Interim Results
Babcock International Group PLC
20 November 2003
Thursday 20 November 2003
BABCOCK INTERNATIONAL GROUP PLC
2003/4 INTERIM RESULTS
Babcock International Group PLC, the Support Services company, announces its
results for the half year ending 30 September 2003.
First Half First Half %
2003/4 2002/3 Change
Sales (1) £215m £156m +38%
Operating Profit (2) £12.3m £10.1m +22%
Profit before tax £9.4m £7.0m +34%
Earnings per share (3) 6.69p 3.98p +68%
Dividend 1.25p 1.15p +8.7%
(1) Before discontinued operations (2004: £10.2m, 2003: £25.7m), (2) Before
goodwill amortisation (2004: £1.6m, 2003: £0.8m) and discontinued operations
losses (2004: £0.2m, 2003: £1.2m), (3) Before exceptional items and goodwill
amortisation. (2004: £1.7m, 2003: £0.8m).
Business Highlights:
• Preferred Bidder on South West Regional Prime (SWRP).
• Wins at RAF Valley and Exhibitions.
• Contract win for Heathrow Terminal 5 modules.
• Further progress on involvement in carrier construction.
• Order book stands at £640m excluding Single Living Accommodation
Modernisation (SLAM) and SWRP.
• Materials Handling disposal complete.
Commenting, Peter Rogers, Chief Executive, said:
We have single-mindedly pursued our strategy and have now achieved a structure
which will allow us to drive the business forward without distractions. The win
of SWRP is particularly welcome as it gives us critical mass with Defence
Estates.
Contact: Peter Rogers, Chief Executive
Bill Tame, Group Finance Director
Babcock International Group PLC
Telephone: 020 7269 7291 (am); 020 7291 5000 (after 4pm)
Andrew Lorenz
Richard Mountain
Financial Dynamics
Telephone: 020 7269 7291
Notes to editors:
About Babcock International Group PLC
Babcock International Group PLC is a support services business providing
technical services, training and facilities management to the defence and civil
sectors. In the year to 31 March 2003 sales from continuing business were £378
million.
The Group operates in two principal sectors: Technical Services (engineering and
support services in defence, rail, marine and secure facilities sectors) and
Training & Support (support services, training and facilities management for the
defence and civil sectors).
Babcock's head office is in London and the Company's shares are quoted on the
London Stock Exchange. For further information, please visit Babcock's website
at www.babcock.co.uk.
Babcock International Group PLC
Interim Results for the Half Year to 30 September 2003
Introduction
In the period since the end of the last financial year, Babcock has achieved its
goal of becoming a dedicated support services company. This was reinforced
after the end of the half year with Babcock named as Preferred Bidder on the
South West Regional Prime contract and the sale of the last substantial
Materials Handling business. Following the award of the RAF Valley contract,
Babcock will be responsible for maintaining virtually all Royal Navy and RAF
Hawk jet trainers.
The position of Rosyth as the nominated assembly and integration site for the
new aircraft carrier programme has been further strengthened as a result of
emerging agreement that Rosyth will also have a substantial part to play in the
construction programme, which now looks likely to start in 2007. The award to
Rosyth of significant work on Heathrow Terminal 5 demonstrates that the
structural changes made there are bearing fruit. A number of other substantial
opportunities outside the Ministry of Defence are being pursued.
Financial Overview
Total group turnover of £225.1 million represents an increase of 24% over the
first half of last year (£181.5 million). With the disposal of the remaining
BMH business in November 2003, turnover on continuing businesses increased by
38% to £214.9 million, driven by the inclusion of a full six months operations
at the Clyde Naval Base and by growth in the Babcock Infrastructure Services
(BIS) businesses.
Higher profit contributions from the Clyde Naval Base and BIS increased group
operating profit from continuing businesses, pre-goodwill, to £12.3 million, up
£2.2 million or 22% compared with the first half of last year (£10.1 million).
The operating margin pre goodwill from continuing businesses was 5.7% compared
to 6.1% for the full year last year.
Agreement for the sale of the BMH Marine business was reached in November and as
such its operating results have been re-categorised as discontinued at the half
year. The loss arising on disposal of £1.8 million is shown as a non-operating
exceptional item.
The interest charge before exceptionals for the first six months at £1.0 million
was the same as the first half of last year. Net debt at 30 September 2003
stood at £26.7 million compared to £37.2 million at 31 March 2003. The large
fluctuations in working capital not withstanding, this position reflects a
strong underlying cash performance in the first half.
A one-off cash benefit of £1.7 million arose on the sale of a financial asset in
the first half of the year and is reported here as an exceptional gain within
the interest and similar income line. This, together with a lower tax charge
than originally anticipated, contributed to an increase of 60% in earnings per
share from 3.43 pence in the first half of 2002/03, to 5.50 pence in the current
half year. Excluding the effect of goodwill and exceptional items, earnings per
share were 6.69 pence, up 68% from 3.98 pence for the first six months of last
year.
At the end of the half year the order book stood at £640 million excluding SLAM
and SWRP. The addition of these two contracts would take the level to over £1.2
billion.
Improving profitability and cash flow has enabled the Board to declare an
interim dividend of 1.25 pence per ordinary share for the six months ended 30
September 2003, up 8.7% from 1.15 pence for the first half of last year.
Technical Services
Turnover £88.7 million (2002: £91.8 million). Operating profit (before
goodwill) £7.3 million (2002: £7.2 million)
Turnover in Technical Services was slightly down, in line with our expectations,
reflecting the end of the submarine programme at Rosyth. The restructuring of
Rosyth into four separate business units is now complete and is beginning to
show dividends, both in aligning the cost base and developing commercial
opportunities.
The work programme on HMS Illustrious, the third of the carrier refits,
accelerated during the period. The refit continues on schedule and the
innovative partnering initiatives introduced at the start of the refit are being
viewed as best practice by our customer. This programme will complete in the
second half of next year. Work continued on the Type 23 Frigate batch and the
fourth started refit in September. Towards the end of the period four small
ships contracts, two of which were won in competition, started.
The Engineered Products Business Unit at Rosyth has won a significant contract
(£13 million excluding materials) for production design and manufacture of steel
modules for the new Terminal 5 construction project at London's Heathrow
airport. In addition, its marketing programme to develop other opportunities in
the offshore Oil and Gas, Water, Marine and Civil Engineering sectors is
beginning to show benefits. The programme for the 'SMIT' training boats has
completed and half of the sixteen landing craft have been delivered, with the
remainder to be delivered in the second half.
Other significant wins for Rosyth include, the 'Design Alliance' contract with
the Ministry of Defence. This partnership secures a base load of defence work
for Babcock Design & Technology (BD&T), worth in the region of £8 million over
the next four years. The success of BD&T's interactive asset information
service, V-Bridge, has continued with the award of contracts to cover a further
six RN ships. This ground-breaking solution was awarded the Scottish Enterprise
award for Innovation in 2003, and is attracting interest from commercial,
asset-intensive markets.
The Non-Project Procurement Organisation (NPPO) contract, which was won last
year, is currently ahead of plan and the Supply Chain Services business unit are
pursuing a number of opportunities in the same area.
Discussions have continued with the Prime Contract Office for the new aircraft
carriers, and a number of packages of information relating to construction
options have been submitted. Rosyth remains the nominated site for assembly,
integration, final outfit and commissioning of the new aircraft carriers and we
are optimistic that significant construction work will also be awarded.
Construction is now most likely to start during 2007.
Despite difficult market conditions and severe competition FBM were successful
in winning a £9 million contract to construct a 64 metre Ropax ferry for Doeksen
with an option for a further vessel. This business remained in loss during
the first half, but some improvement should occur in the second half.
Eagleton, the US oil pipeline business, was profitable throughout the period,
although there were few significant contracts awarded during the half year.
Training and Support
Turnover £126.2 million (2002: £64.0 million). Operating profit (before
goodwill) £7.1 million (2002: £4.1 million)
As expected, turnover in Babcock Defence Services slipped back compared with
last year as the effect of British troop withdrawal from Kosovo was seen. Some
ground was regained with the award of contracts to support NATO and the UN in
the Balkans and for further support in Afghanistan. Towards the end of the
half-year there was success in winning a technician-training contract for Hawk
maintenance in the UAE - while not large in turnover terms it will be profitable
and establishes our credentials in the region which has a large population of
Hawk aircraft.
Progress on major bids in BDS continues to be slow with the Ministry of Defence
requiring a further bid revision period on The Armoured Vehicle Training System
(AVTS), some 14 months after supposed final bids had been submitted for final
evaluation. The process on the Royal School of Military Engineering project
remains opaque - our elevation from sole bidder to preferred bidder was expected
in the half year but has not yet happened. The other long-running process for
Airside Support is under evaluation by the Ministry Team, but we have no
certainty as to when the award will be made. Babcock has expensed some £6
million on preparing these bids and decisions by the MoD are still awaited.
The disappointment of losing Cranwell was more than compensated by the win of
RAF Valley - the RAF station on Anglesey. The win of RAF Valley will result in
Babcock, in April 2004, having responsibility for maintenance and operation of
virtually all RAF and Royal Navy Hawk trainers. We also retained the RAF
Exhibitions contract.
Babcock Infrastructure Services (BIS) turnover grew as a result of the SGI
business being included for the full period and as a result of a very strong
showing from the South African business. The Single Living Accommodation
Modernisation project is on plan, although we do not expect significant income
from this project until 2005 when accommodation units have been completed and
handed over by our partners, Bovis Lend Lease. It will then provide a steady
income for the following seven to ten years. We have also secured a two-year
extension on the Ealing education contract and on the Crown Estates contract.
Significant time and money is being invested in bidding for the Regional Prime
Contracts for Defence Estates. Nomination as preferred bidder for the South West
Regional Prime contract was a significant win for Debut - our joint venture with
Bovis Lend Lease. Babcock's element of the contract is currently valued at an
average of £65 million a year for seven years and we would expect to achieve
substantial growth above this level. The bid was led by the business we
acquired last year as SGI and will more than treble the turnover of the acquired
business. This is the second of five regional prime contracts to be awarded and
the BIS team have already qualified to tender for two further regions. So far,
Defence Estates have managed to meet every deadline they set themselves to
achieve during the procurement processes.
The scope of these contracts is very broad - covering all maintenance and the
majority of capital works projects for the MoD Estates - and will be delivered
through management by Babcock of a 'best in class' supply chain.
Our South African operations made significant progress, both in revenue and
profit terms, over the first half. The support business for energy generation
has improved margins substantially (although there is still room for progress)
and the Volvo Construction Equipment distributorship has been outstandingly
successful with new equipment sales more than doubling compared with the same
period last year. Margins should continue to improve as the vehicle park grows,
vehicles age, and the parts and service markets develop. It is still the plan
to build on the successful African base to create a company which looks more
like the UK operations in addition to the continuation of the existing business.
Babcock Naval Services won the Private Finance Initiative/Public:Private
Partnership of the Year Award from Insider Magazine and Bank of Scotland - a
recognition of the success of the partnering concept as implemented at the Clyde
Naval Base. Savings identified and implemented under the contract are ahead of
plan and we remain confident that we will continue to deliver savings and
excellent service to the Royal Navy. This will result in further margin
improvement. Our relationship with the customer at Faslane remains an excellent
example of the partnering ethos and is clearly recognised as such by ourselves.
Materials Handling
Turnover £10.2 million (2002: £25.7 million). Operating loss (before goodwill)
£0.2 million (2002: £1.2 million)
The Swedish Material Handling businesses continued to experience difficult
market conditions, making a small loss in the first half.
Agreement has been reached for the sale of the business and assets of BMH Marine
which effectively completes our strategy of exiting the BMH businesses.
Completion of the sale will take place on 30 November.
Summary and Prospects
In the period since the end of the last financial year, we attained the goal of
becoming a focused support services business. Following the end of the half
year the disposal of the Materials Handling business and the nomination as
Preferred Bidder for South West Regional Prime underlined the transformation.
Current trading is in line with our expectations.
Babcock will now concentrate on continuing to deliver outstanding service to its
customers and, at the same time, focus on achieving further contract wins.
BABCOCK INTERNATIONAL GROUP PLC
SUMMARISED GROUP PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2003
Year ended
31 March
2003
Six months ended Six months ended
30 September 2003 30 September 2002
Before
goodwill
and non Goodwill
operating and non
exceptional operating
items exceptional Before
(unaudited) items Total goodwill Goodwill Total
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m £m
Total
£m Note
Group turnover
377.9 Continuing 214.9 - 214.9 155.8 - 155.8
operations
45.6 Discontinued 4 10.2 - 10.2 25.7 - 25.7
operations
423.5 3 225.1 - 225.1 181.5 - 181.5
Group operat Group
operating profit/(loss)
21.1 Continuing 12.3 (1.6) 10.7 10.1 (0.8) 9.3
operations
(2.2) Discontinued 4 (0.2) - (0.2) (1.2) - (1.2)
operations
18.9 3 12.1 (1.6) 10.5 8.9 (0.8) 8.1
Share of operating loss of
joint
(0.2) ventures and associates - - - (0.1) - (0.1)
Provision for loss on sale
(2.7) of operations 5 - (1.8) (1.8) - - -
Profit on ordinary
16.0 activities before interest 12.1 (3.4) 8.7 8.8 (0.8) 8.0
Net interest and similar
(2.6) (charges)/ income 6 (1.0) 1.7 0.7 (1.0) - (1.0)
Profit on ordinary
13.4 activities before taxation 11.1 (1.7) 9.4 7.8 (0.8) 7.0
Tax on profit on
(5.1) ordinary activities 7 (1.4) (2.0)
Profit on ordinary
8.3 activities after taxation 8.0 5.0
Dividends paid and
(4.4) proposed 9 (1.8) (1.7)
Retained profit
3.9 for the financial period 6.2 3.3
Earnings per share 8
5.72p - Basic 5.50p 3.43p
5.69p - Diluted 5.47p 3.41p
Earnings per share before
non-operating exceptional
items and
goodwill 8
8.91p - Basic 6.69p 3.98p
8.87p - Diluted 6.66p 3.96p
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
AS AT 30 SEPTEMBER 2003
As at As at
30 September 30 September
2003 2002
As at (unaudited) (unaudited)
31 March 2003 £m £m
£m
Note
Fixed assets
Intangible assets
1.0 Development costs 0.8 1.1
Goodwill
84.0 - Goodwill 83.6 86.3
(6.5) - Negative goodwill (5.6) (7.9)
77.5 78.0 78.4
78.5 78.8 79.5
16.5 Tangible assets 15.0 19.9
Investments
Investments in joint ventures
1.4 - Share of gross assets 2.1 1.6
(1.8) - Share of gross liabilities (2.6) (2.0)
0.8 - Loans to joint ventures 1.1 0.8
0.4 0.6 0.4
3.9 Other investments 4.9 4.0
4.3 5.5 4.4
99.3 99.3 103.8
Current assets
23.4 Stocks 28.0 21.7
88.7 Debtors - due within one year 92.1 75.0
69.6 Debtors - due after more than one 65.4 69.1
year
158.3 157.5 144.1
12.7 Cash and bank balances 12 14.0 14.2
194.4 199.5 180.0
Creditors - amounts due within one
year
(31.1) - Borrowings 12 (24.8) (27.0)
(128.8) - Other (132.2) (125.3)
(159.9) (157.0) (152.3)
34.5 Net current assets 42.5 27.7
133.8 Total assets less current liabilities 141.8 131.5
Creditors - amounts due after more than one year
(18.8) - Borrowings 12 (15.8) (20.9)
(0.2) - Other (0.1) -
(19.0) (15.9) (20.9)
(27.4) Provisions for liabilities and (31.1) (26.2)
charges
87.4 Net assets 94.8 84.4
Capital and reserves
88.9 Called up share capital 89.2 88.9
38.1 Share premium account 38.2 38.1
30.6 Capital redemption reserve 30.6 30.6
(70.3) Profit and loss account (63.3) (73.3)
87.3 Equity interests 94.7 84.3
- Non-equity interests - -
87.3 Shareholders' funds 94.7 84.3
0.1 Equity minority interests 0.1 0.1
87.4 94.8 84.4
BABCOCK INTERNATIONAL GROUP PLC
SUMMARISED GROUP CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003
Six months ended Six months ended
30 September 2003 30 September
Year ended (unaudited) 2002
31 March £m (unaudited)
2003 £m
£m Note
11.3 Cash inflow from operating 10 13.4 5.7
activities
(2.5) Returns on investments and servicing of finance 0.8 (0.8)
(3.0) Taxation (0.7) (1.4)
(3.0) Capital expenditure and financial investment (1.8) (1.9)
(26.8) Acquisitions and disposals 1.1 (23.6)
(4.2) Equity dividends paid (2.7) (2.5)
(28.2) Cash inflow/(outflow) before management of 10.1 (24.5)
liquid resources and financing
(0.2) Management of liquid resources 0.2 (0.5)
20.7 Financing (4.9) 22.2
(7.7) Increase/(decrease) in cash in the period 11 5.4 (2.8)
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003
Six months Six months ended
ended 30 September
Year ended 30 September 2002
31 March 2003 (unaudited)
2003 (unaudited) £m
£m £m
8.3 Profit for the financial period 8.0 5.0
Currency translation differences on foreign
currency
2.0 net investments and related loans 0.7 (0.4)
10.3 Total recognised gains and losses relating to 8.7 4.6
the period
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003
Six months Six months
Year ended ended ended
31 March 30 September 30 September
2003 2003 2002
£m £m £m
80.9 Shareholders' funds at start of 87.3 80.9
period
0.5 Shares issued in the period 0.5 0.5
10.3 Total recognised gains and losses 8.7 4.6
(4.4) Dividends (1.8) (1.7)
6.4 Net movement in shareholders' 7.4 3.4
funds
87.3 Shareholders' funds at end of 94.7 84.3
period
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003
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 2003, as set out in the annual report for that year.
2 Basis of preparation
The comparative figures for the year ended 31 March 2003 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 2003 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 2003 was approved by
the Directors on 19 November 2003.
3 Segmental analysis
Six months ended 30 September 2003 Six months ended 30 September 2002
Group Group
operating operating
profit Group profit Group
Group before operating Group before Goodwill operating
turnover goodwill Goodwill profit turnover goodwill £m profit
£m £m £m £m £m £m £m
Continuing operations
Technical Services 88.7 7.3 - 7.3 91.8 7.2 - 7.2
Training and 126.2 7.1 - 7.1 64.0 4.1 - 4.1
Support
Unallocated costs
and
other income - (2.1) - (2.1) - (1.2) - (1.2)
214.9 12.3 - 12.3 155.8 10.1 - 10.1
Goodwill - - (1.6) (1.6) - - (0.8) (0.8)
amortisation
Total continuing
operations 214.9 12.3 (1.6) 10.7 155.8 10.1 (0.8) 9.3
Discontinued 10.2 (0.2) - (0.2) 25.7 (1.2) - (1.2)
operations
Group total 225.1 12.1 (1.6) 10.5 181.5 8.9 (0.8) 8.1
4 Discontinued operations
Discontinued operations comprise BMH Marine AB, which has been sold since the
period end and BMH Kellve AB, which is expected to be sold prior to the year
end. The prior year results have been adjusted to reflect this. The turnover
and operating profit of BMH Kellve were £2.6 million and £0.1m respectively
(2002: £3.1 million and £0.2m).
5 Provision for loss on sale of operations
A non-operating exceptional loss of £1.8 million was provided for during the
period for the disposal of the remaining BMH businesses.
6 Interest exceptional items
A gain arose on the sale of a financial asset in the first half of the year and
is reported as an exceptional gain within the interest and similar income line.
7 Taxation
The charge for taxation has been based on the estimated effective tax rate for
the year ended 31 March 2004. There is no tax on the exceptional items.
8 Earnings per share
The basic earnings per share has been calculated on the profit for the period of
£8.0 million (2002: profit of £5.0 million) and the weighted average number of
ordinary shares in issue throughout the period of 144,696,659 (2002:
144,937,815).
The diluted earnings per share has been calculated after taking account of
4,818,062 dilutive share options where the exercise price is less than the
average market price of the company's own shares during the period.
The basic and diluted earnings 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 £1.6 million (2002: £0.8 million), the provision for loss on sale of
operations of £1.8 million (2002: £nil) and the interest exceptional income of
£1.7 million (2002: £nil). There is no tax effect on these adjustments.
Last year's average share numbers have been revised to eliminate the shares held
by the Babcock Employee Share Trust.
9 Dividends
An interim dividend of 1.25p per 60p ordinary share (2002: 1.15p per 60p
ordinary share) will be paid on 23 January 2004 to shareholders registered on 19
December 2003.
10 Reconciliation of operating profit to cash flow from operating activities
Six months ended Six months ended
30 September 2003 30 September
Year ended (unaudited) 2002
31 March £m (unaudited)
2003 £m
£m
18.9 Group operating profit 10.5 8.1
8.8 Depreciation 2.4 4.4
0.3 Amortisation of intangibles 0.1 0.1
1.9 Amortisation of goodwill 1.6 0.8
(18.6) Movement on working capital (1.2) (7.7)
11.3 Cash inflow from operating activities 13.4 5.7
11 Movement in net debt
Six months Six months
ended ended
Year ended 30 September 30 September
31 March 2003 2002
2003 (unaudited) (unaudited)
£m £m £m
(7.7) Increase/(decrease) in cash in the period 5.4 (2.8)
0.2 (Decrease)/increase in liquid resources in the year (0.2) 0.5
Cash flow from the decrease/(increase) in debt and
(20.2) lease financing 5.4 (21.8)
(27.7) Change in net debt resulting from cash flows 10.6 (24.1)
Loans and finance leases (acquired)/disposed of with
(0.1) subsidiaries - (0.1)
(0.7) New finance leases - (0.7)
(0.3) Foreign currency translation differences (0.1) (0.3)
(28.8) Movement in net debt in the period 10.5 (25.2)
(8.4) Net debt at the start of the period (37.2) (8.4)
(37.2) Net debt at the end of the period (26.7) (33.6)
12 Changes in net debt
At Acquisitions Other At
1 April and non-cash Exchange 30 September
2003 Cashflow disposals changes movement 2003
£m £m £m £m £m £m
Cash and bank balances 9.6 1.4 - - - 11.0
Bank overdrafts (7.9) 4.0 - - - (3.9)
1.7 5.4 - - - 7.1
Debt (40.7) 5.2 - - - (35.5)
Finance leases (1.3) 0.2 - - (0.1) (1.2)
(42.0) 5.4 - - (0.1) (36.7)
Liquid resources 3.1 (0.2) - - - 2.9
Total (37.2) 10.6 - - (0.1) (26.7)
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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