Babcock International Group PLC · LSE:BAB
Babcock International — FY2021 Earnings Presentation
49 slides from Babcock International's earnings presentation, Jul 30, 2021
Slide 1: Full year results for the year ended 31 March 2021
Full year results for the year ended 31 March 2021 30 July 2021
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: What we will cover
What we will cover Introduction Financials and the new baseline The improvements we are making Our strategy and future 3
Slide 4: Introduction
Introduction Changes in Life since our Opportunities numbers since April update ahead April 4
Slide 5: We have completed deep reviews of the Group
We have completed deep reviews of the Group 1 2 3 4 5 6 Operating Contract Balance People and Strategy Portfolio model profitability sheet ESG strategy 5
Slide 6: Financial review
Financial review David Mellors CFO
Slide 7: Changes in the presentation of underlying results
Changes in the presentation of underlying results Treatment of JVs and associates: • Single line in income statement (not in underlying operating profit) • Aligns with IFRS IFRIC 12 investment income: • Taken out of underlying operating profit Three column P&L: • Underlying results • Defined ‘Specif
Slide 8: Contract profitability and balance sheet review (CPBS)
Contract profitability and balance sheet review (CPBS) Scope: • Work targeted by assessment of risk Accounting policy − >100 contracts (c.£2.7bn revenue) Estimates1 Errors change c.£1.8bn c.£170m − Balance sheet items reviewed on risk basis c.£60m Adjustments required (c.140) = £2bn • Prior year res
Slide 9: FY20 underlying income statement restatement
FY20 underlying income statement restatement Presentation changes FY20 Change to CPBS FY20 • Presentation changes: previous Change to JV IFRIC 12 Restated restatements reported accounting presentation − JVs & associates and tax* − IFRIC 12 income Underlying revenue 4,871.7 (422.2) - (21.0) 4,428.5 (
Slide 10: FY20 restatement underlying cash flow: (1/2)
FY20 restatement underlying cash flow: (1/2) £m FY20 Prior year Presentation FY20 previously reported restatements changes restated • Presentation changes: Operating profit (excl. JVs) 417.4 (39.8) - 377.6 − Capital elements of lease payments Depreciation & amortisation 95.7 (4.7) - 91.0 within oper
Slide 11: FY20 restatement underlying cash flow: (2/2)
FY20 restatement underlying cash flow: (2/2) £m FY20 Prior year Presentation FY20 previously reported restatements changes restated • CPBS restatements: Free cash flow 192.2 10.9 (147.6) 55.5 − Supply chain financing now included Acquisitions and disposals net of cash acquired (0.8) - 105.5 104.7 in
Slide 12: Financial results overview
Financial results overview FY20 FY21 restated4 • Organic revenue down 3% Revenue £4,183m £4,429m − COVID-19 impacts Underlying operating profit1 £(27.6)m £377.6m − CPBS Underlying operating profit excluding one-off CPBS £222.4m − Other trading growth Underlying operating profit margin excluding one-
Slide 13: Revenue bridge
Revenue bridge (£m) 4,429 ( 42 ) 4,183 ( 59 ) 208 ( 145 ) ( 207 ) Organic decline (3%) FY20 FX Disposals COVID-19 FY21 Other FY21 Restated (estimate) CPBS impacts trading 13
Slide 14: Underlying operating profit bridge
Underlying operating profit bridge 8.5% margin (£m) 378 (5) (4) (47) 5.3% margin (46) (25) 222 (29) FY20 restated FX Disposals Significant credits in COVID-19 Recurring CPBS Other FY21 FY20 (estimate) impact* trading (excl. one-off CPBS impacts) 14 * Recurring CPBS impact of £24.7m included in the £
Slide 15: Marine
Marine Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS) Contract backlog (£bn) 2.6 2.5 Revenue (£m) 1,164 (3) (25) - 9 (26) 124 1,242 Underlying operating profit (£m)1 134 - (3) (6) (17) (8) (15) 85 Underlying ma
Slide 16: Nuclear
Nuclear Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS) Contract backlog (£bn) 0.6 0.4 Revenue (£m) 897 - (4) - 9 (22) 95 976 Underlying operating profit (£m)1 113 - 1 (21) (2) - (3) 87 Underlying margin 12.6% 8
Slide 17: Land
Land Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS) Contract backlog (£bn) 3.5 3.0 Revenue (£m) 1,523 (51) (31) - (119) (141) (72) 1,110 Underlying operating profit (£m)1 98 (5) (2) (3) (15) (10) (12) 52 Underl
Slide 18: Aviation
Aviation Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS) Contract backlog (£bn) 2.8 2.9 Revenue (£m) 846 12 - - (45) (19) 61 854 Underlying operating profit (£m)1 32 (0) - (17) (11) (6) 1 (2) Underlying margin 3
Slide 19: Cash flow and movement in net debt: (1/2)
Cash flow and movement in net debt: (1/2) £m FY21 FY20 restated1 • FY21 comments: Underlying operating profit excl. one-off CPBS adj. 222.4 377.6 − High capex due to Type 31 and facility/IT upgrade and much lower disposals of Depreciation & amortisation (incl. ROU assets) 247.9 214.3 aircraft (via s
Slide 20: Cash flow and movement in net debt: (2/2)
Cash flow and movement in net debt: (2/2) £m FY21 FY20 restated1 • FY21 comments: Free cash flow 169.5 55.5 − Disposals include: Acquisitions and disposals (incl. JVs) 81.8 104.4 − Holdfast £85m net proceeds Dividends (0.8) (153.9) − Conbras £7m net proceeds Leases – capital element add back 140.6 1
Slide 21: Significant gap between average and year end net debt
Significant gap between average and year end net debt Net debt excluding operating leases (£m) Gap between average and closing net debt in Average Net Debt FY21: 1,556 Period end Net Debt • £67m Corp Tax receipts (March) 1,445 • c.£60m reduction in supply chain finance 1,302 • c.£30m FX 1,071 1,055
Slide 22: Liquidity and debt maturity profile
Liquidity and debt maturity profile Debt maturity profile1 (£m) • Liquidity headroom of £1.2bn at 31 March 2021 Net debt2 at 31 March 2021 £772m • £2.4bn of total available borrowing and facilities at Euro bond 20223 €550m July 2021 FY21 average net debt2 RCF 2024 £300m £1,302m 2,500 RCF 2025 £775m
Slide 23: Key messages
Key messages • Detailed reviews completed • Financial baseline understood • Simplified reporting and increased transparency • Ample liquidity and covenant headroom • Actions in train to save £40m p.a. • Disposals in process to raise min £400m • Plan to strengthen the balance sheet without recourse t
Slide 24: Outlook
Outlook • While FY22 will benefit from operating model savings (c.£20 million), it will be a year of transition and, as such, we remain cautious • The impact of COVID-19 on performance in FY22 is uncertain. While activity levels have broadly recovered, the additional costs from operating in a COVID-
Slide 25: The improvements we are making
The improvements we are making David Lockwood CEO
Slide 26: Our new approach following our reviews
Our new approach following our reviews What the world Avincis expectations UK civil nuclear Evolving needs in the Customers demand more looks like now: did not play out opportunity smaller defence world Created a new baseline How are we Refreshed strategy Aligning our portfolio New operating model B
Slide 27: A new management team and governance
A new management team and governance Management team Improving governance • Neal Misell – Chief Executive, Aviation • Clear ‘tone from the top’ • Jack Borrett – Group Company Secretary • Regular drumbeat of performance reviews Appointments since September 2020: • Improved risk management process • D
Slide 28: A new operating model and culture
A new operating model and culture New operating model Developing a new culture • More efficient and effective business • A unifying company culture • Simpler and flatter structure: from a maximum of 14 • More collaboration across sectors management layers in some parts of the business reduced to a m
Slide 29: Our new people and ESG strategy
Our new people and ESG strategy People strategy ESG strategy • More collaboration, less complexity • Net zero by 2040 A video on our people • New purpose and culture • Sustainability to be part of programme strategy • Creating an agile and inclusive design workplace • Providing high quality jobs and
Slide 30: Our strategy and future
Our strategy and future
Slide 31: Our evolution
Our evolution Marine Nuclear Land Aviation UK naval business UK value add services International Strategic actions • Own key assets • Technical expertise in • Strong niche positions critical and complex Align our portfolio Strengths • Deep technical expertise assets • Highly competitive platforms, s
Slide 32: Progress since April and looking ahead
Progress since April and looking ahead Canada: VISSC extended UK: Defence tactical comms Ukraine: Memorandum of implementation with UK MOD and Ukraine France: Expanded defence aviation training, new c.€500m contract Australasia T31 export opportunities Expanding our high frequency comms capability a
Slide 33: Key messages
Key messages Now have the appropriate financial baseline Turnaround plan to restore Babcock to strength without the need for new equity - Improvements to strengthen the Group including our new operating model - Portfolio alignment to generate at least £400m and strengthen our balance sheet Exploring
Slide 34: Q&A
Q&A David Mellors
Slide 35: Appendix
Appendix David Mellors
Slide 36: FY21 results split by sector
FY21 results split by sector Underlying operating profit excl. Revenue one-off CPBS adjustments Contract backlog 20% 23% 28% 30% 33% 38% £4.2bn £222m £8.7bn 4% 27% 23% 39% 35% Marine Nuclear Land Aviation 36
Slide 37: FY21 results split by market
FY21 results split by market Revenue Contract backlog 44% 45% £4.2bn 56% £8.7bn 55% Defence Non-defence 37
Slide 38: FY21 sector revenue splits
FY21 sector revenue splits Marine Nuclear Land Aviation 16% 17% 22% 39% £1.2bn £1.0bn £1.1bn £0.9bn 61% 78% 84% 83% Defence Non-defence 38
Slide 39: Statutory to underlying reconciliation
Statutory to underlying reconciliation (£m) FY21 FY20 restated Specific Specific Underlying Adjusting Items Statutory Underlying Adjusting Items Statutory Revenue 4,182.7 – 4,182.7 4,428.5 – 4,428.5 Operating (loss)/profit (27.6) (1,615.4) (1,643.0) 377.6 (453.2) (75.6) Share of results of joint ven
Slide 40: FY21 underlying EPS calculation excl. one-off CPBS
FY21 underlying EPS calculation excl. one-off CPBS Underlying (excl. one-off CPBS) Underlying operating (loss)/profit 222.4 Investment income 0.9 Finance costs (62.1) Underlying PBT (excl. JVs) 161.2 Income tax based on an underlying ETR @ 21% (33.9) Share of JV and associates (net of tax) 18.4 Non
Slide 41: CPBS impacts on income statement
CPBS impacts on income statement £m FY21 FY20 Specific adjusting Specific adjusting Underlying Statutory Underlying Statutory items items Operating profit (274.7)1 (1,540.8) (1,815.5) (39.8) 129.1 89.3 JVs & associates (37.1)2 - (37.1) - - - PBT (311.8) (1,540.8) (1,852.6) (39.8) 129.1 89.3 Tax adju
Slide 42: Net debt / EBITDA (covenant basis)
Net debt / EBITDA (covenant basis) FY20 (£m) FY21 restated Underlying operating profit excl. one-off CPBS adjustments 222 378 Depreciation and amortisation 108 91 Other covenant adjustments (12) (17) EBITDA 319 452 JV and associate dividends 37 52 EBITDA + JV and associate dividends 355 504 Net debt
Slide 43: Joint ventures: summary
Joint ventures: summary Babcock underlying JVs Share Country Sector Start End Asset JVs Ascent 50% UK Aviation 2016 2033 • Typically assets and debt • Dividends follow after paying Asset JVs down JV debt AirTanker 15% UK Aviation 2008 2035 • Typically long-term Bernhard Schulte 50% Germany Marine 20
Slide 44: Pensions
Pensions Technical provisions position IAS 19 position March 2021: c.£300m deficit (£m) FY21 FY20 March 2020: c.£500m deficit Assets 4,785 4,411 Obligations (5,078) (4,266) Net surplus / (deficit) (293) 145 Why different to IAS 19 Why the actuarial deficit Key assumptions FY21 FY20 position: has dec
Slide 45: 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 Ship through-life management and support delivery for the Royal Navy UK MOD 2014 2021 UK Will be replac
Slide 46: Key contracts: Nuclear
Key contracts: Nuclear Contract Customer Start End Country Notes Nuclear submarine, infrastructure and license site elements of MSDF MSDF UK MOD 2014 2021 UK Will be replaced by the Future Maritime Support Programme (FMSP) Programme management and design phase activity for the upgrade works to Devon
Slide 47: Key contracts: Land
Key contracts: Land Contract Customer Start End Country Notes Maintenance, repair and overhaul to over 35,000 vehicles of the British Army’s A and B DSG - Defence Support Group UK MOD 2015 2025 UK vehicle fleets. Option for five, one-year extensions Fleet management services for the MOD’s c.15,000 v
Slide 48: Key contracts: Aviation
Key contracts: Aviation Contract Customer Start End Country Notes Helicopter Emergency Medical Services (HEMS) contract with six specially configured AW139 Victoria Air Ambulance Victoria Gov 2016 2026 Australia aircraft Spanish Spanish coastguard search and rescue contract, 14 aircraft, 13 bases. O
Slide 49: 49
49
Babcock International Group — FY2021 Earnings Presentation on 6ix