TIDMBAB
RNS Number : 9471O
Babcock International Group PLC
23 May 2018
23 May 2018
Babcock International Group PLC
Full year results for the year ended 31 March 2018
Sustaining profitable growth
Financial highlights
March March
Statutory 2018 2017 Change
------------------------- ----------- ----------- ------
Revenue GBP4,659.6m GBP4,547.1m +2.5 %
========================= =========== =========== ======
Operating profit GBP370.6m GBP359.6m +3.1 %
========================= =========== =========== ======
Profit before tax GBP391.1m GBP362.1m +8.0 %
========================= =========== =========== ======
Basic earnings per share 66.6p 61.8p +7.8 %
------------------------- ----------- ----------- ------
The adjustments described below, collectively, are made to
derive the underlying 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. A reconciliation from statutory to underlying is
provided within the financial review.
* 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* GBP5,362.8m GBP5,216.6m +2.8 %
============================= =========== =========== ======
Operating profit** GBP584.6m GBP574.8m +1.7 %
============================= =========== =========== ======
Profit before tax*** GBP512.5m GBP494.8m +3.6 %
============================= =========== =========== ======
Basic earnings per share**** 83.0p 80.1p +3.6 %
----------------------------- ----------- ----------- ------
Net debt GBP1,115.0m GBP1,173.5m -5.0%
============================= =========== =========== ======
-11.1
Net debt/EBITDA 1.6x 1.8x %
============================= =========== =========== ======
Order book GBP18.0bn GBP19.0bn -5.3 %
============================= =========== =========== ======
+23.8
Bid pipeline GBP13.0bn GBP10.5bn %
----------------------------- ----------- ----------- ------
Full year dividend 29.5p 28.15p 4.8 %
----------------------------- ----------- ----------- ------
Financial highlights
-- 2.8% growth in underlying revenue (2.8% organic growth at constant currency)
-- 1.7% growth in underlying operating profit (1.6% organic growth at constant currency)
-- 3.6% growth in underlying profit before tax
-- GBP31 billion order book and bid pipeline
-- 76% of underlying revenue in place for 2018/19; 50% for 2019/20
-- Cash conversion of 106% pre capital expenditure, 82% post capital expenditure;
116% pre capital expenditure, 92% post capital expenditure
excluding one-year impact of FOMEDEC contract
-- Net debt down 5% to GBP1,115.0 million; net debt to EBITDA
ratio reduced from 1.8 to 1.6 times
-- 3.6% increase in underlying basic earnings per share
-- 4.8% increase in full year dividend
Operational highlights
-- First year of operating in realigned sector structure, Technology Group established
-- International underlying revenues increased to 28% of Group total
-- Aircraft carriers: HMS Queen Elizabeth delivered to the Royal
Navy, HMS Prince of Wales named and undocked at Rosyth
-- Successful delivery of Royal School of Military Engineering benchmarking programme
-- Military flight training: UK training started at new school
at RAF Cranwell; French FOMEDEC contract mobilisation on track
-- Played crucial role in extinction of major fires across Southern Europe
-- Formal agreement reached on Magnox; Sellafield PFCS under budget and ahead of schedule
-- Completed IFRS 15 review confirmed no impact on results following adoption
Chief Executive Archie Bethel said:
"I am pleased to report another year of further progress on all
fronts. Underlying revenue and profits increased to record levels
with excellent cash generation, and we further strengthened the
balance sheet by reducing our net debt while increasing our
dividend for the seventeenth consecutive year. We ended the year
with an order book and bid pipeline worth GBP31 billion, which
supports our future growth prospects.
"We have always been a specialist engineering services company
with a strong UK heritage but the changes we have made in the last
couple of years are beginning to deliver meaningful benefits. Our
new sector structure is making a real difference, we are
increasingly focused on our core business areas of defence,
emergency services and civil nuclear, and are on track to exceed
our target of having 30% of the Group's underlying revenue coming
from international markets by 2022.
"We expect to make further progress this year and are confident
about Babcock's longer-term prospects which are underpinned by our
technical expertise, unique infrastructure and a sustainable
business model which is increasingly relevant to our key customers
in non-cyclical and highly regulated markets"
Archie Bethel
Chief Executive
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 23 May 2018
at 9.00 am at FTI Consulting, London.
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 23 May 2018.
To dial into the presentation, please call +44 (0)20 3059 5868
or +44 20 3059 5868 (all other locations)
Please allow 15 minutes to register for both the webcast and the
call.
Introduction
Overview
Babcock enjoyed another successful year in 2017/18, with
underlying revenue, operating profit and profit before tax at
record levels. The Group delivered growth of 2.8% in underlying
revenue, 1.7% in underlying operating profit and 3.6% growth in
underlying profit before tax. This has resulted in a 3.6% growth in
underlying basic earnings per share.
On a statutory basis, revenue for the year was GBP4,659.6
million (2017: GBP4,547.1 million), up 2.5%. Statutory operating
profit increased by 3.1% to GBP370.6 million (2017: GBP359.6
million). Statutory profit before tax increased by 8.0% to GBP391.1
million (2017: GBP362.1 million), reflecting the net profit growth
from joint ventures and associates and a reducing finance cost.
Basic earnings per share, as defined by IAS 33, was 66.6 pence
(2017: 61.8 pence) per share, an increase of 7.8%.
Our focus remains on delivering returns and cash and on
strengthening the balance sheet. We have further reduced net debt
and have achieved targeted cash conversion of 106% before capex
(2017: 115%) and 82% after capex (2017: 86%). Excluding the
one-year effect on working capital outflow of the French Airforce
pilot training contract (FOMEDEC), this represents cash conversion
of 116% before capex and a five-year high conversion rate of 92%
after capex.
This improved financial and operational performance, delivered
in a year when the political and economic environment has created
concern and uncertainty, demonstrates the stability and quality of
our business. Babcock has unique market positions in many areas
with a broad base of loyal customers whom we support through thick
and thin.
Over the last fifteen years or so, Babcock has steadily
established strong long term positions in three major markets:
defence, emergency services and civil nuclear - initially in the UK
but increasingly worldwide. These three long term markets currently
account for over 70% of our underlying revenue and will be the main
focus of growth over the next few years.
This strategy is supported by the realignment of the Group into
four sectors - Marine, Land, Aviation and Cavendish Nuclear - at
the beginning of the financial year. The realignment was
implemented quickly and smoothly and has brought added clarity and
transparency to our operations and financial results. It has
brought together our capabilities and our specific sector expertise
and experience, equipping us to compete for contracts which we
would not otherwise have been able to pursue. Importantly, the
realignment has helped us to transition from our old ways of
working into an organisation which is structured to take our
business model outside the UK and create a compelling proposition
for new customers.
This focus on international markets has seen our non-UK business
growing to 28% of Group underlying revenue (2017: 25%) without any
change to overall Group margin, positioning us to beat our target
of securing 30% by 2022. Australia and South Africa have been
established as our first international 'home countries',
recognising that they are delivering Babcock solutions across
multiple sectors. We have secured a number of important new
contracts in Spain, Australia, Sweden, Oman and Norway, and
mobilisation for the French Airforce pilot training contract at
Cognac, France is well advanced in preparation for the service
starting later this year.
We have also established a new Technology Group, focused on
driving technology transfer across the four sectors. Technology is
playing an ever more important role in delivering innovative
support and sustainment solutions across the Group - and technology
and data are at the heart of our operating solutions. We have
designed the weapons handling and discharge systems for every UK
submarine ever built, and are the technical authority for a number
of classes of ships and submarines in the UK and Canada - and are
often the partner of choice to introduce new helicopters to the
market. We have developed and operate sophisticated training
simulations to help train French and UK military pilots. We use
Augmented and Virtual Reality to enhance our training and smart
through-life sustainment solutions and are a technology application
partner. We recently won a contract to provide specialist equipment
for Sellafield which will utilise our unique engineering expertise
at Rosyth and in Cavendish Nuclear - this is the kind of complex
engineering work which really plays to our strengths.
We continue to successfully deliver major projects, and after
twelve years are now in the final stages of the UK's Queen
Elizabeth Class Aircraft Carrier build programme. This year saw two
significant milestones in this landmark project - HMS Queen
Elizabeth was officially handed over to the Royal Navy, and her
sister ship, HMS Prince of Wales, was formally named and floated
out of the build dock.
We also completed a review of our contracts against the new IFRS
15 accounting standard, and were able to confirm at the half year
that adoption of the standard will not result in changes to our
contract control and revenue recognition processes.
Finally, we continue to focus on continuous improvement of our
Health and Safety performance, and once again had an excellent year
achieving even higher standards across the Group.
Operational performance
We have made significant progress and provided critical support
to customers dealing with exceptional issues in a number of long
term contracts, including:
-- UKMFTS flying training started at the new training school, RAF Cranwell
-- Successful delivery of the Royal School of Military
Engineering (RSME) benchmarking programme
-- Supported the Metropolitan Police and London Fire Brigade through a challenging period
-- Delivered first batch of Missile Launch Tube Assemblies for
the new Dreadnought Class of Trident nuclear submarines
-- Naval Service Apprenticeships scheme awarded Oustanding rating from OFSTED
-- Four vessel OPV contract for Irish Naval Service approaches successful completion
-- In Oman, Duqm JV: successful completion of first packages of
marine support work for the US Navy
-- Reached formal agreement on hand back of Magnox contract to BEIS at the end of August 2019
-- At the Sellafield nuclear facility, Pile Fuel Cladding Silo
decommissioning project is progressing well
-- FOMEDEC French Airforce pilot training contract on track
Contract awards
Order intake remained strong in the period, with over GBP4.5
billion of new contracts added to the order book. Contracts secured
include:
-- HADES, a new contract to provide technical support services at 17 RAF bases
-- 10-year Sellafield nuclear decommissioning contract to provide 'Glovebox' equipment
-- First orders received for patented ecoSMRT(R) liquid natural
gas marine transportation system
-- Renewed core firefighting contract in Italy for a further seven years
-- Selected as preferred bidder for renewal of significant
Spanish aerial search and rescue contract (SASEMAR)
-- Further Type 23 frigate life extension awards: HMS Lancaster and Richmond
-- Hinkley Point C: new contract from EDF to deliver training for the new build nuclear plant
-- Naval support contracts for Collins Class submarines and ANZAC Class frigates
-- Australian Defence Force ground support equipment.
Long term visibility continues to be one of our consistent
strengths, with the combined order book and bid pipeline growing to
around
GBP31 billion (2017: c GBP30 billion). This provides clear
visibility of future underlying revenues, with 76% of underlying
revenue already secured for 2018/19 and 50% for 2019/20. The bid
pipeline continues to be supported by a buoyant tracking pipeline
of opportunities which have yet to formally come to market.
During the year, we maintained our win rates, achieving success
in over 40% of our bids for new contracts, and over 90% for
renewals.
Dividend
This year, underlying basic earnings per share increased by
3.6%. The Group continued to strengthen the balance sheet and
achieved its target of delivering pre capital expenditure cash
conversion of over 100%. Together with a combined order book and
bid pipeline of around
GBP31 billion, this enables the Board to remain confident in the
long term future of our business and it therefore is recommending a
4.6% increase in the final dividend per share for 2018 of 22.65
pence (2017: 21.65 pence). If approved by shareholders at the AGM
on 19 July 2018, this will give a total dividend for the year of
29.5 pence per share (2017: 28.15 pence per share), an increase of
4.8%. The final dividend will be paid on 10 August 2018 to
shareholders on the register at 29 June 2018.
Outlook
The revenue visibility provided by around GBP31 billion of
secured orders and near term opportunities offers continued
prospects for growth in line with previous expectations for this
year and over the medium term. The Board is confident that the
Group will achieve low mid-single digit organic revenue growth with
broadly stable margins in 2018/19, despite the scheduled step downs
in the Aircraft Carrier and Magnox decommissioning programmes. The
Group expects continuing good cash generation and is targeting a
net debt to EBITDA ratio of 1.4 times at the end of the current
financial year.
2018/19 sector outlook:
-- Marine: low to mid single digit underlying revenue growth
with stable margins.
-- Land: underlying revenue flat with stable margins
-- Aviation: strong underlying revenue growth but mix of
business will result in a softening margin
-- Cavendish Nuclear: underlying revenue flat with stable
margins
Operational review
Marine
31 March 31 March Change
2018 2017 + / -
----------- ------ ---------- ---------- ------
GBP1,766.5 GBP1,873.8
group m m -5.7 %
================== ========== ========== ======
Underlying GBP22.4 GBP27.8 -19.4
revenue jv m m %
------ ---------- ---------- ------
GBP1,788.9 GBP1,901.6
total m m -5.9 %
------------------ ---------- ---------- ------
GBP231.3 GBP227.0
group m m +1.9 %
================== ========== ========== ======
Underlying
operating GBP3.8 GBP6.9 -44.9
profit Jv m m %
------ ---------- ---------- ------
GBP235.1 GBP233.9
total m m +0.5 %
------------------ ---------- ---------- ------
group 13.1 % 12.1 %
================== ========== ==========
Underlying
operating
margin jv 17.0 % 24.8 %
------ ---------- ----------
total 13.1 % 12.3 %
------------------ ---------- ----------
Market overview
The Marine sector's core UK naval market has remained stable,
with the Ministry of Defence (MOD)'s 10-year Equipment Plan
forecasting a planned spend of GBP20 billion over the next decade
on procurement and support for surface ships, including the Queen
Elizabeth Class (QEC) aircraft carriers, and Type 26 and Type 31e
frigates; and GBP44 billion on submarine programmes, including the
new Dreadnought Class submarines.
In the UK, we provide 100% of submarine and 75% of surface fleet
refits at our own facilities. Our Terms of Business Agreement with
the MOD defines our position as the MOD's strategic support partner
at both HMNB Devonport and HMNB Clyde and enables us to support the
transition of HMNB Clyde to be the UK submarine centre of
specialisation from 2021. Additionally, our experience of
delivering technical training to more than 30,000 service personnel
each year gives us a strong platform to grow our training business
in the UK and internationally.
With increasing but ever-present pressure on support budgets,
the MOD continues to work closely with industry partners to deliver
better military capability and value for money in a sustainable and
affordable way. This includes seeking opportunities for industry to
expand its role in the delivery of core support capabilities. The
UK's Modernising Defence Programme, due later in 2018, should
provide a welcome clarification of the wider future naval support
programme.
Launched in September 2017, the UK National Shipbuilding
Strategy represents a step change in the Government's approach to
naval ship procurement, presenting immediate opportunities for the
design and build of five Type 31e frigates and up to three Future
Solid Support Ships as well as providing a platform to develop our
position in the growing global light frigate market.
Internationally, the Canadian Government has published its
revised defence policy confirming its commitment to life-extend the
existing fleet of four Victoria Class submarines and invest in a
range of new build marine requirements, including 15 new surface
combatants and a range of Coast Guard vessels. These programmes are
likely to increase the demand for technically complex naval support
services. In Oman, the overall market environment remains positive,
and we expect more contracts over the course of 2018. In Europe, we
see potential future opportunities from a number of submarine
programmes which are currently in the early concept phases. In New
Zealand, the defence force intends to acquire around NZ$3 billion
of marine capability over the next 14 years.
The UK and international specialised manufacturing markets
continue to provide opportunities within defence, civil nuclear,
decommissioning and commercial marine, including programmes like
the UK Dreadnought and US Columbia Class submarine build, North Sea
decommissioning and civil nuclear new build with Cavendish
Nuclear.
The gas equipment market continues to provide a strong pipeline
of future opportunities for our new technologies in Gas Supply
Vessels and Liquefied Natural Gas (LNG) handling. We see
opportunities in the liquefied gas carrier market driven by demand
from major economies such as China, Korea, India and Africa.
Financial review
Marine revenues excluding the QEC Aircraft Carriers grew by 1%
in the year with UK and international naval marine growing well and
the Technology business gaining orders towards the year end which
provide a good start to 2018/19. Including QEC revenues, Marine
underlying revenue decreased 5.9% to GBP1,788.9 million (2017:
GBP1,901.6 million).
In the UK, Technology equipment orders delayed in financial year
2017/18 are now forthcoming, and there is increasing demand for our
complex technology applications such as ecoSMRT(R) . The large,
one-off, QEC build and assembly programme is on schedule for
completion in FY20. During the year major programme milestones were
passed; HMS Queen Elizabeth was handed over to the Royal Navy for
sea trials and HMS Prince of Wales was undocked; as such QEC
revenue declined 45% to GBP163 million (2017: GBP294 million). QEC
step down in 2018/19 is expected to be around GBP90 million as the
further milestones are passed. International Naval saw good growth
in the year with progress across contracts in Australia, New
Zealand, South Korea and Canada.
Efficiency and contract performance, combined with a change of
mix with the reduction in QEC volumes, allowed margins to improve
to 13.1% (2017: 12.3%) despite an increased pension cost. Margins
excluding the QEC effect were flat year on year with profit flat
overall.
Operational review
UK naval marine
Babcock is successfully operating 23 naval support projects for
the UK Royal Navy and we are on track to deliver the cost and
performance requirements at HMNBs Clyde and Devonport through our
five-and-a-half year Maritime Support Delivery Framework (MSDF)
agreement. We have also achieved significant milestones on the Type
23 Frigate Life Extension programme having completed the first
three of the planned 13 vessel programme. We have also completed
work on a range of in-service submarines including a major work
package for the first of the seven Astute Class submarines, HMS
Astute.
At our unique Devonport Dockyard facility, we are continuing to
progress the first life extension package for the Vanguard Class
ballistic missile submarines whilst, at Rosyth, the first submarine
dismantling project is now underway.
We are leading 'Team 31' - a group of industry leaders,
including Thales, with the capability to deliver a competitive
design and build solution for the MOD's new Type 31e general
purpose frigate, destined for both UK and export markets. The
project is expected to be awarded in 2019.
As a leading member of the Aircraft Carrier Alliance, we were
delighted to see the first of these iconic vessels, HMS Queen
Elizabeth, enter service with the Royal Navy in December 2017. The
second vessel, HMS Prince of Wales, was named at our Rosyth
facility in September 2017 and is now afloat while we complete the
vessel and begin systems testing. At our Appledore facility, the
fourth Offshore Patrol Vessel for the Irish Naval Service was
floated out in March 2018, with commissioning expected in summer
2018.
As part of our contracted commitments under MSDF, and
recognising that the QEC project is nearing completion, we are
undertaking a headcount reduction programme across the business
aimed at ensuring that we are ready to respond to the growth
challenge whilst meeting our customer commitments and supporting
our financial forecasts. A total of 1,100 redundancies have been
announced across the business with the vast majority of the
reductions likely to be achieved through voluntary means.
We are approaching completion of the first block of missile
launch tube assemblies for the UK Dreadnought and US Columbia
submarine programmes, and have already started work on the second.
We have prequalified to bid for assemblies for the US Virginia
Class submarine programme.
We have extended our Royal Navy training contract to 2020, worth
c GBP60 million, and have successfully completed the delivery of a
new suite of training tools to enable the Royal Navy to train the
next generation of naval engineers. We have also augmented our
Future Training Unit, increasing our support offering for the
aircraft carriers.
International naval marine
In Canada, our Victoria In-Service Support Contract continues to
meet expectations, and we are providing support to all Royal
Canadian Navy submarines, in particular HMCS Corner Brook, which is
currently in refit, to be followed by HMCS Victoria. Additionally,
we are examining the potential to offer a similar complex support
capability to other Canadian federal vessels (Navy and Coast
Guard).
In Australia, while Government studies begin on potential life
extension of the Collins Class submarines, our sustainment contract
with the Australian Submarine Corporation was renewed with a
five-year programme. Our capability in submarine life extension
should create further opportunities on the Collins Class programme
whilst we continue to work with both Naval Group and Lockheed
Martin in equipment supply and sustainment options for the
Australian SEA1000 Future Submarine programme. Technical support
capabilities are critical selection criteria and will demand the
transfer of know-how to Babcock Australia, which will increasingly
become the focus for delivery of all contracted solutions.
Our NSM JV extended its contract to provide support to the Royal
Australian Navy's ANZAC Class frigates for a further five years.
Within the wider Warship Asset Management Agreement, the programme
is designed to ensure the frigates stay in service until 2031.
In Oman, we have undertaken deployed support periods for Royal
Navy vessels as well as a number of vessels for the US Navy and US
Military Sealift Command. The unique strategic location of the Duqm
facility will provide a number of opportunities to build our
relationship with the US and other international navies.
In South Korea, we secured a contract to deliver Weapons
Handling and Launch Systems for the third Jangbogo III submarine
and have opened a facility in Busan to support ongoing projects and
future growth.
Technology
We have mobilised to provide both an equipment support
capability and a technical authority service for the platform
systems fitted to the Type 45 Destroyer and QEC aircraft carriers.
We have also delivered significant improvements in performance from
our Equipment Management Operations Centre (EMOC) across a range of
equipment support contracts with the UK MOD.
Within our analytics business, we have been successful in
providing secure collaboration and information management
capability to the UK's Naval Marine enterprise. We have helped
Network Rail transform their management of asset-related data. We
continue to push our technical capabilities into new sectors,
including helping United Utilities develop their asset management
strategy by embedding predictive analytics into their
decision-making process. Additionally, we have had a record level
of demand for our cyber products and incident response services and
supported our financial services customers through the
establishment of offices in New York and Frankfurt.
In our Energy and Marine business we have maintained market
share of around 50% in the LPG sector and have secured our first
orders for our proprietary system ecoSMRT(R) in LNG reliquefaction.
Our After Market Operational Support Services for ship owners,
which includes plant performance monitoring and analysis, control
system upgrades and obsolescence control, is progressing well.
Highlights include the successful delivery of 22 LPG ships,
including our first LPG projects in China and successful patents
for our VentGasCooler technology in South Korea, China, Japan,
Vietnam and USA.
The last 12 months have also seen Babcock deliver on the E-On
Rampion and Ørsted Hornsea 1 offshore renewable contracts from our
Rosyth base, with one element of the Siemens Beatrice contract
complete and the second element to be delivered shortly. There are
no current plans to pursue further opportunities in this
market.
Outlook
Through our ToBA and strong relationship with the MOD, we
continue to have excellent visibility of the UK future naval
support programme of work. We are continuing to apply new and
innovative technologies, thereby increasing the scale and scope of
engineering support that we are able to deliver, not just from the
UK, but as a global support provider.
Outside our core defence business we continue to see
opportunities to apply our expertise in complex and critical
engineering in adjacent commercial marine and energy markets, both
in the UK and internationally. We believe the outlook for the
Marine sector is positive, with a strong bidding and tracking
pipeline of growth opportunities in the UK and our established
international markets, complemented by our continually increasing
intellectual property and internal capability.
We expect a c GBP90 million step down in QEC revenue in 2018/19,
and overall we expect low to mid single digit underlying revenue
growth with stable margins.
Land
31 March 31 March Change
2018 2017 + / -
----------- ------ ---------- ---------- ------
GBP1,760.4 GBP1,685.4
group m m +4.4 %
================== ========== ========== ======
Underlying GBP88.7 GBP126.3 -29.8
revenue jv m m %
------ ---------- ---------- ------
GBP1,849.1 GBP1,811.7
total m m +2.1 %
------------------ ---------- ---------- ------
GBP108.7 GBP113.0
group m m -3.8 %
================== ========== ========== ======
Underlying
operating GBP31.4 GBP26.7 +17.6
profit jv m m %
------ ---------- ---------- ------
GBP140.1 GBP139.7
total m m +0.3 %
------------------ ---------- ---------- ------
group 6.2 % 6.7 %
================== ========== ==========
Underlying
operating
margin jv 35.4 % 21.1 %
------ ---------- ----------
total 7.6 % 7.7 %
------------------ ---------- ----------
Market overview
We continue to see demand for fleet management, equipment
support and technical training services in the UK and overseas,
particularly for customers with critical and complex fleets in the
defence and civil sectors.
In our Defence business, we continue to build our relationship
with the British Army through our strategic partnership for
equipment support and individual training. We use enhanced data and
analytics to inform their decisions on equipment support solutions
and we have developed innovative solutions to support planning for
major change programmes. We see opportunities to provide fleet
management and equipment support solutions to new 'blue light'
emergency services customers in the UK and overseas. Our investment
in strategic fleet management capabilities and decision support and
data analytics has positioned us strongly in this sector.
We experience continuing demand for our specialist technical
training services. The introduction of the Apprenticeship Levy in
2017 has had a significant impact on the market for apprentice
training. Whilst SMEs have reduced their uptake of new apprentices,
larger firms are seeking support from large-scale providers such as
Babcock to enable them to extract maximum value from the levy by
optimising the mix of training they provide.
In our Rail business, we continue to support Network Rail and
expect this relationship to continue as they move into Control
Period 6 from April 2019, which will see the delivery of a GBP47
billion five-year expenditure plan.
In South Africa, political uncertainty has remained which has
significantly impacted economic growth, however we have seen a
resurgence in the mining markets with international demand driving
production output and demand for our specialist mining equipment.
The latter part of the year saw some political leadership changes
relating to Eskom, the state owned power facility, which has
brought some stability to the landscape.
Financial review
The Land sector underlying revenue grew 2.1% to GBP1,849.1
million (2017: GBP1,811.7 million) as Defence and South Africa
performed well. Organic growth at constant exchange rates was 2.3%
in the period. DSG is progressing well, with discussions to
transition into an availability based contract ongoing. South
Africa has benefited from improved commodity pricing in the
equipment business and continuing strong demand from its main power
customer.
Organic underlying operating profit at constant exchange rates
increased 1% to GBP140.1 million (2017: GBP139.7 million).
Operating margin for the sector was broadly stable at 7.6% (2017:
7.7%). There was some weakness in Rail as previously flagged as the
Control Period 5 slows down in anticipation of Control Period 6,
and some disruption in apprentice training as the new Government
levy regime is introduced. This was largely offset by performance
in the South Africa business and the Royal School of Military
Engineering (RSME) JV.
Operational review
The Land sector continues to perform well in its chosen markets,
providing critical services to civil and military organisations
worldwide. It remains focused on its core capabilities, providing
vital support for its customers' large-scale fleets of complex
vehicles and equipment, and delivering high quality technical
training to our customers' workforces.
Defence
In our Defence business, we have also provided around 300
vehicles as part of the Army's deployment in Estonia, demonstrating
our ability to meet changing demands. We continued our work
building the Warrior Capability Sustainment Programme demonstration
vehicles for Lockheed Martin and were awarded a further year's
extension of maintenance to the Protected Mobility Vehicle Fleet.
We have recruited and trained two units of sponsored reserves, who
work for Babcock each day, but who can be deployed as soldiers by
the British Army. This capability has been used as part of the
Whole Force Approach, supporting the Army's equipment repair in
Canada.
Following our contract extension, last summer, to provide
critical asset support to British Forces Germany up to their
planned drawdown in March 2020, we have now been awarded an
extension to our service delivery in Italy, supporting the European
Support Group, in their role for NATO. Babcock Australia was
awarded the Australian Defence Force ground support equipment asset
management services contract, which is due to begin operations in
the first half of 2018/19.
Our Defence Training business continues to perform well,
delivering over 20,000 training days to the British Army. We
successfully concluded the benchmarking of the RSME PPP contract,
and have implemented the service transformation which will provide
the MOD with around GBP80 million of further efficiencies over the
rest of the contract.
We continue to develop training technology. We have designed and
delivered a GBP2 million virtual reality system for the
Electro-Mechanical training contract and have started to use data
and analytics to support service improvements and drive further
efficiencies. Our close relationship with the Royal Electrical and
Mechanical Engineers (REME) continues, as we prepare for their move
to the new Apprenticeship Standard for REME engineers later this
year.
Our ALC joint venture, which provides construction vehicles for
the MOD, has performed strongly, with high demand for the service
throughout the year. We are working on a bid to bring together the
construction vehicle fleet and the mechanical handling fleet. The
contract to deliver fleet services for the MOD's 17,000
administrative vehicles, Phoenix II, continues to progress, with
the integration of the fleets in Germany, the rest of Europe, and
the MOD Military Police. Enhanced capabilities are being evaluated
for future implementation that will deliver greater efficiencies
for our customer through better utilisation of the fleet.
Emergency services and training
We have continued to provide strong support and high levels of
equipment availability to UK emergency services customers in a
challenging year. In September, we were awarded a 12-month
extension to our contract with the Metropolitan Police Service
(MPS), ensuring continuation of service delivery until the MPS
announce the preferred bidder for its future fleet management
contract later this year. In parallel, Babcock Vehicle Engineering
(formerly MacNeillie) extended its contract with the MPS to provide
vehicle conversions. Further progress has been made, assisting
London Fire Brigade in modernising its fleet of vehicles and
appliances under its asset replacement programme. Throughout the
year, we have engaged with a number of international emergency
services customers and in the year ahead we anticipate
participating in competitive programmes to provide fleet management
services outside the UK.
In our civil training business, we were successful in our bid to
deliver training services for the Project Management Office of EDF
Energy's Hinkley Point C construction project. We will provide
systems and assurance to ensure that site personnel are suitably
qualified and experienced to operate on this key engineering
project, and will procure and deliver related training. Operational
performance on our training contract for the London Fire Brigade
has been strong and we are in early discussions with a range of
other emergency services customers around their training needs, all
of which are also impacted by the introduction of the Apprentice
Levy.
Our engineering and technical training contracts continue to
perform well, and we have seen encouraging account growth with some
of our key customers, such as Network Rail. We won a contract with
Jaguar Land Rover for their technical apprenticeship programme in
the UK. We now train over 500 Jaguar Land Rover apprentices each
year across a range of technical, commercial and manufacturing
specialisms. We see further potential training opportunities with
other UK automotive sector customers.
Despite challenging weather conditions throughout the winter,
our fleet management team also delivered strong operational
performance to our Heathrow airport customers, and is participating
in competitive tenders to extend these relationships, with
preferred bidder announcements expected during FY19. In Australia,
the Qantas ground support equipment contract became operational on
1 July 2017, and the focus is now on rolling out new systems and
processes to improve availability and performance.
Our Airports baggage operations business had a second year of
record performance and has successfully secured a two-year
extension to the Heathrow baggage system maintenance contract. In
addition to delivering baggage operations at Heathrow and Schiphol,
our team has also delivered baggage upgrade projects at a number of
major UK airports and secured new contracts at Heathrow, Gatwick
and Birmingham.
Networks and equipment support
In Network Engineering, our Rail business continues to
experience a slowdown as we approach the end of Network Rail's
Control Period 5 in March 2019. We will begin bidding for Control
Period 6 shortly. Our on-track joint venture SB Rail successfully
rebid a National Plant contract, with our share worth around GBP70
million, which will see its fleet of machines contracted until
2025.
Our work on Translink's seven-year signalling and
telecommunications contract is progressing well, with further
framework opportunities being explored in Northern Ireland. Our ABC
joint venture successfully completed the electrification of
Scotland's busiest rail route between Edinburgh and Glasgow as part
of an alliance with Network Rail and Morgan Sindall.
The Power business delivered a full programme of work, including
three major overhead line refurbishment projects for National Grid
and a number of complex schemes for Western Power Distribution.
Tenders won during autumn and winter mean a substantially full
order book for the coming year, with the focus already on the
pipeline for FY20 and beyond.
South Africa
All of the African businesses, with the exception of our
transmission line operation, have grown significantly during the
year with underlying revenue growth being 21% over prior year in
local currency. The stand out performer has been our Equipment
business that has grown 38% over prior year on the back of market
share won and new products launched. The power generation business
has grown 16% over prior year and the truck business has met budget
expectations.
Outlook
Our specialist experience and technical capability in delivering
critical fleet management and technical training solutions places
us in a strong position to capitalise on the outsourcing
opportunities that are emerging, both in the UK and
internationally.
In Defence, we expect our strong working relationship with the
UK MOD to continue as the next generation of programmes is
determined, and we have identified equipment support opportunities
for European defence customers. We expect Holdfast joint venture
profits in 2018/19 to step down by GBP5-10 million.
In the civil sector we will continue to expand our footprint
with key UK customers for equipment support and training services
and we are pursuing several similar opportunities in European
markets.
2018/19 underlying revenue is expected to be flat with stable
margins.
Aviation
31 March 31 March Change
2018 2017 + / -
----------- ------ ---------- -------- ------
GBP921.1 GBP793.1 +16.1
group m m %
================== ========== ======== ======
Underlying GBP101.0 GBP80.9 +24.8
revenue jv m m %
------ ---------- -------- ------
GBP1,022.1 GBP874.0 +16.9
total m m %
------------------ ---------- -------- ------
GBP103.1 GBP106.9
group m m -3.6 %
================== ========== ======== ======
Underlying
operating GBP41.2 GBP38.6
profit jv m m +6.7 %
------ ---------- -------- ------
GBP144.3 GBP145.5
total m m -0.8 %
------------------ ---------- -------- ------
group 11.2 % 13.5 %
================== ========== ========
Underlying
operating
margin jv 40.8 % 47.7 %
------ ---------- --------
total 14.1 % 16.6 %
------------------ ---------- --------
Market overview
Our business covers both military and civil aviation, with
several sector-wide capabilities including technology, safety and
training. Our competitors range from large multi-national aviation
companies to smaller localised competitors, particularly in our
civil aviation business.
Our focus in military is the delivery of airbase support,
training support and aircraft engineering support to UK and
European customers including France and Spain. The Royal Air Force
is undergoing a period of ground-breaking training and estate
transformation and the UK Military Flying Training System (UKMFTS)
is moving into the operational training phase. We expect to see a
number of major programmes developing in the UK military air domain
to support the broad range of new capabilities and platform
investments as well as legacy fleets of helicopters and training
aircraft.
European defence aviation markets are developing, with an
increasing desire to engage with non-OEMs for support and training
capabilities such as our FOMEDEC contract in France. European air
forces are procuring latest generation combat aircraft and live
flying training is an increasingly expensive activity, with fewer,
and increasingly obsolescent, training assets available. Simulation
and synthetic training is becoming more prominent. Broader
international markets show strong growth potential and we see
increasing interest in our full life-cycle offering and
capabilities, which we are already delivering in the UK, France and
Spain.
In our civil aviation business, aerial Emergency Medical
Services (EMS) is a large and growing global market providing
complex and critical services. Babcock is the second largest EMS
provider in the world with around 10% of the market and the leading
position in all markets where we operate. We see an increasingly
complex medical care market, with an estimate of global spend
between GBP2-3 billion annually. Search and Rescue is a small part
of our business today, but with a multi-billion global market, only
20% of which is currently outsourced, we believe it presents
significant opportunities.
Babcock is one of the world's leading providers of fixed-wing
and rotary-wing firefighting services. Wildfires are becoming a
serious global issue, increasing in frequency and ferocity
annually, as the world saw last year. Current operations primarily
rely on unsophisticated small operators with limited capability and
technology enhancement. With our scale and investment Babcock is
beginning to professionalise the sector and will develop a global
deployable model offering technology-based differentiated
services.
In the commoditised oil and gas helicopter market we are a
relatively small operator, with roughly 4% of the global market
share. Competition in this area remains intense.
Financial review
The Aviation sector had a year of strong growth with underlying
revenue up 16.9% to GBP1,022.1 million (2017: GBP874.0 million).
Organic growth at constant exchange rates was 15.6%. Both UK and
European Defence alongside Emergency Services were strong drivers
of growth with contract wins throughout the year. Our training
support contract with the French air force, FOMEDEC, is progressing
well with revenue and cash improving. Aircraft delivery will be
completed during 2018/19 with the customer accepting finance
leases, which will then be converted into cash through our signed
securitisation agreements with a major French bank. UK training
programmes are also progressing well, and we expect our prudent
margin recognition to build towards Group levels as risks are
retired and project milestones are met.
Despite a strong year of revenue growth, underlying operating
profit decreased marginally to GBP144.3 million (2017: GBP145.5
million). As defence contracts build to Group margin levels, our
oil and gas helicopter business continues to underperform in a
deteriorating and saturated market environment, and is furthered
hampered by H225 helicopter costs. Aviation margin for the year was
14.1% (2017: 16.6%), a reduction from the previous year, which
benefitted from the end of long-term contracts at a closing phase
of margin recognition. Emergency Services continues to deliver
healthy margins.
Operational review
UK military air
The UK Military Air business secured a key new contract in
November 2017 with the award of the GBP160 million Royal Air Force
(RAF) HADES contract. The contract went live on 1 April 2018 and
provides a wide range of technical support to 17 RAF stations
employing over 800 people. In support of the UKMFTS, Babcock has
programme-managed the commissioning of 10 new facilities comprising
five training buildings and five hangars used for aircraft storage,
aircraft maintenance and simulator housing.
These facilities will now be used by Ascent (a Babcock joint
venture) alongside the recently procured fleets of new aircraft to
deliver a world class training programme for all future military
pilots. Looking forward, the business is currently preparing a bid
for the RAF Air Support to Defence Operational Training (ASDOT)
opportunity to provide adversary air combat training in partnership
with experienced military air training provider Elbit Systems.
European military air
As our European Military Air business approaches its first
anniversary, it has delivered on its key targets and positioned
itself successfully to execute its strategy. The mobilisation of
FOMEDEC has progressed well to reach critical milestones including
the successful first qualification test flight, the laying of the
foundation stone on the simulator building, the relocation of the
team to the site in Cognac and signing of the securitisation
agreement. We are developing strategic military OEM relationships
across Europe, including with Leonardo and Airbus. Helidax, our
helicopter pilot training contract, continues to perform well in
France and our European pipeline continues to develop with more
strategic opportunities of scale.
Aerial emergency services
We are a leading provider of aerial EMS, both in existing
territories and in new countries. Earlier this year we were awarded
a contract by the Norwegian Government to provide
high-specification fixed-wing air ambulance services across Norway
for an initial six years, with options to extend by a further five
years. We continue to drive technological innovation in markets
characterised by world-leading standards, with the aim of
continuously delivering operational excellence and safety,
improving patient outcomes, and consequently the efficiency of
health agencies. In Italy we enhanced our service by introducing
night operations in several Italian regions, as well as starting
new trials to integrate Remotely Piloted Aircraft System technology
into EMS. In Spain, we successfully renewed EMS contracts,
including a new service covering the Canary Islands, while in
France we are delivering multi-base operations for the South West
contract. We will continue to deliver as we grow our global
presence and reputation as a leading EMS provider. Also in Spain,
we have been selected by the Spanish Safety Maritime Agency
(SASEMAR), part of the Public Works Ministry of Spain, as preferred
bidder for the renewal of a nationally significant aerial search
and rescue contract worth around GBP160 million for the first four
years.
Last summer, Southern Europe experienced the worst forest fires
in over five years. Since the start of the 2017 firefighting
season, we have supported the extinction of 613 fires in Spain
alone, with more than 17,000 flight hours and 72,500 water drops
from our aircraft. In addition, the Italian Government's fleet of
amphibious firefighting aircraft, which we operate and maintain,
played a crucial role in the extinction of major fires in Portugal
and Southern France. Babcock participated in the European Union
firefighting pool in these two countries. We were a trusted partner
to local, regional and national governments all over Europe
throughout this complex firefighting campaign. We also successfully
renewed a number of contracts for nationwide and regional services
in Spain. Deep engagements on high standards of health and safety
have resulted in a safe campaign. Investing in innovation and
cutting edge technology is positioning Babcock as a leading company
on firefighting resources.
Oil and gas
Whilst the Oil and Gas business is a small part of the Aviation
sector, it continues to be impacted by challenging industry
conditions, with options to use aircraft in other lines of business
being explored. Our operational delivery however remains strong
with significant focus on safety where we continue our work as a
founding member of HeliOffshore and customer satisfaction remains
positive.
Outlook
Our prospects are strong in our chosen markets of UK Military,
European Military, EMS and Firefighting. We have an excellent
pipeline of opportunities in UK Military as the RAF introduces new
platforms and needs increased training and cost effective ways of
supporting them. Our new European Military Aviation business has
quickly established a pipeline of new training related
opportunities. EMS remains an area of ever increasing demand and,
after an incredibly busy summer in 2017, we look to add new
technical capability in our Firefighting business to improve the
capacity and effectiveness of this service.
We expect strong underlying revenue growth in 2019 but that the
mix of business will result in a softening margin.
Cavendish Nuclear
31 March 31 March Change
2018 2017 + / -
----------- ------ -------- -------- ------
GBP211.6 GBP194.8
group m m +8.6 %
================== ======== ======== ======
Underlying GBP491.1 GBP434.5 +13.0
revenue jv m m %
------ -------- -------- ------
GBP702.7 GBP629.3 +11.7
total m m %
------------------ -------- -------- ------
GBP31.2 GBP32.3
group m m -3.4 %
================== ======== ======== ======
Underlying
operating GBP37.6 GBP29.1 +29.2
profit jv m m %
------ -------- -------- ------
GBP68.8 GBP61.4 +12.1
total m m %
------------------ -------- -------- ------
group 14.7 % 16.6 %
================== ======== ========
Underlying
operating
margin jv 7.7 % 6.7 %
------ -------- --------
total 9.8 % 9.8 %
------------------ -------- --------
Market overview
The civil nuclear market in the UK continues to progress. The
global energy market is still impacted by relatively low prices,
which has resulted in pressure on decision making for new major
programmes both in the UK and internationally as the wider industry
seeks further investment. We have seen an increase in Tier 2 and 3
decommissioning projects issued for tender, despite budgetary
pressures, and there is still opportunity within the UK new build
programmes. We are currently bidding in excess of GBP1.6 billion of
new Tier 2 and Tier 3 work across new build, decommissioning and
international markets.
In the UK, the Nuclear Decommissioning Authority (NDA) is
currently determining the structure of Magnox decommissioning work
following the end of the initial contract in August 2019, which is
expected to provide further potential opportunities for the sector.
The sector is also investigating entering into new markets where it
can deploy its programme management, decommissioning and hazard
management expertise in other highly regulated industries.
Financial review
Cavendish Nuclear saw strong growth during the year in
underlying organic revenue and underlying operating profit as both
the Projects business and the Decommissioning JVs performed well.
Underlying organic revenue increased 11.7% to GBP702.7 million
(2017: GBP629.3 million). New build activity has increased at
Hinkley Point C and Decommissioning JVs have increased volume at
both Magnox and Dounreay. As previously flagged we expect the step
down in Magnox revenue to be around GBP60 million in 2018/19 as
decommissioning progresses.
Strong growth in underlying organic operating profit of 12.1%
delivered profit of GBP68.8 million (2017: GBP61.4 million).
Project margins were softer on prudent profit recognition during
the ramp up stages of newly awarded contracts with some additional
IT costs following the implementation of new systems. The
Decommissioning JVs saw margin increase and we expect the Magnox
margin to remain at current levels until contract completion in
August 2019.
Operational review
Throughout the year the sector's long-term contracts continued
to perform well, with the Decommissioning JVs delivering on
schedule. We have seen a wide selection of technical contract wins
including full life-cycle decommissioning solutions for Magnox
sites, major design contracts, complex module fabrication and waste
package flasks for Sellafield, additional maintenance projects for
the EDF AGR fleet and new packages of work from Hinkley Point
C.
Decommissioning JVs
During the year we reached successful agreements with the NDA
for the termination of the Magnox contract, our joint venture with
Fluor. The productive negotiations resulted in commercial
arrangements for the period until contract completion in August
2019. Performance at the 12 sites continues aligned with our
commitments and schedule, with milestones achieved in line with
expectations and a continued focus on delivering cost effective
solutions to the decommissioning programme. The NDA is undergoing a
review and the intended operational arrangements for Magnox beyond
August 2019 are still to be determined, but we believe our
continued strong operational performance and technical expertise
combined with experience on the Magnox sites put us in a good
position to benefit from any new opportunities. Additionally we are
working with the NDA, under the Nuclear Sector Deal, to accelerate
up to two demonstrator projects for reactor dismantling in
2020.
Key operational deliverables include completing all remaining
work at Bradwell to deliver site closure, continued defueling of
Wylfa, commencement of the construction phase for the SGHWR reactor
core removal, construction of interim storage at Chapel Cross,
Hinkley and Harwell, and progression of removal of the two
remaining waste streams in the Berkeley vaults. Magnox will also be
focused on delivering the required throughput improvements in the
commissioned waste processing plants at Berkeley, Trawsfynedd,
Hunterston, Dungeness and Harwell. Asbestos remediation and
removal, as well as the management of deteriorating asset
conditions, remain priorities across the sites.
The joint venture contract at Dounreay, Europe's most complex
decommissioning project, is delivering to the revised scope
associated with the Exotics Waste Removal Project as part of the UK
Government's strategy. The site operations team has also removed
fuel elements from the Fast Reactor, the first time that this has
been completed in several decades, representing a significant
milestone for the contract. The restructuring is on track,
including a reduction in headcount in order that costs and
skillsets match the requirements of the future decommissioning
programme.
Projects
Our Projects performance remains strong and we have achieved
multiple critical milestones either on or ahead of target across
the business. At Sellafield, we continue to deliver exemplary
performance preparing the aging facility for waste retrieval. On
the Pile Fuel Cladding Silo (PFCS) project, a joint venture with
Bechtel, we have successfully installed all of the 'Magnificent
Six' 12.4 tonne doors (playing a key role in reducing hazard at the
site), cut six penetrations, removed the concrete monoliths, sealed
the doors and handed over to Sellafield under budget and ahead of
schedule. The strong performance in the design frameworks at
Sellafield continues to be rewarded with additional new scope.
In December, we were awarded the Sellafield 'Glovebox' contract
to design and fabricate technically complex engineering solutions
for the treatment, handling and management of nuclear materials.
The contract, valued at around GBP100 million, is currently being
mobilised. Following the success of synergies with the Marine
sector in delivering the PFCS project, the expertise and unique
equipment in technical fabrication at Rosyth will again be employed
for this 10-year framework contract.
As we leverage our position as a lifetime partner with EDF, we
continue to provide for their generating fleet, providing critical
reactor core analysis allowing the plant life extension of the AGR
reactors, maintenance and outage support. During the year we
delivered a planned outage at Dungeness on time and on budget.
Internationally there has been significant management focus on
developing the Japanese business, with Cavendish Nuclear
established as the leading UK decommissioning expert with both the
Japanese Government and industry.
As a result, we successfully completed a contract for Japan
Atomic Power Company and are working on bidding preparations for
the upcoming Tokai Bunker project. Fukushima work has also been
delivered in support of Hitachi GE Nuclear Energy (HGNE) with the
potential for expanded scope and follow on work packages. Cavendish
Nuclear is currently the only non-Japanese company to participate
in HGNE's seven-strong Fukushima Fuel Debris Removal team.
At the beginning of the year we transitioned from Early Works
Involvement to an Early Works Contract, covering supply chain
engagement for long lead time materials, design work and
preparations for site mobilisation for the new build work on the
Balance of Nuclear Island mechanical installation for Hinkley Point
C. The sector also continues to provide a range of engineering and
design support for Horizon Nuclear Power's Wylfa Newydd project,
including support to Menter Newydd for the design of the radiation
waste facilities, under contract to Menter Newydd's partner,
JGC.
Outlook
The outlook for next year looks strong with underlying revenue
growth expected in the Nuclear Services business from recent new
contract wins, the development of new products and services for our
EDF business and an expectation of new opportunities coming from
the UK Atomic Weapons Establishment.
This growth will offset revenue step-downs from the Magnox and
Dounreay joint ventures as decommissioning works progress in line
with the agreed programme. The New Build and Japan businesses will
continue to grow as projects start to mobilise, and the sector is
expected to benefit from securing projects, inward investment and a
continuing focus on efficiency.
2018/19 underlying revenue is expected to be flat with stable
margins.
Statutory to underlying reconciliation
Joint ventures and
associates
-------------------------------
Revenue IFRIC Amortisation Change
and operating Finance 12 of acquired in
Statutory profit costs Tax income intangibles tax rate Underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
31 March 2018
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Revenue 4,659.6 703.2 5,362.8
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Operating profit 370.6 85.9 30.0 98.1 584.6
================== ========= ============== ======= ====== ======= ============ ========= ==========
Share of profit
from jv 68.5 (85.9) 22.2 17.5 (28.1) 5.8 -
================== ========= ============== ======= ====== ======= ============ ========= ==========
Investment income 1.9 (1.9) -
================== ========= ============== ======= ====== ======= ============ ========= ==========
Net finance costs (49.9) (22.2) (72.1)
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Profit before
tax 391.1 - - 17.5 - 103.9 - 512.5
================== ========= ============== ======= ====== ======= ============ ========= ==========
Tax (53.4) (17.5) (22.2) 0.8 (92.3)
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Profit after tax 337.7 - - - - 81.7 0.8 420.2
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Return on revenue 8.0% 10.9%
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
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
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Return on revenue 7.9% 11.0%
------------------ --------- -------------- ------- ------ ------- ------------ --------- ----------
Income statement
Statutory revenue for the year was GBP4,659.6 million (2017:
GBP4,547.1 million), an increase of 2.5%. Statutory operating
profit increased by 3.1% to GBP370.6 million (2017: GBP359.6
million). Statutory profit before tax increased by 8.0% to GBP391.1
million (2017: GBP362.1 million), reflecting the net profit growth
from joint ventures and associates and a reducing finance cost.
Basic earnings per share, as defined by IAS 33, was 66.6 pence
(2017: 61.8 pence) per share, an increase of 7.8%.
Underlying revenue for the year was GBP5,362.8 million (2017:
GBP5,216.6 million), an increase of 2.8%. The Babcock businesses,
excluding acquisitions, delivered underlying revenue growth at
constant exchange rates of 2.8% (2017: 4.9%). The largest
contributors to this growth were the Aviation and Cavendish Nuclear
sectors which reported underlying organic revenue growth at
constant exchange rates of 15.6% and 11.7% respectively, with
continued progress in Aviation Defence contracts, further Emergency
Services contract wins and in Cavendish Nuclear where additional
work in the Projects business combined with continuing progress in
the Decommissioning JVs.
Marine sector underlying organic revenue declined 5.6% at
constant exchange rates reflecting the step down in QEC revenue
during the year. Excluding the step down in QEC revenue, the sector
achieved underlying organic revenue growth of 1.3% at constant
exchange rates with International and UK Naval growing well.
The Land sector's underlying organic revenue at constant
exchange rates grew by 2.3% in the year. Good performances in
Defence and South Africa were largely offset by a slowdown in Rail
as the Network Rail Control Period 5 slowed into its final year and
some slowing in apprentice training as the new government levy
scheme transitioned during the year.
Total underlying operating profit across the Group increased by
1.7% to GBP584.6 million (2017: GBP574.8 million). At constant
exchange rates, Babcock achieved organic growth in operating profit
of 1.6%, with the Group's operating margin stable at 10.9% (2017:
11.0%). Improving Marine margins were offset by declining Aviation
margins.
In the Marine sector, underlying operating profit increased by
0.5%, with margin improvement driven by contract performance,
efficiency and the removal of low margin QEC revenue partially
offset by an increase in pension costs.
The Land sector achieved a 0.3% increase in underlying operating
profit, with South Africa and Defence (including the RSME JV)
offsetting revenue shortfalls in Rail and apprentice training.
The Aviation sector's underlying operating profit declined by
0.8%, with continued pressure in the oil and gas sector on contract
renewals and H225 costs offset by the increased revenues in the
Military air and Emergency Services business.
The Cavendish Nuclear sector's underlying operating profit grew
by 12.1% with both the Projects businesses and the Decommissioning
JVs showing good growth.
Total net finance costs reduced to GBP72.1 million (2017:
GBP80.0 million) reflecting reductions in net debt and pensions
interest, together with some favourable movement on Ascent JV swap
valuations. The Group net finance costs reduced to GBP47.6 million
(2017: GBP49.0 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
reduced to GBP22.2 million (2017: GBP24.6 million), largely
reflecting favourable swap valuations within the Ascent JV. The IAS
19 pension finance charge was GBP2.3 million (2017: GBP6.4 million)
as expected.
Underlying profit before tax increased by 3.6% to GBP512.5
million (2017: GBP494.8 million). The associated tax charge,
including the Group's share of joint venture tax of GBP17.5 million
(2017: GBP14.2 million), totalled GBP92.3 million (2017: GBP86.6
million), representing an effective underlying rate of tax of 18.0%
(2017: 17.5%). The effective tax rate is calculated by using the
Group's underlying profit before tax and therefore excludes the tax
effect of amortisation of acquired intangibles. We expect the
effective underlying rate of tax to be around 18% in 2018/19. The
Group's net pension deficit reduced to GBP5.0 million (2017:
GBP104.5 million), as growth assets performed well along with
continuing annual deficit contributions. The projected pension
charge within operating profit for 2018/19 is GBP44.1 million
(2017/18: GBP47.3 million), a GBP3.2 million cost decrease which
will be enhanced by a GBP2.8 million reduction in retirement
benefit interest.
Amortisation of acquired intangibles was GBP103.9 million (2017:
GBP118.5 million). This represents the amortisation of the value
attributed on business acquisitions to customer relationships (both
contractual and non-contractual) and acquired brands.
Half year income statement phasing for 2018/19 is expected to be
similar to the phasing in 2017/18.
Financial Review
Underlying Organic Growth
Marine Land Aviation Nuclear Unallocated Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- ------- -------- ------- ----------- -------
Underlying revenue
---------------------------- ------- ------- -------- ------- ----------- -------
31 March 2017 1,901.6 1,811.7 874.0 629.3 - 5,216.6
============================ ======= ======= ======== ======= =========== =======
Exchange adjustment (5.8) 2.1 11.4 - - 7.7
============================ ======= ======= ======== ======= =========== =======
Disposals - (7.2) - - - (7.2)
============================ ======= ======= ======== ======= =========== =======
Organic growth (106.9) 42.5 136.7 73.4 - 145.7
============================ ======= ======= ======== ======= =========== =======
31 March 2018 1,788.9 1,849.1 1,022.1 702.7 - 5,362.8
---------------------------- ------- ------- -------- ------- ----------- -------
Underlying revenue growth (5.9%) 2.1% 16.9% 11.7% - 2.8%
---------------------------- ------- ------- -------- ------- ----------- -------
Organic growth at constant
exchange rates (5.6%) 2.3% 15.6% 11.7% - 2.8%
---------------------------- ------- ------- -------- ------- ----------- -------
Underlying operating profit
============================ ======= ======= ======== ======= =========== =======
31 March 2017 233.9 139.7 145.5 61.4 (5.7) 574.8
============================ ======= ======= ======== ======= =========== =======
Exchange adjustment (0.7) 0.9 2.3 - (0.1) 2.4
============================ ======= ======= ======== ======= =========== =======
Disposals - (1.8) - - - (1.8)
============================ ======= ======= ======== ======= =========== =======
Organic growth 1.9 1.3 (3.5) 7.4 2.1 9.2
---------------------------- ------- ------- -------- ------- ----------- -------
31 March 2018 235.1 140.1 144.3 68.8 (3.7) 584.6
---------------------------- ------- ------- -------- ------- ----------- -------
Underlying operating profit
growth 0.5% 0.3% (0.8%) 12.1% - 1.7%
---------------------------- ------- ------- -------- ------- ----------- -------
Organic growth at constant
exchange rates 0.8% 0.9% (2.4%) 12.1% - 1.6%
---------------------------- ------- ------- -------- ------- ----------- -------
Exchange rates
The impact of foreign currency movements over the year resulted
in an increase in underlying revenue of GBP7.7 million and a
corresponding GBP2.4 million increase in underlying operating
profit. A 10% movement in the Euro against Sterling would affect
full year revenue by around GBP50 million and operating profit by
GBP5 million. A 10% movement in the Rand would affect full year
revenue by around GBP38 million and operating profit by GBP2
million. A 10% movement in Canadian Dollars would affect full year
revenue by around GBP15 million and operating profit by GBP2
million.
Earnings per share
Underlying earnings per share for the year was 83.0 pence (2017:
80.1 pence), an increase of 3.6%. Basic continuing earnings per
share, as defined by IAS 33, was 66.6 pence (2017: 61.8 pence) an
increase of 7.8%.
Cash flow and net debt
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 1.6 times at the year end and we expect to
continue to reduce the net debt to EBITDA ratio to around 1.4 times
by the end of 2018/19. 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 reconciles the
management KPI for cash conversion.
2018 2017
GBPm GBPm
------------------------------------------------------------- --------- ---------
Operating profit before amortisation of acquired intangibles 468.7 472.3
============================================================= ========= =========
Amortisation and depreciation 104.3 92.3
============================================================= ========= =========
Other non-cash items 4.3 13.7
============================================================= ========= =========
Working capital (excluding excess retirement benefits
and FOMEDEC) (4.0) (7.7)
============================================================= ========= =========
FOMEDEC (50.4) -
============================================================= ========= =========
Provisions (27.7) (28.4)
------------------------------------------------------------- --------- ---------
Operating cash flow 495.2 542.2
------------------------------------------------------------- --------- ---------
Cash conversion % /- excluding FOMEDEC 106%/116% 115%
============================================================= ========= =========
Capital expenditure (net) (112.7) (134.9)
------------------------------------------------------------- --------- ---------
Operating cash flow after capital expenditure 382.5 407.3
------------------------------------------------------------- --------- ---------
Cash conversion % - after capital expenditure, /excluding
FOMEDEC 82%/92% 86%
============================================================= ========= =========
Interest paid (net) (53.6) (51.6)
============================================================= ========= =========
Taxation (74.3) (61.5)
============================================================= ========= =========
Dividends from joint ventures 42.9 26.7
------------------------------------------------------------- --------- ---------
Free cash flow before pension contribution in excess
of income statement 297.5 320.9
------------------------------------------------------------- --------- ---------
Retirement benefit contributions in excess of income
statement (47.3) (38.2)
------------------------------------------------------------- --------- ---------
Free cash flow after pension contribution in excess
of income statement 250.2 282.7
------------------------------------------------------------- --------- ---------
Acquisitions and disposals net of cash/debt acquired (0.2) (30.5)
============================================================= ========= =========
Issue of shares - 0.9
============================================================= ========= =========
Investments in joint ventures (6.0) 2.1
============================================================= ========= =========
Movement in own shares (4.2) (7.8)
============================================================= ========= =========
Dividends paid (147.7) (133.8)
============================================================= ========= =========
Net cash (outflow)/ inflow 92.1 113.6
------------------------------------------------------------- --------- ---------
Net debt reconciliation
------------------------------------------------------------- --------- ---------
Opening net debt (1,173.5) (1,228.5)
============================================================= ========= =========
Net cash inflow 92.1 113.6
============================================================= ========= =========
Exchange difference/other (33.6) (58.6)
------------------------------------------------------------- --------- ---------
Closing net debt (1,115.0) (1,173.5)
------------------------------------------------------------- --------- ---------
The table below provides the reconciliation between the
statutory cash flow and trading cash flow table above.
2018 2017
GBPm GBPm
----------------------------------------------------- ----- -----
Cash generated from operations 447.9 504.0
===================================================== ===== =====
Retirement benefit contributions in excess of income
statement 47.3 38.2
===================================================== ===== =====
Operating cash flow 495.2 542.2
----------------------------------------------------- ----- -----
Cash generated from operations was GBP447.9 million (2017:
GBP504.0 million), from which the Group's operating cash flow
calculation is derived. Operating cash flow after movements in
working capital was down 8.7% to GBP495.2 million (2017: GBP542.2
million), however this was principally due to the FOMEDEC contract
cash flows of GBP50.4 million which will reverse in 2018/19.
Excluding these, operating cash flow was GBP545.6 million and
represents a conversion rate of operating profit to cash of 116%
(2017: 115%).
Working capital cash outflows during the period, excluding
excess retirement benefits, were GBP4.0 million (2017: GBP7.7
million) excluding FOMEDEC. These contract-driven modest working
capital cash outflows over the last two years are better than
expected and may see some reversal in 2018/19. FOMEDEC working
capital outflows were GBP109.3 million in debtors offset by GBP58.9
million in creditors, with a net effect of a GBP50.4 million
outflow which will reverse in 2018/19. The FOMEDEC working capital
will reverse in the first half of 2018/19 as a result of finance
leases accepted by the government customer and some securitisation
proceeds from the sale of the first finance leases offset by
supplier payments. In the second half the balance of finance leases
will be sold and outstanding supplier payments made.
The cash outflow includes GBP27.7 million of provision movements
(2017: GBP28.4 million) relating to contracts (primarily pain
share/gain share and warranties), onerous leases, personnel
(taxation and reorganisation) and property. There has been some
acceleration of the settlement of contract matters, which is
expected to occur again in 2018/19. The level of provision outflow
in 2018/19 is expected to be similar to 2017/18, after which we
expect the provisions balance to stabilise. During the year there
was a GBP9 million income statement charge to provisions and over
the last eight financial years the cumulative net provisions charge
was GBP19.7 million and averaged 0.8% of underlying operating
profit.
Net capital expenditure, including new finance leases, during
the year was GBP112.7 million (2017: GBP134.9 million). The Group
achieved a conversion rate of operating cash flow after movements
in working capital and capital expenditure to operating profit of
82% (2017: 86%); excluding FOMEDEC we achieved a conversion rate of
92%, a five-year high. Capital expenditure for the year was 1.1
times the Group's depreciation and amortisation charge of GBP104.3
million. For the 2018/19 financial year capital expenditure will be
around 1.2 times depreciation. Net Group cash interest paid,
excluding that paid by joint ventures, was GBP53.6 million (2017:
GBP51.6 million), which reflects the refinancing of the Group's
debt and the timing of due payments.
Pension cash outflows in excess of income statement charge were
GBP47.3 million (2017: GBP38.2 million). Guidance for 2018/19 is an
outflow of around GBP50 million. However, the pension environment
has deteriorated in the year and, combined with the uneven
distribution of funding deficits between the three large schemes,
may see more volatility in pensions funding, although funding
levels have improved.
Cash taxation payments of GBP74.3 million (2017: GBP61.5
million) increased due to increased overseas profits and prior year
utilisation of overseas tax losses, but benefited from pension
deficit payments in the UK.
Free cash flow pre-excess pension payments and FOMEDEC improved
to GBP347.9 million (2017: GBP320.9 million), up 8.4%, representing
a free cash flow yield at 31 March 2018 of 10.3% (2017: 7.2%). Free
cash flow post excess pension payments and FOMEDEC increased to
GBP300.6 million (2017: GBP282.7 million), up 6.3%.
During the year the Group received GBP42.9 million in dividends
from its joint ventures (2017: GBP26.7 million). Cash dividends
(including to minorities of GBP3.8 million) paid out in the year
totalled GBP147.7 million (2017: GBP133.8 million). The Group
expects dividends from its joint ventures to increase to around
GBP45 million in 2018/19 and to around GBP50m in 2019/20.
Group net cash inflow was GBP92.1 million (2017: GBP113.6
million inflow), decreasing total net debt at 31 March 2018 to
GBP1,115 million (31 March 2017: GBP1,174 million). This gives a
net debt to EBITDA ratio of 1.6 times (31 March 2017: 1.8
times).
Half year cash flow phasing for 2018/19 is expected to be at a
similar level to 2017/18, with the exception of the FOMEDEC
reversion.
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%
(2017: 14.5%). Post tax ROIC was 11.9% (2017: 11.9%). This compares
to the Group's current weighted average cost of capital of c7.5%.
The Group continues to focus on capital employed and on improving
returns, and management compensation includes this as a performance
measure.
Net debt to EBITDA
March March
2018 2017
GBPm GBPm
---------------------------- ------- -------
Underlying operating profit 584.6 574.8
-------------------------------- ------- -------
Depreciation 91.3 82.4
================================ ======= =======
Amortisation of software
and development costs 13.0 7.6
================================ ======= =======
Non-controlling interests (1.4) (3.8)
================================ ======= =======
EBITDA 687.5 661.0
-------------------------------- ------- -------
Net debt 1,115.0 1,173.5
-------------------------------- ------- -------
Net debt/EBITDA 1.6x 1.8x
-------------------------------- ------- -------
Pensions
The IAS 19 valuation for accounting purposes showed a market
value of assets of GBP4,734.9 million in comparison to a valuation
of the liabilities based on AA corporate bond yields of GBP4,739.9
million. The total accounting deficit, pre-tax, of the Group's
combined defined benefit pension schemes showed a decrease to
GBP5.0 million (31 March 2017: GBP104.5 million). As at 31 March
2018, the key assumptions used in valuing pension liabilities
were:
Discount rate 2.6% (31 March 2017: 2.6%)
Inflation rate (RPI) 3.1% (31 March 2017: 3.2%)
Group income statement
2018 2017
----------------------------------------- ---- ------------------ ------------------
For the year ended 31 March 2018 Note GBPm GBPm GBPm GBPm
----------------------------------------- ---- ------- --------- ------- ---------
Revenue(1) 2 4,659.6 4,547.1
========================================= ==== ======= ========= ======= =========
Cost of revenue (3,971.7) (3,883.0)
========================================= ==== ======= --------- ======= ---------
Gross profit 687.9 664.1
========================================= ==== ======= ========= ======= =========
Distribution expenses (12.8) (13.0)
========================================= ==== ======= ========= ======= =========
Administration expenses (304.5) (291.5)
========================================= ==== ======= --------- ======= ---------
Operating profit before share of results
of joint ventures and associates 2 370.6 359.6
========================================= ==== ======= ========= ======= =========
Share of results of joint ventures
and associates 68.5 56.7
========================================= ==== ======= --------- ======= ---------
Group and joint ventures and associates
========================================= ==== ------- ========= ------- =========
Operating profit before amortisation
of acquired intangibles 554.6 545.1
========================================= ==== ======= ========= ======= =========
Investment income 30.0 29.7
========================================= ==== ------- ========= ------- =========
Underlying operating profit(2) 2 584.6 574.8
========================================= ==== ======= ========= ======= =========
Amortisation of acquired intangibles (103.9) (118.5)
========================================= ==== ======= ========= ======= =========
Group investment income (1.9) (1.2)
========================================= ==== ======= ========= ======= =========
Joint ventures and associates finance
costs (22.2) (24.6)
========================================= ==== ======= ========= ======= =========
Joint ventures and associates income
tax expense (17.5) (14.2)
========================================= ==== ------- --------- ------- ---------
Operating profit 439.1 416.3
========================================= ==== ======= ========= ======= =========
Finance costs
========================================= ==== ------- ========= ------- =========
Investment income 1.9 1.2
========================================= ==== ======= ========= ======= =========
Retirement benefit interest (2.3) (6.4)
========================================= ==== ======= ========= ======= =========
Finance costs (61.9) (60.4)
========================================= ==== ======= ========= ======= =========
Finance income 14.3 11.4
========================================= ==== ------- ========= ------- =========
(48.0) (54.2)
========================================= ==== ======= --------- ======= ---------
Profit before tax 2 391.1 362.1
========================================= ==== ======= ========= ======= =========
Income tax expense 3 (53.4) (46.5)
----------------------------------------- ---- ------- --------- ------- ---------
Profit for the year 337.7 315.6
----------------------------------------- ---- ------- --------- ------- ---------
Attributable to:
========================================= ==== ======= ========= ======= =========
Owners of the parent 336.3 311.8
========================================= ==== ======= ========= ======= =========
Non-controlling interest 1.4 3.8
========================================= ==== ======= --------- ======= ---------
337.7 315.6
========================================= ==== ======= --------- ======= ---------
Earnings per share 4
========================================= ==== ======= ========= ======= =========
Basic 66.6p 61.8p
========================================= ==== ======= ========= ======= =========
Diluted 66.5p 61.7p
----------------------------------------- ---- ------- --------- ------- ---------
1. Revenue does not include the Group's share of revenue from
joint ventures and associates of GBP703.2 million (2017: GBP669.5
million).
2. Including IFRIC 12 investment income but before exceptional
items and amortisation of acquired intangibles.
Group statement of comprehensive income
2018 2017
For the year ended 31 March 2018 GBPm GBPm
--------------------------------------------------------- ------ ------
Profit for the year 337.7 315.6
========================================================== ====== ======
Other comprehensive income
========================================================= ====== ======
Items that may be subsequently reclassified to
income statement
========================================================= ====== ======
Currency translation differences (25.9) 88.8
========================================================== ====== ======
Fair value adjustment of interest rate and foreign
exchange hedges (6.1) 4.3
========================================================== ====== ======
Tax on fair value adjustment of interest rate
and foreign exchange hedges 1.2 (0.9)
========================================================== ====== ======
Fair value adjustment of joint ventures and associates
derivatives 24.3 2.6
========================================================== ====== ======
Tax, including rate change impact, on fair value
adjustment of joint ventures and associates derivatives (7.4) (0.5)
========================================================== ====== ======
Items that will not be subsequently reclassified
to income statement
========================================================= ====== ======
Remeasurement of retirement benefit obligations 49.7 66.8
========================================================== ====== ======
Tax on remeasurement of retirement benefit obligations (10.3) (13.3)
========================================================== ====== ======
Impact of change in UK tax rates 1.9 1.1
---------------------------------------------------------- ------ ------
Other comprehensive income, net of tax 27.4 148.9
---------------------------------------------------------- ------ ------
Total comprehensive income 365.1 464.5
---------------------------------------------------------- ------ ------
Total comprehensive income attributable to:
========================================================= ====== ======
Owners of the parent 363.6 458.0
========================================================== ====== ======
Non-controlling interest 1.5 6.5
---------------------------------------------------------- ------ ------
Total comprehensive income 365.1 464.5
---------------------------------------------------------- ------ ------
Group statement of changes in equity
Owners
For the year Share Share Other Capital Retained Hedging Translation of the Non-controlling Total
ended capital premium reserve redemption earnings reserve reserve parent interest equity
31 March 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
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
interests - - - - (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
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 1 April 2017
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Total
comprehensive
income/(loss) - - - - 377.5 12.0 (25.9) 363.6 1.5 365.1
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Dividends - - - - (143.9) - - (143.9) (3.8) (147.7)
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Share-based
payments - - - - 6.4 - - 6.4 - 6.4
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Tax on
shared-based
payments - - - - 1.9 - - 1.9 - 1.9
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Transactions
with
non-controlling
interests - - - - (0.7) - - (0.7) (2.0) (2.7)
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Own shares and
other - - - - (4.2) - - (4.2) - (4.2)
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Net movement in
equity - - - - 237.0 12.0 (25.9) 223.1 (4.3) 218.8
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 31 March 2018 303.4 873.0 768.8 30.6 994.9 (74.5) (3.3) 2,892.9 18.1 2,911.0
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Group balance sheet
2018 2017
As at 31 March 2018 Note GBPm GBPm
-------------------------------------------- ---- ------- -------
Assets
============================================ ==== ======= =======
Non-current assets
============================================ ==== ======= =======
Goodwill 2,600.9 2,608.8
============================================ ==== ======= =======
Other intangible assets 529.3 608.0
============================================ ==== ======= =======
Property, plant and equipment 1,028.4 1,036.9
============================================ ==== ======= =======
Investment in joint ventures and associates 6 119.3 71.9
============================================ ==== ======= =======
Loan to joint ventures and associates 6 27.8 32.3
============================================ ==== ======= =======
Retirement benefits 11 240.1 193.5
============================================ ==== ======= =======
Trade and other receivables 6.7 29.4
============================================ ==== ======= =======
IFRIC 12 financial assets 17.8 20.0
============================================ ==== ======= =======
Other financial assets 7 76.0 152.6
============================================ ==== ======= =======
Deferred tax asset 104.0 113.1
-------------------------------------------- ---- ------- -------
4,750.3 4,866.5
-------------------------------------------- ---- ------- -------
Current assets
============================================ ==== ======= =======
Inventories 181.4 159.2
============================================ ==== ======= =======
Trade and other receivables 1,060.1 885.4
============================================ ==== ======= =======
Income tax recoverable 15.4 16.5
============================================ ==== ======= =======
Other financial assets 7 27.5 11.9
============================================ ==== ======= =======
Cash and cash equivalents 10 286.3 191.4
-------------------------------------------- ---- ------- -------
1,570.7 1,264.4
-------------------------------------------- ---- ------- -------
Total assets 6,321.0 6,130.9
-------------------------------------------- ---- ------- -------
Equity and liabilities
============================================ ==== ======= =======
Equity attributable to owners of the parent
============================================ ==== ======= =======
Share capital 303.4 303.4
============================================ ==== ======= =======
Share premium 873.0 873.0
============================================ ==== ======= =======
Capital redemption and other reserves 721.6 735.5
============================================ ==== ======= =======
Retained earnings 994.9 757.9
-------------------------------------------- ---- ------- -------
2,892.9 2,669.8
============================================ ==== ======= =======
Non-controlling interest 18.1 22.4
-------------------------------------------- ---- ------- -------
Total equity 2,911.0 2,692.2
-------------------------------------------- ---- ------- -------
Non-current liabilities
============================================ ==== ======= =======
Bank and other borrowings 10 1,485.2 1,398.1
============================================ ==== ======= =======
Trade and other payables 2.3 3.7
============================================ ==== ======= =======
Deferred tax liabilities 112.8 134.6
============================================ ==== ======= =======
Other financial liabilities 7 5.0 9.7
============================================ ==== ======= =======
Retirement liabilities 11 245.1 298.0
============================================ ==== ======= =======
Provisions for other liabilities 61.1 90.3
-------------------------------------------- ---- ------- -------
1,911.5 1,934.4
-------------------------------------------- ---- ------- -------
Current liabilities
============================================ ==== ======= =======
Bank and other borrowings 10 38.1 154.3
============================================ ==== ======= =======
Trade and other payables 1,392.1 1,297.6
============================================ ==== ======= =======
Income tax payable 21.7 11.1
============================================ ==== ======= =======
Other financial liabilities 7 11.9 4.3
============================================ ==== ======= =======
Provisions for other liabilities 34.7 37.0
-------------------------------------------- ---- ------- -------
1,498.5 1,504.3
-------------------------------------------- ---- ------- -------
Total liabilities 3,410.0 3,438.7
-------------------------------------------- ---- ------- -------
Total equity and liabilities 6,321.0 6,130.9
-------------------------------------------- ---- ------- -------
Group cash flow statement
2018 2017
For the year ended 31 March 2018 Note GBPm GBPm
------------------------------------------------------ ---- ------- -------
Cash flows from operating activities
====================================================== ==== ======= =======
Cash generated from operations 8 447.9 504.0
====================================================== ==== ======= =======
Income tax paid (74.3) (61.5)
====================================================== ==== ======= =======
Interest paid (67.9) (63.0)
====================================================== ==== ======= =======
Interest received 14.3 11.4
------------------------------------------------------ ---- ------- -------
Net cash flows from operating activities 320.0 390.9
------------------------------------------------------ ---- ------- -------
Cash flows from investing activities
====================================================== ==== ======= =======
Disposal of subsidiaries and joint ventures and
associates, net of cash disposed 13 (0.2) (0.6)
====================================================== ==== ======= =======
Dividends received from joint ventures and associates 42.9 26.7
====================================================== ==== ======= =======
Proceeds on disposal of property, plant and equipment 70.0 71.9
====================================================== ==== ======= =======
Purchases of property, plant and equipment (150.4) (175.9)
====================================================== ==== ======= =======
Purchases of intangible assets (32.3) (30.9)
====================================================== ==== ======= =======
Investment in, loans to and interest received
from joint ventures and associates (1.5) 2.4
====================================================== ==== ======= =======
Acquisition of subsidiaries net of cash acquired 12 - (24.7)
------------------------------------------------------ ---- ------- -------
Net cash flows from investing activities (71.5) (131.1)
------------------------------------------------------ ---- ------- -------
Cash flows from financing activities
====================================================== ==== ======= =======
Dividends paid (143.9) (132.5)
====================================================== ==== ======= =======
Finance lease principal payments (27.5) (26.4)
====================================================== ==== ======= =======
Finance lease assets repaid 9.6 5.2
====================================================== ==== ======= =======
Bank loans repaid (88.4) (334.7)
====================================================== ==== ======= =======
Loans raised 121.9 250.0
====================================================== ==== ======= =======
Dividends paid to non-controlling interest (3.8) (1.3)
====================================================== ==== ======= =======
Net proceeds on issue of shares - 0.9
====================================================== ==== ======= =======
Transactions with non-controlling interests (5.3) (2.1)
====================================================== ==== ======= =======
Movement on own shares (4.2) (7.8)
------------------------------------------------------ ---- ------- -------
Net cash flows from financing activities (141.6) (248.7)
------------------------------------------------------ ---- ------- -------
Net increase in cash, cash equivalents and bank
overdrafts 106.9 11.1
====================================================== ==== ======= =======
Cash, cash equivalents and bank overdrafts at
beginning of year 185.6 168.8
====================================================== ==== ======= =======
Effects of exchange rate fluctuations (6.2) 5.7
------------------------------------------------------ ---- ------- -------
Cash, cash equivalents and bank overdrafts at
end of year 10 286.3 185.6
------------------------------------------------------ ---- ------- -------
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 2018. They should be read in conjunction with the
Annual Report for the year ended 31 March 2017, 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 2017, except as noted below.
Standards, amendments and interpretations that are not yet
effective, and their 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 from 1 January
2018 and endorsed by the EU. The Group has reviewed the differences
between IFRS 9 and the current accounting policies under IAS 39.
IFRS 9 introduces new classification and measurement models for
financial assets and methodology for impairment of financial
assets, but this will not have a material effect on the measurement
basis of the Group's financial assets. The Group will amend its
methodology for impairment of trade receivables and contract
assets; however the net impact of applying these changes to the
impairment model will be immaterial, particularly given the high
proportion of government customers.
-- FRS 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. We have completed a detailed
review of all significant contracts and the results of our review
indicate that IFRS 15 is not expected to result in any 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
indicated that the new standard will not introduce any 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. The standard does however increase
disclosure requirements for both the annual report and interim
financial statements.
-- 2016 Annual improvements, effective 1 January 2018.
Standards, amendments and interpretations that are not yet
effective and where the impact on the Group's operations is
currently being assessed:
-- IFRS 16, 'Leases', effective from 1 January 2019 and 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 right of use 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 depreciation of the right of use 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 maturity on adoption. The Group is
still assessing the exemptions to be applied, including transition
options, and the impact on systems and processes.
-- 2017 Annual improvements, effective 1 January 2019
2. Segmental information
The segments reflect the accounting information reviewed by the
Executive Committee which is the Chief Operating Decision Maker
(CODM). The 2017 comparatives are being presented for the first
time in the new reporting sector structure.
Cavendish
Marine Land Aviation Nuclear Unallocated Total
31 March 2018 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- -------- --------- ----------- -------
Revenue including joint
ventures and associates 1,788.9 1,849.1 1,022.1 702.7 - 5,362.8
================================= ======= ======= ======== ========= =========== =======
Less: joint venture and
associate revenue 22.4 88.7 101.0 491.1 - 703.2
--------------------------------- ------- ------- -------- --------- ----------- -------
Revenue 1,766.5 1,760.4 921.1 211.6 - 4,659.6
--------------------------------- ------- ------- -------- --------- ----------- -------
Operating profit before
share of results of joint
ventures and associates 225.6 59.7 58.9 30.1 (3.7) 370.6
================================= ======= ======= ======== ========= =========== =======
Acquired intangible amortisation 5.3 47.5 44.2 1.1 - 98.1
--------------------------------- ------- ------- -------- --------- ----------- -------
Operating profit* 230.9 107.2 103.1 31.2 (3.7) 468.7
================================= ======= ======= ======== ========= =========== =======
IFRIC 12 investment income
- Group 0.4 1.5 - - - 1.9
================================= ======= ======= ======== ========= =========== =======
Share of operating profit
- joint ventures and associates 3.8 29.9 14.6 37.6 - 85.9
================================= ======= ======= ======== ========= =========== =======
Share of IFRIC 12 investment
income - joint ventures
and associates - 1.5 26.6 - - 28.1
--------------------------------- ------- ------- -------- --------- ----------- -------
Underlying operating profit 235.1 140.1 144.3 68.8 (3.7) 584.6
================================= ======= ======= ======== ========= =========== =======
Share of finance costs -
joint ventures and associates - (0.9) (21.3) - - (22.2)
================================= ======= ======= ======== ========= =========== =======
Share of tax - joint ventures
and associates (1.3) (5.4) (3.7) (7.1) - (17.5)
================================= ======= ======= ======== ========= =========== =======
Acquired intangible amortisation
- Group (5.3) (47.5) (44.2) (1.1) - (98.1)
================================= ======= ======= ======== ========= =========== =======
Share of acquired intangible
amortisation - joint ventures
and associates - (2.0) (3.8) - - (5.8)
================================= ======= ======= ======== ========= =========== =======
Net finance costs - Group - - - - (49.9) (49.9)
--------------------------------- ------- ------- -------- --------- ----------- -------
Profit before tax 228.5 84.3 71.3 60.6 (53.6) 391.1
--------------------------------- ------- ------- -------- --------- ----------- -------
* Before amortisation of acquired intangibles and exceptional items.
2. Segmental information (continued)
Cavendish
Marine Land Aviation Nuclear Unallocated Total
31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- --------- --------- ----------- -------
Revenue including joint
ventures and associates 1,901.6 1,811.7 874.0 629.3 - 5,216.6
================================= ======= ======= ========= ========= =========== =======
Less: joint venture and
associate revenue 27.8 126.3 80.9 434.5 - 669.5
--------------------------------- ------- ------- --------- --------- ----------- -------
Revenue 1,873.8 1,685.4 793.1 194.8 - 4,547.1
--------------------------------- ------- ------- --------- --------- ----------- -------
Operating profit before
share of results of joint
ventures and associates 216.4 66.2 51.8 30.9 (5.7) 359.6
================================= ======= ======= ========= ========= =========== =======
Acquired intangible amortisation 9.9 46.3 55.1 1.4 - 112.7
--------------------------------- ------- ------- --------- --------- ----------- -------
Operating profit* 226.3 112.5 106.9 32.3 (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 25.2 11.6 29.1 - 72.8
================================= ======= ======= ========= ========= =========== =======
Share of IFRIC 12 investment
income - joint ventures
and associates - 1.5 27.0 - - 28.5
--------------------------------- ------- ------- --------- --------- ----------- -------
Underlying operating profit 233.9 139.7 145.5 61.4 (5.7) 574.8
================================= ======= ======= ========= ========= =========== =======
Share of finance costs -
joint ventures and associates - (1.4) (23.2) - - (24.6)
================================= ======= ======= ========= ========= =========== =======
Share of tax - joint ventures
and associates (2.1) (3.9) (2.3) (5.9) - (14.2)
================================= ======= ======= ========= ========= =========== =======
Acquired intangible amortisation
- Group (9.9) (46.3) (55.1) (1.4) - (112.7)
================================= ======= ======= ========= ========= =========== =======
Share of acquired intangible
amortisation - joint ventures
and associates - (2.0) (3.8) - - (5.8)
================================= ======= ======= ========= ========= =========== =======
Net finance costs - Group - - - - (55.4) (55.4)
--------------------------------- ------- ------- --------- --------- ----------- -------
Profit before tax 221.9 86.1 61.1 54.1 (61.1) 362.1
--------------------------------- ------- ------- --------- --------- ----------- -------
* 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 were no exceptional costs in the year
nor in the previous year.
3. Income tax expense
Taxation in respect of Group underlying profit before tax and
acquired intangible amortisation totalled GBP92.3 million (2017:
GBP86.6 million) including the Group's share of jv income tax of
GBP17.5 million (2017: GBP14.2 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) was 18.0% (2017: 17.5%).
4. Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
2018 2017
----------------------------------------------- ----------- -----------
Number of shares
=============================================== =========== ===========
Weighted average number of ordinary shares for
the purpose of basic EPS 504,881,495 504,571,769
=============================================== =========== ===========
Effect of dilutive potential ordinary shares:
share options 858,150 737,251
----------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for
the purpose of diluted EPS 505,739,645 505,309,020
----------------------------------------------- ----------- -----------
Earnings
2018 2017
-------------------------------- --------------------------------
Basic Diluted Basic Diluted
Earnings per share per share Earnings per share per share
GBPm Pence Pence GBPm Pence Pence
------------------------------------ -------- ---------- ---------- -------- ---------- ----------
Earnings from continuing operations 336.3 66.6 66.5 311.8 61.8 61.7
==================================== ======== ========== ========== ======== ========== ==========
Add back:
==================================== ======== ========== ========== ======== ========== ==========
Amortisation of acquired intangible
assets, net of tax 81.7 16.2 16.2 92.1 18.2 18.2
==================================== ======== ========== ========== ======== ========== ==========
Impact of change in statutory
tax rates 0.8 0.2 0.2 0.5 0.1 0.1
------------------------------------ -------- ---------- ---------- -------- ---------- ----------
Earnings before amortisation,
exceptional items and other 418.8 83.0 82.9 404.4 80.1 80.0
------------------------------------ -------- ---------- ---------- -------- ---------- ----------
5. Dividends
The Directors have proposed a final dividend of 22.65p per 60p
ordinary share (2017: 21.65p per 60p ordinary share) and it will be
paid on 10 August 2018 to shareholders registered on 29 June 2018,
subject to approval at the Annual General Meeting on 19 July 2018.
The full year declared dividend per share is 29.5p per 60p ordinary
share (2017: 28.15p per 60p ordinary share).
6. Investment in and loans to joint ventures and associates
Investment in Loans to joint
joint ventures ventures
and associates and associates Total
----------------- ----------------- --------------
2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- ------- -------- ------- ------ ------
At 1 April 71.9 39.9 32.3 32.6 104.2 72.5
===================================== ======== ======= ======== ======= ====== ======
Disposal of joint venture
and associates (1.8) - - - (1.8) -
===================================== ======== ======= ======== ======= ====== ======
Repayments from joint ventures
and associates - - (4.5) - (4.5) -
===================================== ======== ======= ======== ======= ====== ======
Investment in joint ventures
and associates 6.9 (1.0) - - 6.9 (1.0)
===================================== ======== ======= ======== ======= ====== ======
Share of profits 68.5 56.7 - - 68.5 56.7
===================================== ======== ======= ======== ======= ====== ======
Interest accrued - - 0.9 1.1 0.9 1.1
===================================== ======== ======= ======== ======= ====== ======
Interest received - - (0.9) (1.4) (0.9) (1.4)
===================================== ======== ======= ======== ======= ====== ======
Dividend received (42.9) (26.7) - - (42.9) (26.7)
===================================== ======== ======= ======== ======= ====== ======
Fair value adjustment of derivatives 24.3 2.6 - - 24.3 2.6
===================================== ======== ======= ======== ======= ====== ======
Tax on fair value adjustment
of derivatives (7.4) (0.5) - - (7.4) (0.5)
===================================== ======== ======= ======== ======= ====== ======
Foreign exchange (0.2) 0.9 - - (0.2) 0.9
------------------------------------- -------- ------- -------- ------- ------ ------
Total 119.3 71.9 27.8 32.3 147.1 104.2
------------------------------------- -------- ------- -------- ------- ------ ------
7. Other financial assets and liabilities
Fair value
--------------------------------------------- ---------------------------
Assets Liabilities
------------ -------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
--------------------------------------------- ----- ----- ------ -----
Non-current
============================================= ===== ===== ====== =====
US private placement - currency and interest
rate swaps 47.7 127.6 - -
============================================= ===== ===== ====== =====
Interest rate hedges 1.5 6.5 0.9 1.2
============================================= ===== ===== ====== =====
Other currency hedges 3.5 1.7 4.1 3.3
============================================= ===== ===== ====== =====
Non-controlling interest put option - - - 5.2
--------------------------------------------- ----- ----- ------ -----
Financial instruments 52.7 135.8 5.0 9.7
============================================= ===== ===== ====== =====
Finance leases granted 23.3 16.8 - -
--------------------------------------------- ----- ----- ------ -----
Total non-current other financial assets
and liabilities 76.0 152.6 5.0 9.7
--------------------------------------------- ----- ----- ------ -----
Current
============================================= ===== ===== ====== =====
Interest rate hedges - - 0.2 0.2
============================================= ===== ===== ====== =====
Other currency hedges 4.3 1.1 11.7 4.1
--------------------------------------------- ----- ----- ------ -----
Financial instruments 4.3 1.1 11.9 4.3
============================================= ===== ===== ====== =====
Finance leases granted 23.2 10.8 - -
--------------------------------------------- ----- ----- ------ -----
Total current other financial assets
and liabilities 27.5 11.9 11.9 4.3
--------------------------------------------- ----- ----- ------ -----
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 GBP37.2 million (2017: GBP27.6 million), these were split as
GBP13.9 million (2017: GBP10.8 million) due within one year and
GBP23.3 million (2017: GBP16.8 million) between one and five years.
In addition there is GBP9.3 million due with one year in respect of
our FOMEDEC contract
8. Reconciliation of operating profit to cash generated from
operations
2018 2017
GBPm GBPm
------------------------------------------------------------ ------- -------
Cash flows from operating activities
============================================================ ======= =======
Operating profit before amortisation of acquired intangible
and exceptional items 468.7 472.3
============================================================ ======= =======
Amortisation of acquired intangible and exceptional
items (98.1) (112.7)
------------------------------------------------------------ ------- -------
Group operating profit before share of results of joint
ventures and associates 370.6 359.6
============================================================ ======= =======
Depreciation of property, plant and equipment 91.3 82.4
============================================================ ======= =======
Amortisation of intangible assets 111.1 122.6
============================================================ ======= =======
Investment income 1.9 1.2
============================================================ ======= =======
Equity share-based payments 6.4 15.0
============================================================ ======= =======
Loss on disposal of intangible assets - 0.3
============================================================ ======= =======
Profit on disposal of property, plant and equipment (4.1) (2.8)
------------------------------------------------------------ ------- -------
Operating cash flows before movement in working capital 577.2 578.3
============================================================ ======= =======
Increase in inventories (19.5) (0.4)
============================================================ ======= =======
Increase in receivables (137.4) (78.3)
============================================================ ======= =======
Increase in payables 102.6 71.0
============================================================ ======= =======
Decrease in provisions (27.7) (28.4)
============================================================ ======= =======
Retirement benefit payments in excess of income statement (47.3) (38.2)
------------------------------------------------------------ ------- -------
Cash generated from operations 447.9 504.0
------------------------------------------------------------ ------- -------
9. Movement in net debt
2018 2017
GBPm GBPm
--------------------------------------------------------- --------- ---------
Increase in cash in the year 106.9 11.1
========================================================= ========= =========
Cash flow from the (increase)/decrease in debt and lease
financing (43.7) 91.0
--------------------------------------------------------- --------- ---------
Change in net funds resulting from cash flows 63.2 102.1
========================================================= ========= =========
Loans and finance leases acquired with subsidiaries - (5.2)
========================================================= ========= =========
New finance leases - granted 28.1 14.8
========================================================= ========= =========
Movement in joint venture and associates loans (4.5) (0.3)
========================================================= ========= =========
Foreign currency translation differences and other (28.3) (56.4)
--------------------------------------------------------- --------- ---------
Movement in net debt in the year 58.5 55.0
========================================================= ========= =========
Net debt at the beginning of the year (1,173.5) (1,228.5)
--------------------------------------------------------- --------- ---------
Net debt at the end of the year (1,115.0) (1,173.5)
--------------------------------------------------------- --------- ---------
10. Changes in net debt
At 31 Exchange/
March New finance other 31 March
2017 Cash flow leases movement 2018
GBPm GBPm GBPm GBPm GBPm
------------------------------------------- --------- --------- ----------- --------- ---------
Cash and bank balances 191.4 101.1 - (6.2) 286.3
=========================================== ========= ========= =========== ========= =========
Bank overdrafts (5.8) 5.8 - - -
------------------------------------------- --------- --------- ----------- --------- ---------
Cash, cash equivalents and bank overdrafts 185.6 106.9 - (6.2) 286.3
------------------------------------------- --------- --------- ----------- --------- ---------
Debt (1,428.4) (46.8) - 43.0 (1,432.2)
=========================================== ========= ========= =========== ========= =========
Finance leases - received (118.2) 27.5 - (0.4) (91.1)
=========================================== ========= ========= =========== ========= =========
Finance leases - granted 27.6 (9.6) 28.1 0.4 46.5
------------------------------------------- --------- --------- ----------- --------- ---------
(1,519.0) (28.9) 28.1 43.0 (1,476.8)
------------------------------------------- --------- --------- ----------- --------- ---------
Net debt before derivatives and joint
venture and associate loans (1,333.4) 78.0 28.1 36.8 (1,190.5)
------------------------------------------- --------- --------- ----------- --------- ---------
Net debt derivative 127.6 (14.8) - (65.1) 47.7
=========================================== ========= ========= =========== ========= =========
Joint venture and associate loans 32.3 (4.5) - - 27.8
------------------------------------------- --------- --------- ----------- --------- ---------
Net debt (1,173.5) 58.7 28.1 (28.3) (1,115.0)
------------------------------------------- --------- --------- ----------- --------- ---------
11. Retirement benefits and liabilities
Analysis of movement in the Group balance sheet
2018 2017
GBPm GBPm
----------------------------------------------------------- ------- -------
Fair value of plan assets (including reimbursement rights)
=========================================================== ======= =======
At 1 April 4,676.2 3,824.8
=========================================================== ======= =======
Interest on assets 115.8 127.1
=========================================================== ======= =======
Actuarial gain on assets 60.8 821.7
=========================================================== ======= =======
Employer contributions 99.4 77.0
=========================================================== ======= =======
Employee contributions 0.7 1.8
=========================================================== ======= =======
Benefits paid (218.0) (176.2)
----------------------------------------------------------- ------- -------
At 31 March 4,734.9 4,676.2
----------------------------------------------------------- ------- -------
Present value of benefit obligations
=========================================================== ======= =======
At 1 April 4,780.5 4,027.7
=========================================================== ======= =======
Service cost 43.3 34.9
=========================================================== ======= =======
Incurred expenses 4.0 3.9
=========================================================== ======= =======
Interest cost 118.1 133.5
=========================================================== ======= =======
Employee contributions 0.7 1.8
=========================================================== ======= =======
Experience losses /(gain) 29.6 (13.2)
=========================================================== ======= =======
Actuarial gain - demographics 0.1 (29.6)
=========================================================== ======= =======
Actuarial (gain)/loss - financial (18.6) 797.7
=========================================================== ======= =======
Benefits paid (218.0) (176.2)
----------------------------------------------------------- ------- -------
At 31 March 4,739.7 4,780.5
=========================================================== ======= =======
Present value of unfunded obligations (0.2) (0.2)
----------------------------------------------------------- ------- -------
Net deficit at 31 March 5.0 104.5
----------------------------------------------------------- ------- -------
The amounts recognised in the Group income statement are as
follows:
2018 2017
GBPm GBPm
--------------------------------------- ----- -----
Current service cost 43.3 34.9
======================================= ===== =====
Incurred expenses 4.0 3.9
--------------------------------------- ----- -----
Total included within operating profit 47.3 38.8
======================================= ===== =====
Net interest cost 2.3 6.4
--------------------------------------- ----- -----
Total included within income statement 49.6 45.2
--------------------------------------- ----- -----
As at 31 March 2018 the key assumptions used in valuing pension
liabilities were:
Discount rate 2.6% (31 March 2017: 2.6%)
Inflation rate
(RPI) 3.1% (31 March 2017: 3.2%)
12. Acquisitions
There were no acquisitions in the current year.
During the previous year, 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.
Deferred consideration of GBP19.0 million was paid in the
previous year in respect of DSG, Scandinavian AirAmbulance AB,
Context Information Services Limited and Skills2Learn Limited.
13. Disposals
During the year the Group disposed of its schools infrastructure
business, which resulted in a loss of GBP0.9 million.
During both the current and the previous year the Group paid
certain accrued costs on previously disposed of businesses of
GBP2.0 million
(2017: GBP0.6 million).
14. Transactions with non-controlling interests
During the year the put option in respect of the non-controlling
interest in Scandinavian AirAmbulance AB was exercised resulting in
the Group paying GBP5.3 million plus deferring a further payment of
GBP2.4 million for a year, in order to acquire the balance of the
share capital in that company.
15. Related party transactions
Related party transactions for the year are: sales to joint
ventures and associates of GBP178.8 million (2017: GBP184.9
million) and purchases from joint ventures and associates of GBP0.5
million (2017: GBP0.9 million). The year end receivables balance
was GBP13.3 million (2017: GBP17.2 million) and the payables
balance was GBP0.8 million (2017: GBP1.6 million).
For annualised key management compensation, please refer to note
6 and the Remuneration report in the Annual Report for the year
ended 31 March 2018.
For transactions with Group defined benefit pension schemes,
please refer to note 11 above and note 24 in the Annual Report for
the year ended 31 March 2018.
16. Financial information
The financial information in this preliminary statement does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006.
Statutory accounts for 2017 have been delivered to the Registrar
of Companies and those for 2018 will be delivered following the
Company's Annual General Meeting.
The Annual Report for the year ended 31 March 2018 and this
preliminary statement were approved by the Board on 22 May 2018.
The auditors have reported on the Annual Report for the year ended
31 March 2018 and 31 March 2017 and neither report was qualified
and neither contained a statement under Section 498(2) or (3) of
the Companies Act 2006.
Annual General Meeting 2018
This year's Annual General Meeting will be held on 19 July 2018
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 2018.
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, 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.
Approved by the Board and signed on behalf of the Directors
by:
Archie Bethel
Chief Executive
Franco Martinelli
Group Finance Director
22 May 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FKBDKCBKDNPB
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