TIDMBAB
RNS Number : 8274V
Babcock International Group PLC
09 November 2010
Babcock International Group PLC
Half year report
for six months ended 30 September 2010
9 November 2010
Group's prospects enhanced by strong operational and financial performance and
rapid integration of VT businesses.
Financial Highlights
+---------------------------------------------------+-------------+-------------+--------+
| Underlying | September | September | Change |
| | 2010 | 2009 | |
| | (unaudited) | (unaudited) | |
+---------------------------------------------------+-------------+-------------+--------+
| Revenue* | GBP1,221.2m | GBP934.9m | + 31% |
+---------------------------------------------------+-------------+-------------+--------+
| Operating profit** | GBP113.7m | GBP82.4m | + 38% |
+---------------------------------------------------+-------------+-------------+--------+
| Profit before tax*** | GBP90.9m | GBP71.8m | + 27% |
+---------------------------------------------------+-------------+-------------+--------+
| Continuing earnings per share**** | 24.56p | 24.97p | - 2% |
+---------------------------------------------------+-------------+-------------+--------+
| Statutory | | | |
+---------------------------------------------------+-------------+-------------+--------+
| Revenue | GBP1,182.0m | GBP923.0m | + 28% |
+---------------------------------------------------+-------------+-------------+--------+
| Operating profit | GBP58.7m | GBP76.1m | - 23% |
+---------------------------------------------------+-------------+-------------+--------+
| Profit before tax | GBP41.1m | GBP66.1m | - 38% |
+---------------------------------------------------+-------------+-------------+--------+
| Continuing earnings per share | 11.48p | 23.17p | - 50% |
+---------------------------------------------------+-------------+-------------+--------+
*Underlying revenue includes the Group's share of joint venture
revenue
**Underlying operating profit includes IFRIC 12 investment income
and joint venture operating profit but is before amortisation of acquired
intangibles of GBP30.6 million (2009: GBP5.7 million) and operating profit
exceptional items of GBP17.0 million (2009: GBPnil)
***Underlying profit
before tax is inclusive of pre-tax joint venture income but before amortisation
of acquired intangibles of GBP31.6 million (2009: GBP5.7 million), exceptional
items and other of GBP18.3 million (2009: GBPnil)
****Continuing earnings
per share is before amortisation of acquired intangibles of GBP31.6 million
(2009: GBP5.7 million), exceptional items and other of GBP18.3 million (2009:
GBPnil) and before the related tax effects of GBP11.5 million (2009: GBP2.0
million)
Highlights
Acquisition of VT Group plc drives further strong underlying revenue and profit
growth
o new divisional structure in place and integration proceeding to plan
Underlying operating margin of 9.3%
Excellent cash generation and financial position
o net debt GBP796 million - ahead of VT acquisition plan, net debt to ebitda
2.8 times
Interim dividend increased by 8% to 5.20p reflecting confidence in enlarged
Group performance and prospects
Strong order book maintained at around GBP12 billion with healthy bid pipeline
of around GBP5 billion
Peter Rogers, Chief Executive commented
"The first half of this year was a momentous period for Babcock. We completed
the acquisition of VT Group and thereby established ourselves as the UK's
leading engineering support services company. VT has been integrated smoothly
and rapidly into Babcock's existing business to create a powerful springboard
for future growth."
"The enlarged group's operations have a proven track record of substantially
reducing costs for our customers while improving quality of service. These
attributes leave us well positioned to meet our customers' need for
cost-efficiency and reliability, and to maintain our strong track record of
increasing shareholder value."
Contact:
Babcock International Group PLC
Peter Rogers, Chief Executive Tel: 020
7355 5300
Bill Tame, Finance Director
Terri Wright, Head of Investor
Relations
Financial Dynamics
Andrew Lorenz
Tel: 020 7269 7121
Nick Hasell
A meeting for investors and analysts will be held today at 9:00 am at Financial
Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. A webcast of
the presentation will be available at www.babcock.co.uk from mid afternoon on 10
November 2010.
Introduction
During the first half the Group has continued to make strong progress,
benefiting from the acquisition of VT Group plc (VT),
as well as a good
ongoing performance from the existing Babcock businesses. The Group's financial
position remains secure and a strong focus on cash generation has reduced net
debt to below the level expected at the time of the acquisition. The order book
is stable at around GBP12 billion and the pipeline of opportunities currently
being bid has remained healthy at GBP5 billion.
The acquisition of VT, completed during the first half, fulfilled our strategy
to become the leading engineering support services company in the UK and has
strengthened our positions in our principal markets. By bringing together two
complementary businesses we have broadened our range of skills and capabilities
enabling us to work in closer partnership with our customers.
Following completion of the acquisition the Group has been reorganised into four
new reporting divisions to reflect the key markets and business streams of the
Group. The new structure has been adopted in this report. We are currently
undertaking a review of our business portfolio as part of the strategic planning
process which may lead to further changes to the structure. The Waste operation
is considered not to be a strategic growth opportunity for the Group and exit
options are being reviewed.
The Comprehensive Spending Review (CSR) and the UK Strategic Defence and
Security Review (SDSR) have now been completed and published. We welcome the
resolution of the uncertainty that surrounded a number of projects with which we
are involved. Consultation with the government is ongoing but we have already
identified a number of opportunities where savings can be achieved on existing
contracts as well as through new outsourcing initiatives.
We believe our ability to offer a broad range of through-life or end-to-end
services and our track record of delivering cost efficient solutions will
present significant additional opportunities for the Group in the medium to
long-term in both the UK and overseas.
Financial review
In this review, unless otherwise stated, revenue, operating profit, operating
margin, net finance costs, profit before tax and earnings per share refer to
results from continuing operations, before amortisation of acquired intangibles,
exceptional items and other. Revenue, operating profit, operating margins and
net finance costs also include the Group's share of equity accounted joint
ventures (jv). Operating profit and operating margin include investment income
arising under IFRIC12 (Accounting for Service Concession Arrangements) which is
presented as financial income in the Income Statement. Collectively these
adjustments are made to derive the underlying operating results of the business.
A reconciliation of statutory to underlying results is set out below. We feel
that the underlying figures aid comparison and understanding of Group financial
performance.
The financial results of the Group for the six months to 30 September 2010
include the trading results of the former VT businesses from the date of
acquisition of 8 July 2010. Results for the six months to 30 September 2009,
included for comparison purposes, are those of Babcock only without any
contribution from the VT businesses.
Income Statement
Total revenue (including the Group's share of equity accounted joint ventures)
for the period was up 31% to GBP1.221.2 million (2009: GBP934.9 million),
including GBP255.7 million from VT. Marine revenue increased by 8% to GBP502.4
million (2009: GBP464.0 million), with strong performance from overseas
operations and higher activity levels in warships as well as GBP10 million from
former VT activities. The Defence and Security division generated revenue of
GBP154.9 million (2009: GBP41.6 million) with revenues from Future Strategic
Tanker Aircraft and Military Flying Training Systems benefitting from the hangar
facilities construction phases nearing completion. VT acquired revenue in this
division was GBP103.0 million. Revenue in Support Services at GBP391.7 million
(2009: GBP341.5 million) included GBP81.6 million from VT with Critical Assets
and Education and Training performing strongly. Revenue from International
businesses increased by GBP84.4 million to GBP172.2 million (2009: GBP87.8
million), including GBP61.5 million from VT businesses, with African operations
benefitting significantly from the recovery in the South African mining sector.
Operating profit increased by 38% to GBP113.7 million (2009: GBP82.4 million),
including a GBP27 million contribution from the VT businesses and represented an
operating margin of 9.3%, up from 8.8% last year. Margin improvements in Defence
and Security to 15.2% (2009: 9.9%) and Support Services to 6.6% (2009: 5.8%)
were diluted by decreases in Marine to 11.9% (2009: 12.0%) and in International
to 5.7% (2009: 7.2%) with the addition of the lower margin VT US business.
Amortisation of intangible assets increased significantly to GBP30.6 million
(2009: GBP5.7 million) following the capitalisation of intangibles arising on
the acquisition of VT of GBP464.9 million.
Similarly, exceptional items totalling net GBP17.0 million (2009: GBP nil) were
incurred during the period, principally in respect of the acquisition and
integration of VT. An analysis of exceptional costs and income is set out at
note 3 to the half year financial statements.
After amortisation, exceptional items and other operating profit was GBP58.7
million (2009: GBP76.1 million).
Net finance costs including the Group's share of interest costs in joint
ventures were GBP22.8 million (2009: GBP10.6 million) on net debt which
increased by GBP494 million from 31 March 2010 following the acquisition of VT
in July. Net debt, excluding joint venture debt, was GBP796 million at 30
September 2010 compared to GBP302 million at 31 March 2010.
Statutory to underlying reconciliation
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| GBP million | Statutory | Revenue | Operating | Interest | Tax | IFRIC | Amortisation | Exceptional | Underlying |
| | GBPm | from | profit | cost | GBPm | 12 | GBPm | items | GBPm |
| | | joint | GBPm | GBPm | | income | | GBPm | |
| | | ventures | | | | Em | | | |
| | | GBPm | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Revenue | 1,182.0 | 39.2 | | | | | | | 1,221.2 |
| | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Operating | 58.7 | | 2.6 | | | 4.8 | 30.6 | 17.0 | 113.7 |
| profit | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Share of | 0.0 | | (2.6) | 4.5 | (0.1) | (4.1) | 1.0 | 1.3 | 0.0 |
| profit from | | | | | | | | | |
| jv | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Investment | 0.7 | | | | | (0.7) | | | 0.0 |
| income | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Net finance | (18.3) | | | (4.5) | | | | | (22.8) |
| costs | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Profit | 41.1 | - | - | - | (0.1) | - | 31.6 | 18.3 | 90.9 |
| before tax | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Tax | (6.5) | | | | (0.6) | | (8.8) | (2.7) | (18.6) |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
| Profit | 34.6 | - | - | - | (0.7) | - | 22.8 | 15.6 | 72.3 |
| after tax | | | | | | | | | |
+-------------+-----------+----------+-----------+----------+-------+--------+--------------+-------------+------------+
Financial review continued
Underlying profit before tax was GBP90.9 million (2009: GBP71.8 million). Income
tax expense based on an effective rate of tax of 20.5% (2009: 19%) was GBP18.6
million on underlying profit before tax, or GBP6.5 million after tax credits
arising on amortisation, exceptional items and other. Statutory profit after
tax was therefore GBP34.6 million (2009: GBP54.0 million). Based on a weighted
average number of shares in issue during the period, basic underlying earnings
per share was 24.56 pence (2009: 24.97 pence). Basic earnings per share, after
amortisation of acquired intangibles, exceptional items and other, was 11.48
pence (2009: 23.17 pence).
Cash flow and net debt
The Group's cash flow was particularly strong during the period with cash
generated from operations of GBP143.3 million (2009: GBP86.4 million). This
represented a cash flow conversion rate (the ratio of cash flow from operations
to operating profit) of 189% (2009: 114%). Cash flow benefited from payments
received in advance of revenue, which were higher than anticipated and from
lower than planned capital expenditure, some of which will reverse in the second
half of the financial year.
The strong cash performance reduced net debt significantly from the date of
acquisition of VT to GBP796 million on 30 September 2010, which brought the key
leverage ratio of net debt to ebitda to 2.8 times, substantially better than our
acquisition planning assumptions.
Acquisition of VT Group plc
The Group acquired VT on 8 July 2010 for a total cost of GBP1.5 billion financed
by the issue of 128.7 million Babcock ordinary shares and cash. An analysis of
the price paid and net assets acquired is set out in note 12 to the half year
financial statements.
The cash element of the consideration was sourced from the existing GBP600
million bank revolving credit facility and a new GBP400 million bridge finance
facility. Total facilities available to the Group are GBP1.1 billion including
US Private Placement loan notes of GBP100 million. Debt maturities are as
follows:
* Revolving Credit Facility GBP600 million 2012
* Bridge Facility GBP400 million October 2011
* US Private Placement GBP100 million 2017/2020
We expect to refinance before the end of this financial year.
Integration of the former VT businesses into Babcock is progressing well. Merger
benefits identified at the time of the acquisition were GBP50 million per annum
(pre-tax) plus GBP8 million (post-tax) of financial efficiencies. Our current
estimates indicate that we will achieve an annualised runrate of GBP11.0 million
in annualised merger benefits by 31 March 2011, in line with our planning
assumptions. Annualised financial efficiencies of GBP8 million will be delivered
in full by 31 March 2011. Costs of integration and synergy realisation were
estimated at the time of acquisition at GBP45 million. As at 30 September 2010
GBP7.5 million had been expensed to the Income Statement within exceptional
costs and an analysis of these can be found at note 3 to the half year financial
statements.
Interim dividend
The Board's confidence in the enlarged Group's performance and prospects is
reflected in its approval of the payment of an interim dividend of 5.20 pence
per share (2009: 4.8 pence) an increase of 8%. This will be paid on 14 January
2011 to shareholders on the register at 17 December 2010
Pensions
IAS 19 pension fund pre-deferred tax deficits at 30 September 2010 totalled
GBP356.4 million (31 March 2010: GBP324.0 million) which includes deficits of
GBP54 million relating to former VT pension schemes. Plan assets at 30 September
were GBP2.47 billion (March 2010: GBP1.98 billion) and plan liabilities GBP2.83
billion (March 2010: GBP2.30 billion)
The discount rate applied in valuing scheme liabilities decreased further in the
six months to 30 September to 5.0% (March 2010: 5.5%) in line with the fall in
yields on AA corporate bonds. The negative effect of this on liabilities has
been partially offset by a corresponding decrease in the estimated future
inflation rate from 3.4% to 2.8%. For those schemes where pension inflation is
linked to a general inflation index and as a result of the UK Government's move
to the use of the Consumer Prices Index (CPI) from the Retail Prices Index (RPI)
for public sector pension schemes, a number of the Group's IAS19 valuations have
now adopted CPI in place of RPI, which has also reduced liabilities relative to
March 2010.
Cash payments into Group pension schemes in the six months to 30 September
totalled GBP21.3 million, including GBP3.9 million to former VT schemes. Cash
payments for the 12 months to 31 March 2011 are expected to be GBP48 million.
Operational review
Marine
+-----------+--------+-----------+-----------+
| | | 30 | 30 |
| | | September | September |
| | | 2010 | 2009 |
+-----------+--------+-----------+-----------+
| Revenue | total | GBP502.4m | GBP464.0m |
+-----------+--------+-----------+-----------+
| Operating | total | GBP59.6m | GBP55.9m |
| profit | | | |
+-----------+--------+-----------+-----------+
| Operating | total | 11.9% | 12.0% |
| margin | | | |
+-----------+--------+-----------+-----------+
The Marine division has been largely unaffected by the acquisition of VT with
only the New Zealand naval base, submarine communication and Astute training
contracts now additionally included in the divisional results. In total these
contracts account for less than 5% of annual divisional revenue.
The division has continued to perform strongly across all its business streams
benefiting from its position as the Royal Navy's key support partner.
We welcome the commitment in the SDSR to complete the building of the two new
aircraft carriers HMS Queen Elizabeth and HMS Prince of Wales, and to confirm
the UK's commitment to a submarine launched deterrent. These decisions have
removed potential uncertainties relating to future business.
As the Royal Navy's major warship refit partner we continue to benefit from the
long-term programme of scheduled refit work. The announcement that the surface
fleet will be reduced from 23 to 19 frigates and destroyers and that some
vessels may be put in 'extended readiness' could have some limited impact on
future refit revenues. However, we believe there could be upside benefit from
refitting vessels prior to possible overseas sale.
The submarine programme has been unaffected by the SDSR with a commitment to
build seven Astute class submarines and the unique infrastructures within the
division are vital for the ongoing support for the submarine fleet. The
division's current involvement in the future deterrent programme is limited and
will be largely unaffected by the announcement to delay the programme. We
expect our role to increase as detailed design work starts later this year. In
addition, we continue to work on the Vanguard class life extension project
which, following publication of SDSR, is now expected to include three
additional Long Overhaul Periods at a cost, estimated by the Secretary of State
for Defence, to be in the order of GBP1.3 billion.
The Royal Navy has confirmed that both naval bases at Devonport and Clyde will
be retained. Under the Terms of Business Agreement (ToBA) we will continue to
seek efficiencies through our management and waterfront support contracts at
both sites.
Our international submarine support presence continues to develop. In Canada,
the extended docking work period on HMCS Chicoutimi is progressing well. In
Australia, South Korea and Spain we continue to develop our presence on new
programmes by leveraging from our weapons handling systems expertise and our
wider maritime support capabilities in the UK.
The naval support markets in which we operate are robust and the strength of our
reputation and the expertise within our business provide us with opportunities
for growth both in the UK and overseas. The division benefits from excellent
long-term visibility, through existing orders and the scheduled programme of
maintenance and refits across the UK fleet. In addition, the division is in a
strong position from which to benefit as the MoD and Royal Navy explore and
implement the detail of the SDSR.
Defence and Security
+-----------+--------+-----------+-----------+
| | | 30 | 30 |
| | | September | September |
| | | 2010 | 2009 |
+-----------+--------+-----------+-----------+
| Revenue | group | GBP130.1m | GBP36.4m |
+-----------+--------+-----------+-----------+
| | jv | GBP24.8m | GBP5.2m |
+-----------+--------+-----------+-----------+
| | total | GBP154.9m | GBP41.6m |
+-----------+--------+-----------+-----------+
| Operating | group | GBP18.1m | GBP3.7m |
| profit | | | |
+-----------+--------+-----------+-----------+
| | jv | GBP5.5m | GBP0.4m |
+-----------+--------+-----------+-----------+
| | total | GBP23.6m | GBP4.1m |
+-----------+--------+-----------+-----------+
| Operating | group | 13.9% | 10.2% |
| margin | | | |
+-----------+--------+-----------+-----------+
| | jv | 22.2% | 7.7% |
+-----------+--------+-----------+-----------+
| | total | 15.2% | 9.9% |
+-----------+--------+-----------+-----------+
The Defence and Security division is a combination of the VT Defence division
and Babcock's Defence division excluding the Infrastructure Services and Airport
business units which are now included in the Support Services division.
Therefore the comparative results for 2009 relate only to the Babcock Defence
Services business unit and the Royal School of Military Engineering (RSME)
contract.
During the period there has been little change to market conditions for the
division. Its major customer, the MoD, continues to seek the most cost
efficient support solutions as it focuses limited resource on front line
operations.
The SDSR highlighted no significant areas where there would be any immediate
adverse impact on the division's operations. We await the detail of the review
but have already identified a number of areas where we can assist the MoD in
driving efficiencies as they seek to rationalise their estate, equipment support
and training provision.
The division's joint ventures continue to perform in line with expectations. In
both the Future Strategic Tanker Aircraft (FSTA) programme and the UK Military
Flying Training System (UKMFTS) projects, our role as provider of services
during the construction and mobilisation phases of the hangar facilities will
move towards completion during this financial year. As anticipated, the
division's 2010/11 results will benefit significantly from this phase of the
contract. However our margins on these projects will reduce quite materially as
we move into the operational phase in the 2011/12 financial year.
Elsewhere in the division, rebids are progressing well on contracts we expected
to be relet during the next calendar year. Following the SDSR there could be
extensions to some of these contracts as the MoD considers alternative
solutions. We believe our broad range of capabilities and the scale of our
operations places us in a strong position from which to benefit from these
changes.
We continue to deliver high standards of training for the Army at RSME and at
Bordon and Arborfield for the Royal Electrical and Mechanical Engineers as well
as for the Royal Navy through the Flagship contract. As the largest provider of
military training in the UK, the cancellation of DTR 1 will enable us to pursue
a number of opportunities we have already identified where we can assist the MoD
to deliver significant long-term efficiencies in its training programmes.
The airfield and operational support contracts continue to perform well
achieving both their operational KPIs and anticipated financial performance.
Integration across the division is now well advanced. New organisational
structures are in place which has resulted in a rationalisation of divisional
offices and facilities. As part of the integration process, in line with the
approach outlined in the SDSR, we are looking at a number of ways in which our
presence and track record of working with all three armed forces can be used to
deliver broader and more cost efficient long-term solutions for our major
customer as well as the targeted acquisition synergy savings.
We believe the market for the division remains healthy and we are confident that
there will be a number of significant growth opportunities in the medium to
long-term.
Support Services
+-----------+--------+-----------+-----------+
| | | 30 | 30 |
| | | September | September |
| | | 2010 | 2009 |
+-----------+--------+-----------+-----------+
| Revenue | group | GBP377.3m | GBP334.8m |
+-----------+--------+-----------+-----------+
| | jv | GBP14.4m | GBP6.7m |
+-----------+--------+-----------+-----------+
| | total | GBP391.7m | GBP341.5m |
+-----------+--------+-----------+-----------+
| Operating | group | GBP24.5m | GBP19.6m |
| profit | | | |
+-----------+--------+-----------+-----------+
| | jv | GBP1.2m | GBP0.3m |
+-----------+--------+-----------+-----------+
| | total | GBP25.7m | GBP19.9m |
+-----------+--------+-----------+-----------+
| Operating | group | 6.5% | 5.9% |
| margin | | | |
+-----------+--------+-----------+-----------+
| | jv | 8.3% | 4.5% |
+-----------+--------+-----------+-----------+
| | total | 6.6% | 5.8% |
+-----------+--------+-----------+-----------+
The Support Services division provides technical expertise to support and manage
a range of critical assets and infrastructures and is the UK's largest provider
of vocational training and school improvement services. The division is also
responsible for managing the Group's regional Prime contracts for Defence
Estates.
During the first half the markets across the division have been broadly stable
as the current economic climate continues to constrain both public and private
sector budgets. The CSR was broadly positive for the division and highlighted a
number of areas in which we operate, where spending will be protected or
prioritised focusing on achieving greater efficiencies or improvements in
services.
In the civil nuclear market spending on decommissioning activities remains flat
and revenue growth has been limited. However, the requirement to decommission
and clean up the UK's redundant nuclear sites has not changed. As a result of
the CSR, we welcome the Nuclear Decommissioning Authority's undertaking to
deliver a significant programme of reform to achieve savings and drive
efficiencies. We are well positioned at Sellafield and Dounreay to support this
programme.
The Education and Training business unit performed well, achieving significantly
improved standards on a number of contracts. Provisional educational results
confirm that Surrey schools continue to perform well above the national average
at all key stages and that Waltham Forest achieved the highest ever increase in
Key Stage 4 results, and exceeded the national average for the first time in key
stage 2. The engineering apprentice training business achieved Grade 1 ratings
across all elements in a recent OFSTED inspection, a level achieved by very few
other private training providers. As part of the CSR the government announced
an increase of GBP250 million a year by 2014/15 for adult apprenticeships to
support its drive to create a skilled workforce delivering economic growth and
productivity. We are market leaders in this field and continue to pursue a
number of opportunities where we can transfer our training expertise to new
customers both in the UK and overseas.
Our vehicle asset management contracts for the Metropolitan Police, British
Airways and the Department for Communities and Local Government (New Dimensions)
also performed well and delivered significant savings and improved availability
for our customers. We believe there are a number of opportunities where we can
deliver a broader range of services to existing customers or provide similar
services to new customers in this market. As part of the CSR Police funding
will be reduced and savings and efficiencies will need to be made in support
functions so that limited resources can be focused on front-line services.
In the power transmission business, the framework contract with UK Power
Networks (formerly EDF) has been extended by five years and the business has won
its first three year framework contract with Central Networks. Over their time
frames, these contracts are estimated to be worth around GBP100 million and
GBP30 million respectively.
The existing Regional Prime contracts were unaffected by the SDSR. There has
been limited growth in these contracts ahead of the SDSR although we are now
starting to see some additional work coming through. The division is well
placed as the MoD seeks to rationalise its estate and management organisations
such as Defence Estates (DE) and Defence Equipment and Support (DE&S).
Integration across the division is proceeding smoothly and a number of
opportunities have been identified where we can use the increased breadth of
capabilities within the new division to help provide through-life support or
end-to-end services for public and private sector customers.
We remain confident in the long-term growth prospects for the division.
Supported by positive outcomes from both the SDSR and CSR we believe there are
significant opportunities in the markets in which we operate.
International
+-----------+--------+-----------+-----------+
| | | 30 | 30 |
| | | September | September |
| | | 2010 | 2009 |
+-----------+--------+-----------+-----------+
| Revenue | total | GBP172.2m | GBP87.8m |
+-----------+--------+-----------+-----------+
| Operating | total | GBP9.8m | GBP6.3m |
| profit | | | |
+-----------+--------+-----------+-----------+
| Operating | total | 5.7% | 7.2 % |
| margin | | | |
+-----------+--------+-----------+-----------+
The International division comprises Babcock's South African business and small
US pipeline operation, VT's US Defence division and support contracts in Oman
and Kuwait.
In South Africa commodity prices have increased and there are some encouraging
signs that the economic environment is steadily improving.
We have seen continuing growth in demand for Volvo equipment although the market
remains competitive. The business has retained a tight control on overheads and
cost efficiency which has provided some support to margins.
The power generation support and Powerlines markets are steady but have been
affected by the financial constraints affecting our customer, Eskom, which have
recently been resolved. We continue to work closely with Eskom as they put
together new support contracts for their power stations.
In the US, the defence business has performed in line with expectations. Base
operation support remains competitive with the political 'favoured status'
policy for SMEs eroding volume and margins. As previously highlighted, we are
reducing our exposure to these lower margin contracts. The logistics and
readiness and communications support markets are better suited to our business
model and we have an established position in these higher margin areas. We
expect the business to continue the trend of moving into higher margin
operations and contracts
During the first half we completed the acquisition of Evergreen Unmanned Systems
for $14 million with a further $6 million deferred over a two year period. The
acquisition represents a first move into the fast growing Unmanned Aerial
Systems (UAS) support market and strengthens the division's existing fixed and
rotary wing aircraft support services.
In Oman and Kuwait, our air force support contracts continue to perform well.
We remain confident that there are a number of opportunities in the Middle East
where we can build on these contracts and our UK expertise and track record to
provide infrastructure, engineering and training support in both defence and
civil markets.
Although the markets in which the division operates remain competitive, there
remain opportunities to exploit the enhanced capabilities of the Group to
deliver reasonable levels of revenue and margin growth.
VT integration
The integration of the VT businesses into Babcock was extremely well planned
ahead of completion and has progressed speedily and efficiently. At the time of
completion the new divisional structure was announced and new divisional
management teams were then put in place. The business units within the
divisions are now focused on maximising the opportunities created by the
acquisition and this has resulted in further streamlining of overheads and
facilities. All corporate functions were fully integrated by the end of the
first half. We remain confident of achieving the merger benefits of GBP50
million (pre-tax), both in total and in line with expected timing, along with
GBP8 million (post-tax) of financial efficiencies by the end of the 2013
financial year.
Order book and bid pipeline
The Group's order book has remained stable during the first half and is
currently worth around GBP12 billion. The majority of this year's revenue is
already contracted and we continue to increase the proportion of contracted
revenue for 2011/12. During this period we have had no contracts cancelled.
As previously highlighted, and in common with peer companies, we have
experienced some slowdown in the number of new contracts coming out to tender
during the first half. This was a result of the Government's preparations for
the CSR and SDSR. It is too early to identify a reversal of this trend but we
do not expect the outcome of these reviews to have any long-term negative effect
on our pipeline.
The pipeline of opportunities currently being bid remains healthy at around GBP5
billion and is supported by considerable opportunities at the tracking stage.
Outlook
The Group's key markets remain attractive with a number of significant long-term
growth opportunities. In addition, we believe that following the CSR and SDSR
significant new outsourcing opportunities will be created. The scale of the
enlarged Group's operations, our expertise and track record will place us in a
strong position from which to benefit from these.
Pressure on Government spending has led to short-term delays in outsourcing
programmes but we would expect this to ease during the 2011/12 financial year.
During this period earnings will benefit from both synergy savings and improving
contract margins in the Support Services and International divisions.
The strength of the order book and bid pipeline, our involvement in long term
programmes and proven ability to deliver efficiencies gives us confidence in the
outlook for 2010/11 and thereafter.
Peter Rogers
Group Chief Executive
Bill Tame
Group Finance Director
Income statement
For the six months ended 30 September 2010
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | Six months ended 30 September 2010 | | Six months ended 30 September 2009 |
+-----------+----------+------------------+------+----------+---------------------------------------------------------------+----------+---------------------------------------------------------------+
| Year | | | Note | | Before | | Exceptional | | Total | | Before | | Exceptional | | Total |
| ended | | | | | exceptional | | items and | | (unaudited) | | exceptional | | items and | | (unaudited) |
| 31 | | | | | items and | | other | | GBPm | | items and | | other | | GBPm |
| March | | | | | other | | (unaudited) | | | | other | | (unaudited) | | |
| 2010 | | | | | (unaudited) | | GBPm | | | | (unaudited) | | GBPm | | |
| Total | | | | | GBPm | | | | | | GBPm | | | | |
| (audited) | | | | | | | | | | | | | | | |
| GBPm | | | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 1,923.4 | | Total revenue | 2 | | 1,221.2 | | - | | 1,221.2 | | 934.9 | | - | | 934.9 |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 27.9 | | Less: joint | | | 39.2 | | - | | 39.2 | | 11.9 | | - | | 11.9 |
| | | venture revenue | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 1,895.5 | | Group revenue | | | 1,182.0 | | - | | 1,182.0 | | 923.0 | | - | | 923.0 |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 148.1 | | Operating profit | 2, 3 | | 106.3 | | (47.6) | | 58.7 | | 81.8 | | (5.7) | | 76.1 |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| (0.5) | | | 2 | | 1.6 | | (1.6) | | - | | (0.1) | | - | | (0.1) |
| | | Share of | | | | | | | | | | | | | |
| | | profit/(loss) | | | | | | | | | | | | | |
| | | from joint | | | | | | | | | | | | | |
| | | ventures | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| - | | Investment | | | 0.7 | | - | | 0.7 | | - | | - | | - |
| | | income | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| (21.8) | | Finance costs | | | (22.1) | | - | | (22.1) | | (11.5) | | - | | (11.5) |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 3.4 | | Finance income | | | 3.8 | | - | | 3.8 | | 1.6 | | - | | 1.6 |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 129.2 | | Profit before | | | 90.3 | | (49.2) | | 41.1 | | 71.8 | | (5.7) | | 66.1 |
| | | tax | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| (20.8) | | Income tax | 4 | | (18.0) | | 11.5 | | (6.5) | | (13.7) | | 1.6 | | (12.1) |
| | | expense | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 108.4 | | Profit for the | | | 72.3 | | (37.7) | | 34.6 | | 58.1 | | (4.1) | | 54.0 |
| | | period from | | | | | | | | | | | | | |
| | | continuing | | | | | | | | | | | | | |
| | | operations | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | | | | |
| | | Attributable to: | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 106.0 | | Equity holders | | | | | | | 33.1 | | | | | | 53.0 |
| | | of the parent | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 2.4 | | Minority | | | | | | | 1.5 | | | | | | 1.0 |
| | | interest | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 108.4 | | | | | | | | | 34.6 | | | | | | 54.0 |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | Earnings per | 5 | | | | | | | | | | | | |
| | | share from | | | | | | | | | | | | | |
| | | continuing | | | | | | | | | | | | | |
| | | operations | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 46.29 | | - Basic | | | | | | | 11.48p | | | | | | 23.17p |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 46.10 | | - Diluted | | | | | | | 11.45p | | | | | | 23.04p |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 148.1 | | Operating profit | | | 106.3 | | (47.6) | | 58.7 | | 81.8 | | (5.7) | | 76.1 |
| | | - group | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| - | | Investment | | | 0.7 | | - | | 0.7 | | - | | - | | - |
| | | income - group | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 0.5 | | Operating profit | | | 2.6 | | (1.0) | | 1.6 | | 0.6 | | - | | 0.6 |
| | | - share of joint | | | | | | | | | | | | | |
| | | ventures | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| - | | Investment | | | 4.1 | | - | | 4.1 | | - | | - | | - |
| | | income - share | | | | | | | | | | | | | |
| | | of joint | | | | | | | | | | | | | |
| | | ventures | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
| 148.6 | | Underlying | | | 113.7 | | (48.6) | | 65.1 | | 82.4 | | (5.7) | | 76.7 |
| | | operating profit | | | | | | | | | | | | | |
+-----------+----------+------------------+------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+-------------+
Statement of comprehensive income
For the six months ended 30 September 2010
+-----------+----------+---------------------------------------------------+-------------+-------------+
| Year | | | Six | Six |
| ended | | | months | months |
| 31 | | | ended | ended |
| March | | | 30 | 30 |
| 2010 | | | September | September |
| (audited) | | | 2010 | 2009 |
| GBPm | | | (unaudited) | (unaudited) |
| | | | GBPm | GBPm |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 108.4 | | Profit for the period | 34.6 | 54.0 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| | | Other comprehensive income | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 10.7 | | Currency translation differences | (1.1) | 5.4 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Fair value adjustment of interest rate and | (0.2) | 1.5 |
| | | foreign exchange hedges | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Fair value adjustment of joint venture | (13.3) | - |
| | | derivatives | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Tax on fair value adjustment of joint venture | 3.7 | - |
| | | derivatives | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (403.5) | | Net actuarial gains/(loss) in respect of pensions | 17.7 | (337.8) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 113.0 | | Tax on net actuarial (gains)/loss in respect of | (8.0) | 94.2 |
| | | pensions and hedges | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (279.8) | | Other comprehensive income, net of tax | (1.2) | (236.7) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (171.4) | | Total comprehensive income | 33.4 | (182.7) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| | | Total comprehensive income attributable to: | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (174.4) | | Equity holders of the parent | 31.8 | (184.1) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 3.0 | | Minority interest | 1.6 | 1.4 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (171.4) | | | 33.4 | (182.7) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
Statement of changes in equity
For the six months ended 30 September 2010
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| | Share | Share | Capital | Retained | Hedging | Translation | Shareholder | Minority | Total |
| | capital | premium | redemption | earnings | reserve | reserve | equity | interests | equity |
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| At 1 April 2009 | 137.7 | 148.2 | 30.6 | (16.0) | (10.7) | (1.4) | 288.4 | 4.4 | 292.8 |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Shares issued in | 0.1 | - | - | - | - | - | 0.1 | - | 0.1 |
| the period | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Total | - | - | - | (190.2) | 1.0 | 5.1 | (184.1) | 1.4 | (182.7) |
| comprehensive | | | | | | | | | |
| income | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Dividends | - | - | - | (23.8) | - | - | (23.8) | (1.1) | (24.9) |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Share-based | - | - | - | 1.4 | - | - | 1.4 | - | 1.4 |
| payments | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Tax on | - | - | - | 0.7 | - | - | 0.7 | - | 0.7 |
| share-based | | | | | | | | | |
| payments | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Own shares and | - | - | - | (1.9) | - | - | (1.9) | - | (1.9) |
| other | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Net movement in | 0.1 | - | - | (213.8) | 1.0 | 5.1 | (207.6) | 0.3 | (207.3) |
| equity | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| At 30 September | 137.8 | 148.2 | 30.6 | (229.8) | (9.7) | 3.7 | 80.8 | 4.7 | 85.5 |
| 2009 | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| At 1 April 2010 | 137.8 | 148.3 | 30.6 | (234.2) | (10.7) | 8.8 | 80.6 | 5.2 | 85.8 |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Shares issued in | 77.3 | 722.9 | - | - | - | - | 800.2 | - | 800.2 |
| the period | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Total | - | - | - | 42.8 | (9.8) | (1.2) | 31.8 | 1.6 | 33.4 |
| comprehensive | | | | | | | | | |
| income | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Dividends | - | - | - | (29.4) | - | - | (29.4) | (1.3) | (30.7) |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Share-based | - | - | - | 2.6 | - | - | 2.6 | - | 2.6 |
| payments | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Tax on | - | - | - | 1.3 | - | - | 1.3 | - | 1.3 |
| share-based | | | | | | | | | |
| payments | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Minority | - | - | - | - | - | - | - | 1.9 | 1.9 |
| interest | | | | | | | | | |
| acquired | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Acquisition | - | - | - | (2.0) | - | - | (2.0) | - | (2.0) |
| costs | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| Net movement in | 77.3 | 722.9 | - | 15.3 | (9.8) | (1.2) | 804.5 | 2.2 | 806.7 |
| equity | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
| At 30 September | 215.1 | 871.2 | 30.6 | (218.9) | (20.5) | 7.6 | 885.1 | 7.4 | 892.5 |
| 2010 | | | | | | | | | |
+------------------+---------+---------+------------+----------+---------+-------------+-------------+-----------+---------+
Balance sheet
As at 30 September 2010
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| As at | | | Note | As at | As at |
| 31 | | | | 30 | 30 |
| March | | | | September | September |
| 2010 | | | | 2010 | 2009 |
| (audited) | | | | (unaudited) | (unaudited) |
| GBPm | | | | GBPm | GBPm |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Assets | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Non-current assets | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 548.3 | | Goodwill | | 1,593.2 | 535.1 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 80.2 | | Other intangible assets | | 531.4 | 62.4 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 149.3 | | Property, plant and equipment | | 212.1 | 147.4 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1.0 | | Investments in joint ventures | 7 | 43.0 | 0.5 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 13.3 | | Loans to joint ventures | 7 | 21.5 | 13.0 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| - | | Other investments | | 0.4 | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| - | | Other financial assets | | 39.6 | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 0.4 | | Trade and other receivables | | 1.4 | 0.2 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 84.9 | | Deferred tax asset | | 23.8 | 89.0 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 877.4 | | | | 2,466.4 | 847.6 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Current assets | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 84.2 | | Inventories | | 90.8 | 94.6 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 330.9 | | Trade and other receivables | | 467.6 | 309.1 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1.9 | | Income tax recoverable | | 14.3 | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1.1 | | Other financial assets | | 0.5 | 0.6 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 189.6 | | Cash and cash equivalents | 10 | 138.7 | 189.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 607.7 | | | | 711.9 | 593.6 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1,485.1 | | Total assets | | 3,178.3 | 1,441.2 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Equity and liabilities | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Equity attributable to equity holders of | | | |
| | | the parent | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 137.8 | | Share capital | | 215.1 | 137.8 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 148.3 | | Share premium | | 871.2 | 148.2 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 28.7 | | Capital redemption and other reserves | | 17.7 | 24.6 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (234.2) | | Retained earnings | | (218.9) | (229.8) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 80.6 | | | | 885.1 | 80.8 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 5.2 | | Minority interest | | 7.4 | 4.7 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 85.8 | | Total equity | | 892.5 | 85.5 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Non-current liabilities | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 329.1 | | Bank and other borrowings | 10 | 838.5 | 346.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 12.3 | | Trade and other payables | | 14.4 | 10.8 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| - | | Deferred tax | | 22.9 | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 0.2 | | Income tax payable | | 0.2 | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 324.0 | | Retirement liabilities | 11 | 356.4 | 287.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 37.1 | | Provisions for other liabilities | | 126.3 | 35.1 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 702.7 | | | | 1,358.7 | 679.5 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Current liabilities | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 162.8 | | Bank and other borrowings | 10 | 96.3 | 156.9 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 498.1 | | Trade and other payables | | 760.9 | 484.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 6.9 | | Income tax payable | | 34.4 | 13.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 15.7 | | Other financial liabilities | | 5.2 | 13.4 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 13.1 | | Provisions for other liabilities | | 30.3 | 8.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 696.6 | | | | 927.1 | 676.2 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1,399.3 | | Total liabilities | | 2,285.8 | 1,355.7 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1,485.1 | | Total equity and liabilities | | 3,178.3 | 1,441.2 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
Cash flow statement
For the six months ended 30 September 2010
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| Year | | | Note | Six | Six |
| ended | | | | months | months |
| 31 | | | | ended | ended |
| March | | | | 30 | 30 |
| 2010 | | | | September | September |
| (audited) | | | | 2010 | 2009 |
| GBPm | | | | (unaudited) | (unaudited) |
| | | | | GBPm | GBPm |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Cash flows from operating activities | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 170.3 | | Cash generated from operations | 8 | 143.3 | 86.4 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (1.7) | | Income tax paid | | (5.6) | (0.6) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (22.3) | | Interest paid | | (20.1) | (11.6) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 3.8 | | Interest received | | 3.8 | 1.1 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 150.1 | | Net cash flows from operating activities | | 121.4 | 75.3 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Cash flows from investing activities | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| - | | Disposal of subsidiaries and joint | | 2.2 | - |
| | | ventures | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 1.3 | | Proceeds on disposal of property, plant | | 0.5 | 0.2 |
| | | and equipment and intangible assets | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (16.8) | | Purchases of property, plant and equipment | | (8.7) | (8.7) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (3.2) | | Purchases of intangible assets | | (0.7) | (0.6) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| - | | Investment in and loans to joint ventures | | (0.5) | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (37.9) | | Acquisition of subsidiaries net of cash | | (486.9) | - |
| | | acquired and acquisition costs accrued in | | | |
| | | prior years | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (56.6) | | Net cash flows from investing activities | | (494.1) | (9.1) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| | | Cash flows from financing activities | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (34.7) | | Dividends paid | | (29.4) | (23.8) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (1.4) | | Finance lease principal payments | | (1.2) | (0.4) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (130.5) | | Bank loans repaid | | (60.8) | (10.4) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 100.0 | | Loans raised | | 513.3 | - |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (2.2) | | Dividends paid to minority interests | | (1.3) | (1.1) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 0.2 | | Net proceeds on issue of shares | | - | 0.1 |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (2.1) | | Movement on own shares | | - | (1.9) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (70.7) | | Net cash flows from financing activities | | 420.6 | (37.5) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 22.8 | | Net increase in cash, cash equivalents and | | 47.9 | 28.7 |
| | | bank overdrafts | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 6.3 | | Cash, cash equivalents and bank overdrafts | | 29.0 | 6.3 |
| | | at start of period | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| (0.1) | | Effects of exchange rate fluctuations | | 0.1 | (0.7) |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
| 29.0 | | Cash, cash equivalents and bank overdrafts | 10 | 77.0 | 34.3 |
| | | at end of period | | | |
+-----------+----------+--------------------------------------------+-------+-------------+-------------+
Notes to the consolidated half year financial statements
For the six months ended 30 September 2010
?1. Basis of preparation
The consolidated half year 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 2010 (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 half year financial
statements are consistent with those in the Annual Report except as detailed
below:
? IFRS 3 (revised), 'Business combinations': as a consequence of which GBP12.4
million of acquisition costs are included in exceptional costs which would have
previously been a cost of investment and included in goodwill.
? IAS27 (revised), 'Consolidated and separate financial statements'. This does
not have a significant impact on the Group.
On the acquisition of VT Group plc IFRIC 12 'Service concessions arrangements'
is now a significant accounting policy for the Group. IFRIC 12 addresses the
accounting by private sector operators involved in the provision of public
sector infrastructure assets and services. None of the IFRIC interpretations
issued since the year end have had a material impact on the Group.
The half year report for the six months ended 30 September 2010 was approved by
the Directors on 8 November 2010. The half year report has not been audited or
reviewed by auditors.
2. Segmental analysis
Following the acquisition of VT Group plc the segments have changed to reflect
the new business structure announced on 12 July 2010. The segments reflect the
accounting information reviewed by the Chief Operating Decision Maker (CODM).
The Marine segment includes the Group's UK and International marine business,
the Defence and Securities segment is the remainder of the UK defence business
with the exception of certain infrastructure contracts within Support Services.
Support Services includes Education and Training, Nuclear, Rail, Infrastructure
and Critical Assets. International includes the US, South African and Middle
East businesses.
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| 2010 | Marine | Defence | Support | International | Unallocated | Group |
| | GBPm | and | Services | GBPm | GBPm | total |
| | | Security | GBPm | | | GBPm |
| | | GBPm | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Continuing operations | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Total revenue | 502.4 | 154.9 | 391.7 | 172.2 | - | 1,221.2 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Joint venture revenue | - | 24.8 | 14.4 | - | - | 39.2 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Group revenue | 502.4 | 130.1 | 377.3 | 172.2 | - | 1,182.0 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Operating profit - group | 59.6 | 17.6 | 24.3 | 9.8 | (5.0) | 106.3 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| IFRIC 12 investment | - | 0.5 | 0.2 | - | - | 0.7 |
| income - group | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Operating profit - share | - | 2.4 | 0.2 | - | - | 2.6 |
| of joint ventures | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| IFRIC 12 investment | - | 3.1 | 1.0 | - | - | 4.1 |
| income - share of joint | | | | | | |
| venture | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Underlying operating | 59.6 | 23.6 | 25.7 | 9.8 | (5.0) | 113.7 |
| profit | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Joint venture share of | - | (3.4) | (1.1) | - | - | (4.5) |
| interest | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Joint venture share of | - | (0.6) | - | - | 0.7 | 0.1 |
| tax | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Acquired intangible | (6.2) | (2.9) | (19.5) | (2.0) | - | (30.6) |
| amortisation - group | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Acquired intangible | - | (0.9) | (0.1) | - | - | (1.0) |
| amortisation - share of | | | | | | |
| joint ventures | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Net finance costs | - | - | - | - | (18.3) | (18.3) |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Exceptional items | - | - | - | - | (18.3) | (18.3) |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Group profit before tax | 53.4 | 15.8 | 5.0 | 7.8 | (40.9) | 41.1 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| 2009 | Marine | Defence | Support | International | Unallocated | Group |
| | (restated) | and | Services | (restated) | (restated) | total |
| | GBPm | Security | (restated) | GBPm | GBPm | (restated) |
| | | (restated) | GBPm | | | GBPm |
| | | GBPm | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Continuing operations | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Total revenue | 464.0 | 41.6 | 341.5 | 87.8 | - | 934.9 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Joint venture revenue | - | 5.2 | 6.7 | - | - | 11.9 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Group revenue | 464.0 | 36.4 | 334.8 | 87.8 | - | 923.0 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Operating profit - group | 55.9 | 3.7 | 19.6 | 6.4 | (3.8) | 81.8 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Operating profit - share | - | 0.4 | 0.3 | (0.1) | - | 0.6 |
| of joint ventures | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Underlying operating | 55.9 | 4.1 | 19.9 | 6.3 | (3.8) | 82.4 |
| profit | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Joint venture share of | - | (0.6) | (0.1) | - | - | (0.7) |
| interest | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Acquired intangible | (3.7) | - | (2.0) | - | - | (5.7) |
| amortisation - group | | | | | | |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Net finance costs | - | - | - | - | (9.9) | (9.9) |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
| Group profit before tax | 52.2 | 3.5 | 17.8 | 6.3 | (13.7) | 66.1 |
+--------------------------+------------+------------+------------+---------------+-------------+------------+
3. Exceptional items, other and acquired intangible amortisation
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| | Group | | Joint venture | | Total |
+------------------------------+---------------------------+----------+---------------------------+----------+---------------------------+
| | Six | Six | | Six | Six | | Six | Six |
| | months | months | | months | months | | months | months |
| | ended | ended | | ended | ended | | ended | ended |
| | 30 | 30 | | 30 | 30 | | 30 | 30 |
| | September | September | | September | September | | September | September |
| | 2010 | 2009 | | 2010 | 2009 | | 2010 | 2009 |
| | (unaudited) | (unaudited) | | (unaudited) | (unaudited) | | (unaudited) | (unaudited) |
| | GBPm | GBPm | | GBPm | GBPm | | GBPm | GBPm |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Exceptional items and other | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Profit on disposal of | (2.9) | - | | - | - | | (2.9) | - |
| subsidiaries | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Reorganisation costs | 7.5 | - | | | - | | 7.5 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Interest | - | - | | 1.3 | - | | 1.3 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Acquisition costs | 12.4 | - | | - | - | | 12.4 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Exceptional items and other | 17.0 | - | | 1.3 | - | | 18.3 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Acquired intangible | 30.6 | 5.7 | | 1.0 | - | | 31.6 | 5.7 |
| amortisation | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Joint venture tax | - | - | | (0.7) | - | | (0.7) | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| | 47.6 | 5.7 | | 1.6 | - | | 49.2 | 5.7 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
Exceptional items are those items which are exceptional in nature or size. These
include material acquisition costs, reorganisation costs and where material, the
movement in the fair value of ineffective interest rate hedges (as defined by
IAS 39) within PFI contracts. In order to aid understanding, ineffective hedges
within PFI contracts are always included within exceptional items and other.
Acquisition costs above relate to the acquisition of VT Group plc (see note 12).
Reorganisation costs relate to the integration of Babcock international Group
PLC and VT Group plc.
Interest cost above is the movement in the fair value of the ineffective hedges
within PFI joint ventures.
4. Income taxes
The charge for taxation has been based on the estimated effective tax rate of
20.5% before exceptional items for the full year ended 31 March 2011. (For
September 2009, the charge for tax was based on an estimated effective tax rate
of 19% for the full year ended 31 March 2010). An additional tax credit of
GBP8.8 million relates to acquired intangible amortisation of which GBP0.4
million is included in share of profit/(loss) from joint ventures; and a further
tax credit of GBP2.7 million relates to exceptional items. (For September 2009
an additional tax credit of GBP1.6 million related to acquired intangible
amortisation).
5. Earnings per share
The calculation of the basic and diluted EPS is based on the following data:
+--------------------------------------------+--------------+--------------+
| | Six months | Six months |
| | ended | ended |
| | 30 September | 30 September |
| | 2010 | 2009 |
+--------------------------------------------+--------------+--------------+
| Number of shares | | |
+--------------------------------------------+--------------+--------------+
| Weighted average number of ordinary shares | 288,413,115 | 228,869,847 |
| for the purpose of basic EPS | | |
+--------------------------------------------+--------------+--------------+
| Effect of dilutive potential ordinary | 992,527 | 1,243,695 |
| shares: share options | | |
+--------------------------------------------+--------------+--------------+
| Weighted average number of ordinary shares | 289,405,642 | 230,113,542 |
| for the purpose of diluted EPS | | |
+--------------------------------------------+--------------+--------------+
Earnings
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
| | Six months ended 30 | | Six months ended 30 |
| | September 2010 | | September 2009 |
+-------------------------------+----------------------------+----------+----------------------------+
| | Earnings | Basic | Diluted | | Earnings | Basic | Diluted |
| | GBPm | per | per | | GBPm | per | per |
| | | share | share | | | share | share |
| | | pence | pence | | | pence | pence |
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
| Earnings per share from | 33.1 | 11.48 | 11.45 | | 53.0 | 23.17 | 23.04 |
| continuing operations | | | | | | | |
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
| Add back: | | | | | | | |
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
| Amortisation of acquired | 22.8 | 7.89 | 7.86 | | 4.1 | 1.80 | 1.79 |
| intangible assets, net of tax | | | | | | | |
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
| Exceptional items and other, | 14.9 | 5.19 | 5.17 | | - | - | - |
| net of tax | | | | | | | |
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
| Earnings before amortisation, | 70.8 | 24.56 | 24.48 | | 57.1 | 24.97 | 24.83 |
| exceptional items and other | | | | | | | |
+-------------------------------+----------+-------+---------+----------+----------+-------+---------+
6. Dividends
An interim dividend of 5.20 pence per 60 pence ordinary share (2009: 4.80 pence
per 60 pence ordinary share) was declared after the balance sheet date and will
be paid on 14 January 2011 to shareholders registered on 17 December 2010.
7. Investments in and loans to joint ventures
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| | Investment in | | Loans to | | Total |
| | joint | | joint | | |
| | ventures | | ventures | | |
+------------------------------+---------------------------+----------+---------------------------+----------+---------------------------+
| | Six | Six | | Six | Six | | Six | Six |
| | months | months | | months | months | | months | months |
| | ended | ended | | ended | ended | | ended | ended |
| | 30 | 30 | | 30 | 30 | | 30 | 30 |
| | September | September | | September | September | | September | September |
| | 2010 | 2009 | | 2010 | 2009 | | 2010 | 2009 |
| | (unaudited) | (unaudited) | | (unaudited) | (unaudited) | | (unaudited) | (unaudited) |
| | GBPm | GBPm | | GBPm | GBPm | | GBPm | GBPm |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| At 1 April | 1.0 | 1.5 | | 13.3 | 12.0 | | 14.3 | 13.5 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Acquisition of subsidiaries | 50.8 | - | | 8.5 | - | | 59.3 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Investments in joint | 0.2 | | | - | - | | 0.2 | - |
| ventures | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Loans repaid | - | | | (0.2) | - | | (0.2) | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Interest accrued | - | (1.0) | | 0.5 | 1.1 | | 0.5 | 0.1 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Fair value adjustment of | (9.6) | | | - | - | | (9.6) | - |
| derivatives, net of tax | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Share of operating profit | 6.7 | 0.6 | | - | - | | 6.7 | 0.6 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Share of interest | (5.2) | (0.6) | | (0.6) | (0.1) | | (5.8) | (0.7) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Share of tax | 0.1 | | | - | - | | 0.1 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Acquired intangible | (1.0) | | | - | - | | (1.0) | - |
| amortisation | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Total | 43.0 | 0.5 | | 21.5 | 13.0 | | 64.5 | 13.5 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
8. Reconciliation of operating profit to cash generated from operations
+-----------+----------+---------------------------------------------------+-------------+-------------+
| Year | | | Six | Six |
| ended | | | months | months |
| 31 | | | ended | ended |
| March | | | 30 | 30 |
| 2010 | | | September | September |
| (audited) | | | 2010 | 2009 |
| GBPm | | | (unaudited) | (unaudited) |
| | | | GBPm | GBPm |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| | | Cash flows from operating activities | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 148.1 | | Operating profit before exceptional items | 75.7 | 76.0 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Exceptional items | (17.0) | - |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 148.1 | | Operating profit | 58.7 | 76.0 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 22.3 | | Depreciation of property plant and equipment | 13.2 | 10.8 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 18.9 | | Amortisation and impairment of intangible assets | 32.3 | 6.9 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Investment income | 0.7 | - |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 2.7 | | Equity share-based payments | 2.6 | 1.4 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Profit on disposal of subsidiaries | (2.9) | - |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (0.4) | | Loss/(profit) on disposal of property, plant and | 0.4 | 0.3 |
| | | equipment | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 191.6 | | Operating cash flows before movement in working | 105.0 | 95.4 |
| | | capital | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 22.7 | | Decrease in inventories | 8.4 | 7.1 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 23.6 | | (Increase)/Decrease in receivables | (16.1) | 31.9 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (72.4) | | Increase/(Decrease) in payables | 50.1 | (46.3) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 4.8 | | (Decrease)/increase in provisions | (4.1) | (1.7) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 170.3 | | Cash generated from operations | 143.3 | 86.4 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
9. Movement in net debt
+-----------+----------+---------------------------------------------------+-------------+-------------+
| Year | | | Six | Six |
| ended | | | months | months |
| 31 | | | ended | ended |
| March | | | 30 | 30 |
| 2010 | | | September | September |
| (audited) | | | 2010 | 2009 |
| GBPm | | | (unaudited) | (unaudited) |
| | | | GBPm | GBPm |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 22.8 | | Increase in cash in the period | 47.9 | 28.7 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 31.9 | | Cash flow from the (increase)/decrease in debt | (451.5) | 10.8 |
| | | and lease financing | | |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 54.7 | | Change in net funds resulting from cash flows | (403.6) | 39.5 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| - | | Loans acquired and disposed of with subsidiaries | (90.3) | - |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (5.0) | | New finance leases | - | (1.1) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (0.5) | | Foreign currency translation differences | 0.1 | (0.8) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| 49.2 | | Movement in net debt in the period | (493.8) | 37.6 |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (351.5) | | Net debt at the beginning of the period | (302.3) | (351.5) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
| (302.3) | | Net debt at the end of the period | (796.1) | (313.9) |
+-----------+----------+---------------------------------------------------+-------------+-------------+
10. Changes in net debt
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| | At | Cash | Acquisitions | New | Exchange | At |
| | 1 | flow | and | finance | movement | 30 |
| | April | GBPm | disposals | leases | GBPm | September |
| | 2010 | | GBPm | GBPm | | 2010 |
| | (audited) | | | | | (unaudited) |
| | GBPm | | | | | GBPm |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| Cash and bank balances | 189.6 | (241.9) | 191.6 | - | (0.6) | 138.7 |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| Bank overdrafts | (160.6) | 98.2 | - | - | 0.7 | (61.7) |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| Cash, cash equivalents and | 29.0 | (143.7) | 191.6 | - | 0.1 | 77.0 |
| bank overdrafts at end of | | | | | | |
| period | | | | | | |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| Debt | (325.1) | (452.7) | (79.7) | - | - | (857.5) |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| Finance leases | (6.2) | 1.2 | (10.6) | - | - | (15.6) |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| | (331.3) | (451.5) | (90.3) | - | - | (873.1) |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
| Total | (302.3) | (595.2) | 101.3 | - | 0.1 | (796.1) |
+-------------------------------+-----------+---------+--------------+---------+----------+-------------+
11. Pensions
Analysis of movement in the Balance Sheet
+----------------------------------------------------------+-------------+-------------+
| | Six | Six |
| | months | months |
| | ended | ended |
| | 30 | 30 |
| | September | September |
| | 2010 | 2009 |
| | (unaudited) | (unaudited) |
| | GBPm | GBPm |
+----------------------------------------------------------+-------------+-------------+
| Fair value of plan assets | | |
+----------------------------------------------------------+-------------+-------------+
| At 1 April 2010 | 1,979.8 | 1,702.9 |
+----------------------------------------------------------+-------------+-------------+
| Acquisitions | 432.6 | - |
+----------------------------------------------------------+-------------+-------------+
| Expected return | 72.2 | 56.7 |
+----------------------------------------------------------+-------------+-------------+
| Actuarial gain | 19.1 | 239.6 |
+----------------------------------------------------------+-------------+-------------+
| Change in reimbursement rights | 1.2 | (102.1) |
+----------------------------------------------------------+-------------+-------------+
| Employer contributions | 21.3 | 8.2 |
+----------------------------------------------------------+-------------+-------------+
| Employee contributions | 3.0 | 1.6 |
+----------------------------------------------------------+-------------+-------------+
| Benefits paid | (57.2) | (51.8) |
+----------------------------------------------------------+-------------+-------------+
| Exchange differences | (0.4) | (0.2) |
+----------------------------------------------------------+-------------+-------------+
| At 30 September 2010 | 2,471.6 | 1,854.9 |
+----------------------------------------------------------+-------------+-------------+
| Present value of benefit obligations | | |
+----------------------------------------------------------+-------------+-------------+
| At 1 April 2010 | 2,303.8 | 1,652.2 |
+----------------------------------------------------------+-------------+-------------+
| Acquisitions | 483.6 | - |
+----------------------------------------------------------+-------------+-------------+
| Service cost | 21.2 | 11.4 |
+----------------------------------------------------------+-------------+-------------+
| Interest cost | 64.6 | 53.7 |
+----------------------------------------------------------+-------------+-------------+
| Employee contributions | 3.0 | 1.6 |
+----------------------------------------------------------+-------------+-------------+
| Actuarial loss | 1.5 | 475.4 |
+----------------------------------------------------------+-------------+-------------+
| Benefits paid | (57.2) | (51.8) |
+----------------------------------------------------------+-------------+-------------+
| Exchange differences | (0.2) | (0.3) |
+----------------------------------------------------------+-------------+-------------+
| At 30 September 2010 | 2,820.3 | 2,142.2 |
+----------------------------------------------------------+-------------+-------------+
| Present value of unfunded obligations | (0.2) | - |
+----------------------------------------------------------+-------------+-------------+
| IFRIC 14 adjustment | (7.5) | - |
+----------------------------------------------------------+-------------+-------------+
| Net deficit at 30 September 2010 | (356.4) | (287.3) |
+----------------------------------------------------------+-------------+-------------+
| Net (deficit)/surplus at 31 March 2010 | (324.0) | 50.7 |
+----------------------------------------------------------+-------------+-------------+
Analysis of charge to Income Statement
+----------------------------------------------------------+-------------+-------------+
| | Six | Six |
| | months | months |
| | ended | ended |
| | 30 | 30 |
| | September | September |
| | 2010 | 2009 |
| | (unaudited) | (unaudited) |
| | GBPm | GBPm |
+----------------------------------------------------------+-------------+-------------+
| Service cost | (21.2) | (11.4) |
+----------------------------------------------------------+-------------+-------------+
| Expected return on assets | 72.2 | 56.7 |
+----------------------------------------------------------+-------------+-------------+
| Interest on obligations | (64.6) | (53.7) |
+----------------------------------------------------------+-------------+-------------+
| At 30 September 2010 | (13.6) | (8.4) |
+----------------------------------------------------------+-------------+-------------+
As at 30 September 2010 the key assumptions used in valuing pension liabilities
were:
Discount rate
5.0% (31 March 2010: 5.5%)
Inflation rate
2.8% (31 March 2010: 3.4%)
12. Acquisition
On 8 July 2010 we completed the acquisition of 100% of the share capital of VT
Group plc for a cash and share consideration of GBP1,467.9 million. On 27
September 2010 we completed the acquisition of the assets and trading of
Evergreen Unmanned Systems (Evergreen) in the USA for a cash consideration of
GBP8.9 million (US$14 million).
The goodwill arises from the experience, knowledge and location of the workforce
along with the market position of the entities involved along with expected
synergies.
Details of assets acquired and the goodwill are as follows:
+---------------------------------------------------+---------+-----------+---------+
| | VT | Evergreen | Total |
| | Group | GBPm | GBPm |
| | plc | | |
| | GBPm | | |
+---------------------------------------------------+---------+-----------+---------+
| Cost of acquisition | | | |
+---------------------------------------------------+---------+-----------+---------+
| Cash paid | 664.0 | 8.9 | 672.9 |
+---------------------------------------------------+---------+-----------+---------+
| 128,730,720 shares issued | 803.9 | - | 803.9 |
+---------------------------------------------------+---------+-----------+---------+
| Purchase consideration | 1,467.9 | 8.9 | 1,476.8 |
+---------------------------------------------------+---------+-----------+---------+
| Fair value of assets acquired (see below) | 431.3 | 0.4 | 431.7 |
+---------------------------------------------------+---------+-----------+---------+
| Goodwill | 1,036.6 | 8.5 | 1,045.1 |
+---------------------------------------------------+---------+-----------+---------+
Net assets and liabilities arising from the acquisition are as follows:
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| | VT Group plc | | Evergreen | | Total |
+------------------------------+---------------------------+----------+---------------------------+----------+---------------------------+
| | Book | Provisional | | Book | Provisional | | Book | Provisional |
| | value | fair value | | value | fair value | | value | fair value |
| | of | acquired | | of | acquired | | of | acquired |
| | assets | (unaudited) | | assets | (unaudited) | | assets | (unaudited) |
| | acquired | GBPm | | acquired | GBPm | | acquired | GBPm |
| | (unaudited) | | | (unaudited) | | | (unaudited) | |
| | GBPm | | | GBPm | | | GBPm | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Goodwill | 302.9 | - | | - | - | | 302.9 | - |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Intangible assets | 13.3 | 13.3 | | - | - | | 13.3 | 13.3 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Acquired intangibles* | 115.9 | 464.9 | | - | 4.5 | | 115.9 | 469.4 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Property, plant and | 74.6 | 69.2 | | 0.9 | 0.9 | | 75.5 | 70.1 |
| equipment | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Investment in and loans to | 16.0 | 59.3 | | - | - | | 16.0 | 59.3 |
| joint ventures | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Other investments | 0.4 | 0.4 | | - | - | | 0.4 | 0.4 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Retirement liabilities | (84.8) | (58.1) | | - | - | | (84.8) | (58.1) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Deferred tax | (14.1) | (90.2) | | - | (1.8) | | (14.1) | (92.0) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Cash, cash equivalents and | 191.3 | 191.3 | | 0.4 | 0.4 | | 191.7 | 191.7 |
| bank overdrafts | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Bank loans | (80.9) | (81.5) | | - | - | | (80.9) | (81.5) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Finance leases | (10.6) | (10.6) | | - | - | | (10.6) | (10.6) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Inventory | 14.7 | 14.3 | | - | - | | 14.7 | 14.3 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Current assets | 178.3 | 162.5 | | 0.2 | 0.2 | | 178.5 | 162.7 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Current and non current | (181.2) | (195.0) | | - | - | | (181.2) | (195.0) |
| liabilities | | | | | | | | |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Provisions | (49.2) | (106.6) | | (3.8) | (3.8) | | (53.0) | (110.4) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Minority shareholders | (2.9) | (1.9) | | - | - | | (2.9) | (1.9) |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
| Total | 483.7 | 431.3 | | (2.3) | 0.4 | | 481.4 | 431.7 |
+------------------------------+-------------+-------------+----------+-------------+-------------+----------+-------------+-------------+
* Acquired intangibles are: customer relationships, order book and know-how.
Cash outflow to acquire businesses net of cash acquired:
+---------------------------------------------------+---------+-----------+---------+
| | VT | Evergreen | Total |
| | Group | GBPm | GBPm |
| | plc | | |
| | GBPm | | |
+---------------------------------------------------+---------+-----------+---------+
| Purchase consideration | 1,467.9 | 8.9 | 1,476.8 |
+---------------------------------------------------+---------+-----------+---------+
| Cash, cash equivalents and bank overdrafts | (191.3) | (0.4) | (191.7) |
+---------------------------------------------------+---------+-----------+---------+
| Acquisition costs accrued in prior year | 2.0 | - | 2.0 |
+---------------------------------------------------+---------+-----------+---------+
| | 1,278.6 | 8.5 | 1,287.1 |
+---------------------------------------------------+---------+-----------+---------+
| Less: issue of shares net of costs | 800.2 | - | 800.2 |
+---------------------------------------------------+---------+-----------+---------+
| Cash outflow this period | 478.4 | 8.5 | 486.9 |
+---------------------------------------------------+---------+-----------+---------+
12. Acquisition (continued)
The revenue and operating profit of the acquired businesses since the date of
acquisition and as if they had been acquired on 1 April 2010 are:
+---------------------------------------------------+-------+-------------+--------+
| | | Since | For |
| | | date | full |
| | | of | 6 |
| | | acquisition | months |
| | | GBPm | GBPm |
+---------------------------------------------------+-------+-------------+--------+
| Revenue - group | | | |
+---------------------------------------------------+-------+-------------+--------+
| VT Group plc | | 233.3 | 510.5 |
+---------------------------------------------------+-------+-------------+--------+
| Evergreen | | - | 2.0 |
+---------------------------------------------------+-------+-------------+--------+
| | | 233.3 | 512.5 |
+---------------------------------------------------+-------+-------------+--------+
| Operating profit (before amortisation of acquired | | | |
| intangibles) | | | |
+---------------------------------------------------+-------+-------------+--------+
| VT Group plc | | 20.3 | 30.2 |
+---------------------------------------------------+-------+-------------+--------+
| Evergreen | | - | 0.2 |
+---------------------------------------------------+-------+-------------+--------+
| | | 20.3 | 30.4 |
+---------------------------------------------------+-------+-------------+--------+
| Underlying profit (including investment income | | | |
| and share of joint venture underlying profit) | | | |
+---------------------------------------------------+-------+-------------+--------+
| VT Group plc | | 27.1 | 40.6 |
+---------------------------------------------------+-------+-------------+--------+
| Evergreen | | - | 0.2 |
+---------------------------------------------------+-------+-------------+--------+
| | | 27.1 | 40.8 |
+---------------------------------------------------+-------+-------------+--------+
13. Related party transactions
Related party transactions in the half year to 30 September 2010 are sales to
joint ventures amounting to GBP95 million (2009: GBP102 million). Purchases from
joint ventures amounted to GBP12 million (2009: GBPnil).
14. Financial information
The financial information in this half year report does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006. Statutory
accounts for the year ended 31 March 2010 were approved by the Board of
directors on 10 May 2010 and delivered to the Registrar of Companies. The report
of the auditors on those accounts was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statement under section 498 of the
Companies Act 2006.
15. 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 half year 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: 33 Wigmore Street, London, W1U 1QX.
Risks and uncertainties
The principal risks and uncertainties affecting the Group remain those detailed
on pages 42 to 45 of the 2010 Annual Report, a copy of which is available at
www.babcock.co.uk. The principal risks identified are; health safety and
environmental issues, reliance on a small number of large customers and
contracts, bid process and bid success, contractual performance, political and
regulatory environment, people retention and development, acquisitions and
disposals, information technology, pensions, ethical and reputational risk,
contingent liabilities, financial reporting, accounting controls and treasury.
The risks within VT Group plc were of a similar nature. This half year report
also includes comments on the outlook for the Group for the remaining six months
of the financial year.
Forward-looking statements
Certain statements in this announcement are forward-looking statements. By
their nature, forward-looking statements involve a number of risks,
uncertainties or assumptions that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements.
These risks, uncertainties or assumptions could adversely affect the
outcome
and financial effects of the plans and events described herein.
Forward-looking statements contained in this announcement regarding past trends
or activities should not be taken as a representation that such trends or
activities will continue in the future. You should not place undue reliance on
forward-looking statements, which speak only as of the date of this
announcement. Except as required by law, Babcock is under no obligation to
update or keep current the forward-looking statements contained in this
announcement or to correct any inaccuracies which may become apparent in such
forward-looking statements.
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 half year 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 currently Mike Turner,
Peter Rogers, Bill Tame, Archie Bethel, Kevin Thomas, John Rennocks, Sir Nigel
Essenhigh, Justin Crookenden and Sir David Omand. A list of the current
Directors is maintained on the Babcock International Group website:
www.babcock.co.uk.
By order of the Board
Peter Rogers
Group Chief Executive
8 November 2010
W Tame
Group Finance Director
8 November 2010
This information is provided by RNS
The company news service from the London Stock Exchange
END
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