Babcock International Group Plc · LSE:BAB
Babcock International — FY2023 Earnings Presentation
48 slides from Babcock International's earnings presentation, Jul 20, 2023
Slide 1: Full year results for the year ended 31 March 2023
Full year results for the year ended 31 March 2023 20 July 2023
Slide 2: Key messages
Key messages Excellent Better Confidence progress positioned in the future Transformation delivering results Cash – Margin – Growth – Guidance – Dividend 2
Slide 3: Type 31 update
Type 31 update Type 31 frigate programme • Five ships awarded in 2019 • Contracted to 2028 • HMS Venturer: keel laying in April 2022, assembly and outfitting underway • HMS Active: steel cut in January 2023 • Cash impact: £100m loss over remaining life of contract Customer relationship Controls • Co
Slide 4: Excellent progress
Excellent progress Two years into our turnaround FY26+ Stabilise Portfolio Execute alignment complete Driving Grow operational improvement Pursuing growth opportunities Stabilise – complete 4
Slide 5: Babcock today
Babcock today Strengthened Focused Capabilities aligned balance sheet Portfolio with customers’ needs Affordability Availability 1.5x 68% Reduced from 2.8x (HY22) Defence+ Capability Higher quality, lower-risk, focused and positioned for growth 5 Net debt to EBITDA excluding the Type 31 loss (£100m)
Slide 6: Medium term guidance underpinned by confidence in future
Medium term guidance underpinned by confidence in future Stabilise Execute Grow Margin*+ Cash conversion* Revenue+ Backlog FY23 6.6% 110% £4.0bn £9.5bn Margin Cash conversion Organic growth Medium term Strong Mid-single guidance ≥8% ≥ 80% digit visibility Improving fundamentals with a positive outlo
Slide 7: Financial review
Financial review David Mellors CFO
Slide 8: Key messages
Key messages Results in line with expectations, cash flow significantly ahead Balance sheet stronger FY24 expectations unchanged Medium term guidance issued
Slide 9: Underlying financial results overview
Underlying financial results overview FY23 FY22 • Revenue up 10% organically − Organic growth across all sectors Revenue £4,439m £4,102m • Underlying operating profit* up £40m − Strong organic performance in Land Underlying operating profit (incl. one-off credit of £12m), Marine and Aviation £177.9m
Slide 10: Revenue bridge
Revenue bridge (£m) 10% organic growth 405 4,439 24 4,102 (92) 4,005 FY23 Acquisitions Other FY22 FX FY23 ongoing and disposals trading business* 10 * Ongoing business excludes £422m revenue from divested businesses (AES & Civil training) and the £12m one-off accounting credit in Land (revenue and p
Slide 11: Underlying operating profit bridge
Underlying operating profit bridge (£m) 6.3% margin* 6.6% 5.8% margin+ 12 margin 36 278 2 265 238 ( 10 ) ( 100 ) 178 One-off FY23 FY23 Acquisitions Other FY22 FX accounting excl. Type 31 Type 31 loss FY23 ongoing and disposals trading credit loss business+ 11 * Excluding the Type 31 loss (£100m) + O
Slide 12: Marine
Marine Acquisitions Other £m FY22 FX & disposals trading FY23 Contract backlog 2,492 2,581 Revenue 1,259 12 72 96 1,440 Underlying operating profit 98 1 (0) (86) 13 Underlying margin 7.8% 0.9% Type 31 loss 100 Underlying operating profit excluding Type 31 loss 113 Underlying operating profit margin
Slide 13: Nuclear
Nuclear Acquisitions Other £m FY22 FX & disposals trading FY23 Contract backlog 2,789 2,454 Revenue 1,010 - - 170 1,179 Underlying operating profit 62 - - 1 63 Underlying margin 6.2% 5.4% Revenue: Operating profit: • +17% organic growth driven by: • Driven by: − Major Infrastructure Programme (MIP)
Slide 14: Land
Land Acquisitions One-off accounting Other £m FY22 FX & disposals credit trading FY23 Contract backlog 2,309 2,810 Revenue 1,016 2 (67) 12 55 1,017 Underlying operating profit 59 - (3) 12 18 86 Underlying margin 5.8% 8.4% Revenue: Operating profit: • +5% organic growth driven by: • Increase driven b
Slide 15: Aviation
Aviation Acquisitions Other £m FY22 FX & disposals trading FY23 Contract backlog 2,294 1,633 Revenue 817 9 (98) 74 803 Underlying operating profit 19 1 (7) 3 16 Underlying margin 2.3% 2.0% Retained business Contract backlog 1,319 1,633 Revenue 337 6 74 417 Underlying operating profit 14 (0) 3 17 Und
Slide 16: Underlying operating profit to operating cash flow bridge
Underlying operating profit to operating cash flow bridge (£m) 110% cash conversion* • OCF / cash conversion commentary: − Working capital inflow (including earlier than 307 expected customer receipts c.£70m) − Unwind of historic cash flow stretches completed during the year − €122m of non-recourse
Slide 17: Underlying operating cash flow to free cash flow bridge
Underlying operating cash flow to free cash flow bridge (£m) 307 • FCF commentary: − £35m pension deficit payments accelerated from FY24-FY26 − c.£12m non-recourse contract financing included in net interest • FY24 technical guidance: − Pensions in excess of income statement c.£65m − Interest c.£40m
Slide 18: Continuing our balance sheet strengthening
Continuing our balance sheet strengthening £m HY21 FY21 HY22 FY22 HY23 FY23 • Net debt and gearing: – 1.5x within our medium-term target of 1.0x – 2.0x, Net debt (1,609) (1,353) (1,347) (969) (1,039) (564) (1.1x excluding Type 31 loss) Net debt to EBITDA – European AES and civil training disposals c
Slide 19: Outlook and guidance
Outlook and guidance FY23 baseline: • Outlook applies to FY23 excluding disposals, Type 31 loss and one-off credit • FY23 baseline: c.£4bn revenue, c.£265m profit, 6.6% margin FY24 outlook – expectations unchanged: • c.£2.8bn of FY24 revenue under contract • c.£700m of FY24 revenue expected from fra
Slide 20: Building momentum
Building momentum David Lockwood CEO CROWN COPYRIGHT
Slide 21: Building momentum to meet medium term guidance
Building momentum to meet medium term guidance FY23 How we get there Medium term guidance Revenue* Organic growth Strong backlog and Growing opportunity set £4.0bn framework coverage and strong visibility Mid-single digit Margin*+ Margin Legacy programme fade Business mix and 6.6% and operational im
Slide 22: Execute: legacy low to zero margin programme fade
Execute: legacy low to zero margin programme fade Indicative legacy low to zero-margin programme fade in our top contracts backlog Type 31 revenue Other revenue c.11% FY23 revenue* Type 31 backlog Other backlog FY23 FY24 FY25 FY26 FY27 FY28 FY29 Supports medium term Group margin expansion 22 * Exclu
Slide 23: Execute: enhanced controls - operational improvements
Execute: enhanced controls - operational improvements BIDDING GOVERNANCE MOBILISATION DELIVERY Implemented Project Management Framework Functional Created a Global Business Management System improvements to optimise delivery Centre led commercial function Improved financial operating controls Operat
Slide 24: Grow: the right capabilities in a supportive market
Grow: the right capabilities in a supportive market Macro Customer Our What environment requirements capabilities we deliver Geopolitical Frontline Value for money support uncertainty Equipment Availability Affordability Defence support High utilisation spending Technical training Defence Modernisat
Slide 25: Grow: capturing opportunities
Grow: capturing opportunities Support Product Frontline support Equipment support Technical training Design, develop, Technology and and manufacture systems integration • Emergency services • Through-life support • Defence and civil • Affordable solutions • Capability insertion • Operational support
Slide 26: Grow: ESG progress on our commitments
Grow: ESG progress on our commitments • Submitted interim and Net Zero 2040 carbon reduction targets − Accredited by the Carbon Trust’s new ‘Route to Net Zero’ Standard • Climate related risk assessment integrated into five-year plan • Launched a volunteer framework • Established a shadow executive
Slide 27: Capital allocation framework
Capital allocation framework Priority FY23 progress 1 Organic investment Ongoing investment in business Sustain investment to support business improvement and growth operations and enhance growth potential Target 2 gearing ratio Financial strength Leverage reduced, 1.0x – 2.0x Maintain strong balanc
Slide 28: Summary: building momentum
Summary: building momentum Excellent Better Confidence progress positioned in the future Transformation delivering results Cash – Margin – Growth – Guidance – Dividend 28
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Slide 30: Appendix
babcock Appendix
Slide 31: How we look post disposals - FY23 pro forma
How we look post disposals - FY23 pro forma Defence revenue Geographical revenue Contract backlog 10% 22% 8% 32% 7% £4.0bn 4% £4.0bn £9.5bn 4% 68% 67% 78% Defence UK Canada Defence Civil France South Africa Civil Aus + NZ ROW 31 Pro forma excludes £422m revenue from divested businesses (AES & Civil
Slide 32: FY23 results split by sector pro forma
FY23 results split by sector pro forma Revenue Underlying operating profit Contract backlog 10% 6% 17% 27% 36% 31% 41% 25% £4.0bn £278m £9.5bn 30% 26% 29% 23% Marine Nuclear Land Aviation 32 Pro forma excludes £422m revenue from divested businesses (AES & Civil training) and the £12m one-off account
Slide 33: FY23 sector revenue splits pro forma
FY23 sector revenue splits pro forma Marine Nuclear Land Aviation 14% 22% 35% 37% £1.4bn £1.2bn £1.0bn £0.4bn 65% 63% 78% 86% Defence Civil 33 Pro forma excludes £422m revenue from divested businesses (AES & Civil training)
Slide 34: Statutory to underlying reconciliation
Statutory to underlying reconciliation FY23 FY22 (£m) Specific Specific Underlying Adjusting Statutory Underlying Adjusting Statutory Items Items Revenue 4,438.6 - 4,438.6 4,101.8 - 4,101.8 Operating profit / (loss) 177.9 (132.4) 45.5 237.7 (10.9) 226.8 Other income - - - 6.2 - 6.2 Share of results
Slide 35: Sector detail
Sector detail Underlying Revenue Underlying margin Contract backlog operating profit FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 Marine £1,439.6m £1,259.3m £12.7m £98.0m 0.9% 7.8% £2,581m £2,492m Nuclear £1,179.2m £1,009.7m £63.5m £62.4m 5.4% 6.2% £2,454m £2,789m Land £1,017.1m £1,015.5m £85.9m £58.8m 8
Slide 36: Sector detail pro forma and ongoing business
Sector detail pro forma and ongoing business Underlying Revenue Underlying margin Contract backlog operating profit FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 Marine1 £1,439.6m £1,209.4m £112.8m £90.3m 7.8% 7.5% £2,581m £2,492m Nuclear £1,179.2m £1,009.7m £63.5m £62.4m 5.4% 6.2% £2,454m £2,789m Land2 £
Slide 37: Net debt / EBITDA (covenant basis)
Net debt / EBITDA (covenant basis) FY23 FY22 (£m) (Rolling 12 months) (Rolling 12 months) Underlying operating profit 178 238 Depreciation and amortisation 85 74 Other covenant adjustments (8) (13) EBITDA 254 299 JV and associate dividends 9 42 EBITDA + JV and associate dividends 263 341 Net debt (3
Slide 38: Pensions
Pensions IAS 19 position Technical provision for defined benefit schemes (£m) 31 Mar 2023 31 Mar 2022 (including longevity swaps) Assets 3,188.0 4,733.1 March 2023: c.£400m deficit Obligations (3,249.4) (4,541.5) March 2022: c.£350m deficit Net surplus / (deficit) (61.4) 191.6 Key assumptions 31 Mar
Slide 39: Disposals programme
Disposals programme Date Proceeds Income statement impact £10m 1) Oil and Gas Sep 2021 ‒ FY21: £154m revenue, £2m underlying operating profit (+ £137m leases) 2) Frazer Nash Oct 2021 £292m ‒ FY21: £101m revenue, £14m underlying operating profit 3) UK Power Dec 2021 £50m ‒ FY21: £70m revenue, £7m und
Slide 40: Liquidity and debt maturity profile
Liquidity and debt maturity profile Debt maturity profile1 (£m) • Euro bond 2022 €550m (£482m) repaid in October FY23 net debt2 2022 using cash resources £(346)m RCF 20243 £300m RCF 20264 £775m • Reduced exposure to variable debt (83% is fixed rate). FY23 average net debt2 GBP bond 20265 £300m Only
Slide 41: Improving delivery
Improving delivery Strengthened bidding governance throughout a five gate bidding process 0 TRACK 1 2 3 BID 4 5 MOBILISE DELIVER Improved contract outcomes can be largely linked to early bidding controls ~50% Pre-contract signing ~30% Mobilisation ~20% Delivery Contract • Risk assessment • Contract
Slide 42: Joint ventures: summary
Joint ventures: summary Babcock underlying JVs Share Country Sector Start End Asset JVs • Typically assets and debt Asset JVs Ascent • Dividends follow after paying down JV debt Aviation JV with Lockheed Martin to deliver UK 50% UK Aviation 2016 2033 rotary and fixed-wing flight training and support
Slide 43: Key contracts: Marine
Key contracts: Marine Contract Customer Start End Country Notes Type 31 UK MOD 2019 2028 UK Design, build and assembly of five general purpose frigates for the Royal Navy Future Maritime Support Programme UK MOD 2021 2026 UK Through-life ship engineering management and support delivery for the Royal
Slide 44: Key contracts: Nuclear
Key contracts: Nuclear Contract Customer Start End Country Notes Future Maritime Support UK MOD 2021 2026 UK Nuclear submarine, infrastructure and license site elements of FMSP for the Royal Navy Programme (FMSP) Major Infrastructure Project delivery for the upgrade works to Devonport Dockyard’s 9,
Slide 45: Key contracts: Land
Key contracts: Land Contract Customer Start End Country Notes JP9101 – Enhanced Defence High Frequency ADF 2023 2033 Australia Operation, support and technology upgrade programme for the Australian Defence Force Communications Maintenance, repair and overhaul to over 35,000 vehicles of the British A
Slide 46: Key contracts: Aviation
Key contracts: Aviation Contract Customer Start End Country Notes Helicopter Emergency Medical Services (HEMS) contract with six specially configured Victoria Air Ambulance Victoria Gov 2016 2026 Australia AW139 aircraft Provision of engineering services and technical aviation support to 17 air stat
Slide 47: Disclaimer
Disclaimer This document has been prepared by Babcock International Group PLC past trends or activities should not be taken as a representation that such (the “Company”) solely for use at a presentation in connection with the trends or activities will continue in the future. They speak only as at th
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