Babcock International Group PLC · LSE:BAB
Babcock International — HY21 Earnings Presentation
48 slides from Babcock International's earnings presentation, Nov 25, 2020
Slide 1: Half year results
Half year results for the six months ended 30 September 2020 25 November 2020
Slide 2: Disclaimer
Disclaimer This document has been prepared by Babcock International Group PLC cause actual results, performance or developments to differ materially (the “Company”) solely for use at a presentation in connection with the from those expressed or implied by such forward-looking statements. Company's h
Slide 3: How I see what we do
How I see what we do Full naval business • Naval bases • Ship & subs life-cycle: design, build, maintain, life extend, • Submarines UK and upgrade and decommission • Warships Int’l • Major infrastructure • Products: equipment and • Equipment systems Engineering support • Land defence • Critical engi
Slide 4: Strengths to build on, areas to address
Strengths to build on Areas to address • Our people and resilience of business • Refresh our operating model and culture • Deep customer understanding • Increase collaboration across the Group • Strong demand for our expertise • Focus on generating sustainable free cash flow • Areas of innovation ac
Slide 5: Priorities at the core of our review of strategy
Priorities at the core of our review of strategy 1 2 3 4 5 Focus on cash Strategic International Drive innovation Transform ESG delivery partner to UK growth across the and people Govt. Group agenda 5
Slide 6: Increase in UK defence spending
Increase in UK defence spending • £16.5 billion increase over four years ‒ At least 2.2% of GDP ‒ £190 billion budget over next four years • Investing in long-term programmes and next-generation military capability • Largest naval power in Europe, including: ‒ Type 31 frigates ‒ Type 32 frigates ‒ F
Slide 7: Half year performance
Half year performance Resilient revenue but operating profit reflects: Ongoing programmes to improve performance: Government Civil aviation restructuring and insourcing of 1 fleet rationalisation Disposals Magnox and Dounreay 2 Civil nuclear restructuring COVID-19 Weakness in civil aviation 3 Cash s
Slide 8: Financial review
Financial review Franco Martinelli Group Finance Director
Slide 9: HY21 performance
HY21 performance Underlying revenue Exceptional items Underlying free cash flow2 Net debt3 of £2,244m £2m charge £58m £871m Exceptional cash Underlying operating profit outflow of £31m Underlying basic EPS Net debt / EBITDA4 £143m (includes FY19 and 15.7p 2.0x FY20 charges)1 9 All results throughout
Slide 10: Underlying results for HY21
Underlying results for HY21 HY21 HY20 • Revenue down 9% − Down 7% excl. disposals and FX Revenue £2,244m £2,458m − Excl. Magnox, down 2% − Nuclear JVs down £136m Operating profit £143m £251m • Operating profit down 43% Operating margin 6.4% 10.2% − Down 39% excl. disposals and FX − Nuclear JVs down
Slide 11: Impact of COVID-19 across our business
Impact of COVID-19 across our business All sectors affected by lower activity and inefficiency but the principal driver of performance was: Marine Lower efficiency Nuclear Lower efficiency Land Lower activity Aviation Lower efficiency and activity (mix impact) 11
Slide 12: Revenue bridge
Revenue bridge Underlying revenue (£m) 87 2,458 (39) (14) 2,405 (97) (142) (9) 2,244 Type 31, LGE & Ventilators Includes £120m Magnox impact UK civil activity Mixed activity levels HY20 FX Disposals HY20 rebased Marine Nuclear Land Aviation HY21 12
Slide 13: Operating profit bridge
Operating profit bridge Underlying operating profit (£m) 251 (4) (6) 241 (23) (26) (15) Includes £12m Magnox (34) 143 and Dounreay impact HY20 FX Disposals HY20 rebased Marine Nuclear Land Aviation HY21 13
Slide 14: Exceptional items
Exceptional items New exceptional items taken: Exceptional cash costs summary, net of tax (estimate)1: HY21 FY20 HY21 FY21E FY22E FY23E (£m) (£m) (£m) (£m) (£m) (£m) Exits and disposals (16.9) HY21 charges - (3) (7) - - Restructuring 11.0 FY20 charges (41) (26) (51) (7) (16) Fleet rationalisation 7.
Slide 15: Marine: strong revenue growth but COVID-19 hit margin
Marine: strong revenue growth but COVID-19 hit margin HY21 HY20 • Revenue up 12% ‒ Type 31 programme ramping up Revenue (£m) 635 564 ‒ Continued strength in LGE business Operating profit (£m) 50 73 ‒ UK Ventilator Challenge • Operating profit down 31% Operating margin 7.8% 12.8% ‒ COVID-19 efficienc
Slide 16: Nuclear: growth in defence, weakness in civil
Nuclear: growth in defence, weakness in civil HY21 HY20 • Revenue down 17% ‒ £120m Magnox impact Revenue (£m) 491 588 ‒ 4% growth excl. Magnox Operating profit (£m) 32 58 ‒ Strong growth in defence - submarine infrastructure, support activity levels Operating margin 6.5% 9.8% ‒ Civil nuclear excl. J
Slide 17: Land: significant COVID-19 impact on revenue and profit
Land: significant COVID-19 impact on revenue and profit HY21 HY20 • Revenue down 23% ‒ Significant COVID-19 impact across airports, civil Revenue (£m) 611 790 training and South Africa business ‒ Smaller impact in defence businesses Operating profit (£m) 33 58 ‒ FX impact of £37 million (South Afric
Slide 18: Aviation: weakness in civil aviation
Aviation: weakness in civil aviation HY21 HY20 • Revenue down 1.5% ‒ Lower flying hours in medical services and Oil & Gas Revenue (£m) 507 515 ‒ Australia EMS and European firefighting revenue up Operating profit (£m) 32 66 • Operating profit down 51% ‒ JV performance steady o/w Group 7 42 ‒ Weak pe
Slide 19: Joint ventures
Joint ventures £31.2m operating profit in HY21 (HY20: £41.0m) • Dividends: ‒ £15m received in HY21, no cash gap vs. profit after tax ‒ Share of distributable reserves now £135m £17.4m Ends 2035 • JV net debt: ‒ All JV debt is non-recourse to the Group ‒ Babcock proportion of net debt £266m ‒ c.80% o
Slide 20: Better than expected working capital performance
Better than expected working capital performance HY21 (£m) HY20 (£m) Underlying operating profit excluding JVs1 111 209 • Working capital better than expected Amortisation and depreciation 56 51 Depreciation of right of use assets 69 60 ‒ Receivables ahead of expectations Other non-cash items 3 3 fo
Slide 21: Free cash flow ahead of expectations
Free cash flow ahead of expectations HY21 HY20 (£m) (£m) • Interest reflects lower debt offset by costs of refinancing Operating cash flow after capex 144 78 Net interest paid (17) (16) • JV dividends lower: HY20 included Magnox exit dividends Interest paid – IFRS 16 (12) (12) • Tax reflects lower f
Slide 22: Pensions
Pensions IAS 19 position Technical provisions position (£m) Sep 2020 Mar 2020 Sept 2019 September 2020: c.£450m deficit Assets 4,999 4,411 4,907 March 2020: c.£500m deficit Obligations (5,103) (4,266) (4,922) Net surplus / (deficit) (104) 145 (15) Why different to IAS 19 Why the actuarial deficit Ke
Slide 23: Net debt reduction from self-help actions
Net debt reduction from self-help actions Net debt (£m) 673 1,595 31 36 (58) 1,519 (648) (85) 1,454 922 871 March 20 Lease March 20 incl. HY21 underlying Holdfast Exceptional FX and other Sept 20 incl. Lease Sept 20 obligations leases free cash flow disposal cash costs leases obligations 23
Slide 24: Strong liquidity position remains
Strong liquidity position remains Net debt / EBITDA1 • Self help actions taken in the year 1.9x 2.0x 1.8x 1.6x 1.7x • RCF extended by one more year, now to 2025 1.0x – 1.5x Target range • Liquidity headroom of £1.4 billion • Significant covenant headroom HY19 FY19 HY20 FY20 HY21 • BBB credit rating
Slide 25: Summary
Summary • Revenue resilient in most areas • Operating profit reflects disposals, Government insourcing of Magnox and Dounreay, COVID-19 and weakness in civil aviation • Net debt reduced by £267m year-on-year1 • Strong liquidity and significant covenant headroom 25 1. Net debt now excludes £38 millio
Slide 26: Looking ahead and Q&A
Looking ahead and Q&A David Lockwood, CEO
Slide 27: Uncertainties ahead
Uncertainties ahead • No FY21 financial guidance given uncertainties of COVID-19 • Additional uncertainties of: ‒ Brexit impacts in UK and Europe ‒ Details of UK’s Integrated Review 27
Slide 28: Looking ahead
Looking ahead • Outline strategy review in May • Our priorities: ‒ Focus on cash delivery ‒ Strategic partner to the UK Govt. ‒ International growth ‒ Drive innovation across the Group ‒ Transform ESG and people agenda • Most important aspect will be delivering sustainable free cash flow 28
Slide 29: Q&A
Q&A 29
Slide 30: Appendix
babcock ® _ Appendix
Slide 31: HY21 results split by sector
HY21 results split by sector Revenue Operating profit Order book Pipeline 23% 22% 21% 28% 28% 34% 36% 37% £2.2bn £143m £17.2bn £17bn 22% 22% 27% 22% 29% 10% 22% 18% Marine Nuclear Land Aviation 31
Slide 32: HY21 results split by market
HY21 results split by market Revenue Order book Pipeline Revenue 10% 12% 20% 5% 5% 32% 15% 10% 42% 5% £2.2bn 52% £17.2bn £17bn £2.2bn 6% 64% 16% 68% 7% 31% Defence UK Defence international Emergency services Civil nuclear Other UK International 32
Slide 33: HY21 sector revenue splits
HY21 sector revenue splits Marine Nuclear Land Aviation 13% 14% 20% 22% 4% 46% £635m £491m 15% £611m 27% £507m 21% 59% 59% 78% 17% 5% Defence UK Defence Emergency services Emergency services Naval Nuclear Defence international South Africa Rail & power Defence Civil Nuclear Energy and marine Airport
Slide 34: Group order book of £17.2 billion at September 2020
Group order book of £17.2 billion at September 2020 10% 21% 5% 28% 15% 22% 6% 64% 29% Marine Nuclear Defence International defence Emergency services Land Aviation Civil nuclear Other 34
Slide 35: Group pipeline of around £17 billion at September 2020
Group pipeline of around £17 billion at September 2020 Defence UK Adjacent markets • Naval vessels 42% • South Africa support • Marine training • Rail programmes • Nuclear infrastructure • Submarine disposal 12% • Armoured vehicle sustainment • Aviation support • Defence comms and intelligence £17bn
Slide 36: Statutory to underlying reconciliation
Statutory to underlying reconciliation Joint Ventures and Associates Amortisation IFRIC 12 Exceptional All values in £m Statutory Revenue and income of acquired items Underlying Finance costs Tax intangibles operating profit Revenue 2,109.6 134.1 2,243.7 30 September 2020 Operating profit 76.2 18.7
Slide 37: Underlying basic EPS reconciliation
Underlying basic EPS reconciliation HY21 (p) HY20 (p) Movement Acquired intangibles amortisation: Statutory EPS 10.5 25.6 (15.1) • Non-cash item Acquired intangibles amortisation1 4.7 6.9 (2.2) JV treatment: Exceptional items1 0.5 - 0.5 • No effect at EPS level Impact of change in statutory • Impact
Slide 38: HY21 underlying margin bridge
HY21 underlying margin bridge (%) (0.2) (1.3) (0.8) (0.1) (1.4) 10.2 10.0 6.4 HY20 Disposals HY20 rebased Marine Nuclear Land Aviation HY21 38
Slide 39: Exceptional items: detailed split
Exceptional items: detailed split HY21 charge / (credit) (£m) Marine Restructuring 1.0 Pensions 7.5 Nuclear Disposals 0.6 Land Restructuring 1.1 Exits 6.7 Disposals (26.2) Aviation Restructuring 8.9 Exits 2.0 Fleet rationalisation 7.4 Total 9.0 Tax (6.7) Net 2.3 39
Slide 40: Joint Ventures: summary
Joint Ventures: summary Babcock underlying JVs Share Country Sector Start End ALC 50% UK Land 2005 2021 Asset JVs • Typically assets and debt Asset JVs Ascent 50% UK Aviation 2016 2033 • Dividends follow after paying down JV debt AirTanker 13%1 UK Aviation 2008 2035 • Typically long-term Bernhard Sc
Slide 41: Joint ventures: detailed financials
Joint ventures: detailed financials HY21 (£m) HY20 (£m) Total Assets Operational Total Assets Operational Operating Profit 18.7 20.2 (1.5) Operating Profit 27.8 14.7 13.1 IFRIC 12 12.5 12.5 - IFRIC 12 13.2 13.2 - Total underlying profit 31.2 32.7 (1.5) Total underlying profit 41.0 27.9 13.1 Finance
Slide 42: Joint ventures: AirTanker
Joint ventures: AirTanker Our holding: 13.3%1 • Owns 14 aircraft JV partners: Airbus, Rolls-Royce, Thales • PFI structure: guaranteed minimum Share of JV net debt (non-recourse) at Sept 2020: £217m payments cover financing (assumption: only 9/14 aircraft flying) • JV holds significant cash balance o
Slide 43: 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 Maritime Support Delivery UK MOD 2014 2021 UK Warship support and surface fleet infrastructure elements of MSDF Framework (MSDF)
Slide 44: 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 JV with Jacobs and Amentum. Decommissioning, demolition and restoration of Dounreay Dounreay NDA 2012 2021 UK Contract to be taken in-house in
Slide 45: Key contracts: Land defence
Key contracts: Land defence Contract Customer Start End Country Notes RSME - Royal School of UK MOD 2008 2038 UK Provision of training and associated support services Mechanical Engineers DSG - Defence Support Maintenance, repair and overhaul to over 35,000 vehicles of the British Army’s A and B Gro
Slide 46: Key contracts: Land civil
Key contracts: Land civil Contract Customer Start End Country Notes London Fire Brigade (LFB) Technical fleet management of over 400 LFB 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 47: 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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