Babcock International Group PLC : - Interim Management Statement
01/31/2012 | 02:36am
31 January
2012
Babcock International Group PLC
Interim Management Statement
Babcock International Group PLC (Babcock or the Group),
the UK's leading engineering support services company,
issues the following Interim Management Statement for the
period from 1 October 2011.
Overview
Trading conditions for the Group remain positive and
our performance remains consistent with our expectations at
the time of our half year results announced on 8 November
2011.
Within our markets, customers continue to experience
financial and budgetary constraints and this economic
environment is creating opportunities for our distinctive
engineering based, long-term support model. Across the
Group we are tracking a significant number of new outsourcing
programmes and discussions are ongoing with our major
customers about their plans for future outsourcing
opportunities.
Our order book and bid pipeline have remained stable at
around £12 billion and £10 billion, respectively, since last
reported in November. Since our half year results
announcement in November, the Group has been successful in
both achieving extensions to existing contractual
arrangements and securing preferred bidder status on a number
of new long-term contracts with combined expected total
revenue of around £2 billion. These will move from the
pipeline into the order book as they become operational over
the next few months.
The Board therefore remains confident of delivering
good progress this year, in line with our expectations, and
looks forward to building on this further in
2012/13.
Financial review
Cash generation across the business remains strong and,
as previously indicated, net debt at 31 March 2012 should
represent less than 2 times EBITDA.
As reported in November, synergy benefits arising from
the combination with VT Group plc are being realised in line
with plan.
Operating review
The Marine and Technologydivision
continues to perform well across all business streams and
margins have remained robust as further cost savings are
delivered to customers. HMS Vigilant is expected to
conclude her long overhaul period (refuel), on schedule,
before the end of the financial year and there has been no
change to the programme of warship refit work being
undertaken at our dockyards in Devonport and Rosyth. As
planned, work also continues to increase at Rosyth on the
assembly programme for the Queen Elizabeth class aircraft
carriers which remains ahead of schedule.
Overseas, we are making good progress in our operations
in Canada and Australia and continue to pursue opportunities
to expand our involvement in existing and new defence
programmes. We are also exploring longer-term
opportunities to take our proven naval support capabilities
into new markets.
In Defence and Security, training
operations for the Army, Navy and Air Force are all
performing well. As the MoD considers options for its
future tri-service training requirements, the contract to
train the Royal Electrical and Mechanical Engineers at Bordon
and Arborfield has been extended until 2014.
Equipment support and fleet management contracts
continue to perform in line with our expectations. We
expect decisions on future packages of work under Project
Phoenix - White Fleet Management - before the end of the
financial year.
We are very encouraged by a range of activities being
undertaken by the MoD which we anticipate will lead to
tracking opportunities being moved into the division's
bid pipeline during the 2012/13 financial year.
Since the half year results in November 2011, the
Support Servicesdivision has secured preferred
bidder status on a number of new contracts as well as
extensions to existing contracts with total combined expected
contract revenues of around £2 billion.
The Nuclear business continues to make good
progress. The Babcock Dounreay Partnership (a joint
venture between Babcock, 50%, CH2M HILL and URS) has been
selected as preferred bidder for the decommissioning of the
Dounreay site. At Sellafield, current contracts are
performing well and Babcock has been named as preferred
bidder and prime contractor for three of the eight Design
Services Alliance (DSA) packages. Under the contracts
Babcock will provide all initial design works for
decommissioning related projects at the site.
Sellafield Ltd anticipates the eight DSA packages in total
will be worth up to £1.5 billion over a 15 year
period.
The Education and Training business has made good
progress in the period successfully securing preferred bidder
status on new contracts to provide training to the London
Fire Brigade and to provide education and inclusion support
and improvement services for Devon County Council in schools
across the county. We were unsuccessful in our bid to
provide apprentice training at Sellafield where the in-house
solution was retained.
We are very pleased that the BBC World Service
contract to provide transmission and distribution support has
been successfully tendered and extended for a further 10
years and the contract to maintain and upgrade overhead power
lines for National Grid has also been extended for a further
five years.
The Infrastructure business has experienced strong
performance on both of the current Regional Prime contracts
which run through to 2014/15 when the Next Generation Estates
contracts are expected to become operational. The
Defence Infrastructure Organisation continues to progress its
competitive processes for the Scotland and Northern Ireland
Prime, the Housing Estate Prime and the National Training
Estate Prime with award of these contracts now expected in
2013.
We announced in September that we had signed the first
10 year contract with Lafarge for the management and
maintenance of their heavy mobile equipment (HME) within its
UK Aggregates and Cement businesses. Following the
successful implementation in the UK, negotiations with
Lafarge continue and we have now taken on management of their
HME in Canada and the USA. This contract is expected to
be worth an additional £100 million over a 10 year period.
Work has now commenced on the next
phase.
Elsewhere in the division current contracts are
performing in line with our expectations and synergy benefits
continue to flow through into the businesses as
targeted.
Within the Internationaldivision, the
South African operations continue to perform well with demand
for equipment in the mining sector remaining robust. Support
for Eskom in its power stations has seen some slippage as
outages are deferred but contract awards for power line
construction and refurbishment have been
buoyant.
In the US, our defence support operations are
experiencing some delays in the award of task orders under
IDIQ (indefinite duration indefinite quantity)
contracts. We continue to explore options for the US
defence operations and will update on progress when
appropriate.
Outlook
As stated at the time of our half year results, we
believe the key markets in which the Group operates remain
attractive and that the current economic climate will
continue to create significant medium and long-term growth
opportunities, both in the UK and overseas.
In this environment we believe we are well placed to
benefit from the scale of our operations, the breadth of our
experience and our track record of delivering operational and
financial efficiencies.
The Group continues to benefit from excellent
visibility through its long-term contracts, strong order book
and bid pipeline. The Board therefore remains confident
of delivering good progress this year, in line with our
expectations, and looks forward to building on this further
in 2012/13.
Enquiries
Babcock International Group
PLC 020
7355 5300
Peter Rogers
Bill Tame
Terri Wright
FTI
Consulting 020
7269 7291
Andrew
Lorenz 07775
641 807
Nick Hasell
A conference call for analysts and investors will be
held at 8.00 am this morning. For dial in details
please contact FTI Consulting on 020 7269 7291. An
audio-cast and replay details of the call will be available
at www.babcock.co.uk
