services, the results fell slightly despite an outstanding performance at the dockyard at Rosyth. In the prior year, excellent profits were made in the pipeline services business in the United States and these were not repeated in the year ending March 2002. Losses were incurred in the fast ferry design business, FBM. The Rosyth operation benefited from the completion of HMS Ark Royal and the residue of the submarine refit contracts. However, further business was booked with HMS Invincible, docking for its major refit, and the securing of the contract to refit five Type-23 frigates. The results were also enhanced by a further reduction in the cost base, which improves the long-term competitiveness of the Rosyth dockyard. Confirmation was also received of the contract to manage Her Majesty's Naval Base on the Clyde (Faslane and Coulport). This contract, valued at £350m over the next five years, will provide a very visible earnings stream over that period and it is expected to be extended in both scope and time. Under the Training and Support Sector we had a full year's contribution from HCS (the business purchased from Hunting plc) and the results were ahead of the projections at the time of the acquisition. HCS had a 100% success rate in contract renewals and submitted three major bids for PPP/PFI contracts with the Ministry of Defence worth some £6 billion, of which Babcock's share would be £3.3 billion. Of the engineering businesses, Railcare, the railway rolling stock refurbishment business, was sold in May 2001 and so eliminated a major loss-maker. The Material Handling businesses experienced very difficult trading circumstances but, despite this, the majority of the businesses were sold during the year, and of those that were retained, downsizing turned the early losses into a breakeven position in the final quarter with a modest improvement in the order book. These businesses will now comprise less than 15% of this year's Group turnover. It is expected that the remaining businesses should be sold during the next twelve months. This sale process, however, revealed that the carrying value of these businesses was unlikely to be recovered, and an exceptional charge of £25.2m was made to cover the restructuring of these businesses, the loss against book value of the sale of the businesses, and the elimination of the goodwill on the residual businesses. This, along with write-off of goodwill and interest charges, resulted in a loss before tax of £13.9m (2001 loss of £7.3m). At March 2002 the Group had a pension surplus under FRS 17 accounting of £93m after deferred taxation. The result is that the introduction of FRS17 will materially improve the Group balance sheet and, have little impact on profit before tax. The year ending in March 2002 was always going to be one of considerable change as we implemented the Group's strategy. The bulk of this programme is now completed and the next phase of expanding the Group's business has commenced. This will include the Faslane contract and the competition for further major Ministry of Defence contracts. It will also see our developing the non-military market, which will be accelerated by the recent acquisition of SGI. The Board's confidence in the future is reflected by a recommended final dividend of 1.75p/share giving a full year dividend of 2.85p/share, an increase of 7.5%. REVIEW OF OPERATIONS Technical Services The Technical Services segment includes the businesses which were previously described as BES and the pipeline services business of Eagleton in the United States. The BES group of businesses increased turnover slightly on the previous year and operating profits, pre-exceptionals and goodwill increased by 14%. This was due to an exceptionally good performance from the dockyard offset by a disappointing year in FBM, the fast ferry design and build unit. The dockyard at Rosyth completed the refit of HMS Ark Royal on time even with a 50% increase in the extent of the contract from its original inception. Despite the completion of the Ark Royal, the order book increased, with confirmation of refits for five Type-23 frigates and the commencement of the refit of HMS Invincible. HMS Invincible is scheduled to complete in November 2002 and will then be replaced by a larger contract to refit HMS Illustrious. This gives Rosyth a full order book for the next 2-3 years. In addition to the refit work, contracts were secured for new build. Five new vessels were completed for the RNLI for work on the River Thames, and building was commenced for six aircrew training vessels (three of which will be built in our facility in the Philippines) and for sixteen landing craft for the Royal Navy. In addition, the order for twenty-two Mega-3 rail freight wagons was confirmed and delivery will commence shortly. FBM had a particularly poor year, although the order book improved considerably in the final quarter. There remain many opportunities for FBM designed vessels, with the largest current opportunity being to upgrade bridge erection barges for the US Army. The operation in New Zealand, which provides services primarily to the New Zealand Navy, had an excellent year. At the end of the year the government confirmed its intention to award the management contract for the naval base on the Clyde (Faslane and Coulport) to Babcock. We anticipate this programme to commence around October 2002. 1,750 government employees will be transferred to Babcock and some 500 naval staff seconded. Babcock will be responsible for all the non-military activities on the naval bases except for security and the handling of nuclear weapons. The contract is worth £350m over the next five years and this is expected to be extended both in time and scope. The basis of the contract is that Babcock and the Ministry of Defence will share the cost savings that will be made. The pipeline services business of Eagleton in the United States saw profits decline after a spectacular previous year. However, this business, which is not dissimilar to one carried out in the United Kingdom for the Ministry of Defence, has solid underlying profitability and can make outstanding profits if a large contract is secured. This was the case in the year ending March 2001. Training and Support This segment comprises the HCS support services business acquired from Hunting plc in March 2001 and the business in Southern Africa. Because of the acquisition, sales increased significantly to £99m. HCS comfortably exceeded expectations in both turnover and profit despite a setback in the Acetech operation, which provides temporary and permanent maintenance personnel to major airlines, and other blue chip companies in a variety of segments. Acetech, of course, suffered badly after September 11 but began to recover towards year-end. The main business exceeded the forecast in the original Information Memorandum. HCS had 100% success in contract renewals or extensions. These renewals or extensions were achieved for the facilities management and engineering maintenance contract at RAF Lyneham, for the multi-activity contract at the RAF College, Cranwell, the flying and maintenance of the Royal Navy Hawks at Culdrose, and for a number of smaller contracts in the UK and Germany. During the year, bids were submitted for three major contracts, being the management of the Royal School of Military Engineering (RSME), the Airfield Support Services Project and the Armoured Vehicle Training Service. Babcock's share of these contracts, were they all to be won, would be worth in excess of £3.3 billion, over a 20-30 year period. The RSME bid is the most advanced and Babcock is now one of two short-listed companies bidding for this contract. The contract is expected to go to preferred bidder status before the completion of this calendar year. The costs of preparing these bids have been charged to the profit and loss account of HCS. Africa had a good year in terms of increased turnover, although the depreciation of the Rand against Sterling had a significant effect. The African operations traded profitably but margins are still lower than is desirable. This is expected to improve in the current year and sales are anticipated to grow further. Materials Handling The remaining Materials Handling businesses are the Marine business, which supplies ship-unloading systems, and Chronos Richardson, which supplies equipment for bagging and batching of powders. The Marine business had a poor year as orders continued to decline in the first half. However, an aggressive downsizing of the operation restored it to breakeven in the final quarter and the order book, going into the current financial year, was modestly better. Chronos Richardson struggled throughout the year but showed some improvement in the final quarter. Both these businesses remain for sale, although the Marine business will have to establish a profit record before this is achievable. Discontinued Businesses During the year we sold the wood handling business in Finland, the plasterboard dryer business in the United States and the major part of the Materials Handling segment, being the cement business based in Germany. Shortly after the year end we also sold the residual Materials Handling businesses in the United States. The Railcare business was also sold in May 2001 as announced in last year's Report and Accounts. These disposals comprised some 70% of the turnover in Materials Handling and Railcare and it is anticipated that, in the current year, the Materials Handling businesses will be less than 15% of the Group's turnover. The disposals, however, showed that the book value (including goodwill) of the Materials Handling businesses was above their realisable value. The goodwill of the residual Materials Handling businesses has, therefore, been written off. Summary and Prospects A very material change has been implemented in the past twelve months. The service side of the business has increased and the engineering side has been significantly reduced. Babcock is now clearly a supplier of support services and facilities management, mainly to the Ministry of Defence. This will provide a secure base-load to take the Babcock business forward, and Babcock will seek to grow the business by securing further contracts with the Ministry of Defence and by developing a civil arm. These markets are growing rapidly and Babcock is well placed to take its share of this growth. G A Campbell BABCOCK INTERNATIONAL GROUP PLC GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2002 Year ended Year ended 31 March 2002 31 March 2001 (as restated) Before Goodwill Before Goodwill goodwill and and goodwill and and exceptional exceptional exceptional exceptional items items Total items items Total £'000 £'000 £'000 £'000 £'000 £'000 Group turnover Continuing operations 358,861 - 358,861 305,755 - 305,755 Discontinued operations 64,123 - 64,123 135,286 - 135,286 ------------- ------------- ------------- ------------- ----------- --------- 422,984 - 422,984 441,041 - 441,041 ------------- ------------- ------------- ------------- ----------- --------- Cost of Sales (348,820) - (348,820) (359,344) (9,630) (368,974) Gross profit 74,164 - 74,164 81,697 (9,630) 72,067 Net operating expenses (59,236) (13,507) (72,743) (72,040) (4,689) (76,729) Continuing operations 15,426 (11,881) 3,545 15,825 (8,517) 7,308 Discontinued operations (498) (1,626) (2,124) (6,168) (5,802) (11,970) Group operating profit / (loss) 14,928 (13,507) 1,421 9,657 (14,319) (4,662) Share of operating loss of joint (529) - (529) (163) - (163) ventures and associates Loss on sale of operations - (13,798) (13,798) - (6,200) (6,200) ------------ ------------- ------------- ------------- ----------- --------- Profit / (loss) on ordinary activities 14,399 (27,305) (12,906) 9,494 (20,519) (11,025) before interest ------------ ------------- ------------- ------------- ----------- --------- Net interest and similar charges (1,004) 3,715 ------------ ---------- Loss on ordinary activities before (13,910) (7,310) taxation Tax on loss on ordinary activities (3,089) (1,215) ------------ ----------- Loss on ordinary activities after (16,999) (8,525) taxation Minority interest (143) 3,244 ------------- ---------- Loss for the financial year (17,142) (5,281) Dividends paid and proposed (4,168) (3,807) ------------- ---------- Retained loss for the financial year (21,310) (9,088) ======== ======= Earnings / (loss) per share - Basic (11.68)p (3.34)p - Diluted (11.66)p (3.31)p Earnings / (loss) per share before non-operating exceptional items and goodwill - Basic 4.51p (0.35)p - Diluted 4.50p (0.35)p BABCOCK INTERNATIONAL GROUP PLC GROUP RESULTS BY DIVISION FOR THE YEAR ENDED 31 MARCH 2002 Year ended 31 March 2002 Year ended 31 March 2001 Group operating profit Group operating profit Before Before goodwill and Goodwill and goodwill and Goodwill and operating operating operating operating Group exceptional exceptional Group exceptional exceptional turnover items items Total turnover items items Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations Technical Services 208,515 16,195 16,195 206,549 18,110 (267) 17,843 Training and Support 98,666 6,108 - 6,108 35,135 789 - 789 Materials Handling 51,680 (4,163) (1,626) (5,789) 64,071 (963) (9,804)(10,767) Unallocated costs and other - (2,714) (625) (3,339) - (2,111) - (2,111) income ----------- ----------- ------------- ---------- ----------- ------------- -------- ------ 358,861 15,426 (2,251) 13,175 305,755 15,825 (10,071) 5,754 Goodwill amortisation - - (9,630) (9,630) - - 1,554 1,554 ----------- ----------- ------------- ---------- ----------- ------------- -------- ------ Total continuing operations 358,861 15,426 (11,881) 3,545 305,755 15,825 (8,517) 7,308 ----------- ----------- ------------- ---------- ----------- ------------- -------- ------ Discontinued operations Discontinued operations 64,123 (498) (1,298) (1,796) 135,286 (6,168) (5,721)(11,889) Goodwill amortisation - - (328) (328) - - (81) (81) ----------- ----------- ------------- ---------- ----------- ------------ -------- ------- Total discontinued 64,123 (498) (1,626) (2,124) 135,286 (6,168) (5,802)(11,970) operations ----------- ----------- ------------- ---------- ----------- ------------- ------- ------- Group total 422,984 14,928 (13,507) 1,421 441,041 9,657 (14,319) (4,662) ----------- ----------- ------------- ---------- ----------- ------------- ------- ------- The turnover, not included above, relating to joint ventures was £1.6 million (2001: £3.6 million). The loss of £529,000 (2001: £163,000) from joint ventures and associates relates to the Technical Services segment. BABCOCK INTERNATIONAL GROUP PLC GROUP BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2002 As at March 2002 As at March 2001 (as restated) £'000 £'000 £'000 £'000 Fixed assets Intangible assets Development costs 1,236 1,507 Goodwill - Goodwill 66,670 88,279 - Negative goodwill (9,384) (14,916) 57,286 73,363 ----------- ----------- 58,522 74,870 Tangible assets 22,396 37,213 Investments Investments in joint ventures - Share of gross assets 1,831 2,548 - Share of gross liabilities (1,256) (2,069) 575 479 Investments in associates 600 537 Other investments 3,010 1,624 ------------- 4,185 ----------- 2,640 --------- ---------- 85,103 114,723 Current assets Stocks 15,143 27,975 Debtors - due within one year 71,441 98,806 Debtors - due after more than one year 68,810 81,181 ---------------- 140,251 ----------- 179,987 Cash and bank balances 14,142 25,228 ---------- ---------- 169,536 233,190 Creditors - amounts due within one year - Borrowings (22,129) (25,892) - Other (121,839) (173,399) ------------ (143,968) ------------ (199,291) Net current assets 25,568 33,899 ------------ ------------ Total assets less current liabilities 110,671 148,622 Creditors - amounts due after more than one year - Borrowings (457) (674) - Other (2,440) (1,868) -------------- (2,897) ------------- (2,542) Provisions for liabilities and charges (26,799) (37,221) ------------- -------------- Net assets 80,975 108,859 ------------ -------------- Capital and reserves Called up share capital 88,571 90,588 Share premium account 37,921 37,542 Capital redemption reserve 30,631 27,863 Profit and loss account (76,195) (50,357) ------------ ------------ Equity interests 80,928 102,868 Non-equity interests - 2,768 Minority interests 47 3,223 ----------- ----------- 80,975 108,859 ------------ ------------ BABCOCK INTERNATIONAL GROUP PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 MARCH 2002 Year ended Year ended 31 March 31 March 2002 2001 (as restated) £'000 £'000 Loss for the financial year (17,142) (5,281) Currency translation differences on foreign currency net investments and related (1,647) (649) loans ------------ ------------- Total recognised gains and losses relating to the year (18,789) (5,930) ------------ ------------- Prior year adjustment (4,522) - ------------- -------------- Total gains and losses recognised since last annual report and accounts (23,311) (5,930) ------------- -------------- BABCOCK INTERNATIONAL GROUP PLC RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 MARCH 2002 Year ended Year ended 31 March 31 March 2002 2001 (as restated) £'000 £'000 Shareholders' funds at start of year, as previously reported 110,158 143,932 Prior year adjustment (4,522) (3,102) ------------- ------------ Shareholders' funds at start of year, as restated 105,636 140,830 Total recognised losses relating to the year (18,789) (5,930) Shares issued in the year 1,017 3,356 Redemption of 'B' preference shares (2,768) (28,813) Dividends (4,168) (3,807) ------------- ------------- Net movement in shareholders' funds (24,708) (35,194) ------------- ----------- Shareholders' funds at end of year 80,928 105,636 -------------- ----------- The adoption of FRS 19: Deferred Tax has resulted in provision for additional deferred tax liabilities primarily in respect of pension prepayments, and the recognition of additional tax assets, primarily in respect of surplus ACT, accelerated capital allowances and short-term timing differences. The net increase required in the provision for deferred tax at 1 April 2000 was £3,102,000 with an equal reduction in the profit and loss reserve. In the year ended 31 March 2001 the tax charge increased by £1,420,000. This results in an increase in the provision for deferred tax of £4,522,000 at 31 March 2001 compared to that previously reported. BABCOCK INTERNATIONAL GROUP PLC SUMMARISED GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2002 Year ended Year ended 31 March 31 March 2002 2001 £'000 £'000 £'000 £'000 Cash inflow / (outflow) from operating activities 19,834 (10,977) Returns on investments and servicing of finance Net interest and similar charges (1,012) 3,895 Dividends paid to B shareholders (78) (1,400) ----------- ---------- Net cash (outflow) / inflow from returns on investment and servicing of finance (1,090) 2,495 Taxation UK corporation tax (paid) / received (2,273) 77 Overseas tax paid (1,128) (820) ----------- ------------ Net cash outflow from taxation (3,401) (743) Capital expenditure and financial investment Payments to acquire tangible fixed assets (6,665) (6,553) Payments to acquire own shares (1,387) (969) Payments to invest in joint ventures (707) (150) Receipts from sale of tangible fixed assets 270 509 ------------ ----------- Net cash outflow from capital expenditure and financial investment (8,489) (7,163) Acquisitions and disposals Payments to acquire subsidiary undertakings (7,434) (64,622) (Payments) / receipts on sale of subsidiary undertakings (6,473) 5,000 Net cash outflow from acquisitions and disposals (13,907) (59,622) Equity dividends paid (3,823) (4,335) -------------- ------------ Cash inflow / (outflow) before management of liquid resources and financing (10,876) (80,345) Management of liquid resources Cash placed on short term deposit (2,917) - Financing Shares issued for cash 1,017 3,356 Issue of shares by group to minority shareholders 3,200 - Redeemable preference shares redeemed ('B' shares) (2,768) (28,713) Increase in borrowings 14,006 7,207 Repayment of capital element of finance lease rentals (537) (399) ------------ ----------- Net cash inflow / (outflow) from financing 14,918 (18,549) -------------- -------------- Increase/(decrease) in cash in the period 1,125 (98,894) -------------- ------------ BABCOCK INTERNATIONAL GROUP PLC RECONCILIATION OF OPERATING CASH FLOW FOR THE YEAR ENDED 31 MARCH 2002 Year ended Year ended 31 March 31 March 2002 2001 £'000 £'000 Group operating profit / (loss) 1,421 (4,662) Depreciation 10,550 12,119 Amortisation of intangibles 271 264 Amortisation of goodwill 2,085 (1,473) Movement on working capital (2,455) (17,415) Other items 89 190 Impairment of goodwill 7,873 - ------------- ------------ Cash inflow / (outflow) from operating activities 19,834 (10,977) ------------- ------------ BABCOCK INTERNATIONAL GROUP PLC ANALYSIS OF THE CHANGES IN NET FUNDS FOR THE YEAR ENDED 31 MARCH 2002 At Acquisitions Other At 1 April New finance and non-cash Exchange 31 March 2001 Cash flow leases disposals changes movement 2002 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Cash and bank 25,228 (13,555) - - - (448) 11,225 balances Bank overdrafts (16,512) 14,680 - - - - (1,832) -------------- ------------ ------------- --------------- ---------- ------------ ------------ 8,716 1,125 - - - (448) 9,393 Debt (8,928) (14,006) - 1,698 1,214 2 (20,020) Finance leases (1,126) 537 (790) 454 191 (734) -------------- ------------ ------------- --------------- ---------- ------------ ------------ (10,054) (13,469) (790) 2,152 1,214 193 (20,754) Liquid resources - 2,917 - - - - 2,917 -------------- ------------ ------------- --------------- ---------- ------------ ------------ Total (1,338) (9,427) (790) 2,152 1,214 (255) (8,444) -------------- ------------ ------------- --------------- ---------- ------------ ------------ NOTES 1. The financial information set out above does not comprise the Company's statutory accounts. Statutory accounts for the previous financial year ended 31 March 2001 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237(2) and (3) of the Companies Act 1985. The accounting policies have all been applied consistently throughout the year and the preceding year, with the exception of the change in Accounting Policies for FRS 19 - Deferred Tax. 2. The Board approved the Annual Report on the 17 June 2002. The auditors have given an unqualified opinion on the accounts for the year ended 31 March 2002 which will be delivered to the Registrar following the Annual General Meeting. 3. Earnings per share is calculated on the following average number of shares: 2002 2001 146,763,944 158,325,306 4. The Board has recommended a final dividend of 1.75p per share which, subject to shareholders' approval, will be paid on 9 August 2002 to those on the register at the close of business on 12 July 2002. 5. The Annual General Meeting will be held on 26 July 2002 at 11.00 a.m at The Berkeley Hotel, Wilton Place, Knightsbridge, London SW1X 7RL. Copies of the 2002 Report and Financial Statements will be sent to shareholders on or before 4 July 2002 and will be available from the registered office of the Company, 2 Cavendish Square, London W1G 0PX. This information is provided by RNS The company news service from the London Stock Exchange

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