Final Results
Babcock International Group PLC
03 May 2006
3 May 2006
BABCOCK INTERNATIONAL GROUP PLC
2005/6 PRELIMINARY RESULTS
Babcock International Group PLC, the Support Services company, announces its
preliminary results for the year ended 31 March 2006. These results are
prepared under International Financial Reporting Standards and include the
Peterhouse acquisition for a full twelve months (2005: nine and a half months).
Statutory March 2006 March 2005 % Change
Revenue £836.7m £729.0m +15
Operating profit £46.6m £35.3m +32
Profit before tax £41.3m £29.5m +40
Continuing earnings per share 16.06p 11.20p +43
Dividend proposal - full year 6.00p 4.00p +50
Net debt £38.2m £62.9m
The following additional numbers show the 'underlying' results before
amortisation of acquired intangibles £3.1m (2005: £4.4m) and operating
exceptional losses £0.2m (2005: £1.8m), and before the related tax effects of
credit £1.0m (2005: £nil). We believe that these adjusted results provide a
better indication of our performance.
Underlying March 2006 March 2005 % Change
Operating profit £49.9m £41.5m +20
Profit before tax £44.6m £35.7m +25
Continuing earnings per share 17.18p 14.48p +19
Business highlights:
• Record results: sales up 15%, underlying PBT up 25%
• Significant contracts secured, supporting further growth:
- Eastern Regional Prime, Network Rail High Output and contract extension
for management of HM Naval Base Clyde
• Order book of £2.3bn provides excellent visibility
• Strong balance sheet - year end net debt £38.2m, overall pension surplus
• Full year dividend up 50%, final by 60% to 4.25p - in line with declared
policy
• Excellent growth opportunities in all our markets, including defence, rail,
telecoms and transmission
• Further major opportunities include:
- Royal School of Military Engineering contract - financial close expected in
mid 2007
- Defence Training Review - decision expected in October 2006
• Potential for further acquisitions
Commenting, Peter Rogers Chief Executive, said:
'2005/2006 was another excellent year for Babcock. It is the fourth successive
year of double-digit sales and profit growth. Underlying earnings per share
increased by 19% to 17.18p.
'We continue to be successful in winning major contracts, with Eastern Regional
Prime being the latest example; the contract started in March and the profit
flows from this reinforce our confidence for the future. The visibility of
revenue resulting from an order book totalling £2.3 billion gives us further
confidence in both the short and medium term prospects for Babcock.
'We are currently awaiting adjudication on bids totalling over £5 billion. Of
particular note are the bids for the Royal School of Military Engineering and
the Defence Training Review which could add around £100 million a year to
revenues for 25 years.
'The robust financial health of the Group gives us scope to undertake further
acquisitions during this year in the technically demanding areas in which we
operate.
'Overall, the foundation laid in the last four years in transforming Babcock
into a leading support services company, our success in bidding, and our strong
financial position lead us to look forward with confidence to our future as an
independent Group'.
Contact: Peter Rogers, Chief Executive
Bill Tame, Finance Director
Babcock International plc
Telephone: 020 7291 5000
Andrew Lorenz
Richard Mountain
Financial Dynamics
Telephone: 020 7269 7291
Chairman's Statement
2005/6 was another record year for Babcock with profit before tax, before
amortisation of acquired intangibles and exceptional items, increasing by 25%
following a very strong performance in the previous year. The Directors are
recommending a final dividend of 4.25p per share giving a total dividend for the
year of 6.0p per share, an increase of 50% on the previous year. This reflects
the increased earnings, our confidence in Babcock's future prospects and our
previous guidance that we intend to reduce the cover progressively to between 3
and 2.5 times.
The share price continued to improve during the year and reached 270p before the
announcement on 23 March 2006 that VT Group and BAE Systems were contemplating
making an offer for Babcock, amongst other options. This level of share price
represents an out-performance over five years of 167% compared to the FTSE
All-Share index (excluding investment trusts) - £100 invested in Babcock on 31
March 2001 would have been worth £391 on 31 March 2006, compared to £131 had it
been invested in that index.
The Board welcomes the Takeover Panel's ruling that VT Group and BAE Systems
should clarify their positions by 18 May 2006 and at this time the Board cannot
make any further comment as we have had no indication as to whether an offer
will be forthcoming or the level of any offer.
As previously stated, Babcock has been in discussion with industry participants
and with the Ministry of Defence about various options for both submarine and
surface ship support in relation to the restructuring of the UK maritime sector
and fully supports this initiative insofar as it is value adding for Babcock's
shareholders. These discussions have not however extended to the possibility
raised by VT Group and BAE Systems of their jointly bidding for the Group. The
Board believes that such a bid risks undervaluing our successful support
services operations and the excellent long-term prospects of Rosyth. In
addition, it is important to recognise that the marine business now comprises
less than 20% of the Babcock business.
Babcock's financial position is strong with net debt as at 31st March 2006 of
only £38.2m and an overall pension surplus. Further, we have an order book of
£2.3 billion and a further £5 billion of bids currently under adjudication.
We are confident that Babcock's performance will continue to improve, with
contracts such as Eastern Regional Prime, Network Rail High Output and the
extension of the contract for the management of HM Naval Base Clyde, each
starting to contribute in this financial year. In addition, the growth
prospects in our other non-defence area should also contribute to further
enhanced earnings.
The Board believes that the underlying value of Babcock should continue to
increase, and recommends that shareholders take no action until the position
with regard to the possible bid is clarified. The Board is confident of
Babcock's prospects and is convinced the Group is well placed to continue to
develop and grow as an independent entity.
Gordon Campbell
Chairman
Babcock International Group plc
2005/6 Preliminary Results
Operational Review
Introduction
The 2005/06 Financial Year continued the successful trend set in previous years
with sales growing by a further 15% and operating profits (before amortisation
of acquired intangibles and exceptional items) by 20%. Earnings per share
increased to 17.18p, an increase of 19% compared to last year.
The improvement in operating profit is particularly pleasing given the
previously forecast fall off in contribution from Technical Services (£9.0
million compared to £14.3 million in 2005). Operating profit growth across our
other divisions (including a full year contribution from the Peterhouse
businesses) was £13.7 million or 50%.
Contract wins in Eastern Regional Prime, Network Rail High Output and the
extension to the contract for the management of HM Naval Base Clyde give us
confidence that growth will be sustained.
The contract for the Royal School of Military Engineering is now in the final
stages of its approval process within the Ministry of Defence and we expect to
move to financial close in mid 2007. We continue to have confidence in the high
quality bid submitted for the Defence Training Review where a decision on the
preferred bidder is expected in October 2006. These two contracts would add an
estimated £100 million to turnover in a full year.
During 2005/06, and shortly after the year-end, we disposed of the remaining
non-core businesses acquired with the Peterhouse Group.
Each of the businesses which we now operate is highly rated in its respective
market and is therefore well placed to take a substantial share of the growth
opportunities available to it.
Defence Services: turnover £271.7 million (2004/05: £245.1 million) - operating
profit £21.8 million (2004/05: £16.8 million)
2005/06 was an excellent year for Defence Services, with sales increasing by 11%
and operating profit by 30%.
Looking forward, the securing of the Regional Prime East Contract (where
delivery of service began only in March 2006) and the extension to the contract
for HM Naval Base Clyde, give us confidence that growth will continue in 2006/
07. Revenues from these two contracts are in excess of £120 million a year. We
are also confident that an extension will be granted for the Single Living
Accommodation Modernisation (SLAM) programme which will further strengthen
Babcock's position as the leading supplier of built infrastructure support to
the Ministry of Defence.
We continue to obtain additional revenue from Prime Contracts and are in active
negotiation with Defence Estates on a number of additional projects which we
expect will increase revenue and profits on each of the South-West and Eastern
Prime Contracts.
Technical Services: turnover £130.5 million (2004/05: £159.0 million) -
operating profit £9.0 million (2004/05: £14.3 million)
We have continued to manage the expected temporary decline in warship refit
activity at Rosyth and have succeeded in retaining a profitable business. The
Design and Technology businesses, Supply Chain Services and the Nuclear
Decommissioning businesses each made excellent profit contributions during the
year and are well placed to deliver future growth. In the current year only 40%
of revenue is expected to be provided by the warship refit business.
Recent allocations of ship refit work will provide a greater volume of work than
had been previously anticipated for the current financial year and as an
expression of its confidence in the Rosyth business, the Ministry of Defence has
agreed to extend its responsibility for redundancy costs at Rosyth until March
2007.
The Secretary of State for Defence has confirmed Rosyth as the site for the
final assembly and integration of the CVF (future aircraft carrier) and we are
participating fully in the Aircraft Carrier Alliance. We have already been
awarded an initial contract for the early production design and planning stages
of the project. Whilst the Ministry of Defence has not yet indicated a start
date for construction, we would expect this to be in 2008/09.
The moves by the Ministry of Defence away from direct competition in the warship
refit market in favour of establishing an industry alliance are also expected to
bring substantial benefits to Rosyth in terms of workload and margin
predictability.
Engineering and Plant Services: turnover £144.2 million (2004/05: £112.7
million) - operating profit £9.7 million (2004/05: £4.8 million)
The African business continued its outstanding growth record and won the Volvo
International Dealer of the Year Award for the third successive year. Margins
further improved and exceeded 6%.
The economy in South Africa continues to be in robust health and spending on
infrastructure is forecast to underpin future economic growth. In particular,
the expenditure on electrical generation and transmission will provide very
significant opportunities over the next five years for our engineering business.
Similarly basic infrastructure investment on roads and urban development will
continue to generate a strong demand for the Volvo product. Sales of
replacement parts for Volvo are growing in line with our expectations and at
very satisfactory margins.
We are continuing negotiations with ABB over the acquisition of its Powerlines
business. While we expect a successful outcome, the possible bid for Babcock
has complicated the negotiations.
Eagleton, the small US based pipeline business returned to profitability during
the year and prospects for the business are now better than at any time in the
last three years, as activity in the US petrochemical industry continues to
rise, reflecting increased oil prices.
Networks: turnover £73.0 million (2004/05: £45.2 million) - operating profit
£6.4 million (2004/05: £2.9 million)
Networks had an excellent year as 3G roll-out and high voltage network projects
continued at good levels. Activity in the transmission market rose above the
prior year and the level of bidding activity for work in the 2006-2008 period
now clearly supports our view that the total size of the market will double from
current levels during that period. The current value of tenders under
preparation or submitted for work during the period is approximately £500
million.
The skills in our networks businesses - both white and blue collar - remain
scarce and we are investing significant amounts in training people for the
future increase in workflow. The CARE predictive deterioration model continues
to be well received by National Grid and the system is now being modified to
widen its application to mobile telephone infrastructure.
Rail: turnover £217.3 million (2004/05: £167.0 million) - operating profit £8.8
million (2004/05: £8.4 million)
Our rail business continued to make good progress during the period with growth
in the track business and the long awaited return of high volumes in the
signalling market resulting in increases in both turnover and profits. Secured
business for 2007 at £157 million is 148% ahead of the position at this stage
last year.
Margins in the rail business continue to be lower than in our other businesses
but we are addressing this through the replacement of the outdated IT systems
inherited with the Peterhouse acquisition. The replacement of these systems is
now largely complete and we expect to make significant savings in overheads in
the Rail business over the next twelve months.
Network Rail continues to improve the performance of the infrastructure and has
secured funding over the next three years and the probability is that the
regulator will be prepared to continue funding at current levels for a
significant period. We continue to work with Network Rail to improve
efficiencies and productivity.
Outlook
The trading environment for the Babcock businesses remains excellent. In the
UK, the Ministry of Defence continues with major outsourcing programmes, Network
Rail funding remains secure and the expenditure on renewing the high voltage
network is rising rapidly. The South African economy continues to expand and
the need to renew infrastructure and programmes for increased power generation
will bring significant business opportunities to Babcock for the next five
years.
We are confident that the RSME project will move to financial close sufficiently
early to provide revenues in the 2007/08 financial year and remain positive on
the chances of our bid for the Defence Training Review.
We are progressing our plans for further acquisitions and remain confident that
we can extend our track record of successful identification, acquisition and
integration of other businesses in the technically sophisticated area of support
services in which we operate. We anticipate that further businesses will be
acquired during the current year. The strength of the balance sheet and
continuing excellent cash management will ensure that the required resources are
available. We will continue to apply rigorous financial discipline in the
assessment of potential acquisitions to ensure that shareholder value continues
to be enhanced.
We remain confident that, with an order book totalling approximately £2.3
billion, our momentum can be sustained. Overall, the clear visibility provided
by the order book gives us confidence that both the short and medium term
prospects for the Group are excellent.
Preliminary Statement - Financial Review
In this review, unless otherwise stated, revenue ('turnover'), operating profit,
operating margin, profit before tax and earnings per share refer to results from
continuing operations, before amortisation of acquired intangibles and
exceptional items. We believe that these adjusted results provide a better
comparison of underlying performance. An analysis of amortisation of acquired
intangibles, exceptional items and discontinued businesses is presented in
separate sections of the review. The financial statements and accompanying notes
have been prepared under International Financial Reporting Standards and
comparative numbers for financial year 2005 have been restated accordingly.
Details of how the 2005 prior year results were adjusted were released in July
2005 and are available on the Babcock International Group plc website.
Turnover and operating profit
At £837 million, turnover increased 15% on 2005 (£729 million) including
significant growth in Defence Services, up 11% and Networks, up 62%. Similarly
turnover in Rail was higher by 30% and Engineering and Plant Services 28%. Group
operating profit increased 20% to £49.9 million from £41.5 million last year,
with Defence Services, Networks and Engineering and Plant Services businesses
all continuing to increase their respective operating margins. Despite the
anticipated decline in activity levels and margins in Technical Services, the
Group's operating margin increased further to 6.0%, up from 5.7% in 2005.
Interest and profit before tax
Net finance costs (interest payable) were £5.2 million (2005; £6.0 million)
following strong cash generation in the second half of the year. At this level,
net finance costs were covered over 9 times by operating profit (2005; 7 times).
After charging net finance costs, profit before tax was £44.6 million (2005;
£35.7 million) an increase of 25% year-on-year.
Cash flow
Cash conversion, defined as cash generated from operations as a percentage of
operating profit, was 119%, and continued to exceed our target of over 80%
conversion over the medium term. Expenditure on capital assets, excluding
intangibles, totalled £6.8 million or one times depreciation and 0.8% of
turnover.
Our focus on cash management reduced net debt to £38.2 million at the year-end,
representing gearing of 22%, down from £62.9 million at 31 March 2005, £52.3
million at 30 September 2005 and proforma debt at the completion of the
acquisition of Peterhouse of £104.5m. Additionally during the year, we
successfully renegotiated our £140 million revolving credit facility on to a
five-year term at significantly lower interest rates. When combined with its
strong balance sheet position, this gives the Group significant headroom to
continue to pursue its successful organic and acquisitive growth strategy.
Pensions
We continue to manage the assets and liabilities of the Group's defined benefit
pension schemes closely and at the end of the year the schemes were in net IAS19
surplus of £29.3 million (2005; deficit £20.3 million) before the related
deferred tax liability, a position that compares very favourably to that of many
other companies.
Amortisation and exceptional items
Amortisation of acquired intangibles charged to profit was £3.1 million (2005;
£4.4 million) and operating exceptional charges totalled £0.2 million (2005;
£1.8 million). Operating exceptional charges comprised restructuring costs of
£1.5 million, largely offset by a £1.3 million pensions curtailment gain, in the
Technical Services business. After amortisation of acquired intangibles and
operating exceptional items, profit before tax was £41.3 million (2005; £29.5
million), up 40% year-on-year.
Taxation
The Group tax charge on continuing operations at £9.2 million represented an
effective rate of 20.6%, down from 23.1% in 2005 as a result of lower tax rates
applied to overseas earnings.
Discontinued operations
The Group sold three of its four non-core businesses during the year to 31 March
2006 and in April 2006 completed the full disposal programme with the sale of
the remaining business. The results of all of these businesses have been
included in discontinued operations, which net of tax lost £0.6 million in the
year. The loss on disposals in the year totalled £0.2 million and the net asset
impairment on the business sold subsequent to the year-end was £1.8 million.
Earnings per share and dividends
Basic earnings per share from continuing operations rose to 17.18 pence (2005;
14.48 pence), an increase of 19%. After charging amortisation of acquired
intangibles and exceptional items, basic earnings per share was 16.06 pence
(2005; 11.20 pence) representing an increase of 43%. After including
discontinued operations, post amortisation of intangibles and exceptional items,
current year earnings per share was 14.49 pence against 10.08 pence last year.
The Group's policy, as stated in last year's preliminary results announcement,
is to target dividend cover over the medium term in the range of 2.5 to 3.0
times, measured using profits after tax from continuing operations, before
amortisation of acquired intangibles and exceptional items. On the basis of the
significant growth in earnings per share and further strong cash flows this
year, the directors are pleased to recommend a final dividend of 4.25 pence per
share (2005; 2.65 pence). The proposed full year dividend is therefore 6.0
pence per share, an increase of 50% as compared to 4.0 pence per share last
year.
BABCOCK INTERNATIONAL GROUP PLC
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2006
2006 2005
Before 2006 Before 2005
acquired Acquired acquired Acquired
intangible intangible intangible intangible
amortisation amortisation amortisation amortisation
and and and and
exceptional exceptional 2006 exceptional exceptional 2005
items items Total items items Total
Note (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m £m
Revenue 836.7 - 836.7 729.0 -. 729.0
Operating profit 49.9 (3.3) 46.6 41.5 (6.2) 35.3
Finance costs (8.9) - (8.9) (8.5) - (8.5)
Finance income 3.7 - 3.7 2.5 - 2.5
Share of operating profit/(loss)
from joint ventures (net of tax) (0.1) - (0.1) 0.2 - 0.2
Profit before tax 44.6 (3.3) 41.3 35.7 (6.2) 29.5
Income tax expense 5 (9.2) 1.0 (8.2) (8.2) - (8.2)
Profit for the year from
continuing operations 35.4 (2.3) 33.1 27.5 (6.2) 21.3
Discontinued operations 4
Loss for the year from
discontinued operations (0.6) (2.6) (3.2) (0.5) (1.6) (2.1)
Profit for the year 34.8 (4.9) 29.9 27.0 (7.8) 19.2
Attributable to:
Equity holders of the parent 29.7 19.1
Minority interest 0.2 0.1
29.9 19.2
Earnings per share from
continuing and discontinued
operations 6
- Basic 14.49p 10.08p
- Diluted 14.15p 10.07p
Earnings per share from 6
continuing
Operations
- Basic 16.06p 11.20p
- Diluted 15.68p 11.18p
Dividends
Amounts recognised as distributions to equity holders in the year:
2006 2005
£m £m
Final dividend for the year ended 31 March 2005 of 2.65p (2004: 2.10p) per 5.4 4.2
60p share
Interim dividend for the year ended 31 March 2006 of 1.75p (2005: 1.35p) per 3.6 2.8
60p share
Dividends paid during the year 9.0 7.0
Proposed final dividend for the year ended 31 March 2006 of 4.25p (2005: 8.7 5.4
2.65p) per 60p share
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been
included as a liability in the financial statements. The dividend, subject to shareholders approval, will be paid on
7 August 2006 to shareholders registered on 7 July 2006.
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
AT 31 MARCH 2006
2006 2005
Note (unaudited) (unaudited)
£m £m
Assets
Non-current assets
Goodwill 164.0 161.3
Other intangible assets 13.8 14.8
Property, plant and equipment 25.3 36.0
Investment in joint ventures 0.6 0.6
Other investments 0.1
-
Retirement benefits 64.9 41.5
Trade and other receivables 0.3 0.4
Deferred tax 4.5 11.8
273.4 266.5
Current assets
Inventories 41.5 40.6
Trade and other receivables 168.5 232.2
Income tax recoverable 0.2 0.3
Other financial assets 0.1 -
Cash and cash equivalents 10 109.0 33.1
319.3 306.2
Assets held for sale 4 9.6 -
Total assets 602.3 572.7
Equity and liabilities
Equity attributable to equity holders of the parent 7
Share capital 125.5 125.0
Share premium 69.7 69.3
Other reserves 32.3 30.7
Retained earnings (57.3) (112.7)
170.2 112.3
Minority interest 0.4 0.1
Total equity 170.6 112.4
Non-current liabilities
Bank and other borrowings 10 6.5 8.3
Income tax payable 0.1 -
Retirement liabilities 35.6 61.8
Provisions for other liabilities 12.6 23.4
54.8 93.5
Current liabilities
Trade and other payables 212.9 263.0
Income tax payable 7.0 6.2
Other financial liabilities 0.2 -
Bank and other borrowings 10 140.7 87.7
Provisions for other liabilities 12.3 9.9
373.1 366.8
Liabilities held for sale 4 3.8 -
Total liabilities 431.7 460.3
Total equity and liabilities 602.3 572.7
BABCOCK INTERNATIONAL GROUP PLC
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2006
2006 2005
Note (unaudited) (unaudited)
£m £m
Cash flows from operating activities
Cash generated from operations 8 54.1 43.5
Income tax paid (5.8) (4.8)
Interest paid (8.9) (8.4)
Interest received 3.8 2.5
Net cash flows from operating activities 43.2 32.8
Cash flows from investing activities
Proceeds on disposal of other investments - 5.0
Disposal of subsidiaries 2.5 (3.2)
Proceeds on disposal of property, plant and equipment 0.9 4.9
Purchases of property, plant and equipment (6.8) (4.5)
Purchases of intangible assets (2.7) (1.4)
Acquisition of subsidiary net of cash acquired (4.3) (26.5)
Net cash flows from investing activities (10.4) (25.7)
Cash flows from financing activities
Dividends paid (9.0) (7.0)
Finance lease principal payments (3.6) (3.3)
Bank loans (repaid)/raised (22.5) 23.1
Net proceeds on issue of shares 0.9 -
Movement on own shares - 0.3
Net cash flows from financing activities (34.2) 13.1
Net increase in cash, cash equivalents and bank overdrafts (1.4) 20.2
Cash, cash equivalents and bank overdrafts at beginning of year 26.4 6.3
Effects of exchange rate fluctuations 0.3 (0.1)
Cash, cash equivalents and bank overdrafts at end of year 10 25.3 26.4
BABCOCK INTERNATIONAL GROUP PLC
GROUP STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 MARCH 2006
2006 2005
(unaudited) (unaudited)
£m £m
Profit for the year (including discontinued operations) 29.9 19.2
Currency translation differences 1.6 0.1
Net actuarial gains/(losses) in respect of pensions 42.2 (34.8)
Tax on net actuarial gains/(losses) in respect of pensions (12.6) 10.4
Total recognised income and expense 61.1 (5.1)
Attributable to:
Equity holders of the parent 60.8 (5.2)
Minority interest 0.3 0.1
61.1 (5.1)
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2006
1. Accounting policies and basis of preparation
The financial information in this statement contains extracts from the Babcock
International Group Plc ('the Group') 2006 Annual Report, which will be issued
in June 2006 and are prepared in accordance with International Financial
Reporting Standards ('IFRS') as adopted for use in the European Union and IFRIC
interpretations. A description of how the Group's reported results and forward
position are affected by the change from UK GAAP, including reconciliation's
from UK GAAP to IFRS for prior year results and the revised summary of
significant accounting policies under IFRS is shown on the Group's website at
www.babcock.co.uk. These Accounting Policies (that comply with IFRS and IAS)
adopted by the Group will be presented in our 2006 Annual Report.
The group has adopted the exemption not to restate comparatives for IAS 32 '
Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial
Instruments: Recognition and Measurement' but to apply these standards from 1
April 2005. As a result the comparative information to the 2006 financial
statements are presented on the existing UK GAAP basis in relation to these
standards. A reconciliation between the closing 31 March 2005 balance sheet and
the opening 1 April 2005 balance sheet is set out in the 2005 Interim Report
issued in November 2005.
In accordance with IFRS 5, the restated Group Income Statement previously
disclosed has been updated to reflect the impact of current period discontinued
operations on comparative figures.
2. Segmental analysis
2006 2005
Operating Operating
profit 2006 profit 2005
before Acquired before Acquired
acquired intangible acquired intangible
intangible amortisation 2006 intangible amortisation 2005
2006 amortisation, and Group 2005 amortisation, and Group
Group exceptional exceptional operating Group exceptional exceptional operating
revenue items items profit revenue items items profit
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m £m £m £m
Continuing
operations
Defence Services 271.7 21.8 - 21.8 245.1 16.8 - 16.8
Technical Services 130.5 9.0 (0.2) 8.8 159.0 14.3 - 14.3
Engineering and
Plant Services 144.2 9.7 - 9.7 112.7 4.8 - 4.8
Networks 73.0 6.4 (0.7) 5.7 45.2 2.9 (0.6) 2.3
Rail 217.3 8.8 (2.4) 6.4 167.0 8.4 (3.8) 4.6
Unallocated - (5.8) - (5.8) - (5.7) (1.8) (7.5)
Total continuing
operations 836.7 49.9 (3.3) 46.6 729.0 41.5 (6.2) 35.3
Discontinued
operations (net of
tax) 28.0 (0.6) (2.6) (3.2) 29.6 (0.5) (1.6) (2.1)
Group total 864.7 49.3 (5.9) 43.4 758.6 41.0 (7.8) 33.2
The tax credit related to discontinued operations was £0.4m within operating
profit (2005: £0.2m) and £0.7m within exceptionals (2005: £nil).
The share of joint venture results not separately disclosed above are;
Year ended 31 March 2006 Year ended 31 March 2005
Operating Tax and Net JV Operating Tax and Net JV
Revenue profit interest results Revenue profit interest results
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m £m £m £m
Continuing
operations
Defence
Services 1.3 0.1 - 0.1 1.3 0.3 (0.1) 0.2
Technical
Services - - - - 1.7 0.2 - 0.2
Networks 0.3 (0.1) - (0.1) 0.1 (0.2) - (0.2)
Rail - - (0.1) (0.1) - - - -
Total
continuing
operations 1.6 - (0.1) (0.1) 3.1 0.3 (0.1) 0.2
3. Operating exceptional items and acquired intangible amortisation
In 2006 within continuing operations there is an exceptional redundancy cost
arising within the Technical Services segment of £1.5m which is largely offset
by a pension curtailment gain of £1.3m also arising in relation to the
redundancies.
In 2005 exceptional items for continuing operations were £1.8m. This related to
£0.8m of restructuring costs and £4.8m of goodwill write-off offset by a pension
curtailment gain of £5.6m within the Technical Services segment, £8.8m credit
relating to the transfer of rail maintenance back to Network Rail, offset by
£8.8m of exceptional acquired intangible amortisation relating to rail
maintenance and a £1.8m charge relating to the closure costs of the Peterhouse
head office in the unallocated segment.
In 2006 acquired intangible amortisation was £3.1m (2005: £4.4m), with £0.7m
(2005: £0.6m) relating to networks and £2.4m (2005: £3.8m) relating to rail
segment.
4. Discontinued operations
Four businesses are treated as discontinued operations within these statements.
The trade and net assets of Pivotal Services Group (previously in the HS&E
segment) was disposed of on 22 July 2005, the trade and net assets of IETG (also
previously in the HS&E segment) was disposed of on 16 February 2006.
The trade and net assets of EPS GmbH (previously in the Networks segment) were
disposed of on 27 March 2006. Eve Trakway Limited (also previously in the
Networks segment) was disposed of post year end on 4 April 2006 and has been
impaired within these statements and included as assets and liabilities held for
sale.
Discontinued operations analysis is as follows:
2006 2005
£m £m
(Unaudited) (Unaudited)
Revenue 28.0 29.6
Operating loss: (1.0) (0.7)
Taxation 0.4 0.2
Net loss after tax (0.6) (0.5)
Exceptional items:
Loss on disposal (0.2) (0.4)
Impairment to reflect disposal post year end (1.8) -
Costs on previously disposed of businesses (1.3) (1.2)
(3.3) (1.6)
Taxation 0.7 -
(2.6) (1.6)
5. Income tax expense
The charge for taxation of £8.2m (2005: £8.2m) includes a charge of £3.0m (2005:
£2.1m) in respect of overseas current and deferred taxes, and a charge of £5.2m
(2005: £6.1m) in respect of UK current and deferred taxes. The effective rate of
tax in respect of profits before acquired intangible amortisation, exceptional
items, share of operating profit from joint ventures and discontinued operations
is 20.6% (2005: 23.1%). This is lower than the statutory rate of 30% (2005: 30%)
due to the net effect of overseas rate differences and permanent differences
(both overseas and UK).
6. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year excluding those held in the Babcock Employee Share
Trust and the Peterhouse Employee Share Trust. The calculation of the basic and
diluted EPS is based on the following data:
Number of shares
2006 2005
Number Number
Weighted average number of ordinary shares for the purpose of basic 204,638,536 189,193,887
EPS
Effect of dilutive potential ordinary shares: share options 4,996,555 258,810
Weighted average number of ordinary shares for the purpose of 209,635,091 189,452,697
diluted EPS
Earnings
2006 2006 2005 2005
Basic Diluted Basic Diluted
2006 per share per 2005 per per
Earnings pence share Earnings share share
£m pence £m pence pence
Continuing and discontinued operations
Earnings from continuing and discontinued operations 29.7 14.49 14.15 19.1 10.08 10.07
Add back:
Amortisation of acquired intangible assets, net of tax 2.2 1.06 1.04 3.0 1.64 1.63
Exceptional items, net of tax 2.7 1.32 1.29 4.8 2.50 2.51
Earnings before amortisation and exceptionals 34.6 16.87 16.48 26.9 14.22 14.21
Continuing operations
Earnings from continuing operations 32.9 16.06 15.68 21.2 11.20 11.18
Add back:
Amortisation of acquired intangible assets, net of tax 2.2 1.06 1.04 3.1 1.64 1.64
Exceptional items, net of tax 0.1 0.06 0.06 3.1 1.64 1.64
Earnings before discontinued operations, amortisation
and exceptionals
35.2 17.18 16.78 27.4 14.48 14.46
7. Statement of changes in equity
Year ended
Share Share Capital Retained Translation Minority 31 March
capital premium redemption earnings reserve Total interests
At 1 April 2004 90.1 38.6 30.6 (100.7) - 58.6 - 58.6
Shares issued in the period 34.9 30.7 - - - 65.6 - 65.6
Total recognised income and
expense - - - (5.3) 0.1 (5.2) 0.1 (5.1)
Dividends - - - (7.0) - (7.0) (7.0)
Share based payments - - - 0.9 - 0.9 - 0.9
Tax on share based payments - - - (0.2) - (0.2) - (0.2)
Movement in ESOP - - - (0.4) - (0.4) - (0.4)
Net movement in equity 34.9 30.7 - (12.0) 0.1 53.7 0.1 53.8
At 31 March 2005 125.0 69.3 30.6 (112.7) 0.1 112.3 0.1 112.4
Adoption of IAS 39 at 1 April
2005 - - - - - - - -
At 1 April 2005 125.0 69.3 30.6 (112.7) 0.1 112.3 0.1 112.4
Shares issued in the period 0.5 0.4 - - - 0.9 - 0.9
Total recognised income and
expense - - - 59.2 1.6 60.8 0.3 61.1
Dividends - - - (9.0) - (9.0) - (9.0)
Share based payments - - - 1.1 - 1.1 - 1.1
Tax on share based payments - - - 4.1 - 4.1 - 4.1
Net movement in equity 0.5 0.4 - 55.4 1.6 57.9 0.3 58.2
At 31 March 2006 125.5 69.7 30.6 (57.3) 1.7 170.2 0.4 170.6
8. Reconciliation of operating profit to cash generated from operations
2006 2005
(unaudited) (unaudited)
£m £m
Cash flows from operating activities
Operating profit 46.6 35.3
Loss from discontinued operations (0.6) (0.5)
Add back tax on discontinued operations (0.4) (0.2)
45.6 34.6
Depreciation of property, plant and equipment 7.1 7.4
Amortisation and impairment of intangible assets 3.6 19.0
Equity share based payments 1.1 0.9
Loss on disposal of property, plant and equipment 0.3 0.9
Operating cash flows before movement in working capital 57.7 62.8
(Increase)/decrease in inventories 1.5 (6.0)
Decrease/(increase) in receivables 58.9 (30.9)
Increase/(decrease) in payables (49.2) 18.2
Increase/(decrease) in provisions (14.8) (0.6)
Cash generated from operations 54.1 43.5
9. Movement in net debt
2006 2005
(unaudited) (unaudited)
£m £m
Increase/(decrease) in cash in the year (1.4) 20.2
Cash flow from the decrease in debt and lease financing 26.1 (19.8)
Change in net funds resulting from cash flows 24.7 0.4
Loans and finance leases (acquired)/disposed of with subsidiaries 0.1 (47.2)
New finance leases (0.4) (0.9)
Foreign currency translation differences 0.3 0.2
Movement in net debt in the year 24.7 (47.5)
Net debt at the beginning of the year (62.9) (15.4)
Net debt at the end of the year (38.2) (62.9)
10. Changes in net debt
At Acquisitions New At
1 April and finance Exchange 31 March
2005 Cash flow disposals leases movement 2006
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m £m
Cash and bank balances 33.1 (75.6) - - 0.3 109.0
Bank overdrafts (6.7) (77.0) - - - (83.7)
Cash, cash equivalents and bank overdrafts
at end of year 26.4 (1.4) - - 0.3 25.3
Debt (80.8) 22.5 - - 0.2 (58.1)
Finance leases (8.5) 3.6 0.1 (0.4) (0.2) (5.4)
(89.3) 26.1 0.1 (0.4) - (63.5)
Total (62.9) 24.7 0.1 (0.4) 0.3 (38.2)
In 2004/05, the Group's cash balances were reported net of bank overdrafts where
a cash pool was in operation and the legal right of offset existed. On adoption
of IAS 32 netting can only occur to the extent that there is both the legal
ability and intention to settle net by entity. Although Group's cash is, where
practical, managed on a pooled basis and interest is changed or earned on a net
basis, there is a grossing up of cash and borrowings in 2005/06 of £78.1m.
11. Financial information
The financial information in this statement is not audited and does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985 (as amended). Full accounts for Babcock International Group PLC for
the year ended 31 March 2005, prepared under UK GAAP, have been delivered to the
Register of Companies. The auditors' report on these accounts was unqualified
and did not contain a statement under Section 237(2) or Section 237(3) of the UK
Companies Act 1985. This preliminary statement was approved by the Board on 2nd
May 2006.
12. Change in basis of accounting
The Group took advantage of IFRS 1 (First Time Adoption of International
Financial Reporting Standards) transitional provisions and adopted IAS 32
(Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial
Instruments: Recognition and Measurement) from 1 April 2005. The opening
balance sheet at 1 April 2005 has been restated for IAS 39, resulting in an
increase in retained losses of £5,000.
13. Distribution
Copies of this report. will be available at the company's registered office: 2
Cavendish Square, London W1G 0PX. In addition, this report is available on the
company's website: www.babcock.co.uk.
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the
'Code'), if any person is, or becomes, 'interested' (directly or indirectly) in
1% or more of any class of 'relevant securities' of VT Group plc or of BAE
Systems plc or of Babcock International Group PLC, all 'dealings' in any
'relevant securities' of that company (including by means of an option in
respect of, or a derivative referenced to, any such 'relevant securities') must
be publicly disclosed by no later than 3.30 pm (London time) on the London
business day following the date of the relevant transaction. This requirement
will continue until the date on which the offer becomes, or is declared,
unconditional as to acceptances, lapses or is otherwise withdrawn or on which
the 'offer period' otherwise ends.
If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire an 'interest' in 'relevant securities' of
VT Group plc or of BAE Systems plc or of Babcock International Group PLC, they
will be deemed to be a single person for the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant
securities' of VT Group plc or of BAE Systems plc or of Babcock International
Group PLC by VT Group plc or BAE Systems plc or Babcock International Group PLC,
or by any of their respective 'associates', must be disclosed by no later than
12.00 noon (London time) on the London business day following the date of the
relevant transaction.
A disclosure table, giving details of the companies in whose 'relevant
securities' 'dealings' should be disclosed, and the number of such securities in
issue, can be found on the Takeover Panel's website at
www.thetakeoverpanel.org.uk.
'Interests in securities' arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the price of
securities. In particular, a person will be treated as having an 'interest' by
virtue of the ownership or control of securities, or by virtue of any option in
respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the
Panel's website. If you are in any doubt as to whether or not you are required
to disclose a 'dealing' under Rule 8, you should consult the Panel.
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