TIDMBAB
RNS Number : 6417G
Babcock International Group PLC
20 July 2023
Babcock International Group PLC
Full year results for the year ended 31 March 2023
20 July 2023
Building momentum
Statutory results
31 March 31 March
2023 2022
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Revenue GBP4,438.6m GBP4,101.8m
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Operating profit GBP45.5m GBP226.8m
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Basic earnings per share (6.9)p 32.5p
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Cash generated from operations GBP348.9m GBP41.8m
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Underlying results (ii)
31 March 31 March
2023 2022
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Contract backlog (i) GBP9.5bn GBP9.9bn
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Underlying operating profit (iii) GBP177.9m GBP237.7m
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of which Type 31 loss (iv) GBP(100.1)m -
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Underlying operating profit excluding the GBP278.0m GBP237.7m
Type 31 loss
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Underlying operating margin excluding the
Type 31 loss 6.3% 5.8%
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Underlying basic earnings per share 17.7p 30.7p
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Underlying basic earnings per share excluding
Type 31 loss 33.8p 30.7p
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Underlying free cash flow GBP75.3m GBP(191.3)m
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Net debt GBP564.4m GBP968.7m
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Net debt excluding operating leases GBP346.2m GBP556.7m
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Net debt/EBITDA (covenant basis) 1.5x 1.8x
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David Lockwood, Chief Executive Officer, said:
"We've made excellent progress this year, with
better-than-expected cash generation, margin expansion and
double-digit revenue growth. When we started our transformation, my
first goal was to stabilise and strengthen the balance sheet and
I'm delighted to say that work is complete. Babcock is now a
higher-quality, lower-risk and more predictable business, with a
clear focus on execution.
"In a world of significant instability, national security has
never been more important. With defence making up two-thirds of the
Group, the combination of capability, availability and
affordability we offer is increasingly relevant. I'm excited by the
momentum building across the business, and that confidence is
reflected in our expectation of continuing cash-backed profitable
growth, and reintroducing a dividend in FY24."
Financial highlights
- Contract backlog GBP9.5 billion, up 7% organically
- Revenue up 8% to GBP4,438.6 million, up 10% organically, with growth across all sectors
- Statutory operating profit of GBP45.5 million, down due to a
loss on disposal and related items and the GBP100.1 million Type 31
loss , announced in the April trading update
- Excluding the Type 31 loss:
- Underlying operating profit up to GBP278.0 million, driven by
a strong performance in Land, including a GBP12 million one-off
credit
- Underlying basic earnings per share (ii)(iii) up 10% to 33.8p
- Underlying free cash flow of GBP75.3 million, better than
expected due to strong operating cash performance. 110% operating
cash conversion, excluding the Type 31 loss
- Net debt to EBITDA (covenant basis) 1.5x, within our target
range of 1.0x to 2.0x (1.1x excluding the Type 31 loss from
EBITDA)
Outlook (v)
- FY23 baseline: Our FY24 outlook and medium-term guidance is
based on FY23 results excluding the impact of disposed businesses,
the Type 31 loss and the GBP12 million one-off credit in Land.
Excluding these items, FY23 revenue was c.GBP4 billion, underlying
operating profit was c. GBP265 million, and underlying operating
margin was 6.6%.
- FY24: Our expectations for FY24 profitability and cash flow
are unchanged, although operating cash flow may be weighted to the
second half given the FY23 overperformance. With c.GBP2.8 billion
of revenue under contract at 1 April 2023 and around GBP700 million
of framework orders expected to be delivered in FY24, we are
confident of another year of organic revenue growth and further
underlying margin expansion. We also expect to reinstate a dividend
in FY24, as indicated in the April trading update.
- Medium term guidance : We have increased confidence in the
growth, profitability and cash generation potential of the business
in the medium term. Over the next three-to-five years we believe we
can:
- Deliver average underlying operating cash conversion of at least 80%
- Achieve underlying operating margins of at least 8%
- Deliver average annual revenue growth in the mid-single digits
- A number of factors could influence the pace of achieving
these targets, for example mobilisation of large new programmes and
phasing of lower capital intensity work that could accelerate
revenue but slow margin expansion.
Strategic highlights
- Completed portfolio realignment programme, with over two
thirds of the Group's revenue now in defence
- Further investment in improving the control environment and project risk management
- Progressed delivery of our ESG strategy and commitments.
Integrated ESG into our long-term planning process and performance
framework
- Published capital allocation policy with a commitment to reinstate a dividend in FY24
- Achievements to date and confidence in our future has enabled us to set medium term guidance
Operational highlights
Marine
- Growing naval warship support in the UK and Australia - new
contracts, extensions, increased operational tempo
- Developing digital defence offering in the UK Skynet programme
- Progressing naval shipbuilding programmes - Type 31 in the UK/
MIECZNIK frigate programme in Poland
- Strong demand for our LGE equipment and developing the aftermarket opportunity
Nuclear
- Major upgrades to UK submarine infrastructure in preparation
for the next 50+ years of submarine support requirements
- Launched Submarine Availability Partnership with the UK MOD
and Submarine Delivery Agency to improve availability
- Concluded the first LIFEX deep maintenance programme of a Vanguard Class submarine
- Awarded initial contract for second Vanguard Class submarine
refit after the year end on a full cost recovery basis
- Developing strategic relationships for global decommissioning opportunities eg Japan
Land
- Significantly improved operational delivery of the key DSG
contract with option years being discussed
- Strengthened position in secure communications market:
Australian Defence High Frequency Comms
- Delivered urgent operational requirements to
revalidate/modernise gifted equipment in support of operations in
Ukraine
- Secured new production contract with the UK MOD for 70
protected mobility vehicles, with potential for requirement to
grow
- Expanded operational role in France through award to support
air transit and aircraft operation equipment across 26 military
bases
Aviation
- Significantly progressed our French defence offering,
delivering fixed and rotary wing aircraft for support and training
programmes
- Increased Canadian Aerial Emergency Services activity with
10-year air ambulance contract for British Columbia
- Submitted bid with Leonardo for Canada's Future Air Crew
Training (FAcT) programme for the Canadian Royal Air Force
- Partnering with the UK Royal Air Force to progress sustainable
aviation technologies to reduce environmental impact
Notes to statutory and underlying results on page 1
(i) Contract backlog: The GBP9.5 billion contract backlog
represents amounts of future revenue under contract. This measure
does not include GBP3.4 billion of work expected to be done by
Babcock as part of framework agreements (FY22: GBP3.2 billion).
Contract backlog and framework definitions can be found in the
Financial Glossary on page 28.
(ii) Alternative Performance Measures (APMs):
The Group provides APMs, including underlying operating profit,
underlying margin, underlying earnings per share, underlying
operating cash flow, underlying free cash flow, and net debt to
EBITDA to enable users to have a more consistent view of the
performance and earnings trends of the Group. These measures are
considered to provide a consistent measure of business performance
from year to year. They are used by management to assess operating
performance and as a basis for forecasting and decision-making, as
well as the planning and allocation of capital resources. They are
also understood to be used by investors in analysing business
performance.
The Group's APMs are not defined by IFRS and are therefore
considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies, and they
are not intended to be a substitute for, or superior to, measures
defined under IFRS. The Group's APMs are consistent with the year
ended 31 March 2022. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 28.
(iii) Underlying operating profit: Underlying operating profit
is a key APM (described in (ii) ) for the Group. It is defined as
IFRS statutory operating profit adjusted for specific adjusting
items. See page 11 for a reconciliation of underlying operating
profit to statutory operating profit and note 2 of the preliminary
financial statements for an analysis of specific adjusting
items.
(iv) Type 31 loss: As described in our trading update in April
2023, this is the loss in the year due to additional forecast costs
that were not foreseen at contract inception. Following the
commencement of a dispute resolution process (DRP) in April 2023
over responsibility for these incremental costs, we have reassessed
the contract outturn on the basis that these are not recovered.
This has resulted in the recording of a GBP100.1 million loss in
the year, representing a GBP42.6 million reversal of revenue,
GBP1.6 million asset impairment and the recognition of a GBP55.9
million onerous contract loss. The DRP is ongoing. See Note 1 of
the preliminary financial statements for more details.
(v) FY23 baseline for outlook and guidance: Our FY24 outlook and
medium-term guidance is based on FY23 results excluding the impact
of disposals, the Type 31 loss and the GBP12 million one-off credit
in Land. Excluding these items, FY23 revenue was c.GBP4 billion,
underlying operating profit was c.GBP265 million, and underlying
operating margin was 6.6%.
Results presentation:
A webcast presentation for investors and analysts will be held
on 20 July 2023 at 09:00 am (UK time). The presentation will be
webcast live and 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.
For further information:
Andrew Gollan, Director of Investor
Relations +44 (0)7850 978 741
Kate Hill, Group Director of
Communications +44 (0)20 7355 5312
Tulchan Communications +44 (0)20 7353 4200
CEO STATEMENT
Introduction
Our transformation is delivering results. In FY23, we
successfully delivered double-digit organic revenue growth,
underlying margin (1)(2) expansion and a significantly better than
expected cash performance against a backdrop of economic
turbulence.
Following completion of the portfolio alignment programme, over
two-thirds of the Group's revenue is now concentrated on defence,
with this percentage expected to increase over time. We have
significantly strengthened the balance sheet and enhanced risk
management systems, underpinned by our work to embed a new
corporate culture focused on execution and growth, aligned with our
ESG strategy. While we have further to go, Babcock is now more
stable, more resilient, and better able to capture the many growth
opportunities before us.
As a result, the Board expects to reinstate a dividend in FY24
after a three-and-a-half-year hiatus. Over the medium term we are
targeting average annual organic revenue growth (3) in the
mid-single digits, an underlying operating margin (1)(2)(3) of at
least 8% and underlying operating cash conversion (1)(3) of at
least 80%.
Strong underlying FY23 results
Our second full year of turnaround delivered strong underlying
performance excluding the GBP100.1 million loss on the UK Ministry
of Defence (MOD) Type 31 programme, where we have entered a Dispute
Resolution Process (DRP). We have delivered organic revenue growth
of 10% (1)(2) , a 50 basis point increase in underlying operating
margin (1)(2) , underlying operating cash conversion (1) (2) of
110%, and underlying free cash flow (1) of GBP75.3 million,
significantly ahead of expectations, despite ongoing macroeconomic
headwinds.
Due to our strong cash performance, we accelerated pension
deficit payments by an additional GBP35 million and reduced our net
debt excluding operating leases by GBP211 million. At 1.5x, our net
debt to EBITDA (1) gearing ratio remains within our target range of
1.0x to 2.0x (on a covenant basis) (FY22: 1.8x). Excluding the Type
31 loss our gearing ratio would have been 1.1x.
Our contract backlog of GBP9.5 billion, grew organically by 7%,
reflecting the demand for our specialist capabilities in our core
defence and security markets and underpinning our confidence in the
future.
A better Babcock
In the last two years since we began our turnaround programme,
we have made excellent progress across our three pillars of
Stabilise, Execute and Grow.
Stabilise: balance sheet strengthened
The sale of the European Aerial Emergency Services business
(AES) to Ancala Partners in February 2023 completed a two-year
portfolio alignment programme to strengthen the balance sheet and
focus on the Group's chosen markets.
The programme realised total cash proceeds of c.GBP640 million,
well exceeding our initial target of above GBP400 million, and
reduced lease liabilities by c.GBP340 million. As a result of this
and a better-than-expected operating cash performance, net debt at
31 March 2023 was GBP564 million, representing an aggregate
reduction of GBP789 million over two years. Over the same period,
our net debt to EBITDA (1)(2) gearing ratio (on a covenant basis)
reduced from 2.5x at March 2021 to 1.5x at March 2023. During the
period we have also fully paid off c.GBP400 m illion of deferred
creditors and supply chain financing arrangements.
A focused and differentiated portfolio
Our portfolio is now aligned with our strategy to leverage our
capabilities in growth areas of defence and security. On a proforma
basis (3) , 68% of FY23 revenue is derived from the defence market,
which we expect to steadily increase over time.
We are predominately focused on services, with most of our
business providing complex programme support to UK and
international customers in support of their requirements of
capability, affordability and availability. The balance of our
operations comprises the design, manufacturing and integration of
specialist equipment and technologies for our defence and civil
customers.
With Stabilisation complete, our strategy is now firmly focused
on delivering value through continual operational improvement and
sustainable growth.
Execute: ongoing operational improvement
We have made further progress in operational delivery across the
Group, underpinned by a strengthened corporate culture which drives
better outcomes for all our stakeholders. Our work to drive
cultural change centres on our people. In October 2022, we
concluded the first Group-wide survey of employees for more than 10
years. This achieved a response rate of 79%, demonstrating a high
level of engagement. The survey results have driven the development
and implementation of action plans as part of our overarching
People Strategy. Examples include the launch of a Babcock Role
Framework to transform the employee experience, defining and
standardising role categorisation and opening professional
development pathways and career opportunities.
We are fostering a consistent Group-wide risk-based control
approach, aiming for predictability and optimisation of performance
through investment in systems, controls and the expertise of our
people. While there is still much to do, operational improvement
will continue to be a key driver of margin expansion, cash
generation and higher returns over the coming years.
Enhanced control environment
During the year we launched a number of Group-wide process and
control initiatives and functional changes developed to improve
efficiency, enhance our control environment, and fundamentally
reduce risk in the business. We designed and implemented a Global
Project Management Framework to standardise and professionalise
project management across the Group. This framework includes our
Integrated Project Controls processes which enhance our ability to
make data-driven decisions, which is key to improved delivery and
mitigation of risk in our major projects.
We have also introduced a new centre-led commercial function
tasked with optimising commercial risk management and have
implemented 15 key 'Blueprint' fundamental management review
controls which mitigate significant contract management, commercial
and financial reporting risks. We also launched a Group-wide Global
Business Management System which will drive commonality and best
practice across the business.
Enhanced delivery
We are proactively managing exposure to historically onerous
long-term contracts and focusing on replacing them with higher
quality orders with improved terms and/or a lower execution risk
profile. At the beginning of the turnaround, we identified a small
group of higher risk legacy contracts that generated zero margin.
Associated revenue from these contracts continues to reduce from
over GBP400 million in FY22 to less than GBP300 million expected in
FY24, through a combination of contract completion and delivery,
such as the Vanguard life extension (LIFEX), and efficiency
improvements, such as DSG, both described below.
We recently concluded the Devonport elements of the highly
complex - and first of its kind - LIFEX of a Vanguard Class
submarine, with the first vessel returned to the UK Royal Navy in
May 2023 after seven years. This was one of the largest and most
complex submarine engineering projects undertaken in the UK, with
HMS Vanguard being the first of her class to receive an extensive
life-extension and upgrade package - essentially a rebuild rather
than a traditional refit. We have learned many lessons in how to
scope contracts, mobilise and deliver such a complex project. The
novel and significant risk associated with this unique project is
now behind us. Mobilisation for the next submarine in the
programme, HMS Victorious, is now underway, on contract terms that
allow us to manage programme risk more effectively and improve
delivery.
A successful example of the turnaround improving programme
delivery is the 10-year DSG contract awarded in 2015 for the
maintenance, repair and overhaul (MRO) of British Army land
vehicles and equipment. Following a radical overhaul of the
operation to raise productivity, we have markedly improved
operating performance and delivery for our UK MOD customer, who has
formally notified us of their intention to exercise up to five
option years with modifications that will contribute to better
outcomes for the customer and for Babcock. We continue to evolve
complex vehicle support and maintenance solutions that could lead
to future opportunities in the UK and internationally.
Earlier this month we were awarded an initial one-year, c.GBP50
million contract, with options to extend, by the UK MOD to support
urgent operational requirements for Ukraine's military land assets
as part of the UK's support for the country.
Further advancing our ESG strategy
Over the year, we have made progress in the delivery of our ESG
strategy and corporate commitments, while increasing disclosure on
key sustainability interests. In April 2023, we submitted our
interim and Net Zero carbon reduction targets to the Science Based
Targets initiative (SBTi) and we conducted a strategic
climate-related risk assessment as input to our five-year planning
process. We are also continuing to integrate our five ESG
priorities, which provide a comprehensive framework for integrating
sustainability into the business:
1. Reduce emissions and set Net Zero 2040 targets
2. Integrate environmental sustainability into programmes
3. Ensure the safety and well-being of our people
4. Improve communities, and provide high-quality jobs
5. Be a collaborative, trusted partner across the supply chain
In addition, we have further embedded ESG into our performance
framework with remuneration linked to our Net Zero emissions target
and diversity and inclusion targets, measured through our KPIs.
More broadly, we have a critical role in global defence and
national security in the countries in which we operate. As global
instability and political turmoil increases, we support the view
that democracies need to be able to defend themselves from
aggressors. Without the stability provided by strong defence, it is
challenging for governments to progress environmental or social
improvement measures.
Nuclear power, and in some instances nuclear deterrent, form a
crucial part of the resiliency framework developed by many
democratically elected Governments. Babcock has been supporting the
UK's commitment to its Continuous-At-Sea Deterrent for over 50
years, while also delivering critical civil nuclear engineering. We
will continue to support our customers, both with their defence
agenda and their commitment to generate low emission power from
nuclear energy.
Financial risks being better managed
Inflation : The macro-economic environment remains volatile,
although there are signs that the extreme inflationary pressures
experienced over the last year are beginning to recede, albeit
slowly. Approximately two-thirds of our revenue base has some
measure of protection for inflation. The remainder are, "firm",
fixed-price contracts which retain some inflation risk. Many are
relatively short term (one to two years), giving us the opportunity
to replace them with improved terms.
The Group's largest exposure to inflation is rising labour costs
(approximately 50% of the cost base of the fixed-price contracts),
particularly within the UK. The Group addressed labour cost in the
UK for FY23 with a pay deal that targeted all but the higher paid
employees to assist in the cost-of-living increases. This pay deal
resulted in a c.GBP25 million FY23 cost increase over and above
costs that could be recovered through extant contracts, which we
have offset through other efficiencies. The FY24 pay cycle has
commenced and we continue to expect to offset unrecoverable
increases through targeted efficiencies.
Grow - building momentum
Our portfolio is now aligned with our growth strategy. This will
leverage our technical capability to grow our defence and services
business, both internationally and in the UK. The defence market
backdrop remains supportive, driven by geopolitical instability and
a heightened threat environment, although global financial
pressures do also remain acute.
Whether it be through engineering support such as maintaining or
extending the life of complex assets, through the design and
manufacture of specialist equipment, or through the integration of
new technologies into innovative and cost-effective solutions, we
see significant opportunities in our defence and adjacent
markets.
Growth drivers
It is becoming clear that the events in Eastern Europe and
growing tension in the Asia-Pacific region are driving planned
increases in global defence expenditure. Whilst some additional
funding will go to new equipment, there is a realisation that
increasing the availability and capability of current military
assets is crucial. As we are largely platform-agnostic, we partner
with delivery agencies - in some cases as a Design or Technical
Authority - to support them as they make critical decisions to
modernise and life-extend ageing assets and platforms.
As defence operations modernise, so too will the support
required to deliver campaigns. The outsourcing of frontline support
and services that require skilled, engineering-based capabilities
will continue to grow, as will the need for specialist
training.
The rapid pace of technology and ever-changing threat
environment is driving the need to deliver military capability with
agility and at pace. Our technology and systems integration
expertise, including capability insertion and equipment
modernisation, continue to drive growth.
Evidenced through our sectors
Marine - increasing naval support and technology opportunities
in the UK and internationally
As a leading provider of naval ship and submarine support and
maintenance to UK, Canadian, Australian, US and New Zealand navies,
we see opportunities emerging in the short term as a result of the
increased operational tempo and, over the longer term, through
life-extension and naval fleet modernisation strategies. In the UK,
our ability to deliver complex, cost-effective support has allowed
us to secure several new naval support contracts in the year,
including a critical 10-year docking contract for the Queen
Elizabeth Class aircraft carriers and a contract to support the UK
Government's research vessel fleet.
In Australia, following our appointment as the Regional
Maintenance Provider with responsibility for managing the support
of Royal Australia Navy (RAN) vessels in Western Australia, further
opportunities are emerging as the RAN re-organises its ship support
model. Elsewhere we are seeing opportunities to support our
international customers, for example, following our recent
programme to regenerate ex-UK Royal Navy Sandown Class mine
countermeasures vessels for Ukraine.
We are continuing to experience international interest for the
proven Arrowhead 140 naval ship design used on the UK Type 31
frigate programme, both in our focus countries and other export
markets, driven by demand for affordable naval power.
The investments we have made in our advanced manufacturing
facility in Rosyth are not only allowing us to deliver new
performance standards in UK warship build but are drawing interest
from other domestic and international customers who value our
flexible, scalable advanced and modular manufacturing capabilities.
A key part of that capability is the delivery of missile tube
assembles for the UK Dreadnought and US Columbia Class submarine
programmes where Rosyth is the programme centre of excellence for
tube manufacture as a result of investments in advanced robotic
solutions.
Demand for our Liquid Gas Engineering (LGE) products and
innovative technologies for the processing, handling and storage of
liquefied gas remains strong as our customers look to satisfy the
growing global demand for cleaner energy solutions to replace
traditional fossil fuels such as coal. We continue to innovate in
this area, seeking commercially scalable technologies for the
transport and management of gas and liquid fuels that can help to
reduce the industry's carbon emission burden.
We command a strong position in the defence digital market. In
the year, we were awarded a six-year c.GBP400 million contract to
manage and operate Skynet, the UK's military satellite
communications system, part of the MOD's c.GBP6 billion Skynet 6
programme, marking a significant opportunity in the space
domain.
Nuclear - growth across defence and civil nuclear markets
Babcock sustains the entirety of the UK Royal Navy's
nuclear-powered submarine fleet. The major programme to modernise
submarine infrastructure across Devonport continues to grow as the
UK progresses a multi-year phase of class transition, which will
lead to concurrent support of four classes of nuclear-powered
submarine - Trafalgar, Vanguard, Astute and, ultimately,
Dreadnought. Our upgraded facilities will support and maintain the
UK's critical subsea and nuclear deterrent capability for decades
to come.
During the year, we launched the Submarine Availability
Partnership with the UK MOD and Submarine Delivery Agency (SDA) to
improve submarine availability over the long term. We are currently
in discussions with the SDA and the Royal Navy with the intention
of finalising a long-term strategic partnership to ensure the
stable, safe, effective and efficient delivery of deep and base
maintenance of submarines.
We welcome the announcement from the Australian, UK, and US
Governments (AUKUS) regarding the decision for acquisition of
nuclear-powered submarines. We play a critical role in all three
countries' submarine programmes today. Our experience of nuclear
infrastructure, workforce upskilling, and regulatory and safety
stewardship, combined with our unique expertise in nuclear
submarine design and through-life support positions us ideally to
help to deliver a nuclear-powered submarine capability for the
RAN.
In civil nuclear, we recently secured a contract with the Japan
Atomic Energy Agency (JAEA) to provide specialist capability in
support of the decommissioning of the Monju Prototype Fast Reactor
(PFR) in Fukui Prefecture. In the UK, through our specialist
nuclear capabilities and our advanced manufacturing experience, we
are well positioned for opportunities to support the build of the
new fleet of advanced or small modular reactors to be
developed.
Land - MRO and training contract wins underpin growth
Demand for our specialist land equipment MRO and fleet
management capabilities is strong. Our work to deliver urgent
operational requirements to revalidate and modernise land assets
and gifted equipment in support of operations in eastern Ukraine
has recently led to the award of an initial one-year contract to
support Ukraine's military land equipment, including maintenance of
critical military vehicles, training of Ukrainian personnel, and
management of supply chains and spares.
Our global reputation for asset support is allowing us to expand
our operational role in France. We are pursuing a number of
emerging opportunities following the award of our first land
support contract in France, a 10-year contract to support to air
transit and aircraft operations equipment across 26 military
bases.
Training personnel is a critical component to support new
defence equipment and asset modernisation programmes. We see
significant opportunities for partnership and growth. In the UK, we
are collaborating with training partners for the British Army's
GBP1.3 billion Collective Training Transformation programme.
Through our relationship with the UK's Supacat, we are
delivering 70 High Mobility Transporters for the British Army, with
a potential total requirement of up to 240 of these light armoured
vehicles, through a new dedicated production line, providing an
operationally capable and cost-effective protected mobility
vehicle. There is international interest in this platform with the
opportunity to develop an export sales pipeline. We are also
supporting the UK MOD and British Army's shift to electric vehicles
(EV) from 2030 through a new contract for EV conversion and trials
of Land Rover vehicles, to help the Army to understand the
applications and constraints of electric propulsion.
Aviation - opportunities in all our disciplines (training, MRO,
aerial emergency services and aviation technologies)
We see potential to materially grow our Canadian aviation
business. Initially, through the recent award of a c.GBP200
million, 10-year helicopter emergency medical services contract
commencing in 2025. Also, through our bid with joint venture
partner Leonardo in response to Canada's Future Aircrew Training
(FAcT) programme for military pilot training over 25 years. If
successful, this would further strengthen our international
aviation training capabilities and result in the Group delivering
both new platforms and new capabilities to the Royal Canadian Air
Force. The outcome is expected to be declared later in 2023.
In the UK, we are partnering with the UK Royal Air Force's Rapid
Capability Office to progress a range of sustainable aviation
technologies that could minimise the environmental impact of light
aircraft flying training, for example sustainable aviation
fuel.
Trading in the first quarter of FY24
Trading in the first quarter ended 30 June 2023 was in line with
expectations.
Outlook (4)
FY24 outlook: Our expectations for FY24 profitability and cash
flow are unchanged, although operating cash flow may be weighted to
the second half given the FY23 overperformance. With c.GBP2.8
billion of revenue under contract at 1 April 2023 and around GBP700
million of framework orders expected to be delivered in FY24, we
are confident of another year of organic revenue growth and further
underlying margin expansion. We also expect to reinstate a dividend
in FY24, as indicated in the April trading update .
Medium term guidance
Looking ahead, having successfully stabilised the Group and
through the ongoing execution of operational improvements to
enhance the risk profile of the business, over the next
three-to-five years, we believe we can:
-- Deliver underlying operating cash conversion of at least 80%
-- Achieve underlying operating margins of at least 8%
-- Deliver average annual revenue growth in the mid-single digits
Year to year, there are a number of factors that could influence
the pace of achieving these targets, for example mobilisation of
large new programmes and phasing of lower capital intensity work,
such as Nuclear infrastructure, that could accelerate revenue but
slow margin expansion. We will continue to enter into new contracts
giving due consideration in each case to all relevant factors to
maximise shareholder value, and in particular to growth, risk and
capital intensity criteria.
Capital allocation
Our refreshed capital allocation framework is underpinned by a
commitment to maintain strong balance sheet and investment-grade
credit rating, with a target leverage of 1.0x to 2.0x net debt to
EBITDA.
The framework is aligned with our strategy to maximise value for
our shareholders while balancing near-term performance and
long-term growth objectives.
Capital allocation framework
Priority Policy FY23
1. Organic investment Organic investment to strengthen Ongoing investment in business
and grow the business improvement
--------------------------------- -------------------------------
2. Financial Maintain strong balance sheet Leverage reduced to 1.5x
strength and investment grade credit S&P credit rating upgraded
rating to BBB stable
--------------------------------- -------------------------------
3. Ordinary dividend Pay an ordinary dividend Commitment to reinstate
a dividend in FY24
--------------------------------- -------------------------------
Any further capital could be applied to the following three
areas, prioritised according to the prevailing circumstances at the
time that is assessed by the Board to maximise shareholder
value:
-- Bolt on M&A - Opportunities that have a strong fit with the Group
-- Pensions - Acceleration of our pension scheme obligations
-- Returns - Further returns to shareholders of surplus capital
David Lockwood OBE
Chief Executive
OTHER INFORMATION
Dividend
No ordinary dividends have been paid or declared for the year
ended 31 March 2023. We expect to reinstate a dividend in FY24.
Board changes
Two Non-Executive Directors retired in the period. In July 2022,
Russ Houlden retired after two years of service and Kjersti Wiklund
retired in September 2022, after four years of service. Kjersti was
succeeded in her role as Remuneration Committee Chair by Carl-Peter
Forster.
In December 2022, we welcomed Jane Moriarty as Non-Executive
Director. In May 2023, the Board announced the appointment of Sir
Kevin Smith as Non-Executive Director with effect from 1 June
2023.
Notes to CEO Statement
(1) A defined Alternative Performance Measure (APM) as set out
in the Financial Glossary on pages 28 to 30
(2) Excludes Type 31 loss of GBP100.1 million as described on
page 3 and Note 1 of the preliminary financial statement
(3) Pro forma - excluding the revenue from disposed businesses
of GBP421.6 million: UK civil training of GBP35.1 million and
European AES of GBP386.5 million, both sold in February 2023
(4) Our FY24 outlook and medium-term guidance is based on FY23
results excluding the impact of disposals, the Type 31 loss and a
GBP11.6 million one-off credit in Land. Excluding these items, FY23
revenue was c.GBP4 billion, underlying operating profit was
c.GBP265 million, and underlying operating margin was 6.6%
FINANCIAL REVIEW
As described in the Financial Glossary on page 28, the Group
provides alternative performance measures (APMs), including
underlying operating profit, underlying margin, underlying earnings
per share, underlying operating cash flow, underlying free cash
flow, and net debt to EBITDA, to enable users to better understand
the performance and earnings trends of the Group. These measures
are considered to provide a consistent measure of business
performance from year to year. The reconciliation from the IFRS
statutory income statement to underlying income statement is shown
below .
Income statement
31 March 2023 31 March 2022
-----------------------------
Underlying Specific Statutory Underlying Specific Statutory
adjusting adjusting
GBPm items items
GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- ---------- --------- ---------- ---------- ---------
Revenue 4,438.6 - 4,438.6 4,101.8 - 4,101.8
------------------------------ ---------- ---------- --------- ---------- ---------- ---------
Operating profit/(loss) 177.9 (132.4) 45.5 237.7 (10.9) 226.8
============================== ========== ========== ========= ========== ========== =========
Other income - - - 6.2 - 6.2
============================== ========== ========== ========= ========== ========== =========
Share of results of joint
ventures and associates 9.3 - 9.3 20.1 - 20.1
============================== ========== ========== ========= ========== ========== =========
Net finance costs (58.3) 9.7 (48.6) (61.2) (9.6) (70.8)
------------------------------ ---------- ---------- --------- ---------- ---------- ---------
Profit/(loss) before tax 128.9 (122.7) 6.2 202 .8 (20.5) 182.3
============================== ========== ========== ========= ========== ========== =========
Income tax (expense)/benefit (37.7) (1.8) (39.5) (43.9) 29.5 (14.4)
------------------------------ ---------- ---------- --------- ---------- ---------- ---------
Profit/(loss) after tax for
the year 91.2 (124.5) (33.3) 158 .9 9.0 167.9
------------------------------ ---------- ---------- --------- ---------- ---------- ---------
Basic EPS 17.7p (6.9)p 30.7p 32.5p
============================== ========== ========== ========= ========== ========== =========
Diluted EPS 17.4p (6.9)p 30.4p 32.1p
============================== ========== ========== ========= ========== ========== =========
Type 31 loss 100.1
============================== ==========
Underlying operating profit
excl. Type 31 loss 278.0
------------------------------ ----------
Underlying basic EPS excl.
Type 31 loss 33.8p
------------------------------ ----------
A full statutory income statement can be found on page 35.
Type 31 loss : As described in the Notes to statutory and
underlying results on page 3 and in Note 1 of the preliminary
financial statement, the Marine business has incurred a GBP100.1
million loss in FY23, which is due to additional forecast costs
that were not foreseen at contract inception. Following the
commencement of a dispute resolution process (DRP) in April 2023
over responsibility for these incremental costs, we have reassessed
the contract outturn on the basis that these are not recovered.
This has resulted in the recording of a GBP100.1 million loss in
the year, representing a GBP42.6 million reversal of revenue,
GBP1.6 million asset impairment and the recognition of a GBP55.9
million onerous contract loss. The DRP is ongoing .
Revenue increased by 8 % to GBP4,438.6 million comprising 10%
organic growth and a 2% reduction due to the net impact of
acquisitions and disposals. The organic increase was delivered
across all four sectors (see sector performance tables on page
18).
Statutory operating profit decreased to GBP45.5 million (FY22:
GBP226.8 million). The key drivers in FY23 were the GBP100.1
million loss on the Type 31 programme and GBP117.7 million loss on
disposals and related items, mainly European AES, which more than
offset a strong operating performance, led by Land.
FY22 statutory operating profit included GBP163.1 million profit
on disposal, GBP118.8 million exceptional charges, of which
GBP123.6 million related to impairment of tangible and
intangible assets, and GBP33.8 million restructuring costs. There
were no exceptional items recorded in FY23. See Note 2 of the
preliminary financial statement for more detail.
As described on page 3, statutory operating profit includes
specific adjusting items (SAIs) that are not included in underlying
operating profit, which is a key APM for the Group. A
reconciliation of statutory operating profit to underlying
operating profit is shown in the table below and in note 2 of the
preliminary financial statements.
Reconciliation of statutory to underlying operating profit
31 March 31 March
2023 2022
GBPm GBPm
---------------------------------------------------- -------- --------
Operating profit 45.5 226.8
==================================================== ======== ========
Amortisation of acquired intangibles 15.8 21.4
==================================================== ======== ========
Business acquisition, merger and divestment related
items 117.7 (163.1)
==================================================== ======== ========
Restructuring costs - 33.8
==================================================== ======== ========
Exceptional items - 118.8
==================================================== ======== ========
Fair value movement on derivatives (1.1) -
---------------------------------------------------- -------- --------
Specific adjusting items impacting operating profit 132.4 10.9
---------------------------------------------------- -------- --------
Underlying operating profit 177.9 237.7
---------------------------------------------------- -------- --------
Type 31 loss 100.1 -
---------------------------------------------------- -------- --------
Underlying operating profit excluding Type 31 loss 278.0 237.7
---------------------------------------------------- -------- --------
Underlying operating profit: Underlying operating profit
decreased by 25% to GBP177.9 million, due to the Type 31 loss, a 4%
reduction from the net impact of acquisitions and disposals, and
further costs of implementing a stronger control environment, which
more than offset the strong operational performance.
Excluding the Type 31 loss, underlying operating profit
increased to GBP278.0 million, driven by improved performance in
Land, enhanced by a GBP12 million one-off credit, and good growth
in Marine and Aviation. Underlying operating profit in Nuclear was
in line with the prior year (see sector performance tables on page
18).
Underlying operating margin decreased to 4.0% (FY22: 5.8%) due
to the Type 31 loss. Excluding this, underlying operating margin
increased by 50 basis points to 6.3%.
Further analysis of our revenue and underlying operating profit
performance is included in each sector's operational reviews on
page 19 to 27.
Other income of GBP6.2 million in FY22 related to pre-completion
guarantee fees received in relation to the disposal of the Aviation
Oil and Gas business (in October 2021).
Joint ventures and associates : The Group's share of results of
joint ventures and associates reduced from the prior year to a
profit after tax of GBP 9.3 million (FY22: GBP20.1 million) due to
the disposal of our 15.4% stake in AirTanker Holdings in February
2022 and reclassification of NSM, which was fully consolidated from
March 2022.
Net finance costs decreased to GBP58.3 million on an underlying
basis (FY22: GBP61.2 million), driven by lower net interest costs
on reduced debt and higher cash balances, and a GBP7.5 million
pension interest credit, partly offset by a GBP12 million charge
associated with financing of defence contract receivables
(described below). Reported net finance costs of GBP48.6 million
included a GBP9.7 million non-cash credit due to fair value
movements in derivatives and related items.
Our Mentor military aviation contract in France is for the
provision of Pilatus PC-21 aircraft to the Direction générale de
l'armement (DGA), followed by maintenance support until 2027. The
aircraft have been delivered to and accepted by DGA in the year,
with no remaining performance risk for Babcock. As payment for the
aircraft is not due from DGA until 2027 under the contract terms,
we have sold the receivables for these aircraft in the year for
EUR122 million on a non-recourse basis, incurring a one-off finance
cost of EUR14 million (GBP12 million). The net overall impact on
FY23 operating cash flow is broadly neutral after cash paid to
purchase the aircraft in the year.
Taxation : The Group tax charge was GBP39.5 million. Tax on
underlying profits was GBP 37.7 million representing an effective
underlying tax rate of 32%. Excluding the impact of the Type 31
loss the effective tax rate was 26% (FY22: 24 %), slightly higher
than expected due to the geographical mix of profits and unrelieved
losses in the European AES business. The underlying effective tax
rate is calculated on underlying profit before tax excluding the
share of income from joint ventures and associates (which is a
post-tax number). The Group's effective underlying rate of tax for
this financial year will be dependent on country profit mix. The
current assumption is around 26%.
Earnings per share : Basic earnings per share, on a statutory
basis, declined to a 6.9 pence loss (FY22: 32.5 pence) reflecting
lower profit before tax and a higher UK tax rate. Underlying
earnings per share declined to 17.7 pence (FY22: 30.7 pence)
primarily due to the Type 31 loss. Excluding this, underlying
earnings per share increased by 10% to 33.8 pence.
Reconciliation of statutory profit/(loss) and basic EPS to
underlying profit and basic EPS
31 March 2023 31 March 2022
GBPm Basic GBPm Basic
EPS EPS
----------------------------------------- ------- ------ ------ -------
(Loss)/profit after tax for the year (33.3) (6.9)p 167.9 32.5p
========================================= ======= ====== ====== =======
Specific adjusting items, net of tax 124.5 24.6p (9.0) (1.8)p
----------------------------------------- ------- ------ ------ -------
Underlying profit after tax for the year 91.2 17.7p 158.9 30.7p
----------------------------------------- ------- ------ ------ -------
Type 31 loss, net of tax 81.1 16.1p - -
----------------------------------------- ------- ------ ------ -------
Underlying profit after tax for the year
excl. Type 31 loss 172.3 33.8p 158.9 30.7p
----------------------------------------- ------- ------ ------ -------
Exchange rates
The translation impact of foreign currency movements resulted in
an increase in revenue of GBP 23.5 million and an increase in
underlying operating profit of GBP 1.6 million. The main currencies
that have impacted our results are the Canadian Dollar, South
African Rand, Euro and Australian Dollar. Following disposal of the
European AES businesses, the currencies with the greatest potential
to impact results are the South African Rand and the Australian and
Canadian Dollar:
-- A 10% movement in the South African Rand against Sterling would affect
revenue by around GBP30 million and underlying operating profit by
around GBP4 million per annum
-- A 10% movement in the Australian Dollar against Sterling would affect
revenue by around GBP25 million and underlying operating profit by
around GBP2 million per annum
-- A 10% movement in the Canadian Dollar against Sterling would affect
revenue by around GBP15 million and underlying operating profit by
around GBP1 million per annum
Cash flow and net debt
Underlying cash flow and net debt
Underlying cash flows are used by the Group to measure operating
performance as they provide a more consistent measure of business
performance from year to year.
31 March 31 March
2023 2022
GBPm GBPm
---------------------------------------------------------- -------- ---------
Operating profit 45.5 226.8
========================================================== ======== =========
Add back: specific adjusting items 132.4 10.9
---------------------------------------------------------- -------- ---------
Underlying operating profit 177.9 237.7
========================================================== ======== =========
Right of use asset depreciation 91.3 123.1
========================================================== ======== =========
Other depreciation & amortisation 84.9 74.4
========================================================== ======== =========
Non-cash items 6.9 0.6
========================================================== ======== =========
Working capital movements 103.5 (173.9)
========================================================== ======== =========
Provisions 37.2 (9.3)
========================================================== ======== =========
Net capital expenditure (86.2) (135.2)
========================================================== ======== =========
Lease principal payments (108.5) (113.0)
---------------------------------------------------------- -------- ---------
Underlying operating cash flow 307.0 4.4
========================================================== ======== =========
Cash conversion % 173% 2%
========================================================== ======== =========
Pension contributions in excess of income statement (141.9) (151.7)
========================================================== ======== =========
Interest paid (net) (62.2) (45.0)
========================================================== ======== =========
Tax paid (25.4) 10.0
========================================================== ======== =========
Dividends from joint ventures and associates 8.7 41.6
========================================================== ======== =========
Cash flows related to exceptional items (10.9) (50.6)
---------------------------------------------------------- -------- ---------
Underlying free cash flow 75.3 (191.3)
========================================================== ======== =========
Net acquisitions and disposals of subsidiaries 158.6 417.2
========================================================== ======== =========
Acquisitions/investments in joint ventures and associates - (18.1)
========================================================== ======== =========
Dividends paid (including non-controlling interests) (2.2) (1.1)
========================================================== ======== =========
Lease principal payments 108.5 113.0
========================================================== ======== =========
Net new lease arrangements (115.1) (71.2)
========================================================== ======== =========
Leases disposed of/(acquired) with subsidiaries 218.1 136.6
========================================================== ======== =========
Other non-cash debt movements (1.8) (2.4)
========================================================== ======== =========
Clarification of net debt definition (36.1) -
========================================================== ======== =========
Fair value movement in debt and related derivatives 56.0 (11.8)
========================================================== ======== =========
Exchange movements (57.0) 12.8
---------------------------------------------------------- -------- ---------
Movement in net debt 404.3 383.7
========================================================== ======== =========
Opening net debt (968.7) (1,352.4)
---------------------------------------------------------- -------- ---------
Closing net debt (564.4) (968.7)
========================================================== ======== =========
Add back: operating leases 218.2 412.0
---------------------------------------------------------- -------- ---------
Closing net debt excluding operating leases (346.2) (556.7)
---------------------------------------------------------- -------- ---------
A full statutory cash flow statement can be found on page 38 and
a reconciliation to net debt on page 64.
Reconciliation of underlying operating cash flow to statutory
net cash flow from operations
31 March 31 March
2023 2022
GBPm GBPm
========================================================== ======== ========
Underlying operating cash flow 307.0 4.4
========================================================== ======== ========
Add: net capex 86.2 135.2
========================================================== ======== ========
Add: capital element of lease payments 108.5 113.0
========================================================== ======== ========
Less: pension contributions in excess of income statement (141.9) (151.7)
========================================================== ======== ========
Non-operating cash items (excluded from underlying
cash flow) (10.9) (59.1)
---------------------------------------------------------- -------- --------
Cash generated from operations (statutory) 348.9 41.8
========================================================== ======== ========
Tax (paid)/received (25.4) 10.0
========================================================== ======== ========
Less: net interest paid (62.2) (45.0)
========================================================== ======== ========
Net cash flow from operating activities (statutory) 261.3 6.8
---------------------------------------------------------- -------- --------
Underlying operating cash flow
Underlying operating cash flow after capital expenditure
increased to GBP307.0 million (FY22: GBP 4.4 million), a conversion
ratio to underlying operating profit of 173% (FY22: 2%). Excluding
the Type 31 loss, underlying operating cash conversion was 110%.
The higher conversion ratio reflects reduced working capital and
lower than expected capital expenditure.
- Working capital : An inflow of GBP103.5 million compared to an
outflow of GBP173.9 million last year. This reflects a strong focus
on cash flow as a performance measure coupled with cash flow
phasing on programmes, and customer receipts of c.GBP70 million
received earlier than expected. The outflow in FY22 included
payments associated with the unwind of the past practice of
period-end management of working capital (withholding of
creditors). We have sold receivables relating to the provision of
aircraft on our Mentor contract in France for EUR122m in the year.
This is to match receipts and payments for the aircraft in the
period, such that the net impact on operating cash flow is broadly
neutral. The factoring is on a non-recourse basis and there is no
remaining performance risk for Babcock.
- Capital expenditure : Net capital expenditure decreased to GBP
86.2 million (FY22: GBP 135.2 million). This was a result of gross
capex of GBP125.1 million (FY22: GBP203.2 million) being lower than
expected due to project phasing, which more than offset a c.GBP30
million reduction in proceeds from asset disposals primarily
relating to the timing of aircraft sales in our Aviation sector. We
expect FY24 gross capital expenditure to be approximately
GBP120-GBP150 million depending on phasing, reflecting continued
investment in our submarine infrastructure in Devonport and
roll-out of enterprise resource planning (ERP).
- Lease principal payments , representing the capital element of
payments on lease obligations, reduced slightly to GBP 108.5
million (FY22: GBP 113.0 million), following divestments in our
Aviation business. This is reversed out below underlying free cash
flow as the payment reduces our lease liability (i.e. no net effect
on net debt).
Underlying free cash flow
Underlying free cash inflow of GBP75.3 million compares to an
outflow of GBP191.3 million in the prior year, primarily reflecting
higher underlying operating cash flow.
- Pension cash outflow in excess of the income statement charge
of GBP141.9 million (FY22: GBP151.7 million) was higher than
previous guidance of c.GBP100 million due to acceleration of GBP35
million of future years scheduled payments at the year end. As a
result, we expect the pension cash outflow in excess of the income
statement charge to reduce to around GBP65 million in FY24.
- Interest : Net interest paid, excluding that paid by JVs and
associates, increased to GBP62.2 million (FY22: GBP45.0 million)
primarily due to the EUR14 million (GBP12 million) finance charge
associated with the financing of a French defence contract
receivable described above.
- Taxation : Tax paid in the year was GBP25.4 million. The
GBP10.0 million cash tax receipt in FY22 was a result of the
settlement of several open years' tax computations with the
authorities. We expect a cash tax outflow in the current financial
year of approximately GBP35 million.
- Dividends received from joint ventures and associates
decreased to GBP8.7 million as expected (FY22: GBP41.6 million)
reflecting the disposal of our stake in AirTanker Holdings, the
acquisition and subsequent consolidation of NSM, and the non-repeat
of close out dividends on the termination of JV's in the prior
year. We expect dividends from JVs and associates to be broadly
stable in FY24.
- Exceptional cash flows : The GBP10.9 million (FY22: GBP50.6
million) exceptional cash outflow in the year was the conclusion of
the large prior year restructuring programme.
Acquisitions and disposals
The net cash inflow from disposals in the year, after costs, was
GBP158.6 million. This included gross proceeds (net of cash
disposed) of GBP176.6 million from the sale of the European AES
business in February 2023, which included around GBP60 million net
completion adjustments, and GBP2.9 million from the sale of Civil
Training, also in February 2023, less transaction costs.
The net cash inflow from acquisitions and disposals in FY22 was
GBP417.2 million, including gross proceeds (net of cash disposed)
from the sale of Oil & Gas (GBP10.0 million). Frazer Nash
Consultancy (GBP286.8 million), UK Power (GBP45.8 million) and our
15.4% shareholding in AirTanker Holdings Limited (GBP95.6 million),
less GBP15.5 million net consideration paid for the acquisition of
the remaining 50% of NSM and transaction costs.
New lease arrangements
In addition to net capital expenditure, and not included in
underlying free cash flow, GBP117.0 million (FY22: GBP93.8 million)
of additional leases were entered into in the period. These
represent new lease obligations and so are included in our main net
debt figure but do not involve any cash outflows at inception.
Net debt
Net debt at 31 March 2023 was GBP564.4 million, representing a
reduction of GBP404.3 million compared to the beginning of the
year. This reduction was driven by underlying free cash flow,
proceeds from disposals and GBP218.1 million of operating leases
that were transferred with the European AES disposal. The
reconciliation of net cash flow to net debt is shown in the table
below.
Excluding operating leases, net debt was GBP346.2 million,
representing a reduction of GBP210.5 million compared to the
beginning of the year.
Movement in net debt - reconciliation of statutory cash flows to
net debt
31 March 31 March
2023 2022
GBPm GBPm
====================================================== ======== =========
Net cash flow from operating activities (statutory) 261.3 6.8
====================================================== ======== =========
Net cash flow from investing activities (statutory) 83.5 338.6
====================================================== ======== =========
Net cash flow from financing activities (statutory) (666.1) (122.7)
====================================================== ======== =========
Net increase/(decrease) in cash, cash equivalents and
bank overdrafts (statutory) (321.3) 222.7
====================================================== ======== =========
Cash flow from the (increase)/decrease in debt 629.6 55.1
====================================================== ======== =========
Change in net funds resulting from cash flows 308.3 277.8
====================================================== ======== =========
Additional lease obligations (117.0) (93.8)
====================================================== ======== =========
New leases granted 28.5 41.9
====================================================== ======== =========
Debt held by disposed subsidiaries 219.7 137.1
====================================================== ======== =========
Other non-cash movements and changes in fair value 57.9 7.9
====================================================== ======== =========
Clarification of net debt definition (36.1) -
====================================================== ======== =========
Foreign currency translation differences (57.0) 12.8
====================================================== ======== =========
Movement in net debt in the year 404.3 383.7
====================================================== ======== =========
Opening net debt (968.7) (1,352.4)
------------------------------------------------------ -------- ---------
Closing net debt (564.4) (968.7)
------------------------------------------------------ -------- ---------
Funding and liquidity
As of 31 March 2023, the Group had access to a total of GBP 1.9
billion of borrowings and facilities of mostly long-term
maturities. These comprised:
-- GBP300 million revolving cash facility (RCF) maturing 20 May 2024
-- GBP775 million RCF, with GBP45 million maturing 28 August
2025 and GBP730 million extended to 28 August 2026
-- GBP300 million bond maturing 5 October 2026
-- EUR550 million bond, hedged at GBP493 million, maturing 13 September 2027
-- Two committed overdraft facilities totalling GBP100 million
At 31 March 2023, the Group's net cash balance was GBP 430
million. This combined with the undrawn amounts under our committed
RCFs and overdraft facilities, gave us liquidity headroom of around
GBP1.6 billion.
Capital structure
While there are several facets to balance sheet strength, a
primary measurement relevant to Babcock is the net debt/EBITDA
gearing ratio within our debt covenant of 3.5x. Due to strong
underlying operating cash flow, the net debt/EBITDA gearing ratio
at 31 March 2023 of 1.5x is lower than at the start of the year
despite the GBP100 million Type 31 loss recognised within EBITDA in
the year. This is still within our medium-term target of between
1.0x and 2.0x. Excluding the Type 31 loss, the net debt/EBITDA
gearing ratio at 31 March 2023 would have been 1.1x.
Net debt to EBITDA (covenant basis)
This measure is used in the covenant in our RCF facilities and
includes several adjustments from reported net debt and EBITDA. The
covenant level is 3.5 times. As set out below, our net debt to
EBITDA (covenant basis) decreased to 1.5 times for FY23 despite the
impact of the Type 31 loss on underlying operating profit.
31 March 31 March
2023 2022
GBPm GBPm
Last twelve Last twelve
months months
----------------------------------------------------- ------------ ------------
Underlying operating profit 177.9 237.7
===================================================== ============ ============
Depreciation and amortisation 84.9 74.4
===================================================== ============ ============
Covenant adjustments(1) (8.4) (12.9)
----------------------------------------------------- ------------ ------------
EBITDA 254.4 299.1
===================================================== ============ ============
JV and associate dividends 8.7 41.6
----------------------------------------------------- ------------ ------------
EBITDA + JV and associate dividends (covenant basis) 263.1 340.8
----------------------------------------------------- ------------ ------------
Net debt (346.2) (556.7)
===================================================== ============ ============
Covenant adjustments(2) (49.3) (60.0)
----------------------------------------------------- ------------ ------------
Net debt (covenant basis) (395.5) (616.7)
----------------------------------------------------- ------------ ------------
Net debt/EBITDA 1.5x 1.8x
----------------------------------------------------- ------------ ------------
(1) Various adjustments made to EBITDA to reflect accounting
standards at the time of inception of the original RCF agreement.
The main adjustments are to the treatment of leases within
operating profit and pension costs.
(2) Removing loans to JVs, finance lease receivables.
Interest cover (covenant basis)
This measure is also used in the covenant in our RCF facilities,
with a covenant level of 4.0 times.
31 March 31 March
2023 2022
GBPm GBPm
Last twelve Last twelve
months months
----------------------------------------------------- ------------ ------------
EBITDA (covenant basis) + JV and associate dividends 263.1 340.8
------------------------------------------------------ ------------ ------------
Net finance costs (48.6) (70.8)
====================================================== ============ ============
Covenant adjustments(3) 7.1 18.7
------------------------------------------------------ ------------ ------------
Net Group finance costs (41.5) (52.1)
------------------------------------------------------ ------------ ------------
Interest cover 6.3x 6.5x
------------------------------------------------------ ------------ ------------
(3) Various adjustments made to reflect accounting standards at
the time of inception of the original RCF agreement, including
lease and retirement benefit interest.
Return on invested capital, pre-tax (ROIC)
This measure is one of the Group's key performance
indicators.
31 March 31 March
2023 2022
GBPm GBPm
Last twelve Last twelve
months months
-------------------------------------------------- ------------ ------------
Underlying operating profit 177.9 237.7
=================================================== ============ ============
Share of results of joint ventures and associates 9.3 20.1
--------------------------------------------------- ------------ ------------
Underlying operating profit plus share of JV PAT 187.2 257.8
=================================================== ============ ============
Net debt excluding operating leases 346.2 556.7
=================================================== ============ ============
Operating leases 218.2 412.0
=================================================== ============ ============
Shareholder funds 370.9 701.5
=================================================== ============ ============
Retirement deficit/(surplus) 61.4 (191.6)
--------------------------------------------------- ------------ ------------
Invested capital 996.7 1,478.7
--------------------------------------------------- ------------ ------------
ROIC 18.8% 17.4%
--------------------------------------------------- ------------ ------------
Pensions
The Group has a number of defined benefit pension schemes. The
principal defined benefit pension schemes in the UK are the
Devonport Royal Dockyard Pension Scheme, the Babcock International
Group Pension Scheme and the Rosyth Royal Dockyard Pension Scheme
(the Principal schemes).
IAS 19
At 31 March 2023, the IAS 19 valuation for accounting purposes
was a net deficit of GBP61.4 million (FY22: a surplus of GBP191.6
million). The move to a net accounting deficit is a result of a
greater reduction in the fair value of plan assets (by GBP1,545.1
million to GBP3,188.0 million, net of GBP241.9 million longevity
swaps), compared to the reduction in present value of pension
benefit obligations (by GBP1,292.1 million to GBP3,249.4 million).
The reduction in fair value of plan assets was driven by negative
net asset returns coupled with the impact on the assets held from
the UK market volatility experienced by pension schemes in
September 2022, partly offset by scheme contributions. The
reduction in pension liabilities was primarily a result of higher
discount rates. The fair value of the assets and liabilities of the
Group pension schemes at 31 March 2023 and the key assumptions used
in the IAS 19 valuation of our schemes are set out in Note 18 of
the preliminary financial statements.
31 March 31 March
2023 2022
GBPm GBPm
------------------------------------- --------- ---------
Fair value of plan assets 3,188.0 4,733.1
------------------------------------- --------- ---------
Present value of benefit obligations (3,249.4) (4,541.5)
------------------------------------- --------- ---------
Net surplus/(deficit) at 31 March (61.4) 191.6
------------------------------------- --------- ---------
As at 31 March 2023 the key assumptions used in valuing pension
liabilities for the three largest schemes were:
Discount rate 31 March 2023: 4.8% (31 March 2022: 2.7%)
31 March 2023: 3.2% (after
Inflation rate (RPI) year 1) (31 March 2022: 3.7%)
Income statement charge
The charge included within underlying operating profit in FY23
was GBP32.6 million (FY22: GBP38.5 million), of which GBP25.8
million (FY22: GBP31.1 million) related to service costs and GBP6.8
million (FY22: GBP7.4 million) related to expenses. In addition to
this, there was an interest credit of GBP7.5 million (FY22: charge
of GBP3.7 million).
Actuarial valuations
An estimate of the actuarial deficits of the Group's defined
benefit pension schemes, including all longevity swap funding gaps,
calculated using each Scheme's respective technical provisions
basis, as at FY23 was approximately GBP400 million (FY22: c.GBP350
million). Such valuations use discount rates based on UK gilts -
which differs from the corporate bond approach of IAS 19. This
technical provision estimate is based on the assumptions used
within the latest agreed valuation prior to 31 March 2023 for each
of the three main schemes.
Actuarial valuations are carried out every three years to
determine the Group's cash contributions to the schemes. The
valuation dates of the three largest schemes are set so that only
one scheme is undertaking its valuation in any one year, to spread
the financial impact of market conditions. The valuation of the
Rosyth Royal Dockyard Pension Scheme at 31 March 2021 was completed
in the last financial year, the valuation of the Babcock
International Group Pension Scheme at 31 March 2022 has been
completed since the year end, and work has commenced on the
valuation of the Devonport Royal Dockyard Pension Scheme at 31
March 2023.
Cash contributions
Cash contributions made by the Group into the defined benefit
pension schemes, excluding expenses and salary sacrifice
contributions, during the last financial year are set out in the
table below.
31 March 31 March 31 March
2024e 2023 2022
GBPm GBPm GBPm
------------------------------------ -------- -------- --------
Future service contributions 18.0 20.0 21.1
==================================== ======== ======== ========
Deficit recovery 47.8 123.5 135.2
==================================== ======== ======== ========
Longevity swap 15.2 15.6 16.8
------------------------------------ -------- -------- --------
Total cash contributions - employer 81.0 159.1 173.1
------------------------------------ -------- -------- --------
SEGMENTAL ANALYSIS
The Group reports its performance through four reporting
sectors.
31 March 2023 Marine Nuclear Land Aviation Total
GBPm GBPm GBPm GBPm GBPm
============================= ========= ========= ========= ========== =========
Revenue 1,439.6 1,179.2 1,017.1 802.7 4,438.6
============================= ========= ========= ========= ========== =========
Operating profit 5.8 63.6 80.9 (104.8) 45.5
============================= ========= ========= ========= ========== =========
Operating profit margin 0.4% 5.4% 8.0% (13.1)% 1.0%
============================= ========= ========= ========= ========== =========
Underlying operating profit 12.7 63.5 85.9 15.8 177.9
============================= ========= ========= ========= ========== =========
Underlying operating margin 0.9% 5.4% 8.4% 2.0% 4.0%
============================= ========= ========= ========= ========== =========
Contract backlog 2,580.7 2,453.8 2,809.8 1,633.0 9,477.3
============================= ========= ========= ========= ========== =========
Excluding Type 31 loss
============================= ========= ========= ========= ========== =========
Type 31 loss 100.1 100.1
============================= ========= ========= ========= ========== =========
Underlying operating profit 112.8 278.0
============================= ========= ========= ========= ========== =========
Underlying operating margin 7.8% 6.3%
============================= ========= ========= ========= ========== =========
31 March 2022 Marine Nuclear Land Aviation Total
GBPm GBPm GBPm GBPm GBPm
============================= ========= ========= ========= ========== =========
Revenue 1,259.3 1,009.7 1,015.5 817.3 4,101.8
============================= ========= ========= ========= ========== =========
Operating profit 309.7 56.9 36.2 (176.0) 226.8
============================= ========= ========= ========= ========== =========
Operating profit margin 24.6% 5.6% 3.6% (21.5)% 5.5%
============================= ========= ========= ========= ========== =========
Underlying operating profit 98.0 62.4 58.8 18.5 237.7
============================= ========= ========= ========= ========== =========
Underlying operating margin 7.8% 6.2% 5.8% 2.3% 5.8%
============================= ========= ========= ========= ========== =========
Contract backlog 2,491.8 2,788.8 2,309.0 2,293.6 9,883.2
============================= ========= ========= ========= ========== =========
OPERATIONAL REVIEWS
Marine
Operational highlights
- Secured two further contracts on the Polish Miecznik (Swordfish) frigate programme
- Awarded a six-year c.GBP400 million contract to manage and
operate Skynet, the UK's military satellite communications
system
- Awarded 10-year contract for the UK Royal Navy's Queen
Elizabeth Class, aircraft carrier docking periods
- Awarded a contract to maintain the UK's fleet of scientific Royal Research Ships
- Awarded the Regional Maintenance Provider (RMP) West contract
to deliver ship support to the Royal Australian Navy
- Awarded a six-year contract to deliver, install and provide
in-service support for the maritime Communications Electronic
Support Measures (CESM) capability on UK Type 23 frigates
- Won 55 Liquid Gas Engineering (LGE) system orders worth over
GBP250 million for LPG, Ethane, and LNG technologies
- The Naval Ship Management (NSM) business, fully acquired last
year, has now been integrated into our Australian business
Financial review
31 March FX impact Acquisitions Other trading 31 March
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- --------- --------- ------------ ------------- -----------
Contract backlog* 2,491.8 2,580.7
============================= ========= ========= ============ ============= ===========
Revenue 1,259.3 12.3 72.4 95.6 1,439.6
============================= ========= ========= ============ ============= ===========
Underlying operating profit* 98.0 1.0 (0.2) (86.1) 12.7
============================= ========= ========= ============ ============= ===========
Underlying margin* 7.8% 0.9%
----------------------------- --------- --------- ------------ ------------- -----------
Type 31 loss 100.1
================================================================================ =========
Underlying operating profit excl. Type 31 loss* 112.8
================================================================================ =========
Underlying margin excl. Type 31 loss* 7.8%
-------------------------------------------------------------------------------- ---------
*Alternative Performance Measures are defined in the Financial
Glossary on page 28
In an otherwise promising year, Marine results were
significantly impacted by a GBP100.1 million loss on the Type 31
contract, representing a GBP42.6 m illion reversal of revenue,
GBP1.6 million asset impairment and the recognition of a GBP55.9
million onerous contract loss . The programme has been impacted by
additional forecast costs that were not foreseen at contract
inception . In April 2023, following discussions with the customer,
we entered a Dispute Resolution Process regarding the
responsibility for these costs.
Revenue increased by 14% to GBP1,439.6 million, comprising
organic growth of 8% and the net impact from the acquisition of NSM
in March 2022 and disposal of Frazer Nash Consultancy in October
2021. Organic growth was broad based, driven by continued strong
demand for our LGE products, higher activity in warship support and
on the South Korean (SK) submarine programme, as well as ramp up of
several new contracts through the second half, such as the Queen
Elizabeth Class aircraft carrier support and the early enabling
contracts for the Poland frigate programme.
Underlying operating profit decreased to GBP12.7 million as a
result of the Type 31 loss, representing an underlying operating
margin of 0.9% (FY22: 7.8%). Excluding this, underlying operating
profit increased to GBP112.8 million, representing an underlying
operating margin of 7.8%. The increase was driven by revenue growth
in ship support and South Korea submarine work and a c.GBP9 million
benefit from a contract settlement. The prior year margin was
supported by international license fees on AH140.
Contract backlog was up 4% in the year to GBP2,581 million
(FY22: GBP2,492 million). Positive order momentum through the
second half, including the c.GBP400 million Skynet award, more than
offset trading revenue on long-term contracts. At 1 April 2023,
Marine had around GBP900 million of FY24 expected revenue under
contract and an additional c.GBP350 million under framework
agreements, a similar position to FY22.
Operational review
UK defence
Despite the ongoing dispute resolution process, we continued to
deliver on the Type 31 Inspiration Class frigate programme. Keel
laying took place for the first ship - HMS Venturer - in April
2022, and whole ship assembly and outfitting progressed as planned.
Ship two - HMS Active - steel cutting took place in January
2023.
Warship support advanced in the year as we secured a 10-year
contract to provide dry-dock maintenance for the Royal Navy's Queen
Elizabeth Class aircraft carriers, including contingency dockings
where routine maintenance and repairs cannot be carried out afloat.
In Devonport, the Type 23 frigate life-extension (LIFEX) programme
continues at pace while the LIFEX and fleet time support to the
amphibious assault ships is making good progress. In readiness for
the first Type 26 Frigate base-ported at Devonport later this
decade, we have established the Type 26 Class Output Management
system to prepare for the through-life sustainment of the platforms
as they enter service.
Through our global sustainment and support arrangements, we
marked four years of delivering support to Type 23 Class ship HMS
Montrose during her forward deployment in the Middle East, enabling
the vessel to achieve more operational days at sea than any other
frigate since 2019. In the period, the mine countermeasure vessel
team has delivered four simultaneous ship regenerations for onward
sale from the Royal Navy to new international customers. All four
vessels are former Sandown Class mine hunters which are all
undergoing work packages to provide modern warships, tailored to
the new clients' requirements while providing future support
opportunities.
In Mission Systems, we were awarded a contract to manage and
operate Skynet, the UK's military satellite communications system.
The six-year contract, which commenced in March 2023, forms part of
the MOD's c.GBP6 billion Skynet 6 programme and is sustaining more
than 400 jobs in the south-west of the UK.
Additionally, a six-year contract was awarded to deliver,
install and provide in-service support for Ardent Wolf, the
maritime Communications Electronic Support Measures (CESM)
capability for the Royal Navy's Type 23 frigates.
We signed a Memorandum of Understanding (MoU) with Rafael
Advanced Defence Systems to deliver capability into the UK MOD's
wider Land Ground Based Air Defence (GBAD) programme and signed a
further MoU with Israel Aerospace Industries' (IAI) Group and
Subsidiary ELTA Systems to offer a deep-find radar solution for the
UK MODs SERPENS programme for a next generation weapons locating
system.
At our Bristol Mission Systems site, the opening of a new build
hall has boosted efficiency, enabling us to deliver major system
modules for Boat 2 of the Dreadnought Class submarine, a
significant milestone on the programme, ahead of schedule.
Deployment of advanced manufacturing technology continues to
underpin our market leading role in submarine missile tube
assembly, with installation of robotics and additional machining
capability at our Rosyth facility. The missile tube programme
continues successfully, supporting both the UK Dreadnought and US
Columbia submarine programmes.
International defence
We support international defence markets from our UK operations
and from our businesses in Canada, Australia, New Zealand, Oman and
South Korea.
In Poland , building on our selection as Design & Technology
Partner to PGZ (the Polish prime contractor), we secured two
further contracts on the MIECZNIK (Swordfish) frigate programme,
which is based on the proven Arrowhead 140 naval ship design used
on the UK Type 31 . The Class Design Contract and the Transfer of
Knowledge & Technology framework agreement further support the
development of the programme and shipbuilding capability in Poland.
Working in collaboration with the PGZ-MIECZNIK Consortium, we have
also agreed an extension to oversee the programme.
In Ukraine , having signed the tripartite agreement with the UK
and Ukrainian Governments as lead industry partner on the Ukrainian
Naval Capabilities Enhancement Programme, we continue to support
our Ukrainian customer with their requirements, such as the mine
counter measure vessels, which were formally handed over to the
Ukrainian Navy in the year.
In Oman , we delivered several maintenance, repair and overhaul
activities for the US Navy. The Duqm Naval Dockyard JV continues to
bid for work with the US and Royal Navy of Oman, while we continue
to deliver deployed support for the UK Royal Navy.
In Brazil , we established an in-country project team to deliver
through-life support to the Marinha do Brasil's (Brazilian Navy)
flagship vessel, NAM Atlantico, formerly the UK Royal Navy aircraft
carrier platform HMS Ocean, and continue to explore future
opportunities with the Marinha do Brasil and other international
navies as part of our global support and export programmes.
In Canada , Babcock continues to deliver the Victoria Class
In-Service Support (VISSC) contract which was extended to 2027.
In South Korea , our weapon handling and launch team
successfully completed the final milestone on the Korean Navy's
Jang-Bogo III Class submarine - with all 122 Category A milestones
delivered on time or ahead of schedule over the 10-year period. We
continue to deliver the equipment systems for boats four and five.
In September 2022, we received a first maintenance contract from
Daewoo Shipbuilding and Marine Engineering (DSME) to support the
Jang Bogo III Class - Boat 1 systems, with a second phase of this
work secured in October.
In Australia, we completed the integration of the Naval Ship
Management (NSM) business following acquisition of the remainder of
the business in March 2022. NSM strengthens Babcock's support to
the Royal Australian Navy's (RAN) future maritime support model,
Plan Galileo. Babcock is now the premier warship sustainment
organisation in Australasia.
In October 2022, Babcock was announced as the preferred tenderer
for the Regional Maintenance Provider (RMP) West, to manage the
sustainment of RAN ships in Western Australia over the next five
years.
In February 2023, Babcock signed a contract with BAE Systems to
provide the air weapons handling system for the first batch of
Hunter Class frigates for the RAN. The scope includes the design,
build, testing and installation support of air weapons handling
based on a modified Type 26 design.
In New Zealand, the new Maritime Fleet Sustainment Services
(MFSS) contract with New Zealand Defence Force formally began.
Energy and Marine
Our Liquid Gas Engineering business (LGE) continues to support
its customers on transition to Net Zero carbon with LPG and Ethane
fuel gas supply systems for ships' main engine supply, replacing
fuel oil. Our ecoFGSS-FLEX(R) ammonia/LPG fuel gas system will
enable the use of zero carbon fuels, whilst our ecoCO(2) -
liquefied CO(2) cargo handling - system will enable the
transportation and storage of CO(2) from current emitters.
In the period, LGE furthered the development of aftermarket
services to provide enhanced through-life support for
ship-owners.
During the year, our Rosyth dockyard was awarded c.GBP45 million
to maintain the UK's fleet of scientific research vessels - RRS Sir
David Attenborough, RRS Discovery and RRS James Cook. The three
vessels are involved in some of the most pressing research across
the globe, visiting polar regions and depths of tropical oceans.
This year RRS Discovery and the RRS Sir David Attenborough will
have planned maintenance periods.
Nuclear
Operational highlights
- Significant ramp up on the Major Infrastructure Programme
continuing across Devonport Dockyard
- Concluded first Vanguard Class life-extension with the first
vessel returned to the UK Royal Navy post year end, and an initial
contract and mobilisation phase for the next submarine, HMS
Victorious, is now underway
- Launched the Submarine Availability Partnership with the UK
MOD and Submarine Delivery Agency to progress availability
- First Astute Class submarine arrived at Devonport Dockyard
ready for a Base Maintenance Period (BMP)
- Awarded a framework agreement with the Japan Atomic Energy
Agency to deliver the Monju sodium treatment project
Financial review
31 March FX impact Acquisitions Other trading 31 March
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- -------- --------- ------------ ------------- --------
Contract backlog* 2,788.8 2,453.8
============================= ======== ========= ============ ============= ========
Revenue 1,009.7 - - 169.5 1,179.2
============================= ======== ========= ============ ============= ========
Underlying operating profit* 62.4 - - 1.1 63.5
============================= ======== ========= ============ ============= ========
Underlying margin* 6.2% 5.4%
----------------------------- -------- --------- ------------ ------------- --------
*Alternative Performance Measures are defined in the Financial
Glossary on page 28
Revenue grew by 17%, driven principally by the further strong
ramp up of the Major Infrastructure Programme (MIP) at Devonport
dockyard, as well as increased Future Maritime Support Programme
(FMSP) submarine support activity at Faslane naval base and new
defence contracts in our civil nuclear business. MIP revenue
doubled in the year to GBP267 million (FY22: GBP134 million).
Underlying operating profit increased by 2% to GBP63.5 million.
Profit from MIP growth and a lower programme write-off compared to
FY22, more than offset the impact of future inflation assumptions
on programmes and further investment in strengthening the control
environment. The programme write-off in FY23, resulting from a
final assessment of completion costs, was GBP16 million (FY22:
GBP22 million). This contract is expected to complete soon.
Operating margin declined to 5.4%, reflecting the impact of future
inflation and higher MIP revenue, which is lower margin.
Contract backlog decreased 12% in the year to GBP2,454 million
(FY22: GBP2,789 million) due to the trading of long-term contracts,
specifically FMSP, although it was flat in the second half due to
strong order intake. At 1 April 2023, Nuclear had around GBP1
billion of FY24 expected revenue under contract, and an additional
c.GBP150 million under framework agreements, both above the
position in the previous year.
Operational review
Defence
The UK is going through a phase of class transition for nuclear
submarines. Astute Class submarines are currently replacing the
Trafalgar Class and the future Dreadnought Class will replace the
Vanguard Class. Good progress has been made in the year in meeting
the current and future requirements of the MOD. We are working
closely with the MOD to jointly develop long-term strategies for
people, infrastructure and transformation, to meet the evolving
requirements for the future of the Royal Navy.
At Devonport, the MIP has ramped up significantly over the year.
The programme is designed to deliver substantial upgrades to
existing infrastructure over the next ten years, to ensure the
future capability requirements of the Royal Navy and the submarine
enterprise are met for decades to come from state-of-the-art
facilities. The programme will enable the dockyard to deliver base
maintenance periods (BMP) and deep maintenance periods (DMP) for
new classes of submarine, including nuclear defuel and refuel of
current and future classes, and life-extension programmes (LIFEX),
crucial to the UK submarine programme. During the year, key MIP
delivery dates have been agreed with the customer to meet continued
and future submarine docking, through-life support and fleet
availability.
The concept design phase for 10 Dock is now complete and
construction is underway to transform a large dry dock,
traditionally used for large ship refit, into a seismically
qualified dock in alignment with strict nuclear regulation, capable
of enabling delivery of the first DMP of an Astute Class submarine.
Currently, planning permission has been granted with customer
approval for the development of the facility which is starting with
demolition of ageing assets to create space for new facilities.
Work on the MIP at 9 Dock continues where we are upgrading,
improving and life-extending the facility which will enable us to
continue delivering the Vanguard Class submarines LIFEX programme,
including defuel and refuel while planning for future class
support.
Since the start of the FMSP contract, productivity during
maintenance projects has continually increased and this has been
further supported by the introduction of round the clock working
patterns for engineering support staff and greater collaboration
with the Royal Navy and Submarine Delivery Agency. The Devonport
elements of the first Vanguard Class LIFEX DMP concluded during the
year, and HMS Vanguard was handed back to the Royal Navy in May
2023. The mobilisation phase for the next DMP (HMS Victorious) is
now underway following initial contract award on a full cost
recovery basis.
Additionally, we have welcomed the first Astute Class submarine
ready for the start of a BMP and we successfully completed a
Revalidation Assisted Maintenance Period (RAMP) programme for a
Trafalgar Class submarine.
At Clyde, we have delivered strong performance on several
support programmes for our customer. This has included several
Vanguard Class BMPs, which were completed ahead of schedule.
Engineering support to Astute Class submarines has also been
delivered at the naval base and abroad, supporting the global
operational needs of the Royal Navy. At Rosyth, delivery of the
submarine dismantling and disposal programme has continued in line
with schedule.
Civil Nuclear
In decommissioning, we have been selected as the preferred
bidder for the Magnox Hinkley Point A Vault Retrievals Phase 2
project. This project builds upon our strong relationship with
Magnox and our history of delivering retrievals projects on Magnox
sites. The five-year contract is to provide the design and delivery
of an automated solution to safely retrieve, process and package
waste from vaults within Magnox's Hinkley Point A site, ready for
safe storage.
In Japan, we are continuing our growth plans for nuclear
decommissioning services and in April 2023, we signed a framework
agreement with the Japan Atomic Energy Agency (JAEA) to deliver the
Monju sodium treatment project over five years, starting in
2024.
In nuclear support, we worked in collaboration with our EDF
customer, to successfully complete the Dungeness B Power Station
pre-defueling outage. We have also secured an extension to the
Lifetime Enterprise Agreement.
During the year, the new Process, Plant and Equipment (PP&E)
contract commenced in the UK. Our role is to lead the design,
installation and commissioning of complex plant and equipment
engineering, enabling the customer to safely process and deliver
their production line. We expect to see the framework contract
continue to ramp up in FY24 while the programme remains a key
enabler for further opportunities across the wider facility as they
develop.
Our Cavendish Nuclear business continues to focus on several
growth opportunities in the UK and internationally. In the clean
energy space, we are continuing to support X-energy as their UK
deployment partner. The partnership complements our civil nuclear
business' support to all three nuclear streams of the UK
Government's Energy Security Strategy: Large Gigawatt Reactors,
Small Modular Reactors, and Advanced Modular Reactors, such as High
Temperature Gas-Cooled Reactors with the capability to focus on
industrial heat and hydrogen.
In the US, Cavendish Nuclear partnered with Amentum and Fluor,
has successfully secured the Portsmouth Gaseous Diffusion Plant
Decontamination and Decommissioning Contract in Ohio, USA.
Fusion energy is at a transition point moving from science to
engineering deployment, and through Cavendish Nuclear we are
seeking to become an early member of this developing industry,
including positioning for a role on the whole plant partner
procurement with the UKAEA on their Spherical Tokamak for Energy
Production programme.
Land
Operational highlights
- Awarded Australian Defence High Frequency Comms contract for c.GBP500 million over 10 years
- In discussions with UK MOD for five option years on the DSG contract to 2030
- Awarded initial UK MOD contract to build 'Jackal' vehicles with Supacat in Devonport
- Awarded initial c.GBP50 million one-year contract by the UK
MOD to support UK Gifted platforms to Ukraine
- Awarded contract to help the British Army improve operational
performance and extend the life of its Land Rover fleet
- Secured first Land win in France to deliver ground support
equipment support to the French Navy, Army and Air Force
- Completed the sale of our non-core Civil Training business
Financial review
31 March FX impact Acquisitions One-off Other trading 31 March
2022 GBPm & disposals credit GBPm 2023
GBPm GBPm GBPm GBPm
--------------------- -------- --------- ------------ ------- ------------- --------
Contract backlog* 2,309.0 2,809.8
===================== ======== ========= ============ ======= ============= ========
Revenue 1,015.5 1.8 (67.1) 11.6 55.3 1,017.1
===================== ======== ========= ============ ======= ============= ========
Underlying operating
profit* 58.8 0.0 (2.5) 11.6 18.0 85.9
===================== ======== ========= ============ ======= ============= ========
Underlying margin* 5.8% 8.4%
--------------------- -------- --------- ------------ ------- ------------- --------
Alternative Performance Measures are defined in the Financial
Glossary on page 28
Revenue was in line with the prior year with organic growth of
5% offset by the impact of disposals (UK Power in December 2021 and
Civil Training in February 2023). Growth was driven by ramp up of
the Australian Defence High Frequency Communication (DHFC) system,
continued strong demand for mining equipment and aftermarket sales
in South Africa and higher volumes in Rail and Emergency Services
training, which more than offset the end of the Eskom contract in
South Africa in March 2022.
Underlying operating profit grew to GBP85.9 million,
representing an underlying operating margin of 8.4%. The increase
was driven by the ramp up of the Australian DHFC system contract,
higher volumes in our South Africa business and Emergency Services
training, and a GBP12 million one-off credit. Excluding the one-off
credit, margin would have been 7.4%.
Contract backlog increased 24% organically to GBP2,810 million
(FY22: GBP2,309 million) driven by the Australian DHFC system and
good order momentum in the second half of the year. At 1 April
2023, Land had around GBP640 million of FY24 expected revenue under
contract, and an additional c.GBP180 million under framework
agreements, both above the position in the previous year.
Operational review
Defence
Performance in defence equipment activity improved in the
period, including our DSG contract where we maintain, repair,
overhaul and upgrade the British Army's armoured vehicles and
tanks. Following a successful transformation programme, we continue
to support our British Army customer as they plan for the future of
their equipment and support. We are now in detailed discussions
regarding execution of the five option years with modifications
that will contribute to better outcomes for the customer and for
the Group. In addition, we successfully extended our Phoenix II
contract which delivers the UK MOD's 'white fleet' service for a
further two years with strong performance.
In February, we announced that we will be working in
collaboration with Devon-based Supacat, to deliver an order of 70
High Mobility Transporters (HMT 400 series) from the MOD. With this
initial order, the contract award could lead to the production of
as many as 240 of the light armoured vehicles, should operational
requirements demand. The contract is to be delivered from our
Devonport site in Plymouth, where we will create 90 new jobs.
We have been awarded a one-year contract by the MOD to help the
British Army improve operational performance and extend the life of
its Land Rover fleet. Partnering with Electric Vehicles experts,
Electrogenic, we will convert four in-service military Land Rovers,
two protected vehicles and two general service vehicles, from
diesel-fueled to electric using a drop-in kit and modified battery
system.
This year we established our Advanced Manufacturing business in
response to growing obsolescence and commercial strains in the
supply chain. We fitted our first additively manufactured metal
parts onto a military vehicle having established an approval and
safety case process in collaboration with the MOD and the British
Army. We have signed a partnership agreement with a specialist
advanced manufacturing business, Additure, and are now scaling this
capability working with our British Army customer and across the
Group.
Through our existing contracts, we contributed to the British
Army's support to Ukraine's Armed Forces, refurbishing and
regenerating equipment that has been gifted in kind by the UK
Government and supporting the training of Ukrainian nationals in a
range of domains. We were recently awarded an initial 12-month
contract to support the equipment, including the supply of spares
and technical support.
Our defence training business performed well across all
contracts and continued to offer operational benefits for our
customers. We have been working closely with the British Army
throughout the year to support their Mobilise campaign and
successfully delivered training to partnering nations. We continue
to invest and develop innovative training and have recently
submitted our proposal around threat identification.
We have successfully delivered Exercise Cerberus 22, the British
Army's largest and most ambitious field army exercise in Europe for
a decade. Following a successful campaign in 2022, we participated
in the British Army's 2023 Army Warfighting Experiment where we
showcased our Human Insight Performance System.
In France, we secured our first major Land contract in this
focus country for the Group. We will support around 5,000 ground
support equipment assets across the French Army, Navy and Air Force
through a 10-year contract. The contract represents the first
outsourcing for the provision of maintenance, repair and overhaul;
supply chain and logistics; technical and obsolescence management;
as well as asset renewal. The contract will see the Group investing
in key systems, infrastructure, and people across France, supported
by capability transfer from our UK businesses, which will reinforce
our in-country growth strategy.
In Australia, in October 2022, we signed a contract with the
Government to upgrade and sustain the Defence High Frequency
Communication System to support the Australian armed forces over
the next 10 years. The c.GBP500 million contract starting in
October 2023, will see Babcock lead the operation and support of
the customer's existing capability, while delivering a
comprehensive technology upgrade programme. The new system will
provide Australian and allied armed forces with the ability to
securely communicate using voice and other data from almost any
location across the globe.
We continue to deliver and pursue Land defence opportunities in
Australia. The Group is one of four short-listed tenderers for the
LAND-125 Phase 4 - Integrated Soldier System programme, to
integrate a wide range of connected technologies including uncrewed
ground and aerial systems and self-learning machines for Australian
soldiers.
Emergency Services
We have seen good performance in our London Fire Brigade (LFB)
contract, with recognition for our support during the summer 2022
heatwave, which saw the busiest operational period for the LFB
since World War Two. Delivery of our Metropolitan Police (MPS)
contract has been stable through a challenging period that included
a significant surge in demand during the funeral of HM Queen
Elizabeth II. The MPS fleet management contract will end in October
2023.
Our LFB and MPS training contracts also performed well in the
period, with significant demand in volumes as both customers seek
to meet recruitment targets. Our new MPS training programme is now
well established and performing well.
South Africa
Performance for the South African business was better than
expected driven by high demand in the equipment business as a
result of a strong market in the mining sector. This more than
offset the ending of the Eskom engineering contract. Work continues
on ongoing improvements through operational excellence initiatives
throughout the business.
Other civil markets
Our Rail business had strong performance during the year with
further work in our Translink framework. We continue to focus on
delivery in our two key regions of Scotland and Northern
Ireland.
In February 2023, we completed the sale of our civil training
business to Inspirit Capital.
Aviation
- First two of six H160 helicopters modified and delivered to
the French Navy as part of a 10-year contract
- Completed delivery of nine PC21 aircraft and commenced
operational flights on the French Mentor contract
- Secured an 11-year extension to support the UK Hawk TMk1 and TMk2 aircraft and the Red Arrows
- Secured extensions from the UK MOD to operate the Light
Aircraft Flying Task (LAFT2) and RAF base support contract,
Hades
- Awarded R&D funding from the UK MOD to explore
technologies that minimise the environmental impact of light, fixed
wing training aircraft
- Awarded Queensland Health contract in Australia for helicopter
emergency medical services (HEMS) for 12 years
- Awarded a HEMS contract in Canada for c.GBP200 m illion , starting in FY25
Financial review
31 March FX impact Acquisitions Other trading 31 March
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- -------- --------- ------------ ------------- --------
Contract backlog* 2,293.6 1,633.0
============================= ======== ========= ============ ============= ========
Revenue 817.3 9.4 (97.6) 73.6 802.7
============================= ======== ========= ============ ============= ========
Underlying operating profit* 18.5 0.6 (6.6) 3.3 15.8
============================= ======== ========= ============ ============= ========
Underlying margin* 2.3% 2.0%
----------------------------- -------- --------- ------------ ------------- --------
*Alternative Performance Measures are defined in the Financial
Glossary on page 28
Revenue decreased 2% in the year. Organic growth of 9% was
driven by phasing in our French defence contracts, in particular
Mentor, which included aircraft sales to the customer. This was
offset by the impact of disposals (Oil and Gas in September 2021
and European Aerial Emergency Services (AES) on 28 February 2023).
The divested European AES contributed revenue of GBP386 million
during the 11 months of ownership in FY23 (FY22: GBP405
million).
Underlying operating profit decreased to GBP15.8 million, driven
by the impact of disposals, primarily European AES, which
contributed a loss of GBP1.1 million in the 11 months of ownership
compared to a profit of GBP3.3 million in FY22, due to higher fuel
costs. Underlying operating margin declined by 30 basis points to
2.0%, primarily due to weaker performance of the disposed European
AES businesses.
The retained business within Aviation generated revenue of
GBP416 million (FY22: GBP337 million), up by 24%, and underlying
operating profit of GBP17 million (FY22: GBP14 million),
representing an operating margin of 4.1% (FY22: 4.1%). Growth was
driven by our French defence contracts, as described above, with
associated profit offset by continued high bid costs on a large
contract tender that has recently been submitted.
Contract backlog decreased to GBP1,633 million (FY22: GBP2,294
million), mainly due to the impact of the AES disposal (c.GBP975
million). The retained business contract backlog grew by 24%,
driven by new contracts (Australia and Canada HEMS) and
renewal/extension of long-term contracts (UK Hawk and LAFT2 - Light
Aircraft flying Task). At 1 April 2023, Aviation had around
c.GBP240 million of FY24 expected revenue under contract, lower
than the prior year position on a like-for-like basis, due to high
FY23 military aircraft deliveries in France.
Operational review
Defence
Across UK defence, activity has continued at a steady pace. Our
military business secured an 11-year contract extension with BAE
Systems to support the Hawk TMk1 and TMk2 aircraft at Royal Air
Force (RAF) Valley and won a new contract to support the RAF
Aerobatics Team (Red Arrows) with line and depth maintenance at RAF
Waddington. Extensions were also secured on our RAF Hades support
and Light Aircraft Flying Task contracts with performance remaining
strong. Progress continues to be made on the Tutor programme with
80 aircraft available to the customer. Our UK Military Flying
Training System contract saw good progress in the year.
We are continuing to develop our partnership with the Airbus
H175M Task Force - a UK-based industry team created to supply and
support the British-produced H175M helicopter for the UK's new
medium helicopter requirement.
During the year, we were awarded two years of research and
development funding from the RAF's Rapid Capability Office. Project
Monet is designed to explore and progress the application of a
range of sustainable aviation technologies, including the potential
for synthetic fuelled internal combustion engines, hydrogen cell,
and hybrid.
In France, activity continues to ramp up on the Mentor contract,
with the delivery of nine PC21 aircraft and the start of
operational flights. Availability continues to remain good, further
enhancing the training delivery. On the FOMEDEC contract, we
delivered circa 35,000 flight hours and 23,000 simulator hours to
the customer.
During the year the first two Airbus H160 helicopters were
delivered to and accepted by the French Navy as part of our
contract with the French MOD. In partnership with Airbus and
Safran, we'll provide a total of six modified H160 aircraft and
through-life support for 10 years. The aircraft will be used by the
French Navy on demanding search and rescue missions. The customer
pays for the aircraft over 10 years after acceptance. We will
discount the customer receivables for all 6 aircraft in FY24 on a
non-recourse basis once the aircraft are delivered and
accepted.
Through Babcock's joint venture with Leonardo Canada, Babcock
Leonardo Canadian Aircrew Training has submitted a bid to deliver
Canada's Future Aircrew Training (FAcT) opportunity, with an award
decision expected in late 2023.
Aerial emergency services
On 28 February 2023, we completed the sale of certain of our
European (Spanish, Italian, Portuguese and Scandinavian) Aerial
Emergency Services (AES) businesses to Ancala Partners for a gross
consideration of EUR136.2 million (c.GBP120 million), with an
additional c.GBP60 million of completion adjustments. Babcock has
retained its AES businesses in its focus countries of the UK,
France, Canada and Australia, where the Group also operates defence
businesses.
Our operations in the UK secured several successful extensions,
with Hampshire and Isle of Wight Air Ambulance, Great Western Air
Ambulance, and Northwest Air Ambulance.
In Australia, Babcock was awarded a contract with Queensland
Health for the Torres Strait and Northern Cape York Peninsula
Emergency Helicopter Service in December 2022. Operating from Horn
Island, Babcock will provide 24/7 services across the region
including aeromedical retrieval and search and rescue. The aircraft
will also be available to support taskings from other government
departments including Queensland Fire and Emergency Services and
Queensland Police. The 12-year contract continues a 15-year
relationship between Queensland Health and Babcock in the Torres
Strait and will represent a significant uplift in capability to the
region.
In France, we've continued to develop our service offering
extending operations to 24 hours coverage. We also delivered four
EC135 helicopters to our French Customs customer, including initial
maintenance and inspection of the assets delivered as part of the
contract to support the French Customs and Gendarmerie Nationale's
helicopter fleet.
In Canada, Babcock is continuing to deliver air ambulance and
wildfire suppression services in the Province of Manitoba, helping
to protect citizens, communities, and natural resources. In 2022
alone, Babcock dropped over 18 million litres of water on the
wildfires in Manitoba and completed over 268 aerial firefighting
missions.
During the year, we were selected as the in-service support
provider for British Columbia's new fleet of AW169 aircraft. The
10-year contract is worth around GBP200 million and will start in
FY25.
Financial Glossary - Alternative Performance Measures
The Group provides Alternative Performance Measures (APMs),
including underlying operating profit, underlying margin,
underlying earnings per share, underlying operating cash flow,
underlying free cash flow, and net debt to EBITDA to enable users
to have a more consistent view of the performance and earnings
trends of the Group. These measures are considered to provide a
consistent measure of business performance from year to year. They
are used by management to assess operating performance and as a
basis for forecasting and decision-making, as well as the planning
and allocation of capital resources. They are also understood to be
used by investors in analysing business performance.
The Group's APMs are not defined by IFRS and are therefore
considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies and they are
not intended to be a substitute for, or superior to, measures
defined under IFRS. The Group's APMs are consistent with the year
ended 31 March 2022 with the addition of measures excluding the
Type 31 loss. Further information on the Group's specific adjusting
items, which is a critical accounting judgement, can be found in
Note 2.
Measure Closest equivalent Definition and purpose Adjustments to
IFRS measure reconcile to IFRS
measure (and reference
to reconciliation)
---------------- ------------------- ---------------------------------------------- -----------------------
Revenue
measures
---------------- ------------------- ---------------------------------------------- -----------------------
Organic Revenue growth Growth excluding the impact of foreign FX, contribution
revenue year-on-year exchange (FX), and contribution from of acquisitions
growth acquisitions and disposals over the and disposals in
prior and current year the current and
- Used to measure the year-on-year prior period
movement in Group revenue
- It is a good indicator of business
growth
- Group KPI
---------------- ------------------- ---------------------------------------------- -----------------------
Contract Transaction Contracted revenue excluding variable Contract backlog
backlog price under revenue, expected contract renewals, is based on the
IFRS 15 on expected revenue from framework agreements full contract term
customer contracts and impact of termination for convenience whereas the IFRS
allocated clauses measure may be
to unsatisfied - Used to measure revenue under contract based on shorter
/ partially as a good indicator of revenue visibility periods where the
satisfied customer has the
performance ability to exit
obligations contracts early
---------------- ------------------- ---------------------------------------------- -----------------------
Framework No direct Funded and unfunded unexecuted customer
agreements equivalent contracts. Unfunded orders include
the elements of contracts for which
funding has not been authorised by
the customer
---------------- ------------------- ---------------------------------------------- -----------------------
Profit
measures
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Operating Operating profit before the impact Specific adjusting
operating profit of specific adjusting items (1) items (1)
profit - Underlying operating profit is - See table on
the headline measure of the Group's page 10
performance - See Note 2
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying No direct Underlying operating profit as a Ratio - N/A
operating equivalent percentage of revenue
margin - To provide a measure of operating
profitability, excluding one-off
items
- Operating margin is an important
indicator of operating efficiency
across the Group
- Group KPI
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Net finance Net finance costs excluding specific Specific adjusting
net finance costs adjusting items (1) items (1)
costs - To provide an alternative measure - See table on
of finance costs excluding items page 10
such as fair value measurements which
can fluctuate significantly on inputs
outside of management's control
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Profit before Profit before tax adjusted for Specific adjusting
profit tax - The summation of the impact of items (1)
before all specific adjusting items on profit - See table on
tax before tax page 10
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Effective Tax expense excluding the tax impact Specific adjusting
effective tax rate of specific adjusting items (1) , items (1)
tax rate as a percentage of underlying profit - See table on
before tax (being the summation of page 10
the impact of all adjusting items
on profit before tax) excluding the
share of post-tax income from joint
ventures and associates
- To provide an indication of the
ongoing tax rate across the Group,
excluding one-off items
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Basic earnings Based on the Group's underlying profit Specific adjusting
basic earnings per share before tax and underlying effective items (1)
per share tax rate - See table on
page 10
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Operating Operating profit, excluding the Type Specific adjusting
operating profit 31 loss, before the impact of specific items (1)
profit adjusting items (1) - See table on
excluding - Eliminates the Type 31 loss for page 10
the Type a better measure of the Group's underlying - See Note 2
31 loss operating profit performance, given
the one-off nature of the loss
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying No direct Underlying operating profit, excluding Ratio - N/A
operating equivalent the Type 31 loss, divided by revenue
margin - Eliminates the Type 31 loss for
excluding a better measure of the Group's underling
the Type operating margin performance, given
31 loss the one-off nature of the loss
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying Basic earnings Based on the Group's underlying profit Specific adjusting
basic earnings per share before tax, excluding the Type 31 items (1)
per share loss, and underlying effective tax - See table on
excluding rate. page 12
the Type - Eliminates the Type 31 loss for
31 loss a better measure of the Group's basic
earnings per share performance, given
the one-off nature of the loss
---------------- ------------------- ---------------------------------------------- -----------------------
EBITDA Operating Underlying operating profit, plus Specific adjusting
profit depreciation and amortisation, and items(1)
various covenant adjustments linked Depreciation and
to the Revolving Credit Facility amortisation
including the treatment of leases Covenant adjustments
within operating profit and pension - See table on
costs page 16
- Used as the basis to derive the
gearing ratio net debt/EBITDA, which
is a key measure of balance sheet
strength and the basis of our debt
covenant calculations
---------------- ------------------- ---------------------------------------------- -----------------------
Balance
sheet
---------------- ------------------- ---------------------------------------------- -----------------------
Net debt No direct Loans, including the interest rate - See table on
equivalent and foreign exchange derivatives page 15
which hedge the loans, bank overdrafts,
cash and cash equivalents, loans
to joint ventures and associates,
lease receivables and lease obligations
- Used as a general measure of the
progress in generating cash and strengthening
of the Group's balance sheet position
---------------- ------------------- ---------------------------------------------- -----------------------
Net debt No direct Net debt (defined above) excluding - See table on
(excluding equivalent operating lease liabilities as previously page 16
operating defined by IAS 17.
leases) - Used by management to monitor the
strength of the Group's balance sheet
position and to ensure the Group's
capital structure is appropriate
- Used by credit agencies
---------------- ------------------- ---------------------------------------------- -----------------------
Net debt No direct Net debt (excluding operating leases), - See table on
(covenant equivalent excluding loans to joint ventures page 16
basis) and associates and finance lease
receivables
- Used for covenants over Revolving
Credit Facility
- Used by credit agencies
---------------- ------------------- ---------------------------------------------- -----------------------
Net debt/EBITDA No direct Net debt (covenant basis) divided Ratio - N/A
(covenant equivalent by EBITDA - See table on
basis) - A measure of the Group's ability page 16
to meet its payment obligations
- Used by analysts and credit agencies
- Group KPI
---------------- ------------------- ---------------------------------------------- -----------------------
Net debt/EBITDA No direct Net debt (covenant basis) divided
excluding equivalent by EBITDA, excluding the Type 31
Type 31 loss
- Eliminates the Type 31 EBITDA loss
for a better measure of the Group's
balance sheet, given the one-off
nature of the loss
---------------- ------------------- ---------------------------------------------- -----------------------
Return No direct Underlying operating profit plus Ratio - N/A
on invested equivalent share of JV PAT, divided by the sum - See table on
capital of net debt (excluding operating page 16
(pre-tax) leases), shareholders' funds and
(ROIC) retirement benefit deficit (surplus)
- Used as a measure of profit earned
by the Group generated by the debt
and equity capital invested, to indicate
the efficiency at which capital is
allocated
- Group KPI
---------------- ------------------- ---------------------------------------------- -----------------------
Cash flow
measures
---------------- ------------------- ---------------------------------------------- -----------------------
Net capital No direct Property, plant and equipment and
expenditure equivalent intangible assets, less proceeds
on disposal of property, plant and
equipment
- Included in underlying operating
cash flow to calculate underlying
operating cash conversion
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying No direct Underlying operating cash flow after Ratio - N/A
operating equivalent capital expenditure as a percentage
cash conversion of underlying operating profit
- Used as a measure of the Group's
efficiency in converting profits
into cash
---------------- ------------------- ---------------------------------------------- -----------------------
Underlying No direct Underlying free cash flow includes - See page 13
free cash equivalent cash flows from exceptional items
flow and the capital element of lease
payment cash flows (rather than net
new lease commitments, which are
reflected as a debt movement)
- Provides a measure of cash generated
by the Group's operations after servicing
debt and tax obligations, available
for use in line with the Group's
capital allocation policy
---------------- ------------------- ---------------------------------------------- -----------------------
1. Refer to Note 2 in the financial statements
Going concern and viability statement
Overview
The Directors have undertaken reviews of the business financial
forecasts, in order to assess whether the Group has adequate
resources to continue in operational existence for the foreseeable
future and as such can continue to adopt the going concern basis of
accounting.
The Directors have also looked further out to consider the
viability of the business to test whether they have a reasonable
expectation that the Group will continue in operation and meet its
liabilities as they fall due.
For assessing going concern, the Board considered the 12 month
period from the date of signing the Group's financial statements
for the year ended 31 March 2023. For viability, the Board looked
at a five-year view as this is the period over which the Group
prepares its strategic plan forecasts.
The use of a five-year period provides a planning tool against
which long-term decisions can be made concerning strategic
priorities, addressing the Group's stated net zero target and
climate-related risks and opportunities, funding requirements
(including commitments to Group pension schemes), returns made to
shareholders, capital expenditure and resource planning.
The annually prepared budgets and forecasts are compiled using a
bottom-up process, aggregating those from the individual business
units into sector level budgets and forecasts. Those sector
submissions and the consolidated Group budget and forecasts are
then reviewed by the Board and used to monitor business
performance.
The Board considered the budgets alongside the Group's available
finances, strategy, business model, market outlook and principal
risks. The process for identifying and managing the principal risks
of the Group is set out in the Principal risks and management
controls section, in the forthcoming Annual Report. The Board also
considered the mitigation measures being put in place and potential
for further mitigation.
The Board considers that the long-term prospects of the Group
underpin its conclusions on viability. In the forthcoming Annual
Report, we outline our strategy, business model and markets
summaries. Our prospects are supported by:
-- a diverse portfolio of businesses based on well-established market
positions, focussed on naval engineering, support and systems, and
on critical services in our core defence and civil markets. In FY23
62% of Group sales were defence related and 38% civil;
-- a geographically diverse business with a high proportion of sales
to governments and other major prime defence contractors. In FY23,
61% of sales were to defence and civil customers in the UK, and 39%
were international;
-- long-term visibility of sales and future sale prospects through an
order backlog of GBP9.5 billion as at 31 March 2023, including incumbent
positions on major defence programmes; and
-- market positions underpinned by a highly skilled workforce, intellectual
property assets and proprietary know-how, which are safeguarded and
developed for the future by customer and Group-funded investment.
Available financing
As at 31 March 2023, net debt excluding operating leases was
GBP346.2 million and the Group therefore had liquidity headroom of
GBP1.6 billion, including net cash of GBP0.4 billion and undrawn
facilities of GBP1.2 billion. These facilities are considered more
than adequate to meet current and other liabilities as they fall
due, and supports the Group's negative working capital position
largely arising from securing customer advances ahead of contract
work starting. All of the Group's facilities mature during the
viability period, and therefore in assessing liquidity in future
periods we have assumed that it will be possible to re-finance the
Group's facilities at current market rates.
As of July 2023, the Group's committed facilities and bonds
totalling GBP1.9 billion were as follows:
-- GBP300 million three-year RCF maturing 20 May 2024
-- Existing GBP775 million revolving credit facility (RCF), of
which GBP45 million matures on 28 August 2025 and GBP730 million
matures 28 August 2026
-- GBP300 million bond maturing 5 October 2026
-- EUR550 million bond, hedged at GBP493 million, maturing 13 September 2027
-- Two committed overdraft facilities totalling GBP100 million
The RCFs are the only facilities with covenants attached. The
key covenant ratios are (i) net debt to EBITDA (gearing ratio) of
3.5x (ii) and EBITDA to net interest (interest cover) of 4.0x.
These are measured twice per year - on 30 September and 31
March.
The RCF lenders are fully committed to advance funds under the
RCF to the Group, provided that the Group has satisfied the usual
ongoing undertakings, and the creditworthiness of the Group's
relationship banks is closely monitored. Based on their credit
ratings we have no credit concerns with our relationship banks.
Given the importance of the RCFs to the Group's liquidity position,
our assessments of going concern and viability have tested the
Group's gearing ratio, interest cover and liquidity headroom
throughout the period under review up to their current maturity
dates.
Base case scenario
The base case budget shows significant levels of headroom
against both financial covenants and liquidity headroom based on
the current committed facilities outlined above. That base case
largely assumes we maintain our incumbent programme positions if
re-let during the five year period, with margin recovery if they
are currently below the Group average. Many opportunities available
to the Group, where we do not yet have high conviction of securing
the work, have been excluded from the Base Case to seek to maintain
a degree of caution.
It also assumes that the impact of current inflationary
pressures can be managed within contract estimates assumed in our
planning. The base case assumes no further reshaping of the
business portfolio, so it is not dependent upon any future cash
proceeds from divestments. It also maintains pension deficit
contributions in excess of income statement charges of around GBP63
million relating to FY24 and around GBP63 million relating to
FY25.
Reverse stress testing of the base case
To assess the level of headroom within the available facilities,
a reverse stress test was performed to see what level of
performance deterioration against the base case budgets and
forecasts (in both EBITDA and net debt) was required to challenge
covenant levels.
Of the remaining measurement points within the available
facility period, the lowest required reduction in forecast EBITDA
to hit the gearing covenant level was GBP115 million and the lowest
net debt increase was 67%. The lowest required reduction in
forecast EBITDA to hit the interest cover covenant was GBP174
million. Given the mitigating actions that are available and within
management's control, such movements are not considered
plausible.
Severe but plausible downside scenarios
The Directors also considered a series of severe but plausible
downside scenarios which are sensitivities run against the base
case budget and forecasts for the duration of the assessment
period. These sensitivities include - separately - a reduction in
bid pipeline closure (business winning), a deterioration in large
programme performance across the Group (including further inflation
cost increases, or related failures in supplier resilience, as per
our principal risks), a deterioration in the Group's working
capital position and a regulator imposed cessation in flying two of
the largest aircraft fleets in the Group. All of these separate
scenarios showed compliance with the financial covenants throughout
the period.
As with any company or group, it would be possible, however
unlikely, to model individual risks or combinations of risks that
would threaten the financial viability of the Group. The Board has
not sought to model events where it considers the likelihood of
such events not to be plausible. In preparing a combined severe but
plausible (SBP) downside case, the Board considered the feed of
individual risks from the sectors covering the above sensitivities.
Overall there were c.90 profit and cash flow risks identified.
A simple aggregation of all of these risks is not considered
plausible as the Group operates businesses and contracts which run
largely independently of each other, albeit with a relatively small
number of customers within each geography.
The majority of these identified risks were seen as 'sector
independent' (ie there is no direct read across from one sector to
another). A small number are deemed 'non independent' eg inflation,
FX etc. The Board decided to include in its combined SBP downside
all the 'non independent' risks without reduction, but reduced the
aggregation of the 'sector independent' risks by 25% to reflect the
implausibility of all such risks fully crystallising within the
same period.
If such a severe downturn were to occur in the Group's
performance, the Board would take mitigation measures to protect
the Group in the short term. Such profit and cash mitigation
measures that are deemed entirely within the control of the Group
and identified as part of the sector budgeting exercise have been
included in the SBP scenario (eg cancelling pay rises and bonus
awards, curtailing uncommitted capital expenditure and operational
spend including R&D and other investment).
Despite the severity of the above combined SBP scenario, the
Group maintained a sufficient amount of headroom against the
financial covenants within its borrowing facilities, and sufficient
liquidity when compared against existing facilities.
Based on our review, the Directors have a reasonable expectation
that the Group has adequate resources to continue as a going
concern for at least 12 months from the date of these financial
statements.
As such, these financial statements have been prepared on the
going concern basis. The Directors do not believe there are any
material uncertainties to disclose in relation to the Group's
ability to continue as a going concern.
In concluding on the financial viability of the Group, having
considered the scenarios outlined above, the Directors have a
reasonable expectation that the Company and the Group will be able
to continue in operation and meet all its liabilities as they fall
due up to March 2028.
Risks and uncertainties
The principal risks and uncertainties affecting the Group are
listed below and are set out in more detail in the Company's Annual
Report and Financial Statements 2023, which should be read in
conjunction with this announcement when published. This list is not
a substitute for reading the Company's Annual Report and Financial
Statements 2023 in full. The Group's principal risks and
uncertainties are:
Contract and project performance: We execute large contracts,
which often require us to price for the long term and for risk
transfer. Our contracts can include fixed prices. Risk Appetite:
Medium. This reflects the complex nature of the work within the
defence and emergency services sectors. Whilst we aim to ensure our
contracts only accept risk that can be managed, risk remains in the
contract/project delivery.
Existing & new markets: We rely on winning and retaining
large contracts in both existing and new markets both of which are
often characterised by a relatively small number of major customers
many of whom are owned, controlled, or funded by local or national
government. Risk Appetite: Medium. This reflects that, whilst the
maintenance of a secure and assured pipeline is essential for
continued growth, we may choose to embrace the risks that we can
confidently and securely manage.
IT & security: A key factor for our customers is our ability
to deliver secure IT and other information assurance systems to
maintain the confidentiality of sensitive information. Risk
Appetite: Low. IT and Cyber Security are fundamental components to
Babcock's operations, we continually review the emergence of cyber
threats, in an effort to eradicate and mitigate the risk as far as
possible.
Pensions: The Group has significant defined benefit pension
schemes in the UK, which provide for a specified level of pension
benefits to scheme members. Risk Appetite: Low. Babcock utilise
engagement with the Pensions schemes trustees and a balanced
pension management approach that looks to mitigate and reduce the
risks associated with pensions over the journey to settling the
pension obligations.
Supply chain management: The Group is exposed to several risks
within its supply chain, and these can typically be the following.
Macroeconomic condition such as high inflation and Brexit.
Disruption events to established supply chains such as natural
disasters, wars, and strikes. Supplier specific challenges as we
have seen increasing disruption from cyber-attacks on suppliers
i.e., financial failure of suppliers. Part availability for aged
customer assets for maintenance of customer assets that are so old
that it is not possible to source key parts or components, or the
cost of minimum quantities becomes cost or lead-time prohibitive.
Risk Appetite: Low. Babcock recognises the adverse effects of the
financial resilience risk on our balance sheet and investments, our
aim being to eliminate the risk where possible.
Operational resilience: We are undertaking multiple change
programmes with the introduction of a new strategy, a new operating
model to restructure the shape of the Group, and a new People
strategy, as well as undertaking the alignment of both the business
portfolio and our property portfolio. Additionally, there are
several new material opportunities that the Group may pursue - some
in new geographies - that may further stretch management bandwidth.
Risk Appetite: Low. Given the materially adverse nature of the risk
to Operational Resilience, Babcock looks to recognise and eradicate
the emergence of risks to operations where possible, hence risk
appetite being set as low.
Financial resilience: The Group is exposed to a number of
financial risks, some of which are of a macroeconomic nature (for
example, foreign currency, interest rates) and some of which are
more specific to the Group (for example, liquidity and credit
risks). Risk Appetite: Low. Babcock recognises the adverse effects
of the financial resilience risk on our balance sheet and actively
manages this risk via its capital allocation policy, substantial
committed debt facilities and maintaining an investment grade
credit rating allowing access to debt capital markets. However,
this risk cannot be entirely eliminated and will aways require
management.
Health and safety: Our operations entail the potential risk of
significant harm to people and property, wherever we operate across
the world. Risk Appetite: Low. For both moral, financial and
reputational reasons we would wish to keep the risk as low as
possible. Through the eyes of the HSE and high hazard regulators we
are legally mandated to keep the risk as low as reasonably
practicable.
Climate and sustainability: Sustainability is an integral part
of our corporate strategy, and our global business employs short,
medium, and long terms control measures to manage climate risks.
Risk Appetite: Low. Our probability and impact scorings for the
risks related to Climate and Sustainability are based on a
scenario-based methodology. We determined that the most significant
transition risk is labour, which is expected to rise, however our
risk appetite allocation remains low as this situation is likely to
materialise in the medium and long term and gives us time to
implement activities to mitigate.
Technological disruption: We have identified three main
attributes to potential technological disruption that potentially
effects Babcock. The digital change agenda both within our
customers and internal to Babcock, our approach to data management
and finally the disruption of new technology offerings. Risk
Appetite: Low. Given the materially adverse nature of digital and
data risks, Babcock look to recognise and eradicate the emergence
of risks to operations where possible, hence risk appetite being
set at low. Exploiting new technology in an appropriate manner can
open new markets. However, Babcock does survey the market for new
technology to develop into new opportunities. These are assessed
for benefit individually and if deemed of interest, integrated into
our research and development programme and managed with project
management.
Regulatory & compliance: Our businesses are subject to the
laws, regulations and restrictions of the many jurisdictions in
which they operate. Risk Appetite: Low. Babcock always endeavours
to act in line with best practices and regulatory requirements.
Babcock has zero tolerance for regulatory risk around risks such as
anti-bribery and corruption and modern slavery, the risk appetite
allocation is therefore set at low
Talent management, retention and upskilling: We operate in many
specialised engineering and technical domains, which require
appropriate skills and experience. Risk Appetite: Medium. Avoidance
of the risk would increase costs and necessitate over-resourcing
resulting in potential negative workforce engagement and retention.
Some risk is accepted given by sharing capability across our
business and compensating for skills shortages in particular
areas.
Acquisitions and disposals: We have built our core strengths
organically and through acquisition. Decisions to acquire
companies, as well as the process of their acquisition and
integration, are complex, time-consuming, and expensive. If we
believe that a business is not 'core', we may decide to sell that
business. Risk Appetite: Medium. Babcock will continue to review
potential opportunities within the market in a considered and
measured way, M&A activity continues to be inherently high
risk, future M&A activity will be undertaken only where it is
possible to reduce inherent risk to its lowest level balanced
against potential rewards and opportunity.
The risks listed above, together with their potential impacts
and mitigating actions we have taken in respect of them, are
explained and described in more detail in the 2023 Annual Report, a
copy of which will be available at www.babcockinternational.com
Group income statement
================================================== ====== ========= =========
2023 2022
For the year ended 31 March Note GBPm GBPm(1)
================================================== ====== ========= =========
Revenue 2,3 4,438.6 4,101.8
================================================== ====== ========= =========
Operating costs (4,315.7) (4,040.6)
================================================== ====== ========= =========
Goodwill impairment 7 - (7.2)
================================================== ====== ========= =========
(Loss)/profit resulting from acquisitions and
disposals 20 (77.4) 172.8
================================================== ====== ========= =========
Operating profit 45.5 226.8
================================================== ====== ========= =========
Other income - 6.2
================================================== ====== ========= =========
Share of results of joint ventures and associates 2,3,11 9.3 20.1
================================================== ====== ========= =========
Finance income 4 21.9 9.6
================================================== ====== ========= =========
Finance costs 4 (70.5) (80.4)
================================================== ====== ========= =========
Profit before tax 6.2 182.3
================================================== ====== ========= =========
Income tax expense 5 (39.5) (14.4)
================================================== ====== ========= =========
(Loss)/profit for the year (33.3) 167.9
================================================== ====== ========= =========
Attributable to:
================================================== ====== ========= =========
Owners of the parent (35.0) 164.2
================================================== ====== ========= =========
Non-controlling interest 1.7 3.7
================================================== ====== ========= =========
(Loss)/earnings per share
================================================== ====== ========= =========
Basic (6.9)p 32.5p
================================================== ====== ========= =========
Diluted (6.9)p 32.1p
================================================== ====== ========= =========
(1) The Group has re-presented the prior period income statement
to combine Cost of revenue and Administration and distribution
costs into Operating costs. Further information is included in note
1.
Group statement of comprehensive income
2023 2022
For the year ended 31 March Note GBPm GBPm
======================================================= ==== ======= ======
(Loss)/profit for the year (33.3) 167.9
======================================================= ==== ======= ======
Other comprehensive income
======================================================= ==== ======= ======
Items that may be subsequently reclassified to
income statement
======================================================= ==== ======= ======
Currency translation differences (0.5) 0.2
======================================================= ==== ======= ======
Reclassification of cumulative currency translation
reserve on disposal 20 (1.2) (7.3)
======================================================= ==== ======= ======
Fair value adjustment of interest rate and foreign
exchange hedges 9.4 (14.7)
======================================================= ==== ======= ======
Tax, including rate change impact, on fair value
adjustment of interest rate and foreign exchange
hedges (3.1) (1.0)
======================================================= ==== ======= ======
Hedging (losses)/gains reclassified to profit
or loss (10.8) 17.1
======================================================= ==== ======= ======
Reclassification of cumulative hedge reserve on
disposal of joint venture - 20.8
======================================================= ==== ======= ======
Share of other comprehensive income of joint ventures
and associates 11 4.7 30.2
======================================================= ==== ======= ======
Tax, including rate change impact, on share of
other comprehensive income of joint ventures and
associates 11 (1.2) (5.7)
======================================================= ==== ======= ======
Items that will not be reclassified to income
statement
======================================================= ==== ======= ======
Remeasurement of retirement benefit obligations 18 (402.4) 322.5
======================================================= ==== ======= ======
Tax on remeasurement of retirement benefit obligations 100.8 (64.2)
======================================================= ==== ======= ======
Other comprehensive (loss)/ income, net of tax (304.3) 297.9
======================================================= ==== ======= ======
Total comprehensive (loss)/income (337.6) 465.8
======================================================= ==== ======= ======
Total comprehensive (loss)/income attributable
to:
======================================================= ==== ======= ======
Owners of the parent (337.3) 461.2
======================================================= ==== ======= ======
Non-controlling interest (0.3) 4.6
======================================================= ==== ======= ======
Total comprehensive (loss)/ income (337.6) 465.8
======================================================= ==== ======= ======
Group statement of changes in equity
==========================================================================================================================
Total
equity
attributable
to owners Non-
Share Share Other Capital Retained Hedging Translation of the controlling Total
capital premium reserve redemption earnings reserve reserve Company interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
At 1 April
2021 303.4 873.0 768.8 30.6 (1,671.7) (42.7) (48.4) 213.0 16.0 229.0
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Profit for the
year - - - - 164.2 - - 164.2 3.7 167.9
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Other
comprehensive
income - - - - 258.3 46.7 (8.0) 297.0 0.9 297.9
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Total
comprehensive
income - - - - 422.5 46.7 (8.0) 461.2 4.6 465.8
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Dividends - - - - - - - - (1.1) (1.1)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Share-based
payments - - - - 5.5 - - 5.5 - 5.5
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Tax on
share-based
payments - - - - 2.3 - - 2.3 - 2.3
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Net movement
in equity - - - - 430.3 46.7 (8.0) 469.0 3.5 472.5
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
At 31 March
2022 303.4 873.0 768.8 30.6 (1,241.4) 4.0 (56.4) 682.0 19.5 701.5
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
At 1 April
2022 303.4 873.0 768.8 30.6 (1,241.4) 4.0 (56.4) 682.0 19.5 701.5
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Loss for the
year - - - - (35.0) - - (35.0) 1.7 (33.3)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Other
comprehensive
(loss)/income - - - - (301.6) (1.0) 0.3 (302.3) (2.0) (304.3)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Total
comprehensive
income - - - - (336.6) (1.0) 0.3 (337.3) (0.3) (337.6)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Dividends - - - - - - - - (2.2) (2.2)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Share-based
payments - - - - 9.4 - - 9.4 - 9.4
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Tax on
share-based
payments - - - - (0.2) - - (0.2) - (0.2)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
Net movement
in equity - - - - (327.4) (1.0) 0.3 (328.1) (2.5) (330.6)
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
At 31 March
2023 303.4 873.0 768.8 30.6 (1,568.8) 3.0 (56.1) 353.9 17.0 370.9
============== ======= ======= ======= ========== ========= ======= =========== ============ =========== =======
The other reserve relates to the rights issue of new ordinary
shares on 7 May 2014 and the capital redemption reserve relates to
the issue and redemption of redeemable 'B' preference shares in
2001.
Group statement of financial position
================================================== ========= =========
31 March 31 March
2023 2022(1)
Note GBPm GBPm
============================================ ==== ========= =========
Assets
============================================ ==== ========= =========
Non-current assets
============================================ ==== ========= =========
Goodwill 7 781.4 783.4
============================================ ==== ========= =========
Other intangible assets 8 140.8 176.7
============================================ ==== ========= =========
Property, plant and equipment 9 478.5 710.6
============================================ ==== ========= =========
Right of use assets 10 159.1 334.3
============================================ ==== ========= =========
Investment in joint ventures and associates 11 57.4 54.3
============================================ ==== ========= =========
Loan to joint ventures and associates 11 9.5 12.1
============================================ ==== ========= =========
Retirement benefits surpluses 18 94.8 300.9
============================================ ==== ========= =========
Other financial assets 7.3 10.0
============================================ ==== ========= =========
Lease receivables 22.2 24.1
============================================ ==== ========= =========
Derivatives 2.6 -
============================================ ==== ========= =========
Deferred tax asset 112.2 47.4
============================================ ==== ========= =========
Trade and other receivables 13 6.4 9.7
============================================ ==== ========= =========
1,872.2 2,463.5
============================================ ==== ========= =========
Current assets
============================================ ==== ========= =========
Inventories 12 126.8 142.7
============================================ ==== ========= =========
Trade and other receivables 13 506.9 488.8
============================================ ==== ========= =========
Contract assets 13 322.5 299.3
============================================ ==== ========= =========
Income tax recoverable 7.7 25.4
============================================ ==== ========= =========
Lease receivables 16.4 23.3
============================================ ==== ========= =========
Other financial assets 1.4 -
============================================ ==== ========= =========
Derivatives 4.3 11.4
============================================ ==== ========= =========
Cash and cash equivalents 451.7 1,146.3
============================================ ==== ========= =========
1,437.7 2,137.2
============================================ ==== ========= =========
Total assets 3,309.9 4,600.7
============================================ ==== ========= =========
Equity and liabilities
============================================ ==== ========= =========
Equity attributable to owners of the parent
============================================ ==== ========= =========
Share capital 303.4 303.4
============================================ ==== ========= =========
Share premium 873.0 873.0
============================================ ==== ========= =========
Capital redemption and other reserves 746.3 747.0
============================================ ==== ========= =========
Retained earnings (1,568.8) (1,241.4)
============================================ ==== ========= =========
353.9 682.0
============================================ ==== ========= =========
Non-controlling interest 17.0 19.5
============================================ ==== ========= =========
Total equity 370.9 701.5
============================================ ==== ========= =========
Non-current liabilities
============================================ ==== ========= =========
Bank and other borrowings 15 768.4 847.7
============================================ ==== ========= =========
Lease liabilities 10 178.9 329.3
============================================ ==== ========= =========
Trade and other payables 14 0.9 1.0
============================================ ==== ========= =========
Deferred tax liabilities 7.0 9.6
============================================ ==== ========= =========
Derivatives 53.3 59.3
============================================ ==== ========= =========
Retirement benefit deficits 18 156.2 109.3
============================================ ==== ========= =========
Provisions for other liabilities 16 80.8 60.3
============================================ ==== ========= =========
1,245.5 1,416.5
============================================ ==== ========= =========
Current liabilities
============================================ ==== ========= =========
Bank and other borrowings 15 19.6 863.4
============================================ ==== ========= =========
Lease liabilities 10 49.9 104.8
============================================ ==== ========= =========
Trade and other payables 14 911.1 888.1
============================================ ==== ========= =========
Contract liabilities 14 616.4 518.3
============================================ ==== ========= =========
Income tax payable 15.8 17.7
============================================ ==== ========= =========
Derivatives 12.8 34.8
============================================ ==== ========= =========
Provisions for other liabilities 16 67.9 55.6
============================================ ==== ========= =========
1,693.5 2,482.7
============================================ ==== ========= =========
Total liabilities 2,939.0 3,899.2
============================================ ==== ========= =========
Total equity and liabilities 3,309.9 4,600.7
============================================ ==== ========= =========
(1) The 2022 Group Statement of Financial Position has been
revised under IFRS 3 for new information obtained about facts and
circumstances that existed at the acquisition date during the
permitted measurement period - see Note 17 for more detail.
Group cash flow statement
==================================================== ==== ======= =======
2023 2022
For the year ended 31 March Note GBPm GBPm
==================================================== ==== ======= =======
Cash flows from operating activities
==================================================== ==== ======= =======
(Loss)/profit for the year (33.3) 167.9
==================================================== ==== ======= =======
Share of results of joint ventures and associates 11 (9.3) (20.1)
==================================================== ==== ======= =======
Income tax expense 5 39.5 14.4
==================================================== ==== ======= =======
Finance income 4 (21.9) (9.6)
==================================================== ==== ======= =======
Finance costs 4 70.5 80.4
==================================================== ==== ======= =======
Depreciation and impairment of property, plant
and equipment 9 77.0 117.5
==================================================== ==== ======= =======
Depreciation and impairment of right of use
assets 10 91.3 123.1
==================================================== ==== ======= =======
Amortisation and impairment of intangible assets 8 37.1 94.7
==================================================== ==== ======= =======
Goodwill impairment - 7.2
==================================================== ==== ======= =======
Equity share-based payments 9.4 5.5
==================================================== ==== ======= =======
Net derivative fair value and currency movement
through profit or loss (7.5) (0.9)
==================================================== ==== ======= =======
Loss/(profit) on disposal of subsidiaries,
businesses and joint ventures and associates 20 77.4 (172.8)
==================================================== ==== ======= =======
Profit on disposal of property, plant and equipment (2.0) (1.5)
==================================================== ==== ======= =======
Loss/(profit) on disposal of right of use assets 0.8 (3.2)
==================================================== ==== ======= =======
Loss on disposal of intangible assets 1.7 0.7
==================================================== ==== ======= =======
Cash generated from operations before movement
in working capital and retirement benefit payments 330.7 403.3
==================================================== ==== ======= =======
(Increase)/decrease in inventories (25.7) 10.6
==================================================== ==== ======= =======
(Increase) in receivables (71.6) (85.2)
==================================================== ==== ======= =======
(Increase) in contract assets (54.2) (26.5)
==================================================== ==== ======= =======
Increase/(decrease) in payables 131.4 (202.0)
==================================================== ==== ======= =======
Increase in contract liabilities 132.3 124.2
==================================================== ==== ======= =======
Increase/(decrease) in provisions 47.9 (30.9)
==================================================== ==== ======= =======
Retirement benefit contributions in excess
of current period expense (141.9) (151.7)
==================================================== ==== ======= =======
Cash generated from operations 348.9 41.8
==================================================== ==== ======= =======
Income tax (paid)/received (25.4) 10.0
==================================================== ==== ======= =======
Interest paid (77.0) (54.9)
==================================================== ==== ======= =======
Interest received 14.8 9.9
==================================================== ==== ======= =======
Net cash flows from operating activities 261.3 6.8
==================================================== ==== ======= =======
Cash flows from investing activities
==================================================== ==== ======= =======
Disposal of subsidiaries and joint ventures
and associates, net of cash disposed 20 158.6 420.7
==================================================== ==== ======= =======
Acquisition of subsidiaries, net of cash acquired - (15.5)
==================================================== ==== ======= =======
Dividends received from joint ventures and
associates 11 8.7 41.6
==================================================== ==== ======= =======
Proceeds on disposal of property, plant and
equipment 38.5 68.0
==================================================== ==== ======= =======
Proceeds on disposal of intangible assets 0.4 -
==================================================== ==== ======= =======
Purchases of property, plant and equipment (104.2) (190.8)
==================================================== ==== ======= =======
Purchases of intangible assets (20.9) (12.4)
==================================================== ==== ======= =======
Investment in joint ventures 11 - (2.6)
==================================================== ==== ======= =======
Loans repaid by joint ventures and associates 11 2.4 31.0
==================================================== ==== ======= =======
Increase in loans to joint ventures and associates - (1.4)
==================================================== ==== ======= =======
Net cash flows from investing activities 83.5 338.6
==================================================== ==== ======= =======
Cash flows from financing activities
==================================================== ==== ======= =======
Lease payments 19 (108.5) (113.0)
==================================================== ==== ======= =======
Cash inflow from settlement of derivatives 0.8 -
==================================================== ==== ======= =======
Bank loans repaid 19 (972.8) (31.7)
==================================================== ==== ======= =======
Loans raised and facilities drawn down 19 416.6 23.1
==================================================== ==== ======= =======
Dividends paid to non-controlling interest (2.2) (1.1)
==================================================== ==== ======= =======
Net cash flows from financing activities (666.1) (122.7)
==================================================== ==== ======= =======
Net (decrease)/increase in cash, cash equivalents
and bank overdrafts (321.3) 222.7
==================================================== ==== ======= =======
Cash, cash equivalents and bank overdrafts
at beginning of year 19 756.5 530.9
==================================================== ==== ======= =======
Effects of exchange rate fluctuations 19 (5.7) 2.9
==================================================== ==== ======= =======
Cash, cash equivalents and bank overdrafts
at end of year 19 429.5 756.5
==================================================== ==== ======= =======
Notes to the Group financial statements
1. Basis of preparation and significant accounting policies
Basis of preparation
The consolidated financial statements have been prepared on a
going concern basis and in accordance with United Kingdom adopted
International Accounting Standards (IFRS) and the Companies Act
2006 applicable to companies reporting under IFRS. These condensed
consolidated financial statements do not comprise statutory
accounts within the meaning of Section 435 of the Companies Act
2006 and should be read in conjunction with the Annual Report for
the year ended 31 March 2023. The comparative figures for the year
ended 31 March 2023 are not the Group's statutory accounts for that
financial year. Those financial statements have been reported upon
by the Group's auditor and delivered to the registrar of companies.
The report of the auditor was unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and did not contain
statements under Section 498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements are presented in pounds
sterling and, unless stated otherwise, rounded to the nearest
million. They have been prepared under the historical cost
convention, as modified by the revaluation of certain financial
assets and financial liabilities (including derivative
instruments).
New and amended standards adopted by the Group
The Group applied the following standards and amendments for the
first time for the year beginning on 1 April 2022:
The following standards and amendments to IFRSs became effective
for the annual reporting period beginning on 1 April 2022 and did
not have a material impact on the consolidated financial
statements:
-- The Group has adopted the amendments to IAS 37, 'Provisions,
contingent liabilities and contingent assets'. The amendments
specify that the cost of fulfilling a contract comprises the costs
that relate directly to the contract.
-- The Group has adopted the amendments to IAS 16, 'Property,
plant and equipment'. The amendments prohibit deducting from the
cost of an item of property, plant and equipment any proceeds from
selling items produced before that asset is available for use and
clarifies the meaning of 'testing whether an asset is functioning
properly'.
-- The Group has adopted the amendments to IFRS 3, 'Business
Combinations'. The amendment relates to the identification of
liabilities assumed and contingent assets acquired in a business
combination.
-- The Group has adopted the annual improvements to IFRSs 2018 - 2020 cycle.
Critical accounting estimates and judgements
In the course of preparation of the financial statements,
judgements and estimates have been made in applying the Group's
accounting policies that have had a material effect on the amounts
recognised in the financial statements. The application of the
Group's accounting policies requires the use of estimates and the
inherent uncertainty in certain forward-looking estimates may
result in a material adjustment to the carrying amounts of assets
and liabilities in the next financial year. Critical accounting
estimates are subject to continuing evaluation and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable in light of known
circumstances. Critical accounting estimates and judgements in
relation to these financial statements are considered below:
(a) Critical accounting judgements
Critical accounting judgements, apart from those involving
estimations, that are applied in the preparation of the
consolidated financial statements are discussed below. Detail of
the Group's key judgements involving estimates are included in the
Key sources of estimation uncertainty section.
(i) Acting as principal or agent
A number of the Group's contracts include promises in relation
to procurement activity undertaken on behalf of customers at low or
nil margin, sub-contractor arrangements, and other pass-through
costs. Management is required to exercise judgement on these
revenue streams in considering whether the Group is acting as
principal or agent. This is based on an assessment as to whether
the Group controls the relevant goods or services under the
performance obligations prior to transfer to customers. Factors
that influence this judgement include the level of responsibility
the Group has under the contract for the provision of the goods or
services, the extent to which the Group is incentivised to fulfil
orders on time and within budget, either through gain share
arrangements or KPI deductions in relation to the other performance
obligations within the contract, and the extent to which the Group
exercises responsibility in determining the selling price of the
goods and services. Taking all factors into consideration, the
Group then comes to a judgement as to whether it acts as principal
or agent on a performance obligation-by-performance obligation
basis. Note that any changes in this judgement would not have a
material impact on profit, although there may be a material impact
to revenue and operating costs.
(ii) Determining the Group's cash generating units
Management exercises judgement in determining the Group's cash
generating units for the goodwill impairment assessment. This
determination is generally straightforward and factual, however in
some cases judgement is required, for example it was determined
that Africa is a separate cash generating unit, whilst operations
of the Group in other territories do not represent separate cash
generating units. Over time management reviews the cash generating
units to ensure they remain appropriate as businesses are acquired
and divested and reporting structures change, including how
information is reported to the Chief Operating Decision Maker. If
there was a change in this judgement this could result in a
material adjustment to goodwill. Further detail is included in
notes 3 and 7.
(b) Key sources of estimation uncertainty
The key sources of estimation uncertainty at the reporting
period end that may result in significant risk of material
adjustment to the carrying amount of assets and liabilities within
the next financial year are set out below:
(i) Revenue and profit recognition
The following represent the notable assumptions impacting upon
revenue and profit recognition as a result of the Group's contracts
with customers:
-- Stage of completion & costs to complete - The Group's
revenue recognition policies require management to make an estimate
of the cost to complete for long-term contracts. Management
estimates outturn costs on a contract-by-contract basis and
estimates are carried out by suitably qualified and experienced
personnel. Estimates of cost to complete include assessment of
contract contingencies arising out of technical, commercial,
operational and other risks. The assessments of all significant
contract outturns are subject to review and challenge, and
judgements and estimates are reviewed regularly throughout the
contract life based on latest available information with
adjustments made where necessary. As contracts near completion,
often less judgement is required to determine the expected outturn.
The most significant estimate of contract outturn relates to the
Type 31 programme as outlined below.
-- Variable consideration - the Group's contracts are often
subject to variable consideration including performance-based
penalties and incentives, gain/pain share arrangements and other
items. Variable consideration is added to the transaction price
only to the extent that it is highly probable that there will not
be a significant reversal in the amount of cumulative revenue
recognised once the underlying uncertainty is resolved.
-- Inflation - The level to which the Group's revenue and cost
for each contract will be impacted by inflation is a key accounting
estimate, as this could cause the revenue and cost of contract
delivery to be greater than was expected at the time of
contracting. The Group's contracts are exposed to inflation due to
rising employment costs, as well as increased costs of raw
materials. The Group endeavours to include cost recovery mechanisms
or index-linked pricing within its contracts with customers in
order to mitigate any inflation risk arising from increasing
employment and raw material costs. In the most significant contract
where there is no mechanism to recover an increase in costs due to
inflation, revenue and profit in the year would be impacted by
GBP3-4 million for each 1% change in personnel costs.
Type 31 Programme estimates
During the year significant increases in forecast costs on the
Type 31 programme were identified, which were not foreseen at
contract inception. A dispute resolution process has commenced with
the customer over responsibility for these incremental costs. We
have reassessed the contract outturn on the basis that none of
these are recovered, given the uncertainty at the early stage of
the process. This has resulted in the recording of a GBP100m loss
in the year, representing a GBP43m reversal of revenue, GBP2m asset
impairment and the recognition of a GBP55m onerous contract
provision. Determining the contract outturn, and therefore revenue
and onerous contract provision recognised, requires assumptions and
complex judgements to be made about future performance of the
contract. The level of uncertainty in the estimates made in
assessing the outturn is linked to the complexity of the underlying
contract.
The key sources of estimates in assessing the outturn are:
1. The results of the dispute resolution process, and any
reimbursements agreed with the customer;
2. The build costs over the production schedule and estimate of
efficiencies arising from the 'learner' effect through performing
work over multiple ships;
3. The ability to maintain or improve operational performance
through process efficiencies and improvements over the five
ships;
4. The impact of inflation on the build cost; and
5. The achievement of the build schedule to completion and final acceptance.
These estimates are inter-related. The range of possible future
outcomes in respect of assumptions made to determine the contract
outturn could result in a material increase or decrease in revenue
and the value of the onerous contract provision, and hence on the
Group's profitability, in the next financial year. With cGBP1bn of
estimated costs to go over the life of the contract, if actual
recoveries or costs were to differ from those assumed by 5-10%, the
potential impact on the contract outturn could be
GBP50-GBP100m.
To mitigate this, comparisons of actual contract performance and
previous forecasts used to assess the contract outturn are
performed regularly, with consideration given to whether any
revisions to assumptions are required. In the next financial year,
design activities will be finalised and the construction of the
first ship will be substantially complete. This will reduce the
uncertainty over the contract outturn but a significant element
will remain due to the substantial activity which extends over a
further 4 years. In a major ship build programme of this nature, it
is inherently possible that there may be changes in circumstances
which cannot reasonably be foreseen at the present time.
(ii) Defined benefit pension schemes obligations
The Group's defined benefit pension schemes are assessed
annually in accordance with IAS 19 and the valuation of the defined
benefit pension obligations is sensitive to the inflation, discount
rate, actuarial and life expectancy assumptions used. There is a
range of possible values for the assumptions and small changes to
the assumptions may have a significant impact on the valuation of
the defined benefit pension obligations. In addition to the
inflation, discount rate and life expectancy estimates, management
is required to make an accounting judgement relating to the
expected availability of future accounting surpluses under IFRIC
14. Further information on the key assumptions and sensitivities is
included in note 18.
(iii) The carrying value of goodwill
Goodwill is tested annually for impairment, in accordance with
IAS 36, Impairment of Assets ('IAS 36'). The impairment assessment
is based on assumptions in relation to future cash flows expected
to be generated by cash generating units, together with appropriate
discounting of the cash flows. The assessment of the recoverable
amount of goodwill in the Aviation CGU is included as a critical
accounting estimate given the significance of the remaining
carrying value of goodwill and the inherent level of estimation
uncertainty required to undertake impairment testing. The
assessment of the recoverable value of goodwill in other CGUs is
not considered a critical accounting estimate as a result of the
headroom within these CGUs. The key assumptions in estimating the
carrying value of goodwill are discount rate, long-term growth rate
and growth rate in the short-term cash flows.
Inflation rates are incorporated into the impairment assessment
through their inclusion within the growth rates in cash inflows and
outflows and through the methodology by which discount rates are
determined. Were inflation to impact upon all cash flows equally,
an impairment assessment should be neutral to the impact of
inflation. The Group has a number of protections and exposures to
the impact of inflation across its portfolio of revenue
arrangements and supply chain agreements resulting in an indirect
impact of inflation on the impairment outturn.
(c) Accounting policy change - Presentation of operating
profit
In the year ended 31 March 2023 the Group has re-presented the
income statement to combine Cost of revenue and Administration and
distribution costs into Operating costs. The comparative period
operating costs of GBP4,040.6 million were presented as Cost of
revenue of GBP3,756.5 million and Administration and distribution
costs of GBP284.1 million in the prior period annual report and
financial statements. This change to presenting the costs of the
Group by nature is deemed to be more informative for the users of
the annual report and financial statements as it allows greater
comparability of year-on-year trends.
2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting
items
The Group provides alternative performance measures, including
underlying operating profit, to enable users to have a more
consistent view of the performance and earnings trends of the
Group. These measures are considered to provide a consistent
measure of business performance from year to year. They are used by
management to assess operating performance and as a basis for
forecasting and decision-making, as well as the planning and
allocation of capital resources. They are also understood to be
used by investors in analysing business performance.
The Group's alternative performance measures are not defined by
IFRS and are therefore considered to be non-GAAP measures. The
measures may not be comparable to similar measures used by other
companies and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group's alternative
performance measures are consistent with the year ended 31 March
2023.
Underlying operating profit
In any given year the statutory measure of operating profit
includes a number of items which the Group considers to either be
one-off in nature or otherwise not reflective of underlying
performance. Underlying operating profit therefore adjusts
statutory operating profit to provide readers with a measure of
business performance which the Group considers more consistently
analyses the underlying performance of the Group by removing these
one-off items that otherwise add volatility to performance.
Underlying operating profit eliminates potential differences in
performance caused by purchase price allocations on business
combinations in prior periods (amortisation of acquired
intangibles), business acquisition, merger and divestment related
items, large, infrequent restructuring programmes and fair value
movements on derivatives. Transactions such as these may happen
regularly and could significantly impact the statutory result in
any given year. Adjustments to underlying operating profit may
include both income and expenditure items.
Specific adjusting items include:
-- Amortisation of acquired intangibles;
-- Business acquisition, merger and divestment related items (being amounts
related to corporate transactions and gains or losses on disposal of
assets or businesses);
-- Gains, losses and costs directly arising from the Group's withdrawal
from a specific market or geography, including closure costs, severance
costs, the disposal of assets and termination of leases;
-- The costs of large restructuring programmes that significantly exceed
the minor restructuring which occurs in most years as part of normal
operations. Restructuring costs incurred as a result of normal operations
are included in operating costs and are not excluded from underlying
operating profit;
-- Profit or loss from amendment, curtailment, settlement or equalisation
of Group pension schemes;
-- Fair value gain/(loss) on forward rate contracts that are open during
the period; and
-- Exceptional items that are significant, non-recurring and outside of
the normal operating practice. These items are described as exceptional
in order to appropriately represent the Group's underlying business
performance. Exceptional items are set out in the Exceptional items
section below.
Income statement including underlying results
Year ended 31 March Year ended 31 March
2023 2022
============================= ==== ================================= =================================
Specific Specific
adjusting adjusting
Underlying items Statutory Underlying items Statutory
Note GBPm GBPm GBPm GBPm GBPm GBPm
============================= ==== ========== ========== ========= ========== ========== =========
Revenue 3 4,438.6 - 4,438.6 4,101.8 - 4,101.8
============================= ==== ========== ========== ========= ========== ========== =========
Operating profit/(loss) 3 177.9 (132.4) 45.5 237.7 (10.9) 226.8
============================= ==== ========== ========== ========= ========== ========== =========
Other income - - - 6.2 - 6.2
============================= ==== ========== ========== ========= ========== ========== =========
Share of results of joint
ventures and associates 11 9.3 - 9.3 20.1 - 20.1
============================= ==== ========== ========== ========= ========== ========== =========
Net finance costs 4 (58.3) 9.7 (48.6) (61.2) (9.6) (70.8)
============================= ==== ========== ========== ========= ========== ========== =========
Profit/(loss) before
tax 128.9 (122.7) 6.2 202.8 (20.5) 182.3
============================= ==== ========== ========== ========= ========== ========== =========
Income tax (expense)/benefit 5 (37.7) (1.8) (39.5) (43.9) 29.5 (14.4)
============================= ==== ========== ========== ========= ========== ========== =========
Profit/(loss) after tax
for the year 91.2 (124.5) (33.3) 158.9 9.0 167.9
============================= ==== ========== ========== ========= ========== ========== =========
Earnings per share including underlying measures
Year ended 31 March Year ended 31 March
2023 2022
============================== ================================= =================================
Specific Specific
adjusting adjusting
Underlying items Statutory Underlying items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ========== ========= ========== ========== =========
Profit/(loss) after tax
for the year 91.2 (124.5) (33.3) 158.9 9.0 167.9
================================ ========== ========== ========= ========== ========== =========
Amount attributable to
owners of the parent 89.5 (124.5) (35.0) 155.2 9.0 164.2
================================ ========== ========== ========= ========== ========== =========
Amount attributable to
non-controlling interests 1.7 - 1.7 3.7 - 3.7
================================ ========== ========== ========= ========== ========== =========
Weighted average number
of shares (m) 505.4 505.4 505.1 505.1
================================ ========== ========== ========= ========== ========== =========
Effect of dilutive securities
(m) 9.5 9.5 6.1 6.1
================================ ========== ========== ========= ========== ========== =========
Diluted weighted average
number of shares (m) 514.9 514.9 511.2 511.2
================================ ========== ========== ========= ========== ========== =========
Basic EPS 17.7p (6.9)p 30.7p 32.5p
================================ ========== ========== ========= ========== ========== =========
Diluted EPS 17.4p (6.9)p 30.4p 32.1p
Details of specific adjusting items
The impact of specific adjusting items is set out below:
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
===================================================== ========== ==========
Amortisation of acquired intangibles (15.8) (21.4)
====================================================== ========== ==========
Business acquisition, merger and divestment related
items (117.7) 163.1
====================================================== ========== ==========
Fair value movement on derivatives and related items 1.1 -
====================================================== ========== ==========
Exceptional items - (118.8)
====================================================== ========== ==========
Restructuring - (33.8)
====================================================== ========== ==========
Adjusting items impacting operating profit/(loss) (132.4) (10.9)
====================================================== ========== ==========
Fair value movement on derivatives and related items 9.7 (9.6)
====================================================== ========== ==========
Adjusting items impacting loss before tax (122.7) (20.5)
====================================================== ========== ==========
Income tax benefit
===================================================== ========== ==========
Amortisation of acquired intangibles 4.1 5.5
====================================================== ========== ==========
Business acquisition, merger and divestment related
items (2.1) -
====================================================== ========== ==========
Restructuring - 6.5
====================================================== ========== ==========
Fair value movement on derivatives and related items (2.6) 2.5
====================================================== ========== ==========
Exceptional tax items and tax on exceptional items,
including rate change impact (1.2) 15.0
====================================================== ========== ==========
Income tax (expense)/benefit (1.8) 29.5
====================================================== ========== ==========
Explanation of specific adjusting items
Amortisation of acquired intangibles
Underlying operating profit excludes the amortisation of
acquired intangibles. This item is excluded from underlying results
as it arises as a result of purchase price allocations on business
combinations and is a non-cash item which does not change each year
dependent on the performance of the business. It is therefore not
considered to represent the underlying activity of the Group and is
removed to aid comparability with peers who have grown organically
as opposed to through acquisition. Intangible assets arising as a
result of the purchase price allocation on business combinations
include customer lists, technology-based assets, order book and
trade names. Amortisation of internally generated intangible assets
is included within underlying operating profit.
Business acquisition, merger and divestment related items
Transaction related costs and gains or losses on acquisitions,
mergers and divestments of businesses are excluded from underlying
operating profit as business combinations and divestments are not
considered to result from underlying business performance.
The total net loss relating to business acquisition, merger and
divestment related items for the year ended 31 March 2023 was
GBP117.7 million, consisting of a loss on the disposal of the
Aerial Emergency Services business in Europe of GBP116.9 million, a
loss on disposal of the Group's Civil Training business of GBP3.9
million and items relating to the disposal of the Oil & Gas
business in Aviation of GBP3.1 million.
The prior year included a total net gain of GBP163.1 million,
consisting of a GBP172.8 million profit from acquisitions and
disposals completed in the year offset by GBP9.7 million of costs
incurred in relation to the Group's divestment programme for
disposals that had not completed at 31 March 2022.
Restructuring
Major restructuring programmes are not anticipated to recur
year-on-year and therefore are not considered to be indicative of
underlying performance and hence removed from underlying operating
profit.
In the prior period the Group incurred GBP36.8 million of
restructuring costs in relation to the implementation of the new
operating model announced and implemented during the year ended 31
March 2022. This was offset by the release of GBP3.0 million of
restructuring provisions created in previous years that were
classified as exceptional but are no longer needed.
Fair value movement on derivatives and related items
These are open forward currency contracts, taken out in the
ordinary course of business to manage foreign currency exposures,
where the transaction will occur in future periods. Hedge
accounting under IFRS is not applied, however these do represent
economic hedges. On maturity the currency contract will be closed
and recognised in full within underlying operating profit at the
same time as the hedged sale or purchase. The net result, at that
time, will then more appropriately reflect the related sales price
or supplier cost being hedged (which is fixed to ensure ultimately
profitable outcomes).
Hedge ineffectiveness on debt and debt-related derivatives that
are designated in a hedge relationship are also presented as a
specific adjusting item in finance costs. This is presented as a
specific adjusting item as this ineffectiveness is caused by a
historic off-market designation, the transactions are considered by
the Group to represent an economic hedge.
The fair value movement on lease-related derivatives and foreign
exchange movements on lease liabilities are also presented as a
specific adjusting item in finance costs, as hedge accounting under
IFRS is also not applied to these transactions but are also
considered by the Group to represent an economic hedge.
Tax
Tax comprises a charge of GBP1.2 million arising from the impact
of the increase in the rate of corporation tax to 25% with effect
from 1 April 2023.
In the prior year, tax included a GBP12.1 million credit in
relation to exceptional items, and a credit of GBP2.9 million
arising from the impact of the increase in the rate of corporation
tax to 25%.
Exceptional items
Exceptional items are those items which are significant,
non-recurring and outside the normal operating practice of the
Group.
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
=================================================== ========== ==========
Operating costs
=================================================== ========== ==========
Impairment of goodwill - (7.2)
==================================================== ========== ==========
Impairment of acquired intangibles - (57.6)
==================================================== ========== ==========
Impairment of property, plant and equipment and
aircraft fleet rationalisation - (58.8)
==================================================== ========== ==========
Release of onerous contract provisions - 1.8
==================================================== ========== ==========
Release of provisions relating to the Italy fine
and related costs - 3.6
==================================================== ========== ==========
Other - (0.6)
==================================================== ========== ==========
Exceptional items - Group - (118.8)
==================================================== ========== ==========
Exceptional tax items and tax on exceptional items - 15.0
==================================================== ========== ==========
Exceptional items - net of tax - (103.8)
==================================================== ========== ==========
Explanation of exceptional items
Impairment of goodwill
The prior year impairment test resulted in a goodwill impairment
of GBP7.2 million in the Aviation operating segment, due to changes
in the forecast future business performance informed by the Group's
disposal programme.
Impairment of acquired intangibles
In the prior year, an impairment of GBP57.6 million was
recognised in the Aviation operating segment, due to changes in the
forecast future business performance informed by the Group's
disposal programme.
Impairment of property, plant and equipment
In the prior year, an impairment charge of GBP58.8 million was
recognised on property, plant and equipment in the Aviation
operating segment, due to changes in the forecast future business
performance informed by the Group's disposal programme.
Onerous contracts
In the prior year, the Group released an onerous contract
provision that was no longer required and was previously classified
as exceptional, which totalled GBP1.8 million.
Italy fine
In the prior year, the Group received notice that the fine had
been set at EUR18 million, which was subsequently paid by the
Group. This resulted in the release of unused provision of GBP3.6
million.
3. Segmental information
The Group has four reportable segments, determined by reference
to the goods and services they provide and the markets they
serve.
Marine - through-life support of naval ships, equipment and
marine infrastructure in the UK and internationally.
Nuclear - through-life support of submarines and complex
engineering services in support of major decommissioning programmes
and projects, training and operation support, new build programme
management and design and installation in the UK.
Land - large-scale critical vehicle fleet management, equipment
support and training for military and civil customers.
Aviation - critical engineering services to defence and civil
customers worldwide, including pilot training, equipment support,
airbase management and operation of aviation fleets delivering
emergency services.
The Board, the chief operating decision maker as defined by IFRS
8, monitors the results of these reportable segments and makes
decisions about the allocation of resources. The Group's business
in Africa meets the definition of an operating segment, as defined
by IFRS 8. In accordance with IFRS 8, the Africa operating segment
is included in the Land reportable segment.
The table below presents the underlying results for each
reportable segment in accordance with the definition of underlying
operating profit, as set out in note 2, and reconciles the
underlying operating profit/(loss) to the statutory profit/(loss)
before tax.
Marine Nuclear Land Aviation Unallocated Total
Year ended 31 March 2023 GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ======= ======= ======= ======== =========== =======
Revenue 1,439.6 1,179.2 1,017.1 802.7 - 4,438.6
===================================== ======= ======= ======= ======== =========== =======
Underlying operating profit 12.7 63.5 85.9 15.8 - 177.9
===================================== ======= ======= ======= ======== =========== =======
Specific Adjusting Items (note
2)
===================================== ======= ======= ======= ======== =========== =======
Amortisation of acquired intangibles (9.7) - (1.1) (5.0) - (15.8)
===================================== ======= ======= ======= ======== =========== =======
Business acquisition, merger and
divestment related items - - (4.0) (113.7) - (117.7)
===================================== ======= ======= ======= ======== =========== =======
Fair value loss on forward rate
contracts to be settled in future
periods 2.8 0.1 0.1 (1.9) - 1.1
===================================== ======= ======= ======= ======== =========== =======
Operating profit/(loss) 5.8 63.6 80.9 (104.8) - 45.5
===================================== ======= ======= ======= ======== =========== =======
Share of results of joint ventures
and associates (1.2) 1.1 0.4 9.0 - 9.3
===================================== ======= ======= ======= ======== =========== =======
IFRIC 12 investment income - - 0.7 - - 0.7
===================================== ======= ======= ======= ======== =========== =======
Other net finance costs* - - - - (49.3) (49.3)
===================================== ======= ======= ======= ======== =========== =======
Profit/(loss) before tax 4.6 64.7 82.0 (95.8) (49.3) 6.2
===================================== ======= ======= ======= ======== =========== =======
Marine Nuclear Land Aviation Unallocated Total
Year ended 31 March 2022 GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ======= ======= ======= ======== =========== =======
Revenue 1,259.3 1,009.7 1,015.5 817.3 - 4,101.8
===================================== ======= ======= ======= ======== =========== =======
Underlying operating profit 98.0 62.4 58.8 18.5 - 237.7
===================================== ======= ======= ======= ======== =========== =======
Specific Adjusting Items (note
2)
===================================== ======= ======= ======= ======== =========== =======
Amortisation of acquired intangibles (0.6) - (1.3) (19.5) - (21.4)
===================================== ======= ======= ======= ======== =========== =======
Business acquisition, merger and
divestment related items 221.3 - (6.1) (52.1) - 163.1
===================================== ======= ======= ======= ======== =========== =======
Restructuring costs (8.6) (5.5) (16.9) (2.8) - (33.8)
===================================== ======= ======= ======= ======== =========== =======
Exceptional items (0.4) - 1.7 (120.1) (118.8)
===================================== ======= ======= ======= ======== =========== =======
Operating profit/(loss) 309.7 56.9 36.2 (176.0) - 226.8
===================================== ======= ======= ======= ======== =========== =======
Other income - - - 6.2 - 6.2
===================================== ======= ======= ======= ======== =========== =======
Share of results of joint ventures
and associates 3.5 0.4 2.5 13.7 - 20.1
===================================== ======= ======= ======= ======== =========== =======
IFRIC 12 investment income - - 0.8 - - 0.8
===================================== ======= ======= ======= ======== =========== =======
Other net finance costs* - - - - (71.6) (71.6)
===================================== ======= ======= ======= ======== =========== =======
Profit/(loss) before tax 313.2 57.3 39.5 (156.1) (71.6) 182.3
===================================== ======= ======= ======= ======== =========== =======
* Other net finance costs are not allocated to a specific
sector.
Revenues of GBP2.2 billion (2022: GBP2.0 billion) are derived
from a single external customer. These revenues are attributable
across all reportable segments.
4. Net finance costs
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
======================================================= ========== ==========
Finance costs
======================================================= ========== ==========
Loans, overdrafts and associated interest rate hedges 29.6 57.3
======================================================= ========== ==========
Lease interest and foreign exchange movements on lease
liabilities 21.7 17.4
======================================================= ========== ==========
Amortisation of issue costs of bank loan 3.3 2.0
======================================================= ========== ==========
Retirement benefit interest cost - 3.7
======================================================= ========== ==========
Other 15.9 -
======================================================= ========== ==========
Total finance costs 70.5 80.4
======================================================= ========== ==========
Finance income
======================================================= ========== ==========
Bank deposits, loans and leases 13.7 8.8
======================================================= ========== ==========
IFRIC 12 Investment income 0.7 0.8
======================================================= ========== ==========
Retirement benefit interest income 7.5 -
======================================================= ========== ==========
Total finance income 21.9 9.6
======================================================= ========== ==========
Net finance costs 48.6 70.8
======================================================= ========== ==========
Net finance costs decreased to GBP48.6 million (2022: GBP70.8
million). The current year includes a one-off gain of GBP18 million
relating to the valuation of interest rate swaps (within loans,
overdrafts and associated interest rate hedges) and a GBP12 million
cost relating to the factoring of receivables for the Mentor
contract in France (within other finance costs).
5. Taxation
Income tax expense
Total
=============================================== ======================
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
=============================================== ========== ==========
Analysis of tax expense in the year
=============================================== ========== ==========
Current tax
=============================================== ========== ==========
* UK current year expense 0.6 1.9
=================================================== ========== ==========
* UK prior year (benefit) - (10.8)
=================================================== ========== ==========
* Overseas current year expense 24.5 19.3
=================================================== ========== ==========
* Overseas prior year expense 2.9 2.5
=================================================== ========== ==========
28.0 12.9
=============================================== ========== ==========
Deferred tax
=============================================== ========== ==========
* UK current year expense 11.1 17.5
=================================================== ========== ==========
* UK prior year (benefit)/expense (3.3) 11.5
=================================================== ========== ==========
* Overseas current year expense/(benefit) 3.6 (25.3)
=================================================== ========== ==========
* Overseas prior year (benefit)/expense (1.1) 0.7
=================================================== ========== ==========
* Impact of changes in tax rates 1.2 (2.9)
=================================================== ========== ==========
11.5 1.5
=============================================== ========== ==========
Total income tax expense 39.5 14.4
=================================================== ========== ==========
The tax for the year is higher (2022: lower) than the standard
rate of corporation tax in the UK. The differences are explained
below:
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
================================================================ ========== ==========
Profit before tax 6.2 182.3
================================================================ ========== ==========
Profit on ordinary activities multiplied by rate of corporation
tax in the UK of 19% (2022: 19%) 1.2 34.6
================================================================ ========== ==========
Effects of:
================================================================ ========== ==========
Expenses not deductible for tax purposes 8.6 2.4
================================================================ ========== ==========
Non-deductible write-off of goodwill - 1.4
================================================================ ========== ==========
Re-measurement of deferred tax in respect of statutory
rate changes 1.2 (2.9)
================================================================ ========== ==========
Difference in respect of share of results of joint ventures
and associates' results (1.8) (2.1)
================================================================ ========== ==========
Prior year adjustments (1.5) 3.9
================================================================ ========== ==========
Differences in respect of foreign rates 5.8 (0.4)
================================================================ ========== ==========
Unrecognised deferred tax movements 9.0 25.0
================================================================ ========== ==========
Deferred tax not previously recognised/derecognised - (8.1)
================================================================ ========== ==========
Non-taxable profits on disposals and non-deductible losses
on disposals 22.4 (37.8)
================================================================ ========== ==========
Other (5.4) (1.6)
================================================================ ========== ==========
Total income tax expense/(benefit) 39.5 14.4
================================================================ ========== ==========
Further information on exceptional items and tax on exceptional
items is detailed in note 2.
During the prior year the Group concluded discussions with
certain tax authorities regarding prior year tax positions,
resulting in a tax credit of GBP12.6 million.
The Group is subject to taxation in several jurisdictions. The
complexity of applicable rules may result in legitimate differences
of interpretation between the Group and taxing authorities,
especially where an economic judgement or valuation is involved.
The principal elements of the Group's uncertain tax positions
relate to the pricing of intra-group transactions and the
allocation of profits in overseas territories. The outcome of tax
authority disputes in such areas is not predictable, and to reflect
the effect of these uncertain tax positions a provision is recorded
which represents management's assessment of the most likely outcome
of each issue. At 31 March 2023 the Group held uncertain tax
provisions of GBP20.3 million (2022: GBP16.5 million).
During the period the Group made disposals that are expected to
be exempt from UK tax due to qualification for the UK substantial
shareholding exemption, and from overseas tax as a consequence of
local reliefs.
The increase in the UK rate of corporation tax to 25% with
effect from 1 April 2023 was substantively enacted during the year
ended 31 March 2022. The effect has been to increase the Group's
net deferred tax asset by GBP23.1 million (2022: GBP1.4 million),
comprising a charge to Income Statement of GBP1.1 million (2022:
GBP2.9 million credit) and a credit to Other Comprehensive Income
of GBP24.2 million (2022: GBP2.0 million charge). In the year ended
31 March 2022 there was also a credit to Equity of GBP0.5
million.
6. (Loss)/earnings per share
Basic (loss)/earnings per share is calculated by dividing the
loss attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year excluding
those held in the Babcock Employee Share Trust. Where there is a
loss arising the effect of potentially dilutive ordinary shares is
anti-dilutive.
The calculation of the basic and diluted (loss)/earnings per
share is based on the following data:
Number of shares
2023 2022
Number Number
==================================================== =========== ===========
Weighted average number of ordinary shares for the
purpose of basic EPS 505,391,563 505,091,970
==================================================== =========== ===========
Effect of dilutive potential ordinary shares: share
options 9,528,985 6,083,765
==================================================== =========== ===========
Weighted average number of ordinary shares for the
purpose of diluted EPS 514,920,548 511,175,735
==================================================== =========== ===========
Earnings per share
Year ended 31 March Year ended 31 March
2023 2022
========================================= ========================================
Earnings
Loss attributable Basic Diluted attributable Basic Diluted
to shareholders per share per share to shareholders per share per share
GBPm Pence Pence GBPm Pence Pence
============================= ================= ========== ========== ================ ========== ==========
(Loss)/earnings for the year (35.0) (6.9) (6.9) 164.2 32.5 32.1
============================= ================= ========== ========== ================ ========== ==========
7. Goodwill
31 March 31 March
2023 2022 (restated)
GBPm GBPm
=============================================== ======== ================
Cost
----------------------------------------------- -------- ----------------
At 1 April 2,312.7 2,487.3
----------------------------------------------- -------- ----------------
On disposal of subsidiaries (note 20) (488.0) (197.9)
----------------------------------------------- -------- ----------------
Additions (note 20) (revised - note 17) - 22.3
----------------------------------------------- -------- ----------------
Exchange adjustments (1.4) 1.0
----------------------------------------------- -------- ----------------
At 31 March (restated - note 17) 1,823.3 2,312.7
----------------------------------------------- -------- ----------------
Accumulated impairment
----------------------------------------------- -------- ----------------
At 1 April 1,529.3 1,531.0
----------------------------------------------- -------- ----------------
On disposal of subsidiaries (note 20) (487.4) (8.9)
----------------------------------------------- -------- ----------------
Impairment - 7.2
----------------------------------------------- -------- ----------------
Exchange adjustments - -
----------------------------------------------- -------- ----------------
At 31 March 1,041.9 1,529.3
=============================================== ======== ================
Net book value at 31 March (revised - note 17) 781.4 783.4
=============================================== ======== ================
Goodwill is allocated to the operating segments as set out in
the table below:
31 March
2022
31 March
2023 (restated)
GBPm GBPm
========= ======== ===========
Marine 296.6 297.7
========= ======== ===========
Nuclear 233.1 233.1
========= ======== ===========
Land 218.0 218.6
========= ======== ===========
Aviation 32.0 32.0
========= ======== ===========
Africa 1.7 2.0
========= ======== ===========
781.4 783.4
========= ======== ===========
During the year, goodwill was tested for impairment at 31 March
2023 in accordance with IAS 36. This impairment analysis is
performed on an annual basis at operating segment level, as
outlined in the Group's accounting policies. The Group monitors
goodwill at operating segment level.
The goodwill allocated to the Africa operating segment is
immaterial and the Directors do not consider there to be any
reasonably possible changes in estimates that would result in
impairment of this goodwill. No further disclosures are provided in
relation to the Africa operating segment.
During the year the Group disposed of goodwill of GBP0.6 million
through the disposal of part of the Aerial Emergency Services
business in Aviation (GBPnil million) and the Civil Training
business in Land (GBP0.6 million).
Results of goodwill impairment test
The current year impairment test results have not resulted in an
impairment for any of the Group's cash generating units. The
recoverable amount of the Group's goodwill was assessed by
reference to value-in-use calculations. The value-in-use
calculations are derived from risk-adjusted cash flows from the
Group's five-year plan. Terminal value assessments are included
based on year five and an estimated long-term, country-specific
growth rate of 1.9 - 4.6% (2022: 1.8 - 2.5%). The process by which
the Group's budget is prepared, reviewed and approved benefits from
historical experience, visibility of long term work programmes in
relation to work undertaken for the UK Government, available
government spending information (both UK and overseas), the Group's
contract backlog, bid pipeline and the Group's tracking pipeline
which monitors opportunities prior to release of tenders. The
budget process includes consideration of risks and opportunities at
contract and business level, and considered matters such as
inflation.
Sensitivity
The value-in-use for Marine and Nuclear results in these
operating segments having significant headroom. Assuming no change
in the cash flows over the initial five-year period, it would
require a long-term growth of nil combined with a discount rate in
excess of 40% to reduce the headroom in these sectors to GBPnil.
The Directors do not consider these to be plausible assumptions. In
the Aviation and Land sectors the decrease in headroom that would
result from a change in the discount rate and long-term growth rate
are set out in the table below:
31 March 31 March
2023 2022
======== ========
Aviation Aviation
========================== ======== ========
Pre-tax discount rate
========================== ======== ========
Increase of 200bps (2022:
100 bps) 63.1 30.2
=========================== ======== ========
Long-term growth rate
========================== ======== ========
Decrease of 50bps 12.7 12.5
================================= ======== ========
Management have also identified the growth rate in the
short-term cash flows in the Aviation operating segment as a key
assumption. Annual growth in the underlying cash flows has been
determined on a contract-by-contract basis based on our knowledge
of the existing contract base and management judgement regarding
future wins and losses. If the five-year compound growth rate for
the Aviation operating segment decreased by 14% this would cause an
impairment of the goodwill allocated to this sector.
8. Other intangible assets
Internally generated software Internally generated
Acquired development development
intangibles - costs and costs and
relationships licences other Total
GBPm GBPm GBPm GBPm
============================== ============== ============================= ============================== =======
Cost
============================== ============== ============================= ============================== =======
At 1 April 2022 (restated) 1,095.3 222.6 27.6 1,345.5
============================== ============== ============================= ============================== =======
Additions - 18.1 3.4 21.5
============================== ============== ============================= ============================== =======
Reclassification to property,
plant and equipment - 3.0 0.3 3.3
============================== ============== ============================= ============================== =======
Disposal of subsidiary
undertakings (note 20) (237.0) (4.9) (13.9) (255.8)
============================== ============== ============================= ============================== =======
Disposals at cost (2.0) (7.4) (3.0) (12.4)
============================== ============== ============================= ============================== =======
Exchange adjustments 4.7 (0.1) 0.6 5.2
============================== ============== ============================= ============================== =======
At 31 March 2023 861.0 231.3 15.0 1,107.3
============================== ============== ============================= ============================== =======
Accumulated amortisation and
impairment
============================== ============== ============================= ============================== =======
At 1 April 2022 1,005.8 156.8 6.2 1,168.8
============================== ============== ============================= ============================== =======
Amortisation charge 15.8 10.5 1.8 28.1
============================== ============== ============================= ============================== =======
Impairment - 9.0 - 9.0
============================== ============== ============================= ============================== =======
Disposal of subsidiary
undertakings (note 20) (233.0) (3.1) (0.8) (236.9)
============================== ============== ============================= ============================== =======
Disposals (2.0) (6.6) (1.7) (10.3)
============================== ============== ============================= ============================== =======
Exchange adjustments 7.8 (0.1) 0.1 7.8
============================== ============== ============================= ============================== =======
At 31 March 2023 794.4 166.5 5.6 966.5
============================== ============== ============================= ============================== =======
Net book value at 31 March
2023 66.6 64.8 9.4 140.8
============================== ============== ============================= ============================== =======
Cost
============================== ============== ============================= ============================== =======
At 1 April 2021 (previously
stated) 1,031.5 189.3 26.1 1,246.9
============================== ============== ============================= ============================== =======
Restatement - 30.4 - 30.4
============================== ============== ============================= ============================== =======
At 1 April 2021 1,031.5 219.7 26.1 1,277.3
============================== ============== ============================= ============================== =======
On acquisition of subsidiaries
(note 20) (restated - note
17) 63.0 - - 63.0
============================== ============== ============================= ============================== =======
Additions - 7.0 4.4 11.4
============================== ============== ============================= ============================== =======
Reclassification from
property, plant and equipment - 0.1 (1.6) (1.5)
============================== ============== ============================= ============================== =======
Reclassification - 0.9 (0.9) -
============================== ============== ============================= ============================== =======
Disposal of subsidiary
undertakings (note 20) - (3.9) - (3.9)
============================== ============== ============================= ============================== =======
Disposals at cost - (1.4) (0.3) (1.7)
============================== ============== ============================= ============================== =======
Exchange adjustments 0.8 0.2 (0.1) 0.9
============================== ============== ============================= ============================== =======
At 31 March 2022 (restated -
note 17) 1,095.3 222.6 27.6 1,345.5
============================== ============== ============================= ============================== =======
Accumulated amortisation and
impairment
============================== ============== ============================= ============================== =======
At 1 April 2021 (previously
stated) 927.5 115.0 4.5 1,047.0
============================== ============== ============================= ============================== =======
Restatement - 30.4 - 30.4
============================== ============== ============================= ============================== =======
At 1 April 2021 927.5 145.4 4.5 1,077.4
============================== ============== ============================= ============================== =======
Amortisation charge 21.4 13.9 1.8 37.1
============================== ============== ============================= ============================== =======
Impairment (note 2) 57.6 - - 57.6
============================== ============== ============================= ============================== =======
Reclassification - 0.1 (0.1) -
============================== ============== ============================= ============================== =======
Disposal of subsidiary
undertakings (note 20) - (1.8) - (1.8)
============================== ============== ============================= ============================== =======
Disposals - (1.0) - (1.0)
============================== ============== ============================= ============================== =======
Exchange adjustments (0.7) 0.2 - (0.5)
============================== ============== ============================= ============================== =======
At 31 March 2022 1,005.8 156.8 6.2 1,168.8
============================== ============== ============================= ============================== =======
Net book value at 31 March
2022 (restated) 89.5 65.8 21.4 176.7
============================== ============== ============================= ============================== =======
Acquired intangible amortisation charges for the year are
recorded in operating costs.
During the year ended 31 March 2023, an error has been
identified whereby fully amortised intangible assets were
incorrectly presented net. These restatements have no impact on the
total intangible assets balance nor on any other financial
statement area. In addition, the carrying value of acquired
intangibles - relationships as at 31 March 2022 has been revised by
GBP1.0 million as described in Note 17 as a result of new
information coming to light during the assessment period on the
acquisition of a business.
Included in Internally generated software development costs and
licences is GBP38.6 million (2022: GBP40.7 million) relating to the
Group's ERP system, which is amortised over a 10 year period.
Included in the acquired intangible balance is GBP52.3 million
(2022: GBP63.6 million) relating to the acquisition of the NSM
joint venture (refer to note 20 for further details). This will be
fully amortised in 20 years.
In the prior year, the Aviation operating segment recorded an
impairment to acquired intangibles of GBP57.6 million on an
acquired intangible that was initially recognised in relation to
the acquisition of the Avincis business. The Group's disposal
programme impacted on the ability of the Aviation operating segment
to share assets, capability and management across the entire
contract and asset base, resulting in reassessment of the
value-in-use for the operating segment in line with an assessment
under IAS 36. This asset was fully impaired.
9. Property, plant and equipment
Assets
in
Plant course
Freehold Leasehold and Aircraft of
property property equipment fleet construction Total
GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ========= ========= ========== ======== ============= =======
Cost
==================================== ========= ========= ========== ======== ============= =======
At 1 April 2022 151.8 24.7 524.9 303.1 213.9 1,218.4
==================================== ========= ========= ========== ======== ============= =======
On disposal of subsidiaries (note
20) (9.4) (9.0) (32.1) (224.1) (13.9) (288.5)
==================================== ========= ========= ========== ======== ============= =======
Additions 0.4 0.2 33.2 27.8 48.3 109.9
==================================== ========= ========= ========== ======== ============= =======
Transfer to intangible assets - - - - (3.3) (3.3)
==================================== ========= ========= ========== ======== ============= =======
Reclassification 70.0 - 66.0 3.0 (139.0) -
==================================== ========= ========= ========== ======== ============= =======
Transfer from Right-of use-assets - - - 19.5 - 19.5
==================================== ========= ========= ========== ======== ============= =======
Disposals (0.8) - (13.1) (40.2) (18.8) (72.9)
==================================== ========= ========= ========== ======== ============= =======
Capitalised borrowing costs - - - - 0.6 0.6
==================================== ========= ========= ========== ======== ============= =======
Exchange adjustments 0.2 (0.7) (7.9) 8.4 3.0 3.0
==================================== ========= ========= ========== ======== ============= =======
At 31 March 2023 212.2 15.2 571.0 97.5 90.8 986.7
==================================== ========= ========= ========== ======== ============= =======
Accumulated depreciation
==================================== ========= ========= ========== ======== ============= =======
At 1 April 2022 70.7 11.1 373.2 52.3 0.5 507.8
==================================== ========= ========= ========== ======== ============= =======
On disposal of subsidiaries (note
20) (2.9) (0.5) (14.3) (33.9) - (51.6)
==================================== ========= ========= ========== ======== ============= =======
Depreciation charge for the year 7.1 1.5 45.4 18.1 - 72.1
==================================== ========= ========= ========== ======== ============= =======
Impairment - - - (0.8) 5.7 4.9
==================================== ========= ========= ========== ======== ============= =======
Transfer from Right-of use-assets - - - 11.5 - 11.5
==================================== ========= ========= ========== ======== ============= =======
Disposals (0.7) - (11.2) (24.0) (0.5) (36.4)
==================================== ========= ========= ========== ======== ============= =======
Exchange adjustments 0.2 - (2.5) 1.7 0.5 (0.1)
==================================== ========= ========= ========== ======== ============= =======
At 31 March 2023 74.4 12.1 390.6 24.9 6.2 508.2
==================================== ========= ========= ========== ======== ============= =======
Net book value at 31 March 2023 137.8 3.1 180.4 72.6 84.6 478.5
==================================== ========= ========= ========== ======== ============= =======
Cost
==================================== ========= ========= ========== ======== ============= =======
At 1 April 2021 (previously stated) 159.8 15.8 506.5 365.3 187.6 1,235.0
==================================== ========= ========= ========== ======== ============= =======
Restatement * (1.7) 1.6 17.7 (17.5) (32.6) (32.5)
==================================== ========= ========= ========== ======== ============= =======
At 1 April 2021 158.1 17.4 524.2 347.8 155.0 1,202.5
==================================== ========= ========= ========== ======== ============= =======
On acquisition of subsidiaries
(note 20) - - 0.4 - - 0.4
==================================== ========= ========= ========== ======== ============= =======
On disposal of subsidiaries (note
20) (7.6) (0.6) (21.6) (17.4) (0.9) (48.1)
==================================== ========= ========= ========== ======== ============= =======
Additions 1.8 3.8 32.3 28.9 112.6 179.4
==================================== ========= ========= ========== ======== ============= =======
Disposals (2.5) (0.8) (14.2) (56.0) (46.5) (120.0)
==================================== ========= ========= ========== ======== ============= =======
Reclassification 1.5 4.9 (1.5) 0.9 (5.8) -
==================================== ========= ========= ========== ======== ============= =======
Reclassification from intangible
assets 0.4 - 1.1 - - 1.5
==================================== ========= ========= ========== ======== ============= =======
Exchange adjustments 0.1 - 4.2 (1.1) (0.5) 2.7
==================================== ========= ========= ========== ======== ============= =======
At 31 March 2022 151.8 24.7 524.9 303.1 213.9 1,218.4
==================================== ========= ========= ========== ======== ============= =======
Accumulated depreciation
==================================== ========= ========= ========== ======== ============= =======
At 1 April 2021 (previously stated) 69.5 10.9 373.1 45.4 1.7 500.6
==================================== ========= ========= ========== ======== ============= =======
Restatement * (0.8) 0.6 (15.3) (17.5) 0.5 (32.5)
==================================== ========= ========= ========== ======== ============= =======
At 1 April 2021 68.7 11.5 357.8 27.9 2.2 468.1
==================================== ========= ========= ========== ======== ============= =======
On disposal of subsidiaries (note
20) (4.7) (0.2) (13.7) (7.7) - (26.3)
==================================== ========= ========= ========== ======== ============= =======
Depreciation charge for the year 8.1 0.5 38.1 12.0 - 58.7
==================================== ========= ========= ========== ======== ============= =======
Impairment - - - 58.8 - 58.8
==================================== ========= ========= ========== ======== ============= =======
Disposals (1.5) (0.7) (10.8) (38.9) (1.6) (53.5)
==================================== ========= ========= ========== ======== ============= =======
Exchange adjustments 0.1 - 1.8 0.2 (0.1) 2.0
==================================== ========= ========= ========== ======== ============= =======
At 31 March 2022 70.7 11.1 373.2 52.3 0.5 507.8
==================================== ========= ========= ========== ======== ============= =======
Net book value at 31 March 2022 81.1 13.6 151.7 250.8 213.4 710.6
==================================== ========= ========= ========== ======== ============= =======
In the year ended 31 March 2023 management identified that the
prior period property, plant and equipment disclosure included a
historic error which overstated historic cost and accumulated
depreciation by GBP17.5 million (1 April 2021: GBP16.8 million).
Additionally, an error has been identified in the classification of
cost between asset categories in the prior period totalling GBP36.3
million and this has also been restated. These restatements have no
impact on the total property, plant and equipment balance nor on
any other financial statement area.
In the prior year, the Group recognised an impairment charge of
GBP58.8 million in relation to the aircraft fleet in the Aviation
operating segment due to changes in the future business
performance, as informed by the Group's disposal programme. This
change impacted on the ability of the Aviation operating segment to
share assets, capability and management across the entire contract
and asset base. The asset valuations have been calculated based on
estimated discounted cash flows over the remaining useful expected
lives of the assets. The impairment charge of GBP58.8 million is
based on a recoverable amount for the relevant assets of GBP220.0
million.
10. Leases
Group as a lessee
Lease liabilities represent rentals payable by the Group for
certain operational, distribution and office properties and other
assets such as aircraft. The leases have varying terms, purchase
options, escalation clauses and renewal rights.
Right of use assets
Plant
Leasehold and Aircraft
property equipment fleet Total
GBPm GBPm GBPm GBPm
========================================== ========= ========== ======== =======
Cost
========================================== ========= ========== ======== =======
At 1 April 2022 127.3 64.7 383.0 575.0
========================================== ========= ========== ======== =======
Additions 37.1 9.8 67.7 114.6
========================================== ========= ========== ======== =======
Transfer to Property, plant and equipment - - (19.5) (19.5)
========================================== ========= ========== ======== =======
Disposals (10.0) (3.7) (24.5) (38.2)
========================================== ========= ========== ======== =======
Disposal of subsidiaries (note 20) (11.5) (3.5) (269.8) (284.8)
========================================== ========= ========== ======== =======
Exchange adjustments (1.3) 0.4 1.1 0.2
========================================== ========= ========== ======== =======
At 31 March 2023 141.6 67.7 138.0 347.3
========================================== ========= ========== ======== =======
Accumulated depreciation
========================================== ========= ========== ======== =======
At 1 April 2022 42.5 40.9 157.3 240.7
========================================== ========= ========== ======== =======
Depreciation charge for the year 20.5 9.1 52.1 81.7
========================================== ========= ========== ======== =======
Impairment 0.9 - 8.7 9.6
========================================== ========= ========== ======== =======
Disposals (7.0) (3.3) (21.7) (32.0)
========================================== ========= ========== ======== =======
Disposal of subsidiaries (note 20) (6.9) (1.3) (94.6) (102.8)
========================================== ========= ========== ======== =======
Transfer to Property, plant and equipment - - (11.5) (11.5)
========================================== ========= ========== ======== =======
Exchange adjustments (0.5) 0.3 2.7 2.5
========================================== ========= ========== ======== =======
At 31 March 2023 49.5 45.7 93.0 188.2
========================================== ========= ========== ======== =======
Net book value at 31 March 2023 92.1 22.0 45.0 159.1
========================================== ========= ========== ======== =======
Right of use assets (continued)
Plant
Leasehold and Aircraft
property equipment fleet Total
GBPm GBPm GBPm GBPm
==================================== ========= ========== ======== =======
Cost
==================================== ========= ========== ======== =======
At 1 April 2021 152.9 72.1 584.2 809.2
==================================== ========= ========== ======== =======
Additions 24.0 3.4 61.2 88.6
==================================== ========= ========== ======== =======
Acquisition of subsidiary (note 20) 0.5 - - 0.5
==================================== ========= ========== ======== =======
Disposals (31.1) (7.8) (33.0) (71.9)
==================================== ========= ========== ======== =======
Disposal of subsidiaries (note 20) (21.1) (3.0) (228.4) (252.5)
==================================== ========= ========== ======== =======
Exchange adjustments 2.1 - (1.0) 1.1
==================================== ========= ========== ======== =======
At 31 March 2022 127.3 64.7 383.0 575.0
==================================== ========= ========== ======== =======
Accumulated depreciation
==================================== ========= ========== ======== =======
At 1 April 2021 51.1 42.2 197.6 290.9
==================================== ========= ========== ======== =======
Depreciation charge for the year 23.5 9.5 72.1 105.1
==================================== ========= ========== ======== =======
Impairment - - 18.0 18.0
==================================== ========= ========== ======== =======
Disposals (23.7) (6.9) (21.8) (52.4)
==================================== ========= ========== ======== =======
Disposal of subsidiaries (note 20) (9.5) (1.9) (109.5) (120.9)
==================================== ========= ========== ======== =======
Reclassification - (2.0) 2.0 -
==================================== ========= ========== ======== =======
Exchange adjustments 1.1 - (1.1) -
==================================== ========= ========== ======== =======
At 31 March 2022 42.5 40.9 157.3 240.7
==================================== ========= ========== ======== =======
Net book value at 31 March 2022 84.8 23.8 225.7 334.3
==================================== ========= ========== ======== =======
Lease liabilities
The following tables show the discounted Group lease liabilities
and a reconciliation of opening to closing lease liabilities:
Total
GBPm
====================================== =======
At 1 April 2022 434.1
========================================= =======
Additions 117.0
========================================= =======
Disposals (5.3)
========================================= =======
Disposal of subsidiaries (note 20) (218.1)
========================================= =======
Exchange adjustments 9.6
========================================= =======
Lease interest 15.9
========================================= =======
Lease repayments (124.4)
========================================= =======
At 31 March 2023 228.8
========================================= =======
Non-current lease liabilities 178.9
========================================= =======
Current lease liabilities 49.9
========================================= =======
At 31 March 2023 228.8
========================================= =======
At 1 April 2021 612.3
========================================= =======
Additions 93.8
========================================= =======
Acquisition of subsidiaries (note 20) 0.5
========================================= =======
Disposals (22.6)
========================================= =======
Disposal of subsidiaries (note 20) (137.1)
========================================= =======
Exchange adjustments 0.2
========================================= =======
Lease interest 17.4
========================================= =======
Lease repayments (130.4)
========================================= =======
At 31 March 2022 434.1
========================================= =======
Non-current lease liabilities 329.3
========================================= =======
Current lease liabilities 104.8
========================================= =======
At 31 March 2022 434.1
========================================= =======
11. Investment in and loans to joint ventures and associates
Investment in Loans to joint
joint ventures ventures and
and associates associates Total
===================================== ================= ================ =============
2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ======= ======== ======= ======= ===== ======
At 1 April 54.3 73.5 12.1 42.1 66.4 115.6
===================================== ======= ======== ======= ======= ===== ======
Acquisition and disposal of joint
ventures and associates (note 20) (1.0) (24.5) - - (1.0) (24.5)
===================================== ======= ======== ======= ======= ===== ======
Loans repaid by joint ventures
and associates - - (2.4) (31.0) (2.4) (31.0)
===================================== ======= ======== ======= ======= ===== ======
Increase in loans to joint ventures
and associates - - - 1.4 - 1.4
===================================== ======= ======== ======= ======= ===== ======
Investment in joint ventures and
associates - 2.6 - - - 2.6
===================================== ======= ======== ======= ======= ===== ======
Share of profits 9.3 20.1 - - 9.3 20.1
===================================== ======= ======== ======= ======= ===== ======
Interest accrued and capitalised - - 1.0 3.2 1.0 3.2
===================================== ======= ======== ======= ======= ===== ======
Interest received - - (1.2) (3.6) (1.2) (3.6)
===================================== ======= ======== ======= ======= ===== ======
Dividends received (8.7) (41.6) - - (8.7) (41.6)
===================================== ======= ======== ======= ======= ===== ======
Fair value adjustment of derivatives 4.7 30.2 - - 4.7 30.2
===================================== ======= ======== ======= ======= ===== ======
Tax on fair value adjustment of
derivatives (1.2) (5.7) - - (1.2) (5.7)
===================================== ======= ======== ======= ======= ===== ======
Foreign exchange - (0.3) - - - (0.3)
===================================== ======= ======== ======= ======= ===== ======
At 31 March 57.4 54.3 9.5 12.1 66.9 66.4
===================================== ======= ======== ======= ======= ===== ======
The total investments in joint ventures and associates is
attributable to the following reportable segments:
2023 2022
GBPm GBPm
=============== ===== =====
Marine 3.7 4.8
=============== ===== =====
Nuclear 1.4 0.3
=============== ===== =====
Land 0.2 1.5
=============== ===== =====
Aviation 61.6 59.8
=============== ===== =====
Net book value 66.9 66.4
=============== ===== =====
The joint ventures and associates have no significant contingent
liabilities to which the Group is exposed. The Group does not have
any commitments that have been made to the joint ventures or
associates and not recognised at the reporting date.
Joint arrangements are classified as joint ventures as the Group
has the right to net assets of the joint arrangement rather than
separate rights and obligations to the assets and liabilities of
the joint arrangement, respectively.
There has been no impairment to loans to joint ventures and
associates during the year (2022: GBPnil). Total cumulative
expected credit losses in respect of loans to joint ventures and
associates are also GBPnil (2022: GBPnil) as the joint ventures and
associates are considered to have low credit risk and as such
impairment risk is considered minimal.
There are no significant restrictions on the ability of joint
ventures and associates to transfer funds to the owners, other than
those imposed by the Companies Act 2006 or equivalent local
regulations.
12. Inventories
31 March 31 March
2023 2022
GBPm GBPm
==================================== ======== ========
Raw materials and spares 58.6 77.3
==================================== ======== ========
Work-in-progress 7.2 4.1
==================================== ======== ========
Finished goods and goods for resale 61.0 61.3
==================================== ======== ========
Total 126.8 142.7
==================================== ======== ========
Write-downs of inventories amounted to GBP5.4 million (2022:
GBP15.8 million). These were recognised as an expense during the
year ended 31 March 2023 and included in operating costs in the
income statement.
13. Trade and other receivables and contract assets
31 March 31 March
2023 2022
GBPm GBPm
======================================================== ======== ========
Non-current assets
======================================================== ======== ========
Costs to obtain a contract 2.8 8.9
======================================================== ======== ========
Costs to fulfil a contract 1.4 0.8
======================================================== ======== ========
Other debtors 2.2 -
======================================================== ======== ========
Non-current trade and other receivables 6.4 9.7
======================================================== ======== ========
Current assets
======================================================== ======== ========
Trade receivables 307.3 311.5
======================================================== ======== ========
Less: provision for impairment of receivables (7.3) (14.6)
======================================================== ======== ========
Trade receivables - net 300.0 296.9
======================================================== ======== ========
Retentions 6.0 4.4
======================================================== ======== ========
Amounts due from related parties 2.1 2.0
======================================================== ======== ========
Other debtors 129.4 106.2
======================================================== ======== ========
Prepayments 63.7 71.1
======================================================== ======== ========
Costs to obtain a contract 0.6 7.6
======================================================== ======== ========
Costs to fulfil a contract 5.1 0.6
======================================================== ======== ========
Current trade and other receivables 506.9 488.8
======================================================== ======== ========
Contract assets 322.5 299.3
======================================================== ======== ========
Current trade and other receivables and contract assets 829.4 788.1
======================================================== ======== ========
Trade and other receivables are stated at amortised cost.
The Group recognises that there is an inherent element of
estimation uncertainty and judgement involved in assessing contract
profitability, as disclosed in note 1. Management have taken a best
estimate view of contract outcomes based on the information
currently available, after allowing for contingencies, and have
applied a constraint to the variable consideration within revenue
resulting in a revenue estimate that is suitably cautious under
IFRS 15.
14. Trade and other payables and contract liabilities
2023 2022
GBPm GBPm
================================================== ======= =======
Current liabilities
================================================== ======= =======
Contract liabilities 616.4 518.3
================================================== ======= =======
Trade creditors 239.1 164.7
================================================== ======= =======
Amounts due to related parties 0.8 1.5
================================================== ======= =======
Other creditors 41.6 26.9
================================================== ======= =======
Other taxes and social security 75.5 76.6
================================================== ======= =======
Accruals 554.1 618.4
================================================== ======= =======
Trade and other payables 911.1 888.1
================================================== ======= =======
Trade and other payables and contract liabilities 1,527.5 1,406.4
================================================== ======= =======
Non-current liabilities
================================================== ======= =======
Other creditors 0.9 1.0
================================================== ======= =======
Included in creditors is GBP12.9 million (2022: GBP6.7 million)
relating to capital expenditure which has therefore not been
included in working capital movements within the cash flow
statement.
15. Bank and other borrowings
31 March 31 March
2023 2022
GBPm GBPm
=========================================================== ======== ========
Current liabilities
=========================================================== ======== ========
Bank loans and overdrafts due within one year or on demand
=========================================================== ======== ========
Secured 0.3 0.4
=========================================================== ======== ========
Unsecured 19.3 863.0
=========================================================== ======== ========
19.6 863.4
=========================================================== ======== ========
Lease obligations* 49.9 104.8
=========================================================== ======== ========
69.5 968.2
=========================================================== ======== ========
Non-current liabilities
=========================================================== ======== ========
Bank and other borrowings
=========================================================== ======== ========
Secured 21.0 24.0
=========================================================== ======== ========
Unsecured 747.4 823.7
=========================================================== ======== ========
768.4 847.7
=========================================================== ======== ========
Lease obligations* 178.9 329.3
=========================================================== ======== ========
947.3 1,177.0
=========================================================== ======== ========
* Leases are secured against the assets to which they
relate.
Repayment details
The total borrowings of the Group at 31 March are repayable as
follows:
31 March 2023 31 March 2022
============================= ========================= =========================
Loans Loans
and Lease and Lease
overdrafts obligations overdrafts obligations
GBPm GBPm GBPm GBPm
============================= =========== ============ =========== ============
Within one year 19.6 49.9 863.4 104.8
============================== =========== ============ =========== ============
Between one and two years 0.3 40.6 22.6 90.5
============================== =========== ============ =========== ============
Between two and three years 0.6 34.5 0.6 67.9
============================== =========== ============ =========== ============
Between three and four years 300.6 23.4 0.7 46.4
============================== =========== ============ =========== ============
Between four and five years 466.2 19.9 356.4 38.7
============================== =========== ============ =========== ============
Greater than five years 0.7 60.5 467.4 85.8
============================== =========== ============ =========== ============
788.0 228.8 1,711.1 434.1
============================= =========== ============ =========== ============
Borrowing facilities
The Group had the following undrawn committed borrowing
facilities available at 31 March:
31 March 31 March
2023 2022
GBPm GBPm
====================================================== ======== ========
Expiring in less than one year - -
====================================================== ======== ========
Expiring in more than one year but not more than five
years 1,199.6 1,012.2
====================================================== ======== ========
1,199.6 1,012.2
====================================================== ======== ========
16. Provisions for other liabilities
Employee
benefits
and business Italian
Contract/ reorganisation anti-trust
warranty costs fine Property Other Total
(a) (b) (c) (d) (e) provisions
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========= =============== =========== ======== ===== ===========
At 1 April 2021 67.1 35.8 20.0 21.5 1.1 145.5
================================== ========= =============== =========== ======== ===== ===========
On disposal of subsidiaries (note
20) - (1.3) - (1.2) - (2.5)
================================== ========= =============== =========== ======== ===== ===========
On acquisition of subsidiaries
(note 20) (restated - note 17) 1.3 - - - - 1.3
================================== ========= =============== =========== ======== ===== ===========
Net charge/(release) to income
statement (8.6) 40.1 (3.6) 1.8 0.3 30.0
================================== ========= =============== =========== ======== ===== ===========
Utilised in year (8.5) (35.4) (16.1) (0.8) - (60.8)
================================== ========= =============== =========== ======== ===== ===========
Unwinding of discount - 0.2 - - - 0.2
================================== ========= =============== =========== ======== ===== ===========
Foreign exchange (0.2) 0.3 - (0.3) - (0.2)
================================== ========= =============== =========== ======== ===== ===========
At 31 March 2022 51.1 39.7 0.3 21.0 1.4 113.5
================================== ========= =============== =========== ======== ===== ===========
Prior period adjustment (note 17) 2.4 - - - - 2.4
================================== ========= =============== =========== ======== ===== ===========
At 31 March 2022 as restated 53.5 39.7 0.3 21.0 1.4 115.9
================================== ========= =============== =========== ======== ===== ===========
On disposal of subsidiaries (note
20) (8.5) (1.2) - (5.8) (0.1) (15.6)
================================== ========= =============== =========== ======== ===== ===========
Reclassification (1.0) 1.4 - (4.3) 3.9 -
================================== ========= =============== =========== ======== ===== ===========
Net charge/(release) to income
statement 76.0 10.4 - 8.4 (0.6) 94.2
================================== ========= =============== =========== ======== ===== ===========
Utilised in year (20.2) (19.2) (0.3) (4.8) (1.8) (46.3)
================================== ========= =============== =========== ======== ===== ===========
Unwinding of discount - 0.2 - - - 0.2
================================== ========= =============== =========== ======== ===== ===========
Foreign exchange 0.6 (0.8) - 0.6 (0.1) 0.3
================================== ========= =============== =========== ======== ===== ===========
At 31 March 2023 100.4 30.5 - 15.1 2.7 148.7
================================== ========= =============== =========== ======== ===== ===========
a) The contract/warranty provisions relate to onerous contracts and warranty
obligations on completed contracts and disposals. Warranty provisions
are provided in the normal course of business and are recognised when
the underlying products and services are sold. The provision is based
on an assessment of future claims with reference to historical warranty
data and a weighting of possible outcomes against their associated probabilities.
Onerous contracts relate to expected future losses on contracts with
customers - notably T31 as outlined in note 1.
b) Employee benefits and business reorganisation costs relate to business
restructuring activities including announced redundancies in addition
to employee benefits including long-term sickness. The net charge to
the employee benefits and reorganisation provision comprises a charge
in the year of GBP12.8 million and a release of GBP2.4 million.
c) Italian anti-trust fines pertain to historic court rulings in respect
of the Babcock Mission Critical Services Italia SpA subsidiary. The
majority of this provision was paid in the prior year with remaining
amounts paid in FY23.
Property and other provisions primarily relate to dilapidation costs
and contractual obligations in respect of infrastructure.
d) Other provisions include provisions for insurance claims arising within
the Group's captive insurance company, Chepstow Insurance Limited. They
relate to specific claims assessed in accordance with the advice of
independent actuaries.
Provisions have been analysed between current and non-current as
follows:
31 March 31 March
2023 2022
GBPm GBPm
============ ======== ========
Current 67.9 55.6
============ ======== ========
Non-current 80.8 60.3
============ ======== ========
148.7 115.9
============ ======== ========
Included within provisions is GBP6.9 million (2022: GBP7.4
million) expected to be utilised over approximately 10 years. Other
than these provisions the Group's non-current provisions are
expected to be utilised within two to five years.
17. Revisions to historic acquisitions within the IFRS 3
measurement period
Under IFRS 3, when new information obtained about facts and
circumstances that existed at the acquisition date arises within
the measurement period, the Group is required to adjust amounts
recognised through the acquisition accounting. Post-acquisition, we
have determined that assumptions used to calculate a pain/gain
share provision in respect of the Naval Ship Management (Australia)
Pty Limited ('NSM') acquisition did not reflect the facts and
circumstances at the acquisition date. This has resulted in an
increase to provisions of GBP2.4 million at 31 March 2022. The
reduction in net assets acquired has increased the goodwill by
GBP1.0 million, increased acquired intangibles by GBP1.0 million,
increased deferred tax assets by GBP0.4 million at 31 March
2022.
31 March 2022 - Group statement of financial position
(extract)
(iii)
31 March Acquisition
2022 (previously accounting 31 March
published) adjustment 2022 (restated)
=========================== ================= ============ ================
Assets
=========================== ================= ============ ================
Non-current assets
=========================== ================= ============ ================
Goodwill 782.4 1.0 783.4
=========================== ================= ============ ================
Other intangible assets 175.7 1.0 176.7
=========================== ================= ============ ================
Deferred tax asset 47.0 0.4 47.4
=========================== ================= ============ ================
Total non-current assets * 2,461.1 2.4 2,463.5
=========================== ================= ============ ================
Liabilities
=========================== ================= ============ ================
Current liabilities
=========================== ================= ============ ================
Provisions (53.2) (2.4) (55.6)
=========================== ================= ============ ================
Current liabilities * (2,480.3) (2.4) (2,482.7)
=========================== ================= ============ ================
Equity
=========================== ================= ============ ================
Retained earnings (1,241.4) - (1,241.4)
=========================== ================= ============ ================
Total equity * 701.5 - 701.5
=========================== ================= ============ ================
* The table above includes only those financial statement line
items which have been restated. The total non-current assets,
non-current liabilities, and equity do not therefore represent the
sum of the line items presented above.
18. Retirement benefits and liabilities
The Group has a number of defined benefit pension schemes. The
principal defined benefit pension schemes in the UK are the
Devonport Royal Dockyard Pension Scheme, the Babcock International
Group Pension Scheme and the Rosyth Royal Dockyard Pension Scheme
(the Principal schemes). Each of these schemes is predominantly a
final salary plan in which future pension levels are defined
relative to number of years' service and final salary. Retirement
age varies by scheme. The nature of these schemes is that the
employees only contribute whilst they active employees of a scheme,
with the employer paying the balance of the cost required. The
contributions required and the assessment of the assets and the
liabilities that have accrued to members and any deficit recovery
payments required are agreed by the Group with the trustees of each
scheme who are advised by independent, qualified actuaries.
The Group's balance sheet includes the assets and liabilities of
the pension schemes calculated on an IAS 19 basis. At 31 March
2023, the net position was a deficit of GBP61.4 million compared to
a net surplus of GBP191.6 million at 31 March 2022. These
valuations are based on discounting using corporate bond
yields.
The fair value of the assets and the present value of the
liabilities of the Group pension schemes at 31 March were as
follows:
2023 2022
=========================== ============================================== =======================================
Principal Railways Other Principal Railways Other
schemes scheme schemes Total schemes scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Fair value of plan assets
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Growth assets
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Equities (3.1) 10.6 26.6 34.1 31.6 14.3 30.6 76.5
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Property funds 301.7 0.2 5.9 307.8 364.0 0.1 5.1 369.2
=========================== ================= ======== ======== ======= ========= ======== ======== ========
High yield bonds/emerging
market debt - - 0.4 0.4 44.1 - 0.4 44.5
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Absolute return and
multi-strategy
funds 6.0 148.0 17.5 171.5 46.0 182.9 31.8 260.7
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Low-risk assets
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Bonds 1,227.7 95.5 45.1 1,368.3 1,924.1 77.2 77.5 2,078.8
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Matching assets* 1,524.7 1.4 21.7 1,547.8 2,094.0 1.3 101.8 2,197.1
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Longevity swaps and
annuities (231.8) - (10.1) (241.9) (283.5) - (10.2) (293.7)
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Fair value of assets 2,825.2 255.7 107.1 3,188.0 4,220.3 275.8 237.0 4,733.1
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Percentage of assets quoted 79% 100% 70% 80% 84% 100% 46% 82%
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Percentage of assets
unquoted 21% - 30% 20% 16% - 54% 18%
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Present value of defined
benefit obligations
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Active members 450.7 45.7 21.7 518.1 756.0 65.7 35.8 857.5
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Deferred pensioners 686.6 65.3 34.7 786.6 1,066.2 93.5 132.7 1,292.4
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Pensioners 1,773.6 130.5 40.6 1,944.7 2,170.4 167.9 53.3 2,391.6
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Total defined benefit
obligations 2,910.9 241.5 97.0 3,249.4 3,992.6 327.1 221.8 4,541.5
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Net (liabilities)/assets
recognised in the
statement
of financial position (85.7) 14.2 10.1 (61.4) 227.7 (51.3) 15.2 191.6
=========================== ================= ======== ======== ======= ========= ======== ======== ========
Analysis of movement in the Group statement of financial
position
Year ended 31 March 2023 Year ended 31 March 2022
========================== ======================================== =========================================
Principal Railways Other Principal Railways Other
schemes scheme schemes Total schemes scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========= ======== ======== ========= ========= ======== ======== ========
Fair value of plan assets
(including reimbursement
rights)
========================== ========= ======== ======== ========= ========= ======== ======== ========
At 1 April 4,220.3 275.8 237.0 4,733.1 4,123.7 265.6 234.3 4,623.6
========================== ========= ======== ======== ========= ========= ======== ======== ========
Interest on assets 113.4 7.3 5.4 126.1 82.3 5.2 4.7 92.2
========================== ========= ======== ======== ========= ========= ======== ======== ========
Actuarial (loss)/gain on
assets (1,437.0) (17.1) (79.0) (1,533.1) 77.0 13.1 (1.7) 88.4
========================== ========= ======== ======== ========= ========= ======== ======== ========
Employer contributions 167.4 2.5 4.6 174.5 182.5 2.6 5.1 190.2
========================== ========= ======== ======== ========= ========= ======== ======== ========
Employee contributions 0.1 - - 0.1 0.2 - - 0.2
========================== ========= ======== ======== ========= ========= ======== ======== ========
Benefits paid (239.0) (12.8) (4.8) (256.6) (245.4) (10.7) (5.4) (261.5)
========================== ========= ======== ======== ========= ========= ======== ======== ========
Settlements - - (56.1) (56.1) - - - -
========================== ========= ======== ======== ========= ========= ======== ======== ========
At 31 March 2,825.2 255.7 107.1 3,188.0 4,220.3 275.8 237.0 4,733.1
========================== ========= ======== ======== ========= ========= ======== ======== ========
Present value of benefit
obligations
========================== ========= ======== ======== ========= ========= ======== ======== ========
At 1 April 3,992.6 327.1 221.8 4,541.5 4,290.0 369.6 242.9 4,902.5
========================== ========= ======== ======== ========= ========= ======== ======== ========
Service cost 21.7 1.3 2.8 25.8 25.6 2.0 3.5 31.1
========================== ========= ======== ======== ========= ========= ======== ======== ========
Incurred expenses 6.2 0.5 0.1 6.8 6.6 0.5 0.3 7.4
========================== ========= ======== ======== ========= ========= ======== ======== ========
Interest cost 105.0 8.7 4.9 118.6 83.8 7.3 4.8 95.9
========================== ========= ======== ======== ========= ========= ======== ======== ========
Employee contributions 0.1 - - 0.1 0.2 - - 0.2
========================== ========= ======== ======== ========= ========= ======== ======== ========
Experience loss/(gain) 135.6 18.0 9.3 162.9 70.6 (14.2) (2.4) 54.0
========================== ========= ======== ======== ========= ========= ======== ======== ========
Actuarial (gain)/loss -
demographics (38.2) (3.6) (1.7) (43.5) (11.5) (3.5) - (15.0)
========================== ========= ======== ======== ========= ========= ======== ======== ========
Actuarial (gain)/loss -
financial (1,073.1) (97.7) (79.3) (1,250.1) (227.3) (23.9) (21.9) (273.1)
========================== ========= ======== ======== ========= ========= ======== ======== ========
Benefits paid (239.0) (12.8) (4.8) (256.6) (245.4) (10.7) (5.4) (261.5)
========================== ========= ======== ======== ========= ========= ======== ======== ========
Settlements - - (56.1) (56.1) - - - -
========================== ========= ======== ======== ========= ========= ======== ======== ========
At 31 March 2,910.9 241.5 97.0 3,249.4 3,992.6 327.1 221.8 4,541.5
========================== ========= ======== ======== ========= ========= ======== ======== ========
Net (deficit)/surplus at
31 March (85.7) 14.2 10.1 (61.4) 227.7 (51.3) 15.2 191.6
========================== ========= ======== ======== ========= ========= ======== ======== ========
The latest full actuarial valuations of the Group's defined
benefit pension schemes have been updated to 31 March 2023 by
independent qualified actuaries for IAS 19 purposes, on a best
estimate basis, using the following assumptions:
Babcock
Rail
Ltd section
Devonport Babcock Rosyth of
Royal International Royal the Railways
Dockyard Group Dockyard Pension
March 2023 Scheme Scheme Scheme Scheme
================================================ ========= ============== ========= =============
Rate of increase in pensionable salaries 3.0% 3.0% - 0.5%
================================================ ========= ============== ========= =============
Rate of increase in pensions (past service) 2.8% 3.2% 3.3% 2.9%
================================================ ========= ============== ========= =============
Discount rate 4.8% 4.8% 4.8% 4.8%
================================================ ========= ============== ========= =============
Inflation rate (RPI) - year 1 6.9% 6.9% 6.9% 6.9%
================================================ ========= ============== ========= =============
Inflation rate (RPI) - thereafter 3.3% 3.3% 3.3% 3.3%
================================================ ========= ============== ========= =============
Inflation rate (CPI) - year 1 4.7% 4.7% 4.7% 4.7%
================================================ ========= ============== ========= =============
Inflation rate (CPI) - thereafter 2.8% 2.8% 2.8% 2.8%
================================================ ========= ============== ========= =============
Weighted average duration of cash flows (years) 13 12 13 13
================================================ ========= ============== ========= =============
Total life expectancy for current pensioners
aged 65 (years) - male 85.5 86.3 84.4 85.0
================================================ ========= ============== ========= =============
Total life expectancy for current pensioners
aged 65 (years) - female 87.5 88.9 86.8 87.3
================================================ ========= ============== ========= =============
Total life expectancy for future pensioners
currently aged 45 (years) - male 86.2 86.8 85.6 86.0
================================================ ========= ============== ========= =============
Total life expectancy for future pensioners
currently aged 45 (years) - female 88.5 89.4 88.1 88.5
================================================ ========= ============== ========= =============
March 2022
================================================ ========= ============== ========= =============
Rate of increase in pensionable salaries 3.4% 3.4% - 0.5%
================================================ ========= ============== ========= =============
Rate of increase in pensions (past service) 3.2% 3.5% 3.7% 3.2%
================================================ ========= ============== ========= =============
Discount rate 2.7% 2.7% 2.7% 2.7%
================================================ ========= ============== ========= =============
Inflation rate (RPI) 3.7% 3.7% 3.7% 3.6%
================================================ ========= ============== ========= =============
Inflation rate (CPI) 3.2% 3.2% 3.2% 3.2%
================================================ ========= ============== ========= =============
Weighted average duration of cash flows (years) 16 14 16 17
================================================ ========= ============== ========= =============
Total life expectancy for current pensioners
aged 65 (years) 85.9 86.8 85.0 85.3
================================================ ========= ============== ========= =============
Total life expectancy for future pensioners
currently aged 45 (years) 86.6 87.4 85.9 86.4
================================================ ========= ============== ========= =============
The schemes do not invest directly in assets or shares of the
Group.
The longevity swaps have been valued in line with assumptions
that are consistent with the requirements of IFRS 13 using Level 3
inputs. The key inputs to the valuation are the discount rate and
mortality assumptions.
The amounts recognised in the Group income statement are as
follows:
2023 2022
================================ ==================================== ====================================
Principal Railways Other Principal Railways Other
schemes scheme schemes Total schemes scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ========= ======== ======== ===== ========= ======== ======== =====
Current service cost 21.7 1.3 2.8 25.8 25.7 2.0 3.4 31.1
================================ ========= ======== ======== ===== ========= ======== ======== =====
Incurred expenses 6.2 0.5 0.1 6.8 6.6 0.5 0.3 7.4
================================ ========= ======== ======== ===== ========= ======== ======== =====
Total included within operating
profit 27.9 1.8 2.9 32.6 32.3 2.5 3.7 38.5
================================ ========= ======== ======== ===== ========= ======== ======== =====
Net interest (credit)/cost (8.5) 1.4 (0.4) (7.5) 1.5 2.1 0.1 3.7
================================ ========= ======== ======== ===== ========= ======== ======== =====
Total included within income
statement 19.4 3.2 2.5 25.1 33.8 4.6 3.8 42.2
================================ ========= ======== ======== ===== ========= ======== ======== =====
Amounts recorded in the Group statement of comprehensive
income
Year ended 31 March 2023 Year ended 31 March 2022
=============================== ======================================== =====================================
Principal Railways Other Principal Railways Other
schemes scheme schemes Total schemes scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ========= ======== ======== ========= ========= ======== ======== ======
Actual return less interest
on pension scheme assets (1,437.0) (17.1) (79.0) (1,533.1) 77.0 13.1 (1.7) 88.4
=============================== ========= ======== ======== ========= ========= ======== ======== ======
Experience (losses)/gains
arising on scheme liabilities (135.6) (18.0) (9.3) (162.9) (70.6) 14.2 2.4 (54.0)
=============================== ========= ======== ======== ========= ========= ======== ======== ======
Changes in assumptions on
scheme liabilities 1,111.2 101.2 81.2 1,293.6 238.8 27.4 21.9 288.1
=============================== ========= ======== ======== ========= ========= ======== ======== ======
At 31 March (461.4) 66.1 (7.1) (402.4) 245.2 54.7 22.6 322.5
=============================== ========= ======== ======== ========= ========= ======== ======== ======
The movement in net deficits for the year ended 31 March 2023 is
as a result of the movement in assets and liabilities shown
above.
The disclosures below relate to post-retirement benefit schemes
which are accounted for as defined benefit schemes in accordance
with IAS 19. The changes to the Group statement of financial
position at 31 March 2023 and the changes to the Group income
statement for the year to March 2024, if the assumptions were
sensitised by the amounts below, would be:
Defined
benefit Income
obligations statement
2023 2024
GBPm GBPm
=============================================== ============ ==========
Initial assumptions 3,249.4 25.0
=============================================== ============ ==========
Discount rate assumptions increased by 0.5% (192.1) (11.5)
=============================================== ============ ==========
Discount rate assumptions decreased by 0.5% 211.1 10.5
=============================================== ============ ==========
Inflation rate assumptions increased by 0.5% 145.7 7.8
=============================================== ============ ==========
Inflation rate assumptions decreased by 0.5% (137.2) (7.4)
=============================================== ============ ==========
Total life expectancy increased by half a year 60.2 3.0
=============================================== ============ ==========
Total life expectancy decreased by half a year (60.2) (3.0)
=============================================== ============ ==========
Salary increase assumptions increased by 0.5% 13.3 0.9
=============================================== ============ ==========
Salary increase assumptions decreased by 0.5% (12.8) (0.9)
=============================================== ============ ==========
The figures in the table above have been calculated on an
approximate basis, using information about the expected future
benefit payments out of the schemes. The analysis above may not be
representative of actual changes to the position since changes in
assumptions are unlikely to happen in isolation. The change in
inflation rates is assumed to affect the assumed rate of RPI
inflation, CPI inflation and future pension increases by an equal
amount. The fair value of the schemes' assets (including
reimbursement rights) are assumed not to be affected by any
sensitivity changes shown and so the statement of financial
position values would increase or decrease by the same amount as
the change in the defined benefit obligations. There have been no
changes in the methodology for the calculation of the sensitivities
since the prior year.
19. Changes in net debt including loans to joint ventures and
associates and lease receivables
Clarification
Other of net
non-cash debt Changes
31 March Cash Additional movement definition in fair Exchange 31 March
2022 flow leases (1) (2) value movement 2023
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ========= ======= ========== ========= ============= ======== ========= =========
Cash and bank balances 1,146.3 (687.9) - - - - (6.7) 451.7
============================ ========= ======= ========== ========= ============= ======== ========= =========
Bank overdrafts (389.8) 366.6 - - - - 1.0 (22.2)
============================ ========= ======= ========== ========= ============= ======== ========= =========
Cash, cash equivalents
and bank overdrafts 756.5 (321.3) - - - - (5.7) 429.5
============================ ========= ======= ========== ========= ============= ======== ========= =========
Debt (1,321.3) 556.2 - (1.6) - 37.2 (36.3) (765.8)
============================ ========= ======= ========== ========= ============= ======== ========= =========
Derivatives hedging Group
debt (29.3) (0.8) - - - 21.8 - (8.3)
============================ ========= ======= ========== ========= ============= ======== ========= =========
Lease liabilities (434.1) 108.5 (117.0) 223.4 - - (9.6) (228.8)
============================ ========= ======= ========== ========= ============= ======== ========= =========
Changes in liabilities
from financing arrangements (1,784.7) 663.9 (117.0) 221.8 -- 59.0 (45.9) (1,002.9)
============================ ========= ======= ========== ========= ============= ======== ========= =========
Lease receivables 47.4 (31.9) 28.5 - - - (5.4) 38.6
============================ ========= ======= ========== ========= ============= ======== ========= =========
Loans to joint ventures
and associates 12.1 (2.4) - (0.2) - - - 9.5
============================ ========= ======= ========== ========= ============= ======== ========= =========
Derivatives hedging interest
on Group Debt - - - - (36.1) (3.0) - (39.1)
============================ ========= ======= ========== ========= ============= ======== ========= =========
Net debt (968.7) 308.3 (88.5) 221.6 (36.1) 56.0 (57.0) (564.4)
============================ ========= ======= ========== ========= ============= ======== ========= =========
(1) Other non-cash movements predominantly relate to the
disposal of lease liabilities and associated lease receivables as
part of the disposal transactions described in note 20.
(2) During the year the definition of net debt has been
clarified, resulting in the inclusion of the interest rate swap
hedging Group debt, which was excluded in the prior year.
Other Changes
31 March Cash Additional non-cash in fair Exchange 31 March
2021 flow leases movement value movement 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ========= ====== ========== ========= ======== ========= =========
Cash and bank balances 904.8 238.6 - - - 2.9 1,146.3
=============================== ========= ====== ========== ========= ======== ========= =========
Bank overdrafts (373.9) (15.9) - - - - (389.8)
=============================== ========= ====== ========== ========= ======== ========= =========
Cash, cash equivalents and
bank overdrafts 530.9 222.7 - - - 2.9 756.5
=============================== ========= ====== ========== ========= ======== ========= =========
Debt (1,333.6) 8.6 - (2.0) (1.6) 7.3 (1,321.3)
=============================== ========= ====== ========== ========= ======== ========= =========
Derivatives hedging Group debt (19.1) - - - (10.2) - (29.3)
=============================== ========= ====== ========== ========= ======== ========= =========
Lease liabilities (612.3) 113.0 (93.8) 159.2 - (0.2) (434.1)
=============================== ========= ====== ========== ========= ======== ========= =========
Changes in liabilities from
financing arrangements (1,965.0) 121.6 (93.8) 157.2 (11.8) 7.1 (1,784.7)
=============================== ========= ====== ========== ========= ======== ========= =========
Lease receivables 39.6 (36.9) 41.9 - - 2.8 47.4
=============================== ========= ====== ========== ========= ======== ========= =========
Loans to joint ventures and
associates 42.1 (29.6) - (0.4) - - 12.1
=============================== ========= ====== ========== ========= ======== ========= =========
Net debt (1,352.4) 277.8 (51.9) 156.8 (11.8) 12.8 (968.7)
=============================== ========= ====== ========== ========= ======== ========= =========
20. Acquisition and disposal of subsidiaries, businesses and
joint ventures and associates
Acquisitions
There have been no acquisitions in the year ended 31 March
2023.
In the prior year, the Group acquired the remaining 50% of Naval
Ship Management (Australia) Pty Limited on 15 March 2022. The Group
had previously held a 50% interest in this entity since May 2012
which was classified as a joint venture. NSM provides repair,
engineering and maintenance services to the Australian Navy. The
Group paid cash consideration of GBP33.1 million (AUD60 million)
for this acquisition.
The fair value of assets and liabilities recognised as a result
of the acquisition were as follows:
Year ended
31 March
2022
(restated)
===========
Naval Ship
Management
GBPm
=========================================================== ===========
Fair value gain on previously held interest:
=========================================================== ===========
Carrying value of previously held interest 0.7
=========================================================== ===========
Fair value gain on previously held interest 32.4
=========================================================== ===========
Fair value of previously held interest at acquisition date 33.1
=========================================================== ===========
Purchase consideration:
=========================================================== ===========
Cash consideration 33.1
=========================================================== ===========
Fair value of previously held interest 33.1
=========================================================== ===========
Total consideration 66.2
=========================================================== ===========
Assets acquired:
=========================================================== ===========
Property, plant and equipment 0.4
=========================================================== ===========
Right of use assets 0.5
=========================================================== ===========
Deferred tax assets 0.7
=========================================================== ===========
Contract assets 16.3
=========================================================== ===========
Trade and other receivables 11.6
=========================================================== ===========
Cash and cash equivalents 17.6
=========================================================== ===========
Deferred tax liability (18.9)
=========================================================== ===========
Income tax payable (0.4)
=========================================================== ===========
Lease liabilities (0.5)
=========================================================== ===========
Contract liabilities (8.2)
=========================================================== ===========
Trade and other payables (34.5)
=========================================================== ===========
Provisions (3.7)
=========================================================== ===========
Net identifiable assets acquired (19.1)
=========================================================== ===========
Goodwill 22.3
=========================================================== ===========
Intangible assets 63.0
=========================================================== ===========
Net assets acquired 66.2
=========================================================== ===========
Post-acquisition, Naval Ship Management (Australia) Pty Limited
contributed GBP0.7 million to the profit before tax of the Group
for the year ended 31 March 2022. If this entity had been owned for
the full financial year the contribution to profit before tax would
have been GBP10.5 million.
The excess of the fair value of the consideration paid over the
fair value of the assets acquired is represented by intangible
assets of GBP63.0 million, relating to customer relationships, and
goodwill of GBP22.3 million, representing potential for future
synergies arising from combining the acquired businesses with the
Group's existing business. Goodwill is not deductible for tax
purposes. Post-acquisition, we determined that assumptions used to
calculate a pain/gain share provision did not reflect the facts and
circumstances at the acquisition date. This resulted in an increase
to provisions of GBP2.4 million at 31 March 2022. The reduction in
net assets acquired has increased the goodwill by GBP1.0 million,
increased acquired intangibles by GBP1.0 million, increased
deferred tax assets by GBP0.4 million at 31 March 2022. Further
detail is included in note 17.
Disposals
Year ended 31 March 2023
On 19 July 2022, the Group announced it had entered into a sale
and purchase agreement to dispose of part of its aerial emergency
services business in Europe. The disposal group was part of the
Aviation sector and provided Aerial Emergency Services, including
medical, firefighting and search & rescue to customers and
communities, in Italy, Spain, Portugal, Norway, Sweden and Finland.
The disposal completed on 28 February 2023. The Group received
consideration of GBP187.1 million.
On 1 September 2022, the Group entered into a sale and purchase
agreement to dispose of its Civil Training business. The disposal
group was part of the Land sector and the disposal completed on 1
February 2023. The Group received consideration of GBP5.5
million.
Year ended 31 March 2023
================================================
Aerial Emergency
Services Civil Training Other Total
GBPm GBPm GBPm GBPm
================================= ================ ============== ===== =======
Goodwill - 0.6 - 0.6
================================= ================ ============== ===== =======
Investment in joint ventures and
associates 1.0 - - 1.0
================================= ================ ============== ===== =======
Other intangible assets 18.9 - - 18.9
================================= ================ ============== ===== =======
Property, plant and equipment 236.8 0.1 - 236.9
================================= ================ ============== ===== =======
Right of use assets 182.0 - - 182.0
================================= ================ ============== ===== =======
Deferred tax assets 20.6 - - 20.6
================================= ================ ============== ===== =======
Other non-current assets 4.4 - - 4.4
================================= ================ ============== ===== =======
Inventory 35.4 - - 35.4
================================= ================ ============== ===== =======
Trade and other receivables 99.5 9.4 - 108.9
================================= ================ ============== ===== =======
Derivatives 4.2 - - 4.2
================================= ================ ============== ===== =======
Income tax receivable 1.5 - - 1.5
================================= ================ ============== ===== =======
Cash, cash equivalents and bank
overdrafts 10.5 2.6 - 13.1
================================= ================ ============== ===== =======
Other non-current liabilities (0.2) - - (0.2)
================================= ================ ============== ===== =======
Bank and other borrowings (1.6) - - (1.6)
================================= ================ ============== ===== =======
Lease liabilities (218.1) - - (218.1)
================================= ================ ============== ===== =======
Deferred tax liability (6.3) - - (6.3)
================================= ================ ============== ===== =======
Income tax payable (0.6) - - (0.6)
================================= ================ ============== ===== =======
Trade and other payables (128.7) (4.6) - (133.3)
================================= ================ ============== ===== =======
Other current liabilities - - - -
================================= ================ ============== ===== =======
Provisions (15.6) - - (15.6)
================================= ================ ============== ===== =======
Net assets disposed 243.7 8.1 - 251.8
================================= ================ ============== ===== =======
Cumulative currency translation
loss (1.2) - - (1.2)
================================= ================ ============== ===== =======
Total 242.5 8.1 - 250.6
================================= ================ ============== ===== =======
Consideration 187.1 5.5 - 192.6
================================= ================ ============== ===== =======
Disposal costs (18.1) (1.3) - (19.4)
================================= ================ ============== ===== =======
Net consideration after disposal
costs 169.0 4.2 - 173.2
================================= ================ ============== ===== =======
Loss on disposal (73.5) (3.9) - (77.4)
================================= ================ ============== ===== =======
Disposal related items (43.4) - 3.1 (40.3)
================================= ================ ============== ===== =======
Business acquisition, merger and
divestment related items (116.9) (3.9) 3.1 (117.7)
================================= ================ ============== ===== =======
Sale proceeds 187.1 5.5 - 192.6
================================= ================ ============== ===== =======
Sale proceeds less cash disposed
of 176.6 2.9 - 179.5
================================= ================ ============== ===== =======
Less non-cash proceeds - (1.5) - (1.5)
================================= ================ ============== ===== =======
Less transaction costs (18.1) (1.3) - (19.4)
================================= ================ ============== ===== =======
Net cash inflow 158.5 0.1 - 158.6
================================= ================ ============== ===== =======
Disposal related items in relation to the Aerial Emergency
Services disposal include asset impairments for assets not disposed
but relating to the Aerial Emergency Services businesses whose
carrying value exceeded recoverable amount following the disposal
transaction along with provisions for certain warranty related
items.
Disposals
Year ended 31 March 2022
On 11 March 2021, the Group announced that it had entered into a
sale and purchase agreement to dispose of the Oil and Gas business,
which provides offshore Oil and Gas crew transportation services in
the UK, Denmark and Australia. The disposal was made as part of the
Group's targeted disposals programme. The disposal completed on 1
September 2021, on which date control of the Oil and Gas business
passed to CHC Group LLC. The Group received consideration of GBP10
million.
On 13 August 2021, the Group announced that it had entered into
a sale and purchase agreement to dispose of Frazer-Nash
Consultancy, which provides engineering and technology solutions
across a broad range of critical national infrastructure. The
disposal was made as part of the Group's targeted disposals
programme. The disposal completed on 20 October 2021, on which date
control of Frazer-Nash Consultancy passed to KBR Inc. The Group
received consideration of GBP291.7 million.
On 24 December 2021, the Group announced the disposal of the
Power business to M Group Services, which provides engineering
services in the UK overhead line electric transmission and
distribution industry. The disposal was made as part of the Group's
targeted disposals programme. The disposal completed on 24 December
2021, on which date control passed to M Group Services. The Group
received consideration of GBP50 million.
On 13 September 2021, the Group announced a definitive agreement
with Equitix Investment Management Limited for the sale of its
15.4% shareholding in AirTanker Holdings Limited, a joint venture
with Airbus, Thales and Rolls-Royce which owns 14 A330 Voyager
aircraft to support air-to-air refuelling, air transport and
ancillary services for the MOD. The Group has retained its 23.5%
shareholding in AirTanker Services Limited, which operates these
aircraft. The disposal was made as part of the Group's targeted
disposals programme. The disposal completed on 9 March 2022, on
which date control passed to Equitix. The Group received
consideration of GBP95.6 million, and shareholder loans of GBP31.5
million were repaid.
Year ended 31 March 2022
============= =======================================
Oil and Frazer-Nash
Gas business Consultancy Power AirTanker Total
GBPm GBPm GBPm GBPm GBPm
================================= ============= ============ ===== ========= =======
Goodwill 0.4 64.5 44.1 80.0 189.0
================================== ============= ============ ===== ========= =======
Investment in joint ventures and
associates - - - 23.8 23.8
================================== ============= ============ ===== ========= =======
Other intangible assets - 2.1 - - 2.1
================================== ============= ============ ===== ========= =======
Property, plant and equipment 15.1 2.2 4.5 - 21.8
================================== ============= ============ ===== ========= =======
Right of use assets 125.8 3.9 1.9 - 131.6
================================== ============= ============ ===== ========= =======
Deferred tax assets 18.8 0.5 0.3 - 19.6
================================== ============= ============ ===== ========= =======
Other non-current assets - - - - -
================================= ============= ============ ===== ========= =======
Inventory 3.6 - 0.1 - 3.7
================================== ============= ============ ===== ========= =======
Trade and other receivables 46.5 31.0 9.3 - 86.8
================================== ============= ============ ===== ========= =======
Derivatives - - - - -
================================= ============= ============ ===== ========= =======
Income tax receivable 1.5 2.9 - - 4.4
================================== ============= ============ ===== ========= =======
Cash, cash equivalents and bank
overdrafts - 4.9 4.2 - 9.1
================================== ============= ============ ===== ========= =======
Other non-current liabilities - - - - -
================================= ============= ============ ===== ========= =======
Bank and other borrowings - - - - -
================================= ============= ============ ===== ========= =======
Lease liabilities (129.7) (5.4) (2.0) - (137.1)
================================== ============= ============ ===== ========= =======
Deferred tax liability (12.0) - - - (12.0)
================================== ============= ============ ===== ========= =======
Income tax payable (1.0) - - - (1.0)
================================== ============= ============ ===== ========= =======
Trade and other payables (39.6) (13.9) (9.9) - (63.4)
================================== ============= ============ ===== ========= =======
Other current liabilities - - - - -
================================= ============= ============ ===== ========= =======
Provisions (1.3) - (1.2) - (2.5)
================================== ============= ============ ===== ========= =======
Net assets disposed 28.1 92.7 51.3 103.8 275.9
================================== ============= ============ ===== ========= =======
Disposal costs 2.0 10.1 2.7 2.7 17.5
================================== ============= ============ ===== ========= =======
Cumulative currency translation
loss (7.3) - - - (7.3)
================================== ============= ============ ===== ========= =======
Recycle of hedge reserve - - - 20.8 20.8
================================== ============= ============ ===== ========= =======
(Loss)/profit on disposal (12.8) 188.9 (4.0) (31.7) 140.4
================================== ============= ============ ===== ========= =======
Sale proceeds 10.0 291.7 50.0 95.6 447.3
================================== ============= ============ ===== ========= =======
Sale proceeds less cash disposed
of 10.0 286.8 45.8 95.6 438.2
================================== ============= ============ ===== ========= =======
Less non-cash proceeds
================================= ============= ============ ===== ========= =======
Less transaction costs (2.0) (10.1) (2.7) (2.7) (17.5)
================================== ============= ============ ===== ========= =======
Net cash inflow 8.0 276.7 43.1 92.9 420.7
================================== ============= ============ ===== ========= =======
21. Contingent liabilities
A contingent liability is a possible obligation arising from
past events whose existence will be confirmed only on the
occurrence or non-occurrence of uncertain future events outside the
Group's control, or a present obligation that is not recognised
because it is not probable that an outflow of economic benefits
will occur or the value of such outflow cannot be measured
reliably. The Group does not recognise contingent liabilities.
There are a number of contingent liabilities that arise in the
normal course of business, including:
a) The nature of the Group's long-term contracts means that there are
reasonably frequent contractual issues, variations and renegotiations
that arise in the ordinary course of business, including liabilities
that arise on completion of contracts and on conclusion of relationships
with joint ventures and associates. The Group takes account of the
advice of experts, both internal and external, in making judgements
on contractual issues and whether the outcome of negotiations will
result in an obligation to the Group. The Directors do not believe
that the outcome of these matters will result in any material adverse
change in the Group's financial position.
b) As a large contracting organisation, the Group has a significant number
of contracts with customers to deliver services and products, as well
as with its supply chain, where the Group cannot deliver all those
services and products itself. The Group is involved in disputes and
litigation, which have arisen in the course of its normal trading in
connection with these contracts. Whilst the Directors do not believe
that the outcome of these matters will result in any material adverse
change in the Group's financial position, it is possible that, if any
of these disputes come to court, the court may take a different view
to the Group.
c) The Group is subject to corporate and other tax rules in the jurisdictions
in which it operates. Changes in tax rates, tax reliefs and tax laws,
or interpretation of the law, by the relevant tax authorities may result
in financial and reputational damage to the Group. This may affect
the Group's financial condition and performance.
d) The Group has given certain indemnities and warranties in the course
of disposing of businesses and companies and in completing contracts.
The Group believes that any liability in respect of these is unlikely
to have a material effect on the Group's financial position.
e) Corporate rules in those jurisdictions may also extend to compensatory
trade agreements, or economic offset rules, where we may have to commit
to use local content in delivering programmes of work. Delivery of
offset is also subject to interpretations of law and agreement with
local authorities, which we monitor closely but may give rise to financial
and reputational damage to the Group if not undertaken appropriately.
22. Capital and other financial commitments
Capital commitments
31 March 31 March
2023 2022
GBPm GBPm
============================================================= ======== ========
Contracts placed for future capital expenditure not provided
for in the financial statements 7.8 21.3
============================================================= ======== ========
23. Events after the reporting period
There were no events after the reporting period which would
materially impact the balances reported in the preliminary
financial statement.
Annual General Meeting 2023
This year's Annual General Meeting will be held on 28 September
2023. Details of the resolutions to be proposed at that meeting
will be included in the Notice of Annual General Meeting that will
be published mid-August 2023.
At our Annual General Meeting in 2007 our shareholders
unanimously agreed to proposals to allow us to use electronic
communications with them as allowed for under the Companies Act
2006. For shareholders who agreed, or who are treated as having
agreed, to receive electronic communications, the Company website
is now the main way for them to access shareholder information.
These shareholders will be sent a 'notice of availability'
notifying them when the Annual Report and Accounts and Notice of
Annual General Meeting are available on the Company website
www.babcockinternational.com. Hard copies of the Annual Report and
Accounts and Notice of Annual General Meeting will be distributed
to those shareholders who have requested or subsequently request
them. Additional copies will be available from the Company's
registered office 33 Wigmore Street, London, W1U 1QX.
Forward-looking statements
Certain statements in this announcement are forward-looking
statements. Such statements may relate to Babcock's business,
strategy and plans. Statements that are not historical facts,
including statements about Babcock's or its management's beliefs
and expectations, are forward-looking statements. Words such as
'believe', 'anticipate', 'estimates', 'expects', 'intends', 'aims',
'potential', 'will', 'would', 'could', 'considered', 'likely', and
variations of these words and similar future or conditional
expressions are intended to identify forward-looking statements but
are not the exclusive means of doing so. By their nature,
forward-looking statements involve a number of risks, uncertainties
or assumptions, some known and some unknown, many of which are
beyond Babcock's control that could cause actual results or events
to differ materially from those expressed or implied by the
forward-looking statements. These risks, uncertainties or
assumptions could adversely affect the outcome and financial
effects of the plans and events described herein. Forward-looking
statements contained in this announcement regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. Nor are they indicative
of future performance and Babcock's actual results of operations
and financial condition and the development of the industry and
markets in which Babcock operates may differ materially from those
made in or suggested by the forward-looking statements. You should
not place undue reliance on forward-looking statements because such
statements relate to events and depend on circumstances that may or
may not occur in the future. Except as required by law, Babcock is
under no obligation to update (and will not) or keep current the
forward-looking statements contained herein or to correct any
inaccuracies which may become apparent in such forward-looking
statements.
Forward-looking statements reflect Babcock's judgement at the
time of preparation of this announcement and are not intended to
give any assurance as to future results.
The Group financial statements were approved by the Board of
Directors on 20 July 2023 and are signed on its behalf by:
D Lockwood D Mellors
Director Director
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END
FR EAKXEAFFDEEA
(END) Dow Jones Newswires
July 20, 2023 02:16 ET (06:16 GMT)
Babcock (LSE:BAB)
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Babcock (LSE:BAB)
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