Interim Results - 6 Months to 30 September 1999
Babcock International Group PLC
18 November 1999
BABCOCK INTERNATIONAL GROUP PLC
Interim results for the six months ended 30 September 1999
Highlights
* Continued successful progress, with Group operating
profit, excluding goodwill and operating exceptional
costs, increasing to £10million (1998: £8.4 million);
* Group profit before tax was £11.9 million (1998: £11
million) and the corresponding earnings per share was
6.06p (1998: 5.0p);
* Earnings per share excluding the exceptional profit on
disposal of fixed assets was 5.6p (1998:5.0p) and an
interim dividend of 0.9p (1998: 0.8p) will be paid;
* With strong net cash position of £68.9 million (1998:
£35.8m) the Group continues to evaluate potential
acquisitions with good strategic fit;
* Group order book increased to £382m (1998: £271m);
* Both divisions (BES and BMH) continued to make good
progress;
* The Chairman Dr T John Parker said 'The risk profile of
the Group and its portfolio of businesses have been
transformed and excellent progress has been achieved on
improving operating margins and returns on capital
employed. Increased focus is now being placed on adding
new revenue streams via organic development and
acquisitions. The Group strategy has the potential to
continue delivering future improvements in shareholder
value.'
Contact: Dr John Parker, Chairman
Babcock International Group PLC
Telephone: 0171 282 2945 (until 5.30pm)
Thereafter: 01494 727 296
Ginny Pulbrook
Citigate Dewe Rogerson
Telephone: 0171 282 2945
Chairman's statement
Results
I am pleased to report that the Group has had another successful
first half year with good progress being made by both Divisions.
Group operating profit, excluding £2.2m of exceptional costs for a
redundancy programme in Railcare, its rail venture with Siemens,
increased strongly by 14.5% compared with the first half of the
previous year.
Group operating profit before goodwill and the exceptional item
referred to above increased in the half year to £10.0m (1998: £8.4 m)
resulting in an operating margin of 4.3% (1998: 3.4%) on turnover of
£233.6m (1998: £250.3m). The credit from goodwill amortisation in the
period was £1.0m (1998: £1.2m).
Group profit on ordinary activities before tax was £11.9m (1998:
£11.0m) after including the exceptional costs of redundancy and the
exceptional profit on disposal of fixed assets of £0.8m (1998: £ nil)
and interest receivable of £2.2m (1998: £1.0m).
Earnings per share excluding the above exceptional profit was 5.6p
(1998: 5.0p) and after including it was 6.1p (1998: 5.0p). An interim
dividend of 0.9p per share has been declared by the Board (1998:
0.8p).
The Group order book has remained strong and was £382.3m at September
(1998: £270.5m) compared with £353.2m at March 1999.
The operating cash outflow during the first half was £6.2m compared
with an inflow of £11.0m in the corresponding period last year and
the Group's net cash at the end of September was £68.9m (March:
£82.1m).
Review of Operations
BES
BES achieved a good trading performance during the first half and
increased operating profits before the cost of the redundancy
programme at Railcare, by £0.6m or 9.6% compared with the
corresponding period last year. Turnover was lower than for the
same period last year due principally to weaker demand for rail
wheelset and bogey overhaul, a lower level of refit man hours
following the delayed arrival of the aircraft carrier HMS Ark Royal
and the completion last year of the Ministry of Defence ('MoD')
funded nuclear dock infrastructure improvements at Rosyth.
In the Division's naval refitting activities there were further
improvements in performance both in the UK and New Zealand as a
result of continuing cost reduction and efficiency improvement
initiatives. The two-year refit contracts for the nuclear submarine
HMS Spartan and aircraft carrier HMS Ark Royal that began in the
period are progressing well. In New Zealand the deployment of the
Royal New Zealand Navy's ships in response to the situation in East
Timor has led to a temporary reduction in naval work.
Within Railcare, performance improvement measures have been pursued
to protect future margins. Information in connection with the UK
Government's public/private partnership plans to modernise and
upgrade the London Underground system was released recently and is
now being studied and evaluated. Railcare is also now responding to
enquiries regarding its capability to convert 'swing door' railway
rolling stock to a 'sliding door' configuration for which a
prototype has already been completed.
In the Division's modest sub-sea engineering and supply activities
challenging market conditions continued to prevail although the more
recent substantial increase in oil prices has generated an improved
medium term outlook.
Good progress was made during the period in the Division's strategy
of leveraging off its substantial facilities and skills at Rosyth
with a view to accessing new customers and alternative business
streams. Initiatives underway to exploit our nuclear engineering
skills include the recent formation of a joint venture between BES
and Studsvik AB, a leading Swedish company in the field of nuclear
waste clean up, to apply the joint skills of the partners to civil
nuclear decontamination and decommissioning opportunities in the UK.
BES' rail freight wagon (Mega 3), with its ability to handle
megatrailers, tank trailers and swap bodies, successfully completed
its UK certification programme which has confirmed its ability to
operate at high speeds of up to 140 kph. BES will now seek approval
for the wagon to operate in Europe and remains confident that this
concept is being factored into the forward plans of rail freight and
logistics operators as the way ahead to reduce road congestion and
improve the speed of freight movements.
Babcock Defence Systems' bid in February 1999 to supply a new towed
array sonar to the UK Royal Navy for its Type 23 Frigate fleet has
been recently resubmitted following a number of technical changes
required by the MoD. Further clarifications are being processed and
a final round of revisions is expected before the successful bidder,
from a short list of two, is announced towards the end of the
current financial year.
The consortium bidding for the ten year management contract of the
UK Government's Atomic Weapons Establishment at Aldermaston led by
Babcock and including W S Atkins and Scientific Applications
International Corporation (SAIC) has completed several tough rounds
of bidding and evaluation in the course of the last six months. No
final decision has been announced by the MoD although this is
expected before the end of the calendar year. Regardless of the
outcome this contract demonstrates our credentials to participate in
such sophisticated facility management bids to the MoD. There are a
number of other major facility management opportunities with the MoD
which the Group will pursue over the coming years. Furthermore BES
will shortly establish a new specialist facilities management
company to exploit a range of skills and software that can be spun
out from Rosyth. It will aim to serve the more sophisticated end of
the growing facilities management market including in the civil
sector.
BMH
The Division continued to make very good progress with turnover and
operating profits growing by 11.5% and 32.5% respectively compared
with the corresponding period last year. Total order book at
September was 13.8% higher than a year earlier at £115.6 m.
The importance of BMH's balanced portfolio of businesses and a
flexible and global operating structure was again evident as the
Division responded to new opportunities. Improved trading
performances were recorded in the period by the Division's pipeline
engineering and marine businesses although the Nordic bio-energy
activities were more subdued. The South Africa business achieved
modest profitability despite facing depressed markets particularly
in equipment distribution.
Market conditions in some parts of the world are still challenging,
particularly in Latin America and South Africa, and both sales and
order intake in the first half have continued to be led by Europe
and North America. In Asia, which remains an important market for
BMH, there have been encouraging signs of a revival in demand from
certain of the troubled Asian economies. Similarly the prices of
certain commodities that are important drivers in BMH's businesses
have shown significant recovery, including crude oil prices which
influence investment levels in pipeline activity.
Key elements of BMH's strategy for organic development include
accessing new business opportunities in adjacent markets and new
product development. The division has secured contracts in adjacent
markets for grain terminals, grinding and refined building
materials. In new product development there has been a particularly
strong emphasis on packing and despatch systems, port terminals and
technologies in support of engineered building products. In
addition the product portfolio has been enriched through license
agreements for special tubular conveying technology. The Division
has reached agreement to acquire radio frequency drying plant
technology in the USA to enable it to access new markets in veneer
and board drying. BMH is also placing greater emphasis on long-term
customer support services including modern telecommunications
techniques to monitor plant installations remotely in real time.
Strategy and Prospects
The Group continues to evaluate potential acquisitions which have a
good strategic fit with our existing businesses and which utilise
the Group's international market expertise and in depth knowledge of
a wide range of industrial sectors. We are confident that in due
course we will complete strategic acquisitions at acceptable prices.
Over the past two years we have transformed the risk profile of the
Group and its portfolio of businesses. We have made excellent
progress on improving operating margins and returns on capital
employed. Increased focus is now being placed upon adding new
revenue streams through organic growth and acquisition. Where
appropriate these will be geared to utilising the Group's sizeable
pool of overseas tax losses. The Group's strategy has the potential
to continue delivering future improvements in shareholder value.
Dr T John Parker Chairman, 18 November 1999
BABCOCK INTERNATIONAL GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999
Year ended Six months Six months
ended ended
31 March 30 September 30 September
1999 1999 1998
Before
operating Operating
exceptionals exceptionals Total
(unaudited) (unaudited)(unaudited)(unaudited)
£'000 £'000 £'000 £'000 £'000
509,413 Turnover including
share of
joint ventures 233,600 - 233,600 259,805
13,092 Less: share
of joint
ventures turnover - - - 9,467
494,990 Continuing operations 233,600 - 233,600 249,861
1,331 Discontinued operations - - - 477
496,321 Group turnover 233,600 - 233,600 250,338
19,786 Continuing operations 9,953 (2,152) 7,801 8,270
109 Discontinued operations - - - 178
19,895 Group operating
profit before
goodwill amortisation 9,953 (2,152) 7,801 8,448
2,337 Goodwill amortisation 1,038 - 1,038 1,150
22,232 Group operating
profit 10,991 (2,152) 8,839 9,598
569 Share ofoperating profit
of joint ventures and
associates - - - 404
Trading profit
including share of
22,801 joint ventures
and associates 10,991 (2,152) 8,839 10,002
6,142 Profit on
sale or
termination of
operations - -
- Profit on
- disposal of
- fixed assets 798 -
28,943 Profit on ordinary activities
before interest 9,637 10,002
2,501 Interest 2,223 968
31,444 Profit on
ordinary activities
before taxation 11,860 10,970
(5,295) Tax on profit on
ordinary activities (2,205) (2,304)
26,149 Profit on
ordinary activities
after taxation 9,655 8,666
(637) Minority interests 612 (200)
25,512 Profit for the financial
period 10,267 8,466
(3,725) Dividends paid
and proposed (1,524) (1,355)
21,787 Retained profit for the
financial period 8,743 7,111
15.07p Earnings per
share - Basic 6.06p 5.00p
14.99p Earnings per
share - Diluted 5.94p 4.97p
BABCOCK INTERNATIONAL GROUP PLC
GROUP RESULTS BY DIVISION
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999 (UNAUDITED)
Group Group Share of Trading
operating operating operating profit
profit profit profit of including
before Group after joint joint
operating operatingoperating ventures ventures
Group exceptionalexceptionalexceptional and and
turnover items items items associates associates
Sept 1999 Sept 1999 Sept 1999Sept 1999 Sept 1999 Sept1999
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
BES 123,878 6,886 (2,152) 4,734 - 4,734
BMH 109,722 4,012 - 4,012 - 4,012
Unallocated costs
and other
income - (945) - (945) - (945)
233,600 9,953 (2,152) 7,801 - 7,801
Goodwill amortisation - 1,038 - 1,038 - 1,038
Total continuing
operations 233,600 10,991 (2,152) 8,839 - 8,839
Discontinued operations - - - - - -
Goodwill amortisation - - - - - -
Total discontinued
operations - - - - - -
233,600 10,991 (2,152) 8,839 - 8,839
Share of Trading
operating profit
profit of including
joint joint
Group ventures ventures
Group operating and and
turnover profit associates associates
Sept 1998 Sept 1998Sept 1998 Sept1998
£'000 £'000 £'000 £'000
Continuing operations
BES 151,421 6,280 - 6,280
BMH 98,440 3,027 - 3,027
Unallocated costs
and other
income - (1,037) - (1,037)
249,861 8,270 - 8,270
Goodwill amortisation - 1,158 - 1,158
Total continuing
operations 249,861 9,428 - 9,428
Discontinued operations 477 178 601 779
Goodwill amortisation - (8) (197) (205)
Total discontinued
operations 477 170 404 574
250,338 9,598 404 10,002
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
AS AT 30 SEPTEMBER 1999
As at As at As at
31 March 30 September 30 September
1999 1999 1998
(unaudited) (unaudited)
£'000 £'000 £'000
Fixed assets
Intangible assets
183 Development costs 64 329
Goodwill
21,842 - Goodwill 20,935 23,074
(22,593) - Negative goodwill (20,648) (24,576)
(751) 287 (1,502)
(568) 351 (1,173)
47,824 Tangible assets 45,135 50,234
Investments
Investments in
joint ventures
- - Goodwill - 1,518
- - Share of
gross assets - 8,503
- - Share of
gross liabilities - (4,952)
- - 5,069
558 Investments in
associates 558 526
126 Other investments 684 134
684 1,242 5,729
47,940 46,728 54,790
Current assets
25,835 Stocks 26,187 23,704
105,741 Debtors - due
within one year 122,712 124,862
77,144 Debtors - due
after more
than one year 74,285 73,191
182,885 196,997 198,053
6,618 Investments 7,574 -
89,928 Cash and
bank balances 76,336 58,674
305,266 307,094 280,431
(182,430) Creditors - amounts
due within
one year (178,304) (178,937)
122,836 Net current
assets 128,790 101,494
170,776 Total assets
less current
liabilities 175,518 156,284
(2,016) Creditors - amounts
due after
more than
one year (2,058) (8,767)
(32,186) Provisions for
liabilities and
charges (30,002) (25,867)
136,574 Net assets 143,458 121,650
Capital and
reserves
84,660 Called up
share capital 84,685 84,656
67,112 Share premium
account 67,118 67,111
(25,017) Profit and
loss account (16,539) (39,489)
126,755 Equity shareholders'
funds 135,264 112,278
9,819 Minority interests 8,194 9,372
136,574 143,458 121,650
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended Six months ended Six months ended
31 March 30 September 30 September
1999 1999 1998
£'000 (Unaudited) (Unaudited)
£'000 £'000
25,512 Profit for
the financial
period 10,267 8,466
(710) Currency translation
differences on
foreign currency
net investments
and related loans (265) (506)
24,802 Total recognised
gains and
losses relating
to the period 10,002 7,960
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended Six months endedSix months end
ed
31 March 30 September 30 September
1999 1999 1998
£'000 (Unaudited) (Unaudited)
£'000 £'000
105,673 Shareholders' funds
at start
of period 126,755 105,673
5 Shares issued
in the period 31 -
24,802 Total recognised
gains and
losses relating
to the period 10,002 7,960
(3,725) Dividends (1,524) (1,355)
21,082 Net movement
in shareholders'
funds 8,509 6,605
126,755 Shareholders' funds
at end
of period 135,264 112,278
BABCOCK INTERNATIONAL GROUP PLC
SUMMARISED GROUP CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999
Year ended Six months ended Six months ended
31 March 30 September 30 September
1999 1999 1998
(unaudited) (unaudited)
£'000 £'000 £'000
56,136 Cash flow
from operating
activities (6,177) 10,971
1,350 Dividends from
joint ventures - 1,350
1,615 Returns on
investments and
servicing of finance 1,075 584
(798) Taxation (644) (796)
(5,506)Capital expenditure
and financial
investment (1,419) (2,880)
16,941 Acquisitions and
disposals (1,994) 4,829
(3,235)Equity dividends
paid (2,370) (1,880)
66,503 Cash (outflow)/
inflow before
management of
liquid resources
and financing (11,529) 12,178
884 Management of
liquid resources (956) 886
(6,240)Financing 244 (6,223)
61,147 (Decrease)/increase
in cash in
the period (12,241) 6,841
The principal component of the cash flow from acquisitions and
disposals is the settlement of the litigation against the Group that
arose following the disposal of a business that was formerly part of
the Group. This matter was referred to in the Group's 1999 annual
report and financial statements. The Group has also paid deferred
consideration following the Group's acquisition of AKI Dryer
Manufacturers (now renamed BMH AKI Dryers Inc.) in September 1998.
Returns on investment and servicing of finance includes the payment
of a dividend of £1.0m to the minority shareholder in the Group's
Railcare operation.
RECONCILIATION OF NET FUNDS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999 (UNAUDITED)
New At 30
At 1 April finance Exchange September
1999 Cash flow leases movement 1999
£'000 £'000 £'000 £'000 £'000
Cash in
hand and
at bank 89,928 (12,962) - (630) 76,336
Overdrafts (6,462) 721 - (16) (5,757)
83,466 (12,241) - (646) 70,579
Debt (1,399) (289) - 5 (1,683)
Finance leases (757) 76 (382) 2 (1,061)
(2,156) (213) (382) 7 (2,744)
Liquid resources 6,618 956 - - 7,574
87,928 (11,498) (382) (639) 75,409
Notes
1) The statement of results for the year to 31 March 1999 is an
extract from the Group's full accounts for the year which have been
filed with the Registrar of Companies and on which the Group's
auditors gave an unqualified report. The accounting policies are as
stated in the Group's full accounts for the year ended 31 March
1999.
2) The charge for taxation has been based on the estimated
effective tax rate, before (non-operating) exceptional items and
goodwill, for the year ended 31 March 2000.
3) Earnings per share is based on the profit attributable to
shareholders for the half year to 30 September 1999 and an average
of 169.3m shares in issue in the period.
4) Based on the first half trading results, the Board has approved
the payment of an interim dividend amounting to 0.9p per share
(compared to 0.8p in 1998). The dividend will be paid on 28 January
2000 to shareholders registered on 6 January 2000.
Circulation Note
Copies of this interim report are being sent to shareholders on 24
November 1999. Further copies are available at the Company's
registered office: Badminton Court, Church Street, Amersham,
Bucks HP7 0DD.