Babcock International Group PLC · LSE:BAB
Babcock International — H1 FY2017 Earnings Presentation
41 slides from Babcock International's earnings presentation, Nov 22, 2016
Slide 1: Half Year Results
Half Year Results for the six months ended 30 September 2016 22 November 2016
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 for the half year ended 30 September 2016. For the purposes of this notice, the presentation that follows (th
Slide 3: Agenda
Agenda Introduction Archie Bethel Financial and operational review Franco Martinelli Solid delivery, clear visibility Archie Bethel Questions Archie Bethel Franco Martinelli Bill Tame John Davies Roger Hardy John Howie 3 Half Year Results for six months ending 30 September 2016 www.babcockinternatio
Slide 4: Solid on-target delivery
Solid on-target delivery Delivering growth through continued performance • existing contracts performing well: controlled programmes delivering as planned • £2 billion order intake in period £20 billion order book guarantees future revenue • 93% of revenue in place for FY17; 63% for FY18 • stable wi
Slide 5: An established strategy that works
An established strategy that works Leading market • an engineering support services company positions • long-term contracts in non-cyclical markets: − defence Excellent Public body health and and blue chip − critical civil markets, eg emergency services safety record customers − civil nuclear Our st
Slide 6: Focused on our areas of expertise
Focused on our areas of expertise Engineering support services Our business model and strategy built around our ‘trusted to deliver’ Complex Complex infrastructure assets and equipment reputation, sets us apart from others in our markets. • management of major • through-life support of civil and def
Slide 7: Group-wide capabilities
Group-wide capabilities Babcock Group Our core capabilities span across the Group M&T D&S SSD Int We design, build, operate, manage complex infrastructure and programmes Infrastructure � � Complex Programmes We support and operate critical equipment and assets for availability Aviation � � We pr
Slide 8: Group-wide technology
Group-wide technology supports and enhances our success Deep technical understanding of the systems Marine and Defence Support International and equipment that make up our customers’ Technology and Security Services complex assets and underpin our services Data management and analytics capability en
Slide 9: Proven management team
Proven management team Over 70 years’ combined experience of growing the Group Babcock International Group Chief Executive, Archie Bethel Marine and Technology Defence and Security Support Services International Group Finance Director John Howie Roger Hardy John Davies Bill Tame Franco Martinelli •
Slide 10: Financial and operational review
Financial and operational review Franco Martinelli - Group Finance Director
Slide 11: Group financial highlights
Group financial highlights Headline • +6% growth in revenue • +7% growth in operating profit Organic growth at constant exchange rates • +4% growth in revenue • +7% growth in operating profit Cash • free cash flow increasing: +8% • cash conversion (pre capex): 108% • cash conversion (post capex): 79
Slide 12: Income Statement
Income Statement Growth: +6% revenue; +7% operating profit H1 16/17 H1 15/16 Change • Defence and Security and Marine and Technology: (£m) (£m) good growth better than expected • Support Services and International: stable Total revenue 2,492.8 2,349.2 +6% Organic growth at constant exchange rates •
Slide 13: Marine and Technology
Marine and Technology Continuing growth Marine and H1 16/17 H1 15/16 Change • +7% revenue (+6% organic revenue*) Technology (£m) (£m) • +15% operating profit • contract performance drives margin improvement Revenue total 855.8 803.0 +7% (incl. JVs) Good progress on contracts JVs 17.0 10.2 +67% • con
Slide 14: Defence and Security
Defence and Security Strong performance Defence and H1 16/17 H1 15/16 Change • +16% revenue (+15% organic revenue*) Security (£m) (£m) • +9% operating profit • margin reduced: impact of DSG procurement work Revenue total 468.5 404.0 +16% (incl. JVs) Good progress on contracts JVs 46.1 42.4 +9% • c £
Slide 15: Support Services
Support Services Maintained position H1 16/17 H1 15/16 Support Services Change • flat revenue and operating profit (£m) (£m) • stable margin (£7.5m Lewisham profit on sale H1 2015/16) Revenue total 731.1 729.4 - (incl. JVs) Steady progress across the division • nuclear decommissioning contracts perf
Slide 16: International
International Maintaining position: • +6% revenue growth (organic revenue -1%*, organic MCS +3%*) H1 16/17 H1 15/16 International Change • -1% operating profit (£m) (£m) Revenue total 437.4 412.8 +6% Progress in contract awards, environment remains challenging (incl. JVs) • MCS awarded 31 contracts
Slide 17: Cash conversion
Cash conversion Cash conversion as expected Cash flow H1 16/17 (£m) H1 15/16 (£m) • 108% pre capital expenditure Operating profit 221.5 217.4 • 79% post capital expenditure Amortisation and depreciation 45.8 42.1 Working capital Other non-cash items 6.6 8.0 • significant cash flow driven by contract
Slide 18: Net cash flow
Net cash flow Dividends from joint venture increase to £10.4m Cash flow H1 16/17 (£m) H1 15/16 (£m) Operating cash flow after Cash tax payments reflect R&D tax receipts delay 174.4 159.2 capital expenditure Free cash flow Interest paid (net) (23.4) (22.7) • pre excess pension payments £128.2m (+8%)
Slide 19: Net debt
Net debt Net debt increased by £63m Net debt/ebitda • FX impact: £65m 2.5 • final dividend: £100m paid in first half 2 • net debt to EBITDA ratio stable at 2.0x 1.5 • FY17 expected: c 1.8x at September exchange rates 1 Capital expenditure FY17: 1.5x depreciation 0.5 • MCS capital expenditure: c £40m
Slide 20: Accounting: understanding the business
Accounting: understanding the business Underlying numbers provide a consistent measure of business performance year to year thereby enabling comparison and understanding of Group financial performance Underlying adjustments: Business judgements: • JVs • pensions • IFRIC 12 • provisions • acquired in
Slide 21: Accounting: underlying adjustments
Accounting: underlying adjustments Continuing Amortisation of Continuing JV and IFRIC 12 income Tax rate 30 Sept 16 operations – acquired operations – associates (£m) (£m) change statutory (£m) intangibles (£m) underlying (£m) Revenue 2,173.1 319.7 - - - 2,492.8 Operating profit 165.6 32.7 15.5 55.9
Slide 22: Joint ventures
Joint ventures Joint ventures represent 15% of underlying revenue and H1 16/17 (£m) H1 15/16 (£m) 18% of underlying profit (FY16 14% & 13% respectively) Asset JV Operational JV Asset JV Operational JV Operational joint ventures Operating 10.0 22.7 8.5 11.5 • dividends follow profits – subject to sho
Slide 23: Managing pensions
Managing pensions Interest rate hedging limited impact of falling bond yields 30 Sept 16 31 Mar 16 30 Sept 15 Inflation rate and longevity hedging reduces volatility Assets (£m) 4,637.5 3,824.8 3,766.3 • funding deficits hedged − objectives of hedging is to limit funding deficit volatility Obligatio
Slide 24: Provisions
Provisions Half year net release £4.4m Charge/(release) as % of underlying profit* • including: income tax case in Australia and early cancellation of onerous operating lease 8.0% • average of last six and a half years underlying operating profit* − less than 1% cumulative net charge as a % of under
Slide 25: Order book and bid pipeline
Order book and bid pipeline Order book by value Bid Pipeline by value Order book maintained at £20 billion £2 billion order intake in period from: 10% 20% 8% >£100m • new contracts £100m–50m • organic growth within existing contracts, 8% eg Dounreay, DSG £50m-£25m 11% 57% <£25m £0.3 billion of reven
Slide 26: Solid delivery, clear visibility
Solid delivery, clear visibility Archie Bethel, Group Chief Executive
Slide 27: A strategy for growth
A strategy for growth Growth in UK markets Developing international markets UK’s SDSR: committed to investment in multi-year Increasing openness to output-based contracting which programmes and the life extension of existing platforms delivers proven efficiencies in both cost and availability, eg an
Slide 28: Growing our international markets
Growing our international markets Babcock business model • specialisation is key • through-life support • ‘hand in glove’ with the customer • sharing risk and reward • moving towards ‘availability’ output based contracts • improving performance whilst reducing cost Marketing model overseas – ‘double
Slide 29: FOMEDEC Contract
FOMEDEC Contract What it is • provision and maintenance of training platforms and related services for the French Air Force, including: − a fleet of training aircraft − simulator platforms − a mission planning and debriefing system − critical infrastructure, including a new training facility − throu
Slide 30: Changing environment
Changing environment Issue Response • no specific slowdown in key markets (long-term contracts, demand continues in critical outsourcing) Brexit • international opportunities continue, potential impact on European defence opportunities • clear route for any structural changes required (eg Air Operat
Slide 31: Trusted to deliver
Trusted to deliver We have a proven strategy and supporting business model TECHNOLOGY We will continue to deliver sustainable profitable growth We are focusing on areas of core capability • Marine, Aviation, Land Vehicles and Nuclear Engineering INFRASTRUCTURE • supported by expertise in Technology,
Slide 32: Questions?
N trusted to deliver"
Slide 33: Half Year Results
33 Half Year Results for six months ending 30 September 2016 www.babcockinternational.com
Slide 34: Appendix
N trusted to deliver"
Slide 35: Underlying segmental analysis
Appendix 1 Underlying segmental analysis Revenue (£m) Operating profit (£m) Operating margin (%) HY 17 HY 16 HY 17 HY 16 HY 17 HY 16 Group 838.8 792.8 94.9 84.9 11.3 10.7 Marine and JV 17.0 10.2 4.7 1.5 27.6 14.7 Technology Total 855.8 803.0 99.6 86.4 11.6 10.8 Group 422.4 361.6 42.0 37.9 9.9 10.5 D
Slide 36: Statutory to underlying reconciliation
Appendix 2 Statutory to underlying reconciliation Continuing JV and associates Amortisation Continuing IFRIC 12 Change in tax All values in £m operations – Revenue and income of acquired rate operations – statutory Finance costs Tax intangibles underlying operating profit 30 Sept 16 Revenue 2,173.1
Slide 37: Exchange rate movements
Appendix 3 Exchange rate movements Effect on underlying operating profit Average Effect on revenue (£m) Effect on profit before tax (£m) (£m) rates for Change 1% 5% 10% 1% 5% 10% 1% 5% 10% HY 15/16 EUR 3.2 15.8 31.7 0.6 2.9 5.7 0.4 1.8 3.6 1.2 ZAR 2.4 12.2 24.5 0.2 0.9 1.7 0.1 0.7 1.5 19.6 SEK 0.4 2
Slide 38: Cash flow reconciliation
Appendix 4 Cash flow reconciliation HY 17 HY 16 £m £m Cash generated from operations 237.6 235.7 Retirement benefit contributions in excess of income statement 0.7 1.2 Exceptional items - - Profit on disposals of JVs - 7.5 Operating cash flow 238.3 244.4 38 Half Year Results for six months ending 30
Slide 39: Provisions
Appendix 5 Provisions Total/ HY 17 FY 16 FY 15 FY 14 FY 13 FY 12 FY 11 Average P&L charged/(released) (£m) 4.1 (4.4) (1.5) 2.3 (15.2) 18.3 (7.7) 12.3 Charge/(release) as % of underlying profit 0.3% (1.6%) (0.3%) 0.5% (4.8%) 6.4% (2.7%) 4.9% Provision balance (£m) 146.0 170.9 198.3* 145.1 157.8 145.0
Slide 40: Net Capital Expenditure
Appendix 6 Net Capital Expenditure HY17 HY16 £m £m Purchases of disposal of property, plant and equipment 118.4 78.9 Purchases of intangible assets 13.4 10.4 Proceeds on disposal of property, plant and equipment (67.9) (20.7) New finance leases - received - 16.6 Capital expenditure (net) 63.9 85.2 4
Slide 41: Half Year Results
41 Half Year Results for six months ending 30 September 2016 www.babcockinternational.com
Babcock International Group — H1 FY2017 Earnings Presentation on 6ix