TIDMBAB
RNS Number : 9674H
Babcock International Group PLC
21 November 2018
Babcock International Group PLC
Half year report for the six months ended 30 September 2018
21 November 2018
Underlying results in line, taking actions to further strengthen
Babcock
Financial results Statutory Underlying
--------------------------------------------
30 September 30 September 30 September 30 September
2018 2017 Change 2018 2017 Footnote Change
------------------- ------------ ------------ ------ ------------ ------------ -------- ------
Revenue GBP2,254.8m GBP2,316.7m -2.7% GBP2,576.9m GBP2,638.9m 1 -2.3%
=================== ============ ============ ====== ============ ============ ======== ======
Operating profit GBP49.3m GBP172.2m -71% GBP279.6m GBP275.8m 2 +1.4%
=================== ============ ============ ====== ============ ============ ======== ======
Profit before tax GBP65.1m GBP181.9m -64% GBP245.5m GBP239.5m 3 +2.5%
=================== ============ ============ ====== ============ ============ ======== ======
Basic earnings per
share 11.5p 30.5p -62% 39.9p 38.7p 4 +3.1%
------------------- ------------ ------------ ------ ------------ ------------ -------- ------
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.
1. Underlying revenue includes the Group's share of joint ventures and associates revenues.
2. 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.
3. Underlying profit before tax is inclusive of pre-tax joint
ventures and associates income but before amortisation of acquired
intangibles and exceptional items.
4. 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.
5. Before pension payments in excess of income statement.
30 September 30 September
2018 2017 Change
------------ ------------ ------
Free cash flow(5) GBP139.5m GBP44.3m +215%
===================================== ============ ============ ======
Net debt GBP1,131.9m GBP1,291.1m -12%
===================================== ============ ============ ======
Net debt/EBITDA 1.6x 1.9x -16%
===================================== ============ ============ ======
Combined order book and bid pipeline GBP32bn GBP31bn +3%
===================================== ============ ============ ======
Interim dividend 7.10p 6.85p 3.6%
------------------------------------- ------------ ------------ ------
Financial highlights
-- Underlying operating profit up 1.4%, up 2.4% at constant exchange rates
-- Group margin improving to 10.9%, partly as low margin businesses exited
-- Underlying basic EPS up 3.1% to 39.9p
-- Underlying revenue down 2.3%, impacted by exits and disposals
o Organic revenue growth at constant exchange rates -1.1%
o Excluding exits, organic revenue growth at constant exchange
rates +0.5%
-- Underlying operating cash flow of GBP264 million (120% cash
conversion pre capex, 82% post) and free cash flow of GBP140
million
-- GBP32 billion combined order book and bid pipeline, 92% of
underlying revenue already secured for 2018/19
-- Net debt GBP1,132 million, down GBP159 million year on year;
represents 1.6x EBITDA and on track to reach 1.4x by March 2019
-- Interim dividend up 3.6% to 7.1p, reflecting our confidence
in the prospects for the Group and sustained cash generation
Exceptional charges
-- Exceptional charges of GBP120 million (GBP101 million net of
tax), related to reshaping our Oil and Gas business, our exits and
disposals programme and rightsizing capacity across sectors,
including exit of Appledore shipyard
-- Total related net cash costs expected to be around GBP10
million after disposals and asset sales
Oil and Gas GBP80.3m
=================================== =========
Capacity reductions & restructuring GBP39.6m
=================================== =========
Exits (net of disposals) GBP0.5m
----------------------------------- ---------
Total charge GBP120.4m
----------------------------------- ---------
Net cash costs c.GBP10m
----------------------------------- ---------
Operational highlights
-- Order book and pipeline unchanged since last update
-- Signed 'Joint Ways of Working Charter' partnership agreement
with the UK Government and MOD, confirming our consistent and
enduring strategic relationship
-- Total of around GBP650 million of MOD work added to our order book
-- Continue to grow International businesses: renewed flagship
Spanish search and rescue contract, mobilising for air ambulance
work in Sweden, Finland and Norway, further international
opportunities in Marine and Aviation expected shortly
Outlook for this year unchanged
-- Low single digit underlying organic revenue growth at
constant exchange rates with improved margins to last year
Magnox
-- Our Magnox JV decommissioning contract comes to an end in
August 2019. We are now updating our base modelling assumptions to
assume that the Nuclear Decommissioning Authority (NDA) procurement
strategy after August 2019 will be insufficiently advanced for us
to assume any additional revenue
-- On this basis, the step down in revenue for Magnox in 2019/20
is now expected to be around GBP250 million, compared to previous
expectations of around GBP100 million. The associated step down in
operating profit is expected to be around GBP20 million
-- Our medium term view remains that there are significant
opportunities for us to support the long term decommissioning of
the Magnox sites
Chief Executive Archie Bethel said:
"We had a solid first half with underlying results in line with
our expectations and we have confirmed guidance for the full year.
We are taking decisive actions to further strengthen the Group
which will deliver benefits next year and beyond.
"We increased earnings per share, achieved strong cash
generation and maintained a strong balance sheet, having reduced
net debt by GBP160 million over the last twelve months. We grew our
combined order book and pipeline and continued our international
expansion. Following this performance and reflecting our confidence
in our prospects, we are maintaining our track record of increasing
our dividend.
"Our solid underlying performance reflects our continuing market
leadership in technology-based engineering services, founded on our
close and deep-rooted relationships with all our customers and in
particular with our largest single customer, the UK Ministry of
Defence. We added around GBP650 million of MOD work to our order
book in the period and we welcome the UK Government's commitment to
defence, reflected in the recent Budget. Earlier this week we
signed a strategic 'Joint Ways of Working Charter' partnership
agreement with the UK Government and MOD as part of their strategic
supplier programme, which confirmed the way we intend to work
together consistently and on an enduring basis.
"We are taking actions necessary to further improve the quality
of our earnings and our returns to shareholders. That is why we are
exiting low-margin businesses, restructuring in areas and combating
the overcapacity in our Oil and Gas helicopter services business.
These actions, with minimal cash costs, will strengthen the
business going forward. Additionally, as a result of the Nuclear
Decommissioning Authority's timing, we are re-setting our
expectations for Magnox.
"Our outlook for the full year remains unchanged. Revenue growth
will resume in the second half and for the year as a whole, we
continue to expect low single digit underlying organic revenue
growth at constant currency with improved margins. We will continue
to reduce net debt and focus on delivering value to our
shareholders, partly through a growing and sustainable dividend. We
have excellent opportunities both in the UK and internationally to
build on our strengths and I am determined to build on them."
Archie Bethel
Chief Executive
Contact:
Babcock International Group PLC
Simon McGough Kate Hill
Director of Investor Relations Group Director of Communications
Tel: +44 (0)20 3823 5592 Tel: +44 (0)20 7355 5312
FTI Consulting
Andrew Lorenz / Nick Hasell
Tel: +44 (0)20 3727 1340
Analysts and investors:
A meeting for investors and analysts will be held on 21 November
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. A
transcript of the presentation and Q&A will also be made
available on our website. To dial into the presentation, please
call +44 20 3059 5868 (from all locations)
Please allow 15 minutes to register for both the webcast and the
call.
Introduction
Overview
Trading environment
The markets we serve continue to offer significant long term
growth potential but conditions this year and in the near term
remain challenging in certain segments.
There is an increased need for efficiencies in defence markets
across the world and we are a key player in delivering these. In
the UK, we were again confirmed as the Ministry of Defence's (MOD)
second largest supplier, providing critical assets and support
across the UK's armed forces. We have further formalised our
ongoing relationship, having signed a 'Joint Ways of Working
Charter' agreement as part of the UK Government/MOD Strategic
Partner Programme/Strategic Supplier Management Programme which
outlines how we intend to work together, consistently and on an
enduring basis. International markets remain a key growth
opportunity for our Marine business and we continued to develop new
opportunities in the period.
Demand for increasingly complex and technical emergency services
continues to grow across our markets. Firefighting activity was
lower this year compared to last year in our markets but remains a
significant issue across the world. Firefighting in Europe is
increasingly shared across countries and we were able to offer
aircraft and assistance to fight fires in Sweden and Greece over
the summer.
Nuclear remains a significant growth market, with many ageing
power stations coming offline and new build activity increasing.
The Magnox contract comes to an end in August 2019 and this will
have a significant impact on our business. We will look to replace
the current work with new contracted work with the NDA across
Magnox and other major nuclear sites including the UK new build
programme and expanding internationally over the medium term.
Financial performance
Performance in the first half of the year was in line with our
expectations. Underlying group revenue declined by 2.3%, partly
reflecting a GBP57 million impact from business disposals and exits
from a number of low margin businesses and a GBP17 million impact
from exchange rate movements. Revenue performance for the group is
second half weighted as previously outlined. Underlying operating
profit increased by 1.4% with group margin improving to 10.9%
compared to 10.5% last year. The margin improvement reflects the
exit of lower margin businesses and a strong performance in our
Land sector. Highlights by sector:
-- Marine: underlying revenue declined by 6.6%, mainly as a
result of the continuing step down in QEC revenue and the impact of
the exit of our renewables business. Organic revenue growth at
constant exchange rates excluding this exit and QEC was 2.1%.
Operating profit declined in line with revenue with margins held
steady
-- Land: underlying revenue declined by 14.6%, partly reflecting
the impact of the exit of a number of businesses referred to above.
Organic revenue growth excluding exits at constant exchange rates
was -9.9%, reflecting lower defence procurement and Rail revenues.
Operating profit benefited from improved contract performance in
our businesses, cost savings, continuing performance in the
Holdfast (RSME) joint venture and improved profitability in our
South Africa equipment business
-- Aviation: strong underlying revenue growth of 23.6% was
driven by aircraft and simulator revenue related to our FOMEDEC
training support contract with the French Air Force. Aviation's
operating profit increased more slowly, reflecting the lower margin
FOMEDEC procurement revenue and lower initial margins on new
contracts
-- Cavendish Nuclear: underlying revenue grew by 4.8% reflecting
growth across our Nuclear Services business. Nuclear's operating
profit grew slightly while margins remained broadly stable
Organic
growth
Organic at constant
growth FX rates
30 September 30 September Reported at constant excluding
Underlying revenue by sector 2018 2017 growth FX rates exits
----------------------------- ------------- ------------- -------- ------------ ------------
Marine GBP824.7m GBP883.3m -6.6% -6.2% -3.5%
============================= ============= ============= ======== ============ ============
Land GBP798.1m GBP934.4m -14.6% -11.9% --9.9%
============================= ============= ============= ======== ============ ============
Aviation GBP615.8m GBP498.4m 23.6% 24.2% 24.2%
============================= ============= ============= ======== ============ ============
Cavendish Nuclear GBP338.3m GBP322.8m 4.8% 4.8% 4.8%
----------------------------- ------------- ------------- -------- ------------ ------------
Total GBP2,576.9m GBP2,638.9m -2.3% -1.1% 0.5%
----------------------------- ------------- ------------- -------- ------------ ------------
Organic
growth
Underlying operating profit 30 September 30 September Reported at constant
by sector 2018 2017 growth rates
---------------------------- ------------- ------------- -------- ------------
Marine GBP108.3m GBP115.6m -6.3% -6.0%
============================ ============= ============= ======== ============
Land GBP63.3m GBP56.5m 12.0% 15.6%
============================ ============= ============= ======== ============
Aviation GBP81.6m GBP78.5m 3.9% 4.5%
============================ ============= ============= ======== ============
Cavendish Nuclear GBP29.9m GBP29.0m 3.1% 3.1%
============================ ============= ============= ======== ============
Unallocated (GBP3.5m) (GBP3.8m) - -
---------------------------- ------------- ------------- -------- ------------
Total GBP279.6m GBP275.8m 1.4% 2.4%
---------------------------- ------------- ------------- -------- ------------
The 1.4% increase in group underlying operating profit, combined
with reduced finance costs and stable tax rates, resulted in 3.1%
growth in underlying basic earnings per share.
On a statutory basis, revenue for the first half was GBP2,255
million, down 2.7%. The group made a statutory operating profit of
GBP49 million reflecting the impact of exceptional charges of
GBP120 million. Basic earnings per share (as defined by IAS 33) was
11.5 pence (2017: 30.5 pence) per share.
Our focus on cash generation continues to deliver with
underlying operating cash flow of GBP264 million in the half,
representing 120% cash conversion pre capex. Underlying free cash
flow was GBP140 million before pension payments in excess of the
income statement of GBP21 million.
As expected, our cash performance was helped by a working
capital unwind from our FOMEDEC contract, with the contract now
cash positive.
De-gearing remains on track with net debt remaining at 1.6x
EBITDA after the payment of a GBP114 million final dividend in the
first half. Net debt also includes GBP163 million of finance lease
debtors related to the FOMEDEC contract, all of which will be
turned into cash in the second half. As of November 2018, this
finance lease debtor has reduced to GBP66 million. We continue to
expect net debt to reduce to around 1.4 times EBITDA by the end of
this financial year and around 1.1 times by March 2020.
Taking action to further strengthen Babcock
In 2017 we realigned our business into four sectors: Marine,
Land, Aviation and Cavendish Nuclear. This realignment has
intensified our concentration on core higher-margin strategic
businesses and is increasing our focus on three core markets:
defence, emergency services and nuclear. These markets already
account for around three quarters of our revenue and offer
sustainable growth opportunities, particularly internationally. As
part of this realignment, we are exiting a number of non-strategic,
small, low-margin businesses:
-- Last year, we sold our civil infrastructure businesses and started to exit renewables
-- In the period, we exited our North American mining and
construction support business and the powerlines business in South
Africa, and we sold our media services business for net proceeds of
GBP26 million
-- This process will continue in the second half of this year
In addition to exiting businesses, and following a detailed
strategic review, we have taken action to improve the efficiency of
our ongoing businesses:
-- Reshaping our Oil and Gas business - recognising the
overcapacity in our markets and resultant underutilisation of both
owned and leased assets and to optimise future cash flows. We have
taken an asset impairment charge of GBP38 million to reduce owned
Oil and Gas assets to their market value and have recognised an
onerous lease provision of GBP42 million against leased assets to
reflect the cost of these commitments versus current market rates.
The recent oil price improvement has not materially changed
helicopter market values
-- Capacity reductions and restructuring - we have made some
significant changes to surplus capacity across some business areas.
In Marine, we announced the exit from the Appledore shipyard
following the completion of work on Irish offshore patrol vessels
and we have rightsized capacity in other Marine facilities. In
Land, we have reduced surplus capacity in our Rail business ahead
of our bid for the new CP6 contract and in Nuclear we have
restructured our business related to Magnox
-- Exits and disposals - the business exits have associated
costs. These costs relate to the exit of renewables, North American
mining and construction support, media services and our powerlines
business in South Africa. The costs of exits have been offset by
the proceeds of the sale of our media services business
These actions are mainly focused on protecting profits going
forward, with limited incremental benefit to operating profit. The
total costs of GBP120 million (GBP101 million net of tax) have been
recognised as an exceptional charge in our income statement.
Income statement
charge
----------------------------------- ----------------
Oil and Gas
=================================== ================
- Asset impairment GBP38.2m
=================================== ================
- Onerous lease provisions GBP42.1m
----------------------------------- ----------------
Oil and Gas total GBP80.3m
----------------------------------- ----------------
Capacity reductions & restructuring GBP39.6m
=================================== ================
Exits GBP15.7m
=================================== ================
Business disposal (GBP15.2m)
----------------------------------- ----------------
Total GBP120.4m
----------------------------------- ----------------
Tax (GBP19.8m)
----------------------------------- ----------------
Net GBP100.6m
----------------------------------- ----------------
The total related net cash costs of these actions is expected to
be around GBP10 million. This is after tax, disposals and expected
helicopter sales. The net cash cost in the first half was GBP5
million and we expect a net cash cost of around GBP10 million in
the second half, with cash from expected asset sales giving net
cash inflows in future years.
Operational performance
We have made significant progress and we are providing critical
support to customers in a number of important long term contracts,
including:
-- In Marine, we secured a five year Maritime Training Systems
Through-Life Availability & Support Service (MARTASS) contract
with the MOD and signed a five year Ship Naval Design Partnering
(NDP) contract with the MOD with options for extension
-- In Land, we secured two additions to our Defence Support
Group (DSG) contract worth around GBP120 million
-- In Aviation, we signed the renewal of SASEMAR, our flagship
search and rescue contract in Spain. Mobilisations for the air
ambulance contracts in Gothenburg, Sweden and Norway are proceeding
on schedule
-- In Cavendish Nuclear, we have been selected as preferred
bidder for the Dounreay Materials Test Reactor decommissioning
contract and activity on UK new build continues to increase. We
have opened an office in Japan to support opportunities for
decommissioning work
Our combined order book and bid pipeline remains strong at
around GBP32 billion (March 2018: c.GBP31 billion), consisting of
c.GBP18 billion order book and c.GBP14 billion pipeline. New
opportunities were added in the period, including: Marine training,
UK defence fleet vehicles, new Eskom boiler maintenance work in
South Africa and aerial emergency services in Canada. The only key
bid lost in the period was the Royal Fleet Auxiliary ships for the
Royal Navy, an opportunity that had been heavily discounted in our
pipeline.
Our order book and pipeline gives us confidence in the future
prospects of the group, with 92% of underlying revenue already
secured for 2018/19 and 60% for 2019/20. The bid pipeline continues
to be supported by a tracking pipeline of opportunities which have
yet to formally come to market.
Outlook
The Group outlook for the year is unchanged from our July
update:
-- We expect low single digit underlying organic revenue growth
at constant exchange rates for the full year with improved
margins
-- Revenue and cash flow performance will be second half
weighted as has been the case for a number of years
-- We expect to continue to reduce our debt during the year and
expect our net debt to EBITDA ratio to be around 1.4 times by the
end of the year
2018/19 sector outlook for reported underlying revenue and
underlying operating profit:
-- Marine: revenue to be broadly stable with stable margins
-- Land: around a 10% decline in revenue with strengthening margins
-- Aviation: strong underlying revenue growth but mix of
business will result in a softening margin
-- Cavendish Nuclear: underlying revenue flat with stable margins
Reported revenue will be impacted by exchange rate movements,
exits and disposals. We currently estimate the full year impacts to
reported revenue to be:
-- Exchange rate impact of around GBP20 million (H1: GBP17 million)
-- Impact of disposals of around GBP50 million (H1: GBP15 million)
-- Impact of exits of around GBP50 million (H1: GBP42 million)
The programme of exits and disposals will impact the 2019/20
financial year. The current estimated revenue impact is around
GBP40 million with a small impact on operating profit.
Magnox
While it is too early to give detailed financial guidance for
the 2019/20 financial year, with opportunities and risks still to
be quantified, we have updated our assumptions related to the end
of the Magnox JV decommissioning contract and our base modelling
assumption is that the NDA procurement strategy after August 2019
will be insufficiently advanced for us to assume any additional
revenue. The step down in revenue in 2019/20 is now expected to be
around GBP250 million with around a GBP20 million step down in
operating profit.
Our medium term view remains that there are significant
opportunities for us to support the long term decommissioning of
the Magnox sites.
Shareholder returns
We remain committed to providing returns to our shareholders and
the actions we are taking are reflective of that. We continue to
grow our ordinary dividend, with the interim dividend up 3.6% to
7.10 pence, and it is well-covered by underlying earnings and cash
generation.
Operational review
Marine
30 September 30 September Change
2018 2017 + / -
----------- ---------------------- ------------ ------------ ------
GBP814.2 GBP873.0
Group m m -6.7 %
================================== ============ ============ ======
GBP10.5 GBP10.3
Jv m m +1.9 %
---------------------------------- ------------ ------------ ------
Underlying GBP824.7 GBP883.3
revenue total m m -6.6 %
---------------------- ------------ ------------ ------
GBP818.9 GBP853.7
total excluding exits m m -4.1 %
---------------------------------- ------------ ------------ ------
GBP105.6 GBP114.0
Group m m -7.4 %
================================== ============ ============ ======
Underlying
operating GBP2.7 GBP1.6 +68.9
profit Jv m m %
---------------------- ------------ ------------ ------
GBP108.3 GBP115.6
Total m m -6.3 %
---------------------------------- ------------ ------------ ------
Group 13.0 % 13.1 %
================================== ============ ============
Underlying
operating
margin Jv 25.7 % 15.5 %
---------------------- ------------ ------------
Total 13.1 % 13.1 %
---------------------------------- ------------ ------------
JV revenue is after deducting an appropriate portion of JV
revenue to reflect revenue already included in Group revenue
Financial review
As expected, Marine's revenue was lower in the first half. This
was partly the result of the start of our exit of the renewables
business in the last financial year and the continued step down in
revenue related to the Queen Elizabeth Class (QEC) aircraft
carriers of GBP47 million. Organic revenue growth at constant
exchange rates was -6.2%. Excluding QEC and the renewables exit,
organic revenue growth at constant exchange rates was 2.1%.
Revenue was helped by increased activity on UK naval ships but
was held back by changes in the expected phasing of infrastructure
and equipment spend related to other defence programmes, as we
flagged in our July Trading Update.
Operating profit declined by 6.3% while the margin was
maintained. This reflects the margin benefit of lower QEC and
renewables revenue, which have low margins, offset by a small
change in business mix.
Operational review
UK Naval Marine
Our UK Naval Marine business is based upon our unique and
critical assets, with ownership of the Devonport Dockyard facility
and Rosyth. In total, we are currently delivering over 20 naval
support programmes for the UK Royal Navy.
Our provision of services under the GBP2.6 billion Maritime
Support Delivery Framework (MSDF) progresses well, with improved
efficiencies and cost reductions on the agreed programme of work.
We achieved customer acceptance and fleet dates for HMS
Northumberland and HMS Kent. The HMS Monmouth fleet time support
package was successfully completed on time to allow deployment with
HMS Queen Elizabeth. HMS Albion successfully completed her
four-week Deployed Support Period in Japan during August, while HMS
Scott achieved undocking as planned at the end of September.
We remain a strategic partner in the Queen Elizabeth Class
carrier programme and September saw the first aircraft touch down
on HMS Queen Elizabeth during sea trials in the USA. This was a
significant milestone for the programme, and the support provided
through Babcock Marine Systems Support Partner (MSSP) contract
played an important role in making it happen. At our Rosyth
facilities, HMS Prince of Wales is now around 90% physically
complete and her programme of testing and commissioning will
continue into mid-2019.
We continue to progress on our submarine programmes and in the
period we secured two additional submarine programme contracts. The
first is to enable the procurement and manufacture of long lead
items associated with Dreadnought weapon launch systems. The second
encompasses the first phase of Astute Weapon Handling & Launch
System spares.
The first half of the year has seen the pause and restart of the
competition for the new Type 31e general purpose light frigate
programme and we are once again in the bidding process.
At Appledore, we completed work on the fourth and final Irish
offshore patrol vessel, LÉ George Bernard Shaw, and as a result of
no further work being available for the Appledore yard we took the
decision to exit the site.
International Naval Marine
In Canada, we secured a CAD 384 million three year extension to
our existing strategic submarine support contract with the Canadian
Department of National Defence for its fleet of four Victoria Class
submarines. VISSC is the largest naval in service support contract
in Canada and includes project management, refits and maintenance,
capability upgrades, logistics, configuration/safety records and
engineering support.
In other markets, we secured and completed a number of contracts
from our facilities in Duqm, Oman for the US Navy and Royal Navy.
We have opened an office in South Korea and are developing plans
for a new facility to meet our ambitions for delivering in-service
support work for the Jangbogo-III submarine programme. Performance
in our Australian JV has been good with gain shares realised.
Technology
During April, the first two missile launch assemblies were
delivered from our Rosyth facility to General Dynamics Electric
Boat (GDEB) as part of Babcock's GBP80 million Common Missile
Compartment (CMC) contract in support of the UK Dreadnought and US
Columbia Class submarine programmes. These initial missile launch
assemblies were transported to the US for outfitting prior to
transportation to Barrow for the UK Dreadnought programme,
representing an important milestone in this programme as the first
of 27 individual missile launch assemblies being delivered by
Babcock.
In June we secured a five year Maritime Training Systems
Through-Life Availability & Support Service (MARTASS) contract
with the MOD. The contract is comprised of a series of support
packages for training equipment across the Royal Navy and Defence
establishments, including Naval Bases and Air Stations that are
clustered under one contract for consolidated delivery. Through the
contract, Babcock will deliver on-call engineering support, routine
maintenance and the modernisation of legacy equipment to ensure the
availability of the training equipment in the long-term.
During August we received the first tranche of equipment orders
from the MOD for the Marine Systems Support Partner (MSSP)
contract, to build up the agreed inventory levels to support the UK
Royal Navy Type 45 Destroyers and Queen Elizabeth Class aircraft
carriers.
Also in the period, we secured a five year Ship Naval Design
Partnering (NDP) contract with the MOD with options for extension.
This important long term contract provides leadership for the
industry development of new naval platforms and mission systems on
behalf of the MOD.
In our Energy business, we reinforced the introduction of our
ecoSMRT technology by securing a further seven liquid gas equipment
systems contracts for South Korean markets worth in excess of GBP20
million whilst our patented Vent Gas Cooler (VGC(TM)) technology
will be applied on two liquid petroleum gas (LPG) carriers being
built in South Korea. Additionally, we will supply the cargo
handling system on a liquefied ethylene gas (LEG) carrier being
built by Nanjing Jinling Shipyard Co. in China. These technologies
highlight Babcock's innovative reliquefaction solutions across LNG
and LPG carriers within the global liquefied gas market.
Outlook
For this financial year, we expect revenue to be broadly stable
with stable margins. This is despite the continued step down in QEC
revenue, which will have around a GBP90 million impact this year
and around a GBP75 million next year.
Land
30 September 30 September Change
2018 2017 + / -
----------- ------------------------------------ ------------ ------------ ------
GBP782.6 GBP892.3 -12.3
Group m m %
================================================ ============ ============ ======
GBP15.5 GBP42.1 -63.2
Jv m m %
------------------------------------------------ ------------ ------------ ------
Underlying GBP798.1 GBP934.4 -14.6
revenue total m m %
------------------------------------ ------------ ------------ ------
GBP758.9 GBP861.9 -12.0
total excluding exits and disposals m m %
------------------------------------------------ ------------ ------------ ------
GBP46.8 GBP42.4 +10.4
Group m m %
================================================ ============ ============ ======
Underlying
operating GBP16.5 GBP14.1 +17.0
profit Jv m m %
------------------------------------ ------------ ------------ ------
GBP63.3 GBP56.5 +12.0
Total m m %
------------------------------------------------ ------------ ------------ ------
Group 6.0 % 4.8 %
================================================ ============ ============
Underlying
operating 106.5
margin Jv % 33.5 %
------------------------------------ ------------ ------------
Total 7.9 % 6.0 %
------------------------------------------------ ------------ ------------
JV revenue is after deducting an appropriate portion of JV
revenue to reflect revenue already included in Group revenue. The
effect of this is that there is no revenue recognised in relation
to our Holdfast (RSME) JV
Financial review
Underlying revenue in our Land sector was 14.6% lower in the
period, with a GBP33 million impact from business exits and
disposals and a GBP10 million impact from foreign exchange
movements. Organic revenue growth at constant exchange rates was
-11.9%, or -9.9% adjusting for business exits.
Lower revenues reflect reduced defence procurement activity and
lower rail revenues primarily related to reduced electrification
work. The significant reduction of this low margin work within the
ABC electrification JV is the main reason for the change in JV
margin.
Underlying operating profit increased to GBP63 million with a
significant increase in margin. Performance was supported by
improved contract performance, cost savings and improved
profitability in our South Africa equipment business. Furthermore,
JV operating profit benefited from better than expected savings in
our Holdfast (RSME) JV. This better than expected performance helps
this financial year and Holdfast (RSME) JV profits will normalise
next year.
Operational review
Defence
Lower revenues in our Defence business mainly reflect reduced
defence procurement revenue.
We continue to win additional work within DSG with two
amendments to our existing Service Provision and Transformation
Contract in the period. We agreed a GBP72 million extension to
deliver UK and international maintenance to land equipment and
cadet weapons in support to the UK 1 Division and, from April 2019,
we will deliver maintenance, repair and overhaul support to the
British Army's protected mobility vehicle fleet.
During the period, we prepared nearly 500 vehicles plus
operational spares for the joint UK/Oman exercise in the Gulf in
October.
Our Holdfast (RSME) JV benefited from better than expected
savings in the period, leading to higher than expected recognised
profits. Our ALC JV, which provides construction vehicles for the
MOD, traded broadly in line with last year.
Emergency Services and Training
Our Emergency Services and Training business had lower
apprentice training volumes following the introduction of the
Apprentice Levy, particularly in the SME market.
During the period we secured a two-year extension with the
Metropolitan Police Service for their critical vehicle fleets
service, valued at around GBP50 million. The introduction of the
degree level apprenticeship in professional policing through the
Police Education Qualification Framework has resulted in a number
of police forces across the UK initiating the first stages of
procurement for industry support. We are in discussion with a range
of partners and intend to participate in the bidding for this
work.
Networks and Equipment Support
Revenue in our Networks and Equipment Support business reflects
business exits and lower revenues in our Rail business, primarily
relating to lower electrification work in our ABC electrification
JV.
Our Rail business won a contract with Translink for the
provision of rail services in Northern Ireland. The eight-year
contract is worth up to GBP130 million over its lifetime. This new
contract is in addition to our existing signalling framework
contract, awarded in 2017, making us the sole supplier for
Translink's track and signalling programmes. We also successfully
progressed through the Pre-Qualification Questionnaire phase of the
Network Rail Control Period 6 (CP6) track replacement programme and
have submitted the first of two proposals to the customer.
Trading in other parts of the Networks and Equipment Support
business was broadly stable and we are exploring opportunities for
the renewal of contracts in airport baggage and ground support.
South Africa
In South Africa, the macroeconomic environment remains
challenging. Revenues were down slightly in the period but margin
has improved and led to higher profits. As previously highlighted,
recent management changes at Eskom have resulted in power station
outage delays which impacted the business in the first half of the
financial year but which have now started. The Equipment business
supplying Volvo and DAF vehicles to the mining and construction
industry has continued to perform well, gaining market share in a
growing market and increasing profits.
Outlook
This year, we expect around a 10% decline in reported revenue,
partly reflecting the impact of exits and disposals, and margins
are expected to strengthen. Looking ahead to 2019/20, our programme
of exits and disposals will continue to impact the Land sector. We
currently expect an impact of around GBP40 million to revenue and a
small impact to operating profit.
Aviation
30 September 30 September Change
2018 2017 + / -
----------- ------ ------------ ------------ ------
GBP551.0 GBP453.2 +21.6
Group m m %
================== ============ ============ ======
Underlying GBP64.8 GBP45.2 +43.4
revenue Jv m m %
------ ------------ ------------ ------
GBP615.8 GBP498.4 +23.6
total m m %
------------------ ------------ ------------ ------
GBP59.6 GBP57.5
Group m m +3.7 %
================== ============ ============ ======
Underlying
operating GBP22.0 GBP21.0
profit Jv m m +4.8 %
------ ------------ ------------ ------
GBP81.6 GBP78.5
Total m m +3.9 %
------------------ ------------ ------------ ------
Group 10.8 % 12.7 %
================== ============ ============
Underlying
operating
margin Jv 34.0 % 46.5 %
------ ------------ ------------
Total 13.3 % 15.8 %
------------------ ------------ ------------
JV revenue is after deducting an appropriate portion of JV
revenue to reflect revenue already included in Group revenue
Financial review
Strong underlying revenue growth in our Aviation sector mainly
relates to aircraft and simulator deliveries on our FOMEDEC
training support contract with the French Air Force.
Underlying operating profit increased but margin declined due to
a combination of growth in low margin FOMEDEC equipment revenue and
lower initial margins on new contracts.
Operational review
UK Military Air
Revenue across UK Military Air was flat in the period. The
Defence business is progressing well with all our Royal Air Force
(RAF) contracts. Our HADES contract to provide technical support at
17 RAF air bases is now fully operational after a phased
mobilisation period in the first half of the financial year and
associated revenues have increased throughout the period.
Offsetting this, we saw lower revenues related to the UK Military
Flying Training System (UKMFTS) following the finalisation of the
construction phase of the contract, which was completed by the
group. The contract is now in its operational stage as part of our
UKMFTS JV and this helped total JV revenue growth in the
period.
We are continuing the bidding process, in partnership, for the
RAF Air Support to Defence Operational Training (ASDOT)
opportunity, which will provide adversary air combat training.
European Military Air
European Military Air grew strongly in the period as our
training support contract with the French Air Force, FOMEDEC,
develops at pace with the vast majority of equipment revenue now
recognised. All 17 aircraft have been manufactured and all
simulation devices are now up and running in the new simulation
centre building with tests currently in progress.
We are continuing to progress the development of relationships
with other European air forces and our bid pipeline includes some
opportunities to build upon our experience with the FOMEDEC
contract.
Aerial Emergency Services
Our Aerial Emergency Services business saw reduced firefighting
activity in our markets compared to the same period last year,
which disproportionately impacted the first half.
In Spain, we have been awarded a contract from Generalitat
Valencia for firefighting, emergencies coordination and medical
services until 2022 and we renewed SASEMAR, our flagship search and
rescue contract along the Spanish coastline. Firefighting activity
over the peak period was lower than in 2017 across both Spain and
Italy.
In the Nordics, mobilisation for the air ambulance contract in
Gothenburg, Sweden is proceeding on schedule and we have been
awarded a five year air ambulance contract in Finland. Our business
in Norway is expected to commence our air ambulance contract in
2019 and the first aircraft have been delivered for medical
fit-out.
Oil and Gas
Our Oil and Gas business continues to be impacted by challenging
industry conditions. Oversupply and intense competition, along with
related underutilisation of assets, has reduced margins to low
single digit levels (previously double digit). Revenue in the
period grew slightly, helped by a pick-up in activity in the 'pay
as you go' spot market.
We have taken action in the period to reshape this business, as
set out on page 4. These actions will lead to a more profitable
business.
Outlook
Our outlook for this financial year remains unchanged. We expect
strong underlying revenue growth but a softening margin due to the
mix of business. Revenue growth in the second half will be
significantly lower as the revenue from the provision of FOMEDEC
aircraft and simulators does not repeat.
Looking ahead to 2019/20, we will see a step down in equipment
related revenue from FOMEDEC but that should be partly offset by
the contribution from our Norwegian Emergency Services contract and
contract growth within FOMEDEC. Our bid pipeline remains strong and
Aviation is expected to continue to be a significant growth driver
for the group over the medium term.
Cavendish Nuclear
30 September 30 September Change
2018 2017 + / -
----------- ------ ------------ ------------ ------
GBP107.0 GBP98.2
Group m m +9.0 %
================== ============ ============ ======
Underlying GBP231.3 GBP224.6
revenue jv m m +3.0 %
------ ------------ ------------ ------
GBP338.3 GBP322.8
total m m +4.8 %
------------------ ------------ ------------ ------
GBP11.9 GBP12.2
Group m m -2.5 %
================== ============ ============ ======
Underlying
operating GBP18.0 GBP16.8
profit jv m m +7.1 %
------ ------------ ------------ ------
GBP29.9 GBP29.0
Total m m +3.1 %
------------------ ------------ ------------ ------
Group 11.1 % 12.4 %
================== ============ ============
Underlying
operating
margin Jv 7.8 % 7.5 %
------ ------------ ------------
Total 8.8 % 9.0 %
------------------ ------------ ------------
JV revenue is after deducting an appropriate portion of JV
revenue to reflect revenue already included in Group revenue
Financial review
Cavendish Nuclear saw good growth in both underlying revenue and
operating profit in the first half of the year led by growth in our
Nuclear Services business and increased activity on our Magnox JV.
Underlying revenue increased by 4.8% and our overall margin was
slightly lower at 8.8%.
Operational review
Decommissioning JVs
Magnox, a joint venture with Fluor where we have a 65% share,
continues to perform strongly across the 12 sites. We have now
received the licence from the Office of Nuclear Regulation (ONR) to
put the Bradwell site into care and maintenance by the end of the
calendar year, which is well ahead of plan. Preparation continues
to hand over all Magnox sites 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. The development of the new
Magnox NDA procurement strategy is taking longer than anticipated
and thus we do not see any immediate material opportunities and as
such have reflected this in our financial outlook for 2019/20 and
2020/21. As the new NDA model establishes itself we remain
confident that we are well positioned to secure a substantial
proportion of this work going forward.
Dounreay, a joint venture with Jacobs and Aecom in which we have
a 50% share, continues to deliver on its revised scope with the
Waste Removal Project as part of the UK Government's strategy.
Projects
Nuclear Services had a strong first half, with successful
performance on Sellafield Projects (including Pile Fuel Cladding
Silo and Design Services Alliance projects), the Magnox Berkeley
waste removal project and the EDF Lifetime Enterprise Agreement. We
are currently supporting the scheduled outage at the Dungeness site
and have been selected as preferred bidder for the Dounreay
Materials Test Reactor decommissioning contract.
Activity on new build continues to increase as design programmes
accelerate in preparation for construction at Hinkley Point C,
where we expect the first on site equipment installation activities
in 2019. We also continue to provide a wide range of engineering
support through our framework contracts with Hitachi and Horizon as
they work to finalise planning and budgeting for the Wylfa Newydd
new build project.
We have opened an office in Japan to support opportunities for
decommissioning work at both Tokai and Fukushima and we are
currently working on a project for the Fukushima Daiichi site.
Outlook
Our outlook for this financial year remains unchanged. We expect
revenue to be around flat and the margin to be stable.
Looking ahead to 2019/20, we expect that the step down in
revenue and operating profit from the loss of the Magnox contract
will be greater than previously expected. We currently assume a
revenue step down of around GBP250 million, compared to a previous
expectation of around GBP100 million, with an associated underlying
operating profit step down of around GBP20 million.
With the contract ending in August 2019, there will also be a
step down in 2020/21. We currently assume this step down to be
around GBP100 million of revenue and around GBP7 million of
operating profit.
Our medium term view remains that there are significant
opportunities for us to support the long term decommissioning of
the Magnox sites.
Financial review
Statutory to underlying reconciliation
Joint ventures and
associates
--------------------------
Revenue Change
and IFRIC Amortisation in
operating Finance 12 of acquired Exceptional tax
Statutory profit costs Tax income intangibles items rate Underlying
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
30 September 2018
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Revenue 2,254.8 322.1 2,576.9
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Operating profit 49.3 45.1 14.8 50.0 120.4 279.6
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Share of profit
from JV 37.4 (45.1) 11.8 7.1 (14.1) 2.9 -
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Investment income 0.7 (0.7) -
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Net finance costs (22.3) (11.8) (34.1)
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Profit before
tax 65.1 - - 7.1 - 52.9 120.4 - 245.5
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Tax (6.9) (7.1) (11.4) (19.8) 1.0 (44.2)
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Profit after tax 58.2 - - - - 41.5 100.6 1.0 201.3
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Return on revenue 2.2% 10.9%
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
30 September 2017
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Revenue 2,316.7 322.2 2,638.9
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Operating profit 172.2 39.2 15.3 49.1 275.8
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Share of profit
from JV 32.8 (39.2) 12.2 5.6 (14.3) 2.9 -
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Investment income 1.0 (1.0) -
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Net finance costs (24.1) (12.2) (36.3)
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Profit before
tax 181.9 - - 5.6 - 52.0 - - 239.5
================== ========= ========== ======= ===== ======= ============ =========== ====== ==========
Tax (26.6) (5.6) (11.1) 0.2 (43.1)
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Profit after tax 155.3 - - - - 40.9 - 0.2 196.4
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Return on revenue 7.4% 10.5%
------------------ --------- ---------- ------- ----- ------- ------------ ----------- ------ ----------
Income statement
Statutory performance
Statutory revenue for the first half was GBP2,254.8 million
(2017: GBP2,316.7 million), a decline of 2.7%. There was a
statutory operating profit of GBP49.3 million (2017: GBP172.2
million) and a statutory profit before tax of GBP65.1 million
(2017: GBP181.9 million), reflecting the impact of exceptional
charges of GBP120.4 million. Basic earnings per share, as defined
by IAS 33, was 11.5 pence (2017: 30.5 pence) per share.
Underlying revenue performance
Underlying revenue for the first half was GBP2,576.9 million
(2017: GBP2,638.9 million), a decrease of 2.3%. Excluding exits,
underlying revenue growth at constant exchange rates was 0.5%
(2017: 5.0%).
Both our Aviation and Cavendish Nuclear sectors grew revenue.
Aviation's underlying organic revenue growth, at constant rates,
increased to 24.2%, primarily reflecting strong growth from the
FOMEDEC contract as we delivered aircraft and simulators to the
customer. Cavendish Nuclear's underlying organic revenue growth, at
constant rates, was 4.8% with growth across our Nuclear Services
business and our Magnox JV.
As expected, the Marine sector saw lower revenue due to the step
down in QEC revenue and the impact of the exit from our renewables
business. Underlying organic revenue growth was -6.2% at constant
exchange rates. The Land sector's underlying organic revenue growth
at constant exchange rates was -11.9%, reflecting lower defence
procurement activity as previously indicated, reduced
electrification work in Rail and a GBP33.4 million impact from
business exits and disposals.
Underlying operating profit performance
Despite the small decline in revenue, the Group's underlying
operating profit grew by 1.4% to GBP279.6 million (2017: GBP275.8
million). At constant exchange rates, organic growth in operating
profit was 2.4%, with the Group's margin improving to 10.9% (2017:
10.5%).
In the Marine sector, underlying operating profit decreased at a
similar pace to revenue with margin remaining flat at 13.1%. This
reflects the negative impact of lower QEC and renewables revenue,
which have low margins, offset by business mix. The Land sector
achieved higher underlying operating profit due to improved
contract performance, cost savings, improved profitability in our
South Africa equipment business and better than expected savings in
our Holdfast (RSME) JV.
The Aviation sector's underlying operating profit increased but,
as expected, margin declined from 15.8% to 13.3% due to the impact
of FOMEDEC being in its early contract phase and other contracts
being in their early phase. Cavendish Nuclear's underlying
operating profit growth was led by revenue growth.
Finance costs
Total net finance costs reduced to GBP34.1 million (2017:
GBP36.3 million) reflecting reductions in net debt and pension
interest, together with some favourable movement on Ascent JV swap
valuations. The Group net finance costs reduced to GBP22.3 million
(2017: GBP24.1 million). The Group's share of joint venture net
interest expense reduced to GBP11.8 million (2017: GBP12.2
million). The IAS 19 pension finance credit was GBP0.2 million
(2017: GBP1.1 million charge) as expected.
Underlying profit before tax
Underlying profit before tax increased by 2.5% to GBP245.5
million (2017: GBP239.5 million) reflecting both the increased
underlying operating profit and the lower net finance costs.
Tax charge
The underlying tax charge, including the Group's share of joint
venture tax of GBP7.1 million (2017: GBP5.6 million), totalled
GBP44.2 million (2017: GBP43.1 million), representing an effective
underlying rate of tax of 18.0% (2017: 18.0%). 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, together with the tax credit in respect of
exceptional items and the tax effect of changes in tax rates. The
underlying effective rate is based on the estimated effective rate
of tax of 18.0% for the full year ended 31 March 2019.
Pensions
The Group's net pension deficit moved to a surplus of GBP26.3
million (2017: GBP115.7 million deficit), due to higher discount
rates, asset performance and continued 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 is enhanced by a GBP2.8 million reduction in
retirement benefit interest.
Amortisation of acquired intangibles
Amortisation of acquired intangibles was GBP50.0 million (2017:
GBP49.1 million). This represents the amortisation of the value
attributed on business acquisitions to customer relationships (both
contractual and non-contractual) and acquired brands.
Phasing
Half year income statement phasing for 2018/19 is expected to be
broadly similar to the phasing in 2017/18.
Underlying organic growth
Marine Land Aviation Nuclear Unallocated Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------- -------- ------- ----------- -------
Underlying revenue
---------------------------- ------ ------- -------- ------- ----------- -------
30 September 2017 883.3 934.4 498.4 322.8 - 2,638.9
============================ ====== ======= ======== ======= =========== =======
Exchange adjustment (3.5) (10.2) (3.2) - - (16.9)
============================ ====== ======= ======== ======= =========== =======
Disposals - (14.8) - - - (14.8)
============================ ====== ======= ======== ======= =========== =======
Exits (23.8) (18.6) - - - (42.4)
============================ ====== ======= ======== ======= =========== =======
Organic growth (31.3) (92.7) 120.6 15.5 - 12.1
============================ ====== ======= ======== ======= =========== =======
30 September 2018 824.7 798.1 615.8 338.3 - 2,576.9
---------------------------- ------ ------- -------- ------- ----------- -------
Underlying revenue growth (6.6%) (14.6%) 23.6% 4.8% - (2.3%)
---------------------------- ------ ------- -------- ------- ----------- -------
Organic growth at constant
exchange rates (6.2%) (11.9%) 24.2% 4.8% - (1.1%)
---------------------------- ------ ------- -------- ------- ----------- -------
Organic growth excl. exits
at constant exchange rates (3.5%) (9.9%) 24.2% 4.8% - 0.5%
---------------------------- ------ ------- -------- ------- ----------- -------
Underlying operating profit
============================ ====== ======= ======== ======= =========== =======
30 September 2017 115.6 56.5 78.5 29.0 (3.8) 275.8
============================ ====== ======= ======== ======= =========== =======
Exchange adjustment (0.4) (0.6) (0.4) - - (1.4)
============================ ====== ======= ======== ======= =========== =======
Disposals - (1.4) - - - (1.4)
============================ ====== ======= ======== ======= =========== =======
Organic growth (6.9) 8.8 3.5 0.9 0.3 6.6
---------------------------- ------ ------- -------- ------- ----------- -------
30 September 2018 108.3 63.3 81.6 29.9 (3.5) 279.6
---------------------------- ------ ------- -------- ------- ----------- -------
Underlying operating profit
growth (6.3%) 12.0% 3.9% 3.1% 1.4%
---------------------------- ------ ------- -------- ------- ----------- -------
Organic growth at constant
exchange rates (6.0%) 15.6% 4.5% 3.1% 2.4%
---------------------------- ------ ------- -------- ------- ----------- -------
Disposal and exit adjustments remove the impact of business
performance for affected businesses.
Exchange rates
The impact of foreign currency movements over the year resulted
in a decrease in underlying revenue of GBP16.9 million and a
corresponding GBP1.4 million decrease in underlying operating
profit. The main currencies that impact our results are the Euro,
the South African Rand and the Canadian Dollar:
-- A 10% movement in the Euro against Sterling would affect half
year underlying revenue by around GBP34 million and underlying
operating profit by around GBP4 million
-- A 10% movement in the South African Rand against Sterling
would affect half year underlying revenue by around GBP16 million
and underlying operating profit by around GBP1 million
-- A 10% movement in the Canadian Dollar against Sterling would
affect half year revenue by around GBP7 million and operating
profit by around GBP1 million
Earnings per share
Underlying earnings per share for the year was 39.9 pence (2017:
38.7 pence), an increase of 3.1%. Basic continuing earnings per
share, as defined by IAS 33, was 11.5 pence (2017: 30.5 pence).
Cash flow and net debt
The Group achieved its target of delivering pre-capital
expenditure cash conversion of over 100% and around 80% post
capital expenditure. Our cash generation over the past twelve
months delivered a GBP159 million reduction in net debt to GBP1,132
million as of 30 September 2018. This represents a net debt to
EBITDA ratio of 1.6 times EBITDA. We continue to expect our net
debt to EBITDA ratio to reduce to around 1.4 times by March 2019 as
we continue to de-gear our balance sheet. The analysis below
reconciles the management KPI for cash conversion.
2018 2017
---------- ------------ ---------- ----------
Six months Six months
ended ended
Exceptional 30 30
Underlying items September September
GBPm GBPm GBPm GBPm
------------------------------------------------- ---------- ------------ ---------- ----------
Operating profit before amortisation of acquired
intangibles 219.7 (120.4) 99.3 221.3
================================================= ========== ============ ========== ==========
Amortisation and depreciation 52.9 28.0 80.9 50.7
================================================= ========== ============ ========== ==========
Other non-cash items 2.0 (15.2) (13.2) 6.6
================================================= ========== ============ ========== ==========
Working capital (excluding excess retirement
benefits) 10.4 19.5 29.9 (115.1)
================================================= ========== ============ ========== ==========
Provisions (20.9) 56.7 35.8 (10.4)
------------------------------------------------- ---------- ------------ ---------- ----------
Operating cash flow 264.1 (31.4) 232.7 153.1
------------------------------------------------- ---------- ------------ ---------- ----------
Cash conversion % 120% - 106% 69%
================================================= ========== ============ ========== ==========
Capital expenditure (net) (83.9) - (83.9) (63.1)
------------------------------------------------- ---------- ------------ ---------- ----------
Operating cash flow after capital expenditure 180.2 (31.4) 148.8 90.0
------------------------------------------------- ---------- ------------ ---------- ----------
Cash conversion % - after capital expenditure 82% - 68% 41%
================================================= ========== ============ ========== ==========
Interest paid (net) (14.0) - (14.0) (17.2)
================================================= ========== ============ ========== ==========
Taxation (46.7) - (46.7) (43.6)
================================================= ========== ============ ========== ==========
Dividends from joint ventures 20.0 - 20.0 15.1
------------------------------------------------- ---------- ------------ ---------- ----------
Free cash flow before pension contribution
in excess of income statement 139.5 (31.4) 108.1 44.3
------------------------------------------------- ---------- ------------ ---------- ----------
Retirement benefit contributions in excess
of income statement (20.7) - (20.7) (11.3)
------------------------------------------------- ---------- ------------ ---------- ----------
Free cash flow after pension contribution
in excess of income statement 118.8 (31.4) 87.4 33.0
------------------------------------------------- ---------- ------------ ---------- ----------
Acquisitions and disposals net of cash/debt
acquired (0.6) 26.1 25.5 (1.7)
================================================= ========== ============ ========== ==========
Investments in joint ventures - - - (4.1)
================================================= ========== ============ ========== ==========
Dividends paid (115.5) - (115.5) (112.8)
================================================= ========== ============ ========== ==========
Other 1.8 - 1.8 -
================================================= ========== ============ ========== ==========
Exceptional cash movement (5.3) 5.3 - -
================================================= ========== ============ ========== ==========
Net cash outflow (0.8) - (0.8) (85.6)
------------------------------------------------- ---------- ------------ ---------- ----------
Net debt reconciliation
------------------------------------------------- ---------- ------------ ---------- ----------
Opening net debt (1,115.0) (1,173.5)
================================================= ========== ============ ========== ==========
Net cash outflow (0.8) (85.6)
================================================= ========== ============ ========== ==========
Exchange difference/other (16.1) (32.0)
------------------------------------------------- ---------- ------------ ---------- ----------
Closing net debt (1,131.9) (1,291.1)
------------------------------------------------- ---------- ------------ ---------- ----------
In working capital in 2017 is GBP43.8 million outflow in respect
of FOMEDEC, the French air training contract.
The table below provides the reconciliation between the
statutory cash flow and trading cash flow table above.
2018 2017
---------- ----------- --------- ---------
Exceptional
Underlying items Statutory Statutory
GBPm GBPm GBPm GBPm
------------------------------------------- ---------- ----------- --------- ---------
Cash generated from operations 243.4 (31.4) 212.0 141.8
=========================================== ========== =========== ========= =========
Retirement benefit contributions in excess
of income statement 20.7 - 20.7 11.3
=========================================== ========== =========== ========= =========
Operating cash flow 264.1 (31.4) 232.7 153.1
------------------------------------------- ---------- ----------- --------- ---------
Cash performance
Underlying cash generated from operations was GBP243.4 million
(2017: GBP141.8 million), from which the Group's operating cash
flow calculation is derived. Operating cash flow after movements in
working capital was up 72.5% to GBP264.1 million (2017: GBP153.1
million), led by an improved working capital performance compared
to last year including an unwind in FOMEDEC working capital.
Working capital
The financial year ended 31 March 2018 was impacted by FOMEDEC
working capital outflows of GBP109.3 million in debtors offset by
GBP58.9 million in creditors, with a net effect of a GBP50.4
million outflow. This effect will unwind in full over this
financial year.
The FOMEDEC unwind provided a slightly larger benefit for the
first half which helped offset the expected phasing of other
working capital. Total working capital cash inflows for the period,
excluding excess retirement benefits, were GBP10.4 million compared
to a GBP115.1 million outflow in the first half of last year.
The Group's cash generation remains second half weighted, as it
has been for a number of years, and our full year outlook remains
unchanged.
Provisions
The cash outflow includes GBP20.9 million of provision movements
(2017: GBP10.4 million) relating to contracts, onerous leases,
personnel (taxation and reorganisation) and property. The level of
non-exceptional provision outflow in 2018/19 is expected to be
similar to 2017/18, after which we expect the non-exceptional
provisions balance to stabilise. During the period GBP2.7 million
of provisions were released to the income statement.
Capital expenditure
Net capital expenditure during the first half was GBP83.9
million (2017: GBP63.1 million) with the increase year-on-year
mainly relating to the timing of aircraft payments which will
convert to operating leases in the second half. The Group achieved
a conversion rate of operating cash flow after movements in working
capital and capital expenditure to operating profit of 82% (2017:
41%). Capital expenditure for the year was 1.6 times the Group's
depreciation and amortisation charge of GBP52.9 million. For the
2018/19 financial year capital expenditure is expected to be around
1.2 times depreciation and amortisation.
Cash interest paid
Net Group cash interest paid, excluding that paid by joint
ventures, was GBP14.0 million (2017: GBP17.2 million), with the
timing of payments second half weighted.
Pensions
Pension cash outflows in excess of income statement charge were
GBP20.7 million (2017: GBP11.3 million). Guidance for 2018/19 is an
outflow of around GBP55 million with some increase due to increased
cash service costs following the sign-off of the Devonport scheme.
Deficit contributions remained unchanged. The Rosyth scheme
negotiations are an ongoing and will be more challenging. The
regulatory environment around pensions remains difficult and this,
combined with the uneven distribution of funding deficits between
our three large schemes, may result in more volatility in pensions
funding over the coming years despite the improved overall funding
levels.
Taxation
Cash taxation payments of GBP46.7 million (2017: GBP43.6
million) increased slightly due to an increase in overseas taxable
profits partly offset by the impact of pension deficit payments in
the UK.
Free cash flow
Free cash flow pre-excess pension payments improved to GBP139.5
million (2017: GBP44.3 million), up 215%, led by the improved
working capital performance compared to last year. Free cash flow
post excess pension payments increased to GBP118.8 million (2017:
GBP33.0 million), up 260%.
Dividends
During the period the Group received GBP20.0 million in
dividends from its joint ventures (2017: GBP15.1 million). Cash
dividends (including to minorities of GBP1.1 million) paid out in
the year totalled GBP115.5 million (2017: GBP112.8 million). The
Group expects dividends from its joint ventures to increase to
around GBP50 million in 2018/19 and GBP45 million in 2019/20.
Net cash
The Group's net cash outflow was GBP0.8 million (2017: GBP85.6
million). Net debt at 30 September 2018 was GBP1,132 million, a
reduction of GBP159 million over the last twelve months (2017:
GBP1,291 million). This gives a net debt to EBITDA ratio of 1.6
times (2017: 1.9 times).
Phasing
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
reversal.
Net debt to EBITDA
March September September September
2018 2017 2018 2018 annual
GBPm GBPm GBPm GBPm
---------------------------- ------- --------- --------- ------------
Underlying operating profit 584.6 275.8 279.6 588.4
------------------------------ ------- --------- --------- ------------
Depreciation 91.3 45.0 45.9 92.2
============================== ======= ========= ========= ============
Amortisation of software
and development costs 13.0 5.6 7.0 14.4
============================== ======= ========= ========= ============
Non-controlling interests (1.4) (1.3) - (0.1)
============================== ======= ========= ========= ============
EBITDA 687.5 325.1 332.5 694.9
------------------------------ ------- --------- --------- ------------
Net debt 1,115.0 1,131.9
------------------------------ ------- --------- --------- ------------
Net debt/EBITDA 1.6x 1.6x
------------------------------ ------- --------- --------- ------------
Annual September EBITDA is calculated by subtracting September
2017 numbers from March 2018 and adding September 2018, and equates
to EBITDA for the 12 months to 30 September 2018.
Pensions
The IAS 19 valuation for accounting purposes showed a market
value of assets of GBP4,652.5 million in comparison to a valuation
of the liabilities based on AA corporate bond yields of GBP4,626.0
million. The total accounting surplus, pre-tax, of the Group's
combined defined benefit pension schemes is GBP26.3 million surplus
showing an improvement to the GBP5.0 million deficit at 31 March
2018 (30 September 2017: GBP115.7 million deficit). As at 30
September 2018, the key assumptions used in valuing pension
liabilities were:
Discount rate 2.7% (30 September 2017: 2.7%)
Inflation rate (RPI) 3.2% (30 September 2017: 3.2%)
On 26 October, the High Court handed down a judgment involving
the Lloyds Banking Group's defined benefit pension schemes. The
judgment concluded the schemes should be amended to equalise
pension benefits for men and women in relation to guaranteed
minimum pension benefits. The issues determined by the judgment
arise in relation to many other defined benefit pension schemes. We
are working with the trustees of our pension schemes, and our
actuarial and legal advisers, to understand the extent to which the
judgment crystallises additional liabilities for our pension
schemes. We anticipate that any adjustment necessary will be
recognised in the second half of this financial year.
Group income statement
For the six months ended 30 September 2018
Six months ended Six months ended
30 September 30 September
2018 2017
---------- --------------------------------------- ---- ------------------ ------------------
Year ended
31 March
2018
GBPm Note GBPm GBPm GBPm GBPm
---------- --------------------------------------- ---- ------- --------- ------- ---------
4,659.6 Revenue(1) 2 2,254.8 2,316.7
========== ======================================= ==== ======= ========= ======= =========
(3,971.7) Cost of revenue (2,015.0) (1,989.4)
---------- ======================================= ==== ======= --------- ======= ---------
687.9 Gross profit 239.8 327.3
========== ======================================= ==== ======= ========= ======= =========
(12.8) Distribution expenses (5.8) (6.1)
========== ======================================= ==== ======= ========= ======= =========
(304.5) Administration expenses (184.7) (149.0)
========== ======================================= ==== ======= ========= ======= =========
Operating profit before share
of results of joint ventures and
370.6 associates 2 49.3 172.2
========== ======================================= ==== ======= ========= ======= =========
Share of results of joint ventures
68.5 and associates 37.4 32.8
---------- ======================================= ==== ======= --------- ======= ---------
Group and joint ventures and associates
---------- ======================================= ==== ------- ========= ------- =========
Operating profit before amortisation
554.6 of acquired intangibles 264.8 260.5
========== ======================================= ==== ======= ========= ======= =========
30.0 Investment income 14.8 15.3
======================================= ==== ------- ========= ------- =========
584.6 Underlying operating profit(2) 2 279.6 275.8
========== ======================================= ==== ======= ========= ======= =========
(103.9) Amortisation of acquired intangibles (52.9) (52.0)
========== ======================================= ==== ======= ========= ======= =========
- Exceptional items 4 (120.4) -
========== ======================================= ==== ======= ========= ======= =========
(1.9) Group investment income (0.7) (1.0)
========== ======================================= ==== ======= ========= ======= =========
Joint ventures and associates
(22.2) finance costs (11.8) (12.2)
========== ======================================= ==== ======= ========= ======= =========
Joint ventures and associates
(17.5) income tax expense (7.1) (5.6)
======================================= ==== ------- --------- ------- ---------
439.1 Operating profit 86.7 205.0
========== ======================================= ==== ======= ========= ======= =========
Finance costs
---------- ======================================= ==== ------- ========= ------- =========
1.9 Investment income 0.7 1.0
========== ======================================= ==== ======= ========= ======= =========
(2.3) Retirement benefit interest 0.2 (1.1)
========== ======================================= ==== ======= ========= ======= =========
(61.9) Finance costs (30.4) (29.5)
========== ======================================= ==== ======= ========= ======= =========
14.3 Finance income 7.9 6.5
======================================= ==== ------- ========= ------- =========
(48.0) (21.6) (23.1)
---------- ======================================= ==== ======= --------- ======= ---------
391.1 Profit before tax 2 65.1 181.9
========== ======================================= ==== ======= ========= ======= =========
(53.4) Income tax expense 3 (6.9) (26.6)
---------- --------------------------------------- ---- ------- --------- ------- ---------
337.7 Profit for the year 58.2 155.3
---------- --------------------------------------- ---- ------- --------- ------- ---------
Attributable to:
========== ======================================= ==== ======= ========= ======= =========
336.3 Owners of the parent 58.2 154.0
========== ======================================= ==== ======= ========= ======= =========
1.4 Non-controlling interest - 1.3
---------- ======================================= ==== ======= --------- ======= ---------
337.7 58.2 155.3
---------- ======================================= ==== ======= --------- ======= ---------
Earnings per share 5
========== ======================================= ==== ======= ========= ======= =========
66.6p Basic 11.5p 30.5p
========== ======================================= ==== ======= ========= ======= =========
66.5p Diluted 11.5p 30.5p
---------- --------------------------------------- ---- ------- --------- ------- ---------
1. Revenue does not include the Group's share of revenue from
joint ventures and associates of GBP322.1 million (2017: GBP322.2
million and March 2018: GBP703.2 million).
2. Including IFRIC 12 investment income but before exceptional
items and amortisation of acquired intangibles
Group statement of comprehensive income
Six months Six months
Year ended ended ended
31 March 30 September 30 September
2018 2018 2017
GBPm Note GBPm GBPm
---------- -------------------------------------------------- ---- ------------- -------------
337.7 Profit for the year 58.2 155.3
========== ================================================== ==== ============= =============
Other comprehensive income
========== ================================================== ==== ============= =============
Items that may be subsequently reclassified
to income statement
========== ================================================== ==== ============= =============
(25.9) Currency translation differences 0.1 (9.3)
========== ================================================== ==== ============= =============
Fair value adjustment of interest rate and
(6.1) foreign exchange hedges 4.6 (4.2)
========== ================================================== ==== ============= =============
Tax on fair value adjustment of interest rate
1.2 and foreign exchange hedges (0.9) 0.9
========== ================================================== ==== ============= =============
Fair value adjustment of joint ventures and
24.3 associates derivatives 7 (0.7) 3.4
========== ================================================== ==== ============= =============
Tax, including rate change impact, on fair
value adjustment of joint ventures and associates
(7.4) derivatives 7 0.1 (1.7)
========== ================================================== ==== ============= =============
Items that will not be subsequently reclassified
to income statement
========== ================================================== ==== ============= =============
49.7 Remeasurement of retirement benefit obligations 10.6 (21.4)
========== ================================================== ==== ============= =============
Tax on remeasurement of retirement benefit
(10.3) obligations (2.2) 4.2
========== ================================================== ==== ============= =============
1.9 Impact of change in UK tax rates 0.7 (0.4)
---------- -------------------------------------------------- ---- ------------- -------------
27.4 Other comprehensive income, net of tax 12.3 (28.5)
---------- -------------------------------------------------- ---- ------------- -------------
365.1 Total comprehensive income 70.5 126.8
---------- -------------------------------------------------- ---- ------------- -------------
Total comprehensive income attributable to:
========== ================================================== ==== ============= =============
363.6 Owners of the parent 72.4 126.6
========== ================================================== ==== ============= =============
1.5 Non-controlling interest (1.9) 0.2
---------- -------------------------------------------------- ---- ------------- -------------
365.1 Total comprehensive income 70.5 126.8
---------- -------------------------------------------------- ---- ------------- -------------
Group statement of changes in equity
For the six
months Owners
ended 30 Share Share Other Capital Retained Hedging Translation of the Non-controlling Total
September capital premium reserve redemption earnings reserve reserve parent interest equity
2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 1 April 2017 303.4 873.0 768.8 30.6 757.9 (86.5) 22.6 2,669.8 22.4 2,692.2
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Total
comprehensive
income/(loss) - - - - 136.5 (1.6) (8.3) 126.6 0.2 126.8
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Dividends - - - - (109.4) - - (109.4) (3.4) (112.8)
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Share-based
payments - - - - 5.1 - - 5.1 - 5.1
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Tax on
shared-based
payments - - - - 3.0 - - 3.0 - 3.0
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Net movement in
equity - - - - 35.2 (1.6) (8.3) 25.3 (3.2) 22.1
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 30 September
2017 303.4 873.0 768.8 30.6 793.1 (88.1) 14.3 2,695.1 19.2 2,714.3
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 1 April 2018 303.4 873.0 768.8 30.6 994.9 (74.5) (3.3) 2,892.9 18.1 2,911.0
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Total
comprehensive
income/(loss) - - - - 67.2 3.1 2.1 72.4 (1.9) 70.5
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Dividends - - - - (114.4) - - (114.4) (1.1) (115.5)
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Share-based
payments - - - - 2.9 - - 2.9 - 2.9
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Tax on
shared-based
payments - - - - 3.5 - - 3.5 - 3.5
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Transactions
with
non-controlling
interests - - - - (0.2) - - (0.2) 2.1 1.9
================ ======= ======= ======= ========== ======== ======= =========== ======= =============== =======
Net movement in
equity - - - - (41.0) 3.1 2.1 (35.8) (0.9) (36.7)
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
At 30 September
2018 303.4 873.0 768.8 30.6 953.9 (71.4) (1.2) 2,857.1 17.2 2,874.3
---------------- ------- ------- ------- ---------- -------- ------- ----------- ------- --------------- -------
Group balance sheet
As at As at As at
31 March 30 September 30 September
2018 2018 2017
GBPm Note GBPm GBPm
--------- ------------------------------------------- ---- ------------- -------------
Assets
========= =========================================== ==== ============= =============
Non-current assets
========= =========================================== ==== ============= =============
2,600.9 Goodwill 2,604.1 2,615.5
========= =========================================== ==== ============= =============
529.3 Other intangible assets 494.0 567.8
========= =========================================== ==== ============= =============
1,028.4 Property, plant and equipment 1,024.7 1,053.9
========= =========================================== ==== ============= =============
119.3 Investment in joint ventures and associates 7 136.6 95.9
========= =========================================== ==== ============= =============
27.8 Loan to joint ventures and associates 7 32.1 30.1
========= =========================================== ==== ============= =============
240.1 Retirement benefits 11 231.8 151.0
========= =========================================== ==== ============= =============
6.7 Trade and other receivables 7.1 25.6
========= =========================================== ==== ============= =============
17.8 IFRIC 12 financial assets 17.3 19.4
========= =========================================== ==== ============= =============
76.0 Other financial assets 8 92.6 116.5
========= =========================================== ==== ============= =============
104.0 Deferred tax asset 125.0 120.9
--------- ------------------------------------------- ---- ------------- -------------
4,750.3 4,765.3 4,796.6
--------- ------------------------------------------- ---- ------------- -------------
Current assets
========= =========================================== ==== ============= =============
181.4 Inventories 167.6 166.6
========= =========================================== ==== ============= =============
1,060.1 Trade and other receivables 976.3 966.5
========= =========================================== ==== ============= =============
15.4 Income tax recoverable 12.2 16.4
========= =========================================== ==== ============= =============
27.5 Other financial assets 8 222.6 17.6
========= =========================================== ==== ============= =============
286.3 Cash and cash equivalents 10 247.1 209.3
--------- ------------------------------------------- ---- ------------- -------------
1,570.7 1,625.8 1,376.4
--------- ------------------------------------------- ---- ------------- -------------
6,321.0 Total assets 6,391.1 6,173.0
--------- ------------------------------------------- ---- ------------- -------------
Equity and liabilities
========= =========================================== ==== ============= =============
Equity attributable to owners of the parent
========= =========================================== ==== ============= =============
303.4 Share capital 303.4 303.4
========= =========================================== ==== ============= =============
873.0 Share premium 873.0 873.0
========= =========================================== ==== ============= =============
721.6 Capital redemption and other reserves 726.8 725.6
========= =========================================== ==== ============= =============
994.9 Retained earnings 953.9 793.1
--------- ------------------------------------------- ---- ------------- -------------
2,892.9 2,857.1 2,695.1
========= =========================================== ==== ============= =============
18.1 Non-controlling interest 17.2 19.2
--------- ------------------------------------------- ---- ------------- -------------
2,911.0 Total equity 2,874.3 2,714.3
--------- ------------------------------------------- ---- ------------- -------------
Non-current liabilities
========= =========================================== ==== ============= =============
1,485.2 Bank and other borrowings 10 1,636.3 1,494.8
========= =========================================== ==== ============= =============
2.3 Trade and other payables 2.1 3.2
========= =========================================== ==== ============= =============
112.8 Deferred tax liabilities 106.0 125.4
========= =========================================== ==== ============= =============
5.0 Other financial liabilities 8 4.9 7.5
========= =========================================== ==== ============= =============
245.1 Retirement liabilities 11 205.5 266.7
========= =========================================== ==== ============= =============
61.1 Provisions for other liabilities 70.5 74.9
--------- ------------------------------------------- ---- ------------- -------------
1,911.5 2,025.3 1,972.5
--------- ------------------------------------------- ---- ------------- -------------
Current liabilities
========= =========================================== ==== ============= =============
38.1 Bank and other borrowings 10 38.8 160.2
========= =========================================== ==== ============= =============
1,392.1 Trade and other payables 1,338.4 1,256.8
========= =========================================== ==== ============= =============
21.7 Income tax payable 6.0 16.7
========= =========================================== ==== ============= =============
11.9 Other financial liabilities 8 48.5 12.5
========= =========================================== ==== ============= =============
34.7 Provisions for other liabilities 59.8 40.0
--------- ------------------------------------------- ---- ------------- -------------
1,498.5 1,491.5 1,486.2
--------- ------------------------------------------- ---- ------------- -------------
3,410.0 Total liabilities 3,516.8 3,458.7
--------- ------------------------------------------- ---- ------------- -------------
6,321.0 Total equity and liabilities 6,391.1 6,173.0
--------- ------------------------------------------- ---- ------------- -------------
Group cash flow statement
2018 2017
------------- -------------
Year ended Six months Six months
31 March ended ended
2018 30 September 30 September
GBPm Note GBPm GBPm
---------- ------------------------------------------------- ---- ------------- -------------
Cash flows from operating activities
========== ================================================= ==== ============= =============
Operating profit before amortisation of
468.7 acquired intangible and exceptional items 219.7 221.3
========== ================================================= ==== ============= =============
Amortisation of acquired intangible and
(98.1) exceptional items 4 (170.4) (49.1)
---------- ------------------------------------------------- ---- ------------- -------------
Group operating profit after amortisation
of acquired intangibles and exceptional
370.6 items 49.3 172.2
========== ================================================= ==== ============= =============
91.3 Depreciation of property, plant and equipment 73.9 45.0
========== ================================================= ==== ============= =============
111.1 Amortisation of intangible assets 57.0 54.8
========== ================================================= ==== ============= =============
1.9 Investment income 2 0.7 1.0
========== ================================================= ==== ============= =============
6.4 Equity share-based payments 2.9 5.1
========== ================================================= ==== ============= =============
- Profit on disposal of subsidiaries 13 (15.2) -
========== ================================================= ==== ============= =============
(Profit)/loss on disposal of property,
(4.1) plant and equipment (1.6) 0.5
---------- ------------------------------------------------- ---- ------------- -------------
Operating cash flows before movement in
577.2 working capital 167.0 278.6
========== ================================================= ==== ============= =============
(19.5) Increase in inventories (1.0) (12.1)
========== ================================================= ==== ============= =============
(137.4) Decrease/(increase) in receivables 77.3 (63.0)
========== ================================================= ==== ============= =============
102.6 (Decrease)/increase in payables (46.4) (40.0)
========== ================================================= ==== ============= =============
(27.7) Increase/(decrease) in provisions 35.8 (10.4)
========== ================================================= ==== ============= =============
Retirement benefit payments in excess of
(47.3) income statement (20.7) (11.3)
---------- ------------------------------------------------- ---- ------------- -------------
447.9 Cash generated from operations 212.0 141.8
========== ================================================= ==== ============= =============
Cash flows from operating activities
========== ================================================= ==== ============= =============
(74.3) Income tax paid (46.7) (43.6)
========== ================================================= ==== ============= =============
(67.9) Interest paid (22.1) (23.7)
========== ================================================= ==== ============= =============
14.3 Interest received 8.1 6.5
---------- ------------------------------------------------- ---- ------------- -------------
320.0 Net cash flows from operating activities 151.3 81.0
---------- ------------------------------------------------- ---- ------------- -------------
Cash flows from investing activities
========== ================================================= ==== ============= =============
Disposal of subsidiaries and joint ventures
(0.2) and associates, net of cash disposed 13 25.5 (1.7)
========== ================================================= ==== ============= =============
Dividends received from joint ventures
42.9 and associates 20.0 15.1
========== ================================================= ==== ============= =============
Proceeds on disposal of property, plant
70.0 and equipment 19.3 14.8
========== ================================================= ==== ============= =============
(150.4) Purchases of property, plant and equipment (84.0) (66.8)
========== ================================================= ==== ============= =============
(32.3) Purchases of intangible assets (19.2) (11.1)
========== ================================================= ==== ============= =============
Investment in, loans to and interest received
(1.5) from joint ventures and associates (4.3) (1.9)
========== ================================================= ==== ============= =============
(71.5) Net cash flows from investing activities (42.7) (51.6)
---------- ------------------------------------------------- ---- ------------- -------------
Cash flows from financing activities
========== ================================================= ==== ============= =============
(143.9) Dividends paid (114.4) (109.4)
========== ================================================= ==== ============= =============
(27.5) Finance lease principal payments (10.5) (16.8)
========== ================================================= ==== ============= =============
9.6 Finance lease assets repaid 8.7 7.1
========== ================================================= ==== ============= =============
(88.4) Bank loans repaid (30.2) -
========== ================================================= ==== ============= =============
121.9 Loans raised - 121.0
========== ================================================= ==== ============= =============
(3.8) Dividends paid to non-controlling interest (1.1) (3.4)
========== ================================================= ==== ============= =============
(5.3) Transactions with non-controlling interests 14 1.9 -
========== ================================================= ==== ============= =============
(4.2) Movement on own shares - -
---------- ------------------------------------------------- ---- ------------- -------------
(141.6) Net cash flows from financing activities (145.6) (1.5)
---------- ------------------------------------------------- ---- ------------- -------------
Net (decrease)/increase in cash, cash equivalents
106.9 and bank overdrafts (37.0) 27.9
========== ================================================= ==== ============= =============
Cash, cash equivalents and bank overdrafts
185.6 at beginning of year 286.3 185.6
========== ================================================= ==== ============= =============
(6.2) Effects of exchange rate fluctuations (2.2) (5.1)
---------- ------------------------------------------------- ---- ------------- -------------
Cash, cash equivalents and bank overdrafts
286.3 at end of year 10 247.1 208.4
---------- ------------------------------------------------- ---- ------------- -------------
1. Basis of preparation and significant accounting policies
The consolidated half year financial statements have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Services Authority, the Listing Rules and IAS 34,
'Interim financial reporting' as adopted by the European Union
(EU). They should be read in conjunction with the Annual Report for
the year ended 31 March 2018 (the 'Annual Report'), which has been
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union. The accounting policies
used and presentation of these consolidated half year financial
statements are consistent with those in the Annual Report except as
noted below and to comply with amendments to IFRS, none of which
had a material impact on the consolidated results, financial
position or cash flows of the Group.
Standards and interpretations that have been adopted by the
Group:
-- IFRS 9, 'Financial Instruments', effective from 1 January
2018 and endorsed by the EU. This has been adopted using the
retrospective approach but has had no material impact on the
Group's results including all components of the standard, such as
new rules for classification, impairment and hedge accounting;
and
-- IFRS 15, 'Revenue from contracts with customers', effective
from 1 January 2018 and endorsed by the EU. This has been adopted
using the fully retrospective approach, however the impact is
immaterial therefore no restatement is required. Increased
disclosures for disaggregation of revenue have been made in these
interim statements.
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.
IFRS 9 Financial instruments
The adoption of IFRS 9 for the Group resulted in changes in
accounting policies, however they have not had a material impact on
the Group's financial statements, as the accounting policy under
the previous period for hedging financial exposures was in line
with the new requirements.
The Group's financial assets, including trade and contract
receivables, are subject to the new expected credit loss model
under IFRS 9. In determining the recoverability of financial
assets, the Group considers any change in the credit quality, from
the date credit was granted to the reporting date using forward
looking information. The Group has assessed credit risk in relation
to sales to government and other public sector customers as very
low, therefore no expected credit loss provision has been recorded
for these trade and contract receivables. The Group has also
assessed expected credit losses for non-government commercial
customers, however this risk has been assessed as not material to
the financial statements.
IFRS 15 Revenue from contracts with customers
IFRS 15 requires the identification of performance obligations
in contracts, allocation of the contract price to the performance
obligations and recognition of revenue as performance obligations
are satisfied. Performance obligations are satisfied as control of
goods and services is transferred to customers and control can be
transferred at a point in time or over time. The Group's
contracting arrangements, in relation to provision of services
contracts and long term service-provision contracts, meet the
requirements set out in the standard to satisfy performance
obligations and recognise revenue over time:
-- with customers simultaneously receiving and consuming the
benefits of the Group's performance; or
-- where the Group's performance does not create an asset with
an alternative use to the Group and the Group has an enforceable
right to payment for work done; or
-- where the Group's performance creates or enhances an asset controlled by the customer.
The Group's accounting policy for revenue now therefore provides
for the identification of performance obligations and the
allocation of the contract price to the performance obligations;
given the bespoke nature of the goods and services the Group
provides stand-alone selling prices are not generally available.
The Group continues to recognise revenue over time using methods
such as costs incurred as a proportion of total estimated costs to
assess stage of completion, but with the stage of completion and
revenue now assessed in relation to each performance
obligation.
Profit continues to be recognised to the extent that the final
outcome on contracts can be reliably assessed but with assessment
of outcome now in relation to separate performance obligations and
the inclusion of variable consideration to the extent that it is
highly probable that there will not be a reversal in the amount of
cumulative revenue recognised.
The prior year accounting policy in respect of pre-contract
costs and post-contract award but pre-contract operational start-up
mobilisation costs is in line with IFRS 15 and so has not been
updated. Capitalised contract costs will be disclosed separately at
the year end.
The Directors consider it appropriate to adopt the going concern
basis of accounting in preparing the interim financial
information.
The half year report for the six months ended 30 September 2018
was approved by the Directors on 20 November 2018. The half year
report has not been audited or reviewed by auditors.
2. Segmental information
The segments reflect the accounting information reviewed by the
Executive Committee which is the Chief Operating Decision Maker
(CODM).
Cavendish
Marine Land Aviation Nuclear Unallocated Total
30 September 2018 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------ ------ -------- --------- ----------- -------
Revenue including joint
ventures and associates 824.7 798.1 615.8 338.3 - 2,576.9
================================== ====== ====== ======== ========= =========== =======
Less: joint ventures and
associates revenue 10.5 15.5 64.8 231.3 - 322.1
---------------------------------- ------ ------ -------- --------- ----------- -------
Revenue 814.2 782.6 551.0 107.0 - 2,254.8
---------------------------------- ------ ------ -------- --------- ----------- -------
Operating profit/(loss)
before share of results
of joint ventures and associates 84.9 15.3 (51.9) 6.9 (5.9) 49.3
================================== ====== ====== ======== ========= =========== =======
Exceptional items 18.2 7.1 88.1 4.6 2.4 120.4
================================== ====== ====== ======== ========= =========== =======
Acquired intangible amortisation 2.3 23.9 23.4 0.4 - 50.0
---------------------------------- ------ ------ -------- --------- ----------- -------
Operating profit* 105.4 46.3 59.6 11.9 (3.5) 219.7
================================== ====== ====== ======== ========= =========== =======
IFRIC 12 investment income
- Group 0.2 0.5 - - - 0.7
================================== ====== ====== ======== ========= =========== =======
Share of operating profit
- joint ventures and associates 2.7 15.8 8.6 18.0 - 45.1
================================== ====== ====== ======== ========= =========== =======
Share of IFRIC 12 investment
income - joint ventures
and associates - 0.7 13.4 - - 14.1
---------------------------------- ------ ------ -------- --------- ----------- -------
Underlying operating profit 108.3 63.3 81.6 29.9 (3.5) 279.6
================================== ====== ====== ======== ========= =========== =======
Share of finance costs -
joint ventures and associates - (0.3) (11.5) - - (11.8)
================================== ====== ====== ======== ========= =========== =======
Share of tax - joint ventures
and associates (0.9) (1.2) (1.6) (3.4) - (7.1)
================================== ====== ====== ======== ========= =========== =======
Acquired intangible amortisation
- Group (2.3) (23.9) (23.4) (0.4) - (50.0)
================================== ====== ====== ======== ========= =========== =======
Share of acquired intangible
amortisation - joint ventures
and associates - (1.0) (1.9) - - (2.9)
================================== ====== ====== ======== ========= =========== =======
Net finance costs - Group - - - - (22.3) (22.3)
================================== ====== ====== ======== ========= =========== =======
Exceptional items (18.2) (7.1) (88.1) (4.6) (2.4) (120.4)
================================== ====== ====== ======== ========= =========== =======
Profit before tax 86.9 29.8 (44.9) 21.5 (28.2) 65.1
---------------------------------- ------ ------ -------- --------- ----------- -------
* Before amortisation of acquired intangibles and exceptional items.
Cavendish
Marine Land Aviation Nuclear Unallocated Total
30 September 2017 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ -------- --------- ----------- -------
Revenue including joint
ventures and associates 883.3 934.4 498.4 322.8 - 2,638.9
================================= ====== ====== ======== ========= =========== =======
Less: joint venture and
associate revenue 10.3 42.1 45.2 224.6 - 322.2
--------------------------------- ------ ------ -------- --------- ----------- -------
Revenue 873.0 892.3 453.2 98.2 - 2,316.7
--------------------------------- ------ ------ -------- --------- ----------- -------
Operating profit before
share of results of joint
ventures and associates 111.2 17.8 35.3 11.7 (3.8) 172.2
================================= ====== ====== ======== ========= =========== =======
Acquired intangible amortisation 2.6 23.8 22.2 0.5 - 49.1
--------------------------------- ------ ------ -------- --------- ----------- -------
Operating profit* 113.8 41.6 57.5 12.2 (3.8) 221.3
================================= ====== ====== ======== ========= =========== =======
IFRIC 12 investment income
- Group 0.2 0.8 - - - 1.0
================================= ====== ====== ======== ========= =========== =======
Share of operating profit
- joint ventures and associates 1.6 13.4 7.4 16.8 - 39.2
================================= ====== ====== ======== ========= =========== =======
Share of IFRIC 12 investment
income - joint ventures
and associates - 0.7 13.6 - - 14.3
--------------------------------- ------ ------ -------- --------- ----------- -------
Underlying operating profit 115.6 56.5 78.5 29.0 (3.8) 275.8
================================= ====== ====== ======== ========= =========== =======
Share of finance costs -
joint ventures and associates - (0.6) (11.6) - - (12.2)
================================= ====== ====== ======== ========= =========== =======
Share of tax - joint ventures
and associates (0.5) (0.7) (1.4) (3.0) - (5.6)
================================= ====== ====== ======== ========= =========== =======
Acquired intangible amortisation
- Group (2.6) (23.8) (22.2) (0.5) - (49.1)
================================= ====== ====== ======== ========= =========== =======
Share of acquired intangible
amortisation - joint ventures
and associates - (1.0) (1.9) - - (2.9)
================================= ====== ====== ======== ========= =========== =======
Net finance costs - Group - - - - (24.1) (24.1)
--------------------------------- ------ ------ -------- --------- ----------- -------
Profit before tax 112.5 30.4 41.4 25.5 (27.9) 181.9
--------------------------------- ------ ------ -------- --------- ----------- -------
* Before amortisation of acquired intangibles and exceptional items
2. Segmental information (continued)
The analysis of revenue for the six months ended 30 September
2018 is as follows:
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
------------------------------------------------ ------------- -------------
Sales of goods - transferred at a point in time 269.5 327.5
================================================ ============= =============
Sales of goods - transferred over time 29.5 15.5
------------------------------------------------ ------------- -------------
Sales of goods 299.0 343.0
================================================ ============= =============
Provision of services - transferred over time 1,951.5 1,970.0
================================================ ============= =============
Rental income 4.3 3.7
------------------------------------------------ ------------- -------------
Revenue 2,254.8 2,316.7
------------------------------------------------ ------------- -------------
The geographic analysis of revenue by origin for the six months
ended 30 September 2018 is as follows:
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
--------------- ------------- -------------
United Kingdom 1,445.2 1,609.1
=============== ============= =============
Rest of Europe 373.2 273.0
=============== ============= =============
Africa 176.3 191.9
=============== ============= =============
North America 92.1 97.0
=============== ============= =============
Australasia 97.8 82.9
=============== ============= =============
Rest of World 70.2 62.8
--------------- ------------- -------------
Revenue 2,254.8 2,316.7
--------------- ------------- -------------
3. Income tax expense
The charge for taxation is after a tax credit of GBP19.8 million
(2017: nil) relating to exceptional items, a tax credit of GBP11.4
million
(2017: GBP11.2 million) relating to acquired intangible
amortisation, of which GBP0.6 million (2017: GBP0.6 million) is
included in share of profits from joint ventures and associates,
and a tax charge of GBP1.0 million (2017: GBP0.2 million) relating
to rate changes. The charge for taxation gives an underlying
effective rate of 18.0% (2017: 18.0%), which is based on the
estimated effective rate of tax for the full year ended 31 March
2019, and before the credits in respect of exceptionals,
amortisation of acquired intangibles and rate changes.
4. Exceptional items and acquired intangible amortisation
Joint ventures
Group and associates Total
---------------------------- ---------------------------- ----------------------------
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
30 September 30 September 30 September 30 September 30 September 30 September
2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Oil and Gas(1)
============================ ============= ============= ============= ============= ============= =============
- Asset impairment 38.2 - - - 38.2 -
============================ ============= ============= ============= ============= ============= =============
- Onerous lease provisions 42.1 - - - 42.1 -
============================ ============= ============= ============= ============= ============= =============
Oil and Gas - total 80.3 - - - 80.3 -
============================ ============= ============= ============= ============= ============= =============
Exit(2) 15.7 - - - 15.7 -
============================ ============= ============= ============= ============= ============= =============
Capacity reductions &
restructuring(3) 39.6 - - - 39.6 -
============================ ============= ============= ============= ============= ============= =============
Profit on disposal of
subsidiaries
(see note 13) (15.2) - - - (15.2) -
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Exceptional items 120.4 - - - 120.4 -
============================ ============= ============= ============= ============= ============= =============
Tax on exceptional items (19.8) - - - (19.8) -
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Exceptional items - net of
tax 100.6 - - - 100.6 -
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Acquired intangible
amortisation 50.0 49.1 2.9 2.9 52.9 52.0
============================ ============= ============= ============= ============= ============= =============
Tax on acquired intangibles
amortisation (10.8) (10.5) (0.6) (0.6) (11.4) (11.1)
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Acquired intangible
amortisation
- net of tax 39.2 38.6 2.3 2.3 41.5 40.9
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Exceptional items are those items which are exceptional in
nature or size.
1. During the period the Oil and Gas business was reshaped to
reflect the current market and to allow for the resultant business
to optimise future cashflows. Assets and leases were marked to
current market value to allow for sale, sub lease or alternate use.
The total exceptional charge is GBP80.3 million and the cash costs
are expected to be offset by tax effects and proceeds from the
disposal of assets.
2. The Group continued with its strategy of exiting small low
margin businesses. The costs of exiting renewables, North American
mining and construction and powerlines (South Africa) are reflected
within exit costs.
3. Capacity reduction and restructuring costs reflect the
rightsizing, restructuring and closure of businesses across the
Sectors including Appledore, Rail and Magnox.
4. GBP81.3 million of the exceptional charge has been charged
through cost of revenue and the balance of GBP39.1 million through
Administration expenses.
5. Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
Six months Six months
ended ended
30 September 30 September
2018 2017
----------------------------------------------- ------------- -------------
Number of shares
=============================================== ============= =============
Weighted average number of ordinary shares for
the purpose of basic EPS 504,994,752 504,744,045
=============================================== ============= =============
Effect of dilutive potential ordinary shares:
share options 73,254 190,567
----------------------------------------------- ------------- -------------
Weighted average number of ordinary shares for
the purpose of diluted EPS 505,068,006 504,934,612
----------------------------------------------- ------------- -------------
Earnings
Six months ended Six months ended
30 September 2018 30 September 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 58.2 11.5 11.5 154.0 30.5 30.5
==================================== ======== ========== ========== ======== ========== ==========
Add back:
==================================== ======== ========== ========== ======== ========== ==========
Amortisation of acquired intangible
assets, net of tax 41.5 8.2 8.2 40.9 8.2 8.2
==================================== ======== ========== ========== ======== ========== ==========
Exceptional items, net of tax 100.6 20.0 19.9 - - -
==================================== ======== ========== ========== ======== ========== ==========
Impact of change in statutory
tax rates 1.0 0.2 0.2 0.2 - -
------------------------------------ -------- ---------- ---------- -------- ---------- ----------
Earnings before amortisation,
exceptional items and other 201.3 39.9 39.8 195.1 38.7 38.7
------------------------------------ -------- ---------- ---------- -------- ---------- ----------
6. Dividends
An interim dividend of 7.10p per 60p ordinary share (2017: 6.85p
per 60p ordinary share) was declared after the balance sheet date
and will be paid on 16 January 2019 to shareholders registered on 7
December 2018.
7. Investment in and loans to joint ventures and associates
Investment in Loans to joint
joint ventures ventures
and associates and associates Total
---------------------------- ---------------------------- ----------------------------
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
30 September 30 September 30 September 30 September 30 September 30 September
2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
At 1 April 119.3 71.9 27.8 32.3 147.1 104.2
============================ ============= ============= ============= ============= ============= =============
Repayments from joint
ventures
and associates - - (0.4) (2.2) (0.4) (2.2)
============================ ============= ============= ============= ============= ============= =============
Investment in joint ventures
and associates - 4.6 - - - 4.6
============================ ============= ============= ============= ============= ============= =============
Share of profits 37.4 32.8 - - 37.4 32.8
============================ ============= ============= ============= ============= ============= =============
Interest accrued and
capitalised - - 5.0 0.5 5.0 0.5
============================ ============= ============= ============= ============= ============= =============
Interest received - - (0.3) (0.5) (0.3) (0.5)
============================ ============= ============= ============= ============= ============= =============
Dividends received (20.0) (15.1) - - (20.0) (15.1)
============================ ============= ============= ============= ============= ============= =============
Fair value adjustment of
derivatives (0.7) 3.4 - - (0.7) 3.4
============================ ============= ============= ============= ============= ============= =============
Tax on fair value adjustment
of derivatives 0.1 (1.7) - - 0.1 (1.7)
============================ ============= ============= ============= ============= ============= =============
Foreign exchange 0.5 - - - 0.5 -
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total 136.6 95.9 32.1 30.1 168.7 126.0
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
8. Other financial assets and liabilities
Fair value
----------------------------------------- ----------------------------------------------------------
Assets Liabilities
---------------------------- ----------------------------
Six months Six months Six months Six months
ended ended ended ended
30 September 30 September 30 September 30 September
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
----------------------------------------- ------------- ------------- ------------- -------------
Non-current
========================================= ============= ============= ============= =============
Financial instruments 77.1 97.4 4.9 7.5
========================================= ============= ============= ============= =============
Finance leases granted 15.5 19.1 - -
----------------------------------------- ------------- ------------- ------------- -------------
Total non-current other financial assets
and liabilities 92.6 116.5 4.9 7.5
----------------------------------------- ------------- ------------- ------------- -------------
Current
========================================= ============= ============= ============= =============
Financial instruments 46.1 - 48.5 12.5
========================================= ============= ============= ============= =============
Finance leases granted 176.5 12.7 - -
----------------------------------------- ------------- ------------- ------------- -------------
Total current other financial assets
and liabilities 222.6 17.6 48.5 12.5
----------------------------------------- ------------- ------------- ------------- -------------
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).
The Group has temporarily entered into finance leases with the
government customer which it has securitised for cash receivable in
the second half.
9. Movement in net debt
Six months Six months
Year ended ended ended
31 March 30 September 30 September
2018 2018 2017
GBPm GBPm GBPm
---------- -------------------------------------------------- ------------- -------------
106.9 (Decrease)/increase in cash in the period (37.0) 27.9
========== ================================================== ============= =============
Cash flow from the increase in debt and lease
(43.7) financing (124.8) (125.1)
---------- -------------------------------------------------- ------------- -------------
63.2 Change in net funds resulting from cash flows (161.8) (97.2)
========== ================================================== ============= =============
28.1 Finance leases - granted 156.7 13.8
========== ================================================== ============= =============
(4.5) Movement in joint ventures and associates loans 4.3 (2.2)
========== ================================================== ============= =============
(28.3) Foreign currency translation differences and other (16.1) (32.0)
---------- -------------------------------------------------- ------------- -------------
58.5 Movement in net debt in the period (16.9) (117.6)
========== ================================================== ============= =============
(1,173.5) Net debt at the beginning of the period (1,115.0) (1,173.5)
---------- -------------------------------------------------- ------------- -------------
(1,115.0) Net debt at the end of the period (1,131.9) (1,291.1)
---------- -------------------------------------------------- ------------- -------------
10. Changes in net debt
As at Exchange/ As at
1 April Finance other 30 September
2018 Cash flow leases movement 2018
GBPm GBPm GBPm GBPm GBPm
------------------------------------------- --------- --------- ------- --------- -------------
Cash and bank balances 286.3 (37.0) - (2.2) 247.1
=========================================== ========= ========= ======= ========= =============
Bank overdrafts - - - - -
------------------------------------------- --------- --------- ------- --------- -------------
Cash, cash equivalents and bank overdrafts 286.3 (37.0) - (2.2) 247.1
------------------------------------------- --------- --------- ------- --------- -------------
Debt (1,432.2) (126.6) - (33.2) (1,592.0)
=========================================== ========= ========= ======= ========= =============
Finance leases - received (91.1) 10.5 - (2.5) (83.1)
=========================================== ========= ========= ======= ========= =============
Finance leases - granted 46.5 (8.7) 156.7 (2.5) 192.0
------------------------------------------- --------- --------- ------- --------- -------------
(1,476.8) (124.8) 156.7 (38.2) (1,483.1)
------------------------------------------- --------- --------- ------- --------- -------------
Net debt before derivatives and joint
ventures and associates loans (1,190.5) (161.8) 156.7 (40.4) (1,236.0)
------------------------------------------- --------- --------- ------- --------- -------------
Net debt derivative 47.7 - - 24.3 72.0
=========================================== ========= ========= ======= ========= =============
Joint ventures and associates loans 27.8 4.3 - - 32.1
------------------------------------------- --------- --------- ------- --------- -------------
Net debt (1,115.0) (157.5) 156.7 (16.1) (1,131.9)
------------------------------------------- --------- --------- ------- --------- -------------
11. Retirement benefits and liabilities
Analysis of movement in the Group balance sheet
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
----------------------------------------------------------- ------------- -------------
Fair value of plan assets (including reimbursement rights)
=========================================================== ============= =============
At 1 April 4,734.9 4,676.2
=========================================================== ============= =============
Interest on assets 57.8 58.0
=========================================================== ============= =============
Actuarial gain/(loss) on assets 85.1 (79.9)
=========================================================== ============= =============
Employer contributions 41.8 37.0
=========================================================== ============= =============
Employee contributions 0.3 0.4
=========================================================== ============= =============
Benefits paid (193.7) (98.5)
=========================================================== ============= =============
Settlements (73.7) -
----------------------------------------------------------- ------------- -------------
At 30 September 4,652.5 4,593.2
----------------------------------------------------------- ------------- -------------
Present value of benefit obligations
=========================================================== ============= =============
At 1 April 4,739.7 4,780.5
=========================================================== ============= =============
Service cost 20.7 23.2
=========================================================== ============= =============
Incurred expenses 1.9 2.0
=========================================================== ============= =============
Interest cost 57.6 59.1
=========================================================== ============= =============
Employee contributions 0.3 0.4
=========================================================== ============= =============
Experience losses 29.5 8.7
=========================================================== ============= =============
Actuarial gain - demographics - -
=========================================================== ============= =============
Actuarial loss/(gain) - financial 43.7 (66.7)
=========================================================== ============= =============
Benefits paid (193.7) (98.5)
=========================================================== ============= =============
Settlements (73.7) -
----------------------------------------------------------- ------------- -------------
At 30 September 4,626.0 4,708.7
=========================================================== ============= =============
Present value of unfunded obligations (0.2) (0.2)
----------------------------------------------------------- ------------- -------------
Net surplus/(deficit) at 30 September 26.3 (115.7)
----------------------------------------------------------- ------------- -------------
The amounts recognised in the Group income statement are as
follows:
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
--------------------------------------- ------------- -------------
Current service cost 20.7 23.2
======================================= ============= =============
Incurred expenses 1.9 2.0
--------------------------------------- ------------- -------------
Total included within operating profit 22.6 25.2
======================================= ============= =============
Net interest (credit)/cost (0.2) 1.1
--------------------------------------- ------------- -------------
Total included within income statement 22.4 26.3
--------------------------------------- ------------- -------------
As at 30 September 2018 the key assumptions used in valuing
pension liabilities were:
Discount rate 2.7% (30 September 2017: 2.7%)
Inflation rate
(RPI) 3.2% (30 September 2017: 3.2%)
12. Acquisitions
There were no acquisitions in the current or previous
periods.
13. Disposals
In September the Group disposed of its media business for
GBP29.5 million, which resulted in a profit of GBP15.2 million.
During both the current and the previous year the Group paid
certain accrued costs on previously disposed of businesses of
GBP0.6 million (2017: GBP1.7 million).
Six months ended Six months ended
30 September 30 September
2018 2017
------------------------------------------- ------------------------------ -------------------
Babcock Previously Previously
Media disposed disposed
Services of business Total of business Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------- --------- ------------ ----- ------------ -----
Goodwill 7.1 - 7.1 - -
=========================================== ========= ============ ===== ============ =====
Property, plant and equipment 1.4 - 1.4 - -
=========================================== ========= ============ ===== ============ =====
Inventory 7.4 - 7.4 - -
=========================================== ========= ============ ===== ============ =====
Current assets 4.0 - 4.0 - -
=========================================== ========= ============ ===== ============ =====
Cash, cash equivalents and bank overdrafts 2.6 - 2.6 - -
=========================================== ========= ============ ===== ============ =====
Current liabilities (9.6) - (9.6) - -
------------------------------------------- --------- ------------ ----- ------------ -----
Net assets disposed 12.9 - 12.9 - -
=========================================== ========= ============ ===== ============ =====
Disposal costs 1.4 - 1.4 - -
=========================================== ========= ============ ===== ============ =====
Profit on disposal of subsidiary 15.2 - 15.2 - -
------------------------------------------- --------- ------------ ----- ------------ -----
Sale proceeds 29.5 - 29.5 - -
------------------------------------------- --------- ------------ ----- ------------ -----
Sale proceeds less cash disposed of 26.9 - 26.9 - -
=========================================== ========= ============ ===== ============ =====
Less costs paid in the period (0.8) (0.6) (1.4) (1.7) (1.7)
------------------------------------------- --------- ------------ ----- ------------ -----
Net cash inflow/(outflow) 26.1 (0.6) 25.5 (1.7) (1.7)
------------------------------------------- --------- ------------ ----- ------------ -----
14. Transactions with Non-Controlling Interests
In September a subsidiary, Babcock Ntuthuko Engineering, issued
an additional 2.9% of its share capital to its non-controlling
interest partner for GBP1.9 million. It also issued further
restricted shares, which employ Notional Vendor Financing, to give
the non-controlling interest partner 48.5% of the business.
However, for as long as the Notional Vendor Amount is greater than
zero the holders of the restricted shares shall not be entitled to
receive any distributions.
15. Related party transactions
Related party transactions for the half year to 30 September
2018 are: sales to joint ventures and associates of GBP104.4
million
(2017: GBP86.8 million) and purchases from joint ventures and
associates of GBP0.2 million (2017: GBP0.8 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. Post balance sheet events
On 26 October, the High Court handed down a judgment involving
the Lloyds Banking Group's defined benefit pension schemes. The
judgment concluded the schemes should be amended to equalise
pension benefits for men and women in relation to guaranteed
minimum pension benefits. The issues determined by the judgment
arise in relation to many other defined benefit pension schemes. We
are working with the trustees of our pension schemes, and our
actuarial and legal advisers, to understand the extent to which the
judgment crystallises additional liabilities for our pension
schemes. We anticipate that any adjustment necessary will be
recognised in the second half of this financial year.
17. Financial information
The financial information in this half year report does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006. Statutory accounts for the year ending 31
March 2018 were approved by the Board on 22 May 2018 and delivered
to the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under Section 498 of
the Companies Act 2006.
Risks and uncertainties
The Directors consider that the principal risks and
uncertainties affecting the Group remain unchanged from those
described in the 2018 Annual Report, and are those arising from:
our customer profile: reliance on winning and retaining large
contracts with a relatively limited number of major clients
(particularly the UK MOD), including clients affected by political
and public spending reviews and decisions, which exposes the Group
to political and public spending risks and which could be impacted
by Brexit; the nature of our contracts, bid processes and our major
markets: bidding is a time consuming and expensive process; public
procurement rules apply in many cases and bring the risk of
challenge to award decisions; large contract opportunities by their
nature tend not to arise on a regular or frequent basis; failure to
win rebids of large contracts that we already hold could represent
a major loss of business and the failure to win new bids for large
contract opportunities can represent a major missed opportunity and
either loss can affect our strategic development; long-term
contracts carry risk- transfer and potential pricing risks for our
businesses and our contracts typically contain strict key
performance indicators, failure to meet them can result in adverse
financial consequences or loss of contract; reputational risks: our
reputation is a fundamental business asset given the nature of our
business, markets and customers - its loss for any reason (for
example, poor contract performance or a high profile safety
incident) could have a major adverse impact as could damage the
reputation of outsourcing businesses generally (and thus
outsourcing itself); regulatory and compliance burden: our major
businesses depend on being able to meet and continue to comply with
applicable customer or industry specific requirements and
regulations, wherever we do business, which can change; compliance
with some regulatory requirements is a pre-condition to being able
to carry on a business activity at all (for example, parts of our
Aviation business are subject to ownership and control requirements
in the EU); the cost of compliance can be high; failure to meet the
requirements could result in loss of existing business or future
business opportunities; health, safety and environmental risks;
some of our businesses entail the potential risk of significant
harm to people, property or the environment if not properly managed
and a serious incident could seriously damage our reputation (which
could lead to loss of existing or future business) as well as
expose us to fines and damages claims not all of which may or can
be covered by insurance; people risks: the Group's ability to
deliver its existing business, future growth and strategy is
dependent on being able to attract, develop, train and retain
experienced senior management, business development teams and
suitably qualified and skilled employees - the competition for whom
is strong; pension risks: we have a number significant defined
benefit pension schemes that carry cost and funding risks and the
risk of accounting volatility; IT and security risks: we depend
heavily on our ability to be able to maintain IT and information
security and assurance to preserve our reputation and the
confidentiality of our customers' and our own valuable information;
currency exchange rates: as we expand outside the UK we are
increasingly exposed to the impact of foreign currency exchange
rates; acquisitions: we have grown and expect to continue to grow
through acquisitions as well as organically but the financial
benefits of acquisitions may not be realised as quickly and as
efficiently as expected.
The risks summarised above, and mitigating actions taken in
respect of them, are explained and described in more detail on
pages 68 to 79 of the 2018 Annual Report, a copy of which is
available at www.babcockinternational.com. This half year report
also includes comments on the outlook for the Group for the
remaining six months of the financial year.
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.
Statement of Directors' responsibilities
This half year report is the responsibility of the Directors who
each confirms that, to the best of their knowledge:
-- this condensed set of financial statements has been prepared
in accordance with IAS 34 (Interim Financial Reporting) as adopted
by the European Union; and
-- the interim management report herein includes a fair review of the information required by:
-- Rule 4.2.7 of the Disclosure & Transparency Rules
(indication of the important events during the first six months,
and their impact on the condensed set of financial statements, and
a description of principal risks and uncertainties for the
remaining six months of the year); and
-- Rule 4.2.8. of the Disclosure & Transparency Rules
(disclosure of related parties' transactions that have taken place
in the first six months of the current financial year and that have
materially affected the financial position or the performance of
the entity during that period; and any changes in the related
parties transactions described in the last annual report that could
have a material effect on the financial position or performance of
the enterprise in the first six months of the current financial
year).
The names and functions of each of the Directors of Babcock
International Group PLC are as listed in its 2018 Annual Report. A
copy of the Annual Report can be found, and a list of current
Directors is maintained, on the Group's website
www.babcockinternational.com.
Approved by the Board and signed on behalf of the Directors
by:
Archie Bethel
Chief Executive
Franco Martinelli
Group Finance Director
20 November 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
IR DBBDBCDDBGIG
(END) Dow Jones Newswires
November 21, 2018 02:01 ET (07:01 GMT)
Babcock (LSE:BAB)
Historical Stock Chart
From Jul 2024 to Aug 2024
Babcock (LSE:BAB)
Historical Stock Chart
From Aug 2023 to Aug 2024