REG - Babcock Intnl Group - FY24 results update and Type 31 contract update

Babcock InternationalAnnouncement

17/07/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240717:nRSQ7324Wa&default-theme=true

RNS Number : 7324W  Babcock International Group PLC  17 July 2024

 
 
                17 July 2024

 

FY24 results update and Type 31 contract update

 

Babcock International Group PLC ("Babcock" or "the Group") provides an update
on its year ended 31 March 2024 (FY24) and the Type 31 contract.

 

FY24 - unaudited financial performance

Based on draft preliminary accounts, subject to finalisation of the year end
audit, the Group's summary results for FY24 are set out below.

 

Highlights

 -  Strong revenue(1) growth, up 11% organically to £4.4 billion, contract
    backlog up 9% to £10.3 billion
 -  Underlying operating profit(2) up 34% to £238 million. This includes a £90
    million loss on the Type 31 contract and a £17 million profit on disposal of
    a property
 -  Type 31 loss is fully recognised in FY24. Cash impact of the loss will be
    recognised over the life of the contract
 -  Underlying free cash flow of £160 million is significantly ahead of
    expectations, despite £35 million accelerated pension deficit payment
 -  Balance sheet strengthened: net debt down £129 million. Net debt to EBITDA
    (covenant basis) 0.8x
 -  Long term pension funding plans agreed on two of our three large pension
    schemes; future annual deficit payments reduced by £25 million to c.£40
    million
 -  Guidance unchanged: we expect a further year of progress in FY25 and reiterate
    our medium term guidance

 

                                                          31 March 2024  31 March 2023

 Unaudited FY24 financial highlights
 Contract backlog                                         £10.3bn        £9.5bn
 Revenue (1)                                              £4.4bn         £4.4bn
 Underlying operating profit (2)                          £237.8m        £177.9m
 Underlying operating margin (3)                          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 (4)                         5.0p           -

 Underlying free cash flow                                £160.4m        £75.3m
 Net debt                                                 £(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

 

 -  Revenue £4.4 billion (FY23(1): £4.4 billion) grew 11% on an organic basis,
    driven by strong growth in Nuclear (up 29%) and Land (up 17%).

 -  Underlying operating profit(2) of £237.8 million (FY23: £177.9 million)
    reflects strong operating performance, particularly the Nuclear, Land and
    Aviation sectors.

    Underlying operating profit includes a £90 million loss on the Type 31
    contract (FY23: £100 million loss), discussed below. Excluding the Type 31
    loss, underlying operating profit was £328 million (FY23: £278 million).
    Also included is a £17 million profit on disposal of a property. Excluding
    these and Type 31 loss, FY24 underlying operating profit was £311 million
    (see note 2).

 -  Underlying operating margin(3) improved to 5.4% (FY23: 4.0%). Excluding the
    impact of the Type 31 loss and profit on disposal underlying operating margin
    improved 40 basis points to 7.0% (see note 3).

 -  Underlying free cash flow of £160 million was significantly ahead of
    expectations (FY23: £75 million), despite an accelerated £35 million pension
    deficit repair contribution (see below). Strong operational performance and
    the timing benefits of early customer receipts were the key drivers, resulting
    in an operating cash conversion ratio of 136% (FY23: 173%), or 98% excluding
    the impact of the Type 31 loss (FY23: 110%).

 -  Strong balance sheet: Net debt at 31 March 2024 was £435 million, a reduction
    of £129 million driven by strong cash generation. Net debt excluding leases
    was £211 million (FY23: £346 million). On a covenant basis, net debt to
    EBITDA decreased to 0.8x (FY23: 1.5x).
 -  Pension deficit, on an actuarial technical provision basis, reduced to c.£200
    million (FY23: c.£400 million)
                                 -                            Long-term funding plans have been agreed with two of our three large pension
                                                              schemes, the Babcock International Group Pension Scheme (BIGPS) and the
                                                              Devonport Royal Dockyard Pension Scheme (DRDPS).
                                 -                            FY24 included a £35 million accelerated pension deficit repair payment to the
                                                              BIGPS, which has now reached self-sufficiency.
                                 -                            As a result, we expect the total Group pension deficit repair payments to
                                                              reduce to around £40 million per annum (previously £65 million per annum).

 

Type 31 update

 -  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
 -  The programme has been restructured following a detailed operational review to
    protect the in-service date
 -  Excluded from the loss are the benefits from some planned productivity
    efficiencies and expected continuation of the Type 31 programme

 

Signed in 2019, the Type 31 contract for five ships is the last material
legacy onerous contract the Group is managing. During FY24, we have made
progress on the programme with the superstructure of the first ship almost
complete. Work is also progressing on the second ship with the keel laid and
the first double bottom blocks in the build cradle. In addition, during the
year we have settled the Dispute Resolution Process with the customer, which
has enabled the restructuring of the programme to drive efficiency and to
protect the in-service date.

 

Overall estimated programme costs have increased due to the maturing of the
design and increase in the forecast cost of labour. The increase in the cost
of labour in the market available to Rosyth is forecast to be higher than CPI,
the indexation within the Type 31 contract. These cost increases cause the
total contract outturn to deteriorate by £90 million, which has been fully
recognised in FY24. The cash impact of the loss is expected to be realised
over the remaining five years of the programme.

 

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. This has been led by a
new management team with enhanced capability to restructure the programme, and
they are supported by the experienced leaders in the new Group functions. Our
operational improvement programme is 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.

 

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 T31 contract. Some of these benefits
have not been taken into account in the loss given the evidential bar required
to recognise future benefits, although we do expect the benefits to be
delivered over the course of the programme.

 

Preliminary results

The external audit is substantially complete in all areas except the
finalisation of Type 31. Subject to completion of the audit process, we expect
to announce our FY24 preliminary results on 26 July 2024.

 

Notes

 

1.  Revenue

 -  FY23 included £422 million from disposals and a £12 million one-off credit
    (revenue and profit)
 -  Excluding these, FY23 revenue was £4,005 million

 

2.  Underlying operating profit

 -  FY24 underlying operating profit included a £90 million loss on Type 31 and a
    profit on property disposal of £17 million
 -  Excluding these, FY24 underlying operating profit was £311 million
 -  FY23 underlying operating profit included a £100 million loss on Type 31, a
    one-off accounting credit (£12 million as above), and £1 million operating
    profit contribution from businesses divested in the year
 -  Excluding these, FY23 underlying operating profit was £265 million

 

3. Underlying operating margin

 -  Excluding the loss on Type 31 and profit on property disposal, FY24 underlying
    margin was 7.0%
 -  Excluding disposals and one-off credit, FY23 underlying operating margin, on
    an ongoing basis, was 6.6%

 

The FY23 figures were the basis of our medium-term guidance, outlined in the
FY23 results (page 2).

 

4.   Full year dividend

 -  The full year dividend reflects the HY24 interim dividend of 1.7 pence (FY23:
    nil) and a FY24 proposed final dividend of 3.3 pence (FY23: nil)

 

Conference call

There will be a conference call at 08:30 BST today, Wednesday 17(th) July, for
investors and analysts. The call will be webcast at
www.babcockinternational.com/investors/results-and-presentations/
(http://www.babcockinternational.com/investors/results-and-presentations/)

 

This announcement contains inside information: 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 Head of Financial Communications  +44 (0)20 7355 5312
 Olivia Peters / Harry Cameron, Teneo               +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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTGUGDRCXBDGSR