Interim Management Statement

RNS Number : 4913G

Babcock International Group PLC

02 February 2010

 



2 February 2010                                                                                 

Babcock International Group PLC

Interim Management Statement

Babcock International Group PLC (Babcock or the Group), the UK's leading engineering support services company, issues the following Interim Management Statement for the period from 1 October 2009. 

Overview

Overall, trading for the Group remains consistent with our expectations outlined at the time of our half year results on 10 November 2009 and there has been no significant change to market conditions.  We remain confident that 2009/10 will be another year of excellent progress for Babcock. 

The business continues to benefit from the long-term nature of its contracts and framework agreements to provide essential engineering support for our customers' critical assets and infrastructures.  Our ability to work in partnership with our customers to deliver cost efficiencies is a key element of our successful business model.  As economic pressure continues to impact both the public and private sectors we remain confident that this track record of delivery will be beneficial.

The long-term growth prospects of our principal markets remain excellent and our order book remains stable at around £6 billion.  Building on the strength of our reputation and by using the skills and knowledge within our businesses, we believe there are significant growth opportunities in the UK and overseas.

Financial Review

Cash generation remains strong and we have continued to use cash to pay down debt.  The acquisition of UKAEA Limited for a net cash consideration of £38 million, concluded in October 2009, was funded from existing debt facilities. 

As part of our financing strategy, in addition to the revolving credit facilities of £600 million available until 2012, we have recently issued £100 million of US private placement loan notes (of seven and ten year durations) to give us a more diversified funding structure and reduce our reliance on bank lending. 

We have now completed the third of three planned longevity swap transactions for the Group's major pension schemes.  Compared to the position at 30 September 2009, IAS19 balance sheet liabilities will increase by an additional c £25 million to reflect this transaction.  A single cross-scheme investment committee is now looking at ways to reduce risk from inflation and interest rate movements.

Divisional Review

The Marine division has continued to perform strongly across all its business streams with excellent margin performance. 

The Terms of Business Agreement received approval from the Ministry of Defence's (MoD) Investment Approval Board in January and we expect final signature will be achieved before the end of the financial year. 

The Queen Elizabeth class aircraft carrier project continues to make good progress, with additional scope added to our work programme.  The bow section of the first vessel, constructed at our Appledore facilities, is expected to arrive at Rosyth by the end of March.

Working in alliance with Supacat, we have now delivered over 400 Jackal type vehicles to the MoD under Urgent Operation Requirements (UOR) since 2007.  Building on the success of the original vehicles, a further substantial order for Jackal 2 vehicles has been placed which will start production in February. 

In the Defence division our markets remain robust.  All key contracts are performing well and continue to meet our own and our customers' financial and performance targets.  We continue to benefit from additional work programmes being injected into the regional Prime contracts.

For the Nuclear division, the civil decommissioning market has remained subdued.  Recent management changes at the Nuclear Decommissioning Agency are expected to bring more focus to the UK nuclear decommissioning programme and a consequent acceleration in project tenders during the next financial year.  The power generation support market has remained strong.

The integration of UKAEA into the Nuclear division is progressing well, enhancing its established positions in the civil and military nuclear markets in the UK and expanding its reputation overseas.  We are confident that our unrivalled scale and range of expertise within the combined business support good growth prospects for the division both in the UK and overseas.

The Rail division has now completed the detailed review of its operations reported in November.  As a result, further restructuring has been announced to ensure the division's cost base and business structure is fully aligned to the reduced scale of its operations.  Restructuring costs of c £4 million will have been incurred by 31 March 2010.  The financial results of the division are benefiting from the positive actions being taken and excluding restructuring costs, it is now performing profitably.  The focus remains on further improving the level of profitability.

In Networks the framework contracts with National Grid and EDF continue to perform well with a steady flow of work at expected levels.  Our design offices in the UK and Bulgaria continue to experience strong demand for their services. 

Telecommunications markets remain generally quiet.  We have exited the loss-making Irish telecommunications business and the resultant costs of c £1.5 million will be included as part of the division's full year results. 

We are well placed to benefit from the £4.7 billion investment programme required to upgrade the UK's national electricity transmission infrastructure in anticipation of increasing output from renewable and nuclear energy sources.  We remain confident of the long-term prospects for the division.

Global economic conditions continue to affect the Engineering and Plant division.  The power engineering business remains stable as the continuing demand for power across Southern Africa drives demand for our generation support and Powerlines businesses.   Our construction equipment business has seen no recovery in demand to date.  However, the requirement for infrastructure upgrade and the resurgence in demand for minerals support our outlook for the long-term growth prospects for the division.

Outlook

Our key markets remain both attractive and resilient and provide the Group with significant growth opportunities both in the UK and overseas.  In addition, our ability to deliver cost efficiencies for our customers will provide further opportunities as pressure on public spending continues to increase. 

The strength of our order book and bid pipeline along with the long-term programmes of work we are involved in provide us with excellent visibility and security of revenue for this financial year and beyond.  We remain confident that this will be another year of excellent progress for the Group.

Enquiries

Babcock International Group PLC                                                 020 7355 5300

Peter Rogers

Bill Tame

Terri Wright

FD                                                                                                       020 7269 7291

Andrew Lorenz

Sophie Kernon

A conference call for analysts and investors will be held at 8.30 am this morning.  For dial in details please contact FD on 020 7269 7291.  An audio-cast of the call will be available at www.babcock.co.uk

 

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