Interim Results

Babcock International Group PLC 16 November 2000 Thursday 16th November 2000 BABCOCK INTERNATIONAL GROUP PLC Interim results for the six months ended 30th September 2000 Highlights * Dividend: 1.1p per 'new' 60p ordinary share (1999: 0.9p per 'old' 50p ordinary share); * £30.6 million in cash returned to shareholders in October (18p per share) * Earnings per share before non-operating exceptional items and goodwill amortisation 5.13p (1999: 4.98p); * Profit before tax (incl. Railcare losses) £10.0 million (1999: £11.9 million); * Operating profit before goodwill amortisation and Railcare losses £9.9 million (1999: £9.8 million); * Sale of Railcare completed subject to OFT approval. * Commenting on the results, the Chairman, Dr John Parker said: 'The successful completion of the strategic initiatives announced by the Board during the summer, to enhance shareholder value, will radically transform the Group. Following the recent return of cash to shareholders, the Group still has significant resources to pursue its support services growth strategy.' Contact: Dr John Parker, Chairman Babcock International Group PLC Telephone: 020 7282 2945 (until 15.30) Thereafter: 01494 727 296 Ginny Pulbrook Citigate Dewe Rogerson Telephone: 020 7282 2945 Chairman's Statement I am pleased to report that during the first half of the year the Group made good progress with the strategic initiatives announced at the time of the Annual General Meeting. In July it was announced that the Board planned to return some £30 million of cash to shareholders. As a result, details of a proposed return of capital of £30.6 million, by way of a bonus redeemable 'B' Share and a 5 for 6 Share Capital Consolidation, were issued by the Board and on 10 October 2000 were approved by the Company's shareholders. Also at that time the Board announced its intention to dispose of the BMH Technologies division, excluding the activities of Babcock Africa, the Group's South African operation. The Board with the assistance of its advisors concluded that shareholder value could best be enhanced by focusing the Group's resources on expanding its Support and Defence Services activities. The sale process is now underway although it is still too early to comment upon the final outcome. At the end of the first half, the Group announced that it had executed a sale and purchase agreement to dispose of Railcare, its majority owned rail maintenance business, to DaimlerChrysler Rail Systems (UK) Limited ('Adtranz'). Completion of the disposal to Adtranz is conditional upon approval from the Office of Fair Trading. Financial performance in both BMH and BES, excluding Railcare, was in line with the same period last year after taking account of the costs of reorganising and integrating the recent acquisitions. The trading performance of the Group overall was depressed by Railcare's trading loss of £3.3 million of which £1.19 million was redundancy costs incurred in response to difficult market conditions. Group operating profit before goodwill for continuing operations, excluding Railcare, was slightly ahead of the same period last year at £9.9 million with an operating margin for those same operations of 5.2% on turnover of £191.8 million (1999: £206.4 million). The operating profit including Railcare was £7.4 million (1999: £8.8 million). The credit from goodwill amortisation was £0.8 million (1999: £1.0 million) reflecting the increased amortisation of goodwill arising from acquisitions made over the past year. Group profit on ordinary activities before taxation was £10.0 million (1999: £ 11.9 million) after interest receivable of £2.7 million (1999: £2.2 million). There were no non-operating exceptional items compared with a £0.8 million exceptional profit in the corresponding period last year. Earnings per share was 5.6p (1999: 6.0p) and the Board has declared an interim dividend of 0.92p per share (1999: 0.9p) based upon the number of 'old' ordinary shares in issue prior to the share consolidation referred to above. This equates to a dividend of 1.1p for each new ordinary share. The Group order book was £283 million at September (1999: £382 million) compared with £319 million at March 2000. The Group's net cash balances at the end of September were £92.0 million (1999: £68.9 million) compared with £105.3 million at March 2000. Review of operations BES BES, excluding Railcare, repeated its strong performance achieved in the first half of last year with turnover and operating profits of £97.6 million (1999: £96.7 million) and £6.8 million (1999: £6.7 million) respectively. Turnover was marginally higher in the Division's Defence Services activities whilst Railcare's turnover fell to £21.1million from £27.2 million in the corresponding period last year and it suffered trading losses including the cost of redundancies of £3.3 million (1999: £2.0 million). BES's naval refitting activities performed well as productivity improvement and cost reduction measures necessary to ensure competitiveness continued. Maintaining competitiveness will remain a priority particularly on surface ship refitting as the programme of submarine work at Rosyth starts to decline. The refits at Rosyth of the two nuclear submarines, HMS Sceptre and HMS Spartan and the aircraft carrier HMS Ark Royal, dominated activity. Trading performance in our New Zealand operation was disappointing during the first half and reflected the foreign deployment of naval vessels. Activity levels in New Zealand are set to improve during the second half. In my statement last June I explained that opportunities were opening up for BES via the new MoD Defence Logistics organisation who are aiming to achieve major cost savings at UK naval bases by rationalising support services with the assistance of the dockyard companies. In this regard BES has continued to explore opportunities with the MoD for broadening its support arrangements. BES continues to assist the Ministry of Defence with proposals for dismantling and disposing of decommissioned nuclear submarines being stored at Rosyth. In addition BES has been targeting organic growth across a range of areas most of which are directed at the Ministry of Defence's outsourcing of facility management and materials procurement. The two acquisitions, completed in the last financial year, Armstrong Technology Associates Limited (Armstrong) and FBM Babcock Marine Limited (FBM), have now been integrated into the Group. In the case of FBM, which designs and builds modern multi-hulled fast-ferries, this process has involved the transfer of its operations from the Isle of Wight. The design centre has moved to Southampton and construction activities to Rosyth. These actions, together with slower progress than originally anticipated on finalising orders for new vessels particularly in the UK, inevitably led to a weak trading performance from FBM in the first six months. Early in the financial year BES secured a first order for twenty two units of its new Mega3 inter-modal freight wagon design from Blue Circle Industries PLC. Subsequently the Strategic Rail Authority imposed a delay on the contract that is now expected to commence its production phase by the end of 2000. Railcare's market for railway rolling stock maintenance has remained highly competitive and restructuring measures to increase operating efficiencies continued. BMH BMH's trading performance including the South African business, was ahead of the corresponding period last year with operating margins increasing to 4.5% (1999: 3.6%). Turnover reduced by 14% reflecting in particular a lower opening order book at the beginning of the year and the influence of the significant pipeline engineering project for TEPPCO which was completed during the first half of the year by BMH Eagleton. The end of September order book at £89 million was below earlier expectations although it has increased from a level of £83 million last March and is showing signs of further improvement. First half trading, which benefited from a good performance from Pipeline Engineering, saw a more subdued performance from BMH Marine due to a customer delay to the large grain terminal project for Europort at Gdansk in Poland. The Nordic wood and bio-energy activity performed better than in the previous year and cement continued in line with expectations. Chronos Richardson, which was acquired mid way through the first half to give BMH access to the food, feed, chemical and rubber industries, is being successfully integrated into the Group and, as expected, made a small loss after the costs of integration. The result from the South African business was slightly weaker than in the corresponding period last year. Markets remain challenging in certain parts of the world although there are signs of improvement in Asia and South Africa. Turnover by destination in the six months was led by the traditionally strong and stable regions of Europe with 41% and North America with 33% whilst Asia accounted for 13%. The acquisition of Chronos Richardson has further enhanced BMH's strong global marketing and service network through new offices in India and other Far East countries. We continue to invest in our product development programme in order to fuel organic growth. For example, during the first half, BMH Marine finalised the development of its mobile pneumatic Unloader which joins its highly successful screw type mobile unloader. In addition BMH explored other business opportunities which like Chronos Richardson have a good strategic fit with its existing operations and can further enhance its position in total process technology and complete systems capabilities. Directors I am delighted to welcome my successor Gordon Campbell who joined the Board as Chief Executive in October 2000. Gordon, who was formerly Chief Executive of Courtaulds plc and Chairman of Acordis Group following the sale of Courtaulds plc, brings with him considerable industrial and corporate experience. As previously announced, I will be stepping down as Chairman in January 2001 at which time Gordon Campbell will become executive Chairman. This follows my appointment as Chairman of Lattice Group PLC. I have been privileged to lead the transformation of Babcock International for more than seven years and I am confident that under Gordon's leadership the Group, with its considerable resources and excellent management team, has an exciting future. Future Strategy The successful completion of the strategic initiatives announced by the Board during the summer, to enhance shareholder value, will radically transform the Group. Following the recent return of cash to shareholders, the Group still has significant resources to pursue its support services growth strategy. Dr T John Parker Chairman BABCOCK INTERNATIONAL GROUP PLC GROUP PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Year ended Six months ended 31 March 30 September 2000 2000 Before Operating exceptionals Operating (unaudited) Exceptionals Total (unaudited) (unaudited) £'000 £'000 £'000 £'000 470,873 Turnover 214,212 - 214,212 including share of joint ventures 185 Less: share of 1,295 - 1,295 joint ventures turnover 414,832 Continuing 191,792 - 191,792 operations - other 55,856 - Railcare 21,125 - 21,125 470,688 Group turnover 212,917 - 212,917 21,959 Continuing 9,900 - 9,900 operations - other (3,217) - Railcare (2,072) (1,190) (3,262) 18,742 Group operating 7,828 (1,190) 6,638 profit before goodwill amortisation 2,057 Goodwill 761 - 761 amortisation 23,387 Continuing 10,346 - 10,346 operations - other (2,588) - Railcare (1,757) (1,190) (2,947) 20,799 Group operating 8,589 (1,190) 7,399 profit (45) Share of (89) - (89) operating profit of joint ventures and associates 20,754 Trading profit 8,500 (1,190) 7,310 including share of joint ventures ------------------ ----------------------- and associates 1,037 Profit on - disposal of fixed assets 21,791 Profit on 7,310 ordinary activities before interest 4,250 Interest 2,711 26,041 Profit on 10,021 ordinary activities before taxation (4,528) Tax on profit on (1,849) ordinary activities 21,513 Profit on 8,172 ordinary activities after taxation 940 Minority 1,296 interests 22,453 Profit for the 9,468 financial period (4,318) Dividends paid (1,560) and proposed 18,135 Retained profit 7,908 for the financial period 13.26p Earnings per 5.58p share - Basic 13.03p Earnings per 5.50p share - Diluted 12.65p Earnings per 5.58p share pre non-operating exceptional items - Basic 12.43p Earnings per 5.50p share pre non-operating exceptional items - Diluted 11.43p Earnings per 5.13p share pre non-operating exceptional items and goodwill - Basic 11.23p Earnings per 5.06p share pre non-operating exceptional items and goodwill - Diluted BABCOCK INTERNATIONAL GROUP PLC GROUP PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Six months ended 30 September 1999 Before Operating Operating Exceptionals exceptionals (unaudited) (unaudited) Total (unaudited) £'000 £'000 £'000 Turnover including share of joint 233,600 - 233,600 ventures Less: share of joint ventures turnover - - - Continuing operations - other 206,422 - 206,422 - Railcare 27,178 - 27,178 Group turnover 233,600 - 233,600 Continuing operations - other 9,760 - 9,760 - Railcare 193 (2,152) (1,959) Group operating profit before goodwill 9,953 (2,152) 7,801 amortisation Goodwill amortisation 1,038 - 1,038 Continuing operations - other 10,483 - 10,483 - Railcare 508 (2,152) (1,644) Group operating profit 10,991 (2,152) 8,839 Share of operating profit of joint - - - ventures and associates Trading profit including share of 10,991 (2,152) 8,839 joint ventures and associates ------------------ --------------------- Profit on disposal of fixed assets 798 Profit on ordinary activities before 9,637 interest Interest 2,223 Profit on ordinary activities before 11,860 taxation Tax on profit on ordinary activities (2,205) Profit on ordinary activities after 9,655 taxation Minority interests 612 Profit for the financial period 10,267 Dividends paid and proposed (1,524) Retained profit for the financial 8,743 period Earnings per share - Basic 6.06p Earnings per share - Diluted 5.94p Earnings per share pre non-operating 5.59p exceptional items - Basic Earnings per share pre non-operating 5.48p exceptional items - Diluted Earnings per share pre non-operating 4.98p exceptional items and goodwill - Basic Earnings per share pre non-operating exceptional 4.88p items and goodwill - Diluted Continuing operations (other) includes turnover of £9.0m and a loss before interest and tax of £0.1m from acquisitions in the period. The continuing operations have been split to reflect the anticipated disposal of Railcare which was agreed, subject only to OFT approval, on 30 September 2000. The 1999 numbers have been restated to reflect this transaction. Further details of the transaction are given in the Chairman's statement. BABCOCK INTERNATIONAL GROUP PLC GROUP RESULTS BY DIVISION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 (UNAUDITED) Group Group Share of Trading operating profit Operating Operating profit of including profit profit Before Group After Joint Joint Group Operating Operating Operating ventures Ventures turnover exceptional exceptional exceptional and and items items associates associates Sept Items Sept Sept Sept Sept 2000 Sept 2000 2000 2000 2000 2000 £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations - other BES 97,582 6,759 - 6,759 (89) 6,670 BMH 94,210 4,208 - 4,208 - 4,208 Unallocated - (1,067) - (1,067) - (1,067) costs and other income 191,792 9,900 - 9,900 (89) 9,811 Goodwill - 446 - 446 - 446 amortisation Total 191,792 10,346 - 10,346 (89) 10,257 continuing operations - other Railcare 21,125 (2,072) (1,190) (3,262) - (3,262) Goodwill - 315 - 315 - 315 amortisation Total 21,125 (1,757) (1,190) (2,947) - (2,947) Railcare Group total 212,917 8,589 (1,190) 7,399 (89) 7,310 BMH includes turnover of £9.0m and a loss before interest and tax of £0.1m from acquisitions in the period. BABCOCK INTERNATIONAL GROUP PLC GROUP RESULTS BY DIVISION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 (UNAUDITED) Group Group Share of Trading operating profit Operating Operating profit of including profit profit Before Group After Joint Joint Group Operating Operating Operating Ventures Ventures turnover exceptional exceptional exceptional and and items items associates associates Sept Items Sept Sept Sept Sept 1999 Sept 1999 1999 1999 1999 1999 £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations - other BES 96,700 6,693 - 6,693 - 6,693 BMH 109,722 4,012 - 4,012 - 4,012 Unallocated - (945) - (945) - (945) costs and other income 206,422 9,760 - 9,760 - 9,760 Goodwill - 723 - 723 - 723 amortisation Total 206,422 10,483 - 10,483 - 10,483 continuing operations - other Railcare 27,178 193 (2,152) (1,959) - (1,959) Goodwill - 315 - 315 - 315 amortisation Total 27,178 508 (2,152) (1,644) - (1,644) Railcare Group total 233,600 10,991 (2,152) 8,839 - 8,839 BABCOCK INTERNATIONAL GROUP PLC GROUP BALANCE SHEET AS AT 30 SEPTEMBER 2000 As at As at As at 31 March 30 30 September September 2000 2000 1999 (unaudited) (unaudited) £'000 £'000 £'000 Fixed assets Intangible assets 1,771 Development costs 1,635 64 Goodwill 27,801 - Goodwill 27,795 20,935 (18,703) - Negative goodwill (16,810) (20,648) 9,098 10,985 287 10,869 12,620 351 45,872 Tangible assets 43,996 45,135 Investments Investments in joint ventures - - Goodwill - - 2,473 - Share of gross assets 2,952 - (1,688) - Share of gross liabilities (2,087) - 785 865 - 470 Investments in associates 341 558 689 Other investments 1,119 684 1,944 2,325 1,242 58,685 58,941 46,728 Current assets 24,021 Stocks 31,925 26,187 106,523 Debtors - due within one year 103,559 122,712 77,498 Debtors - due after more than one year 80,079 74,285 184,021 183,638 196,997 - Investments - 7,574 112,215 Cash and bank balances 109,704 76,336 320,257 325,267 307,094 (191,162) Creditors - amounts due within one year (188,763) (178,304) 129,095 Net current assets 136,504 128,790 187,780 Total assets less current liabilities 195,445 175,518 (2,954) Creditors - amounts due after more than one (1,693) (2,058) year (33,024) Provisions for liabilities and charges (36,257) (30,002) 151,802 Net assets 157,495 143,458 Capital and reserves 84,747 Called up share capital 85,028 84,685 67,134 Share premium account 67,248 67,118 (7,949) Profit and loss account 48 (16,539) 143,932 Equity shareholders' funds 152,324 135,264 7,870 Minority interests 5,171 8,194 151,802 157,495 143,458 GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended Six Six months months ended ended 31 30 30 March September September 2000 2000 1999 £'000 £'000 £'000 22,453 Profit for the financial period 9,468 10,267 (1,067) Currency translation differences on foreign currency 89 (265) net investments and related loans 21,386 Total recognised gains and losses relating to the 9,557 10,002 period RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Year ended Six months Six months ended ended 31 30 30 September March September 2000 2000 1999 £'000 £'000 £'000 126,755 Shareholders' funds at start of year 143,932 126,755 109 Shares issued in the period 395 31 21,386 Total recognised gains and losses relating to 9,557 10,002 the period (4,318) Dividends (1,560) (1,524) 17,177 Net movement in shareholders' funds 8,392 8,509 143,932 Shareholders' funds at end of period 152,324 135,264 BABCOCK INTERNATIONAL GROUP PLC SUMMARISED GROUP CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Year ended Six months Six months ended ended 31 30 30 March September September 2000 2000 1999 (unaudited) (unaudited) £'000 £'000 £'000 38,146 Cash flow from operating activities (12,707) (6,177) 3,098 Returns on investments and servicing of finance 2,570 1,075 (2,071) Taxation (985) (644) (9,095) Capital expenditure and financial investment (2,859) (1,419) (8,182) Acquisitions and disposals 3,230 (1,994) (3,891) Equity dividends paid (2,795) (2,370) 18,005 Cash (outflow)/inflow before management of (13,546) (11,529) liquid resources and financing 6,618 Management of liquid resources - (956) 103 Financing 206 244 24,726 (Decrease)/Increase in cash in the period (13,340) (12,241) The principal components of the cash flow from acquisitions and disposals are: the final receipt of £5.0m from Mitsui for deferred consideration following the 1995 sale of the energy business. The Group acquired Chronos Richardson Limited (now renamed BMH Chronos Richardson Ltd) in June 2000 for total consideration of £2.2m (£0.2m deferred). The Group has also paid US $1.0m of deferred consideration following the Group's acquisition of AKI Dryer Manufacturers (now renamed BMH AKI Dryers Inc.) in September 1998. RECONCILIATION OF NET FUNDS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 (UNAUDITED) At 30 At 1 April Exchange September 2000 Cash flow movement 1999 £'000 £'000 £'000 £'000 Cash in hand and at bank 112,215 (2,556) 45 109,704 Overdrafts (5,270) (10,784) 12 (16,042) 106,945 (13,340) 57 93,662 Debt (1,668) 28 1 (1,639) Finance leases (1,377) 189 25 (1,163) (3,045) 217 26 (2,802) 103,900 (13,123) 83 90,860 RECONCILIATION OF OPERATING CASH FLOW FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Year ended Six months Six months ended ended 31 30 September 30 September March 2000 2000 1999 (unaudited) (unaudited) £'000 £'000 £'000 20,754 Trading profit including share of joint 7,310 8,839 ventures and associates 10,854 Depreciation 6,024 4,871 200 Amortisation of intangibles 136 119 (2,057) Amortisation of goodwill (761) (1,038) 45 Share of joint ventures/associates 89 - 8,189 Movement on working capital (25,505) (18,968) 161 Other items - - 38,146 Cash flow from operating activities (12,707) (6,177) Notes 1. The statement of results for the year to 31 March 2000 is an extract from the Group's full accounts for the year which have been filed with the Registrar of Companies and on which the Group's auditors gave an unqualified report. The accounting policies are as stated in the Group's full accounts for the year ended 31 March 2000. 2. The charge for taxation has been based on the estimated effective tax rate, before (non-operating) exceptional items and goodwill, for the year ended 31 March 2001. 3. Earnings per share is based on the profit attributable to shareholders for the half year to 30 September 2000 and 169.6m (1999: 169.3m) 'old' 50p ordinary shares in issue in the period. Diluted earnings per share is based on the profit attributable to shareholders for the half year to 30 September 2000 and 172.1m (1999: 172.9m) 'old' 50p ordinary shares in issue in the period. 4. Based on the first half trading results, the Board has approved the payment of an interim dividend amounting to 0.92p per 'old' 50p ordinary share (compared to 0.9p in 1999). Following the share consolidation referred to in note 5 below, this equates to 1.1p per 'new' 60p ordinary share. The dividend will be paid on 26 January 2001 to shareholders registered on 22 December 2000. 5. Following approval at an EGM on 10 October 2000, on 23 October 2000 the Company made a bonus issue of 170.2m redeemable 'B' shares with a nominal value of £ 30.6m out of the share premium account. In accordance with the terms of the issue, 155.1m of the 18p shares, with a nominal value of £27.9m, were redeemed on 23 October 2000. Further redemptions can be made at the shareholders' option on 23 April 2001 and at the Company's option on any date after 23 April 2001 until 23 October 2002. Also on 23 October 2000, there was a five for six share consolidation of the 170.1m 50p ordinary shares resulting in an issued share capital of 141.8m 60p ordinary shares. Circulation Note Copies of this interim report are being sent to shareholders on 28 November 2000. Further copies are available at the Company's registered office: Badminton Court, Church Street, Amersham, Bucks HP7 0DD.

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