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Babcock International Group PLC Profit growth and strong cash generation

Babcock International Group PLC (LON:BAB), today announced full year results for the year ended 31 March 2019.

Financial highlights
· Underlying revenue of £5.2 billion, in line with guidance given in February 2019. Exits and disposals and lower activity in the short cycle parts of our business impacted revenue while performance across long term contracts remained strong. Organic underlying revenue growth at constant rates was -1.9% (-1.0% excluding exits)

· Underlying operating profit up 0.7% to £588 million

· Margin expansion reflects increased JV contribution, good contract performance and the exit of low margin businesses

· Statutory revenue down 4.0% with statutory operating profit of £197 million impacted by £161 million of exceptional costs:
£41 million of operating profit exceptional costs recognised in the second half, mostly related to pensions as flagged in February 2019

· Underlying basic EPS up 1.2% to 84.0p

· Cash performance: underlying operating cash flow of £618m, with net capex of £149 million and cash conversion post capex of 104%. Free cash flow (including pension payments) was £324 million, £74 million higher year on year

· De-gearing: net debt £958 million, down £157 million year-on-year and represents 1.4x EBITDA, in line with our guidance

· Full year dividend: up 1.7% to 30.0p, reflecting our confidence in the prospects of the Group and sustained cash generation

Operational highlights
· Combined order book and pipeline stable at £31 billion

· Continued partnerships working with our customers to drive operational excellence

· Significant UK contract wins in the year: integration of new training technology across naval bases and air stations (MARTASS), Naval Design Partnership, commenced continuous production of submarine missile launch tube assemblies, DSG vehicle transformation additional scope, Dounreay Materials Test Reactor dismantling, new ten year Rail contracts

· Building strong positions in key long term projects: Dreadnought/Columbia Class nuclear submarine programmes, Hinkley Point C new build

· Continue to grow international businesses (now 30% of group revenue): large Marine win in Australia, aerial firefighting in Canada, mobilising aerial medical emergency services in Sweden and Norway

· Taking action: reshaped Oil and Gas business, restructured ahead of the end of Magnox contract, continued to exit non-strategic businesses

Outlook for the year ending 31 March 2020
· As previously highlighted, the year ending 31 March 2020 will be affected by a number of step downs (detailed on page 6). In total, these step downs will reduce revenue by £410 million and reduce operating profit by £63 million

· The Group’s guidance reflects these step downs and the current market conditions, including the weakness in short cycle contracts experienced this financial year

· We expect underlying revenue to be around £4.9 billion

· We expect to maintain our underlying margin (incl. JVs) at between 10.7% and 11.0%

· Underlying operating profit is expected to be in the range of £515 million to £535 million

· Free cash flow (post pension payments) is expected to be over £250 million and we expect to continue to reduce net debt

· As with previous years, performance for the group will be weighted to the second half, especially for cash generation

Upcoming investor events
· We will hold a Capital Markets Day in London on 5 June 2019. This will set out the details of the Group’s strategy, including the long term growth opportunities available to Babcock from our leadership positions in our three focus markets of defence, aerial emergency services and civil nuclear. We will discuss our strategy in detail, including milestones and medium term financial targets, to deliver for our shareholders. The day will include presentations from our senior executive team

· Our Annual General Meeting will be held on 18 July 2019 and our next trading update will be issued in September 2019

Babcock International Group Chief Executive Archie Bethel said:

“We have delivered a robust performance this year, operating profit is in line with our expectations, we have sustained our strong margins and we have improved our cash generation.

More importantly for the delivery of our strategic goals and our future performance, we have sharpened our focus on our three key markets of defence, aerial emergency services and civil nuclear. We have strengthened our position in these areas with some important contract wins that partially offset the upcoming completion of the QEC contract and the loss of the Magnox contract and we have delivered further growth in our international businesses. In addition, we have exited low margin businesses outside of the three focus markets, which do not have synergy with the rest of the Group, and we have reshaped our oil and gas business.

Net debt reduction in the year enhances our balance sheet strength and we have again increased the dividend.

As we begin the new financial year we do not expect the wider market environment to be any less challenging than we have experienced this past year. However, Babcock’s strength continues to be our focus, our position as a trusted partner in critical, complex areas of national importance, in both the UK and internationally, and our knowledge and expertise. The guidance we have issued today for the 2019/20 financial year reflects the market environment we face and the strengths we deploy in these markets.

As in 2018/19, in the coming year we will continue to build a stronger business platform for the future and I want to thank my colleagues across Babcock for their hard work this year and their commitment to the Group in the coming year”.