14th Nov 2006 07:01
Babcock International Group PLC14 November 2006 14 November 2006 BABCOCK INTERNATIONAL GROUP PLC 2006/7 INTERIM RESULTS Babcock International Group PLC, the support services company, announces itsinterim results for the half year ended 30 September 2006. These results,including comparatives, are prepared under International Financial ReportingStandards and include the results of Alstec for five months and Powerlines forfour months. September September 2006 2005 % Change Revenue £487.6m £386.7m +26Operating Profit £29.3m £22.3m +31Profit before tax £26.4m £18.9m +40Continuing Earnings per share 9.85p 7.02p +40Net debt £80.0m £52.3m +53Dividend - interim proposed 2.40p 1.75p +37 The following additional numbers show the "underlying" results before amortisation of acquired intangibles of£2.9 million (2005: £1.6 million) and operating exceptionals of £1.3 million (2005: £nil), and before therelated tax effects of £1.2 million (2005: £0.5 million). We believe that these adjusted results provide abetter comparison of underlying performance. September SeptemberUnderlying 2006 2005 % Change Operating profit £33.5m £23.9m +40Profit before tax £30.6m £20.5m +49Continuing Earnings per share 11.29p 7.56p +49 Highlights • Strong growth trend continues: revenue up 26%, underlying profit beforetax up 49% • Underlying operating margin up from 6.2% to 6.9% • Underlying earnings per share up 49% to 11.29 pence • Interim dividend increased by 37% to 2.40 pence per share • Further significant contracts secured to date include National Gridpower transmission lines joint venture, Network Rail signalling frameworkcontracts and Eskom power line refurbishment contracts • Alstec and Powerlines acquisitions performing ahead of expectations • High visibility of long term revenue: order book at £2.3 billion • Bid pipeline strong Commenting, Peter Rogers, Chief Executive, said: "This has been a very strong half year for Babcock with two successfulacquisitions, sustained strong growth in both revenue and profits from ourexisting businesses and a continued track record of double-digit growth. "Our trading environment remains excellent. We have a strong bid pipeline andare expecting selection of preferred bidder or financial close on a number ofsignificant contracts over the next six months. "The Group has built strong momentum over the last four years which we areconfident we can sustain through growing organically and by acquisition. Alstecand Powerlines are performing ahead of our expectations and we will continue tolook to acquire other businesses in the technically sophisticated area ofsupport services in which we operate, applying our usual strict disciplines inassessment of acquisitions in order to ensure that shareholder value isenhanced. "Following the Group's strong performance in the first half of the year and ourrecent contract wins, the Board now believes that the full year result will beahead of our expectations at the time of our trading update in September 2006." Contact: Peter Rogers, Chief Executive Bill Tame, Finance Director Babcock International Group PLC Telephone: 020 7291 5000 Andrew Lorenz Susanne Walker Financial Dynamics Telephone: 020 7269 7291 BABCOCK INTERNATIONAL GROUP PLC 2006/7 INTERIM RESULTS OPERATIONAL AND FINANCIAL REVIEW INTRODUCTION Babcock has achieved strong growth in the first half with revenue up 26% andunderlying profit before tax up 49%. We have recently secured a number ofsignificant contracts including the National Grid power transmission lines jointventure, Network Rail signalling framework contracts and Eskom power linerefurbishment contracts. As anticipated, activity levels in all of the markets in which we operate havecontinued to increase as our customers maintain and upgrade their asset bases inthe rail, power networks, energy generation and nuclear sectors. In the publicsector, pressure on expenditure budgets continues to drive the rate of switchingto outsourced service provision and this is clearly demonstrated in both ourresults and bid pipeline. Our interim results are a reflection of these highactivity levels and our success in exploiting the opportunities presented. OPERATIONAL REVIEW Defence Services - Revenue £163.7 million (2005: £121.9 million) Defence Services achieved an excellent performance in the first half with allcontracts in the division delivering a good performance. The Regional PrimeEast contract for Defence Estates was successfully mobilised and is operatingwell, as is the Prime South West contract, now in its third year and which willbenefit from an increase in its scope in 2007. Continuing improvement of ourmanagement of the various Multi Activity Contracts led to higher margins. At HM Naval Base Clyde the certainty resulting from the award of the contractextension last year has allowed further savings to be realised and we continueactively to pursue further broadening of the scope of this contract. The Alstec airports business, part of Alstec Group acquired in May 2006 andincluded within Babcock Infrastructure Services, performed ahead of ouracquisition plan targets. We are currently awaiting the award of an extension to the SLAM contract (SLAM2) and the announcement of the preferred bidder for Defence Training Review,package 2, both of which are expected at the end of November. The Royal Schoolof Military Engineering project continues to progress towards financial close in2007. Technical Services - Revenue £85.7 million (2005: £65.7 million) The completion of the refit of HMS Ark Royal and RFA Fort Rosalie in the periodhelped lift profits in Technical Services but the major boost was from very highlevels of demand for design work on the new aircraft carriers (CVF) project andsignificant volumes of work from the civil sector, in particular the design ofship conversions. A number of smaller contracts for supply to the Ministry ofDefence were won by Supply Chain Services during the period and activity both onthe Post Nuclear Contract and planning for the ISOLUS programme remained at goodlevels. Progress towards main-gate approval by the MoD at the end of this calendar yearfor the construction phase of the CVF is still on track with Rosyth designatedas the assembly and commissioning site. Negotiations with the Ministry ofDefence and other warship refit providers have led to the award of 3 of the 5scheduled refits this year to Rosyth. Discussions continue on next year'sprogramme but we expect the results to be positive. Babcock, as part of a consortium with Nukem and Stoller, has been selected asone of the final three bidders for the management of the UK's low level wasterepository at Drigg - a contract valued at some £16 million annually for 5years. The results from the Alstec nuclear and defence businesses are included withinTechnical Services. Engineering and Plant Services - Revenue £80.2 million (2005: £68.3 million) Another excellent six months was achieved in Africa although the result was heldback by currency movements. The economic environment in Southern Africacontinues to be good and this has benefited the Construction Equipment businessin particular. The acquisition of Powerlines was a significant step inestablishing a support services business in Africa. In the first four months ofour ownership the business has performed ahead of our planning assumptions and amajor contract for a new high voltage transmission line valued at some £11million has just been secured. Networks - Revenue £42.4 million (2005: £36.7 million) The activity level on overhead transmission continued to be high throughout theperiod and orders secured will result in strong engineering activity over theremainder of the year. As predicted the expenditure on refurbishment ofoverhead transmission lines is growing rapidly and the industry is likely to beconstrained by a shortage of skilled staff in the medium term. We have beenappointed preferred bidder for the West Overhead Line and Cable Alliance inpartnership with Amec and Mott MacDonald which secures our position in thisgrowing market. The award is for the delivery of National Grid's capital worksprogramme for overhead transmission lines and cable works in the West of Englandand throughout Wales. The contract, worth approximately £250 million to Babcockfor an initial period of five years, renewable for a further five years, isexpected to be finalised in January 2007. Activity levels in the telecoms business were stable as the network ownersreviewed their own expenditure plans. A boost has been given to this area ofactivity, as expected, by the Digital Switch Over programme and we have receivedour first 'high-mast' orders. This work will continue through to 2010/2011. Rail - Revenue £115.6 million (2005: £94.1 million) The rail business produced excellent revenue growth during the period but, asindicated in the pre-close trading update, margins were below expectations. Thenew information systems that we have put in place within the business are nowlargely complete and installed - to plan. A rationalisation of the business toa regional structure which matches that of Network Rail is being implemented andbenefits will start to flow in the next financial year. During the period thebusiness continued to win contracts, notably the two signalling frameworkcontracts which will secure work for the next five years. We have also beenshort-listed as one of the final two bidders for the Greater ManchesterPassenger Transport Executive tramways infrastructure bid. Acquisitions Alstec was acquired in May 2006 for a net cash consideration of £44.9 millionand since then has contributed £42.2 million in sales and £4.5 million inoperating profit, giving an operating margin of 10.7%. Since acquisition thebusiness has performed ahead of our original planning assumptions. Alstec'snuclear expertise was a significant factor in the Babcock consortium beingshort-listed amongst the last three bidders for the low level waste repositoryproject. The South African Powerlines business which was acquired in June 2006 for £5.2million is also performing well with contracts already secured. Eskom haspredicted a 'significant' rise in expenditure in Powerlines area of business andprospects therefore look excellent. Powerlines has contributed £5 million insales and £0.6 million in operating profit, an operating margin of 12%. Theneed to expand and refurbish the high voltage network in South Africa is acuteand the award of an initial £11 million contract by Eskom for completion in 2006/2007 is indicative of the opportunity available. FINANCIAL REVIEW In this review, unless otherwise stated, revenue, operating profit, operatingmargin, 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. Revenue and Operating Profit With the underlying operating margin up from 6.2% to 6.9% on revenue up 26% at£487.6 million (2005: £386.7 million), Group underlying operating profitincreased by 40% to £33.5 million (2005: £23.9 million). The combinedcontribution to revenue and operating profit from Alstec and Powerlines was£47.2 million and £5.1 million respectively. Excluding the effect ofacquisitions, revenue growth was 14% and underlying operating profit growth was19%. Adverse exchange rate movements against the pound of the Rand reducedoperating profit by approximately £0.6 million when compared to the equivalentperiod last year. Interest, Profit before Tax, Earnings After a net interest charge of £3.0 million (2005: £3.4 million) and a £0.1million contribution from joint ventures, Group profit before tax, amortisationof intangible assets and exceptional items, was £30.6 million, up 49% from £20.5million last year. The Group's effective rate of tax was slightly lower thanlast half year at approximately 22%. Underlying earnings per share increased by49% to 11.29 pence or by 40% to 9.85 pence per share after amortisation andexceptional charges. Acquired Intangible Amortisation and Exceptional Items Included within exceptional items for the first half year is £0.7 million inrelation to Rail restructuring costs, which we anticipate will increase toapproximately £2 million by the year end. In addition within exceptional itemsthere is £0.6 million of costs arising from the BAE Systems plc and VT Group plcaborted bid. Acquired intangible amortisation at the half year was £2.9 million (2005: £1.6million). Pensions We continue to manage the assets and liabilities of the Group's defined benefitpension schemes closely and at the half year end the schemes were in a net IAS19 surplus of £51.5 million (2005: £9.7 million) before the related deferred taxliability. The IAS 19 net credit to the profit and loss account was £0.7million (2005: a charge of £1.9 million). Cash flow and Net Debt Cash generated from operations of £27.1 million was above our target for cashconversion of 80% over the medium term and represented 92% of operating profit(2005: £23.8 million and 105%). Sales growth meant that working capitalincreased by a net £9 million compared to an increase of £4.5 million in 2005.Net expenditure on acquisitions was £51.5 million and on tangible and intangibleassets, £3.2 million. After net interest payments of £2.9 million and taxationof £2.7 million, net debt was £80 million at the 30 September 2006 (2005: £52.3million). Dividend Following the Group's strong performance in the first half and the Board'simproved expectations for the full year, the interim dividend has been increasedby 37% to 2.40 pence per share. Outlook Our trading environment remains excellent. We have a strong bid pipeline andare expecting selection of preferred bidder or financial close on a number ofsignificant contracts over the next six months. The Group has built strong momentum over the last four years which we areconfident we can sustain through growing organically and by acquisition. Alstecand Powerlines are performing ahead of our expectations and we will continue tolook to acquire other businesses in the technically sophisticated area ofsupport services in which we operate, applying our usual strict disciplines inassessment of acquisitions in order to ensure that shareholder value isenhanced. Following the Group's strong performance in the first half of the year and ourrecent contract wins, the Board now believes that the full year result will beahead of our expectations at the time of our trading update in September 2006. BABCOCK INTERNATIONAL GROUP PLCGROUP INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 Six months ended Six months ended 30 September 2006 30 September 2005 Before Before acquired acquired intangible Acquired intangible Acquired amortisation intangible amortisation intangible Year and amortisation and amortisation ended exceptional and exceptional and 31 March items exceptional items exceptional 2006 (unaudited) items Total (unaudited) items Total Total £m (unaudited) (unaudited) £m (unaudited) (unaudited) (audited) £m £m £m £m £m Note 836.7 Revenue 2 487.6 - 487.6 386.7 - 386.7 46.6 Operating profit 2, 3 33.5 (4.2) 29.3 23.9 (1.6) 22.3 (8.9) Finance costs (4.8) - (4.8) (5.1) - (5.1) 3.7 Finance income 1.8 - 1.8 1.7 - 1.7 Share of profit from (0.1) joint ventures 2 0.1 - 0.1 - - - 41.3 Profit before tax 30.6 (4.2) 26.4 20.5 (1.6) 18.9 (8.2) Income tax expense 6 (6.7) 1.2 (5.5) (4.9) 0.5 (4.4) Profit for the period from continuing 33.1 operations 23.9 (3.0) 20.9 15.6 (1.1) 14.5 Discontinued operations Profit/(loss) for period on discontinued (3.2) operations 4 - - - 0.2 - 0.2 29.9 Profit for the period 23.9 (3.0) 20.9 15.8 (1.1) 14.7 Attributable to: Equity holders of the 29.7 parent 20.2 14.6 0.2 Minority interest 0.7 0.1 29.9 20.9 14.7 Earnings per share from continuing and discontinued operations 7 14.49p - Basic 9.85p 7.13p 14.15p - Diluted 9.59p 7.10p Earnings per share from continuing operations 7 16.06p - Basic 9.85p 7.02p 15.68p - Diluted 9.59p 6.98p BABCOCK INTERNATIONAL GROUP PLCGROUP BALANCE SHEETFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 As at As at As at 31 March 30 September 30 September 2006 2006 2005 (audited) (unaudited) (unaudited) £m Note £m £m Assets Non-current assets 164.0 Goodwill 200.6 164.5 13.8 Other intangible assets 25.9 14.2 25.3 Property, plant and equipment 27.9 36.1 0.6 Investments in joint ventures 0.9 0.5 64.9 Retirement benefits 59.6 63.0 0.3 Trade and other receivables 2.6 - 4.5 Deferred tax asset - 4.1 273.4 317.5 282.4 Current assets 41.5 Inventories 35.8 35.3 168.5 Trade and other receivables 170.2 179.8 0.2 Income tax recoverable 0.7 0.1 0.1 Other financial assets 1.0 - 109.0 Cash and cash equivalents 10 84.7 30.0 319.3 292.4 245.2 9.6 Assets held for sale 4 - 1.0 602.3 Total assets 609.9 528.6 Equity and liabilities Equity attributable to equity holders of the parent 125.5 Share capital 125.8 125.3 69.7 Share premium 70.0 69.6 32.3 Other reserves 26.8 30.6 (57.3) Retained earnings (32.4) (82.4) 170.2 190.2 143.1 0.4 Minority interest 1.0 0.2 170.6 Total equity 9 191.2 143.3 Non current liabilities 6.5 Bank and other borrowings 10 4.9 6.8 0.1 Income tax payable - - 35.6 Retirement liabilities 8.1 53.3 12.6 Provisions for other liabilities 11.3 25.2 - Deferred tax liability 4.9 - 54.8 29.2 85.3 Current liabilities 212.9 Trade and other payables 211.6 206.8 7.0 Income tax payable 5.0 9.8 0.2 Other financial liabilities - 0.3 140.7 Bank and other borrowings 10 159.8 75.5 12.3 Provisions for other liabilities 13.1 7.0 373.1 389.5 299.4 3.8 Liabilities held for sale 4 - 0.6 431.7 Total liabilities 418.7 385.3 602.3 Total equity and liabilities 609.9 528.6 BABCOCK INTERNATIONAL GROUP PLCGROUP CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 Year ended Six months Six months 31 March ended ended 2006 30 September 30 September (audited) 2006 2005 £m (unaudited) (unaudited) Note £m £m Cash flows from operating activities 54.1 Cash generated from operations 11 27.1 23.8 (5.8) Income tax paid (2.7) (1.4) (8.9) Interest paid (4.7) (5.2) 3.8 Interest received 1.8 1.7 43.2 Net cash flows from operating activities 21.5 18.9 Cash flows from investing activities 2.5 Disposal of subsidiaries 1.7 1.0 0.9 Proceeds on disposal of property, plant and equipment 0.4 0.5 (6.8) Purchases of property, plant and equipment (2.8) (3.8) (2.7) Purchases of intangible assets (0.8) (1.1) - (Purchase)/sale of investment in joint ventures (0.2) 0.1 (4.3) Acquisition of subsidiary net of cash acquired (51.5) - (10.4) Net cash flows from investing activities (53.2) (3.3) Cash flows from financing activities (9.0) Dividends paid (8.7) (5.4) (3.6) Finance lease principal payments (0.5) (1.5) (22.5) Bank loans raised/(repaid) 55.9 (12.4) 0.9 Net proceeds on issue of shares 0.5 0.5 - Movement on own shares 0.2 - (34.2) Net cash flows from financing activities 47.4 (18.8) (1.4) Net increase/(decrease) in cash, cash equivalents and 15.7 (3.2) bank overdrafts 26.4 Cash, cash equivalents and bank overdrafts at start of 25.3 26.4 period 0.3 Effects of exchange rate fluctuations (3.0) 0.2 25.3 Cash, cash equivalents and bank overdrafts at end of 13 38.0 23.4 period BABCOCK INTERNATIONAL GROUP PLCGROUP STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSEFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 Year ended Six months Six months 31 March ended ended 2006 30 September 30 September (audited) 2006 2005 £m (unaudited) (unaudited) £m £m 29.9 Profit for the period (including discontinued 20.9 14.7 operations) 1.6 Currency translation differences (5.6) 0.8 42.2 Net actuarial gains in respect of pensions 16.5 28.2 (12.6) Tax on net actuarial gains in respect of pensions (4.9) (8.5) 61.1 Total recognised income and expense 26.9 35.2 Attributable to: 60.8 Equity holders of the parent 26.3 35.1 0.3 Minority interest 0.6 0.1 61.1 26.9 35.2 BABCOCK INTERNATIONAL GROUP PLCNOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 1. Basis of preparation The consolidated interim financial statements have been prepared in accordancewith International Financial Reporting Standards (IFRS) and InternationalFinancial Reporting Interpretations Committee (IFRIC) interpretations as adoptedby the European Union and with those parts of the Companies Act 1985 applicableto companies reporting under IFRS. They should be read in conjunction with theAnnual Report for the year ended 31 March 2006 (the "Annual Report"). Thefinancial information has been prepared in accordance with the Listing Rules ofthe Financial Services Authority. The accounting policies used are consistentwith those used in the Annual Report. The presentation of these consolidatedinterim financial statements is consistent with the Annual Report. Wherenecessary, the comparatives have been reclassified or extended from thepreviously reported interim results to take into account any presentationalchanges made in the Annual Report or in these consolidated interim financialstatements including the restatement of discontinued businesses. The Group has chosen not to early adopt IAS 34, 'Interim Financial Statements',in preparing its 2006 interim statements. Statutory accounts for the year ended 31 March 2006 have been delivered to theRegistrar of Companies. The auditors have reported on those accounts, theirreport was not qualified and did not contain a statement under section 273(2) or(3) of the Companies Act 1985. The interim report for the six months ended 30 September 2006 was approved bythe directors on 13 November 2006. 2. Segmental analysis Six months ended 30 September 2006 Six months ended 30 September 2005 Operating Operating profit profit before before acquired Acquired acquired Acquired intangible intangible intangible intangible amortisation, amortisation amortisation, amortisation exceptional and exceptional and items exceptional items exceptional £m items £m items £m Group £m Group Group operating Group operating revenue profit revenue profit £m £m £m £mContinuing operationsDefence Services 163.7 13.6 (0.7) 12.9 121.9 8.9 - 8.9Technical Services 85.7 7.3 (0.8) 6.5 65.7 5.3 - 5.3Engineering & Plant 80.2 6.7 - 6.7 68.3 4.0 - 4.0ServicesNetworks 42.4 4.8 (0.3) 4.5 36.7 4.0 (0.4) 3.6Rail 115.6 4.4 (1.8) 2.6 94.1 4.2 (1.2) 3.0Unallocated - (3.3) (0.6) (3.9) - (2.5) - (2.5) Total continuing 487.6 33.5 (4.2) 29.3 386.7 23.9 (1.6) 22.3operations Discontinued operationsHS&E and other - - - - 4.9 (1.0) - (1.0)Networks - - - - 12.2 1.2 - 1.2Total discontinuedoperations - - - - 17.1 0.2 - 0.2Group total 487.6 33.5 (4.2) 29.3 403.8 24.1 (1.6) 22.5 The tax credit related to discontinued operations was £nil (2005: £0.1m). The share of joint venture results not separately disclosed above is: Six months ended 30 September 2006 Six months ended 30 September 2005 Operating Tax and Net JV Operating Tax and Net JV Revenue profit interest results Revenue profit interest results £m £m £m £m £m £m £m £m Continuing operationsDefence Services 0.9 0.1 - 0.1 3.8 0.1 - 0.1Networks 0.1 - - - 0.1 (0.1) - (0.1) 1.0 0.1 - 0.1 3.9 - - - 3 Operating exceptional items and acquired intangible amortisation In 2006 there were £1.3m operating exceptional items with £0.7m beingreorganisation costs in the Rail segment and £0.6m being bid defence costsarising out of a possible joint bid from BAE Systems plc and VT Group plc.Acquired intangible amortisation was £2.9m with £0.3m relating to the Networkssegment, £1.1m relating to the Rail segment, and with the Alstec Group Limitedacquisition giving the following; £0.8m within the Technical Services segmentand £0.7m within the Defence Services segments. In 2005 there were no operating exceptional items. Acquired intangibleamortisation was £1.6m with £0.4m relating to the Networks segment and £1.2mrelating to the Rail segment. Acquired intangibles are those arising from fairvalue adjustments on acquisition of a business. 4. Discontinued operations Eve Trakway Limited was sold on 4 April 2006 at its held for sale value of £5.8mafter allowing for costs. 5. Acquisitions On 9 May 2006 the group acquired Alstec Group Limited for net cash considerationbefore costs of £44.9m. Goodwill amounted to £36.6m 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£5.2m with the related property purchase of £0.7m completing post half year end. The total revenue from acquisitions in the period was £47.2m and the relatedoperating profit was £5.1m. 6. Taxation The charge for taxation has been based on the estimated effective tax rate, of22%, for the year ended 31 March 2007. (For September 2005, the charge for taxwas based on an estimated effective tax rate of 24% for the year ended 31 March2006). A tax credit of £0.9m relates to acquired intangible amortisation and atax credit of £0.3m relates to operating exceptional items. For 2005 the taxcharge included a credit of £0.5m, which related to acquired intangibleamortisation. 7. Earnings per share The calculation of the basic and diluted EPS is based on the following data: Six months to Six months toNumber of shares 30 September 2006 30 September 2005Weighted average number of ordinary shares for the purpose of basic 205,336,699 204,360,013EPSEffect of dilutive potential ordinary shares: share options 5,600,135 1,022,110Weighted average number of ordinary shares for the purpose of diluted 210,936,834 205,382,123EPS Six months to Six months to 30 September 2006 30 September 2005 Basic per Diluted Basic Diluted share per per per share Earnings pence share Earnings share pence £m pence £m pence Earnings per share from continuing and discontinued 20.2 9.85 9.59 14.6 7.13 7.10operationsAdd back:Amortisation of acquired intangible assets, net of tax 2.0 0.98 0.95 1.1 0.54 0.53Exceptional items 1.0 0.46 0.45 - - - Earnings before amortisation and exceptionals 23.2 11.29 10.99 15.7 7.67 7.63 Earnings per share from continuing operations 20.2 9.85 9.59 14.3 7.02 6.98Add back:Amortisation of acquired intangible assets, net of tax 2.0 0.98 0.95 1.1 0.54 0.53Exceptional items 1.0 0.46 0.45 - - - Earnings before discontinued operations, amortisation andexceptionals 23.2 11.29 10.99 15.4 7.56 7.51 8 Dividends An interim dividend of 2.40p per 60p ordinary share (2005: 1.75p per 60pordinary share) was declared after the balance sheet date and will be paid on 17January 2007 to shareholders registered on 15 December 2006. 9. Reconciliation of changes of net equity Year ended Six months ended Six months ended 31 March 30 September 30 September 2006 2006 2005 (audited) (unaudited) (unaudited) £m £m £m 112.4 Equity at beginning of period 170.6 112.4 0.9 Shares issued in the period 0.5 0.5 61.1 Total recognised income and expense 26.9 35.2 (9.0) Dividends (8.7) (5.4) 1.1 Share based payments 0.9 0.6 4.1 Tax on share based payments 0.8 - - Movement on ESOP 0.2 - 58.2 Net movement in equity 20.6 30.9 170.6 Equity at end of period 191.2 143.3 Attributable to: 170.2 Equity holders of the parent 190.2 143.1 0.4 Minority interest 1.0 0.2 170.6 191.2 143.3 10. Cash and cash equivalents In 2005, the group's cash balances were reported net of bank overdraftswhere a cash pool was in operation and the legal right of offset existed. Onadoption of IAS32, netting can only occur to the extent that there is both alegal ability and the intention to settle net by entity. Although the group'scash is, where practical, managed on a pooled basis and the interest is chargedor earned on a net basis, there is a grossing up of cash and borrowings in 2006.If this grossing up had been applied in September 2005 the balances would havebeen adjusted by £78.7 million. 11. Reconciliation of operating profit to cash generated from operations Year ended Six months ended Six months ended 31 March 30 September 30 September 2006 2006 2005 (audited) (unaudited) (unaudited) £m £m £m Cash flows from operating activities 46.6 Operating profit 29.3 22.3 (0.6) Profit/(loss) from discontinued operations - 0.2 (0.4) Add back tax on discontinued operations - 0.1 45.6 29.3 22.6 7.1 Depreciation of property plant and equipment 2.7 3.5 3.6 Amortisation and impairment of intangible assets 3.3 1.7 1.1 Equity share-based payments 0.9 0.6 0.3 (Profit)/loss on disposal of property, plant and (0.1) (0.1) equipment 57.7 Operating cash flows before movement in working capital 36.1 28.3 1.5 Decrease in inventories 7.5 6.1 52.8 (Increase)/decrease in receivables (1.3) 49.8 (49.2) (Decrease) in payables (12.1) (56.4) (8.7) (Decrease) in provisions (3.1) (4.0) 54.1 Cash generated from operations 27.1 23.8 12. Movement in net debt Six months Six months Year ended ended ended 31 March 30 September 30 September 2006 2006 2005 (audited) (unaudited) (unaudited) £m £m £m (1.4) Increase/(decrease) in cash in the period 15.7 (3.2) 26.1 Cash flow from the (increase)/decrease in debt and lease (55.4) 13.8 financing 24.7 Change in net funds resulting from cash flows (39.7) 10.6 0.1 Loans and finance leases disposed of with subsidiaries - 0.1 (0.4) New finance leases - (0.4) 0.3 Foreign currency translation differences (2.1) 0.3 24.7 Movement in net debt in the period (41.8) 10.6 (62.9) Net debt at the start of the period (38.2) (62.9) (38.2) Net debt at the end of the period (80.0) (52.3) 13. Changes in net debt At At 1 April Acquisitions New 30 September 2006 and disposals finance Exchange 2006 (audited) Cash flow £m leases movement (unaudited) £m £m £m £m £m Cash and bank balances 109.0 (21.2) - - (3.1) 84.7Bank overdrafts (83.7) 36.9 - - 0.1 (46.7)Cash, cash equivalents and bankoverdrafts at end of period 25.3 15.7 - - (3.0) 38.0 Loans (58.1) (55.9) - - 0.4 (113.6)Finance leases (5.4) 0.5 - - 0.5 (4.4) (63.5) (55.4) - - 0.9 (118.0) Total (38.2) (39.7) - - (2.1) (80.0) 14. The financial information in this interim statement does not constitutestatutory accounts within the meaning of S240 of the Companies Act 1985 (asamended). 15. Distribution Copies of this interim report will be distributed to all holders of thecompany's ordinary shares. Copies will also be available at the company'sregistered office: 2 Cavendish Square, London W1G 0PX. In addition, this reportis available on the company's website: www.babcock.co.uk. 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