REG - Babcock Intnl Group - Final Results <Origin Href="QuoteRef">BAB.L</Origin> - Part 2
25/05/2016 07:07
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management
services to the MOD - a successor to our earlier Phoenix I contract. In
addition to consolidating the 'white fleet' services in Germany and Northern
Ireland, Phoenix II has the potential to include international operations in
Cyprus and Gibraltar.
Our ALC joint venture with Amey continues to perform strongly, with the
C-vehicle contract acknowledged as an effective and flexible service in the
provision and support of the MOD's worldwide fleet of 2,000 construction
vehicles. We successfully completed the regeneration of C-vehicle equipment
returning from Afghanistan.
Within our training operations, under the Electro-Mechanical Training contract
we successfully completed the move of the Royal Electrical and Mechanical
Engineers training from Bordon and Arborfield to MOD Lyneham, Wiltshire. This
involved the recruitment of over 300 staff and the safe move of c 250,000
pieces of equipment, ranging from spanners to tanks.
At the Armour Centre in Bovington and Lulworth, we were awarded a follow-on
contract to provide Training, Maintenance and Support Services, which runs for
three years from 1 April 2016. Together with DSG, this puts us at the heart of
delivering the UK's Armoured Vehicle capability.
Performance at the Royal School of Military Engineering (RSME) continues to
remain at the highest level; the contract is closely monitored and measured
against 147 performance indicators and so it is a significant achievement that
there have been no KPI failures in the last three years. The RSME won two
City & Guilds Lions awards in 2015/16: Tutor and Centre of the Year, and the
Happold Brilliant Award for Excellence in Training.
The Fleet Outsourced Activities Project which delivers wide-ranging training
services to the Royal Navy has completed its fourth year of strong
performance. We have continued to operate the contract below its target cost
and have seen significant growth since service commencement.
A key strand of our ongoing support to the Royal Navy is the transformation of
its engineering training. The first cohort trained in mechanical engineering
courses at HMS Sultan are now in operational roles at sea and feedback on
their performance has been most encouraging. Training utilising the
transformed delivery and content development for the equivalent weapons
engineering course at HMS Collingwood is nearing completion with the initial
group of technicians having entered the Fleet in April 2016. The
transformation project has proved challenging but has allowed us to introduce
a series of innovative approaches to training with noticeable enhancements
being an increase in the use of imaginative and stimulating on-line learning
supported by facilitated instruction.
Following the successful conclusion of the Hunter Training Project contract
for the Royal Saudi Naval Forces through BAE Systems Saudi Arabia in June
2015, its successor, the Hunter Training Project 2, is now fully underway and
will run until June 2022.
Divisional outlook
Following the award of the AESAS rotary wing contract, the UKMFTS fixed and
rotary wing contracts and the good progress made in the first year of the
10-year DSG contract, which included winning additional responsibility for the
procurement of spares earlier than expected, we believe the division is well
positioned for a strong performance in 2016/17.
Support Services
31 March2016 31 March2015 Change+ /-
Revenue group £946.6 m £937.1 m + 1%
jv £566.4 m £379.3 m + 49%
total £1,513.0 m £1,316.4 m + 15%
Operating profit group £87.7 m £80.2 m + 9%
jv £19.9 m £20.7 m - 4%
total £107.6m £100.9 m + 7%
Operating margin group 9.3% 8.6%
jv 3.5% 5.5%
total 7.1% 7.7%
Market overview
The Support Services division delivers services to both public and private
sector customers across three key areas; civil nuclear, asset management and
technical training. We believe our markets remain attractive, with existing
and potential customers continuing to seek outsourced solutions to reduce
their cost base. In the UK, the civil nuclear market remains resilient. We
value the addressable market per annum at around £2.3 billion, with
opportunities for both decommissioning and new build services providing scope
for growth, albeit the timing of new build activity remains affected by
uncertainty on funding routes.
We anticipate that outsourced spend on the management of complex fleet and
equipment is likely to increase, particularly within the emergency services
sector as the Government's new cross-service collaboration agenda comes into
force. We believe we can address a greater part of this market as a result of
our increased capability to deliver specialist vehicle conversion services
following the acquisition of MacNeillie in February 2015.
Demand for our technical training services remains high, as demonstrated by
recent activity in the rail and utilities markets. We currently value the UK
technical training market at around £1.3 billion, and anticipate further
growth opportunities from the new apprenticeship levy. We believe this will
trigger large scale employers to review how they acquire and develop their
workforce in the most efficient way, and provide greater funding visibility.
We see significant international opportunities in our core growth markets;
most notably in the areas of complex fleet management, and technical training,
where we have built a sizeable pipeline of visible opportunities and routes to
market.
Financial review
The Support Services division continued to deliver strong growth in revenue,
which increased by 15% to £1,513.0 million (2015: £1,316.4 million), driven by
the first full year of the Cavendish Fluor partnership's operation of the
Magnox decommissioning joint venture. Growth in Rail, Education and Critical
Services more than offset the relatively small decline in Power.
Revenue growth drove operating profit growth, noting however the effect of the
lower margin recognition in the early years of the Magnox contract. The £7.5
million gain on the sale of the Lewisham BSF joint venture is included in the
operating profit for the year and represented £4.7 million of underlying
profit in the prior year.
Operational review
Cavendish Nuclear, a wholly-owned Babcock subsidiary, has continued to
strengthen its position as the UK's leading supplier to the civil nuclear
industry, remaining focused on site operations, maintenance, decommissioning
and the new build programme.
Following the award of the 13.5 year Magnox and RSRL decommissioning contract
in 2014, the Cavendish Fluor Partnership - in which Cavendish Nuclear is the
lead partner - has completed the consolidation submission phase of the
project, embedding the new contract programme across the 12 licensed sites.
The contract team has delivered a number of successes, including the
successful operation of the Wylfa power station, followed by taking the
reactor offline in December 2015; and the early completion of the defueling
project at the Oldbury site.
At Dounreay, the Cavendish Dounreay Partnership continued to make good
progress, with key milestones such as the shipping of breeder elements from
storage to Sellafield and the transfer of waste packages into underground
disposal vaults being achieved on, or ahead of, schedule.
Significant additional scope has been introduced to the programme, following
the change in the Government's national strategy for the consolidation of
nuclear materials. This year saw the first shipments take place ahead of
schedule. A technically complex project, Dounreay aims to be recognised as the
pre-eminent reference site for decommissioning in Europe.
As part of its existing Lifetime Support Agreement with EDF, Cavendish Nuclear
successfully supported a major planned outage at the Dungeness power station
delivering a complex maintenance programme and ensuring the station was
brought back to power generation on time and within budget.
Major design and construction projects to aid decommissioning at both
Sellafield and Magnox power stations continue to be delivered to agreed
programmes and budget. This includes winning future phases for two major
projects, securing work for the next three years. At the Atomic Weapons
Establishment, Cavendish Nuclear built on its existing relationship with the
customer, signing a five-year contract to decommission a further facility
within its site.
In nuclear new build, EDF announced the selection of the Cavendish Boccard
Nuclear joint venture as the preferred bidder for a key component to the
Hinkley Point C programme, the Balance of Nuclear Island mechanical package.
Funding and legislative issues have delayed the expected start date for this
programme but the business continues to provide support in readiness for a
final investment decision. Cavendish Nuclear is also pursuing additional
opportunities in the UK new build programme.
Internationally, Cavendish Nuclear has continued to explore targeted
opportunities for overseas work, and in November 2015 signed an international
collaboration framework agreement with Hitachi-GE in connection with
decommissioning activities in Japan.
Elsewhere in the division, the Critical Services business benefited from the
February 2015 acquisition of a specialist vehicle converter MacNeillie, which
further strengthened our full life-cycle offering for the emergency services
sector. The business was successfully integrated into our wider Resilience &
Emergency Services business, increasing our capability. We continue to develop
our tender to the Metropolitan Police service for the provision of fleet
maintenance services. This would replace our existing repair and maintenance
and vehicle conversion contracts, which have been extended to April 2017, and
would include additional scope.
Also in Critical Services, our airports business continues to progress well.
During the period we successfully delivered upgrades to the baggage systems in
Heathrow Airport's Terminals 2 and 3, and completed major baggage system works
at Gatwick's North Terminal.
Significantly, the division has made substantial progress in its plans to aid
international growth, in cooperation with the MCS business. In March, we were
awarded a five-year contract by Alitalia, Italy's national air carrier, to
manage its fleet of over 2,000 assets at Rome Fiumicino Airport. The support
provided by Babcock's established local MCS team, in combination with our
track record of delivery, played a critical role in our ability to win the
bid. In Critical Services' Mining and Construction business, two of our
customers - Lafarge and Holcim - came together in a merger during the summer
of 2015. This led to the integration of a number of our existing contracts and
also the sale of a number of UK sites to CRH. We continue to maintain these UK
assets for CRH.
Our Skills & Learning business has secured a number of new training contracts,
both in the UK and the Middle East. In the UK, we also expanded our delivery
of apprentice training for the British Army, through a new contract with the
Royal Armoured Corps and the Royal Armoured Veterinary Corps. We also won
further five-year contracts with BMW Group UK, to provide training for its
dealer network, and with Network Rail, to deliver its advanced apprenticeship
programme. Babcock was named Training Partner of the Year at the Science,
Engineering, Manufacturing and Technologies Alliance (SEMTA) Skills Awards
2016, for our work with EDF Energy and Network Rail apprentices.
Also within Skills & Learning, our e-learning and virtual reality simulation
business continues to experience high demand for its products. It secured
business from a range of customers, including British Airways, Siemens and BAE
Systems, and also supported projects across other Babcock divisions.
Babcock continues to invest in new technologies and capabilities to drive
efficiencies in training. We have developed a state-of-the-art emergency
services driving simulator for our 21-year London Fire Brigade contract, which
will support the delivery of driver training across the brigade. We have also
created a new centre of excellence to provide customers with access to high
quality, innovative training course design.
In our Network Engineering business, the rail team has continued to perform
well, delivering Network Rail's plain line track renewals framework contracts
in the second year of the customer's five-year control period. Working with
Network Rail, we completed the largest project on the Great Western Mainline
for over 40 years. The team replaced 10.25km of track over a 46 day period as
part of the Bathampton Electrification project, in preparation for the arrival
of a new fleet of electric trains.
ABC Electrification, our joint venture with Alstom and Costain, continues to
make good progress on projects including the West Coast Power Supply Upgrade,
the Great Western Route Modernisation and the Edinburgh Glasgow Improvement
Programme.
Also in Network Engineering, we experienced a reduction in revenue of £30
million in our Power business which led to a programme to restructure our
operations in the first half of the year. However, four major 400kV overhead
line refurbishment projects were awarded by National Grid during the year,
three of which began mobilisation in January 2016.
Our Media Services business completed the integration of WRN Broadcast,
acquired in February 2015, and invested in a new Master Control Room facility
to expand our multi-platform offering. This enhanced capability has enabled us
to attract several new customers. We recently signed a three-year contract
with new customer, Perform Group, to distribute live and on-demand sports
coverage to any device in Japan and Germany, with further countries expected
to be added next year. Meanwhile the BBC World Service contract and short-wave
radio contracts continue to perform well.
The Education business successfully expanded its footprint, mobilising a
five-year £38 million contract with Worcestershire County Council to deliver
education support services to around 240 schools in the county from October
2015. We also successfully launched an on-line product - Better Governor -
expanding our presence in the digital market.
Divisional outlook
We believe that demand for outsourcing solutions remains strong in our chosen
growth markets of civil nuclear, fleet management and technical training. We
are confident that our well defined capabilities and proven track record of
delivery in complex and critical environments will prove attractive to
existing and new customers. We believe our deep technical knowledge, strongly
aligned to customer requirements provides us with a distinctive and compelling
offering.
As previously indicated, the scheduled reduction in revenue next year in the
Magnox and Dounreay decommissioning contracts of around £100 million is
expected to result in low single digit revenue growth for the division in
financial year 2016/17. We remain confident that the division is well placed
to pursue the substantial opportunities available in the UK and
internationally.
International
31 March2016 31 March2015 Change+ / -
Revenue group (MCS £541.1m) £782.9 m £805.1 m -3%
jv (MCS £7.2 m) £7.2 m £6.3m +14%
total (MCS £548.3m) £790.1 m £811.4 m -3%
Operating profit group (MCS £92.7m) £105.4 m £114.3 m - 8%
jv (MCS £2.2 m) £2.2 m £2.5 m -12%
total (MCS £94.9m) £107.6 m £116.8 m - 8%
Operating margin group 13.5% 14.2%
jv 30.6% 39.7%
total (MCS 17.3%) 13.6% 14.4%
Market overview
Mission Critical Services (MCS)
In our Emergency Services business, which delivers vital services to national
and regional governments in Europe and Australia, we have maintained leading
positions in all of the countries in which we operate. This market remains
attractive and has continued to trade well throughout the year, as
demonstrated by a number of recent contract wins and important rebids and
extensions.
We continue to see new emergency services opportunities, including air
ambulance, search and rescue and firefighting in our existing markets and in
adjacent geographies. We also see opportunities to grow the provision of
support services to the defence sector in Europe, and have delivered complex
projects to upgrade national government fleets in Spain, France and the UK.
MCS is also participating in Unmanned Aerial Vehicle (UAV) technologies,
developing our own prototype for surveillance and firefighting coordination
tasks.
In Oil and Gas, the market for outsourcing has suffered from the continuing
weakness in the oil price which has led to a reduction of capital expenditure
by the industry, particularly in services related to hydrocarbon exploration
activity. As reported previously, this has resulted in exploration-related
contracts not being renewed or being delayed which has resulted in a decrease
of activity. However the majority of our services to this sector are related
to oil and gas production from existing facilities where operations - and
therefore the requirement to fly oil and gas workers offshore - continue. MCS
continues to benefit from long-term production-related contracts in the UK
North Sea and Australia.
Despite the low oil price environment contracting activity has not ceased; we
have continued to win new contracts, and have increased our geographic
footprint in Africa with a strategic customer led entry in Ghana and
Mozambique through two new long-term contracts. We are taking action to
reduce costs, grow presence and offer solutions which are integrated with the
wider Group and to continue to leverage international revenue synergies.
South Africa
South Africa experienced tough trading conditions in 2015/16 as a consequence
of the economic fallout from declining commodity volumes. The ongoing slowdown
in Asian economies had a major impact on the mining markets, resulting in
equipment and automotive markets falling by over 30% during the year, and the
currency weakening 30% versus Sterling.
Power generation and distribution in the region remains a challenge due to an
ageing fleet of fossil fuel fired power stations and project delays on the two
new stations of Medupi and Kusile. This has provided us with an opportunity to
provide maintenance and breakdown services under our long term Eskom contract.
The need to distribute the new power as it becomes available has seen an
improvement in the transmission line market with a number of new project
opportunities coming to market.
Our African export markets remain subdued as most of them have been impacted
by headwinds in the commodity sector, and oil price weakness has impacted the
timing of the exploitation of offshore gas fields in Mozambique. Despite this,
we have made considerable progress during the year in creating a platform
which should allow us to benefit from future expected growth in the region.
Financial review
The International division's revenue declined by 3% compared to the previous
year, to £790.1 million (2015: £811.4 million), reflecting the impact of
weaker oil and commodity prices on both the MCS and South African businesses
and a movement in exchange rates. As a result, operating profit declined by
8% to £107.6 million (2015: £116.8 million), with the division achieving an
overall margin of 13.6%. At constant exchange rates, organic revenue and
operating profit were flat.
Our South African operations faced a challenging macro-economic environment
throughout 2015/16, with low commodity prices and subdued export markets
affecting the Equipment and Trucks business, which nevertheless continued to
increase its share of the market. The increase in revenue of 6% at constant
exchange rates could not offset a fall in profits of 20% reflecting the margin
pressures in the equipment business offset by the growth in the Power
business.
MCS reported revenue for the period of £548.3 million. Excluding pass-through
costs which are recharged to the customer with no added margin and at constant
exchange rates, organic revenue softened by 1% year-on-year.
On the same basis, revenue from emergency services operations grew by 5%,
reflecting both contract wins and the growth within existing contracts, offset
in part by lower firefighting activity in Spain. The significant headwinds in
the oil and gas business have continued through the year. Revenue for MCS'
Oil and Gas services business declined by 13% year on year with reduced flying
hours and little exploration.
MCS' profits reflect the revenue change, but the actions taken to improve
synergies and deliver efficiencies across the business have resulted in the
margin being broadly maintained at 17.3% (2015: 17.8%).
Operational review
Mission Critical Services (MCS)
Over the last financial year, MCS has maintained a high contract win rate of
over 70% including rebids, winning 66 contracts and extensions with a total
value of around £510 million.
Our Emergency Services business has continued to make good progress. As a
result, and with the full period effect of contracts awarded during the prior
year, the Emergency Services business grew 5%, at constant exchange rates in
2015/16.
Contracts awarded during the period include a further two years extension of
the search and rescue contract operated for SASEMAR on behalf of the Spanish
Central Government. With a total contract value of around £60 million, it
includes the operation of 11 helicopters and three planes, most of them in
service 24 hours a day. These aircraft carried out more than 570 operations
and rescued more than 290 people during 2015.
In the UK, we have renewed four emergency services contracts, several
including an increase in scope or upgrade of equipment. In February, we were
awarded a contract by existing customer Wales Air Ambulance Charity to provide
pilots, engineers and three brand-new custom-configured H145 helicopters.
Equipped for night flights, the upgrade from their existing fleet of H135s
moves the charity a step closer to its goal of providing a 24-hour air
ambulance service.
In France, as part of the French Ministry of Health's new process of placing
regional tenders, we have been able to secure a new long-term helicopter
emergency medical services contract for the Languedoc Region where we will be
providing the service with four additional aircraft. In Australia, the 10-year
contract with Ambulance Victoria for the Victorian Government began to ramp up
operations in January, after a successful complex mobilisation which including
the delivery of five new AW139 twin engine helicopters. Our Australian
business was also awarded a three-year extension by the Government of South
Australia to continue operating the State Rescue Helicopter Service. The
extension also includes the provision of a replacement helicopter with
improved range, payload and cabin space, and an upgrade of the remaining two
helicopters to ensure their continuing compliance with aviation safety
standards.
In the fire-fighting market, the Spanish Central Government awarded MCS a new
contract to deliver a nationwide aerial fire fighting service in Spain. In
Portugal MCS was awarded a three year contract to operate two Canadair CL215
for the Central Government during the fire-fighting season.
MCS is also growing its support to the defence sector in Europe, delivering
complex projects such as the life extension programme developed for the
Spanish Navy. The programme to upgrade seven AB212 helicopters with the
latest technological and avionic advances will extend their operating life by
at least 15 years. In the UK, we formally handed over the first of seven
redesigned and upgraded H135 T2+ helicopters to the National Police Air
Service.
Having been unsuccessful in our French central government bid earlier this
year, we have taken steps to improve our ability to structure tenders designed
for national European governments. Recently, MCS was awarded a pioneering
contract by Spain's Galician government to create a centre of reference for
the research and development of UAVs which will provide surveillance and
firefighting prevention services to the civil sector. The project was won in a
competitive tender against large OEMs.
In April 2016 we acquired Heli Aviation, a German provider of mission critical
helicopter services for around £11 million. The business not only provides MCS
with an entry into the domestic German emergency services market but also
provides non-governmental organisations and government agencies services for
relief missions, delivering food, medical supplies, doctors and rescue teams
to remote locations outside Europe.
In Oil and Gas, despite headwinds from the lower oil price, we have been able
to increase our customer portfolio, winning a new North Sea contract and a new
customer in Australia as well as extensions of existing contracts. This will
largely offset the weakness in the Oil and Gas sector's flying hours in the
coming year.
MCS has also increased its geographic footprint in Africa with a strategic
customer-led entry into Ghana and Mozambique through two new long-term
contracts with a total value of around £80 million. The Group's existing
presence in South Africa played a key role for our successful entry into both
countries. However, we experienced delays and cancellations in the North Sea
and Australia, particularly in services related to exploration.
We are currently working to capture the benefits of the systems and expertise
of the wider Group through collaboration in a number of areas including
training, information systems, safety management, improved asset management
capability and access to a much broader pool of expertise and resource across
the business. In Italy, our team played a crucial role in winning a new
airport services contract with Alitalia at Rome's Fiumicino airport, worth
around £5 million revenue per annum, in collaboration with Support Services
division colleagues in the UK, and MCS supported the Defence and Security
division's successful bid to provide forward maintenance and aircraft
engineering for the Royal Navy at air stations in the south west of England.
We now have significantly greater abilities to lease and finance aircraft at
lower cost, our pipeline of opportunities remains stable and robust and we are
utilising Babcock's experience to optimise our bid management systems. We are
working together to capture economies of scale and additional savings,
particularly within procurement, fleet rationalisation and engineering.
The new IT systems will enable extensive business change across maintenance
and engineering, including airworthiness management, maintenance planning and
execution, logistics, warehousing and purchasing, and also has a significant
impact on finance. The new system will be set up to achieve measurable
business benefit through the implementation of common best practice, business
processes and shared data across the MCS group.
South Africa
The economic crisis that the country has found itself in has had a material
effect on operations. However, in spite of the headwinds, we have made
progress in increasing market share in our core markets of equipment, trucks,
portable generators and rentals. The 6% increase in revenue reflects increased
market share in Equipment, with Power also growing well; however there has
been a 20% reduction in profit driven again by the equipment business margin
pressures.
During the year we have undertaken preliminary activity in Zambia, Namibia and
Botswana to take advantage of anticipated growth and in Botswana, in
particular, we have opened a new Babcock owned dealership in preference to an
independent sub dealer. In Mozambique, we have agreed a joint venture with ENH
Logistics, the state owned enterprise responsible for developing the sovereign
oil and gas reserves. We believe these steps will provide a platform for
future growth in the country.
Divisional outlook
In MCS we continue to see significant prospects for growth in the Emergency
Services business as we progress bids in our pipeline and opportunities in
tracking that have yet to come to market. We are looking to build on our
long-term customer relationships and on our proven expertise and technology
focus to create further opportunities for growth in new contracts, in existing
contracts and in new geographies. However, as previously advised, headwinds in
the Oil and Gas sector are expected to continue for some time with contract
wins offset by reduced flying hours.
Following the end of the financial year, a tragic accident to an Airbus EC225
helicopter resulted in the grounding of the aircraft type by aviation
authorities in the UK and elsewhere, with the exception of flights providing
life and rescue services. Whilst it is too early to predict the effect of this
accident on the division, we make no change to Group guidance.
In the South African business, the power generation and transmission market
continues to offer opportunities, and we hope to extend our support services
offering in the power sector. We continue to focus on growing our market share
in trucks, construction equipment and rentals, developing the business in
Mozambique and focused expansion of our export market.
We continue to progress the identified opportunities to grow Babcock's
presence internationally, using our access to the wider Group's expertise and
our local teams.
Group income statement
For the year ended 31 March 2016 Note 2016 2015
£m Total£m £m Total£m
Total revenue 4,842.1 4,503.3
Less: joint ventures and associates revenue 683.7 506.7
Group revenue 2 4,158.4 3,996.6
Group
Operating profit before amortisation of acquired intangibles 2 468.3 445.9
Amortisation of acquired intangibles 2 (115.8) (93.6)
Group operating profit 352.5 352.3
Joint ventures and associates
Share of operating profit 40.8 35.2
Investment income 29.5 36.2
Amortisation of acquired intangibles (5.8) (6.0)
Finance costs (21.9) (31.0)
Income tax expense (8.0) (5.0)
Share of results of joint ventures and associates 34.6 29.4
Group and joint ventures and associates
Operating profit before amortisation of acquired intangibles 509.1 481.1
Investment income 30.6 37.6
Underlying operating profit* 2 539.7 518.7
Amortisation of acquired intangibles (121.6) (99.6)
Group investment income (1.1) (1.4)
Joint ventures and associates finance costs (21.9) (31.0)
Joint ventures and associates income tax expense (8.0) (5.0)
Group operating profit plus share of joint ventures and associates 387.1 381.7
Finance costs
Investment income 1.1 1.4
Retirement benefit interest (5.1) (11.0)
Finance costs (64.1) (70.4)
Finance income 11.1 11.4
(57.0) (68.6)
Profit before tax 2 330.1 313.1
Income tax expense 3 (39.0) (46.7)
Profit for the year 291.1 266.4
Attributable to:
Owners of the parent 286.6 260.2
Non-controlling interest 4.5 6.2
291.1 266.4
Earnings per share from continuing operations 4
Basic 57.0p 52.9p
Diluted 56.8p 52.6p
* Including IFRIC 12 investment income but before exceptional items and
amortisation of acquired intangibles.
Group statement of comprehensive income
For the year ended 31 March 2016 2016£m 2015£m
Profit for the year 291.1 266.4
Other comprehensive income
Items that may be subsequently reclassified to income statement
Currency translation differences 34.1 (78.6)
Fair value adjustment of interest rate and foreign exchange hedges 15.9 (14.7)
Tax on fair value adjustment of interest rate and foreign exchange hedges (3.2) 2.9
Fair value adjustment of joint venture and associates derivatives (16.4) (41.9)
Tax on fair value adjustment of joint venture and associates derivatives 3.3 4.5
Items that will not be subsequently reclassified to income statement
Remeasurement of retirement benefit obligations (64.1) 66.0
Tax on remeasurement of retirement benefit obligations 13.0 (13.1)
Impact of change in UK tax rates (4.7) -
Other comprehensive loss, net of tax (22.1) (74.9)
Total comprehensive income 269.0 191.5
Total comprehensive income attributable to:
Owners of the parent 265.8 185.5
Non-controlling interest 3.2 6.0
Total comprehensive income 269.0 191.5
Group statement of changes in equity
For the year ended 31 March 2016 Sharecapital£m Sharepremium£m Otherreserve£m Capitalredemption£m Retainedearnings£m Hedgingreserve£m Translationreserve£m Owners ofthe parent£m Non-controllinginterest£m Totalequity£m
At 1 April 2014 217.2 873.0 - 30.6 (53.3) (42.4) (20.7) 1,004.4 21.7 1,026.1
Total comprehensive income/(loss) - - - - 313.0 (49.2) (78.3) 185.5 6.0 191.5
Shares issued in year 84.1 - 993.3 - - - - 1,077.4 - 1077.4
Dividends - - - - (109.8) - - (109.8) (7.2) (117.0)
Share-based payments - - - - 15.4 - - 15.4 - 15.4
Tax on shared-based payments - - - - 5.2 - - 5.2 - 5.2
Other reserves released - - (142.0) - 142.0 - - - - -
Acquisition of non-controlling interest - - - - - - - - (0.4) (0.4)
Transaction with non-controlling interest - - - - 5.5 - - 5.5 (2.1) 3.4
Own shares and other - - - - (3.5) - - (3.5) - (3.5)
Net movement in equity 84.1 - 851.3 - 367.8 (49.2) (78.3) 1,175.7 (3.7) 1,172.0
At 31 March 2015 301.3 873.0 851.3 30.6 314.5 (91.6) (99.0) 2,180.1 18.0 2,198.1
At 1 April 2015 301.3 873.0 851.3 30.6 314.5 (91.6) (99.0) 2,180.1 18.0 2,198.1
Total comprehensive income/(loss) - - - - 230.8 (0.4) 35.4 265.8 3.2 269.0
Shares issued in year 1.2 - - - - - - 1.2 - 1.2
Dividends - - - - (121.5) - - (121.5) (4.1) (125.6)
Share-based payments - - - - 16.2 - - 16.2 - 16.2
Tax on shared-based payments - - - - (1.9) - - (1.9) - (1.9)
Other reserves released - - (82.5) - 82.5 - - - - -
Disposal of subsidiary with non-controlling interest - - - - (0.7) - - (0.7) 0.7 -
Own shares and other - - - (0.7) - - (0.7) - (0.7)
Net movement in equity 1.2 - (82.5) - 204.7 (0.4) 35.4 158.4 (0.2) 158.2
At 31 March 2016 302.5 873.0 768.8 30.6 519.2 (92.0) (63.6) 2,338.5 17.8 2,356.3
Group balance sheet
As at 31 March 2016 Note 2016£m 2015(restated)£m
Assets
Non-current assets
Goodwill 2,550.6 2,506.0
Other intangible assets 676.2 756.2
Property, plant and equipment 950.8 876.1
Investment in joint ventures and associates 6 39.9 36.3
Loan to joint ventures and associates 6 32.6 38.6
Retirement benefits 11 45.0 45.6
Trade and other receivables 29.2 27.1
IFRIC 12 financial assets 17.7 19.2
Other financial assets 7 84.3 61.8
Deferred tax asset 125.5 132.2
4,551.8 4,499.1
Current assets
Inventories 139.1 155.2
Trade and other receivables 766.9 742.2
Income tax recoverable 24.8 24.7
Other financial assets 7 10.1 12.3
Cash and cash equivalents 10 185.9 130.6
1,126.8 1,065.0
Total assets 5,678.6 5,564.1
Equity and liabilities
Equity attributable to owners of the parent
Share capital 302.5 301.3
Share premium 873.0 873.0
Capital redemption and other reserves 643.8 691.3
Retained earnings 519.2 314.5
2,338.5 2,180.1
Non-controlling interest 17.8 18.0
Total equity 2,356.3 2,198.1
Non-current liabilities
Bank and other borrowings 10 1,401.3 1,495.3
Trade and other payables 4.4 6.8
Deferred tax liabilities 151.9 186.7
Other financial liabilities 6.3 7.8
Retirement liabilities 11 248.1 214.4
Provisions for other liabilities 137.8 168.6
1,949.8 2,079.6
Current liabilities
Bank and other borrowings 10 131.6 64.8
Trade and other payables 1,185.6 1,158.3
Income tax payable 11.6 5.7
Other financial liabilities 7 10.6 27.9
Provisions for other liabilities 33.1 29.7
1,372.5 1,286.4
Total liabilities 3,322.3 3,366.0
Total equity and liabilities 5,678.6 5,564.1
Group cash flow statement
For the year ended 31 March 2016 Note 2016£m 2015£m
Cash flows from operating activities
Cash generated from operations 8 490.3 426.8
Income tax paid (46.6) (46.1)
Interest paid (61.7) (80.7)
Interest received 8.3 6.9
Net cash flows from operating activities 390.3 306.9
Cash flows from investing activities
Disposal of subsidiaries and joint ventures and associates, net of cash disposed 13 10.3 2.1
Dividends received from joint ventures and associates 23.0 19.5
Proceeds on disposal of property, plant and equipment 66.0 77.6
Proceeds on disposal of intangible assets - 0.7
Purchases of property, plant and equipment (163.2) (150.7)
Purchases of intangible assets (28.2) (23.4)
Investment in, loans to and interest received from joint ventures and associates 1.2 10.3
Transactions with non-controlling interest - (4.3)
Acquisition of subsidiaries net of cash acquired 12 (1.8) (1,039.1)
Net cash flows from investing activities (92.7) (1,107.3)
Cash flows from financing activities
Dividends paid (121.5) (109.8)
Finance lease principal payments (37.2) (39.7)
Bank loans repaid (111.3) (1,638.7)
Loans raised 28.9 1,570.3
Dividends paid to non-controlling interest (4.1) (7.2)
Net proceeds on issue of shares 1.2 1,077.4
Movement on own shares (0.7) (3.5)
Net cash flows from financing activities (244.7) 848.8
Net (decrease)/increase in cash, cash equivalents and bank overdrafts 52.9 48.4
Cash, cash equivalents and bank overdrafts at beginning of year 112.5 71.2
Effects of exchange rate fluctuations 3.4 (7.1)
Cash, cash equivalents and bank overdrafts at end of year 10 168.8 112.5
Notes to the consolidated financial statements
1. Basis of preparation and significant accounting policies
The financial information has been extracted from the Annual Report, including
the audited financial statements for the year ended 31 March 2016. They
should be read in conjunction with the Annual Report for the year ended 31
March 2015, which has been prepared in accordance with IFRS's as adopted by
the European Union. The accounting policies used and presentation of these
consolidated financial statements are consistent with those in the Annual
Report for the year ended 31 March 2015, except as noted below.
Standards, amendments and interpretations effective in 2016 with minimal or no
impact on the Group:
IFRS 11, 'Joint arrangements', endorsed 1 January 2016;
IFRS 10 (amendment), 'Consolidated financial statements', effective 1 January
2016;
IFRS 14, 'Regulatory deferral accounts', effective 1 January 2016;
IAS 16 (amendment), 'Property, plant and equipment', effective 1 January
2016;
IAS 28 (amendment), 'Investments in associates and joint ventures', effective
1 January 2016;
IAS 39 (amendment), 'Financial instruments; Recognition and measurement',
effective 1 January 2016.
2. Segmental information
The segments reflect the accounting information reviewed by the Executive
Committee which is the Chief Operating Decision Maker (CODM).
2016 Marine andTechnology£m Defence andSecurity£m SupportServices£m International£m Unallocated£m Total continuingoperations£m
Total revenue 1,695.9 843.1 1,513.0 790.1 - 4,842.1
Less: joint ventures and associates revenue 21.6 88.5 566.4 7.2 - 683.7
Group revenue 1,674.3 754.6 946.6 782.9 - 4,158.4
Operating profit* - Group 195.9 85.5 87.2 105.4 (5.7) 468.3
IFRIC 12 investment income - Group - 0.6 0.5 - - 1.1
Share of operating profit - joint ventures and associates 3.0 15.9 19.7 2.2 - 40.8
Share of IFRIC 12 investment income - joint ventures and associates - 29.3 0.2 - - 29.5
Underlying operating profit 198.9 131.3 107.6 107.6 (5.7) 539.7
Share of finance costs - joint ventures and associates - (20.7) (0.2) (1.0) - (21.9)
Share of tax - joint ventures and associates (0.9) (2.1) (4.5) (0.5) - (8.0)
Acquired intangible amortisation - Group (10.2) (22.9) (33.1) (49.6) - (115.8)
Share of acquired intangible amortisation - joint ventures and associates - (5.8) - - - (5.8)
Net finance costs - Group - - - - (58.1) (58.1)
Group profit before tax 187.8 79.8 69.8 56.5 (63.8) 330.1
* Before amortisation of acquired intangibles and exceptional items.
2015 Marine andTechnology£m Defenceand Security£m SupportServices£m International£m Unallocated£m Total continuingoperations£m
Total revenue 1,562.5 812.8 1,316.4 811.4 0.2 4,503.3
Less: joint ventures and associates revenue 18.9 102.2 379.3 6.3 - 506.7
Group revenue 1,543.6 710.6 937.1 805.1 0.2 3,996.6
Operating profit* - Group 172.0 81.7 79.5 114.3 (1.6) 445.9
IFRIC 12 investment income - Group - 0.7 0.7 - - 1.4
Share of operating profit - joint ventures and associates 1.9 17.1 13.7 2.5 - 35.2
Share of IFRIC 12 investment income - joint ventures and associates - 29.2 7.0 - - 36.2
Underlying operating profit 173.9 128.7 100.9 116.8 (1.6) 518.7
Share of finance costs - joint ventures and associates - (23.2) (6.8) (1.0) - (31.0)
Share of tax - joint ventures and associates (0.6) (1.2) (2.0) (1.2) - (5.0)
Acquired intangible amortisation - Group (11.1) (9.5) (33.5) (39.5) - (93.6)
Share of acquired intangible amortisation - joint ventures and associates - (5.7) (0.3) - - (6.0)
Net finance costs - Group - - - - (70.0) (70.0)
Group profit before tax 162.2 89.1 58.3 75.1 (71.6) 313.1
* Before amortisation of acquired intangibles and exceptional items
Exceptional items are those items which are exceptional in nature or size.
These include material acquisition costs and reorganisation costs.
There are no exceptional costs in the year nor in the previous year.
3. Income tax expense
Taxation in respect of Group profit before tax and acquired intangible
amortisation totalled £81.9 million (2015: £74.3 million) including the
Group's share of jv income tax of £8.0 million (2015: £5.0 million). The
effective rate of income tax, which is calculated by reference to the Group's
underlying profit before tax and the associated tax charge (excluding prior
year items) was17.8% (2015: 17.8%).
4. Earnings per share
In the previous year, in order to finance the acquisition of the Avincis Group
and to ensure the Group maintains sufficient financial headroom for growth
opportunities, the Group undertook a rights issue of 139,259,204 new ordinary
shares which raised £1,076.9 million and was completed on 7 May 2014.
The calculation of the basic and diluted EPS is based on the following data:
Number of shares
2016Number 2015Number
Pre adjustment for rights issue
Weighted average number of ordinary shares for the purpose of basic EPS - 487,123,443
Effect of dilutive potential ordinary shares: share options - 2,200,000
Weighted average number of ordinary shares for the purpose of diluted EPS - 489,323,443
Adjustment for
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