Babcock International Group PLC (Babcock or the Group) is the
UK's leading engineering support services company. We are issuing
this trading statement before entering our close period on 1
October 2011. The Group's half year results will be released on
Tuesday 8 November 2011.
Group overview
During the first half of this financial year the Group has
experienced good trading conditions in a market where our key
customers face financial and budgetary constraints. We believe this
environment will continue to drive an increase in new outsourcing
opportunities in both the private and public sectors, as evidenced
by the continuing growth of our bid pipeline.
Our business model and track record of delivering cost efficiencies
for our customers places us in a prime position to take advantage
of these new opportunities.
Financial review
The Group's financial performance remains consistent with our
expectations at the time of our Interim Management Statement on 7
July 2011 and our preliminary results announced on 17 May 2011.
There has been no change to the financial performance of our major
contracts or the level of savings we are able to deliver to our
customers.
During the first half we have continued to benefit from strong cash
generation across the businesses and as a result we expect to see
further reduction in net debt at the half year.
We remain confident of achieving a net debt to ebitda ratio of less
than 2 times by the end of this financial year.
Synergy benefits arising from the VT acquisition continue to flow
through into the divisions at the levels anticipated and as
scheduled. The businesses are now fully integrated and our focus is
on exploiting the growth opportunities which arise from the
strength of the combined businesses.
Order book and bid pipeline
We continue to have excellent visibility of future revenues with
the order book remaining strong at around £12 billion as our
divisions continue to win a steady flow of contracts. The following
contracts have recently been brought into the order book.
Support Services
- Mobile Asset Management - We are delighted to announce that we
have signed a ten year contract with Lafarge for the management and
maintenance of the Heavy Mobile Equipment within its UK Aggregates
and Cement businesses. The contract value for the UK is £50
million.
We are now in exclusive negotiations with Lafarge to roll out this
innovative management and maintenance model across its global
operations, with the US being the next territory.
The contract value for this phase is likely to be in the region of
a further £100 million.
This contract marks a global first in the mining and construction
fleet management sector.
- Nuclear decommissioning - At Sellafield, a joint venture
between Babcock and Balfour Beatty has been awarded a contract by
Sellafield Ltd for Phase 1 of Silos Maintenance Facility (SMF), a
key part of the hazard reduction programme at the site. This phase
will deliver the concept and preliminary designs and Phases 2 and 3
will see the project through detailed design, construction and
commissioning scheduled for mid 2017. The total project value is
expected to be in the region of £150 million.
The award of this contract means that over the past 12 months,
Babcock, with various partners, has secured the last three major
projects to be awarded at Sellafield. The first two projects are
progressing well. Box Encapsulation Plant Product Store and
Comprehensive Import Export Facility project (total scheme in
excess of £200 million) is proceeding well through Phase 1.
Following successful completion of Phase 1 of the Pile Fuel
Cladding Silo Retrieval Project (total scheme around £120 - £150
million),
Babcock and its jv partner have now reached agreement with
Sellafield Ltd and the Nuclear Decommissioning Authority to move
into Phase 2 of the project.
Defence and Security
- As part of the MoD's new framework for the management of its
White Fleet
requirements, Babcock has been awarded a four year contract as the
Service Provider. This contract is expected to be worth up to £27
million over four years and will come into operation over the next
few months. In this role we will be working with the MoD to manage
their fleet more efficiently by increasing vehicle utilisation and
reducing costs. As the Service Provider Babcock will now identify
the optimum method of procuring and maintaining the fleet. Through
a co-operation agreement Babcock will
continue to deliver the White Fleet service until February 2012 at
a value of up to £50 million, whilst these new contracts are
let.
The bid pipeline has continued to grow as anticipated and now
stands at £10 billion. This includes more than 20 bids in excess of
£100 million and includes significant opportunities in the civil
nuclear, defence infrastructure, education and training markets as
well as for aircraft support under MFTS (Military Flying Training
System). In addition, our Marine and Technology business continues
to benefit from 15 years' visibility of warship and submarine refit
and support activities which are not included in the pipeline.
During the period the MoD decided to retain its in-house solution
for the Maritime Equipment Transformation programme, for which we
had been selected as the sole industry bidder.
Strategic review
As announced in July, we are considering options, including
possible disposal, for our US defence operations and we will update
in due course.
Outlook
We remain confident that the current economic climate will continue
to create significant medium and long-term growth opportunities for
our businesses where we are well placed to benefit from the scale
of our operations, the breadth of our experience and our track
record of delivering both operational and financial
efficiencies.
The Board therefore remains confident in the outlook for the Group
and, supported by the excellent visibility in the order book and
bid pipeline, looks forward to achieving good progress this year
and thereafter.
Analyst and Investor Seminar
A seminar for analysts and investors focussing on activities within
the Support Services division will be held this morning, 28
September 2011, from 8.30 am. For details please contact 020 7269
7291. An audio webcast of the seminar will be available at www.babcock.co.uk during the afternoon of 28
September. No material new financial information will be provided
during the presentations.
Enquiries
Babcock International Group PLC 020 7355 5300
Peter Rogers - Chief Executive
Bill Tame - Finance Director
Terri Wright - Head of Investor Relations
FTI Consulting 020 7269 7291
Andrew Lorenz
Nick Hasell
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