TIDMBAB
RNS Number : 0351G
Babcock International Group PLC
24 May 2017
Babcock International Group PLC
full year results for the year ended 31 March 2017
24 May 2017
Visible growth and returns
Statutory March 2017 March 2016 Change
--------------------------------------------- ----------------- ---------------- ---------
Revenue GBP4,547.1m GBP4,158.4m +9.3%
Operating profit GBP359.6m GBP352.5m +2.0%
Profit before tax GBP362.1m GBP330.1m +9.7%
Basic earnings per share 61.8p 57.0p +8.4%
The adjustments described below, collectively, are made to derive the underlying
operating results of the Group. The underlying figures provide a consistent
measure of business performance year-to-year, thereby enabling comparison and
understanding of Group financial performance. *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.
---------------------------------------------------------------------------------------------
Underlying
--------------------------------------------- ----------------- ---------------- ---------
Revenue* GBP5,216.6m GBP4,842.1m +7.7%
Operating profit** GBP574.8m GBP539.7m +6.5%
Profit before tax*** GBP494.8m GBP459.7m +7.6%
Basic earnings per share**** 80.1p 74.2p +8.0%
Net debt GBP1,173.5m GBP1,228.5m -4.5%
Net debt/EBITDA 1.8 x 2.0 x -10.0%
Order book GBP19.0bn GBP20bn -5.0%
Full year dividend 28.15p 25.8p +9.1%
--------------------------------------------- ----------------- ---------------- ---------
Financial highlights
Maintained track record of growth
o 7.7% growth in underlying revenue, 4.9% organic growth at
constant exchange rates
o 6.5% growth in underlying operating profit; 5.3% organic
growth at constant exchange rates
Robust order book and pipeline providing visibility
o GBP19 billion order book and GBP10.5 billion pipeline
o 76% of revenue in place for 2017/18; 52% in place for
2018/19
Focused on cash performance
o Free cash flow up 3.3%
o Cash conversion pre capital expenditure 115%; post capital
expenditure 86%
o Net debt reduced to GBP1,173.5 million (2016: GBP1,228.5
million)
Delivering returns
o 8.0% increase in underlying basic earnings per share to
80.1p
o 9.1% increase in full year dividend
o ROIC post tax improving to 11.9%
Operational highlights
o Realignment of Group around four core sectors: Marine, Land,
Aviation, Cavendish Nuclear
o Award of 11-year FOMEDEC training contract for French Air
Force
o First non-US company to supply critical component for US
nuclear submarine
o Ground support equipment contract for Qantas across
Australia
o Award of GBP360 million technical support contract from QEC
aircraft carriers and Type 45 destroyers
o Additional procurement work at DSG with all contractual
milestones achieved
Archie Bethel, Chief Executive said:
"Babcock continued its strong track record of growth last year.
We increased revenues, profits, earnings per share and cash
conversion, reduced net debt and are again delivering an increased
dividend payment. Our success is powered by Babcock's distinctive
position as an engineering group dedicated to providing critical
services for major public and private sector customers. We are
focused on being the experts in our chosen sectors, with a
combination of deep technical skills, unique infrastructure and
strong long-term relationships which set us apart.
"During the year, we took important steps that further
strengthen our platform for future growth. Internationally, we made
significant breakthroughs in winning business from the French
Ministry of Defence and becoming the first non-US company to win
important business on an American nuclear submarine programme.
Internally, we realigned our business around the four key sectors
where we operate, sharpening our focus and bringing ourselves even
closer to our customers and markets.
"Our long-term contracts continue to provide us with excellent
visibility of future revenues, and we have three-quarters of
expected sales already in place for the current year. With our
combined order book and near-term bid pipeline of almost GBP30
billion and our healthy tracking pipeline, we expect to continue to
generate sustainable growth this year and over the medium
term."
Ends
Contact:
Babcock International Group PLC
Franco Martinelli, Group
Finance Director
Kate Hill, Head of Investor
Relations Tel: 020 7355 5300
FTI Consulting
Andrew Lorenz / Nick Hasell Tel: 020 3727 1340
Analysts and investors
A meeting for investors and analysts will be held on 24 May 2017
at 9.00 am at FTI Consulting, 200 Aldersgate, Aldersgate Street,
London, EC1A 4HD. The presentation will be webcast live at
www.babcockinternational.com/Investors and subsequently will be
available on demand at
www.babcockinternational.com/Investors/Results-and-Presentations
from mid-afternoon on 24 May 2017.
To dial into the presentation, please call +44 (0)20 3059
8125.
Please allow 15 minutes to register for both the webcast and the
call.
Introduction
Overview
Babcock continued to deliver in 2016/17, with sustained growth
of 6.5% in underlying operating profit (5.3% organic growth at
constant exchange rates) and 7.7% growth in underlying revenue
(4.9% organic growth at constant exchange rates). This growth
demonstrates the quality of our operations and the resilience of
the Group's business, and has resulted in an 8.0% increase in
underlying basic earnings per share. Our proven model of providing
our customers with better capability, reliability and availability
of their critical assets whilst delivering cost savings continues
to prove successful and we continue to experience demand across our
markets, both in the UK and internationally. With clear barriers to
entry across many of our businesses, we believe we are well
positioned to continue to grow the business, supported by a strong
underpin of already secured future revenue.
We believe the market dynamics remain positive in the sectors in
which we have deep expertise, both in the UK and internationally.
There continues to be an appetite for increased operational and
cost efficiencies in the delivery of non-discretionary critical
services, and for working with a partner who can demonstrate a
track record of delivery. This fundamental requirement of regional
and national governments and of blue chip international customers
appears unaffected by the changing environment. This is exemplified
by our success in winning an 11-year contract from the French
Ministry of Defence and our success in becoming the first non-US
company to be selected to provide a critical component for a US
nuclear submarine as part of the GBP1 billion joint US-UK missile
tube programme.
In the UK, we have seen the work programmes identified in the
2015 Strategic Defence and Security Review (SDSR) begin to come to
market, ensuring a healthy pipeline of outsourcing opportunities in
the provision of equipment, through-life equipment support and
training over the medium term. In May the UK Ministry of Defence
(MOD) awarded us all four elements of a GBP360 million technical
authority and equipment support package for both the Queen
Elizabeth Class (QEC) aircraft carriers and Type 45 Destroyers. In
our nuclear business, the volume of the additional work now
required has led to an ending of the existing Magnox contract in
2019. The Nuclear Decommissioning Authority (NDA) will establish a
replacement structure to be put in place when the current contract
ends and we believe that Cavendish Nuclear is well positioned to
win further elements of decommissioning work, both on the Magnox
estate and in the decommissioning of Sellafield, which the NDA now
estimates will cost a total of around GBP88 billion.
After starting the year as Chief Operating Officer, working
alongside Peter Rogers, Archie Bethel became Chief Executive on 1
September 2016. Following the Group's annual five-year strategy
review, on 1 April 2017 we realigned the business around the four
core sectors in which we operate. Grouping our business around
these sectors brings us even closer to our customers and markets,
allows our teams in each sector to focus on the capabilities we
offer and makes the Group easier to understand for all our
stakeholders. Most importantly, the realignment will help us
achieve our growth ambitions, supported by technology and technical
training, as well as enabling easier identification and development
of international opportunities through our Global Growth team.
Each sector has a strong base of both defence and civil
customers, with operations of scale in the UK and potentially
internationally, and importantly all four have growth opportunities
across the globe with customers who demonstrate a willingness to
embrace Babcock's transformational change and performance
improvement model.
Through infrastructure, know-how, technology and regulatory
requirements, all four sectors have inherently high barriers to
entry. Each sector is customer facing and shares deep sector
technical knowledge, experience and understanding of its industry.
Moving to a sector-reporting structure that is closer aligned with
our markets serves to provide clarity and focus. This resonates
with our employees, our customers and our shareholders, creating a
stronger base from which to build future growth.
We continue to focus on cash generation and on maintaining a
secure financial base to support our future growth. We have reduced
our net debt to GBP1,173.5 million (2016: GBP1,228.5 million)
during the year, reducing the ratio of net debt to EBITDA to 1.8x,
and expect to continue to reduce that ratio over the coming
years.
Order book, bid pipeline and contract performance
Our order book is currently GBP19.0 billion, which reflects
GBP4.7 billion of contracts awarded during 2016/17 and a reduction
of GBP800 million from the early termination of the Magnox contract
which will now end in 2019. This provides clear visibility of
future revenues in the short and medium term, with 76% of revenue
already secured for 2017/18 and 52% for 2018/19.
During the year, we maintained our win rate, achieving success
in over 40% of our bids for new contracts, and over 90% for
renewals. In addition to the c EUR500 million French military
flight training contract, FOMEDEC, we were delighted to win a
contract to support Qantas' ground fleet at around 60 locations
across Australia, as well as a number of naval equipment support
packages and a contract to design and build a fourth Offshore
Patrol Vessel (OPV) for the Irish Naval Service at our yard in
Appledore, Devon. We saw a strong performance in our Emergency
Services business, including winning new contracts in France and
Northern Ireland and the successful mobilisation in Victoria,
Australia. In May we were awarded all four elements of a GBP360
million technical authority and equipment support package for both
the QEC aircraft carriers and Type 45 destroyers.
We continue to make good progress on the contracts already in
our order book, including the ongoing progress under the GBP2.6
billion Maritime Support Delivery Framework (MSDF) and the ramp up
of the Type 23 frigate life extension programme. Growth in the Air
business in the Defence and Security division has continued with
the successful start to the fixed and rotary wing UK Military
Flying Training System (UKMFTS) contracts awarded to Ascent, our
joint venture with Lockheed Martin. The final AirTanker was
delivered on schedule in September, and the joint venture will
therefore be providing partners with dividends from 2017/18.
Trading in the Defence Support Group (DSG) contract for the
British Army continues in line with expectations following a busy
year. We are currently working on a demonstration project for the
Warrior Capability Sustainment Programme and are engaged in
discussions regarding the full programme of 380 armoured vehicles.
We successfully completed the overhaul and reset of 670 vehicles
returning from military operations ahead of schedule.
In 2016, following a final investment decision by EDF Energy,
the UK Government confirmed the decision to go ahead with the
construction of a new nuclear facility at Hinkley Point C. Our
Cavendish Boccard Nuclear joint venture, which has been selected as
preferred bidder to deliver the Balance of Nuclear Island (BNI)
mechanical installation package, is currently about to transition
from Early Contractor Involvement studies to an Early Works
Contract for the BNI.
We are currently in the process of completing the disposal of
our Civil Infrastructure business, which in the year ending 31
March 2017 had revenues of around GBP30 million.
Our bid pipeline of near term opportunities has also remained
broadly stable at around GBP10.5 billion (2016: GBP10.5 billion),
despite the removal of around GBP1 billion relating to the
consolidation phase of the Magnox decommissioning project.
Successful contract awards which have moved into the order book
have been replaced with GBP6.6 billion of new opportunities which
are currently being processed. The majority of bids in the pipeline
continue to be new business, with rebids representing only 30%.
Around half represent contracts with a total value of over GBP100
million, reflecting the scale and complexity of the contracts for
which we compete.
The bid pipeline continues to be supported by a buoyant tracking
pipeline. The tracking pipeline comprises prospects that have yet
to formally 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.
Dividend
This year, underlying basic earnings per share increased by 8.0%
and the Group again more than achieved its target of delivering pre
capital expenditure cash conversion of over 100%. Additionally the
combined order book and pipeline of c GBP30 billion provides clear
visibility of future revenue streams.
The Board therefore remains confident in the long-term future of
our business and it is recommending a 9.6% increase in the final
dividend per share for 2017 of 21.65 pence (2016: 19.75 pence). If
approved by shareholders at the AGM on 13 July 2017, this will give
a total dividend for the year of 28.15 pence per share (2016: 25.8
pence per share), an increase of 9.1%. The final dividend will be
paid on 11 August 2017 to shareholders on the register at 30 June
2017.
Outlook
We believe that the revenue visibility provided by our c GBP30
billion order book and near term bid pipeline, together with the
future opportunities in our buoyant longer term tracking pipeline,
offers continued prospects for strong and sustainable growth. We
have identified significant opportunities across all of our core
markets, and believe that the realignment of the business, which
brings us closer to our customers, both in the UK and
internationally, provides a stronger platform to further develop
our business.
Looking ahead, the Board remains confident that the Group will
continue to achieve mid single digit organic revenue growth at
constant exchange rates with margins remaining broadly stable this
year and over the medium term.
Following the realignment of the business which took effect on 1
April 2017, the Group is now organised in four new sectors which
have replaced the previous divisional structure. Reporting for
2016/17 therefore reflects the divisional structure in place
through the financial year, but future outlooks reflect the new
sectors, and can be seen on page 19 of this document. A Divisional
to Sector reconciliation for 2014/15, 2015/6 and 2016/17 will be
provided in the full year presentation available on
www.babcockinternational.com/investors and will be included in the
2016/17 Annual Report and Accounts.
Financial review
The adjustments described below, collectively, are made to
derive the underlying operating results of the Group. The
underlying figures provide a consistent measure of business
performance year-to-year, thereby enabling comparison and
understanding of the Group's financial performance.
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.
Statutory to underlying reconciliation
Joint ventures
and associates
---------------------------
Revenue
and Amortisation Change
operating Finance IFRIC of acquired in tax
Statutory profit costs Tax 12 income intangibles rate Underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
31 March 2017
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Revenue 4,547.1 669.5 5,216.6
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Operating
profit 359.6 72.8 29.7 112.7 574.8
Share of profit
from jv 56.7 (72.8) 24.6 14.2 (28.5) 5.8 -
Investment
income 1.2 (1.2) -
Net finance
costs (55.4) (24.6) (80.0)
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Profit before
tax 362.1 - - 14.2 - 118.5 - 494.8
Tax (46.5) (14.2) (26.4) 0.5 (86.6)
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Profit after
tax 315.6 - - - - 92.1 0.5 408.2
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
31 March 2016
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Revenue 4,158.4 683.7 4,842.1
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Operating
profit 352.5 40.8 30.6 115.8 539.7
Share of profit
from jv 34.6 (40.8) 21.9 8.0 (29.5) 5.8 -
Investment
income 1.1 (1.1) -
Net finance
costs (58.1) (21.9) (80.0)
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Profit before
tax 330.1 - - 8.0 - 121.6 - 459.7
Tax (39.0) (8.0) (26.8) (8.1) (81.9)
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Profit after
tax 291.1 - - - - 94.8 (8.1) 377.8
---------------- --------- ---------- ------- ------ ---------- ------------ ------- ----------
Income statement
Statutory revenue for the year was GBP4,547.1 million (2016:
GBP4,158.4 million), an increase of 9.3%. Statutory operating
profit increased by 2.0% to GBP359.6 million (2016: GBP352.5
million). Statutory profit before tax increased by 9.7% to GBP362.1
million (2016: GBP330.1 million), reflecting the growth from joint
ventures and associates. Basic earnings per share as defined by IAS
33 was 61.8 pence (2016: 57.0 pence) per share, an increase of
8.4%.
Underlying revenue for the year was GBP5,216.6 million (2016:
GBP4,842.1 million), an increase of 7.7%. The Babcock businesses,
excluding acquisitions, delivered revenue growth at constant
exchange rates of 4.9% (2016: 7.6%). The largest contributor to
this growth was the Defence and Security division which reported
organic revenue growth at constant exchange rates of 15.1%,
primarily due to the start of the UKMFTS fixed wing, rotary wing
and rear crew contracts and the first year of the Aviation and
Engineering Support and Aircraft Services (AESAS) contract. In
addition there was increased procurement work in the DSG business.
The Marine and Technology division achieved organic revenue growth
of 4.9% at constant exchange rates, primarily driven by the ramp-up
of the Type 23 life extension programme in our Warship Support
business and increased submarine maintenance activity, as well as
significant new business wins in our complex equipment and
renewables businesses.
The Support Services division's revenue declined by 2.3% in the
year. There were some additional works in Dounreay and the rail
sector was buoyant. This partly offset the expected step-down in
volumes in the Magnox decommissioning project, together with
Apprenticeship Levy uncertainty, some weakness in our Training
business and the impact of a reduction in volumes in our North
American fleet support contracts.
In the International division, a strong second half performance
in our South African equipment business, growth in the Mission
Critical Services (MCS) Emergency Services business, two second
half oil and gas wins and new business wins in Italy, Australia and
France resulted in organic revenue growth at constant exchange
rates of 9.5%.
Total operating profit across the Group increased by 6.5% to
GBP574.8 million (2016: GBP539.7 million). At constant exchange
rates, Babcock achieved organic growth in operating profit of 5.3%,
with the Group's operating margin broadly unchanged at 11.0% (2016:
11.1%), primarily reflecting margin improvements in Support
Services and, to a lesser extent, Marine and Technology, offset by
reductions in Defence and Security due to the low margin associated
with additional DSG procurement work, as expected, and in
International.
In the Marine and Technology division, operating profit
increased by 9.7%, with margin improvement driven by contract
performance, including in our Australian joint venture, and an
increase in Research and Development tax credits. The Defence and
Security division achieved an 11.7% increase in operating profit,
with increased volumes helped by a step up in the Royal School of
Mechanical Engineering (RSME) joint venture which is now in the
ninth year of the 30 year contract.
For the Support Services division, operating profit grew by 2.7%
following an increase in profit recognition in the Magnox
decommissioning contract and improved performance in the Rail
business, whereas the previous year included GBP7.5 million profit
on the disposal of Lewisham Building Schools for the Future. The
International division's organic operating profit declined by 12.9%
at constant exchange rates, reflecting the headwinds from the
unrecovered costs due to the industry-wide grounding of Airbus
EC225 helicopters, continued margin pressure in the oil and gas
sector on contract renewals, and competitive pressures in the South
African equipment business. On a reported basis, the division saw a
2.1% reduction in profit, benefiting from movements in exchange
rates.
The total Group impact of the change in average foreign currency
rates was an increase in revenue of GBP133 million with a
corresponding GBP15 million effect on operating profit.
The impact of movements in exchange rates has the following
effect on the Group's results: a 10% movement in the Euro equates
to a GBP5.9 million change in operating profit and a GBP3.4 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 2016/17 revenue and profit were GBP/EUR1.19,
GBP/ZAR18.5. During the year, a net GBP2.5 million of provisions
were charged to the income statement. Over the last seven financial
years, the cumulative net provision charge averaged less than 1% of
operating profit excluding joint ventures. Provisions cash outflow
in the period was GBP28.4 million, relating to contracts (primarily
pain share/gain share and warranties), onerous leases, personnel
(taxation and reorganisation) and property.
Total net finance costs remained stable at GBP80.0 million
(2016: GBP80.0 million) reflecting the decrease in total Group debt
over the year but offset by increases in both IAS 19 and joint
venture interest. The Group net finance costs reduced to GBP49.0
million (2016: GBP53.0 million) and we expect these to reduce
further in future, in line with the decrease in the average amount
drawn on the Group's revolving credit facilities at a marginal rate
of around 1%. The Group's share of joint venture net interest
expense increased to GBP24.6 million (2016: GBP21.9 million),
largely reflecting the new Ascent fixed wing programme and adverse
swap valuations. The IAS 19 pension finance charge was GBP6.4
million (2016: GBP5.1 million) as expected.
Underlying profit before tax increased by 7.6% to GBP494.8
million (2016: GBP459.7 million). The associated tax charge,
including the Group's share of joint venture tax of GBP14.2 million
(2016: GBP8.0 million), totalled GBP86.6 million (2016: GBP81.9
million), representing an effective underlying rate of tax of 17.5%
(2016: 17.8%). The effective tax rate is calculated by using the
Group's underlying profit before tax and therefore excludes the tax
effect of amortisation of acquired intangibles. We expect the
effective underlying rate of tax to be around 18% in 2017/18 and
then to remain stable for the following two years as increasing
international profits combined with currency movements have
increased weighting.
The Group's net pension deficit reduced to GBP104.5 million
(2016: GBP203.1 million), essentially because the liabilities were
75% hedged for discount rates and inflation by matching assets, and
growth assets performed well along with continuing annual deficit
contributions. The projected pension charge within operating profit
for 2017/18 is GBP47.6 million (2017: GBP38.8 million), a GBP8.8
million cost increase which will be partially offset by a GBP4.1
million reduction in retirement benefit interest.
Amortisation of acquired intangibles was GBP118.5 million (2016:
GBP121.6 million). This represents the amortisation of the value
attributed on business acquisitions to customer relationships (both
contractual and non-contractual) and acquired brands.
Earnings per share
Basic underlying earnings per share for the year was 80.1 pence
(2016: 74.2 pence), an increase of 8.0%. Basic earnings per share
as defined by IAS 33 was 61.8 pence (2016: 57.0 pence) per share,
an increase of 8.4%.
The Group has once again achieved its target of delivering pre
capital expenditure cash conversion of over 100% and around 80%
post capital expenditure. The cash flow has delivered a net debt to
EBITDA reduction to 1.8 times at the year end and we expect
continue to reduce the net debt to EBITDA ratio to around 1.6 times
by the end of 2017/18.
Acquisitions and disposals
In April 2016 the Group acquired 100% of Heli Aviation GmbH for
a total cash cost of GBP10.9 million. Heli Aviation GmbH provides
helicopter services in mission critical operations.
Cash paid in respect of acquisitions and disposals during the
year totalled GBP30.5 million (2016: GBP1.0 million received),
reflecting the deferred consideration paid in respect of the
acquisition of DSG, Scandinavian Air Ambulance, and other
businesses combined with the acquisition of HeliAviation.
Cash flow and net debt
We continue to focus on the generation of cash and cash
conversion remains an important key performance indicator (KPI) for
the Group. The analysis below reflects the management KPI for cash
conversion.
2017 2016
GBPm GBPm
--------------------------------------------------------------- --------- ---------
Operating profit before amortisation of acquired intangibles 472.3 468.3
Amortisation, depreciation and impairments 92.3 86.0
Other non-cash items 13.7 15.0
Working capital (excluding excess retirement benefits and
provisions) (7.7) (11.5)
Provisions (28.4) (25.1)
--------------------------------------------------------------- --------- ---------
Operating cash flow 542.2 532.7
--------------------------------------------------------------- --------- ---------
Cash conversion % 115% 114%
Capital expenditure (net) (134.9) (145.1)
--------------------------------------------------------------- --------- ---------
Operating cash flow after capital expenditure 407.3 387.6
--------------------------------------------------------------- --------- ---------
Cash conversion after capital expenditure % 86% 83%
Interest paid (net) (51.6) (53.4)
Taxation (61.5) (46.6)
Dividends from jvs 26.7 23.0
--------------------------------------------------------------- --------- ---------
Free cash flow before pension contribution in excess of income
statement 320.9 310.6
--------------------------------------------------------------- --------- ---------
Pensions contributions in excess of income statement (38.2) (34.9)
--------------------------------------------------------------- --------- ---------
Free cash flow after pension contribution in excess of income
statement 282.7 275.7
--------------------------------------------------------------- --------- ---------
Acquisitions and disposals net of cash/debt acquired (30.5) 1.0
Issue of shares 0.9 1.2
Investments in joint ventures 2.1 (4.8)
Movement in own shares (7.8) (0.7)
Dividends paid (133.8) (125.6)
Exchange difference/other (58.6) (49.7)
--------------------------------------------------------------- --------- ---------
Net cash inflow 55.0 97.1
--------------------------------------------------------------- --------- ---------
Opening net debt (1,228.5) (1,325.6)
--------------------------------------------------------------- --------- ---------
Closing net debt (1,173.5) (1,228.5)
--------------------------------------------------------------- --------- ---------
The table below provides the reconciliation between the
statutory cash flow (page 24) and trading cash flow table
above.
2017 2016
GBPm GBPm
--------------------------------------------------------------- ----- -----
Cash generated from operations 504.0 490.3
Retirement benefit contributions in excess of income statement 38.2 34.9
Profit on disposals of jv/exceptional loss - 7.5
--------------------------------------------------------------- ----- -----
Operating cash flow 542.2 532.7
--------------------------------------------------------------- ----- -----
Working capital cash outflows during the period, excluding
excess retirement benefits, were GBP36.1 million (2016: GBP36.6
million), with modest working capital cash outflows over the last
two years driven by milestones and customer requirements. The cash
outflow includes GBP28.4 million of provision movements. Cash
generated from operations was GBP504.0 million (2016: GBP490.3
million), from which the Group's operating cash flow calculation is
derived. Operating cash flow after movements in working capital was
up 1.8% to GBP542.2 million (2016: GBP532.7 million) and represents
a conversion rate of operating profit to cash of 115% (2016:
114%).
Net capital expenditure, including new finance leases, during
the year was GBP134.9 million (2016: GBP145.1million). The Group
achieved a conversion rate of operating cash flow after movements
in working capital and capital expenditure to operating profit of
86% (2016: 83%). Capital expenditure for the year was 1.5 times the
Group's depreciation and amortisation charge of GBP90.0 million.
For the 2017/18 financial year capital expenditure will be around
1.3 times depreciation. In the FOMEDEC contract, the majority of
the finance leases with the French Ministry of Defence for the
provision of training platforms are likely to be timed after the
March 2018 year end, however the exact profile of deliveries, and
therefore cash, is yet to be agreed.
Net Group cash interest paid, excluding that paid by joint
ventures, was GBP51.6 million (2016: GBP53.4 million), which
reflects the continuing reduction in the Group's debt and the and
some refinancing of credit facilities.
Cash taxation payments of GBP61.5 million (2016: GBP46.6
million) increased due to prior year utilisation of overseas tax
losses but still benefited from pension payments in the UK. Free
cash flow pre-excess pension payments improved to GBP320.9 million
(2016: GBP310.6 million), up 3.3%, representing a free cash flow
yield at 31 March 2017 of 7.2% (2016: 6.5%). Free cash flow post
excess pension payments increased to GBP282.7 million (2016:
GBP275.7 million), up 2.5%.
During the year the Group received GBP26.7 million in dividends
from its joint ventures (2016: GBP23.0 million). Cash dividends
(including to minorities of GBP1.3 million) paid out in the year
totalled GBP133.8 million (2016: GBP125.6 million). The Group
expects dividends from its joint ventures to increase to around
GBP35 million in 2017/18.
Group net cash inflow was GBP55.0 million (2016: GBP97.1 million
inflow) decreasing total net debt at 31 March 2017 to GBP1,173.5
million (31 March 2016: GBP1,228.5 million). At constant exchange
rates the net cash inflow would have been around GBP56 million
higher. This gives a net debt to EBITDA ratio of 1.8 times (31
March 2016: 2.0 times).
Return on Invested Capital (ROIC)
We define ROIC as underlying earnings before financing costs,
divided by the average of opening and closing equity plus net debt,
excluding retirement benefit deficits. ROIC, pre tax, was 14.5%
(2016: 14.2%). Post tax ROIC was 11.9% (2016: 11.7%). This compares
to the Group's current weighted average cost of capital of c 7.5%.
The Group continues to focus on capital employed and on improving
returns, and management compensation includes this as a performance
measure.
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.
2017 2016
GBPm GBPm
------------------------------------ ----- -----
Future service contributions 34.6 45.3
Deficit recovery 36.4 30.5
Longevity swap 6.0 5.0
------------------------------------ ----- -----
Total cash contributions - employer 77.0 80.8
------------------------------------ ----- -----
In the 2017/18 financial year, the total cash contributions
expected to be paid by the Group into the defined benefit pension
schemes are GBP92.7 million. GBP8.0 million of this is for salary
sacrifice contributions, GBP31.8 million is in respect of the cost
of future service accrual, GBP42.2 million is to recover deficits
over periods of time agreed with the Trustee and GBP10.7 million is
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. This total cash cost is expected to be around
GBP45.0 million in excess of the charge within the income statement
per annum over the medium term.
The current level of bond yields and inflation expectations has
increased cash service costs for pension schemes. A consultation
with the members of the schemes has begun in order to mitigate this
position.
Accounting valuations
The IAS 19 valuation for accounting purposes showed a market
value of assets of GBP4,676.2million, net of longevity swaps, in
comparison to a valuation of the liabilities based on AA corporate
bond yields of GBP4,780.7 million. The total net accounting
deficit, pre deferred tax, at 31 March 2017, was GBP104.5 million
(2016: GBP203.1 million), representing a 98% 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 risk of increasing allowances for
longevity.
Devonport Babcock Rosyth
------------------------- ----------- ---------- ----------
2017 2016 2017 2016 2017 2016
------------------------- ----- ---- ---- ---- ---- ----
Discount rate % 2.6 3.5 2.6 3.5 2.6 3.5
Rate of increase
in pensionable salaries
% 2.3 2.2 2.3 2.2 2.3 2.2
Rate of increase
in pensions in payment
% 2.2 2.1 3.0 2.8 3.3 3.0
Life expectancy of
male currently aged
65 years 21.2 21.4 22.6 22.9 20.3 19.2
------------------------- ----- ---- ---- ---- ---- ----
Operational review
Marine and Technology
31 March 31 March Change
2017 2016 + / -
----------------- ------------------- ---------- ---------- -------
GBP1,777.8 GBP1,674.3
Revenue group m m +6.2%
Jv GBP27.8 m GBP21.6 m +28.7%
------------------------------------- ---------- ---------- -------
GBP1,805.6 GBP1,695.9
total - underlying m m +6.5%
------------------------------------- ---------- ---------- -------
GBP211.2 GBP195.9
Operating profit group m m +7.8%
Jv GBP6.9 m GBP3.0 m +130.0%
------------------------------------- ---------- ---------- -------
GBP218.1 GBP198.9
total - underlying m m +9.7%
------------------------------------- ---------- ---------- -------
Operating margin group 11.9% 11.7%
Jv 24.8% 13.9%
------------------------------------- ---------- ----------
total - underlying 12.1% 11.7%
------------------------------------- ---------- ----------
Market Overview
The Marine and Technology division's core UK naval market has
remained positive over the past year following the 2015 SDSR.
The UK MOD Equipment Plan 2016 confirmed the Government's
intention to spend GBP178 billion on equipment and support over the
decade, GBP67.2 billion of which will be spent on the support of
existing in-service equipment. This represents a 2% increase on the
previous year's plan. The MOD continues to seek opportunities to
outsource support capabilities in order to meet efficiency targets,
reduce support costs and improve operational capability. GBP19
billion is programmed for surface ship procurement and support to
2026, which includes the completion of the QEC aircraft carriers,
the design and development of the Type 26 Frigate which will
ultimately replace the Type 23 class and the possible development
of a general purpose Light Frigate (Type 31).
The MOD continues to drive efficiency, performance and
sustainability improvements through the Submarine Enterprise
Performance Programme where we continue to play a leading role
alongside our Tier 1 partners BAE Systems and Rolls-Royce. Over the
next decade GBP44 billion is programmed for procurement and support
of the UK's submarine capability, including the design and build of
the Dreadnought Class which will begin to replace the Vanguard
Class submarines by the late 2020s.
We continue to engage with the UK Single Source Regulations
Office as its thinking matures. The vast majority of our sole
source activities are contracted until 2020 under the MSDF, and
2025 under the Terms of Business Agreement, and we anticipate that
the complexity and value inherent in the majority of services we
provide would continue to generate commensurate returns within the
sole source environment.
2016/17 continued to be a challenging period for the offshore
energy markets but the North Sea decommissioning market is expected
to grow in future years. In Liquid Petroleum Gas (LPG), our market
returned to baseline levels in 2016/17 following rapid fleet build
in the previous four years. However the Liquid Natural Gas (LNG)
carrier market demand is strong and forecast to increase as the
market for cleaner fuel grows.
In Canada the Government remains supportive of defence, and we
expect no material impact on our business from the Defence Review
currently underway. In 2016, the Australian Government issued a
Defence White Paper which outlined plans for A$195 billion of
capital investment over the next 20 years, a quarter of which is
earmarked for maritime and anti-submarine warfare. The Government
also committed to a continuous build programme in naval warships
and selected an international partner for the platform design of
it's A$50 billion Future Submarine programme.
The New Zealand MOD also published a White Paper which
identified a NZ$20 billion investment programme over the next 15
years and outlined the integration of military services, while
increasing private sector participation.
The market trend towards the adoption of Industry 4.0 thinking
for the Internet of Things and digital aspects of asset management
is driving the demand for our more advanced analytic and data
exploitation capabilities across the energy, transport and defence
sectors. High-profile cyber security incidents over the past year,
together with the increasing threat of cyber-attacks, has continued
to drive the demand for services in our chosen niche areas of the
global cyber security market.
Financial Review
The Marine and Technology division had another successful year
and experienced growth in most sectors, reporting an increase in
total revenue of 6.5%, to GBP1,805.6 million (2016: GBP1,695.9
million). Organic growth at constant exchange rates was 4.9% (2016:
9.4%). The main drivers of growth this year have been the ramp up
of the Type 23 life extension programme within our Warships Support
business and increased submarine maintenance activities on the
legacy Trafalgar and Vanguard Class boats and the new Astute Class
boats at both Devonport and Clyde. Our complex equipment business
has grown due to significant contract wins in equipment support and
delivery of new weapons handling systems for submarine projects in
Spain, Korea and the UK.
Our business in New Zealand grew following the first full year
of the new Dockyard Management contract. Work on the QEC aircraft
carrier programme has stabilised as we push to get the first vessel
ready for sea trials, and will accordingly step down by around
GBP100 million in 2017/18.
Our Energy and Marine business has grown due to three contract
wins in the renewables sector for offshore substations for Siemens,
DONG Energy and E.ON. Additionally, joint venture revenue growth
was 28.7%, driven by an uplift in our Naval Ship Management joint
venture in Australia following the conclusion of the ANZAC frigates
maintenance contract, which has led to the follow-on contract being
enlarged under the Warship Asset Management Agreement which started
in July 2016. Disappointingly this growth was partially offset by a
slow-down in our Liquefied Gas Handling business.
Operating profit increased by 9.7% to GBP218.1 million (2016:
GBP198.9 million). Organic operating profit growth at constant
exchange rates was 8.8%. The division's total operating margin
increased by 0.4% to 12.1% (2015: 11.7%), driven by improved
contract performance including within our Australian joint venture,
and increased Research and Development tax credits.
Operational Review
Over the past year we have maintained our position as lead
support partner for the Royal Navy, successfully providing deep
maintenance and in-service support for warship and submarine
platforms.
We are now two years into our five-and-a-half year MSDF contract
to deliver a range of engineering support services across HMNB
Devonport and HMNB Clyde and delivery of key milestones is on
track. We continue to deliver submarine and warship refits in
support of our customer's programme, while building additional
capability and capacity to support increasing operational demands
and progressing opportunities with the MOD to upgrade the critical
nuclear infrastructure needed to support both current and future
submarine classes.
As the lead submarine support partner, we remain focused on
underpinning the UK's Continuous At Sea Deterrence through support
to the Vanguard Class. HMS Vanguard's life extension is now well
under way at Devonport and initial project milestones have been
successfully completed. We continue to invest in developing our
engineering capability and capacity in order to maximise submarine
availability as the UK transitions from the Trafalgar Class to the
Astute Class.
At HMNB Clyde, we continue to focus on driving efficiency
improvements and developing our capacity and engineering
capabilities to deliver the required outputs. In October 2016, we
were awarded a contract to deliver submarine escape, rescue and
abandonment and survival training, which will contribute to the UK
submarine centre of specialisation being consolidated at HMNB Clyde
from 2021. The Astute Class Training Service continues to deliver
world-class training with crews regularly achieving pass rates of
over 99%.
The dismantling of the first nuclear submarine under the
Submarine Dismantling Project has now begun with the removal of
low-level waste from the demonstrator submarine in our Rosyth
Dockyard.
The QEC aircraft carrier programme continues at pace within our
Rosyth facility. HMS Queen Elizabeth has completed the
commissioning of major systems phase and will begin contractor sea
trials in 2017. HMS Prince of Wales is now structurally complete
and work is underway on the outfitting phase. We continue to
progress an in-service support solution for QEC with our Surface
Ship Support Alliance partners and the MOD.
Over the past year, we have made significant progress on the
Type 23 life extension programme. HMS Argyll has now begun sea
trials having been the first of its class to complete a life
extension package, which also included the installation of the Sea
Ceptor weapons system. We currently have a further three Type 23
vessels docked in Devonport and planning continues for future
upkeep programmes. The contract to reactivate HMS Albion has
achieved a major project milestone after 1.3 million man-hours;
work on the ship is on target to complete in September 2017.
We continue to develop and improve our warship support
capability and have a number of initiatives underway to exploit
emerging innovative technologies and data analytics. These will
enable us to develop a more efficient maintenance methodology, and
reduce time and cost for our customer. We also continue to develop
a global support offering for our customers, and last year
supported Royal Navy vessels in Bahrain, Oman, Gibraltar and South
Africa.
The third OPV, LÉ William Butler Yeats, was successfully
completed, handed over and commissioned into service with the Irish
Naval Service in July 2016. As a result of our performance, we were
contracted to design and build a fourth OPV in November 2016. Work
has already started at our Appledore facility with the keel laying
ceremony taking place on 28 February 2017.
Our market-leading weapons handling and launch systems (WHLS)
products continue to be developed for the UK Dreadnought Class
submarine programme. In October 2016, we were awarded a contract
for the manufacture of 22 missile launch tube assemblies for the
joint US-UK Trident nuclear submarine replacement programme. This
is the first production batch of a competed 300 missile launch tube
assembly programme. We also delivered WHLS for the South Korean
Jangbogo III submarine programme and continue to deliver equipment
for the Spanish S80 submarine programme.
In November 2016, we were awarded a GBP20 million contract to
deliver detailed production engineering design support for the US
Coastguard Offshore Patrol Cutter programme, which is a significant
milestone in our strategy to export our naval design engineering
knowledge and expertise.
Our continued investment in the development of our Equipment
Management Operations Centre (EMOC) has enabled us to win several
equipment management contracts in support of the MOD's strategy to
outsource the management of maritime systems and equipment. In
March we were awarded preferred bidder status for all four elements
of a GBP360 million technical authority and equipment support
package, Maritime Systems Support Partner (MSSP), for both the QEC
aircraft carriers and Type 45 Destroyers, a month after being
awarded all six Maritime Equipment Consumables (MEC) packages. Our
position on MSSP and MEC has been made possible by a dedicated EMOC
in Bristol. We also won an availability contract for the support of
the Royal Navy's Phalanx weapons system.
In Australia, our Naval Ship Management joint venture between
Babcock and UGL Limited entered into the Warship Asset Management
Agreement (WAMA) with the Commonwealth of Australia, BAE Systems
and SAAB Australia. WAMA will provide maintenance support services
until the end of life of the ANZAC Class Frigates.
We continue to deliver through-life support for submarine
equipment and engineering services for the Australian Collins Class
submarines, with negotiations now underway to secure a further
five-year contract. We continue to pursue multiple opportunities
relating to the A$50 billion Future Submarine programme and expect
initial contracts for material systems and sub-systems to come to
market in 2017.
In New Zealand, our dockyard maintenance contract continues to
perform to plan and in Canada work on HMCS Corner Brook under our
long-term Victoria Class In-Service Support contract is progressing
well, with a planned return to service in late 2018. We continue to
track several major future naval support opportunities including
refit and in-service support opportunities on the Halifax Class
frigates.
In line with our strategic aim to develop a global support
offering, Babcock and Oman Drydock Company signed a joint venture
agreement to develop a naval operation in Duqm, Oman. The business
is ideally located to support ships and submarines operating in the
Middle East region. A number of international navies have expressed
interest in utilising the facility at Duqm in addition to both the
Royal Navy of Oman and the UK Royal Navy.
We are seeing strong growth potential in LNG and Volatile
Organic Compounds capture. In February 2017, we agreed a joint
venture with Bernhard Schulte Ship Management to design and operate
a ground-breaking Gas Supply Vessel. The 7,500m(3) vessel, which
will be used for the LNG fuelling of ships and other shore-based
gas consumers in the Baltic Sea, is the first vessel of its kind to
use our gas handling technology and we are exploring other
opportunities in this area.
Our Energy and Marine Services business has successfully
executed the first offshore renewables substation for E.ON's
Rampion wind farm. We are currently working to deliver an offshore
reactive compensation platform for DONG Energy and have also won a
contract to deliver two offshore transformer modules for the SSE
Beatrice wind farm. Given this recent experience and our
world-class facility at Rosyth, we remain well positioned to take
advantage of the next round of Government offshore wind funding and
approvals in 2017.
Over the past year we have seen sustained growth in our
independent technology consultancy businesses. Our cyber security
business ContextIS has trebled in size since acquisition in 2013.
We continue to develop and enhance our cyber capabilities through
our Babcock Managed Security Services business which provides our
clients with a managed cyber defence capability through our
Advanced Security Operations Centre. Our Frazer-Nash engineering
consultancy continues to grow and demand for our engineering
consultancy services looks set to remain strong in the medium to
long-term with significant opportunities being tracked in the
defence, power, energy and nuclear markets.
Defence and Security
31 March 31 March Change
2017 2016 + /-
----------------- ------------------- --------- --------- ------
GBP885.7 GBP754.6
Revenue group m m +17.4%
jv GBP90.8 m GBP88.5 m +2.6%
------------------------------------- --------- --------- ------
GBP976.5 GBP843.1
total - underlying m m +15.8%
------------------------------------- --------- --------- ------
Operating profit group GBP87.9 m GBP86.1 m +2.1%
jv GBP58.7 m GBP45.2 m +29.9%
------------------------------------- --------- --------- ------
GBP146.6 GBP131.3
total - underlying m m +11.7%
------------------------------------- --------- --------- ------
Operating margin group 9.9% 11.4%
jv 64.6% 51.1%
------------------------------------- --------- ---------
total - underlying 15.0% 15.6%
------------------------------------- --------- ---------
Market Overview
In addition to its commitment to increase the defence budget by
0.5% above inflation for the remainder of this Parliament, the UK
Government has also committed to increase its equipment budget at
1% above inflation. This should enable our principal customer to
plan for the future with some confidence, including its intention
to spend GBP178 billion on equipment and support over the decade to
2025-26. These investments include GBP7.4 billion for land
equipment and a total of GBP27.2 billion for military air
equipment.
This is an increase of more than GBP11 billion against last
year's Equipment Plan. Importantly for Babcock, there is a change
in financial arrangements where savings made by the front line
commands can be used to fund new investments. This gives the armed
forces a better incentive to seek efficiencies in the support arena
and this should give rise to new opportunities for Babcock. The MOD
will need to realise a total of GBP9.8 billion of savings over the
next 10 years, primarily through transformation efficiencies. For
the Defence and Security division the net result of the additional
equipment commitments in the 2015 SDSR is a 28% increase in planned
spend on support for new equipment over the next 10 years, up from
GBP18.3 billion to GBP23.4 billion for 2016-2025, and a 2% increase
on last year's expected spend for in-service equipment over the
next decade.
Western European defence markets show many of the same financial
and engineering skills based challenges associated with the UK
Armed Forces. Our deep skills, gained from decades of experience
serving the mature defence sector in the UK, have contributed to
our ability to develop a presence in France, which has a similar
size defence budget but a less mature outsourcing defence support
services sector.
Financial Review
Revenue for the Defence and Security division, including the
Group's share of joint venture revenue, increased by 15.8% to
GBP976.5 million (2016: GBP843.1 million). Organic revenue at
constant exchange rates grew by 15.1%. This strong growth was
primarily due to the start of the UKMFTS fixed wing, rotary wing
and rear crew contracts and the first year of the AESAS contract.
In addition there was increased procurement work in the DSG
business.
Total operating profit increased by 11.7% to GBP146.6 million
(2016: GBP131.3 million). Operating profit growth was driven by the
revenue increase but also by profit recognition within the Holdfast
Training Services joint venture (Holdfast) which is now in the
ninth year of a 30 year contract. Organic operating profit at
constant exchange rates grew by 11.3%. The division's operating
margins reduced slightly to 15.0% (2016: 15.6%) reflecting a mix of
lower margins on procurement revenue offset by additional profit
recognition on Holdfast.
Operational Review
Within our Land business, the DSG contract with the MOD for the
British Army is trading in line with expectations following a busy
year. The first generation 10-year contract is delivered from seven
main sites across the UK. The contract includes maintenance,
repair, overhaul and provision of stores and spares procurement
services for land equipment, ranging from small arms to main battle
tanks. We successfully completed the overhaul and reset of 670
vehicles returning from military operations ahead of schedule and
met the demanding timelines to issue vehicles for operations in
central Europe from the stored fleet. The transformation is on
track with all contractual milestones achieved.
During the year, we secured a contract amendment for eight years
to provide equipment on a turnkey availability basis to the Defence
School of Transport at Leconfield and a year's extension to provide
maintenance on the fleet of Protected Mobility Vehicles, totalling
in excess of GBP30 million. We are engaged with Lockheed Martin to
offer the production of the Warrior Capability Sustainment
Programme of 380 armoured vehicles and we anticipate these
discussions will progress through the coming year. We also
anticipate further opportunities as the Army 2020 Refine programme
crystallises to defined projects, with revenues expected in
2018/19.
The six-year contract to manage the MOD's white fleet, entitled
Phoenix II, started in the UK in September 2016. This service
manages the MOD's fleet of 16,000 administrative vehicles and the
rental vehicle requirements. We continue to perform well in
delivery of the MOD's worldwide construction fleet of 2,000
vehicles through our ALC joint venture. As well as supporting a
continued number of operational requirements we have also developed
more advanced fleet management systems to support the reduction of
costs through the term of the contract.
Within our training operations, we continue to successfully
deliver to our customer with no service failures across all main
contracts, delivering over 20,000 training days to the British
Army. Under the Electro-Mechanical Training contract we continue to
deliver transformation in training delivery and support. Recent
successes include the development of a new Protected Mobility
Vehicle fleet course, reducing the course duration from eight to
five weeks utilising modern learning methods and media. Performance
at the RSME continues to remain at the highest level and the
contract was showcased in the autumn during the visit of Her
Majesty The Queen as part of the 300th anniversary of the Royal
Engineers. We expect services to be expanded to include training
support to the Defence Explosive Ordnance Disposal, Munitions and
Search Training Regiment in Bicester and Kineton. In addition, our
contract with Defence Infrastructure Organisation to provide
support services to the British Forces in Germany, which commenced
in 2011, was extended for a two-year period in 2016.
Our Air business began the year with a GBP500 million contract
award to deliver rotary wing flying training services. This is the
Babcock share of the contract, delivered through Ascent, our joint
venture with Lockheed Martin to deliver UKMFTS. As this contract,
and the previously awarded fixed wing contract, ramp up over the
next three years we shall continue to focus on current military
flying training through our Hawk, Tucano and Tutor contracts. We
are well placed to ensure that the customer transitions from the
current services to the new services in a seamless fashion.
The five-year contract to deliver AESAS to the Royal Navy at
Yeovilton and Culdrose, which we announced last year, is now fully
operational and, as expected, there are clear benefits from the
rotary wing aspects that we are able to leverage from the MCS
helicopter business. On a similar basis, expertise, support and
deep engineering knowledge from our Air business was provided for
the FOMEDEC bid team in France and was a significant factor in our
being awarded the contract in January. Further support is being
provided to assist the implementation phase of the contract with
both businesses operating in the new Aviation sector.
The Sea Training business has continued to deliver strong
operational and safety performance. Our transformation of Royal
Navy engineering training is progressing, providing innovative
learning with stimulating interactive online content and media
supported by simplified instruction. Feedback from the operational
user community indicates that trainees who have benefited from this
approach are more effective, being able to work independently and
with higher confidence at completing practical tasks. Although the
successful Fleet Outsourced Activities Project has entered its
final year in providing wide-ranging training delivery and training
support services to the Royal Navy, we expect to continue as the
supplier of these services beyond December 2017. We also continue
to support the Royal Navy through the provision of sophisticated
and realistic high-end warfare training and the design of
imaginative immersive training in support of the new QEC aircraft
carrier.
Support Services
31 March 31 March Change
2017 2016 + /-
----------------- ------------------- ---------- ---------- ------
GBP936.5 GBP946.6
Revenue group m m -1.1%
GBP542.3 GBP566.4
jv m m -4.3%
------------------------------------- ---------- ---------- ------
GBP1,478.8 GBP1,513.0
total - underlying m m -2.3%
------------------------------------- ---------- ---------- ------
Operating profit group GBP78.1 m GBP87.7 m -10.9%
jv GBP32.4 m GBP19.9 m +62.8%
------------------------------------- ---------- ---------- ------
GBP110.5 GBP107.6
total - underlying m m +2.7%
------------------------------------- ---------- ---------- ------
Operating margin group 8.3% 9.3%
jv 6.0% 3.5%
------------------------------------- ---------- ----------
total - underlying 7.5% 7.1%
------------------------------------- ---------- ----------
Market Overview:
Our markets remain attractive, with existing and potential
customers opting to procure outsourced solutions to further reduce
their cost base, deliver greater efficiency and improve service
delivery. Customers continue to market test services and our
breadth and depth of expertise, coupled with our investment in
innovative solutions and people development, mean that we are well
placed to respond to this challenge.
In the UK's civil nuclear market, there are opportunities for
both decommissioning and new build services which provide scope for
growth. In particular the recent Government decision to proceed
with the Hinkley Point C project has given new momentum to new
build activity in the UK.
We expect that the demand for fleet management and equipment
support services in the UK and overseas will remain strong,
particularly for customers with critical and complex fleets, such
as Ground Support Equipment (GSE), Heavy Mobile Equipment and
'blue-light' emergency services. Investment in strategic fleet
management capabilities, such as fleet optimisation, asset
replacement programmes and conversions, and decision support and
data analytics, to span multiple industry sectors, will position
Babcock well for further outsourcing opportunities and expansion of
existing operations.
Demand for our technical training services remains positive. We
see an increasing requirement for technology and systems in the
delivery of such training, which increases the barriers to entry
for competitors and incentivises large organisations to outsource
these services.
The introduction of the Apprenticeship Levy represents a
potential opportunity to grow our existing apprentice business in
the engineering and workplace skills sectors. However, while we
expect large organisations to look to maximise the value of their
levy account, our customer base also includes small employers who
may be disincentivised from training apprentices under the new
regime.
Our strong domestic market position has enabled us to expand our
international footprint by leveraging the capabilities successfully
developed and delivered for our UK customers. This breadth of
expertise has provided a firm foundation upon which we will build
an expanding pipeline of international opportunities. We expect
that our recent contract wins in Europe and Australia will provide
impetus for additional growth in these markets.
Financial Review
Revenue in the Support Services division reduced slightly: 2.3%
down to GBP1,478.8 million (2016: GBP1,513.0 million) following the
significant growth in the prior year from the Cavendish Fluor
Partnership's (CFP) full implementation of the Magnox
decommissioning joint venture. Organic revenue at constant exchange
rates decreased by 3.3%. Activity on the Magnox project has now
reduced in line with the NDA annual site funding limits in the
original programme. However, this decrease was partially offset by
growth in our rail electrification joint venture with Alstom and
Costain.
In addition Cavendish Nuclear's Dounreay joint venture had
higher than expected activity levels following some acceleration to
the programme of works. Despite the reduction in revenue, growth in
operating profit increased by 2.7% to GBP110.5 million (2016:
GBP107.6 million), an increase of 9.6% on an organic basis at
constant exchange rates. This was been largely driven by the
expected increase in margin recognition in the Magnox contract
reflecting strong operational performance and the retirement of
very early stage risk in the contract. Across other businesses
within the division, the negative impact of lower activity levels
in our North American fleet support contracts was mitigated by
profit growth in our rail and UK fleet support operations.
Operational Review
In the year, Cavendish Nuclear, a wholly-owned Babcock
subsidiary, continued to strengthen its position as the UK's
leading supplier to the civil nuclear industry, remaining focused
on site operations, maintenance, decommissioning and nuclear new
build.
The CFP - in which the Group has a 65% stake - has come to a
mutual agreement with the UK's NDA to bring to an end the Magnox
decommissioning contract at the end of August 2019, when we will
have operated the contract for a full five years.
Following the detailed contract Consolidation phase, it has
become apparent that the work that needs to be done at the 12
Magnox sites is now materially different in volume from that
specified in the NDA's tender, and this puts the contract at risk
of a legal challenge. Last year a High Court judge ruled against
the NDA in respect of its award of the Magnox contract. The NDA has
been explicit that its decision was in no way a reflection on the
operational performance of CFP, which has remained strong.
CFP is now over two years into the Magnox decommissioning
contract, and making good progress in the delivery of the
through-life programme across the12 licensed sites. Through
innovative approaches to dealing with the legacy waste, the
contract team is now targeting an earlier than expected completion
of the Bradwell site. This will represent a significant milestone
for the nuclear industry in the UK. Using new plant systems, the
team has started the retrieval of waste from three highly active
legacy waste facilities. In addition, the programme is benefiting
from utilising specialist divers to decontaminate the former fuel
cooling ponds at Dungeness.
At Dounreay, the Cavendish Dounreay Partnership continues to
deliver the nationally important nuclear materials consolidation
programme. The team has also achieved a significant reduction in
two of the site's highest hazards associated with the Dounreay Fast
Reactor - the safe immobilisation and storage of intermediate level
liquid raffinate and the safe removal and processing of liquid
metal coolant. As part of its existing Lifetime Support Agreement
with EDF, Cavendish Nuclear successfully supported EDF in
generating 65TWh in 2016, the highest annual outturn since 2003.
Cavendish Nuclear's safety, quality and operational performance
underpinned this achievement and has been formally recognised by
the EDF Executive.
Major design and construction projects to aid decommissioning at
both Sellafield and Magnox sites continue to be delivered to agreed
programmes and budget. Of particular note was the delivery of six
12-tonne stainless steel doors to the Sellafield site to support
decommissioning of the Pile Fuel Cladding Silo, one of the highest
hazard legacy nuclear facilities in Europe. At the Atomic Weapons
Establishment, Cavendish Nuclear has continued to build on its
existing relationship with the customer, supporting both new build
and decommissioning projects.
Following the Government's decision to go ahead with Hinkley
Point C, the Cavendish Boccard Nuclear joint venture is about to
transition from Early Contractor Involvement studies to an Early
Works Contract for the Balance of Nuclear Island mechanical
installation package. Work to date has focused on constructability
studies and schedule integration with other installation
contractors. Over the next 12 months the focus will move to supply
chain engagement for long-lead item procurement. Cavendish Nuclear
is also pursuing additional opportunities in the UK new build
programme, including Small Modular Reactors.
Internationally, Cavendish Nuclear continues to seek to develop
long-term relationships in Japan with HGNE and Shimizu, with both
of whom we have Memoranda of Understanding in place for potential
decommissioning projects. In support of Cavendish Nuclear's work in
Japan, the NDA and Cavendish Nuclear have recently entered into a
Cooperation Memorandum of Understanding which will provide
unlimited access to NDA intellectual property, access to Magnox
operating experience and site staff and access to Magnox sites for
visits of potential customers and partners of Cavendish
Nuclear.
In Critical Services, our Airports business performed well,
helping Heathrow to achieve its best ever recorded performance in
baggage operations. Performance enhancements and sustained
performance improvements are increasingly being underpinned by
investment in innovative technology, such as a Babcock-developed
app which provides a single source of real-time information for
over 100 key customer stakeholders. This app won the 'Best
Innovator' category at the Airport Operators Association's annual
awards. Contract wins for baggage upgrade projects across Heathrow
and other airports, including Glasgow and Gatwick, provide further
opportunities for Babcock to enhance its customers' operations.
A strong performance was also delivered by our Fleet Management
business supporting GSE operations at Heathrow, where flight delays
were significantly reduced despite an increased flying schedule by
our customer. Improving the operational performance of airports and
airlines through enhanced management of GSE fleets is expected to
generate further international opportunities for the Fleet
Management business.
Our Fleet Management business also started an extensive rollout
of new fire engines for the London Fire Brigade (LFB) in 2016.
Babcock worked closely with the LFB and end users in the design of
the new fleet, the first since 2007. In April, the first appliance
was unveiled at a special event attended by HRH Prince Charles and
the LFB Commissioner. Our fleet management contract which supports
the Metropolitan Police Service (MPS) also continued to perform
well and we are working with the MPS to extend our support
activities beyond the current contract life and scope. Our
specialist vehicle conversion business, MacNeillie, is now being
more widely leveraged across our Fleet Management businesses and in
the DSG business in the Defence and Security division.
Following a challenging period of trading driven by reducing
customer demand and escalating supply chain costs, with returns
falling below expectations, we are reviewing our Heavy Mobile
Equipment fleet management contracts in the Aggregates and Cement
market in North America. The Skills & Learning business has
developed programmes and technologies to respond to the
Government's changes to apprenticeship qualifications and funding.
The Apprenticeship Levy represents an opportunity to grow our
existing apprentice business in the engineering and workplace
skills sectors although, whilst there may be more demand from
larger employers, smaller employers may train less under the new
regime. We have successfully mobilised our new Network Rail
apprenticeship contract and the programme is now being delivered
from a new site under the new Rail Apprenticeship standard.
Delivering this 'trailblazer' standard from a modern facility using
a range of innovative teaching technologies underpins the
continuing success of this major contract.
Our emergency services training contracts continue to perform
strongly. We played a key part in supporting the LFB's celebrations
of 150 years in operation, and see good opportunity through the
introduction of the Police and Crime Act 2017 for Babcock to
support the blue-light sector in its drive for increased
inter-service collaborations.
We are participating in the MPS market testing to secure a
partner to support their training provision, and are pursuing
opportunities in Babcock's other key markets including the nuclear
training industry. Skills2Learn, our digital learning business,
secured new orders to develop e-learning for the Royal Navy and the
United Arab Emirates Navy, in support of wider programmes managed
by the Marine and Technology division.
In Network Engineering, our Rail business has delivered Network
Rail's plain line track renewals throughout the third year of the
customer's five-year control period. Working with this key
customer, our track renewals team successfully completed a track
lowering project as part of the Severn Tunnel closure programme to
introduce faster, greener electric trains for passengers in South
Wales.
Working as part of the Edinburgh Glasgow Improvement Programme
alliance, a project to electrify the main line between two of
Scotland's largest cities, our track team successfully completed
major engineering work at Queen Street Tunnel following a 20-week
closure. This is the largest piece of engineering undertaken on
this line since it was built.
Following the successful completion of Translink's multi-million
pound signalling contract to upgrade the 33-mile route between
Coleraine and Londonderry, we have been awarded a further
signalling and telecommunications framework contract to deliver
services across Northern Ireland's rail network.
The Power business within Network Engineering, has seen the
successful completion of National Grid's overhead line
refurbishment projects on the Padiham and Capenhurst projects, as
well as the Indian Queens to Landulph route in Cornwall, and this
is being followed by the refurbishment of 100km of overhead line
between Plymouth and Exeter. Works for Western Power Distribution
continue to progress steadily with projects such as a
re-conductoring of a one-kilometre stretch of 33kV overhead lines
in North Lincolnshire spanning a tidal river, and the reinforcement
of the 132kV power network near Telford, being successfully
completed by our Power team.
Our Media Services business continues to exploit the advantages
of the combined service offering created by the acquisition of WRN
Broadcast in 2015. Our relationship with Perform Group, supporting
the roll-out of its live and on-demand sports service 'DAZN',
continues to expand into new geographies and has positioned us as
an expert in the emerging non-linear broadcast space. We also
secured a key role in supporting local TV satellite distribution in
the UK, delivering broadcast solutions to six local TV channels.
GoMedia is utilising Babcock's multi-platform distribution offering
to distribute video on demand direct to passengers' mobile devices
on Eurostar trains and National Express coaches.
International
31 March 31 March Change
2017 2016 + / -
----------------- ------------------- -------- -------- ------
GBP947.1 GBP782.9
Revenue group m m +21.0%
jv GBP8.6 m GBP7.2 m +19.4%
-------------------- ---------------- -------- -------- ------
GBP955.7 GBP790.1
total - underlying m m +21.0%
-------------------- ---------------- -------- -------- ------
GBP102.0 GBP105.4
Operating profit group m m -3.2%
jv GBP3.3 m GBP2.2 m +50.0%
-------------------- ---------------- -------- -------- ------
GBP105.3 GBP107.6
total - underlying m m -2.1%
-------------------- ---------------- -------- -------- ------
Operating margin group 10.8% 13.5%
jv 38.4% 30.6%
-------------------- ---------------- -------- --------
total - underlying 11.0% 13.6%
-------------------- ---------------- -------- --------
Market Overview
At MCS, we continue to see attractive markets in the emergency
services sector, with a number of new opportunities included in our
pipeline together with search and rescue and firefighting
outsourcing opportunities in existing and new markets.
The business has also entered new countries in support of
existing customers, as well as new markets such as wind farm
support and Unmanned Aviation Services. MCS' growth is based on
winning organic opportunities and growing its pipeline, creating
partnerships with customers and delivering differentiated
solutions.
Challenging conditions in the oil and gas sector have continued
to impact our business in the North Sea and Australia. Business
conditions in the sector remain tough and we are not envisaging any
improvement in the medium term. Our exposure to this market (and
particularly to the exploration market) is limited, and we continue
to be a robust and reliable long-term partner for the industry.
Tough trading conditions in South Africa persisted for the first
half of the 2016/17 trading year as commodity volumes and prices
remained depressed. Equipment and commodity markets contracted by a
further 20% which, combined with a fragile political economy,
maintained pressure on pricing and volumes. The second half saw
some revival in commodity pricing and a significant strengthening
of the Rand versus Sterling. The recovery led to an uptick in the
demand for mining construction equipment in the final quarter and
our strategy of growing market share during the commodity down
cycle has supported significant order intake from the mining
sector.
The power generation and distribution sectors remained buoyant
through the year, with significant opportunities in maintenance
support through the Eskom contract and new work being issued on the
new Kusile and Medupi power stations.
Our mining export markets in Zambia, Namibia and the copper belt
in southern Democratic Republic of the Congo have improved on the
back of commodity pricing and early indications are that this will
continue in 2017/18. Sustained low gas prices and political
problems leading to instability in Mozambique have all but shut
down economic activity but our oil and gas customers in the region
remain optimistic for the future.
Financial Review
The International division saw revenue growth but experienced
margin pressure in 2016/17. The division's revenue grew by 21.0%
compared to the previous period, reflecting the impact of movements
in foreign exchange rates. Organic revenue at constant exchange
rates increased by 9.5% for the division as a whole, due to a
strong second half performance from the South African Equipment
business which grew by more than 10% and continued growth in MCS'
Emergency Services business, as well as the mobilisation of new
contracts in Italy, Australia (Qantas) and France (FOMEDEC). MCS'
organic revenue increased by 6.3% at constant exchange rates,
driven by continued growth in MCS' Emergency Services business and
the start of new oil and gas contracts in Australasia in the second
half of the year.
Total operating profit for the division declined by 2.1%, which
equates to an organic reduction of 12.9% at constant exchange
rates. This reflects continuing competitive pressures in the South
African Equipment business, and ongoing difficulties in the oil and
gas business affecting MCS' crew change services. Additionally
operating profit has been impacted by ongoing unrecovered costs
from the industry-wide grounding of the EC225 fleet of helicopters
and by low margin recognition in the new long-term contracts which
began in the period, in line with prudent accounting practice.
Overall the division's margin declined to 11.0% (2016: 13.6%).
Operational Review
MCS has maintained a high contract win rate across new bids and
renewals, securing 38 new contracts and extensions to existing
contracts with a total value of around GBP540 million.
We continue to see a number of opportunities outside the UK,
following the award to Babcock France of an 11-year contract to
provide and maintain training platforms and related services for
the French Air Force (Armée de l'Air), drawing on our expertise in
the European aviation industry and our experience of delivering
long-term military flight training programmes (FOMEDEC). In
addition to FOMEDEC, MCS is also growing its business supporting
the defence sector in Europe. We delivered complex projects, such
as the life extension programme developed for the Spanish Navy
which includes the upgrade of seven Agusta Bell 212 helicopters.
This project was successful in obtaining technical certification
from INTA, the Spanish National Institute for Aerospace
Technology.
The French Department of Defence awarded Babcock France a
five-year contract to deliver maintenance operations and logistic
needs for the Department's fleet of twenty Airbus EC135
helicopters, 15 of which belong to the Gendarmerie Nationale and
five to the Sécurité Civile.
In our Emergency Services business, we have maintained leading
positions in all the countries where we operate, and have continued
to trade well throughout the year, as demonstrated by a number of
recent contract wins, including important rebids and
extensions.
During the year, we successfully renewed contracts for the
provision of nationwide and regional firefighting and search and
rescue services in Spain on behalf of the Spanish Government, and
in October we renewed the main medical services contract in Spain's
Castilla-La Mancha region, one of the most significant services in
Spain, where we have a 15-year customer relationship and have
pioneered emergency night flights.
We also continued to build on our presence in Ireland, with the
award of a new three-year contract to support the helicopter
operations of the Irish National Police Service. A three-year
contract with Air Ambulance Northern Ireland also began in Spring
2017. In Wales, we will create one of the UK's most technologically
advanced fleet of charity air ambulances under a seven-year
agreement to provide the Wales Air Ambulance charity with new EMS
aircraft.
In Italy, we signed two new contracts to continue providing
helicopter emergency services (HEMS) operations to the healthcare
service of the Italian Alto Adige and Abruzzo regions. Under the
contract, Babcock Italy will provide a 24-hour emergency service
with new Airbus' and Leonardo Helicopters' technologies. Both
contracts have been awarded for a period of nine years. In
Australia, we are running operations for the Victorian Government's
Ambulance Victoria service and have renewed our emergency medical
services contract at Horn Island.
In October, we secured a new long-term emergency medical
services contract in the South West region of France, where we will
provide and operate five aircraft for the French Ministry of
Health.
In Scandinavia, a new five-year contract will see Babcock
operate two new HEMS aircraft in Stockholm and a fixed wing
operation in Northern Sweden and we will be introducing new AW169
aircraft in Scandinavia.
As previously flagged, challenging conditions in the oil and gas
sector have continued to impact our business in the North Sea and
Australia, especially following the grounding of the Super Puma
helicopters following an accident involving one of our competitors'
aircraft, with some delays and cancellations of bids. Despite this,
we secured a long-term extension to an existing contract in the UK,
renewed two oil and gas contracts and won two new additional
contracts with an existing customer in Italy, becoming the sole
provider of these services in the country. We have once again
increased our market position in Australia with the award of two
new long-term contracts by Chevron and Conoco Phillips. Margins and
volumes remain challenging and are expected to continue to be so
over the medium term.
In October, Babcock was awarded a five-year contract by the
consortium TOTAL-ENI for Offshore Transportation and MEDEVAC
operations in Congo, increasing our presence in Africa. And
recently, Babcock Italy has secured a new contract with ENI to
provide oil and gas services from two new bases on the Adriatic
Sea. MCS has also reinforced its position in the renewable energy
market winning a contract to support DONG Energy's offshore Walney
Extension wind farm.
Safety remains the highest priority for MCS. However whilst MCS'
air accident rates are at their lowest recorded levels and well
below the world wide industry average, tragically, in January 2017
an EMS helicopter crashed in Italy resulting in the loss of six
people.
In other international business, we were delighted to be awarded
a contract to support Qantas' GSE fleet at 60 locations across
Australia. The five-year contract, with an option for a further
five years, streamlines the management of the airline's fleet of
over 10,000 ground service equipment assets. Babcock will deliver a
programme to improve the equipment's reliability and provide
significant long-term capability and cost benefits. The contract to
support GSE at Rome's Fiumicino airport is performing well, however
Alitalia's financial difficulties create uncertainty as to the
ongoing viability of this contract.
MCS continues to work with other Babcock divisions to help
facilitate growth through existing strong customer relationships,
operational credibility and administration in the geographies in
which the Group operates.
In South Africa, the Power business continued to grow both in
transmission and generation on the back of Eskom power station
maintenance and niche engineering and construction contracts on the
new power stations at Medupi and Kusile. These contracts include
design engineering, mill construction and high pressure piping
installations. Further progress was made on our strategy of winning
power work outside of Eskom with wins at Sasol and a number of
industrial customers.
Our Equipment business continued to grow market share in a
depressed market which, after a very slow first half, showed signs
of strength on the back of increasing commodity prices. This
resulted in a very strong final quarter leading into year end.
Aftermarket spares and service performed well throughout the year
as customers focused on life-extension programmes through the
downturn. The new Terex product line followed the same pattern as
Volvo, with significant orders won in the last quarter.
2017/18 Sector outlook
As previously mentioned, the Group is focused on continuing to
develop its current areas of core capability in marine, land,
aviation and nuclear engineering (through Cavendish Nuclear),
supported by our expertise in technology, training and
infrastructure. Therefore to better reflect Babcock's deep
engineering experience and operations in these for areas, as of 1
April 2017 we have realigned our existing business to report in
four sectors: Marine, Land, Aviation and Cavendish Nuclear. These
replace the Group's previous divisional structure. As a result,
below are the outlooks for 2017/18 for each of the new sectors.
Marine (36% of Group revenues)
The Marine sector consists of the previous Babcock Marine and
Technology division, but also includes marine training previously
in the Defence and Security division.
We continue to have excellent visibility of our future naval
support programme though our ToBA and our relationship with the MOD
and Royal Navy. We continue to see further outsourcing
opportunities to increase the scope of our complex and critical
engineering support to the MOD as we focus on maximising platform
availability and providing increased value for money.
As well as our core defence business, our innovative expertise
in complex and critical engineering services positions us well to
continue to exploit opportunities in adjacent commercial marine and
energy markets, both in the UK and internationally. We continue to
monitor the market and develop our capacity and capabilities in
these areas of growth. Additionally the markets for engineering
consultancy and cyber security continue to grow, and we see further
opportunities to win business in these areas.
We expect the sector to continue to make good progress during
the next financial year, despite the maturing of QEC aircraft
carrier work which will reduce revenues by around GBP260 million
over the next three years, with a GBP100 million step down expected
in 2017/18. As we look further ahead, we believe the outlook for
the Marine sector remains positive, with a strong pipeline of
growth opportunities across our businesses both in the UK and
established international markets.
Land (35% of Group revenues)
The Land sector is a combination of Critical Services, Network
Engineering, Skills & Learning, previously within the Support
Services division), the military Land business, previously within
the Defence and Security division and South Africa, previously
within the International division.
We see significant opportunities to expand our equipment support
and technical training capabilities across our military and civil
customer base. Our deep understanding of customers' operational and
financial objectives, underpinned by our market-leading
capabilities, enables us to drive greater efficiency across their
operations.
We are experiencing greater demand for equipment support, in the
UK and internationally, as customers seek a flexible partner to
deliver greater availability and efficiency at a reduced cost. In
UK defence, we anticipate further equipment support outsourcing
opportunities as customers acquire and upgrade equipment to improve
force readiness as a result of this Whole Force Approach.
In the civil technical training market, demand for the
outsourced management and delivery of technical training is
increasing as the technology and skills required for delivery
become more complex. Our current military training footprint also
means we are well placed to respond to our defence customers'
increasing focus on training efficiency and improved collective
training solutions. The programmes identified within the SDSR15 are
progressing, with significant activity expected to commence in
2018/19.
Aviation (17% of Group revenues)
The Aviation sector comprises MCS, previously in the
International division, and the military Air business previously
within the Defence and Security division.
Aviation has brought together all of Babcock's aviation related
businesses, both civilian and military, and rotary and fixed wing.
Whilst in the oil and gas business the market remains challenging,
with continued pressure on margins and ongoing cost recovery issues
relating to flight restrictions on EC225 helicopters, the Emergency
Services business is pursuing a number of opportunities in the UK
and internationally, particularly in HEMS.
The UK Military Air business is undertaking a number of bidding
opportunities which have come to market following the SDSR15,
deepening our relationship with the customer and providing
innovative solutions. Our French Air Force contract FOMEDEC is at
the earliest stages of transition and delivery and hence will
initially declare lower margins, but provides an operational
reference for our military air business in continental Europe.
Cavendish Nuclear (12% of Group revenues)
Cavendish Nuclear comprises the nuclear business previously
within the Support Services division.
As a newly created sector in the Babcock Group, Cavendish
Nuclear's growth will be focused in three main markets:
-- nuclear decommissioning in the UK and internationally;
-- the design and safety justification, construction,
commissioning, operational support and maintenance of nuclear
facilities in the UK and internationally; and
-- new sectors where current capabilities can be applied and
developed, such as offshore oil and gas decommissioning.
In the UK, the civil nuclear market remains resilient, with
opportunities for both decommissioning and new build services
providing scope for growth. In particular the recent Government
decision to proceed with the Hinkley Point C project has given new
momentum to new build activity in the UK.
Group income statement
2017 2016
------------------------------------- ---- ------------------ ------------------
For the year ended 31 March Total Total
2017 Note GBPm GBPm GBPm GBPm
------------------------------------- ---- ------- --------- ------- ---------
Revenue(1) 2 4,547.1 4,158.4
Cost of revenue (3,883.0) (3,549.3)
--------- ---------
Gross profit 664.1 609.1
Distribution expenses (13.0) (9.8)
Administration expenses (291.5) (246.8)
--------- ---------
Operating profit before share
of results of joint ventures
and associates 2 359.6 352.5
Share of results of joint
ventures and associates 2 56.7 34.6
--------- ---------
Group and joint ventures and
associates
------- -------
Operating profit before amortisation
of acquired intangibles 545.1 509.1
Investment income 29.7 30.6
------- -------
Underlying operating profit(2) 2 574.8 539.7
Amortisation of acquired intangibles (118.5) (121.6)
Group investment income (1.2) (1.1)
Joint ventures and associates
finance costs (24.6) (21.9)
Joint ventures and associates
income tax expense (14.2) (8.0)
------- --------- ------- ---------
Operating profit 416.3 387.1
Finance costs
------- -------
Investment income 1.2 1.1
Retirement benefit interest (6.4) (5.1)
Finance costs (60.4) (64.1)
Finance income 11.4 11.1
------- -------
(54.2) (57.0)
--------- ---------
Profit before tax 2 362.1 330.1
Income tax expense 3 (46.5) (39.0)
--------- ---------
Profit for the year 315.6 291.1
------------------------------------- ---- ------- --------- ------- ---------
Attributable to:
Owners of the parent 311.8 286.6
Non-controlling interest 3.8 4.5
------------------------------------- ---- ------- --------- ------- ---------
315.6 291.1
------------------------------------- ---- ------- --------- ------- ---------
Earnings per share from continuing
operations 4
Basic 61.8p 57.0p
Diluted 61.7p 56.8p
------------------------------------- ---- ------- --------- ------- ---------
1 Revenue does not include the Group's share of revenue from
Joint ventures and associates of GBP669.5 million (2016: GBP683.7
million)
2 Including IFRIC 12 investment income but before exceptional
items and amortisation of acquired intangibles.
Group statement of comprehensive income
2017 2016
For the year ended 31 March 2017 GBPm GBPm
------------------------------------------------------- ------ ------
Profit for the year 315.6 291.1
Other comprehensive income
Items that may be subsequently reclassified to income
statement
Currency translation differences 88.8 34.1
Fair value adjustment of interest rate and foreign
exchange hedges 4.3 15.9
Tax on fair value adjustment of interest rate and
foreign exchange hedges (0.9) (3.2)
Fair value adjustment of joint venture and associates
derivatives 2.6 (16.4)
Tax on fair value adjustment of joint venture and
associates derivatives (0.5) 3.3
Items that will not be subsequently reclassified
to income statement
Remeasurement of retirement benefit obligations 66.8 (64.1)
Tax on remeasurement of retirement benefit obligations (13.3) 13.0
Impact of change in UK tax rates 1.1 (4.7)
-------------------------------------------------------- ------ ------
Other comprehensive income/(loss), net of tax 148.9 (22.1)
-------------------------------------------------------- ------ ------
Total comprehensive income 464.5 269.0
-------------------------------------------------------- ------ ------
Total comprehensive income attributable to:
Owners of the parent 458.0 265.8
Non-controlling interest 6.5 3.2
-------------------------------------------------------- ------ ------
Total comprehensive income 464.5 269.0
-------------------------------------------------------- ------ ------
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 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 1 April 2015 301.3 873.0 851.3 30.6 314.5 (91.6) (99.0) 2,180.1 18.0 2,198.1
Total
comprehensive
income/(loss) - - - - 230.8 (0.4) 35.4 265.8 3.2 269.0
Shares issued in
year 1.2 - - - - - - 1.2 - 1.2
Dividends - - - - (121.5) - - (121.5) (4.1) (125.6)
Share-based
payments - - - - 16.2 - - 16.2 - 16.2
Tax on
shared-based
payments - - - - (1.9) - - (1.9) - (1.9)
Other reserves
released - - (82.5) - 82.5 - - - - -
Disposal of
non-controlling
interest - - - - (0.7) - - (0.7) 0.7 -
Own shares and
other - - - - (0.7) - - (0.7) - (0.7)
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Net movement in
equity 1.2 - (82.5) - 204.7 (0.4) 35.4 158.4 (0.2) 158.2
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 31 March 2016 302.5 873.0 768.8 30.6 519.2 (92.0) (63.6) 2,338.5 17.8 2,356.3
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 1 April 2016 302.5 873.0 768.8 30.6 519.2 (92.0) (63.6) 2,338.5 17.8 2,356.3
Total
comprehensive
income - - - - 366.3 5.5 86.2 458.0 6.5 464.5
Shares issued in
year 0.9 - - - - - - 0.9 - 0.9
Dividends - - - - (132.5) - - (132.5) (1.3) (133.8)
Share-based
payments - - - - 15.0 - - 15.0 - 15.0
Tax on
shared-based
payments - - - - (0.8) - - (0.8) - (0.8)
Transactions
with
non-controlling
interest - - - - (1.5) - - (1.5) (0.6) (2.1)
Own shares and
other - - - (7.8) - - (7.8) - (7.8)
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Net movement in
equity 0.9 - - - 238.7 5.5 86.2 331.3 4.6 335.9
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 31 March 2017 303.4 873.0 768.8 30.6 757.9 (86.5) 22.6 2,669.8 22.4 2,692.2
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Group balance sheet
2017 2016
As at 31 March 2017 Note GBPm GBPm
-------------------------------------------- ---- ------- -------
Assets
Non-current assets
Goodwill 2,608.8 2,550.6
Other intangible assets 608.0 676.2
Property, plant and equipment 1,036.9 950.8
Investment in joint ventures and associates 6 71.9 39.9
Loan to joint ventures and associates 6 32.3 32.6
Retirement benefits 11 193.5 45.0
Trade and other receivables 29.4 29.2
IFRIC 12 financial assets 20.0 17.7
Other financial assets 7 152.6 84.3
Deferred tax asset 113.1 125.5
-------------------------------------------- ---- ------- -------
4,866.5 4,551.8
-------------------------------------------- ---- ------- -------
Current assets
Inventories 159.2 139.1
Trade and other receivables 885.4 766.9
Income tax recoverable 16.5 24.8
Other financial assets 7 11.9 10.1
Cash and cash equivalents 10 191.4 185.9
-------------------------------------------- ---- ------- -------
1,264.4 1,126.8
-------------------------------------------- ---- ------- -------
Total assets 6,130.9 5,678.6
-------------------------------------------- ---- ------- -------
Equity and liabilities
Equity attributable to owners of the parent
Share capital 303.4 302.5
Share premium 873.0 873.0
Capital redemption and other reserves 735.5 643.8
Retained earnings 757.9 519.2
-------------------------------------------- ---- ------- -------
2,669.8 2,338.5
Non-controlling interest 22.4 17.8
-------------------------------------------- ---- ------- -------
Total equity 2,692.2 2,356.3
-------------------------------------------- ---- ------- -------
Non-current liabilities
Bank and other borrowings 10 1,398.1 1,401.3
Trade and other payables 3.7 4.4
Deferred tax liabilities 134.6 151.9
Other financial liabilities 7 9.7 6.3
Retirement liabilities 11 298.0 248.1
Provisions for other liabilities 90.3 137.8
-------------------------------------------- ---- ------- -------
1,934.4 1,949.8
-------------------------------------------- ---- ------- -------
Current liabilities
Bank and other borrowings 10 154.3 131.6
Trade and other payables 1,297.6 1,185.6
Income tax payable 11.1 11.6
Other financial liabilities 7 4.3 10.6
Provisions for other liabilities 37.0 33.1
-------------------------------------------- ---- ------- -------
1,504.3 1,372.5
-------------------------------------------- ---- ------- -------
Total liabilities 3,438.7 3,322.3
-------------------------------------------- ---- ------- -------
Total equity and liabilities 6,130.9 5,678.6
-------------------------------------------- ---- ------- -------
Group cash flow statement
2017 2016
For the year ended 31 March 2017 Note GBPm GBPm
------------------------------------------------------------ ---- ------- -------
Cash flows from operating activities
Cash generated from operations 8 504.0 490.3
Income tax paid (61.5) (46.6)
Interest paid (63.0) (61.7)
Interest received 11.4 8.3
------------------------------------------------------------ ---- ------- -------
Net cash flows from operating activities 390.9 390.3
------------------------------------------------------------ ---- ------- -------
Cash flows from investing activities
Disposal of subsidiaries and joint ventures and associates,
net of cash disposed 13 (0.6) 10.3
Dividends received from joint ventures and associates 26.7 23.0
Proceeds on disposal of property, plant and equipment 71.9 66.0
Purchases of property, plant and equipment (175.9) (163.2)
Purchases of intangible assets (30.9) (28.2)
Investment in, loans to and interest received from
joint ventures and associates 2.4 1.2
Acquisition of subsidiaries net of cash acquired 12 (24.7) (1.8)
------------------------------------------------------------ ---- ------- -------
Net cash flows from investing activities (131.1) (92.7)
------------------------------------------------------------ ---- ------- -------
Cash flows from financing activities
Dividends paid (132.5) (121.5)
Finance lease principal payments (26.4) (37.2)
Bank loans repaid (329.5) (111.3)
Loans raised 250.0 28.9
Dividends paid to non-controlling interest (1.3) (4.1)
Net proceeds on issue of shares 0.9 1.2
Transactions with non-controlling interest 14 (2.1) -
Movement on own shares (7.8) (0.7)
------------------------------------------------------------ ---- ------- -------
Net cash flows from financing activities (248.7) (244.7)
------------------------------------------------------------ ---- ------- -------
Net increase in cash, cash equivalents and bank overdrafts 11.1 52.9
Cash, cash equivalents and bank overdrafts at beginning
of year 168.8 112.5
Effects of exchange rate fluctuations 5.7 3.4
------------------------------------------------------------ ---- ------- -------
Cash, cash equivalents and bank overdrafts at end
of year 10 185.6 168.8
------------------------------------------------------------ ---- ------- -------
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 2017. They should be read in conjunction with the
Annual Report for the year ended 31 March 2016, which has been
prepared in accordance with IFRSs 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 2016, except as noted below.
Standards, amendments and interpretations effective in 2017 with
minimal or no impact on the Group:
-- IAS 7 (amendments), 'Statement of cash flows', effective 1 January 2017;
-- IAS12 (amendments), 'Income taxes' on Recognition of deferred
tax assets for unrealised losses', effective 1 January 2017.
Interpretations to existing standards that are not yet
effective, have not been endorsed by the EU and the impact on the
Group's operations is currently being assessed but is not expected
to be significant:
-- IFRS 2, 'Share based payments', effective 1 January 2018;
-- IFRS 9, 'Financial instruments', effective 1 January 2018;
2016 Annual improvements, effective 1 January 2018.
Standards and interpretations that are not yet effective and the
impact on the Group's operations is currently being assessed:
-- IFRS 15, 'Revenue from contracts with customers', effective
from 1 January 2018 and endorsed by the EU identifies performance
obligations in contracts with customers, allocates the transaction
price to the performance obligations and recognises revenue as the
performance obligations are satisfied. The standard additionally
requires more detailed disclosures. We have completed an initial
but detailed review of all significant contracts, including
consideration of all types of contracts undertaken by the Group and
the results of our review indicate that IFRS 15 is not expected to
result in any significant change to the timing of revenue or profit
recognition on service provision contracts or long-term service
contracts. This assessment reflects, amongst other matters, that
the Group's contracting arrangements meet the requirements set out
in IFRS 15 to satisfy performance obligations and recognise revenue
over time. The review also indicates that the new standard is not
expected to introduce any significant change to the Group's revenue
recognition policy in relation to revenue from the sale of goods
not under service provision contracts or long-term service
contracts;
-- IFRS 16, 'Leases', effective 1 January 2019 but not yet
endorsed by the EU. Currently, operating leases are not recognised
on the balance sheet and the impact of this standard will be to
recognise a lease liability and corresponding asset on the Group's
balance sheet in relation to most leases currently classified as
operating leases. The change will result in an improvement in
operating profit, with the amortisation of the asset being less
than the current operating lease charge, this will however be
offset by an increase in interest charge with the net position
dependent on the average lease length on adoption.
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
2017 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Revenue including
joint ventures and
associates 1,805.6 976.5 1,478.8 955.7 - 5,216.6
Less: joint ventures
and associates revenue 27.8 90.8 542.3 8.6 - 669.5
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Revenue 1,777.8 885.7 936.5 947.1 - 4,547.1
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Operating profit
before share of joint
ventures and associates 201.8 66.8 47.5 49.2 (5.7) 359.6
Acquired intangible
amortisation 9.4 20.4 30.1 52.8 - 112.7
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Operating profit*
- Group 211.2 87.2 77.6 102.0 (5.7) 472.3
IFRIC 12 investment
income - Group - 0.7 0.5 - - 1.2
Share of operating
profit - joint ventures
and associates 6.9 30.2 32.4 3.3 - 72.8
Share of IFRIC 12
investment income
- joint ventures
and associates - 28.5 - - - 28.5
------------------------- --------------- ------------- --------- ------------- ----------- -----------
Underlying operating
profit 218.1 146.6 110.5 105.3 (5.7) 574.8
Share of finance
costs - joint ventures
and associates - (23.5) - (1.1) - (24.6)
Share of tax - joint
ventures and associates (2.1) (5.4) (6.0) (0.7) - (14.2)
Acquired intangible
amortisation - Group (9.4) (20.3) (30.2) (52.8) - (112.7)
Share of acquired
intangible amortisation
- joint ventures
and associates - (5.8) - - - (5.8)
Net finance costs
- Group - - - - (55.4) (55.4)
Group profit before
tax 206.6 91.6 74.3 50.7 (61.1) 362.1
------------------------- --------------- ------------- --------- ------------- ----------- -----------
* Before amortisation of acquired intangibles and exceptional
items.
Defence Total
Marine and Support continuing
and Technology Security Services International Unallocated operations
2016 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------------- --------- --------- ------------- ----------- -----------
Revenue including
joint ventures and
associates 1,695.9 843.1 1,513.0 790.1 - 4,842.1
Less: joint ventures
and associates revenue 21.6 88.5 566.4 7.2 - 683.7
------------------------- --------------- --------- --------- ------------- ----------- -----------
Revenue 1,674.3 754.6 946.6 782.9 - 4,158.4
------------------------- --------------- --------- --------- ------------- ----------- -----------
Operating profit
before share of joint
ventures and associates 185.7 62.6 54.1 55.8 (5.7) 352.5
Acquired intangible
amortisation 10.2 22.9 33.1 49.6 - 115.8
------------------------- --------------- --------- --------- ------------- ----------- -----------
Operating profit*
- Group 195.9 85.5 87.2 105.4 (5.7) 468.3
IFRIC 12 investment
income - Group - 0.6 0.5 - - 1.1
Share of operating
profit - joint ventures
and associates 3.0 15.9 19.7 2.2 - 40.8
Share of IFRIC 12
investment income
- joint ventures
and associates - 29.3 0.2 - - 29.5
------------------------- --------------- --------- --------- ------------- ----------- -----------
Underlying operating
profit 198.9 131.3 107.6 107.6 (5.7) 539.7
Share of finance
costs - joint ventures
and associates - (20.7) (0.2) (1.0) - (21.9)
Share of tax - joint
ventures and associates (0.9) (2.1) (4.5) (0.5) - (8.0)
Acquired intangible
amortisation - Group (10.2) (22.9) (33.1) (49.6) - (115.8)
Share of acquired
intangible amortisation
- joint ventures
and associates - (5.8) - - - (5.8)
Net finance costs
- Group - - - - (58.1) (58.1)
Group profit before
tax 187.8 79.8 69.8 56.5 (63.8) 330.1
------------------------- --------------- --------- --------- ------------- ----------- -----------
* Before amortisation of acquired intangibles and exceptional
items
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 nor in the previous
year.
3. Income tax expense
Taxation in respect of Group profit before tax and acquired
intangible amortisation totalled GBP86.6 million (2016: GBP81.9
million) including the Group's share of jv income tax of GBP14.2
million (2016: GBP8.0 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) was17.5% (2016: 17.8%).
4. Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
Number of shares
2017 2016
Number Number
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purpose
of basic EPS 504,571,769 503,165,719
Effect of dilutive potential ordinary shares: share options 737,251 1,072,736
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purpose
of diluted EPS 505,309,020 504,238,455
------------------------------------------------------------ ----------- -----------
Earnings
2017 2017 2016 2016
Basic Diluted Basic Diluted
2017 per per 2016 per per
Earnings share share Earnings share share
GBPm Pence Pence GBPm Pence Pence
------------------------------ --------- ------ -------- --------- ------ --------
Continuing operations
Earnings from continuing
operations 311.8 61.8 61.7 286.6 57.0 56.8
Add back:
Amortisation of acquired
intangible assets,
net of tax 92.1 18.2 18.2 94.8 18.8 18.8
Impact of change
in statutory tax
rates 0.5 0.1 0.1 (8.1) (1.6) (1.6)
------------------------------ --------- ------ -------- --------- ------ --------
Earnings before amortisation,
exceptional items
and other 404.4 80.1 80.0 373.3 74.2 74.0
------------------------------ --------- ------ -------- --------- ------ --------
5 Dividends
The Directors have proposed a final dividend of 21.65p per 60p
ordinary share (2016: 19.75p per 60p ordinary share) and it will be
paid on 11 August 2017 to shareholders registered on 30 June 2017,
subject to approval at the Annual General Meeting on 13 July 2017.
The full year declared dividend per share is 28.15p per 60p
ordinary share (2016: 25.8p per 60p ordinary share).
6. Investment in and loans to joint ventures and associates
Investment
in joint Loans to
ventures joint ventures
and associates and associates Total
----------------- ----------------- --------------
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ------- -------- ------- ------ ------
At 1 April 39.9 36.3 32.6 38.6 72.5 74.9
Joint ventures and
associates acquired - - - - - -
Disposal of joint
ventures and associates - 3.2 - (6.5) - (3.3)
Loans to/(repayments
from) joint ventures
and associates - 0.9 - (1.5) - (0.6)
Investment in joint
ventures and associates (1.0) 0.1 - - (1.0) 0.1
Share of profits 56.7 34.6 - - 56.7 34.6
Interest accrued - - 1.1 2.9 1.1 2.9
Interest received - - (1.4) (0.9) (1.4) (0.9)
Dividend received (26.7) (23.0) - - (26.7) (23.0)
Fair value adjustment
of derivatives 2.6 (16.4) - - 2.6 (16.4)
Tax on fair value
adjustment of derivatives (0.5) 3.3 - - (0.5) 3.3
Foreign exchange 0.9 0.9 - - 0.9 0.9
--------------------------- -------- ------- -------- ------- ------ ------
At 31 March 71.9 39.9 32.3 32.6 104.2 72.5
--------------------------- -------- ------- -------- ------- ------ ------
7. Other financial assets and liabilities
Fair value
---------------------------------- ---------------------------
Assets Liabilities
------------ -------------
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
---------------------------------- ----- ----- ------ -----
Non-current
US private placement - currency
and interest rate swaps 127.6 71.7 - -
Interest rate hedges 6.5 2.6 1.2 -
Other currency hedges 1.7 0.3 3.3 1.3
Non-controlling interest put
option - - 5.2 5.0
---------------------------------- ----- ----- ------ -----
Financial instruments 135.8 74.6 9.7 6.3
Finance leases granted 16.8 9.7 - -
---------------------------------- ----- ----- ------ -----
Total non-current other financial
assets and liabilities 152.6 84.3 9.7 6.3
---------------------------------- ----- ----- ------ -----
Current
Interest rate hedges - - 0.2 1.5
Other currency hedges 1.1 5.6 4.1 9.1
---------------------------------- ----- ----- ------ -----
Financial instruments 1.1 5.6 4.3 10.6
Finance leases granted 10.8 4.5 - -
---------------------------------- ----- ----- ------ -----
Total current other financial
assets and liabilities 11.9 10.1 4.3 10.6
---------------------------------- ----- ----- ------ -----
The Group enters into forward foreign currency contracts to
hedge the currency exposures that arise on sales, purchases,
deposits and borrowings denominated in foreign currencies, as the
transactions occur.
The Group enters into interest rate hedges against interest rate
exposure and to create a balance between fixed and floating
interest rates.
The fair values of the financial instruments, 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 GBP27.6 million (2016: GBP14.2 million), these were split as
GBP10.8 million (2016: GBP4.5 million) due within one year and
GBP16.8 million (2016: GBP9.7 million) between one and five
years.
8. Reconciliation of operating profit to cash generated from
operations
2017 2016
GBPm GBPm
------------------------------------------------------------ ------- -------
Cash flows from operating activities
Operating profit before amortisation of acquired intangible
and exceptional items 472.3 468.3
Amortisation of acquired intangible and exceptional items (112.7) (115.8)
------------------------------------------------------------ ------- -------
Operating profit before share of results of joint ventures
and associates 359.6 352.5
Depreciation of property, plant and equipment 82.4 78.1
Amortisation of intangible assets 122.6 123.7
Investment income 1.2 1.2
Equity share-based payments 15.0 16.2
Profit on disposal of joint ventures and associates - (7.5)
Profit on disposal of property, plant and equipment (2.8) (2.4)
Loss on disposal of intangible assets 0.3 -
Operating cash flows before movement in working capital 578.3 561.8
(Increase)/decrease in inventories (0.4) 6.8
Increase in receivables (78.3) (33.4)
Increase in payables 71.0 15.1
Decrease in provisions (28.4) (25.1)
Retirement benefit payments in excess of income statement (38.2) (34.9)
------------------------------------------------------------ ------- -------
Cash generated from operations 504.0 490.3
------------------------------------------------------------ ------- -------
9. Movement in net debt
2017 2016
GBPm GBPm
-------------------------------------------------------- --------- ---------
Increase in cash in the year 11.1 52.9
Cash flow from the decrease in debt and lease financing 91.0 112.4
-------------------------------------------------------- --------- ---------
Change in net funds resulting from cash flows 102.1 165.3
Loans and finance leases acquired with subsidiaries (5.2) -
New finance leases - received - (19.7)
New finance leases - granted 14.8 7.2
Movement in joint venture and associates loans (0.3) (6.0)
Foreign currency translation differences and other (56.4) (49.7)
-------------------------------------------------------- --------- ---------
Movement in net debt in the year 55.0 97.1
Net debt at the beginning of the year (1,228.5) (1,325.6)
-------------------------------------------------------- --------- ---------
Net debt at the end of the year (1,173.5) (1,228.5)
-------------------------------------------------------- --------- ---------
10. Changes in net debt
Exchange/
31 March Acquisitions New finance other 31 March
2016 Cash flow and disposals leases movement 2017
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- --------- -------------- ----------- --------- ---------
Cash and bank balances 185.9 4.6 (5.5) - 6.4 191.4
Bank overdrafts (17.1) 12.2 (0.2) - (0.7) (5.8)
----------------------- --------- --------- -------------- ----------- --------- ---------
Cash, cash equivalents
and bank overdrafts 168.8 16.8 (5.7) - 5.7 185.6
----------------------- --------- --------- -------------- ----------- --------- ---------
Debt (1,378.6) 69.8 (5.2) - (114.4) (1,428.4)
Finance leases
- received (137.2) 26.4 - - (7.4) (118.2)
Finance leases
- granted 14.2 (5.2) - 14.8 3.8 27.6
----------------------- --------- --------- -------------- ----------- --------- ---------
(1,501.6) 91.0 (5.2) 14.8 (118.0) (1,519.0)
----------------------- --------- --------- -------------- ----------- --------- ---------
Net debt before
derivatives and
joint venture and
associate loans (1,332.8) 107.8 (10.9) 14.8 (112.3) (1,333.4)
----------------------- --------- --------- -------------- ----------- --------- ---------
Net debt derivative 71.7 - - - 55.9 127.6
Joint venture and
associate loans 32.6 (0.3) - - - 32.3
----------------------- --------- --------- -------------- ----------- --------- ---------
Net debt (1,228.5) 107.5 (10.9) 14.8 (56.4) (1,173.5)
----------------------- --------- --------- -------------- ----------- --------- ---------
11. Retirement benefits and liabilities
Analysis of movement in the Group balance sheet
2017 2016
------- -------
Total Total
GBPm GBPm
-------------------------------------- ------- -------
Fair value of plan assets (including
reimbursement rights)
At 1 April 3,824.8 3,938.0
Interest on assets 127.1 123.5
Actuarial gain/(loss) on assets 821.7 (150.7)
Employer contributions 77.0 80.8
Employee contributions 1.8 1.7
Benefits paid (176.2) (168.5)
At 31 March 4,676.2 3,824.8
-------------------------------------- ------- -------
Present value of benefit obligations
At 1 April 4,027.7 4,106.6
Service cost 34.9 40.4
Incurred expenses 3.9 4.3
Interest cost 133.5 129.8
Employee contributions 1.8 1.7
Experience gain (13.2) (26.8)
Actuarial gain - demographics (29.6) (21.4)
Actuarial loss/(gain) - financial 797.7 (38.4)
Benefits paid (176.2) (168.5)
At 31 March 4,780.5 4,027.7
Present value of unfunded obligations (0.2) (0.2)
-------------------------------------- ------- -------
Net deficit at 31 March (104.5) (203.1)
-------------------------------------- ------- -------
The amounts recognised in the Group income statement are as
follows:
2017 2016
--------------------------------------- ----- -----
Total Total
GBPm GBPm
--------------------------------------- ----- -----
Current service cost 34.9 40.4
Incurred expenses 3.9 4.3
--------------------------------------- ----- -----
Total included within operating profit 38.8 44.7
Net interest cost 6.4 5.1
--------------------------------------- ----- -----
Total included within income statement 45.2 49.8
--------------------------------------- ----- -----
As at 31 March 2017 the key assumptions used in valuing pension
liabilities were:
Discount rate 2.6% (31 March 2016: 3.5%)
Inflation rate (RPI) 3.2% (31 March 2016: 2.9%)
12. Acquisitions
2017
In April 2016 the Group acquired 100% of Heli Aviation GmbH for
GBP5.7 million plus acquired loans of GBP5.2 million giving a total
cost of GBP10.9 million. Heli Aviation GmbH provides helicopter
services in mission critical operations.
Deferred consideration of GBP7.6 million in respect of the
Defence Support Group, GBP7.2 million in respect of
Scandinavian
Air Ambulance AB, GBP4.0 million in respect of Context
Information Services Limited and GBP0.2 million in respect of
Skills2Learn Limited was paid during the year.
The goodwill arising on the acquisitions derives from the market
position of the entities involved and the value of the workforce
acquired.
Details of the final fair value of assets acquired and the final
goodwill are as follows:
Heli
Aviation
2017 GBPm
------------------------------ ---------
Cost of acquisition
Cash paid 5.7
Fair value of assets acquired
(see below) (4.0)
----------------------------------- ---------
Goodwill 1.7
----------------------------------- ---------
Net assets and liabilities arising from the acquisition are as
follows:
Heli
Aviation
---------
Fair
value
acquired
2017 GBPm
------------------------ ---------
Acquired intangibles* 5.0
Property plant and
equipment 7.0
Deferred tax (1.5)
Income tax (0.1)
Bank Loan (5.2)
Inventory 0.8
Current assets 2.5
Current and non-current
liabilities (3.3)
Provisions (1.2)
Net assets acquired 4.0
------------------------------ ---------
* Acquired intangibles are: customer relationships, both
contracted and non-contracted plus brand valuations.
Cash outflow to acquire businesses net of cash acquired:
Heli
Aviation Other Total
2017 GBPm GBPm GBPm
----------------------- --------- ----- -----
Purchase consideration
paid in cash 5.7 - 5.7
Deferred consideration
paid in cash - 19.0 19.0
Cash, cash equivalents
and bank overdrafts - - -
----------------------- --------- ----- -----
Cash outflow in period 5.7 19.0 24.7
--------------------------- --------- ----- -----
The revenue and operating loss of acquired businesses since the
date of acquisition and as if they had been acquired on 1 April
2016 are:
HeliAviation
-------------------------
Since
date For full
of acquisition year
2017 GBPm GBPm
-------------------------- --------------- --------
Group revenue 6.0 6.1
Group operating loss 1.5 1.7
Underlying operating loss 1.5 1.7
------------------------------ --------------- --------
2016
There were no acquisitions in the previous year.
The deferred consideration of GBP1.3 million in respect of S.
MacNeillie and Son Limited was paid during the year as well as an
additional GBP0.5 million in respect of Skills2Learn Limited.
During the previous year the completion accounts for the Defence
Support Group ("DSG") were finalized. The final consideration of
GBP7.6 million was paid in April 2016.
13. Disposals
There have been no disposals during the year.
During both the current and the previous years the Group paid
certain accrued costs on previously disposed of businesses.
In the previous year on 17 April 2015 the Group sold its
investment in Lewisham Schools for the Future joint venture for
GBP14.3 million at a profit of GBP7.5 million.
In the previous year on 5 July 2015 the Group disposed of its
investment in Norsk Helikopterservice AS("Norsk") for NOK100.
We are currently in the process of completing the disposal of
the Infrastructure business unit. Its revenue in the year to 31
March 2017 was circa GBP30.0 million.
Details of the final assets disposed of are:
2017 2016
---------------------------- ------------------ -------- ------------------------
Previously Previously
disposed disposed
of of
business Total Lewisham Norsk business Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ----- -------- ----- ---------- -----
Investment in and
loans to joint ventures
and associates - - 3.3 - - 3.3
Property, plant and
equipment - - - 0.4 - 0.4
Cash, cash equivalents
and bank overdraft - - - 1.0 - 1.0
Inventory - - - 0.3 - 0.3
Current assets - - - 1.5 - 1.5
Current and non-current
liabilities - - - (2.5) - (2.5)
Provisions - - - (2.1) - (2.1)
Deferred tax - - - 0.4 - 0.4
Mark to market amortisation
recycled from hedging
reserve - - 0.7 - - 0.7
----------------------------- ---------- ----- -------- ----- ---------- -----
Net assets disposed - - 4.0 (1.0) - 3.0
Profit on disposal
of joint ventures
and associates - - 7.5 - - 7.5
Disposal costs - - 2.8 1.0 - 3.8
----------------------------- ---------- ----- -------- ----- ---------- -----
Sale proceeds - - 14.3 - - 14.3
----------------------------- ---------- ----- -------- ----- ---------- -----
Sale proceeds less
cash disposed of - - 14.3 (1.0) - 13.3
Less costs paid in
the year (0.6) (0.6) - (1.1) (1.9) (3.0)
----------------------------- ---------- ----- -------- ----- ---------- -----
Net cash (outflow)/inflow (0.6) (0.6) 14.3 (2.1) (1.9) 10.3
----------------------------- ---------- ----- -------- ----- ---------- -----
14. Transactions with non-controlling interests
In December 2016 the Group acquired the remaining 25% of Babcock
Mission Critical Services Portugal, LDA for GBP2.1 million.
In the previous year on 5 July 2015 the non-controlling interest
in Norsk Helikopterervice AS of GBP0.7 million was disposed of for
no consideration.
The following were the transactions with non-controlling
interests in the current year:
Decrease Decrease
in retained in non-controlling Cash
earnings interests outflow
2017 GBPm GBPm GBPm
---------------------------------- ------------ ------------------- --------
Babcock Mission Critical Services
Portugal, LDA 1.5 0.6 2.1
---------------------------------- ------------ ------------------- --------
Transactions with non-controlling
interests 1.5 0.6 2.1
---------------------------------- ------------ ------------------- --------
15. Related party transactions
Related party transactions in the year are: sales to joint
ventures and associates of GBP184.9 million (2016: GBP184.0
million) and purchases from joint ventures and associates of GBP0.9
million (2016: GBP1.0 million). The year end receivables balance
was GBP17.2 million (2016: GBP17.4 million) and the payables
balance was GBP1.6 million (2016: GBP2.2 million).
16. 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 2016 have been delivered to the Registrar
of Companies and those for 2017 will be delivered following the
Company's Annual General Meeting.
The Annual Report for the year ended 31 March 2017 and this
preliminary statement were approved by the Board on 23 May 2017.
The auditors have reported on the Annual Report for the year ended
31 March 2017 and 31 March 2016 and neither report was qualified
and neither contain a statement under section 498(2) or (3) of the
Companies Act 2006.
Annual General Meeting 2017
This year's Annual General Meeting will be held on 13 July 2017
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 2017.
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
Archie Bethel
Chief Executive
Franco Martinelli
Group Finance Director
23 May 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKNDDCBKDOPB
(END) Dow Jones Newswires
May 24, 2017 02:01 ET (06:01 GMT)
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