Babcock International Group PLC · LSE:BAB
Babcock International — FY2019 Earnings Presentation
49 slides from Babcock International's earnings presentation, May 22, 2019
Slide 1: Full year results for the year ended 31 March 2019
Full year results for the year ended 31 March 2019 22 May 2019
Slide 2: Disclaimer
Disclaimer • This document has been prepared by Babcock International Group PLC Presentation regarding past trends or activities should not be taken as a (the “Company”) solely for use at a presentation in connection with the representation that such trends or activities will continue in the future.
Slide 3: Key messages
Key messages Strong Strengthening Robust cash platform for performance generation the future 3
Slide 4: Operational highlights across sectors
Operational highlights across sectors Marine Land Aviation Nuclear • QEC programme near • DSG transformation • French pilot training now • Magnox on course for completion operational return to BEIS • Army defence training • Surface warship • Renewed SASEMAR • Hinkley Point C sustainment • Rail CP6&7
Slide 5: Combined order book and pipeline of £31 billion
Combined order book and pipeline of £31 billion Defence Aerial Emergency Services Nuclear Adjacent markets 10% 17% 10% Order Book Pipeline 9% £17bn 13% £14bn 8% 67% 66% • £4.5bn order intake in period, £1.0bn of which not • c.£1bn increase since March 2018 through pipeline • Key additions in the yea
Slide 6: Operational excellence
Operational excellence • Health and safety remains our top priority and we can always do better • Enhancing infrastructure, processes and systems through capital investment, increasing use of technology, developing our people’s skills • Delivering improved productivity in close partnership with our
Slide 7: Significant UK contracts secured in the year
Pictures to be added Significant UK contracts secured in the year • Maritime Training Systems Through-Life Availability and Support Service • Lead partner in UK Naval Design Partnership • Expansion of US-UK Common Missile Compartment manufacturing programme • Contract scope expansions in Defence Sup
Slide 8: Continue to grow international businesses
Continue to grow international businesses UK International • International now 30% of Group revenue • Focus on key markets: – Australia and New Zealand Order Book Pipeline – Canada – South Africa 20% 42% – France, Spain, Portugal, Italy, Scandinavia £17bn £14bn • Expanding presence in South Korea an
Slide 9: Taking actions to strengthen Babcock
Taking actions to strengthen Babcock Reshaped Oil & Gas business Rightsized areas of the business Exited non-strategic businesses 9
Slide 10: Financial review
Financial review Franco Martinelli Group Finance Director
Slide 11: Profit growth and strong cash generation
Profit growth and strong cash generation Operating cash Revenue £5,161m £161m exceptional conversion2 104% Underlying basic EPS down 1.9%1 charges to operating profit up 1.2% FCF3 increasing to £324m Operating profit £588m Net cash costs Full year dividend up 1.3%1 c.£26m up 1.7% Net debt of £958m,
Slide 12: Revenue performance impacted by FX, exits and QEC
Revenue performance impacted by FX, exits and QEC (£m) 5,363 - 38 • Reported revenue growth -3.8% • Organic revenue growth -1.9%1 - 60 • -1.0%1 adjusting for exits - 51 • Organic growth across focus markets excluding QEC and 5,214 - 53 procurement around 3% • Weakness in procurement and + £60m 5,161
Slide 13: Strong margin led to operating profit growth
Strong margin led to operating profit growth (£m) £591 £590 £590 • Exits and disposals mainly low £589 £589 £588 £588 £587 £587 £586 margin £586 £585 £585 £584 +7 £584 £583 • £583 £582 £582 £581 £581 £580 £580 588 Revenue drop in low margin £579 -3 £579 £578 £578 £577 £577 -1 businesses and procurem
Slide 14: Underlying results
Underlying results • Exits from low margin FY19 (£m) FY18 (£m) Change Organic growth1 businesses and JV performance contributed to increased margin Total revenue 5,161 5,363 -3.8% -1.9% • Margin excluding JVs sustained Operating profit 588 585 0.7% 1.3% at 10.1% Operating margin 11.4% 10.9% • Full y
Slide 15: Underlying operating profit reconciliation
Underlying operating profit reconciliation • Exceptional items of £161m FY19 (£m) FY18 (£m) Movement • Share of JV profit is 23% of Underlying operating profit 588 585 3 underlying profit (FY18: 20%) – reducing going forwards Exceptional items (161) - (161) • Increased JV contribution led by Joint v
Slide 16: Exceptional charges
Exceptional charges H1 H2 FY19 P&L costs P&L costs P&L cost Taking strategic actions (£m) (£m) (£m) • £120m charges in H1, mostly reshaping oil and gas Oil and gas 80 1 81 business Capacity reduction and • £10m charges in H2 – timing of actions 40 3 43 restructuring Pension Exits 15 6 21 • £31m adju
Slide 17: Marine: growth maintained excl. QEC
Marine: growth maintained excl. QEC • QEC revenue step down c.£60m in FY19 Organic FY19 (£m) FY18 (£m) Change • Increased activity on UK naval ships growth1 • Infrastructure spend initially delayed, Revenue 1,707 1,789 -4.6% -4.5% now starting • Equipment spend slow to start, now Continuing revenue
Slide 18: Land: growth impacted by exits and disposals
Land: growth impacted by exits and disposals • Revenue impacted by exits, disposals Organic FY19 (£m) FY18 (£m) Change and FX growth1 • Lower defence procurement activity Revenue 1,620 1,849 -12.4% -7.6% • Weak trading in SA power business • Lower activity in Rail and UK Power Continuing revenue 1,5
Slide 19: Aviation: margins maintained in a year of growth
Aviation: margins maintained in a year of growth • Revenue growth in Fomedec partially Organic FY19 (£m) FY18 (£m) Change offset by lower firefighting activity, growth1 especially in H2 Revenue 1,136 1,022 11.1% 11.9% • Oil & Gas remains challenging • Margins maintained ahead of Operating profit 161
Slide 20: Nuclear: stable year on year
Nuclear: stable year on year • Lower levels of decommissioning work Organic FY19 (£m) FY18 (£m) Change as expected growth1 • Good growth across nuclear services Revenue 698 703 -0.6% -0.6% • Previous financial year benefitted from gainshare at end of contracts Operating profit 64 69 -6.7% -6.7% • Ne
Slide 21: Maintaining strong operating cash flow conversion
Maintaining strong operating cash flow conversion FY19 (£m) FY18 (£m) Underlying operating profit excluding JVs1 452 469 • Cash conversion of 104% post-capex, Amortisation and depreciation 109 104 ahead of target and a record level Other non-cash items (1) 4 • Led by strong working capital performan
Slide 22: Working capital detail: receivables and payables
Working capital detail: receivables and payables Receivables: Payables: FY19 (£m) FY18 (£m) Change (£m) FY19 (£m) FY18 (£m) Change (£m) Trade receivables 250 278 (28) Trade creditors 511 545 (34) Unbilled Contract balances2 421 413 8 462 581 (119) receivables1 • Trade receivables down £28m • Trade c
Slide 23: Higher free cash flow and net cash generation
Higher free cash flow and net cash generation FY19 FY18 • Strong free cash flow performance (£m) (£m) Operating cash flow after capex 469 382 • Net cash generation of £158m Net interest paid (47) (54) • FCF/net income 76% with gap Taxation (87) (74) mainly JV cash gap and pension Dividends from JVs
Slide 24: Continuing to de-gear
Continuing to de-gear Net debt/EBITDA Net debt • Net debt1: £958m – down £157m year on year £1,326m £1,229m £1,174m • Net debt to EBITDA2 ratio 1.4x £1,115m (FY18: 1.6x) £958m 2.2x • Covenant basis3: 1.8x to 1.6x 2.0x 1.8x • Expect to continue to reduce net 1.6x debt in FY20, excluding IFRS 16 1.4x
Slide 25: IFRS 16: summary
IFRS 16: summary Overview: • Effective for FY20 • Operating leases capitalised on the balance sheet • Future lease payments recognised as lease liability • Corresponding right-of-use asset depreciated on straight line basis over lease term • Operating lease charge replaced by depreciation on asset a
Slide 26: IFRS 16: impacts
IFRS 16: impacts On 1 April 2019: • £606m operating leases recognised as lease liability • £559m recognised as corresponding right-of-use asset • 78% of lease liability relates to aircraft in Aviation sector Estimated impact to FY20 results: • Operating profit up c.£25m • Interest up c.£25m • Minima
Slide 27: Pensions: IAS 19
Pensions: IAS 19 (£m) FY19 FY18 Assets 4,582 4,735 • IAS 19 deficit £28m (2018: £5m) Obligations (4,610) (4,740) • Technical provisions (funding basis) Net deficit (28) (5) estimate at year end c.£400m • IAS 19 to technical provisions gap due to prudency of assumptions and discount Underlying income
Slide 28: Joint ventures: significant cash dividend stream
Joint ventures: significant cash dividend stream JV performance JV net debt FY19 FY18 All £m Cash Loans Net debt Babcock share All £m Total Asset Operational Total Asset Operational Total underlying 114 68 46 AirTanker 390 (2,290) (1,900) (248) 135 89 46 profit 74 37 37 Ascent 54 (168) (114) (57) Pr
Slide 29: Capital allocation priorities
Capital allocation priorities Invest in the Drive growth • Disciplined investment criteria to support ROIC business • Bolt-on M&A if meets hurdles • Well-positioned for any environment De-gear balance Flexibility • Safeguard credit rating sheet • Additional funding for pension schemes Return capital
Slide 30: FY20 guidance: rebasing FY19
FY20 guidance: rebasing FY19 Revenue (£m) Operating profit (£m) Margin FY19 5,161 588 11.4% Step downs (410) (63) Rebased FY19 4,751 525 11.0% Step downs increased slightly from February update: • Revenue: Magnox and QEC trading • Operating profit: actual trading Magnox (£4m), Holdfast (£2m), furthe
Slide 31: FY20 guidance
FY20 guidance Revenue: expected to be around £4.9bn Margin: expect to maintain between 10.7% to 11.0% Operating profit: expected to be in the range £515m to £535m Free cash flow: expected to be over £250m Performance weighted to H2, especially for cash generation 31
Slide 32: FY20 guidance: cash flow detail
FY20 guidance: cash flow detail • Net capex/depreciation to decrease FY19 FY20 to c.1.0x Net capex/depreciation 1.4x • Working capital: Working capital inflow excl. – Normalised outflow 37 FOMEDEC (£m) – Reversal of FY19 over Provisions (£m) (29) performance JV dividends (£m) 45 • Non-exceptional pr
Slide 33: Our priorities: drive value for customers and shareholders
Our priorities: drive value for customers and shareholders • Strong FY19 performance Sustain margins • Continuing cost focus • Bidding control • Strong FY19 performance Cash generation • Zero based budgeting for working capital • De-geared in FY19 De-gearing • Further debt reduction in FY20 Customer
Slide 34: Summary
Summary Archie Bethel Chief Executive Office
Slide 35: Summary
Summary Strong Strengthening Robust cash platform for performance generation the future 35
Slide 36: Appendix
Appendix
Slide 37: Revenue growth detail
Revenue growth detail Organic revenue growth1 Reported revenue growth Organic revenue growth1 excl. exits • Marine and Land improvement in H2 H1 H2 FY19 H1 H2 FY19 H1 H2 FY19 Marine -6.6% -2.6% -4.6% -6.2% -2.7% -4.5% -3.5% -2.6% -3.1% • Aviation H1 loaded: Fomedec Land -14.6% -10.1% -12.4% -11.9% -
Slide 38: FY20 guidance: rebasing FY19 detail
FY20 guidance: rebasing FY19 detail Revenue (£m) Operating profit (£m) Margin FY19 5,161 588 11.4% Step downs: End of QEC contract (80) (2) End of Magnox contract (256) (24) Impact of exits and disposals (74) (10) Normalisation of Holdfast profit contribution (17) Brexit-related Aviation restructuri
Slide 39: Underlying segmental analysis
Underlying segmental analysis Revenue (£m) Operating profit (£m) Operating margin FY 19 FY 18 FY 19 FY 18 FY 19 FY 18 Group 1,686.3 1,766.5 217.2 231.3 12.9% 13.1% Marine JV 20.3 22.4 3.3 3.8 16.3% 17.0% Total 1,706.6 1,788.9 220.5 235.1 12.9% 13.1% Group 1,560.0 1,760.4 105.1 108.7 6.7% 6.2% Land J
Slide 40: Statutory to underlying reconciliation
Statutory to underlying reconciliation Joint Ventures and Associates Amortisation of Exceptional Change in All values in £m Statutory Revenue and Finance costs Tax IFRIC 12 income acquired items tax rate Underlying operating profit intangibles 31 Mar 2019 Revenue 4,474.8 685.8 5,160.6 Operating prof
Slide 41: Underlying organic growth
Underlying organic growth Cavendish All values in £m Marine Land Aviation Unallocated Total Nuclear Underlying revenue At 31 March 2018 1,788.9 1,849.1 1,022.1 702.7 5,362.8 Exchange adjustment (2.4) (27.7) (8.0) - (38.1) Disposals - (60.3) - - (60.3) Exits (25.0) (25.5) - - (50.5) Organic growth (5
Slide 42: Exchange rate movements
Exchange rate movements Impact of FX movement on Impact of FX movement on underlying operating Impact of FX movement on profit revenue (£m) profit (£m) before tax (£m) 1% 5% 10% 1% 5% 10% 1% 5% 10% EUR 5.3 26.6 53.2 0.6 3.1 6.2 0.3 1.6 3.2 ZAR 3.3 16.3 32.6 0.2 1.0 2.0 0.2 0.9 1.8 CAD 1.4 6.9 13.7 0
Slide 43: Cash flow reconciliation
Cash flow reconciliation FY19 (£m) FY18 (£m) Underlying cash generated from operations 562.0 447.9 Retirement benefit contributions in excess of income statement 55.8 47.3 Underlying operating cash flow 617.8 495.2 43
Slide 44: Provisions
Provisions • Full year net release £4.0m2 Charge/(release) as % of underlying profit1 8.0% • Average of last nine years: – 0.6%2 cumulative net charge as a % of 6.0% underlying profit 4.0% – 5%2 cash utilisation of underlying operating profit 2.0% • Full year: £29m2 cash outflow – Utilised: contract
Slide 45: Net capital expenditure
Net capital expenditure FY19 (£m) FY18 (£m) Purchases of property, plant and equipment 194.3 150.4 Purchases of intangible assets 32.7 32.3 Proceeds on disposal of property, plant and equipment (78.5) (70.0) Capital expenditure (net) 148.5 112.7 45
Slide 46: Net income to FCF
Net income to FCF FY19 (£m) FY18 (£m) Statutory net income 199 336 • Free cash / underlying net Adjustments1 225 83 income 76% vs. 60% in Underlying net income 424 419 FY18 Capex > depreciation (40) (8) Pension > P&L (56) (47) • Pensions and JV dividend JV dividend gap (45) (31) gap largely offset b
Slide 47: Joint ventures
Joint ventures Babcock underlying JVs Share Country Sector Start End Holdfast (RSME) 74% UK Land 2008 2038 Asset JVs ALC 50% UK Land 2005 2021 • Typically assets and debt Asset JVs Ascent 50% UK Aviation 2016 2033 • Dividends follow after paying down JV debt Helidax 50% UK Aviation 2008 2029 • Typic
Slide 48: Joint ventures: significant cash dividend stream
Joint ventures: significant cash dividend stream FY19 (£m) FY18 (£m) Total Assets Operational Total Assets Operational Operating Profit 107 61 46 86 40 46 IFRIC 12 28 28 - 28 28 - Total underlying profit 135 89 46 114 68 46 Finance costs (24) (24) - (22) (22) - Profit before tax 111 65 46 92 46 46 T
Slide 49: babcock
babcock
Babcock International Group — FY2019 Earnings Presentation on 6ix