10th May 2007 07:02
Babcock International Group PLC10 May 2007 10th May 2007 BABCOCK INTERNATIONAL GROUP PLC 2006/7 PRELIMINARY RESULTS Babcock International Group PLC, the Support Services company, announces itspreliminary results for the year ended 31 March 2007. These results areprepared under International Financial Reporting Standards and include theAlstec acquisition for eleven months. Statutory March 2007 March 2006 % Change Revenue £988.3m £836.7m +18Operating profit £62.8m £46.6m +35Profit before tax £57.0m £41.3m +38Continuing earnings per share 21.49p 16.06p +34Dividend proposal - full year 8.05p 6.00p +34Net debt £73.7m £38.2m The following additional numbers show the "underlying" results beforeamortisation of acquired intangibles £6.1m (2006: £3.1m) and operatingexceptional gains of £0.6m (2006: loss £0.2m), and before the related taxeffects of credit £1.6m (2006: £1.0m). We believe that these adjusted resultsprovide a better comparison of underlying performance. Underlying March 2007 March 2006 % ChangeOperating profit £68.3m £49.9m +37Profit before tax £62.5m £44.6m +40Continuing earnings per share 23.35p 17.18p +36 Business highlights: • Record results: fifth successive year of double digit growth. Revenue up 18%, underlying PBT up 40% • Further operating margin increase to 6.9% (2005/06: 6.0%) • Operating cash flow above target at 96% conversion of EBIT • Strong financial position. Net debt at £73.7m after £52.5m of acquisitions in year • Further major contract wins underpin continuing growth; National Grid - alliance contract, SLAM II, EDF Energy Solutions Networks contract, Network Rail Type C signalling framework contracts • Current order book at £2.4bn • Strengthened position in civil nuclear support market - recommended offer for INS • Agreement on the acquisition of Devonport Management Limited, a strategic step in marine, announced today • Dividend raised to 8.05p up 34% Commenting, Peter Rogers Chief Executive, said: "Our financial results were pleasing with continued double-digit sales growth,underlying profit before tax up by 40% and underlying earnings per shareincreasing by 36%. This is the fifth successive year of double-digit growth. This has been another good year for Babcock with continuing growth in corebusinesses and the successful integration of Alstec and Powerlines, each ofwhich has performed better than our planning assumptions. The potentialaddition of INS to our nuclear portfolio will further strengthen our position inthe nuclear and nuclear decommissioning areas. We believe the combined strength of Babcock and DML will yield significantstrategic and financial benefits to the Ministry of Defence in line with theobjectives set out in the Defence Industrial Strategy, whilst creatingsignificant value for Babcock's shareholders. The outlook for Babcock remains positive with our markets remaining good and ourability to deliver to customers requirements will continue to ensure that webenefit from the strength of these markets." Contact: Peter Rogers, Chief Executive Bill Tame, Finance Director Babcock International Group PLC Telephone: 020 7291 5000 Andrew Lorenz Richard Mountain Financial Dynamics Telephone: 020 7269 7291 Chairman's Statement The year ending March 2007 continued the excellent progress of recent years withprofit before tax, before amortisation of acquired intangibles and exceptionalitems, increased by 40% following the 25% increase in the previous year. Thedirectors are recommending a final dividend of 5.65p per share giving a totaldividend for the year of 8.05p per share, an increase of 34% on the previousyear; this increase reflects the increased earnings, our confidence forBabcock's future prospects and our previously declared policy on dividend cover. The share price continued to improve during the year and reached 400p at the endof March 2007. At close of business yesterday it stood at 477.5p per share.400p per share represents an out-performance over 5 years of 285% compared tothe FTSE all share index (excluding investment trusts). £100 invested inBabcock on the 31st of March 2002 would have been worth £427 on the 31st March2007, compared to £151 had it been invested in that index. We have reached agreement with the shareholders of Devonport Management Limited("DML") to acquire the entire share capital of DML. The deal, which is subjectto Babcock shareholders' approval, is expected to be earnings enhancing in thefirst full financial year. Details of the deal are contained in today's RNSannouncement. The Board believes that a combination of DML, HMNB Clyde, which we currentlymanage, and Rosyth Royal Dockyard can achieve significant cost savings andrepresents progress towards the consolidation of the naval industry as proposedin the Ministry of Defence's Defence Industrial Strategy. The Board is confident however, that in addition to the DML bid, there isconsiderable scope for further earnings enhancement as a result of organicgrowth, and our forward order book is £2.4bn. Our strong track record in acquiring and integrating businesses has beenmaintained, and Alstec, which was acquired in May 2006, contributed handsomelyto Babcock's profits. The Alstec acquisition and our offer for International Nuclear Solutions plcincreases our presence in the field of nuclear support services and offers thebasis for further growth within an expanding nuclear market. Babcock's financial position is strong with net debt at the 31st March 2007 of£74m and an overall pension surplus. The Board is confident of Babcock's prospects and is convinced that the Group iswell placed to continue to develop and grow. As a consequence, the underlyingvalue of Babcock to its shareholders should continue to increase. Gordon Campbell Chairman 10 May, 2007 Babcock International Group plc 2006/7 Preliminary Results Operational Review Unless otherwise indicated, the terms 'operating margin', 'margins', 'operatingprofit' and 'earnings' below refer to the said items before charges forexceptional items and amortisation of acquired intangibles. Our financial results were pleasing with continued double-digit sales growth,profit before tax up by 40% and earnings per share increasing by 36%. This isthe fifth successive year of double-digit growth. This has been another good year for Babcock with continuing growth in corebusinesses and the successful integration of Alstec and Powerlines, each ofwhich has performed better than our planning assumptions. The potentialaddition of INS to our nuclear portfolio will further strengthen our position inthe nuclear and nuclear decommissioning areas. Significant contract wins include SLAM II, the alliance contract with NationalGrid, the supply contract with EDF Energy Solutions, track capacity enhancementin Trent Valley and the Integrated Operational Support Contract for Hawk.Africa had another record year. Our position on the Future Aircraft Carriers has been consolidated during theyear and agreement has been reached on the future Naval refit programme whichwill continue to provide refit work at Rosyth. The acquisition of DML will result in Babcock being the sole supplier of refitand maintenance to the nuclear submarine fleet and the major supplier of warshiprefit capability to the Royal Navy. In addition the substantial nuclearresource which forms part of the DML business will further strengthen ouroffering in the nuclear field. Co-operation with the Ministry of Defence andindustry will result in a more efficient use of resource which will deliverbenefits to all parties. Each of the businesses we now operate is highly rated in its respective marketand is therefore well placed to take a substantial share of the growthopportunities available to it. Defence Services: turnover £340.6 million (2005/06: £271.7 million) - operatingprofit £29.9 million (2005/06: £21.8 million) Defence Services has had an excellent year. New contracts were signed for thesecond tranche of Single Living Accommodation Modernisation (or "SLAM") - ascheme central to the Ministry of Defence to improve recruitment and retentionof service personnel. Additionally Babcock secured its position in futuresupport of the current fleet of Hawk jet trainer aircraft through thecommencement of an Integrated Operational Support ("IOS") contract led by BAESystems. As a consequence of the IOS arrangements, Babcock is engaged innegotiations with BAE Systems as to the in-service support solution for thesuccessor Hawk 128 aircraft. 2006/07 saw the first full year in the operation of the Regional Prime Eastcontract for Defence Estates after mobilisation. The contract is one of five inthe United Kingdom where industry is responsible for maintaining existinginfrastructure. Babcock is the only supplier to be engaged in two of the fiveregional prime contracts. Defence Services includes the Airports division of Alstec acquired during theyear. Technical Services: turnover £178.4 million (2005/06: £130.5 million) -operating profit £16.1 million (2005/06: £9.0 million) Technical Services had an outstanding 2006/07 with sales increasing by 37% andoperating profit by 78%. In the defence field the surface ship support alliance arrangements havematured, reaching an agreed position on the need to protect core skills atRosyth in preparation for the future aircraft carrier ("CVF") programme. As aconsequence Rosyth, uniquely amongst the UK surface ship refit yards, will beoperating a twin stream of activity. The Design & Technology team have been busy both in the further design of theaircraft carriers as well as, increasingly, a body of commercial projects in oil& gas - accounting for some 60% of revenues. 2006/07 was also the first full year of Alstec's operations in the civil nuclearsupport market. Babcock sees this as an important future market. In order tofurther enhance the company's presence in this market, Babcock made arecommended offer for the entire share capital of International NuclearSolutions PLC subsequent to the year end. The Nuclear Decommissioning Agencyhave identified the entire UK requirement for support to be worth in excess of£2.0 billion per annum over a timeframe measured in decades. Engineering and Plant Services: turnover £165.6 million (2005/06: £144.2million) - operating profit £13.3 million (2005/06: £9.7 million) Engineering & Plant continued its run of strong performance during the past yearenjoying another record year of growth. Commodity prices and the award of 2010soccer world cup to South Africa has stimulated investment in civilinfrastructure. This investment is driving demand for high quality constructionand resource extraction and movement equipment for which our Volvo franchiseremains well placed. Additionally, the South African government recognise fully the challenge ofdelivering electricity in sufficient quantities to where its needed. Ourrecently acquired Powerlines business has proven to be a timely decision withits order book already having quadrupled since purchase. Networks: turnover £74.9 million (2005/06: £73.0 million) - operating profit£6.8 million (2005/06: £6.4 million) Networks has had a transformational year which is expected to bring considerablebenefits in the current financial year. The decision of National Grid to movetowards two alliance contracts to manage the UK high voltage distributioninfrastructure has seen Networks come together successfully with AMEC and MottMacDonald Limited to win a five year, £100.0 million per annum contract tocommence the urgent work of improving the UK distribution grid. Beyond the alliance, Networks has won further business in its own right tosupport EDF Energy Solutions in the South East of England. This five yearcontract is worth circa. £50.0 million per annum. The Telecommunications business has focused on the opportunities related to theimpending switch-over of the TV broadcast signal from analogue to digital as theexpansion of the 3G mobile telecoms infrastructure remains slow. Rail: turnover £228.8 million (2005/06: £217.3 million) - operating profit £9.3million (2005/06: £8.8 million) Rail has had commercial successes over the past year whilst starting arestructuring programme to position itself strongly for the future. The business won two signalling framework contracts valued at up to £10.0million each per annum and lasting five years. In addition the business secureda significant capacity enhancement project in Trent valley worth some £25.0million for Network Rail. Network Rail is currently intending to reduce its supplier base for elements oftrack renewals this summer from six key suppliers to four. The consolidationwill not affect the high output activity performed by Babcock in conjunctionwith its partner Swietelsky and we remain confident that the Rail business ispositioned to pursue higher value activities effectively. The outlook for Babcock remains positive with our markets remaining good and ourability to deliver to customers requirements will continue to ensure that webenefit from the strength of these markets. Preliminary Statement - Financial Review Financial position Group Income Statement Group Revenue showed substantial growth over 2005/06, increasing by 18% to £988million driven by a combination of new contract wins and growth from existingcontracts (organic growth) and from businesses acquired during the year. Organicgrowth contributed an additional £50 million whilst Revenue accruing from theacquisition of Alstec and the ABB Powerlines businesses added an additional £102million. The Group operating margin, which improved to 6.9% from 6.0% in 2005/06,benefited from enhanced contract profitability in all business segments with theexception of Rail where margins were maintained at last year's level of 4.1%.Margin gains in Defence Services and Engineering and Plant arising fromefficiency gains on existing contract operations were further enhanced by theAlstec and Powerlines acquisitions. Operating Profit improved by 37% to £68.3million of which £9.5 million was attributable to acquisitions in the year. There were a number of exceptional items in the year totalling £0.4 million(2005/06 £2.7 million) which comprised: £millionRestructuring costs in Rail (2.0)Pension gains 3.2Bid Defence costs (0.6) Operation exceptionals 0.6Legacy issues (1.0) Total exceptionals (0.4) Costs incurred in respect of Rail restructuring, fully provided for in the year,were part of a programme of cost reductions commenced during the year and whichis expected to be completed during 2007/08. Further discussion of discontinuedcosts can be found in note 4. Pension gains arose from a pension liabilitymanagement project in respect of both deferred and pensioner member liabilitiesand which is expected to show further gains in 2007/08. The financial positionof the Group's pension schemes is discussed further below. Finance costs net of finance income increased from £5.2 million to £6.2 millionfollowing the increase in bank debt taken on to finance the acquisition ofAlstec and Powerlines. Further discussion of the Group's funding status is setout below. The charge to income tax before tax on exceptional items and amortisation ofintangibles was £12.6 million (2005/06: £9.2 million) and represented aneffective rate of tax on profit before tax of 20% (2005/06: 21%). However, thisincludes a one-off gain relating to prior years of £1.0 million absent which therate would be 22%. The Group benefits from lower tax rates in overseasjurisdictions allowing the application of an effective rate of tax on its profitbefore tax which is lower than the standard rate of UK corporation tax. Theeffective tax rate is calculated as the total charge to income tax as aproportion of the Group's profit before tax before exceptional items andamortisation of intangibles and is expected to be sustainable at its currentlevel for the financial year to 31 March 2008. Profit for the year from continuing operations was £49.9 million, up from £35.4million in 2005/06 and representing a year on year increase of 41% and yieldingan increase in basic earnings per share from continuing operations to 23.35pence (2005/06; 17.18 pence). Diluted earnings per share was 22.66 pence against16.78 pence in the previous year, an increase of 35%. Based upon the strongincrease in earnings, the Board has recommended a total dividend for the year of8.05 pence per share, up 34% on 2005/06, and at 2.9 times covered, is in linewith the Group's stated policy of achieving a ratio of earnings to dividend(dividend cover) of between 2.5 and 3 times. Liquidity Bank and other borrowings, net of cash balances (net debt), totalled £73.7million, up from £38.2 million at the end of 2005/06. During the year the Groupacquired the shares of Alstec Group Limited and the business and assets of ABBPowerlines for total consideration of £52.0 million for which existing bankborrowing facilities were used. Gearing increased from 22% to 36% and the keyratio of earnings before interest, depreciation and amortisation as a multipleof net debt was 1.0 (2005/06;0.7) comfortably within the Group's internalguidelines. At 31 March 2007, the Group had access to a three year revolving credit facilityof £140.0 million and a similar eighteen month facility of £50.0 million, £91.0million had been drawn on these two facilities. In addition, the Group had£17.5 million of overdraft facility. Treasury policies The group's treasury policies, which have been approved by the Board, cover allsignificant areas of treasury activity including foreign exchange, interestrates, liquidity and credit risk and it is the responsibility of the TreasuryCommittee, comprising the Group's Chief Executive, Finance Director andFinancial Controller, to ensure that these policies are adhered to. Historically the group has financed its operations and transactions through acombination of retained earnings, new equity and bank borrowings. It is thegroup's policy to ensure that it has sufficient financial resources to supportthe business and to leave a comfortable margin between those facilities andlikely peak borrowings during the year. Interest rate risk is managed by the use of a mixture of fixed and floating ratedebt and interest rate swaps, which are regularly reviewed to ensure anappropriate mix is maintained. The group's main exposures to foreign currency movements remain its businessesin South Africa where exposure to both translation and transaction ratemovements exists. The group's policy is not to cover the exposure arising ontranslation of the South African business into the group's base currency,Sterling, by way of derivatives but to use, where possible, local borrowings tofund its operations. All material exposure arising from trading in currenciesother than the business base currency is covered by the use of forward currencycover contracts. Treasury transactions are carried out with prime-ratedcounter-parties including any investment of cash or cash equivalents. The group's income is mainly from government or government-backed institutionsor blue-chip corporates. Where this is not the case, credit checks are performedand where necessary, security is requested and as such customer credit risk isconsidered to be low. Pensions. In common with many companies, the Group has a number of defined benefit pensionschemes with long term commitments to pay pensions to past and present employeesbased on a pre-determined formula of length of service and pensionable pay.Using cash contributions from both the Group and employees, such pension schemesinvest in a variety of financial instruments with the objective of providingsufficient financial resources to pay pensions as they fall due, over the longterm. These financial instruments are valued at the balance sheet date byreference to their market value, for instance the quoted value of shares on arecognised stock exchange, and compared to the value of pension liabilities asassessed by the pension schemes' and Group's actuaries to derive a surplus ordeficit of assets over liabilities. At 31 March 2007 the Group's combinedpension schemes showed a net surplus of £53.1 million of assets overliabilities, on assets valued at £1.2 billion. The assessed value of liabilitiesis critically dependent on a number of assumptions. These include the estimatedlongevity of the scheme members, bond yield, the expected return on assets andfuture salary and pension increases. The 'fair value' approach thus used inaccounting for pension schemes is a snapshot of values assessed at a particularpoint in time for what is essentially a long term structure and can yieldvolatile results, depending on market conditions, both for the balance sheet andincome statement. In 2006/07 the amounts charged or credited to the incomestatement in respect of pensions were as follows: 2007 2006 £m £m Service cost 15.0 12.7 Expected return on plan assets (68.5) (59.6)Interest on obligations 51.6 49.7 (16.9) (9.9) Net (credit)/charge to operating profit before exceptionals (1.9) 2.8 Group Cash Flow The Group generated £60.2 million of cash from operations (2005/06: £54.1million) on statutory operating profit of £62.8 million, representing aconversion rate of operating profit to cash of 96% (2005/06; 116%). We target aconversion rate over the medium term of 80% allowing for the inevitable 'lumpiness' of cash receipts and payments involved in large scale, long termcontracts which can materially distort cash generation at any given point. We acquired two businesses in the year (Alstec in the UK and Powerlines in SouthAfrica) for a net consideration of £52.0 million as well as paying £0.5 milliondeferred consideration in respect of acquisitions from prior years. Inaddition, we acquired 24.5% of the equity in International Nuclear Solutions PLC(INS) for £9.6 million. Subsequent to the year end an offer was made to acquirethe remaining issued share capital of INS, by way of a Scheme of Arrangement,which was subsequently recommended by the Board of INS. An EGM of theshareholders of INS to approve the Scheme will be held on 14 May 2007. After accounting for these investments and inter alia, income tax of £7.7million, net interest payments of £5.5 million, dividends totalling £14.0million and capital expenditure of £7.0 million, the Group's net cash outflow inthe year was £33.5 million. BABCOCK INTERNATIONAL GROUP PLCGROUP INCOME STATEMENTFOR THE YEAR ENDED 31 MARCH 2007 2007 2006 Before acquired 2007 Before 2006 intangible Acquired acquired Acquired amortisation intangible intangible intangible and amortisation amortisation amortisation exceptional and and and items exceptional 2007 exceptional exceptional 2006 (unaudited) items Total items items Total £m (unaudited) (unaudited) (audited) (audited) (audited) Note £m £m £m £m £m Revenue 988.3 - 988.3 836.7 - 836.7 Operating profit 68.3 (5.5) 62.8 49.9 (3.3) 46.6 Share of profit/(loss) fromjoint ventures (net of tax) 0.4 - 0.4 (0.1) - (0.1)Operating profit includingshare of joint ventures 69.0 (5.5) 63.5 49.8 (3.3) 46.5Joint venture share of (0.2) - (0.2) - - -interestJoint venture share of tax (0.1) - (0.1) - - - 68.7 (5.5) 63.2 49.8 (3.3) 46.5 Finance costs (9.8) - (9.8) (8.9) - (8.9)Finance income 3.6 - 3.6 3.7 - 3.7 Profit before tax 62.5 (5.5) 57.0 44.6 (3.3) 41.3 Income tax expense 6 (12.6) 1.6 (11.0) (9.2) 1.0 (8.2) Profit for the year fromcontinuing operations 49.9 (3.9) 46.0 35.4 (2.3) 33.1 Discontinued operations 4 Loss for the year fromdiscontinued operations - (0.8) (0.8) (0.6) (2.6) (3.2) Profit for the year 49.9 (4.7) 45.2 34.8 (4.9) 29.9 Attributable to:Equity holders of the parent 43.4 29.7Minority interest 1.8 0.2 45.2 29.9 Earnings per share fromcontinuing and discontinuedoperations 7- Basic 21.10p 14.49p- Diluted 20.48p 14.15p Earnings per share from 7continuing Operations- Basic 21.49p 16.06p- Diluted 20.85p 15.68p Dividends Amounts recognised as distributions to equity holders in the year: 2007 2006 £m £m Final dividend for the year ended 31 March 2006 of 4.25p (2005: 2.65p) per 8.7 5.460p share Interim dividend for the year ended 31 March 2007 of 2.40p (2006: 1.75p) per 4.9 3.660p shareDividends paid during the year 13.6 9.0 Proposed final dividend for the year ended 31 March 2007 of 5.65p (2006: 11.7 8.74.25p) per 60p share The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not beenincluded as a liability in the financial statements. The dividend, subject to shareholder approval, will be paid on6 August 2007 to shareholders registered on 6 July 2007. BABCOCK INTERNATIONAL GROUP PLCGROUP BALANCE SHEETAT 31 MARCH 2007 2007 2006 Note (unaudited) (audited) £m £m AssetsNon-current assetsGoodwill 198.2 164.0Other intangible assets 23.0 13.8Property, plant and equipment 28.2 25.3Investment in joint ventures 0.9 0.6Other investments 9.4 -Retirement benefits 62.5 64.9Trade and other receivables 2.5 0.3Deferred tax 2.5 4.5 327.2 273.4Current assetsInventories 57.7 41.5Trade and other receivables 167.2 168.5Income tax recoverable 1.2 0.2Other financial assets 0.5 0.1Cash and cash equivalents 11 95.6 109.0 322.2 319.3Assets held for sale 4 - 9.6Total assets 649.4 602.3Equity and liabilities Equity attributable to equity holders of the parent 8Share capital 125.8 125.5Share premium 70.1 69.7Other reserves 26.8 32.3Retained earnings (17.1) (57.3) 205.6 170.2Minority interest 1.6 0.4 Total equity 207.2 170.6 Non-current liabilities Bank and other borrowings 11 3.6 6.5Trade and other payables 0.9 - Income tax payable - 0.1 Deferred tax 2.5 - Retirement liabilities 9.4 35.6 Provisions for other liabilities 7.6 12.6 24.0 54.8 Current liabilities Trade and other payables 232.9 212.9 Income tax payable 5.9 7.0 Other financial liabilities 0.1 0.2 Bank and other borrowings 11 165.7 140.7 Provisions for other liabilities 13.6 12.3 418.2 373.1 Liabilities held for sale 4 - 3.8 Total liabilities 442.2 431.7 Total equity and liabilities 649.4 602.3 BABCOCK INTERNATIONAL GROUP PLCGROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2007 2007 2006 Note (unaudited) (audited) £m £m Cash flows from operating activitiesCash generated from operations 9 60.2 54.1 Income tax paid (7.7) (5.8)Interest paid (9.1) (8.9)Interest received 3.6 3.8Net cash flows from operating activities 47.0 43.2 Cash flows from investing activities Disposal of subsidiaries 0.9 2.5Proceeds on disposal of property, plant and equipment 0.7 0.9Dividend received from joint ventures 0.1 -Purchase of other investments (9.7) -Purchases of property, plant and equipment (5.5) (6.8)Purchases of intangible assets (1.5) (2.7)Acquisition of subsidiary net of cash acquired (52.5) (4.3)Net cash flows from investing activities (67.5) (10.4) Cash flows from financing activities Dividends paid (13.6) (9.0)Finance lease principal payments (1.9) (3.6)Bank loans raised/(repaid) 35.0 (22.5)Dividends paid to minority interests (0.4) -Net proceeds on issue of shares 0.7 0.9Movement on own shares 0.3 -Net cash flows from financing activities 20.1 (34.2)Net increase in cash, cash equivalents and bank overdrafts (0.4) (1.4)Cash, cash equivalents and bank overdrafts at beginning of year 25.3 26.4Effects of exchange rate fluctuations (2.8) 0.3Cash, cash equivalents and bank overdrafts at end of year 11 22.1 25.3 BABCOCK INTERNATIONAL GROUP PLCGROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 MARCH 2007 2007 2006 (unaudited) (audited) £m £m Profit for the year (including discontinued operations) 45.2 29.9Currency translation differences (5.9) 1.6Fair value adjustment of interest rate swap 0.4 -Net actuarial gains in respect of pensions 8.7 42.2Tax on net actuarial gains in respect of pensions (2.6) (12.6)Total recognised income and expense 45.8 61.1 Attributable to:Equity holders of the parent 44.2 60.8Minority interest 1.6 0.3 45.8 61.1 BABCOCK INTERNATIONAL GROUP PLCNOTESFOR THE YEAR ENDED 31 MARCH 2007 1. Accounting policies and basis of preparation The financial information in this statement is prepared in accordance withInternational Financial Reporting Standards ('IFRS') and IFRIC interpretationsas adopted by the European Union. They have been prepared on the basis of theaccounting policies set out in the Group's 2006 Annual Report and Accounts (thatcomply with IFRS and IAS) adopted by the Group and have been consistentlyapplied throughout the year and the preceding year. 2. Segmental analysis 2007 2006 Operating Operating profit 2007 profit 2006 before Acquired before Acquired acquired intangible acquired intangible intangible amortisation 2007 intangible amortisation 2006 2007 amortisation, and Group 2006 amortisation, and Group Group exceptional exceptional operating Group exceptional exceptional operating revenue items items profit revenue items items profit (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) (audited) £m £m £m £m £m £m £m £m ContinuingoperationsDefence Services 340.6 29.9 0.6 30.5 271.7 21.8 - 21.8Technical Services 178.4 16.1 (1.5) 14.6 130.5 9.0 (0.2) 8.8Engineering andPlant Services 165.6 13.3 - 13.3 144.2 9.7 - 9.7Networks 74.9 6.8 (0.3) 6.5 73.0 6.4 (0.7) 5.7Rail 228.8 9.3 (4.1) 5.2 217.3 8.8 (2.4) 6.4Unallocated - (7.1) (0.2) (7.3) - (5.8) - (5.8)Total continuingoperations 988.3 68.3 (5.5) 62.8 836.7 49.9 (3.3) 46.6Discontinuedoperations (net oftax) - - (0.8) (0.8) 28.0 (0.6) (2.6) (3.2) Group total 988.3 68.3 (6.3) 62.0 864.7 49.3 (5.9) 43.4 The tax credit related to discontinued operations was £nil within operatingprofit (2006: £0.4m) and £0.2m within exceptionals (2006: £0.7m). The share of joint venture results not separately disclosed above are; Year ended 31 March 2007 Year ended 31 March 2006 Operating Tax and Net JV Operating Tax and Net JV Revenue profit interest results Revenue profit interest results (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) (audited) £m £m £m £m £m £m £m £m ContinuingoperationsDefence Services 1.8 0.2 (0.1) 0.1 1.3 0.1 - 0.1Engineering andPlant Services 1.5 0.2 - 0.2 - - - -Networks 1.4 0.2 - 0.2 0.3 (0.1) - (0.1)Rail 0.4 0.1 (0.2) (0.1) - - (0.1) (0.1)Total continuingoperations 5.1 0.7 (0.3) 0.4 1.6 - (0.1) (0.1) 3. Operating exceptional items and acquired intangible amortisation In 2007 there was a net gain of £0.6m in operating exceptional items. There wasnet £3.2m exceptional pension gain, after costs, as a result of a liabilitylimitation exercise of which £2.1m is within the Defence Service segment, £0.4mwithin the Technical Services segment, £0.3m with the Networks segment and £0.4munallocated. Offset against this are operating exceptional costs of £2.6m ofwhich £2.0m is reorganisation costs in the Rail segment and £0.6m being biddefence costs arising out of a possible joint bid from BAE Systems plc and VTGroup plc. In 2007 acquired intangible amortisation was £6.1m (2006: £3.1m), with £0.6m(2006: £0.7m) relating to the Networks segment, £2.1m (2006: £2.4m) relating tothe Rail segment, and with the Alstec Group Limited acquisition giving thefollowing: £1.9m (2006: £nil) within the Technical Services segment and £1.5m(2006: £nil) within the Defence Services segment. 2007 2006 acquired 2007 acquired 2006 intangible exceptional 2007 intangible exceptional 2006 amortisation items Total amortisation items Total £m £m £m £m £m £mDefence Services (1.5) 2.1 0.6 - - -Technical Services (1.9) 0.4 (1.5) - - -Networks (0.6) 0.3 (0.3) (0.7) - (0.7)Rail (2.1) (2.0) (4.1) (2.4) (0.2) (2.6)Unallocated - (0.2) (0.2) - - - (6.1) 0.6 (5.5) (3.1) (0.2) (3.3) 4. Discontinued operations Eve Trakway Limited was sold on 4 April 2006 at its held for sale value of £5.8mafter allowing for costs. In 2007 there were exceptional costs relating to disposed of businesses of £1.0mless tax of £0.2m. In 2006 the exceptional costs relating to disposed ofbusinesses was £1.5m plus an impairment of £1.8m to reflect a post year enddisposal, offset by a tax credit of £0.7m The group has a potential liability relating to the former Jackson CivilEngineering business disposed of by the Peterhouse Group prior its acquisitionby Babcock, which may arise out of a contract for the design and construction oftunnelling works at the Tesco store at Gerrards Cross. The group, havingconsidered legal advice, does not expect that any liability that the group mayincur will prove to be material to the Group. 5. Acquisitions On 9 May 2006 the group acquired Alstec Group Limited for net cash considerationbefore costs of £44.9m. Goodwill amounted to £35.4m after valuing the acquiredintangibles at £14.6m. On 1 June 2006 the group acquired certain assets and the high voltage powerlines and mobile telecoms business divisions of ABB South Africa (Pty) Ltd for£5.8m. The total revenue from acquisitions in the period was £101.8m and the relatedoperating profit was £9.5m. 6. Income tax expense The charge for taxation of £11.0m (2006: £8.2m) includes a charge of £5.0m(2006: £3.0m) in respect of overseas current and deferred taxes, and a charge of£6.0m (2006: £5.2m) in respect of UK current and deferred taxes. The effectiverate of tax in respect of profits before acquired intangible amortisation,exceptional items, share of operating profit from joint ventures, discontinuedoperations and prior year releases of £1.0m, is 22.0% (2006: 20.6%). This islower than the statutory rate of 30% (2006: 30%) due to the net effect ofoverseas rate differences and permanent differences (both overseas and UK). 7. Earnings per share Basic earnings per share is calculated by dividing the profit attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year excluding those held in the Babcock Employee ShareTrust and the Peterhouse Employee Share Trust. The calculation of the basic anddiluted EPS is based on the following data: Number of shares 2007 2006 Number Number Weighted average number of ordinary shares for the purpose of basic 205,715,620 204,638,536EPSEffect of dilutive potential ordinary shares: share options 6,228,491 4,996,555Weighted average number of ordinary shares for the purpose of 211,944,111 209,635,091diluted EPS Earnings 2007 2007 2006 2006 Basic Diluted Basic Diluted 2007 per share per 2006 per per Earnings pence share Earnings share share £m pence £m pence pence Continuing and discontinued operationsEarnings from continuing and discontinued operations 43.4 21.10 20.48 29.7 14.49 14.15Add back:Amortisation of acquired intangible assets, net of tax 4.2 2.06 2.00 2.2 1.06 1.04Exceptional items, net of tax 0.4 0.19 0.18 2.7 1.32 1.29Earnings before amortisation and exceptionals 48.0 23.35 22.66 34.6 16.87 16.48 Continuing operationsEarnings from continuing operations 44.2 21.49 20.85 32.9 16.06 15.68Add back:Amortisation of acquired intangible assets, net of tax 4.2 2.06 2.00 2.2 1.06 1.04Exceptional items, net of tax (0.4) (0.20) (0.19) 0.1 0.06 0.06Earnings before discontinued operations, amortisationand exceptionals 48.0 23.35 22.66 35.2 17.18 16.78 8. Statement of changes in equity Year ended Share Share Capital Retained Other Minority 31 March capital premium redemption earnings reserves Total interests At 1 April 2005 125.0 69.3 30.6 (112.7) 0.1 112.3 0.1 112.4Shares issued in the period 0.5 0.4 - - - 0.9 - 0.9Total recognised income and - - - 59.2 1.6 60.8 0.3 61.1expenseDividends - - - (9.0) - (9.0) - (9.0)Share based payments - - - 1.1 - 1.1 - 1.1Tax on share based payments - - - 4.1 - 4.1 - 4.1Net movement in equity 0.5 0.4 - 55.4 1.6 57.9 0.3 58.2 At 31 March 2006 125.5 69.7 30.6 (57.3) 1.7 170.2 0.4 170.6 At 1 April 2006 125.5 69.7 30.6 (57.3) 1.7 170.2 0.4 170.6Shares issued in the period 0.3 0.4 - - - 0.7 - 0.7Total recognised income and - - - 49.7 (5.5) 44.2 1.6 45.8expenseDividends - - - (13.6) - (13.6) (0.4) (14.0)Share based payments - - - 1.7 - 1.7 - 1.7Tax on share based payments - - - 2.1 - 2.1 - 2.1Movement on ESOP - - - 0.3 - 0.3 - 0.3Net movement in equity 0.3 0.4 - 40.2 (5.5) 35.4 1.2 36.6 At 31 March 2007 125.8 70.1 30.6 (17.1) (3.8) 205.6 1.6 207.2 Other reserves includes a translation reserve of £4.2m debit (2006: £1.7m) and ahedging reserve of £0.4m (2006: £nil) 9. Reconciliation of operating profit to cash generated from operations 2007 2006 (unaudited) (audited) £m £m Cash flows from operating activitiesOperating profit 62.8 46.6Loss from discontinued operations - (0.6)Add back tax on discontinued operations - (0.4) 62.8 45.6 Depreciation of property, plant and equipment 5.6 7.1Amortisation and impairment of intangible assets 7.3 3.6Equity share based payments 1.7 1.1Impairment of investments 0.3 -(Profit)/loss on disposal of property, plant and equipment (0.2) 0.3Operating cash flows before movement in working capital 77.5 57.7 (Increase)/decrease in inventories (16.9) 1.5(Increase)/decrease in receivables (5.7) 52.8Increase/(decrease) in payables 10.0 (49.2)(Decrease)/increase in provisions (4.7) (8.7)Cash generated from operations 60.2 54.1 10. Movement in net debt 2007 2006 (unaudited) (audited) £m £m Increase/(decrease) in cash in the year (0.4) (1.4)Cash flow from the (increase)/decrease in debt and lease financing (33.1) 26.1Change in net funds resulting from cash flows (33.5) 24.7Loans and finance leases (acquired)/disposed of with subsidiaries - 0.1New finance leases - (0.4)Foreign currency translation differences (2.0) 0.3Movement in net debt in the year (35.5) 24.7Net debt at the beginning of the year (38.2) (62.9)Net debt at the end of the year (73.7) (38.2) 11. Changes in net debt At Acquisitions New At 1 April and finance Exchange 31 March 2006 Cash flow disposals leases movement 2007 (audited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m £m £m Cash and bank balances 109.0 (10.5) (2.9) 95.6Bank overdrafts (83.7) 10.1 0.1 (73.5)Cash, cash equivalents and bankoverdrafts at end of year 25.3 (0.4) (2.8) 22.1Debt (58.1) (35.0) 0.4 (92.7)Finance leases (5.4) 1.9 0.4 (3.1) (63.5) (33.1) 0.8 (95.8)Total (38.2) (33.5) (2.0) (73.7) 12. Financial information The financial information in this statement is not audited and does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985 (as amended). The financial statements for the year to March 2007 havenot yet been delivered to the Registrar of Companies, nor have the auditors yetreported on them. Full accounts for Babcock International Group PLC for the yearended 31 March 2006, prepared under IFRS, have been delivered to the Register ofCompanies. The auditors' report on these accounts was unqualified and did notcontain a statement under Section 237(2) or Section 237(3) of the UK CompaniesAct 1985. This preliminary statement was approved by the Board on 9th May 2007. 13. Distribution Copies of this report will be available at the company's registered office: 2Cavendish Square, London W1G 0PX. In addition, this report is available on thecompany's website: www.babcock.co.uk. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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