Pre-close Trading Statement

RNS Number : 7807D

Babcock International Group PLC

29 March 2011

 



29 March 2011                                                                                               

Babcock International Group PLC

Pre-close Trading Statement

Babcock International Group PLC (Babcock or the Group), the UK's leading engineering support services company, issues the following update on trading for the financial year ending 31 March 2011, before entering its close period.  Babcock will announce full year results on 17 May 2011.  

Overview

The Group's trading environment for the year as a whole has been stable, with our divisions experiencing no significant changes to market conditions.

The Group's financial performance for the 2010/11 full year remains consistent with our expectations at the time of our Interim Management Statement on 25 January 2011.  Across our divisions, all our major support contracts continue to perform well and we continue to benefit from the long-term nature of our contracts and the degree of critical support we provide to our customers.

Memorandum of Understanding

Throughout this financial year, as the coalition Government has sought to deal with its fiscal deficit, we have been involved in a series of discussions with our key customers at the Ministry of Defence (MoD) and with the Cabinet Office.  As part of these discussions, using our experience of working with the Armed Forces and other public bodies, we have agreed additional savings on existing contracts, as well as areas for potential future savings.  Discussions with the Cabinet Office have now been concluded positively and we have signed a Memorandum of Understanding (MoU) to progress these initiatives.  The MoU has had no net impact on the Group's financial expectations.

VT Integration

The structural reorganisation following the acquisition has been completed speedily and efficiently and the business units are focused on delivering the significant operational benefits of bringing the two complementary businesses together.  The delivery of merger benefits is on track and we are confident of achieving £50 million (pre-tax) in total and as scheduled. 

Financial Review

Cash generation throughout the year has been strong and has been used to pay down debt.  As a result, we expect net debt to be below £750 million at 31 March 2011 and the resulting net debt to ebitda ratio to be significantly below the 2.8 times reported at the end of the first half.     

We have successfully refinanced the Group's £400 million Bridge Facility and have issued US Private Placement (PP) notes of 7 and 10 year maturities totalling $650 million (£400 million) at dollar rates of 4.9% and 5.6% respectively.  The proceeds from the US PP have been swapped into sterling, with approximately 50% fixed rate and 50% floating rate.  We have started to work on the refinancing of the £600 million Revolving Credit Facility maturing in June 2012, which we expect to be concluded early in the next financial year. 

Order book and pipeline

Since the completion of the VT acquisition in July, the order book for the combined Group has been stable at around £12 billion, reflecting a steady inflow of new contracts, rebids and contract extensions from the bid pipeline. 

During the first half of the year, as previously explained, we experienced some slow down in the number of new contracts coming out to tender.  However, during the second half this trend has started to reverse.  The pipeline of bids at PQQ or ITT stage currently stands at c £7 billion, increasing from £6 billion at the time of the IMS in January 2011.  Since the award of the five year, €200 million British Forces Germany facilities management contract announced in February, Babcock has also been down-selected by the MoD as the sole industry bidder for the 10 year, c £300 million Maritime Equipment Transformation (MET) programme.

We remain confident that the current economic climate will drive both public and private sector organisations to increase their focus on outsourcing as they seek to reduce operational costs and drive efficiencies.  Benefiting from enhanced capabilities across the Group, following the VT acquisition, we are tracking a number of opportunities where our scale, expertise and track record can help new and existing customers achieve improved delivery of services as well as significant cost efficiencies. 

Outlook

In both the UK and overseas the Group is well placed in markets that offer significant long-term growth opportunities.   As new outsourcing opportunities are created, the breadth of our capabilities and track record of delivering both operational and financial efficiencies will place us in a strong position from which to benefit.

With good progress being made to achieve the synergy savings identified as part of the VT acquisition and improving contract margins in the Support Services and International divisions, Group operating margins have further scope to improve from the 31 March 2010 level. 

The Board remains confident in the outlook for the Group.  We have excellent long-term visibility of future revenue streams from a strong order book, a growing bid pipeline and our involvement in long-term programmes delivering critical support for our customers.  We believe we are well positioned to make further good progress in the 2011/12 financial year.

Enquiries

Babcock International Group PLC                                                 020 7355 5300

Bill Tame

Terri Wright

FD                                                                                                       020 7269 7291

Andrew Lorenz

Nick Hasell

A conference call for analysts and investors will be held at 8.00 am this morning.  For dial in details please contact FD on 020 7269 7291.  An audio-cast of the call will be available at www.babcock.co.uk

 

END

 

 

TSTBIGDXGGDBGBI