Babcock International Group PLC Annual General Meeting Trading Update (0930V)
19 July 2018 - 4:00PM
UK Regulatory
TIDMBAB
RNS Number : 0930V
Babcock International Group PLC
19 July 2018
19 July 2018
Babcock International Group PLC (Babcock or the Group)
Annual General Meeting Trading Update
Prior to today's Annual General Meeting, Babcock, the
engineering services company, is issuing the following trading
update for the period from 1 April 2018.
Overview and outlook
The Group expects to achieve its underlying earnings guidance
for the year whilst continuing to reduce debt, and achieving a
year-end net debt to EBITDA ratio of around 1.4 times as previously
forecast.
Since the end of 2017/18 the Group has continued to implement
its strategy of focusing on the three core markets, Defence,
Emergency Services and Nuclear, which make up around three quarters
of revenue. In the first quarter we commenced the disposal process
for two low margin non-strategic businesses, and more small
disposals and exits from non-core businesses, primarily in the Land
sector, are expected through the year.
Revenue expectations for the Aviation sector, where we expect
strong growth, and the Nuclear sector remain unchanged. We are now
expecting defence revenues to be temporarily impacted by the
restructuring of the Defence Equipment & Support (DE&S)
organisation which has created the new Submarine Delivery Agency
(SDA). Following this restructuring, a review of programme spend
timings is contributing to slightly slower than expected UK
activity levels in our Marine and Land sectors. As a result of both
the positive portfolio actions and the delays in defence activity,
the Group now expects low single digit underlying revenue growth
for the full year.
Around 83% of expected revenue is now in place for 2018/19, and
around 55% for 2019/20. The combined order book and pipeline has
increased to cGBP32 billion; the order book of signed contracts
remaining stable at cGBP18 billion and the pipeline of bids in
progress increasing to cGBP14 billion, with the majority of the
increase coming from new Marine opportunities.
Operational Review
Marine sector: The UK Naval business is expected to experience a
temporary slowing of revenue relating to infrastructure spend,
submarine disposal and the Dreadnought project as the
newly-launched SDA reviews timings of their spend programme. This,
combined with the expected stepdown of revenue on the Queen
Elizabeth Carrier project and the impact of our exit from the
offshore renewables sector, both of which are first half weighted,
is expected to result in a year-on-year reduction in Marine
revenues in the first half of 2018/19. However the full year impact
will be offset by new order wins in the International Naval and
Technology businesses, including three energy contracts which had
been delayed from the end of 2017/18.
Land sector: Defence procurement expenditure in the first
quarter continued at the same reduced level as at the end of
2017/18. However, order levels are now increasing. In South Africa,
recent management changes at Eskom have resulted in power station
outage delays which are impacting business in the first half of the
financial year. Continuing our focus on core markets which deliver
appropriate returns, we are currently disposing of activities in
the South African powerlines and our North American mining and
construction support businesses.
Aviation sector: The Defence business began its HADES contract
to provide technical support at 17 RAF air bases in July following
a phased mobilisation over the first quarter. In France, the
FOMEDEC military air training contract is on track, and is moving
from mobilisation to pre-operations phase with eight of the 17
aircraft now having been accepted by the customer. In the Emergency
Services business, mobilisations for the air ambulance contracts in
Norway and Gothenburg, Sweden are proceeding on schedule, and we
have been awarded a five year air ambulance contract in Finland.
Additionally we have renewed a contract with Generalitat Valencia,
Spain, and are awaiting formal confirmation of the renewal of our
Spanish SASEMAR search and rescue contract.
Nuclear sector: Cavendish Nuclear continues to progress delivery
of the Magnox decommissioning contract, with preparation underway
to hand over to the UK Nuclear Decommissioning Authority (NDA) at
the end of August 2019. The NDA has confirmed that it will then
seek to use expertise from the private sector through multiple
smaller contracts, as it does with Sellafield where we have won
around GBP40 million of design and project work in the first
quarter and are currently bidding for around GBP500 million of
further work. We are opening an office in Japan to support
decommissioning work at both Tokai and Fukushima. Our Projects and
New Build business continues to grow, and we will shortly enter
into an industry alliance which is expected to provide additional
opportunities at Hinkley Point C.
Financial position
The Group continues to maintain a healthy financial position.
Cash flow in the first quarter of the financial year is similar to
the same period the previous year, and as previously indicated we
expect revenue, profit and cash flow to be second half weighted. We
expect to reduce debt during 2018/19 to achieve a net debt to
EBITDA ratio of around 1.4 times by the end of the year.
Ends
Enquiries
Babcock International Group
PLC 020 7355 5300
Franco Martinelli
Kate Hill
FTI Consulting 020 3727 1340
Andrew Lorenz
Nick Hasell
Conference call
A conference call for analysts and investors will be held at
08:00 GMT this morning, access details below:
Dial in number +44 20 3059 5868
Please state you wish to join the Babcock AGM Trading
Update when prompted.
An audio-cast and replay details of the call will be available
at www.babcockinternational.com/investors
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END
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