half year results - babcock international...this document has been prepared by babcock international...

Marine Land Aviation Nuclear

Half year resultsfor the six months ended 30 September 201821 November 2018

Marine Land Aviation Nuclear2

DisclaimerThis 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 2018. For the purposes of

this notice, the presentation that follows (the “Presentation”) shall mean and include the slides that follow, the oral presentation of

the slides by the Company, the question and answer session that follows that oral presentation, hard copies of this document and

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The Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue, or the solicitation of

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of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or

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Statements in this Presentation, including those regarding the possible or assumed future or other performance of the Company or

its industry or other trend projections, as well as statements about Babcock’s or management’s beliefs or expectations, may

constitute forward-looking statements. By their nature, forward-looking statements involve known and unknown risks, uncertainties

and other factors, many of which are beyond Babcock’s control. These risks, uncertainties and factors may cause actual results,

performance or developments to differ materially from those expressed or implied by such forward-looking statements.

Accordingly, no assurance is given that such forward-looking statements will prove to have been correct. Forward looking

statements in the Presentation regarding past trends or activities should not be taken as a representation that such trends or

activities will continue in the future. They speak only as at the date of this Presentation and the Company undertakes no obligation

to update these forward-looking statements.

The information and opinions contained in this Presentation do not purport to be comprehensive, are provided as at the date of the

Presentation and are subject to change without notice. The Company is not under any obligation to update or keep current the

information contained herein.


IntroductionArchie Bethel, Chief Executive


Underlying

results in line

Full year

guidance

confirmed

De-gearing

on track

Interim dividend

up 3.6%

Exceptional costs (mostly non-cash) as we take action to further strengthen Babcock

Taking actions to further strengthen Babcock


Agreement for consistent and enduring

relationship with UK Government

5

• UK Government Strategic Partner Programme

• MOD Strategic Supplier Management Programme

• Cabinet Office, MOD and Babcock signed

‘Joint Ways of Working’ Charter


Our Oil and Gas business

• Two main geographies: UK North Sea and Australia

• Around 50 helicopters (c.10% of total Aviation fleet)

• Includes 13 EC225s

Tough markets conditions

• Platform crew shift patterns reduced

• Exploration and new platforms on hold

• EC225 taken out of North Sea operations

6

Business

acquired

EC225

cleared to fly

Bristow & Columbia

merge + impair EC225s

CHC into

Chapter 11

2014 2015 2016 2017 2019

Oil price drops:

$114 to $46

Oil price

drops: $30

2018

EC225

grounded

Taking action: addressing Oil and Gas


Focus on UK North Sea and Australia

Reshaping our Oil and Gas business

Maintain revenue levels

Refocus cost base

and rightsize the fleet

Sell surplus helicopters /

repurpose some for firefighting


Magnox update

AwardNDA decide

to terminate

Holliday report

findings

Our contract

terminates

NDA under

review Energy Solutions claim begins

Magnox JV contract

• Decommissioning 10 reactor sites and two test sites

• c.£3.8bn, 14-year contract now ending in Aug 2019

Termination

• Early termination a result of flawed procurement process

• No reflection on performance (confirmed by NDA)

• Committed to achieving a smooth transition back to NDA

Additional scope

required

High court rule

against NDA

Bid

starts

Future

• NDA to repackage into smaller contracts

• Expect similar approach to Sellafield supply chain model

• More prudent scenario in revenue step down

assumptions

• Cavendish Nuclear will compete for future packages

• Significant medium term opportunities remain

Holliday report begins

NDA announce

subsidiary model

2014 20182015 2016 2017 20192012

Consolidation period


Marine Land Aviation Cavendish Nuclear

Operational highlights for the half year

• Type 23 frigate life extension:

HMS Northumberland, HMS

Kent

• HMS Monmouth and HMS

Albion deployment support

• First delivery of Dreadnought

submarine missile launch tube

to USA

• Babcock-Schulte Kairos LNG

service vessel

• c.500 vehicles deployed to

Oman for British Army

• Progressing with DSG

transformation

• Mobilised Hinkley

Point C training

contract for EDF

• Mobilised new rail contract

Northern Ireland

• HADES (17 RAF bases) fully

operational

• FOMEDEC planes and

simulators delivered

• Mobilising air ambulance

contracts in Sweden, Finland

and Norway

• Renewed search and rescue

contract in Spain

• Dounreay fast reactor now

20% defueled

• Wylfa reactors now

75% defueled

• Bradwell entered care and

maintenance

• Office opened in Japan


Our strategy focuses on three markets

DefenceEmergency

ServicesNuclear


Delivered across our four sectors:

With international a key growth driver


Actions to sharpen our strategic focus

Exits and

disposals

Restructure

and reshaping

• Media services

• Renewables

• North America mining and

construction support

• Powerlines (South Africa)

• Oil and Gas business

• Appledore shipyard

• Rosyth, QEC

• Magnox ahead of contract end


Strong order book and bid pipeline

67%

16%

10%

7%

Order book - £18bn

63%6%

18%

13%

Pipeline - £14bn

Defence

Emergency Services1

Nuclear

Other

• £2.6 billion order intake in period,

£0.9 billion of which not through pipeline

• 92% of FY19 revenue secured,

60% of FY20

• 88% contracts > £25 million

• £1 billion increase since March 2018

• £3.7 billion of opportunities added2

• Group win rates maintained

• 87% contracts > £25 million

1. Emergency Services contracts typically have shorter bid periods and as such are underrepresented in our pipeline

2. Includes: Marine training, UK defence fleet vehicles, Eskom boiler maintenance (South Africa) and aerial emergency services in Canada


Financial reviewFranco Martinelli, Group Finance Director


Maintaining underlying performance

Underlying

performance Taking action Cash Returns

£120m exceptional

charges

Net cash costs

only c.£10m

FCF2: increasing to £140m

Cash conversion3:120% pre capex 82% post capex

Net debt: £159m down year on year

Underlying EPS:

up 3.1%

Interim dividend:

up 3.6%

Revenue: £2,577m,

down 1.1%1

Operating profit:

£280m, up 2.4%1

1. Organic growth at constant rates

2. Before pension payments in excess of income statement

3. Defined as underlying operating cash flow over underlying operating profit


Underlying results in line

HY19 (£m) HY18 (£m) ChangeOrganic

growth1

Total revenue 2,577 2,639 -2.3% -1.1%

Operating profit 280 276 +1.4% +2.4%

Operating margin 10.9% 10.5%

Profit before tax 246 240 +2.5%

EPS 39.9p 38.7p +3.1%

Interim dividend7.10p 6.85p +3.6%

1. At constant exchange rates

• Organic revenue growth -1.1%1,

+0.5% adjusting for exits

• Organic operating profit growth

+2.4%1

• Margin supported by exits from

low margin businesses

• Underlying results exclude

£120 million of exceptional

charges

All results throughout this presentation are shown on an underlying basis unless otherwise

stated and all percentages are calculated on non-rounded figures


£2,500 £2,501 £2,501 £2,502 £2,502 £2,503 £2,503 £2,504 £2,504 £2,505 £2,505 £2,506 £2,506 £2,507 £2,507 £2,508 £2,508 £2,509 £2,509 £2,510 £2,510 £2,511 £2,511 £2,512 £2,512 £2,513 £2,513 £2,514 £2,514 £2,515 £2,515 £2,516 £2,516 £2,517 £2,517 £2,518 £2,518 £2,519 £2,519 £2,520 £2,520 £2,521 £2,521 £2,522 £2,522 £2,523 £2,523 £2,524 £2,524 £2,525 £2,525 £2,526 £2,526 £2,527 £2,527 £2,528 £2,528 £2,529 £2,529 £2,530 £2,530 £2,531 £2,531 £2,532 £2,532 £2,533 £2,533 £2,534 £2,534 £2,535 £2,535 £2,536 £2,536 £2,537 £2,537 £2,538 £2,538 £2,539 £2,539 £2,540 £2,540 £2,541 £2,541 £2,542 £2,542 £2,543 £2,543 £2,544 £2,544 £2,545 £2,545 £2,546 £2,546 £2,547 £2,547 £2,548 £2,548 £2,549 £2,549 £2,550 £2,550 £2,551 £2,551 £2,552 £2,552 £2,553 £2,553 £2,554 £2,554 £2,555 £2,555 £2,556 £2,556 £2,557 £2,557 £2,558 £2,558 £2,559 £2,559 £2,560 £2,560 £2,561 £2,561 £2,562 £2,562 £2,563 £2,563 £2,564 £2,564 £2,565 £2,565 £2,566 £2,566 £2,567 £2,567 £2,568 £2,568 £2,569 £2,569 £2,570 £2,570 £2,571 £2,571 £2,572 £2,572 £2,573 £2,573 £2,574 £2,574 £2,575 £2,575 £2,576 £2,576 £2,577 £2,577 £2,578 £2,578 £2,579 £2,579 £2,580 £2,580 £2,581 £2,581 £2,582 £2,582 £2,583 £2,583 £2,584 £2,584 £2,585 £2,585 £2,586 £2,586 £2,587 £2,587 £2,588 £2,588 £2,589 £2,589 £2,590 £2,590 £2,591 £2,591 £2,592 £2,592 £2,593 £2,593 £2,594 £2,594 £2,595 £2,595 £2,596 £2,596 £2,597 £2,597 £2,598 £2,598 £2,599 £2,599 £2,600 £2,600 £2,601 £2,601 £2,602 £2,602 £2,603 £2,603 £2,604 £2,604 £2,605 £2,605 £2,606 £2,606 £2,607 £2,607 £2,608 £2,608 £2,609 £2,609 £2,610 £2,610 £2,611 £2,611 £2,612 £2,612 £2,613 £2,613 £2,614 £2,614 £2,615 £2,615 £2,616 £2,616 £2,617 £2,617 £2,618 £2,618 £2,619 £2,619 £2,620 £2,620 £2,621 £2,621 £2,622 £2,622 £2,623 £2,623 £2,624 £2,624 £2,625 £2,625 £2,626 £2,626 £2,627 £2,627 £2,628 £2,628 £2,629 £2,629 £2,630 £2,630 £2,631 £2,631 £2,632 £2,632 £2,633 £2,633 £2,634 £2,634 £2,635 £2,635 £2,636 £2,636 £2,637 £2,637 £2,638 £2,638 £2,639 £2,639 £2,640 £2,640 £2,641 £2,641 £2,642 £2,642 £2,643 £2,643 £2,644 £2,644 £2,645 £2,645 £2,646 £2,646 £2,647 £2,647 £2,648 £2,648 £2,649 £2,649 £2,650 £2,650 £2,651 £2,651 £2,652 £2,652 £2,653 £2,653 £2,654 £2,654 £2,655 £2,655 £2,656 £2,656 £2,657 £2,657 £2,658 £2,658 £2,659 £2,659 £2,660 £2,660 £2,661 £2,661 £2,662 £2,662 £2,663 £2,663 £2,664 £2,664 £2,665 £2,665 £2,666 £2,666 £2,667 £2,667 £2,668 £2,668 £2,669 £2,669 £2,670 £2,670 £2,671 £2,671 £2,672 £2,672 £2,673 £2,673 £2,674 £2,674 £2,675 £2,675 £2,676 £2,676 £2,677 £2,677 £2,678 £2,678 £2,679 £2,679 £2,680 £2,680 £2,681 £2,681 £2,682 £2,682 £2,683 £2,683 £2,684 £2,684 £2,685 £2,685 £2,686 £2,686 £2,687 £2,687 £2,688 £2,688 £2,689 £2,689 £2,690 £2,690 £2,691 £2,691 £2,692 £2,692 £2,693 £2,693 £2,694 £2,694 £2,695 £2,695 £2,696 £2,696 £2,697 £2,697 £2,698 £2,698 £2,699 £2,699 £2,700 £2,700

HY18 FX Disposals HY18 rebased Exits HY18 continuing Growth HY19

£2,639m

- £15m

- £42m

£2,565m

+ £60m

£2,577m

16

Revenue impacted by exits and disposals

- £16.9m

- £17m

- 1.1%Organic growth

+ 0.5%Excl. exits1

1. Growth rate adjusting for both years

2. Expected full year impact of exits c.£50m

3. Includes QEC stepdown of £47m

+ £12m

32

£2,607m


£265.0 £265.5 £266.0 £266.5 £267.0 £267.5 £268.0 £268.5 £269.0 £269.5 £270.0 £270.5 £271.0 £271.5 £272.0 £272.5 £273.0 £273.5 £274.0 £274.5 £275.0 £275.5 £276.0 £276.5 £277.0 £277.5 £278.0 £278.5 £279.0 £279.5 £280.0 £280.5 £281.0 £281.5 £282.0 £282.5 £283.0 £283.5 £284.0 £284.5 £285.0

HY18 FX Disposals HY18 rebased Growth HY19

- £1.4m

£273.0m

+ £6.6m £279.6m

17

£275.8m - £1.4m

Operating profit growth

+ £3.5m

Organic growth +2.4%


HY19 HY18

Underlying operating profit 280 276

Exceptional items (120) -

Joint ventures and associates (45) (39)

IFRIC 12 (16) (16)

Amortisation of acquired intangibles (50) (49)

Statutory operating profit 49 172

Underlying results reconciliation


Net cash cost of exceptional items c.£10m

P&L cost

£m

Oil and Gas 80

Capacity reduction &

restructuring40

Exits 15

Business disposal (15)

Total 120

Tax (19)

Net 101

• Total net cash costs c.£10m

• £5m net cash costs in H11

• Expected asset sales reduce cash costs

• Reshaping Oil and Gas:

• £38m asset write downs

• £42m lease provision

• Capacity reduction and restructuring: mainly

Appledore, Rosyth (QEC rundown) and Magnox

• Exits and disposals: Renewables, North American

mining and construction support, media services,

powerlines in South Africa

1. Expected H2 net cash costs of around £10m, expected small net cash inflow in future years


Marine: growth maintained excl. QEC

HY19

(£m)

HY18

(£m)Change

Organic

growth1

Revenue 825 883 -6.6% -6.2%

Continuing revenue 819 854 -4.1% -3.5%

Operating profit 108 116 -6.3% -6.0%


1. at constant exchange rates

• +2.1% organic revenue growth1 excl.

renewables exit and QEC step down

• QEC revenue step down of £47m

• Mix of business led to stable margins

Outlook:

• FY19: Revenue broadly stable and stable

margins

• FY20: QEC step down c. £75m to

revenue, minimal impact to operating

profit

Business units: Naval Marine | Technology | International


Land: margins improved

HY19

(£m)

HY18

(£m)Change

Organic

growth1

Revenue 798 934 -14.6% -11.9%

Continuing revenue 759 862 -12.0% -9.9%



• Revenue lower: business exits, lower

procurement in Defence and lower Rail

electrification

• Operating profit increase driven by:

• Contract performance

• Cost reduction

• South African equipment

• Holdfast (RSME) savings

Outlook:

• FY19: c.10% lower reported revenue

(c.£75m impact from exits and disposals),

strengthening margin

Business units: Defence | Training & Emergency Services | Networks & Equipment Support | South Africa



Aviation: strong revenue growth

HY19

(£m)

HY18

(£m)Change

Organic

growth1

Revenue 616 498 +23.6% +24.2%



• Revenue growth led by FOMEDEC

• Emergency Services and UK Military Air

growth H2 weighted

• Operating profit:

• FOMEDEC initial contract phase

• Lower margins in early phase of new

contracts

Outlook:

• FY19: Strong revenue growth for full year

(weaker in H2), softening margin year on year

Business units: Military Air | Aerial Emergency Services | Oil & Gas



Nuclear: good growth, Magnox impacts FY20

HY19

(£m)

HY18

(£m)Change

Organic

growth1

Revenue 338 323 +4.8% +4.8%



• Revenue growth across the business

• Margin reflects stable business mix

Outlook:

• FY19: Revenue flat and stable margin

• Magnox step down assumed to be larger:

FY20: c.£250m revenue, c.£20m

operating profit

FY21: c.£100m revenue, c.£7m

operating profit

• Significant medium term opportunities remain


Business units: Decommissioning JVs | Projects


Operating cash flow in line with expectations

Cash flow HY19 (£m) HY18 (£m)

Underlying operating profit1 219.7 221.3

Amortisation and depreciation 52.9 50.7

Other non-cash items 2.0 6.6

Working capital (excl. pensions) 10.4 (115.1)

Provisions (20.9) (10.4)

Operating cash flow 264.1 153.1

Cash conversion before capex 120% 69%

Net capital expenditure (capex) (83.9) (63.1)

Operating cash flow after capex 180.2 90.0

Cash conversion after capex 82% 41%

Capital expenditure/Depreciation 1.6x 1.2x

1. Excludes exceptional items and amortisation of acquired intangibles

2. FY18 included £109m of FOMEDEC debtors and £59m of FOMEDEC creditors, net outflow of £50m

• FOMEDEC had a £50m working capital

outflow in FY182 which unwinds in full in FY19

• Slightly larger benefit in H1 helped offset

expected phasing of other working capital

• FOMEDEC contract now cash positive

• Group cash generation H2 weighted

• Full year outlook unchanged

• Aircraft payments drove capex in H1,

reversing in H2 as converted to operating

leases


Net cash flow weighted to H2

1. Includes £26m net proceeds from disposal of media services business

2. Net debt increase due to FX in H1: £16.1m

Cash flow HY19 (£m) HY18 (£m)

Operating cash flow after capex 180.2 90.0

Interest paid (net) (14.0) (17.2)

Taxation (46.7) (43.6)

Dividends from JVs 20.0 15.1

Free cash flow before pensions 139.5 44.3

Pensions contributions in excess of income statement (20.7) (11.3)

Free cash flow after pensions 118.8 33.0

Dividends paid (115.5) (112.8)

Acquisitions / other 1.2 (5.8)

Net cash cost of exceptional items1 (5.3) -

Net cash outflow (before FX)2 (0.8) (85.6)


De-gearing remains on track

0.0

0.5

1.0

1.5

2.0

2.5

FY15 FY16 FY17 FY18 HY19 FY19 FY20

Net debt / EBITDA• Net debt1: £1,132m – down £159m year on year

• Includes £163m FOMEDEC lease debtor which

converts to cash in H2

• Net debt to EBITDA2 ratio 1.6x (HY18: 1.9x)

• FY19 expected: c.1.4x

• FY20 expected: c.1.1x

• IFRS 163 expected impacts to FY20:

• Net debt: + c.£550m

• EBITDA: + c.£150m

• Net debt to EBITDA: + c.0.4

• EPS: negligible

• Operating profit increase offset by interest

increase: c.£30m1. Net debt excludes £345m of non-recourse JV net debt, mainly held in AirTanker and Ascent

2. EBITDA of £695m (12 months to 30 September 2018). H1 EBITDA was £333m

3. IFRS 16 (Leases) effective for FY20. Based on lease profile of group as at 30 September 2018

4. Based on current accounting standards

4


Capital allocation priorities

Invest in the

business

Return capital

to shareholders

Drive growth

Sustainable

dividend

• Disciplined investment criteria to support ROIC

• Bolt-on M&A if meets hurdles

• Growing ordinary dividend, well covered by free cash

flow

• De-gearing on track and offers scope for additional

returns

De-gear balance

sheet

• Well-positioned for any environment

• Safeguard credit rating

• Additional funding for pension schemes

Flexibility


Pensions update

HY19 HY18

Assets (£m) 4,652 4,593

Obligations (£m) 4,626 4,709

Net surplus / (deficit) (£m) 26 (116)

Income statement impact HY19 HY18

Operating profit impact (£m) (23) (25)

Net interest costs (£m) - (1)

Total impact (£m) (23) (26)

Key assumptions HY19 HY18

Discount rate 2.7% 2.7%

Inflation (RPI) 3.2% 3.2%

• IAS19 position now in surplus:

• Discount rates, asset performance, deficit contribution

• Trustee funding

• Devonport valuation signed off: no effect on deficit,

cash service cost increase of £5m

• Rosyth under discussion – more challenging

• FY19 impacts

• Cash service cost increasing above IAS 19 service cost

• Contributions in excess of income statement – deficit

recovery and cash service cost dependent

• Continued actions

• Increased employee cash contributions

• Restructuring reduces number of active members

• Interest rate/age/inflation hedging continues


Joint ventures: JV debt is non-recourse

Cash

£m

Loans

£m

Net debt

£m

Babcock

share

£m

AirTanker 350 (2,320) (1,970) (260)

Ascent 50 (180) (130) (65)

Others 50 (100) (50) (20)

Total 450 (2,600) (2,150) (345)

• JV debt mostly in AirTanker

• Significant cash balances

• JV performance

• Scheduled debt repayments

• Babcock share of net debt of c.£345m

• All non-recourse


Joint ventures: significant cash dividend stream

HY19 (£m) HY18 (£m)

TOTAL Asset Operational TOTAL Asset Operational

Operating Profit 45.1 23.2 21.9 39.2 19.9 19.3

IFRIC 12 14.1 14.1 - 14.3 14.3 -

Total underlying profit 59.2 37.3 21.9 53.5 34.2 19.3

Finance costs (11.8) (11.8) - (12.2) (12.2) -

Profit before tax 47.4 25.5 21.9 41.3 22.0 19.3

Tax (7.1) (2.4) (4.7) (5.6) (1.6) (4.0)

Profit after tax 40.3 23.1 17.2 35.7 20.4 15.3

Dividends 20.0 5.4 14.6 15.1 3.8 11.3

Cash Gap 20.3 17.7 2.6 20.6 16.6 4.0

• 12% of underlying

revenue (HY18: 12%)

• 21% of underlying profit

(HY18: 19%)

• Distributable reserves:

c.£140m

• Dividends expected in:

FY19: c.£50m

FY20: c.£45m

See appendix for definitions of asset and operational JVs


FY19 (as per July) FY19 (updated)

Revenue Margin Revenue Margin

Reported basis by sector:

Marine Flat Stable Broadly stable Stable

Land Slight decline Strengthening c.10% decline Strengthening

Aviation Strong growth Softening Strong growth Softening

Cavendish Nuclear Flat Stable Flat Stable

Group impact of FX and disposals1 c.£70m revenue, <£5m OP impact

Group organic revenue growth2 Low single digit growth Low single digit growth

Margins Broadly stable Stronger

Tax rate c.18% c.18%

Cash conversion: pre capex/post capex > 100% pre capex/ c.80% post capex > 100% pre capex/ c.80% post capex

Capex to depreciation ratio c.1.2x c.1.2x

Net debt to EBITDA ratio c.1.4x c.1.4x

JV dividends c.£45m c.£50mPension contributions in excess of income

statementc.£50m c.£55m

Updated FY19 guidance: no overall change

1. Based on FX rates as of 30 Sept 2018 and assumptions on disposals. Expected full year FX impact c.£20m (HY18: £17m). Expected full year impact of disposals c.£50m (HY18: £15m)

2. At constant exchange rates. Excludes expected full year impact of exits of c.£50m, of which £42m impact in H1


FY20 modelling considerations

Exits and disposals

QEC stepdown

Magnox stepdown

• Revenue impact of c.£40m, operating profit impact small

• Revenue impact of c.£75m at low margin

• Revenue impact of c.£250m (previously guided c.£100m)

• Operating profit impact of c.£20m (previously guided c.£7m)


Our priorities: drive value for customers and

shareholders

Sustain margins

De-gearing

Cash generation

• On track this year

• Continuing cost focus

• Bidding control

Customer and shareholder

value

• H1 performance in line overall

• On track for full year expectations

• Zero based budgeting for working capital

• Deliver savings for customers

• Focus on cash returns on capital

• On track to reach 1.4x at March 2019, 1.1x at March 2020

• Supports growing and sustainable dividend


Further strengthening BabcockArchie Bethel, Group Chief Executive


International growth a key part of our strategy

• International now around 30% of revenue

• Focus on key markets:

• Australia, Canada, South Africa

• France, Spain, Italy, Scandinavia

• South Korea, Japan, Oman, New Zealand

• Leveraging our strengths across all sectors and our

experience in the UK

• Pipeline includes significant opportunities

UK International

£14bn

Order book Pipeline

£18bn


Strong market positions, high barriers to entry

Sector specific technical expertise

Deep customer relationships

Unique infrastructure assets

Long-term contract visibility


Market trends: Defence

Global

• Increasing air, sea, land and cyber threats

• Budget pressures driving need for efficiencies

• Increasing need for capability upgrades and life extension of key

equipment and facilities

• New equipment programmes and platform development continues

UK

• Recent Government announcements confirmed commitments to Defence

• Continue to identify support needs across Marine, Land and Aviation

• Modernising Defence Programme driving Strategic Partnering approach

• Large programmes continuing: Dreadnought, Type 26, Type 31, ASDOT


Market trends: Emergency Services

Global trends

• Population growth driving greater need

• Budget pressures driving need for efficiencies and critical mass

• Increasing levels of regulation around safety and operations

• Innovative technology increasing effectiveness of service provision

• Increasing use of unmanned equipment for monitoring and inspection

Europe

• Increasingly shared and pooled fire fighting efforts across countries

• Scale of fleet increasingly important to achieve economies of scale

• Investment in support infrastructure and development of skills critical to

safety, performance and growth


Market trends: Nuclear

Decommissioning

• Growing requirement as ageing power stations come offline

• Less certainty on timing of Magnox work post August 2019

• Sellafield programme progressing and international opportunities emerging

Nuclear New Build

• Increased UK activity following continued Government support for Nuclear

• Hinkley Point C progressing, MoU signed, promising progress at Wylfa

Nuclear Services

• Expert support for active UK Reactor Fleet is growing

• Major project opportunities across the UK’s nuclear installations in areas of

nuclear engineering, safety and health physics


Focus on core markets

Develop UK business

Sustain margins

International expansion

• Disposals and exits programme

Customer and shareholder

value

• On track this year, exiting low margin businesses

• Ahead of schedule, key growth driver

• Growing and sustainable dividend

• Continuous performance improvement

• #2 supplier to MOD for over a decade

• Significant opportunities in pipeline

Our priorities: drive value for customers and

shareholders


Underlying

results in line

Full year

guidance

confirmed

De-gearing

on track

Interim dividend up

3.6%

Conclusion: further strengthening Babcock


Additional slides


Single Source Regulations Office (SSRO)

Contract profit rate steps 2018/19 Rates Babcock Commentary

Baseline profit rate (BPR) 6.81%

Cost risk adjustment: +/-25% x BPR +/- 1.7%

No cost reimbursable contracts

Expect close to +25% x BPR

SSRO funding adjustment -0.024%

Incentive adjustment Up to 2.0% Typically at the top end

Capital servicing adjustment Average 1.36%

Maximum CPR 11.85% Before shared cost savings

Source: www.gov.uk SSRO 2018 contract profit rate


We are the MOD’s second largest supplier

Source: www.gov.uk MOD Trade, Industry & Contracts, Sept 2018

BAE

Airbus

Rolls-Royce

Leonardo

Lockheed Martin

QinetiQ DXCGeneral

DynamicsThales

Leidos

Boeing

Serco

Innisfree

Raytheon

BT

Jacobs Marshall of

Cambridge

Capita

Terra

Firma

Cobham

3I FujitsuNorthup

Grumman

BP

Infrared

Sodexo

KBR Interserve Ferrovial

Galliford

TryTokenhouse AJG&Co

Nats

Macquarie

Allianz

Safran Vinci

Mears

Hocomm

Compass

Groupe CGI

Hogg

Robinson

Chart: MOD suppliers paid above £50m last year (to rough scale)


Half of our MOD work is competed

5%

BAE

12%

Rolls-Royce

85%

Lockheed Martin

68%

Leonardo

10%

QinetiQ

74%

General Dynamics

45%

Thales

68%

Airbus

50%

Source: www.gov.uk MOD Trade, Industry & Contracts, Sept 2018

Amount of revenue from competed

contracts vs. non-competed

contracts


Summary of actions taken

Business Sector Exit date Rationale

Renewables Marine 2017/18 Non-strategic, low margin

Civil infrastructure Land 2017/18 Non-strategic, low margin

North American mining

and construction support

Land H1 2018/19 Non-strategic, low margin

Media services Land H1 2018/19 Non-strategic, net proceeds of £26m

South Africa powerlines Land H1 2018/19 Non-strategic, low margin

Exit from Appledore Marine H1 2018/19 No pipeline of future work


Marine (FY18 figures)

Addressable market

49%

19%

32%

Bid pipeline

UK 79% UK67%

Intl 21%Intl 33%

Revenue Pipeline

Geography

58%

14%

28%

Revenue split

UK Naval

International Naval

Technology2

£12bn

7%-11%

8%-12%

6%-15%

Typical

margin range1

1. Excludes gain share

2. Includes customer procurement related revenue


Land (FY18 figures)

Addressable market

31%

23%

46%

Bid pipeline

UK71%

UK83%

Intl 29%Intl 17%

Revenue Pipeline

Geography

34%

12%32%

22%

Revenue split

Defence2

Emergency

Services

& Training

£9bn

South Africa

Networks &

Equipment

Support

8%-10%

8%-12%

4%-6%

Typical

margin range1

5%-8%


2. Excludes pass-through customer procurement related revenue


Aviation (FY18 figures)

Addressable market

67%

29%

4%

Bid pipeline

UK40%

UK31%

Intl 60%Intl 69%

Revenue Pipeline

Geography

33%

51%

16%

Revenue split

Defence2

Emergency Services

Oil & Gas

£8bn

8%-12%

10%-18%

Low

Typical

margin range1


2. Excludes JVs


Addressable market

68%

32%

Revenue split

Projects (incl. New Builds)

50

Cavendish Nuclear (FY18 figures)

34%

4%62%

Bid pipeline

UK99%

UK98%

Intl 1% Intl 2%

Revenue Pipeline

Geography

Decommissioning JVs

£8bn

New Build

Operational Support

Decommissioning


Key defence contractsLand

Babcock Defence Support Group (DSG) UK

Royal School of Military Engineering (RSME/Holdfast) UK

British Forces Germany UK

Training, Maintenance & Support Services (TMASS) UK

Phoenix (White Fleet) UK

ALC JV (provision and maintenance) UK

Defence College of Technical Training (DCTT) UK

AviationHADES, technical support services contract UK

Light Aircraft Flying Task (LAFT2) UK

Tucano In Service Support (TISC) UK

Hawk integrated operational support UK

Hawk advanced jet training T II UK

UK Military Flying Training System (UKMFTS) UK

Ascent JV (flight training) UK

Airtanker Ltd JV (Asset JV) UK

Airtanker Services JV (Operational JV) UK

FOMEDEC training, maintenance, flying systems France

HELIDAX army helicopter training France

MarineQueen Elizabeth Class (QEC) Aircraft Carriers UK

HMS Vanguard refit and refuel UK

Dreadnought missile launch tubes UK

Dreadnought & Astute Weapons Handling and Launch System (WHLS) UK

Dreadnought design phase services UK

Submarine Dismantling Project UK

Fleet Outsourced Activity Project (FOAP) naval training UK

Astute Class Training Service (ACTS) submarine training UK

Maritime composite training site UK

MSDF Devonport, Clyde, Rosyth (incl. ships & subs fleet time support) UK

T23 life-ex: HMS Portland, HMS Lancaster, HMS Richmond refits UK

HMS Scott through-life support UK

Marine Systems Support Partner (T45 & QEC design authority) UK

Maritime Training Systems through-life support availability UK

Pumps repair and overhaul management UK

Valves – equipment management service UK

Engineering and support for WHLS & submerged signal ejectors UK

Design Support Alliance – naval ship design support UK

4.5" Gun through-life support UK

Phalanx close in weapon system availability UK

Naval Design Partnership UK

ANZAC Class support Australia

Collins Class submarine support Australia

Australian submarine WHLS Australia

Dockyard management & naval support New Zealand

Victoria Class submarines In Service Support (VISSC) Canada

Duqm JV, naval and commercial ship support Oman

Jangbogo III submarine WHLS South Korea

S80 submarine WHLS Spain

US Coastguard Cutter design USA


Key civil contracts

Marine

LNG/LPG transportation systems China

Gas Supply Vessel JV with Bernard Schulte Germany

Land

Rail track renewal, electrification UK

Power Networks UK

Metropolitan Police vehicle fleet management UK

London Fire Brigade fleet management UK

London Fire Brigade training UK

Technical apprentice training (BMW, EDF, Network Rail) UK

Heathrow Airport baggage handling systems UK

Heathrow Airport ground support fleet UK

QANTAS ground support equipment Australia

Schiphol Airport baggage handling Netherlands

Fiumicino Airport ground support Italy

ESKOM power station support South Africa

Vehicle fleets (Volvo, DAF) South Africa

Aviation

Emergency Medical Services (multiple)Norway, Sweden, Finland,

Australia, UK, Italy, Spain,

Portugal, France

Aerial Fire Fighting (multiple) Spain/Portugal/Italy

SASEMAR Search and Rescue Spain

Offshore Oil and Gas helicopter services (multiple) UK, Europe, Australia

Cavendish Nuclear

Magnox decommissioning UK

Dounreay decommissioning UK

Sellafield gloveboxes UK

Sellafield Silo Maintenance Facility project UK

Atomic Weapons Establishment MENSA Doors UK

EDF Hinkley Point C new build station UK

EDF fuel route management (all stations) UK

Engineering, safety, design and mechanical

construction

UK


Joint ventures

Babcock underlying JVs Share Country Sector Start End

As

se

t J

Vs

Holdfast (RSME) 74% UK Land 2008 2038

ALC 50% UK Land 2005 2021

Ascent 50% UK Aviation 2016 2033

Helidax 50% UK Aviation 2008 2029

AirTanker 13% UK Aviation 2008 2035

Helidax 50% France Aviation 2008 2029

Op

era

tio

na

l J

Vs Cavendish Fluor Partnership 65% UK Nuclear 2014 2019

Cavendish Dounreay Partnership 50% UK Nuclear 2012 2030s

Naval Ship Management Australia 50% Aus Marine 2018 2024

ABC Electrification 33% UK Land 2014 2019

AirTanker Services 22% UK Aviation 2008 2035

Asset JVs

• Typically assets and debt

• Dividends follow after

paying down JV debt

• Typically long-term

Operational JVs

• Capability partnerships

• No debt

• Dividends follow profits,

subject to short-term

phasing


Revenue by sector

HY19 (£m) HY 18 (£m) Reported growthOrganic growth at

constant rates

Organic growth at

constant rates

excluding exits

Marine 824.7 883.3 -6.6% -6.2% -3.5%

Land 798.1 934.4 -14.6% -11.9% -9.9%

Aviation 615.8 498.4 +23.6% +24.2% +24.2%

Cavendish Nuclear 338.3 322.8 +4.8% +4.8% +4.8%

Total 2,576.9 2,638.9 -2.3% -1.1% +0.5%


Underlying segmental analysis

Revenue (£m) Operating profit (£m) Operating margin

HY 19 HY 18 HY 19 HY 18 HY 19 HY 18

Marine

Group 814.2 873.0 105.6 114.0 13.0% 13.1%

JV 10.5 10.3 2.7 1.6 25.7% 15.5%

Total 824.7 883.3 108.3 115.6 13.1% 13.1%

Land

Group 782.6 892.3 46.8 42.4 6.0% 4.8%

JV 15.5 42.1 16.5 14.1 106.5% 33.5%

Total 798.1 934.4 63.3 56.5 7.9% 6.0%

Aviation

Group 551.0 453.2 59.6 57.5 10.8% 12.7%

JV 64.8 45.2 22.0 21.0 34.0% 46.5%

Total 615.8 498.4 81.6 78.5 13.3% 15.8%

Cavendish Nuclear

Group 107.0 98.2 11.9 12.2 11.1% 12.4%

JV 231.3 224.6 18.0 16.8 7.8% 7.5%

Total 338.3 322.8 29.9 29.0 8.8% 9.0%

Total

Unallocated (3.5) (3.8)

Group 2,254.8 2,316.7 220.4 222.3 9.8% 9.6%

JV 322.1 322.2 59.2 53.5 18.4% 16.6%

Total 2,576.9 2,638.9 279.6 275.8 10.9% 10.5%


Statutory to underlying reconciliation

All values in £m Statutory

Joint Ventures and Associates

IFRIC 12 income

Amortisation of

acquired

intangibles

Exceptional

items

Change in tax

rate Underlying Revenue and

operating profit Finance costs Tax

30 Sept 2018 Revenue 2,254.8 322.1 2,576.9

Operating profit 49.3 45.1 14.8 50.0 120.4 279.6

Share of profit from JV 37.4 (45.1) 11.8 7.1 (14.1) 2.9 -

Investment income 0.7 (0.7) -

Net finance costs (22.3) (11.8) (34.1)

Profit before tax 65.1 - - 7.1 - 52.9 120.4 - 245.5

Tax (6.9) (7.1) (11.4) (19.8) 1.0 (44.2)

Profit after tax 58.2 - - - - 41.5 100.6 1.0 201.3

Return on revenue 2.2% 10.9%

30 Sept 2017 Revenue 2,316.7 322.2 2,638.9

Operating profit 172.2 39.2 - - 15.3 49.1 - 275.8

Share of profit from JV 32.8 (39.2) 12.2 5.6 (14.3) 2.9 - -

Investment income 1.0 - - - (1.0) - - -

Net finance costs (24.1) - (12.2) - - - - (36.3)

Profit before tax 181.9 - - 5.6 - 52.0 - - 239.5

Tax (26.6) (5.6) (11.1) 0.2 (43.1)

Profit after tax 155.3 - - - - 40.9 - 0.2 196.4

Return on revenue 7.4% 10.5%


Underlying organic growthAll values in £m Marine Land Aviation

Cavendish

NuclearUnallocated Total

UNDERLYING REVENUE

At 30 September 2017 883.3 934.4 498.4 322.8 - 2,638.9

Exchange adjustment (3.5) (10.2) (3.2) - - (16.9)

Disposals - (14.8) - - - (14.8)

Exits (23.8) (18.6) - - - (42.4)

Organic growth (31.3) (92.7) 120.6 15.5 - 12.1

30 September 2018 824.7 798.1 615.8 338.3 - 2,576.9

Underlying revenue growth -6.6% -14.6% +23.6% +4.8% -2.3%

Organic growth1 -6.2% -11.9% +24.2% +4.8%-1.1%

Organic growth1 excluding exits -3.5% -9.9% +24.2% +4.8%+0.5%

UNDERLYING OPERATING PROFIT

As at 30 September 2017 115.6 56.5 78.5 29.0 (3.8) 275.8

Exchange adjustment (0.4) (0.6) (0.4) - - (1.4)

Disposals - (1.4) - - - (1.4)

Organic growth (6.9) 8.8 3.5 0.9 0.3 6.6

30 September 2018 108.3 63.3 81.6 29.9 (3.5) 279.6

Underlying operating profit growth -6.3% +12.0% +3.9% +3.1% +1.4%

Organic growth1 -6.0% +15.6% +4.5% +3.1% +2.4% 1. At constant exchange rates


Exchange rate movements

Average

rates for

HY19

Average

rates for

HY18

ChangeImpact of FX movement on

revenue (£m)

Impact of FX movement on underlying

operating profit (£m)

Impact of FX movement on

profit before tax (£m)

1% 5% 10% 1% 5% 10% 1% 5% 10%

EUR 1.1282 1.1374 -0.8% 3.4 16.9 33.9 0.4 2.0 4.0 0.3 1.3 2.7

ZAR 17.4540 17.0221 +2.5% 1.6 8.1 16.2 0.1 0.4 0.9 0.1 0.4 0.8

CAD 1.7259 1.6814 +2.6% 0.7 3.4 6.9 0.1 0.3 0.7 0.1 0.3 0.7

SEK 11.7282 10.9208 +6.9% 0.3 1.5 3.0 0.1 0.4 0.8 0.1 0.4 0.7

AUD 1.7841 1.6795 +5.9% 0.9 4.3 8.6 0.1 0.3 0.6 0.1 0.3 0.5


Cash flow reconciliation

HY19 (£m) HY18 (£m)

Cash generated from operations 243.4 141.8

Retirement benefit contributions in excess of income statement 20.7 11.3

Operating cash flow 264.1 153.1


Underlying to statutory cash flow

reconciliation

Underlying Exceptional items Statutory

Operating profit before amortisation of acquired intangibles 219.7 (120.4) 99.3

Amortisation and depreciation 52.9 28.0 80.9

Other non-cash items 2.0 (15.2) (13.2)

Working capital (excl. excess retirement benefits) 10.4 19.5 29.9

Provisions (20.9) 56.7 35.8

Operating cash flow 264.1 (31.4) 232.7

Net proceeds from disposal of media services business: £26.1m

Net exceptional cash cost: £5.3m


Provisions

• Half year net release £2.7m1

• Average of last eight and a half years:

• 0.6% cumulative net charge as a % of underlying

profit

• 6% cash utilisation of underlying operating profit

• Half year: £21m cash outflow

• Utilised: contracts (gain share and warranty),

personnel (taxation and reorganisation), property

and assets

• Provisions made as required by accounting

standards• Contract costs, property, personnel, warranty,

onerous leases, acquisitions and disposals

1. Excluding provisions in relation to exceptional items

2. Excluding JVs

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 H1FY19

Total

Charge/(release) as % of underlying profit2


Net capital expenditure

HY19 (£m) HY18 (£m)

Purchases of property, plant and equipment 84.0 66.8

Purchases of intangible assets 19.2 11.1

Proceeds on disposal of property, plant and equipment (19.3) (14.8)

Capital expenditure (net) 83.9 63.1

half year results - babcock international...this document has been prepared by babcock international...

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