TIDMBAB
RNS Number : 4035N
Babcock International Group PLC
18 May 2015
Babcock International Group PLC
full year results for the year ended 31 March 2015
18 May 2015
Continued delivery of growth and strengthening platform for the
future
Underlying March 2015 March 2014 Change
----------------------------- ----------- ----------- ------
Revenue* GBP4,503.3m GBP3,547.6m + 27%
Operating profit** GBP518.7m GBP377.9m + 37%
Profit before tax*** GBP417.7m GBP316.1m + 32%
Basic earnings per share**** 68.5p 62.1p + 10%
Statutory
----------------------------- ----------- ----------- ------
Revenue GBP3,996.6m GBP3,321.0m + 20%
Operating profit GBP352.3m GBP233.1m + 51%
Profit before tax GBP313.1m GBP218.8m + 43%
Basic earnings per share 52.9p 44.3p + 19%
Net debt GBP1,325.6m GBP533.7m
Net debt/ebitda 2.2 x 1.3 x
Order book GBP20bn GBP11.5bn + 74%
Full year dividend 23.6p 21.4 p + 10%
----------------------------- ----------- ----------- ------
*Underlying revenue includes the Group's share of joint ventures
and associates revenues. **Underlying operating profit includes
IFRIC 12 investment income and joint ventures and associates
operating profit but is before amortisation of acquired intangibles
and exceptional items. ***Underlying profit before tax is inclusive
of pre-tax joint ventures and associates income but before
amortisation of acquired intangibles and exceptional items.
****Underlying basic earnings per share is before amortisation of
acquired intangibles and exceptional items, before the related tax
effects and before the effect of corporate tax rate changes.
Adjusted to reflect the Rights Issue
Operational Highlights
-- Continued growth driven by strong underlying operational
performance - business model and strategy well suited to current
economic environment
- 27% growth in underlying revenue, 12% organic growth at constant exchange rates
- 37% growth in underlying operating profit, 11% organic growth at constant exchange rates
-- MCS (formerly Avincis) delivered 22% revenue growth -
business performing in line with our expectations at time of
acquisition
- integration progressing smoothly and establishing growth platform for wider Group
-- Cash conversion of 113% (2014: 103%)
-- Sustained focus on creating value for shareholders
- 10.3% increase in basic underlying eps to 68.5p
- 10.3% increase in full year dividend
-- Acquisitions and significant contract wins create strong platform for growth
-- Record GBP20 billion order book provides excellent revenue visibility
Peter Rogers, Chief Executive commented
"Babcock performed strongly last year, both organically and
through acquisitions. We achieved double digit organic growth in
revenue and operating profit driven by major contract wins and by
expanding the size and scope of existing contracts. Growth from
Marine and Technology and Support Services has been particularly
compelling.
Our recent acquisitions have continued to perform in line with
our expectations and have created an excellent platform for future
growth.
We continue to ensure that our financial success is aligned with
the interests of our shareholders through the 10% increase in the
dividend."
Contact: Babcock International Group PLC
Franco Martinelli, Group
Finance Director Tel: 020 7355 5300
Terri Wright, Head of Investor Relations
FTI Consulting
Andrew Lorenz / Nick Hasell Tel: 020 3727 1340
Analysts and investors
A meeting for investors and analysts will be held on 18 May 2015
at 9.00 am at JP Morgan, 60 Victoria Embankment entrance, London,
EC4Y 0JP. The presentation will be webcast live at
www.babcockinternational.com and subsequently will be available on
demand from mid-afternoon on 18 May 2015. To dial-in to the
presentation, please call +44 (0)20 3059 5861.
Please allow 15 minutes to register for both the webcast and the
call
Introduction
Overview
The strength and stability of Babcock's operations are once
again reflected in the financial results for the 2014/15 financial
year and the delivery of further growth in revenue, operating
profit and earnings per share. This year's revenue growth has come
both organically, through major contract wins and by expanding and
enhancing existing contracts, and from acquisitions made during the
past year. Similarly, operating profit growth has been driven both
organically and through acquisitions.
The integration of Avincis (renamed Mission Critical Services
(MCS)) has progressed well and its financial results are included
within the Group's results from 16 May 2014. During the year we
have also invested a further c GBP200 million in acquisitions,
strengthening and enhancing the Group's capabilities and market
positions to support and create opportunities for long-term
growth.
We continue to focus on maintaining a secure financial base to
support our future growth ambitions. Delivery of cash remains an
important KPI for each of the Group's businesses and this year we
have once again achieved our target of cash conversion, before
capital expenditure, of over 100%. This resulted in cash conversion
after capital expenditure of 83%. During the 2014/15 financial year
we refinanced the debt acquired through acquisition, achieving in
excess of the GBP35 million of interest synergies targeted, to
maintain an appropriate balance within the Group's funding
arrangements as well as sufficient headroom to fund future
growth.
Over the year, the order book has increased to a record level of
GBP20 billion and this, along with a GBP10.5 billion bid pipeline,
provides considerable visibility of future revenue streams and
across the Group we have continued to invest in bidding activities
to deliver medium and long-term organic growth opportunities.
Dividend
This year underlying basic earnings per share increased by
10.3%, the Group has once again achieved its target of delivering
cash conversion over 100% and the combined order book and bid
pipeline have reached record levels, providing excellent visibility
of future revenue streams.
The Board's confidence in the long-term future of our business
remains strong and it is therefore delighted to recommend a 10.4%
increase in the final dividend per share for 2015 of 18.1 pence per
share (2014: 16.4 pence per share). If approved by shareholders at
the AGM on 30 July 2015, this will give a total dividend for the
year of 23.6 pence per share (2014: 21.4 pence per share), an
increase of 10.4%. The final dividend will be paid on 12 August
2015 to shareholders on the register at 3 July 2015.
As a result of the new ordinary shares created by the rights
issue, which started trading on 7 May 2014, the dividend numbers
and the comparatives referred to above have been adjusted
accordingly.
Order book and bid pipeline
Over the last financial year we have seen the order book
increase from c GBP11.5 billion at the end of March 2014 to c GBP20
billion at the end of March 2015. Throughout the year it steadily
increased as we reached final signature on a number of major
contract wins, including contracts for Magnox civil nuclear
decommissioning, London Fire Brigade vehicle support, Defence
Support Group military vehicle support and the Maritime Support
Delivery Framework. During the first half, after completing the
acquisition, we incorporated the order book for the MCS business,
which accounts for c GBP2 billion of the total. The order book
provides us with excellent visibility of future revenues and we
started the 2015/16 financial year with over 80% of anticipated
revenues for the year already contracted. We also have visibility
of 50% of revenue for the 2016/17 financial year.
With the significant number of high value bid decisions
announced during the year the bid pipeline has reduced to c GBP10.5
billion (2014: GBP17.5 billion). As well as the successful contract
awards totalling c GBP12 billion which have moved into the order
book, bids where we have been unsuccessful have been removed from
the bid pipeline. The unsuccessful bids include Tranche 2 of the
Next Generation Estates Contracts (NGEC), the Logistics and
Commodity Services Transformation (LCST) contract and the New South
Wales Air Ambulance contract. These opportunities in total
represented around GBP5.0 billion of the pipeline.
During the year the Group achieved a win rate on new contracts
of c 40% and on rebids of over 90% (excluding the Next Generation
Estates Contracts). The Group performance is matched by the MCS
business which has achieved a win rate of c 55% on new contracts
and of over 90% on rebids.
The bid pipeline now includes c GBP1 billion of opportunities
from MCS which has continued to see a number of major opportunities
move into the bid pipeline from tracking throughout the year. These
include opportunities in both our defence and civil markets.
The bid pipeline continues to represent the significant
opportunities for growth within the Group, including bids at
preferred bidder stage/sole source, c 70% of the opportunities are
new business, with the remaining 30% rebids. The bid pipeline
continues to include a number of large opportunities with 55%
(2014: 75%) comprising bids with a total contract value of over
GBP100 million. The bid pipeline continues to be supported by a
healthy tracking pipeline of over GBP16 billion. The tracking
pipeline comprises prospects that have yet to come to market and
includes a number of opportunities where we are in active dialogue
with our customer to help formulate appropriate long-term support
solutions. We expect these opportunities to deliver growth in the
medium to long-term.
Outlook
We continue to benefit from positive market conditions in both
the UK and overseas, where demand for our technical expertise and
our ability to deliver complex and critical programmes and projects
remains high. We believe our move into new markets and geographies,
our order book, which continues to provide visibility and certainty
of future revenues, and our bid pipeline each offer significant
further opportunities for growth.
The Board therefore remains confident in the long-term prospects
for the Group and expects it to make further good progress in the
2015/16 financial year.
Financial review
In this review, unless otherwise stated, revenue, operating
profit, operating margin, net finance costs, profit before tax and
earnings per share refer to results 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 (jv) and associates.
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 corporate tax rate changes.
The underlying figures provide a consistent measure of business
performance year to year thereby enabling comparison and
understanding of Group financial performance.
Statutory to underlying reconciliation
Joint ventures
and associates
--------------------------
Revenue
Continuing and Amortisation Change Continuing
operations operating Finance IFRIC of acquired in tax Exceptional operations
- statutory profit costs Tax 12 income intangibles rate items - underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
31 March
2015
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Revenue 3,996.6 506.7 4,503.3
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Operating
profit 352.3 35.2 37.6 93.6 518.7
Share of
profit from
jv 29.4 (35.2) 31.0 5.0 (36.2) 6.0 -
Investment
income 1.4 (1.4) -
Net finance
costs (70.0) (31.0) (101.0)
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Profit before
tax 313.1 - - 5.0 - 99.6 - - 417.7
Tax (46.7) (5.0) (23.2) 0.6 (74.3)
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Profit after
tax 266.4 - - - - 76.4 0.6 - 343.4
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
31 March
2014
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Revenue 3,321.0 226.6 3,547.6
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Operating
profit 233.1 21.9 38.8 59.2 24.9 377.9
Share of
profit from
jv 20.9 (21.9) 25.1 7.0 (37.3) 6.2 -
Investment
income 1.5 (1.5) -
Net finance
costs (36.7) (25.1) (61.8)
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Profit before
tax 218.8 - - 7.0 - 65.4 - 24.9 316.1
Tax (30.8) (7.0) (15.2) (2.4) (55.4)
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Profit after
tax 188.0 - - - - 50.2 (2.4) 24.9 260.7
------------- ------------ ---------- ------- ----- ---------- ------------ ------- ----------- -------------
Income statement
Total revenue for the year was GBP4,503 million (2014: GBP3,548
million) an increase of 27%, this includes GBP536.9 million of
revenue from MCS, which represents a growth rate of 22% for this
business from the prospectus.
The Babcock businesses, excluding acquisitions, delivered
revenue growth at constant exchange rates of 12% (2014: 11%). The
main contributor to this growth was the Support Services division
which reported a 23% growth in revenue benefitting from the
increased activity in its subsidiary Cavendish Nuclear as a result
of the Magnox civil nuclear decommissioning contract, as well as
increases in its fleet support activities. The Marine and
Technology division achieved organic revenue growth of 14% at
constant exchange rates. Organic growth was driven by increased
volumes in warship refit activities including the Queen Elizabeth
class (QEC) aircraft carrier programme and growing commercial and
Technology activities. Strong growth from the Marine and Technology
and Support Services divisions offset the anticipated 5% fall in
revenue in the Defence and Security division following the
completion of the East and South West Regional Prime contracts.
Within the International division, the South African business
achieved a 10.5% increase in revenue in local currency, however
this translated into flat revenue in Sterling terms.
Total operating profit increased by 37% to GBP518.7 million
(2014: GBP377.9 million), this includes GBP95.7 million of
operating profit from MCS.
The Babcock businesses achieved organic growth in operating
profit of 11% at constant exchange rates. The total Group operating
margin increased to 11.5% benefiting from operating margins within
the MCS business of 17.8%. Excluding the MCS business, the Babcock
businesses maintained a stable operating margin of 10.7% (2014:
10.7%).
For the Marine and Technology division, operating profits
increased in line with revenue at 13% and the Defence and Security
division achieved a 9% increase in operating profit despite reduced
revenue as a result of milestone achievements on the Future
Strategic Tanker Aircraft (FSTA) programme and final contract
adjustments on the ending of the Regional Prime contracts. For the
Support Services division, operating profit growth was 19% but
margin was diluted by the effect of low margin take in the early
stages of new contracts, particularly within its subsidiary
Cavendish Nuclear and the Critical Services business. The Group
benefited from GBP8.5 million profit on disposal of the Greenwich
Building Schools for the Future Private Finance Initiative (PFI),
reported within the Support Services division.
However, this was substantially offset by a provision of GBP7
million which we have taken in respect of overtime holiday pay
(Marine and Technology GBP2.3 million, Defence and Security GBP0.6
million and Support Services GBP4.1 million). Despite a 15% growth
in operating profits in local currency in the South African
business, ongoing weakness in the Rand resulted in a 3% increase in
operating profits in Sterling terms.
As the Group increases the proportion of its revenue from
international operations, particularly in Europe, the impact of
movements in exchange rates has a greater effect on the Group's
results. A 10% movement in the Euro equates to a GBP6.0 million
change in operating profit and a GBP4.0 million change in profit
before tax. A 10% movement in the South African Rand equates to a
GBP2.4 million change in operating profit and a GBP2.3 million
change in profit before tax. The average rates used for translation
of 2014/15 underlying revenue and profit were GBP/EUR1.28 and
GBP/ZAR17.8.
During the year a net GBP2.3 million of provisions were charged
to the income statement. Over the last five financial years the net
provision charge was GBP8.6 million or an average of 1% of
underlying operating profit excluding jvs. Provision utilisation in
the period included GBP14 million related to acquisition deferred
considerations and disposal costs and GBP9 million related to
exceptionals.
Net finance costs were GBP101.0 million (2014: GBP61.8 million)
reflecting the increase in total Group debt following the
acquisition of MCS. The Group net finance costs were GBP59.0
million (2014: GBP25.8 million) and we expect this to reduce going
forward in line with the decrease in the average amount drawn on
the Group's revolving credit facilities and improved finance terms,
which have reduced to a marginal rate around 2%. The Group's share
of joint venture net interest expense increased to GBP31.0 million
(2014: GBP25.1 million) partly as a result of fair value movements
on interest rate swaps of GBP2 million, but also, as anticipated,
as the FSTA and UK MFTS PFI contracts continue to deliver assets
into service for the customer. During 2014/15 the FSTA PFI
delivered four tanker aircraft and the related non-recourse debt
was drawn down under the PFI facilities. The IAS 19 pension finance
charge was GBP11.0 million (2014: GBP10.9 million).
During the year we have refinanced the debt acquired with the
MCS business. We repaid and cancelled two revolving credit
facilities for EUR145 million and GBP25 million as well as the
EUR470 million and GBP260 million high yield notes. We successfully
issued a EUR550 million bond, the proceeds from which were used to
pay off part of the GBP900 million bridge facility during the first
half. The remainder of the facility was paid off during the second
half. These actions achieved in excess of the GBP35 million of
interest synergies targeted at the time of acquisition.
Profit before tax, amortisation of acquired intangibles and
exceptional charges increased by 32% to GBP417.7 million (2014:
GBP316.1 million). The associated tax charge, including the Group's
share of joint venture tax of GBP5.0 million (2013: GBP7.0
million), totalled GBP74.3 million (2014: GBP55.4 million)
representing an effective underlying rate of tax of 17.8% (2014:
17.5%). The effective tax rate is calculated by using the Group's
underlying profit before tax and therefore excludes the tax effect
of amortisation and exceptional charges.
There were no exceptional items during the 2014/15 year (2014:
GBP24.9 million acquisition costs relating to the acquisition of
MCS).
Amortisation of acquired intangibles was GBP99.6 million (2014:
GBP65.4 million). The increase in amortisation is mainly a result
of the acquisition of the MCS business during the year. This
represents the amortisation of the value attributed on business
acquisitions to customer relationships (both contractual and
non-contractual) and acquired brands. The value is amortised over
its estimated useful life, which in the case of relationships
currently does not exceed 15 years, by reference to the duration of
contracts in hand at the time of acquisition and for
non-contractual customer relationships, the risk adjusted value of
potential future orders from existing customers with an average
estimated duration. In relation to brands, the asset life is
dependent on the market characteristics of the business
acquired.
Earnings per share
Basic underlying earnings per share for the year was 68.5 pence
(2014: 62.1 pence), an increase of 10.3%. Basic earnings per share
as defined by IAS 33 was 52.9 pence (2013: 44.3 pence) per share,
an increase of 19.4%.
As a result of the new ordinary shares created by the rights
issue, which started trading on 7 May 2014, the comparative
earnings per share numbers for 2014 referred to above have been
adjusted accordingly.
Dividend
This year underlying basic earnings per share increased by 10.3%
and the Group has once again achieved its target of delivering cash
conversion over 100% and the combined order book and bid pipeline
have reached record levels, providing excellent visibility of
future revenue streams.
The Board's confidence in the long-term future of our business
remains strong and we are therefore delighted to recommend a 10.4%
increase in the final dividend per share for 2015 of 18.1 pence per
share (2014: 16.4 pence per share). If approved by shareholders at
the AGM on 30 July 2015, this will give a total dividend for the
year of 23.6 pence per share (2014: 21.4 pence per share), an
increase of 10.3%. The final dividend will be paid on 12 August
2015 to shareholders on the register at 3 July 2015.
As a result of the new ordinary shares created by the rights
issue, which started trading on 7 May 2014, the dividend numbers
and comparatives referred to above have been adjusted
accordingly.
Acquisitions and disposals
During the year the Group spent a total of GBP2,023.6 million on
acquisitions (2014: GBP63.1 million). These include
-- The Avincis Group on 16 May 2014 for GBP1,759.2 million
including net debt of GBP859.7 million
-- Scandinavian AirAmbulance on 29 June 2014 for GBP66.1 million
including deferred consideration of GBP7.3 million and net debt of
GBP40.8 million
-- MacNeillie on 2 February 2015 for GBP66.3 million including
deferred consideration of GBP1.3 million but excluding cash
acquired of GBP15.7 million
-- WRN Broadcast (WRN) on 9 February 2015 for GBP13.1 million
including deferred consideration of GBP7.5 million (to be paid on
the achievement of agreed growth targets) and net debt of GBP1.6
million
-- Defence Support Group (DSG) on 31March 2015 for GBP140 million
As expected, fair value adjustments have benefited MCS profits
in the year ended 31 March 2015 by GBP5 million through the
utilisation of onerous operating lease provisions and by GBP4
million for reduced depreciation charge compared to historic
cost.
During the year the Group disposed of its share in the Greenwich
Building Schools for the Future (BSF) PFI for a consideration of
GBP12 million. Post the year end, the Group also disposed of the
Lewisham BSF PFI for GBP14.3 million. These disposals will reduce
jv profit and jv interest by a total of c GBP7 million in the
2015/16 financial year.
Cash flow and net debt
We continue to focus on the generation of cash and cash
conversion remains an important KPI for the Group. The analysis
below reflects the management KPI for cash conversion.
2015 2014
GBPm GBPm
------------------------------------------------------------- --------- -------
Operating profit before amortisation of acquired intangibles
and exceptional items 445.9 317.2
Amortisation and Depreciation 78.5 47.6
Other Non-cash items 16.7 13.9
Working capital (excluding retirement benefits) (37.7) (51.3)
------------------------------------------------------------- --------- -------
Operating cash flow 503.4 327.4
------------------------------------------------------------- --------- -------
Cash conversion % 113% 103%
Capital expenditure (net) (135.0) (68.3)
------------------------------------------------------------- --------- -------
Operating cash flow after capital expenditure 368.4 259.1
------------------------------------------------------------- --------- -------
Cash conversion after capital expenditure % 83% 82%
Interest paid (net) (73.8) (31.8)
Taxation (46.1) (55.8)
Dividends from jvs 19.5 4.8
------------------------------------------------------------- --------- -------
Free cash flow 268.0 176.3
------------------------------------------------------------- --------- -------
Acquisitions and disposals net of cash/debt acquired (2,023.6) (63.1)
Issue of shares 1,077.4 -
Pensions contributions in excess of income statement (43.9) (47.2)
Exceptional items - working capital (24.2) 24.2
Exceptional items - income statement - (24.9)
Investments in joint ventures (1.7) 4.7
Movement in own shares (3.5) 0.7
Dividends paid (117.0) (101.0)
Exchange difference/other 76.6 (3.9)
------------------------------------------------------------- --------- -------
Net cash outflow (791.9) (34.2)
------------------------------------------------------------- --------- -------
Opening net debt (533.7) (499.5)
------------------------------------------------------------- --------- -------
Closing net debt (1,325.6) (533.7)
------------------------------------------------------------- --------- -------
The table below provides the reconciliation between the
statutory cash flow (page 21) and trading cash flow table
above.
2015 2014
GBPm GBPm
--------------------------------------------------------------- ----- ------
Cash generated from operations 426.8 279.5
Retirement benefit contributions in excess of income statement 43.9 47.2
Exceptional items - acquisition costs working capital 24.2 (24.2)
Profit on disposals of jv/exceptional loss 8.5 24.9
--------------------------------------------------------------- ----- ------
Operating cash flow 503.4 327.4
--------------------------------------------------------------- ----- ------
Working capital cash outflows during the period, excluding
retirement benefits, were GBP37.7 million (2014: GBP51.3 million).
The cash outflow includes GBP14.3 million which represents
operating provision movements, with the balance of the working
capital outflow substantially linked to growth. Cash generated from
operations was GBP426.8 million (2014: GBP279.5 million) from which
the Group's operating cash flow calculation is derived. Operating
cash flow after movement in working capital was GBP503.4 million
(2014: GBP327.4 million) and represents a conversion rate of
underlying operating profit to cash of 113% (2014: 103%).
Net capital expenditure, including new finance leases, during
the year was GBP135.0 million (2014: GBP68.2 million). MCS net
capital spend was GBP60 million. In addition the rest of the Group
spent GBP10 million at the start of a new SAP back office ERP
system for the majority of the Group to be implemented over the
next two years as well as ongoing investment in upgrades to our
dockyard facilities in the Marine and Technology division to
support future work streams. We have also invested in capital
expenditure for growth on the back of contract wins in particular
training facilities for the London Fire Brigade and vehicles for
the Phoenix white fleet contract. The Group achieved a conversion
rate of operating cash flow after movements in working capital and
capital expenditure to underlying operating profit of 83% (2014:
82%). Capital expenditure for the year was 1.7 times the Group's
depreciation charge of GBP78.5 million. For the 2015/16 financial
year we expect capital expenditure to be in the region of 2.0 times
depreciation after allowing for the increase expected on the ERP
implementation.
Net Group cash interest paid, excluding that paid by joint
ventures, was GBP73.8 million (2014: GBP31.8 million), the increase
reflecting the increase in the Group's debt levels following the
acquisition of MCS in May 2014.
After taxation payments of GBP46.1 million (2014: GBP55.8
million), free cash flow was GBP268.0 million (2014: GBP176.3)
representing a free cash flow yield on 31 March 2015 of 5.4% (2014:
3.6%). We expect the cash tax charge for this financial year to
increase in line with the income statement charge.
Acquisitions and disposals during the year totalled GBP2,023.6
million (2014: GBP63.1 million) and comprise the purchase of
Avincis, Scandinavian AirAmbulance, Defence Support Group,
MacNeillie, WRN and the disposal of the Group's share in the
Greenwich Building Schools for the Future joint venture.
During the year the Group received GBP19.5 million in dividends
from its joint ventures (2014: GBP4.8 million). Cash dividends
(including to minorities of GBP7.2 million) paid out in the year
totalled GBP117.0 million (2014: GBP101.0 million).
Group net cash outflow was GBP791.9 million (2014: GBP34.2
million) increasing total net debt at 31 March 2015 to GBP1,325.6
million (31 March 2014: GBP533.7 million, 30 September 2014:
GBP1,284.9 million). This gives a net debt to ebitda ratio of 2.15
times (31 March 2014: 1.3 times, 30 September 2014: 2.3 times).
Over the course of the next financial year we would expect to see
this reduce to around 1.9 times by the year end.
Return on Invested Capital (ROIC)
We define ROIC as earnings before financing costs and tax
excluding exceptional charges, divided by equity plus net debt,
excluding retirement benefit deficits. Following the significant
acquisition made at the beginning of the year, ROIC was 14.5%
(2014: 20.7%) compared with the Group's current weighted average,
pre-tax, cost of capital of 9.1%. The reduction from prior years
arises from the acquisition of MCS in particular. As identified at
the time of the acquisition, we have a number of initiatives in
place to achieve a return on invested capital ahead of the Group's
weighted average cost of capital by 2016/17 for the MCS business
which remain on track. These measures, added to the expected
improvements in the rest of the Group, are expected to improve the
ratio in coming years.
The key actions for MCS focus on the following areas
-- driving growth - existing opportunities plus maximising
benefits of enlarged Group to increase operational gearing
-- pricing - assisted by increased demand for new technology and improved safety
-- operating costs - overhead and procurement efficiencies, fleet rationalisation
-- financing - optimise leasing versus ownership, improve lease terms and refinance debt.
Pensions
Cash contributions
Cash contributions made by the Group into the defined benefit
pension schemes during the year are set out in the table below.
2015 2014
GBPm GBPm
------------------------------------ ----- -----
Future service contributions 44.7 49.0
Deficit recovery 39.2 43.6
Longevity swap 4.2 4.2
------------------------------------ ----- -----
Total cash contributions - employer 88.1 96.8
------------------------------------ ----- -----
In the 2015/16 financial year, the total cash contributions
expected to be paid by the Group into the defined benefit pension
schemes are GBP81.5 million. GBP46.0 million of this is in respect
of the cost of future service accrual of which GBP30.5 million is
to recover deficits over periods of time agreed with the Trustee.
GBP5.0 million of the contributions are in respect of the three
longevity swaps transacted for each of the largest schemes during
2009/10 to mitigate the financial impact of increasing longevity.
Of the GBP81.5 million, GBP32 million in Marine and Technology is
recovered via contractual terms with the balance funded from other
Group contracts.
Accounting valuations
The IAS 19 valuation for accounting purposes showed a market
value of assets of GBP3,938.0 million, net of longevity swaps, in
comparison to a valuation of the liabilities based on AA corporate
bond yields of GBP4,106.8 million representing a 96% funding
level.
A summary of the key assumptions used to value the largest
schemes is shown below. The most significant assumptions that
impact on the results are the discount rate, the rate of future
pensionable salary increases and the expected rate of inflation.
The impact of the longevity swaps transacted during 2009/10 has
helped to mitigate the impact of increasing allowance for
longevity.
Devonport Babcock Rosyth
------------------------- ----------- ---------- ----------
2015 2014 2015 2014 2015 2014
------------------------- ----- ---- ---- ---- ---- ----
Discount rate % 3.4 4.5 3.4 4.5 3.4 4.5
Rate of increase
in pensionable salaries
% 2.2 2.4 2.2 2.4 2.2 2.4
Rate of increase
in pensions in payment
% 2.1 2.2 2.8 3.0 3.0 3.4
Life expectancy of
male currently aged
65 years 21.7 21.7 23.0 22.8 19.3 19.3
------------------------- ----- ---- ---- ---- ---- ----
The total net accounting deficit, pre deferred tax, at 31 March
2014, was GBP168.8 million (2014: GBP267.7 million) and the
expected IAS 19 net periodic benefit cost in 2015/16 is GBP55.9
million (2014/15: GBP57.9 million).
The continued hedging of inflation and interest rate changes has
helped to mitigate volatility in the value of assets and
liabilities. The benefits accruing to members of the Babcock
International Group Scheme have been adjusted from 1 October 2014
to reduce future costs and in addition employee contribution rates
are increasing by up to 2% per annum to a minimum level of 6% over
the next three years.
Operating review
Marine and Technology
31 March 31 March Change
2015 2014 + / -
----------------- ------ ---------- ---------- ------
GBP1,543.6 GBP1,364.6
Revenue group m m + 13%
jv GBP18.9 m GBP12.7 m + 49%
------------------------ ---------- ---------- ------
GBP1,562.5 GBP1,377.3
total m m + 13%
------------------------ ---------- ---------- ------
GBP172.0 GBP152.9
Operating profit group m m + 12%
jv GBP1.9 m GBP1.0 m + 90%
------------------------ ---------- ---------- ------
GBP173.9 GBP153.9
total m m + 13%
------------------------ ---------- ---------- ------
Operating margin group 11.1% 11.2%
jv 10.1% 7.9%
------------------------ ---------- ----------
total 11.1% 11.2%
------------------------ ---------- ----------
Market overview
Over the past year, our main market in the UK for the Marine and
Technology division has remained positive as the Ministry of
Defence (MoD) continues with its strategy to manage its critical
naval infrastructure and assets by outsourcing through a range of
long-term partnership contracts and alliance programmes. The MoD's
equipment programme continues to reflect sustained investment in
naval platforms over the next decade including the Queen Elizabeth
class (QEC) aircraft carriers, the Type 26 frigates and the Astute
and Successor submarine programmes. Following the General Election
in May 2015, the UK government is expected to undertake a Strategic
Defence and Security Review. We do not currently anticipate any
significant impact to our existing naval marine contracts however,
and believe any budget reduction could drive an increased focus on
achieving further value for money from future support
solutions.
The Surface Ship Support Alliance (SSSA) was established in 2009
to provide the best and most cost effective solutions for the Royal
Navy whilst maintaining the highest levels of availability. The
SSSA will be the contracting mechanism to deliver all future
surface ship support solutions. We believe the MoD's expenditure on
surface ship procurement and support will be GBP18 billion over the
next decade.
The Submarine Enterprise Performance Programme (SEPP), an
alliance between the MoD, Babcock, BAE Systems and Rolls Royce,
continues to drive availability and support efficiencies across the
submarine enterprise. The MoD is forecast to spend GBP40 billion on
the entire submarine programme during the next decade.
Building on its positions in the UK, the division continues to
grow its international and commercial activities where we believe
market conditions present opportunities. In Canada, we continue to
monitor naval infrastructure and in-service support opportunities
that are driven by the Canadian government's proposed renewal and
expansion of the Royal Canadian Navy fleet through the Can$33
billion National Shipbuilding Procurement Strategy. The Australian
government is due to publish its Defence White Paper in June 2015,
which is expected to announce the transformation of the Defence
Materiel Organisation and an increased focus on capital expenditure
related to naval platforms, including the future submarine
programme.
We continue to identify global opportunities in the commercial
marine sector, which are well suited to our expertise in complex
and critical engineering services. A predicted increase in demand
for gas transportation is generating opportunities for specialised
systems for gas transport ships and further opportunities are
expected from ageing offshore oil and gas production infrastructure
and increasing demand for offshore renewable energy. Increasing
activities in the UK's nuclear new build and decommissioning
markets are also driving demand for our engineering design and
manufacturing capabilities.
Cyber security remains a top priority for the UK government and
it is working to increase cyber awareness across all business
sectors. As businesses increasingly recognise the importance of
cyber security we anticipate future sustained growth in demand for
our services in this area.
Financial review
The Marine and Technology division had a successful year,
reporting a total increase in revenue of 13%, to GBP1,562.5 million
(2014: GBP1,377.3 million). Organic growth at constant exchange
rates was 14 % (2014: 13%). The main drivers of growth this year
have been the continued increase in activities on the QEC aircraft
carrier programme and other warship support activities through both
the Naval Marine and Technology business units. The Technology and
Energy and Marine Services business units have both delivered
growth in their commercial activities for oil and gas customers
including BP and Total, as well as continued growing demand for
liquid gas transportation systems. These increases, along with
growth in Australian naval support activities, have offset some
reduction in volumes as a result of timing of activities on the
Canadian submarine programme.
Operating profit increased broadly in line with revenue by 13%
to GBP173.9 million (2014: GBP153.9 million). At constant exchange
rates, organic growth was 14%. Operating margins remained broadly
in line with last year at 11.1% (2014: 11.2%).
Operational review
The division continued to deliver in-service support and deep
maintenance to the Royal Navy's (RN) fleet of submarines and
warships and maintain its role as the MoD's strategic partner at
HMNB Devonport and Clyde. These activities are all carried out
under the Terms of Business Agreement (ToBA) with the MoD, which
runs until 2025. Through the long-term programmes and alliances we
have with the MoD, we have been able to maximise availability of
the fleet whilst remaining focused on the delivery of cost
reductions.
In September 2014, we concluded discussions with the MoD and
signed the Maritime Support Delivery Framework (MSDF) contract.
Working within the ToBA, MSDF confirms the continuation of our
contract to deliver services at HMNB Devonport and Clyde through to
2020, replacing the previous Warship Support Modernisation
Initiative (WSMI) contracts. MSDF will also cover a number of
surface ship projects which will be delivered in conjunction with
the SSSA. The contract is valued at a total of GBP2.6 billion, of
which GBP600 million had already been included within the Group's
order book as part of nominated roles under the ToBA. The new
contract enables Babcock to provide continuity and development of
the range of activities and services delivered to the MoD and RN,
as well as deliver improved efficiencies and a further GBP250
million of cost reductions on the agreed programme of work.
Our role in the Aircraft Carrier Alliance (ACA) remains
strategically important as we deliver both QEC aircraft carriers
with our alliance partners. Significant progress has been made over
the past year on both HMS Queen Elizabeth and HMS Prince of Wales
at our facility in Rosyth. Assembly of HMS Queen Elizabeth was
completed and, following the naming ceremony, she was flooded up
and successfully floated into the basin during July 2014.
Activities are now focused on the fitting out of the vessel,
installation of vital electrical and mechanical systems and the
start of the assembly phase for HMS Prince of Wales. We are already
working with the MoD and the ACA to develop the long-term
engineering support solution for the QEC carriers when they become
operational from 2017 and 2023.
All current warship and submarine refit contracts are performing
in line with our financial expectations and are aligned with the
customer's programme milestones and KPIs.
We continue to play a central role in the SSSA with the
completion of a major refit on the helicopter carrier, HMS Ocean,
and the commencement of a significant reactivation package on the
amphibious assault ship, HMS Albion. We will also be undertaking
the life extension work packages for all of the RN's Type 23
frigates at our frigate refit complex in Devonport. Building on the
strength of our UK position, we continue to identify opportunities
to export our warship support capability.
We have maintained our position as the leading support partner
for the UK submarine fleet by successfully supporting the Trafalgar
and Vanguard class, as well as the new Astute class submarines as
they enter service. We are currently completing the Long Overhaul
Period (Refuel) for HMS Vengeance, and are planning and preparing
for the Vanguard class life extension programme to ensure there is
no disruption to the UK's ability to meet Continuous At Sea
Deterrence. Preparation work is already underway for the first
Vanguard class life extension package and refuelling on HMS
Vanguard.
Planning and preparations, are already taking place for HMS
Astute's first deep maintenance period. Additionally, through the
Astute Class Training Service we are providing high quality
training solutions to the RN, which also presents opportunities to
expand our role in submarine training in the UK and
internationally.
The Vanguard class replacement, Successor future submarine
programme, continues to present opportunities. Through the
Technology business we are progressing activities to support the
design phase, through-life support planning and the key tactical
weapons launch systems for Successor, which remains on schedule for
Main Gate decision by the MoD in 2016. We continue to deliver
weapons handling and launch systems to support the current Astute,
Type 26 and QEC build programmes in the UK, as well as the
submarine builds in Spain and South Korea.
As through-life support partners to the RN, planning work on the
proposed solution for the dismantling of redundant submarines at
our Rosyth and Devonport facilities continues to make good
progress, with preparatory work starting for the demonstration
pilot vessel at Rosyth.
The first of the offshore patrol vessels being built by our
Appledore facility for the Irish Naval Service was commissioned
into service in May 2014 and the second vessel is currently
undergoing sea trials . These successes led to the customer
exercising an option for a third ship, which is currently under
construction and due for delivery by July 2016.
Our contracts to support the Australian, New Zealand and
Canadian navies are all performing well, achieving excellent KPI
performance and delivering improved availability and efficiencies
for our customers. In Canada, under the Victoria class in service
support contract, which is set to run until 2024, HMCS Chicoutimi
has returned to the Royal Canadian Navy after an extended docking
work period and we are now working on the refit of HMCS Corner
Brook. We have delivered the refit contract for the Canadian
Coastguard ship, Louis St Laurent, on time and budget with our
partners Chantier Davie Canada and are now working on the medium
ice-breaker CCGS Des Groseilliers. We also continue to track future
naval support and commercial opportunities in the liquefied natural
gas market.
In Australia, we have consolidated our relationship with the
Royal Australian Navy where we are successfully delivering
in-service engineering support to the Collins class submarines and
the ANZAC class frigates. We have recently established a teaming
arrangement with Austal Ships to bid for the Pacific Patrol Boat
programme. In New Zealand, we started a new contract on 1 March
2015, with the New Zealand Defence Force which extends our previous
dockyard contract for a further five years, with an option to
extend for an additional two years. The new contract is worth
approximately NZ$300 million and provides an opportunity for us to
broaden our responsibilities. We expect this to also generate
further naval support opportunities.
Through our investments in equipment management operations and
technology, we have been successful in securing initial maritime
equipment management contracts under the MoD's Maritime Equipment
Transformation programme and similar programmes, in support of a
range of UK defence assets, totalling over GBP100 million. These
programmes are at an early stage and we are very pleased with
progress to date, further opportunities of over GBP300 million are
in bidding and tracking phases.
Our independent technology consultancy businesses continue to
deliver growth. ContextIS has been successfully integrated into the
division whilst retaining its reputation to provide independent
impartial advice. We continue to develop our consultancy businesses
to support growth in the UK and overseas, particularly in response
to the developing cyber-threat environment, but also by using our
information management and data analytics capabilities to enable
our clients to deliver higher availability from their assets.
In the past 12 months, we have continued to develop our presence
in the oil and gas market. The former LGE business is making good
progress on a number of liquid gas system projects having won
orders worth GBP320 million since acquisition. We are nearing
completion of the BP Quad 204 programme, manufacturing and
delivering 73 subsea modules and also completed work on the Total
Ellon Grant project. Additionally, we have successfully delivered
an integrated 'walk to work' solution for Total which allowed
18,000 safe, personnel transfers to the West Franklin and Elgin B
platforms.
Divisional outlook
In the UK our long-term relationship with the RN and MoD as
their trusted naval support partner continues to provide us with
excellent long-term visibility of revenue. We believe our
unrivalled technical expertise and ToBA provide us with an
excellent platform to work with the RN to maximise the availability
of their assets and safely reduce cost. We continue to develop our
integrated engineering expertise into the commercial marine market
both in the UK and overseas. We believe the outlook for the Marine
and Technology division remains positive as we continue to track
significant future opportunities to support long-term growth both
in the UK and internationally.
Defence and Security
31 March 31 March Change
2015 2014 + /-
----------------- ------ --------- --------- ------
GBP710.6 GBP736.8
Revenue group m m - 4%
GBP102.2 GBP115.8
jv m m - 12%
------------------------ --------- --------- ------
GBP812.8 GBP852.6
total m m - 5%
------------------------ --------- --------- ------
Operating profit group GBP82.4 m GBP75.4 m + 9%
jv GBP46.3 m GBP43.2 m + 7%
------------------------ --------- --------- ------
GBP128.7 GBP118.6
total m m + 9%
------------------------ --------- --------- ------
Operating margin group 11.6% 10.2%
jv 45.3% 37.3%
------------------------ --------- ---------
total 15.8% 13.9%
------------------------ --------- ---------
Market overview
The UK government's defence transformation programme, known as
Future Force 2020, has achieved many of its original aims through
defence reform. These include the resizing of the armed forces and
delivering a new materiel strategy through competitive outsourcing
programmes. In the 2015/16 financial year, we will see the
formation of a new parliament followed by a Comprehensive Spending
Review and a Strategic Defence and Security Review (SDSR) to make
decisions on the future of the UK's forces and determine further
savings across defence spending.
We expect the MoD will continue to seek to maintain defence
outputs on Future Force 2020 plans without reducing or compromising
its capabilities, whilst delivering of future cost savings. The
increasing focus on output is aligned with our business model and
the strength of our relationship with customers positions us to
provide solutions to this challenge during a period of ongoing
fiscal pressure. We expect future opportunities will arise in
complex engineering support, fleet management and provision of
training across the armed services. We therefore, remain focused on
an estimated addressable market of c GBP4 billion annual spend.
Beyond our domestic market, there is improved visibility of
international defence markets. We have identified a number of
emerging opportunities, particularly in Canada, Australia and
Europe, where Babcock is already established. These countries
display varying degrees of maturity in their outsourcing of defence
support to drive financial and operational efficiencies and
improved availability of assets and, we believe these markets offer
significant potential growth.
Financial review
Revenue for the Defence and Security division, including the
Group's share of jv revenue, reduced, as anticipated, by 5% to
GBP812.8 million (2014: GBP852.6 million). This is a result of the
completion of the East and South West Regional Prime contracts at
the end of January 2015. Other contracts in the division continued
to perform at expected levels.
Despite a reduction in revenue, total operating profit for the
division increased by 9% to GBP128.7 million (2014: GBP118.6
million) benefitting mainly from milestone achievements on the
Future Strategic Tanker Aircraft (FSTA) programme and final
contract adjustments at the end of the Regional Prime contracts. As
a result, operating margins for the division increased to 15.8%
(2014: 13.9%).
Operational review
Our Air business has continued to perform well and deliver a
strong operational performance for the Royal Air Force (RAF) with
all contracts performing in line with our financial expectations as
well as meeting or exceeding contract KPIs. Support to military
flying training has been delivered through the Hawk T1 and T2
support contracts, both of which have been extended. The award of
the Hawk T2 follow-on contract is being negotiated on a sole-source
basis and we anticipate contract award later in 2015. We are also
engaged in the competition for future support to the Hawk T1.
Whilst support to the Hawk aircraft in the UK has been the primary
focus over the past year, we have signed an agreement with BAE
Systems to pursue opportunities jointly to support the Hawk for
overseas military customers and several opportunities are already
being explored. Elsewhere, we remain committed to supporting the
Tucano aircraft and have confirmed our intention to compete for the
next support contract to deliver the service from April 2016.
Both of our Air jvs, Ascent (delivering the UK Military Flying
Training System) and AirTanker (delivering the FSTA programme) have
made significant progress over the last year. Ascent has received
customer approval for the fixed-wing flying programme and contract
award is expected later this year. AirTanker, already established
in the strategic transport role, met its air-to-air refueling
in-service date during 2014 and is now delivering fully on this
important role, including support for the UK and Falkland Quick
Reaction Alert posture, to refuel fast jets, scrambled to protect
UK airspace.
Building on last year's success, when we reported that the Air
business had secured a contract to support Army Air Corps Apache
helicopters, we have now also secured a similar contract to support
Lynx helicopters. The business will build on this capability in
military rotary-wing support through collaboration with MCS in this
sector.
On 19 November 2014, we were announced as the preferred bidder
for the acquisition of the Defence Support Group (DSG), the MoD's
civilian workshops, for a consideration of GBP140 million. These
facilities provide maintenance, repair, overhaul, storage and
spares procurement services to land equipment, ranging from small
arms to main battle tanks, delivered from seven main sites across
the UK. The acquisition of DSG, which employs around 2,000 staff,
completed on 31 March 2015, included a ten year contract for
service provision and transformation, expected to be worth c GBP2
billion, with options to extend the contract for up to five
years.
The Phoenix programme continues to deliver savings to the MoD
through the provision of effective fleet and supply chain
management services for the UK 'white-fleet' of vehicles. Since
contract award in 2011, the programme has been credited by the MoD
as having saved in excess of GBP40 million. Our contract hire team
enjoyed further success in 2014 and 2015, winning additional
competitions to acquire and provide coaches, trailers and other
vehicles with a total contract value of GBP27 million.
Performance of our ALC joint venture with Amey remains strong,
with the C-vehicle contract acknowledged as an effective and
flexible service in the provision and support of the MoD's fleet of
2,000 construction vehicles worldwide. ALC implemented changes
within the contract as part of an MoD Private Finance Incentive
efficiency review, which included the addition of RAF construction
equipment and the adjustment of fleet numbers to meet military
requirements better.
Within our training operations, we have started the
implementation of the Defence College of Technical Training,
Electro-Mechanical Training contract, secured in July 2014. The new
contract, expected to be worth up to GBP180 million over five
years, with two single year extensions realigns Royal Electrical
Mechanical Engineers and Royal Navy (RN) schools under a single
training organisation and includes the relocation of training
activity from Bordon and Arborfield to Lyneham, Wiltshire. Planning
is well advanced for the move to Lyneham to ensure the first
training activities can start there by November 2015. We have also
been advised that the MoD intends to contract the extension to the
Training, Maintenance and Support Services contract at Bovington on
a non-competitive, single source, negotiated process.
At the Royal School of Military Engineering, through our
training business we have continued to operate at the highest
level, with no KPI failures in the financial year and a 100% pass
rate for the training courses we delivered. Additionally, over 50%
of the courses have been transformed, leading to a significant
improvement in output whilst reducing the average course length by
24%. As part of the original contract, we were required to deliver
the major, seven year, build and refurbishment phase of the
construction programme with a total contract value in excess of
GBP260 million. We successfully completed this phase in 2015.
Delivery of training to the Royal Navy via the Fleet Outsourced
Activities Project (FOAP) training programme has entered its third
year. The contract continues to operate below the target cost,
delivering efficiency savings to the MoD via a range of
initiatives. We have continued to seek opportunities in
international markets. Following the successful delivery of the
Hunter Training Project for the Royal Saudi Naval Forces, our
customer BAE Systems has recently announced that it has signed a
follow-on contract and we will deliver further training valued at
GBP37 million over the seven year programme.
In our Infrastructure business, over the past year we have
delivered injected works programmes arising from the Regional Prime
contracts. Through our Single Living Accommodation Modernisation
contract we handed back the 20,000(th) fully compliant, bed space
during the period, including the handover of the largest building
in the entire programme, the 270 bed, Falklands block accommodation
at Nelson barracks, Portsmouth.
During the first half of 2014, we learnt that the Infrastructure
business had been unsuccessful in its bids for the Defence
Infrastructure Organisation's (DIO) Next Generation Estates
contracts (NGEC). Whilst it is disappointing not to play a
significant role in the future management of the MoD's built
infrastructure, we recognise that the changes to the customer
requirements in this market sector mean it is no longer suited to
the Babcock business model and the delivery of complex and critical
support. The failure to secure new business within the NGEC
programme confirmed our evaluation of the sector's development in
recent years, to one of transactional and low margin activity, in
an increasingly competitive environment. We will not be pursuing
any similar activities in this sector in the UK. Operations to
support and manage the British Forces estate in Germany have been
progressing as planned and the contract continues to perform in
line with our expectations.
A priority during the second half of the year was on the
successful demobilisation of the two Regional Prime contracts at
the end of January 2015, ensuring there was no deterioration in
service levels and we achieved an effective handover of operations
and the transfer of around 1,300 employees to the DIO's new
suppliers. Following the termination of the Regional Prime
operations, we have realigned our remaining infrastructure support
activities within the business units best placed to deliver
services to our Air, Land and Sea customers.
During the 2014/15 financial year the division had success
winning new contracts and rebidding existing contracts, whilst
recognising disappointment in not being selected to operate the
Logistics and Commodities Service Transformation programme or the
NGEC programme. The division remains focused on its bidding
activities, with significant attention being placed on securing
contract
extensions during the 2015/16 financial year. The Phoenix II
competition is now in progress and in the Security sector our
current contract is being rebid as three separate service streams
and we are involved in all three competitions. The outcome of the
Phoenix and the Security competitions is anticipated during the
2015/16 financial year. The Defence Fire and Rescue Project moved
into a formal bid process during the second half of the year and we
continue to track opportunities in military training in the UK and
the potential appointment of an Army Training Development Programme
partner to help the Army transform military training and equipment
support to both the regular and reserve forces.
Divisional 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.
This is reflected in our pipeline of major new outsourcing
programmes that are being progressed by the MoD. We are also
looking at long-term opportunities for the division, establishing a
presence in key international markets where, we believe, we can
build on our UK expertise and capabilities.
Support Services
31 March 31 March Change
2015 2014 + /-
----------------- ------ ---------- ---------- ------
GBP937.1 GBP942.0
Revenue group m m - 1%
GBP379.3
jv m GBP98.1 m + 287%
------------------------ ---------- ---------- ------
GBP1,316.4 GBP1,040.1
total m m + 27%
------------------------ ---------- ---------- ------
Operating profit group GBP80.2 m GBP70.1 m + 14%
jv GBP20.7 m GBP15.0 m + 38%
------------------------ ---------- ---------- ------
GBP100.9
total m GBP85.1 m + 19%
------------------------ ---------- ---------- ------
Operating margin group 8.6% 7.4%
jv 5.5% 15.3%
------------------------ ---------- ----------
total 7.7% 8.2%
------------------------ ---------- ----------
Market overview
The markets served by the Support Services division remain
attractive as existing and potential customers seek to reduce their
costs and maximise service levels. With the UK government now in
the fifth year of what is projected to be a ten year fiscal
consolidation period, we expect that demand for public sector
outsourcing will continue into the foreseeable future. The division
is responding to this demand by developing new solutions to
maximise service quality and volumes whilst minimising cost of
service delivery for the customer.
The division continues to pursue outsourcing opportunities in
the nuclear, complex fleet management and training markets and the
scale of the addressable markets open to us remains substantial. We
have sized the addressable market opportunities at GBP14 billion
annual revenue, which includes GBP1.8 billion in the UK civil
nuclear market and GBP3.0 billion in global mining and construction
fleet management.
Both public and private customers are becoming increasingly
accustomed to outsourced solutions and with many services being
delivered through second and third generation contracts. However,
customers continue to market test the services they outsource and
this can result in increased pressure on margins in both contract
delivery and competitive bids. We have responded to this challenge
by seeking to differentiate ourselves from competitors through
innovations in engineering, technology, customer analysis and
information-rich services. This ensures we deliver market-leading
engineering and technical support solutions, at optimal cost in our
markets.
Financial review
The Support Services division has continued to deliver strong
growth in revenue, which increased by 27% to GBP1,316.4 million
(2014: GBP1,040.1 million), of which 23% was organic growth. This
has mainly been a result of growth achieved in Cavendish Nuclear,
particularly from the Magnox decommissioning contract which started
on 1 September 2014, as well as from the Critical Services business
which saw increased activities across all its business streams. The
division also benefited from a full period of results from Conbras
in Brazil as well as growth from the NTI and Skills2Learn
businesses which offset lower volumes in the Network Engineering
business.
Operating profit, including jvs, increased by 19% to GBP100.9
million (2014: GBP85.1 million). Included in these results is
GBP8.5 million profit on disposal of the division's equity holding
in Greenwich Building Schools for the Future jv and a provision of
GBP4.1 million made against overtime holiday pay. As indicated
previously, low margin take at the start of new large, long-term
contracts including Magnox resulted in operating margins being
reduced to 7.7% (2014: 8.2%). For the 2015/16 financial year,
taking into consideration a full year of Magnox and the impact of
the sale of both Greenwich and Lewisham BSF holdings, we expect
margins are likely to be reduced to c 7%.
Operational review
Cavendish Nuclear has continued to strengthen its market
position as the UK's leading supplier to the nuclear industry
during the period. Cavendish Nuclear remains focused on site
operations, maintenance, decommissioning and new build.
Following the formal award of the Magnox and RSRL
decommissioning contract in September 2014, prior detailed planning
and mobilisation activities ensured a smooth and efficient start to
the contract. The Cavendish Fluor Partnership - in which Cavendish
Nuclear is the lead partner - continue to work through the 12 month
consolidation phase, embedding the new contract programme. This
contract continues to demonstrate Cavendish Nuclear's capability as
a trusted partner of the Nuclear Decommissioning Authority (NDA) to
carry out complex decommissioning work across its estate.
At Dounreay, good progress has been made on the programme with
key milestones being achieved on schedule. Additional programme
scope is also being introduced in response to a change in the
national strategy for the consolidation of nuclear materials and as
a result the site closure plan will be extended to 2029. Dounreay
continues to challenge itself against a declared objective to be
recognised as the pre-eminent reference site for decommissioning in
Europe.
At Sellafield, in partnership with Balfour Beatty, we are
constructing a major new decommissioning support facility. Phase 3
of the Silos' Maintenance Facility contract, was awarded in June
2014, worth a total of GBP160 million over a three year period. We
have continued to strengthen our position on the Design Services
Alliance Framework and successfully rebid its Environmental
Laboratories contract worth GBP45 million over the next ten
years.
Cavendish Nuclear signed a 16 year, GBP600 million contract with
EDF in January 2015. The Lifetime Enterprise Agreement means
Cavendish Nuclear will continue to provide fuel route and other
technical services to EDF Energy's seven, advanced gas-cooled
reactor stations and its pressurised water reactor at Sizewell for
the remainder of their operating lives. Cavendish Nuclear continues
to pursue opportunities in the UK nuclear new build sector. It
submitted the bid for delivery of the Balance of Nuclear Island
work at Hinkley Point C and waits to hear the outcome. In the
meantime, we continue to work with EDF to understand the scope of
work to be delivered under this contract.
Cavendish Nuclear delivered a number of projects for Hitachi-GE
Nuclear Energy, in respect of the development of its strategy for
the construction of an advanced boiling water reactor for its
Horizon programme. The business continues to explore options for a
long-term involvement in the project as a delivery partner.
Critical Services has delivered year-on-year revenue growth of
over 10%, excluding the recent acquisition of MacNeillie, and has
met or exceeded operational and availability KPIs across all its
contracts as well as achieving financial efficiencies for its
customers.
Building on existing contracts, the business has continued to
secure new business wins in North America. The Mining and
Construction business has continued to grow over the past twelve
months with the mobilisation of the Lafarge Readymix contract in
Western Canada for 700 assets with a contract value estimated at c
GBP60 million. In addition, the business has also secured a 10 year
contract with Holcim as a new customer in the Eastern United
States. New business has been secured in the UK, with the award and
mobilisation of the Lafarge Tarmac contract, in respect of 700
vehicles over 208 sites across the UK, which is expected to be
worth c GBP8 million per annum.
Contracts for the Metropolitan Police and Highways Agency, as
well as the New Dimensions contract have performed well and,
building on this success, the business is pursuing a number of new
opportunities in this market. The Metropolitan Police Service has
started the process for re-tendering the contract for fleet
maintenance services and our team is fully engaged in this process.
The existing contract is due to end in March 2016.
In January 2015, Critical Services acquired MacNeillie, the
leading specialist vehicle converter. MacNeillie will strengthen
the Critical Services' whole life asset management capability and
we believe this will create opportunities for both Babcock and
MacNeillie's existing customers as well as new customers.
At Heathrow we continue to manage the operations and maintenance
of all the baggage handling equipment across the estate and
successfully deliver maintenance for British Airways' fleet of
ground support equipment. Through an extensive efficiency programme
we are delivering savings to Heathrow Airports Limited, in line
with our contract.
Our Skills and Learning business has seen a year of steady
progress. In the training sector, our contract with Volkswagen Audi
Group to deliver training to its dealer network through its
National Learning Centre has started well. In the emergency
services sector, our contract with the London Fire Brigade (LFB)
continues to perform well. Two new, state-of-the-art, dedicated
training facilities, designed and built by Babcock, have been
opened in Beckton and Park Royal, transforming the quality of
training for London firefighters. Significant progress has also
been made in our programme of course redesign, including the
initial training provided under the Firefighter Development
Programme. With support from the LFB and the Trades Union, this
flagship course has been redesigned to be delivered in ten weeks,
down from the existing 17 weeks, whilst maintaining the quality
output.
To reinforce this long-term relationship the 21 year, contract
to support LFB's fleet of 500 vehicles and 50,000 pieces of
equipment has started well. We are continuing to drive improved
availability of the fleet and extensive redevelopment, and
improvements to the Ruislip technical facility have already begun
to support the delivery of this contract.
We are in the process of retendering our contracts with BMW, to
provide training to its UK dealer network, and with Network Rail,
to deliver their advanced apprenticeship programme.
We have successfully integrated the two acquisitions made in the
Skills and Learning business during the last financial year into
the wider business, both acquisitions are performing ahead of
expectations.
In Oman, NTI is operating at full capacity in Muscat. It started
new contracts with Petroleum Development Oman in February 2015,
worth just under GBP10 million, to provide technical skills
training to young Omanis. We have expanded two training centres to
accommodate the increase in demand. Additional opportunities also
exist in Oman and the wider Gulf Cooperation Council region to
export our UK training capability in the emergency services and
rail sectors.
The Skills2Learn business has also secured new contracts for its
immersive e-learning products with a number of new customers,
including some existing Babcock customers. We have also been able
to provide these services to other Babcock divisions, including the
provision of support to the Defence and Security division with the
redesign of its training programme for the Royal Navy.
During the year, the Rail business has been engaged in
significant demobilisation and mobilisation activities following
the award of framework contracts for conventional plain line track
works in new geographies as well as new electrification framework
programmes. We managed a smooth transition and maintained a high
quality of delivery as work started under the new arrangements. The
ABC jv between Alstom, Babcock and Costain is delivering work
through the two national electrification programmes as well as the
Edinburgh Glasgow Improvement Programme (EGIP). During this year,
the EGIP project moved from design phase to delivery phase. Future
prospects for the electrification market look promising, with
further growth expected.
Our Power business has seen a significant reduction in demand
for refurbishment and new build schemes from National Grid and
lower demand has increased competition in the market impacting
revenue and margins. However, this has largely been offset by
demand from other distribution and transmission network operators
for example SP Energy Network, has
In the Integrated Services business, Conbras, in Brazil, is
performing well with current contracts all performing as expected.
The business has a number of new opportunities that it is currently
pursuing in its existing markets as well as in new sectors. In this
year we started delivering facilities management, baggage and air
bridge maintenance services to Sao Paulo-Guarulhos International
Airport and we believe there will be further opportunities for
expansion in the Brazilian airports market. We have been awarded a
seven-year contract by the London Borough of Richmond upon Thames
to deliver an integrated property and estate management solution
which is expected to be worth c GBP56 million over a seven year
period, with the option to extend for a further three years. The
BBC World Service contract continues to perform well and we have
strengthened our Media Services business with the acquisition of
WRN Broadcast, which provides innovative solutions to deliver
television and radio content to any platform or device anywhere
around the world.
Divisional outlook
The demand for outsourcing within our selected markets remains
high. We believe our track record of delivering complex projects,
the depth of our technical knowledge and our understanding of our
customers' requirements set us apart from others in our sector. We
seek to underpin our position by the continued enhancement of our
technical capabilities and the development of our people. We
therefore remain confident the division is well placed to pursue
the significant opportunities available to it in the UK and
overseas.
International
31 March 31 March Change
2015 2014 + / -
----------------- ------ ---------------- -------- --------- ------
(MCS GBP530.6 GBP805.1 GBP277.6
Revenue group m) m m + 190%
jv (MCS GBP6.3 m) GBP6.3m -
------ ---------------- -------- --------- ------
(MCS GBP536.9 GBP811.4 GBP277.6
total m) m m + 192%
------ ---------------------------------- -------- --------- ------
GBP114.3
Operating profit group (MCS GBP93.2 m) m GBP23.2 m + 393%
jv (MCS GBP2.5 m) GBP2.5 m -
------ ---------------- -------- --------- ------
GBP116.8
total (MCS GBP95.7 m) m GBP23.2 m + 403%
------ ---------------------------------- -------- --------- ------
Operating margin group 14.2% 8.4%
jv 39.7%
------------------------ ---------------- -------- ---------
total (MCS 17.8%) 14.4% 8.4%
------ ---------------------------------- -------- ---------
Market overview
Mission Critical Services (MCS)
The emergency services market, which accounts for over two
thirds of the MCS business and delivers vital and politically
sensitive services, remains attractive and continues to create
opportunities. The market is increasingly supported by positive
trends in the macro-economic situation affecting our Southern
European customers in particular. We see the possibility of further
outsourcing in this sector, particularly in the provision of search
and rescue services, which are currently performed by the military
in many countries. We continue to see opportunities from future
military outsourcing in the maintenance, repair and overhaul (MRO)
market, particularly in France where we currently operate a joint
venture with Défense Conseil International to provide the purchase,
upgrade and full maintenance service of 36 helicopters for the
French Army.
The majority of MCS' oil and gas business, which accounts for
less than a third of total MCS revenue, is experiencing only
limited impact from the fall in the oil price, with some delays to
the award of contracts for new projects and to exploration
activity. However, in MCS' markets in the UK North Sea and
Australia where activities support existing production facilities,
there has been no significant change to the long-term contract
structures.
South Africa
In 2014/15, the South African economy experienced ongoing
weaknesses in the Rand and inflation has led to subdued consumer
spending and GDP growth dropped from 2.5% to 2.1% impacted by low
global commodity prices and a lack of consistent power supplies.
Extended strikes in the mining sector and the slowdown in Asian
economies, particularly in China, have affected coal, copper,
platinum and iron ore prices, all traditionally South African
export products, and consequently have reduced mining activity.
However, despite these headwinds, our core markets and activities
supporting power generation, distributing Volvo and DAF equipment
and providing plant hire have seen good growth in Rand terms.
As the aging Eskom power stations struggle to meet demand there
have been staged power outages to protect the grid which has led to
an increased demand for generation support, breakdown and
preventative maintenance as well as life extension programmes. Over
the next five years we expect opportunities to arise as new power
stations are commissioned from 2020.
Although the new construction equipment market has remained
flat, equipment owners have sought efficiencies by extending the
life of their equipment fleets and demand for parts and service has
increased. The market for specialist production machines has also
increased. In the near-term, we expect demand for new equipment and
for plant hire to increase based on indications from the South
African Finance Minister that the planned infrastructure spend
programme will progress in 2015.
Financial review
The significant growth in revenue, operating profit and margin
for the International division as a whole, has come from the
inclusion of the Mission Critical Services (MCS) business unit
(formerly Avincis) acquired on 16 May 2014. The International
division reported total revenue of GBP811.4 million (2014: GBP277.6
million) and total operating profit of GBP116.8 million (2014:
GBP23.2 million), which resulted in an operating margin of
14.4%.
Within the total divisional results, MCS reported revenue of
GBP536.9 million for the period since acquisition, achieving our
expectation of 22% growth on a full year pro forma basis. This was
driven by new emergency medical services (EMS) contracts in France,
growth from renewal of EMS contracts in Italy and new firefighting
contracts with both the Spanish and Portuguese governments and the
acquisition of Scandinavian AirAmbulance (SAA) that was completed
on 30 June 2014.
The Oil and Gas businesses achieved good growth from contracts
awarded in the previous financial year which started operating
during this year in Australia and in the UK North Sea.
MCS operating profit was GBP95.7 million which resulted in an
operating margin of 17.8%. As MCS benefits further from being part
of Babcock, for example by being able to access improved operating
lease terms and increased procurement savings, we expect to achieve
further improvements in operating margin.
The South African operations have made further good progress
achieving a 10.5% increase in local currency although results in
Sterling remained flat on last year at GBP274.5 million (2014:
GBP277.6). Growth in the business was driven by strong equipment
sales as well as an increase in parts and servicing and strong
demand for the Powerlines business, which offset stable power
generation activities and reduced demand for crane hire during the
first half.
Operating profit in South Africa increased by 15% in local
currency and by 3% in Sterling terms to GBP24.7 million (2014:
GBP23.9 million), which resulted in an operating margin of 9%
(2014: 8.6%), the increase being driven by the growth in Powerlines
activities and set up costs for new businesses outside of South
Africa in the previous year.
Operational review
Mission Critical Services (MCS)
Since acquisition, MCS has continued to make good progress as
part of Babcock, with all contracts meeting or exceeding our
customers' requirements.
Over the last financial year, MCS has maintained a high total
contract win rate of over 70% and over 90% for renewals. 36
contracts and extensions have been won over the past 12months with
a total value of around GBP550 million.
In the Emergency Medical Services business, Australian
Helicopters is mobilising for the start of a new ten year contract
to provide air ambulance services, awarded by the Victoria
government and Ambulance Victoria. The agreement sees the supply of
six new, twin-engine helicopters and includes a dedicated back-up
aircraft to maintain services when heavy aircraft maintenance is
required. The new helicopters will be operational from January 2016
and will be located at bases in Essendon, Warrnambool, the Latrobe
Valley and Bendigo. We currently operate two helicopters for
Ambulance Victoria and have supplied the service for the past six
years. During the year, we learnt that we had been unsuccessful in
our bid to deliver helicopter emergency medical services (HEMS) for
the New South Wales Health Administration Corporation. Despite the
unsuccessful bid for the New South Wales Air Ambulance contract,
the addition of the Ambulance Victoria contract will make us the
largest operator of HEMS in Australia.
We have been awarded a four year contract, with a potential two
year extension, to provide HEMS in Spain's Galicia region,
following a competitive tender. This service has been operated by
Inaer Spain for the Public Foundation of Health Emergencies since
1990.
In France, we have won a number of contracts to provide regional
HEMS, including a six year contract to deliver helicopters for
medical transfer and emergency missions for Nantes, Angers, La
Roche-sur-Yon, Brest and St Brieuc in Western France. The contract
forms part of the French Ministry of Health's new process of
placing regional contracts, which have introduced the requirement
for additional technology, such as mandatory autopilot and night
vision goggles (NVG), where Inaer France is the only French
operator who is certified to use NVG.
In Italy, we were awarded a six year renewal of an existing
contract, to provide HEMS in the Alto Adige region. This contract
utilises new aircraft from Airbus Helicopters operated from bases
in Bolzano and Bressanone. The renewal amalgamates two existing
HEMS contracts in a region where Inaer Italy has provided a
continuous service since 2000. Additionally, we are currently
preferred bidder for an eight year renewal of the contract to
provide HEMS in the Emilia Romagna region, from bases in Bologna,
Pavullo, Parma and Ravenna. This contract combines four existing
contracts in a region where Inaer Italy has delivered HEMS for
around 20 years.
In the UK, through Bond Air Services we continue to operate
services for air ambulance charities, with two seven year contracts
for Thames Valley and Chiltern Air Ambulance, and Hampshire and
Isle of Wight Air Ambulance, announced in September. These
contracts extend existing relationships and enable the charities to
provide a full, round the clock, service.
In the Emergency Services' surveillance business, Bond Air
Services won a two year renewal for the provision of services for
Police Scotland. We also provided an additional helicopter to
support the Commonwealth Games in Glasgow. In Spain, we were
awarded a two year extension from Agencia Estatal De Administracion
Tributaria to provide surveillance for the customs authority
throughout mainland Spain. The Italian firefighting business won a
six year contract for the provision of firefighting services for
the Italian central government with 19 amphibious water-bombers
spread across the country.
In June 2014, the acquisition of Scandinavian Air Ambulance
(SAA) was completed. SAA has 22 aircraft with bases across Sweden
and Finland and is one of Scandinavia's largest air ambulance
companies, delivering primary and secondary emergency medical
services across Sweden and Finland. The business has a strong
management team and integration is progressing well and has
performed in line with our expectations since acquisition. We are
now evaluating further opportunities in Norway and Denmark.
In the Oil and Gas business, we have increased our geographic
footprint with strategic, customer-led entries into new
regions.
In Australia, we have begun to operate services for
ConocoPhillips, in support of its offshore activities. In Spain,
the business was awarded a five year extension to its existing
contract with Enegas in November and in the UK we were awarded a
three year renewal from Eni and Centrica to provide services for
their offshore installations in the southern North Sea, operating
two aircraft from Blackpool, as well as a contract with Maersk and
a new contract to provide oil and gas search and rescue services in
the North Sea. We have also been awarded a three year extension to
our contract to provide crew change services from Sicily for
Edison's offshore operations. Plans are in hand to build on the
existing oil and gas expertise and customer relationships within
the wider Babcock Group.
MCS is already benefiting from its integration into the broader
Babcock Group, with its processes and reporting now aligned and the
Group's expertise helping to roll-out engineering, safety,
procurement and IT systems which will allow the business to drive
efficiency. With significantly greater abilities to lease and
finance aircraft at lower cost, the pipeline of opportunities
remains stable and robust and MCS is utilising Babcock's experience
to optimise bid management systems. The fleet optimisation project
currently being undertaken is designed to capture cost savings
through improved training efficiencies for pilots and engineers and
improved inventory management as well as reduced operational
complexity. For example, our largest operating company in Spain has
26 aircraft types in its current fleet. Our goal is to reduce those
down to 16 aircraft types by the 2019 financial year.
As well as working with the South African business to support
potential opportunities for MCS in Mozambique, MCS continues to
work with other Babcock divisions to help facilitate growth through
existing MCS customer relationships, operational credibility and
administration in the geographies in which it operates. In support
of this we have appointed four local business development directors
in Spain, Italy and France to identify new market
opportunities.
South Africa
During the year there has been strong demand for equipment in
South Africa and Mozambique despite the impact of mining strikes
and low global commodity prices. We have experienced increasing
demand for the Volvo Chinese value brand products which were
introduced last year and growth has been supported by further
penetration into the neighbouring markets of Zambia, Namibia,
Mozambique and Botswana. During the year our share of the
construction equipment market increased to just under 10% and we
are now the largest provider of Chinese construction equipment in
the region.
Sales of DAF trucks have improved through our dealerships across
South Africa and we continue to develop relationships with fleet
operators to support further growth. After a lengthy absence from
the South African market, the brand is gaining renewed traction and
market share has grown from 1% to 3%. This has been helped by the
establishment of our own finance company which is able to obtain
external bank finance and offer finance leases to our DAF
customers.
Growth in the Rentals business has been steady, although demand
for cranes was held back slightly by delays in maintenance
activities by one of our major private energy customers. As wage
settlements were finalised, strikes have ended and demand for
cranes has increased.
During the year, Eskom postponed a number of scheduled outages
in an attempt to balance maintenance activities with the increasing
demand for electricity. We continue to work with Eskom to develop
more efficient working practices for both planned and unscheduled
outages to support the demands on generating capacity. Going
forward, Eskom has announced that maintenance activity will be
increased to improve operating efficiencies on aging plant.
The business continues to pursue opportunities in the new build
power station market, winning a significant order for pipe work on
the new Kusile power station. We anticipate successful completion
of this project will lead to other project opportunities. As
investment into new transmission lines continues, there has been
increasing demand for the Powerlines business, which has been
working at full capacity throughout the year. The business also
continues to bid on new opportunities and, nine bids are currently
under evaluation.
Divisional outlook
We continue to see significant prospects for growth as MCS
progresses bids in the pipeline and opportunities in tracking that
have yet to come to market. We are looking to build on our
long-term relationships with customers, and on our proven expertise
and technology focus to create further opportunities for growth. We
are also developing a number of opportunities in new geographies,
such as Africa and South America.
For the South African business, the primary focus remains the
growth of market share in the commercial transport and construction
equipment market as well as expansion in our export markets.
Continuing strong demand is expected for the Powerlines business
and the power generation support market, including the supply of
portable diesel generation sets. Furthermore, we will be exploring
opportunities in the training sector and aviation support.
Across the International business units, we are making good
progress in a number of areas where we are building on the
financial, operational and bidding expertise of the wider
Group.
Group income statement
2015 2014
----------------------------------------- ---- ---------------- ----------------
Total Total
For the year ended 31 March 2015 Note GBPm GBPm GBPm GBPm
----------------------------------------- ---- ------- ------- ------- -------
Total revenue 4,503.3 3,547.6
Less: joint ventures and associates
revenue 506.7 226.6
------- ------- ------- -------
Group revenue 2 3,996.6 3,321.0
------- -------
Group
------- -------
Operating profit before amortisation
of acquired intangibles and exceptional
items 2 445.9 317.2
Amortisation of acquired intangibles 2, 3 (93.6) (59.2)
Exceptional items 3 - (24.9)
------- -------
Group operating profit 352.3 233.1
Joint ventures and associates
------- -------
Share of operating profit 35.2 21.9
Investment income 36.2 37.3
Amortisation of acquired intangibles 3 (6.0) (6.2)
Finance costs (31.0) (25.1)
Income tax expense (5.0) (7.0)
------- -------
Share of results of joint ventures
and associates 29.4 20.9
Group and joint ventures and associates
------- -------
Operating profit before amortisation
of acquired intangibles and exceptional
items 481.1 339.1
Investment income 37.6 38.8
------- -------
Underlying operating profit* 2 518.7 377.9
Amortisation of acquired intangibles (99.6) (65.4)
Exceptional items - (24.9)
Group investment income (1.4) (1.5)
Joint ventures and associates finance
costs (31.0) (25.1)
Joint ventures and associates income
tax expense (5.0) (7.0)
------- ------- ------- -------
Group operating profit plus share
of joint ventures and associates 381.7 254.0
Finance costs
------- -------
Investment income 1.4 1.5
Retirement benefit interest (11.0) (10.9)
Finance costs (70.4) (35.2)
Finance income 11.4 9.4
------- -------
(68.6) (35.2)
------- -------
Profit before tax 2 313.1 218.8
Income tax expense 4 (46.7) (30.8)
------- -------
Profit for the year 266.4 188.0
----------------------------------------- ---- ------- ------- ------- -------
Attributable to:
Owners of the parent 260.2 180.5
Non-controlling interest 6.2 7.5
----------------------------------------- ---- ------- ------- ------- -------
266.4 188.0
----------------------------------------- ---- ------- ------- ------- -------
Earnings per share from continuing
operations 5
Basic 52.9p 44.3p
Diluted 52.6p 43.9p
----------------------------------------- ---- ------- ------- ------- -------
* Including IFRIC 12 investment income but before exceptional
items and amortisation of acquired intangibles.
Group statement of comprehensive income
2015 2014
For the year ended 31 March 2015 GBPm GBPm
------------------------------------------------------- ------ ------
Profit for the year 266.4 188.0
Other comprehensive income
Items that may be subsequently reclassifield to income
statement
Currency translation differences (78.6) (19.5)
Fair value adjustment of interest rate and foreign
exchange hedges (14.7) (2.2)
Tax on fair value adjustment of interest rate and
foreign exchange hedges 2.9 0.5
Fair value adjustment of joint venture and associates
derivatives (41.9) 23.1
Tax on fair value adjustment of joint venture and
associates derivatives 4.5 (5.3)
Items that will not be subsequently reclassified
to income statement
Remeasurement of retirement benefit obligations 66.0 (43.0)
Tax on remeasurement of retirement benefit obligations (13.1) 9.9
Impact of change in UK tax rates - (9.5)
-------------------------------------------------------- ------ ------
Other comprehensive loss, net of tax (74.9) (46.0)
-------------------------------------------------------- ------ ------
Total comprehensive income 191.5 142.0
-------------------------------------------------------- ------ ------
Total comprehensive income attributable to:
Owners of the parent 185.5 137.8
Non-controlling interest 6.0 4.2
-------------------------------------------------------- ------ ------
Total comprehensive income 191.5 142.0
-------------------------------------------------------- ------ ------
Group statement of changes in equity
Owners
of
For the year Share Share Other Capital Retained Hedging Translation the Non-controlling Total
ended capital premium reserve redemption earnings reserve reserve parent interest equity
31 March 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
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/(loss) - - - - 137.9 16.1 (16.2) 137.8 4.2 142.0
Dividends - - - - (96.7) - - (96.7) (4.3) (101.0)
Share-based
payments - - - - 12.2 - - 12.2 - 12.2
Tax on
shared-based
payments - - - - 3.3 - - 3.3 - 3.3
Own shares and
other - - - - 0.7 - - 0.7 - 0.7
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Net movement in
equity - - - - 57.4 16.1 (16.2) 57.3 (0.1) 57.2
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 31 March 2014 217.2 873.0 - 30.6 (53.3) (42.4) (20.7) 1,004.4 21.7 1,026.1
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 1 April 2014 217.2 873.0 - 30.6 (53.3) (42.4) (20.7) 1,004.4 21.7 1,026.1
Total
comprehensive
income/(loss) - - - - 313.0 (49.2) (78.3) 185.5 6.0 191.5
Shares issued in
year 84.1 - 993.3 - - - - 1,077.4 - 1,077.4
Dividends - - - - (109.8) - - (109.8) (7.2) (117.0)
Share-based
payments - - - - 15.4 - - 15.4 - 15.4
Tax on
shared-based
payments - - - - 5.2 - - 5.2 - 5.2
Other reserves
released - - (142.0) - 142.0 - - - - -
Acquisition of
non-controlling
interest - - - - - - - - (0.4) (0.4)
Transaction with
non-controlling
interest - - - - 5.5 - - 5.5 (2.1) 3.4
Own shares and
other - - - (3.5) - - (3.5) - (3.5)
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Net movement in
equity 84.1 - 851.3 - 367.8 (49.2) (78.3) 1,175.7 (3.7) 1,172.0
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 31 March 2015 301.3 873.0 851.3 30.6 314.5 (91.6) (99.0) 2,180.1 18.0 2,198.1
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Group balance sheet
2015 2014
As at 31 March 2015 Note GBPm GBPm
-------------------------------------------- ---- ------- -------
Assets
Non-current assets
Goodwill 2,506.0 1,609.6
Other intangible assets 745.9 275.8
Property, plant and equipment 878.0 252.1
Investment in joint ventures and associates 7 36.3 52.3
Loan to joint ventures and associates 7 38.6 50.6
Retirement benefits 12 45.6 15.2
Trade and other receivables 27.1 1.2
IFRIC 12 financial assets 19.2 20.5
Other financial assets 8 61.8 -
Deferred tax asset 132.2 46.6
-------------------------------------------- ---- ------- -------
4,490.7 2,323.9
-------------------------------------------- ---- ------- -------
Current assets
Inventories 155.4 105.9
Trade and other receivables 743.6 577.5
Income tax recoverable 24.7 28.0
Other financial assets 8 12.3 9.6
Cash and cash equivalents 11 130.6 86.3
-------------------------------------------- ---- ------- -------
1,066.6 807.3
-------------------------------------------- ---- ------- -------
Total assets 5,557.3 3,131.2
-------------------------------------------- ---- ------- -------
Equity and liabilities
Equity attributable to owners of the parent
Share capital 301.3 217.2
Share premium 873.0 873.0
Capital redemption and other reserves 691.3 (32.5)
Retained earnings 314.5 (53.3)
-------------------------------------------- ---- ------- -------
2,180.1 1,004.4
Non-controlling interest 18.0 21.7
-------------------------------------------- ---- ------- -------
Total equity 2,198.1 1,026.1
-------------------------------------------- ---- ------- -------
Non-current liabilities
Bank and other borrowings 11 1,495.3 649.4
Trade and other payables 6.8 9.2
Deferred tax liabilities 184.6 2.4
Other financial liabilities 7.8 12.3
Retirement liabilities 12 214.4 282.9
Provisions for other liabilities 159.8 95.0
-------------------------------------------- ---- ------- -------
2,068.7 1,051.2
-------------------------------------------- ---- ------- -------
Current liabilities
Bank and other borrowings 11 64.8 17.7
Trade and other payables 1,162.4 974.4
Income tax payable 5.7 -
Other financial liabilities 8 27.9 11.7
Provisions for other liabilities 29.7 50.1
-------------------------------------------- ---- ------- -------
1,290.5 1,053.9
-------------------------------------------- ---- ------- -------
Total liabilities 3,359.2 2,105.1
-------------------------------------------- ---- ------- -------
Total equity and liabilities 5,557.3 3,131.2
-------------------------------------------- ---- ------- -------
Group cash flow statement
2015 2014
For the year ended 31 March 2015 Note GBPm GBPm
------------------------------------------------------------ ---- --------- -------
Cash flows from operating activities
Cash generated from operations 9 426.8 279.5
Income tax paid (46.1) (55.8)
Interest paid (80.7) (36.5)
Interest received 6.9 4.7
------------------------------------------------------------ ---- --------- -------
Net cash flows from operating activities 306.9 191.9
------------------------------------------------------------ ---- --------- -------
Cash flows from investing activities
Disposal of subsidiaries and joint ventures and associates,
net of cash disposed 14 2.1 0.7
Dividends received from joint ventures and associates 19.5 4.8
Proceeds on disposal of property, plant and equipment 77.6 4.2
Proceeds on disposal of intangible assets 0.7 -
Purchases of property, plant and equipment (150.7) (37.4)
Purchases of intangible assets (23.4) (16.1)
Investment in, loans to and interest received from
joint ventures and associates 10.3 5.2
Transactions with non-controlling interest 15 (4.3) -
Acquisition of subsidiaries net of cash acquired 13 (1,039.1) (62.5)
------------------------------------------------------------ ---- --------- -------
Net cash flows from investing activities (1,107.3) (101.1)
------------------------------------------------------------ ---- --------- -------
Cash flows from financing activities
Dividends paid (109.8) (96.7)
Finance lease principal payments (39.7) (3.5)
Bank loans repaid (1,638.7) (1.0)
Loans raised 1,570.3 -
Dividends paid to non-controlling interest (7.2) (4.3)
Net proceeds on issue of shares 1,077.4 -
Movement on own shares (3.5) 0.7
------------------------------------------------------------ ---- --------- -------
Net cash flows from financing activities 848.8 (104.8)
------------------------------------------------------------ ---- --------- -------
Net (decrease)/increase in cash, cash equivalents
and bank overdrafts 48.4 (14.0)
Cash, cash equivalents and bank overdrafts at beginning
of year 71.2 90.6
Effects of exchange rate fluctuations (7.1) (5.4)
------------------------------------------------------------ ---- --------- -------
Cash, cash equivalents and bank overdrafts at end
of year 11 112.5 71.2
------------------------------------------------------------ ---- --------- -------
Notes to the consolidated financial statements
1. Basis of preparation and significant accounting policies
The financial information has been extracted from the Annual
Report, including the audited financial statements for the year
ended 31 March 2015. They should be read in conjunction with the
Annual Report for the year ended 31 March 2014, which has been
prepared in accordance with IFRS's as adopted by the European
Union. The accounting policies used and presentation of these
consolidated financial statements are consistent with those in the
Annual Report for the year ended 31 March 2014, except as noted
below.
Standards, amendments and interpretations effective in 2014 with
minimal or no impact on the Group:
IAS 27 'Consolidated and separate financial statements',
endorsed 1 January 2014;
IAS 28 'Investments in associates and joint ventures', endorsed
1 January 2014;
IFRS 10, 'Consolidated financial statements', endorsed 1 January
2014;
IFRS 11, 'Joint arrangements', endorsed 1 January 2014;
IFRS 12, 'Disclosure of interests in other entities', endorsed 1
January 2014;
IAS 32 (amendment), 'Financial instruments; disclosure -
Offsetting financial assets and liabilities', effective 1 January
2014;
IAS 36 (amendment), 'Impairment of assets' effective 1 January
2014; and
IAS 39 (amendment), 'Financial instruments; Recognition and
measurement', effective 1 January 2014.
2. Segmental information
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
2015 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Total revenue 1,562.5 812.8 1,316.4 811.4 0.2 4,503.3
Less: joint ventures
and associates revenue 18.9 102.2 379.3 6.3 - 506.7
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Group revenue 1,543.6 710.6 937.1 805.1 0.2 3,996.6
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Operating profit*
- Group 172.0 81.7 79.5 114.3 (1.6) 445.9
IFRIC 12 investment
income - Group - 0.7 0.7 - - 1.4
Share of operating
profit - joint ventures
and associates 1.9 17.1 13.7 2.5 - 35.2
Share of IFRIC 12
investment income
- joint ventures
and associates - 29.2 7.0 - - 36.2
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Underlying operating
profit 173.9 128.7 100.9 116.8 (1.6) 518.7
Share of finance
costs - joint ventures
and associates - (23.2) (6.8) (1.0) - (31.0)
Share of tax - joint
ventures and associates (0.6) (1.2) (2.0) (1.2) - (5.0)
Acquired intangible
amortisation - Group (11.1) (9.5) (33.5) (39.5) - (93.6)
Share of acquired
intangible amortisation
-joint ventures and
associates - (5.7) (0.3) - - (6.0)
Net finance costs
- Group - - - - (70.0) (70.0)
Group profit before
tax 162.2 89.1 58.3 75.1 (71.6) 313.1
------------------------- --------------- ------------- --------- ------------- ----------- -----------
* Before amortisation of acquired intangibles and exceptional items.
2. Segmental information (continued)
Defence Total
Marine and Support continuing
and Technology Security Services International Unallocated operations
2014 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------------- --------- --------- ------------- ----------- -----------
Total revenue 1,377.3 852.6 1,040.1 277.6 - 3,547.6
Less: joint ventures
and associates revenue 12.7 115.8 98.1 - - 226.6
------------------------- --------------- --------- --------- ------------- ----------- -----------
Group revenue 1,364.6 736.8 942.0 277.6 - 3,321.0
------------------------- --------------- --------- --------- ------------- ----------- -----------
Operating profit*
- Group 152.9 74.6 69.4 23.2 (2.9) 317.2
IFRIC 12 investment
income - Group - 0.8 0.7 - - 1.5
Share of operating
profit - joint ventures
and associates 1.0 14.4 6.5 - - 21.9
Share of IFRIC 12
investment income
- joint ventures
and associates - 28.8 8.5 - - 37.3
------------------------- --------------- --------- --------- ------------- ----------- -----------
Underlying operating
profit 153.9 118.6 85.1 23.2 (2.9) 377.9
Share of finance
costs - joint ventures
and associates - (16.6) (8.5) - - (25.1)
Share of tax - joint
ventures and associates (0.3) (5.3) (1.4) - - (7.0)
Acquired intangible
amortisation - Group (12.8) (10.5) (35.9) - - (59.2)
Share of acquired
intangible amortisation
- joint ventures
and associates - (5.8) (0.4) - - (6.2)
Net finance costs
- Group - - - - (36.7) (36.7)
Exceptional items
- Group - - - - (24.9) (24.9)
------------------------- --------------- --------- --------- ------------- ----------- -----------
Group profit before
tax 140.8 80.4 38.9 23.2 (64.5) 218.8
------------------------- --------------- --------- --------- ------------- ----------- -----------
* Before amortisation of acquired intangibles and exceptional items
3. Exceptional items and acquired intangible amortisation
Joint ventures and
Group associates Total
------------ -------------------- ------------
2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ----- --------- --------- ----- -----
Continuing operations
Acquisition costs - 24.9 - - - 24.9
Exceptional items - 24.9 - - - 24.9
Acquired intangible amortisation 93.6 59.2 6.0 6.2 99.6 65.4
--------------------------------- ----- ----- --------- --------- ----- -----
Continuing total 93.6 84.1 6.0 6.2 99.6 90.3
--------------------------------- ----- ----- --------- --------- ----- -----
Exceptional items are those items which are exceptional in
nature or size. These include material acquisition costs and
reorganisation costs.
There are no exceptional costs in the year. In 2014 the
acquisition costs relate to the acquisition of Avincis Mission
Critical Services comprising legal and professional fees and stamp
duty.
4. Income tax expense
Taxation in respect of Group profit before tax, acquired
intangible amortisation and exceptional items totalled GBP74.3
million (2014: GBP55.4 million) including the Group's share of JV
income tax of GBP5.0 million (2014: GBP7.0 million). The effective
rate of income tax, which is calculated by reference to the Group's
underlying profit before tax and the associated tax charge
(excluding prior year items) was17.8% (2014: 17.5%).
5. Earnings per share
In order to finance the acquisition of the Avincis Group and to
ensure the Group maintains sufficient financial headroom for growth
opportunities, the Group undertook a rights issue of 139,259,204
new ordinary shares which raised GBP1,076.9 million and was
completed on 7 May 2014. To provide an appropriate comparison,
earnings per share for 2014 has been restated to take into account
the increase in the number of shares and the bonus issue of
shares.
The calculation of the basic and diluted EPS is based on the
following data:
Number of shares
2015 2014
Number Number
------------------------------------------------------------ ----------- -----------
Pre adjustment for rights issue
Weighted average number of ordinary shares for the purpose
of basic EPS 487,123,443 360,262,890
Effect of dilutive potential ordinary shares: share options 2,200,000 3,204,338
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purpose
of diluted EPS 489,323,443 363,467,228
------------------------------------------------------------ ----------- -----------
Adjustment for rights issue
Weighted average number of ordinary shares for the purpose
of basic EPS 4,853,822 47,796,072
Effect of dilutive potential ordinary shares: share options 60,639 425,119
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purpose
of diluted EPS 4,914,461 48,221,191
------------------------------------------------------------ ----------- -----------
Restated for rights issue
Weighted average number of ordinary shares for the purpose
of basic EPS 491,977,265 408,058,962
Effect of dilutive potential ordinary shares: share options 2,260,639 3,629,457
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purpose
of diluted EPS 494,237,904 411,688,419
------------------------------------------------------------ ----------- -----------
Earnings
2014 2014
2015 2015 Basic Diluted
Basic Diluted per per
2015 per per 2014 share share
Earnings share share Earnings (restated) (restated)
GBPm Pence Pence GBPm Pence Pence
------------------------------ --------- ------ -------- --------- ----------- -----------
Continuing operations
Earnings from continuing
operations 260.2 52.9 52.6 180.5 44.3 43.8
Add back:
Amortisation of acquired
intangible assets,
net of tax 76.3 15.5 15.4 50.3 12.3 12.2
Exceptional items,
net of tax - - - 24.9 6.1 6.0
Impact of change
in statutory tax
rates 0.6 0.1 0.1 (2.4) (0.6) (0.6)
------------------------------ --------- ------ -------- --------- ----------- -----------
Earnings before amortisation,
exceptional items
and other 337.1 68.5 68.1 253.3 62.1 61.4
------------------------------ --------- ------ -------- --------- ----------- -----------
6 Dividends
The Directors have proposed a final dividend of 18.1p per 60p
ordinary share (2014: 16.4p per 60p ordinary share) and it will be
paid on 12 August 2015 to shareholders registered on 3 July 2015,
subject to approval at the Annual General Meeting on 30 July 2015.
The full year declared dividend per share is 23.6p per 60p ordinary
share (2014: 21.4p per 60p ordinary share).
7. Investment in and loans to joint ventures and associates
Investment
in joint Loans to
ventures joint ventures
and associates and associates Total
----------------- ----------------- -------------
2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ------ -------- ------- ------ -----
At 1 April 52.3 18.6 50.6 51.1 102.9 69.7
Joint ventures and
associates acquired 8.3 - - - 8.3 -
Disposal of joint
ventures and associates 5.2 - (6.3) - (1.1) -
Loans to/(repayments
from) joint ventures
and associates (0.3) - (7.1) (1.5) (7.4) (1.5)
Investment in joint
ventures and associates - (0.1) - - - (0.1)
Share of profits 29.4 20.9 - - 29.4 20.9
Interest accrued - - 4.4 4.6 4.4 4.6
Interest received - - (3.0) (3.6) (3.0) (3.6)
Dividend received (19.5) (4.8) - - (19.5) (4.8)
Fair value adjustment
of derivatives (42.6) 23.1 - - (42.6) 23.1
Tax on fair value
adjustment of derivatives 4.5 (5.3) - - 4.5 (5.3)
Foreign exchange (1.0) (0.1) - - (1.0) (0.1)
--------------------------- --------- ------ -------- ------- ------ -----
At 31 March 36.3 52.3 38.6 50.6 74.9 102.9
--------------------------- --------- ------ -------- ------- ------ -----
8. Other financial assets and liabilities
Fair value
---------------------------------- ---------------------------
Assets Liabilities
------------ -------------
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
---------------------------------- ----- ----- ------ -----
Non-current
US private placement - currency
and interest rate swaps 52.2 - - 3.5
Non-controlling interest put
option - - 7.8 8.8
---------------------------------- ----- ----- ------ -----
Financial instruments 52.2 - 7.8 12.3
Finance leases granted 9.6 - - -
---------------------------------- ----- ----- ------ -----
Total non-current other financial
assets and liabilities 61.8 - 7.8 12.3
---------------------------------- ----- ----- ------ -----
Current
Interest rate hedges - - - 6.7
Other currency hedges 8.8 9.6 27.9 5.0
---------------------------------- ----- ----- ------ -----
Financial instruments 8.8 9.6 27.9 11.7
Finance leases granted 3.5 - - -
---------------------------------- ----- ----- ------ -----
Total current other financial
assets and liabilities 12.3 9.6 27.9 11.7
---------------------------------- ----- ----- ------ -----
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, excluding the
non-controlling interest put option, are based on valuation
techniques (level 2).
The fair value of the non-controlling interest put option is
based on valuation techniques (level 3).
In South Africa the Group operates its own finance company to
facilitate the sale of DAF vehicles. It obtains external borrowings
and sells vehicles on finance leases to external customers. At the
year end the present value of the minimum lease receivable amounted
to GBP13.1 million, these were split as GBP3.5 million due within
one year and GBP9.6 million between one and five years.
9. Reconciliation of operating profit to cash generated from
operations
2015 2014
GBPm GBPm
------------------------------------------------------------ ------ ------
Cash flows from operating activities
Operating profit before amortisation of acquired intangible
and exceptional items 445.9 317.2
Amortisation of acquired intangible and exceptional items (93.6) (84.1)
------------------------------------------------------------ ------ ------
Group operating profit 352.3 233.1
Depreciation of property, plant and equipment 71.0 40.0
Amortisation of intangible assets 101.1 66.7
Investment income 1.4 1.5
Equity share-based payments 15.4 12.2
Profit on disposal of joint ventures and associates (8.5) -
Loss/(profit) on disposal of property, plant and equipment (0.1) 0.3
Operating cash flows before movement in working capital 532.6 353.8
Decrease/(increase) in inventories 2.4 (43.7)
Increase in receivables (29.5) (67.6)
Increase in payables 3.7 91.3
Decrease in provisions (14.3) (31.3)
Exceptional items - acquisition costs (24.2) 24.2
Retirement benefit payments in excess of income statement (43.9) (47.2)
------------------------------------------------------------ ------ ------
Cash generated from operations 426.8 279.5
------------------------------------------------------------ ------ ------
10. Movement in net debt
2015 2014
GBPm GBPm
-------------------------------------------------------- --------- -------
Increase/(decrease) in cash in the year 48.4 (14.0)
Cash flow from the decrease in debt and lease financing 92.4 4.5
-------------------------------------------------------- --------- -------
Change in net funds resulting from cash flows 140.8 (9.5)
Loans and finance leases acquired with subsidiaries (978.1) (1.3)
New finance leases - received (39.2) (19.0)
New finance leases - granted 15.7 -
Movement in joint venture and associates loans (12.0) (0.5)
Foreign currency translation differences and other 80.9 (3.9)
-------------------------------------------------------- --------- -------
Movement in net debt in the year (791.9) (34.2)
Net debt at the beginning of the year (533.7) (499.5)
-------------------------------------------------------- --------- -------
Net debt at the end of the year (1,325.6) (533.7)
-------------------------------------------------------- --------- -------
11. Changes in net debt
Exchange/
31 March Acquisitions New finance other 31 March
2014 Cash flow and disposals leases movement 2015
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- --------- -------------- ----------- --------- ---------
Cash and bank balances 86.3 (40.0) 91.8 - (7.5) 130.6
Bank overdrafts (15.1) (3.4) - - 0.4 (18.1)
----------------------- -------- --------- -------------- ----------- --------- ---------
Cash, cash equivalents
and bank overdrafts 71.2 (43.4) 91.8 - (7.1) 112.5
----------------------- -------- --------- -------------- ----------- --------- ---------
Debt (633.2) 55.3 (832.0) - 15.9 (1,394.0)
Finance leases
- received (18.8) 39.7 (146.1) (39.2) 16.4 (148.0)
Finance leases
- granted - (2.6) - 15.7 - 13.1
----------------------- -------- --------- -------------- ----------- --------- ---------
(652.0) 92.4 (978.1) (23.5) 32.3 (1,528.9)
----------------------- -------- --------- -------------- ----------- --------- ---------
Net debt before
derivatives and
joint venture and
associate loans (580.8) 49.0 (886.3) (23.5) 25.2 (1,416.4)
----------------------- -------- --------- -------------- ----------- --------- ---------
Net debt derivative (3.5) - - - 55.7 52.2
Joint venture and
associate loans 50.6 (12.0) - - - 38.6
----------------------- -------- --------- -------------- ----------- --------- ---------
Net debt (533.7) 37.0 (886.3) (23.5) 80.9 (1,325.6)
----------------------- -------- --------- -------------- ----------- --------- ---------
12. Retirement benefits and liabilities
Analysis of movement in the Group balance sheet
2015 2014
------- -------
Total Total
GBPm GBPm
----------------------------------------- ------- -------
Fair value of plan assets (including
reimbursement rights)
At 1 April 3,220.1 3,204.8
(Settlements)/transfers in - (3.3)
Interest on assets 139.1 135.5
Interest on reimbursement rights (4.5) (4.4)
Actuarial gain/(loss) on assets 682.7 (79.1)
Actuarial (gain)/loss on reimbursement
rights - demographics (4.2) 18.6
Actuarial (gain)/loss on reimbursement
rights - financial (28.7) 4.2
Experience gains/(loss) on reimbursement
rights (6.0) (19.2)
Employer contributions 88.0 96.8
Employee contributions 5.0 5.4
Benefits paid (153.5) (139.2)
At 31 March 3,938.0 3,220.1
----------------------------------------- ------- -------
Present value of benefit obligations
At 1 April 3,487.7 3,465.8
(Settlements)/ transfers in - (3.3)
Service cost 40.3 44.0
Incurred expenses 3.6 5.3
Interest cost 145.4 142.2
Employee contributions 5.0 5.4
Experience (gain)/losses 20.4 35.8
Actuarial (gain)/loss - demographics (6.4) 35.7
Actuarial (gain)/loss - financial 564.1 (104.0)
Benefits paid (153.5) (139.2)
At 31 March 4,106.6 3,487.7
Present value of unfunded obligations (0.2) (0.1)
----------------------------------------- ------- -------
Net deficit at 31 March (168.8) (267.7)
----------------------------------------- ------- -------
The amounts recognised in the Group income statement are as
follows:
2015 2014
--------------------------------------- ----- -----
Total Total
GBPm GBPm
--------------------------------------- ----- -----
Current service cost 40.3 44.0
Incurred expenses 3.6 5.3
--------------------------------------- ----- -----
Total included within operating profit 43.9 49.3
Net interest cost 11.0 10.9
--------------------------------------- ----- -----
Total included within income statement 54.9 60.2
--------------------------------------- ----- -----
As at 31 March 2015 the key assumptions used in valuing pension
liabilities were:
Discount rate 3.4% (31 March 2014: 4.5%)
Inflation rate
(RPI) 2.9% (31 March 2014: 3.3%)
13 (a). Acquisitions - current year
On 16 May 2014 the Group acquired Avincis Mission Critical
Services Topco Limited ("Avincis") for GBP899.5 million (EUR1,088.5
million). The Group also assumed the Avincis debt of GBP859.7
million (EUR1,036.6 million). Avincis is a leading provider of
helicopter and fixed wing services in mission critical operations
such as medical, search and rescue, firefighting and civil
protection in Europe and a leading supplier of critical offshore
crew-change helicopter services to the oil and gas industry in the
UK sector of the North Sea.
On 29 June 2014 the Group acquired 84.6% of Scandinavian
AirAmbulance AB ("SAA") for GBP25.3 million (SEK290.3 million)
including deferred consideration of GBP7.3 million (SEK 84.2
million). The Group also assumed SAA debt of GBP40.8 million. This
company provides helicopter services in medical mission critical
services in Sweden and Finland.
On 2 February 2015 the Group acquired 100% of S MacNeillie and
Sons Limited ("MacNeillie") for GBP65.0 million plus deferred
consideration of GBP1.3 million relating to working capital
adjustments. MacNeillie is a specialist vehicle converter and will
strengthen Babcock's whole life asset management capability.
On 9 February 2015 the Group acquires 100% of WRN Broadcast
Limited ("WRN") for GBP11.5 million including deferred
consideration of GBP7.5 million. The Group also assumed debt of
GBP1.6 million. WRN offers innovative broadcast solutions that
deliver television and radio content to any platform or device
anywhere around the world.
On 31 March 2015 the Group acquired the Defence Support Group
("DSG") for GBP140 million. DSG was the MoD agency responsible for
storage, maintenance, repair and overhaul of military vehicles and
equipment.
The goodwill arising on the acquisition derives from the market
position of the entities involved and the value of the workforce
acquired.
Details of the provisional fair value of assets acquired and the
provisional goodwill are as follows:
Avincis SAA WRN MacNeillie DSG Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ----- ----- ---------- ----- -------
Cost of acquisition
Cash paid 899.5 18.0 4.0 65.0 140.0 1,126.5
Deferred consideration - 7.3 7.5 1.3 - 16.1
------------------------------ ------- ----- ----- ---------- ----- -------
Purchase consideration 899.5 25.3 11.5 66.3 140.0 1,142.6
Fair value of assets acquired
(see below) (5.2) (2.5) 2.1 34.2 140.0 168.6
------------------------------ ------- ----- ----- ---------- ----- -------
Goodwill 904.7 27.8 9.4 32.1 - 974.0
------------------------------ ------- ----- ----- ---------- ----- -------
Net assets and liabilities arising from the acquisition are as
follows:
Avincis SAA WRN MacNeillie DSG Total
----------- ----------- ----------- ----------- ----------- -----------
Provisional Provisional Provisional Provisional Provisional Provisional
fair fair fair fair fair fair
value value value value value value
acquired acquired acquired acquired acquired acquired
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Acquired intangibles* 413.5 15.5 2.9 15.3 130.6 577.8
Other intangible assets 4.9 - - - - 4.9
Property plant and
equipment 574.2 41.4 3.4 3.2 2.5 624.7
Investments 8.3 - - - - 8.3
Deferred tax (65.8) (1.4) (0.4) (3.1) (26.1) (96.8)
Income tax (8.8) 0.7 0.1 0.5 - (7.5)
Cash, cash equivalents
and bank overdraft 67.0 9.0 0.1 15.7 - 91.8
Bank Loan (808.1) (23.9) - - - (832.0)
Finance leases (118.6) (25.9) (1.6) - - (146.1)
Inventory 20.0 0.1 - 10.2 25.8 56.1
Current assets 138.9 5.9 1.9 6.4 24.8 177.9
Current and non-current
liabilities (162.3) (23.0) (3.5) (13.8) (17.6) (220.2)
Provisions (68.4) (1.3) (0.8) (0.2) - (70.7)
Non-controlling interest - 0.4 - - - 0.4
-------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets acquired (5.2) (2.5) 2.1 34.2 140.0 168.6
-------------------------- ----------- ----------- ----------- ----------- ----------- -----------
* Acquired intangibles are: customer relationships, both
contracted and non-contracted plus brand valuations.
Cash outflow to acquire businesses net of cash acquired:
Avincis SAA WRN MacNeillie DSG Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------- ----- ----- ---------- ----- ----- -------
Purchase consideration
paid in cash 899.5 18.0 4.0 65.0 140.0 - 1,126.5
Deferred consideration
paid in cash - - - - - 4.4 4.4
Cash, cash equivalents
and bank overdrafts (67.0) (9.0) (0.1) (15.7) - - (91.8)
----------------------- ------- ----- ----- ---------- ----- ----- -------
Cash outflow/(inflow)
in period 832.5 9.0 3.9 49.3 140.0 4.4 1,039.1
----------------------- ------- ----- ----- ---------- ----- ----- -------
13 (a). Acquisitions - current year (continued)
The revenue and operating profit of acquired businesses since
the date of acquisition and as if they had been acquired on 1 April
2014 are:
Avincis SAA
------------------------- -------------------------
Since Since
date For full date For full
of acquisition year of acquisition year
GBPm GBPm GBPm GBPm
------------------------------- --------------- -------- --------------- --------
Group revenue 497.4 538.8 33.2 45.8
Total revenue (including share
of joint ventures) 503.7 545.8 33.2 45.8
Group operating profit 50.9 50.7 4.0 5.9
Underlying operating profit 90.7 90.8 5.0 7.0
--------------------------------- --------------- -------- --------------- --------
WRN MacNeillie DSG
------------------------- ------------------------- -------------------------
Since Since Since
date For full date For full date For full
of acquisition year of acquisition year of acquisition year
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------------- -------- --------------- -------- --------------- --------
Group revenue 1.9 11.0 7.6 34.0 - 150.5
Total revenue (including share
of joint ventures) 1.9 11.0 7.6 34.0 - 150.5
Group operating profit (0.1) (0.7) 0.5 4.1 - 12.5
Underlying operating profit - (0.6) 0.7 4.3 - 12.5
------------------------------- --------------- -------- --------------- -------- --------------- --------
13 (b). Acquisitions - prior year
On 23 July 2013 the Group acquired Conbras Engenharia Ltda
(Conbras), 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 based on an earn out
payable to non-employees based on financial performance. The full
deferred consideration was paid subsequent to the year end. Conbras
operates in the facilities management sector, serving private and
public customers across Brazil.
On 16 December 2013 the Group acquired Context Information
Services Limited (Context) for a consideration of GBP33.0 million
including GBP4 million of deferred consideration which is payable
over 3 years. Context provides specialist technical consultancy
services in the cyber security market, with offices in London,
Germany and Australia.
On 10 December 2013 the Group acquired Skills2Learn Limited for
a consideration of GBP7.3 million including GBP1.5 million deferred
consideration which is payable over 3 years. Skills2Learn is one of
the UK's premier developers of interactive digital learning and
virtual reality simulation solutions. The deferred consideration
relates to warranty provisions.
On 29 January the Group acquired National Training Institute
LLC, (NTI) for a consideration of GBP12.3 million. NTI is an Oman
based technical training specialist providing high quality training
solutions to the energy, oil and gas, and construction sectors in
Oman.
The goodwill arising on the acquisition derives from the market
position of the entities involved and the value of the workforce
acquired.
Details of the provisional fair value of assets acquired and the
provisional goodwill are as follows:
Conbras Context Other Total
GBPm GBPm GBPm GBPm
------------------------------------------ ------- ------- ----- -----
Cost of acquisition
Cash paid 18.2 29.0 18.7 65.9
Deemed consideration 4.4 4.0 1.5 9.9
------------------------------------------ ------- ------- ----- -----
Purchase consideration 22.6 33.0 20.2 75.8
Fair value of assets acquired (see below) 6.5 12.3 6.6 25.4
------------------------------------------ ------- ------- ----- -----
Goodwill 16.1 20.7 13.6 50.4
------------------------------------------ ------- ------- ----- -----
Net assets and liabilities arising from the acquisition are as
follows:
Conbras Context Other Total
---------- ---------- ---------- ----------
Fair value Fair value Fair value Fair value
acquired acquired acquired acquired
GBPm GBPm GBPm GBPm
------------------------------------ ---------- ---------- ---------- ----------
Acquired intangibles* 9.3 13.5 5.5 28.3
Other intangible assets - 0.2 - 0.2
Property plant and equipment 0.3 0.4 1.2 1.9
Deferred tax (2.7) (3.1) (0.7) (6.5)
Income tax 0.2 (0.1) (0.2) (0.1)
Cash, cash equivalents and
bank overdraft 1.3 0.7 1.4 3.4
Bank loans (1.3) - - (1.3)
Current assets 8.9 2.9 3.8 15.6
Current and non-current liabilities (6.8) (2.0) (2.0) (10.8)
Provisions (2.7) (0.2) (2.4) (5.3)
------------------------------------ ---------- ---------- ---------- ----------
Net assets acquired 6.5 12.3 6.6 25.4
------------------------------------ ---------- ---------- ---------- ----------
* Acquired intangibles are: customer relationships, both
contracted and non-contracted.
Cash outflow to acquire businesses net of cash acquired:
Conbras Context Other Total
GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------- ----- -----
Purchase consideration paid in cash 18.2 29.0 18.7 65.9
Cash, cash equivalents and bank overdrafts (1.3) (0.7) (1.4) (3.4)
------------------------------------------- ------- ------- ----- -----
Cash outflow/(inflow) in period 16.9 28.3 17.3 62.5
------------------------------------------- ------- ------- ----- -----
13 (b). Acquisitions - prior year (continued)
The revenue and operating profit of acquired businesses since
the date of acquisition and as if they had been acquired on 1 April
2013 are:
Conbras Context Other
---------------------- ---------------------- ----------------------
Since For Since For Since For
date full date full date full
of acquisition year of acquisition year of acquisition year
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------------- ----- --------------- ----- --------------- -----
Revenue 26.1 42.0 3.0 9.9 2.6 13.1
Operating profit 1.5 3.8 0.3 0.5 0.6 2.4
----------------- --------------- ----- --------------- ----- --------------- -----
14. Disposals
In January 2015 the Group disposed of its 50% interest in
Greenwich BSF SPV Limited ("Greenwich") for GBP12 million.
During both the current and the previous years the Group paid
certain accrued costs on previously disposed of businesses. During
the previous period the Group received the deferred consideration
on the disposal of the UKAEA Pension Administration Office.
Details of the final assets disposed of are:
2015 2014
------------------------------- ---------------------------- ----------------------------
Previously Previously
disposed disposed
of UKAEA of
Greenwich business Total Pensions business Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- ---------- ----- --------- ---------- -----
Goodwill 0.4 - 0.4 - - -
Investment in and loans
to joint ventures and
associates 1.1 - 1.1 - - -
Mark to market amortisation
recycled from hedging
reserve 0.7 - 0.7 - - -
------------------------------- --------- ---------- ----- --------- ---------- -----
Net assets disposed 2.2 - 2.2 - - -
Profit on disposal of
joint ventures and associates 8.5 - 8.5 - - -
Disposal costs/deferred
consideration 1.3 - 1.3 4.2 - 4.2
------------------------------- --------- ---------- ----- --------- ---------- -----
Sale proceeds 12.0 - 12.0 4.2 - 4.2
------------------------------- --------- ---------- ----- --------- ---------- -----
Sale proceeds less cash
disposed of 12.0 - 12.0 4.2 - 4.2
Less costs paid in the
year - (9.9) (9.9) - (3.5) (3.5)
------------------------------- --------- ---------- ----- --------- ---------- -----
Net cash inflow/(outflow) 12.0 (9.9) 2.1 4.2 (3.5) 0.7
------------------------------- --------- ---------- ----- --------- ---------- -----
15. Transactions with non-controlling interests
During the year part of the Target Cranes put option was
exercised resulting in the non-controlling interest being reduced
from 35.6% to 28%. In addition part of the put option lapsed on
transfer of the balance to a third party.
There were no transactions with non-controlling interest in the
previous year.
The following were the transactions with non-controlling
interests:
Increase/ Increase/
(decrease) (decrease) Cash
in retained in non-controlling outflow/
earnings interests (inflow)
GBPm GBPm GBPm
---------------------------------------- ------------ ------------------- ---------
During the year part of the put
option in Target Cranes was exercised.
As a result 7.6% of shares in target
Cranes were purchased, in cash,
from the non-controlling interest
for GBP4.3 million utilising the
put option valuation with the balance
sheet. This resulted in a transfer
from non-controlling interest of
GBP2.1 million. 2.1 (2.1) 4.3
Following the exercise of part of
the put option the balanced lapsed
and was transferred to reserves.
The put option liability was shown
as non-current Other financial assets
on the balance sheet. 3.4 - -
---------------------------------------- ------------ ------------------- ---------
Transactions with non-controlling
interests - 2015 5.5 (2.1) 4.3
---------------------------------------- ------------ ------------------- ---------
16. Related party transactions
Related party transactions in the year are: sales to joint
ventures and associates of GBP287.2 million (2014: GBP276.1
million) and purchases from joint ventures and associates of GBP1.9
million (2014: GBP0.2 million). The year end receivables balance
was GBP25.9 million (2014: GBP12.2 million) and the payables
balance was GBP3.5 million (2014: GBP0.5 million).
17. Financial information
The financial information in this full year results announcement
does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006.
Statutory accounts for 2014 have been delivered to the Registrar
of Companies and those for 2015 will be delivered following the
Company's Annual General Meeting.
The Annual Report for the year ended 31 March 2015 and this
preliminary statement were approved by the Board on 18 May 2015.
The auditors have reported on the Annual Report for the year ended
31 March 2015 and 31 March 2014 and neither report was qualified
and neither contain a statement under section 498(2) or (3) of the
Companies Act 2006.
Annual General Meeting 2015
This year's Annual General Meeting will be held on 30 July 2015
at 11.00 am. Details of the resolutions to be proposed at that
meeting will be included in the Notice of Annual General Meeting
that will be sent to shareholders in June 2015.
At our Annual General Meeting in 2007 our shareholders
unanimously agreed to proposals to allow us to use electronic
communications with them as allowed for under the Companies Act
2006. For shareholders who agreed, or who are treated as having
agreed, to receive electronic communications, the Company website
is now the main way for them to access shareholder information.
These shareholders will be sent a 'notice of availability'
notifying them when the Annual Report and Accounts is available
(which will be early in June) on the Company website
www.babcockinternational.com. Hard copies of the Annual Report and
Accounts will be distributed to those shareholders who have
requested or subsequently request them. Additional copies will be
available from the Company's registered office 33 Wigmore Street,
London, W1U 1QX.
Forward-looking statements
Certain statements in this announcement are forward-looking
statements. Such statements may relate to Babcock's business,
strategy and plans. Statements that are not historical facts,
including statements about Babcock's or its management's beliefs
and expectations, are forward-looking statements. Words such as
'believe', 'anticipate', 'estimates', 'expects', 'intends', 'aims',
'potential', 'will', 'would', 'could', 'considered', 'likely', and
variations of these words and similar future or conditional
expressions are intended to identify forward-looking statements but
are not the exclusive means of doing so. By their nature,
forward-looking statements involve a number of risks, uncertainties
or assumptions, some known and some unknown, that could cause
actual results or events to differ materially from those expressed
or implied by the forward-looking statements, many of which are
beyond Babcock's control. These risks, uncertainties or assumptions
could adversely affect the outcome and financial effects of the
plans and events described herein. Forward-looking statements
contained in this announcement regarding past trends or activities
should not be taken as a representation that such trends or
activities will continue in the future. Nor are they indicative of
future performance and Babcock's actual results of operations and
financial condition and the development of the industry and markets
in which Babcock operates may differ materially from those made in
or suggested by the forward-looking statements. You should not
place undue reliance on forward-looking statements because such
statements relate to events and depend on circumstances that may or
may not occur in the future. Forward-looking statements reflect
Babcock's judgement at the time of preparation of this announcement
and are not intended to give any assurance as to future results.
Except as required by law, Babcock is under no obligation to update
(and will not) or keep current the forward-looking statements
contained herein or to correct any inaccuracies which may become
apparent in such forward-looking statements.
On behalf of the Board
Peter Rogers
Group Chief Executive
Franco Martinelli
Group Finance Director
18 May 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Babcock (LSE:BAB)
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