Babcock
International Group PLC
Full
year results for the year ended 31 March 2024
26 July 2024
Strong progress towards our
medium-term guidance
Statutory results
|
31 March
2024
|
31 March
2023
|
Revenue 2
|
£4,390.1m
|
£4,438.6m
|
Operating profit
|
£241.6m
|
£45.5m
|
Basic earnings/(loss) per
share
|
32.9p
|
(6.9)p
|
Cash generated from
operations
|
£374.3m
|
£348.9m
|
|
|
|
Underlying results 1
|
31 March
2024
|
31 March
2023
|
Contract backlog
|
£10.3bn
|
£9.5bn
|
Underlying operating profit
3
|
£237.8m
|
£177.9m
|
Underlying operating margin
4
|
5.4%
|
4.0%
|
Underlying basic earnings per
share
|
30.8p
|
17.7p
|
Type 31 loss
|
£(90.0)m
|
£(100.1)m
|
Underlying operating profit excluding Type 31
loss
|
£327.8m
|
£278.0m
|
Full year dividend per
share
|
5.0p
|
-
|
|
|
|
Underlying free cash
flow
|
£160.4m
|
£75.3m
|
Net debt 5
|
£(435.4)m
|
£(564.4)m
|
Net debt excluding
leases
|
£(210.9)m
|
£(346.2)m
|
Net debt/EBITDA (covenant
basis)
|
0.8x
|
1.5x
|
David Lockwood, Chief Executive Officer,
said:
"We have made good strategic progress, delivering another
year of strong growth with cash flow ahead of expectations. Babcock
is well positioned to benefit from the sustained
uplift in global defence budgets,
driven by the need to recapitalise, re-equip and modernise
militaries, resulting in an increase in our opportunity
set.
We combine strong engineering know-how, high customer
intimacy and extensive operational asset knowledge together with
highly collaborative relationships and product development
capability. This differentiated proposition is increasingly
attractive to our customers. We look to the future with confidence
as we continue to progress towards our medium-term
targets."
Financial highlights
-
Contract
backlog £10.3 billion, up 9%,
driven by Nuclear and Marine
-
Revenue of £4,390.1 million
grew 11% on an organic basis, driven by strong growth in Nuclear
and Land
-
Statutory operating profit
increased to £241.6 million driven by improved performance across
the Group, a one-off £17 million profit on property disposal and
non-repeat of a £118 million loss on disposals in FY23. Within
operating profit is the £90 million loss on the Type 31 contract as
set out in our trading update on 17 July 2024
-
Underlying operating profit
increased 34% to £237.8 million, which includes the loss on Type 31
and profit on property disposal. Strong performance in Nuclear,
Land and Aviation
-
Underlying operating margin
improved 140 basis points to 5.4%, which includes (2.0)% from the
Type 31 loss and 0.4% from the profit on property
disposal
-
Underlying free
cash flow of £160 million was
significantly better than expected, with operational performance
and early customer receipts affording an accelerated £35 million
pension deficit repair contribution. Underlying operating cash
conversion was 136% (FY23: 173%); excluding Type 31 this was 98%
(FY23: 110%)
-
Net debt to EBITDA reduced
to 0.8x on a covenant basis. Net debt reduced by £129.0 million to
£435.4 million
-
Dividend
reinstated: recommended final
dividend of 3.3 pence per share, taking the total dividend for FY24
to 5.0 pence per share (FY23: nil)
Outlook
- Our
expectations for FY25 remain unchanged
- With
c.70% of FY25 expected revenue under contract at 1 April 2024, we
enter the year strongly positioned with good momentum and are
confident of making further progress against our medium-term
guidance: to deliver mid-single digit average annual revenue growth
and achieve underlying operating margins of at least 8% and
underlying operating cash conversion of at least 80%
Strategic highlights
-
Cooperation agreement with Saab to develop an advanced naval
corvette for Sweden with initial design contract award
-
Strategic agreement with HII to collaborate on nuclear-powered
submarine capabilities to support the AUKUS endeavour
- Babcock
General Logistics Vehicle (GLV) launched to target emerging UK and
international opportunities
- Type 31
programme restructured following detailed operational
review
- Babcock
Skills Academy launched in Devonport to develop submarine support
capabilities in our growing workforce
- Gained
validation of our net-zero targets from the Science based Targets
initiative (SBTi)
-
Long-term funding agreements reached with two of our three large
pension schemes
Operational highlights
Marine
- Type 31:
HMS Venturer (ship 1) superstructure almost complete, HMS Active
(ship 2) keel laid and HMS Formidable (ship 3) steel cut due in
FY25. Programme restructured following a detailed operational
review
- Three
Arrowhead 140 licences delivered for the MIECZNIK Class frigate for
the Polish Navy
- Awarded
contract by Saab to support design of the Swedish Navy's Luleå
Class Next Generation Surface Combatant
- Achieved
Operation Service Commencement of the Skynet Service Delivery Wrap
space communications contract
- Contract
awarded by Government of Ukraine to support two Mine Countermeasure
Vessels (MCMVs) purchased from the UK
Nuclear
-
Commenced deep maintenance on the second of the UK's Vanguard Class
nuclear submarines, HMS Victorious, under a c.£560 million
full cost recovery contract
- Awarded
contracts to develop the support solution for the UK's Dreadnought
and SSN-AUKUS submarine programmes
- X-energy
and Cavendish Nuclear selected for UK Government's Future Nuclear
Enabling Fund (FNEF)
- Nuclear
submarine Major Infrastructure Programme (MIP) revenue increased to
£459 million (FY23: £267 million).
-
Awarded c.£750 million infrastructure contract in
preparation for Astute Class deep
maintenance programme (DMP)
Land
-
DSG contract extension under negotiation
following notification by UK MOD of its intention to exercise up to
five option years
- Awarded
second Land contract to deliver ground and equipment support to the
French Navy, Army and Air Force
-
Signed a collaboration agreement with Singapore
Technology Engineering for manufacture of UK mortar
systems
- Contract
expansion to support UK-gifted platforms to Ukraine
- Won the
seven-year ARMCEN support contract for armoured vehicle technical
training for the British Army
Aviation
-
Completed delivery of the six H160 helicopters to the French Navy
as part of a 10-year contract with the French MOD
-
Delivered the first Elementary Flying Training (EFT) phase of the
Ukrainian Pilot Force programme to fly F-16 jets
-
Delivered unprecedented volume of firefighting operations in Canada
with >1,500 flight hours and >99% aircraft
availability
-
Exploring opportunities with Zero Petroleum for synthetic fuel to
minimise the environmental impact of military aircraft
- In May
2024, awarded 12-year contract with Airbus to support 48 French
Civil Security and police EC145 helicopters
See page 18 for segmental
analysis
Notes to statutory and underlying
results on page 1
1. Alternative Performance Measures
(APMs):
The Group provides APMs, including
underlying operating profit, underlying margin, underlying earnings
per share, underlying operating cash flow, underlying free cash
flow, net debt, net debt excluding leases and contract backlog to
enable users to have a more consistent view of the performance and
earnings trends of the Group. These measures are considered to
provide a consistent measure of business performance from year to
year. They are used by management to assess operating performance
and as a basis for forecasting and decision-making, as well as the
planning and allocation of capital resources. They are also
understood to be used by investors in analysing business
performance.
The Group's APMs are not defined
by IFRS and are therefore considered to be non-GAAP measures. The
measures may not be comparable to similar measures used by other
companies, and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group's APMs are
consistent with the year ended 31 March 2023. The Group has defined
and outlined the purpose of its APMs in the Financial Glossary on
page 31.
2. Revenue:
- FY24
included a revenue reversal of £66.3 million from the Type 31 loss.
Excluding this, FY24 revenue was £4,456.4 million
- FY23
included £421.6 million from disposals, a revenue reversal of £42.6
million from the Type 31 loss and a £11.6
million one-off credit (revenue and profit). Excluding these, FY23 revenue was £4,048.0 million
- See
table on page 19
3. Underlying operating
profit:
- FY24
underlying operating profit included a £90.0 million Type 31 loss
and a profit on property disposal of £17.0 million. Excluding
these, FY24 underlying operating profit was £310.8 million
- FY23
underlying operating profit included the £100.1 million Type 31
loss, a one-off accounting credit (£11.6 million as above), and
£1.1 million operating profit contribution from businesses divested
in the year. Excluding these, FY23 underlying operating profit was
£265.3 million
- See
table on page 19
4. Underlying operating
margin:
- Excluding the Type 31 loss and profit on property disposal,
FY24 underlying operating margin was 7.0%
- Excluding disposals, the Type 31 loss and the one-off credit,
FY23 underlying operating margin was 6.6%
- See
table on page 19
5. Net debt:
- See
a reconciliation of net debt on page 14 and in our financial
glossary on page 34
See page 18 for segmental analysis
and page 31 for financial glossary.
Results presentation:
A webcast presentation for
investors and analysts will be held on 26 July 2024 at 09:00
am (BST). The presentation will be webcast live
and will be available on demand at
www.babcockinternational.com/investors/results-and-presentations.
A transcript of the presentation and Q&A will also be made
available on our website.
For further
information:
Andrew Gollan, Director of
Investor Relations
|
+44 (0)7850 978 741
|
Kate Hill, Group Head of Financial
Communications
|
+44 (0)20 7355 5312
|
Harry Cameron/Olivia Peters,
Teneo
|
+44 (0)20 7353 4200
|
CEO
REVIEW
Introduction
FY24 was another year of improving
delivery and increasing momentum for Babcock, with growth in
underlying profit and cash flow performance ahead of our
expectations. Revenue grew organically1 by 11% to £4.4
billion and underlying operating profit1 improved 34% to
£238 million, which generated underlying operating cash
flow1 of £323 million, an underlying operating cash
conversion1 of 136%. On a statutory basis, we delivered
operating profit of £242 million and cash generated from operations
of £374 million. We ended the year strongly positioned for
future success, and remain confident of delivering sustainable
growth and improving margins in the medium term and
beyond.
Our contract backlog1
increased by 9% to £10.3 billion, reflecting demand for our
specialist capabilities in our core defence and security markets
and demonstrating our potential for continued growth. In addition,
we made good strategic progress, entering into a number of
important partnerships and cooperation agreements, including with
Saab in Sweden and Huntington Ingalls Industries (HII) in the US,
where we will leverage our complementary technical capabilities to
address opportunities emerging in both existing and new
markets.
Our balance sheet continues to
strengthen. Since we began our transformation during FY21, net
debt1 is down £1.2 billion to £435 million at the end of
FY24, and our aggregate pension deficit has reduced by more than
£500 million to c.£200 million on a technical provision
basis.
Reflecting this strengthened
financial base and improved outlook, in December 2023, S&P
Global upgraded our credit rating for the second time in 15 months
to BBB+ (stable). In November 2023, following a four-year hiatus,
the Board reinstated the dividend, and has recommended a final
dividend of 3.3 pence per share, taking the total dividend for FY24
to 5.0 pence per share (FY23: nil), in line with our capital
allocation priorities set out in FY23 to deliver shareholder
value.
Our global people strategy
continues to place our c.26,000 workforce at the heart of our
business, fostering inclusion and diversity and providing the
critical skills training, development, recruitment and retention
that will enable us to deliver our growth aspirations.
Strong underlying FY24 results
Revenue of £4,390 million was in
line with FY23, with strong organic revenue growth1 of
11%. The growth was delivered across Nuclear (+29%) and Land
(+17%), which offset an expected revenue decline in Aviation
(-17%).
The 34% increase in underlying
operating profit1 to £238 million (FY23: £178 million)
reflects strong performance across the Group, in particular
Nuclear, Aviation and Land, and a £17 million one-off profit on a
property disposal. Also within underlying operating profit is a £90
million loss on the Type 31 contract (FY23: £100 million loss),
as set out in our trading update 17 July
2024. As a result, underlying operating
margin improved 140 basis points to 5.4%.
Excluding the Type 31 impact and
material one-off credits, underlying operating profit1
increased 17% to £311 million, generating a margin of 7.0% (as
described on page 3). The FY23 baseline underlying operating profit
and underlying operating margin for our medium-term guidance was
£265 million and 6.6% respectively (see page 19).
Margin expansion remains a key
focus. At a sector level, Nuclear delivered a 180 basis points
improvement in underlying operating margin1 to 7.2%. Land also performed well,
delivering an underlying operating margin of 8.8% including the
one-off profit on property disposal. Aviation profitability
improved significantly, with a 360 basis points improvement to 5.6%
driven by pricing, contract timing and prior year disposals. Marine
underlying operating margin of 0.9% was impacted by the Type 31
loss, which more than offset the positive impact of licence income
on the Polish frigate programme.
Due to our strong underlying
operating cash performance, we made additional pension deficit
repair payments of £35 million as part of a long-term funding
agreement in one of our three major pension schemes. As a result,
this scheme has reached self-sufficiency and is not expected to
require further deficit repair contributions and we are in the
process of closure to future accruals. We also reached an agreement
with the Trustees on another of our major pension schemes regarding
a long-term funding plan and closure of the scheme to future
accrual, providing clarity to both the scheme and the Company. As a
result of these actions, we now expect the total Group pension
deficit repair payments to reduce to around £40 million per annum
(previously £65 million per annum).
Our aggregate pension deficit
position on a technical provision basis reduced to c.£200 million
(FY23: c.£400 million). We also reduced our net debt excluding
leases1 to £211 million. As a result of this and
improved profitability, net debt to EBITDA (covenant basis) reduced
to 0.8x (FY23: 1.5x).
Babcock is strongly positioned
with a wide opportunity set. As a result, we are confident that we
can deliver sustainable growth and improved margins and cash flow
over the medium term and beyond.
Type 31 programme
Signed in 2019, the Type 31
contract for five ships is the last material legacy onerous
contract the Group is managing. We have continued to make good
operational progress on the programme through the year, with the
superstructure of the first ship almost complete and work is also
progressing on the second ship. During the year we settled the
Dispute Resolution Process with the customer, which has enabled the
restructuring of the programme to drive efficiency.
However, overall estimated
programme costs have increased due to the maturing of the design
and an increase in the forecast cost of labour in Rosyth, which is
expected to be higher than CPI, the indexation within the Type 31
contract. These cost increases have caused the total contract
outturn to deteriorate by £90 million over the life of the
programme.
During the year, we initiated an
operational improvement programme to challenge all aspects of the
contract, facilitated by the fact that the design is now more
mature. Although this has increased the volume of work, the design
maturity has allowed us to target improvements in productivity and
ongoing support costs as well as benefitting prospective export
sales of our Arrowhead 140 design. As a result, we expect to
deliver additional programme benefits over the course of the
programme from improvements in productivity and further work
relating to the continuation of the Type 31 contract. We considered
the available evidence in respect of these benefits against the
evidential bar required to recognise them and decided not to take
them fully into account in the loss, although we do expect the
benefits to be delivered over the course of the
programme.
Strongly positioned
With 74% of Group revenue and 78%
total contract backlog1 in the Defence sector, our
portfolio is increasingly focused and well-placed to address rising
global security requirements. Rising geopolitical tensions are
driving the recent growth in defence budgets. However, the growth
in defence budgets is still not matched by the growth in military
demand, making Babcock's ability to affordably add increased value,
essential. Additionally, the threats that governments face are here
today, while typically new product development programmes take
years to deliver. Increasing availability and capability with
existing assets have become ever more important.
Our deep understanding of our
customers' needs, their assets and the regulatory environment in
which they operate is embedded in our workforce, creating high
barriers to entry. As a through-life
capability partner, we are able to not only support assets but
deliver capability and system upgrades and apply our own product
development capabilities to deliver a full lifecycle engineering
offering.
Sustainable growth
Current market dynamics, in
particular the growth in defence budgets driven by the need to
recapitalise, re-equip and modernise militaries, have resulted in
an increase in our opportunity set. This translated to a 9%
increase in our contract backlog in FY24 to £10.3 billion. This was
driven by further major contract awards and renewals, for example
in Nuclear, both major infrastructure and programme contracts
related to the UK's nuclear submarine enterprise, and in Marine,
extension of the Canadian submarine support contract. Our contract
backlog gives us significant visibility and a deep understanding of
customer requirements.
We have a clear strategy to
deliver sustainable growth across the Group by leveraging our
technical capability, developing our people and building strategic
partnerships.
UK growth
In UK defence, our largest market,
accounting for around 60% of Group revenue, we continue to optimise
our position as the second largest supplier to the UK MOD,
strengthening our relationships and targeting selective new
programmes.
Optimise our position
The major recapitalisation of our
Devonport facility, which plays a critical role in delivering the
UK's nuclear submarine support capability, continues at pace, in
preparation for the next 50+ years of nuclear submarine support. In
November 2023, we were awarded a c.£750 million infrastructure
contract to upgrade a key dry dock in readiness for the deep
maintenance programme for the Royal Navy's Astute Class submarines,
scheduled to commence in the coming years. This, together with more
Astute Class submarines entering the fleet and further
infrastructure programme contract awards, including ongoing
refurbishment of the dry dock for deep maintenance of Vanguard
Class nuclear deterrent submarines and the future Dreadnought Class
deterrent submarine, will underpin revenue growth in our defence
nuclear activities over the medium and long-term. Discussions are
also ongoing to establish a formal long-term partnership to help
improve submarine availability against a backdrop of increasing
operational requirements.
We continue to develop our
position as a leading provider in secure communications to the
military, having successfully begun the management and operation of
Skynet, the UK MOD's military communication system following a
12-month mobilisation process. This vital work is being delivered
with our partners SES, Intelsat and GovSat, global leaders in the
commercial and military satellite industry. We believe that the
successful implementation of this operationally critical service
will create opportunities for further growth.
Selective new programmes
We are also selectively targeting
new programmes in the UK, many of which will also position Babcock
for emerging international opportunities.
We continue to develop our Land
portfolio of product-based offerings which reflect our deep
understanding of customer requirements. Babcock's General Logistics
Vehicle (GLV), built around the proven Toyota Land Cruiser 70
series platform, was launched in September 2023 with an initial
focus on the upcoming UK MOD tender to replace the current British
Army Land Rover fleet. The GLV meets the requirements of military
and security forces across the world and we are pursuing a number
of export opportunities. In June 2024 we launched a medium
wheelbase variant and a six-wheel drive variant will follow in
FY25. We have also signed a collaboration
agreement with Singapore Technology Engineering for the manufacture
of its 120mm mortar system in the UK and we are tracking a number
of opportunities to supply and integrate this
capability.
In Devonport, we commenced initial
production of the Jackal 3 High Mobility Transporter vehicle at our
newly created facility within the Plymouth Freeport. The contract,
to deliver 70 vehicles for the British Army, is one of the first to
deliver on the UK's Land Industrial Strategy. Production is ramping
up and we see opportunity to provide further vehicles to the UK,
whilst also pursuing international opportunities in collaboration
with Supacat.
Our bid to become the Strategic
Training Partner for the Army Collective Training Service (ACTS),
together with our partners in Team Crucible, has progressed to the
Invitation to Tender stage. We are offering a digitally enabled and
data driven solution, building out the technological and commercial
infrastructure needed to support an ever-evolving collective
training system that can adapt as fast as the operating environment
evolves.
In naval nuclear, AUKUS represents
a significant opportunity, both in the UK and internationally. In
October 2023 we signed a five-year contract with the UK MOD to
provide input in the detailed design for the new Ship Submersible
Nuclear AUKUS (SSN-A) submarine, which will replace the Astute
Class and is planned to be the design on which the Australian Navy
builds its future fleet. Ensuring that future support is properly
considered at the design stage is expected to result in increased
availability throughout the life of the submarine.
International
growth
We see significant opportunity to
grow international revenues through expansion in our focus
countries, increased direct exports and the establishment of
strategic industrial partnerships.
Expansion in focus countries:
In France we continue to support
military fighter pilot training. As a result of the success of that
programme, the French Air Force has decided to outsource further
training support opportunities for the first time. We are currently
bidding for an initial training stage outsourcing opportunity,
MENTOR2, and are undergoing pre-qualification on the future
transport pilot training opportunity.
We are also looking at
opportunities to expand our operations in mainland Europe and are
actively bidding an opportunity to support fighter pilot training
for the Belgian Air Force from Babcock France. The French and
Belgian Air Forces have a long history of working closely together,
so our track record in France represents a compelling reference
case.
In Canada, we have signed a
Technical Cooperation Agreement with Hanwha Ocean and
HD Hyundai Heavy Industries to collaborate on the Canadian Patrol Submarine Project,
which will research procurement options for its next generation
submarines.
Direct exports
We celebrated a number of major
milestones in the MIECZNIK frigate programme in Poland, including
the keel-laying of the first ship in the programme. Following the
Strategic Cooperation Agreement signed in 2022, we were pleased to
finalise the design licence agreement which allows the PGZ-MIECZNIK
consortium to build three frigates for the Polish Navy. We also
entered into a framework agreement that will further strengthen our
partnership.
We continue to support Ukraine. In
July 2023, we were awarded a contract by the UK MOD to support
urgent operational requirements for Ukraine's military assets. The
contract sees Babcock provide operational support to armoured
vehicles provided by the UK to the Ukrainian military, such as
Challenger 2 tanks and the Combat Vehicle Reconnaissance (Tracked)
- known as CVRT, train Ukrainian personnel and manage vital
equipment, supply chains and spares. In May 2024, we announced work
was underway on an in-country facility to deliver engineering
support, including the repair and overhaul of military vehicles. In
partnership with UDI, Ukraine's state-owned defence industry,
Babcock will ensure that critical military assets are available
when and where they are needed most, enhancing the country's
defence capability.
Strategic partnerships
Our ability to form partnerships
with leading industry players is a key part of our growth strategy.
Working with a strong local partner represents the highest-value,
lowest-risk and fastest route to effective market entry.
We formed a number of significant
strategic partnerships in FY24. In July 2023, we entered into a
global strategic agreement with HII, America's largest shipbuilder,
to collaborate on naval and civil nuclear decommissioning and
construction opportunities in the UK and US, as well as for AUKUS.
The companies agreed to apply their complementary capabilities,
including in build and support, to existing nuclear decommissioning
contracts for US ships and UK submarines, and to look at
opportunities to work together to upskill and enhance both
organisations' capability for the benefit of the UK, US and future
Australian programmes. The memorandum of understanding (MoU) also
identified opportunities for cooperation in civil nuclear,
including power plant and component design, fabrication and
construction in North America and the UK. The launch of the H&B
Defence Joint Venture in Australia in June 2024 is the first
tangible outcome from that collaboration and offers Australia a
one-stop-shop for support of their emerging nuclear submarine
operational and support requirements.
In addition, Babcock, HII and
Bechtel signed an MoU to collaborate in Australia to support the
AUKUS nuclear submarine enterprise. Our complementary capabilities
represent an opportunity to play a key role in development of the
specialist infrastructure needed for the planned fleet of up to
eight Virginia Class and SSN-AUKUS nuclear-powered
submarines.
In September 2023, we signed a
Strategic Cooperation Agreement with Saab to enable the delivery of
enhanced capabilities to customers by leveraging our collective
strengths to offer a broad range of products, services and
integrated solutions. Subsequently, in May 2024 Babcock was
selected by Saab to support the development of the Swedish Navy's
new Luleå-class Surface Combatant. Babcock will initially provide
engineering support, including structural design and auxiliary
systems, supporting Saab to complete the basic design phase. The
two companies will also work together to identify potential export
markets for the Luleå design.
In November, we signed an MoU with
South Korea's Hanwha Aerospace to offer enhanced capabilities
across land, air and sea domains. Under the agreement we will work
together to pursue global opportunities, with an initial focus on
conventional submarines.
Improving margins and cash flow
We are making good progress
towards delivering our medium-term guidance set out in FY23 of
average annual revenue growth in the mid-single digits, an
underlying operating margin1 of at least 8% and
underlying operating cash conversion1 of at least 80%.
We will achieve this through further progress in execution and
delivery, improved systems and overhead rationalisation, supported
by the improvements we have made to internal governance. Our
systematic approach to programme risk
management through the coordination of our
technical capability, commercial processes and contract governance
is driving contract discipline and an improving mix of
higher-margin new business.
Our focus on improving programme
execution and efficiency is evidenced in the 10-year DSG contract
to support the British Army land vehicles fleet. Following a major
overhaul of operations in recent years, delivery has significantly
improved, resulting in a de-risking of the final two years of
delivery of the base contract which will complete in FY25. As a
result, profitability improved sufficiently in FY24 to elevate the
contract out of the category of legacy low to zero margin
programmes. Following notification by our UK MOD customer of its
intention to exercise up to five option years for DSG from FY26, we
have commenced a period of negotiation and transition as we move
towards contract signature. The revised model will result in better
outcomes for all stakeholders throughout the rest of the
decade.
In FY24, we returned HMS Vanguard
to the Royal Navy after the most complex nuclear submarine deep
maintenance programme (DMP) and life-extension (LIFEX) ever
undertaken in the UK, representing a significant de-risking of our
nuclear business. DMP and LIFEX of the second of the class, HMS
Victorious, is underway following an
agreed full cost recovery contract in March 2024 worth an estimated
£560 million, with the Submarine Delivery Agency
(SDA). The new commercial framework for
the delivery of this programme represents a truly collaborative
effort with the SDA to support an essential part of the UK's
defences.
Our focus on operational cash
efficiency has delivered overperformance in cash generation over
the last two years, with average underlying operating cash
conversion of over 100%, despite ongoing investment catch up in
systems and assets. There remains some risk of reversal of the
contract timing factors such as early customer receipts that drove
strong cash outperformance in FY24 and FY23, leading to an expected
second half cash flow weighting in FY25.
Trading in the first quarter of FY25
Trading in the first quarter ended
30 June 2024 was in line with expectations.
Outlook
Our expectations for FY25 remain
unchanged. With c.70% of FY25 expected revenue under contract at 1
April 2024, we enter the year strongly positioned with good
momentum and are confident of making further progress against our
medium-term guidance: to deliver mid-single digit average annual
revenue growth and achieve underlying operating margins of at least
8% and underlying operating cash conversion of at least
80%.
David Lockwood OBE
Chief Executive
OTHER INFORMATION
Dividend
A dividend of 3.3 pence per
ordinary share (FY23: nil) is payable on Monday 30 September 2024
to shareholders whose names appear on the register at the close of
business on Friday 23 August 2024. Shareholders may participate in
the dividend re-investment plan and elections must be made by
Monday 9 September 2024. Details of the
dividend re-investment plan can be found, and shareholders can make
elections, at www.babcock-shares.com.
Change of Auditor
Following completion of a tender
process, the Audit Committee has recommended to the Board that,
subject to shareholder approval at the 2024 AGM on 19 September,
Forvis Mazars should be appointed as the Company's auditor for
FY25.
Board changes
As we look to shape and deliver
our growth strategy, we were delighted to welcome Sir Kevin Smith
and Claudia Natanson to the Board this year. Sir Kevin is an
experienced industrialist who spent his career in the defence
sector, culminating in being the CEO of GKN for eight years.
Claudia brings over 20 years of experience working in the security,
IT and cyber sector for companies such as Diageo, Smiths Group and
AccuWeather.
Notes to CEO
Statement
1. A
defined Alternative Performance Measure (APM) as set out on page 3
and in the Financial Glossary on page 31.
FINANCIAL REVIEW
The Group provides APMs, including underlying operating
profit, underlying margin, underlying earnings per share,
underlying operating cash flow, underlying free cash flow, net debt
and net debt excluding leases to enable users to have a more
consistent view of the performance and earnings trends of the
Group. These measures are considered to provide a consistent
measure of business performance from year to year. They are used by
management to assess operating performance and as a basis for
forecasting and decision-making, as well as the planning and
allocation of capital resources. They are also understood to be
used by investors in analysing business
performance.
The Group's APMs are not defined by IFRS and are therefore
considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies, and they
are not intended to be a substitute for, or superior to, measures
defined under IFRS. The Group's APMs are consistent with the year
ended 31 March 2023. The Group has defined and outlined the purpose
of its APMs in the Financial Glossary on page 31.
The reconciliation from the IFRS statutory income statement
to the underlying income statement is shown
below.
Income statement
|
31
March 2024
|
31
March 2023
|
Underlying
£m
|
Specific
adjusting items
£m
|
Statutory
£m
|
Underlying
£m
|
Specific
adjusting items
£m
|
Statutory
£m
|
Revenue
|
4,390.1
|
-
|
4,390.1
|
4,438.6
|
-
|
4,438.6
|
Operating profit
|
237.8
|
3.8
|
241.6
|
177.9
|
(132.4)
|
45.5
|
Operating margin
|
5.4%
|
|
5.5%
|
4.0%
|
|
1.0%
|
Share of results of joint ventures
and associates
|
9.2
|
-
|
9.2
|
9.3
|
-
|
9.3
|
Net finance costs
|
(35.9)
|
1.8
|
(34.1)
|
(58.3)
|
9.7
|
(48.6)
|
Profit before tax
|
211.1
|
5.6
|
216.7
|
128.9
|
(122.7)
|
6.2
|
Income tax
(expense)/benefit
|
(53.5)
|
5.0
|
(48.5)
|
(37.7)
|
(1.8)
|
(39.5)
|
Profit/(loss) after tax
|
157.6
|
10.6
|
168.2
|
91.2
|
(124.5)
|
(33.3)
|
Non-controlling
interest
|
(2.5)
|
-
|
(2.5)
|
(1.7)
|
-
|
(1.7)
|
Profit/(loss) attributable to the
owners of the parent
|
155.1
|
10.6
|
165.7
|
89.5
|
(124.5)
|
(35.0)
|
|
|
|
|
|
|
|
Basic EPS
|
30.8p
|
|
32.9p
|
17.7p
|
|
(6.9)p
|
Diluted EPS
|
30.1p
|
|
32.2p
|
17.4p
|
|
(6.9)p
|
A full statutory income statement
can be found on page 40.
As described on page 3, statutory
operating profit includes specific adjusting items (SAIs) that are
not included in underlying operating profit, which is a key APM for
the Group. A reconciliation of statutory operating profit to
underlying operating profit is shown in the table below and in
note 2 of the preliminary financial
statements.
Revenue of
£4,390.1 million
was similar to FY23 with 11% organic growth offset by a (9)% impact
of disposals and a (2)% currency translation headwind. The European
AES and Civil Training businesses, both sold in February 2023,
contributed
£421.6 million to FY23 revenue. The organic increase was driven by
strong growth in Nuclear and Land, while
Marine was in line with the prior year and Aviation decreased as
expected, due to the phasing of French military contracts. By
sector:
-
Marine revenue of £1,429.1
million, was similar to the prior year, with growth led by major
ship and submarine programmes including the Polish MIECZNIK frigate
programme and Dreadnought, offset by lower volumes in LGE and ship
support.
-
Nuclear revenue increased 29%
to £1,520.9 million. Growth was driven by Major Infrastructure
Programme (MIP) revenue, submarine support and new defence
contracts in our civil nuclear business.
-
Land revenue increased 8% to
£1,098.6 million, or 17% on an organic basis. Growth
was from a broad range of military activities in
both UK and international markets, including the first full year of
the Defence High Frequency Communications contract in Australia and
higher vehicle volumes in defence vehicle engineering as well as in
our South Africa business.
-
Aviation revenue declined 57%
to £341.5 million primarily due to the disposal of the European AES
business in FY23. Organic revenue declined by 17% due to
the expected change in revenue profile of our
French defence contracts between aircraft delivery and service
phases.
Underlying operating profit increased by 34% to £237.8 million driven by improved
performance across the Group and a one-off £17.0 million profit on
property disposal, partly offset by a 4% currency translation
impact. Also within underlying operating profit is a £90.0 million
loss on the Type 31 contract (FY23: £100.1 million loss). By
sector:
- Marine
underlying operating profit was in line with
FY23, with improvement driven by three licence sales on the Polish
Arrowhead 140 programme and a £10.1 million lower loss on Type 31,
offset by lower volume in LGE and lower profitability in Mission
Systems, primarily due to contract timing. Excluding the impact of
the Type 31 loss, Marine underlying operating profit declined (9%)
to £103.1 million.
- Nuclear
underlying operating profit grew to £109.2
million, a 72% organic increase, driven by revenue growth and
non-repeat of a £16 million contract loss in FY23 (this contract
has now finished).
- Land
underlying operating profit grew to £96.3
million, a 12% increase including a one off £17 million profit on
property disposal. FY23 underlying operating profit of £85.9
million included a one-off accounting credit of £11.6
million.
- Aviation
underlying operating profit grew to £19.2
million, a 22% increase reflecting improved pricing, contract
timing and lower bid costs.
See segmental analysis tables on
page 18.
Type 31 programme
The Type 31 programme represents
around 5% of the Group's revenue. Over the year, overall costs have
increased due to the maturing of the design and the increase in the
cost of labour in the market available in Rosyth, which is forecast
to be higher than CPI, the indexation within the Type 31
contract. As a result, the outturn over the lifetime of the
contract has deteriorated by £90 million, which has been fully
recognised in FY24. The cash impact of this loss is expected to be
realised over the remainder of the contract.
During the year, we initiated an
operational improvement programme to challenge all aspects of the
contract, including a significant focus on cost drivers and
financial modelling, supported by external consultants. The Audit
Committee has reviewed the programme team's plans to deliver
additional programme benefits from improvements in productivity and
further work relating to the continuation of the Type 31
contract. We considered the available
evidence in respect of these benefits against the evidential bar
required to recognise them, and decided not to take them fully into
account in the loss, although we do expect the benefits to be
delivered over the course of the programme.
Statutory operating profit of
£241.6 million increased from £45.5 million in FY23, driven by
improved performance across the Group, a one-off £17.0 million
profit on disposal and non-repeat of a £117.7 million loss on
disposals in FY23, mainly associated with the divestment of the
European AES business in February 2023.
Reconciliation of statutory to
underlying operating profit
|
31 March
2024
£m
|
31 March
2023
£m
|
|
Operating profit
|
241.6
|
45.5
|
Amortisation of acquired
intangibles
|
10.8
|
15.8
|
Business acquisition, merger and
divestment related items
|
(8.2)
|
117.7
|
Fair value movement on
derivatives
|
(6.4)
|
(1.1)
|
Specific adjusting items impacting
operating profit
|
(3.8)
|
132.4
|
Underlying operating
profit
|
237.8
|
177.9
|
Underlying operating margin of 5.4% (FY23: 4.0%), which includes
(2.0)% from the Type 31 loss and 0.4% from the profit on property
disposal. The increase in the year was
driven by improved operating performance and a lower Type 31
charge. Excluding the impact of the Type 31 loss and the
profit on property disposal, the underlying operating margin was
7.0% (FY23: 6.6%) (see page 19).
Statutory operating margin of
5.5% reflects the same drivers as underlying operating margin. The
FY23 statutory operating margin of 1.0% was also impacted by a
£117.7 million loss on disposals, mainly
associated with the divestment of the European AES business in
February 2023.
Further analysis of financial
performance is included in each sector's operational reviews on
page 20 to 30.
Share of joint ventures and
associates: The Group's share of
results of joint ventures and associates of £9.2 million was
similar to FY23, reflecting improved trading in the core Ascent
Training (Holdings) Limited and AirTanker Services Limited joint
ventures, offset by a £1.1 million write down in Oman.
Underlying net finance costs decreased to £35.9 million (FY23: £58.3 million).
Reduced interest costs were driven by a
combination of lower debt balances, reduced finance costs following
termination of the £300 million RCF in October 2023 and higher
interest rates applied to surplus cash balances. In addition,
underlying lease interest decreased to £9.8 million (FY23:
£16.1 million) following the sale of our European AES business in
the prior year and net finance costs associated with defence
contract receivables in France reduced to £4.4 million (FY23: £12
million). IAS19 retirement benefit interest represents a charge of
£0.8 million (FY23: credit of £7.5 million).
Statutory net finance costs decreased to £34.1 million (FY23: £48.6 million). In addition
to the £22.4 million improvement in underlying net finance costs,
there was a £7.9 million reduction in the credit related to the
fair value movement on derivative and related items to £1.8 million
(FY23: £9.7 million).
Underlying income tax expense: Group underlying income tax expense increased to £53.5
million (FY23: £37.7 million) reflecting higher underlying pre-tax
profit and a higher UK corporation tax rate in the year. This
represents an effective underlying tax rate of 27% (FY23: 32%), or
26% excluding the impact of the Type 31 loss (FY23: 26%),
calculated on underlying profit before tax excluding the share of
income from joint ventures and associates (which is a post-tax
number). The Group's effective underlying tax rate is expected to
remain broadly stable over the medium term depending on country
profit mix.
Statutory income tax expense:
The Group income tax expense was £48.5 million (FY23: £39.5
million), lower than the underlying income tax expense due to the
tax impact of the specific adjusting items outlined above and in
note 2 of the preliminary financial statements.
Underlying basic earnings per share
of 30.8 pence (FY23: 17.7 pence) represents an
increase of 74%, driven by higher underlying operating profit for
the year. The impact on earnings per share
of the £17.0 million profit on disposal and the Type 31 loss was
3.3 pence and (13.4) pence respectively.
Basic earnings per share, on
a statutory basis, increased to 32.9 pence (FY23: 6.9 pence loss)
reflecting improved profit for the year. The FY23 loss per share
was due to lower underlying profit for the year, including the
£100.1 million loss on the Type 31 contract, and a loss after tax
of £124.5 million from specific adjusting items, mainly associated
with the loss on disposal of the European AES business.
Dividend: A final dividend of
3.3 pence per ordinary share (FY23: nil) is payable on
Monday 30 September 2024
to shareholders whose names appear on the register at the close of
business on Friday 23 August
2024. Shareholders may participate in the
dividend re-investment plan and elections must be made by
Monday 9 September 2024.
Details of the dividend re-investment plan can be found, and
shareholders can make elections, at www.babcock-shares.com.
Reconciliation of statutory
profit/(loss) and basic EPS to underlying profit and basic
EPS
|
31
March 2024
|
31
March 2023
|
|
£m
|
Basic
EPS
|
£m
|
Basic
EPS
|
Profit/(loss) after tax for the
year
|
168.2
|
32.9p
|
(33.3)
|
(6.9)p
|
Specific adjusting items, net of
tax
|
(10.6)
|
(2.1)p
|
124.5
|
24.6p
|
Underlying profit after tax for
the year
|
157.6
|
30.8p
|
91.2
|
17.7p
|
Exchange rates
The translation impact of foreign
currency movements resulted in a decrease in revenue of
£76 million and a
decrease in underlying operating profit of £8 million. The main currencies that
have impacted our results are the Canadian Dollar, South African
Rand, Euro and Australian Dollar. The currencies with the greatest
potential to impact results are the South African Rand and the
Australian and Canadian Dollar:
· A
10% movement in the South African Rand against Sterling would
affect revenue by around £33 million and
underlying operating profit by around £3 million per annum
· A
10% movement in the Australian Dollar against Sterling would affect
revenue by around £30 million and
underlying operating profit by around £2 million per annum
· A
10% movement in the Canadian Dollar against Sterling would affect
revenue by around £16 million and
underlying operating profit by around £1 million per annum
Cash flow and net debt
Underlying cash flow and net
debt
Underlying cash flows are used by
the Group to measure operating performance as they provide a more
consistent measure of business performance from year to
year.
|
31 March
2024
|
31 March
2023
|
|
£m
|
£m
|
Statutory operating
profit
|
241.6
|
45.5
|
Add back: specific adjusting items
(see table on page 10)
|
(3.8)
|
132.4
|
Underlying operating
profit
|
237.8
|
177.9
|
Right of use asset
depreciation
|
39.8
|
91.3
|
Other depreciation &
amortisation
|
67.3
|
84.9
|
Non-cash items
|
(8.7)
|
6.9
|
Working capital
movements
|
127.5
|
103.5
|
Provisions
|
20.4
|
37.2
|
Net capital expenditure
|
(111.8)
|
(86.2)
|
Lease principal
payments
|
(49.6)
|
(108.5)
|
Underlying operating cash
flow
|
322.7
|
307.0
|
Underlying operating cash conversion (%)
|
136%
|
173%
|
Pension contributions in excess of
income statement
|
(107.6)
|
(141.9)
|
Interest paid (net)
|
(32.2)
|
(62.2)
|
Tax paid
|
(27.4)
|
(25.4)
|
Dividends from joint ventures and
associates
|
7.1
|
8.7
|
Cash flows related to specific
adjusting items
|
(2.2)
|
(10.9)
|
Underlying free cash
flow
|
160.4
|
75.3
|
Net acquisitions and disposals of
subsidiaries
|
(1.3)
|
158.6
|
Dividends paid (including
non-controlling interests)
|
(10.3)
|
(2.2)
|
Purchase of own shares
|
(12.5)
|
-
|
Lease principal
payments
|
49.6
|
108.5
|
Net new lease
arrangements
|
(54.8)
|
(115.1)
|
Leases disposed of/(acquired) with
subsidiaries
|
-
|
218.1
|
Other non-cash debt
movements
|
(3.2)
|
(1.8)
|
Clarification of net debt
definition
|
-
|
(36.1)
|
Fair value movement in debt and
related derivatives
|
0.5
|
56.0
|
Exchange movements
|
0.6
|
(57.0)
|
Movement in net debt
|
129.0
|
404.3
|
Opening net debt
|
(564.4)
|
(968.7)
|
Closing net debt
|
(435.4)
|
(564.4)
|
Add back: leases
|
224.5
|
218.2
|
Closing net debt excluding
leases
|
(210.9)
|
(346.2)
|
A full statutory cash flow
statement can be found on page 43 and a reconciliation to net debt
on page 66.
Underlying operating cash flow increased to £322.7 million (FY23: £307.0 million). The
conversion ratio to underlying operating profit of 136% (FY23:
173%) reflects reduced working capital and the impact of the Type
31 long-term contract accounting loss on underlying operating
profit. Operating cash conversion was higher in FY23 primarily
reflecting lower net capital expenditure and a higher Type 31 loss.
Excluding the Type 31 impact on operating profit, underlying
operating cash conversion was 98% (FY23: 110%).
- Working
capital: An inflow of
£127.5 million, compared
to an inflow of £103.5 million last year,
reflects our continued focus on cash flow as a performance measure
coupled with earlier than anticipated customer receipts, as well as
the impact of the Type 31 loss. There is some risk that favourable
timing factors on cash receipts could reverse in the short term
depending on the flow of new orders and contract
phasing.
- Net capital
expenditure of
£111.8 million increased
£25.6 million, driven by a combination of continued investment
across the Group to support programme delivery and drive
operational performance, and lower proceeds from asset
disposals.
-
Gross capex increased to £142.4 million (FY23: £125.1 million)
driven by further investment in Devonport to
support future growth and ongoing upgrades to systems and controls
across the Group, including the roll-out of SAP. We expect FY25
gross capital expenditure to be in the range of
£120 million to £150 million.
-
Proceeds from asset disposals reduced £8.3
million to £30.6 million despite a £20.1 million inflow on a
property sale in Land in the year, primarily due to lower aircraft
sales in our Aviation business.
- Lease principal
payments, representing the capital
element of payments on lease obligations, reduced to
£49.6 million (FY23:
£108.5 million) following the sale of the European AES business in
FY23. This is reversed out below underlying free cash flow as the
payment reduces our lease liability (ie no effect on net
debt).
Underlying free cash flow of
£160.4 million compares to £75.3 million in the prior year,
reflecting higher underlying operating cash flow, lower pension
contributions and lower net interest payments.
- Pension: A cash outflow in excess of the income statement charge of
£107.6 million (FY23:
£141.9 million) was higher than expected due to acceleration of £35
million of contributions as part of a long-term funding deal agreed
with Babcock International Group Pension Fund (BIGPF). The higher
outflow in FY23, which also included a £35 million accelerated
pension payment, reflects the decreasing contribution profile as
deficits reduce. As a result of the agreed funding deals (see page
17), we expect future annual pension deficit payments to reduce
from around £65 million to around
£40 million.
- Interest: Net interest paid, excluding that paid by JVs and
associates, decreased to £32.2
million (FY23: £62.2 million) due to lower net
debt and higher interest earned on surplus cash, lower interest on
leases and a reduced finance charge associated with the financing
of long-term French defence contract receivables.
- Taxation: Tax paid in the year was £27.4
million (FY23: £25.4 million). We expect cash tax
paid in FY25 to be approximately £35 million.
- Dividends
received from joint ventures and associates
decreased to £7.1
million (FY23: £8.7 million). We expect dividends
from JVs and associates to be slightly higher in
FY25.
- Cash flows
related to specific adjusting
items: The £2.2 million cash
flows relate mainly to the final costs of disposals provided for as
a specific adjusting item in the prior year.
Acquisitions and
disposals
A £1.3 million outflow was due to
final settlement of certain items in relation to the disposal of
businesses in the prior year. An inflow of £158.6 million in FY23
represents net proceeds from the disposal of the European AES
business and the sale of the civil training business, net of
costs.
New lease arrangements
In addition to net capital
expenditure, and not included in underlying free cash flow, £55.2
million (FY23: £117.0 million) of additional lease liabilities were
entered into in the period, significantly lower than FY23 following
the sale of the European AES business in February 2023. These
represent new lease obligations and so are included in net debt but
do not involve any cash outflows at inception.
Reconciliation of underlying
operating cash flow to statutory net cash flows from operating
activities
|
31 March
2024
£m
|
31 March
2023
£m
|
|
Underlying operating cash
flow
|
322.7
|
307.0
|
Add: net capital
expenditure
|
111.8
|
86.2
|
Add: lease principal
payments
|
49.6
|
108.5
|
Less: pension contributions in
excess of income statement
|
(107.6)
|
(141.9)
|
Cash flows related to specific
adjusting items
|
(2.2)
|
(10.9)
|
Cash generated from
operations
|
374.3
|
348.9
|
Tax paid
|
(27.4)
|
(25.4)
|
Net interest paid
|
(32.2)
|
(62.2)
|
Net cash flows from operating
activities
|
314.7
|
261.3
|
Statutory cash flow
summary
|
31 March
2024
£m
|
31 March
2023
£m
|
|
Net cash flow from operating
activities
|
314.7
|
261.3
|
Net cash flow from investing
activities
|
(100.6)
|
83.5
|
Net cash flow from financing
activities
|
(85.5)
|
(666.1)
|
Net increase/(decrease) in cash,
cash equivalents and bank overdrafts
|
128.6
|
(321.3)
|
Net cash flow from operating activities
was £314.7 million, an increase of £53.4 million.
The main drivers were higher Group operating profit, lower net
interest and pension deficit payments.
Net cash flow from investing activities
was an outflow of £100.6 million (FY23: inflow of
£83.5 million), reflecting continued capital investment across the
Group and lower proceeds from asset disposals. On a gross basis,
capital expenditure increased to £142.4 million (FY23: £125.1
million). The FY23 inflow included £158.6 million of proceeds from
disposals, primarily from the sale of the European AES
business.
Net cash flow from financing activities
was an outflow of £85.5 million (FY23: outflow of
£666.1 million), including
£49.6 million lease payments (FY23: £108.5 million), £12.5 million
purchase of own shares (FY23: £nil) and £13.1 million repayment of
debt (FY23: £556.2 million net repayment, primarily repayment of
the €550 million Eurobond in October 2022).
Movement in net debt -
reconciliation of statutory cash flows to net debt
|
31 March
2024
£m
|
31 March
2023
£m
|
|
Net increase/(decrease) in cash,
cash equivalents and bank overdrafts
|
128.6
|
(321.3)
|
Cash flow from the
(increase)/decrease in debt
|
25.3
|
629.6
|
Change in net funds resulting from
cash flows
|
153.9
|
308.3
|
Additional lease
obligations
|
(55.2)
|
(117.0)
|
New lease receivables
granted
|
32.4
|
28.5
|
Debt held by disposed
subsidiaries
|
-
|
219.7
|
Other non-cash movements and
changes in fair value
|
(2.7)
|
57.9
|
Clarification of net debt
definition
|
-
|
(36.1)
|
Foreign currency translation
differences
|
0.6
|
(57.0)
|
Movement in net debt in the
year
|
129.0
|
404.3
|
Opening net debt
|
(564.4)
|
(968.7)
|
Closing net debt
|
(435.4)
|
(564.4)
|
Net debt
Net debt at 31 March 2024 was
£435.4 million, a reduction of £129.0 million driven primarily by
underlying free cash flow, offset by payment of the interim
dividend reinstated in November 2023 and £12.5 million to purchase
own shares for Babcock share schemes. Net debt excluding leases was
£210.9 million, representing a reduction of £135.3 million compared
to the beginning of the year.
Balance sheet
|
31 March
2024 £m
|
31 March
2023
£m
|
Intangible assets
|
928.9
|
922.2
|
Property, plant and equipment and
right of use assets
|
692.7
|
637.6
|
Investment in joint ventures and
associates
|
59.7
|
57.4
|
Working capital
|
(691.4)
|
(565.8)
|
Provisions
|
(158.2)
|
(148.7)
|
Net retirement benefit
deficits
|
(109.7)
|
(61.4)
|
Net tax assets
|
119.9
|
97.1
|
Net other financial assets and
liabilities
|
(0.4)
|
(3.1)
|
Leases
|
(224.5)
|
(218.2)
|
Net debt excluding
leases
|
(210.9)
|
(346.2)
|
Net assets
|
406.1
|
370.9
|
Property, plant and equipment (PP&E) and right of use
assets was £693 million, an
increase of £55 million. PP&E increased by £39 million to
£517 million reflecting net capital expenditure of £(93) million
less depreciation and currency adjustments. Right of use assets
increased £17 million to £176 million reflecting net new leases of
£59 million less depreciation and currency adjustments.
Working capital was £(691)
million, a decrease of £126 million. Net contract liabilities
increased £131 million, driven by earlier than
anticipated customer receipts, as well as the impact of the Type 31
loss.
Net retirement benefit deficits were £(110) million, an increase of £48 million. The fair
value of plan assets of £3,084 million decreased £104 million,
driven by negative asset returns less contributions. The present
value of pension benefit obligations of £3,194 million decreased
£55 million driven by modest changes in
actuarial financial and demographic assumptions.
Funding and liquidity
As of 31 March 2024, the Group had
access to a total of £1.6 billion of
borrowings and facilities. These comprised:
· £775
million RCF, with £45 million maturing on 28 August 2025 and £730
million extended to 28 August 2026
· £300
million bond maturing on 5 October 2026
· €550
million bond, hedged at £493 million, maturing on 13 September
2027
· Two
committed overdraft facilities totalling £100 million
At 31 March 2024, the Group's net
cash (cash and cash equivalents less overdrafts) balance was
£553 million.
This, combined with the undrawn amounts under our committed RCFs
and overdraft facilities, gave us liquidity headroom of around £1.4
billion.
Net debt to EBITDA (covenant
basis)
While there are several facets to
balance sheet strength, a primary measurement relevant to Babcock
is the net debt/EBITDA gearing ratio within our debt covenant of
3.5x. This measure is used in the covenant in our RCF facility and
includes several adjustments from reported net debt and EBITDA. The
net debt/EBITDA gearing ratio (covenant basis) at 31 March 2024
reduced to 0.8x (FY23: 1.5x) due to strong
underlying free cash flow and higher underlying operating
profit.
|
31 March
2024
£m
|
31 March
2023
£m
|
Underlying operating
profit
|
237.8
|
177.9
|
Depreciation and
amortisation
|
67.3
|
84.9
|
Covenant
adjustments1
|
(6.3)
|
(8.4)
|
EBITDA
|
298.8
|
254.4
|
JV and associate
dividends
|
7.1
|
8.7
|
EBITDA + JV and associate
dividends (covenant basis)
|
305.9
|
263.1
|
Net debt excluding lease
liabilities
|
(210.9)
|
(346.2)
|
Covenant
adjustments2
|
(41.8)
|
(49.3)
|
Net debt (covenant
basis)
|
(252.7)
|
(395.5)
|
Net debt/EBITDA
|
0.8x
|
1.5x
|
1Various
adjustments made to EBITDA to reflect accounting standards at the
time of inception of the original RCF agreement. The main
adjustments are to the treatment of leases within operating profit
and pension costs.
2Removing
loans to JVs, finance lease receivables and non-recourse
debt.
Interest cover (covenant
basis)
This measure is also used in the
covenant in our RCF facility, with a covenant level of
4.0x.
|
31 March
2024
£m
|
31 March
2023
£m
|
EBITDA + JV and associate
dividends (covenant basis)
|
305.9
|
263.1
|
Net finance costs
|
(34.1)
|
(48.6)
|
Covenant
adjustments1
|
9.6
|
7.1
|
Net finance costs (covenant
basis)
|
(24.5)
|
(41.5)
|
Interest cover
|
12.5x
|
6.3x
|
1Various
adjustments made to reflect accounting standards at the time of
inception of the original RCF agreement, including lease and
retirement benefit interest.
Return on invested capital,
pre-tax (ROIC)
This measure is one of the Group's
key performance indicators.
|
|
31 March
2024
£m
|
31 March
2023
£m
|
Underlying operating
profit
|
|
237.8
|
177.9
|
Share of results of joint ventures
and associates
|
|
9.2
|
9.3
|
Underlying operating profit plus
results of JVs and associates
|
|
247.0
|
187.2
|
Net debt excluding
leases
|
|
210.9
|
346.2
|
Leases - note 10, 15
|
|
224.5
|
218.2
|
Shareholder funds - see balance
sheet on page 42
|
|
406.1
|
370.9
|
Retirement deficit/(surplus) -
note 17
|
|
109.7
|
61.4
|
Invested capital
|
|
951.2
|
996.7
|
ROIC
|
|
26.0%
|
18.8%
|
Pensions
The Group has a number of defined
benefit pension schemes. The principal defined benefit pension
schemes in the UK are the Devonport Royal Dockyard Pension Scheme
(DRDPS), the Babcock International Group Pension Scheme (BIGPS) and
the Rosyth Royal Dockyard Pension Scheme (RRDPS) - the principal
schemes.
IAS 19
At 31 March 2024, the IAS 19
valuation for accounting purposes was a net deficit of £109.7
million (FY23: a net deficit of £61.4 million). The increase
in net accounting deficit is a result of a greater reduction in the
fair value of plan assets (by £103.7 million to £3,084.3
million, net of £250.8 million longevity swaps) than the reduction
in present value of pension benefit obligations (by £55.4 million
to £3,194.0 million). The reduction in fair value of plan assets
was driven by negative net asset returns,
partly offset by scheme contributions. The reduction in pension
benefit obligations was mainly a result of modest changes in
actuarial financial and demographic assumptions.
The fair value of the assets and liabilities of
the Group pension schemes at 31 March 2024 and the key assumptions
used in the IAS 19 valuation of our schemes are set out in note 17
of the preliminary financial statements.
|
31 March
2024
£m
|
31 March
2023
£m
|
Fair value of plan assets (note
17)
|
3,084.3
|
3,188.0
|
Present value of benefit
obligations (note 17)
|
(3,194.0)
|
(3,249.4)
|
Net (deficit) at 31 March
|
(109.7)
|
(61.4)
|
Income statement charge
The charge included within
underlying operating profit in FY24 was £23.9 million (FY23: £32.6
million), of which £15.4 million (FY23: £25.8 million) related to
service costs and £8.5 million (FY23: £6.8 million) related to
expenses. In addition to this, there was an interest charge of £0.8
million (FY23: credit of £7.5 million).
Technical provision
An estimate of the aggregate
actuarial deficits of the Group's defined benefit pension schemes,
including all longevity swap funding gaps, calculated using each
scheme's technical provision basis, as at FY24 was approximately
£200 million (FY23: c.£400 million). Such valuations use discount
rates based on UK gilts - which differs from the corporate bond
approach of IAS 19. This technical provision estimate reflects the
discussions and agreements on assumptions with the Trustee of the
Babcock Rail Section of the Railways Pension Scheme with respect to
the actuarial valuation as at 31 December 2022, and for the other
schemes uses assumptions within the latest agreed valuation prior
to 31 March 2024.
Actuarial valuations are carried
out every three years to determine the Group's cash contributions
to the schemes. The valuation dates of the three largest schemes
are set so that only one scheme is undertaking its valuation in any
one year, to spread the financial impact of market conditions. The
valuation of the BIGPS as at 31 March 2022 was completed in the
last financial year, the valuation of the DRDPS as at 31 March 2023
has been agreed, and work has commenced on the valuation of the
RRDPS at 31 March 2024.
There has been significant
progress in reducing the risk of pension scheme deficits during the
year. We made additional pension deficit repair payments of £35
million. The BIGPS has around £985 million of pension liabilities
(less than 30% of the total Group pension liabilities) on a
technical provision basis. The scheme has now reached
self-sufficiency and is not expected to require further deficit
repair contributions from the company ahead of reaching either
buy-in or buy-out, expected by FY29. The Scheme is also in the
process of closing to future service accruals.
In addition, the Company has now
reached agreement with the Trustees of the DRDPS regarding a
long-term funding plan and closure of the scheme to future accrual
as well as the most recent triennial valuation. The DRDPS has
around £1,400 million of pension liabilities on a technical
provision basis (around 40% of total Group pension liabilities). As
a result, we expect the total Group pension deficit repair payments
to reduce to around £40 million in FY25 (previously £65
million).
Cash contributions
Group cash contributions made into
the defined benefit pension schemes, excluding expenses and salary
sacrifice contributions:
|
|
31 March
2024
£m
|
31 March
2023
£m
|
Future service
contributions
|
|
17.2
|
20.0
|
Deficit recovery
|
|
82.8
|
123.5
|
Longevity swap
|
|
15.2
|
15.6
|
Total cash contributions - employer
|
|
115.2
|
159.1
|
Segmental analysis
The Group reports its performance
through four reporting sectors.
31 March 2024
|
Marine
£m
|
Nuclear
£m
|
Land
£m
|
Aviation
£m
|
Total
£m
|
Contract backlog
|
2,992.7
|
3,104.8
|
2,593.7
|
1,641.4
|
10,332.6
|
|
|
|
|
|
|
Revenue
|
1,429.1
|
1,520.9
|
1,098.6
|
341.5
|
4,390.1
|
|
|
|
|
|
|
Operating profit
|
11.0
|
109.2
|
96.1
|
25.3
|
241.6
|
Operating margin
|
0.8%
|
7.2%
|
8.7%
|
7.4%
|
5.5%
|
|
|
|
|
|
|
Underlying operating
profit
|
13.1
|
109.2
|
96.3
|
19.2
|
237.8
|
Underlying operating
margin
|
0.9%
|
7.2%
|
8.8%
|
5.6%
|
5.4%
|
|
|
|
|
|
|
31 March 2023
|
Marine
£m
|
Nuclear
£m
|
Land
£m
|
Aviation
£m
|
Total
£m
|
Contract backlog
|
2,580.7
|
2,453.8
|
2,809.8
|
1,633.0
|
9,477.3
|
|
|
|
|
|
|
Revenue
|
1,439.6
|
1,179.2
|
1,017.1
|
802.7
|
4,438.6
|
|
|
|
|
|
|
Operating profit
|
5.8
|
63.6
|
80.9
|
(104.8)
|
45.5
|
Operating profit margin
|
0.4%
|
5.4%
|
8.0%
|
(13.1)%
|
1.0%
|
|
|
|
|
|
|
Underlying operating
profit
|
12.7
|
63.5
|
85.9
|
15.8
|
177.9
|
Underlying operating
margin
|
0.9%
|
5.4%
|
8.4%
|
2.0%
|
4.0%
|
FY24
Revenue (£m)
|
Marine
|
Nuclear
|
Land
|
Aviation
|
Group
|
Revenue
|
1,429.1
|
1,520.9
|
1,098.6
|
341.5
|
4,390.1
|
Add: reversal of Type 31
revenue
|
66.3
|
-
|
-
|
-
|
66.3
|
Revenue excl. Type 31 loss
|
1,495.4
|
1,520.9
|
1,098.6
|
341.5
|
4,456.4
|
|
|
|
|
|
|
Underlying operating profit (£m)
|
|
|
|
|
|
Underlying operating profit
(UOP)
|
13.1
|
109.2
|
96.3
|
19.2
|
237.8
|
Add: Type 31 loss
|
90.0
|
-
|
-
|
-
|
90.0
|
UOP excluding Type 31
loss
|
103.1
|
109.2
|
96.3
|
19.2
|
327.8
|
Less: non-trading
credits
|
-
|
-
|
(17.0)
|
-
|
(17.0)
|
UOP excl. Type 31 loss and non-trading
credits
|
103.1
|
109.2
|
79.3
|
19.2
|
310.8
|
|
|
|
|
|
|
Underlying operating margin
|
|
|
|
|
|
Underlying operating margin
(UOM)
|
0.9%
|
7.2%
|
8.8%
|
5.6%
|
5.4%
|
UOM excl. Type 31 loss and non-trading
credits
|
6.9%
|
7.2%
|
7.2%
|
5.6%
|
7.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
FY23
Revenue (£m)
|
Marine
|
Nuclear
|
Land
|
Aviation
|
Group
|
Revenue
|
1,439.6
|
1,179.2
|
1,017.1
|
802.7
|
4,438.6
|
Less: Non-trading credits and
disposals
|
-
|
-
|
(46.7)
|
(386.5)
|
(433.2)
|
Revenue excluding non-trading
credits and disposals
|
1,439.6
|
1,179.2
|
970.4
|
416.2
|
4,005.4
|
Add: reversal of Type 31
revenue
|
42.6
|
-
|
-
|
-
|
42.6
|
Revenue excl. non-trading credits, disposals and Type 31
loss
|
1,482.2
|
1,179.2
|
970.4
|
416.2
|
4,048.0
|
|
|
|
|
|
|
Underlying operating profit (£m)
|
|
|
|
|
|
Underlying operating profit
(UOP)
|
12.7
|
63.5
|
85.9
|
15.8
|
177.9
|
Add: Type 31 loss
|
100.1
|
-
|
-
|
-
|
100.1
|
UOP excluding Type 31
loss
|
112.8
|
63.5
|
85.9
|
15.8
|
278.0
|
Less: non-trading
(credits)/debits
|
-
|
-
|
(13.8)
|
1.1
|
(12.7)
|
UOP excl. non-trading credits, disposals and Type 31
loss
|
112.8
|
63.5
|
72.1
|
16.9
|
265.3
|
|
|
|
|
|
|
Underlying operating margin
|
|
|
|
|
|
Underlying operating margin
(UOM)
|
0.9%
|
5.4%
|
8.4%
|
2.0%
|
4.0%
|
UOM excl. non-trading credits, disposals and Type 31
loss
|
7.6%
|
5.4%
|
7.4%
|
4.1%
|
6.6%
|
OPERATIONAL REVIEWS
Marine
Our c.7,200 employees design,
develop, manufacture and integrate specialist systems, and deliver
technical through-life support for complex platforms in the marine
sector. Around 90% of Marine's revenue is derived from defence,
with the remainder primarily comprising our Liquid Gas Engineering
(LGE) business.
Operational highlights
-
Type 31: HMS Venturer (ship 1)
superstructure almost
complete, HMS Active (ship 2) keel laid,
and HMS Formidable (ship 3) steel cut due 2024. Programme restructured following a
detailed operational review
-
Three Arrowhead 140 licences delivered and keel
laid on first MIECZNIK-Class frigate for the Polish Navy
-
Selected by Saab to support the design of the
Swedish Navy's Surface Combatant, Luleå Class. Initial contract
awarded
-
Achieved Operation Service Commencement of the
Skynet Service Delivery Wrap space communications
contract
-
Ukraine Mine Counter Measure Vessel (MCMV)
upgrade and support contract fully operational
-
Achieved Operative Date for the Australian
Regional Maintenance Provider (RMP) West contract
Financial review
|
31 March
2024
£m
|
31 March
2023
£m
|
Contract backlog*
|
2,992.7
|
2,580.7
|
Revenue
|
1,429.1
|
1,439.6
|
Underlying operating
profit*
|
13.1
|
12.7
|
Underlying operating
margin*
|
0.9%
|
0.9%
|
*Alternative Performance Measures
are defined in the Financial Glossary on page 31.
Revenue decreased by 1% to
£1,429.1 million which primarily related to FX translation. Growth
from our Arrowhead 140 programmes, including the Polish MIECZNIK
frigate programme, and increased activity on Dreadnought systems,
was offset by lower volumes in warship support and LGE.
Underlying operating profit of
£13.1 million (FY23 £12.7 million), representing an underlying
operating margin of 0.9%
(FY23: 0.9%), was impacted by a £90.0 million loss on the Type 31
contract (FY23: £100.1 million loss) (see below). Excluding the
Type 31 loss, underlying operating profit decreased by 9% to £103.1
million with the positive contribution from licence fees on the
Polish Arrowhead 140 programme more than offset by lower activity
in warship support and the LGE business, as well as
lower profitability in Mission Systems, primarily
due to contract timing and therefore
expected to recover.
Type 31: As set out in the
CEO review on page 4 and the Financial review on page 9, we have
fully reviewed the Type 31 programme during the year, including
resolving the Dispute Resolution Process. Over the year, overall
costs have increased due to the maturing of the design and the
increase in costs of labour in the market available in Rosyth,
which is forecast to be higher than CPI, the indexation contained
within the Type 31 contract. As a result, the outturn over the life
of the contract has deteriorated by £90.0 million, which has been
fully recognised in FY24. The cash impact of this loss is expected
to be realised over the remainder of the contract.
Contract backlog increased 16% in
the year to £2,993 million (FY23: £2,581 million), driven by a
two-year extension to the Canadian Victoria Class submarine support
contract, strong LGE orders and service expansion of the UK MOD's
Skynet satellite communications support contract, offsetting
revenue traded on long-term contracts.
Operational review
Defence
UK defence
We continue to deliver the Type 31
frigate programme, with the superstructure of HMS Venturer almost
complete. Work on the second ship, HMS Active, is progressing, with
the keel laid and first double bottom blocks in the build cradle.
In March 2024, we announced the intention to create more than 1,000
new jobs over the next four years at our advanced manufacturing and
shipbuilding facility in Rosyth. These new roles, which include 400
apprenticeships, will benefit the UK economy and local
community.
Following award of the 10-year
warship support contract for the UK Royal Navy's QEC aircraft
carriers, HMS Prince of Wales departed our Rosyth dockyard in July
2023 following a docking period to repair shaft lines, as well as
undertaking planned activities on other underwater equipment and
systems. We also welcomed HMS Queen Elizabeth back to Rosyth in
March 2024 for docking, repairs and planned maintenance.
At Devonport, the Type 23 frigate
life-extension (LIFEX) programme continues, with HMS Iron Duke
achieving Ready for Sea and HMS Argyll achieving her undocking
ahead of schedule. HMS Argyll is the first Type 23 to undergo a
post-LIFEX upkeep under Project RENOWN, designed to reduce the
amount of time spent in dock. Also in the period, we completed
repairs and docking activity on HMS Somerset, and commenced the use
of new hull and structure survey technology on HMS
Richmond.
We continue to prepare for the
arrival of the first Type 26 frigate, establishing the first remote
office at BAE's Scotstoun shipyard to support the transition of the
Type 26 Class to in-service support, with the new fleet of frigates
base-ported at HMNB Devonport.
We were awarded two new five-year
contracts by the UK Ministry of Defence (MOD) to continue providing
in-service support for the Royal Navy's Ships Protective System
(SPS) equipment.
The US-UK common missile
compartment tube assembly programme continues for the US Columbia
submarine programme, with further assemblies being delivered in
support of the UK's Dreadnought programme. We have a market leading
position in submarine missile tube assembly, underpinned by our
deployment of advanced manufacturing technology.
Babcock is now on contract to
deliver major systems modules for all four Dreadnought Class
submarines, with a contract uplift for the remaining boats. During
the period, we demonstrated our new complex weapons stowage
equipment which will also be installed on the Dreadnought
Class.
We were awarded a three-year
contract to continue providing critical support to the Royal Navy's
Phalanx Close-In Weapon System (CIWS), a rapid-fire,
computer-controlled, radar-guided gun that can defeat anti-ship
missiles and other close-in threats. The system is installed on
multiple Royal Navy platforms, including the Queen Elizabeth Class
aircraft carriers.
We achieved the Critical Design
Review in the delivery of the UK Royal Navy's next-generation
Maritime Electronic Warfare Systems Integrated Capability (MEWSIC)
to install cutting edge radar electronic support and electronic
warfare command and control capabilities across the new Type 31 and
Type 26 frigates, Type 45 air-defence destroyers and QEC aircraft
carriers.
Babcock has also been awarded a
configuration management contract for the Royal Navy and the Royal
Fleet Auxiliary surface ship fleet. The five-year contract will see
us continue to operate the Master Record Data Centre, through which
the configuration data and information of all surface ships will be
managed.
Following a successful
mobilisation and seamless transition, Babcock and its partners took
over the operation of SKYNET, the UK's military satellite
communications capability. The six-year service delivery wrap
contract includes the management of the UK military satellite fleet
and ground infrastructure for this 24/7 critical capability. When
combined with our existing Defence Strategic Radio Service (DSRS)
contract to deliver the MOD's secure High Frequency communications
capability, Babcock now has a leading position delivering the UK
Armed Force's critical communications in both a satcom and
satcom-denied environment.
International defence
In Australasia, our contract
to sustain the Royal Australian Navy (RAN) ANZAC frigate fleet, in
alliance with BAE and Saab Australia, is due to phase into the new
RAN Maritime Sustainment Model at the end of 2026. Babcock has
completed the first maintenance periods on the replacement
contract, Regional Maintenance Provider (RMP) - West, which will
provide support for all RAN major surface ships located in Western
Australia for the next five years. We were unsuccessful in our
tender to deliver the replacement contract, RMP - East capability,
however a sub-contract to transition our support from the RAN's
flagship LHD amphibious platforms to the new sustainment
model has been secured.
We agreed a new Capability
Partnering Arrangement for sustainment of Australia's Collins Class
submarines which will see us support existing operational
requirements and seek to extend the life of the Babcock managed
systems. We continue to deliver the Maritime Fleet Sustainment
Services contract which supports the entire New Zealand navy fleet,
including the operation of the main naval base infrastructure in
Auckland.
In Canada, we continue to
deliver the Victoria Class in-service submarine support (VISSC),
which was extended to 2027, and are currently working on HMCS
Victoria's extended docking work period. Milestones through the
year include completion of over 800 hull and system surveys,
removal of the diesel generators - a first-in-class evolution - and
the commencement of major structural repairs, a large and complex
work package to maintain the availability of the ageing
platform.
We also signed Technical
Cooperation Agreements with Hanwha Ocean and HD Hyundai Heavy
Industries and have had ongoing engagements with other submarine
OEMs. These activities position Babcock to be an integral partner
in the Canadian Patrol Submarine Project, which will succeed the
current Victoria Class in the mid-to-late 2030s.
In Poland, we finalised the
design licence agreement with the MIECZNIK consortium for the build
of three Arrowhead 140 frigates for the Polish Navy. The steel-cut
for ship one was held at the Gdynia shipyard in August
2023.
In Sweden, we were selected
by Saab as their programme partner to support their work on the
Swedish Navy's next generation Luleå Class naval corvette
programme. Under the initial contract, Babcock will provide
front-end engineering and programme management for
design.
In Indonesia, our customer PT
PAL laid the keel for the first of two frigates, based on our
Arrowhead 140 design.
In Ukraine, we completed the
regeneration of UK Sandown Class Mine Counter Measure Vessels
(MCMVs) at our Rosyth facility. The Royal Navy provided two of the
vessels to the Navy of Ukraine who awarded Babcock a three-year
contract to maintain and support the two minehunters. A further two
MCMVs have been sold to the Romanian Navy with Babcock providing
refurbishment support.
In South Korea, we are
delivering systems for Boat 4 of the Jangbogo-III Class submarine
programme. Additionally, we have been awarded a seven-year contract
to manufacture and install the weapons handling and launch system
for Boat 6 of the programme. Babcock is working with the Republic
of Korea Navy and Hanwha Ocean to develop an in-service support
strategy for the Class.
Civil
Our LGE business marked another
year of significant achievements with record order intake of over
£300 million. We have cemented our significant market share,
winning new orders from existing and new customers and delivery of
50 projects in South East Asia.
With increasing utilisation of
hydrogen as a sustainable fuel and with broad application across
several sectors, our ecoVLAC® technology is well positioned for
growth, and we have secured six contracts for design and build of
Cargo Handling Systems for Very Large Ammonia Carriers (VLAC).
Additionally, we launched ecoFGSS-FLEX® technology for the use of
Ammonia as a ship main engine fuel.
At our Rosyth facility we welcomed
two of the UK's fleet of scientific research vessels for planned
maintenance. RRS Discovery and RRS Sir David Attenborough spent a
total of 16 weeks at Rosyth undergoing through-life support and
will return to Rosyth in 2024. We also converted a former UK Royal
Navy patrol ship into a medical vessel for Vine Trust at
Portsmouth, an international volunteering charity supporting some
of the most isolated communities in Tanzania and Peru.
Nuclear
Our c.8,600 employees provide
complex through-life engineering support to the entirety of the
UK's nuclear submarine fleet, own and manage critical national
infrastructure and provide engineering integration support to AWE.
We operate across UK civil nuclear, including new build, generation
support and decommissioning.
Operational highlights
-
Commenced deep
maintenance on the second of the UK's Vanguard Class nuclear
submarines, HMS Victorious, under a c.£560 million
contract
-
Returned HMS
Vanguard to the Royal Navy after her Deep Maintenance Period (DMP)
and Life Extension Programme
-
Awarded £750
million infrastructure contract in preparation for Astute Class
DMP
-
Awarded
contracts to develop the support solution for the UK's Dreadnought
and SSN-AUKUS submarine programmes
-
X-energy and
Cavendish Nuclear selected for UK Government's Future Nuclear
Enabling Fund (FNEF)
Financial review
|
31 March
2024
£m
|
31 March
2023
£m
|
Contract backlog*
|
3,104.8
|
2,453.8
|
Revenue
|
1,520.9
|
1,179.2
|
Underlying operating
profit*
|
109.2
|
63.5
|
Underlying operating
margin*
|
7.2%
|
5.4%
|
*Alternative Performance Measures
are defined in the Financial Glossary on page 31.
Revenue increased by 29% to
£1,520.9 million, driven by strong growth in Major Infrastructure
Programme (MIP) revenue, increased Future Maritime Support
Programme (FMSP) submarine support activity and new contracts in
our civil nuclear business. MIP revenue increased to £459 million
(FY23: £267 million).
Underlying operating profit
increased by 72% to £109.2 million driven by the revenue growth
above and non-recurrence of a £16 million loss on a FY23 programme,
which has now completed. As a result, underlying operating margin
improved 180 basis points to 7.2%.
Contract backlog increased 27% in
the year to £3,105 million (FY23: £2,454 million), driven primarily
by the £750 million MIP contract to modernise 10 Dock at our
Devonport facility.
Operational review
Defence
UK defence
The UK is going through a phase of
class transition for nuclear submarines. Astute Class submarines
are currently replacing the Trafalgar Class and the future
Dreadnought Class will replace the Vanguard Class. We continue to
make progress in meeting the current and future requirements of the
UK MOD and Royal Navy and are working closely with them to jointly
develop long-term strategies for people, infrastructure and
transformation.
We are delivering substantial
upgrades to existing critical infrastructure at Devonport to
support the UK's future capability through a Major Infrastructure
Programme (MIP). Following the award of the manufacturing phase
contract, the programme to upgrade 10 Dock has entered the formal
construction phase, which will deliver a new dock, berth, logistics
and production support facilities, primarily for the Astute Class.
We are also undertaking the refurbishment of 9 Dock, currently used
for the Vanguard Class, the most significant work carried out on
the dock for over 20 years, and 15 Dock.
Deep maintenance and
life-extension of the second of the UK's Vanguard Class nuclear
submarines, HMS Victorious, are underway at Babcock's facility at
Devonport following an agreed full cost recovery contract worth an
estimated £560 million with the Submarine Delivery Agency (SDA).
This follows the completion in-year of HMS Vanguard's deep
maintenance period, the most complex submarine maintenance and
life-extension programme that has ever been delivered within the
enterprise. The first Astute Class submarine has also been received
in Devonport and is currently undergoing surveys and work ahead of
an in-dock base maintenance programme (BMP). At HMNB Clyde, we
continue to deliver a strong performance on submarine maintenance
periods against a backdrop of increasing operational
demands.
We were awarded a five-year
contract to provide input into the detailed design for the new Ship
Submersible Nuclear AUKUS (SSNA) submarines which will replace the
Astute Class from the late 2030s and will be the future SSN design
for the Royal Australian Navy. We also agreed with the SDA a
12-month extension to our Interim Support to the AUKUS Contract to
provide consultancy support to the UK and Australian Governments in
acquiring, operating, and maintaining nuclear powered submarines
for the Royal Australian Navy.
Babcock was awarded a further
contract to support the UK's new Dreadnought Class submarines,
providing input into the development of the support solution, with
a focus on engineering best practice and submarine maintenance to
enable improved in-service availability. We continue to deliver
good performance and ongoing improvements against our FMSP
contract.
We are supporting the SDA on the
Submarine Dismantling Project, working towards the full dismantling
of the ex-HMS Swiftsure, which will be a UK first. The decision has
been made to undertake the full vessel recycling at Rosyth. We are
engaging to shape the future Submarine Disposal Capability
programme with the SDA.
Work continues to deliver the
Process, Plant and Equipment (PP&E) contract for AWE
Aldermaston, with Babcock leading the design, installation and
commissioning of complex plant and equipment
engineering.
We have taken a leading role to
support the UK's Nuclear Skills Task Force, following the recent
announcement by the UK Prime Minister of a funded skills plan. We
continue to lead on the collaborative work to deliver critically
needed skills across the Babcock Nuclear enterprise, developing on
the Babcock Skills Academy offering, significantly increasing our
early careers intake, upskilling the Babcock workforce and
targeting mid-career switchers through our engagement in
Destination Nuclear, the first national communications campaign
targeting recruitment into the industry.
International defence
Babcock and HII have combined
forces in Australia to work together to support the critical
capabilities required to deliver the AUKUS programme, collaborating
to develop the optimal models for nuclear-powered submarine
capability, including infrastructure, sustainment, and the
necessary skills development.
We have signed an MoU with Bechtel
Australia to identify opportunities to leverage complementary
expertise to establish and support Australia's conventionally armed
nuclear-powered submarine programme (AUKUS). Babcock Australasia
has also joined forces with HII, the University of Adelaide, Curtin
University and the University of NSW to form the AUKUS Workforce
Alliance.
Civil
UK civil nuclear
We continue to support Sellafield
with their decommissioning programme and have been short-listed for
the Invitation to Tender phase for two key Lots of the 15-year
Decommissioning and Nuclear Waste Partners programme.
We have diversified our customer
portfolio in the UK, securing work with both Westinghouse and
Urenco, supporting the Government's focus on security and front-end
fuel cycle. The reprocessed uranium front end conversion project
for Westinghouse will design and build a facility to process
uranium to enable its future enrichment and use as a nuclear fuel,
while the tails management facility project for Urenco will convert
depleted uranium hexafluoride to the lower hazard uranium oxide
material for long term storage. At Magnox we have mobilised the
Hinkley Point A Vault Retrievals Phase 2 contract to provide the
design and delivery of an automated solution to safely retrieve,
process and package waste from the site's vaults, ready for safe
storage.
Cavendish Nuclear and X-energy
welcomed a funding award from the UK Government's Future Nuclear
Enabling Fund to further develop Advanced Modular Reactors (AMRs)
in the UK. The Government's award of £3.4 million will be matched
by X-energy for a total programme of £6.8 million. The funds will
be used to develop UK-specific deployment plans including an
assessment of domestic manufacturing and supply chain
opportunities, constructability, modularisation studies, and spent
fuel management.
In addition to AMRs, we continue
to support Rolls Royce and GE-Hitachi, two of the six Small Modular
Reactor (SMR) vendors whose designs have recently advanced to the
next phase of the UK's SMR competition. We continue to support EDF
with Large Gigawatt Reactor delivery at Hinkley Point C and
Sizewell C through the MEH Alliance, an unincorporated
JV.
International civil
nuclear
In Japan, work is now underway to
deliver a 10-year contract with Japan Atomic Energy Agency (JAEA),
providing specialist capability in support of decommissioning and
sodium treatment of the Monju Prototype Fast Reactor in Fukui
Prefecture, Japan.
In the US we are continuing to
position for other major Tier 1 clean-up opportunities, on the back
of the successful award last year of the Portsmouth Gaseous
Diffusion Plant Decontamination and Decommissioning Contract with
our joint venture partners.
Land
Our c.6,400 employees provide
essential services to our customers through three core
capabilities, Build, Support and Train. We do this through
management, the delivery of through-life engineering support and
systems integration for military vehicles and equipment. We provide
individual and collective training for customers with critical
missions and deliver engineering services in power generation and
transport networks and through-life support of mining
equipment.
Operational highlights
-
DSG contract
extension under negotiation following notification by UK MOD of its
intention to exercise up to five option years
-
Launched the
General Logistics Vehicle (GLV) for the upcoming MOD tender to
replace the legacy Army Land Rover fleet; actively exploring export
opportunities with a range of international customers
-
Officially
launched production of 70 High Mobility Transporter Jackal 3s for
the British Army, with partner Supacat
-
Signed a
collaboration agreement with Singapore Technology Engineering for
manufacture of UK mortar systems
-
Awarded second
contract to deliver ground and equipment support to the French
Navy, Army and Air Force
-
Contract
expansion to support UK gifted in-kind platforms to
Ukraine
-
Secured the
rebid for the REME Apprenticeships contract to 2029
-
Won the
seven-year ARMCEN support contract for armoured vehicle technical
training for the British Army
Financial review
|
31 March
2024
£m
|
31 March
2023
£m
|
Contract backlog*
|
2,593.7
|
2,809.8
|
Revenue
|
1,098.6
|
1,017.1
|
Underlying operating
profit*
|
96.3
|
85.9
|
Underlying operating
margin*
|
8.8%
|
8.4%
|
*Alternative Performance Measures
are defined in the Financial Glossary on page 31.
Revenue increased 8% to £1,098.6
million (FY23: £1,017.1 million) with organic growth of 17% offset
by a 5% FX translation headwind due to the weakening of the South
African Rand against the Pound Sterling and the impact of the
disposal of the Civil Training business in FY23. Strong organic
growth was across our military activities including equipment
support and training for our UK and international customers, ramp
up of vehicle engineering contracts and the Australian Defence High
Frequency Communication (DHFC) system contract, and continued
growth in our South African business, driven by demand for mining
equipment.
Underlying operating profit
increased 12% to £96.3 million, including a £17.0 million profit on
freehold property disposal. FY23 included an £11.6 million one-off
accounting credit. The increase was also driven by revenue growth
outlined above and improved performance across a number of our Land
contracts, including the legacy DSG contract as it approaches its
final delivery year. Performance in our South African business was
in line with FY23, which benefitted from the close out of the Eskom
contract. Underlying margin improved 40 basis points to 8.8% (FY23:
8.4%), including a 1.5% impact (FY23: 1.0%) from the one-off items
described above.
Contract backlog decreased 8% to
£2,594 million (FY23: £2,810 million) due to revenue traded on
long-term contracts and the end of the Metropolitan Police Support
contract in FY24.
Operational review
Defence
UK defence
We delivered a strong performance
in our defence equipment business. We provided critical support to
prepare, repair and regenerate the Army's fleet for the Steadfast
Defender exercise, the largest NATO exercise since the Cold War.
Following notification by our UK MOD customer of its intention to
exercise up to five option years for DSG from FY25/26, we have
commenced a period of negotiation and transition as we move through
the approvals process to contract signature. The transition
activity will result in better outcomes for all stakeholders
throughout the rest of the decade.
Babcock's steadfast commitment to
providing critical support to Ukraine's military operations
continues, providing training of personnel and the refurbishment
and regeneration of equipment for Ukraine's Armed Forces through
our Project HECTOR contract with the MOD. Having been awarded a contract in June 2023 to support the
UK's gifted platforms to Ukraine, we achieved full operational
capability and contract expansion in the period. In May 2024, we announced work was underway on an
in-country facility to deliver engineering support, including the
repair and overhaul of military vehicles, to be delivered in
partnership with UDI, Ukraine's state-owned defence
industry.
Our ambition to develop a
portfolio of product-based offerings remains on track. In February,
in collaboration with Supacat, we launched the production of 70
High Mobility Transporters (HMT 400 series) Jackal 3 for the
British Army. Production will be undertaken at our new facility
within the free port of Devonport.
We launched the Babcock General
Logistics Vehicle in September 2023, with a focus on the upcoming
MOD tender to replace the legacy Army Land Rover fleet and are
pursuing other international opportunities. In June 2024, we
launched a medium wheelbase variant and expect to add six-wheel
drive variant in FY26.
Babcock remains the principal
supplier of Toyota LC300 Civilian Armoured Vehicles to UK
government agencies and we celebrated the successful conversion of
the 50th vehicle in August 2023.
We signed a collaboration
agreement with Singapore Technology Engineering for the manufacture
of 120 mm mortar systems in the UK.
Our Advanced Manufacturing
Business continues to make significant developments in tackling
supply chain problems caused by obsolete parts. We co-chair the
defence accelerator programme which seeks to increase the
availability of defence materiel. Babcock has also successfully
converted 25% of the MOD's white fleet to electric vehicles. The
programme is creating greater fuel efficiencies and supporting the
MODs sustainability goals.
Our Defence Training business
performed well in the period, securing a number of key contracts
including the Armour Support Contract, an extension to our contract
to provide driver training and a further contract to support REME
Apprenticeships to August 2029.
We have been awarded a three-year
contract, supporting Mabway, for the provision of support for the
design, preparation and delivery of military training exercises,
which will replace our current Hannibal contract.
Our bid to become the Strategic
Training Partner for the Army Collective Training System (ACTS) has
progressed to the Invitation to Tender stage and we continue to
have positive engagements with the customer as part of the bid
process.
We continue to develop leading
edge capabilities. Most notably we were recently able to announce
an Enterprise Agreement with Palantir Technologies UK to strengthen
our integrated planning function by enhancing our digital
capabilities across the Sector. Working with Palantir and investing
in our own data science and data engineering capabilities, we are
on a journey of better cohering, understanding and modelling
thousands of data-points relating to both critical and complex
assets and their value chains. The relationship also extends to the
synthesis of performance and behavioural data relating to
individual and collective training to optimise learning and enhance
training outcomes.
International defence
In France, we have
successfully completed the transition of the ground support
equipment contract awarded last year. Babcock has also been awarded a new seven-year contract to
provide in-service support to airfield ground support equipment
throughout France's mainland and overseas military bases.
This is Babcock's second significant Land Sector
contract in France.
In Australasia, we continue
to mature design of the new Defence Australian High Frequency
Communications System through the JP9101 programme. We also signed
a three-year contract extension to provide the Australian
Department of Defence with streamlining sustainment and acquisition
processes for Counter-Chemical Biological Radiological, Nuclear and
Explosive (C-CBRNE) capability using our industry-leading asset
management systems. We continue to work closely with the New
Zealand Ministry of Defence on the Fixed High Frequency Radio
Refresh programme.
We continue to be in an active
process with the Australian Defence Force (ADF) for a first
generation contract for sustainment management services for Land
equipment. We are developing solutions to export leading
capabilities from the UK to streamline existing support provision,
and enhance fleet management, inventory management, engineering and
technical management, procurement management, and support to ADF
Operations.
In Canada, we signed a
Memorandum of Understanding with Roshel to collaboratively explore
opportunities to support the Canadian Armed Force's land
requirements, providing innovative solutions through the
combination of our global asset management expertise and Roshel's
specialist vehicle manufacturing. This relationship provides us
with the potential to build our civilian armoured vehicle (CAV) in
Canada and support the Government of Canada, and address export
opportunities in the North American defence and security
market.
Civil
UK civil
Both our London Fire Brigade and
Metropolitan Police (MPS) training contracts have performed well in
the period. However, we have seen lower volumes on the MPS contract
as the customer seeks to meet its challenging recruitment targets.
We are leading an optimisation programme to support the design of a
new entry route programme, focused on improving operational
performance in support of transforming the approach to initial
recruit training.
We continue to provide effective
support to the London Fire Brigade through equipment and vehicle
management, servicing and repair. The trial to reduce the number of
planned vehicle movements by up to 50% across the Greater London
region will reduce wear and tear and emissions. This allows for
greater flexibility in fleet management practices such as vehicle
rotation and whole life cost, helping to preserve high-vehicle
availability. The trial has provided successful results with a full
roll-out across the London Fire Brigade fleet being
implemented.
We continue to explore ways in
which we can support the UK Government's increasing focus on
national resilience efforts, including enhancing the asset
management services we provide as part of the New Dimensions
programme for event response readiness at national, regional and
local level.
Our Rail business continues to
deliver strong performance in its key regions of Scotland and
Northern Ireland and has started to expand its operations into the
significant market in Ireland. Major investment in national rail
infrastructure by the Irish Government is a key enabler for
building on, levelling up and sustaining recent economic growth
across the country. Engagement with industry stakeholders around
major engineering programmes progresses, which will see the network
modernised, decarbonised and have capacity more than doubled over
the next 5 to 10 years.
International civil
South Africa performed
strongly, primarily driven by the equipment business, which
supplies vehicles and vehicle support to the mining industry. A
sustained high demand for commodities continues to drive open cast
mining activities, resulting in an expansion of our market share.
Our Engineering and Plant businesses delivered results in
accordance with forecast. We are actively exploring opportunities
within the marine and nuclear sectors to further diversify our
portfolio and drive future growth.
We received orders for delivery of
strategic spares for Eskom power stations to be delivered over
three years. We were awarded five-year milling plant maintenance
contracts for two power stations and began work on a significant
contract to engineer and replace electrostatic plates at Lethabo
power station to reduce particulate emissions.
Aviation
Our c.2,500 employees deliver
military pilot training support for the two largest Air Forces in
Europe (France and UK), through-life support to operational
military flying assets and critical air operations for government
customers.
Operational highlights
-
Completed
delivery of the six H160 helicopters to the French Navy as part of
a 10-year contract with the French MOD
-
Partnered with
the RAF to deliver the first Elementary Flying Training (EFT) phase
of the Ukrainian Pilot Force programme as they prepare to fly F-16
jets
-
Delivered
unprecedented firefighting operations in Canada with >1,500
flight hours, >670 fire missions and >5,000 water drops with
a >99% aircraft availability
-
Explored
opportunities with Zero Petroleum for the use of synthetic fuels in
defence aircraft to minimise the environmental impact of flying
training
-
Secured a
five-year contract extension to keep providing air ambulance
operations in Victoria state in Australia
-
After the year
end, awarded a new 12-year contract alongside Airbus to support 48
EC145 helicopters of the Direction Générale de la Sécurité Civile
and the French Gendarmerie Nationale across France mainland and
overseas
Financial review
|
31 March
2024
£m
|
31 March
2023
£m
|
Contract backlog*
|
1,641.4
|
1,633.0
|
Revenue
|
341.5
|
802.7
|
Underlying operating
profit*
|
19.2
|
15.8
|
Underlying operating
margin*
|
5.6%
|
2.0%
|
*Alternative Performance Measures
are defined in the Financial Glossary on page 31.
Revenue decreased 57% to £341.5
million (FY23: £802.7 million) primarily due to the impact of the
sale of the European Aerial Emergency Services (AES) business in
February 2023, which contributed revenue of £387 million in FY23.
On an organic basis, revenue declined 17% due to the sales mix of
our French defence contracts, particularly MENTOR, between aircraft
delivery and service phases. Our remaining UK, Australia and Canada
aviation businesses all delivered modest growth.
Underlying operating profit
increased 22% to £19.2 million (FY23: £15.8 million), despite lower
revenue due to favourable sales mix of our French defence
contracts, improved pricing and lower bid costs. The prior year
also included a £1.1 million loss contribution from the disposed
European AES business. As a result, underlying operating margin
increased 360bp to 5.6%.
Contract backlog was in line with
the prior year at £1,641 million (FY23: £1,633 million), with new
orders matched by revenue traded on long-term contracts.
Operational review
Defence
UK defence
Performance on the RAF HADES
contract remains strong against a background of customer site
laydown and base closures and we are in positive discussions
regarding a further contract extension.
We continue to deliver good
organic growth in our 11-year agreement with BAE Systems,
supporting the RAF's Hawk TMk1 and TMk2 fleet.
Despite some fleet challenges
earlier in the year, operations on the RAF Light Aircraft Flying
Task contract (LAFT2) are continuing as normal with high levels of
availability. We delivered the first Elementary Flying Training
(EFT) phase of the Ukrainian Pilot Force training as they prepare
to fly F-16 jets, with zero sorties lost due to aircraft
unavailability.
We successfully negotiated a
13-year extension to the ground handling support contract for the
Future Strategic Tanker Aircraft contract. We continue to provide
IT service and improvement projects for the customer and are
continuing to build a strong working relationship.
Project MONET, a two-year research
and development project to explore the application of emerging
technologies to minimise the environmental impact of the Light
Aircraft Flying Task, has concluded its first year with a
successful environmental impact assessment of the Grob Tutor. Work
continues on the next phase to develop a flying testbed aircraft to
test technologies in the air.
We signed the Defence Aviation Net
Zero Charter, confirming our commitment to help UK Defence meet the
challenges of climate change and to advance the testing of
synthetic fuels in the military environment across air defence
platforms.
We are exploring the use of
uncrewed air system technologies to support UK defence, security
and government aviation, and working on methods of integrating
autonomous and collaborative platforms into the RAF.
International defence
In France, activity continues to ramp up on the MENTOR contract with
flying activity above forecast, further enhancing the training
delivery. On the FOMEDEC contract, an
additional simulator has been set up to deliver 1,500 additional
simulator hours (+18%) to the customer. In total, we delivered
c.13,500 flight hours and 8,500 simulator hours this year for the
French Air Force under both contracts (FOMEDEC and MENTOR). We are
also extremely proud to have reached a key milestone this year of
40,000 flight hours on our PC-21 aircraft.
We completed the delivery of our
six Airbus H160 helicopters to the French Navy as part of our
contract with the French MOD. The aircraft are used to perform
Search and Rescue (SAR) missions and have already flown more than
1,750 hours and carried out numerous rescue missions in the
Mediterranean and across the Normandy and Brittany coasts. We have
also opened the first H160 site for SAR operations in the world,
located in Cherbourg (France).
After the year end, we have been
awarded a new contract alongside Airbus Helicopters to support the
EC145 fleet of the Direction Générale de la Sécurité Civile and the
French Gendarmerie Nationale. The 12-year contract covers the
aircraft in-service support of 48 Airbus EC145 helicopters fleet
across France mainland and overseas. Additional maintenance work
has been delivered to our current seven-year contract with French
Customs and Gendarmerie Nationale where we deliver in-service
support to their EC135 helicopter fleets. Flying activity is also
above contract expectations with a total of 8,141 flight hours
(expected 6,500 flying hours).
Bidding activity on military
aviation tenders remains high with many ongoing opportunities such
as Mentor 2 contract (outsourcing of French military pilots initial
training stage), French Air Force tactical and combat training
contract and BFTC (outsourcing of the Belgium fighter pilot
training).
In Canada, we were
unsuccessful in our bid to deliver Canada's Future Aircrew Training
(FAcT). We continue to explore opportunities in the military
spectrum, leveraging our current civilian capabilities and our
international military know-how to support the Royal Canadian Air
Force and other Federal Departments in the future.
Civil
UK civil
We have been awarded a new
contract with Midlands Air Ambulance Charity (MAAC) to continue as
the charity's aviation partner for the next 10 years, operating
MAAC's fleet of helicopters as well as providing ground support,
engineering and pilots. We have been by MAAC's side since the
charity started operating over 33 years ago, responding to over
75,000 lifesaving missions. We are continuing to deliver our other
air ambulance activities in the country with a fleet availability
at over 98%.
International civil
In France, we are growing our
ambition to protect citizens and communities in new territories, by
developing a joint solution with the Sultanate of Oman to implement
a robust and comprehensive Aerial Emergency Medical Service for all
citizens and tourists in the country.
In Australasia, we continue
to deliver critical emergency services while strengthening our
relationships with our customers. We were awarded three key
contract extensions this year, making Babcock the biggest provider
of aerial emergency medical services in Australia.
The Queensland Government has
extended our contract to provide emergency medical services and
search and rescue for a further 12 years. The South Australian
Government granted a four-year contract extension for the delivery
of a State Rescue Helicopter Service. Lastly, we have been awarded
a five-year contract extension to continue to provide critical air
ambulance operations in Victoria until December 2030.
In Canada, we continued to
deliver air ambulance and wildfire suppression services for the
Province of Manitoba, helping to protect citizens, communities and
natural resources. Last year Canada experienced an unprecedented
number of wildfires, which saw our operations deliver over 1,500
flight hours, 674 fire missions and 5,006 water drops. In March
2024, we successfully completed the delivery of the LifeFlight
critical care air ambulance services contract for the Province of
Manitoba which saw 100% aircraft availability during the
year.
We have begun to ramp up the
in-service support for British Columbia's new aerial emergency
services contract using a fleet of AW169 aircraft. This 10-year
contract will start in FY25 with facilities
construction.
Financial glossary - Alternative Performance Measures
(APMs)
The Group provides APMs, including
underlying operating profit, underlying margin, underlying earnings
per share, underlying operating cash flow, underlying free cash
flow, net debt and net debt excluding leases to enable users to
have a more consistent view of the performance and earnings trends
of the Group. These measures are considered to provide a consistent
measure of business performance from year to year. They are used by
management to assess operating performance and as a basis for
forecasting and decision-making, as well as the planning and
allocation of capital resources. They are also understood to be
used by investors in analysing business performance.
The Group's APMs are not defined
by IFRS and are therefore considered to be non-GAAP measures. The
measures may not be comparable to similar measures used by other
companies and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group's APMs are
consistent with the prior year. Measures, definitions and
reconciliations to relevant IFRS measures are included below, where
appropriate.
Organic revenue growth - Group
KPI
Closest equivalent IFRS measure: Revenue growth year on year
Definition: Growth excluding
the impact of foreign exchange (FX) and contribution from
acquisitions and disposals over the year.
Purpose: A good indicator of
business growth.
|
31 March
2024
£m
|
31 March
2023
£m
|
Prior year revenue
|
4,438.6
|
4,101.8
|
FX
|
(76.1)
|
23.5
|
(Disposals) /
acquisitions
|
(421.6)
|
(92.3)
|
Prior year revenue adjusted for FX
and disposals (b)
|
3,940.9
|
4,033.0
|
Revenue growth (a)
|
449.2
|
405.6
|
Current year revenue
|
4,390.1
|
4,438.6
|
Organic revenue growth (a)/(b)
|
11%
|
10%
|
Contract backlog
Closest equivalent IFRS measure: No direct equivalent
Definition: The remaining
transaction price on contracts with customers that has been
allocated to unsatisfied or partially satisfied performance
obligations adjusted for the impact of termination for convenience
clauses and excluding orders not yet secured on framework
agreements.
Purpose: Contract backlog is
used to support future years' sales performance.
|
31 March
2024
£m
|
31 March
2023
£m
|
Contract backlog
|
10,333
|
9,477
|
Underlying operating
profit
Closest equivalent IFRS measure: Operating profit
Definition: Operating profit
before the impact of specific adjusting items (see
below).
Purpose: Underlying operating
profit is a key measure of the Group's performance.
|
31 March
2024
£m
|
31 March
2023
£m
|
Underlying operating
profit
|
237.8
|
177.9
|
Specific adjusting
items
|
3.8
|
(132.4)
|
Operating profit
(note 2)
|
241.6
|
45.5
|
Specific adjusting items
(note 2)
|
31 March
2024
£m
|
31 March
2023
£m
|
Amortisation of acquired
intangibles
|
(10.8)
|
(15.8)
|
Business acquisition, merger and
divestment related items (note 2)
|
8.2
|
(117.7)
|
Fair value movement on derivatives
(note 2)
|
6.4
|
1.1
|
Specific adjusting items impacting
operating profit/(loss)
|
3.8
|
(132.4)
|
Fair value movement on derivatives
and related items
|
1.8
|
9.7
|
Specific adjusting items impacting
profit/(loss) before tax
|
5.6
|
(122.7)
|
|
|
|
Income tax
benefit/(expense)
|
|
|
Amortisation of acquired
intangibles
|
3.9
|
4.1
|
Business acquisition, merger and
divestment related items
|
(1.0)
|
(2.1)
|
Fair value movement on derivatives
and related items
|
(2.0)
|
(2.6)
|
Tax on Group reorganisation
activities
|
4.7
|
-
|
Other tax items including rate
change impact
|
(0.6)
|
(1.2)
|
Specific adjusting items impacting
income tax benefit/(expense)
|
5.0
|
(1.8)
|
Underlying operating margin -
Group KPI
Closest equivalent IFRS measure: Operating margin
Definition: Underlying
operating profit as a percentage of revenue.
Purpose: Provides a measure
of operating profitability, excluding specific adjusting items and
is an important indicator of operating efficiency across the
Group.
|
31 March
2024
£m
|
31 March
2023
£m
|
Revenue
|
4,390.1
|
4,438.6
|
Underlying operating
profit
|
237.8
|
177.9
|
Underlying operating
margin
|
5.4%
|
4.0%
|
Underlying net finance
costs
Closest equivalent IFRS measure: Net finance costs
Definition: Net finance costs
excluding specific adjusting items.
Purpose: To provide an alternative measure of finance costs excluding
items such as fair value re-measurement of derivatives which are
economically
hedged.
|
31 March
2024
£m
|
31 March
2023
£m
|
Underlying net finance
costs
|
(35.9)
|
(58.3)
|
Add: specific adjusting items
impacting finance costs (note 2)
|
1.8
|
9.7
|
Net finance costs
(note 5)
|
(34.1)
|
(48.6)
|
Underlying profit before
tax
Closest equivalent IFRS measure: Profit before tax
Definition: Profit before tax
excluding all specific adjusting items.
Purpose: Provides a measure
of profitability which includes finance costs.
|
31 March
2024
£m
|
31 March
2023
£m
|
Underlying profit before
tax
|
211.1
|
128.9
|
Specific adjusting items impacting
profit before tax (note 2)
|
5.6
|
(122.7)
|
Profit before tax
(note 2)
|
216.7
|
6.2
|
Underlying effective tax
rate
Closest equivalent IFRS measure: Effective tax rate
Definition: Tax expense
excluding the impact of specific adjusting items, as a percentage
of underlying profit before tax excluding the share of post-tax
income from joint ventures and associates.
Purpose: This provides an
indication of the ongoing tax rate across the Group, excluding
one-off items.
|
Year ended 31 March 2024
|
|
Year ended 31 March 2023
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
Profit before tax
(note 2)
|
211.1
|
5.6
|
216.7
|
|
128.9
|
(122.7)
|
6.2
|
Share of profit from joint ventures
and associates* (note 11)
|
(10.3)
|
-
|
(10.3)
|
|
(9.3)
|
-
|
(9.3)
|
Profit/(loss) before tax excluding
profit from joint ventures and associates (a)
|
200.8
|
5.6
|
206.4
|
|
119.6
|
(122.7)
|
(3.1)
|
Income tax expense (b)
|
(53.5)
|
5.0
|
(48.5)
|
|
(37.7)
|
(1.8)
|
(39.5)
|
Effective tax rate
(b)/(a)
|
26.6%
|
|
23.5%
|
|
31.5%
|
|
(1274.2%)
|
* Share of profit from joint
ventures and associates excludes an impairment of £1.1 million, see
note 11.
Underlying basic and diluted
earnings per share
Closest equivalent IFRS measure: Basic earnings per share
Definition: The Group's
underlying profit after tax less items attributable to
non-controlling interest, being underlying net income attributable
to shareholders, divided by the weighted average number of
shares.
Purpose: A measure of the
Group's underlying performance.
|
Year ended 31 March 2024
|
|
Year ended 31 March 2023
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
Profit/(loss) before tax
(note 2)
|
211.1
|
5.6
|
216.7
|
|
128.9
|
(122.7)
|
6.2
|
Income tax
(expense)/benefit (note
2)
|
(53.5)
|
5.0
|
(48.5)
|
|
(37.7)
|
(1.8)
|
(39.5)
|
Profit/(loss) after tax for the
year
|
157.6
|
10.6
|
168.2
|
|
91.2
|
(124.5)
|
(33.3)
|
Amount attributable to owners of
the parent
|
155.1
|
10.6
|
165.7
|
|
89.5
|
(124.5)
|
(35.0)
|
Amount attributable to
non-controlling interests
|
2.5
|
-
|
2.5
|
|
1.7
|
-
|
1.7
|
|
|
|
|
|
|
|
|
Weighted average number of shares
(m)
|
503.5
|
|
503.5
|
|
505.4
|
|
505.4
|
Effect of dilutive securities
(m)
|
11.8
|
|
11.8
|
|
9.5
|
|
9.5
|
Diluted weighted average number of
shares (m)
|
515.3
|
|
515.3
|
|
514.9
|
|
514.9
|
|
|
|
|
|
|
|
|
Basic EPS (note 6)
|
30.8p
|
|
32.9p
|
|
17.7p
|
|
(6.9)p
|
Diluted EPS (note 6)
|
30.1p
|
|
32.2p
|
|
17.4p
|
|
(6.9)p
|
Net debt
Closest equivalent IFRS measure: No direct equivalent
Definition: Cash and cash
equivalents, bank overdrafts, loans, including the interest rate
and foreign exchange derivatives which hedge the loans, lease
liabilities, lease receivables and loans to joint ventures and
associates.
Purpose: Used as a measure of
the Group's cash position and balance sheet strength.
|
31 March 2024
£m
|
31 March 2023
£m
|
Cash and bank balances
|
570.6
|
451.7
|
Bank overdrafts
|
(18.0)
|
(22.2)
|
Cash, cash equivalents and bank
overdrafts
|
552.6
|
429.5
|
Debt
|
(749.5)
|
(765.8)
|
Derivatives hedging debt
|
(11.1)
|
(8.3)
|
Lease liabilities
|
(230.5)
|
(228.8)
|
Liabilities from financing
arrangements
|
(991.1)
|
(1,002.9)
|
Lease receivables
|
35.5
|
38.6
|
Loans to joint ventures and
associates
|
3.9
|
9.5
|
Derivatives hedging interest on debt
|
(36.3)
|
(39.1)
|
Net debt
|
(435.4)
|
(564.4)
|
Net debt (excluding
leases)
Closest equivalent IFRS measure: No direct equivalent
Definition: Net debt (defined
above) excluding lease liabilities recognised under IFRS
16.
Purpose: Used by credit
agencies as a measure of the Group's net cash position and balance
sheet strength.
|
31 March
2024
£m
|
31 March
2023
£m
|
Net debt
|
(435.4)
|
(564.4)
|
Leases
|
224.5
|
218.2
|
Net debt (excluding
leases)
|
(210.9)
|
(346.2)
|
Net debt / EBITDA (covenant basis)
- Group KPI
Closest equivalent IFRS measure: No direct equivalents
Definition: Net debt
(excluding leases), before loans to joint ventures and associates
and finance lease receivables, divided by EBITDA (as defined in our
banking covenants - being underlying operating profit, defined on
page 31, excluding depreciation and amortisation and including
certain covenant adjustments) plus JV and associate dividends. See
page 15.
Purpose: A key measure of
balance sheet strength used by analysts and credit agencies, and
the basis of our debt covenant over the RCF (3.5x).
Interest cover (covenant
basis)
Closest equivalent IFRS measure: No direct equivalent
Definition: EBITDA (on a
covenant basis), divided by net finance costs and various covenant
adjustments made to reflect accounting standards at the time of
inception of the RCF agreement, including lease and retirement
benefit interest. See page
16.
Purpose: Used in the covenant
over our RCF facility with a covenant ratio of 4.0x.
Return on invested capital (pre-tax)
(ROIC) - Group KPI
Closest equivalent IFRS measure: No direct equivalent
Definition: Underlying
operating profit plus share of JV profit after tax, divided by the
sum of net debt (excluding leases), shareholders' funds and
retirement benefit deficit/(surplus). See
page 16.
Purpose: Used as a measure of
profit earned by the Group generated by the debt and equity capital
invested, to indicate the efficiency of allocated
capital.
Net capital
expenditure
Closest equivalent IFRS measure: Property, plant and equipment and intangible
additions
Definition: Property, plant
and equipment and intangible additions less proceeds on disposal of
property, plant and equipment and intangible assets.
Purpose: To understand net
capital investment included in underlying operating cash
flow.
|
31 March
2024
£m
|
31 March
2023
£m
|
Purchases of property, plant and
equipment (PP&E) (note 9)
|
(107.6)
|
(109.9)
|
Purchases of intangible assets
(note 8)
|
(33.3)
|
(21.5)
|
Movements in unpaid capital
expenditure
|
(1.5)
|
6.3
|
Gross capital
expenditure
|
(142.4)
|
(125.1)
|
Proceeds on disposal of PP&E
and intangible assets (statement of cash flows)
|
30.6
|
38.9
|
Net capital expenditure
|
(111.8)
|
(86.2)
|
Underlying operating cash
flow
Closest equivalent IFRS measure: Net cash flow from operating activities
Definition: Cash flow from
operating activities excluding net income tax, net interest paid,
pension contributions in excess of the income statement charge and
cash flows related to specific adjusting items and including net
capital expenditure and lease principal payments. See page
12
Purpose: Provides a measure
of operating cash generation on an equivalent basis to underlying
operating profit.
|
31 March
2024
£m
|
31 March
2023
£m
|
|
Underlying operating cash
flow
|
322.7
|
307.0
|
Add: net capex
|
111.8
|
86.2
|
Add: capital element of lease
payments
|
49.6
|
108.5
|
Less: pension contributions in
excess of income statement
|
(107.6)
|
(141.9)
|
Non-operating cash items (excluded
from underlying cash flow)
|
(2.2)
|
(10.9)
|
Cash generated from
operations
|
374.3
|
348.9
|
Tax (paid)
|
(27.4)
|
(25.4)
|
Less: net interest paid
|
(32.2)
|
(62.2)
|
Net cash flow from operating
activities
|
314.7
|
261.3
|
Underlying operating cash
conversion - Group KPI
Closest equivalent IFRS measure: No direct equivalent
Definition: Underlying
operating cash flow as a percentage of underlying operating
profit.
Purpose: Used as a measure of the Group's efficiency in converting
profits into cash.
|
|
|
31 March
2024
£m
|
31 March
2023
£m
|
Underlying operating
profit
|
237.8
|
177.9
|
Underlying operating cash
flow
|
322.7
|
307.0
|
Operating cash
conversion
|
136%
|
173%
|
Underlying free cash flow
Closest equivalent IFRS measure: No direct equivalent
Definition: Underlying free
cash flow includes cash flows from pension deficit payments,
interest, tax, JV dividends, specific adjusting items, in addition
to underlying operating cash flow. See page 12.
Purpose: Provides a measure
of cash generated which is available for use in line with the
Group's capital allocation policy.
Going concern and
viability statement
Overview: The Directors have
undertaken reviews of the business financial forecasts, in order to
assess whether the Group has adequate resources to continue in
operational existence for the foreseeable future and as such can
continue to adopt the going concern basis of accounting.
The Directors have also looked
further out to consider the viability of the business to test
whether they have a reasonable expectation that the Group will
continue in operation and meet its liabilities as they fall
due.
For assessing going concern, the
Board considered the 12-month period from the date of signing the
Group's financial statements for the year ended 31 March 2024. For
viability, the Board looked at a five-year view as this is the
period over which the Group prepares its strategic plan
forecasts.
The use of a five-year period
provides a planning tool against which long-term decisions can be
made concerning strategic priorities, addressing the Group's stated
net zero target and climate-related risks and opportunities,
funding requirements (including commitments to Group pension
schemes), returns made to shareholders, capital expenditure and
resource planning.
The annually prepared budgets and
forecasts are compiled using a bottom-up process, aggregating those
from the individual business units into sector-level budgets and
forecasts. Those sector submissions and the consolidated Group
budget and forecasts are then reviewed by the Board and used to
monitor business performance.
The Board considered the budgets
alongside the Group's available finances, strategy, business model,
market outlook and principal risks. The process for identifying and
managing the principal risks of the Group is set out in the
Principal risks and management controls section on page 38. The
Board also considered the mitigation measures being put in place
and potential for further mitigation.
The Board considers that the
long-term prospects of the Group underpin its conclusions on
viability. As outlined in our strategy, business model and markets
summaries on pages 14, 16 and 20 of the 2024 Annual Report and
Financial Statements, our prospects are supported by:
- a diverse
portfolio of businesses based on well-established market positions,
focused on naval engineering, support and systems, and on critical
services in our core defence and civil markets. In FY24, 74% of
Group revenue was defence related and 26% civil;
- a
geographically diverse business with a high proportion of sales to
governments and other major prime defence contractors. In FY24, 70%
of revenue was to UK defence and civil customers, and 30% was
international;
- long-term
visibility of sales and future sale prospects through an order
backlog of £10.3 billion as at 31 March 2024, including incumbent
positions on major defence programmes; and
- market
positions underpinned by a highly skilled workforce, intellectual
property assets and proprietary know-how, which are safeguarded and
developed for the future by customer and Group-funded
investment.
Available financing: As at 31
March 2024, net debt excluding leases was £210.9 million and the
Group therefore had liquidity headroom of £1.4 billion, including
net cash of £0.6 billion and undrawn facilities of £0.8 billion.
These facilities are considered more than adequate to meet current
and other liabilities as they fall due, and support the Group's
negative working capital position largely arising from securing
customer advances ahead of contract work starting. All of the
Group's facilities mature during the viability period, and
therefore in assessing liquidity in future periods we have assumed
that it will be possible to re-finance the Group's facilities at
current market rates.
As of June 2024, the Group's
committed facilities and bonds totalling £1.6 billion were as
follows:
- £775 million
revolving Credit Facility (RCF), of which £45 million matures on 28
August 2025 and £730 million matures on 28 August 2026
- £300 million
bond maturing on 5 October 2026
- €550 million
bond, hedged at £493 million, maturing on 13 September
2027
-
Two committed overdraft facilities
totalling £100 million
The RCF is the only facility with
covenants attached. The key covenant ratios are net debt to EBITDA
(covenant basis), gearing ratio, of 3.5x and EBITDA to net interest
(interest cover) of 4.0x. These are measured twice per year - on 30
September and 31 March.
The RCF lenders are fully
committed to advance funds under the RCF to the Group, provided
that the Group has satisfied the usual ongoing undertakings, and
the creditworthiness of the Group's relationship banks is closely
monitored. Based on their credit ratings we have no credit concerns
with our relationship banks. Given the importance of the RCF to the
Group's liquidity position, our assessments of going concern and
viability have tested the Group's gearing ratio, interest cover and
liquidity headroom throughout the period under review up to their
current maturity dates and to the end of the five-year plan
assuming renewal of the RCF with consistent covenants to those
currently applied.
Base case scenario: The base
case budgets and forecasts show significant levels of headroom
against both financial covenants and liquidity headroom based on
the current committed facilities outlined above. That base case
largely assumes we maintain our incumbent programme positions if
re-let during the five-year period, with margin recovery if they
are currently below the Group average. Many opportunities available
to the Group, where we do not yet have high conviction of securing
the work, have been excluded from the base case to maintain a
degree of caution.
The base case assumes no further
reshaping of the business portfolio, so it is not dependent upon
any future cash proceeds from divestments. It also maintains
pension deficit contributions in excess of income statement charges
of around £44 million relating to FY25 and around £40 million in
each year thereafter.
Reverse stress testing of the base
case: To assess the level of
headroom within the available facilities, a reverse stress test was
performed to see the level of performance deterioration against the
base case budgets and forecasts (in both EBITDA and net debt)
required to challenge covenant levels.
Of the remaining measurement
points within the available facility period, the lowest required
reduction in forecast EBITDA to hit the gearing covenant level was
£165 million and the lowest net debt increase was 150%. The lowest
required reduction in forecast EBITDA to hit the interest cover
covenant was £140 million. Given the mitigating actions that are
available and within management's control, such movements are not
considered plausible.
Severe but plausible (SBP) downside scenarios:
The Directors also considered a series of SBP
downside scenarios which are sensitivities run against the base
case budget and forecasts for the duration of the assessment
period. These sensitivities include - separately - a reduction in
bid pipeline closure (business winning), a deterioration in large
programme performance across the Group, a deterioration in the
Group's working capital position and a regulator-imposed cessation
in flying two of the largest aircraft fleets in the Group. All
these separate scenarios showed compliance with the financial
covenants throughout the period.
As with any company or group, it
would be possible, however unlikely, to model individual risks or
combinations of risks that would threaten the financial viability
of the Group. The Board has not sought to model events where it
considers the likelihood of such events not to be plausible. In
preparing a combined SBP downside case, the Board considered the
feed of individual risks from the sectors covering the above
sensitivities. Overall, there were around 80 profit and cash flow
risks identified.
A simple aggregation of all of
these risks is not considered plausible as the Group operates
businesses and contracts which run largely independently of each
other, albeit with a relatively small number of customers within
each geography. These identified risks were seen as 'sector
independent' (ie there is no direct read across from one sector to
another). The Board decided to reduce the aggregation of the risks
by 25% to reflect the implausibility of all such risks fully
crystallising within the same period.
If such a severe downturn were to
occur in the Group's performance, the Board would take mitigation
measures to protect the Group in the short term. Such profit and
cash mitigation measures that are deemed entirely within the
control of the Group and identified as part of the sector budgeting
exercise have been included in the SBP scenario (eg cancelling pay
rises and bonus awards, curtailing uncommitted capital expenditure
and operational spend including R&D and other
investment).
Despite the severity of the above
combined SBP scenario, the Group maintained a sufficient amount of
headroom against the financial covenants within its borrowing
facilities, and sufficient liquidity when compared against existing
facilities (both before and after mitigation measures).
Going concern assessment and viability
conclusion: Based on our review,
the Directors have concluded that the Group has adequate resources
to continue as a going concern for at least 12 months from the date
of these financial statements. The Directors have not identified
any material uncertainties concerning the Group's ability to
continue as a going concern.
As such, these financial
statements have been prepared on the going concern basis. The
Directors do not believe there are any material uncertainties to
disclose in relation to the Group's ability to continue as a going
concern.
In concluding on the financial
viability of the Group, having considered the scenarios outlined
above, the Directors have a reasonable expectation that the Company
and the Group will be able to continue in operation and meet all
its liabilities as they fall due up to March
2029.
Risks and uncertainties
The principal risks and
uncertainties affecting the Group are listed below and are set out
in more detail in the Company's Annual Report and Financial
Statements 2024, which should be read in conjunction with this
announcement when published. This list is not a substitute for
reading the Company's Annual Report and Financial Statements 2024
in full. The Group's principal risks and uncertainties
are:
Contract and project performance: We execute large contracts, which often require us to price
for the long term and for risk transfer. Our contracts can include
fixed prices. Risk appetite: Medium. Contract and project
performance risk appetite is classified as 'medium' due to the
intricate nature of our work in defence and emergency services
sectors. As a company, we are in the business of strategically
taking on risks that we can manage effectively. While our aim is to
minimise risks to a manageable level, it is important to
acknowledge that uncertainties are inherent in project delivery. We
prioritise robust risk management within our contracts to mitigate
these uncertainties and ensure successful outcomes. It is important
to make clear that despite our vast efforts, some level of risk
remains unavoidable.
Market: We rely on winning
and retaining large contracts in both existing and new markets
often characterised by a relatively small number of major
customers, which are owned or controlled by local or national
governments. Risk appetite: Medium. This reflects that the
successful pursuit and maintenance of a secure and assured pipeline
is essential for continued growth, and we may therefore choose to
accept the challenge of market risks that we can confidently and
securely manage.
IT & cyber security: A
key factor for our customers is our ability to deliver secure IT
and other information assurance systems to maintain the
confidentiality of sensitive information. Risk appetite: Low. IT
and Cyber Security are fundamental components to Babcock's
operations; we continually review the emergence of cyber threats,
in an effort to eradicate and mitigate the risk as far as
possible.
Defined benefit pensions: The
Group has significant defined benefit pension schemes in the UK,
which provide for a specified level of pension benefits to scheme
members. Risk appetite: Low. Babcock utilises engagement with the pensions
schemes' trustees and a balanced pension management approach that
looks to mitigate and reduce the risks associated with pensions
over the journey to settling the pension obligations.
Supply chain management: The
Group is exposed to several risks within its supply chain, and
these can typically be the following. Volatile markets such as
inflation, supplier financial risks and energy costs. Disruptions
to established supply chains such as natural hazards, logistics and
mass layoffs. Geopolitical and regulatory risk inclusive of
conflicts, industrial action, and sanctions. Supply chain cyber
security including increased alerts of potential disruption from
cyber-attacks in our multi-tiered supply chain. Part availability
for aged customer assets such as maintaining assets that are too
old to source essential parts, or where cost is prohibitive. Risk
appetite: Low. Babcock has a preference for safe delivery options
that have a low degree of inherent risk and only for limited reward
potential.
Operational resilience and business
interruption: Babcock provides
critical support to governments and commercial customers, requiring
a high level of resilience in operational systems and processes. We
provide this support in an increasingly volatile, uncertain, and
complex operating environment. A diverse range of internal and
external threats could severely interrupt our business, reducing
our ability to operate safely and effectively and to the high
standards expected by our customers, regulators, and partners. As a
result, Babcock, must ensure it maintains an Operational Resilience
programme that is capable and adaptable to multiple forms of
business interruption events. Risk appetite: Low. Ineffective
operational resilience arrangements can significantly undermine
safety, financial stability, reputation and meeting our regulatory
requirements. Given the context in which we operate, Babcock seeks
to identify and eliminate risks to its operations where possible
and applies stringent controls to mitigate remaining areas of
residual risk to as low as reasonably practical (ALARP). Babcock is
committed to continually improving and building upon the
foundations of our Operational Resilience programme. Investment is
being made to assess and enhance the effectiveness of our plans and
procedures through development of an overarching framework within
FY25 in order to provide greater consistency, adaptability, and
capability across Babcock.
Financial resilience of the Group: The Group is exposed to a number of financial risks, some of
which are of a macroeconomic nature (for example, foreign currency,
interest rates) and some of which are more specific to the Group
(for example, liquidity and credit risks). Risk appetite: Low. Babcock recognises the adverse effects of
the financial resilience risk on our balance sheet and actively
manages this risk via its capital allocation policy, substantial
committed debt facilities and maintaining an investment grade
credit rating allowing access to debt capital markets. However,
this risk cannot be eliminated and will aways require
management.
Safety, health and environmental protection including product
safety Our operations entail the
potential risk of significant harm to people and property, wherever
we operate across the world. Risk
appetite: Low. For moral, financial and reputational reasons we
should keep the risk as low as possible.
Climate and environmental sustainability:
Climate change is impacting every corner of the
earth and poses an existential threat to global stability.
Sustainability is an integral part of our corporate strategy, and
we are working hard to address the climate crisis and minimise the
impacts of our operations. Risk appetite:
Low. Across our global operations we are looking to continually
improve our understanding of climate and environmental risks and we
are committed to mitigating risks, unlocking opportunities and
reducing our environmental impacts.
Corporate technological disruption:
We have identified three main attributes to
potential technological disruption that potentially effects
Babcock: the digital change agenda, both within our customers and
internal to Babcock; our approach to data management; and finally,
the disruption of new technology offerings. Risk appetite: Low. Given the materially adverse nature of
digital and data risks, Babcock looks to recognise and eradicate
the emergence of risks to operations where possible, hence risk
appetite being set at low. Exploiting new technology in an
appropriate manner can open new markets. However, Babcock does
survey the market for new technology to develop into new
opportunities. These are assessed for benefit individually and if
deemed of interest, integrated into our research and development
programme and managed with project management.
Compliance with legislation or other regulatory
requirements: Our businesses are
subject to the laws, regulations and restrictions of the many
jurisdictions in which they operate. Risk
appetite: Low. As a diverse global organisation, Babcock operates
in multiple highly regulated industries for customers with
specialist requirements. The compliance landscape is vast and
complex with many regulations, legal obligations, contractual and
certification requirements in each area including export controls,
data protection and site licences. The laws and regulations
that we are subject to include anti-bribery laws, import and export
controls, tax, procurement rules, human rights laws, and data
protection regulations.
Resourcing, retention & skills:
We operate in many specialised engineering and
technical domains, which require appropriate skills and
experience. Risk appetite: Medium.
Avoidance of the risk would increase costs through significant wage
inflation, which would have an industry-wide impact, and require
over-resourcing and potential negative workforce engagement and
retention. Some risk is accepted given the high cost of avoidance
and the potential mitigations within our control, such as sharing
capability across our global business and compensating for skills
shortages in particular areas through investment in training and
early careers.
Acquisitions and divestments: We have built our core strengths organically and through
acquisition. Decisions to acquire companies, as well as the process
of their acquisition and integration, are complex, time-consuming,
and expensive. If we believe that a business is not 'core', we may
decide to sell that business. Risk
appetite: Medium. Babcock will continue to review potential
opportunities within the market in a considered and measured way,
M&A activity continues to be inherently high risk. Future
M&A activity will be undertaken only where it is possible to
reduce inherent risk to an acceptable level when balanced against
potential rewards and opportunity.
The risks listed above, together
with their potential impacts and mitigating actions we have taken
in respect of them, are explained and described in detail in the
2024 Annual Report, a copy of which will be available at
www.babcockinternational.com.
Notes to the Group financial
statements
1. Basis of preparation and significant
accounting policies
Basis of preparation
The consolidated financial statements have
been prepared on a going concern basis and in accordance with
United Kingdom adopted International Accounting Standards (IFRS)
and the Companies Act 2006 applicable to companies reporting under
IFRS. These condensed consolidated financial statements do not
comprise statutory accounts within the meaning of Section 435 of
the Companies Act 2006 and should be read in conjunction with the
Annual Report for the year ended 31 March 2024. The comparative
figures for the year ended 31 March 2023 are not the Group's
statutory accounts for that financial year. Those financial
statements have been reported upon by the Group's auditor and
delivered to the registrar of companies. The report of the auditor
was unqualified, did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and did not contain statements under
Section 498 (2) or (3) of the Companies Act 2006. The consolidated
financial statements are presented in pounds sterling and, unless
stated otherwise, rounded to the nearest million. They have been
prepared under the historical cost convention, as modified by the
revaluation of certain financial assets and financial liabilities
(including derivative instruments).
New and amended standards adopted by the
Group
The Group applied the following standards and
amendments for the first time for the year beginning on
1 April 2023:
The following standards and amendments to
IFRSs became effective for the annual reporting period beginning on
1 April 2023 and did not have a material impact on the consolidated
financial statements:
•
|
IFRS 17, 'Insurance Contracts': IFRS 17
establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts and supersedes
IFRS 4.
IFRS 17 allows an entity a policy
choice to instead apply IFRS 15 to contracts which would otherwise
meet the definition of an insurance contract providing their
primary purpose is to provide a service at a fixed fee and provided
certain specific conditions are met. Where these conditions are
satisfied, the Group's policy is to apply IFRS 15 in all such
instances.
IFRS 17 also contains a number of
scope exclusions - for example, warranties provided by a
manufacturer, dealer or retailer in connection with the sale of its
goods or services to a customer are outside the scope of IFRS
17.
Whilst the Group holds a number of
long-term support and maintenance contracts, it has been concluded
that such contracts are either subject to the above scope
exclusions and policy choices, or do not constitute insurance
contracts because there is no transfer of significant insurance
risk due to pricing structure such that additional cost are
recoverable from the customer through variable consideration or
final pricing adjustment. As such, none of the long-term support
and maintenance contracts are accounted for under IFRS
17.
The Group has assessed that the
standard would impact its captive insurance company as it issues
insurance contracts, however, since the contracts insure other
Group companies, there is no impact on the Consolidated Financial
Statements.
The impact of adopting IFRS 17 is
not material for the Group and no restatement of the prior period
Income Statement or Statement of Financial Position was
required.
|
•
|
Amendments to IAS 1, 'Presentation of Financial
Statements': The amendments change the requirements in IAS 1
with regard to disclosure of accounting policies. The amendments
replace all instances of the term 'significant accounting policies'
with 'material accounting policy information'. Accounting policy
information is material if, when considered together with other
information included in an entity's financial statements, it can
reasonably be expected to influence decisions that the primary
users of general purpose financial statements make on the basis of
those financial statements.
|
•
|
The supporting paragraphs in IAS 1 are also
amended to clarify that accounting policy information that relates
to immaterial transactions, other events or conditions is
immaterial and need not be disclosed. Accounting policy information
may be material because of the nature of the related transactions,
other events or conditions, even if the amounts are immaterial.
However, not all accounting policy information relating to material
transactions, other events or conditions is itself
material.
|
•
|
Amendments to IAS 8, 'Accounting Policies, Changes in Accounting
Estimates and Errors': The amendments replace
the definition of a change in accounting estimates with a
definition of accounting estimates. Under the new definition,
accounting estimates are "monetary amounts in financial statements
that are subject to measurement uncertainty".
|
•
|
Amendments to IAS 12, 'Income Taxes': The amendments
introduce a further exception from the initial recognition
exemption. Under the amendments, an entity does not apply the
initial recognition exemption for transactions that give rise to
equal taxable and deductible temporary differences. Depending on
the applicable tax law, equal taxable and deductible temporary
differences may arise on initial recognition of an asset and
liability in a transaction that is not a business combination and
affects neither accounting profit nor taxable profit.
|
Critical accounting estimates and
judgements
In the course of preparation of the financial
statements, judgements and estimates have been made in applying the
Group's accounting policies that have had a material effect on the
amounts recognised in the financial statements. The application of
the Group's accounting policies requires the use of estimates and
the inherent uncertainty in certain forward-looking estimates may
result in a material adjustment to the carrying amounts of assets
and liabilities in the next financial year. Critical accounting
estimates are subject to continuing evaluation and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable in light of known
circumstances. Critical accounting estimates and judgements in
relation to these financial statements are considered
below:
(a) Critical accounting
judgements
Critical accounting judgements, apart from
those involving estimations, that are applied in the preparation of
the consolidated financial statements are discussed below. Detail
of the Group's key judgements involving estimates are included in
the Key sources of estimation uncertainty section.
(i) Acting as principal or agent
A number of the Group's contracts include
promises in relation to procurement activity undertaken on behalf
of customers at low or nil margin, sub-contractor arrangements, and
other pass-through costs. Management is required to exercise
judgement on these revenue streams in considering whether the Group
is acting as principal or agent. This is based on an assessment as
to whether the Group controls the relevant goods or services under
the performance obligations prior to transfer to customers. Factors
that influence this judgement include the level of responsibility
the Group has under the contract for the provision of the goods or
services, the extent to which the Group is incentivised to fulfil
orders on time and within budget, either through gain share
arrangements or KPI deductions in relation to the other performance
obligations within the contract, and the extent to which the Group
exercises responsibility in determining the selling price of the
goods and services. Taking all factors into consideration, the
Group then comes to a judgement as to whether it acts as principal
or agent on a performance obligation-by-performance obligation
basis. Any changes in this judgement would not have a material
impact on profit, although there may be a material impact to
revenue and operating costs.
(ii) Determining the groups of cash
generating units to which goodwill is allocated
IFRS 8 requires that, for the purpose of
subsequent impairment testing, goodwill acquired in business
combinations be allocated to cash generating units ('CGUs') or
groups of CGUs expected to benefit from the synergies of the
combination. Such CGUs or groups of CGUs shall represent the lowest
level at which goodwill is monitored for internal management
purposes and shall not be larger than an operating
segment.
This determination is generally
straightforward and factual, however in some cases judgement is
required.
The Group has identified four operating
segments - Aviation, Land, Marine and Nuclear - and in the case of
Aviation, Marine and Nuclear, goodwill is allocated and monitored
at the operating segment level (with these three operating segments
each also comprising a group of CGUs).
Although Land is considered a single operating
segment, goodwill is separately allocated and monitored between the
Africa business (as one group of CGUs) and the remainder of Land
(as a second group of CGUs). This distinction exists due to
historic assessments of the Group's operating segments and the fact
that previous Africa business combinations were only anticipated to
provide synergies and benefits across the Africa CGUs.
Other territories may represent separate CGUs
or groups of CGUs but are neither separate operating segments nor
is goodwill separately allocated or monitored at these territory
levels.
Over time management reviews the basis upon
which goodwill is allocated to ensure it remains appropriate as
businesses are acquired and divested and reporting structures
change, including how information is reported to the Chief
Operating Decision Maker. If there was a change in this judgement
this could result in a material adjustment to goodwill. Further
detail is included in notes 3 and 7.
(iii) Additional work expected under the Type 31
contract
There is judgement in determining whether the
Type 31 onerous contract provision should reflect the benefit of
the expected continuation of the programme. IAS 37.10 states that
"a contract is onerous when the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits
expected to be received under it." Judgement is required in
determining whether additional work is treated as a benefit
expected to be received under the Type 31 contract, reducing the
onerous contract provision. The key factors considered in making
this judgement are the additional work expected at contract
inception and the economic linkage with the pricing and other terms
of the Type 31 contract. Having carefully considered the available
evidence against the evidential bar required to recognise future
benefits, it was concluded that the expected continuation of the
programme should not be treated as a benefit expected under the
Type 31 contract.
(b) Key sources of estimation
uncertainty
The key sources of estimation uncertainty at the
reporting period end that may result in significant risk of
material adjustment to the carrying amount of assets and
liabilities within the next financial year are set out
below:
(i) Revenue and profit recognition
The following represent the notable
assumptions impacting upon revenue and profit recognition as a
result of the Group's contracts with customers:
•
|
Stage of completion & costs to complete -
The Group's revenue recognition policies require management to make
an estimate of the cost to complete for long-term contracts.
Management estimates outturn costs on a contract-by-contract basis
and estimates are carried out by suitably qualified and experienced
personnel. Estimates of cost to complete include assessment of
contract contingencies arising out of technical, commercial,
operational and other risks. The assessments of all significant
contract outturns are subject to review and challenge, and
judgements and estimates are reviewed regularly throughout the
contract life based on latest available information with
adjustments made where necessary. As contracts near completion,
often less judgement is required to determine the expected outturn.
The most significant estimate of contract outturn relates to the
Type 31 programme as outlined below.
|
•
|
Variable consideration
- the Group's contracts are often subject to variable
consideration including performance-based penalties and incentives,
gain/pain share arrangements and other items. Variable
consideration is added to the transaction price only to the extent
that it is highly probable that there will not be a significant
reversal in the amount of cumulative revenue recognised once the
underlying uncertainty is resolved.
|
•
|
Inflation - The level
to which the Group's revenue and cost for each contract will be
impacted by inflation is a key accounting estimate, as this could
cause the revenue and cost of contract delivery to be greater than
was expected at the time of contracting. The Group's contracts are
exposed to inflation due to rising employment costs, as well as
increased costs of raw materials. The Group endeavours to include
cost recovery mechanisms or index-linked pricing within its
contracts with customers in order to mitigate any inflation risk
arising from increasing employment and raw material
costs.
|
Type 31 Programme estimates
The contract to produce 5 Type 31 frigates was
won under competitive tender in 2019, based on Babcock's Arrowhead
140 design. The contract is important in providing access to an
expected pipeline of Type 31 work and developing our Arrowhead 140
design for opportunities overseas. Although the contract contained
certain escalation clauses, it provided limited protection from the
macroeconomic changes of recent years relating to Brexit, Covid,
raw material prices and UK labour shortages, which have
significantly increased our costs. Following the outcome of
discussions with the customer over these matters, a £100 million
charge was recorded in the prior financial year.
This year we launched an operational
improvement programme to address all areas of the Type 31
programme. This has included a significant focus on cost drivers
and financial modelling, supported by external consultants, and has
led to a number of management changes. This has enabled a more
detailed reassessment, robustly supported by actual cost data,
other empirical evidence and a further year of experience of the
programme.
We recorded a £90 million charge at the end of
the year. Estimated costs over the life of the contract have
increased due to the maturing of the design and an increase in the
forecast cost of labour. The £90 million charge has been recognised
as a £66 million reduction in revenue (which increases the contract
liability within working capital) and £24 million increase in the
onerous contract provision.
Determining the contract outturn, and
therefore revenue and onerous contract provision recognised,
requires assumptions and complex judgements to be made about the
future performance of the contract. The level of uncertainty in the
estimates made in assessing the outturn is linked to the complexity
of the underlying contract.
The estimates in assessing the outturn are set
out below, along with the related estimation methods, data sources
and management actions to offset the increases in the
year.
a)
|
The number of production hours - which
requires estimation of a standard level of hours for manufacturing,
structural and outfitting activities, determined with reference to
previous experience of comparable programmes and industry data
where available. The estimation of the time taken to improve to
this standard level is also relevant, based on a detailed
enablement plan which is a key output of the operational
improvement programme. The volume of activities is based on a
detailed assessment of the Bill of Materials, supported by
dedicated engineering software
|
b)
|
The cost of labour -
which is dependent on our ability to recruit, the mix of the
workforce between permanent and contingent workers from the UK and
overseas, the utilisation of semi-skilled and apprentice workers
and shift patterns and premiums. A detailed resourcing plan is used
to support this estimate with actions required to achieve an
efficient labour mix
|
c)
|
The cost of bought-in parts and
services through suppliers and sub-contractors - which
includes the outcome of procurement tenders, finalisation of other
areas of unagreed pricing and the agreement of discounts and
incentive arrangements
|
d)
|
The ability to improve operational
performance through process efficiencies, quality and engineering
improvements over the five ships - which requires
actions to reduce re-work, optimise the location in which
outfitting is performed, deliver specific productivity initiatives
and make engineering changes to reduce the cost of manufacture,
structural assembly and outfitting
|
e)
|
The number of hours required by
support functions - primarily in engineering which is
impacted by the timely completion of remaining design activities
and effective management of production support and change requests.
A detailed engineering scope review has been performed to support
this estimate. The maturity of the design and estimation process
has allowed us to target improvements in ongoing support and
overhead costs
|
f)
|
The determination of
non-incremental costs which relate directly to fulfilling the
contract and are therefore partially allocated to the contract to
determine the loss provision - including facility and
overhead costs
|
g)
|
The impact of inflation on the
contract price and costs to fulfil the contract -
particularly in relation to labour which may be impacted by changes
in the local, UK and overseas labour markets, competitor activity
and government policy
|
h)
|
The achievement of the build
schedule to completion and final acceptance -
including the satisfaction of all contractual performance criteria.
The schedule analysis is based on detailed modelling and the
performance of multiple scenario analysis
|
The cost estimation process has involved a
number of key elements:
• Regular governance at the Group level to monitor progress and
enable support as required
•
Bottom-up costing at the activity level performed by
individual business areas
•
Reassessment of risk based on the updated cost estimates,
considering ranges of outcomes and probabilities
• Input
from functional specialists from across the Group
•
Development of financial models based on cost drivers, using
actual data and other evidence to inform the forecast
outturn
•
Detailed documentation of estimates made, including process
followed, sources of evidence and basis for conclusions
• Review
and challenge at the Programme, Sector and Groups levels,
culminating in a number of dedicated reviews with the Audit
Committee
The range of possible future outcomes in
respect of assumptions made to determine the contract outturn could
result in a material increase or decrease in revenue and the value
of the onerous contract provision, and hence on the Group's
profitability, in the next financial year. The estimates described
above are by their nature inter-related for this programme and are
unlikely to change with everything else constant. However, for
illustrative purposes, we have provided sensitivities to certain
isolated changes in key estimates on the basis that all other
factors remain constant:
• Production
hours - which are impacted by production norms, rate of
improvement, process efficiencies and quality/engineering
improvements (see a) and d) above). A 10% increase/decrease in
production hours would increase/decrease the loss by
£32m
• Labour rate -
which is impacted by our ability to recruit permanent staff, the
mix of the workforce, ancillary costs and inflation (see b) and g)
above). A 10% increase/decrease in the average labour rate would
increase/decrease the loss by £45m
• Supply chain
costs - (see c) above) - which are impacted by the agreement of
remaining pricing, discounts and incentive arrangements. A 10%
increase/decrease in supply chain costs would increase/decrease the
loss by £31 million
•
Non-production costs - (see e), f) and h)
above)- which are impacted by the build schedule. A 6-month delay
beyond the current planning assumption would increase/decrease the
loss by £24 million
Overall, with c£1bn of estimated costs to go
over the life of the contract, if actual costs were to differ from
those assumed by 10%, the potential impact on the contract outturn
could be c.£100 million.
To mitigate this, comparisons of actual
contract performance and previous forecasts used to assess the
contract outturn are performed regularly, with consideration given
to whether any revisions to assumptions are required. In the next
financial year, many of the 'first time' tasks and work to
integrate the various elements of the first ship will be
substantially complete. This will reduce the uncertainty over the
contract outturn but a significant element will remain due to the
substantial activity which extends over the remaining years. In a
major ship build programme of this nature, it is inherently
possible that there may be changes in circumstances which cannot
reasonably be foreseen at the present time.
(ii) Defined benefit pension schemes
obligations
The Group's defined benefit pension schemes
are assessed annually in accordance with IAS 19 and the valuation
of the defined benefit pension obligations is sensitive to the
inflation, discount rate, actuarial and life expectancy assumptions
used. There is a range of possible values for the assumptions and
small changes to the assumptions may have a significant impact on
the valuation of the defined benefit pension obligations. In
addition to the inflation, discount rate and life expectancy
estimates, management is required to make an accounting judgement
relating to the expected availability of future accounting
surpluses under IFRIC 14. Further information on the key
assumptions and sensitivities is included in note 17.
2. Adjustments between statutory and
underlying information
Definition of underlying measures and specific
adjusting items
The Group provides alternative performance
measures, including underlying operating profit, to enable users to
have a more consistent view of the performance and earnings trends
of the Group. These measures are considered to provide a consistent
measure of business performance from year to year. They are used by
management to assess operating performance and as a basis for
forecasting and decision-making, as well as the planning and
allocation of capital resources. They are also understood to be
used by investors in analysing business performance.
The Group's alternative performance measures
are not defined by IFRS and are therefore considered to be non-GAAP
measures. The measures may not be comparable to similar measures
used by other companies and they are not intended to be a
substitute for, or superior to, measures defined under IFRS. The
Group's alternative performance measures are consistent with the
year ended 31 March 2023.
Underlying operating profit
In any given year the statutory measure of
operating profit includes a number of items which the Group
considers to either be one-off in nature or otherwise not
reflective of underlying performance. Underlying operating profit
therefore adjusts statutory operating profit to provide readers
with a measure of business performance which the Group considers
more consistently analyses the underlying performance of the Group
by removing these one-off and other items not reflective of
underlying performance that otherwise add volatility to
performance.
Underlying operating profit eliminates
potential differences in performance caused by purchase price
allocations on business combinations in prior periods (amortisation
of acquired intangibles), business acquisition, merger and
divestment related items, large, infrequent restructuring
programmes and fair value movements on derivatives. Transactions
such as these may happen regularly and could significantly impact
the statutory result in any given year. Adjustments to underlying
operating profit may include both income and expenditure
items.
Specific adjusting items include:
•
Amortisation of acquired
intangibles;
•
Business acquisition, merger and
divestment related items (being amounts related to corporate
transactions and gains or losses on disposal of assets or
businesses);
•
Gains, losses and costs directly arising
from the Group's withdrawal from a specific market or geography,
including closure costs, severance costs, the disposal of assets
and termination of leases;
•
The costs of large restructuring
programmes that significantly exceed the minor restructuring which
occurs in most years as part of normal operations. Restructuring
costs incurred as a result of normal operations are included in
operating costs and are not excluded from underlying operating
profit;
•
Profit or loss from amendment,
curtailment, settlement or equalisation of Group pension
schemes;
•
Fair value gain/(loss) on forward rate
contracts that are open during the period; and
•
Exceptional items that are significant,
non-recurring and outside of the normal operating practice. These
items are described as exceptional in order to appropriately
represent the Group's underlying business performance. Exceptional
items are set out in the Exceptional items section
below.
Income statement including underlying results
|
Note
|
|
Year ended 31 March 2024
|
|
Year ended 31 March 2023
|
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
Revenue
|
3
|
|
4,390.1
|
-
|
4,390.1
|
|
4,438.6
|
-
|
4,438.6
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss)
|
3
|
|
237.8
|
3.8
|
241.6
|
|
177.9
|
(132.4)
|
45.5
|
Operating margin %
|
|
|
5.4%
|
-
|
5.5%
|
|
4.0%
|
-
|
1.0%
|
Results from joint ventures and
associates
|
11
|
|
9.2
|
-
|
9.2
|
|
9.3
|
-
|
9.3
|
Net finance costs
|
4
|
|
(35.9)
|
1.8
|
(34.1)
|
|
(58.3)
|
9.7
|
(48.6)
|
Profit/(loss) before tax
|
|
|
211.1
|
5.6
|
216.7
|
|
128.9
|
(122.7)
|
6.2
|
Income tax (expense)/benefit
|
5
|
|
(53.5)
|
5.0
|
(48.5)
|
|
(37.7)
|
(1.8)
|
(39.5)
|
Profit/(loss) after tax for the year
|
|
|
157.6
|
10.6
|
168.2
|
|
91.2
|
(124.5)
|
(33.3)
|
Earnings per share including underlying
measures
|
|
|
Year ended 31 March 2024
|
|
Year ended 31 March 2023
|
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
|
Underlying
£m
|
Specific adjusting items
£m
|
Statutory
£m
|
Profit/(loss) after tax for the year
|
|
|
157.6
|
10.6
|
168.2
|
|
91.2
|
(124.5)
|
(33.3)
|
Amount attributable to owners of the
parent
|
|
|
155.1
|
10.6
|
165.7
|
|
89.5
|
(124.5)
|
(35.0)
|
Amount attributable to non-controlling
interests
|
|
|
2.5
|
-
|
2.5
|
|
1.7
|
-
|
1.7
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
(m)
|
|
|
503.5
|
|
503.5
|
|
505.4
|
|
505.4
|
Effect of dilutive securities (m)
|
|
|
11.8
|
|
11.8
|
|
9.5
|
|
9.5
|
Diluted weighted average number of shares
(m)
|
|
|
515.3
|
|
515.3
|
|
514.9
|
|
514.9
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
30.8p
|
|
32.9p
|
|
17.7p
|
|
(6.9)p
|
Diluted EPS
|
|
|
30.1p
|
|
32.2p
|
|
17.4p
|
|
(6.9)p
|
Details of specific adjusting
items
The impact of specific adjusting items is set
out below:
|
|
Year ended
31 March 2024
£m
|
Year ended
31 March 2023
£m
|
Amortisation of acquired intangibles
|
|
(10.8)
|
(15.8)
|
Business acquisition, merger and divestment
related items
|
|
8.2
|
(117.7)
|
Fair value movement on derivatives and related
items
|
|
6.4
|
1.1
|
Adjusting items impacting operating
profit/(loss)
|
|
3.8
|
(132.4)
|
Fair value movement on derivatives and related
items
|
|
1.8
|
9.7
|
Adjusting items impacting loss before
tax
|
|
5.6
|
(122.7)
|
|
|
|
|
Income tax benefit
|
|
|
|
Amortisation of acquired intangibles
|
|
3.9
|
4.1
|
Business acquisition, merger and divestment
related items
|
|
(1.0)
|
(2.1)
|
Fair value movement on derivatives and related
items
|
|
(2.0)
|
(2.6)
|
Exceptional tax on Group reorganisation
activities
|
|
4.7
|
-
|
Other tax items including rate change
impact
|
|
(0.6)
|
(1.2)
|
Income tax benefit/(expense)
|
|
5.0
|
(1.8)
|
Explanation of specific adjusting
items
Amortisation of acquired intangibles
Underlying operating profit excludes the
amortisation of acquired intangibles. This item is excluded from
underlying results as it arises as a result of purchase price
allocations on business combinations and is a non-cash item which
does not change each year dependent on the performance of the
business. It is therefore not considered to represent the
underlying activity of the Group and is removed to aid
comparability with peers who have grown organically as opposed to
through acquisition. Intangible assets arising as a result of the
purchase price allocation on business combinations include customer
lists, technology-based assets, order book and trade names.
Amortisation of internally generated intangible assets is included
within underlying operating profit.
Business acquisition, merger and divestment
related items
Transaction related costs and gains or losses
on acquisitions, mergers and divestments of businesses are excluded
from underlying operating profit as business combinations and
divestments are not considered to result from underlying business
performance.
The total net profit relating to business
acquisition, merger and divestment related items for the year ended
31 March 2024 was £8.2 million (2023: loss of £117.7 million). The
prior year balance consisted of a loss on the disposal of the
Aerial Emergency Services business in Europe of £116.9 million, a
loss on disposal of the Group's Civil Training business of £3.9
million and a gain relating to the disposal of the Oil & Gas
business in Aviation of £3.1 million. The current year profit
relates to changes in the cash consideration and provision balances
following settlement of certain warranties in respect of prior
disposals.
Fair value movement on derivatives and related
items
These are open forward currency contracts,
taken out in the ordinary course of business to manage foreign
currency exposures, where the transaction will occur in future
periods. Hedge accounting under IFRS is not applied, however these
do represent economic hedges. On maturity the currency contract
will be closed and recognised in full within underlying operating
profit at the same time as the hedged sale or purchase. The net
result, at that time, will then more appropriately reflect the
related sales price or supplier cost being hedged (which is fixed
to ensure ultimately profitable outcomes).
Hedge ineffectiveness on debt and debt-related
derivatives that are designated in a hedge relationship are also
presented as a specific adjusting item in finance costs. This is
presented as a specific adjusting item as this ineffectiveness is
caused by a historic off-market designation, the transactions are
considered by the Group to represent an economic hedge.
The fair value movement on lease-related
derivatives and foreign exchange movements on lease liabilities are
also presented as a specific adjusting item in finance costs, as
hedge accounting under IFRS is also not applied to these
transactions but are also considered by the Group to represent an
economic hedge.
Tax
Specific adjusting items in respect of tax
comprises a charge of £0.6 million (2023: £1.2 million) arising
from the impact of the increase in the rate of corporation tax and
a credit of £4.7 million (2023: £nil million) arising from the
release of uncertain tax positions in respect of historic group
reorganisation activities.
3. Segmental information
The Group has four reportable segments,
determined by reference to the goods and services they provide and
the markets they serve.
Marine - through-life support of naval ships,
equipment and marine infrastructure in the UK and
internationally.
Nuclear - through-life support of submarines
and complex engineering services in support of major
decommissioning programmes and projects, training and operation
support, new build programme management and design and installation
in the UK.
Land - large-scale critical vehicle fleet
management, equipment support and training for military and civil
customers.
Aviation - critical engineering services to
defence and civil customers worldwide, including pilot training,
equipment support, airbase management and operation of aviation
fleets delivering emergency services.
The Board, the chief operating decision maker
as defined by IFRS 8, monitors the results of these reportable
segments and makes decisions about the allocation of resources. The
Group's business in Africa meets the definition of an operating
segment, as defined by IFRS 8. In accordance with IFRS 8, the
Africa operating segment is included in the Land reportable
segment.
The table below presents the underlying
results for each reportable segment in accordance with the
definition of underlying operating profit, as set out in note 2,
and reconciles the underlying operating profit/(loss) to the
statutory profit/(loss) before tax.
Year ended 31 March 2024
|
Marine
£m
|
Nuclear
£m
|
Land
£m
|
Aviation
£m
|
Unallocated
£m
|
Total
£m
|
Revenue
|
1,429.1
|
1,520.9
|
1,098.6
|
341.5
|
-
|
4,390.1
|
Underlying operating profit
|
13.1
|
109.2
|
96.3
|
19.2
|
-
|
237.8
|
Specific Adjusting Items (note 2)
|
|
|
|
|
|
|
Amortisation of acquired intangibles
|
(7.5)
|
-
|
-
|
(3.3)
|
-
|
(10.8)
|
Business acquisition, merger and divestment
related items
|
(1.5)
|
-
|
(0.2)
|
9.9
|
-
|
8.2
|
Fair value gain/(loss) on forward rate
contracts to be settled in future periods
|
6.9
|
-
|
-
|
(0.5)
|
-
|
6.4
|
Operating profit
|
11.0
|
109.2
|
96.1
|
25.3
|
-
|
241.6
|
Results from joint ventures and
associates
|
(2.3)
|
0.2
|
0.3
|
11.0
|
-
|
9.2
|
IFRIC 12 investment income
|
-
|
-
|
0.5
|
-
|
-
|
0.5
|
Other net finance costs*
|
-
|
-
|
-
|
-
|
(34.6)
|
(34.6)
|
Profit/(loss) before tax
|
8.7
|
109.4
|
96.9
|
36.3
|
(34.6)
|
216.7
|
Year ended 31 March 2023
|
Marine
£m
|
Nuclear
£m
|
Land
£m
|
Aviation
£m
|
Unallocated
£m
|
Total
£m
|
Revenue
|
1,439.6
|
1,179.2
|
1,017.1
|
802.7
|
-
|
4,438.6
|
Underlying operating profit
|
12.7
|
63.5
|
85.9
|
15.8
|
-
|
177.9
|
Specific Adjusting Items (note 2)
|
|
|
|
|
|
|
Amortisation of acquired intangibles
|
(9.7)
|
-
|
(1.1)
|
(5.0)
|
-
|
(15.8)
|
Business acquisition, merger and divestment
related items
|
-
|
-
|
(4.0)
|
(113.7)
|
-
|
(117.7)
|
Fair value gain/(loss) on forward rate
contracts to be settled in future periods
|
2.8
|
0.1
|
0.1
|
(1.9)
|
-
|
1.1
|
Operating profit/(loss)
|
5.8
|
63.6
|
80.9
|
(104.8)
|
-
|
45.5
|
Results from joint ventures and
associates
|
(1.2)
|
1.1
|
0.4
|
9.0
|
-
|
9.3
|
IFRIC 12 investment income
|
-
|
-
|
0.7
|
-
|
-
|
0.7
|
Other net finance costs*
|
-
|
-
|
-
|
-
|
(49.3)
|
(49.3)
|
Profit/(loss) before tax
|
4.6
|
64.7
|
82.0
|
(95.8)
|
(49.3)
|
6.2
|
* Other net finance costs are not
allocated to a specific sector.
Revenues of £2.5 billion (2023: £2.2 billion)
are derived from a single external customer. These revenues are
attributable across all reportable segments.
4. Net finance costs
|
Year ended
31 March 2024
£m
|
Year ended
31 March 2023
£m
|
Finance costs
|
|
|
Loans, overdrafts and associated interest rate
hedges
|
38.5
|
29.6
|
Lease interest and foreign exchange movements
on lease liabilities
|
9.6
|
21.7
|
Amortisation of issue costs of bank
loan
|
3.0
|
3.3
|
Retirement benefit interest cost
|
0.8
|
-
|
Other
|
4.3
|
15.9
|
Total finance costs
|
56.2
|
70.5
|
Finance income
|
|
|
Bank deposits, loans and leases
|
21.6
|
13.7
|
IFRIC 12 Investment income
|
0.5
|
0.7
|
Retirement benefit interest income
|
-
|
7.5
|
Total finance income
|
22.1
|
21.9
|
Net finance costs
|
34.1
|
48.6
|
Net finance costs decreased to £34.1 million
(2023: £48.6 million). Included in finance costs are £4.4 million
(2023: £12 million) relating to the factoring of receivables for
the Mentor contract in France (within other finance
costs).
The prior year included a one-off gain of £18
million relating to the valuation of interest rate swaps (within
loans, overdrafts and associated interest rate hedges).
5. Taxation
Income tax expense
|
|
|
|
Total
|
|
|
Year ended
31 March 2024
£m
|
Year ended
31 March 2023
£m
|
Analysis of tax expense in the year
|
|
|
|
|
|
|
Current tax
|
|
|
|
|
|
|
• UK
current year expense
|
|
|
|
|
-
|
0.6
|
• Overseas
current year expense
|
|
|
|
|
21.8
|
24.5
|
• Overseas
prior year (benefit) / expense
|
|
|
|
|
(0.1)
|
2.9
|
|
|
|
|
|
21.7
|
28.0
|
Deferred tax
|
|
|
|
|
|
|
• UK
current year expense
|
|
|
|
|
26.1
|
11.1
|
• UK prior
year expense/(benefit)
|
|
|
|
|
0.5
|
(3.3)
|
• Overseas
current year expense
|
|
|
|
|
1.8
|
3.6
|
• Overseas
prior year benefit
|
|
|
|
|
(2.2)
|
(1.1)
|
• Impact
of changes in tax rates
|
|
|
|
|
0.6
|
1.2
|
|
|
|
|
|
26.8
|
11.5
|
Total income tax expense
|
|
|
|
|
48.5
|
39.5
|
The tax for the year is lower (2023: higher)
than the standard rate of corporation tax in the UK. The
differences are explained below:
|
Year ended
31 March 2024
£m
|
Year ended
31 March 2023
£m
|
Profit before tax
|
216.7
|
6.2
|
Profit on ordinary activities multiplied by
rate of corporation tax in the UK of 25% (2023: 19%)
|
54.2
|
1.2
|
Effects of:
|
|
|
Expenses not deductible for tax
purposes
|
3.4
|
8.6
|
Re-measurement of deferred tax in respect of
statutory rate changes
|
0.6
|
1.2
|
Difference in respect of share of results of
joint ventures and associates' results
|
(2.6)
|
(1.8)
|
Prior year adjustments
|
(1.8)
|
(1.5)
|
Differences in respect of foreign
rates
|
2.0
|
5.8
|
Unrecognised deferred tax movements
|
2.5
|
9.0
|
Deferred tax not previously
recognised/derecognised
|
(3.1)
|
-
|
Non-taxable profits on disposals and
non-deductible losses on disposals
|
(2.1)
|
22.4
|
Other
|
(4.6)
|
(5.4)
|
Total income tax expense
|
48.5
|
39.5
|
The Group is subject to taxation in several
jurisdictions. The complexity of applicable rules may result in
legitimate differences of interpretation between the Group and
taxing authorities, especially where an economic judgement or
valuation is involved. The outcome of tax authority disputes in
such areas is not predictable, and to reflect the effect of these
uncertain tax positions a provision is recorded which represents
management's assessment of the most likely outcome of each issue.
At 31 March 2024 the Group held uncertain tax positions of £23.7
million (2023: £20.3 million).
During the prior period the Group made
disposals that are expected to be exempt from UK tax due to
qualification for the UK substantial shareholding exemption, and
from overseas tax as a consequence of local reliefs.
6. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated
by dividing the earnings/(loss) attributable to ordinary
shareholders by the weighted average number of ordinary shares
outstanding during the year excluding those held in the Babcock
Employee Share Trust. Where there is a loss arising the effect of
potentially dilutive ordinary shares is anti-dilutive.
The calculation of the basic and diluted
earnings/(loss) per share is based on the following
data:
Number of shares
|
2024
Number
|
2023
Number
|
Weighted average number of ordinary shares for
the purpose of basic EPS
|
503,452,989
|
505,391,563
|
Effect of dilutive potential ordinary shares:
share options
|
11,869,860
|
9,528,985
|
Weighted average number of ordinary shares for
the purpose of diluted EPS
|
515,322,849
|
514,920,548
|
Earnings per share
|
Year ended 31 March 2024
|
|
Year ended 31 March 2023
|
|
Earnings attributable to shareholders
£m
|
Basic
per share
Pence
|
Diluted
per share
Pence
|
|
Loss attributable to shareholders
£m
|
Basic
per share
Pence
|
Diluted
per share
Pence
|
Earnings/(loss) for the year
|
165.7
|
32.9
|
32.2
|
|
(35.0)
|
(6.9)
|
(6.9)
|
7. Goodwill
|
31 March 2024
£m
|
31 March 2023
£m
|
Cost
|
|
|
At 1 April
|
1,823.3
|
2,312.7
|
On disposal of subsidiaries
|
-
|
(488.0)
|
Exchange adjustments
|
(1.3)
|
(1.4)
|
At 31 March
|
1,822.0
|
1,823.3
|
Accumulated impairment
|
|
|
At 1 April
|
1,041.9
|
1,529.3
|
On disposal of subsidiaries
|
-
|
(487.4)
|
At 31 March
|
1,041.9
|
1,041.9
|
Net book value at 31 March
|
780.1
|
781.4
|
Goodwill is allocated to the
operating segments as set out in the table below:
|
31 March 2024
£m
|
31 March 2023
£m
|
Marine
|
295.5
|
296.6
|
Nuclear
|
233.1
|
233.1
|
Land (excluding Africa)
|
218.0
|
218.0
|
Aviation
|
32.0
|
32.0
|
Africa
|
1.5
|
1.7
|
|
780.1
|
781.4
|
Goodwill was tested for impairment at 31 March
2024 in accordance with IAS 36. This impairment analysis is
performed at least annually, as outlined in the Group's accounting
policies. The Group monitors goodwill at groups of CGUs aligned to
the Group's operating segments for Marine, Aviation and Nuclear.
Goodwill is separately allocated and monitored between two groups
of CGUs in the Land operating segment - Africa and Land (excluding
Africa).
Results of goodwill impairment
test
The current year impairment test results have
not resulted in an impairment for any of the Group's cash
generating units. The recoverable amount of the Group's goodwill
was assessed by reference to value-in-use calculations. The
value-in-use calculations are derived from risk-adjusted cash flows
from the Group's five-year plan. Terminal value assessments are
included based on year five and an estimated long-term,
country-specific growth rate of 2.0 - 4.6% (2023: 1.9 - 4.6%). The
process by which the Group's budget is prepared, reviewed and
approved benefits from historical experience, visibility of
long-term work programmes in relation to work undertaken for the UK
Government, available government spending information (both UK and
overseas), the Group's contract backlog, bid pipeline and the
Group's tracking pipeline which monitors opportunities prior to
release of tenders. The budget process includes consideration of
risks and opportunities at contract and business level and
considered matters such as inflation.
8. Other intangible assets
|
Acquired
intangibles -
relationships
£m
|
Internally generated software development
costs and
licences
£m
|
Internally generated development
costs and
other
£m
|
Assets under construction
£m
|
Total
£m
|
Cost
|
|
|
|
|
|
At 1 April 2023
|
861.0
|
231.3
|
15.0
|
-
|
1,107.3
|
Additions
|
-
|
6.9
|
10.0
|
16.4
|
33.3
|
Reclassification from property, plant and
equipment (note 9)
|
-
|
-
|
-
|
1.4
|
1.4
|
Reclassification from AUC to in-use
assets
|
-
|
16.4
|
0.1
|
(16.5)
|
-
|
Disposals at cost
|
-
|
(1.0)
|
-
|
-
|
(1.0)
|
Exchange adjustments
|
(10.1)
|
(0.2)
|
(0.1)
|
-
|
(10.4)
|
At 31 March 2024
|
850.9
|
253.4
|
25.0
|
1.3
|
1,130.6
|
|
|
|
|
|
|
Accumulated amortisation and
impairment
|
|
|
|
|
|
At 1 April 2023
|
794.4
|
166.5
|
5.6
|
-
|
966.5
|
Amortisation charge
|
10.8
|
8.6
|
4.6
|
-
|
24.0
|
Disposals
|
-
|
(0.9)
|
-
|
-
|
(0.9)
|
Exchange adjustments
|
(7.4)
|
(0.5)
|
0.1
|
-
|
(7.8)
|
At 31 March 2024
|
797.8
|
173.7
|
10.3
|
-
|
981.8
|
Net book value at 31 March 2024
|
53.1
|
79.7
|
14.7
|
1.3
|
148.8
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
At 1 April 2022
|
1,095.3
|
222.6
|
27.6
|
-
|
1,345.5
|
Additions
|
-
|
18.1
|
3.4
|
-
|
21.5
|
Reclassification from property, plant and
equipment (note 9)
|
-
|
3.0
|
0.3
|
-
|
3.3
|
Disposal of subsidiary undertakings
|
(237.0)
|
(4.9)
|
(13.9)
|
-
|
(255.8)
|
Disposals at cost
|
(2.0)
|
(7.4)
|
(3.0)
|
-
|
(12.4)
|
Exchange adjustments
|
4.7
|
(0.1)
|
0.6
|
-
|
5.2
|
At 31 March 2023
|
861.0
|
231.3
|
15.0
|
-
|
1,107.3
|
|
|
|
|
|
|
Accumulated amortisation and
impairment
|
|
|
|
|
|
At 1 April 2022
|
1,005.8
|
156.8
|
6.2
|
-
|
1,168.8
|
Amortisation charge
|
15.8
|
10.5
|
1.8
|
-
|
28.1
|
Impairment
|
-
|
9.0
|
-
|
-
|
9.0
|
Disposal of subsidiary undertakings
|
(233.0)
|
(3.1)
|
(0.8)
|
-
|
(236.9)
|
Disposals
|
(2.0)
|
(6.6)
|
(1.7)
|
-
|
(10.3)
|
Exchange adjustments
|
7.8
|
(0.1)
|
0.1
|
-
|
7.8
|
At 31 March 2023
|
794.4
|
166.5
|
5.6
|
-
|
966.5
|
Net book value at 31 March 2023
|
66.6
|
64.8
|
9.4
|
-
|
140.8
|
Acquired intangible amortisation charges for
the year are recorded in operating costs.
Included in Internally generated software
development costs and licences is £36.9 million (2023: £38.6
million) relating to the Group's ERP system, which is amortised
over a 10-year period. Included in the acquired intangible balance
is £42.8 million (2023: £52.3 million) relating to the acquisition
of NSM. This is being amortised over a period of 20
years.
9. Property, plant and equipment
|
Freehold
property
£m
|
Leasehold
property
£m
|
Plant and
equipment
£m
|
Aircraft
fleet
£m
|
Assets in
course of
construction
£m
|
Total
£m
|
Cost
|
|
|
|
|
|
|
At 1 April 2023
|
212.2
|
15.2
|
571.0
|
97.5
|
90.8
|
986.7
|
Additions
|
2.3
|
0.1
|
22.2
|
5.3
|
77.7
|
107.6
|
Reclassified to other intangible assets (note
8)
|
-
|
-
|
(1.4)
|
-
|
-
|
(1.4)
|
Reclassification from AUC to in-use
assets
|
10.4
|
0.2
|
37.2
|
0.3
|
(48.1)
|
-
|
Disposals
|
(4.1)
|
-
|
(12.0)
|
(21.0)
|
-
|
(37.1)
|
Capitalised borrowing costs
|
-
|
-
|
-
|
-
|
3.9
|
3.9
|
Exchange adjustments
|
(0.2)
|
(0.1)
|
(4.7)
|
(2.2)
|
(0.2)
|
(7.4)
|
At 31 March 2024
|
220.6
|
15.4
|
612.3
|
79.9
|
124.1
|
1,052.3
|
Accumulated depreciation
|
|
|
|
|
|
|
At 1 April 2023
|
74.4
|
12.1
|
390.6
|
24.9
|
6.2
|
508.2
|
Depreciation charge for the year
|
7.4
|
1.0
|
39.1
|
4.5
|
-
|
52.0
|
Impairment
|
-
|
-
|
-
|
2.1
|
-
|
2.1
|
Disposals
|
(2.2)
|
-
|
(8.7)
|
(12.7)
|
-
|
(23.6)
|
Exchange adjustments
|
(0.1)
|
(0.1)
|
(2.5)
|
(0.9)
|
0.1
|
(3.5)
|
At 31 March 2024
|
79.5
|
13.0
|
418.5
|
17.9
|
6.3
|
535.2
|
Net book value at 31 March 2024
|
141.1
|
2.4
|
193.8
|
62.0
|
117.8
|
517.1
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
At 1 April 2022
|
151.8
|
24.7
|
524.9
|
303.1
|
213.9
|
1,218.4
|
On disposal of subsidiaries
|
(9.4)
|
(9.0)
|
(32.1)
|
(224.1)
|
(13.9)
|
(288.5)
|
Additions
|
0.4
|
0.2
|
33.2
|
27.8
|
48.3
|
109.9
|
Transfer to intangible assets (note
8)
|
-
|
-
|
-
|
-
|
(3.3)
|
(3.3)
|
Reclassification from AUC to in-use
assets
|
70.0
|
-
|
66.0
|
3.0
|
(139.0)
|
-
|
Transfer from Right-of use-assets
|
-
|
-
|
-
|
19.5
|
-
|
19.5
|
Disposals
|
(0.8)
|
-
|
(13.1)
|
(40.2)
|
(18.8)
|
(72.9)
|
Capitalised borrowing costs
|
-
|
-
|
-
|
-
|
0.6
|
0.6
|
Exchange adjustments
|
0.2
|
(0.7)
|
(7.9)
|
8.4
|
3.0
|
3.0
|
At 31 March 2023
|
212.2
|
15.2
|
571.0
|
97.5
|
90.8
|
986.7
|
Accumulated depreciation
|
|
|
|
|
|
|
At 1 April 2022
|
70.7
|
11.1
|
373.2
|
52.3
|
0.5
|
507.8
|
On disposal of subsidiaries
|
(2.9)
|
(0.5)
|
(14.3)
|
(33.9)
|
-
|
(51.6)
|
Depreciation charge for the year
|
7.1
|
1.5
|
45.4
|
18.1
|
-
|
72.1
|
Impairment
|
-
|
-
|
-
|
(0.8)
|
5.7
|
4.9
|
Transfer from Right-of-use-assets
|
-
|
-
|
-
|
11.5
|
-
|
11.5
|
Disposals
|
(0.7)
|
-
|
(11.2)
|
(24.0)
|
(0.5)
|
(36.4)
|
Exchange adjustments
|
0.2
|
-
|
(2.5)
|
1.7
|
0.5
|
(0.1)
|
At 31 March 2023
|
74.4
|
12.1
|
390.6
|
24.9
|
6.2
|
508.2
|
Net book value at 31 March 2023
|
137.8
|
3.1
|
180.4
|
72.6
|
84.6
|
478.5
|
10. Leases
Group as a lessee
Leases represent rentals payable by the Group
for certain operational, distribution and office properties and
other assets such as aircraft. The leases have varying terms,
purchase options, escalation clauses and renewal rights.
Right of use assets
|
Leasehold
property
£m
|
Plant and
equipment
£m
|
Aircraft
fleet
£m
|
Total
£m
|
Cost
|
|
|
|
|
At 1 April 2023
|
141.6
|
67.7
|
138.0
|
347.3
|
Additions
|
21.6
|
12.9
|
34.6
|
69.1
|
Disposals
|
(21.2)
|
(6.3)
|
(14.8)
|
(42.3)
|
Exchange adjustments
|
(1.9)
|
(0.2)
|
(4.7)
|
(6.8)
|
At 31 March 2024
|
140.1
|
74.1
|
153.1
|
367.3
|
Accumulated depreciation
|
|
|
|
|
At 1 April 2023
|
49.5
|
45.7
|
93.0
|
188.2
|
Depreciation charge for the year
|
18.0
|
8.9
|
12.9
|
39.8
|
Disposals
|
(12.6)
|
(5.2)
|
(14.0)
|
(31.8)
|
Exchange adjustments
|
(1.0)
|
(0.1)
|
(3.4)
|
(4.5)
|
At 31 March 2024
|
53.9
|
49.3
|
88.5
|
191.7
|
Net book value at 31 March 2024
|
86.2
|
24.8
|
64.6
|
175.6
|
|
|
|
|
|
At 1 April 2022
|
127.3
|
64.7
|
383.0
|
575.0
|
Additions
|
37.1
|
9.8
|
67.7
|
114.6
|
Transfer to Property, plant and
equipment
|
-
|
-
|
(19.5)
|
(19.5)
|
Disposals
|
(10.0)
|
(3.7)
|
(24.5)
|
(38.2)
|
Disposal of subsidiaries
|
(11.5)
|
(3.5)
|
(269.8)
|
(284.8)
|
Exchange adjustments
|
(1.3)
|
0.4
|
1.1
|
0.2
|
At 31 March 2023
|
141.6
|
67.7
|
138.0
|
347.3
|
Accumulated depreciation
|
|
|
|
|
At 1 April 2022
|
42.5
|
40.9
|
157.3
|
240.7
|
Depreciation charge for the year
|
20.5
|
9.1
|
52.1
|
81.7
|
Impairment
|
0.9
|
-
|
8.7
|
9.6
|
Disposals
|
(7.0)
|
(3.3)
|
(21.7)
|
(32.0)
|
Disposal of subsidiaries
|
(6.9)
|
(1.3)
|
(94.6)
|
(102.8)
|
Transfer to Property, plant and
equipment
|
-
|
-
|
(11.5)
|
(11.5)
|
Exchange adjustments
|
(0.5)
|
0.3
|
2.7
|
2.5
|
At 31 March 2023
|
49.5
|
45.7
|
93.0
|
188.2
|
Net book value at 31 March 2023
|
92.1
|
22.0
|
45.0
|
159.1
|
Lease liabilities
The following tables show the discounted Group
lease liabilities and a reconciliation of opening to closing lease
liabilities:
|
|
|
|
Total
£m
|
At 1 April 2023
|
|
|
|
228.8
|
Additions
|
|
|
|
68.0
|
Disposals
|
|
|
|
(12.8)
|
Exchange adjustments
|
|
|
|
(3.9)
|
Lease interest
|
|
|
|
9.8
|
Lease repayments
|
|
|
|
(59.4)
|
At 31 March 2024
|
|
|
|
230.5
|
Non-current lease liabilities
|
|
|
|
185.9
|
Current lease liabilities
|
|
|
|
44.6
|
At 31 March 2024
|
|
|
|
230.5
|
|
|
|
|
|
At 1 April 2022
|
|
|
|
434.1
|
Additions
|
|
|
|
117.0
|
Disposals
|
|
|
|
(5.3)
|
Disposal of subsidiaries
|
|
|
|
(218.1)
|
Exchange adjustments
|
|
|
|
9.6
|
Lease interest
|
|
|
|
15.9
|
Lease repayments
|
|
|
|
(124.4)
|
At 31 March 2023
|
|
|
|
228.8
|
Non-current lease liabilities
|
|
|
|
178.9
|
Current lease liabilities
|
|
|
|
49.9
|
At 31 March 2023
|
|
|
|
228.8
|
11. Investment in and loans to joint ventures
and associates
|
Investment in joint ventures and associates
|
|
Loans to joint ventures and associates
|
|
Total
|
2024
£m
|
2023
£m
|
|
2024
£m
|
2023
£m
|
|
2024
£m
|
2023
£m
|
At 1 April
|
57.4
|
54.3
|
|
9.5
|
12.1
|
|
66.9
|
66.4
|
Share of profits of joint ventures and
associates
|
10.3
|
9.3
|
|
-
|
-
|
|
10.3
|
9.3
|
Impairment of joint ventures and
associates
|
(1.1)
|
-
|
|
-
|
-
|
|
(1.1)
|
-
|
Results from joint ventures and
associates
|
9.2
|
9.3
|
|
-
|
-
|
|
9.2
|
9.3
|
Acquisition and disposal of joint ventures and
associates
|
-
|
(1.0)
|
|
-
|
-
|
|
-
|
(1.0)
|
Loans repaid by joint ventures and
associates
|
-
|
-
|
|
(7.5)
|
(2.4)
|
|
(7.5)
|
(2.4)
|
Increase in loans to joint ventures and
associates
|
-
|
-
|
|
2.1
|
-
|
|
2.1
|
-
|
Interest accrued and capitalised
|
-
|
-
|
|
0.3
|
1.0
|
|
0.3
|
1.0
|
Interest received
|
-
|
-
|
|
(0.5)
|
(1.2)
|
|
(0.5)
|
(1.2)
|
Dividends received
|
(7.1)
|
(8.7)
|
|
-
|
-
|
|
(7.1)
|
(8.7)
|
Fair value adjustment of derivatives
|
0.3
|
4.7
|
|
-
|
-
|
|
0.3
|
4.7
|
Tax on fair value adjustment of
derivatives
|
(0.1)
|
(1.2)
|
|
-
|
-
|
|
(0.1)
|
(1.2)
|
At 31 March
|
59.7
|
57.4
|
|
3.9
|
9.5
|
|
63.6
|
66.9
|
The total investments in joint ventures and
associates is attributable to the following reportable
segments:
|
31 March 2024
£m
|
31 March 2023
£m
|
Marine
|
3.3
|
3.7
|
Nuclear
|
1.6
|
1.4
|
Land
|
0.2
|
0.2
|
Aviation
|
58.5
|
61.6
|
Net book value
|
63.6
|
66.9
|
The joint ventures and associates have no
significant contingent liabilities to which the Group is exposed.
The Group does not have any commitments that have been made to the
joint ventures or associates and not recognised at the reporting
date.
Joint arrangements are classified as joint
ventures where the Group has the right to net assets of the joint
arrangement rather than separate rights and obligations to the
assets and liabilities of the joint arrangement, respectively.
There has been no impairment to loans to joint ventures and
associates during the year (2023: £nil). Total cumulative expected
credit losses in respect of loans to joint ventures and associates
are also £nil (2023: £nil) as the joint ventures and associates are
considered to have low credit risk and as such impairment risk is
considered minimal.
There are no significant restrictions on the
ability of joint ventures and associates to transfer funds to the
owners, other than those imposed by the Companies Act 2006 or
equivalent local regulations.
12. Inventories
|
31 March 2024
£m
|
31 March 2023
£m
|
Raw materials and spares
|
58.1
|
58.6
|
Work-in-progress
|
4.6
|
7.2
|
Finished goods and goods for resale
|
124.7
|
61.0
|
Total
|
187.4
|
126.8
|
Write-downs of inventories amounted to £13.8
million (2023: £5.4 million). These were recognised as an expense
during the year ended 31 March 2024 and included in operating costs
in the income statement. Inventory recognised as an expense in the
year amounted to £357.2 million (2023: £320.5 million).
13. Trade and other receivables and contract
assets
|
31 March 2024
£m
|
31 March 2023
£m
|
Non-current assets
|
|
|
Costs to obtain a contract
|
0.3
|
2.8
|
Costs to fulfil a contract
|
10.2
|
1.4
|
Other debtors
|
2.5
|
2.2
|
Non-current trade and other
receivables
|
13.0
|
6.4
|
|
|
|
Current assets
|
|
|
Trade receivables
|
266.4
|
307.3
|
Less: provision for impairment of
receivables
|
(8.5)
|
(7.3)
|
Trade receivables - net
|
257.9
|
300.0
|
Retentions
|
6.1
|
6.0
|
Amounts due from related parties
|
2.3
|
2.1
|
Other debtors1
|
25.0
|
49.6
|
Other taxes and social security
receivables
|
98.1
|
79.8
|
Prepayments
|
88.2
|
63.7
|
Costs to obtain a contract
|
-
|
0.6
|
Costs to fulfil a contract
|
9.6
|
5.1
|
Current trade and other receivables
|
487.2
|
506.9
|
|
|
|
Contract assets
|
337.4
|
322.5
|
|
|
|
Current trade and other receivables and
contract assets
|
824.6
|
829.4
|
1 Included in other
debtors are rebates receivable and other sundry receivables. No
individual balance within other debtors is material.
Trade and other receivables are stated at
amortised cost.
The Group recognises that there is an inherent
element of estimation uncertainty and judgement involved in
assessing contract profitability, as disclosed in note 1.
Management have taken a best estimate view of contract outcomes
based on the information currently available, after allowing for
contingencies, and have applied a constraint to the variable
consideration within revenue resulting in a revenue estimate that
is suitably cautious under IFRS 15.
14. Trade and other payables and contract
liabilities
|
31 March 2024
£m
|
31 March 2023
£m
|
Current liabilities
|
|
|
Contract liabilities
|
761.8
|
616.4
|
|
|
|
Trade creditors
|
314.3
|
239.1
|
Amounts due to related parties
|
1.5
|
0.8
|
Other creditors
|
13.5
|
34.0
|
Defined contribution pension
creditor
|
8.3
|
7.6
|
Other taxes and social security
|
71.1
|
75.5
|
Accruals
|
540.5
|
554.1
|
Trade and other payables
|
949.2
|
911.1
|
|
|
|
Trade and other payables and contract
liabilities
|
1,711.0
|
1,527.5
|
|
|
|
Non-current liabilities
|
|
|
Non-current accruals
|
4.8
|
-
|
Other creditors
|
0.6
|
0.9
|
|
5.4
|
0.9
|
Included in creditors is £11.4 million (2023:
£12.9 million) relating to capital expenditure which has therefore
not been included in working capital movements within the cash flow
statement.
15. Bank and other borrowings
|
31 March 2024
£m
|
31 March 2023
£m
|
Current liabilities
|
|
|
Bank loans and overdrafts due within one year
or on demand
|
|
|
Secured
|
4.5
|
0.3
|
Unsecured
|
15.9
|
19.3
|
|
20.4
|
19.6
|
Lease obligations*
|
44.6
|
49.9
|
|
65.0
|
69.5
|
Non-current liabilities
|
|
|
Bank and other borrowings
|
|
|
Secured
|
2.5
|
21.0
|
Unsecured
|
744.6
|
747.4
|
|
747.1
|
768.4
|
Lease obligations*
|
185.9
|
178.9
|
|
933.0
|
947.3
|
* Leases are secured against the
assets to which they relate.
Repayment details
The total borrowings of the Group at 31 March
are repayable as follows:
|
|
31 March 2024
|
|
31 March 2023
|
|
Loans and
overdrafts
£m
|
Lease
obligations
£m
|
Loans and
overdrafts
£m
|
Lease
obligations
£m
|
Within one year
|
|
20.4
|
44.6
|
|
19.6
|
49.9
|
Between one and two years
|
|
0.6
|
38.2
|
|
0.3
|
40.6
|
Between two and three years
|
|
296.0
|
33.2
|
|
0.6
|
34.5
|
Between three and four years
|
|
449.8
|
24.8
|
|
300.6
|
23.4
|
Between four and five years
|
|
0.7
|
19.5
|
|
466.2
|
19.9
|
Greater than five years
|
|
-
|
70.2
|
|
0.7
|
60.5
|
|
|
767.5
|
230.5
|
|
788.0
|
228.8
|
Borrowing facilities
The Group had the following undrawn committed
borrowing facilities available at 31 March:
|
31 March 2024
£m
|
31 March 2023
£m
|
Expiring in more than one year but not more
than five years
|
775.0
|
1,152.8
|
|
775.0
|
1,152.8
|
16. Provisions for other liabilities
|
Contract/
warranty
(a)
£m
|
Employee related and business
reorganisation
costs
(b)
£m
|
Italian
anti-trust fine
(c)
£m
|
Property
(d)
£m
|
Other
(e)
£m
|
Total
provisions
£m
|
At 1 April 2022
|
53.5
|
39.7
|
0.3
|
21.0
|
1.4
|
115.9
|
On disposal of subsidiaries
|
(8.5)
|
(1.2)
|
-
|
(5.8)
|
(0.1)
|
(15.6)
|
Reclassification
|
(1.0)
|
1.4
|
-
|
(4.3)
|
3.9
|
-
|
Charge to income statement
|
85.3
|
12.8
|
-
|
8.6
|
1.2
|
107.9
|
Release to the income statement
|
(9.3)
|
(2.4)
|
-
|
(0.2)
|
(1.8)
|
(13.7)
|
Utilised in year
|
(20.2)
|
(19.2)
|
(0.3)
|
(4.8)
|
(1.8)
|
(46.3)
|
Unwinding of discount
|
-
|
0.2
|
-
|
-
|
-
|
0.2
|
Foreign exchange
|
0.6
|
(0.8)
|
-
|
0.6
|
(0.1)
|
0.3
|
At 31 March 2023
|
100.4
|
30.5
|
-
|
15.1
|
2.7
|
148.7
|
Charge to income statement
|
66.4
|
10.3
|
-
|
10.3
|
2.7
|
89.7
|
Release to the income statement
|
(19.4)
|
(3.6)
|
-
|
(0.5)
|
(0.1)
|
(23.6)
|
Utilised in year
|
(31.3)
|
(6.2)
|
-
|
(1.4)
|
(0.7)
|
(39.6)
|
Reclassified to accruals1
|
-
|
(18.0)
|
-
|
-
|
-
|
(18.0)
|
Unwinding of discount
|
2.4
|
0.3
|
-
|
-
|
-
|
2.7
|
Foreign exchange
|
(0.7)
|
(0.9)
|
-
|
-
|
(0.1)
|
(1.7)
|
At 31 March 2024
|
117.8
|
12.4
|
-
|
23.5
|
4.5
|
158.2
|
1 Immaterial amounts
related to employee benefits have been reclassified to current and
non-current accruals during the period.
a)
|
The contract/warranty provisions relate to
onerous contracts and warranty obligations on completed contracts
and disposals. Warranty provisions are provided in the normal
course of business and are recognised when the underlying products
and services are sold. The provision is based on an assessment of
future claims with reference to historical warranty data and a
weighting of possible outcomes against their associated
probabilities. Onerous contracts relate to expected future losses
on contracts with customers - notably T31 as outlined in note
1.
|
b)
|
Employee related and business reorganisation
costs relate to business restructuring activities including
announced redundancies in addition to employee related provisions
other than employee benefits.
|
c)
|
Italian anti-trust fines pertain to historic
court rulings in respect of the Babcock Mission Critical Services
Italia SpA subsidiary. The remaining amount of this provision was
paid in the prior year.
|
d)
|
Property and other provisions primarily relate
to dilapidation costs and contractual obligations in respect of
infrastructure.
|
e)
|
Other provisions include provisions for
insurance claims arising within the Group's captive insurance
company, Chepstow Insurance Limited. They relate to specific claims
assessed in accordance with the advice of independent
actuaries.
|
Provisions have been analysed between current
and non-current as follows:
|
31 March 2024
£m
|
31 March 2023
£m
|
Current
|
79.1
|
67.9
|
Non-current
|
79.1
|
80.8
|
|
158.2
|
148.7
|
Included within provisions is £6.7 million
(2023: £6.9 million) expected to be utilised over approximately 10
years. Other than these provisions the Group's non-current
provisions are expected to be utilised within two to five
years.
17. Retirement benefits and
liabilities
The Group has a number of defined benefit
pension schemes. The principal defined benefit pension schemes in
the UK are the Devonport Royal Dockyard Pension Scheme, the Babcock
International Group Pension Scheme and the Rosyth Royal Dockyard
Pension Scheme (the Principal schemes). Each of these schemes is
predominantly a final salary plan in which future pension levels
are defined relative to number of years' service and final salary.
Retirement age varies by scheme. The nature of these schemes is
that the employees only contribute whilst they active employees of
a scheme, with the employer paying the balance of the cost
required. The contributions required and the assessment of the
assets and the liabilities that have accrued to members and any
deficit recovery payments required are agreed by the Group with the
trustees of each scheme who are advised by independent, qualified
actuaries.
In January 2024, the Group commenced a
consultation with affected employees and their representatives with
regard to a proposal that would close the DRDPS to future accrual
with effect from 30 September 2024 and to provide benefits for
service from 1 October 2024 onwards through a defined contribution
scheme. The consultation process for this proposal ended on
25 March 2024. Following the conclusion of the consultation
process, a decision has been taken by Devonport Royal Dockyard
Limited to proceed with closure of the DRDPS to future accrual and
the Trustee has given in-principle agreement to this decision.
There is no impact to the accounting as at 31 March 2024 for this
item however there will be a future impact in the subsequent year's
consolidated income statement as a result of the curtailment /
settlement of the scheme. Due to the options available to the
affected employees, we are yet to calculate the impact however
through initial assessments we do not expect this to be
material.
In March 2024, all employers of employees who
are provided benefits in the BIGPS commenced a consultation with
the employees and their representatives with regard to a proposal
that would close the BIGPS to future accrual with effect from 30
September 2024 and to provide like-for-like benefits for service
from 1 October 2024 onwards through alternative schemes.
Consultation ended on 7 June 2024 and no decisions have been
taken.
The Group's balance sheet includes the assets
and liabilities of the pension schemes calculated on an IAS 19
basis. At 31 March 2024, the net position was a deficit of £109.7
million (2023: deficit of £61.4 million). These valuations are
based on discounting using corporate bond yields.
The fair value of the assets and the present
value of the liabilities of the Group pension schemes at 31 March
were as follows:
|
2024
|
|
2023
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
Growth assets
|
|
|
|
|
|
|
|
|
|
|
Equities
|
68.7
|
9.8
|
30.6
|
109.1
|
|
(3.1)
|
10.6
|
26.6
|
34.1
|
|
Property funds
|
251.7
|
0.2
|
4.8
|
256.7
|
|
301.7
|
0.2
|
5.9
|
307.8
|
|
High yield bonds/emerging market
debt
|
-
|
-
|
0.4
|
0.4
|
|
-
|
-
|
0.4
|
0.4
|
|
Absolute return and
multi-strategy funds
|
1.7
|
140.8
|
17.0
|
159.5
|
|
6.0
|
148.0
|
17.5
|
171.5
|
|
Low-risk assets
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
1,234.4
|
82.8
|
52.3
|
1,369.5
|
|
1,227.7
|
95.5
|
45.1
|
1,368.3
|
|
Matching assets*
|
1,423.4
|
1.5
|
15.0
|
1,439.9
|
|
1,524.7
|
1.4
|
21.7
|
1,547.8
|
|
Longevity swaps and annuities
|
(240.9)
|
-
|
(9.9)
|
(250.8)
|
|
(231.8)
|
-
|
(10.1)
|
(241.9)
|
|
Fair value of assets
|
2,739.0
|
235.1
|
110.2
|
3,084.3
|
|
2,825.2
|
255.7
|
107.1
|
3,188.0
|
|
Percentage of assets quoted
|
73%
|
100%
|
71%
|
75%
|
|
79%
|
100%
|
70%
|
80%
|
|
Percentage of assets unquoted
|
27%
|
-
|
29%
|
25%
|
|
21%
|
-
|
30%
|
20%
|
|
Present value of defined benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
Active members
|
436.9
|
30.6
|
26.2
|
493.7
|
|
450.7
|
45.7
|
21.7
|
518.1
|
|
Deferred pensioners
|
640.5
|
64.7
|
31.3
|
736.5
|
|
686.6
|
65.3
|
34.7
|
786.6
|
|
Pensioners
|
1,778.8
|
142.1
|
42.9
|
1,963.8
|
|
1,773.6
|
130.5
|
40.6
|
1,944.7
|
|
Total defined benefit obligations
|
2,856.2
|
237.4
|
100.4
|
3,194.0
|
|
2,910.9
|
241.5
|
97.0
|
3,249.4
|
|
Net (liabilities)/assets recognised in
the statement of financial position
|
(117.2)
|
(2.3)
|
9.8
|
(109.7)
|
|
(85.7)
|
14.2
|
10.1
|
(61.4)
|
|
Analysis of movement in the Group
statement of financial position
|
Year ended 31 March 2024
|
|
Year ended 31 March 2023
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
At 1 April
|
2,825.2
|
255.7
|
107.1
|
3,188.0
|
|
4,220.3
|
275.8
|
237.0
|
4,733.1
|
Interest on assets
|
134.1
|
12.0
|
5.2
|
151.3
|
|
113.4
|
7.3
|
5.4
|
126.1
|
Actuarial loss on assets
|
(175.7)
|
(21.6)
|
(3.3)
|
(200.6)
|
|
(1,437.0)
|
(17.1)
|
(79.0)
|
(1,533.1)
|
Employer contributions
|
123.9
|
2.3
|
5.3
|
131.5
|
|
167.4
|
2.5
|
4.6
|
174.5
|
Employee contributions
|
0.1
|
-
|
-
|
0.1
|
|
0.1
|
-
|
-
|
0.1
|
Benefits paid
|
(168.6)
|
(13.3)
|
(4.1)
|
(186.0)
|
|
(239.0)
|
(12.8)
|
(4.8)
|
(256.6)
|
Settlements
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(56.1)
|
(56.1)
|
At 31 March
|
2,739.0
|
235.1
|
110.2
|
3,084.3
|
|
2,825.2
|
255.7
|
107.1
|
3,188.0
|
Present value of benefit obligations
|
|
|
|
|
|
|
|
|
|
At 1 April
|
2,910.9
|
241.5
|
97.0
|
3,249.4
|
|
3,992.6
|
327.1
|
221.8
|
4,541.5
|
Service cost
|
12.7
|
0.8
|
1.9
|
15.4
|
|
21.7
|
1.3
|
2.8
|
25.8
|
Incurred expenses
|
7.8
|
0.4
|
0.3
|
8.5
|
|
6.2
|
0.5
|
0.1
|
6.8
|
Interest cost
|
136.2
|
11.3
|
4.6
|
152.1
|
|
105.0
|
8.7
|
4.9
|
118.6
|
Employee contributions
|
0.1
|
-
|
-
|
0.1
|
|
0.1
|
-
|
-
|
0.1
|
Experience loss/(gain)
|
26.8
|
(0.3)
|
4.3
|
30.8
|
|
135.6
|
18.0
|
9.3
|
162.9
|
Actuarial gain - demographics
|
(38.6)
|
(0.2)
|
(0.9)
|
(39.7)
|
|
(38.2)
|
(3.6)
|
(1.7)
|
(43.5)
|
Actuarial gain - financial
|
(31.1)
|
(2.8)
|
(2.7)
|
(36.6)
|
|
(1,073.1)
|
(97.7)
|
(79.3)
|
(1,250.1)
|
Benefits paid
|
(168.6)
|
(13.3)
|
(4.1)
|
(186.0)
|
|
(239.0)
|
(12.8)
|
(4.8)
|
(256.6)
|
Settlements
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(56.1)
|
(56.1)
|
At 31 March
|
2,856.2
|
237.4
|
100.4
|
3,194.0
|
|
2,910.9
|
241.5
|
97.0
|
3,249.4
|
Net (deficit)/surplus at 31 March
|
(117.2)
|
(2.3)
|
9.8
|
(109.7)
|
|
(85.7)
|
14.2
|
10.1
|
(61.4)
|
The latest full actuarial valuations of the
Group's defined benefit pension schemes have been updated to 31
March 2024 by independent qualified actuaries for IAS 19 purposes,
on a best estimate basis, using the following
assumptions:
March 2024
|
Devonport
Royal
Dockyard
Scheme
|
Babcock
International
Group Scheme
|
Rosyth Royal
Dockyard
Scheme
|
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
|
Rate of increase in pensionable
salaries
|
2.9%
|
2.9%
|
-
|
0.5%
|
Rate of increase in pensions (past
service)
|
2.7%
|
3.1%
|
3.2%
|
2.8%
|
Discount rate
|
4.8%
|
4.8%
|
4.8%
|
4.8%
|
Inflation rate (RPI) - year 1
|
2.5%
|
2.6%
|
2.6%
|
2.6%
|
Inflation rate (RPI) - thereafter
|
3.1%
|
3.2%
|
3.2%
|
3.2%
|
Inflation rate (CPI) - year 1
|
1.8%
|
1.8%
|
1.8%
|
1.9%
|
Inflation rate (CPI) - thereafter
|
2.7%
|
2.7%
|
2.7%
|
2.8%
|
Weighted average duration of cash flows
(years)
|
13
|
11
|
13
|
13
|
Total life expectancy for current pensioners
aged 65 (years) - male
|
85.3
|
86.1
|
84.3
|
84.9
|
Total life expectancy for current pensioners
aged 65 (years) - female
|
87.2
|
88.7
|
86.7
|
87.2
|
Total life expectancy for future pensioners
currently aged 45 (years) - male
|
86.2
|
87.1
|
85.3
|
85.9
|
Total life expectancy for future pensioners
currently aged 45 (years) - female
|
88.4
|
89.9
|
87.9
|
88.4
|
|
|
|
|
|
March 2023
|
|
|
|
|
Rate of increase in pensionable
salaries
|
3.0%
|
3.0%
|
-
|
0.5%
|
Rate of increase in pensions (past
service)
|
2.8%
|
3.2%
|
3.3%
|
2.9%
|
Discount rate
|
4.8%
|
4.8%
|
4.8%
|
4.8%
|
Inflation rate (RPI) - year 1
|
6.9%
|
6.9%
|
6.9%
|
6.9%
|
Inflation rate (RPI) - thereafter
|
3.3%
|
3.3%
|
3.3%
|
3.3%
|
Inflation rate (CPI) - year 1
|
4.7%
|
4.7%
|
4.7%
|
4.7%
|
Inflation rate (CPI) - thereafter
|
2.8%
|
2.8%
|
2.8%
|
2.8%
|
Weighted average duration of cash flows
(years)
|
13
|
12
|
13
|
13
|
Total life expectancy for current pensioners
aged 65 (years) - male
|
85.5
|
86.3
|
84.4
|
85.0
|
Total life expectancy for current pensioners
aged 65 (years) - female
|
87.5
|
88.9
|
86.8
|
87.3
|
Total life expectancy for future pensioners
currently aged 45 (years) - male
|
86.2
|
86.8
|
85.6
|
86.0
|
Total life expectancy for future pensioners
currently aged 45 (years) - female
|
88.5
|
89.4
|
88.1
|
88.5
|
The schemes do not invest directly in assets
or shares of the Group.
The longevity swaps have been valued in line
with assumptions that are consistent with the requirements of IFRS
13 using Level 3 inputs. The key inputs to the valuation are the
discount rate and mortality assumptions.
The amounts recognised in the Group income
statement are as follows:
|
2024
|
|
2023
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
Current service cost
|
12.7
|
0.8
|
1.9
|
15.4
|
|
21.7
|
1.3
|
2.8
|
25.8
|
Incurred expenses
|
7.8
|
0.4
|
0.3
|
8.5
|
|
6.2
|
0.5
|
0.1
|
6.8
|
Total included within operating
profit
|
20.5
|
1.2
|
2.2
|
23.9
|
|
27.9
|
1.8
|
2.9
|
32.6
|
Net interest cost/(credit)
|
2.1
|
(0.7)
|
(0.6)
|
0.8
|
|
(8.5)
|
1.4
|
(0.4)
|
(7.5)
|
Total included within
income statement
|
22.6
|
0.5
|
1.6
|
24.7
|
|
19.4
|
3.2
|
2.5
|
25.1
|
Amounts recorded in the Group statement of comprehensive
income
|
Year ended 31 March 2024
|
Year ended 31 March 2023
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
Principal
schemes
£m
|
Railways
scheme
£m
|
Other
schemes
£m
|
Total
£m
|
|
Actual return less interest on pension scheme
assets
|
(175.7)
|
(21.6)
|
(3.3)
|
(200.6)
|
(1,437.0)
|
(17.1)
|
(79.0)
|
(1,533.1)
|
|
Experience (losses)/gains arising on
scheme liabilities
|
(26.8)
|
0.3
|
(4.3)
|
(30.8)
|
(135.6)
|
(18.0)
|
(9.3)
|
(162.9)
|
|
Changes in assumptions on
scheme liabilities
|
69.7
|
3.0
|
3.6
|
76.3
|
1,111.2
|
101.2
|
81.2
|
1,293.6
|
|
At 31 March
|
(132.8)
|
(18.3)
|
(4.0)
|
(155.1)
|
(461.4)
|
66.1
|
(7.1)
|
(402.4)
|
|
The movement in net deficits for the year
ended 31 March 2023 is as a result of the movement in assets and
liabilities shown above.
The disclosures below relate to
post-retirement benefit schemes which are accounted for as defined
benefit schemes in accordance with IAS 19. The changes to the Group
statement of financial position at 31 March 2024 and the changes to
the Group income statement for the year to March 2025, if the
assumptions were sensitised by the amounts below, would
be:
|
Defined benefit
obligations
2024
£m
|
Income
statement
2025
£m
|
Initial assumptions
|
3,194.0
|
24.5
|
Discount rate assumptions increased by
0.5%
|
(182.7)
|
(10.6)
|
Discount rate assumptions decreased by
0.5%
|
200.3
|
9.7
|
Inflation rate assumptions increased by
0.5%
|
139.9
|
7.4
|
Inflation rate assumptions decreased by
0.5%
|
(130.9)
|
(7.0)
|
Total life expectancy increased by half a
year
|
60.6
|
3.0
|
Total life expectancy decreased by half a
year
|
(59.2)
|
(3.0)
|
Salary increase assumptions increased by
0.5%
|
11.9
|
0.8
|
Salary increase assumptions decreased by
0.5%
|
(11.5)
|
(0.8)
|
The figures in the table above have been
calculated on an approximate basis, using information about the
expected future benefit payments out of the schemes. The analysis
above may not be representative of actual changes to the position
since changes in assumptions are unlikely to happen in isolation.
The change in inflation rates is assumed to affect the assumed rate
of RPI inflation, CPI inflation and future pension increases by an
equal amount. The fair value of the schemes' assets (including
reimbursement rights) are assumed not to be affected by any
sensitivity changes shown and so the statement of financial
position values would increase or decrease by the same amount as
the change in the defined benefit obligations. There have been no
changes in the methodology for the calculation of the sensitivities
since the prior year.
18. Changes in net debt
|
31 March
2023
£m
|
Cash flow
£m
|
Additional
leases
£m
|
Other
non-cash movement
£m
|
Changes in fair value
£m
|
Exchange
movement
£m
|
31 March
2024
£m
|
Cash and bank balances
|
451.7
|
124.6
|
-
|
-
|
-
|
(5.7)
|
570.6
|
Bank overdrafts
|
(22.2)
|
4.0
|
-
|
-
|
-
|
0.2
|
(18.0)
|
Cash, cash equivalents and bank
overdrafts
|
429.5
|
128.6
|
-
|
-
|
-
|
(5.5)
|
552.6
|
Debt
|
(765.8)
|
13.1
|
-
|
(3.0)
|
0.5
|
5.7
|
(749.5)
|
Derivatives hedging Group debt
|
(8.3)
|
-
|
-
|
-
|
(2.8)
|
-
|
(11.1)
|
Lease liabilities
|
(228.8)
|
49.6
|
(55.2)
|
-
|
-
|
3.9
|
(230.5)
|
Changes in liabilities from financing
arrangements
|
(1,002.9)
|
62.7
|
(55.2)
|
(3.0)
|
(2.3)
|
9.6
|
(991.1)
|
Lease receivables
|
38.6
|
(32.0)
|
32.4
|
-
|
-
|
(3.5)
|
35.5
|
Loans to joint ventures and
associates
|
9.5
|
(5.4)
|
-
|
(0.2)
|
-
|
-
|
3.9
|
Derivatives hedging interest on Group
debt
|
(39.1)
|
-
|
-
|
-
|
2.8
|
-
|
(36.3)
|
Net debt
|
(564.4)
|
153.9
|
(22.8)
|
(3.2)
|
0.5
|
0.6
|
(435.4)
|
|
31 March
2022
£m
|
Cash flow
£m
|
Additional
leases
£m
|
Other
non-cash movement 1
£m
|
Clarification of net debt definition
2
£m
|
Changes in fair value
£m
|
Exchange
movement
£m
|
31 March
2023
£m
|
Cash and bank balances
|
1,146.3
|
(687.9)
|
-
|
-
|
-
|
-
|
(6.7)
|
451.7
|
Bank overdrafts
|
(389.8)
|
366.6
|
-
|
-
|
-
|
-
|
1.0
|
(22.2)
|
Cash, cash equivalents and bank
overdrafts
|
756.5
|
(321.3)
|
-
|
-
|
-
|
-
|
(5.7)
|
429.5
|
Debt
|
(1,321.3)
|
556.2
|
-
|
(1.6)
|
-
|
37.2
|
(36.3)
|
(765.8)
|
Derivatives hedging Group debt
|
(29.3)
|
(0.8)
|
-
|
-
|
-
|
21.8
|
-
|
(8.3)
|
Lease liabilities
|
(434.1)
|
108.5
|
(117.0)
|
223.4
|
-
|
-
|
(9.6)
|
(228.8)
|
Changes in liabilities from financing
arrangements
|
(1,784.7)
|
663.9
|
(117.0)
|
221.8
|
-
|
59.0
|
(45.9)
|
(1,002.9)
|
Lease receivables
|
47.4
|
(31.9)
|
28.5
|
-
|
-
|
-
|
(5.4)
|
38.6
|
Loans to joint ventures and
associates
|
12.1
|
(2.4)
|
-
|
(0.2)
|
-
|
-
|
-
|
9.5
|
Derivatives hedging interest on Group
debt
|
-
|
-
|
-
|
-
|
(36.1)
|
(3.0)
|
-
|
(39.1)
|
Net debt
|
(968.7)
|
308.3
|
(88.5)
|
221.6
|
(36.1)
|
56.0
|
(57.0)
|
(564.4)
|
1 Other non-cash movements predominantly relate to the disposal
of lease liabilities and associated lease receivables as part of
disposal of businesses.
2 During the year the definition of net debt has been clarified,
resulting in the inclusion of the interest rate swap hedging Group
debt, which was excluded in the prior year.
19. Contingent liabilities
A contingent liability is a possible
obligation arising from past events whose existence will be
confirmed only on the occurrence or non-occurrence of uncertain
future events outside the Group's control, or a present obligation
that is not recognised because it is not probable that an outflow
of economic benefits will occur or the value of such outflow cannot
be measured reliably. The Group does not recognise contingent
liabilities. There are a number of contingent liabilities that
arise in the normal course of business, including:
a)
|
The nature of the Group's long-term contracts
means that there are reasonably frequent contractual issues,
variations and renegotiations that arise in the ordinary course of
business, including liabilities that arise on completion of
contracts and on conclusion of relationships with joint ventures
and associates. The Group takes account of the advice of experts,
both internal and external, in making judgements on contractual
issues and whether the outcome of negotiations will result in an
obligation to the Group. The Directors do not believe that the
outcome of these matters will result in any material adverse change
in the Group's financial position.
|
b)
|
As a large contracting organisation, the Group
has a significant number of contracts with customers to deliver
services and products, as well as with its supply chain, where the
Group cannot deliver all those services and products itself. The
Group is involved in disputes and litigation, which have arisen in
the course of its normal trading in connection with these
contracts. Whilst the Directors do not believe that the outcome of
these matters will result in any material adverse change in the
Group's financial position, it is possible that, if any of these
disputes come to court, the court may take a different view to the
Group.
|
c)
|
The Group is subject to corporate and other
tax rules in the jurisdictions in which it operates. Changes in tax
rates, tax reliefs and tax laws, or interpretation of the law, by
the relevant tax authorities may result in financial and
reputational damage to the Group. This may affect the Group's
financial condition and performance.
|
d)
|
The Group has given certain indemnities and
warranties in the course of disposing of businesses and companies
and in completing contracts. The Group believes that any liability
in respect of these is unlikely to have a material effect on the
Group's financial position.
|
e)
|
Corporate rules in those jurisdictions may
also extend to compensatory trade agreements, or economic offset
rules, where we may have to commit to use local content in
delivering programmes of work. Delivery of offset is also subject
to interpretations of law and agreement with local authorities,
which we monitor closely but may give rise to financial and
reputational damage to the Group if not undertaken
appropriately.
|
20. Capital and other financial
commitments
Capital commitments
|
31 March 2024
£m
|
31 March 2023
£m
|
Contracts placed for future capital expenditure
not provided for in the financial statements
|
6.7
|
7.8
|
21. Events after the reporting
period
There were no events after the reporting period
which would materially impact the balances reported in the
preliminary financial statement.
AGM information
This year's Annual General Meeting will be
held on 19 September 2024. Details of the resolutions to be
proposed at that meeting will be included in the Notice of Annual
General Meeting that will be published mid-August 2024.
At our Annual General Meeting in 2007 our
shareholders unanimously agreed to proposals to allow us to use
electronic communications with them as allowed for under the
Companies Act 2006. For shareholders who agreed, or who are treated
as having agreed, to receive electronic communications, the Company
website is now the main way for them to access shareholder
information. These shareholders will be sent a 'notice of
availability' notifying them when the Annual Report and Accounts
and Notice of Annual General Meeting are available on the Company
website www.babcockinternational.com.
Hard copies of the Annual Report and Accounts and Notice of Annual
General Meeting will be distributed to those shareholders who have
requested or subsequently request them. Additional copies will be
available from the Company's registered office 33 Wigmore Street,
London, W1U 1QX.
Forward-looking statements
Certain statements in this announcement are
forward-looking statements. Such statements may relate to Babcock's
business, strategy and plans. Statements that are not historical
facts, including statements about Babcock's or its management's
beliefs and expectations, are forward-looking statements. Words
such as 'believe', 'anticipate', 'estimates', 'expects', 'intends',
'aims', 'potential', 'will', 'would', 'could', 'considered',
'likely', and variations of these words and similar future or
conditional expressions are intended to identify forward-looking
statements but are not the exclusive means of doing so. By their
nature, forward-looking statements involve a number of risks,
uncertainties or assumptions, some known and some unknown, many of
which are beyond Babcock's control that could cause actual results
or events to differ materially from those expressed or implied by
the forward-looking statements. These risks, uncertainties or
assumptions could adversely affect the outcome and financial
effects of the plans and events described herein. Forward-looking
statements contained in this announcement regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. Nor are they indicative
of future performance and Babcock's actual results of operations
and financial condition and the development of the industry and
markets in which Babcock operates may differ materially from those
made in or suggested by the forward-looking statements. You should
not place undue reliance on forward-looking statements because such
statements relate to events and depend on circumstances that may or
may not occur in the future. Except as required by law, Babcock is
under no obligation to update (and will not) or keep current the
forward-looking statements contained herein or to correct any
inaccuracies which may become apparent in such forward-looking
statements.
Forward-looking statements reflect Babcock's
judgement at the time of preparation of this announcement and are
not intended to give any assurance as to future results.
The Group financial statements were approved by
the Board of Directors on 25 July 2024 and are signed on its behalf
by:
D
Lockwood
D Mellors
Director
Director