REG - Babcock Intnl Group - Full year results for the year ended 31 March 2024
26/07/2024 07:00
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RNS Number : 9468X Babcock International Group PLC 26 July 2024
Babcock International Group PLC
Full year results for the year ended 31 March 2024
26 July 2024
Strong progress towards our medium-term guidance
Statutory results 31 March 2024 31 March 2023
Revenue (2) £4,390.1m £4,438.6m
Operating profit £241.6m £45.5m
Basic earnings/(loss) per share 32.9p (6.9)p
Cash generated from operations £374.3m £348.9m
Underlying results (1) 31 March 2024 31 March 2023
Contract backlog £10.3bn £9.5bn
Underlying operating profit (3) £237.8m £177.9m
Underlying operating margin (4) 5.4% 4.0%
Underlying basic earnings per share 30.8p 17.7p
Type 31 loss £(90.0)m £(100.1)m
Underlying operating profit excluding Type 31 loss £327.8m £278.0m
Full year dividend per share 5.0p -
Underlying free cash flow £160.4m £75.3m
Net debt (5) £(435.4)m £(564.4)m
Net debt excluding leases £(210.9)m £(346.2)m
Net debt/EBITDA (covenant basis) 0.8x 1.5x
David Lockwood, Chief Executive Officer, said:
"We have made good strategic progress, delivering another year of strong
growth with cash flow ahead of expectations. Babcock is well positioned to
benefit from the sustained uplift in global defence budgets, driven by the
need to recapitalise, re-equip and modernise militaries, resulting in an
increase in our opportunity set.
We combine strong engineering know-how, high customer intimacy and extensive
operational asset knowledge together with highly collaborative relationships
and product development capability. This differentiated proposition is
increasingly attractive to our customers. We look to the future with
confidence as we continue to progress towards our medium-term targets."
Financial highlights
- Contract backlog £10.3 billion, up 9%, driven by Nuclear and Marine
- Revenue of £4,390.1 million grew 11% on an organic basis, driven by
strong growth in Nuclear and Land
- Statutory operating profit increased to £241.6 million driven by
improved performance across the Group, a one-off £17 million profit on
property disposal and non-repeat of a £118 million loss on disposals in FY23.
Within operating profit is the £90 million loss on the Type 31 contract as
set out in our trading update on 17 July 2024
- Underlying operating profit increased 34% to £237.8 million, which
includes the loss on Type 31 and profit on property disposal. Strong
performance in Nuclear, Land and Aviation
- Underlying operating margin improved 140 basis points to 5.4%, which
includes (2.0)% from the Type 31 loss and 0.4% from the profit on property
disposal
- Underlying free cash flow of £160 million was significantly better
than expected, with operational performance and early customer receipts
affording an accelerated £35 million pension deficit repair contribution.
Underlying operating cash conversion was 136% (FY23: 173%); excluding Type 31
this was 98% (FY23: 110%)
- Net debt to EBITDA reduced to 0.8x on a covenant basis. Net debt
reduced by £129.0 million to £435.4 million
- Dividend reinstated: recommended final dividend of 3.3 pence per
share, taking the total dividend for FY24 to 5.0 pence per share (FY23: nil)
Outlook
- Our expectations for FY25 remain unchanged
- With c.70% of FY25 expected revenue under contract at 1 April 2024,
we enter the year strongly positioned with good momentum and are confident of
making further progress against our medium-term guidance: to deliver
mid-single digit average annual revenue growth and achieve underlying
operating margins of at least 8% and underlying operating cash conversion of
at least 80%
Strategic highlights
- Cooperation agreement with Saab to develop an advanced naval
corvette for Sweden with initial design contract award
- Strategic agreement with HII to collaborate on nuclear-powered
submarine capabilities to support the AUKUS endeavour
- Babcock General Logistics Vehicle (GLV) launched to target emerging
UK and international opportunities
- Type 31 programme restructured following detailed operational review
- Babcock Skills Academy launched in Devonport to develop submarine
support capabilities in our growing workforce
- Gained validation of our net-zero targets from the Science based
Targets initiative (SBTi)
- Long-term funding agreements reached with two of our three large
pension schemes
Operational highlights
Marine
- Type 31: HMS Venturer (ship 1) superstructure almost complete, HMS
Active (ship 2) keel laid and HMS Formidable (ship 3) steel cut due in FY25.
Programme restructured following a detailed operational review
- Three Arrowhead 140 licences delivered for the MIECZNIK Class
frigate for the Polish Navy
- Awarded contract by Saab to support design of the Swedish Navy's
Luleå Class Next Generation Surface Combatant
- Achieved Operation Service Commencement of the Skynet Service
Delivery Wrap space communications contract
- Contract awarded by Government of Ukraine to support two Mine
Countermeasure Vessels (MCMVs) purchased from the UK
Nuclear
- Commenced deep maintenance on the second of the UK's Vanguard Class
nuclear submarines, HMS Victorious, under a c.£560 million full cost
recovery contract
- Awarded contracts to develop the support solution for the UK's
Dreadnought and SSN-AUKUS submarine programmes
- X-energy and Cavendish Nuclear selected for UK Government's Future
Nuclear Enabling Fund (FNEF)
- Nuclear submarine Major Infrastructure Programme (MIP) revenue
increased to £459 million (FY23: £267 million).
- Awarded c.£750 million infrastructure contract in preparation for
Astute Class deep maintenance programme (DMP)
Land
- DSG contract extension under negotiation following notification by
UK MOD of its intention to exercise up to five option years
- Awarded second Land contract to deliver ground and equipment support
to the French Navy, Army and Air Force
- Signed a collaboration agreement with Singapore Technology
Engineering for manufacture of UK mortar systems
- Contract expansion to support UK-gifted platforms to Ukraine
- Won the seven-year ARMCEN support contract for armoured vehicle
technical training for the British Army
Aviation
- Completed delivery of the six H160 helicopters to the French Navy as
part of a 10-year contract with the French MOD
- Delivered the first Elementary Flying Training (EFT) phase of the
Ukrainian Pilot Force programme to fly F-16 jets
- Delivered unprecedented volume of firefighting operations in Canada
with >1,500 flight hours and >99% aircraft availability
- Exploring opportunities with Zero Petroleum for synthetic fuel to
minimise the environmental impact of military aircraft
- In May 2024, awarded 12-year contract with Airbus to support 48
French Civil Security and police EC145 helicopters
See page 18 for segmental analysis
Notes to statutory and underlying results on page 1
( )
1. Alternative Performance Measures (APMs):
The Group provides APMs, including underlying operating profit, underlying
margin, underlying earnings per share, underlying operating cash flow,
underlying free cash flow, net debt, net debt excluding leases and contract
backlog to enable users to have a more consistent view of the performance and
earnings trends of the Group. These measures are considered to provide a
consistent measure of business performance from year to year. They are used by
management to assess operating performance and as a basis for forecasting and
decision-making, as well as the planning and allocation of capital resources.
They are also understood to be used by investors in analysing business
performance.
The Group's APMs are not defined by IFRS and are therefore considered to be
non-GAAP measures. The measures may not be comparable to similar measures used
by other companies, and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group's APMs are consistent with
the year ended 31 March 2023. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 31.
2. Revenue:
- FY24 included a revenue reversal of £66.3 million from the Type
31 loss. Excluding this, FY24 revenue was £4,456.4 million
- FY23 included £421.6 million from disposals, a revenue reversal
of £42.6 million from the Type 31 loss and a £11.6 million one-off credit
(revenue and profit). Excluding these, FY23 revenue was £4,048.0 million
- See table on page 19
3. Underlying operating profit:
- FY24 underlying operating profit included a £90.0 million Type 31
loss and a profit on property disposal of £17.0 million. Excluding these,
FY24 underlying operating profit was £310.8 million
- FY23 underlying operating profit included the £100.1 million Type
31 loss, a one-off accounting credit (£11.6 million as above), and £1.1
million operating profit contribution from businesses divested in the year.
Excluding these, FY23 underlying operating profit was £265.3 million
- See table on page 19
4. Underlying operating margin:
- Excluding the Type 31 loss and profit on property disposal, FY24
underlying operating margin was 7.0%
- Excluding disposals, the Type 31 loss and the one-off credit, FY23
underlying operating margin was 6.6%
- See table on page 19
5. Net debt:
- See a reconciliation of net debt on page 14 and in our financial
glossary on page 34
See page 18 for segmental analysis and page 31 for financial glossary.
Results presentation:
A webcast presentation for investors and analysts will be held on 26 July 2024
at 09:00 am (BST). The presentation will be webcast live and 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 Head of Financial Communications +44 (0)20 7355 5312
Harry Cameron/Olivia Peters, Teneo +44 (0)20 7353 4200
CEO REVIEW
Introduction
FY24 was another year of improving delivery and increasing momentum for
Babcock, with growth in underlying profit and cash flow performance ahead of
our expectations. Revenue grew organically(1) by 11% to £4.4 billion and
underlying operating profit(1) improved 34% to £238 million, which generated
underlying operating cash flow(1) of £323 million, an underlying operating
cash conversion(1) of 136%. On a statutory basis, we delivered operating
profit of £242 million and cash generated from operations of £374 million.
We ended the year strongly positioned for future success, and remain confident
of delivering sustainable growth and improving margins in the medium term and
beyond.
Our contract backlog(1) increased by 9% to £10.3 billion, reflecting demand
for our specialist capabilities in our core defence and security markets and
demonstrating our potential for continued growth. In addition, we made good
strategic progress, entering into a number of important partnerships and
cooperation agreements, including with Saab in Sweden and Huntington Ingalls
Industries (HII) in the US, where we will leverage our complementary technical
capabilities to address opportunities emerging in both existing and new
markets.
Our balance sheet continues to strengthen. Since we began our transformation
during FY21, net debt(1) is down £1.2 billion to £435 million at the end of
FY24, and our aggregate pension deficit has reduced by more than £500 million
to c.£200 million on a technical provision basis.
Reflecting this strengthened financial base and improved outlook, in December
2023, S&P Global upgraded our credit rating for the second time in 15
months to BBB+ (stable). In November 2023, following a four-year hiatus, the
Board reinstated the dividend, and has recommended a final dividend of 3.3
pence per share, taking the total dividend for FY24 to 5.0 pence per share
(FY23: nil), in line with our capital allocation priorities set out in FY23 to
deliver shareholder value.
Our global people strategy continues to place our c.26,000 workforce at the
heart of our business, fostering inclusion and diversity and providing the
critical skills training, development, recruitment and retention that will
enable us to deliver our growth aspirations.
Strong underlying FY24 results
Revenue of £4,390 million was in line with FY23, with strong organic revenue
growth(1) of 11%. The growth was delivered across Nuclear (+29%) and Land
(+17%), which offset an expected revenue decline in Aviation (-17%).
The 34% increase in underlying operating profit(1) to £238 million (FY23:
£178 million) reflects strong performance across the Group, in particular
Nuclear, Aviation and Land, and a £17 million one-off profit on a property
disposal. Also within underlying operating profit is a £90 million loss on
the Type 31 contract (FY23: £100 million loss), as set out in our trading
update 17 July 2024. As a result, underlying operating margin improved 140
basis points to 5.4%.
Excluding the Type 31 impact and material one-off credits, underlying
operating profit(1) increased 17% to £311 million, generating a margin of
7.0% (as described on page 3). The FY23 baseline underlying operating profit
and underlying operating margin for our medium-term guidance was £265 million
and 6.6% respectively (see page 19).
Margin expansion remains a key focus. At a sector level, Nuclear delivered a
180 basis points improvement in underlying operating margin(1) to 7.2%. Land
also performed well, delivering an underlying operating margin of 8.8%
including the one-off profit on property disposal. Aviation profitability
improved significantly, with a 360 basis points improvement to 5.6% driven by
pricing, contract timing and prior year disposals. Marine underlying operating
margin of 0.9% was impacted by the Type 31 loss, which more than offset the
positive impact of licence income on the Polish frigate programme.
Due to our strong underlying operating cash performance, we made additional
pension deficit repair payments of £35 million as part of a long-term funding
agreement in one of our three major pension schemes. As a result, this scheme
has reached self-sufficiency and is not expected to require further deficit
repair contributions and we are in the process of closure to future accruals.
We also reached an agreement with the Trustees on another of our major pension
schemes regarding a long-term funding plan and closure of the scheme to future
accrual, providing clarity to both the scheme and the Company. As a result of
these actions, we now expect the total Group pension deficit repair payments
to reduce to around £40 million per annum (previously £65 million per
annum).
Our aggregate pension deficit position on a technical provision basis reduced
to c.£200 million (FY23: c.£400 million). We also reduced our net debt
excluding leases(1) to £211 million. As a result of this and improved
profitability, net debt to EBITDA (covenant basis) reduced to 0.8x (FY23:
1.5x).
Babcock is strongly positioned with a wide opportunity set. As a result, we
are confident that we can deliver sustainable growth and improved margins and
cash flow over the medium term and beyond.
Type 31 programme
Signed in 2019, the Type 31 contract for five ships is the last material
legacy onerous contract the Group is managing. We have continued to make good
operational progress on the programme through the year, with the
superstructure of the first ship almost complete and work is also progressing
on the second ship. During the year we settled the Dispute Resolution Process
with the customer, which has enabled the restructuring of the programme to
drive efficiency.
However, overall estimated programme costs have increased due to the maturing
of the design and an increase in the forecast cost of labour in Rosyth, which
is expected to be higher than CPI, the indexation within the Type 31 contract.
These cost increases have caused the total contract outturn to deteriorate by
£90 million over the life of the programme.
During the year, we initiated an operational improvement programme to
challenge all aspects of the contract, facilitated by the fact that the design
is now more mature. Although this has increased the volume of work, the design
maturity has allowed us to target improvements in productivity and ongoing
support costs as well as benefitting prospective export sales of our Arrowhead
140 design. As a result, we expect to deliver additional programme benefits
over the course of the programme from improvements in productivity and further
work relating to the continuation of the Type 31 contract. We considered the
available evidence in respect of these benefits against the evidential bar
required to recognise them and decided not to take them fully into account in
the loss, although we do expect the benefits to be delivered over the course
of the programme.
Strongly positioned
With 74% of Group revenue and 78% total contract backlog(1) in the Defence
sector, our portfolio is increasingly focused and well-placed to address
rising global security requirements. Rising geopolitical tensions are driving
the recent growth in defence budgets. However, the growth in defence budgets
is still not matched by the growth in military demand, making Babcock's
ability to affordably add increased value, essential. Additionally, the
threats that governments face are here today, while typically new product
development programmes take years to deliver. Increasing availability and
capability with existing assets have become ever more important.
Our deep understanding of our customers' needs, their assets and the
regulatory environment in which they operate is embedded in our workforce,
creating high barriers to entry. As a through-life capability partner, we are
able to not only support assets but deliver capability and system upgrades and
apply our own product development capabilities to deliver a full lifecycle
engineering offering.
Sustainable growth
Current market dynamics, in particular the growth in defence budgets driven by
the need to recapitalise, re-equip and modernise militaries, have resulted in
an increase in our opportunity set. This translated to a 9% increase in our
contract backlog in FY24 to £10.3 billion. This was driven by further major
contract awards and renewals, for example in Nuclear, both major
infrastructure and programme contracts related to the UK's nuclear submarine
enterprise, and in Marine, extension of the Canadian submarine support
contract. Our contract backlog gives us significant visibility and a deep
understanding of customer requirements.
We have a clear strategy to deliver sustainable growth across the Group by
leveraging our technical capability, developing our people and building
strategic partnerships.
UK growth
In UK defence, our largest market, accounting for around 60% of Group revenue,
we continue to optimise our position as the second largest supplier to the UK
MOD, strengthening our relationships and targeting selective new programmes.
Optimise our position
The major recapitalisation of our Devonport facility, which plays a critical
role in delivering the UK's nuclear submarine support capability, continues at
pace, in preparation for the next 50+ years of nuclear submarine support. In
November 2023, we were awarded a c.£750 million infrastructure contract to
upgrade a key dry dock in readiness for the deep maintenance programme for the
Royal Navy's Astute Class submarines, scheduled to commence in the coming
years. This, together with more Astute Class submarines entering the fleet and
further infrastructure programme contract awards, including ongoing
refurbishment of the dry dock for deep maintenance of Vanguard Class nuclear
deterrent submarines and the future Dreadnought Class deterrent submarine,
will underpin revenue growth in our defence nuclear activities over the medium
and long-term. Discussions are also ongoing to establish a formal long-term
partnership to help improve submarine availability against a backdrop of
increasing operational requirements.
We continue to develop our position as a leading provider in secure
communications to the military, having successfully begun the management and
operation of Skynet, the UK MOD's military communication system following a
12-month mobilisation process. This vital work is being delivered with our
partners SES, Intelsat and GovSat, global leaders in the commercial and
military satellite industry. We believe that the successful implementation of
this operationally critical service will create opportunities for further
growth.
Selective new programmes
We are also selectively targeting new programmes in the UK, many of which will
also position Babcock for emerging international opportunities.
We continue to develop our Land portfolio of product-based offerings which
reflect our deep understanding of customer requirements. Babcock's General
Logistics Vehicle (GLV), built around the proven Toyota Land Cruiser 70 series
platform, was launched in September 2023 with an initial focus on the upcoming
UK MOD tender to replace the current British Army Land Rover fleet. The GLV
meets the requirements of military and security forces across the world and we
are pursuing a number of export opportunities. In June 2024 we launched a
medium wheelbase variant and a six-wheel drive variant will follow in FY25. We
have also signed a collaboration agreement with Singapore Technology
Engineering for the manufacture of its 120mm mortar system in the UK and we
are tracking a number of opportunities to supply and integrate this
capability.
In Devonport, we commenced initial production of the Jackal 3 High Mobility
Transporter vehicle at our newly created facility within the Plymouth
Freeport. The contract, to deliver 70 vehicles for the British Army, is one of
the first to deliver on the UK's Land Industrial Strategy. Production is
ramping up and we see opportunity to provide further vehicles to the UK,
whilst also pursuing international opportunities in collaboration with
Supacat.
Our bid to become the Strategic Training Partner for the Army Collective
Training Service (ACTS), together with our partners in Team Crucible, has
progressed to the Invitation to Tender stage. We are offering a digitally
enabled and data driven solution, building out the technological and
commercial infrastructure needed to support an ever-evolving collective
training system that can adapt as fast as the operating environment evolves.
In naval nuclear, AUKUS represents a significant opportunity, both in the UK
and internationally. In October 2023 we signed a five-year contract with the
UK MOD to provide input in the detailed design for the new Ship Submersible
Nuclear AUKUS (SSN-A) submarine, which will replace the Astute Class and is
planned to be the design on which the Australian Navy builds its future fleet.
Ensuring that future support is properly considered at the design stage is
expected to result in increased availability throughout the life of the
submarine.
International growth
We see significant opportunity to grow international revenues through
expansion in our focus countries, increased direct exports and the
establishment of strategic industrial partnerships.
Expansion in focus countries:
In France we continue to support military fighter pilot training. As a result
of the success of that programme, the French Air Force has decided to
outsource further training support opportunities for the first time. We are
currently bidding for an initial training stage outsourcing opportunity,
MENTOR2, and are undergoing pre-qualification on the future transport pilot
training opportunity.
We are also looking at opportunities to expand our operations in mainland
Europe and are actively bidding an opportunity to support fighter pilot
training for the Belgian Air Force from Babcock France. The French and Belgian
Air Forces have a long history of working closely together, so our track
record in France represents a compelling reference case.
In Canada, we have signed a Technical Cooperation Agreement with Hanwha Ocean
and HD Hyundai Heavy Industries to collaborate on the Canadian Patrol
Submarine Project, which will research procurement options for its next
generation submarines.
Direct exports
We celebrated a number of major milestones in the MIECZNIK frigate programme
in Poland, including the keel-laying of the first ship in the programme.
Following the Strategic Cooperation Agreement signed in 2022, we were pleased
to finalise the design licence agreement which allows the PGZ-MIECZNIK
consortium to build three frigates for the Polish Navy. We also entered into a
framework agreement that will further strengthen our partnership.
We continue to support Ukraine. In July 2023, we were awarded a contract by
the UK MOD to support urgent operational requirements for Ukraine's military
assets. The contract sees Babcock provide operational support to armoured
vehicles provided by the UK to the Ukrainian military, such as Challenger 2
tanks and the Combat Vehicle Reconnaissance (Tracked) - known as CVRT, train
Ukrainian personnel and manage vital equipment, supply chains and spares. In
May 2024, we announced work was underway on an in-country facility to deliver
engineering support, including the repair and overhaul of military vehicles.
In partnership with UDI, Ukraine's state-owned defence industry, Babcock will
ensure that critical military assets are available when and where they are
needed most, enhancing the country's defence capability.
Strategic partnerships
Our ability to form partnerships with leading industry players is a key part
of our growth strategy. Working with a strong local partner represents the
highest-value, lowest-risk and fastest route to effective market entry.
We formed a number of significant strategic partnerships in FY24. In July
2023, we entered into a global strategic agreement with HII, America's largest
shipbuilder, to collaborate on naval and civil nuclear decommissioning and
construction opportunities in the UK and US, as well as for AUKUS. The
companies agreed to apply their complementary capabilities, including in build
and support, to existing nuclear decommissioning contracts for US ships and UK
submarines, and to look at opportunities to work together to upskill and
enhance both organisations' capability for the benefit of the UK, US and
future Australian programmes. The memorandum of understanding (MoU) also
identified opportunities for cooperation in civil nuclear, including power
plant and component design, fabrication and construction in North America and
the UK. The launch of the H&B Defence Joint Venture in Australia in June
2024 is the first tangible outcome from that collaboration and offers
Australia a one-stop-shop for support of their emerging nuclear submarine
operational and support requirements.
In addition, Babcock, HII and Bechtel signed an MoU to collaborate in
Australia to support the AUKUS nuclear submarine enterprise. Our complementary
capabilities represent an opportunity to play a key role in development of the
specialist infrastructure needed for the planned fleet of up to eight Virginia
Class and SSN-AUKUS nuclear-powered submarines.
In September 2023, we signed a Strategic Cooperation Agreement with Saab to
enable the delivery of enhanced capabilities to customers by leveraging our
collective strengths to offer a broad range of products, services and
integrated solutions. Subsequently, in May 2024 Babcock was selected by Saab
to support the development of the Swedish Navy's new Luleå-class Surface
Combatant. Babcock will initially provide engineering support, including
structural design and auxiliary systems, supporting Saab to complete the basic
design phase. The two companies will also work together to identify potential
export markets for the Luleå design.
In November, we signed an MoU with South Korea's Hanwha Aerospace to offer
enhanced capabilities across land, air and sea domains. Under the agreement we
will work together to pursue global opportunities, with an initial focus on
conventional submarines.
Improving margins and cash flow
We are making good progress towards delivering our medium-term guidance set
out in FY23 of average annual revenue growth in the mid-single digits, an
underlying operating margin(1) of at least 8% and underlying operating cash
conversion(1) of at least 80%. We will achieve this through further progress
in execution and delivery, improved systems and overhead rationalisation,
supported by the improvements we have made to internal governance. Our
systematic approach to programme risk management through the coordination of
our technical capability, commercial processes and contract governance is
driving contract discipline and an improving mix of higher-margin new
business.
Our focus on improving programme execution and efficiency is evidenced in the
10-year DSG contract to support the British Army land vehicles fleet.
Following a major overhaul of operations in recent years, delivery has
significantly improved, resulting in a de-risking of the final two years of
delivery of the base contract which will complete in FY25. As a result,
profitability improved sufficiently in FY24 to elevate the contract out of the
category of legacy low to zero margin programmes. Following notification by
our UK MOD customer of its intention to exercise up to five option years for
DSG from FY26, we have commenced a period of negotiation and transition as we
move towards contract signature. The revised model will result in better
outcomes for all stakeholders throughout the rest of the decade.
In FY24, we returned HMS Vanguard to the Royal Navy after the most complex
nuclear submarine deep maintenance programme (DMP) and life-extension (LIFEX)
ever undertaken in the UK, representing a significant de-risking of our
nuclear business. DMP and LIFEX of the second of the class, HMS Victorious, is
underway following an agreed full cost recovery contract in March 2024 worth
an estimated £560 million, with the Submarine Delivery Agency (SDA). The new
commercial framework for the delivery of this programme represents a truly
collaborative effort with the SDA to support an essential part of the UK's
defences.
Our focus on operational cash efficiency has delivered overperformance in cash
generation over the last two years, with average underlying operating cash
conversion of over 100%, despite ongoing investment catch up in systems and
assets. There remains some risk of reversal of the contract timing factors
such as early customer receipts that drove strong cash outperformance in FY24
and FY23, leading to an expected second half cash flow weighting in FY25.
Trading in the first quarter of FY25
Trading in the first quarter ended 30 June 2024 was in line with expectations.
Outlook
Our expectations for FY25 remain unchanged. With c.70% of FY25 expected
revenue under contract at 1 April 2024, we enter the year strongly positioned
with good momentum and are confident of making further progress against our
medium-term guidance: to deliver mid-single digit average annual revenue
growth and achieve underlying operating margins of at least 8% and underlying
operating cash conversion of at least 80%.
David Lockwood OBE
Chief Executive
OTHER INFORMATION
Dividend
A dividend of 3.3 pence per ordinary share (FY23: nil) is payable on Monday 30
September 2024 to shareholders whose names appear on the register at the close
of business on Friday 23 August 2024. Shareholders may participate in the
dividend re-investment plan and elections must be made by Monday 9 September
2024. Details of the dividend re-investment plan can be found, and
shareholders can make elections, at www.babcock-shares.com
(http://www.babcock-shares.com) .
Change of Auditor
Following completion of a tender process, the Audit Committee has recommended
to the Board that, subject to shareholder approval at the 2024 AGM on 19
September, Forvis Mazars should be appointed as the Company's auditor for
FY25.
Board changes
As we look to shape and deliver our growth strategy, we were delighted to
welcome Sir Kevin Smith and Claudia Natanson to the Board this year. Sir Kevin
is an experienced industrialist who spent his career in the defence sector,
culminating in being the CEO of GKN for eight years. Claudia brings over 20
years of experience working in the security, IT and cyber sector for companies
such as Diageo, Smiths Group and AccuWeather.
Notes to CEO Statement
1. A defined Alternative Performance Measure (APM) as set out on page
3 and in the Financial Glossary on page 31.
FINANCIAL REVIEW
The Group provides APMs, including underlying operating profit, underlying
margin, underlying earnings per share, underlying operating cash flow,
underlying free cash flow, net debt and net debt excluding leases to enable
users to have a more consistent view of the performance and earnings trends of
the Group. These measures are considered to provide a consistent measure of
business performance from year to year. They are used by management to assess
operating performance and as a basis for forecasting and decision-making, as
well as the planning and allocation of capital resources. They are also
understood to be used by investors in analysing business performance.
The Group's APMs are not defined by IFRS and are therefore considered to be
non-GAAP measures. The measures may not be comparable to similar measures used
by other companies, and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group's APMs are consistent with
the year ended 31 March 2023. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 31.
The reconciliation from the IFRS statutory income statement to the underlying
income statement is shown below.
Income statement
31 March 2024 31 March 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m £m £m
£m
Revenue 4,390.1 - 4,390.1 4,438.6 - 4,438.6
Operating profit 237.8 3.8 241.6 177.9 (132.4) 45.5
Operating margin 5.4% 5.5% 4.0% 1.0%
Share of results of joint ventures and associates 9.2 - 9.2 9.3 - 9.3
Net finance costs (35.9) 1.8 (34.1) (58.3) 9.7 (48.6)
Profit before tax 211.1 5.6 216.7 128.9 (122.7) 6.2
Income tax (expense)/benefit (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)
Profit/(loss) after tax 157.6 10.6 168.2 91.2 (124.5) (33.3)
Non-controlling interest (2.5) - (2.5) (1.7) - (1.7)
Profit/(loss) attributable to the owners of the parent 155.1 10.6 165.7 89.5 (124.5) (35.0)
Basic EPS 30.8p 32.9p 17.7p (6.9)p
Diluted EPS 30.1p 32.2p 17.4p (6.9)p
A full statutory income statement can be found on page 40.
As described on page 3, statutory operating profit includes specific adjusting
items (SAIs) that are not included in underlying operating profit, which is a
key APM for the Group. A reconciliation of statutory operating profit to
underlying operating profit is shown in the table below and in note 2 of the
preliminary financial statements.
Revenue of £4,390.1 million was similar to FY23 with 11% organic growth
offset by a (9)% impact of disposals and a (2)% currency translation headwind.
The European AES and Civil Training businesses, both sold in February 2023,
contributed
£421.6 million to FY23 revenue. The organic increase was driven by strong
growth in Nuclear and Land, while Marine was in line with the prior year and
Aviation decreased as expected, due to the phasing of French military
contracts. By sector:
- Marine revenue of £1,429.1 million, was similar to the prior
year, with growth led by major ship and submarine programmes including the
Polish MIECZNIK frigate programme and Dreadnought, offset by lower volumes in
LGE and ship support.
- Nuclear revenue increased 29% to £1,520.9 million. Growth was
driven by Major Infrastructure Programme (MIP) revenue, submarine support and
new defence contracts in our civil nuclear business.
- Land revenue increased 8% to £1,098.6 million, or 17% on an
organic basis. Growth was from a broad range of military activities in both UK
and international markets, including the first full year of the Defence High
Frequency Communications contract in Australia and higher vehicle volumes in
defence vehicle engineering as well as in our South Africa business.
- Aviation revenue declined 57% to £341.5 million primarily due
to the disposal of the European AES business in FY23. Organic revenue declined
by 17% due to the expected change in revenue profile of our French defence
contracts between aircraft delivery and service phases.
Underlying operating profit increased by 34% to £237.8 million driven by
improved performance across the Group and a one-off £17.0 million profit on
property disposal, partly offset by a 4% currency translation impact. Also
within underlying operating profit is a £90.0 million loss on the Type 31
contract (FY23: £100.1 million loss). By sector:
- Marine underlying operating profit was in line with FY23, with
improvement driven by three licence sales on the Polish Arrowhead 140
programme and a £10.1 million lower loss on Type 31, offset by lower volume
in LGE and lower profitability in Mission Systems, primarily due to contract
timing. Excluding the impact of the Type 31 loss, Marine underlying operating
profit declined (9%) to £103.1 million.
- Nuclear underlying operating profit grew to £109.2 million, a
72% organic increase, driven by revenue growth and non-repeat of a £16
million contract loss in FY23 (this contract has now finished).
- Land underlying operating profit grew to £96.3 million, a 12%
increase including a one off £17 million profit on property disposal. FY23
underlying operating profit of £85.9 million included a one-off accounting
credit of £11.6 million.
- Aviation underlying operating profit grew to £19.2 million, a
22% increase reflecting improved pricing, contract timing and lower bid costs.
See segmental analysis tables on page 18.
Type 31 programme
The Type 31 programme represents around 5% of the Group's revenue. Over the
year, overall costs have increased due to the maturing of the design and the
increase in the cost of labour in the market available in Rosyth, which is
forecast to be higher than CPI, the indexation within the Type 31 contract.
As a result, the outturn over the lifetime of the contract has deteriorated by
£90 million, which has been fully recognised in FY24. The cash impact of this
loss is expected to be realised over the remainder of the contract.
During the year, we initiated an operational improvement programme to
challenge all aspects of the contract, including a significant focus on cost
drivers and financial modelling, supported by external consultants. The Audit
Committee has reviewed the programme team's plans to deliver additional
programme benefits from improvements in productivity and further work relating
to the continuation of the Type 31 contract. We considered the available
evidence in respect of these benefits against the evidential bar required to
recognise them, and decided not to take them fully into account in the loss,
although we do expect the benefits to be delivered over the course of the
programme.
Statutory operating profit of £241.6 million increased from £45.5 million in
FY23, driven by improved performance across the Group, a one-off £17.0
million profit on disposal and non-repeat of a £117.7 million loss on
disposals in FY23, mainly associated with the divestment of the European AES
business in February 2023.
Reconciliation of statutory to underlying operating profit
31 March 2024 31 March 2023
£m
£m
Operating profit 241.6 45.5
Amortisation of acquired intangibles 10.8 15.8
Business acquisition, merger and divestment related items (8.2) 117.7
Fair value movement on derivatives (6.4) (1.1)
Specific adjusting items impacting operating profit (3.8) 132.4
Underlying operating profit 237.8 177.9
Underlying operating margin of 5.4% (FY23: 4.0%), which includes (2.0)% from
the Type 31 loss and 0.4% from the profit on property disposal. The increase
in the year was driven by improved operating performance and a lower Type 31
charge. Excluding the impact of the Type 31 loss and the profit on property
disposal, the underlying operating margin was 7.0% (FY23: 6.6%) (see page 19).
Statutory operating margin of 5.5% reflects the same drivers as underlying
operating margin. The FY23 statutory operating margin of 1.0% was also
impacted by a £117.7 million loss on disposals, mainly associated with the
divestment of the European AES business in February 2023.
Further analysis of financial performance is included in each sector's
operational reviews on page 20 to 30.
Share of joint ventures and associates: The Group's share of results of joint
ventures and associates of £9.2 million was similar to FY23, reflecting
improved trading in the core Ascent Training (Holdings) Limited and AirTanker
Services Limited joint ventures, offset by a £1.1 million write down in Oman.
Underlying net finance costs decreased to £35.9 million (FY23: £58.3
million). Reduced interest costs were driven by a combination of lower debt
balances, reduced finance costs following termination of the £300 million RCF
in October 2023 and higher interest rates applied to surplus cash balances. In
addition, underlying lease interest decreased to £9.8 million (FY23: £16.1
million) following the sale of our European AES business in the prior year and
net finance costs associated with defence contract receivables in France
reduced to £4.4 million (FY23: £12 million). IAS19 retirement benefit
interest represents a charge of £0.8 million (FY23: credit of £7.5 million).
Statutory net finance costs decreased to £34.1 million (FY23: £48.6
million). In addition to the £22.4 million improvement in underlying net
finance costs, there was a £7.9 million reduction in the credit related to
the fair value movement on derivative and related items to £1.8 million
(FY23: £9.7 million).
Underlying income tax expense: Group underlying income tax expense increased
to £53.5 million (FY23: £37.7 million) reflecting higher underlying pre-tax
profit and a higher UK corporation tax rate in the year. This represents an
effective underlying tax rate of 27% (FY23: 32%), or 26% excluding the impact
of the Type 31 loss (FY23: 26%), calculated on underlying profit before tax
excluding the share of income from joint ventures and associates (which is a
post-tax number). The Group's effective underlying tax rate is expected to
remain broadly stable over the medium term depending on country profit mix.
Statutory income tax expense: The Group income tax expense was £48.5 million
(FY23: £39.5 million), lower than the underlying income tax expense due to
the tax impact of the specific adjusting items outlined above and in note 2 of
the preliminary financial statements.
Underlying basic earnings per share of 30.8 pence (FY23: 17.7 pence)
represents an increase of 74%, driven by higher underlying operating profit
for the year. The impact on earnings per share of the £17.0 million profit on
disposal and the Type 31 loss was 3.3 pence and (13.4) pence respectively.
Basic earnings per share, on a statutory basis, increased to 32.9 pence (FY23:
6.9 pence loss) reflecting improved profit for the year. The FY23 loss per
share was due to lower underlying profit for the year, including the £100.1
million loss on the Type 31 contract, and a loss after tax of £124.5 million
from specific adjusting items, mainly associated with the loss on disposal of
the European AES business.
Dividend: A final dividend of 3.3 pence per ordinary share (FY23: nil) is
payable on Monday 30 September 2024 to shareholders whose names appear on the
register at the close of business on Friday 23 August 2024. Shareholders may
participate in the dividend re-investment plan and elections must be made by
Monday 9 September 2024. Details of the dividend re-investment plan can be
found, and shareholders can make elections, at www.babcock-shares.com
(http://www.babcock-shares.com) .
Reconciliation of statutory profit/(loss) and basic EPS to underlying profit
and basic EPS
31 March 2024 31 March 2023
£m Basic EPS £m Basic EPS
Profit/(loss) after tax for the year 168.2 32.9p (33.3) (6.9)p
Specific adjusting items, net of tax (10.6) (2.1)p 124.5 24.6p
Underlying profit after tax for the year 157.6 30.8p 91.2 17.7p
Exchange rates
The translation impact of foreign currency movements resulted in a decrease in
revenue of £76 million and a decrease in underlying operating profit of £8
million. The main currencies that have impacted our results are the Canadian
Dollar, South African Rand, Euro and Australian Dollar. The currencies with
the greatest potential to impact results are the South African Rand and the
Australian and Canadian Dollar:
· A 10% movement in the South African Rand against Sterling would
affect revenue by around £33 million and underlying operating profit by
around £3 million per annum
· A 10% movement in the Australian Dollar against Sterling would
affect revenue by around £30 million and underlying operating profit by
around £2 million per annum
· A 10% movement in the Canadian Dollar against Sterling would
affect revenue by around £16 million and underlying operating profit by
around £1 million per annum
Cash flow and net debt
Underlying cash flow and net debt
Underlying cash flows are used by the Group to measure operating performance
as they provide a more consistent measure of business performance from year to
year.
31 March 2024 31 March 2023
£m £m
Statutory operating profit 241.6 45.5
Add back: specific adjusting items (see table on page 10) (3.8) 132.4
Underlying operating profit 237.8 177.9
Right of use asset depreciation 39.8 91.3
Other depreciation & amortisation 67.3 84.9
Non-cash items (8.7) 6.9
Working capital movements 127.5 103.5
Provisions 20.4 37.2
Net capital expenditure (111.8) (86.2)
Lease principal payments (49.6) (108.5)
Underlying operating cash flow 322.7 307.0
Underlying operating cash conversion (%) 136% 173%
Pension contributions in excess of income statement (107.6) (141.9)
Interest paid (net) (32.2) (62.2)
Tax paid (27.4) (25.4)
Dividends from joint ventures and associates 7.1 8.7
Cash flows related to specific adjusting items (2.2) (10.9)
Underlying free cash flow 160.4 75.3
Net acquisitions and disposals of subsidiaries (1.3) 158.6
Dividends paid (including non-controlling interests) (10.3) (2.2)
Purchase of own shares (12.5) -
Lease principal payments 49.6 108.5
Net new lease arrangements (54.8) (115.1)
Leases disposed of/(acquired) with subsidiaries - 218.1
Other non-cash debt movements (3.2) (1.8)
Clarification of net debt definition - (36.1)
Fair value movement in debt and related derivatives 0.5 56.0
Exchange movements 0.6 (57.0)
Movement in net debt 129.0 404.3
Opening net debt (564.4) (968.7)
Closing net debt (435.4) (564.4)
Add back: leases 224.5 218.2
Closing net debt excluding leases (210.9) (346.2)
A full statutory cash flow statement can be found on page 43 and a
reconciliation to net debt on page 66.
Underlying operating cash flow increased to £322.7 million (FY23: £307.0
million). The conversion ratio to underlying operating profit of 136% (FY23:
173%) reflects reduced working capital and the impact of the Type 31 long-term
contract accounting loss on underlying operating profit. Operating cash
conversion was higher in FY23 primarily reflecting lower net capital
expenditure and a higher Type 31 loss. Excluding the Type 31 impact on
operating profit, underlying operating cash conversion was 98% (FY23: 110%).
- Working capital: An inflow of £127.5 million, compared to an inflow
of £103.5 million last year, reflects our continued focus on cash flow as a
performance measure coupled with earlier than anticipated customer receipts,
as well as the impact of the Type 31 loss. There is some risk that favourable
timing factors on cash receipts could reverse in the short term depending on
the flow of new orders and contract phasing.
- Net capital expenditure of £111.8 million increased £25.6 million,
driven by a combination of continued investment across the Group to support
programme delivery and drive operational performance, and lower proceeds from
asset disposals.
- Gross capex increased to £142.4 million (FY23: £125.1 million)
driven by further investment in Devonport to support future growth and ongoing
upgrades to systems and controls across the Group, including the roll-out of
SAP. We expect FY25 gross capital expenditure to be in the range of
£120 million to £150 million.
- Proceeds from asset disposals reduced £8.3 million to £30.6
million despite a £20.1 million inflow on a property sale in Land in the
year, primarily due to lower aircraft sales in our Aviation business.
- Lease principal payments, representing the capital element of
payments on lease obligations, reduced to
£49.6 million (FY23: £108.5 million) following the sale of the European AES
business in FY23. This is reversed out below underlying free cash flow as the
payment reduces our lease liability (ie no effect on net debt).
Underlying free cash flow of £160.4 million compares to £75.3 million in the
prior year, reflecting higher underlying operating cash flow, lower pension
contributions and lower net interest payments.
- Pension: A cash outflow in excess of the income statement charge of
£107.6 million (FY23: £141.9 million) was higher than expected due to
acceleration of £35 million of contributions as part of a long-term funding
deal agreed with Babcock International Group Pension Fund (BIGPF). The higher
outflow in FY23, which also included a £35 million accelerated pension
payment, reflects the decreasing contribution profile as deficits reduce. As a
result of the agreed funding deals (see page 17), we expect future annual
pension deficit payments to reduce from around £65 million to around
£40 million.
- Interest: Net interest paid, excluding that paid by JVs and
associates, decreased to £32.2 million (FY23: £62.2 million) due to lower
net debt and higher interest earned on surplus cash, lower interest on leases
and a reduced finance charge associated with the financing of long-term French
defence contract receivables.
- Taxation: Tax paid in the year was £27.4 million (FY23: £25.4
million). We expect cash tax paid in FY25 to be approximately £35 million.
- Dividends received from joint ventures and associates decreased to
£7.1 million (FY23: £8.7 million). We expect dividends from JVs and
associates to be slightly higher in FY25.
- Cash flows related to specific adjusting items: The £2.2 million
cash flows relate mainly to the final costs of disposals provided for as a
specific adjusting item in the prior year.
Acquisitions and disposals
A £1.3 million outflow was due to final settlement of certain items in
relation to the disposal of businesses in the prior year. An inflow of £158.6
million in FY23 represents net proceeds from the disposal of the European AES
business and the sale of the civil training business, net of costs.
New lease arrangements
In addition to net capital expenditure, and not included in underlying free
cash flow, £55.2 million (FY23: £117.0 million) of additional lease
liabilities were entered into in the period, significantly lower than FY23
following the sale of the European AES business in February 2023. These
represent new lease obligations and so are included in net debt but do not
involve any cash outflows at inception.
Reconciliation of underlying operating cash flow to statutory net cash flows
from operating activities
31 March 2024 31 March 2023
£m
£m
Underlying operating cash flow 322.7 307.0
Add: net capital expenditure 111.8 86.2
Add: lease principal payments 49.6 108.5
Less: pension contributions in excess of income statement (107.6) (141.9)
Cash flows related to specific adjusting items (2.2) (10.9)
Cash generated from operations 374.3 348.9
Tax paid (27.4) (25.4)
Net interest paid (32.2) (62.2)
Net cash flows from operating activities 314.7 261.3
Statutory cash flow summary
31 March 2024 31 March 2023
£m
£m
Net cash flow from operating activities 314.7 261.3
Net cash flow from investing activities (100.6) 83.5
Net cash flow from financing activities (85.5) (666.1)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 128.6 (321.3)
Net cash flow from operating activities was £314.7 million, an increase of
£53.4 million. The main drivers were higher Group operating profit, lower net
interest and pension deficit payments.
Net cash flow from investing activities was an outflow of £100.6 million
(FY23: inflow of £83.5 million), reflecting continued capital investment
across the Group and lower proceeds from asset disposals. On a gross basis,
capital expenditure increased to £142.4 million (FY23: £125.1 million). The
FY23 inflow included £158.6 million of proceeds from disposals, primarily
from the sale of the European AES business.
Net cash flow from financing activities was an outflow of £85.5 million
(FY23: outflow of £666.1 million), including
£49.6 million lease payments (FY23: £108.5 million), £12.5 million purchase
of own shares (FY23: £nil) and £13.1 million repayment of debt (FY23:
£556.2 million net repayment, primarily repayment of the €550 million
Eurobond in October 2022).
Movement in net debt - reconciliation of statutory cash flows to net debt
31 March 2024 31 March 2023
£m
£m
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 128.6 (321.3)
Cash flow from the (increase)/decrease in debt 25.3 629.6
Change in net funds resulting from cash flows 153.9 308.3
Additional lease obligations (55.2) (117.0)
New lease receivables granted 32.4 28.5
Debt held by disposed subsidiaries - 219.7
Other non-cash movements and changes in fair value (2.7) 57.9
Clarification of net debt definition - (36.1)
Foreign currency translation differences 0.6 (57.0)
Movement in net debt in the year 129.0 404.3
Opening net debt (564.4) (968.7)
Closing net debt (435.4) (564.4)
Net debt
Net debt at 31 March 2024 was £435.4 million, a reduction of £129.0 million
driven primarily by underlying free cash flow, offset by payment of the
interim dividend reinstated in November 2023 and £12.5 million to purchase
own shares for Babcock share schemes. Net debt excluding leases was £210.9
million, representing a reduction of £135.3 million compared to the beginning
of the year.
Balance sheet
31 March 2024 £m 31 March 2023
£m
Intangible assets 928.9 922.2
Property, plant and equipment and right of use assets 692.7 637.6
Investment in joint ventures and associates 59.7 57.4
Working capital (691.4) (565.8)
Provisions (158.2) (148.7)
Net retirement benefit deficits (109.7) (61.4)
Net tax assets 119.9 97.1
Net other financial assets and liabilities (0.4) (3.1)
Leases (224.5) (218.2)
Net debt excluding leases (210.9) (346.2)
Net assets 406.1 370.9
Property, plant and equipment (PP&E) and right of use assets was £693
million, an increase of £55 million. PP&E increased by £39 million to
£517 million reflecting net capital expenditure of £(93) million less
depreciation and currency adjustments. Right of use assets increased £17
million to £176 million reflecting net new leases of £59 million less
depreciation and currency adjustments.
Working capital was £(691) million, a decrease of £126 million. Net contract
liabilities increased £131 million, driven by earlier than anticipated
customer receipts, as well as the impact of the Type 31 loss.
Net retirement benefit deficits were £(110) million, an increase of £48
million. The fair value of plan assets of £3,084 million decreased £104
million, driven by negative asset returns less contributions. The present
value of pension benefit obligations of £3,194 million decreased £55 million
driven by modest changes in actuarial financial and demographic assumptions.
Funding and liquidity
As of 31 March 2024, the Group had access to a total of £1.6 billion of
borrowings and facilities. These comprised:
· £775 million RCF, with £45 million maturing on 28 August 2025
and £730 million extended to 28 August 2026
· £300 million bond maturing on 5 October 2026
· €550 million bond, hedged at £493 million, maturing on 13
September 2027
· Two committed overdraft facilities totalling £100 million
At 31 March 2024, the Group's net cash (cash and cash equivalents less
overdrafts) balance was £553 million. This, combined with the undrawn amounts
under our committed RCFs and overdraft facilities, gave us liquidity headroom
of around £1.4 billion.
Net debt to EBITDA (covenant basis)
While there are several facets to balance sheet strength, a primary
measurement relevant to Babcock is the net debt/EBITDA gearing ratio within
our debt covenant of 3.5x. This measure is used in the covenant in our RCF
facility and includes several adjustments from reported net debt and EBITDA.
The net debt/EBITDA gearing ratio (covenant basis) at 31 March 2024 reduced to
0.8x (FY23: 1.5x) due to strong underlying free cash flow and higher
underlying operating profit.
31 March 2024 31 March 2023
£m
£m
Underlying operating profit 237.8 177.9
Depreciation and amortisation 67.3 84.9
Covenant adjustments(1) (6.3) (8.4)
EBITDA 298.8 254.4
JV and associate dividends 7.1 8.7
EBITDA + JV and associate dividends (covenant basis) 305.9 263.1
Net debt excluding lease liabilities (210.9) (346.2)
Covenant adjustments(2) (41.8) (49.3)
Net debt (covenant basis) (252.7) (395.5)
Net debt/EBITDA 0.8x 1.5x
(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 non-recourse debt.
Interest cover (covenant basis)
This measure is also used in the covenant in our RCF facility, with a covenant
level of 4.0x.
31 March 2024 31 March 2023
£m
£m
EBITDA + JV and associate dividends (covenant basis) 305.9 263.1
Net finance costs (34.1) (48.6)
Covenant adjustments(1) 9.6 7.1
Net finance costs (covenant basis) (24.5) (41.5)
Interest cover 12.5x 6.3x
(1)Various adjustments made to reflect accounting standards at the time of
inception of the original RCF agreement, including lease and retirement
benefit interest.
Return on invested capital, pre-tax (ROIC)
This measure is one of the Group's key performance indicators.
31 March 2024 31 March 2023
£m
£m
Underlying operating profit 237.8 177.9
Share of results of joint ventures and associates 9.2 9.3
Underlying operating profit plus results of JVs and associates 247.0 187.2
Net debt excluding leases 210.9 346.2
Leases - note 10, 15 224.5 218.2
Shareholder funds - see balance sheet on page 42 406.1 370.9
Retirement deficit/(surplus) - note 17 109.7 61.4
Invested capital 951.2 996.7
ROIC 26.0% 18.8%
Pensions
The Group has a number of defined benefit pension schemes. The principal
defined benefit pension schemes in the UK are the Devonport Royal Dockyard
Pension Scheme (DRDPS), the Babcock International Group Pension Scheme (BIGPS)
and the Rosyth Royal Dockyard Pension Scheme (RRDPS) - the principal schemes.
IAS 19
At 31 March 2024, the IAS 19 valuation for accounting purposes was a net
deficit of £109.7 million (FY23: a net deficit of £61.4 million). The
increase in net accounting deficit is a result of a greater reduction in the
fair value of plan assets (by £103.7 million to £3,084.3 million, net of
£250.8 million longevity swaps) than the reduction in present value of
pension benefit obligations (by £55.4 million to £3,194.0 million). The
reduction in fair value of plan assets was driven by negative net asset
returns, partly offset by scheme contributions. The reduction in pension
benefit obligations was mainly a result of modest changes in actuarial
financial and demographic assumptions. The fair value of the assets and
liabilities of the Group pension schemes at 31 March 2024 and the key
assumptions used in the IAS 19 valuation of our schemes are set out in note 17
of the preliminary financial statements.
31 March 2024 31 March 2023
£m
£m
Fair value of plan assets (note 17) 3,084.3 3,188.0
Present value of benefit obligations (note 17) (3,194.0) (3,249.4)
Net (deficit) at 31 March (109.7) (61.4)
Income statement charge
The charge included within underlying operating profit in FY24 was £23.9
million (FY23: £32.6 million), of which £15.4 million (FY23: £25.8 million)
related to service costs and £8.5 million (FY23: £6.8 million) related to
expenses. In addition to this, there was an interest charge of £0.8 million
(FY23: credit of £7.5 million).
Technical provision
An estimate of the aggregate actuarial deficits of the Group's defined benefit
pension schemes, including all longevity swap funding gaps, calculated using
each scheme's technical provision basis, as at FY24 was approximately £200
million (FY23: c.£400 million). Such valuations use discount rates based on
UK gilts - which differs from the corporate bond approach of IAS 19. This
technical provision estimate reflects the discussions and agreements on
assumptions with the Trustee of the Babcock Rail Section of the Railways
Pension Scheme with respect to the actuarial valuation as at 31 December 2022,
and for the other schemes uses assumptions within the latest agreed valuation
prior to 31 March 2024.
Actuarial valuations are carried out every three years to determine the
Group's cash contributions to the schemes. The valuation dates of the three
largest schemes are set so that only one scheme is undertaking its valuation
in any one year, to spread the financial impact of market conditions. The
valuation of the BIGPS as at 31 March 2022 was completed in the last financial
year, the valuation of the DRDPS as at 31 March 2023 has been agreed, and work
has commenced on the valuation of the RRDPS at 31 March 2024.
There has been significant progress in reducing the risk of pension scheme
deficits during the year. We made additional pension deficit repair payments
of £35 million. The BIGPS has around £985 million of pension liabilities
(less than 30% of the total Group pension liabilities) on a technical
provision basis. The scheme has now reached self-sufficiency and is not
expected to require further deficit repair contributions from the company
ahead of reaching either buy-in or buy-out, expected by FY29. The Scheme is
also in the process of closing to future service accruals.
In addition, the Company has now reached agreement with the Trustees of the
DRDPS regarding a long-term funding plan and closure of the scheme to future
accrual as well as the most recent triennial valuation. The DRDPS has around
£1,400 million of pension liabilities on a technical provision basis (around
40% of total Group pension liabilities). As a result, we expect the total
Group pension deficit repair payments to reduce to around £40 million in FY25
(previously £65 million).
Cash contributions
Group cash contributions made into the defined benefit pension schemes,
excluding expenses and salary sacrifice contributions:
31 March 2024 31 March 2023
£m
£m
Future service contributions 17.2 20.0
Deficit recovery 82.8 123.5
Longevity swap 15.2 15.6
Total cash contributions - employer 115.2 159.1
Segmental analysis
The Group reports its performance through four reporting sectors.
31 March 2024 Marine Nuclear Land Aviation Total
£m £m £m £m £m
Contract backlog 2,992.7 3,104.8 2,593.7 1,641.4 10,332.6
Revenue 1,429.1 1,520.9 1,098.6 341.5 4,390.1
Operating profit 11.0 109.2 96.1 25.3 241.6
Operating margin 0.8% 7.2% 8.7% 7.4% 5.5%
Underlying operating profit 13.1 109.2 96.3 19.2 237.8
Underlying operating margin 0.9% 7.2% 8.8% 5.6% 5.4%
31 March 2023 Marine Nuclear Land Aviation Total
£m £m £m £m £m
Contract backlog 2,580.7 2,453.8 2,809.8 1,633.0 9,477.3
Revenue 1,439.6 1,179.2 1,017.1 802.7 4,438.6
Operating profit 5.8 63.6 80.9 (104.8) 45.5
Operating profit margin 0.4% 5.4% 8.0% (13.1)% 1.0%
Underlying operating profit 12.7 63.5 85.9 15.8 177.9
Underlying operating margin 0.9% 5.4% 8.4% 2.0% 4.0%
FY24 Marine Nuclear Land Aviation Group
Revenue (£m)
Revenue 1,429.1 1,520.9 1,098.6 341.5 4,390.1
Add: reversal of Type 31 revenue 66.3 - - - 66.3
Revenue excl. Type 31 loss 1,495.4 1,520.9 1,098.6 341.5 4,456.4
Underlying operating profit (£m)
Underlying operating profit (UOP) 13.1 109.2 96.3 19.2 237.8
Add: Type 31 loss 90.0 - - - 90.0
UOP excluding Type 31 loss 103.1 109.2 96.3 19.2 327.8
Less: non-trading credits - - (17.0) - (17.0)
UOP excl. Type 31 loss and non-trading credits 103.1 109.2 79.3 19.2 310.8
Underlying operating margin
Underlying operating margin (UOM) 0.9% 7.2% 8.8% 5.6% 5.4%
UOM excl. Type 31 loss and non-trading credits 6.9% 7.2% 7.2% 5.6% 7.0%
FY23 Marine Nuclear Land Aviation Group
Revenue (£m)
Revenue 1,439.6 1,179.2 1,017.1 802.7 4,438.6
Less: Non-trading credits and disposals - - (46.7) (386.5) (433.2)
Revenue excluding non-trading credits and disposals 1,439.6 1,179.2 970.4 416.2 4,005.4
Add: reversal of Type 31 revenue 42.6 - - - 42.6
Revenue excl. non-trading credits, disposals and Type 31 loss 1,482.2 1,179.2 970.4 416.2 4,048.0
Underlying operating profit (£m)
Underlying operating profit (UOP) 12.7 63.5 85.9 15.8 177.9
Add: Type 31 loss 100.1 - - - 100.1
UOP excluding Type 31 loss 112.8 63.5 85.9 15.8 278.0
Less: non-trading (credits)/debits - - (13.8) 1.1 (12.7)
UOP excl. non-trading credits, disposals and Type 31 loss 112.8 63.5 72.1 16.9 265.3
Underlying operating margin
Underlying operating margin (UOM) 0.9% 5.4% 8.4% 2.0% 4.0%
UOM excl. non-trading credits, disposals and Type 31 loss 7.6% 5.4% 7.4% 4.1% 6.6%
OPERATIONAL REVIEWS
Marine
Our c.7,200 employees design, develop, manufacture and integrate specialist
systems, and deliver technical through-life support for complex platforms in
the marine sector. Around 90% of Marine's revenue is derived from defence,
with the remainder primarily comprising our Liquid Gas Engineering (LGE)
business.
Operational highlights
- Type 31: HMS Venturer (ship 1) superstructure almost complete,
HMS Active (ship 2) keel laid, and HMS Formidable (ship 3) steel cut due 2024.
Programme restructured following a detailed operational review
- Three Arrowhead 140 licences delivered and keel laid on first
MIECZNIK-Class frigate for the Polish Navy
- Selected by Saab to support the design of the Swedish Navy's
Surface Combatant, Luleå Class. Initial contract awarded
- Achieved Operation Service Commencement of the Skynet Service
Delivery Wrap space communications contract
- Ukraine Mine Counter Measure Vessel (MCMV) upgrade and support
contract fully operational
- Achieved Operative Date for the Australian Regional Maintenance
Provider (RMP) West contract
Financial review
31 March 2024 31 March 2023
£m £m
Contract backlog* 2,992.7 2,580.7
Revenue 1,429.1 1,439.6
Underlying operating profit* 13.1 12.7
Underlying operating margin* 0.9% 0.9%
*Alternative Performance Measures are defined in the Financial Glossary on
page 31.
Revenue decreased by 1% to £1,429.1 million which primarily related to FX
translation. Growth from our Arrowhead 140 programmes, including the Polish
MIECZNIK frigate programme, and increased activity on Dreadnought systems, was
offset by lower volumes in warship support and LGE.
Underlying operating profit of £13.1 million (FY23 £12.7 million),
representing an underlying operating margin of 0.9%
(FY23: 0.9%), was impacted by a £90.0 million loss on the Type 31 contract
(FY23: £100.1 million loss) (see below). Excluding the Type 31 loss,
underlying operating profit decreased by 9% to £103.1 million with the
positive contribution from licence fees on the Polish Arrowhead 140 programme
more than offset by lower activity in warship support and the LGE business, as
well as lower profitability in Mission Systems, primarily due to contract
timing and therefore expected to recover.
Type 31: As set out in the CEO review on page 4 and the Financial review on
page 9, we have fully reviewed the Type 31 programme during the year,
including resolving the Dispute Resolution Process. Over the year, overall
costs have increased due to the maturing of the design and the increase in
costs of labour in the market available in Rosyth, which is forecast to be
higher than CPI, the indexation contained within the Type 31 contract. As a
result, the outturn over the life of the contract has deteriorated by £90.0
million, which has been fully recognised in FY24. The cash impact of this loss
is expected to be realised over the remainder of the contract.
Contract backlog increased 16% in the year to £2,993 million (FY23: £2,581
million), driven by a two-year extension to the Canadian Victoria Class
submarine support contract, strong LGE orders and service expansion of the UK
MOD's Skynet satellite communications support contract, offsetting revenue
traded on long-term contracts.
Operational review
Defence
UK defence
We continue to deliver the Type 31 frigate programme, with the superstructure
of HMS Venturer almost complete. Work on the second ship, HMS Active, is
progressing, with the keel laid and first double bottom blocks in the build
cradle. In March 2024, we announced the intention to create more than 1,000
new jobs over the next four years at our advanced manufacturing and
shipbuilding facility in Rosyth. These new roles, which include 400
apprenticeships, will benefit the UK economy and local community.
Following award of the 10-year warship support contract for the UK Royal
Navy's QEC aircraft carriers, HMS Prince of Wales departed our Rosyth dockyard
in July 2023 following a docking period to repair shaft lines, as well as
undertaking planned activities on other underwater equipment and systems. We
also welcomed HMS Queen Elizabeth back to Rosyth in March 2024 for docking,
repairs and planned maintenance.
At Devonport, the Type 23 frigate life-extension (LIFEX) programme continues,
with HMS Iron Duke achieving Ready for Sea and HMS Argyll achieving her
undocking ahead of schedule. HMS Argyll is the first Type 23 to undergo a
post-LIFEX upkeep under Project RENOWN, designed to reduce the amount of time
spent in dock. Also in the period, we completed repairs and docking activity
on HMS Somerset, and commenced the use of new hull and structure survey
technology on HMS Richmond.
We continue to prepare for the arrival of the first Type 26 frigate,
establishing the first remote office at BAE's Scotstoun shipyard to support
the transition of the Type 26 Class to in-service support, with the new fleet
of frigates base-ported at HMNB Devonport.
We were awarded two new five-year contracts by the UK Ministry of Defence
(MOD) to continue providing in-service support for the Royal Navy's Ships
Protective System (SPS) equipment.
The US-UK common missile compartment tube assembly programme continues for the
US Columbia submarine programme, with further assemblies being delivered in
support of the UK's Dreadnought programme. We have a market leading position
in submarine missile tube assembly, underpinned by our deployment of advanced
manufacturing technology.
Babcock is now on contract to deliver major systems modules for all four
Dreadnought Class submarines, with a contract uplift for the remaining boats.
During the period, we demonstrated our new complex weapons stowage equipment
which will also be installed on the Dreadnought Class.
We were awarded a three-year contract to continue providing critical support
to the Royal Navy's Phalanx Close-In Weapon System (CIWS), a rapid-fire,
computer-controlled, radar-guided gun that can defeat anti-ship missiles and
other close-in threats. The system is installed on multiple Royal Navy
platforms, including the Queen Elizabeth Class aircraft carriers.
We achieved the Critical Design Review in the delivery of the UK Royal Navy's
next-generation Maritime Electronic Warfare Systems Integrated Capability
(MEWSIC) to install cutting edge radar electronic support and electronic
warfare command and control capabilities across the new Type 31 and Type 26
frigates, Type 45 air-defence destroyers and QEC aircraft carriers.
Babcock has also been awarded a configuration management contract for the
Royal Navy and the Royal Fleet Auxiliary surface ship fleet. The five-year
contract will see us continue to operate the Master Record Data Centre,
through which the configuration data and information of all surface ships will
be managed.
Following a successful mobilisation and seamless transition, Babcock and its
partners took over the operation of SKYNET, the UK's military satellite
communications capability. The six-year service delivery wrap contract
includes the management of the UK military satellite fleet and ground
infrastructure for this 24/7 critical capability. When combined with our
existing Defence Strategic Radio Service (DSRS) contract to deliver the MOD's
secure High Frequency communications capability, Babcock now has a leading
position delivering the UK Armed Force's critical communications in both a
satcom and satcom-denied environment.
International defence
In Australasia, our contract to sustain the Royal Australian Navy (RAN) ANZAC
frigate fleet, in alliance with BAE and Saab Australia, is due to phase into
the new RAN Maritime Sustainment Model at the end of 2026. Babcock has
completed the first maintenance periods on the replacement contract, Regional
Maintenance Provider (RMP) - West, which will provide support for all RAN
major surface ships located in Western Australia for the next five years. We
were unsuccessful in our tender to deliver the replacement contract, RMP -
East capability, however a sub-contract to transition our support from the
RAN's flagship LHD amphibious platforms to the new sustainment model has been
secured.
We agreed a new Capability Partnering Arrangement for sustainment of
Australia's Collins Class submarines which will see us support existing
operational requirements and seek to extend the life of the Babcock managed
systems. We continue to deliver the Maritime Fleet Sustainment Services
contract which supports the entire New Zealand navy fleet, including the
operation of the main naval base infrastructure in Auckland.
In Canada, we continue to deliver the Victoria Class in-service submarine
support (VISSC), which was extended to 2027, and are currently working on HMCS
Victoria's extended docking work period. Milestones through the year include
completion of over 800 hull and system surveys, removal of the diesel
generators - a first-in-class evolution - and the commencement of major
structural repairs, a large and complex work package to maintain the
availability of the ageing platform.
We also signed Technical Cooperation Agreements with Hanwha Ocean and HD
Hyundai Heavy Industries and have had ongoing engagements with other submarine
OEMs. These activities position Babcock to be an integral partner in the
Canadian Patrol Submarine Project, which will succeed the current Victoria
Class in the mid-to-late 2030s.
In Poland, we finalised the design licence agreement with the MIECZNIK
consortium for the build of three Arrowhead 140 frigates for the Polish Navy.
The steel-cut for ship one was held at the Gdynia shipyard in August 2023.
In Sweden, we were selected by Saab as their programme partner to support
their work on the Swedish Navy's next generation Luleå Class naval corvette
programme. Under the initial contract, Babcock will provide front-end
engineering and programme management for design.
In Indonesia, our customer PT PAL laid the keel for the first of two frigates,
based on our Arrowhead 140 design.
In Ukraine, we completed the regeneration of UK Sandown Class Mine Counter
Measure Vessels (MCMVs) at our Rosyth facility. The Royal Navy provided two of
the vessels to the Navy of Ukraine who awarded Babcock a three-year contract
to maintain and support the two minehunters. A further two MCMVs have been
sold to the Romanian Navy with Babcock providing refurbishment support.
In South Korea, we are delivering systems for Boat 4 of the Jangbogo-III Class
submarine programme. Additionally, we have been awarded a seven-year contract
to manufacture and install the weapons handling and launch system for Boat 6
of the programme. Babcock is working with the Republic of Korea Navy and
Hanwha Ocean to develop an in-service support strategy for the Class.
Civil
Our LGE business marked another year of significant achievements with record
order intake of over £300 million. We have cemented our significant market
share, winning new orders from existing and new customers and delivery of 50
projects in South East Asia.
With increasing utilisation of hydrogen as a sustainable fuel and with broad
application across several sectors, our ecoVLAC® technology is well
positioned for growth, and we have secured six contracts for design and build
of Cargo Handling Systems for Very Large Ammonia Carriers (VLAC).
Additionally, we launched ecoFGSS-FLEX® technology for the use of Ammonia as
a ship main engine fuel.
At our Rosyth facility we welcomed two of the UK's fleet of scientific
research vessels for planned maintenance. RRS Discovery and RRS Sir David
Attenborough spent a total of 16 weeks at Rosyth undergoing through-life
support and will return to Rosyth in 2024. We also converted a former UK Royal
Navy patrol ship into a medical vessel for Vine Trust at Portsmouth, an
international volunteering charity supporting some of the most isolated
communities in Tanzania and Peru.
Nuclear
Our c.8,600 employees provide complex through-life engineering support to the
entirety of the UK's nuclear submarine fleet, own and manage critical national
infrastructure and provide engineering integration support to AWE. We operate
across UK civil nuclear, including new build, generation support and
decommissioning.
Operational highlights
- Commenced deep maintenance on the second of the UK's Vanguard Class
nuclear submarines, HMS Victorious, under a c.£560 million contract
- Returned HMS Vanguard to the Royal Navy after her Deep Maintenance
Period (DMP) and Life Extension Programme
- Awarded £750 million infrastructure contract in preparation for
Astute Class DMP
- Awarded contracts to develop the support solution for the UK's
Dreadnought and SSN-AUKUS submarine programmes
- X-energy and Cavendish Nuclear selected for UK Government's Future
Nuclear Enabling Fund (FNEF)
Financial review
31 March 2024 31 March 2023
£m £m
Contract backlog* 3,104.8 2,453.8
Revenue 1,520.9 1,179.2
Underlying operating profit* 109.2 63.5
Underlying operating margin* 7.2% 5.4%
*Alternative Performance Measures are defined in the Financial Glossary on
page 31.
Revenue increased by 29% to £1,520.9 million, driven by strong growth in
Major Infrastructure Programme (MIP) revenue, increased Future Maritime
Support Programme (FMSP) submarine support activity and new contracts in our
civil nuclear business. MIP revenue increased to £459 million (FY23: £267
million).
Underlying operating profit increased by 72% to £109.2 million driven by the
revenue growth above and non-recurrence of a £16 million loss on a FY23
programme, which has now completed. As a result, underlying operating margin
improved 180 basis points to 7.2%.
Contract backlog increased 27% in the year to £3,105 million (FY23: £2,454
million), driven primarily by the £750 million MIP contract to modernise 10
Dock at our Devonport facility.
Operational review
Defence
UK defence
The UK is going through a phase of class transition for nuclear submarines.
Astute Class submarines are currently replacing the Trafalgar Class and the
future Dreadnought Class will replace the Vanguard Class. We continue to make
progress in meeting the current and future requirements of the UK MOD and
Royal Navy and are working closely with them to jointly develop long-term
strategies for people, infrastructure and transformation.
We are delivering substantial upgrades to existing critical infrastructure at
Devonport to support the UK's future capability through a Major Infrastructure
Programme (MIP). Following the award of the manufacturing phase contract, the
programme to upgrade 10 Dock has entered the formal construction phase, which
will deliver a new dock, berth, logistics and production support facilities,
primarily for the Astute Class. We are also undertaking the refurbishment of 9
Dock, currently used for the Vanguard Class, the most significant work carried
out on the dock for over 20 years, and 15 Dock.
Deep maintenance and life-extension of the second of the UK's Vanguard Class
nuclear submarines, HMS Victorious, are underway at Babcock's facility at
Devonport following an agreed full cost recovery contract worth an estimated
£560 million with the Submarine Delivery Agency (SDA). This follows the
completion in-year of HMS Vanguard's deep maintenance period, the most complex
submarine maintenance and life-extension programme that has ever been
delivered within the enterprise. The first Astute Class submarine has also
been received in Devonport and is currently undergoing surveys and work ahead
of an in-dock base maintenance programme (BMP). At HMNB Clyde, we continue to
deliver a strong performance on submarine maintenance periods against a
backdrop of increasing operational demands.
We were awarded a five-year contract to provide input into the detailed design
for the new Ship Submersible Nuclear AUKUS (SSNA) submarines which will
replace the Astute Class from the late 2030s and will be the future SSN design
for the Royal Australian Navy. We also agreed with the SDA a 12-month
extension to our Interim Support to the AUKUS Contract to provide consultancy
support to the UK and Australian Governments in acquiring, operating, and
maintaining nuclear powered submarines for the Royal Australian Navy.
Babcock was awarded a further contract to support the UK's new Dreadnought
Class submarines, providing input into the development of the support
solution, with a focus on engineering best practice and submarine maintenance
to enable improved in-service availability. We continue to deliver good
performance and ongoing improvements against our FMSP contract.
We are supporting the SDA on the Submarine Dismantling Project, working
towards the full dismantling of the ex-HMS Swiftsure, which will be a UK
first. The decision has been made to undertake the full vessel recycling at
Rosyth. We are engaging to shape the future Submarine Disposal Capability
programme with the SDA.
Work continues to deliver the Process, Plant and Equipment (PP&E) contract
for AWE Aldermaston, with Babcock leading the design, installation and
commissioning of complex plant and equipment engineering.
We have taken a leading role to support the UK's Nuclear Skills Task Force,
following the recent announcement by the UK Prime Minister of a funded skills
plan. We continue to lead on the collaborative work to deliver critically
needed skills across the Babcock Nuclear enterprise, developing on the Babcock
Skills Academy offering, significantly increasing our early careers intake,
upskilling the Babcock workforce and targeting mid-career switchers through
our engagement in Destination Nuclear, the first national communications
campaign targeting recruitment into the industry.
International defence
Babcock and HII have combined forces in Australia to work together to support
the critical capabilities required to deliver the AUKUS programme,
collaborating to develop the optimal models for nuclear-powered submarine
capability, including infrastructure, sustainment, and the necessary skills
development.
We have signed an MoU with Bechtel Australia to identify opportunities to
leverage complementary expertise to establish and support Australia's
conventionally armed nuclear-powered submarine programme (AUKUS). Babcock
Australasia has also joined forces with HII, the University of Adelaide,
Curtin University and the University of NSW to form the AUKUS Workforce
Alliance.
Civil
UK civil nuclear
We continue to support Sellafield with their decommissioning programme and
have been short-listed for the Invitation to Tender phase for two key Lots of
the 15-year Decommissioning and Nuclear Waste Partners programme.
We have diversified our customer portfolio in the UK, securing work with both
Westinghouse and Urenco, supporting the Government's focus on security and
front-end fuel cycle. The reprocessed uranium front end conversion project for
Westinghouse will design and build a facility to process uranium to enable its
future enrichment and use as a nuclear fuel, while the tails management
facility project for Urenco will convert depleted uranium hexafluoride to the
lower hazard uranium oxide material for long term storage. At Magnox we have
mobilised the Hinkley Point A Vault Retrievals Phase 2 contract to provide the
design and delivery of an automated solution to safely retrieve, process and
package waste from the site's vaults, ready for safe storage.
Cavendish Nuclear and X-energy welcomed a funding award from the UK
Government's Future Nuclear Enabling Fund to further develop Advanced Modular
Reactors (AMRs) in the UK. The Government's award of £3.4 million will be
matched by X-energy for a total programme of £6.8 million. The funds will be
used to develop UK-specific deployment plans including an assessment of
domestic manufacturing and supply chain opportunities, constructability,
modularisation studies, and spent fuel management.
In addition to AMRs, we continue to support Rolls Royce and GE-Hitachi, two of
the six Small Modular Reactor (SMR) vendors whose designs have recently
advanced to the next phase of the UK's SMR competition. We continue to support
EDF with Large Gigawatt Reactor delivery at Hinkley Point C and Sizewell C
through the MEH Alliance, an unincorporated JV.
International civil nuclear
In Japan, work is now underway to deliver a 10-year contract with Japan Atomic
Energy Agency (JAEA), providing specialist capability in support of
decommissioning and sodium treatment of the Monju Prototype Fast Reactor in
Fukui Prefecture, Japan.
In the US we are continuing to position for other major Tier 1 clean-up
opportunities, on the back of the successful award last year of the Portsmouth
Gaseous Diffusion Plant Decontamination and Decommissioning Contract with our
joint venture partners.
Land
Our c.6,400 employees provide essential services to our customers through
three core capabilities, Build, Support and Train. We do this through
management, the delivery of through-life engineering support and systems
integration for military vehicles and equipment. We provide individual and
collective training for customers with critical missions and deliver
engineering services in power generation and transport networks and
through-life support of mining equipment.
Operational highlights
- DSG contract extension under negotiation following notification by
UK MOD of its intention to exercise up to five option years
- Launched the General Logistics Vehicle (GLV) for the upcoming MOD
tender to replace the legacy Army Land Rover fleet; actively exploring export
opportunities with a range of international customers
- Officially launched production of 70 High Mobility Transporter
Jackal 3s for the British Army, with partner Supacat
- Signed a collaboration agreement with Singapore Technology
Engineering for manufacture of UK mortar systems
- Awarded second contract to deliver ground and equipment support to
the French Navy, Army and Air Force
- Contract expansion to support UK gifted in-kind platforms to Ukraine
- Secured the rebid for the REME Apprenticeships contract to 2029
- Won the seven-year ARMCEN support contract for armoured vehicle
technical training for the British Army
Financial review
31 March 2024 31 March 2023
£m £m
Contract backlog* 2,593.7 2,809.8
Revenue 1,098.6 1,017.1
Underlying operating profit* 96.3 85.9
Underlying operating margin* 8.8% 8.4%
*Alternative Performance Measures are defined in the Financial Glossary on
page 31.
Revenue increased 8% to £1,098.6 million (FY23: £1,017.1 million) with
organic growth of 17% offset by a 5% FX translation headwind due to the
weakening of the South African Rand against the Pound Sterling and the impact
of the disposal of the Civil Training business in FY23. Strong organic growth
was across our military activities including equipment support and training
for our UK and international customers, ramp up of vehicle engineering
contracts and the Australian Defence High Frequency Communication (DHFC)
system contract, and continued growth in our South African business, driven by
demand for mining equipment.
Underlying operating profit increased 12% to £96.3 million, including a
£17.0 million profit on freehold property disposal. FY23 included an £11.6
million one-off accounting credit. The increase was also driven by revenue
growth outlined above and improved performance across a number of our Land
contracts, including the legacy DSG contract as it approaches its final
delivery year. Performance in our South African business was in line with
FY23, which benefitted from the close out of the Eskom contract. Underlying
margin improved 40 basis points to 8.8% (FY23: 8.4%), including a 1.5% impact
(FY23: 1.0%) from the one-off items described above.
Contract backlog decreased 8% to £2,594 million (FY23: £2,810 million) due
to revenue traded on long-term contracts and the end of the Metropolitan
Police Support contract in FY24.
Operational review
Defence
UK defence
We delivered a strong performance in our defence equipment business. We
provided critical support to prepare, repair and regenerate the Army's fleet
for the Steadfast Defender exercise, the largest NATO exercise since the Cold
War. Following notification by our UK MOD customer of its intention to
exercise up to five option years for DSG from FY25/26, we have commenced a
period of negotiation and transition as we move through the approvals process
to contract signature. The transition activity will result in better outcomes
for all stakeholders throughout the rest of the decade.
Babcock's steadfast commitment to providing critical support to Ukraine's
military operations continues, providing training of personnel and the
refurbishment and regeneration of equipment for Ukraine's Armed Forces through
our Project HECTOR contract with the MOD. Having been awarded a contract in
June 2023 to support the UK's gifted platforms to Ukraine, we achieved full
operational capability and contract expansion in the period. In May 2024, we
announced work was underway on an in-country facility to deliver engineering
support, including the repair and overhaul of military vehicles, to be
delivered in partnership with UDI, Ukraine's state-owned defence industry.
Our ambition to develop a portfolio of product-based offerings remains on
track. In February, in collaboration with Supacat, we launched the production
of 70 High Mobility Transporters (HMT 400 series) Jackal 3 for the British
Army. Production will be undertaken at our new facility within the free port
of Devonport.
We launched the Babcock General Logistics Vehicle in September 2023, with a
focus on the upcoming MOD tender to replace the legacy Army Land Rover fleet
and are pursuing other international opportunities. In June 2024, we launched
a medium wheelbase variant and expect to add six-wheel drive variant in FY26.
Babcock remains the principal supplier of Toyota LC300 Civilian Armoured
Vehicles to UK government agencies and we celebrated the successful conversion
of the 50(th) vehicle in August 2023.
We signed a collaboration agreement with Singapore Technology Engineering for
the manufacture of 120 mm mortar systems in the UK.
Our Advanced Manufacturing Business continues to make significant developments
in tackling supply chain problems caused by obsolete parts. We co-chair the
defence accelerator programme which seeks to increase the availability of
defence materiel. Babcock has also successfully converted 25% of the MOD's
white fleet to electric vehicles. The programme is creating greater fuel
efficiencies and supporting the MODs sustainability goals.
Our Defence Training business performed well in the period, securing a number
of key contracts including the Armour Support Contract, an extension to our
contract to provide driver training and a further contract to support REME
Apprenticeships to August 2029.
We have been awarded a three-year contract, supporting Mabway, for the
provision of support for the design, preparation and delivery of military
training exercises, which will replace our current Hannibal contract.
Our bid to become the Strategic Training Partner for the Army Collective
Training System (ACTS) has progressed to the Invitation to Tender stage and we
continue to have positive engagements with the customer as part of the bid
process.
We continue to develop leading edge capabilities. Most notably we were
recently able to announce an Enterprise Agreement with Palantir Technologies
UK to strengthen our integrated planning function by enhancing our digital
capabilities across the Sector. Working with Palantir and investing in our own
data science and data engineering capabilities, we are on a journey of better
cohering, understanding and modelling thousands of data-points relating to
both critical and complex assets and their value chains. The relationship also
extends to the synthesis of performance and behavioural data relating to
individual and collective training to optimise learning and enhance training
outcomes.
International defence
In France, we have successfully completed the transition of the ground support
equipment contract awarded last year. Babcock has also been awarded a new
seven-year contract to provide in-service support to airfield ground support
equipment throughout France's mainland and overseas military bases. This is
Babcock's second significant Land Sector contract in France.
In Australasia, we continue to mature design of the new Defence Australian
High Frequency Communications System through the JP9101 programme. We also
signed a three-year contract extension to provide the Australian Department of
Defence with streamlining sustainment and acquisition processes for
Counter-Chemical Biological Radiological, Nuclear and Explosive (C-CBRNE)
capability using our industry-leading asset management systems. We continue to
work closely with the New Zealand Ministry of Defence on the Fixed High
Frequency Radio Refresh programme.
We continue to be in an active process with the Australian Defence Force (ADF)
for a first generation contract for sustainment management services for Land
equipment. We are developing solutions to export leading capabilities from the
UK to streamline existing support provision, and enhance fleet management,
inventory management, engineering and technical management, procurement
management, and support to ADF Operations.
In Canada, we signed a Memorandum of Understanding with Roshel to
collaboratively explore opportunities to support the Canadian Armed Force's
land requirements, providing innovative solutions through the combination of
our global asset management expertise and Roshel's specialist vehicle
manufacturing. This relationship provides us with the potential to build our
civilian armoured vehicle (CAV) in Canada and support the Government of
Canada, and address export opportunities in the North American defence and
security market.
Civil
UK civil
Both our London Fire Brigade and Metropolitan Police (MPS) training contracts
have performed well in the period. However, we have seen lower volumes on the
MPS contract as the customer seeks to meet its challenging recruitment
targets. We are leading an optimisation programme to support the design of a
new entry route programme, focused on improving operational performance in
support of transforming the approach to initial recruit training.
We continue to provide effective support to the London Fire Brigade through
equipment and vehicle management, servicing and repair. The trial to reduce
the number of planned vehicle movements by up to 50% across the Greater London
region will reduce wear and tear and emissions. This allows for greater
flexibility in fleet management practices such as vehicle rotation and whole
life cost, helping to preserve high-vehicle availability. The trial has
provided successful results with a full roll-out across the London Fire
Brigade fleet being implemented.
We continue to explore ways in which we can support the UK Government's
increasing focus on national resilience efforts, including enhancing the asset
management services we provide as part of the New Dimensions programme for
event response readiness at national, regional and local level.
Our Rail business continues to deliver strong performance in its key regions
of Scotland and Northern Ireland and has started to expand its operations into
the significant market in Ireland. Major investment in national rail
infrastructure by the Irish Government is a key enabler for building on,
levelling up and sustaining recent economic growth across the country.
Engagement with industry stakeholders around major engineering programmes
progresses, which will see the network modernised, decarbonised and have
capacity more than doubled over the next 5 to 10 years.
International civil
South Africa performed strongly, primarily driven by the equipment business,
which supplies vehicles and vehicle support to the mining industry. A
sustained high demand for commodities continues to drive open cast mining
activities, resulting in an expansion of our market share. Our Engineering and
Plant businesses delivered results in accordance with forecast. We are
actively exploring opportunities within the marine and nuclear sectors to
further diversify our portfolio and drive future growth.
We received orders for delivery of strategic spares for Eskom power stations
to be delivered over three years. We were awarded five-year milling plant
maintenance contracts for two power stations and began work on a significant
contract to engineer and replace electrostatic plates at Lethabo power station
to reduce particulate emissions.
Aviation
Our c.2,500 employees deliver military pilot training support for the two
largest Air Forces in Europe (France and UK), through-life support to
operational military flying assets and critical air operations for government
customers.
Operational highlights
- Completed delivery of the six H160 helicopters to the French Navy as
part of a 10-year contract with the French MOD
- Partnered with the RAF to deliver the first Elementary Flying
Training (EFT) phase of the Ukrainian Pilot Force programme as they prepare to
fly F-16 jets
- Delivered unprecedented firefighting operations in Canada with
>1,500 flight hours, >670 fire missions and >5,000 water drops with a
>99% aircraft availability
- Explored opportunities with Zero Petroleum for the use of synthetic
fuels in defence aircraft to minimise the environmental impact of flying
training
- Secured a five-year contract extension to keep providing air
ambulance operations in Victoria state in Australia
- After the year end, awarded a new 12-year contract alongside Airbus
to support 48 EC145 helicopters of the Direction Générale de la Sécurité
Civile and the French Gendarmerie Nationale across France mainland and
overseas
Financial review
31 March 2024 31 March 2023
£m £m
Contract backlog* 1,641.4 1,633.0
Revenue 341.5 802.7
Underlying operating profit* 19.2 15.8
Underlying operating margin* 5.6% 2.0%
*Alternative Performance Measures are defined in the Financial Glossary on
page 31.
Revenue decreased 57% to £341.5 million (FY23: £802.7 million) primarily due
to the impact of the sale of the European Aerial Emergency Services (AES)
business in February 2023, which contributed revenue of £387 million in FY23.
On an organic basis, revenue declined 17% due to the sales mix of our French
defence contracts, particularly MENTOR, between aircraft delivery and service
phases. Our remaining UK, Australia and Canada aviation businesses all
delivered modest growth.
Underlying operating profit increased 22% to £19.2 million (FY23: £15.8
million), despite lower revenue due to favourable sales mix of our French
defence contracts, improved pricing and lower bid costs. The prior year also
included a £1.1 million loss contribution from the disposed European AES
business. As a result, underlying operating margin increased 360bp to 5.6%.
Contract backlog was in line with the prior year at £1,641 million (FY23:
£1,633 million), with new orders matched by revenue traded on long-term
contracts.
Operational review
Defence
UK defence
Performance on the RAF HADES contract remains strong against a background of
customer site laydown and base closures and we are in positive discussions
regarding a further contract extension.
We continue to deliver good organic growth in our 11-year agreement with BAE
Systems, supporting the RAF's Hawk TMk1 and TMk2 fleet.
Despite some fleet challenges earlier in the year, operations on the RAF Light
Aircraft Flying Task contract (LAFT2) are continuing as normal with high
levels of availability. We delivered the first Elementary Flying Training
(EFT) phase of the Ukrainian Pilot Force training as they prepare to fly F-16
jets, with zero sorties lost due to aircraft unavailability.
We successfully negotiated a 13-year extension to the ground handling support
contract for the Future Strategic Tanker Aircraft contract. We continue to
provide IT service and improvement projects for the customer and are
continuing to build a strong working relationship.
Project MONET, a two-year research and development project to explore the
application of emerging technologies to minimise the environmental impact of
the Light Aircraft Flying Task, has concluded its first year with a successful
environmental impact assessment of the Grob Tutor. Work continues on the next
phase to develop a flying testbed aircraft to test technologies in the air.
We signed the Defence Aviation Net Zero Charter, confirming our commitment to
help UK Defence meet the challenges of climate change and to advance the
testing of synthetic fuels in the military environment across air defence
platforms.
We are exploring the use of uncrewed air system technologies to support UK
defence, security and government aviation, and working on methods of
integrating autonomous and collaborative platforms into the RAF.
International defence
In France, activity continues to ramp up on the MENTOR contract with flying
activity above forecast, further enhancing the training delivery. On the
FOMEDEC contract, an additional simulator has been set up to deliver 1,500
additional simulator hours (+18%) to the customer. In total, we delivered
c.13,500 flight hours and 8,500 simulator hours this year for the French Air
Force under both contracts (FOMEDEC and MENTOR). We are also extremely proud
to have reached a key milestone this year of 40,000 flight hours on our PC-21
aircraft.
We completed the delivery of our six Airbus H160 helicopters to the French
Navy as part of our contract with the French MOD. The aircraft are used to
perform Search and Rescue (SAR) missions and have already flown more than
1,750 hours and carried out numerous rescue missions in the Mediterranean and
across the Normandy and Brittany coasts. We have also opened the first H160
site for SAR operations in the world, located in Cherbourg (France).
After the year end, we have been awarded a new contract alongside Airbus
Helicopters to support the EC145 fleet of the Direction Générale de la
Sécurité Civile and the French Gendarmerie Nationale. The 12-year contract
covers the aircraft in-service support of 48 Airbus EC145 helicopters fleet
across France mainland and overseas. Additional maintenance work has been
delivered to our current seven-year contract with French Customs and
Gendarmerie Nationale where we deliver in-service support to their EC135
helicopter fleets. Flying activity is also above contract expectations with a
total of 8,141 flight hours (expected 6,500 flying hours).
Bidding activity on military aviation tenders remains high with many ongoing
opportunities such as Mentor 2 contract (outsourcing of French military pilots
initial training stage), French Air Force tactical and combat training
contract and BFTC (outsourcing of the Belgium fighter pilot training).
In Canada, we were unsuccessful in our bid to deliver Canada's Future Aircrew
Training (FAcT). We continue to explore opportunities in the military
spectrum, leveraging our current civilian capabilities and our international
military know-how to support the Royal Canadian Air Force and other Federal
Departments in the future.
Civil
UK civil
We have been awarded a new contract with Midlands Air Ambulance Charity (MAAC)
to continue as the charity's aviation partner for the next 10 years, operating
MAAC's fleet of helicopters as well as providing ground support, engineering
and pilots. We have been by MAAC's side since the charity started operating
over 33 years ago, responding to over 75,000 lifesaving missions. We are
continuing to deliver our other air ambulance activities in the country with a
fleet availability at over 98%.
International civil
In France, we are growing our ambition to protect citizens and communities in
new territories, by developing a joint solution with the Sultanate of Oman to
implement a robust and comprehensive Aerial Emergency Medical Service for all
citizens and tourists in the country.
In Australasia, we continue to deliver critical emergency services while
strengthening our relationships with our customers. We were awarded three key
contract extensions this year, making Babcock the biggest provider of aerial
emergency medical services in Australia.
The Queensland Government has extended our contract to provide emergency
medical services and search and rescue for a further 12 years. The South
Australian Government granted a four-year contract extension for the delivery
of a State Rescue Helicopter Service. Lastly, we have been awarded a five-year
contract extension to continue to provide critical air ambulance operations in
Victoria until December 2030.
In Canada, we continued to deliver air ambulance and wildfire suppression
services for the Province of Manitoba, helping to protect citizens,
communities and natural resources. Last year Canada experienced an
unprecedented number of wildfires, which saw our operations deliver over 1,500
flight hours, 674 fire missions and 5,006 water drops. In March 2024, we
successfully completed the delivery of the LifeFlight critical care air
ambulance services contract for the Province of Manitoba which saw 100%
aircraft availability during the year.
We have begun to ramp up the in-service support for British Columbia's new
aerial emergency services contract using a fleet of AW169 aircraft. This
10-year contract will start in FY25 with facilities construction.
Financial glossary - Alternative Performance Measures (APMs)
The Group provides APMs, including underlying operating profit, underlying
margin, underlying earnings per share, underlying operating cash flow,
underlying free cash flow, net debt and net debt excluding leases to enable
users to have a more consistent view of the performance and earnings trends of
the Group. These measures are considered to provide a consistent measure of
business performance from year to year. They are used by management to assess
operating performance and as a basis for forecasting and decision-making, as
well as the planning and allocation of capital resources. They are also
understood to be used by investors in analysing business performance.
The Group's APMs are not defined by IFRS and are therefore considered to be
non-GAAP measures. The measures may not be comparable to similar measures used
by other companies and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group's APMs are consistent with
the prior year. Measures, definitions and reconciliations to relevant IFRS
measures are included below, where appropriate.
Organic revenue growth - Group KPI
Closest equivalent IFRS measure: Revenue growth year on year
Definition: Growth excluding the impact of foreign exchange (FX) and
contribution from acquisitions and disposals over the year.
Purpose: A good indicator of business growth.
31 March 2024 31 March 2023
£m £m
Prior year revenue 4,438.6 4,101.8
FX (76.1) 23.5
(Disposals) / acquisitions (421.6) (92.3)
Prior year revenue adjusted for FX and disposals (b) 3,940.9 4,033.0
Revenue growth (a) 449.2 405.6
Current year revenue 4,390.1 4,438.6
Organic revenue growth (a)/(b) 11% 10%
Contract backlog
Closest equivalent IFRS measure: No direct equivalent
Definition: The remaining transaction price on contracts with customers that
has been allocated to unsatisfied or partially satisfied performance
obligations adjusted for the impact of termination for convenience clauses and
excluding orders not yet secured on framework agreements.
Purpose: Contract backlog is used to support future years' sales performance.
31 March 2024 31 March 2023
£m £m
Contract backlog 10,333 9,477
Underlying operating profit
Closest equivalent IFRS measure: Operating profit
Definition: Operating profit before the impact of specific adjusting items
(see below).
Purpose: Underlying operating profit is a key measure of the Group's
performance.
31 March 2024 31 March 2023
£m £m
Underlying operating profit 237.8 177.9
Specific adjusting items 3.8 (132.4)
Operating profit (note 2) 241.6 45.5
Specific adjusting items (note 2)
31 March 2024 31 March 2023
£m
£m
Amortisation of acquired intangibles (10.8) (15.8)
Business acquisition, merger and divestment related items (note 2) 8.2 (117.7)
Fair value movement on derivatives (note 2) 6.4 1.1
Specific adjusting items impacting operating profit/(loss) 3.8 (132.4)
Fair value movement on derivatives and related items 1.8 9.7
Specific adjusting items impacting profit/(loss) before tax 5.6 (122.7)
Income tax benefit/(expense)
Amortisation of acquired intangibles 3.9 4.1
Business acquisition, merger and divestment related items (1.0) (2.1)
Fair value movement on derivatives and related items (2.0) (2.6)
Tax on Group reorganisation activities 4.7 -
Other tax items including rate change impact (0.6) (1.2)
Specific adjusting items impacting income tax benefit/(expense) 5.0 (1.8)
Underlying operating margin - Group KPI
Closest equivalent IFRS measure: Operating margin
Definition: Underlying operating profit as a percentage of revenue.
Purpose: Provides a measure of operating profitability, excluding specific
adjusting items and is an important indicator of operating efficiency across
the Group.
31 March 2024 31 March 2023
£m £m
Revenue 4,390.1 4,438.6
Underlying operating profit 237.8 177.9
Underlying operating margin 5.4% 4.0%
Underlying net finance costs
Closest equivalent IFRS measure: Net finance costs
Definition: Net finance costs excluding specific adjusting items.
Purpose: To provide an alternative measure of finance costs excluding items
such as fair value re-measurement of derivatives which are economically
hedged.
31 March 2024 31 March 2023
£m £m
Underlying net finance costs (35.9) (58.3)
Add: specific adjusting items impacting finance costs (note 2) 1.8 9.7
Net finance costs (note 5) (34.1) (48.6)
Underlying profit before tax
Closest equivalent IFRS measure: Profit before tax
Definition: Profit before tax excluding all specific adjusting items.
Purpose: Provides a measure of profitability which includes finance costs.
31 March 2024 31 March 2023
£m £m
Underlying profit before tax 211.1 128.9
Specific adjusting items impacting profit before tax (note 2) 5.6 (122.7)
Profit before tax (note 2) 216.7 6.2
Underlying effective tax rate
Closest equivalent IFRS measure: Effective tax rate
Definition: Tax expense excluding the impact of specific adjusting items, as a
percentage of underlying profit before tax excluding the share of post-tax
income from joint ventures and associates.
Purpose: This provides an indication of the ongoing tax rate across the Group,
excluding one-off items.
Year ended 31 March 2024 Year ended 31 March 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit before tax (note 2) 211.1 5.6 216.7 128.9 (122.7) 6.2
Share of profit from joint ventures and associates* (note 11) (10.3) - (10.3) (9.3) - (9.3)
Profit/(loss) before tax excluding profit from joint ventures and associates 200.8 5.6 206.4 119.6 (122.7) (3.1)
(a)
Income tax expense (b) (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)
Effective tax rate (b)/(a) 26.6% 23.5% 31.5% (1274.2%)
* Share of profit from joint ventures and associates excludes an impairment of
£1.1 million, see note 11.
Underlying basic and diluted earnings per share
Closest equivalent IFRS measure: Basic earnings per share
Definition: The Group's underlying profit after tax less items attributable to
non-controlling interest, being underlying net income attributable to
shareholders, divided by the weighted average number of shares.
Purpose: A measure of the Group's underlying performance.
Year ended 31 March 2024 Year ended 31 March 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit/(loss) before tax (note 2) 211.1 5.6 216.7 128.9 (122.7) 6.2
Income tax (expense)/benefit (note 2) (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)
Profit/(loss) after tax for the year 157.6 10.6 168.2 91.2 (124.5) (33.3)
Amount attributable to owners of the parent 155.1 10.6 165.7 89.5 (124.5) (35.0)
Amount attributable to non-controlling interests 2.5 - 2.5 1.7 - 1.7
Weighted average number of shares (m) 503.5 503.5 505.4 505.4
Effect of dilutive securities (m) 11.8 11.8 9.5 9.5
Diluted weighted average number of shares (m) 515.3 515.3 514.9 514.9
Basic EPS (note 6) 30.8p 32.9p 17.7p (6.9)p
Diluted EPS (note 6) 30.1p 32.2p 17.4p (6.9)p
Net debt
Closest equivalent IFRS measure: No direct equivalent
Definition: Cash and cash equivalents, bank overdrafts, loans, including the
interest rate and foreign exchange derivatives which hedge the loans, lease
liabilities, lease receivables and loans to joint ventures and associates.
Purpose: Used as a measure of the Group's cash position and balance sheet
strength.
31 March 2024 31 March 2023
£m
£m
Cash and bank balances 570.6 451.7
Bank overdrafts (18.0) (22.2)
Cash, cash equivalents and bank overdrafts 552.6 429.5
Debt (749.5) (765.8)
Derivatives hedging debt (11.1) (8.3)
Lease liabilities (230.5) (228.8)
Liabilities from financing arrangements (991.1) (1,002.9)
Lease receivables 35.5 38.6
Loans to joint ventures and associates 3.9 9.5
Derivatives hedging interest on debt (36.3) (39.1)
Net debt (435.4) (564.4)
Net debt (excluding leases)
Closest equivalent IFRS measure: No direct equivalent
Definition: Net debt (defined above) excluding lease liabilities recognised
under IFRS 16.
Purpose: Used by credit agencies as a measure of the Group's net cash position
and balance sheet strength.
31 March 2024 31 March 2023
£m £m
Net debt (435.4) (564.4)
Leases 224.5 218.2
Net debt (excluding leases) (210.9) (346.2)
Net debt / EBITDA (covenant basis) - Group KPI
Closest equivalent IFRS measure: No direct equivalents
Definition: Net debt (excluding leases), before loans to joint ventures and
associates and finance lease receivables, divided by EBITDA (as defined in our
banking covenants - being underlying operating profit, defined on page 31,
excluding depreciation and amortisation and including certain covenant
adjustments) plus JV and associate dividends. See page 15.
Purpose: A key measure of balance sheet strength used by analysts and credit
agencies, and the basis of our debt covenant over the RCF (3.5x).
Interest cover (covenant basis)
Closest equivalent IFRS measure: No direct equivalent
Definition: EBITDA (on a covenant basis), divided by net finance costs and
various covenant adjustments made to reflect accounting standards at the time
of inception of the RCF agreement, including lease and retirement benefit
interest. See page 16.
Purpose: Used in the covenant over our RCF facility with a covenant ratio of
4.0x.
Return on invested capital (pre-tax) (ROIC) - Group KPI
Closest equivalent IFRS measure: No direct equivalent
Definition: Underlying operating profit plus share of JV profit after tax,
divided by the sum of net debt (excluding leases), shareholders' funds and
retirement benefit deficit/(surplus). See page 16.
Purpose: Used as a measure of profit earned by the Group generated by the debt
and equity capital invested, to indicate the efficiency of allocated capital.
Net capital expenditure
Closest equivalent IFRS measure: Property, plant and equipment and intangible
additions
Definition: Property, plant and equipment and intangible additions less
proceeds on disposal of property, plant and equipment and intangible assets.
Purpose: To understand net capital investment included in underlying operating
cash flow.
31 March 2024 31 March 2023
£m £m
Purchases of property, plant and equipment (PP&E) (note 9) (107.6) (109.9)
Purchases of intangible assets (note 8) (33.3) (21.5)
Movements in unpaid capital expenditure (1.5) 6.3
Gross capital expenditure (142.4) (125.1)
Proceeds on disposal of PP&E and intangible assets (statement of cash 30.6 38.9
flows)
Net capital expenditure (111.8) (86.2)
Underlying operating cash flow
Closest equivalent IFRS measure: Net cash flow from operating activities
Definition: Cash flow from operating activities excluding net income tax, net
interest paid, pension contributions in excess of the income statement charge
and cash flows related to specific adjusting items and including net capital
expenditure and lease principal payments. See page 12
Purpose: Provides a measure of operating cash generation on an equivalent
basis to underlying operating profit.
31 March 2024 31 March 2023
£m
£m
Underlying operating cash flow 322.7 307.0
Add: net capex 111.8 86.2
Add: capital element of lease payments 49.6 108.5
Less: pension contributions in excess of income statement (107.6) (141.9)
Non-operating cash items (excluded from underlying cash flow) (2.2) (10.9)
Cash generated from operations 374.3 348.9
Tax (paid) (27.4) (25.4)
Less: net interest paid (32.2) (62.2)
Net cash flow from operating activities 314.7 261.3
Underlying operating cash conversion - Group KPI
Closest equivalent IFRS measure: No direct equivalent
Definition: Underlying operating cash flow as a percentage of underlying
operating profit.
Purpose: Used as a measure of the Group's efficiency in converting profits
into cash.
31 March 2024 31 March 2023
£m
£m
Underlying operating profit 237.8 177.9
Underlying operating cash flow 322.7 307.0
Operating cash conversion 136% 173%
Underlying free cash flow
Closest equivalent IFRS measure: No direct equivalent
Definition: Underlying free cash flow includes cash flows from pension deficit
payments, interest, tax, JV dividends, specific adjusting items, in addition
to underlying operating cash flow. See page 12.
Purpose: Provides a measure of cash generated which is available for use in
line with the Group's capital allocation policy.
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
2024. For viability, the Board looked at a five-year view as this is the
period over which the Group prepares its strategic plan forecasts.
The use of a five-year period provides a planning tool against which long-term
decisions can be made concerning strategic priorities, addressing the Group's
stated net zero target and climate-related risks and opportunities, funding
requirements (including commitments to Group pension schemes), returns made to
shareholders, capital expenditure and resource planning.
The annually prepared budgets and forecasts are compiled using a bottom-up
process, aggregating those from the individual business units into
sector-level budgets and forecasts. Those sector submissions and the
consolidated Group budget and forecasts are then reviewed by the Board and
used to monitor business performance.
The Board considered the budgets alongside the Group's available finances,
strategy, business model, market outlook and principal risks. The process for
identifying and managing the principal risks of the Group is set out in the
Principal risks and management controls section on page 38. The Board also
considered the mitigation measures being put in place and potential for
further mitigation.
The Board considers that the long-term prospects of the Group underpin its
conclusions on viability. As outlined in our strategy, business model and
markets summaries on pages 14, 16 and 20 of the 2024 Annual Report and
Financial Statements, our prospects are supported by:
- a diverse portfolio of businesses based on well-established market
positions, focused on naval engineering, support and systems, and on critical
services in our core defence and civil markets. In FY24, 74% of Group revenue
was defence related and 26% civil;
- a geographically diverse business with a high proportion of sales to
governments and other major prime defence contractors. In FY24, 70% of revenue
was to UK defence and civil customers, and 30% was international;
- long-term visibility of sales and future sale prospects through an
order backlog of £10.3 billion as at 31 March 2024, 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 2024, net debt excluding leases was
£210.9 million and the Group therefore had liquidity headroom of £1.4
billion, including net cash of £0.6 billion and undrawn facilities of £0.8
billion. These facilities are considered more than adequate to meet current
and other liabilities as they fall due, and support the Group's negative
working capital position largely arising from securing customer advances ahead
of contract work starting. All of the Group's facilities mature during the
viability period, and therefore in assessing liquidity in future periods we
have assumed that it will be possible to re-finance the Group's facilities at
current market rates.
As of June 2024, the Group's committed facilities and bonds totalling £1.6
billion were as follows:
- £775 million revolving Credit Facility (RCF), of which £45 million
matures on 28 August 2025 and £730 million matures on 28 August 2026
- £300 million bond maturing on 5 October 2026
- €550 million bond, hedged at £493 million, maturing on 13
September 2027
- Two committed overdraft facilities totalling £100 million
The RCF is the only facility with covenants attached. The key covenant ratios
are net debt to EBITDA (covenant basis), gearing ratio, of 3.5x and EBITDA to
net interest (interest cover) of 4.0x. These are measured twice per year - on
30 September and 31 March.
The RCF lenders are fully committed to advance funds under the RCF to the
Group, provided that the Group has satisfied the usual ongoing undertakings,
and the creditworthiness of the Group's relationship banks is closely
monitored. Based on their credit ratings we have no credit concerns with our
relationship banks. Given the importance of the RCF 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 and to the end of the
five-year plan assuming renewal of the RCF with consistent covenants to those
currently applied.
Base case scenario: The base case budgets and forecasts show significant
levels of headroom against both financial covenants and liquidity headroom
based on the current committed facilities outlined above. That base case
largely assumes we maintain our incumbent programme positions if re-let during
the five-year period, with margin recovery if they are currently below the
Group average. Many opportunities available to the Group, where we do not yet
have high conviction of securing the work, have been excluded from the base
case to maintain a degree of caution.
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 £44 million relating to FY25 and around £40 million in each year
thereafter.
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
the level of performance deterioration against the base case budgets and
forecasts (in both EBITDA and net debt) required to challenge covenant levels.
Of the remaining measurement points within the available facility period, the
lowest required reduction in forecast EBITDA to hit the gearing covenant level
was £165 million and the lowest net debt increase was 150%. The lowest
required reduction in forecast EBITDA to hit the interest cover covenant was
£140 million. Given the mitigating actions that are available and within
management's control, such movements are not considered plausible.
Severe but plausible (SBP) downside scenarios: The Directors also considered a
series of SBP downside scenarios which are sensitivities run against the base
case budget and forecasts for the duration of the assessment period. These
sensitivities include - separately - a reduction in bid pipeline closure
(business winning), a deterioration in large programme performance across the
Group, a deterioration in the Group's working capital position and a
regulator-imposed cessation in flying two of the largest aircraft fleets in
the Group. All these separate scenarios showed compliance with the financial
covenants throughout the period.
As with any company or group, it would be possible, however unlikely, to model
individual risks or combinations of risks that would threaten the financial
viability of the Group. The Board has not sought to model events where it
considers the likelihood of such events not to be plausible. In preparing a
combined SBP downside case, the Board considered the feed of individual risks
from the sectors covering the above sensitivities. Overall, there were around
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. These identified risks were seen as 'sector independent' (ie there
is no direct read across from one sector to another). The Board decided to
reduce the aggregation of the 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 (both before and after mitigation measures).
Going concern assessment and viability conclusion: Based on our review, the
Directors have concluded that the Group has adequate resources to continue as
a going concern for at least 12 months from the date of these financial
statements. The Directors have not identified any material uncertainties
concerning the Group's ability to continue as a going concern.
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 2029.
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 2024, 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 2024 in full. The Group's principal risks and
uncertainties are:
Contract and project performance: We execute large contracts, which often
require us to price for the long term and for risk transfer. Our contracts can
include fixed prices. Risk appetite: Medium. Contract and project performance
risk appetite is classified as 'medium' due to the intricate nature of our
work in defence and emergency services sectors. As a company, we are in the
business of strategically taking on risks that we can manage effectively.
While our aim is to minimise risks to a manageable level, it is important to
acknowledge that uncertainties are inherent in project delivery. We prioritise
robust risk management within our contracts to mitigate these uncertainties
and ensure successful outcomes. It is important to make clear that despite our
vast efforts, some level of risk remains unavoidable.
Market: We rely on winning and retaining large contracts in both existing and
new markets often characterised by a relatively small number of major
customers, which are owned or controlled by local or national governments.
Risk appetite: Medium. This reflects that the successful pursuit and
maintenance of a secure and assured pipeline is essential for continued
growth, and we may therefore choose to accept the challenge of market risks
that we can confidently and securely manage.
IT & cyber security: A key factor for our customers is our ability to
deliver secure IT and other information assurance systems to maintain the
confidentiality of sensitive information. Risk appetite: Low. IT and Cyber
Security are fundamental components to Babcock's operations; we continually
review the emergence of cyber threats, in an effort to eradicate and mitigate
the risk as far as possible.
Defined benefit pensions: The Group has significant defined benefit pension
schemes in the UK, which provide for a specified level of pension benefits to
scheme members. Risk appetite: Low. Babcock utilises engagement with the
pensions schemes' trustees and a balanced pension management approach that
looks to mitigate and reduce the risks associated with pensions over the
journey to settling the pension obligations.
Supply chain management: The Group is exposed to several risks within its
supply chain, and these can typically be the following. Volatile markets such
as inflation, supplier financial risks and energy costs. Disruptions to
established supply chains such as natural hazards, logistics and mass
layoffs. Geopolitical and regulatory risk inclusive of conflicts, industrial
action, and sanctions. Supply chain cyber security including increased alerts
of potential disruption from cyber-attacks in our multi-tiered supply chain.
Part availability for aged customer assets such as maintaining assets that are
too old to source essential parts, or where cost is prohibitive. Risk
appetite: Low. Babcock has a preference for safe delivery options that have a
low degree of inherent risk and only for limited reward potential.
Operational resilience and business interruption: Babcock provides critical
support to governments and commercial customers, requiring a high level of
resilience in operational systems and processes. We provide this support in an
increasingly volatile, uncertain, and complex operating environment. A diverse
range of internal and external threats could severely interrupt our business,
reducing our ability to operate safely and effectively and to the high
standards expected by our customers, regulators, and partners. As a result,
Babcock, must ensure it maintains an Operational Resilience programme that is
capable and adaptable to multiple forms of business interruption events. Risk
appetite: Low. Ineffective operational resilience arrangements can
significantly undermine safety, financial stability, reputation and meeting
our regulatory requirements. Given the context in which we operate, Babcock
seeks to identify and eliminate risks to its operations where possible and
applies stringent controls to mitigate remaining areas of residual risk to as
low as reasonably practical (ALARP). Babcock is committed to continually
improving and building upon the foundations of our Operational Resilience
programme. Investment is being made to assess and enhance the effectiveness of
our plans and procedures through development of an overarching framework
within FY25 in order to provide greater consistency, adaptability, and
capability across Babcock.
Financial resilience of the Group: The Group is exposed to a number of
financial risks, some of which are of a macroeconomic nature (for example,
foreign currency, interest rates) and some of which are more specific to the
Group (for example, liquidity and credit risks). Risk appetite: Low. Babcock
recognises the adverse effects of the financial resilience risk on our balance
sheet and actively manages this risk via its capital allocation policy,
substantial committed debt facilities and maintaining an investment grade
credit rating allowing access to debt capital markets. However, this risk
cannot be eliminated and will aways require management.
Safety, health and environmental protection including product safety Our
operations entail the potential risk of significant harm to people and
property, wherever we operate across the world. Risk appetite: Low. For moral,
financial and reputational reasons we should keep the risk as low as possible.
Climate and environmental sustainability: Climate change is impacting every
corner of the earth and poses an existential threat to global stability.
Sustainability is an integral part of our corporate strategy, and we are
working hard to address the climate crisis and minimise the impacts of our
operations. Risk appetite: Low. Across our global operations we are looking to
continually improve our understanding of climate and environmental risks and
we are committed to mitigating risks, unlocking opportunities and reducing our
environmental impacts.
Corporate technological disruption: We have identified three main attributes
to potential technological disruption that potentially effects Babcock: the
digital change agenda, both within our customers and internal to Babcock; our
approach to data management; and finally, the disruption of new technology
offerings. Risk appetite: Low. Given the materially adverse nature of digital
and data risks, Babcock looks to recognise and eradicate the emergence of
risks to operations where possible, hence risk appetite being set at low.
Exploiting new technology in an appropriate manner can open new markets.
However, Babcock does survey the market for new technology to develop into new
opportunities. These are assessed for benefit individually and if deemed of
interest, integrated into our research and development programme and managed
with project management.
Compliance with legislation or other regulatory requirements: Our businesses
are subject to the laws, regulations and restrictions of the many
jurisdictions in which they operate. Risk appetite: Low. As a diverse global
organisation, Babcock operates in multiple highly regulated industries for
customers with specialist requirements. The compliance landscape is vast and
complex with many regulations, legal obligations, contractual and
certification requirements in each area including export controls, data
protection and site licences. The laws and regulations that we are subject
to include anti-bribery laws, import and export controls, tax, procurement
rules, human rights laws, and data protection regulations.
Resourcing, retention & skills: We operate in many specialised engineering
and technical domains, which require appropriate skills and experience. Risk
appetite: Medium. Avoidance of the risk would increase costs through
significant wage inflation, which would have an industry-wide impact, and
require over-resourcing and potential negative workforce engagement and
retention. Some risk is accepted given the high cost of avoidance and the
potential mitigations within our control, such as sharing capability across
our global business and compensating for skills shortages in particular areas
through investment in training and early careers.
Acquisitions and divestments: We have built our core strengths organically and
through acquisition. Decisions to acquire companies, as well as the process of
their acquisition and integration, are complex, time-consuming, and expensive.
If we believe that a business is not 'core', we may decide to sell that
business. Risk appetite: Medium. Babcock will continue to review potential
opportunities within the market in a considered and measured way, M&A
activity continues to be inherently high risk. Future M&A activity will be
undertaken only where it is possible to reduce inherent risk to an acceptable
level when balanced against potential rewards and opportunity.
The risks listed above, together with their potential impacts and mitigating
actions we have taken in respect of them, are explained and described in
detail in the 2024 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 2024 2023
£m
£m
Revenue 2,3 4,390.1 4,438.6
Operating costs (4,145.0) (4,315.7)
Loss resulting from acquisitions and disposals (3.5) (77.4)
Operating profit 241.6 45.5
Share of results of joint ventures and associates 2,3,11 9.2 9.3
Finance income 4 22.1 21.9
Finance costs 4 (56.2) (70.5)
Profit before tax 216.7 6.2
Income tax expense 5 (48.5) (39.5)
Profit/(loss) for the year 168.2 (33.3)
Attributable to:
Owners of the parent 165.7 (35.0)
Non-controlling interest 2.5 1.7
Earnings/(loss) per share
Basic 6 32.9p (6.9)p
Diluted 6 32.2p (6.9)p
Group statement of comprehensive income
For the year ended 31 March Note 2024 2023
£m
£m
Profit/(loss) for the year 168.2 (33.3)
Other comprehensive income
Items that may be subsequently reclassified to income statement
Currency translation differences (13.4) (0.5)
Reclassification of cumulative currency translation reserve on disposal - (1.2)
Fair value adjustment of interest rate and foreign exchange hedges (4.0) 9.4
Tax, including rate change impact, on fair value adjustment of interest rate (0.5) (3.1)
and foreign exchange hedges
Hedging gains/(losses) reclassified to profit or loss 6.6 (10.8)
Share of other comprehensive income of joint ventures and associates 11 0.3 4.7
Tax, including rate change impact, on share of other comprehensive income of 11 (0.1) (1.2)
joint ventures and associates
Items that will not be reclassified to income statement
Remeasurement of retirement benefit obligations 17 (155.1) (402.4)
Tax on remeasurement of retirement benefit obligations 38.4 100.8
Other comprehensive loss, net of tax (127.8) (304.3)
Total comprehensive income/(loss) 40.4 (337.6)
Total comprehensive income/(loss) attributable to:
Owners of the parent 39.1 (337.3)
Non-controlling interest 1.3 (0.3)
Total comprehensive income/(loss) 40.4 (337.6)
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 2022 303.4 873.0 768.8 30.6 (1,241.4) 4.0 (56.4) 682.0 19.5 701.5
Loss for the year - - - - (35.0) - - (35.0) 1.7 (33.3)
Other comprehensive (loss)/income - - - - (301.6) (1.0) 0.3 (302.3) (2.0) (304.3)
Total comprehensive (loss)/income - - - - (336.6) (1.0) 0.3 (337.3) (0.3) (337.6)
Dividends - - - - - - - - (2.2) (2.2)
Share-based payments - - - - 9.4 - - 9.4 - 9.4
Tax on share-based payments - - - - (0.2) - - (0.2) - (0.2)
Net movement in equity - - - - (327.4) (1.0) 0.3 (328.1) (2.5) (330.6)
At 31 March 2023 303.4 873.0 768.8 30.6 (1,568.8) 3.0 (56.1) 353.9 17.0 370.9
At 1 April 2023 303.4 873.0 768.8 30.6 (1,568.8) 3.0 (56.1) 353.9 17.0 370.9
Profit for the year - - - - 165.7 - - 165.7 2.5 168.2
Other comprehensive (loss)/income - - - - (116.7) 2.3 (12.2) (126.6) (1.2) (127.8)
Total comprehensive income - - - - 49.0 2.3 (12.2) 39.1 1.3 40.4
Dividends - - - - (8.5) - - (8.5) (1.8) (10.3)
Disposal of subsidiary - - - - - - - - 0.7 0.7
Purchase of own shares - - - - (12.5) - - (12.5) - (12.5)
Share-based payments - - - - 12.4 - - 12.4 - 12.4
Tax on share-based payments - - - - 4.5 - - 4.5 - 4.5
Net movement in equity - - - - 44.9 2.3 (12.2) 35.0 0.2 35.2
At 31 March 2024 303.4 873.0 768.8 30.6 (1,523.9) 5.3 (68.3) 388.9 17.2 406.1
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
2024
2023
£m
£m
Assets
Non-current assets
Goodwill 7 780.1 781.4
Other intangible assets 8 148.8 140.8
Property, plant and equipment 9 517.1 478.5
Right of use assets 10 175.6 159.1
Investment in joint ventures and associates 11 59.7 57.4
Loan to joint ventures and associates 11 3.9 9.5
Retirement benefits surpluses 17 107.3 94.8
Other financial assets 5.3 7.3
Lease receivables 22.5 22.2
Derivatives 2.8 2.6
Deferred tax asset 132.3 112.2
Trade and other receivables 13 13.0 6.4
1,968.4 1,872.2
Current assets
Inventories 12 187.4 126.8
Trade and other receivables 13 487.2 506.9
Contract assets 13 337.4 322.5
Income tax recoverable 10.6 7.7
Lease receivables 13.0 16.4
Other financial assets 1.1 1.4
Derivatives 4.4 4.3
Cash and cash equivalents 570.6 451.7
1,611.7 1,437.7
Total assets 3,580.1 3,309.9
Equity and liabilities
Equity attributable to owners of the parent
Share capital 303.4 303.4
Share premium 873.0 873.0
Capital redemption and other reserves 736.4 746.3
Retained earnings (1,523.9) (1,568.8)
388.9 353.9
Non-controlling interest 17.2 17.0
Total equity 406.1 370.9
Non-current liabilities
Bank and other borrowings 15 747.1 768.4
Lease liabilities 10 185.9 178.9
Trade and other payables 14 5.4 0.9
Deferred tax liabilities 6.4 7.0
Derivatives 51.9 53.3
Retirement benefit deficits 17 217.0 156.2
Provisions for other liabilities 16 79.1 80.8
1,292.8 1,245.5
Current liabilities
Bank and other borrowings 15 20.4 19.6
Lease liabilities 10 44.6 49.9
Trade and other payables 14 949.2 911.1
Contract liabilities 14 761.8 616.4
Income tax payable 16.6 15.8
Derivatives 9.5 12.8
Provisions for other liabilities 16 79.1 67.9
1,881.2 1,693.5
Total liabilities 3,174.0 2,939.0
Total equity and liabilities 3,580.1 3,309.9
Group cash flow statement
For the year ended 31 March Note 2024 2023
£m
£m
Cash flows from operating activities
Profit/(loss) for the year 168.2 (33.3)
Share of results of joint ventures and associates 11 (9.2) (9.3)
Income tax expense 5 48.5 39.5
Finance income 4 (22.1) (21.9)
Finance costs 4 56.2 70.5
Depreciation and impairment of property, plant and equipment 9 54.1 77.0
Depreciation and impairment of right of use assets 10 39.8 91.3
Amortisation and impairment of intangible assets 8 24.0 37.1
Equity share-based payments 12.4 9.4
Net derivative fair value and currency movement through profit or loss (4.9) (7.5)
Fair value movement on assets held at fair value through profit or loss (2.0) -
Loss on disposal of subsidiaries, businesses and joint ventures and associates 3.5 77.4
Profit on disposal of property, plant and equipment (17.1) (2.0)
(Profit)/loss on disposal of right of use assets (3.6) 0.8
Loss on disposal of intangible assets 0.1 1.7
Cash generated from operations before movement in working capital and 347.9 330.7
retirement benefit payments
Increase in inventories (67.1) (25.7)
Decrease/(increase) in receivables 6.1 (71.6)
Increase in contract assets (18.3) (54.2)
Increase in payables 56.1 131.4
Increase in contract liabilities 149.1 132.3
Increase in provisions 8.1 47.9
Retirement benefit contributions in excess of current period expense (107.6) (141.9)
Cash generated from operations 374.3 348.9
Income tax paid (27.4) (25.4)
Interest paid (54.3) (77.0)
Interest received 22.1 14.8
Net cash flows from operating activities 314.7 261.3
Cash flows from investing activities
Disposal of subsidiaries and joint ventures and associates, net of cash (1.3) 158.6
disposed
Dividends received from joint ventures and associates 11 7.1 8.7
Proceeds on disposal of property, plant and equipment 30.6 38.5
Proceeds on disposal of intangible assets - 0.4
Purchases of property, plant and equipment (109.7) (104.2)
Purchases of intangible assets (32.7) (20.9)
Loans repaid by joint ventures and associates 11 7.5 2.4
Loans advanced to joint ventures and associates 11 (2.1) -
Net cash flows from investing activities (100.6) 83.5
Cash flows from financing activities
Dividends paid (8.5) -
Lease payments 18 (49.6) (108.5)
Cash inflow from settlement of derivatives - 0.8
Bank loans repaid 18 (13.1) (972.8)
Loans raised and facilities drawn down 18 - 416.6
Dividends paid to non-controlling interest (1.8) (2.2)
Purchase of own shares by Babcock Employee Share Trust (12.5) -
Net cash flows from financing activities (85.5) (666.1)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 128.6 (321.3)
Cash, cash equivalents and bank overdrafts at beginning of year 18 429.5 756.5
Effects of exchange rate fluctuations 18 (5.5) (5.7)
Cash, cash equivalents and bank overdrafts at end of year 18 552.6 429.5
Notes to the Group financial statements
1. Basis of preparation and significant accounting policies
Basis of preparation
The consolidated financial statements have been prepared on a going concern
basis and in accordance with United Kingdom adopted International Accounting
Standards (IFRS) and the Companies Act 2006 applicable to companies reporting
under IFRS. These condensed consolidated financial statements do not comprise
statutory accounts within the meaning of Section 435 of the Companies Act 2006
and should be read in conjunction with the Annual Report for the year ended 31
March 2024. The comparative figures for the year ended 31 March 2023 are not
the Group's statutory accounts for that financial year. Those financial
statements have been reported upon by the Group's auditor and delivered to the
registrar of companies. The report of the auditor was unqualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and did not contain statements
under Section 498 (2) or (3) of the Companies Act 2006. The consolidated
financial statements are presented in pounds sterling and, unless stated
otherwise, rounded to the nearest million. They have been prepared under the
historical cost convention, as modified by the revaluation of certain
financial assets and financial liabilities (including derivative instruments).
New and amended standards adopted by the Group
The Group applied the following standards and amendments for the first time
for the year beginning on 1 April 2023:
The following standards and amendments to IFRSs became effective for the
annual reporting period beginning on 1 April 2023 and did not have a material
impact on the consolidated financial statements:
• IFRS 17, 'Insurance Contracts': IFRS 17 establishes the principles for the
recognition, measurement, presentation and disclosure of insurance contracts
and supersedes IFRS 4.
IFRS 17 allows an entity a policy choice to instead apply IFRS 15 to contracts
which would otherwise meet the definition of an insurance contract providing
their primary purpose is to provide a service at a fixed fee and provided
certain specific conditions are met. Where these conditions are satisfied, the
Group's policy is to apply IFRS 15 in all such instances.
IFRS 17 also contains a number of scope exclusions - for example, warranties
provided by a manufacturer, dealer or retailer in connection with the sale of
its goods or services to a customer are outside the scope of IFRS 17.
Whilst the Group holds a number of long-term support and maintenance
contracts, it has been concluded that such contracts are either subject to the
above scope exclusions and policy choices, or do not constitute insurance
contracts because there is no transfer of significant insurance risk due to
pricing structure such that additional cost are recoverable from the customer
through variable consideration or final pricing adjustment. As such, none of
the long-term support and maintenance contracts are accounted for under IFRS
17.
The Group has assessed that the standard would impact its captive insurance
company as it issues insurance contracts, however, since the contracts insure
other Group companies, there is no impact on the Consolidated Financial
Statements.
The impact of adopting IFRS 17 is not material for the Group and no
restatement of the prior period Income Statement or Statement of Financial
Position was required.
• Amendments to IAS 1, 'Presentation of Financial Statements': The amendments
change the requirements in IAS 1 with regard to disclosure of accounting
policies. The amendments replace all instances of the term 'significant
accounting policies' with 'material accounting policy information'. Accounting
policy information is material if, when considered together with other
information included in an entity's financial statements, it can reasonably be
expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements.
• The supporting paragraphs in IAS 1 are also amended to clarify that accounting
policy information that relates to immaterial transactions, other events or
conditions is immaterial and need not be disclosed. Accounting policy
information may be material because of the nature of the related transactions,
other events or conditions, even if the amounts are immaterial. However, not
all accounting policy information relating to material transactions, other
events or conditions is itself material.
• Amendments to IAS 8, 'Accounting Policies, Changes in Accounting Estimates and
Errors': The amendments replace the definition of a change in accounting
estimates with a definition of accounting estimates. Under the new definition,
accounting estimates are "monetary amounts in financial statements that are
subject to measurement uncertainty".
• Amendments to IAS 12, 'Income Taxes': The amendments introduce a further
exception from the initial recognition exemption. Under the amendments, an
entity does not apply the initial recognition exemption for transactions that
give rise to equal taxable and deductible temporary differences. Depending on
the applicable tax law, equal taxable and deductible temporary differences may
arise on initial recognition of an asset and liability in a transaction that
is not a business combination and affects neither accounting profit nor
taxable profit.
Critical accounting estimates and judgements
In the course of preparation of the financial statements, judgements and
estimates have been made in applying the Group's accounting policies that have
had a material effect on the amounts recognised in the financial statements.
The application of the Group's accounting policies requires the use of
estimates and the inherent uncertainty in certain forward-looking estimates
may result in a material adjustment to the carrying amounts of assets and
liabilities in the next financial year. Critical accounting estimates are
subject to continuing evaluation and are based on historical experience and
other factors, including expectations of future events that are believed to be
reasonable in light of known circumstances. Critical accounting estimates and
judgements in relation to these financial statements are considered below:
(a) Critical accounting judgements
Critical accounting judgements, apart from those involving estimations, that
are applied in the preparation of the consolidated financial statements are
discussed below. Detail of the Group's key judgements involving estimates are
included in the Key sources of estimation uncertainty section.
(i) Acting as principal or agent
A number of the Group's contracts include promises in relation to procurement
activity undertaken on behalf of customers at low or nil margin,
sub-contractor arrangements, and other pass-through costs. Management is
required to exercise judgement on these revenue streams in considering whether
the Group is acting as principal or agent. This is based on an assessment as
to whether the Group controls the relevant goods or services under the
performance obligations prior to transfer to customers. Factors that influence
this judgement include the level of responsibility the Group has under the
contract for the provision of the goods or services, the extent to which the
Group is incentivised to fulfil orders on time and within budget, either
through gain share arrangements or KPI deductions in relation to the other
performance obligations within the contract, and the extent to which the Group
exercises responsibility in determining the selling price of the goods and
services. Taking all factors into consideration, the Group then comes to a
judgement as to whether it acts as principal or agent on a performance
obligation-by-performance obligation basis. Any changes in this judgement
would not have a material impact on profit, although there may be a material
impact to revenue and operating costs.
(ii) Determining the groups of cash generating units to which goodwill is allocated
IFRS 8 requires that, for the purpose of subsequent impairment testing,
goodwill acquired in business combinations be allocated to cash generating
units ('CGUs') or groups of CGUs expected to benefit from the synergies of the
combination. Such CGUs or groups of CGUs shall represent the lowest level at
which goodwill is monitored for internal management purposes and shall not be
larger than an operating segment.
This determination is generally straightforward and factual, however in some
cases judgement is required.
The Group has identified four operating segments - Aviation, Land, Marine and
Nuclear - and in the case of Aviation, Marine and Nuclear, goodwill is
allocated and monitored at the operating segment level (with these three
operating segments each also comprising a group of CGUs).
Although Land is considered a single operating segment, goodwill is separately
allocated and monitored between the Africa business (as one group of CGUs) and
the remainder of Land (as a second group of CGUs). This distinction exists due
to historic assessments of the Group's operating segments and the fact that
previous Africa business combinations were only anticipated to provide
synergies and benefits across the Africa CGUs.
Other territories may represent separate CGUs or groups of CGUs but are
neither separate operating segments nor is goodwill separately allocated or
monitored at these territory levels.
Over time management reviews the basis upon which goodwill is allocated to
ensure it remains appropriate as businesses are acquired and divested and
reporting structures change, including how information is reported to the
Chief Operating Decision Maker. If there was a change in this judgement this
could result in a material adjustment to goodwill. Further detail is included
in notes 3 and 7.
(iii) Additional work expected under the Type 31 contract
There is judgement in determining whether the Type 31 onerous contract
provision should reflect the benefit of the expected continuation of the
programme. IAS 37.10 states that "a contract is onerous when the unavoidable
costs of meeting the obligations under the contract exceed the economic
benefits expected to be received under it." Judgement is required in
determining whether additional work is treated as a benefit expected to be
received under the Type 31 contract, reducing the onerous contract provision.
The key factors considered in making this judgement are the additional work
expected at contract inception and the economic linkage with the pricing and
other terms of the Type 31 contract. Having carefully considered the available
evidence against the evidential bar required to recognise future benefits, it
was concluded that the expected continuation of the programme should not be
treated as a benefit expected under the Type 31 contract.
(b) Key sources of estimation uncertainty
The key sources of estimation uncertainty at the reporting period end that may
result in significant risk of material adjustment to the carrying amount of
assets and liabilities within the next financial year are set out below:
(i) Revenue and profit recognition
The following represent the notable assumptions impacting upon revenue and
profit recognition as a result of the Group's contracts with customers:
• Stage of completion & costs to complete - The Group's revenue recognition
policies require management to make an estimate of the cost to complete for
long-term contracts. Management estimates outturn costs on a
contract-by-contract basis and estimates are carried out by suitably qualified
and experienced personnel. Estimates of cost to complete include assessment of
contract contingencies arising out of technical, commercial, operational and
other risks. The assessments of all significant contract outturns are subject
to review and challenge, and judgements and estimates are reviewed regularly
throughout the contract life based on latest available information with
adjustments made where necessary. As contracts near completion, often less
judgement is required to determine the expected outturn. The most significant
estimate of contract outturn relates to the Type 31 programme as outlined
below.
• Variable consideration - the Group's contracts are often subject to variable
consideration including performance-based penalties and incentives, gain/pain
share arrangements and other items. Variable consideration is added to the
transaction price only to the extent that it is highly probable that there
will not be a significant reversal in the amount of cumulative revenue
recognised once the underlying uncertainty is resolved.
• Inflation - The level to which the Group's revenue and cost for each contract
will be impacted by inflation is a key accounting estimate, as this could
cause the revenue and cost of contract delivery to be greater than was
expected at the time of contracting. The Group's contracts are exposed to
inflation due to rising employment costs, as well as increased costs of raw
materials. The Group endeavours to include cost recovery mechanisms or
index-linked pricing within its contracts with customers in order to mitigate
any inflation risk arising from increasing employment and raw material costs.
Type 31 Programme estimates
The contract to produce 5 Type 31 frigates was won under competitive tender in
2019, based on Babcock's Arrowhead 140 design. The contract is important in
providing access to an expected pipeline of Type 31 work and developing our
Arrowhead 140 design for opportunities overseas. Although the contract
contained certain escalation clauses, it provided limited protection from the
macroeconomic changes of recent years relating to Brexit, Covid, raw material
prices and UK labour shortages, which have significantly increased our costs.
Following the outcome of discussions with the customer over these matters, a
£100 million charge was recorded in the prior financial year.
This year we launched an operational improvement programme to address all
areas of the Type 31 programme. This has included a significant focus on cost
drivers and financial modelling, supported by external consultants, and has
led to a number of management changes. This has enabled a more detailed
reassessment, robustly supported by actual cost data, other empirical evidence
and a further year of experience of the programme.
We recorded a £90 million charge at the end of the year. Estimated costs over
the life of the contract have increased due to the maturing of the design and
an increase in the forecast cost of labour. The £90 million charge has been
recognised as a £66 million reduction in revenue (which increases the
contract liability within working capital) and £24 million increase in the
onerous contract provision.
Determining the contract outturn, and therefore revenue and onerous contract
provision recognised, requires assumptions and complex judgements to be made
about the future performance of the contract. The level of uncertainty in the
estimates made in assessing the outturn is linked to the complexity of the
underlying contract.
The estimates in assessing the outturn are set out below, along with the
related estimation methods, data sources and management actions to offset the
increases in the year.
a) The number of production hours - which requires estimation of a standard level
of hours for manufacturing, structural and outfitting activities, determined
with reference to previous experience of comparable programmes and industry
data where available. The estimation of the time taken to improve to this
standard level is also relevant, based on a detailed enablement plan which is
a key output of the operational improvement programme. The volume of
activities is based on a detailed assessment of the Bill of Materials,
supported by dedicated engineering software
b) The cost of labour - which is dependent on our ability to recruit, the mix of
the workforce between permanent and contingent workers from the UK and
overseas, the utilisation of semi-skilled and apprentice workers and shift
patterns and premiums. A detailed resourcing plan is used to support this
estimate with actions required to achieve an efficient labour mix
c) The cost of bought-in parts and services through suppliers and sub-contractors
- which includes the outcome of procurement tenders, finalisation of other
areas of unagreed pricing and the agreement of discounts and incentive
arrangements
d) The ability to improve operational performance through process efficiencies,
quality and engineering improvements over the five ships - which requires
actions to reduce re-work, optimise the location in which outfitting is
performed, deliver specific productivity initiatives and make engineering
changes to reduce the cost of manufacture, structural assembly and outfitting
e) The number of hours required by support functions - primarily in engineering
which is impacted by the timely completion of remaining design activities and
effective management of production support and change requests. A detailed
engineering scope review has been performed to support this estimate. The
maturity of the design and estimation process has allowed us to target
improvements in ongoing support and overhead costs
f) The determination of non-incremental costs which relate directly to fulfilling
the contract and are therefore partially allocated to the contract to
determine the loss provision - including facility and overhead costs
g) The impact of inflation on the contract price and costs to fulfil the contract
- particularly in relation to labour which may be impacted by changes in the
local, UK and overseas labour markets, competitor activity and government
policy
h) The achievement of the build schedule to completion and final acceptance -
including the satisfaction of all contractual performance criteria. The
schedule analysis is based on detailed modelling and the performance of
multiple scenario analysis
The cost estimation process has involved a number of key elements:
• Regular governance at the Group level to monitor progress and enable
support as required
• Bottom-up costing at the activity level performed by individual
business areas
• Reassessment of risk based on the updated cost estimates, considering
ranges of outcomes and probabilities
• Input from functional specialists from across the Group
• Development of financial models based on cost drivers, using actual
data and other evidence to inform the forecast outturn
• Detailed documentation of estimates made, including process followed,
sources of evidence and basis for conclusions
• Review and challenge at the Programme, Sector and Groups levels,
culminating in a number of dedicated reviews with the Audit Committee
The range of possible future outcomes in respect of assumptions made to
determine the contract outturn could result in a material increase or decrease
in revenue and the value of the onerous contract provision, and hence on the
Group's profitability, in the next financial year. The estimates described
above are by their nature inter-related for this programme and are unlikely to
change with everything else constant. However, for illustrative purposes, we
have provided sensitivities to certain isolated changes in key estimates on
the basis that all other factors remain constant:
• Production hours - which are impacted by production norms, rate of
improvement, process efficiencies and quality/engineering improvements (see a)
and d) above). A 10% increase/decrease in production hours would
increase/decrease the loss by £32m
• Labour rate - which is impacted by our ability to recruit permanent
staff, the mix of the workforce, ancillary costs and inflation (see b) and g)
above). A 10% increase/decrease in the average labour rate would
increase/decrease the loss by £45m
• Supply chain costs - (see c) above) - which are impacted by the
agreement of remaining pricing, discounts and incentive arrangements. A 10%
increase/decrease in supply chain costs would increase/decrease the loss by
£31 million
• Non-production costs - (see e), f) and h) above)- which are impacted by
the build schedule. A 6-month delay beyond the current planning assumption
would increase/decrease the loss by £24 million
Overall, with c£1bn of estimated costs to go over the life of the contract,
if actual costs were to differ from those assumed by 10%, the potential impact
on the contract outturn could be c.£100 million.
To mitigate this, comparisons of actual contract performance and previous
forecasts used to assess the contract outturn are performed regularly, with
consideration given to whether any revisions to assumptions are required. In
the next financial year, many of the 'first time' tasks and work to integrate
the various elements of the first ship will be substantially complete. This
will reduce the uncertainty over the contract outturn but a significant
element will remain due to the substantial activity which extends over the
remaining years. In a major ship build programme of this nature, it is
inherently possible that there may be changes in circumstances which cannot
reasonably be foreseen at the present time.
(ii) Defined benefit pension schemes obligations
The Group's defined benefit pension schemes are assessed annually in
accordance with IAS 19 and the valuation of the defined benefit pension
obligations is sensitive to the inflation, discount rate, actuarial and life
expectancy assumptions used. There is a range of possible values for the
assumptions and small changes to the assumptions may have a significant impact
on the valuation of the defined benefit pension obligations. In addition to
the inflation, discount rate and life expectancy estimates, management is
required to make an accounting judgement relating to the expected availability
of future accounting surpluses under IFRIC 14. Further information on the key
assumptions and sensitivities is included in note 17.
2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting items
The Group provides alternative performance measures, including underlying
operating profit, to enable users to have a more consistent view of the
performance and earnings trends of the Group. These measures are considered to
provide a consistent measure of business performance from year to year. They
are used by management to assess operating performance and as a basis for
forecasting and decision-making, as well as the planning and allocation of
capital resources. They are also understood to be used by investors in
analysing business performance.
The Group's alternative performance measures are not defined by IFRS and are
therefore considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies and they are not
intended to be a substitute for, or superior to, measures defined under IFRS.
The Group's alternative performance measures are consistent with the year
ended 31 March 2023.
Underlying operating profit
In any given year the statutory measure of operating profit includes a number
of items which the Group considers to either be one-off in nature or otherwise
not reflective of underlying performance. Underlying operating profit
therefore adjusts statutory operating profit to provide readers with a measure
of business performance which the Group considers more consistently analyses
the underlying performance of the Group by removing these one-off and other
items not reflective of underlying performance that otherwise add volatility
to performance.
Underlying operating profit eliminates potential differences in performance
caused by purchase price allocations on business combinations in prior periods
(amortisation of acquired intangibles), business acquisition, merger and
divestment related items, large, infrequent restructuring programmes and fair
value movements on derivatives. Transactions such as these may happen
regularly and could significantly impact the statutory result in any given
year. Adjustments to underlying operating profit may include both income and
expenditure items.
Specific adjusting items include:
• Amortisation of acquired intangibles;
• Business acquisition, merger and divestment related items
(being amounts related to corporate transactions and gains or losses on
disposal of assets or businesses);
• Gains, losses and costs directly arising from the Group's
withdrawal from a specific market or geography, including closure costs,
severance costs, the disposal of assets and termination of leases;
• The costs of large restructuring programmes that significantly
exceed the minor restructuring which occurs in most years as part of normal
operations. Restructuring costs incurred as a result of normal operations are
included in operating costs and are not excluded from underlying operating
profit;
• Profit or loss from amendment, curtailment, settlement or
equalisation of Group pension schemes;
• Fair value gain/(loss) on forward rate contracts that are open
during the period; and
• Exceptional items that are significant, non-recurring and
outside of the normal operating practice. These items are described as
exceptional in order to appropriately represent the Group's underlying
business performance. Exceptional items are set out in the Exceptional items
section below.
Income statement including underlying results
Note Year ended 31 March 2024 Year ended 31 March 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Revenue 3 4,390.1 - 4,390.1 4,438.6 - 4,438.6
Operating profit/(loss) 3 237.8 3.8 241.6 177.9 (132.4) 45.5
Operating margin % 5.4% - 5.5% 4.0% - 1.0%
Results from joint ventures and associates 11 9.2 - 9.2 9.3 - 9.3
Net finance costs 4 (35.9) 1.8 (34.1) (58.3) 9.7 (48.6)
Profit/(loss) before tax 211.1 5.6 216.7 128.9 (122.7) 6.2
Income tax (expense)/benefit 5 (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)
Profit/(loss) after tax for the year 157.6 10.6 168.2 91.2 (124.5) (33.3)
Earnings per share including underlying measures
Year ended 31 March 2024 Year ended 31 March 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit/(loss) after tax for the year 157.6 10.6 168.2 91.2 (124.5) (33.3)
Amount attributable to owners of the parent 155.1 10.6 165.7 89.5 (124.5) (35.0)
Amount attributable to non-controlling interests 2.5 - 2.5 1.7 - 1.7
Weighted average number of shares (m) 503.5 503.5 505.4 505.4
Effect of dilutive securities (m) 11.8 11.8 9.5 9.5
Diluted weighted average number of shares (m) 515.3 515.3 514.9 514.9
Basic EPS 30.8p 32.9p 17.7p (6.9)p
Diluted EPS 30.1p 32.2p 17.4p (6.9)p
Details of specific adjusting items
The impact of specific adjusting items is set out below:
Year ended Year ended
31 March 2024
31 March 2023
£m
£m
Amortisation of acquired intangibles (10.8) (15.8)
Business acquisition, merger and divestment related items 8.2 (117.7)
Fair value movement on derivatives and related items 6.4 1.1
Adjusting items impacting operating profit/(loss) 3.8 (132.4)
Fair value movement on derivatives and related items 1.8 9.7
Adjusting items impacting loss before tax 5.6 (122.7)
Income tax benefit
Amortisation of acquired intangibles 3.9 4.1
Business acquisition, merger and divestment related items (1.0) (2.1)
Fair value movement on derivatives and related items (2.0) (2.6)
Exceptional tax on Group reorganisation activities 4.7 -
Other tax items including rate change impact (0.6) (1.2)
Income tax benefit/(expense) 5.0 (1.8)
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 profit relating to business acquisition, merger and divestment
related items for the year ended 31 March 2024 was £8.2 million (2023: loss
of £117.7 million). The prior year balance consisted of a loss on the
disposal of the Aerial Emergency Services business in Europe of £116.9
million, a loss on disposal of the Group's Civil Training business of £3.9
million and a gain relating to the disposal of the Oil & Gas business in
Aviation of £3.1 million. The current year profit relates to changes in the
cash consideration and provision balances following settlement of certain
warranties in respect of prior disposals.
Fair value movement on derivatives and related items
These are open forward currency contracts, taken out in the ordinary course of
business to manage foreign currency exposures, where the transaction will
occur in future periods. Hedge accounting under IFRS is not applied, however
these do represent economic hedges. On maturity the currency contract will be
closed and recognised in full within underlying operating profit at the same
time as the hedged sale or purchase. The net result, at that time, will then
more appropriately reflect the related sales price or supplier cost being
hedged (which is fixed to ensure ultimately profitable outcomes).
Hedge ineffectiveness on debt and debt-related derivatives that are designated
in a hedge relationship are also presented as a specific adjusting item in
finance costs. This is presented as a specific adjusting item as this
ineffectiveness is caused by a historic off-market designation, the
transactions are considered by the Group to represent an economic hedge.
The fair value movement on lease-related derivatives and foreign exchange
movements on lease liabilities are also presented as a specific adjusting item
in finance costs, as hedge accounting under IFRS is also not applied to these
transactions but are also considered by the Group to represent an economic
hedge.
Tax
Specific adjusting items in respect of tax comprises a charge of £0.6 million
(2023: £1.2 million) arising from the impact of the increase in the rate of
corporation tax and a credit of £4.7 million (2023: £nil million) arising
from the release of uncertain tax positions in respect of historic group
reorganisation activities.
3. Segmental information
The Group has four reportable segments, determined by reference to the goods
and services they provide and the markets they serve.
Marine - through-life support of naval ships, equipment and marine
infrastructure in the UK and internationally.
Nuclear - through-life support of submarines and complex engineering services
in support of major decommissioning programmes and projects, training and
operation support, new build programme management and design and installation
in the UK.
Land - large-scale critical vehicle fleet management, equipment support and
training for military and civil customers.
Aviation - critical engineering services to defence and civil customers
worldwide, including pilot training, equipment support, airbase management and
operation of aviation fleets delivering emergency services.
The Board, the chief operating decision maker as defined by IFRS 8, monitors
the results of these reportable segments and makes decisions about the
allocation of resources. The Group's business in Africa meets the definition
of an operating segment, as defined by IFRS 8. In accordance with IFRS 8, the
Africa operating segment is included in the Land reportable segment.
The table below presents the underlying results for each reportable segment in
accordance with the definition of underlying operating profit, as set out in
note 2, and reconciles the underlying operating profit/(loss) to the statutory
profit/(loss) before tax.
Year ended 31 March 2024 Marine Nuclear Land Aviation Unallocated Total
£m
£m
£m
£m
£m
£m
Revenue 1,429.1 1,520.9 1,098.6 341.5 - 4,390.1
Underlying operating profit 13.1 109.2 96.3 19.2 - 237.8
Specific Adjusting Items (note 2)
Amortisation of acquired intangibles (7.5) - - (3.3) - (10.8)
Business acquisition, merger and divestment related items (1.5) - (0.2) 9.9 - 8.2
Fair value gain/(loss) on forward rate contracts to be settled in future 6.9 - - (0.5) - 6.4
periods
Operating profit 11.0 109.2 96.1 25.3 - 241.6
Results from joint ventures and associates (2.3) 0.2 0.3 11.0 - 9.2
IFRIC 12 investment income - - 0.5 - - 0.5
Other net finance costs* - - - - (34.6) (34.6)
Profit/(loss) before tax 8.7 109.4 96.9 36.3 (34.6) 216.7
Year ended 31 March 2023 Marine Nuclear Land Aviation Unallocated Total
£m
£m
£m
£m
£m
£m
Revenue 1,439.6 1,179.2 1,017.1 802.7 - 4,438.6
Underlying operating profit 12.7 63.5 85.9 15.8 - 177.9
Specific Adjusting Items (note 2)
Amortisation of acquired intangibles (9.7) - (1.1) (5.0) - (15.8)
Business acquisition, merger and divestment related items - - (4.0) (113.7) - (117.7)
Fair value gain/(loss) on forward rate contracts to be settled in future 2.8 0.1 0.1 (1.9) - 1.1
periods
Operating profit/(loss) 5.8 63.6 80.9 (104.8) - 45.5
Results from joint ventures and associates (1.2) 1.1 0.4 9.0 - 9.3
IFRIC 12 investment income - - 0.7 - - 0.7
Other net finance costs* - - - - (49.3) (49.3)
Profit/(loss) before tax 4.6 64.7 82.0 (95.8) (49.3) 6.2
* Other net finance costs are not allocated to a specific sector.
Revenues of £2.5 billion (2023: £2.2 billion) are derived from a single
external customer. These revenues are attributable across all reportable
segments.
4. Net finance costs
Year ended Year ended
31 March 2024
31 March 2023
£m
£m
Finance costs
Loans, overdrafts and associated interest rate hedges 38.5 29.6
Lease interest and foreign exchange movements on lease liabilities 9.6 21.7
Amortisation of issue costs of bank loan 3.0 3.3
Retirement benefit interest cost 0.8 -
Other 4.3 15.9
Total finance costs 56.2 70.5
Finance income
Bank deposits, loans and leases 21.6 13.7
IFRIC 12 Investment income 0.5 0.7
Retirement benefit interest income - 7.5
Total finance income 22.1 21.9
Net finance costs 34.1 48.6
Net finance costs decreased to £34.1 million (2023: £48.6 million). Included
in finance costs are £4.4 million (2023: £12 million) relating to the
factoring of receivables for the Mentor contract in France (within other
finance costs).
The prior year included a one-off gain of £18 million relating to the
valuation of interest rate swaps (within loans, overdrafts and associated
interest rate hedges).
5. Taxation
Income tax expense
Total
Year ended Year ended
31 March 2024
31 March 2023
£m
£m
Analysis of tax expense in the year
Current tax
• UK current year expense - 0.6
• Overseas current year expense 21.8 24.5
• Overseas prior year (benefit) / expense (0.1) 2.9
21.7 28.0
Deferred tax
• UK current year expense 26.1 11.1
• UK prior year expense/(benefit) 0.5 (3.3)
• Overseas current year expense 1.8 3.6
• Overseas prior year benefit (2.2) (1.1)
• Impact of changes in tax rates 0.6 1.2
26.8 11.5
Total income tax expense 48.5 39.5
The tax for the year is lower (2023: higher) than the standard rate of
corporation tax in the UK. The differences are explained below:
Year ended Year ended
31 March 2024
31 March 2023
£m
£m
Profit before tax 216.7 6.2
Profit on ordinary activities multiplied by rate of corporation tax in the UK 54.2 1.2
of 25% (2023: 19%)
Effects of:
Expenses not deductible for tax purposes 3.4 8.6
Re-measurement of deferred tax in respect of statutory rate changes 0.6 1.2
Difference in respect of share of results of joint ventures and associates' (2.6) (1.8)
results
Prior year adjustments (1.8) (1.5)
Differences in respect of foreign rates 2.0 5.8
Unrecognised deferred tax movements 2.5 9.0
Deferred tax not previously recognised/derecognised (3.1) -
Non-taxable profits on disposals and non-deductible losses on disposals (2.1) 22.4
Other (4.6) (5.4)
Total income tax expense 48.5 39.5
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 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 2024 the Group held
uncertain tax positions of £23.7 million (2023: £20.3 million).
During the prior period the Group made disposals that are expected to be
exempt from UK tax due to qualification for the UK substantial shareholding
exemption, and from overseas tax as a consequence of local reliefs.
6. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the earnings/(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
2024 2023
Number
Number
Weighted average number of ordinary shares for the purpose of basic EPS 503,452,989 505,391,563
Effect of dilutive potential ordinary shares: share options 11,869,860 9,528,985
Weighted average number of ordinary shares for the purpose of diluted EPS 515,322,849 514,920,548
Earnings per share
Year ended 31 March 2024 Year ended 31 March 2023
Earnings attributable to shareholders Basic Diluted Loss attributable to shareholders Basic Diluted
£m
per share
per share
£m
per share
per share
Pence
Pence
Pence
Pence
Earnings/(loss) for the year 165.7 32.9 32.2 (35.0) (6.9) (6.9)
7. Goodwill
31 March 2024 31 March 2023
£m
£m
Cost
At 1 April 1,823.3 2,312.7
On disposal of subsidiaries - (488.0)
Exchange adjustments (1.3) (1.4)
At 31 March 1,822.0 1,823.3
Accumulated impairment
At 1 April 1,041.9 1,529.3
On disposal of subsidiaries - (487.4)
At 31 March 1,041.9 1,041.9
Net book value at 31 March 780.1 781.4
Goodwill is allocated to the operating segments as set out in the table below:
31 March 2024 31 March 2023
£m
£m
Marine 295.5 296.6
Nuclear 233.1 233.1
Land (excluding Africa) 218.0 218.0
Aviation 32.0 32.0
Africa 1.5 1.7
780.1 781.4
Goodwill was tested for impairment at 31 March 2024 in accordance with IAS 36.
This impairment analysis is performed at least annually, as outlined in the
Group's accounting policies. The Group monitors goodwill at groups of CGUs
aligned to the Group's operating segments for Marine, Aviation and Nuclear.
Goodwill is separately allocated and monitored between two groups of CGUs in
the Land operating segment - Africa and Land (excluding Africa).
Results of goodwill impairment test
The current year impairment test results have not resulted in an impairment
for any of the Group's cash generating units. The recoverable amount of the
Group's goodwill was assessed by reference to value-in-use calculations. The
value-in-use calculations are derived from risk-adjusted cash flows from the
Group's five-year plan. Terminal value assessments are included based on year
five and an estimated long-term, country-specific growth rate of 2.0 - 4.6%
(2023: 1.9 - 4.6%). The process by which the Group's budget is prepared,
reviewed and approved benefits from historical experience, visibility of
long-term work programmes in relation to work undertaken for the UK
Government, available government spending information (both UK and overseas),
the Group's contract backlog, bid pipeline and the Group's tracking pipeline
which monitors opportunities prior to release of tenders. The budget process
includes consideration of risks and opportunities at contract and business
level and considered matters such as inflation.
8. Other intangible assets
Acquired Internally generated software development Internally generated development Assets under construction Total
intangibles -
costs and
costs and
£m
relationships
licences
other £m
£m
£m
£m
Cost
At 1 April 2023 861.0 231.3 15.0 - 1,107.3
Additions - 6.9 10.0 16.4 33.3
Reclassification from property, plant and equipment (note 9) - - - 1.4 1.4
Reclassification from AUC to in-use assets - 16.4 0.1 (16.5) -
Disposals at cost - (1.0) - - (1.0)
Exchange adjustments (10.1) (0.2) (0.1) - (10.4)
At 31 March 2024 850.9 253.4 25.0 1.3 1,130.6
Accumulated amortisation and impairment
At 1 April 2023 794.4 166.5 5.6 - 966.5
Amortisation charge 10.8 8.6 4.6 - 24.0
Disposals - (0.9) - - (0.9)
Exchange adjustments (7.4) (0.5) 0.1 - (7.8)
At 31 March 2024 797.8 173.7 10.3 - 981.8
Net book value at 31 March 2024 53.1 79.7 14.7 1.3 148.8
Cost
At 1 April 2022 1,095.3 222.6 27.6 - 1,345.5
Additions - 18.1 3.4 - 21.5
Reclassification from property, plant and equipment (note 9) - 3.0 0.3 - 3.3
Disposal of subsidiary undertakings (237.0) (4.9) (13.9) - (255.8)
Disposals at cost (2.0) (7.4) (3.0) - (12.4)
Exchange adjustments 4.7 (0.1) 0.6 - 5.2
At 31 March 2023 861.0 231.3 15.0 - 1,107.3
Accumulated amortisation and impairment
At 1 April 2022 1,005.8 156.8 6.2 - 1,168.8
Amortisation charge 15.8 10.5 1.8 - 28.1
Impairment - 9.0 - - 9.0
Disposal of subsidiary undertakings (233.0) (3.1) (0.8) - (236.9)
Disposals (2.0) (6.6) (1.7) - (10.3)
Exchange adjustments 7.8 (0.1) 0.1 - 7.8
At 31 March 2023 794.4 166.5 5.6 - 966.5
Net book value at 31 March 2023 66.6 64.8 9.4 - 140.8
Acquired intangible amortisation charges for the year are recorded in
operating costs.
Included in Internally generated software development costs and licences is
£36.9 million (2023: £38.6 million) relating to the Group's ERP system,
which is amortised over a 10-year period. Included in the acquired intangible
balance is £42.8 million (2023: £52.3 million) relating to the acquisition
of NSM. This is being amortised over a period of 20 years.
9. 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 2023 212.2 15.2 571.0 97.5 90.8 986.7
Additions 2.3 0.1 22.2 5.3 77.7 107.6
Reclassified to other intangible assets (note 8) - - (1.4) - - (1.4)
Reclassification from AUC to in-use assets 10.4 0.2 37.2 0.3 (48.1) -
Disposals (4.1) - (12.0) (21.0) - (37.1)
Capitalised borrowing costs - - - - 3.9 3.9
Exchange adjustments (0.2) (0.1) (4.7) (2.2) (0.2) (7.4)
At 31 March 2024 220.6 15.4 612.3 79.9 124.1 1,052.3
Accumulated depreciation
At 1 April 2023 74.4 12.1 390.6 24.9 6.2 508.2
Depreciation charge for the year 7.4 1.0 39.1 4.5 - 52.0
Impairment - - - 2.1 - 2.1
Disposals (2.2) - (8.7) (12.7) - (23.6)
Exchange adjustments (0.1) (0.1) (2.5) (0.9) 0.1 (3.5)
At 31 March 2024 79.5 13.0 418.5 17.9 6.3 535.2
Net book value at 31 March 2024 141.1 2.4 193.8 62.0 117.8 517.1
Cost
At 1 April 2022 151.8 24.7 524.9 303.1 213.9 1,218.4
On disposal of subsidiaries (9.4) (9.0) (32.1) (224.1) (13.9) (288.5)
Additions 0.4 0.2 33.2 27.8 48.3 109.9
Transfer to intangible assets (note 8) - - - - (3.3) (3.3)
Reclassification from AUC to in-use assets 70.0 - 66.0 3.0 (139.0) -
Transfer from Right-of use-assets - - - 19.5 - 19.5
Disposals (0.8) - (13.1) (40.2) (18.8) (72.9)
Capitalised borrowing costs - - - - 0.6 0.6
Exchange adjustments 0.2 (0.7) (7.9) 8.4 3.0 3.0
At 31 March 2023 212.2 15.2 571.0 97.5 90.8 986.7
Accumulated depreciation
At 1 April 2022 70.7 11.1 373.2 52.3 0.5 507.8
On disposal of subsidiaries (2.9) (0.5) (14.3) (33.9) - (51.6)
Depreciation charge for the year 7.1 1.5 45.4 18.1 - 72.1
Impairment - - - (0.8) 5.7 4.9
Transfer from Right-of-use-assets - - - 11.5 - 11.5
Disposals (0.7) - (11.2) (24.0) (0.5) (36.4)
Exchange adjustments 0.2 - (2.5) 1.7 0.5 (0.1)
At 31 March 2023 74.4 12.1 390.6 24.9 6.2 508.2
Net book value at 31 March 2023 137.8 3.1 180.4 72.6 84.6 478.5
10. Leases
Group as a lessee
Leases 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 2023 141.6 67.7 138.0 347.3
Additions 21.6 12.9 34.6 69.1
Disposals (21.2) (6.3) (14.8) (42.3)
Exchange adjustments (1.9) (0.2) (4.7) (6.8)
At 31 March 2024 140.1 74.1 153.1 367.3
Accumulated depreciation
At 1 April 2023 49.5 45.7 93.0 188.2
Depreciation charge for the year 18.0 8.9 12.9 39.8
Disposals (12.6) (5.2) (14.0) (31.8)
Exchange adjustments (1.0) (0.1) (3.4) (4.5)
At 31 March 2024 53.9 49.3 88.5 191.7
Net book value at 31 March 2024 86.2 24.8 64.6 175.6
At 1 April 2022 127.3 64.7 383.0 575.0
Additions 37.1 9.8 67.7 114.6
Transfer to Property, plant and equipment - - (19.5) (19.5)
Disposals (10.0) (3.7) (24.5) (38.2)
Disposal of subsidiaries (11.5) (3.5) (269.8) (284.8)
Exchange adjustments (1.3) 0.4 1.1 0.2
At 31 March 2023 141.6 67.7 138.0 347.3
Accumulated depreciation
At 1 April 2022 42.5 40.9 157.3 240.7
Depreciation charge for the year 20.5 9.1 52.1 81.7
Impairment 0.9 - 8.7 9.6
Disposals (7.0) (3.3) (21.7) (32.0)
Disposal of subsidiaries (6.9) (1.3) (94.6) (102.8)
Transfer to Property, plant and equipment - - (11.5) (11.5)
Exchange adjustments (0.5) 0.3 2.7 2.5
At 31 March 2023 49.5 45.7 93.0 188.2
Net book value at 31 March 2023 92.1 22.0 45.0 159.1
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 2023 228.8
Additions 68.0
Disposals (12.8)
Exchange adjustments (3.9)
Lease interest 9.8
Lease repayments (59.4)
At 31 March 2024 230.5
Non-current lease liabilities 185.9
Current lease liabilities 44.6
At 31 March 2024 230.5
At 1 April 2022 434.1
Additions 117.0
Disposals (5.3)
Disposal of subsidiaries (218.1)
Exchange adjustments 9.6
Lease interest 15.9
Lease repayments (124.4)
At 31 March 2023 228.8
Non-current lease liabilities 178.9
Current lease liabilities 49.9
At 31 March 2023 228.8
11. Investment in and loans to joint ventures and associates
Investment in joint ventures and associates Loans to joint ventures and associates Total
2024 2023 2024 2023 2024 2023
£m
£m
£m
£m
£m
£m
At 1 April 57.4 54.3 9.5 12.1 66.9 66.4
Share of profits of joint ventures and associates 10.3 9.3 - - 10.3 9.3
Impairment of joint ventures and associates (1.1) - - - (1.1) -
Results from joint ventures and associates 9.2 9.3 - - 9.2 9.3
Acquisition and disposal of joint ventures and associates - (1.0) - - - (1.0)
Loans repaid by joint ventures and associates - - (7.5) (2.4) (7.5) (2.4)
Increase in loans to joint ventures and associates - - 2.1 - 2.1 -
Interest accrued and capitalised - - 0.3 1.0 0.3 1.0
Interest received - - (0.5) (1.2) (0.5) (1.2)
Dividends received (7.1) (8.7) - - (7.1) (8.7)
Fair value adjustment of derivatives 0.3 4.7 - - 0.3 4.7
Tax on fair value adjustment of derivatives (0.1) (1.2) - - (0.1) (1.2)
At 31 March 59.7 57.4 3.9 9.5 63.6 66.9
The total investments in joint ventures and associates is attributable to the
following reportable segments:
31 March 2024 31 March 2023
£m
£m
Marine 3.3 3.7
Nuclear 1.6 1.4
Land 0.2 0.2
Aviation 58.5 61.6
Net book value 63.6 66.9
The joint ventures and associates have no significant contingent liabilities
to which the Group is exposed. The Group does not have any commitments that
have been made to the joint ventures or associates and not recognised at the
reporting date.
Joint arrangements are classified as joint ventures where the Group has the
right to net assets of the joint arrangement rather than separate rights and
obligations to the assets and liabilities of the joint arrangement,
respectively. There has been no impairment to loans to joint ventures and
associates during the year (2023: £nil). Total cumulative expected credit
losses in respect of loans to joint ventures and associates are also £nil
(2023: £nil) as the joint ventures and associates are considered to have low
credit risk and as such impairment risk is considered minimal.
There are no significant restrictions on the ability of joint ventures and
associates to transfer funds to the owners, other than those imposed by the
Companies Act 2006 or equivalent local regulations.
12. Inventories
31 March 2024 31 March 2023
£m
£m
Raw materials and spares 58.1 58.6
Work-in-progress 4.6 7.2
Finished goods and goods for resale 124.7 61.0
Total 187.4 126.8
Write-downs of inventories amounted to £13.8 million (2023: £5.4 million).
These were recognised as an expense during the year ended 31 March 2024 and
included in operating costs in the income statement. Inventory recognised as
an expense in the year amounted to £357.2 million (2023: £320.5 million).
13. Trade and other receivables and contract assets
31 March 2024 31 March 2023
£m
£m
Non-current assets
Costs to obtain a contract 0.3 2.8
Costs to fulfil a contract 10.2 1.4
Other debtors 2.5 2.2
Non-current trade and other receivables 13.0 6.4
Current assets
Trade receivables 266.4 307.3
Less: provision for impairment of receivables (8.5) (7.3)
Trade receivables - net 257.9 300.0
Retentions 6.1 6.0
Amounts due from related parties 2.3 2.1
Other debtors1 25.0 49.6
Other taxes and social security receivables 98.1 79.8
Prepayments 88.2 63.7
Costs to obtain a contract - 0.6
Costs to fulfil a contract 9.6 5.1
Current trade and other receivables 487.2 506.9
Contract assets 337.4 322.5
Current trade and other receivables and contract assets 824.6 829.4
(1) Included in other debtors are rebates receivable and other sundry
receivables. No individual balance within other debtors is material.
Trade and other receivables are stated at amortised cost.
The Group recognises that there is an inherent element of estimation
uncertainty and judgement involved in assessing contract profitability, as
disclosed in note 1. Management have taken a best estimate view of contract
outcomes based on the information currently available, after allowing for
contingencies, and have applied a constraint to the variable consideration
within revenue resulting in a revenue estimate that is suitably cautious under
IFRS 15.
14. Trade and other payables and contract liabilities
31 March 2024 31 March 2023
£m
£m
Current liabilities
Contract liabilities 761.8 616.4
Trade creditors 314.3 239.1
Amounts due to related parties 1.5 0.8
Other creditors 13.5 34.0
Defined contribution pension creditor 8.3 7.6
Other taxes and social security 71.1 75.5
Accruals 540.5 554.1
Trade and other payables 949.2 911.1
Trade and other payables and contract liabilities 1,711.0 1,527.5
Non-current liabilities
Non-current accruals 4.8 -
Other creditors 0.6 0.9
5.4 0.9
Included in creditors is £11.4 million (2023: £12.9 million) relating to
capital expenditure which has therefore not been included in working capital
movements within the cash flow statement.
15. Bank and other borrowings
31 March 2024 31 March 2023
£m
£m
Current liabilities
Bank loans and overdrafts due within one year or on demand
Secured 4.5 0.3
Unsecured 15.9 19.3
20.4 19.6
Lease obligations* 44.6 49.9
65.0 69.5
Non-current liabilities
Bank and other borrowings
Secured 2.5 21.0
Unsecured 744.6 747.4
747.1 768.4
Lease obligations* 185.9 178.9
933.0 947.3
* Leases are secured against the assets to which they relate.
Repayment details
The total borrowings of the Group at 31 March are repayable as follows:
31 March 2024 31 March 2023
Loans and Lease Loans and Lease
overdrafts
obligations
overdrafts
obligations
£m
£m
£m
£m
Within one year 20.4 44.6 19.6 49.9
Between one and two years 0.6 38.2 0.3 40.6
Between two and three years 296.0 33.2 0.6 34.5
Between three and four years 449.8 24.8 300.6 23.4
Between four and five years 0.7 19.5 466.2 19.9
Greater than five years - 70.2 0.7 60.5
767.5 230.5 788.0 228.8
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available
at 31 March:
31 March 2024 31 March 2023
£m
£m
Expiring in more than one year but not more than five years 775.0 1,152.8
775.0 1,152.8
16. Provisions for other liabilities
Contract/ Employee related 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 1 April 2022 53.5 39.7 0.3 21.0 1.4 115.9
On disposal of subsidiaries (8.5) (1.2) - (5.8) (0.1) (15.6)
Reclassification (1.0) 1.4 - (4.3) 3.9 -
Charge to income statement 85.3 12.8 - 8.6 1.2 107.9
Release to the income statement (9.3) (2.4) - (0.2) (1.8) (13.7)
Utilised in year (20.2) (19.2) (0.3) (4.8) (1.8) (46.3)
Unwinding of discount - 0.2 - - - 0.2
Foreign exchange 0.6 (0.8) - 0.6 (0.1) 0.3
At 31 March 2023 100.4 30.5 - 15.1 2.7 148.7
Charge to income statement 66.4 10.3 - 10.3 2.7 89.7
Release to the income statement (19.4) (3.6) - (0.5) (0.1) (23.6)
Utilised in year (31.3) (6.2) - (1.4) (0.7) (39.6)
Reclassified to accruals(1) - (18.0) - - - (18.0)
Unwinding of discount 2.4 0.3 - - - 2.7
Foreign exchange (0.7) (0.9) - - (0.1) (1.7)
At 31 March 2024 117.8 12.4 - 23.5 4.5 158.2
(1) Immaterial amounts related to employee benefits have been reclassified to
current and non-current accruals during the period.
a) The contract/warranty provisions relate to onerous contracts and warranty
obligations on completed contracts and disposals. Warranty provisions are
provided in the normal course of business and are recognised when the
underlying products and services are sold. The provision is based on an
assessment of future claims with reference to historical warranty data and a
weighting of possible outcomes against their associated probabilities. Onerous
contracts relate to expected future losses on contracts with customers -
notably T31 as outlined in note 1.
b) Employee related and business reorganisation costs relate to business
restructuring activities including announced redundancies in addition to
employee related provisions other than employee benefits.
c) Italian anti-trust fines pertain to historic court rulings in respect of the
Babcock Mission Critical Services Italia SpA subsidiary. The remaining amount
of this provision was paid in the prior year.
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:
31 March 2024 31 March 2023
£m
£m
Current 79.1 67.9
Non-current 79.1 80.8
158.2 148.7
Included within provisions is £6.7 million (2023: £6.9 million) expected to
be utilised over approximately 10 years. Other than these provisions the
Group's non-current provisions are expected to be utilised within two to five
years.
17. Retirement benefits and liabilities
The Group has a number of defined benefit pension schemes. The principal
defined benefit pension schemes in the UK are the Devonport Royal Dockyard
Pension Scheme, the Babcock International Group Pension Scheme and the Rosyth
Royal Dockyard Pension Scheme (the Principal schemes). Each of these schemes
is predominantly a final salary plan in which future pension levels are
defined relative to number of years' service and final salary. Retirement age
varies by scheme. The nature of these schemes is that the employees only
contribute whilst they active employees of a scheme, with the employer paying
the balance of the cost required. The contributions required and the
assessment of the assets and the liabilities that have accrued to members and
any deficit recovery payments required are agreed by the Group with the
trustees of each scheme who are advised by independent, qualified actuaries.
In January 2024, the Group commenced a consultation with affected employees
and their representatives with regard to a proposal that would close the DRDPS
to future accrual with effect from 30 September 2024 and to provide benefits
for service from 1 October 2024 onwards through a defined contribution
scheme. The consultation process for this proposal ended on 25 March 2024.
Following the conclusion of the consultation process, a decision has been
taken by Devonport Royal Dockyard Limited to proceed with closure of the DRDPS
to future accrual and the Trustee has given in-principle agreement to this
decision. There is no impact to the accounting as at 31 March 2024 for this
item however there will be a future impact in the subsequent year's
consolidated income statement as a result of the curtailment / settlement of
the scheme. Due to the options available to the affected employees, we are yet
to calculate the impact however through initial assessments we do not expect
this to be material.
In March 2024, all employers of employees who are provided benefits in the
BIGPS commenced a consultation with the employees and their representatives
with regard to a proposal that would close the BIGPS to future accrual with
effect from 30 September 2024 and to provide like-for-like benefits for
service from 1 October 2024 onwards through alternative schemes. Consultation
ended on 7 June 2024 and no decisions have been taken.
The Group's balance sheet includes the assets and liabilities of the pension
schemes calculated on an IAS 19 basis. At 31 March 2024, the net position was
a deficit of £109.7 million (2023: deficit of £61.4 million). 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:
2024 2023
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 68.7 9.8 30.6 109.1 (3.1) 10.6 26.6 34.1
Property funds 251.7 0.2 4.8 256.7 301.7 0.2 5.9 307.8
High yield bonds/emerging market debt - - 0.4 0.4 - - 0.4 0.4
Absolute return and multi-strategy funds 1.7 140.8 17.0 159.5 6.0 148.0 17.5 171.5
Low-risk assets
Bonds 1,234.4 82.8 52.3 1,369.5 1,227.7 95.5 45.1 1,368.3
Matching assets* 1,423.4 1.5 15.0 1,439.9 1,524.7 1.4 21.7 1,547.8
Longevity swaps and annuities (240.9) - (9.9) (250.8) (231.8) - (10.1) (241.9)
Fair value of assets 2,739.0 235.1 110.2 3,084.3 2,825.2 255.7 107.1 3,188.0
Percentage of assets quoted 73% 100% 71% 75% 79% 100% 70% 80%
Percentage of assets unquoted 27% - 29% 25% 21% - 30% 20%
Present value of defined benefit obligations
Active members 436.9 30.6 26.2 493.7 450.7 45.7 21.7 518.1
Deferred pensioners 640.5 64.7 31.3 736.5 686.6 65.3 34.7 786.6
Pensioners 1,778.8 142.1 42.9 1,963.8 1,773.6 130.5 40.6 1,944.7
Total defined benefit obligations 2,856.2 237.4 100.4 3,194.0 2,910.9 241.5 97.0 3,249.4
Net (liabilities)/assets recognised in (117.2) (2.3) 9.8 (109.7) (85.7) 14.2 10.1 (61.4)
the statement of financial position
Analysis of movement in the Group statement of financial position
Year ended 31 March 2024 Year ended 31 March 2023
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
At 1 April 2,825.2 255.7 107.1 3,188.0 4,220.3 275.8 237.0 4,733.1
Interest on assets 134.1 12.0 5.2 151.3 113.4 7.3 5.4 126.1
Actuarial loss on assets (175.7) (21.6) (3.3) (200.6) (1,437.0) (17.1) (79.0) (1,533.1)
Employer contributions 123.9 2.3 5.3 131.5 167.4 2.5 4.6 174.5
Employee contributions 0.1 - - 0.1 0.1 - - 0.1
Benefits paid (168.6) (13.3) (4.1) (186.0) (239.0) (12.8) (4.8) (256.6)
Settlements - - - - - - (56.1) (56.1)
At 31 March 2,739.0 235.1 110.2 3,084.3 2,825.2 255.7 107.1 3,188.0
Present value of benefit obligations
At 1 April 2,910.9 241.5 97.0 3,249.4 3,992.6 327.1 221.8 4,541.5
Service cost 12.7 0.8 1.9 15.4 21.7 1.3 2.8 25.8
Incurred expenses 7.8 0.4 0.3 8.5 6.2 0.5 0.1 6.8
Interest cost 136.2 11.3 4.6 152.1 105.0 8.7 4.9 118.6
Employee contributions 0.1 - - 0.1 0.1 - - 0.1
Experience loss/(gain) 26.8 (0.3) 4.3 30.8 135.6 18.0 9.3 162.9
Actuarial gain - demographics (38.6) (0.2) (0.9) (39.7) (38.2) (3.6) (1.7) (43.5)
Actuarial gain - financial (31.1) (2.8) (2.7) (36.6) (1,073.1) (97.7) (79.3) (1,250.1)
Benefits paid (168.6) (13.3) (4.1) (186.0) (239.0) (12.8) (4.8) (256.6)
Settlements - - - - - - (56.1) (56.1)
At 31 March 2,856.2 237.4 100.4 3,194.0 2,910.9 241.5 97.0 3,249.4
Net (deficit)/surplus at 31 March (117.2) (2.3) 9.8 (109.7) (85.7) 14.2 10.1 (61.4)
The latest full actuarial valuations of the Group's defined benefit pension
schemes have been updated to 31 March 2024 by independent qualified actuaries
for IAS 19 purposes, on a best estimate basis, using the following
assumptions:
March 2024 Devonport Babcock Rosyth Royal Babcock Rail
Royal
International
Dockyard
Ltd section of
Dockyard
Group Scheme
Scheme
the Railways
Scheme
Pension
Scheme
Rate of increase in pensionable salaries 2.9% 2.9% - 0.5%
Rate of increase in pensions (past service) 2.7% 3.1% 3.2% 2.8%
Discount rate 4.8% 4.8% 4.8% 4.8%
Inflation rate (RPI) - year 1 2.5% 2.6% 2.6% 2.6%
Inflation rate (RPI) - thereafter 3.1% 3.2% 3.2% 3.2%
Inflation rate (CPI) - year 1 1.8% 1.8% 1.8% 1.9%
Inflation rate (CPI) - thereafter 2.7% 2.7% 2.7% 2.8%
Weighted average duration of cash flows (years) 13 11 13 13
Total life expectancy for current pensioners aged 65 (years) - male 85.3 86.1 84.3 84.9
Total life expectancy for current pensioners aged 65 (years) - female 87.2 88.7 86.7 87.2
Total life expectancy for future pensioners currently aged 45 (years) - male 86.2 87.1 85.3 85.9
Total life expectancy for future pensioners currently aged 45 (years) - female 88.4 89.9 87.9 88.4
March 2023
Rate of increase in pensionable salaries 3.0% 3.0% - 0.5%
Rate of increase in pensions (past service) 2.8% 3.2% 3.3% 2.9%
Discount rate 4.8% 4.8% 4.8% 4.8%
Inflation rate (RPI) - year 1 6.9% 6.9% 6.9% 6.9%
Inflation rate (RPI) - thereafter 3.3% 3.3% 3.3% 3.3%
Inflation rate (CPI) - year 1 4.7% 4.7% 4.7% 4.7%
Inflation rate (CPI) - thereafter 2.8% 2.8% 2.8% 2.8%
Weighted average duration of cash flows (years) 13 12 13 13
Total life expectancy for current pensioners aged 65 (years) - male 85.5 86.3 84.4 85.0
Total life expectancy for current pensioners aged 65 (years) - female 87.5 88.9 86.8 87.3
Total life expectancy for future pensioners currently aged 45 (years) - male 86.2 86.8 85.6 86.0
Total life expectancy for future pensioners currently aged 45 (years) - female 88.5 89.4 88.1 88.5
The schemes do not invest directly in assets or shares of the Group.
The longevity swaps have been valued in line with assumptions that are
consistent with the requirements of IFRS 13 using Level 3 inputs. The key
inputs to the valuation are the discount rate and mortality assumptions.
The amounts recognised in the Group income statement are as follows:
2024 2023
Principal Railways Other Total Principal Railways Other Total
schemes
scheme
schemes
£m
schemes
scheme
schemes
£m
£m
£m
£m
£m
£m
£m
Current service cost 12.7 0.8 1.9 15.4 21.7 1.3 2.8 25.8
Incurred expenses 7.8 0.4 0.3 8.5 6.2 0.5 0.1 6.8
Total included within operating profit 20.5 1.2 2.2 23.9 27.9 1.8 2.9 32.6
Net interest cost/(credit) 2.1 (0.7) (0.6) 0.8 (8.5) 1.4 (0.4) (7.5)
Total included within income statement 22.6 0.5 1.6 24.7 19.4 3.2 2.5 25.1
Amounts recorded in the Group statement of comprehensive income
Year ended 31 March 2024 Year ended 31 March 2023
Principal Railways Other Total Principal Railways Other Total
schemes
scheme
schemes
£m
schemes
scheme
schemes
£m
£m
£m
£m
£m
£m
£m
Actual return less interest on pension scheme assets (175.7) (21.6) (3.3) (200.6) (1,437.0) (17.1) (79.0) (1,533.1)
Experience (losses)/gains arising on scheme liabilities (26.8) 0.3 (4.3) (30.8) (135.6) (18.0) (9.3) (162.9)
Changes in assumptions on 69.7 3.0 3.6 76.3 1,111.2 101.2 81.2 1,293.6
scheme liabilities
At 31 March (132.8) (18.3) (4.0) (155.1) (461.4) 66.1 (7.1) (402.4)
The movement in net deficits for the year ended 31 March 2023 is as a result
of the movement in assets and liabilities shown above.
The disclosures below relate to post-retirement benefit schemes which are
accounted for as defined benefit schemes in accordance with IAS 19. The
changes to the Group statement of financial position at 31 March 2024 and the
changes to the Group income statement for the year to March 2025, if the
assumptions were sensitised by the amounts below, would be:
Defined benefit Income
obligations
statement
2024
2025
£m
£m
Initial assumptions 3,194.0 24.5
Discount rate assumptions increased by 0.5% (182.7) (10.6)
Discount rate assumptions decreased by 0.5% 200.3 9.7
Inflation rate assumptions increased by 0.5% 139.9 7.4
Inflation rate assumptions decreased by 0.5% (130.9) (7.0)
Total life expectancy increased by half a year 60.6 3.0
Total life expectancy decreased by half a year (59.2) (3.0)
Salary increase assumptions increased by 0.5% 11.9 0.8
Salary increase assumptions decreased by 0.5% (11.5) (0.8)
The figures in the table above have been calculated on an approximate basis,
using information about the expected future benefit payments out of the
schemes. The analysis above may not be representative of actual changes to the
position since changes in assumptions are unlikely to happen in isolation. The
change in inflation rates is assumed to affect the assumed rate of RPI
inflation, CPI inflation and future pension increases by an equal amount. The
fair value of the schemes' assets (including reimbursement rights) are assumed
not to be affected by any sensitivity changes shown and so the statement of
financial position values would increase or decrease by the same amount as the
change in the defined benefit obligations. There have been no changes in the
methodology for the calculation of the sensitivities since the prior year.
18. Changes in net debt
31 March Cash flow Additional Other Changes in fair value Exchange 31 March
2023
£m
leases
non-cash movement
£m
movement
2024
£m
£m
£m
£m
£m
Cash and bank balances 451.7 124.6 - - - (5.7) 570.6
Bank overdrafts (22.2) 4.0 - - - 0.2 (18.0)
Cash, cash equivalents and bank overdrafts 429.5 128.6 - - - (5.5) 552.6
Debt (765.8) 13.1 - (3.0) 0.5 5.7 (749.5)
Derivatives hedging Group debt (8.3) - - - (2.8) - (11.1)
Lease liabilities (228.8) 49.6 (55.2) - - 3.9 (230.5)
Changes in liabilities from financing arrangements (1,002.9) 62.7 (55.2) (3.0) (2.3) 9.6 (991.1)
Lease receivables 38.6 (32.0) 32.4 - - (3.5) 35.5
Loans to joint ventures and associates 9.5 (5.4) - (0.2) - - 3.9
Derivatives hedging interest on Group debt (39.1) - - - 2.8 - (36.3)
Net debt (564.4) 153.9 (22.8) (3.2) 0.5 0.6 (435.4)
31 March Cash flow Additional Other Clarification of net debt definition (2) Changes in fair value Exchange 31 March
2022
£m
leases
non-cash movement (1)
£m
movement
2023
£m
£m
£m £m
£m
£m
Cash and bank balances 1,146.3 (687.9) - - - - (6.7) 451.7
Bank overdrafts (389.8) 366.6 - - - - 1.0 (22.2)
Cash, cash equivalents and bank overdrafts 756.5 (321.3) - - - - (5.7) 429.5
Debt (1,321.3) 556.2 - (1.6) - 37.2 (36.3) (765.8)
Derivatives hedging Group debt (29.3) (0.8) - - - 21.8 - (8.3)
Lease liabilities (434.1) 108.5 (117.0) 223.4 - - (9.6) (228.8)
Changes in liabilities from financing arrangements (1,784.7) 663.9 (117.0) 221.8 - 59.0 (45.9) (1,002.9)
Lease receivables 47.4 (31.9) 28.5 - - - (5.4) 38.6
Loans to joint ventures and associates 12.1 (2.4) - (0.2) - - - 9.5
Derivatives hedging interest on Group debt - - - - (36.1) (3.0) - (39.1)
Net debt (968.7) 308.3 (88.5) 221.6 (36.1) 56.0 (57.0) (564.4)
(1) Other non-cash movements predominantly relate to the disposal of lease
liabilities and associated lease receivables as part of disposal of
businesses.
(2) During the year the definition of net debt has been clarified, resulting
in the inclusion of the interest rate swap hedging Group debt, which was
excluded in the prior year.
19. Contingent liabilities
A contingent liability is a possible obligation arising from past events whose
existence will be confirmed only on the occurrence or non-occurrence of
uncertain future events outside the Group's control, or a present obligation
that is not recognised because it is not probable that an outflow of economic
benefits will occur or the value of such outflow cannot be measured reliably.
The Group does not recognise contingent liabilities. There are a number of
contingent liabilities that arise in the normal course of business, including:
a) The nature of the Group's long-term contracts means that there are reasonably
frequent contractual issues, variations and renegotiations that arise in the
ordinary course of business, including liabilities that arise on completion of
contracts and on conclusion of relationships with joint ventures and
associates. The Group takes account of the advice of experts, both internal
and external, in making judgements on contractual issues and whether the
outcome of negotiations will result in an obligation to the Group. The
Directors do not believe that the outcome of these matters will result in any
material adverse change in the Group's financial position.
b) As a large contracting organisation, the Group has a significant number of
contracts with customers to deliver services and products, as well as with its
supply chain, where the Group cannot deliver all those services and products
itself. The Group is involved in disputes and litigation, which have arisen in
the course of its normal trading in connection with these contracts. Whilst
the Directors do not believe that the outcome of these matters will result in
any material adverse change in the Group's financial position, it is possible
that, if any of these disputes come to court, the court may take a different
view to the Group.
c) The Group is subject to corporate and other tax rules in the jurisdictions in
which it operates. Changes in tax rates, tax reliefs and tax laws, or
interpretation of the law, by the relevant tax authorities may result in
financial and reputational damage to the Group. This may affect the Group's
financial condition and performance.
d) The Group has given certain indemnities and warranties in the course of
disposing of businesses and companies and in completing contracts. The Group
believes that any liability in respect of these is unlikely to have a material
effect on the Group's financial position.
e) Corporate rules in those jurisdictions may also extend to compensatory trade
agreements, or economic offset rules, where we may have to commit to use local
content in delivering programmes of work. Delivery of offset is also subject
to interpretations of law and agreement with local authorities, which we
monitor closely but may give rise to financial and reputational damage to the
Group if not undertaken appropriately.
20. Capital and other financial commitments
Capital commitments
31 March 2024 31 March 2023
£m
£m
Contracts placed for future capital expenditure not provided for in the 6.7 7.8
financial statements
21. Events after the reporting period
There were no events after the reporting period which would materially impact
the balances reported in the preliminary financial statement.
AGM information
This year's Annual General Meeting will be held on 19 September 2024. Details
of the resolutions to be proposed at that meeting will be included in the
Notice of Annual General Meeting that will be published mid-August 2024.
At our Annual General Meeting in 2007 our shareholders unanimously agreed to
proposals to allow us to use electronic communications with them as allowed
for under the Companies Act 2006. For shareholders who agreed, or who are
treated as having agreed, to receive electronic communications, the Company
website is now the main way for them to access shareholder information. These
shareholders will be sent a 'notice of availability' notifying them when the
Annual Report and Accounts and Notice of Annual General Meeting are available
on the Company website www.babcockinternational.com
(http://www.babcockinternational.com) . Hard copies of the Annual Report and
Accounts and Notice of Annual General Meeting will be distributed to those
shareholders who have requested or subsequently request them. Additional
copies will be available from the Company's registered office 33 Wigmore
Street, London, W1U 1QX.
Forward-looking statements
Certain statements in this announcement are forward-looking statements. Such
statements may relate to Babcock's business, strategy and plans. Statements
that are not historical facts, including statements about Babcock's or its
management's beliefs and expectations, are forward-looking statements. Words
such as 'believe', 'anticipate', 'estimates', 'expects', 'intends', 'aims',
'potential', 'will', 'would', 'could', 'considered', 'likely', and variations
of these words and similar future or conditional expressions are intended to
identify forward-looking statements but are not the exclusive means of doing
so. By their nature, forward-looking statements involve a number of risks,
uncertainties or assumptions, some known and some unknown, many of which are
beyond Babcock's control that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements.
These risks, uncertainties or assumptions could adversely affect the outcome
and financial effects of the plans and events described herein.
Forward-looking statements contained in this announcement regarding past
trends or activities should not be taken as a representation that such trends
or activities will continue in the future. Nor are they indicative of future
performance and Babcock's actual results of operations and financial condition
and the development of the industry and markets in which Babcock operates may
differ materially from those made in or suggested by the forward-looking
statements. You should not place undue reliance on forward-looking statements
because such statements relate to events and depend on circumstances that may
or may not occur in the future. Except as required by law, Babcock is under no
obligation to update (and will not) or keep current the forward-looking
statements contained herein or to correct any inaccuracies which may become
apparent in such forward-looking statements.
Forward-looking statements reflect Babcock's judgement at the time of
preparation of this announcement and are not intended to give any assurance as
to future results.
The Group financial statements were approved by the Board of Directors on 25
July 2024 and are signed on its behalf by:
D
Lockwood
D Mellors
Director
Director
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