Babcock International Group Plc · LSE:BAB
Babcock International — H1 2010/11 Earnings Presentation
33 slides from Babcock International's earnings presentation, Nov 9, 2010
Slide 1: Half year results
Half year results for six months to 30 September 2010 9 November 2010
Slide 2: Disclaimer
Disclaimer This document has been prepared by Babcock International Group PLC (the “Company”) solely for use at a presentation in connection with the Company's Half year results announcement in respect of the half year ended 30 September 2010. For the purposes of this notice, the presentation that f
Slide 3: Agenda
Agenda • Introduction and highlights Peter Rogers • Financial results Bill Tame • Operational review Peter Rogers • Questions Peter Rogers Bill Tame Archie Bethel John Davies Kevin Thomas 3
Slide 4: Introduction and highlights
Introduction and highlights Peter Rogers Chief Executive Half year results for 6 months ended 30 September 2010
Slide 5: First half highlights
First half highlights • Continued strong progress – benefitting from VT acquisition and good ongoing performance from existing businesses • Underlying operating margin of 9.3% • Excellent cash generation and financial position • Strong order book and bid pipeline – underpinned by contract extensions
Slide 6: Implications of CSR and SDSR
Implications of CSR and SDSR • Outcome of the reviews removed uncertainty – confirmed build of two QE class aircraft carriers – Successor future deterrent submarine programme delayed – £1.3 billion estimated for 5 year life extension to V class boats – future reduction in Navy fleet size manageable
Slide 7: Financial results
Financial results for the six months to 30 September 2010 Bill Tame Group Finance Director
Slide 8: Income statement
Income statement* Pro forma H1 H1 FY 2010 2010/11 2009/10 £m £m £m Change 3174.9 Revenue 1,221.2 934.9 + 31% 281.7 Underlying operating profit 113.7 82.4 + 38% 8.9% Operating margin 9.3% 8.8% Net finance cost (22.8) (10.6) Underlying profit before tax 90.9 71.8 + 27% Tax (18.6) (13.7) Effective rate
Slide 9: Revenue bridging analysis
Bridging analysis Revenue* 1300 12.2 1221.2 61.5 1200 81.6 103.0 10.7 1100 £m (31.4) 1000 9.6 934.9 10.3 900 28.8 800 2009 Marine Defence and Security Support Services International FX 2010 Babcock VT * Underlying – see Appendix (ii) 9 Half year results for 6 months ended 30 September 2010
Slide 10: Operating profit bridging analysis
Bridging analysis Operating profit* 120 7.2 3.3 (1.2) 0.7 113.7 17.2 (0.5) 100 (1.4) 1.1 82.4 £m 80 2.3 2.6 60 40 2009 Marine Defence and Security Support Services International Unallocated FX 2010 Babcock VT * Underlying – see Appendix (ii) 10 Half year results for 6 months ended 30 September 2010
Slide 11: Operating return on revenue
Operating return on revenue* Group Segmental 15.2 10.0 15.0 14.1 9.3 11.7 8.8 8.7 12.0 11.9 12.0 8.2 7.8 7.7 7.7 9.9 8.0 9.0 6.9 6.9 7.2 6.6 % % 6.3 5.7 5.8 5.3 6.0 6.0 3.0 4.0 0.0 Marine Defence and Support International 2006/07 2007/08 2008/09 2009/10 2010/11 Security Services H1 2009/10 (Babcock
Slide 12: Acquisition of VT
Acquisition of VT Synergies and costs Commitment 50 < for 31.3.13 40 Target by 30 < 31.3.12 £m 20 10 < Delivered 31.3.11 by £11m £8m £7.5m 0 Cost Financial Costs synergies synergies Cost synergies annualised run rate / financial synergies achieved / costs incurred to date Target cost synergies / tot
Slide 13: Cash flow
Cash flow H1 20010/11 H1 2009/10 FY 2009/10 £m £m £m Operating profit 75.7 76.0 148.1 Non-cash items/exceptionals 29.3 19.4 43.5 Working capital 38.3 (9.0) (21.3) Cash from operations 143.3 86.4 170.3 Cash conversion 189% 114% 115% Net capital expenditure* (10.1) (10.2) (23.7) Interest (16.3) (10.5)
Slide 14: Funding
Funding Secure financial position • Deleveraging rapidly – net debt £796.1 million – significantly better than planning assumptions – some accelerated receipts in H1, benefit will reverse in H2 • Pro forma net debt to ebitda (annualised) ratio 2.8 x • Interest cover 5.6 x • Refinancing strategy in p
Slide 15: Defined benefit pensions
Defined benefit pensions Triennial valuations Devonport BIG Rosyth VT SIPS Others 31 March 31 March 31 March 31 March Last valuation date Various 2008 2007 2009 2007 31 March 31 March 31 March 31 March Next valuation date Various 2011 2010 2012 2010 Surplus/(deficit) £m (43.0) 14.0 (37.0) (28.0) (44
Slide 16: Defined benefit pensions: pension strategy
Defined benefit pensions Pension strategy • Pensions legislation landscape beneficial – CPI replacing RPI – Annual and Lifetime Allowance changes – Government moves to ‘dilute’ public sector pensions • Scheme mergers to continue – VT SIPS to merge in to BIG scheme – integration to be complete by 30
Slide 17: Defined benefit pensions – IAS19
Defined benefit pensions – IAS19 Income statement • Charge increasing due to Income Projected 2010/11 H1 2010/11 FY 2009/10 statement VT schemes £1.7 million £m £m £m and fall in discount rate to Service cost (46.0) (21.2) (23.3) 5% from 5.5% Expected return 152.7 72.2 113.1 • Proactive management o
Slide 18: Defined benefit pensions – IAS19 position
Defined benefit pensions – IAS19 position Balance sheet • Liabilities increased due Balance sheet 30 Sept 31 Mar 30 Sept 2010 2010 2009 to VT schemes net deficit Assets at £54 million and lower market 2,471.6 1,979.8 1,854.9 discount rate value Liabilities (2,303.8) (2,142.2) • Some offset due to CP
Slide 19: Financial summary
Financial summary • Revenue growing • Operating margins increasing • Deleveraging rapidly • Synergies well on track • Managing pension liabilities • Half year dividend increased by 8% to 5.2p 19 Half year results for 6 months ended 30 September 2010
Slide 20: Operational review
Operational review Peter Rogers Chief Executive
Slide 21: Marine
Marine Group Joint ventures Total Revenue £502.4m - £502.4m Operating profit £59.6m - £59.6m Operating margin 11.9% - 11.9% • Continued strong performance across all business streams • SDSR removed uncertainties relating to future business • Commitment to complete two aircraft carriers • Fleet reduc
Slide 22: Marine cont
Marine cont • Submarine programme unaffected by SDSR – commitment to build 7 Astute class submarines – Babcock owned or managed infrastructures critical to ongoing support for submarine flotilla • Future deterrent programme delayed – growing role as part of Successor design team as move to detailed
Slide 23: Defence and Security
Defence and Security Group Joint ventures Total Revenue £130.1m £24.8m £154.9m Operating profit £18.1m £5.5m £23.6m Operating margin 13.9% 22.2% 15.2% • Market conditions little changed – MoD focused on front line operations – financial and operational efficiencies critical • No adverse impact from
Slide 24: Defence and Security cont
Defence and Security cont • FSTA and MFTS both performing in line with expectations – FSTA commitment for fleet of 14 aircraft – Phase 1 roles to provide services during construction and mobilisation nearing completion – moving to operational phases in 2011/12 financial year • Airfield and operation
Slide 25: Support Services
Support Services Group Joint ventures Total Revenue £377.3m £14.4m £391.7m Operating profit £24.5m £1.2m £25.7m Operating margin 6.5% 8.3% 6.6% • Markets conditions stable resulting in contract extensions and scope expansions • CSR outcome positive • Current Regional Prime contracts unaffected by SD
Slide 26: Support Services cont
Support Services cont • Delivering exceptional achievement standards within Education and Training business – our technical apprentice training business achieved OFSTED Grade 1 ratings - levels achieved by very few other private training providers – proven track record in critical area of education
Slide 27: International
International Group Joint ventures Total Revenue £172.2m - £172.2m Operating profit £9.8m - £9.8m Operating margin 5.7% - 5.7% • South African economy steadily improving – increasing demand for Volvo equipment – power generation support and Powerlines markets steady – opportunities from support cont
Slide 28: Order book and bid pipeline
Order book and bid pipeline • Order book stable at £12 billion – underpinned by contract extensions and scope expansions – ongoing, steady flow of contracts from bid pipeline into order book • Excellent long term visibility and security – majority of this year’s revenue already contracted and high p
Slide 29: Outlook
Outlook • We remain confident in the prospects for the Group • Markets remain attractive – significant long-term growth opportunities – additional outsourcing opportunities expected following CSR and SDSR – scale of enlarged Group’s operations, our expertise and track record place us in a strong pos
Slide 30: Appendix
Appendix 30
Slide 31: Segmental analysis – Appendix i
Segmental analysis – Appendix i Revenue Operating profit Margin Pro forma Pro forma Pro forma H1 FY H1 H1 FY H1 H1 FY H1 2010/11 2009/10 2009/10 2010/11 2009/10 2009/10 2010/11 2009/10 2009/10 £m £m £m £m £m £m % % % Marine 502.4 1,014.6 464.0 59.6 119.1 55.9 11.9 11.7 12.0 Defence and Security grou
Slide 32: Income statement – Appendix ii
Income statement – Appendix ii Statutory to underlying reconciliation Revenue Operating Interest IFRIC 12 Amort- Exceptional Statutory Underlying from jV profit cost Tax income isation Items £m £m £m £m £m £m £m £m £m Revenue 1,182.0 39.2 1,221.2 Operating 58.7 2.6 4.8 30.6 17.0 113.7 Profit Share o
Slide 33: Babcock – trusted to deliver
babcock trusted to deliver ™ www.babcock.co.uk
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