REG - Babcock Intnl Group - Results for the six months ended 30 September 2024
13/11/2024 07:15
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RNS Number : 0494M Babcock International Group PLC 13 November 2024
Babcock International Group PLC
Half year results for the six months ended 30 September 2024
13 November 2024
Successfully delivering performance and growth
Statutory results 30 September 2024 30 September 2023
Revenue £2,408.9m £2,177.0m
Operating profit £183.8m £144.2m
Basic earnings per share 25.7p 20.4p
Cash generated from operations £181.3m £163.2m
Underlying results (1) 30 September 2024 30 September 2023
Contract backlog £9.5bn £9.6bn
Underlying operating profit £168.8m £154.4m
Underlying operating margin 7.0% 7.1%
Underlying basic earnings per share 23.5p 20.6p
Interim dividend per share 2.0p 1.7p
Underlying free cash flow £94.7m £67.2m
Net debt £(385.6)m £(492.5)m
Net debt excluding leases £(145.8)m £(287.8)m
Net debt/EBITDA (covenant basis) 0.6x 1.1x
David Lockwood, Chief Executive Officer, said:
"This is another strong set of results, with continued positive momentum
across the Group. Our operational and financial performance in the first half
of the year underpins my confidence that we will deliver our expectations for
the full year, as we progress towards our medium-term guidance.
We continue to focus on driving performance and sustainable growth. Working
closely with our customers, we are consistently delivering key programmes and
contracts, with enhanced standards of execution. Meanwhile, a backdrop of
geopolitical instability means demand for what we do continues to increase,
resulting in an expanding and attractive long-term opportunity set. We are
selecting the right opportunities and are being disciplined in how we deploy
capital to deliver growth which maximises shareholder value."
Financial highlights
- Contract backlog £9.5 billion flat vs HY24, or down 8% vs FY24 driven by
execution on long-term contracts. Key contracts expected in H2
- Revenue of £2,409 million increased 11% on an organic basis, driven by strong
growth in Nuclear and Land
- Underlying operating profit up 10% (at constant FX) to £169 million, driven
by growth and margin improvement in Nuclear and Land
- Underlying operating margin was 7.0% (HY24: 7.1%). The prior period included
high margin AH140 frigate license sales
- Underlying EPS up 14% to 23.5 pence
- Underlying operating cash conversion was 80% (HY24: 82%)
- Underlying free cash flow increased 41% to £95 million reflecting the profit
performance and working capital timing
- Net debt to EBITDA reduced to 0.6x on a covenant basis. Net debt excluding
leases reduced to £146 million
- Interim dividend of 2.0 pence per share (HY24: 1.7 pence)
Outlook
- Our expectations for FY25 remain unchanged, noting that full year underlying
free cash flow will be significantly H1 weighted.
- With around 90% of FY25 expected revenue under contract at 1 October 2024, we
commence the second half 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
- Launched H&B Defence, a JV with HII to support AUKUS focusing on building
Australia's sovereign nuclear capabilities
- Opened a new Engineering and Nuclear Skills building at City College Plymouth
to enhance our workforce's nuclear capabilities
- Partnered with ST Engineering to launch a 120mm Ground Deployed Advanced
Mortar System
- Launched the General Logistics Vehicle (GLV) medium wheelbase variant targeted
at UK and international opportunities
- DSG contract extension under negotiation following notification of UK MOD of
its intention to exercise up to five option years
Operational highlights
Marine
- Awarded contract extension in Poland to support Miecznik frigate programme for
three ships to 2031
- Type 31 - good progress with ship 1 superstructure largely complete, ship 2
progressing, ship 3 steel cut
- First six months of in-service delivery of the Skynet contract to manage the
UK's military satellite and space operations
- LGE record intake of more than £300 million
- Completed successful docking period for the HMS Queen Elizabeth aircraft
carrier
Nuclear
- Reopened our Devonport 9-Dock, following a significant regeneration project,
critical for the future support of the UK's CASD
- Significant ramp up at Hinkley Point C as we begin to install mechanical and
electrical services
Land
- Strong operational performance on DSG contract
- Awarded an additional contract to build 53 High Mobility Transporter Jackal 3
six-wheeled 'Extendas' for the British Army
- Awarded several UK military training contract extensions during the period
- Launched the new Babcock Immersive Training Experience (BITE) to support
individual and collective training
- Successfully delivered the transition phases of two new French military land
contracts
Aviation
- Preferred bidder on MENTOR2, a c.€800 million 15-year contract to provide
initial pilot training to the French Air Force, Navy and Army
- Commenced the 12-year contract to deliver the in-service support of 48
Sécurité Civile and police EC145C2 helicopters
- RAF Hades contract extended by two years to provide technical airbase support
services across the Armed Forces
- Partnered with the RAF to deliver Elementary Flying Training to the Ukrainian
Pilot Force as it prepares to fly F-16 jets
- Awarded a 10-year renewal with UK Midlands Air Ambulance Charity
1. Alternative Performance Measures (APMs) - notes to statutory and underlying
results on page 1:
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 2024. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 25.
Results presentation: For further information:
A presentation for investors and analysts will be held on Andrew Gollan, Director of Investor Relations +44 7850 978 741
13 November 2024 at 09:00 am (GMT). The presentation
will be webcast live and available on demand on our website
babcockinternational.com/investors/results-and-presentations
(http://www.babcockinternational.com/investors/results-and-presentations) .
Kate Hill, Group Head of Financial Communications +44 20 7355 5312
Harry Cameron/Olivia Peters, Teneo +44 20 7353 4200
CEO REVIEW
Continued positive momentum
Positive momentum has continued across the Group over the period. Financial
and operational performance has been strong, which underpins our expectations
for the year, and we have made strategic progress, supporting medium-term
ambitions of delivering mid-single digit organic growth, at least 8% operating
margin and average operating cash conversion of at least 80%.
The complex geopolitical backdrop means that demand for our specialist
capabilities remains high, driving increased, higher quality growth
opportunities. Our strategy is focused on delivering sustained, profitable and
cash generative growth which we enhance through selectively deploying capital
on those opportunities with the right commercial and technical risk profiles
to maximise long-term shareholder value.
Strong underlying HY25 results
We have delivered another encouraging set of financial results with
year-on-year increase in revenue, underlying operating profit, underlying
earnings and underlying free cash flow.
Group revenue increased 11% on an organic basis to £2,409 million with good
growth in our three largest sectors, which represent over 90% of our
operational business. Nuclear, our largest sector by revenue, representing 36%
of the Group, continued its strong trajectory, up 22% in the first half, with
Land and Marine up by 9% and 6% respectively. Aviation revenue declined
slightly, as expected, due to the completion of aircraft delivery phases
within a French defence contract.
The 10% organic increase in underlying operating profit to £169 million
reflects the strong revenue performance, more than offsetting the prior year
receipt of high margin AH140 frigate licence fees associated with the Polish
Miecznik programme. As a result, underlying operating margin was flat at 7.0%
(HY24: 7.1%).
Strong operating cash conversion of 80% and lower pension deficit payments
following the long-term funding agreements reached earlier this year drove a
41% increase in underlying free cash flow to £95 million, further
strengthening our balance sheet. Net debt excluding leases reduced to £146
million and our gearing ratio at the end of the period had reduced to 0.6x,
below our target leverage range of 1.0x - 2.0x.
Well positioned in a supportive market
Geopolitical instability is driving growth in defence budgets. However, the
pace and extent of budget growth is insufficient to match the growth in demand
for military spend, making Babcock's ability to affordably add value,
essential. Additionally, there is a timing mismatch between the present
threats that governments face and the new product development programmes which
typically take years to deliver. Therefore, Babcock's ability to deliver
increased availability and capability from existing assets has become
critically important, further reinforcing our value to customers.
Our people have a deep understanding of our customers' needs, their assets and
the environment in which they operate, creating high barriers to entry. As a
through-life capability partner, we not only support assets but deliver
capability and system upgrades and apply our own product development
capabilities to deliver through-life engineering.
The new UK Government is committed to spending on defence. In the 2024 Autumn
budget, it reiterated its commitment to a defence budget of 2.5% of GDP and a
£2.9 billion increase to defence spending for 2026. It also confirmed the
additional £3 billion annually to support Ukraine. The Government is
currently undertaking a Strategic Defence Review (SDR) which is expected to
conclude in the first half of 2025. The SDR is intended to determine how UK
defence will meet the challenges, threats and opportunities of the
twenty-first century, whilst taking account of the commitment to increase
defence spend.
As the sole-source provider of complex, through-life support and sustainment,
Babcock is critical to the delivery of the UK's nuclear deterrent, which has
been confirmed as a national security priority. The Government' is committed
to building four new Dreadnought Class submarines to replace the Vanguard
Class and ensuring the Continuous At Sea Deterrent (CASD), with one submarine
always at sea. Alongside the Government as our customer, we continue to invest
in the nuclear submarine infrastructure required for the transition to the
Dreadnought Class and next generation AUKUS attack submarines and the delivery
of through-life support and availability of the UK's entire nuclear submarine
fleet over future decades.
Sustainable growth
We have a clear strategy to deliver sustainable growth across the Group by
leveraging our technical capability, developing our people and building
strategic partnerships, whilst remaining a responsible corporate citizen.
Current market dynamics, in particular the growth in defence budgets driven by
the need to recapitalise, re-equip and modernise militaries, have resulted in
a broadening opportunity set as outlined at our Capital Markets Day and FY24
full year results. Our five strategic growth priorities are as follows:
- Optimise our UK position - grow our current UK positions and grow market share
in our areas of expertise
- Selective new programmes in the UK - target quality opportunities with the
right commercial and technical risk profiles
- Expansion in focus countries - new work and scope in Canada, France,
Australia, New Zealand and South Africa
- Direct exports - of new and existing products and services from our focus
countries into new territories and markets
- Strategic partnerships - work with leading global industry players with
particular local market strengths to deliver high-value, low-risk and faster
routes to effective market entry
We are focused on aligning our growing opportunity set, both in the UK and
internationally, with our core capabilities, through leveraging our strong
balance sheet and the disciplined deployment of capital. During the period, we
have made good progress on a number of strategic growth initiatives.
Optimise our UK position
The ongoing recapitalisation of our Devonport facility, the Major
Infrastructure Programme (MIP), continues at pace and will enable delivery of
the UK's future nuclear submarine support capability over the next 50+ years.
During the period, we completed an extensive regeneration of 9-Dock, the dry
dock facility to support the ongoing life extension programme for the Vanguard
Class submarines which is critical for the future support of the Continuous At
Sea Deterrent (CASD). We also marked a significant milestone to fully
dismantle a nuclear-powered submarine at Rosyth, with our award of a recycling
contract to KDC Veolia Decommissioning Services.
The Type 31 Inspiration Class frigate programme continues to make good
progress, with three ships now in simultaneous construction following first
steel cut of HMS Formidable in October 2024. We have increased the industrial
workforce to over 900 people, with further recruitment planned. Through the
Type 31 programme and other AH140 programmes, we are building a world class
shipbuilding capability that will position us for future global naval
opportunities. We are already seeing such opportunities emerge, through
strategic partnerships such as with Saab, which in May 2024 led to the first
contract to support the development of the Swedish Navy's new Lulea Class
Surface Combatant, and with PGZ, the Polish Armaments Group, in support of the
Polish Miecznik Class frigate programme, where we were awarded an extension to
support delivery of three ships.
Strong operational delivery of the DSG defence vehicle support contract in
Land has further de-risked the final phase of the ten-year contract, which
completes March 2025, contributing to the improved profit performance in the
sector. We continue to progress commercial discussions with the UK MOD as we
transition to a new contract extension for up to five years. This asset
support model forms the basis of our approach to other emerging asset support
opportunities both in the UK and internationally.
Selective new programmes in the UK
The Skynet contract, won in 2023 with an initial value of more than £400
million, to upgrade and operate the UK Government's military satellite and
space operations has significantly broadened our secure communications
capability and strengthened our leading position in digital defence. In the
period, we successfully completed the first six months of in-service delivery.
We believe that the successful implementation of the critical service will
create opportunities for further growth.
In partnership with Supacat, we have been awarded a contract to build 53
modular four to six-wheeled 'Extendas' variants of the High Mobility
Transporter Jackal 3 for the British Army. This is in addition to the 70
Jackal 3 (HMT 400 series) vehicles which we began producing at our new
facility within the freeport of Devonport earlier this year. Production is
ramping up and we see opportunity to provide further vehicles to the British
Army, whilst also pursuing international opportunities with Supacat.
Following a comprehensive evaluation of the tender and its commercial terms,
Babcock and its partners in Team Crucible made the decision to exit the bid to
become the Strategic Training Partner for the Army Collective Training System
(ACTS), demonstrating our disciplined approach to only target opportunities
that have the right commercial and technical risk profile. Our growth strategy
is predicated on selecting the right opportunities and only bidding for
contracts where the risk-reward profile is appropriate and manageable.
Expansion in focus countries
As a provider of first-generation military outsourcing, we are targeting
emerging opportunities in France based on our proven track record of delivery
in the country. Following the success of the military fighter pilot training
programme, the French Air Force is outsourcing further training support
opportunities. This week, we were selected as preferred bidder by the French
Direction générale de l'armement (DGA) to deliver MENTOR2, a c.€800
million 15-year contract to provide initial pilot training to the French Air
Force, Navy and Army. The new contract, due to be awarded before the end of
FY25, will involve the deployment of over 100 employees at the Salon de
Provence air force base. We are also in the final bidding stages of an
opportunity to support fighter pilot training for the Belgian Air Force from
France.
Direct exports
During the period we signed a contract extension with PGZ to continue our
support to Poland's Miecznik three-ship frigate programme until 2031,
providing engineering services, supply chain support, transfer of knowledge
and project management. We see further opportunities to add value to our
partner's programme and, through our developing relationship, we are exploring
potential opportunities in land asset support, again using our expertise and
strong track record as a reference.
Babcock is fully committed to providing critical support to Ukraine's military
operations. In May 2024, we established a facility in Ukraine 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. In July 2024, we were awarded an extension, with further options to
extend, to our initial one-year contract to support urgent operational
requirements for Ukraine's UK-gifted military land assets.
Strategic partnerships
Our ability to form partnerships with leading global industry players with
particular local market strengths is a key part of our growth strategy.
Working with a strong local partner often presents the highest-value,
lowest-risk and fastest route to market entry. In the period we launched
H&B Defence, a JV with Huntington Ingalls Industries (HII) to support and
accelerate the AUKUS endeavour, focusing on building Australia's sovereign
capabilities in nuclear infrastructure, workforce and skills development,
submarine sustainment and decommissioning.
In September 2024, we unveiled our 120mm Ground Deployed Advanced Mortar
System, based on world-leading technology from our partner, ST Engineering.
The vehicle-mounted, digitised mortar system is designed to meet the urgent
requirements of the British Army and NATO nations. We are also working with
Denmark's OMT to develop a new product concept, SMARTHatch, which allows the
at-sea launch and recovery of manned and unmanned systems, amongst other
defence applications.
Developing our people to support long term growth
Our c.27,000 people are fundamental to the successful delivery of sustained
growth. With their deep engineering expertise, operational asset knowledge and
strong customer relationships, we are focused on building this valuable
resource for the future.
We are a key industrial partner on the UK's Nuclear Skills Taskforce, taking a
leading role in helping to secure the critical nuclear skills needed across
the defence and civil nuclear enterprise. In September the UK Minister for
Defence Procurement Maria Eagle opened the Babcock Engineering & Nuclear
Skills building at City College Plymouth where we will grow our workforce's
capabilities, focusing initially on building a pipeline of talent and
upskilling the existing workforce on the complex skills required to perform
deep submarine maintenance. This marks the next phase of our own Babcock
Skills Academy, which is initially focused on addressing the current and
future nuclear skills demand for our defence programmes. We also delivered the
second skills-based Work Academy Programme at our Devonport facility.
In the period we welcomed our largest ever early careers intake in the UK,
launched a pre-apprenticeship programme at Devonport and participated in an
international apprentice exchange programme with our Polish partner PGZ. We
were pleased to be named one of the UK's top 10 employers in 2024 by industry
publication The Engineer.
Capital allocation - to support long term growth
We have built a strong platform from which to drive long-term growth in our
core defence and civil markets, which we address through leveraging the
strength of our balance sheet and disciplined allocation of capital under our
capital allocation policy to maximise shareholder value. Our principal
priorities remain organic investment, maintaining financial strength and
ordinary dividend returns. We will also consider options for inorganic growth
in areas aligned with our core capabilities, and further accelerating the
reduction in our pension scheme liabilities, where we believe we can create
shareholder value. We continually assess our capital requirements and will
consider additional shareholder returns should we determine that we have
surplus capital.
Outlook
Our expectations for FY25 remain unchanged, noting that full year underlying
free cash flow will be significantly H1 weighted. With c.90% of FY25 expected
revenue under contract at 1 October 2024, we enter the second half of 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
An interim dividend of 2.0 pence per ordinary share (HY24: 1.7 pence per
share) is payable on Friday 17 January 2025 to shareholders whose names appear
on the register at the close of business on Thursday 05 December. Shareholders
may participate in the dividend re-investment plan and elections must be made
by Tuesday 24 December. 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) .
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 2024. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 25.
The reconciliation from the IFRS statutory income statement to the underlying
income statement is shown below.
Income statement
Six months to 30 September 2024 Six months to 30 September 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Revenue 2,408.9 - 2,408.9 2,177.0 - 2,177.0
Operating profit 168.8 15.0 183.8 154.4 (10.2) 144.2
Operating margin 7.0% 7.6% 7.1% 6.6%
Share of results of joint ventures and associates 5.1 - 5.1 6.0 - 6.0
Net finance costs (16.8) 0.1 (16.9) (20.0) 5.9 (14.1)
Profit before tax 157.1 14.9 172.0 140.4 (4.3) 136.1
Income tax (expense)/benefit (38.4) (3.6) (42.0) (35.3) 3.3 (32.0)
Profit after tax 118.7 11.3 130.0 105.1 (1.0) 104.1
Non-controlling interest 0.7 - 0.7 1.6 - 1.6
Profit attributable to the owners of the parent 118.0 11.3 129.3 103.5 (1.0) 102.5
Basic EPS 23.5p 2.2p 25.7p 20.6p (0.2)p 20.4p
Diluted EPS 23.0p 2.2p 25.2p 20.1p (0.2)p 19.9p
A full statutory income statement can be found on page 32.
As described on page 2, 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 £2,409 million grew 11% organically offset by a (0.4)% currency
translation effect. The increase was driven by strong growth in Nuclear
followed by Land and Marine, while Aviation was slightly down year on year as
expected. By sector:
- Marine revenue increased 5% to £789.8 million (HY24: £750.1 million), or 6%
on an organic basis. Growth was led by the first year of Skynet, increased LGE
volumes and Canadian submarine support, offset by phasing of the Type 31
contract and license sales in the prior period.
- Nuclear revenue increased 22% to £865.7 million (HY24: £710.8 million)
driven by around 30% growth across our civil nuclear decommissioning and new
build businesses, ramp up of HMS Victorious LIFEX programme, higher submarine
support activity through our Future Maritime Support Programme (FMSP) and the
Major Infrastructure Programme (MIP), where revenue increased to £273 million
(HY24: £218 million).
- Land revenue increased 8% to £591.3 million (HY24: £545.6 million), or 9% on
an organic basis. Growth was from a number of areas including DSG, Jackal
production ramp up, Ukraine support, and further growth in South Africa
vehicle volumes, offsetting Rail performance and contracts that completed in
the prior year.
- Aviation revenue declined 5% to £162.1 million (HY24: £170.5 million), or 4%
organically primarily due to the completion of aircraft delivery phases in the
H160 French defence contract in the prior year.
Underlying operating profit increased by 9% to £168.8 million driven by
strong performance across Nuclear and Land. By sector:
- Marine underlying operating profit declined to £40.0 million (HY24: £63.0
million) driven primarily by the very strong comparator period which included
AH140 frigate licenses.
- Nuclear underlying operating profit increased to £75.7 million (HY24: £45.2
million) driven by very strong revenue growth, as well as better inflation
recovery in some contracts and risk retirement on project milestones.
- Land underlying operating profit increased to £45.4 million (HY24: £37.5
million) driven by DSG performance improvement in the final contract year,
improved inflation recovery in some contracts and a small property
dilapidation provision release.
- Aviation underlying operating profit declined to £7.7 million (HY24: £8.7
million), reflecting a one-off inflation adjustment in the prior period and
the revenue profile of the H160 French defence contract.
See segmental analysis tables on page 14.
Statutory operating profit of £183.8 million increased from £144.2 million
in HY24, driven by improved underlying performance outlined above and specific
adjusting items listed in the table below, including a c.£19.1 million
non-cash fair value movement on derivatives.
Reconciliation of statutory to underlying operating profit
30 September 2024 30 September 2023
£m
£m
Operating profit 183.8 144.2
Amortisation of acquired intangibles 4.4 5.6
Business acquisition, merger and divestment related items - 0.2
Amendment, curtailment, settlement or equalisation of Group pension schemes (0.3) -
Fair value movement on derivatives (19.1) 4.4
Specific adjusting items impacting operating profit (15.0) 10.2
Underlying operating profit 168.8 154.4
Operating margin
- Underlying operating margin of 7.0% (HY24: 7.1%), reflects the performance
across Nuclear and Land which more than offset the non-repeat of AH140 frigate
licenses received in the prior period.
- Statutory operating margin of 7.6% (HY24: 6.6%) reflects the same drivers as
underlying operating profit and specific adjusting items listed above, most
notably the £19.1 million credit (HY24: £4.4 million debit) for the non-cash
fair value movement on derivatives. The prior period statutory operating
margin of 6.6% was also positively impacted by the AH140 frigate licenses.
Further analysis of financial performance is included in each sector's
operational review on page 15 to 24.
Net finance costs
- Underlying net finance costs decreased to £16.8 million (HY24: £20.0
million) mainly due to higher interest earned on surplus cash balances.
- Statutory net finance costs increased to £16.9 million (HY24: £14.1
million). In addition to the factors impacting underlying net finance costs,
statutory net finance costs included a £0.1 million charge (HY24: £5.9
million credit) related to the fair value movement on derivative and related
items.
Income tax expense
- Underlying income tax expense increased to £38.4 million (HY24: £35.3
million) reflecting higher underlying pre-tax profit. This represents an
effective underlying tax rate of 25% (HY24: 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 at around 26% over the medium term
depending on country profit mix.
- Statutory income tax expense was £42.0 million (HY24: £32.0 million), higher
than underlying income tax expense due to the tax impact of the specific
adjusting items outlined above.
Basic earnings per share
- Underlying basic earnings per share of 23.5 pence (HY24: 20.6 pence)
represents an increase of 14%, driven by higher underlying operating profit
for the year and lower net finance costs and effective underlying tax rate.
- Basic earnings per share, on a statutory basis, increased to 25.7 pence (HY24:
20.4 pence loss) reflecting the improvement in underlying earnings per share
and the post tax impact of the specific adjusting items outlined above.
Reconciliation of statutory profit and basic EPS to underlying profit and
basic EPS
30 September 2024 30 September 2023
£m Basic EPS £m Basic EPS
Profit after tax for the period 130.0 25.7p 104.1 20.4p
Specific adjusting items, net of tax (11.3) (2.2)p 1.0 0.2p
Underlying profit after tax for the period 118.7 23.5p 105.1 20.6p
Exchange rates
The translation impact of foreign currency movements resulted in a decrease in
revenue of £8 million and a decrease in underlying operating profit of £1
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.
30 September 2024 30 September 2023
£m £m
Statutory operating profit 183.8 144.2
Add back: specific adjusting items (see table on page 7) (15.0) 10.2
Underlying operating profit 168.8 154.4
Right of use asset depreciation 19.3 18.9
Other depreciation & amortisation 34.8 30.1
Non-cash items 10.0 7.2
Working capital movements (13.4) (5.6)
Provisions (14.3) (2.0)
Net capital expenditure (47.5) (51.9)
Lease principal payments (22.8) (24.5)
Underlying operating cash flow 134.9 126.6
Underlying operating cash conversion (%) 80% 82%
Pension contributions in excess of income statement (23.9) (39.6)
Interest paid (net) (11.9) (13.5)
Tax paid (16.2) (12.9)
Dividends from joint ventures and associates 11.8 6.8
Cash flows related to specific adjusting items - (0.2)
Underlying free cash flow 94.7 67.2
Dividends paid (including non-controlling interests) (16.6) -
Purchase of own shares (13.3) (7.5)
Lease principal payments 22.8 24.5
Net new lease arrangements (38.2) (16.4)
Other non-cash debt movements (1.2) (1.8)
Fair value movement in debt and related derivatives (5.9) 1.7
Exchange movements 7.5 4.2
Movement in net debt 49.8 71.9
Opening net debt (435.4) (564.4)
Closing net debt (385.6) (492.5)
Add back: leases 239.8 204.7
Closing net debt excluding leases (145.8) (287.8)
A full statutory cash flow statement can be found on page 36 and a
reconciliation to net debt on page 11.
Underlying operating cash flow increased to £134.9million (HY24: £126.6
million). The conversion ratio to underlying operating profit of 80% (HY24:
82%) primarily reflects working capital and provision outflows.
- Working capital: An outflow of £13.4 million (HY24: £5.6 million outflow),
was smaller than expected in H1 as levels of negative working capital on
programmes and early customer receipts remained similar to the year-end
overall. 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 £47.5 million (HY24: £51.9 million) reflects
continued investment across the Group to support programme delivery and drive
operational performance and lower proceeds from asset disposals.
- Gross capex of £50.6 million (HY24: £61.7 million) is driven by further
investment in Devonport to support future growth and ongoing upgrades to
systems 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 to £3.1 million (HY24: £9.8 million).
- Lease principal payments, representing the capital element of payments on
lease obligations, was
£22.8 million (HY24: £24.5 million). This is reversed out below underlying
free cash flow as the payment reduces our lease liability (i.e. no effect on
net debt).
Underlying free cash flow increased to an inflow £94.7 million (HY24: £67.2
million inflow), reflecting higher underlying operating cash flow, lower
pension contributions and higher dividends received from joint ventures.
- Pension: The cash outflow in excess of the income statement charge of £23.9
million (HY24: £39.6 million) was lower due to the commencement of the two
long-term funding agreements announced at the FY24 results.
- Interest: Net interest paid, excluding that paid by JVs and associates,
decreased to £11.9 million (HY24: £13.5 million) due to lower net debt,
higher interest earned on surplus cash and a reduced finance charge associated
with the financing of long-term French defence contract receivables. We expect
net interest paid in FY25 to be approximately £35 million.
- Taxation: Tax paid in the period was £16.2 million (HY24: £12.9 million). We
expect cash tax paid in FY25 to be approximately £35 million.
- Dividends received from joint ventures and associates increased to £11.8
million (HY24: £6.8 million) due to a one-off catch-up dividend received in
the period.
- Cash flows related to specific adjusting items: There were no cash flows
related to specific adjusting items. The prior period cash flows related
primarily to the payment of costs relating to disposals which were classified
as a specific adjusting item.
New lease arrangements
In addition to net capital expenditure, and not included in underlying free
cash flow, £38.2 million (HY24: £16.4 million) of additional lease
liabilities were entered into in the period, higher than HY24 as a result of
the addition of leased aircraft due to new contracts in Australia. 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
30 September 2024 30 September 2023
£m
£m
Underlying operating cash flow 134.9 126.6
Add: net capital expenditure 47.5 51.9
Add: lease principal payments 22.8 24.5
Less: pension contributions in excess of income statement (23.9) (39.6)
Cash flows related to specific adjusting items - (0.2)
Cash generated from operations 181.3 163.2
Tax paid (16.2) (12.9)
Net interest paid (11.9) (13.5)
Net cash flows from operating activities 153.2 136.8
Statutory cash flow summary
30 September 2024 30 September 2023
£m
£m
Net cash flow from operating activities 153.2 136.8
Net cash flow from investing activities (35.6) (38.0)
Net cash flow from financing activities (53.0) (45.0)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 64.6 53.8
Net cash flow from operating activities was £153.2 million, an increase of
£16.4 million. The main drivers were higher Group operating profit and lower
pension deficit payments.
Net cash flow from investing activities was an outflow of £35.6 million
(HY24: outflow of £38.0 million), reflecting continued capital investment
across the Group and lower proceeds from asset disposals. On a gross basis,
capital expenditure decreased to £50.6 million (HY24: £61.7 million).
Net cash flow from financing activities was an outflow of £53.0 million
(HY24: outflow of £45.0 million), including
£22.8 million lease payments (HY24: £24.5 million), £13.3 million purchase
of own shares (HY24: £7.5) and £16.6 million dividends paid (HY24: £nil).
Movement in net debt - reconciliation of statutory cash flows to net debt
30 September 2024 30 September 2023
£m
£m
Net increase in cash, cash equivalents and bank overdrafts 64.6 53.8
Cash flow from the decrease in debt 15.4 8.4
Change in net funds resulting from cash flows 80.0 62.2
Additional lease obligations (39.5) (10.4)
New lease receivables granted 8.9 16.0
Other non-cash movements and changes in fair value (7.1) (0.1)
Foreign currency translation differences 7.5 4.2
Movement in net debt in the year 49.8 71.9
Opening net debt (435.4) (564.4)
Closing net debt (385.6) (492.5)
Net debt
Net debt at 30 September 2024 was £385.6 million, a reduction of £49.8
million compared to the beginning of the financial year. This was driven
primarily by underlying free cash flow, less payment of the final FY24
dividend, purchase of own shares, new lease arrangements in the period and
revaluation of derivatives and exchanges impacts on debt. Net debt excluding
leases was £145.8 million, representing a reduction of £65.1 million
compared to the beginning of the financial year.
Components of net debt
30 September 2024 31 March 2024
£m
£m
Cash and cash equivalents 613.9 552.6
Loans - non-current (742.7) (747.1)
Loans - current (2.6) (2.4)
Debt related derivative instruments (52.4) (47.4)
Lease receivables 38.1 35.5
Loans due from joint ventures 3.7 3.9
'Finance leases' (3.8) (6.0)
Net debt excluding leases (145.8) (210.9)
Leases (239.8) (224.5)
Net debt (385.6) (435.4)
Balance sheet
30 September 2024 31 March 2024
£m
£m
Intangible assets 928.4 928.9
Property, plant and equipment and right of use assets 724.9 692.7
Investment in joint ventures and associates 52.0 59.7
Working capital (683.0) (691.4)
Provisions (145.3) (158.2)
Net retirement benefit deficits (52.6) (109.7)
Net tax assets 84.1 119.9
Net other financial assets and liabilities 17.1 (0.4)
Leases (239.8) (224.5)
Net debt excluding leases (145.8) (210.9)
Net assets 540.0 406.1
Property, plant and equipment (PP&E) and right of use assets was £724.9
million, an increase of £32.2 million, reflecting continued investment in
capital expenditure and a net increase of £19.1 million in right of use
assets to £194.7 million associated with new aircraft leases.
Working capital was £(683.0) million, an increase of £8.4 million, with
small increases in receivables being largely offset with a decrease in
inventories.
Net retirement benefit deficit was £52.6 million, a decrease of £57.1
million. The fair value of plan assets of £3,027.6 million decreased by
£56.7 million, driven by an actuarial loss on scheme assets less
contributions. The present value of pension benefit obligations of £3,080.2
million decreased by £113.8 million driven by an increase in the discount
rate.
Funding and liquidity
As of 30 September 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 £51 million
At 30 September 2024, our net cash (cash and cash equivalents less overdrafts)
balance was £614 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)
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 30 September 2024 reduced to
0.6x (FY24: 0.8x) due to positive net cash flow and higher underlying
operating profit.
12 months to 12 months to
30 September 2024
30 September 2023
£m
£m
Underlying operating profit 252.2 210.8
Depreciation and amortisation 71.9 69.3
Covenant adjustments(1) (1.3) (5.9)
EBITDA 322.8 274.2
JV and associate dividends 12.1 10.4
EBITDA + JV and associate dividends (covenant basis) 334.9 284.6
Net debt excluding lease liabilities (145.8) (287.8)
Covenant adjustments(2) (44.7) (33.9)
Net debt (covenant basis) (190.5) (321.7)
Net debt/EBITDA 0.6x 1.1x
(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.
12 months to 12 months to
30 September 2024
30 September 2023
£m
£m
EBITDA + JV and associate dividends (covenant basis) 334.9 284.6
Net finance costs (37.0) (34.5)
Covenant adjustments(1) 12.8 8.9
Net finance costs (covenant basis) (24.2) (25.6)
Interest cover 13.8x 11.1x
(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.
12 months to 12 months to
30 September 2024
30 September 2023
£m
£m
Underlying operating profit 252.2 210.8
Share of results of joint ventures and associates 9.3 8.8
Underlying operating profit plus results of JVs and associates 261.5 219.5
Net debt excluding leases 145.8 287.8
Leases 239.8 204.7
Shareholder funds - see balance sheet on page 42 540.0 370.8
Retirement deficit - note 13 52.6 154.9
Invested capital 978.2 1,018.2
ROIC 26.7% 21.6%
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 30 September 2024, the IAS 19 valuation for accounting purposes was a net
deficit of £53 million (FY24: a net deficit of £110 million). The decrease
is a result of a greater reduction in present value of pension benefit
obligations (by £114 million to £3,080 million) than the reduction in fair
value of plan assets (by £57 million to £3,028 million, net of
£248 million longevity swaps). The reduction in pension benefit obligations
was mainly a result of modest changes in discount rate. The reduction in fair
value of plan assets was driven by an actuarial loss on scheme assets , partly
offset by scheme contributions. The fair value of the assets and liabilities
of the Group pension schemes at 30 September 2024 and the key assumptions used
in the IAS 19 valuation of our schemes are set out in note 13.
30 September 2024 31 March 2024
£m
£m
Fair value of plan assets (note 13) 3,027.6 3,084.3
Present value of pension benefit obligations (note 13) (3,080.2) (3,194.0)
Net (deficit) at period end (52.6) (109.7)
Income statement charge
The charge included within underlying operating profit in HY25 was
£10.2 million (HY24: £11.6 million), of which £7.1 million related to
service costs (HY24: £7.4 million) and £3.4 million related to expenses
(HY24: £4.2 million). In addition to this, there was an interest charge of
£2.0 million (HY24: charge of £0.4 million) and a past service credit of
£0.3 million (HY24: £nil).
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 HY25 was approximately £160
million (FY24: c.£200 million, HY24: c.£300 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 proposed
assumptions for the actuarial valuation of Rosyth Royal Dockyard Pension
Scheme as at 31 March 2024, and for the other schemes uses assumptions within
the latest agreed valuation prior to 30 September 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 completed in
this financial year and work has commenced on the valuation of the RRDPS as at
31 March 2024.
We continue to expect the total annual pension deficit repair payments of
around £40 million in FY25.
Cash contributions
Group cash contributions made into the defined benefit pension schemes,
excluding expenses and salary sacrifice contributions:
30 September 2024 30 September 2023
£m
£m
Future service contributions 8.7 9.7
Deficit recovery 13.2 26.9
Longevity swap 5.8 7.6
Total cash contributions - employer 27.7 44.2
Segmental analysis
The Group reports its performance through four reporting sectors.
30 September 2024 Marine Nuclear Land Aviation Total
£m £m £m £m £m
Contract backlog 2,991 2,461 2,410 1,655 9,517
Revenue 789.8 865.7 591.3 162.1 2,408.9
Operating profit 56.5 75.8 45.5 6.0 183.8
Operating margin 7.2% 8.8% 7.7% 3.7% 7.6%
Underlying operating profit 40.0 75.7 45.4 7.7 168.8
Underlying operating margin 5.1% 8.7% 7.7% 4.8% 7.0%
30 September 2023 Marine Nuclear Land Aviation Total
£m £m £m £m £m
Contract backlog 2,929 2,400 2,734 1,573 9,636
Revenue 750.1 710.8 545.6 170.5 2,177.0
Operating profit 55.1 45.2 37.3 6.6 144.2
Operating profit margin 7.3% 6.4% 6.8% 3.9% 6.6%
Underlying operating profit 63.0 45.2 37.5 8.7 154.4
Underlying operating margin 8.4% 6.4% 6.9% 5.1% 7.1%
OPERATIONAL REVIEWS
Marine
We design, develop, manufacture and integrate specialist systems, and deliver
technical through-life support for complex platforms in the marine sector.
Around 85% of Marine's revenue is derived from defence, with the remainder
primarily comprising our Liquid Gas Engineering (LGE) business.
Operational highlights
- Secured contract extension in Poland to support Miecznik frigate programme
until delivery of three ships in 2031
- Type 31 - good progress with ship 1 superstructure largely complete, ship 2
progressing, ship 3 steel cut
- First six months of in-service delivery of the Skynet contract to manage the
UK's military satellite and space operations
- Record order intake in LGE of more than £300 million
- Completed successful docking period for the aircraft carrier HMS Queen
Elizabeth Class
- Delivered the survey phase on the Canadian HMCS Victoria Extended Docking Work
Period contract
Financial review
30 September 2024 30 September 2023
£m £m
Contract backlog* 2,991 2,929
Revenue 789.8 750.1
Underlying operating profit* 40.0 63.0
Underlying operating margin* 5.1% 8.4%
*Alternative Performance Measures are defined in the Financial Glossary on
page 25
Revenue increased 5% to £789.8 million, up 6% on an organic basis, with a 1%
impact from FX translation. Growth was led by the first six months of Skynet
in-service delivery and increased LGE volumes, offsetting reduced throughput
of Type 31 due to contract phasing, and the impact of Arrowhead 140 licence
fee revenues in the prior period. Canada submarine support revenue also grew
in the period.
Underlying operating profit of £40 million was £23 million lower than the
prior period which included a strong contribution from Arrowhead 140 licenses.
This represents an underlying operating margin of 5.1% (HY24: 8.4%) partly
reflecting the lower initial margin recognition on the Skynet programme. The
prior period margin was disproportionately impacted by the positive
contribution from the licence fees.
Contract backlog of £2,991 million was unchanged year on year and also in the
period (FY24: 2,993 million) reflecting strong LGE intake and additional
missile tube assemblies, offsetting trading of revenue on long-term contracts.
Operational review
Defence
UK defence
We made further operational progress across the Type 31 inspiration class
frigate programme in the first half of this year. With three ships now in
construction the industrial workforce on site now comprises over 900 people,
with further recruitment planned over the coming months.
The superstructure of ship 1, HMS Venturer, is largely complete including the
majority of welded outfitting. Ship 2, HMS Active, has moved through
structural consolidation and the pace of outfitting is benefitting from the
experience gained from work on the first ship. In October 2024 we celebrated
cutting steel on ship 3, HMS Formidable.
We continue to deliver further missile compartment tube assemblies for both
the UK Dreadnought and US Columbia submarine classes, in support of the common
programme. As a result of our market leading position in submarine missile
tube assembly, and our deployment of advanced manufacturing technology, in
April 2024, we were awarded a contract to deliver an additional 58 integrated
tube and hull assemblies, a significant component of the overall assembly.
Also, at our site in Rosyth we successfully completed docking support periods
for the aircraft carrier HMS Queen Elizabeth. In our support business, we
achieved a major milestone for the UK Royal Navy with HMS Sutherland's crew
now able to live and work on board as we regenerate the ship ready for sea.
The period also saw the successful docking of HMS Kent and the start of
maintenance and through-life support that will deliver significant capability
updates and sustainment support.
Our contract to manage and operate Skynet, the UK MOD's military communication
system, is progressing well. Since formally taking over the management and
operation of the system in March 2024, we have fully mobilised the team and
conducted a full review of the Skynet estate and assets.
In October 2024, we were awarded a contract to provide technical support to
the in-service TLAM Tomahawk missile system installed on both operational
platforms and a number of shore sites.
Our contract to deliver the UK Royal Navy's next-generation Maritime
Electronic Warfare Systems Integrated Capability (MEWSIC) continues to be on
track, with first hardware expected in the coming months.
We delivered the first two Maritime Interdiction Craft to the UK Royal Marines
in September 2024 under our Hurracan contract. We expect 24 vessels to be
delivered over the next two years.
In the Autumn, we were chosen by the UK MOD to take part in a major industry
technology event involving all three Armed Forces, Project Acheron,
demonstrating how a multi-domain integrated network can be used in a
real-world conflict environment. We successfully demonstrated our system
integration capabilities by delivering medium to long range remote allocation
systems and an unmanned aerial vehicle enabled network alongside other defence
and technology partners. Taking part in events like this helps position
Babcock for future tactical communications opportunities.
Our contract to support the UK Royal Navy Gun System Automation (GSA) was
extended for six months to enable continued support to the Type 45 destroyers
including electro-optical controls, sensor platforms and other onboard
systems.
International defence
In Australasia, we continue to work with ASC on Collins Class submarine
sustainment activities. ASC has been named as the sovereign sustainment
partner to support the nation's inaugural nuclear-powered AUKUS submarines.
During the period, we completed the first major maintenance period on ANZAC
Class frigate, HMAS Stuart, through our new Regional Maintenance Provider West
contract. This included replacement of the propulsion diesel engine which
required removal of the vertical launch system. HMAS Stuart departed Darwin
for Australia's fifth Indo-Pacific deployment in October 2024.
Our new contract with KBR to support the Amphibious Combat and Sealift
Capability Life Cycle Management successfully began operations in July 2024,
providing support to maintenance activities in Sydney's Garden Island facility
as a part of the new Maritime Sustainment Model.
In New Zealand, we are now in our third year of the New Zealand Maritime Fleet
Sustainment Services (MFSS) contract which supports the country's entire naval
fleet. We are focusing on strategic partnerships to deliver enhanced
availability and value. We continue to work closely with the NZ Ministry of
Defence on the Fixed High Frequency Radio Refresh program. Factory acceptance
testing of the system was delivered in October 2024, in advance of the system
arriving in country in 2025.
In Canada, our Victoria In-Service Support Contract (VISSC) engineering
support work was rescheduled and re-baselined following the 2024 defence
budget. We have improved performance on VISSC and continue to position for the
next generation contract to support the Victoria Class submarine fleet (VISSC
II).
Canada has progressed its process to acquire the next generation of
conventionally powered submarines. A contract to build 8 to 12 submarines is
expected to be awarded by 2028, with the first platform delivered in 2035. Our
focus is on provision of equipment solutions and long-term submarine
sustainment, and we continue to establish partnerships with multiple submarine
OEMs.
In Poland, we signed a contract extension with PGZ, the Polish Armaments
Groups, to continue our support to Poland's Miecznik frigate programme until
the completion of three ships, providing engineering services, supply chain
support, transfer of knowledge and project management through the Programme
Management Office. Babcock and the Polish Naval Academy in Gdynia, Poland,
also signed of a Memorandum of Understanding (MoU) and Cooperation Agreement
for a new programme of professional internships.
In Sweden, we continue to work with Saab, successfully supporting design
deliverables on the Swedish Navy's next generation Luleå Class surface
combatant programme. Babcock is providing front-end engineering, design and
project management support during the initial design phase.
In Ukraine, having completed the regeneration of UK Sandown Class Mine Counter
Measure Vessels (MCMVs) before their sale to the Ukrainian Navy, we were
awarded a three-year contract to maintain and support the vessels. The first
support period has been delivered successfully.
In South Korea, our work on the Jangbogo submarines continues to meet all
milestones, with delivery of Boat 3 in the period and all the deliverables for
Boat 4 completed on schedule.
Civil
Our LGE business saw record order intake of more than £300 million in the
first half, with 63 contracts from international shipyard customers driven by
major LNG projects in the Middle East and growing demand in China, supporting
strong revenues over the coming years. This is supported by ongoing technology
development which has seen applications for two technology patents and three
trademarks granted.
Sales have also had a strong period across the portfolio including the
ecoSMRT® for LNG reliquefaction, ecoETHN® for Ethane Cargo Handling Systems
and 18 Ammonia Cargo Handling Systems. Current order backlog is strong with
150 projects in planning (16 projects delivered in period). The success of our
LGE business was recognised by the formal award of King's Award for Enterprise
in the Innovation category.
Also, at Rosyth we welcomed two of the UK's fleet of National Environmental
Research Council (NERC) scientific research vessels for planned maintenance.
Royal Research Ship (RRS) Discovery and RSS Sir David Attenborough spent a
total of six weeks at Rosyth undergoing through-life support. RSS Sir David
Attenborough will return to Rosyth later in 2024 with all three vessels in the
NERC fleet returning in 2025. In parallel, we have also delivered an
engineering programme to support the future decarbonisation of NERCs fleet.
Nuclear
We 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
- Reopened our Devonport 9-Dock, following a significant regeneration project,
critical for the future support of the UK's CASD
- Opened a new Engineering and Nuclear Skills building at City College Plymouth
to enhance our workforce's nuclear capabilities
- Significant ramp up at Hinkley Point C as we begin to install mechanical and
electrical services
- Launched H&B Defence, a JV with HII to support AUKUS focusing on building
Australia's sovereign nuclear capabilities
Financial review
30 September 2024 30 September 2023
£m £m
Contract backlog* 2,461 2,400
Revenue 865.7 710.8
Underlying operating profit* 75.7 45.2
Underlying operating margin* 8.7% 6.4%
*Alternative Performance Measures are defined in the Financial Glossary on
page 25
Revenue increased £155 million or 22% to £866 million. There was good growth
across key programmes where the main drivers were around 30% growth across our
civil nuclear decommissioning and new build businesses, ramp up of HMS
Victorious LIFEX programme, higher submarine support activity through our
Future Maritime Support Programme (FMSP) and the Major Infrastructure
Programme (MIP), where revenue increased to £273 million (HY24: £218
million).
Underlying operating profit grew to £76 million, a 67% organic increase,
driven by the revenue growth outlined above, better inflation recovery in some
contracts and achieving some risk retirement on contract milestones (c.£5
million). As a result, underlying operating margin improved 230 basis points
to 8.7%.
Contract backlog was up 3% year on year but decreased 21% in the period to
£2,461 million (FY24: £3,105 million), reflecting revenue traded on long
term contracts, including large MIP orders placed in FY24 and FMSP.
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). In September 2024, we reopened 9 Dock following completion of
the most significant package of infrastructure work since the early 2000's.
The maintenance, life extension and facility improvements will support the
UK's Vanguard Class submarines, which are critical in supporting the UK's
Continuous at Sea Deterrent and securing the long-term defence of the nation.
The upgraded facility will support the delivery of the current £560 million
programme to extend the operational life of HMS Victorious.
Following the award of the manufacturing phase contract in FY24, the programme
to upgrade 10 Dock with a new dock, berth, and logistics and production
support facilities is progressing well. Further infrastructure upgrades are
underway at 15 Dock, in preparation to deliver the Base Maintenance Period
(BMP) of the first Astute Class submarine to Devonport. These projects will
enable our Devonport teams to support the Astute fleet for deep maintenance
cycles over the coming years.
We are entering our fourth year of the Future Maritime Support Programme,
through which we sustain the entirety of the UK's submarine fleet, and where
we work with the customer to enable continuous improved delivery into the
future. At HMNB Clyde, we continue to deliver a strong performance on
submarine maintenance periods against a backdrop of increasing operational
demands.
We are supporting the UK's Submarine Delivery Agency (SDA) on the Submarine
Dismantling Project, working towards the full dismantling of the ex-HMS
Swiftsure at Rosyth which will be a UK first. During the period we completed
the final hazard and operability study, enabling the preparation of detailed
programme design. We are engaging to shape the future Submarine Disposal
Capability programme with the SDA.
Work continues on the design, installation and commissioning of complex plant
and engineering equipment for AWE Aldermaston. We have successfully achieved
Concept Design Approval on the Material Recovery Project, the first design
approval to pass through the client's gated approval process.
We are a key industrial partner on the UK's Nuclear Skills Taskforce, taking a
leading role in helping to secure the critical nuclear skills needed across
the defence and civil nuclear enterprise. As part of our ongoing commitment to
securing skills, we established the Babcock Engineering & Nuclear Skills
building at City College Plymouth. The modern facility will enhance our
growing workforce's capabilities by continuing to build a new pipeline of
talent, while upskilling the existing workforce on the complex skills required
to perform deep submarine maintenance. Officially opened in September 2024 by
the UK Minister for Defence Procurement, Maria Eagle, it marks the next phase
of the Babcock Skills Academy, which is focused on addressing the current and
future nuclear skills demand for our defence programmes and supporting the
national nuclear endeavour across the defence and civil nuclear enterprise.
International defence
Babcock and HII have combined forces in Australia to create joint venture
H&B Defence which will support the development of the critical
capabilities required to deliver Australia's conventionally armed, nuclear
powered submarine programme, a tripartite programme with Australia, the UK and
the US (AUKUS). We will collaborate to develop the optimal models for a
nuclear-powered submarine capability, including infrastructure, sustainment,
and the necessary skills development of the workforce.
Civil
UK civil nuclear
We support Sellafield with their decommissioning programme and have submitted
proposals for two key lots of the 15-year Decommissioning and Nuclear Waste
Partners programme. We have also signed contracts for the provision of
radiometric support which secures our position as a critical service supplier
to Sellafield over the next four years.
We have diversified our customer portfolio in the UK, securing opportunities
with both Westinghouse and Urenco, supporting the Government's focus on
security of front-end fuel cycle. We have implemented a baseline programme for
Westinghouse for the design and build of a facility to process uranium to
enable its future enrichment and use as a nuclear fuel and have completed a
multi-discipline design review of the tails management facility for Urenco
which will convert depleted uranium hexafluoride to the lower hazard uranium
oxide material for long term storage.
Following last year's £2.4 million funding award from the UK Government's
Future Nuclear Enabling Fund, we have now mobilised a team of around 50 people
to further develop our partner X-Energy's Advanced Modular Reactor (AMR). The
funding award, which was matched by X-energy, is being used to develop
UK-specific deployment plans, including an assessment of domestic
manufacturing and supply chain opportunities, constructability, modularisation
studies, and spent fuel management. We are also developing opportunities with
other AMR technology providers and continue to support Rolls Royce and
GE-Hitachi, two of the four Small Modular Reactor (SMR) vendors whose designs
have advanced to the next phase of the UK SMR competition.
We continue to support EDF with Large Gigawatt Reactor delivery at Hinkley
Point C (HPC) and Sizewell C through the MEH Alliance, an unincorporated JV.
At HPC our team has increased rapidly over the last three months to over 400,
working on the installation of mechanical and electrical services.
International civil nuclear
In Japan, work is progressing well 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 have negotiated and executed a subcontractor teaming agreement
for dismantling the first nuclear-powered aircraft carrier for the US Navy
Enterprise Class, USS Enterprise. We are positioning for other Tier 1 clean-up
opportunities.
Land
We 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
- Strong operational performance on DSG contract. Negotiating extension
following UK MOD notifying of its intention to exercise up to five option
years
- Launched the General Logistics Vehicle (GLV) medium wheelbase variant targeted
at UK and international opportunities
- Awarded additional contract to build 53 High Mobility Transporter Jackal 3
six-wheeled 'Extendas' for the British Army
- Partnered with ST Technology to launch a 120mm Ground Deployed Advanced Mortar
System
- Awarded several UK military training contract extensions during the period
- Launched the new Babcock Immersive Training Experience (BITE) to support
individual and collective training
- Successfully delivered the transition phases on our two French military Land
contracts
- Completed the first of six units on the new Lethabo power station contract
valued at £50 million over four years
Financial review
30 September 2024 30 September 2023
£m £m
Contract backlog* 2,410 2,734
Revenue 591.3 545.6
Underlying operating profit* 45.4 37.5
Underlying operating margin* 7.7% 6.9%
*Alternative Performance Measures are defined in the Financial Glossary on
page 25
Revenue increased 8% to £591 million, up 9% on an organic basis. Growth was
driven by a number of contracts and regions, primarily activity through the
DSG UK land support contract, the Jackal production ramp up, Ukraine support,
and higher activity in Australia and South Africa, offsetting reduced volumes
in Rail and contracts that completed in FY24.
Underlying operating profit of £45 million was up 22% on a constant currency
basis, driven by revenue growth outlined above, strong performance on DSG in
the final year of the contract, and improved inflation recovery on certain
contracts. Underlying margin improved 80 basis points to 7.7% (HY24: 6.9%).
Contract backlog decreased 12% year on year to £2,410 million, and by 7%
compared to the beginning of the year (FY24: £2,594 million) due to revenue
traded on long-term contracts with the DSG follow on contract expected to be
signed in H2 FY25.
Operational review
Defence
UK defence
We delivered strong operational performance on the DSG contract for the
maintenance, repair and asset management of British Army vehicles and
equipment. Following notification of its intention to extend the contract by
up to five years, we are now in advanced negotiations with our UK MOD customer
as we move towards contract signature, expected this financial year. The
transition will result in better outcomes for all stakeholders through the
rest of the decade.
We continue to support the UK in the provision of critical support to
Ukraine's Armed Forces, delivering the training of personnel and refurbishment
and renewal of equipment through our Project HECTOR contract. In June 2023, we
were awarded a contract 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 the establishment of 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. In July 2024, we were awarded an
extension, with further options to extend, to our initial one-year contract to
support urgent operational requirements for Ukraine's UK-gifted military land
assets. In addition to maintaining military vehicles and equipment, Babcock is
managing the supply chain and spares. We also support Operation Interflex, the
British-led multinational military operation to train and support the Armed
Forces of Ukraine.
Babcock, in partnership with Supacat, has been awarded a contract to build 53
modular four to six-wheeled 'Extendas' variants of the High Mobility
Transporter Jackal 3 for the British Army. This is in addition to the 70
Jackal 3 (HMT 400 series) vehicles which we began producing at our new
facility within the freeport of Devonport earlier this year.
In June 2024, we launched the second variant of our General Logistics Vehicle,
a medium wheelbase variant, and expect to add a six-wheel drive version next
year. The first GLV variant was unveiled in 2023, with an initial focus on the
upcoming tender to replace the British Army's legacy Land Rover fleet. We are
also actively pursuing international opportunities.
Our dedicated armoured vehicle conversion facility celebrated the successful
conversation of the 100th civilian armoured Land Cruiser in July 2024. We have
facilitated the continuous production of armoured Land Cruisers for the past
15 years and remain the principal supplier of Toyota LC300 civilian armoured
vehicles to the UK Government.
In September 2024, we unveiled our 120mm Ground Deployed Advanced Mortar
System. Based on the world-leading technology of our partner ST Engineering,
the vehicle-mounted, digitised mortar system is designed to meet the urgent
requirements of the British Army and NATO partner nations.
Our Defence Training business has had a successful first half with the award
of several key contract extensions. These include the Marine Engineering
Training Group contract for UK Navy Command, the continuation of the delivery
of training for Falcon, the battlefield communications system used by the
British Army and Royal Air Force, and a one-year extension to the
Electro-Mechanical Training contract for the British Army at MOD Lyneham.
The Babcock Immersive Training Experience (BITE) was launched in the UK and
Europe and is expected to be unveiled in the US later this year. BITE is an
immersive training environment which replicates the physical, sensory and
cognitive challenges of operating in a high stress environment. It produces
layered soundscapes, seismic simulation, visual stimuli, generated aromas and
environmental controls which enable real-time operationally accurate
scenarios.
Following the Enterprise Agreement with Palantir Technologies, we continue to
strengthen our data capabilities in defence. Investing in our people's data
skills and working closely with Palantir, we are on a journey of better
coherence and understanding thousands of data-points underpinning key
decisions regarding the design, build and support of critical, complex assets
and their value chains across their lifecycles.
Following a comprehensive evaluation of the tender and its commercial terms,
Babcock and its partners in Team Crucible made the decision to the exit the
bid to become the Strategic Training Partner for the Army Collective Training
System (ACTS).
International defence
In France, we continue to strengthen our relationship with the French MOD as
we delivered the transition phases on our two Land contracts. Our Land
military team in France continues to grow, we have recently opened a new
central office in Bordeaux monitoring our Land activities and opportunities to
ensure a continuous and excellent service delivery.
In Australasia, Babcock celebrated the first anniversary of its Australian
Defence High Frequency Communications contract (JP9101). We achieved the
preliminary design review milestone in September 2024 with the first
capability milestone, commissioning of the transportable node, the following
month.
We continue to provide asset management services to the Australian Defence
Force (ADF) for leading-edge counter-chemical, biological, radiological,
nuclear and explosive (C-CBNRE) technologies. The scope of the programme has
increased by over 40% since contract award in 2019 and includes working
closely with the ADF and industry to identify capability gaps caused by
technology obsolescence, as well as sourcing and acquiring new C-CBRNE tools
to sharpen ADF's response to existing and emerging threats.
We have embedded the first cohort of maintenance technicians at Royal
Australian Air Force base Amberley to conduct maintenance of ground support
equipment for the ADF. We continue to add technicians to the workforce to grow
maintenance support in Queensland, New South Wales and South Australia. This
additional resourcing has secured positive outcomes across several programmes
where we are providing base and remote support to fast jet fleets, including
emergency aircraft arrestor cables and deployable mission shelters.
Civil
UK civil
In our training business in July, the first Recruit Police Officers graduated
from the Police Constable Degree Apprenticeship, a tailored programme which
Babcock delivers for the Metropolitan Police Service (MPS). We also developed
content for the first year of the Police Constable Entry Programme, becoming
an integral part of delivering the course, alongside our MPS colleagues,
through a new co-delivery model.
Babcock is working with the London Fire Brigade (LFB) on reviewing its future,
strategic ambitions for modern firefighting. The first stage of this process
was to design, develop and implement a new tactical ventilation course,
providing firefighters with a more comprehensive understanding of the
theoretical principles and significance of tactical ventilation in
firefighting operations. We have also initiated a data enablement project with
LFB, optimising our current processes and improving overall efficiency.
Rail Systems Alliance Scotland (Babcock, in partnership with Network Rail and
Arcadis) volumes were lower in the period as we started Control Period 7 (2024
- 2029). In Northern Ireland we have successfully commissioned the railway
systems upgrades supporting Translink's major investment in the new Belfast
Grand Central Station after a major summer blockade. Ireland continues to be a
focus with the all-island rail strategy published this summer, and positive
engagement with industry stakeholders around a range of renewals and major
engineering programmes continues.
International civil
South Africa performance in HY25 was in line with expectations, mainly driven
by exceptional performance in the mining equipment business. This reflected
high commodity prices in the mining sector driving vehicle demand, new
customer orders and successful supplier negotiations. The business also saw a
strong period supported by improvements on the Sasol Low NOx burner contract
and delivery of spares and products. Work continues on operational excellence
initiatives and on enhancing our people's performance, experience, development
and capability throughout Africa.
Aviation
We 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
- Preferred bidder on MENTOR2, a c.€800 million 15-year contract to provide
initial pilot training to the French Air Force, Navy and Army
- Commenced the 12-year contract to deliver the in-service support of 48
Sécurité Civile and police EC145C2 helicopters
- RAF Hades contract extended by two years to provide technical airbase support
services across the Armed Forces
- Partnered with the RAF to deliver Elementary Flying Training to the Ukrainian
Pilot Force as they prepare to fly F-16 jets
- Awarded a 10-year renewal with UK Midlands Air Ambulance Charity
- Agreement with Uplift360 to explore solutions for managing and recycling
defence equipment composite materials
- Preferred bidder on a new MRO contract supporting the French Army's Gazelle
fleet
Financial review
30 September 2024 30 September 2023
£m £m
Contract backlog* 1,655 1,573
Revenue 162.1 170.5
Underlying operating profit* 7.7 8.7
Underlying operating margin* 4.8% 5.1%
*Alternative Performance Measures are defined in the Financial Glossary on
page 25.
Revenue declined 4% organically to £162 million primarily due to the
completion of aircraft delivery phase in the prior period within the H160
French defence contract, and flat trading across the UK. There was also an
adverse FX translation impact of (1)% on revenue.
Underlying operating profit declined 11% to £8 million, or 13% on a constant
currency basis, reflecting a one-off inflation adjustment in the prior period
and the revenue profile of the H160 French defence contract. As a result,
underlying operating margin decreased 30 basis points to 4.8% (HY24: 5.1%).
Contract backlog increased 5% year on year and was up slightly in the period
to £1,655 million (FY24: £1,641 million), reflecting and extension of the
RAF ground support contract and revenue traded on long term contracts.
Operational review
Defence
UK defence
Performance on our Royal Air Force (RAF) HADES contract remains strong against
a background of customer site laydown and base closures. As a result, we were
awarded a two-year contract extension to provide technical airbase support
services across the Armed Forces.
Despite some fleet challenges at the start of 2024, operations on the RAF
Light Aircraft Flying Task contract (LAFT2) are continuing with high levels of
availability. We delivered the final two (of three) phases of Elementary
Flying Training for the Ukrainian Pilot Force, ensuring trainers and pilots
had full aircraft availability as they prepare to fly F-16 jets.
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, concluded its first year with a successful
environmental impact assessment of the Grob Tutor. Preparation is underway
to test the technologies in the air.
As part of Ascent Flight Training joint venture, we have submitted a bid to
continue to deliver Information and Communications Technology together with
the infrastructure element of the Future ISTAR and Rear Crew Training Service
programme for the UK Military Flying Training System (UKMFTS).
In the period we signed a partnership agreement with Uplift360, which develops
chemical technologies, to recycle advanced materials. Together we will explore
solutions for managing and recycling composite materials from defence
equipment.
We are exploring the use of uncrewed air system technologies to support UK
defence, security and government aviation. We are working on methods of
integrating autonomous and collaborative platforms, a set of multiple
platforms communicating and operating together autonomously towards a set of
objectives into the RAF.
International defence
In France, we are delivering the MENTOR1 and FOMEDEC contracts in line with
expectations, with the Fighter Jet Pilot Academy Forecast reaching over 7,000
flying hours and 2,200 synthetic hours in the period. We are now extremely
proud to have reached the key milestone of 50,000 flight hours on our PC-21
aircraft. We also contributed to air surveillance during the 80th World War II
anniversary in Normandy and the Paris Olympic Games.
In November 2024, we were selected as the preferred bidder by the French
Direction générale de l'armement to deliver MENTOR2, a c.€800 million
15-year contract to provide initial pilot training to the French Air Force,
Navy and Army. The contract covers initial training before pilots specialise
in either fighter pilot training (which Babcock already delivers in Cognac,
France), transport pilot or helicopter pilot training. The new contract, due
to be awarded before the end of FY25, will involve the deployment of over 100
employees at the Salon de Provence air force base.
Also working with the French ministry of defence, the militarised H160
helicopter fleet has now carried out more than 100 rescue missions on both
coasts with around 2,700 flight hours.
During the period, we started the ramp up phase of our 12-year contract to
support the fleet of 48 EC145s aircraft for the Direction Générale de la
Sécurité Civile and the French Gendarmerie Nationale, delivering major
maintenance inspections in our facilities.
Our partnership with Airbus Helicopters remains strong, with an additional
contract awarded in the period for the in-service support for nine upcoming
Sécurité Civile H145D3 aircraft. We are also currently preferred bidder to
deliver in-service support services to the French Army Gazelle Fleet. This
places us in a leading position to support the French Armed Forces' flying
assets and training.
Civil
UK civil
We recently signed a 10-year contract with Midlands Air Ambulance Charity
(MAAC) to continue as the charity's aviation partner, 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 performing our
other air ambulance activities in the country with a fleet availability in
excess of 98%.
International civil
In France, we successfully delivered HEMS services during a busy summer period
which included the Olympic Games.
In Australasia, we provided the Queensland Government with two AW139
helicopters, custom fitted with specialist medical equipment, in support of
our 12-year contract to provide aeromedical retrieval and search and rescue.
In July 2024, we delivered a new Airbus H145 helicopter to increase capability
for law enforcement as part of our South Australia State Helicopter Rescue
Service contract.
In Canada, are performing well on our firefighting contract for the Province
of Manitoba, delivering over 450 missions whilst providing 98% aircraft
availability.
In the period we ramped up support for British Columbia's new aerial emergency
services contract with a new fleet of AW169 aircraft. Facility construction is
underway, and aircraft are being accepted and transported to Canada for the
installation of their technical medical capabilities. The programme is
expected to achieve initial operating capability in 2025.
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.
30 September 2024 30 September 2023
£m £m
Prior year revenue 2,177.0 2,144.0
FX (8.4) (44.0)
(Disposals) / acquisitions - (247.6)
Prior year revenue adjusted for FX and disposals (b) 2,168.6 1,852.4
Revenue growth (a) 240.3 324.6
Current year revenue 2,408.9 2,177.0
Organic revenue growth (a)/(b) 11.1% 17.5%
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.
30 September 2024 30 September 2023
£m £m
Contract backlog 9,517 9,636
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.
30 September 2024 30 September 2023
£m £m
Underlying operating profit 168.8 154.4
Specific adjusting items 15.0 (10.2)
Operating profit (note 2) 183.8 144.2
Specific adjusting items (note 2)
30 September 2024 30 September 2023
£m
£m
Amortisation of acquired intangibles (4.4) (5.6)
Business acquisition, merger and divestment related items (note 2) - (0.2)
Amendment, curtailment, settlement or equalization of Group pension schemes 0.3 -
Fair value movement on derivatives (note 2) 19.1 (4.4)
Specific adjusting items impacting operating profit/(loss) 15.0 (10.2)
Fair value movement on derivatives and related items (0.1) 5.9
Specific adjusting items impacting profit/(loss) before tax 14.9 (4.3)
Income tax benefit/(expense)
Amortisation of acquired intangibles 1.3 1.6
Amendment, curtailment, settlement or equalization of Group pension schemes (0.1) -
Fair value movement on derivatives and related items (4.8) (0.4)
Tax on Group reorganisation activities - 2.1
Specific adjusting items impacting income tax benefit/(expense) (3.6) 3.3
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.
30 September 2024 30 September 2023
£m £m
Revenue 2,408.9 2,177.0
Underlying operating profit 168.8 154.4
Underlying operating margin 7.0% 7.1%
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.
30 September 2024 30 September 2023
£m £m
Underlying net finance costs (16.8) (20.0)
Add: specific adjusting items impacting finance costs (note 2) (0.1) 5.9
Net finance costs (note 4) (16.9) (14.1)
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.
30 September 2024 30 September 2023
£m £m
Underlying profit before tax 157.1 140.4
Specific adjusting items impacting profit before tax (note 2) 14.9 (4.3)
Profit before tax (note 2) 172.0 136.1
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 30 September 2024 Year ended 30 September 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit/(loss) before tax (note 2) 157.1 14.9 172.0 140.4 (4.3) 136.1
Share of profit from joint ventures and associates (note 2) (5.1) - (5.1) (6.0) - (6.0)
Profit/(loss) before tax excluding profit from joint ventures and associates 152.0 14.9 166.9 134.4 (4.3) 130.1
(a)
Income tax expense (b) (38.4) (3.6) (42.0) (35.3) 3.3 (32.0)
Effective tax rate (b)/(a) 25.3% 25.2% 26.3% 24.6%
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 30 September 2024 Year ended 30 September 2023
Underlying Specific adjusting items Statutory Underlying Specific adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit/(loss) before tax (note 2) 157.1 14.9 172.0 140.4 (4.3) 136.1
Income tax (expense)/benefit (note 2) (38.4) (3.6) (42.0) (35.3) 3.3 (32.0)
Profit/(loss) after tax for the year 118.7 11.3 130.0 105.1 (1.0) 104.1
Amount attributable to owners of the parent 118.0 11.3 129.3 103.5 (1.0) 102.5
Amount attributable to non-controlling interests 0.7 - 0.7 1.6 - 1.6
Weighted average number of shares (m) 502.4 502.4 503.5 503.5
Effect of dilutive securities (m) 10.9 10.9 12.7 12.7
Diluted weighted average number of shares (m) 513.3 513.3 516.2 516.2
Basic EPS (note 2) 23.5p 2.2p 25.7p 20.6p (0.2)p 20.4p
Diluted EPS (note 2) 23.0p 2.2p 25.2p 20.1p (0.2)p 19.9p
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.
30 September 2024 30 September 2023
£m
£m
Cash and bank balances 618.3 480.5
Bank overdrafts (4.4) (0.1)
Cash, cash equivalents and bank overdrafts 613.9 480.4
Debt (745.3) (746.7)
Derivatives hedging debt (15.4) (7.1)
Lease liabilities (243.6) (213.0)
Liabilities from financing arrangements (1,004.3) (966.8)
Lease receivables 38.1 30.1
Loans to joint ventures and associates 3.7 2.0
Derivatives hedging interest on debt (37.0) (38.2)
Net debt (385.6) (492.5)
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.
30 September 2024 30 September 2023
£m £m
Net debt (385.6) (492.5)
Leases 239.8 204.7
Net debt (excluding leases) (145.8) (287.8)
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 25,
excluding depreciation and amortisation and including certain covenant
adjustments) plus JV and associate dividends. See page 12.
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 12.
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 12.
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.
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 9.
Purpose: Provides a measure of operating cash generation on an equivalent
basis to underlying operating profit.
30 September 2024 30 September 2023
£m
£m
Underlying operating cash flow 134.9 126.6
Add: net capex 47.5 51.9
Add: capital element of lease payments 22.8 24.5
Less: pension contributions in excess of income statement (23.9) (39.6)
Non-operating cash items (excluded from underlying cash flow) - (0.2)
Cash generated from operations 181.3 163.2
Tax (paid) (16.2) (12.9)
Less: net interest paid (11.9) (13.5)
Net cash flow from operating activities 153.2 136.8
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.
30 September 2024 30 September 2023
£m
£m
Underlying operating profit 168.8 154.4
Underlying operating cash flow 134.9 126.6
Operating cash conversion 80% 82%
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 9.
Purpose: Provides a measure of cash generated which is available for use in
line with the Group's capital allocation policy.
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
pension 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/)
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 12
November 2024 and are signed on its behalf by:
D
Lockwood
D Mellors
Director
Director
Group Income Statement
Note Six months ended Six months ended
30 September 2024
30 September 2023
£m £m
Revenue 2,3 2,408.9 2,177.0
Operating costs (2,225.1) (2,032.8)
Operating profit 2,3 183.8 144.2
Share of results of joint ventures and associates 2,3 5.1 6.0
Finance income 4 14.9 10.2
Finance costs 4 (31.8) (24.3)
Profit before tax 2,3 172.0 136.1
Income tax expense 2,5 (42.0) (32.0)
Profit for the period 2 130.0 104.1
Attributable to:
Owners of the parent 2 129.3 102.5
Non-controlling interest 2 0.7 1.6
130.0 104.1
Earnings per share
Basic 2 25.7p 20.4p
Diluted 2 25.2p 19.9p
Condensed consolidated statement of comprehensive income
Six months ended Six months ended
30 September
30 September
2024
2023
£m
£m
Profit for the period 130.0 104.1
Other comprehensive income/(loss)
Items that may be subsequently reclassified to income statement
Currency translation differences 1.1 (5.4)
Fair value adjustment of interest rate and foreign exchange hedges (3.9) 3.1
Hedging gains/(losses) reclassified to profit and loss 6.1 (1.1)
Share of other comprehensive income of joint ventures and associates (1.1) 0.4
Tax on items that may be subsequently reclassified to income statement (0.6) (1.5)
Items that will not be subsequently reclassified to income statement
Remeasurement of retirement benefit obligations (note 13) 34.9 (132.7)
Tax, including rate change impact, on remeasurement of retirement benefit (8.8) 33.2
obligations
Other comprehensive income/(loss), net of tax 27.7 (104.0)
Total comprehensive income 157.7 0.1
Total comprehensive income/(loss) attributable to:
Owners of the parent 156.5 (0.8)
Non-controlling interest 1.2 0.9
Total comprehensive income 157.7 0.1
Condensed consolidated statement of comprehensive income (unaudited)
Share Share premium Other reserve Capital redemption Retained earnings Hedging reserve Translation reserve Owners of the parent Non-controlling interest Total
capital
£m
£m
£m
£m
£m
£m
£m
£m
equity
£m
£m
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 period - - - - 102.5 - - 102.5 1.6 104.1
Other comprehensive (loss)/income
- - - - (99.5) 2.0 (5.8) (103.3) (0.7) (104.0)
Total comprehensive loss - - - - 3.0 2.0 (5.8) (0.8) 0.9 0.1
Purchase of own shares - - - - (7.5) - - (7.5) - (7.5)
Share-based payments - - - - 5.2 - - 5.2 - 5.2
Tax on shared-based payments - - - - 2.1 - - 2.1 - 2.1
Net movement in equity - - - - 2.8 2.0 (5.8) (1.0) 0.9 (0.1)
At 30 September 2023 303.4 873.0 768.8 30.6 (1,566.0) 5.0 (61.9) 352.9 17.9 370.8
At 1 April 2024 303.4 873.0 768.8 30.6 (1,523.9) 5.3 (68.3) 388.9 17.2 406.1
Profit for the period - - - - 129.3 - - 129.3 0.7 130.0
Other comprehensive income
- - - - 26.1 0.5 0.6 27.2 0.5 27.7
Total comprehensive income - - - - 155.4 0.5 0.6 156.5 1.2 157.7
Dividends paid - - - - (16.6) - - (16.6) - (16.6)
Purchase of own shares - - - - (13.3) - - (13.3) - (13.3)
Share-based payments - - - - 7.5 - - 7.5 - 7.5
Tax on shared-based payments - - - - (1.4) - - (1.4) - (1.4)
Net movement in equity - - - - 131.6 0.5 0.6 132.7 1.2 133.9
At 30 September 2024 303.4 873.0 768.8 30.6 (1,392.3) 5.8 (67.7) 521.6 18.4 540.0
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.
Condensed consolidated statement of financial position (unaudited)
Note As at As at
30 September 2024
31 March 2024
£m
£m
Assets
Non-current assets
Goodwill 6 780.1 780.1
Other intangible assets 148.3 148.8
Property, plant and equipment 530.2 517.1
Right of use assets 194.7 175.6
Investment in joint ventures and associates 52.0 59.7
Loans to joint ventures and associates 3.7 3.9
Retirement benefit surpluses 13 113.1 107.3
Other financial assets 4.8 5.3
Lease receivables 22.2 22.5
Derivatives 11.6 2.8
Deferred tax asset 107.6 132.3
Trade and other receivables 8 13.1 13.0
1,981.4 1,968.4
Current assets
Inventories 161.2 187.4
Trade and other receivables 8 519.7 487.2
Contract assets 8 342.7 337.4
Income tax receivable 3.3 10.6
Lease receivables 15.9 13.0
Other financial assets 1.1 1.1
Derivatives 15.2 4.4
Cash and cash equivalents 12 618.3 570.6
1,677.4 1,611.7
Total assets 3,658.8 3,580.1
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 737.5 736.4
Retained losses (1,392.3) (1,523.9)
Total equity attributable to owners of the parent 521.6 388.9
Non-controlling interest 18.4 17.2
Total equity 540.0 406.1
Non-current liabilities
Bank and other borrowings 742.7 747.1
Lease liabilities 192.1 185.9
Trade and other payables 9 5.9 5.4
Deferred tax liabilities 6.5 6.4
Derivatives 57.0 51.9
Retirement benefit deficits 13 165.7 217.0
Provisions for other liabilities 11 70.5 79.1
1,240.4 1,292.8
Current liabilities
Bank and other borrowings 7.0 20.4
Lease liabilities 51.5 44.6
Trade and other payables 9 926.9 949.2
Contract liabilities 9 786.9 761.8
Income tax payable 20.3 16.6
Derivatives 11.0 9.5
Provisions for other liabilities 11 74.8 79.1
1,878.4 1,881.2
Total liabilities 3,118.8 3,174.0
Total equity and liabilities 3,658.8 3,580.1
Condensed consolidated cash flow statement (unaudited)
Note Six months ended Six months ended
30 September 2024
30 September 2023
£m
£m
Cash flows from operating activities
Profit for the period 2 130.0 104.1
Share of results of joint ventures and associates 2,3 (5.1) (6.0)
Income tax expense 5 42.0 32.0
Finance income 4 (14.9) (10.2)
Finance costs 4 31.8 24.3
Depreciation and impairment of property, plant and equipment 29.9 25.2
Depreciation and impairment of right of use assets 19.3 18.9
Amortisation and impairment of intangible assets 9.3 10.5
Equity share-based payments 7.5 5.2
Net derivative fair value and currency movement through profit or loss (17.3) 6.7
Profit on disposal of property, plant and equipment 0.4 (0.1)
Profit on disposal of right of use assets 0.3 (0.2)
Cash generated from operations before movement in working capital and 233.2 210.4
retirement benefit payments
Decrease/(increase) in inventories 28.9 (4.6)
Increase in receivables (35.0) (31.9)
Increase in contract assets (6.8) (19.4)
(Decrease)/increase in payables (26.0) 55.3
Increase/(decrease) in contract liabilities 25.5 (5.0)
Decrease in provisions (14.3) (2.0)
Retirement benefit payments in excess of income statement charge (24.2) (39.6)
Cash generated from operations 181.3 163.2
Income tax paid (16.2) (12.9)
Interest paid (26.5) (24.6)
Interest received 14.6 11.1
Net cash flows from operating activities 153.2 136.8
Cash flows from investing activities
Dividends received from joint ventures and associates 11.8 6.8
Proceeds on disposal of property, plant and equipment 3.1 9.8
Purchases of property, plant and equipment (41.8) (47.4)
Purchases of intangible assets (8.8) (14.3)
Loans repaid by joint ventures and associates 0.1 7.1
Net cash flows from investing activities (35.6) (38.0)
Cash flows from financing activities
Lease principal payments 12 (22.8) (24.5)
Bank loans repaid 12 (8.3) (13.0)
Loans raised and facilities drawn down 12 8.0 -
Purchase of own shares (13.3) (7.5)
Dividends paid (16.6) -
Net cash flows from financing activities (53.0) (45.0)
Net increase in cash, cash equivalents and bank overdrafts 12 64.6 53.8
Cash, cash equivalents and bank overdrafts at beginning of period 12 552.6 429.5
Effects of exchange rate fluctuations 12 (3.3) (2.9)
Cash, cash equivalents and bank overdrafts at end of period 12 613.9 480.4
Notes to the consolidated financial statements
1. Basis of preparation and significant accounting policies
These condensed consolidated half year financial statements have been prepared
in accordance with IAS 34, Interim Financial Reporting and the Disclosures and
Transparency Rules of the Financial Services Authority, the Listing Rules and
UK adopted International Financial Reporting Standards (IFRS). They should be
read in conjunction with the annual report and financial statements for the
year ended 31 March 2024, which were prepared in accordance with IFRS and the
applicable legal requirements of the Companies Act 2006. These condensed
consolidated half year financial statements do not comprise statutory accounts
within the meaning of Section 435 of the Companies Act 2006. The annual report
and financial statements for the year ended 31 March 2024 were reported upon
by the Group's auditor and delivered to the registrar of companies. The report
of the auditor on the annual report and financial statements for the year
ended 31 March 2024 was unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis of matter
without qualifying their report and did not contain statements under Section
498 (2) or (3) of the Companies Act 2006. The accounting policies used and
presentation of these condensed consolidated half year financial statements
are consistent with the accounting policies applied by the Group in its
consolidated annual report and financial statements as at, and for the year
ended, 31 March 2024, and comply with amendments to IFRS effective since that
date.
The half year report for the six months ended 30 September 2024 was approved
by the Directors on 12 November 2024.
Significant accounting policies
New and amended standards adopted by the Group
There are no new standards, amendments or interpretations that are not yet
effective that are expected to have a material impact on the Group's
operations.
Basis of preparation
The Directors consider it appropriate to adopt the going concern basis of
accounting in preparing the condensed consolidated half year financial
statements.
In assessing the appropriateness of the going concern basis of accounting, the
Directors have considered whether the Group has adequate resources to continue
in operational existence for at least 12 months from the date of approval of
these consolidated half year financial statements. The Directors reviewed the
resources available to the Group in the form of cash and committed facilities.
As of 30 September 2024, the Group's committed facilities and bonds totalling
£1.6 billion were the £775 million five-year multi-currency RCF, two
tranches of bonds (£300 million 1.875% notes and €550 million 1.375% notes)
and two overdraft facilities totalling £100 million.
The £775 million RCF is the only facility containing financial covenants. The
key covenant ratios are (i) net debt to EBITDA (gearing ratio) and (ii) EBITDA
to net interest (interest cover) with tests set to less than 3.5x and greater
than 4.0x respectively. These are measured twice per year, on 30 September and
31 March. To assess the level of headroom within the available facilities, a
reverse stress test was performed to assess the level of performance
deterioration against the base case budget (in both EBITDA and net debt)
required to challenge covenant levels. Of the remaining measurement points
within the five-year period approved by the Board, the smallest required
reduction in forecast EBITDA to hit the covenant level was 87% and the
smallest net debt increase was 647%. Given the mitigating actions that are
available and within management's control, such adverse movements are not
considered plausible. There have been no breaches of debt covenants during the
reporting period.
The Directors have also considered the Group's forecasts when assessing going
concern, having considered the 18-month period from the date of signing the
Group's condensed consolidated financial statements for the six months ended
30 September 2024.
On an annual basis, budgets are prepared using a bottom-up approach,
aggregating the budgets for the individual business units into Sector budgets.
The Sector budgets and the consolidated Group budget is then reviewed by the
Board and used to monitor business performance. This annual process comprises
the budget for the coming financial year and a 5-year plan.
Between annual budget cycles, the Group prepares rolling forecasts on a
monthly basis covering an updated assessment of the remainder of the current
financial year.
The impacts of current economic conditions, including inflation, are
incorporated into the annual budget process and the rolling forecasts. Where
changes in economic conditions are significant, these would also be
incorporated into the 5-year plan for purposes of the going concern
assessment.
The Directors have performed sensitivity analyses on the latest Group rolling
forecast for the duration of the assessment period. These involve a range of
downside events both individually and in combination under a range of severe,
but plausible downside scenarios. Such sensitivities include a reduction in
bid pipeline closure (business winning), a deterioration in large programme
performance across the Group (including further inflation cost increases, or
related failures in supplier resilience, as per our principal risks), a
deterioration in the Group's working capital position and a regulatory risk
relating to a reduction in access to R&D tax incentive credits.
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 as
described in the going concern assessment on page 108 of the annual report and
financial statements for the year ended 31 March 2024. Despite the severity of
the combined severe, but plausible scenarios, these sensitivities did not give
rise to any material uncertainties in relation to the Group's ability to
continue as a going concern.
Based on our review, the Directors have a reasonable expectation that the
Group has adequate resources to continue as a going concern for at least 12
months from the date of these condensed consolidated half year financial
statements. As such, these financial statements have been prepared on the
going concern basis. The Directors do not believe there are any material
uncertainties to disclose in relation to the Group's ability to continue as a
going concern.
Key sources of estimation uncertainty
The application of the Group's accounting policies requires the use of
estimates. The key sources of estimation uncertainty at the end of the
reporting period that may have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within the next
financial year are set out below:
Revenue and profit recognition: The Group's revenue recognition policies are
set out in note 1 of the annual report for the year ended 31 March 2024. 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 an estimate of the cost to complete long-term contracts.
Outturn costs are estimated on a contract-by-contract basis and estimates are
carried out by suitably qualified and experienced personnel. Estimates of cost
to complete include the 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 differ from previous
estimates. 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 contract 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 FY23.
In FY24 we launched an operational improvement programme to address all areas
of the Type 31 programme. This included a significant focus on cost drivers
and financial modelling, supported by external consultants, and led to a
number of management changes. This 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 FY24. Estimated costs over the life of the contract increased due to
the maturing of the design and an increase in the forecast cost of labour.
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 made 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 - including engineering
which is impacted by 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
Key sources of estimation uncertainty (continued)
a) 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
b) 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
c) 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. 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 £32 million
· 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 £45 million
· 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
· Schedule (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.£1 billion 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.
Defined benefit pension schemes obligation: The Group's defined benefit
pension schemes are assessed annually in accordance with IAS 19. The valuation
of the defined benefit pension obligations is sensitive to the inflation and
discount rate actuarial assumptions used. There is a range of possible values
for the assumptions and small changes to the assumptions may have a
significant impact on the valuation of the defined benefit pension obligation.
In addition to the inflation and discount rate estimates, a key judgment
relates to the expected availability of future accounting surpluses under
IFRIC 14. In the annual report and financial statements for the year ended 31
March 2024, note 25 provided a sensitivity analysis of the impact of
assumptions used in the Group's defined benefit pension schemes.
Critical accounting judgements
Critical accounting judgements, apart from those involving estimations, that
are applied in the preparation of the condensed consolidated financial
statements are discussed below:
Acting as a 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.
Determining the Group's cash generating units: 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: Marine, Nuclear, Aviation
and Land. 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.
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.
2. Adjustments between statutory and underlying information
Definition of underlying measures and exceptional 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 period to period.
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 those
used in the year ended 31 March 2024.
Underlying operating profit
In any given period 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 ("Specific Adjusting
Items"). 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 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
period. 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 acquisitions
and gains or losses on disposal of assets or businesses);
· Gains, losses and costs directly arising from the Group's withdrawal from a
specific market or geography, including closure costs, severance costs, the
disposal of assets and termination of leases;
· The costs of large restructuring programmes that significantly exceed the
minor restructuring which occurs in most years as part of normal operations.
Restructuring costs incurred as a result of normal operations are included in
operating costs and are not excluded from underlying operating profit;
· Profit or loss from amendment, curtailment, settlement or equalisation of
Group pension schemes;
· Fair value gain/(loss) on open forward rate contracts that will be settled in
future periods; 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
Six months ended 30 September 2024 Six months ended 30 September 2023
Underlying Specific Adjusting Items Statutory Underlying Specific Adjusting Statutory
£m
£m
£m
£m
£m
Items
£m
Revenue 2,408.9 - 2,408.9 2,177.0 - 2,177.0
Operating profit 168.8 15.0 183.8 154.4 (10.2) 144.2
Share of results of joint ventures and associates 5.1 - 5.1 6.0 - 6.0
Net finance costs (16.8) (0.1) (16.9) (20.0) 5.9 (14.1)
Profit before tax 157.1 14.9 172.0 140.4 (4.3) 136.1
Income tax expense (38.4) (3.6) (42.0) (35.3) 3.3 (32.0)
Profit after tax for the period 118.7 11.3 130.0 105.1 (1.0) 104.1
Earnings per share including underlying measures
Six months ended 30 September 2024 Six months ended 30 September 2023
Underlying Specific Adjusting items Statutory Underlying Specific Adjusting items Statutory
£m
£m
£m
£m
£m
£m
Profit after tax for the period 118.7 11.3 130.0 105.1 (1.0) 104.1
Amount attributable to owners of the parent 118.0 11.3 129.3 103.5 (1.0) 102.5
Amount attributable to non-controlling interests 0.7 - 0.7 1.6 - 1.6
Weighted average number of shares (m) 502.4 502.4 503.5 503.5
Effect of dilutive securities (m) 10.9 10.9 12.7 12.7
Diluted weighted average number of shares (m) 513.3 513.3 516.2 516.2
Basic EPS 23.5p 2.2p 25.7p 20.6p (0.2)p 20.4p
Diluted EPS 23.0p 2.2p 25.2p 20.1p (0.2)p 19.9p
Details of Specific Adjusting Items
The impact of Specific Adjusting Items is set out below:
Six months ended 30 September 2024 Six months ended 30 September 2023
£m
£m
Amortisation of acquired intangibles (4.4) (5.6)
Business acquisition, merger and divestment related items - (0.2)
Amendment, curtailment, settlement or equalisation of Group pension schemes 0.3 -
Fair value movement on derivatives and related items 19.1 (4.4)
Specific Adjusting items impacting operating profit 15.0 (10.2)
Fair value movement on derivatives and related items (0.1) 5.9
Specific Adjusting items impacting loss before tax 14.9 (4.3)
Specific Adjusting items impacting income tax expense
Amortisation of acquired intangibles 1.3 1.6
Amendment, curtailment, settlement or equalisation of Group pension schemes (0.1) -
Fair value movement on derivatives and related items (4.8) (0.4)
Income tax effect of adjusting items impacting profit before tax (3.6) 1.2
Income tax specific adjusting items - 2.1
Total adjusting items impacting income tax (3.6) 3.3
Specific Adjusting items impacting profit after tax 11.3 (1.0)
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. 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.
Fair value movement on derivatives and related items
Movements within operating profit arise from 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. These
arrangements are considered to provide an economic hedge, but hedge accounting
under IFRS is not applied. 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 remove the risk to profitability).
Hedge ineffectiveness on debt and debt-related derivatives that are designated
in a hedge relationship under IFRS are also presented as a specific adjusting
item in finance costs. This is presented as a specific adjusting item as the
ineffectiveness is caused by the off-market designation at inception, although
overall the transactions are considered 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. These arrangements are considered to provide an economic
hedge, but hedge accounting under IFRS is not applied.
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 period ended 30 September 2024 was £nil (2023: loss of
£0.2 million). The prior year balance comprised of legal and warranty related
costs additional to those initially recorded in prior periods in respect of
divestments.
Amendment, curtailment, settlement or equalisation of Group pension schemes
Relates to amendments made to the Babcock International Group Pension Scheme
('BIGPS') following finalisation of the planned closure of the scheme to
future accrual from 30 September 2024 as described on page 233 of the 31 March
2024 Annual Report.
Income tax specific adjusting items
During the prior period the Group revised its estimates for certain
tax-related provisions, relating to matters arising from previous divestments
and business reorganisations. No such items have arisen in the 6 months to 30
September 2024.
3. Segmental information
The Group has four operating and 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
operational 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 operating and reportable segments and makes decisions
about the allocation of resources.
Six months ended 30 September 2024 Marine Nuclear Land Aviation Unallocated Total
£m
£m
£m
£m
£m
£m
Revenue 789.8 865.7 591.3 162.1 - 2,408.9
Underlying operating profit 40.0 75.7 45.4 7.7 - 168.8
Specific Adjusting Items
Amortisation of acquired intangibles (3.1) - - (1.3) - (4.4)
Amendment of Group pension schemes 0.1 0.1 0.1 - - 0.3
Fair value loss on forward rate contracts 19.5 - - (0.4) - 19.1
Operating profit 56.5 75.8 45.5 6.0 - 183.8
Share of results of joint ventures and associates (0.2) 0.2 - 5.1 - 5.1
Net finance costs - - 0.2 - (17.1) (16.9)
Profit/(loss) before tax 56.3 76.0 45.7 11.1 (17.1) 172.0
Six months ended 30 September 2023 Marine Nuclear Land Aviation Unallocated Total
£m
£m
£m
£m
£m
£m
Revenue 750.1 710.8 545.6 170.5 - 2,177.0
Underlying operating profit 63.0 45.2 37.5 8.7 - 154.4
Specific Adjusting Items
Amortisation of acquired intangibles (3.8) - - (1.8) - (5.6)
Business acquisition, merger and divestment related items - - (0.2) - - (0.2)
Fair value loss on forward rate contracts (4.1) - - (0.3) - (4.4)
Operating profit 55.1 45.2 37.3 6.6 - 144.2
Share of results of joint ventures and associates 0.3 - - 5.7 - 6.0
Net finance costs - - 0.3 - (14.4) (14.1)
Profit/(loss) before tax 55.4 45.2 37.6 12.3 (14.4) 136.1
Geographic analysis of revenue
The geographic analysis of revenue by origin of customer for the periods ended
30 September 2024 and 30 September 2023 is as follows:
Geographic analysis Revenue
Six months ended Six months ended
30 September 2024
£m 30 September 2023
£m
United Kingdom 1,704.9 1,507.2
Rest of Europe 81.3 120.0
Africa 188.1 179.7
North America 101.5 93.9
Australasia 203.8 170.5
Rest of World 129.3 105.7
Group total 2,408.9 2,177.0
The analysis of revenue for the periods ended 30 September 2024 and 30
September 2023 is as follows:
Six months ended Six months ended
30 September 2024
£m 30 September 2023
£m
Sale of goods - transferred at a point in time 157.8 181.4
Sale of goods - transferred over time 210.0 117.1
Sale of goods 367.8 298.5
Provision of services - transferred over time 2,036.4 1,872.5
Rental income 4.7 6.0
Revenue 2,408.9 2,177.0
4. Net finance costs
Six months ended Six months ended
30 September 2024
30 September 2023
£m
£m
Finance costs
Loans, overdrafts and associated interest rate hedges 20.5 15.0
Lease interest and associated hedges 5.8 5.3
Amortisation of issue costs of bank loan 1.1 1.5
Retirement benefit interest 2.0 0.4
Other 2.4 2.1
Total finance costs 31.8 24.3
Finance income
Bank deposits, loans and leases 14.7 9.9
IFRIC 12 investment income 0.2 0.3
Retirement benefit interest - -
Total finance income 14.9 10.2
Net finance costs 16.9 14.1
5. Income tax expense
Six months ended Six months ended
30 September 2024
30 September 2023
£m
£m
Income tax expense (42.0) (32.0)
Calculation of underlying effective tax rate
Profit before tax 172.0 136.1
Deduct: Share of results of joint ventures and associates (note 2) (5.1) (6.0)
Add back specific adjusting items (note 2) (14.9) 4.3
Adjusted profit before tax 152.0 134.4
Tax charge 42.0 32.0
Exclude specific adjusting items impacting income tax (note 2) (3.6) 3.3
Adjusted tax charge 38.4 35.3
Underlying effective tax rate 25.3% 26.3%
The tax charge has been calculated by applying the effective rate of tax which
the Group expects to incur for the year to 31 March 2025 to the half-year
pre-tax profit in each jurisdiction in which it operates.
6. Goodwill
30 September 2024 31 March 2024
£m
£m
Cost
At 1 April 1,822.0 1,823.3
Exchange adjustments - (1.3)
At 30 September/ 31 March 1,822.0 1,822.0
Accumulated impairment
At opening and closing dates 1,041.9 1,041.9
Net book value at 30 September / 31 March 780.1 780.1
Goodwill is allocated to the operating segments as set out in the table below:
30 September 2024 31 March 2024
£m
£m
Marine 295.4 295.5
Nuclear 233.1 233.1
Land 217.9 218.0
Aviation 32.0 32.0
Africa 1.7 1.5
780.1 780.1
Goodwill is stated at cost less any provision for impairment. The recoverable
value of each cash generating unit was assessed at 31 March 2024 by reference
to value-in-use calculations. The value-in-use calculations were derived from
risk-adjusted cash flows from the Group's five-year plan and an estimated
long-term, country-specific growth rate between 2.0% and 4.6%. There have been
no changes to the Group's key assumptions in the six months ended 30 September
2024 since the published annual report and financial statements for the year
ending 31 March 2024. The key assumptions can be found in note 10 of that
report. 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 climate change and inflation.
Goodwill is required to be tested for impairment at least once every financial
year, irrespective of whether there is any indication of impairment. The
Group's annual impairment review typically occurs at year end. However, if
indicators of impairment are present, an earlier review is also required. The
Group has assessed the goodwill balance for both internal and external
impairment indicators and no impairment indicators were identified. Management
will prepare a full goodwill impairment assessment at the year end.
7. Non-current assets
In the six months ended 30 September 2024 the Group made the following
significant additions to non-current assets:
· £45.2 million of additions to property plant and equipment including £27.8
million of site improvements at Devonport Royal Dockyard;
· £8.4 million of additions to intangible assets; and
· £41.3 million of additions to right of use assets new aircraft of £25.9
million and property lease arrangements of £9.3 million.
8. Trade and other receivables and contract assets
30 September 2024 31 March 2024
£m
£m
Non-current assets
Costs to obtain a contract 0.2 0.3
Costs to fulfil a contract 9.7 10.2
Other debtors 3.2 2.5
Non-current trade and other receivables 13.1 13.0
Current assets
Trade receivables 287.7 266.4
Less: provision for impairment of receivables (7.8) (8.5)
Trade receivables - net 279.9 257.9
Retentions 7.9 6.1
Amounts due from related parties (note 14) 1.5 2.3
Other debtors 28.8 25.0
Other taxes and social security receivables 91.5 98.1
Prepayments 103.0 88.2
Costs to fulfil a contract 7.1 9.6
Trade and other receivables 519.7 487.2
Contract assets 342.7 337.4
Current trade and other receivables and contract assets 862.4 824.6
Trade and other receivables are stated at amortised cost less expected credit
loss.
9. Trade and other payables and contract liabilities
30 September 2024 31 March 2024
£m
£m
Current liabilities
Trade creditors 297.4 314.3
Amounts due to related parties (note 14) 0.1 1.5
Other creditors 26.6 13.5
Defined contribution pension creditor 8.8 8.3
Other taxes and social security 84.1 71.1
Accruals 509.9 540.5
Trade and other payables 926.9 949.2
Contract liabilities 786.9 761.8
Trade and other payables and contract liabilities 1,713.8 1,711.0
Non-current liabilities
Non-current accruals 5.3 4.8
Other creditors 0.6 0.6
5.9 5.4
Included in creditors is £14.4 million (31 March 2024: £11.4 million)
relating to capital expenditure which has therefore not been included in
working capital movements within the cash flow statement.
10. Financial instruments
The following table presents the Group's assets and liabilities:
30 September 2024 (£m) Financial assets at fair value Financial assets at amortised cost Financial liabilities at fair value Financial liabilities at amortised cost Total carrying amount Fair value
Non-current financial assets
Loans to joint ventures and associates - 3.7 - - 3.7 3.7
Trade and other receivables * 0.9 0.8 - - 1.7 1.7
Other financial assets - 4.8 - - 4.8 4.8
Derivatives 11.6 - - - 11.6 11.6
Lease receivables - 22.2 - - 22.2 22.2
Current financial assets
Trade and other receivables * - 306.7 - - 306.7 306.7
Other financial assets - 1.1 - - 1.1 1.1
Derivatives 15.2 - - - 15.2 15.2
Lease receivables - 15.9 - - 15.9 15.9
Cash and cash equivalents - 618.3 - - 618.3 618.3
Non-current financial liabilities
Bank and other borrowings - - - (742.7) (742.7) (701.9)
Trade and other payables * - - - (0.6) (0.6) (0.6)
Derivatives - - (57.0) - (57.0) (57.0)
Current financial liabilities
Bank and other borrowings - - - (7.0) (7.0) (7.0)
Trade and other payables * - - - (798.8) (798.8) (798.8)
Derivatives - - (11.0) - (11.0) (11.0)
Net financial assets / (financial liabilities) 27.7 973.5 (68.0) (1,549.1) (615.9) (575.1)
31 March 2024 (£m) Financial assets at fair value Financial assets at amortised cost Financial liabilities at fair value Financial liabilities at amortised cost Total carrying amount Fair value
Non-current financial assets
Loans to joint ventures and associates - 3.9 - - 3.9 3.9
Trade and other receivables * 0.9 0.8 - - 1.7 1.7
Other financial assets - 5.3 - - 5.3 5.3
Derivatives 2.8 - - - 2.8 2.8
Lease receivables - 22.5 - - 22.5 22.5
Current financial assets
Trade and other receivables * - 283.0 - - 283.0 283.0
Other financial assets - 1.1 - - 1.1 1.1
Derivatives 4.4 - - - 4.4 4.4
Lease receivables - 13.0 - - 13.0 13.0
Cash and cash equivalents - 570.6 - - 570.6 570.6
Non-current financial liabilities
Bank and other borrowings - - - (747.1) (747.1) (686.4)
Derivatives - - (51.9) - (51.9) (51.9)
Current financial liabilities
Bank and other borrowings - - - (20.4) (20.4) (20.4)
Trade and other payables * - - - (848.3) (848.3) (848.3)
Derivatives - - (9.5) - (9.5) (9.5)
Net financial assets / (financial liabilities) 8.1 900.2 (61.4) (1,615.8) (768.9) (708.2)
* Trade and other receivables and trade and other payables only include
balances which meet the definition of a financial instrument.
The fair values of financial instruments held at fair value have been
determined based on available market information at the period end date, and
the valuation methodologies listed below:
· The fair values of forward foreign exchange contracts are calculated by
discounting the contracted forward values and translating at the appropriate
period end rates; and
· The fair values of cross-currency interest rate swaps are calculated by
discounting expected future principal and interest cash flows and translating
at the appropriate period end rates.
11. Provisions for other liabilities
Contract/ Employee benefits and business reorganisation Property Other Total
warranty
(b)
(c)
(d)
£m
(a)
£m
£m
£m
£m
At 31 March 2024 117.8 12.4 23.5 4.5 158.2
Charge to income statement 12.4 2.2 0.7 0.1 15.4
Release to the income statement (5.1) (1.1) (2.9) (0.7) (9.8)
Utilised in the period (17.3) (1.8) (0.5) (0.3) (19.9)
Unwinding of discount 1.4 - - - 1.4
At 30 September 2024 109.2 11.7 20.8 3.6 145.3
Provisions are analysed between current and non-current as follows:
30 September 2024 31 March 2024
£m
£m
Current 74.8 79.1
Non-current 70.5 79.1
145.3 158.2
a) The contract/warranty provisions relate to onerous contracts and warranty
obligations on completed contracts and disposals. Warranty provisions are
provided in the normal course of business and are recognised when the
underlying products and services are sold. The provision is based on an
assessment of future claims with reference to historical warranty data and a
weighting of possible outcomes against their associated probabilities.
b) Employee benefits and business reorganisation costs relate to long term
employee benefits such as long-term sickness and long-term leave, and business
restructuring activities including announced redundancies.
c) Property and other provisions primarily relate to dilapidation costs in
respect of leased buildings and contractual obligations in respect of
infrastructure.
d) Other provisions include provisions for insurance claims arising within the
Group's captive insurance company, Chepstow Insurance Limited. Provisions
relate to specific claims assessed in accordance with the advice
of independent actuaries.
Included within provisions is £7.1 million expected to be utilised over
approximately ten years (March 2024: £6.7 million). Other than these
provisions the Group's non-current provisions are expected to be utilised
within two to five years.
12. Changes in net debt
31 March Additional Other non-cash movement Changes in fair value Exchange 30 September
2024
leases
£m
£m
movement
2024
£m Cash flow
£m
£m
£m
£m
Cash and bank balances 570.6 50.8 - - - (3.1) 618.3
Bank overdrafts (18.0) 13.8 - - - (0.2) (4.4)
Cash, cash equivalents and bank overdrafts 552.6 64.6 - - - (3.3) 613.9
Debt (749.5) 0.3 - (1.1) (0.9) 5.9 (745.3)
Derivatives hedging Group debt (11.1) - - - (4.3) - (15.4)
Lease liabilities (230.5) 22.8 (39.5) - - 3.6 (243.6)
Changes in liabilities from financing arrangements (991.1) 23.1 (39.5) (1.1) (5.2) 9.5 (1,004.3)
Lease receivables 35.5 (7.6) 8.9 - - 1.3 38.1
Loans to joint ventures and associates 3.9 (0.1) - (0.1) - - 3.7
Derivatives hedging interest on Group debt (36.3) - - - (0.7) - (37.0)
Net debt (435.4) 80.0 (30.6) (1.2) (5.9) 7.5 (385.6)
13. Retirement benefits and liabilities
The fair value of the assets and the present value of the liabilities of the
Group's pension schemes at 30 September were as follows:
30 September 2024 31 March 2024
£m
£m
Fair value of plan assets
Growth assets
Equities 98.7 109.1
Property funds 157.6 256.7
High yield bonds/emerging market debt 0.4 0.4
Absolute return and multi-strategy funds 152.5 159.5
Low-risk assets
Bonds 1,398.9 1,369.5
Matching assets* 1,467.3 1,439.9
Longevity swaps (247.8) (250.8)
Fair value of assets 3,027.6 3,084.3
Percentage of assets quoted 76% 75%
Percentage of assets unquoted 24% 25%
Present value of defined benefit obligations
Active members 463.9 493.7
Deferred pensioners 682.9 736.5
Pensioners 1,933.4 1,963.8
Total defined benefit obligations 3,080.2 3,194.0
Net liabilities recognised in the statement of financial position (52.6) (109.7)
* Matching assets primarily comprise a "Liability Driven Investment"
portfolio, which invests in gilts, Network Rail bonds, gilt repurchase
agreements, interest rate and inflation swaps, asset swaps and cash, on a
segregated basis. For certain schemes, there are also investments in
investment grade credit, via both segregated portfolios and pooled investment
vehicles. The various segregated portfolios and pooled investment vehicle each
utilise derivative contracts. The Trustee has authorised the use of
derivatives by the investment managers for efficient portfolio management
purposes including to reduce certain investment risks such as interest rate
risk and inflation risk. The principal investment in derivatives is gilt
repurchase agreements, interest rate and inflation swaps in the matching
portfolios and total return swaps in the return seeking portfolios. These
derivatives are included within the matching assets and equities
classifications. Repurchase agreements are entered into with counterparties to
better offset the scheme's exposures to interest and inflation rates, whilst
remaining invested in assets of a similar risk profile.
An analysis of the movement in the Group statement of financial position is
set out below.
30 September 2024 31 March 2024
£m
£m
Fair value of plan assets (including reimbursement rights)
At 1 April 3,084.3 3,188.0
Interest on assets 71.7 151.3
Actuarial loss on assets (55.1) (200.6)
Employer contributions 34.4 131.5
Employee contributions 0.1 0.1
Benefits paid (107.8) (186.0)
As at period end 3,027.6 3,084.3
Present value of benefit obligations
At 1 April 3,194.0 3,249.4
Service cost 7.1 15.4
Past service cost - plan amendments (0.3) -
Incurred expenses 3.4 8.5
Interest cost 73.7 152.1
Employee contributions 0.1 0.1
Experience losses 7.9 30.8
Actuarial gain - demographics - (39.7)
Actuarial gain - financial (97.9) (36.6)
Benefits paid (including transfers) (107.8) (186.0)
As at period end 3,080.2 3,194.0
Net liability at period end (52.6) (109.7)
The amounts recognised in the Group income statement are as follows:
30 September 2024 30 September 2023
£m
£m
Current service cost 7.1 7.4
Past service cost - plan amendments (0.3) -
Incurred expenses 3.4 4.2
Total included within operating profit 10.2 11.6
Net interest cost/(credit) - note 4 2.0 0.4
Total included within income statement 12.2 12.0
As at 30 September 2024 the key assumptions used in valuing pension
liabilities were:
Discount rate 5.0% - 5.2% (31 March 2024: 4.8%)
Inflation rate (RPI) 3.0% - 3.1% (31 March 2024: 2.6% for one year and long-term rates of 3.2%)
Inflation rate (CPI) 2.3% - 2.7% (31 March 2024: 1.8% for one year and long-term rates of 2.7%)
14. Related party transactions
Related party transactions for the six months ended 30 September 2024
represent sales to joint ventures and associates of £25.6 million (six months
ended 30 September 2023: £31.1 million) and purchases from joint ventures and
associates of £1.6 million (six months ended 30 September 2023: £nil).
Key management compensation for the year ended 31 March 2024 is set out in the
Remuneration Report and note 6 in the annual report and financial statements
for the year ended 31 March 2024.
For transactions with Group defined benefit pension schemes, please refer to
note 13 above and note 25 in the annual report and financial statements for
the year ended 31 March 2024.
30 September 2024 Revenue to (£m) Purchases from (£m) Period end receivables balance (£m) Period end payables balance (£m)
Alert Communications Limited 3.1 - 1.1 -
AirTanker Services Limited 6.4 - 0.1 -
Advanced Jet Training Limited 1.4 - 0.2 -
Rear Crew Training Limited 0.6 - - -
Ascent Flight Training (Management) Limited 0.7 - - -
Fixed Wing Training Limited 3.2 - - -
Rotary Wing Training Limited 4.4 - - -
Alkali Metal Processing Limited 0.7 1.6 0.1 -
First Swietelsky Operation and Maintenance 5.1 - - (0.1)
25.6 1.6 1.5 (0.1)
30 September 2023 Revenue to (£m) Purchases from (£m) Period end receivables balance (£m) Period end payables balance (£m)
Alert Communications Limited 3.5 - 0.9 -
AirTanker Services Limited 13.7 - 0.1 -
Advanced Jet Training Limited 1.3 - 0.2 -
Rear Crew Training Limited 0.7 - - -
Ascent Flight Training (Management) Limited 0.5 - 0.3 -
Ascent Flight Training (Holdings) Limited - - 0.2 -
Fixed Wing Training Limited 3.1 - - -
Rotary Wing Training Limited 4.1 - - -
First Swietelsky Operation and Maintenance 4.1 - 0.8 (0.3)
DUQM Naval Dockyard SAOC 0.1 - 0.1 -
31.1 - 2.6 (0.3)
15. 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, as
described below.
The nature of the Group's long-term contracts is such 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 for 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.
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 does not 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.
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, for which a provision has not
been recorded, is unlikely to have a material effect on the Group's financial
position.
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 position and performance.
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.
Statement of Directors' responsibilities
This half year report is the responsibility of the Directors who each confirms
that, to the best of their knowledge:
· this condensed set of financial statements has been prepared in accordance
with United Kingdom adopted IAS 34 (Interim Financial Reporting); and
· the interim management report herein includes a fair review of the information
required by:
· Rule 4.2.7 of the Disclosure & Transparency Rules (indication of the
important events during the first six months, and their impact on the
condensed set of financial statements, and a description of principal risks
and uncertainties for the remaining six months of the year); and
· Rule 4.2.8. of the Disclosure & Transparency Rules (disclosure of related
parties' transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or the performance of the entity during that period; and any changes
in the related parties transactions described in the last annual report that
could have a material effect on the financial position or performance of the
enterprise in the first six months of the current financial year).
Approved by the Board and signed on behalf of the Directors by:
David Lockwood
Chief Executive
David Mellors
Chief Financial Officer
12 November 2024
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