17 July 2024
FY24 results update and Type 31 contract
update
Babcock International Group PLC
("Babcock" or "the Group") provides an update on its year ended 31
March 2024 (FY24) and the Type 31 contract.
FY24 - unaudited financial performance
Based on draft preliminary accounts,
subject to finalisation of the year end audit, the Group's summary
results for FY24 are set out below.
Highlights
|
-
|
Strong revenue1 growth, up 11%
organically to £4.4 billion, contract backlog up
9% to £10.3 billion
|
|
-
|
Underlying operating profit2 up 34%
to £238 million. This includes a £90 million loss
on the Type 31 contract and a £17 million profit on disposal of a
property
|
|
-
|
Type 31 loss is fully recognised in
FY24. Cash impact of the loss will
be recognised over the life of the contract
|
|
-
|
Underlying free cash flow of £160 million is significantly
ahead of expectations, despite £35
million accelerated pension deficit payment
|
|
-
|
Balance sheet strengthened: net
debt down £129 million. Net debt to EBITDA (covenant basis)
0.8x
|
|
-
|
Long term pension funding plans agreed
on two of our three large pension schemes; future
annual deficit payments reduced by £25 million to c.£40
million
|
|
-
|
Guidance unchanged: we expect a
further year of progress in FY25 and reiterate our medium term
guidance
|
|
Unaudited FY24 financial highlights
|
31 March
2024
|
31 March
2023
|
|
Contract backlog
|
£10.3bn
|
£9.5bn
|
|
Revenue 1
|
£4.4bn
|
£4.4bn
|
|
Underlying operating profit
2
|
£237.8m
|
£177.9m
|
|
Underlying operating margin
3
|
5.4%
|
4.0%
|
|
Underlying basic earnings per
share
|
30.8p
|
17.7p
|
|
Type 31 loss
|
£(90.0)m
|
£(100.1)m
|
|
Underlying operating profit excluding Type 31
loss
|
£327.8m
|
£278.0m
|
|
Full year dividend per share
4
|
5.0p
|
-
|
|
|
|
|
|
Underlying free cash flow
|
£160.4m
|
£75.3m
|
|
Net debt
|
£(435.4)m
|
£(564.4)m
|
|
Net debt excluding leases
|
£(210.9)m
|
£(346.2)m
|
|
Net debt/EBITDA (covenant
basis)
|
0.8x
|
1.5x
|
|
-
|
Revenue £4.4 billion (FY231: £4.4 billion) grew 11% on an organic basis,
driven by strong growth in Nuclear (up 29%) and Land (up
17%).
|
|
-
|
Underlying operating profit2 of £237.8
million (FY23: £177.9 million)
reflects strong operating performance, particularly the Nuclear,
Land and Aviation sectors.
Underlying operating profit includes
a £90 million loss on the Type 31 contract (FY23: £100 million
loss), discussed below. Excluding the Type 31 loss, underlying
operating profit was £328 million (FY23: £278 million). Also
included is a £17 million profit on disposal of a property.
Excluding these and Type 31 loss, FY24 underlying operating profit
was £311 million (see note 2).
|
|
-
|
Underlying operating margin3 improved to
5.4% (FY23: 4.0%). Excluding the
impact of the Type 31 loss and profit on disposal underlying
operating margin improved 40 basis points to 7.0% (see note
3).
|
|
-
|
Underlying free cash flow of £160 million was significantly
ahead of expectations (FY23: £75
million), despite an accelerated £35 million pension deficit repair
contribution (see below). Strong operational performance and the
timing benefits of early customer receipts were the key drivers,
resulting in an operating cash conversion ratio of 136% (FY23:
173%), or 98% excluding the impact of the Type 31 loss (FY23:
110%).
|
|
-
|
Strong balance sheet: Net debt
at 31 March 2024 was £435 million, a reduction of £129 million
driven by strong cash generation. Net debt excluding leases was
£211 million (FY23: £346 million). On a covenant basis, net debt to
EBITDA decreased to 0.8x (FY23: 1.5x).
|
|
-
|
Pension deficit, on an actuarial technical provision basis,
reduced to c.£200 million (FY23: c.£400 million)
|
|
|
-
|
Long-term funding plans have been
agreed with two of our three large pension schemes, the Babcock
International Group Pension Scheme (BIGPS) and the Devonport Royal
Dockyard Pension Scheme (DRDPS).
|
|
|
-
|
FY24 included a £35 million
accelerated pension deficit repair payment to the BIGPS, which has
now reached self-sufficiency.
|
|
|
-
|
As a result, we expect the total
Group pension deficit repair payments to reduce to around £40
million per annum (previously £65 million per annum).
|
|
|
|
| |
Type 31 update
|
-
|
The outturn over the lifetime of the
contract has deteriorated by £90 million, which has been fully
recognised in FY24
|
|
-
|
The cash impact of this loss is
expected to be realised over the remainder of the
contract
|
|
-
|
The programme has been restructured
following a detailed operational review to protect the in-service
date
|
|
-
|
Excluded from the loss are the
benefits from some planned productivity efficiencies and expected
continuation of the Type 31 programme
|
Signed in 2019, the Type 31 contract
for five ships is the last material legacy onerous contract the
Group is managing. During FY24, we have made progress on the
programme with the superstructure of the first ship almost
complete. Work is also progressing on the second ship with the keel
laid and the first double bottom blocks in the build cradle. In
addition, during the year we have settled the Dispute Resolution
Process with the customer, which has enabled the restructuring of
the programme to drive efficiency and to protect the in-service
date.
Overall estimated programme costs
have increased due to the maturing of the design and increase in
the forecast cost of labour. The increase in the cost of labour in
the market available to Rosyth is forecast to be higher than CPI,
the indexation within the Type 31 contract. These cost increases
cause the total contract outturn to deteriorate by £90 million,
which has been fully recognised in FY24. The cash impact of the
loss is expected to be realised over the remaining five years of
the programme.
During the year we initiated an
operational improvement programme to challenge all aspects of the
contract, including a significant focus on cost drivers and
financial modelling, supported by external consultants. This has
been led by a new management team with enhanced capability to
restructure the programme, and they are supported by the
experienced leaders in the new Group functions. Our operational
improvement programme is facilitated by the fact that the design is
now more mature. Although this has increased the volume of work,
the design maturity has allowed us to target improvements in
productivity and ongoing support costs as well as benefitting
prospective export sales of our Arrowhead 140 design.
The Audit Committee has reviewed the
programme team's plans to deliver additional programme benefits
from improvements in productivity and further work relating to the
continuation of the T31 contract. Some of these benefits have not
been taken into account in the loss given the evidential bar
required to recognise future benefits, although we do expect the
benefits to be delivered over the course of the
programme.
Preliminary results
The external audit is substantially
complete in all areas except the finalisation of Type 31. Subject
to completion of the audit process, we expect to announce our FY24
preliminary results on 26 July 2024.
Notes
1. Revenue
|
-
|
FY23 included £422 million from
disposals and a £12 million one-off credit (revenue and
profit)
|
|
-
|
Excluding these, FY23 revenue was £4,005
million
|
2. Underlying operating
profit
|
-
|
FY24 underlying operating profit
included a £90 million loss on Type 31 and a profit on property
disposal of £17 million
|
|
-
|
Excluding these, FY24 underlying operating profit was £311
million
|
|
-
|
FY23 underlying operating profit
included a £100 million loss on Type 31, a one-off accounting
credit (£12 million as above), and £1 million operating profit
contribution from businesses divested in the year
|
|
-
|
Excluding these, FY23 underlying operating profit was £265
million
|
3. Underlying operating
margin
|
-
|
Excluding the loss on Type 31 and
profit on property disposal, FY24
underlying margin was 7.0%
|
|
-
|
Excluding disposals and one-off
credit, FY23 underlying operating margin, on an ongoing basis, was
6.6%
|
The
FY23 figures were the basis of our medium-term guidance, outlined
in the FY23 results (page 2).
4. Full year dividend
|
-
|
The full year dividend reflects the
HY24 interim dividend of 1.7 pence (FY23: nil) and a FY24 proposed
final dividend of 3.3 pence (FY23:
nil)
|
Conference call
There will be a conference call at
08:30 BST today, Wednesday 17th July, for investors and
analysts. The call will be webcast at
www.babcockinternational.com/investors/results-and-presentations/
This announcement contains inside
information: The person responsible for
arranging the release of this announcement on behalf of the company
is Jack Borrett as Company Secretary.
ENDS
For
further information:
|
Andrew Gollan, Director of Investor
Relations
|
+44 (0)7936 039004
|
|
Kate Hill, Group Head of Financial
Communications
|
+44 (0)20 7355 5312
|
|
Olivia Peters / Harry Cameron,
Teneo
|
+44 (0)20 7353 4200
|
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, many of which are
beyond Babcock's control that could cause actual results or events
to differ materially from those expressed or implied by the
forward-looking statements. These risks, uncertainties or
assumptions could adversely affect the outcome and financial
effects of the plans and events described herein. Forward-looking
statements contained in this announcement regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. 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. 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.
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.