Babcock International Group PLC · LSE:BAB

Babcock International — FY2007 Earnings Presentation

39 slides from Babcock International's earnings presentation, May 10, 2007

  1. Slide 1: Preliminary Results for Year ending March 2007

    Babcock Preliminary Results for Year ending March 2007 Proposed Acquisition of Devonport Management Limited (“DML”) and placing 10th May 2007 Peter Rogers (Chief Executive) and Bill Tame (Group Finance Director) 1

  2. Slide 2: Agenda

    Agenda • Preliminary results for the year ending March 2007 • Proposed acquisition of DML • Supporting information 2

  3. Slide 3: Preliminary Results – Another year of good progress and strong growth

    Preliminary Results for the year ended 31 March 2007 – Another year of good progress and strong growth • Record results – Fifth successive year of double digit growth – Revenue up 18% – Underlying PBT up 40% • Further operating margin increase to 6.9% (2005/06: 6.0%) • Operating cash flow above targ

  4. Slide 4: Results summary

    Results summary • Strong growth in Defence Services and 2006/07 2005/06 % (£m) (£m) growth Technical Services Turnover* 988.3 836.7 +18% – Operating profit growth of 37% and 78% respectively EBITDA** 75.5 58.2 +30% Operating profit*** 68.3 49.9 +37% • Strong momentum continuing in South Africa Margi

  5. Slide 5: Revenue and EBITA bridging analysis

    Revenue and EBITA bridging analysis Revenue (£m) EBITA* (£m) 12 (4) 87 (40) 988 68 105 10 836 50 2006 Acquisitions Organic FX 2007 2006 Acquisitions Organic FX 2007 * Before exceptional items 5

  6. Slide 6: A year of substantial sales and profits growth for Babcock

    A year of substantial sales and profits growth for Babcock Segmental turnover* (05/06 – 06/07) Segmental op profit* (05/06 – 06/07) (£m) (£m) £400 £35 £350 £340.6 £29.9 £30 £300 £25 £250 £228.8 £20 £200 £178.4 £165.6 £16.1 £13.3 £15 £150 £74.9 £6.8 £9.3 £10 £100 £50 £5 £0 £0 Defence (£21.8m) (£8.8m)

  7. Slide 7: A year of substantial sales and profits growth for Babcock

    A year of substantial sales and profits growth for Babcock Segmental turnover growth* (%) Segmental op profit growth* (%) (year ending 31 March 2007) (year ending 31 March 2007) 50% 100% 78% 40% 37% 80% 30% 60% 25% 37% 37% 20% 40% 15% 10% 20% 5% 3% 6% 5% 0% 0% Technical Rail Technical Rail Defence D

  8. Slide 8: Return on sales

    Return on sales Group return on sales* (ROS) Return on Sales* (ROS) (%) by 2006/07 (%) business segment (2005/06 – 8% 2006/07) 4.1% Rail 6.9% 7% 9.1% Networks 6% Engineering 8.0% 5.6% & Plant 6.0% 9.0% 5.4% Technical 5% 4.9% 8.8% Defence 4% 2002/03 2003/04 2004/05 2005/06 2006/07 0% 2% 4% 6% 8% 10%

  9. Slide 9: Defined Benefit Pensions - IAS19 position

    Defined Benefit Pensions* - IAS19 position Asset allocation (2006/07) £ million 2006/07 2005/06 100% Profit and Loss Service cost 15.0 12.7 90% Expected return on assets (68.5) (59.6) 80% Interest on obligation 51.6 49.7 (16.9) (9.9) 70% Net charge/(credit) to operating 60% profit before exceptional

  10. Slide 10: Summary group income statement

    Summary group income statement 2006/07 2005/06 % Memo (£m) (£m) growth Operating profit* 68.3 49.9 +37% Acquired intangibles Joint ventures 0.4 (0.1) Amortisation (6.1) Net interest (6.2) (5.2) Exceptional items 0.6 Profit before tax** 62.5 44.6 +40% (5.5) Related tax credit 1.6 Tax (13.6) (9.2) Sub

  11. Slide 11: Strong financial position with high levels of cash generation

    Babcock has a strong financial position with high levels of cash generation • OCF conversion rate was 96% • Gearing ratio very comfortable at 36% Operating Cash Flow (%) • Interest cover stands at 11x • Net debt to EBITDA ratio modest at 1.0 Gearing (%) • Year end net debt of £73.7m 0% 50% 100% 150%

  12. Slide 12: Defence Services – significant contract awards

    Defence Services – significant contract awards 2006/07: Turnover: £340.6m +25% Operating Profit £29.9m +37% • “SLAM II” Accommodation modernisation contract with Defence Estates • HAWK Integrated Operational Support contract with BAE Systems • Eastern Region Prime contract for Defence Estates fully

  13. Slide 13: Technical Services – an outstanding year including civil nuclear

    Technical Services – an outstanding year including expansion into civil nuclear 2006/07: Turnover: £178.4m +37% Operating Profit £16.1m +78% • Technical services design teams engaged on both commercial work and future aircraft carrier (“CVF”) activities • An agreed position in warship refit through

  14. Slide 14: Engineering & Plant – strong momentum in South Africa

    Engineering & Plant – strong momentum continues in South Africa 2006/07: Turnover: £165.6m +15% Operating Profit £13.3m +37% • A record year of business growth • Commodity prices and the 2010 soccer World Cup are driving the growth of investment in civil infrastructure • South African government has

  15. Slide 15: Networks – key contract wins: National Grid and EDF

    Networks – key contract wins: National Grid and EDF 2006/07: Turnover: £74.9m +3% Operating Profit £6.8m +6% • Transmission closed a £500m, 5 year Alliance deal with National Grid in conjunction with AMEC and Mott MacDonald • Additionally Networks secured a sole-source £50m, five year partnership co

  16. Slide 16: Rail – re-positioning the business and further contract success

    Rail – re-positioning the business coupled with further contract success 2006/07: Turnover: £228.8m +5% Operating Profit £9.3m +5% • Restructuring exercise is underway to restore margins • Two “Type C” signalling framework contracts secured lasting five years each and worth up to £100m • £25m Trent

  17. Slide 17: Agenda

    Agenda • Preliminary results for the year ending March 2007 • Proposed acquisition of DML • Supporting information 17

  18. Slide 18: Summary

    Summary • Proposed acquisition of DML for £350m • DML is a £450m revenue nuclear submarine and warship support business based in Plymouth • The acquisition offers Babcock the opportunity to strengthen its provision of maritime support services to the UK defence sector – Significant operational and f

  19. Slide 19: Overview of DML

    Overview of DML • The company is the only facility in the UK DML Revenue breakdown (2006) capable of carrying out the refit and deep (Total £454m) maintenance of the UK nuclear 5% submarine fleet 11% • DML is a nuclear submarine and maritime engineering support business 15% 47% centred on the Devonp

  20. Slide 20: DML Historical revenue and profits

    DML Historical revenue and profits Year ended 31 December 2004 2005 2006 Continuing revenue* £408m £467m £454m EBITDA* £49m £54m £64m EBITA* £32m £35m £48m EBITA margin 7.8% 7.5% 10.5% * Draft figures prepared under IFRS to be included in the shareholder circular. EBITDA and EBITA includes the pensi

  21. Slide 21: DML: Defence activities (85% of revenue)

    DML: Defence activities (85% of revenue) Submarine refit (47% of revenue) • The current submarine flotilla will remain in service until 2010 (2 Swiftsure class), 2022 (7 Trafalgar Class) and 2028 (4 Vanguard class SSBN) – first Astute scheduled to be in-service by 2009 • HM Government is committed t

  22. Slide 22: Acquisition rationale – submarine and surface warship support

    Acquisition rationale – submarine and surface warship support Future Babcock BAE/VT Devonport Rosyth Faslane Portsmouth Submarines (refit and in-service maintenance) Refit  In-service maintenance   Re-fuel/de-fuel  Surface ships (re-fit) Major vessels  Destroyer   Frigate    Small vessels

  23. Slide 23: Acquisition rationale – operational benefits

    Acquisition rationale – operational benefits • Short term cost synergies – Central overhead and procurement savings of c. £4m achievable on an annualised based by the end of the current financial year • Longer term and in conjunction with the MoD the combination of the two businesses provides the op

  24. Slide 24: Acquisition rationale – longer term revenue opportunities

    Acquisition rationale – longer term revenue opportunities • Decommissioning of current and future out-of-service nuclear submarines (known as “Project ISOLUS”) • Leveraging skilled nuclear engineering labour in conjunction with ALSTEC and INS operations into the civil nuclear industry 24

  25. Slide 25: Segmental split of Babcock and an enlarged Babcock incorporating DML

    Segmental split of Babcock and an enlarged Babcock incorporating DML Illustrative turnover split Illustrative turnover split Babcock 2006/07 (£988.3m) * Enlarged Babcock (£1,440m) ** 56% 16% 23% 41% 21% Non-defence Non-defence 30% 5% 8% 11% 44% 59% 28% Defence Defence 14% 9% 17% 10% 8% Defence Servi

  26. Slide 26: Managing the enlarged Babcock

    Managing the enlarged Babcock • DML to be integrated into an adjusted Babcock divisional structure • A Marine Division encompassing activities at Devonport, Faslane and Rosyth – Archie Bethel, currently Managing Director for BES to lead supported by John Howie, Managing Director of Babcock Naval Ser

  27. Slide 27: Principal conditions of the acquisition

    Principal conditions of the acquisition • Shareholder approval: circular to be posted to shareholders as soon as practicable • Consent of the MoD: preliminary discussions already held and the MoD is fully supportive of the transaction • OFT clearance is not a condition • £8m break fee if shareholder

  28. Slide 28: Financing

    Financing • Debt financing – c. £600m new committed debt facilities – Terms: • 5 year revolving credit facilities • Equity financing – Placing to raise c. £90m (gross) – Placing not conditional on the acquisition completing • Upon completion (pre-INS) – Pro forma net debt of c. £332m – Pro forma net

  29. Slide 29: Equity funding

    Equity funding • Fully underwritten equity placing to raise circa £90m • Terms: – 19 million shares (9.1% of issued share capital) – Placing price 475 pence (0.5% discount to last nights closing price) – Shares will rank pari passu (including the right to receive the proposed final dividend of 5.65

  30. Slide 30: Timetable

    Timetable • Transaction, placing and results announced 10th May • Dealing and settlement in placing shares 15th May • Posting of circular Late May/early June • EGM and completion As soon as practicable 30

  31. Slide 31: Summary and conclusions

    Summary and conclusions • The acquisition offers Babcock a significant opportunity to strengthen its provision of maritime support services to the UK defence sector • Babcock will be a leading participant in the consolidation of the through life support services to the MoD • The acquisition is expec

  32. Slide 32: Agenda

    Agenda • Preliminary results for the year ending March 2007 • Proposed acquisition of DML • Supporting information 32

  33. Slide 33: Babcock extends a successful track record

    Babcock extends a successful track record £1,200 £70 £1,000 £60 Continuing revenue (£m) Operating profit (£m) £50 £800 £40 £600 £30 £400 £20 £200 £10 £0 £0 2002 2003 2004 2005 2006 2007 Year to 31 March Continuing revenue Operating profit* * Post amortisation and exceptional items 33

  34. Slide 34: Segmental analysis

    Segmental analysis Turnover* Operating profit* 2006/07 2005/06 % 2006/07 2005/06 % (£m) (£m) growth (£m) (£m) growth Defence Services 340.6 271.7 25% 29.9 21.8 37% 8.8% 8.0% Technical Services 178.4 130.5 37% 16.1 9.0 78% 9.0% 6.9% Engineering and plant 165.6 144.2 15% 13.3 9.7 37% 8.0% 6.7% Network

  35. Slide 35: Cash flow, net debt and gearing

    Cash flow, net debt and gearing 2006/07 2005/06 Memo (£m) (£m) Operating profit* 62.8 45.6 2006/07 2005/06 Non cash items 14.7 12.1 Net debt (£m) 73.7 38.2 Working capital (17.3) (3.6) Interest (£m) 6.2 5.2 Cash generated from operations 60.2 54.1 Interest cover (x) 11.0 9.6 Cash conversion % 96 119

  36. Slide 36: Summary Balance Sheet

    Summary Balance Sheet 2006/07 2005/06 (£m) (£m) Non current assets – Intangibles and investments 231.5 178.4 – Property, plant and equipment 28.2 25.3 – Assets held for resale — 5.8 Working capital (27.6) (27.6) Pensions surplus 53.1 29.3 Financial working capital (4.3) (2.4) Capital employed 280.9

  37. Slide 37: Babcock – strategy

    Babcock – strategy • Babcock strategy has evolved through the process of transformation initiated in 2000 to move the business towards providing high value support services which leveraged our engineering heritage and expertise • Babcock is market and customer focused – We seek to operate in markets

  38. Slide 38: Babcock – Strategy milestones

    Babcock – Strategy milestones 2001 Acquisition of Hunting Defence (Babcock Defence Services) 2002 BNS Awarded WSMI contract for HMNB Clyde (Faslane) Acquisition of Service Group International (Babcock Infrastructure Services) BIS awarded SLAM accommodation contract 2003 BDS awarded RAF Valley contra

  39. Slide 39: Disclaimer

    DISCLAIMER THIS DOCUMENT IS NOT FOR DISTRIBUTION IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN This document is personal to the recipient and has been prepared by and is the sole responsibility of Babcock International Group plc (the "Company"). It is solely for use at a presentation in relation

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