Babcock International Group Plc · LSE:BAB
Babcock International — HY24 Earnings Presentation
45 slides from Babcock International's earnings presentation, Nov 14, 2023
Slide 1: Half year results
Half year results for the six months ended 30 September 2023 14 November 2023
Slide 2: Key messages
Key messages Growing Strong start Dividend opportunity to the year reinstated set FY24 expectations unchanged 2
Slide 3: Financial review
Financial review David Mellors CFO
Slide 4: Key messages
Key messages Strong start to the year, FY24 expectations unchanged Improved cash conversion Balance sheet strengthened further Dividend reinstated 4
Slide 5: Underlying financial results overview
Underlying financial results overview HY24 HY23 • Organic revenue growth 18% − Strong organic growth across Nuclear including infrastructure revenue, Marine, and Land Revenue £2,177m £2,144m • Underlying operating profit up 33% organic − Licence fees on Polish frigate programme in Marine Underlying
Slide 6: Revenue bridge
Revenue bridge (£m) 18% organic growth 325 2,177 2,144 (248) 1,896 (44) HY23 Disposals HY23 Retained business FX Organic HY24 in FY23 post disposals 6
Slide 7: Underlying operating profit bridge
Underlying operating profit bridge (£m) 7.1% margin 6.4% margin 5.7% 38 margin 154 122 121 (1) (4) HY23 Disposals HY23 Retained business FX Organic HY24 in FY23 post disposals 7
Slide 8: Marine
Marine £m HY23 FX Organic HY24 Contract backlog 2,426 2,929 Revenue 666.4 (12.7) 96.4 750.1 Underlying operating profit 47.3 (1.0) 16.7 63.0 Underlying margin 7.1% 8.4% Contract backlog: H1 increase due to extension of Canadian Underlying operating profit +36% organic: submarine support contract and
Slide 9: Nuclear
Nuclear £m HY23 FX Organic HY24 Contract backlog 2,547 2,400 Revenue 558.2 - 152.6 710.8 Underlying operating profit 30.1 - 15.1 45.2 Underlying margin 5.4% 6.4% Contract backlog: new contracts offset by FMSP trading, Underlying operating profit +50%: £750m infrastructure contract awarded in Novembe
Slide 10: Land
Land HY23 Disposals £m HY23 in FY23 Retained business FX Organic HY24 post disposals Contract backlog 2,429 (28) 2,401 2,734 Revenue 478.2 (21.4) 456.8 (25.4) 114.2 545.6 Underlying operating profit 38.0 (1.5) 36.5 (3.0) 4.0 37.5 Underlying margin 7.9% 8.0% 6.9% Contract backlog: increase due to DHF
Slide 11: Aviation
Aviation HY23 Disposals £m HY23 in FY23 Retained business FX Organic HY24 post disposals Contract backlog 2,450 (1,092) 1,358 1,573 Revenue 441.2 (226.2) 215.0 (5.9) (38.6) 170.5 Underlying operating profit 6.3 0.5 6.8 (0.4) 2.3 8.7 Underlying margin 1.4% 3.2% 5.1% Contract backlog: increase due to
Slide 12: Cash flow
Cash flow £m HY24 HY23 • Working capital: contract phasing and c.£35m of non- recourse sale of long-term receivables on delivery of aircraft Underlying operating profit 154 122 in France Right of use asset depreciation 19 53 • Net capex: higher due to investment in IT systems and Other depreciation
Slide 13: Continuing our balance sheet strengthening
Continuing our balance sheet strengthening £m HY21 FY21 HY22 FY22 HY23 FY23 HY24 • Net debt and gearing: Net debt (1,609) (1,352) (1,347) (969) (1,039) (564) (493) – Net debt excluding leases: £288m – Gearing 1.1x within our medium-term Net debt to EBITDA (covenant basis) 2.5x 2.4x 2.8x 1.8x 1.9x 1.
Slide 14: Capital allocation framework
Capital allocation framework Priority HY24 progress 1 Organic investment Ongoing investment in business Sustain investment to support business improvement and growth Dividend operations and enhance growth potential reinstated 2 Financial strength 1.7p Maintain strong balance sheet and investment gra
Slide 15: Outlook
Outlook FY24 outlook expectations unchanged • Another year of organic revenue growth, underlying operating margin expansion and positive cash flow generation • Over 90% of FY24 revenue under contract We continue to build momentum to achieve the medium term guidance set out at FY23 15 FY23 baseline:
Slide 16: HY24 review and outlook
HY24 review and outlook David Lockwood CROWN COPYRIGHT CEO
Slide 17: Roadmap to meet and sustain medium term guidance
Roadmap to meet and sustain medium term guidance Medium term guidance How we get there Organic growth Strong backlog and Growing opportunity set Mid-single digit framework coverage and strong visibility Margin Legacy programme fade Business mix and ≥ 8% and operational improvement improved execution
Slide 18: Sustainable margin drivers
Sustainable margin drivers Legacy Operational Improved Contract terms Sustainable programme improvement delivery and discipline medium term fade margin guidance Particularly from FY25 Enhancing our digital capabilities Improvement in DSG, Land New submarine support contract ≥ 8% Multiple drivers to
Slide 19: Future growth drivers
Future growth drivers • Naval shipbuilding – Arrowhead 140, advanced corvette (Saab cooperation agreement) • UK and US naval and civil nuclear opportunities (HII collaboration agreement) • AUKUS capability opportunities (UK & US) • Babcock Skills Academy – Growing demand in nuclear • Land products –
Slide 20: People
People 2nd Global People Survey Our three highest scores (% of employees who agree) 80% participation +1% compared to 2022 I know what I need to do to be successful in my role I have a clear understanding of my role and responsibilities 58% positive engagement +4% compared to 2022 I believe Babcock
Slide 21: Summary
Summary Growing Strong start Dividend opportunity to the year reinstated set FY24 expectations unchanged 21
Slide 22: Capital Markets Day February 2024
Capital Markets Day 07 February 2024 Devonport Royal Dockyard, UK Business & strategy review 22
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Slide 24: Appendix
babcock Appendix
Slide 25: HY24 Group splits
HY24 Group splits Defence revenue Defence contract backlog Geographical revenue 8% 24% 8% 31% 8% £2.2bn £9.6bn 2% £2.2bn 4% 69% 70% 76% Defence Defence UK Canada Civil Civil France South Africa AUS + NZ ROW 25
Slide 26: HY24 results split by sector
HY24 results split by sector Revenue Underlying operating profit Contract backlog 8% 6% 16% 31% 35% 24% 25% 41% £2.2bn £154m £9.6bn 28% 29% 25% 33% Marine Nuclear Land Aviation 26
Slide 27: HY24 sector revenue splits
HY24 sector revenue splits Marine Nuclear Land Aviation 12% 24% 41% £0.8bn £0.7bn £0.6bn 49% £0.2bn 51% 59% 76% 88% Defence Civil 27
Slide 28: Statutory to underlying reconciliation
Statutory to underlying reconciliation HY24 HY23 (£m) Specific Specific Underlying Adjusting Statutory Underlying Adjusting Statutory Items Items Revenue 2,177 - 2,177 2,144.0 - 2,144.0 Operating profit / (loss) 154.4 (10.2) 144.2 121.7 (48.9) 72.8 Share of results of joint ventures and associates 6
Slide 29: Sector detail
Sector detail Underlying Underlying Contract Revenue operating profit operating margin backlog HY24 HY23 HY24 HY23 HY24 HY23 HY24 HY23 Marine £750.1m £666.4m £63.0m £47.3m 8.4% 7.1% £2,929m £2,426m Nuclear £710.8m £558.2m £45.2m £30.1m 6.4% 5.4% £2,400m £2,547m Land £545.6m £478.2m £37.5m £38.0m 6.9
Slide 30: Sector detail retained business post disposals
Sector detail retained business post disposals Underlying Underlying Contract Revenue operating profit operating margin backlog HY24 HY23 HY24 HY23 HY24 HY23 HY24 HY23 Marine £750.1m £666.4m £63.0m £47.3m 8.4% 7.1% £2,929m £2,426m Nuclear £710.8m £558.2m £45.2m £30.1m 6.4% 5.4% £2,400m £2,547m Land1
Slide 31: Net debt / EBITDA (covenant basis)
Net debt / EBITDA (covenant basis) HY24 HY23 (£m) (Rolling 12 months) (Rolling 12 months) Underlying operating profit 210.8 244.1 Depreciation and amortisation 69.3 80.2 Other covenant adjustments (5.9) 16.4 EBITDA 274.2 340.7 JV and associate dividends 10.4 22.0 EBITDA + JV and associate dividends
Slide 32: Underlying operating profit to operating cash flow bridge
Underlying operating profit to operating cash flow bridge (£m) 82% cash conversion 127 Depreciation Working ROU asset Capital lease Other UOP and Net capex OCF capital depreciation payments (Including provisions) amortisation 32
Slide 33: Underlying operating cash flow to free cash flow bridge
Underlying operating cash flow to free cash flow bridge (£m) 126 OCF Pension deficit Interest Tax JV dividends FCF payments in excess of income statement 33
Slide 34: Cash flow and movement in net debt
Cash flow and movement in net debt £m HY24 HY23 Free cash flow 67 (25) Acquisitions and disposals - (12) Purchase of own shares (8) - • Leases: reduced following European AES disposal Lease principle payments, and new net lease arrangements 9 17 FX, fair value and other non-cash debt movements 4 (43
Slide 35: Pensions
Pensions Technical provision for defined benefit schemes IAS 19 position (including longevity swaps) (£m) 30 Sep 2023 31 Mar 2023 30 Sep 2022 September 2023: c.£300m deficit Assets 2,871.0 3,188.0 3,482.1 March 2023: c.£400m deficit Obligations (3,025.9) (3,249.4) (3,334.7) September 2022: c.£300m d
Slide 36: Liquidity and debt maturity profile
Liquidity and debt maturity profile Debt maturity profile1 (£m) • Around £1.9bn of total available borrowings and facilities HY24 net debt2 £(288)m RCF 20243 £300m • Cash balance and undrawn facilities provide liquidity RCF 20264 £775m headroom c.£1.7bn at 30 September 2023 HY24 average net debt2 £(
Slide 37: 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 38: FY23: Legacy low to zero margin programme fade
FY23: 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 FY24e FY25e FY26e FY27e FY28e FY29e Supports medium term Group margin expansion 38 * Ex
Slide 39: 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 40: 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 41: Key contracts: Nuclear
Key contracts: Nuclear Contract Customer Start End Country Notes Future Maritime Support Nuclear submarine, infrastructure and license site elements of FMSP. Delivered under three separate UK MOD 2021 2026 UK Programme (FMSP) single source contracts (Naval Base Devonport, Naval Base Clyde and Submar
Slide 42: 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 43: Key contracts: Aviation
Key contracts: Aviation Contract Customer Start End Country Notes Helicopter Emergency Medical Services (HEMS) with six specially configured AW139 Victoria Air Ambulance Victoria Gov 2016 2026 Australia aircraft South Australian State Rescue South Australian 2005 2027 Australia HEMS law enforcement
Slide 44: 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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