Full year results for the year ended 31 March 2018 23 May 2018
Marine Land Aviation Nuclear Agenda
Introduction Archie Bethel
Financial review Franco Martinelli
Sustaining profitable growth Archie Bethel
Questions
2 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear A year of further progress
Growth Visibility Cash Returns
Underlying Combined order EPS: up 3.6% FCF*: £348m revenue: book and pipeline:
£5.4bn, up 2.8% £31bn Dividend: up 4.8% Cash conversion*:
116% pre capex Underlying PBT: FY19 visibility: post tax 92% post capex £513m, up 3.6% 76% ROIC: 11.9%
*excluding FOMEDEC
3 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Operational Highlights
• Another year of industry-leading Health & Safety performance • First year of operating in realigned sector structure, Technology Group established • International underlying revenues increased to 28% of Group total • Aircraft carriers: HMS Queen Elizabeth delivered to Royal Navy, HMS Prince of Wales named and undocked at Rosyth • Successful delivery of Royal School of Military Engineering benchmarking programme • Military flight training: UK training started at new school at RAF Cranwell; French FOMEDEC contract mobilisation on track
• Preferred bidder for renewal of significant Spanish aerial search and rescue contract (SASEMAR) • Formal agreement reached on Magnox: Sellafield PFCS under budget and ahead of schedule • Completed IFRS 15 review, and confirmed no impact on results following adoption
4 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Engineering in our DNA
127 years of Babcock
Mission Critical Services delivering critical support for the Dounreay emergency services £5,363m Founded in 1891 with our core Decommissioning in heavy engineering, the Now deliver military Acquired Devonport Royal fixed and rotary wing business has gone through a Dockyard training to UK and major transformation to create 15-year Terms of London Fire Brigade - French pilots Business Agreement 25-yr training contract today’s market-leading, (ToBA) with MOD engineering services company. Canadian submarine Maritime Support support contract Delivery Framework delivering through-life support for the MOD until 2020 Maintenance of RAF £1,915m Hawk fast jets Complex fleet management at Heathrow airport £440m
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Management of Began building a leading position Babcock now train all Through-life support contract Magnox and Intl airport fleet DSG HMNB Clyde in specialist nuclear services three armed forces for Australian frigates RSRL management 5 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear What sets us apart
Sector specific technical expertise Unique infrastructure assets
• Over 35,000 skilled colleagues across 5 continents; • Major marine facilities; licensed nuclear sites; naval, air ability to deliver availability; support equipment from range and army bases; critical air and land fleet; operation of of OEMs; through life-support experience; technology customer aircraft integration
Deep customer relationships Long-term contract visibility
• Trusted long-term partner of governments and blue chip • Partnership approach; framework agreements; ability to companies; deeply embedded in our customers’ forecast future revenues; greater than 90% rebid operations; proven record of delivery; unique reference success rate cases
6 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Long term positions in critical markets
Average Defence Increasingly international contract • Through-life critical platform support length • Training provision 47% • Operations in over 25 countries of Group revenue • Technology and equipment • Focus on key markets: Australia, South Africa, > yrs • High visibility of complex programmes Spain, France, Italy, Scandinavia, Canada, Oman 10 • Target: 30% of Group revenue from international Average Emergency Services work by 2022. FY18: 28%, ahead of target contract • High criticality, non-cyclical work length • Growth linked to GDP 12% Order book Pipeline • Fleet management of Group revenue > yrs • Training and infrastructure 8 Average Civil Nuclear contract £18bn £13bn • Complex long-term major projects length • Ongoing decommissioning 13% of Group revenue • Operational, fuel route management
• Training and safety consultancy >8yrs UK International
7 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear FY18 Sector Contribution
Revenue Operating Profit Order book Pipeline
13% 12% 11% 16% 28% 33% 40% 40% 19% 24% 30% £5.4bn £585m £18bn 23% £13bn
35% 24% 31% 21%
Marine Land Aviation Cavendish Nuclear
8 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Financial review Franco Martinelli, Group Finance Director
Marine Land Aviation Nuclear Income statement
Organic growth at constant exchange rates FY18 (£m) FY17 (£m) Change +2.8% revenue - FX effect: £7.7m Total revenue 5,363 5,217 +2.8% +1.6% operating profit - FX effect: £2.4m
Operating profit 585 575 +1.7% Marine strengthened, Aviation declined - mix Operating margin 10.9% 11.0% Contract performance offsets £9m pensions drag
Net finance costs (72) (80) -9.9% Pensions and JV interest better Profit before tax 513 495 +3.6%
Tax 93 87 +6.6%
Effective rate 18.0% 17.5%
Profit after tax 420 408 +2.9%
EPS 83.0 80.1 +3.6% Despite tax rate increase to 18%
Proposed FY dividend 29.5p 28.15p 4.8%
10 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear FY18 revenue bridge £5,399£5,400 £5,394£5,395£5,396£5,397£5,398 £5,390£5,391£5,392£5,393£5,394 £5,386£5,387£5,388£5,389£5,390 £5,382£5,383£5,384£5,385 £5,378£5,379£5,380£5,381 £5,373£5,374£5,375£5,376£5,377 £5,369£5,370£5,371£5,372£5,373 5.3% £5,365£5,366£5,367£5,368£5,369 £5,361£5,362£5,363£5,364 £5,357£5,358£5,359£5,360 £5,352£5,353£5,354£5,355£5,356 £5,348£5,349£5,350£5,351£5,352 £5,344£5,345£5,346£5,347£5,348 £5,340£5,341£5,342£5,343 £5,336£5,337£5,338£5,339 £5,331£5,332£5,333£5,334£5,335 £5,327£5,328£5,329£5,330£5,331 £5,323£5,324£5,325£5,326£5,327 £5,319£5,320£5,321£5,322 £5,315£5,316£5,317£5,318 £5,310£5,311£5,312£5,313£5,314 £5,306£5,307£5,308£5,309£5,310 £5,302£5,303£5,304£5,305£5,306 £5,298£5,299£5,300£5,301 £5,294£5,295£5,296£5,297 £5,289£5,290£5,291£5,292£5,293 £5,285£5,286£5,287£5,288£5,289 £5,281£5,282£5,283£5,284£5,285 £5,277£5,278£5,279£5,280 £5,273£5,274£5,275£5,276 £5,268£5,269£5,270£5,271£5,272 £5,264£5,265£5,266£5,267£5,268 £5,260£5,261£5,262£5,263£5,264 £5,256£5,257£5,258£5,259 £5,252£5,253£5,254£5,255 £5,247£5,248£5,249£5,250£5,251 £5,243£5,244£5,245£5,246£5,247 £5,239£5,240£5,241£5,242£5,243 £5,235£5,236£5,237£5,238 £5,231£5,232£5,233£5,234 £5,226£5,227£5,228£5,229£5,230 -£7m £5,222£5,223£5,224£5,225£5,226 £8m £5,218£5,219£5,220£5,221£5,222 £276m £5,214£5,215£5,216£5,217 £5,210£5,211£5,212£5,213 £5,205£5,206£5,207£5,208£5,209 £5,201£5,202£5,203£5,204£5,205 £5,363m £5,197£5,198£5,199£5,200£5,201 £5,193£5,194£5,195£5,196 £5,189£5,190£5,191£5,192 £5,184£5,185£5,186£5,187£5,188 £5,180£5,181£5,182£5,183£5,184 £5,176£5,177£5,178£5,179£5,180 £5,172£5,173£5,174£5,175 £5,168£5,169£5,170£5,171 £5,163£5,164£5,165£5,166£5,167 £5,159£5,160£5,161£5,162£5,163 £5,155£5,156£5,157£5,158£5,159 £5,151£5,152£5,153£5,154 £5,217m £5,147£5,148£5,149£5,150 -£131m £5,142£5,143£5,144£5,145£5,146 £5,138£5,139£5,140£5,141£5,142 £5,134£5,135£5,136£5,137£5,138 £5,130£5,131£5,132£5,133 £5,223 m £5,126£5,127£5,128£5,129 £5,121£5,122£5,123£5,124£5,125 £5,117£5,118£5,119£5,120£5,121 £5,113£5,114£5,115£5,116£5,117 £5,109£5,110£5,111£5,112 £5,105£5,106£5,107£5,108 £5,100£5,101£5,102£5,103£5,104 £5,096£5,097£5,098£5,099£5,100 £5,092£5,093£5,094£5,095£5,096 £5,088£5,089£5,090£5,091 £5,084£5,085£5,086£5,087 £5,079£5,080£5,081£5,082£5,083 £5,075£5,076£5,077£5,078£5,079 £5,071£5,072£5,073£5,074£5,075 £5,067£5,068£5,069£5,070 £5,063£5,064£5,065£5,066 £5,058£5,059£5,060£5,061£5,062 £5,054£5,055£5,056£5,057£5,058 £5,050£5,051£5,052£5,053£5,054 FY17 FX Disposals QEC Organic ex QEC FY18
11 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Marine
£18 million revenue growth excluding QEC £1 million in operating profit growth UK and international naval: good growth QEC lower margin, improving mix Equipment delays in Technology reversing FY19 Efficiency driving contract performance QEC impact: FY18 £131m, FY19 £90m Margins steady excluding QEC
Marine FY18 (£m) FY17 (£m) Change
Revenue ex QEC 1,626 1,608 +1.1%
QEC revenue 163 294 -44.6%
Revenue 1,789 1,902 -5.9% Operating profit 235 234 +0.5% Operating margin 13.1% 12.3% Growth at constant exchange rates provided in appendix On an underlying basis
12 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Land
£37 million revenue growth £0.4 million in operating profit growth Defence and South Africa performing well RSME uplift £6 million, not repeating next year Rail and apprentice levy drags South Africa buoyant Land revenue flat next year Rail and Apprentice Training weak
FY18 (£m) FY17 (£m) Change
Revenue 1,849 1,812 +2.1%
Operating profit 140 140 +0.3%
Operating margin 7.6% 7.7%
Growth at constant exchange rates provided in appendix On an underlying basis
13 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Aviation
£148 million revenue growth -£2 million in operating profit UK and European defence growing New defence business, contract margin expected to grow Emergency services performing well O&G headwinds
FY18 (£m) FY17 (£m) Change
Revenue 1,022 874 +16.9%
Operating profit 144 146 -0.8%
Operating margin 14.1% 16.6%
Growth at constant exchange rates provided in appendix On an underlying basis 14 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Cavendish Nuclear
£73 million revenue growth £7 million in operating profit growth Project and JVs growing, Magnox stepdown £60m FY19 Gloveboxes contract margin starting low and building Sellafield gloveboxes decommissioning equipment JV margin stable starting this year
FY18 (£m) FY17 (£m) Change
Revenue 703 629 +11.7%
Operating profit 69 61 +12.1%
Operating margin 9.8% 9.8%
Growth at constant exchange rates provided in appendix On an underlying basis
15 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Operating cash flow
Cash flow FY18 (£m) FY17 (£m) Operating profit 469 472 Amortisation and depreciation 104 92 Other non-cash items 4 14 Working capital (excluding retirement benefits)* (54) (8) Provisions (28) (28) Operating cash flow 495 542 Cash conversion before capex, including / excluding FOMEDEC 106/116% 115% Net capital expenditure (capex) (113) (135) Operating cash flow after capex 382 407 Cash conversion after capex, including / excluding FOMEDEC 82/92% 86% Capital expenditure / Depreciation 1.1x 1.5x
*FOMEDEC working capital outflow £50m, see appendix
16 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Net cash flow
Cash flow FY18 (£m) FY17 (£m)
Operating cash flow after capex 382 407 Interest paid (net) (54) (52) Taxation (74) (61) Dividends from JVs 43 27 Free cash flow before pensions* 297 321 Pensions contributions in excess of income statement (47) (38) Free cash flow after pensions* 250 283 Dividends (148) (134) Acquisitions/Other (10) (35) Net cash (outflow)/inflow (before FX) 92 114
*excluding FOMEDEC £348m before pensions, £300m after pensions
17 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Financial position
Net debt/EBITDA Net debt to EBITDA ratio 1.6x 2.5 FY19 expected: c 1.4x FY20 expected: c 1.1x 2.0
1.5
1.0 IFRS 16 effect in FY20*
Debt effect: c £540m 0.5 EBITDA effect: c £150m Net debt/EBITDA ratio increases by 0.4 0.0 FY15 FY16 FY17 FY18 FY19 FY20
*as at 31 March 2018
18 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Pension funding
FY18 FY17 IAS19 pension deficit: improving Assets (£m) 4,735 4,676
• Asset performance and deficit contributions Obligations (£m) (4,740) (4,781)
Trustee funding Net deficit (£m) (5) (105) • Funding environment – more challenging • Trustee funding deficit weighted towards Rosyth • Funding more volatile Income statement FY19 FY18 FY17 Operating profit (£m) 44 48 39
FY19: Income statement / cash flow Net interest costs (£m) - 2 6 • IAS19 Pensions service cost reducing • Cash service cost increasing Total (£m) 44 50 45
Actions Key assumptions FY18 FY17 • Employee cash contributions increasing across main schemes Discount rate 2.6% 2.6% • Interest rate/age/inflation hedging continues • Cash transfer out values reducing risk: £36m Inflation (RPI) 3.1% 3.2%
19 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Joint ventures
FY18 (£m) FY17 (£m) 13% of underlying revenue (FY17: 13%) JVs Asset Operational Asset Operational
Operating Profit 40 46 30 43
20% of underlying profit (FY17: 18%) IFRIC 12 28 - 29 -
Total underlying profit 68 46 59 43
Distributable reserves: c £120m Finance costs (22) - (25) -
Profit before tax 46 46 34 43
Total dividends for FY18: £43m Tax (9) (9) (5) (9) AirTanker LTD: first dividend April 2018 RSME first dividend payable in FY19 Profit after tax 37 37 29 34 Total dividends for FY19: c £45m; FY20: c £50m Dividends 9 34 8 19
Cash Gap 28 3 21 15
20 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Financial framework
1 Organic • Realignment provides focus for growth Invest in the growth • Returns and cash discipline business • Build on unique expertise Bolt-on M&A • Value creative acquisitions
2 Steady • Well-positioned for any environment Maintain strong deleveraging • Retain flexibility balance sheet • Safeguard credit rating Pension funding • Reducing pension deficit
3 Increase pay Return capital out ratio • Cash generation as fundamental part of our model to shareholders Special div / • Return surplus capital to shareholders buyback
21 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Guidance
FY18 FY19 Revenue Margin Revenue Margin low to mid single Marine £1,789m 13.1% stable digit growth Land £1,849m 7.6% flat stable Aviation £1,022m 14.1% strong growth softening Cavendish Nuclear £703m 9.8% flat stable Group organic revenue growth* 2.8% low mid-single digit growth Margins broadly stable broadly stable Tax rate 18% c 18% Cash conversion: pre capex/post capex 106% pre capex / 82% post capex > 100% pre capex/ c 80% post capex Capex to depreciation ratio 1.1x 1.2x Net debt to EBITDA ratio 1.6x c 1.4x JV dividends £43m c £45m Pensions deficit contributions £47m c £50m HY18 weightings HY19 weightings Underlying revenue c 48/52 Half Year expectations Underlying operating profit c 47/53 Similar weighting Operating cash flow c 30/70 *at constant exchange rates On an underlying basis 22 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Sustaining profitable growth Archie Bethel, Group Chief Executive
Marine Land Aviation Nuclear £31 billion order book and bid pipeline
Order book by value Pipeline by value Order book: £18 billion £4.5 billion order intake in period 12% 15% >£100m £1.3 billion of which not through pipeline 8% £100m-50m 8% 7% £50m-25m Bid pipeline: £13 billion <£25m 14% 63% 73% Up £2.5 billion £7 billion of opportunities added
Clear revenue visibility Order book by sector Pipeline by sector
76% for FY19; 50% for FY20 11% 16% 28% Marine Land 40% Aviation Group win rates maintained 30% 23% Cavendish New bids over 40%; rebids over 90% Nuclear 31% 21%
24 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear International is a key growth engine
Target: 30% international revenue by 2022 • Australia and South Africa established as home countries (scale and multi-sector operations/opportunities) Increasing appetite for public sector outsourcing Pursuing scale opportunities not previously visible LAND: AVIATION: Group-wide collaboration to deliver best of Babcock Ground support equipment Military aircraft availability
Aligned strategies Focus Geographies Marine Land Aviation
to allow focus of Australasia investment and South Africa management of risk Canada France Italy Nordics Established business Oman MARINE: CAVENDISH NUCLEAR: Identified opportunities Spain Naval dockyard operations Decommissioning
25 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Technology underpins delivery
Digital technology transforming asset support
Increased monitoring of critical equipment improving decision making LAND: AVIATION: Emergency vehicle simulation Real time patient data Expanding advanced data analytics capabilities
Investing in technology development partnerships
Track record of successful demonstrators providing value enhancing services • eg firefighting UAVs, iFrigate MARINE: CAVENDISH NUCLEAR: Augmented reality applications Robotics for decommissioning
26 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Marine sector trends Key Opportunities • Submarine and warship class transitions • Asset life extensions New platforms in build • UK/US Missile Launch Tube programme • Capability upgrades & fleet sustainment • New platforms: T31e UK Naval Sustainment of existing naval platforms • Naval Bases • Canada, Halifax Class frigate support Capability upgrades to fleet and infrastructure & Victoria Class life extension • Australia (sub and surface fleets), Increasing need for efficiency savings Collins Class LIFEX • New Zealand Naval Dockyard support International Naval • Oman Naval Dockyard/Fleet support Insertion of new technology • Defence products International and commercial market • EMOC (Equipment Management) opportunities • Liquid gas storage and transportation • Consultancy, cyber security, analytics Technology • Defence communications upgrades
27 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Land sector trends Key Opportunities • British Army Readiness Partner • DSG vehicle sustainment • RSME training
Large army vehicle sustainment programme Defence • International support
• Critical blue light fleet management Continued need for additional efficiencies • Technical training of emergency service • Automotive and apprentice training Emergency Services and • Training levy opportunities Increased demand for technical training Training
Increased demand for savings across civil • Rail CP6 packages fleets • Airport GSE equipment fleet management
Networks and Equipment • Airport engineering services Support Safety and improved operations driving investment in Rail and Power Networks • ESKOM Power sector extension • Growth in Volvo construction equipment market International opportunities • Grow DAF market share South Africa • SASOL
28 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Aviation sector trends Key Opportunities
• European military training programmes International Military Aviation Training • Airbase technical support • ASDOT Aggressor Air Continued growth in Aerial Emergency Services Defence
• Global EMS opportunities: UK Military Air seeking greater efficiencies and Spain, Portugal, France, Italy, improved availability Norway, Ireland, Germany • Firefighting expansion, leveraging technology and IP HADES Air Base technical support contract: Emergency Services • UAV and critical data modelling significant win
Oil and Gas helicopter market remains under • Support current UK customers pressure, we assume H225 flying in FY19 • West of Shetland fields • Supporting some customers overseas Oil & Gas
29 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Nuclear sector trends Key Opportunities
• Sellafield UK requirement for expertise in • Dounreay • AWE decommissioning • Japan Decommissioning Fuel Management for active AGR Reactor Fleet UK • Nuclear module manufacture • Radiological services, safety case UK New Build underway at Hinkley Point development, hazard management • Performance improvement projects Operational Support International consultancy opportunities
• Future opportunities at Hinkley Point C Continuing demand for expert projects • Wylfa, Sizewell, Bradwell services • Small modular reactors New Build
30 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Our focus
Returns Cash Margin Improve on post tax >100% pre capex 10.5% - 11.5% ROIC of 11.9% >80% post capex
31 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Further progress expected in FY19
Business model increasingly attractive to key customers
£31 billion order book and near term bid pipeline
Technology innovation enhances delivery
International growth developing ahead of plan
Continuing to reduce net debt to EBITDA
Sustained growth, cash and returns
32 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Questions?
Marine Land Aviation Nuclear 34 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Additional slides
Marine Land Aviation Nuclear Successful Contract Implementation
• UKFMTS flying training commenced at the new training school, RAF Cranwell • Successful delivery of the Royal School of Military Engineering benchmarking programme • Supported the Metropolitan Police and London Fire Brigade through a challenging period • Commenced delivery of Missile Launch Tube Assemblies for the new UK Dreadnought / US Columbia Class submarines • Naval Service Apprenticeships Scheme awarded OUTSTANDING rating from OFSTED • Four vessel OPV contract for Irish Naval Service approaches successful completion • In Oman, Duqm JV successfully competes first packages of marine support work for the US Navy • Reached formal agreement on hand back of Magnox contract to BEIS in August 2019 • At the Sellafield nuclear facility, Pile Fuel Cladding Silo decommissioning project is progressing well • FOMEDEC (French Airforce pilot training contract) on track • 11-year National Air Ambulance mobilisation progressing to plan in Norway
36 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear
Key contract Awards
• Awarded HADES, new RAF Technical Support Services provision
• Awarded 10-year Sellafield nuclear decommissioning “Glovebox” equipment contract
• First orders received for patented ecoSMRT® liquid natural gas marine transportation system
• Core firefighting contract in Italy renewed following competition for further 7 years
• Preferred bidder for renewal of significant Spanish aerial search and rescue contract
• T23 Frigate Life Extension awards for HMS Lancaster and HMS Richmond
• Two-year extension to FOAP Naval Training contract
• At Hinkley Point C awarded a new contract from EDF to deliver training for the new build nuclear plant
• Naval support contracts for Collins Class submarines and ANZAC Class frigates five-year extensions
• Australian Defence Force Ground Support Equipment contract award
37 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Marine
Revenue Split Bid pipeline
14% 32% 14% 49% Typical 72% margin range UK Naval 7%-11% 19% International Naval 8%-12% Technology 6%*-15% Addressable Market Geography
Int, 21% Int, 33%
UK, £12bn 79% UK, 67%
Revenue Pipeline *including procurement 38 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Land
Revenue Split Bid pipeline
22% 34% 31% 46% Typical margin range 32% 12% Defence 0%*-10% 23% Emergency Services 8%-12% & Training Addressable Market Networks & 4%-6% Geography Equipment Int, 17% Support Int, 29% South Africa 5%-8%
UK, £9bn UK, 83% 71%
Revenue Pipeline *including pass through 39 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Aviation
Revenue Split Bid pipeline
4% 16% 33% 29%
Typical margin range 67% 51% Defence 8%-12%* Emergency Services 10%-18% Oil & Gas Low Addressable Market Geography
Int, 60% Int, 69% £8bn UK, UK, 40% 31%
Revenue Pipeline *excluding Aviation JVs 40 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Cavendish Nuclear
Revenue Split Bid pipeline
Projects & New Build 32% Decommissioning JVs 34%
62% 68% 4% New Build Operational Support Decommissioning Addressable Market Geography Int, 1% Int, 2%
UK, UK, £8bn 99% 98%
Revenue Pipeline
41 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Key defence contracts
Marine Land QEC Aircraft Carriers UK Babcock Defence Support Group (DSG) UK HMS Vanguard DMPR UK Royal School of Military Engineering UK Dreadnought Missile Launch Tubes UK British Forces Germany UK Submarine Dismantling Project UK Bovington: Training, Maintenance & Support Services UK MSDF Devonport UK Phoenix (White Fleet) UK MSDF Clyde UK ALC JV (Provision and Maintenance) UK MSDF Rosyth UK Defence College of Technical Training UK HMS Northumberland UK HMS Kent UK HMS Lancaster UK Aviation HMS Richmond UK HADES, Technical Support Services Contract UK HMS Albion UK Light Aircraft Flying Task (LAFT2) UK Marine Systems Support Partner / MEC Consumables UK Tucano In Service Support (TISC) UK Pumps Management UK Hawk Integrated Operational Support UK MET Lot 12 Valves UK Hawk Advanced Jet Training Tmk2 UK Engineering Support Services for WHDS & SSEs UK UK Military Flying Training School (UKMFTS) UK Astute Boats 5,6,7 UK Ascent JV (Flight Training) UK DSA UK Airtanker Ltd JV (Asset JV) UK 4.5 " Gun Follow On UK Airtanker Services JV (Operational JV) UK ANZAC Class Support Australia FOMEDEC Air Force Pilot Training France DMC Naval Support New Zealand HEILDAX Army Helicopter Training France Collins Class Submarine Support Australia SEA 1000 Class Australia Victoria Class Submarines, Canada Duqm JV, Naval and Commercial Ships Oman Jangbogo III Submarine WHDS South Korea US Coastguard Cutter Design USA Irish Naval Service 4 OPVs Republic of Ireland
42 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Key civil contracts
Marine Aviation North Sea Decommissioning FEED, Centrica UK SASEMAR Search and Rescue Spain Aerial Fire Fighting Spain/Portugal/Italy LNG/LPG Transportation Systems China Norway, Sweden, Australia, Gas Supply Vessel JV with Bernard Schulte Germany Emergency Medical Services UK, Italy, Spain, Portugal, France Offshore Oil and Gas Helicopter Services UK, Europe, Australia Land Rail Track Renewal, Electrification UK Cavendish Nuclear Power Networks UK Magnox Decommissioning UK Metropolitan Police Vehicle Fleet Management UK Dounreay Decommissioning UK London Fire Brigade Fleet Management UK Sellafield Gloveboxes UK London Fire Brigade Training UK Atomic Weapons Establishment MENSA Doors UK Technical Apprentice Training (BMW, EDF, Network Rail) UK EDF Hinkley Point New Build Station UK Heathrow Airport Baggage Handling Systems UK EDF Fuel Route Management (all stations) UK Heathrow Airport Ground Support Fleet UK Engineering, Safety, Design and Mechanical UK QANTAS Ground Support Eqpt. Australia Construction Lafarge Vehicle Fleet Management United States Amsterdam, Schipol Baggage Handling Netherlands Rome, Fuminceno Airport Ground support Italy ESKOM Power Station Support South Africa Vehicle Fleets (Volvo, DAF) South Africa
43 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Single Source Regulations Office
Contract profit rate steps 2018/19 Rates Babcock Commentary
Baseline profit rate (BPR) 6.81% No cost reimbursable contracts Cost risk adjustment: +/-25% x BPR +/- 1.7% Expect close to +25% x BPR
SSRO funding adjustment -0.024%
Incentive adjustment Up to 2.0% Typically at the top end
Capital servicing adjustment Average 1.36%
Maximum CPR 11.85% Before shared cost savings
Source: www.gov.uk SSRO 2018 contract profit rate
44 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Joint Ventures
Asset JVs Operational JVs
Holdfast (RSME) 74% Cavendish Fluor Partnership LTD 65% ALC 50% Cavendish Dounreay Partnership LTD 50% Ascent 50% Naval Ship Management Australia 50% Helidax 50% ABC Electrification 33% AirTanker LTD 13% AirTanker Services 22%
Asset JVs Operational JVs • Typically assets and debt • Capability partnerships • Dividends follow after paying down JV debt • No debt • Typically long-term • Dividends follow profits – subject to short-term phasing
45 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix
Marine Land Aviation Nuclear Appendix 1 Underlying segmental analysis
Revenue (£m) Operating profit (£m) Operating margin FY 18 FY 17 FY 18 FY 17 FY 18 FY 17 Group 1,766.5 1,873.8 231.3 227.0 13.1% 12.1% Marine JV 22.4 27.8 3.8 6.9 17.0% 24.8% Total 1,788.9 1,901.6 235.1 233.9 13.1% 12.3% Group 1,760.4 1,685.4 108.7 113.0 6.2% 6.7% Land JV 88.7 126.3 31.4 26.7 35.4% 21.1% Total 1,849.1 1,811.7 140.1 139.7 7.6% 7.7% Group 921.1 793.1 103.1 106.9 11.2% 13.5% Aviation JV 101.0 80.9 41.2 38.6 40.8% 47.7% Total 1,022.1 874.0 144.3 145.5 14.1% 16.6% Group 211.6 194.8 31.2 32.3 14.7% 16.6% Cavendish Nuclear JV 491.1 434.5 37.6 29.1 7.7% 6.7% Total 702.7 629.3 68.8 61.4 9.8% 9.8% Unallocated (3.7) (5.7) Group 4,659.6 4,547.1 470.6 473.5 10.1% 10.4% Total JV 703.2 669.5 114.0 101.3 16.2% 15.1% Total 5,362.8 5,216.6 584.6 574.8 10.9% 11.0%
47 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 2 Statutory to underlying reconciliation
Joint Ventures and Associates Amortisation of Statutory Revenue and IFRIC 12 income acquired Change in tax rate Underlying All values in £m Finance costs Tax operating profit intangibles 31 March 2018 Revenue 4,659.6 703.2 5,362.8 Operating profit 370.6 85.9 30.0 98.1 584.6 Share of profit from JV 68.5 (85.9) 22.2 17.5 (28.1) 5.8 - Investment income 1.9 (1.9) - Net finance costs (49.9) (22.2) (72.1) Profit before tax 391.1 - - 17.5 - 103.9 - 512.5 Tax (53.4) (17.5) (22.2) 0.8 (92.3) Profit after tax 337.7 - - - - 81.7 0.8 420.2 Return on revenue 8.0% 10.9% 31 March 2017 Revenue 4,547.1 669.5 5,216.6 Operating profit 359.6 72.8 29.7 112.7 574.8 Share of profit from JV 56.7 (72.8) 24.6 14.2 (28.5) 5.8 - Investment income 1.2 (1.2) - Net finance costs (55.4) (24.6) (80.0) Profit before tax 362.1 - - 14.2 - 118.5 - 494.8 Tax (46.5) (14.2) (26.4) 0.5 (86.6) Profit after tax 315.6 - - - - 92.1 0.5 408.2 Return on revenue 7.9% 11.0%
48 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 3 Organic Growth
Cavendish All values in £m Marine Land Aviation Unallocated Total Nuclear UNDERLYING REVENUE At 31 March 2017 1,901.6 1,811.7 874.0 629.3 - 5,216.6 Exchange adjustment (5.8) 2.1 11.4 - - 7.7 Disposals - (7.2) - - - (7.2) Organic growth (106.9) 42.5 136.7 73.4 - 145.7 31 March 2018 1,788.9 1,849.1 1,022.1 702.7 - 5,362.8 Underlying revenue growth (5.9%) 2.1% 16.9% 11.7% - 2.8% Organic growth at constant exchange (5.6%) 2.3% 15.6% 11.7% - 2.8%
UNDERLYING OPERATING PROFIT As at 31 March 2017 233.9 139.7 145.5 61.4 (5.7) 574.8 Exchange adjustment (0.7) 0.9 2.3 - (0.1) 2.4 Disposals - (1.8) - - - (1.8) Organic growth 1.9 1.3 (3.5) 7.4 2.1 9.2 31 March 2018 235.1 140.1 144.3 68.8 (3.7) 584.6 Underlying operating profit growth 0.5% 0.3% (0.8%) 12.1% 1.7% Organic growth at constant 0.8% 0.9% (2.4%) 12.1% 1.6% exchange
49 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 4 Exchange rate movements
Effect on revenue (£m) Effect on underlying operating profit (£m) Effect on profit before tax (£m) Average rates for Change 1% 5% 10% 1% 5% 10% 1% 5% 10% FY 18
EUR 5.0 25.2 50.3 0.5 2.7 5.5 0.3 1.3 2.7 1.13
ZAR 3.8 19.1 38.2 0.2 1.1 2.2 0.2 1.0 2.0 17.20
CAD 1.5 7.6 15.1 0.2 0.8 1.5 0.2 0.8 1.5 1.71
50 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 5 Cash flow reconciliation
FY18 (£m) FY17 (£m) Cash generated from operations 448 504 Retirement benefit contributions in excess of income statement 47 38 Operating cash flow 495 542
51 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 6 Provisions
Full year net charge £8.7m Charge/(release) as % of underlying profit Primarily reorganisation 8.0% Average of last eight years underlying operating profit* ‒ 0.8% cumulative net charge as a % of underlying profit 6.0% ‒ 6% cash utilisation
Full year: £28m cash outflow - largely as expected 4.0% Utilised: contracts (gain share and warranty), personnel (taxation and reorganisation), property and assets 2.0% Utilisation c £1m pa on Avincis (MCS) operating leases
FY19 outflow expected to be c £28m stabilising thereafter 0.0% Provisions made as required by accounting standards Contract costs, property, personnel, warranty, onerous leases, -2.0% acquisition and disposals -4.0% Reflect our business as an engineering services company Lower level than an engineering company or manufacturer -6.0% Higher level than a non-engineering support services business FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Total
* excluding JVs, see appendix 52 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 7 Net Capital Expenditure
FY18 (£m) FY17 (£m)
Purchases of property, plant and equipment 150.4 175.8
Purchases of intangible assets 32.3 30.9
Proceeds on disposal of property, plant and equipment (70.0) (71.9)
Capital expenditure (net) 112.7 134.8
53 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Appendix 8 FOMEDEC
FY18 cash flow Total FOMEDEC Ex FOMEDEC Debtors 137.4 (109.3) 28.1 Creditors (102.6) 58.9 (43.7) Total 34.8 (50.4) (15.6)
Working capital reverses H1 FY19 • New finance leases within net debt • Cash from securitisation of first leases offset payment to suppliers H2 FY19 • Finance lease convert to cash • Balance of supplier payments
54 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear Disclaimer
This document has been prepared by Babcock International Group PLC (the “Company”) solely for use at a presentation in connection with the Company's full year results announcement for the full year ended 31 March 2018. For the purposes of this notice, the presentation that follows (the “Presentation”) shall mean and include the slides that follow, the oral presentation of the slides by the Company, the question-and-answer session that follows that oral presentation, hard copies of this document and any materials distributed at, or in connection with, that presentation. The Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue, or the solicitation of an offer to buy or acquire, securities of the Company in any jurisdiction or an inducement to enter into investment activity. No part of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Statements in this Presentation, including those regarding the possible or assumed future or other performance of the Company or its industry or other trend projections, as well as statements about Babcock’s or management’s beliefs or expectations, may constitute forward-looking statements. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond Babcock’s control. These risks, uncertainties and factors may cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements. Accordingly, no assurance is given that such forward-looking statements will prove to have been correct. Forward looking statements in the Presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. They speak only as at the date of this Presentation and the Company undertakes no obligation to update these forward-looking statements. The information and opinions contained in this Presentation do not purport to be comprehensive, are provided as at the date of the Presentation and are subject to change without notice. The Company is not under any obligation to update or keep current the information contained herein.
55 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear 56 Full Year Results for year ending 31 March 2018 Marine Land Aviation Nuclear