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Babcock International Group PLC Babcock trusted to deliver TM Annual Report and Accounts 2015 trusted to deliver Babcock International Group PLC Annual Report and Accounts 2015 w Introduction and contents Babcock is the UK’s leading engineering support services organisation. Operating in the UK and overseas, we are trusted to deliver complex and critical support to the defence, energy, emergency services, transport and education sectors. We pride ourselves on our long-term customer focused relationships and ultra-reliable engineering excellence. www.babcockinternational.com Strategic report Governance Group financial statements Overview Board Directors and Company Secretary 70 Independent auditors’ report to the members At a glance – our divisions 2 Governance statement 72 of Babcock International Group PLC 126 Chairman’s statement 4 Report of the Nominations Committee 80 Group income statement 133 Report of the Audit and Risk Committee 82 Group statement of Business model and strategy Remuneration report 86 comprehensive income 134 Our business model and strategy 6 Directors’ report 119 Group statement of changes in equity 134 Chief Executive’s review 8 Directors’ responsibility statement 124 Group balance sheet 135 Strategy 11 Group cash flow statement 136 Performance Notes to the Group financial statements 137 (Strategy in action and operating reviews) Company financial statements Marine and Technology 12 Independent auditors’ report to the members Defence and Security 18 of Babcock International Group PLC 183 Support Services 24 Company balance sheet 185 International 30 Notes to the Company financial statements 186 Key performance indicators 38 Financial review 40 Other information Sustainability 48 Shareholder information 191 Principal risks and management controls 60 Five-year financial record 192 Forward-looking statements Certain statements in this Annual Report and Accounts are forward-looking statements. Such statements may relate to Babcock’s business, strategy and plans. Statements that are not historical facts, including statements about Babcock’s or its management’s beliefs and expectations, are forward-looking statements. Words such as ‘believe’, ‘anticipate’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of doing so. By their nature, forward-looking statements involve a number of risks, uncertainties or assumptions, some known and some unknown, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements, many of which are beyond Babcock’s control. Please see pages 60 to 69 which set out some of these risks and uncertainties. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this Annual Report and Accounts regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Nor are they indicative of future performance and Babcock’s actual results of operations and financial condition and the development of the industry and markets in which Babcock operates may differ materially from those made in or suggested by the forward-looking statements. You should not place undue reliance on forward-looking statements because such statements relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements reflect Babcock’s judgement at the time of preparation of this Annual Report and Accounts and are not intended to give any assurance as to future results. Except as required by law, Babcock is under no obligation to update (and will not) or keep current the forward-looking statements contained herein or to correct any inaccuracies which may become apparent in such forward-looking statements. Strategic report 1 Financial highlights Statutory results Total revenue* Operating proﬁt* Group revenue £4,503.3m +27% £518.7m +37% £3,996.6m +20% 5,000 600 2014: £3,321.0m 500 4,000 518.7 Operating profit 4,503.3 400 3,000 £352.3m +51% 3,547.6 377.9 2014: £233.1m 3,243.5 3,070.4 300 345.6 302.6 Profit before tax 2,000 2,703.2 £313.1m +43% 200 258.4 1,000 2014: £218.8m 100 Basic earnings per share 0 11 12 13 14 15 0 11 12 13 14 15 52.9p +19% * * 2014: 44.3p Proﬁt before tax Basic earnings per share £417.7m +32% 68.5p +10% 500 80 400 68.5 417.7 60 62.1 300 54.9 316.1 40 47.2 275.0 39.5 200 235.1 181.9 20 100 0 11 12 13 14 15 0 11 12 13 14 15 * Underlying results Full year dividend Throughout the overview and strategic report, unless otherwise stated, revenue, operating 23.6p + 10% profit, operating return on revenue, net 30 finance costs, profit before tax and earnings per share refer to results before amortisation of acquired intangibles and exceptional items 25 and include the Group’s share of joint ventures (jv) and include investment income arising 23.6 20 from IFRIC 12 (Accounting for Service 21.4 Concession Arrangements). 19.0 15 Collectively these adjustments are made 16.4 to derive the underlying operating results of the business. A reconciliation of statutory to 14.0 underlying results is set out on page 40. 10 The underlying figures provide a consistent measure of business performance year-to-year 5 thereby enabling comparison and understanding of Group financial performance. 0 11 12 13 14 15 2 Babcock International Group PLC | Annual Report and Accounts 2015 At a glance – our divisions Group Marine and Technology Description Marine and Technology is the UK’s leading maritime support business and the largest provider of engineering support services to the Royal Navy. With its broad range of engineering and technical skills, the division delivers a wide array of through-life engineering services to defence, commercial marine and energy markets in the UK and internationally. Principal Naval Marine activities Submarine through-life support, refit l revenu by geogr ta e ( er ap and refuelling, warship maintenance To %) h m 5 6 y and refit, Queen Elizabeth class 4 to 4 (% s 3 u ) aircraft carrier assembly and naval 1 C base management. 2 Energy and Marine Services Engineering support to the oil and 3 gas, offshore renewables, specialised 1 manufacturing and commercial 2 marine markets. Technology Providing specialised systems and 1. Marine and Technology 35% 1. UK 76% technical services to improve capability 2. Defence and Security 18% 2. Europe 9% in the UK and international defence 3. Support Services 29% 3. Africa 6% and commercial sectors. 4. International 18% 4. North America 3% International 5. Australasia 2% Through-life support of Victoria 6. Rest of the World 4% class submarines in Canada and ANZAC class frigates in Australia. Surface ship maintenance, repair and overhaul alongside dockyard management in New Zealand. rivate by ca c/p spl er teg li it om o ub (% st 4 ry P 3 ) u ( C % 3 ) 2 Key Royal Navy, Australian government, customers New Zealand government, Canadian 1 include government, DE&S, BAE Systems, Rolls Royce, Navantia, Daewoo Shipbuilding and Marine Engineering, 1 2 Hyundai Heavy Industries, BP and Shell 1. Public 80% 1. UK Defence 44% 2. Regulated 1% 2. UK Civil 33% Divisional Archie Bethel CBE 3. Private 19% 3. International Civil 19% Chief Executive 4. International Defence 4% Employees 10,841 See p12 for the Operating review Strategic report 3 Defence and Security Support Services International Defence and Security is a major support Support Services has leading positions The Mission Critical Services business provider to the UK’s armed forces, across several civil markets. The division is a leading provider of helicopter and delivering leading-edge integrated has three core capabilities; it manages fixed-wing emergency services and crew technical training and complex asset critical assets, delivers complex change services for oil and gas operators management. The division trains programmes and teaches vital skills in Europe and Australia. c 50,000 service personnel annually for civil governments and blue-chip In South Africa, Babcock is a leading and provides management and support commercial organisations. The division supplier of engineering support to c 35,000 military vehicles including is the UK’s largest employer of nuclear services to the energy, mining and armoured fleets, white fleet and qualified engineers and leading supplier construction industries. construction fleets. of apprentice training. Air Managing critical assets Europe and Australia Operational airbase support, military Support to assets, including vehicle Emergency medical services (air flying training and engineering support fleets for the emergency services and ambulances), search and rescue (SAR), for elementary, basic and fast jet training the mining and construction industries, firefighting, civil protection to mostly aircraft. In-barracks equipment support baggage handling systems, broadcast national and regional governments, for frontline aircraft including Sea King, support and estate management. surveillance, oil and gas (crew change, Lynx and Apache. SAR), maintenance, repair and overhaul Delivering complex programmes and design and completion. Land Nuclear site licence operations and Secure access to assured onshore decommissioning, major rail track Africa capacity and capability for through-life renewal and the upgrade of high-voltage Sole distributor of Volvo and DAF maintenance, repair, overhaul and overhead power lines and equipment for infrastructure, mining upgrade support services for defence communications infrastructure. and transport-truck sectors. equipment. Asset management for Teaching vital skills Construction, erection and maintenance the MoD’s armoured fleet, white fleet Management and delivery of apprentice of high voltage electrical infrastructure. and construction fleets. Army technical training for Network Rail and training and mechanical trade training. Engineering support for power stations delivery for Volkswagen Group and the and steam generation plants.

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