com:20090930:Rnsd9104Z

RNS Number : 9104Z
Babcock International Group PLC
30 September 2009
 


30 September 2009                                   




		Babcock International Group PLC

		Pre-close Trading Statement




Babcock International Group PLC (Babcock), the engineering support
services company, makes the following statement on trading for the
first half of the 2009/10 financial year, prior to entering its close
period. Babcock will announce half year results on 10 November 2009.




Overview 

For the Group as a whole, trading throughout the first half has 
remained consistent with our expectations at the time of our 
preliminary results announcement on 12 May. Revenue growth in the 
Marine and Defence divisions has been strong; as anticipated, revenues 
were lower in Rail and in the Equipment business in South Africa, 
although elsewhere market conditions have generally remained resilient 
and margins strong.  




Our business is based on long-term contracts and framework agreements 
where we work in partnership with our customers to deliver cost 
efficient solutions. We believe the strength of our business model and 
our track record of delivery place us in a strong position from which 
to benefit as public spending becomes increasingly constrained.  




Divisional Review 

Marine has had a very successful start to the year, with strong 
performances from all business streams within the division.  We are 
increasingly involved in the full life cycle of projects from concept 
through to in-service support and disposal.  





The Terms of Business Agreement (ToBA) with the Ministry of Defence 
(MoD) is progressing and we hope this will be concluded by the end of 
this calendar year. In the meantime, we continue to work with the MoD 
under the key principles agreed in 2007 and the long-term partnering 
structures we already have in place with them ensure significant 
efficiency savings for the Royal Navy and gain-share benefits for 
Babcock. 



Performance remains strong in the UK submarine and surface ship 
businesses with the outlook supported by the high visibility of the 
forward refit programme. The division continues to benefit from an 
increasing role in the Queen Elizabeth class aircraft carrier project, 
with total project revenue to Babcock currently expected to be in the 
order of £1 billion.  At Rosyth, the first sections of the new 
carriers have arrived and work on other elements is progressing well. 
Work to prepare the docks for assembly of the two carriers is 
complete.

  

The Integrated Technology business is developing its involvement in a 
number of key future naval defence projects in the UK and overseas.  
In Canada, the Victoria In-Service Support Contract is performing 
well, and we are moving towards the first submarine's extended docking 
work period. In Australia, where the government is expected to spend 
£65 billion replacing and upgrading its military assets in the next 
10-15 years, we continue to develop Tier 1 relationships with the 
customer building on the strength of our expertise.  




In the Defence division, key contracts continue to perform well. Both 
Regional Prime contracts have achieved all key targets and 
requirements for additional work are still being received.  Delivery 
at the RSME continues to be on track and feedback from the customer 
remains positive as they achieve their aim of releasing trained 
personnel for operational duties.  




In the Rail division, restructuring has been ongoing throughout the 
first half following the reduction in track renewals volumes announced 
by Network Rail in March. This process is nearing completion and 
divisional performance is expected to be close to break even in the 
first half. 



Network Rail has today announced that Babcock's SB Rail joint venture 
with Swietelsky Baugesellschaft m.b.H has been unsuccessful in its bid 
for the renewal of the five-year contract to deliver High Output Track 
Renewal operations.  Over the next three months the Rail division will 
withdraw from the High Output track renewals market. This is expected 
to impact the division's reported operating profit in the current 
financial year by around £1.5 million and £2.0 million in the 2010/11 
financial year, inclusive of restructuring costs, (revenue £10 million 
and £35 million respectively). We are reviewing options for the 
division. 




Within the Nuclear division, revenue from generation support contracts 
and projects continues as expected.  Although delays in spending by 
the NDA have caused a temporary hiatus in contract awards in the 
decommissioning market, margins within the division remain strong. New 
technologies for waste encapsulation developed by Babcock are being 
trialled at Sellafield and offer excellent prospects for the future.  




As announced on 18 September, Babcock has agreed to acquire UKAEA 
Limited (UKAEA) from the United Kingdom Atomic Energy Authority for a 
net cash consideration of £38 million. This acquisition represents a 
significant extension to Babcock's existing nuclear skills and 
provides a Tier 1 position in the civil nuclear market to complement 
our existing Tier 1 position in the military nuclear market.  




Benefiting from the excellent reputation of BNS Nuclear Services, 
strengthened by the acquisition of UKAEA and the significant 
additional nuclear resource and expertise within our Marine division, 
we remain confident about the long term opportunities for the 
division.




In Networks both the National Grid and EDF Energy network alliance 
frameworks have continued to deliver a steady flow of work at similar 
levels to last year.  The requirement for significant investment in 
the national electricity grid to enable it to cope with increasing 
output from renewable energy sources as well as new nuclear power 
stations underpins our confidence in the prospects for the division. 




In South Africa the economic downturn continues to affect the 
Engineering and Plant division.  Power engineering remains stable, 
with the imperative of fulfilling the continuing demand for power 
driving both generation and transmission infrastructure support. The 
equipment business has seen little improvement in the level of new 
orders, which continue to be some 50% below the level seen this time 
last year, although after-market sales have increased substantially. 
The Engineering and Plant division's results for the first half are 
therefore expected to be slightly below the comparable period in 
2007/08.




Financial Review 

Cash generation has remained strong during the first half and as a 
result net debt has been reduced from the 31 March position. 
Completion of the acquisition of UKAEA will occur in the second half 
with the payment of the consideration from existing debt facilities. 




The active management of risk across the Group's pension schemes 
remains a key priority.  During the first half we have completed 
transactions for the Devonport Royal Dockyard defined benefit scheme 
and (this month) for the Rosyth scheme, to cap their exposure to 
increasing life expectancy on their pensioner liabilities.  A further 
transaction for the Babcock Group scheme is expected to complete 
shortly. We are now assessing options for reducing risk on the 
remaining liabilities. 




Outlook 

We remain confident that the Group will again deliver excellent 
progress this year.  

The strength of our business model and our track record of delivering 
cost efficiencies for our customers place us in a strong position from 
which to benefit in the current economic climate.  We have excellent 
long-term visibility and security of revenues across the business 
through the strength of the order book and bid pipeline. 

 

Enquiries


Babcock International Group PLC 

Peter Rogers - Group Chief Executive		 020 7291 5000
Bill Tame - Group Finance Director
Terri Wright - Head of Investor Relations
 


FD
 
Andrew Lorenz					 020 7269 7291
Richard Mountain 
 

 

A seminar for analysts and investors will be held from 8.30 am this 
morning, for details please contact Financial Dynamics on 020 7269 
7291.  




The presentations will be available by audio cast later today on 
www.babcock.co.uk   


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