REG - Babcock Intnl Group - FY23 post close update and Type 31 contract update

Babcock InternationalAnnouncement

20/04/2023 07:00

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RNS Number : 8278W  Babcock International Group PLC  20 April 2023

20 April 2023

 

This announcement contains inside information

 

FY23 post close update and Type 31 contract update

 

Babcock International Group PLC ("Babcock" or "the Group") provides an update
on FY23 and the Type 31 contract.

 

FY23 post close update

Based on draft management accounts, before detailed management review and
subject to audit, the Group can disclose its early view of its results for
FY23.

 

Group cash flow for FY23 was significantly ahead of expectations. This
reflects strong operational performance and the conclusion of the disposal
programme, including receipt of c.€100 million of completion adjustments on
the disposal of the European Aerial Emergency Services businesses.

 

Net debt as at 31 March 2023 was c.£350 million before operating leases.

 

Group underlying profitability for FY23 is in line with expectations,
excluding the potential one-off impact of the Type 31 contract as outlined
below.

 

Given the stronger than expected cash performance and further de-gearing of
the balance sheet, the Board expects to reinstate a dividend in FY24.

 

Type 31 contract update

In November 2019, Babcock was awarded the Type 31 contract by the UK Ministry
of Defence to deliver five Inspiration Class frigates for the Royal Navy,
based on Babcock's Arrowhead 140 hull design, at an average production cost of
£250 million per ship.

 

To date, we have recognised over £600 million of revenue but no profit on the
programme. Expected to conclude in 2028, the programme remains on schedule
against a demanding production plan, despite the restrictions imposed by
COVID-19. HMS Venturer, the First in Class ship is due to be structurally
complete in December 2023 and construction commenced on the second ship, HMS
Active, in January 2023.

 

Throughout FY23, we have been in dialogue with the customer about the
contractual position regarding additional forecast costs resulting from
certain material macroeconomic changes that were not foreseen at contract
inception. These have led to an increase in the actual and projected programme
costs to deliver the programme as planned.

 

We have been unable to reach agreement with our customer as to who is
responsible for the additional costs under the contract. As a result, a
dispute resolution process (DRP) under the contract has commenced. The DRP may
lead to an arbitration.

 

If the contractual position remains unresolved, the lack of recovery of these
additional costs would need to be reflected in the Group's FY23 year end
results. Without recovery of the additional costs, the contract would be
loss-making and our preliminary assessment, subject to finalisation and audit,
is that a one-off provision of between £50 million and £100 million would be
required to cover the duration of the contract. The related cash impact would
be of a similar amount, realised over the remainder of the programme. Any
settlement or arbitral award would reverse the provision in part or in full.

 

The position in relation to the Type 31 contract does not affect progress or
profitability of the Group's existing Arrowhead 140 export contracts and we
continue to be in active discussions with a number of prospective customers.

 

The person responsible for arranging the release of this announcement on
behalf of the company is Jack Borrett as Company Secretary.

 

 

 

 

 

 

ENDS

 

 For further information:
 Andrew Gollan, Director of Investor Relations  +44 (0)7936 039004
 Kate Hill, Group Director of Communications    +44 (0)20 7355 5312

 Tulchan Communications
 Olivia Peters / Harry Cameron                  +44 (0)20 7353 4200

 

 

 

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.

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