REG - Babcock Intnl Group - Full year results for the year ended 31 March 2022
28/07/2022 07:16
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RNS Number : 0554U Babcock International Group PLC 28 July 2022
Babcock International Group PLC
full year results for the year ended 31 March 2022
28 July 2022
Strong progress in first year of turnaround
Statutory results
31 March 2022 31 March 2021 (restated)*
Revenue £4,101.8m £3,971.6m
Operating profit/(loss) £226.8m £(1,736.7)m
Basic earnings/(loss) per share 32.5p (357.0)p
Cash generated from operations £41.8m £475.4m
Underlying results (note ii)
31 March 2022 31 March 2021 (restated)*
Contract backlog (note iii) £9.9bn £8.2bn
Underlying operating profit/(loss) (note iv) £237.7m £(27.9)m
of which one-off contract profitability and balance sheet (CPBS) adjustments - £(250.0)m
(note v)
Operating profit excluding one-off CPBS adjustments £237.7m £222.1m
Operating margin excluding one-off CPBS adjustments 5.8% 5.5%
Underlying basic earnings/(loss) per share 30.7p (24.6)p
Free cash flow £(191.3)m £169.6m
Net debt £968.7m £1,352.4m
Net debt excluding operating leases £556.7m £770.3m
Net debt/EBITDA (covenant basis) 1.8x 2.4x
* Prior-year restatement is outlined in note i on page 3. Refer to Note 3 of
the preliminary financial statements for more details
David Lockwood, Chief Executive Officer, said:
"The first year of our turnaround has seen us deliver as we said we would,
despite geopolitical volatility and a challenging economic environment. We
have successfully stabilised the business; strengthening our balance sheet and
driving cultural change across the Group.
"The demand for our solutions remains strong, with significant contract wins
in the year, and we see more opportunities ahead. When we perform as we
should, we offer our customers availability, affordability and capability;
enabling them to deliver for their stakeholders in this uncertain world. I am
encouraged by our progress this year, but I am determined to continue to drive
increasingly profitable growth and improved cash flow in FY23 and beyond."
Financial highlights (note ii)
· Contract backlog up 21% to £9.9 billion, including £3.1 billion
of the c.£3.5 billion Future Maritime Support Programme (FMSP) contract
· Revenue up 5% organically to £4,102 million, excluding one-off
CPBS adjustments of £88 million in FY21. Increase driven by recovery from
COVID-19 impacts in the prior year across the Group and growth in Marine and
Nuclear
· Underlying operating profit of £237.7 million was up 13%
organically, excluding one-off CPBS adjustments of £250m in FY21. This
reflects revenue growth, COVID-19 recovery, and improved performance from our
new operating model, including achieving our target savings of £20 million
(£40 million annualised). Improved profitability in Marine, Land and Aviation
offset a decline in Nuclear, due to £22 million contract write-off
· Group underlying operating margin increased 30bp to 5.8%
· Statutory operating profit of £226.8 million compares to a
£1,736.7 million loss in FY21, which included £1,815.5 million of charges
from the CPBS review
· Underlying basic earnings per share of 30.7p (FY21: (24.6)p) up
significantly, reflecting higher profitability and one-off CPBS adjustments in
the prior year
· Underlying free cash flow of £(191.3) million better than expected
due to lower net capex and a cash tax inflow from the settlement of open years
with the authorities. Also, the favourable timing of customer receipts and
prepayments, allowed us to accelerate the unwind of the past practice of
period end working capital management
· Balance sheet strengthened: Net debt to EBITDA (covenant basis)
down to 1.8x (FY21: 2.4x) in line with FY22 target of below 2.0x
Strategy - strong progress on FY22 priorities
· Portfolio - focused the group: Generated gross proceeds of £447
million from four completed disposals, above our targeted minimum of
£400 million. Disposal of part of our Aerial Emergency Services (AES)
business signed in July 2022 after year end for a cash consideration of
c.£115 million. Footprint expanded in Australia with acquisition of the
remaining 50% interest in our Australian Naval Ship Management (NSM) joint
venture
· Operating model - implemented: Streamlining processes and
structures and improving controls drove a c.£20 million benefit in FY22
(c.£40 million annualised), as expected. Internal business reporting lines
flattened. We continue to focus on improved execution to deliver efficiencies
· People strategy - culture transforming: New people strategy
developed, including roll-out of Group Principles and agile working
· ESG strategy - developing: Expanded our corporate commitments to
incorporate broader environmental targets and created new policies and
guidance to support the governance of our sustainability programmes
· Growth - developing opportunities: Good order momentum including
the signing of export agreements with Indonesia and Poland for the Arrowhead
140 (AH140) naval ship design (the base for the UK's Type 31 programme) and
new defence contracts in Australia, France and the UK (see below).
Business development
· Contract backlog at 31 March 2022 was up 21% at £9.9 billion (FY21
restated: £8.2 billion). FY21 was restated for the removal of pass-through
revenue of around £0.6 billion. Excluding disposals of around £0.7 billion,
backlog up 32%
· Significant wins:
o FMSP, a c.£3.5 billion five-year contract award (of which c.£3.1 billion
has been booked), continues our through-life, naval engineering support for
the UK Royal Navy across ships, submarines and naval bases
o Contract for defence aviation training activities in France worth up to
€500 million over 11 years (including options). c.€170 million booked
o c.£100 million, nine-year contract to deliver the new Defence Strategic
Radio Service (DSRS) for critical UK MOD operations
o c.£100 million, 13-year, contract for the design, manufacture, delivery,
commissioning and in-service support to the Maritime Electronic Warfare
Systems Integrated Capability (MEWSIC)
o 10-year contract to provide dry-dock maintenance for the Royal Navy's
Queen Elizabeth class (QEC) aircraft carriers
o Naval exports - secured two design contracts for our AH140 frigate: a
two-ship licence order for Indonesia and selection by Poland for its MIECZNIK
(Swordfish) three-ship frigate programme
o Selected by the Australian Government as the preferred tenderer to upgrade
and sustain the Defence High Frequency Communication System (DHFC) to support
the Australian armed forces over at least the next decade
Outlook
· Market: The market backdrop is very dynamic. Rising geopolitical
uncertainty has led to increased national defence requirements and potentially
more opportunities, while macro factors such as inflation and supply chain
stress increase delivery challenges
· Inflation: The Group's main exposure to inflation is via rising
employment costs. We have sought to manage the short-term impact of inflation
through an innovative and progressive pay deal with our UK workforce (details
on page 5), which gives us visibility around the near-term cost base. We plan
to offset this and other input cost inflation through operating improvements
and efficiencies as we further embed our new operating model
· Free cash flow: We have taken material steps to address the balance
sheet and quality of our cash flows. We expect cash outflows associated with
items such as pension deficit catch-up payments and the unwind of historical
management of working capital at period end to reduce significantly in FY23
· Balance sheet: Having achieved our previous target of leverage
under 2.0x, we are now implementing a medium-term gearing ratio target of 1.0x
to 2.0x, although we expect the ratio could increase above 2.0x in the short
term. This reflects the pension deficit catch-up payments (c.£100 million)
and unwind of the remaining historical creditor deferrals (c.£45 million),
the bulk of which are expected within the first half of FY23
· FY23 and beyond: The second year of our turnaround will build on
the strategic actions taken in FY22, with a focus on execution and growth,
including an expected c.£20 million further restructuring benefit. As we
continue to make further operational progress through the disciplined
execution of our strategy, the Board is confident of delivering on its
expectations of increasingly profitable growth and improved cash flow for FY23
and into the medium term
Results presentation:
A presentation for investors and analysts will be webcast live on 28 July 2022
at 8:30 am (UK time). The presentation will be webcast live at
www.babcockinternational.com/investors
(http://www.babcockinternational.com/investors) and subsequently will be
available on demand at
www.babcockinternational.com/investors/results-and-presentations
(http://www.babcockinternational.com/investors/results-and-presentations) . A
transcript of the presentation and Q&A will also be made available on our
website.
For further information:
Andrew Gollan, Director of Investor Relations +44 (0)7850 978 741
Kate Hill, Group Director of Communications +44 (0)20 7355 5312
Tulchan Communications +44 (0)20 7353 4200
Notes to statutory and underlying results on page 1
Note i - Prior year adjustments: The Group has re-examined the presentation of
revenue and cost of revenue in relation to pass-through revenue on three of
the Group's contracts. The Group had previously taken the judgement that it
acted as a principal in these arrangements, informed by the contractual terms
and practical delivery of the contract to the customer. This approach was
disclosed as a judgemental area in the FY21 annual report. Following the
transition to the Group's new auditors, this has been further considered and
the Group has reassessed this judgement, which had always been a finely
balanced one. This change of judgement, and the resultant accounting policy,
means that revenue and cost of revenue are now presented net for these
contracts. Restatement of the financial information in accordance with the new
accounting policy results in a decrease in revenue and a decrease in cost of
revenue of £211.1 million in the year ended 31 March 2021 (no impact on
profit).
In April 2021 the IFRS Interpretations Committee (IFRIC) published an agenda
decision which clarified how a customer should account for the costs of
configuring or customising the supplier's application software in a
Software-as-a-service arrangement. This resulted in a small increase to
administration and distribution costs of £0.3 million for year ended 31 March
2021. This is expected to result in higher up-front expenses in future years
as certain IT implementation costs that would have previously been capitalised
and amortised, will now be immediately expensed.
Further detail on prior year restatements is given in Note 3 to the
preliminary financial statements.
Note ii - Alternative performance measures: The Group provides alternative
performance measures, which we use to monitor the underlying performance of
the Group. These measures are not defined by International Financial Reporting
Standards (IFRS) and are therefore considered to be non-GAAP (Generally
Accepted Accounting Principles) measures. The Group has defined and outlined
the purpose of its alternative performance measures in the Financial Glossary
starting on page 24. The Group's alternative performance measures are
consistent with the year ended 31 March 2021 except for Contract Backlog which
is redefined to be consistent with the revenue accounting policy change (note
(i) above). Contract backlog now excludes future revenues where we are
assessed as agent rather than principal (i.e. pass-through revenue).
Note iii - Contract backlog: Contract backlog represents amounts of future
revenue under contract. This measure does not include £3.2 billion of work
expected to be done by Babcock as part of framework agreements (FY21: £5.3
billion).
Note iv - Underlying operating profit: Underlying operating profit is a key
alternative performance measure (described in note ii) for the Group. It is
defined as IFRS statutory operating profit adjusted for specific adjusting
items. See page 9 for a reconciliation of underlying operating profit to
statutory operating profit and Note 2 of the preliminary financial statement
for an analysis of specific adjusting items.
Note v - Contract profitability and balance sheet review ('CPBS'): The Group's
CPBS in FY21 resulted in various adjustments, including in-year estimate
changes, reversing FY20 errors and changes in accounting policies. Reference
is made throughout this document to the CPBS last year and its impact.
Commentary in this document often discusses performance before the one-off
CPBS adjustments in FY21 to better reflect the year-on-year differences in
performance across the Group. Going forward we will not report on this basis
as there will be no CPBS year-on-year impact.
CEO STATEMENT
One year ago we defined the actions we needed to take in FY22 to stabilise the
business and lay the foundations for the future.
In this, our first year of turnaround, I am pleased to report that we have
made strong progress on all our strategic priorities. Overall, our financial
performance in FY22 was in line with our expectations, with cash flow slightly
better than anticipated. Additionally, we took significant actions to improve
balance sheet quality, including the reduction of certain working capital
items such as supply chain financing, debt factoring and the practice of
deferring period-end creditors.
Led by our Purpose, to create a safe and secure world, together, we have taken
action to secure our business; stabilising the balance sheet and focusing the
Group through portfolio alignment. We have reorganised around a new operating
model and people strategy, which has been further supported by our developing
ESG strategy. We are now well-positioned to take advantage of the
opportunities created by the strengthening global market for defence.
Stabilise - strategic actions update
At the start of FY22 we identified five strategic actions for the first year
of our turnaround, designed to stabilise the Group both financially and
operationally, and to position us for improved execution and growth:
1. Align our portfolio
2. Implement our new operating model
3. Roll out our new people strategy
4. Develop our new ESG strategy
5. Explore growth opportunities
We made strong progress against our priorities, making the changes that will
drive improved delivery for our customers, a better experience for our
employees and improved returns for shareholders.
Portfolio: We reviewed the businesses in our portfolio to determine strategic
fit and the value to shareholders of their presence in our portfolio. The
divestment of four businesses (our Oil and Gas aviation business, Frazer-Nash
Consultancy Ltd, UK Power and our 15.4% stake in the AirTanker Holdings
Limited joint venture) generated gross proceeds of £447.3 million, exceeding
our target of at least £400 million. In addition, in July 2022 we signed a
conditional agreement the sale of some of our aerial emergency services (AES)
businesses for a cash consideration of c.£115m. This achieved our key
portfolio objectives: to reduce complexity, focus the Group on our chosen
markets and strengthen the balance sheet. In March 2022, we expanded our
footprint in Australia with the acquisition of the remaining 50% interest in
our Australian Naval Ship Management (NSM) joint venture for £33.1 million.
Our portfolio actions have enabled us to reduce our gearing to 1.8x net debt
to EBITDA, in line with our year-end target of below 2.0x.
Operating model: Our new operating model is now established and is driving
efficiencies throughout the business. We are already realising benefits from
our ongoing work to streamline processes, increase standardisation and improve
controls. In FY22 we achieved our target in-year operating model savings of
c.£20 million and an annualised savings rate of c.£40 million, while
restructuring costs of £36 million were slightly below our original
expectations. This progress contributed to the increase in underlying
operating margin to 5.8%. The new model increases visibility and shortens
communication lines - both essential for an agile business, and important
enablers for collaboration. We will continue to embed these new ways of
working, with a particular focus on operational excellence and execution in
FY23.
People strategy: With c.28,000 skilled employees in the Babcock Group, our
people strategy is critical to our future success. Aligned with our Purpose,
to create a safe and secure world, together, we rolled out six Principles that
underpin the ongoing cultural transformation that is key to driving
sustainable improvement: Be curious; Be Kind; Be Courageous, Think: Outcomes;
Collaborate; and Own and Deliver. Across the Group we are harmonising our
people policies and fostering a culture that shares capability, talent,
innovation and best practice. We will continue to seek to optimise our legal
entities and structures as we continue to roll out our people strategy.
ESG strategy: We have made good progress on our ESG strategy. We have matured
our plans to reduce harmful emissions from our operations, and to integrate
sustainability into programme design and contract terms. Each of our sectors
are developing their own sustainability plans in support of Group-led
programmes and to meet stakeholders' needs. We have evolved our strategy to
meet our commitment to achieve net zero carbon emissions for our estate,
assets and operations by 2040. In April 2021, we signed the Business Ambition
Pledge and committed to a 2030 science-based target in line with a 1.5(o)C
pathway. We are on track to meet our goal and over the next 12 months we aim
to submit our targets for approval by the science-based targets initiative
(SBTi).
Growth: FY22 was a pivotal year for new business development. Our strategy,
which combines asset support and sustainment with a range of value-add
products and technical services, drove good business momentum. We signed two
export agreements for our AH140 naval ship design, which is the base for the
UK's Type 31 programme: a licence order for two ships for Indonesia and
selection by Poland for its new MIECZNIK (Swordfish) three-ship frigate
programme. We secured several major defence communications contracts including
a c.£150 million logistics support contract for the UK's next-generation
tactical communications and information systems and a c.£100 million contract
for the UK MOD's new Defence Strategic Radio Service (DSRS). In addition, we
were selected as capability partner to upgrade and sustain the Defence High
Frequency Communication System (DHFC) to support the Australian armed forces
over the next 10 years. This award is a great example of collaboration across
the Group and with international partners to develop high-value-add solutions
for our customers.
The strong progress made on the five strategic actions for FY22 has achieved
what we set out to do in the first year of our turnaround. We have met the
immediate need to stabilise the business, strengthen the balance sheet and set
our performance baseline. We have successfully laid the foundations for the
future. In the second year of our turnaround we will increase our focus on
execution and growth, and continue to drive cultural change across the Group.
Execution
With improvement underway across many areas of the Group, our focus for FY23
is on driving further operational excellence. We will continue to invest in
controls and process improvement, our facilities, our people, and our IT
systems. This will enable us to drive efficiencies, increase business
resilience and improve operational delivery and risk management, ultimately
increasing the Group's profitability and cash conversion.
Growth
We have laid the foundations for sustainable profitable growth. The markets we
address offer favourable medium-term growth, with opportunities in our core
defence market increasing as a result of the current heightened geopolitical
uncertainty. We continue to target opportunities for defence and critical
services in our focus countries - the UK, France, Canada, Australia and South
Africa - and exports to additional markets, for example, selection of the
AH140 design by Poland for its MIECZNIK frigate programme.
The tragic conflict unfolding in Ukraine has created significant additional
geopolitical volatility and governments have reprioritised defence and
national security. In the short term, opportunities are emerging for our
defence support capabilities, driven by the need for force readiness. Over the
longer term, our government customers must balance requirements for
large-scale equipment modernisation and force expansion with the reality of
constrained budgets. Our business model supports and enhances customers'
defence and security capabilities and critical assets through a range of
products and service solutions. We are ideally placed to address their core
requirements of availability, affordability and capability:
· Availability - Our customers require high utilisation of complex
assets, from ships and submarines in our Marine and Nuclear sectors to
military and emergency services aircraft and vehicles in Aviation and Land.
Our fleet support and sustainment models are increasingly geared to
higher-value-add availability-based solutions designed to optimise asset
utilisation and reduce lifetime costs.
· Affordability - Our customers are also demanding value for money
on support programmes and new platforms. Our deep understanding of our
customers' needs, and our ability to bring suppliers and technologies together
to deliver an integrated solution, enable us to provide the affordability and
flexibility they require.
· Capability - Our customers operate in complex and ever-changing
environments, which drives a continual need to adapt and enhance capability.
We apply our understanding of technology integration, infrastructure
management and specialist training to improve their capability, whether it be
through product, support or training solutions.
We are growing our defence digital capabilities to develop a range of
technology-based products and solutions that reduce acquisition and
operational costs and increase flexibility. For example, our iSupport360
solution enables the optimisation of support to maritime and other complex
equipment. Building on our success in winning the MEWSIC, LeTacCIS and DHFC
contracts in FY22, we will continue to develop our ability as a technology
integrator, bringing together industry partners to design innovative and
cost-effective capabilities in areas such as secure communications and
electronic warfare.
We are experiencing significant international interest in AH140, the export
variant of our Type 31 frigate, driven by the demand for affordable and
flexible naval power. Its modular construction offers a wide range of
programme options, including capability (systems), construction and supply
chain, and acquisition model - from a basic licence agreement to high levels
of build programme participation for Babcock. Following our successes in
Indonesia and Poland, we are in active discussions regarding further AH140
export opportunities. The digital design and build model for Type 31 is also
an important enabler for the UK Government's recently refreshed 30-year
National Ship Building Strategy and positions us well for future opportunities
in the UK.
Also in defence, increased operational tempo and a growing incumbent fleet are
driving demand for surface ship support and maintenance. After the year-end we
signed a four-year contract to deliver through-life support to the Marinha do
Brasil's flagship vessel, NAM Atlântico, formerly the UK Royal Navy platform
HMS Ocean, as part of its global support programme.
Inflation
The Group's main exposure to inflation is via rising employment costs -
particularly where we have existing contracts which were agreed in a
low-inflation environment and include inflation risk. At the same time, our
employees are suffering the rapidly rising cost of living, with the issue most
acute in the UK of all our markets. The Group is seeking to manage the
short-term impact of inflation through increased efficiencies, and to limit
the taking of commercial risk of future inflation in new contracts where it
cannot be mitigated.
We are therefore delighted that over the last few months we have engaged
collaboratively with our employees and trade unions in the UK to agree a
fixed-sum pay increase for FY23 that will benefit all but the most highly paid
employees. This innovative and progressive pay deal has been designed to
disproportionately benefit our lower-paid employees, who are most exposed to
rising costs. It has now been agreed and implemented for 85% of the UK
workforce (around 65% of the total workforce) giving us better visibility of
employment costs for the year ahead. This will increase our labour costs by
some £25 million per annum above our original expectations. The Group expects
to offset this cost increase through a variety of measures, including the
acceleration of improvements in contracting and procurement practices, and the
removal of inefficient processes as we further embed our new operating model.
Outside of wage inflation, in many of our markets the recent increase in
input-cost inflation coupled with shortages of supply, has increased the cost,
and in some areas the availability, of materials and components. In such an
environment, supplier resilience is also an emerging risk. Our newly formed
Procurement and Supply Chain organisation is monitoring our supply chain to
identify and mitigate any such issues as early as possible.
Health and safety performance in the year
The appointment of a Global Safety, Health and Environmental Protection
Director, and formation of a central team, has brought additional focus to the
safety improvement programme. We have strengthened our governance and
introduced an electronic global safety information management system. The
Group's Total Recordable Injury Rate (TRIR) in FY22, which includes
work-related injuries requiring medical treatment, has reduced from 0.89
injuries for every 200,000 hours worked to 0.75 over the year, with a
reduction in the number of these types of accidents of 18% against 2021.
However, we have also seen a 5% increase in work-related injuries that
resulted in personnel needing at least one day away from work. We continue to
work hard to reduce the number of injuries and illnesses as a result of our
activities.
Summary of financial performance in FY22
Revenue of £4,101.8 million grew by 5% organically, driven largely by
recovery across the Group from prior-year COVID-19 impacts and growth in
Marine and Nuclear.
Underlying operating profit of £237.7 million was a 13% organic increase on
last year (excluding one-off CPBS adjustments in FY21), supported by improved
performance from our new operating model and lower COVID-19 business
interruption, particularly in Marine, Land and Aviation. This was partly
offset by a £22 million programme write-off in the Nuclear sector. Underlying
operating margin improved to 5.8% (FY21: 5.5%), driving a 10% increase in
underlying basic EPS to 30.7 pence (FY21: 28.0 pence, excluding one-off CPBS
adjustments).
Statutory operating profit of £226.8 million compared to a £1,736.7 million
loss in the prior year, which included £1,815.5 million charges from the CPBS
review.
Cash performance was heavily impacted by the settlement of past factors as
previously communicated, including pension deficit catch-up payments and
efforts to normalise period-end working capital. Underlying free cash flow of
£(191.3) million was slightly ahead of our expectations, driven by lower net
capex and a tax cash inflow from the settlement of open years with the
authorities. Also, the favourable timing of customer receipts and prepayments
enabled the Group to pay-off around £70 million more previous deferred
creditors than originally planned, as well as £23.3 million of scheduled FY23
pension payments and settling the c.£15 million Italian fine.
Trading in first quarter of FY23
Trading in the quarter ended 30 June 2022 was in line with expectations. Net
debt excluding operating leases was £625 million, higher than at 31 March
2022, reflecting timing of pension deficit payments.
Outlook
We are pleased with the strong progress made in FY22 to stabilise the Group
and begin the process of driving improvements in the areas we identified at
the beginning of the year. In particular, the material steps we have taken to
address the balance sheet and the quality of our cash flow mean that we ended
the year in a far stronger position than we began.
With the business stabilised, we are in a stronger position, both financially
and operationally, with the prospects for the business similarly improved.
Although we are not immune to the various macro challenges, such as inflation,
that continue to impact and shape the markets in which we operate, we will be
as agile as we can be in response.
The second year of our turnaround will be as important as the first as we
build further on the foundations laid for a better Babcock in FY23. We will
continue the drive to achieve efficiencies from better execution, including
the expected c.£20 million further restructuring benefit, and to capture the
increasing opportunities for growth in our core markets.
As we look ahead, and as we continue to make operational progress through the
disciplined execution of our strategy, the Board is confident of delivering on
its expectations of increasingly profitable growth and improved cash flow for
FY23. Looking further ahead, we believe our strategy and focus on operational
execution will significantly improve the Group's growth, profitability and
cash generation over the medium term.
Delivering for all our stakeholders
Over the medium and long-term, we are focused on delivering value for all our
stakeholders, including:
· Improved outcomes for our customers: consistent delivery and
partnering with customers to solve their challenges
· A better place to work for our employees: an open, collaborative
and diverse workplace that engages our employees
· Returns for our shareholders: a return to growth with improving
margins and better cash conversion
We have made strong progress to position the Company for future success. There
is still much to do, but we have all the elements in place to take advantage
of the many opportunities which lie before us.
David Lockwood OBE
Chief Executive Officer
OTHER INFORMATION
Dividend
No ordinary dividends have been paid or declared for the financial year ended
31 March 2022.
AGM
We will be holding our Annual General Meeting on 19 September 2022.
Board changes
In January 2022 we welcomed John Ramsay to the Board as a Non-Executive
Director. John became Chair of the Audit Committee in February 2022.
Russ Houlden will retire as a Non-Executive Director in July 2022 after two
years of service, and our 2022 AGM will see Non-Executive Director and
Remuneration Committee Chair Kjersti Wiklund retire from the Board after four
years of service.
Myles Lee and Victoire de Margerie retired as Non-Executive Directors at the
AGM in September 2021 after six and five years of service respectively.
FINANCIAL REVIEW
Overview
We are encouraged by our financial performance in the first year of our
turnaround. We delivered year-on-year profit improvement and a cash outturn
that was ahead of our expectations. The actions we have taken have
significantly strengthened the balance sheet and improved the quality of cash
flows. We have met, and in some cases exceeded, the financial targets we set
ourselves a year ago, including delivering £20 million savings from the
implementation of our new operating model, generating more than £400 million
of proceeds from our disposals, and reducing gearing to our FY22 target of
below 2.0x.
Group statutory results
31 March 2022 31 March 2021 (restated)*
£m £m
Revenue 4,101.8 3,971.6
Operating profit/(loss) 226.8 (1,736.7)
Other income 6.2 -
Share of results of joint ventures and associates 20.1 (13.1)
Investment income 0.8 0.9
Other net finance costs (71.6) (62.1)
Profit/(loss) before tax 182.3 (1,811.0)
Income tax benefit/(expense) (14.4) 8.0
Profit/(loss) after tax for the year 167.9 (1,803.0)
Basic EPS 32.5p (357.0)p
Diluted EPS 32.1p (357.0)p
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Statutory performance
Revenue of £4,101.8 million was 3% higher than last year, driven by recovery
across the Group's businesses that were impacted by COVID-19 and the one-off
CPBS reduction in revenue of £88.3 million in FY21 which did not repeat in
FY22. Offsetting this was the net year-on-year reduction from disposals and a
slight adverse impact from foreign exchange.
Statutory operating profit of £226.8 million compared to a £1,736.7 million
loss in the prior year, which included charges from the CPBS of
£274.7 million (of which £250.0 million was one-off and £24.7 million was
recurring), and asset impairments of £1,566.3 million. Statutory operating
profit in FY22 includes profit as a result of acquisitions and disposals of
£172.8 million (FY21: £49.7 million loss), £123.6 million impairment of
goodwill and intangible assets relating to the AES businesses that were
subject to a signed disposal agreement in July 2022, amortisation of acquired
intangibles of
£21.4 million (FY21: £40.2 million) and £33.8 million restructuring (FY21:
£8.4 million). See Note 2 of the preliminary financial statements.
Other income of £6.2 million (FY21: £nil) related to pre-completion
guarantee fees received in relation to one of the divested businesses during
the year.
The share of results of joint ventures (JVs) and associates was higher than
the prior year, mainly due to the CPBS loss in FY21 of £37.1 million.
Other net finance costs increased to £71.6 million (FY21: £62.1 million),
with lower net interest costs due to lower average debt and reduced IFRS 16
lease interest, more than offset by a £7.1 million higher pension finance
charge and a one-off, non-cash finance charge on derivative instruments of
£9.6 million.
Profit before tax was £182.3 million (FY21: £1,811.0 million loss). Basic
earnings per share, as defined by IAS 33, was 32.5 pence (FY21: (357.0) pence)
per share.
A full income statement can be found on page 31.
Underlying results
Statutory to underlying
As described in the 'Financial Glossary - alternative performance measures' on
page 24, the Group provides underlying measures to better understand the
performance and earnings trends of the Group. Underlying operating profit and
underlying earnings per share exclude certain specific adjusting items that
can distort the reporting of underlying business performance, as set out in
Note 3 of the preliminary financial statements on page 40. The reconciliation
from the IFRS statutory income statement to underlying income statement is
shown below:
31 March 2022 31 March 2021 (restated)*
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m £m £m £m
Revenue 4,101.8 - 4,101.8 3,971.6 - 3,971.6
Operating profit/(loss) 237.7 (10.9) 226.8 (27.9) (1,708.8) (1,736.7)
Other income 6.2 - 6.2 - - -
Share of results of joint ventures and associates 20.1 - 20.1 (13.1) - (13.1)
Investment income 0.8 - 0.8 0.9 - 0.9
Other net finance costs (62.0) (9.6) (71.6) (62.1) - (62.1)
Profit/(loss) before tax 202.8 (20.5) 182.3 (102.2) (1,708.8) (1,811.0)
Income tax (expense)/benefit (43.9) 29.5 (14.4) (21.8) 29.8 8.0
Profit/(loss) after tax for the year 158.9 9.0 167.9 (124.0) (1,679.0) (1,803.0)
Basic EPS 30.7p 32.5p (24.6)p (357.0)p
Diluted EPS 30.4p 32.1p (24.6)p (357.0)p
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Specific adjusting items
Specific adjusting items within operating profit of £(10.9) million (FY21:
£(1,708.8) million) includes profit resulting from acquisitions and disposals
of £172.8 million (FY21: £49.7 million loss), a further £9.7 million of
costs incurred in relation to the Group's divestment programme for disposals
that have not completed, operating model and restructuring costs of £33.8
million (FY21: £8.4 million), and exceptional charges of £118.1 million
(FY21: £1,590.5 million). Exceptional items in FY22 include £123.6 million
impairment of goodwill and intangible assets relating to the AES businesses
that were subject to a signed disposal agreement in July 2022, offset by a
£3.6 million release of provisions relating to the Italy fine and £1.8
million release of onerous contract provisions. Exceptional items in FY21 were
dominated by asset impairments as a result of the CPBS. As previously stated,
we intend to restrict the use of exceptional items in future periods.
Underlying results excluding one-off CPBS adjustments in FY21
For the most useful comparison to FY21, we focus on the last years' underlying
operating profit excluding one-off CPBS adjustments. We believe this to be the
most helpful measure for stakeholders to judge our performance this year.
Going forward we will not report on this basis as there will be no CPBS
year-on-year impact.
31 March 2022 31 March 2021 (restated)*
£m £m
Revenue 4,101.8 3,971.6
of which one-off CPBS adjustments - 88.3
Revenue excluding one-off CPBS adjustments in FY21 4,101.8 4,059.9
Underlying operating profit/(loss) 237.7 (27.9)
of which one-off CPBS adjustments - (250.0)
Underlying operating profit excluding one-off CPBS adjustments 237.7 222.1
Underlying margin excluding one-off CPBS adjustments 5.8% 5.5%
Other income 6.2
Share of results of joint ventures and associates 20.1 (13.1)
of which CPBS one-off impacts - (31.5)
Share of results of JVs and associates excluding one-off CPBS adjustments 20.1 18.4
Investment income 0.8 0.9
Other net finance costs (62.0) (62.1)
Underlying profit/(loss) before tax 202.8 (102.2)
Income tax (43.9) (21.8)
Underlying profit/ (loss) after tax 158.9 (124.0)
Non-controlling interests 3.7 -
Underlying profit attributable to shareholders 155.2 (124.0)
Underlying basic EPS 30.7p (24.6)p
Underlying basic EPS excluding one-off CPBS adjustments** 30.7p 28.0p
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
** Estimated in FY21 based on an underlying effective tax rate of 21%
( )
Revenue performance
31 March 2021 (restated)* One-off FY21 FX Acquisitions & disposals COVID-19 recovery (estimated) Other trading 31 March 2022
£m CPBS in FY21 (excl. one-off CPBS adj.) impact £m
£m
£m £m
£m £m £m
Marine 1,230.6 8.6 1,239.2 (0.6) (24.3) (10.2) 55.2 1,259.3
Nuclear 975.9 2.2 978.1 - - 0.4 31.2 1,009.7
Land 910.7 60.7 971.4 - (27.1) 103.2 (32.0) 1,015.5
Aviation 854.4 16.8 871.2 (22.0) (75.4) 38.5 5.0 817.3
Total 3,971.6 88.3 4,059.9 (22.6) (126.8) 131.9 59.4 4,101.8
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Revenue for the year was £4,101.8 million, 5% higher than last year on an
organic basis excluding one-off FY21 CPBS adjustments, foreign exchange and
the impact of acquisitions and disposals. All sectors grew organically driven
by recovery from COVID-19 impacts in the prior year, with further underlying
growth in Marine from the ramp-up of new and early-stage contracts, including
Type 31, and in Nuclear, from additional submarine infrastructure activity.
See sector operational reviews on pages 18 to 23.
The main variances year-on-year (compared to revenue before one-off CPBS
adjustments in FY21) are:
· FX impact (1)% - this primarily relates to foreign exchange
translation on the results of our European Aviation businesses
· Acquisitions and disposals (3)% - this reflects lower net revenue
from the sale of Cobras (sold in October 2020 - Land), Oil and Gas aviation
(sold in August 2021 - Aviation), Frazer-Nash Consultancy Ltd (sold in October
2021 - Marine), UK Power (sold in December 2021 - Land), and a modest
contribution from the NSM acquisition in March 2022 (Marine)
· COVID-19 recovery 3% - this reflects our estimate of revenue
recovered in our businesses that were impacted by COVID-19 in FY21, most
notably across our South African contracts and civil training business in the
Land sector, and aerial emergency services (AES) activities in the Aviation
sector. The COVID-19 revenue impact in Marine is negative, reflecting the
ventilators project in FY21 that did not repeat in FY22
· Other trading 2% - excluding COVID-19 recovery factors, there was
growth in Marine from further ramp-up of work on the Type 31 frigate
programme, new contracts in Mission Systems and demand for LGE products, and
in Nuclear, driven by the continued ramp-up in submarine infrastructure
programmes. On the same basis, Land decreased, with higher activity in Rail
more than offset by the impact of the loss of the Heathrow baggage contract in
the prior year and the Eskom support contract in South Africa in FY22
Underlying operating profit performance
31 March 2021 (restated)* One-off FY21 FX Acquisitions COVID-19 recovery (estimated) Pension movements Other trading 31 March 2022
& disposals
CPBS in FY21 (excl. one-off CPBS adj.) impact
£m
£m £m
£m £m
£m
£m £m £m
Marine 56.2 28.9 85.1 (1.1) (4.6) 15.9 (2.9) 5.6 98.0
Nuclear 63.8 23.4 87.2 - - 2.1 (0.3) (26.6) 62.4
Land (17.5) 69.3 51.8 0.1 (3.2) 12.8 0.1 (2.8) 58.8
Aviation (130.4) 128.4 (2.0) (3.6) (1.7) 8.1 - 17.7 18.5
Total (27.9) 250.0 222.1 (4.6) (9.5) 38.9 (3.1) (6.1) 237.7
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Underlying operating profit of £237.7 million was 7% higher than last year
excluding the one-off FY21 CPBS adjustment of £(250) million. Organic growth
of 13% was driven mainly by COVID-19 recovery across the Group and operating
model cost savings of c.£20 million, achieving our target annualised savings
of c.£40 million. By sector, profit improvement in Marine, Land and Aviation
more than offset a decline in Nuclear, as a consequence of a programme
write-off of £22 million.
The underlying operating margin was 5.8%, up from 5.5% on the same basis
(excluding one-off CPBS adjustments in FY21). Three sectors improved their
operating margin: Marine by 90bp to 7.8%, Land by 50bp to 5.8% and Aviation by
250bp to 2.3%. Nuclear margin decreased 270bp to 6.2% due to the programme
write-off.
The main variances year-on-year (compared to underlying operating profit
before one-off CPBS adjustments in FY21) are:
· FX impact (2)% - this primarily relates to foreign exchange
translation on the results, most notably South Africa and Southern Europe
· Acquisitions and disposals (4)% - this is the lower net
contribution following completed transactions in the period
· COVID-19 recovery 18% - this is the estimate of profit linked to
the recovery of activity in business impacted by the pandemic based on an
analysis of direct and indirect impacts. The Group saw material profit
improvements from recovery of operations and reduced operating costs
associated with COVID-19, particularly in Land, Marine and Aviation. Subject
to any material unforeseen pandemic-related developments, we do not expect to
report separately on its impact in future periods
· Pension movements (1)% - this reflects slightly higher IAS 19
pension costs this year split across our sectors
· Other trading (3)% - Excluding COVID-19 recovery factors, sector
performance was boosted by c.£20 million operating model benefits which more
than offset increased business development costs relating to certain large
bids and costs of implementing a stronger control environment. In Marine,
initial licence fees from the Indonesian AH140 design order and a favourable
contract settlement resulted in a strong performance in the second half, while
the increase in Aviation profit was driven primarily by the significant
milestone achievements in two defence contracts in France and restructuring
benefits. Nuclear profit decreased due to the £22 million contract write-off,
which more than offset the higher contribution from infrastructure work
Further analysis of our revenue and underlying operating profit performance is
included in each sector's operating review on pages 18 to 23.
Share of results of joint ventures and associates
The Group's share of results in JVs and associates was a profit after tax of
£20.1 million in the year (FY21: £13.1 million loss). The improvement
year-on-year was due largely to the impact of one-off CPBS charges in FY21
that did not repeat (£(31.5) million) and recovery from COVID-19 impacts,
primarily in our Aviation and Land JVs.
The Group's main JVs and associates at 31 March 2022 were:
· Ascent in our Aviation sector, which trains RAF pilots in the UK
under the UK Military Flying Training System (UKMFTS) air training contract.
· AirTanker Services in our Aviation sector, which operates A330
Voyager aircraft to support air-to-air refuelling, air transport and ancillary
services for the UK Ministry of Defence.
During the year we sold our 15.4% stake in the AirTanker Holdings Ltd. asset
JV. Babcock retains its 23.5% shareholding in AirTanker Services Limited, as
described above. In March 2022, we purchased the remaining 50% share in our
Naval Ship Management (NSM) JV in our Marine sector, which maintains part of
Australia's naval fleet.
Underlying finance costs
Underlying net finance costs were flat at £62.0 million (FY21: £62.1
million) with lower net interest costs due to lower average debt and reduced
IFRS 16 lease interest, offset by a £7.1 million higher pension finance
charge and a £9.5 million non-cash charge due to a change in the revaluation
methodology of cross currency interest rate swaps.
Tax charge
The tax charge on underlying profits/(losses) was £(43.9) million (FY21:
£(21.8) million) representing an effective underlying rate of 24% (FY21:
21%), compared to the originally expected 23% due to the country profit mix.
The underlying effective tax rate is calculated on underlying profit before
tax excluding the share of income from JVs and associates (which is a post-tax
number).
The Group's effective rate of tax for FY23 will be dependent on country profit
mix and the timing of the completion of the AES disposal announced in July
2022. The current assumption is expected to be around 25%. In the medium term,
we expect our effective tax rate to increase in conjunction with UK
corporation tax rate increases.
Underlying earnings per share
Underlying earnings per share for the year was 30.7 pence (FY21: (24.6)
pence). Excluding one-off CPBS adjustments in FY21, underlying earnings per
share increased 10% from 28.0p, reflecting growth in underlying operating
profit and other income of £6.2m (guarantee fees earned before completion on
one of the FY22 disposals), partly offset by the non-cash finance charge on
derivative instruments of £9.6 million and the slightly higher effective tax
rate due to the country profit mix.
Exchange rates
The translation impact of foreign currency movements resulted in a decrease in
revenue of £22.6 million and a £4.6 million decrease in underlying operating
profit. The main currencies that have impacted our results are the South
African Rand and the Euro. The currencies with the greatest potential to
impact our results are the Euro, the South African Rand and the Canadian
Dollar:
· A 10% movement in the Euro against Sterling would affect revenue
by around £40 million and underlying operating profit by around £2 million
per annum.
· A 10% movement in the South African Rand against Sterling would
affect revenue by around £25 million and underlying operating profit by
around £2.5 million per annum
· A 10% movement in the Canadian Dollar against Sterling would
affect revenue by around £15 million and underlying operating profit by
around £1 million per annum
Disposal programme
Our plan for disposals has been assessed and does not meet the criteria for
any assets to be classed as held for sale under IFRS 5.
Cash flow and net debt
Statutory cash flow summary
31 March 2022 31 March 2021 (restated)*
£m £m
Profit/(loss) for the year 167.9 (1,803.0)
Net cash flows from operating activities 6.8 427.4
Net cash flows from investing activities 338.6 (24.4)
Net cash flows from financing activities (122.7) (1,223.9)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 222.7 (820.9)
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Cash flows from operating activities
Net cash flow from operating activities of £6.8 million was lower compared to
last year (FY21: £427.4 million) as expected, driven by a working capital
outflow of £(178.9) million (FY21: £333.2 million inflow, which included
impacts from the CPBS review) and higher pension deficit payments.
Notwithstanding these outflows, the Group performed better than expected on
cash generation from the timing of customer receipts and prepayments, and used
this to further accelerate the unwinding of both past working capital
management practices (principally deferred creditors, debt factoring) as well
as pension deficit repair and payment of the Italian fine of c.£15 million).
Cash flows from operating activities
Net cash flow from investing activities of £338.6 million increased compared
to last year (FY21: £(24.4 million)), primarily due to net cash inflow from
disposals and acquisitions of £404.2 million (FY21: £90.6 million).
Cash flows from financing activities
Net cash flow from financing activities of £(122.7) million principally
reflects lease principal payments in the year of £113.0 million (FY21:
£140.6 million). The Group repaid bank loans of £31.7 million compared to
£1,154 million in FY21.
A full cash flow statement can be found on page 34.
Movement in net debt
31 March 2022 31 March 2021 (restated)*
£m £m
Net increase/(decrease) in cash in the year 222.7 (820.9)
Cash flow from the decrease/(increase) in debt 55.1 1,202.1
Change in net funds resulting from cash flows 277.8 381.2
Net additional lease obligations (93.8) (82.3)
New leases - granted 41.9 13.9
Disposal of subsidiaries 137.1 -
Other non-cash movements and changes in fair value (14.2) 4.2
Foreign currency translation differences 12.8 44.6
Movement in net debt in the year 383.7 361.3
Opening net debt (1,352.4) (1,713.7)
Closing net debt (968.7) (1,352.4)
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Underlying cash flow and net debt
Our underlying cash flows are used by management to measure operating
performance as they provide a more consistent measure of business performance
year to year.
31 March 2022 31 March 2021
Underlying Underlying
£m (restated)*
£m
Operating profit 226.8 (1,736.7)
Add back: specific adjusting items 10.9 1,708.8
Underlying operating profit 237.7 (27.9)
One-off CPBS adjustments - 250.0
Underlying operating profit excl. one-off CPBS adjustments 237.7 222.1
Depreciation & amortisation 74.4 108.0
ROU asset depreciation 123.1 140.2
Non-cash items 0.6 9.1
Working capital movements (173.9) 128.9
Provisions (9.3) 3.4
Net capital expenditure (135.2) (171.1)
Lease principal payments (113.0) (140.6)
Underlying operating cash flow 4.4 300.0
Cash conversion % excl. one-off CPBS adjustment 1.9% 135.1%
Pension contributions in excess of income statement (151.7) (73.5)
Interest paid (45.0) (67.4)
Tax received 10.0 18.4
Dividends from joint ventures and associates 41.6 36.8
Cash flows related to exceptional items (50.6) (44.7)
Underlying free cash flow (191.3) 169.6
Net acquisitions and disposals of subsidiaries 417.2 90.6
Acquisitions/investments in joint ventures and associates (18.1) (8.8)
Dividends paid (including non-controlling interests) (1.1) (0.8)
Purchase of own shares - (2.2)
Lease principal payments 113.0 140.6
Leases acquired with subsidiaries (0.5) -
Leases disposed of with subsidiaries 137.1 -
Other non-cash debt movements (2.4) -
Fair value movement in debt (11.8) 10.0
Net new lease arrangements (71.2) (82.3)
Exchange movements 12.8 44.6
Movement in net debt 383.7 361.3
Opening net debt (1,352.4) (1,713.7)
Closing net debt (968.7) (1,352.4)
Add back: operating leases 412.0 582.1
Closing net debt excluding operating leases (556.7) (770.3)
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Underlying cash performance
Underlying operating cash flow
Underlying operating cash flow for the year after capital expenditure was
£4.4 million, compared to £300.0 million inflow in the prior year, primarily
due to working capital outflows and lower net capex (see below). The Group
used favourable timing of customer receipts and prepayments to further
accelerate the unwind of the past practice of period-end working capital
management (principally creditor deferrals and debt factoring), pension
deficit repair and to pay the Italian fine of c.£15 million, while keeping
net debt/EBITDA (covenant basis) below our target of 2.0x. This represented
operating cash conversion of 1.9% (FY21: 135.1%) on the underlying operating
profit (excluding one-off CPBS adjustments).
Movements in working capital
The movement in working capital for the year was a £(173.9) million outflow
compared to an inflow of £128.9 million last year. The outflow includes the
unwind of VAT payments deferred from the previous financial year (£56
million), a reduction in deferred creditors (£130 million) and debt factoring
in Southern Europe (by £40 million to £62 million) as we move away from the
practice of period-end management of working capital, as well as an increase
in amounts recoverable under contract in our Aviation business. The outflow in
the year was partly improved by favourable timing of customer receipts and
prepayments against long-term contracts that will reverse in FY23.
Capital expenditure
Gross capital expenditure increased to £203.2 million (FY21: £176.5
million), including £12.4 million of purchases of intangible assets
(FY21: £19.6 million). The increase reflects further investment in submarine
infrastructure in Devonport, including in 9 Dock, and commencement of
enterprise resource planning (ERP) roll-out in Nuclear. Net capex reduced to
£135.2 million (FY21: £171.1 million) due to higher proceeds from disposals
(£68.0 million (FY21: £5.4 million)), primarily reflecting the disposal and
sale and leaseback of aircraft in our Aviation sector. We expect that gross
capital expenditure will remain at an elevated level in FY23 as we continue to
upgrade our facilities and IT equipment.
Lease principal payments
Lease principal payments of £113.0 million in the year (FY21: £140.6
million) represents the capital element of payments on lease obligations. This
is reversed out below underlying free cash flow as the payment reduces our
lease liability.
Pensions
Pension cash outflow in excess of the income statement charge (excluding
exceptional charges for curtailment losses) was £151.7 million
(FY21: £73.5 million). As stated above, the Group accelerated a payment of
£23.3 million in the year, originally scheduled for FY23. We expect the cash
outflow in excess of the income statement charge to be around £100 million in
FY23.
Interest
Net cash interest paid, excluding that paid by JVs and associates, decreased
to £45.0 million (FY21: £67.4 million) due to lower net debt, a reduction in
interest on leases as a result of the Group's disposal programme and repayment
of the US Private Placement debt facility in FY21.
Taxation
Cash tax in the year was an inflow of £10.0 million, compared to our previous
expectation of an outflow of around £30 million, following the settlement of
several open years' tax computations with the authorities. We currently expect
a cash tax outflow of approximately £20 million in FY23.
Dividends from joint ventures and associates
During the period the Group received £41.6 million in dividends from its JVs
and associates (FY21: £36.8 million). The increase year-on-year reflects
close-out dividends on the termination of the ALC and Dounreay JVs, and the
final dividend from NSM pre-acquisition. Following the disposal of our 15.4%
share in AirTanker Holdings Ltd, we expect dividends from JVs and associates
to be around £5 million in FY23.
Exceptional cash flows
Cash outflows related to exceptional items were £50.6 million compared to
£44.7 million last year. These costs included £34 million restructuring
costs, which came in slightly below our initial expectations, and the early
settlement of the Italy fine of £15 million. In FY23, we anticipate
exceptional cash outflows of up to £10 million, principally operating model
restructuring costs for which the charge was taken in FY22 or prior.
Underlying free cash flow
There was an underlying free cash outflow of £(191.3) million (FY21: £169.6
million inflow) reflecting the items set out above including the working
capital outflow and pension deficit payments partly offset by lower net
capital expenditure.
Acquisitions and disposals
The net cash inflow from acquisitions and disposals after costs was £417.2
million. This included gross proceeds of £447.3 million (net of cash
disposed) from the sale of Oil and Gas (£10.0 million), Frazer Nash
Consultancy (£286.8 million), Power (£45.8 million) and our 15.4%
shareholding in AirTanker Holdings Limited (£95.6 million), and £(15.5)
million cash consideration (net of cash acquired) for the acquisition of the
remaining 50% of NSM Limited. Related disposal costs were £17.5 million and
there were £9.6 million of costs relating to disposals that have not
completed in the year, which was partly offset by a £6.2 million inflow from
pre-completion guarantee fees received in relation to a disposal.
New lease arrangements
In addition to net capital expenditure, and not included in free cash flow,
£71.2 million (FY21: £82.3 million) of additional leases were entered into
in the period. These represent new lease obligations and so are included in
our main net debt figure but do not involve any cash outflows at inception.
Net debt
The Group's net debt at FY22 was £968.7 million, or £556.7 million excluding
operating leases. The reduction in net debt, excluding lease obligations, of
£213.6 million reflects the free cash outflow and net divestments set out
above, including £137.1 million of leases disposed of with subsidiaries. Our
net debt includes balances related to the use of supply chain financing in the
Group with extended credit terms. At 31 March 2022 the amount included was
£12 million (FY21: £25 million). We are phasing out the regular use of
supply chain financing across the Group.
Funding and liquidity
At 31 March 2022, the Group's net cash balance was £757 million. This
combined with the undrawn amount under our committed revolving credit
facilities (RCF) gave us liquidity headroom of around £1.7 billion.
As of 31 March 2022, the Group had access to a total of £2.4 billion of
borrowings and facilities of mostly long-term maturities. These comprised:
· €550 million bond maturing 6 October 2022 (in April 2021 this
was hedged at £482 million)
· New £300 million 3-year RCF maturing 20 May 2024 (signed on 20th
May 2021)
· Existing £775 million RCF maturing 28 August 2025; of which
£730 million now matures on 28 August 2026
· £300 million bond maturing 5 October 2026
· €550 million bond, hedged at £493 million, maturing 13
September 2027
Capital structure
An important part of the transformation of Babcock is the strengthening of the
balance sheet. While there are several facets to balance sheet strength, the
primary measurement relevant to Babcock is the net debt/EBITDA gearing ratio
within our debt covenants, which was 1.8x for FY22. The covenant level was
temporarily lifted to 4.5x in May 2021, but reverts to 3.5x from September
2022. Having achieved our previous target of leverage under 2.0x, the ratio
could increase above 2.0x in the short term, reflecting final pension deficit
catch-up payments of c.£100 million and the unwind of the remaining creditor
deferrals (c.£35 million). The bulk of these non-recurring cash flows are
expected within the first half of FY23. Thereafter, we expect leverage to
reduce and are now implementing a medium-term gearing ratio target of 1.0x to
2.0x.
Net debt to EBITDA (covenant basis)
This is the measure used in the covenant in our RCF and makes a number of
adjustments from reported net debt and EBITDA. The covenant level is
3.5 times - which was amended to 4.5 times until 31 March 2022. As set out
above, our net debt to EBITDA (covenant basis) decreased to 1.8 times for FY22
driven by the reduction in net debt, which was proportionally greater than the
decrease in EBITDA + JV and associate dividends.
31 March 2022 31 March 2021
(restated)*
£m
£m
Underlying operating profit excl. one-off CPBS adjustments 237.7 222.1
Depreciation and amortisation 74.4 108.0
Covenant adjustments(1) (12.9) (11.5)
EBITDA 299.2 318.6
JV and associate dividends 41.6 36.8
EBITDA + JV and associates dividends (covenant basis) 340.8 355.4
Net debt excluding operating leases (556.7) (770.3)
Covenant adjustments(2) (60.0) (94.7)
Net debt (covenant basis) (616.7) (865.0)
Net debt/EBITDA 1.8x 2.4x
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
(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 and adjusting for an
average FX rate for the previous 12 months
Interest cover (covenant basis)
This measure is also used in the covenant in our RCF, with a covenant level of
4.0x.
31 March 2022 31 March 2021
(restated)*
£m
£m
EBITDA (covenant basis) + JV and associate dividends 340.8 355.4
Finance costs (60.2) (55.6)
Finance income 9.6 12.6
Covenant adjustments (1.5) (0.7)
Net Group finance costs (52.1) (43.7)
Interest cover 6.5x 8.1x
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Return on invested capital, pre-tax (ROIC)
This measure is one of the Group's key performance indicators.
31 March 2022 31 March 2021
(restated)*
£m
£m
Underlying operating profit 237.7 (27.9)
Share of JV PAT 20.1 (13.1)
Underlying operating profit plus share of JV PAT 257.8 (41.0)
Underlying operating profit excl. one-off CPBS impacts 237.7 222.1
Share of JV PAT excl. one-off CPBS impacts 20.1 18.4
Underlying operating profit plus share of JV PAT excl. one-off CPBS 257.8 240.5
adjustments
Net debt excluding operating leases 556.7 770.3
Operating leases 412.0 582.1
Shareholder funds 701.5 229.0
Retirement deficit/(surplus) (191.6) 278.9
Invested capital 1,478.7 1,860.3
ROIC (pre-tax) 17.4% (2.2)%
ROIC excl. one-off CPBS adjustments (pre-tax) 17.4% 12.9%
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Pensions
The Group has a number of defined benefit pension schemes. The principal
defined benefit pension schemes in the UK are the Devonport Royal Dockyard
Pension Scheme, the Babcock International Group Pension Scheme and the Rosyth
Royal Dockyard Pension Scheme (the Principal schemes).
IAS 19
At 31 March 2022, the IAS 19 valuation for accounting purposes was a net
surplus of £191.7 million (FY21: a deficit of £(278.9) million). Pension
liabilities reduced by £361.1 million to £4,541.4 million, primarily as
result of higher discount rates. Scheme contributions and positive net asset
returns drove a c.£110 million increase in the fair value of plan assets to
£4,733.1 million, net of £(283.5) million longevity swaps. The fair value
of the assets and liabilities of the Group pension schemes at 31 March 2022
and the key assumptions used in the IAS 19 valuation of our schemes are set
out in note 18 of the preliminary statement.
In the year ended 31 March 2022, the Group made three prior-year adjustments
to the IAS 19 valuation: a changed methodology to value the longevity swaps;
use of the actual known rate of pension increase, rather than the long-term
inflation assumption; and actuarial roll-forward for multiple years of the
Babcock Naval Services Pension Scheme (BNSPS). Further details are included in
note 18.
31 March 2022 31 March 2021
(restated)*
£m
£m
Fair value of plan assets 4,733.1 4,623.6
Present value of benefit obligations (4,541.5) (4,902.5)
Net surplus/(deficit) at 31 March 191.6 (278.9)
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior-year restatement
Income statement charge
The charge included within underlying operating profit in FY22 was £38.5
million, of which £31.1 million related to service costs and £7.4 million
related to expenses. In addition to this, there was an interest charge of
£3.7 million. For FY23, we expect charges included within underlying
operating profit of around £33 million, split between £26 million of service
costs and £7 million of expenses, and an interest credit of £7 million on
the surplus.
Actuarial valuations
An estimate of the actuarial deficits of the Group's defined benefit pension
schemes, including all longevity swap funding gaps, calculated using each
Scheme's respective technical provisions basis, as at FY22 was approximately
£350 million (FY21: c.£580million), such valuations use discount rates based
on UK gilts - which differs from the corporate bond approach of IAS 19. This
technical provision estimate is based on the assumptions used within the
latest agreed valuation prior to 31 March 2022 for each of the three main
schemes and does not fully allow for the impact of RPI reform which will be
fully reflected in future technical provisions valuations.
The valuation dates of the three largest schemes are set so that only one
scheme is undertaking its valuation in any one year, in order to spread the
financial impact of market conditions. The valuation of the Devonport Royal
Dockyard Pension Scheme as at 31 March 2020 was completed in the last
financial year, the valuation of the Rosyth Royal Dockyard Pension Scheme as
at 31 March 2021 has been completed since the year end, and work has commenced
on the valuation of the Babcock International Group Pension Scheme at 31 March
2022.
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 above.
31 March 2023e 31 March 2022 31 March 2021
£m
£m
£m
Future service contributions 19.9 21.1 24.2
Deficit recovery 88.3 135.2 51.6
Longevity swap 15.6 16.8 16.3
Total cash contributions - employer 123.8 173.1 92.1
Subsequent events
On 19 July 2022, we signed a conditional agreement with Ancala Partners for
the sale of part of our aerial emergency business including net lease
liabilities of £209 million, for a gross cash consideration of £115 million.
These businesses provide aerial emergency medical services, firefighting and
search & rescue to customers and communities in Italy, Spain, Portugal,
Norway, Sweden and Finland. Completion of the agreement is subject to certain
regulatory and other conditions. The deal is expected to complete by the end
of the calendar year, subject to the satisfaction of the relevant conditions.
OPERATIONAL REVIEWS
Marine
31 March 2022 31 March 2021 (restated)*
Contract backlog £2.5bn £2.5bn
Revenue £1,259.3m £1,230.6m
Underlying operating profit £98.0m £56.2m
of which CPBS one-off adjustment - £(28.9)m
Underlying operating profit excluding CPBS one-off adjustment £98.0m £85.1m
Underlying margin excluding CPBS one-off adjustment 7.8% 6.9%
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Revenue and underlying operating profit bridge:
31 March 2021 (restated)* One-off 31 March 2021 restated FX Acquisitions and disposals COVID-19 recovery (estimated) Pension charge Other trading 31 March 2022
(excl. one-off
CPBS adj.
Impact £m £m
£m
CPBS)
£m
£m
£m
£m
£m
£m
Revenue 1,230.6 8.6 1,239.2 (0.6) (24.3) (10.2) - 55.2 1,259.3
Underlying operating profit 56.2 28.9 85.1 (1.1) (4.6) 15.9 (2.9) 5.6 98.0
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Financial review
Revenue of £1,259.3 million increased 2% (excluding the one-off CPBS
adjustment in FY21). Organic growth of 4% was driven by increased activity on
the Type 31 programme, initial AH140 export revenue, new contracts in Mission
Systems and strong demand for our LGE products. This more than offset the
year-on-year impact of COVID-19, including the contribution from the
ventilators project in the UK last year and the end of our Royal Naval
training contract in FY21.
Underlying operating profit (excluding one-off CPBS adjustments) increased 15%
to £98.0 million, or 22% on an organic basis. The main drivers were increased
revenue, including COVID-19 recovery and growth in Mission Systems and LGE
contracts, operating model efficiencies, a favourable contract settlement and
the Indonesia AH140 licence fee, which more than offset significant bid costs
on new large opportunities, including Indonesia, Poland and in the UK. As a
result, underlying operating margin (excluding one-off CPBS adjustments)
improved to 7.8% (FY21: 6.9%).
The disposal of Frazer-Nash Consultancy Ltd completed in August 2021 for a
gross consideration of £291.7 million. In March 2022, we acquired the
remaining 50% of the Australian Naval Ship Management (NSM) business from
joint venture partners for £34 million.
Contract backlog was flat at £2.5 billion, with the addition of two large
contracts in Mission Systems combined and growth in LGE orders, replacing
revenue traded on long term contracts. At 1 April 2022, Marine had around
£0.8 billion of FY23 expected revenue under contract, and an additional
c.£460 million under framework agreements, both in line with the FY21
position.
Operational review
UK defence
The Type 31 (Inspiration Class) frigate programme remains on schedule, with
three major milestones achieved during the year: the first steel cut for HMS
Venturer, its subsequent keel laying, and the topping out of our advanced
manufacturing facility in Rosyth. The investment across our Rosyth site aims
to ensure capability and capacity to support future shipbuilding
opportunities. In April 2022, we were awarded a 10-year contract to provide
dry-dock maintenance work for the Royal Navy's Queen Elizabeth Class (QEC)
aircraft carriers. The contract strengthens Rosyth capabilities in design,
build, assembly and support of large ships.
Warship support activity at Devonport was higher year-on-year, with work on
the Type 23 frigate programme ahead of last year, which included COVID-19
disruption. We continued to provide the UK's Royal Navy with fleet-time
support, deployed support, and deep maintenance, with life extension and refit
activity on a number of warships. We also supported the Royal Navy's Carrier
Strike Group across multiple platforms and locations, including work on HMS
Richmond in Japan, as well as the Type 23, Type 45, the QEC Class and Sandown
Class.
We saw several positive developments in our Missions Systems business,
including securing a c.£110 million contract to deliver the new Defence
Strategic Radio Service to critical military operations and a c.£100 million
13-year contract for the UK MOD for the design, manufacture, delivery and
in-service support to the Maritime Electronic Warfare Systems Integrated
Capability (MEWSIC). Babcock will act as prime contractor, working with
collaboration partners, Elbit Systems UK and QinetiQ.
We achieved full operational capacity in our new Morpheus Logistic Support
Contract, which forms part of the UK's Land Environment Tactical
Communications and Information Systems programme to deliver next generation
tactical communications and information systems for the British Army. We also
extended our contracts for Dreadnought launch weapons and signal ejector
systems to include further scope on boats two to five.
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 Australia, we completed the acquisition of the remaining 50% stake in our
Naval Ship Management (NSM) business from our JV partners in March 2022. The
NSM acquisition strengthens Babcock's support to the Australian Defence
Force's future maritime support model, Plan Galileo. With the signing of a new
sustainment contract in New Zealand (see below), Babcock is now the
Australasia region's leading warship sustainment enterprise.
In December, we were selected by the Australian Government as the preferred
tenderer to upgrade and sustain the Defence High Frequency Communication
System (DHFC) to support the Australian armed forces over the next 10 years,
with a further four-year extension option, each of two years.
In New Zealand, In February 2022, the Defence Force awarded Babcock a new
seven-and-a-half year Maritime Fleet Sustainment Services contract to provide
full service asset management and engineering to the Royal New Zealand Navy.
In Canada, Babcock is continuing to deliver on the Victoria Class In-Service
Support Contract (VISSC), supporting Canada's fleet of four submarines.
Babcock completed the deep maintenance period of HMCS Corner Brook and is
preparing to commence work on the deep maintenance period for HMCS Victoria.
Additionally, the Government of Canada has further extended VISSC to June
2025.
In South Korea, we signed a Memorandum of Understanding (MoU) with Hyundai
Heavy Industries for the CVX Aircraft Carrier Programme opportunity. In March,
we signed a further MoU with Daewoo Shipbuilding and Marine Engineering Co Ltd
(DSME) to focus on international opportunities, and support system integration
on future programmes. The business is benefitting from investment in an
assembly, maintenance, repair and overhaul facility in Busan, where Babcock
currently assembles equipment for the fifth boat in the Janbogo-III submarine
programme.
In Oman, our joint venture operation in Duqm with the Oman Drydock Company has
completed a first of its kind double engine replacement for a UK Royal Navy
Type 23 Class frigate. This enables the Royal Navy to sustain operations
within the region and is a clear example of Babcock's global reach. During the
period, two packages of work were also completed on US Navy vessels.
In September, we won our first export contract for the AH140 frigate (which
Type 31 is based on) through a design licence agreement with PT PAL Indonesia.
The design licence will enable PAL to build two frigates in Indonesia with
bespoke design modifications for the Indonesian Navy. The second export
success came in March 2022, when our design was selected by Poland and Babcock
was selected as the design technology partner for Poland's MIECZNIK
(Swordfish) frigate programme. Babcock will co-operate with Polish state-owned
defence contractor PGZ and other members of the MIECZNIK consortium to adapt
the AH140 design and construct the vessels at the PGZ shipyard in Gdynia.
In Brazil, we were awarded a four-year contract to deliver through life
support to the Marinha do Brasil's flagship vessel, NAM Atlântico, formerly
the UK Royal Navy platform HMS Ocean, as part of our global programme.
Our Energy and Marine (LGE) business saw good growth in orders and revenue,
with increased commercial vessel work and continued strong demand for
liquefied gas handling and re-liquefaction systems across the LPG and LNG
markets. The business won many projects in the year from shipyards in South
Korea, China and other major international ship-owners.
Nuclear
31 March 2022 31 March 2021 (restated)*
Contract backlog £2.8bn £0.4bn
Revenue £1,009.7m £975.9m
Underlying operating profit £62.4m £63.8m
of which CPBS one-off adjustment - £(23.4)m
Underlying operating profit excluding CPBS one-off adjustment £62.4m £87.2m
Underlying margin excluding CPBS one-off adjustment 6.2% 8.9%
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Revenue and underlying operating profit bridge:
31 March 2021 (restated)* One-off 31 March 2021 restated FX Acquisitions and disposals COVID-19 recovery (estimated) Pension charge Other trading 31 March 2022
(excl. one-off
£m CPBS adj.
Impact
£m
CPBS)
£m
£m
£m
£m
£m
£m
£m
Revenue 975.9 2.2 978.1 - - 0.4 - 31.2 1,009.7
Underlying operating profit 63.8 23.4 87.2 - - 2.1 (0.3) (26.6) 62.4
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Financial review
Revenue increased 3% to £1,009.7 million (excluding the one-off CPBS
adjustment in FY21). This was driven by the continued strong ramp up in
submarine infrastructure programmes, which more than offset lower volumes
through transition to the new FMSP contract, a £22 million programme
write-off and civil nuclear projects which completed in FY21.
Underlying operating profit (excluding one-off CPBS adjustments) fell by 28%
to £62.4 million. The key impact in the year was a £22 million programme
write-off, which offset higher contribution year-on-year from infrastructure
work and operating model savings. As a result of this, and lower initial
profit recognition at the start of the FMSP contract, underlying margin for
the year fell to 6.2%.
The sector's contract backlog of £2.8 billion (FY21: £0.4 billion) is up
significantly due to the signing of the FMSP contract. At 1 April 2022,
Nuclear had around £860 million of FY23 expected revenue under contract
(FY22: £260 million) and an additional c.£110m under framework agreements
(FY21: £640 million).
Operational review
Defence
Overall, our defence activity increased driven by the continued ramp-up of the long-term Devonport infrastructure programme to support future demand. The largest current project, the design and enabling work to refurbish 10 Dock and its supporting infrastructure, is underway along with other major projects to support the first deep maintenance period of the Astute Class submarine at Devonport in the next few years. We continue to work on the Revalidation Assisted Maintenance Period (RAMP) programme for the Trafalgar Class and the life extension of the Vanguard Class. We also continue to work with our Submarine Enterprise partners in supporting the design and build programmes for the future classes of submarine, including the Dreadnaught Class.
In September 2021, the Future Maritime Support Programme (FMSP) was signed. This five-year contract for around £3.5 billion replaces the previous Maritime Support Delivery Framework (MSDF), and continues our support spanning UK naval base operations at HMNB Devonport and HMNB Clyde and engineering and planning at our Bristol hub, all undertaken alongside surface ship fleet support at Devonport in our Marine sector. We continue to work with our UK MOD customer to ensure the provision of future capability and resilience and to improve decision making across the Submarine Enterprise. The new contract has been identified as a 'Qualifying Defence Contracts' (QDC) and falls under Single Source Contract Regulations (SSCR).
Following the AUKUS announcement to acquire nuclear-powered submarine technology without nuclear armaments, Australia will no longer proceed with the Attack class conventional submarine contract with Naval Group. As a result, our participation in the Attack class programme has ended. Babcock recognises the strategic importance of the AUKUS agreement and continues to be ready to support any future requirement.
Civil
Momentum in the civil nuclear market is building and the business continues to position for future opportunities. During the year, we secured a five-year extension to the multi-year Design Services Alliance (DSA) engineering framework, worth around £200 million, and a two-year extension to the Pile Fuel Cladding Silo (PFCS) project, both at Sellafield. We continue to support EDF and project volumes are in line with expectations. In new build, Hinkley Point C announced a delay to the project principally because of the impact of COVID-19 on the civil works, which has further delayed the ramp up of our Mechanical, Electrical and HVAC (MEH) Alliance scope further.
Small work packages from the Magnox programme are now being contracted and initiated. During the period we secured two contracts at Hinkley Point A, where we will lead the installation, setting to work and inactive commissioning for the projects as the principal contractor.
In July 2021, we signed a memorandum of understanding with Rolls-Royce to collaborate on the Small Modular Reactor (SMR) programme to help develop roles across manufacturing, licensing, design and delivery. Babcock, in collaboration with U-Battery, has developed a full-size mock-up of the main vessels of an advanced modular reactor at our Whetstone manufacturing facility. The mock-up intends to demonstrate the potential simplicity in construction and transport of an SMR, making a valuable contribution to the UK's net zero efforts. We also signed a memorandum of understanding with X-Energy, a US reactor and fuel design engineering company, to act as its deployment partner for High Temperature Gas Reactors in the UK. The three technologies are complementary and align with the UK Governments plans to transition to net zero carbon by decarbonising electricity generation and building a hydrogen economy in the UK.
Increasing volatility of national power generation driven by global developments during the year has prompted nations to look at producing and securing their sources of low emission power. In the UK, the Government has backed new nuclear energy supply to deliver both UK energy security of supply and contribute to their target of net zero emissions by 2050. In addition to new policy developments, it has committed around £2.3 billion of funding to support new nuclear programmes. This is a core focus area for our civil nuclear business, and we are well positioned to take advantage of these opportunities.
Internationally, we are now supporting Ontario Power Generation with its decommissioning planning for the Pickering Nuclear Generating Station in Canada. In Japan, relationships continue to strengthen whilst new additional international opportunities are being identified in our focus countries.
Land
31 March 2022 31 March 2021 (restated)*
Contract backlog £2.3bn £2.4bn
Revenue £1,015.5m £910.7m
Underlying operating (loss) / profit £58.8m £(17.5)m
of which CPBS one-off adjustment - £(69.3)m
Underlying operating profit excluding CPBS one-off adjustment £58.8m £51.8m
Underlying margin excluding CPBS one-off adjustment 5.8% 5.7%
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Revenue and underlying operating profit bridge:
31 March 2021 (restated)* One-off 31 March 2021 restated FX Acquisitions and disposals COVID-19 recovery (estimated) Pension charge Other trading 31 March 2022
£m CPBS adj. (excl. one-off Impact
£m
£m
£m
£m
CPBS)
£m
£m
£m
£m
Revenue 910.7 60.7 971.4 - (27.1) 103.2 - (32.0) 1,015.5
Underlying operating profit (17.5) 69.3 51.8 0.1 (3.2) 12.8 0.1 (2.8) 58.8
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Financial review
Revenue increased 5% to £1,015.5 million (excluding the one-off CPBS
adjustment in FY21). Organic growth of 7% includes recovery from prior year
COVID-19 impacts, particularly in South Africa and in our civil training
businesses, and higher activity in Rail. This was offset by lower volume on
the DSG contract due to project completions, the loss of the Heathrow baggage
handling contract in the prior year, and the end of the Eskom power station
service contract in the final quarter of FY22.
Underlying operating profit (excluding one-off CPBS adjustments) grew by 14%
to £58.8 million or by 19% on an organic basis. The increase reflects a
strong recovery from COVID-19 impacts (£12.8 million), operating model
efficiencies and growth in Rail, which more than offset lower DSG volume and
the loss of the Heathrow contract. As a result, underlying margin improved to
5.8%.
The sector's contract backlog at £2.3 billion (FY21 restated: £2.4 billion),
has been adjusted for reclassification of pass-through (principal versus
agent) revenue of c.£580 million. The decline reflects small business wins
offset by trading and disposals. At 1 April 2022, Land had around £500
million of FY23 expected revenue under contract (FY22: £540 million) and an
additional c.£150 million under framework agreements (FY21: c.£120 million).
Operational review
Defence
Overall, Land defence activities were broadly flat with further volume
recovery from COVID-19 impacts across a number of contracts, offset by lower
volumes on the DSG contract. In line with customer requirements, the DSG
transformation programme has been fully implemented and we are now leading
several key programmes of improvement focussed on specific outputs for the
Army which see us integrating expertise from OEMs, SMEs, and the wider supply
chain to improve overall programme potential.
Defence training saw some recovery in activity levels compared to last year.
After a highly successful campaign in 2021, we will be participating in the
British Army's 2022 Army Warfighting Experiment to demonstrate the integration
of a range of innovative collective training capabilities. In the period we
were awarded a three-year extension for the Defence College of Technical
Training for EMTC 2, the provision of training design and delivery.
Emergency services
Activity was broadly flat in the period with the first year of the Met Police training contract offset by slightly lower volumes in London Fire Brigade (LFB) contracts. The Police Education and Qualification Framework (PEQF) programme originally launched through a COVID-secure delivery model was returned to operational programme delivery in September 2021.
South Africa
South Africa grew strongly in the year as activity recovered from COVID-19
impacts. In the final quarter of the year, Eskom made the decision to not
extend the engineering services contract which we have run for many years to
support state power generation. The impact of the loss of the contract is
expected to be around £60 million in revenue for FY23.
Other civil markets
The Rail business saw growth in volumes on track renewals and signalling framework while our civil training business saw higher activity compared to last year which was affected by COVID-19 related disruption. Our Power business, which we divested in December 2021, contributed revenue of around £62 million and an operating profit of around £5 million in FY22.
Aviation
31 March 2022 31 March 2021
(restated)*
Contract backlog £2.3bn £2.9bn
Revenue £817.3m £854.4m
Underlying operating (loss) / profit £18.5m £(130.4)m
of which CPBS one-off adjustment - £(128.4)m
Underlying operating profit excluding CPBS one-off adjustment £18.5m £(2.0)m
Underlying margin excluding CPBS one-off adjustment 2.3% (0.2)%
* Refer to Note 3 of the preliminary financial statements for details
regarding the prior year restatement
Revenue and underlying operating profit bridge:
31 March 2021 One-off 31 March 2021 (excl. one-off FX Acquisitions and disposals COVID-19 recovery (estimated) Pension charge Other trading 31 March 2022
CPBS adj. CPBS) Impact
£m £m
£m
£m
£m
£m
£m
£m
£m
Revenue 854.4 16.8 871.2 (22.0) (75.4) 38.5 - 5.0 817.3
Underlying operating profit (130.4) 128.4 (2.0) (3.6) (1.7) 8.1 - 17.7 18.5
Financial review
Revenue decreased by 6% to £817.3 million (excluding one-off CPBS adjustments
in FY21), primarily due to the disposal of our Oil and Gas business in August
2021 and the impact of foreign exchange. Organic growth was 5% was driven by
COVID-19 recovery and the ramp-up of defence contracts in France, offset
partly by the completion of fixed wing aerial emergency services (AES)
contracts in the Nordics and lower activity in Italy.
Underlying operating profit (excluding one-off CPBS adjustments) increased to
£18.5 million (FY21: £(2.0) million loss). Profit performance improved due
to operating model efficiencies, the achievement of certain programme
milestones and recovery from COVID-19. FY22 was still slightly affected by
lower flying hours and costs associated with additional COVID-19 related
safety measures.
The sector's contract backlog declined to £2.3 billion (FY21: £2.9 billion), primarily as a result of the removal of £580 million backlog of the Oil and Gas aviation business, sold in August 2021. Excluding disposals, FY21 restated contract backlog was £2.3 billion. At 01 April 2022, Aviation had around £580 million of FY23 expected revenue under contract (FY21: £700 million (excluding disposals)).
Operational review
Defence
International defence grew in the year, driven by activity on new contracts and ramp up of the H160 contract which delivers search and rescue aircraft for the French Navy. In June 2021, we were awarded the Mentor contract, which involves the provision and support of an additional nine PC-21 aircraft and related equipment to the French Air Force, bringing the fleet size to 26. The contract expands the scope of our existing military training operations and is expected to be worth up to c.€500 million over 11 years, including options. c.€170 million was booked in FY22.
Additionally in the year, we teamed with Leonardo in Canada to work together on a new business opportunity for the Future Aircrew Training programme (FAcT).
Activity across UK defence including RAF station support, Hawk and LAFT contracts was flat year-on-year as expected, with further recovery from COVID-19 impacts offsetting the completion of some contracts. In the period, our military business secured a two-year extension to our Hades site support contract with the RAF, and a four-year extension for the delivery of the light aircraft flying training programme LAFT2. In addition, an expansion of requirements has been awarded from the Ascent JV to deliver further support to pilot training through the UK Military Flying Training System (UKMFTS).
Aerial emergency services
Revenue across the majority of our aerial emergency services businesses ended the year flat, in line with expectations, with improvements in profitability as a result of operating model efficiencies and some COVID-19 recovery.
Performance in aerial emergency medical services has seen some good recovery this year. Modest growth in Italy, with Scandinavia flat, was offset by lower volumes in Spain over the year. Southern European bases have all remained open and experienced varying increases in profitability. Renewal contracts have been won across the UK, Italy and Sweden. The Norway fixed wing contract has matured to a steady operational state with investment in a new maintenance facility in Tromso.
Our firefighting operations saw higher activity levels in Canada and key areas in Spain compared to last year, with Italy reporting expected flying hours. We have also utilised five Super Puma helicopters in Spain, converted from oil and gas operations. These aircraft deliver much greater water capacity than existing helicopters and are able to deliver a significantly larger number of firefighters to wildfires than was previously possible. Our Italy firefighting contract has been extended by two years.
Oil and gas
The sale of the Oil and Gas business completed in August 2021, contributed revenue of around £79 million and an operating profit of around
£2 million in FY21.
Financial Glossary - Alternative performance measures
The Group provides alternative performance measures, including underlying
operating profit, 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. 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.
Further information on the Group's Specific Adjusting Items, which is a
critical accounting judgement, can be found in Notes 2.
The Group's alternative performance measures are not defined by IFRS and are
therefore considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies, and they are not
intended to be a substitute for, or superior to, measures defined under IFRS.
The Group's alternative performance measures are consistent with the year
ended 31 March 2021, except for Contract Backlog, which is redefined to be
consistent with the revenue accounting policy change in Note 3 of the
preliminary financial statements.
Measure Closest equivalent IFRS measure Definition and purpose Adjustments to reconcile to IFRS measure (and reference to reconciliation)
Revenue measures
Revenue excluding the one-off CPBS adjustment Revenue Revenue excluding the impact of the one-off CPBS adjustment in FY21 One-off CPBS revenue impact
- To eliminate the non-recurring element of the CPBS review from FY21 revenue - See table on page 9 and page 10
to provide a better measure of growth
Organic growth Revenue growth year-on-year Growth excluding the impact of foreign exchange (FX), and contribution from FX, contribution of acquisitions and disposals in the current and prior year
acquisitions and disposals over the prior and current year, and the one-off
CPBS adjustment in FY21
- Used to measure the year-on-year movement in Group revenue
- It is a good indicator of business growth
- Group KPI
Contract backlog IFRS15 Contracted revenue excluding variable revenue, expected contract renewals,
expected revenue from framework agreements and impact of termination for
convenience clauses.
- Used to measure revenue under contract as a good indicator of revenue
visibility
Profit measures
Underlying operating profit Operating profit Operating profit before the impact of Specific Adjusting Items(1) Specific Adjusting Items(1)
- Underlying operating profit is the headline measure of the Group's - See table on page 9
performance
- See note 2
Underlying operating margin No direct equivalent Underlying operating profit as a percentage of revenue Ratio - N/A
- 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 costs Net finance costs Net finance costs excluding Specific Adjusting Items(1) Specific Adjusting Items(1)
- To provide an alternative measure of underlying finance costs excluding - See table on page 9
items such as fair value measurements which can fluctuate significantly on
inputs outside of management's control
Underlying profit before tax Profit before tax Profit before tax adjusted for Specific Adjusting Items(1)
- The summation of the impact of all adjusting items on profit before tax - See table on page 9
Underlying effective tax rate Effective tax rate Tax expense excluding the tax impact of Specific Adjusting Items(1), as a Specific Adjusting Items(1)
percentage of underlying profit before tax (being the summation of the impact
of all adjusting items on profit before tax) excluding the share of post-tax - See table on page 9
income from joint ventures and associates
- To provide an indication of the ongoing tax rate across the Group, excluding
one-off items
Underlying basic earnings per share Basic earnings per share Based on the Group's underlying profit before tax. It includes the Group's Specific Adjusting Items(1)
post-tax share of results of joint ventures and associates
- See table on page 9
- See Note 7 on page 48
Underlying operating profit (excluding one-off CPBS adjustment) Operating profit Underlying operating profit excluding one-off CPBS adjustment in FY21
- Eliminates the non-recurring element of the CPBS review to provide a better
measure of underlying operating profit in FY21
Underlying operating margin (excluding one-off CPBS adjustment) No direct equivalent Underlying operating profit divided by revenue, both excluding one-off CPBS Ratio - N/A
adjustment in FY21
- Eliminates the non-recurring element of the CPBS review to provide a better
measure of underlying operating margin in FY21
Underlying basic (earnings per share excluding one-off CPBS adjustment) Basic earnings per share Underlying earnings per share excluding the impact of the one-off CPBS Specific Adjusting Items(1)
adjustment in FY21
- Eliminates the non-recurring element of the CPBS review in FY21 to provide a
better measure of underlying earnings growth in the year
EBITDA Operating profit Underlying operating profit excluding one-off CPBS adjustments in FY21, plus Specific Adjusting Items(1)
depreciation and amortisation, and various covenant adjustments linked to the
Revolving Credit Facility including the treatment of leases within operating Depreciation and amortisation
profit and pension costs
Covenant adjustments
- Used as the basis to derive the gearing ratio net debt/EBITDA, which is a
key measure of balance sheet strength and the basis of our debt covenant - See table on page 16
calculations
Balance sheet
Net debt No direct equivalent Cash and cash equivalents and short-term investments, less bank and other - See table on page 12
borrowings, operating leases and net derivative financial instruments
- See table on page 13
- Used as a general measure of the progress in generating cash and
strengthening of the Group's balance sheet position
Net debt (excluding operating leases) No direct equivalent Net debt excluding lease liabilities as defined by IAS 17, the relevant - See table on page 12
standard at the inception of the banking facility. This net debt figure also
includes finance lease (as defined by IAS 17) receivables and payables, loans - See table on page 13
from the Group to joint ventures and supply chain financing balances (of FY22:
£12 million, FY21: £25 million).
- 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 (covenant basis) No direct equivalent Net debt (excluding operating leases), excluding loans to Joint Ventures, - See table on page 16
finance lease receivables and adjusting for an average FX rate for the
previous 12 months
- Used by debt investors
- Used by credit agencies
Net debt/EBITDA (covenant basis) No direct equivalent Net debt (covenant basis) divided by EBITDA Ratio - N/A
- A measure of the Group's ability to meet its payment obligations - See table on page 16
- Used by analysts and credit agencies
- Group KPI
Return on invested capital (pre-tax) (ROIC) No direct equivalent Underlying operating profit plus share of JV PAT, divided by the sum of net Ratio - N/A
debt, shareholders' funds and retirement deficit (surplus)
- See table on page 16
- 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
Return on invested capital excluding one-off CPBS adjustments (pre-tax) No direct equivalent Underlying operating profit plus share of JV PAT excluding one-off CPBS Ratio - N/A
adjustments, divided by the sum of net debt, shareholders' funds and
retirement deficit (surplus) - See table on page 16
- Used as a measure of profit earned by the Group excluding the one-off impact
of CPBS adjustments generated by the debt and equity capital invested, to
indicate the efficiency at which capital is allocated
Cash flow measures
Net capital expenditure No direct equivalent Property, plant and equipment and intangible assets, less proceeds on disposal
of property, plant and equipment
- Includes underlying operating cash flow to calculate underlying operating
cash conversion
Underlying operating cash conversion No direct equivalent Underlying operating cash flow after capital expenditure as a percentage of Ratio - N/A
underlying operating profit
- Used as a measure of the Group's efficiency in converting profits into cash
Underlying free cash flow No direct equivalent Underlying free cash flow includes cash flows from exceptional items and the - See page 13
capital element of lease payment cash flows (rather than net new lease
commitments, which are reflected as a debt movement)
- Provides a measure of cash generated by the Group's operations after
servicing debt and tax obligations, available for use in line with the Group's
capital allocation policy
(1. Refer to Note 2 in the preliminary financial statements)
Going concern and viability statement
Overview
The Directors have undertaken reviews of the business financial forecasts, in
order to assess whether the Group has adequate resources to continue in
operational existence for the foreseeable future and as such can continue to
adopt the going concern basis of accounting.
The Directors have also looked further out to consider the viability of the
business to test whether they have a reasonable expectation that the Group
will continue in operation and meet its liabilities as they fall due.
For assessing going concern, the Board considered the 12 month period from the
date of signing the Group's financial statements for the year ended 31 March
2022. For viability, the Board looked at a five-year view as this is the
period over which the Group prepares its strategic plan forecasts.
That five-year view is an update from the previous three-year plan, now that
we have completed the first year of turnaround and made initial steps to
reshape our portfolio of businesses.
The use of a five-year period provides a planning tool against which long-term
decisions can be made concerning strategic priorities, addressing the Group's
stated net zero target and climate-related risks and opportunities, funding
requirements (including commitments to Group pension schemes), returns made to
shareholders, capital expenditure and resource planning.
The annually prepared budgets and forecasts are compiled using a bottom-up
process, aggregating those from the individual business units into sector
level budgets and forecasts. Those sector submissions and the consolidated
Group budget and forecasts are then reviewed by the Board and used to monitor
business performance.
The Board considered the budgets alongside the Group's available finances,
strategy, business model, market outlook and principal risks. The process for
identifying and managing the principal risks of the Group is set out in our
Annual Report. The Board also considered the mitigation measures being put in
place and potential for further mitigation.
The Board considers the long-term prospects of the Group underpin its
conclusions on viability. As outlined in our strategy, business model and
markets summaries on pages 6 to 11 of this report, our prospects are supported
by:
· a diverse portfolio of businesses based on well-established
market positions, focussed on naval engineering, support and systems, and on
critical services in our core defence and civil markets. In FY22 55% of Group
sales were defence related and 45% civil;
· a geographically diverse business with a high proportion of sales
to governments and other major prime defence contractors. In FY22, 63% of
sales were to defence and civil customers in the UK, and 37% were
international;
· long-term visibility of sales and future sale prospects through
an order backlog of £9.9bn as at 31 March 2022, including incumbent positions
on major defence programmes; and
· market positions underpinned by a highly skilled workforce,
intellectual property assets and proprietary know-how, which are safeguarded
and developed for the future by customer- and Group-funded investment.
Available financing
As at 31 March 2022, net debt excluding operating leases was £556.7 million
and the Group therefore had liquidity headroom of £1.8 billion, including net
cash and cash equivalents of £0.8 billion and undrawn facilities of £1.0
billion. These facilities are considered more than adequate to meet current
and other liabilities as they fall due and supports the Group's negative
working capital position largely arising from securing customer advances ahead
of contract work starting.
As of June 2022, the Group's committed facilities and bonds totalling £2.4
billion were as follows:
· €550 million bond, hedged at £482 million, maturing 6 October
2022
· £300 million three-year RCF maturing 20 May 2024
· Existing £775 million revolving credit facility (RCF) maturing
28 August 2025; of which £730 million now matures 28 August 2026
· £300 million bond maturing 5 October 2026
· €550 million bond, hedged at £493 million, maturing 13
September 2027
· A committed overdraft facility of £50 million
The RCFs are the only facilities with covenants attached. The key covenant
ratios are (i) net debt to EBITDA (gearing ratio) (ii) and EBITDA to net
interest (interest cover).
These are measured twice per year - on 30 September and 31 March. In May 2021
our lending banks agreed to raise the covenant limit for the gearing ratio
from 3.5x to 4.5x for the measurement periods ending 30 September 2021 and 31
March 2022 in order to provide sufficient downside protection for the Group as
the turnaround in performance took place.
As we have now successfully delivered over £400 million from the divestment
programme, amongst other turnaround dependencies in the prior 12 months, we
have not considered it necessary to seek any extension to the period of time
covered by those raised covenant limits. Hence for all periods in this going
concern review, the gearing ratio covenant returns to 3.5x at September 2022
and remains so thereafter.
The RCF lenders are fully committed to advance funds under the RCF to the
Group, provided that the Group has satisfied the usual ongoing undertakings,
and the creditworthiness of the Group's relationship banks is closely
monitored. Based on their credit ratings we have no credit concerns with our
relationship banks. Given the importance of the RCFs to the Group's liquidity
position, our assessments of going concern and viability have tested the
Group's gearing ratio, interest cover and liquidity headroom throughout the
period under review up to their current maturity dates.
Base case scenario
The base case budget shows significant levels of headroom against both
financial covenants and liquidity headroom based on the current committed
facilities outlined above (without assuming any refinancing of the €550
million bond in October 2022). That base case largely assumes we maintain our
incumbent programme positions if re-let during the five-year period, with
margin recovery if they are currently below the Group average. Many
opportunities available to the Group, where we do not yet have high conviction
of securing the work, have been excluded from the base case to seek to
maintain a degree of caution.
That base case assumes no further recurrence of business disruption from the
COVID-19 pandemic, which is consistent to our trading in FY22.
It also assumes that the impact of current inflationary pressures can be
managed within contract estimates assumed in our planning. The base case
assumes no further reshaping of the business portfolio, so it is not dependent
upon any future cash proceeds from divestments. It also maintains pension
deficit contributions in excess of income statement charges of around £130
million relating to FY23 and around £75 million relating to FY24.
Reverse stress testing of the base case
To assess the level of headroom within the available facilities, a reverse
stress test was performed to see what level of performance deterioration
against the base case budgets and forecasts (in both EBITDA and net debt) was
required to challenge covenant levels.
Of the remaining measurement points within the available facility period, the
lowest required reduction in forecast EBITDA to hit the covenant level was 46%
and the lowest net debt increase was 50%. Given the mitigating actions that
are available and within management's control, such movements are not
considered plausible.
Severe but plausible downside scenarios
The Directors also considered a series of severe but plausible downside
scenarios which are sensitivities run against the base case budget and
forecasts for the duration of the assessment period. These sensitivities
include - separately - a reduction in bid pipeline closure (business winning),
an erosion of operating model savings, a deterioration in large programme
performance across the Group (including further inflation cost increases, or
related failures in supplier resilience, as per our principal risks), a
deterioration in the Group's working capital position and a regulator-imposed
cessation in flying two of the largest aircraft fleets in the Group.
As stated above, a key contributor to the strengthening of the balance sheet
in FY22 was the divestment programme which generated in excess of the original
target of £400 million of proceeds. No sensitivities were therefore
considered necessary to be tested in relation to further potential
divestments.
All of these separate scenarios showed compliance with the financial covenants
throughout the period, and with sufficient headroom given the strengthened
balance sheet, no extensions have been sought to the temporary increase in the
covenant level gearing ratio previously granted by our lending; it has
therefore now reverted to the usual 3.5x at September 2022 and for all future
measurement periods.
As with any company or group, it would be possible, however unlikely, to model
individual risks or combinations of risks that would threaten the financial
viability of the Group. The Board has not sought to model events where it
considers the likelihood of such events not to be plausible. In preparing a
combined severe but plausible (SBP) downside case, the Board considered the
feed of individual risks from the sectors covering the above sensitivities.
Overall there were c.80 profit and cash flow risks identified.
A simple aggregation of all of these risks is not considered plausible as the
Group operates businesses and contracts which run largely independently of
each other, albeit with a relatively small number of customers within each
geography.
The majority of these identified risks were seen as 'sector independent' (ie
there is no direct read across from one sector to another). A small number are
deemed 'non independent' eg inflation, FX etc. The Board decided to include in
its combined SBP downside all the 'non independent' risks without reduction,
but reduced the aggregation of the 'sector independent' risks by 25% to
reflect the implausibility of all such risks fully crystallising within the
same period.
If such a severe downturn were to occur in the Group's performance, the Board
would take mitigation measures to protect the Group in the short term.
Such profit and cash mitigation measures that are deemed entirely within the
control of the Group and identified as part of the sector budgeting exercise
have been included in the SBP scenario (eg cancelling pay rises and bonus
awards, curtailing uncommitted capital expenditure and operational spend
including R&D and other investment).
Despite the severity of the above combined SBP scenario, the Group maintained
a sufficient amount of headroom against the financial covenants within its
borrowing facilities, and sufficient liquidity when compared against existing
facilities.
Going concern assessment and viability conclusion
Based on our review, the Directors have a reasonable expectation that the
Group has adequate resources to continue as a going concern for at least 12
months from the date of these financial statements.
As such, these financial statements have been prepared on the going concern
basis. The Directors do not believe there are any material uncertainties to
disclose in relation to the Group's ability to continue as a going concern.
In concluding on the financial viability of the Group, having considered the
scenarios outlined above, the Directors have a reasonable expectation that the
Company and the Group will be able to continue in operation and meet all its
liabilities as they fall due up to March 2027.
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 2022, 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 2022 in full. The Group's principal risks and
uncertainties are:
Existing markets: we rely heavily on winning and retaining large contracts
with a relatively limited number of major clients, whether in the UK,
particularly the Ministry of Defence, or overseas, many of whom are (directly
or indirectly) owned or controlled by government (national or local) and/or
are (wholly or partly) publicly funded
New markets: We seek new markets and contracts for our services both with
existing and new customers, whether in territories where we are already
established or in territories where we are not
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, covenant headroom and credit risks)
Contract performance: We operate large contracts, which often requires us to
price for the long term and for risk transfer. Our contracts may include fixed
price which assumes inflation risk
Business interruption: Failure to withstand the impact of an event or a
combination of events may significantly disrupt all or a substantial part of
the Group's business
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
rationalisation 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
Health, safety and environmental: Our operations entail the potential risk of
significant harm to people, property or the environment, wherever we operate
across the world
Regulatory and compliance burden: Our businesses are subject to the laws,
regulations and restrictions of the many jurisdictions in which they operate
People: We operate in many specialised engineering and technical domains,
which require appropriate skills and experience
Pensions: The Group has significant defined benefit pension schemes in the UK,
which provide for a specified level of pension funds to scheme members
IT and 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
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
Emerging risks: In addition, as part of its risk work, the Group has also
identified two emerging risks. Both risks are not standalone risks but affect
several of the Group's principal risks. The two emerging risks are:
Inflation: As the global economy recovers from the Covid-19 pandemic, it is
experiencing increasing inflationary pressure, both in terms of supplier costs
and in terms of labour rates. The inflationary environment may be exacerbated
by the conflict in Ukraine. The Group has a number of long-term contracts,
which may include fixed price elements or saving commitments. We also have
collective bargaining agreements with our workforce at certain sites. If we
experience increased costs, which we are not able to pass on, this will affect
the profitability of the contracts concerned and could mean that they become
loss-making or that we are unable to meet our contractual commitments, leading
to an adverse financial impact and a longer-term reputational impact.
Supplier resilience: Our supply chain is subject to the same global
inflationary pressures. Furthermore, the global supply of raw materials and
parts has not fully recovered from the Covid-19 pandemic and Brexit
disruption, leading to supply interruptions. As with inflation, this could be
exacerbated by the conflict in Ukraine. As a result, there is a risk that our
suppliers may suffer financial distress and not be able to fulfil their
contracted supply agreements with us. This could add additional cost and time
to our programmes, which we may not be able to pass onto our end-customer
The risks listed above, together with their potential impacts and mitigating
actions we have taken in respect of them, are explained and described in more
detail in the 2022 Annual Report, a copy of which will be available at
www.babcockinternational.com (http://www.babcockinternational.com) .
Group income statement
For the year ended 31 March Note 2022 2021
£m
(restated)
£m
Revenue 2,4 4,101.8 3,971.6
Cost of revenue (3,756.5) (3,945.5)
Gross profit 345.3 26.1
Administration and distribution expenses (284.1) (376.5)
Goodwill impairment 8 (7.2) (1,336.6)
Profit/(loss) resulting from acquisitions and disposals 20 172.8 (49.7)
Operating profit/(loss) 2,4 226.8 (1,736.7)
Other income 6.2 -
Share of results of joint ventures and associates 2,4,12 20.1 (13.1)
Finance income 5 9.6 16.6
Finance costs 5 (80.4) (77.8)
Profit/(loss) before tax 2,4 182.3 (1,811.0)
Income tax (expense)/benefit 6 (14.4) 8.0
Profit/(loss) for the year 167.9 (1,803.0)
Attributable to:
Owners of the parent 164.2 (1,803.0)
Non-controlling interest 3.7 -
Earnings/(loss) per share
Basic 7 32.5p (357.0)p
Diluted 32.1p (357.0)p
Group statement of comprehensive income
For the year ended 31 March Note 2022 2021
£m
(restated)
£m
Profit/(loss) for the year 167.9 (1,803.0)
Other comprehensive income
Items that may be subsequently reclassified to income statement
Currency translation differences 0.2 1.7
Reclassification of cumulative currency translation reserve on disposal (7.3) 10.5
Fair value adjustment of interest rate and foreign exchange hedges (14.7) 18.4
Tax, including rate change impact, on fair value adjustment of interest rate (1.0) (4.5)
and foreign exchange hedges
Hedging gains/(losses) reclassified to profit or loss 17.1 6.9
Reclassification of cumulative hedge reserve on disposal of joint venture 20.8
Share of other comprehensive income of joint ventures and associates 12 30.2 7.0
Tax, including rate change impact, on share of other comprehensive income of 12 (5.7) (1.4)
joint ventures and associates
Items that will not be reclassified to income statement
Remeasurement of retirement benefit obligations 18 322.5 (445.6)
Tax on remeasurement of retirement benefit obligations (64.2) 84.7
Other comprehensive income/(loss), net of tax 297.9 (322.3)
Total comprehensive income/(loss) 465.8 (2,125.3)
Total comprehensive income/(loss) attributable to:
Owners of the parent 461.2 (2,126.4)
Non-controlling interest 4.6 1.1
Total comprehensive income/(loss) 465.8 (2,125.3)
In the year ended 31 March 2022, the Group restated the prior year financial
information. Details of the restatement are contained in note 3.
Group statement of changes in equity
Share Share Other Capital Retained Hedging Translation Total equity attributable to owners Non- Total
capital
premium
reserve
redemption
earnings
reserve
reserve
of the
controlling
equity
£m
£m
£m
£m
£m
£m
£m
Company
interest
£m
£m
£m
At 1 April 2020 (previously stated) 303.4 873.0 768.8 30.6 480.1 (97.3) (59.5) 2,299.1 15.7 2,314.8
Prior period restatements (note 3) - - - - 8.8 28.2 - 37.0 - 37.0
At 1 April 2020 restated 303.4 873.0 768.8 30.6 488.9 (69.1) (59.5) 2,336.1 15.7 2,351.8
(Loss)/profit for the year - - - - (1,803.0) - - (1,803.0) - (1,803.0)
Other comprehensive income/(loss) - - - - (360.9) 26.4 11.1 (323.4) 1.1 (322.3)
Total comprehensive loss - - - - (2,163.9) 26.4 11.1 (2,126.4) 1.1 (2,125.3)
Dividends - - - - - - - - (0.8) (0.8)
Share-based payments - - - - 3.2 - - 3.2 - 3.2
Tax on share-based payments - - - - 2.3 - - 2.3 - 2.3
Own shares - - - - (2.2) - - (2.2) - (2.2)
Net movement in equity - - - - (2,160.6) 26.4 11.1 (2,123.1) 0.3 (2,122.8)
At 31 March 2021 restated 303.4 873.0 768.8 30.6 (1,671.7) (42.7) (48.4) 213.0 16.0 229.0
At 1 April 2021 as restated 303.4 873.0 768.8 30.6 (1,671.7) (42.7) (48.4) 213.0 16.0 229.0
Profit for the year - - - - 164.2 - - 164.2 3.7 167.9
Other comprehensive income - - - - 258.3 46.7 (8.0) 297.0 0.9 297.9
Total comprehensive income - - - - 422.5 46.7 (8.0) 461.2 4.6 465.8
Dividends - - - - - - - - (1.1) (1.1)
Share-based payments - - - - 5.5 - - 5.5 - 5.5
Tax on share-based payments - - - - 2.3 - - 2.3 - 2.3
Net movement in equity - - - - 430.3 46.7 (8.0) 469.0 3.5 472.5
At 31 March 2022 303.4 873.0 768.8 30.6 (1,241.4) 4.0 (56.4) 682.0 19.5 701.5
The other reserve relates to the rights issue of new ordinary shares on 7 May
2014 and the capital redemption reserve relates to the issue and redemption of
redeemable 'B' preference shares in 2001.
Group statement of financial position
Note 31 March 31 March 1 April
2022
2021 (restated)
2020 (restated)
As at
£m
£m
£m
Assets
Non-current assets
Goodwill 8 782.4 956.3 2,381.3
Other intangible assets 9 175.7 199.9 332.9
Property, plant and equipment 10 710.6 734.4 840.9
Right of use assets 11 334.3 518.3 609.0
Investment in joint ventures and associates 12 54.3 73.5 161.9
Loan to joint ventures and associates 12 12.1 42.1 48.6
Retirement benefits surpluses 18 300.9 46.8 298.4
Other financial assets 10.0 11.2 12.8
Lease receivables 24.1 12.9 6.9
Derivatives - 4.3 14.6
Deferred tax asset 47.0 129.7 69.4
Trade and other receivables 14 9.7 26.7 25.9
2,461.1 2,756.1 4,802.6
Current assets
Inventories 13 142.7 153.0 191.6
Trade and other receivables 14 488.8 435.7 480.7
Contract assets 14 299.3 276.4 319.2
Income tax recoverable 25.4 50.0 57.2
Lease receivables 23.3 26.7 31.7
Derivatives 11.4 8.2 122.2
Cash and cash equivalents 1,146.3 904.8 1,845.9
2,137.2 1,854.8 3,048.5
Total assets 4,598.3 4,610.9 7,851.1
Equity and liabilities
Equity attributable to owners of the parent
Share capital 303.4 303.4 303.4
Share premium 873.0 873.0 873.0
Capital redemption and other reserves 747.0 708.3 670.8
Retained earnings (1,241.4) (1,671.7) 488.9
682.0 213.0 2,336.1
Non-controlling interest 19.5 16.0 15.7
Total equity 701.5 229.0 2,351.8
Non-current liabilities
Bank and other borrowings 16 847.7 1,323.8 2,055.0
Lease liabilities 11 329.3 486.2 548.5
Trade and other payables 15 1.0 1.9 2.1
Deferred tax liabilities 6 9.6 7.7 33.7
Derivatives 59.3 51.0 35.5
Retirement benefit deficits 109.3 325.7 200.2
Provisions for other liabilities 17 60.3 73.7 32.7
1,416.5 2,270.0 2,907.7
Current liabilities
Bank and other borrowings 16 863.4 383.7 987.9
Lease liabilities 11 104.8 126.1 140.9
Trade and other payables 15 888.1 1,110.2 1,058.0
Contract liabilities 15 518.3 396.5 243.2
Income tax payable 17.7 9.7 3.8
Derivatives 34.8 13.9 27.7
Provisions for other liabilities 17 53.2 71.8 130.1
2,480.3 2,111.9 2,591.6
Total liabilities 3,896.8 4,381.9 5,499.3
Total equity and liabilities 4,598.3 4,610.9 7,851.1
In the year ended 31 March 2022, the Group restated the prior year financial
information. Details of the restatement are contained in note 3. This also
impacts the Group cash flow statement.
Group cash flow statement
For the year ended 31 March Note 2022 2021
£m
(restated)
£m
Cash flows from operating activities
Profit/(loss) for the year 167.9 (1,803.0)
Share of results of joint ventures and associates 12 (20.1) 13.1
Income tax expense/(benefit) 6 14.4 (8.0)
Finance income 5 (9.6) (16.6)
Finance costs 5 80.4 77.8
Depreciation and impairment of property, plant and equipment 117.5 199.9
Depreciation and impairment of right of use assets 123.1 179.8
Amortisation and impairment of intangible assets 94.7 148.5
Goodwill impairment 7.2 1,336.6
Equity share-based payments 5.5 3.2
Impairment of joint venture loans 12 - 7.0
Net derivative fair value and currency movement through profit or loss (0.9) 6.9
(Profit)/loss on disposal of subsidiaries, businesses and joint ventures and 19 (172.8) 49.7
associates
(Profit)/loss on disposal of property, plant and equipment (1.5) 26.4
Profit on disposal of right of use assets (3.2) -
Loss on disposal of intangible assets 0.7 -
Cash generated from operations before movement in working capital and 403.3 221.3
retirement benefit payments
Decrease in inventories 10.6 32.9
(Increase)/decrease in receivables (111.7) 87.8
(Decrease)/increase in payables (77.8) 212.5
(Decrease) in provisions (30.9) (14.6)
Retirement benefit contributions in excess of current period expense (151.7) (64.5)
Cash generated from operations 41.8 475.4
Income tax received/(paid) 10.0 19.4
Interest paid (54.9) (79.4)
Interest received 9.9 12.0
Net cash flows from operating activities 6.8 427.4
Cash flows from investing activities
Disposal of subsidiaries and joint ventures and associates, net of cash 20 420.7 90.6
disposed
Acquisition of subsidiaries, net of cash acquired (15.5) -
Dividends received from joint ventures and associates 12 41.6 36.8
Proceeds on disposal of property, plant and equipment 68.0 33.2
Purchases of property, plant and equipment (190.8) (156.9)
Purchases of intangible assets (12.4) (19.6)
Investment in joint ventures 12 (2.6) (8.8)
Loans repaid by joint ventures and associates 31.0 4.2
Increase in loans to joint ventures and associates (1.4) (3.9)
Net cash flows from investing activities 338.6 (24.4)
Cash flows from financing activities
Lease principal payments 19 (113.0) (140.6)
Cash outflow from non-hedging derivatives - (3.6)
Cash inflow from settlement of derivatives - 52.6
Bank loans repaid 19 (31.7) (1,154.4)
Loans raised and facilities drawn down 19 23.1 25.1
Dividends paid to non-controlling interest (1.1) (0.8)
Repurchase of own shares - (2.2)
Net cash flows from financing activities (122.7) (1,223.9)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 222.7 (820.9)
Cash, cash equivalents and bank overdrafts at beginning of year 19 530.9 1,348.7
Effects of exchange rate fluctuations 19 2.9 3.1
Cash, cash equivalents and bank overdrafts at end of year 19 756.5 530.9
1. Basis of preparation and significant accounting policies
Basis of preparation
The consolidated financial statements have been prepared on a going concern
basis and in accordance with United Kingdom adopted International Accounting
Standards (IFRS) and the Companies Act 2006 applicable to companies reporting
under IFRS. These condensed consolidated financial statements do not comprise
statutory accounts within the meaning of Section 435 of the Companies Act 2006
and should be read in conjunction with the Annual Report for the year ended 31
March 2021. The comparative figures for the year ended 31 March 2021 are not
the Group's statutory accounts for that financial year. Those financial
statements have been reported upon by the Group's auditor and delivered to the
registrar of companies. The report of the auditor was unqualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and did not contain statements
under Section 498 (2) or (3) of the Companies Act 2006. The consolidated
financial statements are presented in pounds sterling and, unless stated
otherwise, rounded to the nearest million. They have been prepared under the
historical cost convention, as modified by the revaluation of certain
financial assets and financial liabilities (including derivative instruments).
New and amended standards adopted by the Group
The Group applied the following standards and amendments for the first time for the year beginning on 1 April 2021:
The following standards and amendments to IFRSs became effective for the
annual reporting period beginning on 1 April 2021 and did not have a material
impact on the consolidated financial statements:
• of configuring or customising the supplier's application
software in a software-as-a-service arrangement. As a result of this decision
the Group has revised its accounting policy and will not capitalise costs
associated with software-as-a-service arrangements where it does not control
the underlying software. This policy has been retrospectively applied and all
costs capitalised in relation to software-as-a-service arrangements have been
reviewed. This has not had a material impact on the consolidated financial
statements.
• Interest Rate Benchmark Reform, Phase 2 amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the
Group to reflect the effects of transitioning from interbank offered rates to
alternative benchmark interest rates without giving rise to accounting impacts
that would not provide useful information to users of financial statements.
New IFRS accounting standards, amendments and interpretations not yet adopted
The Group has not early adopted any other amendment, standard or
interpretation that has been issued but is not yet effective. It is expected
that these standards and amendments will be adopted on the applicable
effective date. The following new or amended IFRS accounting standards,
amendments and interpretations not yet adopted are not expected to have a
significant impact on the Group:
• IFRS 3, 'Business Combinations., Amendment effective for
periods commencing on or after 1 January 2022. The amendment relates to the
identification of liabilities assumed and contingent assets acquired in a
business combination.
• IAS 37, 'Provisions, contingent liabilities and contingent
assets'. Amendment effective for periods commencing on or after 1 January
2022. The amendment relates to the clarification of costs that an entity
should include as the cost of fulfilling a contract when assessing whether a
contract is onerous. Management's review to determine the impact of this
amendment is ongoing, however this is not expected to have a material impact.
• IAS 16, 'Property, plant and equipment'. Amendment effective
for periods commencing on or after 1 January 2022. The amendment relates to
proceeds from selling items produced while bringing an asset into the location
and condition necessary for it to be capable of operating in the manner
intended by management.
• IFRS 17 'Insurance Contracts'. Amendment effective from 1
January 2023.
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 result in significant risk of 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
require management to make an estimate of the cost to complete for long term
contracts. Management estimates outturn costs on a contract-by-contract basis
and estimates are carried out by suitably qualified and experienced personnel.
Estimates of cost to complete include assessment of contract contingencies
arising out of technical, commercial, operational and other risks. The
assessments of all significant contract outturns are subject to review and
challenge, and judgements and estimates are reviewed regularly throughout the
contract life based on latest available information and adjustments are made
where necessary. As contracts near completion, often less judgement is
required to determine the expected outturn. One key contract for the Group
includes a critical estimate around the realisation of future transformational
savings. If these savings fail to be realised, this will impact on the margin
for this contract and could result in a reduction to revenue and contract
assets, and therefore profit, of £10m.
• Defined benefit pension schemes obligation: The Group's defined benefit
pension schemes are assessed annually in accordance with IAS 19 and the
valuation of the defined benefit pension obligations is sensitive to the
inflation 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
obligations. In addition to the inflation and discount rate estimates,
management is required to make an accounting judgement relating to the
expected availability of future accounting surpluses under IFRIC 14.
• The carrying value of goodwill: Goodwill is tested annually for
impairment, in accordance with IAS 36, Impairment of Assets ('IAS 36'). The
impairment assessment is based on assumptions in relation to future cash flows
expected to be generated by cash generating units, together with appropriate
discounting of the cash flows. The assessment of the carrying value of
goodwill 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.
Critical accounting judgements
Critical accounting judgements, apart from those involving estimations, that
are applied in the preparation of the consolidated financial statements are
discussed below:
• Revenue and profit recognition: A number of the Group's contracts
include promises in relation to procurement activity undertaken on behalf of
customers at low or nil margin, sub-contractor arrangements, and other
pass-through costs. Management is required to exercise judgement on these
revenue streams in considering whether the Group is acting as principal or
agent. This is based on an assessment as to whether the Group controls the
relevant goods or services under the performance obligations prior to transfer
to customers. Factors that influence this judgement include the level of
responsibility the Group has under the contract for the provision of the goods
or services, the extent to which the Group is incentivised to fulfil orders on
time and within budget, either through gain share arrangements or KPI
deductions in relation to the other performance obligations within the
contract, and the extent to which the Group exercises responsibility in
determining the selling price of the goods and services. Taking all factors
into consideration, the Group then comes to a judgement as to whether it acts
as principal or agent on a performance obligation-by-performance obligation
basis. Note that any changes in this judgement would not have a material
impact on profit, although there may be a material impact to revenue and cost
of revenue. The Group has re-examined the principal versus agent assessment in
relation to pass-through revenue on three of the Group's contracts. Further
detail is included in note 3.
• Determining the Group's cash generating units: Management exercises
judgement in determining the Group's cash generating units for the goodwill
impairment assessment. This determination is generally straightforward and
factual, however in some cases judgement is required, for example it was
determined that Africa is a separate cash generating unit, whilst operations
of the Group in other territories do not represent separate cash generating
units. Over time management reviews the cash generating units to ensure they
remain appropriate as businesses are acquired and divested and reporting
structures change, including how information is reported to the Chief
Operating Decision Maker.
2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting items
The Group provides alternative performance measures, including underlying
operating profit, to enable users to 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. They are used by
management to assess operating performance and as a basis for forecasting and
decision-making, as well as the planning and allocation of capital resources.
They are also understood to be used by investors in analysing business
performance.
The Group's alternative performance measures are not defined by IFRS and are
therefore considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies and they are not
intended to be a substitute for, or superior to, measures defined under IFRS.
The Group's alternative performance measures are consistent with the year
ended 31 March 2021.
Underlying operating profit
Underlying operating profit excludes certain specific adjusting items that
distort the reporting of underlying business performance measures if they are
not adjusted for. 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 and large, infrequent restructuring
programmes. Transactions such as these may happen regularly and could be lumpy
and may be profits or losses.
For the year ended 31 March 2022, the Group has amended its definition of
specific adjusting Items to include the fair value gain/(loss) on forward rate
contracts used to hedge the operational activity of the Group. The fair value
movement on these items is driven by external economic variables and not the
operational activity of the Group, as such they may distort the reporting of
underlying business performance measures if they are not adjusted for. On
maturity, the final gain/loss on the forward rate contracts will be included
in cost of revenue or administration and distribution costs, depending on the
nature of the item being hedged.
Specific adjusting items include:
• Amortisation of acquired intangibles;
• Business acquisition, merger and divestment related items (being amounts
related to corporate transactions and gains or losses on disposal of assets or
businesses);
• Gains, losses and costs directly arising from the Group's withdrawal from a
specific market or geography, including closure costs, severance costs, the
disposal of assets and termination of leases;
• The costs of large restructuring programmes that significantly exceed the
minor restructuring which occurs in most years as part of normal operations.
Restructuring costs incurred as a result of normal operations are included in
operating costs and are not excluded from underlying operating profit;
• Profit or loss from amendment, curtailment, settlement or equalisation of
Group pension schemes;
Fair value gain/(loss) on open forward rate contracts; and
• Exceptional items that are significant, non-recurring and outside of the
normal operating practice. These items are described as exceptional in order
to appropriately represent the Group's underlying business performance.
Exceptional items are set out in the Exceptional items section below.
Income statement including underlying results
Note Year ended 31 March 2022 Year ended 31 March 2021 (restated)
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Revenue 4 4,101.8 - 4,101.8 3,971.6 - 3,971.6
Operating profit/(loss) 4 237.7 (10.9) 226.8 (27.9) (1,708.8) (1,736.7)
Other income 6.2 - 6.2 - - -
Share of results of joint ventures and associates 12 20.1 - 20.1 (13.1) - (13.1)
Investment income 0.8 - 0.8 0.9 - 0.9
Other net finance costs 5 (62.0) (9.6) (71.6) (62.1) - (62.1)
Profit/(loss) before tax 202.8 (20.5) 182.3 (102.2) (1,708.8) (1,811.0)
Income tax (expense)/benefit 6 (43.9) 29.5 (14.4) (21.8) 29.8 8.0
Profit/(loss) after tax for the year 158.9 9.0 167.9 (124.0) (1,679.0) (1,803.0)
Earnings per share including underlying measures
Year ended 31 March 2022 Year ended 31 March 2021 (restated)
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit/(loss) after tax for the year 158.9 9.0 167.9 (124.0) (1,679.0) (1,803.0)
Amount attributable to owners of the parent 155.2 9.0 164.2 (124.0) (1,679.0) (1,803.0)
Amount attributable to non-controlling interests 3.7 - 3.7 - - -
Weighted average number of shares (m) 505.1 505.1 505.0 505.0
Effect of dilutive securities (m) 6.1 6.1 4.0 4.0
Diluted weighted average number of shares (m) 511.2 511.2 509.0 509.0
Basic EPS 30.7p 32.5p (24.6)p (357.0)p
Diluted EPS 30.4p 32.1p (24.6)p (357.0)p
Details of specific adjusting items
The impact of specific adjusting items is set out below:
For year ending 31 March 2022 2021
£m
£m
Amortisation of acquired intangibles (21.4) (40.2)
Business acquisition, merger and divestment related items 163.1 (49.7)
Gains, losses and costs directly arising from withdrawal from a specific - (11.1)
market or geography
Profit or loss from amendment, curtailment, settlement or equalisation of - (8.9)
Group pension schemes
Restructuring (33.8) (8.4)
Fair value loss on forward rate contracts (9.6) -
Exceptional items (118.8) (1,590.5)
Loss before tax (20.5) (1,708.8)
Income tax benefit
Amortisation of acquired intangibles 5.5 8.2
Gains, losses and costs directly arising from withdrawal from a specific - 1.0
market or geography
Profit or loss from amendment, curtailment, settlement or equalisation of - 1.7
group pension schemes
Restructuring 6.5 0.5
Fair value (loss) on forward rate contracts 2.5 -
Exceptional tax items and tax on exceptional items 15.0 18.4
Income tax benefit 29.5 29.8
Explanation of specific adjusting items
Amortisation of acquired intangibles
Underlying operating profit excludes the amortisation of acquired intangibles.
This item is excluded from underlying results as it arises as a result of
purchase price allocations on business combinations, and is a non-cash item
which does not change each year dependent on the performance of the business.
It is therefore not considered to represent the underlying activity of the
Group and is removed to aid comparability with peers who have grown
organically as opposed to through acquisition. Intangible assets arising as a
result of the purchase price allocation on business combinations include
customer lists, technology-based assets, order book and trade names.
Amortisation of internally generated intangible assets is included within
underlying operating profit.
Business acquisition, merger and divestment related items
Transaction related costs and gains or losses on acquisitions, mergers and
divestments of businesses are excluded from underlying operating profit as
business combinations and divestments are not considered to result from
underlying business performance.
The total net gain relating to business acquisition, merger and divestment
related items was £163.1 million. This comprised of £172.8 million profit
from acquisitions and disposals completed in the year, offset by £9.7 million
of costs incurred in relation to the Group's divestment programme for
disposals that had not completed at 31 March 2022. The profit resulting from
acquisitions and disposals completed in the year included a £140.4 million
gain on disposal of the Oil and Gas business, Frazer-Nash Consultancy, Power
and AirTanker Holdings Limited, plus a gain on acquisition on Naval Ship
Management (Australia) Pty Limited of £32.4 million, as detailed in note 20.
The prior year included a total net loss of £49.7 million, consisting of a
£38.2 million loss on disposal of the Group's share in the Holdfast joint
venture and losses arising on disposal of subsidiary undertakings of £0.6
million for Cavendish Nuclear Manufacturing Limited and £10.9 million for
Conbras Servicos Tecnicos de Suporte Ltda.
Gains, losses and costs directly arising from the Group's withdrawal from a specific market or geography
In the prior year the Group ceased its Airport baggage handling contract,
incurring costs of £4.2 million. Further costs were incurred in relation to
exits in the previous financial year from the oil and gas business in Congo
(£3.6 million), the overseas Powerlines business (£1.4 million) and certain
Rail related contracts (£1.9 million).
Restructuring
The Group has incurred £36.8 million of restructuring costs in relation to
the implementation of the new operating model announced and implemented during
the year ended 31 March 2022. This has been offset by the release of £3.0
million of restructuring provisions created in previous years that were
classified as exceptional but are no longer needed.
In the prior period, the Group incurred a restructuring charge of £9.3
million. This was offset by the release of £0.9 million of unused provision
from prior year restructuring costs in the Nuclear and Land sectors.
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes.
In the prior year, the Group incurred a curtailment charge of £7.5 million in
relation to the closure of the Rosyth defined benefit pension scheme to future
accrual. A charge of £1.4 million was incurred following a court ruling in
November 2020 regarding equalisation of pension rights.
Exceptional items
Exceptional items are those items which are significant, non-recurring and
outside the normal operating practice of the Group.
For year ending 31 March 2022 2021
£m
£m
Operating costs
Impairment of goodwill (7.2) (1,336.6)
Impairment of acquired intangibles (57.6) (56.4)
Impairment of internally generated intangible assets - (32.7)
Impairment of property, plant and equipment and aircraft fleet rationalisation (58.8) (142.6)
Impairment of right of use assets - (46.4)
Release of onerous contract provisions 1.8 -
Release of provisions relating to the Italy fine and related costs 3.6 24.2
Other (0.6) -
Exceptional items - Group (118.8) (1,590.5)
Exceptional tax items and tax on exceptional items 15.0 18.4
Exceptional items - net of tax (103.8) (1,572.1)
Explanation of exceptional items
Impairment of goodwill
The Group has recorded a goodwill impairment of £7.2 million in the Aviation
operating segment, due to changes in the forecast future business performance
informed by the Group's disposal programme. This change has impacted on the
ability of the Aviation operating segment to share assets, capability and
management across the entire contract and asset base. Previously, assets were
shared cross-sector, however during the year ended 31 March 2022 management
reduced the sharing of assets to a country level, which has resulted in a
reduced value-in-use. Further detail is included in note 8.
The prior year impairment test resulted in an impairment of the Land operating
segment goodwill of £437.4 million, the Aviation operating segment goodwill
of £890.3 million and the goodwill allocated to the Aviation oil and gas
business CGU of £8.9 million.
Impairment of acquired intangibles
The Group has recorded an impairment of acquired intangibles of £57.6 million
in the Aviation operating segment, due to changes in the forecast future
business performance informed by the Group's disposal programme. This change
has impacted on the ability of the Aviation operating segment to share assets,
capability and management across the entire contract and asset base.
Previously, assets were shared cross-sector, however during the year ended 31
March 2022 management reduced the sharing of assets to a country level, which
has resulted in a reduced value-in-use. Further detail is included in note 9.
In the prior year, the Land operating segment impaired an acquired intangible
in relation to the DSG contract.
Impairment of internally generated intangible assets
In prior year, impairment charges of £32.7 million were recorded on mainly
software assets.
Impairment of property, plant and equipment and aircraft fleet rationalisation
The Group has recorded an impairment of property, plant and equipment of
£58.8 million in the Aviation operating segment, due to changes in the
forecast future business performance informed by the Group's disposal
programme. This change has impacted on the ability of the Aviation operating
segment to share assets, capability and management across the entire contract
and asset base. Previously, assets were shared cross-sector, however during
the year ended 31 March 2022 management reduced the sharing of assets to a
country level, which has resulted in a reduced value-in-use. Further detail is
included in note 10.
In the prior year, an impairment charge of £113.3 million was recorded on
property, plant and equipment. This charge included the results of a major
aircraft fleet rationalisation programme which resulted in a refreshed fleet
strategy and the identification of surplus aircraft. Impairments were recorded
on surplus aircraft and as the result of value-in-use tests. Losses on
disposal were incurred on aircraft disposed of during the year. In addition,
we carried out an aircraft rationalisation programme which resulted in asset
impairments and crystallisation of losses on disposal of surplus aircraft of
£29.3 million.
Impairment of right of use assets
In prior year, following a review of carrying amounts, a total impairment
charge of £46.4 million was recorded in relation to the Group's right of use
assets. This included impairments of aircraft supporting oil and gas and
emergency services contracts and the impairment of assets directly
attributable to the Group's DSG contract.
Onerous contracts
In the year ended 31 March 2022, the Group released an onerous contract
provision that was no longer required and was previously classified as
exceptional, which totalled £1.8 million.
Italy fine
In the year ended 31 March 2020, the Lazio Regional Administrative Court
confirmed a €51 million fine issued by the Italian Competition Authority to
our subsidiary, Babcock Mission Critical Services Italia SpA (BMCS Italia),
for certain anti-trust violations. As a result, the Group recognised a
provision of £47.3 million.
In the year ended 31 March 2021, BMCS Italia appealed the decision of the
Court to the Italian Council of State. In July 2021, the Council, whilst
upholding the decision of the Court on the facts, annulled the fine, though
allowing the Authority leave to re-calculate it. Taking into account the
guidance given by the Council to the Authority on the recalculation, the Group
expected the Authority to reduce the fine and reduced the provision to £20
million as at 31 March 2021.
In February 2022 management received notice that the fine had been set at
€18 million, which was subsequently paid by the Group. This has resulted in
the release of unused provision of £3.6 million.
Tax
Tax includes tax on exceptional items (£13.1 million credit), tax recorded in
the year relating to Specific Adjusting Items in prior periods
(£1.0 million charge) and a credit arising from the impact on the Group's
deferred tax asset of the increase in the UK rate of corporation tax to 25%
with effect from 1 April 2023 (£2.9 million).
3. Prior year restatements
In the year ended 31 March 2022, the Group restated the prior year financial
information. The impact of these restatements on underlying operating profit
for the year ended 31 March 2022 was £0.3 million. The restatements are
summarised below: Impact on the income statement for the year ended 31 March
2021
Year ended 31 March 2021 (previously published) (i) Principal versus agent assessment (vi) Goodwill impairment (vii) (viii) Land contract asset (ix) Software-as-a-service Year ended 31 March 2021 (restated)
Taxation
Group income statement
Revenue 4,182.7 (211.1) - - - - 3,971.6
Cost of revenue (4,156.6) 211.1 - - - - (3,945.5)
Administration and distribution expenses (376.2) - - - - (0.3) (376.5)
Goodwill impairment (1,243.2) - (81.8) - (11.6) - (1,336.6)
Loss on divestments (49.7) - - - - - (49.7)
Share of results of joint ventures and associates (13.1) - - - - - (13.1)
Finance income 16.6 - - - - - 16.6
Finance costs (77.8) - - - - - (77.8)
Loss before tax (1,717.3) - (81.8) - (11.6) (0.3) (1,811.0)
Income tax benefit 15.3 - - (7.3) - - 8.0
Loss for the period (1,702.0) - (81.8) (7.3) (11.6) (0.3) (1,803.0)
Impact on basic earnings per share (pence) (337.0)p - (16.2)p (1.4)p (2.3)p (0.1)p (357.0)p
Impact on diluted earnings per share (pence) (337.0)p - (16.2)p (1.4)p (2.3)p (0.1)p (357.0)p
Year ended 31 March 2021 - Group statement of other comprehensive income
(extract)
The table below shows the impact of the prior year restatements on the
statement of other comprehensive income.
Year ended (i) Principal versus agent assessment (ii) Pensions Year ended
31 March 2021 (previously published)
31 March 2021
(restated)
Other comprehensive income/(loss)
Remeasurement of retirement benefit obligations (506.8) - 61.2 (445.6)
Tax, including rate change impact, on remeasurement of retirement benefit 96.3 - (11.6) 84.7
obligations
1 April 2020 - Group statement of financial position (extract)
1 April 2020 (previously published) (ii) Pensions (iii) Cross currency interest rate (iv) Hedging (v) Balance sheet reclassification (vi) Goodwill impairment (viii) Land contract asset (ix) Software-as-a-service 1 April 2020
swap valuation
(restated)
Assets
Non-current assets
Goodwill 2,287.9 - - - - 81.8 11.6 - 2,381.3
Other intangible assets 334.7 - - - - - - (1.8) 332.9
Retirement benefit surpluses 325.3 (26.9) - - - - - - 298.4
Deferred tax asset 60.5 8.9 - - - - - - 69.4
Trade and other receivables - - - - 25.9 - - - 25.9
Total non-current assets * 4,703.1 (18.0) - - 25.9 81.8 11.6 (1.8) 4,802.6
Current assets
Trade and other receivables 506.6 - - - (25.9) - - - 480.7
Contract assets 330.8 - - - - - (11.6) - 319.2
Total current assets * 3,086.0 - - - (25.9) - (11.6) - 3,048.5
Liabilities
Non-current liabilities
Bank and other borrowings (2,050.0) - (5.0) - - - - - (2,055.0)
Derivatives (35.6) - 0.1 - - - - - (35.5)
Retirement benefit deficits (180.1) (20.1) - - - - - - (200.2)
Total non-current liabilities * (2,882.7) (20.1) (4.9) - - - - - (2,907.7)
Equity
Capital redemption and other reserves (642.6) - (11.3) (16.9) - - - - (670.8)
Retained earnings (480.1) 38.1 16.2 16.9 - (81.8) - 1.8 (488.9)
Total equity * (2,314.8) 38.1 4.9 - - (81.8) - 1.8 (2,351.8)
* The table above includes only those financial statement line items which
have been restated. The total non-current assets, current assets, non-current
liabilities, and equity do not therefore represent the sum of the line items
presented above.
31 March 2021 - Group statement of financial position (extract)
31 March 2021 (ii) Pensions (iii) Cross currency interest rate (iv) Hedging (v) Balance sheet reclassification (vii) Taxation (viii) Land contract asset (ix) Software-as-a-service 31 March 2021 (restated)
(previously published)
swap valuation
Assets
Non-current assets
Goodwill 956.3 - - - - - - - 956.3
Other intangible assets 202.0 - - - - - - (2.1) 199.9
Property, plant and equipment 731.5 - - - 2.9 - - - 734.4
Right-of-use assets 521.2 - - - (2.9) - - - 518.3
Retirement benefit surpluses 40.8 6.0 - - - - - - 46.8
Deferred tax asset 141.3 (2.7) - - - (8.9) - - 129.7
Trade and other receivables - - - - 26.7 - - - 26.7
Total non-current assets * 2,737.1 3.3 - - 26.7 (8.9) - (2.1) 2,756.1
Current assets
Inventory 162.4 - - - (9.4) - - - 153.0
Trade and other receivables 462.4 - - - (26.7) - - - 435.7
Contract assets 278.6 - - - 9.4 - (11.6) - 276.4
Income tax recoverable 48.4 - - - - 1.6 - - 50.0
Total current assets * 1,891.5 - - - (26.7) 1.6 (11.6) - 1,854.8
Liabilities
Non-current liabilities
Bank and other borrowings (1,318.8) - (5.0) - - - - - (1,323.8)
Derivatives (51.1) - 0.1 - - - - - (51.0)
Retirement benefit deficits (333.9) 8.2 - - - - - - (325.7)
Total non-current liabilities * (2,273.3) 8.2 (4.9) - - - - - (2,270.0)
Equity
Capital redemption and other reserves (680.1) - (11.3) (16.9) - - - - (708.3)
Retained earnings 1,629.1 (11.5) 16.2 16.9 - 7.3 11.6 2.1 1,671.7
Total equity * (243.4) (11.5) 4.9 - - 7.3 11.6 2.1 (229.0)
* The table above includes only those financial statement line items which
have been restated. The total non-current assets, current assets, non-current
liabilities, and equity do not therefore represent the sum of the line items
presented above.
i. Principal versus agency assessment
The Group has re-examined the presentation of revenue and cost of revenue in
relation to pass-through revenue on three of the Group's contracts. The Group
had previously taken the judgement that it acted as a principal in these
arrangements, informed by the contractual terms and practical delivery of the
contract to the customer. This approach was disclosed as a judgemental area in
the Annual Report for the year ended 31 March 2021. Following the transition
to the Group's new auditors, this has been further considered and the Group
has reassessed this judgement, which had always been a finely balanced one.
This change of judgement, and the resultant accounting policy, means that
revenue and cost of revenue are now presented net for these contracts.
Restatement of the financial information in accordance with the new accounting
policy results in a decrease in revenue and cost of revenue of £211.1 million
in the year ended 31 March 2021. There is no impact to reported profit or cash
flow as a result of this adjustment.
ii. Pensions
Longevity swap valuation
The longevity swaps related to the three main Group pension schemes were
previously valued in line with the collateral posted by each scheme with their
intermediary. This was deemed a proxy for fair value in line with IAS 19.
Having considered valuations of a notional replacement swap, or exit, we now
believe the previous approach no longer accurately reflects fair value and so
we have changed our valuation approach accordingly. This restatement has
reduced retirement benefit surpluses by £26.9 million, increased deferred tax
assets by £8.9 million, increased retirement benefit deficits by £20.1
million and decreased retained earnings by £38.1 million as at 1 April 2020.
In the year ended 31 March 2021 there was a £5.9 million gain through the
statement of other comprehensive income resulting in a cumulative reduction to
retirement benefit surpluses of £26.2 million, an increase to deferred tax
assets of £7.6 million and an increase to retirement benefit deficits of
£13.6 million and an increase to retained earnings of £11.5 million as at 31
March 2021. There is no impact on the Group income statement. This change does
not affect the technical provisions assessed for those schemes during
triennial valuations, their funding requirements, or the deficit recovery cash
contributions agreed with each scheme. There is no impact to earnings per
share as a result of this restatement.
Allowance for the 2021 pension increases in the 31 March 2021 benefit obligation
Furthermore, a refinement in the calculation of the value of defined benefit
obligation for the principal schemes now allows for the inclusion of the
actual known rate of the next pension increase, rather than using the
longer-term assumed inflation rate of pension increases. This approach was
not appropriately followed in the year ended 31 March 2021. Application of
the correct methodology at 31 March 2021 results in an increase to the
retirement benefit surplus of £32.2 million, a decrease to deferred tax
assets of £10.3 million and a decrease to the defined benefit obligation of
£21.8 million, due to actual inflation being lower than assumed long-term
inflation as at 31 March 2021.
Babcock Naval Services Pension Scheme (BNSPS)
The Group hosts the BNSPS (Babcock Naval Services Pension Scheme), which is
underwritten by the previous principal employer, with a full indemnity given
by them to the Babcock Group. In the previous year a buy-in was undertaken and
scheme assets and liabilities were valued by reference to the premium paid,
rather than valuing the obligation in accordance with IAS 19 with a
corresponding amount of plan assets. We have now adopted methodologies in line
with IAS 19 'Employee Benefits' and reflected this change as a prior year
restatement. There is no impact to net assets, given the underwritten nature,
however scheme assets and liabilities are both reduced by £121.6m as at 31
March 2021. De-risking continues in the scheme, supported by the previous
principal employer, with a buyout process expected to commence before the end
of 2022, with no cost to the Group.
iii. Cross currency interest rate swaps
The Group uses cross currency interest rate swaps to manage foreign currency
and interest rate risk.
During the year ended 31 March 2022 it was identified that the valuation
methodology applied by the Group was not appropriate, as it did not
incorporate the impact of credit risk. Additionally, the hedge effectiveness
assessment did not account for the difference in timing between when the debt
facility and derivative were entered into, and was therefore incorrect.
Application of the appropriate valuation methodology and hedge effectiveness
has resulted in an increase to bank and other borrowings of £5.0 million, a
decrease to other financial liabilities of £0.1 million, an increase in the
cash flow hedge reserve of £11.3 million and a decrease to retained earnings
of £16.2 million.
iv. Hedging
In the year ended 31 March 2015 the Group disposed of its 50% ownership in the
joint ventures Greenwich BSF SPV Limited and Lewisham Schools for the Future.
These joint ventures had a combined accumulated balance of £12.3 million in
the cash flow hedge reserve which was not eliminated when these joint ventures
were disposed of. Furthermore, there is a balance of £4.6 million that has
incorrectly accumulated in the cash flow hedge reserve relating to the ALC
joint venture. This restatement has resulted in a reclassification from the
cash flow hedge reserve to retained earnings of £16.9 million at 1 April
2020.
v. Balance sheet reclassifications
Inventory to contract assets
In the year ended 31 March 2022 it was identified that certain contract assets
were incorrectly recognised as inventory. Reclassifying these reduces
inventory and increases contract assets by £9.4 million at 31 March 2021.
Non-current capitalised contract costs
Certain costs to obtain a contract and costs to fulfil a contract were
capitalised as current when a portion of these balances should have been
capitalised as non-current, based on when the expense it expected to be
realised in the income statement. This restatement has resulted in £26.7
million at 31 March 2021 and £25.9 million at 1 April 2020 being reclassified
to non-current.
Right of use asset to property, plant and equipment
Additionally, in the year ended 31 March 2022 it was identified that leases
which were purchased during the year ended 31 March 2021 were not reclassified
from right of use assets to property, plant and equipment. Reclassifying these
reduces right of use assets by £2.9 million and increases property, plant and
equipment by £2.9 million at 31 March 2021.
vi. Goodwill impairment
A prior year restatement has been identified in relation to the Aviation
goodwill impairment for the year ended 31 March 2020 and 31 March 2021. An
impairment of acquired intangibles identified through the contract
profitability and balance sheet review was not reflected in the carrying value
used in the Aviation goodwill impairment assessment at 31 March 2020. This
restatement results in an increase of £81.8 million to the goodwill balance
at 31 March 2020, a decrease of £81.8 million to the impairment charge for
the year ended 31 March 2020 and an increase of £81.8 million to the
impairment charge for the year ended 31 March 2021. There is no impact on
goodwill or retained earnings at 31 March 2021.
vii. Taxation
During the year management identified that deferred tax balances recognised at
31 March 2021 were not recoverable. This restatement has decreased the
deferred tax asset balance by £8.9 million at 31 March 2021. There is also an
increase to income tax recoverable of £1.6 million at 31 March 2021.
viii. Land contract asset
Management have identified a restatement in relation to one of the Group's
contracts which reduces the contract asset and retained earnings by £11.6
million at 1 April 2020 and 31 March 2021. This restatement reduces the
carrying value of the Land operating segment used in the impairment assessment
at 1 April 2020 by £11.6 million, resulting in an increase to the goodwill
balance at 1 April 2020 of £11.6 million. At 31 March 2021, the carrying
value of the Land operating segment used in the impairment assessment is
increased by £11.6 million, resulting in an increase to the goodwill
impairment charge for the year ended 31 March 2021 of £11.6 million. There is
no impact on the goodwill balance at 31 March 2021 as a result of this
restatement.
ix. Software-as-a-service
In April 2021 the IFRS Interpretations Committee (IFRIC) published an agenda
decision which clarified how a customer should account for the costs of
configuring or customising the supplier's application software in a
Software-as-a-service arrangement.
The Group's policy has historically been to capitalise configuration and
customisation costs as an intangible asset, including costs directly payable
to the software provider, sub-contractor costs and related third-party costs.
As a result of the IFRIC agenda decision the Group reviewed its cloud
computing arrangements and, for those arrangements where the Group does not
control the underlying software, the Group has derecognised the intangible
asset previously capitalised. Application of this new policy accounting has
resulted in a reduction to other intangible assets of £1.8 million at 1 April
2020 and £2.1 million at 31 March 2021. There is an increase to
administration and distribution costs of £0.3 million for the year ended 31
March 2021.
The Group will continue to apply this accounting policy to new
Software-as-a-service arrangements as we continue to upgrade and standardise
our IT environment. As this policy requires costs to be expensed as incurred,
this may lead to a higher up-front charge to the income statement in future
years but will not impact on the Group's cash flows.
4. Segmental information
The Group has four reportable segments, determined by reference to the goods
and services they provide and the markets they serve.
Marine - through-life support of naval ships, equipment and marine
infrastructure in the UK and internationally.
Nuclear - through-life support of submarines and complex engineering services
in support of major decommissioning programmes and projects, training and
operation support, new build programme management and design and installation
in the UK.
Land - large-scale critical vehicle fleet management, equipment support and
training for military and civil customers.
Aviation - critical engineering services to defence and civil customers
worldwide, including pilot training, equipment support, airbase management and
operation of aviation fleets delivering emergency services.
The Board, the chief operating decision maker as defined by IFRS 8, monitors
the results of these reportable segments and makes decisions about the
allocation of resources. The Group's business in Africa meets the definition
of an operating segment, as defined by IFRS 8. However, as permitted by IFRS
8, the Group includes the Africa operating segment in the Land reportable
segment.
The table below presents the underlying results for each reportable segment in
accordance with the definition of underlying revenue and underlying operating
profit, as set out in note 2, and reconciles the underlying operating
profit/(loss) to the statutory profit/(loss) before tax.
Year ended 31 March 2022 Marine Nuclear Land Aviation Unallocated Total
£m
£m
£m
£m
£m
£m
Revenue 1,259.3 1,009.7 1,015.5 817.3 - 4,101.8
Underlying operating profit 98.0 62.4 58.8 18.5 - 237.7
Specific Adjusting Items (note 2)
Amortisation of acquired intangibles (0.6) - (1.3) (19.5) - (21.4)
Business acquisition, merger and divestment related items 221.3 - (6.1) (52.1) - 163.1
Gains, losses and costs directly arising from the Group's withdrawal from a - - - - - -
specific market or geography
Restructuring costs (8.6) (5.5) (16.9) (2.8) - (33.8)
Profit or loss from amendment, curtailment, settlement or equalisation of - - - - - -
group pension schemes
Exceptional items (0.4) - 1.7 (120.1) (118.8)
Operating profit/(loss) 309.7 56.9 36.2 (176.0) - 226.8
Other income - - - 6.2 - 6.2
Share of results of joint ventures and associates 3.5 0.4 2.5 13.7 - 20.1
Investment income - - 0.8 - - 0.8
Other net finance costs** - - - - (71.6) (71.6)
Profit/(loss) before tax 313.2 57.3 39.5 (156.1) (71.6) 182.3
Year ended 31 March 2021 (restated*) Marine Nuclear Land Aviation Unallocated Total
£m
£m
£m
£m
£m
£m
Revenue 1,230.6 975.9 910.7 854.4 - 3,971.6
Underlying operating profit/(loss) 56.2 63.8 (17.5) (130.4) - (27.9)
Specific Adjusting Items (note 2)
Amortisation of acquired intangibles (0.8) - (16.0) (23.4) - (40.2)
Business acquisition, merger and divestment related items - (0.6) (49.1) - - (49.7)
Gains, losses and costs directly arising from the Group's withdrawal from a - - (7.5) (3.6) - (11.1)
specific market or geography
Restructuring costs - 0.7 0.2 (9.3) - (8.4)
Profit or loss from amendment, curtailment, settlement or equalisation of (7.5) - - - (1.4) (8.9)
group pension schemes
Exceptional items (4.2) (5.8) (528.3) (1,052.2) - (1,590.5)
Operating profit/(loss) 43.7 58.1 (618.2) (1,218.9) (1.4) (1,736.7)
Share of results of joint ventures and associates 3.1 (15.0) 5.1 (6.3) - (13.1)
Investment income - - 0.9 - - 0.9
Other net finance costs** - - - - (62.1) (62.1)
Profit/(loss) before tax 46.8 43.1 (612.2) (1,225.2) (63.5) (1,811.0)
* The results for 31 March 2021 have been restated due to a change in
accounting policy.. Further details are set out in note 3.
** Other net finance costs are not
allocated to a specific sector.
5. Net finance costs
For year ending 31 March 2022 2021
£m
£m
Finance costs
Loans, overdrafts and associated interest rate hedges 57.3 50.0
Lease interest 17.4 23.5
Amortisation of issue costs of bank loan 2.0 1.4
Retirement benefit interest 3.7 -
Other - 2.9
Total finance costs 80.4 77.8
Finance income
Bank deposits, loans and leases 8.8 11.7
IFRIC 12 Investment income 0.8 0.9
Retirement benefit interest - 4.0
Total finance income 9.6 16.6
Net finance costs 70.8 61.2
Other net finance costs increased to £71.6 million (FY21: £62.1 million),
with lower net interest costs due to lower average debt and reduced IFRS 16
lease interest, more than offset by a £7.1 million higher pension finance
charge and a one-off, non-cash finance charge on derivative instruments of
£9.6 million.
6. Taxation
Income tax expense
For year ending 31 March 2022 2021
£m
(restated)
£m
Analysis of tax expense/(benefit) in the year
Current tax
• UK current year charge/(benefit) 1.9 13.4
• UK prior year (benefit) (10.8) (28.0)
• Overseas current year charge 19.3 10.5
• Overseas prior year charge 2.5 -
12.9 (4.1)
Deferred tax
• UK current year charge/(benefit) 17.5 (36.7)
• UK prior year charge 11.5 8.5
• Overseas current year (benefit)/charge (25.3) 24.5
• Overseas prior year charge 0.7 -
• Impact of changes in tax rates (2.9) (0.2)
1.5 (3.9)
Total income tax expense/(benefit) 14.4 (8.0)
The tax for the year is lower (2021: higher) than the standard rate of
corporation tax in the UK. The differences are explained below:
For year ending 31 March 2022 2021
£m
(restated)
£m
Profit/(loss) before tax 182.3 (1,811.0)
Profit/(loss) on ordinary activities multiplied by rate of corporation tax in 34.6 (344.1)
the UK of 19% (2021: 19%)
Effects of:
Expenses not deductible for tax purposes 2.4 3.3
Non-deductible write-off of goodwill 1.4 254.0
Re-measurement of deferred tax in respect of statutory rate changes (2.9) (0.2)
Difference in respect of share of results of joint ventures and associates' (2.1) 2.5
results
Prior year adjustments 3.9 (19.5)
Differences in respect of foreign rates (0.4) 3.9
Unrecognised deferred tax movements 25.0 83.4
Deferred tax not previously recognised/derecognised (8.1) 3.3
Non-taxable profits on disposals and non-deductible losses on disposals (37.8) 9.4
Other (1.6) (4.0)
Total income tax expense/(benefit) 14.4 (8.0)
Further information on exceptional items and tax on exceptional items is
detailed in note 2.
During the year the Group concluded discussions with certain tax authorities
regarding prior year tax positions, resulting in a tax credit of £12.6
million (2021: tax credit of £21.6 million).
The Group is subject to taxation in several jurisdictions. The complexity of
applicable rules may result in legitimate differences of interpretation
between the Group and taxing authorities, especially where an economic
judgement or valuation is involved. The principal elements of the Group's
uncertain tax positions relate to the pricing of intra-group transactions and
the allocation of profits in overseas territories. The outcome of tax
authority disputes in such areas is not predictable, and to reflect the effect
of these uncertain tax positions a provision is recorded which represents
management's assessment of the most likely outcome of each issue. At 31 March
2022 the Group held uncertain tax provisions of £16.5 million (2021: £5.4
million).
During the period the Group made disposals that are expected to be exempt from
UK tax due to qualification for the UK substantial shareholding exemption.
The increase in the UK rate of corporation tax to 25% with effect from 1 April
2023 was substantively enacted during the period, The effect has been to
increase the Group's net deferred tax asset by £1.4 million, comprising a
credit to Income Statement of £2.9 million, a debit to Other Comprehensive
Income of £2.0 million and a credit to equity of £0.5 million.
7. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the year excluding those held in the
Babcock Employee Share Trust. Where there is a loss arising the effect of
potentially dilutive ordinary shares is anti-dilutive.
The calculation of the basic and diluted earnings/(loss) per share is based on
the following data:
Number of shares
2022 2021
Number
Number
Weighted average number of ordinary shares for the purpose of basic EPS 505,091,970 504,993,024
Effect of dilutive potential ordinary shares: share options 6,083,765 3,998,687
Weighted average number of ordinary shares for the purpose of diluted EPS 511,175,735 508,991,711
Earnings
Year ended 31 March 2022 Year ended 31 March 2021 (restated)
Earnings/(loss) from continuing operations Basic Diluted Earnings/(loss) from continuing operations Basic Diluted
£m
per share
per share
£m
per share
per share
Pence
Pence
Pence
Pence
Earnings/(loss) for the year 164.2 32.5 32.1 (1,803.0) (357.0) (357.0)
(Deduct)/add back:
Specific Adjusting Items, net of tax (note 2) (9.0) (1.8) (1.7) 1,679.0 332.4 332.4
Earnings before Specific Adjusting Items 155.2 30.7 30.4 (124.0) (24.6) (24.6)
8. Goodwill
For year ending 31 March 2022 2021
£m
£m
Cost
At 1 April (restated) 2,487.3 2,571.1
On disposal of subsidiaries (note 20) (197.9) (72.6)
Additions (note 20) 21.3 -
Exchange adjustments 1.0 (11.2)
At 31 March 2,311.7 2,487.3
Accumulated impairment
At 1 April (restated) 1,531.0 189.8
On disposal of subsidiaries (note 20) (8.9) -
Impairment 7.2 1,336.6
Exchange adjustments - 4.6
At 31 March 1,529.3 1,531.0
Net book value at 31 March 782.4 956.3
Goodwill is allocated to the operating segments as set out in the table below:
For year ending 31 March 2022 2021
£m
£m
Marine 296.7 339.2
Nuclear 233.1 233.1
Land 218.6 262.7
Aviation 32.0 119.3
Africa 2.0 2.0
782.4 956.3
During the year, goodwill was tested for impairment at 31 March 2022 in
accordance with IAS 36. This impairment analysis is performed on an annual
basis at operating segment level, as outlined in the Group's accounting
policies. The Group monitors goodwill at operating segment level, with the
exception of the establishment of a separate cash generating unit during the
year for part of the Aviation business ("Aviation - Europe"). This was in
response to a transaction which impacted on management's ability share assets,
capability and management across the entire Aviation cash generating unit. A
portion of the goodwill previously allocated in full to the Aviation operating
segment has been allocated to this part of the Aviation business, and a
separate value-in-use analysis has been prepared.
The Group considered the potential disposal in the context of the held for
sale criteria set out in IFRS 5 and assessed that the business should not be
classified as held for sale.
The goodwill allocated to the Africa operating segment is immaterial and the
Directors do not consider there to be any reasonably possible changes in
estimates that would result in impairment of this goodwill. No further
disclosures are provided in relation to the Africa operating segment.
During the year the Group disposed of goodwill of £189.0 million through the
disposal of the Oil and Gas business (£0.4 million) and AirTanker Holdings
Limited (£80.0 million) in Aviation, Frazer-Nash Consultancy (£64.5 million)
in Marine and Power (£44.1 million) in Land. Further details are set out in
note 20. The Group recognised goodwill on the acquisition of Naval Ship
Management Pty Ltd of £21.3 million.
Results of goodwill impairment test
The current year impairment test results in an impairment of the goodwill
allocated to Aviation - Europe of £7.2 million, this impairment reflects
changes in the future business performance, which was informed by the Group's
disposal programme. This change has impacted on the ability of the Aviation
operating segment to share assets, capability and management across the entire
contract and asset base. Previously, assets were shared cross-sector, however
during the year ended 31 March 2022 management reduced the sharing of assets
to a country level, which has resulted in a reduced value-in-use. This has
also resulted in an acquired intangible impairment of £57.6 million and
impaired its aircraft fleet by £58.8 million. Further detail is included in
notes 9 and 10, respectively.
9. Other intangible assets
Acquired Internally generated software Internally generated development Total
intangibles -
development
costs and
£m
relationships
costs and
other
£m
licences
£m
£m
Cost
At 1 April 2021 1,031.5 189.3 26.1 1,246.9
On acquisition of subsidiaries and joint ventures (note 20) 62.0 - - 62.0
Additions - 7.0 4.4 11.4
Reclassification to property, plant and equipment - 0.1 (1.6) (1.5)
Reclassification - 0.9 (0.9) -
Disposal of subsidiary undertakings (note 20) - (3.9) - (3.9)
Disposals at cost - (1.4) (0.3) (1.7)
Exchange adjustments 0.8 0.2 (0.1) 0.9
At 31 March 2022 1,094.3 192.2 27.6 1,314.1
Accumulated amortisation and impairment
At 1 April 2021 927.5 115.0 4.5 1,047.0
Amortisation charge 21.4 13.9 1.8 37.1
Impairment 57.6 - - 57.6
Reclassification - 0.1 (0.1) -
Disposal of subsidiary undertakings (note 20) - (1.8) - (1.8)
Disposals - (1.0) - (1.0)
Exchange adjustments (0.7) 0.2 - (0.5)
At 31 March 2022 1,005.8 126.4 6.2 1,138.4
Net book value at 31 March 2022 88.5 65.8 21.4 175.7
Cost
At 1 April 2020 as previously stated 1,042.9 187.1 26.8 1,256.8
Prior year adjustment - (2.8) - (2.8)
At 1 April 2020 restated 1,042.9 184.3 26.8 1,254.0
On disposal of subsidiaries (note 20) (5.2) (0.1) - (5.3)
Additions - 11.0 7.0 18.0
Reclassification from property, plant and equipment - - 1.3 1.3
Disposals at cost - (6.0) (8.4) (14.4)
Exchange adjustments (6.2) 0.1 (0.6) (6.7)
At 31 March 2021 1,031.5 189.3 26.1 1,246.9
Accumulated amortisation and impairment
At 1 April 2020 as previously stated 840.3 79.8 2.0 922.1
Prior year adjustment - (1.0) - (1.0)
At 1 April 2020 restated 840.3 78.8 2.0 921.1
On disposal of subsidiaries and joint ventures (note 20) (5.2) (0.1) - (5.3)
Amortisation charge 40.2 18.2 1.0 59.4
Impairment (note 2) 56.4 24.0 8.7 89.1
Reclassification from property, plant and equipment - - 1.3 1.3
Disposals - (6.0) (8.4) (14.4)
Exchange adjustments (4.2) 0.1 (0.1) (4.2)
At 31 March 2021 927.5 115.0 4.5 1,047.0
Net book value at 31 March 2021 104.0 74.3 21.6 199.9
Acquired intangible amortisation charges for the year are recorded through
cost of revenue.
In the year ended 31 March 2022 the Group amended its accounting policy in
related to Software-as-a-service agreements, which would previously have been
capitalised within 'Internally generated software development costs and
licences'. Further detail is included in note 3.
In the year ended 31 March 2022, the Aviation operating segment recorded an
impairment to acquired intangibles of £57.6 million on an acquired intangible
that was initially recognised in relation to the acquisition of the Avincis
business. Following reassessment of the value-in-use for the operating segment
in line with an assessment under IAS 36, as outlined in note 8, this asset was
fully impaired.
10. Property, plant and equipment
Freehold Leasehold Plant and Aircraft Assets in Total
property
property
equipment
fleet
course of
£m
£m
£m
£m
£m
construction
£m
Cost
At 1 April 2021 159.8 15.8 506.5 365.3 187.6 1,235.0
On acquisition of subsidiaries (note 20) - - 0.4 - - 0.4
On disposal of subsidiaries (note 20) (7.6) (0.6) (21.6) (17.4) (0.9) (48.1)
Additions 1.8 3.8 32.3 28.9 112.6 179.4
Disposals (2.5) (0.8) (14.2) (56.0) (46.5) (120.0)
Reclassification 1.5 4.9 (1.5) 0.9 (5.8) -
Reclassification from intangible assets 0.4 - 1.1 - - 1.5
Exchange adjustments - 0.1 4.4 (0.4) (0.7) 3.4
At 31 March 2022 153.4 23.2 507.4 321.3 246.3 1,251.6
Accumulated depreciation
At 1 April 2021 69.5 10.9 373.1 45.4 1.7 500.6
On disposal of subsidiaries (note 20) (4.7) (0.2) (13.7) (7.7) - (26.3)
Charge for the year 8.1 0.5 38.1 12.0 - 58.7
Impairment - - - 58.8 - 58.8
Disposals (1.5) (0.7) (10.8) (38.9) (1.6) (53.5)
Exchange adjustments - - 1.8 1.0 (0.1) 2.7
At 31 March 2022 71.4 10.5 388.5 70.6 - 541.0
Net book value at 31 March 2022 82.0 12.7 118.9 250.7 246.3 710.6
Cost
At 1 April 2020 as previously stated 125.2 32.0 605.7 533.8 88.5 1,385.2
Reclassification of assets in the course of construction 18.7 - (61.4) - 42.7 -
At 1 April 2020 restated 143.9 32.0 544.3 533.8 131.2 1,385.2
On disposal of subsidiaries (note 20) - - (1.7) - - (1.7)
Additions (restated) 2.5 1.2 39.5 39.2 76.0 158.4
Disposals (3.3) (0.4) (79.5) (210.7) (4.9) (298.8)
Reclassification 16.9 (17.0) 0.1 11.1 (11.1) -
Reclassification to intangible assets - - (1.3) - - (1.3)
Capitalised borrowing costs 0.1 - 1.4 - - 1.5
Exchange adjustments (0.3) - 3.7 (8.1) (3.6) (8.3)
At 31 March 2021 159.8 15.8 506.5 365.3 187.6 1,235.0
Accumulated depreciation
At 1 April 2020 66.6 9.5 390.7 77.5 - 544.3
On disposal of subsidiaries (note 20) - - (0.9) - - (0.9)
Charge for the year 5.0 1.0 46.7 33.9 - 86.6
Impairment (note 2) 0.3 2.5 9.2 99.3 2.0 113.3
Disposals (2.9) (0.4) (70.9) (165.0) - (239.2)
Reclassification 0.7 (1.7) 0.2 0.8 - -
Reclassification to intangible assets - - (1.3) - - (1.3)
Exchange adjustments (0.2) - (0.6) (1.1) (0.3) (2.2)
At 31 March 2021 69.5 10.9 373.1 45.4 1.7 500.6
Net book value at 31 March 2021 90.3 4.9 133.4 319.9 185.9 734.4
In the year ended 31 March 2022, the Group recognised an impairment charge of
£58.8 million in relation to the Aircraft fleet in the Aviation operating
segment due to changes in the future business performance, as informed by the
Group's disposal programme. In making this assessment management have grouped
the aircraft at the lowest level for which there are identifiable and
separable cashflows, which is generally at the fleet level. The asset
valuations have been calculated based on estimated discounted cashflows over
the remaining useful expected lives of the assets. The impairment charge of
£58.8 million is based on a recoverable amount for the relevant assets of
£220.0 million.
11. Leases
Group as a lessee
Lease liabilities represent rentals payable by the Group for certain
operational, distribution and office properties and other assets such as
aircraft. The leases have varying terms, purchase options, escalation clauses
and renewal rights.
Right of use assets
Leasehold Plant and Aircraft Total
property
equipment
fleet
£m
£m
£m
£m
Cost
At 1 April 2021 152.9 72.1 584.2 809.2
Additions 24.0 3.4 61.2 88.6
Acquisition of subsidiary (note 20) 0.5 - - 0.5
Disposals (31.1) (7.8) (33.0) (71.9)
Disposal of subsidiaries (note 20) (21.1) (3.0) (228.4) (252.5)
Exchange adjustments 2.1 - (1.0) 1.1
At 31 March 2022 127.3 64.7 383.0 575.0
Accumulated depreciation
At 1 April 2021 51.1 42.2 197.6 290.9
Charge for the year 23.5 9.5 72.1 105.1
Impairment - - 18.0 18.0
Disposals (23.7) (6.9) (21.8) (52.4)
Disposal of subsidiaries (note 20) (9.5) (1.9) (109.5) (120.9)
Reclassification - 2.0 2.0 -
Exchange adjustments 1.1 - (1.1) -
At 31 March 2022 42.5 40.9 157.3 240.7
Net book value at 31 March 2022 84.8 23.8 225.7 334.3
Leasehold Plant and Aircraft Total
property
equipment
fleet
£m
£m
£m
£m
Cost
At 1 April 2020 148.2 70.6 549.4 768.2
Additions 18.2 8.0 65.5 91.7
Disposals (15.3) (6.5) (38.3) (60.1)
Exchange adjustments 1.8 - 7.6 9.4
At 31 March 2021 152.9 72.1 584.2 809.2
Accumulated depreciation
At 1 April 2020 26.4 30.1 102.7 159.2
Charge for the year 27.7 12.6 93.1 133.4
Impairment (note 2) 7.3 4.4 34.7 46.4
Disposals (10.7) (4.8) (32.3) (47.8)
Exchange adjustments 0.4 (0.1) (0.6) (0.3)
At 31 March 2021 51.1 42.2 197.6 290.9
Net book value at 31 March 2021 101.8 29.9 386.6 518.3
Lease liabilities
The following tables show the discounted Group lease liabilities and a
reconciliation of opening to closing lease liabilities:
Total
£m
At 1 April 2021 612.3
Additions 93.8
Acquisition of subsidiaries (note 20) 0.5
Disposals (22.6)
Disposal of subsidiaries (note 20) (137.1)
Exchange adjustments 0.2
Lease interest 17.4
Lease repayments (130.4)
At 31 March 2022 434.1
Non-current lease liabilities 329.3
Current lease liabilities 104.8
At 31 March 2022 434.1
At 1 April 2020 689.4
Additions 91.7
Disposals (9.4)
Exchange adjustments (18.8)
Lease interest 23.5
Lease repayments (164.1)
At 31 March 2021 612.3
Non-current lease liabilities 486.2
Current lease liabilities 126.1
At 31 March 2021 612.3
12. Investment in and loans to joint ventures and associates
Reconciliation to carrying amounts
Investment in joint ventures and associates Loans to joint ventures and associates Total
2022 2021 2022 2021 2022 2021
£m
£m
£m
£m
£m
£m
At 1 April 73.5 161.9 42.1 48.6 115.6 210.5
Acquisition and disposal of joint ventures and associates (note 20) (24.5) (53.2) - - (24.5) (53.2)
Loans repaid by joint ventures and associates - - (31.0) (4.2) (31.0) (4.2)
Increase in loans to joint ventures and associates - - 1.4 3.9 1.4 3.9
Impairment of loans to joint ventures and associates - - - (7.0) - (7.0)
Investment in joint ventures and associates 2.6 8.8 - - 2.6 8.8
Share of profits/(losses) 20.1 (13.1) - - 20.1 (13.1)
Interest accrued and capitalised - - 3.2 3.1 3.2 3.1
Interest received - - (3.6) (2.3) (3.6) (2.3)
Dividends received (41.6) (36.8) - - (41.6) (36.8)
Fair value adjustment of derivatives 30.2 7.0 - - 30.2 7.0
Tax on fair value adjustment of derivatives (5.7) (1.4) - - (5.7) (1.4)
Foreign exchange (0.3) 0.3 - - (0.3) 0.3
At 31 March 54.3 73.5 12.1 42.1 66.4 115.6
In the prior year, the share of results of joint ventures and associates
(loss) reported of £13.1 million which was due to a £37.1 million reduction
to share of results of joint ventures and associates identified through the
contract profitability and balance sheet review. The contract profitability
and balance sheet review also identified an impairment of £7.0 million in
relation to loans to joint ventures and associates. This joint venture had
entered the final stages if its operations and the loan was no longer deemed
recoverable and was fully impaired.
13. Inventories
For year ending 31 March 2022 2021 (restated)
£m
£m
Raw materials and spares 77.3 69.8
Work-in-progress 4.1 7.2
Finished goods and goods for resale 61.3 76.0
Total 142.7 153.0
£9.4m of inventory has been reclassified as contract assets at 31 March 2021.
See note 3 for further details.
Write-downs of inventories amounted to £15.8 million (2021: £28.6 million).
These were recognised as an expense during the year ended 31 March 2022 and
included in cost of revenue in the income statement.
14. Trade and other receivables and contract assets
For year ending 31 March 2022 2021
£m
(restated)
£m
Non-current assets
Costs to obtain a contract 8.9 17.5
Costs to fulfil a contract 0.8 9.2
Non-current trade and other receivables 9.7 26.7
Current assets
Trade receivables 311.5 283.8
Less: provision for impairment of receivables (14.6) (14.0)
Trade receivables - net 296.9 269.8
Retentions 4.4 8.0
Amounts due from related parties 2.0 1.7
Other debtors 106.2 83.8
Prepayments 71.1 66.8
Costs to obtain a contract 7.6 3.7
Costs to fulfil a contract 0.6 1.9
Trade and other receivables 488.8 435.7
Contract assets 299.3 276.4
Current trade and other receivables and contract assets 788.1 712.1
Trade and other receivables are stated at amortised cost. There has been no
impairment to other debtors during the year ended 31 March 2022.
£9.4m of inventory has been reclassified as contract assets at 31 March 2021.
Separately, an £11.6m restatement has been recognised reducing contract
assets as at 31 March 2021. See note 3 for further details.
£26.7m of costs to obtain and fulfil a contract as at 31 March 2021 have been
restated as non-current assets based on when the expense is expected to be
realised in the income statement. See note 3 for further details. Costs to
obtain and fulfil contracts are also now presented separately from contract
assets.
The Group recognises that there is an inherent element of estimation
uncertainty and judgement involved in assessing contract profitability.
Management have taken a best estimate view of contract outcomes based on the
information currently available, after allowing for contingencies, and have
applied a constraint to the variable consideration within revenue resulting a
revenue estimate that is suitably cautious under IFRS 15.
In the year ended 31 March 2022, amortisation of costs to obtain a contract
and costs to fulfil a contract totalled £2.8 million (2021: £11.2 million).
No impairment was recorded in relation to costs to obtain a contract or costs
to fulfil a contract (2021: £15.5 million).
Significant changes in contract assets during the year are as follows:
Contract assets
£m
31 March 2021 (restated) 276.4
Acquisition of subsidiary undertaking 16.3
Disposal of subsidiary undertaking (20.8)
Transfers from contract assets recognised at the beginning of the year to (228.7)
trade receivables
Increase due to work done not transferred from contract assets 255.1
Exchange adjustment 1.0
31 March 2022 299.3
31 March 2020 (restated) 319.2
Disposal of subsidiary undertaking (4.0)
Transfers from contract assets recognised at the beginning of the year (291.6)
to trade receivables
Increase due to work done not transferred from contract assets 262.0
Write down of contract assets (6.9)
Exchange adjustment (2.3)
31 March 2021 (restated) 276.4
15. Trade and other payables and contract liabilities
For year ending 31 March 2022 2021
£m
£m
Current liabilities
Contract liabilities 518.3 396.5
Trade creditors 164.7 410.6
Amounts due to related parties 1.5 0.4
Other creditors 26.9 37.4
Other taxes and social security 76.6 144.5
Accruals 618.4 517.3
Trade and other payables 888.1 1,110.2
Trade and other payables and contract liabilities 1,406.4 1,506.7
Non-current liabilities
Other creditors 1.0 1.9
Included in creditors is £6.7 million (2021: £19.1 million) relating to
capital expenditure which has therefore not been included in working capital
movements within the cash flow statement. Significant changes in contract
liabilities during the year are as follows:
Contract liabilities
£m
31 March 2021 396.5
Revenue recognised that was included in the contract liability balance at (294.7)
the beginning of the year
Cash advanced 419.0
Acquisition of subsidiary undertaking 8.2
Disposal of subsidiary undertaking (12.5)
Exchange adjustment 1.8
31 March 2022 518.3
31 March 2020 243.2
Revenue recognised that was included in the contract liability balance at (163.5)
the beginning of the year
Increase due to cash received, excluding amounts recognised as revenue 318.1
Disposal (0.5)
Exchange adjustment (0.8)
31 March 2021 396.5
16. Bank and other borrowings
For year ending 31 March 2022 2021
£m
(restated**)
£m
Current liabilities
Bank loans and overdrafts due within one year or on demand
Secured 0.4 0.2
Unsecured 863.0 383.5
863.4 383.7
Lease obligations* 104.8 126.1
968.2 509.8
Non-current liabilities
Bank and other borrowings
Secured 24.0 18.5
Unsecured 823.7 1,305.3
847.7 1,323.8
Lease obligations* 329.3 486.2
1,177.0 1,810.0
* Leases are secured against the assets to which they relate.
** In the year ended 31 March 2022, the
Group restated the prior year financial information. Details of the
restatement are contained in note 3.
Repayment details
The total borrowings of the Group at 31 March are repayable as follows:
31 March 2022 31 March 2021
Loans and Lease Loans and Lease
overdrafts
obligations
overdrafts
obligations
£m
£m
£m
£m
Within one year 863.4 104.8 383.7 126.1
Between one and two years 22.6 90.5 476.4 120.1
Between two and three years 0.6 67.9 15.0 91.4
Between three and four years 0.7 46.4 0.3 96.6
Between four and five years 356.4 38.7 0.3 61.9
Greater than five years 467.4 85.8 831.8 116.2
1,711.1 434.1 1,707.5 612.3
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available
at 31 March:
For year ending 31 March 2022 2021
£m
£m
Expiring in less than one year - 3.0
Expiring in more than one year but not more than five years 1,012.2 783.5
1,012.2 786.5
Bank loans include £12.5 million (2021: £25.1 million) that suppliers have
chosen to early-fund under supplier financing arrangements, under which the
suppliers can elect to receive a discounted early payment from the partner
bank rather than being paid in line with the agreed payment terms. The total
supplier financing facility available to the Group is €128.5 million at 31
March 2022 (2021: £230.0 million). The typical factoring fee is 0.1% - 0.5%
(2021: 0.9% - 1.5%) and the Group has payment terms with the partner banks of
120-360 days. If the option is taken the Group's liability is assigned by the
supplier to be due to the partner bank rather than the supplier. The value of
the liability payable by the Group remains unchanged. The Group assesses the
terms and conditions of the arrangement to determine whether the arrangement
should be classified as trade payables or debt.
17. Provisions for other liabilities
Contract/ Employee benefits and business reorganisation Italian Property Other Total
warranty
costs
anti-trust fine
(d)
(e)
provisions
(a)
(b)
£m
£m
£m
£m
£m (c)
£m
At 31 March 2021 67.1 35.8 20.0 21.5 1.1 145.5
On disposal of subsidiaries (note 20) - (1.3) - (1.2) - (2.5)
On acquisition of subsidiaries (note 20) 1.3 - - - - 1.3
Net charge/(release) to income statement (8.6) 40.1 (3.6) 1.8 0.3 30.0
Utilised in year (8.5) (35.4) (16.1) (0.8) - (60.8)
Unwinding of discount - 0.2 - - - 0.2
Foreign exchange (0.2) 0.3 - (0.3) - (0.2)
At 31 March 2022 51.1 39.7 0.3 21.0 1.4 113.5
(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) The net charge to the employee benefits and reorganisation provision
comprises a charge in the year of £43.4 million and a release of £3.4
million.
(c) For further details of the provision in relation to the Italian
anti-trust fine see note 2.
(d) Property and other provisions primarily relate to dilapidation costs
and contractual obligations in respect of infrastructure.
(e) Other provisions include provisions for insurance claims arising
within the Group's captive insurance company, Chepstow Insurance Limited. They
relate to specific claims assessed in accordance with the advice
of independent actuaries.
Provisions have been analysed between current and non-current as follows:
For year ending 31 March 2022 2021
£m
£m
Current 53.2 71.8
Non-current 60.3 73.7
113.5 145.5
Included within provisions is £7.4 million (2021: £5.0 million) expected to
be utilised over approximately 10 years. Other than these provisions the
Group's non-current provisions are expected to be utilised within two to five
years.
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). The nature of these
schemes is that the employees contribute to the schemes with the employer
paying the balance of the cost required. The contributions required and the
assessment of the assets and the liabilities that have accrued to members and
any deficit recovery payments required are agreed by the Group with the
trustees of each scheme who are advised by independent, qualified actuaries.
The Group's balance sheet includes the assets and liabilities of the pension
schemes calculated on an IAS 19 basis. At 31 March 2022, the net position was
a surplus of £191.6 million compared to a net deficit of £278.9 million at
31 March 2021. These valuations are based on discounting using corporate bond
yields.
The fair value of the assets and the present value of the liabilities of the
Group pension schemes at 31 March were as follows:
2022 2021 (restated)
Principal Railways Other Total Principal Railways Other Total
schemes
scheme
schemes
£m
schemes
scheme
schemes
£m
£m
£m
£m
£m
£m
£m
Fair value of plan assets
Growth assets
Equities 31.6 14.3 30.6 76.5 55.0 12.5 23.0 90.5
Property funds 364.0 0.1 5.1 369.2 437.1 2.1 4.7 443.9
High yield bonds/emerging market debt 44.1 - 0.4 44.5 348.4 - - 348.4
Absolute return and multi-strategy funds 46.0 182.9 31.8 260.7 428.5 194.6 25.4 648.5
Low-risk assets
Bonds 1,924.1 77.2 77.5 2,078.8 1,422.9 54.7 83.4 1,561.0
Matching assets 2,094.0 1.3 101.8 2,197.1 1,682.7 1.7 108.5 1,792.9
Longevity swaps (283.5) - (10.2) (293.7) (250.9) - (10.7) (261.6)
Fair value of assets 4,220.3 275.8 237.0 4,733.1 4,123.7 265.6 234.3 4,623.6
Percentage of assets quoted 100% 100% 100% 100% 100% 100% 100% 100%
Percentage of assets unquoted - - - - - - - -
Present value of defined
benefit obligations
Active members 756.0 65.7 35.8 857.5 857.6 126.1 39.4 1,023.1
Deferred pensioners 1,066.2 93.5 132.7 1,292.4 1,227.3 107.4 152.4 1,487.1
Pensioners 2,170.4 167.9 53.3 2,391.6 2,205.1 136.1 51.1 2,392.3
Total defined benefit obligations 3,992.6 327.1 221.8 4,541.5 4,290.0 369.6 242.9 4,902.5
Net (liabilities)/assets recognised in the statement of financial position 227.7 (51.3) 15.2 191.6 (166.3) (104.0) (8.6) (278.9)
Analysis of movement of pensions in the Group statement of financial position
2022 2021 (restated)
Principal Railways Other Total Principal Railways Other Total
schemes
scheme
schemes
£m
schemes
scheme
schemes
£m
£m
£m
£m
£m
£m
£m
Fair value of plan assets (including reimbursement rights)
At 1 April 3,989.2 241.4 180.7 4,411.3
Restatement (note 3) (47.0) - 10.1 (36.9)
At 1 April (restated) 4,123.7 265.6 234.3 4,623.6 3,942.2 241.4 190.8 4,374.4
Interest on assets 82.3 5.2 4.7 92.2 91.6 5.7 4.6 101.9
Actuarial gain on assets* 77.0 13.1 (1.7) 88.4 231.5 26.3 40.0 297.8
Employer contributions 182.5 2.6 5.1 190.2 102.5 2.8 3.5 108.8
Employee contributions 0.2 - - 0.2 0.2 - - 0.2
Benefits paid (245.4) (10.7) (5.4) (261.5) (244.3) (10.6) (4.6) (259.5)
Settlements - - - - - - - -
At 31 March 4,220.3 275.8 237.0 4,733.1 4,123.7 265.6 234.3 4,623.6
Present value of benefit obligations
At 1 April 3,790.8 297.5 177.8 4,266.1
Restatement (note 3) - - 10.1 10.1
At 1 April 4,290.0 369.6 242.9 4,902.5 3,790.8 297.5 187.9 4,276.2
Service cost 25.6 2.0 3.5 31.1 24.1 2.0 2.0 28.1
Incurred expenses 6.6 0.5 0.3 7.4 6.4 0.7 0.2 7.3
Interest cost 83.8 7.3 4.8 95.9 86.4 7.0 4.5 97.9
Employee contributions 0.2 - - 0.2 0.2 - - 0.2
Experience (gain)/loss* 70.6 (14.2) (2.4) 54.0 (20.5) 0.6 (2.2) (22.1)
Actuarial loss/(gain) - demographics* (11.5) (3.5) - (15.0) 8.5 (0.6) (0.7) 7.2
Actuarial (gain)/loss - financial* (227.3) (23.9) (21.9) (273.1) 629.7 73.0 55.6 758.3
Benefits paid (245.4) (10.7) (5.4) (261.5) (244.5) (10.6) (4.4) (259.5)
Past service costs - - - - 1.4 - - 1.4
Curtailment - - - - 7.5 - - 7.5
At 31 March 3,992.6 327.1 221.8 4,541.5 4,290.0 369.6 242.9 4,902.5
Net surplus/(deficit) at 31 March 227.7 (51.3) 15.2 191.6 (166.3) (104.0) (8.6) (278.9)
* Remeasurement of net retirement benefit obligations resulted in
a gain of £322.5 million (2021: £445.6 million)
Accounting valuations
The IAS 19 valuation for accounting purposes showed a market value of assets
of £4,733.1 million, net of longevity swaps and the MOD indemnity for BNSPS,
in comparison to a valuation of the liabilities of £4,541.5 million. The
total net accounting surplus, before allowing for deferred tax, at 31 March
2022, was £191.6 million (2021: deficit of £278.9 million), representing a
104.2% funding level. A summary of the key assumptions used to value the
largest schemes is shown below. The most significant assumptions that impact
on the results are the discount rate and the expected rate of inflation. As
the IAS19 accounting valuation uses corporate bond yields as a discount rate,
the net surplus (deficit) position can materially differ from an actuarial
valuation, which typically uses gilts based discount rates.
Devonport Babcock Rosyth Royal
Royal International Dockyard
Dockyard Group Scheme Scheme
Scheme
2022 2021 2022 2021 2022 2021
Discount rate % 2.7 2.0 2.7 2.0 2.7 2.0
Inflation rate (RPI) 3.7 3.2 3.7 3.2 3.7 3.2
Inflation rate (CPI) 3.2 2.7 3.2 2.7 3.2 2.7
Rate of increase in pensions in payment % 3.2 2.7 3.5 3.1 3.7 3.2
Total life expectancy for current pensioners aged 65 (years) 85.9 85.7 86.8 87.1 85.0 84.8
An estimate of the actuarial deficits of the Group's defined benefit pension
schemes, including all longevity swap funding gaps, calculated using each
Scheme's respective technical provisions basis, as at 31 March 2022 was
approximately £400 million (2021: c.£600 million), such valuations use
discount rates based on UK gilts - which differs from the corporate bond
approach of IAS 19 above. This technical provision estimate is based on the
assumptions used within the latest agreed valuation prior to 31 March 2022 for
each of the three main schemes and does not fully allow for the impact of RPI
reform which will be fully reflected in future technical provisions
valuations.
Governance
The Group believes that the complexity of defined benefit schemes requires
effective governance and supports an increasingly professional approach. Each
of the largest schemes have independent trustees and professional trustees
with specialist investment expertise.
Pensions management
The Group continues to review its options to reduce the risks inherent in its
schemes. It has employees earning benefits in the Babcock International Group
Pension Scheme, the Devonport Royal Dockyard Pension Scheme, the Babcock Rail
Ltd Shared Cost Section of the Railways Pension Scheme, the Cavendish Nuclear
section of the Magnox Group section of the Electricity Supply Pension Scheme
and the Babcock Clyde Section of the Citrus Pension Plan, as well as employees
in local and central government schemes. All the occupational defined benefit
pension schemes have been closed to new members for some years.
The Group also provides an occupational defined contribution pension scheme
used to comply with the automatic enrolment legislation across the Group for
all new employees and for those not in a defined benefit pension scheme. Over
75% of its UK employees are members of the defined contribution pension
scheme. The Group pays contributions to this scheme based on a percentage of
employees' pay. It has no legal obligations to pay any additional
contributions. All investment risk in the defined contribution pension scheme
is borne by the employees.
Investment strategy
In recent years, the Group has agreed investment strategies with the trustees
of the Babcock International Group Pension Scheme and the Rosyth Royal
Dockyard Pension Scheme designed to target these schemes being self-sufficient
by 2026, and with the trustees of the Devonport Royal Dockyard Pension Scheme
designed to target self-sufficiency for this scheme by 2030. The schemes also
operate within agreed risk budgets to ensure the level of risk taken is
appropriate. To implement the investment strategies, each of the three largest
schemes' Investment Committees has divided its scheme's assets into growth
assets, low risk assets and matching assets, with the proportion of assets
held in each category differing by scheme reflecting the schemes' different
characteristics and funding strategies. The matching assets are used to hedge
against falls in interest rates or rises in expected inflation. The level of
hedging is steadily increased as the funding level on the self sufficiency
measure increases, such that as at 31 March 2022 approximately 90% of the
schemes' liabilities (as measured on a self-sufficiency basis) across the
three largest schemes are protected against adverse changes in interest rates
and inflation.
Actuarial valuations
Actuarial valuations are carried out every three years in order 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, in order to spread the financial impact of market
conditions. The valuation of the Devonport Royal Dockyard Pension Scheme as at
31 March 2020 was completed in the last financial year, the valuation of the
Rosyth Royal Dockyard Pension Scheme as at 31 March 2021 has been completed
since the year end, and work has commenced on the valuation of the Babcock
International Group Pension Scheme at 31 March 2022.
Cash contributions
For year ending 31 March 2023 (expected) 2022 2021
£m £m £m
Future service contributions 19.9 21.1 24.2
Deficit recovery 88.3 135.2 51.6
Longevity swap 15.6 16.8 16.3
Total cash contributions - employer 123.8 173.1 92.1
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 above.
Income statement charge
The charge included within underlying operating profit for the year to 31
March 2022 was £38.5 million, of which £31.1 million related to service
costs and £7.4 million related to expenses. We expect charges of around £33
million in the year to 31 March 2023, split between £26 million of service
costs and £7 million of expenses. In addition to this, there was an interest
charge of £3.7 million for the year to 31 March 2022 and, for 2023, we expect
an interest credit of £6.6 million on the surplus.
19. Changes in net debt excluding loans to joint ventures and associates and
lease receivables
31 March Cash flow Additional Other non-cash movement Changes in fair value Exchange 31 March
£m
leases
£m
£m
movement
2021
£m
£m 2022
£m
£m
Cash and bank balances 904.8 238.6 - - - 2.9 1,146.3
Bank overdrafts (373.9) (15.9) - - - - (389.8)
Cash, cash equivalents and bank overdrafts 530.9 222.7 - - - 2.9 756.5
Debt (1,333.6) 8.6 - (2.0) (1.6) 7.3 (1,321.3)
Lease liabilities (612.3) 113.0 (93.8) 159.2 - (0.2) (434.1)
Derivative designated as hedge of Group debt (19.1) - - - (10.2) - (29.3)
Changes in liabilities from financing arrangements (1,965.0) 121.6 (93.8) 157.2 (11.8) 7.1 (1,784.7)
Lease receivables 39.6 (36.9) 41.9 - - 2.8 47.4
Net debt before loans to joint ventures and associates (1,394.5) 307.4 (51.9) 157.2 (11.8) 12.8 (980.8)
Loans to joint ventures and associates 42.1 (29.6) - (0.4) - - 12.1
Net debt excluding loans to joint ventures and associates and lease (1,352.4) 277.8 (51.9) 156.8 (11.8) 12.8 (968.7)
receivables
20. Acquisition and disposal of subsidiaries, businesses and joint ventures
and associates
Acquisitions
On 15 March 2022, the Group acquired the remaining 50% of Naval Ship
Management (NSM) (Australia) Pty Limited. The Group had previously held a 50%
interest in this entity since May 2012 which was classified as a joint
venture. NSM provides repair, engineering and maintenance services to the
Australian Navy. The Group paid cash consideration of £33.1 million (AUD60
million) for this acquisition.
The fair value of assets and liabilities recognised as a result of the
acquisition are as follows:
NSM
£m
Fair value gain on previously held interest:
Carrying value of previously held interest 0.7
Fair value gain on previously held interest 32.4
Fair value of previously held interest at acquisition date 33.1
Purchase consideration:
Cash consideration 33.1
Fair value of previously held interest 33.1
Total consideration 66.2
Net assets acquired:
Property, plant and equipment 0.4
Right of use assets 0.5
Deferred tax assets 0.3
Contract assets 16.3
Trade and other receivables 11.6
Cash and cash equivalents 17.6
Deferred tax liability (18.9)
Income tax payable (0.4)
Lease liabilities (0.5)
Contract liabilities (8.2)
Trade and other payables (34.5)
Provisions (1.3)
Net identifiable liabilities acquired (17.1)
Goodwill 21.3
Intangible assets 62.0
Net assets acquired 66.2
Post-acquisition, Naval Ship Management (Australia) Pty Limited contributed
£0.7 million to the profit before tax of the Group. If this entity had been
owned for the full financial year the contribution to profit before tax would
have been £10.5 million.
The excess of the fair value of the consideration paid over the fair value of
the assets acquired is represented by intangible assets of £62.0 million,
relating to customer relationships, and goodwill of £21.3 million,
representing potential for future synergies arising from combining the
acquired businesses with the Group's existing business. Goodwill is not
deductible for tax purposes.
Disposals
On 11 March 2021, the Group announced that it had entered into a sale and
purchase agreement to dispose of the Oil and Gas business, which provides
offshore Oil and Gas crew transportation services in the UK, Denmark and
Australia. The disposal was made as part of the Group's targeted disposals
programme. The disposal completed on 1 September 2021, on which date control
of the Oil and Gas business passed to CHC Group LLC. The Group received
consideration of £10 million.
On 13 August 2021, the Group announced that it had entered into a sale and
purchase agreement to dispose of Frazer-Nash Consultancy, which provides
engineering and technology solutions across a broad range of critical national
infrastructure. The disposal was made as part of the Group's targeted
disposals programme. The disposal completed on 20 October 2021, on which date
control of Frazer-Nash Consultancy passed to KBR Inc. The Group received
consideration of £291.7 million.
On 24 December 2021, the Group announced the disposal of the Power business to
M Group Services, which provides engineering services in the UK overhead line
electric transmission and distribution industry. The disposal was made as part
of the Group's targeted disposals programme. The disposal completed on 24
December 2021, on which date control passed to M Group Services. The Group
received consideration of £50 million.
On 13 September 2021, the Group announced a definitive agreement with Equitix
Investment Management Limited for the sale of its 15.4% shareholding in
AirTanker Holdings Limited, a joint venture with Airbus, Thales and
Rolls-Royce which owns 14 A330 Voyager aircraft to support air-to-air
refuelling, air transport and ancillary services for the MOD. The Group has
retained its 23.5% shareholding in AirTanker Services Limited, which operates
these aircraft. The disposal was made as part of the Group's targeted
disposals programme. The disposal completed on 9 March 2022, on which date
control passed to Equitix. The Group received consideration of £95.6 million,
and shareholder loans of £31.5 million were repaid.
In the prior year the Group disposed of its 74% shareholding in Holdfast
Training Services Limited for a cash consideration of £85.0 million which
resulted in a loss on disposal of £38.2 million. The Group also disposed of
Cavendish Nuclear Manufacturing Limited for no consideration, which resulted
in a loss on disposal of £0.6 million, and Conbras Servicos Tecnicos de
Suporte Ltda for a consideration of £9.7 million which resulted in a loss on
disposal of £10.9 million.
Year ended 31 March 2022 Year ended 31 March 2021
Oil and Gas business Frazer Nash Consultancy Power AirTanker Total Holdfast Cavendish Nuclear Manufacturing Limited Conbras Servicos Tecnicos de Suporte Ltda Total
£m
£m
£m
£m
£m
Training
£m
£m
£m
Services
Limited
£m
Goodwill 0.4 64.5 44.1 80.0 189.0 68.4 - 4.2 72.6
Investment in joint ventures and associates - - 23.8 23.8 53.2 - - 53.2
Other intangible assets - 2.1 - - 2.1 - - - -
Property, plant and equipment 15.1 2.2 4.5 - 21.8 - - 0.8 0.8
Right of use assets 125.8 3.9 1.9 - 131.6 - - - -
Deferred tax assets 18.8 0.5 0.3 - 19.6 - - - -
Inventory 3.6 - 0.1 - 3.7 - 0.5 0.1 0.6
Trade and other receivables 46.5 31.0 9.3 - 86.8
Other current assets - - - - - - 0.7 11.1 11.8
Income tax receivable 1.5 2.9 - - 4.4 - - - -
Cash, cash equivalents and bank overdrafts - 4.9 4.2 - 9.1 - 0.4 3.1 3.5
Lease liabilities (129.7) (5.4) (2.0) - (137.1) - - - -
Deferred tax liability (12.0) - - - (12.0) - - - -
Income tax payable (1.0) - - - (1.0) - - - -
Trade and other payables (39.6) (13.9) (9.9) - (63.4) - - - -
Other current liabilities - - - - - - (1.0) (8.2) (9.2)
Provisions (1.3) - (1.2) - (2.5) - - (2.5) (2.5)
Net assets disposed 28.1 92.7 51.3 103.8 275.9 121.6 0.6 8.6 130.8
Disposal costs 2.0 10.1 2.7 2.7 17.5 1.6 - 1.5 3.1
Cumulative currency translation loss (7.3) - - - (7.3) - - 10.5 10.5
Recycle of hedge reserve - - - 20.8 20.8
Profit/(loss) on disposal (12.8) 188.9 (4.0) (31.7) 140.4 (38.2) (0.6) (10.9) (49.7)
Sale proceeds 10.0 291.7 50.0 95.6 447.3 85.0 - 9.7 94.7
Sale proceeds less cash disposed of 10.0 286.8 45.8 95.6 438.2 85.0 (0.4) 6.6 91.2
Less transaction costs (2.0) (10.1) (2.7) (2.7) (17.5) - - (0.6) (0.6)
Net cash inflow/(outflow) 8.0 276.7 43.1 92.9 420.7 85.0 (0.4) 6.0 90.6
Total profit resulting from acquisitions and disposals is £172.8 million
(2021: loss £49.7 million), comprising of £140.4 million profit on disposal
and £32.4 million fair value gain on previously held interest in the NSM
joint venture.
21. Capital and other financial commitments
For year ending 31 March 2022 2021
£m
£m
Contracts placed for future capital expenditure not provided for in the 21.3 57.9
financial statements
22. Events after the reporting period
On 19 July 2022, the Group announced the sale of its Aerial Emergency Services
business for gross cash consideration of £115 million. This business provides
aerial emergency medical services, firefighting and search & rescue to
customers and communities in Italy, Spain, Portugal, Norway, Sweden and
Finland. The disposal was made as part of the Group's targeted disposals
programme.
Annual General Meeting 2022
This year's Annual General Meeting will be held on 19 September 2022. Details
of the resolutions to be proposed at that meeting will be included in the
Notice of Annual General Meeting that will be published during mid-August
2022.
At our Annual General Meeting in 2007 our shareholders unanimously agreed to
proposals to allow us to use electronic communications with them as allowed
for under the Companies Act 2006. For shareholders who agreed, or who are
treated as having agreed, to receive electronic communications, the Company
website is now the main way for them to access shareholder information. These
shareholders will be sent a 'notice of availability' notifying them when the
Annual Report and Accounts is available on the Company website
www.babcockinternational.com (http://www.babcockinternational.com) . Hard
copies of the Annual Report and Accounts will be distributed to those
shareholders who have requested or subsequently request them. Additional
copies will be available from the Company's registered office 33 Wigmore
Street, London, W1U 1QX.
Forward-looking statements
Certain statements in this announcement are forward-looking statements. Such
statements may relate to Babcock's business, strategy and plans. Statements
that are not historical facts, including statements about Babcock's or its
management's beliefs and expectations, are forward-looking statements. Words
such as 'believe', 'anticipate', 'estimates', 'expects', 'intends', 'aims',
'potential', 'will', 'would', 'could', 'considered', 'likely', and variations
of these words and similar future or conditional expressions are intended to
identify forward-looking statements but are not the exclusive means of doing
so. By their nature, forward-looking statements involve a number of risks,
uncertainties or assumptions, some known and some unknown, many of which are
beyond Babcock's control that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements.
These risks, uncertainties or assumptions could adversely affect the outcome
and financial effects of the plans and events described herein.
Forward-looking statements contained in this announcement regarding past
trends or activities should not be taken as a representation that such trends
or activities will continue in the future. Nor are they indicative of future
performance and Babcock's actual results of operations and financial condition
and the development of the industry and markets in which Babcock operates may
differ materially from those made in or suggested by the forward-looking
statements. You should not place undue reliance on forward-looking statements
because such statements relate to events and depend on circumstances that may
or may not occur in the future. Except as required by law, Babcock is under no
obligation to update (and will not) or keep current the forward-looking
statements contained herein or to correct any inaccuracies which may become
apparent in such forward-looking statements.
Forward-looking statements reflect Babcock's judgement at the time of
preparation of this announcement and are not intended to give any assurance as
to future results.
The Group financial statements were approved by the Board of Directors on 28
July 2022 and are signed on its behalf by:
D Lockwood D Mellors
Director Director
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