TIDMBAB
RNS Number : 7520S
Babcock International Group PLC
12 November 2013
Babcock International Group PLC
Half year report
for six months ended 30 September 2013
12 November 2013
Excellent financial results and positive outlook supported by
strong businesses and significant bid pipeline
Financial highlights
September
2012
September (restated
Continuing operations - underlying 2013 ) Change
------------------------------------------------------ ----------- ----------- ------
Revenue* GBP1,700.6m GBP1,556.7m + 9%
Operating profit** GBP172.8m GBP158.4m + 9%
Profit before tax*** GBP141.7m GBP121.2m + 17%
Basic earnings per share**** 31.6p 27.9p + 13%
Continuing and discontinued operations basic earnings
per share **** 31.6p 28.1p + 12%
------------------------------------------------------ ----------- ----------- ------
Continuing operations - statutory
------------------------------------------------------ ----------- ----------- ------
Revenue GBP1,583.6m GBP1,450.3m + 9%
Operating profit GBP113.3m GBP93.2m + 22%
Profit before tax GBP105.9m GBP80.4m + 32%
Basic earnings per share 25.6p 20.2p + 27%
Continuing and discontinued operations basic earnings
per share 25.6p 15.4p + 66%
------------------------------------------------------ ----------- ----------- ------
Net debt GBP572.2m GBP581.1m
Net debt/ebitda annualised (including jvs) 1.4 x 1.6 x
Half year dividend 6.90p 6.30p
Order book GBP12.0bn GBP12.5bn
------------------------------------------------------ ----------- ----------- ------
*Underlying revenue includes the Group's share of joint venture
and associates revenue. **Underlying operating profit includes
IFRIC 12 investment income and joint venture and associates
operating profit but is before amortisation of acquired intangibles
and operating profit exceptional items. ***Underlying profit before
tax is inclusive of pre-tax joint venture and associates income but
before amortisation of acquired intangibles exceptional items.
****Underlying basic earnings per share is before amortisation of
acquired intangibles and exceptional items and before the related
tax effects and before the effect of UK tax rate changes. The
restatement of the prior year numbers relates to the adoption of
IAS19 Revised.
Operational highlights
-- Strong growth in revenue and profit
-- 9% organic growth in underlying revenue (excluding the effect of foreign exchange movements)
8% organic growth in underlying operating profit (excluding the
effect of foreign exchange movements)
-- Order book maintained at GBP12 billion (14 May 2013: GBP12
billion) providing excellent visibility of future revenue
streams
-- Bid pipeline stable at GBP15.5 billion (14 May 2013: GBP15.5
billion) - significant long-term growth opportunities being
progressed
-- Cash conversion of 106%
-- Board's confidence in future growth prospects reflected in
10% increase in half year dividend to 6.9 pence per share.
Peter Rogers, Chief Executive commented
"Babcock performed well in the first half of the year. We
delivered strong growth in revenue and profit with all our
divisions moving ahead and fuelling further increases in
shareholder value. The continued buoyancy of our order book and bid
pipeline reflects both the strength of our markets, where
budget-constrained public and private sector customers demand
suppliers that can deliver maintained or enhanced value-for-money
solutions, and our clear leadership of the UK engineering support
services industry.
"We have excellent revenue visibility and our business model,
operational scale, wide-ranging experience, track record and
powerful balance sheet mean that we are well placed to generate
further growth this year and in the longer-term future."
Contact
Babcock International Group PLC
Bill Tame, Finance Director Tel: 020 7355 5300
Terri Wright, Head of Investor Relations
FTI Consulting
Andrew Lorenz Tel: 020 7269 7291
Nick Hasell
A presentation for investors and analysts will be given today,
12 November 2013, at 9:00 am at RBS, 250 Bishopsgate, London EC2M
4AA. The presentation will be webcast live at
www.babcockinternational.com and subsequently available on demand
from mid-afternoon on 12 November 2013.
To dial-in to the presentation call +44 (0)20 3059 8125 - please
allow 15 minutes to register for both the webcast and the call.
Overview
Introduction
As the UK's leading engineering support services company,
Babcock has continued to demonstrate the strength and stability of
its operations. We made further progress in the first half of
2013/14 in creating value for shareholders, delivering financial
results with strong growth in revenue, profit and earnings per
share.
The Group has maintained its secure financial position and focus
on ensuring strong cash generation across the business. During the
first half of 2013/14 this has allowed us to invest in the future
through acquisition and infrastructure investment as well as
capital investment to support our customers' operations.
The economic environment and financial constraints being
experienced by our customers remain unchanged and our businesses
remain committed to delivering financial and operational
efficiencies for them. Through a consistent focus on our strategy,
we are well positioned in our markets to benefit from the on-going
economic climate of austerity and financial constraint. We have
significant capabilities, know-how and expertise which place us in
a strong position from which to achieve long-term growth by
delivering the opportunities we have in the order book and
realising the opportunities in the bid pipeline and in
tracking.
Interim dividend
In light of the strong progress made during the first half of
2013/14 and the Board's confidence in the long-term growth
prospects of the Group, the interim dividend has been increased by
10% to 6.9 pence per share (2012: 6.30 pence per share). This will
be paid on 10 January 2014 to shareholders on the register at 13
December 2013.
Order book and bid pipeline
The order book has remained stable over the first half and
currently stands at around GBP12 billion, providing excellent
visibility of future revenue. We currently have around 90% of our
anticipated revenue for 2013/14 already contracted and around 50%
for the 2014/15 financial year.
The order book currently excludes forward work programmes in the
Marine and Technology division which are covered by our Terms of
Business Agreement (ToBA). These programmes will form part of the
new Maritime Support Delivery Framework (MSDF) contract under
negotiation with the Ministry of Defence which is expected to add
approximately GBP2 billion to the order book on signature
anticipated in the first half of the 2014/15 financial year.
During the first half we have maintained a win rate on new
contracts of around 45% and on rebids of around 90%. The total
contract value of bids > GBP10 million being adjudicated during
the period was GBP1.3 billion, this included rebids valued at
around GBP200 million.
The bid pipeline has also remained stable during the first half
standing at around GBP15.5 billion (31 March 2013: GBP15.5 billion;
30 September 2012: GBP13 billion). Rebids and extensions comprise
12% of the bid pipeline and bids with contract values expected to
be over GBP100 million make up 73% of the pipeline.
In addition to our pipeline of bids in formal competitive
process, we continue to track a number of significant opportunities
which have not yet come to market. Over the next two years, in both
the UK and overseas, we expect a number of major defence training,
equipment support and infrastructure support programmes to start a
formal bidding process. These represent substantial opportunities
for both the Marine and Technology and the Defence and Security
divisions. In our civil markets, we have also identified further
major opportunities in the UK and overseas, where the Support
Services division can build on its key capabilities and market
leading positions to deliver long-term growth. In particular, for
our newly rebranded nuclear business, Cavendish Nuclear, the
nuclear market is providing significant opportunities. It is
currently bidding for the Parent Body Organisation contract for
Magnox and RSRL decommissioning and, following the Government's
agreement with EDF on the key terms for its investment in the new
nuclear power station at Hinkley Point, Cavendish expects to see
progress on further opportunities within the nuclear new build
market.
Outlook
Building on the strength of the financial results for 2012/13,
Babcock has continued to deliver good growth in revenue and strong
growth in earnings during the first half of the 2013/14 financial
year.
Our business model, the scale of our operations, the depth and
breadth of our experience and our track record of delivering
operational and financial efficiencies provide an excellent
platform to benefit from positive markets which continue to offer
us medium and long-term opportunities in both the UK and
overseas.
The strength of the order book and bid pipeline continue to
provide excellent visibility of future revenue streams and in light
of this the Board is confident that the Group will continue to make
further strong progress this year, in line with its
expectations.
Financial review
Underlying - In this review, unless otherwise stated, revenue,
operating profit, operating margin, net finance costs, profit
before tax and earnings per share refer to results before
amortisation of acquired intangibles and exceptional items.
Revenue, operating profit, operating margins and net finance costs
also include the Group's share of equity accounted joint ventures
and associates (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. All
numbers are stated before the effect of tax rate changes.
A reconciliation of statutory to underlying results is set out
below. We feel that the underlying figures provide a consistent
measure of business performance year to year thereby enabling
comparison and understanding of Group financial performance.
This review and the consolidated half year financial information
have been prepared using IAS 19 R2011 (amendment) 'employee
benefits' and the results for the period ending 30 September 2012
have been restated accordingly. The impact on the previous year's
results has been to reduce operating profit by GBP15.6 million,
increase finance costs by GBP5.9 million and reduce the taxation
charge by GBP5.2 million, resulting in an overall decrease in
earnings per share of 4.5 pence. There was no impact on the net
retirement liability.
Statutory to underlying reconciliation
Joint venture and
associates
-------------------------
Continuing Revenue Continuing
operations and IFRIC Amortisation Change operations
- operating Finance 12 of acquired in UK Exceptional -
statutory profit cost Tax income intangibles tax rate items underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
30 September
2013
Revenue 1,583.6 117.0 1,700.6
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Operating
profit 113.3 11.2 19.4 28.9 172.8
Share of
profit
from jv 10.2 (11.2) 12.7 3.8 (18.6) 3.1 -
Investment
income 0.8 (0.8) -
Net finance
costs (18.4) (12.7) (31.1)
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Profit before
tax 105.9 - - 3.8 - 32.0 - - 141.7
Tax (11.6) (3.8) (7.4) (2.7) (25.5)
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Profit after
tax 94.3 - - - - 24.6 (2.7) - 116.2
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
30 September
2012
Revenue 1,450.3 106.4 1,556.7
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Operating
profit 93.2 10.6 19.6 32.4 2.6 158.4
Share of
profit
from jv 6.7 (10.6) 16.8 2.7 (18.7) 3.1 -
Investment
income 0.9 (0.9) -
Net finance
costs (20.4) (16.8) (37.2)
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Profit before
tax 80.4 - - 2.7 - 35.5 - 2.6 121.2
Tax (5.7) (2.7) (8.5) (1.3) (0.7) (18.9)
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Profit after
tax 74.7 - - - - 27.0 (1.3) 1.9 102.3
------------- ---------- --------- ------- ----- ------- -------------- --------- ----------- ----------
Income statement
Total revenue for the first half increased by 9% to GBP1,700.6
million (2012: GBP1,556.7 million). On a constant exchange rate
basis revenue growth would have been 11%. Organic growth in revenue
was 9%, excluding the effects of changes in exchange rate and the
contributions from acquisitions which include Target Cranes in the
International division, LGE Process in the Marine and Technology
division and Conbras in the Support Services division.
The main contributor to revenue growth was the Marine and
Technology division which delivered total growth of 16%, of which
13% was organic growth. This was mainly due to increased activity
on the submarine programmes in the UK and Canada, the start-up of
the warship refit contract in Australia and the Queen Elizabeth
class aircraft carrier programme. The Support Services division
reported a 9% increase in revenue as a result of increased activity
within its subsidiary Cavendish Nuclear and good growth in the
Mobile Assets business unit, particularly within its contracts at
Heathrow airport. Despite the weakness in the South African Rand,
the International division had a strong first half and reported 6%
revenue growth in sterling terms, benefiting from a strong
performance in equipment, power generation and crane hire offset to
some extent by weakness in the power lines business. Revenue growth
for the division in local currency was 22%.
Underlying operating profit increased by 9% to GBP172.8 million
(2012: GBP158.4 million) or 10% on a constant exchange rate basis.
Organic growth for the Group excluding the effect of foreign
exchange movements was 8%. Both the Marine and Technology and
Defence and Security divisions delivered strong growth in profits
of 12% and 10% respectively. The Defence and Security division
benefited in particular from increased activities in the Future
Strategic Tanker Aircraft (FSTA) joint venture. Despite the strong
growth in revenue, profits in the Support Services division were
diluted by lower margin take in the early stages of a number of
recently started, long-term contracts, increased activity within
the Rail business and significant bid costs being incurred,
particularly within Cavendish Nuclear. The Group operating margin
remained stable at 10.2% (2012: 10.2%).
Total net finance costs, including IAS 19 pension finance costs,
were GBP31.1 million (2012: GBP37.2 million). Group finance costs
of GBP18.4 million reduced as anticipated, jv interest costs
reduced to GBP12.7 million (2012: 16.8 million) benefiting from
increases in long-term interest swap valuations. IAS 19 retirement
benefits interest remained broadly in line with last year at GBP5.4
million (2012: GBP5.9 million).
Profit before tax increased by 17% to GBP141.7 million (2012:
GBP121.2 million). Taxation charges, including the Group's share of
jv tax, were GBP25.5 million (2012: GBP18.9 million).
Earnings per share
Underlying earnings per share for the first half was 31.6 pence
(2012: 27.9 pence) an increase of 13%. Basic continuing earnings
per share, as defined by IAS 33, was 25.6 pence (2012: 20.2
pence).
Acquisitions and disposals
On 23 July 2013 the Group acquired Conbras Engenharia Ltda, a
privately owned Brazilian company for a consideration of GBP22.6
million, including a maximum of GBP4.4 million deferred
consideration and earn out. During the period the Group received a
deferred consideration of GBP4.2 million on the disposal of the
UKAEA Pension Administration Office which was sold in December
2012.
Cash flow and net debt
30 Sept 30 Sept
2013 2012
GBPm GBPm
=============================== ======= =======
Cash generated from operations 146.9 142.1
Capital expenditure (net) (34.9) (26.0)
Interest paid (net) (16.5) (14.7)
Taxation (30.6) (24.5)
------------------------------- ------- -------
Free cash flow 64.9 76.9
------------------------------- ------- -------
Acquisitions /disposals/jv (15.9) 51.9
Investment/dividend received
from joint ventures 1.5 (6.6)
Own shares 0.7 (0.6)
Dividends paid (73.6) (62.4)
Exchange difference / other 0.8 0.8
------------------------------- ------- -------
Net cash inflow (21.6) 60.0
------------------------------- ------- -------
Opening net debt (550.6) (641.1)
------------------------------- ------- -------
Closing net debt (572.2) (581.1)
------------------------------- ------- -------
Cash generated from operations (after working capital movement)
was GBP146.9 million (2012: GBP142.1 million) resulting in a
conversion rate of underlying operating profit to cash of 106%
(2012: 115%). Working capital cash flows during the period were
GBP(25.3) million (2012: GBP(11.0) million) driven mainly by
increased inventories and receivables to support growth activities
offset in part by increased payables.
Gross capital expenditure (including new finance leases) during
the first half was GBP37.5 million (2012: GBP26.3 million). As
highlighted previously, over the course of this financial year the
Group will continue to invest in upgrades to dockyard facilities
within the Marine and Technology division, as well as cyber
security systems and IT infrastructure across the Group. We have
also purchased additional equipment for the South African crane
hire business and invested in mobile assets and infrastructure to
support recent contract wins. Capital expenditure during the first
half was c 1.6 times depreciation and for the full year is expected
to be maintained at around this level.
Net cash interest paid, excluding that paid by joint ventures,
was GBP16.5 million (2012: GBP14.7 million). After taxation
payments of GBP30.6 million (2012: GBP24.5 million), free cash flow
was GBP64.9 million (2012: GBP76.9 million).
Acquisitions and disposals of GBP(15.9) million (2012: GBP51.9
million), principally comprise the acquisition of Conbras and
receipt of the deferred consideration relating to the disposal of
the UKAEA pensions business.
After dividend payments totalling GBP73.6 million, net cash
outflow was GBP21.6 million (2012: cash inflow of GBP60.0 million).
Net debt at the end of the first half increased to GBP572.2 million
(30 September 2012: GBP581.1 million; 31 March 2013: GBP550.6
million). This gives a net debt to earnings before interest, tax,
depreciation and amortisation (ebitda) ratio of 1.4 times (30
September 2012: 1.6 times). We expect net debt to ebitda at the
year end to be c 1.3 times.
Pensions
Accounting valuations
The volatility created by uncertainty in financial markets makes
mark-to-market valuations particularly unhelpful when looking at
the very long-term liabilities represented by defined benefit
pension schemes. The IAS 19 valuation for accounting purposes
showed a market value of assets of GBP3,058 billion in comparison
to a valuation of the liabilities based on the required use of AA
rated corporate bonds of GBP3,440 billion. The total accounting
deficit, pre-tax, of the Group's combined defined benefit pension
schemes was GBP382 million (30 September 2012: GBP318 million; 31
March 2013 GBP261 million.
As at 30 September 2013, the key assumptions used in valuing
pension liabilities were
Discount rate 4.5% (31 March 2013: 4.4%)
Inflation rate 2.8% (31 March 2013: 2.8%)
Cash contributions
Cash contributions paid by the Group into the combined defined
benefit pension schemes during the first half of the year were
GBP30 million with a further approximately GBP70 million expected
to be paid in the period to 31 March 2014.
Operational review
Marine and Technology
30 Sept
30 Sept 2012 Change
2013 (restated) + / -
========== ====== ========= ============ ======
Revenue group GBP645.9m GBP564.3m + 14%
jv GBP8.1m - -
------ --------- ------------ ------
total GBP654.0m GBP564.3m + 16%
----------------- --------- ------------ ------
Operating
profit group GBP69.0m GBP62.4m + 11%
jv GBP0.6m - -
------ --------- ------------ ------
total GBP69.6 GBP62.4m + 12%
----------------- --------- ------------ ------
Operating
margin group 10.7% 11.1%
jv 7.4% -
----------------- --------- ------------ ------
total 10.6% 11.1%
----------------- --------- ------------ ------
Financial review
The Marine and Technology division has had a very successful
first half, reporting a total increase in revenue of 16%, of which
13% was organic growth. This is a result of increased activities on
the submarine programmes in the UK and Canada, the start-up of the
Anzac class frigate refit contract in Australia within joint
ventures and the Queen Elizabeth class (QEC) aircraft carrier
programme, as well as a contribution of GBP15 million from LGE.
Operating profit increased by 12% which resulted in an operating
margin of 10.6%. This is slightly below the same period last year
which benefited from additional gain share earned on the
achievement of stretch targets under the Terms of Business
Agreement (ToBA) as well as higher margins achieved on export
activities.
Operational review
Under the framework of the ToBA, our long-term partnering
agreement with the Ministry of Defence (MoD), we continue to
benefit from a predictable and long-term programme of work in
submarine and warship deep maintenance and support, as well as our
on-going role as the MoD's strategic partner at HMNBs Devonport and
Clyde. In return, we remain focused on the delivery of significant
cost reductions and improved efficiencies for the MoD.
We continue to progress discussions with the MoD about the
introduction of the Maritime Support Delivery Framework (MSDF)
which will replace the current Warship Modernisation Initiative
(WSMI) contracts at Devonport and Clyde. Within the structure of
the ToBA, the MSDF contract, which is expected to start during the
first half of the 2014/15 financial year, will provide a platform
to deliver further significant cost savings for the MoD with the
potential to enhance our existing roles in both naval bases.
Through our key role in the MoD's Submarine Enterprise
Performance Programme (SEPP), established to maximise the
availability and efficiency of the Royal Navy's submarine fleet, we
have continued to provide deep and in-service maintenance as well
as through-life engineering support. At Devonport, good progress
has been made on HMS Vengeance's GBP350 million, long overhaul
(refuel) period, where work on the refuelling is proceeding well.
At both Devonport and Clyde, we have been providing in-service
support to the Trafalgar and Vanguard class submarines, as well as
carrying out maintenance periods on HMS Tireless, Torbay and
Trenchant during the period.
At Clyde we are now also providing a range of systems and
equipment as well as in-service support and crew training for HMS
Astute and HMS Ambush, the newest submarines in the Royal Navy. In
addition, we are working with the MoD and BAE Systems through SEPP
to support the introduction of the remaining Astute class
submarines into service.
We have a key role on the Successor future deterrent submarine
programme where we are using our expertise as the Royal Navy's
through-life submarine support partner to develop the support
solution for the programme. We are also the provider of the key
tactical weapons launch system and are involved in a range of other
technology development activities for the Main Gate business case
to be submitted in 2016. In advance of the Successor submarines
coming into service, we are working with the MoD on the development
and delivery of the Vanguard class life extension programme to
ensure there is no disruption to the UK's ability to meet its
Continuous At Sea Deterrence commitment.
Through the Surface Ship Support Alliance (SSSA) we are
undertaking a number of deep maintenance projects at Devonport, in
particular the deep maintenance and upgrade programme for HMS Ocean
which is progressing well, with the ship's crew expected to move
back on board on schedule. We are currently working with our SSSA
partners to reduce the cost of through-life support for surface
ships and to improve operational availability for all complex
surface ships including HMS Ocean and the QEC aircraft carriers.
Activities on the QEC build programme continue to increase with the
hull assembly phase for the first ship completed on schedule at our
facilities in Rosyth. The next significant milestone for the
Aircraft Carrier Alliance (ACA) will be the flooding of the dock in
mid-2014.
The ACA has now agreed a revised target cost contract with the
MoD to complete both the QEC aircraft carriers. This includes a
50:50 risk share arrangement to provide greater cost performance
incentives. The maximum risk for Babcock is unchanged and will be
limited to the loss of our profit opportunity. The revised contract
reflects the increased maturity of the build programme and the
greater certainty this provides for the final cost. We will
continue to work with our partners to ensure the project is
completed in line with our customer's expectations.
Equipment support activities, which include the provision of
engineering and logistical support for a range of key UK defence
assets, continue to meet or exceed our customer's operational KPIs.
We also continue to deliver an excellent service for the MoD for
High Frequency and Very Low Frequency worldwide communications. In
both the equipment support and communication areas, we are pursuing
a number of opportunities to extend the range of services we are
providing to customers in the UK and overseas.
In our international operations we continue to develop our
presence in Australia and Canada, our key home markets in addition
to the UK. In both these markets we have established our reputation
for partnering and collaboration and for our ability to deliver
world-class through-life support of submarines and surface ships.
In our export markets, activities to deliver weapons handling and
launch systems for future submarine programmes, now including South
Korea, have progressed well during the period.
In Canada, we continue to deliver high levels of support to the
submarine fleet through the Victoria Class In-Service Support
(VISSC) contract. A major focus of activity has been on the deep
maintenance package for HMCS Chicoutimi, the first such package to
be undertaken outside a government-owned facility. In support of
our growth ambitions in Canada, we signed a Teaming Agreement with
Davie Shipyard to develop a proposal to support the Canadian Coast
Guard vessel life extension programme. This competition is expected
to start in spring 2014 and provides us with an opportunity to
apply our in-service support capability to new market segments. We
are also looking at other areas where current market conditions and
our UK expertise could create opportunities, in particular around
naval base support and naval training.
In Australia, we continue to deliver support to the Anzac class
frigates, exceeding previous levels of engineering support and
delivering significant improvements in vessel availability. Other
activities to support the Australian Navy's submarine programmes
are also performing well. As the Australian government considers
the progressive reform of its naval support activities, we are
progressing a number of opportunities that align with our proven,
value-for-money, through-life support capabilities for both surface
ships and submarines.
We continue to pursue opportunities for naval support activities
in other geographies. During the first half we signed a Memorandum
of Understanding with Abu Dhabi Shipbuilders and are forming a
joint bid team to be able to respond to the region's on-going
requirement for naval support activities. In South Africa we have
submitted our report on the options for future support to the South
African Navy at the Simon's Town naval base.
As the commercial marine and energy markets continue to pick up,
we are establishing relationships with a number of high profile
organisations to address this demand. The LGE Process business,
acquired in January 2013, has been fully integrated into our
commercial Energy and Marine Technology business unit and its
activities strengthen our ability to deploy complex technology onto
marine assets. During the first half we have seen good growth in
our commercial activities and performance across our current range
of commercial contracts has been strong. In addition the business
has shown very encouraging signs of growth winning contracts worth
in excess of GBP70 million.
Marine and Technology outlook
In the UK, as a result of its market positions and its
involvement in long-term alliances and agreements, the division
continues to have excellent visibility of its future revenue
streams. The strength of the UK position has also created
opportunities to develop a growing presence in international naval
support markets as well as in commercial marine and energy
markets.
We therefore believe the outlook for the Marine and Technology
division remains positive with significant opportunities in the
bidding and tracking pipeline to support long-term growth in the UK
and overseas.
Defence and Security
30 Sept
30 Sept 2012 Change
2013 (restated) + / -
========== ====== ========= ============ ======
Revenue group GBP338.3m GBP339.9m -
jv GBP62.7m GBP55.5m + 13%
----------------- --------- ------------ ------
total GBP401.0m GBP395.4m + 1%
----------------- --------- ------------ ------
Operating
profit group GBP33.7m GBP28.2m + 20%
jv GBP21.6m GBP22.2m - 3%
----------------- --------- ------------ ------
total GBP55.3m GBP50.4m + 10%
----------------- --------- ------------ ------
Operating
margin group 10.0% 8.3%
jv 34.4% 40.0%
----------------- --------- ------------ ------
total 13.8% 12.7%
----------------- --------- ------------ ------
Financial review
As anticipated, the Defence and Security division's total
revenue was broadly in line with the same period last year. Whilst
the division continued to benefit from higher volumes through its
vehicle fleet management contracts and increased scope in its
Regional Prime contracts this has been offset by some reduction in
Naval training support activities and phasing of infrastructure
activities at RSME.
Operating profit, including the division's share of joint
venture profit, increased by 10% benefitting from strong contract
performance on vehicle fleet management, the Regional Prime
contracts, the Future Strategic Tanker Aircraft (FSTA) programme
and the settlement of gain-share arrangements on legacy training
contracts. Joint venture profits were slightly behind the same
period last year, which benefited from margin catch up on the
Military Flying Training System (MFTS) programme. As anticipated,
the division's operating margin increased to 13.8% (2012:
12.7%).
Operational review
Within the Infrastructure business unit, all contracts continue
to perform well, meeting or exceeding our customers' KPIs with no
change to their expected financial performance. The Regional Prime
contracts have performed well as have operations to support and
manage the military estate in Germany. We have identified a number
of opportunities to provide additional support for our
customer.
During the first half, the Defence Infrastructure Organisation
has continued to progress its Next Generation Estates contracts
(NGEC) in line with its revised timetable and the formal
competitive dialogue and bidding process for all six contracts has
been the primary focus for the business. The final bids have been
submitted. We await confirmation from the DIO on the announcement
dates for preferred bidders for the contracts; we expect these
during the summer of 2014.
Our Air operations providing essential maintenance and support
to the Royal Air Force continue to perform in line with our
expectations. Key contracts supporting military flying training at
all levels have performed well. Our significant Joint Ventures,
UKMFTS and FSTA are now well-established in the operational phase.
UKMFTS is successfully graduating aircrew in both the Royal Naval
Observer and Fast Jet pilot specialisations and the competition to
deliver the future fixed wing training capability has progressed to
the assessment phase. Six Voyager aircraft have been delivered to
the FSTA operation at RAF Brize Norton and the aircraft are now
providing a service in both the strategic transport and Air-to-Air
refuelling roles.
In the Land business, the Phoenix programme, for the delivery of
white fleet vehicles, has performed well and the consolidation of
customers using Babcock's nationwide booking system has driven
increased volumes through the contract. We have recently
successfully competed in frameworks that support Phoenix and have
won bids totalling GBP30 million.
The capability improvement programme introduced across our
training activities last year has enabled our customers to benefit
from modern training methods and systems. This has helped to drive
a reduction in the duration of the courses which benefits our
customer by returning students to front line activities in shorter
timescales. Additionally we have jointly delivered with the
customer a state-of-the-art sixty seat simulated collective
training environment at the Royal School of Military Engineering
enabling our customers to benefit from contemporary low cost
training solutions.
On the Defence College of Technical Training Programme -
Electro-Mechanical Training Contract which includes the integration
of the Bordon and Arborfield schools at Lyneham, we have been
advised that we are the sole bidder for this requirement. We are
now engaged in dialogue with the customer and this is expected to
conclude in the New Year with contract award in mid-2014.
In addition to ensuring we are meeting or exceeding our
customers' requirements on all our existing contracts, the division
has been progressing bids for a number of significant outsourcing
programmes in our core areas of infrastructure support, equipment
support and training support and delivery. We believe our business
model built on strong customer relationships, a track record of
delivering operational and financial efficiencies and the depth of
knowledge and experience within the division, place us in a strong
position to compete for these opportunities. With our joint venture
partners, DHL, we have now prequalified as one of three bidders for
the Logistics, Commodities and Services Transformation (LCST)
project, a programme to outsource commodity procurement,
warehousing and distribution services. This competition is expected
to run until the last quarter of the 2014/15 financial year. The
MoD continues to progress its plans for the sale of DSG, the
operations delivering deep maintenance and spares support to the
Army's tracked vehicle fleet. We see this as an opportunity to
bring our industry leading position in support to complex assets to
this organisation to enable the MoD to benefit from improved
service and optimised outputs. We expect this process to be under
way during the 2014 calendar year. The MoD continues to consider
plans for its future training requirements for the Army following
withdrawal of troops from Afghanistan and, in the longer term,
Germany. This includes the potential appointment of a Strategic
Training Programme partner to help them transform military training
and equipment support to both the Regular and Reserve Forces and we
are well placed to compete for this.
As well as the significant opportunities we are progressing in
our domestic markets, we are pursuing a number of opportunities
internationally with particular focus on Australia, Canada and the
Middle East. We believe these are markets where we can build on our
capabilities and experience in the UK to build a long-term market
leading position delivering high quality, output or availability
based contracts for a wide variety of training, equipment support
and infrastructure activities.
Defence and Security outlook
The Defence and Security division has an excellent track record
of delivering operational and financial efficiencies through its
existing contracts. We are well positioned to meet the current and
future demands and expectations of our main UK military customers
and this is reflected in our pipeline of major new outsourcing
programmes that are being progressed by the MoD. In addition, we
are looking at longer term opportunities for the division and are
establishing a presence in key international markets where we
believe we can build on our UK expertise and capabilities.
Support Services
30 Sept
30 Sept 2012 Change
2013 (restated) + / -
========== ====== ========= ============ ======
Revenue group GBP448.0m GBP403.0m + 11%
jv GBP46.2m GBP50.9m - 9 %
----------------- --------- ------------ ------
total GBP494.2m GBP453.9m + 9%
----------------- --------- ------------ ------
Operating
profit group GBP31.7m GBP30.7m + 3%
jv GBP7.6m GBP7.1m + 7%
----------------- --------- ------------ ------
total GBP39.3m GBP37.8m + 4%
----------------- --------- ------------ ------
Operating
margin group 7.1% 7.6%
jv 16.5% 13.9%
----------------- --------- ------------ ------
total 8.0% 8.3%
----------------- --------- ------------ ------
Financial review
The division delivered good revenue growth during the first
half, resulting from growth in the expanded contract for Heathrow
Airport Limited, good performance at Dounreay and revenue from the
acquisition of Conbras in Brazil, which offset some weakness in
overhead power line volumes. Organic growth for the division was
8%. Operating profit, including jvs, increased by 4% with operating
margin of 8.0%. This anticipated reduction in margin is a result of
the number of long-term contracts that have started over the past
18 months as well as the significant investment the division is
making in bidding activities.
Operational review
The market environment for the division has remained positive.
As customers continue to manage increasing financial pressures,
opportunities for new outsourcing continue to be developed. To meet
the varying and often complex requirements of customers, the
division needs to be able to help formulate and offer a range of
solutions. To maximise its successful track record and the
expertise within its business units, it is focused on bidding,
tracking and developing outsourcing solutions for key projects
within its target market sectors.
During the first half, our civil nuclear subsidiary has been
rebranded Cavendish Nuclear (Cavendish). Over the past seven years,
Babcock has combined and consolidated the experience and talents of
UKAEA, Alstec, Strachan & Henshaw, INS and British Nuclear
Group Project Services to create a subsidiary which is now the UK's
largest specialist nuclear support services organisation. Cavendish
Nuclear is responsible for all our civil nuclear activities and saw
revenue grow by over 20% during the first half of the year.
Cavendish is the lead partner in respect of the decommissioning
contract at Dounreay, through the Cavendish Dounreay Partnership
(formerly Babcock Dounreay Partnership). After a successful first
year, the contract is performing well as it moves into its second
year. A number of key milestones on the major projects on site have
been met on schedule and further successful fuel moves from
Dounreay to Sellafield have been completed. At Sellafield, the
business is also involved in a number of projects as part of the
decommissioning activities on site, where it is providing critical
design support as well as engineering, procurement and construction
services. Further to the Nuclear Decommissioning Authority's
decision to extend the commercial arrangements at Sellafield,
Cavendish is looking forward to supporting the site and the
Authority in this very technically demanding environment and is
confident our value engineering approach will continue to be
successful.
Cavendish is also developing a strong relationship with the
Atomic Weapons Establishment supporting a range of decommissioning
activities. The business recently secured a long-term, target cost,
integrated partnering arrangement, which is the first for this
customer.
In partnership with Fluor, Cavendish is progressing the bid for
the Magnox and RSRL Parent Body Organisation competition. The
formal bid process is proceeding well and there has been no change
to the anticipated timetable for this competition. Bids will be
submitted in November 2013 and announcement of preferred bidder is
expected in March 2014.
In the nuclear new build sector, Cavendish continues to develop
its relationship with Hitachi where it is currently providing
support for the Generic Design Assessment of reactors for the
Horizon programme. It is also working with EDF as its bid for the
Balance of Nuclear Island is developed as part of EDF's new build
programme at Hinkley. As a strategic through-life partner to EDF
Nuclear Generation, it also continues to provide support to EDF's
current generating activities, through involvement in fuel route
improvement activities as well as strategic spares support.
The Mobile Asset business has continued to make good progress
across its current activities. With a number of contracts
benefiting from additional activities during the first half as well
as the advantage of the new vehicle fleet contract with Aggregate
Industries, revenue increased by over 20% compared with the first
half of 2012/13.
Activities in the mining and construction sector have also
performed w ell, delivering reduced operating costs for our
customers as well as improved availability. The contract with
Aggregate Industries (AI) has started well and is already
delivering improved availability of equipment across its sites in
the UK and we are formulating plans for discussion with AI's parent
group, Holcim, to extend our service to its activities in other
regions. As we continue to refine and improve our business model in
this market we are pursuing a number of further opportunities with
both existing and new customers in the UK and overseas.
The 18 month interim contract for the management of the vehicle
fleet for the London Fire and Emergency Planning Authority (LFEPA)
is progressing well as the business seeks to deliver improved
availability and service quality for the customer. LFEPA is now
undertaking a formal process to compete the 21 year, with a
possible 4 year extension, vehicle fleet management contract which
will follow the interim contract. We are bidding a number of
options with the potential to extend the scope of services from
that which we provide under the interim arrangement. We submit our
final bid in January 2014 and we expect preferred bidder to be
announced in March 2014. Contracts for the Metropolitan Police and
Highways Agency, as well as the New Dimensions contract have also
performed well and building on this success, the business is
pursuing a number of new opportunities in this market as well as
opportunities to extend current contract scope.
The new baggage handling contract for Heathrow Airport Limited
has made a strong start and we are expanding operations into
Terminals 3 and 5. The ground equipment support contract for
British Airways has also made a good start. Building on the
strength of our current activities we are looking at a range of
potential opportunities for our Airports business in the UK and
overseas.
Activities within our Network Engineering business unit, which
now include rail, power and communication infrastructure, have seen
some steady growth during the first half with revenue increasing by
7%. Rail activities continue to perform well with on-going demand
for track renewal, power and signalling operations. The business is
confident in the bids recently submitted to Network Rail for the
forthcoming Control Period. Bids have been prepared for both
Switches and Crossings and Plain Line Track renewal. For the second
period in succession we have been recognised by Network Rail for
the quality of our work. In the power sector, the new regulatory
environment for electricity transmission is driving a range of
reactions from major transmission network operators. Lower activity
is being seen with National Grid but the business has been
successful in securing additional projects from Scottish Power and
has secured a framework position with Scottish and Southern
Energy.
Education and Training activities have been stable throughout
the first half with contracts generally trading in line with
expectations. Training activities for the London Fire Brigade are
progressing well and work on the new training facilities we are
developing and building in Park Royal and East Beckton are
progressing to plan.
On 23 July 2013 we completed the acquisition of Conbras, a
privately owned business operating in the public and private sector
facilities management sector in Brazil. We have identified Brazil
as an attractive growth market for Babcock and this acquisition
creates a credible platform from which to develop a broader
operation focusing on asset and infrastructure management and
training for both public and private sector customers. The Conbras
business has a strong management team who will remain with the
business to support its development. Since the acquisition,
integration with the broader Support Services division is on plan
and the business is performing in line with expectations.
Support Services outlook
The on-going pressure being felt by customers to deliver
services within restricted budgets continues to create growth
opportunities for the Support Services division. We are confident
that our track record of managing complex projects and activities,
the depth of our technical knowledge and experience and our focus
on delivering excellent solutions for our customers provides a
strong foundation for continuing growth in the UK and increasingly
in overseas markets.
International
30 Sept
30 Sept 2012 Change
2013 (restated) + / -
========== ====== ========= ============ ======
Revenue total GBP151.4m GBP143.1m + 6%
---------- ------ --------- ------------ ------
Operating
profit total GBP11.9m GBP11.1m + 7%
---------- ------ --------- ------------ ------
Operating
margin total 7.9% 7.8%
---------- ------ --------- ------------ ------
Financial review
The South African operations have seen excellent growth in
revenue which increased by 22% on a local currency basis although
the adverse impact of exchange rate movements reduced this to 6% in
sterling terms. The increase in revenue has driven by strong growth
in the equipment and crane hire businesses as well as strong demand
from Eskom for power generation support.
Operating profit increased by 25% on a local currency basis and
by 7% in sterling terms. Margins remained relatively stable,
supported by strong margins within the crane hire business.
Operational review
Throughout the first half, demand for crane hire has remained
strong as investment in South Africa's infrastructure remains
positive and the impact on the demand for new mining equipment from
strikes within the sector has been small. We have also seen
increased demand for DAF trucks through our dealerships across the
country.
We have now established our first Volvo dealership in Mozambique
as planned and will continue to develop our position in this market
and in Zambia. This will enable us to take advantage of the
opportunities afforded by new copper and coal mines in these
countries.
Following the acquisition of Target Cranes in June 2012, we have
continued to invest in additional mobile cranes for our fleet. We
currently have all our cranes fully utilised on long-term contracts
and expect no change to this demand in the second half.
Eskom, South Africa's power utility company, remains under
pressure to balance planned outages and maintenance periods with
the requirement to generate electricity. Throughout the period
there have been a number of unscheduled outages which have resulted
in significant volumes of work for our power generation support
operations. We expect this to continue as planned maintenance
activities take place over the local summer period. Whilst Eskom
continues to focus its budgets on power generation, there has been
a slowdown in demand for our Powerlines business during the period.
In response to this we are streamlining our business to take
advantage of the longer term, large scale expansion planned for the
South African national electricity grid.
International outlook
For the South African business the primary focus remains the
growth of our market share in the automotive and construction
equipment market in South Africa, and expansion in our export
markets, as well as the extension of our support operations in the
power generation market.
Across our International business units we are making good
progress with a number of new opportunities where we can develop
our business further by building on expertise across the Group.
Income statement
For the six months ended 30 September 2013
Six months
Year ended Six months ended
31 March ended 30 September
2013 30 September 2012
(restated) 2013 (restated)
GBPm Note GBPm GBPm GBPm GBPm
------------ ---------------------------- ---- ------- -------------- ------- --------------
3,243.5 Total revenue 2 1,700.6 1,556.7
Less: joint venture and
associate
214.1 revenue 117.0 106.4
------------ ---------------------------- ---- ------- -------------- ------- --------------
3,029.4 Group revenue 1,583.6 1,450.3
------------ ---------------------------- ---- ------- -------------- ------- --------------
Group
------------ ------- -------
Operating profit before
amortisation
of acquired intangibles and
exceptional
284.2 items 2 142.2 128.2
Amortisation of acquired
(66.4) intangibles 3 (28.9) (32.4)
(14.3) Exceptional items 3 - (2.6)
------------ ------- -------------- ------- --------------
203.5 Group operating profit 113.3 93.2
-------------- --------------
Joint ventures and
associates
------------ ------- -------
21.2 Share of operating profit 11.2 10.6
38.5 Investment income 18.6 18.7
Amortisation of acquired
(6.2) intangibles 3 (3.1) (3.1)
(29.2) Finance costs (12.7) (16.8)
(6.3) Income tax (expense)/credit (3.8) (2.7)
------------ ------- -------------- ------- --------------
Share of results of joint
ventures
18.0 and associates 10.2 6.7
-------------- --------------
Group and joint ventures and
associates
------------ ------- -------
Operating profit before
amortisation
of acquired intangibles and
exceptional
305.4 items 153.4 138.8
40.2 Investment income 19.4 19.6
------------ ------- -------
345.6 Underlying operating profit* 2 172.8 158.4
Amortisation of acquired
(72.6) intangibles (32.0) (35.5)
(14.3) Exceptional items - (2.6)
(1.7) Group investment income (0.8) (0.9)
Joint venture and associate
finance
(29.2) costs (12.7) (16.8)
Joint venture and associate
income
(6.3) tax expense (3.8) (2.7)
------------ ------- -------------- ------- --------------
Group operating profit plus
share
of joint ventures and
221.5 associates 123.5 99.9
-------------- --------------
Finance costs
------------ ------- -------
1.7 Investment income 0.8 0.9
(11.8) Retirement benefits interest (5.4) (5.9)
(38.7) Finance costs (17.7) (19.2)
9.1 Finance income 4.7 4.7
------------ ------- -------------- ------- --------------
(39.7) (17.6) (19.5)
------------ ---------------------------- ---- ------- -------------- ------- --------------
181.8 Profit before tax 2 105.9 80.4
------------ ---------------------------- ---- ------- -------------- ------- --------------
(18.0) Income tax expense 4 (11.6) (5.7)
------------ ---------------------------- ---- ------- -------------- ------- --------------
Profit for the period from
continuing
163.8 operations 94.3 74.7
------------ ---------------------------- ---- ------- -------------- ------- --------------
Discontinued operations
(Loss)/profit for the year
from
discontinued operations
attributable
(15.2) to owners of the parent - (17.4)
------------ ---------------------------- ---- ------- -------------- ------- --------------
148.6 Profit for the period 94.3 57.3
------------ ---------------------------- ---- ------- -------------- ------- --------------
Attributable to:
142.7 Owners of the parent 91.6 55.0
5.9 Non-controlling interest 2.7 2.3
------------ -------------- --------------
148.6 94.3 57.3
------------ -------------- --------------
Earnings per share from
continuing
operations 5
43.9p - Basic 25.6p 20.2p
43.4p - Diluted 25.3p 20.0p
Earnings per share from
continuing
and discontinued operations 5
39.7p - Basic 25.6p 15.4p
39.2p - Diluted 25.3p 15.2p
*Including IFRIC 12 investment income, but before exceptional
items and amortisation of acquired intangibles
Statement of comprehensive income
For the six months ended 30 September 2013
Six months
Year ended Six months ended
31 March ended 30 September
2013 30 September 2012
(restated) 2013 (restated)
GBPm GBPm GBPm
------------ ---------------------------------------------------- -------------- --------------
148.6 Profit for the period 94.3 57.3
Other comprehensive income
Potentially rechargeable to Income Statement
(0.8) Currency translation differences (12.4) 0.9
Fair value adjustment of interest rate and foreign
1.2 exchange hedges (1.3) (0.2)
Tax on fair value adjustment of interest rate
(0.3) and foreign exchange hedges 0.3 0.1
Fair value adjustment of joint venture and associate
(23.0) derivatives 21.6 (30.4)
Tax on fair value adjustment of joint venture
5.5 and associate derivatives (5.0) 7.4
Not potentially chargeable to Income Statement
(16.2) Net actuarial loss in respect of pensions (120.2) (50.0)
3.9 Tax on net actuarial loss in respect of pensions 27.7 11.9
(3.1) Impact of change in UK tax rates (12.5) (3.5)
------------ ---------------------------------------------------- -------------- --------------
(32.8) Other comprehensive loss, net of tax (101.8) (63.8)
------------ ---------------------------------------------------- -------------- --------------
115.8 Total comprehensive (loss)/income (7.5) (6.5)
------------ ---------------------------------------------------- -------------- --------------
Total comprehensive income attributable to:
111.0 Owners of the parent (7.9) (8.3)
4.8 Non-controlling interest 0.4 1.8
------------ ---------------------------------------------------- -------------- --------------
115.8 Total comprehensive (loss)/income (7.5) (6.5)
------------ ---------------------------------------------------- -------------- --------------
Statement of changes in equity
For the six months ended 30 September 2013
Owners
Share Share Capital Retained Hedging Translation of Non-controlling Total
capital premium redemption earnings reserve reserve parent interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
At 1 April 2012 215.5 873.0 30.6 (160.9) (41.9) (4.9) 911.4 8.6 920.0
Total
comprehensive
income - - - 13.4 (23.1) 1.4 (8.3) 1.8 (6.5)
Shares issued in
the period 0.7 - - - - - 0.7 - 0.7
Dividends - - - (61.0) - - (61.0) (1.4) (62.4)
Share-based
payments - - - 4.6 - - 4.6 - 4.6
Tax on
share-based
payments - - - 3.6 - - 3.6 - 3.6
Acquisition of
non-controlling
interest - - - - - - - 19.8 19.8
Disposal of
non-controlling
interest - - - - - - - 0.4 0.4
Transactions
with
non-controlling
interest - - - (4.6) - - (4.6) (8.7) (13.3)
Own shares and
other - - - (1.3) - - (1.3) - (1.3)
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
Net movement in
equity 0.7 - - (45.3) (23.1) 1.4 (66.3) 11.9 (54.4)
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
At 30 September
2012 216.2 873.0 30.6 (206.2) (65.0) (3.5) 845.1 20.5 865.6
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
At 1 April 2013 217.2 873.0 30.6 (110.7) (58.5) (4.5) 947.1 21.8 968.9
Total
comprehensive
income - - - (13.4) 15.6 (10.1) (7.9) 0.4 (7.5)
Shares issued in
the period - - - - - - - - -
Dividends - - - (71.8) - - (71.8) (1.8) (73.6)
Share-based
payments - - - 7.2 - - 7.2 - 7.2
Tax on
share-based
payments - - - 1.2 - - 1.2 - 1.2
Own shares and
other - - - 0.7 - - 0.7 - 0.7
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
Net movement in
equity - - - (76.1) 15.6 (10.1) (70.6) (1.4) (72.0)
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
At 30 September
2013 217.2 873.0 30.6 (186.8) (42.9) (14.6) 876.5 20.4 896.9
---------------- -------- -------- ---------- --------- -------- ----------- -------- --------------- -------
Balance sheet
As at 30 September 2013
As at As at As at
31 March 30 September 30 September
2013 2013 2012
GBPm Note GBPm GBPm
--------- -------------------------------------------- ---- ------------- -------------
Assets
Non-current assets
1,563.0 Goodwill 1,576.8 1,543.8
299.2 Other intangible assets 284.3 319.6
248.9 Property, plant and equipment 249.1 239.3
18.6 Investments in joint ventures and associates 7 44.4 2.0
51.1 Loans to joint ventures and associates 7 51.0 31.0
10.1 Retirement benefits 12 12.4 11.9
0.5 Trade and other receivables 1.1 1.2
22.2 IFRIC 12 financial assets 21.6 23.2
45.1 Other financial assets 8 9.4 24.2
43.4 Deferred tax asset 59.9 46.7
--------- -------------------------------------------- ---- ------------- -------------
2,302.1 2,310.0 2,242.9
--------- -------------------------------------------- ---- ------------- -------------
Current assets
73.9 Inventories 97.9 89.2
519.0 Trade and other receivables 527.2 514.2
8.6 Income tax recoverable 22.2 -
3.5 Other financial assets 8 6.2 5.3
97.1 Cash and cash equivalents 11 105.3 101.7
--------- -------------------------------------------- ---- ------------- -------------
702.1 758.8 710.4
3,004.2 Total assets 3,068.8 2,953.3
--------- -------------------------------------------- ---- ------------- -------------
Equity and liabilities
Equity attributable to equity holders of
the parent
217.2 Share capital 217.2 216.2
873.0 Share premium 873.0 873.0
(32.4) Capital redemption and other reserves (26.9) (37.9)
(110.7) Retained earnings (186.8) (206.2)
--------- -------------------------------------------- ---- ------------- -------------
947.1 876.5 845.1
21.8 Non-controlling interest 20.4 20.5
--------- -------------------------------------------- ---- ------------- -------------
968.9 Total equity 896.9 865.6
--------- -------------------------------------------- ---- ------------- -------------
Non-current liabilities
684.0 Bank and other borrowings 11 674.2 699.3
7.9 Trade and other payables 8.1 8.6
4.0 Deferred tax liabilities - -
10.0 Other financial liabilities 8.9 14.6
271.2 Retirement liabilities 12 394.6 329.8
115.2 Provisions for other liabilities 103.8 121.0
--------- -------------------------------------------- ---- ------------- -------------
1,092.3 1,189.6 1,173.3
--------- -------------------------------------------- ---- ------------- -------------
Current liabilities
8.8 Bank and other borrowings 11 12.7 7.7
884.4 Trade and other payables 924.6 868.3
- Income tax payable - 1.0
7.2 Other financial liabilities 8 9.7 10.6
42.6 Provisions for other liabilities 35.3 26.8
--------- -------------------------------------------- ---- ------------- -------------
943.0 982.3 914.4
2,035.3 Total liabilities 2,171.9 2,087.7
--------- -------------------------------------------- ---- ------------- -------------
3,004.2 Total equity and liabilities 3,068.8 2,953.3
--------- -------------------------------------------- ---- ------------- -------------
Cash flow statement
For the six months ended 30 September 2013
Six months Six months
Year ended ended ended
31 March 30 September 30 September
2013 2013 2012
GBPm Note GBPm GBPm
---------- ------------------------------------------------- ---- ------------- -------------
Cash flows from operating activities
293.4 Cash generated from operations 9 146.9 142.1
(45.8) Income tax paid (30.6) (24.5)
(38.7) Interest paid (18.8) (19.3)
8.2 Interest received 2.3 4.6
---------- ------------------------------------------------- ---- ------------- -------------
217.1 Net cash flows from operating activities 99.8 102.9
---------- ------------------------------------------------- ---- ------------- -------------
Cash flows from investing activities
Disposal of subsidiaries, joint ventures
68.0 and associates, net of cash disposed 14 2.3 57.7
Dividends received from joint ventures
7.1 and associates 0.9 0.8
Proceeds on disposal of property, plant
6.2 and equipment 2.6 0.3
(52.7) Purchases of property, plant and equipment (12.4) (21.0)
(6.6) Purchases of intangible assets (8.5) (5.3)
Investment in and loans to joint ventures
(30.2) and associates 2.4 (5.4)
1.3 Transactions with non-controlling interest 15 - 1.3
Acquisition of subsidiaries net of cash
(22.2) acquired 13 (16.9) (0.8)
---------- ------------------------------------------------- ---- ------------- -------------
(29.1) Net cash flows from investing activities (29.6) 27.6
---------- ------------------------------------------------- ---- ------------- -------------
Cash flows from financing activities
(83.6) Dividends paid (71.8) (61.0)
(3.7) Finance lease principal payments (1.6) (2.8)
(101.1) Bank loans repaid - (65.9)
- Loans raised 14.9 -
(3.1) Dividends paid to non-controlling interests (1.8) (1.4)
1.7 Net proceeds on issue of shares - 0.7
(3.9) Movement on own shares 0.7 (1.3)
---------- ------------------------------------------------- ---- ------------- -------------
(193.7) Net cash flows from financing activities (59.6) (131.7)
---------- ------------------------------------------------- ---- ------------- -------------
Net increase/(decrease) in cash, cash equivalents
(5.7) and bank overdrafts 10.6 (1.2)
Cash, cash equivalents and bank overdrafts
98.4 at start of period 90.6 98.4
(2.1) Effects of exchange rate fluctuations (2.1) (1.1)
---------- ------------------------------------------------- ---- ------------- -------------
Cash, cash equivalents and bank overdrafts
90.6 at end of period 11 99.1 96.1
---------- ------------------------------------------------- ---- ------------- -------------
Notes to the consolidated half year financial statements
For the six months ended 30 September 2013
1. Basis of preparation and restatement
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 2013 (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:
-- IAS 19 (amendment), 'Employee benefits'. The impact on the
results for the period ending 30 September 2012 has been
to reduce operating profit by GBP15.6 million, increase finance
costs by GBP5.9 million, and reduce the taxation charge by
GBP5.2
million, resulting in an overall decrease in earnings per share
of 4.5 pence. There was no impact on the net retirement
liability. The comparative figures have been restated
accordingly.
-- IFRS 7 (amendment), 'Financial instruments; disclosure -
Offsetting financial assets and liabilities'. There is no
significant impact from the adoption of this change.
The consolidated half-yearly financial information has been
prepared on a going concern basis. The Directors of the Group have
a reasonable expectation that, on the basis of current financial
projections and borrowing facilities available, the Group is well
positioned to meet its commitments and obligations for the next 12
months from the date of this report and will remain in operational
existence for the foreseeable future.
The half year report for the six months ended 30 September 2013
was approved by the Directors on 11 November 2013. The half year
report has not been audited or reviewed by auditors.
2. Segmental analysis
The segments reflect the accounting information reviewed by the
Executive Committee which is the Chief Operating Decision Maker
(CODM).
Total
Marine Defence Support continuing
and Technology and Security Services International Unallocated operations
2013 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------------- ------------- --------- ------------- ----------- -----------
Continuing operations
Total revenue 654.0 401.0 494.2 151.4 - 1,700.6
Joint venture and associate
revenue 8.1 62.7 46.2 - - 117.0
--------------------------------- --------------- ------------- --------- ------------- ----------- -----------
Group revenue 645.9 338.3 448.0 151.4 - 1,583.6
--------------------------------- --------------- ------------- --------- ------------- ----------- -----------
Operating profit - Group 69.0 33.3 31.3 11.9 (3.3) 142.2
IFRIC 12 investment income
- Group - 0.4 0.4 - - 0.8
Share of operating profit
- joint ventures and associates 0.6 7.3 3.3 - - 11.2
Share of IFRIC 12 investment
income - joint ventures
and associates - 14.3 4.3 - - 18.6
--------------------------------- --------------- ------------- --------- ------------- ----------- -----------
Underlying operating profit 69.6 55.3 39.3 11.9 (3.3) 172.8
Share of interest - joint
ventures and associates - (8.4) (4.3) - - (12.7)
Share of tax - joint ventures
and associates (0.2) (3.0) (0.6) - - (3.8)
Acquired intangible amortisation
- Group (6.1) (5.3) (17.5) - - (28.9)
Share of acquired intangible
amortisation - joint ventures
and associates - (2.9) (0.2) - - (3.1)
Net finance costs - Group - - - - (18.4) (18.4)
Group profit before tax 63.3 35.7 16.7 11.9 (21.7) 105.9
--------------------------------- --------------- ------------- --------- ------------- ----------- -----------
Discontinued
Continuing operations operations Total
--------------------------------------------------------------------------- ------------- -----------
Marine Defence Total
and and Support continuing Group
Technology Security Services Unallocated operations total
(restated) (restated) (restated) International (restated) (restated) International (restated)
2012 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ---------- ---------- ------------- ----------- ----------- ------------- -----------
Continuing
operations
Total revenue 564.3 395.4 453.9 143.1 - 1,556.7 38.9 1,595.6
Joint venture
and
associate
revenue - 55.5 50.9 - - 106.4 - 106.4
------------- ---------- ---------- ---------- ------------- ----------- ----------- ------------- -----------
Group revenue 564.3 339.9 403.0 143.1 - 1,450.3 38.9 1,489.2
------------- ---------- ---------- ---------- ------------- ----------- ----------- ------------- -----------
Operating
profit -
Group 62.4 27.7 30.3 11.1 (3.3) 128.2 1.1 129.3
IFRIC 12
investment
income -
Group - 0.5 0.4 - - 0.9 - 0.9
Share of
operating
profit -
joint
ventures
and
associates - 7.6 3.0 - - 10.6 - 10.6
Share of
IFRIC 12
investment
income -
joint
ventures
and
associates - 14.6 4.1 - - 18.7 - 18.7
Underlying
operating
profit 62.4 50.4 37.8 11.1 (3.3) 158.4 1.1 159.5
Share of
interest -
joint
ventures and
associates - (12.4) (4.4) - - (16.8) - (16.8)
Share of tax
- joint
ventures and
associates - (2.1) (0.6) - - (2.7) - (2.7)
Acquired
intangible
amortisation
- Group (5.2) (6.0) (21.2) - - (32.4) - (32.4)
Share of
acquired
intangible
amortisation
- joint
ventures and
associates - (2.9) (0.2) - - (3.1) - (3.1)
Net finance
costs -
Group - - - - (20.4) (20.4) - (20.4)
Exceptional
items - - - - (2.6) (2.6) (18.2) (20.8)
Group profit
before
tax 57.2 27.0 11.4 11.1 (26.3) 80.4 (17.1) 63.3
------------- ---------- ---------- ---------- ------------- ----------- ----------- ------------- -----------
3. Exceptional items and acquired intangible amortisation
Joint ventures
Group and associates Total
---------------------------- ---------------------------- ----------------------------
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
30 September 30 September 30 September 30 September 30 September 30 September
2013 2012 2013 2012 2013 2012
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Continuing operations
Reorganisation and
rationalisation
costs - 2.6 - - - 2.6
Exceptional items - 2.6 - - - 2.6
Acquired intangible
amortisation 28.9 32.4 3.1 3.1 32.0 35.5
Continuing operations 28.9 35.0 3.1 3.1 32.0 38.1
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Discontinued operations
Loss on disposal of
subsidiaries - 18.2 - - - 18.2
Discontinued total - 18.2 - - - 18.2
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Exceptional items are those items which are exceptional in
nature or size.
In 2012 the loss on disposal of subsidiaries relates to the VT
US disposal. GBP5 million reflects recycling of exchange rate
fluctuations from the date of acquisition to completion of sale.
The balance relates to movements in the disposal balance sheet
since the year end and provisions against future claims and
costs.
The reorganisation and rationalisation costs relate to
redundancies, property costs and IT rationalisation costs arising
in achieving synergy benefits on the VT Group plc acquisition. In
addition to the above, a GBP2.7 million (2012: GBP1.3 million)
exceptional tax credit arose on the change in UK tax rates.
4. Income taxes
The charge for taxation has been based on the estimated
effective tax rate of 18% before amortisation of acquired
intangibles and exceptional items for the full year ended 31 March
2014. (For September 2012, the charge for tax was based on an
estimated effective tax rate of 18.1% for the full year ended 31
March 2013, together with a prior year credit of GBP1.6 million).
An additional tax credit of GBP7.4 million relates to acquired
intangible amortisation of which GBP0.7 million is included in
share of profit from joint ventures and associates.
5. Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
Six months ended Six months ended
30 September 30 September
2013 2012
---------------------------------------------- ---------------- ----------------
Number of shares
Weighted average number of ordinary shares
for the purpose of basic EPS 359,567,567 358,740,182
Effect of dilutive potential ordinary shares:
share options 2,005,062 3,004,109
---------------------------------------------- ---------------- ----------------
Weighted average number of ordinary shares
for the purpose of diluted EPS 361,572,629 361,744,291
---------------------------------------------- ---------------- ----------------
Earnings
Six months ended 30
September 2012
Six months ended 30
September 2013 (Restated)
-------------------------------- --------------------------------
Basic Diluted Basic Diluted
Earnings per share per share Earnings per share per share
GBPm pence pence GBPm pence pence
--------------------------------------- -------- ---------- ---------- -------- ---------- ----------
Continuing operations
Earnings from continuing operations 91.6 25.6 25.3 72.4 20.2 20.0
Add back:
Amortisation of acquired intangible
assets, net of tax 24.6 6.8 6.8 27.0 7.5 7.5
Exceptional items and other,
net of tax - - - 1.9 0.6 0.5
Impact of change in UK tax
rate (2.7) (0.8) (0.7) (1.3) (0.4) (0.4)
--------------------------------------- -------- ---------- ---------- -------- ---------- ----------
Earnings before discontinued
operations, amortisation, exceptional
items and other 113.5 31.6 31.4 100.0 27.9 27.6
--------------------------------------- -------- ---------- ---------- -------- ---------- ----------
Discontinued operations
Earnings from discontinued
operations - - - (17.4) (4.8) (4.8)
Add back:
Amortisation of acquired intangible
assets, net of tax - - - - - -
Exceptional items and other,
net of tax - - - 18.2 5.0 5.0
Earnings from discontinued
operations before amortisation,
exceptional items and other - - - 0.8 0.2 0.2
--------------------------------------- -------- ---------- ---------- -------- ---------- ----------
Continuing and discontinued
operations
Earnings from continuing and
discontinued operations 91.6 25.6 25.3 55.0 15.4 15.2
Add back:
Amortisation of acquired intangible
assets, net of tax 24.6 6.8 6.8 27.0 7.5 7.5
Exceptional items and other,
net of tax - - 20.1 5.6 5.5
Impact of change in UK tax
rate (2.7) (0.8) (0.7) (1.3) (0.4) (0.4)
--------------------------------------- -------- ---------- ---------- -------- ---------- ----------
Earnings before amortisation,
exceptional items and other 113.5 31.6 31.4 100.8 28.1 27.8
--------------------------------------- -------- ---------- ---------- -------- ---------- ----------
6. Dividends
An interim dividend of 6.9 pence per 60 pence ordinary share
(2012: 6.30 pence per 60 pence ordinary share) was declared after
the balance sheet date and will be paid on 10 January 2014 to
shareholders registered on 13 December 2013.
7. Investments in and loans to joint ventures and associates
Investment in Loans to joint
joint ventures ventures and
and associates associates Total
---------------------------- ---------------------------- ----------------------------
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
30 September 30 September 30 September 30 September 30 September 30 September
2013 2012 2013 2012 2013 2012
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
At 1 April 18.6 19.3 51.1 24.9 69.7 44.2
Investments in joint
ventures
and associates - (0.2) - - - (0.2)
Loans to/(repayments from)
joint ventures and
associates - - (0.6) 7.6 (0.6) 7.6
Share of profits 10.2 6.7 - - 10.2 6.7
Dividends received (0.9) (0.8) - - (0.9) (0.8)
Interest accrued - - 2.3 0.5 2.3 0.5
Interest received - - (1.8) (2.0) (1.8) -(2.0)
Fair value adjustment of
derivatives 21.6 (30.4) - - 21.6 (30.4)
Tax on fair value adjustment
of derivative (5.0) 7.4 - - (5.0) 7.4
Foreign exchange (0.1) - - - (0.1) -
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total 44.4 2.0 51.0 31.0 95.4 33.0
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
8. Other financial instruments
Assets Liabilities
---------------------------- ----------------------------
Six months Six months Six months Six months
ended ended ended ended
30 September 30 September 30 September 30 September
2013 2012 2013 2012
GBPm GBPm GBPm GBPm
--------------------------------------------- ------------- ------------- ------------- -------------
Non-current
US private placement - currency and interest
rate swaps (note 11) 9.4 24.2 - -
------------- ------------- ------------- -------------
Current
Interest rate hedge - - 2.2 3.0
Cross currency swaps - - 4.1 4.3
Other currency hedges 6.2 5.3 3.4 3.3
------------- ------------- ------------- -------------
6.2 5.3 9.7 10.6
------------- ------------- ------------- -------------
The Group enters into forward foreign currency contracts to
hedge the currency exposures that arise on sales, purchases,
deposits and borrowings denominated in foreign currencies, as the
transactions occur.
The Group enters into interest rate hedges against interest rate
exposure and to create a balance between fixed and floating
interest rates.
The fair values of the financial instruments are based on
valuation techniques (level 2).
9. Reconciliation of operating profit to cash generated from
operations
Six months
Year ended Six months ended
31 March ended 30 September
2013 30 September 2012
(restated) 2013 (restated)
GBPm GBPm GBPm
------------ ---------------------------------------------------- -------------- --------------
Cash flows from operating activities
Operating profit before amortisation of acquired
284.2 intangibles and exceptional items 142.2 128.2
Amortisation of acquired intangibles and exceptional
(80.7) items (28.9) (35.0)
------------ ---------------------------------------------------- -------------- --------------
203.5 Group operating profit 113.3 93.2
(17.1) Pre-tax loss from discontinued operations - (17.1)
37.4 Depreciation of property, plant and equipment 19.2 18.7
73.6 Amortisation of intangible assets 32.0 34.8
1.7 Investment income 0.8 0.9
8.6 Equity share-based payments 7.2 4.6
18.0 Loss/(profit) on disposal of subsidiaries - 18.2
(4.1) Profit on disposal of property, plant and equipment (0.3) (0.2)
1.1 Loss on disposal of intangible assets - -
------------ ---------------------------------------------------- -------------- --------------
Operating cash flows before movement in working
322.7 capital 172.2 153.1
1.4 Increase in inventories (31.8) (11.6)
(34.8) Increase in receivables (16.9) (42.2)
48.5 Increase in payables 46.6 54.0
(11.5) Decrease in provisions (18.7) (7.2)
Retirement benefit payments in excess of income
(32.9) statement (4.5) (4.0)
------------ ---------------------------------------------------- -------------- --------------
293.4 Cash generated from operations 146.9 142.1
------------ ---------------------------------------------------- -------------- --------------
10. Movement in net debt
Six months Six months
Year ended ended ended
31 March 30 September 30 September
2013 2013 2012
GBPm GBPm GBPm
---------- --------------------------------------------------- ------------- -------------
(5.7) Increase/(decrease) in cash in the period 10.6 (1.2)
Cash flow from the (increase)/decrease in debt
104.8 and lease financing (13.3) 68.6
---------- --------------------------------------------------- ------------- -------------
99.1 Change in net funds resulting from cash flows (2.7) 67.4
(6.3) Loans and finance leases acquired with subsidiaries (1.3) (6.3)
(0.6) New finance leases (16.6) -
Foreign currency translation differences and
(1.7) other (1.0) (1.1)
---------- --------------------------------------------------- ------------- -------------
90.5 Movement in net debt in the period (21.6) 60.0
(641.1) Net debt at the beginning of the period (550.6) (641.1)
---------- --------------------------------------------------- ------------- -------------
(550.6) Net debt at the end of the period (572.2) (581.1)
---------- --------------------------------------------------- ------------- -------------
11. Changes in net debt
At Exchange At
1 April Acquisitions New finance movement 30 September
2013 Cash flow and disposals leases /other 2013
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- -------------- ----------- --------- -------------
Cash and bank balances 97.1 9.8 2.4 - (4.0) 105.3
Bank overdrafts (6.5) (1.6) - - 1.9 (6.2)
-------------------------------- -------- --------- -------------- ----------- --------- -------------
Cash, cash equivalents and bank
overdrafts at end of period 90.6 8.2 2.4 - (2.1) 99.1
-------------------------------- -------- --------- -------------- ----------- --------- -------------
Debt (681.7) (14.9) (1.3) - 35.8 (662.1)
Finance leases (4.6) 1.6 - (16.6) 1.0 (18.6)
-------------------------------- -------- --------- -------------- ----------- --------- -------------
(686.3) (13.3) (1.3) (16.6) 36.8 (680.7)
-------------------------------- -------- --------- -------------- ----------- --------- -------------
Net debt before derivatives (595.7) (5.1) 1.1 (16.6) 34.7 (581.6)
-------------------------------- -------- --------- -------------- ----------- --------- -------------
Net debt derivative 45.1 - - - (35.7) 9.4
-------------------------------- -------- --------- -------------- ----------- --------- -------------
Net debt including derivative (550.6) (5.1) 1.1 (16.6) (1.0) (572.2)
-------------------------------- -------- --------- -------------- ----------- --------- -------------
12. Pensions
Analysis of movement in the balance sheet
Six months
Six months ended
ended 30 September
30 September 2012
2013 (restated)
GBPm GBPm
-------------------------------------- ------------- -------------
Fair value of plan assets
At 1 April 3,204.8 2,782.7
(Settlements)/transfers in (3.3) 3.9
Expected return 67.8 84.2
Actuarial loss (166.5) (6.6)
Change in reimbursement rights (5.9) 52.6
Employer contributions 29.5 26.4
Employee contributions 2.8 2.5
Benefits paid (70.7) (68.8)
At 30 September 3,058.5 2,876.9
-------------------------------------- ------------- -------------
Present value of benefit obligations
At 1 April 3,465.8 3,039.9
(Settlements)/transfers in (3.3) 3.9
Service cost 22.2 20.9
Incurred expenses 2.7 1.6
Interest cost 71.0 68.6
Employee contributions 2.8 2.5
Actuarial (gains)/loss) (67.8) 35.6
Experience losses 17.9 90.5
Benefits paid (70.7) (68.8)
At 30 September 3,440.6 3,194.7
-------------------------------------- ------------- -------------
Present value of unfunded obligations (0.1) (0.1)
IFRIC 14 adjustment - -
-------------------------------------- ------------- -------------
Net deficit at 30 September (382.2) (317.9)
-------------------------------------- ------------- -------------
Net deficit at 31 March 2013 (261.1) (265.9)
-------------------------------------- ------------- -------------
Analysis of charge to Income Statement
Six months
Six months ended
ended 30 September
30 September 2012
2013 (restated)
GBPm GBPm
---------------------------------------- ------------- -------------
Current service cost 22.2 20.9
Incurred expenses 2.7 1.6
---------------------------------------- ------------- -------------
Total included within operating profit 24.9 22.5
Net interest costs 5.4 5.9
---------------------------------------- ------------- -------------
Total included within profit before tax 30.3 28.4
---------------------------------------- ------------- -------------
As at 30 September 2013 the key assumptions used in valuing
pension liabilities were:
Discount rate 4.5% (31 March 2013: 4.4%)
Inflation rate 2.8% (31 March 2013: 2.8%)
13a. Acquisition (current year)
On 23 July 2013 the Group acquired Conbras Engenharia Ltda, a
privately owned Brazilian company, for a consideration of GBP22.6
million (R$75 million), including a maximum GBP4.4 million (R$15
million) deferred consideration and earn out. Conbras operates in
the facilities management sector, serving private and public
customers across Brazil.
The goodwill arising on the acquisition derives from the market
position of the entities involved.
Details of provisional assets acquired and the provisional
goodwill are as follows:
Conbras
EngehariaL
Ltda
GBPm
------------------------------------------ -----------
Cost of acquisition
Cash paid 18.2
Deferred consideration 4.4
------------------------------------------ -----------
Purchase consideration 22.6
Fair value of assets acquired (see below) 6.5
------------------------------------------ -----------
Goodwill 16.1
------------------------------------------ -----------
The goodwill arises from the market position and future
synergistic growth expectations.
Net assets and liabilities arising from the acquisition are as
follows:
Conbras Engenharia
Ltda
-----------------------
Provisional
Book value fair
of assets value
acquired acquired
GBPm GBPm
------------------------------------------- ---------- -----------
Acquired intangibles* 0.1 9.3
Property, plant and equipment 0.3 0.3
Investments 0.1 -
Deferred tax (0.7) (2.7)
Income tax 0.2 0.2
Cash, cash equivalents and bank overdrafts 1.3 1.3
Bank loans (1.3) (1.3)
Current assets 9.1 8.9
Current and non current liabilities (6.1) (6.8)
Provisions - (2.7)
Net assets acquired 3.0 6.5
------------------------------------------- ---------- -----------
* Acquired intangibles represents customer relationships which
are in part contracted (order book) and in part non contracted.
Cash outflow to acquire business net of cash acquired:
Conbras
Engenharia
Ltda
GBPm
---------------------------------------------------- -----------
Purchase consideration paid in cash 18.2
Cash, cash equivalents and bank overdrafts acquired (1.3)
---------------------------------------------------- -----------
Cash outflow in period 16.9
---------------------------------------------------- -----------
The revenue and operating profit of Conbras Engenharia Ltda
since the date of acquisition and as if they had been acquired on 1
April 2013 are:
Since
date of For full
acquisition six months
GBPm GBPm
----------------- ------------ -----------
Revenue 6.7 22.6
Operating profit 0.6 2.9
----------------- ------------ -----------
13b. Acquisition (prior year)
During the previous financial year, on 1 June 2012 the Group
acquired a controlling interest of 52% of Target Cranes (Pty)
Limited (Target Cranes) a company based in South Africa involved in
the rental of mobile cranes. The transaction was made via an
exchange of shares and with Target also acquiring the assets and
liabilities of the Plant division of Babcock Africa.
The goodwill arising on the acquisition derives from the market
position of the entities involved.
Details of final assets acquired and the final goodwill are as
follows:
Target
Cranes Other Total
GBPm GBPm GBPm
------------------------------------------ ------- ----- -----
Cost of acquisition
Cash paid - 2.0 2.0
Value of non-controlling interest allowed 19.8 - 19.8
------------------------------------------ ------- ----- -----
Purchase consideration 19.8 2.0 21.8
Fair value of assets acquired (see below) 16.7 2.0 18.7
------------------------------------------ ------- ----- -----
Goodwill 3.1 - 3.1
------------------------------------------ ------- ----- -----
Net assets and liabilities arising from the acquisition are as
follows:
Target Cranes Other Total
----------------------- ----------------------- -----------------------
Provisional Provisional Provisional
Book value fair Book value fair Book value fair
of assets value of assets value of assets value
acquired acquired acquired acquired acquired acquired
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ---------- ----------- ---------- ----------- ---------- -----------
Acquired intangibles* - - - 2.0 - 2.0
Property, plant and equipment 23.3 25.6 - - 23.3 25.6
Deferred tax (4.6) (5.5) - - (4.6) (5.5)
Income tax 0.1 (0.2) - - 0.1 (0.2)
Cash, cash equivalents and
bank overdrafts 1.2 1.2 - - 1.2 1.2
Finance leases (6.3) (6.3) - - (6.3) (6.3)
Inventory 0.1 0.1 - - 0.1 0.1
Current assets 3.0 2.3 - - 3.0 2.3
Current and non current liabilities (0.5) (0.5) - - (0.5) (0.5)
Net assets acquired 16.3 16.7 - 2.0 16.3 18.7
------------------------------------ ---------- ----------- ---------- ----------- ---------- -----------
* Acquired intangibles represents customer relationships which
are in part contracted (order book) and in part non contracted.
Cash outflow to acquire business net of cash acquired:
Target
Cranes Other Total
GBPm GBPm GBPm
---------------------------------------------------- ------- ----- -----
Purchase consideration paid in cash - 2.0 2.0
Cash, cash equivalents and bank overdrafts acquired (1.2) - (1.2)
---------------------------------------------------- ------- ----- -----
Cash outflow/(inflow) in period (1.2) 2.0 0.8
---------------------------------------------------- ------- ----- -----
The revenue and operating profit of Target Cranes since the date
of acquisition and as if they had been acquired on 1 April 2012
are:
Since
date of For full
acquisition six months
GBPm GBPm
----------------- ------------ -----------
Revenue 4.6 6.8
Operating profit 1.3 1.9
----------------- ------------ -----------
14a. Disposals (current year)
During the period the Group received the deferred consideration
on the disposal of the UKAEA Pension Administration Office and also
paid certain accrued costs on previously disposed of businesses.
Details of final assets disposed of are as follows:
30 September
2013
GBPm
--------------------------------------------------- ------------
Deferred consideration received 4.2
Accrued costs on previously disposed of businesses (1.9)
--------------------------------------------------- ------------
Net cash flow 2.3
--------------------------------------------------- ------------
14b. Disposals (prior year)
During the previous year, in July 2012 the Group completed the
disposal of its holding in VT Services Inc. (the US defence
business), the net assets of which had been disclosed as held for
sale at 31 March 2012.
Details of final assets disposed of are as follows:
30 September
2012
GBPm
---------------------------------------------------------- ------------
Held for sale assets and liabilities 62.2
Cash, cash equivalents and bank overdrafts 2.6
Non-controlling interest 0.4
Translation adjustments recycled from translation reserve 4.9
---------------------------------------------------------- ------------
Assets sold 70.1
Provision for claims and costs 8.9
Sale proceeds (60.8)
---------------------------------------------------------- ------------
Loss on disposal of subsidiaries 18.2
---------------------------------------------------------- ------------
15. Transactions with non-controlling interests
There were no transactions with non-controlling interests in the
current period.
The following were the transactions for the previous period:
Increase/ Increase/
(decrease) (decrease) Cash
in retained in non-controlling outflow/
earnings interests (inflow)
GBPm GBPm GBPm
------------------------------------------------------- ------------ ------------------- ---------
Following the acquisition of Target Cranes, a
further 12.4% of shares were purchased, in cash,
from the non-controlling interest for GBP5.1 million.
This resulted in a net gain on non-controlling
interest of GBP4.0 million. 4.0 (9.1) 5.1
Following the acquisition of Target Cranes, an
agreement was reached for a Put Option providing
certain non- controlling interest shareholders
the right to force the Group to purchase further
shares. The option exercise price is a multiple
of EBITDA. The Put Option liability is shown as
non current Other financial liabilities on the
balance sheet. (14.6) - -
The non-controlling interest in one of the Group's
subsidiaries has been acquired with the vendor
paying GBP6.4 million. 6.0 0.4 (6.4)
Transactions with non-controlling interests (4.6) (8.7) (1.3)
------------------------------------------------------- ------------ ------------------- ---------
16. Related party transactions
Related party transactions in the half year to 30 September 2013
are; sales to joint ventures and associates amounting to GBP125.8
million (2012: GBP105.7 million), purchases from joint ventures and
associates amounting to GBP0.2 million (2012: GBP19.9 million) and
sales to companies with common directors amounting to GBP4.8
million (2012: GBP4.7 million).
17. 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 2013 were approved by the Board on 13 May 2013 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.
Risks and uncertainties
The Directors consider that the principal risks and
uncertainties affecting the Group remain unchanged from those
described in the 2013 Annual Report and are those arising from:
reliance on large contracts with a relatively limited number of
major clients, including clients affected by political and public
spending decisions, which exposes the Group to political risks, and
damage to our reputation can have rapid and serious adverse
consequences; contracts carrying strict performance conditions with
which Babcock must comply within the tendered price; failure to
realise the pipeline of opportunities and secure rebids; operations
carrying significant health, safety and environmental risks; the
need for experienced management resource and skilled employees, who
can sometimes be in short supply; IT and security risks; and the
risk of exposure to significant defined benefit pension schemes.
These risks, and mitigating actions taken in respect of them, are
explained and described in more detail on pages 50 to 55 of the
2013 Annual Report, a copy of which is available at
www.babcockinternational.com. This half year report also includes
comments on the outlook for the Group for the remaining six months
of the financial year.
The Directors have considered the Financial Reporting Council's
guidance to heightened country and currency risk in interim
financial reports but the Group is not directly exposed to
significant overseas sovereign and currency risks, although it is
exposed indirectly to increased counter party risk. The Group
attempts to mitigate risk by counter party monitoring and the
avoidance of concentrations of counter party risk. The significant
Group risks remain those referred to above.
Forward-looking statements
Certain statements in this half year report 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 half year report
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 half year
report. Except as required by law, Babcock is under no obligation
to update or keep current the forward-looking statements contained
in this half year report or to correct any inaccuracies which may
become apparent in such forward-looking statements.
Statement of Directors' responsibilities
This half-year report is the responsibility of the Directors who
confirm that, to the best of their knowledge
-- this condensed set of financial statements has been prepared
in accordance with IAS 34 (Interim Financial Reporting) as adopted
by the European Union; and
-- the interim management report herein includes a fair review of the information required by
o Rule 4.2.7 of the Disclosure & Transparency Rules
(indication of the important events during the first six
months, and their impact on the condensed set of financial
statements, and a description of principal risks and uncertainties
for the remaining six months of the year) and
o Rule 4.2.8. of the Disclosure & Transparency Rules
(disclosure of related parties' transactions that have taken place
in the first six months of the current financial year and that have
materially affected the financial position or the performance of
the entity during that period; and any changes in the related
parties transactions described in the last annual report that could
have a material effect on the financial position or performance of
the enterprise in the first six months of the current financial
year.).
The names and functions of each the Directors of Babcock
International Group PLC are as listed in its 2013 Annual Report. A
copy of the Annual Report can be found, and a list of current
Directors is maintained, on the Group's website
www.babcockinternational.com
Approved by the Board and signed on its behalf by
Peter Rogers
Group Chief Executive
Bill Tame
Group Finance Director
11 November 2013
This information is provided by RNS
The company news service from the London Stock Exchange
END
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