13th Jul 2007 07:00
Babcock International Group PLC13 July 2007 13 July 2007 Babcock International Group plc ("Babcock" or "the Group") AGM STATEMENT AND INTERIM MANAGEMENT STATEMENT At today's 11:30 Annual General Meeting of Babcock, the leading support servicescompany, Gordon Campbell, Chairman, will make the following statement: "We have today issued a trading update which in summary confirms that we are inline with our expectations for the current year and refers to a number of newcontract wins. Most of our businesses are out-performing those expectationsalthough there has been some weakness in the Rail business. "The acquisition of Devonport Management Limited ("DML") was overwhelminglyapproved by shareholders at the Extraordinary General Meeting on 15 June and wehave subsequently completed the acquisition. We expect the OFT's decision inthe course of the next few weeks. The Board believes that the acquisition ofDML will be significantly earnings enhancing in the first full financial yearfollowing the acquisition and we are encouraged by the positive reaction fromthe senior management at DML. "On 9 July the company announced that it had acquired 50.9% of the shares inissue of International Nuclear Solutions plc ("INS") and that the offer waswholly unconditional. The offer has been extended to 24 July 2007. "As well as the earnings enhancement from acquisitions the Board continues tobelieve that there is significant scope for organic growth in our existingbusinesses and remains confident regarding the future prospects for the Group." In addition, Babcock today releases its first Interim Management Statement forthe financial year 2007/08 in accordance with the new Disclosure andTransparency Rules (DTR). The financial year 2006/7 continued the excellent progress of recent years, withthe Group achieving its fifth successive year of double-digit growth. The current financial year has started well and the Group's trading performanceremains in line with expectations. Babcock has continued its record ofsuccessful organic growth, with new contract wins in civil nuclear support anddecommissioning as well as further successes in the Engineering & Plant Servicesand Networks Divisions. These wins are worth approximately £75 million in totalto the Group. With the addition of DML the Group's order book now stands atsome £3.0 billion. Strategic Developments The Group has made two acquisitions which the Board believes will position itwell in the naval support and nuclear support markets: Devonport Management Limited ("DML") The Group announced the completion of the acquisition of DML for £350 million on28 June. The acquisition was funded from a new £600 million bank facility andan equity placing of 19 million shares at 475p raising £90 million before costs.DML, which generated turnover of around £450 million and earnings beforeinterest, tax and amortisation of £48 million in the twelve months to 31December 2006, provides support to the Royal Navy's submarine and surface shipfleets and complements existing Babcock activities in Rosyth and HM Naval BaseClyde ('Faslane'). The acquisition is aligned with the objectives of theMinistry of Defence 'Defence Industrial Strategy'. As a result of the acquisition, Babcock is realigning its reporting divisions tocombine its three marine businesses under a new Marine Services division. Thenew division will combine DML, the activities at Rosyth which are currentlyreported under Technical Services and those at Faslane currently reported withinDefence Services. The first results for the combined Marine Services segmentwill be released with the interim results in the autumn. International Nuclear Solutions plc ("INS") On 9 July the Group announced that it had acquired 50.9% of the issued sharecapital of INS at 63 pence per share and that its offer to acquire INS shareshad been declared unconditional in all respects. The offer will remain open foracceptances until 24 July 2007. INS's expertise in the nuclear decommissioning market and in particular itsstrong presence at Sellafield will further enhance Babcock's position in thecivil and military nuclear sectors and INS will work closely with Babcock'sexisting nuclear capabilities at our businesses in Rosyth, Faslane, DML andAlstec. Trading update In the period commencing 1 April 2007 Babcock has continued its record ofsuccessful organic growth, with new contract wins in civil nuclear support anddecommissioning as well as further successes in the Engineering & Plant Servicesand Networks Divisions. These wins are worth some £75 million in total to theGroup: Marine Services Activity across Rosyth, Faslane and Devonport remains strong. Rosyth continuesto be engaged with warship refit activity working on its portion of the 'Gloucester 12' allocation of vessels. Design & Technology remains busy both ondefence activity, continuing design work on the Future Aircraft Carrier ("CVF")programme and North Sea oil & gas related projects. DML has been awarded a contract worth some £25 million by The Ministry ofDefence to supply 130 new weapons-mounted patrol vehicles under an UrgentOperational Requirement for troops in Iraq and Afghanistan by the end of 2008. Activities at both Faslane and DML continue to be driven by on-going engineeringand safety requirements of the Royal Navy's nuclear submarine flotilla. Civil nuclear support & decommissioning The Group's nuclear businesses had a number of successes during the early monthsof the new financial year: • DML was appointed preferred bidder to provide specialistsupport to British Nuclear Group for the Berkeley power station. This contractis worth around £12.5 million over two years. • ALSTEC has secured a contract for the decommissioning anddemolition of a building complex on the Atomic Weapons Establishment (AWE) siteat Aldermaston. This contract is worth around £3.7 million over two years. • Frazer-Nash Consultancy, part of DML, is a member of the Sercoled consortium to provide £15 million worth of specialist technical andengineering support to Magnox reactor sites over a five year period. Thecontract is worth £1 million per annum to Babcock and will draw upon Frazer-NashConsultancy's consultancy expertise in support of the last two operating BritishNuclear Group Magnox power stations at Wylfa and Oldbury. Work continues on a number of other major opportunities in the civil and defencesectors using the enhanced resources within the Group's nuclear businesses. Engineering and Plant Services The economy in southern Africa continues to be buoyant, yielding significantgrowth opportunities for both the equipment and the power generation businesses.Babcock Africa has recently won three major contracts. The Equipment divisionhas secured an order for Volvo construction equipment worth around £12.7 million- the largest single order achieved by this division to date. Powerlines hasreceived an order worth £5.7 million for the provision of new transmission linesand the Engineering division has secured a further £5.7 million order in supportof Mittal Steel. Decisions are awaited on a number of other high voltage overhead line contractsas well as for the first of several major contracts for the integration andassembly of new power generation plants for Eskom, the local power utility. Rail There has been some weakness in the Rail business due to a combination of thecost and additional effort required in responding to Network Rail's plan toreduce the number of suppliers for track renewals. In addition there has been atemporary hiatus in the release of signalling contracts. Although there are signs that the release of signalling contracts is beginningto improve, no significant upturn is expected before the end of the half year.A decision on which four out of the six current contractors will be selected byNetwork Rail to undertake track renewals work is expected by the end ofSeptember 2007. Non high output track renewal activity accounted for around £60million of Babcock Group revenues in 2006/07. Other markets in Rail are relatively solid and recent contract wins such as thetwo 'type C' signalling framework contracts and the £25 million Trent Valleycapacity enhancement project demonstrate the capabilities of the business. As such, whilst the long-term prospects for our rail business remain healthy,the outturn for the first half is likely to be below our previous expectations. Networks The formation of the Energy Alliance with Amec plc, Mott MacDonald and NationalGrid plc which was announced in March 2007 is progressing well. The preliminaryassessment of the scale of line refurbishment to be undertaken indicates asignificant workload over the next five years. Similar work has also beensecured with EDF Energy Networks in March 2007 and work continues on conditionsurveys for other power network owners in the UK which may lead to furthersubstantial opportunities. The communications business continues to focus on the UK digital switchover andhad a number of good successes in recent months. Since April, Networks hassecured five new projects valued at £7 million in total for Digital Switch-Over(DSO) related activity at sites around the UK for Arqiva. Mobile telecoms workremains at a relatively subdued level however a number of opportunities forgrowth are now being identified. Defence Services Trading remains positive in all areas. Performance in the multi-activitycontracts and the two Regional Prime contracts has been strong and margins areahead of our expectations. The contract for the management of facilities andtraining for the Royal School of Military Engineering is under negotiation andwe are working towards financial close in the spring of 2008. This contractwould add approximately £40 million per annum to revenue over a 30 year period. Summary The outlook for the Group remains positive with markets offering Babcock growthopportunities. The ability of Babcock to deliver customer requirements shouldensure that the Group continues to benefit from the strength of these markets.The acquisitions of DML and INS will enhance earnings significantly. - Ends - Babcock Tel: +44 (0) 20 7291 5000Peter Rogers, Chief ExecutiveBill Tame, Finance DirectorJeffrey Bradford, Investor Relations Financial Dynamics Tel: +44 (0) 20 7269 7121(PR for Babcock)Richard MountainSusanne Yule This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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