3rd May 2006 07:01
Babcock International Group PLC03 May 2006 3 May 2006 BABCOCK INTERNATIONAL GROUP PLC 2005/6 PRELIMINARY RESULTS Babcock International Group PLC, the Support Services company, announces itspreliminary results for the year ended 31 March 2006. These results areprepared under International Financial Reporting Standards and include thePeterhouse acquisition for a full twelve months (2005: nine and a half months). Statutory March 2006 March 2005 % Change Revenue £836.7m £729.0m +15Operating profit £46.6m £35.3m +32Profit before tax £41.3m £29.5m +40Continuing earnings per share 16.06p 11.20p +43Dividend proposal - full year 6.00p 4.00p +50Net debt £38.2m £62.9m The following additional numbers show the "underlying" results beforeamortisation of acquired intangibles £3.1m (2005: £4.4m) and operatingexceptional losses £0.2m (2005: £1.8m), and before the related tax effects ofcredit £1.0m (2005: £nil). We believe that these adjusted results provide abetter indication of our performance. Underlying March 2006 March 2005 % Change Operating profit £49.9m £41.5m +20Profit before tax £44.6m £35.7m +25Continuing earnings per share 17.18p 14.48p +19 Business highlights: • Record results: sales up 15%, underlying PBT up 25% • Significant contracts secured, supporting further growth: - Eastern Regional Prime, Network Rail High Output and contract extension for management of HM Naval Base Clyde • Order book of £2.3bn provides excellent visibility • Strong balance sheet - year end net debt £38.2m, overall pension surplus • Full year dividend up 50%, final by 60% to 4.25p - in line with declared policy • Excellent growth opportunities in all our markets, including defence, rail, telecoms and transmission • Further major opportunities include: - Royal School of Military Engineering contract - financial close expected in mid 2007 - Defence Training Review - decision expected in October 2006 • Potential for further acquisitions Commenting, Peter Rogers Chief Executive, said: "2005/2006 was another excellent year for Babcock. It is the fourth successiveyear of double-digit sales and profit growth. Underlying earnings per shareincreased by 19% to 17.18p. "We continue to be successful in winning major contracts, with Eastern RegionalPrime being the latest example; the contract started in March and the profitflows from this reinforce our confidence for the future. The visibility ofrevenue resulting from an order book totalling £2.3 billion gives us furtherconfidence in both the short and medium term prospects for Babcock. "We are currently awaiting adjudication on bids totalling over £5 billion. Ofparticular note are the bids for the Royal School of Military Engineering andthe Defence Training Review which could add around £100 million a year torevenues for 25 years. "The robust financial health of the Group gives us scope to undertake furtheracquisitions during this year in the technically demanding areas in which weoperate. "Overall, the foundation laid in the last four years in transforming Babcockinto a leading support services company, our success in bidding, and our strongfinancial position lead us to look forward with confidence to our future as anindependent Group". Contact: Peter Rogers, Chief Executive Bill Tame, Finance Director Babcock International plc Telephone: 020 7291 5000 Andrew Lorenz Richard Mountain Financial Dynamics Telephone: 020 7269 7291 Chairman's Statement 2005/6 was another record year for Babcock with profit before tax, beforeamortisation of acquired intangibles and exceptional items, increasing by 25%following a very strong performance in the previous year. The Directors arerecommending a final dividend of 4.25p per share giving a total dividend for theyear of 6.0p per share, an increase of 50% on the previous year. This reflectsthe increased earnings, our confidence in Babcock's future prospects and ourprevious guidance that we intend to reduce the cover progressively to between 3and 2.5 times. The share price continued to improve during the year and reached 270p before theannouncement on 23 March 2006 that VT Group and BAE Systems were contemplatingmaking an offer for Babcock, amongst other options. This level of share pricerepresents an out-performance over five years of 167% compared to the FTSEAll-Share index (excluding investment trusts) - £100 invested in Babcock on 31March 2001 would have been worth £391 on 31 March 2006, compared to £131 had itbeen invested in that index. The Board welcomes the Takeover Panel's ruling that VT Group and BAE Systemsshould clarify their positions by 18 May 2006 and at this time the Board cannotmake any further comment as we have had no indication as to whether an offerwill be forthcoming or the level of any offer. As previously stated, Babcock has been in discussion with industry participantsand with the Ministry of Defence about various options for both submarine andsurface ship support in relation to the restructuring of the UK maritime sectorand fully supports this initiative insofar as it is value adding for Babcock'sshareholders. These discussions have not however extended to the possibilityraised by VT Group and BAE Systems of their jointly bidding for the Group. TheBoard believes that such a bid risks undervaluing our successful supportservices operations and the excellent long-term prospects of Rosyth. Inaddition, it is important to recognise that the marine business now comprisesless than 20% of the Babcock business. Babcock's financial position is strong with net debt as at 31st March 2006 ofonly £38.2m and an overall pension surplus. Further, we have an order book of£2.3 billion and a further £5 billion of bids currently under adjudication. We are confident that Babcock's performance will continue to improve, withcontracts such as Eastern Regional Prime, Network Rail High Output and theextension of the contract for the management of HM Naval Base Clyde, eachstarting to contribute in this financial year. In addition, the growthprospects in our other non-defence area should also contribute to furtherenhanced earnings. The Board believes that the underlying value of Babcock should continue toincrease, and recommends that shareholders take no action until the positionwith regard to the possible bid is clarified. The Board is confident ofBabcock's prospects and is convinced the Group is well placed to continue todevelop and grow as an independent entity. Gordon CampbellChairman Babcock International Group plc 2005/6 Preliminary Results Operational Review Introduction The 2005/06 Financial Year continued the successful trend set in previous yearswith sales growing by a further 15% and operating profits (before amortisationof acquired intangibles and exceptional items) by 20%. Earnings per shareincreased to 17.18p, an increase of 19% compared to last year. The improvement in operating profit is particularly pleasing given thepreviously forecast fall off in contribution from Technical Services (£9.0million compared to £14.3 million in 2005). Operating profit growth across ourother divisions (including a full year contribution from the Peterhousebusinesses) was £13.7 million or 50%. Contract wins in Eastern Regional Prime, Network Rail High Output and theextension to the contract for the management of HM Naval Base Clyde give usconfidence that growth will be sustained. The contract for the Royal School of Military Engineering is now in the finalstages of its approval process within the Ministry of Defence and we expect tomove to financial close in mid 2007. We continue to have confidence in the highquality bid submitted for the Defence Training Review where a decision on thepreferred bidder is expected in October 2006. These two contracts would add anestimated £100 million to turnover in a full year. During 2005/06, and shortly after the year-end, we disposed of the remainingnon-core businesses acquired with the Peterhouse Group. Each of the businesses which we now operate is highly rated in its respectivemarket and is therefore well placed to take a substantial share of the growthopportunities available to it. Defence Services: turnover £271.7 million (2004/05: £245.1 million) - operatingprofit £21.8 million (2004/05: £16.8 million) 2005/06 was an excellent year for Defence Services, with sales increasing by 11%and operating profit by 30%. Looking forward, the securing of the Regional Prime East Contract (wheredelivery of service began only in March 2006) and the extension to the contractfor HM Naval Base Clyde, give us confidence that growth will continue in 2006/07. Revenues from these two contracts are in excess of £120 million a year. Weare also confident that an extension will be granted for the Single LivingAccommodation Modernisation (SLAM) programme which will further strengthenBabcock's position as the leading supplier of built infrastructure support tothe Ministry of Defence. We continue to obtain additional revenue from Prime Contracts and are in activenegotiation with Defence Estates on a number of additional projects which weexpect will increase revenue and profits on each of the South-West and EasternPrime Contracts. Technical Services: turnover £130.5 million (2004/05: £159.0 million) -operating profit £9.0 million (2004/05: £14.3 million) We have continued to manage the expected temporary decline in warship refitactivity at Rosyth and have succeeded in retaining a profitable business. TheDesign and Technology businesses, Supply Chain Services and the NuclearDecommissioning businesses each made excellent profit contributions during theyear and are well placed to deliver future growth. In the current year only 40%of revenue is expected to be provided by the warship refit business. Recent allocations of ship refit work will provide a greater volume of work thanhad been previously anticipated for the current financial year and as anexpression of its confidence in the Rosyth business, the Ministry of Defence hasagreed to extend its responsibility for redundancy costs at Rosyth until March2007. The Secretary of State for Defence has confirmed Rosyth as the site for thefinal assembly and integration of the CVF (future aircraft carrier) and we areparticipating fully in the Aircraft Carrier Alliance. We have already beenawarded an initial contract for the early production design and planning stagesof the project. Whilst the Ministry of Defence has not yet indicated a startdate for construction, we would expect this to be in 2008/09. The moves by the Ministry of Defence away from direct competition in the warshiprefit market in favour of establishing an industry alliance are also expected tobring substantial benefits to Rosyth in terms of workload and marginpredictability. Engineering and Plant Services: turnover £144.2 million (2004/05: £112.7million) - operating profit £9.7 million (2004/05: £4.8 million) The African business continued its outstanding growth record and won the VolvoInternational Dealer of the Year Award for the third successive year. Marginsfurther improved and exceeded 6%. The economy in South Africa continues to be in robust health and spending oninfrastructure is forecast to underpin future economic growth. In particular,the expenditure on electrical generation and transmission will provide verysignificant opportunities over the next five years for our engineering business.Similarly basic infrastructure investment on roads and urban development willcontinue to generate a strong demand for the Volvo product. Sales ofreplacement parts for Volvo are growing in line with our expectations and atvery satisfactory margins. We are continuing negotiations with ABB over the acquisition of its Powerlinesbusiness. While we expect a successful outcome, the possible bid for Babcockhas complicated the negotiations. Eagleton, the small US based pipeline business returned to profitability duringthe year and prospects for the business are now better than at any time in thelast three years, as activity in the US petrochemical industry continues torise, reflecting increased oil prices. Networks: turnover £73.0 million (2004/05: £45.2 million) - operating profit£6.4 million (2004/05: £2.9 million) Networks had an excellent year as 3G roll-out and high voltage network projectscontinued at good levels. Activity in the transmission market rose above theprior year and the level of bidding activity for work in the 2006-2008 periodnow clearly supports our view that the total size of the market will double fromcurrent levels during that period. The current value of tenders underpreparation or submitted for work during the period is approximately £500million. The skills in our networks businesses - both white and blue collar - remainscarce and we are investing significant amounts in training people for thefuture increase in workflow. The CARE predictive deterioration model continuesto be well received by National Grid and the system is now being modified towiden its application to mobile telephone infrastructure. Rail: turnover £217.3 million (2004/05: £167.0 million) - operating profit £8.8million (2004/05: £8.4 million) Our rail business continued to make good progress during the period with growthin the track business and the long awaited return of high volumes in thesignalling market resulting in increases in both turnover and profits. Securedbusiness for 2007 at £157 million is 148% ahead of the position at this stagelast year. Margins in the rail business continue to be lower than in our other businessesbut we are addressing this through the replacement of the outdated IT systemsinherited with the Peterhouse acquisition. The replacement of these systems isnow largely complete and we expect to make significant savings in overheads inthe Rail business over the next twelve months. Network Rail continues to improve the performance of the infrastructure and hassecured funding over the next three years and the probability is that theregulator will be prepared to continue funding at current levels for asignificant period. We continue to work with Network Rail to improveefficiencies and productivity. Outlook The trading environment for the Babcock businesses remains excellent. In theUK, the Ministry of Defence continues with major outsourcing programmes, NetworkRail funding remains secure and the expenditure on renewing the high voltagenetwork is rising rapidly. The South African economy continues to expand andthe need to renew infrastructure and programmes for increased power generationwill bring significant business opportunities to Babcock for the next fiveyears. We are confident that the RSME project will move to financial close sufficientlyearly to provide revenues in the 2007/08 financial year and remain positive onthe chances of our bid for the Defence Training Review. We are progressing our plans for further acquisitions and remain confident thatwe can extend our track record of successful identification, acquisition andintegration of other businesses in the technically sophisticated area of supportservices in which we operate. We anticipate that further businesses will beacquired during the current year. The strength of the balance sheet andcontinuing excellent cash management will ensure that the required resources areavailable. We will continue to apply rigorous financial discipline in theassessment of potential acquisitions to ensure that shareholder value continuesto be enhanced. We remain confident that, with an order book totalling approximately £2.3billion, our momentum can be sustained. Overall, the clear visibility providedby the order book gives us confidence that both the short and medium termprospects for the Group are excellent. Preliminary Statement - Financial Review In this review, unless otherwise stated, revenue ('turnover'), operating profit,operating margin, profit before tax and earnings per share refer to results fromcontinuing operations, before amortisation of acquired intangibles andexceptional items. We believe that these adjusted results provide a bettercomparison of underlying performance. An analysis of amortisation of acquiredintangibles, exceptional items and discontinued businesses is presented inseparate sections of the review. The financial statements and accompanying noteshave been prepared under International Financial Reporting Standards andcomparative numbers for financial year 2005 have been restated accordingly.Details of how the 2005 prior year results were adjusted were released in July2005 and are available on the Babcock International Group plc website. Turnover and operating profit At £837 million, turnover increased 15% on 2005 (£729 million) includingsignificant growth in Defence Services, up 11% and Networks, up 62%. Similarlyturnover in Rail was higher by 30% and Engineering and Plant Services 28%. Groupoperating profit increased 20% to £49.9 million from £41.5 million last year,with Defence Services, Networks and Engineering and Plant Services businessesall continuing to increase their respective operating margins. Despite theanticipated decline in activity levels and margins in Technical Services, theGroup's operating margin increased further to 6.0%, up from 5.7% in 2005. Interest and profit before tax Net finance costs (interest payable) were £5.2 million (2005; £6.0 million)following strong cash generation in the second half of the year. At this level,net finance costs were covered over 9 times by operating profit (2005; 7 times). After charging net finance costs, profit before tax was £44.6 million (2005;£35.7 million) an increase of 25% year-on-year. Cash flow Cash conversion, defined as cash generated from operations as a percentage ofoperating profit, was 119%, and continued to exceed our target of over 80%conversion over the medium term. Expenditure on capital assets, excludingintangibles, totalled £6.8 million or one times depreciation and 0.8% ofturnover. Our focus on cash management reduced net debt to £38.2 million at the year-end,representing gearing of 22%, down from £62.9 million at 31 March 2005, £52.3million at 30 September 2005 and proforma debt at the completion of theacquisition of Peterhouse of £104.5m. Additionally during the year, wesuccessfully renegotiated our £140 million revolving credit facility on to afive-year term at significantly lower interest rates. When combined with itsstrong balance sheet position, this gives the Group significant headroom tocontinue to pursue its successful organic and acquisitive growth strategy. Pensions We continue to manage the assets and liabilities of the Group's defined benefitpension schemes closely and at the end of the year the schemes were in net IAS19surplus of £29.3 million (2005; deficit £20.3 million) before the relateddeferred tax liability, a position that compares very favourably to that of manyother companies. Amortisation and exceptional items Amortisation of acquired intangibles charged to profit was £3.1 million (2005;£4.4 million) and operating exceptional charges totalled £0.2 million (2005;£1.8 million). Operating exceptional charges comprised restructuring costs of£1.5 million, largely offset by a £1.3 million pensions curtailment gain, in theTechnical Services business. After amortisation of acquired intangibles andoperating exceptional items, profit before tax was £41.3 million (2005; £29.5million), up 40% year-on-year. Taxation The Group tax charge on continuing operations at £9.2 million represented aneffective rate of 20.6%, down from 23.1% in 2005 as a result of lower tax ratesapplied to overseas earnings. Discontinued operations The Group sold three of its four non-core businesses during the year to 31 March2006 and in April 2006 completed the full disposal programme with the sale ofthe remaining business. The results of all of these businesses have beenincluded in discontinued operations, which net of tax lost £0.6 million in theyear. The loss on disposals in the year totalled £0.2 million and the net assetimpairment on the business sold subsequent to the year-end was £1.8 million. Earnings per share and dividends Basic earnings per share from continuing operations rose to 17.18 pence (2005;14.48 pence), an increase of 19%. After charging amortisation of acquiredintangibles and exceptional items, basic earnings per share was 16.06 pence(2005; 11.20 pence) representing an increase of 43%. After includingdiscontinued operations, post amortisation of intangibles and exceptional items,current year earnings per share was 14.49 pence against 10.08 pence last year. The Group's policy, as stated in last year's preliminary results announcement,is to target dividend cover over the medium term in the range of 2.5 to 3.0times, measured using profits after tax from continuing operations, beforeamortisation of acquired intangibles and exceptional items. On the basis of thesignificant growth in earnings per share and further strong cash flows thisyear, the directors are pleased to recommend a final dividend of 4.25 pence pershare (2005; 2.65 pence). The proposed full year dividend is therefore 6.0pence per share, an increase of 50% as compared to 4.0 pence per share lastyear. BABCOCK INTERNATIONAL GROUP PLCGROUP INCOME STATEMENTFOR THE YEAR ENDED 31 MARCH 2006 2006 2005 Before 2006 Before 2005 acquired Acquired acquired Acquired intangible intangible intangible intangible amortisation amortisation amortisation amortisation and and and and exceptional exceptional 2006 exceptional exceptional 2005 items items Total items items Total Note (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m £m £m Revenue 836.7 - 836.7 729.0 -. 729.0 Operating profit 49.9 (3.3) 46.6 41.5 (6.2) 35.3 Finance costs (8.9) - (8.9) (8.5) - (8.5)Finance income 3.7 - 3.7 2.5 - 2.5Share of operating profit/(loss)from joint ventures (net of tax) (0.1) - (0.1) 0.2 - 0.2 Profit before tax 44.6 (3.3) 41.3 35.7 (6.2) 29.5 Income tax expense 5 (9.2) 1.0 (8.2) (8.2) - (8.2) Profit for the year fromcontinuing operations 35.4 (2.3) 33.1 27.5 (6.2) 21.3 Discontinued operations 4Loss for the year fromdiscontinued operations (0.6) (2.6) (3.2) (0.5) (1.6) (2.1) Profit for the year 34.8 (4.9) 29.9 27.0 (7.8) 19.2 Attributable to:Equity holders of the parent 29.7 19.1Minority interest 0.2 0.1 29.9 19.2 Earnings per share fromcontinuing and discontinuedoperations 6- Basic 14.49p 10.08p- Diluted 14.15p 10.07p Earnings per share from 6continuingOperations- Basic 16.06p 11.20p- Diluted 15.68p 11.18p Dividends Amounts recognised as distributions to equity holders in the year: 2006 2005 £m £m Final dividend for the year ended 31 March 2005 of 2.65p (2004: 2.10p) per 5.4 4.260p share Interim dividend for the year ended 31 March 2006 of 1.75p (2005: 1.35p) per 3.6 2.860p shareDividends paid during the year 9.0 7.0 Proposed final dividend for the year ended 31 March 2006 of 4.25p (2005: 8.7 5.42.65p) 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 shareholders approval, will be paid on7 August 2006 to shareholders registered on 7 July 2006. BABCOCK INTERNATIONAL GROUP PLCGROUP BALANCE SHEETAT 31 MARCH 2006 2006 2005 Note (unaudited) (unaudited) £m £m AssetsNon-current assetsGoodwill 164.0 161.3Other intangible assets 13.8 14.8Property, plant and equipment 25.3 36.0Investment in joint ventures 0.6 0.6Other investments 0.1 -Retirement benefits 64.9 41.5Trade and other receivables 0.3 0.4Deferred tax 4.5 11.8 273.4 266.5Current assets Inventories 41.5 40.6Trade and other receivables 168.5 232.2Income tax recoverable 0.2 0.3Other financial assets 0.1 -Cash and cash equivalents 10 109.0 33.1 319.3 306.2Assets held for sale 4 9.6 -Total assets 602.3 572.7Equity and liabilities Equity attributable to equity holders of the parent 7Share capital 125.5 125.0Share premium 69.7 69.3Other reserves 32.3 30.7Retained earnings (57.3) (112.7) 170.2 112.3Minority interest 0.4 0.1 Total equity 170.6 112.4 Non-current liabilitiesBank and other borrowings 10 6.5 8.3Income tax payable 0.1 -Retirement liabilities 35.6 61.8Provisions for other liabilities 12.6 23.4 54.8 93.5Current liabilitiesTrade and other payables 212.9 263.0Income tax payable 7.0 6.2Other financial liabilities 0.2 -Bank and other borrowings 10 140.7 87.7Provisions for other liabilities 12.3 9.9 373.1 366.8Liabilities held for sale 4 3.8 - Total liabilities 431.7 460.3 Total equity and liabilities 602.3 572.7 BABCOCK INTERNATIONAL GROUP PLCGROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2006 2006 2005 Note (unaudited) (unaudited) £m £m Cash flows from operating activitiesCash generated from operations 8 54.1 43.5 Income tax paid (5.8) (4.8)Interest paid (8.9) (8.4)Interest received 3.8 2.5Net cash flows from operating activities 43.2 32.8 Cash flows from investing activities Proceeds on disposal of other investments - 5.0Disposal of subsidiaries 2.5 (3.2)Proceeds on disposal of property, plant and equipment 0.9 4.9Purchases of property, plant and equipment (6.8) (4.5)Purchases of intangible assets (2.7) (1.4)Acquisition of subsidiary net of cash acquired (4.3) (26.5)Net cash flows from investing activities (10.4) (25.7) Cash flows from financing activities Dividends paid (9.0) (7.0)Finance lease principal payments (3.6) (3.3)Bank loans (repaid)/raised (22.5) 23.1Net proceeds on issue of shares 0.9 -Movement on own shares - 0.3Net cash flows from financing activities (34.2) 13.1Net increase in cash, cash equivalents and bank overdrafts (1.4) 20.2Cash, cash equivalents and bank overdrafts at beginning of year 26.4 6.3Effects of exchange rate fluctuations 0.3 (0.1)Cash, cash equivalents and bank overdrafts at end of year 10 25.3 26.4 BABCOCK INTERNATIONAL GROUP PLCGROUP STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 MARCH 2006 2006 2005 (unaudited) (unaudited) £m £m Profit for the year (including discontinued operations) 29.9 19.2Currency translation differences 1.6 0.1Net actuarial gains/(losses) in respect of pensions 42.2 (34.8)Tax on net actuarial gains/(losses) in respect of pensions (12.6) 10.4Total recognised income and expense 61.1 (5.1) Attributable to:Equity holders of the parent 60.8 (5.2)Minority interest 0.3 0.1 61.1 (5.1) BABCOCK INTERNATIONAL GROUP PLCNOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2006 1. Accounting policies and basis of preparation The financial information in this statement contains extracts from the BabcockInternational Group Plc ("the Group") 2006 Annual Report, which will be issuedin June 2006 and are prepared in accordance with International FinancialReporting Standards ('IFRS') as adopted for use in the European Union and IFRICinterpretations. A description of how the Group's reported results and forwardposition are affected by the change from UK GAAP, including reconciliation'sfrom UK GAAP to IFRS for prior year results and the revised summary ofsignificant accounting policies under IFRS is shown on the Group's website atwww.babcock.co.uk. These Accounting Policies (that comply with IFRS and IAS)adopted by the Group will be presented in our 2006 Annual Report. The group has adopted the exemption not to restate comparatives for IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' but to apply these standards from 1April 2005. As a result the comparative information to the 2006 financialstatements are presented on the existing UK GAAP basis in relation to thesestandards. A reconciliation between the closing 31 March 2005 balance sheet andthe opening 1 April 2005 balance sheet is set out in the 2005 Interim Reportissued in November 2005. In accordance with IFRS 5, the restated Group Income Statement previouslydisclosed has been updated to reflect the impact of current period discontinuedoperations on comparative figures. 2. Segmental analysis 2006 2005 Operating Operating profit 2006 profit 2005 before Acquired before Acquired acquired intangible acquired intangible intangible amortisation 2006 intangible amortisation 2005 2006 amortisation, and Group 2005 amortisation, and Group Group exceptional exceptional operating Group exceptional exceptional operating revenue items items profit revenue items items profit (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m £m £m £m £m ContinuingoperationsDefence Services 271.7 21.8 - 21.8 245.1 16.8 - 16.8Technical Services 130.5 9.0 (0.2) 8.8 159.0 14.3 - 14.3Engineering andPlant Services 144.2 9.7 - 9.7 112.7 4.8 - 4.8Networks 73.0 6.4 (0.7) 5.7 45.2 2.9 (0.6) 2.3Rail 217.3 8.8 (2.4) 6.4 167.0 8.4 (3.8) 4.6Unallocated - (5.8) - (5.8) - (5.7) (1.8) (7.5) Total continuingoperations 836.7 49.9 (3.3) 46.6 729.0 41.5 (6.2) 35.3 Discontinuedoperations (net oftax) 28.0 (0.6) (2.6) (3.2) 29.6 (0.5) (1.6) (2.1) Group total 864.7 49.3 (5.9) 43.4 758.6 41.0 (7.8) 33.2 The tax credit related to discontinued operations was £0.4m within operatingprofit (2005: £0.2m) and £0.7m within exceptionals (2005: £nil). The share of joint venture results not separately disclosed above are; Year ended 31 March 2006 Year ended 31 March 2005 Operating Tax and Net JV Operating Tax and Net JV Revenue profit interest results Revenue profit interest results (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m £m £m £m £m ContinuingoperationsDefence Services 1.3 0.1 - 0.1 1.3 0.3 (0.1) 0.2Technical Services - - - - 1.7 0.2 - 0.2Networks 0.3 (0.1) - (0.1) 0.1 (0.2) - (0.2)Rail - - (0.1) (0.1) - - - - Total continuingoperations 1.6 - (0.1) (0.1) 3.1 0.3 (0.1) 0.2 3. Operating exceptional items and acquired intangible amortisation In 2006 within continuing operations there is an exceptional redundancy costarising within the Technical Services segment of £1.5m which is largely offsetby a pension curtailment gain of £1.3m also arising in relation to theredundancies. In 2005 exceptional items for continuing operations were £1.8m. This related to£0.8m of restructuring costs and £4.8m of goodwill write-off offset by a pensioncurtailment gain of £5.6m within the Technical Services segment, £8.8m creditrelating to the transfer of rail maintenance back to Network Rail, offset by£8.8m of exceptional acquired intangible amortisation relating to railmaintenance and a £1.8m charge relating to the closure costs of the Peterhousehead office in the unallocated segment. In 2006 acquired intangible amortisation was £3.1m (2005: £4.4m), with £0.7m(2005: £0.6m) relating to networks and £2.4m (2005: £3.8m) relating to railsegment. 4. Discontinued operations Four businesses are treated as discontinued operations within these statements.The trade and net assets of Pivotal Services Group (previously in the HS&Esegment) was disposed of on 22 July 2005, the trade and net assets of IETG (alsopreviously in the HS&E segment) was disposed of on 16 February 2006. The trade and net assets of EPS GmbH (previously in the Networks segment) weredisposed of on 27 March 2006. Eve Trakway Limited (also previously in theNetworks segment) was disposed of post year end on 4 April 2006 and has beenimpaired within these statements and included as assets and liabilities held forsale. Discontinued operations analysis is as follows: 2006 2005 £m £m (Unaudited) (Unaudited) Revenue 28.0 29.6 Operating loss: (1.0) (0.7)Taxation 0.4 0.2Net loss after tax (0.6) (0.5) Exceptional items:Loss on disposal (0.2) (0.4)Impairment to reflect disposal post year end (1.8) -Costs on previously disposed of businesses (1.3) (1.2) (3.3) (1.6)Taxation 0.7 - (2.6) (1.6) 5. Income tax expense The charge for taxation of £8.2m (2005: £8.2m) includes a charge of £3.0m (2005:£2.1m) in respect of overseas current and deferred taxes, and a charge of £5.2m(2005: £6.1m) in respect of UK current and deferred taxes. The effective rate oftax in respect of profits before acquired intangible amortisation, exceptionalitems, share of operating profit from joint ventures and discontinued operationsis 20.6% (2005: 23.1%). This is lower than the statutory rate of 30% (2005: 30%)due to the net effect of overseas rate differences and permanent differences(both overseas and UK). 6. 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 2006 2005 Number Number Weighted average number of ordinary shares for the purpose of basic 204,638,536 189,193,887EPSEffect of dilutive potential ordinary shares: share options 4,996,555 258,810Weighted average number of ordinary shares for the purpose of 209,635,091 189,452,697diluted EPS Earnings 2006 2006 2005 2005 Basic Diluted Basic Diluted 2006 per share per 2005 per per Earnings pence share Earnings share share £m pence £m pence pence Continuing and discontinued operationsEarnings from continuing and discontinued operations 29.7 14.49 14.15 19.1 10.08 10.07Add back:Amortisation of acquired intangible assets, net of tax 2.2 1.06 1.04 3.0 1.64 1.63Exceptional items, net of tax 2.7 1.32 1.29 4.8 2.50 2.51Earnings before amortisation and exceptionals 34.6 16.87 16.48 26.9 14.22 14.21 Continuing operationsEarnings from continuing operations 32.9 16.06 15.68 21.2 11.20 11.18Add back:Amortisation of acquired intangible assets, net of tax 2.2 1.06 1.04 3.1 1.64 1.64Exceptional items, net of tax 0.1 0.06 0.06 3.1 1.64 1.64Earnings before discontinued operations, amortisationand exceptionals 35.2 17.18 16.78 27.4 14.48 14.46 7. Statement of changes in equity Year ended Share Share Capital Retained Translation Minority 31 March capital premium redemption earnings reserve Total interests At 1 April 2004 90.1 38.6 30.6 (100.7) - 58.6 - 58.6Shares issued in the period 34.9 30.7 - - - 65.6 - 65.6Total recognised income and expense - - - (5.3) 0.1 (5.2) 0.1 (5.1)Dividends - - - (7.0) - (7.0) (7.0)Share based payments - - - 0.9 - 0.9 - 0.9Tax on share based payments - - - (0.2) - (0.2) - (0.2)Movement in ESOP - - - (0.4) - (0.4) - (0.4)Net movement in equity 34.9 30.7 - (12.0) 0.1 53.7 0.1 53.8 At 31 March 2005 125.0 69.3 30.6 (112.7) 0.1 112.3 0.1 112.4Adoption of IAS 39 at 1 April 2005 - - - - - - - - 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 - 0.9 Total recognised income and expense - - - 59.2 1.6 60.8 0.3 61.1Dividends - - - (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 8. Reconciliation of operating profit to cash generated from operations 2006 2005 (unaudited) (unaudited) £m £m Cash flows from operating activitiesOperating profit 46.6 35.3Loss from discontinued operations (0.6) (0.5)Add back tax on discontinued operations (0.4) (0.2) 45.6 34.6 Depreciation of property, plant and equipment 7.1 7.4Amortisation and impairment of intangible assets 3.6 19.0Equity share based payments 1.1 0.9Loss on disposal of property, plant and equipment 0.3 0.9Operating cash flows before movement in working capital 57.7 62.8 (Increase)/decrease in inventories 1.5 (6.0)Decrease/(increase) in receivables 58.9 (30.9)Increase/(decrease) in payables (49.2) 18.2Increase/(decrease) in provisions (14.8) (0.6)Cash generated from operations 54.1 43.5 9. Movement in net debt 2006 2005 (unaudited) (unaudited) £m £m Increase/(decrease) in cash in the year (1.4) 20.2Cash flow from the decrease in debt and lease financing 26.1 (19.8)Change in net funds resulting from cash flows 24.7 0.4Loans and finance leases (acquired)/disposed of with subsidiaries 0.1 (47.2)New finance leases (0.4) (0.9)Foreign currency translation differences 0.3 0.2Movement in net debt in the year 24.7 (47.5)Net debt at the beginning of the year (62.9) (15.4)Net debt at the end of the year (38.2) (62.9) 10. Changes in net debt At Acquisitions New At 1 April and finance Exchange 31 March 2005 Cash flow disposals leases movement 2006 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m £m £m £m £m £m Cash and bank balances 33.1 (75.6) - - 0.3 109.0Bank overdrafts (6.7) (77.0) - - - (83.7)Cash, cash equivalents and bank overdraftsat end of year 26.4 (1.4) - - 0.3 25.3 Debt (80.8) 22.5 - - 0.2 (58.1)Finance leases (8.5) 3.6 0.1 (0.4) (0.2) (5.4) (89.3) 26.1 0.1 (0.4) - (63.5)Total (62.9) 24.7 0.1 (0.4) 0.3 (38.2) In 2004/05, the Group's cash balances were reported net of bank overdrafts wherea cash pool was in operation and the legal right of offset existed. On adoptionof IAS 32 netting can only occur to the extent that there is both the legalability and intention to settle net by entity. Although Group's cash is, wherepractical, managed on a pooled basis and interest is changed or earned on a netbasis, there is a grossing up of cash and borrowings in 2005/06 of £78.1m. 11. 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). Full accounts for Babcock International Group PLC forthe year ended 31 March 2005, prepared under UK GAAP, have been delivered to theRegister of Companies. The auditors' report on these accounts was unqualifiedand did not contain a statement under Section 237(2) or Section 237(3) of the UKCompanies Act 1985. This preliminary statement was approved by the Board on 2ndMay 2006. 12. Change in basis of accounting The Group took advantage of IFRS 1 (First Time Adoption of InternationalFinancial Reporting Standards) transitional provisions and adopted IAS 32(Financial Instruments: Disclosure and Presentation) and IAS 39 (FinancialInstruments: Recognition and Measurement) from 1 April 2005. The openingbalance sheet at 1 April 2005 has been restated for IAS 39, resulting in anincrease in retained losses of £5,000. 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. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the"Code"), if any person is, or becomes, "interested" (directly or indirectly) in1% or more of any class of "relevant securities" of VT Group plc or of BAESystems plc or of Babcock International Group PLC, all "dealings" in any"relevant securities" of that company (including by means of an option inrespect of, or a derivative referenced to, any such "relevant securities") mustbe publicly disclosed by no later than 3.30 pm (London time) on the Londonbusiness day following the date of the relevant transaction. This requirementwill continue until the date on which the offer becomes, or is declared,unconditional as to acceptances, lapses or is otherwise withdrawn or on whichthe "offer period" otherwise ends. If two or more persons act together pursuant to an agreement or understanding,whether formal or informal, to acquire an "interest" in "relevant securities" ofVT Group plc or of BAE Systems plc or of Babcock International Group PLC, theywill be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevantsecurities" of VT Group plc or of BAE Systems plc or of Babcock InternationalGroup PLC by VT Group plc or BAE Systems plc or Babcock International Group PLC,or by any of their respective "associates", must be disclosed by no later than12.00 noon (London time) on the London business day following the date of therelevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Takeover Panel's website atwww.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on thePanel's website. If you are in any doubt as to whether or not you are requiredto disclose a "dealing" under Rule 8, you should consult the Panel. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Babcock