IFRS update

Babcock International Group PLC
26 May 2005

Thursday 26 May 2005

                        BABCOCK INTERNATIONAL GROUP PLC

              INTERNATIONAL FINANCIAL REPORTING STANDARDS - UPDATE

Babcock International Group PLC, ('the Group'), today releases an update on how
International Financial Reporting Standards (IFRS) are likely to affect the
Group's earnings and net assets.

Separately today, the Group has announced its preliminary results for the year
ended 31 March 2005.  These results were prepared under UK Generally Accepted
Accounting Principles.

The key points to note in respect of the application of IFRS are as follows:

•         Minimal impact on the Group's underlying earnings (1)
•         The Group's cash performance is unaffected
•         The Group's ability to pay dividends is unaffected
•         On adoption of International Accounting Standard 19 in respect of
          pensions, net assets will reduce on recognition of pension scheme 
          deficits. This is also likely to lead to greater balance sheet 
          volatility in the future.

Following the EU's adoption of Regulation No. 1606/2002 on the use of
International Financial Reporting Standards (IFRS) by EU-listed companies, the
group is implementing IFRS from 1 April 2005.  The first financial information
to be reported by the group in accordance with IFRS will be for the six months
ending 30 September 2005 but the requirement to present comparative information
means that a balance sheet as at 31 March 2004 and primary statements for 2005
prepared in accordance with IFRS will also be required.  The group has continued
to report its consolidated accounts in accordance with UK GAAP for 2005.

Although the presentational requirements of IFRS will differ from those
currently applied under UK GAAP, the Group will continue to provide details of
underlying earnings, which under IFRS will be defined as earnings before
significant non-recurring items and before amortisation of intangibles arising
on acquisitions.

Interpretation of the standards is still evolving, consequently information
given in this announcement is subject to change and is un-audited.  However, in
order to assist stakeholders in understanding the potential impact of
application of the standards on the group's reported profit before tax for the
year to 31 March 2005 and its net assets at 31 March 2005, estimates of the main
changes are set out in the table below.  This does not represent full IAS1
compliant financial information.

(1) Earnings before significant non-recurring items and amortisation of
intangibles arising on acquisition.

                                UK GAAP     Share   Pension  Goodwill  Intangibles  Dividends     Other  IFRS/IAS
                                            based
                                         payments   schemes
                                     £m        £m        £m        £m           £m         £m        £m        £m
                        Note                  (1)   (2) (3)       (4)          (5)        (6)       (7)

Profit before interest,
tax,
goodwill amortisation
and
exceptional items                  41.3     (0.5)     (8.7)                                         0.1      32.2

Net interest & similar            (6.2)                 8.8                                         0.2       2.8
charges

Profit before tax, goodwill
and
exceptional items                  35.1     (0.5)       0.1                                         0.3      35.0

Goodwill and acquisition          (6.6)                           6.6        (4.4)                          (4.4)
intangible amortisation

Operating exceptional               1.5                 5.6     (0.1)        (8.8)                          (1.8)
items

Non-operating exceptional         (1.6)                                                                     (1.6)
items

Profit before tax                  28.4     (0.5)       5.7       6.5       (13.2)                  0.3      27.2

Tax (pre-exceptional)             (8.1)       0.1                                                   0.0     (8.0)
Exceptional                         0.4               (1.4)     (0.3)          1.3                            0.0
tax

Profit after                       20.7     (0.4)       4.3       6.2       (11.9)                  0.3      19.2
tax

Basic eps pre-goodwill
and
exceptionals                      14.20                                                                     14.22

Net assets*                       174.0       0.1    (82.6)       7.7          9.0        5.4     (1.2)     112.4


* Each of these adjustments include the deferred tax effect.

1.       Share based payments

Under IFRS 2 'Share based payments', share options and other share based
remuneration are expensed through the profit and loss account based on their
fair value at the date of grant to employees and spread over the vesting period,
taking into account the number expected to vest.  Under UK GAAP only the
intrinsic value is expensed. As a result additional expense will be recognised
in the IFRS income statement.

2.       Pension schemes

Under UK GAAP, the group currently accounts for defined benefit pension schemes
in accordance with SSAP 24 Accounting for Pension Costs (SSAP24).  The group
also reports the transitional disclosures required in accordance with FRS 17
Retirement Benefits (FRS 17).

The methodology and assumptions used to calculate the value of pension assets
and liabilities under FRS 17 are substantially consistent with the requirements
of IAS 19 Employee Benefits (IAS 19).  In accordance with the requirements of
IAS 19, the group will be reviewing the allocation of the IAS pension deficit /
surplus to the underlying group subsidiary companies.

The above adjustments reflect a full balance sheet recognition interpretation of
the Standard whereby the full pension deficit / surplus is reflected within the
balance sheet with actuarial movements going through the Statement of Recognised
Income and Expense.  The Group will finalise its policy in this area when
further clarity emerges as to generally adopted accounting practise.

3.       Pension curtailment

Under IAS 19 any significant change in the active pension population will result
in either a curtailment gain or loss.  During the year a number of redundancies
in one of the Group's subsidiaries has resulted in an exceptional curtailment
gain reflected above.  The resultant tax charge (£1.4m) is also considered
exceptional.

4.       Goodwill

Babcock has elected to utilise the exemption under IRFS 1 'First Time adoption
of International Financial Reporting Standards' to not restate business
combinations prior to the transition date.  Goodwill arising before 31 March
2004 will not therefore be restated with the exception of negative goodwill.
Under IFRS 3 negative goodwill is credited to reserves as at 1 April 2004.  This
means that the previously held negative goodwill (£4.7m) is eliminated on the
transition to IFRS.  Under IFRS goodwill is no longer amortised and, is instead
assessed annually for impairment.  This results in a reversal of the current
year amortisation charge of £6.6 million.

5.       Intangibles

Other intangible assets arising from acquisitions after 1 April 2004 are
separately identified and will be amortised over their useful economic lives.
These intangibles represent the estimated value of contracts and relationships
which previously formed part of general goodwill.  Intangible amortisation in
the current year is £4.4 million.  The exceptional gain realised on the early
termination of the Rail Maintenance contracts of £8.8m is valued in the
acquisition balance sheet as an intangible asset and fully amortised in the
year.

6.       Dividends

Under SSAP 17 Post Balance Sheet Events, proposed dividends are accrued for as
an adjusting post balance sheet event in the accounting period to which they
relate.  Under IAS 10 Events after the balance sheet date, dividends are
recognised in the accounting period in which they are declared.  The final
dividend accrual is therefore reversed in the consolidated IFRS accounts for the
period.

7.       Other

7.1. Holiday pay

As a result of further more prescriptive guidance in IAS 19, holiday pay
accruals and prepayments are definitively required and have been included above.

7.2. Long term contracts

Under IFRS all contracts which are in progress at a reporting date are accounted
for as long term contracts.  Under UK GAAP only 'significant' contracts are
accounted for as long term.  This results in a small profit change due to the
difference in timing.  Additionally disclosure and balance sheet classifications
differ under IFRS, although not creating net asset changes.

7.3. Discounting debtors

Under IAS 18 'Revenue', account must be taken of any inbuilt financing within
extended payment terms.  Where payment terms are deemed to fall into this
category the related debtor is stated at the present value after discounting at
prevailing interest rates.  The deemed financing element of the debt is credited
to profit and loss as interest income as the discount unwinds.  Application of
this standard has resulted in a small adjustment to profit before tax and net
assets for extended credit in non-UK subsidiaries.  This adjustment is a timing
difference only.

7.4. Financial instruments

Babcock has elected to utilise the exemption under IFRS 1 'First Time adoption
of International Financial Reporting Standards' to not restate comparatives for
IAS 32 'Financial Instruments: disclosure and presentation' and IAS 39 '
Financial Instruments: recognition and measurement'.  These reporting standards
will be implemented from 1 April 2005 onwards.

On the implementation of IAS 39 there are specific transitional arrangements.

7.5. Joint ventures

Under IFRS 31 'Financial Reporting of Interests in Joint Ventures' the group has
the option of adopting the equity investment method or proportional
consolidation method for reporting interests in joint ventures.  Under the IFRS
adjustments shown above results for joint ventures are accounted for under the
equity method and are given net of interest and tax within the share of joint
ventures.  This treatment will be reviewed and a firm policy adopted prior to
the reporting of the interim results.

7.6. Tax

Under IAS 12 'Income Taxes' certain temporary differences, some of which were
not recognised under UK GAAP, will be recognised.

Contact:             Bill Tame, Finance Director
                     Franco Martinelli, Financial Controller
                     Babcock International plc
                     Telephone: [phone]

                     Andrew Lorenz
                     Rob Gurner
                     Financial Dynamics
                     Telephone: [phone]






                      This information is provided by RNS
            The company news service from the London Stock Exchange