Babcock International Group PLC · LSE:BAB
Babcock International — FY2020 Earnings Presentation
67 slides from Babcock International's earnings presentation, Jun 11, 2020
Slide 1: Full year results for the year ended 31 March 2020
Full year results for the year ended 31 March 2020 11 June 2020
Slide 2: Disclaimer
Disclaimer This document has been prepared by Babcock International Group PLC past trends or activities should not be taken as a representation that such (the “Company”) solely for use at a presentation in connection with the trends or activities will continue in the future. They speak only as at th
Slide 3: Key messages
Key messages 1 Results in line with expectations apart from COVID-19 impact in final two months of the year 2 Exceptional costs of £503m (incl. goodwill impairment of £395m in Aviation); net cash costs of £27m 3 No financial guidance given uncertainty of COVID-19, included as much detail as we can t
Slide 4: Introduction
Introduction Where we are today • COVID-19 impacts and uncertainty • Defence businesses had a strong year and are well-placed • Market softness to address in civil aviation and civil nuclear Actions we are taking • COVID-19 mitigations • Deferred decision on final dividend • Asset and goodwill impai
Slide 5: Our response to COVID-19
Our response to COVID-19 The health and safety of our employees, customers and supply chain partners has been our primary focus • Early February: provided Italy, Spain and France front line aerial emergency services support including positive patient hospital transfer • Early March: supported emerge
Slide 6: COVID-19: critical work continues
COVID-19: critical work continues Defence programmes continue across all four sectors Defence and nuclear sites remain open reflecting the critical nature of our services • Lower levels of productivity as adjustments are made for safe working including social distancing and home working • Lower leve
Slide 7: COVID-19: mitigation actions
COVID-19: mitigation actions • Maximising working from home facilitated by effective IT and communications • Safe environment innovations to address restrictions in social distancing and restricted movements • Limited use of furloughing staff in a few areas such as our airports and civil training bu
Slide 8: Most of our businesses performing well
Most of our businesses performing well Marine Nuclear Land Aviation UK Defence Defence Defence UK Defence International Defence Civil Emergency Services International Defence Energy and Marine South Africa Emergency Services Rail Oil and Gas Other businesses Actions being taken 8
Slide 9: Taking action: addressing the oil and gas market
Taking action: addressing the oil and gas market Bristow emerges Oil price Chapter 11 Oil price drops: CHC emerges Bristow / Era c.$75 $114 to $46 EC225 Chapter 11 Merge (July) grounded PHI Inc emerges Chapter 11 EC225 Bristow into Oil price drops cleared to fly Chapter 11 to around $20 Business Oil
Slide 10: Goodwill impairment
Goodwill impairment 2014 Today • Acquired Avincis in March 2014 • Aviation sector with £1bn revenue • £1,759m consideration • Grown Avincis businesses to c.£750m revenue per year • Revenue of £487m in FY14 • Expanded into new markets: France, Canada and the Nordics • Oil and gas represented 31% of r
Slide 11: Progressing our strategy
Progressing our strategy Strategic priorities: Progress in the year: • Deliver operational excellence for our customers • Continued development of Strategic Partnering Programme • Grow our international businesses in focus markets • Aviation now in Norway and Canada • Grow market share and expand of
Slide 12: Continue to grow international businesses
Continue to grow international businesses FY20 revenue Commenced operations in the year in: • Norway aerial medical services £4.9bn 69% 31% • Canada (Manitoba) aerial firefighting • Canada nuclear consultancy Order book Existing market progress in the year: • France: second significant defence contr
Slide 13: Order book of £17.6 billion
Order book of £17.6 billion Marine Nuclear Defence International defence Emergency Services Land Aviation Nuclear Adjacent markets 9% 21% 26% 9% Order Book 14% £17.6bn 62% 23% 6% 30% • £5.3bn order intake over the year • Order book provides base level of revenue for the future which is then compleme
Slide 14: Pipeline of around £17 billion
Pipeline of around £17 billion Defence UK Adjacent markets • Marine training 37% • South Africa support • Nuclear infrastructure • Rail programmes • Submarine disposal 14% • Armoured vehicle sustainment • Aviation support • Defence comms and intelligence c.£17bn Emergency Services 11% • Canada, Euro
Slide 15: Update on medium term targets
Update on medium term targets • Fundamentals of our business remain unchanged • Stable customers in stable countries, long term order book and opportunities pipeline • Medium term targets remain our aiming point whilst we assess medium term impacts of the pandemic • Given the uncertain impact of COV
Slide 16: Resilient business model ready for the year ahead
Resilient business model ready for the year ahead Strong performance Significant Most of our work is Comfortable across defence order book critical and liquidity businesses and pipeline non-discretionary position 16
Slide 17: Financial review
Financial review Franco Martinelli Group Finance Director
Slide 18: FY20 performance
FY20 performance Total exceptional items £503m Underlying revenue Underlying free cash flow1 Underlying basic £4,872m £192m EPS 69.1p Includes Aviation goodwill impairment of £395m Underlying operating profit Net debt2 of £922m Full year dividend £524m Total cash outflows from decision deferred thes
Slide 19: Underlying results for FY20
Underlying results for FY20 FY20 (£m) FY19 (£m) IFRS 16 basis Pre-IFRS 16 basis • Revenue and operating profit reflects previously communicated step downs1 Revenue 4,872 5,161 • Operating profit below original expectations due to Operating profit 524 588 Aviation weakness and impact of COVID-19 Oper
Slide 20: Revenue growth excl. step downs
Revenue growth excl. step downs (£m) 3% growth excl. step downs1 5,161 (36) (47) 18 63 (114) (345) 172 4,872 4,733 FY19 FX Disposals Other step FY19 rebased Marine Nuclear Land Aviation FY20 downs excl. disposals 1 20 1. Other revenue step downs include: QEC (£50m), Magnox (£271m) and other exits (£
Slide 21: Operating profit reflects step downs and Aviation weakness
Operating profit reflects step downs and Aviation weakness (£m) (3) (7) 588 4 3 7 552 (50) 24 (42) 524 FY19 FX Disposals Other step IFRS 16 FY19 Marine Nuclear Land Aviation FY20 downs excl. Impact rebased disposals 1 21 1. Other operating profit step downs include: QEC (£2m), Magnox (£25m), other e
Slide 22: Exceptionals items in FY20
Exceptionals items in FY20 Aviation goodwill Aviation charges Other restructuring £395m £143m £35m net credit • Oil and gas market • Oil and Gas • Nuclear and Rail deterioration − Assets restructuring • Revised estimates of − Leases and contracts • Exits and disposals future performance of − Exit of
Slide 23: Marine: strong year across the sector
Marine: strong year across the sector FY20 (£m) FY19 (£m) IFRS 16 basis Pre-IFRS 16 basis • Strong revenue growth led by: Revenue (£m) 1,207 1,086 − Increased activity in UK warship support − Strong orders across our LGE business and growth across Operating profit (£m) 144 141 Dreadnought and Columb
Slide 24: Nuclear: good defence performance, challenging civil market
Nuclear: good defence performance, challenging civil market FY20 (£m) FY19 (£m) IFRS 16 basis Pre-IFRS 16 basis • Revenue growth of 6% excluding Magnox1 Revenue (£m) 1,111 1,319 • Operating profit growth of 6% excluding Magnox1 and IFRS 16 Operating profit (£m) 126 144 • UK defence: Operating margin
Slide 25: Land: solid trading over the year
Land: solid trading over the year FY20 (£m) FY19 (£m) IFRS 16 basis Pre-IFRS 16 basis • Revenue growth of 1.2% excluding step downs1: Revenue (£m) 1,554 1,620 − Higher defence procurement revenues − Stronger trading in South Africa Operating profit (£m) 134 146 • Operating profit ahead of expectatio
Slide 26: Aviation: tough market conditions, action being taken
Aviation: tough market conditions, action being taken FY20 (£m) FY19 (£m) IFRS 16 basis Pre-IFRS 16 basis • Revenue broadly flat excl. Fomedec and Helidax1 Revenue (£m) 1,000 1,136 − New operations in Norway and Canada − Lower oil and gas revenue Operating profit (£m) 121 161 • Operating profit down
Slide 27: Cash performance on track before COVID-19
Cash performance on track before COVID-19 • Good performance overall • Outflow as guided despite COVID-19 impact Working capital • COVID-19 impact on customer receipts and invoicing in final month prevented outperformance • VAT receipts delay in Europe • Net capex 1.5 times depreciation Capital expe
Slide 28: Cash flow reduction driven by working capital swing
Cash flow reduction driven by working capital swing FY20 (£m) FY19 (£m) Underlying operating profit excluding JVs1 417 452 • PPE depreciation excludes £10 million Amortisation and depreciation 96 109 related to finance leases now included in the Depreciation of right of use assets 130 - depreciation
Slide 29: Free cash flow impacted by COVID-19
Free cash flow impacted by COVID-19 FY20 (£m) FY19 (£m) • COVID-19 impact on working capital and net capex resulted in free cash flow below expectations Operating cash flow after capex 344 469 • Lower cash tax mainly due to lower profits Net interest paid (47) (47) • JV dividends higher year on year
Slide 30: Factors impacting our free cash flow conversion
Factors impacting our free cash flow conversion 1 2 3 4 Working Capital Joint Pension capital expenditure ventures contributions 30
Slide 31: Working capital: small outflow in the year as guided
Working capital: small outflow in the year as guided Inventories Receivables Payables Total 10 Receivables • Increased capitalised contract costs in Norway, Canada, Type 31 5 7.1 • Progress on AMROC – lower YoY but reduction less than Cash flow £m expected 0 • Some delays to customer invoicing and r
Slide 32: Capital expenditure: net capex flat year-on-year
Capital expenditure: net capex flat year-on-year (£m) FY20 FY19 • Net capex (pre-IFRS 16) remained at a similar level to Purchases of PPE 146 194 FY19 • This is greater than expected due to lower level of Purchases of intangible assets 29 33 disposals as COVID-19 led to customer and financing delays
Slide 33: Joint ventures
Joint ventures £106m operating profit in FY20: Strong performance in Dividends: £34m FY20 • £52m received in FY20 • Our share of distributable reserves is c.£150m JV net debt: Strong performance in £23m FY20 • All JV debt is non-recourse to the Group • Babcock proportion of net debt at 31 March 2020
Slide 34: Pensions
Pensions IAS 19 position Technical provisions position (£m) FY20 FY19 March 2020: c.£500m deficit Assets 4,411 4,582 March 2019: c.£400m deficit Obligations (4,266) (4,610) Net surplus / (deficit) 145 (28) Why different to IAS 19 Why the actuarial deficit Key assumptions FY20 FY19 position: has incr
Slide 35: Net debt: our definition
Net debt: our definition Two measures: Net debt: Gearing: “Covenant basis”: Group EBITDA (excl. 1.5x Including 1 £0.92bn Group net debt 1.7x IFRS 16 EBITDA impact) + JV dividends pro forma Holdfast sale Group net debt Group EBITDA (incl. IFRS 16 EBITDA 2 £1.59bn 2.3x impact) + JV dividends + lease o
Slide 36: Guidance for the year ahead
Guidance for the year ahead Uncertainty COVID-19 creates too much uncertainty to be able to give financial guidance for the year ending 31 March 2021 Impacts Short cycle work (c.20% of revenue) most impacted. Long term critical, non-discretionary contract work (c.80%) continues. Sector margins will
Slide 37: Considering the impact of COVID-19 by sector
Considering the impact of COVID-19 by sector Marine Nuclear Land Aviation • Majority of defence work • Defence work continues • Defence work continues • Defence work continues continues • Lower level of civil nuclear • Significant reductions in • Lower flying hours in • Some impact in Energy and pro
Slide 38: Significant liquidity available to the Group
Significant liquidity available to the Group Debt maturity profile1 (£m) • Access to sufficient liquidity via a £775m USPP Euro bond Revolving Credit Facility maturing in August 2024 GBP bond RCF • New 8-year Euro bond 2027 Total facility amount: 775 • £100m term loan and £40m loan note repaid durin
Slide 39: Our approach to capital allocation
Our approach to capital allocation Our capital allocation priorities: Net debt / EBITDA1 Organically invest in the business Ensure group liquidity 2.0x Given the current challenging environment from the impact of COVID-19, our immediate focus is ensuring the group has sufficient capital and liquidit
Slide 40: Summary
Summary Archie Bethel Chief Executive
Slide 41: Resilient business model ready for the year ahead
Resilient business model ready for the year ahead Strong performance Significant Most of our work is Comfortable across defence order book critical and liquidity businesses and pipeline non-discretionary position 41
Slide 42: Appendix
babcock & ~ Appendix
Slide 43: FY20: sector splits
FY20: sector splits Revenue Operating profit Order book Pipeline 20% 23% 21% 25% 27% 26% 31% 41% £4.9bn £524m £18bn £17bn 23% 32% 23% 26% 10% 24% 30% 18% Marine Nuclear Land Aviation 43
Slide 44: FY20: market splits
FY20: market splits Revenue Order book Pipeline 9% 14% 26% 9% 5% 37% 47% £4.9bn 14% £18bn 11% £17bn 8% 62% 6% 14% 5% 33% Defence UK Defence International Emergency services Civil nuclear Adjacent 44
Slide 45: FY20: international splits
FY20: international splits UK vs international revenue International revenue International pipeline 4% 13% 1% 13% 31% 34% 13% 17% 52% 69% 16% 12% 24% UK Europe North America UK Australia International South Africa Rest of world Europe (excl UK) South Africa Australasia North America ROW 45
Slide 46: FY20 step downs
FY20 step downs Operating profit Revenue (£m) Margin (£m) FY19 5,161 588 11.4% Step downs: End of QEC contract (50) (2) End of Magnox contract (271) (25) Impact of exits and disposals (71) (10) Normalisation of Holdfast profit contribution (10) Brexit-related Aviation restructuring (10) FY19 rebased
Slide 47: FY20 underlying margin bridge
FY20 underlying margin bridge (%) 0.5 (0.2) 11.4 (0.3) 0.1 11.7 (0.1) (0.6) 10.8 FY19 IFRS 16 Step downs incl. Rebased for Marine Nuclear Land Aviation FY20 FX1 IFRS 16 and step downs 47 1. Foreign exchange movements, exits, disposals, QEC and Magnox step downs. For more detail refer to appendix sli
Slide 48: Exceptional items: detailed split
Exceptional items: detailed split FY20 charge / (credit) (£m) Aviation Goodwill impairment 395.0 Asset impairment (Oil and Gas) 22.2 Right of use asset impairment and onerous customer contracts (Oil and Gas) 31.2 Exit of Ghana and Congo (Oil and Gas) 7.1 Aviation restructuring 26.5 Aviation other 55
Slide 49: Exceptional items: expected cash costs
Exceptional items: expected cash costs Expected FY21E FY22E FY23E FY20 (£m) Total (£m) (£m) (£m) FY19 exceptional items (38) c.(4) - - c.(42) FY20 exceptional items 61 c.(95) c.12 c.(2) c.(27) Sale of Holdfast - 85 - - 85 Rosyth additional payments - c.(45) c.(45) - c.(90) Total 23 c.(59) c.(33) c.(
Slide 50: IFRS 16: impact of adoption
IFRS 16: impact of adoption P&L FY20 IFRS 16 FY20 • IFRS 16 P&L impact in line with expectations: pre-IFRS 16 adjustment post-IFRS 16 − Operating profit increase of £23.6m Underlying operating profit (£m) 500.6 23.6 524.2 − Immaterial impact on PBT and small negative impact on EPS Net interest (£m)
Slide 51: Capital expenditure: our aircraft fleet financing approach
Capital expenditure: our aircraft fleet financing approach Gross book value of aircraft within PPE (£m) Aims: • New assets to be leased where appropriate 700 • Optimise lease pricing 600 500 Approach: 400 • Buy aircraft/slot deposits for a percentage of possible new 300 requirement (wins/rebids) 200
Slide 52: Underlying EPS reconciliation
Underlying EPS reconciliation FY20 (p) FY19 (p) Movement Acquired intangibles amortisation: Statutory EPS (38.6) 39.5 (78.1) • Non-cash item Acquired intangibles amortisation1 13.6 15.7 (2.1) JV treatment: Exceptional items1 94.3 28.5 65.8 • No effect at EPS level Impact of change in statutory • Imp
Slide 53: Statutory to underlying reconciliation
Statutory to underlying reconciliation Joint Ventures and Associates Amortisation IFRIC 12 Exceptional Change in All values in £m Statutory Revenue and income of acquired items tax rate Underlying Finance costs Tax intangibles operating profit Revenue 4,449.5 422.2 4,871.7 Operating profit (164.9) 7
Slide 54: Underlying organic growth
Underlying organic growth Marine £m Nuclear £m Land £m Aviation £m Unallocated £m Total £m Underlying revenue 31 March 2019 1,086.0 1,318.9 1,620.2 1,135.5 – 5,160.6 Exchange adjustment (0.1) – (24.0) (12.3) – (36.4) Disposals – – (37.9) (8.7) – (46.6) Step downs excl. disposals (51.4) (270.8) (23.2
Slide 55: Underlying segmental analysis
Underlying segmental analysis Revenue (£m) Operating profit (£m) Operating margin FY20 FY19 FY20 FY19 FY20 FY19 (pre-IFRS 16) (pre-IFRS 16) Group £1,163.8m £1,065.7m £140.7m £137.9m 12.1% 12.9% Marine JV 43.1m £20.3m £3.3m £3.3m 7.7% 16.3% Total £1,206.9m £1,086.0m £144.0m £141.2m 11.9% 13.0% Group
Slide 56: Exchange rate movements
Exchange rate movements Impact of FX movement Impact of FX movement on Impact of FX movement on on revenue (£m) underlying operating profit (£m) profit before tax (£m) 1% 5% 10% 1% 5% 10% 1% 5% 10% EUR 3.9 19.7 39.4 0.3 1.6 3.1 0.0 0.0 0.0 ZAR 3.3 16.4 32.8 0.4 1.8 3.5 0.3 1.7 3.4 CAD 1.5 7.7 15.4 0
Slide 57: Provisions
Provisions Charge/(release) as % of underlying profit1 • FY20 net credit2 £1m • Average of last ten years: 8.0% − 0.6% cumulative net charge2 as a % of underlying profit1 6.0% − 5.5% cash utilisation of underlying operating 4.0% profit1 • FY20: £19m cash outflow2 2.0% − Utilised: contracts (gain sha
Slide 58: Net debt bridge
Net debt bridge (£m) 1,599 57 1,595 (192) (23) 154 641 673 958 922 1 March 19 Leases March 19 incl. Underlying free Exceptionals Dividends paid FX and other March 20 incl. Leases March 20 leases cash flow incl. Context leases disposal 58 1. This measure now excludes £40 million of lease obligations
Slide 59: Joint Ventures: summary
Joint Ventures: summary Babcock underlying JVs Share Country Sector Start End Holdfast (RSME) 74% UK Land 2008 2038 Asset JVs • Typically assets and debt ALC 50% UK Land 2005 2021 • Dividends follow after paying Asset JVs down JV debt Ascent 50% UK Aviation 2016 2033 • Typically long term AirTanker
Slide 60: Joint ventures: detailed financials
Joint ventures: detailed financials FY20 (£m) FY19 (£m) Total Assets Operational Total Assets Operational Operating Profit 80 61 19 Operating Profit 107 61 46 IFRIC 12 26 26 - IFRIC 12 28 28 - Total underlying profit 106 87 19 Total underlying profit 135 89 46 Finance costs (23) (23) - Finance costs
Slide 61: Joint ventures: AirTanker
Joint ventures: AirTanker Our holding: 13.3% • Owns 14 aircraft Our JV partners: Airbus, Rolls-Royce, Thales, Cobham • PFI structure: guaranteed minimum Our share of JV net debt (non-recourse): £218m (March 19: £248m) payments cover financing (assumption: only 9/14 aircraft flying) • JV holds signif
Slide 62: Key contracts: Marine
Key contracts: Marine Contract Customer Start End Country Notes Type 31 UK MOD 2019 2028 UK Design, build and assembly of five general purpose frigates for the Royal Navy MSDF UK MOD 2014 2021 UK Warship support and surface fleet infrastructure elements of MSDF VISSC RCN 2008 2022 Can Victoria In Se
Slide 63: Key contracts: Nuclear
Key contracts: Nuclear Contract Customer Start End Country Notes MSDF UK MOD 2014 2021 UK Nuclear submarine, infrastructure and license site elements of MSDF Dounreay NDA 2012 TBD UK JV with CH2M and Aecom, decommissioning, demolition and restoration of Dounreay Hinkley Point C – MEH EDF 2022 2028 U
Slide 64: Key contracts: Land defence
Key contracts: Land defence Contract Customer Start End Country Notes RSME - Royal School of Provision of training and associated support services UK MOD 2008 2038 UK Mechanical Engineers Joint venture DSG - Defence Support Maintenance, repair and overhaul to over 35,000 vehicles of the British Army
Slide 65: Key contracts: Land civil
Key contracts: Land civil Contract Customer Start End Country Notes London Fire Brigade (LFB) Technical fleet management of the LFBs 430 vehicles and around 45,000 LFB 2014 2035 UK fleet management pieces of firefighting equipment London Fire Brigade (LFB) Delivering over 200 training programmes to
Slide 66: Key contracts: Aviation
Key contracts: Aviation Contract Customer Start End Country Notes Fomedec French DOD 2017 2028 France Provision of aircraft, training and maintenance to French Air Force Air station support. Provision of engineering services and technical aviation services HADES UK MOD 2018 2023 UK to 17 air station
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Babcock International Group — FY2020 Earnings Presentation on 6ix