Interim Results
Babcock International Group PLC
13 November 2007
13 November 2007
Babcock International Group PLC
Interim Results for half year ended 30 September 2007
Babcock continues strong growth trend - revenue up 38%, underlying profit before
tax up 42%
Babcock International Group PLC, the support services company, announces its
interim results for the half year ended 30 September 2007.
Financial Highlights
Statutory September 2007 September 2006 Change
Revenue £672.6 m £487.6 m + 38%
Operating profit £50.6 m £29.3 m + 73%
Profit before tax £39.2 m £26.4 m + 48%
Continuing earnings per share 14.12p 9.85p + 43%
Interim dividend 3.30p 2.40p + 38%
Underlying
Operating profit £55.0 m £33.5 m + 64%
Profit before tax £43.6 m £30.6 m + 42%
Continuing earnings per share 15.55p 11.29p + 38%
Underlying results are shown before amortisation of acquired intangibles of £4.4
million (2006: £2.9 million) and operating exceptionals of £nil (2006: £1.3
million) and before the related tax effects of £1.2 million (2006: £1.2
million).
The results include Devonport Management Ltd (DML) and International Nuclear
Solutions plc (INS) for three months (revenue £127.7 million, underlying
operating profit £16.7 million).
Operational Highlights
• Strong organic growth trend continues - revenue + 12%, underlying
operating profit + 14%
• Operating margin 8.2% (2006: 6.9%)
• Acquisition of DML successfully completed and performing ahead of
planning assumptions
• Acquired majority shareholding in INS
• Order book increased to £3.3 billion giving high visibility of long
term revenue
• Bid pipeline remains strong
• Earnings per share and interim dividend each increased by 38%
Peter Rogers, Chief Executive commented
'In the first half we have continued our record of delivering strong organic
growth within our existing businesses whilst expanding significantly through the
acquisition of DML. Following the successful acquisition of DML, Babcock is now
positioned as the leading provider of support to the Royal Navy's surface and
submarine fleet.
'The additional contracts coming on stream and the effect of the DML and INS
acquisitions will have a beneficial effect in the second half as will the
resolution of the issues in the Rail division. We remain confident that the
results for the full year will meet our expectations.'
Contact:
Babcock International Group PLC
Peter Rogers, Chief Executive Tel: 020 7291 5000
Bill Tame, Finance Director
Financial Dynamics Tel: 020 7269 7121
Andrew Lorenz
Susanne Yule
A meeting for investors and analysts will be held today at 10.30 am at Financial
Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.
Babcock International Group PLC
Interim Results for half year ended 30 September 2007
INTRODUCTION
Babcock's strategy is to identify and participate as a leading player in markets
with large 'mission critical' assets requiring long-term significant investment
programmes for their maintenance and upgrade.
In pursuit of this strategy, Babcock acquired Devonport Management Ltd (DML) and
a majority stake in International Nuclear Solutions (INS) during the first half.
In the first three months of ownership DML has performed ahead of our planning
assumptions and the future potential offered by the combination of DML with our
existing businesses is extremely promising.
Strong organic growth was achieved across the Group and we have had a number of
significant contract wins during the period. The Group has had an excellent
first half, both operationally and financially and the background to this
performance is set out below.
FINANCIAL REVIEW
In this review, unless otherwise stated, revenue, 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.
Group Results
The results for the first six months of the financial year were significantly
enhanced by the acquisition of Devonport Management Ltd (DML), which was
completed in June 2007. Group revenue increased by 38% to £672.6 million (2006:
£487.6 million) with significant growth recorded in all divisions, except Rail.
Operating profit increased by 64% to £55.0 million (2006: £33.5 million).
Excluding Rail, which lost £2.7 million during the period, the Group experienced
strong growth in operating profit across all divisions driven by market buoyancy
and a number of notable contract wins.
DML contributed £121.0 million to Group revenue and £16.4 million to operating
profit. Excluding acquisitions, Group revenue increased by 12% to £544.9
million and underlying operating profit increased by 14% to £38.3 million.
The Group operating margin increased to 8.2% in the first half (2006: 6.9%)
benefiting from an exceptionally strong margin performance in Marine and further
progress in Defence Services. A number of one-off factors contributed to the
Marine performance including margin pick-up in the HM Naval Base Clyde (Faslane)
contract as it reached the end of its first five year term and a satisfactory
conclusion to contract negotiations within the DML yacht business. In contrast
the poor performance in Rail had an adverse impact on the Group margin.
Taking account of these factors, we anticipate that the Group operating margin
for the full year will show some improvement over last year's level.
Profit after tax for the period reached £35.7 million (2006: £23.9 million), an
increase of 49%. Profit for the period after charging exceptional items (2007:
£nil 2006: £1.3 million) and amortisation of acquired intangibles was £32.5
million (2006: £20.9 million). On a fully diluted basis, earnings per share
increased by 39% to 15.26 pence per share (2006: 10.99 pence per share).
Dividend
In light of the Group's strong financial performance and prospects the Board has
approved the payment of an interim dividend of 3.30 pence per share, a 38%
increase (2006: 2.40 pence per share).
Cash Flow and Net Debt
Group net debt at the end of the half year stood at £344.6 million compared with
£73.7 million at 31 March 2007. The principal factors affecting the closing net
debt position were as follows.
Cash flow from operations of £53.5 million in the first six months, representing
a cash conversion rate (defined as cash from operations as a percentage of Group
operating profit) of 106%. The acquisition of DML for £350 million plus costs
was funded via a combination of bank borrowings and an equity placing of £89.1
million net of costs. The 68% equity stake in INS was acquired for a total cost
of £28.2 million with a cash outflow this year of £18.5 million including costs,
which was funded from borrowings. The final dividend for 2006/07 of £12.8
million was paid in August 2007, including £1.1 million for new shares issued
via the equity placing.
A new five year revolving credit bank facility was established during the period
for up to £600 million of which £420 million was drawn at 30 September 2007.
The increase in net debt as well as some impact from higher interest rates
following volatility in UK LIBOR resulted in a rise in the interest charge to
£11.7 million (2006: £3.0 million). In line with its treasury policies, the
Group has hedged approximately 50% of its drawn bank borrowing by existing
interest rate swaps and by entering into interest rate collar arrangements which
provide a cap and a floor to its interest rate exposure for the hedged portion
of Group debt. The cost of entering into this instrument is included in the
interest cost for the period. The interest charge was comfortably covered 5.4
times by earnings before interest, depreciation and amortisation.
Tax
The Group's effective tax rate on underlying profit is 19%, remaining below the
UK headline rate of corporation tax. Based on the profile of earnings within
the Group, we expect this rate to be sustainable for the current financial year
as well as the 2008/09 financial year. Current Government consultation on tax
legislation is creating some uncertainty for years beyond 2008/09.
OPERATIONAL REVIEW
Following the completion of the acquisition of DML in June and the acquisition
of the majority shareholding in INS we have realigned our naval and nuclear
activities into one new Marine division, reflecting more clearly our management
structure. The Marine division encompasses all of the activities formerly
reported under Technical Services along with Babcock Naval Services, the
contract for HMNB Clyde (Faslane), which was formerly reported under Defence
Services and the newly acquired subsidiaries DML and INS. All segmental results
for the first half of 2007/08 and the comparative numbers reflect this change.
Marine
Half year to Half year to Change + / -
September 07 September 06
Revenue £273.0 million £131.0 million + 108%
Operating profit £32.4 million £11.1 million + 192%
The Marine business had an excellent first half with the overall business
showing improvement on the same period for last year and, as a consequence,
growth in both revenue and profit from existing businesses was well into double
digits.
Clearly the major event of the period was the acquisition and on-going
integration of DML. The progress made on integration has been good with the new
organisation starting to operate on a product stream basis rather than on
geographic lines. The negotiations with the Ministry of Defence to establish
long-term operating agreements have started and although they are expected to
take up to a year to complete, we remain confident that their outcome will be
successful.
Warship refit has benefited substantially from the start of the Surface Ship
Support Alliance, the purpose of which is to allow industry participants and the
Ministry of Defence to maximise efficiency and resource usage. Our ability to
plan workload and schedule efficiently has brought benefit to us and has also
allowed us to deliver better value for money to the Royal Navy.
Design and Technology had an outstanding six months, successfully completing a
number of commercial projects. There was high workload on the CVF project and
on more routine work for the Ministry of Defence. The Supply Chain Services
business also delivered higher revenues and significantly higher profits.
DML performed ahead of our planning assumptions at the time of the acquisition,
in part helped by the successful completion of a contract negotiation in the
yacht business. The senior management of DML have all elected to remain within
the enlarged Babcock group and this will undoubtedly help in the process of
integration of the businesses.
The Nuclear business - reported within the Marine division - had an excellent
first half in terms of both revenue and profit growth. The current workload is
largely based on limited decommissioning work at Rosyth and support for current
generating operations. The start of the decommissioning work managed by the NDA
is expected to provide very significant opportunity for Babcock in the decades
ahead.
Contract wins for Marine in the first half included the new nuclear de-fuelling
facility at Devonport, manufacture of Supacat land vehicles for the Ministry of
Defence and a number of warship refits.
Defence Services
Half year to Half year to Change + / -
September 07 September 06
Revenue £138.6 million £118.4 million + 17%
Operating profit £13.5 million £9.8 million + 38%
A 17% growth in revenue generated a 38% growth in operating profit in Defence
Services. Both Regional Prime Contracts performed well with a full six months
from Eastern Regional Prime. The Single Living Accommodation Prime Contract
also continued to operate well. The securing of the contract to manage the
Ministry of Defence properties in Bristol and Bath will contribute to growth
over the coming months. This contract award will significantly broaden the
range of services we provide to the MoD within Prime Contracting.
The award of the contract for 'Building Schools for the Future' for Hackney to
the Babcock/Mouchel Parkman consortium was a significant milestone. This is
Babcock's first contract award in this area and we will continue to bid
contracts that fit our business model. In addition we are currently in the
process of bidding for the facilities management of a significant proportion of
the non-custodial element of the Home Office estate.
The Multi Activity Contracts continued to deliver good returns during the period
while continuing to meet all significant KPIs and achieve high levels of
customer satisfaction. The focus is now on a number of new contracts which will
be bid over the next 18 months.
Defence Services has successfully partnered with BAE Systems to provide
integrated operational support (IOS) to the RAF's Hawk fast jet fleet, aligned
to the principles within the new Defence Industrial Strategy (DIS).
Rail
Half year to Half year to Change + / -
September 07 September 06
Revenue £98.6 million £115.6 million - 15%
Operating profit £(2.7) million £4.4 million -
The Rail division had a disappointing first half. The slower business in
signalling and the management distraction of the competition to reduce the
number of track contractors exposed weaknesses in the management systems. These
weaknesses have been addressed and we expect a return to profit in the second
half of the year.
We were successful in being one of the four track renewal contractors selected
by Network Rail. This will result in First Engineering becoming the largest
contractor for traditional and high output track renewal. In addition it is
anticipated that the volume of work under the signalling framework contracts
will improve towards the end of the financial year.
Engineering and Plant Services
Half year to Half year to Change + / -
September 07 September 06
Revenue £108.0 million £80.2 million + 35%
Operating profit £8.4 million £6.7 million + 25%
We achieved another excellent performance in the Engineering and Plant division
with the business showing strong growth. In southern Africa the Equipment
business was, once again, the star performer despite the supply limitations
experienced.
During the period we formed (with the agreement of Eskom - the power generator
in South Africa) a joint venture with Alstom and Steinmuller, to provide support
on the Eskom new build programme. The result of these agreements is that the
joint venture will be capable of providing support for Eskom on all the fossil
fired new-build generating capacity over the next ten years. The market for
generation capacity is expected to remain strong as the rate of demand increase
for power is well ahead of even recent predictions. This will also create
further demand for power transmission networks thus benefiting our Powerlines
business.
The market for construction equipment is strong and is likely to remain so while
commodity prices stay high and global demand continues. This area of demand is
under-pinned by an ambitious infrastructure improvement programme which will see
power, road and rail all significantly upgraded over the next ten years.
Networks
Half year to Half year to Change + / -
September 07 September 06
Revenue £54.4 million £42.4 million + 28%
Operating profit £5.4 million £4.8 million + 13%
The Transmission business continued to perform well during the period, while
absorbing and managing the impact of a major staff integration programme into
the 'Electricity Alliance'. This Alliance with National Grid, Amec and Mott
MacDonald will, over the next five years, deliver the National Grid Capital Plan
for overhead lines and buried cables in Wales and the West of England.
The Alliance with EDF Energy Solutions for their High Voltage Networks is
progressing well and for the first time for many years we are winning and
delivering work in Scotland.
The Communications business had a much improved performance compared with the
last two years with volumes picking up marginally and the work on
Digital-Switch-Over increasing rapidly. There is likely to be increased work in
this market as a result of our customers upgrading and combining networks. A
small acquisition was made during the period to provide access to the market in
Eire.
OUTLOOK
The additional contracts coming on stream and the effect of the DML and INS
acquisitions will have a beneficial effect in the second half as will the
resolution of the issues in the Rail division. We remain confident that the
results for the full year will meet our expectations.
Looking further ahead, the bid pipeline remains strong and our £3.3 billion
order book underpins our expectations that momentum can be maintained.
BABCOCK INTERNATIONAL GROUP PLC
GROUP INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Six months ended Six months ended
30 September 2007 30 September 2006
Before Before
acquired Acquired acquired Acquired
Year intangible intangible intangible intangible
ended amortisation amortisation amortisation amortisation
31 March and and and and
2007 exceptional exceptional exceptional exceptional
Total items items Total items items Total
(audited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m Note £m £m £m £m £m £m
988.3 Revenue 2 672.6 - 672.6 487.6 - 487.6
62.8 Operating profit 2, 3 55.0 (4.4) 50.6 33.5 (4.2) 29.3
Share of operating
0.4 profit from joint 2 0.3 - 0.3 0.1 - 0.1
ventures
Operating profit
63.5 including share of 55.6 (4.4) 51.2 33.6 (4.2) 29.4
joint ventures
Joint venture share of
(0.2) interest (0.2) - (0.2) - - -
(0.1) Joint venture share of (0.1) - (0.1) - - -
tax
63.2 55.3 (4.4) 50.9 33.6 (4.2) 29.4
(9.8) Finance costs (14.2) - (14.2) (4.8) - (4.8)
3.6 Finance income 2.5 - 2.5 1.8 - 1.8
57.0 Profit before tax 43.6 (4.4) 39.2 30.6 (4.2) 26.4
(11.0) Income tax expense 5 (7.9) 1.2 (6.7) (6.7) 1.2 (5.5)
Profit for the period
46.0 from continuing 35.7 (3.2) 32.5 23.9 (3.0) 20.9
operations
Discontinued
operations
Loss for period on
discontinued
(0.8) operations - - - - - -
45.2 Profit for the period 35.7 (3.2) 32.5 23.9 (3.0) 20.9
Attributable to:
Equity holders of the
43.4 parent 31.3 20.2
1.8 Minority interest 1.2 0.7
45.2 32.5 20.9
Earnings per share
from continuing and
discontinued
operations 6
21.10p - Basic 14.12p 9.85p
20.48p - Diluted 13.86p 9.59p
Earnings per share
from continuing
operations 6
21.49p - Basic 14.12p 9.85p
20.85p - Diluted 13.86p 9.59p
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
As at As at As at
31 March 30 September 30 September
2007 2007 2006
(audited) (unaudited) (unaudited)
£m Note £m £m
Assets
Non-current assets
198.2 Goodwill 468.5 200.6
23.0 Other intangible assets 70.0 25.9
28.2 Property, plant and equipment 150.7 27.9
0.9 Investments in joint ventures 0.7 0.9
9.4 Other investments - -
62.5 Retirement benefits 109.1 59.6
2.5 Trade and other receivables 2.2 2.6
2.5 Deferred tax asset - -
327.2 801.2 317.5
Current assets
57.7 Inventories 56.7 35.8
167.2 Trade and other receivables 297.3 170.2
1.2 Income tax recoverable - 0.7
0.5 Other financial assets 0.4 1.0
95.6 Cash and cash equivalents 11 179.3 84.7
322.2 533.7 292.4
649.4 Total assets 1,334.9 609.9
Equity and liabilities
Equity attributable to equity holders of the parent
125.8 Share capital 137.5 125.8
70.1 Share premium 148.0 70.0
26.8 Other reserves 27.0 26.8
(17.1) Retained earnings 17.2 (32.4)
205.6 329.7 190.2
1.6 Minority interest 4.2 1.0
207.2 Total equity 8 333.9 191.2
Non-current liabilities
3.6 Bank and other borrowings 11 423.1 4.9
0.9 Trade and other payables 7.1 -
2.5 Deferred tax 28.4 4.9
9.4 Retirement liabilities 0.5 8.1
7.6 Provisions for other liabilities 33.9 11.3
24.0 493.0 29.2
Current liabilities
165.7 Bank and other borrowings 11 100.8 159.8
232.9 Trade and other payables 382.5 211.6
5.9 Income tax payable 8.5 5.0
0.1 Other financial liabilities 1.0 -
13.6 Provisions for other liabilities 15.2 13.1
418.2 508.0 389.5
442.2 Total liabilities 1001.0 418.7
649.4 Total equity and liabilities 1,334.9 609.9
BABCOCK INTERNATIONAL GROUP PLC
GROUP CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Year ended Six months Six months
31 March ended ended
2007 30 September 30 September
(audited) 2007 2006
£m (unaudited) (unaudited)
Note £m £m
Cash flows from operating activities
60.2 Cash generated from operations 9 53.5 27.1
(7.7) Income tax paid (5.6) (2.7)
(9.1) Interest paid (9.5) (4.7)
3.6 Interest received 2.5 1.8
47.0 Net cash flows from operating activities 40.9 21.5
Cash flows from investing activities
0.9 Disposal of subsidiaries and joint ventures (0.9) 1.5
0.7 Proceeds on disposal of property, plant and equipment 1.7 0.4
0.1 Dividends received from joint ventures 0.2 -
(9.7) Purchase of other investments - -
(5.5) Purchases of property, plant and equipment (4.7) (2.8)
(1.5) Purchases of intangible assets (0.3) (0.8)
(52.5) Acquisition of subsidiaries net of cash acquired 4 (372.3) (51.5)
(67.5) Net cash flows from investing activities (376.3) (53.2)
Cash flows from financing activities
(13.6) Dividends paid (12.8) (8.7)
(1.9) Finance lease principal payments (0.2) (0.5)
35.0 Bank loans raised 321.7 55.9
(0.4) Dividends paid to minority interests (0.5) -
0.7 Net proceeds on issue of shares 89.6 0.5
0.3 Movement on own shares (5.0) 0.2
20.1 Net cash flows from financing activities 392.8 47.4
Net increase/(decrease) in cash, cash equivalents and
(0.4) bank overdrafts 57.4 15.7
25.3 Cash, cash equivalents and bank overdrafts at start of 22.1 25.3
period
(2.8) Effects of exchange rate fluctuations 0.1 (3.0)
22.1 Cash, cash equivalents and bank overdrafts at end of 11 79.6 38.0
period
BABCOCK INTERNATIONAL GROUP PLC
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
Year ended Six months Six months
31 March ended ended
2007 30 September 30 September
(audited) 2007 2006
£m (unaudited) (unaudited)
Note £m £m
45.2 Profit for the period (including discontinued operations 32.5 20.9
(5.9) Currency translation differences 0.3 (5.6)
0.4 Fair value adjustment of interest rate swap (0.1) -
8.7 Net actuarial gains in respect of pensions 26.0 16.5
(2.6) Tax on net actuarial gains in respect of pensions (7.3) (4.9)
45.8 Total recognised income and expense 8 51.4 26.9
Attributable to:
44.2 Equity holders of the parent 50.2 26.3
1.6 Minority interest 1.2 0.6
45.8 8 51.4 26.9
BABCOCK INTERNATIONAL GROUP PLC
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
1. Basis of preparation
The consolidated interim financial statements have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Services Authority,
the Listing Rules and with IAS 34, 'Interim financial reporting' as adopted by
the European Union. They should be read in conjunction with the Annual Report
for the year ended 31 March 2007 (the 'Annual Report'), which has been prepared
in accordance with IFRSs as adopted by the European Union. The accounting
policies used and presentation of these consolidated interim financial
statements are consistent with those in the Annual Report. Where necessary, the
comparatives have been reclassified or extended from the previously reported
interim results to take into account any presentational changes made in the
Annual Report or in these consolidated interim financial statements.
Statutory accounts for the year ended 31 March 2007 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 interim report for the six months ended 30 September 2007 was approved by
the directors on 12 November 2007.
2. Segmental analysis
Following the completion of the acquisition of Devonport Management Limited and
the acquisition of the majority shareholding in International Nuclear Solutions
plc we have realigned all of our naval and nuclear activities into one new
Marine division. The Marine division encompasses all of the activities formerly
reported under Technical Services along with Babcock Naval Services.
Six months ended 30 September 2007 Six months ended 30 September 2006
Operating
Operating profit
profit before Acquired
before Acquired acquired intangible
acquired intangible intangible amortisation
intangible amortisation amortisation, and Group
amortisation, and Group Group exceptional exceptional operating
Group exceptional exceptional operating revenue items items profit
revenue items items profit (restated) (restated) (restated) (restated)
£m £m £m £m £m £m £m £m
Continuing
operations
Marine 273.0 32.4 (2.6) 29.8 131.0 11.1 (0.8) 10.3
Defence Services 138.6 13.5 (0.7) 12.8 118.4 9.8 (0.7) 9.1
Rail 98.6 (2.7) (0.9) (3.6) 115.6 4.4 (1.8) 2.6
Engineering & Plant 108.0 8.4 - 8.4 80.2 6.7 - 6.7
Services
Networks 54.4 5.4 (0.2) 5.2 42.4 4.8 (0.3) 4.5
Unallocated - (2.0) - (2.0) - (3.3) (0.6) (3.9)
Group total 672.6 55.0 (4.4) 50.6 487.6 33.5 (4.2) 29.3
The tax credit related to discontinued operations was £nil (2006: £nil).
The share of joint venture results not separately disclosed above is:
Six months ended 30 September 2007 Six months ended 30 September 2006
Operating Tax and Net JV Operating Tax and Net JV
Revenue profit interest results Revenue profit interest results
£m £m £m £m £m £m £m £m
Continuing
operations
Defence Services 0.6 0.1 - 0.1 0.9 0.1 - 0.1
Rail 0.3 0.2 (0.2) - - - - -
Engineering & Plant 3.2 0.3 (0.1) 0.2 - - - -
Services
Networks - - - - 0.1 - - -
Group Total 4.1 0.6 (0.3) 0.3 1.0 0.1 - 0.1
3. Operating exceptional items and acquired intangible amortisation
In 2007 there were no exceptional items. Acquired intangible amortisation was
£4.4 million (note 2). The acquisitions of Devonport Management Limited resulted
in acquired intangible amortisation of £1.7 million and International Nuclear
Solutions plc resulted in £0.2 million of acquired intangible amortisation, both
of which are included in the Marine segment.
In 2006 there were £1.3 million operating exceptional items with £0.7 million
being reorganisation costs in the Rail segment and £0.6 million being bid
defence costs arising out of a possible joint bid from BAE Systems plc and VT
Group plc. Acquired intangible amortisation was £2.9 million with £0.3 million
relating to the Networks segment, £1.1 million relating to the Rail segment,
£0.8 million within the Marine segment and £0.7 million within the Defence
Services segments.
4. Acquisitions
On 28 June 2007 the group acquired 100% of the share capital of Devonport
Management Limited ('DML') for a consideration of £355.5 million, inclusive of
costs. DML provides support for the Royal Navy submarines and warships and
manages the facilities at the Devonport Naval Base
On 9 July 2007 the group had acquired 50.9% of the share capital of
International Nuclear Solutions plc ('INS'). By 30 September 2007 the group had
acquired 67.8% of the share capital for a consideration (before cash acquired)
of £28.2 million. INS provides nuclear engineering support.
On 15 August 2007 the group acquired 100% of the share capital of Swedia
Networks Ireland for a net cash consideration of €1.
Included in the total consideration paid is deferred consideration of £0.5
million, paid on an acquisition made in a prior period.
Details of the assets acquired and the goodwill are as follows:
DML INS Other Total
£m £m £m £m
Cost of Acquisition
Purchase consideration 350.0 27.0 0.5 377.5
Direct costs 5.5 1.2 - 6.7
Total purchase consideration and costs 355.5 28.2 0.5 384.2
Fair value of assets acquired (see below) 109.5 3.9 0.5 113.9
Goodwill 246.0 24.3 - 270.3
4. Acquisitions (cont)
Net assets and liabilities arising from the acquisitions are as follows:
DML INS Other TOTAL
Book Book Book
Book value of of
Value of Fair of Fair value Fair value Fair
assets value assets value assets value assets value
acquired acquired acquired acquired acquired acquired acquired acquired
£m £m £m £m £m £m £m £m
Goodwill 18.6 - - - - 18.6 -
Software 4.6 5.6 0.2 0.2 - - 4.8 5.8
Acquired intangibles * - 41.2 - 5.3 - - 46.5
Property Plant and Equipment 147.0 125.0 1.0 1.0 - - 148.0 126.0
Deferred tax (9.2) (18.8) - (1.4) 0.1 0.1 (9.1) (20.1)
Retirement benefits (28.4) 15.3 - - - - (28.4) 15.3
Cash, cash equivalents and bank (1.2) (1.2) 3.4 3.4 - - 2.2 2.2
overdrafts
Inventory 8.2 8.2 - - - - 8.2 8.2
Current assets 101.3 100.5 5.8 5.8 1.7 1.7 108.8 108.0
Current and non current liabilities (125.9) (129.1) (8.4) (8.4) (1.7) (1.7) (136.0) (139.2)
Provisions - (30.2) - (0.1) 0.4 0.4 0.4 (29.9)
Bank and other borrowings (7.0) (7.0) - - - - (7.0) (7.0)
Minority interest - - (0.7) (1.9) - - (0.7) (1.9)
Net assets acquired 108.0 109.5 1.3 3.9 0.5 0.5 109.8 113.9
* Acquired intangibles are; customer relationships and order book.
Cash outflow to acquire businesses net of cash acquired
DML INS Other Total
£m £m £m £m
Total purchase consideration plus costs 355.5 28.2 0.5 384.2
Cash, cash equivalents and bank 1.2 (3.4) - (2.2)
overdrafts
Cash paid in prior period - (9.7) - (9.7)
Cash outflow this period 356.7 15.1 0.5 372.3
The revenue and operating profit of acquired businesses since the date of
acquisition as if they had been acquired on 1 April 2007 are:
Since date of
acquisition For full period
£m £m
Revenue
DML 121.0 230.8
INS 5.7 12.5
Other 1.0 3.2
127.7 246.5
Operating profit (before amortisation of acquired
intangibles)
DML 16.4 22.9
INS 0.3 0.8
Other - 0.2
16.7 23.9
5. Income taxes
The charge for taxation has been based on the estimated effective tax rate, of
19%, for the year ended 31 March 2008 before allowing for a £0.3 million credit
in relation to the change in deferred tax arising from the change in the
corporation tax rate from 30% to 28%. (For September 2006, the charge for tax
was based on an estimated effective tax rate of 22% for the year ended 31 March
2007). An additional tax credit of £1.2 million relates to acquired intangible
amortisation. For 2006 the tax charge included a credit of £0.9 million, which
related to acquired intangible amortisation and a tax credit of £0.3 million
relates to operating exceptional items.
6. Earnings per share
The calculation of the basic and diluted EPS is based on the following data:
Six months to Six months to
Number of shares 30 September 2007 30 September 2006
Weighted average number of ordinary shares for the purpose of basic EPS 221,441,710 205,336,699
Effect of dilutive potential ordinary shares: share options 4,190,318 5,600,135
Weighted average number of ordinary shares for the purpose of diluted EPS 225,632,028 210,936,834
Six months to Six months to
30 September 2007 30 September 2006
Basic Diluted Basic Diluted
per per per per
Earnings share share Earnings share share
£m Pence pence £m pence pence
Earnings per share from continuing and discontinued 31.3 14.12 13.86 20.2 9.85 9.59
operations
Add back:
Amortisation of acquired intangible assets, net of tax 3.2 1.43 1.40 2.0 0.98 0.95
Exceptional items, net of tax - - - 1.0 0.46 0.45
Earnings before amortisation and exceptionals 34.5 15.55 15.26 23.2 11.29 10.99
Earnings per share from continuing operations 31.3 14.12 13.86 20.2 9.85 9.59
Add back:
Amortisation of acquired intangible assets, net of tax 3.2 1.43 1.40 2.0 0.98 0.95
Exceptional items, net of tax - - - 1.0 0.46 0.45
Earnings before discontinued operations, amortisation and
exceptional 34.5 15.55 15.26 23.2 11.29 10.99
7. Dividends
An interim dividend of 3.30p per 60p ordinary share (2006: 2.40p per 60p
ordinary share) was declared after the balance sheet date and will be paid on 16
January 2008 to shareholders registered on 14 December 2007.
8. Statement of changes in equity
Year
Share Share Capital Retained Translation Minority ended
capital premium redemption earnings reserve Total interests 31 March
£m £m £m £m £m £m £m £m
At 1 April 2006 125.5 69.7 30.6 (57.3) 1.7 170.2 0.4 170.6
Shares issued in the period 0.3 0.3 - - - 0.6 - 0.6
Recognised income and expense - - - 31.9 (5.6) 26.3 0.6 26.9
Dividends - - - (8.7) - (8.7) - (8.7)
Share based payments - - - 0.9 - 0.9 - 0.9
Tax on share based payments - - - 0.6 - 0.6 - 0.6
Own shares and other - - - 0.2 0.1 0.3 - 0.3
Net movement in equity 0.3 0.3 - 24.9 (5.5) 20.0 0.6 20.6
At 30 September 2006 125.8 70.0 30.6 (32.4) (3.8) 190.2 1.0 191.2
At 1 April 2007 125.8 70.1 30.6 (17.1) (3.8) 205.6 1.6 207.2
Shares issued in the period 11.7 77.9 - - - 89.6 - 89.6
Recognised income and expense - - - 49.9 0.3 50.2 1.2 51.4
Dividends - - - (12.8) - (12.8) (0.5) (13.3)
Share based payments - - - 0.9 - 0.9 - 0.9
INS Acquisition - - - - - - 1.9 1.9
Tax on share based payments - - - 1.3 - 1.3 - 1.3
Own shares and other - - - (5.0) (0.1) (5.1) - (5.1)
Net movement in equity 11.7 77.9 - 34.3 0.2 124.1 2.6 126.7
At 30 September 2007 137.5 148.0 30.6 17.2 (3.6) 329.7 4.2 333.9
9. Reconciliation of operating profit to cash generated from operations
Year ended Six months ended Six months ended
31 March 30 September 30 September
2007 2007 2006
(audited) (unaudited) (unaudited)
£m £m £m
Cash flows from operating activities
62.8 Operating profit 50.6 29.3
5.6 Depreciation of property plant and equipment 7.2 2.7
7.3 Amortisation and impairment of intangible assets 5.5 3.3
1.7 Equity share-based payments 0.9 0.9
0.3 Impairment of investments - -
(0.2) Profit on disposal of property, plant and equipment (0.5) (0.1)
77.5 Operating cash flows before movement in working capital 63.7 36.1
(16.9) Decrease/(increase) in inventories 9.6 7.5
(5.7) Increase in receivables (31.5) (1.3)
10.0 Increase/(decrease) in payables 12.9 (12.1)
(4.7) Decrease in provisions (1.2) (3.1)
60.2 Cash generated from operations 53.5 27.1
10. Movement in net debt
Six months Six months
Year ended ended ended
31 March 30 September 30 September
2007 2007 2006
(audited) (unaudited) (unaudited)
£m £m £m
(0.4) Increase/(decrease) in cash in the period 57.4 15.7
(33.1) Cash flow from the increase in debt and lease financing (321.5) (55.4)
(33.5) Change in net funds resulting from cash flows (264.1) (39.7)
- Loans and finance leases acquired with subsidiaries (7.0) -
(2.0) Foreign currency translation differences 0.2 (2.1)
(35.5) Movement in net debt in the period (270.9) (41.8)
(38.2) Net debt at the beginning of the period (73.7) (38.2)
(73.7) Net debt at the end of the period (344.6) (80.0)
11. Changes in net debt
At At
1 April Acquisitions New 30 September
2007 Cash and finance Exchange 2007
(audited) flow disposals leases movement (unaudited)
£m £m £m £m £m £m
Cash and bank balances 95.6 79.2 4.4 - 0.1 179.3
Bank overdrafts (73.5) (24.0) (2.2) - - (99.7)
Cash, cash equivalents and bank
overdrafts at end of period 22.1 55.2 2.2 - 0.1 79.6
Debt (92.7) (321.7) (7.0) - - (421.4)
Finance leases (3.1) 0.2 - - 0.1 (2.8)
(95.8) (321.5) (7.0) - 0.1 (424.2)
Total (73.7) (266.3) (4.8) - 0.2 (344.6)
12. Contingent liabilities
There is a potential liability in respect of the discontinued Jackson Civil
Engineering business of the Peterhouse Group arising out of a contract with
Tesco Stores for tunnelling at its Gerrards Cross site. The contract was made
and the business disposed of to management before the Group acquired Peterhouse
in 2004. There was a partial tunnel collapse during construction in 2005.
Having considered legal advice the Board does not believe that this matter will
result in a liability that would be material to the Group.
13. The financial information in this interim statement does not
constitute statutory accounts within the meaning of S240 of the Companies Act
1985 (as amended).
14. Communication
At our Annual General Meeting on 13 July 2007 our shareholders unanimously
agreed to proposals to allow us to use electronic communications with them as
allowed for under the Companies Act 2006. For shareholders who agreed, or who
are treated as having agreed, to receive electronic communications, the company
website is now the main way for them to access shareholder information. These
shareholders will be sent a 'notice of availability' notifying them that this
report is available on the company website: www.babcock.co.uk . Hard copies of
the report will be distributed to those shareholders who have requested or
subsequently request them. Additional copies are also available from the
company's registered office: 2 Cavendish Square, London W1G 0PX.
BABCOCK INTERNATIONAL GROUP PLC
2007/8 INTERIM RESULTS
Risks and Uncertainties
The principal risks and uncertainties affecting the Group remain those detailed
on pages 20 and 21 of the 2007 Annual Report, a copy of which is available at
www.babcock.co.uk. This Interim Statement also includes comments on the outlook
for the Group for the remaining six months of the financial year.
Statement of directors' responsibilities
The directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the interim management report herein includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8.
The directors of Babcock International Group plc are listed in the Babcock
International Group annual Report of 31 March 2007 and have not changed since
then. A list of the current directors is maintained on the Babcock International
Group website: www.babcock.co.uk.
By order of the board
P Rogers
Group Chief Executive
12 November 2007
W Tame
Group Financial Director
12 November 2007
This information is provided by RNS
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