Final Results

Babcock International Group PLC 19 June 2000 BABCOCK INTERNATIONAL GROUP PLC Preliminary results for the year ended 31st March 2000 Highlights Group showed strong performances and excellent progress: earnings per share before goodwill and exceptional profit increased by 11.8% to 11.43p (1999: 10.22p); Strong net cash position of £105.3million (1999: £82.1m); BES excluding Railcare (jointly owned with Siemens) increased operating profits by 42% and BMH by 21%; Group profit before tax (excluding non operating exceptional profit) of £25m (1999: £25.3m); 4 Strategic acquisitions completed during year with more planned; Performance and exceptional costs of redundancy programme within Railcare which represents 11.9% in Group turnover, reflect management's action to address difficult trading conditions; Final dividend up 17.9% to 1.65p making total of 2.55p for year (1999: 2.20p); BES Division Operating margins increased to 5.3% excluding exceptional redundancy costs of £2.4m in Railcare; Excellent performance from naval refitting; New Facility Management opportunities being progressed on naval bases; Acquisitions to further expand BES's products and engineering services; First order for 22 multi-purpose rail freight wagons Mega3 won from Blue Circle BMH Division Operating margins increased to 4.4%; Strong performances within marine, pipeline engineering and cement activities; Continual and growing success in European and North American markets; Established global reach, balanced portfolio of activities supplemented by planned organic growth and strategic acquisitions. Contacts Dr John Parker, Chairman Babcock International Group PLC Telephone: 020 7282 2945 (until 12.30pm) Thereafter: 01494 727 296 Ginny Pulbrook Citigate Dewe Rogerson Telephone: 020 7282 2945 CHAIRMAN'S STATEMENT Overview I am happy to report another year of excellent progress for the Group. Both our Divisions excluding Railcare, our jointly owned rail venture with Siemens, achieved strong growth in operating profits: BMH increased by 21% to £10.1 m and BES by 42% to £13.7m. Railcare, which represents some 12% of Group revenues, continued to experience difficult trading conditions during the second half and incurred, as highlighted at the time of the Interim Results, exceptional costs for a £2.4m redundancy programme. Our strategy is to achieve leadership in our main business activities and the development of new opportunities in related fields both organically and via acquisition. During the last year several acquisitions, involving both Divisions, have been made that are expected to contribute to earnings in 2001/02. They all have a good strategic fit with existing activities. Many other potential acquisitions have been and are being evaluated. The financial results for the year in summary show an operating profit, excluding £2.4m of exceptional redundancy costs, of £23.2m (1999: £22.2m) from a turnover of £470.7m (1999: £496.3m). The Group profit on ordinary activities before tax was £26.0m (1999: £31.4m) including net interest receivable of £4.3m (1999: £2.5m ). A very strong cash performance during the year resulted in net cash balances at 31 March 2000 of £105.3m (1999: £82.1m). Earnings per share before non-operating exceptional items and goodwill was 11.43p (1999:10.22p) and including those items was 13.26p (1999: 15.07p). The Board is recommending a final dividend of 1.65p making a total for the year of 2.55p (1999: 2.20p). The Group's order book was £319m (1999: £353m). BES - Engineering and technology support services to the defence, rail, marine and 'secure facilities' sectors BES increased operating margins, before the exceptional costs of the redundancy programme at Railcare, from 4.8% to 5.3%. Defence Services There was a high workload during the year at Rosyth in the Division's principal activity of naval refitting, dominated by the major refits of nuclear submarines HMS Sceptre and HMS Spartan and the aircraft carrier HMS Ark Royal. Our principal customer, the UK Ministry of Defence ('MoD') continues to be highly satisfied with our progress in achieving significant cost reductions, timely completions and quality refitting of their major warships. We are thus making major strides in our objective to become the first choice refitter for surface warships in the UK. The emphasis upon performance improvement and cost reduction has resulted in a more compressed and efficient operational footprint for the naval refitting and repair activity at the Rosyth site. As a result over 100 acres of waterfront land with a high potential value can now be made available for future development. A master plan of alternative development strategies is now being evaluated to optimise future value. In addition to a strong trading performance from its current activities, BES has also made significant progress in its strategy to leverage off the substantial facilities and skills base at Rosyth to access new customers and build additional business streams. The Division continues to work on SONAR 2087 which is now expected to be ordered by the second quarter of 2001. New and exciting opportunities are now also opening up for BES via the new MoD Defence Logistics organisation. Their aim is to achieve major cost savings at UK naval bases, including Faslane, via rationalising support services, etc. from the dockyards. We are pursuing these new opportunities with enthusiasm and we believe that, working in partnership with our customers, we can support them in achieving their goals. Earlier this year the MoD launched a consultation process with industry and environmental groups to study safe and practical solutions to the decontamination and dismantling of decommissioned nuclear submarines, seven of which are currently stored afloat at Rosyth. BES have now received a contract from the MoD to propose options for these vessels. Marine Services Further initiatives during the year to extend the marine services capability of BES have included the acquisition of Armstrong Technology Associates Limited, a specialist marine consultant, that will assist Rosyth to position itself firmly in the offshore and merchant support services markets. At the close of the year BES also acquired FBM Marine Limited ('FBM') a designer and builder of modern multi-hull fast ferries and paramilitary craft. This business also extends the scope of BES's products and services. It will leverage off the skills and modern facilities at Rosyth by assembling the fast ferries at that facility. In addition FBM has a 50% stake in a low cost, efficient construction facility in the Philippines to service the Far East ferry markets. Rail Engineering Services BES has also been successful with its developed and recently approved multi-purpose rail freight wagon Mega 3. A first order for 22 units has been received from Blue Circle Industries PLC. This has been supported by the Shadow Strategic Rail Authority, which aims to transfer more freight to rail and thus alleviate traffic congestion on the UK's already over-crowded roads. Railcare, which has enjoyed considerable success in past years, faced significantly reduced customer demand for rolling stock heavy maintenance, component overhaul and refurbishment services and a severe downward pressure on selling prices. The Group is working closely with its joint venture partner to reorganise the business to respond to these market and trading developments. Facility Management and Specialist Engineering Services Earlier this year BES established a company to target specialist civil and 'secure' facilities management opportunities where the application of the specialist engineering skills and services it employed in bringing about a transformation at Rosyth will be of particular relevance and value to external clients. The acquisition of the specialist utility business of CMR Consultants Limited will expand further the engineering services that can be offered to clients by BES. During the year BES established a joint venture with Studsvik AB ('Studsvik') to exploit jointly the nuclear engineering skills at Rosyth. Studsvik is a leading Swedish company in the field of nuclear decontamination. BMH - material processing technologies and engineered systems The Division achieved an exceptional performance, growing operating profits and margins in the year to £10.1m (1999: £8.4m) and 4.4% (1999: 3.9%) respectively. Turnover grew year on year, excluding the effects of foreign exchange translation, by 9%. The Division's performance has continued to benefit from its global market reach, balanced portfolio of activities, flexible operating structure and consistent focus upon its customers. Strong trading performances came from the marine, pipeline engineering and cement activities. The South African business, reflected in the BMH segment, again traded profitably despite weak market conditions in South Africa. The key market trends and business drivers that I highlighted at our interim results in November 1999 have not perceptibly changed since then. The stronger European and North American markets where BMH has continual and growing success accounted for some three quarters of its sales and order intake during the year. However the trading environment in certain other markets in which BMH operates does continue to be challenging. For example, the South American and South African markets remain weak and Asia, despite signs of revival, has yet to demonstrate a return to robust growth. The Division therefore remains poised to benefit further from any return in Asia to the growth rates of a few years ago. In line with Group strategy, BMH is pursuing both organic and acquisition-led growth. During the second half the radio frequency veneer drying technology of PMI was acquired, extending BMH's drying technology portfolio, and a number of further acquisitions are under evaluation. The emphasis upon organic growth through product development and access to adjacent markets has continued. The Division is currently undertaking both of the grain terminal projects that were won at the beginning of last year in an activity that is a natural extension of its strong global position in other marine unloading and terminal applications. Due to delays in certain decisions on a number of major new contracts, the Division's closing order book was lower than anticipated. It is expected to recover during the first half of the current financial year. E-Business Embracing new technology that can enhance our performance is a way of life for the Group. E-business is no exception and our strategies are not only well defined but implementation is well underway. Earlier in the year BES on behalf of the Group entered into a licence arrangement with Infobank PLC to utilise their e-trading software and systems to create a Babcock International Group hub. Outlook BES and BMH should have another good year given BES's high activity levels and BMH's strengths in terms of market shares and global penetration. The reorganisation of Railcare will continue in the current year and, until this is completed, its trading will inevitably be depressed in the current adverse market. Encouraging progress has been made on recent acquisitions. Others are being evaluated and are in process. Babcock, with its exceptionally strong balance sheet, is well placed to take advantage of significant opportunities. Dr T John Parker Chairman 19 June 2000 GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 March 2000 2000 Before 2000 ExceptionalExceptional 2000 items items Total 1999 £'000 £'000 £'000 £'000 Turnover including share of joint ventures 470,873 - 470,873 509,413 Less: share of joint ventures turnover 185 - 185 13,092 _______ _______ _______ _______ Group turnover 470,688 - 470,688 496,321 Cost of sales (386,086) - (386,086)(413,362) _______ _______ _______ _______ Gross profit 84,602 - 84,602 82,959 Net operating expenses (61,419) (2,384) (63,803) (60,727) Group operating profit before goodwill amortisation 21,126 (2,384) 18,742 19,895 Goodwill amortisation 2,057 - 2,057 2,337 Group operating profit 23,183 (2,384) 20,799 22,232 Share of operating (loss)/profit of joint ventures and associates (45) - (45) 569 _______ _______ _______ ______ Trading profit including share of joint ventures and associates 23,138 (2,384) 20,754 22,801 Profit on the sale or termination of operations - - - 6,142 Profit on the sale of tangible fixed assets - 1,037 1,037 - _______ _______ _______ _______ Profit on ordinary activities before interest 23,138 (1,347) 21,791 28,943 _______ _______ Net interest and similar charges 4,250 2,501 _______ _______ Profit on ordinary activities before taxation 26,041 31,444 Tax on profit on ordinary activities (4,528) (5,295) _______ ________ Profit on ordinary activities after taxation 21,513 26,149 Minority interests 940 (637) _______ ________ Profit for the financial year 22,453 25,512 Dividends paid and proposed (4,318) (3,725) Retained profit for the financial year 18,135 21,787 _______________ Earnings per share before non-operating exceptional items and goodwill - Basic 11.43p 10.22p - Diluted 11.23p 10.16p Earnings per share - Basic 13.26p 15.07p - Diluted 13.03p 14.99p All of the results for 2000 arise from continuing operations, the results relating to acquisitions in the year are not material. GROUP BALANCE SHEET As at 31 March 2000 2000 2000 1999 1999 £'000 £'000 £'000 £'000 Fixed assets Intangible assets Development costs 1,771 183 Goodwill -Goodwill 27,801 21,842 -Negative goodwill (18,703) (22,593) _______ _______ 9,098 (751) 10,869 (568) Tangible assets 45,872 47,824 Investments Investments in joint ventures Share of gross assets 2,473 - Share of gross liabilities (1,688) - _______ _______ 785 - Investments in associates 470 558 Other investments 689 126 1,944 684 _______ ______ 58,685 47,940 Current assets Stocks 24,021 25,835 Debtors due within one year 106,523 105,741 Debtors due after more than one year 77,498 77,144 _______ _______ 184,021 182,885 Investments - 6,618 Cash and bank balances 112,215 89,928 320,257 305,266 Creditors amounts due within oneyear (191,162) (182,430) _______ _______ Net current assets 129,095 122,836 _______ _______ Total assets less current liabilities 187,780 170,776 Creditors amounts due after more than one year (2,954) (2,016) Provisions for liabilities and charges (33,024) (32,186) _______ _______ Net assets 151,802 136,574 _______ _______ GROUP BALANCE SHEET As at 31 March 2000 (continued) 2000 2000 1999 1999 £'000 £'000 £'000 £'000 Capital and reserves Called up share capital 84,747 84,660 Share premium account 67,134 67,112 Profit and loss account (7,949) (25,017) _______ _______ Equity shareholders' funds 143,932 126,755 Minority interests 7,870 9,819 _______ _______ 151,802 136,574 _______ _______ GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 March 2000 2000 1999 £'000 £'000 Profit for the financial year 22,453 25,512 Currency translation differences on foreign currency net investments and related loans (1,067) (710) ______ ______ Total recognised gains and losses relating to the year 21,386 24,802 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS For the year ended 31 March 2000 2000 1999 £'000 £'000 ________________________________________________________________________ Shareholders' funds at start of year 126,755 105,673 Shares issued in the year 109 5 Total recognised gains and losses relating to the year 21,386 24,802 Dividends (4,318) (3,725) ______ ______ Net movement in shareholders' funds 17,177 21,082 Shareholders' funds at end of year 143,932 126,755 GROUP CASH FLOW STATEMENT For the year ended 31 March 2000 2000 2000 1999 1999 £'000 £'000 £'000 £'000 Cash flow from operating activities 38,146 56,136 Dividends received from joint venture - 1,350 Returns on investments and servicing of finance Net interest and similar charges 4,105 1,615 Dividends paid to minority shareholders (1,007) - Net cash inflow from returns on investments and servicing of finance 3,098 1,615 Taxation UK corporation tax (paid)/received (including ACT) (971) 280 Overseas tax paid (1,100) (1,078) Net cash outflow from taxation (2,071) (798) Capital expenditure and financial investment Payments to acquire tangible fixed assets (9,739) (5,868) Payments to acquire intangible fixed assets - (17) Payments to acquire own shares (567) - Payments to Invest in joint ventures (20) - Receipts from sale of tangible fixed assets 1,231 379 Net cash outflow from capital expenditure and financial investment (9,095) (5,506) Acquisitions and disposals Payments to acquire subsidiary undertakings (6,607) (3,182) (Payments)/receipts on sale of subsidiary undertakings and joint ventures (1,575) 20,088 Receipts from minorities - 35 Net cash (out)/ inflow from acquisitions and disposals (8,182) 16,941 Equity dividends paid (3,891) (3,235) _______ _______ Cash inflow before management of liquid resources and financing 18,005 66,503 Management of liquid resources 6,618 884 Financing Shares issued for cash 109 5 Drawdown/(repayment) of borrowings 241 (5,802) Repayments of capital element of finance lease rentals (247) (443) _______ _______ Net cash in/ (out)flow from financing 103 (6,240) _______ _______ Increase in cash in the year 24,726 61,147 _______ _______ SEGMENTAL INFORMATION The segmental information reflects the current composition of the Group. Group Trading operating Share of profit profit operating including before Group profit of share of operating operating Group joint joint Groupexceptionalexceptionaloperating ventures/ ventures/ turnover items items profit associates associates 2000 2000 2000 2000 2000 2000 £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations BES 241,781 12,873 (2,384) 10,489 (45) 10,444 BMH 228,907 10,118 - 10,118 - 10,118 Unallocated costs and other income - (1,865) - (1,865) - (1,865) _______ _______ _______ _______ 470,688 21,126 (2,384) 18,742 (45) 18,697 Goodwill amortisation - 2,057 - 2,057 - 2,057 _______ _______ _______ _______ Total continuing operations 470,688 23,183 (2,384) 20,799 (45) 20,754 and Group total Amounts included relating to acquisitions in the year are not material. Trading Share of profit operating including profit of share of Group joint joint Group operating ventures and ventures and turnover profit associates associates 1999 1999 1999 1999 £'000 £'000 £'000 £'000 Continuing operations BES 280,194 13,316 90 13,406 BMH 214,796 8,355 - 8,355 Unallocated costs and other income - (1,885) - (1,885) _______ _______ _______ _______ 494,990 19,786 90 19,876 Goodwill amortisation - 2,348 - 2,348 _______ _______ _______ _______ Total continuing operations 494,990 22,134 90 22,224 Discontinued operations 1,331 109 742 851 Goodwill amortisation - (11) (263) (274) Total discontinued operations 1,331 98 479 577 _______ _______ _______ _______ Group total 496,321 22,232 569 22,801 NOTES The financial information set out above does not comprise the Company's statutory accounts. Statutory accounts for the previous financial year ended 31 March 1999 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237(2) and (3) of The Companies Act 1985. The auditors have given an unqualified opinion on the accounts for the year ended 31 March 2000 which will be delivered to the Registrar of Companies following the Annual General Meeting. Earnings per share is calculated on the following average number of shares. 2000 1999 169,379,969 169,315,169 The Board has recommended a final dividend of 1.65p per share which, subject to shareholders' approval will be paid on 11 August 2000 to those shareholders on the register at the close of business on 14 July 2000. The Annual General Meeting will be held on Wednesday 28 July 2000 at the Barber-Surgeon's Hall, Monkwell Square, London EC2 at 12 noon. Copies of the 2000 Report and Financial Statements will be sent to shareholders on or before 29 June 2000 and will be available from the registered office of the Company, Badminton Court, Church Street, Amersham, Bucks HP7 0DD.

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