TIDMBAB
RNS Number : 3093T
Babcock International Group PLC
14 November 2023
Babcock International Group PLC
Half year results for the six months ended 30 September 2023
14 November 2023
Strong start to the year, full year expectations unchanged
Statutory results
30 September 30 September
2023 2022
------------------------------------ ------------ -------------
Revenue GBP2,177.0m GBP2,144.0m
==================================== ============ =============
Operating profit GBP144.2m GBP72.8m
==================================== ============ =============
Basic earnings per share 20.4p 6.8p
==================================== ============ =============
Cash generated from operations GBP163.2m GBP75.2m
------------------------------------ ------------ -------------
Underlying results (ii)
30 September 30 September
2023 2022
------------------------------------ ------------ -------------
Contract backlog (i) GBP9.6bn GBP9.9bn
------------------------------------ ------------ -------------
Underlying operating profit GBP154.4m GBP121.7m
==================================== ============ =============
Underlying operating margin 7.1% 5.7%
==================================== ============ =============
Underlying basic earnings per share 20.6p 15.8p
==================================== ============ =============
Dividend per share 1.7p -
==================================== ============ =============
Underlying free cash flow GBP67.2m GBP(24.7)m
==================================== ============ =============
Net debt GBP(492.5)m GBP(1,039.4)m
==================================== ============ =============
Net debt excluding operating leases GBP(287.8)m GBP(629.3)m
==================================== ============ =============
Net debt/EBITDA (covenant basis) 1.1x 1.9x
------------------------------------ ------------ -------------
David Lockwood, Chief Executive Officer, said:
"We have made a strong start to the year, as we continue to
build on the exciting momentum we see across the Group. We are
delivering for our customers, reducing risk and positioning for
growth through a number of significant new global teaming
agreements.
"We have a clear capital allocation policy, which is providing
the Group with the flexibility it needs to capture the growing
number of value creation opportunities we see ahead. We are
reinstating our dividend following a four-year hiatus, reflecting
our confidence in the future, and our expectations for the full
year remain unchanged."
Financial highlights
- Contract backlog GBP9.6 billion, down year-on-year due to the
impact of disposals, up slightly since year end
- Revenue up 2% to GBP2,177 million. Organic growth of 18%,
including major infrastructure programme growth, offset FY23
disposals
- Underlying operating profit up 27% to GBP154 million, ahead of
expectations, primarily due to earlier than anticipated receipt of
licence income from the Polish frigate programme
- Underlying operating margin increased 140 basis points to 7.1%, boosted by the licence income
- Underlying basic earnings per share up 30% to 20.6p
- Underlying free cash flow of GBP67 million, driven by 82%
underlying operating cash conversion
- Net debt to EBITDA reduced to 1.1x on a covenant basis (FY23:
1.5x). Net debt reduced by GBP72 million to GBP493 million
- Dividend reinstated following a four-year hiatus. The interim
dividend of 1.7 pence per share is expected to be around a third of
the full year dividend
Outlook
The Board's expectations for another year of organic revenue
growth, underlying operating margin expansion and positive cash
flow generation are unchanged, and we continue to build momentum to
achieve the medium-term guidance set out within our FY23
results.
Strategic highlights
- Strategic cooperation agreement with Saab, including the
development of an advanced naval corvette design
- Collaboration agreement with Huntington Ingalls Industries
(HII) for US and UK naval and civil nuclear opportunities
- Teaming partnership with HII to collaborate on nuclear-powered
submarine capabilit ies to support the AUKUS endeavour
- Babcock Skills Academy launched in Devonport to develop
submarine support capabilities in our growing workforce
- Babcock General Logistics Vehicle (GLV) launched to target the
upcoming UK Army Land Rover replacement programme
- Established partnership with Zero Petroleum to explore the use
of synthetic fuels across air defence platforms
Operational highlights
Marine
- Type 31: HMS Venturer (ship 1) superstructure progressing,
keel laid for HMS Active (ship 2)
- Critical Design Review completed for the UK Royal Navy's
next-generation Maritime Electronic Warfare Programme
- Cut steel on first MIECZNIK Class frigate for the Polish Navy.
Three Arrowhead 140 licences delivered
Nuclear
- Major Infrastructure Programme (MIP) continuing to ramp up
across Devonport Dockyard - revenue more than doubled to GBP218
million. Further contract (GBP750 million over four years) signed
in November 2023
- Commenced deep maintenance and LIFEX on the second of the UK's
Vanguard Class nuclear submarines, HMS Victorious
- Five-year contract with the UK MOD to collaborate on the Ship
Submersible Nuclear AUKUS (SSN-A) submarine detailed design
Land
- Awarded second land defence contract to manage and maintain
ground support equipment at military bases across France
- Babcock's contract to support UK-gifted platforms to Ukraine
now operating at full capability
- Secured rebid on the six-year Royal Electro-Mechanical Engineers (REME) contract
Aviation
- Two additional H160 helicopters modified and delivered to the
French Navy as part of a 10-year contract
- Secured a four-year contract extension with the South
Australian Government for aerial emergency services
- Awarded a four-year support contract for H145 aircraft with
French Securité Civile, partnered with Airbus
Notes to statutory and underlying results on page 1
(i) Contract backlog: The GBP9.6 billion contract backlog
represents amounts of future revenue under contract. This measure
does not include GBP3.0 billion of work expected to be done by
Babcock as part of framework agreements (HY23: GBP3.4 billion).
Contract backlog and framework definitions can be found in the
Financial Glossary on page 25.
(ii) Alternative Performance Measures (APMs):
The Group provides APMs, including underlying operating profit,
underlying operating 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 2023. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 25 .
Results presentation:
A webcast presentation for investors and analysts will be held
on 14 November 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, Babcock Director
of Investor Relations +44 (0)7936 039 004
Kate Hill, Babcock Group Director
of Communications +44 (0)20 7355 5312
Olivia Peters / Harry Cameron,
Teneo +44 (0)20 7353 4200
CEO STATEMENT
The first half of FY24 has been another period of progress for
the Group, both operationally and financially, as we continued to
build on the good momentum with which we entered the financial
year. We have delivered 18% organic revenue growth, 140 basis
points of underlying operating margin (1) expansion and 82%
underlying operating cash conversion (1) , boosted by the receipt
of licence fee income. Beyond the strong financial performance in
the half, we have also made excellent operational and strategic
progress, delivering on existing contract milestones and entering
into some significant long-term partnerships, such as our
wide-ranging Strategic Cooperation Agreement with Saab, which
includes the development of an advanced corvette design and an
agreement with HII to collaborate in naval and nuclear
opportunities in the UK, US and Australia.
Equally critical, given that our people are paramount to our
success, is the progress we have made in enhancing and
strengthening our corporate culture. We were delighted with the
increased levels of engagement and satisfaction we saw reflected in
our recent Group wide employee survey and were proud to have been
named in The Engineer's 'Top Ten Employers 2023' list in October.
We enter the second half of the year with a strong order book and
continue to be excited by the positive underlying trends and
expanding opportunity set for the Group, which make us more
confident than ever in the prospects for the business across the
short, medium and long term.
HY24 results
We delivered strong financial results for the first six months
of the financial year. Group revenue of GBP2,177 million was
slightly up on the prior year. Organic revenue growth of 18%,
including double-digit growth in three of our four sectors, more
than offset the impact of disposals. Underlying operating margin
(1) of 7.1% (HY23: 5.7%) and underlying free cash flow (1) of GBP67
million were both ahead of expectations, albeit largely due to
earlier than expected licence receipts on the Polish MIECZNIK
frigate programme. While the licences are one-off in nature, they
demonstrate further progress on a key naval programme and, more
broadly, the attractiveness to international markets of the modular
Arrowhead 140 frigate design and our flexible acquisition
model.
In April 2023, the Board stated its intention to reinstate a
dividend in FY24, underpinned by our strengthened balance sheet and
cash outlook. The Board has declared an interim dividend of 1.7
pence per share payable on 19 January 2024.
Increasing momentum and reducing risk
The global threat environment and geopolitical situation remains
unstable , meaning that the services and products we provide across
our diverse international footprint have never been more important,
as reflected by the good operating and financial momentum across
the Group. Our contract backlog of GBP9.6 billion was GBP0.3
billion lower than a year ago due to the impact of disposals.
However, contract backlog increased slightly in H1 compared to the
end of March, despite the trading of long-term contracts,
reflecting multiple new contract awards and agreements that will
help drive future growth.
We play a critical role in support of the UK's nuclear
deterrent, which lies at the heart of the nation's defence. We have
now completed the highly complex, multi-year life-extension (LIFEX)
programme on the first Vanguard Class submarine, HMS Vanguard,
representing a major reduction in fixed price contract risk. In
July, we signed an initial contract with the MOD for the second
Vanguard boat, HMS Victorious, enabling deep maintenance of the
complex submarine to begin at our Devonport dockyard. We expect the
full cost recovery agreement to be replaced with a contract
covering the entire programme on similar terms in the coming
months.
The Vanguard Class submarines will begin to transition to the
UK's next generation nuclear deterrent submarine, the Dreadnought
Class, in the early 2030s. Babcock is playing an important role in
the Dreadnought programme, specifically in support of the design
and future support solutions. In the period, we also won a contract
to deliver weapons handling launch systems (WHLS) and specialist
equipment for these future submarines.
In October 2023, we also signed a five-year contract with the
MOD to provide input in the detailed design for the new Ship
Submersible Nuclear AUKUS (SSN-A) submarine, which will replace the
Astute Class in the UK Royal Navy and is planned to be the design
on which the Australian Navy builds its future fleet. Ensuring that
future support is properly considered at the design stage is
expected to result in increased availability throughout the life of
the submarine.
The Major Infrastructure Programme (MIP), to modernise submarine
infrastructure across Devonport, ramped up further during the
period, driving strong revenue growth. In November 2023, we signed
a four-year GBP750 million contract to secure the capability
required to support and sustain the UK's submarines for decades to
come. The upgraded dockyard facilities will support all current and
future UK submarine classes as the fleet progresses through a
multi-year class transition, including commencement of deep
maintenance of the Astute Class in the next few years. In the
period, the first Astute boat to undergo in-dock maintenance at
Devonport arrived for surveying works ahead of its programme of
work.
In Poland, we finalised the design licence agreement with the
PGZ-MIECZNIK consortium, which allows for the build of three
frigates for the Polish Navy. First steel-cut for MIECZNIK ship one
was held at the PGZ shipyard in Gdynia in August. We also signed a
framework agreement as the next step to a potential joint venture
which could see Babcock support MIECZNIK through the complete
design and build programme. The agreement further strengthens our
strategic partnership with the Polish Armaments Group PGZ SA, one
of the largest defence groups in Europe, supporting ambitions for
wider international naval and defence opportunities.
Multiple new international contracts are driving growth in the
Land sector. Ramp up of the Australian Defence High Frequency
Communication System (DHFC) programme almost doubled our Australian
Land revenues compared to HY23. In France, we were awarded a second
Land contract to provide in-service support to airfield support
equipment throughout France's national and international military
bases for seven years. In July, we were awarded an initial 12-month
contract from the MOD to support UK-gifted platforms to Ukraine,
covering the provision of operational support to armoured vehicles,
training of Ukrainian personnel and management of vital equipment,
supply chains and spares. After the period end, we opened an office
in-country where a dedicated team will focus on supporting Ukraine
and our industry partners.
Positioning for the longer-term growth - the right capabilities
in a supportive market
Our long-term growth strategy is to leverage our technical
capability to grow our defence business, both internationally and
in the UK. We have made excellent progress in the period,
establishing a number of strategic relationships that position the
Group for longer-term opportunities.
In Marine, we signed a wide-ranging strategic cooperation
agreement with Saab, including the development of an advanced naval
corvette design. The joint development will benefit from Babcock's
expertise in platform design and integration, to create a new
class-leading capability, and Saab's expertise in naval combat
management systems and composite structures.
In Nuclear, discussions continue with the UK Submarine Delivery
Agency (SDA) and the Royal Navy with the intention to finalise a
long-term strategic partnership to ensure the stable, safe,
effective and efficient delivery of deep and base maintenance of
submarines. We expect to replace current commercial arrangements,
currently under the Future Maritime Support Programme (FMSP), by
March 2025.
In recognition of increasing long-term capacity requirements in
the Nuclear sector, we launched the Babcock Skills Academy at
Devonport to enhance our growing workforce's capabilities. Focusing
on submarine support and critical nuclear expertise, the Skills
Academy's training facilities enable learning of the complex
requirements to perform submarine deep maintenance. More than 2,000
people are expected to pass through the Academy in its first three
years and a further 10,000 over the following five years.
We have entered into a strategic agreement with US-based HII to
collaborate on naval and civil nuclear decommissioning and
construction opportunities in the UK and US. Under a memorandum of
understanding both companies will apply their complementary
capabilities to existing nuclear decommissioning contracts for US
ships and UK submarines, as well as explore opportunities for
cooperation in civil nuclear, including power plant and component
design, fabrication and construction in North America and the
UK.
We have already built on the HII agreement above, with a further
agreement to combine forces in Australia to develop the optimal
models for submarine capability to support the long-term ambitions
of the AUKUS programme, including infrastructure, sustainment and
the necessary skills development to support the future
programme.
The Land sector is leading the strategy to strengthen our data
capabilities in defence with a new data platform aimed at
transforming, capturing, integrating, modelling and building
data-driven solutions across all areas of our defence business. For
example, in our Land DSG support contract, we are combining this
smart data approach with our deep engineering expertise to improve
fleet availability and real time identification of any issues
throughout the asset lifecycle.
In Aviation, Babcock France announced an MOU with light jet
company AERALIS to explore the operation of a flexible aircraft 'as
a service' in support of March's UK France Joint Leaders
Declaration on Anglo-French interoperability of future air
systems.
Underpinned by enhanced execution and risk reduction
We made further progress in the period improving operational
delivery, which was underpinned by a strengthened corporate
culture. In October, our second Group-wide people survey since we
began our turnaround saw increased levels of engagement and
satisfaction. Following the first survey in 2022 we have been
developing and implementing action plans to transform the employee
experience, including the launch of a framework to standardise role
categorisation and open development pathways and career
opportunities across the Group.
There is still much to do, but I believe we are creating a more
integrated, unified and aligned workforce with common purpose and
common processes that will support significant value creation in
the future.
We continue to see improved operational delivery across existing
contracts, for example the 10-year DSG contract to support the
British Army land vehicles fleet, where an overhaul of operations
over the last few years has further improved contract delivery and
operating margin. Following formal notification by our UK MOD
customer of its intention to exercise up to five option years, we
continue to negotiate contract terms that will contribute to better
outcomes for all stakeholders.
There was no material change in the period in the impact of
onerous contracts, which will diminish over the coming years as
they trade out. We continue to focus on replacing them with higher
quality orders through our enhanced bidding and programme risk
management processes, as highlighted by the new initial submarine
deep maintenance support contract for the second Vanguard Class
nuclear submarine.
We continue to meet production milestones on the Type 31
programme with the first in class ship, HMS Venturer, progressing
through construction and assembly, and the keel laid on ship two,
HMS Active, in September. The dispute resolution process (DRP)
relating to the Type 31 contract has been paused following customer
discussions. Both parties are currently working towards a
collaborative solution.
During the period we were pleased to announce the appointment to
the Board of Sir Kevin Smith CBE as a Non-Executive Director. In
addition, Paul Armstrong was appointed CEO of our Marine business
and Harry Holt was appointed CEO of our Nuclear business.
Capital allocation - dividend reinstated
In our FY23 results, we set out a refreshed capital allocation
framework underpinned by a commitment to maintain a 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.
As part of our capital allocation strategy, in April 2023, the
Board stated its intention to reinstate a dividend in FY24, with
the return to the dividend payers' list an important milestone in
the turnaround of Babcock. As such, the Board has declared an
interim dividend of 1.7 pence per share, with the interim dividend
expected to be around one third of the full year dividend.
The Group's aim is to deliver long-term dividend growth via a
progressive dividend. The level at which the dividend has been
reinstated also reflects a desire for there to be ongoing
strengthening of the balance sheet and for prioritisation to be
given to investment for organic growth in the business.
Outlook
With over 90% of FY24 forecast revenue under contract at the end
of September, we enter the second half of the year with good
momentum. The Board's expectations for another year of organic
revenue growth, further underlying operating margin expansion and
positive cash flow generation are unchanged, and we continue to
build momentum to achieve the medium term guidance set out within
our FY23 results.
David Lockwood OBE
Chief Executive
Notes to CEO Statement
(1) A defined Alternative Performance Measure (APM) as set out
in the Financial Glossary on pages 25 to 27.
OTHER INFORMATION
Dividend
An interim dividend of 1.7 pence per ordinary share (HY23: nil)
is payable on 19 January 2024 to shareholders whose names appear on
the register at the close of business on 24 November 2023.
Shareholders may participate in the dividend re-investment plan and
elections must be made by 28 December 2023 . Details of the
dividend re-investment plan can be found, and shareholders can make
elections, at www.babcock-shares.com .
FINANCIAL REVIEW
As described in the Financial Glossary on page 25 , the Group
provides Alternative Performance Measures (APMs), including
underlying operating profit, underlying operating 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
30 September 2023 30 September 2022
--------------------------------
Underlying Specific Statutory Underlying Specific Statutory
adjusting adjusting
GBPm items items
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Revenue 2,177.0 - 2,177.0 2,144.0 - 2,144.0
--------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Operating profit 154.4 (10.2) 144.2 121.7 (48.9) 72.8
================================= ========== ========== ========= ========== ========== =========
Share of results of joint
ventures and associates 6.0 - 6.0 6.6 - 6.6
================================= ========== ========== ========= ========== ========== =========
Net finance costs (20.0) 5.9 (14.1) (22.7) (5.5) (28.2)
--------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Profit before tax 140.4 (4.3) 136.1 105.6 (54.4) 51.2
================================= ========== ========== ========= ========== ========== =========
Income tax expense (35.3) 3.3 (32.0) (23.1) 8.9 (14.2)
--------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Profit after tax for the
period 105.1 (1.0) 104.1 82.5 (45.5) 37.0
================================= ========== ========== ========= ========== ========== =========
Attributable to non-controlling
interests 1.6 - 1.6 2.4 - 2.4
--------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Profit after tax attributable
to shareholders 103.5 (1.0) 102.5 80.1 (45.5) 34.6
================================= ========== ========== ========= ========== ========== =========
Basic EPS 20.6p (0.2)p 20.4p 15.8p (9.0)p 6.8p
================================= ========== ========== ========= ========== ========== =========
Diluted EPS 20.1p (0.2)p 19.9p 15.5p (8.8)p 6.7p
================================= ========== ========== ========= ========== ========== =========
A full statutory income statement can be found on page 30 .
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 interim financial statements.
Reconciliation of statutory to underlying operating profit
30 September 30 September
2023 2022
GBPm GBPm
-------------------------------------------------------- ------------ ------------
Operating profit 144.2 72.8
======================================================== ============ ============
Amortisation of acquired intangibles 5.6 8.1
======================================================== ============ ============
Business acquisition, merger and divestment related
items 0.2 12.1
======================================================== ============ ============
Fair value loss on forward rate contracts to be settled
in future periods 4.4 28.7
======================================================== ============ ============
Specific adjusting items impacting operating profit 10.2 48.9
-------------------------------------------------------- ------------ ------------
Underlying operating profit 154.4 121.7
-------------------------------------------------------- ------------ ------------
Revenue increased by 2 % to GBP 2,177 million, up 18 % on an
organic basis, offset by the impact of disposals in the prior year.
We delivered double digit organic growth in Marine, Nuclear and
Land (see sector performance tables on page 15 ).
Statutory operating profit increased to GBP 144.2 million (HY23:
GBP72.8 million). The key drivers were strong underlying operating
profit and lower specific adjusting items .
Underlying operating profit: Underlying operating profit
increased by 27% to GBP154.4 million (33% on an organic basis),
reflecting revenue growth, including high margin licence fees
associated with the Polish MIECZNIK frigate programme, improved
performance on a number of contracts and non-recurrence of a GBP6
million programme write-off in Nuclear in HY23.
Underlying operating margin increased by 140 basis points to
7.1% (HY23: 5.7%), boosted by the MIECZNIK licences. Further
analysis of our revenue and underlying operating profit performance
is included in each sector's operational review on pages 16 to 24
.
Joint ventures and associates : The Group's share of results of
joint ventures and associates reduced slightly from the prior year
to a profit after tax of GBP6.0 million (HY23: GBP6.6 million).
Net finance costs decreased to GBP20.0 million on an underlying
basis (HY23: GBP22.7 million) driven by lower net debt and interest
charge on leases, partly offset by a GBP4.0 million change in IAS
19 retirement benefit interest. The decrease in reported net
finance costs to
GBP14.1 million (HY23: GBP28.2 million) also reflects changes in
derivative fair value movements.
Taxation : The Group tax charge was GBP32.0 million. Tax on
underlying profits was GBP35.3 million representing an underlying
effective tax rate of 26%, in line with our assumption for this
financial year.
Earnings per share : Basic earnings per share, on a statutory
basis, increased to 20.4 pence (HY23: 6.8 pence). Underlying
earnings per share increased 30% to 20.6 pence (HY23: 15.8
pence).
Dividend : An interim dividend of 1.7 pence per ordinary share
(HY23: nil) is payable on 19 January 2024 to shareholders whose
names appear on the register at the close of business on 24
November 2023. Shareholders may participate in the dividend
re-investment plan and elections must be made by 28 December 2023.
Details of the dividend re-investment plan can be found, and
shareholders can make elections, at www.babcock-shares.com .
Exchange rates
The translation impact of foreign currency movements resulted in
a decrease in revenue of GBP44.0 million and a decrease in
underlying operating profit of GBP4.4 million. The main currencies
that have impacted our results are the South African Rand,
Australian Dollar and Canadian 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 GBP31 million and underlying
operating profit by around GBP2 million per annum
-- A 10% movement in the Australian Dollar against Sterling
would affect revenue by around GBP34 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 GBP14 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.
30 September 30 September
2023 2022
GBPm GBPm
---------------------------------------------------- ------------ ------------
Operating profit 144.2 72.8
==================================================== ============ ============
Add back: specific adjusting items 10.2 48.9
---------------------------------------------------- ------------ ------------
Underlying operating profit 154.4 121.7
==================================================== ============ ============
Right of use asset depreciation 18.9 52.5
==================================================== ============ ============
Other depreciation & amortisation 30.1 45.7
==================================================== ============ ============
Non-cash items 7.2 (2.2)
==================================================== ============ ============
Working capital movements (5.6) (48.8)
==================================================== ============ ============
Provisions (2.0) (0.8)
==================================================== ============ ============
Net capital expenditure (51.9) (36.9)
==================================================== ============ ============
Lease principal payments (24.5) (54.2)
---------------------------------------------------- ------------ ------------
Underlying operating cash flow 126.6 77.0
==================================================== ============ ============
Cash conversion % 82% 63%
==================================================== ============ ============
Pension contributions in excess of income statement (39.6) (76.2)
==================================================== ============ ============
Interest paid (net) (13.5) (14.1)
==================================================== ============ ============
Tax paid (12.9) (12.2)
==================================================== ============ ============
Dividends from joint ventures and associates 6.8 5.1
==================================================== ============ ============
Cash flows related to exceptional items (0.2) (4.3)
---------------------------------------------------- ------------ ------------
Underlying free cash flow 67.2 (24.7)
==================================================== ============ ============
Net acquisitions and disposals of subsidiaries - (12.1)
==================================================== ============ ============
Purchase of own shares (7.5) -
==================================================== ============ ============
Lease principal payments 24.5 54.2
==================================================== ============ ============
Net new lease arrangements (16.4) (37.0)
==================================================== ============ ============
Other non-cash debt movements (1.8) (0.8)
==================================================== ============ ============
Clarification of net debt definition - (36.1)
==================================================== ============ ============
Fair value movement in debt and related derivatives 1.7 31.7
==================================================== ============ ============
Exchange movements 4.2 (45.9)
---------------------------------------------------- ------------ ------------
Movement in net debt 71.9 (70.7)
==================================================== ============ ============
Opening net debt (564.4) (968.7)
---------------------------------------------------- ------------ ------------
Closing net debt (492.5) (1,039.4)
==================================================== ============ ============
Add back: operating leases 204.7 410.1
---------------------------------------------------- ------------ ------------
Closing net debt excluding operating leases (287.8) (629.3)
---------------------------------------------------- ------------ ------------
A full statutory cash flow statement can be found on page 34 and
a reconciliation to net debt on page 12.
Reconciliation of underlying operating cash flow to statutory
net cash flows from operating activities
30 September 30 September
2023 2022
GBPm GBPm
---------------------------------------------------------- ------------ ------------
Underlying operating cash flow 126.6 77.0
========================================================== ============ ============
Add: net capex 51.9 36.9
========================================================== ============ ============
Add: capital element of lease payments 24.5 54.2
========================================================== ============ ============
Less: pension contributions in excess of income statement (39.6) (76.2)
========================================================== ============ ============
Non-operating cash items (excluded from underlying
cash flow) (0.2) (16.7)
---------------------------------------------------------- ------------ ------------
Cash generated from operations 163.2 75.2
========================================================== ============ ============
Tax paid (12.9) (12.2)
========================================================== ============ ============
Net interest paid (13.5) (14.1)
========================================================== ============ ============
Net cash flows from operating activities 136.8 48.9
---------------------------------------------------------- ------------ ------------
Underlying operating cash flow
Underlying operating cash flow (after capital expenditure)
increased to GBP126.6 million (HY23: GBP77.0 million), a conversion
ratio to underlying operating profit of 82% (HY23: 63%). The higher
conversion ratio mainly reflects improved working capital
performance described below, offset by an increase in net
capex.
- Working capital outflow of GBP5.6 million reduced from a GBP
48.8 million outflow in HY23. This reflects our continued focus on
cash flow as a performance measure and phasing of programmes,
including c.GBP35 million net inflow on the H160 contract from the
sale of receivables relating to aircraft delivered and accepted by
the customer. The prior year working capital performance was also
negatively impacted by completion of payments associated with the
unwind of the past practice of period-end management of working
capital.
- Capital expenditure : Net capital expenditure increased to GBP
51.9 million (HY23: GBP 36.9 million). The increase reflects higher
investment in intangible assets, including our SAP roll-out, and
lower receipts from asset disposals (GBP9.8 million verses HY23:
GBP22.7 million), primarily linked to aircraft sales in our
Aviation sector. We still expect FY24 gross capital expenditure to
be in the GBP120-GBP150 million range as we continue to invest in
our submarine infrastructure in Devonport and roll-out of improved
systems.
- Lease principal payments , representing the capital element of
payments on lease obligations, reduced to GBP 24.5 million (HY23:
GBP 54.2 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 GBP67.2 million compares to an
outflow of GBP24.7 million in the prior year, reflecting higher
underlying operating cash flow and lower pension deficit
payments.
- Pension cash contribution in excess of the income statement
charge reduced to GBP 39.6 million (HY23: GBP76.2 million), as
expected. We continue to expect the FY24 pension cash outflow in
excess of the income statement charge to be around GBP65
million.
- Interest : Net interest paid, excluding that paid by JVs and
associates, reduced to GBP13.5 million (HY23: GBP14.1 million),
reflecting lower net debt and lower interest on leases.
- Taxation : Tax paid in the period was GBP 12.9 million (HY23
GBP12.2 million). We expect a cash tax outflow in the current
financial year of approximately GBP30 million.
- Dividends received from joint ventures and associates
increased slightly to GBP 6.8 million (HY23: GBP5.1 million). We
continue to expect dividends from JVs and associates to be broadly
stable in FY24.
New lease arrangements
In addition to net capital expenditure, and not included in
underlying free cash flow, GBP16.4 million (HY23: GBP37.0 million)
of additional leases were entered into in the period. These
represent new lease obligations and so are included in our net debt
figure but do not involve any cash outflows at inception.
Net debt
Net debt at 30 September 2023 was GBP492.5 million, representing
a reduction of GBP71.9 million compared to the beginning of the
financial year. This reduction was driven by positive cash flow.
The reconciliation of net cash flow to net debt is shown in the
table below.
Excluding operating leases, net debt was GBP287.8 million,
representing a reduction of GBP58.4 million compared to the
beginning of the year.
Movement in net debt - reconciliation of statutory cash flows to
net debt
30 September 30 September
2023 2022
GBPm GBPm
------------------------------------------------------ ------------ ------------
Net cash flows from operating activities 136.8 48.9
====================================================== ============ ============
Net cash flows from investing activities (38.0) (29.8)
====================================================== ============ ============
Net cash flows from financing activities (45.0) 38.4
====================================================== ============ ============
Net increase/(decrease) in cash, cash equivalents and
bank overdrafts 53.8 57.5
====================================================== ============ ============
Cash flows from the (increase)/decrease in debt 8.4 (54.4)
====================================================== ============ ============
Change in net funds resulting from cash flows 62.2 3.1
====================================================== ============ ============
Additional lease obligations (10.4) (37.0)
====================================================== ============ ============
New leases granted 16.0 14.3
====================================================== ============ ============
Other non-cash movements and changes in fair value (0.1) 30.9
====================================================== ============ ============
Clarification of net debt definition - (36.1)
====================================================== ============ ============
Foreign currency translation differences 4.2 (45.9)
====================================================== ============ ============
Movement in net debt in the period 71.9 (70.7)
====================================================== ============ ============
Opening net debt (564.4) (968.7)
------------------------------------------------------ ------------ ------------
Closing net debt (492.5) (1,039.4)
------------------------------------------------------ ------------ ------------
Funding and liquidity
As of 30 September 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), cancelled by Babcock on 24 October 2023
- GBP775 million RCF, with GBP45 million maturing on 28 August
2025 and GBP730 million extended to 28 August 2026
- GBP300 million bond maturing on 5 October 2026
- EUR550 million bond, hedged at GBP493 million, maturing on 13 September 2027
- Two committed overdraft facilities totalling GBP100 million
At 30 September 2023, the Group's net cash balance was GBP480
million. This, combined with the undrawn amounts under our
committed RCFs and overdraft facilities, gave us liquidity headroom
of around GBP1.7 billion.
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 1.1x times for HY24, within
our medium-term target of between 1.0x and 2.0x.
30 September 30 September
2023 2022
GBPm GBPm
Last twelve Last twelve
months months
----------------------------------------------------- ------------ ------------
Underlying operating profit 210.8 244.1
===================================================== ============ ============
Depreciation and amortisation 69.3 80.2
===================================================== ============ ============
Covenant adjustments (1) (5.9) 16.4
----------------------------------------------------- ------------ ------------
EBITDA (covenant basis) 274.2 340.7
===================================================== ============ ============
JV and associate dividends 10.4 22.0
----------------------------------------------------- ------------ ------------
EBITDA (covenant basis) + JV and associate dividends 284.6 362.7
----------------------------------------------------- ------------ ------------
Net debt (excluding operating leases) (287.8) (629.3)
===================================================== ============ ============
Covenant adjustments (2) (33.9) (56.4)
----------------------------------------------------- ------------ ------------
Net debt (covenant basis) (321.7) (685.7)
----------------------------------------------------- ------------ ------------
Net debt/EBITDA 1.1x 1.9x
----------------------------------------------------- ------------ ------------
(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.
30 September 30 September
2023 2022
GBPm GBPm
Last twelve Last twelve
months months
----------------------------------------------------- ------------ ------------
EBITDA (covenant basis) + JV and associate dividends 284.6 362.7
------------------------------------------------------ ------------ ------------
Net finance costs (34.5) (66.6)
====================================================== ============ ============
Covenant adjustments (3) 8.9 15.7
------------------------------------------------------ ------------ ------------
Net finance costs (covenant basis) (25.6) (50.9)
------------------------------------------------------ ------------ ------------
Interest cover 11.1x 7.1x
------------------------------------------------------ ------------ ------------
(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.
30 September 30 September
2023 2022
GBPm GBPm
Last twelve Last twelve
months months
-------------------------------------------------- ------------ ------------
Underlying operating profit 210.8 244.1
=================================================== ============ ============
Share of results of joint ventures and associates 8.8 17.1
--------------------------------------------------- ------------ ------------
Underlying operating profit plus share of JV PAT 219.5 261.2
=================================================== ============ ============
Net debt excluding operating leases 287.8 629.3
=================================================== ============ ============
Operating leases 204.7 410.1
=================================================== ============ ============
Shareholder funds 370.8 662.5
=================================================== ============ ============
Retirement deficit/(surplus) 154.9 (147.4)
--------------------------------------------------- ------------ ------------
Invested capital 1,018.2 1,554.5
--------------------------------------------------- ------------ ------------
ROIC 21.6% 16.8%
--------------------------------------------------- ------------ ------------
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 30 September 2023, the IAS 19 valuation for accounting
purposes was a net deficit of GBP154.9 million (FY23: GBP61.4
million), reflecting plan assets of GBP2,871.0m (FY23: GBP3,188.0m)
and defined benefit obligations of GBP3,025.9m (FY23: GBP3,249.4m).
Liabilities have decreased by GBP223.5m, primarily due to the
increase in the discount rate from 4.8% at March 23 to 5.5-5.7% at
September 23. Assets have decreased by GBP317.0m, a greater amount
despite contributions of GBP51.2m in the period. The net actuarial
loss of GBP132.7m reflects the different bases of valuing assets
(fair value) and liabilities (discounted based on corporate bond
yields). The fair value of the assets and liabilities of the Group
pension schemes at 30 September 2023 and the key assumptions used
in the IAS 19 valuation of our schemes are set out in Note 13 of
the interim financial statements.
30 September 30 March
2023 2023
GBPm GBPm
------------------------------------- ------------ ---------
Fair value of plan assets 2,871.0 3,188.0
------------------------------------- ------------ ---------
Present value of benefit obligations (3,025.9) (3,249.4)
------------------------------------- ------------ ---------
Net deficit (154.9) (61.4)
------------------------------------- ------------ ---------
As at 31 March 2023 the key assumptions used in valuing pension
liabilities for the three largest schemes were:
- Discount rate : 30 September 2023: 5.5%-5.7% (31 March 2023: 4.8%)
- Inflation rate (RPI ): 30 September 2023: 3.2%-3.4% after year
1 (31 March 2023: 3.3% after year 1)
Income statement charge
The charge included within underlying operating profit in HY24
was GBP11.6 million (HY23: GBP16.5 million), of which GBP7.4
million (HY23: GBP13.1 million) related to current service costs
and GBP4.2 million (HY23: GBP3.4 million) related to expenses. In
addition to this, there was a pension interest charge of GBP0.4
million (HY23: credit of GBP3.6 million).
Actuarial valuations
A n 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 HY24 was approximately GBP300 million (FY23: c.GBP400
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 30 September 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 FY22, the valuation of the Babcock International Group Pension
Scheme at 31 March 2022 has been completed since the last 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 30 September 30 September
2024e 2023 2022
GBPm GBPm GBPm
----------------------------- -------- ------------ ------------
Future service contributions 18.0 9.7 10.1
============================= ======== ============ ============
Deficit recovery 47.8 26.9 67.4
============================= ======== ============ ============
Longevity swap 15.2 7.6 8.0
----------------------------- -------- ------------ ------------
Total cash contributions 81.0 44.2 85.5
----------------------------- -------- ------------ ------------
SEGMENTAL ANALYSIS
The Group reports its performance through four reporting
sectors.
30 September 2023 Marine Nuclear Land Aviation Total
GBPm GBPm GBPm GBPm GBPm
============================= ======== ========= ======= ========== ========
Revenue 750.1 710.8 545.6 170.5 2,177.0
============================= ======== ========= ======= ========== ========
Operating profit 55.1 45.2 37.3 6.6 144.2
============================= ======== ========= ======= ========== ========
Operating profit margin 7.3% 6.4% 6.8% 3.9% 6.6%
============================= ======== ========= ======= ========== ========
Underlying operating profit 63.0 45.2 37.5 8.7 154.4
============================= ======== ========= ======= ========== ========
Underlying operating margin 8.4% 6.4% 6.9% 5.1% 7.1%
============================= ======== ========= ======= ========== ========
Contract backlog 2,929 2,400 2,734 1,573 9,636
============================= ======== ========= ======= ========== ========
30 September 2022 Marine Nuclear Land Aviation Total
GBPm GBPm GBPm GBPm GBPm
============================= ======== ========= ======= ========== ========
Revenue 666.4 558.2 478.2 441.2 2,144.0
============================= ======== ========= ======= ========== ========
Operating profit 4.4 30.2 37.1 1.1 72.8
============================= ======== ========= ======= ========== ========
Operating profit margin 0.7% 5.4% 7.8% 0.2% 3.4%
============================= ======== ========= ======= ========== ========
Underlying operating profit 47.3 30.1 38.0 6.3 121.7
============================= ======== ========= ======= ========== ========
Underlying operating margin 7.1% 5.4% 7.9% 1.4% 5.7%
============================= ======== ========= ======= ========== ========
Contract backlog 2,426 2,547 2,429 2,450 9,852
============================= ======== ========= ======= ========== ========
30 September 2022 Marine Nuclear Land Aviation Total
Retained business post GBPm GBPm GBPm GBPm GBPm
disposals
============================= ======== ========= ======= ========== ========
Revenue 666.4 558.2 456.8 215.0 1,896.4
============================= ======== ========= ======= ========== ========
Operating profit 4.4 30.2 37.4 15.9 87.9
============================= ======== ========= ======= ========== ========
Operating profit margin 0.7% 5.4% 8.2% 7.4% 4.6%
============================= ======== ========= ======= ========== ========
Underlying operating profit 47.3 30.1 36.5 6.8 120.7
============================= ======== ========= ======= ========== ========
Underlying operating margin 7.1% 5.4% 8.0% 3.2% 6.4%
============================= ======== ========= ======= ========== ========
Contract backlog 2,426 2,547 2,421 1,358 8,752
============================= ======== ========= ======= ========== ========
OPERATIONAL REVIEWS
Marine
Operational highlights
- Type 31: HMS Venturer superstructure progressing, laid the keel for HMS Active
- Steel cut on first MIECZNIK-Class frigate for the Polish Navy.
Three Arrowhead 140 licences delivered
- Strategic cooperation agreement signed with Saab to develop an
advanced naval corvette design
- Started the Regional Maintenance Provider West contract to
deliver ship support for the Royal Australian Navy
- QEC aircraft carrier HMS Prince of Wales, departed Rosyth ready for operations
- Achieved Critical Design Review for the UK Royal Navy's
next-generation Maritime Electronic Warfare Programme
- Extended Canadian submarine support contract, Victoria Class
In-Service Support (VISSC) to 2027
Financial review
30 September FX impact Acquisitions Organic 30 September
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- ------------ --------- ------------ ------- ------------
Contract backlog* 2,426 2,929
============================= ============ ========= ============ ======= ============
Revenue 666.4 (12.7) - 96.4 750.1
============================= ============ ========= ============ ======= ============
Underlying operating profit* 47.3 (1.0) - 16.7 63.0
============================= ============ ========= ============ ======= ============
Underlying operating margin* 7.1% 8.4%
----------------------------- ------------ --------- ------------ ------- ------------
*Alternative Performance Measures are defined in the Financial
Glossary on page 25
Revenue increased by 13% to GBP750.1 million, up 15% on an
organic basis. Growth was driven by licences associated with the
Polish MIECZNIK frigate programme, phasing of the UK Type 31
programme and support of the UK Royal Navy's Queen Elizabeth Class
(QEC) aircraft carrier docking. This was partly offset by lower
contract volume in our LGE business, which is expected to recover
over the coming months, and phasing of the South Korean submarine
programme.
Underlying operating profit increased to GBP63.0 million (HY23:
GBP47.3 million), up 36% on an organic basis, representing an
underlying operating margin of 8.4% (HY23: 7.1%). The increase was
driven mainly by the Polish licence fee, offsetting the impact of
lower LGE volume and phasing of the South Korean submarine
programme, completion of a high margin Mission Systems contract in
the prior year and further investment in strengthening our control
environment.
Contract backlog was up 21% compared to the prior year to
GBP2,929 million (HY23: GBP2,426 million). A four-year extension of
the Canadian VISSC submarine support contract and strong order
intake in our LGE business at the end of the period, offset trading
of long-term contracts.
Operational review
UK defence
We continue to deliver on the Type 31 Inspiration Class frigate
programme. HMS Venturer is progressing through construction and
assembly with the complete hull now in place and the superstructure
taking shape. Main engines, gear boxes and diesel generators are
installed with supporting systems being fitted around them. The
next major milestone will be float-off, expected in the first half
of 2024. The keel has now been laid on ship two, HMS Active, with
first double bottom blocks in the build cradle.
Following award of the 10-year warship support contract for the
UK Royal Navy's QEC aircraft carriers, HMS Prince of Wales departed
our Rosyth dockyard in August following a docking period to repair
shaft lines, as well as undertaking planned activities on other
underwater equipment and systems.
In Devonport, the Type 23 frigate life-extension (LIFEX)
programme continues to progress with HMS Iron Duke achieving Ready
for Sea date and HMS Argyll achieving her undock date ahead of
schedule. HMS Argyll is the first Type 23 to undergo a post-LIFEX
upkeep under Project RENOWN, tasked with reducing the amount of
time in dock. Also in the period, we completed repairs and
unscheduled docking activity on HMS Somerset, and commenced the use
of new survey technology to complete hull and structure material
state understanding on HMS Richmond.
We continue to prepare for the arrival of the first Type 26
frigate, establishing the first remote office at BAE's Scotstoun
shipyard to support the transition of the Type 26 Class to
in-service support, with the new fleet of frigates base-ported at
our Devonport dockyard.
We completed the regeneration of Sandown Class Mine Counter
Measure Vessels (MCMVs) at our Rosyth dockyard for onward sale from
the Royal Navy to new international customers. Two of the vessels
have been successfully handed over to the Ukrainian Navy and the
remaining two have been sold to the Romanian Navy. Babcock will
continue to assist both navies with practical and technical
support.
In Mission Systems, we have provided support for the Royal
Navy's Phalanx Close-In Weapon System since 2006. During the
period, we were awarded a three-year extension to continue our
critical support for up to 41 systems including nine overhauls and
upgrades.
On the Skynet programme, we continue the mobilisation phase work
closely with our customer, culminating in a recent design
definition review event which was a positive step towards
operational service commencement in 2024.
We achieved the Critical Design Review in the delivery of the UK
Royal Navy's next-generation Maritime Electronic Warfare Systems
Integrated Capability (MEWSIC) to install cutting edge radar and
electronic command and control systems across the new Type 31 and
Type 26 frigates, Type 45 air-defence destroyers and QEC aircraft
carriers.
Babcock is now on contract to deliver major systems modules for
all four Dreadnought Class submarines with a contract uplift for
the remaining boats. We continue to explore additional
opportunities on the programme. During the period, we demonstrated
our complex new submarine Weapons Stowage Equipment (WSE) which
will also be installed on the next-generation Dreadnought Class
submarines.
The US-UK common missile compartment tube assembly programme
continues successfully with regular deliveries to our customer
General Dynamics Electric Boat in the US, supporting both the UK
Dreadnought and US Columbia submarine programmes. 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
dockyard. Our ongoing engagement with the US Navy in examining
support and logistics solutions at Rosyth continues.
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 , the design licence agreement with the PGZ-MIECZNIK
consortium was finalised, which allows for the build of three
frigates for the Polish Navy. The steel-cut for MIECZNIK ship one
was held at the PGZ shipyard in Gdynia, where we recently opened a
new Babcock office. At this milestone event, together with PGZ,
Babcock entered into a framework agreement with the intention of
forming a joint venture that will further strengthen our strategic
partnership. Combining our shipbuilding and equipment support
capabilities, Babcock will work more closely with PGZ to deliver
the MIECZNIK frigate programme.
In Indonesia , with our customer PT PAL, we attended the keel
laying ceremony for the first of the two new frigates for the
Indonesian Navy, which are based on our Arrowhead 140 design.
In Oman , delivered t hrough our global sustainment and support
arrangements, we completed fleet time support for a Type 23 frigate
at Duqm Naval Dockyard for the UK Royal Navy. We continue to grow
our support offering in the Middle East and are awaiting outcomes
of tenders submitted to the US and Royal Navy of Oman.
In Brazil , our in-country project team continue to support the
Marinha do Brasil's flagship vessel. Through our engineering
expertise, we are training the NAM Atlantico staff in maintenance,
repair and operation of key systems and equipment. Working with the
customer, our team is preparing for the upkeep work package in
readiness for docking in August 2024.
In Canada , Babcock continues to deliver on its Victoria Class
submarine in service support contract. Babcock is currently
undertaking HMCS Victoria's Extended Docking Work Period.
In South Korea , our WHLS team is delivering hardware for boat
four of the nine-boat Jangbogo-III Class submarine programme.
Babcock is working with the Republic of Korea Navy and Hanwha Ocean
to develop an in-service support strategy for the Class.
In Australia, Babcock commenced the Regional Maintenance
Provider (RMP) West contract in June 2023, to provide support and
sustainment of Royal Australian Navy ships in Western Australia
over the next five years. External maintenance periods will
commence in the second half of FY24.
In August 2023, we commenced construction of an integrated
manufacturing, warehouse and office facility in Adelaide that will
underpin support and delivery to land and naval defence programs,
including the in-service support for the Collins Class submarine
fleet.
In New Zealand, the Marine Fleet Sustainment Services (MFSS)
contract - providing support to the entire Royal New Zealand Navy
fleet - has entered the second phase (1 July 2023 - 30 June 2024)
of a total of eight relevant periods. In addition, in April 2023,
Babcock completed the regeneration and modification of two
decommissioned Royal New Zealand Navy inshore patrol vessels for
handover to the Irish Naval Service.
Energy and Marine
Our Liquid Gas Engineering business (LGE) marked two significant
milestones for our ecoSMRT(R) programme, securing over 100 orders
since the product was launched four years ago, with 50 systems now
manufactured and delivered for installation on Liquefied Natural
Gas (LNG) carriers for a range of global shipowners.
We were also awarded a cutting-edge ecoCO2(R) cargo handling
system contract for two 22,000m(3) liquefied CO2 (LCO2) carriers, a
first for our South Korean customer.
During the period, contracts were secured for 15 Very Large
Ethane Carriers (VLECs) at Jiangnan Shipyard for shipowners Tianjin
Southwest and Pacific Gas. Our LGE business also signed an
Agreement in Principle from classification society Lloyd's Register
for its multi-fuel gas supply and CO2 carrier designs.
Also at Rosyth dockyard, we welcomed two of the UK's fleet of
scientific research vessels for planned maintenance. RRS Discovery
and RRS Sir David Attenborough spent a total of 16 weeks at Rosyth
undergoing through-life support. All three scientific research
vessels will return to Rosyth in 2024.
Nuclear
Operational highlights
- Significant ramp up on the Major Infrastructure Programme
continuing across Devonport Dockyard. Further contract
(GBP750 million over four years) signed in November 2023.
- Commenced deep maintenance and LIFEX on the second of the UK's
Vanguard Class nuclear submarines, HMS Victorious
- Launched the Babcock Skills Academy, to meet evolving
capability requirements for our growing workforce
- Awarded contract from UK MOD to collaborate on support
requirements for the future Dreadnought Class submarines
- Awarded a five-year contract from UK MOD to collaborate on the
detailed design for the Ship Submersible Nuclear AUKUS
- Awarded a five-year civil nuclear Magnox decommissioning project at Hinkley Point A
- Entered into a strategic agreement with HII to collaborate on
naval and civil nuclear opportunities in the UK and US
- Teaming partnership with HII to collaborate on nuclear-powered
submarine capability to support the AUKUS endeavour
Financial review
30 September FX impact Acquisitions Organic 30 September
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- ------------ --------- ------------ ------- ------------
Contract backlog* 2,547 2,400
============================= ============ ========= ============ ======= ============
Revenue 558.2 - - 152.6 710.8
============================= ============ ========= ============ ======= ============
Underlying operating profit* 30.1 - - 15.1 45.2
============================= ============ ========= ============ ======= ============
Underlying operating margin* 5.4% 6.4%
----------------------------- ------------ --------- ------------ ------- ------------
*Alternative Performance Measures are defined in the Financial
Glossary on page 25
Revenue grew by 27% to GBP710.8 million, driven principally by
the further ramp up of the Major Infrastructure Programme (MIP) at
Devonport dockyard, as well as increased submarine support activity
at the Faslane naval base and continued growth in our civil nuclear
business. MIP revenue more than doubled in the period to GBP218
million (HY23: GBP105 million).
Underlying operating profit increased to GBP45.2 million from
GBP30.1 million in HY23, which included a GBP6 million programme
provision. The increase over the prior period was also driven by a
higher contribution from MIP revenue (which is lower margin) and
increased civil nuclear activity, which more than offset the impact
of future inflation assumptions on programmes. As a result,
operating margin increased to 6.4% (HY23: 5.4%).
Contract backlog decreased 6% year on year to GBP2,400 million
(HY23: GBP2,547 million) due to the trading of long-term contracts,
specifically our Future Maritime Support Programme (FMSP) contract.
In November 2023, we signed a further contract with the UK MOD's
Submarine Delivery Agency (SDA) worth GBP750 million over four
years for the delivery of infrastructure in Devonport to support
future submarine maintenance.
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 period 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, we are ensuring the future capability requirements
of the Royal Navy and the submarine enterprise are met for decades
to come with the MIP. During the period, we completed enabling
works on the site-wide upgrade programme to ensure the right
foundations are in place for the construction works to be delivered
at pace.
The programme has entered the formal construction phase, which
will deliver a new dock, berth, logistics and production support
facilities, and underpins the wider role Babcock performs in
sustaining the entirety of the UK submarine fleet. The MIP will
enable the delivery of base maintenance periods (BMP) and deep
maintenance periods (DMP) at Devonport, including nuclear defuel of
current and future classes, and life-extension programmes (LIFEX),
crucial to the UK submarine programme.
We are continuing to deliver good performance and ongoing
improvements against our FMSP contract. This includes demonstrating
to our customer how the positive impact will be maintained for the
remainder of the contract and beyond, an example of which is the
significant increase in productive utilisation being delivered at
Clyde. Deep maintenance and life-extension on the second of the
UK's Vanguard Class nuclear submarines, HMS Victorious, is now
underway at Babcock's facility at Devonport. This follows the
completion this year of HMS Vanguard, which left Devonport after
the most complex life-extension programme that has ever been
delivered within the submarine enterprise. The first Astute Class
submarine has also been received in Devonport and is currently
undergoing surveys and work ahead of an in-dock maintenance
period.
At Clyde, we are continuing to deliver a strong performance on
several important submarine base maintenance periods for our
customer. This includes ongoing work on high priority vessels, some
of which support the Continuous At Sea Deterrent (CASD).
Building on the support we are providing to the Dreadnought
Class submarines that will replace the Vanguard Class in the early
2030s, we have now signed a contract with the UK MOD to provide
input into the support requirements for this Class. This involves
drawing on our historical expertise and technical experience of
in-service support and maintenance to advise on the transition into
service.
The value of our expertise in submarine design and support has
also been recognised in the signing of a five-year contract with
the UK MOD to provide input into the detailed design for the new
Ship Submersible Nuclear AUKUS (SSN-A) submarines, which will
replace the Astute Class from the late 2030s.
Babcock continues to support the Submarine Delivery Agency (SDA)
on the Submarine Dismantling Project (SDP). Babcock and the SDA
achieved a disposal milestone as HMS Swiftsure was dry-docked in
Rosyth to begin preparations for final dismantling. It will be the
first UK nuclear-powered submarine to be fully dismantled by the
end of 2026.
During the period, we entered into a strategic Memorandum of
Understanding (MOU) with HII to collaborate on naval and civil
nuclear decommissioning and construction opportunities in the UK
and US. The MOU also identifies opportunities for cooperation in
civil nuclear power plant and component design, fabrication and
construction in North America and the UK. In addition, in September
2023, we announced a teaming partnership with HII to collaborate on
the optimal models for nuclear-powered submarine capability,
including infrastructure, sustainment and the necessary skills
development to support the AUKUS endeavour.
During the summer, we launched the Babcock Skills Academy, which
uses a hybrid teaching model that combines cutting-edge digital
resources and hands on training, to rapidly equip our people to
deliver the critical capabilities our customers need - now and in
the future. Operating in partnership with local education
establishments and complementing our award-winning early careers
programmes, this has been launched initially at our Devonport
dockyard, with a focus on submarine support and critical nuclear
skills to enable learning of complex skills required to perform
submarine deep maintenance. More than 2,000 people will pass
through the Skills Academy in its first three years, and a further
10,000 over the following five years. By focusing on targeted
learning, the Skills Academy will accelerate time to competence,
compared to traditional training methods.
Civil Nuclear
In decommissioning, we have now signed a contract for the Magnox
Hinkley Point A Vault Retrievals Phase 2 project. Over this
five-year contract we will provide the design and delivery of an
automated solution to safely retrieve, process and package waste
from the site's vaults, ready for safe storage.
Sellafield engineers have used new equipment, designed and
installed by our civil nuclear business, Cavendish Nuclear, and
partners, to retrieve waste from the UK's oldest waste storage
building, the Pile Fuel Cladding Silo, a programme which represents
one of the most complex and challenging decommissioning projects in
the world and one of the highest priorities for Sellafield and the
Nuclear Decommissioning Authority (NDA).
In the US, our Cavendish Nuclear business, and joint venture
partners Amentum and Fluor, have been awarded a 10-year Portsmouth
Gaseous Diffusion Plant Decontamination and Decommissioning
Contract in Piketon, Ohio. In addition to demolishing and disposing
of gaseous diffusion plant facilities, the team will deploy proven
technologies to address water treatment and soil remediation.
In Japan, work is now underway to deliver the 10-year contract
we secured earlier in the year with Japan Atomic Energy Agency
(JAEA), to provide specialist capability in support of the
decommissioning of the Monju Prototype Fast Reactor (PFR) in Fukui
Prefecture, Japan.
In nuclear support, we continue to support EDF with Large
Gigawatt Reactor delivery at Hinkley Point C and Sizewell C, and
X-energy as their UK Advanced Modular Reactor (AMR) deployment
partner. We are also supporting Rolls Royce and GE-Hitachi, two of
the six Small Modular Reactor (SMR) vendors whose designs have
recently advanced to the next phase of the UK's SMR competition, a
fast-track measure that could result in a Government contract as
part of a strategy to deliver operational SMRs by the
mid-2030s.
Work continues on delivering the Process, Plant and Equipment
(PP&E) contract, with Babcock leading the design, installation
and commissioning of complex plant and equipment engineering,
enabling the customer to safely process and deliver their
production line. We continue to see the framework contract ramp up
in FY24 and the programme remains a key enabler for further
opportunities across the wider facility as site capabilities are
updated to meet future demands.
Land
Operational highlights
- Discussions with UK MOD for five option years on the DSG
contract out to 2030 continue to progress
- Launched Babcock General Logistics Vehicle targeting an
upcoming UK MOD tender to replace the Army Land Rover fleet
- Secured the rebid on the six-year Royal Electro-Mechanical
Engineers apprenticeships contract
- Awarded second land defence contract to manage and maintain
ground support equipment at military bases across France
- Awarded a three-year extension for our Australian sustainment
and acquisition C-CBRNE capabilities contract
Financial review
30 September FX impact Acquisitions Organic 30 September
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- ------------ --------- ------------ ------- ------------
Contract backlog* 2,429 2,734
============================= ============ ========= ============ ======= ============
Revenue 478.2 (25.4) (21.4) 114.2 545.6
============================= ============ ========= ============ ======= ============
Underlying operating profit* 38.0 (3.0) (1.5) 4.0 37.5
============================= ============ ========= ============ ======= ============
Underlying operating margin* 7.9% 6.9%
----------------------------- ------------ --------- ------------ ------- ------------
*Alternative Performance Measures are defined in the Financial
Glossary on page 25
Revenue increased to GBP545.6 million, up 26% on an organic
basis. The key drivers were strong growth in our South African
business, driven by continued demand for mining equipment and
aftermarket sales, further ramp-up of the Australian Defence High
Frequency Communication (DHFC) system contract and higher contract
volumes in Rail, vehicle engineering and military training.
Reported revenue growth of 14% was adversely impacted by FX
translation (5%) from the weakening of the South African Rand
against the British Pound, and disposal of the Civil Training
business in FY23 (4%).
Underlying operating profit was flat compared to HY23, which
included a GBP3.0 million one off profit adjustment. Underlying
operating profit increased 12% organically, which was offset by FX
and the impact of the Civil Training disposal in FY23. Organic
growth was driven by strong sales in South Africa and profit
generated from increased volume and improved performance across a
number of our Land contracts. Higher revenue and flat profit
resulted in an underlying operating margin of 6.9% (HY23: 7.9%),
which also reflected increased investment in strengthening our
control environment and bidding activity.
Contract backlog increased 13% to GBP2,734 million (HY23:
GBP2,429 million) driven by the Australian DHFC system in H2 23 and
a number of smaller orders in the period.
Operational review
Defence
Performance in our Defence Equipment business continues to go
from strength to strength. Investment in new data capabilities is
aimed at transforming, capturing, integrating, modelling and
building data-driven solutions across all areas of our defence
business. For example, in our DSG support contract, we are
combining this smart data approach with our deep engineering
expertise to improve fleet availability and real time
identification of any issues throughout the asset lifecycle.
Discussions with the UK MOD regarding the execution of five
option-years on the DSG contract are progressing well and we
anticipate them to be executed in line with the agreed
timetable.
We continue to develop leading edge capabilities. Most notably
we were recently able to announce an Enterprise Agreement with
Palantir Technologies UK. The agreement is strengthening Babcock's
integrated planning function by enhancing our digital capabilities
across the Sector.
In response to growing obsolescence of critical parts and the
increased commercial strains within the defence supply chain, our
advanced manufacturing capability is now well established, and we
have the ability to fully re-engineer and manufacture obsolete
material across all domains.
During the period, our contract to manage the UK MOD's 'white
fleet' vehicles through the Phoenix II contract has successfully
converted 25% of the fleet to electric vehicles, in alignment with
the schedule. This programme is creating greater fuel efficiencies
and supporting the MOD's sustainability goals.
We have reached full operational capability ahead of schedule in
our support of the UK's gifted platforms to Ukraine. Through our
existing contract, we contributed to the British Army's support to
Ukraine's Armed Forces, through equipment refurbishment and
regeneration along with training support for Ukrainian nationals in
a range of domains.
Our ambition to develop a portfolio of product-based offerings
remains on track. In February 2023, we were awarded a contract from
the UK MOD, in collaboration with Devon-based Supacat, to deliver
an order of 70 High Mobility Transporters (HMT 400 series). The
contract mobilisation is well underway, with a new production line
established to manufacture the platforms within the free port of
Devonport. Discussions are underway with the UK MOD for a follow-on
order for a further 80 HMTs.
The Babcock General Logistics Vehicle (GLV) was launched at the
UK's Defence Security and Equipment International conference (DSEI)
in September 2023. The GLV is designed to target the upcoming UK
MOD tender to replace the current British Army Land Rover fleet.
The successful launch event also initiated additional opportunities
worldwide. The ground-breaking GLV is built around the proven
Toyota Land Cruiser 70 series platform which is used by militaries
and aid agencies around the world.
In our Vehicle Engineering business, we have secured all
competed UK Government contracts to procure Toyota LC300 Civilian
Armoured Vehicles.
Our Defence Training business performed well across all
contracts. We secured the rebid on the six-year long Royal
Electro-Mechanical Engineering Apprenticeships contract (REME) out
to August 2029. We were also awarded an additional six-month
extension of our Training Maintenance And Support Services (TMASS)
contract while we continue to await the outcome of the Armour
Support Centre contract. We continue to have positive engagement
with the customer as part of the bid process as they develop their
Army Collective Training System.
During the period, we have been awarded a three-year contract,
in support of Mabway, for the provision of support to the design,
preparation and delivery of training exercises, expected to replace
our current Hannibal contract.
In France , we have successfully completed the transition of the
ground support equipment contract for assets and equipment across
the French Army, Navy and Air Force through a 10-year contract.
Programme performance after six months is good and remains in line
with customer expectations, delivering support activities from 22
sites across mainland France. In addition, we have been awarded a
second contract, to provide in-service support to airfield support
equipment throughout the military bases in France's mainland and
overseas bases for seven years. 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, the Defence High Frequency Communication (DHFC)
System, to support the Australian armed forces over the next 10
years, successfully achieved the operational date in June 2023, on
schedule. Babcock is prime contractor for the operation and support
of the customer's existing capability, in addition to delivering a
comprehensive technology upgrade programme. The initial system
design milestone for the enhanced capability was achieved during
the period.
In September, we signed a three-year contract extension with the
Australian Department of Defence, streamlining sustainment and
acquisition processes for Counter - Chemical, Biological,
Radiological, Nuclear and Explosive (C-CBRNE) capability using
Babcock's industry-leading asset management systems.
In June 2023, Babcock submitted a tender response to the
Commonwealth of Australia for the delivery of sustainment
management services for a wide range of defence assets and
fleets.
Emergency Services
Both the London Fire Brigade (LFB) and London Metropolitan
Police Service (MPS) Training contracts have performed well in the
period. We have however seen a decline in volumes across the MPS
contract as the customer seeks to meet challenging recruitment
targets.
South Africa
Performance was better than expected supported by high commodity
prices in the mining sector driving increased equipment volumes and
aftermarket activity. Results for the Engineering and Plant
businesses were in line with forecast. Work continues with ongoing
improvements through operational excellence initiatives combined
with enhancing our people performance, experience, development and
capability throughout the Africa business.
Other civil markets
Our Rail business performed well during the period with further
work in our Translink framework. We continue to focus on delivery
in our two key regions of Scotland and Northern Ireland.
Aviation
- Two additional H160 military helicopters modified and
delivered to the French Navy as part of a 10-year contract
- Awarded a four-year extension with the South Australian
Government for aerial emergency services
- Signed the Defence Aviation Net Zero Charter to demonstrate
our commitment to sustainability
- Partnered with Zero Petroleum to explore the use of synthetic
fuels across air defence platforms
- Awarded a four-year contract for support of H145 aircraft with
French Securité Civile, partnered with Airbus
Financial review
30 September FX impact Acquisitions Organic 30 September
2022 GBPm & disposals GBPm 2023
GBPm GBPm GBPm
----------------------------- ------------ --------- ------------ ------- ------------
Contract backlog* 2,450 1,573
============================= ============ ========= ============ ======= ============
Revenue 441.2 (5.9) (226.2) (38.6) 170.5
============================= ============ ========= ============ ======= ============
Underlying operating profit* 6.3 (0.4) 0.5 2.3 8.7
============================= ============ ========= ============ ======= ============
Underlying operating margin* 1.4% 5.1%
----------------------------- ------------ --------- ------------ ------- ------------
*Alternative Performance Measures are defined in the Financial
Glossary on page 25
Revenue decreased to GBP170.5 million (HY23: 441.2 million)
reflecting the impact of the European Aerial Emergency Services
(AES) disposal completed in February 2023. On an organic basis,
revenue declined 18% primarily due to the sales mix of our French
defence contracts, particularly Mentor, between aircraft delivery
and service phases.
Underlying operating profit increased to GBP8.7 million (HY23:
GBP6.3 million), up 36% on an organic basis, representing an
underlying operating margin of 5.1% (HY23: 1.4%). The improved
margin performance was driven by mix (lower aircraft delivery
revenue), a one-off inflationary impact relating to a military
contract and lower bid costs on a large tender that has ended.
Contract backlog decreased to GBP1,573 million (HY23: GBP2,450
million), mainly due to the impact of the European AES disposal
(c.GBP1,100 million). The retained business contract backlog grew
by 16%, predominantly driven by new AES contracts (Australia and
Canada), and renewals and extensions of long-term defence contracts
(UK Hawk and Light Aircraft Flying Task) in H2 23.
Operational review
Defence
Performance on the RAF HADES engineering support contract
remains strong against a background of customer site laydown and
base closures. We have successfully transitioned into the extension
period and have commenced discussions with our customer regarding a
further extension to the service. Despite fleet challenges,
operations on the RAF Light Aircraft Flying contract (LAFT2), have
now successfully resumed, following a period of technical issues on
the fleet. Babcock has also adapted support through its Light
Aircraft training service to meet then UK's commitment to support
the training of Ukrainian pilots.
We have signed the Defence Aviation Net Zero Charter, setting
out our commitment to help UK Defence meet the challenges of
climate change and partnered with Zero Petroleum to advance the
testing of synthetic fuels in the military environment across air
defence platforms.
Additionally, we continue to work with the RAF's Rapid
Capability Office on Project MONET, a two-year research and
development project to explore the application of emerging
technologies that could minimise the environmental impact of light
aircraft flying training. Collaborating with UK SMEs, we are
engaged in exploring Defence utilisation of synthetic net zero
fuels and materials circularity in Defence.
We continue 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.
In France , following delivery of aircraft, support activity
continues to ramp up on the Mentor contract and flying hours are
above expectations. We are now managing a total of 26 PC21 aircraft
delivering training to French Air Force fighter pilots. On the
FOMEDEC contract, an additional simulator has been set up to
deliver an additional 1,500 hours of training to the customer.
During the first half of the year, two additional Airbus H160
helicopters were delivered and accepted by the French Navy as part
of our contract with the French MOD. The aircraft will be deployed
on demanding search and rescue missions. We've also opened the
first H160 site for search and rescue operations in the world,
located in Cherbourg.
Bidding activity on defence tenders remains buoyant as we bid
for Mentor II, a contract for the outsourcing of initial training
of French military pilots and another contract for the outsourcing
of French Air Force tactical and combat training.
In Canada , during the period, we learned that Babcock Leonardo
Canadian Aircrew Training joint venture was not selected to deliver
the Future Aircrew Training (FAcT) programme. Babcock continues to
explore opportunities to support the Royal Canadian Air Force in
the future.
Aerial emergency services
Following completion of the sale of certain of our European AES
businesses to Ancala Partners on 28 February 2023, Babcock has
retained its AES businesses in its focus countries of the UK,
France, Canada and Australia, where the Group also operates defence
businesses.
In Australia, we were awarded a four-year extension in October
2023 for the delivery of emergency medical services, search and
rescue and airborne law enforcement services for the South
Australian State Rescue Helicopter Service (SRHS). The existing
fleet of three Bell 412 helicopters will be strengthened by an
additional Airbus H145 helicopter to be utilised by the South
Australian Police, expected to be in service by mid-2024.
The State Government is continuing the process to replace the
SRHS contract under a new State Police, Ambulance and Rescue
Aviation service (SPARAS) contract, bringing together three
existing services that deliver rescue helicopter services, South
Australian Police's fixed wing services and the South Australian
Ambulance Service's fixed wing emergency aero-medical retrieval
services. Babcock remains actively involved in the SPARAS
procurement process having submitted a formal response in September
2023.
In France, we've seen an increase in our helicopter emergency
services activity. Additional maintenance work has been delivered
to French Customs as part of the seven-year service contract.
Flying activity is also above expectations.
In Canada, Babcock Canada has successfully completed the 2023
aerial firefighting season. This year Canada experienced an
unprecedented number of wildfires, which saw Babcock Canada deliver
over 1,500 flight hours in support of firefighting efforts across
Manitoba and in surrounding provinces and territories.
In FY23, Babcock Canada won a c.GBP200m contract, as a
subcontractor to Ascent Helicopters, for helicopter emergency
medical services (HEMS). We are nearing the completion of the
design process for the five HEMS facilities across Vancouver,
Prince Rupert, Prince George, Parksville, and Kamloops. We expect
to begin construction in FY24/25.
Financial Glossary - Alternative Performance Measures
The Group provides Alternative Performance Measures (APMs),
including underlying operating profit, underlying operating 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 2023. Further information on the Group's specific
adjusting items, which is a critical accounting judgement, can be
found in Note 2 of the interim financial statements.
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 8
performance - See Note 2
------------ ------------------- ------------------------------------------- -----------------------
Underlying Operating Growth excluding the impact of foreign FX, contribution
organic profit growth exchange (FX), and contribution from of acquisitions
profit year-on-year acquisitions and disposals over the and disposals in
growth prior and current year the current and
- Used to measure the year-on-year prior period
movement in Group underlying operating
profit
- It is a good indicator of profit
growth
------------ ------------------- ------------------------------------------- -----------------------
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 8
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 8
------------ ------------------- ------------------------------------------- -----------------------
Measure Closest Definition and purpose Adjustments
equivalent to reconcile
IFRS measure to IFRS measure
(and reference
to reconciliation)
------------------ ------------- ----------------------------------------------- ---------------------
Profit measures
continued
------------------ ------------- ----------------------------------------------- ---------------------
Underlying Effective Tax expense excluding the tax impact of Specific adjusting
effective tax rate specific adjusting items (1) , as a percentage items (1)
tax rate of underlying profit before tax (being - See table
the summation of the impact of all adjusting on page 8
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 Based on the Group's underlying profit Specific adjusting
basic earnings earnings before tax and underlying effective tax items (1)
per share per share rate - See table
on page 8
------------------ ------------- ----------------------------------------------- ---------------------
EBITDA Operating Underlying operating profit, plus depreciation Specific adjusting
profit and amortisation, and various covenant items(1)
adjustments linked to the Revolving Credit Depreciation
Facility including the treatment of leases and amortisation
within operating profit and pension costs Covenant adjustments
- Used as the basis to derive the gearing - See table
ratio net debt/EBITDA, which is a key on page 13
measure of balance sheet strength and
the basis of our debt covenant calculations
------------------ ------------- ----------------------------------------------- ---------------------
Balance
sheet
------------------ ------------- ----------------------------------------------- ---------------------
Net debt No direct Loans, including the interest rate and - See table
equivalent foreign exchange derivatives which hedge on page 10
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 operating - See table
(excluding equivalent lease liabilities as previously defined on page 10
operating 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
(covenant equivalent excluding loans to joint ventures and on page 13
basis) 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 by EBITDA Ratio - N/A
(covenant equivalent - A measure of the Group's ability to - See table
basis) meet its payment obligations on page 13
- Used by analysts and credit agencies
- Group KPI
------------------ ------------- ----------------------------------------------- ---------------------
Return on No direct Underlying operating profit plus share Ratio - N/A
invested equivalent of JV PAT, divided by the sum of net debt - See table
capital (pre-tax) (excluding operating leases), shareholders' on page 13
(ROIC) funds and 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
------------------ ------------- ----------------------------------------------- ---------------------
Measure Closest Definition and purpose Adjustments to
equivalent reconcile to
IFRS measure IFRS measure
(and reference
to reconciliation)
---------------- ------------- ------------------------------------------------ -------------------
Cash flow
measures
---------------- ------------- ------------------------------------------------ -------------------
Net capital No direct Property, plant and equipment and intangible
expenditure equivalent 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 capital Ratio - N/A
operating equivalent expenditure as a percentage of underlying
cash conversion operating profit
- Used as a measure of the Group's efficiency
in converting profits into cash
---------------- ------------- ------------------------------------------------ -------------------
Underlying No direct Underlying free cash flow includes cash - See page 10
free cash equivalent flows from exceptional items and the capital
flow 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 interim financial statements
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 or 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, have not
changed since FY23 and are explained and described in more detail
in the 2023 Annual Report, a copy of which will be available at
www.babcockinternational.com
Condensed consolidated income statement (unaudited)
Six months Six months
ended ended
30 September 30 September
2023 2022
Note GBPm GBPm
------- ------ -------------
Revenue 2,3 2,177.0 2,144.0
================================================== ====== =============== ===============
Operating costs (2,032.8) (2,071.2)
================================================== ====== =============== ===============
Operating profit 2,3 144.2 72.8
================================================== ====== =============== ===============
Share of results of joint ventures and associates 2,3 6.0 6.6
================================================== ====== =============== ===============
Finance income 4 10.2 10.1
================================================== ====== =============== ===============
Finance costs 4 (24.3) (38.3)
-------------------------------------------------- ------ --------------- ---------------
Profit before tax 2,3 136.1 51.2
================================================== ====== =============== ===============
Income tax expense 2,5 (32.0) (14.2)
-------------------------------------------------- ------ --------------- ---------------
Profit for the period 2 104.1 37.0
-------------------------------------------------- ------ --------------- ---------------
Attributable to:
================================================== ====== =============== ===============
Owners of the parent 2 102.5 34.6
================================================== ====== =============== ===============
Non-controlling interest 2 1.6 2.4
-------------------------------------------------- ------ --------------- ---------------
104.1 37.0
-------------------------------------------------- ------ --------------- ---------------
Earnings per share
================================================== ====== =============== ===============
Basic 2 20.4p 6.8p
================================================== ====== =============== ===============
Diluted 2 19.9p 6.7p
================================================== ====== =============== ===============
Condensed consolidated statement of comprehensive income
(unaudited)
Six months Six months
ended ended
30 September 30 September
2023 2022
GBPm GBPm
------------------------------------------------------ ------------- -------------
Profit for the period 104.1 37.0
====================================================== ============= =============
Other comprehensive loss
====================================================== ============= =============
Items that may be subsequently reclassified to income
statement
====================================================== ============= =============
Currency translation differences (5.4) 7.7
====================================================== ============= =============
Fair value adjustment of interest rate and foreign
exchange hedges 3.1 -
====================================================== ============= =============
Hedging (losses)/gains reclassified to profit and
loss (1.1) 2.9
====================================================== ============= =============
Share of other comprehensive income of joint ventures
and associates 0.4 3.1
====================================================== ============= =============
Tax on items that may be subsequently reclassified
to income statement (1.5) -
====================================================== ============= =============
Items that will not be subsequently reclassified
to income statement
====================================================== ============= =============
Remeasurement of retirement benefit obligations (note
13) (132.7) (124.0)
====================================================== ============= =============
Tax, including rate change impact, on remeasurement
of retirement benefit obligations 33.2 31.0
====================================================== ============= =============
Other comprehensive loss, net of tax (104.0) (79.3)
------------------------------------------------------ ------------- -------------
Total comprehensive income/(loss) 0.1 (42.3)
------------------------------------------------------ ------------- -------------
Total comprehensive income/(loss) attributable to:
====================================================== ============= =============
Owners of the parent (0.8) (44.0)
====================================================== ============= =============
Non-controlling interest 0.9 1.7
------------------------------------------------------ ------------- -------------
Total comprehensive income/(loss) 0.1 (42.3)
------------------------------------------------------ ------------- -------------
Condensed consolidated statement of changes in equity
(unaudited)
Owners
Share Share Other Capital Retained Hedging Translation of the Non-controlling Total
capital premium reserve redemption earnings reserve reserve parent interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- --------- ------- ----------- --------- --------------- ---------
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
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Profit for the
period - - - - 34.6 - - 34.6 2.4 37.0
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Other
comprehensive
(loss)/income - - - - (93.0) 6.0 8.4 (78.6) (0.7) (79.3)
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Total
comprehensive
loss - - - - (58.4) 6.0 8.4 (44.0) 1.7 (42.3)
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Share-based
payments - - - - 4.0 - - 4.0 - 4.0
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Tax on
shared-based
payments - - - - (0.7) - - (0.7) - (0.7)
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Net movement
in equity - - - - (55.1) 6.0 8.4 (40.7) 1.7 (39.0)
-------------- ------- ------- ------- ---------- --------- ------- ----------- --------- --------------- ---------
At 30
September
2022 303.4 873.0 768.8 30.6 (1,296.5) 10.0 (48.0) 641.3 21.2 662.5
-------------- ------- ------- ------- ---------- --------- ------- ----------- --------- --------------- ---------
At 1 April
2023 303.4 873.0 768.8 30.6 (1,568.8) 3.0 (56.1) 353.9 17.0 370.9
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Profit for the
period - - - - 102.5 - - 102.5 1.6 104.1
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Other
comprehensive ( 103.3 ( 104.0
(loss)/income - - - - (99.5) 2.0 (5.8) ) (0.7) )
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Total
comprehensive
income - - - - 3.0 2.0 (5.8) (0.8) 0.9 0.1
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Purchase of
own shares - - - - (7.5) - - (7.5) - (7.5)
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Share-based
payments - - - - 5.2 - - 5.2 - 5.2
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Tax on
shared-based
payments - - - - 2.1 - - 2.1 - 2.1
============== ======= ======= ======= ========== ========= ======= =========== ========= =============== =========
Net movement
in equity - - - - 2.8 2.0 (5.8) (1.0) 0.9 (0.1)
-------------- ------- ------- ------- ---------- --------- ------- ----------- --------- --------------- ---------
At 30
September
2023 303.4 873.0 768.8 30.6 (1,566.0) 5.0 (61.9) 352.9 17.9 370.8
-------------- ------- ------- ------- ---------- --------- ------- ----------- --------- --------------- ---------
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.
Condensed consolidated statement of financial position
(unaudited)
As at 30 As at 31
September March
Note 2023 GBPm 2023 GBPm
-------------------------------------------------- ---- ---------- ----------
Assets
================================================== ==== ========== ==========
Non-current assets
================================================== ==== ========== ==========
Goodwill 6 780.7 781.4
================================================== ==== ========== ==========
Other intangible assets 145.2 140.8
================================================== ==== ========== ==========
Property, plant and equipment 487.3 478.5
================================================== ==== ========== ==========
Right of use assets 150.4 159.1
================================================== ==== ========== ==========
Investment in joint ventures and associates 57.0 57.4
================================================== ==== ========== ==========
Loans to joint ventures and associates 2.0 9.5
================================================== ==== ========== ==========
Retirement benefit surpluses 13 43.5 94.8
================================================== ==== ========== ==========
Other financial assets 6.7 7.3
================================================== ==== ========== ==========
Lease receivables 18.3 22.2
================================================== ==== ========== ==========
Derivatives 0.9 2.6
================================================== ==== ========== ==========
Deferred tax asset 129.5 112.2
================================================== ==== ========== ==========
Trade and other receivables 8 6.2 6.4
-------------------------------------------------- ---- ---------- ----------
1,827.7 1,872.2
-------------------------------------------------- ---- ---------- ----------
Current assets
================================================== ==== ========== ==========
Inventories 128.5 126.8
================================================== ==== ========== ==========
Trade and other receivables 8 542.0 506.9
================================================== ==== ========== ==========
Contract assets 8 340.0 322.5
================================================== ==== ========== ==========
Income tax receivable 3.2 7.7
================================================== ==== ========== ==========
Lease receivables 11.8 16.4
================================================== ==== ========== ==========
Assets held for sale 2.9 -
================================================== ==== ========== ==========
Other financial assets 1.0 1.4
================================================== ==== ========== ==========
Derivatives 3.8 4.3
================================================== ==== ========== ==========
Cash and cash equivalents 12 480.5 451.7
================================================== ==== ========== ==========
1,513.7 1,437.7
-------------------------------------------------- ---- ---------- ----------
Total assets 3,341.4 3,309.9
-------------------------------------------------- ---- ---------- ----------
Equity and liabilities
================================================== ==== ========== ==========
Equity attributable to owners of the parent
================================================== ==== ========== ==========
Share capital 303.4 303.4
================================================== ==== ========== ==========
Share premium 873.0 873.0
================================================== ==== ========== ==========
Capital redemption and other reserves 742.5 746.3
================================================== ==== ========== ==========
Retained losses (1,566.0) (1,568.8)
-------------------------------------------------- ---- ---------- ----------
Total equity attributable to owners of the parent 352.9 353.9
================================================== ==== ========== ==========
Non-controlling interest 17.9 17.0
-------------------------------------------------- ---- ---------- ----------
Total equity 370.8 370.9
-------------------------------------------------- ---- ---------- ----------
Non-current liabilities
================================================== ==== ========== ==========
Bank and other borrowings 746.7 768.4
================================================== ==== ========== ==========
Lease liabilities 170.6 178.9
================================================== ==== ========== ==========
Trade and other payables 9 0.9 0.9
================================================== ==== ========== ==========
Deferred tax liabilities 6.8 7.0
================================================== ==== ========== ==========
Derivatives 52.0 53.3
================================================== ==== ========== ==========
Retirement benefit deficits 13 198.4 156.2
================================================== ==== ========== ==========
Provisions for other liabilities 11 86.0 80.8
-------------------------------------------------- ---- ---------- ----------
1,261.4 1,245.5
-------------------------------------------------- ---- ---------- ----------
Current liabilities
================================================== ==== ========== ==========
Bank and other borrowings 0.1 19.6
================================================== ==== ========== ==========
Lease liabilities 42.4 49.9
================================================== ==== ========== ==========
Trade and other payables 9 966.9 911.1
================================================== ==== ========== ==========
Contract liabilities 9 609.6 616.4
================================================== ==== ========== ==========
Income tax payable 13.9 15.8
================================================== ==== ========== ==========
Derivatives 15.2 12.8
================================================== ==== ========== ==========
Provisions for other liabilities 11 61.1 67.9
-------------------------------------------------- ---- ---------- ----------
1,709.2 1,693.5
-------------------------------------------------- ---- ---------- ----------
Total liabilities 2,970.6 2,939.0
-------------------------------------------------- ---- ---------- ----------
Total equity and liabilities 3,341.4 3,309.9
-------------------------------------------------- ---- ---------- ----------
Condensed consolidated cash flow statement (unaudited)
Six months Six months
ended ended
30 September 30 September
2023 2022
Note GBPm GBPm
------------------------------------------------------ ---- ------------- -------------
Cash flows from operating activities
====================================================== ==== ============= =============
Profit for the period 2 104.1 37.0
====================================================== ==== ============= =============
Share of results of joint ventures and associates 2,3 (6.0) (6.6)
====================================================== ==== ============= =============
Income tax expense 5 32.0 14.2
====================================================== ==== ============= =============
Finance income 4 (10.2) (10.1)
====================================================== ==== ============= =============
Finance costs 4 24.3 38.3
====================================================== ==== ============= =============
Depreciation and impairment of property, plant
and equipment 25.2 37.2
====================================================== ==== ============= =============
Depreciation and impairment of right of use assets 18.9 52.5
====================================================== ==== ============= =============
Amortisation and impairment of intangible assets 10.5 16.6
====================================================== ==== ============= =============
Equity share-based payments 5.2 4.0
====================================================== ==== ============= =============
Net derivative fair value and currency movement
through profit or loss 6.7 23.2
====================================================== ==== ============= =============
Profit on disposal of property, plant and equipment (0.1) (0.6)
====================================================== ==== ============= =============
Profit on disposal of right of use assets (0.2) (0.1)
====================================================== ==== ============= =============
Cash generated from operations before movement
in working capital and retirement benefit payments 210.4 205.6
------------------------------------------------------ ---- ------------- -------------
(Increase)/decrease in inventories (4.6) 1.1
====================================================== ==== ============= =============
Increase in receivables (31.9) (8.7)
====================================================== ==== ============= =============
Increase in contract assets (19.4) (100.6)
====================================================== ==== ============= =============
Increase in payables 55.3 85.4
====================================================== ==== ============= =============
Decrease in contract liabilities (5.0) (26.3)
====================================================== ==== ============= =============
Decrease in provisions (2.0) (5.1)
====================================================== ==== ============= =============
Retirement benefit payments in excess of income
statement charge (39.6) (76.2)
====================================================== ==== ============= =============
Cash generated from operations 163.2 75.2
------------------------------------------------------ ---- ------------- -------------
Income tax paid (12.9) (12.2)
====================================================== ==== ============= =============
Interest paid (24.6) (20.9)
====================================================== ==== ============= =============
Interest received 11.1 6.8
====================================================== ==== ============= =============
Net cash flows from operating activities 136.8 48.9
------------------------------------------------------ ---- ------------- -------------
Cash flows from investing activities
====================================================== ==== ============= =============
Dividends received from joint ventures and associates 6.8 5.1
====================================================== ==== ============= =============
Proceeds on disposal of property, plant and equipment 9.8 22.7
====================================================== ==== ============= =============
Purchases of property, plant and equipment (47.4) (52.8)
====================================================== ==== ============= =============
Purchases of intangible assets (14.3) (6.8)
====================================================== ==== ============= =============
Loans repaid by joint ventures and associates 7.1 2.0
====================================================== ==== ============= =============
Net cash flows from investing activities (38.0) (29.8)
------------------------------------------------------ ---- ------------- -------------
Cash flows from financing activities
====================================================== ==== ============= =============
Lease principal payments 12 (24.5) (54.2)
====================================================== ==== ============= =============
Bank loans repaid 12 (13.0) (60.7)
====================================================== ==== ============= =============
Purchase of own shares (7.5) -
====================================================== ==== ============= =============
Loans raised and facilities drawn down - 153.3
====================================================== ==== ============= =============
Net cash flows from financing activities (45.0) 38.4
------------------------------------------------------ ---- ------------- -------------
Net increase in cash, cash equivalents and bank
overdrafts 12 53.8 57.5
====================================================== ==== ============= =============
Cash, cash equivalents and bank overdrafts at
beginning of period 12 429.5 756.5
====================================================== ==== ============= =============
Effects of exchange rate fluctuations 12 (2.9) 1.1
------------------------------------------------------ ---- ------------- -------------
Cash, cash equivalents and bank overdrafts at
end of period 12 480.4 815.1
------------------------------------------------------ ---- ------------- -------------
Notes to the consolidated financial statements (unaudited)
1. Basis of preparation and significant accounting policies
These condensed consolidated half year financial statements have
been prepared in accordance with IAS 34, Interim Financial
Reporting and the Disclosures and Transparency Rules of the
Financial Services Authority, the Listing Rules and UK adopted
International Financial Reporting Standards (IFRS). They should be
read in conjunction with the annual report and financial statements
for the year ended 31 March 2023, which were prepared in accordance
with IFRS and the applicable legal requirements of the Companies
Act 2006. These condensed consolidated half year financial
statements do not comprise statutory accounts within the meaning of
Section 435 of the Companies Act 2006. The annual report and
financial statements for the year ended 31 March 2023 were reported
upon by the Group's auditor and delivered to the registrar of
companies. The report of the auditor on the annual report and
financial statements for the year ended 31 March 2023 was
unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis of matter without
qualifying their report and did not contain statements under
Section 498 (2) or (3) of the Companies Act 2006. The accounting
policies used, and presentation of these condensed consolidated
half year financial statements are consistent with the accounting
policies applied by the Group in its consolidated annual report and
financial statements as at, and for the year ended, 31 March 2023,
and comply with amendments to IFRS effective since that date.
The half year report for the six months ended 30 September 2023
was approved by the Directors on 13 November 2023.
Significant accounting policies
New and amended standards adopted by the Group
There are no new standards, amendments or interpretations that
are not yet effective that are expected to have a material impact
on the Group's operations.
Basis of preparation
The Directors consider it appropriate to adopt the going concern
basis of accounting in preparing the condensed consolidated half
year financial statements. In assessing the appropriateness of the
going concern basis of accounting, the Directors have considered
whether the Group has adequate resources to continue in operational
existence for at least 12 months from the date of approval of these
consolidated half year financial statements. The Directors reviewed
the resources available to the Group in the form of cash and
committed facilities. As of 30 September 2023, the Group's
committed facilities and bonds totalling GBP1.75 billion were the
GBP300 million revolving credit facility (RCF), the GBP775 million
five-year multi-currency RCF, and two tranches of notes (GBP300m
million 1.875% notes and EUR550 million 1.375% notes) issued under
the Group's Eurobond programme. In October 2023, the Group has
closed the GBP300 million RCF reducing available facilities to
GBP1.45 billion. The going concern assessment, and forecasting of
covenants below, reflected this change in financing.
The GBP775 million RCF is the only remaining facility containing
financial covenants. The key covenant ratios are (i) net debt to
EBITDA (gearing ratio) and (ii) EBITDA to net interest (interest
cover) with tests set to less than 3.5x and greater than 4.0x
respectively. These are measured twice per year, on 30 September
and 31 March. To assess the level of headroom within the available
facilities, a reverse stress test was performed to assess the level
of performance deterioration against the base case budget (in both
EBITDA and net debt) required to challenge covenant levels. Of the
remaining measurement points within the five-year period approved
by the Board, the smallest required reduction in forecast EBITDA to
reach the covenant level was 65% and the smallest net debt increase
was 230%. Given the mitigating actions that are available and
within management's control, such adverse movements are not
considered plausible. There have been no breaches of debt covenants
during the reporting period.
The Directors have also considered the Group's forecasts when
assessing going concern, having considered the 18-month period from
the date of signing the Group's condensed consolidated financial
statements for the six months ended 30 September 2023. On an annual
basis, budgets are prepared using a bottom-up approach, aggregating
the budgets for the individual business units into Sector budgets.
The Sector budgets and the consolidated Group budget is then
reviewed by the Board and used to monitor business performance.
This annual process comprises the budget for the coming financial
year and a 5-year plan.
Between annual budget cycles, the Group prepares rolling
forecasts on a monthly basis covering an updated assessment of the
remainder of the current financial year. The impacts of current
economic conditions, including inflation, are incorporated into the
annual budget process and the rolling forecasts. Where changes in
economic conditions are significant, these would also be
incorporated into the 5-year plan for the purpose of the going
concern assessment.
The Directors have performed sensitivity analyses on the latest
Group rolling forecast for the duration of the assessment period.
These involve a range of downside events both individually and in
combination under a range of severe, but plausible downside
scenarios. Such sensitivities include 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 regulatory risk relating to a reduction in access to
R&D tax incentive credits.
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 as described in the going concern
assessment on page 104 of the annual report and financial
statements for the year ended 31 March 2023. Despite the severity
of the combined severe, but plausible scenarios, these
sensitivities did not give rise to any material uncertainties in
relation to the Group's ability to continue as a going concern.
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 condensed
consolidated half year 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.
Key sources of estimation uncertainty
The application of the Group's accounting policies requires the
use of estimates. The key sources of estimation uncertainty at the
end of the reporting period that may have a significant risk of
causing a material adjustment to the carrying amount of assets and
liabilities within the next financial year are set out below:
Revenue and profit recognition: The Group's revenue recognition
policies are set out in note 1 of the annual report for the year
ended 31 March 2023. 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 an estimate of the cost to
complete long-term contracts. Outturn costs are estimated on a
contract-by-contract basis and estimates are carried out by
suitably qualified and experienced personnel. Estimates of cost to
complete include the 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 differ from previous estimates. 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 GBP4 million for each 1% change in personnel
costs.
Type 31 Programme estimates
A GBP100m loss was recorded during the year ended 31 March 2023,
primarily by reducing revenue and creating an 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:
-- The results of the dispute resolution process, and any
reimbursements agreed with the customer;
-- The build costs over the production schedule and estimate of
efficiencies arising from the 'learner' effect through performing
work over multiple ships;
-- The ability to maintain or improve operational performance
through process efficiencies and improvements over the five
ships;
-- The impact of inflation on the build cost; and
-- 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 current and 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.
Defined benefit pension schemes obligation: The Group's defined
benefit pension schemes are assessed annually in accordance with
IAS 19. The valuation of the defined benefit pension obligations is
sensitive to the inflation and discount rate actuarial 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 obligation. In
addition to the inflation and discount rate estimates, a key
judgment relates to the expected availability of future accounting
surpluses under IFRIC 14. In the annual report and financial
statements for the year ended 31 March 2023, note 26 provided a
sensitivity analysis of the impact of assumptions used in the
Group's defined benefit pension schemes.
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 the cash flows expected to be generated by cash generating units
("CGUs"), together with appropriate discounting of the cash flows.
The assessment of the carrying value 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 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, the 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.
In the annual report and financial statements for the year ended
31 March 2023, note 10 provided a sensitivity analysis regarding
the impairment of goodwill.
Critical accounting judgements
Critical accounting judgements, apart from those involving
estimations, that are applied in the preparation of the condensed
consolidated financial statements are discussed below:
Acting as a 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 over 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.
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, but 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.
There have been no changes to the operating segments in the current
period.
2. Adjustments between statutory and underlying information
Definition of underlying measures and exceptional 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 period to period. 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 those used in the year
ended 31 March 2023.
Underlying operating profit
In any given period, 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 (Specific Adjusting Items"). 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 period. 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 acquisitions 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 open forward rate contracts that
will be settled in future periods; 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.
Income statement including underlying results
Six months ended 30 Six months ended 30
September 2023 September 2022
Specific Specific
Adjusting Adjusting
Underlying Items Statutory Underlying Items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
========== ========== ========= ========== ========== =========
Revenue 2,177.0 - 2,177.0 2,144.0 - 2,144.0
=================================== ========== ========== ========= ========== ========== =========
Operating profit 154.4 (10.2) 144.2 121.7 (48.9) 72.8
=================================== ========== ========== ========= ========== ========== =========
Share of results of joint ventures
and associates 6.0 - 6.0 6.6 - 6.6
=================================== ========== ========== ========= ========== ========== =========
Net finance costs (20.0) 5.9 (14.1) (22.7) (5.5) (28.2)
=================================== ========== ========== ========= ========== ========== =========
Profit before tax 140.4 (4.3) 136.1 105.6 (54.4) 51.2
=================================== ========== ========== ========= ========== ========== =========
Income tax expense (35.3) 3.3 (32.0) (23.1) 8.9 (14.2)
=================================== ========== ========== ========= ========== ========== =========
Profit after tax for the period 105.1 (1.0) 104.1 82.5 (45.5) 37.0
=================================== ========== ========== ========= ========== ========== =========
Earnings per share including underlying measures
Six months ended 30 Six months ended 30
September 2023 September 2022
Specific Specific
Adjusting Adjusting
Underlying items Statutory Underlying items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
========== ========== ========= ========== ========== =========
Profit/(loss) after tax for
the period 105.1 (1.0) 104.1 82.5 (45.5) 37.0
======================================= ========== ========== ========= ========== ========== =========
Amount attributable to owners
of the parent 103.5 (1.0) 102.5 80.1 (45.5) 34.6
======================================= ========== ========== ========= ========== ========== =========
Amount attributable to non-controlling
interests 1.6 - 1.6 2.4 - 2.4
======================================= ========== ========== ========= ========== ========== =========
Weighted average number of shares
(m) 503.5 503.5 505.3 505.3
======================================= ========== ========== ========= ========== ========== =========
Effect of dilutive securities
(m) 12.7 12.7 9.9 9.9
======================================= ========== ========== ========= ========== ========== =========
Diluted weighted average number
of shares (m) 516.2 516.2 515.2 515.2
======================================= ========== ========== ========= ========== ========== =========
Basic EPS 20.6p (0.2)p 20.4p 15.8p (9.0)p 6.8p
======================================= ========== ========== ========= ========== ========== =========
Diluted EPS 20.1p (0.2)p 19.9p 15.5p (8.8)p 6.7p
======================================= ========== ========== ========= ========== ========== =========
Details of Specific Adjusting Items
The impact of Specific Adjusting Items is set out below:
Six months Six months
ended 30 ended 30
September September
2023 2022
GBPm GBPm
====================================================== ========== ==========
Amortisation of acquired intangibles (5.6) (8.1)
====================================================== ========== ==========
Business acquisition, merger and divestment related
items (0.2) (12.1)
====================================================== ========== ==========
Fair value movement on derivatives and related items (4.4) (28.7)
====================================================== ========== ==========
Adjusting items impacting operating profit (10.2) (48.9)
====================================================== ========== ==========
Fair value movement on derivatives and related items 5.9 (5.5)
====================================================== ========== ==========
Adjusting items impacting profit before tax (4.3) (54.4)
====================================================== ========== ==========
Adjusting items impacting income tax expense
====================================================== ========== ==========
Amortisation of acquired intangibles 1.6 2.1
====================================================== ========== ==========
Business acquisition, merger and divestment related
items - 1.7
====================================================== ========== ==========
Fair value movement on derivatives and related items (0.4) 5.1
====================================================== ========== ==========
Income tax effect of adjusting items impacting profit
before tax 1.2 8.9
====================================================== ========== ==========
Income tax specific adjusting items 2.1 -
====================================================== ========== ==========
Total adjusting items impacting income tax 3.3 8.9
====================================================== ========== ==========
Adjusting items impacting profit after tax (1.0) (45.5)
====================================================== ========== ==========
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.
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.
Fair value movement on derivatives and related items
Movements within operating profit arise from 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. These arrangements are considered to provide an
economic hedge, but hedge accounting under IFRS is not applied. 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 remove the risk to
profitability).
Hedge ineffectiveness on debt and debt-related derivatives that
are designated in a hedge relationship under IFRS 15 are also
presented as a specific adjusting item in finance costs. This is
presented as a specific adjusting item as the ineffectiveness is
caused by the off-market designation at inception, although overall
the transactions are considered 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. These arrangements are
considered to provide an economic hedge, but hedge accounting under
IFRS is not applied.
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 loss relating to business acquisitions, mergers and
divestment related items was GBP0.2 million. This represents legal
and warranty related costs additional to those initially recorded
in the prior period in respect of divestments.
The prior period included a total net loss relating to business
acquisition, merger and divestment related items of GBP12.1
million. This comprised professional fees and related costs in
respect of the disposal activity completed in the year ending 31
March 2023 - notably the disposal of the Group's European Aerial
Emergency Services business.
Income tax specific adjusting items
During the period the Group revised its estimates for certain
tax-related provisions, relating to matters arising from previous
divestment s and business reorganisation s.
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 operational 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.
Marine Nuclear Land Aviation Unallocated Total
Six months ended 30 September 2023 GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ====== ======= ===== ======== =========== =======
Revenue 750.1 710.8 545.6 170.5 - 2,177.0
===================================== ====== ======= ===== ======== =========== =======
Underlying operating profit 63.0 45.2 37.5 8.7 - 154.4
===================================== ====== ======= ===== ======== =========== =======
Specific Adjusting Items
===================================== ====== ======= ===== ======== =========== =======
Amortisation of acquired intangibles (3.8) - - (1.8) - (5.6)
===================================== ====== ======= ===== ======== =========== =======
Business acquisition, merger and
divestment related items - - (0.2) - - (0.2)
===================================== ====== ======= ===== ======== =========== =======
Fair value loss on forward rate
contracts (4.1) - - (0.3) - (4.4)
===================================== ====== ======= ===== ======== =========== =======
Operating profit 55.1 45.2 37.3 6.6 - 144.2
===================================== ====== ======= ===== ======== =========== =======
Share of results of joint ventures
and associates 0.3 - - 5.7 - 6.0
===================================== ====== ======= ===== ======== =========== =======
Net finance costs - - 0.3 - (14.4) (14.1)
===================================== ====== ======= ===== ======== =========== =======
Profit/(loss) before tax 55.4 45.2 37.6 12.3 (14.4) 136.1
===================================== ====== ======= ===== ======== =========== =======
Marine Nuclear Land Aviation Unallocated Total
Six months ended 30 September 2022 GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ====== ======= ===== ======== =========== =======
Revenue 666.4 558.2 478.2 441.2 - 2,144.0
===================================== ====== ======= ===== ======== =========== =======
Underlying operating profit 47.3 30.1 38.0 6.3 - 121.7
===================================== ====== ======= ===== ======== =========== =======
Specific Adjusting Items
===================================== ====== ======= ===== ======== =========== =======
Amortisation of acquired intangibles (5.1) - (0.6) (2.4) - (8.1)
===================================== ====== ======= ===== ======== =========== =======
Business acquisition, merger and
divestment related items - - (0.3) (11.8) - (12.1)
===================================== ====== ======= ===== ======== =========== =======
Fair value (loss)/gain on forward
rate contracts (37.8) 0.1 - 9.0 (28.7)
===================================== ====== ======= ===== ======== =========== =======
Operating profit 4.4 30.2 37.1 1.1 - 72.8
===================================== ====== ======= ===== ======== =========== =======
Share of results of joint ventures
and associates 0.2 0.7 - 5.7 - 6.6
===================================== ====== ======= ===== ======== =========== =======
Net finance costs - - 0.4 - (28.6) (28.2)
===================================== ====== ======= ===== ======== =========== =======
Profit/(loss) before tax 4.6 30.9 37.5 6.8 (28.6) 51.2
===================================== ====== ======= ===== ======== =========== =======
Geographic analysis of revenue
The geographic analysis of revenue by origin of customer for the
periods ended 30 September 2023 and 30 September 2022 is as
follows:
Revenue
==================== =========================
Six months Six months
ended 30 ended
September 30 September
2023 2022
Geographic analysis GBPm GBPm
==================== ========== =============
United Kingdom 1,507.2 1,259.8
===================== ========== =============
Rest of Europe 112.0 335.7
===================== ========== =============
Africa 179.7 169.4
===================== ========== =============
North America 93.9 77.6
===================== ========== =============
Australasia 170.5 163.4
===================== ========== =============
Rest of World 105.7 138.1
===================== ========== =============
Group total 2,177.0 2,144.0
===================== ========== =============
The analysis of revenue for the periods ended 30 September 2023
and 30 September 2022 is as follows:
Six months Six months
ended 30 September ended 30 September
2023 2022
GBPm GBPm
=============================================== =================== ===================
Sale of goods - transferred at a point in time 181.4 163.6
=============================================== =================== ===================
Sale of goods - transferred over time 117.1 130.2
=============================================== =================== ===================
Sale of goods 298.5 293.8
=============================================== =================== ===================
Provision of services - transferred over time 1,872.5 1,823.0
=============================================== =================== ===================
Rental income 6.0 27.2
=============================================== =================== ===================
Revenue 2,177.0 2,144.0
=============================================== =================== ===================
4. Net finance costs
Six months Six months
ended 30 September ended 30 September
2023 2022
GBPm GBPm
------------------------------------------------------ ------------------- -------------------
Finance costs
====================================================== =================== ===================
Loans, overdrafts and associated interest rate hedges 15.0 22.5
====================================================== =================== ===================
Lease interest and associated hedges 5.3 13.1
====================================================== =================== ===================
Amortisation of issue costs of bank loan 1.5 1.7
====================================================== =================== ===================
Retirement benefit interest 0.4 -
====================================================== =================== ===================
Other 2.1 1.0
====================================================== =================== ===================
Total finance costs 24.3 38.3
====================================================== =================== ===================
Finance income
====================================================== =================== ===================
Bank deposits, loans and leases 9.9 6.1
====================================================== =================== ===================
IFRIC 12 investment income 0.3 0.4
====================================================== =================== ===================
Retirement benefit interest - 3.6
====================================================== =================== ===================
Total finance income 10.2 10.1
====================================================== =================== ===================
Net finance costs 14.1 28.2
====================================================== =================== ===================
5. Income tax expense
Six months Six months
ended 30 September ended 30 September
2023 2022
GBPm GBPm
---------------------------------------------------------- ------------------- -------------------
Income tax expense (32.0) (14.2)
========================================================== =================== ===================
Calculation of underlying effective tax rate
========================================================== =================== ===================
Profit before tax 136.1 51.2
========================================================== =================== ===================
Deduct: Share of results of joint ventures and associates
(note 2) (6.0) (6.6 )
========================================================== =================== ===================
Add back: specific adjusting items (note 2) 4.3 54.4
========================================================== =================== ===================
Adjusted profit before tax 134.4 99.0
========================================================== =================== ===================
Tax charge 32.0 14.2
========================================================== =================== ===================
Exclude adjusting items impacting income tax (note
2) 3.3 8.9
========================================================== =================== ===================
Adjusted tax charge 35.3 23.1
========================================================== =================== ===================
Underlying effective tax rate 26.3% 23.3%
========================================================== =================== ===================
The tax charge has been calculated by applying the effective
rate of tax which the Group expects to incur for the year to 31
March 2024 to the half year pre-tax profit in each jurisdiction in
which it operates.
6. Goodwill
30 September 31 March
2023 2023
GBPm GBPm
========================================== ============ ========
Cost
========================================== ============ ========
At 1 April 1,823.3 2,312.7
========================================== ============ ========
On disposal of subsidiaries - (488.0)
========================================== ============ ========
Exchange adjustments (0.7) (1.4)
------------------------------------------ ------------ --------
At 30 September/ 31 March 1,822.6 1,823.3
------------------------------------------ ------------ --------
Accumulated impairment
========================================== ============ ========
At 1 April 1,041.9 1,529.3
========================================== ============ ========
On disposal of subsidiaries - (487.4)
========================================== ============ ========
At 30 September/ 31 March 1,041.9 1,041.9
------------------------------------------ ------------ --------
Net book value at 30 September / 31 March 780.7 781.4
------------------------------------------ ------------ --------
Goodwill is allocated to the operating segments as set out in
the table below:
30 September 31 March
2023 2023
GBPm GBPm
========= ============ ========
Marine 296.0 296.6
========= ============ ========
Nuclear 233.1 233.1
========= ============ ========
Land 218.0 218.0
========= ============ ========
Aviation 32.0 32.0
========= ============ ========
Africa 1.6 1.7
========= ============ ========
780.7 781.4
========= ============ ========
Goodwill is stated at cost less any provision for impairment.
The recoverable value of each cash generating unit was assessed at
31 March 2023 by reference to value-in-use calculations. The
value-in-use calculations were derived from risk-adjusted cash
flows from the Group's five-year plan and nominal growth rates
between 1.8% and 2.5% were used to establish terminal value
assessments. There have been no changes to the Group's key
assumptions in the six months ended 30 September 2023 since the
published annual report and financial statements for the year
ending 31 March 2023. The key assumptions can be found in note 10
of that report. 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 climate
change and inflation.
Goodwill is required to be tested for impairment at least once
every financial year, irrespective of whether there is any
indication of impairment. The Group's annual impairment review
typically occurs at year end. However, if indicators of impairment
are present, an earlier review is also required. The Group has
assessed the goodwill balance for both internal and external
impairment indicators and no impairment indicators were identified.
Management will prepare a full goodwill impairment assessment at
the year end.
7. Non-current assets
In the six months ended 30 September 2023 the Group made the
following significant additions to non-current assets:
-- GBP48.2 million of additions to property plant and equipment
including GBP25.4 million of site improvements at Devonport Royal
Dockyard;
-- GBP15.0 million of additions to intangible assets; and
-- GBP14.0 million of additions to right of use assets
representing new aircraft and property lease arrangements.
8. Trade and other receivables and contract assets
30 September 31 March
2023 2023
GBPm GBPm
================================================= ============ ========
Non-current assets
================================================= ============ ========
Costs to obtain a contract 2.6 2.8
================================================= ============ ========
Costs to fulfil a contract 1.0 1.4
================================================= ============ ========
Other debtors 2.6 2.2
------------------------------------------------- ------------ --------
Non-current trade and other receivables 6.2 6.4
------------------------------------------------- ------------ --------
Current assets
================================================= ============ ========
Trade receivables 296.4 307.3
================================================= ============ ========
Less: provision for impairment of receivables (8.3) (7.3)
------------------------------------------------- ------------ --------
Trade receivables - net 288.1 300.0
------------------------------------------------- ------------ --------
Retentions 4.3 6.0
================================================= ============ ========
Amounts due from related parties (note 15) 2.6 2.1
================================================= ============ ========
Other debtors 145.3 129.4
================================================= ============ ========
Prepayments 95.5 63.7
================================================= ============ ========
Costs to obtain a contract 0.6 0.6
================================================= ============ ========
Costs to fulfil a contract 5.6 5.1
------------------------------------------------- ------------ --------
Trade and other receivables 542.0 506.9
------------------------------------------------- ------------ --------
Contract assets 340.0 322.5
================================================= ============ ========
Current trade and other receivables and contract
assets 882.0 829.4
------------------------------------------------- ------------ --------
Trade and other receivables are stated at amortised cost less
expected credit loss.
9. Trade and other payables and contract liabilities
30 September 31 March
2023 2023
GBPm GBPm
================================================== ============ ========
Current liabilities
================================================== ============ ========
Trade creditors 264.7 239.1
================================================== ============ ========
Amounts due to related parties (note 15) 0.3 0.8
================================================== ============ ========
Other creditors 59.8 41.6
================================================== ============ ========
Other taxes and social security 74.7 75.5
================================================== ============ ========
Accruals 567.4 554.1
================================================== ============ ========
Trade and other payables 966.9 911.1
================================================== ============ ========
Contract liabilities 609.6 616.4
================================================== ============ ========
Trade and other payables and contract liabilities 1,576.5 1,527.5
================================================== ============ ========
Non-current liabilities
================================================== ============ ========
Other creditors 0.9 0.9
================================================== ============ ========
Included in creditors is GBP14.3 million (31 March 2023: GBP12.9
million) relating to capital expenditure which has therefore not
been included in working capital movements within the cash flow
statement.
10. Financial instruments
The following table presents the Group's financial assets and
liabilities:
Financial Financial Financial Financial
assets assets liabilities liabilities Total
at fair at amortised at fair at amortised carrying
30 September 2023 (GBPm) value cost value cost amount Fair value
================================== ========= ============= ============ ============= ========= ==========
Non-current financial assets
Loans to joint ventures and
associates - 2.0 - - 2.0 2.0
=================================== ========= ============= ============ ============= ========= ==========
Other financial assets - 6.7 - - 6.7 6.7
=================================== ========= ============= ============ ============= ========= ==========
Lease receivables - 18.3 - - 18.3 18.3
=================================== ========= ============= ============ ============= ========= ==========
Derivatives 0.9 - - - 0.9 0.9
=================================== ========= ============= ============ ============= ========= ==========
Current financial assets
Trade and other receivables
* 1.5 322.5 - - 324.0 324.0
=================================== ========= ============= ============ ============= ========= ==========
Other financial assets - 1.0 - - 1.0 1.0
=================================== ========= ============= ============ ============= ========= ==========
Lease receivables - 11.8 - - 11.8 11.8
=================================== ========= ============= ============ ============= ========= ==========
Derivatives 3.8 - - - 3.8 3.8
=================================== ========= ============= ============ ============= ========= ==========
Cash and cash equivalents - 480.5 - - 480.5 480.5
=================================== ========= ============= ============ ============= ========= ==========
Non-current financial liabilities
Bank and other borrowings - - - (746.7) (746.7) (659.3)
=================================== ========= ============= ============ ============= ========= ==========
Trade and other payables
* - - - (0.6) (0.6) (0.6)
=================================== ========= ============= ============ ============= ========= ==========
Derivatives - - (52.0) - (52.0) (52.0)
=================================== ========= ============= ============ ============= ========= ==========
Current financial liabilities
Bank and other borrowings - - - (0.1) (0.1) (0.1)
=================================== ========= ============= ============ ============= ========= ==========
Trade and other payables
* - - - (538.2) (538.2) (538.2)
=================================== ========= ============= ============ ============= ========= ==========
Derivatives - - (15.2) - (15.2) (15.2)
=================================== ========= ============= ============ ============= ========= ==========
Net financial assets / (financial
liabilities) 6.2 842.8 (67.2) (1,285.6) (503.8) (416.4)
=================================== ========= ============= ============ ============= ========= ==========
Financial Financial Financial Financial
assets assets liabilities liabilities Total
at fair at amortised at fair at amortised carrying
31 March 2023 (GBPm) value cost value cost amount Fair value
================================== ========= ============= ============ ============= ========= ==========
Non-current financial assets
Loans to joint ventures and
associates - 9.5 - - 9.5 9.5
=================================== ========= ============= ============ ============= ========= ==========
Other financial assets - 7.3 - - 7.3 7.3
=================================== ========= ============= ============ ============= ========= ==========
Lease receivables - 22.2 - - 22.2 22.2
=================================== ========= ============= ============ ============= ========= ==========
Derivatives 2.6 - - - 2.6 2.6
=================================== ========= ============= ============ ============= ========= ==========
Current financial assets
Trade and other receivables
* 1.5 345.1 - - 346.6 346.6
=================================== ========= ============= ============ ============= ========= ==========
Other financial assets - 1.4 - - 1.4 1.4
=================================== ========= ============= ============ ============= ========= ==========
Lease receivables - 16.4 - - 16.4 16.4
=================================== ========= ============= ============ ============= ========= ==========
Derivatives 4.3 - - - 4.3 4.3
=================================== ========= ============= ============ ============= ========= ==========
Cash and cash equivalents - 451.7 - - 451.7 451.7
=================================== ========= ============= ============ ============= ========= ==========
Non-current financial liabilities
Bank and other borrowings - - - (768.4) (768.4) (670.3)
=================================== ========= ============= ============ ============= ========= ==========
Derivatives - - (53.3) - (53.3) (53.3)
=================================== ========= ============= ============ ============= ========= ==========
Current financial liabilities
Bank and other borrowings - - - (19.6) (19.6) (19.6)
=================================== ========= ============= ============ ============= ========= ==========
Trade and other payables
* - - - (511.1) (511.1) (511.1)
=================================== ========= ============= ============ ============= ========= ==========
Derivatives - - (12.8) - (12.8) (12.8)
=================================== ========= ============= ============ ============= ========= ==========
Net financial assets / (financial
liabilities) 8.4 853.6 (66.1) (1,299.1) (503.2) (405.1)
=================================== ========= ============= ============ ============= ========= ==========
* Trade and other receivables and trade and other payables only
include balances which meet the definition of a financial
instrument.
The fair values of financial instruments held at fair value have
been determined based on available market information at the period
end date, and the valuation methodologies listed below:
-- The fair values of forward foreign exchange contracts are
calculated by discounting the contracted forward values and
translating at the appropriate period end rates; and
-- The fair values of cross-currency interest rate swaps are
calculated by discounting expected future principal and interest
cash flows and translating at the appropriate period end rates.
11 . Provisions for other liabilities
Employee
benefits
Contract/ and business
warranty reorganisation Property Other
(a) (b) (c) (d) Total
GBPm GBPm GBPm GBPm GBPm
=============================== ========= =============== ======== ===== ======
At 31 March 2023 100.4 30.5 15.1 2.7 148.7
=============================== ========= =============== ======== ===== ======
Net charge to income statement 10.7 3.3 3.9 0.1 18.0
=============================== ========= =============== ======== ===== ======
Utilised in the period (16.9) (2.5) (0.5) (0.1) (20.0)
=============================== ========= =============== ======== ===== ======
Unwinding of discount 1.1 0.1 - - 1.2
=============================== ========= =============== ======== ===== ======
Foreign exchange (0.4) (0.4) (0.3) 0.3 (0.8)
=============================== ========= =============== ======== ===== ======
At 30 September 2023 94.9 31.0 18.2 3.0 147.1
=============================== ========= =============== ======== ===== ======
Provisions are analysed between current and non-current as
follows:
30 September 31 March
2023 2023
GBPm GBPm
============ ============ ========
Current 61.1 67.9
============ ============ ========
Non-current 86.0 80.8
============ ============ ========
147.1 148.7
============ ============ ========
(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.
(b) Employee benefits and business reorganisation costs relate
to long term employee benefits such as long-term sickness and
long-term leave, and business restructuring activities including
announced redundancies.
(c) Property and other provisions primarily relate to
dilapidation costs in respect of leased buildings 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. Provisions relate to specific claims assessed in
accordance with the advice of independent actuaries.
Included within provisions is GBP6.8 million expected to be
utilised over approximately ten years (31 March 2023: GBP6.9
million). Other than these provisions the Group's non-current
provisions are expected to be utilised within two to five
years.
12. Changes in net debt
Other
31 March Additional non-cash Changes in Exchange 30 September
2023 Cash flow leases movement fair value movement 2023
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ======================== =========== ========== =========== ============ ========= ============
Cash and bank balances 451.7 31.7 - - - (2.9) 480.5
============================== ========= =========== ========== =========== ============ ========= ============
Bank overdrafts (22.2) 22.1 - - - - (0.1)
============================== ========= =========== ========== =========== ============ ========= ============
Cash, cash equivalents and
bank overdrafts 429.5 53.8 - - - (2.9) 480.4
============================== ========= =========== ========== =========== ============ ========= ============
Debt (765.8) 13.0 - (1.4) (0.4) 7.9 (746.7)
============================== ========= =========== ========== =========== ============ ========= ============
Derivatives hedging debt (47.4) - - - 2.1 - (45.3)
============================== ========= =========== ========== =========== ============ ========= ============
Lease liabilities (228.8) 24.5 (10.4) - - 1.7 (213.0)
============================== ========= =========== ========== =========== ============ ========= ============
Changes in liabilities from
financing arrangements (1,042.0) 37.5 (10.4) (1.4) 1.7 9.6 (1,005.0)
============================== ========= =========== ========== =========== ============ ========= ============
Lease receivables 38.6 (22.0) 16.0 - - (2.5) 30.1
============================== ========= =========== ========== =========== ============ ========= ============
Loans to joint ventures and
associates 9.5 (7.1) - (0.4) - - 2.0
============================== ========= =========== ========== =========== ============ ========= ============
Net debt (564.4) 62.2 5.6 (1.8) 1.7 4.2 (492.5)
============================== ========= =========== ========== =========== ============ ========= ============
13. Retirement benefits and liabilities
The fair value of the assets and the present value of the
liabilities of the Group's pension schemes at 30 September were as
follows:
30 September 31 March
2023 2023
GBPm GBPm
========================================================= ============ ========
Fair value of plan assets
========================================================= ============ ========
Growth assets
========================================================= ============ ========
Equities 89.9 34.1
========================================================= ============ ========
Property funds 285.0 307.8
========================================================= ============ ========
High yield bonds/emerging market debt 0.4 0.4
========================================================= ============ ========
Absolute return and multi-strategy funds 154.5 171.5
========================================================= ============ ========
Low-risk assets
========================================================= ============ ========
Bonds 1,355.2 1,368.3
========================================================= ============ ========
Matching assets* 1,199.2 1,547.8
========================================================= ============ ========
Longevity swaps (213.2) (241.9)
========================================================= ============ ========
Fair value of assets 2,871.0 3,188.0
========================================================= ============ ========
Percentage of assets quoted 73% 80%
========================================================= ============ ========
Percentage of assets unquoted 27% 20%
========================================================= ============ ========
Present value of defined benefit obligations
========================================================= ============ ========
Active members 461.6 518.1
========================================================= ============ ========
Deferred pensioners 707.1 786.6
========================================================= ============ ========
Pensioners 1,857.2 1,944.7
========================================================= ============ ========
Total defined benefit obligations 3,025.9 3,249.4
========================================================= ============ ========
Net liabilities recognised in the statement of financial
position (154.9) (61.4)
========================================================= ============ ========
* Matching assets primarily comprise a "Liability Driven
Investment" portfolio, which invests in gilts, Network Rail bonds,
gilt repurchase agreements, interest rate and inflation swaps,
asset swaps and cash, on a segregated basis. For certain schemes,
there are also investments in investment grade credit, via both
segregated portfolios and pooled investment vehicles. The various
segregated portfolios and pooled investment vehicle each utilise
derivative contracts. The Trustee has authorised the use of
derivatives by the investment managers for efficient portfolio
management purposes including to reduce certain investment risks
such as interest rate risk and inflation risk. The principal
investment in derivatives is gilt repurchase agreements, interest
rate and inflation swaps in the matching portfolios and total
return swaps in the return seeking portfolios. These derivatives
are included within the matching assets and equities
classifications. Repurchase agreements are entered into with
counterparties to better offset the scheme's exposures to interest
and inflation rates, whilst remaining invested in assets of a
similar risk profile.
An analysis of the movement in the Group statement of financial
position is set out below.
30 September 31 March
2023 2023
GBPm GBPm
--------------------------------------------------- ------------ ---------
Fair value of plan assets (including reimbursement
rights)
=================================================== ============ =========
At 1 April 3,188.0 4,733.1
=================================================== ============ =========
Interest on assets 75.6 126.1
=================================================== ============ =========
Actuarial loss on assets (349.0) (1,533.1)
=================================================== ============ =========
Employer contributions 51.2 174.5
=================================================== ============ =========
Employee contributions 0.1 0.1
=================================================== ============ =========
Benefits paid (94.9) (256.6)
=================================================== ============ =========
Settlements - (56.1)
=================================================== ============ =========
As at period end 2,871.0 3,188.0
--------------------------------------------------- ------------ ---------
Present value of benefit obligations
=================================================== ============ =========
At 1 April 3,249.4 4,541.5
=================================================== ============ =========
Service cost 7.4 25.8
=================================================== ============ =========
Incurred expenses 4.2 6.8
=================================================== ============ =========
Interest cost 76.0 118.6
=================================================== ============ =========
Employee contributions 0.1 0.1
=================================================== ============ =========
Experience losses 36.3 162.9
=================================================== ============ =========
Actuarial gain - demographics (0.4) (43.5)
=================================================== ============ =========
Actuarial gain - financial (252.2) (1,250.1)
=================================================== ============ =========
Benefits paid (including transfers) (94.9) (256.6)
=================================================== ============ =========
Settlements - (56.1)
=================================================== ============ =========
As at period end 3,025.9 3,249.4
=================================================== ============ =========
Net asset liability at period end (154.9) (61.4)
--------------------------------------------------- ------------ ---------
The amounts recognised in the Group income statement are as
follows:
30 September 30 September
2023 2022
GBPm GBPm
--------------------------------------- ------------ ------------
Current service cost 7.4 13.1
======================================= ============ ============
Incurred expenses 4.2 3.4
======================================= ============ ============
Total included within operating profit 11.6 16.5
======================================= ============ ============
Net interest cost/(credit) - note 4 0.4 (3.6)
======================================= ============ ============
Total included within income statement 12.0 12.9
--------------------------------------- ------------ ------------
As at 30 September 2023 the key assumptions used in valuing
pension liabilities were:
Discount rate 5.5% - 5.7% (31 March 2023: 4.8%)
Inflation 8.6% for one year and long-term rates of 3.2% - 3.4% (31 March 2023:
rate (RPI) 6.9% for one year and long-term rates of 3.3%)
Inflation
rate (CPI) Inflation rate (RPI) - 0.5%
14. Disposals of subsidiaries, businesses and joint ventures and
associates
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.
Details of the disposal balance sheet and loss on disposal is
included in Note 28 of the annual report and financial statements
for the year ended 31 March 2023.
15. Related party transactions
Related party transactions for the six months ended 30 September
2023 represent sales to joint ventures and associates of GBP31.1
million (six months ended 30 September 2022: GBP18.8 million) and
purchases from joint ventures and associates of GBPnil (six months
ended 30 September 2022: GBPnil).
Key management compensation for the year ended 31 March 2023 is
set out in the Remuneration Report and note 6 in the annual report
and financial statements for the year ended 31 March 2023.
For transactions with Group defined benefit pension schemes,
please refer to note 13 above and note 26 in the annual report and
financial statements for the year ended 31 March 2023.
Period Period
end receivables end payables
Revenue Purchases balance balance
30 September 2023 to (GBPm) from (GBPm) (GBPm) (GBPm)
------------------------------------ ---------- ------------ ---------------- -------------
Alert Communications Limited 3.5 - 0.9 -
======================================= ========== ============ ================ =============
AirTanker Services Limited 13.7 - 0.1 -
======================================= ========== ============ ================ =============
Advanced Jet Training Limited 1.3 - 0.2 -
======================================= ========== ============ ================ =============
Rear Crew Training Limited 0.7 - - -
======================================= ========== ============ ================ =============
Ascent Flight Training (Management)
Limited 0.5 - 0.3 -
======================================= ========== ============ ================ =============
Ascent Flight Training (Holdings)
Limited - - 0.2 -
======================================= ========== ============ ================ =============
Fixed Wing Training Limited 3.1 - - -
======================================= ========== ============ ================ =============
Rotary Wing Training Limited 4.1 - - -
======================================= ========== ============ ================ =============
First Swietelsky Operation
and Maintenance 4.1 - 0.8 (0.3)
======================================= ========== ============ ================ =============
DUQM Naval Dockyard SAOC 0.1 - 0.1 -
======================================= ========== ============ ================ =============
31.1 - 2.6 (0.3)
==================================== ========== ============ ================ =============
Period Period
end receivables end payables
Revenue Purchases balance balance
30 September 2022 to (GBPm) from (GBPm) (GBPm) (GBPm)
==================================== ========== ============ ================ =============
Alert Communications Limited 4.7 - 0.8 -
======================================= ========== ============ ================ =============
AirTanker Services Limited 4.9 - - -
======================================= ========== ============ ================ =============
Advanced Jet Training Limited 1.0 - 0.2 -
======================================= ========== ============ ================ =============
Rear Crew Training Limited 0.3 - - -
======================================= ========== ============ ================ =============
Ascent Flight Training (Management)
Limited 0.6 - 0.1 -
======================================= ========== ============ ================ =============
Fixed Wing Training Limited 1.5 - 0.4 -
======================================= ========== ============ ================ =============
Rotary Wing Training Limited 1.9 - - -
======================================= ========== ============ ================ =============
First Swietelsky Operation
and Maintenance 3.9 - 1.2 (0.7)
======================================= ========== ============ ================ =============
18.8 - 2.7 (0.7)
==================================== ========== ============ ================ =============
16. 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, as described below.
The nature of the Group's long-term contracts is such 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 for 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.
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 does
not 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.
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, for which a provision has not been recorded, is unlikely to
have a material effect on the Group's financial position.
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 position and
performance.
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.
Statement of Directors' responsibilities
This half year report is the responsibility of the Directors who
each confirms that, to the best of their knowledge:
-- this condensed set of financial statements has been prepared
in accordance with United Kingdom adopted IAS 34 (Interim Financial
Reporting); and
-- the interim management report herein includes a fair review of the information required by:
-- Rule 4.2.7 of the Disclosure & Transparency Rules
(indication of the important events during the first six months,
and their impact on the condensed set of financial statements, and
a description of principal risks and uncertainties for the
remaining six months of the year); and
-- Rule 4.2.8. of the Disclosure & Transparency Rules
(disclosure of related parties' transactions that have taken place
in the first six months of the current financial year and that have
materially affected the financial position or the performance of
the entity during that period; and any changes in the related
parties transactions described in the last annual report that could
have a material effect on the financial position or performance of
the enterprise in the first six months of the current financial
year).
Approved by the Board and signed on behalf of the Directors
by:
David Lockwood
Chief Executive
David Mellors
Chief Financial Officer
13 November 2023
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END
IR EADFDFDEDFAA
(END) Dow Jones Newswires
November 14, 2023 02:00 ET (07:00 GMT)
Babcock (LSE:BAB)
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