Vision and Precision
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Babcock International Group PLC PLC Group International Babcock Annual Report and Accounts 2016 Report Accounts and Annual Vision and Precision Babcock International Group PLC Annual Report and Accounts 2016 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 engineering excellence. Celebrating 125 years of Babcock. Babcock’s long and distinguished heritage reaches a new landmark in 2016, celebrating 125 years of service excellence. Established in 1891, with our foundation in heavy engineering, the business has gone through a major transformation, creating the market-leading, engineering support services, FTSE 100 company we are today. In 2016, Babcock employs over 35,000 skilled people worldwide who design, build, manage, operate, maintain and decommission complex and critical infrastructure and assets that are vital to both our public and private sector customers. www.babcockinternational.com 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 64 to 74 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 2 Directors’ report 76 Financials 136 In this report Strategic report For more details on Overview our strategy Our journey so far 02 see Chairman’s statement 04 Strategy 06 Our capabilities and business model 08 Our capabilities in focus 12 6-7 In the year – 2016 in focus 18 Chief Executive’s review 20 In the year – selected key markets and outlooks 24 Group financial statements Performance Independent auditors’ report to the Key performance indicators 26 members of Babcock International Financial review 28 Group PLC 136 Marine and Technology 36 Group income statement 142 Defence and Security 42 Group statement of Support Services 46 comprehensive income 143 International 50 Group statement of changes in equity 143 Sustainability 56 Group balance sheet 144 Principal risks and management controls 64 Group cash flow statement 145 Viability statement 75 Notes to the Group financial statements 146 Company financial statements For more Independent auditors’ report to the details on our members of Babcock International capabilities Group PLC 193 and business Company balance sheet 195 model see Company statement of changes in equity 196 Notes to the Company 8 -11 financial statements 197 Other information Shareholder information 202 Five-year financial record 203 Directors’ report For our Chief Executive’s Board Directors, Executive and Company review of the Secretary 76 year see Governance statement 78 Report of the Nominations Committee 86 Report of the Audit and Risk Committee 88 Remuneration report 92 Other disclosures 129 Directors’ responsibility statement 135 20 Maintaining the RAF Fast Jets Annual Report and Accounts 2016 Babcock International Group PLC 1 Understanding our business Our journey so far Celebrating 125 years of Babcock We’ve been at the forefront of industry for 125 years and our market leading reputation is based upon one key fact: Babcock is a partner that is trusted to deliver. Yesterday, today and tomorrow. The timeline shows our beginnings in 1891, through our transition to the UK’s leading engineering support services company. Through a selection of key contracts and strategic business acquisitions, the timeline demonstrates our breadth and expertise in delivering long-term, complex and critical contracts and programmes. Royal School of Military Engineers Training future military engineers for 30 years with the Royal School of Military Engineers Maintenance of RAF Hawk Fast Jets Established in 1891 with our foundation in heavy engineering, the business has gone through a major transformation, creating the market-leading, engineering support services, FTSE 100 company we are today. Revenue £452m 1891 >>> 2002 2003 2004 2005 2006 2007 2008 Management of Acquired Through-life HMNB Clyde Devonport submarine Trusted partner Dockyard support for the Royal Navy Providing contract for complex the Royal through-life Canadian support to the Navy UK submarine and surface fleets Began building what is now Cavendish Nuclear, the UK’s largest nuclear engineer 2 Babcock International Group PLC Annual Report and Accounts 2016 Annual Report and Accounts 2016 Babcock International Group PLC 3 Strategic report 2 Directors’ report 76 Financials 136 Revenue £4,842m Dounreay decommissioning contract Cavendish Nuclear, in a consortium, wins the first major long-term nuclear site decommissioning contract for the Acquisition Nuclear Decommissioning Authority of VT Providing increased engineering and training capabilities in core markets Mission Critical Services Revenue World’s number one provider of aviation emergency services £1,915m Maritime Support Delivery Framework (within ToBA) A 5-year contract confirming complex through-life support at HMNBs Clyde and Devonport until 2020 2009 2010 2011 2012 2013 2014 2015 2016 >>> Babcock now 15-year Terms Long-term ANZAC frigate Complex Magnox and RSRL Defence trains all three of Business partnership support and critical Cavendish Nuclear, Support Group of the UK’s Agreement training the Provide airport fleet in a consortium, Providing bespoke Armed Forces (ToBA) with London Fire through-life management wins contract to through-life MOD Brigade support for at Heathrow manage and support to the Signed an Providing Australia’s decommission UK’s armoured agreement with critical technical ANZAC frigate 12 nuclear vehicle fleets, MOD to provide training in fleet licensed sites with critical through-life a 25-year across the equipment support to the contract UK over 13.5 years procurement entire UK submarine and 75% of surface fleets at Rosyth and HMNBs Clyde and Devonport 2 Babcock International Group PLC Annual Report and Accounts 2016 Annual Report and Accounts 2016 Babcock International Group PLC 3 Chairman’s review Strategy delivers good results Our performance reaffirms the Board’s confidence in the effectiveness of our strategy and business model as we continue to grow the business in the UK and further develop our international presence, building on our existing footprint in both established markets and in newer territories to which our Mission Critical Services business has given us access. This year we created an International Committee to ensure that we are able to identify and capture opportunities where our unique capabilities, track record of delivery and focus on the customer are ideally suited to meet the increasing demand for skilled and reliable outsourcing partners. The Group achieved 8% growth in total underlying revenue to £4,842.1 million, equivalent to an 8% growth in organic revenue. Total underlying operating profit including acquisitions increased Mike Turner CBE by 4% to £539.7 million or 6% organically Chairman at constant exchange rates. Underlying profit before tax increased by 10%. 2016 was another good year for Babcock. This resulted in an increase in underlying basic earnings per share of 8% to 74.2 We have delivered solid growth in revenue, pence (2015: 68.5 pence). operating profit and earnings per share, and Our order book has been maintained continue to provide consistent and sustainable at £20 billion and our bidding pipeline value for our shareholders. I’m particularly