Final Results
Babcock International Group PLC
10 May 2007
10th May 2007
BABCOCK INTERNATIONAL GROUP PLC
2006/7 PRELIMINARY RESULTS
Babcock International Group PLC, the Support Services company, announces its
preliminary results for the year ended 31 March 2007. These results are
prepared under International Financial Reporting Standards and include the
Alstec acquisition for eleven months.
Statutory March 2007 March 2006 % Change
Revenue £988.3m £836.7m +18
Operating profit £62.8m £46.6m +35
Profit before tax £57.0m £41.3m +38
Continuing earnings per share 21.49p 16.06p +34
Dividend proposal - full year 8.05p 6.00p +34
Net debt £73.7m £38.2m
The following additional numbers show the 'underlying' results before
amortisation of acquired intangibles £6.1m (2006: £3.1m) and operating
exceptional gains of £0.6m (2006: loss £0.2m), and before the related tax
effects of credit £1.6m (2006: £1.0m). We believe that these adjusted results
provide a better comparison of underlying performance.
Underlying March 2007 March 2006 % Change
Operating profit £68.3m £49.9m +37
Profit before tax £62.5m £44.6m +40
Continuing earnings per share 23.35p 17.18p +36
Business highlights:
• Record results: fifth successive year of double digit growth. Revenue up
18%, underlying PBT up 40%
• Further operating margin increase to 6.9% (2005/06: 6.0%)
• Operating cash flow above target at 96% conversion of EBIT
• Strong financial position. Net debt at £73.7m after £52.5m of
acquisitions in year
• Further major contract wins underpin continuing growth;
National Grid - alliance contract, SLAM II, EDF Energy Solutions Networks
contract, Network Rail Type C signalling framework contracts
• Current order book at £2.4bn
• Strengthened position in civil nuclear support market - recommended
offer for INS
• Agreement on the acquisition of Devonport Management Limited, a
strategic step in marine, announced today
• Dividend raised to 8.05p up 34%
Commenting, Peter Rogers Chief Executive, said:
'Our financial results were pleasing with continued double-digit sales growth,
underlying profit before tax up by 40% and underlying earnings per share
increasing by 36%. This is the fifth successive year of double-digit growth.
This has been another good year for Babcock with continuing growth in core
businesses and the successful integration of Alstec and Powerlines, each of
which has performed better than our planning assumptions. The potential
addition of INS to our nuclear portfolio will further strengthen our position in
the nuclear and nuclear decommissioning areas.
We believe the combined strength of Babcock and DML will yield significant
strategic and financial benefits to the Ministry of Defence in line with the
objectives set out in the Defence Industrial Strategy, whilst creating
significant value for Babcock's shareholders.
The outlook for Babcock remains positive with our markets remaining good and our
ability to deliver to customers requirements will continue to ensure that we
benefit from the strength of these markets.'
Contact: Peter Rogers, Chief Executive
Bill Tame, Finance Director
Babcock International Group PLC
Telephone: 020 7291 5000
Andrew Lorenz
Richard Mountain
Financial Dynamics
Telephone: 020 7269 7291
Chairman's Statement
The year ending March 2007 continued the excellent progress of recent years with
profit before tax, before amortisation of acquired intangibles and exceptional
items, increased by 40% following the 25% increase in the previous year. The
directors are recommending a final dividend of 5.65p per share giving a total
dividend for the year of 8.05p per share, an increase of 34% on the previous
year; this increase reflects the increased earnings, our confidence for
Babcock's future prospects and our previously declared policy on dividend cover.
The share price continued to improve during the year and reached 400p at the end
of March 2007. At close of business yesterday it stood at 477.5p per share.
400p per share represents an out-performance over 5 years of 285% compared to
the FTSE all share index (excluding investment trusts). £100 invested in
Babcock on the 31st of March 2002 would have been worth £427 on the 31st March
2007, compared to £151 had it been invested in that index.
We have reached agreement with the shareholders of Devonport Management Limited
('DML') to acquire the entire share capital of DML. The deal, which is subject
to Babcock shareholders' approval, is expected to be earnings enhancing in the
first full financial year. Details of the deal are contained in today's RNS
announcement.
The Board believes that a combination of DML, HMNB Clyde, which we currently
manage, and Rosyth Royal Dockyard can achieve significant cost savings and
represents progress towards the consolidation of the naval industry as proposed
in the Ministry of Defence's Defence Industrial Strategy.
The Board is confident however, that in addition to the DML bid, there is
considerable scope for further earnings enhancement as a result of organic
growth, and our forward order book is £2.4bn.
Our strong track record in acquiring and integrating businesses has been
maintained, and Alstec, which was acquired in May 2006, contributed handsomely
to Babcock's profits.
The Alstec acquisition and our offer for International Nuclear Solutions plc
increases our presence in the field of nuclear support services and offers the
basis for further growth within an expanding nuclear market.
Babcock's financial position is strong with net debt at the 31st March 2007 of
£74m and an overall pension surplus.
The Board is confident of Babcock's prospects and is convinced that the Group is
well placed to continue to develop and grow. As a consequence, the underlying
value of Babcock to its shareholders should continue to increase.
Gordon Campbell
Chairman
10 May, 2007
Babcock International Group plc
2006/7 Preliminary Results
Operational Review
Unless otherwise indicated, the terms 'operating margin', 'margins', 'operating
profit' and 'earnings' below refer to the said items before charges for
exceptional items and amortisation of acquired intangibles.
Our financial results were pleasing with continued double-digit sales growth,
profit before tax up by 40% and earnings per share increasing by 36%. This is
the fifth successive year of double-digit growth.
This has been another good year for Babcock with continuing growth in core
businesses and the successful integration of Alstec and Powerlines, each of
which has performed better than our planning assumptions. The potential
addition of INS to our nuclear portfolio will further strengthen our position in
the nuclear and nuclear decommissioning areas.
Significant contract wins include SLAM II, the alliance contract with National
Grid, the supply contract with EDF Energy Solutions, track capacity enhancement
in Trent Valley and the Integrated Operational Support Contract for Hawk.
Africa had another record year.
Our position on the Future Aircraft Carriers has been consolidated during the
year and agreement has been reached on the future Naval refit programme which
will continue to provide refit work at Rosyth.
The acquisition of DML will result in Babcock being the sole supplier of refit
and maintenance to the nuclear submarine fleet and the major supplier of warship
refit capability to the Royal Navy. In addition the substantial nuclear
resource which forms part of the DML business will further strengthen our
offering in the nuclear field. Co-operation with the Ministry of Defence and
industry will result in a more efficient use of resource which will deliver
benefits to all parties.
Each of the businesses we now operate is highly rated in its respective market
and is therefore well placed to take a substantial share of the growth
opportunities available to it.
Defence Services: turnover £340.6 million (2005/06: £271.7 million) - operating
profit £29.9 million (2005/06: £21.8 million)
Defence Services has had an excellent year. New contracts were signed for the
second tranche of Single Living Accommodation Modernisation (or 'SLAM') - a
scheme central to the Ministry of Defence to improve recruitment and retention
of service personnel. Additionally Babcock secured its position in future
support of the current fleet of Hawk jet trainer aircraft through the
commencement of an Integrated Operational Support ('IOS') contract led by BAE
Systems. As a consequence of the IOS arrangements, Babcock is engaged in
negotiations with BAE Systems as to the in-service support solution for the
successor Hawk 128 aircraft.
2006/07 saw the first full year in the operation of the Regional Prime East
contract for Defence Estates after mobilisation. The contract is one of five in
the United Kingdom where industry is responsible for maintaining existing
infrastructure. Babcock is the only supplier to be engaged in two of the five
regional prime contracts.
Defence Services includes the Airports division of Alstec acquired during the
year.
Technical Services: turnover £178.4 million (2005/06: £130.5 million) -
operating profit £16.1 million (2005/06: £9.0 million)
Technical Services had an outstanding 2006/07 with sales increasing by 37% and
operating profit by 78%.
In the defence field the surface ship support alliance arrangements have
matured, reaching an agreed position on the need to protect core skills at
Rosyth in preparation for the future aircraft carrier ('CVF') programme. As a
consequence Rosyth, uniquely amongst the UK surface ship refit yards, will be
operating a twin stream of activity.
The Design & Technology team have been busy both in the further design of the
aircraft carriers as well as, increasingly, a body of commercial projects in oil
& gas - accounting for some 60% of revenues.
2006/07 was also the first full year of Alstec's operations in the civil nuclear
support market. Babcock sees this as an important future market. In order to
further enhance the company's presence in this market, Babcock made a
recommended offer for the entire share capital of International Nuclear
Solutions PLC subsequent to the year end. The Nuclear Decommissioning Agency
have identified the entire UK requirement for support to be worth in excess of
£2.0 billion per annum over a timeframe measured in decades.
Engineering and Plant Services: turnover £165.6 million (2005/06: £144.2
million) - operating profit £13.3 million (2005/06: £9.7 million)
Engineering & Plant continued its run of strong performance during the past year
enjoying another record year of growth. Commodity prices and the award of 2010
soccer world cup to South Africa has stimulated investment in civil
infrastructure. This investment is driving demand for high quality construction
and resource extraction and movement equipment for which our Volvo franchise
remains well placed.
Additionally, the South African government recognise fully the challenge of
delivering electricity in sufficient quantities to where its needed. Our
recently acquired Powerlines business has proven to be a timely decision with
its order book already having quadrupled since purchase.
Networks: turnover £74.9 million (2005/06: £73.0 million) - operating profit
£6.8 million (2005/06: £6.4 million)
Networks has had a transformational year which is expected to bring considerable
benefits in the current financial year. The decision of National Grid to move
towards two alliance contracts to manage the UK high voltage distribution
infrastructure has seen Networks come together successfully with AMEC and Mott
MacDonald Limited to win a five year, £100.0 million per annum contract to
commence the urgent work of improving the UK distribution grid.
Beyond the alliance, Networks has won further business in its own right to
support EDF Energy Solutions in the South East of England. This five year
contract is worth circa. £50.0 million per annum.
The Telecommunications business has focused on the opportunities related to the
impending switch-over of the TV broadcast signal from analogue to digital as the
expansion of the 3G mobile telecoms infrastructure remains slow.
Rail: turnover £228.8 million (2005/06: £217.3 million) - operating profit £9.3
million (2005/06: £8.8 million)
Rail has had commercial successes over the past year whilst starting a
restructuring programme to position itself strongly for the future.
The business won two signalling framework contracts valued at up to £10.0
million each per annum and lasting five years. In addition the business secured
a significant capacity enhancement project in Trent valley worth some £25.0
million for Network Rail.
Network Rail is currently intending to reduce its supplier base for elements of
track renewals this summer from six key suppliers to four. The consolidation
will not affect the high output activity performed by Babcock in conjunction
with its partner Swietelsky and we remain confident that the Rail business is
positioned to pursue higher value activities effectively.
The outlook for Babcock remains positive with our markets remaining good and our
ability to deliver to customers requirements will continue to ensure that we
benefit from the strength of these markets.
Preliminary Statement - Financial Review
Financial position
Group Income Statement
Group Revenue showed substantial growth over 2005/06, increasing by 18% to £988
million driven by a combination of new contract wins and growth from existing
contracts (organic growth) and from businesses acquired during the year. Organic
growth contributed an additional £50 million whilst Revenue accruing from the
acquisition of Alstec and the ABB Powerlines businesses added an additional £102
million.
The Group operating margin, which improved to 6.9% from 6.0% in 2005/06,
benefited from enhanced contract profitability in all business segments with the
exception of Rail where margins were maintained at last year's level of 4.1%.
Margin gains in Defence Services and Engineering and Plant arising from
efficiency gains on existing contract operations were further enhanced by the
Alstec and Powerlines acquisitions. Operating Profit improved by 37% to £68.3
million of which £9.5 million was attributable to acquisitions in the year.
There were a number of exceptional items in the year totalling £0.4 million
(2005/06 £2.7 million) which comprised:
£million
Restructuring costs in Rail (2.0)
Pension gains 3.2
Bid Defence costs (0.6)
Operation exceptionals 0.6
Legacy issues (1.0)
Total exceptionals (0.4)
Costs incurred in respect of Rail restructuring, fully provided for in the year,
were part of a programme of cost reductions commenced during the year and which
is expected to be completed during 2007/08. Further discussion of discontinued
costs can be found in note 4. Pension gains arose from a pension liability
management project in respect of both deferred and pensioner member liabilities
and which is expected to show further gains in 2007/08. The financial position
of the Group's pension schemes is discussed further below.
Finance costs net of finance income increased from £5.2 million to £6.2 million
following the increase in bank debt taken on to finance the acquisition of
Alstec and Powerlines. Further discussion of the Group's funding status is set
out below.
The charge to income tax before tax on exceptional items and amortisation of
intangibles was £12.6 million (2005/06: £9.2 million) and represented an
effective rate of tax on profit before tax of 20% (2005/06: 21%). However, this
includes a one-off gain relating to prior years of £1.0 million absent which the
rate would be 22%. The Group benefits from lower tax rates in overseas
jurisdictions allowing the application of an effective rate of tax on its profit
before tax which is lower than the standard rate of UK corporation tax. The
effective tax rate is calculated as the total charge to income tax as a
proportion of the Group's profit before tax before exceptional items and
amortisation of intangibles and is expected to be sustainable at its current
level for the financial year to 31 March 2008.
Profit for the year from continuing operations was £49.9 million, up from £35.4
million in 2005/06 and representing a year on year increase of 41% and yielding
an increase in basic earnings per share from continuing operations to 23.35
pence (2005/06; 17.18 pence). Diluted earnings per share was 22.66 pence against
16.78 pence in the previous year, an increase of 35%. Based upon the strong
increase in earnings, the Board has recommended a total dividend for the year of
8.05 pence per share, up 34% on 2005/06, and at 2.9 times covered, is in line
with the Group's stated policy of achieving a ratio of earnings to dividend
(dividend cover) of between 2.5 and 3 times.
Liquidity
Bank and other borrowings, net of cash balances (net debt), totalled £73.7
million, up from £38.2 million at the end of 2005/06. During the year the Group
acquired the shares of Alstec Group Limited and the business and assets of ABB
Powerlines for total consideration of £52.0 million for which existing bank
borrowing facilities were used. Gearing increased from 22% to 36% and the key
ratio of earnings before interest, depreciation and amortisation as a multiple
of net debt was 1.0 (2005/06;0.7) comfortably within the Group's internal
guidelines.
At 31 March 2007, the Group had access to a three year revolving credit facility
of £140.0 million and a similar eighteen month facility of £50.0 million, £91.0
million had been drawn on these two facilities. In addition, the Group had
£17.5 million of overdraft facility.
Treasury policies
The group's treasury policies, which have been approved by the Board, cover all
significant areas of treasury activity including foreign exchange, interest
rates, liquidity and credit risk and it is the responsibility of the Treasury
Committee, comprising the Group's Chief Executive, Finance Director and
Financial Controller, to ensure that these policies are adhered to.
Historically the group has financed its operations and transactions through a
combination of retained earnings, new equity and bank borrowings. It is the
group's policy to ensure that it has sufficient financial resources to support
the business and to leave a comfortable margin between those facilities and
likely peak borrowings during the year.
Interest rate risk is managed by the use of a mixture of fixed and floating rate
debt and interest rate swaps, which are regularly reviewed to ensure an
appropriate mix is maintained.
The group's main exposures to foreign currency movements remain its businesses
in South Africa where exposure to both translation and transaction rate
movements exists. The group's policy is not to cover the exposure arising on
translation of the South African business into the group's base currency,
Sterling, by way of derivatives but to use, where possible, local borrowings to
fund its operations. All material exposure arising from trading in currencies
other than the business base currency is covered by the use of forward currency
cover contracts. Treasury transactions are carried out with prime-rated
counter-parties including any investment of cash or cash equivalents.
The group's income is mainly from government or government-backed institutions
or blue-chip corporates. Where this is not the case, credit checks are performed
and where necessary, security is requested and as such customer credit risk is
considered to be low.
Pensions.
In common with many companies, the Group has a number of defined benefit pension
schemes with long term commitments to pay pensions to past and present employees
based on a pre-determined formula of length of service and pensionable pay.
Using cash contributions from both the Group and employees, such pension schemes
invest in a variety of financial instruments with the objective of providing
sufficient financial resources to pay pensions as they fall due, over the long
term. These financial instruments are valued at the balance sheet date by
reference to their market value, for instance the quoted value of shares on a
recognised stock exchange, and compared to the value of pension liabilities as
assessed by the pension schemes' and Group's actuaries to derive a surplus or
deficit of assets over liabilities. At 31 March 2007 the Group's combined
pension schemes showed a net surplus of £53.1 million of assets over
liabilities, on assets valued at £1.2 billion. The assessed value of liabilities
is critically dependent on a number of assumptions. These include the estimated
longevity of the scheme members, bond yield, the expected return on assets and
future salary and pension increases. The 'fair value' approach thus used in
accounting for pension schemes is a snapshot of values assessed at a particular
point in time for what is essentially a long term structure and can yield
volatile results, depending on market conditions, both for the balance sheet and
income statement. In 2006/07 the amounts charged or credited to the income
statement in respect of pensions were as follows:
2007 2006
£m £m
Service cost 15.0 12.7
Expected return on plan assets (68.5) (59.6)
Interest on obligations 51.6 49.7
(16.9) (9.9)
Net (credit)/charge to operating profit before exceptionals (1.9) 2.8
Group Cash Flow
The Group generated £60.2 million of cash from operations (2005/06: £54.1
million) on statutory operating profit of £62.8 million, representing a
conversion rate of operating profit to cash of 96% (2005/06; 116%). We target a
conversion rate over the medium term of 80% allowing for the inevitable '
lumpiness' of cash receipts and payments involved in large scale, long term
contracts which can materially distort cash generation at any given point.
We acquired two businesses in the year (Alstec in the UK and Powerlines in South
Africa) for a net consideration of £52.0 million as well as paying £0.5 million
deferred consideration in respect of acquisitions from prior years. In
addition, we acquired 24.5% of the equity in International Nuclear Solutions PLC
(INS) for £9.6 million. Subsequent to the year end an offer was made to acquire
the remaining issued share capital of INS, by way of a Scheme of Arrangement,
which was subsequently recommended by the Board of INS. An EGM of the
shareholders of INS to approve the Scheme will be held on 14 May 2007.
After accounting for these investments and inter alia, income tax of £7.7
million, net interest payments of £5.5 million, dividends totalling £14.0
million and capital expenditure of £7.0 million, the Group's net cash outflow in
the year was £33.5 million.
BABCOCK INTERNATIONAL GROUP PLC
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2007
2007 2006
Before acquired 2007 Before 2006
intangible Acquired acquired Acquired
amortisation intangible intangible intangible
and amortisation amortisation amortisation
exceptional and and and
items exceptional 2007 exceptional exceptional 2006
(unaudited) items Total items items Total
£m (unaudited) (unaudited) (audited) (audited) (audited)
Note £m £m £m £m £m
Revenue 988.3 - 988.3 836.7 - 836.7
Operating profit 68.3 (5.5) 62.8 49.9 (3.3) 46.6
Share of profit/(loss) from
joint ventures (net of tax)
0.4 - 0.4 (0.1) - (0.1)
Operating profit including
share of joint ventures 69.0 (5.5) 63.5 49.8 (3.3) 46.5
Joint venture share of (0.2) - (0.2) - - -
interest
Joint venture share of tax (0.1) - (0.1) - - -
68.7 (5.5) 63.2 49.8 (3.3) 46.5
Finance costs (9.8) - (9.8) (8.9) - (8.9)
Finance income 3.6 - 3.6 3.7 - 3.7
Profit before tax 62.5 (5.5) 57.0 44.6 (3.3) 41.3
Income tax expense 6 (12.6) 1.6 (11.0) (9.2) 1.0 (8.2)
Profit for the year from
continuing operations 49.9 (3.9) 46.0 35.4 (2.3) 33.1
Discontinued operations 4
Loss for the year from
discontinued operations - (0.8) (0.8) (0.6) (2.6) (3.2)
Profit for the year 49.9 (4.7) 45.2 34.8 (4.9) 29.9
Attributable to:
Equity holders of the parent 43.4 29.7
Minority interest 1.8 0.2
45.2 29.9
Earnings per share from
continuing and discontinued
operations 7
- Basic 21.10p 14.49p
- Diluted 20.48p 14.15p
Earnings per share from 7
continuing
Operations
- Basic 21.49p 16.06p
- Diluted 20.85p 15.68p
Dividends
Amounts recognised as distributions to equity holders in the year:
2007 2006
£m £m
Final dividend for the year ended 31 March 2006 of 4.25p (2005: 2.65p) per 8.7 5.4
60p share
Interim dividend for the year ended 31 March 2007 of 2.40p (2006: 1.75p) per 4.9 3.6
60p share
Dividends paid during the year 13.6 9.0
Proposed final dividend for the year ended 31 March 2007 of 5.65p (2006: 11.7 8.7
4.25p) per 60p share
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been
included as a liability in the financial statements. The dividend, subject to shareholder approval, will be paid on
6 August 2007 to shareholders registered on 6 July 2007.
BABCOCK INTERNATIONAL GROUP PLC
GROUP BALANCE SHEET
AT 31 MARCH 2007
2007 2006
Note (unaudited) (audited)
£m £m
Assets
Non-current assets
Goodwill 198.2 164.0
Other intangible assets 23.0 13.8
Property, plant and equipment 28.2 25.3
Investment in joint ventures 0.9 0.6
Other investments 9.4 -
Retirement benefits 62.5 64.9
Trade and other receivables 2.5 0.3
Deferred tax 2.5 4.5
327.2 273.4
Current assets
Inventories 57.7 41.5
Trade and other receivables 167.2 168.5
Income tax recoverable 1.2 0.2
Other financial assets 0.5 0.1
Cash and cash equivalents 11 95.6 109.0
322.2 319.3
Assets held for sale 4 - 9.6
Total assets 649.4 602.3
Equity and liabilities
Equity attributable to equity holders of the parent 8
Share capital 125.8 125.5
Share premium 70.1 69.7
Other reserves 26.8 32.3
Retained earnings (17.1) (57.3)
205.6 170.2
Minority interest 1.6 0.4
Total equity 207.2 170.6
Non-current liabilities
Bank and other borrowings 11 3.6 6.5
Trade and other payables 0.9 -
Income tax payable - 0.1
Deferred tax 2.5 -
Retirement liabilities 9.4 35.6
Provisions for other liabilities 7.6 12.6
24.0 54.8
Current liabilities
Trade and other payables 232.9 212.9
Income tax payable 5.9 7.0
Other financial liabilities 0.1 0.2
Bank and other borrowings 11 165.7 140.7
Provisions for other liabilities 13.6 12.3
418.2 373.1
Liabilities held for sale 4 - 3.8
Total liabilities 442.2 431.7
Total equity and liabilities 649.4 602.3
BABCOCK INTERNATIONAL GROUP PLC
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2007
2007 2006
Note (unaudited) (audited)
£m £m
Cash flows from operating activities
Cash generated from operations 9 60.2 54.1
Income tax paid (7.7) (5.8)
Interest paid (9.1) (8.9)
Interest received 3.6 3.8
Net cash flows from operating activities 47.0 43.2
Cash flows from investing activities
Disposal of subsidiaries 0.9 2.5
Proceeds on disposal of property, plant and equipment 0.7 0.9
Dividend received from joint ventures 0.1 -
Purchase of other investments (9.7) -
Purchases of property, plant and equipment (5.5) (6.8)
Purchases of intangible assets (1.5) (2.7)
Acquisition of subsidiary net of cash acquired (52.5) (4.3)
Net cash flows from investing activities (67.5) (10.4)
Cash flows from financing activities
Dividends paid (13.6) (9.0)
Finance lease principal payments (1.9) (3.6)
Bank loans raised/(repaid) 35.0 (22.5)
Dividends paid to minority interests (0.4) -
Net proceeds on issue of shares 0.7 0.9
Movement on own shares 0.3 -
Net cash flows from financing activities 20.1 (34.2)
Net increase in cash, cash equivalents and bank overdrafts (0.4) (1.4)
Cash, cash equivalents and bank overdrafts at beginning of year 25.3 26.4
Effects of exchange rate fluctuations (2.8) 0.3
Cash, cash equivalents and bank overdrafts at end of year 11 22.1 25.3
BABCOCK INTERNATIONAL GROUP PLC
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 MARCH 2007
2007 2006
(unaudited) (audited)
£m £m
Profit for the year (including discontinued operations) 45.2 29.9
Currency translation differences (5.9) 1.6
Fair value adjustment of interest rate swap 0.4 -
Net actuarial gains in respect of pensions 8.7 42.2
Tax on net actuarial gains in respect of pensions (2.6) (12.6)
Total recognised income and expense 45.8 61.1
Attributable to:
Equity holders of the parent 44.2 60.8
Minority interest 1.6 0.3
45.8 61.1
BABCOCK INTERNATIONAL GROUP PLC
NOTES
FOR THE YEAR ENDED 31 MARCH 2007
1. Accounting policies and basis of preparation
The financial information in this statement is prepared in accordance with
International Financial Reporting Standards ('IFRS') and IFRIC interpretations
as adopted by the European Union. They have been prepared on the basis of the
accounting policies set out in the Group's 2006 Annual Report and Accounts (that
comply with IFRS and IAS) adopted by the Group and have been consistently
applied throughout the year and the preceding year.
2. Segmental analysis
2007 2006
Operating Operating
profit 2007 profit 2006
before Acquired before Acquired
acquired intangible acquired intangible
intangible amortisation 2007 intangible amortisation 2006
2007 amortisation, and Group 2006 amortisation, and Group
Group exceptional exceptional operating Group exceptional exceptional operating
revenue items items profit revenue items items profit
(unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) (audited)
£m £m £m £m £m £m £m £m
Continuing
operations
Defence Services 340.6 29.9 0.6 30.5 271.7 21.8 - 21.8
Technical Services 178.4 16.1 (1.5) 14.6 130.5 9.0 (0.2) 8.8
Engineering and
Plant Services 165.6 13.3 - 13.3 144.2 9.7 - 9.7
Networks 74.9 6.8 (0.3) 6.5 73.0 6.4 (0.7) 5.7
Rail 228.8 9.3 (4.1) 5.2 217.3 8.8 (2.4) 6.4
Unallocated - (7.1) (0.2) (7.3) - (5.8) - (5.8)
Total continuing
operations 988.3 68.3 (5.5) 62.8 836.7 49.9 (3.3) 46.6
Discontinued
operations (net of
tax) - - (0.8) (0.8) 28.0 (0.6) (2.6) (3.2)
Group total 988.3 68.3 (6.3) 62.0 864.7 49.3 (5.9) 43.4
The tax credit related to discontinued operations was £nil within operating
profit (2006: £0.4m) and £0.2m within exceptionals (2006: £0.7m).
The share of joint venture results not separately disclosed above are;
Year ended 31 March 2007 Year ended 31 March 2006
Operating Tax and Net JV Operating Tax and Net JV
Revenue profit interest results Revenue profit interest results
(unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) (audited)
£m £m £m £m £m £m £m £m
Continuing
operations
Defence Services 1.8 0.2 (0.1) 0.1 1.3 0.1 - 0.1
Engineering and
Plant Services 1.5 0.2 - 0.2 - - - -
Networks 1.4 0.2 - 0.2 0.3 (0.1) - (0.1)
Rail 0.4 0.1 (0.2) (0.1) - - (0.1) (0.1)
Total continuing
operations 5.1 0.7 (0.3) 0.4 1.6 - (0.1) (0.1)
3. Operating exceptional items and acquired intangible amortisation
In 2007 there was a net gain of £0.6m in operating exceptional items. There was
net £3.2m exceptional pension gain, after costs, as a result of a liability
limitation exercise of which £2.1m is within the Defence Service segment, £0.4m
within the Technical Services segment, £0.3m with the Networks segment and £0.4m
unallocated. Offset against this are operating exceptional costs of £2.6m of
which £2.0m is reorganisation costs in the Rail segment and £0.6m being bid
defence costs arising out of a possible joint bid from BAE Systems plc and VT
Group plc.
In 2007 acquired intangible amortisation was £6.1m (2006: £3.1m), with £0.6m
(2006: £0.7m) relating to the Networks segment, £2.1m (2006: £2.4m) relating to
the Rail segment, and with the Alstec Group Limited acquisition giving the
following: £1.9m (2006: £nil) within the Technical Services segment and £1.5m
(2006: £nil) within the Defence Services segment.
2007 2006
acquired 2007 acquired 2006
intangible exceptional 2007 intangible exceptional 2006
amortisation items Total amortisation items Total
£m £m £m £m £m £m
Defence Services (1.5) 2.1 0.6 - - -
Technical Services (1.9) 0.4 (1.5) - - -
Networks (0.6) 0.3 (0.3) (0.7) - (0.7)
Rail (2.1) (2.0) (4.1) (2.4) (0.2) (2.6)
Unallocated - (0.2) (0.2) - - -
(6.1) 0.6 (5.5) (3.1) (0.2) (3.3)
4. Discontinued operations
Eve Trakway Limited was sold on 4 April 2006 at its held for sale value of £5.8m
after allowing for costs.
In 2007 there were exceptional costs relating to disposed of businesses of £1.0m
less tax of £0.2m. In 2006 the exceptional costs relating to disposed of
businesses was £1.5m plus an impairment of £1.8m to reflect a post year end
disposal, offset by a tax credit of £0.7m
The group has a potential liability relating to the former Jackson Civil
Engineering business disposed of by the Peterhouse Group prior its acquisition
by Babcock, which may arise out of a contract for the design and construction of
tunnelling works at the Tesco store at Gerrards Cross. The group, having
considered legal advice, does not expect that any liability that the group may
incur will prove to be material to the Group.
5. Acquisitions
On 9 May 2006 the group acquired Alstec Group Limited for net cash consideration
before costs of £44.9m. Goodwill amounted to £35.4m after valuing the acquired
intangibles at £14.6m.
On 1 June 2006 the group acquired certain assets and the high voltage power
lines and mobile telecoms business divisions of ABB South Africa (Pty) Ltd for
£5.8m.
The total revenue from acquisitions in the period was £101.8m and the related
operating profit was £9.5m.
6. Income tax expense
The charge for taxation of £11.0m (2006: £8.2m) includes a charge of £5.0m
(2006: £3.0m) in respect of overseas current and deferred taxes, and a charge of
£6.0m (2006: £5.2m) in respect of UK current and deferred taxes. The effective
rate of tax in respect of profits before acquired intangible amortisation,
exceptional items, share of operating profit from joint ventures, discontinued
operations and prior year releases of £1.0m, is 22.0% (2006: 20.6%). This is
lower than the statutory rate of 30% (2006: 30%) due to the net effect of
overseas rate differences and permanent differences (both overseas and UK).
7. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year excluding those held in the Babcock Employee Share
Trust and the Peterhouse Employee Share Trust. The calculation of the basic and
diluted EPS is based on the following data:
Number of shares
2007 2006
Number Number
Weighted average number of ordinary shares for the purpose of basic 205,715,620 204,638,536
EPS
Effect of dilutive potential ordinary shares: share options 6,228,491 4,996,555
Weighted average number of ordinary shares for the purpose of 211,944,111 209,635,091
diluted EPS
Earnings
2007 2007 2006 2006
Basic Diluted Basic Diluted
2007 per share per 2006 per per
Earnings pence share Earnings share share
£m pence £m pence pence
Continuing and discontinued operations
Earnings from continuing and discontinued operations 43.4 21.10 20.48 29.7 14.49 14.15
Add back:
Amortisation of acquired intangible assets, net of tax 4.2 2.06 2.00 2.2 1.06 1.04
Exceptional items, net of tax 0.4 0.19 0.18 2.7 1.32 1.29
Earnings before amortisation and exceptionals 48.0 23.35 22.66 34.6 16.87 16.48
Continuing operations
Earnings from continuing operations 44.2 21.49 20.85 32.9 16.06 15.68
Add back:
Amortisation of acquired intangible assets, net of tax 4.2 2.06 2.00 2.2 1.06 1.04
Exceptional items, net of tax (0.4) (0.20) (0.19) 0.1 0.06 0.06
Earnings before discontinued operations, amortisation
and exceptionals
48.0 23.35 22.66 35.2 17.18 16.78
8. Statement of changes in equity
Year ended
Share Share Capital Retained Other Minority 31 March
capital premium redemption earnings reserves Total interests
At 1 April 2005 125.0 69.3 30.6 (112.7) 0.1 112.3 0.1 112.4
Shares issued in the period 0.5 0.4 - - - 0.9 - 0.9
Total recognised income and - - - 59.2 1.6 60.8 0.3 61.1
expense
Dividends - - - (9.0) - (9.0) - (9.0)
Share based payments - - - 1.1 - 1.1 - 1.1
Tax on share based payments - - - 4.1 - 4.1 - 4.1
Net movement in equity 0.5 0.4 - 55.4 1.6 57.9 0.3 58.2
At 31 March 2006 125.5 69.7 30.6 (57.3) 1.7 170.2 0.4 170.6
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 0.4 - - - 0.7 - 0.7
Total recognised income and - - - 49.7 (5.5) 44.2 1.6 45.8
expense
Dividends - - - (13.6) - (13.6) (0.4) (14.0)
Share based payments - - - 1.7 - 1.7 - 1.7
Tax on share based payments - - - 2.1 - 2.1 - 2.1
Movement on ESOP - - - 0.3 - 0.3 - 0.3
Net movement in equity 0.3 0.4 - 40.2 (5.5) 35.4 1.2 36.6
At 31 March 2007 125.8 70.1 30.6 (17.1) (3.8) 205.6 1.6 207.2
Other reserves includes a translation reserve of £4.2m debit (2006: £1.7m) and a
hedging reserve of £0.4m (2006: £nil)
9. Reconciliation of operating profit to cash generated from operations
2007 2006
(unaudited) (audited)
£m £m
Cash flows from operating activities
Operating profit 62.8 46.6
Loss from discontinued operations - (0.6)
Add back tax on discontinued operations - (0.4)
62.8 45.6
Depreciation of property, plant and equipment 5.6 7.1
Amortisation and impairment of intangible assets 7.3 3.6
Equity share based payments 1.7 1.1
Impairment of investments 0.3 -
(Profit)/loss on disposal of property, plant and equipment (0.2) 0.3
Operating cash flows before movement in working capital 77.5 57.7
(Increase)/decrease in inventories (16.9) 1.5
(Increase)/decrease in receivables (5.7) 52.8
Increase/(decrease) in payables 10.0 (49.2)
(Decrease)/increase in provisions (4.7) (8.7)
Cash generated from operations 60.2 54.1
10. Movement in net debt
2007 2006
(unaudited) (audited)
£m £m
Increase/(decrease) in cash in the year (0.4) (1.4)
Cash flow from the (increase)/decrease in debt and lease financing (33.1) 26.1
Change in net funds resulting from cash flows (33.5) 24.7
Loans and finance leases (acquired)/disposed of with subsidiaries - 0.1
New finance leases - (0.4)
Foreign currency translation differences (2.0) 0.3
Movement in net debt in the year (35.5) 24.7
Net debt at the beginning of the year (38.2) (62.9)
Net debt at the end of the year (73.7) (38.2)
11. Changes in net debt
At Acquisitions New At
1 April and finance Exchange 31 March
2006 Cash flow disposals leases movement 2007
(audited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m £m
Cash and bank balances 109.0 (10.5) (2.9) 95.6
Bank overdrafts (83.7) 10.1 0.1 (73.5)
Cash, cash equivalents and bank
overdrafts at end of year 25.3 (0.4) (2.8) 22.1
Debt (58.1) (35.0) 0.4 (92.7)
Finance leases (5.4) 1.9 0.4 (3.1)
(63.5) (33.1) 0.8 (95.8)
Total (38.2) (33.5) (2.0) (73.7)
12. Financial information
The financial information in this statement is not audited and does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985 (as amended). The financial statements for the year to March 2007 have
not yet been delivered to the Registrar of Companies, nor have the auditors yet
reported on them. Full accounts for Babcock International Group PLC for the year
ended 31 March 2006, prepared under IFRS, have been delivered to the Register of
Companies. The auditors' report on these accounts was unqualified and did not
contain a statement under Section 237(2) or Section 237(3) of the UK Companies
Act 1985. This preliminary statement was approved by the Board on 9th May 2007.
13. Distribution
Copies of this report will be available at the company's registered office: 2
Cavendish Square, London W1G 0PX. In addition, this report is available on the
company's website: www.babcock.co.uk.
This information is provided by RNS
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