Final Results
Babcock International Group PLC
12 June 2003
Thursday 12 June 2003
BABCOCK INTERNATIONAL GROUP PLC
2002/3 PRELIMINARY RESULTS
Babcock International Group PLC, the Support Services company, announces its
preliminary results for the year ending 31 March 2003.
2002/3 2001/2 % Change
Sales (1) £409m £327m +25%
Operating Profit (2) £22.9m £15.9m +44%
Profit before tax £13.4m (£13.9m)
Earnings per share (3) 8.91p 4.58p +95%
Dividend 3.00p 2.85p +5.3%
(1) Before discontinued operations (2003: £14.5m, 2002: £96.1m), (2) Before operating exceptional items
(2003: £nil, 2002: £11.4m), goodwill amortisation (2003: £1.9m, 2002: £2.1m) and discontinued operations
losses (2003: £2.1m, 2002: £1.0m), (3) Before exceptional items and goodwill amortisation
Business Highlights:
• Transformation to a Support Services company essentially complete
• Major contract wins including NPPO and SLAM, and announced as sole
bidder for RSME contract*
• Naming of Rosyth as one of the yards to be involved in the building of
the new aircraft carriers
• Successful start of contract to manage HM Naval Base Clyde
• SGI acquisition successfully completed and business integrated
• Disposal programme of Materials Handling business nearing completion
• Long term order book of £640m
Commenting, Gordon Campbell, Executive Chairman, said:
'This strong set of results reflects our strategy to focus on support services
activities. During the year we won a number of significant contracts and are
well placed in the process for many others. Babcock can now take advantage of
secure long-term contracts which should see earnings grow consistently over the
foreseeable future.'
* NPPO (Non-Project Procurement Organisation), SLAM (Single Living Accommodation
Modernisation), RSME (Royal School of Military Engineering)
Contact: Gordon Campbell, Executive Chairman
Bill Tame, Finance Director
Babcock International plc
Telephone: 020 7269 7291 (am); 020 7291 5000 (after 3pm)
Andrew Lorenz
Richard Mountain
Financial Dynamics
Telephone: 020 7269 7291
CHAIRMAN'S STATEMENT
Babcock's transformation to a Support Services company is essentially complete.
The core service-oriented businesses have grown, while the non core businesses
are being, or have been, disposed. During the second half of the year ending
March 2003, the Support Services turnover grew to £222m from £148m in the
equivalent six months of last year (an increase of 50%), and accounts for 93% of
continuing turnover for the second half.
The majority of the Support Services turnover growth came from new contract wins
during the year, augmented by the acquisition of the SGI business whose purchase
was concluded in June 2002. The largest contract secured during the period, to
manage Her Majesty's Naval Base Clyde, commenced on 1 September 2002. New
contracts were also secured from the Ministry of Defence for non-project
procurement, and the joint venture, with Bovis Lend Lease, won the contract to
construct and maintain the new single living accommodation for the Armed Forces
(SLAM). In February 2003 a Babcock-led consortium was named as the sole bidder
for the management of the Royal School of Military Engineering (RSME) and Rosyth
was named as one of the four yards which will be involved in the building of the
new aircraft carriers, a programme which goes through to 2015.
Operating profit before goodwill and operating exceptional items increased to
£20.8m (2001/2 £14.9m) whilst the equivalent figure for continuing operations
increased to £22.9m (2001/2 £15.9m). Group operating profit after these items
was £18.9m (2001/2 £1.4m).
Profit before tax was £13.4m compared to a loss in 2001/2 of £13.9m, there being
no operating exceptional items in the year ending March 2003. Earnings per
share were 5.72p (2001/2 a loss of 11.86p per share).
The Board is recommending a final dividend of 1.85p per share, giving a total of
3.0p per share for the year - an increase of 5.3%.
Net debt increased to £37m (March 2002 £8m), mainly as a result of the purchase
for £22m of SGI, and cash inflow from operations declined to £11.3m from £19.8m
in 2001/2. The on Balance Sheet pension surplus was £71.3m, but the FRS17
surplus fell to £2.3m. Such is the volatility of FRS17 statements that had the
valuation been carried out a month later, the surplus would have been £20.8m
higher.
OPERATIONS REVIEW
Over the last two years, Babcock has been transformed from an Engineering
conglomerate into a focused Support Services business, undertaking activities
which add more value to the markets they serve and the type of business offering
that is made. In the last two years, 36% of the turnover that existed at the
beginning of that period has been sold and has been replaced by organic growth
and acquisitions.
The results are now reported in two core sectors. The first is Technical
Services, which was primarily the Rosyth Dockyard, but which is now managed as
four semi-autonomous business units; Naval Refit, Fabrication, Design &
Technology and Logistics. These businesses will be essentially stand-alone
operations, enabling them to focus on new opportunities and to develop business
in addition to the traditional Rosyth activities. Technical Services also
includes Eagleton - the oil and gas pipeline service business in North America,
FBM - the fast ferry business, Babcock New Zealand - which operates the Naval
dockyard in that country, and MEF - a naval refit business on the South Coast
which specialises in servicing the Royal Fleet Auxiliary. The second sector is
Training and Support, which is subdivided into three business areas. These are
Babcock Defence Services (BDS), Babcock Naval Services (BNS) - which is the
operation now running Her Majesty's Naval Base Clyde, and Babcock Infrastructure
Services (BIS) which includes the recently acquired SGI business and operations
in Southern Africa.
Because of the rapidly changing shape of Babcock, the turnover for the second
half of 2002/3 is more indicative of the business going forward. In this second
half, sales for Training and Support overtook those of Technical Services.
Training and Support increased sales to £115m (in the second half of 2002/03)
compared to £49m (in the second half of 2001/2). Materials Handling declined to
7% of turnover in the second half. The group is now characterised by long-term
order books, currently standing at some £640m, and a secure customer base, with
the Ministry of Defence comprising approximately 70% of turnover. Babcock has
significant growth opportunities which are effectively secured, but which are
not included in the current order book as final contracts have not yet been
signed. The business is now dependent upon the skills of our people, and the
delivery of high quality service, whether in the delivery of refitted aircraft
carriers on time and on budget, achieving outstanding availability performance
for 100 Squadron's Hawks, or keeping the London Magistrates' Courts operating
smoothly.
Technical Services
Technical Services maintained operating profits of £16.3m despite a 5% fall in
turnover. The turnover was expected to be lower as the contract for the
refitting of HMS Invincible was smaller than that of HMS Ark Royal which
preceded it and, indeed, for HMS Illustrious which will follow it. The HMS
Illustrious programme runs through to the end of 2004 and will provide a secure
base-load during that period. Babcock's work on HMS Invincible maintained
Rosyth's reputation for delivering on time and on budget and this vessel was
duly returned to the Navy in January 2003. Work also continued, with equal
success, on the programmes to refit the Type-23 Frigates and a number of smaller
warships.
The new operating structures based around Rosyth will facilitate the winning of
business outside the traditional naval work. This will be particularly true in
Design & Technology and Fabrication where success has already been achieved.
Equally, the winning of the £100m contract to purchase and supply electrical and
electronic components for the Ministry of Defence in its Non-Project Procurement
programme is an example of Rosyth's skill base being transferred into a new
area.
After much hard work, Rosyth was named as the preferred assembly site for the
new aircraft carrier programme. This, plus associated design and fabrication
work, should provide Rosyth with a secure base-load going through until 2015.
However, there is likely to be a gap between the end of the allocated refit
programme and the commencement of work on the new carriers, and a major target
for Rosyth will be to win additional work from the Royal Navy to bridge this
gap.
MEF was acquired in August 2002 and provides a Southern Coast maintenance
facility. MEF is working with Rosyth to develop the business, and initial
results from MEF are very encouraging. The fast ferry design house, FBM, has
refocused its activities on design and licensing rather than on manufacturing
and, as a consequence, the results improved quite markedly. However, the
performance is still not satisfactory and a higher level of activity is
required.
As a result of the disruption in the US energy market Eagleton had a challenging
year, however it has started the current year with stronger prospects.
New Zealand had a satisfactory year and the contract to manage the New Zealand
naval refit facility continues.
Training and Support
The partnership to manage Her Majesty's Naval Base Clyde (at Faslane and
Coulport) started on 1 September 2002. This five year £400m partnership
contract, with an option to renew for a further two years, is believed to be the
largest service contract awarded by the Ministry of Defence. Some 1,750
Ministry of Defence staff have been transferred to Babcock and a further 500
naval employees seconded. The contract is based on targeted cost savings, and
the sharing of the savings realised above that figure. Good progress has been
made towards achieving these cost savings and there is confidence they can be
achieved well within the five year target. The contract is expected to yield
between 5-6% return on sales over its lifetime, although a more conservative
margin has been assumed in the first seven months.
BDS is essentially the business acquired in March 2001 and, on a level turnover,
increased profits by 18% over the previous year. A major success was achieved
by securing sole bidder status to manage the Royal School of Military
Engineering (RSME). This business will be worth £30m per annum over a thirty
year period to BDS, thus increasing its turnover by some 50%. We are confident
of meeting the affordability targets set by the Ministry of Defence and, in so
doing, should move to preferred bidder status. The increase in turnover is
unlikely to occur before the beginning of 2004. Elsewhere BDS had a 100%
success rate in its rebids although, as a result of circumstances outside its
control, two of the rebids will be at a lower level than in the past. In
particular, the very significant reduction of the British Army's presence in
Kosova will see that contract effectively being completed, but there has been
success in replacing some of that turnover by similar contracts in Afghanistan,
and with NATO in the Balkans. We are in the final groups of bidders for both
the Armoured Vehicle Training System (AVTS) and Airside Support Services Project
(ASSP). Winning either of these contracts would provide a significant boost to
revenue and profits.
BIS comprises the business acquired as SGI in June 2002 and Babcock's South
African operation. SGI provides estate management for the Ministry of Defence
and for non-military activities. It has already won two significant bids. The
Single Living Accommodation Modernisation (SLAM) contract provides for Babcock
to maintain the new facilities for the Armed Forces. This contract was won in a
joint venture with Bovis Lend Lease which will provide the construction
capability. Recently, the project to manage the accommodation requirements for
the construction of Terminal 5 was awarded to BIS, and a bid has been submitted
for the South West Regional Prime contract expected to be let by Defence
Estates. In addition to these major contract wins, SGI has performed in line
with expectations.
Babcock Africa had an exceptional year, with sales up 45% and profits doubling.
The growth came mainly from the agency for Volvo heavy construction vehicles,
and as the service element of this business increases, the margins should
increase to a more acceptable level.
Materials Handling/Discontinued Businesses
In the year, the sale of the cement handling business in America was completed
and the Chronos Richardson packaging operation was sold. The sale process for
Chronos inevitably affected the operating results as management's attention was
distracted, and the business made heavy losses until its sale in November 2002.
The marine business, which made heavy losses in 2001/2, was turned around and is
now operating at breakeven. The intention remains to sell this business, once a
satisfactory record of performance has been established. The extent of the
disposal programme is highlighted by the discontinued line in the Annual
Accounts which shows a reduction in turnover of £81m.
Summary and Prospects
The transformation of Babcock is almost complete, as recognised by the FTSE
Index reclassifying Babcock as a Support Services business in December 2002.
Continuing businesses grew sales last year by 25% to £409m and in the coming
year, the Materials Handling sector, even if its sale is not complete, is likely
to account for less than 5% of turnover. With the contracts we have already won
and those likely to move to financial close in the current year, the prospects
for further growth are good. With SLAM and RSME either secured or at sole
bidder stage, revenue growth in 2004 is assured. Winning any of the Regional
Prime Contracts, AVTS or ASSP, all of which are well into the bid process, will
provide a further significant boost. Equally, the carrier programme will
provide a solid base-load at Rosyth from 2006.
The group is well placed to take advantage of secure long-term contracts which
should see earnings grow consistently over the foreseeable future.
BABCOCK INTERNATIONAL GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED
31 MARCH 2003
Year ended Year ended
31 March 2003 31 March 2002
Before Before
goodwill Goodwill goodwill Goodwill
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total
£'000 £'000 £'000 £'000 £'000 £'000
Note
Group turnover
Continuing 389,968 - 389,968 326,846 - 326,846
operations
Acquisitions 18,985 - 18,985 - - -
408,953 - 408,953 326,846 - 326,846
Discontinued 4 14,549 - 14,549 96,138 - 96,138
operations
3 423,502 - 423,502 422,984 - 422,984
Group operating profit
Continuing 21,619 (1,013) 20,606 15,909 (11,171) 4,738
operations
Acquisitions 1,323 (873) 450 - - -
22,942 (1,886) 21,056 15,909 (11,171) 4,738
Discontinued 4 (2,129) - (2,129) (981) (2,336) (3,317)
operations
3 20,813 (1,886) 18,927 14,928 (13,507) 1,421
Share of operating loss of
joint ventures and (143) - (143) (529) - (529)
associates
Loss on sale of operations - (2,740) (2,740) - (13,798) (13,798)
Profit/(loss) on ordinary
activities before interest 20,670 (4,626) 16,044 14,399 (27,305) (12,906)
Net interest and similar (2,667) (1,004)
charges
Profit/(loss) on ordinary activities
before taxation 13,377 (13,910)
Tax on profit/(loss)
on 7 (5,087) (3,089)
ordinary activities
Profit/(loss) on ordinary
activities after taxation 8,290 (16,999)
Minority interest (7) (143)
Profit/(loss) for the
financial period 8,283 (17,142)
Dividends paid and
proposed 9 (4,337) (4,168)
Retained profit/(loss) 3,946 (21,310)
for the financial period
Earnings/(loss) per share 8
- Basic 5.72p (11.86)p
- Diluted 5.69p (11.84)p
Earnings per share before
non-operating exceptional
items and
goodwill 8
- Basic 8.91p 4.58p
- Diluted 8.87p 4.57p
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
AS AT 31 MARCH 2003
As at As at
31 March 2003 31 March 2002
£'000 £'000
Note
Fixed assets
Intangible assets
Development costs 969 1,236
Goodwill
- Goodwill 84,052 66,670
- Negative goodwill (6,473) (9,384)
77,579 57,286
78,548 58,522
Tangible assets 16,478 22,396
Investments
Investments in joint ventures
- Share of gross assets 1,405 1,831
- Share of gross liabilities (1,822) (2,119)
- Loans to joint ventures 775 863
358 575
Investments in associates - 600
Other investments 3,953 3,010
4,311 4,185
99,337 85,103
Current assets
Stocks 23,447 15,143
Debtors - due within one year 88,649 71,441
Debtors - due after more than one year 69,611 68,810
158,260 140,251
Cash and bank balances 12 12,715 14,142
194,422 169,536
Creditors - amounts due within one year
- Borrowings 12 (31,129) (22,129)
- Other (128,851) (121,839)
(159,980) (143,968)
Net current assets 34,442 25,568
Total assets less current liabilities 133,779 110,671
Creditors - amounts due after more than one year
- Borrowings 12 (18,796) (457)
- Other (191) (2,440)
(18,987) (2,897)
Provisions for liabilities and charges (27,395) (26,799)
Net assets 87,397 80,975
Capital and reserves
Called up share capital 88,876 88,571
Share premium account 38,068 37,921
Capital redemption reserve 30,631 30,631
Profit and loss account (70,238) (76,195)
Equity interests 87,337 80,928
Non-equity interests - -
Shareholders' funds 87,337 80,928
Equity minority interests 60 47
87,397 80,975
BABCOCK INTERNATIONAL GROUP PLC
SUMMARISED GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2003
Year ended Year ended
31 March 2003 31 March 2002
£'000 £'000
Notes
Cash inflow from operating activities 10 11,262 19,834
Returns on investments and servicing of finance (2,520) (1,090)
Taxation (3,041) (3,401)
Capital expenditure and financial investment (2,946) (8,489)
Acquisitions and disposals (26,740) (13,907)
Equity dividends paid (4,196) (3,823)
Cash (outflow)/inflow before management of liquid (28,181) (10,876)
resources and financing
Management of liquid resources (181) (2,917)
Financing 20,676 14,918
(Decrease)/increase in cash in the period 12 (7,686) 1,125
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 MARCH 2003
Year ended Year ended
31 March 2003 31 March 2002
£'000 £'000
Profit/(loss) for the financial period 8,283 (17,142)
Currency translation differences on foreign
currency 2,011 (1,647)
net investments and related loans
Total recognised gains and losses 10,294 (18,789)
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 MARCH 2003
Year ended Year ended
31 March 2003 31 March 2002
£'000 £'000
Shareholders' funds at start of period 80,928 105,636
Shares issued in the period 452 1,017
Redemption of 'B' preference shares - (2,768)
Total recognised gains and losses 10,294 (18,789)
Dividends (4,337) (4,168)
Net movement in shareholders' funds 6,409 (24,708)
Shareholders' funds at end of period 87,337 80,928
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2003
1 Basis of Preparation
The financial information set out above does not comprise the Company's
statutory accounts. Statutory accounts for the previous financial year ended 31
March 2002 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.
2 Board Approval
The Board approved the Annual Report on the 11 June 2003. The auditors have
given an unqualified opinion on the accounts for the year ended 31 March 2003,
which will be delivered to the Registrar following the Annual General Meeting.
3 Segmental analysis
Year ended 31 March 2003 Year ended 31 March 2002
Group Group Goodwill Group Group Group Goodwill Group
turnover operating operating turnover operating and operating
£'000 profit £'000 profit £'000 profit operating profit
before £'000 before exceptional £'000
goodwill goodwill items
and and £'000
operating operating
exceptional exceptional
items items
£'000 £'000
Continuing operations
Technical 199,145 16,279 - 16,279 208,515 16,195 - 16,195
Services
Training and 178,800 10,058 - 10,058 98,666 6,108 - 6,108
Support
Materials 31,008 (19) - (19) 19,665 (3,680) (1,024) (4,704)
Handling
Unallocated
costs and - (3,376) - (3,376) - (2,714) (625) (3,339)
other income
408,953 22,942 - 22,942 326,846 15,909 (1,649) 14,260
Goodwill - - (1,886) (1,886) - - (9,522) (9,522)
amortisation
Total
continuing 408,953 22,942 (1,886) 21,056 326,846 15,909 (11,171) 4,738
operations
Discontinued 14,549 (2,129) - (2,129) 96,138 (981) (1,900) (2,881)
operations
Goodwill - - - - - - (436) (436)
amortisation
Total
discontinued 14,549 (2,129) - (2,129) 96,138 (981) (2,336) (3,317)
operations
Group total 423,502 20,813 (1,886) 18,927 442,984 14,928 (13,507) 1,421
The turnover, not included above, relating to joint ventures was £0.6m (2002:
£1.6m), and the loss of £143,000 (2002: £529,000) from joint ventures and
associates relate to the Technical Services segment.
The group made two acquisitions during the year ended 31 March 2003. The
business and certain assets of Service Group International Ltd were purchased on
19 June 2002. This business is included in the Training and Support segment and
has contributed turnover and operating profit of £15,172,000 and £894,000
respectively. The shares of MEF were acquired on 2 August 2002. This business
is included in the Technical Services segment and has contributed turnover and
operating profit to £3,813,000 and £429,000 respectively.
4 Discontinued operations
Discontinued operations comprise the BMH Chronos Richardson Group, and the BMH
Americas business.
5 Operating exceptional items
Operating exceptional costs of £nil (2002:£11.4m) have been incurred to 31 March
2003.
6 Loss on sale of operations
A loss on sale of operations of £2.7m (2002: £13.8m) has been incurred to 31
March 2003. This represents the loss on the sale of the BMH Chronos Richardson
Group to PremierTech in November 2002. The loss on sale in 2002 includes a loss
of £12m on the disposal of Materials Handling businesses and a provision for
£1.8m for a loss on the disposal of business and assets of the remaining cement
operations of the Materials Handling division, based in the US.
7 Taxation
The effective rate of tax in respect of continuing profits before goodwill is
26%. This is lower than the statutory 30% due to the net effect of prior year
items, utilisation of overseas tax losses for which no deferred tax asset has
been recognised and the difference between the UK rate and the effective
overseas rate.
8 Earnings/(loss) per share
The basic earnings/(loss) per share has been calculated on the profit for the
period of £8,283,000 (2002: loss of £17,142,000) and the weighted average number
of ordinary shares in issue throughout the period of 144,812,194 (2002:
144,533,767).
The diluted earnings/(loss) per share has been calculated after taking account
of 5,924,975 dilutive share options where the exercise price is less that the
average market price of the company's own shares during the period.
The basic and diluted earnings/(loss) per share before non-operating exceptional
items and goodwill have been calculated using the same weighted average number
of ordinary shares in issue as above and after adjusting for goodwill
amortisation of £1,886,000 (2002: £9,958,000) and the loss on the sale of
operation of £2,740,000 (2002: £13,798,000).
Last year's average share numbers have been revised to eliminate the shares held
by the Babcock Employee Share Trust.
9 Dividends
A dividend of 1.85p per 60p ordinary share (2002: 1.75p per 60p ordinary share)
will be paid, subject to shareholders' approval, on 8 August 2003 to
shareholders registered on 11 July 2003. An interim dividend of 1.15p per 60p
ordinary share (2002: 1.10p per 60p ordinary share) was paid on 24 January 2003.
10 Reconciliation of operating profit to cash flow from operating
activities
Year ended Year ended
31 March 2003 31 March 2002
£'000 £'000
Group operating profit 18,927 1,421
Depreciation and amortisation charges 10,977 12,906
Movement on working capital (18,674) (2,455)
Impairment of goodwill - 7,873
Other items 32 89
Cash inflow from operating activities 11,262 19,834
11 Movement in net funds
Year ended Year ended
31 March 2003 31 March 2002
£'000 £'000
(Decrease)/increase in cash in the period (7,686) 1,125
Increase in liquid resources in the year 181 2,917
Cash flow from the increase in debt and lease financing (20,224) (13,469)
Change in net funds resulting from cash flows (27,729) (9,427)
Loans and finance leases (acquired)/disposed of with
subsidiaries (78) 2,152
New finance leases (640) (790)
Loan from minority shareholders in subsidiary capitalised - 1,214
Foreign currency translation differences (319) (255)
Movement in net debt in the period (28,766) (7,106)
Net debt at the start of the period (8,444) (1,338)
Net debt at the end of the period (37,210) (8,444)
12 Changes in net funds
At New Acquisitions At
Finance
1 April Cash Leases and Exchange 31 March
2002 flow disposals movement 2003
£'000 £'000 £'000 £'000 £'000
Cash and bank balances 11,225 (1,613) - 5 9,617
Bank overdrafts (1,832) (6,073) - - (7,905)
9,393 (7,686) - 5 1,712
Debt (20,020) (20,675) - 3 (40,692)
Finance leases (734) 451 (640) (78) (327) (1,328)
(20,754) (20,224) (640) (78) (324) (42,020)
Liquid Resources 2,917 181 - - 3,098
Total (8,444) (27,729) (640) (78) (319) (37,210)
13 AGM
The Annual General Meeting will be at The Berkeley Hotel, Wilton Place,
Knightsbridge, London, SW1X 7RL, on Friday, 18 July 2003, at 11.00 am.
Copies of the 2003 Annual Report and Accounts will be distributed to all holders
of the company's ordinary shares on or before 19 June 2003. Copies will also be
available at the company's registered office: 2 Cavendish Square, London W1G
0PX. In addition, this preliminary announcement and the Annual Report and
Accounts will be available on the company's website: www.babcock.co.uk
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