Interim Results
Babcock International Group PLC
21 November 2002
Date: Thursday 21 November 2002
Contact: Gordon Campbell, Executive Chairman
Bill Tame, Finance Director
Babcock International plc
Telephone: 020 7269 7291 (am); 020 7291 5000 (after 3pm)
Richard Mountain
Rob Gurner
Financial Dynamics
Telephone: 020 7269 7291
BABCOCK INTERNATIONAL GROUP PLC
2002 INTERIM RESULTS
Babcock International Group PLC, the support services company, announces its
interim results for the six months to 30 September 2002.
H1 2002 H1 2001 % Change
Sales* £181.3m £184.1m -1.5
Operating Profit** £9.2m £7.9m +15.9
Profit before Tax £7.0m £0.1m
Basic EPS *** 3.90p 2.39p +63.2
Dividend 1.15p 1.10p +4.5
*excluding discontinued businesses
**excluding discontinued businesses and before exceptional items and goodwill amortisation
***before non-operating exceptionals and goodwill amortisation
Business Highlights:
• Major new contract wins leave order book in excess of £700m
• Preferred bidder status on Single Living Accommodation and Non-Project
Procurement will add a further £200m to the order book
• Nomination of Rosyth as preferred site for aircraft carrier assembly
by each of the prime contractors
• Acquisitions extend support services in the defence industry and
provide entry point to the civil market
• Disposal programme of Materials Handling business nearing completion
Commenting, Gordon Campbell, Executive Chairman, said:
'Babcock has made significant progress in its transition to become a focused
support services business. We have won a number of major contracts during the
first half and this year's acquisitions have begun to contribute. Against this
background, therefore, we look to the future with increasing confidence.'
BABCOCK INTERNATIONAL GROUP PLC
INTERIM RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2002
Introduction
The six months to 30 September 2002 saw Babcock reach and pass some notable
milestones in its journey to become a dedicated support services company. The
acquisition of both Service Group International ('SGI') and MEF strengthened our
defence-related support services and, specific to SGI, also attained an initial
presence in the civil support services market. Progress was also made in
disposing of non core businesses in the Materials Handling division and
negotiations are at an advanced stage on the sale of a further business.
Preferred bidder status was achieved during the first half year on the Single
Living Accommodation Modernisation ('SLAM') and Non-Project Procurement
Organisation ('NPPO'). Contracts for Faslane and Afghanistan were concluded, as
well as the renewal of the contract for pilot training.
The total order book now stands at over £700m, a figure which does not include
SLAM and NPPO. The details of these two contracts are still under negotiation
but it is anticipated that, in aggregate, they will be valued in excess of
£200m.
The recent nomination of Rosyth as preferred site for the aircraft carrier
assembly by each of the prime contractors, BAE SYSTEMS and Thales will, once
confirmed, add further security and visibility to the order book.
Financial Overview
Group operating profit for continuing businesses, before goodwill amortisation
and exceptional items, increased 16% to £9.2m on turnover 1.5% lower. Profit
before tax on ordinary activities increased to £7.0m from £115,000 in the
previous corresponding period.
In Technical Services, turnover and operating profit declined 17% and 13%
respectively to £92.0m and £7.2m, primarily due to the lower workload contracted
for HMS Invincible. However, a better performance is expected in the second
half from this division due to the arrival of HMS Illustrious at Rosyth and the
refit of a number of smaller vessels.
Turnover in Training and Support increased 29% to £64.1m and operating profit
rose 27% to £4.1m. This was primarily due to a strong showing from Babcock
Africa which continued the improvement shown in the second half of last year.
Turnover and profit at HDS (the business acquired in March 2001) were similar to
the previous corresponding period. Due to the post acquisition restructuring at
SGI and MEF, there was only a minor contribution to profit during this period as
restructuring costs offset the trading profit.
In Materials Handling a major turn-round in the marine business helped to reduce
losses significantly, despite being negatively affected by the issues
surrounding the protracted process of selling Chronos Richardson. Equally, the
losses on discontinued operations were materially lower, and exceptional items
were eliminated.
Group operating profit was, therefore, 84% higher at £8.1m, and earnings per
share before non-operating exceptionals and goodwill increased by 63% to 3.9p
per share.
Cash inflow from operating activities was £5.7m compared to £6.7m in the six
months to September 2001. Largely as a consequence of the two acquisitions,
costing £23.6m, net debt increased to £33.6m
The Board is recommending an interim dividend of 1.15p per share (1.1p per share
in the previous corresponding period), an increase of 4.5%.
OPERATIONAL REVIEW
Technical Services
Turnover in Technical Services fell, compared with the similar period last year,
in line with our expectations. The programme on HMS Invincible is the smallest
of the three aircraft carrier refits and, despite a reduction in overheads,
profits fell accordingly. However, with the arrival of HMS Illustrious and the
third of the Type-23 frigates, a better performance in the second half is
expected.
The MEF acquisition, which materially enhances our overall naval service
capability, made a small contribution in the period.
The long term future of the Rosyth dockyard received an additional boost, with
the announcement by each of the prime contractors on the new aircraft carrier
programme that it would be the prime choice for the assembly of the carriers.
There is likely to be further work in terms of building some of the blocks from
which the carriers will be constructed. This would enhance the security of the
workload at Rosyth for many years.
Meanwhile, the diversification into other areas of activity continues and the
Mega-3 railway wagons were completed and an initial delivery made. The final
delivery is dependent upon the Strategic Rail Authority's safety approval, but
we do not anticipate any problems in achieving this approval. A contract to
procure electronic and electrical equipment for the Ministry of Defence was
secured, utilising the existing systems at Rosyth. This contract should be
worth £100m over a seven year period, once it commences in 2003.
Rosyth has been recently restructured into four business units and this will
enable it to continue to develop its commercial activities.
Compared with the same period last year, the losses in FBM increased, but were
significantly down on the second half of 2002. There are a number of potential
contracts for FBM, but delays in concluding these contracts left the business in
loss. Work continued on the Smit air/sea rescue vessels, and confirmation of
the start date for the bridge erection barge contract for the US Coastguard is
awaited.
The operation of the dockyard in New Zealand continued at the previous year's
good level, and over 50% of the contracted workload is now in the non-defence
market.
The pipeline services business in the United States (Eagleton) had a poor first
half in the wake of the turmoil in the US energy industry, but entered the
second half with a much stronger order book.
Training and Support
The management contract for HM Naval Base Clyde (Faslane and Coulport) commenced
on 1 September 2002. This contract comprises a sharing of cost savings, and we
have already identified a number of areas where the savings targets can be
achieved. The contract was originally £350m over a five year period, but this
has now been increased to in excess of £400m and we would expect both the scope
and the time period to be extended.
The contract renewal rate at HCS continued at 100%, with renewals for the
initial pilot training contract, Cranwell facilities management, and the
simulator maintenance for the RAF. However, the size of the contract for the
initial pilot training was significantly reduced, with the RAF preferring to use
the University Air Squadrons as an alternative, and the Kosovo contract will
cease by the end of the year as the British troops are withdrawn. We expect to
replace some of the Kosovo contract with a new United Nations contract. A
contract was also signed to provide similar facilities for the British troops in
Afghanistan, with potential again to increase this, depending on the size of
the Allied Forces in that country.
Final bids have been submitted for two large PFI contracts - the Royal School of
Military Engineering and the Armoured Vehicle Training System - and the outcome
is awaited. We are also progressing the bid for the Airfield Support Services
Project.
SGI made a strong debut as part of Babcock by achieving preferred bidder status
on the SLAM contract in conjunction with Bovis Lend Lease. SGI will provide the
maintenance of the military accommodation once it has been built by Bovis Lend
Lease. The initial phase of the contract is for 18,000 units to be built at an
estimated cost of £1bn. SGI's revenue from this contract is expected to be £12m
per annum over seven years, commencing towards the end of 2003. SGI's other
business is continuing as predicted and we are seeing significant benefit to the
Group's overall proposition for the Ministry of Defence. SGI also opens up the
possibility of building a civil sector support services business.
Babcock Africa continued its recovery with increased turnover and more robust
margins.
Materials Handling
An improved order book, plus the results of the cost reduction programme
implemented last year, lead to Marine, our ship unloading business, contributing
a positive performance during this half, which saw the reversal of the heavy
losses incurred in the previous corresponding period. We are now progressing
with the sale of this business and, once completed, we should have exited all
our engineering interests.
We are now at an advanced stage in the disposal of the bagging and batching
business, Chronos Richardson. However, losses continued in the first half at
this business due to continued market difficulties, which were exacerbated by
the longevity of the sale process.
Summary and Prospects
The first half of this year has seen Babcock make significant progress in its
objective of becoming a focused support services business and we now have the
building blocks in place to realise the potential in this field.
The intended disposals of the Materials Handling businesses have proved to be
challenging given the difficult market environment; however, with the expected
sale of Chronos Richardson, the remaining business comprises less than 5% of
total group turnover.
As a consequence of delivering the strategic plan, we expect to make further
progress in the second half, with the benefits of acquisitions and organic
growth contributing.
BABCOCK INTERNATIONAL GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2002
Year ended
31 March
2002
Six months ended Six months ended
30 September 2002 30 September 2001
Before Before
goodwill goodwill Goodwill and
and and exceptional
exceptional exceptional Items
items items
Goodwill Total Total
Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£'000 Note £'000 £'000 £'000 £'000 £'000 £'000
Group turnover
358,861 Continuing 175,392 - 175,392 184,096 - 184,096
operations
- Acquisitions 5,904 - 5,904 - - -
358,861 181,296 - 181,296 184,096 - 184,096
64,123 Discontinued 4 253 - 253 42,894 - 42,894
operations
422,984 3 181,549 - 181,549 226,990 - 226,990
Group operating profit/(loss)
3,545 Continuing 8,979 (801) 8,178 7,915 (2,195) 5,720
operations
- Acquisitions 197 - 197 - - -
3,545 9,176 (801) 8,375 7,915 (2,195) 5,720
(2,124) Discontinued 4 (319) - (319) (776) (580) (1,356)
operations
1,421 3 8,857 (801) 8,056 7,139 (2,775) 4,364
Share of operating loss of
joint ventures and
(529) associates (76) - (76) (246) - (246)
(13,798) Loss on sale of operations - - - - (3,348) (3,348)
Profit/(loss) on ordinary
(12,906) activities before interest 8,781 (801) 7,980 6,893 (6,123) 770
(1,004) Net interest and similar (977) (655)
charges
Profit/(loss) on ordinary activities
(13,910) before taxation 7,003 115
Tax on profit/
(loss) on
(3,089) ordinary activities 7 (2,013) (1,145)
Profit/(loss) on ordinary
(16,999) activities after taxation 4,990 (1,030)
(143) Minority interest (16) 88
Profit/(loss) for the
financial
(17,142) period 4,974 (942)
Dividends paid and
(4,168) proposed 9 (1,664) (1,646)
Retained profit/(loss)
(21,310) for the financial period 3,310 (2,588)
Earnings/(loss) per 8
share
(11.68)p - Basic 3.36p (0.64)p
(11.66)p - Diluted 3.34p (0.64)p
Earnings per share 8
before non-operating
exceptional items and
goodwill
4.51p - Basic 3.90p 2.39p
4.50p - Diluted 3.88p 2.38p
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
AS AT 30 SEPTEMBER 2002
As at As at
30 September 30 September
2002 2001
As at (unaudited) (unaudited)
31 March 2002 £'000 £'000
£'000 Note
Fixed assets
Intangible assets
1,236 Development costs 1,102 1,378
Goodwill
66,670 - Goodwill 87,571 82,819
(9,384) - Negative goodwill (9,141) (10,840)
57,286 78,430 71,979
58,522 79,532 73,357
22,396 Tangible assets 19,884 31,484
Investments
Investments in joint ventures
1,831 - Share of gross assets 1,616 1,903
(1,256) - Share of gross liabilities (1,191) (1,077)
575 425 826
600 Investments in associates - 537
3,010 Other investments 3,946 2,720
4,185 4,371 4,083
85,103 103,787 108,924
Current assets
15,143 Stocks 21,756 22,279
71,441 Debtors - due within one year 74,993 89,032
68,810 Debtors - due after more than one 69,096 70,330
year
140,251 144,089 159,362
14,142 Cash and bank balances 12 14,192 24,542
169,536 180,037 206,183
Creditors - amounts due within one
year
(22,129) - Borrowings 12 (26,965) (19,498)
(121,839) - Other (125,386) (156,579)
(143,968) (152,351) (176,077)
25,568 Net current assets 27,686 30,106
110,671 Total assets less current liabilities 131,473 139,030
Creditors - amounts due after more than one year
(457) - Borrowings 12 (20,867) (812)
(2,440) - Other - (513)
(2,897) (20,867) (1,325)
(26,799) Provisions for liabilities and (26,217) (38,407)
charges
80,975 Net assets 84,389 99,298
Capital and reserves
88,571 Called up share capital 88,876 88,712
37,921 Share premium account 38,068 37,674
30,631 Capital redemption reserve 30,631 29,957
(76,195) Profit and loss account (73,249) (57,092)
80,928 Equity interests 84,326 98,577
- Non-equity interests - 674
80,928 Shareholders' funds 84,326 99,251
47 Equity minority interests 63 47
80,975 84,389 99,298
BABCOCK INTERNATIONAL GROUP PLC
SUMMARISED GROUP CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
Six months ended Six moths ended
Year ended 30 September 2002 30 September
31 March (unaudited) 2001
2002 £'000 (unaudited)
£'000 £'000
Notes
19,834 Cash inflow from operating 10 5,675 6,739
activities
(1,090) Returns on investments and servicing of (839) (762)
finance
(3,401) Taxation (1,423) (531)
(8,489) Capital expenditure and financial investment (1,846) (4,592)
(13,907) Acquisitions and disposals (23,608) 4,755
(3,823) Equity dividends paid (2,536) (2,237)
(2,917) Management of liquid resources (460) -
(13,793) Cash (outflow)/inflow before (25,037) 3,372
financing
14,918 Financing 22,286 3,390
1,125 (Decrease)/increase in cash in the 12 (2,751) 6,762
period
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
Six months Six months ended
Year ended ended 30 September
31 March 30 September 2001
2002 2002 (unaudited)
£'000 (unaudited) £'000
£'000
(17,142) Profit/(loss) for the financial 4,974 (942)
period
(1,647) Currency translation differences on foreign
currency (364) (1,940)
net investments and related loans
(18,789) Total recognised gains and losses 4,610 (2,882)
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
Year ended Six months Six months
31 March ended ended
2002 30 September 30 September
£'000 2002 2001
£'000 £'000
105,636 Shareholders' funds at start of 80,928 105,636
period
(18,789) Total recognised gains and losses 4,610 (2,882)
1,017 Shares issued in the period 452 237
(2,768) Redemption of 'B' preference - (2,094)
shares
(4,168) Dividends (1,664) (1,646)
(24,708) Net movement in shareholders' 3,398 (6,385)
funds
80,928 Shareholders' funds at end of 84,326 99,251
period
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
1 Accounting policies
The interim financial statements have been prepared in accordance with the
accounting policies adopted in the preparation of the financial statements for
the year ended 31 March 2002, as set out in the annual report for that year.
2 Basis of preparation
The comparative figures for the year ended 31 March 2002 and the other financial
information contained in this interim report do not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 March 2002 have been delivered to the
Registrar of Companies. The auditors have reported on those accounts, their
report was not qualified and did not contain a statement under section 273(2) or
(3) of the Companies Act 1985. The financial information in the interim report
is unaudited.
The interim report for the six months ended 30 September 2002 was approved by
the Directors on 20 November 2002.
3 Segmental analysis
Six months ended 30 September 2002 Six months ended 30 September 2001
Group Group
operating operating
profit profit
before before
goodwill and goodwill Goodwill
operating and and
exceptional Group operating operating Group
Group items operating Group exceptional exceptional operating
turnover £'000 Goodwill profit turnover items items profit
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Technical Services 91,770 7,205 - 7,205 110,233 8,293 - 8,293
Training and 64,050 4,134 - 4,134 49,544 3,262 - 3,262
Support
Materials Handling 25,476 (903) - (903) 24,319 (2,606) (698) (3,304)
Unallocated costs
and - (1,260) - (1,260) - (1,034) (625) (1,659)
other income
181,296 9,176 - 9,176 184,096 7,915 (1,323) 6,592
Goodwill - - (801) (801) - - (872) (872)
amortisation
Total continuing
operations 181,296 9,176 (801) 8,375 184,096 7,915 (2,195) 5,720
Discontinued 253 (319) - (319) 42,894 (776) (354) (1,130)
operations
Goodwill - - - - - - (226) (226)
amortisation
Total discontinued
operations 253 (319) - (319) 42,894 (776) (580) (1,356)
Group total 181,549 8,857 (801) 8,056 226,990 7,139 (2,775) 4,364
The group made two acquisitions during the six month period ended 30 September
2002. The business and 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 to 30 September 2002 of £5.2
million and £19,000 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 30 September 2002 of £0.7 million
and £0.2 million respectively.
4 Discontinued operations
Discontinued operations comprise the BMH Americas business, the last remaining
part of the Materials Handling cement business, which was disposed of on 30
April 2002.
5 Operating exceptional items
Exceptional costs of £nil (2001:£1.7 million) have been incurred to 30 September
2002. Prior period operating exceptional costs were in respect of restructuring
businesses within the Materials Handling segment (£1.1 million) and a proposed
acquisition that did not proceed (£0.6 million).
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
6 Loss on sale of operations
A loss on sale of operations of £nil (2001: £3.3 million) has been incurred to
30 September 2002. The prior period loss on sale was in relation to the BMH
Wood business and included the write-off of goodwill amounting to £2.6 million.
7 Taxation
The charge for taxation has been based on the estimated effective tax rate for
the year ended 31 March 2003.
8 Earnings/(loss) per share
The basic earnings/(loss) per share has been calculated on the profit for the
period of £4,974,000 (2001: loss of £942,000) and the weighted average number of
ordinary shares in issue throughout the period of 148,050,460 (2001:
146,628,978).
The diluted earnings/(loss) per share has been calculated after taking account
of 5,942,711 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 £801,000 (2001: £1,098,000) and the loss on the sale of
operation of £nil (2001: £3,348,000).
9 Dividends
An interim dividend of 1.15p per 60p ordinary share (2001: 1.1p per 60p ordinary
share) will be paid on 24 January 2003 to shareholders registered on 20 December
2002.
10 Reconciliation of operating profit to cash flow from operating
activities
Six months ended Six months ended
Year ended 30 September 2002 30 September
31 March (unaudited) 2001
2002 £'000 (unaudited)
£'000 £'000
1,421 Group operating profit 8,056 4,364
10,550 Depreciation 4,424 5,650
271 Amortisation of intangibles 134 129
2,085 Amortisation of goodwill 801 1,098
(2,455) Movement on working capital (7,739) (4,516)
7,873 Impairment of goodwill - -
89 Other items (1) 14
19,834 Cash inflow from operating activities 5,675 6,739
11 Movement in net funds
Six months ended Six months
30 September Ended
Year ended 2002 30 September
31 March (unaudited) 2001
2002 £'000 (unaudited)
£'000 £'000
1,125 (Decrease)/increase in cash in the period (2,751) 6,762
2,917 Increase in liquid resources in the year 460 -
(13,469) Cash flow from the increase in debt and lease (21,834) (2,047)
financing
(9,427) Change in net funds resulting from cash flows (24,125) 4,715
Loans and finance leases (acquired)/disposed of with
2,152 subsidiaries (78) 535
(790) New finance leases (640) (1,027)
1,214 Loan from minority shareholders in subsidiary - 1,214
capitalised
(255) Foreign currency translation differences (353) 133
(7,106) Movement in net (debt)/funds in the period (25,196) 5,570
(1,338) Net debt at the start of the period (8,444) (1,338)
(8,444) Net (debt)/funds at the end of the period (33,640) 4,232
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
12 Changes in net funds
At Acquisitions Other At
1 April Cash and non-cash Exchange 30 September
2002 flow disposals changes movement 2002
£'000 £'000 £'000 £'000 £'000 £'000
Cash and bank balances 11,225 (579) - - 169 10,815
Bank overdrafts (1,832) (2,172) - - (588) (4,592)
9,393 (2,751) - - (419) 6,223
Debt (20,020) (21,991) - - 1 (42,010)
Finance leases (734) (483) (78) - 65 (1,230)
(20,754) (22,474) (78) - 66 (43,240)
Liquid Resources 2,917 460 - - - 3,377
Total (8,444) (24,765) (78) - (353) (33,640)
13 Distribution
Copies of this interim report will be distributed to all holders of the
company's ordinary shares. Copies will also be available at the company's
registered office: 2 Cavendish Square, London W1G 0PX. In addition, this report
will be available on the company's website: www. babcock.co.uk
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