13th Nov 2007 07:01
Babcock International Group PLC13 November 2007 13 November 2007 Babcock International Group PLCInterim Results for half year ended 30 September 2007 Babcock continues strong growth trend - revenue up 38%, underlying profit beforetax up 42% Babcock International Group PLC, the support services company, announces itsinterim results for the half year ended 30 September 2007. Financial Highlights Statutory September 2007 September 2006 ChangeRevenue £672.6 m £487.6 m + 38%Operating profit £50.6 m £29.3 m + 73%Profit before tax £39.2 m £26.4 m + 48%Continuing earnings per share 14.12p 9.85p + 43%Interim dividend 3.30p 2.40p + 38% UnderlyingOperating profit £55.0 m £33.5 m + 64%Profit before tax £43.6 m £30.6 m + 42%Continuing earnings per share 15.55p 11.29p + 38% Underlying results are shown before amortisation of acquired intangibles of £4.4million (2006: £2.9 million) and operating exceptionals of £nil (2006: £1.3million) and before the related tax effects of £1.2 million (2006: £1.2million). The results include Devonport Management Ltd (DML) and International NuclearSolutions plc (INS) for three months (revenue £127.7 million, underlyingoperating profit £16.7 million). Operational Highlights • Strong organic growth trend continues - revenue + 12%, underlying operating profit + 14% • Operating margin 8.2% (2006: 6.9%) • Acquisition of DML successfully completed and performing ahead of planning assumptions • Acquired majority shareholding in INS • Order book increased to £3.3 billion giving high visibility of long term revenue • Bid pipeline remains strong • Earnings per share and interim dividend each increased by 38% Peter Rogers, Chief Executive commented "In the first half we have continued our record of delivering strong organicgrowth within our existing businesses whilst expanding significantly through theacquisition of DML. Following the successful acquisition of DML, Babcock is nowpositioned as the leading provider of support to the Royal Navy's surface andsubmarine fleet. "The additional contracts coming on stream and the effect of the DML and INSacquisitions will have a beneficial effect in the second half as will theresolution of the issues in the Rail division. We remain confident that theresults for the full year will meet our expectations." Contact: Babcock International Group PLCPeter Rogers, Chief Executive Tel: 020 7291 5000Bill Tame, Finance Director Financial Dynamics Tel: 020 7269 7121Andrew LorenzSusanne Yule A meeting for investors and analysts will be held today at 10.30 am at FinancialDynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. Babcock International Group PLCInterim Results for half year ended 30 September 2007 INTRODUCTION Babcock's strategy is to identify and participate as a leading player in marketswith large 'mission critical' assets requiring long-term significant investmentprogrammes for their maintenance and upgrade. In pursuit of this strategy, Babcock acquired Devonport Management Ltd (DML) anda majority stake in International Nuclear Solutions (INS) during the first half.In the first three months of ownership DML has performed ahead of our planningassumptions and the future potential offered by the combination of DML with ourexisting businesses is extremely promising. Strong organic growth was achieved across the Group and we have had a number ofsignificant contract wins during the period. The Group has had an excellentfirst half, both operationally and financially and the background to thisperformance is set out below. 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. Group Results The results for the first six months of the financial year were significantlyenhanced by the acquisition of Devonport Management Ltd (DML), which wascompleted in June 2007. Group revenue increased by 38% to £672.6 million (2006:£487.6 million) with significant growth recorded in all divisions, except Rail.Operating profit increased by 64% to £55.0 million (2006: £33.5 million).Excluding Rail, which lost £2.7 million during the period, the Group experiencedstrong growth in operating profit across all divisions driven by market buoyancyand a number of notable contract wins. DML contributed £121.0 million to Group revenue and £16.4 million to operatingprofit. Excluding acquisitions, Group revenue increased by 12% to £544.9million and underlying operating profit increased by 14% to £38.3 million. The Group operating margin increased to 8.2% in the first half (2006: 6.9%)benefiting from an exceptionally strong margin performance in Marine and furtherprogress in Defence Services. A number of one-off factors contributed to theMarine performance including margin pick-up in the HM Naval Base Clyde (Faslane)contract as it reached the end of its first five year term and a satisfactoryconclusion to contract negotiations within the DML yacht business. In contrastthe poor performance in Rail had an adverse impact on the Group margin. Taking account of these factors, we anticipate that the Group operating marginfor the full year will show some improvement over last year's level. Profit after tax for the period reached £35.7 million (2006: £23.9 million), anincrease of 49%. Profit for the period after charging exceptional items (2007:£nil 2006: £1.3 million) and amortisation of acquired intangibles was £32.5million (2006: £20.9 million). On a fully diluted basis, earnings per shareincreased by 39% to 15.26 pence per share (2006: 10.99 pence per share). Dividend In light of the Group's strong financial performance and prospects the Board hasapproved the payment of an interim dividend of 3.30 pence per share, a 38%increase (2006: 2.40 pence per share). Cash Flow and Net Debt Group net debt at the end of the half year stood at £344.6 million compared with£73.7 million at 31 March 2007. The principal factors affecting the closing netdebt position were as follows. Cash flow from operations of £53.5 million in the first six months, representinga cash conversion rate (defined as cash from operations as a percentage of Groupoperating profit) of 106%. The acquisition of DML for £350 million plus costswas funded via a combination of bank borrowings and an equity placing of £89.1million net of costs. The 68% equity stake in INS was acquired for a total costof £28.2 million with a cash outflow this year of £18.5 million including costs,which was funded from borrowings. The final dividend for 2006/07 of £12.8million was paid in August 2007, including £1.1 million for new shares issuedvia the equity placing. A new five year revolving credit bank facility was established during the periodfor up to £600 million of which £420 million was drawn at 30 September 2007. The increase in net debt as well as some impact from higher interest ratesfollowing volatility in UK LIBOR resulted in a rise in the interest charge to£11.7 million (2006: £3.0 million). In line with its treasury policies, theGroup has hedged approximately 50% of its drawn bank borrowing by existinginterest rate swaps and by entering into interest rate collar arrangements whichprovide a cap and a floor to its interest rate exposure for the hedged portionof Group debt. The cost of entering into this instrument is included in theinterest cost for the period. The interest charge was comfortably covered 5.4times by earnings before interest, depreciation and amortisation. Tax The Group's effective tax rate on underlying profit is 19%, remaining below theUK headline rate of corporation tax. Based on the profile of earnings withinthe Group, we expect this rate to be sustainable for the current financial yearas well as the 2008/09 financial year. Current Government consultation on taxlegislation is creating some uncertainty for years beyond 2008/09. OPERATIONAL REVIEW Following the completion of the acquisition of DML in June and the acquisitionof the majority shareholding in INS we have realigned our naval and nuclearactivities into one new Marine division, reflecting more clearly our managementstructure. The Marine division encompasses all of the activities formerlyreported under Technical Services along with Babcock Naval Services, thecontract for HMNB Clyde (Faslane), which was formerly reported under DefenceServices and the newly acquired subsidiaries DML and INS. All segmental resultsfor the first half of 2007/08 and the comparative numbers reflect this change. Marine Half year to Half year to Change + / - September 07 September 06 Revenue £273.0 million £131.0 million + 108%Operating profit £32.4 million £11.1 million + 192% The Marine business had an excellent first half with the overall businessshowing improvement on the same period for last year and, as a consequence,growth in both revenue and profit from existing businesses was well into doubledigits. Clearly the major event of the period was the acquisition and on-goingintegration of DML. The progress made on integration has been good with the neworganisation starting to operate on a product stream basis rather than ongeographic lines. The negotiations with the Ministry of Defence to establishlong-term operating agreements have started and although they are expected totake up to a year to complete, we remain confident that their outcome will besuccessful. Warship refit has benefited substantially from the start of the Surface ShipSupport Alliance, the purpose of which is to allow industry participants and theMinistry of Defence to maximise efficiency and resource usage. Our ability toplan workload and schedule efficiently has brought benefit to us and has alsoallowed us to deliver better value for money to the Royal Navy. Design and Technology had an outstanding six months, successfully completing anumber of commercial projects. There was high workload on the CVF project andon more routine work for the Ministry of Defence. The Supply Chain Servicesbusiness also delivered higher revenues and significantly higher profits. DML performed ahead of our planning assumptions at the time of the acquisition,in part helped by the successful completion of a contract negotiation in theyacht business. The senior management of DML have all elected to remain withinthe enlarged Babcock group and this will undoubtedly help in the process ofintegration of the businesses. The Nuclear business - reported within the Marine division - had an excellentfirst half in terms of both revenue and profit growth. The current workload islargely based on limited decommissioning work at Rosyth and support for currentgenerating operations. The start of the decommissioning work managed by the NDAis expected to provide very significant opportunity for Babcock in the decadesahead. Contract wins for Marine in the first half included the new nuclear de-fuellingfacility at Devonport, manufacture of Supacat land vehicles for the Ministry ofDefence and a number of warship refits. Defence Services Half year to Half year to Change + / - September 07 September 06 Revenue £138.6 million £118.4 million + 17%Operating profit £13.5 million £9.8 million + 38% A 17% growth in revenue generated a 38% growth in operating profit in DefenceServices. Both Regional Prime Contracts performed well with a full six monthsfrom Eastern Regional Prime. The Single Living Accommodation Prime Contractalso continued to operate well. The securing of the contract to manage theMinistry of Defence properties in Bristol and Bath will contribute to growthover the coming months. This contract award will significantly broaden therange of services we provide to the MoD within Prime Contracting. The award of the contract for 'Building Schools for the Future' for Hackney tothe Babcock/Mouchel Parkman consortium was a significant milestone. This isBabcock's first contract award in this area and we will continue to bidcontracts that fit our business model. In addition we are currently in theprocess of bidding for the facilities management of a significant proportion ofthe non-custodial element of the Home Office estate. The Multi Activity Contracts continued to deliver good returns during the periodwhile continuing to meet all significant KPIs and achieve high levels ofcustomer satisfaction. The focus is now on a number of new contracts which willbe bid over the next 18 months. Defence Services has successfully partnered with BAE Systems to provideintegrated operational support (IOS) to the RAF's Hawk fast jet fleet, alignedto the principles within the new Defence Industrial Strategy (DIS). Rail Half year to Half year to Change + / - September 07 September 06 Revenue £98.6 million £115.6 million - 15%Operating profit £(2.7) million £4.4 million - The Rail division had a disappointing first half. The slower business insignalling and the management distraction of the competition to reduce thenumber of track contractors exposed weaknesses in the management systems. Theseweaknesses have been addressed and we expect a return to profit in the secondhalf of the year. We were successful in being one of the four track renewal contractors selectedby Network Rail. This will result in First Engineering becoming the largestcontractor for traditional and high output track renewal. In addition it isanticipated that the volume of work under the signalling framework contractswill improve towards the end of the financial year. Engineering and Plant Services Half year to Half year to Change + / - September 07 September 06 Revenue £108.0 million £80.2 million + 35%Operating profit £8.4 million £6.7 million + 25% We achieved another excellent performance in the Engineering and Plant divisionwith the business showing strong growth. In southern Africa the Equipmentbusiness was, once again, the star performer despite the supply limitationsexperienced. During the period we formed (with the agreement of Eskom - the power generatorin South Africa) a joint venture with Alstom and Steinmuller, to provide supporton the Eskom new build programme. The result of these agreements is that thejoint venture will be capable of providing support for Eskom on all the fossilfired new-build generating capacity over the next ten years. The market forgeneration capacity is expected to remain strong as the rate of demand increasefor power is well ahead of even recent predictions. This will also createfurther demand for power transmission networks thus benefiting our Powerlinesbusiness. The market for construction equipment is strong and is likely to remain so whilecommodity prices stay high and global demand continues. This area of demand isunder-pinned by an ambitious infrastructure improvement programme which will seepower, road and rail all significantly upgraded over the next ten years. Networks Half year to Half year to Change + / - September 07 September 06 Revenue £54.4 million £42.4 million + 28%Operating profit £5.4 million £4.8 million + 13% The Transmission business continued to perform well during the period, whileabsorbing and managing the impact of a major staff integration programme intothe "Electricity Alliance". This Alliance with National Grid, Amec and MottMacDonald will, over the next five years, deliver the National Grid Capital Planfor overhead lines and buried cables in Wales and the West of England. The Alliance with EDF Energy Solutions for their High Voltage Networks isprogressing well and for the first time for many years we are winning anddelivering work in Scotland. The Communications business had a much improved performance compared with thelast two years with volumes picking up marginally and the work onDigital-Switch-Over increasing rapidly. There is likely to be increased work inthis market as a result of our customers upgrading and combining networks. Asmall acquisition was made during the period to provide access to the market inEire. OUTLOOK The additional contracts coming on stream and the effect of the DML and INSacquisitions will have a beneficial effect in the second half as will theresolution of the issues in the Rail division. We remain confident that theresults for the full year will meet our expectations. Looking further ahead, the bid pipeline remains strong and our £3.3 billionorder book underpins our expectations that momentum can be maintained. BABCOCK INTERNATIONAL GROUP PLCGROUP INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Six months ended Six months ended 30 September 2007 30 September 2006 Before Before acquired Acquired acquired Acquired Year intangible intangible intangible intangible ended amortisation amortisation amortisation amortisation 31 March and and and and 2007 exceptional exceptional exceptional exceptional Total items items Total items items Total (audited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £m Note £m £m £m £m £m £m 988.3 Revenue 2 672.6 - 672.6 487.6 - 487.6 62.8 Operating profit 2, 3 55.0 (4.4) 50.6 33.5 (4.2) 29.3 Share of operating 0.4 profit from joint 2 0.3 - 0.3 0.1 - 0.1 ventures Operating profit 63.5 including share of 55.6 (4.4) 51.2 33.6 (4.2) 29.4 joint ventures Joint venture share of (0.2) interest (0.2) - (0.2) - - - (0.1) Joint venture share of (0.1) - (0.1) - - - tax 63.2 55.3 (4.4) 50.9 33.6 (4.2) 29.4 (9.8) Finance costs (14.2) - (14.2) (4.8) - (4.8) 3.6 Finance income 2.5 - 2.5 1.8 - 1.8 57.0 Profit before tax 43.6 (4.4) 39.2 30.6 (4.2) 26.4 (11.0) Income tax expense 5 (7.9) 1.2 (6.7) (6.7) 1.2 (5.5) Profit for the period 46.0 from continuing 35.7 (3.2) 32.5 23.9 (3.0) 20.9 operations Discontinued operations Loss for period on discontinued (0.8) operations - - - - - - 45.2 Profit for the period 35.7 (3.2) 32.5 23.9 (3.0) 20.9 Attributable to: Equity holders of the 43.4 parent 31.3 20.2 1.8 Minority interest 1.2 0.7 45.2 32.5 20.9 Earnings per share from continuing and discontinued operations 6 21.10p - Basic 14.12p 9.85p 20.48p - Diluted 13.86p 9.59p Earnings per share from continuing operations 6 21.49p - Basic 14.12p 9.85p 20.85p - Diluted 13.86p 9.59p BABCOCK INTERNATIONAL GROUP PLCGROUP BALANCE SHEETFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 As at As at As at 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) £m Note £m £m Assets Non-current assets 198.2 Goodwill 468.5 200.6 23.0 Other intangible assets 70.0 25.9 28.2 Property, plant and equipment 150.7 27.9 0.9 Investments in joint ventures 0.7 0.9 9.4 Other investments - - 62.5 Retirement benefits 109.1 59.6 2.5 Trade and other receivables 2.2 2.6 2.5 Deferred tax asset - - 327.2 801.2 317.5 Current assets 57.7 Inventories 56.7 35.8 167.2 Trade and other receivables 297.3 170.2 1.2 Income tax recoverable - 0.7 0.5 Other financial assets 0.4 1.0 95.6 Cash and cash equivalents 11 179.3 84.7 322.2 533.7 292.4 649.4 Total assets 1,334.9 609.9 Equity and liabilities Equity attributable to equity holders of the parent 125.8 Share capital 137.5 125.8 70.1 Share premium 148.0 70.0 26.8 Other reserves 27.0 26.8 (17.1) Retained earnings 17.2 (32.4) 205.6 329.7 190.2 1.6 Minority interest 4.2 1.0 207.2 Total equity 8 333.9 191.2 Non-current liabilities 3.6 Bank and other borrowings 11 423.1 4.9 0.9 Trade and other payables 7.1 - 2.5 Deferred tax 28.4 4.9 9.4 Retirement liabilities 0.5 8.1 7.6 Provisions for other liabilities 33.9 11.3 24.0 493.0 29.2 Current liabilities 165.7 Bank and other borrowings 11 100.8 159.8 232.9 Trade and other payables 382.5 211.6 5.9 Income tax payable 8.5 5.0 0.1 Other financial liabilities 1.0 - 13.6 Provisions for other liabilities 15.2 13.1 418.2 508.0 389.5 442.2 Total liabilities 1001.0 418.7 649.4 Total equity and liabilities 1,334.9 609.9 BABCOCK INTERNATIONAL GROUP PLCGROUP CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Year ended Six months Six months 31 March ended ended 2007 30 September 30 September (audited) 2007 2006 £m (unaudited) (unaudited) Note £m £m Cash flows from operating activities 60.2 Cash generated from operations 9 53.5 27.1 (7.7) Income tax paid (5.6) (2.7) (9.1) Interest paid (9.5) (4.7) 3.6 Interest received 2.5 1.8 47.0 Net cash flows from operating activities 40.9 21.5 Cash flows from investing activities 0.9 Disposal of subsidiaries and joint ventures (0.9) 1.5 0.7 Proceeds on disposal of property, plant and equipment 1.7 0.4 0.1 Dividends received from joint ventures 0.2 - (9.7) Purchase of other investments - - (5.5) Purchases of property, plant and equipment (4.7) (2.8) (1.5) Purchases of intangible assets (0.3) (0.8) (52.5) Acquisition of subsidiaries net of cash acquired 4 (372.3) (51.5) (67.5) Net cash flows from investing activities (376.3) (53.2) Cash flows from financing activities (13.6) Dividends paid (12.8) (8.7) (1.9) Finance lease principal payments (0.2) (0.5) 35.0 Bank loans raised 321.7 55.9 (0.4) Dividends paid to minority interests (0.5) - 0.7 Net proceeds on issue of shares 89.6 0.5 0.3 Movement on own shares (5.0) 0.2 20.1 Net cash flows from financing activities 392.8 47.4 Net increase/(decrease) in cash, cash equivalents and (0.4) bank overdrafts 57.4 15.7 25.3 Cash, cash equivalents and bank overdrafts at start of 22.1 25.3 period (2.8) Effects of exchange rate fluctuations 0.1 (3.0) 22.1 Cash, cash equivalents and bank overdrafts at end of 11 79.6 38.0 period BABCOCK INTERNATIONAL GROUP PLCGROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006 Year ended Six months Six months 31 March ended ended 2007 30 September 30 September (audited) 2007 2006 £m (unaudited) (unaudited) Note £m £m 45.2 Profit for the period (including discontinued operations 32.5 20.9 (5.9) Currency translation differences 0.3 (5.6) 0.4 Fair value adjustment of interest rate swap (0.1) - 8.7 Net actuarial gains in respect of pensions 26.0 16.5 (2.6) Tax on net actuarial gains in respect of pensions (7.3) (4.9) 45.8 Total recognised income and expense 8 51.4 26.9 Attributable to: 44.2 Equity holders of the parent 50.2 26.3 1.6 Minority interest 1.2 0.6 45.8 8 51.4 26.9 BABCOCK INTERNATIONAL GROUP PLCNOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 1. Basis of preparation The consolidated interim financial statements have been prepared in accordancewith the Disclosure and Transparency Rules of the Financial Services Authority,the Listing Rules and with IAS 34, "Interim financial reporting" as adopted bythe European Union. They should be read in conjunction with the Annual Reportfor the year ended 31 March 2007 (the "Annual Report"), which has been preparedin accordance with IFRSs as adopted by the European Union. The accountingpolicies used and presentation of these consolidated interim financialstatements are consistent with those in the Annual Report. Where necessary, thecomparatives have been reclassified or extended from the previously reportedinterim results to take into account any presentational changes made in theAnnual Report or in these consolidated interim financial statements. Statutory accounts for the year ended 31 March 2007 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 2007 was approved bythe directors on 12 November 2007. 2. Segmental analysis Following the completion of the acquisition of Devonport Management Limited andthe acquisition of the majority shareholding in International Nuclear Solutionsplc we have realigned all of our naval and nuclear activities into one newMarine division. The Marine division encompasses all of the activities formerlyreported under Technical Services along with Babcock Naval Services. Six months ended 30 September 2007 Six months ended 30 September 2006 Operating Operating profit profit before Acquired before Acquired acquired intangible acquired intangible intangible amortisation intangible amortisation amortisation, and Group amortisation, and Group Group exceptional exceptional operating Group exceptional exceptional operating revenue items items profit revenue items items profit (restated) (restated) (restated) (restated) £m £m £m £m £m £m £m £mContinuing operationsMarine 273.0 32.4 (2.6) 29.8 131.0 11.1 (0.8) 10.3Defence Services 138.6 13.5 (0.7) 12.8 118.4 9.8 (0.7) 9.1Rail 98.6 (2.7) (0.9) (3.6) 115.6 4.4 (1.8) 2.6Engineering & Plant 108.0 8.4 - 8.4 80.2 6.7 - 6.7ServicesNetworks 54.4 5.4 (0.2) 5.2 42.4 4.8 (0.3) 4.5Unallocated - (2.0) - (2.0) - (3.3) (0.6) (3.9) Group total 672.6 55.0 (4.4) 50.6 487.6 33.5 (4.2) 29.3 The tax credit related to discontinued operations was £nil (2006: £nil). The share of joint venture results not separately disclosed above is: Six months ended 30 September 2007 Six months ended 30 September 2006 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 £mContinuing operationsDefence Services 0.6 0.1 - 0.1 0.9 0.1 - 0.1Rail 0.3 0.2 (0.2) - - - - -Engineering & Plant 3.2 0.3 (0.1) 0.2 - - - -ServicesNetworks - - - - 0.1 - - - Group Total 4.1 0.6 (0.3) 0.3 1.0 0.1 - 0.1 3. Operating exceptional items and acquired intangible amortisation In 2007 there were no exceptional items. Acquired intangible amortisation was£4.4 million (note 2). The acquisitions of Devonport Management Limited resultedin acquired intangible amortisation of £1.7 million and International NuclearSolutions plc resulted in £0.2 million of acquired intangible amortisation, bothof which are included in the Marine segment. In 2006 there were £1.3 million operating exceptional items with £0.7 millionbeing reorganisation costs in the Rail segment and £0.6 million being biddefence costs arising out of a possible joint bid from BAE Systems plc and VTGroup plc. Acquired intangible amortisation was £2.9 million with £0.3 millionrelating to the Networks segment, £1.1 million relating to the Rail segment,£0.8 million within the Marine segment and £0.7 million within the DefenceServices segments. 4. Acquisitions On 28 June 2007 the group acquired 100% of the share capital of DevonportManagement Limited ("DML") for a consideration of £355.5 million, inclusive ofcosts. DML provides support for the Royal Navy submarines and warships andmanages the facilities at the Devonport Naval Base On 9 July 2007 the group had acquired 50.9% of the share capital ofInternational Nuclear Solutions plc ("INS"). By 30 September 2007 the group hadacquired 67.8% of the share capital for a consideration (before cash acquired)of £28.2 million. INS provides nuclear engineering support. On 15 August 2007 the group acquired 100% of the share capital of SwediaNetworks Ireland for a net cash consideration of €1. Included in the total consideration paid is deferred consideration of £0.5million, paid on an acquisition made in a prior period. Details of the assets acquired and the goodwill are as follows: DML INS Other Total £m £m £m £m Cost of AcquisitionPurchase consideration 350.0 27.0 0.5 377.5Direct costs 5.5 1.2 - 6.7 Total purchase consideration and costs 355.5 28.2 0.5 384.2Fair value of assets acquired (see below) 109.5 3.9 0.5 113.9 Goodwill 246.0 24.3 - 270.3 4. Acquisitions (cont) Net assets and liabilities arising from the acquisitions are as follows: DML INS Other TOTAL Book Book Book Book value of of Value of Fair of Fair value Fair value Fair assets value assets value assets value assets value acquired acquired acquired acquired acquired acquired acquired acquired £m £m £m £m £m £m £m £m Goodwill 18.6 - - - - 18.6 -Software 4.6 5.6 0.2 0.2 - - 4.8 5.8Acquired intangibles * - 41.2 - 5.3 - - 46.5Property Plant and Equipment 147.0 125.0 1.0 1.0 - - 148.0 126.0Deferred tax (9.2) (18.8) - (1.4) 0.1 0.1 (9.1) (20.1)Retirement benefits (28.4) 15.3 - - - - (28.4) 15.3 Cash, cash equivalents and bank (1.2) (1.2) 3.4 3.4 - - 2.2 2.2overdraftsInventory 8.2 8.2 - - - - 8.2 8.2Current assets 101.3 100.5 5.8 5.8 1.7 1.7 108.8 108.0Current and non current liabilities (125.9) (129.1) (8.4) (8.4) (1.7) (1.7) (136.0) (139.2)Provisions - (30.2) - (0.1) 0.4 0.4 0.4 (29.9)Bank and other borrowings (7.0) (7.0) - - - - (7.0) (7.0) Minority interest - - (0.7) (1.9) - - (0.7) (1.9) Net assets acquired 108.0 109.5 1.3 3.9 0.5 0.5 109.8 113.9 * Acquired intangibles are; customer relationships and order book. Cash outflow to acquire businesses net of cash acquired DML INS Other Total £m £m £m £m Total purchase consideration plus costs 355.5 28.2 0.5 384.2Cash, cash equivalents and bank 1.2 (3.4) - (2.2)overdraftsCash paid in prior period - (9.7) - (9.7) Cash outflow this period 356.7 15.1 0.5 372.3 The revenue and operating profit of acquired businesses since the date ofacquisition as if they had been acquired on 1 April 2007 are: Since date of acquisition For full period £m £mRevenueDML 121.0 230.8INS 5.7 12.5Other 1.0 3.2 127.7 246.5 Operating profit (before amortisation of acquiredintangibles)DML 16.4 22.9INS 0.3 0.8Other - 0.2 16.7 23.9 5. Income taxes The charge for taxation has been based on the estimated effective tax rate, of19%, for the year ended 31 March 2008 before allowing for a £0.3 million creditin relation to the change in deferred tax arising from the change in thecorporation tax rate from 30% to 28%. (For September 2006, the charge for taxwas based on an estimated effective tax rate of 22% for the year ended 31 March2007). An additional tax credit of £1.2 million relates to acquired intangibleamortisation. For 2006 the tax charge included a credit of £0.9 million, whichrelated to acquired intangible amortisation and a tax credit of £0.3 millionrelates to operating exceptional items. 6. 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 2007 30 September 2006 Weighted average number of ordinary shares for the purpose of basic EPS 221,441,710 205,336,699Effect of dilutive potential ordinary shares: share options 4,190,318 5,600,135 Weighted average number of ordinary shares for the purpose of diluted EPS 225,632,028 210,936,834 Six months to Six months to 30 September 2007 30 September 2006 Basic Diluted Basic Diluted per per per per Earnings share share Earnings share share £m Pence pence £m pence pence Earnings per share from continuing and discontinued 31.3 14.12 13.86 20.2 9.85 9.59operations Add back:Amortisation of acquired intangible assets, net of tax 3.2 1.43 1.40 2.0 0.98 0.95Exceptional items, net of tax - - - 1.0 0.46 0.45 Earnings before amortisation and exceptionals 34.5 15.55 15.26 23.2 11.29 10.99 Earnings per share from continuing operations 31.3 14.12 13.86 20.2 9.85 9.59 Add back:Amortisation of acquired intangible assets, net of tax 3.2 1.43 1.40 2.0 0.98 0.95Exceptional items, net of tax - - - 1.0 0.46 0.45 Earnings before discontinued operations, amortisation andexceptional 34.5 15.55 15.26 23.2 11.29 10.99 7. Dividends An interim dividend of 3.30p per 60p ordinary share (2006: 2.40p per 60pordinary share) was declared after the balance sheet date and will be paid on 16January 2008 to shareholders registered on 14 December 2007. 8. Statement of changes in equity Year Share Share Capital Retained Translation Minority ended capital premium redemption earnings reserve Total interests 31 March £m £m £m £m £m £m £m £m At 1 April 2006 125.5 69.7 30.6 (57.3) 1.7 170.2 0.4 170.6 Shares issued in the period 0.3 0.3 - - - 0.6 - 0.6Recognised income and expense - - - 31.9 (5.6) 26.3 0.6 26.9Dividends - - - (8.7) - (8.7) - (8.7)Share based payments - - - 0.9 - 0.9 - 0.9Tax on share based payments - - - 0.6 - 0.6 - 0.6Own shares and other - - - 0.2 0.1 0.3 - 0.3 Net movement in equity 0.3 0.3 - 24.9 (5.5) 20.0 0.6 20.6 At 30 September 2006 125.8 70.0 30.6 (32.4) (3.8) 190.2 1.0 191.2 At 1 April 2007 125.8 70.1 30.6 (17.1) (3.8) 205.6 1.6 207.2 Shares issued in the period 11.7 77.9 - - - 89.6 - 89.6Recognised income and expense - - - 49.9 0.3 50.2 1.2 51.4Dividends - - - (12.8) - (12.8) (0.5) (13.3)Share based payments - - - 0.9 - 0.9 - 0.9INS Acquisition - - - - - - 1.9 1.9Tax on share based payments - - - 1.3 - 1.3 - 1.3Own shares and other - - - (5.0) (0.1) (5.1) - (5.1) Net movement in equity 11.7 77.9 - 34.3 0.2 124.1 2.6 126.7 At 30 September 2007 137.5 148.0 30.6 17.2 (3.6) 329.7 4.2 333.9 9. Reconciliation of operating profit to cash generated from operations Year ended Six months ended Six months ended 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) £m £m £m Cash flows from operating activities 62.8 Operating profit 50.6 29.3 5.6 Depreciation of property plant and equipment 7.2 2.7 7.3 Amortisation and impairment of intangible assets 5.5 3.3 1.7 Equity share-based payments 0.9 0.9 0.3 Impairment of investments - - (0.2) Profit on disposal of property, plant and equipment (0.5) (0.1) 77.5 Operating cash flows before movement in working capital 63.7 36.1 (16.9) Decrease/(increase) in inventories 9.6 7.5 (5.7) Increase in receivables (31.5) (1.3) 10.0 Increase/(decrease) in payables 12.9 (12.1) (4.7) Decrease in provisions (1.2) (3.1) 60.2 Cash generated from operations 53.5 27.1 10. Movement in net debt Six months Six months Year ended ended ended 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) £m £m £m (0.4) Increase/(decrease) in cash in the period 57.4 15.7 (33.1) Cash flow from the increase in debt and lease financing (321.5) (55.4) (33.5) Change in net funds resulting from cash flows (264.1) (39.7) - Loans and finance leases acquired with subsidiaries (7.0) - (2.0) Foreign currency translation differences 0.2 (2.1) (35.5) Movement in net debt in the period (270.9) (41.8) (38.2) Net debt at the beginning of the period (73.7) (38.2) (73.7) Net debt at the end of the period (344.6) (80.0) 11. Changes in net debt At At 1 April Acquisitions New 30 September 2007 Cash and finance Exchange 2007 (audited) flow disposals leases movement (unaudited) £m £m £m £m £m £m Cash and bank balances 95.6 79.2 4.4 - 0.1 179.3Bank overdrafts (73.5) (24.0) (2.2) - - (99.7)Cash, cash equivalents and bankoverdrafts at end of period 22.1 55.2 2.2 - 0.1 79.6 Debt (92.7) (321.7) (7.0) - - (421.4)Finance leases (3.1) 0.2 - - 0.1 (2.8) (95.8) (321.5) (7.0) - 0.1 (424.2) Total (73.7) (266.3) (4.8) - 0.2 (344.6) 12. Contingent liabilities There is a potential liability in respect of the discontinued Jackson CivilEngineering business of the Peterhouse Group arising out of a contract withTesco Stores for tunnelling at its Gerrards Cross site. The contract was madeand the business disposed of to management before the Group acquired Peterhousein 2004. There was a partial tunnel collapse during construction in 2005.Having considered legal advice the Board does not believe that this matter willresult in a liability that would be material to the Group. 13. The financial information in this interim statement does notconstitute statutory accounts within the meaning of S240 of the Companies Act1985 (as amended). 14. Communication At our Annual General Meeting on 13 July 2007 our shareholders unanimouslyagreed to proposals to allow us to use electronic communications with them asallowed for under the Companies Act 2006. For shareholders who agreed, or whoare treated as having agreed, to receive electronic communications, the companywebsite is now the main way for them to access shareholder information. Theseshareholders will be sent a "notice of availability" notifying them that thisreport is available on the company website: www.babcock.co.uk . Hard copies of the report will be distributed to those shareholders who have requested orsubsequently request them. Additional copies are also available from thecompany's registered office: 2 Cavendish Square, London W1G 0PX. BABCOCK INTERNATIONAL GROUP PLC 2007/8 INTERIM RESULTS Risks and Uncertainties The principal risks and uncertainties affecting the Group remain those detailedon pages 20 and 21 of the 2007 Annual Report, a copy of which is available atwww.babcock.co.uk. This Interim Statement also includes comments on the outlookfor the Group for the remaining six months of the financial year. Statement of directors' responsibilities The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The directors of Babcock International Group plc are listed in the BabcockInternational Group annual Report of 31 March 2007 and have not changed sincethen. A list of the current directors is maintained on the Babcock InternationalGroup website: www.babcock.co.uk. By order of the board P RogersGroup Chief Executive12 November 2007 W TameGroup Financial Director12 November 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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