Returning to strength
ANNUAL REPORT AND FINANCIAL
STATEMENTS 2022
STRATEGIC REPORT
Financial highlights
Babcock at a glance
Strategy
Business model
Market Review
Chair’s statement
CEO review
Culture change
Innovation and Technology
Key performance indicators
Financial Review
2
4
6
8
10
12
13
18
21
22
24
42 Operational review
Marine
42
Nuclear
44
Land
46
48
Aviation
52
54
57
63
69
73
74
75
76
88
Environmental
Social
Governance
Non-financial information statement
Compliance with GRI
Response to SASB
Principal risks and management controls
Going concern and viability statement
Stakeholder engagement and s172(1) statement
ESG Strategy
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STRATEGY
Babcock is an international defence
company operating in our focus countries
of the UK, Australasia, Canada, France
and South Africa, with exports to
additional markets with potential
to become focus countries.
Our Purpose, to create a safe and
secure world, together, defines our
strategy. We support and enhance
our customers’ defence and security
capabilities and critical assets through
a range of product and service solutions.
We meet our customers’ requirements
of value for money, increased availability,
modernisation and flexibility.
We made excellent progress in our first
year of turnaround; securing the balance
sheet and focusing the Group through
portfolio alignment and by reorganising
around a new operating model and
people strategy.
Supported by our ESG strategy, we are
now better positioned to take advantage
of the opportunities created by the
strengthening global market for defence.
Please scan this code to watch a video
explaining how our purpose informs all
that we do and how the work we deliver
is helping Babcock to create a safe and
secure world, together.
13
CEO
REVIEW
GOVERNANCE
Babcock is an international defence
company operating in our focus countries
of the UK, Australasia, Canada, France
and South Africa, with exports to
additional markets with potential
to become focus countries.
Our Purpose, to create a safe and
secure world, together, defines our
strategy. We support and enhance
our customers’ defence and security
capabilities and critical assets through
a range of product and service solutions.
We meet our customers’ requirements
of value for money, increased availability,
modernisation and flexibility.
We made excellent progress in our first
year of turnaround; securing the balance
sheet and focusing the Group through
portfolio alignment and by reorganising
around a new operating model and
people strategy.
Supported by our ESG strategy, we are
now better positioned to take advantage
of the opportunities created by the
strengthening global market for defence.
STRATEGIC REPORT
Financial highlights
Babcock at a glance
Strategy
Business model
Market Review
Chair’s statement
CEO review
Culture change
Innovation and Technology
Key performance indicators
Financial Review
42 Operational review
Marine
Nuclear
Land
Aviation
ESG Strategy
Environmental
Social
Governance
2
4
6
8
10
12
13
18
21
22
24
42
44
46
48
52
54
57
63
69
73
74
75
76
88
Non-financial information statement
Compliance with GRI
Response to SASB
Principal risks and management controls
Going concern and viability statement
Stakeholder engagement and s172(1) statement
6
STRATEGY
Please scan this code to watch a video
explaining how our purpose informs all
that we do and how the work we deliver
is helping Babcock to create a safe and
secure world, together.
18
CULTURE
CHANGE
8
BUSINESS
MODEL
22
KPIs
Chair’s introduction
Board of Directors
Executive Committee
Board leadership and Company Purpose
92
94
96
97
102 Division of responsibilities
104 Composition, succession and evaluation
106
108 Audit, risk and internal control
108
113 Remuneration
113
134 Other statutory information
139 Directors’ responsibility statement
Remuneration Committee Report
Nominations Committee Report
Audit Committee Report
FINANCIAL STATEMENTS
142 Independent auditor’s report to the members of
Babcock International Group PLC
159 Group financial statements:
Group income statement
159
Group statement of comprehensive income
159
Group statement of changes in equity
160
Group statement of financial position
161
Group cash flow statement
162
163
Notes to the Group financial statements
233 Company financial statements:
233
234
235
244 Other information:
244
Company statement of financial position
Company statement of changes in equity
Notes to the Company financial statements
Shareholder information
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
1
FINANCIAL HIGHLIGHTS
2022 FINANCIAL HIGHLIGHTS
Revenue
£4,102m
2021: £3,972m
(Restated, see page 24)
Statutory cash generated
from operations
£42m
2021: £475m
(Restated, see page 162)
Statutory
operating profit/(loss)
Underlying operating
profit/(loss)
£227m
2021: £(1,737)m
(Restated, see page 25)
Underlying free
cash flow
£(191)m
2021: £170m
(Restated, see page 30)
£238m
2021: £(28)m
Net debt/EBITDA
(covenant basis)
1.8x
2021: 2.4x
Adjustments between statutory and underlying
The Group uses various alternative performance measures, including underlying
operating profit, to enable users to better understand the performance and
earnings trends of the Group. The Directors believe the alternative performance
measures provide a consistent measure of business performance year to year
and they are used by management to measure operating performance and as
a basis for forecasting and decision-making. The Group believes they are also
used by investors in analysing business performance.
This presentation allows for separate disclosure and specific narrative to be
included concerning the adjusting items. This helps to ensure performance in
any one year can be clearly understood by users of the financial statements.
These alternative performance measures are not defined by IFRS and therefore
there is a level of judgement involved in identifying the adjustments required
to calculate the underlying results. As the alternative performance measures
used are not defined under IFRS, they may not be comparable to similar
measures used by other companies. They are not intended to be a substitute
for, or superior to, measures defined under IFRS.
Forward-looking statements
Statements in this Annual Report, including those regarding the possible
or assumed future or performance of Babcock or its industry, as well as any
trend projections or 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 and uncertainties
as well as 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. No assurance is given that any forward-looking
statements will prove to be correct. The information and opinions contained
in this Annual Report do not purport to be comprehensive, are provided as
at the date of the Annual Report and are subject to change without notice.
Babcock is not under any obligation to update or keep current any information
in the Annual Report, including any forward-looking statements.
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2022 FINANCIAL HIGHLIGHTS
FY22 HIGHLIGHTS
• Portfolio – focused the group: Generated gross proceeds of £447 million
from four completed disposals, above our targeted minimum of
£400 million. Disposal of part of our Aerial Emergency Services (AES)
business signed in July 2022 after year end for a cash consideration of
c.£115 million. Footprint expanded in Australia with acquisition of the
remaining 50% interest in our Australian Naval Ship Management (NSM)
joint venture
• Operating model – implemented: Streamlining processes and structures and
improving controls drove a c.£20 million benefit in FY22 (c.£40 million
annualised), as expected. Internal business reporting lines flattened. We
continue to focus on improved execution to deliver efficiencies
• People strategy - culture transforming: New people strategy developed,
including roll-out of Group Principles and agile working
• ESG strategy – developing: Expanded our corporate commitments to
incorporate broader environmental targets and created new policies and
guidance to support the governance of our sustainability programmes
• Growth – developing opportunities: Good order momentum including the
signing of export agreements with Indonesia and Poland for the Arrowhead
140 (AH140) naval ship design (the base for the UK’s Type 31 programme)
and new defence contracts in Australia, France and the UK
VIRTUAL REALITY
An engineer tests virtual reality technology
used in our training contracts
QUEEN ELIZABETH CLASS
One of the UK’s new QEC aircraft
carriers in Portsmouth
FINANCIAL HIGHLIGHTS
Revenue
£4,102m
2021: £3,972m
(Restated, see page 24)
Statutory
Underlying operating
operating profit/(loss)
profit/(loss)
£227m
2021: £(1,737)m
(Restated, see page 25)
£238m
2021: £(28)m
Statutory cash generated
Underlying free
from operations
cash flow
Net debt/EBITDA
(covenant basis)
£42m
2021: £475m
(Restated, see page 162)
£(191)m
2021: £170m
(Restated, see page 30)
1.8x
2021: 2.4x
Adjustments between statutory and underlying
The Group uses various alternative performance measures, including underlying
operating profit, to enable users to better understand the performance and
earnings trends of the Group. The Directors believe the alternative performance
measures provide a consistent measure of business performance year to year
and they are used by management to measure operating performance and as
a basis for forecasting and decision-making. The Group believes they are also
used by investors in analysing business performance.
This presentation allows for separate disclosure and specific narrative to be
included concerning the adjusting items. This helps to ensure performance in
any one year can be clearly understood by users of the financial statements.
These alternative performance measures are not defined by IFRS and therefore
there is a level of judgement involved in identifying the adjustments required
to calculate the underlying results. As the alternative performance measures
used are not defined under IFRS, they may not be comparable to similar
measures used by other companies. They are not intended to be a substitute
for, or superior to, measures defined under IFRS.
Forward-looking statements
Statements in this Annual Report, including those regarding the possible
or assumed future or performance of Babcock or its industry, as well as any
trend projections or 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 and uncertainties
as well as 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. No assurance is given that any forward-looking
statements will prove to be correct. The information and opinions contained
in this Annual Report do not purport to be comprehensive, are provided as
at the date of the Annual Report and are subject to change without notice.
Babcock is not under any obligation to update or keep current any information
in the Annual Report, including any forward-looking statements.
2
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
3
BABCOCK AT A GLANCE
Our business today
Creating a safe and secure world, together
Babcock is an international defence company operating in our focus countries of the UK, Australasia, Canada,
France and South Africa, with exports to additional markets with potential to become focus countries.
Our work supports our public sector and blue chip customers on complex long-term programmes and critical
services. We provide through-life technical and engineering support, specialist training, asset management
and the design and manufacture of a range of defence and specialist equipment. We meet our customers’
key requirements of value for money, increased availability, modernisation and flexibility.
WHAT WE DO
We provide engineering, support and systems and deliver critical services to defence and civil markets.
Deliver complex programmes and critical services
We provide through-life technical and engineering support for our customers’ assets, delivering improvements in the performance,
availability and programme cost. We also deliver critical services to our defence and civil customers, including engineering support to
land defence and air base operations, specialist training and asset management, equipment supply and maintenance to the resources
sector, and engineering support to the nuclear power industry.
Design, manufacture and integrate
We design and manufacture a range of defence and specialist equipment, from naval ships and weapons handling systems to liquid
gas handling systems. We also provide integrated, technology-enabled solutions to our defence customers in areas such as secure
communications, electronic warfare and air defence.
REVENUE PROFILE
BACKLOG PROFILE
By location
By market
By customer
By market
£4.1bn
£9.9bn
63% UK
37% International
55% Defence
45% Civil
81% Public
19% Private
72% Defence
28% Civil
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Babcock International Group PLC Annual Report and Financial Statements 2022
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BABCOCK AT A GLANCE
Our business today
DELIVERED ACROSS OUR FOUR SECTORS
Creating a safe and secure world, together
Babcock is an international defence company operating in our focus countries of the UK, Australasia, Canada,
France and South Africa, with exports to additional markets with potential to become focus countries.
Our work supports our public sector and blue chip customers on complex long-term programmes and critical
services. We provide through-life technical and engineering support, specialist training, asset management
and the design and manufacture of a range of defence and specialist equipment. We meet our customers’
key requirements of value for money, increased availability, modernisation and flexibility.
WHAT WE DO
We provide engineering, support and systems and deliver critical services to defence and civil markets.
Deliver complex programmes and critical services
We provide through-life technical and engineering support for our customers’ assets, delivering improvements in the performance,
availability and programme cost. We also deliver critical services to our defence and civil customers, including engineering support to
land defence and air base operations, specialist training and asset management, equipment supply and maintenance to the resources
sector, and engineering support to the nuclear power industry.
Design, manufacture and integrate
We design and manufacture a range of defence and specialist equipment, from naval ships and weapons handling systems to liquid
gas handling systems. We also provide integrated, technology-enabled solutions to our defence customers in areas such as secure
communications, electronic warfare and air defence.
REVENUE PROFILE
BACKLOG PROFILE
By location
By market
By customer
By market
£4.1bn
£9.9bn
63% UK
37% International
55% Defence
45% Civil
81% Public
19% Private
72% Defence
28% Civil
Marine
31% of FY22 revenue
• UK and international warship
through-life support: design,
build, assemble, maintain,
upgrade
• International submarine
through-life support
• Global naval exports: ship
design, military equipment
and engineering support
• Energy and marine
equipment and support
See page 42
FY22 revenue
£1.3bn
74% Defence
26% Civil
Nuclear
24% of FY22 revenue
• Support all UK nuclear
submarines and infrastructure
• Own or manage key
infrastructure and naval bases
• Nuclear submarine
dismantling
• UK civil nuclear new build,
generation support and
decommissioning projects
• UK and international
nuclear services
See page 44
FY22 revenue
£1.0bn
84% Defence
16% Civil
Land
25% of FY22 revenue
• Asset management and
engineering support for
British Army vehicles
• Technical training and
support for the British Army
• Emergency services technical
training and fleet
management
• South Africa engineering and
equipment businesses
See page 46
FY22 revenue
£1.0bn
29% Defence
71% Civil
FURTHER INFORMATION ON
Aviation
20% of FY22 revenue
• UK and French pilot training
and support
• Military aircraft engineering
and airbase support
• Military and emergency
services aircraft maintenance,
repair and overhaul
• Air ambulance, search and
rescue and firefighting
services
See page 48
FY22 revenue
£0.8bn
22% Defence
78% Civil
Strategy and
business model
Markets
Culture change
ESG strategy
See page 6-9
See page 10
See page 18
See page 54
4
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
5
STRATEGY
Our strategy
Our Purpose, to create a safe and secure world, together, defines our strategy. We support and enhance
our customers’ defence capabilities and critical assets through a range of product and service solutions.
We meet our customers’ requirements of increased availability, affordability and capability.
In last year’s report, we said our strategy had three elements: the UK naval business; UK value-add services and International. As we
have developed and shaped the business over the first year of our turnaround, we have determined that our international presence
is an inherent part of our overall strategy and so should not be considered separately. Our strategy focuses on naval engineering,
support and systems, and on critical services in our core defence and civil markets. In this section we share our thinking and outline
our strategic priorities.
Naval engineering, support and systems
• To deliver high-value, technical and engineering support
for ships and submarines to UK and other navies
• To own, maintain and develop critical naval infrastructure
• To design, build and export world class naval platforms
and equipment
• To deliver affordable digital support and solutions which
Critical services: defence and civil
• To provide high-value engineering and support services in land
and aviation defence, civil nuclear and other critical sectors
• To deliver technical training services in defence
and security sectors
• To maintain and provide complex assets and equipment
• To provide integrated solutions to our customers by bringing
enhance our customers’ capabilities
together the right technology and suppliers
Drivers
• Global threat environment and geopolitics
• Rising global defence spending
• Infrastructure and equipment modernisation trends
• UK National Shipbuilding Strategy
• Digitalisation of defence and security environment
• Requirement for integrated, technology-driven solutions
Drivers
• Increased asset complexity across all defence domains
and public service sectors
• Nuclear energy is a key component of the UK Government’s
decarbonising strategy
• Tight budgets driving need for innovative asset management
solutions and outsourced services
• Outsourcing specialist equipment services
Babcock Sectors
• Marine
• Nuclear (naval)
Babcock Sectors
• Nuclear (civil)
• Land
• Aviation
Delivering
Availability
Affordability
Capability
We report through four operating sectors, read more
about them in our operational reviews on page 42
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STRATEGY
Our strategy
Our Purpose, to create a safe and secure world, together, defines our strategy. We support and enhance
our customers’ defence capabilities and critical assets through a range of product and service solutions.
We meet our customers’ requirements of increased availability, affordability and capability.
In last year’s report, we said our strategy had three elements: the UK naval business; UK value-add services and International. As we
have developed and shaped the business over the first year of our turnaround, we have determined that our international presence
is an inherent part of our overall strategy and so should not be considered separately. Our strategy focuses on naval engineering,
support and systems, and on critical services in our core defence and civil markets. In this section we share our thinking and outline
our strategic priorities.
Find out more about our Arrowhead 140
export programme by scanning this code.
Good progress on FY22 priorities
During the year, we delivered the strategic actions, set out below, required to strengthen the Group, creating a stable platform to
execute our strategy.
Portfolio
Operating model
People
ESG
Growth
• New operating
• Established our
• Matured integration
• Contract backlog
• Gross proceeds
of £447 million
• Net debt/EBITDA
reduced to 1.8x
• Strategic acquisition
of the remaining
50% interest in our
Australian Naval Ship
Management (NSM)
joint venture
model established
• Managed COVID-19
challenges
• Achieved target
in-year operating
model savings
• Operating margin
5.8% (from 5.5%)
Read more about our strategic progress
in our CEO Review on page 13
Our turnaround strategy continues
Purpose and Principles
• Created a flatter
management
structure
• Harmonised policies
and processes
• Managed senior
leadership changes
and restructuring
• Focused on sharing
best practice and
innovation
of ESG into
programmes
• Developed sector
sustainability
programmes
• Expanded our ESG
commitments
• Committed to set
ambitious science-
based targets
£9.9 billion
• Global AH140 exports
• Significant new
defence
communications
business globally
• Launched iSupport
for naval operations
Naval engineering, support and systems
Critical services: defence and civil
• To deliver high-value, technical and engineering support
• To provide high-value engineering and support services in land
for ships and submarines to UK and other navies
and aviation defence, civil nuclear and other critical sectors
• To own, maintain and develop critical naval infrastructure
• To deliver technical training services in defence
• To design, build and export world class naval platforms
and security sectors
and equipment
• To maintain and provide complex assets and equipment
• To deliver affordable digital support and solutions which
• To provide integrated solutions to our customers by bringing
enhance our customers’ capabilities
together the right technology and suppliers
Drivers
Drivers
• Global threat environment and geopolitics
• Increased asset complexity across all defence domains
• Rising global defence spending
• Infrastructure and equipment modernisation trends
• Nuclear energy is a key component of the UK Government’s
and public service sectors
decarbonising strategy
• UK National Shipbuilding Strategy
• Digitalisation of defence and security environment
• Requirement for integrated, technology-driven solutions
• Tight budgets driving need for innovative asset management
solutions and outsourced services
• Outsourcing specialist equipment services
Babcock Sectors
• Marine
• Nuclear (naval)
Babcock Sectors
• Nuclear (civil)
• Land
• Aviation
Delivering
FY22: one year into a major turnaround
FY26+
Stabilise
Steps taken to
strengthen the
business
Execute
Progressing the
next phase of
our turnaround
Growth
Shaping our
business today for
future growth
Delivering
Availability
Affordability
Capability
Improved outcomes
for our customers
A better place to work
Returns for our
shareholders
We report through four operating sectors, read more
about them in our operational reviews on page 42
Read more about our priorities for FY23 and
beyond in our CEO Review on page 13
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
7
BUSINESS MODEL
Our business model
We provide a range of products and service solutions to enhance our customers’ defence capabilities and critical
assets. Our business model is underpinned by a deep understanding of technology integration and engineering,
infrastructure management and specialist training. We help our customers around the world to cost effectively
improve the capability, reliability and availability of their most critical assets.
Our key strengths and resources
What we do
How we do it
Our people
We rely on our people, and their
experiences and skills, to deliver for
our customers and solve challenges
every day. We aim to better support
and empower our workforce
of over 28,000.
Customer relationships
We are a trusted partner, critical
to our customers’ ability to solve
complex problems. Through long-term
programmes and contracts, we work
collaboratively with our customers to
understand their needs and identify
solutions that add value.
Our assets
We own critical national infrastructure
in the UK including the Rosyth and
Devonport Royal dockyards. We also
operate a range of customer-owned
critical assets, for example, naval
and air force bases and company-
owned assets including complex
engineering facilities and aircraft
for the delivery of emergency
services and military training.
Our technology
and know-how
We use our technology and our highly
specialised engineering know-how to
solve customer challenges. We have a
deep understanding of our customers’
assets and are able to integrate
technologies and capabilities to
support their needs and provide
services that add value.
Safety and regulatory
compliance
This underpins all work. We and our
customers operate in heavily regulated
environments where the health, safety
and wellbeing of all stakeholders is the
number one priority.
Deliver complex
programmes and
critical services
We provide through-life technical
and engineering support for
our customers’ assets, delivering
improvements in the performance,
availability and programme cost.
We also deliver critical services to our
defence and civil customers, including
engineering support to land defence
and air base operations, specialist
training and asset management,
equipment supply and maintenance to
the resources sector, and engineering
support to the nuclear power industry.
Design, manufacture
and integrate
We design and manufacture a range
of defence and specialist equipment
from naval ships and weapons
handling systems to liquid gas
handling systems. We also provide
integrated, technology-enabled
solutions to our defence customers in
areas such as secure communications,
electronic warfare and air defence.
8
Babcock International Group PLC Annual Report and Financial Statements 2022
1 Foundations
We work collaboratively with
government departments, public
bodies, highly regulated industries
and blue chip companies, and are
embedded on crucial long-term
programmes. We focus on markets
and customers with outsourcing
models that require value-add
engineering-based support and
product development. Our five
main markets are the UK, Australasia,
France, Canada and South Africa,
with operations in and exports
to other countries.
2 Bidding and
business development
We continually monitor opportunities
across our markets, using strong
reference cases and deep sector
expertise to identify ways to solve new
and existing customers’ challenges and
support their programmes. We have a
multi-gate review process for contract
bids to help ensure we only bid on
value-creating work.
3 Contracting
A significant proportion of
our business is carried out on a
long-term contract or multi-year
framework basis. Our backlog of
£9.9 billion of contracted work
provides a base level of revenue
for the years ahead, supplemented
by new business wins, framework
call-offs, contract extensions and
variations, and short-cycle work.
Revenue is recognised as we deliver
on our contracts and performance
obligations are satisfied. We have
an established review process
to manage contract risk.
See our People Strategy on page19
BUSINESS MODEL
Our business model
We provide a range of products and service solutions to enhance our customers’ defence capabilities and critical
assets. Our business model is underpinned by a deep understanding of technology integration and engineering,
infrastructure management and specialist training. We help our customers around the world to cost effectively
improve the capability, reliability and availability of their most critical assets.
Our key strengths and resources
What we do
How we do it
Our people
We rely on our people, and their
experiences and skills, to deliver for
our customers and solve challenges
every day. We aim to better support
and empower our workforce
of over 28,000.
Customer relationships
We are a trusted partner, critical
to our customers’ ability to solve
complex problems. Through long-term
programmes and contracts, we work
collaboratively with our customers to
understand their needs and identify
solutions that add value.
Our assets
We own critical national infrastructure
in the UK including the Rosyth and
Devonport Royal dockyards. We also
operate a range of customer-owned
critical assets, for example, naval
and air force bases and company-
owned assets including complex
engineering facilities and aircraft
for the delivery of emergency
services and military training.
Our technology
and know-how
We use our technology and our highly
specialised engineering know-how to
solve customer challenges. We have a
deep understanding of our customers’
assets and are able to integrate
technologies and capabilities to
support their needs and provide
services that add value.
Safety and regulatory
compliance
This underpins all work. We and our
customers operate in heavily regulated
environments where the health, safety
and wellbeing of all stakeholders is the
number one priority.
Deliver complex
programmes and
critical services
We provide through-life technical
and engineering support for
our customers’ assets, delivering
improvements in the performance,
availability and programme cost.
We also deliver critical services to our
defence and civil customers, including
engineering support to land defence
and air base operations, specialist
training and asset management,
equipment supply and maintenance to
the resources sector, and engineering
support to the nuclear power industry.
Design, manufacture
and integrate
We design and manufacture a range
of defence and specialist equipment
from naval ships and weapons
handling systems to liquid gas
handling systems. We also provide
integrated, technology-enabled
solutions to our defence customers in
areas such as secure communications,
electronic warfare and air defence.
1 Foundations
We work collaboratively with
government departments, public
bodies, highly regulated industries
and blue chip companies, and are
embedded on crucial long-term
programmes. We focus on markets
and customers with outsourcing
models that require value-add
engineering-based support and
product development. Our five
main markets are the UK, Australasia,
France, Canada and South Africa,
with operations in and exports
to other countries.
2 Bidding and
business development
We continually monitor opportunities
across our markets, using strong
reference cases and deep sector
expertise to identify ways to solve new
and existing customers’ challenges and
support their programmes. We have a
multi-gate review process for contract
bids to help ensure we only bid on
value-creating work.
3 Contracting
A significant proportion of
our business is carried out on a
long-term contract or multi-year
framework basis. Our backlog of
£9.9 billion of contracted work
provides a base level of revenue
for the years ahead, supplemented
by new business wins, framework
call-offs, contract extensions and
variations, and short-cycle work.
Revenue is recognised as we deliver
on our contracts and performance
obligations are satisfied. We have
an established review process
to manage contract risk.
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Supported by our
strong corporate
governance
and culture
6
5
4
4 Sustainability
Our ESG strategy is a key component
of how we deliver and increase
the sustainability of our business.
Our business has a significant impact
on society and the environment
and sustainability is an integral part
of our corporate strategy and how
we do business.
Creating stakeholder value
Customers
Delivering for our customers and
partnering with them on the challenges
they face.
Investors
Creating shareholder value through
growth, cash generation and the
efficient allocation of capital. Delivering
shareholder returns through dividends
and increased share value.
Employees
Creating a better place to work where
employees are valued and motivated
at all times.
Regulatory
and industry bodies
Never compromising on safety and
complying with regulations at all times.
Supply chain
Creating jobs and nurturing investment
through collaboration with our
supply chain.
Communities
Providing jobs and investment across
the UK and ensuring we act responsibly
at all times in the interests of local
communities around our sites.
7 Investment
and capability
Revenue is recognised as we deliver
on our contracts and performance
obligations are satisfied. The cash we
generate funds selective
reinvestment into the business,
principally through capital
expenditure to develop our unique
infrastructure, equipment, IT systems
and engineering talent.
6 Partnerships
and collaboration
Partnering and collaboration are
key to our success of bringing
market- leading capabilities to
our customers. We bring together
organisations to deliver engineering
and technology-based products and
support solutions that add value to
our customers and increase access
to markets.
One example of this is our new
collaboration with Elbit Systems
UK and QinetiQ to deliver support
to the UK’s Maritime Electronic
Warfare Systems Integrated
Capability (MEWSIC), where we are
the Prime contractor.
5 Technology-based
solutions
We apply technology-based
solutions to solve complex
customer problems. We invest in
technologies that optimise asset
utilisation, advance manufacturing,
enhance support capabilities
and add value to customers. Our
data analytics, digital design and
integration capabilities reduce costs
and increase the customer’s ability
to adapt to technology developments.
8
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
9
See our People Strategy on page19See page 52 for details on how we engage with stakeholders
MARKET REVIEW
Defence and civil nuclear
We are increasingly focused
on defence, which remains our
largest and most important market.
We have a critical role in the defence and
security of the UK, Australia, New Zealand,
Canada and France and we design and
manufacture equipment and systems for
several other nations including the US
and South Korea.
Our defence customers all have increasingly
complex requirements, driven by:
• An increasingly unstable geopolitical
environment, evolving threats and
unpredictable crises
• Budget pressure and requirements
to deliver value for money
• The need to develop and apply
new technology to keep up with
customer needs and rapidly changing
threats
• Supply chain and inflation concerns
• Customer ESG requirements
Following the Russian invasion of Ukraine
many European countries have increased
or pledged to increase their defence budgets
and altered their defence posture to increase
force readiness e.g. double the number
of NATO battle groups in Eastern Europe.
The crisis may also lead to increased
defence spending across the Indo-Pacific,
as assessments of Chinese intentions are
updated, and the Middle East. Investor
ESG concerns around defence companies
have also been challenged as commitment
to defence is shown to be necessary to
preserving the liberal democratic order
which is a prerequisite for addressing the
ESG agenda.
As a result, UK and targeted international
defence markets continue to offer significant
resilience, alongside increased short,
medium and long-term potential, both
through increased spend in our existing
markets and expansion into new markets.
The UK, US and Australian governments
announced the creation of a major
defence collaboration (AUKUS), not
least to counter the increased threat
in the Indo-Pacific. This collaboration
covers not only the joint development of
conventionally armed, nuclear-powered
submarines for Australia, but also other
areas including, electronic warfare (EW),
information sharing, defence innovation,
autonomous systems, artificial
intelligence, and undersea capabilities.
UK defence
Market position
Our primary defence market is the UK
where we provide critical support to all
of the UK’s armed forces. We remain the
UK’s second largest defence supplier with
around 8% of total MOD procurement
spend and, as part of the Strategic
Partnering Programme, we are working
with the UK Government and MOD across
multiple critical programmes to ensure
the increasingly complex needs of our
armed forces are met.
UK defence spending rose to £42 billion
in 2021, £2.5 billion higher than 2020,
an increase of around 0.3%, adjusted for
inflation, with an estimated £19 billion
spent on MOD equipment and support, a
decrease of around 10% on the prior year.
Around 18% of the total defence spend
(around £7.5 billion) was designated to
supporting MOD equipment, which was
similar to last year. In November 2020,
the Government announced a
£16.5 billion increase in defence
spending over four years, and detailed
plans in 2021’s Integrated Review and
Defence Command Paper. There was no
change to these plans announced in
either the Autumn 2021 or Spring 2022
budgets.
UK defence spend 2021 £42 billion
32.0% Personnel
18.0% Specialist Military Equipment
18.0% Equipment Support
12.0% Infrastructure
13.0% Property, Equipment, R&D
and inventory
7.0% Other
Source: MOD Departmental resources: 2021
Opportunities
The 30-year shipbuilding pipeline, detailed
in the National Shipbuilding Strategy
relaunched in March 2022 offers, long term
10
Babcock International Group PLC Annual Report and Financial Statements 2022
opportunities for ship build and support. We
have had some success securing export
orders for our Arrowhead 140 design and see
further opportunities. There is also growing
emphasis on underwater capability, defence
communications, Intelligence, Surveillance
and Reconnaissance (ISR) and EW, all of which
present opportunities for Babcock. The continued
commitment to the Continuous At Sea
Deterrence may require two streams of nuclear
ballistic submarine maintenance in future
combined with two streams of attack class
submarine support while both classes transition.
The war in Ukraine may drive a reprioritisation
of spending to increase availability and
forward basing of armoured vehicles.
Over the longer term, the F35 and Tempest
programmes may present further opportunities
for support to operational training.
Risks
In FY22, £2.1 billion of our revenue came
from direct MOD spend, an increase of 12%.
Increased spending from the our MOD
customers is spread across major critical
programmes such as Type 31 and new areas
of digital defence.
We are the second largest defence supplier
to the UK Government, and participate
in a wide range of its critical defence
programmes. We recognise that this
represents a significant reliance on the
UK MOD. We routinely review reputational
and execution risk on the volume of critical
programmes in which we are involved
(see Group principal risks, see page 76.
The continually evolving international
geopolitical and threat environment may
see reprioritisation of budgets away from
traditional large, complex platforms to
smaller, uncrewed platforms and cyber.
National Shipbuilding
Strategy
The National Shipbuilding Strategy
Refresh was launched in March 2022.
The strategy is based on five central
pillars: create a 30-year pipeline of
over 150 vessels; accelerate
innovation, including related to net
zero and AI; increase financial support
to shipbuilders; and establish a UK
Shipbuilding Skills Taskforce. We are
currently building five Type 31 frigates
and are well positioned for other near
term programmes including FSS and
Type 32, as well as other longer term
opportunities the strategy offers for
ship build and support.
MARKET REVIEW
Defence and civil nuclear
We are increasingly focused
on defence, which remains our
largest and most important market.
UK defence
Market position
We have a critical role in the defence and
security of the UK, Australia, New Zealand,
Canada and France and we design and
manufacture equipment and systems for
several other nations including the US
and South Korea.
Our defence customers all have increasingly
complex requirements, driven by:
• An increasingly unstable geopolitical
environment, evolving threats and
unpredictable crises
• Budget pressure and requirements
to deliver value for money
• The need to develop and apply
new technology to keep up with
customer needs and rapidly changing
threats
• Supply chain and inflation concerns
• Customer ESG requirements
Following the Russian invasion of Ukraine
many European countries have increased
or pledged to increase their defence budgets
and altered their defence posture to increase
force readiness e.g. double the number
of NATO battle groups in Eastern Europe.
The crisis may also lead to increased
defence spending across the Indo-Pacific,
as assessments of Chinese intentions are
updated, and the Middle East. Investor
ESG concerns around defence companies
have also been challenged as commitment
to defence is shown to be necessary to
preserving the liberal democratic order
which is a prerequisite for addressing the
ESG agenda.
As a result, UK and targeted international
defence markets continue to offer significant
resilience, alongside increased short,
medium and long-term potential, both
through increased spend in our existing
markets and expansion into new markets.
The UK, US and Australian governments
announced the creation of a major
defence collaboration (AUKUS), not
least to counter the increased threat
in the Indo-Pacific. This collaboration
covers not only the joint development of
conventionally armed, nuclear-powered
submarines for Australia, but also other
Our primary defence market is the UK
where we provide critical support to all
of the UK’s armed forces. We remain the
UK’s second largest defence supplier with
around 8% of total MOD procurement
spend and, as part of the Strategic
Partnering Programme, we are working
with the UK Government and MOD across
multiple critical programmes to ensure
the increasingly complex needs of our
armed forces are met.
UK defence spending rose to £42 billion
in 2021, £2.5 billion higher than 2020,
an increase of around 0.3%, adjusted for
inflation, with an estimated £19 billion
Around 18% of the total defence spend
(around £7.5 billion) was designated to
supporting MOD equipment, which was
similar to last year. In November 2020,
the Government announced a
£16.5 billion increase in defence
spending over four years, and detailed
plans in 2021’s Integrated Review and
Defence Command Paper. There was no
change to these plans announced in
either the Autumn 2021 or Spring 2022
budgets.
UK defence spend 2021 £42 billion
spent on MOD equipment and support, a
decrease of around 10% on the prior year.
Risks
opportunities for ship build and support. We
have had some success securing export
orders for our Arrowhead 140 design and see
further opportunities. There is also growing
emphasis on underwater capability, defence
communications, Intelligence, Surveillance
and Reconnaissance (ISR) and EW, all of which
present opportunities for Babcock. The continued
commitment to the Continuous At Sea
Deterrence may require two streams of nuclear
ballistic submarine maintenance in future
combined with two streams of attack class
submarine support while both classes transition.
The war in Ukraine may drive a reprioritisation
of spending to increase availability and
forward basing of armoured vehicles.
Over the longer term, the F35 and Tempest
programmes may present further opportunities
for support to operational training.
In FY22, £2.1 billion of our revenue came
from direct MOD spend, an increase of 12%.
Increased spending from the our MOD
customers is spread across major critical
programmes such as Type 31 and new areas
of digital defence.
We are the second largest defence supplier
to the UK Government, and participate
in a wide range of its critical defence
programmes. We recognise that this
represents a significant reliance on the
UK MOD. We routinely review reputational
and execution risk on the volume of critical
programmes in which we are involved
(see Group principal risks, see page 76.
The continually evolving international
geopolitical and threat environment may
see reprioritisation of budgets away from
traditional large, complex platforms to
smaller, uncrewed platforms and cyber.
National Shipbuilding
Strategy
The National Shipbuilding Strategy
The strategy is based on five central
pillars: create a 30-year pipeline of
over 150 vessels; accelerate
innovation, including related to net
zero and AI; increase financial support
to shipbuilders; and establish a UK
Shipbuilding Skills Taskforce. We are
currently building five Type 31 frigates
and are well positioned for other near
term programmes including FSS and
Type 32, as well as other longer term
opportunities the strategy offers for
ship build and support.
18.0% Specialist Military Equipment
Refresh was launched in March 2022.
32.0% Personnel
18.0% Equipment Support
12.0% Infrastructure
13.0% Property, Equipment, R&D
and inventory
7.0% Other
Source: MOD Departmental resources: 2021
areas including, electronic warfare (EW),
Opportunities
information sharing, defence innovation,
The 30-year shipbuilding pipeline, detailed
autonomous systems, artificial
in the National Shipbuilding Strategy
intelligence, and undersea capabilities.
relaunched in March 2022 offers, long term
10
Babcock International Group PLC Annual Report and Financial Statements 2022
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Australia and New Zealand
defence
Market position
Babcock supports the armed forces of
both Australia and New Zealand. For the
Royal Australian Navy we provide support
to both Collins Class submarines and surface
ships including ANZAC class frigates, Canberra
class Landing Helicopter Docks (LHD) and LHD
landing craft. In March 2022, we acquired the
remaining 50% of Naval Ship Management
(NSM) from our joint venture partner. NSM has
evolved into a strategic maritime sustainment
partner to Australia and the acquisition will
strengthen the breadth of our support to the
Australian Defence Force’s maritime capability
and provide additional capability for Australia’s
current and future maritime programmes.
We have also been selected as preferred
bidder to upgrade and sustain the
Australian Defence High Frequency
Communication System (DHFCS).
This builds on our proven DHFC
experience in the UK and New Zealand
and reinforces our core capabilities in
delivering technology-led, cutting-edge
solutions to support complex electronic
defence programmes.
Babcock has a long-standing partnership
with the NZDF in support of the Royal
New Zealand Navy, which was further
strengthened with the award of the
NZDF’s main strategic maritime
partnering contract in February 2022.
Babcock will provide asset management
services, including engineering, project
management, production and operational
support, to the entire Royal New Zealand
Navy fleet, from frigates through to small
boats including RHIBs.
Opportunities
Australia’s Defence Strategic Update and
Force Structure Plan indicates an increase in
defence spending and procurement over the
next decade in response to evolving threats in
the Indo-Pacific, with Babcock well positioned
to support a number of key programmes.
The UK, US and Australian governments
announced the creation of AUKUS. This
presents opportunities for Babcock in the joint
design, build and support of conventionally
armed, nuclear-powered submarines for
Australia, but also electronic warfare,
information sharing, defence innovation, and
additional undersea capabilities.
Risks
Competition is strong, but we are developing
our in-country capability and credibility.
Civil nuclear
Market position
Babcock is now the only major UK-owned
nuclear services partner for Government
and is unique in covering both the
defence and civil sectors. We provide
complex services across civil nuclear new
build, operations and decommissioning
in the UK, and also provide more limited
services in Canada and Japan.
Opportunities
Nuclear power is a key part of both the
UK’s Net Zero strategy and its energy
security post-Ukraine. The Government’s
Energy Security Strategy published on
6 April 2022 announced a new body
called Great British Nuclear.
By 2050 this body aims to bolster the
UK’s nuclear capacity to up to 24 GW of
electricity, or 25% of projected demand,
through up to eight new reactors, with
one being approved each year until 2030.
It also confirmed advanced plans to
approve two new reactors at Sizewell in
Suffolk during this parliament. Subject
to technology readiness, Small Modular
Reactors (SMR’s) will form a key part of
the nuclear project pipeline. We are
well positioned to take advantage of
opportunities in these areas.
Risks
The decommissioning market has become
increasingly difficult following the NDA’s
decision in 2020 to insource the major
programmes across Magnox and
Dounreay. In addition, historically it
has been hard to secure the necessary
commitments to make new nuclear
power stations a reality.
Canada defence
Market position
Babcock delivers the Victoria In Service
Support Contract (VISSC) to sustain the
Royal Canadian Navy’s (RCN) Victoria
class submarines. Working with the RCN,
Babcock has transferred the skills and
expertise required to provide through life
support and maintenance to submarines
from the UK to Canada.
Opportunities
We continue to target large military aviation
training opportunities in Canada. Post-Ukraine,
Canada is highly likely to further increase its
defence spending, in addition to agreed
increases already underway. Canadian
Defence Minister Anand has indicated an
‘aggressive’ increase to defence spending to
reach the NATO 2% of GDP target. This may
present new opportunities for Babcock.
Risks
A preference for well-established
native competition could limit Babcock’s
exposure to further opportunities given
our relatively modest footprint in the
country. Our current work is based around
one contract and we do not own any
infrastructure. This is highlighted as one of
the Group’s principal risks, see page 76.
France defence
Market position
We have grown our position in military
aviation training France through the award
of the Mentor 1 contract for fast jet pilot
training and strengthened our position in
the military rotary wing maintenance, repair
and overhaul (MRO) market, including the
provision of search and rescue aircraft and
services for the French Navy.
Opportunities
Defence spending in France continues to
grow with clear opportunities in military
aviation training and MRO, and land
vehicle MRO. There may also be some
marine opportunity for the support of
non-complex vessels and equipment,
equipment management, maritime
autonomy and training.
Risks
Similarly to Canada, France has well
established domestic defence suppliers,
often with some element of state
ownership. As a British company with
limited infrastructure, we may struggle to
compete for some opportunities.
Babcock International Group PLC Annual Report and Financial Statements 2022
11
CHAIR’S STATEMENT
Babcock’s transformation is far-reaching
and comprehensive
together. This Purpose has been
communicated extensively within the
Group this year and feeds through into
all aspects of our strategy. It is supported
by our six new Principles (see page 20)
launched this year through substantial
engagement with our workforce; these
Principles embody the new ways of
working and shift towards the more
people-focused and accountable culture
that we believe is essential to meet the
needs of all our stakeholders. I am
delighted by how positively our people
have been responding.
Alongside and integral to the launch of
our Principles and focus on culture is the
role of sustainability. We believe that it is
right for our stakeholders to expect to
hold us to account for our approach and
progress. Importantly, as evidenced by the
tragic events in Ukraine, we believe the
defence industry plays a major part in
assuring the stability of sovereign nations;
without stability, it is impossible to drive
the necessary environmental, social and
governance (ESG) improvements to create
a safe and secure world.
We have progressed our ESG strategy,
expanding our corporate commitments
to incorporate broader environmental
targets, and we have created new Group
policies and guidance. Our social value
activities support the needs of the local
communities where we operate, which
are so critical to our future success
(see page 63). On climate action,
we are continuing to progress our
decarbonisation programme and are on
track to submit science-based emission
targets (see page 57).
The Board’s primary focus in FY22
was to stabilise the business. Overall,
we have made excellent progress against
our goals for the year, driving tangible
positive change across the Group
against a background of increasing
geopolitical uncertainty.
The second year of our turnaround will
build on the strategic actions taken in
FY22, with a focus on execution and
growth. As we continue to make further
progress, the Board is confident of
delivering on its expectations of
increasingly profitable growth and
improved cash flow for FY23 and into
the medium term. Babcock is returning
to strength.
RUTH CAIRNIE
Chair
Ruth Cairnie
Chair
Read Ruth’s biography
on page 94
In last year’s report I gave a full
account of the developments
arising from the steps we had
taken to address the historic
underperformance of the Group.
We had reset our financial baseline,
refreshed our strategy, launched
a new operating model and introduced
improved governance and controls.
The first full year of our turnaround has
continued the implementation of these
improvements. The Board is very satisfied
with the progress made against the five
strategic actions we had identified for
FY22, including generating more than our
target of £400 million from divestments
intended to focus the Group. Our progress
is covered in more detail in the CEO
report (page 13).
Our financial results for the year are
encouraging. Underlying operating profit
of £237.7 million was a 13% organic
increase on last year, excluding one-off
contract profitability and balance sheet
(CPBS) adjustments in FY21, supported by
the expected improved performance from
our new operating model and a reduction
in the impact of COVID-19. Statutory
operating profit of £226.8 million
compares to a loss of £1,736.7 million
in FY21, which included charges from
the CPBS review and asset impairments.
Our underlying free cash flow was
slightly ahead of expectations at
£(191.3) million, driven by timing
benefits and advance payments.
Statutory revenue grew by 3% to
£4,101.8 million. On an organic basis,
revenue grew by 5% with good volume
recovery in the Land and Aviation sectors.
We have had some notable commercial
successes through the year, demonstrating
the relevance of our capabilities to our
target customers. These included the
signing of a £3.5 billion Future Marine
Support Programme (FMSP) contract that
continues our work for the UK Royal Navy,
further work on defence aviation training
in France, and new contracts for next-
generation tactical communications
and information systems in the UK
and Australia.
The Board was delighted at the early
successes from the Arrowhead 140 frigate
export programme, the Babcock design
based on the Type 31 we developed for
the UK, in Indonesia and Poland.
The transformation of Babcock is intended
to be far-reaching and comprehensive,
and is grounded in our corporate Purpose:
to create a safe and secure world,
12
Babcock International Group PLC Annual Report and Financial Statements 2022
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CHAIR’S STATEMENT
CEO REVIEW
Babcock’s transformation is far-reaching
and comprehensive
Strong progress in our first year
of turnaround
together. This Purpose has been
communicated extensively within the
Group this year and feeds through into
all aspects of our strategy. It is supported
by our six new Principles (see page 20)
launched this year through substantial
engagement with our workforce; these
Principles embody the new ways of
working and shift towards the more
people-focused and accountable culture
that we believe is essential to meet the
needs of all our stakeholders. I am
delighted by how positively our people
have been responding.
Alongside and integral to the launch of
our Principles and focus on culture is the
role of sustainability. We believe that it is
right for our stakeholders to expect to
hold us to account for our approach and
progress. Importantly, as evidenced by the
tragic events in Ukraine, we believe the
defence industry plays a major part in
assuring the stability of sovereign nations;
without stability, it is impossible to drive
the necessary environmental, social and
governance (ESG) improvements to create
a safe and secure world.
We have progressed our ESG strategy,
expanding our corporate commitments
to incorporate broader environmental
targets, and we have created new Group
policies and guidance. Our social value
activities support the needs of the local
communities where we operate, which
are so critical to our future success
(see page 63). On climate action,
we are continuing to progress our
decarbonisation programme and are on
track to submit science-based emission
targets (see page 57).
The Board’s primary focus in FY22
was to stabilise the business. Overall,
we have made excellent progress against
our goals for the year, driving tangible
positive change across the Group
against a background of increasing
geopolitical uncertainty.
The second year of our turnaround will
build on the strategic actions taken in
FY22, with a focus on execution and
growth. As we continue to make further
progress, the Board is confident of
delivering on its expectations of
increasingly profitable growth and
improved cash flow for FY23 and into
the medium term. Babcock is returning
to strength.
RUTH CAIRNIE
Chair
the sale of some of our aerial emergency
services (AES) businesses for a cash
consideration of c.£115m. This achieved
our key portfolio objectives: to reduce
complexity, focus the Group on our
chosen markets and strengthen
the balance sheet. In March 2022,
we expanded our footprint in Australia
with the acquisition of the remaining
50% interest in our Australian Naval Ship
Management (NSM) joint venture for
£33.1 million. Our portfolio actions
have enabled us to reduce our gearing to
1.8x net debt to EBITDA, in line with our
year-end target of below 2.0x.
Operating model: Our new operating
model is now established and is driving
efficiencies throughout the business.
We are already realising benefits from our
ongoing work to streamline processes,
increase standardisation and improve
controls. In FY22 we achieved our target
in-year operating model savings of
c.£20 million and an annualised savings
rate of c.£40 million, while restructuring
costs of £36 million were slightly below
our original expectations. This progress
contributed to the increase in underlying
operating margin to 5.8%. The new model
increases visibility and shortens
communication lines – both essential for an
agile business, and important enablers for
collaboration. We will continue to embed
these new ways of working, with a
particular focus on operational excellence
and execution in FY23.
People strategy: With c.28,000 skilled
employees in the Babcock Group,
our people strategy is critical to our
future success. Aligned with our Purpose,
to create a safe and secure world, together,
we rolled out six Principles that underpin
the ongoing cultural transformation that
is key to driving sustainable improvement:
Be curious; Be Kind; Be Courageous, Think:
Outcomes; Collaborate; and Own and
Deliver. Across the Group we are
harmonising our people policies and
fostering a culture that shares capability,
talent, innovation and best practice.
We will continue to seek to optimise our
legal entities and structures as we continue
to roll out our people strategy.
ESG strategy: We have made good
progress on our ESG strategy. We have
matured our plans to reduce harmful
emissions from our operations, and to
integrate sustainability into programme
David Lockwood
Chief Executive Officer
Read David’s biography
on page 94
One year ago we defined the
actions we needed to take in FY22
to stabilise the business and lay the
foundations for the future.
In this, our first year of turnaround,
I am pleased to report that we have
made strong progress on all our
strategic priorities. Overall, our financial
performance in FY22 was in line with our
expectations, with cash flow slightly
better than anticipated. Additionally,
we took significant actions to improve
balance sheet quality, including the
reduction of certain working capital items
such as supply chain financing, debt
factoring and the practice of deferring
period-end creditors.
Led by our Purpose, to create a safe and
secure world, together, we have taken
action to secure our business; stabilising
the balance sheet and focusing the Group
through portfolio alignment. We have
reorganised around a new operating
model and people strategy, which has
been further supported by our developing
ESG strategy. We are now well-positioned
to take advantage of the opportunities
created by the strengthening global
market for defence.
Stabilise – strategic
actions update
At the start of FY22 we identified five
strategic actions for the first year of our
turnaround, designed to stabilise the
Group both financially and operationally,
and to position us for improved execution
and growth:
1. Align our portfolio
2. Implement our new operating model
3. Roll out our new people strategy
4. Develop our new ESG strategy
5. Explore growth opportunities
We made strong progress against our
priorities, making the changes that will
drive improved delivery for our customers,
a better experience for our employees and
improved returns for shareholders.
Portfolio: We reviewed the businesses in
our portfolio to determine strategic fit
and the value to shareholders of their
presence in our portfolio. The divestment
of four businesses (our Oil and Gas
aviation business, Frazer-Nash Consultancy
Ltd, UK Power and our 15.4% stake in the
AirTanker Holdings Limited joint venture)
generated gross proceeds of
£447.3 million, exceeding our target of
at least £400 million. In addition, in July
2022 we signed a conditional agreement
Ruth Cairnie
Chair
Read Ruth’s biography
on page 94
In last year’s report I gave a full
account of the developments
arising from the steps we had
taken to address the historic
underperformance of the Group.
We had reset our financial baseline,
refreshed our strategy, launched
a new operating model and introduced
improved governance and controls.
The first full year of our turnaround has
continued the implementation of these
improvements. The Board is very satisfied
with the progress made against the five
strategic actions we had identified for
FY22, including generating more than our
target of £400 million from divestments
intended to focus the Group. Our progress
is covered in more detail in the CEO
report (page 13).
Our financial results for the year are
encouraging. Underlying operating profit
of £237.7 million was a 13% organic
increase on last year, excluding one-off
contract profitability and balance sheet
(CPBS) adjustments in FY21, supported by
the expected improved performance from
our new operating model and a reduction
in the impact of COVID-19. Statutory
operating profit of £226.8 million
compares to a loss of £1,736.7 million
in FY21, which included charges from
the CPBS review and asset impairments.
Our underlying free cash flow was
slightly ahead of expectations at
£(191.3) million, driven by timing
benefits and advance payments.
Statutory revenue grew by 3% to
£4,101.8 million. On an organic basis,
revenue grew by 5% with good volume
recovery in the Land and Aviation sectors.
We have had some notable commercial
successes through the year, demonstrating
the relevance of our capabilities to our
target customers. These included the
signing of a £3.5 billion Future Marine
Support Programme (FMSP) contract that
continues our work for the UK Royal Navy,
further work on defence aviation training
in France, and new contracts for next-
generation tactical communications
and information systems in the UK
and Australia.
The Board was delighted at the early
successes from the Arrowhead 140 frigate
export programme, the Babcock design
based on the Type 31 we developed for
the UK, in Indonesia and Poland.
The transformation of Babcock is intended
to be far-reaching and comprehensive,
and is grounded in our corporate Purpose:
to create a safe and secure world,
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Babcock International Group PLC Annual Report and Financial Statements 2022
13
Execution
With improvement underway across
many areas of the Group, our focus for
FY23 is on driving further operational
excellence. We will continue to invest
in controls and process improvement,
our facilities, our people, and our
IT systems. This will enable us to drive
efficiencies, increase business resilience
and improve operational delivery and risk
management, ultimately increasing the
Group’s profitability and cash conversion.
Growth
We have laid the foundations for
sustainable profitable growth. The markets
we address offer favourable medium-term
growth, with opportunities in our core
defence market increasing as a result
of the current heightened geopolitical
uncertainty. We continue to target
opportunities for defence and critical
services in our focus countries – the UK,
France, Canada, Australasia and South
Africa – and exports to additional markets,
for example, selection of the AH140
design by Poland for its MIECZNIK
frigate programme.
The tragic conflict unfolding in Ukraine has
created significant additional geopolitical
volatility and governments have
reprioritised defence and national security.
In the short term, opportunities are
emerging for our defence support
capabilities, driven by the need for
force readiness. Over the longer term,
our government customers must balance
requirements for large-scale equipment
modernisation and force expansion with
the reality of constrained budgets.
Our business model supports and
enhances customers’ defence and security
capabilities and critical assets through
a range of products and service solutions.
We are ideally placed to address their core
requirements of availability, affordability
and capability:
• Availability – Our customers require
high utilisation of complex assets,
from ships and submarines in our
Marine and Nuclear sectors to military
and emergency services aircraft and
vehicles in Aviation and Land. Our fleet
support and sustainment models are
increasingly geared to higher-value-add
availability-based solutions designed to
optimise asset utilisation and reduce
lifetime costs.
• Affordability – Our customers are also
demanding value for money on support
programmes and new platforms. Our
deep understanding of our customers’
needs, and our ability to bring suppliers
and technologies together to deliver
an integrated solution, enable us to
provide the affordability and flexibility
they require.
CEO REVIEW continued
design and contract terms. Each of
our sectors are developing their own
sustainability plans in support of Group-led
programmes and to meet stakeholders’
needs. We have evolved our strategy to
meet our commitment to achieve net zero
carbon emissions for our estate, assets and
operations by 2040. In April 2021,
we signed the Business Ambition Pledge
and committed to a 2030 science-based
target in line with a 1.5°C pathway. We are
on track to meet our goal and over the
next 12 months we aim to submit our
targets for approval by the science-based
targets initiative (SBTi).
Growth: FY22 was a pivotal year for new
business development. Our strategy,
which combines asset support and
sustainment with a range of value-add
products and technical services, drove
good business momentum. We signed two
export agreements for our AH140 naval
ship design, which is the base for the UK’s
Type 31 programme: a licence order for
two ships for Indonesia and selection by
Poland for its new MIECZNIK (Swordfish)
three-ship frigate programme. We secured
several major defence communications
contracts including a c.£150 million
logistics support contract for the UK’s
next-generation tactical communications
and information systems and a
c.£100 million contract for the UK MOD’s
new Defence Strategic Radio Service
(DSRS). In addition, we were selected
as capability partner to upgrade and
sustain the Defence High Frequency
Communication System (DHFC) to support
the Australian armed forces over the next
10 years. This award is a great example of
collaboration across the Group and with
international partners to develop high-
value-add solutions for our customers.
The strong progress made on the five
strategic actions for FY22 has achieved
what we set out to do in the first year
of our turnaround. We have met the
immediate need to stabilise the business,
strengthen the balance sheet and set our
performance baseline. We have successfully
laid the foundations for the future. In the
second year of our turnaround we will
increase our focus on execution and
growth, and continue to drive cultural
change across the Group.
LYNEHAM, UK
Getting hands on at a visit to our
training contract at MOD Lyneham.
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Babcock International Group PLC Annual Report and Financial Statements 2022
CEO REVIEW continued
design and contract terms. Each of
our sectors are developing their own
sustainability plans in support of Group-led
programmes and to meet stakeholders’
needs. We have evolved our strategy to
meet our commitment to achieve net zero
carbon emissions for our estate, assets and
operations by 2040. In April 2021,
we signed the Business Ambition Pledge
and committed to a 2030 science-based
target in line with a 1.5°C pathway. We are
on track to meet our goal and over the
next 12 months we aim to submit our
targets for approval by the science-based
targets initiative (SBTi).
Growth: FY22 was a pivotal year for new
business development. Our strategy,
which combines asset support and
sustainment with a range of value-add
products and technical services, drove
Execution
With improvement underway across
many areas of the Group, our focus for
FY23 is on driving further operational
excellence. We will continue to invest
in controls and process improvement,
our facilities, our people, and our
IT systems. This will enable us to drive
efficiencies, increase business resilience
and improve operational delivery and risk
management, ultimately increasing the
Group’s profitability and cash conversion.
Growth
We have laid the foundations for
sustainable profitable growth. The markets
we address offer favourable medium-term
growth, with opportunities in our core
defence market increasing as a result
of the current heightened geopolitical
good business momentum. We signed two
uncertainty. We continue to target
export agreements for our AH140 naval
opportunities for defence and critical
ship design, which is the base for the UK’s
services in our focus countries – the UK,
lifetime costs.
Type 31 programme: a licence order for
two ships for Indonesia and selection by
Poland for its new MIECZNIK (Swordfish)
France, Canada, Australasia and South
Africa – and exports to additional markets,
for example, selection of the AH140
three-ship frigate programme. We secured
design by Poland for its MIECZNIK
several major defence communications
frigate programme.
force readiness. Over the longer term,
our government customers must balance
requirements for large-scale equipment
modernisation and force expansion with
the reality of constrained budgets.
Our business model supports and
enhances customers’ defence and security
capabilities and critical assets through
a range of products and service solutions.
We are ideally placed to address their core
requirements of availability, affordability
and capability:
• Availability – Our customers require
high utilisation of complex assets,
from ships and submarines in our
Marine and Nuclear sectors to military
and emergency services aircraft and
vehicles in Aviation and Land. Our fleet
support and sustainment models are
increasingly geared to higher-value-add
availability-based solutions designed to
optimise asset utilisation and reduce
• Affordability – Our customers are also
demanding value for money on support
programmes and new platforms. Our
deep understanding of our customers’
needs, and our ability to bring suppliers
and technologies together to deliver
an integrated solution, enable us to
provide the affordability and flexibility
they require.
The tragic conflict unfolding in Ukraine has
created significant additional geopolitical
volatility and governments have
reprioritised defence and national security.
In the short term, opportunities are
emerging for our defence support
capabilities, driven by the need for
contracts including a c.£150 million
logistics support contract for the UK’s
next-generation tactical communications
and information systems and a
c.£100 million contract for the UK MOD’s
new Defence Strategic Radio Service
(DSRS). In addition, we were selected
as capability partner to upgrade and
sustain the Defence High Frequency
Communication System (DHFC) to support
the Australian armed forces over the next
10 years. This award is a great example of
collaboration across the Group and with
international partners to develop high-
value-add solutions for our customers.
The strong progress made on the five
strategic actions for FY22 has achieved
what we set out to do in the first year
of our turnaround. We have met the
immediate need to stabilise the business,
strengthen the balance sheet and set our
performance baseline. We have successfully
laid the foundations for the future. In the
second year of our turnaround we will
increase our focus on execution and
growth, and continue to drive cultural
change across the Group.
LYNEHAM, UK
Getting hands on at a visit to our
training contract at MOD Lyneham.
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Inflation
The Group’s main exposure to inflation is
via rising employment costs – particularly
where we have existing contracts which
were agreed in a low-inflation
environment and include inflation risk.
At the same time, our employees are
suffering the rapidly rising cost of living,
with the issue most acute in the UK of all
our markets. The Group is seeking to
manage the short-term impact of inflation
through increased efficiencies, and to
limit the taking of commercial risk
of future inflation in new contracts where
it cannot be mitigated.
We are therefore delighted that over the
last few months we have engaged
collaboratively with our employees and
trade unions in the UK to agree a fixed-
sum pay increase for FY23 that will benefit
all but the most highly paid employees.
This innovative and progressive pay deal
has been designed to disproportionately
benefit our lower-paid employees,
who are most exposed to rising costs.
It has now been agreed and implemented
for 85% of the UK workforce (around 65%
of the total workforce) giving us better
visibility of employment costs for the year
ahead. This will increase our labour costs
by some £25 million per annum above
our original expectations. The Group
expects to offset this cost increase
through a variety of measures, including
the acceleration of improvements in
contracting and procurement practices,
and the removal of inefficient processes
as we further embed our new
operating model.
Outside of wage inflation, in many of our
markets the recent increase in input-cost
inflation coupled with shortages of supply,
has increased the cost, and in some areas
the availability, of materials and
components. In such an environment,
supplier resilience is also an emerging risk.
Our newly formed Procurement and
Supply Chain organisation is monitoring
our supply chain to identify and mitigate
any such issues as early as possible.
BABCOCK CANADA
A visit to our Canada
submarine programme
• Capability – Our customers operate
in complex and ever-changing
environments, which drives a continual
need to adapt and enhance capability.
We apply our understanding of
technology integration, infrastructure
management and specialist training
to improve their capability, whether it
be through product, support or
training solutions.
We are growing our defence digital
capabilities to develop a range of
technology-based products and solutions
that reduce acquisition and operational
costs and increase flexibility. For example,
our iSupport360 solution enables the
optimisation of support to maritime and
other complex equipment. Building on
our success in winning the MEWSIC,
LeTacCIS and DHFC contracts in FY22,
we will continue to develop our ability
as a technology integrator, bringing
together industry partners to design
innovative and cost-effective capabilities
in areas such as secure communications
and electronic warfare.
We are experiencing significant
international interest in AH140, the
export variant of our Type 31 frigate,
driven by the demand for affordable
and flexible naval power. Its modular
construction offers a wide range of
programme options, including capability
(systems), construction and supply chain,
and acquisition model – from a basic
licence agreement to high levels of build
programme participation for Babcock.
Following our successes in Indonesia
and Poland, we are in active discussions
regarding further AH140 export
opportunities. The digital design and build
model for Type 31 is also an important
enabler for the UK Government’s recently
refreshed 30-year National Ship Building
Strategy and positions us well for future
opportunities in the UK.
Also in defence, increased operational
tempo and a growing incumbent fleet are
driving demand for surface ship support
and maintenance. After the year-end we
signed a four-year contract to deliver
through-life support to the Marinha do
Brasil’s flagship vessel, NAM Atlântico,
formerly the UK Royal Navy platform
HMS Ocean, as part of its global
support programme.
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Babcock International Group PLC Annual Report and Financial Statements 2022
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CEO REVIEW continued
Health and safety
performance in the year
The appointment of a Global Safety,
Health and Environmental Protection
Director, and formation of a central team,
has brought additional focus to the safety
improvement programme. We have
strengthened our governance and
introduced an electronic global safety
information management system. The
Group’s Total Recordable Injury Rate (TRIR)
in FY22, which includes work-related
injuries requiring medical treatment, has
reduced from 0.89 injuries for every
100,000 hours worked to 0.75 over the
year, with a reduction in the number of
these types of accidents of 18% against
2021. However, we have also seen
a 5% increase in work-related injuries that
resulted in personnel needing at least one
day away from work. We continue to work
hard to reduce the number of injuries and
illnesses as a result of our activities.
Summary of financial
performance in FY22
Revenue of £4,101.8 million grew
by 5% organically, driven largely by
recovery across the Group from prior-year
COVID-19 impacts and growth in Marine
and Nuclear.
Underlying operating profit of
£237.7 million was a 13% organic
increase on last year (excluding one-off
CPBS adjustments in FY21), supported by
improved performance from our new
operating model and lower COVID-19
business interruption, particularly in
Marine, Land and Aviation. This was partly
offset by a £22 million programme
write-off in the Nuclear sector. Underlying
operating margin improved to 5.8%
(FY21: 5.5%) driving a 7% increase in
underlying basic EPS to 30.7 pence
(FY21: 28.8 pence, excluding one-off
CPBS adjustments).
Statutory operating profit of
£226.8 million compared to
a £1,736.7 million loss in the prior year,
which included £(1,815.5) million from
the CPBS review.
Cash performance was heavily impacted
by the settlement of past factors as
previously communicated, including
pension deficit catch-up payments and
efforts to normalise period-end working
capital. Underlying free cash flow of
£(191.3) million was slightly ahead of our
expectations, driven by lower net capex
and a tax cash inflow from the settlement
of open years with the authorities.
Also, the favourable timing of customer
receipts and prepayments enabled the
Group to pay-off around £70 million more
previous deferred creditors than originally
planned, as well as £23.3 million of
scheduled FY23 pension payments and
settling the c.£15 million Italian fine.
DEVONPORT, UK
A visit to Devonport
Royal Dockyard.
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Babcock International Group PLC Annual Report and Financial Statements 2022
CEO REVIEW continued
Health and safety
performance in the year
Summary of financial
performance in FY22
The appointment of a Global Safety,
Health and Environmental Protection
Revenue of £4,101.8 million grew
by 5% organically, driven largely by
Director, and formation of a central team,
recovery across the Group from prior-year
has brought additional focus to the safety
COVID-19 impacts and growth in Marine
improvement programme. We have
and Nuclear.
strengthened our governance and
introduced an electronic global safety
information management system. The
Group’s Total Recordable Injury Rate (TRIR)
in FY22, which includes work-related
injuries requiring medical treatment, has
reduced from 0.89 injuries for every
100,000 hours worked to 0.75 over the
year, with a reduction in the number of
these types of accidents of 18% against
2021. However, we have also seen
a 5% increase in work-related injuries that
resulted in personnel needing at least one
day away from work. We continue to work
hard to reduce the number of injuries and
illnesses as a result of our activities.
Underlying operating profit of
£237.7 million was a 13% organic
increase on last year (excluding one-off
CPBS adjustments in FY21), supported by
improved performance from our new
operating model and lower COVID-19
business interruption, particularly in
Marine, Land and Aviation. This was partly
offset by a £22 million programme
write-off in the Nuclear sector. Underlying
operating margin improved to 5.8%
(FY21: 5.5%) driving a 7% increase in
underlying basic EPS to 30.7 pence
(FY21: 28.8 pence, excluding one-off
CPBS adjustments).
Statutory operating profit of
£226.8 million compared to
a £1,736.7 million loss in the prior year,
which included £(1,815.5) million from
the CPBS review.
Cash performance was heavily impacted
by the settlement of past factors as
previously communicated, including
pension deficit catch-up payments and
efforts to normalise period-end working
capital. Underlying free cash flow of
£(191.3) million was slightly ahead of our
expectations, driven by lower net capex
and a tax cash inflow from the settlement
of open years with the authorities.
Also, the favourable timing of customer
receipts and prepayments enabled the
Group to pay-off around £70 million more
previous deferred creditors than originally
planned, as well as £23.3 million of
scheduled FY23 pension payments and
settling the c.£15 million Italian fine.
DEVONPORT, UK
A visit to Devonport
Royal Dockyard.
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Trading in first quarter of FY23
Trading in the quarter ended 30 June
2022 was in line with expectations.
Net debt excluding operating leases was
£625 million, higher than at 31 March
2022, reflecting timing of pension
deficit payments.
Outlook
We are pleased with the strong progress
made in FY22 to stabilise the Group and
begin the process of driving improvements
in the areas we identified at the beginning
of the year. In particular, the material steps
we have taken to address the balance
sheet and the quality of our cash flow
mean that we ended the year in a far
stronger position than we began.
With the business stabilised, we are in
a stronger position, both financially and
operationally, with the prospects for the
business similarly improved. Although we
are not immune to the various macro
challenges, such as inflation, that continue
to impact and shape the markets in which
we operate, we will be as agile as we can
be in response.
The second year of our turnaround will be
as important as the first as we to build
further on the foundations laid for a better
Babcock in FY23. We will continue the
drive to achieve efficiencies from better
execution, including the expected
c.£20 million further restructuring benefit,
and to capture the increasing opportunities
for growth in our core markets.
As we look ahead, and as we continue
to make operational progress through
the disciplined execution of our strategy,
the Board is confident of delivering on its
expectations of increasingly profitable
growth and improved cash flow for FY23.
Looking further ahead, we believe our
strategy and focus on operational
execution will significantly improve the
Group’s growth, profitability and cash
generation over the medium term.
BECKTON, UK
A visit to the London Fire Brigade
training centre.
Delivering for all
our stakeholders
Over the medium and long-term, we are
focused on delivering value for all our
stakeholders, including:
• Improved outcomes for our
customers: consistent delivery and
partnering with customers to solve
their challenges
• A better place to work for our
employees: an open, collaborative
and diverse workplace that engages
our employees
• Returns for our shareholders:
a return to growth with improving
margins and better cash conversion
We have made strong progress to position
the Company for future success. There is
still much to do, but we have all the
elements in place to take advantage
of the many opportunities which lie
before us.
DAVID LOCKWOOD
Chief Executive Officer
OTHER INFORMATION
Dividend
No ordinary dividends have been
paid or declared for the financial
year ended 31 March 2022.
AGM
We will be holding our Annual
General Meeting on
19 September 2022.
Board changes
In January 2022 we welcomed
John Ramsay to the Board
as a Non-Executive Director.
John became Chair of the Audit
Committee in February 2022.
Myles Lee and Victoire
de Margerie retired as Non-
Executive Directors at the AGM
in September 2021 after six and
five years of service respectively.
Russ Holden will retire as a
Non-Executive Director in July
2022 after two years of service,
and our 2022 AGM will see
Non-Executive Director and
Remuneration Committee Chair
Kjersti Wiklund retire from the
Board after four years of service.
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
17
CULTURE CHANGE
Led by our Purpose
Our Purpose is to create a
safe and secure world,
together – this is why we exist as
a business, and why we do what
we do. It defines and underpins
our new ways of working, how we
create value for our shareholders
and how we improve delivery
for our customers. It informs the
decisions we make and how we
treat each other.
Our Purpose and Principles were
formally launched this year to support
the major cultural shift the business is
making. They were developed with the
help of our people and are designed to
unite us as a company, inspire our
thinking, guide our actions, and
encourage us to support each other
in achieving our vision of a safe, strong,
sustainable Babcock.
embraced the new Principles by sharing
personal stories of the Principles in
action, and why they are important to
them. We will continue to collect and
share these stories across the business.
We are embedding our Principles
across the business and applying
them to the way we operate. We have
built awareness through increased
communication and direct engagement
with our front-line leaders.
The next phase of this work is to embed
the Principles into all of our people
processes, and transform at pace how
we recruit, lead, develop, recognise,
reward and manage the performance
of our people.
We have helped managers, teams and
individuals to explore how to bring the
Purpose and Principles to life, through
‘town hall’ meetings, vlogs, videos,
workshops, webinars, team discussions
and focused weeks. Our people have
Our Principles put people at the core of
everything we do and they will continue
to guide how we all work together,
from the front-line to the Board.
Our new operating model
To further unlock our potential, we
developed and implemented a new
operating model during 2021. The
resulting changes saw us reduce
headcount, remove layers, and simplify
how we work together, underpinned by
our Principles.
One of the most significant changes in
the period was the move to a centrally
coordinated functional model, impacting
areas such as HR, Finance, Procurement
and Supply Chain, Communications
and IT. This new way of working
has empowered us to operate as
one Babcock, driving accountability,
efficiency and consistency across
the Group.
Coupled with the new operating model
and the cultural reset, we have focused
on reducing complexity in the business to
make us more efficient. By integrating the
Group, we have increased our ability to
respond quickly to changing market
conditions, sharing capability and solving
challenges across Babcock. The roll-out of
our new People Strategy has begun and
will strengthen our ability to be flexible,
enabling us to move talent, innovation,
and best practice around the Group and
to support our people with an agile and
inclusive workplace and an increased
focus on output and delivery.
These changes have reinforced our
commitment to being a purpose-led
business, which will help to transform the
experience of our people and customers,
and will drive improved performance
across the Group.
Harnessing expertise
Over the past year we have accelerated
our knowledge-transfer and sharing
programmes to harness the engineering
and technical expertise of our people and
to strengthen and expand our own skills
and networks.
Through our Innovation Lunch and Learn
programme, our people and partners
have come together to deliver over
60 hours of shared training and insight
on core programmes to enable a safe
and secure workplace for collaboration
and learning.
Our Big Ideas programme has seen over
600 new ideas on cost savings, the
environment and safety, and identified
where and how we can continue to
innovate across our business.
Inclusion and Diversity
We believe being an inclusive business
which supports its people and values
difference is central to living our Purpose.
It is key to creating the right foundations
to attract and retain the best, diverse
talent. We have recently appointed
our first Global Head of Inclusion and
Diversity, to develop our approach and
to review, design and implement ways
of working that empower our people.
See more about our approach
to Inclusion and Diversity on page 64
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Our People Strategy
Our People Strategy clearly
defines our ambition for
the future. It recognises the
work we have undertaken
and, more importantly,
identifies the steps needed
to achieve our ambition
to make Babcock a more
efficient, agile, inclusive,
sustainable and people-
focused business.
We plan to achieve this by providing
our people with the tools, flexibility
and support they need to unlock
their potential and develop the skills
required in this ever-changing world.
Underpinned by our Principles,
our People Strategy sets out our
overarching vision for Babcock and
focuses on five key People goals
to achieve this vision.
Our People Strategy has five
key goals:
1 Demand great leadership
Individuals are supported, valued and
engaged to succeed.
2 Redefine our ways of working
We build a strong, safe, unified,
global business.
3 Grow our capability
Everyone can learn, progress and unleash
their potential.
4 Improve our people experience
People feel part of Babcock; listened to,
trusted and able to make a difference.
5 Raise the performance bar
We deliver better outcomes for
our business, people, customers
and communities.
Work is ongoing across these areas,
and we are developing a set of metrics
that will measure our progress against
these goals to ensure we are delivering
for our customers, communities and
our people.
Our ambition is to attract and retain
the best possible people by engaging
with our employees, promoting
their wellbeing, investing in their
development, recognising their
commitment and ensuring our
employee packages are competitive.
Babcock will be an inclusive and diverse
company, a great place to work where
people feel part of an integrated, more
global business. This will be reflected
in how we operate across geographical
and business lines, the value we
demonstrate in collaborating and
the diversity of our leadership and
employees across the Group.
Our People Strategy
CULTURE CHANGE
Led by our Purpose
Our Purpose is to create a
safe and secure world,
together – this is why we exist as
a business, and why we do what
we do. It defines and underpins
our new ways of working, how we
create value for our shareholders
and how we improve delivery
for our customers. It informs the
decisions we make and how we
treat each other.
Our Purpose and Principles were
formally launched this year to support
the major cultural shift the business is
making. They were developed with the
help of our people and are designed to
unite us as a company, inspire our
embraced the new Principles by sharing
thinking, guide our actions, and
personal stories of the Principles in
encourage us to support each other
action, and why they are important to
in achieving our vision of a safe, strong,
them. We will continue to collect and
sustainable Babcock.
share these stories across the business.
We are embedding our Principles
across the business and applying
The next phase of this work is to embed
the Principles into all of our people
them to the way we operate. We have
processes, and transform at pace how
built awareness through increased
we recruit, lead, develop, recognise,
communication and direct engagement
reward and manage the performance
with our front-line leaders.
of our people.
We have helped managers, teams and
Our Principles put people at the core of
individuals to explore how to bring the
everything we do and they will continue
Purpose and Principles to life, through
to guide how we all work together,
‘town hall’ meetings, vlogs, videos,
from the front-line to the Board.
workshops, webinars, team discussions
and focused weeks. Our people have
Our new operating model
To further unlock our potential, we
developed and implemented a new
operating model during 2021. The
resulting changes saw us reduce
headcount, remove layers, and simplify
how we work together, underpinned by
our Principles.
One of the most significant changes in
the period was the move to a centrally
coordinated functional model, impacting
areas such as HR, Finance, Procurement
and Supply Chain, Communications
and IT. This new way of working
has empowered us to operate as
one Babcock, driving accountability,
efficiency and consistency across
the Group.
Coupled with the new operating model
and the cultural reset, we have focused
on reducing complexity in the business to
make us more efficient. By integrating the
Group, we have increased our ability to
respond quickly to changing market
conditions, sharing capability and solving
challenges across Babcock. The roll-out of
Harnessing expertise
Over the past year we have accelerated
our knowledge-transfer and sharing
programmes to harness the engineering
and technical expertise of our people and
to strengthen and expand our own skills
and networks.
our new People Strategy has begun and
Through our Innovation Lunch and Learn
will strengthen our ability to be flexible,
programme, our people and partners
enabling us to move talent, innovation,
have come together to deliver over
and best practice around the Group and
60 hours of shared training and insight
to support our people with an agile and
on core programmes to enable a safe
inclusive workplace and an increased
and secure workplace for collaboration
focus on output and delivery.
and learning.
These changes have reinforced our
commitment to being a purpose-led
Our Big Ideas programme has seen over
600 new ideas on cost savings, the
business, which will help to transform the
environment and safety, and identified
experience of our people and customers,
where and how we can continue to
and will drive improved performance
innovate across our business.
across the Group.
Inclusion and Diversity
We believe being an inclusive business
which supports its people and values
difference is central to living our Purpose.
It is key to creating the right foundations
to attract and retain the best, diverse
talent. We have recently appointed
our first Global Head of Inclusion and
Diversity, to develop our approach and
to review, design and implement ways
of working that empower our people.
See more about our approach
to Inclusion and Diversity on page 64
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Babcock International Group PLC Annual Report and Financial Statements 2022
19
You can see our Principles on page 20
CULTURE CHANGE continued
Our Principles
be curious
We believe in positively
challenging the status quo
and asking, ‘How might we?’
Principles in action
on page 50
think:outcomes
We believe in measuring success
by the results we deliver and the
positive impact we make.
Principles in action
on page 51
be kind
We believe in being kind to
ourselves, kind to each other
and kind to the planet.
Principles in action
on page 90
collaborate
We believe that Babcock
is greater than the
sum of its parts.
Principles in action
on page 91
be courageous
We believe in being
brave, ambitious
and determined.
Principles in action
on page 140
own & deliver
We believe everybody has a
part to play in Babcock’s and
our customers’ success.
Principles in action
on page 141
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CULTURE CHANGE continued
INNOVATION & TECHNOLOGY
Our Principles
be curious
We believe in positively
challenging the status quo
and asking, ‘How might we?’
Principles in action
on page 50
think:outcomes
We believe in measuring success
by the results we deliver and the
positive impact we make.
Principles in action
on page 51
be kind
We believe in being kind to
ourselves, kind to each other
and kind to the planet.
Principles in action
on page 90
collaborate
We believe that Babcock
is greater than the
sum of its parts.
Principles in action
on page 91
be courageous
We believe in being
brave, ambitious
and determined.
Principles in action
on page 140
own & deliver
We believe everybody has a
part to play in Babcock’s and
our customers’ success.
Principles in action
on page 141
Using innovation and technology to
deliver for our customers
Over the past year we’ve really
focused on laying the foundations
to drive and deliver innovation
in every aspect of our business.
We knew that whilst there were
areas in which we excelled,
we needed to engage our people
to ensure that successes and
opportunities were shared
across our entire Group.
We know innovation is vital to our delivery
and our future performance, so we have
taken every opportunity to collaborate
with our customers, wider stakeholder
community, and across our people as we
develop our digital and data strategies.
Whilst we’ve made significant inroads
over the past year, we will continue to
develop, integrate and collaborate to
achieve even more.
Investment in digital and data
We have been working to create a
backbone of data and digital capabilities,
using technology where it makes
a difference and driving innovation
and value for our customers, whatever
the engineering challenge.
We’ve developed our iSupport360
approach, which provides real-time
monitoring of assets and operations
across our business, using a suite of
technologies that give us predictive
insight and real-time analytics through
modelling and simulation, digital
twinning and automation of
repetitive tasks and processes.
The benefits of collaborating in this way,
are that we harness the deep technical
skills of our people wherever they
are in the world, working across one
platform (iSupport360). The assets may
be different, the engineering challenge
may be different, so getting to the right
solution means collaborating to harness
the deep engineering and technical
expertise we’re renowned for. We’ll
continue to progress on iSupport360
over the coming year.
Our focus is not just on the technology
itself, but on how it can improve
availability and affordability for
our customers and on keeping our
front line and our communities safe.
In October we showcased what the
future of army training could look like
at Army Warfighting Experiment 2021,
the flagship innovation experimentation
programme for the British Army. Against
a backdrop of increasingly complex and
digital battlespace environments, our
teams combined techniques such as
artificial Intelligence, virtual reality and
adaptive learning, to integrate new and
existing data which enables us to build an
information-rich picture to assess soldier
and team performance.
Whilst our customers increasingly turn to
us for innovative technology solutions, the
challenge of adapting our existing assets
to new and emerging technologies
requires just as much innovation and
commitment, as we highlighted in last
year’s report. So over the past year we
have been harnessing our technology
expertise and knowledge transfer to
develop and build digital twins for both
legacy and new assets, piloted on the
Bulldog armoured platform in our Land
defence business.
We’re already seeing the far-reaching
benefits and impact of this pilot. The
creation and ‘retrofitting’ of digital twins
onto legacy assets gives us real insight into
areas such as future failures, and means
we are now able to recognise issues such
as previously undiagnosed design faults,
and remedy them. The technology
we’ve been developing for the Bulldog
programme gives us the potential to save
our customers around £60 million over
the next 10 years, and also enables us to
transform asset support across our entire
business, unlocking platform availability for
end users and further reducing equipment
maintenance and support costs.
Advanced manufacturing
Since April 2021 we have invested
in our advanced and additive
manufacturing programme, leading to a
new partnership with Plymouth Science
Park which launched in February this year.
This partnership, involving access to a
brand new manufacturing centre, will
enable us to make a step change in our
approach to disruptive technologies such
as additive manufacturing, allowing us to
direct-print metal parts for the first time.
The project builds on our existing plastic
additive manufacturing capability, which
allowed us to produce personal protective
equipment during the COVID-19
pandemic, and our strong relationships
with the academic and technology
community across the south west of the
UK, as well as the local community around
Devonport dockyard.
Over the next year, we will be collaborating
with our customers to expand this major
capability in additive methods, for example
to include direct metal laser sintering,
which enable us to create high-priority
equipment, such as armoured vehicle
brake parts.
Ultimately, the collaboration will
accelerate our real-world application of
additive technologies and help us address
the challenges of obsolescence and
support chain resilience shared by other
engineering communities — especially
where we maintain complex and critical
equipment over long lifecycles.
Over the coming year we will also use the
facility to strengthen our manufacturing
and Maintenance, Repair and Overhaul
(MRO) skills, working directly with
Plymouth Science Park, and through our
own internal engagement programmes.
Digital facility
We have made real progress in
establishing our digital facility
programme in Rosyth, with a new
automated production line for our
T31 frigate, focused on three
key aspects:
1. Automating our traditional
shipbuilding methods, driving
significant efficiencies.
2. Digitising the shop floor,
transforming our IT infrastructure
and rolling out mobile devices
to our people, so they can
access data in real time at
the point it’s required.
3. Systems integration from
design to project controls and
right through to commissioning.
We have successfully implemented
the design and are building
the digital thread working in
collaboration with our customer,
the UK’s Royal Navy.
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Babcock International Group PLC Annual Report and Financial Statements 2022
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KEY PERFORMANCE INDICATORS
How we will measure our progress
We have six financial and three non-financial key performance indicators (KPI). The six financial metrics are
alternative performance measures, which we use to monitor the underlying performance. These are not defined
by International Financial Reporting Standards (IFRS) and are therefore considered to be non-GAAP (Generally
Accepted Accounting Principles) measures. The Group has defined and outlined the purpose of its alternative
performance measures in the Financial Glossary starting on page 39.
2022 RESULTS
Organic revenue
growth (%)
Underlying operating
margin (%)
Underlying EPS (p)
Underlying operating
cash conversion (%)
Net debt/EBITDA
(covenant basis)
4.7%
5.8%
30.7p
1.9%
1.8x
7
4
.
5
5
.
8
5
.
.
8
8
2
.
7
0
3
.
1
5
3
1
N/A
FY21
Restated
FY22
FY21
Restated
FY22
FY21
Restated
FY22
FY21
Restated
9
1
.
FY22
4
2
.
8
1
.
FY21
Restated
FY22
Definition
Definition
Definition
Definition
Definition
The movement in
revenue compared to
that of the previous year
excluding the impact of
FX, contribution from
acquisitions and
disposals over the prior
and current year, and
one-off CPBS
adjustments in FY21.
See note 1 of the
accounts for details of
our revenue recognition
policy and page 165 for
an analysis of one-off
CPBS adjustments to
FY21 revenue.
Commentary
Revenue was higher
across all sectors
organically, driven by
recovery from COVID-19
impacts in the prior year
across the Group, and
growth in Marine and
Nuclear.
Link to glossary
Organic growth
Underlying operating
profit, expressed as a
percentage of revenue.
For FY21, we excluded
one-off CPBS
adjustments from profit
and revenue as this
gives the most useful
comparator. See page
25 for a reconciliation
of statutory to
underlying operating
profit and an analysis of
one-off CPBS
adjustments to FY21
underlying operating
profit.
Commentary
Group margin was
higher year on year
driven mainly by
continued COVID-19
recovery across the
Group and operating
model cost savings.
Link to glossary
Underlying operating
margin
Underlying earnings,
after tax divided by the
weighted average
number of ordinary
shares. For FY21, we
excluded the one-off
CPBS adjustments as this
gives the most useful
comparator.
Commentary
Excluding one-off CPBS
adjustments in FY21,
underlying earnings per
share increased 7% in
the year, reflecting
higher profit before tax
and a higher effective
tax rate of 26%
(FY21: 21%), due to a
one-off tax adjustment
relating to prior periods.
Link to glossary
Underlying basic
earnings per share
Underlying operating
cash conversion is
defined as underlying
operating cash flow
after capital expenditure
as a percentage of
underlying operating
profit. For FY21, we
have excluded the
one-off CPBS
adjustments on
underlying operating
profit as this gives the
most useful comparator.
Commentary
Underlying operating
cash conversion in FY22
was driven by low
operating cash flow as a
result of planned
working capital
outflows, although
overall it was slightly
higher than expected
due the timing of
customer receipts and
prepayments.
Link to glossary
Underlying operating
cash conversion
Net debt to EBTIDA as
measured in our
banking covenants. This
uses net debt (excluding
operating leases)
divided by underlying
earnings before interest,
tax, depreciation and
amortisation plus JV
dividends received. For
FY21, we excluded the
one-off CPBS
adjustments. This
definition makes a series
of adjustments to both
Group net debt and
Group EBITDA, see page
33 for a reconciliation.
Commentary
Our net debt to EBITDA
(covenant basis)
decreased to 1.8 times
at 31 March 2022
driven by the reduction
in net debt, principally
from disposals, which
was proportionally
greater than the
decrease in EBITDA + JV
and associate dividends.
Link to glossary
Net debt/EBITDA
(covenant basis)
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KEY PERFORMANCE INDICATORS
How we will measure our progress
4
.
2
8
.
1
9
.
1
FY22
We have six financial and three non-financial key performance indicators (KPI). The six financial metrics are
alternative performance measures, which we use to monitor the underlying performance. These are not defined
by International Financial Reporting Standards (IFRS) and are therefore considered to be non-GAAP (Generally
Accepted Accounting Principles) measures. The Group has defined and outlined the purpose of its alternative
performance measures in the Financial Glossary starting on page 39.
Our approach
We went through the process of the contract profitability and balance sheet review (CPBS) in FY21 to set our approach to running
the Group, including creating the right baseline for future performance. We show our financial-based KPI performance for two
years, excluding one-off CPBS adjustments in FY21 to provide a meaningful measurement and ongoing baseline, and reflect how we
assess operational performance. Previously we presented the data including one-off CPBS adjustments.
2022 RESULTS
NON-FINANCIAL
Organic revenue
Underlying operating
Underlying EPS (p)
Underlying operating
Net debt/EBITDA
growth (%)
margin (%)
cash conversion (%)
(covenant basis)
4.7%
5.8%
30.7p
1.9%
1.8x
Underlying return
on invested capital,
pre-tax (ROIC) (%)
17.4%
Total
injuries rate
0.75
CO2e emissions
(tCO2e/£m)
Senior management
gender diversity (%)
48.9
23%
7
.
4
5
.
5
8
.
5
8
.
8
2
7
.
0
3
1
.
5
3
1
.
4
7
1
9
8
0
.
5
7
0
.
.
9
2
1
.
8
4
5
.
9
8
4
3
2
1
2
N/A
FY21
Restated
FY22
FY21
Restated
FY22
FY21
Restated
FY22
FY21
Restated
FY21
Restated
FY22
FY21
Restated
FY22
FY21
FY22
FY21
Restated
FY22
FY21
FY22
Definition
Definition
Definition
Definition
Definition
Definition
Definition
Definition
Definition
The movement in
revenue compared to
Underlying operating
profit, expressed as a
Underlying earnings,
Underlying operating
Net debt to EBTIDA as
after tax divided by the
cash conversion is
measured in our
that of the previous year
percentage of revenue.
weighted average
defined as underlying
banking covenants. This
excluding the impact of
For FY21, we excluded
number of ordinary
operating cash flow
uses net debt (excluding
FX, contribution from
one-off CPBS
shares. For FY21, we
after capital expenditure
operating leases)
acquisitions and
adjustments from profit
excluded the one-off
as a percentage of
divided by underlying
disposals over the prior
and revenue as this
CPBS adjustments as this
underlying operating
earnings before interest,
and current year, and
gives the most useful
gives the most useful
profit. For FY21, we
one-off CPBS
comparator. See page
comparator.
adjustments in FY21.
25 for a reconciliation
See note 1 of the
of statutory to
accounts for details of
underlying operating
our revenue recognition
profit and an analysis of
policy and page 165 for
one-off CPBS
an analysis of one-off
CPBS adjustments to
FY21 revenue.
adjustments to FY21
underlying operating
profit.
Commentary
Revenue was higher
across all sectors
Commentary
Group margin was
higher year on year
have excluded the
one-off CPBS
adjustments on
tax, depreciation and
amortisation plus JV
dividends received. For
FY21, we excluded the
underlying operating
one-off CPBS
profit as this gives the
adjustments. This
most useful comparator.
definition makes a series
Commentary
Excluding one-off CPBS
adjustments in FY21,
underlying earnings per
share increased 7% in
the year, reflecting
Commentary
higher profit before tax
Underlying operating
and a higher effective
cash conversion in FY22
tax rate of 26%
was driven by low
of adjustments to both
Group net debt and
Group EBITDA, see page
33 for a reconciliation.
(FY21: 21%), due to a
operating cash flow as a
Commentary
one-off tax adjustment
result of planned
Our net debt to EBITDA
organically, driven by
driven mainly by
relating to prior periods.
working capital
(covenant basis)
recovery from COVID-19
continued COVID-19
impacts in the prior year
recovery across the
across the Group, and
Group and operating
growth in Marine and
model cost savings.
Link to glossary
Underlying basic
earnings per share
Nuclear.
Link to glossary
Organic growth
Link to glossary
Underlying operating
margin
outflows, although
decreased to 1.8 times
overall it was slightly
at 31 March 2022
higher than expected
driven by the reduction
due the timing of
in net debt, principally
customer receipts and
from disposals, which
prepayments.
Link to glossary
Underlying operating
cash conversion
was proportionally
greater than the
decrease in EBITDA + JV
and associate dividends.
Link to glossary
Net debt/EBITDA
(covenant basis)
Underlying return on
invested capital is
defined as underlying
operating profit plus
share of JV profit after
tax, excluding one-off
CPBS adjustments in
FY21, divided by the
sum of Net debt,
shareholders’ funds and
retirement deficit or
surpluses.
Commentary
The increase in
underlying ROIC reflects
higher underlying
operating profit and
share of JV profits after
tax, and lower invested
capital due to reduced
debt and change in our
IAS 19 pension from
deficit to surplus.
Link to glossary
Return on invested
capital (pre-tax) (ROIC)
Reported number of
recordable work-related
injuries and illnesses per
200,000 working hours
(200,000 represents
100 employees working
40 hours for 50 weeks
per year).
Commentary
We have moved to an
internationally
recognised HSE accident
categorisation method
in order to be able to
benchmark vs peers.
Total Recordable Injury
rate, which includes
work related injuries
requiring medical
treatment or above, has
reduced from 0.89 to
0.75 over the year,
which is a reduction of
18% vs 2021. (See page
63 - 64 for more
details).
Senior managers are
defined as employees
(excluding Executive
Directors) who have
responsibility for
planning, directing or
controlling the activities
of the Group (Exco) or a
strategically significant
part of the Group
(Sector/Functional
leadership teams) and/
or who are directors of
subsidiary business units
(Business Unit
leadership).
Commentary
There has been an
improvement in female
gender representation
at the senior
management level that
has resulted in an
increase from 21% to
23% over the past year.
(See page 65 for more
details on gender
diversity statistics).
Estimated tonnes of
CO2e emitted as a
direct result of revenue
generating operations.
We now report energy
consumption and
carbon emissions per
calendar year
(01 January to
31 December). The
transition has allowed
more time to collate,
analyse and report our
environmental data,
which has improved the
accuracy and
completeness of our
data sets.
Commentary
During the year, estate
rationalisation, strategic
divestments, ‘low-
hanging fruit’ energy
conservation measures
and improvements to
our energy
management practices
resulted in a reduction
of both our carbon
baseline and FY22
operational emissions.
(See page 57 for more
details).
Link to
management
remuneration
Our remuneration
policy, as detailed on
pages 118 to 124,
includes reference to
underlying EPS,
underlying operating
cash flow and
underlying ROCE, a
measure similar to
ROIC.
Operational
performance
measures
In the operational
reviews on pages 42
- 49, we use our first
two KPIs (revenue
growth and
underlying operating
margin) to measure
sector performance.
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Babcock International Group PLC Annual Report and Financial Statements 2022
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FINANCIAL REVIEW
Financial Review
DAVID MELLORS
Chief Financial
Officer
Group statutory results
Revenue
Operating profit/(loss)
Other income
Share of results of joint ventures and associates
Investment income
Other net finance costs
Profit/(loss) before tax
Income tax benefit/(expense)
Profit/(loss) after tax for the year
Basic EPS
Diluted EPS
Overview
We are encouraged by our financial
performance in the first year of our
turnaround. We delivered year-on-year
profit improvement and a cash outturn
that was ahead of our expectations. The
actions we have taken have significantly
strengthened the balance sheet and
improved the quality of cash flows. We
have met, and in some cases exceeded,
the financial targets we set ourselves a
year ago, including delivering £20 million
savings from the implementation of our
new operating model, generating more
than £400 million of proceeds from our
disposals, and reducing gearing to our
FY22 target of below 2.0x.
31 March 2022
£m
4,101.8
226.8
6.2
20.1
0.8
(71.6)
182.3
(14.4)
167.9
32.5p
32.1p
31 March 2021 (restated)*
£m
3,971.6
(1,736.7)
–
(13.1)
0.9
(62.1)
(1,811.0)
8.0
(1,803.0)
(357.0)p
(357.0)p
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
In the year ended 31 March 2022, we reflected prior period restatements to FY21 that arose from further scrutiny of prior periods and
benefited from refreshed challenge from the new auditors. These include adjustments for non-cash items in pensions, impairment and
derivative accounting, as well as changes in the judgement of certain pass-through revenue now being treated as net within cost of
sales. The impact of these restatements on revenue and underlying operating profit for the year ended 31 March 2021 was
£0.2 million and £0.3 million respectively.
Statutory performance
Revenue of £4,101.8 million was 3% higher than last year, driven by recovery across the Group’s businesses that were impacted by
COVID-19 and the one-off CPBS reduction in revenue of £88.3 million in FY21 which did not repeat in FY22. Offsetting this was the
net year-on-year reduction from disposals and a slight adverse impact from foreign exchange.
Statutory operating profit of £226.8 million compared to a £1,736.7 million loss in the prior year, which included charges from the
CPBS of £274.7 million (of which £250.0 million was one-off and £24.7 million was recurring), and asset impairments of
£1,566.3 million. Statutory operating profit in FY22 includes profit as a result of acquisitions and disposals of £172.8 million
(FY21: £49.7 million loss), £123.6 million impairment of goodwill and intangible assets relating to the AES businesses that were
subject to a signed disposal agreement in July 2022, amortisation of acquired intangibles of £21.4 million (FY21: £40.2 million) and
£33.8 million restructuring (FY21: £8.4 million). See Note 2 of the financial statements.
Other income of £6.2 million (FY21: £nil) related to pre-completion guarantee fees received in relation to one of the divested businesses
during the year. The share of results of joint ventures (JVs) and associates was higher than the prior year, mainly due to the CPBS loss in
FY21 of £37.1 million. Other net finance costs increased to £71.6 million (FY21: £62.1 million), with lower net interest costs due to lower
average debt and reduced IFRS 16 lease interest, more than offset by a £7.1 million higher pension finance charge and a one-off, non-cash
finance charge on derivative instruments of £9.6 million. Profit before tax was £182.3 million (FY21: £1,811.0 million loss). Basic earnings
per share, as defined by IAS 33, was 32.5 pence (FY21: (357.0) pence) per share. A full income statement can be found on page 159.
24
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FINANCIAL REVIEW
Financial Review
DAVID MELLORS
Chief Financial
Officer
Share of results of joint ventures and associates
Group statutory results
Revenue
Operating profit/(loss)
Other income
Investment income
Other net finance costs
Profit/(loss) before tax
Income tax benefit/(expense)
Profit/(loss) after tax for the year
Basic EPS
Diluted EPS
Overview
We are encouraged by our financial
performance in the first year of our
turnaround. We delivered year-on-year
profit improvement and a cash outturn
that was ahead of our expectations. The
actions we have taken have significantly
strengthened the balance sheet and
improved the quality of cash flows. We
have met, and in some cases exceeded,
the financial targets we set ourselves a
year ago, including delivering £20 million
savings from the implementation of our
new operating model, generating more
than £400 million of proceeds from our
disposals, and reducing gearing to our
FY22 target of below 2.0x.
£m
4,101.8
226.8
6.2
20.1
0.8
(71.6)
182.3
(14.4)
167.9
32.5p
32.1p
£m
3,971.6
(1,736.7)
–
(13.1)
0.9
(62.1)
(1,811.0)
8.0
(1,803.0)
(357.0)p
(357.0)p
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
In the year ended 31 March 2022, we reflected prior period restatements to FY21 that arose from further scrutiny of prior periods and
benefited from refreshed challenge from the new auditors. These include adjustments for non-cash items in pensions, impairment and
derivative accounting, as well as changes in the judgement of certain pass-through revenue now being treated as net within cost of
sales. The impact of these restatements on revenue and underlying operating profit for the year ended 31 March 2021 was
£0.2 million and £0.3 million respectively.
Statutory performance
Revenue of £4,101.8 million was 3% higher than last year, driven by recovery across the Group’s businesses that were impacted by
COVID-19 and the one-off CPBS reduction in revenue of £88.3 million in FY21 which did not repeat in FY22. Offsetting this was the
net year-on-year reduction from disposals and a slight adverse impact from foreign exchange.
Statutory operating profit of £226.8 million compared to a £1,736.7 million loss in the prior year, which included charges from the
CPBS of £274.7 million (of which £250.0 million was one-off and £24.7 million was recurring), and asset impairments of
£1,566.3 million. Statutory operating profit in FY22 includes profit as a result of acquisitions and disposals of £172.8 million
(FY21: £49.7 million loss), £123.6 million impairment of goodwill and intangible assets relating to the AES businesses that were
subject to a signed disposal agreement in July 2022, amortisation of acquired intangibles of £21.4 million (FY21: £40.2 million) and
£33.8 million restructuring (FY21: £8.4 million). See Note 2 of the financial statements.
Other income of £6.2 million (FY21: £nil) related to pre-completion guarantee fees received in relation to one of the divested businesses
during the year. The share of results of joint ventures (JVs) and associates was higher than the prior year, mainly due to the CPBS loss in
FY21 of £37.1 million. Other net finance costs increased to £71.6 million (FY21: £62.1 million), with lower net interest costs due to lower
average debt and reduced IFRS 16 lease interest, more than offset by a £7.1 million higher pension finance charge and a one-off, non-cash
finance charge on derivative instruments of £9.6 million. Profit before tax was £182.3 million (FY21: £1,811.0 million loss). Basic earnings
per share, as defined by IAS 33, was 32.5 pence (FY21: (357.0) pence) per share. A full income statement can be found on page 159.
Underlying results
Statutory to underlying
As described in the ‘Financial Glossary – alternative performance measures’ on page 24, the Group provides underlying measures to better
understand the performance and earnings trends of the Group. Underlying operating profit and underlying earnings per share exclude
certain specific adjusting items that can distort the reporting of underlying business performance, as set out in Note 3 of the financial
statements on page 180. The reconciliation from the IFRS statutory income statement to underlying income statement is shown below:
Revenue
Operating profit/(loss)
Other income
Share of results of joint ventures and associates
Investment income
Other net finance costs
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) after tax for the year
Basic EPS
Diluted EPS
31 March 2022
Specific
adjusting items
£m
–
(10.9)
–
–
–
(9.6)
(20.5)
29.5
9.0
Underlying
£m
4,101.8
237.7
6.2
20.1
0.8
(62.0)
202.8
(43.9)
158.9
30.7p
30.4p
Statutory
£m
4,101.8
226.8
6.2
20.1
0.8
(71.6)
182.3
(14.4)
167.9
32.5p
32.1p
31 March 2021 (restated)*
Specific
adjusting items
£m
–
(1,708.8)
–
–
–
–
(1,708.8)
29.8
(1,679.0)
Underlying
£m
3,971.6
(27.9)
–
(13.1)
0.9
(62.1)
(102.2)
(21.8)
(124.0)
(24.6)p
(24.6)p
Statutory
£m
3,971.6
(1,736.7)
–
(13.1)
0.9
(62.1)
(1,811.0)
8.0
(1,803.0)
(357.0)p
(357.0)p
31 March 2022
31 March 2021 (restated)*
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
Specific adjusting items
Specific adjusting items within operating profit of £(10.9) million (FY21: £(1,708.8) million) includes profit resulting from acquisitions and
disposals of £172.8 million (FY21: £49.7 million loss), a further £9.7 million of costs incurred in relation to the Group’s divestment programme
for disposals that have not completed, operating model and restructuring costs of £33.8 million (FY21: £8.4 million), and exceptional charges
of £118.1 million (FY21: £1,590.5 million). Exceptional items in FY22 include £123.6 million impairment of goodwill and intangible assets
relating to the AES businesses that were subject to a signed disposal agreement in July 2022, offset by a £3.6 million release of provisions
relating to the Italy fine and £1.8 million release of onerous contract provisions. Exceptional items in FY21 were dominated by asset
impairments as a result of the CPBS. As previously stated, we intend to restrict the use of exceptional items in future periods.
Underlying results excluding one-off CPBS adjustments in FY21
For the most useful comparison to FY21, we focus on the last years’ underlying operating profit excluding one-off CPBS adjustments.
We believe this to be the most helpful measure for stakeholders to judge our performance this year. Going forward we will not report
on this basis as there will be no CPBS year-on-year impact.
Revenue
of which one-off CPBS adjustments
Revenue excluding one-off CPBS adjustments in FY21
Underlying operating profit/(loss)
of which one-off CPBS adjustments
Underlying operating profit excluding one-off CPBS adjustments
Underlying margin excluding one-off CPBS adjustments
Other income
Share of results of joint ventures and associates
of which CPBS one-off impacts
Share of results of JVs and associates excluding one-off CPBS adjustments
Investment income
Other net finance costs
Underlying profit/(loss) before tax
Income tax
Underlying profit/(loss) after tax
Non-controlling interests
Underlying profit attributable to shareholders
Underlying basic EPS
–
237.7
5.8%
–
20.1
31 March 2022
£m
4,101.8
–
4,101.8
237.7
31 March 2021 (restated)*
£m
3,971.6
88.3
4,059.9
(27.9)
(250.0)
222.1
5.5%
(31.5)
18.4
6.2
20.1
0.8
(62.0)
202.8
(43.9)
158.9
3.7
155.2
30.7p
(13.1)
0.9
(62.1)
(102.2)
(21.8)
(124.0)
–
(124.0)
(24.6)p
Underlying basic EPS excluding one-off CPBS adjustments**
30.7p
28.8p
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
** Estimated in FY21 based on an underlying effective tax rate of 21%
24
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
25
FINANCIAL REVIEW continued
Revenue performance
Marine
Nuclear
Land
Aviation
Total
31 March 2021
(restated)*
£m
1,230.6
975.9
910.7
854.4
3,971.6
One-off
CPBS in FY21
£m
8.6
2.2
60.7
16.8
88.3
31 March 2021
(excl. one-off
CPBS adj.)
£m
1,239.2
978.1
971.4
871.2
4,059.9
FX
impact
£m
(0.6)
–
–
(22.0)
(22.6)
Acquisitions
& disposals
£m
(24.3)
–
(27.1)
(75.4)
(126.8)
COVID-19
recovery
(estimated)
£m
(10.2)
0.4
103.2
38.5
131.9
Other trading
£m
55.2
31.2
(32.0)
5.0
59.4
31 March 2022
£m
1,259.3
1,009.7
1,015.5
817.3
4,101.8
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
Revenue for the year was £4,101.8 million, 5% higher than last year on an organic basis excluding one-off FY21 CPBS adjustments,
foreign exchange and the impact of acquisitions and disposals. All sectors grew organically driven by recovery from COVID-19 impacts
in the prior year, with further underlying growth in Marine from the ramp-up of new and early-stage contracts, including Type 31, and
in Nuclear, from additional submarine infrastructure activity. See sector operational reviews on pages 42 to 49.
The main variances year-on-year (compared to revenue before one-off CPBS adjustments in FY21) are:
• FX impact (1)% – this primarily relates to foreign exchange translation on the results of our European Aviation businesses
• Acquisitions and disposals (3)% – this reflects lower net revenue from the sale of Cobras (sold in October 2020 – Land), Oil and
Gas aviation (sold in August 2021 – Aviation), Frazer-Nash Consultancy Ltd (sold in October 2021 – Marine), UK Power (sold in
December 2021 – Land), and a modest contribution from the NSM acquisition in March 2022 (Marine)
• COVID-19 recovery 3% – this reflects our estimate of revenue recovered in our businesses that were impacted by COVID-19 in
FY21, most notably across our South African contracts and civil training business in the Land sector, and aerial emergency services
(AES) activities in the Aviation sector. The COVID-19 revenue impact in Marine is negative, reflecting the ventilators project in FY21
that did not repeat in FY22
• Other trading 2% – excluding COVID-19 recovery factors, there was growth in Marine from further ramp-up of work on the Type 31
frigate programme, new contracts in Mission Systems and demand for LGE products, and in Nuclear, driven by the continued
ramp-up in submarine infrastructure programmes. On the same basis, Land decreased, with higher activity in Rail more than offset by
the impact of the loss of the Heathrow baggage contract in the prior year and the Eskom support contract in South Africa in FY22
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Babcock International Group PLC Annual Report and Financial Statements 2022
FINANCIAL REVIEW continued
Revenue performance
Underlying operating profit performance
Marine
Nuclear
Land
Aviation
Total
31 March 2021
One-off
(excl. one-off
(restated)*
CPBS in FY21
31 March 2021
£m
1,230.6
975.9
910.7
854.4
3,971.6
£m
8.6
2.2
60.7
16.8
88.3
CPBS adj.)
£m
1,239.2
978.1
971.4
871.2
4,059.9
FX
impact
£m
(0.6)
–
–
(22.0)
(22.6)
Acquisitions
& disposals
£m
(24.3)
–
(27.1)
(75.4)
(126.8)
COVID-19
recovery
(estimated)
£m
(10.2)
0.4
103.2
38.5
131.9
Other trading
31 March 2022
£m
55.2
31.2
(32.0)
5.0
59.4
£m
1,259.3
1,009.7
1,015.5
817.3
4,101.8
31 March 2021
(restated)*
£m
56.2
63.8
(17.5)
(130.4)
(27.9)
One-off
CPBS in FY21
£m
28.9
23.4
69.3
128.4
250.0
31 March 2021
(excl. one-off
CPBS adj.)
£m
85.1
87.2
51.8
(2.0)
222.1
FX
impact
£m
(1.1)
–
0.1
(3.6)
(4.6)
Acquisitions
& disposals
£m
(4.6)
–
(3.2)
(1.7)
(9.5)
COVID-19
recovery
(estimated)
£m
15.9
2.1
12.8
8.1
38.9
Pension
movements
£m
(2.9)
(0.3)
0.1
–
(3.1)
Other trading
£m
5.6
(26.6)
(2.8)
17.7
(6.1)
31 March 2022
£m
98.0
62.4
58.8
18.5
237.7
Marine
Nuclear
Land
Aviation
Total
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
Revenue for the year was £4,101.8 million, 5% higher than last year on an organic basis excluding one-off FY21 CPBS adjustments,
foreign exchange and the impact of acquisitions and disposals. All sectors grew organically driven by recovery from COVID-19 impacts
in the prior year, with further underlying growth in Marine from the ramp-up of new and early-stage contracts, including Type 31, and
in Nuclear, from additional submarine infrastructure activity. See sector operational reviews on pages 42 to 49.
The main variances year-on-year (compared to revenue before one-off CPBS adjustments in FY21) are:
• FX impact (1)% – this primarily relates to foreign exchange translation on the results of our European Aviation businesses
• Acquisitions and disposals (3)% – this reflects lower net revenue from the sale of Cobras (sold in October 2020 – Land), Oil and
Gas aviation (sold in August 2021 – Aviation), Frazer-Nash Consultancy Ltd (sold in October 2021 – Marine), UK Power (sold in
December 2021 – Land), and a modest contribution from the NSM acquisition in March 2022 (Marine)
• COVID-19 recovery 3% – this reflects our estimate of revenue recovered in our businesses that were impacted by COVID-19 in
FY21, most notably across our South African contracts and civil training business in the Land sector, and aerial emergency services
(AES) activities in the Aviation sector. The COVID-19 revenue impact in Marine is negative, reflecting the ventilators project in FY21
that did not repeat in FY22
• Other trading 2% – excluding COVID-19 recovery factors, there was growth in Marine from further ramp-up of work on the Type 31
frigate programme, new contracts in Mission Systems and demand for LGE products, and in Nuclear, driven by the continued
ramp-up in submarine infrastructure programmes. On the same basis, Land decreased, with higher activity in Rail more than offset by
the impact of the loss of the Heathrow baggage contract in the prior year and the Eskom support contract in South Africa in FY22
Underlying operating profit of £237.7 million was 7% higher than last year excluding the one-off FY21 CPBS adjustment of £(250)
million. Organic growth of 13% was driven mainly by COVID-19 recovery across the Group and operating model cost savings of
c.£20 million, achieving our target annualised savings of c.£40 million. By sector, profit improvement in Marine, Land and Aviation
more than offset a decline in Nuclear, as a consequence of a programme write-off of £22 million.
The underlying operating margin was 5.8%, up from 5.5% on the same basis (excluding one-off CPBS adjustments in FY21). Three
sectors improved their operating margin: Marine by 90bp to 7.8%, Land by 50bp to 5.8% and Aviation by 250bp to 2.3%. Nuclear
margin decreased 270bp to 6.2% due to the programme write-off.
The main variances year-on-year (compared to underlying operating profit before one-off CPBS adjustments in FY21) are:
• FX impact (2)% – this primarily relates to foreign exchange translation on the results, most notably South Africa and Southern Europe
• Acquisitions and disposals (4)% – this is the lower net contribution following completed transactions in the period
• COVID-19 recovery 18% – this is the estimate of profit linked to the recovery of activity in business impacted by the pandemic
based on an analysis of direct and indirect impacts. The Group saw material profit improvements from recovery of operations and
reduced operating costs associated with COVID-19, particularly in Land, Marine and Aviation. Subject to any material unforeseen
pandemic-related developments, we do not expect to report separately on its impact in future periods
• Pension movements (1)% – this reflects slightly higher IAS 19 pension costs this year split across our sectors
• Other trading (3)% – Excluding COVID-19 recovery factors, sector performance was boosted by c.£20 million operating model
benefits which more than offset increased business development costs relating to certain large bids and costs of implementing a
stronger control environment. In Marine, initial licence fees from the Indonesian AH140 design order and a favourable contract
settlement resulted in a strong performance in the second half, while the increase in Aviation profit was driven primarily by the
significant milestone achievements in two defence contracts in France and restructuring benefits. Nuclear profit decreased due to
the £22 million contract write-off, which more than offset the higher contribution from infrastructure work
Further analysis of our revenue and underlying operating profit performance is included in each sector’s operating review on
pages 42 to 49.
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FINANCIAL REVIEW continued
Share of results of joint ventures and associates
The Group’s share of results in JVs and associates was a profit after tax of £20.1 million in the year (FY21: £13.1 million loss).
The improvement year-on-year was due largely to the impact of one-off CPBS charges in FY21 that did not repeat (£(31.5) million)
and recovery from COVID-19 impacts, primarily in our Aviation and Land JVs.
The Group’s main JVs and associates at 31 March 2022 were:
• Ascent in our Aviation sector, which trains RAF pilots in the UK under the UK Military Flying Training System (UKMFTS) air
training contract
• AirTanker Services in our Aviation sector, which operates A330 Voyager aircraft to support air-to-air refuelling, air transport and
ancillary services for the UK Ministry of Defence
During the year we sold our 15.4% stake in the AirTanker Holdings Ltd. asset JV. Babcock retains its 23.5% shareholding in AirTanker
Services Limited, as described above. In March 2022, we purchased the remaining 50% share in our Naval Ship Management (NSM) JV
in our Marine sector, which maintains part of Australia’s naval fleet.
Underlying finance costs
Underlying net finance costs were flat at £62.0 million (FY21: £62.1 million) with lower net interest costs due to lower average debt
and reduced IFRS 16 lease interest, offset by a £7.1 million higher pension finance charge and a £9.5 million non-cash charge due to a
change in the revaluation methodology of cross currency interest rate swaps.
Tax charge
The tax charge on underlying profits/(losses) was £(43.9) million (FY21: £(21.8) million) representing an effective underlying rate of
24% (FY21: 21%), compared to the originally expected 23% due to the country profit mix. The underlying effective tax rate is
calculated on underlying profit before tax excluding the share of income from JVs and associates (which is a post-tax number).
The Group’s effective rate of tax for FY23 will be dependent on country profit mix and the timing of the completion of the AES disposal
announced in July 2022. The current assumption is expected to be around 25%. In the medium term, we expect our effective tax rate
to increase in conjunction with UK corporation tax rate increases.
Underlying earnings per share
Underlying earnings per share for the year was 30.7 pence (FY21: (24.6) pence). Excluding one-off CPBS adjustments in FY21,
underlying earnings per share increased 7% from 28.8p, reflecting growth in underlying operating profit and other income of £6.2m
(guarantee fees earned before completion on one of the FY22 disposals), partly offset by the non-cash finance charge on derivative
instruments of £9.6 million and the slightly higher effective tax rate due to the country profit mix.
Exchange rates
The translation impact of foreign currency movements resulted in a decrease in revenue of £22.6 million and a £4.6 million
decrease in underlying operating profit. The main currencies that have impacted our results are the South African Rand and the Euro.
The currencies with the greatest potential to impact our results are the Euro, the South African Rand and the Canadian Dollar:
• A 10% movement in the Euro against Sterling would affect revenue by around £40 million and underlying operating profit by around
£2 million per annum
• A 10% movement in the South African Rand against Sterling would affect revenue by around £25 million and underlying operating
profit by around £2.5 million per annum
• A 10% movement in the Canadian Dollar against Sterling would affect revenue by around £15 million and underlying operating
profit by around £1 million per annum
Disposal programme
Our plan for disposals has been assessed and does not meet the criteria for any assets to be classed as held for sale under IFRS 5.
28
Babcock International Group PLC Annual Report and Financial Statements 2022
FINANCIAL REVIEW continued
and recovery from COVID-19 impacts, primarily in our Aviation and Land JVs.
The Group’s main JVs and associates at 31 March 2022 were:
• Ascent in our Aviation sector, which trains RAF pilots in the UK under the UK Military Flying Training System (UKMFTS) air
• AirTanker Services in our Aviation sector, which operates A330 Voyager aircraft to support air-to-air refuelling, air transport and
training contract
ancillary services for the UK Ministry of Defence
During the year we sold our 15.4% stake in the AirTanker Holdings Ltd. asset JV. Babcock retains its 23.5% shareholding in AirTanker
Services Limited, as described above. In March 2022, we purchased the remaining 50% share in our Naval Ship Management (NSM) JV
in our Marine sector, which maintains part of Australia’s naval fleet.
Underlying net finance costs were flat at £62.0 million (FY21: £62.1 million) with lower net interest costs due to lower average debt
and reduced IFRS 16 lease interest, offset by a £7.1 million higher pension finance charge and a £9.5 million non-cash charge due to a
change in the revaluation methodology of cross currency interest rate swaps.
Underlying finance costs
Tax charge
The tax charge on underlying profits/(losses) was £(43.9) million (FY21: £(21.8) million) representing an effective underlying rate of
24% (FY21: 21%), compared to the originally expected 23% due to the country profit mix. The underlying effective tax rate is
calculated on underlying profit before tax excluding the share of income from JVs and associates (which is a post-tax number).
The Group’s effective rate of tax for FY23 will be dependent on country profit mix and the timing of the completion of the AES disposal
announced in July 2022. The current assumption is expected to be around 25%. In the medium term, we expect our effective tax rate
to increase in conjunction with UK corporation tax rate increases.
Underlying earnings per share
Underlying earnings per share for the year was 30.7 pence (FY21: (24.6) pence). Excluding one-off CPBS adjustments in FY21,
underlying earnings per share increased 7% from 28.8p, reflecting growth in underlying operating profit and other income of £6.2m
(guarantee fees earned before completion on one of the FY22 disposals), partly offset by the non-cash finance charge on derivative
instruments of £9.6 million and the slightly higher effective tax rate due to the country profit mix.
Exchange rates
The translation impact of foreign currency movements resulted in a decrease in revenue of £22.6 million and a £4.6 million
decrease in underlying operating profit. The main currencies that have impacted our results are the South African Rand and the Euro.
The currencies with the greatest potential to impact our results are the Euro, the South African Rand and the Canadian Dollar:
• A 10% movement in the Euro against Sterling would affect revenue by around £40 million and underlying operating profit by around
• A 10% movement in the South African Rand against Sterling would affect revenue by around £25 million and underlying operating
• A 10% movement in the Canadian Dollar against Sterling would affect revenue by around £15 million and underlying operating
£2 million per annum
profit by around £2.5 million per annum
profit by around £1 million per annum
Disposal programme
Share of results of joint ventures and associates
The Group’s share of results in JVs and associates was a profit after tax of £20.1 million in the year (FY21: £13.1 million loss).
The improvement year-on-year was due largely to the impact of one-off CPBS charges in FY21 that did not repeat (£(31.5) million)
Cash flow and net debt
Statutory cash flow summary
Profit/(loss) for the year
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
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£m
167.9
6.8
338.6
(122.7)
222.7
31 March 2021
(restated)*
£m
(1,803.0)
427.4
(24.4)
(1,223.9)
(820.9)
Cash flows from operating activities
Net cash flow from operating activities of £6.8 million was lower compared to last year (FY21: £427.4 million) as expected, driven by
a working capital outflow of £(178.9) million (FY21: £333.2 million inflow, which included impacts from the CPBS review) and higher
pension deficit payments.
Notwithstanding these outflows, the Group performed better than expected on cash generation from the timing of customer receipts
and prepayments, and used this to further accelerate the unwinding of both past working capital management practices (principally
deferred creditors, debt factoring) as well as pension deficit repair and payment of the Italian fine of c.£15 million).
Cash flows from operating activities
Net cash flow from investing activities of £338.6 million increased compared to last year (FY21: £(24.4 million)), primarily due to net
cash inflow from disposals and acquisitions of £404.2 million (FY21: £90.6 million).
Cash flows from financing activities
Net cash flow from financing activities of £(122.7) million principally reflects lease principal payments in the year of £113.0 million
(FY21: £140.6 million). The Group repaid bank loans of £31.7 million compared to £1,154 million in FY21.
A full cash flow statement can be found on page 162.
Movement in net debt
Net increase/(decrease) in cash in the year
Cash flow from the decrease/(increase) in debt
Change in net funds resulting from cash flows
Net additional lease obligations
New leases – granted
Disposal of subsidiaries
Other non-cash movements and changes in fair value
Foreign currency translation differences
Movement in net debt in the year
Opening net debt
Closing net debt
31 March 2022
£m
222.7
55.1
277.8
(93.8)
41.9
137.1
(14.2)
12.8
383.7
(1,352.4)
(968.7)
31 March 2021
(restated)*
£m
(820.9)
1,202.1
381.2
(82.3)
13.9
–
4.2
44.6
361.3
(1,713.7)
(1,352.4)
Our plan for disposals has been assessed and does not meet the criteria for any assets to be classed as held for sale under IFRS 5.
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
28
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Babcock International Group PLC Annual Report and Financial Statements 2022
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FINANCIAL REVIEW continued
Underlying cash flow and net debt
Our underlying cash flows are used by management to measure operating performance as they provide a more consistent measure of
business performance year to year.
31 March 2022
Underlying
£m
226.8
10.9
237.7
–
237.7
74.4
123.1
0.6
(173.9)
(9.3)
(135.2)
(113.0)
4.4
1.9%
(151.7)
(45.0)
10.0
41.6
(50.6)
(191.3)
417.2
(18.1)
(1.1)
–
113.0
(0.5)
137.1
(2.4)
(11.8)
(71.2)
12.8
383.7
(1,352.4)
(968.7)
412.0
(556.7)
31 March 2021
Underlying
(restated)*
£m
(1,736.7)
1,708.8
(27.9)
250.0
222.1
108.0
140.2
9.1
128.9
3.4
(171.1)
(140.6)
300.0
135.1%
(73.5)
(67.4)
18.4
36.8
(44.7)
169.6
90.6
(8.8)
(0.8)
(2.2)
140.6
–
–
–
10.0
(82.3)
44.6
361.3
(1,713.7)
(1,352.4)
582.1
(770.3)
Operating profit
Add back: specific adjusting items
Underlying operating profit
One-off CPBS adjustments
Underlying operating profit excl. one-off CPBS adjustments
Depreciation & amortisation
ROU asset depreciation
Non-cash items
Working capital movements
Provisions
Net capital expenditure
Lease principal payments
Underlying operating cash flow
Cash conversion % excl. one-off CPBS adjustment
Pension contributions in excess of income statement
Interest paid
Tax received
Dividends from joint ventures and associates
Cash flows related to exceptional items
Underlying free cash flow
Net acquisitions and disposals of subsidiaries
Acquisitions/investments in joint ventures and associates
Dividends paid (including non-controlling interests)
Purchase of own shares
Lease principal payments
Leases acquired with subsidiaries
Leases disposed of with subsidiaries
Other non-cash debt movements
Fair value movement in debt
Net new lease arrangements
Exchange movements
Movement in net debt
Opening net debt
Closing net debt
Add back: operating leases
Closing net debt excluding operating leases
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
30
Babcock International Group PLC Annual Report and Financial Statements 2022
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Underlying cash flow and net debt
business performance year to year.
Our underlying cash flows are used by management to measure operating performance as they provide a more consistent measure of
FINANCIAL REVIEW continued
Underlying operating profit excl. one-off CPBS adjustments
Operating profit
Add back: specific adjusting items
Underlying operating profit
One-off CPBS adjustments
Depreciation & amortisation
ROU asset depreciation
Non-cash items
Working capital movements
Provisions
Net capital expenditure
Lease principal payments
Underlying operating cash flow
Cash conversion % excl. one-off CPBS adjustment
Pension contributions in excess of income statement
Interest paid
Tax received
Dividends from joint ventures and associates
Cash flows related to exceptional items
Underlying free cash flow
Net acquisitions and disposals of subsidiaries
Acquisitions/investments in joint ventures and associates
Dividends paid (including non-controlling interests)
Purchase of own shares
Lease principal payments
Leases acquired with subsidiaries
Leases disposed of with subsidiaries
Other non-cash debt movements
Fair value movement in debt
Net new lease arrangements
Exchange movements
Movement in net debt
Opening net debt
Closing net debt
Add back: operating leases
Closing net debt excluding operating leases
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
31 March 2022
Underlying
31 March 2021
Underlying
(restated)*
£m
(1,736.7)
1,708.8
(27.9)
£m
226.8
10.9
237.7
–
237.7
74.4
123.1
0.6
(173.9)
(9.3)
(135.2)
(113.0)
4.4
1.9%
(151.7)
(45.0)
10.0
41.6
(50.6)
(191.3)
417.2
(18.1)
(1.1)
–
113.0
(0.5)
137.1
(2.4)
(11.8)
(71.2)
12.8
383.7
(1,352.4)
(968.7)
412.0
(556.7)
250.0
222.1
108.0
140.2
9.1
128.9
3.4
(171.1)
(140.6)
300.0
135.1%
(73.5)
(67.4)
18.4
36.8
(44.7)
169.6
90.6
(8.8)
(0.8)
(2.2)
140.6
–
–
–
10.0
(82.3)
44.6
361.3
(1,713.7)
(1,352.4)
582.1
(770.3)
Underlying cash performance
Underlying operating cash flow
Underlying operating cash flow for the
year after capital expenditure was
£4.4 million, compared to £300.0 million
inflow in the prior year, primarily due to
working capital outflows and lower net
capex (see below). The Group used
favourable timing of customer receipts
and prepayments to further accelerate
the unwind of the past practice of
period-end working capital management
(principally creditor deferrals and debt
factoring), pension deficit repair and to
pay the Italian fine of c.£15 million, while
keeping net debt/EBITDA (covenant basis)
below our target of 2.0x. This represented
operating cash conversion of 1.9%
(FY21: 135.1%) on the underlying
operating profit (excluding one-off
CPBS adjustments).
Movements in working capital
The movement in working capital for the
year was a £(173.9) million outflow
compared to an inflow of £128.9 million
last year. The outflow includes the unwind
of VAT payments deferred from the
previous financial year (£56 million),
a reduction in deferred creditors
(£130 million) and debt factoring in
Southern Europe (by £40 million to
£62 million) as we move away from the
practice of period-end management of
working capital, as well as an increase in
amounts recoverable under contract in
our Aviation business. The outflow in the
year was partly improved by favourable
timing of customer receipts and
prepayments against long-term contracts
that will reverse in FY23.
Capital expenditure
Gross capital expenditure increased to
£203.2 million (FY21: £176.5 million),
including £12.4 million of purchases of
intangible assets (FY21: £19.6 million).
The increase reflects further investment in
submarine infrastructure in Devonport,
including in 9 Dock, and commencement
of enterprise resource planning (ERP)
roll-out in Nuclear. Net capex reduced to
£135.2 million (FY21: £171.1 million)
due to higher proceeds from disposals
(£68.0 million (FY21: £5.4 million)),
primarily reflecting the disposal and sale
and leaseback of aircraft in our Aviation
sector. We expect that gross capital
expenditure will remain at an elevated
level in FY23 as we continue to upgrade
our facilities and IT equipment.
Lease principal payments
Lease principal payments of
£113.0 million in the year
(FY21: £140.6 million) represents the
capital element of payments on lease
obligations. This is reversed out below
underlying free cash flow as the payment
reduces our lease liability.
Pensions
Pension cash outflow in excess of the
income statement charge (excluding
exceptional charges for curtailment
losses) was £151.7 million
(FY21: £73.5 million). As stated above,
the Group accelerated a payment of
£23.3 million in the year, originally
scheduled for FY23. We expect the cash
outflow in excess of the income
statement charge to be around
£100 million in FY23.
Interest
Net cash interest paid, excluding that
paid by JVs and associates, decreased to
£45.0 million (FY21: £67.4 million) due
to lower net debt, a reduction in interest
on leases as a result of the Group’s
disposal programme and repayment of
the US Private Placement debt facility
in FY21.
Taxation
Cash tax in the year was an inflow of
£10.0 million, compared to our previous
expectation of an outflow of around
£30 million, following the settlement of
several open years’ tax computations with
the authorities. We currently expect a
cash tax outflow of approximately
£20 million in FY23.
Dividends from joint ventures
and associates
During the period the Group received
£41.6 million in dividends from its JVs and
associates (FY21: £36.8 million). The
increase year-on-year reflects close-out
dividends on the termination of the ALC
and Dounreay JVs, and the final dividend
from NSM pre-acquisition. Following the
disposal of our 15.4% share in AirTanker
Holdings Ltd, we expect dividends from
JVs and associates to be around £5 million
in FY23.
Exceptional cash flows
Cash outflows related to exceptional
items were £50.6 million compared to
£44.7 million last year. These costs
included £34 million restructuring costs,
which came in slightly below our initial
expectations, and the early settlement of
the Italy fine of £15 million. In FY23, we
anticipate exceptional cash outflows of up
to £10 million, principally operating
model restructuring costs for which the
charge was taken in FY22 or prior.
30
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31
FINANCIAL REVIEW continued
Underlying free cash flow
There was an underlying free cash outflow
of £(191.3) million (FY21: £169.6 million
inflow) reflecting the items set out above
including the working capital outflow and
pension deficit payments partly offset by
lower net capital expenditure.
Acquisitions and disposals
The net cash inflow from acquisitions and
disposals after costs was £417.2 million.
This included gross proceeds of
£447.3 million (net of cash disposed)
from the sale of Oil and Gas
(£10.0 million), Frazer Nash Consultancy
(£286.8 million), Power (£45.8 million)
and our 15.4% shareholding in AirTanker
Holdings Limited (£95.6 million), and
£(15.5) million cash consideration (net of
cash acquired) for the acquisition of the
remaining 50% of NSM Limited. Related
disposal costs were £17.5 million and
there were £9.6 million of costs relating
to disposals that have not completed in
the year, which was partly offset by a
£6.2 million inflow from pre-completion
guarantee fees received in relation to
a disposal.
New lease arrangements
In addition to net capital expenditure, and
not included in free cash flow,
£71.2 million (FY21: £82.3 million) of
additional leases were entered into in the
period. These represent new lease
obligations and so are included in our
main net debt figure but do not involve
any cash outflows at inception.
Net debt
The Group’s net debt at FY22 was
£968.7 million, or £556.7 million
excluding operating leases. The reduction
in net debt, excluding lease obligations, of
£213.6 million reflects the free cash
outflow and net divestments set out
above, including £137.1 million of leases
disposed of with subsidiaries. Our net
debt includes balances related to the use
of supply chain financing in the Group
with extended credit terms. At 31 March
2022 the amount included was
£12 million (FY21: £25 million). We are
phasing out the regular use of supply
chain financing across the Group.
Funding and liquidity
At 31 March 2022, the Group’s net cash
balance was £757 million. This combined
with the undrawn amount under our
committed revolving credit facilities (RCF)
gave us liquidity headroom of around
£1.7 billion.
As of 31 March 2022, the Group had
access to a total of £2.4 billion of
borrowings and facilities of mostly
long-term maturities. These comprised:
• €550 million bond maturing 6 October
2022 (in April 2021 this was hedged at
£482 million)
• New £300 million 3-year RCF maturing
20 May 2024 (signed on 20th May 2021)
• Existing £775 million RCF maturing
28 August 2025; of which £730 million
now matures on 28 August 2026
• £300 million bond maturing
5 October 2026
• €550 million bond, hedged at
£493 million, maturing
13 September 2027
Capital structure
An important part of the transformation of
Babcock is the strengthening of the
balance sheet. While there are several
facets to balance sheet strength, the
primary measurement relevant to
Babcock is the net debt/EBITDA gearing
ratio within our debt covenants, which
was 1.8x for FY22. The covenant level was
temporarily lifted to 4.5x in May 2021,
but reverts to 3.5x from September 2022.
Having achieved our previous target of
leverage under 2.0x, the ratio could
increase above 2.0x in the short term,
reflecting final pension deficit catch-up
payments of c.£100 million and the
unwind of the remaining creditor deferrals
(c.£35 million). The bulk of these
non-recurring cash flows are expected
within the first half of FY23. Thereafter,
we expect leverage to reduce and are
now implementing a medium-term
gearing ratio target of 1.0x to 2.0x.
Subsequent events
On 19 July 2022, we signed a conditional
agreement with Ancala Partners for the
sale of part of our aerial emergency
business including net lease liabilities of
£209 million, for a gross cash
consideration of £115 million. These
businesses provide aerial emergency
medical services, firefighting and search &
rescue to customers and communities in
Italy, Spain, Portugal, Norway, Sweden
and Finland. Completion of the
agreement is subject to certain regulatory
and other conditions. The deal is expected
to complete by the end of the calendar
year, subject to the satisfaction of the
relevant conditions.
32
Babcock International Group PLC Annual Report and Financial Statements 2022
FINANCIAL REVIEW continued
Underlying free cash flow
Net debt
Capital structure
There was an underlying free cash outflow
The Group’s net debt at FY22 was
An important part of the transformation of
of £(191.3) million (FY21: £169.6 million
£968.7 million, or £556.7 million
Babcock is the strengthening of the
inflow) reflecting the items set out above
excluding operating leases. The reduction
balance sheet. While there are several
including the working capital outflow and
in net debt, excluding lease obligations, of
facets to balance sheet strength, the
pension deficit payments partly offset by
£213.6 million reflects the free cash
primary measurement relevant to
lower net capital expenditure.
outflow and net divestments set out
Babcock is the net debt/EBITDA gearing
Acquisitions and disposals
The net cash inflow from acquisitions and
disposals after costs was £417.2 million.
This included gross proceeds of
£447.3 million (net of cash disposed)
from the sale of Oil and Gas
(£10.0 million), Frazer Nash Consultancy
(£286.8 million), Power (£45.8 million)
and our 15.4% shareholding in AirTanker
above, including £137.1 million of leases
ratio within our debt covenants, which
disposed of with subsidiaries. Our net
was 1.8x for FY22. The covenant level was
debt includes balances related to the use
temporarily lifted to 4.5x in May 2021,
of supply chain financing in the Group
but reverts to 3.5x from September 2022.
with extended credit terms. At 31 March
Having achieved our previous target of
2022 the amount included was
leverage under 2.0x, the ratio could
£12 million (FY21: £25 million). We are
increase above 2.0x in the short term,
phasing out the regular use of supply
reflecting final pension deficit catch-up
chain financing across the Group.
payments of c.£100 million and the
Holdings Limited (£95.6 million), and
Funding and liquidity
£(15.5) million cash consideration (net of
At 31 March 2022, the Group’s net cash
cash acquired) for the acquisition of the
balance was £757 million. This combined
remaining 50% of NSM Limited. Related
with the undrawn amount under our
disposal costs were £17.5 million and
committed revolving credit facilities (RCF)
there were £9.6 million of costs relating
gave us liquidity headroom of around
to disposals that have not completed in
£1.7 billion.
the year, which was partly offset by a
£6.2 million inflow from pre-completion
guarantee fees received in relation to
a disposal.
New lease arrangements
In addition to net capital expenditure, and
not included in free cash flow,
£71.2 million (FY21: £82.3 million) of
additional leases were entered into in the
period. These represent new lease
obligations and so are included in our
main net debt figure but do not involve
any cash outflows at inception.
As of 31 March 2022, the Group had
access to a total of £2.4 billion of
borrowings and facilities of mostly
• €550 million bond maturing 6 October
2022 (in April 2021 this was hedged at
£482 million)
• New £300 million 3-year RCF maturing
20 May 2024 (signed on 20th May 2021)
• Existing £775 million RCF maturing
28 August 2025; of which £730 million
now matures on 28 August 2026
• £300 million bond maturing
5 October 2026
• €550 million bond, hedged at
£493 million, maturing
13 September 2027
unwind of the remaining creditor deferrals
(c.£35 million). The bulk of these
non-recurring cash flows are expected
within the first half of FY23. Thereafter,
we expect leverage to reduce and are
now implementing a medium-term
gearing ratio target of 1.0x to 2.0x.
Subsequent events
On 19 July 2022, we signed a conditional
agreement with Ancala Partners for the
business including net lease liabilities of
£209 million, for a gross cash
consideration of £115 million. These
businesses provide aerial emergency
medical services, firefighting and search &
rescue to customers and communities in
Italy, Spain, Portugal, Norway, Sweden
and Finland. Completion of the
agreement is subject to certain regulatory
and other conditions. The deal is expected
to complete by the end of the calendar
year, subject to the satisfaction of the
relevant conditions.
long-term maturities. These comprised:
sale of part of our aerial emergency
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Net debt to EBITDA (covenant basis)
This is the measure used in the covenant in our RCF and makes a number of adjustments from reported net debt and EBITDA.
The covenant level is 3.5 times – which was amended to 4.5 times until 31 March 2022. As set out above, our net debt to EBITDA
(covenant basis) decreased to 1.8 times for FY22 driven by the reduction in net debt, which was proportionally greater than the
decrease in EBITDA + JV and associate dividends.
Underlying operating profit excl. one-off CPBS adjustments
Depreciation and amortisation
Covenant adjustments1
EBITDA
JV and associate dividends
EBITDA + JV and associates dividends (covenant basis)
Net debt excluding operating leases
Covenant adjustments2
Net debt (covenant basis)
Net debt/EBITDA
31 March 2022
£m
237.7
74.4
(12.9)
299.2
41.6
340.8
(556.7)
(60.0)
(616.7)
1.8x
31 March 2021
(restated)*
£m
222.1
108.0
(11.5)
318.6
36.8
355.4
(770.3)
(94.7)
(865.0)
2.4x
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
1. Various adjustments made to EBITDA to reflect accounting standards at the time of inception of the original RCF agreement. The main adjustments are to the
treatment of leases within operating profit and pension costs
2. Removing loans to JVs, finance lease receivables and adjusting for an average FX rate for the previous 12 months
Interest cover (covenant basis)
This measure is also used in the covenant in our RCF, with a covenant level of 4.0x.
EBITDA (covenant basis) + JV and associate dividends
Finance costs
Finance income
Covenant adjustments
Net Group finance costs
Interest cover
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
Return on invested capital, pre-tax (ROIC)
This measure is one of the Group’s key performance indicators.
Underlying operating profit
Share of JV PAT
Underlying operating profit plus share of JV PAT
Underlying operating profit excl. one-off CPBS impacts
Share of JV PAT excl. one-off CPBS impacts
Underlying operating profit plus share of JV PAT excl. one-off CPBS adjustments
Net debt excluding operating leases
Operating leases
Shareholder funds
Retirement deficit/(surplus)
Invested capital
ROIC (pre-tax)
ROIC excl. one-off CPBS adjustments (pre-tax)
* Refer to Note 3 of the financial statements for details regarding the prior-year restatement
31 March 2022
£m
340.8
31 March 2021
(restated)*
£m
355.4
(60.2)
9.6
(1.5)
(52.1)
6.5x
(55.6)
12.6
(0.7)
(43.7)
8.1x
31 March 2022
£m
237.7
20.1
257.8
237.7
20.1
257.8
556.7
412.0
701.5
(191.6)
1,478.7
17.4%
17.4%
31 March 2021
(restated)*
£m
(27.9)
(13.1)
(41.0)
222.1
18.4
240.5
770.3
582.1
229.0
278.9
1,860.3
(2.2)%
12.9%
32
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Babcock International Group PLC Annual Report and Financial Statements 2022
33
FINANCIAL REVIEW continued
Pensions
The Group has a number of defined benefit pension schemes. The principal defined benefit pension schemes in the UK are the
Devonport Royal Dockyard Pension Scheme, the Babcock International Group Pension Scheme and the Rosyth Royal Dockyard Pension
Scheme (the Principal schemes). The nature of these schemes is that the employees contribute to the schemes with the employer
paying the balance of the cost required. The contributions required and the assessment of the assets and the liabilities that have
accrued to members and any deficit recovery payments required are agreed by the Group with the trustees of each scheme who are
advised by independent, qualified actuaries.
The Group’s balance sheet includes the assets and liabilities of the pension schemes calculated on an IAS 19 basis. At 31 March 2022,
the net position was a surplus of £191.6 million compared to a net deficit of £278.9 million at 31 March 2021. These valuations are
based on discounting using corporate bond yields.
The fair value of the assets and the present value of the liabilities of the Group pension schemes at 31 March were as follows:
2022
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
2021 (restated)
Railways
scheme
£m
Other
schemes
£m
Total
£m
Fair value of plan assets
Growth assets
Equities
Property funds
High yield bonds/emerging market
debt
Absolute return and multi-
strategy funds
Low-risk assets
Bonds
Matching assets
Longevity swaps
Fair value of assets
Percentage of assets quoted
Percentage of assets unquoted
Present value of defined
benefit obligations
Active members
Deferred pensioners
Pensioners
Total defined benefit obligations
Net (liabilities)/assets
recognised in the statement
of financial position
31.6
364.0
14.3
0.1
30.6
5.1
76.5
369.2
55.0
437.1
12.5
2.1
23.0
4.7
90.5
443.9
44.1
–
0.4
44.5
348.4
–
–
348.4
46.0
182.9
31.8
260.7
428.5
194.6
25.4
648.5
1,924.1
2,094.0
(283.5)
4,220.3
100%
–
756.0
1,066.2
2,170.4
3,992.6
77.2
1.3
–
275.8
100%
–
65.7
93.5
167.9
327.1
77.5
101.8
(10.2)
237.0
100%
–
2,078.8
2,197.1
(293.7)
4,733.1
100%
–
1,422.9
1,682.7
(250.9)
4,123.7
100%
–
35.8
132.7
53.3
221.8
857.5
1,292.4
2,391.6
4,541.5
857.6
1,227.3
2,205.1
4,290.0
54.7
1.7
–
265.6
100%
–
126.1
107.4
136.1
369.6
83.4
108.5
(10.7)
234.3
100%
–
1,561.0
1,792.9
(261.6)
4,623.6
100%
–
39.4
152.4
51.1
242.9
1,023.1
1,487.1
2,392.3
4,902.5
227.7
(51.3)
15.2
191.6
(166.3)
(104.0)
(8.6)
(278.9)
34
Babcock International Group PLC Annual Report and Financial Statements 2022
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FINANCIAL REVIEW continued
The Group has a number of defined benefit pension schemes. The principal defined benefit pension schemes in the UK are the
Devonport Royal Dockyard Pension Scheme, the Babcock International Group Pension Scheme and the Rosyth Royal Dockyard Pension
Scheme (the Principal schemes). The nature of these schemes is that the employees contribute to the schemes with the employer
paying the balance of the cost required. The contributions required and the assessment of the assets and the liabilities that have
accrued to members and any deficit recovery payments required are agreed by the Group with the trustees of each scheme who are
advised by independent, qualified actuaries.
The Group’s balance sheet includes the assets and liabilities of the pension schemes calculated on an IAS 19 basis. At 31 March 2022,
the net position was a surplus of £191.6 million compared to a net deficit of £278.9 million at 31 March 2021. These valuations are
based on discounting using corporate bond yields.
The fair value of the assets and the present value of the liabilities of the Group pension schemes at 31 March were as follows:
2022
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
2021 (restated)
Railways
scheme
£m
Other
schemes
£m
Total
£m
Fair value of plan assets
Growth assets
Equities
Property funds
High yield bonds/emerging market
debt
Absolute return and multi-
strategy funds
Low-risk assets
Bonds
Matching assets
Longevity swaps
Fair value of assets
Percentage of assets quoted
Percentage of assets unquoted
Present value of defined
benefit obligations
Active members
Deferred pensioners
Pensioners
Total defined benefit obligations
Net (liabilities)/assets
recognised in the statement
of financial position
31.6
364.0
14.3
0.1
30.6
5.1
76.5
369.2
55.0
437.1
12.5
2.1
23.0
4.7
90.5
443.9
44.1
–
0.4
44.5
348.4
–
–
348.4
46.0
182.9
31.8
260.7
428.5
194.6
25.4
648.5
1,924.1
2,094.0
(283.5)
4,220.3
100%
–
756.0
1,066.2
2,170.4
3,992.6
77.2
1.3
275.8
100%
–
–
65.7
93.5
167.9
327.1
77.5
2,078.8
1,422.9
101.8
2,197.1
1,682.7
(10.2)
(293.7)
(250.9)
237.0
4,733.1
4,123.7
100%
–
100%
–
100%
–
35.8
857.5
132.7
1,292.4
53.3
2,391.6
221.8
4,541.5
857.6
1,227.3
2,205.1
4,290.0
54.7
1.7
265.6
100%
–
–
126.1
107.4
136.1
369.6
83.4
1,561.0
108.5
1,792.9
(10.7)
(261.6)
234.3
4,623.6
100%
–
100%
–
39.4
152.4
51.1
242.9
1,023.1
1,487.1
2,392.3
4,902.5
227.7
(51.3)
15.2
191.6
(166.3)
(104.0)
(8.6)
(278.9)
Pensions
Analysis of movement of pensions in the Group statement of financial position
Fair value of plan assets
(including reimbursement rights)
At 1 April
Restatement (note 3)
At 1 April (restated)
Interest on assets
Actuarial gain on assets*
Employer contributions
Employee contributions
Benefits paid
Settlements
At 31 March
Present value of benefit
obligations
At 1 April
Restatement (note 3)
At 1 April
Service cost
Incurred expenses
Interest cost
Employee contributions
Experience (gain)/loss*
Actuarial loss/(gain) – demographics*
Actuarial (gain)/loss – financial*
Benefits paid
Past service costs
Curtailment
At 31 March
Net surplus/(deficit) at 31 March
2022
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
2021 (restated)
Railways
scheme
£m
Other
schemes
£m
Total
£m
4,123.7
82.3
77.0
182.5
0.2
(245.4)
–
4,220.3
4,290.0
25.6
6.6
83.8
0.2
70.6
(11.5)
(227.3)
(245.4)
–
–
3,992.6
227.7
265.6
5.2
13.1
2.6
–
(10.7)
–
275.8
369.6
2.0
0.5
7.3
–
(14.2)
(3.5)
(23.9)
(10.7)
–
–
327.1
(51.3)
234.3
4.7
(1.7)
5.1
–
(5.4)
–
237.0
4,623.6
92.2
88.4
190.2
0.2
(261.5)
–
4,733.1
242.9
3.5
0.3
4.8
–
(2.4)
–
(21.9)
(5.4)
–
–
221.8
15.2
4,902.5
31.1
7.4
95.9
0.2
54.0
(15.0)
(273.1)
(261.5)
–
–
4,541.5
191.6
3,989.2
(47.0)
3,942.2
91.6
231.5
102.5
0.2
(244.3)
–
4,123.7
3,790.8
–
3,790.8
24.1
6.4
86.4
0.2
(20.5)
8.5
629.7
(244.5)
1.4
7.5
4,290.0
(166.3)
241.4
–
241.4
5.7
26.3
2.8
–
(10.6)
–
265.6
297.5
–
297.5
2.0
0.7
7.0
–
0.6
(0.6)
73.0
(10.6)
–
–
369.6
(104.0)
180.7
10.1
190.8
4.6
40.0
3.5
–
(4.6)
–
234.3
177.8
10.1
187.9
2.0
0.2
4.5
–
(2.2)
(0.7)
55.6
(4.4)
–
–
242.9
(8.6)
4,411.3
(36.9)
4,374.4
101.9
297.8
108.8
0.2
(259.5)
–
4,623.6
4,266.1
10.1
4,276.2
28.1
7.3
97.9
0.2
(22.1)
7.2
758.3
(259.5)
1.4
7.5
4,902.5
(278.9)
* Remeasurement of net retirement benefit obligations resulted in a gain of £322.5 million (2021: £445.6 million)
Accounting valuations
The IAS 19 valuation for accounting purposes showed a market value of assets of £4,733.1 million, net of longevity swaps and the
MOD indemnity for BNSPS, in comparison to a valuation of the liabilities of £4,541.5 million. The total net accounting surplus, before
allowing for deferred tax, at 31 March 2022, was £191.6 million (2021: deficit of £278.9 million), representing a 104.2% funding
level. A summary of the key assumptions used to value the largest schemes is shown below. The most significant assumptions that
impact on the results are the discount rate and the expected rate of inflation. As the IAS19 accounting valuation uses corporate bond
yields as a discount rate, the net surplus (deficit) position can materially differ from an actuarial valuation, which typically uses gilts
based discount rates.
Discount rate %
Inflation rate (RPI)
Inflation rate (CPI)
Rate of increase in pensions in payment %
Total life expectancy for current pensioners aged 65 (years)
Devonport
Royal Dockyard
Scheme
Babcock
International
Group Scheme
Rosyth
Royal Dockyard
Scheme
2022
2.7
3.7
3.2
3.2
85.9
2021
2.0
3.2
2.7
2.7
85.7
2022
2.7
3.7
3.2
3.5
86.8
2021
2.0
3.2
2.7
3.1
87.1
2022
2.7
3.7
3.2
3.7
85.0
2021
2.0
3.2
2.7
3.2
84.8
34
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
35
FINANCIAL REVIEW continued
An estimate of the actuarial deficits of the
Group’s defined benefit pension schemes,
including all longevity swap funding gaps,
calculated using each Scheme’s
respective technical provisions basis,
as at 31 March 2022 was approximately
£400 million (2021: c.£600 million),
such valuations use discount rates based
on UK gilts – which differs from the
corporate bond approach of IAS 19
above. This technical provision estimate is
based on the assumptions used within the
latest agreed valuation prior to 31 March
2022 for each of the three main schemes
and does not fully allow for the impact of
RPI reform which will be fully reflected in
future technical provisions valuations.
Governance
The Group believes that the complexity of
defined benefit schemes requires effective
governance and supports an increasingly
professional approach. Each of the largest
schemes have independent trustees and
professional trustees with specialist
investment expertise.
Pensions management
The Group continues to review its options
to reduce the risks inherent in its schemes.
It has employees earning benefits in the
Babcock International Group Pension
Scheme, the Devonport Royal Dockyard
Pension Scheme, the Babcock Rail Ltd
Shared Cost Section of the Railways
Pension Scheme, the Cavendish Nuclear
section of the Magnox Group section of
the Electricity Supply Pension Scheme and
Cash contributions
For year ending 31 March
Future service contributions
Deficit recovery
Longevity swap
Total cash contributions — employer
the Babcock Clyde Section of the Citrus
Pension Plan, as well as employees in local
and central government schemes. All the
occupational defined benefit pension
schemes have been closed to new
members for some years.
The Group also provides an occupational
defined contribution pension scheme
used to comply with the automatic
enrolment legislation across the Group for
all new employees and for those not in a
defined benefit pension scheme. Over
75% of its UK employees are members of
the defined contribution pension scheme.
The Group pays contributions to this
scheme based on a percentage of
employees’ pay. It has no legal obligations
to pay any additional contributions. All
investment risk in the defined contribution
pension scheme is borne by the
employees.
Investment strategy
In recent years, the Group has agreed
investment strategies with the trustees of
the Babcock International Group Pension
Scheme and the Rosyth Royal Dockyard
Pension Scheme designed to target these
schemes being self-sufficient by 2026,
and with the trustees of the Devonport
Royal Dockyard Pension Scheme designed
to target self-sufficiency for this scheme
by 2030. The schemes also operate
within agreed risk budgets to ensure the
level of risk taken is appropriate. To
implement the investment strategies,
each of the three largest schemes’
Investment Committees has divided its
scheme’s assets into growth assets, low
risk assets and matching assets, with the
proportion of assets held in each category
differing by scheme reflecting the
schemes’ different characteristics and
funding strategies. The matching assets
are used to hedge against falls in interest
rates or rises in expected inflation.
The level of hedging is steadily increased
as the funding level on the self sufficiency
measure increases, such that as at
31 March 2022 approximately 90% of
the schemes’ liabilities (as measured on a
self-sufficiency basis) across the three
largest schemes are protected against
adverse changes in interest rates
and inflation.
Actuarial valuations
Actuarial valuations are carried out every
three years in order to determine the
Group’s cash contributions to the
schemes. The valuation dates of the three
largest schemes are set so that only one
scheme is undertaking its valuation in any
one year, in order to spread the financial
impact of market conditions. The valuation
of the Devonport Royal Dockyard Pension
Scheme as at 31 March 2020 was
completed in the last financial year, the
valuation of the Rosyth Royal Dockyard
Pension Scheme as at 31 March 2021 has
been completed since the year end, and
work has commenced on the valuation of
the Babcock International Group Pension
Scheme at 31 March 2022.
2023 (expected)
£m
19.9
88.3
15.6
123.8
2022
£m
21.1
135.2
16.8
173.1
2021
£m
24.2
51.6
16.3
92.1
Cash contributions made by the Group into the defined benefit pension schemes, excluding expenses and salary sacrifice
contributions, during the last financial year are set out in the table above.
Income statement charge
The charge included within underlying operating profit for the year to 31 March 2022 was £38.5 million, of which £31.1 million
related to service costs and £7.4 million related to expenses. We expect charges of around £33 million in the year to 31 March 2023,
split between £26 million of service costs and £7 million of expenses. In addition to this, there was an interest charge of £3.7 million
for the year to 31 March 2022 and, for 2023, we expect an interest credit of £6.6 million on the surplus.
36
Babcock International Group PLC Annual Report and Financial Statements 2022
FINANCIAL REVIEW continued
An estimate of the actuarial deficits of the
the Babcock Clyde Section of the Citrus
Investment Committees has divided its
Group’s defined benefit pension schemes,
Pension Plan, as well as employees in local
scheme’s assets into growth assets, low
including all longevity swap funding gaps,
and central government schemes. All the
risk assets and matching assets, with the
calculated using each Scheme’s
occupational defined benefit pension
proportion of assets held in each category
respective technical provisions basis,
schemes have been closed to new
differing by scheme reflecting the
as at 31 March 2022 was approximately
members for some years.
£400 million (2021: c.£600 million),
such valuations use discount rates based
on UK gilts – which differs from the
corporate bond approach of IAS 19
above. This technical provision estimate is
based on the assumptions used within the
latest agreed valuation prior to 31 March
2022 for each of the three main schemes
and does not fully allow for the impact of
RPI reform which will be fully reflected in
future technical provisions valuations.
Governance
The Group also provides an occupational
defined contribution pension scheme
used to comply with the automatic
enrolment legislation across the Group for
all new employees and for those not in a
defined benefit pension scheme. Over
75% of its UK employees are members of
the defined contribution pension scheme.
The Group pays contributions to this
scheme based on a percentage of
employees’ pay. It has no legal obligations
to pay any additional contributions. All
schemes’ different characteristics and
funding strategies. The matching assets
are used to hedge against falls in interest
rates or rises in expected inflation.
The level of hedging is steadily increased
as the funding level on the self sufficiency
measure increases, such that as at
31 March 2022 approximately 90% of
the schemes’ liabilities (as measured on a
self-sufficiency basis) across the three
largest schemes are protected against
adverse changes in interest rates
and inflation.
The Group believes that the complexity of
investment risk in the defined contribution
Actuarial valuations
defined benefit schemes requires effective
pension scheme is borne by the
Actuarial valuations are carried out every
governance and supports an increasingly
employees.
professional approach. Each of the largest
schemes have independent trustees and
professional trustees with specialist
investment expertise.
Pensions management
Investment strategy
In recent years, the Group has agreed
investment strategies with the trustees of
the Babcock International Group Pension
Scheme and the Rosyth Royal Dockyard
The Group continues to review its options
Pension Scheme designed to target these
to reduce the risks inherent in its schemes.
schemes being self-sufficient by 2026,
It has employees earning benefits in the
and with the trustees of the Devonport
Babcock International Group Pension
Royal Dockyard Pension Scheme designed
Scheme, the Devonport Royal Dockyard
to target self-sufficiency for this scheme
Pension Scheme, the Babcock Rail Ltd
Shared Cost Section of the Railways
Pension Scheme, the Cavendish Nuclear
section of the Magnox Group section of
by 2030. The schemes also operate
within agreed risk budgets to ensure the
level of risk taken is appropriate. To
implement the investment strategies,
the Electricity Supply Pension Scheme and
each of the three largest schemes’
three years in order to determine the
Group’s cash contributions to the
schemes. The valuation dates of the three
largest schemes are set so that only one
scheme is undertaking its valuation in any
one year, in order to spread the financial
impact of market conditions. The valuation
of the Devonport Royal Dockyard Pension
Scheme as at 31 March 2020 was
completed in the last financial year, the
valuation of the Rosyth Royal Dockyard
Pension Scheme as at 31 March 2021 has
been completed since the year end, and
work has commenced on the valuation of
the Babcock International Group Pension
Scheme at 31 March 2022.
Cash contributions
For year ending 31 March
Future service contributions
Deficit recovery
Longevity swap
Total cash contributions — employer
2023 (expected)
£m
19.9
88.3
15.6
123.8
2022
£m
21.1
135.2
16.8
173.1
2021
£m
24.2
51.6
16.3
92.1
Cash contributions made by the Group into the defined benefit pension schemes, excluding expenses and salary sacrifice
contributions, during the last financial year are set out in the table above.
Income statement charge
The charge included within underlying operating profit for the year to 31 March 2022 was £38.5 million, of which £31.1 million
related to service costs and £7.4 million related to expenses. We expect charges of around £33 million in the year to 31 March 2023,
split between £26 million of service costs and £7 million of expenses. In addition to this, there was an interest charge of £3.7 million
for the year to 31 March 2022 and, for 2023, we expect an interest credit of £6.6 million on the surplus.
S
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Treasury
Treasury activities within the Group are
managed in accordance with the
parameters set out in the treasury policies
and guidelines approved by the Board.
A key principle within the treasury policy
is that trading in financial instruments for
the purpose of profit generation is
prohibited, with all financial instruments
being used solely for risk management
purposes. The treasury team is only
permitted to enter into financial
instruments where it has a high level of
confidence in the hedged item occurring.
Both the treasury department and the
sectors have responsibility for monitoring
compliance within the Group to ensure
adherence to the principal treasury
policies and guidelines. The Group’s
treasury policies in respect of the
management of debt, interest rates,
liquidity and currency are outlined below.
The Group’s treasury policies are kept
under close review, particularly given the
ongoing economic and market uncertainty.
Debt maturity profile4 (£m)
definition of underlying results used in the
RCF covenant calculations to ensure that
any one-off impacts from the Group’s
contract profitability and balance sheet
review (‘CPBS’) do not impact the
calculation and agreed with lenders a
temporary amendment to the net debt to
EBITDA ratio covenant permitted level to
4.5 times for the measurement periods
ending 30 September 2021 and
31 March 2022 after which the permitted
level returns to the original 3.5 times.
The Group also extended the maturity of
£730 million of its existing £775 million
RCF to 2026.
The Group’s other main corporate
facilities comprise of the following: a
£300 million Sterling bond, maturing
October 2026, a €550 million bond,
maturing October 2022, and a
€550 million bond, maturing September
2027. Taken together, these debt
facilities provide the Group with a
total of around £2.4 billion of available
committed facilities and bonds.
The Group is planning to repay the bond
maturating in October 2022 using cash
from disposals.
Debt
Objective
With debt as a key component of
available financial capital, the Group seeks
to ensure that there is an appropriate
balance between continuity, flexibility and
cost of debt funding through the use of
borrowings, whilst also diversifying the
sources of these borrowings with a range
of maturities and rates of interest, to
reflect the long-term nature of the
Group’s contracts, commitments and
risk profile.
Policy
All the Group’s material borrowings are
arranged by the treasury department, and
funds raised are lent onward to operating
subsidiaries as required. It remains the
Group’s policy to ensure the business is
prudently funded and that sufficient
headroom is maintained on its facilities to
fund its future growth.
Updates
The Group continues to keep its capital
structure under review to ensure that the
sources, tenor and availability of finance
are sufficient to meet its stated objective.
During the financial year, the Group
signed a new three-year Revolving Credit
Facility (RCF) of £300 million that expires
in May 2024. This is in addition to the
Group’s existing £775 million RCF. At the
same time, the Group clarified the
2,500
2,000
1,500
1,000
500
482
300
775
300
493
0
2022
300
775
300
493
2023
300
775
300
493
2024
775
300
493
2025
730
300
493
2026
493
2027
Euro bond 20221
RCF 2024
RCF 20262
GBP bond 2026
Euro bond 20273
1. Euro bond 2022 €550m hedged at £482m.
2. £730m of £775m RCF extended to 2026.
3. Euro bond 2027 €550m hedged at £493m.
4. Chart shows notional value of the debt.
36
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
37
FINANCIAL REVIEW continued
Interest rates
Objective
To manage exposure to interest rate
fluctuations on borrowings by varying the
proportion of fixed rate debt relative to
floating rate debt to reflect the underlying
nature of the Group’s commitments and
obligations. As a result, the Group does
not maintain a specific set proportion of
fixed versus floating debt, but monitors
the mix to ensure that it is compatible
with its business requirements and
capital structure.
Policy
Interest rate hedging and the monitoring
of the mix between fixed and floating
rates is the responsibility of the treasury
department and is subject to the policy
and guidelines set by the Board and
updated from time to time.
Performance
As at 31 March 2022, the Group had
66% fixed rate debt (31 March 2021:
70%) and 34% floating rate debt
(31 March 2021: 30%) based
on gross debt of £2,290.1 million
(31 March 2021: £2,340.0 million).
Foreign exchange
Objective
To reduce exposure to volatility in
earnings and cash flows from movements
in foreign currency exchange rates. The
Group is exposed to a number of foreign
currencies, the most significant being the
Euro, US Dollar, South African Rand and
increasingly the Australian Dollar,
Canadian Dollar, Norwegian Krone and
Swedish Krona.
Policy — Transaction risk
The Group is exposed to movements
in foreign currency exchange rates in
respect of foreign currency denominated
transactions. To mitigate this risk, the
Group’s policy is to hedge all material
transactional exposures, using financial
instruments where appropriate. Where
possible, the Group seeks to apply IFRS 9
hedge accounting treatment to all
derivatives that hedge material foreign
currency transaction exposures.
Policy — Translation risk
The Group is exposed to movements in
foreign currency exchange rates in
respect of the translation of net assets and
income statements of foreign subsidiaries
and equity accounted investments. It is
not the Group’s policy to hedge through
the use of derivatives the translation
effect of exchange rate movements on
the income statement or balance sheet of
overseas subsidiaries and equity
accounted investments it regards as
long-term investments. However, where
the Group has material assets
denominated in a foreign currency, it will
consider some matching of those
aforementioned assets with foreign
currency denominated debt.
Liquidity
Objective
I. To maintain adequate undrawn
committed borrowing facilities
II. To monitor and manage bank credit
risk, and credit capacity utilisation
III. To diversify the sources of financing
with a range of maturities and interest
rates, to reflect the long-term nature
of Group contracts, commitments and
risk profile
Policy
All the Group’s material borrowings are
arranged by the treasury department and
funds raised are lent onward to operating
subsidiaries as required.
Each of the Group’s sectors provides
regular cash forecasts for both
management and liquidity purposes.
These cash forecasts are used to monitor
and identify the liquidity requirements
of the Group and ensure that there is
sufficient cash to meet operational
needs while maintaining sufficient
headroom on the Group’s committed
borrowing facilities.
The Group adopts a conservative
approach to the investment of its surplus
cash. It is deposited with financial
institutions only for short durations, and
the bank counter-party credit risk is
monitored closely on a systematic and
ongoing basis.
A credit limit is allocated to each
institution taking account of its credit
rating and market information.
Performance
The Group continues to keep under
review its capital structure to ensure that
the sources, tenor and availability of
finance are sufficient to meet its stated
objectives. As noted above, the Group
signed a new £300 million RCF and
extended the maturity of £730 million of
its existing RCF to 2026 during the
financial year. Surplus cash during the
year was invested in short term deposits
diversified across several well rated
financial institutions in accordance
with policy.
38
Babcock International Group PLC Annual Report and Financial Statements 2022
Interest rates
Objective
Liquidity
Objective
Foreign exchange
Objective
To manage exposure to interest rate
I. To maintain adequate undrawn
To reduce exposure to volatility in
fluctuations on borrowings by varying the
committed borrowing facilities
Financial Glossary – Alternative performance measures
The Group provides alternative performance measures, including underlying operating profit, to enable users to better understand
the performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business
performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and
decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in
analysing business performance.
Further information on the Group’s Specific Adjusting Items, which is a critical accounting judgement, can be found in Notes 2.
The Group’s alternative performance measures are not defined by IFRS and are therefore considered to be non-GAAP measures. The
measures may not be comparable to similar measures used by other companies, and they are not intended to be a substitute for, or
superior to, measures defined under IFRS.
The Group’s alternative performance measures are consistent with the year ended 31 March 2021, except for Contract Backlog, which
is redefined to be consistent with the revenue accounting policy change in Note 3 of the preliminary financial statements.
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Closest
equivalent
IFRS measure
Measure
Revenue measures
Revenue
excluding the
one-off CPBS
adjustment
Organic growth Revenue growth
Revenue
year-on-year
Contract
backlog
IFRS15
Adjustments to reconcile
to IFRS measure (and
reference to reconciliation)
One-off CPBS revenue impact
• See table on page 25 to 27
FX, contribution of acquisitions
and disposals in the current
and prior year
Definition and purpose
Revenue excluding the impact of the one-off CPBS adjustment
in FY21
• To eliminate the non-recurring element of the CPBS review from
FY21 revenue to provide a better measure of growth
Growth excluding the impact of foreign exchange (FX), and
contribution from acquisitions and disposals over the prior and
current year, and the one-off CPBS adjustment in FY21
• Used to measure the year-on-year movement in Group revenue
• It is a good indicator of business growth
• Group KPI
Contracted revenue excluding variable revenue, expected contract
renewals, expected revenue from framework agreements and
impact of termination for convenience clauses
• Used to measure revenue under contract as a good indicator of
revenue visibility
FINANCIAL REVIEW continued
proportion of fixed rate debt relative to
floating rate debt to reflect the underlying
nature of the Group’s commitments and
obligations. As a result, the Group does
not maintain a specific set proportion of
fixed versus floating debt, but monitors
the mix to ensure that it is compatible
with its business requirements and
capital structure.
Policy
Interest rate hedging and the monitoring
of the mix between fixed and floating
rates is the responsibility of the treasury
department and is subject to the policy
and guidelines set by the Board and
updated from time to time.
Performance
As at 31 March 2022, the Group had
66% fixed rate debt (31 March 2021:
70%) and 34% floating rate debt
(31 March 2021: 30%) based
on gross debt of £2,290.1 million
(31 March 2021: £2,340.0 million).
earnings and cash flows from movements
in foreign currency exchange rates. The
Group is exposed to a number of foreign
currencies, the most significant being the
Euro, US Dollar, South African Rand and
increasingly the Australian Dollar,
Canadian Dollar, Norwegian Krone and
Swedish Krona.
Policy — Transaction risk
The Group is exposed to movements
in foreign currency exchange rates in
respect of foreign currency denominated
transactions. To mitigate this risk, the
Group’s policy is to hedge all material
transactional exposures, using financial
instruments where appropriate. Where
possible, the Group seeks to apply IFRS 9
hedge accounting treatment to all
derivatives that hedge material foreign
currency transaction exposures.
Policy — Translation risk
The Group is exposed to movements in
foreign currency exchange rates in
respect of the translation of net assets and
income statements of foreign subsidiaries
and equity accounted investments. It is
not the Group’s policy to hedge through
the use of derivatives the translation
effect of exchange rate movements on
the income statement or balance sheet of
overseas subsidiaries and equity
accounted investments it regards as
long-term investments. However, where
the Group has material assets
denominated in a foreign currency, it will
consider some matching of those
aforementioned assets with foreign
currency denominated debt.
II. To monitor and manage bank credit
risk, and credit capacity utilisation
III. To diversify the sources of financing
with a range of maturities and interest
rates, to reflect the long-term nature
of Group contracts, commitments and
risk profile
Policy
All the Group’s material borrowings are
arranged by the treasury department and
funds raised are lent onward to operating
subsidiaries as required.
Each of the Group’s sectors provides
regular cash forecasts for both
management and liquidity purposes.
These cash forecasts are used to monitor
and identify the liquidity requirements
of the Group and ensure that there is
sufficient cash to meet operational
needs while maintaining sufficient
headroom on the Group’s committed
borrowing facilities.
The Group adopts a conservative
approach to the investment of its surplus
cash. It is deposited with financial
institutions only for short durations, and
the bank counter-party credit risk is
monitored closely on a systematic and
ongoing basis.
A credit limit is allocated to each
institution taking account of its credit
rating and market information.
Performance
The Group continues to keep under
review its capital structure to ensure that
the sources, tenor and availability of
finance are sufficient to meet its stated
objectives. As noted above, the Group
signed a new £300 million RCF and
extended the maturity of £730 million of
its existing RCF to 2026 during the
financial year. Surplus cash during the
year was invested in short term deposits
diversified across several well rated
financial institutions in accordance
with policy.
Operating profit
Operating profit before the impact of Specific Adjusting Items1
• Underlying operating profit is the headline measure of the
Group’s performance
No direct
equivalent
Underlying operating profit as a percentage of revenue
• To provide a measure of operating profitability, excluding
Specific Adjusting Items1
• See table on page 25
• See note 2
Ratio – N/A
one-off items
• Operating margin is an important indicator of operating
efficiency across the Group
• Group KPI
Net finance costs excluding Specific Adjusting Items1
• To provide an alternative measure of underlying finance
costs excluding items such as fair value measurements
which can fluctuate significantly on inputs outside of
management’s control
Profit before tax adjusted for
• The summation of the impact of all adjusting items on profit
before tax
Tax expense excluding the tax impact of Specific Adjusting Items1,
as a percentage of underlying profit before tax (being the
summation of the impact of all adjusting items on profit before
tax) excluding the share of post-tax income from joint ventures
and associates
• To provide an indication of the ongoing tax rate across the
Group, excluding one-off items
Specific Adjusting Items1
• See table on page 25
Specific Adjusting Items1
• See table on page 25
Specific Adjusting Items1
• See table on page 25
Underlying net
finance costs
Net finance costs
Underlying
profit before tax
Profit before tax
Underlying
effective
tax rate
Effective tax rate
Profit measures
Underlying
operating profit
Underlying
operating
margin
38
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
39
FINANCIAL REVIEW continued
Closest
equivalent
IFRS measure
Basic earnings per
share
Operating profit
Measure
Profit measures continued
Underlying basic
earnings per
share
Underlying
operating profit
(excluding
one-off CPBS
adjustment)
Underlying
operating
margin
(excluding
one-off CPBS
adjustment)
Underlying basic
(earnings per
share excluding
one-off CPBS
adjustment)
EBITDA
No direct
equivalent
Basic earnings per
share
Operating profit
Balance sheet
Net debt
Net debt
(excluding
operating
leases)
No direct
equivalent
No direct
equivalent
1. Refer to Note 2
Definition and purpose
Based on the Group’s underlying profit before tax. It includes the
Group’s post-tax share of results of joint ventures and associates
Underlying operating profit excluding one-off CPBS adjustment
in FY21
• Eliminates the non-recurring element of the CPBS review to
provide a better measure of underlying operating profit in FY21
Adjustments to reconcile
to IFRS measure (and
reference to reconciliation)
Specific Adjusting Items1
• See table on page 25
• See Note 10
Underlying operating profit divided by revenue, both excluding
one-off CPBS adjustment in FY21
• Eliminates the non-recurring element of the CPBS review to
provide a better measure of underlying operating margin
in FY21
Ratio – N/A
Underlying earnings per share excluding the impact of the one-off
CPBS adjustment in FY21
• Eliminates the non-recurring element of the CPBS review in FY21
to provide a better measure of underlying earnings growth in
the year
Underlying operating profit excluding one-off CPBS adjustments in
FY21, plus depreciation and amortisation, and various covenant
adjustments linked to the Revolving Credit Facility including the
treatment of leases within operating profit and pension costs
- Used as the basis to derive the gearing ratio net debt/EBITDA,
which is a key measure of balance sheet strength and the basis of
our debt covenant calculations
Cash and cash equivalents and short-term investments, less bank
and other borrowings, operating leases and net derivative financial
instruments
• Used as a general measure of the progress in generating cash
and strengthening of the Group’s balance sheet position
Net debt excluding lease liabilities as defined by IAS 17, the
relevant standard at the inception of the banking facility. This net
debt figure also includes finance lease (as defined by IAS 17)
receivables and payables, loans from the Group to joint ventures
and supply chain financing balances (of FY22: £12 million,
FY21: £25 million)
• Used by management to monitor the strength of the Group’s
balance sheet position and to ensure the Group’s capital
structure is appropriate
• Used by credit agencies
Specific Adjusting Items1
Specific Adjusting Items1
Depreciation and amortisation
Covenant adjustments
• See table on page 33
• See table on page 29
• See table on page 30
• See table on page 29
• See table on page 30
40
Babcock International Group PLC Annual Report and Financial Statements 2022
FINANCIAL REVIEW continued
Closest
equivalent
IFRS measure
Measure
Profit measures continued
Definition and purpose
Adjustments to reconcile
to IFRS measure (and
reference to reconciliation)
Underlying basic
Basic earnings per
Based on the Group’s underlying profit before tax. It includes the
Specific Adjusting Items1
earnings per
share
Group’s post-tax share of results of joint ventures and associates
• See table on page 25
• See Note 10
Underlying
Operating profit
Underlying operating profit excluding one-off CPBS adjustment
operating profit
in FY21
• Eliminates the non-recurring element of the CPBS review to
provide a better measure of underlying operating profit in FY21
No direct
equivalent
Underlying operating profit divided by revenue, both excluding
Ratio – N/A
one-off CPBS adjustment in FY21
• Eliminates the non-recurring element of the CPBS review to
provide a better measure of underlying operating margin
Underlying basic
Basic earnings per
Underlying earnings per share excluding the impact of the one-off
Specific Adjusting Items1
(earnings per
share
CPBS adjustment in FY21
• Eliminates the non-recurring element of the CPBS review in FY21
to provide a better measure of underlying earnings growth in
EBITDA
Operating profit
Underlying operating profit excluding one-off CPBS adjustments in
Specific Adjusting Items1
in FY21
the year
FY21, plus depreciation and amortisation, and various covenant
Depreciation and amortisation
adjustments linked to the Revolving Credit Facility including the
Covenant adjustments
treatment of leases within operating profit and pension costs
• See table on page 33
- Used as the basis to derive the gearing ratio net debt/EBITDA,
which is a key measure of balance sheet strength and the basis of
our debt covenant calculations
No direct
equivalent
Cash and cash equivalents and short-term investments, less bank
• See table on page 29
and other borrowings, operating leases and net derivative financial
• See table on page 30
No direct
equivalent
Net debt excluding lease liabilities as defined by IAS 17, the
• See table on page 29
relevant standard at the inception of the banking facility. This net
• See table on page 30
instruments
• Used as a general measure of the progress in generating cash
and strengthening of the Group’s balance sheet position
debt figure also includes finance lease (as defined by IAS 17)
receivables and payables, loans from the Group to joint ventures
and supply chain financing balances (of FY22: £12 million,
FY21: £25 million)
• Used by management to monitor the strength of the Group’s
balance sheet position and to ensure the Group’s capital
structure is appropriate
• Used by credit agencies
share
(excluding
one-off CPBS
adjustment)
Underlying
operating
margin
(excluding
one-off CPBS
adjustment)
share excluding
one-off CPBS
adjustment)
Balance sheet
Net debt
Net debt
(excluding
operating
leases)
1. Refer to Note 2
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Closest
equivalent
IFRS measure
No direct
equivalent
Measure
Net debt
(covenant basis)
Net debt/
EBITDA
(covenant basis)
No direct
equivalent
Return on
invested capital
(pre-tax) (ROIC)
No direct
equivalent
No direct
equivalent
Return on
invested capital
excluding
one-off CPBS
adjustments
(pre-tax)
Cash flow measures
Net capital
expenditure
No direct
equivalent
Underlying
operating cash
conversion
No direct
equivalent
Underlying free
cash flow
No direct
equivalent
Adjustments to reconcile
to IFRS measure (and
reference to reconciliation)
• See table on page 33
Ratio – N/A
• See table on page 33
Ratio – N/A
• See table on page 33
Ratio – N/A
• See table on page 33
Ratio – N/A
• See page 30
Definition and purpose
Net debt (excluding operating leases), excluding loans to Joint
Ventures, finance lease receivables and adjusting for an average FX
rate for the previous 12 months
• Used by debt investors
• Used by credit agencies
Net debt (covenant basis) divided by EBITDA
- A measure of the Group’s ability to meet its payment obligations
• Used by analysts and credit agencies
• Group KPI
Underlying operating profit plus share of JV PAT, divided by the
sum of net debt, shareholders’ funds and retirement deficit
(surplus)
• Used as a measure of profit earned by the Group generated by
the debt and equity capital invested, to indicate the efficiency at
which capital is allocated
• Group KPI
Underlying operating profit plus share of JV PAT excluding one-off
CPBS adjustments, divided by the sum of net debt, shareholders’
funds and retirement deficit (surplus)
• Used as a measure of profit earned by the Group excluding the
one-off impact of CPBS adjustments generated by the debt and
equity capital invested, to indicate the efficiency at which
capital is allocated
Property, plant and equipment and intangible assets, less proceeds
on disposal of property, plant and equipment
- Includes underlying operating cash flow to calculate underlying
operating cash conversion
Underlying operating cash flow after capital expenditure as a
percentage of underlying operating profit
• Used as a measure of the Group’s efficiency in converting profits
into cash
Underlying free cash flow includes cash flows from exceptional
items and the capital element of lease payment cash flows
(rather than net new lease commitments, which are reflected
as a debt movement)
• Provides a measure of cash generated by the Group's operations
after servicing debt and tax obligations, available for use in line
with the Group's capital allocation policy
40
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
41
OPERATIONAL REVIEW
Marine
Contract backlog
Revenue
Underlying operating profit
of which CPBS one-off adjustment
Underlying operating profit excluding CPBS one-off adjustment
Underlying margin excluding CPBS one-off adjustment
FY22
£2.5bn
FY21
(Restated)
£2.5bn
£1,259.3m £1,230.6m
£56.2m
£(28.9)m
£85.1m
6.9%
£98.0m
–
£98.0m
7.8%
Financial review
Revenue of £1,259.3 million increased 2%
(excluding the one-off CPBS adjustment in
FY21). Organic growth of 4% was driven
by increased activity on the Type 31
programme, initial AH140 export
revenue, new contracts in Mission Systems
and strong demand for our LGE products.
This more than offset the year-on-year
impact of COVID-19, including the
contribution from the ventilators project
in the UK last year and the end of our
Royal Naval training contract in FY21.
Underlying operating profit (excluding
one-off CPBS adjustments) increased 15%
to £98.0 million, or 22% on an organic
basis. The main drivers were increased
revenue, including COVID-19 recovery
and growth in Mission Systems and LGE
contracts, operating model efficiencies,
a favourable contract settlement and the
Indonesia AH140 licence fee, which more
than offset significant bid costs on new
large opportunities, including Indonesia,
Poland and in the UK. As a result,
underlying operating margin (excluding
one-off CPBS adjustments) improved to
7.8% (FY21: 6.9%).
The disposal of Frazer-Nash Consultancy
Ltd completed in August 2021 for a gross
consideration of £291.7 million. In March
2022, we acquired the remaining 50% of
the Australian Naval Ship Management
(NSM) business from joint venture partners
for £34 million.
Contract backlog was flat at £2.5 billion,
with the addition of two large contracts in
Mission Systems combined and growth in
LGE orders, replacing revenue traded on
long term contracts. At 1 April 2022,
Marine had around £0.8 billion of FY23
expected revenue under contract,
and an additional c.£460 million under
framework agreements, both in line with
the FY21 position.
Operational review
UK defence
The Type 31 (Inspiration Class) frigate
programme remains on schedule, with
three major milestones achieved during
the year: the first steel cut for HMS
Venturer, its subsequent keel laying, and
the topping out of our advanced
manufacturing facility in Rosyth. The
investment across our Rosyth site aims to
ensure capability and capacity to support
future shipbuilding opportunities. In April
2022, we were awarded a 10-year
contract to provide dry-dock maintenance
work for the Royal Navy’s Queen Elizabeth
Class (QEC) aircraft carriers. The contract
strengthens Rosyth capabilities in design,
build, assembly and support of large ships.
Warship support activity at Devonport was
higher year-on-year, with work on the Type
23 frigate programme ahead of last year,
which included COVID-19 disruption. We
continued to provide the UK’s Royal Navy
with fleet-time support, deployed support,
and deep maintenance, with life extension
and refit activity on a number of warships.
We also supported the Royal Navy’s Carrier
Strike Group across multiple platforms and
locations, including work on HMS
Richmond in Japan, as well as the Type 23,
Type 45, the QEC Class and Sandown Class.
We saw several positive developments in
our Missions Systems business, including
securing a c.£110 million contract to
deliver the new Defence Strategic Radio
Service to critical military operations and a
c.£100 million 13-year contract for the UK
MOD for the design, manufacture, delivery
and in-service support to the Maritime
Electronic Warfare Systems Integrated
Capability (MEWSIC). Babcock will act as
prime contractor, working with
collaboration partners, Elbit Systems UK
and QinetiQ.
We achieved full operational capacity in
our new Morpheus Logistic Support
Contract, which forms part of the UK’s Land
Environment Tactical Communications and
Information Systems programme to deliver
next generation tactical communications
and information systems for the British
Army. We also extended our contracts for
Dreadnought launch weapons and signal
ejector systems to include further scope on
boats two to five.
International defence
We support international defence markets
from our UK operations and from our
businesses in Canada, Australia, New
Zealand, Oman and South Korea.
Revenue
£1,259m
Underlying operating profit
£98m
Revenue profile
X
74% Defence
[x]% defence
26% Civil
[x]% non-defence
What we do
We ensure the UK Royal
Navy goes to sea safely by
supporting their ships and
crews around the world
We support navies around
the world through the
delivery of complex ship and
submarine sustainment
programmes
We deliver marine
technology solutions to
improve our customers’
complex, safety-critical
operations
42
Babcock International Group PLC Annual Report and Financial Statements 2022
OPERATIONAL REVIEW
Marine
Contract backlog
Revenue
Underlying operating profit
of which CPBS one-off adjustment
Underlying operating profit excluding CPBS one-off adjustment
£98.0m
Underlying margin excluding CPBS one-off adjustment
7.8%
contribution from the ventilators project
Warship support activity at Devonport was
£1,259.3m £1,230.6m
FY22
£2.5bn
£98.0m
–
FY21
(Restated)
£2.5bn
£56.2m
£(28.9)m
£85.1m
6.9%
the topping out of our advanced
manufacturing facility in Rosyth. The
investment across our Rosyth site aims to
ensure capability and capacity to support
future shipbuilding opportunities. In April
2022, we were awarded a 10-year
contract to provide dry-dock maintenance
work for the Royal Navy’s Queen Elizabeth
Class (QEC) aircraft carriers. The contract
strengthens Rosyth capabilities in design,
build, assembly and support of large ships.
higher year-on-year, with work on the Type
23 frigate programme ahead of last year,
which included COVID-19 disruption. We
continued to provide the UK’s Royal Navy
with fleet-time support, deployed support,
and deep maintenance, with life extension
and refit activity on a number of warships.
We also supported the Royal Navy’s Carrier
Strike Group across multiple platforms and
locations, including work on HMS
Richmond in Japan, as well as the Type 23,
Type 45, the QEC Class and Sandown Class.
our Missions Systems business, including
securing a c.£110 million contract to
deliver the new Defence Strategic Radio
Service to critical military operations and a
c.£100 million 13-year contract for the UK
MOD for the design, manufacture, delivery
and in-service support to the Maritime
Electronic Warfare Systems Integrated
Capability (MEWSIC). Babcock will act as
prime contractor, working with
collaboration partners, Elbit Systems UK
and QinetiQ.
We achieved full operational capacity in
our new Morpheus Logistic Support
Contract, which forms part of the UK’s Land
Environment Tactical Communications and
Information Systems programme to deliver
next generation tactical communications
and information systems for the British
Army. We also extended our contracts for
Dreadnought launch weapons and signal
ejector systems to include further scope on
boats two to five.
International defence
We support international defence markets
from our UK operations and from our
businesses in Canada, Australia, New
Zealand, Oman and South Korea.
Financial review
Revenue of £1,259.3 million increased 2%
(excluding the one-off CPBS adjustment in
FY21). Organic growth of 4% was driven
by increased activity on the Type 31
programme, initial AH140 export
revenue, new contracts in Mission Systems
and strong demand for our LGE products.
This more than offset the year-on-year
impact of COVID-19, including the
in the UK last year and the end of our
Royal Naval training contract in FY21.
Underlying operating profit (excluding
one-off CPBS adjustments) increased 15%
to £98.0 million, or 22% on an organic
basis. The main drivers were increased
revenue, including COVID-19 recovery
and growth in Mission Systems and LGE
contracts, operating model efficiencies,
a favourable contract settlement and the
Indonesia AH140 licence fee, which more
than offset significant bid costs on new
Poland and in the UK. As a result,
underlying operating margin (excluding
one-off CPBS adjustments) improved to
7.8% (FY21: 6.9%).
The disposal of Frazer-Nash Consultancy
Ltd completed in August 2021 for a gross
consideration of £291.7 million. In March
2022, we acquired the remaining 50% of
the Australian Naval Ship Management
(NSM) business from joint venture partners
for £34 million.
Contract backlog was flat at £2.5 billion,
with the addition of two large contracts in
Mission Systems combined and growth in
LGE orders, replacing revenue traded on
long term contracts. At 1 April 2022,
Marine had around £0.8 billion of FY23
expected revenue under contract,
and an additional c.£460 million under
framework agreements, both in line with
the FY21 position.
Operational review
UK defence
The Type 31 (Inspiration Class) frigate
programme remains on schedule, with
three major milestones achieved during
the year: the first steel cut for HMS
Venturer, its subsequent keel laying, and
X
large opportunities, including Indonesia,
We saw several positive developments in
Revenue
£1,259m
Underlying operating profit
£98m
Revenue profile
74% Defence
[x]% defence
26% Civil
[x]% non-defence
What we do
We ensure the UK Royal
Navy goes to sea safely by
supporting their ships and
crews around the world
We support navies around
the world through the
delivery of complex ship and
submarine sustainment
programmes
We deliver marine
technology solutions to
improve our customers’
complex, safety-critical
operations
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Revenue and underlying operating profit bridge:
Revenue
Underlying operating profit
FY21
(Restated)
£m
1,230.6
56.2
One-off
CPBS adj
£m
8.6
28.9
FY21 Restated
(excl. one-off
CPBS)
£m
1,239.2
85.1
FX
impact
£m
(0.6)
(1.1)
Acquisition
and disposals
£m
(24.3)
(4.6)
COVID-19
recovery
(estimated)
£m
(10.2)
15.9
Pensions
charge
£m
–
(2.9)
Other
trading
£m
55.2
5.6
FY22
£m
1,259.3
98.0
In Australia, we completed the acquisition
of the remaining 50% stake in our Naval
Ship Management (NSM) business from our
JV partners in March 2022. The NSM
acquisition strengthens Babcock’s support
to the Australian Defence Force’s future
maritime support model, Plan Galileo. With
the signing of a new sustainment contract
in New Zealand (see below), Babcock is
now the Australasia region’s leading
warship sustainment enterprise.
In December, we were selected by the
Australian Government as the preferred
tenderer to upgrade and sustain the
Defence High Frequency Communication
System (DHFC) to support the Australian
armed forces over the next 10 years, with a
further four-year extension option, each of
two years.
In New Zealand, In February 2022, the
Defence Force awarded Babcock a new
seven-and-a-half year Maritime Fleet
Sustainment Services contract to provide
full service asset management and
engineering to the Royal New Zealand
Navy.
In Canada, Babcock is continuing to
deliver on the Victoria Class In-Service
Support Contract (VISSC), supporting
Canada’s fleet of four submarines. Babcock
completed the deep maintenance period
of HMCS Corner Brook and is preparing to
commence work on the deep maintenance
period for HMCS Victoria. Additionally, the
Government of Canada has further
extended VISSC to June 2025.
In South Korea, we signed a Memorandum
of Understanding (MoU) with Hyundai
Heavy Industries for the CVX Aircraft Carrier
Programme opportunity. In March, we
signed a further MoU with Daewoo
Shipbuilding and Marine Engineering Co
Ltd (DSME) to focus on international
opportunities, and support system
integration on future programmes. The
business is benefitting from investment in
an assembly, maintenance, repair and
overhaul facility in Busan, where Babcock
currently assembles equipment for the fifth
boat in the Janbogo-III submarine
programme.
In Oman, our joint venture operation in
Duqm with the Oman Drydock Company
has completed a first of its kind double
engine replacement for a UK Royal Navy
Type 23 Class frigate. This enables the
Royal Navy to sustain operations within the
region and is a clear example of Babcock’s
global reach. During the period, two
packages of work were also completed on
US Navy vessels.
In September, we won our first export
contract for the AH140 frigate (which Type
31 is based on) through a design licence
agreement with PT PAL Indonesia. The
design licence will enable PAL to build two
NAVAL SHIP MANAGEMENT, SYDNEY, AUSTRALIA
Babcock acquired the remaining 50% share of its
NSM joint venture in March 2022
frigates in Indonesia with bespoke design
modifications for the Indonesian Navy.
The second export success came in March
2022, when our design was selected by
Poland and Babcock was selected as the
design technology partner for Poland's
MIECZNIK (Swordfish) frigate programme.
Babcock will co-operate with Polish
state-owned defence contractor PGZ and
other members of the MIECZNIK
consortium to adapt the AH140 design
and construct the vessels at the PGZ
shipyard in Gdynia.
In Brazil, we were awarded a four-year
contract to deliver through life support to
the Marinha do Brasil’s flagship vessel,
NAM Atlântico, formerly the UK Royal
Navy platform HMS Ocean, as part of our
global programme.
Our Energy and Marine (LGE) business saw
good growth in orders and revenue, with
increased commercial vessel work and
continued strong demand for liquefied
gas handling and re-liquefaction systems
across the LPG and LNG markets. The
business won many projects in the year
from shipyards in South Korea, China and
other major international ship-owners.
42
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
43
OPERATIONAL REVIEW continued
Nuclear
Contract backlog
Revenue
Underlying operating profit
of which CPBS one-off adjustment
Underlying operating profit excluding CPBS one-off adjustment
Underlying margin excluding CPBS one-off adjustment
FY22
£2.8bn
£1,009.7m
£62.4m
–
£62.4m
6.2%
FY21
(Restated)
£0.4bn
£975.9m
£63.8m
£(23.4)m
£87.2m
8.9%
Financial review
Revenue increased 3% to £1,009.7 million
(excluding the one-off CPBS adjustment in
FY21). This was driven by the continued
strong ramp up in submarine
infrastructure programmes, which more
than offset lower volumes through
transition to the new FMSP contract,
a £22 million programme write-off and
civil nuclear projects which completed
in FY21.
Underlying operating profit (excluding
one-off CPBS adjustments) fell by 28% to
£62.4 million. The key impact in the year
was a £22 million programme write-off,
which offset higher contribution year-on-
year from infrastructure work and
operating model savings. As a result of
this, and lower initial profit recognition at
the start of the FMSP contract, underlying
margin for the year fell to 6.2%.
The sector’s contract backlog of
£2.8 billion (FY21: £0.4 billion) is up
significantly due to the signing of the
FMSP contract. At 1 April 2022, Nuclear
had around £860 million of FY23
expected revenue under contract
(FY22: £260 million) and an additional
c.£110m under framework agreements
(FY21: £640 million).
Operational review
Defence
Overall, our defence activity increased
driven by the continued ramp-up of the
long-term Devonport infrastructure
programme to support future demand.
The largest current project, the design
and enabling work to refurbish 10 Dock
and its supporting infrastructure, is
underway along with other major projects
to support the first deep maintenance
period of the Astute Class submarine at
Devonport in the next few years. We
continue to work on the Revalidation
Assisted Maintenance Period (RAMP)
programme for the Trafalgar Class and the
life extension of the Vanguard Class. We
also continue to work with our Submarine
Enterprise partners in supporting the
design and build programmes for the
future classes of submarine, including the
Dreadnought Class.
In September 2021, the Future Maritime
Support Programme (FMSP) was signed.
This five-year contract for around
£3.5 billion replaces the previous
Maritime Support Delivery Framework
(MSDF), and continues our support
spanning UK naval base operations at
HMNB Devonport and HMNB Clyde and
engineering and planning at our Bristol
hub, all undertaken alongside surface ship
fleet support at Devonport in our Marine
sector. We continue to work with our UK
MOD customer to ensure the provision of
future capability and resilience and to
improve decision making across the
Submarine Enterprise. The new contract
has been identified as a ‘Qualifying
Defence Contracts’ (QDC) and falls under
Single Source Contract Regulations (SSCR).
Following the AUKUS announcement to
acquire nuclear-powered submarine
technology without nuclear armaments,
Australia will no longer proceed with the
Attack class conventional submarine
contract with Naval Group. As a result,
our participation in the Attack class
programme has ended. Babcock
recognises the strategic importance of the
AUKUS agreement and continues to be
ready to support any future requirement.
Civil
Momentum in the civil nuclear market is
building and the business continues to
position for future opportunities. During
the year, we secured a five-year extension
to the multi-year Design Services Alliance
(DSA) engineering framework, worth
around £200 million, and a two-year
extension to the Pile Fuel Cladding Silo
(PFCS) project, both at Sellafield. We
continue to support EDF and project
volumes are in line with expectations. In
new build, Hinkley Point C announced a
delay to the project principally because of
the impact of COVID-19 on the civil
works, which has further delayed the
ramp up of our Mechanical, Electrical and
HVAC (MEH) Alliance scope further.
Small work packages from the Magnox
programme are now being contracted
and initiated. During the period we
secured two contracts at Hinkley Point A,
where we will lead the installation, setting
to work and inactive commissioning for
the projects as the principal contractor.
Revenue
£1,010m
Underlying operating profit
£62m
Revenue profile
84% Defence
[x]% defence
16% Civil
[x]% non-defence
What we do
We have supported the
Continuous At Sea
Deterrent for over 50 years
We sustain the entirety of
the UK’s submarine fleet
We take a leading role in
all civil nuclear: from new
build, to operational support,
to decommissioning
44
Babcock International Group PLC Annual Report and Financial Statements 2022
Nuclear
Contract backlog
Revenue
Underlying operating profit
of which CPBS one-off adjustment
FY22
£2.8bn
FY21
(Restated)
£0.4bn
£1,009.7m
£975.9m
£62.4m
£63.8m
–
£(23.4)m
Revenue and underlying operating profit bridge:
Revenue
Underlying operating profit
FY21
(Restated)
£m
975.9
63.8
One-off
CPBS adj
£m
2.2
23.4
FY21 Restated
(excl. one-off
CPBS)
£m
978.1
87.2
FX
impact
£m
–
–
Acquisition
and disposals
£m
–
–
COVID-19
recovery
(estimated)
£m
0.4
2.1
Pensions
charge
£m
–
(0.3)
Other
trading
£m
31.2
(26.6)
FY22
£m
1,009.7
62.4
In July 2021, we signed a memorandum
of understanding with Rolls-Royce to
collaborate on the Small Modular Reactor
(SMR) programme to help develop roles
across manufacturing, licensing, design
and delivery. Babcock, in collaboration
with U-Battery, has developed a full-size
mock-up of the main vessels of an
advanced modular reactor at our
Whetstone manufacturing facility. The
mock-up intends to demonstrate the
potential simplicity in construction and
transport of an SMR, making a valuable
contribution to the UK’s net zero efforts.
We also signed a memorandum of
understanding with X-Energy, a US reactor
and fuel design engineering company, to
act as its deployment partner for High
Temperature Gas Reactors in the UK. The
three technologies are complementary
and align with the UK Governments plans
to transition to net zero carbon by
decarbonising electricity generation and
building a hydrogen economy in the UK.
addition to new policy developments,
it has committed around £2.3 billion
of funding to support new nuclear
programmes. This is a core focus area
for our civil nuclear business, and we are
well positioned to take advantage of
these opportunities.
Increasing volatility of national power
generation driven by global developments
during the year has prompted nations to
look at producing and securing their
sources of low emission power. In the UK,
the Government has backed new nuclear
energy supply to deliver both UK energy
security of supply and contribute to their
target of net zero emissions by 2050. In
Internationally, we are now supporting
Ontario Power Generation with its
decommissioning planning for the
Pickering Nuclear Generating Station in
Canada. In Japan, relationships continue
to strengthen whilst new additional
international opportunities are being
identified in our focus countries.
VANGUARD CLASS SUBMARINE
S
t
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OPERATIONAL REVIEW continued
Underlying operating profit excluding CPBS one-off adjustment
£62.4m
£87.2m
Underlying margin excluding CPBS one-off adjustment
6.2%
8.9%
Financial review
Revenue increased 3% to £1,009.7 million
(excluding the one-off CPBS adjustment in
FY21). This was driven by the continued
strong ramp up in submarine
infrastructure programmes, which more
than offset lower volumes through
transition to the new FMSP contract,
a £22 million programme write-off and
civil nuclear projects which completed
in FY21.
Underlying operating profit (excluding
one-off CPBS adjustments) fell by 28% to
£62.4 million. The key impact in the year
was a £22 million programme write-off,
which offset higher contribution year-on-
year from infrastructure work and
operating model savings. As a result of
this, and lower initial profit recognition at
the start of the FMSP contract, underlying
margin for the year fell to 6.2%.
The sector’s contract backlog of
£2.8 billion (FY21: £0.4 billion) is up
significantly due to the signing of the
FMSP contract. At 1 April 2022, Nuclear
had around £860 million of FY23
expected revenue under contract
(FY22: £260 million) and an additional
c.£110m under framework agreements
(FY21: £640 million).
Operational review
Defence
Overall, our defence activity increased
driven by the continued ramp-up of the
long-term Devonport infrastructure
programme to support future demand.
The largest current project, the design
and enabling work to refurbish 10 Dock
and its supporting infrastructure, is
to support the first deep maintenance
period of the Astute Class submarine at
Devonport in the next few years. We
continue to work on the Revalidation
Assisted Maintenance Period (RAMP)
programme for the Trafalgar Class and the
life extension of the Vanguard Class. We
also continue to work with our Submarine
Enterprise partners in supporting the
design and build programmes for the
future classes of submarine, including the
Dreadnought Class.
In September 2021, the Future Maritime
Support Programme (FMSP) was signed.
This five-year contract for around
£3.5 billion replaces the previous
Maritime Support Delivery Framework
(MSDF), and continues our support
spanning UK naval base operations at
HMNB Devonport and HMNB Clyde and
engineering and planning at our Bristol
hub, all undertaken alongside surface ship
fleet support at Devonport in our Marine
sector. We continue to work with our UK
MOD customer to ensure the provision of
future capability and resilience and to
improve decision making across the
Submarine Enterprise. The new contract
has been identified as a ‘Qualifying
Defence Contracts’ (QDC) and falls under
Single Source Contract Regulations (SSCR).
Following the AUKUS announcement to
acquire nuclear-powered submarine
technology without nuclear armaments,
Australia will no longer proceed with the
Attack class conventional submarine
contract with Naval Group. As a result,
our participation in the Attack class
programme has ended. Babcock
recognises the strategic importance of the
AUKUS agreement and continues to be
ready to support any future requirement.
Civil
Momentum in the civil nuclear market is
building and the business continues to
position for future opportunities. During
the year, we secured a five-year extension
to the multi-year Design Services Alliance
(DSA) engineering framework, worth
around £200 million, and a two-year
extension to the Pile Fuel Cladding Silo
(PFCS) project, both at Sellafield. We
continue to support EDF and project
volumes are in line with expectations. In
new build, Hinkley Point C announced a
the impact of COVID-19 on the civil
works, which has further delayed the
ramp up of our Mechanical, Electrical and
HVAC (MEH) Alliance scope further.
Small work packages from the Magnox
programme are now being contracted
and initiated. During the period we
secured two contracts at Hinkley Point A,
where we will lead the installation, setting
to work and inactive commissioning for
the projects as the principal contractor.
underway along with other major projects
delay to the project principally because of
Revenue
£1,010m
Underlying operating profit
£62m
Revenue profile
84% Defence
[x]% defence
16% Civil
[x]% non-defence
What we do
We have supported the
Continuous At Sea
Deterrent for over 50 years
We sustain the entirety of
the UK’s submarine fleet
We take a leading role in
all civil nuclear: from new
build, to operational support,
to decommissioning
44
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
45
OPERATIONAL REVIEW continued
Land
Contract backlog
Revenue
Underlying operating (loss) / profit
of which CPBS one-off adjustment
Underlying operating profit excluding CPBS one-off adjustment
Underlying margin excluding CPBS one-off adjustment
FY22
£2.3bn
FY21
(Restated)
£2.4bn
£1,015.5m £910.7m
£58.8m £(17.5)m
£(69.3)m
£51.8m
5.7%
–
£58.8m
5.8%
Defence training saw some recovery in
activity levels compared to last year. After
a highly successful campaign in 2021, we
will be participating in the British Army’s
2022 Army Warfighting Experiment to
demonstrate the integration of a range of
innovative collective training capabilities.
In the period we were awarded a
three-year extension for the Defence
College of Technical Training for EMTC 2,
the provision of training design
and delivery.
Emergency services
Activity was broadly flat in the period with
the first year of the Met Police training
contract offset by slightly lower volumes
in London Fire Brigade (LFB) contracts. The
Police Education and Qualification
Framework (PEQF) programme originally
launched through a COVID-secure delivery
model was returned to operational
programme delivery in September 2021.
South Africa
South Africa grew strongly in the year as
activity recovered from COVID-19
impacts. In the final quarter of the year,
Eskom made the decision to not extend
the engineering services contract which
we have run for many years to support
state power generation. The impact of the
loss of the contract is expected to be
around £60 million in revenue for FY23.
Other civil markets
The Rail business saw growth in volumes
on track renewals and signalling
framework while our civil training business
saw higher activity compared to last year
which was affected by COVID-19 related
disruption. Our Power business, which we
divested in December 2021, contributed
revenue of around £62 million and an
operating profit of around £5 million
in FY22.
Financial review
Revenue increased 5% to £1,015.5 million
(excluding the one-off CPBS adjustment in
FY21). Organic growth of 7% includes
recovery from prior year COVID-19
impacts, particularly in South Africa and in
our civil training businesses, and higher
activity in Rail. This was offset by lower
volume on the DSG contract due to
project completions, the loss of the
Heathrow baggage handling contract in
the prior year, and the end of the Eskom
power station service contract in the final
quarter of FY22.
Underlying operating profit (excluding
one-off CPBS adjustments) grew by
14% to £58.8 million or by 19% on an
organic basis. The increase reflects a
strong recovery from COVID-19 impacts
(£12.8 million), operating model
efficiencies and growth in Rail, which more
than offset lower DSG volume and the loss
of the Heathrow contract. As a result,
underlying margin improved to 5.8%.
The sector’s contract backlog at
£2.3 billion (FY21 restated: £2.4 billion),
has been adjusted for reclassification of
pass-through (principal versus agent)
revenue of c.£580 million. The decline
reflects small business wins offset by
trading and disposals. At 1 April 2022,
Land had around £500 million of FY23
expected revenue under contract
(FY22: £540 million) and an additional
c.£150 million under framework
agreements (FY21: c.£120 million).
Operational review
Defence
Overall, Land defence activities were
broadly flat with further volume recovery
from COVID-19 impacts across a number
of contracts, offset by lower volumes on
the DSG contract.
In line with customer requirements, the
DSG transformation programme has been
fully implemented and we are now
leading several key programmes of
improvement focussed on specific outputs
for the Army which see us integrating
expertise from OEMs, SMEs, and the wider
supply chain to improve overall
programme potential.
Revenue
£1,016m
Underlying operating profit
£59m
Revenue profile
29% Defence
[x]% defence
71% Civil
[x]% non-defence
What we do
We ensure the British Army
can focus on their missions
safely by supporting vehicles
We enable the British Army
to do their job with our
technical training
programmes
Our people support the
British Army by contributing
to front-line support and
joining reserve forces
46
Babcock International Group PLC Annual Report and Financial Statements 2022
OPERATIONAL REVIEW continued
Land
Contract backlog
Revenue
Underlying operating (loss) / profit
of which CPBS one-off adjustment
FY22
£2.3bn
FY21
(Restated)
£2.4bn
£1,015.5m £910.7m
£58.8m £(17.5)m
–
£(69.3)m
Revenue and underlying operating profit bridge:
Revenue
Underlying operating profit
FY21
(Restated)
£m
910.7
(17.5)
One-off
CPBS adj
£m
60.7
69.3
FY21 Restated
(excl. one-off
CPBS)
£m
971.4
51.8
FX
impact
£m
–
0.1
Acquisition
and disposals
£m
(27.1)
(3.2)
COVID-19
recovery
(estimated)
£m
103.2
12.8
Pensions
charge
£m
–
0.1
Other
trading
£m
(32.0)
(2.8)
FY22
£m
1,015.5
58.8
Underlying operating profit excluding CPBS one-off adjustment
£58.8m
£51.8m
Underlying margin excluding CPBS one-off adjustment
5.8%
5.7%
S
t
r
a
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g
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p
o
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t
G
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n
a
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c
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F
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a
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i
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l
S
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m
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t
s
ARMY WARFIGHTING EXPERIMENT
Our vehicle and training expertise is demonstrated during
the British Army’s annual Army Warfighting Experiment.
46
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
47
Defence training saw some recovery in
activity levels compared to last year. After
a highly successful campaign in 2021, we
will be participating in the British Army’s
2022 Army Warfighting Experiment to
demonstrate the integration of a range of
innovative collective training capabilities.
In the period we were awarded a
three-year extension for the Defence
College of Technical Training for EMTC 2,
the provision of training design
and delivery.
Emergency services
Activity was broadly flat in the period with
the first year of the Met Police training
contract offset by slightly lower volumes
in London Fire Brigade (LFB) contracts. The
Police Education and Qualification
Framework (PEQF) programme originally
launched through a COVID-secure delivery
model was returned to operational
programme delivery in September 2021.
South Africa
South Africa grew strongly in the year as
activity recovered from COVID-19
impacts. In the final quarter of the year,
Eskom made the decision to not extend
the engineering services contract which
we have run for many years to support
state power generation. The impact of the
loss of the contract is expected to be
around £60 million in revenue for FY23.
Other civil markets
The Rail business saw growth in volumes
on track renewals and signalling
framework while our civil training business
saw higher activity compared to last year
which was affected by COVID-19 related
disruption. Our Power business, which we
divested in December 2021, contributed
revenue of around £62 million and an
operating profit of around £5 million
in FY22.
Financial review
Revenue increased 5% to £1,015.5 million
(excluding the one-off CPBS adjustment in
FY21). Organic growth of 7% includes
recovery from prior year COVID-19
impacts, particularly in South Africa and in
our civil training businesses, and higher
activity in Rail. This was offset by lower
volume on the DSG contract due to
project completions, the loss of the
Heathrow baggage handling contract in
the prior year, and the end of the Eskom
power station service contract in the final
quarter of FY22.
Underlying operating profit (excluding
one-off CPBS adjustments) grew by
14% to £58.8 million or by 19% on an
organic basis. The increase reflects a
strong recovery from COVID-19 impacts
(£12.8 million), operating model
efficiencies and growth in Rail, which more
than offset lower DSG volume and the loss
of the Heathrow contract. As a result,
underlying margin improved to 5.8%.
The sector’s contract backlog at
£2.3 billion (FY21 restated: £2.4 billion),
has been adjusted for reclassification of
pass-through (principal versus agent)
revenue of c.£580 million. The decline
reflects small business wins offset by
trading and disposals. At 1 April 2022,
Land had around £500 million of FY23
expected revenue under contract
(FY22: £540 million) and an additional
c.£150 million under framework
agreements (FY21: c.£120 million).
Operational review
Defence
Overall, Land defence activities were
broadly flat with further volume recovery
from COVID-19 impacts across a number
of contracts, offset by lower volumes on
the DSG contract.
In line with customer requirements, the
DSG transformation programme has been
fully implemented and we are now
leading several key programmes of
improvement focussed on specific outputs
for the Army which see us integrating
expertise from OEMs, SMEs, and the wider
supply chain to improve overall
programme potential.
Revenue
£1,016m
Underlying operating profit
£59m
Revenue profile
29% Defence
[x]% defence
71% Civil
[x]% non-defence
What we do
We ensure the British Army
can focus on their missions
safely by supporting vehicles
We enable the British Army
to do their job with our
technical training
programmes
Our people support the
British Army by contributing
to front-line support and
joining reserve forces
OPERATIONAL REVIEW continued
Aviation
Contract backlog
Revenue
Underlying operating (loss) / profit
of which CPBS one-off adjustment
Underlying operating profit excluding CPBS one-off adjustment
Underlying margin excluding CPBS one-off adjustment
FY22
£2.3bn
£817.3m
FY21
£2.9bn
£854.4m
£18.5m £(130.4)m
– £(128.4)m
£(2.0)m
(0.2)%
£18.5m
2.3%
Financial review
Revenue decreased by 6% to
£817.3 million (excluding one-off CPBS
adjustments in FY21), primarily due to the
disposal of our Oil and Gas business in
August 2021 and the impact of foreign
exchange. Organic growth was 5% was
driven by COVID-19 recovery and the
ramp-up of defence contracts in France,
offset partly by the completion of fixed
wing aerial emergency services (AES)
contracts in the Nordics and lower activity
in Italy.
Underlying operating profit (excluding
one-off CPBS adjustments) increased to
£18.5 million (FY21: £(2.0) million loss).
Profit performance improved due to
operating model efficiencies, the
achievement of certain programme
milestones and recovery from COVID-19.
FY22 was still slightly affected by
lower flying hours and costs associated
with additional COVID-19 related
safety measures.
The sector’s contract backlog declined to
£2.3 billion (FY21: £2.9 billion), primarily
as a result of the removal of £580 million
backlog of the Oil and Gas aviation
business, sold in August 2021. Excluding
disposals, FY21 restated contract backlog
was £2.3 billion. At 1 April 2022, Aviation
had around £580 million of FY23
expected revenue under contract
(FY21: £700 million (excluding disposals)).
Operational review
Defence
International defence grew in the year,
driven by activity on new contracts and
ramp up of the H160 contract which
delivers search and rescue aircraft for the
French Navy. In June 2021, we were
awarded the Mentor contract, which
involves the provision and support of an
additional nine PC-21 aircraft and related
equipment to the French Air Force,
bringing the fleet size to 26. The contract
expands the scope of our existing military
training operations and is expected to be
worth up to c.€500 million over 11 years,
including options. c.€170 million was
booked in FY22.
Additionally in the year, we teamed with
Leonardo in Canada to work together on
a new business opportunity for the Future
Aircrew Training programme (FAcT).
Activity across UK defence including RAF
station support, Hawk and LAFT contracts
was flat year-on-year as expected, with
further recovery from COVID-19 impacts
offsetting the completion of some
contracts. In the period, our military
business secured a two-year extension to
our Hades site support contract with the
RAF, and a four-year extension for the
delivery of the light aircraft flying training
programme LAFT2. In addition, an
expansion of requirements has been
awarded from the Ascent JV to deliver
further support to pilot training through
the UK Military Flying Training System
(UKMFTS).
Aerial emergency services
Revenue across the majority of our aerial
emergency services businesses ended the
year flat, in line with expectations, with
improvements in profitability as a result of
operating model efficiencies and some
COVID-19 recovery. Performance in aerial
emergency medical services has seen
some good recovery this year. Modest
growth in Italy, with Scandinavia flat, was
offset by lower volumes in Spain over the
year. Southern European bases have all
remained open and experienced varying
increases in profitability. Renewal
contracts have been won across the UK,
Italy and Sweden. The Norway fixed wing
contract has matured to a steady
operational state with investment in a
new maintenance facility in Tromso.
Our firefighting operations saw higher
activity levels in Canada and key areas in
Spain compared to last year, with Italy
reporting expected flying hours. We have
also utilised five Super Puma helicopters in
Spain, converted from oil and gas
operations. These aircraft deliver much
greater water capacity than existing
helicopters and are able to deliver a
significantly larger number of firefighters
to wildfires than was previously possible.
Our Italy firefighting contract has been
extended by two years.
Oil and gas
The sale of the Oil and Gas business
completed in August 2021, contributed
revenue of around £79 million and an
operating profit of around £2 million
in FY21.
Revenue
£817m
Underlying operating profit
£19m
Revenue profile*
22% Defence
[x]% defence
78% Civil
[x]% non-defence
What we do
We save lives with our aerial
emergency medical and
search and rescue services
We protect communities
with our firefighting
operations
We support the defence of
nations by supporting air
forces in the UK and overseas
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Babcock International Group PLC Annual Report and Financial Statements 2022
OPERATIONAL REVIEW continued
Aviation
Contract backlog
Revenue
Underlying operating (loss) / profit
of which CPBS one-off adjustment
Underlying operating profit excluding CPBS one-off adjustment
Underlying margin excluding CPBS one-off adjustment
FY22
£2.3bn
FY21
£2.9bn
£817.3m
£854.4m
£18.5m £(130.4)m
– £(128.4)m
£18.5m
2.3%
£(2.0)m
(0.2)%
Revenue and underlying operating profit bridge:
Revenue
Underlying operating profit
FY21
(Restated)
£m
854.4
(130.4)
One-off
CPBS adj
£m
16.8
128.4
FY21 Restated
(excl. one-off
CPBS)
£m
871.2
(2.0)
FX
impact
£m
(22.0)
(3.6)
Acquisition
and disposals
£m
(75.4)
(1.7)
COVID-19
recovery
(estimated)
£m
38.5
8.1
Pensions
charge
£m
–
–
Other
trading
£m
5.0
17.7
FY22
£m
817.3
18.5
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F-AIR 21
Our Pilatus aircraft on the flightline ready to be flown as
part of our French military flying training contract.
48
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Babcock International Group PLC Annual Report and Financial Statements 2022
49
Financial review
a new business opportunity for the Future
Aircrew Training programme (FAcT).
Revenue decreased by 6% to
Activity across UK defence including RAF
£817.3 million (excluding one-off CPBS
station support, Hawk and LAFT contracts
adjustments in FY21), primarily due to the
was flat year-on-year as expected, with
disposal of our Oil and Gas business in
August 2021 and the impact of foreign
exchange. Organic growth was 5% was
driven by COVID-19 recovery and the
further recovery from COVID-19 impacts
offsetting the completion of some
contracts. In the period, our military
business secured a two-year extension to
ramp-up of defence contracts in France,
our Hades site support contract with the
offset partly by the completion of fixed
RAF, and a four-year extension for the
wing aerial emergency services (AES)
delivery of the light aircraft flying training
contracts in the Nordics and lower activity
programme LAFT2. In addition, an
in Italy.
Underlying operating profit (excluding
one-off CPBS adjustments) increased to
£18.5 million (FY21: £(2.0) million loss).
Profit performance improved due to
operating model efficiencies, the
achievement of certain programme
milestones and recovery from COVID-19.
FY22 was still slightly affected by
lower flying hours and costs associated
with additional COVID-19 related
safety measures.
The sector’s contract backlog declined to
£2.3 billion (FY21: £2.9 billion), primarily
as a result of the removal of £580 million
backlog of the Oil and Gas aviation
business, sold in August 2021. Excluding
disposals, FY21 restated contract backlog
was £2.3 billion. At 1 April 2022, Aviation
had around £580 million of FY23
expected revenue under contract
(FY21: £700 million (excluding disposals)).
Operational review
Defence
International defence grew in the year,
driven by activity on new contracts and
ramp up of the H160 contract which
delivers search and rescue aircraft for the
French Navy. In June 2021, we were
awarded the Mentor contract, which
involves the provision and support of an
additional nine PC-21 aircraft and related
equipment to the French Air Force,
bringing the fleet size to 26. The contract
expands the scope of our existing military
training operations and is expected to be
worth up to c.€500 million over 11 years,
including options. c.€170 million was
booked in FY22.
expansion of requirements has been
awarded from the Ascent JV to deliver
further support to pilot training through
the UK Military Flying Training System
(UKMFTS).
Aerial emergency services
Revenue across the majority of our aerial
emergency services businesses ended the
year flat, in line with expectations, with
improvements in profitability as a result of
operating model efficiencies and some
COVID-19 recovery. Performance in aerial
emergency medical services has seen
some good recovery this year. Modest
growth in Italy, with Scandinavia flat, was
offset by lower volumes in Spain over the
year. Southern European bases have all
remained open and experienced varying
increases in profitability. Renewal
contracts have been won across the UK,
Italy and Sweden. The Norway fixed wing
contract has matured to a steady
operational state with investment in a
new maintenance facility in Tromso.
Our firefighting operations saw higher
activity levels in Canada and key areas in
Spain compared to last year, with Italy
reporting expected flying hours. We have
also utilised five Super Puma helicopters in
Spain, converted from oil and gas
operations. These aircraft deliver much
greater water capacity than existing
helicopters and are able to deliver a
significantly larger number of firefighters
to wildfires than was previously possible.
Our Italy firefighting contract has been
extended by two years.
Oil and gas
The sale of the Oil and Gas business
completed in August 2021, contributed
revenue of around £79 million and an
operating profit of around £2 million
Additionally in the year, we teamed with
Leonardo in Canada to work together on
in FY21.
Revenue
£817m
Underlying operating profit
£19m
Revenue profile*
22% Defence
[x]% defence
78% Civil
[x]% non-defence
What we do
We save lives with our aerial
emergency medical and
search and rescue services
We protect communities
with our firefighting
operations
We support the defence of
nations by supporting air
forces in the UK and overseas
OUR PRINCIPLES IN ACTION
be curious
We believe in challenging the status quo
and being curious.
As part of this mindset, a job-swap
programme was implemented allowing
colleagues to understand other roles and
get a better overview of the way things
work for different people and processes.
One such swap allowed a desk-
based employee to experience an
operational role.
Their usual job was ordering aircraft
parts, but as part of the maintenance
team for the day they were able to see
how the parts they ordered were used
and how to ensure all health and safety
checks were complete before the aircraft
took to the skies.
This experience helps our teams
understand that they’re all part of the
bigger picture and that everyone and
every role is critical to our success.
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Babcock International Group PLC Annual Report and Financial Statements 2022
OUR PRINCIPLES IN ACTION
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be curious
think : outcomes
We believe in challenging the status quo
One such swap allowed a desk-
and being curious.
As part of this mindset, a job-swap
based employee to experience an
operational role.
programme was implemented allowing
Their usual job was ordering aircraft
colleagues to understand other roles and
parts, but as part of the maintenance
get a better overview of the way things
team for the day they were able to see
work for different people and processes.
how the parts they ordered were used
and how to ensure all health and safety
checks were complete before the aircraft
took to the skies.
This experience helps our teams
understand that they’re all part of the
bigger picture and that everyone and
every role is critical to our success.
We believe in measuring success by the
results we deliver and the positive impact
we make.
Whilst discussing safety performance
in a regular team meeting, our people
decided to look at things differently.
Instead of focusing on how to intervene
properly and what can be done once
something has happened, they began to
consider the outcomes before tasks were
even planned.
This means they’ve reduced the need to
intervene, put new mitigations in place
as appropriate and it has given the whole
team the opportunity to understand
many new processes and activities that
they might have not been involved
in previously.
Thinking outcomes can help us shape
our thinking towards everything,
including safety.
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Babcock International Group PLC Annual Report and Financial Statements 2022
51
STAKEHOLDER ENGAGEMENT AND S172(1) STATEMENT
Building relationships
Building strong and lasting relationships with our diverse global stakeholder groups is vital to our success.
The Board recognises the responsibility we have to our stakeholders, and the impact of our actions,
which is why we’ve increased our focus on stakeholder engagement. Through continued two-way dialogue,
we demonstrate a strong commitment to effective stakeholder engagement.
CUSTOMERS
Why they matter to us
Understanding the needs and
challenges of our customers
allows us to help them
to succeed. We work in
partnership with public
and private customers across
the globe, enabling them to
deliver critical programmes
and services, adding value
to their operations. We seek
to solve their challenges
through excellent
operational performance
and the introduction of
innovative solutions and
technology to support their
longer-term needs.
We build and maintain
long-term relationships with
our customers to promote the
future success of the Group.
What matters to them
• Safety
• Operational excellence
• Innovation and expertise
• Reliability
• Value for money
• Collaboration
• Deep understanding of
their needs, both now and
in the future
• Sustainability performance
and agenda
How Babcock engages
• Regular ongoing relationship
engagement at all levels
• Contract negotiation and
execution
• Strategic Partnership
Programme
INVESTORS
Why they matter to us
The support of our equity and
debt investors and continued
access to capital is vital to the
long-term success of the
Company. We work to ensure
that we provide clear and
transparent information to the
market which allows investors
and potential investors to
make informed decisions, via
market updates, information
published on our website,
appropriate access to
management and an active
IR and Treasury team.
What matters to them
• Shareholder value
• Financial and operational
performance
• Collaborating on joint
• Strategy and business
initiatives
• Attendance at key industry
events
• Provision of information on
sustainability goals
development
• Capital structure
• Dividend policy
• Transparency of
communication
• Governance and
management
• Sustainability strategy
How Babcock engages
• Annual Report and Financial
Statements and AGM
• Results materials and
presentations
• Investor relations team
• Treasury team with banks
and noteholders and credit
rating agencies
• Dedicated investor section
on Babcock website
• Investor roadshows with
management and IR team
• Chair engagement with top
shareholders
• Consultation with large
shareholders on
remuneration policy
• Investor site visits
• Stock exchange
announcements and
press releases
SUPPLIERS
Why they matter to us
To support our global business
operations and strategy we
require an efficient and highly
effective supply chain. This
means we need to foster
trusted and collaborative
relationships with suppliers
who share our appetite to
drive improvement through
innovation and best practice.
Our external supply chains
are an important part of our
performance and by working
collaboratively with suppliers
we can ensure continuity of
supply, minimise risk and
bring innovative solutions
to our customers.
What matters to them
• Good working relationships
• Access to opportunities
• Prompt payment and
predictable supplier
cash flows
How Babcock engages
• Regular open and honest
two-way communications
• Supplier Code of Conduct
• Supplier conferences,
workshops and ‘lunch
and learns’
• Supplier due diligence
• Involvement in Security
supply chain development
programme SC21
REGULATORS
Why they matter to us
We manage complex assets
in highly regulated sectors:
nuclear, defence and aviation.
We are committed to providing
safe and effective operations.
We have to maintain positive
and constructive relationships
with regulators in order to be
able to operate, to help shape
policy in our markets and to
position for future opportunities.
What matters to them
• Regulations, policies and
standards
• Governance and
transparency
• Trust and ethics
• Safety and compliance
of operations
• Sustainability
• Site-specific issues
How Babcock engages
• Regular engagement
(national, local and
official level)
• Briefing on key issues
• Dedicated compliance
teams
• Response to direct queries
• Co-ordinated safety
improvement programmes
52
Babcock International Group PLC Annual Report and Financial Statements 2022
STAKEHOLDER ENGAGEMENT AND S172(1) STATEMENT
Building relationships
Building strong and lasting relationships with our diverse global stakeholder groups is vital to our success.
The Board recognises the responsibility we have to our stakeholders, and the impact of our actions,
which is why we’ve increased our focus on stakeholder engagement. Through continued two-way dialogue,
we demonstrate a strong commitment to effective stakeholder engagement.
CUSTOMERS
INVESTORS
Why they matter to us
What matters to them
Why they matter to us
Understanding the needs and
• Safety
challenges of our customers
allows us to help them
to succeed. We work in
partnership with public
and private customers across
the globe, enabling them to
deliver critical programmes
and services, adding value
to their operations. We seek
to solve their challenges
through excellent
operational performance
and the introduction of
innovative solutions and
technology to support their
longer-term needs.
We build and maintain
long-term relationships with
our customers to promote the
future success of the Group.
make informed decisions, via
• Treasury team with banks
• Operational excellence
• Innovation and expertise
• Reliability
• Value for money
• Collaboration
• Deep understanding of
their needs, both now and
• Sustainability performance
in the future
and agenda
How Babcock engages
• Regular ongoing relationship
engagement at all levels
• Contract negotiation and
execution
• Strategic Partnership
Programme
The support of our equity and
debt investors and continued
access to capital is vital to the
long-term success of the
Company. We work to ensure
that we provide clear and
transparent information to the
market which allows investors
and potential investors to
market updates, information
published on our website,
appropriate access to
management and an active
IR and Treasury team.
What matters to them
• Shareholder value
• Financial and operational
performance
• Collaborating on joint
• Strategy and business
• Attendance at key industry
initiatives
events
• Provision of information on
sustainability goals
development
• Capital structure
• Dividend policy
• Transparency of
communication
• Governance and
management
• Sustainability strategy
How Babcock engages
• Annual Report and Financial
Statements and AGM
• Results materials and
presentations
• Investor relations team
and noteholders and credit
rating agencies
• Dedicated investor section
on Babcock website
• Investor roadshows with
management and IR team
• Chair engagement with top
shareholders
• Consultation with large
shareholders on
remuneration policy
• Investor site visits
• Stock exchange
announcements and
press releases
SUPPLIERS
REGULATORS
Why they matter to us
What matters to them
Why they matter to us
• Safety and compliance
To support our global business
• Good working relationships
We manage complex assets
operations and strategy we
require an efficient and highly
effective supply chain. This
means we need to foster
trusted and collaborative
relationships with suppliers
who share our appetite to
drive improvement through
• Access to opportunities
• Prompt payment and
predictable supplier
cash flows
How Babcock engages
• Regular open and honest
two-way communications
in highly regulated sectors:
nuclear, defence and aviation.
We are committed to providing
safe and effective operations.
We have to maintain positive
and constructive relationships
with regulators in order to be
able to operate, to help shape
Our external supply chains
are an important part of our
performance and by working
collaboratively with suppliers
we can ensure continuity of
supply, minimise risk and
bring innovative solutions
to our customers.
• Supplier conferences,
workshops and ‘lunch
and learns’
• Supplier due diligence
• Involvement in Security
supply chain development
programme SC21
What matters to them
• Regulations, policies and
standards
• Governance and
transparency
• Trust and ethics
innovation and best practice.
• Supplier Code of Conduct
policy in our markets and to
• Dedicated compliance
position for future opportunities.
teams
of operations
• Sustainability
• Site-specific issues
How Babcock engages
• Regular engagement
(national, local and
official level)
• Briefing on key issues
• Response to direct queries
• Co-ordinated safety
improvement programmes
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EMPLOYEES
Why they matter to us
Our success is led by our
employees. We continue to
strengthen our employee value
proposition by enhancing our
engagement and promoting
an agile global workplace.
We are committed to
creating an inclusive and
diverse organisation where
employees can develop their
full potential. We focus on
developing and supporting a
truly engaged workforce, living
our principles and working on
shared goals, united by our
common Purpose.
What matters to them
• Remuneration and reward
• Professional development
• The Group’s aims, goals,
priorities and reputation
• Employee engagement
• Health, safety and wellbeing
• An empowering culture
• Inclusion and diversity
• Our ESG agenda
• Employee networks
How Babcock engages
• Employee forums
and meetings
• Global engagement
platforms
• Weekly CEO and senior
management vlogs
• Access to the CEO via
a dedicated email
• Weekly global news
round-up videos
• Regular internal updates
• Cascade briefings
• A dedicated onboarding app
• Apprentice and Graduate
programmes
• Regular training
• Access to independent
whistleblowing process
• Senior management and
Board visits
• Free confidential employee
support helpline
COMMUNITIES
Why they matter to us
We are committed to the
communities in which we
operate and the broader
interests of the customers
we serve. As good corporate
citizens, we want to make
a genuine difference
by supporting our local
communities and helping
them rebuild following
COVID-19.
We have a responsibility to
ensure that we support the
communities in which we
operate both economically
and socially; community
engagement and social
value creation is a key aspect
of our ESG strategy. Where
we have major sites of
operation, and are one of
the largest employers in
the local area, it remains
important for us to add
value to these communities.
What matters to them
• Employment and
economic contribution
• Health, safety and wellbeing
• Engagement in local
education and STEM
activities
• Sustainability and the
local environment
• Support for indigenous
people
• Support for armed forces
community
• Community engagement
How Babcock engages
• Sponsorship and donations
• Employee volunteering
• University partnerships
• STEM Ambassadors
• Employer of service leavers,
veterans and reserves
• Engagement with local
community programmes
S172(1) STATEMENT
The Directors confirm that they, both individually and collectively, have acted in a way that they consider, in good faith, to be most
likely to promote the long-term success of the Company for the benefit of the Shareholders as a whole, while having regard for all
stakeholders. By considering key stakeholder groups and aligning our activities with our strategic plan, as well as the Company’s
culture and values, we aim to act fairly, transparently and in the best interests of the Company over the long term.
More information on how stakeholders are factored into our decision-making and the Board’s engagement with stakeholders can be
found in the Governance section in the Chair’s introduction on page 92 and on pages 99 to 101, which form part of this Statement.
Further information on how the Board addressed the different matters set out in s172(1) in performing their duties during the year can
be found as follows:
S172 factor
a. the likely consequences of any decision in the long term
b. the interests of the Company’s employees
c. the need to foster the Company’s business relationships
with suppliers, customers and others
d. the impact of the Company’s operations on the community
and environment
e. the desirability of the Company maintaining a reputation for
high standards of business conduct
Relevant disclosures
Our strategy (page 6)
Business model (page 8)
Led by our Purpose (page 18)
Our People Strategy (page 19)
Ensuring the safety and wellbeing of our people (pages 63 to 66)
Being a collaborative, trusted partner across the supply chain
(pages 69 to 72)
Innovation and technology (page 21)
Making a positive impact on the communities in which we operate
(pages 67 and 68)
Environmental (pages 57 to 62)
ESG Strategy: Governance (page 71)
f. the need to act fairly between members of the Company
Investors (page 52)
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Babcock International Group PLC Annual Report and Financial Statements 2022
53
ESG STRATEGY
ESG Strategy
Sustainability is an integral part
of our corporate strategy and how
we do business and it underpins
our corporate Purpose: to create a
safe and secure world, together.
We have done a lot in the past
year to drive our sustainability
programme across the Group,
ensure progress towards our
corporate commitments and deliver
our five ESG priorities shown below.
During the year we progressed our
corporate environment, social and
governance (ESG) strategy, which focuses
on the operations and strategy of the
Group. We expanded our corporate
commitments to incorporate broader
environmental targets, see pages 57-59.
We also created new Group policies and
guidance to support appropriate
governance of our sustainability
programmes.
Our ESG priorities
1 We will reduce emissions and
set science-based targets to get
to net zero across our estate,
assets and operations by 2040
See page 57
2 We will integrate environmental
sustainability into programme
design to minimise waste and
optimise resources
See page 59
3 We will ensure the safety and
wellbeing of all our people
See page 63
4 We will make a positive
difference to the communities
we’re proud to be part of and
provide high-quality jobs that
support local economies
See page 67
5 We will be a collaborative,
trusted partner across the
supply chain, helping to tackle
common challenges
See page 69
Sectors and regions have developed their
own sustainability programmes, which
support the Group-led programmes and
stakeholders’ needs.
Our sustainability strategy will continue
to evolve with the interests of our
stakeholders, as well as those of the
Company. This year we asked some of our
key stakeholders for their views on our
material topics to ensure that we focus
on issues that matter most to them.
The findings will help influence our
sustainability agenda and our priorities
(see Materiality assessment on
following page).
Progress against our ESG priorities
Climate action is a key focus:
we are continuing to progress our
decarbonisation programme (Plan Zero
40) across the Group. Aligned with the
Plan Zero 40 pathway announced last
year, we commenced baselining our
carbon footprint and are on track to
submit carbon reduction targets to the
Science-Based Targets initiative by April
2023. These are to be achieved by 2030
and will set us on course for decarbonising
our estate, assets and operations to reach
our overarching goal of net zero emissions
by 2040.
During 2021, the Board and Executive
Committee agreed Group strategic
priorities for climate action and we
incorporated Task Force on Climate-
related Financial Disclosures (TCFD) risk
management and scenario planning into
both our strategic planning cycle and
corporate risk management framework.
This year we are enhancing our level of
disclosure against the TCFD requirements
(see pages 60-62 for more detail).
Sustainability is central to our thinking and
we are integrating it into programme
design to ensure optimal use of resources
and to minimise waste. We are using data
and digital techniques to inform our
through-life thinking and support effective
and efficient asset operation and
management.
We want to create a better working
environment at Babcock and ensuring the
safety and wellbeing of our employees is
at the heart of all that we do. In the
context of our new unifying corporate
Purpose, we ran a Group-wide safety
stand-down to focus on and re-emphasise
our Care and Learn safety commitments.
We aim to provide a workplace which is
inclusive and where each individual feels
supported and respected. Inclusion and
Diversity (I&D) is therefore a key focus
and this year we hired additional senior
women into our senior leadership team,
increasing female representation at the
end of the year to 21%. We are pleased
that our Mean Gender Pay Gap has
narrowed year-on-year from 12.5% to
11.8%. (See Babcock’s 2021 Gender Pay
Gap report on our corporate website.)
We recently appointed our first Global
Head of I&D to develop our approach
and review, design and implement
activities that will enable Babcock
to become a more inclusive business
that values difference.
We want to have a positive impact on the
communities in which we operate, to be
a good neighbour and contribute to the
local economy through social value
initiatives. This year we developed a
Group-wide Sponsorship and Donations
policy which is aligned to our corporate
Purpose and is supported by local activity.
In January the Executive Committee
also agreed to launch a Group-wide
volunteering programme, which will allow
every employee to volunteer for one day
per year.
We have engaged the consultancy Oxford
Economics to conduct a comprehensive
study of Babcock’s economic impact
including how the Company delivers social
value as outlined in the Government’s Social
Value Model.
We continue to actively collaborate
through industry partnerships, academia
and our supply chain to meet global
challenges such as climate change.
54
Babcock International Group PLC Annual Report and Financial Statements 2022
ESG STRATEGY
ESG Strategy
Sustainability is an integral part
of our corporate strategy and how
we do business and it underpins
our corporate Purpose: to create a
safe and secure world, together.
We have done a lot in the past
year to drive our sustainability
programme across the Group,
ensure progress towards our
corporate commitments and deliver
our five ESG priorities shown below.
During the year we progressed our
corporate environment, social and
governance (ESG) strategy, which focuses
on the operations and strategy of the
Group. We expanded our corporate
commitments to incorporate broader
environmental targets, see pages 57-59.
We also created new Group policies and
guidance to support appropriate
governance of our sustainability
programmes.
Our ESG priorities
1 We will reduce emissions and
set science-based targets to get
to net zero across our estate,
assets and operations by 2040
See page 57
2 We will integrate environmental
sustainability into programme
design to minimise waste and
optimise resources
See page 59
3 We will ensure the safety and
wellbeing of all our people
See page 63
4 We will make a positive
difference to the communities
we’re proud to be part of and
provide high-quality jobs that
support local economies
See page 67
5 We will be a collaborative,
trusted partner across the
supply chain, helping to tackle
common challenges
See page 69
Sectors and regions have developed their
We want to create a better working
own sustainability programmes, which
environment at Babcock and ensuring the
support the Group-led programmes and
safety and wellbeing of our employees is
stakeholders’ needs.
Our sustainability strategy will continue
to evolve with the interests of our
stakeholders, as well as those of the
Company. This year we asked some of our
key stakeholders for their views on our
material topics to ensure that we focus
on issues that matter most to them.
The findings will help influence our
sustainability agenda and our priorities
(see Materiality assessment on
following page).
Progress against our ESG priorities
Climate action is a key focus:
we are continuing to progress our
decarbonisation programme (Plan Zero
40) across the Group. Aligned with the
at the heart of all that we do. In the
context of our new unifying corporate
Purpose, we ran a Group-wide safety
stand-down to focus on and re-emphasise
our Care and Learn safety commitments.
We aim to provide a workplace which is
inclusive and where each individual feels
supported and respected. Inclusion and
Diversity (I&D) is therefore a key focus
and this year we hired additional senior
women into our senior leadership team,
increasing female representation at the
end of the year to 21%. We are pleased
that our Mean Gender Pay Gap has
narrowed year-on-year from 12.5% to
11.8%. (See Babcock’s 2021 Gender Pay
Gap report on our corporate website.)
Plan Zero 40 pathway announced last
We recently appointed our first Global
year, we commenced baselining our
carbon footprint and are on track to
Head of I&D to develop our approach
and review, design and implement
submit carbon reduction targets to the
activities that will enable Babcock
Science-Based Targets initiative by April
to become a more inclusive business
2023. These are to be achieved by 2030
that values difference.
and will set us on course for decarbonising
our estate, assets and operations to reach
our overarching goal of net zero emissions
by 2040.
We want to have a positive impact on the
communities in which we operate, to be
a good neighbour and contribute to the
local economy through social value
During 2021, the Board and Executive
initiatives. This year we developed a
Committee agreed Group strategic
priorities for climate action and we
incorporated Task Force on Climate-
Group-wide Sponsorship and Donations
policy which is aligned to our corporate
Purpose and is supported by local activity.
related Financial Disclosures (TCFD) risk
In January the Executive Committee
management and scenario planning into
also agreed to launch a Group-wide
both our strategic planning cycle and
volunteering programme, which will allow
corporate risk management framework.
every employee to volunteer for one day
This year we are enhancing our level of
per year.
disclosure against the TCFD requirements
(see pages 60-62 for more detail).
We have engaged the consultancy Oxford
Economics to conduct a comprehensive
Sustainability is central to our thinking and
study of Babcock’s economic impact
we are integrating it into programme
including how the Company delivers social
design to ensure optimal use of resources
value as outlined in the Government’s Social
and to minimise waste. We are using data
Value Model.
and digital techniques to inform our
through-life thinking and support effective
and efficient asset operation and
management.
We continue to actively collaborate
through industry partnerships, academia
and our supply chain to meet global
challenges such as climate change.
Our sustainability charter
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A We use innovative solutions to reduce our
energy needs, while focusing on cleaner energy
and other natural resources.
B We integrate environmental sustainability into
our programme design, optimise use of resources
and minimise waste through increased re-use and
recycling.
C We play an active part in our local
communities to enhance development and inspire
the next generation.
D The safety and wellbeing of our people is our
priority. We encourage a diverse and inclusive
employee base where each person feels respected
and able to fulfil their potential.
E We partner with our supply chains to identify
innovative solutions and ensure timely delivery
of quality products and services.
F We believe that ethical behaviour underpins
our sustainability activities. We have robust
processes and controls to identify opportunities
and manage corporate risks.
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Materiality assessment
Last year we conducted an internal
materiality assessment to highlight the
issues we believed mattered most to our
stakeholders and to Babcock (see table
below). This year we extended the
materiality assessment to capture the
views of some of our key stakeholder
groups and ensure that our strategy
evolves with their interests and needs,
and aligns with our priorities.
To capture the views of our employees we
ran an employee opinion poll in March, to
identify the top three priority sustainability
issues they think we should be focusing on
in order ‘to create a safe and secure
world, together’.
We also asked our investors for their views
on sustainability priorities. Below we have
highlighted the three topics cited by
these respective groups.
Employees:
• Climate action: We are facing a global
climate crisis and our people recognise
we need to play our part in averting this
• Waste: Our employees believe we
need to reduce the amount of waste
generated, be more efficient and adopt
circular economy principles
• Health and safety: Our employees
recognise we must protect the
wellbeing of all who interact
with Babcock
Investors:
• Sustainable supply chains: In an
increasingly unpredictable macro
environment, supply chain resilience is
key. Also, embedding sustainable
practices within the supply chain will be
an important factor in achieving our net
zero target
• Governance, accountability and culture:
These are key to delivering benefits
from the operating model and to fully
integrate ESG in the business to achieve
our sustainability ambitions
• Talent and development: Babcock
requires skilled employees. Our
workforce is ageing and there is
concern that we could struggle to
deliver planned growth or take
advantage of emerging opportunities
This year we intend to survey our
key suppliers and several customer
stakeholders within contracts across
the sectors and regions.
Our Purpose: to create a safe and secure world, together
Environment
Social
Governance
Biodiversity and ecological impact
Community engagement
Business ethics and integrity
s
e
u
s
s
i
l
a
i
r
e
t
a
M
Climate change
Waste
Health, safety and wellbeing
Data and cyber security
Talent and development
Water consumption
Local economic contribution
Employee inclusion and diversity
Governance, accountability
and culture
Sustainable supply chains
Innovation and technology
Collaboration
54
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
55
123 4 5 6
ESG STRATEGY continued
ESG and our shareholders
We recognise that parts of our business
model are of increasing relevance to
investors looking through an ESG lens:
most notably that we operate in defence
and nuclear markets.
Babcock has been supporting the UK’s
commitment to the Continuous At Sea
Deterrent for over 50 years while also
delivering complex and critical civil
nuclear through-life engineering. We will
continue to support our UK customer,
both with their defence agenda and their
commitment to generate low emission
power from nuclear energy.
This year we further our ESG disclosure
on key sustainability interests. During the
year, critical ESG topics were raised in the
market allowing funds to identify and filter
equities to minimise exposure to defence
and nuclear industries, and enabling
compliance with new investment policies.
Below we talk through key points
identified by our shareholders on common
issues and material areas of focus:
Environmental: In addition to new
disclosure this year, we add further
road-mapping to achieving our target of
net zero for harmful emissions from our
estate, assets and operations by 2040.
The target is also linked to our KPI on
CO2e emissions for measuring our
progress on page 23.
Social: The health, safety and wellbeing
of our employees, customers and the
community comes first at all times.
This has been a year of change with
our new People strategy and the setting
of solid foundations to build upon
as we continue to improve our safety
performance, inclusion and diversity,
gender pay gap, talent development
and community outreach. See pages
63 to 68.
Governance: Governance starts at the top.
We have continued to support the
Company’s turnaround by making
improvements to the governance of the
Group at Board level, which is covered
in our Chair’s report (page 92) and our
Audit Committee Chair’s report (page
108). Our approach to risk management is
discussed on page 76, and the Group-level
response to our new governance over
contract bids is covered on pages 8 and 9.
This year we have continued to develop
our approach to ESG reporting. Building
on last year’s work, we have enhanced the
level of transparency and provided further
insight into a range of economic, social
and environmental impacts including
working towards full disclosure to the TCFD
requirements, as per Listing Rule LR9.8.6R.
Investor FAQs:
Are you involved in nuclear weapons?
• We do not design, manufacture, maintain or deal in nuclear weapons
or their components
Are you involved in nuclear delivery platforms?
• In the UK, nuclear delivery platforms are generally defined as the UK’s SSBN
(Ship Submersible Ballistic Nuclear) fleet of Vanguard Class submarines
and in future, its replacement programme, the Dreadnought Class
• We manufacture and assemble components for the joint UK and US SSBN
submarine replacement programme
• We also design and manufacture handling and ejector systems for the
future UK Dreadnought Class submarines
• These two areas of manufacture represent less than 2% of FY22 revenue
Are you involved in any other nuclear defence activities?
• Babcock has been supporting the UK’s most critical defence capability,
the Continuous At Sea Deterrent, for over 50 years
• We own and operate critical infrastructure and have technical knowledge
of the defence nuclear market
• We provide maintenance, through-life support and life-extensions for the
UK’s fleet of nuclear-powered submarines. This relates to the fleets of both
SSBNs and SSNs (Surface Ship Nuclear – nuclear-powered)
• As part of our civil nuclear business we also deliver infrastructure
projects for AWE
• These areas of support for the wider UK defence nuclear programme
represents the defence revenue in our Nuclear sector, approximately
21% of FY22 revenue
Are you involved in other weapons?
• We do not make or deal in other weapons
• We do, however, design and manufacture weapons handling and launch
systems for international naval platforms used by the UK, Spain, Republic of
Korea and Australia
• We also have contracts to maintain the UK Royal Navy’s naval weaponry
• These areas of support and manufacture represents less than 2% of
FY22 revenue
Are you involved in nuclear power?
• Yes: nuclear power provides a reliable source of low-carbon electricity and
is a critical component of countries’ national energy strategies as they
move towards net zero carbon
• Our civil nuclear business is involved in new build, power generation
support, fuel route management and decommissioning in the UK
nuclear market
• We also use our technical knowledge and reference cases to undertake
consultancy work in Canada and Japan, albeit at a small volume currently
• Work related to these areas represents approximately 4% of FY22 revenue
Do you have dedicated ESG remuneration targets?
• Three of the Group’s key performance indicators are linked to our ESG
strategy: (i) Total injuries rate, (ii) CO2 emissions, and (iii) Senior
management gender diversity
• We have two main targets as part of our ESG strategy: (i) to be net zero
(Scope 1 and 2) by 2040, and (ii) for at least 30% of our senior
management to be female by 2025
56
Babcock International Group PLC Annual Report and Financial Statements 2022
ESG STRATEGY continued
ESG and our shareholders
We recognise that parts of our business
model are of increasing relevance to
investors looking through an ESG lens:
most notably that we operate in defence
and nuclear markets.
Babcock has been supporting the UK’s
commitment to the Continuous At Sea
Deterrent for over 50 years while also
delivering complex and critical civil
nuclear through-life engineering. We will
continue to support our UK customer,
both with their defence agenda and their
commitment to generate low emission
power from nuclear energy.
This year we further our ESG disclosure
on key sustainability interests. During the
year, critical ESG topics were raised in the
market allowing funds to identify and filter
equities to minimise exposure to defence
and nuclear industries, and enabling
compliance with new investment policies.
Below we talk through key points
identified by our shareholders on common
issues and material areas of focus:
Environmental: In addition to new
disclosure this year, we add further
road-mapping to achieving our target of
net zero for harmful emissions from our
estate, assets and operations by 2040.
The target is also linked to our KPI on
CO2e emissions for measuring our
progress on page 23.
Social: The health, safety and wellbeing
of our employees, customers and the
community comes first at all times.
This has been a year of change with
our new People strategy and the setting
of solid foundations to build upon
as we continue to improve our safety
performance, inclusion and diversity,
gender pay gap, talent development
and community outreach. See pages
63 to 68.
Governance: Governance starts at the top.
We have continued to support the
Company’s turnaround by making
improvements to the governance of the
Group at Board level, which is covered
in our Chair’s report (page 92) and our
Audit Committee Chair’s report (page
108). Our approach to risk management is
discussed on page 76, and the Group-level
response to our new governance over
contract bids is covered on pages 8 and 9.
This year we have continued to develop
our approach to ESG reporting. Building
on last year’s work, we have enhanced the
level of transparency and provided further
insight into a range of economic, social
and environmental impacts including
working towards full disclosure to the TCFD
requirements, as per Listing Rule LR9.8.6R.
Investor FAQs:
Are you involved in nuclear weapons?
• We do not design, manufacture, maintain or deal in nuclear weapons
or their components
Are you involved in nuclear delivery platforms?
• In the UK, nuclear delivery platforms are generally defined as the UK’s SSBN
(Ship Submersible Ballistic Nuclear) fleet of Vanguard Class submarines
and in future, its replacement programme, the Dreadnought Class
• We manufacture and assemble components for the joint UK and US SSBN
submarine replacement programme
• We also design and manufacture handling and ejector systems for the
future UK Dreadnought Class submarines
• These two areas of manufacture represent less than 2% of FY22 revenue
Are you involved in any other nuclear defence activities?
• Babcock has been supporting the UK’s most critical defence capability,
the Continuous At Sea Deterrent, for over 50 years
• We own and operate critical infrastructure and have technical knowledge
of the defence nuclear market
• We provide maintenance, through-life support and life-extensions for the
UK’s fleet of nuclear-powered submarines. This relates to the fleets of both
SSBNs and SSNs (Surface Ship Nuclear – nuclear-powered)
• As part of our civil nuclear business we also deliver infrastructure
projects for AWE
• These areas of support for the wider UK defence nuclear programme
represents the defence revenue in our Nuclear sector, approximately
21% of FY22 revenue
Are you involved in other weapons?
• We do not make or deal in other weapons
• We do, however, design and manufacture weapons handling and launch
systems for international naval platforms used by the UK, Spain, Republic of
Korea and Australia
• We also have contracts to maintain the UK Royal Navy’s naval weaponry
• These areas of support and manufacture represents less than 2% of
FY22 revenue
Are you involved in nuclear power?
• Yes: nuclear power provides a reliable source of low-carbon electricity and
is a critical component of countries’ national energy strategies as they
move towards net zero carbon
• Our civil nuclear business is involved in new build, power generation
support, fuel route management and decommissioning in the UK
nuclear market
• We also use our technical knowledge and reference cases to undertake
consultancy work in Canada and Japan, albeit at a small volume currently
• Work related to these areas represents approximately 4% of FY22 revenue
Do you have dedicated ESG remuneration targets?
• Three of the Group’s key performance indicators are linked to our ESG
strategy: (i) Total injuries rate, (ii) CO2 emissions, and (iii) Senior
management gender diversity
• We have two main targets as part of our ESG strategy: (i) to be net zero
(Scope 1 and 2) by 2040, and (ii) for at least 30% of our senior
management to be female by 2025
S
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s
ENVIRONMENTAL
1 Reducing emissions and setting science-based targets to get to net zero
Across our operations we interact with a diverse range of environments and we are committed to reducing our impact on the
environment. We seek to deliver to the highest standards of environmental management and protection, truly embedding
our Principle of ‘be kind’ to ensure our impacts are minimised. We take our responsibilities seriously and ensure we are playing our
part in the transition to a more sustainable future for all.
Our Group-wide Environmental Protection Working Group (EPWG) is working to conduct a holistic assessment of Babcock’s approach
to environmental management. We currently have 25 ISO14001 Environmental Management Systems (EMS) across the organisation
which capture over 75% of our global operations, and we have several more EMS seeking accreditation over the coming 12 months.
We are committed to ensuring all Babcock operations are to be delivered within an EMS by 2024, delivering advanced environmental
training to all relevant employees by 2025 and have set new targets for waste, water and bio-diversity (see page 59).
Babcock Group energy consumption and emissions
Dec-18
Dec-19
Dec-20
Dec-21
UK / UK offshore
Scope 1: Direct emissions
from owned/controlled operations
Scope 2: Indirect emissions
from the use of electricity and steam
Scope 3: Emissions – business travel,
electric transmission and distribution
Total emissions
Underlying energy consumption
used to calculate emissions
Global
(excluding UK / UK offshore)
Scope 1: Direct emissions
from owned/controlled operations
Scope 2: Indirect emissions
from the use of electricity and steam
Scope 3: Emissions – business travel,
electric transmission and distribution
Total emissions
Underlying energy consumption
used to calculate emissions
Babcock Group total
(UK / UK offshore and global)
Scope 1: Direct emissions
from owned/controlled operations
Scope 2: Indirect emissions
from the use of electricity and steam
Scope 3: Emissions – business travel,
electric transmission and distribution
Total emissions
Underlying energy consumption
used to calculate emissions
Underlying energy consumption
Fiscal year revenue FY19 - FY22
Intensity ratio
tCO2e
tCO2e
tCO2e
tCO2e
74,819
69,450
52,693
42,515
78,903
66,881
52,791
45,069
18,198
171,920
15,265
151,596
8,246
113,730
7,981
95,566
kWh
561,818,680
531,968,134
418,292,992
365,816,822
tCO2e
tCO2e
tCO2e
tCO2e
93,333
99,579
110,591
100,644
2,461
457
96,251
6,743
4,569
4,426
410
106,732
213
115,373
68
105,139
kWh
391,772,490
417,537,009
459,580,840
417,483,548
tCO2e
tCO2e
tCO2e
tCO2e
168,152
169,029
163,285
143,160
81,364
73,624
57,360
49,496
18,654
268,170
15,675
258,328
8,459
229,103
8,050
200,705
kWh
953,591,170
949,505,142
877,873,832
783,300,370
GJ
£m
tCO2e/£1m
Revenue
3,432,928
4,474.8
3,418,219
4,428.5
3,160,346
4,182.7
2,819,881
4,101.8
59.9
58.3
54.8
48.9
Our emissions data is reported in line with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard under the ‘Operational Control’ approach.
The reporting period for our energy consumption and carbon emissions is the calendar year (01 January to 31 December), this is opposed to financial year as we
have previously reported. The transition to calendar year reporting has allowed more time to collate, analyse and report our environmental data, which has
improved the accuracy and completeness of our data sets. Figures for UK operations follow conversion factors published by BEIS. Non-UK operations utilise emission
factors applicable to the fuel source and location. Appropriate conversion factors have been used to calculate the underlying energy consumption figures. Scope 1,
2 and 3 sources have been divided by the annual revenue to provide the intensity ratio (tCO2e per £m). Emissions data for prior years have been adjusted to include
data unavailable last year, and emission figures for this year include an element of estimated data. Prior year revenue figures have not been restated for removal of
pass through revenue, identified in the financial review, to remain consistent with the emissions data recorded in prior years. Certain data, estimated to be
immaterial to the Group’s emissions, has been omitted as it has not been practical to obtain (including operations in Oman, South Korea and USA). Metering and
monitoring improvements are being implemented to capture these data streams. During the reporting period estate rationalisation, strategic divestments,
‘low-hanging fruit’ energy conservation measures and improvements to our energy management practices have resulted in a reduction of both our carbon baseline
and FY22 operational emissions. We are progressing well on our journey to net zero and aim to accelerate our carbon reduction over the coming years.
56
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
57
ESG STRATEGY: ENVIRONMENTAL continued
Plan Zero 40
We are committed to addressing the
global climate crisis and leading the
transition to net zero. Under the direction
of our carbon strategy, Plan Zero 40,
over the past 12 months we have made
significant progress on our journey
to net zero.
We have collaborated with a number of
climate experts including Frazer-Nash and
Energy Systems Catapult and developed
our approach to decarbonisation. We
have commenced the development of
comprehensive and deliverable carbon
reduction plans within our ‘Pathfinder
Boundaries’ and are on schedule to scale
the reduction plans across our global
operations by the end of 2023.
We have developed a specialist central
team to support the organisation and
effectively manage the transition to net
zero and are investigating opportunities
to finance our net zero journey.
In April 2021, we signed the Business
Ambition Pledge and committed to a
2030 science-based target in line with
a 1.5o C degree pathway. We are on track
to meet our goal and over the next
12 months we aim to submit our targets
for approval by the Science Based Targets
initiative (SBTi).
prices. We have also conducted estate-
wide renewable energy surveys to identify
the opportunity for the installation of solar
photovoltaics.
We are also seeking accreditation to the
Carbon Trust’s new ‘Route to Net Zero
Standard’ by the end of April 2023.
During 2021 Babcock conducted a
strategic review of our estate and built
environment. The review identified cost
savings and environmental improvements
which could be delivered through estate
rationalisation. We have subsequently
proceeded to consolidate our estate
which has delivered a reduction in our
carbon baseline and operational
emissions, along with delivering
a broad range of environmental and
organisational efficiencies.
Scope 3 emissions
Given the diverse and complex nature of
Babcock’s operations, Scope 3 emissions
presents a range of challenges. We have,
however, made significant progress
investigating and mapping our Scope 3
emissions. This includes assessment of our
Scope 3 upstream emissions utilising the
Environmentally Extended Input Output
(EEIO) approach, hotspot analysis of our
supply chain and publication of our new
Supplier Sustainable policy.
Within our carbon reduction plans we are
identifying carbon reduction, energy
efficiency and renewable energy
opportunities across our operations.
Our work to date is driving proactive
engagement and will ensure sustainable
and low-carbon considerations are
embedded throughout the value chain.
At Rosyth Dockyard we have identified the
opportunity for renewable energy systems
with generating capacity of over 10MW,
which will meet a significant percentage
of the energy demand for the site, reduce
the footprint of our operations and
provide resilience to fluctuating energy
We have commenced investigations into
our Scope 3 downstream footprint and
have completed an initial assessment
as a pathfinder. We are working to
conduct further downstream assessments
to identify hotspots across our global
operations and are on track to develop a
detailed understanding of our Scope 3
footprint with associated net zero
pathway by 2025.
We are taking proactive action and
collaborating with our customers,
peers and suppliers to ensure there is a
consistent approach to calculating and
managing Scope 3 emissions across the
defence and aerospace industry. We are
active members of a range of industry
forums investigating sustainable solutions
and alternative fuels.
Reducing the impacts of our products and
services is a key aim for the organisation.
As a priority, the Group Executive
Committee is ensuring the delivery
of appropriate training and development
for our employees and stakeholders,
embedding circular economy principles
and leading on the development of
‘Green Ports’. We are working in
collaboration with industry and academic
partners to investigate approaches to
environmental lifecycle assessments
and whole-life models.
Sustainable transport
Sustainable transport is an important
factor in our transition to net zero.
Our Sustainable Transport strategy
addresses our key transportation impacts
including: the Babcock fleet, business
travel, employee commuting and
transportation & distribution (upstream
and downstream). We are developing
specific transportation targets in line with
our ambitions under Plan Zero 40 and our
science-based targets. We are seeking to
transition our fleet to 100% ultra low-
emission vehicles (ULEVs) by 2030 and
have a range of programmes aimed at
raising awareness and promoting varying
modes of sustainable transport.
Our journey
2020
Baseline
Group ‘Top Down’
carbon strategy
Where we
are on our
journey
2023
Strategy delivery
2025
Full Scope 3
mapping to
be complete
2032
All Babcock estate
to be net zero
in operation
2040
Net Zero Target
(Scope 1 and 2)
2021
‘Bottom-Up’
carbon strategies
• strategy planning
• baseline assessment
2024
All new buildings
to be Net Zero
operational
emissions
2030
Science-based targets,
ultra low-emissions
vehicles
2035
All buildings
to be net zero
embodied carbon
58
Babcock International Group PLC Annual Report and Financial Statements 2022
ESG STRATEGY: ENVIRONMENTAL continued
Plan Zero 40
We are committed to addressing the
global climate crisis and leading the
prices. We have also conducted estate-
detailed understanding of our Scope 3
wide renewable energy surveys to identify
footprint with associated net zero
the opportunity for the installation of solar
pathway by 2025.
transition to net zero. Under the direction
photovoltaics.
of our carbon strategy, Plan Zero 40,
over the past 12 months we have made
significant progress on our journey
to net zero.
We have collaborated with a number of
climate experts including Frazer-Nash and
Energy Systems Catapult and developed
our approach to decarbonisation. We
have commenced the development of
comprehensive and deliverable carbon
reduction plans within our ‘Pathfinder
Boundaries’ and are on schedule to scale
the reduction plans across our global
operations by the end of 2023.
We are taking proactive action and
We are also seeking accreditation to the
collaborating with our customers,
Carbon Trust’s new ‘Route to Net Zero
peers and suppliers to ensure there is a
Standard’ by the end of April 2023.
During 2021 Babcock conducted a
strategic review of our estate and built
environment. The review identified cost
savings and environmental improvements
which could be delivered through estate
consistent approach to calculating and
managing Scope 3 emissions across the
defence and aerospace industry. We are
active members of a range of industry
forums investigating sustainable solutions
and alternative fuels.
rationalisation. We have subsequently
Reducing the impacts of our products and
proceeded to consolidate our estate
services is a key aim for the organisation.
which has delivered a reduction in our
As a priority, the Group Executive
carbon baseline and operational
emissions, along with delivering
Committee is ensuring the delivery
of appropriate training and development
a broad range of environmental and
for our employees and stakeholders,
We have developed a specialist central
organisational efficiencies.
team to support the organisation and
effectively manage the transition to net
zero and are investigating opportunities
to finance our net zero journey.
In April 2021, we signed the Business
Ambition Pledge and committed to a
Scope 3 emissions
Given the diverse and complex nature of
Babcock’s operations, Scope 3 emissions
presents a range of challenges. We have,
however, made significant progress
investigating and mapping our Scope 3
embedding circular economy principles
and leading on the development of
‘Green Ports’. We are working in
collaboration with industry and academic
partners to investigate approaches to
environmental lifecycle assessments
and whole-life models.
2030 science-based target in line with
emissions. This includes assessment of our
Sustainable transport
a 1.5o C degree pathway. We are on track
Scope 3 upstream emissions utilising the
Sustainable transport is an important
to meet our goal and over the next
Environmentally Extended Input Output
factor in our transition to net zero.
12 months we aim to submit our targets
(EEIO) approach, hotspot analysis of our
Our Sustainable Transport strategy
for approval by the Science Based Targets
supply chain and publication of our new
addresses our key transportation impacts
initiative (SBTi).
Supplier Sustainable policy.
Within our carbon reduction plans we are
Our work to date is driving proactive
identifying carbon reduction, energy
engagement and will ensure sustainable
efficiency and renewable energy
and low-carbon considerations are
opportunities across our operations.
embedded throughout the value chain.
including: the Babcock fleet, business
travel, employee commuting and
transportation & distribution (upstream
and downstream). We are developing
specific transportation targets in line with
our ambitions under Plan Zero 40 and our
At Rosyth Dockyard we have identified the
We have commenced investigations into
science-based targets. We are seeking to
opportunity for renewable energy systems
our Scope 3 downstream footprint and
with generating capacity of over 10MW,
have completed an initial assessment
which will meet a significant percentage
as a pathfinder. We are working to
transition our fleet to 100% ultra low-
emission vehicles (ULEVs) by 2030 and
have a range of programmes aimed at
of the energy demand for the site, reduce
conduct further downstream assessments
raising awareness and promoting varying
the footprint of our operations and
to identify hotspots across our global
modes of sustainable transport.
provide resilience to fluctuating energy
operations and are on track to develop a
Our journey
2020
Baseline
Group ‘Top Down’
carbon strategy
Where we
are on our
journey
2023
Strategy delivery
2025
Full Scope 3
mapping to
be complete
2032
All Babcock estate
to be net zero
in operation
2040
Net Zero Target
(Scope 1 and 2)
2021
‘Bottom-Up’
carbon strategies
• strategy planning
• baseline assessment
2024
All new buildings
to be Net Zero
operational
emissions
2030
Science-based targets,
ultra low-emissions
vehicles
2035
All buildings
to be net zero
embodied carbon
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As a flagship, we have recently launched
an electric vehicle (EV) salary sacrifice
scheme for our UK operations.
This scheme will promote and accelerate
the uptake of EVs across our workforce,
which will lead to a reduction in the
footprint and impact of our operations.
Raise awareness of environmental
and sustainability issues
We understand our people are key to
embedding sustainability into our
operations. Over the past year we have
effectively engaged with our workforce
and wider stakeholder groups to educate
and raise awareness of environment and
sustainability issues. In the run-up to and
throughout COP26 we hosted a series of
events including ‘lunch and learn’
briefings and a presentation/Q&A with
Olympic gold medallist Hannah Mills.
We also ran a climate podcast series with
appearances from Babcock’s CEO David
Lockwood and the Ministry of Defence’s Lt
Gen Richard Nugee. We have exciting
plans to continue and enhance our
engagement over the coming year.
Data management
Data is the cornerstone of our
Environmental strategy and journey to net
zero. We use data to understand our
impacts, inform our decisions and
communicate our position in a
transparent manner.
Throughout 2021 we implemented a
range of improvement measures to our
data management system to ensure high
accuracy and completeness. As a priority
we are investigating the development
of an environmental data management
system which will form the basis
of our approach.
2
Integrating environmental sustainability into
programme design
Climate action Executive
Committee priorities
As part of Babcock’s TCFD governance
workstream, climate action priorities have
been agreed by the Group Executive
Committee and are underway to ensure
the assessment and management of
climate-related risks. See page 60.
Waste
Consumption of materials and resources
is a significant contributor to Babcock’s
environmental footprint and we understand
our responsibility to minimise the impacts
of our operations. We continue to deliver
improvements to our waste management
practices and to minimise waste sent
to landfill.
Within our Marine business we have
adopted innovative technology, such as
robotic welding, which reduces waste
along with providing a wide range of
additional benefits. Within our Aviation
business we harnessed data to inform the
scheduling and planning of our touring
pilots and reduced wasted travel and
expense by over 50%.
We have set three waste targets;
• Preparing waste management plans
across all significant sites by 2024
• Zero controlled waste to landfill
by 2025
• Eliminate the use of unavoidable
single-use plastic by 2027
Water
Water is a key resource across our global
operations and we understand the need
to reduce our impacts and manage our
water consumption responsibly. Across
the organisation, local environmental
teams are working to identify water
reduction opportunities and to
incorporate water reduction technologies
such as rainwater harvesting, leak
detection and flow restriction in our
new developments.
Within our African operations, water
scarcity poses a significant challenge and
we have taken proactive steps to reduce
our impacts through rainwater harvesting
to recycling water for irrigation and
flushing toilets. For example in Botswana
our teams created wash bays that recycle
and filter the runoff water for reuse, which
has achieved a 60% reduction in water
consumption.
• We have set a target to prepare
water management plans across
all significant sites by 2024
Biodiversity
Maintaining and enhancing biodiverse
ecosystems is a fundamental aspect
of our Environmental strategy and we
aim to ensure we preserve and enhance
natural capital. Our local environmental
specialists ensure that environmental
considerations are embedded throughout
our operations and our impacts
are minimised.
We have set two biodiversity targets;
• Conduct biodiversity assessments
across all significant sites by 2024
• Deliver a10% biodiversity increase
across the estate by 2030
58
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
59
ESG STRATEGY: ENVIRONMENTAL continued
Task Force on Climate-related
Financial Disclosures
This year we have been working towards
full disclosure to the Task Force on
Climate-related Financial Disclosures
(TCFD) requirements, as per Listing Rule
LR9.8.6R. We have appropriate
governance with respect to climate
change, integrated risk management
and scenario planning in our strategic
planning cycles and we have set some
initial targets. As we work towards full
disclosure, we will assess how climate
change scenarios impact on the
organisation’s business strategy, financial
planning and budgeting. For further
details see FY23 priority table, page 62.
Governance
Board oversight of climate-related risks
and opportunities
In FY21 the Board, in order to progress
the ESG programme and meet the
expectations of our stakeholders, approved
Babcock’s carbon initiative (Plan Zero 40),
our list of identified ESG material issues
and our phased approach to full TCFD
implementation.
Group-wide ESG matters are now an
integral part of Board strategic discussions.
In FY22, the Board reviewed progress on
Plan Zero 40 and TCFD through updates
from the Group Head of Sustainability.
See page 97 for further details on our
governance framework.
Climate-related risks and opportunities
are to be reported to the Executive
Committee on a quarterly basis.
Management’s role in assessing and
managing climate-related risks and
opportunities
The executive with responsibility for TCFD
reporting is the Chief Corporate Affairs
Officer. TCFD workstreams are
championed by the Group Head of
Sustainability and activities are overseen
by the Corporate ESG Committee, which
meets quarterly and includes
representatives from the Executive
Committee. Progress on TCFD activities is
reported to this Committee, and any
actions/activities required to further
climate-related risk management activities
are agreed by the Committee. Executive
Committee members who are members of
the Corporate ESG Committee are
indicated on page 97.
TCFD actions and activities are managed
at the Group and sector level by ‘TCFD
Sponsors’ with oversight from the Group
Head of Sustainability and support from
each sector risk lead and/or relevant
environmental, technical or facilities team.
The sponsors are typically Finance
Directors/Heads of Finance, which ensures
that TCFD activities are overseen by
individuals with sufficient seniority,
and authority, to delegate tasks and
monitor progress. Sponsors also hold
responsibility for ensuring that climate-
related risks and opportunities within
their sector are understood, financially
quantified and delegated for management
on an ongoing basis.
Plan Zero 40 is being led by the Group
environmental team, with sectors
accountable for developing their bottom-
up carbon reduction plans. For further
details on decarbonisation, see page 58.
Additionally, during the year the Edinburgh
University Centre for Business and Climate
Change facilitated an Executive Education
session with the Executive Committee on
climate change.
Strategy
We have analysed climate-related risks
and opportunities across all of our business
operations against three climate scenarios.
These are based on an evolution and
customisation of scenarios developed by
the Network for Greening the Financial
System (NGFS). We customised these
scenarios to include location-specific
information relating to areas where we
carry out our operations. Additional criteria
were also developed to capture the
longer-term nature of climate-related risks
and opportunities.
Orderly: ‘Net Zero 2050’
(warming limited to 1.5°C)
• Early high levels of transition risks with
reduced subsequent physical risks
Disorderly: ‘Delayed Transition’
(warming limited to 2°C)
• Delayed transition risks with higher
subsequent physical risks
Hothouse World: ‘Current Policies’
(warming of 3°C+)
• Limited or no transition risks but
runaway physical risks
These scenarios were adopted as they
were determined to be in line with
Babcock’s most likely possibilities across
the business. Due to the disparate
geographies that we operate in, the most
relevant scenario for each sector or region
varies, particularly in relation to policy
retention. The UK, European countries and
New Zealand are broadly seen to have a
high amount of legislation that addresses
climate change, with a legal commitment
to achieve net zero by 2050. Canada and
South Africa are aspirational for the
transition but more locked into traditional
carbon-intensive economies. Australia is
much further behind in this area. As a
result, transition risks in the UK are
different from those in the Australian
region. Some sectors also have operations
exposed to different types of transition risk
depending on their geographic spread.
Our process for identifying and assessing
the impact of future potential scenarios
included interviews with senior executives
across all of our sectors and regions, as
well as a number of workshops. More than
100 stakeholders have been involved
across Babcock, providing coverage of
nearly all business functions. This
confirmed the materiality of climate-
related issues. Based on analysis of the
impact of these risks on Babcock’s
operations, the following areas will
influence our sector/regional strategies
and business model:
• Extension of risk management
timescales to accommodate
the longer-term nature
of climate-related risks
• Development of robust green
credentials to continue to attract
top talent
• Implementation of flexible and
adaptable governance structures
and processes to accommodate
regulation change
• Implementation of renewable energy
sourcing and energy-efficiency
measures across sites and facilities
• Implementation of a contracting
approach that includes climate
considerations
• Collaboration with supply chain
to understand/mitigate suppliers’
climate impacts
Risks
An analysis of climate-related risks relevant
to Babcock has shown that many risks and
opportunities are in the medium term
(2030-2040) and long term (2040-2100),
giving Babcock time in the short term to
implement activities to mitigate.
Details of our most significant climate-
related physical and transition risks,
proximity, impact and control measures
introduced can be seen in the graphic
on the next page.
Our most significant physical risk is
dockyard disruption and we have assessed
the risk of increased flooding and storm
surges. The highest risk is seen in a 3oC
scenario, where we expect to see more
extreme weather patterns.
From our assessment of transition risk, we
believe increased climate-related
regulation will have an impact on supply
chain disruption. The lowest risk is in the
3oC scenario which assumes that only
current climate policies are implemented,
therefore transition risks globally will
be negligible.
60
Babcock International Group PLC Annual Report and Financial Statements 2022
ESG STRATEGY: ENVIRONMENTAL continued
Task Force on Climate-related
Financial Disclosures
This year we have been working towards
full disclosure to the Task Force on
Climate-related Financial Disclosures
(TCFD) requirements, as per Listing Rule
LR9.8.6R. We have appropriate
governance with respect to climate
change, integrated risk management
and scenario planning in our strategic
planning cycles and we have set some
initial targets. As we work towards full
disclosure, we will assess how climate
change scenarios impact on the
organisation’s business strategy, financial
planning and budgeting. For further
details see FY23 priority table, page 62.
Directors/Heads of Finance, which ensures
region. Some sectors also have operations
that TCFD activities are overseen by
individuals with sufficient seniority,
and authority, to delegate tasks and
monitor progress. Sponsors also hold
responsibility for ensuring that climate-
related risks and opportunities within
their sector are understood, financially
quantified and delegated for management
on an ongoing basis.
exposed to different types of transition risk
depending on their geographic spread.
Our process for identifying and assessing
the impact of future potential scenarios
included interviews with senior executives
across all of our sectors and regions, as
well as a number of workshops. More than
100 stakeholders have been involved
across Babcock, providing coverage of
Plan Zero 40 is being led by the Group
nearly all business functions. This
environmental team, with sectors
confirmed the materiality of climate-
accountable for developing their bottom-
related issues. Based on analysis of the
up carbon reduction plans. For further
impact of these risks on Babcock’s
details on decarbonisation, see page 58.
operations, the following areas will
Additionally, during the year the Edinburgh
University Centre for Business and Climate
influence our sector/regional strategies
and business model:
Change facilitated an Executive Education
• Extension of risk management
session with the Executive Committee on
timescales to accommodate
Board oversight of climate-related risks
climate change.
Governance
and opportunities
In FY21 the Board, in order to progress
the ESG programme and meet the
expectations of our stakeholders, approved
Babcock’s carbon initiative (Plan Zero 40),
our list of identified ESG material issues
and our phased approach to full TCFD
implementation.
Group-wide ESG matters are now an
Strategy
We have analysed climate-related risks
and opportunities across all of our business
operations against three climate scenarios.
These are based on an evolution and
customisation of scenarios developed by
the Network for Greening the Financial
System (NGFS). We customised these
scenarios to include location-specific
integral part of Board strategic discussions.
information relating to areas where we
the longer-term nature
of climate-related risks
• Development of robust green
credentials to continue to attract
top talent
• Implementation of flexible and
adaptable governance structures
and processes to accommodate
regulation change
• Implementation of renewable energy
sourcing and energy-efficiency
measures across sites and facilities
In FY22, the Board reviewed progress on
Plan Zero 40 and TCFD through updates
from the Group Head of Sustainability.
See page 97 for further details on our
governance framework.
Climate-related risks and opportunities
are to be reported to the Executive
Committee on a quarterly basis.
carry out our operations. Additional criteria
were also developed to capture the
• Implementation of a contracting
longer-term nature of climate-related risks
approach that includes climate
and opportunities.
Orderly: ‘Net Zero 2050’
(warming limited to 1.5°C)
• Early high levels of transition risks with
reduced subsequent physical risks
Risks
considerations
• Collaboration with supply chain
to understand/mitigate suppliers’
climate impacts
Management’s role in assessing and
managing climate-related risks and
Disorderly: ‘Delayed Transition’
(warming limited to 2°C)
opportunities
• Delayed transition risks with higher
The executive with responsibility for TCFD
subsequent physical risks
reporting is the Chief Corporate Affairs
Officer. TCFD workstreams are
championed by the Group Head of
Sustainability and activities are overseen
by the Corporate ESG Committee, which
meets quarterly and includes
representatives from the Executive
Committee. Progress on TCFD activities is
reported to this Committee, and any
actions/activities required to further
climate-related risk management activities
are agreed by the Committee. Executive
Committee members who are members of
the Corporate ESG Committee are
indicated on page 97.
TCFD actions and activities are managed
at the Group and sector level by ‘TCFD
Sponsors’ with oversight from the Group
Head of Sustainability and support from
each sector risk lead and/or relevant
environmental, technical or facilities team.
The sponsors are typically Finance
Hothouse World: ‘Current Policies’
(warming of 3°C+)
• Limited or no transition risks but
runaway physical risks
These scenarios were adopted as they
were determined to be in line with
Babcock’s most likely possibilities across
the business. Due to the disparate
geographies that we operate in, the most
relevant scenario for each sector or region
varies, particularly in relation to policy
retention. The UK, European countries and
New Zealand are broadly seen to have a
high amount of legislation that addresses
climate change, with a legal commitment
to achieve net zero by 2050. Canada and
South Africa are aspirational for the
transition but more locked into traditional
carbon-intensive economies. Australia is
much further behind in this area. As a
result, transition risks in the UK are
different from those in the Australian
An analysis of climate-related risks relevant
to Babcock has shown that many risks and
opportunities are in the medium term
(2030-2040) and long term (2040-2100),
giving Babcock time in the short term to
implement activities to mitigate.
Details of our most significant climate-
related physical and transition risks,
proximity, impact and control measures
introduced can be seen in the graphic
on the next page.
Our most significant physical risk is
dockyard disruption and we have assessed
the risk of increased flooding and storm
surges. The highest risk is seen in a 3oC
scenario, where we expect to see more
extreme weather patterns.
From our assessment of transition risk, we
believe increased climate-related
regulation will have an impact on supply
chain disruption. The lowest risk is in the
3oC scenario which assumes that only
current climate policies are implemented,
therefore transition risks globally will
be negligible.
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Examples of key risks and control measures
Risk title
Risk description
Proximity
1.5°C
Scenario
2°C
3°C+ Control measures
Dockyard
disruption
Supply chain
disruption
Dockyards owned/
operated by Babcock
may be flooded due
to an increase in sea
level and higher
frequency of extreme
weather, resulting in
storm surges.
Short
(2020-2030)
Medium
(2030-2040)
Long
(2040+)
Increased climate-
related regulation,
such as taxes on fossil
fuels, may affect
Babcock’s supply
chain cost base or
viability of supply
chain companies.
Short
(2020-2030)
Medium
(2030-2040)
Long
(2040+)
Our Devonport site is currently undertaking
a significant infrastructure rebuild and
climate-related risk is being factored into
rebuild decisions.
In the medium to longer term as the site
develops, for the design of rebuild and new
facilities we will consider climate-related risk in
line with the latest ONR standards.
Our Sustainable Procurement policy has been
implemented, which considers our suppliers and
sub-contractors’ ability to meet our requirements
against 12 sustainability priorities. We will
consider the plans of our suppliers in our sourcing
decisions and actively monitor and manage
sustainability performance in the supply chain.
Further details can be found in our Sustainable
Procurement policy.
We have invested in an AI monitoring solution for
our supply chain, see page 69.
Impact
Insignificant / Moderate
Moderate
Major
Severe
Plan Zero 40 is our chief mitigation
mechanism to combat transition risk,
which is highest in countries with a strong
net zero policy, such as the UK.
Opportunities
We also recognise there will be
opportunities in the transition towards a
greener economy. Through our Liquid Gas
Equipment (LGE) business, we aim to
continue to develop our ammonia fuel gas
supply system, as well as solutions for the
transportation and storage of CO2
in line with customer and legislative
requirements. This will ensure that we are
optimising efficiency while developing
zero-carbon solutions.
We’re collaborating cross-industry and
working with academia on several
programmes such as the MarRI-UK
hydrogen Fuel Cell-BATTERY Ship Advanced
Power-Energy Management Solution for
Zero Emission Marine Propulsion Systems.
In our PHOENIX II contract, we manage in
excess of 15,000 White Fleet vehicles and
are working with the customer to deliver
its commitment to achieve both the 2022
and 2027 UK Government’s ‘Road to Zero’
targets. The targets require a transition of
25% of the M1 Classified Fleet
(predominantly cars) to ULEVs by the end
of 2022, and then 100% of M1 and N1
(predominantly vans, 4x4s) fleets to zero
tailpipe emission vehicles by the end
of 2027.
In 2021, we integrated the climate-related
risks and opportunities flowing from our
TCFD scenario workshops into our strategic
planning process. Each sector, region and
function has detailed its strategies for
managing the priority risks and realising
opportunities over the strategic plan
period (five-year outlook).
Metrics and targets
Babcock has developed the following
metrics, with associated targets and
timescales, to measure our progress
towards reducing our exposure to climate-
related risk. We plan to develop and
disclose further metrics and targets
in the next financial year.
Risk management
Our process for identifying and assessing
climate-related risks and opportunities
utilised the existing Babcock risk
management framework.
The horizons against which the climate-
related risks were assessed are as follows:
• Short term (present to 2030)
• Medium term (2030 to 2040)
• Long term (2040 to 2100)
Once all relevant climate-related risks and
opportunities had been identified,
assessed and scored across the relevant
time horizons, individual climate-related
risk registers were created for each sector.
These registers have been delegated to
individual owners by TCFD sponsors and
are required to be submitted on a
quarterly basis inclusive of relevant
mitigation or controls in place. On an
annual basis, owners will be required to
review the initial scoring of each item to
assess the effectiveness of control
measures. The Group Risk policy has
been updated to reflect integration
of the new process.
• Establish baseline and submit carbon
reduction targets to the Science Based
Targets initiative by April 2023
• Complete an assessment of climate-
related risk of all critical Babcock
infrastructure by December 2024
• Complete a review of climate-related
changes to working conditions covering
all employees who are exposed at
geographical locations. Our target for
this review is April 2023
• Ensure climate-related impacts are
considered in all new business bid/no
bid decisions and associated contract
negotiations/KPIs
• 100% of electricity for Babcock facilities
to be sourced from renewable supplies
by 2030, as far as reasonably
practicable
• Complete an assessment of all our
critical suppliers’ climate-related risks
and associated impact on Babcock
in autumn 2022
60
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
61
ESG STRATEGY: ENVIRONMENTAL continued
TCFD progress vs priorities
FY22 progress
FY23 priorities
Governance
• Group Executive Committee and the Board completed
• Board to continue the discussion on the topic of
the ‘Chapter Zero’ survey
sustainability
• Group Executive Committee completed the Executive
Education session run by Edinburgh University
• ESG updates to the Board included climate action
• In FY22 the Remuneration Committee included
specific ESG objectives and measures in the FY23
annual bonus, see page 114
Strategy
• Climate-related risks and opportunities have been
• Further assess approach to scenario analysis and assess
integrated into ‘business as usual’ processes, through
inclusion of climate-related questions within the Group
enhancement strategy process undertaken by each
sector and region
organisational resilience
• Further define financial implications of climate-related
risks and opportunities and seek to include mitigation
steps in strategic planning
• Ensure climate-related impacts are considered in all
material new business decisions and associated
contract negotiations/KPIs
• Physical and transitional climate-related risks and
• Assess progression of climate-related risk registers and
opportunities have been identified and scored through
sector and region workshops in the short, medium and
long term using Babcock’s approach to risk
• Climate-related risk management has been integrated
into Babcock’s overall risk management process
through the addition of a climate-related risk register
ongoing management
• Further validation of financial impacts
• Complete an assessment of critical suppliers’ climate-
related risks and associated impact on Babcock by
autumn 2022
• Progressed 11 pathfinder boundary projects and
• Establish baseline and submit carbon reduction
baselining phase
targets to Science Based Targets initiative
by April 2023
• Progress on Plan Zero 40 by scaling across the rest of
the organisation
Risk
management
Metrics
and targets
Technology plays a critical role in our efforts
to minimise the environmental impact of our
business. Scan this code to watch a video to
find out more about the work we are doing in
this area.
62
Babcock International Group PLC Annual Report and Financial Statements 2022
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
ESG STRATEGY: ENVIRONMENTAL continued
TCFD progress vs priorities
FY22 progress
FY23 priorities
Governance
• Group Executive Committee and the Board completed
• Board to continue the discussion on the topic of
the ‘Chapter Zero’ survey
sustainability
SOCIAL
• Group Executive Committee completed the Executive
Education session run by Edinburgh University
• ESG updates to the Board included climate action
• In FY22 the Remuneration Committee included
specific ESG objectives and measures in the FY23
annual bonus, see page 114
Strategy
• Climate-related risks and opportunities have been
• Further assess approach to scenario analysis and assess
integrated into ‘business as usual’ processes, through
organisational resilience
inclusion of climate-related questions within the Group
enhancement strategy process undertaken by each
• Further define financial implications of climate-related
risks and opportunities and seek to include mitigation
sector and region
steps in strategic planning
• Ensure climate-related impacts are considered in all
material new business decisions and associated
contract negotiations/KPIs
Risk
• Physical and transitional climate-related risks and
• Assess progression of climate-related risk registers and
management
opportunities have been identified and scored through
ongoing management
sector and region workshops in the short, medium and
• Further validation of financial impacts
long term using Babcock’s approach to risk
• Climate-related risk management has been integrated
into Babcock’s overall risk management process
through the addition of a climate-related risk register
• Complete an assessment of critical suppliers’ climate-
related risks and associated impact on Babcock by
autumn 2022
Metrics
and targets
baselining phase
• Progressed 11 pathfinder boundary projects and
• Establish baseline and submit carbon reduction
targets to Science Based Targets initiative
• Progress on Plan Zero 40 by scaling across the rest of
by April 2023
the organisation
3 Ensuring the safety and wellbeing of our people
‘Home Safe Every Day’
Our safety mission is to enable our people
to go ‘Home Safe Every Day’, and to
support this we have a series of
commitments to one another that we call
‘to Care and to Learn’. This has been a year
of change and the setting of solid
foundations to build upon as we continue
to improve our safety performance.
Governance
The appointment of a Global Safety, Health
and Environmental Protection Director and
formation of a central team has brought
additional focus to the safety improvement
programme. Supported by working groups
of specialists and alongside a transformed
Corporate Safety Leadership Team that
includes Operational Directors from across
Babcock, we have strengthened our
governance. We have introduced a suite of
corporate standards that form the Babcock
safety framework and developed a
scorecard of leading and lagging
performance indicators to help monitor the
business. These form part of the Babcock
safety and management system and enable
us to create a safe and secure world,
together.
Achievements and improvements
Babcock has introduced an electronic
global safety information management
system that supports event and audit
management. This has standardised
processes across Babcock and increased
transparency. The global system enables
sharing of lessons across our operations, to
collectively improve our safety outcomes
and will continue to grow with the
additions of risk management functionality.
Our annual safety conference, held virtually
in November 2021, shared and celebrated
the successes of personnel for the sectors
and direct reporting countries with a
theme of ‘Care and Learn’.
Babcock also held a safety stand-down in
January 2022, where teams took time out
from operations to discuss how to create a
safe and secure world, together by
improving their working environment. The
commitments ‘to Care and to Learn’ were
reiterated in many of the conversations,
with a focus on doing the right thing.
Proactive reporting – Reporting safety
issues before they cause harm
During the year, we have moved to an
internationally recognised HSE accident
categorisation method in order to be able
to benchmark against peers. Whilst the
change means that direct statistical
comparison with previous years is not
meaningful, it will enable future
benchmarking of safety performance.
The Group’s Total Recordable Injury Rate
(TRIR),1 which includes work-related injuries
requiring medical treatment or above, has
reduced from 0.89 to 0.75 over the year,
with a reduction in the number of these
types of accidents of 18% against 2021.
The Days Away Case Rate (DACR) across the
whole of Babcock has increased from 0.52
to 0.56.2 This led to a 5% increase in
work-related injuries that resulted in
personnel requiring at least one day away
from work. We continue to work hard to
reduce the number of injuries and illnesses
as a result of our activities.
In addition to recording all accidents, we
have introduced metrics to track the level
of proactive reporting. The focus is to
encourage our people to report High-
Potential Occurrences (HIPO), High-
Potential Near Misses (HPNM) and safety
observations, to enable us to learn from
and correct these before they can cause
harm. This indicator of positive reporting is
an important element of an engaged safety
culture and we have seen a gradual and
consistent increase in proactive reporting
across Babcock.
Days Away Case injuries
25
20
15
22
19
16
16
16
10
12
11
13
13
13
10
5
0
5
Recordable injuries
30
28
28
19
18
17
18
22
20
17
17
11
7
25
20
15
10
5
0
1.0
0.8
0.6
0.4
0.2
0.0
0.8
0.6
0.4
0.2
0.0
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
2021
2022
2021
2022
Days Away Case injuries
DACR rolling average
Linear trend
Recordable injuries
TRIR rolling average
Linear trend
1. Number of recordable work-related injuries and illnesses per 200,000 working hours (200,000 represents 100 employees working 40 hours for 50 weeks per year).
2. Taken from US Bureau of Labor Statistics, the average rates for Repair and Maintenance industry sector was TRIR of 1.8 and DACR of 0.9, whilst the Management
Consulting industry sector had average rates of TRIR of 0.4 and DACR of 0.2.
Technology plays a critical role in our efforts
to minimise the environmental impact of our
business. Scan this code to watch a video to
find out more about the work we are doing in
this area.
62
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
63
ESG STRATEGY: SOCIAL continued
Proactive reporting – Reporting safety issues before they cause harm continued
High-Potential Occurrences and High-Potential
Near Misses
25
20
6
66
9
1
1
8
0
1
6
3
3
5
6971
1
1
1
3773761
3
0.8
0.6
0.4
4
0.2
15
10
5
0
Near Misses and Safety Observations
2,000
1,600
1,200
3
4
7
1
,
4
6
8
1
,
800
400
6
0
7
1
,
3
9
6
1
,
8
7
6
1
,
7
5
6
1
,
0
6
5
1
,
1
0
8
1
,
4
7
5
1
,
2
6
5
1
,
9
2
4
1
,
3
8
0
1
,
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
0.0
0
2021
2022
2021
2022
HPNMs
HIPOs
HIPO/HPNM rolling average
Safety Obs & NMs
NM rolling 3m ratio Accidents/Incidents
Linear trend
Employee inclusion and diversity
At Babcock, we are guided by our Purpose –
‘creating a safe and secure world, together’
– and a clear set of Principles that are central
to everything we do. To deliver on our
Purpose, we are committed to creating an
agile, people-centred business where
everyone is included, supported and
empowered to unlock their potential.
We see inclusion as an enabler and the key to
creating the right foundations to attract and
retain the best, diverse talent. We recently
appointed our first Global Head of Inclusion
and Diversity (I&D) to develop our approach
to I&D and to review, design and implement
activities that enable Babcock to become a
more inclusive business that values difference.
Our three-pillar approach outlines the:
• insight and data needed to drive an
evidence-led approach to I&D
• policies and programmes that drive greater
talent engagement
• ways in which we educate and
demonstrate the value of an inclusive
organisation
We remain firmly committed to
embedding this approach and
monitoring our progress.
Our gender targets are:
1. 30% women within senior leadership
teams by 2025
2. 30% female representation at all levels
by 2030
3. 80% disclosure of diversity data
by 2025
In the 2021 report we indicated a target of
80% disclosure of diversity data within
18 months. As we analysed the data for our
People strategy and revisited all our targets,
we realised this target was going to be
difficult to achieve. However, we remain
focused on our diversity data as it’s a key
component of our I&D strategy and
approach. We have identified a breadth of
activity required to help us meet this target
by 2025 and drive real and sustainable
changes across the workplace. Alongside our
continued work on gender balance, LGBTQ+,
faith and neurodiversity, we will renew our
focus on disability and ethnicity, as well as
greater exploration of social mobility as we
drive to be a more inclusive company.
Gender diversity
We are proud of our work on gender diversity
which is a key business priority and we know
there is still much to do to deliver gender
balance through attraction and retention of
female talent.
Our global workforce diversity has improved
over the past year, moving from 19% in 2021
to 21% in 2022. This is in spite of an overall
headcount reduction through 2021 that
focused on business functional areas
and tend to be female dominated. Female
representation declined at the Board level
reflecting a snapshot in time after the
retirement of one female Board member. As
recruitment proceeds to build the Board back
to its full complement, maintaining diversity
will be an important consideration as covered
in the Nominations Committee report
(see page 106.)
There has however been an improvement in
representation at the senior management
levels, that has resulted in a shift from 21% to
23% over the past year. Most notably, at the
Executive Committee and management level,
good progress has been made around the
attraction and promotion of female talent,
resulting in a positive move of 5 percentage
points since 2021, from 16% to 21%.
Following our overall headcount
reductions, our graduate population
shrank this year from 258 in 2021 to 135
in 2022, which resulted in a subsequent
reduction in our female intake by three
percentage points. This is mainly driven by
the challenges associated with recruiting
in a very competitive graduate market,
and in response we have implemented a
number of changes that will drive back up
our progress and build our pipeline of
female talent.
In spite of these challenges, Babcock is on
track to fulfil our commitment to our
gender targets and be an inclusive and
diverse company, a great place to work
where people feel part of an integrated,
more global business.
Areas we are addressing to accelerate the
pace of change:
1. Providing a culture in which women can
progress their careers
• Redefining our ways of working
• Designing interventions and policies to
support women at work, including, for
example the introduction of Group-level
menopause and gender-neutral
leave policies
• Establishing a Returners approach and
programme of activity which includes an
overarching STEM returners programme.
Elements within the programme will
support different stages of a woman’s life
and career
64
Babcock International Group PLC Annual Report and Financial Statements 2022
ESG STRATEGY: SOCIAL continued
Proactive reporting – Reporting safety issues before they cause harm continued
High-Potential Occurrences and High-Potential
Near Misses and Safety Observations
Near Misses
20
6
25
15
10
5
0
66
9
1
1
8
0
1
6
3
3
5
1
1
1
6971
3773761
3
4
0.2
800
400
0.0
0
0.8
0.6
0.4
2,000
1,600
1,200
3
4
7
,
1
4
6
8
,
1
6
0
7
,
1
3
9
6
,
1
8
7
6
,
1
7
5
6
,
1
0
6
5
,
1
1
0
8
,
1
4
7
5
,
1
2
6
5
,
1
9
2
4
,
1
3
8
0
,
1
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
2021
2022
2021
2022
HPNMs
HIPOs
HIPO/HPNM rolling average
Safety Obs & NMs
NM rolling 3m ratio Accidents/Incidents
Linear trend
Employee inclusion and diversity
At Babcock, we are guided by our Purpose –
‘creating a safe and secure world, together’
– and a clear set of Principles that are central
to everything we do. To deliver on our
Purpose, we are committed to creating an
agile, people-centred business where
everyone is included, supported and
empowered to unlock their potential.
We see inclusion as an enabler and the key to
creating the right foundations to attract and
retain the best, diverse talent. We recently
appointed our first Global Head of Inclusion
and Diversity (I&D) to develop our approach
to I&D and to review, design and implement
activities that enable Babcock to become a
more inclusive business that values difference.
Our three-pillar approach outlines the:
• insight and data needed to drive an
evidence-led approach to I&D
• policies and programmes that drive greater
talent engagement
female talent.
• ways in which we educate and
demonstrate the value of an inclusive
organisation
We remain firmly committed to
embedding this approach and
monitoring our progress.
Our gender targets are:
1. 30% women within senior leadership
teams by 2025
2. 30% female representation at all levels
3. 80% disclosure of diversity data
by 2030
by 2025
In the 2021 report we indicated a target of
good progress has been made around the
80% disclosure of diversity data within
attraction and promotion of female talent,
18 months. As we analysed the data for our
resulting in a positive move of 5 percentage
People strategy and revisited all our targets,
points since 2021, from 16% to 21%.
we realised this target was going to be
difficult to achieve. However, we remain
focused on our diversity data as it’s a key
component of our I&D strategy and
approach. We have identified a breadth of
activity required to help us meet this target
by 2025 and drive real and sustainable
changes across the workplace. Alongside our
continued work on gender balance, LGBTQ+,
faith and neurodiversity, we will renew our
focus on disability and ethnicity, as well as
greater exploration of social mobility as we
drive to be a more inclusive company.
Gender diversity
We are proud of our work on gender diversity
which is a key business priority and we know
there is still much to do to deliver gender
balance through attraction and retention of
Our global workforce diversity has improved
over the past year, moving from 19% in 2021
to 21% in 2022. This is in spite of an overall
headcount reduction through 2021 that
focused on business functional areas
and tend to be female dominated. Female
representation declined at the Board level
reflecting a snapshot in time after the
to its full complement, maintaining diversity
will be an important consideration as covered
in the Nominations Committee report
(see page 106.)
There has however been an improvement in
representation at the senior management
levels, that has resulted in a shift from 21% to
23% over the past year. Most notably, at the
Executive Committee and management level,
Following our overall headcount
reductions, our graduate population
shrank this year from 258 in 2021 to 135
in 2022, which resulted in a subsequent
reduction in our female intake by three
percentage points. This is mainly driven by
the challenges associated with recruiting
in a very competitive graduate market,
and in response we have implemented a
number of changes that will drive back up
our progress and build our pipeline of
female talent.
In spite of these challenges, Babcock is on
track to fulfil our commitment to our
gender targets and be an inclusive and
diverse company, a great place to work
where people feel part of an integrated,
more global business.
Areas we are addressing to accelerate the
pace of change:
1. Providing a culture in which women can
progress their careers
• Redefining our ways of working
• Designing interventions and policies to
support women at work, including, for
example the introduction of Group-level
• Establishing a Returners approach and
programme of activity which includes an
overarching STEM returners programme.
Elements within the programme will
support different stages of a woman’s life
and career
retirement of one female Board member. As
menopause and gender-neutral
recruitment proceeds to build the Board back
leave policies
Gender diversity
2021
Total workforce
5,513
19%
Board
4
40%
Executive Committee
2
22%
2022
23,624
81%
5,853
21%
6
60%
3
33%
7
78%
2
22%
Executive Committee and Direct Reports in management roles
12
16%
62
84%
18
21%
Graduate intake
79
31%
Senior management
42
21%
179
69%
37
28%
161
79%
44
23%
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
22,488
79%
6
67%
7
78%
66
79%
93
72%
145
77%
Female
Male
Female
Male
1. The total workforce is 28,560 but excludes 2 non-binary, 4 prefer not to say, 151 non specified and 62 unknown in the gender percentages.
2. The gender diversity reflects Board composition at a point in time. We are recruiting for two non-executive directors in FY23 and we would expect this to
change.
3. Executive Committee and Direct Reports in management roles total is 86 but excludes 2 non-specified in the gender percentages.
Senior managers are defined as employees (excluding Executive Directors) who have responsibility for planning, directing or controlling the activities of the
Group (Executive Committee) or a strategically significant part of the Group (sector/functional leadership teams) and/or who are directors of subsidiary business
units (BU leadership).
4. Senior management role total is 189.
5. Graduate intake is 135 (119 UK, 12 South Africa, 4 Australasia) but excludes 1 non-binary and 4 unknown in the gender percentages.
• Designing an Early Careers strategy and
approach to maximise increase in numbers
of female students entering the
organisation, to continue to increase the
diversity of our pipeline
We are encouraged by our progress and are
confident we have put in place a strategy
which will provide a roadmap to drive
systematic and sustainable change for
the better.
• Establishing an approach to supporting
carers in the workplace – like the
Gender-Neutral policy, this will benefit any
carers, not just female ones. It is of course
also a support tool and mechanism for
women to stay in and progress at work
2. Establishing a pipeline of women ready
to move up through the business
• We continue to engage with our women’s
networks across the Group to identify gaps
in how we support women
• We will create individual leadership
development plans to prepare female
talent for senior roles
• We have opened our Women in Defence
mentoring scheme to a wider range of
employees to apply as both mentors
and mentees
Creating gender balance and closing
the gender pay gap
Work to reduce our gender pay gap has seen
year-on-year progress. Whilst we are pleased
to see the median pay gap decreasing from
12.5% to 11.8%, we know we still have
a way to go.
Our challenge is not a pay issue but an issue
of representation. The engineering and
defence sectors in which we operate in
continue to be male-dominated. For us,
enabling a more equal gender representation
remains key to our long-term strategy.
Our intention is to create an environment
which attracts and retains more women into
the business and delivers a better gender
balance. To make this a reality, we will
continue to work with internal and external
stakeholders, including our gender networks
and organisations such as Women in
Defence, Nuclear, Science and Engineering,
and review our policies and activities that
inspire and support women – such as offering
access to new ways of working.
We remain committed to closing the gender
pay gap, growing our talent pipeline for the
long term, developing our processes to
attract female talent, and enabling
employees to flourish and shape their own
future within Babcock.
For further information, please see our
2021 Gender Pay Gap Report on our
corporate website at https://www.
babcockinternational.com/news/
uk-gender-pay-gap-report-2021/.
64
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
65
ESG STRATEGY: SOCIAL continued
Focus for FY23 and beyond
Our vision for the future is to be a strong, safe
and unified global business that delivers
year-on-year sustainable growth with better
outcomes for our culture, customers and
communities.
Championed by the Board and our Group
Executive Committee, our leaders are
encouraged and empowered to act in line
with our Principles and to role-model inclusive
behaviours. They will be supported by our
three pillar approach to deepen inclusion and
drive results.
Our focus for the coming year is to:
• Gather data and insight from our
employees to enable an evidence-led
approach to driving greater inclusion and
diversity
• Set clear metrics for disability and ethnicity
(in addition to gender) to focus our effort,
measure our performance and progress and
create accountability across the Group
• Establish and embed I&D governance
globally, including the further development
of employee networks and peer support
groups – to create a more consistent
approach and build a better people
experience
• Identify processes and interventions that
will enable us to realise the targets set and
increase I&D
• Further embed our Principles and engage
our people in understanding the benefits of
inclusion, social mobility and community
engagement
• Continue our commitment to the Social
Mobility Pledge and reduce inequalities
through a thorough review of our
recruitment practices and how we support
progression once in employment
As we develop our Employee Networks, we
will embed a new Peer Support Group model
to support their development as they will
continue to play a critical role in achieving
Babcock’s ambition for a more inclusive
business. Our current networks include
multi-faith, ethnicity, gender, LGBTQ+ and
neurodiversity along with wider common
interest groups.
We will work with our networks across a
three-year programme to develop them to a
global level, to drive a consistent employee
experience and greater diversity across the
Group. We will also identify where networks
could be developed to support employee
enablement, for example in relation to
disability and those with caring responsibilities.
Ways in which we are changing to
meet our inclusion and diversity
aspirations
Growing new talent pipeline for the long
term
• STEM support: more than 738 STEM
ambassadors within the organisation
have engaged over 32,220 students in
STEM activities
• STEM returners: by FY23 we aim to
increase the pool of female talent by
establishing a UK pilot to hire women back
into a career in STEM and support returners
• Early careers: more than 1,024
apprentices (14% female) and 335
graduates (30% female) are employed on
our early careers’ schemes. Our target is to
achieve a 50/50 balanced intake in early
careers by FY24
• Community engagement: we are
extending our community engagement
to attract, retain and develop more
diverse talent
Attracting the best diverse candidates from
the current talent pool
• Recruitment analytics: we have increased
the amount of data collected and
reviewed to highlight any bias in our
recruitment process
• Charters and memberships: we are proud
stakeholders in the Women in Defence
Charter, Women in Aviation Charter and
Women in Nuclear UK. We are also
members of the Armed Forces Covenant
and are actively looking to develop further
partnerships
• Our networks, supported by our newly
introduced Peer Support Groups model,
play a key role in championing and
supporting colleagues across Babcock to
drive the cultural change we seek
Enabling employees to fulfil their potential
within Babcock
• Flexible working: we have introduced the
Agile Working Framework to encourage
work-life balance, support family
commitments, improved health and
wellbeing and drive inclusivity
• Culture change: as part of an ongoing
cultural change programme, we have
reinforced our zero-tolerance position to
any form of discrimination
66
Babcock International Group PLC Annual Report and Financial Statements 2022
Employee engagement: (see Culture
change section page 18)
Our Purpose and Principles were formally
launched this year. Developed with the
help of hundreds of employees across the
Group, we are continuing to drive
engagement in our culture and bring it to
life through town halls, vlogs, videos,
workshops, meetings, webinars, team
discussions and focused weeks.
Our people have embraced our new
Principles by sharing stories of where they
have seen them in action and when they
have ‘lived’ one of our Principles. We will
continue to collect and share these stories
and create a cultural guide to working at
Babcock.
To support the engagement and cultural
immersion of new hires into the UK
business, we now have a dedicated
onboarding platform, designed to enable
new employees to familiarise themselves
with the business before they officially
start. Information is tailored, based on
their start date and business area and we
plan for this to be extended to the whole
business in due course.
Whilst during the pandemic we facilitated
online engagement of current employees,
this is being balanced with more face-to-
face communication as many of our
colleagues return to the workplace.
However, we know there is more to do to
make sure engagement is happening on an
ongoing basis throughout the business.
We want to continue to effectively engage
with employees to understand their views
and ensure we achieve our people goals.
Today, Babcock uses a variety of focus
groups and surveys to do this. Last year we
committed to moving to a consistent
approach to understanding and measuring
employee engagement across the Group
in 2022.
We are now implementing a global
platform to establish a baseline of
engagement (through an annual survey)
and consistently measure and benchmark
ourselves externally and track progress.
The platform is designed to empower
leaders to own and deliver engagement
and take action to increase motivation and
performance.
This and other insights will inform much of
our people decision-making as well as our
understanding of areas for improvement.
They will form an important part of the
conversations our leaders and managers
have about our culture.
Implementing our one Babcock approach
will help us to focus our effort, drive
meaningful change and enable high
performance.
ESG STRATEGY: SOCIAL continued
Focus for FY23 and beyond
Ways in which we are changing to
Employee engagement: (see Culture
Our vision for the future is to be a strong, safe
meet our inclusion and diversity
change section page 18)
and unified global business that delivers
aspirations
Our Purpose and Principles were formally
year-on-year sustainable growth with better
Growing new talent pipeline for the long
launched this year. Developed with the
outcomes for our culture, customers and
term
help of hundreds of employees across the
communities.
• STEM support: more than 738 STEM
Group, we are continuing to drive
Championed by the Board and our Group
Executive Committee, our leaders are
encouraged and empowered to act in line
with our Principles and to role-model inclusive
behaviours. They will be supported by our
three pillar approach to deepen inclusion and
drive results.
Our focus for the coming year is to:
• Gather data and insight from our
employees to enable an evidence-led
approach to driving greater inclusion and
diversity
ambassadors within the organisation
have engaged over 32,220 students in
STEM activities
• STEM returners: by FY23 we aim to
increase the pool of female talent by
establishing a UK pilot to hire women back
into a career in STEM and support returners
• Early careers: more than 1,024
apprentices (14% female) and 335
graduates (30% female) are employed on
our early careers’ schemes. Our target is to
achieve a 50/50 balanced intake in early
careers by FY24
• Set clear metrics for disability and ethnicity
(in addition to gender) to focus our effort,
measure our performance and progress and
create accountability across the Group
• Community engagement: we are
extending our community engagement
to attract, retain and develop more
diverse talent
• Establish and embed I&D governance
Attracting the best diverse candidates from
globally, including the further development
the current talent pool
of employee networks and peer support
• Recruitment analytics: we have increased
groups – to create a more consistent
approach and build a better people
experience
the amount of data collected and
reviewed to highlight any bias in our
recruitment process
• Identify processes and interventions that
• Charters and memberships: we are proud
stakeholders in the Women in Defence
Charter, Women in Aviation Charter and
Women in Nuclear UK. We are also
members of the Armed Forces Covenant
and are actively looking to develop further
partnerships
• Our networks, supported by our newly
introduced Peer Support Groups model,
play a key role in championing and
We want to continue to effectively engage
with employees to understand their views
and ensure we achieve our people goals.
supporting colleagues across Babcock to
Today, Babcock uses a variety of focus
drive the cultural change we seek
As we develop our Employee Networks, we
will embed a new Peer Support Group model
within Babcock
Enabling employees to fulfil their potential
• Flexible working: we have introduced the
Agile Working Framework to encourage
in 2022.
work-life balance, support family
commitments, improved health and
wellbeing and drive inclusivity
• Culture change: as part of an ongoing
cultural change programme, we have
reinforced our zero-tolerance position to
any form of discrimination
will enable us to realise the targets set and
increase I&D
• Further embed our Principles and engage
our people in understanding the benefits of
inclusion, social mobility and community
engagement
• Continue our commitment to the Social
Mobility Pledge and reduce inequalities
through a thorough review of our
recruitment practices and how we support
progression once in employment
to support their development as they will
continue to play a critical role in achieving
Babcock’s ambition for a more inclusive
business. Our current networks include
multi-faith, ethnicity, gender, LGBTQ+ and
neurodiversity along with wider common
interest groups.
We will work with our networks across a
three-year programme to develop them to a
global level, to drive a consistent employee
experience and greater diversity across the
Group. We will also identify where networks
could be developed to support employee
enablement, for example in relation to
disability and those with caring responsibilities.
engagement in our culture and bring it to
life through town halls, vlogs, videos,
workshops, meetings, webinars, team
discussions and focused weeks.
Our people have embraced our new
Principles by sharing stories of where they
have seen them in action and when they
have ‘lived’ one of our Principles. We will
continue to collect and share these stories
and create a cultural guide to working at
Babcock.
To support the engagement and cultural
immersion of new hires into the UK
business, we now have a dedicated
onboarding platform, designed to enable
new employees to familiarise themselves
with the business before they officially
start. Information is tailored, based on
their start date and business area and we
plan for this to be extended to the whole
business in due course.
Whilst during the pandemic we facilitated
online engagement of current employees,
this is being balanced with more face-to-
face communication as many of our
colleagues return to the workplace.
However, we know there is more to do to
make sure engagement is happening on an
ongoing basis throughout the business.
groups and surveys to do this. Last year we
committed to moving to a consistent
approach to understanding and measuring
employee engagement across the Group
We are now implementing a global
platform to establish a baseline of
engagement (through an annual survey)
and consistently measure and benchmark
ourselves externally and track progress.
The platform is designed to empower
leaders to own and deliver engagement
and take action to increase motivation and
performance.
This and other insights will inform much of
our people decision-making as well as our
understanding of areas for improvement.
They will form an important part of the
conversations our leaders and managers
have about our culture.
Implementing our one Babcock approach
will help us to focus our effort, drive
meaningful change and enable high
performance.
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4 Making a positive impact on the communities in which we operate
Oxford Economics assessment
We have engaged Oxford Economics to
conduct a comprehensive review of how
Babcock delivers social value and
contributes to the UK Government’s
objectives outlined in its Social Value
Model, as well as maximising economic
value from defence procurement.
Progressing Group-wide
volunteering approach
Volunteering is a rewarding and
meaningful experience that supports
communities and brings personal reward
for our employees, enabling them to
develop new skills and personal wellbeing.
We want to make a genuine difference to
our communities and help them to thrive.
For example, our Driving and Maintenance
(D&M) instructors in the TMASS contract
at Bovington are registered volunteer
‘Blood Bikers’ with YFW Blood Bikes. They
give up their time to provide emergency
courier services for blood, platelets, blood
and tissue samples, medication, breast
milk, documents, X-rays, CT scans,
and equipment.
We have also supported teams across
Babcock to take part in group voluntary
activities, such as the National Beach
Clean in the UK. In South Africa many of
our employees worked with the
Bokantsho Primary School in Viljoensdrift,
Free State, to carry out extensive and
much-needed renovations at the school. A
play area was also built for the children in
a rural area and blankets donated before
the winter.
Following COVID-19, the UK businesses
also supported the COVID vaccination
programme by allowing employees
time to train and administer vaccines
with St John’s Ambulance and a number
of employees took up this very
worthwhile challenge.
We are currently developing a Group-wide
volunteering approach, supporting one of
our key Principles, ‘be kind’, to facilitate
every employee to volunteer one day
per year.
Group-wide sponsorship
During the latter part of the year we
developed our internal charity and
sponsorship guidelines. The current
criteria have been broadened and clarified
to align to our corporate Purpose ‘to
create a safe and secure world, together’.
We are committed to the communities in
which we operate and the broader
interests of the customers we serve. As
good corporate citizens, we want to make
a genuine difference by supporting our
communities and helping them rebuild
following COVID-19. Our new criteria are
based on supporting military charities and
events and also protecting communities
around the world by focusing on local
charities where we have our sites or
attract our employees from.
Indigenous peoples
In Australia, we partner with Supply
Nation to expand our supply chain to
include Aboriginal and Torres Strait
Islander-owned businesses across
Australia. We have an equivalent
commitment to Māori and Pasifika-owned
businesses in New Zealand through the
Amotai initiative.
Babcock continues to actively support
Indigenous students to increase their
career opportunities, through sponsorship
to Engineering Aid and Yalari in Australia,
and encouraging curiosity about STEM
subjects in younger children in New
Zealand through employee volunteering
at local schools.
This year, Babcock Canada renewed our
commitment to the Phase II stage of the
Canadian Council for Aboriginal Business’
(CCAB) Progressive Aboriginal Relations
(PAR) programme. This phase centres
around engagement with Indigenous
communities in the areas where Babcock
operates, as well as external
communications to our customers,
partners, and the wider business about
our Indigenous engagement activities.
Much of this engagement activity is
currently ongoing with the First Nations in
Victoria and in northern Manitoba.
In support of commitments made through
the PAR programme, Babcock selected
and implemented an Indigenous Cultural
Awareness training programme. This
programme has been added as a
mandatory training requirement for all
employees.
In addition to the activities directly related
to the PAR programme, Babcock also
continued to strengthen our internal
procurement policies to identify and
incorporate more Indigenous businesses.
A comprehensive review of the supply
chain was undertaken to identify
Indigenous business opportunities in the
short, medium and long term. Through
this activity, we also engaged with several
potential Indigenous suppliers and
partners, such as Cota Aviation in B.C.,
Tipi Insurance in M.B., and Makivik
Corporation in Q.C.
Over the last year, Babcock has engaged
in comprehensive engagement of several
First Nation and Métis communities,
businesses, employment and training and
post-secondary institutions. Furthermore,
the team continues to participate in
Indigenous conferences, trade shows and
networking events in order to further
existing relationships and foster new
engagements.
STEM
In the last year we improved our STEM
recording. Commitments to STEM and the
communities in which we operate
translates into 160 newly trained STEM
ambassadors, bringing our total to over
738 ambassadors across the business
and 30,000 students engaged in our
STEM activities.
The STEM team continues to deliver
virtually whilst returning to in-person
events where possible, which have been
extremely well received by attendees of
all ages. Focus has been on developing
our offering to raise awareness and
increase engagement, by developing
STEM activity booklets for employees’
children and external use.
The Clyde STEM Coordination Team
launched its first STEM activity catalogue,
which is designed to help teachers
successfully deliver STEM activities with
their students. We have evolved the way
we conduct community outreach to
encourage more take-up of STEM subjects
and to help address diversity disparity and
improve social mobility.
Babcock now more accurately represents
the communities and countries in which
we operate and in so doing delivered our
first Virtual Neuro Diverse Work
Experience Programme at Devonport with
several local schools in attendance along
with two virtual work experience weeks
across the UK, both focussed on STEM and
accredited by the Industrial Cadets.
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67
ESG STRATEGY: SOCIAL continued
Our employees volunteer not only their
time but write books to inspire the next
generation to take small positive action to
better the world. The3Engineers gifted
4,000 copies of their set of rhyming
children’s book to local schools and
communities. They have also created a
suite of free-to-download STEM resources
for schools to use in the future based on
the books.
In FY23 Babcock will continue to engage
with young people, their parents, and
teachers to ignite interest in studying
STEM subjects and pursue a rewarding
career in the industry by focusing on our
Group-wide strategic objectives around
raising awareness of STEM, increasing I&D
and supporting schools that are located in
deprived areas of the UK.
Support for Armed Forces, veterans,
and reserves
Babcock is committed to honouring and
supporting the Armed Forces Covenant
and the Armed Forces community. We
recognise the value serving personnel,
both regular and reservists, veterans and
military families contribute to our business
and country.
As part of our continued commitment to
the Armed Forces Covenant, Babcock
supports employee and graduate
membership of the Reserve Forces and
references our support in recruitment
activity. We also support the employment
of service leavers, veterans, and members
of the Volunteer Forces by providing a
guaranteed job interview where
applicants meet the minimum
requirements of a role.
Members of the Armed Forces community
and their families can rely on our support.
We offer a degree of flexibility in granting
leave for service personnel spouses and
partners before, during and after a
partner’s deployment, and will consider
special paid leave for employees who
have been bereaved or whose spouse or
partner has been injured.
We work closely with the Career
Transition Partnership, to ensure our
employment opportunities are made
available to service leavers and veterans,
and we participate in careers fairs for
those leaving the Armed Forces. We
understand that Armed Forces spouses
need flexibility when their service partner
is posted to a new location, and we do
our best to find alternative employment
within the business if our employees need
to move to accompany their partner to a
new posting.
We are proud to currently employ 186
service leavers and 322 veterans in the
business. We support the UK’s Armed
Forces and reservists and continue to
actively back our reservist employees. We
have approximately 43 volunteer and 12
regular reserves and around 14 uniformed
cadet instructors in the business. We
provide a minimum of 10 days’ special
paid leave per year. The reserve service is
actively promoted to everyone in the
Group, including our new graduates and
apprentices.
Partnership with academia
Innovation is in our people and our
partnerships. Last year we announced our
strategic partnership with the University
of Strathclyde, one of the leading
international technology universities.
Babcock and Strathclyde have been
working together for more than 30 years,
and formalising the partnership will
strengthen existing educational
programmes for degree apprenticeships
and industry placements and build on
existing innovative research projects in
nuclear, advanced manufacturing, space,
and security-related technologies.
Our recently opened state-of-the-art
Additive Manufacturing Centre is part of
an innovative partnership with Plymouth
Science Park. The partnership builds
on our strong relationship with the
academic and technology community
across the south west and the local
community around our Devonport
dockyard.
Last year we also launched an exciting
new project management degree
apprenticeship programme at our
Devonport facility in partnership with the
University of Plymouth.
Talent and development
To enable us to take on the challenges of
today and the future, it is important for us
to build and maintain the capability and
skills of our workforce. In FY22 work was
carried out on the kind of leader required
to drive the future success of the business
and focused on understanding the profiles
of the leaders we have today.
We measured drivers, personality traits
and competencies through a self-report
tool – things that are our natural
tendencies and capabilities which we can
learn and develop. Seventy of our most
senior leaders were assessed by evaluating
their technical and behavioural skills and
then compared to our future leader
profile as well as a FTSE100 leader
benchmark.
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As a result, we were able to develop our
leadership capability by clarifying and
resetting the expectation of what it takes
to be a successful high-performing leader
in Babcock and understanding what is
needed to deliver our strategy.
Babcock’s leadership group has a wide
spread of capabilities and styles and we
enable them to inspire, motivate and
empower their teams to make sure we
deliver on our contractual and operational
commitments so together we can build a
stronger, more sustainable Babcock.
Early careers
Last year saw the implementation and
introduction of a dedicated one Babcock
Early Careers Team responsible for the
development of our early careers talent
nationally as well as globally.
We recruited 263 apprentices globally
during FY22, bringing the total number of
apprentices to 1,024 across the business.
Previously, most of our new starters have
entered on level two and three
programmes. However, emphasis has
been on expanding the apprenticeship
offering with the intent to offer
programmes starting from level two all
the way to level seven.
One of our very own apprentices was
awarded the title of Shipyard Apprentice
of the Year and won the Queen’s Silver
Medal 2021: a prestigious award for
final-year apprentices from the maritime
sector, which has been running since
1944. Simultaneously, the Devonport
Apprentice Team won the Best
Apprenticeship Programme in Plymouth
in 2021.
One hundred and thirty five graduates
entered onto our graduate development
programme this year and have been
assigned a buddy and formal mentor to
accelerate their learning throughout the
programme – which in many cases lead
to professional registration such as
charter-ship.
We will continue to run these successful,
comprehensive apprenticeship and
graduate development programmes
to bring more young people into
the business.
ESG STRATEGY: SOCIAL continued
Our employees volunteer not only their
We are proud to currently employ 186
As a result, we were able to develop our
time but write books to inspire the next
service leavers and 322 veterans in the
leadership capability by clarifying and
generation to take small positive action to
business. We support the UK’s Armed
resetting the expectation of what it takes
better the world. The3Engineers gifted
Forces and reservists and continue to
to be a successful high-performing leader
4,000 copies of their set of rhyming
children’s book to local schools and
actively back our reservist employees. We
in Babcock and understanding what is
have approximately 43 volunteer and 12
needed to deliver our strategy.
communities. They have also created a
regular reserves and around 14 uniformed
suite of free-to-download STEM resources
cadet instructors in the business. We
for schools to use in the future based on
provide a minimum of 10 days’ special
the books.
In FY23 Babcock will continue to engage
with young people, their parents, and
teachers to ignite interest in studying
STEM subjects and pursue a rewarding
paid leave per year. The reserve service is
actively promoted to everyone in the
Group, including our new graduates and
apprentices.
Partnership with academia
career in the industry by focusing on our
Innovation is in our people and our
Group-wide strategic objectives around
partnerships. Last year we announced our
raising awareness of STEM, increasing I&D
strategic partnership with the University
and supporting schools that are located in
of Strathclyde, one of the leading
Babcock’s leadership group has a wide
spread of capabilities and styles and we
enable them to inspire, motivate and
empower their teams to make sure we
deliver on our contractual and operational
commitments so together we can build a
stronger, more sustainable Babcock.
Early careers
Last year saw the implementation and
introduction of a dedicated one Babcock
Early Careers Team responsible for the
development of our early careers talent
nationally as well as globally.
deprived areas of the UK.
Support for Armed Forces, veterans,
and reserves
Babcock is committed to honouring and
supporting the Armed Forces Covenant
and the Armed Forces community. We
recognise the value serving personnel,
both regular and reservists, veterans and
military families contribute to our business
and country.
As part of our continued commitment to
the Armed Forces Covenant, Babcock
supports employee and graduate
membership of the Reserve Forces and
references our support in recruitment
activity. We also support the employment
of service leavers, veterans, and members
of the Volunteer Forces by providing a
guaranteed job interview where
applicants meet the minimum
requirements of a role.
Members of the Armed Forces community
and their families can rely on our support.
We offer a degree of flexibility in granting
international technology universities.
Babcock and Strathclyde have been
working together for more than 30 years,
We recruited 263 apprentices globally
and formalising the partnership will
strengthen existing educational
during FY22, bringing the total number of
apprentices to 1,024 across the business.
programmes for degree apprenticeships
Previously, most of our new starters have
and industry placements and build on
entered on level two and three
existing innovative research projects in
programmes. However, emphasis has
nuclear, advanced manufacturing, space,
been on expanding the apprenticeship
and security-related technologies.
offering with the intent to offer
Our recently opened state-of-the-art
Additive Manufacturing Centre is part of
programmes starting from level two all
the way to level seven.
an innovative partnership with Plymouth
One of our very own apprentices was
Science Park. The partnership builds
on our strong relationship with the
awarded the title of Shipyard Apprentice
of the Year and won the Queen’s Silver
academic and technology community
Medal 2021: a prestigious award for
across the south west and the local
community around our Devonport
dockyard.
Last year we also launched an exciting
new project management degree
apprenticeship programme at our
University of Plymouth.
Devonport facility in partnership with the
One hundred and thirty five graduates
final-year apprentices from the maritime
sector, which has been running since
1944. Simultaneously, the Devonport
Apprentice Team won the Best
Apprenticeship Programme in Plymouth
in 2021.
entered onto our graduate development
programme this year and have been
assigned a buddy and formal mentor to
accelerate their learning throughout the
programme – which in many cases lead
to professional registration such as
charter-ship.
We will continue to run these successful,
comprehensive apprenticeship and
graduate development programmes
to bring more young people into
the business.
leave for service personnel spouses and
Talent and development
partners before, during and after a
To enable us to take on the challenges of
partner’s deployment, and will consider
today and the future, it is important for us
special paid leave for employees who
to build and maintain the capability and
have been bereaved or whose spouse or
skills of our workforce. In FY22 work was
partner has been injured.
We work closely with the Career
Transition Partnership, to ensure our
employment opportunities are made
carried out on the kind of leader required
to drive the future success of the business
and focused on understanding the profiles
of the leaders we have today.
available to service leavers and veterans,
We measured drivers, personality traits
and we participate in careers fairs for
and competencies through a self-report
those leaving the Armed Forces. We
tool – things that are our natural
understand that Armed Forces spouses
tendencies and capabilities which we can
need flexibility when their service partner
learn and develop. Seventy of our most
is posted to a new location, and we do
senior leaders were assessed by evaluating
our best to find alternative employment
their technical and behavioural skills and
within the business if our employees need
then compared to our future leader
to move to accompany their partner to a
profile as well as a FTSE100 leader
new posting.
benchmark.
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GOVERNANCE
5 Being a collaborative, trusted partner across the supply chain
We are committed to conducting business
honestly, transparently and with integrity.
Diverse and robust supply chains enable
us to provide quality and timely delivery
of products and services.
External expenditure via third-party
suppliers, including original equipment
manufacturers (OEMs), continues to
account for a significant part of our
turnover and we recognise how our ability
to deliver performance and margin is
affected by our approach and ability to
manage these relationships.
Our supply base design is balanced to
meet our customer, regulatory and
financial performance requirements.
It considers supply chain risk and
addresses appropriate mitigating actions.
We review our business-critical suppliers
on an annual basis to address any risks or
concerns. To support this process we have
invested in an AI risk monitoring solution
that will allow us to map our supply chain
ecosystem, monitor activities and alert us
when hidden risk is exposed in our sub-tier
supply chain. This has been rolled out in
Q1 FY22.
We buy a wide range of goods and
services from over 14,000 suppliers.
These range from large multinational
OEMs to small and mid-size enterprises
(SMEs). Approximately 250 of these
suppliers are considered to be key
partners supporting our ability to deliver
continuous improvement and innovative
quality outputs. We combine technology,
market intelligence and business process
to engage with our supply base and form
long-term sustainable relationships.
Our activities ensure that we continue to
deliver value through working effectively
with our supply chains. By improving
upfront supply chain involvement in bid
processes, we have been able to engage
earlier with potential suppliers. This
enables our suppliers to actively support
both the design and implementation
stages of our work with innovative
solutions and deliver enhanced
productivity and increased quality.
Over the past year we have undertaken a
structural reset of our procurement and
supply chain, appointing a new Chief
Procurement Officer to lead its
transformation. We have made strong
progress with the implementation of the
Group Procurement and Supply Chain
operating model and standardisation of
key business processes. The purpose of
this strategy is to create a Group
procurement and supply chain team with
a common purpose and strategy which is
fully integrated and aligned with the
business. We aim to achieve consistent
long-term value creation for our
interested parties by continually
enhancing our supply chain to deliver
best-in-class and sustainable products,
goods and services.
Sustainable sourcing
Babcock aims to maintain strong and
sustainable supply chains and we
recognise that to be successful we must
work collaboratively with our suppliers
and sub-contractors to identify and deliver
ever more sustainable goods and services.
Our intention is to reduce the
environmental footprint of our supply
chain and provide social benefits to
society in parallel with meeting our
business goals.
We continue working to align our
processes and standards to ISO20400
(Sustainable Procurement) including
circular economy principles such as
recycling and disposal options. A strategic
roadmap has been developed which
establishes the framework required to
integrate sustainability within
procurement and supply chain activities,
driven by the need to deliver sustainable
outcomes through our supply chain. Our
procurement and supply chain business
processes will continue to be developed
and aligned to ISO20400 guidelines
throughout 2022, with a view to full
alignment by the end of 2023.
To support this intent we have published a
new Supplier Sustainability policy which is
being rolled out to our supply chain
through planned communication
activities and supplier engagement events
during FY23.
Supporting guidance has also been
produced in the form of our Sustainable
Procurement Supplier guide. This
document is provided to assist suppliers in
meeting the requirements of our
Sustainable Procurement policy. It
identifies areas for emphasis, reference
documents and some regional
requirements arising from national
policies.
Our suppliers and their extended supply
chains are required to share our
commitment to respecting, protecting
and promoting human rights and to
support our efforts to achieve
transparency within higher-risk supply
chains and take responsibility for the
issues we uncover such as hidden labour
exploitation.
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ESG STRATEGY: GOVERNANCE continued
We recognise the United Nations Universal
Declaration of Human Rights and the
standards established by the International
Labour Organization. Our suppliers and
their extended supply chain are expected
to share this commitment and to meet
the following:
Treat workers equally
• Respect the human rights of all
employees and the rights of the
communities in which they operate
• Ensure work is performed on a
voluntary basis
• Ensure that all employees can make a
free choice about their employment –
there should be no illegal, forced,
bonded, involuntary or exploited labour
• Ensure there is no involvement in
human trafficking or involuntary
movement of people
Reasonable working hours
• Ensure employees do not work hours in
excess of the limitations set by relevant
local and national laws and regulations
• Ensure all overtime work is voluntary
• Other than for extraordinary situations,
all workers are entitled to at least one
day off in every seven-day period
Workers are of an appropriate age
• Ensure that no underage workers are
employed, either directly or indirectly
• Babcock’s suppliers are encouraged to
participate in appropriate
apprenticeship programmes that
comply with applicable laws and
regulations
Workers are paid fair wages
• Pay wages which at least meet national
legal standards. Pay industry benchmark
standards wherever possible
• Ensure overtime work is used
responsibly and compensated fairly
• Ensure that everyone is working in a
recognised employment relationship as
defined by law, and explain clearly to
employees the terms and conditions
of their employment and the
expected work output to which
their wages relate
Workers’ health and safety in the
workplace is protected
• Provide a safe and sanitary workplace,
taking all necessary actions to educate
employees to prevent accidents and
injury to health
Ensure access to fair procedures
and remedies
• Allow access to full and confidential
remedy/grievance processes
• Freedom of association and collective
bargaining
• Allow free association and the
opportunity to communicate directly
with management without fear of
intimidation or reprisal
Core processes to ensure compliance with
our expectations include supplier
onboarding, audits and assessments, issue
management and performance
management. The requirements are also
incorporated into our Supplier Code of
Conduct, Supplier Sustainability policy and
Supplier Sustainability Guideline which are
subject to routine periodic review.
The human rights risk assessment process
is embedded into a number of our due
diligence and management processes,
where a targeted approach is taken within
our questionnaires to understand the
maturity levels of controls within our
supply chain. Our supplier lifecycle
management controls also trigger
scheduled reviews within our supplier
onboarding solution.
The supplier audit programme is currently
being reviewed to ensure human rights
issues are being embedded into the
standard audit content. The supplier
quality and development audit
programme is being extended during
FY23 to cover a wider section of our
supply chain and the audit checklists are
being standardised across each of the
business units to consistently verify
adequate human rights controls are
demonstrable by the supplier throughout
the audit process. Formal actions are
taken when risks are identified during the
audit process.
Scope 3 carbon emissions mapping
We are currently conducting an
assessment of upstream Scope 3
emissions (categories 1 and 2) to
establish data for Babcock’s upstream
value chain emissions.
A spend-based calculation methodology is
being adopted for the mapping activity to
produce tabular and graphical results for
Babcock’s upstream value chain emissions
and provide a baseline for developing
Babcock’s carbon strategy further.
See Environmental section page 57
Working with SMEs
We recognise the value that SMEs play in
the wider economy and we actively
encourage them to engage with us. We
will continue to engage with both smaller
and local suppliers, especially those that
help inclusion of under-represented
groups, which fosters economic prosperity
and societal integration.
Working with SMEs also ensures that we
have access to innovative new solutions
and provides enhanced flexibility and
agility. As part of the wider Group
procurement and supply chain strategy,
we expanded key performance indicators
throughout FY22 to measure and monitor
our percentage spend with SMEs. This is
now a key measure within the
procurement and supply chain function
and our performance against benchmark
targets is subject to ongoing
management review, which supports both
our decision-making and any actions
required to support the growth of our SME
supplier population.
Human rights
Babcock is an international company and
we are committed to conducting our
dealings with the utmost integrity. We are
committed to the protection of human
rights and we comply with all national
laws in the jurisdictions in which we
operate. We welcome the opportunity to
contribute positively to global efforts to
ensure that human rights are understood
and observed. We believe that a culture
of respect for, and promotion of, human
rights is embedded throughout our
business and can be demonstrated by our
commitment to ethical conduct in
everything we do.
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ESG STRATEGY: GOVERNANCE continued
Scope 3 carbon emissions mapping
We recognise the United Nations Universal
Workers’ health and safety in the
We are currently conducting an
assessment of upstream Scope 3
emissions (categories 1 and 2) to
Declaration of Human Rights and the
workplace is protected
standards established by the International
• Provide a safe and sanitary workplace,
Labour Organization. Our suppliers and
taking all necessary actions to educate
employees to prevent accidents and
establish data for Babcock’s upstream
their extended supply chain are expected
value chain emissions.
to share this commitment and to meet
injury to health
A spend-based calculation methodology is
being adopted for the mapping activity to
produce tabular and graphical results for
Babcock’s upstream value chain emissions
and provide a baseline for developing
Babcock’s carbon strategy further.
See Environmental section page 57
Working with SMEs
We recognise the value that SMEs play in
the wider economy and we actively
encourage them to engage with us. We
will continue to engage with both smaller
and local suppliers, especially those that
help inclusion of under-represented
groups, which fosters economic prosperity
and societal integration.
Working with SMEs also ensures that we
have access to innovative new solutions
and provides enhanced flexibility and
agility. As part of the wider Group
procurement and supply chain strategy,
the following:
Treat workers equally
• Respect the human rights of all
employees and the rights of the
Ensure access to fair procedures
and remedies
• Allow access to full and confidential
remedy/grievance processes
communities in which they operate
• Freedom of association and collective
• Ensure work is performed on a
bargaining
voluntary basis
• Ensure that all employees can make a
free choice about their employment –
there should be no illegal, forced,
bonded, involuntary or exploited labour
• Ensure there is no involvement in
human trafficking or involuntary
movement of people
Reasonable working hours
• Ensure employees do not work hours in
excess of the limitations set by relevant
local and national laws and regulations
• Ensure all overtime work is voluntary
• Allow free association and the
opportunity to communicate directly
with management without fear of
intimidation or reprisal
Core processes to ensure compliance with
our expectations include supplier
onboarding, audits and assessments, issue
management and performance
management. The requirements are also
incorporated into our Supplier Code of
Conduct, Supplier Sustainability policy and
Supplier Sustainability Guideline which are
subject to routine periodic review.
• Other than for extraordinary situations,
The human rights risk assessment process
all workers are entitled to at least one
is embedded into a number of our due
day off in every seven-day period
diligence and management processes,
we expanded key performance indicators
Workers are of an appropriate age
throughout FY22 to measure and monitor
• Ensure that no underage workers are
our percentage spend with SMEs. This is
employed, either directly or indirectly
now a key measure within the
procurement and supply chain function
and our performance against benchmark
targets is subject to ongoing
• Babcock’s suppliers are encouraged to
participate in appropriate
apprenticeship programmes that
comply with applicable laws and
management review, which supports both
regulations
our decision-making and any actions
required to support the growth of our SME
supplier population.
Human rights
Babcock is an international company and
we are committed to conducting our
dealings with the utmost integrity. We are
committed to the protection of human
rights and we comply with all national
laws in the jurisdictions in which we
operate. We welcome the opportunity to
contribute positively to global efforts to
ensure that human rights are understood
and observed. We believe that a culture
of respect for, and promotion of, human
rights is embedded throughout our
business and can be demonstrated by our
commitment to ethical conduct in
everything we do.
Workers are paid fair wages
• Pay wages which at least meet national
legal standards. Pay industry benchmark
standards wherever possible
• Ensure overtime work is used
responsibly and compensated fairly
• Ensure that everyone is working in a
recognised employment relationship as
defined by law, and explain clearly to
employees the terms and conditions
of their employment and the
expected work output to which
their wages relate
where a targeted approach is taken within
our questionnaires to understand the
maturity levels of controls within our
supply chain. Our supplier lifecycle
management controls also trigger
scheduled reviews within our supplier
onboarding solution.
The supplier audit programme is currently
being reviewed to ensure human rights
issues are being embedded into the
standard audit content. The supplier
quality and development audit
programme is being extended during
FY23 to cover a wider section of our
supply chain and the audit checklists are
being standardised across each of the
business units to consistently verify
adequate human rights controls are
demonstrable by the supplier throughout
the audit process. Formal actions are
taken when risks are identified during the
audit process.
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Our strategy for supply chain risk
management has also led to the
introduction of an AI solution for live
monitoring of human rights risk within our
extended supply chain. Babcock can now
assess our suppliers’ policy and
performance strength regarding human
rights, including information on child or
compulsory labour, treatment of people
throughout the supply chain and
treatment of local populaces. This
approach serves as an early warning
system. Should events or changes occur in
our supply, live alerts are communicated
to the procurement and supply
chain team.
Modern slavery
In the UK, we expect our suppliers and
extended supply base to adhere to the
Modern Slavery Act 2015, as we do
ourselves. We expect all our overseas
suppliers to understand and comply with
the intent of the Act.
Modern slavery considerations are
included as part of our risk management
and supplier selection processes and we
will continue to review our approach to
training our employees and ascertaining
risks in regards to the prevention of
modern slavery.
If it is discovered that there has been a
breach of the above, or any other
relevant, declarations and legislation, we
will take all necessary steps to mitigate
any impact.
Our Modern Slavery Transparency
Statement is reviewed and approved
annually by the Board. The statement
remains available on our website.
Fair operating practices
Our Group-wide Suppliers’ Code of
Conduct (available on the Group’s
website) is designed to provide clarity
about our expectations of suppliers,
including compliance with all applicable
laws. While we recognise that many of our
suppliers operate in different geographic
and economic environments, we expect
that products and services are delivered in
a way that supports Babcock’s high
standards and contributes to the
reputation of Babcock and our customers.
Suppliers and the extended supply chain
are expected to meet these standards at
all times and should either be willing to
subscribe to our Code, or have equivalent
standards and procedures in their
own businesses.
Our intention is to be a good partner and
to work with suppliers to support
necessary improvements, but we will not
accept any behaviour which is contrary to
either our ethical codes or health, safety
and environmental working practices.
Before engaging with suppliers, we assess
their ability to demonstrate that they are
‘fit for business’, with financial,
commercial, safety and governance
capability. Suppliers also demonstrate
they are ‘fit for purpose’, with technical,
health and safety capability and security
compliance to meet our contractual
requirements.
Our businesses use appropriate processes
to qualify, onboard and periodically
revalidate sub-contractors to ensure
compliance with commercial, regulatory
and legal requirements.
Protecting the information and physical
assets of our customers is an important
part of what we do. We always
expect high standards of commercial
confidentiality. For certain types of supply
we have and continue to develop exacting
standards of security compliance.
In the UK, we use the JOSCAR due
diligence tool, which is a shared industry-
wide management system for defence
contractors that collects standardised
information about individual suppliers
across the UK supply chain.
Payment to suppliers
We understand the importance of
predictable payments when running a
business and will ensure good practice
across the Group.
17 legal entities submit returns to
Companies House according to the
Payment Practices and Performance
Regulations. 11 of our legal entities are
signed up to the Prompt Payment Code
and are compliant as of 31 March 2022.
Procurement methodology to calculate
average payment days across the group
has changed this year from an average to
weighted average approach. The average
payment over the past six months to
March is 24.6 days, versus 23.5 days last
year. For reference, using last year’s
methodology, the equivalent figures
would be 30.5 days over the past six
months versus 29.6 days last year.
We actively support the Prompt Payment
Code and encourage our suppliers to
adopt the code themselves and promote
its adoption throughout their own
supply chains.
Commercial integrity
We are committed to conducting business
honestly, transparently and with integrity.
It is the right and proper way to behave,
ensuring we uphold high ethical standards
across the Group. It also supports our
long-term success.
We understand our reputation and good
name are amongst our greatest assets and
could easily be lost by actual or suspected
unprincipled behaviour. To support good
governance and ethical behaviour across
our Group, our actions and those of our
employees, suppliers and partners are
guided by a series of Group policies. These
are reviewed periodically to ensure that
they continue to meet current best
practice principles and legislative needs.
By establishing transparent policies and
procedures we can reduce risk to our
business and to our customers.
Code of Business Conduct and
Ethics policy
To protect the Company and reduce risks,
we have established a policy on how we
should conduct business which is
summarised in the form of the Babcock
Code of Business Conduct.
Compliance with this policy is compulsory
for our employees, business advisors and
business partners (or, in the case of
business advisors and partners, they must
have equivalent standards and procedures
in their own businesses). The policy is kept
under review by the Group Company
Secretary and General Counsel and on an
annual basis the Board undertakes an
annual ethics review, seeking assurance
that the Group’s Ethics policy is
complied with.
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ESG STRATEGY: GOVERNANCE continued
Our Ethics policy comprises a detailed
manual, available to employees on the
Group’s intranet and also available on our
website, which contains guidelines,
authorisation mechanisms and other
procedures aimed at identifying and
reducing ethical risks. It supports
extensive policies around anti-bribery and
competition law that clearly show our
zero tolerance for any form of bribery or
anti-competitive behaviour.
These controls form an integral part of our
risk management arrangements, which
also include training our employees and
undertaking regular risk assessments
throughout the business. We implement
appropriate training and procedures
designed to ensure that we, and others
working for us, understand what our Code
of Business Conduct and our Suppliers’
Code of Business Conduct (see also page
71) mean for them in practice. This
training includes mandatory completion
of courses on an annual basis in all our
geographies, translated where applicable,
such as anti-bribery and corruption,
security and data protection. Completion
of these courses is monitored.
We treat breaches of our Codes or
associated guidance seriously.
Employees can raise any concerns that
our Code or its associated guidance is not
being followed without fear of
unfavourable consequences
for themselves.
To ensure that anyone with a concern is
able to access advice and support, our
independent whistleblowing hotline,
EthicsPoint, (operated by NAVEX Global)
allows for confidential and anonymous
reporting and is available 24 hours a day,
seven days a week, in all territories where
we are based. Employees are encouraged
to use it if they feel unable to raise
concerns with their local management
team and details are available for use
by external stakeholders and members
of the public.
All reports to the whistleblowing line are
sent directly to the Company Secretary
who decides the appropriate course of
investigation. During the year 83
whistleblowing reports were received
(FY21: 83).
More details of our risk management
procedures can be found on page 76
whilst our Ethics policy, Code of Business
Conduct and Suppliers’ Code of Conduct
can be found on our website.
Cyber security
We recognise the very real risk of
malicious cyber breach and work hard to
ensure both our customers’ and our own
information assets remain protected.
Babcock’s Group Security Committee
meets quarterly to provide governance
covering cyber and other security and
informational assurance risks, issues and
threats facing the Group.
Babcock is a member of the joint UK
Ministry of Defence and industry Defence
Cyber Protection Partnership (DCPP) which
is an initiative to ensure the defence
supply chain understands the cyber threat
and is appropriately protected against
attack. Babcock is represented on all the
working groups and DCPP executive
committee, as well as other defence
security forums.
Babcock applies all required international
and government security standards for
installation and secure operation of
Information systems.
Babcock’s core IT services are certified to
ISO27001 (Information Security),
ISO22301 (Business Continuity) and Cyber
Essentials Plus, which is mandatory for all
suppliers of UK Government contracts that
involve handling personal information and
providing certain products and services.
Babcock continues to invest in cyber
resilience and in raising awareness across
the workforce.
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ESG STRATEGY: GOVERNANCE continued
Our Ethics policy comprises a detailed
To ensure that anyone with a concern is
Babcock is a member of the joint UK
manual, available to employees on the
able to access advice and support, our
Ministry of Defence and industry Defence
Group’s intranet and also available on our
independent whistleblowing hotline,
Cyber Protection Partnership (DCPP) which
website, which contains guidelines,
authorisation mechanisms and other
procedures aimed at identifying and
reducing ethical risks. It supports
EthicsPoint, (operated by NAVEX Global)
is an initiative to ensure the defence
allows for confidential and anonymous
supply chain understands the cyber threat
reporting and is available 24 hours a day,
and is appropriately protected against
seven days a week, in all territories where
attack. Babcock is represented on all the
extensive policies around anti-bribery and
we are based. Employees are encouraged
working groups and DCPP executive
competition law that clearly show our
to use it if they feel unable to raise
committee, as well as other defence
zero tolerance for any form of bribery or
concerns with their local management
security forums.
anti-competitive behaviour.
team and details are available for use
by external stakeholders and members
These controls form an integral part of our
risk management arrangements, which
of the public.
Babcock applies all required international
and government security standards for
installation and secure operation of
also include training our employees and
All reports to the whistleblowing line are
Information systems.
undertaking regular risk assessments
sent directly to the Company Secretary
throughout the business. We implement
who decides the appropriate course of
appropriate training and procedures
investigation. During the year 83
designed to ensure that we, and others
whistleblowing reports were received
working for us, understand what our Code
(FY21: 83).
Babcock’s core IT services are certified to
ISO27001 (Information Security),
ISO22301 (Business Continuity) and Cyber
Essentials Plus, which is mandatory for all
suppliers of UK Government contracts that
of Business Conduct and our Suppliers’
Code of Business Conduct (see also page
71) mean for them in practice. This
training includes mandatory completion
of courses on an annual basis in all our
geographies, translated where applicable,
More details of our risk management
involve handling personal information and
procedures can be found on page 76
providing certain products and services.
whilst our Ethics policy, Code of Business
Conduct and Suppliers’ Code of Conduct
can be found on our website.
Babcock continues to invest in cyber
resilience and in raising awareness across
the workforce.
such as anti-bribery and corruption,
Cyber security
security and data protection. Completion
We recognise the very real risk of
of these courses is monitored.
We treat breaches of our Codes or
associated guidance seriously.
Employees can raise any concerns that
our Code or its associated guidance is not
being followed without fear of
unfavourable consequences
for themselves.
malicious cyber breach and work hard to
ensure both our customers’ and our own
information assets remain protected.
Babcock’s Group Security Committee
meets quarterly to provide governance
covering cyber and other security and
informational assurance risks, issues and
threats facing the Group.
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Non-financial information statement
Reporting on material yet non-financial measures is important in understanding the performance, opportunities and long-term
sustainability of the Company and our ability to generate value for all our stakeholders. We disclose non-financial information in the
ESG strategy report and throughout the Strategic report. We are committed to providing greater transparency about our policies,
standards and governance approach through the global reporting frameworks and insight in the ESG strategy report.
Reporting requirement
Environmental matters
Employees
Human rights
Social matters
Policies and standards
Health, Safety and Environmental policy*
Energy policy*
Procurement Sustainability policy**
Code of Conduct **
Health, Safety and Environment policy*
Agile working framework*
Charity and Sponsorship High-Level Guidelines* Group-wide sponsorship
Code of Conduct**
Supplier Code of Conduct**
Modern Slavery Transparency Statement**
Anti-bribery and Corruption/Ethics policy**
Code of Conduct**
Respect and Inclusion Charter*
Canada Indigenous Peoples policy*
Additional information
Environmental section
Environmental section
Sustainable sourcing
Commercial integrity
Home Safe Every Day
Employee inclusion and diversity
Page
57
57
69
71
63
64
67
Building relationships
52
Code of Business Conduct and Ethics 71
71
Fair operating practices
Commercial integrity
71
Code of Business Conduct and Ethics 71
Code of Business Conduct and Ethics 71
64
Employee inclusion and diversity
67
Indigenous peoples
Building relationships
52
Code of Business Conduct and Ethics 71
76
Principal risks and management
controls
Fair operating practices
Principal risks and management
control
Our business model
Our strategy
71
76
8
6
Anti-bribery and corruption
Anti-Bribery and Corruption/Ethics policy**
Whistleblowing policy**
Description of principal risks and
impact on business activity
Business model
Non-financial KPIs
Supplier Code of Conduct**
Group Risk Management policy*
* Available to employees through the Babcock intranet but not published externally.
** Available on the Babcock website and available to employees through the Babcock intranet.
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ESG STRATEGY continued
Compliance with Global Reporting Initiative (GRI)
We intend to report in accordance with the GRI Standards, Core option. We have indicated the disclosure topics that are relevant to
Babcock and the level of disclosure in AR21 and AR22.
Standards
Disclosures
GRI 101: Foundation 2016
Universal Standards
GRI 102: General Disclosures 2016
GRI 103: Management Approach 2016
GRI 201: Economic Performance 2016
GRI 202: Market Presence 2016
GRI 203: Indirect Economic Impacts 2016
Economic Topics
GRI 204: Procurement Practices 2016
GRI 205: Anti-corruption 2016
AR-21 AR-22
GRI 101-01 to 101-10
GRI 102-01 to 102-56
GRI 103-01 to 103-03
GRI 201-01 to 201-04
GRI 202-01 to 202-02
GRI 203-01 to 203-02
GRI 204-01
GRI 205-01 to 205-03
GRI 206: Anti-competitive Behaviour 2016
GRI 206-01
GRI 207: Tax 2019
GRI 301: Materials 2016
GRI 302: Energy 2016
GRI 303: Water and Effluents 2018
GRI 304: Biodiversity 2016
GRI 305: Emissions 2016
GRI 306: Waste 2020
Environmental Topics
GRI 207-01 to 207-04
GRI 301-01 to 301-03
GRI 302-01 to 302-05
GRI 303-01 to 303-05
GRI 304-01 to 304-04
GRI 305-01 to 305-07
GRI 306-01 to 306-05
GRI 307: Environmental Compliance 2016
GRI 307-01
GRI 308: Supplier Environmental Assessment 2016
GRI 308-01 to 308-02
GRI 401: Employment 2016
GRI 401-01 to 401-03
GRI 402: Labour/Management Relations 2016
GRI 402-01
GRI 403: Occupational Health and Safety 2018
GRI 404: Training and Education 2016
GRI 405: Diversity and Equal Opportunity 2016
GRI 406: Non-discrimination 2016
GRI 403-01 to 403-10
GRI 404-01 to 404-03
GRI 405-01 to 405-02
GRI 406-01
GRI 407: Freedom of Association and Collective Bargaining 2016 GRI 407-01
GRI 408: Child Labour 2016
GRI 409: Forced or Compulsory Labour 2016
Social Topics
GRI 410: Security Practices 2016
GRI 411: Rights of Indigenous Peoples 2016
GRI 412: Human Rights Assessment 2016
GRI 413: Local Communities 2016
GRI 414: Supplier Social Assessment 2016
GRI 415: Public Policy 2016
GRI 416: Customer Health and Safety 2016
GRI 417: Marketing and Labelling 2016
GRI 418: Customer Privacy 2016
GRI 419: Socioeconomic Compliance 2016
GRI 408-01
GRI 409-01
GRI 410-01
GRI 411-01
GRI 412-01 to 412-03
GRI 413-01 to 413-02
GRI 414-01 to 414-02
GRI 415-01
GRI 416-01 to 416-02
GRI 417-01 to 417-03
GRI 418-01
GRI 419-01
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ESG STRATEGY continued
We intend to report in accordance with the GRI Standards, Core option. We have indicated the disclosure topics that are relevant to
AR-21 AR-22
Babcock and the level of disclosure in AR21 and AR22.
Standards
Disclosures
GRI 101: Foundation 2016
Universal Standards
GRI 102: General Disclosures 2016
GRI 103: Management Approach 2016
GRI 201: Economic Performance 2016
GRI 202: Market Presence 2016
GRI 203: Indirect Economic Impacts 2016
Economic Topics
GRI 204: Procurement Practices 2016
GRI 205: Anti-corruption 2016
GRI 206: Anti-competitive Behaviour 2016
GRI 206-01
GRI 207: Tax 2019
GRI 301: Materials 2016
GRI 302: Energy 2016
GRI 303: Water and Effluents 2018
GRI 304: Biodiversity 2016
GRI 305: Emissions 2016
GRI 306: Waste 2020
Environmental Topics
GRI 307: Environmental Compliance 2016
GRI 307-01
GRI 308: Supplier Environmental Assessment 2016
GRI 308-01 to 308-02
GRI 401: Employment 2016
GRI 401-01 to 401-03
GRI 402: Labour/Management Relations 2016
GRI 402-01
GRI 407: Freedom of Association and Collective Bargaining 2016 GRI 407-01
Social Topics
GRI 410: Security Practices 2016
GRI 403: Occupational Health and Safety 2018
GRI 404: Training and Education 2016
GRI 405: Diversity and Equal Opportunity 2016
GRI 406: Non-discrimination 2016
GRI 408: Child Labour 2016
GRI 409: Forced or Compulsory Labour 2016
GRI 411: Rights of Indigenous Peoples 2016
GRI 412: Human Rights Assessment 2016
GRI 413: Local Communities 2016
GRI 414: Supplier Social Assessment 2016
GRI 415: Public Policy 2016
GRI 416: Customer Health and Safety 2016
GRI 417: Marketing and Labelling 2016
GRI 418: Customer Privacy 2016
GRI 419: Socioeconomic Compliance 2016
GRI 101-01 to 101-10
GRI 102-01 to 102-56
GRI 103-01 to 103-03
GRI 201-01 to 201-04
GRI 202-01 to 202-02
GRI 203-01 to 203-02
GRI 204-01
GRI 205-01 to 205-03
GRI 207-01 to 207-04
GRI 301-01 to 301-03
GRI 302-01 to 302-05
GRI 303-01 to 303-05
GRI 304-01 to 304-04
GRI 305-01 to 305-07
GRI 306-01 to 306-05
GRI 403-01 to 403-10
GRI 404-01 to 404-03
GRI 405-01 to 405-02
GRI 406-01
GRI 408-01
GRI 409-01
GRI 410-01
GRI 411-01
GRI 412-01 to 412-03
GRI 413-01 to 413-02
GRI 414-01 to 414-02
GRI 415-01
GRI 416-01 to 416-02
GRI 417-01 to 417-03
GRI 418-01
GRI 419-01
Compliance with Global Reporting Initiative (GRI)
Response to Sustainable Accounting Standards Board (SASB)
Dimension
Environment
General issue
category
Energy
Management
Hazardous
Waste
Management
Disclosure
topic
Energy
Management
Waste &
Hazardous
Materials
Management
Accounting metric(s)
• RT-AE-130a.1: (1) Total energy consumed, (2) percentage grid
AR-21 AR-22
electricity, (3) percentage renewable
• RTA-AE-150a.1: Amount of hazardous waste generated,
percentage recycled
• RTA-AE-150a.2: Number and aggregate quantity of reportable
spills, quantity recovered
Social Capital Data Security
Data Security
• RT-AE-230a.1: (1) Number of data breaches, (2) percentage
involving confidential information
• RT-AE-230a.2: Description of approach to identifying and
addressing data security risks in (1) company operations and (2)
products
Product Quality
& Safety
Product Safety
• RT-AE-250a.1: Number of recalls issued, total units recalled
• RT-AE-250a.2: Number of counterfeit parts detected, percentage
Business
Model &
Innovation
Product Design
& Lifecycle
Management
Fuel Economy
& Emission in
Use-phase
Materials
Sourcing
Materials
Sourcing &
Efficiency
Business Ethics Business Ethics
Leadership &
Governance
avoided
• RT-AE-250a.3: Number of Airworthiness Directives received, total
units affected
• RT-AE-250a.4: Total amount of monetary losses as a result of
legal proceedings associated with product safety
• RT-AE-410a.1: Revenue from alternative energy-related products
• RT-AE-410a.2: Description of approach and discussion of strategy
to address fuel economy and greenhouse gas (GHG) emissions of
products
• RT-AE-440a.1: Description of the management of risks associated
with the use of critical materials
• RT-AE-p510a.1: Total amount of monetary losses as a result of
legal proceedings associated with incidents of corruption,
bribery, and/or illicit international trade
• RT-AE-p510a.2: Revenue from countries ranked in the ‘E’ or ‘F’
Band of Transparency International’s Government Defence
Anti-Corruption Index
• RT-AE-p510a.3: Discussion of processes to manage business
ethics risks throughout the value chain
Status key
Indicative disclosure
Indicative disclosure
Full Disclosure
Partial Disclosure
Partial Disclosure
100%
75%
50%
Partial Disclosure
No Disclosure
Not Relevant
25%
0%
N/A
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Babcock International Group PLC Annual Report and Financial Statements 2022
75
PRINCIPAL RISKS AND MANAGEMENT CONTROLS
Our principal risks
and how we manage them
We have a risk management
framework and internal control
environment to manage the risks
that may undermine our ability
to execute our strategy or more
generally our business model. The
Board has had increasing confidence
in the risk management processes as
a result of improvements made in
FY21 and FY22, enabling the Board
to have assurance around the overall
risk management together with the
determination of the nature and
extent of the Group’s principal risks.
Processes will be subject to ongoing
continuous improvement.
As part of the Group’s turnaround plan,
we have reviewed and improved the risk
management framework so that it aligns
with our new operating model. As a result,
the framework, which we describe below,
is now standardised across the Group and
consistent, with clear risk ownership. In
order to assist the Board and the Group in
its understanding of its principal risks, we
have increased the granularity and
quantification of each risk. The framework
also now includes the identification and
assessment of climate risks, thereby
meeting the Task Force on Climate-related
Financial Disclosures reporting
requirements. In early FY23 we have
launched an updated Risk Management
policy, which will enhance the guidance
and requirements around our risk
assessment and reporting process.
Our risk management framework
The Board sets the Group’s strategy, which
we describe on page 6. To help deliver this
strategy, the Board has now in place
procedures for identifying, evaluating and
managing the risks inherent in our strategy.
As part of those procedures, the Board
reviews and approves the Group’s risk
register on a semi-annual basis to ensure
alignment with the Group’s strategy. It
makes this determination using a risk-rating
matrix, which assesses the probability and
the impact of each risk occurring. The
Board makes this assessment after taking
into consideration the controls and
mitigations that the Group has in place.
We build our risk-rating matrix by bringing
together the risk registers of our sectors.
These risk registers include both principal
and emerging risks. The sectors compile
their risk registers by using a common
Group risk management framework. The
framework requires the sectors to describe
their risks along with the measures in place
to control or manage each risk. The Group
risk function consolidates the sector risk
registers and then produces the risk-rating
matrix, which sets out the Group’s principal
and emerging risks.
The risk-rating matrix is split into two
separate five-by-five matrices: one showing
the current rating of each risk; and the other
showing the target rating. Each matrix
measures each risk for probability and
impact, with each box on the five-by-five
matrix representing a combination of a
particular level of probability and impact.
We rank probability across very unlikely,
unlikely, possible, likely and very likely. We
measure impact across insignificant, minor,
moderate, major and severe. We give
guidance so the sectors have a common
approach as to how to measure probability
and impact. We have included the current
rating for each principal risk alongside its
description, which follows.
On a semi-annual basis, the Group Executive
Committee reviews the matrix. Following
the Group Executive Committee reviews,
the Board, on an annual basis, considers the
matrix and, in particular, reviews the
Group’s principal and emerging risks. The
review includes a consideration of risk
description, as well as our controls and
mitigations. In addition to the review of the
risk-rating matrix, the Board also undertakes
‘deep dives’ on specific risks at regular
intervals in the year.
Our internal control environment
During the year, we made significant
improvement to our internal control
environment which aims to protect the
Group’s assets and to check the reliability
and integrity of the Group’s information,
thereby providing assurance that the
Group appropriately manages the risks to
our business model and the delivery of
our strategy.
Written policies set the framework for the
Group’s internal controls. These policies
cover a range of matters intended to
mitigate risk, such as health and safety,
information security, trade controls,
contracting requirements and accounting
policies. The policies include a new scheme
of delegated authorities that was launched
in the period. This Group-wide process
amalgamates all previous Group, sector and
business unit delegation of authorities into
one consolidated and standardised
document, which imposes strict controls
across the Group and details authority levels
for any given act. For example under the
scheme, which it approves annually, the
Board reserves to itself the authority to
approve all material acquisitions and
disposals, all material capital expenditure,
all material non-ordinary-course tenders
(the CEO and the CFO may approve
material ordinary-course tenders) and all
financing arrangements not delegated to
the Board’s Finance Committee.
The Group’s internal controls also include
comprehensive financial reporting
processes. The Group reports on a monthly
basis up through its business units and
sectors to the Group Executive Committee.
The CEO and CFO report to each Board
meeting on matters of significance to the
Group, including its operating performance.
In addition to backward-looking reports, the
Group prepares an annual budget and
medium-term financial plans, which the
Board reviews, challenges and approves.
The Group prepares updated forecasts for
the year on a quarterly basis. The Board
receives details of monthly actual financial
performance compared to budget,
forecasts and the prior year.
Our risk assurance
We use the ‘three lines of defence’
model to assure ourselves about the
management of the risks that we face. The
first line of defence is management control,
policies and procedures, together with
management oversight. The second line is
internal assurance activities, which include
the review of the sector risks and functional
oversight. The third line is external (ie
independent) assurance activities, such as
internal audits.
76
Babcock International Group PLC Annual Report and Financial Statements 2022
PRINCIPAL RISKS AND MANAGEMENT CONTROLS
Our principal risks
and how we manage them
We have a risk management
framework and internal control
environment to manage the risks
that may undermine our ability
to execute our strategy or more
generally our business model. The
Board has had increasing confidence
in the risk management processes as
a result of improvements made in
FY21 and FY22, enabling the Board
to have assurance around the overall
risk management together with the
determination of the nature and
extent of the Group’s principal risks.
Processes will be subject to ongoing
continuous improvement.
As part of the Group’s turnaround plan,
we have reviewed and improved the risk
management framework so that it aligns
with our new operating model. As a result,
the framework, which we describe below,
is now standardised across the Group and
consistent, with clear risk ownership. In
order to assist the Board and the Group in
its understanding of its principal risks, we
have increased the granularity and
quantification of each risk. The framework
also now includes the identification and
assessment of climate risks, thereby
meeting the Task Force on Climate-related
Financial Disclosures reporting
requirements. In early FY23 we have
launched an updated Risk Management
policy, which will enhance the guidance
and requirements around our risk
assessment and reporting process.
Our risk management framework
The Board sets the Group’s strategy, which
we describe on page 6. To help deliver this
strategy, the Board has now in place
procedures for identifying, evaluating and
managing the risks inherent in our strategy.
As part of those procedures, the Board
reviews and approves the Group’s risk
register on a semi-annual basis to ensure
alignment with the Group’s strategy. It
makes this determination using a risk-rating
matrix, which assesses the probability and
the impact of each risk occurring. The
Board makes this assessment after taking
into consideration the controls and
mitigations that the Group has in place.
We build our risk-rating matrix by bringing
Written policies set the framework for the
together the risk registers of our sectors.
Group’s internal controls. These policies
These risk registers include both principal
cover a range of matters intended to
and emerging risks. The sectors compile
mitigate risk, such as health and safety,
their risk registers by using a common
information security, trade controls,
Group risk management framework. The
contracting requirements and accounting
framework requires the sectors to describe
policies. The policies include a new scheme
their risks along with the measures in place
of delegated authorities that was launched
to control or manage each risk. The Group
in the period. This Group-wide process
risk function consolidates the sector risk
amalgamates all previous Group, sector and
registers and then produces the risk-rating
business unit delegation of authorities into
matrix, which sets out the Group’s principal
one consolidated and standardised
and emerging risks.
The risk-rating matrix is split into two
separate five-by-five matrices: one showing
the current rating of each risk; and the other
showing the target rating. Each matrix
measures each risk for probability and
impact, with each box on the five-by-five
matrix representing a combination of a
particular level of probability and impact.
We rank probability across very unlikely,
unlikely, possible, likely and very likely. We
measure impact across insignificant, minor,
document, which imposes strict controls
across the Group and details authority levels
for any given act. For example under the
scheme, which it approves annually, the
Board reserves to itself the authority to
approve all material acquisitions and
disposals, all material capital expenditure,
all material non-ordinary-course tenders
(the CEO and the CFO may approve
material ordinary-course tenders) and all
financing arrangements not delegated to
the Board’s Finance Committee.
moderate, major and severe. We give
The Group’s internal controls also include
guidance so the sectors have a common
comprehensive financial reporting
approach as to how to measure probability
processes. The Group reports on a monthly
and impact. We have included the current
basis up through its business units and
rating for each principal risk alongside its
sectors to the Group Executive Committee.
description, which follows.
On a semi-annual basis, the Group Executive
Committee reviews the matrix. Following
the Group Executive Committee reviews,
the Board, on an annual basis, considers the
matrix and, in particular, reviews the
Group’s principal and emerging risks. The
review includes a consideration of risk
description, as well as our controls and
mitigations. In addition to the review of the
risk-rating matrix, the Board also undertakes
‘deep dives’ on specific risks at regular
intervals in the year.
Our internal control environment
During the year, we made significant
improvement to our internal control
environment which aims to protect the
Group’s assets and to check the reliability
and integrity of the Group’s information,
thereby providing assurance that the
Group appropriately manages the risks to
our business model and the delivery of
our strategy.
The CEO and CFO report to each Board
meeting on matters of significance to the
Group, including its operating performance.
In addition to backward-looking reports, the
Group prepares an annual budget and
medium-term financial plans, which the
Board reviews, challenges and approves.
The Group prepares updated forecasts for
the year on a quarterly basis. The Board
receives details of monthly actual financial
performance compared to budget,
forecasts and the prior year.
Our risk assurance
We use the ‘three lines of defence’
model to assure ourselves about the
management of the risks that we face. The
first line of defence is management control,
policies and procedures, together with
management oversight. The second line is
internal assurance activities, which include
the review of the sector risks and functional
oversight. The third line is external (ie
independent) assurance activities, such as
internal audits.
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Our risk management framework and our internal control environment
External audit
Provides external assurance:
its aim is to detect material
errors and material
irregularities in our
financial statements.
Please see page 142
for the independent
auditor’s report.
Board
Overall responsibility for the Group’s strategy and risk management
Reviews the Group’s risk-rating matrix and determines the Group’s principal risks
Reviews and approves the Group’s risk register
Reviews the Group’s financial reports, including annual budget and five-year plan, to
monitor financial performance and identify potential issues/emerging risks
Audit Committee
Reviews aspects of the Group’s risk management and internal control environment
Reviews and monitors the adequacy and effectiveness of the Group’s risk management
framework and internal control environment
Approves the annual audit plan for the external and internal audits
Group Executive Committee
Reviews quarterly a consolidated report prepared by the Group risk function, which
summarises the Group’s principal and emerging risks. Committee members sponsor
and own the principal risks
Internal audit
Provides independent and
objective assurance on
governance, risk
management and internal
control to the Board and the
Group. For more information,
please see page 111
Sectors
Identify the risks, including emerging risks, along with the controls and assurance to
mitigate those risks
Functions
Provide oversight and management of certain specialised risk areas that benefit from
central coordination (for example, tax, treasury, IT, procurement etc)
First line of defence
– management
We have written policies covering a range of
matters to mitigate risk, such as health and safety,
information security, contracting requirements
and accounting policies. We underpin these
policies with a comprehensive scheme of
delegated authorities, which the Board annually
reviews and approves. Twice a year, the
sectors complete a letter of representation to
provide confirmation of compliance with the
Group’s policies.
Management reports up from our business units
through the sectors to the Board on operational
and financial performance.
Our risk assurance
Second line of defence
– internal assurance
Third line of defence
– external assurance
The Board and the Group Executive Committee
review the Group’s financial and operational
performance on a regular basis through the
monthly reporting packs, which include monthly
management accounts, and can compare that
performance against the Group’s budget, which
the Board approves on an annual basis.
Group reviews the sector letters of representation
to identify any control weaknesses.
Group functions and specific committees monitor
certain risks, such as health and safety, finance,
tax and treasury.
The Group maintains an insurance programme.
The Group Risk and Insurance Manager reports to
the Board annually on the strategic approach to
that programme.
The internal audit, which reports to the Audit
Committee, provides assurance of the
effectiveness of the Group’s control environment.
The Audit Committee agrees both the external
and internal audit plans on an annual basis.
A number of external regulators and other bodies,
such as national civil aviation authorities, the UK
Office of Nuclear Regulation and the International
Office for Standardisation, regularly inspect parts
of the Group.
All employees have access to a whistleblowing
line to allow them to report any concerns that
they may have. The Board receives all the reports
to the line along with an explanation of how the
Group is investigating them and the outcome of
the investigation.
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Babcock International Group PLC Annual Report and Financial Statements 2022
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
Risk management and internal
control annual review
To provide assurance, the Audit
Committee performs an annual review of
the Risk Management policy to assess its
effectiveness. After last year’s review, the
Committee concluded that the internal
control environment was not operating
effectively in certain parts of the Group,
particularly in Aviation, Land and Group
Head Office. In response, the Committee
agreed with management improvement
plans for the relevant areas. Throughout
the year, the Committee has monitored
the implementation of these plans and,
following this year’s review, is satisfied
with the delivery of the improvement
plans agreed last year, whilst recognising
that there remains ongoing scope for
further improvements in FY23, including
lessons learnt from FY22 closing.
Our principal and emerging risks
We have described above our risk
management framework. Working
through that framework, this year the
Board has identified on pages 76 to 87
those risks that it currently believes to be
of greatest significance to the Group, as
they have the potential to have a material
impact on the Group’s business or the
delivery of its strategy or financial results if
they were to occur.
However, our risk management is a
dynamic and ongoing process. Therefore,
the Group might identify new risks or
better understand the significance of
existing risks or identify a change in a risk.
This means that the risks identified on
pages 76 to 87 are not and cannot be an
exhaustive list of all the principal risks that
could affect the Group. In addition, as
part of its risk work, the Board has also
identified two emerging risks. Both these
risks are not standalone risks, but affect
several of our principal risks. Where they
do affect one of our principal risks, we
have included that effect in the principal
risk. The two emerging risks are:
Emerging risk
Description
Inflation
As the global economy recovers from the pandemic, it
is experiencing increasing inflationary pressure, both in
terms of supplier costs, such as products,
commodities, energy and freight, and labour rates.
This inflationary environment may be exacerbated by
the conflict in Ukraine. As a Group, we have a number
of long-term contracts, which may include fixed price
elements or saving commitments. We also have
collective bargaining agreements with our workforce
at certain sites. If we have increased costs which
we are not able to pass on, this will affect the
profitability of the contracts concerned and could
mean that they become loss-making or that we are
unable to meet our contractual commitments, leading
to an adverse financial impact and a longer-term
reputational impact.
We have established a programme watchlist covering
our most significant programmes as part of our
monthly reviews and are in discussion with customers
where inflation is diverging from contract terms. In
respect of new contracts, we have put in place
controls to ensure that the terms of the new contracts
adequately cover the inflation risk.
Supplier resilience
Our supply chain is subject to the same global
inflationary pressures. Furthermore the global supply
of raw materials and parts has not fully recovered from
the COVID-19 pandemic, leading to supply
interruptions. As with inflation, this could be
exacerbated by the conflict in Ukraine. As a result,
there is a risk that our suppliers may suffer financial
distress and/or not be able to fulfil their contracted
supply agreements with us. This would add additional
cost and time to our programmes, which we may not
be able to pass on to our end customer.
To mitigate the risk, we have increased the level of
monitoring of our supply chain’s financial distress and
operational performance to allow us to intervene if
any concerns arise.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
Risk management and internal
control annual review
To provide assurance, the Audit
Committee performs an annual review of
the Risk Management policy to assess its
effectiveness. After last year’s review, the
Committee concluded that the internal
control environment was not operating
effectively in certain parts of the Group,
particularly in Aviation, Land and Group
Head Office. In response, the Committee
agreed with management improvement
plans for the relevant areas. Throughout
the year, the Committee has monitored
the implementation of these plans and,
following this year’s review, is satisfied
with the delivery of the improvement
plans agreed last year, whilst recognising
that there remains ongoing scope for
further improvements in FY23, including
lessons learnt from FY22 closing.
Our principal and emerging risks
We have described above our risk
management framework. Working
through that framework, this year the
Board has identified on pages 76 to 87
those risks that it currently believes to be
of greatest significance to the Group, as
they have the potential to have a material
impact on the Group’s business or the
delivery of its strategy or financial results if
they were to occur.
However, our risk management is a
dynamic and ongoing process. Therefore,
the Group might identify new risks or
better understand the significance of
existing risks or identify a change in a risk.
This means that the risks identified on
pages 76 to 87 are not and cannot be an
exhaustive list of all the principal risks that
could affect the Group. In addition, as
part of its risk work, the Board has also
identified two emerging risks. Both these
risks are not standalone risks, but affect
several of our principal risks. Where they
do affect one of our principal risks, we
have included that effect in the principal
risk. The two emerging risks are:
Emerging risk
Description
Inflation
As the global economy recovers from the pandemic, it
is experiencing increasing inflationary pressure, both in
terms of supplier costs, such as products,
commodities, energy and freight, and labour rates.
This inflationary environment may be exacerbated by
the conflict in Ukraine. As a Group, we have a number
of long-term contracts, which may include fixed price
elements or saving commitments. We also have
collective bargaining agreements with our workforce
at certain sites. If we have increased costs which
we are not able to pass on, this will affect the
profitability of the contracts concerned and could
mean that they become loss-making or that we are
unable to meet our contractual commitments, leading
to an adverse financial impact and a longer-term
reputational impact.
We have established a programme watchlist covering
our most significant programmes as part of our
monthly reviews and are in discussion with customers
where inflation is diverging from contract terms. In
respect of new contracts, we have put in place
controls to ensure that the terms of the new contracts
adequately cover the inflation risk.
inflationary pressures. Furthermore the global supply
of raw materials and parts has not fully recovered from
the COVID-19 pandemic, leading to supply
interruptions. As with inflation, this could be
exacerbated by the conflict in Ukraine. As a result,
there is a risk that our suppliers may suffer financial
distress and/or not be able to fulfil their contracted
supply agreements with us. This would add additional
cost and time to our programmes, which we may not
be able to pass on to our end customer.
To mitigate the risk, we have increased the level of
monitoring of our supply chain’s financial distress and
operational performance to allow us to intervene if
any concerns arise.
Supplier resilience
Our supply chain is subject to the same global
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Principal risks, their
impact and mitigation
Probability
Impact
Change from last year
1 Very unlikely
1 Insignificant
Up from last year
2 Unlikely
2 Minor
Same as last year
3 Possible
3 Moderate
Down from last year
4 Likely
4 Major
5 Very likely
5 Severe
EXISTING MARKETS
We rely on winning and retaining large contracts with a relatively limited number of major customers, whether in the UK or overseas,
many of whom national or local governments (directly or indirectly) own, control or fund.
Mitigation
Our focus on the aerospace, defence and security markets,
together with our geographical spread, provides a degree of
portfolio diversification. We are in ongoing dialogue with our key
customers in order to understand their requirements, objectives
and constraints, so that we can remain as aligned with them as
possible. We monitor expenditure changes in our markets in order
to allow us to make the appropriate adjustments. We maintain a
public listing, as we believe it is an important factor in winning
contracts and retaining our business position, particularly with
government customers.
We have a clear business strategy to target a large bid pipeline,
both in the UK and internationally. We bid for contracts we
consider have an alignment with the Group strategy and where
we believe we stand a realistic chance of success due to, for
example, customer understanding, domain knowledge or
technical expertise, both in the UK and overseas. We maintain
a dialogue with our customers to understand their intentions
regarding their pipeline.
During the pandemic, we worked closely with our customers in
order to understand their priorities in response to the pandemic.
All our businesses have implemented the necessary plans in
consultation with our key customers to continue to deliver on our
contracts where possible.
The Group remains in dialogue with the SSRO, the MOD and
wider industry regarding future planned changes to the SSCR.
Probability
4
Impact
4
Potential impact
Major customers, such as our single biggest customer the UK
Ministry of Defence (MOD), have significant bargaining power
and can exert pressure to change, amend or even cancel
programmes and contracts. As governments, whether in the UK
or overseas, own or fund many of our major customers, political
and public spending decisions may have a significant impact on
our customers.
For example, the UK Government’s national security and
international policy objectives control the budget of the MOD.
Another example may be the UK’s exit from the EU, the
consequences of which remain difficult to predict, as UK
companies may not be able to bid on EU programmes, or may
have to trade on different terms to a non-EU member, or may
experience difficulties holding operating licences or recruiting
qualified personnel.
Whilst customer policy changes or budgets can potentially offer
more opportunities for us to pursue, they can also be a risk in that
they could lead to changes in customer strategy and spend,
which could include:
• reductions in the number, frequency, size, scope, profitability
and/or duration of future contract opportunities
• in the case of existing contracts, early termination, non-
extension or non-renewal or lower contract spend than
anticipated and pressure to renegotiate contract terms in the
customer’s favour
• favouring the retention of, or return to, in-house service
provision, either generally or in the sectors in which we operate
• favouring small or medium-sized suppliers or adopting a more
transactional rather than a cooperative, partnering approach to
customer/supplier relationships
• imposing new or extra eligibility requirements as a condition of
doing business with the customer that we may not be able
readily to comply with, or that might involve significant extra
costs, thereby affecting the profitability of doing business
with them.
A significant number of our contracts with the MOD are subject
to the Single Source Contract Regulations (SSCR), which the
Single Source Regulations Office (SSRO) administers. The SSRO
sets the baseline profit rate for single source contracts let by the
MOD on an annual basis. These regulations and their
implementation are subject to review by the UK Government,
which could lead to lower returns for industry.
In certain jurisdictions, we bid on programmes that may include
offset arrangements. Such arrangements are designed to
generate work in the customer’s country and may constrain how
we deliver and benefit from those programmes.
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Babcock International Group PLC Annual Report and Financial Statements 2022
79
PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
NEW MARKETS
We seek new markets and contracts for our services both with existing and new customers, whether in territories where we are
already established or in territories where we are not.
Mitigation
We aim to target our resources in those new markets where we
believe our services are relevant and where we believe we have
a good chance of success. As appropriate, we aim to invest in
innovation and people to prepare for new ways of working or
delivering our services. We maintain ongoing dialogue with
our customers in order to understand their requirements and
their budgets.
Probability
3
Impact
5
Potential impact
We may fail to secure and/or deliver new opportunities for a
number of reasons. These reasons may include customer funding
constraints, our services not being relevant due to the non-
acceptance of our business model by customers, our failure to
anticipate future market requirements or future changes in
technology, our failure to find the appropriate quantity and
quality of resource, our failure to align our bid strategy to a
customer’s strategy, or increased competition in our markets.
In addition, COVID-19 or the UK’s departure from the EU or other
geopolitical developments may give rise to economic nationalism
and a reluctance from international customers to award contracts
to a non-domestic company. A lack of success in exporting the
Group’s business model outside the UK and our current core
markets could adversely affect the growth prospects and strategic
development of the Group. Failure to convert our bidding pipeline
into contracts may put pricing pressure on the remaining pipeline.
FINANCIAL RESILIENCE
The Group is exposed to a number of financial risks, some of which are of a macroeconomic nature (for example, foreign currency,
interest rates) and some of which are more specific to the Group (for example, liquidity and credit risks).
Probability
3
Impact
4
Potential impact
A lack of financial resilience may hinder us in raising debt funding to
invest in existing or future business. The weakness also may cause our
existing banks to increase the cost of our funding. If our debt is
denominated in a currency other than Sterling, movements in
exchange rates may make that debt more costly when we repay it.
Customers and/or suppliers may question our long-term sustainability
if we have a weak balance sheet. This may tighten the terms of
business on which they are prepared to contract with us or, in the
extreme, cause them to not award work to Babcock due to their
perception of risk.
Credit rating agencies may downgrade our rating, which could
increase our cost of borrowing.
The lack of financial resilience may trigger certain pension scheme
financial thresholds, requiring us to allocate further resource to
the schemes.
We could face capital allocation constraints and consequently have
reduced capital to invest in the business to meet all our obligations
or to pay a dividend.
In addition, if companies working in the defence or nuclear sectors
were deemed to be not suitable for investment by certain investment
funds (eg due to extremely strict ESG policies) the cost and/or
availability of capital to the Group could be adversely affected.
Mitigation
We have undertaken a rationalisation of the Group portfolio and
raised in excess of the £400 million proceeds target we set
ourselves last year from disposals. This has strengthened our
balance sheet during FY22.
Last year, we also secured an additional debt facility of
£300 million to provide additional liquidity, along with a
temporary relaxing of financial covenants.
We are proactive in our dealings with credit rating agencies and
lenders. The Board reviews the financial position of the Group on
a monthly basis against the Board-approved three-year plan.
The Group has a very proactive ESG agenda (see page 54) and
regularly communicates Group activities to assist in more
informed investment decisions by providers of capital.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
NEW MARKETS
CONTRACT AND PROJECT PERFORMANCE
We seek new markets and contracts for our services both with existing and new customers, whether in territories where we are
already established or in territories where we are not.
We operate large contracts, which often require us to price for the long term and for risk transfer. Our contracts can include
fixed prices.
Probability
Impact
Change from last year
1 Very unlikely
1 Insignificant
Up from last year
2 Unlikely
2 Minor
Same as last year
3 Possible
3 Moderate
Down from last year
4 Likely
4 Major
5 Very likely
5 Severe
Mitigation
We have formal reviews and gating processes at key stages of
each material bid to reduce the risk of underestimating risks and
costs and to ensure that we target limited bid resources at
opportunities where we consider that we have the best prospects
of winning or retaining business. Group policies and procedures
continue to set a commercial, financial and legal framework for
all bids.
Contractual performance is continuously under review (at a
business unit, sector and/or senior Group executive level as
appropriate) with a view to highlighting at an early stage risks to
delivery and profitability. Where we identify poor performance,
the business will implement a remediation plan.
These reviews also consider the performance of our supply chain.
In the current circumstances, the reviews consider the impact of
COVID-19. We also regularly review project costs to complete to
ensure accuracy of the financial profile of the contract.
Probability
3
Impact
5
Potential impact
Mitigation
We may fail to secure and/or deliver new opportunities for a
We aim to target our resources in those new markets where we
number of reasons. These reasons may include customer funding
believe our services are relevant and where we believe we have
constraints, our services not being relevant due to the non-
a good chance of success. As appropriate, we aim to invest in
acceptance of our business model by customers, our failure to
innovation and people to prepare for new ways of working or
anticipate future market requirements or future changes in
delivering our services. We maintain ongoing dialogue with
technology, our failure to find the appropriate quantity and
our customers in order to understand their requirements and
quality of resource, our failure to align our bid strategy to a
their budgets.
customer’s strategy, or increased competition in our markets.
In addition, COVID-19 or the UK’s departure from the EU or other
geopolitical developments may give rise to economic nationalism
and a reluctance from international customers to award contracts
to a non-domestic company. A lack of success in exporting the
Group’s business model outside the UK and our current core
markets could adversely affect the growth prospects and strategic
development of the Group. Failure to convert our bidding pipeline
into contracts may put pricing pressure on the remaining pipeline.
FINANCIAL RESILIENCE
The Group is exposed to a number of financial risks, some of which are of a macroeconomic nature (for example, foreign currency,
interest rates) and some of which are more specific to the Group (for example, liquidity and credit risks).
Probability
3
Impact
4
Potential impact
Mitigation
A lack of financial resilience may hinder us in raising debt funding to
We have undertaken a rationalisation of the Group portfolio and
invest in existing or future business. The weakness also may cause our
raised in excess of the £400 million proceeds target we set
existing banks to increase the cost of our funding. If our debt is
ourselves last year from disposals. This has strengthened our
denominated in a currency other than Sterling, movements in
balance sheet during FY22.
exchange rates may make that debt more costly when we repay it.
Last year, we also secured an additional debt facility of
Customers and/or suppliers may question our long-term sustainability
£300 million to provide additional liquidity, along with a
if we have a weak balance sheet. This may tighten the terms of
temporary relaxing of financial covenants.
business on which they are prepared to contract with us or, in the
extreme, cause them to not award work to Babcock due to their
perception of risk.
Credit rating agencies may downgrade our rating, which could
increase our cost of borrowing.
We are proactive in our dealings with credit rating agencies and
lenders. The Board reviews the financial position of the Group on
a monthly basis against the Board-approved three-year plan.
The Group has a very proactive ESG agenda (see page 54) and
regularly communicates Group activities to assist in more
The lack of financial resilience may trigger certain pension scheme
informed investment decisions by providers of capital.
financial thresholds, requiring us to allocate further resource to
the schemes.
We could face capital allocation constraints and consequently have
reduced capital to invest in the business to meet all our obligations
or to pay a dividend.
In addition, if companies working in the defence or nuclear sectors
were deemed to be not suitable for investment by certain investment
funds (eg due to extremely strict ESG policies) the cost and/or
availability of capital to the Group could be adversely affected.
Probability
4
Impact
4
Potential impact
We seek to win and operate long-term high-value contracts for
the provision of complex and integrated services to our
customers. This has a number of key risks.
There are usually only a relatively limited number of customers in
each of our market sectors. In addition, our market sectors can be
highly competitive. This means that our customers have
significant market power and can require bidders to accept a
substantial transfer of risk from the customer to the supplier. For
example, it is common in our markets that the contracts that we
tender for may impose strict conditions and clauses, including
unlimited liabilities, termination without cause and strict
performance conditions, which, if not complied with, may trigger
compensation for the customer.
If we (or our supply chain) underestimate or under-price actual
risk exposure or the cost of performance, or if, during the
contract, cost inflation diverges from revenue inflation, or if
unforeseen or additional costs are incurred, for example, due to
the UK’s exit from the EU or COVID-19 or rates of inflation, this
could increase our cost to deliver the contract. For example, we
operate fixed-price contracts. Actual costs may exceed projected
costs, including assumptions on future rates of inflation on which
the fixed prices are agreed. Since these contracts can extended
over many years, it can be difficult to predict the ultimate outturn
of costs.
Our contracts tend to involve significant supply chains. Failure by
our supply chain partners to deliver on their contractual
obligations may cause us increased costs or missed schedules, or
put us in breach of our contractual obligations.
Long-term contracts often have changes, or updates, to their
scope. If we do not properly manage contract changes, we may
incur additional costs or fail to deliver contractual requirements,
which may reduce overall profitability or lead to penalties or
contract termination.
If any of these key risks materialise, they may increase our costs to
deliver on our contractual obligations or may result in the
imposition of penalties or the early termination of the contract
with the imposition of damages, or reputational damage, which
may cause strain on our customer relationship. This may
undermine not only our current contract, but also our ability to
win future contracts.
COVID-19 may increase the likelihood of each of these key risks
arising as it makes our operations less efficient or effective. Any of
these outcomes may adversely affect our future profitability, cash
generation and growth.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
BUSINESS INTERRUPTION
Failure to withstand the impact of an event or a combination of events may significantly disrupt all or a substantial part of the
Group’s business.
Mitigation
Throughout the pandemic, we have looked to prioritise the key
programmes of our customers and to demonstrate the mission-
critical nature of our services.
For employees, our priority has been their wellbeing and safety.
We have adapted working practices and facilities, including
introducing social distancing, PPE requirements, improved
cleaning regimes and increased remote working, to seek to keep
our people safe and well throughout this crisis.
We continue to manage the situation closely and follow
government and health authority advice to help prevent the
spread of the virus. For general business continuity, we have in
place IT disaster recovery and business continuity processes. We
also maintain relevant and appropriate insurance.
Probability
3
Impact
4
Potential impact
A range of events – for example, extreme weather, natural
hazards (such as floods or earthquakes), political events, financial
insolvency of a critical supplier, scarcity of materials, loss of data
or corruption of our IT estate, fire or infectious disease – could
cause business interruption. The consequences of these events
could have an adverse impact on our people, our facilities, our
supply chains, or our ability to meet our contractual obligations.
The COVID-19 pandemic is an example of such an event. The
pandemic has had a significant impact on our business and the
markets that we served over the last two financial years. For our
customers, the pandemic may reduce their current or future
budgets or cause them to deploy their budgets in different ways,
changing our markets. For our employees, the pandemic has
changed the ways that we work. These measures may create
inefficiencies in some of our businesses, adding time and cost to
our programmes or even leading to loss of contracts due to KPI
default. The pandemic may also affect our suppliers and lead to
failures in the supply chain, which may adversely affect our ability
to deliver our programmes.
An outbreak of another contagious disease or a new variant of
COVID-19 may have an adverse effect on the Company’s
business, financial condition and prospects.
OPERATIONAL RESILIENCE
We are undertaking multiple change programmes with the introduction of a new strategy, a new operating model to restructure
the shape of the Group, and a new People strategy, as well as undertaking the alignment of both the business portfolio and our
property portfolio. Additionally there are several new material opportunities that the Group may pursue – some in new geographies
– that may further stretch management bandwidth.
Probability
3
Impact
4
Potential impact
All these programmes are underway concurrently, in addition to
the delivery of the Group’s services to its customers. This may put
pressure on management bandwidth to oversee all the change
programmes, as well as the regular running of the business. This
could lead to an elevated risk of mistakes or missed opportunities.
If we fail to deliver the change programmes, we will not be able
to achieve our strategic goals. Failure to deliver the change
programmes may also undermine the confidence of key
stakeholders in our future growth and plans.
Mitigation
Management is experienced in delivering programmes of this
nature. There is regular monitoring of progress across all the
programmes to ensure that they remain on track, along with
regular dialogue with customers at a senior level to ensure that
delivery of our contracts is in no way compromised. The Board
receives a monthly report with a status update on the key
change programmes and major new opportunities.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
Failure to withstand the impact of an event or a combination of events may significantly disrupt all or a substantial part of the
BUSINESS INTERRUPTION
Group’s business.
Probability
3
Impact
4
Potential impact
Mitigation
A range of events – for example, extreme weather, natural
Throughout the pandemic, we have looked to prioritise the key
hazards (such as floods or earthquakes), political events, financial
programmes of our customers and to demonstrate the mission-
insolvency of a critical supplier, scarcity of materials, loss of data
critical nature of our services.
or corruption of our IT estate, fire or infectious disease – could
cause business interruption. The consequences of these events
could have an adverse impact on our people, our facilities, our
supply chains, or our ability to meet our contractual obligations.
For employees, our priority has been their wellbeing and safety.
We have adapted working practices and facilities, including
introducing social distancing, PPE requirements, improved
cleaning regimes and increased remote working, to seek to keep
The COVID-19 pandemic is an example of such an event. The
our people safe and well throughout this crisis.
We continue to manage the situation closely and follow
government and health authority advice to help prevent the
spread of the virus. For general business continuity, we have in
place IT disaster recovery and business continuity processes. We
also maintain relevant and appropriate insurance.
pandemic has had a significant impact on our business and the
markets that we served over the last two financial years. For our
customers, the pandemic may reduce their current or future
budgets or cause them to deploy their budgets in different ways,
changing our markets. For our employees, the pandemic has
changed the ways that we work. These measures may create
inefficiencies in some of our businesses, adding time and cost to
our programmes or even leading to loss of contracts due to KPI
default. The pandemic may also affect our suppliers and lead to
failures in the supply chain, which may adversely affect our ability
to deliver our programmes.
An outbreak of another contagious disease or a new variant of
COVID-19 may have an adverse effect on the Company’s
business, financial condition and prospects.
OPERATIONAL RESILIENCE
We are undertaking multiple change programmes with the introduction of a new strategy, a new operating model to restructure
the shape of the Group, and a new People strategy, as well as undertaking the alignment of both the business portfolio and our
property portfolio. Additionally there are several new material opportunities that the Group may pursue – some in new geographies
– that may further stretch management bandwidth.
Probability
3
Impact
4
Potential impact
Mitigation
All these programmes are underway concurrently, in addition to
Management is experienced in delivering programmes of this
the delivery of the Group’s services to its customers. This may put
nature. There is regular monitoring of progress across all the
pressure on management bandwidth to oversee all the change
programmes to ensure that they remain on track, along with
programmes, as well as the regular running of the business. This
regular dialogue with customers at a senior level to ensure that
could lead to an elevated risk of mistakes or missed opportunities.
delivery of our contracts is in no way compromised. The Board
receives a monthly report with a status update on the key
change programmes and major new opportunities.
If we fail to deliver the change programmes, we will not be able
to achieve our strategic goals. Failure to deliver the change
programmes may also undermine the confidence of key
stakeholders in our future growth and plans.
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Probability
Impact
Change from last year
1 Very unlikely
1 Insignificant
Up from last year
2 Unlikely
2 Minor
Same as last year
3 Possible
3 Moderate
Down from last year
4 Likely
4 Major
5 Very likely
5 Severe
HEALTH, SAFETY AND ENVIRONMENT
Our operations entail the potential risk of significant harm to people, property or the environment, wherever we operate across
the world.
Probability
2
Impact
5
Potential impact
Parts of our business (for example, our nuclear operations) involve
working in potentially hazardous operations or environments,
which we must manage and control to minimise the risk of injury
or damage. Others, for example our aerial emergency services
operations, involve an inherent degree of risk that is compounded
by the nature of the services provided (firefighting, search and
rescue, air ambulance and emergency services) or the
environments in which they operate (low-altitude flying in
adverse weather, terrain or operational conditions).
Serious accidents have a major impact on the lives of those
directly involved and on their families, friends, colleagues and
community, as can serious environmental incidents. These
accidents may arise from: inadequate hazard control or training
or management supervision; the failure to implement changes or
learning from previous accidents; poor safety leadership and
culture; equipment failure; or human or organisational factors.
If we cause or contribute to an incident because of failings on our
part, or because as a matter of law we are strictly liable without
fault, we may have to pay substantial damages, not all of which
may be insured, as well as potentially being subject to criminal
proceedings, which could result in substantial penalties. We could
also suffer contract penalties due to an inability to deliver the
contract or a loss of productivity.
Such incidents (which may have a high public profile given the
nature of our operations) may also seriously damage our
reputation (whether justifiably or not), which could lead to a
significant loss of business or future business opportunities.
An incident may also disrupt our business if it prevents our
employees from working.
Mitigation
Our goal is for everyone to go ‘Home Safe Every Day’.
Accordingly, health, safety and environmental performance
receives close and continuous attention and oversight from the
senior management team.
We have specific health, safety and environmental governance
structures in place as well as education and training programmes
for staff. Safety leadership teams in each sector and the
Corporate Safety Leadership Team oversee the implementation of
policy, strategy and initiatives across all our businesses.
The Board receives reviews of health and safety performance.
Nuclear risks: We hold indemnities given to us by the UK Nuclear
Decommissioning Authority and the UK MOD, to protect against
risk of liability for injury or damage caused by nuclear
contamination or incidents, but a reputational risk because of any
serious incident would remain.
In respect of the current COVID-19 pandemic, we have taken a
number of measures across the Group. Our first priority is the
safety of our employees. Our employees deliver essential services
on which our customers and the wider community rely. The
continuation of these services is key. We have reviewed our
methods of working across the Group to institute the appropriate
protective measures, including issuing new work guidelines,
asking employees to work from home where they can, changing
shift schedules, instituting infection control at work sites and
ordering the wearing of protective equipment.
We believe we have appropriate insurance cover against civil
liability exposures.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
REGULATORY AND COMPLIANCE
Our businesses are subject to the laws, regulations and restrictions of the many jurisdictions in which they operate.
Probability
2
Impact
4
Potential impact
The laws and regulations that we are subject to include anti-
bribery laws, import and export controls, tax, procurement rules,
human rights laws and data protection regulations.
Failure to maintain compliance with applicable requirements
could result in: fines and criminal prosecution; the removal of a
licence to operate; reputational damage; cost of rectification;
debarment from bidding; loss of access to markets; and the loss
of substantial business streams (and possible damages claims) and
opportunities for future business.
If an applicable law or regulation changes, it may cause us
substantial expenditure in order to comply, which may not be
recoverable (either fully or at all) under customer contracts.
Compliance with some regulatory requirements is a precondition
for being able to carry on a business activity at all. For example,
our Aviation business is subject to a high degree of regulation
relating to aircraft airworthiness and certification, as well as
regulations relating to ownership and control. Regulation (EC)
No.1008/2008 (the Regulation) requires all air operators in the
EU to be majority-owned and controlled by European Economic
Area nationals.
Given the nature of our customers and the markets in which we
operate, as well as the services that we provide, we believe that
our reputation, not only in terms of delivery but also in terms of
behaviour, is a fundamental business asset. Failings or misconduct
(perceived or real) in dealing with a customer or in providing
services to them or on their behalf could substantially damage
our reputation with that customer or more generally.
Mitigation
We maintain internal policies and procedures in order to ensure
that the Group complies with all applicable laws and regulations.
We also have suitably qualified and experienced employees and
expert external advisors to advise and assist on regulatory
compliance. We have management systems involving
competent personnel with clear accountabilities for
operational regulatory compliance.
In order to address the requirements of the Regulation, we have
restructured the operations of the relevant operations so that a
new sub-group, which is majority-owned and -controlled by an
EU-based holding company, holds those parts of the business that
fall under the Regulation. The Board believes that this structure
satisfies the nationality requirements of the Regulation. However,
as the ultimate decision to grant or revoke a licence rests with
the EU aviation authorities, there can be no guarantee that this
continues to be the case.
Senior management at Group and sector level are keenly aware
of reputational risks, which can come from many sources. Our
Code of Conduct, together with our Ethics policy, sets out the
clear expectations that we have of our employees. We seek to
reinforce these values with all employees through a number of
different processes, for example our training. We encourage all
our employees to use our whistleblowing reporting lines if
they see evidence of behaviour which is not in keeping with
our values. The Board monitors and reviews all reports and
their investigations.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
Probability
Impact
Change from last year
1 Very unlikely
1 Insignificant
Up from last year
2 Unlikely
2 Minor
Same as last year
3 Possible
3 Moderate
Down from last year
4 Likely
4 Major
5 Very likely
5 Severe
REGULATORY AND COMPLIANCE
PEOPLE
Our businesses are subject to the laws, regulations and restrictions of the many jurisdictions in which they operate.
We operate in many specialised engineering and technical domains, which require appropriate skills and experience.
Probability
2
Impact
4
Probability
2
Impact
4
Potential impact
Mitigation
The laws and regulations that we are subject to include anti-
We maintain internal policies and procedures in order to ensure
bribery laws, import and export controls, tax, procurement rules,
that the Group complies with all applicable laws and regulations.
human rights laws and data protection regulations.
We also have suitably qualified and experienced employees and
Failure to maintain compliance with applicable requirements
could result in: fines and criminal prosecution; the removal of a
licence to operate; reputational damage; cost of rectification;
debarment from bidding; loss of access to markets; and the loss
expert external advisors to advise and assist on regulatory
compliance. We have management systems involving
competent personnel with clear accountabilities for
operational regulatory compliance.
of substantial business streams (and possible damages claims) and
In order to address the requirements of the Regulation, we have
opportunities for future business.
If an applicable law or regulation changes, it may cause us
substantial expenditure in order to comply, which may not be
recoverable (either fully or at all) under customer contracts.
restructured the operations of the relevant operations so that a
new sub-group, which is majority-owned and -controlled by an
EU-based holding company, holds those parts of the business that
fall under the Regulation. The Board believes that this structure
satisfies the nationality requirements of the Regulation. However,
Compliance with some regulatory requirements is a precondition
as the ultimate decision to grant or revoke a licence rests with
for being able to carry on a business activity at all. For example,
the EU aviation authorities, there can be no guarantee that this
our Aviation business is subject to a high degree of regulation
continues to be the case.
relating to aircraft airworthiness and certification, as well as
regulations relating to ownership and control. Regulation (EC)
No.1008/2008 (the Regulation) requires all air operators in the
EU to be majority-owned and controlled by European Economic
Area nationals.
Senior management at Group and sector level are keenly aware
of reputational risks, which can come from many sources. Our
Code of Conduct, together with our Ethics policy, sets out the
clear expectations that we have of our employees. We seek to
reinforce these values with all employees through a number of
Given the nature of our customers and the markets in which we
different processes, for example our training. We encourage all
operate, as well as the services that we provide, we believe that
our employees to use our whistleblowing reporting lines if
our reputation, not only in terms of delivery but also in terms of
they see evidence of behaviour which is not in keeping with
behaviour, is a fundamental business asset. Failings or misconduct
our values. The Board monitors and reviews all reports and
(perceived or real) in dealing with a customer or in providing
their investigations.
services to them or on their behalf could substantially damage
our reputation with that customer or more generally.
Potential impact
Our business delivery and future growth depend on our ability to
recruit, develop and retain experienced, highly skilled employees
(including suitably qualified and experienced engineers,
technicians, pilots and staff from other specialist skill groups).
Mitigation
We undertake workforce and succession planning to identify skill
gaps and to form plans to address them. We have programmes
to develop our employees so that they have the right skills
and experience.
Competition for the personnel we need is intense and is likely to
remain so for the future. This may be exacerbated by nationality
restrictions, which may prevent us from accessing talent from the
EU or worldwide. This poses risks in both recruiting and retaining
such staff.
We have developed a new People strategy, led by the Group’s
Chief Human Resources Officer. This strategy will establish a
common approach across the Group. The new approach includes
a new ‘agile’ way of working, a review of the rewards and
remuneration structure and improved people management.
If we have insufficient qualified and experienced employees,
this could impair our service delivery to customers or our
ability to pursue new business, with consequent risks to our
financial results, growth, strategy and reputation and the risk
of contract claims.
The cost of recruiting or retaining the suitably qualified and
experienced employees we need might increase significantly
depending on market conditions including inflation. This could
affect our contract profitability.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
PENSIONS
The Group has significant defined benefit pension schemes in the UK, which provide for a specified level of pension benefits
to scheme members.
Mitigation
Group senior management undertakes continuous strategic
monitoring and evaluation of the assets and liabilities of
the pension scheme. Management aims to increase its
engagement with the scheme trustee chairs and with the
UK Pensions Regulator.
The pension scheme mitigates the risk of liability increases by
having investment strategies that hedge against interest rate and
inflation risk and using longevity swaps to limit exposure to
increasing life expectancy. Trustees use professional advisors to
assist in the hedging of risks.
Probability
4
Impact
4
Potential impact
Member and employer contributions paid into pension scheme
funds and the investment returns made in those funds over time
have to meet the cost of the defined benefit obligations.
Various assumptions underpin the level of our contributions.
These assumptions are subject to change, such as life expectancy
of members, gilt yields, investment returns, inflation and
regulatory changes. Based on the assumptions used at any time,
there is always a risk of a significant shortfall in the schemes’
assets below the calculated cost of the pension obligations. For
example, pension liabilities can increase due to rising life
expectancy, higher-than-expected inflation rates in the future and
lower interest rates.
If the pension trustees believe that the assets in the pension
schemes are insufficient to meet pension liabilities or if our
balance sheet strength does not meet the pension trustees’
expectations, they may require us to make increased
contributions and/or lump sum cash payments into the schemes
or provide additional security from the Group. The toughening
stance of the UK Pensions Regulator may influence our pension
trustees’ perspectives. Increased contributions or lump sum cash
payments may reduce the cash available to meet our other
obligations or business needs and may restrict our future growth.
Accounting standard rules governing the measurement of
pension liabilities can lead to significant accounting volatility
from year to year due to the need to take account of
macroeconomic circumstances beyond the control of the
Company. Companies, including Babcock, do not calculate
actuarial valuations used for funding on the same basis as IFRS
accounting standards. This means the future cash contributions
are difficult to derive from the Group’s IFRS balance sheet.
When accounting for our defined benefit schemes, we have to
use corporate bond-related discount rates to value the pension
liabilities. Variations in bond yields and inflationary expectations
can materially affect the pensions charge in our income
statement from year to year as well as the value of the net
difference between the pension assets and liabilities shown on
our balance sheet.
There is a risk that future accounting, regulatory and legislative
changes may also adversely impact pension valuations, both
accounting and funding, and, hence, costs and cash for
the Group.
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PRINCIPAL RISKS AND MANAGEMENT CONTROLS continued
The Group has significant defined benefit pension schemes in the UK, which provide for a specified level of pension benefits
PENSIONS
to scheme members.
Probability
4
Impact
4
Potential impact
Mitigation
Member and employer contributions paid into pension scheme
Group senior management undertakes continuous strategic
funds and the investment returns made in those funds over time
monitoring and evaluation of the assets and liabilities of
have to meet the cost of the defined benefit obligations.
the pension scheme. Management aims to increase its
Various assumptions underpin the level of our contributions.
These assumptions are subject to change, such as life expectancy
UK Pensions Regulator.
engagement with the scheme trustee chairs and with the
of members, gilt yields, investment returns, inflation and
The pension scheme mitigates the risk of liability increases by
regulatory changes. Based on the assumptions used at any time,
having investment strategies that hedge against interest rate and
there is always a risk of a significant shortfall in the schemes’
inflation risk and using longevity swaps to limit exposure to
assets below the calculated cost of the pension obligations. For
increasing life expectancy. Trustees use professional advisors to
example, pension liabilities can increase due to rising life
assist in the hedging of risks.
expectancy, higher-than-expected inflation rates in the future and
lower interest rates.
If the pension trustees believe that the assets in the pension
schemes are insufficient to meet pension liabilities or if our
balance sheet strength does not meet the pension trustees’
expectations, they may require us to make increased
contributions and/or lump sum cash payments into the schemes
or provide additional security from the Group. The toughening
stance of the UK Pensions Regulator may influence our pension
trustees’ perspectives. Increased contributions or lump sum cash
payments may reduce the cash available to meet our other
obligations or business needs and may restrict our future growth.
Accounting standard rules governing the measurement of
pension liabilities can lead to significant accounting volatility
from year to year due to the need to take account of
macroeconomic circumstances beyond the control of the
Company. Companies, including Babcock, do not calculate
actuarial valuations used for funding on the same basis as IFRS
accounting standards. This means the future cash contributions
are difficult to derive from the Group’s IFRS balance sheet.
When accounting for our defined benefit schemes, we have to
use corporate bond-related discount rates to value the pension
liabilities. Variations in bond yields and inflationary expectations
can materially affect the pensions charge in our income
statement from year to year as well as the value of the net
difference between the pension assets and liabilities shown on
our balance sheet.
There is a risk that future accounting, regulatory and legislative
changes may also adversely impact pension valuations, both
accounting and funding, and, hence, costs and cash for
the Group.
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Impact
Change from last year
1 Very unlikely
1 Insignificant
Up from last year
2 Unlikely
2 Minor
Same as last year
3 Possible
3 Moderate
Down from last year
4 Likely
4 Major
5 Very likely
5 Severe
IT AND SECURITY
A key factor for our customers is our ability to deliver secure IT and other information assurance systems to maintain the
confidentiality of sensitive information.
Mitigation
We have made and will continue to make significant investment
in enhancing IT security and security awareness generally.
We seek to assure our data security through a multi-layered
approach that provides a hardened environment, including robust
physical security arrangements and data resilience strategies. We
have formal security and information-assurance governance
structures in place to oversee and manage cyber security and
similar risks. We conduct comprehensive internal and external
testing of potential vulnerabilities.
The Group maintains business continuity plans that cover a range
of scenarios (including loss of access to IT). We regularly test the
plans that relate to IT.
Probability
4
Impact
4
Potential impact
We hold data that is confidential and needs protection, in an
environment of increasing cyber threat. Despite controls
designed to protect such information, there can be no guarantee
that security measures will be sufficient to prevent security
breaches or cyber attacks being successful in their attempts to
penetrate our network security and misappropriate confidential
information or otherwise cause harm to the Group, for example
through denial of service. The Group may be seen as a target for
attack by ’state actors’ from overseas countries because of the
nature of the Group’s activities for its government customers.
In addition, failure to invest in our IT infrastructure, for example
in legacy systems, may create a weakness that may lead to
a breach. The risk of loss of information or data by other
means (such as physical loss) is also a risk that we cannot
entirely eliminate.
A breach or compromise of IT system security or physical security
at a physical site could lead to loss of reputation, loss of business
advantage, disruptions in business operations and inability to
meet contractual obligations. Significant data breaches or losses
could lead to litigation and fines for breach of applicable
regulations such as data protection laws. This could have an
adverse effect on the Group’s operations and its ability to win
future contracts, which may affect our overall financial condition.
ACQUISITIONS AND DISPOSALS
We have built our core strengths organically and through acquisition. Decisions to acquire companies, as well as the process of their
acquisition and integration, are complex, time-consuming and expensive. If we believe that a business is not ‘core’, we may decide to
sell that business.
Probability
1
Impact
4
Potential impact
If we acquire companies, we may not realise the financial benefits
of the acquisition as expected, due to poor integration or
to acquisition business cases relying on market conditions or
other business assumptions that subsequently do not materialise,
challenging the logic of the acquisition decision.
Those companies that we consider to be non-core, and therefore
disposal candidates, may become distracted or demotivated
or lose key employees, which may lead to poor performance
whilst also undermining their value to their customers and
a potential buyer.
Mitigation
Our focus is currently on operational execution,
rather than acquisitions, with the possible exception
of ‘bolt-on’ acquisitions.
We will work to enhance our acquisition and integration
capability so that we are ready at the appropriate time in
the future.
We will clearly communicate our disposal strategy and put
in place the appropriate transaction resource to prioritise
the disposals.
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Babcock International Group PLC Annual Report and Financial Statements 2022
87
GOING CONCERN AND VIABILITY STATEMENT
Going concern
and viability statement
Overview
The Directors have undertaken
reviews of the business financial
forecasts, in order to assess whether
the Group has adequate resources
to continue in operational existence
for the foreseeable future and as
such can continue to adopt the
going concern basis of accounting.
The Directors have also looked further out
to consider the viability of the business to
test whether they have a reasonable
expectation that the Group will continue
in operation and meet its liabilities as they
fall due.
For assessing going concern, the Board
considered the 12 month period from the
date of signing the Group’s financial
statements for the year ended 31 March
2022. For viability, the Board looked at a
five-year view as this is the period over
which the Group prepares its strategic
plan forecasts.
That five-year view is an update from the
previous three-year plan, now that we
have completed the first year of
turnaround and made initial steps to
reshape our portfolio of businesses.
The use of a five-year period provides a
planning tool against which long-term
decisions can be made concerning
strategic priorities, addressing the Group’s
stated net zero target and climate-related
risks and opportunities, funding
requirements (including commitments to
Group pension schemes), returns made to
shareholders, capital expenditure and
resource planning.
The annually prepared budgets and
forecasts are compiled using a bottom-up
process, aggregating those from the
individual business units into sector level
budgets and forecasts. Those sector
submissions and the consolidated Group
budget and forecasts are then reviewed
by the Board and used to monitor
business performance.
The Board considered the budgets
alongside the Group’s available finances,
strategy, business model, market outlook
and principal risks. The process for
identifying and managing the principal
risks of the Group is set out in our Annual
Report. The Board also considered the
mitigation measures being put in place
and potential for further mitigation.
The Board considers the long-term
prospects of the Group underpin its
conclusions on viability. As outlined in our
strategy, business model and markets
summaries on pages 6 to 11 of this
report, our prospects are supported by:
• a diverse portfolio of businesses based
on well-established market positions,
focussed on naval engineering, support
and systems, and on critical services in
our core defence and civil markets. In
FY22 55% of Group sales were defence
related and 45% civil;
• a geographically diverse business with a
high proportion of sales to governments
and other major prime defence
contractors. In FY22, 63% of sales were
to defence and civil customers in the
UK, and 37% were international;
• long-term visibility of sales and future
sale prospects through an order
backlog of £9.9 billion as at 31 March
2022, including incumbent positions
on major defence programmes; and
• market positions underpinned by a
highly skilled workforce, intellectual
property assets and proprietary
know-how, which are safeguarded and
developed for the future by customer-
and Group-funded investment.
Available financing
As at 31 March 2022, net debt excluding
operating leases was £556.7 million and
the Group therefore had liquidity
headroom of £1.7 billion, including net
cash and cash equivalents of £0.8 billion
and undrawn facilities of £1.0 billion.
These facilities are considered more than
adequate to meet current and other
liabilities as they fall due, and supports the
Group’s negative working capital position
largely arising from securing customer
advances ahead of contract work starting.
As of June 2022, the Group’s committed
facilities and bonds totalling £2.4 billion
were as follows:
• €550 million bond, hedged at
£482 million, maturing
6 October 2022
• £300 million three-year RCF maturing
20 May 2024
• Existing £775 million revolving credit
facility (RCF) maturing 28 August 2025;
of which £730 million now matures
28 August 2026.
• £300 million bond maturing
5 October 2026
• €550 million bond, hedged at
£493 million, maturing
13 September 2027
• A committed overdraft facility of
£50 million
The RCFs are the only facilities with
covenants attached. The key covenant
ratios are (i) net debt to EBITDA (gearing
ratio) (ii) and EBITDA to net interest
(interest cover).
These are measured twice per year – on
30 September and 31 March. In May
2021 our lending banks agreed to raise
the covenant limit for the gearing ratio
from 3.5x to 4.5x for the measurement
periods ending 30 September 2021 and
31 March 2022 in order to provide
sufficient downside protection for the
Group as the turnaround in performance
took place.
As we have now successfully delivered
over £400 million from the divestment
programme, amongst other turnaround
dependencies in the prior 12 months, we
have not considered it necessary to seek
any extension to the period of time
covered by those raised covenant limits.
Hence for all periods in this going concern
review, the gearing ratio covenant returns
to 3.5x at September 2022 and remains
so thereafter.
The RCF lenders are fully committed to
advance funds under the RCF to the
Group, provided that the Group has
satisfied the usual ongoing undertakings,
and the creditworthiness of the Group’s
relationship banks is closely monitored.
Based on their credit ratings we have no
credit concerns with our relationship
banks. Given the importance of the RCFs
to the Group’s liquidity position, our
assessments of going concern and viability
have tested the Group’s gearing ratio,
interest cover and liquidity headroom
throughout the period under review up to
their current maturity dates.
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GOING CONCERN AND VIABILITY STATEMENT
Going concern
and viability statement
in operation and meet its liabilities as they
• a geographically diverse business with a
Overview
The Directors have undertaken
reviews of the business financial
forecasts, in order to assess whether
the Group has adequate resources
to continue in operational existence
for the foreseeable future and as
such can continue to adopt the
going concern basis of accounting.
The Directors have also looked further out
to consider the viability of the business to
test whether they have a reasonable
expectation that the Group will continue
fall due.
For assessing going concern, the Board
considered the 12 month period from the
date of signing the Group’s financial
statements for the year ended 31 March
2022. For viability, the Board looked at a
five-year view as this is the period over
which the Group prepares its strategic
plan forecasts.
That five-year view is an update from the
previous three-year plan, now that we
have completed the first year of
turnaround and made initial steps to
reshape our portfolio of businesses.
The use of a five-year period provides a
planning tool against which long-term
decisions can be made concerning
strategic priorities, addressing the Group’s
stated net zero target and climate-related
risks and opportunities, funding
requirements (including commitments to
Group pension schemes), returns made to
shareholders, capital expenditure and
resource planning.
The annually prepared budgets and
forecasts are compiled using a bottom-up
process, aggregating those from the
individual business units into sector level
budgets and forecasts. Those sector
submissions and the consolidated Group
budget and forecasts are then reviewed
by the Board and used to monitor
business performance.
The Board considered the budgets
alongside the Group’s available finances,
strategy, business model, market outlook
and principal risks. The process for
identifying and managing the principal
risks of the Group is set out in our Annual
Report. The Board also considered the
mitigation measures being put in place
• €550 million bond, hedged at
and potential for further mitigation.
£482 million, maturing
The Board considers the long-term
prospects of the Group underpin its
conclusions on viability. As outlined in our
strategy, business model and markets
summaries on pages 6 to 11 of this
report, our prospects are supported by:
• a diverse portfolio of businesses based
on well-established market positions,
focussed on naval engineering, support
and systems, and on critical services in
our core defence and civil markets. In
FY22 55% of Group sales were defence
related and 45% civil;
• £300 million three-year RCF maturing
6 October 2022
20 May 2024
• Existing £775 million revolving credit
facility (RCF) maturing 28 August 2025;
of which £730 million now matures
28 August 2026.
• £300 million bond maturing
5 October 2026
• €550 million bond, hedged at
£493 million, maturing
13 September 2027
• A committed overdraft facility of
£50 million
high proportion of sales to governments
The RCFs are the only facilities with
and other major prime defence
covenants attached. The key covenant
contractors. In FY22, 63% of sales were
ratios are (i) net debt to EBITDA (gearing
to defence and civil customers in the
ratio) (ii) and EBITDA to net interest
UK, and 37% were international;
(interest cover).
• long-term visibility of sales and future
sale prospects through an order
backlog of £9.9 billion as at 31 March
2022, including incumbent positions
on major defence programmes; and
• market positions underpinned by a
highly skilled workforce, intellectual
property assets and proprietary
know-how, which are safeguarded and
developed for the future by customer-
and Group-funded investment.
Available financing
As at 31 March 2022, net debt excluding
operating leases was £556.7 million and
the Group therefore had liquidity
headroom of £1.7 billion, including net
cash and cash equivalents of £0.8 billion
and undrawn facilities of £1.0 billion.
These facilities are considered more than
adequate to meet current and other
liabilities as they fall due, and supports the
Group’s negative working capital position
largely arising from securing customer
advances ahead of contract work starting.
As of June 2022, the Group’s committed
facilities and bonds totalling £2.4 billion
were as follows:
These are measured twice per year – on
30 September and 31 March. In May
2021 our lending banks agreed to raise
the covenant limit for the gearing ratio
from 3.5x to 4.5x for the measurement
periods ending 30 September 2021 and
31 March 2022 in order to provide
sufficient downside protection for the
Group as the turnaround in performance
took place.
As we have now successfully delivered
over £400 million from the divestment
programme, amongst other turnaround
dependencies in the prior 12 months, we
have not considered it necessary to seek
any extension to the period of time
covered by those raised covenant limits.
Hence for all periods in this going concern
review, the gearing ratio covenant returns
to 3.5x at September 2022 and remains
so thereafter.
The RCF lenders are fully committed to
advance funds under the RCF to the
Group, provided that the Group has
satisfied the usual ongoing undertakings,
and the creditworthiness of the Group’s
relationship banks is closely monitored.
Based on their credit ratings we have no
credit concerns with our relationship
banks. Given the importance of the RCFs
to the Group’s liquidity position, our
assessments of going concern and viability
have tested the Group’s gearing ratio,
interest cover and liquidity headroom
throughout the period under review up to
their current maturity dates.
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Base case scenario
The base case budget shows significant
levels of headroom against both financial
covenants and liquidity headroom based
on the current committed facilities
outlined above (without assuming any
refinancing of the €550 million bond in
October 2022). That base case largely
assumes we maintain our incumbent
programme positions if re-let during the
five year period, with margin recovery if
they are currently below the Group
average. Many opportunities available to
the Group, where we do not yet have
high conviction of securing the work,
have been excluded from the Base Case
to seek to maintain a degree of caution.
That base case assumes no further
recurrence of business disruption from the
COVID-19 pandemic, which is consistent
to our trading in FY22.
It also assumes that the impact of current
inflationary pressures can be managed
within contract estimates assumed in our
planning. The base case assumes no
further reshaping of the business portfolio,
so it is not dependent upon any future
cash proceeds from divestments. It also
maintains pension deficit contributions in
excess of income statement charges of
around £130 million relating to FY23 and
around £75 million relating to FY24.
Reverse stress testing of the
base case
To assess the level of headroom within the
available facilities, a reverse stress test
was performed to see what level of
performance deterioration against the
base case budgets and forecasts (in both
EBITDA and net debt) was required to
challenge covenant levels.
Of the remaining measurement points
within the available facility period, the
lowest required reduction in forecast
EBITDA to hit the covenant level was 46%
and the lowest net debt increase was
50%. Given the mitigating actions that are
available and within management’s
control, such movements are not
considered plausible.
Severe but plausible
downside scenarios
The Directors also considered a series of
severe but plausible downside scenarios
which are sensitivities run against the base
case budget and forecasts for the duration
of the assessment period. These sensitivities
include – separately – a reduction in bid
pipeline closure (business winning), an
erosion of operating model savings, a
deterioration in large programme
performance across the Group (including
further inflation cost increases, or related
failures in supplier resilience, as per our
principal risks), a deterioration in the Group’s
working capital position and a regulator-
imposed cessation in flying two of the
largest aircraft fleets in the Group.
As stated above, a key contributor to the
strengthening of the balance sheet in
FY22 was the divestment programme
which generated in excess of the original
target of £400 million of proceeds. No
sensitivities were therefore considered
necessary to be tested in relation to further
potential divestments.
All of these separate scenarios showed
compliance with the financial covenants
throughout the period, and with sufficient
headroom given the strengthened balance
sheet, no extensions have been sought to
the temporary increase in the covenant level
gearing ratio previously granted by our
lending; it has therefore now reverted to the
usual 3.5x at September 2022 and for all
future measurement periods.
As with any company or group, it would
be possible, however unlikely, to model
individual risks or combinations of risks
that would threaten the financial viability
of the Group. The Board has not sought to
model events where it considers the
likelihood of such events not to be
plausible. In preparing a combined severe
but plausible (SBP) downside case, the
Board considered the feed of individual
risks from the sectors covering the above
sensitivities. Overall there were c.80 profit
and cash flow risks identified.
A simple aggregation of all of these risks is
not considered plausible as the Group
operates businesses and contracts which
run largely independently of each other,
albeit with a relatively small number of
customers within each geography.
The majority of these identified risks were
seen as ‘sector independent’ (ie there is
no direct read across from one sector to
another). A small number are deemed
‘non independent’ eg inflation, FX etc.
The Board decided to include in its
combined SBP downside all the ‘non
independent’ risks without reduction, but
reduced the aggregation of the ‘sector
independent’ risks by 25% to reflect the
implausibility of all such risks fully
crystallising within the same period.
If such a severe downturn were to occur
in the Group’s performance, the Board
would take mitigation measures to
protect the Group in the short term.
Such profit and cash mitigation measures
that are deemed entirely within the
control of the Group and identified as part
of the sector budgeting exercise have
been included in the SBP scenario (eg
cancelling pay rises and bonus awards,
curtailing uncommitted capital
expenditure and operational spend
including R&D and other investment).
Despite the severity of the above
combined SBP scenario, the Group
maintained a sufficient amount of
headroom against the financial covenants
within its borrowing facilities, and
sufficient liquidity when compared against
existing facilities.
Going concern assessment
and viability conclusion
Based on our review, the Directors have
a reasonable expectation that the
Group has adequate resources to
continue as a going concern for at
least 12 months from the date of these
financial statements.
As such, these financial statements have
been prepared on the going concern
basis. The Directors do not believe there
are any material uncertainties to disclose
in relation to the Group’s ability to
continue as a going concern.
In concluding on the financial viability
of the Group, having considered the
scenarios outlined above, the Directors
have a reasonable expectation that
the Company and the Group will be
able to continue in operation and meet
all its liabilities as they fall due up to
March 2027.
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89
OUR PRINCIPLES IN ACTION
be kind
We believe in being kind to ourselves,
kind to each other and kind to the planet.
In South Africa, our people have come
together to make sure that everyone
is part of the team and included, no
matter what.
After learning that a colleague had
hearing difficulty, and with COVID safety
measures and masks making lip reading
more difficult for them, a colleague
decided to learn sign language. It was
such a good idea that now the team has
started lessons too.
Activities like this make our Babcock
people and culture what they are.
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OUR PRINCIPLES IN ACTION
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be kind
collaborate
We believe in being kind to ourselves,
After learning that a colleague had
Activities like this make our Babcock
kind to each other and kind to the planet.
hearing difficulty, and with COVID safety
people and culture what they are.
In South Africa, our people have come
together to make sure that everyone
is part of the team and included, no
matter what.
measures and masks making lip reading
more difficult for them, a colleague
decided to learn sign language. It was
such a good idea that now the team has
started lessons too.
We believe that Babcock is greater than
the sum of its parts. And that is why
collaboration is at the centre of our
strategic growth, global integration and
overall culture.
Our team in Australia has worked closely
with colleagues around the world to
deliver critical high frequency contracts
for more than a decade.
Working together, but apart, we have
collaborated to win bids and create a
strategic pathway to growth, recently
highlighted by our success with the
Australian Defence High Frequency
Communications contract.
We put our customer first and deliver for
them wherever and whenever their
programmes operate.
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GOVERNANCE STATEMENT
Chair’s introduction
RUTH CAIRNIE
Chair
Dear fellow Shareholder
Last year I spoke in detail about the
changes made to address issues identified
by the contract profitability and balance
sheet review. Those changes were
wide-ranging, including aspects of our
Board governance, financial controls
and operating model. This year we
have worked to assure ourselves that
the changes are indeed addressing
the issues identified, and that they are
being embedded in the way the
Company works.
Assurance on the implementation
of the reforms
Our process of assurance started with the
Board reviewing the full suite of new
operating model controls to satisfy
ourselves that they constituted a
framework that would protect against the
weaknesses that had been identified. We
have subsequently reviewed management
reports on the implementation of the new
structures and controls on a regular basis,
over the course of the year. Alongside the
work of the Board, the Audit Committee
has monitored in more detail the
implementation of the programme of
internal and financial controls in Group
Head Office, Aviation and Land and we
are satisfied that the improvement plans
which we implemented last year have
been successfully delivered while we
recognise the scope for ongoing
improvement. Please see pages 108 and
109 for the Audit Committee report. As
well as improving the Company’s control
environment, we have continued to
develop our Board governance, for
example our new approach to strategy,
which I describe below.
Although we had undertaken an
independent Board review last year, I
recognised there would be value in
repeating the process this year given the
amount of change undertaken, and asked
Belinda Hudson to come back and report
on our progress. I am pleased that her
report confirms that the Board is
operating effectively and has embedded
the improvements it made last year. For
more information, please see page 105.
Support for the delivery
of our strategy
The Board has also worked to support
Babcock’s turnaround. A focus last year
was the refresh of the Group’s strategy.
This year, as a Board we have adopted a
dynamic approach to strategy, with
regular dedicated sessions to review
progress, go deeper into individual
elements as they develop, and provide
input and appropriate challenge on the
direction of travel.
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The Board has also monitored closely
progress on the strategic actions set
out last year to underpin the strategy,
for example:
• Over the year, we have overseen and
approved steps to align Babcock’s
portfolio with our strategy. These
actions have generated disposal
proceeds in excess of £400 million,
which has strengthened the Group’s
balance sheet. In addition to the
portfolio rationalisation the Board
reviewed and supported strategic
strengthening of our position in
Australia, one of our focus countries,
through the acquisition to gain full
control of the Australian Naval Ship
Management joint venture. This will
enhance the breadth of our support to
the Australian Defence Force’s maritime
capability. In our strategy reviews, we
have also reviewed a range of growth
opportunities and were pleased with
the progress made with export
agreements being signed with
Indonesia and Poland. For more
information, please see page 43.
• We have overseen the implementation
of Babcock’s new operating model and
the roll-out of the new Purpose and
Principles alongside the development of
the new People strategy. The Board has
had regular updates from the Executive
Directors and also in-depth sessions
with the senior managers with direct
responsibility for delivery, enabling us
to develop a good level of
understanding and to provide insights
and challenge as appropriate. For more
information, please see pages 18
and 20.
• More long term is the development of
Babcock’s ESG strategy. Last year we
approved a new target for the Group to
achieve net zero carbon emissions for
its estate, assets and operations by
2040. Having set the target, we have
had regular briefings from management
to assure ourselves on progress,
including the development of the
necessary plans. For more information,
please see pages 54 to 75.
GOVERNANCE STATEMENT
Chair’s introduction
RUTH CAIRNIE
Chair
Dear fellow Shareholder
Last year I spoke in detail about the
changes made to address issues identified
by the contract profitability and balance
sheet review. Those changes were
wide-ranging, including aspects of our
Board governance, financial controls
and operating model. This year we
have worked to assure ourselves that
the changes are indeed addressing
the issues identified, and that they are
being embedded in the way the
Company works.
Assurance on the implementation
of the reforms
Our process of assurance started with the
Board reviewing the full suite of new
operating model controls to satisfy
ourselves that they constituted a
framework that would protect against the
weaknesses that had been identified. We
have subsequently reviewed management
reports on the implementation of the new
structures and controls on a regular basis,
over the course of the year. Alongside the
work of the Board, the Audit Committee
has monitored in more detail the
implementation of the programme of
internal and financial controls in Group
Head Office, Aviation and Land and we
are satisfied that the improvement plans
which we implemented last year have
been successfully delivered while we
recognise the scope for ongoing
improvement. Please see pages 108 and
109 for the Audit Committee report. As
well as improving the Company’s control
environment, we have continued to
develop our Board governance, for
example our new approach to strategy,
which I describe below.
Although we had undertaken an
independent Board review last year, I
recognised there would be value in
repeating the process this year given the
amount of change undertaken, and asked
Belinda Hudson to come back and report
on our progress. I am pleased that her
report confirms that the Board is
operating effectively and has embedded
the improvements it made last year. For
more information, please see page 105.
Support for the delivery
of our strategy
The Board has also worked to support
Babcock’s turnaround. A focus last year
was the refresh of the Group’s strategy.
This year, as a Board we have adopted a
dynamic approach to strategy, with
regular dedicated sessions to review
progress, go deeper into individual
elements as they develop, and provide
input and appropriate challenge on the
direction of travel.
The Board has also monitored closely
progress on the strategic actions set
out last year to underpin the strategy,
for example:
• Over the year, we have overseen and
approved steps to align Babcock’s
portfolio with our strategy. These
actions have generated disposal
proceeds in excess of £400 million,
which has strengthened the Group’s
balance sheet. In addition to the
portfolio rationalisation the Board
reviewed and supported strategic
strengthening of our position in
Australia, one of our focus countries,
through the acquisition to gain full
control of the Australian Naval Ship
Management joint venture. This will
enhance the breadth of our support to
the Australian Defence Force’s maritime
capability. In our strategy reviews, we
have also reviewed a range of growth
opportunities and were pleased with
the progress made with export
agreements being signed with
Indonesia and Poland. For more
information, please see page 43.
• We have overseen the implementation
of Babcock’s new operating model and
the roll-out of the new Purpose and
Principles alongside the development of
the new People strategy. The Board has
had regular updates from the Executive
Directors and also in-depth sessions
with the senior managers with direct
responsibility for delivery, enabling us
to develop a good level of
understanding and to provide insights
and challenge as appropriate. For more
information, please see pages 18
and 20.
• More long term is the development of
Babcock’s ESG strategy. Last year we
approved a new target for the Group to
achieve net zero carbon emissions for
its estate, assets and operations by
2040. Having set the target, we have
had regular briefings from management
to assure ourselves on progress,
including the development of the
necessary plans. For more information,
please see pages 54 to 75.
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Taking our stakeholders
into account
As we provide oversight and make
decisions, we endeavour to balance the
interests of all Babcock’s stakeholders. In
practice, this means we consider the
interests of affected stakeholder groups.
As an example, prior to giving our
approval for divesting parts of our
portfolio, we considered the interests of
employees and customers, as well as
shareholders. In respect of shareholders
and customers, we believed the
strengthening of the Group’s balance
sheet would be seen as a positive. For
employees, those remaining with the
Group would also benefit from actions to
strengthen the Group’s future prospects.
For those employees leaving the Group,
we considered each individual case
carefully to assure ourselves regarding the
implications for staff; we believe that the
buyers of the divested businesses will be
more appropriate owners of those
businesses going into the future. For more
information on how the Board takes into
account the interests of its stakeholders,
please see pages 99 to 101.
In order for the Board to make these
judgements, we need a good
understanding of the priorities of our
stakeholders. We describe on page 99
how we engage with stakeholders. This
year we have looked to improve our
engagement in a number of ways; for
example, this is the first full year of the
appointment of Lord Parker as our
Director designated for employee
engagement. Lord Parker visited a number
of the Group’s sites over the year to speak
directly to employees and build
understanding of their views. His findings
were then shared with the Board and
discussed in depth at a dedicated briefing.
Leadership
This year has seen a number of further
changes in the Board. We are saying
farewell to Russ Houlden and Kjersti
Wiklund and have welcomed the
appointment of John Ramsay. John joined
the Board in January 2022 and brings a
wealth of financial, international and
operational experience. Following Russ’
retirement, the Board asked John to take
over the chair of the Audit Committee.
With Kjersti’s retirement, the Board has
asked Carl-Peter Forster to take over the
chair of the Remuneration Committee.
For more information, please see pages
106 and 107.
FY23
Last year was a busy year for the Board,
being the first year of Babcock’s
turnaround. I hope that I have given
you a sense of the work that we have
done to support that turnaround.
In FY23, we will continue to provide that
support. In particular, we will continue
to develop the Company’s strategy and
to monitor the implementation of our
new operating model, along with its new
control environment.
RUTH CAIRNIE
Chair
For shareholders we note the increasing
emphasis on stewardship by asset owners
and managers, for example as embodied
in the Stewardship Code. This is leading to
more and more of our shareholders (via
their asset managers) sharing with us their
principles, priorities and in some cases,
voting guidelines. These communications
are valuable in helping us to understand
the views of our shareholders, and can
form the basis of follow-on conversations;
we always welcome opportunities to
engage with shareholders on any matters
of interest to them. One consequence of
the many incidences of shareholders
independently setting specific
expectations of investee companies is that
in practice, it is not possible to meet every
expectation. Where this occurs we seek to
understand the principles underlying the
expectations that have been set and
consider the extent to which our
approaches align to those principles;
and we will always seek engagement in
such cases.
Last year I indicated my hope to engage
with our larger shareholders at a
governance event, following the
significant developments we had made.
However, due to the further changes in
Board composition that I describe below,
we have not yet had an appropriate time
to hold such an event. I am however
looking forward to engaging with
shareholders at other opportunities,
including our 2022 AGM.
Statement of compliance
The Board confirms that for the year ended 31 March 2022, the principles of
good corporate governance contained in the 2018 UK Corporate Governance
Code (the Code) have been consistently applied and all provisions complied
with. Further information on the Code can be found on the Financial Reporting
Council’s website at: www.frc.org.uk.
We have structured this Governance report to describe how the Company has
applied the Code principles in line with its five categories:
Board leadership and Company Purpose
97-101
102-103 Division of responsibilities
104-107
108-112
113-133
Composition, succession and evaluation
Audit, risk and internal control
Remuneration
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93
GOVERNANCE STATEMENT continued
Board of Directors
1
4
2
5
3
6
1. RUTH CAIRNIE
Chair
Appointed: April 2019
N
D
3. DAVID MELLORS
Chief Financial Officer
E
D
5. JOHN RAMSAY
Independent Non-Executive Director
Appointed: November 2020
Appointed: January 2022
A
N
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Skills and experience: Ruth brings extensive
experience of the engineering sector gained from
a 37-year international career spanning senior
functional and line roles at Royal Dutch Shell plc.
She has experience advising government
departments on strategic development and
capability building. She has been a Non-Executive
Director of Rolls-Royce Holdings plc, ContourGlobal
plc and Keller Group PLC, and a member of the
finance committee of the University of Cambridge.
She is a fellow of the Energy Institute and
previously Chair of POWERful Women. Ruth is a
Master of Advanced Studies in Mathematics from
the University of Cambridge and holds a BSc Joint
Honours in Mathematics and Physics from the
University of Bristol.
Current external appointments: Ruth is currently
the Senior Independent Director of Associated
British Foods plc. She is Patron of the Women in
Defence Charter, a trustee of Windsor Leadership
and a trustee of the White Ensign Association.
2. DAVID LOCKWOOD OBE
Chief Executive Officer
Appointed: September 2020
E
D
Skills and experience: David brings wide-ranging
knowledge of the defence and aviation markets, as
well as a wealth of experience in both technology
and innovation. David was CEO of Cobham plc
(from 2016 to March 2020) and prior to that he
was CEO of Laird PLC (from 2012 to September
2016). His career includes senior management
roles at BT Global Services, BAE Systems and Thales
Corporation. He received an OBE for services to
industry in Scotland in 2011. David has a degree in
Mathematics from the University of York and is a
Chartered Accountant. He is a Fellow of the Royal
Aeronautical Society and the Royal Society of Arts
and Commerce.
Current external appointments: None
Skills and experience: David brings extensive CFO
experience in defence, aerospace and commercial
markets. David was previously CFO of Cobham plc
and prior to that he was CFO of QinetiQ Group plc
from 2008 to 2016 and also served as interim
Chief Executive for a period. His career includes
several roles at Logica PLC, CMG plc and Rio Tinto
PLC. David has a degree in Physics from Oxford
University and is a member of the Institute of
Chartered Accountants in England and Wales.
Current external appointments: None
4. CARL-PETER FORSTER
Senior Independent Director
Appointed: June 2020
N
R
Skills and experience: Carl-Peter, a German
national, brings extensive manufacturing and
international experience. Carl-Peter has held senior
leadership positions in some of the world’s largest
automotive manufacturers, including BMW,
General Motors and Tata Motors (including Jaguar
Land Rover). He was also previously a Non-
Executive Director of Rexam PLC and Rolls-Royce
plc. Carl-Peter holds a diploma in Economics
from Bonn University and a diploma in
Aeronautical Engineering from the Technical
University in Munich.
Current external appointments: Carl-Peter is
currently the Chair of Chemring Group PLC and
Senior Independent Director of IMI plc. He will be
Chair of Vesuvius plc from December 2022.
D
Skills and experience: John, a Chartered
Accountant, brings with him over 30 years of
international business and finance experience.
He served as Chief Financial Officer of Syngenta AG
from 2007 to 2016, and interim Chief Executive
Officer of Syngenta from October 2015 to June
2016. Prior to joining Syngenta, he held senior
international finance roles with Zeneca
Agrochemicals and ICI.
Current external appointments: John is a
member of the Supervisory Board at Koninklijke
DSM N.V. and is a Non-Executive Director of Croda
International PLC and RHI Magnesita N.V. He is
Audit Committee Chair at each of these
companies.
6. LUCY DIMES
Independent Non-Executive Director
A
N
Appointed: April 2018
Skills and experience: Lucy brings experience in
industries at the forefront of growth and
technology-based innovation and an understanding
of complex outsourcing and global strategic
partnerships, having been the Chief Strategy and
Transformation Officer of Virgin Money UK Plc, the
CEO of UBM EMEA and Chief Executive Officer, UK
& Ireland, of Fujitsu. She has also held senior roles
at Equiniti Group, Alcatel Lucent (now Nokia) and
BT. Lucy was a Non-Executive Director of Berendsen
PLC and a member of its Audit, Remuneration and
Nominations Committees. Lucy holds an MBA from
London Business School and a degree in Business
Studies from Manchester Metropolitan University.
Current external appointments: Lucy is a
Strategic Advisor to Intelygenz and Transformation
Strategy Consultant to Fidelity International.
94
Babcock International Group PLC Annual Report and Financial Statements 2022
GOVERNANCE STATEMENT continued
Board of Directors
1
4
2
5
3
6
1. RUTH CAIRNIE
Chair
Appointed: April 2019
N
D
3. DAVID MELLORS
Chief Financial Officer
5. JOHN RAMSAY
Independent Non-Executive Director
Appointed: November 2020
Appointed: January 2022
Skills and experience: Ruth brings extensive
Skills and experience: David brings extensive CFO
Skills and experience: John, a Chartered
experience of the engineering sector gained from
experience in defence, aerospace and commercial
Accountant, brings with him over 30 years of
a 37-year international career spanning senior
functional and line roles at Royal Dutch Shell plc.
She has experience advising government
departments on strategic development and
markets. David was previously CFO of Cobham plc
international business and finance experience.
and prior to that he was CFO of QinetiQ Group plc
He served as Chief Financial Officer of Syngenta AG
from 2008 to 2016 and also served as interim
from 2007 to 2016, and interim Chief Executive
Chief Executive for a period. His career includes
Officer of Syngenta from October 2015 to June
capability building. She has been a Non-Executive
several roles at Logica PLC, CMG plc and Rio Tinto
2016. Prior to joining Syngenta, he held senior
Director of Rolls-Royce Holdings plc, ContourGlobal
PLC. David has a degree in Physics from Oxford
international finance roles with Zeneca
plc and Keller Group PLC, and a member of the
University and is a member of the Institute of
Agrochemicals and ICI.
finance committee of the University of Cambridge.
Chartered Accountants in England and Wales.
She is a fellow of the Energy Institute and
previously Chair of POWERful Women. Ruth is a
Master of Advanced Studies in Mathematics from
the University of Cambridge and holds a BSc Joint
Honours in Mathematics and Physics from the
University of Bristol.
Current external appointments: Ruth is currently
Current external appointments: None
4. CARL-PETER FORSTER
Senior Independent Director
Appointed: June 2020
the Senior Independent Director of Associated
Skills and experience: Carl-Peter, a German
British Foods plc. She is Patron of the Women in
national, brings extensive manufacturing and
Defence Charter, a trustee of Windsor Leadership
international experience. Carl-Peter has held senior
and a trustee of the White Ensign Association.
leadership positions in some of the world’s largest
Current external appointments: John is a
member of the Supervisory Board at Koninklijke
DSM N.V. and is a Non-Executive Director of Croda
International PLC and RHI Magnesita N.V. He is
Audit Committee Chair at each of these
companies.
6. LUCY DIMES
Independent Non-Executive Director
Appointed: April 2018
A
N
R
D
A
N
E
D
N
R
2. DAVID LOCKWOOD OBE
Chief Executive Officer
Appointed: September 2020
automotive manufacturers, including BMW,
Skills and experience: Lucy brings experience in
General Motors and Tata Motors (including Jaguar
industries at the forefront of growth and
Land Rover). He was also previously a Non-
technology-based innovation and an understanding
Executive Director of Rexam PLC and Rolls-Royce
of complex outsourcing and global strategic
plc. Carl-Peter holds a diploma in Economics
partnerships, having been the Chief Strategy and
E
D
Skills and experience: David brings wide-ranging
Aeronautical Engineering from the Technical
knowledge of the defence and aviation markets, as
University in Munich.
from Bonn University and a diploma in
Current external appointments: Carl-Peter is
currently the Chair of Chemring Group PLC and
Senior Independent Director of IMI plc. He will be
Chair of Vesuvius plc from December 2022.
Transformation Officer of Virgin Money UK Plc, the
CEO of UBM EMEA and Chief Executive Officer, UK
& Ireland, of Fujitsu. She has also held senior roles
at Equiniti Group, Alcatel Lucent (now Nokia) and
BT. Lucy was a Non-Executive Director of Berendsen
PLC and a member of its Audit, Remuneration and
Nominations Committees. Lucy holds an MBA from
London Business School and a degree in Business
Studies from Manchester Metropolitan University.
Current external appointments: Lucy is a
Strategic Advisor to Intelygenz and Transformation
Strategy Consultant to Fidelity International.
well as a wealth of experience in both technology
and innovation. David was CEO of Cobham plc
(from 2016 to March 2020) and prior to that he
was CEO of Laird PLC (from 2012 to September
2016). His career includes senior management
roles at BT Global Services, BAE Systems and Thales
Corporation. He received an OBE for services to
industry in Scotland in 2011. David has a degree in
Mathematics from the University of York and is a
Chartered Accountant. He is a Fellow of the Royal
Aeronautical Society and the Royal Society of Arts
and Commerce.
Current external appointments: None
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Appointment key
E
A
R
Executive Committee
Audit Committee
Remuneration Committee
N Nominations Committee
D Disclosure Committee
Board Committee Chair
Membership of the UK Security Committee is
variable depending on the security level required
for the business under discussion.
N
9. RUSS HOULDEN
Independent Non-Executive Director
Appointed: April 2020. Russ will retire from
the Board in July 2022.
A
N
R
D
Skills and experience: Russ brings
accounting and treasury management
experience along with his extensive knowledge
of driving performance improvement. He was
Chairman of the Financial Reporting Committee of
the 100 Group (from 2013 to 2020), Chief
Financial Officer of United Utilities Group PLC (from
2010 to July 2020), Chief Financial Officer of
Telecom New Zealand (from 2008 to 2010) and
Finance Director of Lovells (from 2002 to 2008).
Until 2002 he held a variety of divisional Finance
Director positions in ICI and BT. Russ holds a degree
in Management Sciences from Warwick Business
School and is a Fellow of the Chartered Institute of
Management Accountants, a Chartered Global
Management Accountant and a Fellow of the
Association of Corporate Treasurers.
Current external appointments: Russ is currently
the Audit Committee Chairman of Orange Polska
SA, which is listed on the Warsaw Stock Exchange,
an Operating Partner of Corsair Infrastructure and
Non-Executive Director of Kelda Holdings and
Yorkshire Water.
7
8
7. THE RIGHT HONOURABLE
THE LORD PARKER OF MINSMERE,
GCVO, KCB
Independent Non-Executive Director
Appointed: November 2020
Skills and experience: Lord Parker brings
extensive experience of working at the highest
level of public service including a focus on new
technology-centred change and championing
inclusion. Lord Parker has had a long career in a
wide range of national security and intelligence
roles in the UK, which culminated in him becoming
the Director General of MI5, the UK Government’s
national security agency, in 2013. He retired from
this role in 2020. Lord Parker is a graduate of
Natural Sciences from Cambridge University.
Current external appointments: Lord
Chamberlain (head of the Royal Household),
member of the House of Lords, Board Advisor to
Telicent Ltd, Distinguished Fellow at the Royal
United Services Institute and Visiting Professor at
Northumbria University.
8. KJERSTI WIKLUND
Independent Non-Executive Director
Appointed: April 2018. Kjersti will retire from
the Board at the 2022 AGM.
A
N
R
Skills and experience: Kjersti, a Norwegian
national, brings broad technology and business
experience gained across Europe, Eastern Europe
and Asia. She has held senior roles at Vodafone,
VimpelCom in Russia, Kyivstar in Ukraine, Digi
Telecommunications in Malaysia, and Telenor in
Norway. Kjersti was also a Non-Executive Director of
Cxense ASA and Fast Search & Transfer ASA in
Norway, Telescience Inc in the US and Laird PLC in
the UK. Kjersti holds a Master of Business
Management from BI Norwegian Business School
and an MSc in Electronical Engineering from
Chalmers University of Technology, Sweden.
Current external appointments: Kjersti is a
Non-Executive Director of Trainline plc, Spectris
PLC, Zegona Communications PLC and, since
March 2022, Nordea.
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95
GOVERNANCE STATEMENT continued
Executive Committee
Biographies for CEO David Lockwood and CFO David Mellors are on page 94.
WILL ERITH
Chief Executive, Marine
DOMINIC KIERAN
Chief Executive, Nuclear
TOM NEWMAN
Chief Executive, Land
Appointed: December 2020
Appointed: September 2021
Appointed: December 2020
Skills and experience: Will joined Babcock in 2017
and in 2018 became MD Surface Ships, responsible
for the entirety of our Warship support business
(including the successful Type 23 LIFEX programme).
In addition he was responsible for the critical phases
of our overall bid activity for FMSP (Future Maritime
Support Programme), representing the next five
years of our Surface Ship and Submarine support
for the Royal Navy. Prior to this he had a successful
20-year career with Rolls-Royce, where he held
senior leadership positions in engineering,
programme management, business development
and general management. This included three years
based in Tokyo, significantly growing the Asia Pacific
Naval business. Will has a first-class honours degree
in Mechanical Engineering from the University of
London. He is a Chartered Engineer and a Fellow
of the Institute of Mechanical Engineers.
Skills and experience: Dominic is responsible for
our nuclear capability in Defence, including
Babcock’s submarine operations, and Civil. He
joined Babcock as Managing Director of Cavendish
Nuclear, and has led the business through a series
of key milestones and changes as we exited key
programmes, and has developed a new operating
model to ensure it is ready for the future as we
focus on new market opportunities. Prior to joining
Babcock, he was Chief Commercial Officer at
Urenco and before that held various roles including
working extensively overseas, on the delivery of
complex technical solutions to customers. Dominic
has a Chemical Engineering degree from Imperial
College London, an MBA, and is a Fellow of the
Institute of Chemical Engineers.
Skills and experience: Tom joined Babcock
through the VT acquisition in 2010 and brings a
broad range of experience from senior
management positions held in industrial sectors
including shipbuilding, broadcast and
communications, aviation, defence and emergency
services. Most recently Tom has been responsible
for our relationship with the UK Cabinet Office
through the Strategic Partnering Programme and
as Chief of Staff for the design and implementation
of our new operating model. Prior to that he was
Managing Director of the Emergency Services and
Training business unit in the Land sector. Tom has a
degree in Naval Architecture from UCL and an MBA
from Warwick Business School.
NEAL MISELL
Chief Executive, Aviation
NIKKI FOX
Chief Human Resources Officer
JOHN HOWIE MBE
Chief Corporate Affairs Officer
Appointed: April 2020
Appointed: January 2021
Appointed: April 2016
Skills and experience: Neal joined Babcock
following the acquisition of VT Group in 2010.
Neal worked initially as Integration Director
bringing together the Babcock and VT Group
non-defence businesses. In 2011, he was
appointed Managing Director of the Critical
Services business, which covered Babcock’s vehicle
and asset management contracts in Emergency
Services and Airports. In February 2016, Neal was
appointed Managing Director of the Military
Aviation business focused on the RAF, French Air
Force and Royal Navy. Neal is also a board director
of the Ascent and AirTanker joint ventures.
Skills and experience: Nikki was previously
Organisation & Development Director, Nuclear,
responsible for delivery of HR across the sector and
a member of the Group’s Organisation &
Development Leadership team. Nikki led the
development of the Cavendish Nuclear people
strategy and the subsequent review of the
Cavendish Nuclear operating model. She joined
Babcock in 2017 following a successful 20-year
career within the oil and gas industry, which
included BG Group/Shell where she held various
senior leadership positions in HR and general
management, based in the UK and overseas
including Houston and Moscow.
Skills and experience: John was appointed as
Chief Corporate Affairs Officer in October 2020
with a remit to further develop Babcock’s
relationships with its key governmental customers
in the UK and internationally, as well as leading
Group strategy, corporate communications,
sustainability and international development. Prior
to that, John was CEO Marine with responsibility for
Babcock’s warship operations as well as the
commercial and international marine operations.
John is a Visiting Professor at Strathclyde University,
a Director of the Society of Maritime Industries, a
member of the Glasgow Economic Leadership
Board and Acting Chair of Maritime Research &
Innovation UK. John joined Babcock in April 2001.
DR RICHARD DRAKE
Chief Technology Officer
Appointed: July 2022
Skills and experience: Richard joined Babcock in
2007 as a Chief Engineer, and subsequently
became Engineering Director of Mission Systems.
He was appointed Managing Director of the
Mission Systems business unit in 2018, leading the
business through a significant growth period. He
brings with him extensive industrial experience
across defence, aerospace and nuclear alongside
transformation, cultural change and business
growth. Prior to joining Babcock, Richard has
worked at Airbus and Weir Strachan & Henshaw.
JACK BORRETT
Group Company Secretary
and General Counsel
Appointed: July 2016
Skills and experience: Jack joined Babcock in
2004 and from 2010 was Deputy Group General
Counsel, until his appointment as Group General
Counsel and Company Secretary in April 2016. He
is Secretary to the Board and to the Remuneration,
Audit, Nominations and Disclosure Committees.
Prior to joining Babcock, Jack was a solicitor at law
firm Clifford Chance.
COLLETTE MCMULLEN
Chief of Staff
Appointed: June 2021
Skills and experience: Collette was appointed as
Chief of Staff in June 2021 to support the CEO on a
day-to-day basis. Collette has a broad
understanding of the business and deep experience
of the Chief of Staff role, having previously held this
position for a number of years in the Nuclear and
Aviation sectors. She joined Babcock in 2009
following a commercial career in the nuclear
industry with the UKAEA.
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GOVERNANCE STATEMENT continued
Executive Committee
Biographies for CEO David Lockwood and CFO David Mellors are on page 94.
WILL ERITH
Chief Executive, Marine
DOMINIC KIERAN
Chief Executive, Nuclear
TOM NEWMAN
Chief Executive, Land
Appointed: December 2020
Appointed: September 2021
Appointed: December 2020
Skills and experience: Will joined Babcock in 2017
Skills and experience: Dominic is responsible for
Skills and experience: Tom joined Babcock
and in 2018 became MD Surface Ships, responsible
our nuclear capability in Defence, including
through the VT acquisition in 2010 and brings a
for the entirety of our Warship support business
Babcock’s submarine operations, and Civil. He
broad range of experience from senior
(including the successful Type 23 LIFEX programme).
joined Babcock as Managing Director of Cavendish
management positions held in industrial sectors
In addition he was responsible for the critical phases
Nuclear, and has led the business through a series
including shipbuilding, broadcast and
of our overall bid activity for FMSP (Future Maritime
of key milestones and changes as we exited key
communications, aviation, defence and emergency
Support Programme), representing the next five
programmes, and has developed a new operating
services. Most recently Tom has been responsible
years of our Surface Ship and Submarine support
model to ensure it is ready for the future as we
for our relationship with the UK Cabinet Office
for the Royal Navy. Prior to this he had a successful
focus on new market opportunities. Prior to joining
through the Strategic Partnering Programme and
20-year career with Rolls-Royce, where he held
Babcock, he was Chief Commercial Officer at
as Chief of Staff for the design and implementation
senior leadership positions in engineering,
Urenco and before that held various roles including
of our new operating model. Prior to that he was
programme management, business development
working extensively overseas, on the delivery of
Managing Director of the Emergency Services and
and general management. This included three years
complex technical solutions to customers. Dominic
Training business unit in the Land sector. Tom has a
based in Tokyo, significantly growing the Asia Pacific
has a Chemical Engineering degree from Imperial
degree in Naval Architecture from UCL and an MBA
Naval business. Will has a first-class honours degree
College London, an MBA, and is a Fellow of the
from Warwick Business School.
in Mechanical Engineering from the University of
Institute of Chemical Engineers.
London. He is a Chartered Engineer and a Fellow
of the Institute of Mechanical Engineers.
NEAL MISELL
Chief Executive, Aviation
NIKKI FOX
JOHN HOWIE MBE
Chief Human Resources Officer
Chief Corporate Affairs Officer
Appointed: April 2020
Appointed: January 2021
Appointed: April 2016
Skills and experience: Neal joined Babcock
Skills and experience: Nikki was previously
Skills and experience: John was appointed as
following the acquisition of VT Group in 2010.
Organisation & Development Director, Nuclear,
Chief Corporate Affairs Officer in October 2020
Neal worked initially as Integration Director
responsible for delivery of HR across the sector and
with a remit to further develop Babcock’s
bringing together the Babcock and VT Group
a member of the Group’s Organisation &
relationships with its key governmental customers
non-defence businesses. In 2011, he was
Development Leadership team. Nikki led the
in the UK and internationally, as well as leading
appointed Managing Director of the Critical
development of the Cavendish Nuclear people
Group strategy, corporate communications,
Services business, which covered Babcock’s vehicle
strategy and the subsequent review of the
sustainability and international development. Prior
and asset management contracts in Emergency
Cavendish Nuclear operating model. She joined
to that, John was CEO Marine with responsibility for
Services and Airports. In February 2016, Neal was
Babcock in 2017 following a successful 20-year
Babcock’s warship operations as well as the
appointed Managing Director of the Military
career within the oil and gas industry, which
commercial and international marine operations.
Aviation business focused on the RAF, French Air
included BG Group/Shell where she held various
John is a Visiting Professor at Strathclyde University,
Force and Royal Navy. Neal is also a board director
senior leadership positions in HR and general
a Director of the Society of Maritime Industries, a
of the Ascent and AirTanker joint ventures.
management, based in the UK and overseas
including Houston and Moscow.
member of the Glasgow Economic Leadership
Board and Acting Chair of Maritime Research &
Innovation UK. John joined Babcock in April 2001.
DR RICHARD DRAKE
Chief Technology Officer
Appointed: July 2022
Skills and experience: Richard joined Babcock in
2007 as a Chief Engineer, and subsequently
became Engineering Director of Mission Systems.
He was appointed Managing Director of the
Mission Systems business unit in 2018, leading the
business through a significant growth period. He
brings with him extensive industrial experience
across defence, aerospace and nuclear alongside
transformation, cultural change and business
growth. Prior to joining Babcock, Richard has
worked at Airbus and Weir Strachan & Henshaw.
JACK BORRETT
Group Company Secretary
and General Counsel
Appointed: July 2016
COLLETTE MCMULLEN
Chief of Staff
Appointed: June 2021
Skills and experience: Jack joined Babcock in
2004 and from 2010 was Deputy Group General
Counsel, until his appointment as Group General
Counsel and Company Secretary in April 2016. He
is Secretary to the Board and to the Remuneration,
Audit, Nominations and Disclosure Committees.
Prior to joining Babcock, Jack was a solicitor at law
firm Clifford Chance.
Skills and experience: Collette was appointed as
Chief of Staff in June 2021 to support the CEO on a
day-to-day basis. Collette has a broad
understanding of the business and deep experience
of the Chief of Staff role, having previously held this
position for a number of years in the Nuclear and
Aviation sectors. She joined Babcock in 2009
following a commercial career in the nuclear
industry with the UKAEA.
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Board leadership
and Company Purpose
Board leadership
Maintaining the highest standards of governance is integral to the successful delivery of our strategy. Our
governance framework ensures that the Board provides effective leadership in both making decisions and
maintaining oversight, mapping where accountability resides and playing a key role in our internal controls.
The Board
The Board’s role is to lead the Group for the long-term sustainable success of Babcock by setting our strategy and
supervising the conduct of the Group’s activities within a framework of prudent and effective internal controls.
The Board has adopted a schedule of matters reserved for its, or its Committees’, specific approval (see page 103).
For other matters, authority is delegated to management according to a delegation matrix.
Audit
Committee
Responsible for
overseeing the
Company’s systems
for internal financial
control, risk
management and
financial reporting.
See pages 108 to 112.
Principal Board Committees
Remuneration
Committee
Determines the
Remuneration policy
for the Executive
Directors and is
responsible for
oversight of the
remuneration policies
and practices relating
to the wider
workforce.
See pages 113 to 115.
Nominations
Committee
Reviews the
composition of the
Board, considers
succession planning at
both Board and senior
management level
and leads the process
of appointments to
the Board.
See pages 106 and 107.
Disclosure
Committee
Ensures that policies,
systems and controls
exist so that potential
price-sensitive
information is
escalated,
considered, verified
and promptly
released to the
market, where
required.
UK Security
Committee
Receives reports on
those UK programmes
the Group is engaged
on and has access to
which require either a
certain security
clearance or UK
nationality.
Group Executive Committee
Reviews and discusses all matters of material significance to the Group’s management, operational and
financial performance, as well as strategic development. For its membership, please see page 96.
Principal Management Committees
Corporate Safety
Leadership Team
Leads the development and
implementation of policies, standards
and expectations for health, safety and
environmental issues with a mission that
everyone goes ‘Home Safe Every Day’.
See page 63.
Disclosure Panel
Oversees potential price-sensitive
information and its evaluation to ensure
prompt disclosure, reporting up to the
Disclosure Committee as appropriate.
Corporate ESG Committee
Responsible for Group-wide ESG
initiatives, the management of climate-
related issues and driving the wider
sustainability agenda. The Committee is
chaired by the Chief Corporate Affairs
Officer and members include the Chief
Human Resources Officer and Group
Company Secretary and General Counsel.
Reporting to the Committee are the
Inclusion and Diversity Steering Group
and the Carbon, TCFD and Communities
and Sponsorship working groups.
See page 60.
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GOVERNANCE STATEMENT continued
Board leadership and Company Purpose continued
Company Purpose
The Board sets the Company’s Purpose
and strategy, assessing the long-term
sustainable future of the Group and its
impact on key stakeholders while keeping
a watchful eye on the culture of the
Group to ensure that everybody
understands their role in promoting the
success of the Company as they deliver
against the business model.
Effective decision-making
and oversight
The Board has an annual plan of business
around which the Chair, CEO and
Company Secretary structure agendas
taking into account the current status of
projects, strategic work streams and the
overarching operating context. Standing
agenda items and papers are presented at
each Board meeting; other matters are
considered on a less frequent but regular
basis. Appropriate amounts of time are
allocated to items of business to allow for
open and frank debate and encourage
informed decision-making.
All scheduled meetings consider
• Health and safety reports
• Operational update
• Financial update
• Investor relations update
• Legal/governance reports
• Conflicts of interest review
Regularly the Board considers
• Strategy update
• Review of major risks and
emerging risks
• Review of financial and non-financial
controls
• Delegated authorities
• Reports from Chairs of Remuneration,
Audit and Nominations Committees
• Committee terms of reference
• Whistleblowing reports (quarterly and
annual review)
• Annual ethics review
• Modern Slavery Transparency Statement
• Deep-dive presentations from sectors
and Group functions, for example IT
and security, procurement and pensions
• Results announcements and
Annual Report
Setting and overseeing strategy
During FY22 the Board held its dedicated
strategy review meeting in June 2021,
agreeing the strategic plan announced in
July 2021 and formulating a new
approach to the governance of strategy.
Strategic review is a dynamic process
which benefits from regular Board
engagement supported by dedicated
deep-dive review sessions.
More information on the implementation
of the strategy overseen by the Board
can be seen on page 6 and throughout
the Strategic report.
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Babcock International Group PLC Annual Report and Financial Statements 2022
How the Board
monitors culture
The Board believes that the right
culture is essential to support the
delivery of strategy, and seeks to
monitor the culture throughout
the Group.
Leading by example
Our Directors and senior managers
act with integrity and lead by
example, promoting our culture to
our employees through living our
Principles which are: Be curious; Be
kind; Be courageous; Think
outcomes; Collaborate and Own &
deliver. The Principles were
introduced by David Lockwood,
week by week, in six of his
employee vlogs.
Listening to our people
Our designated Non-Executive
Director for employee engagement
visits sites, talks to employees and
reports back to the Board.
Questions and feedback are
received from employees to the
CEO’s dedicated email ’Ask David’
as well as from employee forums
and surveys. This year, FY23, should
see our first Group-wide employee
engagement survey.
Ethics and whistleblowing
Whistleblowing lines are available
throughout our business for
reporting any departure from our
values. The Board reviews all
whistleblowing reports, together
with their outcomes, on a quarterly
basis as well as via an annual
review.
Other cultural indicators
The Board regularly receives health
and safety metrics and thematic
reviews such as, in FY22, on the
cultural reset and the embedding of
our Purpose and Principles.
Further information on the Purpose and
Principles and cultural change overseen
by the Board during the year can be
found on pages 18 to 20.
GOVERNANCE STATEMENT continued
Board leadership and Company Purpose continued
impact on key stakeholders while keeping
controls
Company Purpose
The Board sets the Company’s Purpose
and strategy, assessing the long-term
sustainable future of the Group and its
a watchful eye on the culture of the
Group to ensure that everybody
understands their role in promoting the
success of the Company as they deliver
against the business model.
Effective decision-making
and oversight
The Board has an annual plan of business
around which the Chair, CEO and
Company Secretary structure agendas
taking into account the current status of
projects, strategic work streams and the
overarching operating context. Standing
agenda items and papers are presented at
Regularly the Board considers
• Strategy update
• Review of major risks and
emerging risks
• Review of financial and non-financial
• Delegated authorities
• Reports from Chairs of Remuneration,
Audit and Nominations Committees
• Committee terms of reference
• Whistleblowing reports (quarterly and
annual review)
• Annual ethics review
• Modern Slavery Transparency Statement
• Deep-dive presentations from sectors
and Group functions, for example IT
and security, procurement and pensions
• Results announcements and
Annual Report
each Board meeting; other matters are
Setting and overseeing strategy
considered on a less frequent but regular
During FY22 the Board held its dedicated
basis. Appropriate amounts of time are
strategy review meeting in June 2021,
allocated to items of business to allow for
agreeing the strategic plan announced in
open and frank debate and encourage
July 2021 and formulating a new
informed decision-making.
approach to the governance of strategy.
All scheduled meetings consider
• Health and safety reports
• Operational update
• Financial update
• Investor relations update
• Legal/governance reports
• Conflicts of interest review
Strategic review is a dynamic process
which benefits from regular Board
engagement supported by dedicated
deep-dive review sessions.
More information on the implementation
of the strategy overseen by the Board
can be seen on page 6 and throughout
the Strategic report.
How the Board
monitors culture
The Board believes that the right
culture is essential to support the
delivery of strategy, and seeks to
monitor the culture throughout
the Group.
Leading by example
Our Directors and senior managers
act with integrity and lead by
example, promoting our culture to
our employees through living our
Principles which are: Be curious; Be
kind; Be courageous; Think
outcomes; Collaborate and Own &
deliver. The Principles were
introduced by David Lockwood,
week by week, in six of his
employee vlogs.
Listening to our people
Our designated Non-Executive
Director for employee engagement
visits sites, talks to employees and
reports back to the Board.
Questions and feedback are
received from employees to the
CEO’s dedicated email ’Ask David’
as well as from employee forums
and surveys. This year, FY23, should
see our first Group-wide employee
engagement survey.
Ethics and whistleblowing
Whistleblowing lines are available
throughout our business for
reporting any departure from our
values. The Board reviews all
whistleblowing reports, together
with their outcomes, on a quarterly
basis as well as via an annual
review.
Other cultural indicators
The Board regularly receives health
and safety metrics and thematic
reviews such as, in FY22, on the
cultural reset and the embedding of
our Purpose and Principles.
Further information on the Purpose and
Principles and cultural change overseen
by the Board during the year can be
found on pages 18 to 20.
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Factoring our stakeholders into our decision-making
In order to deliver the best outcome for the Company we have to understand our stakeholders’ priorities and then factor these into our
decision-making. Accordingly, the Board works to establish and maintain strong stakeholder relationships. An understanding of
stakeholder views at Board level is gathered via a combination of direct and indirect engagement.
Details of how the Directors receive information on our key stakeholders and how they engage with them directly to support effective
decision-making and oversight are set out below.
This section, through to page 101, forms part of the s172(1) statement which can be found in the Strategic report on page 53.
Further information on how the Company engages with its stakeholders can be found on pages 52 and 53.
How the Board engages
Information flow to the Board
Direct Board engagement
Customers
Investors
• Monthly written reports from Executive
Directors include material customer
matters
• Sector CEOs and the Executive Directors
give briefings at Board meetings
• Reports from Investor Relations
• Treasury reports
• Investor meetings/roadshow
• AGM
Employees
• Bottom-up reports from Lord Parker, the
Director designated for workforce
engagement
• Top-down reports from the Chief Human
Resources Officer
• European Employee Forum which is
attended by the CEO and the CHRO
• Whistleblowing reports
Regulators
• Information on the relationships with
regulators is included in reports to the
Board where appropriate
Suppliers
• Briefings from Group Head of Procurement
on an annual basis
• Audit Committee supplier risk review
• Supply chain risk considered in reports on
major tenders
• Approval of the Modern Slavery
Transparency Statement
During the year the Executive Directors had regular meetings with
the Group’s key customers.
The Board engaged directly with its investors, principally through the
Executive Directors, David Lockwood and David Mellors. The
Committee Chairs are available to meet shareholders when required.
During FY23, the Chair of the Remuneration Committee will consult
shareholders regarding the refreshing of our Remuneration policy. The
relaxing of COVID-19 restrictions allowed us to return to a physical
AGM in 2021 which gave an opportunity for private investors to ask
questions direct to the Board.
Lord Parker, the Director responsible for workforce engagement,
visited eight Babcock sites during the year, with over 200 employees
attending 14 engagement sessions. Additionally, the CEO engages
with employees Group-wide via vlogs and employees can contact
him directly via a dedicated email address. Carl-Peter Forster, the
Senior Independent Director, introduced himself to employees via a
vlog in May 2021 and members of the Board have met employees
during a number of site visits. Members of the senior leadership team
regularly present to the Board.
The Board relies on dedicated functions at a Group, sector or
business unit level and does not have direct contact with regulators
unless appropriate. Any material issues are brought to the Board’s
attention through the monthly operational reports, as appropriate.
Principal engagement is undertaken by operational management
and the Group procurement function. The Chief Procurement
Officer reports annually to the Board to give it oversight of the
function and its operation.
Communities
• Health, safety and environment updates
• Material issues are included in the monthly
reports from Executive Directors or in
sector CEO briefings
• Annual Report review
In the main, the sectors hold these relationships at a local level
where the most relevant knowledge is concentrated, with no direct
engagement by the Board of Directors. The Board’s community
engagement levels were considered as part of last year’s
stakeholder mapping exercise and found to be appropriate. Any
material issues are brought to the Board’s attention through the
monthly operational reports or the functional reports to the Board.
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GOVERNANCE STATEMENT continued
Board leadership and Company Purpose continued
Key areas of focus during the year and how stakeholders were taken into account
A key focus during the year, for the Board, was the oversight of the implementation of our five strategic actions which we described in
last year’s Annual Report. When making judgement decisions which require balance across different stakeholder interests, the Board is
careful to consider the interests of each stakeholder group in the context of the long-term consequences.
Stakeholders
most affected
Shareholders
Employees
More
information
Financial review
from page 24
and Operational
review from
page 42
Employees
Customers
Shareholders
pages 13 and 18
Employees
Shareholders
pages 13 and 19
Matters considered
1. Aligning our portfolio The Board believes that shareholders and employees
Discussion and outcome
support the turnaround plan set out in our FY21 Annual
Report. A key part of that plan was the portfolio
rationalisation programme the purpose of which was to
reduce the Group’s complexity, increase its focus and
increase the effective use of the Group’s capital for the
long-term benefit of shareholders and other stakeholders.
The Board received regular updates on the programme and
has approved the disposal of the Oil and Gas business,
Frazer-Nash Consulting, Networks and our investment in
AirTanker Holdings. This can be unsettling for the
employees working in the divested businesses and a
distraction for employees working on the disposal projects.
However, the Board believes in the long term it is better for
employees to work in a business which fits better with its
owner’s strategy. The refocused Babcock is better able to
align behind its Purpose and Principles with the aim of
unlocking its full potential for the benefit of all
stakeholders.
As well as rationalising the portfolio, the turnaround plan
set out last year envisaged the implementation of the new
operating model the purpose of which is to improve
efficiency and effectiveness by reducing layers of
management to form a flatter structure and simplify how
we operate which in turn will improve lines of sight and
shorten communication lines and therefore increase
business flexibility and our responsiveness to market
conditions. The Board oversaw the implementation of the
model over the course of the year. An inevitable part of
such a change programme is the exit of a number of
colleagues. Where employees have left the Group, the
process was managed in a transparent and appropriate
manner. The Board believes that in the long term this is in
the best interests of its stakeholders, as the new operating
model has created a better place for employees to work
and provides a more efficient and effective service for
customers. Both of these will strengthen the Company for
the benefit of stakeholders.
Our People strategy underpins the new operating model.
The Board has oversight of its roll-out with the aim of
developing an organisation that shares capability, talent,
innovation and best practice, reducing complexity and
creating an agile and inclusive workplace. As part of this,
the Board considered and approved the roll-out of the
Babcock Blueprint for Strength and the embedding of our
Purpose and Principles. The cultural reset is intended to
empower management, but also to make managers more
accountable, which the Board believes will strengthen and
improve the Group for the benefit of all stakeholders.
2. Implementing our
new operating model
3. Rolling out our
People strategy
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GOVERNANCE STATEMENT continued
Board leadership and Company Purpose continued
Key areas of focus during the year and how stakeholders were taken into account
A key focus during the year, for the Board, was the oversight of the implementation of our five strategic actions which we described in
last year’s Annual Report. When making judgement decisions which require balance across different stakeholder interests, the Board is
careful to consider the interests of each stakeholder group in the context of the long-term consequences.
Matters considered
4. Developing our ESG
strategy
Matters considered
Discussion and outcome
1. Aligning our portfolio The Board believes that shareholders and employees
Stakeholders
most affected
Shareholders
Employees
More
information
Financial review
from page 24
and Operational
review from
page 42
5. Exploring growth
opportunities
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Stakeholders
most affected
Customers
Shareholders
Employees
Communities
Suppliers
More
information
pages 13 and 14
and pages 54
to 79
Customers
Shareholders
Employees
page 14 and 15
and the
Operational
review from
page 42
Discussion and outcome
Through its engagement the Board understands the rising
importance of ESG matters to its stakeholders. For example,
customers are making ESG considerations part of their
tenders; ESG has an increasing role in the allocation of
capital by investors; and employees and communities want
to understand their employer’s policy on ESG. In order to
meet these rising stakeholder expectations the Company
set out an ESG strategy, including the adoption of targets,
and throughout the year the Board has overseen the
implementation of this strategy with the aim of making the
Company more attractive for new shareholders and new
employees and for the benefit of all stakeholders.
Being successful in securing growth opportunities is
important for our investors, employees and customers
because they want to see a strong company. An important
element of those growth opportunities is outside the UK.
The Board receives monthly reports both on the
development of our international presence in our target
markets of France, Canada, Australasia and South Africa,
and on opportunities for growth in the UK. For example, the
Board considered and approved the acquisition of our joint
venture partner’s shares in NSM, the warship sustainment
provider in Australia. In making this investment decision, as
in all judgements, the Board was careful to consider the
interests of different stakeholders in the context of the
long-term consequences. It concluded that the opportunity
to consolidate Babcock’s position in Australia, one of our
target markets, and in one of our core capabilities, was the
right one.
How the Board keeps s172 on its agenda
The Board makes sure that in its decisions it considers the long-term success of the Company and takes into account the
interests of its stakeholders as follows:
• The Board sets the Company’s Purpose and strategy. It carries out an annual strategy review, which assesses the long-term
sustainable future of the Group and its impact on key stakeholders. As part of those discussions it takes into account the
matters the Directors must consider as part of their Section 172 duties.
• The Board’s risk management procedures identify the principal risks facing the Group and the mitigations in place to manage
the impact of these risks. Many of these risks relate to our stakeholder groups.
• Standing agenda items and papers are presented at each Board meeting: for example, operational reports, financial reports,
health and safety reports and litigation reports, to ensure that the Board receives relevant updates on matters of interest to
our stakeholders. The Board also receives detailed presentations from the sector CEOs delivering updates on key activities
which feeds into the decision-making process.
• There are regular reports from the Audit Committee Chair and the Remuneration Committee Chair on items within
their remit.
• When making judgement decisions which require balance across different stakeholder interests, the Board is careful to
consider the interests of each different stakeholder in the context of the long-term consequences: for example, employee
and executive pay; dividends; and portfolio alignment.
• Members of the Board regularly engage with our investors and employees and the Board uses the stakeholder engagement
summarised on pages 52 and 53 and on page 99 to inform its decision-making process.
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101
support the turnaround plan set out in our FY21 Annual
Report. A key part of that plan was the portfolio
rationalisation programme the purpose of which was to
reduce the Group’s complexity, increase its focus and
increase the effective use of the Group’s capital for the
long-term benefit of shareholders and other stakeholders.
The Board received regular updates on the programme and
has approved the disposal of the Oil and Gas business,
Frazer-Nash Consulting, Networks and our investment in
AirTanker Holdings. This can be unsettling for the
employees working in the divested businesses and a
distraction for employees working on the disposal projects.
However, the Board believes in the long term it is better for
employees to work in a business which fits better with its
owner’s strategy. The refocused Babcock is better able to
align behind its Purpose and Principles with the aim of
unlocking its full potential for the benefit of all
stakeholders.
operating model the purpose of which is to improve
efficiency and effectiveness by reducing layers of
management to form a flatter structure and simplify how
we operate which in turn will improve lines of sight and
shorten communication lines and therefore increase
business flexibility and our responsiveness to market
conditions. The Board oversaw the implementation of the
model over the course of the year. An inevitable part of
such a change programme is the exit of a number of
colleagues. Where employees have left the Group, the
process was managed in a transparent and appropriate
manner. The Board believes that in the long term this is in
the best interests of its stakeholders, as the new operating
model has created a better place for employees to work
and provides a more efficient and effective service for
customers. Both of these will strengthen the Company for
the benefit of stakeholders.
Our People strategy underpins the new operating model.
The Board has oversight of its roll-out with the aim of
developing an organisation that shares capability, talent,
innovation and best practice, reducing complexity and
creating an agile and inclusive workplace. As part of this,
the Board considered and approved the roll-out of the
Babcock Blueprint for Strength and the embedding of our
Purpose and Principles. The cultural reset is intended to
empower management, but also to make managers more
accountable, which the Board believes will strengthen and
improve the Group for the benefit of all stakeholders.
2. Implementing our
new operating model
As well as rationalising the portfolio, the turnaround plan
set out last year envisaged the implementation of the new
Employees
Customers
Shareholders
pages 13 and 18
3. Rolling out our
People strategy
Employees
Shareholders
pages 13 and 19
GOVERNANCE STATEMENT continued
Division of responsibilities
Defining Board responsibilities
The role specifications below set out the clear division of responsibility between the Executive and Non-Executive members
of the Board, which supports the integrity of the Board’s operations.
A more detailed description of these roles is available online at www.babcockinternational.com.
NON-EXECUTIVE
Chair
• Leads the Board and sets the tone and agenda, promoting a culture of
openness and debate;
• Ensures the effectiveness of the Board and that Directors receive accurate,
timely and clear information;
• Ensures effective communication with shareholders;
• Acts on the results of the Board performance evaluation and leads on the
implementation of any required changes; and
• Holds periodic meetings with Non-Executive Directors without the Executive
Directors present.
Senior Independent Director
• Acts as a sounding Board for the Chair and, if and when appropriate, serves
as an intermediary for the other Directors;
• Available to shareholders if they have any concerns which require resolution;
• Supports the Chair with the annual Board evaluation; and
• Serves as an intermediary to other Directors when necessary.
Independent Non-Executive Director
• Supports and constructively challenges the executive team;
• Contributes to the development of the Company’s strategy;
• Provides an external perspective and brings a diverse range of skills and
experience to the Board’s decision-making;
• Contributes to Board discussions on the nature and extent of the risks the
Company is willing to take to achieve its strategic objectives;
• Satisfies himself or herself of the integrity of financial information;
• Ensures financial controls and systems of risk management are robust and
defensible; and
• Plays a primary role in appointing and, where necessary, removing Executive
Directors, setting their remuneration and succession planning.
Designated Non-Executive Director for employee engagement
• Gauges the views and feedback of the workforce and identifies any areas
of concern;
• Communicates the views of the workforce to the Board;
• Ensures the views of the workforce are taken into account in Board decision-
making; and
• Ensures the Board takes appropriate steps to evaluate the impact of any
proposals that influence the experiences of the workforce and considers
what steps should be taken to mitigate any adverse impact.
EXECUTIVE
Chief Executive Officer
• Oversees the day-to-day
operation and management
of the Group’s businesses
and affairs;
• Responsible for the
implementation of Group
strategy as approved by the
Board, including driving
performance and optimising the
Group’s resources;
• Accountable to the Board for
the Group’s operational
performance; and
• Takes primary responsibility for
managing the Group’s risk
profile, identifying and
executing new business
opportunities, and management
development and remuneration.
Chief Financial Officer
• Accountable to the Board for
the Group’s financial
performance;
• Responsible for raising the
finance required to fund the
Group’s strategy, servicing the
Group’s financing and
maintaining compliance with its
covenants; and
• Maintains a financial control
environment capable of
delivering robust financial
reporting information to
indicate the Group’s
financial position.
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GOVERNANCE STATEMENT continued
Division of responsibilities
Defining Board responsibilities
The role specifications below set out the clear division of responsibility between the Executive and Non-Executive members
of the Board, which supports the integrity of the Board’s operations.
A more detailed description of these roles is available online at www.babcockinternational.com.
NON-EXECUTIVE
Chair
openness and debate;
• Leads the Board and sets the tone and agenda, promoting a culture of
• Ensures the effectiveness of the Board and that Directors receive accurate,
timely and clear information;
• Ensures effective communication with shareholders;
• Acts on the results of the Board performance evaluation and leads on the
implementation of any required changes; and
• Holds periodic meetings with Non-Executive Directors without the Executive
Directors present.
Senior Independent Director
• Acts as a sounding Board for the Chair and, if and when appropriate, serves
as an intermediary for the other Directors;
• Available to shareholders if they have any concerns which require resolution;
• Supports the Chair with the annual Board evaluation; and
• Serves as an intermediary to other Directors when necessary.
Independent Non-Executive Director
• Supports and constructively challenges the executive team;
• Contributes to the development of the Company’s strategy;
• Provides an external perspective and brings a diverse range of skills and
experience to the Board’s decision-making;
• Contributes to Board discussions on the nature and extent of the risks the
Company is willing to take to achieve its strategic objectives;
• Satisfies himself or herself of the integrity of financial information;
• Ensures financial controls and systems of risk management are robust and
defensible; and
• Plays a primary role in appointing and, where necessary, removing Executive
Directors, setting their remuneration and succession planning.
Designated Non-Executive Director for employee engagement
• Gauges the views and feedback of the workforce and identifies any areas
• Communicates the views of the workforce to the Board;
• Ensures the views of the workforce are taken into account in Board decision-
of concern;
making; and
• Ensures the Board takes appropriate steps to evaluate the impact of any
proposals that influence the experiences of the workforce and considers
what steps should be taken to mitigate any adverse impact.
EXECUTIVE
Chief Executive Officer
• Oversees the day-to-day
operation and management
of the Group’s businesses
and affairs;
• Responsible for the
implementation of Group
strategy as approved by the
Board, including driving
performance and optimising the
Group’s resources;
• Accountable to the Board for
the Group’s operational
performance; and
• Takes primary responsibility for
managing the Group’s risk
profile, identifying and
executing new business
opportunities, and management
development and remuneration.
Chief Financial Officer
• Accountable to the Board for
the Group’s financial
performance;
• Responsible for raising the
finance required to fund the
Group’s strategy, servicing the
Group’s financing and
maintaining compliance with its
covenants; and
• Maintains a financial control
environment capable of
delivering robust financial
reporting information to
indicate the Group’s
financial position.
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Articles of Association
The powers of the Directors are set out in
the Company’s Articles of Association (the
Articles), which may be amended by way
of a Special Resolution of the members of
the Company. The Board may exercise all
powers conferred on it by the Articles, in
accordance with the Companies Act
2006 and other applicable legislation.
The Articles are available for inspection
online at www.babcockinternational.com.
The Board has established a formal
schedule of matters specifically reserved
for its approval. It has delegated other
specific responsibilities to its Committees
and these are clearly defined in their
terms of reference (available online at
www.babcockinternational.com). Other
responsibilities are delegated to
management under a delegated
authorities matrix.
Summary of key matters reserved
for the Board
• Group strategy
• Interim and final results announcements
and the Annual Report
• Dividend policy
• Acquisitions, disposals and other
transactions outside delegation limits
• Significant contracts not in the ordinary
course of business
• Major changes to the Group’s
management or control structure
• Changes relating to the Company’s
capital structure or status as a listed PLC
• Annual budgets
• Major capital expenditure
• Major changes in governance,
accounting, tax or treasury policies
• Internal controls and risk management
(advised by the Audit Committee)
• Major press releases and shareholder
circulars
Meetings and attendance
The Board has eight scheduled full Board
meetings each financial year, as well as a
meeting dedicated to strategy. The Chair
also meets separately with Non-Executive
Directors without Executive Directors or
other managers present. See table above
for further information about the
meetings held during the year.
Board and Committee membership, meetings and attendance
Board
Nominations
Committee
Audit
Committee
Remuneration
Committee
Number of scheduled
meetings held
Current Directors
Ruth Cairnie
Carl-Peter Forster
John Ramsay1
Lucy Dimes
Lord Parker2
Kjersti Wiklund
Russ Houlden
David Lockwood
David Mellors
Former Directors
Myles Lee3
Victoire de Margerie4
8
8/8
8/8
3/3
8/8
7/8
8/8
8/8
8/8
8/8
4/4
1/4
5
5/5
3/3
2/2
5/5
4/5
5/5
5/5
–
–
3/3
0/3
4
–
–
2/2
4/4
–
4/4
4/4
–
–
2/2
–
5
–
5/5
–
–
–
5/5
5/5
–
–
–
1/2
1. John Ramsay was appointed to the Board in January 2022.
2. Lord Parker was absent from meetings on one day due to a prior engagement.
3. Myles Lee retired from the Board after the AGM in September 2021.
4. Victoire de Margerie retired from the Board after the AGM in September 2021.
Conflicts of interest
and independence
Babcock has adopted a procedure for the
disclosure, review, authorisation and
management of Directors’ actual and
potential conflicts of interest or related
party transactions in accordance with the
Companies Act 2006. The procedure
requires Directors formally to notify the
Board (via the Company Secretary) as
soon as they become aware of any new
actual or potential conflict of interest,
or when there is a material change in any
of the conflicts of interest they have
already disclosed.
A register is maintained of all the
disclosures made and the terms of any
authorisations granted. Authorisations
can be revoked, or the terms on which
they were given varied, at any time if
judged appropriate.
In the event of any actual conflict arising
in respect of a particular matter,
mitigating action would be taken
(for example, non-attendance of the
Director concerned at all or part of Board
meetings and non-circulation to him/her
of relevant papers).
Possible conflicts of interest authorised
by the Board are reviewed annually
on behalf of the Board by the
Nominations Committee.
The Committee also considers the
circumstances set out in the Code which
could compromise an individual’s position
of independence. The Board is satisfied
that throughout the year all Non-
Executive Directors remained
independent and accordingly the
Company is compliant with Provision 10
of the Code.
Time commitment
The expected time commitment of the
Chair and Non-Executive Directors is
agreed and set out in writing in their
respective letters of appointment, at
which point the existing external demands
on an individual’s time are assessed to
confirm their capacity to take on the role.
Further appointments can only be
accepted with approval of the Board
following consideration of whether there
would be an impact on the independence
and objectivity required to discharge the
agreed responsibilities of each role and
whether the resultant position is believed
to be consistent with recognised proxy
advisor guidelines.
The Board is satisfied that each Director
has the necessary time to effectively
discharge their responsibilities and that,
between them, the Directors have a blend
of skills, experience, knowledge and
independence suited to the Company’s
needs and its continuing development.
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GOVERNANCE STATEMENT continued
Composition, succession and evaluation
Composition
The composition of the Board is kept
under constant review by the
Nominations Committee to ensure a
balance of the skills, experience and
knowledge to lead the Group. At the
date of this Report the Board
comprises the Chair, who was
independent on appointment, six
Independent Non-Executive Directors
and two Executive Directors.
All continuing Directors are required to
offer themselves for re-election by
shareholders each year at the Annual
General Meeting. Biographical details
can be found on pages 94 and 95 and
there is more information on
appointments to the Board in the
Nominations Committee report on
pages 106 and 107.
Board diversity*
By tenure
0–3 years: 6
3–5 years: 3
By gender
Female: 3
Male: 6
By nationality
UK: 7
Non-UK: 2
* July 2022.
Our Company Secretary also provides
updates to the Board and its Committees
on regulatory and corporate
governance matters.
Board induction was a challenge in 2020
with face-to-face meetings and first-hand
experience of our operations not possible
due to restrictions on access to our sites,
as many were closed to visits. However,
during the course of last year, with
restrictions eased, we could resume the
induction process with visits to key
operational sites in the UK for our
more recently appointed Directors
(see table below).
Our new Directors receive comprehensive
and tailored induction programmes. The
programmes for Non-Executive Directors
typically involve:
• Meetings with the Executive Directors
and the sector CEOs and functional
leads
• An overview of the Group’s governance
policies, corporate structure and
business functions
• Details of risks and operating issues
facing the Group
• Visits to key operational sites
• Briefings on key contracts and
customers
Succession
The Chair, Senior Independent Director
and independent Non-Executive Directors
are appointed for a three-year term,
subject to annual re-election by the
shareholders. At the end of every
three-year term, each Non-Executive
Director’s tenure is reviewed before the
term is renewed. The term can be
renewed by mutual agreement up to a
maximum total tenure of nine years.
The ongoing replenishment of the Board
is a key focus for the Nominations
Committee and more information about
succession planning can be found in
its report.
With the ever-changing environment in
which Babcock operates, it is important
for our Executive and Non-Executive
Directors to remain aware of recent, and
upcoming, developments and keep their
knowledge and skills up to date.
The Company arranges for new Non-
Executive Directors to receive detailed
business briefings on the Group’s
operations and to make induction visits to
the Group’s principal sites. Training for
new Directors, when appropriate, is
arranged with external providers.
Non-Executive Directors may at any time
make visits to Group businesses or
operational sites and are encouraged to
do so at least once per year. Visits are
coordinated by the Group Company
Secretary’s office. Presentations on the
Group’s businesses and specialist functions
are made regularly to the Board.
Induction site visits
Clyde – Nuclear
Rosyth – Marine
Donnington – Land
Bristol – Marine
Staverton – Aviation
Park Royal – Land
Devonport – Nuclear
Andrew Parker
Russ Houlden
Carl-Peter Forster
John Ramsay
–
–
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–
–
–
–
–
–
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For details of the gender diversity of senior management and other categories of employees please see page 64.
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GOVERNANCE STATEMENT continued
Composition, succession and evaluation
Our Company Secretary also provides
updates to the Board and its Committees
on regulatory and corporate
governance matters.
Board induction was a challenge in 2020
with face-to-face meetings and first-hand
experience of our operations not possible
due to restrictions on access to our sites,
as many were closed to visits. However,
during the course of last year, with
restrictions eased, we could resume the
induction process with visits to key
operational sites in the UK for our
more recently appointed Directors
(see table below).
Our new Directors receive comprehensive
and tailored induction programmes. The
programmes for Non-Executive Directors
typically involve:
• Meetings with the Executive Directors
and the sector CEOs and functional
leads
• An overview of the Group’s governance
policies, corporate structure and
business functions
• Details of risks and operating issues
Composition
Succession
The composition of the Board is kept
The Chair, Senior Independent Director
under constant review by the
and independent Non-Executive Directors
Nominations Committee to ensure a
are appointed for a three-year term,
balance of the skills, experience and
subject to annual re-election by the
knowledge to lead the Group. At the
shareholders. At the end of every
date of this Report the Board
comprises the Chair, who was
three-year term, each Non-Executive
Director’s tenure is reviewed before the
independent on appointment, six
term is renewed. The term can be
Independent Non-Executive Directors
renewed by mutual agreement up to a
and two Executive Directors.
maximum total tenure of nine years.
All continuing Directors are required to
The ongoing replenishment of the Board
offer themselves for re-election by
is a key focus for the Nominations
shareholders each year at the Annual
Committee and more information about
General Meeting. Biographical details
succession planning can be found in
can be found on pages 94 and 95 and
its report.
there is more information on
appointments to the Board in the
Nominations Committee report on
pages 106 and 107.
Board diversity*
With the ever-changing environment in
which Babcock operates, it is important
for our Executive and Non-Executive
Directors to remain aware of recent, and
upcoming, developments and keep their
knowledge and skills up to date.
The Company arranges for new Non-
Executive Directors to receive detailed
business briefings on the Group’s
Non-Executive Directors may at any time
make visits to Group businesses or
operational sites and are encouraged to
do so at least once per year. Visits are
coordinated by the Group Company
Secretary’s office. Presentations on the
Group’s businesses and specialist functions
are made regularly to the Board.
By tenure
0–3 years: 6
3–5 years: 3
By gender
Female: 3
Male: 6
By nationality
UK: 7
Non-UK: 2
* July 2022.
Induction site visits
Clyde – Nuclear
Rosyth – Marine
Donnington – Land
Bristol – Marine
Staverton – Aviation
Park Royal – Land
Devonport – Nuclear
Andrew Parker
Russ Houlden
Carl-Peter Forster
John Ramsay
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–
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Evaluation
2021/22 Board performance review
Each year we conduct an evaluation to assess the skills, experience, independence and knowledge of the Board to confirm it is able to
discharge its duties and responsibilities effectively. The composition and diversity of the Board and its Committees and how well the
Directors are working together is considered, as well as the individual performance of the Directors and the Chair. This year an external
evaluation was held for the second year in a row. Given the level of change that had happened and was still underway, we asked
Belinda Hudson, who completed last year’s evaluation, to assist again, building on her knowledge of the organisation and focusing on
progress. Prior to her appointment Belinda Hudson had not had any connection to the Company or individual Directors and had not
previously been engaged by the Company.
Progress made on actions identified in the FY21 review
Recommendations for FY22
Meetings – return to face-to-face meetings as soon
as COVID-19 restrictions allow, to enhance Board
integration.
Inductions – complete the induction process with
site visits for those Board members who have been
prevented from doing so by the COVID-19
restrictions.
Board engagement – enhance the Board’s
engagement with stakeholders.
operations and to make induction visits to
facing the Group
the Group’s principal sites. Training for
new Directors, when appropriate, is
arranged with external providers.
• Visits to key operational sites
• Briefings on key contracts and
customers
Board oversight – continue the Board’s oversight of
the development of the Company’s People strategy,
culture and succession planning as well as the focus
on ESG.
Update
The Board was delighted to return to face-to-face
meetings.
Further information
The recently appointed Directors have now visited a
selection of sites across all sectors in the UK.
See page 104
The Board enjoyed reports from Lord Parker
following his engagement with employees and looks
forward to the results of the first ever Group-wide
employee survey planned for 2023. With the
abatement of the COVID-19 pandemic the Executive
Directors were able to meet face-to-face with
customers in order to deepen relationships.
The Board continues to receive regular updates on
all the change programmes underway, to provide
assurance that they are being implemented across
the Group.
See page 99
See pages 100 and 101
Areas of assessment and findings for the FY22 Board evaluation
Belinda found that the Board had responded to the challenges it had faced over FY22 in a professional and pragmatic manner and had
provided good support and challenge to improve all aspects of Babcock’s performance. Belinda did make recommendations for further
Board development, acknowledging that some were already underway.
Recommendations for FY23
Recruit new Non-Executive Directors to strengthen the Board
further.
With the lifting of the COVID-19 restrictions, continue to enhance
the opportunities for Board members to spend more time with
each other and the business, in order to strengthen Group
dynamics and cohesion.
Develop further the Board’s oversight of Babcock’s culture.
Commentary and actions
The Nominations Committee is leading the search. Please see
page 106 for details.
With the lifting of COVID-19 restrictions in the UK, Board and
Committee meetings are now in person. The end of the
restrictions has allowed the new Non-Executive Directors to
undertake their induction visits. The Board is looking forward to
its off-site meeting at our Land business in Bovington in July
2022.
The Board oversees Babcock’s culture through a number of
channels, including reports from the Chief HR Officer, reports
from Lord Parker in his role as Director designated for employee
engagement, and reports from the Babcock whistleblowing line.
However, it is seeking to develop its oversight further and is
looking forward to receiving an analysis of Babcock’s first ever
global employee survey in 2023.
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Babcock International Group PLC Annual Report and Financial Statements 2022
105
For details of the gender diversity of senior management and other categories of employees please see page 64.
GOVERNANCE STATEMENT continued
Composition, succession and evaluation continued
Nominations Committee Report
RUTH CAIRNIE
Chair of the
Nominations
Committee
Key facts
The Committee
Ruth Cairnie chairs the Committee.
The other members throughout the
year were all the Non-Executive
Directors.
For biographies of members, please
see pages 94 and 95.
For attendance, please see page
103.
Highlights
Appointment of new Non-Executive
Director
Appointment of new Audit
Committee Chair
Appointment of new Remuneration
Committee Chair
Key responsibilities
Board and Committee composition
Succession planning
Talent pipeline and diversity policy
Board appointment process
Dear fellow Shareholder
Last year saw a significant number of
changes at both Board and Executive
Committee level as we set about restoring
Babcock to strength. This year the work of
the Nominations Committee has been to
support the bedding-down of the new
structures and teams and to continue to
strengthen the Board with new
appointments.
Composition
A key role for the Committee is to ensure
that the Board has the right mix of skills
and capabilities to support the navigation
of both present and future strategic
opportunities and challenges. Alongside
the Board’s enhanced involvement in the
development of strategy (please see page
92 for more detail), the Committee has
developed a skills matrix taking into
account our strategic direction. We have
used this matrix to assess our current mix
106
Babcock International Group PLC Annual Report and Financial Statements 2022
of skills and have referred to it as a key
source when considering the preferred
backgrounds and characteristics for new
Board appointments. We will keep the
matrix under review as requirements evolve.
Following the retirement of Myles Lee in
September 2021, the Committee wanted
to enhance the financial credentials of the
(Non-Executive) Board and the Audit
Committee by bringing in an additional
member with a financial background.
Following a search conducted by an
external search consultant (MWM), which
has no other connections with Babcock,
the Committee was pleased to
recommend the appointment of John
Ramsay to the Board. John is a qualified
Chartered Accountant with extensive
operational financial experience, as well as
extensive Non-Executive Director
experience. John’s biography is on page
94. In February 2022, after Russ Houlden
advised that he would be retiring from the
Board, John agreed to take over as Chair of
the Audit Committee.
In April 2022, Kjersti Wiklund advised that
she would be retiring from the Board and
so the Committee asked Carl-Peter Forster
to take over as Chair of the Remuneration
Committee, which he agreed to. The
Committee is pleased that it has been in a
position to fill both Committee Chair roles
with highly experienced successors.
Looking ahead, the Committee has
identified some candidate profiles that
could strengthen the Board’s breadth and
capability and has searches underway. For
these and other searches, we typically
employ an external search consultant and
we set clear criteria, based on the skills
matrix, to identify candidates and ensure
that the Board maintains its balance.
One of the criteria the Committee
considers is diversity and we are
committed to increasing our diversity
across multiple aspects including gender,
ethnicity, experience, background and
age. With Kjersti’s retirement, we will need
to pay attention to the gender mix; and
we remain committed to meeting the
Parker Review target on ethnicity.
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GOVERNANCE STATEMENT continued
Composition, succession and evaluation continued
Nominations Committee Report
RUTH CAIRNIE
Chair of the
Nominations
Committee
of skills and have referred to it as a key
source when considering the preferred
backgrounds and characteristics for new
Board appointments. We will keep the
matrix under review as requirements evolve.
Following the retirement of Myles Lee in
September 2021, the Committee wanted
to enhance the financial credentials of the
(Non-Executive) Board and the Audit
Committee by bringing in an additional
member with a financial background.
Following a search conducted by an
external search consultant (MWM), which
has no other connections with Babcock,
the Committee was pleased to
recommend the appointment of John
Ramsay to the Board. John is a qualified
Chartered Accountant with extensive
operational financial experience, as well as
extensive Non-Executive Director
experience. John’s biography is on page
94. In February 2022, after Russ Houlden
advised that he would be retiring from the
Board, John agreed to take over as Chair of
the Audit Committee.
In April 2022, Kjersti Wiklund advised that
she would be retiring from the Board and
so the Committee asked Carl-Peter Forster
to take over as Chair of the Remuneration
Committee, which he agreed to. The
Committee is pleased that it has been in a
position to fill both Committee Chair roles
with highly experienced successors.
Looking ahead, the Committee has
identified some candidate profiles that
could strengthen the Board’s breadth and
capability and has searches underway. For
these and other searches, we typically
employ an external search consultant and
we set clear criteria, based on the skills
matrix, to identify candidates and ensure
that the Board maintains its balance.
across multiple aspects including gender,
ethnicity, experience, background and
age. With Kjersti’s retirement, we will need
to pay attention to the gender mix; and
we remain committed to meeting the
Parker Review target on ethnicity.
For biographies of members, please
structures and teams and to continue to
Dear fellow Shareholder
Last year saw a significant number of
changes at both Board and Executive
Committee level as we set about restoring
Babcock to strength. This year the work of
the Nominations Committee has been to
support the bedding-down of the new
strengthen the Board with new
appointments.
Composition
A key role for the Committee is to ensure
that the Board has the right mix of skills
and capabilities to support the navigation
of both present and future strategic
opportunities and challenges. Alongside
the Board’s enhanced involvement in the
development of strategy (please see page
92 for more detail), the Committee has
Key facts
The Committee
Ruth Cairnie chairs the Committee.
The other members throughout the
year were all the Non-Executive
Directors.
see pages 94 and 95.
For attendance, please see page
103.
Highlights
Director
Appointment of new Non-Executive
Appointment of new Audit
Committee Chair
Appointment of new Remuneration
Committee Chair
Key responsibilities
Board and Committee composition
Succession planning
Talent pipeline and diversity policy
Board appointment process
developed a skills matrix taking into
One of the criteria the Committee
account our strategic direction. We have
considers is diversity and we are
used this matrix to assess our current mix
committed to increasing our diversity
Culture
This year Babcock has started a significant
change programme with a reset of its
culture. The aim is to create a company
that operates as one so that we can share
capability, best practice and innovation
Group-wide. We believe that the key to
achieving this is our new Principles, which
create a foundation for how the Group
behaves, both as individuals and as teams.
We want Babcock to be more people-
focused and accountable, creating a more
efficient and more effective business that
is capable of delivering better outcomes
for all its stakeholders. The Board reviewed
the Group’s Blueprint for Strength, a visual
guide to explain the reset, before its
launch and has received regular updates
on progress. The Board also uses a variety
of information sources to assess culture
and progress, including discussion with
executives during Board presentations,
discussions with employees during site
visits, summaries of inputs to our
whistleblowing channels, and updates
from Lord Parker in his capacity as Director
designated for employee engagement.
We look forward to seeing the results of
Babcock’s first global employee survey
in 2023.
I hope this report gives you an
understanding of the work of the
Committee over FY22. The Committee is
looking forward to continuing its support
of Babcock’s turnaround during FY23.
RUTH CAIRNIE
Committee Chair
Succession and evaluation
The Committee keeps Babcock’s leadership
needs under review, providing assurance
to the Board that Babcock has the skills
and capabilities to progress its strategy
and strategic actions now and in the
future. During the course of the year, the
Committee considered the skills and
capabilities of the senior leadership team
and their development plans, to see how
the Board and the Committee can best
support the team. While decisions about
these senior leader appointments rest with
the CEO, there are regular opportunities
for him to share his thinking with the
Committee and receive comments
and suggestions.
Inclusion and diversity
I have spoken about the Committee’s
commitment to improving the Board’s
diversity. The Committee also reviews
progress on inclusion and diversity across
the whole organisation. We recognise that
there is much work to be done, but have
welcomed and supported some clear steps
taken over the last year. These included
the approval and review by the Board of
diversity targets. Following detailed data
capture and analysis supporting the
development of our People strategy,
it was recognised that more time would
be needed to meet one of these targets
(80% disclosure of diversity, originally
targeted within 18 months), which has
been re-phased accordingly. Progress
against the targets is being monitored.
For more information, please see pages 64
and 65.
The Committee considers diversity when it
reviews the Group’s senior talent pipeline
and supports the Group’s plans and
initiatives to drive progress across the
organisation. It has welcomed a number
of senior-level female appointments.
The establishment of a more centralised
HR function is seen as helpful in raising
the focus on improving inclusion and
diversity across the Group; for more
information about Babcock’s approach,
please see page 18.
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Babcock International Group PLC Annual Report and Financial Statements 2022
107
GOVERNANCE STATEMENT continued
Audit, risk and internal control
Audit Committee Report
JOHN RAMSAY
Chair of
the Audit
Committee
Key facts
The Committee
John Ramsay chairs the Committee.
John is a Chartered Accountant, and
formerly the Chief Financial Officer of
Syngenta AG, as well as being an
experienced Audit Committee chair (see
page 94 for John’s full biography). The Board
has designated him as the financial expert
on the Committee for the purposes of the
UK Corporate Governance Code.
The other members of the Committee
throughout FY22 were Russ Houlden, Lucy
Dimes and Kjersti Wiklund, all
independent Non-Executive Directors.
Please see pages 94 and 95 for their
biographies and page 103 for
attendance.
During the year the Committee invited the
Chair of the Board, other Non-Executive
Directors, the CEO, the CFO, the Director of
Group Finance, the departing PwC and
incoming Deloitte lead audit partners,
other representatives from both audit
firms, and other key senior management to
attend their meetings, as appropriate.
After each Committee meeting, the
Committee meets separately with the
external audit lead audit partner and the
lead internal audit partner from BDO to
give them the opportunity to discuss
matters without executive management
being present. In addition, the Chair
maintains regular contact with the
external audit lead audit partner and the
lead BDO internal audit partner between
meetings, often without the presence of
management.
Highlights
The completion of the contract
profitability and balance sheet review
The implementation of improvements
to the control environment throughout
the year
Transition of the external audit
to Deloitte
Review of critical judgements and
estimates adopted by management in
closing FY22
Key responsibilities
Reviewing the scope and the results of
the statutory audit and other financial
statements
Reporting to the Board on the
effectiveness of the audit process and
how the independence and objectivity
of the auditor has been safeguarded
Reviewing the half-year and annual
financial statements and any
announcements relating to financial
performance, including reporting to the
Board on the significant issues
considered by the Committee
Reviewing the scope, remit and
effectiveness of the internal audit
function
Reviewing the effectiveness of the
Group’s internal control and risk
management systems
108
Babcock International Group PLC Annual Report and Financial Statements 2022
Dear fellow Shareholder
This is both my first report as Chair of the
Audit Committee and my first year on the
Board of Babcock, having joined the
Board on 6 January 2022. In February
2022, I was asked to take on the chair of
the Committee following Russ Houlden’s
decision to retire from the Board, which I
was more than happy to do. I am very
grateful to Russ for his support and
assistance to ensure a smooth handover
and wish him well in his new roles. With
Russ’s retirement, the Nominations
Committee has a process in place to
appoint another Non-Executive Director
with a financial background, who would
also join the Committee.
This year was the first year of Babcock’s
renewed strategy to turn around the
business. As can be seen throughout the
governance section of this Annual Report,
the Board and its Committees have played
their full part in supporting the turnaround.
For the Committee, the focus has been on
the oversight of Babcock’s financial
reporting and controls. The Committee
spent the start of the year overseeing two
key processes: the audit of Babcock’s FY21
financial statements and the contract
profitability and balance sheet review (CPBS).
The Committee finished both in July. The
CPBS identified 147 accounting
adjustments, described in detail in the FY21
Audit Committee report.
Since July, the Committee has shifted its
focus from the CPBS to monitoring the
implementation of the programme of
improvement of internal and financial
controls, with a particular focus on Group
Head Office, the Aviation and Land sectors,
and the onboarding of the new external
auditor, Deloitte.
Following the CPBS, the new CFO led a
Group-wide ‘lessons learnt’ exercise and
has engaged the Audit Committee on
improvements required and the
monitoring of progress on
implementation. This exercise has resulted
in a number of control improvements,
which management has already
implemented, with a number of further
improvements ongoing, including:
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GOVERNANCE STATEMENT continued
Audit, risk and internal control
Audit Committee Report
JOHN RAMSAY
Chair of
the Audit
Committee
The other members of the Committee
throughout FY22 were Russ Houlden, Lucy
closing FY22
Key facts
The Committee
John Ramsay chairs the Committee.
John is a Chartered Accountant, and
formerly the Chief Financial Officer of
Syngenta AG, as well as being an
experienced Audit Committee chair (see
page 94 for John’s full biography). The Board
has designated him as the financial expert
on the Committee for the purposes of the
UK Corporate Governance Code.
Dimes and Kjersti Wiklund, all
independent Non-Executive Directors.
Please see pages 94 and 95 for their
biographies and page 103 for
attendance.
During the year the Committee invited the
Chair of the Board, other Non-Executive
Directors, the CEO, the CFO, the Director of
Group Finance, the departing PwC and
incoming Deloitte lead audit partners,
other representatives from both audit
firms, and other key senior management to
attend their meetings, as appropriate.
After each Committee meeting, the
Committee meets separately with the
external audit lead audit partner and the
lead internal audit partner from BDO to
give them the opportunity to discuss
matters without executive management
being present. In addition, the Chair
maintains regular contact with the
external audit lead audit partner and the
lead BDO internal audit partner between
meetings, often without the presence of
management.
Highlights
The completion of the contract
profitability and balance sheet review
The implementation of improvements
to the control environment throughout
the year
to Deloitte
Transition of the external audit
Review of critical judgements and
estimates adopted by management in
Key responsibilities
Reviewing the scope and the results of
the statutory audit and other financial
statements
Reporting to the Board on the
effectiveness of the audit process and
how the independence and objectivity
of the auditor has been safeguarded
Reviewing the half-year and annual
financial statements and any
announcements relating to financial
performance, including reporting to the
Board on the significant issues
considered by the Committee
Reviewing the scope, remit and
effectiveness of the internal audit
function
Reviewing the effectiveness of the
Group’s internal control and risk
management systems
Dear fellow Shareholder
This is both my first report as Chair of the
Audit Committee and my first year on the
Board of Babcock, having joined the
Board on 6 January 2022. In February
2022, I was asked to take on the chair of
the Committee following Russ Houlden’s
decision to retire from the Board, which I
was more than happy to do. I am very
grateful to Russ for his support and
assistance to ensure a smooth handover
and wish him well in his new roles. With
Russ’s retirement, the Nominations
Committee has a process in place to
appoint another Non-Executive Director
with a financial background, who would
also join the Committee.
This year was the first year of Babcock’s
renewed strategy to turn around the
business. As can be seen throughout the
governance section of this Annual Report,
the Board and its Committees have played
their full part in supporting the turnaround.
For the Committee, the focus has been on
the oversight of Babcock’s financial
reporting and controls. The Committee
spent the start of the year overseeing two
key processes: the audit of Babcock’s FY21
financial statements and the contract
profitability and balance sheet review (CPBS).
The Committee finished both in July. The
CPBS identified 147 accounting
adjustments, described in detail in the FY21
Audit Committee report.
Since July, the Committee has shifted its
focus from the CPBS to monitoring the
implementation of the programme of
improvement of internal and financial
controls, with a particular focus on Group
Head Office, the Aviation and Land sectors,
and the onboarding of the new external
auditor, Deloitte.
Following the CPBS, the new CFO led a
Group-wide ‘lessons learnt’ exercise and
has engaged the Audit Committee on
improvements required and the
monitoring of progress on
implementation. This exercise has resulted
in a number of control improvements,
which management has already
implemented, with a number of further
improvements ongoing, including:
• Introduction of an enhanced
governance structure (for example,
establishing a new risk framework and
development of a set of standard Group
accounting policies);
• Establishment of a revised minimum set
knowledge and to facilitate the scoping
and planning of the FY22 audit; and (iii)
Deloitte attended Committee meetings
prior to their appointment in order to
confirm their independence and to report
on the audit transition plan status.
of financial controls (the Babcock
‘Document of Control’), which
facilitates the reporting of control
standards at sector level and includes
enhanced tracking and reporting of
open and overdue internal audit
recommendations;
• Monitoring the improvement
programme of internal and financial
controls in Group Head Office, Aviation
and Land; and
• Oversight of the key development
contracts and programmes.
Management has assisted the Committee
by establishing a new process of
documenting the application of
accounting standards to major contracts
and any related material accounting
estimations and judgements.
Following the publication of Babcock’s
FY21 Annual Report, the Financial
Reporting Council reviewed our FY20
Annual Report and financial statements
for compliance with the relevant
reporting requirements. The FRC has since
informed us that it has now closed its
enquiries into our FY20 Annual Report and
financial statements. However, we
understand that its review of PwC’s audits
for FY17, FY18, FY19 and FY20 remain
ongoing. As reported in the FY21 Annual
Report, the Financial Conduct Authority
wrote to the Company in January 2021
requesting information on the contract
profitability and balance sheet review. In
March 2022, the FCA informed us that it
had concluded its review and did not
intend to take any further action.
Shareholders formally approved the
appointment of Deloitte as Babcock’s
new external auditor at the 2021 AGM.
The Committee took a number of steps to
ensure a smooth and effective transition
from PwC: (i) it agreed a scope of
interaction between Deloitte and PwC
during FY21, which included Deloitte’s
attendance at key audit meetings and
observing the FY21 audit; (ii) Deloitte had
meetings with the Committee Chair and
the CFO, as well as Group and sector
management, in order to build their
This early work helped the transition to
Deloitte. Nevertheless, there was still a
substantial amount of work for
management and Deloitte to complete
the FY22 audit. As with last year, the
Committee decided to prioritise audit
quality over speed and agreed to defer
the publication of our preliminary
full-year results.
As part of this improving quality, the
following topics were presented by
management and reviewed by the
Committee as being the most critical
judgements and estimates considered in
closing FY22:
• Long-term programme cost estimates,
including overhead savings and
production improvements;
• Future inflation for pensions, contract
estimates to complete and supplier
resilience;
• Assumptions for aircraft impairments
reviews of profitability by air frame and
future cash flow discount rates; and
• Pension assumptions for mortality,
inflation and liability discount rates.
The Committee has also reviewed certain
prior period restatements to FY21 that
reflected further scrutiny of prior periods
and benefited from refreshed challenge
from the new auditors. These include
adjustments for non-cash items in
pensions, impairment and derivative
accounting, as well as changes in the
judgements of certain pass-through
revenue now being treated as net within
cost of sales.
In addition to the issues that I have
highlighted above, the Committee has
continued with its standard work plan
which included:
• Reviewing all matters relating to the
external audit, including scope,
independence, effectiveness, quality
and fees;
• Reviewing Babcock’s financial
statements and associated reports;
• Overseeing readiness for the
implementation of digital financial
reporting using the European Single
Electronic Format;
• Considering the key planning
components for the main, longer
lead-time changes that may arise from
the UK Government’s proposals on
‘Restoring trust in the audit and
corporate governance’; and
• Reviewing the scope of internal audit,
including the conclusion that insourcing
this activity in future periods will
be more effective for the needs
of the Group than the current
outsourced model.
Looking to FY23, the Committee will
continue to play its part in Babcock’s
turnaround. It will seek to do this by:
• Ensuring completion of a successful
transition to the new Committee
membership;
• Continuing its oversight of the
implementation of improvements to
risk management and internal control
systems;
• Reviewing management’s key
programme watchlist process;
• Reviewing management’s
standardisation of bid to programme
execution controls;
• Monitoring the planning and successful
transition to the new insourced internal
audit model; and
• Continuing to monitor the various
regulatory initiatives flowing from the
UK Government’s stated aim to
reform the corporate governance
and audit regime.
Finally, I would like to thank my fellow
Committee members, Russ, Kjersti and
Lucy, for their support and work over the
year. We will all be at the FY22 AGM,
where we hope to meet as many of our
fellow shareholders as possible and to be
available to answer any questions you
may have on this report or the
Committee’s activities.
JOHN RAMSAY
Committee Chair
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Babcock International Group PLC Annual Report and Financial Statements 2022
109
GOVERNANCE STATEMENT continued
Audit, risk and internal control continued
Risk management and
internal control systems
The Board has ultimate responsibility for
risk management and internal control
systems, and has delegated to the
Committee the review of the effectiveness
of these systems in order to assist it in
discharging this responsibility.
The Committee reviews internal financial
controls: that is, the systems established
to identify, assess, manage and monitor
financial risks. The Group Executive
Committee, chaired by the CEO, retains
accountability for the management of
operational risks, including related
controls and mitigating actions. Sector
CEOs and function directors are required
to ensure that appropriate processes,
including the maintenance of risk registers
for both the sector itself and individual
constituent lines of business, exist to
identify and manage risks; and to regularly
carry out formal risk assessments. Please
see pages 76 to 86 for further
information on the Group’s principal risks,
risk management process and internal
control environment.
The Group operates under a system of
internal controls which, as described above,
have been upgraded during FY22 and will
be subject to continued improvement in
FY23. These controls will be developed over
time to meet the needs of the business and
the risks and opportunities to which it is
exposed, recognising differences in the
nature and type of each of the Group’s
operations. These controls include:
• The preparation and consideration of
the five-year plan;
• A comprehensive budgeting system
with an annual budget which the Board
approves;
• Monthly review of business and financial
performance in the month and year to
date, and update of financial forecasts
for the year;
• The monitoring of financial
performance and key dependencies for
the full year;
• The monitoring of project and
programme management; and
• The appropriate delegation of
authorities to operational management.
However, the new Babcock Document
of Control establishes a minimum
expectation of controls that are
considered to be mandatory irrespective
of the nature of the line of business.
Legacy control systems still exist from
previous acquisition activity, and other key
control processes, including IT, are not fully
standardised and implemented across the
Group. The implementation and operation
of certain key controls is decentralised to
business units. Sector, functional and central
oversight activities and controls are in place
to support this.
Across all parts of the business the
Committee has overseen strengthened
financial controls through: increased
independent review of the most material
development contracts; extended
governance and regulatory training; monthly
sector reviews by the CEO and CFO; the
communication of a revised delegation
matrix and Letter of Representation;
enhanced focus and reporting of open and
overdue audit recommendations; the
communication of revised, proportionate
minimum expectations of financial control;
and a ‘hard financial close’ exercise for the
10 months to January, ahead of the year
end.
In particular, as part of closing the prior
year, the Committee concluded that
internal and financial controls had not
been fully effective in certain parts of the
Group, most notably in Aviation, Land and
Group Head Office. It therefore agreed
with Group and sector management a
programme of improvements in internal
and financial controls. These included, for
Group Head Office, changes to the
treasury and Group reporting functions,
whilst in Aviation and Land the plans
addressed specific issues in those sectors.
The Committee has monitored progress in
these areas throughout the year, including
attendance by the Land and Aviation
sector management to present their plans
and status at two meetings in the year,
and a quarterly update of Group Head
Office improvements to both the Audit
Committee and the Board. In addition,
BDO were asked to undertake an
assessment of the status of progress as at
31 March 2022 during the fiscal Q4 and
early FY23 period. The improvement plans
were only finalised and implementation
started during the year, which means that
we cannot conclude they were effective
for the full 12-month period of FY22.
However, the Company had successfully
delivered the improvement plans for it’s
internal controls agreed last year, whilst
recognising that there remains on-going
scope for further improvement in FY23,
including lessons learnt from the
FY22 closing.
External audit
During FY21, the Committee concluded the
process to retender the external audit, with
the incumbent auditor at that time, PwC,
not participating. The recommendation to
appoint Deloitte as external auditor was
then approved by shareholders at the 2021
AGM. Steps were taken throughout FY22 to
ensure an effective transition to Deloitte,
including attendance at Audit Committee
meetings as the previous financial year was
concluded, and access and review of the
final PwC audit files for the Group and its
subsidiaries. In September 2021 we agreed
the scope and level of materiality of the
FY22 audit plan of work and discussed with
Deloitte the areas that they had identified as
key risks and other particular areas of focus
in their first year, and the specific audit
procedures that they would perform to
undertake the related audit work.
As part of the original tender process it
was planned that Deloitte would give an
interim review opinion on the interim
financial information (H1) in addition to
auditing the full-year results. This was a
new approach for Babcock which had not
previously had interim reviews performed
by the auditor. That interim financial
information review timetable was delayed
by the timing of the handover from PwC
and the transition work being more
extensive than would usually be the case
given the many adjustments published in
the 31 March 2021 year-end financial
statements and the Group’s ongoing
transformation of its accounting and
control environment. Although the
review was not completed, a significant
amount of work was performed and there
were invaluable lessons learned at that
time that were used to execute a
successful year-end timetable, including:
standard templates for accounting
technical applications on contracts and
their judgements; early interaction with
subject matter audit experts in treasury,
pensions and taxation; enhanced
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Babcock International Group PLC Annual Report and Financial Statements 2022
GOVERNANCE STATEMENT continued
Audit, risk and internal control continued
Risk management and
internal control systems
The Board has ultimate responsibility for
risk management and internal control
systems, and has delegated to the
Committee the review of the effectiveness
of these systems in order to assist it in
discharging this responsibility.
The Committee reviews internal financial
controls: that is, the systems established
to identify, assess, manage and monitor
financial risks. The Group Executive
Committee, chaired by the CEO, retains
accountability for the management of
operational risks, including related
controls and mitigating actions. Sector
CEOs and function directors are required
to ensure that appropriate processes,
including the maintenance of risk registers
for both the sector itself and individual
constituent lines of business, exist to
identify and manage risks; and to regularly
carry out formal risk assessments. Please
see pages 76 to 86 for further
information on the Group’s principal risks,
risk management process and internal
control environment.
The Group operates under a system of
internal controls which, as described above,
have been upgraded during FY22 and will
be subject to continued improvement in
FY23. These controls will be developed over
time to meet the needs of the business and
the risks and opportunities to which it is
exposed, recognising differences in the
nature and type of each of the Group’s
operations. These controls include:
• The preparation and consideration of
the five-year plan;
• A comprehensive budgeting system
with an annual budget which the Board
approves;
However, the new Babcock Document
we cannot conclude they were effective
of Control establishes a minimum
expectation of controls that are
for the full 12-month period of FY22.
However, the Company had successfully
considered to be mandatory irrespective
delivered the improvement plans for it’s
of the nature of the line of business.
Legacy control systems still exist from
previous acquisition activity, and other key
control processes, including IT, are not fully
standardised and implemented across the
Group. The implementation and operation
of certain key controls is decentralised to
business units. Sector, functional and central
oversight activities and controls are in place
to support this.
Across all parts of the business the
Committee has overseen strengthened
financial controls through: increased
internal controls agreed last year, whilst
recognising that there remains on-going
scope for further improvement in FY23,
including lessons learnt from the
FY22 closing.
External audit
During FY21, the Committee concluded the
process to retender the external audit, with
the incumbent auditor at that time, PwC,
not participating. The recommendation to
appoint Deloitte as external auditor was
then approved by shareholders at the 2021
AGM. Steps were taken throughout FY22 to
independent review of the most material
ensure an effective transition to Deloitte,
development contracts; extended
including attendance at Audit Committee
governance and regulatory training; monthly
meetings as the previous financial year was
sector reviews by the CEO and CFO; the
communication of a revised delegation
matrix and Letter of Representation;
concluded, and access and review of the
final PwC audit files for the Group and its
subsidiaries. In September 2021 we agreed
enhanced focus and reporting of open and
the scope and level of materiality of the
overdue audit recommendations; the
FY22 audit plan of work and discussed with
communication of revised, proportionate
Deloitte the areas that they had identified as
minimum expectations of financial control;
key risks and other particular areas of focus
and a ‘hard financial close’ exercise for the
in their first year, and the specific audit
10 months to January, ahead of the year
procedures that they would perform to
end.
undertake the related audit work.
In particular, as part of closing the prior
As part of the original tender process it
year, the Committee concluded that
internal and financial controls had not
was planned that Deloitte would give an
interim review opinion on the interim
been fully effective in certain parts of the
financial information (H1) in addition to
Group, most notably in Aviation, Land and
auditing the full-year results. This was a
Group Head Office. It therefore agreed
with Group and sector management a
new approach for Babcock which had not
previously had interim reviews performed
programme of improvements in internal
by the auditor. That interim financial
and financial controls. These included, for
information review timetable was delayed
Group Head Office, changes to the
by the timing of the handover from PwC
treasury and Group reporting functions,
and the transition work being more
whilst in Aviation and Land the plans
extensive than would usually be the case
addressed specific issues in those sectors.
given the many adjustments published in
• Monthly review of business and financial
The Committee has monitored progress in
the 31 March 2021 year-end financial
performance in the month and year to
date, and update of financial forecasts
for the year;
these areas throughout the year, including
statements and the Group’s ongoing
attendance by the Land and Aviation
transformation of its accounting and
sector management to present their plans
control environment. Although the
• The monitoring of financial
performance and key dependencies for
the full year;
• The monitoring of project and
programme management; and
• The appropriate delegation of
authorities to operational management.
and status at two meetings in the year,
and a quarterly update of Group Head
Office improvements to both the Audit
Committee and the Board. In addition,
BDO were asked to undertake an
review was not completed, a significant
amount of work was performed and there
were invaluable lessons learned at that
time that were used to execute a
successful year-end timetable, including:
assessment of the status of progress as at
standard templates for accounting
31 March 2022 during the fiscal Q4 and
technical applications on contracts and
early FY23 period. The improvement plans
their judgements; early interaction with
were only finalised and implementation
subject matter audit experts in treasury,
started during the year, which means that
pensions and taxation; enhanced
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communication; and short-term
interventions such as regular brief
‘touch-point status’ meetings with the
Audit Committee Chair, CFO and lead
audit partner.
The total fees paid to Deloitte in the year
ended 31 March 2022 equalled
£7.1 million, with non-audit fees of
£0.5 million, representing 7% of the total.
An analysis of the fees paid to the external
auditors in respect of audit and non-audit
work during the year can be found in note
5 to the Group Financial Statements on
page 188.
The provision of non-audit services is
controlled by a policy which states that
the external auditors will not be engaged
to provide any element of non-audit
services without approval in advance –
from the CFO for fees up to £10,000,
from the Chair of the Audit Committee for
fees between £10,000 and £100,000,
and by the Audit Committee for fees over
£100,000. The Committee recognises
that there may be some element of
non-audit services for which the Group
might wish to use the external auditors.
Deloitte is expected to report to the
Committee any material departures from
Group accounting policies and procedures
that they identify during the course of
their audit work. The Independent
auditor’s report to the members of the
Company can be found on page 136,
which includes reference to the prior year
restatements that have been required as a
result of such departures.
Deloitte’s presentation of their audit plan
to the Committee set out the scope and
objectives of the audit, together with an
overview of the planned approach, an
assessment of the Group’s risks and controls,
and proposed areas of audit focus, which
was reviewed and approved by the
Committee.
The Committee is responsible for the
development, implementation and
monitoring of the Group’s policies on
services from external auditors, which are
designed to maintain the objectivity and
independence of the external auditors.
These policies set out the approach to be
taken when using the external auditors for
non-audit work and regulate the
appointment by the Group of former
employees of Deloitte. In addition to an
independence review conducted by
management, Deloitte has provided
specific assurance and the Committee
has considered the arrangements and
safeguards that Deloitte has in place
to maintain its independence and
objectivity. The external auditors follow
regulatory requirements to maintain the
objectivity of the audit process; these
stipulate a five-year rotation policy in
relation to the senior engagement
auditor. Makhan Chahal was appointed
as Deloitte’s first lead audit partner,
with responsibility starting for FY22.
The Committee continues to be satisfied
that Deloitte remain independent
and objective.
Audit Quality Review (AQR)
The FRC’s AQR team monitors the quality
of audit work of certain UK audit firms
through inspections of a sample of audits
and related procedures at individual audit
firms. Deloitte has provided us with the
findings from its latest firm-wide AQR
report, the initiatives being taken in
respect of the firm’s evolution of its
firm-wide audit approach and
methodology, and how those are
transferred into the Babcock audit. We
have also agreed a series of audit quality
indicators with the external audit team,
focused on phasing of audit hours,
timeliness of deliverables and subsidiary
audit progress. In addition the Audit
Committee Chair and the CFO met with
Deloitte during the year, in order to
ensure priorities were mutually
adequately resourced and receiving
responsiveness to be sufficient to support
the Group’s turnaround and execute the
year-end timetable.
Internal audit and assurance
The Group’s internal audit activity is entirely
outsourced to BDO. Each year BDO, after
discussions with management, propose a
strategy and plan for the internal audit to
the Committee for approval. The plan
covers lines of business and countries,
financial risk and other risk themes. Once
approved the internal auditor implements
the plan and reports back to the Committee
at each of its meetings. The findings of each
internal audit review are summarised for the
Committee, which focuses its discussions on
unsatisfactory findings and on the action
plans in place to address them. Particular
areas of focus for internal audit during FY22
included continuation of financial control
audits in line with the increased focus on
control improvements, related internal
audits in line with the key programmes,
assessment of the implementation of the
new risk management framework, and a
number of risk-based reviews.
In addition, internal audit has continued
to maintain a programme of follow-up
audits to assess the timely implementation
of internal audit recommendations by the
businesses and key matters from the
internal audit reviews.
As planned, during the first six months of the
financial year, the Committee reviewed the
scope of internal audit and assessed whether
the outsourced model was the most
appropriate to support the Group’s
turnaround and control improvement needs.
A decision was made to insource the activity
and, as a first step, an executive recruitment
process was started to appoint a Head of
Internal Audit and Assurance. That role will
be filled early in FY23 and a start made on
both recruiting an in-house internal audit
team and transition planning from BDO. The
Committee will consider these plans and
timing at an early opportunity; however, it is
expected that BDO will continue to deliver
the majority of internal audit work for FY23.
The Committee has approved the internal
audit plan for FY23 prepared by BDO,
including the proposed audit approach,
coverage and allocation of resources. The
FY23 plan was prepared considering a
number of factors, including the principal
risks of the Group. The key points in the
FY23 plan include:
• Continued focus on internal financial
controls assurance;
• Increased focus on non-financial areas
of risk, including corporate governance
and business interruption;
• Increased focus on IT controls and
cyber security, including compliance
with new regulations; and
• Continued improvement in the Group’s
assurance-mapping process across the
three lines of assurance.
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GOVERNANCE STATEMENT continued
Audit, risk and internal control continued
Priorities for FY23
The Committee has set the following
priorities for FY23:
• Ensuring completion of a successful
transition to the new Committee
membership;
• Continuing its oversight of the
implementation of improvements to
risk management and internal control
systems;
• Reviewing management’s key
programme watchlist process;
• Reviewing management’s
standardisation of bid to programme
execution controls;
• Monitoring the planning and successful
transition to the new insourced internal
audit model; and
• Continuing to monitor the various
regulatory initiatives flowing from
the UK Government’s stated aim to
reform the corporate governance
and audit regime.
Financial statements
The Committee reviews all significant issues
concerning the financial statements, which
include the going concern and viability
statement. It agreed the parameters of, and
subsequently reviewed the supporting
report for, the going concern statement and
the statement on the Board’s assessment of
the prospects of the Company (see the
Going concern and viability statement on
pages 88 and 89) over the five-year period
used in the business plan. The Committee
believes the extension of the period covered
by the business plan, and therefore the
viability statement, to a five-year period is
the most appropriate timespan for this
Group given our business planning cycle, the
long-term nature of a number of our
programmes and insight gained from the
first year of the turnaround. In assessing
going concern and viability, the Committee
has considered cash flow projections and
timings, which include assumptions, as far as
they can be made, in respect of COVID-19
and climate change, with related sensitivity
analysis and stress-testing scenarios,
borrowing facilities available to the
Company and covenants.
During the year we have continued to
scrutinise our disclosures on environmental,
social and governance (ESG) issues,
particularly in respect of climate change and
Task Force on Climate-related Financial
Disclosures (TCFD) and other evolving
reporting requirements. We have reviewed
actions being taken to address this, and
agreed in principle the areas for further
disclosure in the FY22 Annual Report. This
has included continuing to improve linkage
between the Strategic report and the
financial statements. Further detail on
climate risk and opportunity scenario
planning is set out on page 60.
For FY21 the Company made a series of
changes to the reporting of underlying
measures to improve transparency and
provide a simpler set of financial disclosures
and financial commentary for the future. We
have considered alternative performance
measures, amongst other matters, to ensure
they continue to assist the provision of a fair,
balanced and understandable Annual Report
and Accounts. Other parts of this process
include:
• Comprehensive guidance issued to all
the contributors at operational level;
• A verification process dealing with the
factual content of the reports;
• Comprehensive reviews undertaken at
different levels in the Group that aim
to ensure consistency and overall
balance; and
• Comprehensive review by the Directors
and the Executive Committee.
Following this review, the Committee was of
the opinion that the FY22 Annual Report and
Accounts was representative of the year and
presents a fair, balanced and understandable
overview, providing the necessary
information for shareholders to assess
the Group’s position and performance,
business model and strategy.
Code of Business Conduct
violations and fraud
The Babcock Code of Business Conduct,
which incorporates the Group’s
whistleblowing policy, contains
arrangements for an independent external
service provider to receive, in confidence,
reports on suspected violations of the
Code for reporting to the Board and the
Committee as appropriate. Please see
pages 71, 72 and 98 for further details.
The Board regularly received reports on
matters relating to the Code.
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GOVERNANCE STATEMENT continued
Audit, risk and internal control continued
believes the extension of the period covered
the contributors at operational level;
• Comprehensive guidance issued to all
Financial statements
The Committee reviews all significant issues
concerning the financial statements, which
include the going concern and viability
statement. It agreed the parameters of, and
subsequently reviewed the supporting
report for, the going concern statement and
the statement on the Board’s assessment of
the prospects of the Company (see the
Going concern and viability statement on
pages 88 and 89) over the five-year period
used in the business plan. The Committee
by the business plan, and therefore the
viability statement, to a five-year period is
the most appropriate timespan for this
Group given our business planning cycle, the
long-term nature of a number of our
programmes and insight gained from the
first year of the turnaround. In assessing
going concern and viability, the Committee
has considered cash flow projections and
they can be made, in respect of COVID-19
and climate change, with related sensitivity
analysis and stress-testing scenarios,
borrowing facilities available to the
Company and covenants.
During the year we have continued to
scrutinise our disclosures on environmental,
social and governance (ESG) issues,
particularly in respect of climate change and
Task Force on Climate-related Financial
Disclosures (TCFD) and other evolving
reporting requirements. We have reviewed
actions being taken to address this, and
agreed in principle the areas for further
disclosure in the FY22 Annual Report. This
has included continuing to improve linkage
between the Strategic report and the
financial statements. Further detail on
climate risk and opportunity scenario
planning is set out on page 60.
• A verification process dealing with the
factual content of the reports;
• Comprehensive reviews undertaken at
different levels in the Group that aim
to ensure consistency and overall
balance; and
• Comprehensive review by the Directors
and the Executive Committee.
the opinion that the FY22 Annual Report and
Accounts was representative of the year and
presents a fair, balanced and understandable
overview, providing the necessary
information for shareholders to assess
the Group’s position and performance,
business model and strategy.
Code of Business Conduct
violations and fraud
The Babcock Code of Business Conduct,
which incorporates the Group’s
whistleblowing policy, contains
arrangements for an independent external
service provider to receive, in confidence,
reports on suspected violations of the
Code for reporting to the Board and the
Committee as appropriate. Please see
pages 71, 72 and 98 for further details.
The Board regularly received reports on
matters relating to the Code.
timings, which include assumptions, as far as
Following this review, the Committee was of
systems;
• Reviewing management’s key
programme watchlist process;
• Reviewing management’s
standardisation of bid to programme
execution controls;
• Monitoring the planning and successful
transition to the new insourced internal
audit model; and
• Continuing to monitor the various
regulatory initiatives flowing from
the UK Government’s stated aim to
reform the corporate governance
and audit regime.
Remuneration
Remuneration Committee Report
For FY21 the Company made a series of
changes to the reporting of underlying
measures to improve transparency and
provide a simpler set of financial disclosures
and financial commentary for the future. We
have considered alternative performance
Priorities for FY23
The Committee has set the following
priorities for FY23:
• Ensuring completion of a successful
transition to the new Committee
measures, amongst other matters, to ensure
membership;
they continue to assist the provision of a fair,
• Continuing its oversight of the
balanced and understandable Annual Report
and Accounts. Other parts of this process
implementation of improvements to
risk management and internal control
include:
KJERSTI WIKLUND
Chair of the
Remuneration
Committee
Key facts
The Committee
Kjersti Wiklund has chaired the
Committee since April 2020. She
is also chair of the Remuneration
Committee of Trainline plc. The
other Committee members are
Carl-Peter Forster, Russ Houlden and
John Ramsay. Please see pages 94
and 95 for biographies and page
103 for attendance. Kjersti will retire
from the Board at the 2022 AGM
and Carl-Peter Forster will take over
as Chair of the Committee.
Highlights
Implementation of the Company’s
Remuneration policy
Review of FY22 remuneration
outcomes
Deciding FY23 remuneration
structure
Key responsibilities
Oversight of reward matters across
the Group
Maintenance of a strong link
between strategy, stakeholder
experience and Executive Director
reward
Approval of reward outcomes for the
Executive Directors
Dear fellow Shareholder
I would like to open our Directors’
Remuneration report (‘DRR’) for the year
ended 31 March 2022 by emphasising
the importance that the Remuneration
Committee places on the need for a clear
link between strategy, performance and
pay. As a Committee, we believe that
our approach to remuneration plays a key
role in the achievement of the Group’s
strategic objectives and in the delivery
of sustainable growth. We continuously
review our Remuneration policy to assure
ourselves that our policy is fulfilling this
role. This year, after our review, we are
not proposing any material changes to
the operation of our policy. At the end of
FY23, our current policy will expire, so we
will engage with our shareholders over
the coming year in order to listen to and
understand their views on how we can
best take our policy forward and to make
sure that it continues to support the
Group’s strategy.
Before I start the main report, I would
like to say that this is my last report as I
am retiring from the Board at the 2022
AGM. I want to thank all my colleagues,
especially my fellow Committee
members, for their help and support
during my tenure as Committee Chair
and to welcome Carl-Peter to the Chair,
as he will take over on my retirement.
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Good progress on
FY22 priorities
I would like to set the context for our
work over FY22. Last year the Board
set out five strategic actions in the FY21
Annual Report to strengthen Babcock. As
described in the Strategic report on pages
2 to 89, the Group has made good
progress across each of these five actions.
As a Committee reviewing those actions,
we are pleased to report:
• Portfolio: The Company has made
progress to align the Group’s portfolio
by divesting certain businesses. It has
exceeded the target the Board set of
generating £400 million of disposal
proceeds, which the Company has used
to pay down debt and to invest in the
Group. Please see page 13.
• Operating model: The Company has
implemented its new operating model
with the aim of creating a flatter and
more efficient business. It achieved its
target of in-year operating model
savings, helping to create a stronger
Babcock. Please see page 13.
• People strategy: The Company
has started the roll-out of its new
People strategy, with a new Purpose,
underpinned by new Principles. The
aim of this strategy is to develop a
new organisation that shares capability,
talent, innovation and best practice
across the Group. Please see pages 13
and 19.
• ESG strategy: The Company has
continued to develop its ESG strategy
and is working on the development of
plans to reduce its emissions to meet its
science-based targets so that the Group
is net zero across its estate, assets and
operations by 2040. Please see pages
13 and 54 to 75.
• Growth: The Company has continued
to explore growth opportunities. It has
signed an agreement for the export
of the Group’s Arrowhead 140 frigate
design to Indonesia and Poland. In
Australia, the Company acquired the
remaining joint venture interest in
NSM to establish the Group as a tier 1
warship sustainer. Please see pages 14
and 15.
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113
GOVERNANCE STATEMENT: Remuneration continued
Alignment of our
Remuneration policy to the
Board’s strategic objectives
We as a Committee have aimed to play
our part in supporting the Group’s
progress outlined above by implementing
our Remuneration policy so that it aligns
with and encourages the sustainable
achievement of our five strategic actions.
We have done this by:
• Setting base salary at a level to recruit
and retain executive talent so that
the Group can execute its strategic
objectives. However, we review any
increase in executive base salary to
ensure that it is in line with the
wider workforce.
• Structuring the annual bonus and the
longer-term performance share plan
(PSP) so that we link both schemes
to progress on the Board’s strategic
objectives. For example, both schemes
have measures (operating cash flow and
profit before tax in the annual bonus;
and cumulative free cash flow in the PSP)
that incentivise the strengthening of
Babcock by the implementation of the
Board’s five strategic actions. The annual
bonus also contains non-financial
measures that align to those actions (see
page 127 for more detail).
Remuneration in FY22
The outcome of the contract profitability
and balance sheet review was a key
consideration in our discussions of
remuneration at the beginning of
FY22. We believe that the remuneration
outcomes, which I summarise below,
reflect the Company’s performance
and the broader context, including
shareholders’ experience and interests.
After due consideration, the Committee
approved the following outcomes:
• Salary: As we disclosed in the FY21
DRR, we delayed our review of the
Executive Directors’ base salaries
until September 2021 in line with
the Company’s approach for other
employees. In September, we decided
to award the Executive Directors an
increase of 2% in alignment with
increases across the Group.
• FY22 annual bonus: We followed the
same structure for the FY22 annual
bonus for Executive Directors as we did
for FY21. It was based 80% on underlying
financial performance measures, split
equally between operating cash flow
and profit before tax. In line with past
practice, we maintained the percentage
allocated to non-financial measures at
20%. As in FY21, we adopted a wide
range for the performance measures and
retained discretion to ensure that the
outcome aligned to the Group’s
stakeholder experience. The Committee
considered the good progress against
the FY22 priorities, as described above,
as well as shareholder experience.
Following its considerations, the
Committee was pleased to award an
annual bonus for FY22 to the Executive
Directors, having not awarded a bonus
last year, and awarded a bonus of 80% of
maximum for David Lockwood and 79%
of maximum for David Mellors. Please
see pages 126 to 128 for more detail.
• 2019 PSP awards: Neither Executive
Director was with the Company when
we awarded the 2019 PSP awards and
therefore they were not participants
in the 2019 cycle. In any event,
performance against the targets for this
cycle was below threshold, resulting in
the 2019 PSP awards lapsing in full.
• 2021 PSP awards: We granted the
2021 PSP award in August 2021,
following the outcome of the contract
profitability and balance sheet review.
We considered the measures for the
awards to ensure that they would
support the Board’s strategic actions
and would reflect the wider shareholder
experience. After our review, we decided
that the most appropriate measures
were relative TSR and cumulative free
cash flow, both equally weighted,
consistent with the 2020 PSP awards.
The performance period for the award
is the three financial years starting
with FY22; as we consider the targets
for cumulative free cash flow to be
commercially sensitive, we have delayed
disclosing the range, but we will disclose
the target no later than the FY24 annual
report, being the relevant annual report
for disclosing the vesting outcome for
the 2021 PSP award. For further detail,
please see pages 128 and 133.
ESG in FY22
We have set out in this Annual Report our
strategy for ESG (please see page 54).
During FY22, the Committee has
considered how it might support the
Group’s strategy in line with stakeholders’
expectations that companies start to
consider how to include ESG in their
remuneration plans. The Group’s
Remuneration policy has always included
elements of ESG. For example, the Group’s
annual bonus has a health and safety
underpin, by which the Committee can
reduce or cancel any bonus if the Group’s
health and safety performance does not
warrant a bonus. In FY22, the Committee
built on this to include specific ESG
objectives and measures in the FY23
annual bonus. These objectives and
measures include health and safety, the
pathway to net zero and diversity. In
addition, the health and safety underpin
will remain in place.
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GOVERNANCE STATEMENT: Remuneration continued
After due consideration, the Committee
• 2021 PSP awards: We granted the
Alignment of our
Remuneration policy to the
Board’s strategic objectives
We as a Committee have aimed to play
our part in supporting the Group’s
progress outlined above by implementing
our Remuneration policy so that it aligns
with and encourages the sustainable
achievement of our five strategic actions.
We have done this by:
• Setting base salary at a level to recruit
and retain executive talent so that
the Group can execute its strategic
objectives. However, we review any
increase in executive base salary to
ensure that it is in line with the
wider workforce.
• Structuring the annual bonus and the
longer-term performance share plan
(PSP) so that we link both schemes
to progress on the Board’s strategic
objectives. For example, both schemes
have measures (operating cash flow and
profit before tax in the annual bonus;
and cumulative free cash flow in the PSP)
that incentivise the strengthening of
Babcock by the implementation of the
Board’s five strategic actions. The annual
bonus also contains non-financial
measures that align to those actions (see
page 127 for more detail).
Remuneration in FY22
The outcome of the contract profitability
and balance sheet review was a key
consideration in our discussions of
remuneration at the beginning of
FY22. We believe that the remuneration
outcomes, which I summarise below,
reflect the Company’s performance
and the broader context, including
shareholders’ experience and interests.
approved the following outcomes:
• Salary: As we disclosed in the FY21
DRR, we delayed our review of the
Executive Directors’ base salaries
until September 2021 in line with
the Company’s approach for other
employees. In September, we decided
to award the Executive Directors an
increase of 2% in alignment with
increases across the Group.
• FY22 annual bonus: We followed the
same structure for the FY22 annual
bonus for Executive Directors as we did
for FY21. It was based 80% on underlying
financial performance measures, split
equally between operating cash flow
and profit before tax. In line with past
practice, we maintained the percentage
allocated to non-financial measures at
20%. As in FY21, we adopted a wide
range for the performance measures and
retained discretion to ensure that the
outcome aligned to the Group’s
stakeholder experience. The Committee
considered the good progress against
the FY22 priorities, as described above,
as well as shareholder experience.
Following its considerations, the
Committee was pleased to award an
annual bonus for FY22 to the Executive
Directors, having not awarded a bonus
last year, and awarded a bonus of 80% of
maximum for David Lockwood and 79%
of maximum for David Mellors. Please
see pages 126 to 128 for more detail.
• 2019 PSP awards: Neither Executive
Director was with the Company when
we awarded the 2019 PSP awards and
therefore they were not participants
in the 2019 cycle. In any event,
performance against the targets for this
cycle was below threshold, resulting in
the 2019 PSP awards lapsing in full.
2021 PSP award in August 2021,
following the outcome of the contract
profitability and balance sheet review.
We considered the measures for the
awards to ensure that they would
support the Board’s strategic actions
and would reflect the wider shareholder
experience. After our review, we decided
that the most appropriate measures
were relative TSR and cumulative free
cash flow, both equally weighted,
consistent with the 2020 PSP awards.
The performance period for the award
is the three financial years starting
with FY22; as we consider the targets
for cumulative free cash flow to be
commercially sensitive, we have delayed
disclosing the range, but we will disclose
the target no later than the FY24 annual
report, being the relevant annual report
for disclosing the vesting outcome for
the 2021 PSP award. For further detail,
please see pages 128 and 133.
ESG in FY22
We have set out in this Annual Report our
strategy for ESG (please see page 54).
During FY22, the Committee has
considered how it might support the
Group’s strategy in line with stakeholders’
expectations that companies start to
consider how to include ESG in their
remuneration plans. The Group’s
Remuneration policy has always included
elements of ESG. For example, the Group’s
annual bonus has a health and safety
underpin, by which the Committee can
reduce or cancel any bonus if the Group’s
health and safety performance does not
warrant a bonus. In FY22, the Committee
built on this to include specific ESG
objectives and measures in the FY23
annual bonus. These objectives and
measures include health and safety, the
pathway to net zero and diversity. In
addition, the health and safety underpin
will remain in place.
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The Committee has followed all the work
Babcock is currently doing to develop its
ESG strategy and has discussed the
inclusion of PSP performance conditions
on climate change and other ESG-related
matters. In FY23, it will continue to
monitor the progress of the ESG strategy
and will consider the inclusion of ESG in
the PSP as part of its review of the
Remuneration policy.
Remuneration for FY23
When considering the implementation
of our Remuneration policy for FY23,
we have taken into account the need
to support the turnaround of the Group
by ensuring that we incentivise the
Executive Directors to deliver the Board’s
strategic actions, whilst continuing to
align the implementation of the policy
with shareholder interests. We have done
this as follows:
• Salary: Our normal practice is to align
our review of the Executive Director
salaries with the Company’s review of
the wider workforce. This year, the
Company decided to award all UK
employees (other than the Group’s
higher-paid earners) a standardised
annual salary increase. In order to align
the Executive Directors with this
decision, the Committee decided not
to increase the Executive Directors’
salaries for FY23.
• FY23 annual bonus: The structure of
the Executive Director annual bonus for
FY23 is consistent with that for FY22,
with measures based on operating cash
flow, profit before tax and non-financial
objectives. However, in the event of a
payout, we will revert to our usual
structure as per the approved
Remuneration policy and pay 60% of
any bonus earned for FY23 in cash and
defer the remaining 40% into awards
over Company shares for three years,
as usual. We have set the measures and
targets, which we will disclose in full in
next year’s DRR. Please see page 129
for more detail.
• 2022 PSP awards: We will grant
awards under the PSP to the Executive
Directors in 2022 covering the
three-year period FY23–FY25. We will
use the same measures as used for the
2021 PSP award, being relative TSR
and free cash flow, as they align with
our focus on the turnaround of the
Company, as well as shareholder
interests. We reviewed the targets for
both measures to ensure that they
would be appropriately stretching.
In respect of the free cash flow target,
we set a three-year cumulative range.
As in FY22, we consider this range
commercially sensitive and will
disclose the target no later than the
FY25 annual report, being the relevant
annual report for disclosing the vesting
outcome for the 2022 PSP award. In
respect of relative TSR, we decided to
retain the same performance range as
for 2021 PSP awards.
Focus for FY23
As usual, we will continue to support the
strategic aims of the Group through our
work on the Committee and the
implementation of our Remuneration
policy. However, over FY23, the
Committee will also look to develop the
channels through which it engages with
employees. In the past, the Committee
has engaged with employees through the
Babcock Employee Forum. Following the
appointment of Lord Parker as designated
Director for employee engagement, the
Committee has had the benefit of his
reports about the views he has heard
from his employee meetings. We also
hope to have the opportunity to consider
Babcock’s global engagement survey.
Previously, each sector would undertake
its own surveys at different times. For the
first time, the survey will cover the whole
Group and will give the Committee a
better insight into employee experiences
and views at work, including those
relating to remuneration and benefits.
We will look to use the engagement with
employees when we review our
Remuneration policy, which we will
present to the 2023 AGM for shareholder
approval. Before doing so, we will
conduct a comprehensive review to
ensure that our policy continues to reflect
best practice and supports the Group’s
strategic direction in the most appropriate
manner, whilst reflecting the priorities of
our shareholders. In order to make sure
that we understand those priorities, we
will engage with shareholders over FY23.
We as a Committee are looking forward
to this engagement, as it is an essential
underpin for our work over the lifetime of
the next policy.
I hope that you have found this report
useful. However, if you do have any
questions, the Committee is looking
forward to engaging with the Company’s
shareholders at its 2022 AGM.
KJERSTI WIKLUND
Committee Chair
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GOVERNANCE STATEMENT: Remuneration continued
Remuneration at a glance
This section provides an overview of the Company’s performance over FY22 and the remuneration received by our Executive Directors.
You can find full details in the Annual report on remuneration on pages 125 to 133.
FY22 remuneration outcomes
Annual bonus
The Committee based the FY22 bonus on a mix of financial and non-financial measures, the performance targets for which
(and actual performance against these) are set out below:
Measures
Warranted payout (% of maximum bonus)
Performance targets
D Lockwood
D Mellors
Group Profit
Before Tax (PBT)
40%
Max
21%
Outturn
40%
Max
21%
Outturn
Group Operating
Cash Flow (OCF)
40%
Max
40%
Outturn
40%
Max
40%
Outturn
Threshold
£193.4m
Target
£203.6m
Stretch
£224.0m
Outturn £202.8m2
Threshold
£42.4m
Target
£44.6m
Outturn £75.8m2
Stretch
£49.1m
Non-financial1
20%
Max
19%
Outturn
20%
Max
18%
Outturn
Total
100%
Max
80%
Outturn
100%
Max
79%
Outturn
1. The Committee has merged several measures into an overall assessment in this table for disclosure purposes.
2. Please see the annual bonus table on page 127 for more detail.
2019 PSP
The current Executive Directors were not participants in the 2019 PSP as the award predated their joining Babcock. In any event,
based on performance, the 2019 PSP award lapsed in full.
Implementation of the Remuneration policy in FY23
For the current financial year, the Committee intends to implement the Remuneration policy as set out in the table below.
Element of
remuneration
Implementation
for FY23
Base salary
Pension
Benefits
David Lockwood: £816,000
10% of salary
Unchanged from FY22
David Mellors: £571,200
In line with the approach taken
for other higher-paid employees
in FY23, the Committee did not
increase the Executive Directors’
salaries. Other UK employees
below this level received a
standardised salary increase
for FY23.
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GOVERNANCE STATEMENT: Remuneration continued
Remuneration at a glance
FY22 remuneration outcomes
Annual bonus
The Committee based the FY22 bonus on a mix of financial and non-financial measures, the performance targets for which
(and actual performance against these) are set out below:
Measures
Warranted payout (% of maximum bonus)
Performance targets
D Lockwood
D Mellors
Group Profit
Before Tax (PBT)
40%
Max
21%
Outturn
40%
Max
21%
Outturn
Group Operating
Cash Flow (OCF)
40%
Max
40%
Outturn
40%
Max
40%
Outturn
Threshold
£193.4m
Target
£203.6m
Stretch
£224.0m
Outturn £202.8m2
Threshold
£42.4m
Target
£44.6m
Outturn £75.8m2
Stretch
£49.1m
Non-financial1
20%
Max
19%
Outturn
20%
Max
18%
Outturn
Total
100%
Max
80%
Outturn
100%
Max
79%
Outturn
1. The Committee has merged several measures into an overall assessment in this table for disclosure purposes.
2. Please see the annual bonus table on page 127 for more detail.
2019 PSP
Element of
remuneration
for FY23
The current Executive Directors were not participants in the 2019 PSP as the award predated their joining Babcock. In any event,
based on performance, the 2019 PSP award lapsed in full.
Implementation of the Remuneration policy in FY23
For the current financial year, the Committee intends to implement the Remuneration policy as set out in the table below.
Base salary
Pension
Benefits
Implementation
David Lockwood: £816,000
10% of salary
Unchanged from FY22
David Mellors: £571,200
In line with the approach taken
for other higher-paid employees
in FY23, the Committee did not
increase the Executive Directors’
salaries. Other UK employees
below this level received a
standardised salary increase
for FY23.
This section provides an overview of the Company’s performance over FY22 and the remuneration received by our Executive Directors.
You can find full details in the Annual report on remuneration on pages 125 to 133.
Implementation of the Remuneration policy in FY23 continued
Element of
remuneration
Annual bonus and Deferred
Bonus Plan (DBP)
Element of
remuneration
PSP
Implementation
for FY23
PSP awards of 200% of salary with
vesting based on measures the
Committee believes are most
appropriate: free cash flow and
relative TSR, equally weighted.
Implementation
for FY23
The bonus structure is consistent
with that used for FY22, with
awards of up to 150% of salary
based on the achievement of
financial targets, PBT and OCF,
(each a 40% weighting)
and non-financial measures
(20% weighting).
The Committee has returned to
its normal practice of paying 60%
of any bonus earned in cash,
with the remaining 40% deferred
in shares for three years. For more
detail, please see page 129.
Alignment of the Remuneration policy
The Committee believes that the policy complies with the pillars set out in paragraph 40 of the 2018 Corporate Governance Code:
Clarity
The Committee believes that the disclosure of the remuneration arrangements is transparent, with
clear rationale provided on its maintenance and any changes to policy. The Committee remains
committed to consulting with shareholders on the policy and its implementation.
Simplicity
The policy and the Committee’s approach to its implementation are simple and well understood.
The performance measures used in the PSP, along with those in the annual bonus,
align to Babcock’s strategy.
Risk
The Committee has ensured that remuneration arrangements do not encourage or reward excessive
risk-taking by setting targets which are stretching, but achievable, with discretion to adjust formulaic
annual bonus and PSP outcomes.
Predictability and
proportionality
The link of the performance measures to strategy and the setting of targets balances predictability
and proportionality by ensuring outcomes do not reward poor performance.
Culture
The policy is consistent with Babcock’s culture as well as its strategy, therefore driving behaviours
which promote the long-term success of the Company for the benefit of all stakeholders.
Compliance statement
This report has been prepared in compliance with all relevant remuneration reporting regulations in force at the time and in
respect of the financial year under review.
This report contains both auditable and non-auditable information. The information subject to audit is so marked.
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GOVERNANCE STATEMENT: Remuneration continued
Remuneration policy report
Shareholders approved the Remuneration policy set out in this section by a binding shareholder vote at the
4 August 2020 AGM. You can find the policy at www.babcockinternational.com/who-we-are/leadership-
and-governance. The Committee intends that this policy will apply for three years from that date.
Key principles of the Remuneration policy
Our Remuneration policy for Executive Directors reflects a preference that we believe the majority of our shareholders share – to
rely more heavily on the value of variable performance-related rewards than on the fixed elements of pay, to incentivise and reward
success. The Committee, therefore, weights the focus of executive remuneration towards performance-related pay with a particular
emphasis on long-term performance. The Committee believes that, properly structured and with suitable safeguards, variable
performance-related rewards are the best way of linking pay to strategy, risk management and shareholders’ interests.
Remuneration policy for Executive Directors
Base salary
Purpose and link to strategy
To recruit and retain the best executive talent to execute our strategic objectives at appropriate cost.
Operation
The Committee reviews base salaries annually, with reference to the individual’s role, experience
and performance; salary levels at relevant comparators are considered, but do not in themselves drive
decision-making.
Opportunity
The Committee anticipates that increases in salary for the wider employee population over the term
of this policy will guide it on any increases for the Executive Directors. In certain circumstances
(including, but not limited to, a material increase in job size or complexity, market forces, promotion
or recruitment), the Committee has discretion to make appropriate adjustments to salary levels to
ensure they remain fair and competitive.
Performance metrics
Business and individual performance are considerations in setting base salary.
Pension
Purpose and link to strategy
To provide market-competitive retirement benefits.
Operation
Cash supplement in lieu (wholly or partly) of pension benefits for ongoing service and/or membership
of the Group’s defined benefit or defined contribution pension scheme.
Opportunity
Executive Directors receive pension benefits up to the value equivalent to the maximum level
of pension benefits provided under the Company’s regular defined contribution pension plans
as offered to the wider workforce in the relevant market as may be in effect or amended from
time to time.
Performance metrics
Not performance-related.
Benefits
Purpose and link to strategy
Designed to be competitive in the market in which the Group employs the individual, or to meet
costs effectively incurred at the Company’s request.
Operation
The Group provides a range of benefits, which may include (but are not limited to): life insurance;
medical insurance; car and fuel benefits and allowances; home-to-work travel and related costs; and
accommodation benefits and related costs.
The Group may offer other benefits (eg relocation) if the Committee considered it appropriate
and reasonable.
Opportunity
Benefit values vary by role and are periodically reviewed and set at a level that the Committee
considers appropriate in light of relevant market practice for the role and individual circumstances.
The cost of the benefits provided changes in accordance with market conditions, which will
determine the maximum amount that the Company would pay in the form of benefits during
the period of this policy. The Committee retains discretion to approve a higher cost in certain
circumstances (eg relocation) or in circumstances where factors outside the Company’s control
have changed materially.
Performance metrics
Not performance-related.
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GOVERNANCE STATEMENT: Remuneration continued
Remuneration policy report
Shareholders approved the Remuneration policy set out in this section by a binding shareholder vote at the
4 August 2020 AGM. You can find the policy at www.babcockinternational.com/who-we-are/leadership-
and-governance. The Committee intends that this policy will apply for three years from that date.
Key principles of the Remuneration policy
Our Remuneration policy for Executive Directors reflects a preference that we believe the majority of our shareholders share – to
rely more heavily on the value of variable performance-related rewards than on the fixed elements of pay, to incentivise and reward
success. The Committee, therefore, weights the focus of executive remuneration towards performance-related pay with a particular
emphasis on long-term performance. The Committee believes that, properly structured and with suitable safeguards, variable
performance-related rewards are the best way of linking pay to strategy, risk management and shareholders’ interests.
Remuneration policy for Executive Directors
Base salary
Purpose and link to strategy
To recruit and retain the best executive talent to execute our strategic objectives at appropriate cost.
Operation
The Committee reviews base salaries annually, with reference to the individual’s role, experience
and performance; salary levels at relevant comparators are considered, but do not in themselves drive
decision-making.
Opportunity
The Committee anticipates that increases in salary for the wider employee population over the term
of this policy will guide it on any increases for the Executive Directors. In certain circumstances
(including, but not limited to, a material increase in job size or complexity, market forces, promotion
or recruitment), the Committee has discretion to make appropriate adjustments to salary levels to
ensure they remain fair and competitive.
Performance metrics
Business and individual performance are considerations in setting base salary.
Purpose and link to strategy
To provide market-competitive retirement benefits.
Operation
Cash supplement in lieu (wholly or partly) of pension benefits for ongoing service and/or membership
of the Group’s defined benefit or defined contribution pension scheme.
Opportunity
Executive Directors receive pension benefits up to the value equivalent to the maximum level
of pension benefits provided under the Company’s regular defined contribution pension plans
as offered to the wider workforce in the relevant market as may be in effect or amended from
Performance metrics
Not performance-related.
time to time.
Pension
Benefits
Purpose and link to strategy
Designed to be competitive in the market in which the Group employs the individual, or to meet
costs effectively incurred at the Company’s request.
Operation
The Group provides a range of benefits, which may include (but are not limited to): life insurance;
medical insurance; car and fuel benefits and allowances; home-to-work travel and related costs; and
accommodation benefits and related costs.
The Group may offer other benefits (eg relocation) if the Committee considered it appropriate
and reasonable.
Opportunity
Benefit values vary by role and are periodically reviewed and set at a level that the Committee
considers appropriate in light of relevant market practice for the role and individual circumstances.
The cost of the benefits provided changes in accordance with market conditions, which will
determine the maximum amount that the Company would pay in the form of benefits during
the period of this policy. The Committee retains discretion to approve a higher cost in certain
circumstances (eg relocation) or in circumstances where factors outside the Company’s control
Performance metrics
Not performance-related.
have changed materially.
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Annual bonus
Purpose and link to strategy
To underpin delivery of year-on-year financial performance and progress towards strategic
non-financial objectives, being structured to motivate delivery against targets and achievement of
stretching outperformance, whilst mindful of achievement of long-term strategy and longer-term risks
to the Company.
The requirement to defer a substantial part of bonus into Company shares strengthens the link to
long-term sustainable growth.
Operation
Performance targets are set at the start of the year and reflect the responsibilities of the Executive
in relation to the delivery of our strategy.
At the end of the year, the Committee determines the extent to which the Group has achieved these
targets. The Committee has the discretion to adjust the outcome (up or down) within the limits
of the plan for corporate transactions, unforeseen events, factors outside reasonable management
control, and changes to business priorities or operational arrangements, to ensure targets represent
and remain a fair measure of performance. In addition, the Committee considers health and safety
performance and may reduce or cancel any annual bonus otherwise payable if it considers it
appropriate to do so in light of that performance.
The Committee defers at least 40% of annual bonus payments for Executive Directors into Company
shares for three years. Dividend equivalents accrued during the deferral period are payable in respect
of deferred shares when (and to the extent) these vest.
Malus and clawback provisions apply to cash and deferred bonus awards: if the accounts used to
determine the bonus level have to be materially corrected; if the Committee subsequently comes
to a view that bonus year performance was materially worse than originally believed; in the event
of gross misconduct; or if the award holder leaves employment in circumstances in which the
deferred bonus did not lapse and facts emerge which, if known at the time, would have caused
the deferred bonus to lapse on leaving or would have caused the Committee to exercise any
discretion differently.
Opportunity
Maximum bonus opportunity is 150% of salary.
For achievement of threshold, the Executive Directors earn up to 15% of maximum bonus;
for achievement of target, they earn up to 55% of maximum bonus.
Performance metrics
The Committee determines performance on an annual basis by reference to Group financial
measures, eg PBT, OCF, as well as the achievement of non-financial objectives.
The weighting on non-financial objectives is limited to 20%, unless the Committee believes
exceptional circumstances merit a higher weighting.
The Committee retains discretion to vary the financial measures and their weightings annually,
to ensure alignment with the business priorities for the year.
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GOVERNANCE STATEMENT: Remuneration continued
Performance Share Plan (PSP)
Purpose and link to strategy
To incentivise delivery of top-quartile shareholder returns and earnings growth over the longer term.
Long-term measures guard against the Company taking short-term steps to maximise annual rewards
at the expense of future performance.
Operation
The Committee has the ability to grant nil-cost options or conditional share awards under the PSP.
The Committee reviews award levels and performance conditions, on which vesting depends,
from time to time to ensure they remain appropriate.
Participants will receive cash or shares equal to the value of any dividends that they would have
received over the vesting period on awards that vest.
The Committee has the ability to exercise discretion to override the PSP outcome in circumstances
where strict application of the performance conditions would produce a result inconsistent with
the Company’s remuneration principles.
An additional two-year holding period will apply to Executive Directors’ vested PSP awards before
the Company releases them.
Malus and clawback provisions apply to PSP awards: if there is a misstatement of the Group’s financial
results for any period; if the Committee subsequently comes to a view that performance was
materially worse than originally believed; in the event of gross misconduct; or if the award holder
leaves employment in circumstances in which the award did not lapse and facts emerge which,
if known at the time, would have caused the award to lapse on leaving or caused the Committee
to exercise any discretion differently.
Opportunity
Maximum annual PSP award opportunity is 200% of base pay.
16.7% of the maximum award opportunity will vest for threshold performance.
Performance metrics
Vesting of PSP awards is subject to continued employment and Company performance over a
three-year performance period.
The Committee intends to base PSP awards made during the life of this policy on the achievement of
stretching financial targets such as EPS, cash flow, TSR and ROCE.
The Committee will review the performance measures, their weightings, and performance targets
annually to ensure continued alignment with Company strategy.
All-employee plans – Babcock Employee Share Plan
Purpose and link to strategy
To encourage employee ownership of Company shares.
Operation
Open to all UK tax-resident employees, including Executive Directors, of participating Group companies.
The plan is an HMRC-approved share incentive plan that allows an employee to purchase shares out of
pre-tax salary which, if held for a period approved by HMRC (currently three to five years), are taxed
on a favourable basis.
The Company can match purchased shares with an award of free shares.
Opportunity
Participants can purchase shares up to the prevailing HMRC limit from time to time.
The Company currently offers to match purchases made through the plan at the rate of one free
matching share for every 10 shares purchased. The Committee reviews the matching rate
periodically, but it will remain bound by the prevailing HMRC limit.
Performance metrics
Not performance-related.
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GOVERNANCE STATEMENT: Remuneration continued
Performance Share Plan (PSP)
Purpose and link to strategy
To incentivise delivery of top-quartile shareholder returns and earnings growth over the longer term.
Long-term measures guard against the Company taking short-term steps to maximise annual rewards
at the expense of future performance.
Operation
The Committee has the ability to grant nil-cost options or conditional share awards under the PSP.
The Committee reviews award levels and performance conditions, on which vesting depends,
from time to time to ensure they remain appropriate.
Participants will receive cash or shares equal to the value of any dividends that they would have
received over the vesting period on awards that vest.
The Committee has the ability to exercise discretion to override the PSP outcome in circumstances
where strict application of the performance conditions would produce a result inconsistent with
the Company’s remuneration principles.
An additional two-year holding period will apply to Executive Directors’ vested PSP awards before
the Company releases them.
Malus and clawback provisions apply to PSP awards: if there is a misstatement of the Group’s financial
results for any period; if the Committee subsequently comes to a view that performance was
materially worse than originally believed; in the event of gross misconduct; or if the award holder
leaves employment in circumstances in which the award did not lapse and facts emerge which,
if known at the time, would have caused the award to lapse on leaving or caused the Committee
to exercise any discretion differently.
Opportunity
Maximum annual PSP award opportunity is 200% of base pay.
16.7% of the maximum award opportunity will vest for threshold performance.
Performance metrics
Vesting of PSP awards is subject to continued employment and Company performance over a
three-year performance period.
The Committee intends to base PSP awards made during the life of this policy on the achievement of
stretching financial targets such as EPS, cash flow, TSR and ROCE.
The Committee will review the performance measures, their weightings, and performance targets
annually to ensure continued alignment with Company strategy.
All-employee plans – Babcock Employee Share Plan
Purpose and link to strategy
To encourage employee ownership of Company shares.
Operation
Open to all UK tax-resident employees, including Executive Directors, of participating Group companies.
The plan is an HMRC-approved share incentive plan that allows an employee to purchase shares out of
pre-tax salary which, if held for a period approved by HMRC (currently three to five years), are taxed
on a favourable basis.
The Company can match purchased shares with an award of free shares.
Opportunity
Participants can purchase shares up to the prevailing HMRC limit from time to time.
The Company currently offers to match purchases made through the plan at the rate of one free
matching share for every 10 shares purchased. The Committee reviews the matching rate
periodically, but it will remain bound by the prevailing HMRC limit.
Performance metrics
Not performance-related.
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Approach to recruitment remuneration
In the case of hiring or appointing a new Executive Director, the Committee may make use of any of the components of remuneration
(and subject to the same limits) set out in the policy above.
In determining appropriate remuneration for new Executive Directors, the Committee will take into consideration all relevant factors
(including quantum, the nature of remuneration and from where the Company recruited the candidate) to ensure that arrangements
are in the best interests of the Company and its shareholders. The Committee may also make an award in respect of a new external
appointment to ‘replace’ incentive arrangements forfeited on leaving a previous employer over and above the limits set out in the
policy in the table above. In doing so, the Committee will consider relevant factors, including any performance conditions attached to
these awards, time to vesting and the likelihood of those conditions being met. The fair value of the compensatory award would not
be greater than the awards the Company was replacing. In order to facilitate like-for-like compensatory awards on recruitment, the
Committee may avail itself of the relevant Listing Rule, if required.
When appointing a new Executive Director by way of promotion from an internal role, the pay structure will be consistent with the
policy for external hires detailed above. Where an individual has contractual commitments, outstanding incentive awards and/or
pension arrangements prior to their promotion to Executive Director, the Company may honour those arrangements; however, where
appropriate the Committee would expect these to transition over time to the arrangements stated above.
When recruiting a new Non-Executive Director, the Committee or Board will structure pay in line with the existing policy, namely a
base fee in line with the current fee schedule, with additional fees for fulfilling the role of Senior Independent Director and Chairship
of the Audit and Remuneration Committees.
Payments from existing awards and commitments
Executive Directors are eligible to receive payment from any award or other commitment made prior to the approval and
implementation of the Remuneration policy detailed in this report.
Performance measure selection and approach to target setting
The Committee selects measures used under annual bonus plans annually to reflect the Group’s main strategic objectives for the year.
They reflect both financial and non-financial priorities. The Committee sets performance targets to be stretching but achievable, taking
into account the Company’s strategic priorities and the economic environment in which the Company operates. The Committee sets
financial targets taking into account a range of reference points, including the Group’s strategic and operating plan.
The Committee considers at length the appropriate financial conditions and non-financial objectives to attach to annual bonus awards
as well as the financial targets to attach to share awards to ensure they continue to be: (i) relevant to the Group’s strategic objectives
and aligned with shareholders’ interests, mindful of risk management; and (ii) fair by being suitably stretching whilst realistic.
The Committee has discretion to adjust the calculation of short- and long-term performance outcomes in circumstances where
application of the formula would produce a result inconsistent with the Company’s remuneration principles. Such circumstances may
include changes in accounting standards and certain major corporate events such as rights issues, share buybacks, special dividends,
corporate restructurings, acquisitions and disposals.
The Committee reviews the performance conditions for share awards prior to the start of each cycle to ensure they remain
appropriate. The Committee would not make a material reduction in long-term incentive targets for future awards without prior
consultation with our major shareholders.
Executive Director and general employee remuneration
The policy with regard to the remuneration of senior executives below the Board is broadly consistent with that for the Executive
Directors, in that it weights remuneration to variable components which are delivered through an annual bonus and equity-based
incentives, albeit that restricted stock awards, and not the PSP, are used for participants below Board level. The Committee considers
the Remuneration policy for our Executive Directors with the remuneration philosophy and principles that underpin remuneration for
the wider Group in mind. The remuneration arrangements for other employees reflect local market practice and the seniority of each
role. As a result, the levels and structure of remuneration for different groups of employees will differ from the policy for executives as
set out above, but with the common intention that remuneration arrangements for all groups might reasonably be considered to be
fair having regard to such factors.
Balance of remuneration for Executive Directors
The charts below provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential
split between the different elements of remuneration under four different performance scenarios: ‘Minimum’, ‘On-target’, ‘Maximum’
and ‘Maximum+50%’.
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GOVERNANCE STATEMENT: Remuneration continued
Potential reward opportunities are based on the Company’s Remuneration policy and implementation in FY23, as outlined in the
Committee Chair’s statement and later in the Annual report on remuneration, applied to base salaries as at 1 April 2022. Note that the
projected values exclude the impact of any share price movements except in the ‘Maximum+50%’ scenario.
Chief Executive
David Lockwood (£’000)
Maximum
+50%
22%
Maximum
26%
26%
32%
Chief Financial Officer
David Mellors (£’000)
52%
£4,689
Maximum
+50%
20%
42% £3,873
Maximum
24%
27%
33%
53% £3,214
43% £2,643
On-target
52%
34%
14%
£1,962
On-target
49%
36%
15%
£1,305
Minimum
100% £1,017
Minimum
100% £643
0
1,000
2,000
3,000
4,000
5,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Fixed remuneration
Annual variable remuneration
Long-term incentives
The ‘Minimum’ scenario shows base salary, pension (and/or pay in lieu of pension) and benefits (ie fixed remuneration). These are the only
elements of the Executive Directors’ remuneration packages that are not at risk.
The ‘On-target’ scenario reflects fixed remuneration as above, plus a payout of 55% of the annual bonus and threshold vesting of
16.7% of the maximum award under the PSP.
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of all incentives (150% of salary under the annual bonus, 200% of
salary under the PSP).
The ‘Maximum+50%’ scenario reflects fixed remuneration, plus full payout of all incentives with the value of the PSP also reflecting an
increase of 50% in the share price from grant.
Shareholding guidelines for Executive Directors
The Committee sets shareholding guidelines for the Executive Directors. The current guideline is to build and maintain, over time, a
personal (and/or spousal) holding of shares in the Company equivalent in value to at least twice the Executive Director’s annual base
salary (three times for the CEO). Executive Directors are expected to retain at least half of any shares acquired on the exercise of a
share award that remain after the sale of sufficient shares to cover tax and national insurance triggered by the exercise (and associated
dealing costs) until the guideline level is achieved and thereafter maintained.
The shareholding requirements include a post-cessation extension such that departing Executive Directors will be required to hold
vested Company shares, received through the Company’s PSP, for two years at a level equal to the lower of their actual shareholding
on cessation and the in-post shareholding requirement. Any shares purchased by an Executive Director will not be part of this
holding requirement.
Details of Directors’ service contracts and exit payments and treatment of awards on a change of control
The following summarises the key terms (excluding remuneration) of the Executive Directors’ service contracts:
Executive Directors
Name
Date of service contract
Notice period
David Lockwood (Chief Executive)
29 July 2020
12 months from Company,
12 months from Director
David Mellors (Chief Financial Officer)
29 September 2020
12 months from Company,
12 months from Director
The latest service contracts are available for inspection at the Company’s registered office and will also be available at the Company’s
Annual General Meeting.
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GOVERNANCE STATEMENT: Remuneration continued
Potential reward opportunities are based on the Company’s Remuneration policy and implementation in FY23, as outlined in the
Committee Chair’s statement and later in the Annual report on remuneration, applied to base salaries as at 1 April 2022. Note that the
projected values exclude the impact of any share price movements except in the ‘Maximum+50%’ scenario.
Chief Executive
David Lockwood (£’000)
Maximum
+50%
22%
26%
32%
52%
£4,689
Maximum
+50%
20%
53% £3,214
Chief Financial Officer
David Mellors (£’000)
27%
33%
Maximum
26%
42% £3,873
Maximum
24%
43% £2,643
On-target
52%
34%
14%
£1,962
On-target
49%
36%
15%
£1,305
Minimum
100% £1,017
Minimum
100% £643
0
1,000
2,000
3,000
4,000
5,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Fixed remuneration
Annual variable remuneration
Long-term incentives
The ‘Minimum’ scenario shows base salary, pension (and/or pay in lieu of pension) and benefits (ie fixed remuneration). These are the only
elements of the Executive Directors’ remuneration packages that are not at risk.
The ‘On-target’ scenario reflects fixed remuneration as above, plus a payout of 55% of the annual bonus and threshold vesting of
16.7% of the maximum award under the PSP.
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of all incentives (150% of salary under the annual bonus, 200% of
salary under the PSP).
The ‘Maximum+50%’ scenario reflects fixed remuneration, plus full payout of all incentives with the value of the PSP also reflecting an
increase of 50% in the share price from grant.
Shareholding guidelines for Executive Directors
The Committee sets shareholding guidelines for the Executive Directors. The current guideline is to build and maintain, over time, a
personal (and/or spousal) holding of shares in the Company equivalent in value to at least twice the Executive Director’s annual base
salary (three times for the CEO). Executive Directors are expected to retain at least half of any shares acquired on the exercise of a
share award that remain after the sale of sufficient shares to cover tax and national insurance triggered by the exercise (and associated
dealing costs) until the guideline level is achieved and thereafter maintained.
The shareholding requirements include a post-cessation extension such that departing Executive Directors will be required to hold
vested Company shares, received through the Company’s PSP, for two years at a level equal to the lower of their actual shareholding
on cessation and the in-post shareholding requirement. Any shares purchased by an Executive Director will not be part of this
holding requirement.
Executive Directors
Name
Details of Directors’ service contracts and exit payments and treatment of awards on a change of control
The following summarises the key terms (excluding remuneration) of the Executive Directors’ service contracts:
David Lockwood (Chief Executive)
29 July 2020
Date of service contract
Notice period
David Mellors (Chief Financial Officer)
29 September 2020
12 months from Company,
12 months from Company,
12 months from Director
12 months from Director
The latest service contracts are available for inspection at the Company’s registered office and will also be available at the Company’s
Annual General Meeting.
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The Company’s policy is that Executive Directors’ service contracts should be capable of being terminated by the Company on not
more than 12 months’ notice. The Executive Directors’ service contracts entitle the Company to terminate their employment without
notice by making a payment of salary and benefits in lieu of notice. Under the Executive Directors’ contracts, the Company may
choose to make the payment in lieu by monthly instalments and mitigation applies such that the Committee may decide to reduce
or discontinue further instalments.
In addition to the contractual provisions regarding payment on termination set out above, the Company’s incentive plans contain
provisions for termination of employment, where the Committee has the discretion to determine the level of award vesting.
Name
Annual bonus
Treatment on
a change of control
Treatment for
a good leaver*
Treatment for
other leavers
Will be paid a time pro-rated
proportion, subject to performance
during the year, generally paid
immediately, with Committee
discretion to treat otherwise.
Will be paid a time pro-rated
proportion, subject to performance
during the year, generally paid at
the year end, with Committee
discretion to treat otherwise.
No annual bonus entitlement,
unless the Committee exercises
discretion to treat otherwise.
Deferred bonus
awards
Participants may exercise award
in full on the change of control,
with Committee discretion to
treat otherwise.
Entitled to retain any award, which
will generally vest at the normal
vesting date, with Committee
discretion to treat otherwise.
Outstanding awards are forfeited
unless the Committee exercises its
discretion to treat otherwise.
PSP
Awards generally vest immediately
and, for performance-related
awards, will be pro-rated for
time and remain subject to
performance conditions,
with Committee discretion
to treat otherwise.
Entitled to retain a time pro-rated
proportion, which remains subject
to performance conditions tested
at the normal vesting date. In very
exceptional circumstances, the
Committee has discretion to
allow immediate vesting, but
time pro-rating will always apply.
Outstanding awards are forfeited
unless the Committee exercises
discretion to treat otherwise.
* An individual would generally be considered a ‘good leaver’ if they leave the Group’s employment by reason of injury, ill-health, disability, redundancy or
retirement. The treatment of share awards held by Directors who leave on other grounds is entirely at the discretion of the Committee, and in deciding whether
(and the extent to which) it would be appropriate to exercise that discretion the Committee will have regard to all the circumstances.
External appointments of Directors
The Directors may accept external appointments with the prior approval of the Chair, provided that such appointments do not
prejudice the individual’s ability to fulfil their duties for the Group. Any fees for outside appointments are retained by the Director.
Chair and Non-Executive Directors
Name
Date of appointment
as a Director
Date of current
appointment letter
Ruth Cairnie (Chair)
3 April 2019
28 March 2022
Lucy Dimes
Kjersti Wiklund
Russ Houlden
Carl-Peter Forster
Lord Parker
John Ramsay
1 April 2018
1 April 2018
1 April 2020
1 June 2020
28 May 2021
28 May 2021
4 February 2020
6 April 2020
10 November 2020
9 November 2020
6 January 2022
5 January 2022
Anticipated expiry of present
term of appointment
(subject to annual re-election)
AGM 2025
AGM 2024
AGM 2024
AGM 2023
AGM 2023
AGM 2023
AGM 2025
The Group’s Non-Executive Directors serve under letters of appointment as detailed in the table above, normally for no more than
three-year terms at a time; however, in all cases appointments are terminable at will at any time by the Company or the Director.
All Non-Executive Directors are subject to annual re-election by the Company in general meeting in line with the UK Corporate
Governance Code.
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Babcock International Group PLC Annual Report and Financial Statements 2022
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GOVERNANCE STATEMENT: Remuneration continued
The latest written terms of appointment are available for inspection at the Company’s registered office and at the Company’s Annual
General Meeting. The expected time commitment of Non-Executive Directors is set out in their current written terms of appointment.
Details of the Non-Executive Directors’ terms of appointment are shown in the table. The appointment and re-appointment, and the
remuneration, of Non-Executive Directors are matters reserved for the Nominations Committee and Executive Directors, respectively.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order to
carry out their duties as members of the Board and its Committees. The Non-Executive Directors are not eligible to participate in the
Company’s performance-related incentive plans and do not receive any pension contributions.
Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Performance
measures
None
Function
Operation
Opportunity
To attract and
retain high-calibre
Non-Executive
Directors with
commercial and
other experience
relevant to the
Company
Fee levels are reviewed against market practice
from time to time (by the Chair and the Executive
Directors in the case of Non-Executive Director
fees and by the Committee in respect of fees
payable to the Chair), with any adjustments
normally being made on 1 April in the review
year. Additional fees are payable for additional
responsibilities such as acting as Senior Independent
Director, Chair of the Audit Committee, and Chair
of the Remuneration Committee.
Non-Executive Directors do not participate in any
incentive schemes, nor do they receive any pension
or benefits (other than the cost of travel and
accommodation expenses).
The Company reviews fee levels by reference to
FTSE listed companies of similar size and complexity.
It takes into account time commitment, level of
involvement required and responsibility when it
reviews fee levels. This may result in higher fee
levels for overseas Directors.
Non-Executive Director fee increases
are applied in line with the outcome
of the periodic fee review.
Any increases to the Non-Executive
Director fee will typically be in line
with general movements in market
levels of Non-Executive Director fees.
In the event that there is a material
misalignment with the market
or a change in the complexity,
responsibility or time commitment
required to fulfil a Non-Executive
Director role, the Board has discretion
to make an appropriate adjustment to
the fee level.
Consideration of employee views
When reviewing Executive Directors’ remuneration, the Committee is aware of the proposals for remuneration of all employees.
When considering executive pay, the Committee takes into account the experience of employees and their pay. The Committee
considers these matters when it conducts its annual review of executive remuneration.
The Company seeks to promote and maintain good relationships with employee representative bodies as part of its employee
engagement strategy and consults on matters affecting employees and business performance as required. The Committee engages
with employees through the Babcock Employee Forum, which representatives from across the Group’s business operations attend.
The Forum has the opportunity to engage with senior management including the CEO and the Chief Human Resources Officer on the
Committee’s policy and how it aligns with the wider Company pay policy. The Committee takes any feedback it receives into account
in its decision-making on executive remuneration.
Consideration of shareholder views
When determining remuneration, the Committee takes into account views of leading shareholders and best practice guidelines
issued by institutional shareholder bodies. The Committee welcomes feedback from shareholders on the Remuneration policy and
arrangements. It commits to consulting with leading shareholders in advance of any significant changes to the Remuneration policy.
In developing the policy set out in this report, we consulted with shareholders representing c.60% of our issued share capital, as well
as shareholder representative bodies. We had a high level of engagement and are pleased to report that virtually all investors who
provided feedback indicated support for the approach initially proposed.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the
structure of executive remuneration remains appropriate.
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GOVERNANCE STATEMENT: Remuneration continued
The latest written terms of appointment are available for inspection at the Company’s registered office and at the Company’s Annual
General Meeting. The expected time commitment of Non-Executive Directors is set out in their current written terms of appointment.
Details of the Non-Executive Directors’ terms of appointment are shown in the table. The appointment and re-appointment, and the
remuneration, of Non-Executive Directors are matters reserved for the Nominations Committee and Executive Directors, respectively.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order to
carry out their duties as members of the Board and its Committees. The Non-Executive Directors are not eligible to participate in the
Company’s performance-related incentive plans and do not receive any pension contributions.
Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Function
Operation
Opportunity
To attract and
Fee levels are reviewed against market practice
Non-Executive Director fee increases
None
retain high-calibre
from time to time (by the Chair and the Executive
are applied in line with the outcome
Directors in the case of Non-Executive Director
of the periodic fee review.
Non-Executive
Directors with
fees and by the Committee in respect of fees
commercial and
payable to the Chair), with any adjustments
other experience
normally being made on 1 April in the review
relevant to the
year. Additional fees are payable for additional
Company
responsibilities such as acting as Senior Independent
Any increases to the Non-Executive
Director fee will typically be in line
with general movements in market
levels of Non-Executive Director fees.
Performance
measures
Director, Chair of the Audit Committee, and Chair
In the event that there is a material
of the Remuneration Committee.
Non-Executive Directors do not participate in any
incentive schemes, nor do they receive any pension
or benefits (other than the cost of travel and
accommodation expenses).
misalignment with the market
or a change in the complexity,
responsibility or time commitment
required to fulfil a Non-Executive
Director role, the Board has discretion
to make an appropriate adjustment to
The Company reviews fee levels by reference to
the fee level.
FTSE listed companies of similar size and complexity.
It takes into account time commitment, level of
involvement required and responsibility when it
reviews fee levels. This may result in higher fee
levels for overseas Directors.
Consideration of employee views
When reviewing Executive Directors’ remuneration, the Committee is aware of the proposals for remuneration of all employees.
When considering executive pay, the Committee takes into account the experience of employees and their pay. The Committee
considers these matters when it conducts its annual review of executive remuneration.
The Company seeks to promote and maintain good relationships with employee representative bodies as part of its employee
engagement strategy and consults on matters affecting employees and business performance as required. The Committee engages
with employees through the Babcock Employee Forum, which representatives from across the Group’s business operations attend.
The Forum has the opportunity to engage with senior management including the CEO and the Chief Human Resources Officer on the
Committee’s policy and how it aligns with the wider Company pay policy. The Committee takes any feedback it receives into account
in its decision-making on executive remuneration.
Consideration of shareholder views
When determining remuneration, the Committee takes into account views of leading shareholders and best practice guidelines
issued by institutional shareholder bodies. The Committee welcomes feedback from shareholders on the Remuneration policy and
arrangements. It commits to consulting with leading shareholders in advance of any significant changes to the Remuneration policy.
In developing the policy set out in this report, we consulted with shareholders representing c.60% of our issued share capital, as well
as shareholder representative bodies. We had a high level of engagement and are pleased to report that virtually all investors who
provided feedback indicated support for the approach initially proposed.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the
structure of executive remuneration remains appropriate.
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Annual report on remuneration
The Committee
The Board appoints the members of
the Committee on the recommendation
of the Nominations Committee.
In accordance with the UK Corporate
Governance Code, only independent
Non-Executive Directors are members
of the Committee.
The membership of the Committee
during the year to 31 March 2022 is
shown on page 113, and attendance
at Committee meetings, on page 103. In
total there were nine meetings in the year
to 31 March 2022. The Chair and the
CEO attend meetings by invitation, as
does the CFO on occasion, but they are
not present when their own remuneration
is being decided. The Chief HR Officer also
attends meetings.
The terms of reference for the Committee
are available for inspection on the
Company’s website. The Committee
reviewed them during the year. Duties
of the Committee include the review
of the policy for the remuneration of the
Executive Directors and the Chair, as well
as their specific remuneration packages.
In determining the Remuneration policy,
the Committee takes into account all
factors, which it deems necessary to
ensure that the Company provides
members of the senior executive
management of the Group with
appropriate incentives to encourage
strong performance and rewards them
for their individual contributions to the
success of the Company in a fair and
responsible manner. The composition of
the Committee and its terms of reference
comply with the provisions of the UK
Corporate Governance Code.
Advisors
Ellason advised the Committee during
the year. Ellason reports directly to the
Committee Chair and provides objective
and independent analysis, information
and advice on all aspects of executive
remuneration and market practice, within
the context of the objectives and policy
set by the Committee. A representative
from Ellason typically attends Committee
meetings. Ellason also provides participant
communications, performance reporting,
and Non-Executive Directors’ fee
benchmarking services to the Company.
Ellason is a member of the Remuneration
Consultants Group and a signatory to
the Code of Conduct for consultants to
remuneration committees of UK listed
companies. Please see www.
remunerationconsultantsgroup.com
for details. Ellason adheres to this
Code of Conduct. The Company paid
fees to Ellason in respect of work for the
Committee carried out in the year under
review totalling £114,750 based on
time and materials, excluding expenses
and VAT.
The Committee reviews Ellason’s
involvement each year and considers
any other relationships that it has
with the Company that may limit its
independence. The Committee is satisfied
that the advice provided by Ellason is
objective and independent.
Matters considered
The Committee considered
a number of matters during the year
to 31 March 2022, including:
• reviewing the Remuneration
policy against market trends and
corporate governance best practice
• reviewing the Committee’s
terms of reference
• considering trends in executive
remuneration, remuneration
governance and investor views
• reviewing share ownership
guidelines for senior executives
• reviewing the Directors’
Remuneration report
• reviewing the continued
appointment of the Committee’s
independent advisors
• making share awards under
the Company’s share plans
• reviewing the performance measures
and targets to be applied under the
Company’s PSP
• agreeing Executive Director salaries
for the next financial year
• finalising performance targets
and non-financial objectives
for the FY23 annual bonus plan
• agreeing the level of vesting
of PSP awards granted in 2018
• considering performance against
the measures applied to, and level
of payout of, the FY21 annual bonus
• agreeing the level of, and targets for,
2021 PSP awards.
Summary of shareholder voting
The following table shows the results of the last binding shareholder vote on the Remuneration policy at the 2020 AGM,
and the advisory vote on the Annual report on remuneration, at the 2021 AGM:
Votes cast
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
2020 Remuneration policy
2021 Annual report on remuneration
Total number
of votes
358,523,814
1,866,823
360,390,637
16,471,678
376,862,315
% of votes cast
for and against
99.48%
0.52%
100%
Total number
of votes
325,685,586
44,663,982
370,319,568
36,510
370,356,078
% of votes cast
for and against
87.95%
12.05%
100%
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Babcock International Group PLC Annual Report and Financial Statements 2022
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GOVERNANCE STATEMENT: Remuneration continued
Single total figure of remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director.
Fixed remuneration
Salary1
Benefits in kind and cash2
Pension3
Annual variable remuneration
Annual bonus (cash)4
DBP (deferred annual bonus)5
Long-term incentives
PSP6
Dividends7
Total (of which)
Fixed remuneration1,2,3
Total variable remuneration4,5,6,7
David Lockwood
FY22
£’000
808
119
81
580
387
n/a
n/a
1,975
1,008
967
FY218
£’000
438
65
44
n/a
n/a
n/a
n/a
547
547
n/a
David Mellors
FY22
£’000
566
15
57
401
268
n/a
n/a
1,307
638
669
FY218
£’000
188
6
19
n/a
n/a
n/a
n/a
213
213
n/a
The figures have been calculated as follows:
1. Salary: base salary amount paid in the year.
2. Benefits in kind and cash: the value of benefits and salary supplements (other than those in lieu of pensions) including medical insurance, home to work
travel expenses incurred at the request of the Company, accommodation-related benefits, car and fuel benefits and costs in connection with accommodation.
David Lockwood as an Executive Director in FY22 received £98,110 in connection with his accommodation costs in London, which were, at the Company’s
request, to enable him to lead the business effectively.
3. Pension: the numbers above represent for each year the value of the cash supplement, which for David Lockwood and David Mellors was 10% of base salary.
4. Annual bonus (cash): this is the part of total annual bonus earned for performance during the year (see page 127) that is not required to be mandatorily
deferred into shares under the DBP (see page 119) and is paid in cash. In relation to the FY22 bonus, both David Lockwood and David Mellors agreed
to defer the 60% of annual bonus usually paid in cash into awards over the Company’s shares for one year.
5. DBP deferred annual bonus: this is the mandatorily deferred element of the annual bonus earned for performance during the year, which will vest after three years.
6. PSP: neither David Lockwood nor David Mellors were Directors at the time of the 2019 grant, which in any event lapsed in full.
7. Dividends: the total value of dividends accruing on long-term incentive awards (other than on mandatory deferral of bonus awards under the DBP)
vesting on performance to 31 March 2022 (for FY22) and 31 March 2021 (for FY21), payable in cash on exercise of the award.
8. Amounts for David Lockwood and David Mellors for FY21 are based on their periods of service as Directors from their respective appointments to the Board on
14 September 2020 and 30 November 2020.
Neither of the Executive Directors participated in a Group pension scheme or otherwise received pension benefits from the Group for
service during the year to 31 March 2022. They instead received a cash supplement equal to 10% of salary. There are no additional
early retirement benefits.
Supplements paid in lieu of pension do not count for pension, share award or bonus purposes.
Directors benefit from life assurance cover of four times base salary. The cost of providing that life assurance cover was:
Director
David Lockwood
David Mellors
FY22
£’000 pa
4
3
FY21
£’000
4
3
FY22 annual bonus (audited)
The Committee based the FY22 annual bonus on a mix of financial and non-financial measures. The financial element, weighted 80%,
was the underlying OCF and PBT performance (based on budgeted foreign exchange rates) of the Group against budget. The non-
financial measures were principally the themes that the Committee considers to be of material importance to the continued success of
the Company.
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GOVERNANCE STATEMENT: Remuneration continued
Single total figure of remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director.
Fixed remuneration
Salary1
Pension3
Benefits in kind and cash2
Annual variable remuneration
Annual bonus (cash)4
DBP (deferred annual bonus)5
Long-term incentives
PSP6
Dividends7
Total (of which)
Fixed remuneration1,2,3
Total variable remuneration4,5,6,7
The figures have been calculated as follows:
1. Salary: base salary amount paid in the year.
FY218
£’000
438
65
44
n/a
n/a
n/a
n/a
547
547
n/a
566
15
57
401
268
n/a
n/a
1,307
638
669
FY218
£’000
188
6
19
n/a
n/a
n/a
n/a
213
213
n/a
808
119
81
580
387
n/a
n/a
1,975
1,008
967
2. Benefits in kind and cash: the value of benefits and salary supplements (other than those in lieu of pensions) including medical insurance, home to work
travel expenses incurred at the request of the Company, accommodation-related benefits, car and fuel benefits and costs in connection with accommodation.
David Lockwood as an Executive Director in FY22 received £98,110 in connection with his accommodation costs in London, which were, at the Company’s
request, to enable him to lead the business effectively.
3. Pension: the numbers above represent for each year the value of the cash supplement, which for David Lockwood and David Mellors was 10% of base salary.
4. Annual bonus (cash): this is the part of total annual bonus earned for performance during the year (see page 127) that is not required to be mandatorily
deferred into shares under the DBP (see page 119) and is paid in cash. In relation to the FY22 bonus, both David Lockwood and David Mellors agreed
to defer the 60% of annual bonus usually paid in cash into awards over the Company’s shares for one year.
5. DBP deferred annual bonus: this is the mandatorily deferred element of the annual bonus earned for performance during the year, which will vest after three years.
6. PSP: neither David Lockwood nor David Mellors were Directors at the time of the 2019 grant, which in any event lapsed in full.
7. Dividends: the total value of dividends accruing on long-term incentive awards (other than on mandatory deferral of bonus awards under the DBP)
vesting on performance to 31 March 2022 (for FY22) and 31 March 2021 (for FY21), payable in cash on exercise of the award.
14 September 2020 and 30 November 2020.
Neither of the Executive Directors participated in a Group pension scheme or otherwise received pension benefits from the Group for
service during the year to 31 March 2022. They instead received a cash supplement equal to 10% of salary. There are no additional
early retirement benefits.
Supplements paid in lieu of pension do not count for pension, share award or bonus purposes.
Directors benefit from life assurance cover of four times base salary. The cost of providing that life assurance cover was:
FY22
£’000 pa
4
3
FY21
£’000
4
3
FY22 annual bonus (audited)
The Committee based the FY22 annual bonus on a mix of financial and non-financial measures. The financial element, weighted 80%,
was the underlying OCF and PBT performance (based on budgeted foreign exchange rates) of the Group against budget. The non-
financial measures were principally the themes that the Committee considers to be of material importance to the continued success of
Director
David Lockwood
David Mellors
the Company.
The table below summarises performance against each financial measure, and the bonus outcome.
David Lockwood
FY22
£’000
David Mellors
FY22
£’000
Bonus element
Threshold1
Target
Maximum
Outturn
Achieving budgeted Group cash flow2
£42.4m
£44.6m
£49.1m
£75.8m
Achieving budgeted Group PBT3
£193.4m
£203.6m
£224.0m
£202.8m
Non-financial objectives4
Total
Maximum potential
(% of salary)
Outturn (% of salary)
Maximum potential
(% of salary)
Outturn (% of salary)
Maximum potential
(% of salary)
Outturn (% of salary)
Maximum potential
(% of salary)
Outturn (% of salary)
David
Lockwood
David
Mellors
60%
60%
60%
31.3%
30%
28.5%
60%
60%
60%
31.3%
30%
27%
150%
119.8%
150%
118.3%
1. Threshold vesting is: 18.8% of maximum for the Group PBT and cash flow elements, and 0% for non-financial measures. In line with our policy, overall vesting at
threshold is no more than15% when we consider all measures.
2. Operating cash flow after capital expenditure and before pension payments in excess of the income statement charge. To ensure that performance is assessed
on a basis consistent with that on which the targets were set and the bonus appropriately rewards the right behaviours, reported OCF was adjusted by
£71.4 million to reflect the accelerated settlement of deferred creditors in line with the Group’s internal policies.
3. Before amortisation of acquired intangibles, with the treatment of exceptional items at the discretion of the Committee.
4. Further details on the non-financial objectives set for FY22 are given below.
FY22 annual bonus non-financial measures
The Committee set non-financial objectives for David Lockwood and David Mellors at the start of the year around strategic
management ‘Themes’ of strategy, people and culture, as the Committee believed these themes align to the Company’s turnaround.
For achievement of the objectives, please see below.
David Lockwood
Strategy
• Refreshed strategy
• Established a Group-level campaign capability to lead the
David Mellors
Strategy
• Led the detailed contract profitability and balance sheet
review, which re-set the Group’s financial baseline
8. Amounts for David Lockwood and David Mellors for FY21 are based on their periods of service as Directors from their respective appointments to the Board on
Group’s export campaign
• Led the disposal programme to generate disposal proceeds in
• Secured the first exports of the Group’s Arrowhead 140 frigate
excess of £400 million
to Indonesia and Poland
• Finalised the Group’s Future Marine Support Programme so the
Group continues its support spanning UK naval base operations
at HMNB Clyde and HMNB Devonport
• Continued development of engagement with Company’s
stakeholders
• Built and maintained relationships with key stakeholders,
supporting confidence in the Company during the turnaround
• Drove implementation of the new operating model, securing
the targeted cost savings.
People
• Launched the Group’s new Purpose and Principles
• Developed a new People strategy, aiming to create an
organisation that shares capability, talent and innovation
• Launched a new ’Agile’ strategy
• Implemented our new operating model with a flatter structure
and centre-led functions
People
• Professionalised the procurement function with the creation of
a centre-led organisation and the implementation of common
systems and technology to increase leverage of the Group’s
supplier spend
• Centralised and strengthened the finance function
• Redesigned other reporting functions such as IT, tax, treasury
Culture
• Appointed Group safety lead, established forward-looking
balanced score-card to re-energise Group focus on safety
• Developed the Group’s ESG strategy by building a baseline
assessment for Babcock’s Scope 1 and 2 emissions.
and insurance
Culture
• Led review and improvement of the control environment
• Introduced standardised accounting policies
• Designed new internal audit function
The FY22 bonus outcomes for each Executive Director are as follows:
David Lockwood
David Mellors
Payment for
financial targets
(% salary)
91.3%
91.3%
Payment for
non-financial targets
(% salary)
28.5%
27%
Total bonus
(% salary)
119.8%
118.3%
Total bonus
(£’000)
£967
£669
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
127
GOVERNANCE STATEMENT: Remuneration continued
Long-term incentive scheme (PSP) award granted during FY22 (audited)
The Committee granted PSP awards in the form of nil-cost options in August 2021 to the Executive Directors, consistent with the
Remuneration policy.
Director
David Lockwood
David Mellors
1. Awards are in the form of nil-cost options.
2. Based on three-day average share price (of 353.63p) at time of grant.
3. Expressed as a percentage of salary at the date of the award (24 August 2021).
Number of
shares1
Face value2
Face value
(% of salary)3
452,450 £1,599,999
316,715 £1,119,999
200%
200%
% of award
receivable
for threshold
performance
16.7%
16.7%
Vesting of the awards is based on cumulative free cash flow and relative Total Shareholder Return (TSR), equally weighted, as the
Committee believes that these measures best align with shareholders’ interests and the strategy reset of the Company. The
performance period for these awards is the three financial years 1 April 2021 through to 31 March 2024. Free cash flow (FCF) is
defined as all cash flows of the Company, including exceptional items (unless the Committee decides otherwise), but excluding
disposals, on an IFRS 16 basis.
Given the reset of the Company and the absence of guidance, the Committee considers the performance range for the cumulative
three-year FCF measure to be commercially sensitive. The Committee may need to use its discretion to review the outcome of the
awards in 2024 to take into account the level of uncertainty at the time of award. As always, final decisions would include a check to
ensure alignment with the shareholder experience. The relative TSR performance range is below:
3-year TSR vs FTSE 350 (excluding investment trusts and financial services)
50%
Median TSR
% weighting
Threshold performance
(16.7% vesting)
Stretch performance
(100% vesting)
Median TSR
+ 9% pa
Deferred Bonus Plan awards made during FY22 (audited)
As both Executive Directors requested that the Committee waive any entitlement to a bonus that they might have had for non-
financial measures in respect of their work in FY21, the Committee did not grant any DBP awards in FY22 to the Executive Directors.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the total remuneration received by each Non-Executive Director:
Fixed remuneration
Ruth Cairnie
Lucy Dimes
Kjersti Wiklund
Russ Houlden
Carl-Peter Forster3
Lord Parker
John Ramsay4
Myles Lee5
Victoire de Margerie5
Base fee1
Additional fee2
Total
Total fixed
remuneration
Total variable
remuneration
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
336
61
61
61
72
61
15
33
33
319
58
58
58
55
24
n/a
62
62
–
–
15
14
–
–
1
–
–
–
–
15
10
–
–
n/a
–
–
336
61
76
75
72
61
16
33
33
319
58
73
68
55
24
n/a
62
62
336
61
76
75
72
61
16
33
33
319
58
73
68
55
24
n/a
62
62
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. In FY21, the Non-Executive Directors waived part of their fee in response to the impact of the COVID-19 pandemic.
2. Relating to role as Chair of the Audit Committee (Russ Houlden to February 2022 and John Ramsay from March 2022) and Remuneration Committee
(Kjersti Wiklund).
3. Carl-Peter Forster is the Senior Independent Director.
4. John Ramsay joined the Board in January 2022.
5. Myles Lee and Victoire de Margerie retired from the Board in September 2021.
Sourcing of shares
Shares needed to satisfy share awards for Directors are shares that the Company either newly issues to the Group’s employee share
trusts or purchases in the market by the trusts using funds advanced by the Company. The Company finalises the source selection
on or before vesting, depending on the Board’s view of the best interests of the Company at the time, within the limits of available
headroom and dilution restrictions.
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GOVERNANCE STATEMENT: Remuneration continued
Remuneration policy.
Director
David Lockwood
David Mellors
Number of
shares1
Face value2
Face value
(% of salary)3
452,450 £1,599,999
316,715 £1,119,999
200%
200%
% of award
receivable
for threshold
performance
16.7%
16.7%
1. Awards are in the form of nil-cost options.
2. Based on three-day average share price (of 353.63p) at time of grant.
3. Expressed as a percentage of salary at the date of the award (24 August 2021).
Vesting of the awards is based on cumulative free cash flow and relative Total Shareholder Return (TSR), equally weighted, as the
Committee believes that these measures best align with shareholders’ interests and the strategy reset of the Company. The
performance period for these awards is the three financial years 1 April 2021 through to 31 March 2024. Free cash flow (FCF) is
defined as all cash flows of the Company, including exceptional items (unless the Committee decides otherwise), but excluding
disposals, on an IFRS 16 basis.
Given the reset of the Company and the absence of guidance, the Committee considers the performance range for the cumulative
three-year FCF measure to be commercially sensitive. The Committee may need to use its discretion to review the outcome of the
awards in 2024 to take into account the level of uncertainty at the time of award. As always, final decisions would include a check to
ensure alignment with the shareholder experience. The relative TSR performance range is below:
3-year TSR vs FTSE 350 (excluding investment trusts and financial services)
50%
Median TSR
Deferred Bonus Plan awards made during FY22 (audited)
As both Executive Directors requested that the Committee waive any entitlement to a bonus that they might have had for non-
financial measures in respect of their work in FY21, the Committee did not grant any DBP awards in FY22 to the Executive Directors.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the total remuneration received by each Non-Executive Director:
Threshold performance
Stretch performance
% weighting
(16.7% vesting)
(100% vesting)
Median TSR
+ 9% pa
Fixed remuneration
Ruth Cairnie
Lucy Dimes
Kjersti Wiklund
Russ Houlden
Carl-Peter Forster3
Lord Parker
John Ramsay4
Myles Lee5
Victoire de Margerie5
Base fee1
Additional fee2
Total
Total fixed
remuneration
Total variable
remuneration
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
FY22
£’000
FY21
£’000
336
319
336
319
336
319
61
61
61
72
61
15
33
33
58
58
58
55
24
n/a
62
62
15
14
–
–
–
–
1
–
–
15
10
n/a
–
–
–
–
–
–
61
76
75
72
61
16
33
33
58
73
68
55
24
n/a
62
62
61
76
75
72
61
16
33
33
58
73
68
55
24
n/a
62
62
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. In FY21, the Non-Executive Directors waived part of their fee in response to the impact of the COVID-19 pandemic.
2. Relating to role as Chair of the Audit Committee (Russ Houlden to February 2022 and John Ramsay from March 2022) and Remuneration Committee
(Kjersti Wiklund).
3. Carl-Peter Forster is the Senior Independent Director.
4. John Ramsay joined the Board in January 2022.
5. Myles Lee and Victoire de Margerie retired from the Board in September 2021.
Sourcing of shares
Shares needed to satisfy share awards for Directors are shares that the Company either newly issues to the Group’s employee share
trusts or purchases in the market by the trusts using funds advanced by the Company. The Company finalises the source selection
on or before vesting, depending on the Board’s view of the best interests of the Company at the time, within the limits of available
headroom and dilution restrictions.
Long-term incentive scheme (PSP) award granted during FY22 (audited)
The Committee granted PSP awards in the form of nil-cost options in August 2021 to the Executive Directors, consistent with the
Executive Directors’ remuneration for FY23
The Committee has set the remuneration for Executive Directors for FY23 in line with its approved Remuneration policy.
Fixed pay
The Committee reviewed the Executive Directors’ salaries on a consistent basis as the rest of the UK workforce. Following the decision
to award standardised salary increases to the UK workforce other than higher-paid employees, the Committee agreed not to increase
the Executive Directors’ fixed pay for FY23. The Executive Directors will receive the same pension arrangements as in FY22 (ie at 10%
of salary) and the same benefits as in FY22.
David Lockwood
David Mellors
1. Reviewed in September 2021.
1 April 20221
1 April 2021
£816,000 £800,000
£571,200 £560,000
FY23 annual bonus
The structure of the Executive Director annual bonus for FY23 is consistent with that for FY22, with measures based on OCF, PBT and
non-financial objectives. The Committee has agreed the measures and targets but, due to their commercial sensitivity, it will only
disclose them in next year’s Annual report on remuneration.
40% of any earned bonus will be deferred into shares for three years, with the remaining 60% payable in cash (in line with our normal
Remuneration policy).
2022 PSP awards
The Committee intends to grant awards under the PSP to the Executive Directors in 2022 covering the three-year period FY23–FY25,
with measures consistent with those used for the 2021 PSP award, being relative TSR and free cash flow, equally weighted. As in the
2021 PSP award, the relative TSR performance range is based on the Company’s three-year TSR outperformance of the constituents
of the FTSE 350 index (excluding investment trusts and financial services). Threshold vesting (of 16.7% of maximum) requires the
Company’s TSR to be median for the benchmark, with maximum vesting requiring an outperformance of median TSR by 9% pa.
Given the reset of the Company and the absence of guidance, the Committee considers the FCF performance range to be
commercially sensitive, but will disclose the target no later than the FY25 annual report, being the relevant annual report for
disclosing the vesting outcome for the 2022 PSP award.
Payments to past Directors (audited)
Archie Bethel stepped down as an Executive Director on 14 September 2020 and retired from the Company on 31 March 2021.
His 2018 DBP award (the value of which was disclosed in the 2018 Directors’ Remuneration report) vested on 13 June 2021.
Franco Martinelli stepped down as an Executive Director on 30 November 2020 and retired from the Company on 30 September
2021. Franco received his base salary (£227,460) and pension (£48,904) through to his retirement. His 2018 DBP award (the value
of which was disclosed in the 2018 Directors’ Remuneration report) vested on 13 June 2021. He received no further payments for
loss of office and no discretion was required in determining this outcome.
John Davies stepped down as an Executive Director on 31 March 2020 and retired as CEO Land on 28 June 2021. His 2018 DBP
award (the value of which was disclosed in the 2018 Directors’ Remuneration report) vested on 13 June 2021.
Bill Tame retired from the Company on 30 June 2018, having previously stepped down as an Executive Director on 31 March 2018.
His 2018 DBP award (the value of which was disclosed in the 2018 Directors’ Remuneration report) vested on 13 June 2021.
Non-Executive Directors’ fees (including the Chair)
There are no changes to the fees for the Chair and the Non-Executive Directors for FY23.
Annual rate fee
Chair
Senior Independent Director (inclusive of basic fee)
Basic Non-Executive Director’s fee (UK-based Directors)1
Chair of Audit Committee2
Chair of Remuneration Committee2
FY23
£
336,000
72,000
61,000
15,000
15,000
FY22
£
336,000
72,000
61,000
15,000
15,000
% change
since last
review
(% pa)
0%
0%
0%
0%
0%
1. The Company sets fees for non-UK-based Directors having regard to the extra time commitment involved in attending meetings.
2. The Company pays fees for chairing Board Committees in addition to the basic applicable Non-Executive Director’s fee. The Company does not pay additional
fees for membership of Committees.
Percentage change in the remuneration of all Directors compared to the workforce
The table below shows the percentage change in remuneration from the prior year for each Director compared to the average UK
employee, as required under The Companies (Directors’ Remuneration policy and Directors’ remuneration report) Regulations 2019
(the ‘Regulations’). The Committee will build up this analysis in subsequent years until it displays a five-year history.
128
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Babcock International Group PLC Annual Report and Financial Statements 2022
129
GOVERNANCE STATEMENT: Remuneration continued
The Regulations require this disclosure to provide a comparison of year-on-year changes in Directors’ remuneration compared to all other
employees of the parent company in the Group. However, the Company does not have any employees, on which basis there would be no
data to disclose for the broader employee population. The Committee has therefore elected to compare the change in Directors’ remuneration
with the change in remuneration for the average of the UK employee population, as a suitable comparator group for this purpose.
The Committee monitors this information to ensure that there is an appropriate alignment over time in fixed pay between Executive
Directors, Non-Executive Directors and UK employees.
Executive Directors
David Lockwood
David Mellors
Non-Executive Directors2
Ruth Cairnie
Myles Lee3
Victoire de Margerie3
Lucy Dimes
Kjersti Wiklund
Russ Houlden4
Carl-Peter Forster5
Lord Parker6
John Ramsay7
Average for all UK employees
% change FY21 to FY221
Base salary/fees
Taxable benefits
Single-year variable
1%
1%
5%
5%
5%
5%
4%
10%
11%
5%
n/a
2%
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-100%
1. As this table is based on the single figure table, it has produced anomalous results. In respect of the Executive Directors, the percentage change in base salary
and benefits reflects annualised values for FY21 to facilitate a comparison with FY22. In respect of the single-year variable, the result is due to the Executive
Directors receiving a bonus for FY22, whereas in FY21 they did not. In respect of the Non-Executive Directors, in FY21, they all waived part of their fees due to
the COVID-19 pandemic. There were also changes to the Chairs of Committees and Carl-Peter took on the role of Senior Independent Director. Together, these
account for the percentage changes as there has been no change to their fee levels. Please see the ’Non-Executive Directors’ fees’ table on page 129.
2. Non-Executive Directors receive fees only. They do not receive taxable benefits and do not participate in incentive schemes. However in FY21 all the
Non-Executive Directors waived part of their fee due to the COVID-19 pandemic, which has subsequently been restored.
3. The percentage change in fees for former Directors reflects annualised values for FY22 remuneration to facilitate a comparison with FY21.
4. Russ Houlden became chair of the Audit Committee in July 2020 and his percentage increase is due to this change.
5. Carl-Peter Forster became Senior Independent Director in July 2020 and his percentage increase is due to this change.
6. Lord Parker joined part-way through FY21. To facilitate a comparison with FY22, his FY21 fee has been annualised.
7. John Ramsay joined during FY22 and hence no year-on-year comparison is available.
Executive Directors
David Lockwood1
David Mellors1
Non-Executive Directors2
Ruth Cairnie3
Myles Lee
Victoire de Margerie
Lucy Dimes
Kjersti Wiklund
Russ Houlden1
Carl-Peter Forster1
Lord Parker1
Average for all UK employees
% change FY20 to FY21
Base salary/fees
Taxable benefits
Single-year variable
n/a
n/a
26%
-5%
-5%
-5%
18%
n/a
n/a
n/a
2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-100%
1. Joined during FY21, and hence no year-on-year comparison is available.
2. Non-Executive Directors receive fees only. They do not receive taxable benefits and do not participate in incentive schemes.
3. Year-on-year change reflects appointment during FY20 as Chair of Babcock.
Relative importance of spend on pay
Distribution to shareholders
Employee remuneration
Distributions to shareholders includes all amounts distributed to shareholders.
130
Babcock International Group PLC Annual Report and Financial Statements 2022
FY22
£0m
FY21
£0m
£1,516m £1,616m
% change
0%
-6%
GOVERNANCE STATEMENT: Remuneration continued
The Regulations require this disclosure to provide a comparison of year-on-year changes in Directors’ remuneration compared to all other
employees of the parent company in the Group. However, the Company does not have any employees, on which basis there would be no
data to disclose for the broader employee population. The Committee has therefore elected to compare the change in Directors’ remuneration
with the change in remuneration for the average of the UK employee population, as a suitable comparator group for this purpose.
The Committee monitors this information to ensure that there is an appropriate alignment over time in fixed pay between Executive
Directors, Non-Executive Directors and UK employees.
% change FY21 to FY221
Base salary/fees
Taxable benefits
Single-year variable
1. As this table is based on the single figure table, it has produced anomalous results. In respect of the Executive Directors, the percentage change in base salary
and benefits reflects annualised values for FY21 to facilitate a comparison with FY22. In respect of the single-year variable, the result is due to the Executive
Directors receiving a bonus for FY22, whereas in FY21 they did not. In respect of the Non-Executive Directors, in FY21, they all waived part of their fees due to
the COVID-19 pandemic. There were also changes to the Chairs of Committees and Carl-Peter took on the role of Senior Independent Director. Together, these
account for the percentage changes as there has been no change to their fee levels. Please see the ’Non-Executive Directors’ fees’ table on page 129.
2. Non-Executive Directors receive fees only. They do not receive taxable benefits and do not participate in incentive schemes. However in FY21 all the
Non-Executive Directors waived part of their fee due to the COVID-19 pandemic, which has subsequently been restored.
3. The percentage change in fees for former Directors reflects annualised values for FY22 remuneration to facilitate a comparison with FY21.
4. Russ Houlden became chair of the Audit Committee in July 2020 and his percentage increase is due to this change.
5. Carl-Peter Forster became Senior Independent Director in July 2020 and his percentage increase is due to this change.
6. Lord Parker joined part-way through FY21. To facilitate a comparison with FY22, his FY21 fee has been annualised.
7. John Ramsay joined during FY22 and hence no year-on-year comparison is available.
% change FY20 to FY21
Base salary/fees
Taxable benefits
Single-year variable
1%
1%
5%
5%
5%
5%
4%
10%
11%
5%
n/a
2%
n/a
n/a
26%
-5%
-5%
-5%
18%
n/a
n/a
n/a
2%
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-100%
Executive Directors
David Lockwood
David Mellors
Non-Executive Directors2
Ruth Cairnie
Myles Lee3
Victoire de Margerie3
Lucy Dimes
Kjersti Wiklund
Russ Houlden4
Carl-Peter Forster5
Lord Parker6
John Ramsay7
Average for all UK employees
Executive Directors
David Lockwood1
David Mellors1
Non-Executive Directors2
Ruth Cairnie3
Myles Lee
Victoire de Margerie
Lucy Dimes
Kjersti Wiklund
Russ Houlden1
Carl-Peter Forster1
Lord Parker1
Average for all UK employees
1. Joined during FY21, and hence no year-on-year comparison is available.
2. Non-Executive Directors receive fees only. They do not receive taxable benefits and do not participate in incentive schemes.
3. Year-on-year change reflects appointment during FY20 as Chair of Babcock.
Relative importance of spend on pay
Distribution to shareholders
Employee remuneration
Distributions to shareholders includes all amounts distributed to shareholders.
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Babcock International Group PLC Annual Report and Financial Statements 2022
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CEO pay ratio
The table below provides disclosure of the ratio between the CEO’s total remuneration and that of the lower quartile, median and
upper quartile UK-based employees.
Figures for the CEO come from the Executive Directors’ single figure table on page 129. The Committee determined total
remuneration figures for the lower quartile (P25), median (P50) and upper quartile (P75) employees on 31 March 2022 using the
‘single figure’ methodology, as at 31 March 2022, to provide a like-for-like comparison with CEO remuneration.
The reporting regulations offer three calculation approaches for determining the pay ratio – Options A, B and C. We continue to adopt
Option A, which, in the Committee’s opinion, is the most statistically accurate approach. The Company calculated the total full-time
equivalent remuneration for all UK employees throughout FY22. The Company then ranked the employees to identify the three
employees representing P25, P50 and P75.
As with last year, the Company excluded bonus payments from the calculations, because it was not feasible to identify those payments
for services delivered within the financial year, and because the Company does not know all bonus pay relating to FY22 at the time of
publication. Analysis of past data indicates that the three employees would not typically be eligible for a bonus and the exclusion of
this element is unlikely to have a significant impact on the ratios reported.
To validate that the figures presented are representative of the pay and benefits of the UK workforce, the Company considered the
pay and benefits of a number of employees centred on each of the three employees. Whilst there can be variation in the pay mix
for individuals throughout the organisation, the Committee believes that the information presented fairly reflects pay at the relevant
quartiles amongst our UK workforce. The three individuals identified were full-time employees during the year and none received an
exceptional incentive award, which would otherwise inflate their pay figures. The Company made no adjustments or assumptions to
the total remuneration of these employees and calculated the total remuneration in accordance with the methodology used to
calculate the single figure of the CEO.
The median CEO pay ratio in FY22 was 48:1, compared to 22:1 in FY21.
The Committee calculated the CEO pay ratio by comparing the CEO’s pay to that of Babcock’s UK-based workforce. The Committee
expects that the ratios will be largely driven by the CEO’s incentive pay outcomes, which will likely lead to greater variability in his pay
than that observed at other levels which, consistent with market practices and the Company’s reward policies across the organisation,
have a greater proportion of their pay linked to fixed components. The Committee takes into account these ratios when making
decisions around the remuneration packages for Executive Directors. Babcock takes seriously the need to ensure competitive pay
packages across the organisation.
Financial year
FY22
FY21
FY20
Financial year
FY22
Calculation methodology
Option A
Option A
Option C
Total remuneration (£’000)
Salary (£’000)
P25
(lower quartile)
61:1
30:1
47:1
P25
(lower quartile)
£32.3
£28.6
P50
(median)
48:1
22:1
37:1
P50
(median)
£41.4
£37.3
P75
(upper quartile)
36:1
17:1
27:1
P75
(upper quartile)
£54.7
£50.0
Performance graphs
The following graph shows the TSR for the Company compared to the FTSE 250 and FTSE 350 Aerospace & Defence indices, assuming
an investor invested £100 on 31 March 2012. The Board considers that the FTSE 250 Index (excluding investment trusts) and FTSE
350 Aerospace & Defence Index currently represent the most appropriate indices (of which Babcock is a constituent) against which to
compare Babcock’s performance.
250
200
150
100
50
2
1
0
2
h
c
r
a
M
1
3
n
o
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
FY22
£0m
FY21
£0m
£1,516m £1,616m
% change
0%
-6%
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Babcock
FTSE 250 Index
FTSE 350 Aerospace & Defense Index
Babcock International Group PLC Annual Report and Financial Statements 2022
131
GOVERNANCE STATEMENT: Remuneration continued
The table below details the historical CEO pay over a 10-year period.
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Peter Rogers1
Single figure (£’000)
Bonus vesting (% max)
DBMP matching shares vesting (% max)
PSP/CSOP vesting (% max)
Archie Bethel2,3
Single figure (£’000)
Bonus vesting (% max)
DBMP matching shares vesting (% max)
PSP vesting (% max)
David Lockwood4
Single figure (£’000)
Bonus vesting (% max)
PSP vesting (% max)
2,731
99%
n/a
58.8%
3,809
93%
n/a
94.7%
4,448
78%
88.4%
83.5%
2,491
60%
57.8%
37.3%
1,091
66%
17.0%
26.5%
1,012
66%
17.0%
26.5%
2,079
61%
20.0%
23.9%
1,969
58%
n/a
15.1%
1,385
14%
n/a
0%
334
0%
n/a
0%
547
0%
n/a
1,975
80%
n/a
1. Until retirement on 31 August 2016.
2. Excludes remuneration received whilst undertaking the role of Chief Operating Officer until August 2016.
3. Until he stepped down as CEO on 14 September 2020.
4. Excludes his salary between joining the Company in August and joining the Board as CEO on 14 September 2021.
Directors’ share ownership (audited)
The Committee sets out below the interests of the Directors (and/or their spouses) in the ordinary shares of the Company as at
31 March 2022:
At 31 March 2021
At 31 March 20221
Shares held
Shares held
Options held
Vested but
subject to
holding period
–
–
Vested
but not
exercised
–
–
Unvested and
subject to
performance
conditions
860,995
602,696
Unvested and
subject to
continued
employment
–
–
S/holding
req.
(% salary)
300%
200%
Current
shareholding
(% of salary)3
74%
40%
Req.
met?
Building
Building
Director
David Lockwood
David Mellors
Ruth Cairnie
Myles Lee4
Victoire de Margerie5
Lucy Dimes
Kjersti Wiklund
Russ Houlden
Carl-Peter Forster
Lord Parker
John Ramsay
Owned outright
by Director or
spouse2
186,924
71,268
120,000
40,000
7,061
5,000
2,100
–
10,000
–
n/a
Owned outright
by Director or
spouse2
186,924
71,268
120,000
n/a
n/a
5,000
2,100
–
10,000
–
30,000
1. At the date of stepping down from the Board, in the case of former Directors.
2. Beneficially held shares of Director and/or spouse.
3. Current shareholdings for comparison with the shareholding requirements for Executive Directors are calculated based on salary as at 31 March 2022 and by
reference to shares owned outright by Director or spouse, options vested but subject to holding periods, options vested but not exercised and options unvested
but subject only to continued employment. Holdings are valued assuming options are exercised on 31 March 2022 and a three-month average share price to
31 March 2022 of 323.01p, and are calculated post tax.
4. Myles Lee retired from the Board in September 2021.
5. Victoire de Margerie retired from the Board in September 2021.
There have been no changes to the continuing Directors’ (or their spouses’) shareholdings between 31 March 2022 and 28 July 2022.
132
Babcock International Group PLC Annual Report and Financial Statements 2022
GOVERNANCE STATEMENT: Remuneration continued
The table below details the historical CEO pay over a 10-year period.
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
DBMP matching shares vesting (% max)
2,731
3,809
4,448
2,491
1,091
99%
n/a
93%
n/a
58.8%
94.7%
78%
88.4%
83.5%
60%
57.8%
37.3%
66%
17.0%
26.5%
Peter Rogers1
Single figure (£’000)
Bonus vesting (% max)
PSP/CSOP vesting (% max)
Archie Bethel2,3
Single figure (£’000)
Bonus vesting (% max)
PSP vesting (% max)
David Lockwood4
Single figure (£’000)
Bonus vesting (% max)
PSP vesting (% max)
DBMP matching shares vesting (% max)
1,012
2,079
1,969
1,385
66%
17.0%
26.5%
61%
20.0%
23.9%
58%
n/a
15.1%
14%
n/a
0%
334
0%
n/a
0%
547
0%
n/a
1,975
80%
n/a
1. Until retirement on 31 August 2016.
2. Excludes remuneration received whilst undertaking the role of Chief Operating Officer until August 2016.
3. Until he stepped down as CEO on 14 September 2020.
4. Excludes his salary between joining the Company in August and joining the Board as CEO on 14 September 2021.
Directors’ share ownership (audited)
31 March 2022:
The Committee sets out below the interests of the Directors (and/or their spouses) in the ordinary shares of the Company as at
At 31 March 2021
At 31 March 20221
Shares held
Shares held
Options held
Owned outright
Owned outright
by Director or
by Director or
Vested but
subject to
Vested
subject to
but not
performance
subject to
continued
S/holding
Current
req.
shareholding
spouse2
spouse2
holding period
exercised
conditions
employment
(% salary)
(% of salary)3
Req.
met?
Unvested and
Unvested and
–
–
–
–
860,995
602,696
–
–
300%
200%
74%
40%
Building
Building
Director
David Lockwood
David Mellors
Ruth Cairnie
Myles Lee4
Victoire de Margerie5
Lucy Dimes
Kjersti Wiklund
Russ Houlden
Lord Parker
John Ramsay
186,924
71,268
120,000
40,000
7,061
5,000
2,100
–
–
186,924
71,268
120,000
n/a
n/a
5,000
2,100
–
–
n/a
30,000
Carl-Peter Forster
10,000
10,000
1. At the date of stepping down from the Board, in the case of former Directors.
2. Beneficially held shares of Director and/or spouse.
3. Current shareholdings for comparison with the shareholding requirements for Executive Directors are calculated based on salary as at 31 March 2022 and by
reference to shares owned outright by Director or spouse, options vested but subject to holding periods, options vested but not exercised and options unvested
but subject only to continued employment. Holdings are valued assuming options are exercised on 31 March 2022 and a three-month average share price to
31 March 2022 of 323.01p, and are calculated post tax.
4. Myles Lee retired from the Board in September 2021.
5. Victoire de Margerie retired from the Board in September 2021.
There have been no changes to the continuing Directors’ (or their spouses’) shareholdings between 31 March 2022 and 28 July 2022.
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Directors’ share-based awards and options (audited)
The tables below show the various share awards held by Directors under the Company’s various share plans. The Company’s mid-
market share price at close of business on 31 March 2022 was 324.50p. The highest and lowest mid-market share prices in the year
ended 31 March 2022 were 380.20p and 228.40p, respectively.
Director
Plan and
year
of award1
Number of
shares subject
to award at
1 April 2021
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
Number of
shares subject
to award at
31 March 2022
Market value
of each share
at date of
award (pence)
Exercise price
(pence)2
Exercisable
from
Expiry
date3
David Lockwood
PSP 2020
408,545
PSP 2021
452,450
408,545
452,450
352.47 Dec 2025 Dec 2026
353.63 Aug 2026 Aug 2027
Director
Plan and
year
of award1
Number of
shares subject
to award at
1 April 2021
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
Number of
shares subject
to award at
31 March 2022
Market value
of each share
at date of
award (pence)
Exercise price
(pence)2
Exercisable
from
Expiry
date3
David Mellors
PSP 2020
285,981
PSP 2021
316,715
285,981
316,715
352.47 Dec 2025 Dec 2026
353.63 Aug 2026 Aug 2027
1. PSP = 2009 Performance Share Plan. Further details about these plans and, where applicable, performance conditions attaching to the awards listed are to
be found on pages 128 and 129.
2. The PSP awards are structured as nil-priced options and are subject to the rules of the PSP, including as to meeting performance targets for PSP awards.
3. Where this date is less than 10 years from the date of award, the Committee may extend the expiry date on one or more occasions, but not beyond the
10th anniversary of the award.
Summary of share-based awards and options vested during the year
No awards vested for the Executive Directors during the year to 31 March 2022.
Other interests
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.
External appointments of Executive Directors in FY22
None of the Executive Directors received a fee for any external appointment during the year.
The Board approved this Remuneration report on 28 July 2022.
KJERSTI WIKLUND
Committee Chair
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Babcock International Group PLC Annual Report and Financial Statements 2022
133
OTHER STATUTORY INFORMATION
Other statutory information
Directors’ report and other disclosures
The Directors’ report comprises this section, the Principal risks and management controls section in the Strategic report, as well as
the rest of the Governance section, the Directors’ Responsibility Statement on page 139 and those sections incorporated by reference
below.
Disclosures required by LR 9.8.4 R and which form part of the Directors’ report can be found at the locations provided in the
table below:
Listing rule
9.8.4 (5)
9.8.4 (12-13)
Topic
Director waivers of emoluments
Shareholder waivers of
dividends and future dividends
Location
Remuneration report on page 128
Financial statements, note 25 on page
2017
Other disclosure requirements set out in LR 9.8.4 R are not applicable to the Company.
Disclosures required pursuant to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as
updated by the Companies (Miscellaneous Reporting) Regulations 2018 can be located as follows:
Topic
Financial risk management regarding financial instruments
Greenhouse gas emissions
Employee engagement
Fostering business relationships with suppliers, customers and others
Subsequent events
Likely future developments in the business of
the Group
Details of important events affecting the Group
Location
Note 24, page 211
Page 57
Pages 19, 53, 66, and 99 to 100
Page 52, 69 to 72. 99 and throughout
the Strategic report
Note 34 on page 228
Page 10 and 11
Strategic and Directors’ reports, in
particular pages 13 to 17 and 24
to 35
For the purposes of DTR 4.1.5 R (2) and DTR 4.1.8 R the required content of the Management report can be found in the Strategic
report and the Directors’ report including the sections of the Annual Report and financial statements incorporated by reference.
The Company
Babcock International Group PLC, registered and domiciled in England and Wales, with the registered number 02342138, is the
holding company for the Babcock International Group of companies.
Dividends
The Company did not pay an interim dividend this year (2021: nil) and, as part of our focus on building a strong balance sheet, has not
recommended a final dividend (2021: nil).
Major shareholdings
As at 31 March 2022, the Company has been notified pursuant to the Disclosure and Transparency Rules (DTR) of the following major
interests in voting rights attached to its ordinary shares.
Name
Abrams Bison Investments, L.L.C.
Polaris Capital Management, LLC
Invesco Ltd
Cobas Asset Management, SGIIC, S.A.
Oaktree Capital Management (UK) LLP
Number of 60 pence ordinary
shares on date of notification
29,311,332
29,089,500
24,231,810
20,217,293
15,330,960
% of issued share capital
on date of notification
5.80%
5.75%
4.91%
3.99%
3.03%
Since 31 March 2022 the Company has been notified by Cobas Asset Management, SGIIC, S.A. that it has increased its interest to
20,458,556 shares representing 4.04% of the share capital of the Company. There have been no further notifications between then
and the date of this report.
The holdings set out above relate only to notifications of interests in the issued share capital received by the Company pursuant to
DTR 5 and consequently do not necessarily represent current levels of interest.
134
Babcock International Group PLC Annual Report and Financial Statements 2022
OTHER STATUTORY INFORMATION
Other statutory information
below.
table below:
Listing rule
9.8.4 (5)
9.8.4 (12-13)
Directors’ report and other disclosures
The Directors’ report comprises this section, the Principal risks and management controls section in the Strategic report, as well as
the rest of the Governance section, the Directors’ Responsibility Statement on page 139 and those sections incorporated by reference
Disclosures required by LR 9.8.4 R and which form part of the Directors’ report can be found at the locations provided in the
Topic
Location
Director waivers of emoluments
Remuneration report on page 128
Shareholder waivers of
Financial statements, note 25 on page
dividends and future dividends
2017
Other disclosure requirements set out in LR 9.8.4 R are not applicable to the Company.
Disclosures required pursuant to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as
updated by the Companies (Miscellaneous Reporting) Regulations 2018 can be located as follows:
Financial risk management regarding financial instruments
Topic
Greenhouse gas emissions
Employee engagement
Fostering business relationships with suppliers, customers and others
Subsequent events
the Group
Likely future developments in the business of
Details of important events affecting the Group
Note 24, page 211
Location
Page 57
Pages 19, 53, 66, and 99 to 100
Page 52, 69 to 72. 99 and throughout
the Strategic report
Note 34 on page 228
Page 10 and 11
Strategic and Directors’ reports, in
particular pages 13 to 17 and 24
to 35
For the purposes of DTR 4.1.5 R (2) and DTR 4.1.8 R the required content of the Management report can be found in the Strategic
report and the Directors’ report including the sections of the Annual Report and financial statements incorporated by reference.
Babcock International Group PLC, registered and domiciled in England and Wales, with the registered number 02342138, is the
holding company for the Babcock International Group of companies.
The Company did not pay an interim dividend this year (2021: nil) and, as part of our focus on building a strong balance sheet, has not
As at 31 March 2022, the Company has been notified pursuant to the Disclosure and Transparency Rules (DTR) of the following major
interests in voting rights attached to its ordinary shares.
The Company
Dividends
recommended a final dividend (2021: nil).
Major shareholdings
Name
Abrams Bison Investments, L.L.C.
Polaris Capital Management, LLC
Invesco Ltd
Cobas Asset Management, SGIIC, S.A.
Oaktree Capital Management (UK) LLP
Number of 60 pence ordinary
shares on date of notification
% of issued share capital
on date of notification
29,311,332
29,089,500
24,231,810
20,217,293
15,330,960
5.80%
5.75%
4.91%
3.99%
3.03%
Since 31 March 2022 the Company has been notified by Cobas Asset Management, SGIIC, S.A. that it has increased its interest to
20,458,556 shares representing 4.04% of the share capital of the Company. There have been no further notifications between then
and the date of this report.
The holdings set out above relate only to notifications of interests in the issued share capital received by the Company pursuant to
DTR 5 and consequently do not necessarily represent current levels of interest.
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Employment of disabled persons/
equal opportunities
Babcock is committed to equal
opportunities and will not discriminate
on the basis of disability, age, race,
colour, ethnic origin, gender, marital
status, religious or political beliefs or
sexual orientation.
We believe that only by encouraging
applicants from the widest pool of talent
possible, and then selecting the best
candidate based on their ability to do the
job, can we ensure we continue to deliver
our best for our customers and safeguard
the future of Babcock.
For more information about our inclusion
and diversity policy, please see pages 64
and 107.
Research and development
The Group commits resources to research
and development to the extent
management considers necessary for the
evolution and growth of its business.
Political donations
No donations were made during the year
for political purposes.
Authority to purchase own shares
At the Annual General Meeting in
September 2021, members authorised
the Company to make market purchases
of up to 50,559,660 of its own ordinary
shares of 60 pence each.
That authority expires at the forthcoming
Annual General Meeting when a
resolution will be put to renew it so as to
allow purchases of up to a maximum of
10% of the Company’s issued share
capital. No shares in the Company have
been purchased by the Company in the
period from 6 August 2021 (the date the
current authority was granted) to the date
of this report. The Company currently
does not hold any treasury shares.
There were no purchases of the
Company’s shares made in the year to
31 March 2022 by the Babcock Employee
Share Trust in connection with the
Company’s executive share plans (see
note 25 on page 217).
Qualifying third-party indemnity
provisions
The Company has entered into deeds of
indemnity with each of its Directors (who
served during the year and/or who are
currently Directors) which are qualifying
third-party indemnity provisions for the
purposes of the Companies Act 2006
in respect of their Directorships of
the Company and, if applicable, of
its subsidiaries.
Under their respective Articles of
Association, Directors of Group UK
subsidiary companies may be indemnified
by the company concerned of which they
are or were Directors against liabilities
and costs incurred in connection with the
execution of their duties or the exercise of
their powers, to the extent permitted by
the Companies Act 2006.
Qualifying pension scheme indemnity
provisions are also in place for the benefit
of Directors of the Group companies that
act as trustees of Group pension schemes.
Significant agreements that take
effect, alter or terminate upon a
change of control
Many agreements entered into by the
Company or its subsidiaries contain
provisions entitling the other parties to
terminate them in the event of a change
of control of the Group company
concerned, which could be triggered by a
takeover of the Company.
Although the Group has some contracts
that on their own are not significant to
the Group, several may be with the same
customer. If, upon a change of control,
the customer decided to terminate all
such agreements, the aggregate impact
could be very material. In addition, the
National Security and Investment Act
2021 that came into force on 4 January
2022 provides the UK Government with
new powers to scrutinise and potentially
make void transactions on the grounds of
national security. The legislation is part of
a global trend towards introducing
foreign investment laws which has seen a
number of other countries introduce
similar protections.
The following agreements are those
individual agreements which the
Company considers to be significant to
the Group as a whole that contain
provisions giving the other party a specific
right to terminate them if the Company is
subject to a change of control.
Borrowing facilities
The Group has a revolving credit facility of
up to £300 million maturing in May 2024
and a £775 million revolving credit
facility where £45 million matures in
August 2025 and £730 million matures in
August 2026, providing funds for general
corporate and working capital purposes.
In the event of a change of control, both
facilities provide that the lenders may,
within a certain period, call for the
payment of any outstanding loans and
cancel the facilities.
£1,800,000,000 Euro Medium-Term
Note Programme
The Company has a Euro Medium-Term
Note Programme under which it has
issued three tranches: €550,000,000
1.75% Notes due in 2022; £300,000,000
1.875% Notes due in 2026; and
€550,000,000 1.375 % Notes due
in 2027.
If there is a change of control of the
Company and the Notes then in issue
carry an investment-grade credit rating
which is either downgraded to non-
investment-grade, or carry a non-
investment-grade rating which is further
downgraded or withdrawn, or do not
carry an investment-grade rating and the
Company does not obtain an investment-
grade rating for the Notes, a Note holder
may require that the Company redeem
or, at the Company’s option, repurchase
the Notes.
Share plans
The Company’s share plans contain
provisions as a result of which options and
awards may vest and become exercisable
on a change of control of the Company in
accordance with the rules of the plans.
Contracts with employees or Directors
A description of those agreements with
Directors that contain provisions relating
to payments in the event of a termination
of employment following a change of
control of the Company is set out on
pages 122 and 123.
134
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
135
OTHER STATUTORY INFORMATION continued
Future Maritime Support Programme
Lot 11 (Warehousing and Distribution
at HMNB Clyde) dated 30 March 2021
between (1) The Secretary of State
for Defence and (2) Babcock Marine
(Clyde) Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, immediately in the
event of a change of control of Babcock
Marine (Clyde) Limited or any other
company in the Group that it objects to
and in respect of which its concerns have
not been addressed.
Future Maritime Support Programme
Lot 3 (Submarine Engineering) dated
30 September 2021 between (1) The
Secretary of State for Defence and (2)
Devonport Royal Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal
Dockyard Limited does not terminate the
sub-contract.
Future Maritime Support Programme
Lot 4 (Hard Facilities Management and
Alongside Services at HMNB Clyde)
dated 30 September 2021 between (1)
The Secretary of State for Defence and
(2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal
Dockyard Limited does not terminate the
sub-contract.
Articles of Association of DRDL
and RRDL
The Articles of Association of Devonport
Royal Dockyard Limited (DRDL) and Rosyth
Royal Dockyard Limited (RRDL), both
subsidiaries of the Company, grant the
MOD as the holder of a special share in
each of those companies certain rights in
certain circumstances. Such rights include
the right to require the sale of shares in,
and the right to remove Directors of, the
company concerned. The circumstances
in which such rights might arise include
where the MOD considers that
unacceptable ownership, influence or
control (domestic or foreign) has been
acquired over the company in question
and that this is contrary to the essential
security interests of the UK. This might
apply, for example, in circumstances
where any non-UK person(s) directly or
indirectly acquire control over more than
30% of the shares of the relevant
subsidiary, although such a situation is
not of itself such a circumstance unless
the MOD in the given situation considers
it to be so.
Terms of Business Agreement (ToBA)
dated 25 March 2010 between (1) The
Secretary of State for Defence (2)
Babcock International Group PLC (3)
Devonport Royal Dockyard Limited (4)
Babcock Marine (Clyde) Limited and
(5) Rosyth Royal Dockyard Limited
(as amended)
The ToBA confirms Babcock as a key
support partner of MOD in the maritime
sector and covers the 15-year period from
2010 to 2025. The MOD may terminate
the ToBA in the event of a change in
control of a relevant operating company
or any holding company including the
Company in circumstances where, acting
on the grounds of national security, the
MOD considers that it is inappropriate for
the new owners to become involved, or
interested, in the work that is the subject
of the ToBA. ‘Change in control’ occurs
where a person or group of persons that
controls the relevant company ceases to
do so or if another person or group of
persons acquires control.
Surface Ship Support Alliance
Agreement (SSSA) dated 23 September
2009 between (1) The Secretary of
State for Defence, (2) Devonport Royal
Dockyard Limited and (3) BAE Surface
Ships Limited (as amended)
Any change of control of Devonport Royal
Dockyard Limited must be approved in
advance by the Secretary of State for
Defence. Consent may be withheld to
prevent an unsuitable third party taking
control. Breach may result in exclusion
from the alliance.
Competitive Design Phase Contract for
the Type 31 Programme dated
7 December 2018 (as amended and
restated on 15 November 2019)
between (1) The Secretary of State
for Defence and (2) Rosyth Royal
Dockyard Limited
The Secretary of State for Defence may
terminate if, in its reasonable opinion, a
change of control of Rosyth Royal
Dockyard or any holding company will be
contrary to the defence, national security
or national interest of the UK.
Future Maritime Support Programme
Lot 2 (Ships Engineering) dated
30 September 2021 between (1) The
Secretary of State for Defence and (2)
Devonport Royal Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport
Royal Dockyard Limited does not
terminate the sub-contract.
Future Maritime Support Programme
Lot 1 (Naval Bases) dated 28 July 2021
between (1) The Secretary of State for
Defence and (2) Devonport Royal
Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport
Royal Dockyard Limited does not
terminate the sub-contract.
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OTHER STATUTORY INFORMATION continued
Articles of Association of DRDL
Surface Ship Support Alliance
Future Maritime Support Programme
Agreement (SSSA) dated 23 September
Lot 11 (Warehousing and Distribution
2009 between (1) The Secretary of
at HMNB Clyde) dated 30 March 2021
State for Defence, (2) Devonport Royal
between (1) The Secretary of State
Dockyard Limited and (3) BAE Surface
for Defence and (2) Babcock Marine
Ships Limited (as amended)
(Clyde) Limited
Any change of control of Devonport Royal
The Secretary of State for Defence may
Dockyard Limited must be approved in
terminate on certain grounds, including
advance by the Secretary of State for
national security, immediately in the
Defence. Consent may be withheld to
event of a change of control of Babcock
prevent an unsuitable third party taking
Marine (Clyde) Limited or any other
control. Breach may result in exclusion
company in the Group that it objects to
from the alliance.
and in respect of which its concerns have
and RRDL
The Articles of Association of Devonport
Royal Dockyard Limited (DRDL) and Rosyth
Royal Dockyard Limited (RRDL), both
subsidiaries of the Company, grant the
MOD as the holder of a special share in
each of those companies certain rights in
certain circumstances. Such rights include
the right to require the sale of shares in,
and the right to remove Directors of, the
company concerned. The circumstances
in which such rights might arise include
where the MOD considers that
unacceptable ownership, influence or
control (domestic or foreign) has been
acquired over the company in question
and that this is contrary to the essential
Competitive Design Phase Contract for
the Type 31 Programme dated
7 December 2018 (as amended and
restated on 15 November 2019)
between (1) The Secretary of State
security interests of the UK. This might
for Defence and (2) Rosyth Royal
apply, for example, in circumstances
where any non-UK person(s) directly or
Dockyard Limited
The Secretary of State for Defence may
indirectly acquire control over more than
terminate if, in its reasonable opinion, a
30% of the shares of the relevant
subsidiary, although such a situation is
not of itself such a circumstance unless
change of control of Rosyth Royal
Dockyard or any holding company will be
contrary to the defence, national security
the MOD in the given situation considers
or national interest of the UK.
it to be so.
Terms of Business Agreement (ToBA)
dated 25 March 2010 between (1) The
Secretary of State for Defence (2)
Babcock International Group PLC (3)
Devonport Royal Dockyard Limited (4)
Future Maritime Support Programme
Lot 2 (Ships Engineering) dated
30 September 2021 between (1) The
Secretary of State for Defence and (2)
Devonport Royal Dockyard Limited
The Secretary of State for Defence may
Babcock Marine (Clyde) Limited and
terminate on certain grounds, including
(5) Rosyth Royal Dockyard Limited
national security, if there is a change of
(as amended)
The ToBA confirms Babcock as a key
support partner of MOD in the maritime
sector and covers the 15-year period from
2010 to 2025. The MOD may terminate
the ToBA in the event of a change in
control of a relevant operating company
or any holding company including the
Company in circumstances where, acting
on the grounds of national security, the
MOD considers that it is inappropriate for
the new owners to become involved, or
interested, in the work that is the subject
of the ToBA. ‘Change in control’ occurs
where a person or group of persons that
controls the relevant company ceases to
do so or if another person or group of
persons acquires control.
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport
Royal Dockyard Limited does not
terminate the sub-contract.
Future Maritime Support Programme
Lot 1 (Naval Bases) dated 28 July 2021
between (1) The Secretary of State for
Defence and (2) Devonport Royal
Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport
Royal Dockyard Limited does not
terminate the sub-contract.
not been addressed.
Future Maritime Support Programme
Lot 3 (Submarine Engineering) dated
30 September 2021 between (1) The
Secretary of State for Defence and (2)
Devonport Royal Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal
Dockyard Limited does not terminate the
sub-contract.
Future Maritime Support Programme
Lot 4 (Hard Facilities Management and
Alongside Services at HMNB Clyde)
dated 30 September 2021 between (1)
The Secretary of State for Defence and
(2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may
terminate on certain grounds, including
national security, if there is a change of
control of any of Devonport Royal
Dockyard Limited, the Company or a
critical key sub-contractor and the
Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal
Dockyard Limited does not terminate the
sub-contract.
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Share capital and rights attaching to
the Company’s shares
General
Under the Company’s Articles of
Association, any share in the Company
may be issued with such rights or
restrictions, whether in regard to
dividend, voting, return of capital or
otherwise, as the Company may from
time to time by ordinary resolution
determine (or, in the absence of any such
determination, as the Directors may
determine). The Directors’ practice is to
seek authority from shareholders at each
year’s Annual General Meeting to allot
shares (including authority to allot free of
statutory pre-emption rights) up to
specified amounts and also to buy back
the Company’s shares, again up to a
specified amount.
At a general meeting of the Company,
every member has one vote on a show of
hands and, on a poll, one vote for each
share held. The notice of general meeting
specifies deadlines for exercising voting
rights, either by proxy or by being present
in person, in relation to resolutions to be
proposed at a general meeting.
No member is, unless the Board decides
otherwise, entitled to attend or vote,
either personally or by proxy, at a general
meeting or to exercise any other right
conferred by being a shareholder if they
or any person with an interest in their
shares has been sent a notice under s793
of the Companies Act 2006 (which
confers upon public companies the power
to require the provision of information
with respect to interests in their voting
shares) and they or any interested person
have failed to supply the Company with
the information requested within 14 days
after delivery of that notice. The Board
may also decide that no dividend is
payable in respect of those defaulting
shares and that no transfer of any
defaulting shares shall be registered.
These restrictions end seven days after
receipt by the Company of a notice of
an approved transfer of the shares or
all the information required by the
relevant Section 793 notice, whichever
is the earlier.
The Directors may refuse to register any
transfer of any share which is not a fully-paid
share, although such discretion may not be
exercised in a way which the Financial
Conduct Authority regards as preventing
dealings in the shares of the relevant class
or classes from taking place on an open or
proper basis. The Directors may likewise
refuse to register any transfer of a share in
favour of more than four persons jointly.
the Regulation (Relevant Shares). It is
open to shareholders to make
representations to the Directors with a
view to demonstrating that shares should
not be treated as Relevant Shares.
The Company is not aware of any other
restrictions on the transfer of shares in the
Company other than certain restrictions
that may from time to time be imposed
by laws and regulations (for example,
insider trading laws) or by the nationality-
related restrictions, more particularly
described below.
The Company is not aware of any
agreements between shareholders that
may result in restrictions on the transfer of
securities or voting rights in the Company.
At the date of this report 505,596,597
ordinary shares of 60 pence each have
been issued and are fully paid up and
quoted on the London Stock Exchange.
Nationality-related restrictions on
share ownership
Companies which provide aviation
services in the EU must comply with the
requirements of EC Regulation
1008/2008 (the Regulation) which,
amongst other matters, requires those
companies to be majority-owned and
majority-controlled by EEA nationals (the
licensed companies).
At the Company’s Annual General Meeting
in July 2014, shareholders approved the
amendment of the Company’s Articles of
Association (the Articles) to include
provisions intended to assist the Company
in ensuring continuing compliance with
these obligations by giving the Company
and the Directors powers to monitor and,
in certain circumstances, actively manage
nationality requirements as regards
ownership of its shares with a view to
protecting the value of the Group
undertakings that hold the relevant
operating licences. A summary of these
powers is set out below. Reference
should, however, also be made to the
Company’s Articles, a copy of which
may be found on its website at
www.babcockinternational.com. In the
event of any conflict between the Articles
and this summary, the Articles shall prevail.
Relevant Shares
Relevant Shares are any shares which the
Directors have determined or the holders
have acknowledged are shares owned
by non-EEA nationals for the purposes of
Maintenance of a register of non-EEA
shareholders
The Company maintains a register (which
is separate from the statutory register of
members) containing details of Relevant
Shares. This assists the Directors in
assessing, on an ongoing basis, whether
the number of Relevant Shares is such that
action (as outlined below) may be
required to prevent or remedy a breach of
the Regulation.
The Directors will remove from the
separate register particulars of shares
where they are satisfied that either the
share is no longer a Relevant Share or that
the nature of the interest in the share is
such that the share should not be treated
as a Relevant Share.
Disclosure obligations on share ownership
The Articles empower the Company to, at
any time, require a shareholder (or other
person with a confirmed or apparent
interest in the shares) to provide in writing
such information as the Directors
determine is necessary or desirable to
ascertain such person’s nationality and,
accordingly, whether details of the shares
should be entered in the separate register
as Relevant Shares or are capable of being
‘Affected Shares’ (see below).
If the recipient of a nationality information
request from the Company does not
respond satisfactorily to the request
within the prescribed period (being 21
days from the receipt of the notice), the
Company has the power to suspend the
right of such shareholder to attend or
speak (whether by proxy or in person) at
any general or class meeting of the
Company or to vote or exercise any other
right attaching to the shares in question.
Where the shares represent at least 0.25%
of the aggregate nominal value of the
Company’s share capital, the Company
may also (subject to certain exceptions)
refuse to register the transfer of
such shares. The Articles also require that
a declaration (in a form prescribed by the
Directors) relating to the nationality of the
transferee is provided to the Directors
upon the transfer of any shares in the
Company, failing which the Directors
may refuse to register such transfer (see
further below).
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Babcock International Group PLC Annual Report and Financial Statements 2022
137
OTHER STATUTORY INFORMATION continued
monitors the financial reporting process
and the process for preparing the
consolidated accounts through regular
reporting and review. Management
reviews data for consolidation into the
Group’s financial statements to ensure
that it gives a true and fair view of the
Group’s results in compliance with
applicable accounting policies.
The Board, through the Audit Committee,
reviews the effectiveness of the
Company’s internal control processes
formally at least once a year. Last year,
the Board found that the system of
internal and financial controls was not
operating effectively in certain parts of
the Group, in particular, in Aviation, Land
and Head Office. Since then, the
Company has implemented a number of
improvements, which the Audit
Committee has monitored. Following this
year’s review of the effectiveness of the
Company’s internal control processes, the
Board is satisfied that the Company has
successfully delivered the improvement
plans agreed last year, whilst recognising
that there remains ongoing scope for
further improvement in FY23, including
lessons learnt from the FY22 closing.
For more detailed information on the
improvements in internal controls please
see the Audit Committee report on page
110. Further information on the principal
internal controls and risk assurances in use
in the Company can be found in the
Strategic report on pages 76 to 78.
Auditor
Following appointment as Independent
Auditor of the Company last year, after a
competitive tender process, Deloitte is
willing to continue in office. A resolution
to re-appoint Deloitte as Independent
Auditor will be proposed at the
forthcoming Annual General Meeting.
Power to treat shares as ‘Affected Shares’
The Articles empower the Directors, in
certain circumstances, to treat shares as
‘Affected Shares’. If the Directors
determine that any shares are to be
treated as Affected Shares, they may serve
an ‘Affected Share Notice’ on the
registered shareholder and any other
person that appears to have an interest in
those shares. The recipients of an Affected
Share Notice are entitled to make
representations to the Directors with a
view to demonstrating that such shares
should not be treated as Affected Shares.
The Directors may withdraw an Affected
Share Notice if they resolve that the
circumstances giving rise to the shares
being treated as Affected Shares no
longer exist.
Consequences of holding or having an
interest in Affected Shares
A holder of Affected Shares is not entitled,
in respect of those shares, to attend or
speak (whether by proxy or in person) at
any general or class meeting of the
Company or to vote or to exercise any
other right at such meetings, and the
rights attaching to such shares will vest in
the Chair of the relevant meeting (who
may exercise, or refrain from exercising,
such rights at his/her sole discretion).
The Affected Shares Notice may, if the
Directors determine, also require that the
Affected Shares must be disposed of
within 10 days of receiving such notice
(or such longer period as the Directors
may specify) such that the Affected Shares
become owned by an EEA national, failing
which the Directors may arrange for the
sale of the relevant shares at the best
price reasonably obtainable at the time.
The net proceeds of any sale of Affected
Shares would be held in trust and paid
(together with such rate of interest as the
Directors deem appropriate) to the former
registered holder upon surrender of the
relevant share certificate in respect of
the shares.
Circumstances in which the Directors may
determine that shares are Affected Shares
The Articles provide that where the
Directors determine that it is necessary to
take steps in order to protect an operating
licence of the Group they may: (i) seek to
identify those shares which have given rise
to the determination and to deal with such
shares as Affected Shares; and/or (ii)
specify a maximum number of shares
(which will be less than 50% of the
Company’s issued share capital) that may
be owned by non-EEA nationals and then
treat any shares owned by non-EEA
nationals in excess of that limit as Affected
Shares (the Directors will publish a notice
of any specified maximum within two
business days of resolving to impose such
limit). In deciding which shares are to be
dealt with as Affected Shares, the Directors
shall be entitled to determine which
Relevant Shares in their sole opinion have
directly or indirectly caused the relevant
determination. However, so far as
practicable, the Directors shall have regard
to the chronological order in which the
Relevant Shares have been entered in the
separate register.
Right to refuse registration
The Articles provide the Directors with the
power to refuse registration of a share
transfer if, in their reasonable opinion,
such transfer would result in shares being
treated or continuing to be treated as
Affected Shares.
The Articles also provide that the Directors
shall not register any person as a holder of
any share in the Company unless the
Directors receive a declaration of nationality
relating to such person and such further
information as they may reasonably request
with respect to that nationality declaration.
The Directors believe that, following the
restructuring of the Aviation sector, those
companies in which the Company has an
interest and which are required to comply
with the Regulation, (being those
companies operating aviation services in
the EU) do meet the requirement of the
Regulation, including those relating to
nationality. This belief is based on the
Company’s understanding of the
application of the Regulation. There can,
however, be no guarantee that this will
continue to be their assessment and that
it will not be necessary to declare a
Permitted Maximum or exercise any other
of their or the Company’s powers in the
Articles referred to above.
Internal controls and risk
management
Through improvements in processes in
prior years there is a robust process in
place to enable the Board to have
assurance around the overall risk
management together with the
determination of the nature and extent of
the Group’s principal risks. Management
138
Babcock International Group PLC Annual Report and Financial Statements 2022
OTHER STATUTORY INFORMATION continued
Power to treat shares as ‘Affected Shares’
(which will be less than 50% of the
monitors the financial reporting process
The Articles empower the Directors, in
Company’s issued share capital) that may
and the process for preparing the
certain circumstances, to treat shares as
be owned by non-EEA nationals and then
consolidated accounts through regular
‘Affected Shares’. If the Directors
determine that any shares are to be
treat any shares owned by non-EEA
reporting and review. Management
nationals in excess of that limit as Affected
reviews data for consolidation into the
treated as Affected Shares, they may serve
Shares (the Directors will publish a notice
Group’s financial statements to ensure
an ‘Affected Share Notice’ on the
registered shareholder and any other
of any specified maximum within two
that it gives a true and fair view of the
business days of resolving to impose such
Group’s results in compliance with
person that appears to have an interest in
limit). In deciding which shares are to be
applicable accounting policies.
those shares. The recipients of an Affected
dealt with as Affected Shares, the Directors
Share Notice are entitled to make
shall be entitled to determine which
representations to the Directors with a
Relevant Shares in their sole opinion have
view to demonstrating that such shares
directly or indirectly caused the relevant
should not be treated as Affected Shares.
determination. However, so far as
The Directors may withdraw an Affected
practicable, the Directors shall have regard
Share Notice if they resolve that the
to the chronological order in which the
circumstances giving rise to the shares
Relevant Shares have been entered in the
being treated as Affected Shares no
separate register.
longer exist.
Right to refuse registration
The Board, through the Audit Committee,
reviews the effectiveness of the
Company’s internal control processes
formally at least once a year. Last year,
the Board found that the system of
internal and financial controls was not
operating effectively in certain parts of
the Group, in particular, in Aviation, Land
and Head Office. Since then, the
Company has implemented a number of
Consequences of holding or having an
The Articles provide the Directors with the
improvements, which the Audit
power to refuse registration of a share
transfer if, in their reasonable opinion,
Committee has monitored. Following this
year’s review of the effectiveness of the
such transfer would result in shares being
Company’s internal control processes, the
treated or continuing to be treated as
Affected Shares.
The Articles also provide that the Directors
shall not register any person as a holder of
any share in the Company unless the
Directors receive a declaration of nationality
Board is satisfied that the Company has
successfully delivered the improvement
plans agreed last year, whilst recognising
that there remains ongoing scope for
further improvement in FY23, including
lessons learnt from the FY22 closing.
relating to such person and such further
For more detailed information on the
information as they may reasonably request
improvements in internal controls please
with respect to that nationality declaration.
see the Audit Committee report on page
interest in Affected Shares
A holder of Affected Shares is not entitled,
in respect of those shares, to attend or
speak (whether by proxy or in person) at
any general or class meeting of the
Company or to vote or to exercise any
other right at such meetings, and the
rights attaching to such shares will vest in
the Chair of the relevant meeting (who
may exercise, or refrain from exercising,
such rights at his/her sole discretion).
The Affected Shares Notice may, if the
Directors determine, also require that the
Affected Shares must be disposed of
within 10 days of receiving such notice
(or such longer period as the Directors
may specify) such that the Affected Shares
become owned by an EEA national, failing
which the Directors may arrange for the
sale of the relevant shares at the best
price reasonably obtainable at the time.
The net proceeds of any sale of Affected
Shares would be held in trust and paid
(together with such rate of interest as the
Directors deem appropriate) to the former
registered holder upon surrender of the
relevant share certificate in respect of
the shares.
Circumstances in which the Directors may
determine that shares are Affected Shares
The Articles provide that where the
Directors determine that it is necessary to
take steps in order to protect an operating
licence of the Group they may: (i) seek to
identify those shares which have given rise
to the determination and to deal with such
shares as Affected Shares; and/or (ii)
specify a maximum number of shares
The Directors believe that, following the
restructuring of the Aviation sector, those
companies in which the Company has an
interest and which are required to comply
with the Regulation, (being those
companies operating aviation services in
the EU) do meet the requirement of the
Regulation, including those relating to
nationality. This belief is based on the
Company’s understanding of the
application of the Regulation. There can,
however, be no guarantee that this will
continue to be their assessment and that
it will not be necessary to declare a
Permitted Maximum or exercise any other
of their or the Company’s powers in the
Articles referred to above.
Internal controls and risk
management
Through improvements in processes in
prior years there is a robust process in
place to enable the Board to have
assurance around the overall risk
management together with the
determination of the nature and extent of
the Group’s principal risks. Management
110. Further information on the principal
internal controls and risk assurances in use
in the Company can be found in the
Strategic report on pages 76 to 78.
Auditor
Following appointment as Independent
Auditor of the Company last year, after a
competitive tender process, Deloitte is
willing to continue in office. A resolution
to re-appoint Deloitte as Independent
Auditor will be proposed at the
forthcoming Annual General Meeting.
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Responsibility statement
Each of the Directors, being each Director
who is in office at the date the Directors’
report is approved and whose names and
functions are listed below, confirms that,
to the best of their knowledge:
• the financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and
fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken as a
whole;
• the strategic report includes a fair
review of the development and
performance of the business and the
position of the Company and the
undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face; and
• the annual report and financial
statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy.
Directors’
responsibility statement
The Directors are responsible for
preparing the Annual Report and the
financial statements in accordance with
applicable law and regulations.
and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s
ability to continue as a going concern.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose with
reasonable accuracy at any time the
financial position of the company and
enable them to ensure that the financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the company’s website.
Legislation in the United Kingdom
governing the preparation and
dissemination of financial statements may
differ from legislation in other
jurisdictions.
So far as the Directors are aware there is
no relevant audit information of which
the Company’s auditor is unaware. The
Directors have taken all the steps that
they ought to have taken as Directors in
order to make themselves aware of any
relevant audit information and to establish
that the Company’s auditor is aware of
that information.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the
Directors are required to prepare the
group financial statements in accordance
with United Kingdom adopted
international accounting standards. The
Directors have chosen to prepare the
parent company financial statements in
accordance with United Kingdom
Generally Accepted Accounting Practice
(United Kingdom Accounting Standards
and applicable law), including FRS 101
“Reduced Disclosure Framework”. Under
company law the Directors must not
approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs of the
Company and of the profit or loss of the
Company for that period.
In preparing the parent company financial
statements, the Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and accounting
estimates that are reasonable and
prudent;
• state whether applicable UK Accounting
Standards have been followed, subject
to any material departures disclosed
and explained in the financial
statements; and
• prepare the financial statements on the
going concern basis unless it is
inappropriate to presume that the
company will continue in business.
In preparing the Group financial
statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting
policies;
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures when
compliance with the specific
requirements of the financial reporting
framework are insufficient to enable
users to understand the impact of
particular transactions, other events
Ruth Cairnie
Carl-Peter Forster
Kjersti Wiklund
John Ramsay
Russ Houlden
Lucy Dimes
Lord Parker
David Lockwood
David Mellors
Chair
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer
Approval of the Strategic report and the Directors’ report
The Strategic report and the Directors’ report (pages 2 to 139) for the year ending
31 March 2022 have been approved by the Board and signed on its behalf by:
RUTH CAIRNIE
Chair
28 July 2022
DAVID LOCKWOOD
Chief Executive Officer
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Babcock International Group PLC Annual Report and Financial Statements 2022
139
OUR PRINCIPLES IN ACTION
be courageous
We believe in being brave, ambitious
and determined.
When it comes to safety, Babcock expects
all of our people to do the right thing,
challenge unsafe acts and make sure
everyone goes Home Safe Every Day.
At one of our sites, a group of contractors
were due to operate at height. As they
were erecting their scaffold and preparing
their working space, concerns were raised
about their safety.
One of our team courageously stopped
the job, assessed the work the team
was due to undertake and ensured that
all safety protocols were understood
and followed.
It’s important we all do our bit to help
each other stay safe and being
courageous has a big role to play in this.
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OUR PRINCIPLES IN ACTION
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be courageous
own & deliver
We believe in being brave, ambitious
At one of our sites, a group of contractors
It’s important we all do our bit to help
were due to operate at height. As they
each other stay safe and being
were erecting their scaffold and preparing
courageous has a big role to play in this.
and determined.
When it comes to safety, Babcock expects
all of our people to do the right thing,
challenge unsafe acts and make sure
everyone goes Home Safe Every Day.
One of our team courageously stopped
their working space, concerns were raised
about their safety.
the job, assessed the work the team
was due to undertake and ensured that
all safety protocols were understood
and followed.
We believe our collective success depends
on individual actions.
We support our customers’ critical assets
and complex programmes around the
world – this means we need to work
through a number of external factors
including the weather.
One of our major tasks was to float up
submarine HMS Vanguard. Programmes of
such magnitude require extensive
planning and preparation – as well as an
appropriate weather window.
Understanding what we needed to do,
and having mitigations in place should
things change, we worked with our
customer to successfully complete our
task and dock down the submarine.
We know what’s important and we
help our customers and our people
achieve success.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Babcock International Group plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 March 2022 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the Group income statement;
• the Group statement of comprehensive income;
• the Group and Company statements of changes in equity;
• the Group and Company statements of financial position;
• the Group cash flow statement; and
• the related Notes 1 to 35 of the Group financial statements and Notes 1 to 14 of the Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
United Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the
preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section
of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services
provided to the Group and Company for the year are disclosed in Note 5 to the financial statements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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The key audit matters that we identified in the current year were:
3. Summary of our audit approach
Key audit
matters
• Impact of control deficiencies (Group and Company);
• Revenue and margin recognition on key long-term contracts with significant management judgment (Group);
• Carrying value of property, plant and equipment (PPE) and Right of Use (RoU) assets in the Aviation sector (Group);
• Carrying value of Goodwill within Land and Aviation sectors (Group);
• Hedge effectiveness on foreign currency forwards (Group and Company);
• Valuation of retirement benefit obligations (Group); and
• Carrying value of investments in subsidiaries (Company).
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
accounting standards;
• the financial statements of Babcock International Group plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 March 2022 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the Group income statement;
• the Group statement of comprehensive income;
• the Group and Company statements of changes in equity;
• the Group and Company statements of financial position;
• the Group cash flow statement; and
• the related Notes 1 to 35 of the Group financial statements and Notes 1 to 14 of the Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
United Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the
preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
of our report.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services
provided to the Group and Company for the year are disclosed in Note 5 to the financial statements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Five key audit matters identified by the previous auditor and described in their report for the year ended 31 March
2021 are not included in our report for the year ended 31 March 2022. These were:
• Impact of COVID as the impact was less pronounced in the year ended 31 March 2022;
• Presentation and classification of specific adjusting items, including exceptional items as the volume of specific
adjusting items is significantly lower in the year ended 31 March 2022;
• Contract profitability and Balance sheet review (CPBS) as the adjustments were recorded in the year ended
31 March 2021, however we did consider these items within our transition activities;
• Going concern as the covenant headroom has increased as there are no CPBS adjustments for the year ended
31 March 2022 and the Directors delivered on their disposal plan; and
• Completeness and accuracy of lease liabilities and right of use assets which we did not consider to be a key audit
matter as IFRS 16 is more established for the company.
This year we have identified the impact of control deficiencies (Group and Company), hedge effectiveness on
forward foreign currency contracts (Group and Company), carrying value of property, plant and equipment (PPE) and
Right of Use (RoU) assets in the Aviation sector (Group); the carrying value of Goodwill within the Land and Aviation
sectors (Group); and the carrying value of investments in subsidiaries (Company) as new key audit matters.
Within section 5 of this report, any key audit matters which are similar to those identified by the previous auditor in
the prior year are identified with
. New key audit matters are identified with
.
Materiality
Scoping
We have determined materiality to be £15.6m. See section 6.1 for further details on materiality.
Our scope covered eighteen components of the Group. Of these, seventeen were subjected to a full-scope audit
and one was subject to specific procedures on certain account balances. The components contribute 97% of
revenue and 95% of profit before tax. See section 7 for further details on our scoping.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of
accounting included:
• Understanding the Group’s processes and related controls over the assumptions in the going concern assessment;
• Assessing the Group’s available committed borrowing facilities;
• Testing the accuracy of the Directors’ models, including agreement to the most recent board approved budgets and forecasts;
• Determining whether the forecasts used within assessing the going concern assumption were consistent, where relevant, with those
used within Goodwill impairment modelling;
• Challenging the key assumptions of these forecasts by:
• reading analyst reports, industry data and other external information and comparing these with the Directors’ estimates;
• comparing forecast revenue with the secured revenue under contract, contract churn rates, contract win rates and historical
performance;
• comparing contract margin and overhead cost assumptions to historical performance and the macroeconomic environment;
• evaluating the historical accuracy of forecasts prepared by the Directors;
• assessing the sensitivity of the headroom and the Directors’ forecasts; and
• comparing the risks management have identified in their risk register to the going concern scenarios modelling to assess
completeness and accuracy of the modelled scenarios.
• Evaluating the accuracy and completeness of the covenant calculation within the model; and
• Assessing the disclosures relating to going concern in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and Company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
The following matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1. Impact of control deficiencies (Group and Company)
Refer to page 108 (Audit Committee report), Note 1 (Basis of preparation and significant accounting policies), Note 3 (Prior year
restatements) and Note 5 to the Company financial statements (Prior year adjustment)
Key audit
matter
description
In the year ended 31 March 2021 the Group performed a contract profitability and balance sheet (CPBS) review
which resulted in more than 140 accounting adjustments totalling £2.0 billion (post-tax effect on retained earnings)
and spanning many account balances across several years.
How the scope
of our audit
responded to
the key audit
matter
This led to the Board concluding that the control environment was not operating effectively in certain parts of the
Group, particularly in Aviation, Land and Group Head Office.
As outlined in Note 3 to the financial statements and Note 5 to the Company financial statements, through the
course of our audit there were 13 prior year misstatements identified at the Group level and 4 at the Company level
which have been corrected. Further detail on the majority of these errors is included within subsequent key audit
matters.
The current year audit has identified a large number of errors that have affected both the current and prior years. A
number of these relate to revenue recognition, where there was initially a lack of documented support for key
accounting considerations under IFRS 15.
Our expectation was that there would be significant deficiencies in the Group’s control environment and that our
audit plan would therefore need to be adjusted to fully respond to the resultant increased risk of material
misstatement in the financial statements.
The extent of the errors and control deficiencies identified had a significant impact on our audit and was a
contributing factor to the extended time and effort required to complete the audit, which we consider to be a key
audit matter.
Given the issues identified in 31 March 2021, our expectation was that the control environment would be deficient
and our audit activities were enhanced in response to this increased risk of misstatement. The procedures most
relevant to our key audit matter were:
• reviewing historical accounting policies and accounting judgements through discussion with the Directors and
review and challenge of the Directors’ papers and supporting documentation;
• interacting with management and the Audit Committee to understand and challenge the actions they were
taking to address the control failures identified in the prior year;
• performing walkthroughs on key accounting processes, with particular focus on long term contract accounting;
• obtaining an understanding of the general IT control environment;
• identifying relevant controls and evaluating those controls; and
• inspecting the previous auditor’s audit file which included the CPBS review.
We considered the nature and extent of the findings in determining our assessment of the risk of material
misstatement to the financial statements including as a result of fraudulent manipulation of the financial
statements (including the risk of override of controls), as described elsewhere in this report. Where necessary our risk
assessment and subsequent audit approach was revised in response to the misstatements (and associated control
findings) identified.
During the current year audit we identified a large number of errors that have affected both the current and prior
years and identified significant deficiencies in control and we adjusted our audit plan accordingly. Additional
procedures included:
• increasing our audit scope to bring more components into full scope audit;
• increasing the level of component oversight;
• expanding the types of journal entries that we selected for testing due to failures within the IT environment, now
being remediated, that meant we were not able to rely on their operating effectiveness;
• more extensive use of specialist teams in tax, valuations, pensions and financial instruments;
• embedding an IFRS 15: ‘Revenue from Contracts with Customers‘ (“IFRS 15”) specialist into our team;
• requesting the preparation of over 70 key accounting papers to support accounting positions they had taken ;
• using data analytics to complete our testing, over key areas such as the consolidation and contracts; and
• increasing the seniority of our engagement and review teams.
The control deficiencies identified meant that we adopted a fully substantive audit approach which involved a
significant increase in volume of work so that we had appropriately amended the nature, timing and extent of audit
work to respond to the deficiencies in the control environment.
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Key
observations
Management has initiated and implemented a number of control enhancements during the year, however, as noted
on page 108 the Audit Committee recognise that there remains on-going scope for further improvement in FY23,
including lessons learnt from the FY22 closing.
We identified significant deficiencies within the central Group functions in particular Treasury and Pensions, where
several prior year errors have been identified which have required restatement, which were in addition to the
£2 billion of errors already corrected in the 31 March 2021 annual report.
Across the Group, we have identified a number of themes including significant variation in the process and control
environment across comparable workstreams and sectors, a lack of formalised documentation to evidence
operation of identified controls, and a lack of technical accounting and long-term accounting expertise within the
finance teams.
In respect of the IT environment, our testing identified a high number of observations, with the majority in relation
to privileged access controls and password controls. As a consequence, we were not able to place reliance on the
effective operation of IT controls throughout the year.
Overall, given the extent to which our audit procedures identified significant deficiencies in relevant controls, we
consider that the control environment requires significant enhancement for a group of this size and complexity.
5.2. Revenue and margin recognition on key long-term contracts with significant management judgment (Group)
Refer to page 108 (Audit Committee report), Group Income Statement, Note 1 (Basis of preparation and significant accounting
policies), Note 3 (Prior year restatements), Note 18 (Trade and other receivables and contract assets) and Note 20 (Trade and other
payables and contract liabilities)
Key audit
matter
description
The estimation of lifetime contract margin and the appropriate level of revenue and profit to recognise in any single
accounting period requires the exercise of Directors’ judgement. Within the Company’s contract portfolio there are
a number of contracts which extend over a number of years, with values in excess of £1billion, where the
judgements are highly complex and could lead to a material error within the financial statements. These judgments
include estimating the amount of cost transformation savings on long term facilities management contracts; the
impact of inflation on estimates of cost to complete; estimating project completion dates on complex and
technically challenging refit and maintenance projects; and schedule duration and contractual obligations on
multiple ship deliveries that extend over a number of years.
Consequently, we consider that revenue and margin recognition within key contracts, and the associated
accounting for contracts assets, liabilities and provisions, in accordance with IFRS 15 and IAS 37: ‘Provisions,
contingent liabilities and contingent assets’ (“IAS 37”) represents a key audit matter. Key aspects of IFRS 15 we
considered related to the recognition of variable consideration on the contract and agent versus principal
considerations, and on IAS 37 the measurement of the provision for loss making contracts where there were delays
to the contract schedule.
In order to identify the key contracts where there is a significant risk of material misstatement, we undertook a
contract risk assessment process for each sector utilising data analytics, the latest contract information, our
understanding of the business, the results of prior audits and review of external information about market and
geopolitical conditions which might impact certain contracts. We held meetings with key finance and contract
managers, attended business review meetings and other key management meetings, read and understood
underlying contract documentation and obtained support for key contract judgements.
In addition, we looked for contracts that might have higher levels of judgement associated with the risk of schedule
delivery or technical complexity, and other indicators that could increase the risk of a material impact on the
financial statements, including achieving forecast transformation savings and the impact of rising inflation.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
The following matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1. Impact of control deficiencies (Group and Company)
Refer to page 108 (Audit Committee report), Note 1 (Basis of preparation and significant accounting policies), Note 3 (Prior year
restatements) and Note 5 to the Company financial statements (Prior year adjustment)
Key audit
matter
description
In the year ended 31 March 2021 the Group performed a contract profitability and balance sheet (CPBS) review
which resulted in more than 140 accounting adjustments totalling £2.0 billion (post-tax effect on retained earnings)
and spanning many account balances across several years.
This led to the Board concluding that the control environment was not operating effectively in certain parts of the
Group, particularly in Aviation, Land and Group Head Office.
As outlined in Note 3 to the financial statements and Note 5 to the Company financial statements, through the
course of our audit there were 13 prior year misstatements identified at the Group level and 4 at the Company level
which have been corrected. Further detail on the majority of these errors is included within subsequent key audit
matters.
The current year audit has identified a large number of errors that have affected both the current and prior years. A
number of these relate to revenue recognition, where there was initially a lack of documented support for key
accounting considerations under IFRS 15.
Our expectation was that there would be significant deficiencies in the Group’s control environment and that our
audit plan would therefore need to be adjusted to fully respond to the resultant increased risk of material
misstatement in the financial statements.
The extent of the errors and control deficiencies identified had a significant impact on our audit and was a
contributing factor to the extended time and effort required to complete the audit, which we consider to be a key
audit matter.
How the scope
Given the issues identified in 31 March 2021, our expectation was that the control environment would be deficient
and our audit activities were enhanced in response to this increased risk of misstatement. The procedures most
relevant to our key audit matter were:
of our audit
responded to
the key audit
matter
• reviewing historical accounting policies and accounting judgements through discussion with the Directors and
review and challenge of the Directors’ papers and supporting documentation;
• interacting with management and the Audit Committee to understand and challenge the actions they were
taking to address the control failures identified in the prior year;
• performing walkthroughs on key accounting processes, with particular focus on long term contract accounting;
• obtaining an understanding of the general IT control environment;
• identifying relevant controls and evaluating those controls; and
• inspecting the previous auditor’s audit file which included the CPBS review.
We considered the nature and extent of the findings in determining our assessment of the risk of material
misstatement to the financial statements including as a result of fraudulent manipulation of the financial
statements (including the risk of override of controls), as described elsewhere in this report. Where necessary our risk
assessment and subsequent audit approach was revised in response to the misstatements (and associated control
findings) identified.
procedures included:
During the current year audit we identified a large number of errors that have affected both the current and prior
years and identified significant deficiencies in control and we adjusted our audit plan accordingly. Additional
• increasing our audit scope to bring more components into full scope audit;
• increasing the level of component oversight;
• expanding the types of journal entries that we selected for testing due to failures within the IT environment, now
being remediated, that meant we were not able to rely on their operating effectiveness;
• more extensive use of specialist teams in tax, valuations, pensions and financial instruments;
• embedding an IFRS 15: ‘Revenue from Contracts with Customers‘ (“IFRS 15”) specialist into our team;
• requesting the preparation of over 70 key accounting papers to support accounting positions they had taken ;
• using data analytics to complete our testing, over key areas such as the consolidation and contracts; and
• increasing the seniority of our engagement and review teams.
The control deficiencies identified meant that we adopted a fully substantive audit approach which involved a
significant increase in volume of work so that we had appropriately amended the nature, timing and extent of audit
work to respond to the deficiencies in the control environment.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5.2. Revenue and margin recognition on key long-term contracts with significant management judgment (Group)
How the scope
of our audit
responded to
the key audit
matter
Our contract testing approach included:
Understanding relevant controls
• We obtained an understanding of relevant manual and IT controls and project accounting processes which
management have established to ensure that contracts are appropriately forecast, managed, challenged and
accounted for.
• As part of this, we attended a sample of project contract status review meetings, quarterly business review
meetings and Group level meetings to understand the various levels of challenge applied to the forecasts.
• As outlined in Key Audit Matter 5.1, we were not able to rely on any controls for the purposes of our
substantive testing.
Challenging management’s assumptions and estimates
Our work included:
• making inquiries of contract project teams and other personnel to obtain an understanding of the performance of
the project throughout the year and at year-end;
• analysing historical contract performance and understanding the reason for in-year movements or changes;
• testing the underlying calculations used in the contract assessments for accuracy and completeness, including the
estimated costs to complete the contract and associated contingencies. We considered historical forecasting
accuracy of costs, compared to similar programmes, and challenged future cost expectations with reference to
those data points;
• obtaining evidence and challenging management on the assumptions used to calculate future transformational
savings;
• examining external correspondence to assess the timeframe for delivery of the product or service and any
judgements made in respect of these;
• examining external evidence to assess contract status and estimation of variable consideration (including
associated recoverability of contract balances), such as customer correspondence and for certain contracts
meeting with the customer directly;
• enquiring with in-house and external legal counsel regarding contract related litigation and claims; and
• considering whether there were any indicators of management override of controls or bias in arriving at their
reported position.
Key
observations
Whilst not directly related to our key audit matter, as outlined in Note 3 to the Group financial statements the
Directors have corrected a prior year error of £211m relating to the presentation of revenue and cost of revenue in
relation to pass-through revenue on three of the Group’s contracts.
Through our testing of those contracts with the highest degree of management judgement, we identified a number
of immaterial adjustments which were adjusted for by Group management.
We also identified misstatements which had a net impact of reducing revenue, that management chose not to
correct on the grounds that they netted to an overall immaterial income statement impact.
We concluded overall that the judgements made by the Directors are reasonable.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5.2. Revenue and margin recognition on key long-term contracts with significant management judgment (Group)
How the scope
Our contract testing approach included:
Understanding relevant controls
of our audit
responded to
the key audit
matter
accounted for.
• We obtained an understanding of relevant manual and IT controls and project accounting processes which
management have established to ensure that contracts are appropriately forecast, managed, challenged and
• As part of this, we attended a sample of project contract status review meetings, quarterly business review
meetings and Group level meetings to understand the various levels of challenge applied to the forecasts.
• As outlined in Key Audit Matter 5.1, we were not able to rely on any controls for the purposes of our
substantive testing.
Our work included:
Challenging management’s assumptions and estimates
• making inquiries of contract project teams and other personnel to obtain an understanding of the performance of
the project throughout the year and at year-end;
• analysing historical contract performance and understanding the reason for in-year movements or changes;
• testing the underlying calculations used in the contract assessments for accuracy and completeness, including the
estimated costs to complete the contract and associated contingencies. We considered historical forecasting
accuracy of costs, compared to similar programmes, and challenged future cost expectations with reference to
• obtaining evidence and challenging management on the assumptions used to calculate future transformational
those data points;
savings;
• examining external correspondence to assess the timeframe for delivery of the product or service and any
judgements made in respect of these;
• examining external evidence to assess contract status and estimation of variable consideration (including
associated recoverability of contract balances), such as customer correspondence and for certain contracts
meeting with the customer directly;
• enquiring with in-house and external legal counsel regarding contract related litigation and claims; and
• considering whether there were any indicators of management override of controls or bias in arriving at their
reported position.
Key
Whilst not directly related to our key audit matter, as outlined in Note 3 to the Group financial statements the
observations
Directors have corrected a prior year error of £211m relating to the presentation of revenue and cost of revenue in
relation to pass-through revenue on three of the Group’s contracts.
Through our testing of those contracts with the highest degree of management judgement, we identified a number
of immaterial adjustments which were adjusted for by Group management.
We also identified misstatements which had a net impact of reducing revenue, that management chose not to
correct on the grounds that they netted to an overall immaterial income statement impact.
We concluded overall that the judgements made by the Directors are reasonable.
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5.3. Carrying value of property, plant and equipment (PPE) and Right of Use (RoU) assets in the
Aviation sector (Group)
Refer to page108 (Audit Committee report), Note 1 (Basis of preparation and significant accounting policies), Note 3 (Prior year
restatements), Note 5 (Operating (loss)/profit for the year) and Note 14 (Property, plant and equipment)
Key audit
matter
description
How the scope
of our audit
responded to
the key audit
matter
At 31 March 2022 the net book value of PPE and ROU assets within the Aviation sector was £476m (31 March
2021: £706.5m).
In accordance with IAS 36 ‘Impairment of Assets’ (“IAS 36”), the Group has undertaken an annual assessment of
indicators of impairment. Due to the identification of an impairment trigger relating to the potential sale of part of
the Aviation sector an impairment review was performed for the Aviation sector which resulted in an impairment
charge of £55m being recorded against the carrying value of Aviation property, plant and equipment and right of
use assets (31 March 2021: charge of £140m).
As described in Note 14 to the financial statements, in making this assessment the Directors have grouped the
aircraft at the lowest level for which there is identifiable cashflows that are largely independent of the cashflows of
other groups of assets, which is generally at the fleet group level. The impairment calculations are based on
estimated discounted cashflows over the remaining useful expected lives of the assets. The impairment charge was
based on a recoverable amount of £224.0m.
We identified a key audit matter in relation to the impairment of PPE in the Aviation sector due to the material
impairment indicated and the sensitivity of the value in use calculation to key assumptions.
The key assumptions applied by the Directors in the impairment reviews performed are:
• discount rates used to discount future cash flows;
• determination of CGUs as a basis for performing the two-stage impairment test required under IAS 36;
• forecast operating cash flows based on assumptions of future operating margins, contract renewals and aircraft
useful lives; and
• market values of aircraft, in assessing fair value less costs to sell, and as a residual cash inflow in the
value-in-use calculations.
We completed the following audit procedures:
• obtained an understanding of relevant controls relating to the impairment review process;
• evaluated the Directors’ cash flow forecasts and the process by which they were determined and approved. This
included checking the mechanical accuracy of the impairment models and the methodology applied by the
Directors for consistency with the requirements of IAS 36;
• assessed the appropriateness of the determined CGUs with reference to the definition of a CGU in IAS 36, with our
challenge focussed on whether a fleet level CGU was appropriate or whether there were identifiable and
separable cash inflows at a lower level;
• assessed the appropriateness of forecast revenue, contract win/renewal rates, and margins with reference to
recent and historical performance, external industry benchmarks and specific forecast events;
• assessed the inclusion of expected sale proceeds for Aircraft disposals for each CGU, evaluating evidence
including; recent offers and industry valuation guides;
• assessed the appropriateness of the discount rates applied with the involvement of our internal valuations
specialists and compared the rates applied with our internal benchmarking data;
• evaluated the appropriateness and completeness of information included in the impairment model based on our
knowledge of the business driven by our review of contracts, strategic initiatives, minutes of executive committee
meetings, and meetings with sector leads, together with our wider industry knowledge and considering the
impact of any climate related impacts; and
Key
observations
• assessed the completeness and accuracy of disclosures within the financial statements.
Our controls work highlighted that there was a lack of formalised documentation over model mechanics and
assumptions made with limited documented evidence of review.
The Directors’ discount rates were originally outside of the reasonable range calculated by our internal valuations
specialists, resulting in additional impairment of £4m being recorded in the year ended 31 March 2022.
We also identified an error with the mechanical accuracy of the model, resulting in additional impairment of £9m
which has been recorded by the Directors.
After recording these adjustments, we are satisfied that the judgements applied, impairment charges recorded and
disclosures within the financial statements are appropriate.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5.4. Carrying value of Goodwill within the Land and Aviation sectors (Group)
Refer to page 108 (Audit Committee report), Note 1 (Basis of preparation and significant accounting policies), Note 3 (Prior year
restatements), Note 5 (Operating (loss)/profit for the year) and Note 12 (Goodwill)
Key audit
matter
description
How the scope
of our audit
responded to
the key audit
matter
The Group holds goodwill balances with a combined carrying value of £782m as at 31 March 2022
(2021: £956m restated).
As disclosed in Note 3 to the financial statements, following a computational error identified in the Aviation CGU
model in the prior year, a prior year restatement recorded an additional impairment charge of £81m in respect of
the Aviation CGU in the year ended 31 March 2021.
The Directors perform an impairment review of the carrying value of each Cash Generating Unit (‘CGU’) Group on an
annual basis in line with the requirements of IAS 36.
As described in Note 12 to the financial statements the Group monitors goodwill at operating segment level, with
the exception of the establishment of a separate CGU Group during the year for Aviation – Europe. The current year
impairment test resulted in an impairment of the goodwill allocated to the Aviation segment of £7.2m and as
described in Note 13 to the financial statements an impairment of £57.6m against the acquired intangible balance
allocated to the Aviation CGU for the year ended 31 March 2022.
The recoverable amount of the Group’s goodwill was assessed by reference to value-in-use calculations. The
value-in-use calculations are derived from risk-adjusted cash flows from the Group’s five-year plan. Terminal value
assessments are included based on year five and an estimated long-term, country-specific growth rate of 1.8–2.5%
(2021: 2.0%). The process by which the Group’s budget is prepared, reviewed and approved benefits from historical
experience, visibility of long–term work programmes in relation to work undertaken for the UK Government,
available government spending information (both UK and overseas), the Group’s contract backlog, bid pipeline and
the Group’s tracking of pipeline which monitors opportunities prior to release of tenders. The budget process
includes consideration of risks and opportunities at contract and business level, and considered matters such as
supply chain disruption, inflation and climate change. The value in use calculations include the anticipated benefits
of the Group’s revised operating model, reflecting the fact that Group was committed to the project at
31 March 2022.
From our risk assessment procedures, we have identified a key audit matter in relation to the valuation of goodwill in
the Aviation and Land sectors, focused on:
• discount rates used to discount future cash flows; and
• key assumptions within the short-term growth forecasts such as future revenue growth and margin improvements.
We completed the following audit procedures:
• obtained an understanding of the key controls in the impairment process, including the review controls
performed at a sector level of the five-year plan, the Group level review of the five-year plan, and the Directors’
review of the Goodwill model;
• assessed the mechanical accuracy of the impairment models and the methodology applied for consistency with
the requirements of IAS 36;
• challenged the appropriateness of the Directors’ change in CGU Groups with reference to the requirements of
IAS36 and the level at which operations are managed and goodwill is monitored for internal reporting purposes;
• assessed the completeness and accuracy of the allocation of corporate overheads to CGUs;
• evaluated and challenged underlying assumptions, including forecast revenue, contract turnover rates, margins,
operating model savings, future capital expenditure and working capital adjustments with reference to recent and
historical performance, external industry benchmarks, specific forecast events, and considering the impact of any
climate related impacts;
• engaged our Deloitte valuations specialists to assess the discount rate;
• determined that the prior year errors, identified in the current period, were included in the current year
impairment assessment and did not apply to the current year model;
• in response to the prior year error we have performed additional work over the tie in of the prior year CPBS
adjustments in addition to our transition activities;
• performed a ‘stand-back’ assessment, including consideration of enterprise value compared to the Directors’ value
in use and comparison to the potential sale value for the Aviation CGU to assess the appropriateness of the final
recoverable amount and net book value, as well as the final impairment charge recorded; and
Key
observations
• assessed the completeness and accuracy of disclosures in the financial statements.
Our controls work highlighted that there was a lack of formalised documentation over model mechanics
and assumptions made with limited documented evidence of review.
The Directors’ discount rates were originally outside of the reasonable range calculated by our internal valuations
specialists, resulting in an additional impairment of £3.8m being recorded against the acquired intangible in the
year ended 31 March 2022.
We concur with the identification of Aviation – Europe as a separate CGU Group.
Following the correction of the current and prior period errors, we are satisfied that the judgements applied,
impairment charges recorded and disclosures within the financial statements are appropriate.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5.4. Carrying value of Goodwill within the Land and Aviation sectors (Group)
Refer to page 108 (Audit Committee report), Note 1 (Basis of preparation and significant accounting policies), Note 3 (Prior year
restatements), Note 5 (Operating (loss)/profit for the year) and Note 12 (Goodwill)
Key audit
matter
description
(2021: £956m restated).
The Group holds goodwill balances with a combined carrying value of £782m as at 31 March 2022
As disclosed in Note 3 to the financial statements, following a computational error identified in the Aviation CGU
model in the prior year, a prior year restatement recorded an additional impairment charge of £81m in respect of
the Aviation CGU in the year ended 31 March 2021.
The Directors perform an impairment review of the carrying value of each Cash Generating Unit (‘CGU’) Group on an
annual basis in line with the requirements of IAS 36.
As described in Note 12 to the financial statements the Group monitors goodwill at operating segment level, with
the exception of the establishment of a separate CGU Group during the year for Aviation – Europe. The current year
impairment test resulted in an impairment of the goodwill allocated to the Aviation segment of £7.2m and as
described in Note 13 to the financial statements an impairment of £57.6m against the acquired intangible balance
allocated to the Aviation CGU for the year ended 31 March 2022.
The recoverable amount of the Group’s goodwill was assessed by reference to value-in-use calculations. The
value-in-use calculations are derived from risk-adjusted cash flows from the Group’s five-year plan. Terminal value
assessments are included based on year five and an estimated long-term, country-specific growth rate of 1.8–2.5%
(2021: 2.0%). The process by which the Group’s budget is prepared, reviewed and approved benefits from historical
experience, visibility of long–term work programmes in relation to work undertaken for the UK Government,
available government spending information (both UK and overseas), the Group’s contract backlog, bid pipeline and
the Group’s tracking of pipeline which monitors opportunities prior to release of tenders. The budget process
includes consideration of risks and opportunities at contract and business level, and considered matters such as
supply chain disruption, inflation and climate change. The value in use calculations include the anticipated benefits
of the Group’s revised operating model, reflecting the fact that Group was committed to the project at
31 March 2022.
From our risk assessment procedures, we have identified a key audit matter in relation to the valuation of goodwill in
the Aviation and Land sectors, focused on:
• discount rates used to discount future cash flows; and
• key assumptions within the short-term growth forecasts such as future revenue growth and margin improvements.
How the scope
We completed the following audit procedures:
• obtained an understanding of the key controls in the impairment process, including the review controls
performed at a sector level of the five-year plan, the Group level review of the five-year plan, and the Directors’
of our audit
responded to
the key audit
matter
• assessed the mechanical accuracy of the impairment models and the methodology applied for consistency with
review of the Goodwill model;
the requirements of IAS 36;
• challenged the appropriateness of the Directors’ change in CGU Groups with reference to the requirements of
IAS36 and the level at which operations are managed and goodwill is monitored for internal reporting purposes;
• assessed the completeness and accuracy of the allocation of corporate overheads to CGUs;
• evaluated and challenged underlying assumptions, including forecast revenue, contract turnover rates, margins,
operating model savings, future capital expenditure and working capital adjustments with reference to recent and
historical performance, external industry benchmarks, specific forecast events, and considering the impact of any
climate related impacts;
• engaged our Deloitte valuations specialists to assess the discount rate;
• determined that the prior year errors, identified in the current period, were included in the current year
impairment assessment and did not apply to the current year model;
• in response to the prior year error we have performed additional work over the tie in of the prior year CPBS
adjustments in addition to our transition activities;
• performed a ‘stand-back’ assessment, including consideration of enterprise value compared to the Directors’ value
in use and comparison to the potential sale value for the Aviation CGU to assess the appropriateness of the final
recoverable amount and net book value, as well as the final impairment charge recorded; and
• assessed the completeness and accuracy of disclosures in the financial statements.
Key
Our controls work highlighted that there was a lack of formalised documentation over model mechanics
observations
and assumptions made with limited documented evidence of review.
The Directors’ discount rates were originally outside of the reasonable range calculated by our internal valuations
specialists, resulting in an additional impairment of £3.8m being recorded against the acquired intangible in the
year ended 31 March 2022.
We concur with the identification of Aviation – Europe as a separate CGU Group.
Following the correction of the current and prior period errors, we are satisfied that the judgements applied,
impairment charges recorded and disclosures within the financial statements are appropriate.
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5.5. Hedge effectiveness on foreign currency forwards (Group and Company)
Refer to page 108 (Audit Committee report), Note 1 (accounting policy and financial disclosures), Note 3 (Prior year restatements),
Note 5 (Operating (loss)/profit for the year), Note 24 (Financial instruments and fair value measurement) and Note 5 (Prior year
adjustments) to the Company financial statements
Key audit
matter
description
The Group uses forward contracts to hedge the foreign currency cost of future purchases to be consumed in
operations, future income to be received and debt payments to be made. The Group designates the spot element of
the foreign currency risk in relation to these contracts to hedge the foreign currency risk. Undesignated components
of the Group’s derivatives are recognised immediately in the income statement. At 31 March 2022 the Group had
net derivative financial liabilities of £82.8m (31 March 2021: £52.4m net liabilities).
Further, as disclosed in note 3 to the Group financial statements and Note 5 to the Company financial statement,
the Group incorrectly accounted for the valuation of certain cross currency swaps, which resulted in prior year
restatements of £16.2m being recorded.
As outlined in Note 5 to the Group financial statements, the Directors have recorded a loss on derivative instruments
at fair value through profit or loss of £7.2m for the year ending 31 March 2022 (£6.9m for the year ended
31 March 2021) as a result of de-recognising certain hedging arrangements where it was deemed the hedging
criteria under IFRS 9 were not met.
The requirements of IFRS 9: Financial Instruments are complex and we have identified a key audit matter that cash
flow hedge relationships designated by the Directors, where the hedging instrument is an FX derivative, do not
comply with the eligibility, documentation and effectiveness requirements of IFRS 9: Financial Instruments,
specifically, that:
• Hedge effectiveness is not assessed in accordance with the requirements of IFRS 9;
• The Directors’ fail to appropriately identify, and measure the impact of, potential sources of ineffectiveness which
may result in hedge ineffectiveness not being appropriately recognised in profit or loss, given we have observed
hedge designations where the critical terms of the hedging instrument and hedged forecast cash flows do not
match; and
• Forecast future cash flows are not highly probable.
We completed the following audit procedures working with our financial instruments specialists:
• Obtained an understanding of the key controls over hedge effectiveness;
• Assessed, the eligibility of the hedging instrument and hedged item and the hedge designation against the
requirements of IFRS 9;
• Assessed whether the hedging item is highly probable, in line with the requirements of IFRS 9;
• Assessed the hedge documentation against the requirement of IFRS 9;
• Inspected the Directors’ hedge effectiveness assessment to assess compliance with IFRS 9;
• Performed an independent hedge effectiveness assessment;
• Reviewed and re-calculated the value of the cash flow hedge reserve to determine the reasonableness of the
closing cash flow hedge reserve balance; and
• Assessed the reclassification journals from the cash flow hedge reserve to the income statement, or other account
balances, to assess compliance with the hedge designation stated within hedge documentation and the
requirements IFRS 9.
How the scope
of our audit
responded to
the key audit
matter
Key
observations
We identified control deficiencies and a lack of technical accounting expertise, predominantly in relation to
maintenance of hedge documentation and assessing hedge effectiveness. This resulted in many hedges not meeting
the minimum requirements of IFRS 9 at designation, meaning that hedge accounting could not be applied.
Following the correction of the prior year restatements referenced above we are satisfied that the hedge accounting
applied complies with the requirements of IFRS 9.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5.6. Valuation of retirement benefits and obligations (Group)
Refer to page 108 (Audit Committee report), Note 1 (accounting policy and financial disclosures), Note 3 (Prior year restatements) and
Note 27 Retirement benefits and liabilities
Key audit
matter
description
The Group has a net pension asset as at 31 March 2022 of £192m (2021: net pension liability of £279m restated)
with aggregate scheme assets of £4.7bn less defined benefit obligation of £4.5bn (2021: £4.6bn scheme assets
less £4.9bn defined benefit obligation).
As disclosed in note 3 to the financial statements, three prior year errors were identified and recorded in relation to:
longevity swap valuations; allowance for the 2021 pension increases in the 31 March 2021 benefit obligation; and
the Babcock Naval Services Pension Scheme (BNSPS) valuation.
Longevity swap valuation
• IFRS 13 requires that longevity swaps are accounted for at fair value using swap market pricing estimates.
The longevity swaps are out-the-money and so are negative asset values.
• As outlined in Note 3, the Group has updated its approach for estimating the fair value of the longevity swaps
which led to a restatement of the value of the longevity swaps at 31 March 2021 to reflect the revised
methodology.
• The Directors’ external actuarial specialist recomputed the valuation in line with an appropriate methodology.
Allowance for the 2021 pension increases in the 31 March 2021 benefit obligation
• The initial figures prepared by the Directors’ actuary allowed for inflationary experience over the past two years
being recorded in the 31 March 2022 defined benefit obligation (“DBO”) as the prior year 31 March 2021 DBO
did not allow for 2020 inflationary experience.
• As outlined in Note 3 to the financial statements, the approach was reviewed and the opening DBO as at
31 March 2021 was reduced by £53.9m to correctly account for prior year’s inflationary experience. The current
year other comprehensive Income (“OCI”) was adjusted by the same amount.
Babcock Naval Services Pension Scheme (BNSPS) valuation
• We became aware that the valuation of the scheme was not aligned with the requirement of IAS 19, we revised
our risk assessment and extended our audit scope to include the BNSPS valuation.
• As outlined in Note 3 this gave rise to a prior period restatement which has subsequently been corrected.
The net impact of these errors on other comprehensive income/(loss) at 31 March 2021 was £49.6m, with the
error impacting the fair value of plan assets and the present value of defined benefit obligations and 31 March 2021
and 31 March 2020.
We identified a key audit matter over the valuation of pension scheme assets and liabilities, focused on the areas
where we identified prior year errors given the size of the adjustments.
We completed the following audit procedures:
• Obtained an understanding of key controls in relation to the pension obligation valuation process;
• Utilised internal pension actuarial specialists to evaluate the key actuarial assumptions used, including both
financial and demographic, and considering the methodology utilised to derive these assumptions;
• Benchmarked and performed sensitivity analysis on the key assumptions determined by the Directors;
• Assessed the competence, capabilities and objectivity of the independent actuaries engaged by the Directors to
perform valuations of the relevant schemes;
• Sought third party confirmation from asset managers and/or custodians or other supporting evidence as
appropriate; and
• Reviewed publicly available information on these assets, comparing to internal benchmarks and reconciling inputs
used by the Directors to determine the asset values.
Longevity swap valuation
• We challenged the accuracy of the valuation in conjunction with our actuarial and valuations specialists.
Allowance for the 2021 pension increases in the 31 March 2021 benefit obligation
• We challenged the accuracy of the valuation in conjunction with our actuarial specialists.
How the scope
of our audit
responded to
the key audit
matter
Babcock Naval Services Pension Scheme (BNSPS) valuation
• We engaged internal valuation specialists to assist in our testing in this area, including performing a full review of
the BNSPS triennial valuation which was not included in our original scope of work.
Key
observations
As outlined in Note 3 to the Group financial statements, the Directors have corrected three prior period errors which
were identified through the course of our audit procedures in this area.
Following the correction of errors, we considered the Directors’ key assumptions to be within acceptable ranges. We
assessed the related disclosures included in the Group financial statements and consider them to be appropriate.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
5.6. Valuation of retirement benefits and obligations (Group)
Refer to page 108 (Audit Committee report), Note 1 (accounting policy and financial disclosures), Note 3 (Prior year restatements) and
Note 27 Retirement benefits and liabilities
5.7. Carrying value of investments in subsidiaries (Company)
Note 2 (significant accounting policies), Note 5 (Prior year adjustment) and Note 5 (Investment in subsidiary undertakings) to the
Company financial statements
Key audit
matter
description
The Group has a net pension asset as at 31 March 2022 of £192m (2021: net pension liability of £279m restated)
with aggregate scheme assets of £4.7bn less defined benefit obligation of £4.5bn (2021: £4.6bn scheme assets
less £4.9bn defined benefit obligation).
Key audit
matter
description
The Company holds investments in its subsidiaries of £2,467m (2021: £2,304m). Management has performed an
assessment of the recoverable amount of the investments and compared this to the carrying value using the same
cash flow methodology applied in the impairment test for goodwill.
How the scope
of our audit
responded to
the key audit
matter
As outlined in Note 5 to the Company financial statements the Directors have recorded a prior period error of
£163m to record an impairment against the investment in subsidiary undertakings. This impairment reversed in the
year-ended 31 March 2022. We involved internal valuation specialists to assist our work in this area.
We focused on this area due to the size of the investment balances and the potential impairment indicator being
the fact that the investment balance exceeded the group’s market capitalisation.
We completed the following audit procedures:
• obtained an understanding of key controls in relation to the investment impairment assessment process;
• evaluated management’s assessment of whether any indicators of impairment existed by comparing the
Company’s investment carrying value to the market capitalisation of the Group;
• reconciled the cash flows and other key assumptions used to determine the recoverability of the Group’s CGUs for
the goodwill impairment review, which were subject to separate audit procedures as detailed in the key audit
matter above;
• considered the recoverable value by reference to the Group’s market capitalisation and to valuations implied from
third party analyst reports;
• reperformed the investment impairment calculation to determine the accuracy of management’s calculation in
conjunction with valuation specialists;
• considered whether the impairment reversal indicated in the impairment model for 31 March 2022 reflected a
change in service potential of the asset and therefore a valid reversal to record under IAS 36; and
• assessed the appropriateness of the disclosures as they relate to company only investment impairment within the
annual report.
Key
observations
Through our reperformance of the investment impairment calculation we identified errors in the modelling. This did
not change the current year impairment conclusion, however when applied to the prior year investment impairment
model resulted in a material prior year error of £163m impairment which, as outlined in note 5 to the company only
financial statements, has been corrected by management.
Once the prior year error was flowed through to the current year assessment, this resulted in a £163m reversal in
the current year. We have analysed the drivers of this reversal and are satisfied that the reflects a change in service
potential of the asset and is therefore a valid reversal to record under IAS36.
We evaluated the disclosures made in note 2 and note 6 to the company financial statements and consider these
are appropriate.
As disclosed in note 3 to the financial statements, three prior year errors were identified and recorded in relation to:
longevity swap valuations; allowance for the 2021 pension increases in the 31 March 2021 benefit obligation; and
the Babcock Naval Services Pension Scheme (BNSPS) valuation.
Longevity swap valuation
• IFRS 13 requires that longevity swaps are accounted for at fair value using swap market pricing estimates.
The longevity swaps are out-the-money and so are negative asset values.
• As outlined in Note 3, the Group has updated its approach for estimating the fair value of the longevity swaps
which led to a restatement of the value of the longevity swaps at 31 March 2021 to reflect the revised
methodology.
• The Directors’ external actuarial specialist recomputed the valuation in line with an appropriate methodology.
Allowance for the 2021 pension increases in the 31 March 2021 benefit obligation
• The initial figures prepared by the Directors’ actuary allowed for inflationary experience over the past two years
being recorded in the 31 March 2022 defined benefit obligation (“DBO”) as the prior year 31 March 2021 DBO
did not allow for 2020 inflationary experience.
• As outlined in Note 3 to the financial statements, the approach was reviewed and the opening DBO as at
31 March 2021 was reduced by £53.9m to correctly account for prior year’s inflationary experience. The current
year other comprehensive Income (“OCI”) was adjusted by the same amount.
Babcock Naval Services Pension Scheme (BNSPS) valuation
• We became aware that the valuation of the scheme was not aligned with the requirement of IAS 19, we revised
our risk assessment and extended our audit scope to include the BNSPS valuation.
• As outlined in Note 3 this gave rise to a prior period restatement which has subsequently been corrected.
The net impact of these errors on other comprehensive income/(loss) at 31 March 2021 was £49.6m, with the
error impacting the fair value of plan assets and the present value of defined benefit obligations and 31 March 2021
and 31 March 2020.
We identified a key audit matter over the valuation of pension scheme assets and liabilities, focused on the areas
where we identified prior year errors given the size of the adjustments.
How the scope
We completed the following audit procedures:
of our audit
responded to
the key audit
matter
• Obtained an understanding of key controls in relation to the pension obligation valuation process;
• Utilised internal pension actuarial specialists to evaluate the key actuarial assumptions used, including both
financial and demographic, and considering the methodology utilised to derive these assumptions;
• Benchmarked and performed sensitivity analysis on the key assumptions determined by the Directors;
• Assessed the competence, capabilities and objectivity of the independent actuaries engaged by the Directors to
perform valuations of the relevant schemes;
• Sought third party confirmation from asset managers and/or custodians or other supporting evidence as
appropriate; and
• Reviewed publicly available information on these assets, comparing to internal benchmarks and reconciling inputs
used by the Directors to determine the asset values.
Longevity swap valuation
• We challenged the accuracy of the valuation in conjunction with our actuarial and valuations specialists.
Allowance for the 2021 pension increases in the 31 March 2021 benefit obligation
• We challenged the accuracy of the valuation in conjunction with our actuarial specialists.
Babcock Naval Services Pension Scheme (BNSPS) valuation
• We engaged internal valuation specialists to assist in our testing in this area, including performing a full review of
the BNSPS triennial valuation which was not included in our original scope of work.
Key
As outlined in Note 3 to the Group financial statements, the Directors have corrected three prior period errors which
observations
were identified through the course of our audit procedures in this area.
Following the correction of errors, we considered the Directors’ key assumptions to be within acceptable ranges. We
assessed the related disclosures included in the Group financial statements and consider them to be appropriate.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Group financial statements
£15,600,000 (2021: £15,900,000 was used by the
previous auditors).
Company financial statements
£66,322,000 (2021: £61,391,000 was used by the
previous auditors).
The materiality determined for the standalone
Company financial statements exceeds the Group
materiality. This is due to the fact that the total asset
balance of the Company financial statements
exceeds the total asset balance of the group. As the
Company is non-trading and operates primarily as a
holding company, we believe the total asset position
is the most appropriate benchmark to use.
Where there were balances and transactions within
the parent company accounts that were within the
scope of the audit of the Group financial statements,
our procedures were undertaken using the lower
materiality level (£12,480,000,
2021: £12,375,000 was used by the previous
auditors) applicable to the group audit components.
It was only for the purposes of testing balances not
relevant to the Group audit, such as intercompany
investment balances, that the higher level of
materiality applied in practice.
1% of total assets (2021: The previous auditors used
1%). The lower materiality of £12,480,000 for the
purposes of the group audit was based on 80% of
Group materiality (2021: The previous auditors
based this on a calculation and allocation of
component materiality for the Group audit).
Basis for
determining
materiality
In determining our benchmark for materiality, we considered
the metrics used by investors and other readers of the
financial statements. In particular, we considered: Revenue,
Net Assets, Total assets, Profit before tax, Profit before tax
excluding £163.1m of profit from business acquisition,
merger and divestment related items, restructuring costs of
£(33.8)m and exceptional costs of £(118.8)m as defined in
Note 2 and cash generated from operations.
Metric
Revenue
Net assets
Total assets
Profit before tax
Profit before tax excluding £163.1m of
profit from business acquisition, merger
and divestment related items, restructuring
costs of £(33.8)m and exceptional costs of
£(118.8)m as defined in Note 2.
0.4%
2.2%
0.3%
8.6%
9.1%
The previous auditors determined materiality as 75% of
2020 materiality, which was based on 5% of 2020 profit
before tax, adjusted for amortisation of acquired intangible
assets and exceptional items. The prior year materiality
represented 0.4% of revenue, 6.5% of net assets, 0.3% of total
assets, 0.9% of loss before tax and 7.2% of loss before tax and
exceptional items.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Materiality
£15,600,000 (2021: £15,900,000 was used by the
£66,322,000 (2021: £61,391,000 was used by the
previous auditors).
previous auditors).
The materiality determined for the standalone
Company financial statements exceeds the Group
materiality. This is due to the fact that the total asset
balance of the Company financial statements
exceeds the total asset balance of the group. As the
Company is non-trading and operates primarily as a
holding company, we believe the total asset position
is the most appropriate benchmark to use.
Where there were balances and transactions within
the parent company accounts that were within the
scope of the audit of the Group financial statements,
our procedures were undertaken using the lower
materiality level (£12,480,000,
2021: £12,375,000 was used by the previous
auditors) applicable to the group audit components.
It was only for the purposes of testing balances not
relevant to the Group audit, such as intercompany
investment balances, that the higher level of
materiality applied in practice.
Basis for
In determining our benchmark for materiality, we considered
1% of total assets (2021: The previous auditors used
determining
materiality
the metrics used by investors and other readers of the
1%). The lower materiality of £12,480,000 for the
financial statements. In particular, we considered: Revenue,
purposes of the group audit was based on 80% of
Net Assets, Total assets, Profit before tax, Profit before tax
Group materiality (2021: The previous auditors
excluding £163.1m of profit from business acquisition,
based this on a calculation and allocation of
merger and divestment related items, restructuring costs of
component materiality for the Group audit).
£(33.8)m and exceptional costs of £(118.8)m as defined in
Note 2 and cash generated from operations.
Metric
Revenue
Net assets
Total assets
Profit before tax
0.4%
2.2%
0.3%
8.6%
Profit before tax excluding £163.1m of
profit from business acquisition, merger
and divestment related items, restructuring
costs of £(33.8)m and exceptional costs of
£(118.8)m as defined in Note 2.
9.1%
The previous auditors determined materiality as 75% of
2020 materiality, which was based on 5% of 2020 profit
before tax, adjusted for amortisation of acquired intangible
assets and exceptional items. The prior year materiality
represented 0.4% of revenue, 6.5% of net assets, 0.3% of total
assets, 0.9% of loss before tax and 7.2% of loss before tax and
exceptional items.
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Rationale
for the
benchmark
applied
Group financial statements
We assessed which line items are the most important to
investors and analysts by reading analyst reports and
Babcock’s communications to shareholders, as well as the
communications of peer companies.
Company financial statements
In determining our materiality, we have considered
total assets as the appropriate benchmark given the
Company is primarily a holding company for the
Group.
Profit before tax is the benchmark ordinarily considered by us
when auditing listed entities. It provides comparability against
companies across all sectors but has limitations particularly
where profitability has significantly varied year on year as is
the case for Babcock.
Following this assessment, we determined using our
professional judgement that the selected materiality was
appropriate, we note this is consistent with the approach
adopted by the previous auditors.
PBT £182.3m
Group materiality
£15.6m
Component
materiality range
£3.09m to £12.48m
Audit Committee
reporting threshold
£0.78m
PBT
Group materiality
Note that excluding the Parent Company, Component materiality ranged from £3.09m to £4.91m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Performance materiality
Basis and rationale
for determining
performance materiality
Group financial statements
60% (2021: 75%) of Group materiality.
In determining performance materiality, we considered the following factors:
Company financial statements
60% (2021: 75%) of Company materiality.
• The current financial year being Deloitte LLP’s first year auditing the Group and Parent financial
statements;
• The control deficiencies identified in the control environment;
• The de-centralised nature of the group and lack of common controls and processes;
• The nature, volume and size of uncorrected misstatements arising in the previous audit; and
• The nature, volume and size of identified uncorrected misstatements that remain uncorrected in the
current period.
As a result of the above procedures we deemed it appropriate to reduce performance materiality to
60% of materiality, which represents a reduction from the prior year and is reflective of our findings on
the control environment as outlined in key audit matter 5.1.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £780,000
(2021: £800,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
7. An overview of the scope of our audit
7.1. Identification and scoping of components
We performed our scoping of the Group audit by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the audit risks. This exercise considered the relative size of each reporting unit’s contribution to revenue, profit
before tax and adjusted profit before tax, alongside further financial or contractual risks, which we considered to be present. This
resulted in 29 components in full scope and one in specified balances scope. We increased the number of components in full scope in
part due to the impact of identified control deficiencies highlighted in section 5.1. For example, we increased our scope to include
Norway and Sweden primarily given the high level of local misstatements resulting from the CPBS and discussions with management
and internal audit, which highlighted control weaknesses. We directed these two component auditors to perform a full scope audit for
these components.
For all other reporting units not included in full scope or specified account balance scope , we performed centrally directed analytical
review procedures to confirm our conclusion that there was no significant risk of material misstatement in the residual population.
As each of the sub-sectors maintains separate financial records, we engaged component auditors from the Deloitte member firms in
Australia, Canada, France, Italy, Norway, the UK, South Africa, Spain and Sweden to perform procedures at all the wholly owned
components under our direction and supervision.
This approach also allowed us to engage local auditors who have appropriate knowledge of local regulations to perform the audit
work, under a common Deloitte audit approach. We issued detailed instructions to the component auditors, including specific
procedures to address group level significant risks such as contracts testing and asset impairment procedures for some geographies
and directed and supervised their work through a number of visits to the component auditor during the planning and performance
stages of our audit alongside frequent remote communication and review of their work
In respect of the Airtanker Operating Company we engaged with the entities’ non-Deloitte auditors to perform a full-scope audit under
our direction and supervision. Further our Australian member firm engaged the non-Deloitte auditor as part of their scope to perform
procedures under their direction and supervision for a subcomponent and our oversight of the Australian member firm included
reviewing and challenging their procedures.
In addition to the work performed at a component level the group audit team also performs audit procedures on the Company
financial statements including but not limited to corporate activities such as treasury and pensions as well as on the consolidated
financial statements themselves, including entity level controls, litigation provisions, the consolidation, financial statement disclosures
and risk assessment work on components not included elsewhere in the scope of our audit. The group audit team also co-ordinates
certain procedures performed on key areas, such PPE impairment, where audit work is performed by both the group and component
audit teams as well as analytical reviews on out-of-scope components.
The 30 components within either full or specified account balance scope contribute the proportions of Group totals shown below.
Revenue
Profit before tax
89% Full audit scope
89% Full audit scope
6% Specified audit procedures
6% Specified audit procedures
5% Review at group level
5% Review at group level
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
7. An overview of the scope of our audit
7.1. Identification and scoping of components
We performed our scoping of the Group audit by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the audit risks. This exercise considered the relative size of each reporting unit’s contribution to revenue, profit
before tax and adjusted profit before tax, alongside further financial or contractual risks, which we considered to be present. This
resulted in 29 components in full scope and one in specified balances scope. We increased the number of components in full scope in
part due to the impact of identified control deficiencies highlighted in section 5.1. For example, we increased our scope to include
Norway and Sweden primarily given the high level of local misstatements resulting from the CPBS and discussions with management
and internal audit, which highlighted control weaknesses. We directed these two component auditors to perform a full scope audit for
these components.
For all other reporting units not included in full scope or specified account balance scope , we performed centrally directed analytical
review procedures to confirm our conclusion that there was no significant risk of material misstatement in the residual population.
As each of the sub-sectors maintains separate financial records, we engaged component auditors from the Deloitte member firms in
Australia, Canada, France, Italy, Norway, the UK, South Africa, Spain and Sweden to perform procedures at all the wholly owned
components under our direction and supervision.
This approach also allowed us to engage local auditors who have appropriate knowledge of local regulations to perform the audit
work, under a common Deloitte audit approach. We issued detailed instructions to the component auditors, including specific
procedures to address group level significant risks such as contracts testing and asset impairment procedures for some geographies
and directed and supervised their work through a number of visits to the component auditor during the planning and performance
stages of our audit alongside frequent remote communication and review of their work
In respect of the Airtanker Operating Company we engaged with the entities’ non-Deloitte auditors to perform a full-scope audit under
our direction and supervision. Further our Australian member firm engaged the non-Deloitte auditor as part of their scope to perform
procedures under their direction and supervision for a subcomponent and our oversight of the Australian member firm included
reviewing and challenging their procedures.
In addition to the work performed at a component level the group audit team also performs audit procedures on the Company
financial statements including but not limited to corporate activities such as treasury and pensions as well as on the consolidated
financial statements themselves, including entity level controls, litigation provisions, the consolidation, financial statement disclosures
and risk assessment work on components not included elsewhere in the scope of our audit. The group audit team also co-ordinates
certain procedures performed on key areas, such PPE impairment, where audit work is performed by both the group and component
audit teams as well as analytical reviews on out-of-scope components.
The 30 components within either full or specified account balance scope contribute the proportions of Group totals shown below.
Revenue
Profit before tax
89% Full audit scope
89% Full audit scope
6% Specified audit procedures
6% Specified audit procedures
5% Review at group level
5% Review at group level
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7.2. Our consideration of the control environment
We have performed detailed walkthroughs of the processes associated with each of the Group’s business cycles, identifying relevant
controls and evaluating those controls. We also identified relevant IT applications, infrastructure and operating systems used in the
operation of the Group’s relevant controls, and performed testing of the general IT controls over those systems identified as key.
As outlined in section 5.1 the results of these procedures meant that we were unable to adopt a controls reliance audit approach.
7.3. Our consideration of climate-related risks
As a part of our audit procedures we have held discussions with the Directors to understand the process of identifying climate-related
risks, the determination of mitigating actions and the impact on the Group’s financial statements. While management has
acknowledged that the transition and physical risks posed by climate change have the potential to impact the medium to long term
success of the business, they have assessed that there is no material impact arising from climate change on the judgements and
estimates made in the financial statements as at 31 March 2022. In particular, as disclosed in Note 12 (Goodwill), management have
considered the impact of climate change on the useful economic lives of assets, disruption to key operating sites and supply chain, and
potential asset impairments. These considerations did not have a material impact on the goodwill impairment assessment. We
performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and classes
of transaction and did not identify any additional risks of material misstatement.
7.4. Working with other auditors
Our oversight of component auditors included directing the planning of their audit work and understanding their risk assessment
process to identify key areas of estimates and judgement, as well as the supervising the execution of their audit work.
We issued detailed instructions to the component auditors, reviewed and challenged the related component inter-office reporting and
findings from their work, reviewed underlying audit files, attended component audit closing conference calls and held regular remote
communication to interact on any related audit and accounting matters which arose. Additionally, all teams were involved in our
global planning and fraud meeting, which was led by the Group audit team. Visits to meet with certain component teams in the UK,
Spain, France, Norway, Sweden and Italy were conducted, where we did not visit components in person, we maintained an ongoing
dialogue virtually and reviewed files remotely.
The Company is located in the United Kingdom and the UK components were audited directly by the Group audit team.
We are satisfied that the level of involvement of the Group audit partner and team in the component audits has been extensive and
has enabled us to conclude that sufficient appropriate audit evidence has been obtained in support of our opinion on the Group
financial statements as a whole.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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155
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
11. Extent to which the audit was considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
Identifying and assessing potential risks related to irregularities
11.1.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, we considered the following:
• the nature of the industry and sector, control environment (in particular the deficiencies we identified in this area, see 5.1 above)
and business performance including the design of the Group’s remuneration policies, key drivers for Directors’ remuneration, bonus
levels and performance targets;
• we considered the impact of adjustment made to the presentation of specific adjusting items and exceptional items, including the
CPBS adjustments recorded in the prior year;
• results of our enquiries of the Directors, internal audit, internal and external legal counsel and the Audit Committee about their own
identification and assessment of the risks of irregularities;
• the expertise of our internal fraud and forensic specialists in planning our response to potential fraud risk factors, in particular
through attending engagement team discussions;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations including obtaining an
understanding of the Group’s bribery and corruption and whistleblowing policies; and
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal
specialists, including tax, forensics, valuations, pensions and IT specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in: the level of judgement involved in estimating costs to complete on long-term contracts,
particularly in a high inflationary environment; cost allocation between contracts; assessing the level of allowable and disallowable
costs to recharge; the level of cumulative-catch-up adjustments (CCAs) recorded and the subsequent impact on revenue and margin
recognition. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override.
We obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and
tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty, including in respect of
export controls, defence contracting and anti-bribery and corruption legislation.
Audit response to risks identified
11.2.
As a result of performing the above, we identified ‘Revenue and margin recognition on three long-term contracts with significant
management judgment’ as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains
the matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
As a result of performing the above, we did not identify any additional key audit matters related to the potential risk of fraud or
non-compliance with laws and regulations.
In addition to the above, our procedures to respond to risks identified included the following:
• recomputing the CCA adjustments recorded by management and considering any impacts on management’s forecasting accuracy;
• testing debit adjustments to Revenue has been included as a test within our journal entry testing;
• performing specific testing over forecast inflation assumptions;
• performing a risk assessment to identify contracts where cost shifting would impact on the margin recorded and performing
focussed testing;
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
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• enquiring of the Directors, the Audit Committee, in-house legal counsel and where needed, circularising external legal counsel,
concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with relevant regulatory authorities; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
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• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
In our opinion, based on the work undertaken in the course of the audit:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are
compliance;
prepared is consistent with the financial statements; and
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the Directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 88;
• the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 88;
• the Directors’ statement on fair, balanced and understandable set out on page 139;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 138;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out
on page 138; and
• the section describing the work of the audit committee set out on page 108.
14. Matters on which we are required to report by exception
14.1.
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not
been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records and
returns.
We have nothing to report in respect of these matters.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
fraud
11. Extent to which the audit was considered capable of detecting irregularities, including
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, we considered the following:
• the nature of the industry and sector, control environment (in particular the deficiencies we identified in this area, see 5.1 above)
and business performance including the design of the Group’s remuneration policies, key drivers for Directors’ remuneration, bonus
• we considered the impact of adjustment made to the presentation of specific adjusting items and exceptional items, including the
levels and performance targets;
CPBS adjustments recorded in the prior year;
• results of our enquiries of the Directors, internal audit, internal and external legal counsel and the Audit Committee about their own
• the expertise of our internal fraud and forensic specialists in planning our response to potential fraud risk factors, in particular
identification and assessment of the risks of irregularities;
through attending engagement team discussions;
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations including obtaining an
understanding of the Group’s bribery and corruption and whistleblowing policies; and
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal
specialists, including tax, forensics, valuations, pensions and IT specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in: the level of judgement involved in estimating costs to complete on long-term contracts,
particularly in a high inflationary environment; cost allocation between contracts; assessing the level of allowable and disallowable
costs to recharge; the level of cumulative-catch-up adjustments (CCAs) recorded and the subsequent impact on revenue and margin
recognition. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override.
tax legislation.
We obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty, including in respect of
export controls, defence contracting and anti-bribery and corruption legislation.
11.2.
Audit response to risks identified
As a result of performing the above, we identified ‘Revenue and margin recognition on three long-term contracts with significant
management judgment’ as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains
the matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
As a result of performing the above, we did not identify any additional key audit matters related to the potential risk of fraud or
non-compliance with laws and regulations.
In addition to the above, our procedures to respond to risks identified included the following:
• recomputing the CCA adjustments recorded by management and considering any impacts on management’s forecasting accuracy;
• testing debit adjustments to Revenue has been included as a test within our journal entry testing;
• performing specific testing over forecast inflation assumptions;
• performing a risk assessment to identify contracts where cost shifting would impact on the margin recorded and performing
focussed testing;
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
continued
Auditor tenure
15. Other matters which we are required to address
15.1.
Following the recommendation of the Audit Committee, we were appointed by shareholders at its annual general meeting on
22 September 2021 to audit the financial statements of Babcock International Group plc for the year ending 31 March 2022 and
subsequent financial periods. The period of total uninterrupted engagement of the firm is accordingly one year.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
In due course as required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these
financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National
Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report
provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the
ESEF RTS.
MAKHAN CHAHAL ACA (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
Statutory Auditor
London, UK
28 July 2022
158
Babcock International Group PLC Annual Report and Financial Statements 2022
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BABCOCK INTERNATIONAL GROUP PLC
GROUP INCOME STATEMENT
continued
15. Other matters which we are required to address
15.1.
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by shareholders at its annual general meeting on
22 September 2021 to audit the financial statements of Babcock International Group plc for the year ending 31 March 2022 and
subsequent financial periods. The period of total uninterrupted engagement of the firm is accordingly one year.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
have formed.
ESEF RTS.
Statutory Auditor
London, UK
28 July 2022
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
In due course as required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these
financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National
Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report
provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the
MAKHAN CHAHAL ACA (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
For the year ended 31 March
Revenue
Cost of revenue
Gross profit
Administration and distribution expenses
Goodwill impairment
Profit/(loss) resulting from acquisitions and disposals
Operating profit/(loss)
Other income
Share of results of joint ventures and associates
Finance income
Finance costs
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interest
Earnings/(loss) per share
Basic
Diluted
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
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t
a
t
e
m
e
n
t
s
Note
2,4
12
29
2,4,5
2,4,16
6
6
2,4
8
2022
£m
4,101.8
(3,756.5)
345.3
(284.1)
(7.2)
172.8
226.8
6.2
20.1
9.6
(80.4)
182.3
(14.4)
167.9
2021 (restated)
£m
3,971.6
(3,945.5)
26.1
(376.5)
(1,336.6)
(49.7)
(1,736.7)
–
(13.1)
16.6
(77.8)
(1,811.0)
8.0
(1,803.0)
164.2
3.7
(1,803.0)
–
10
10
32.5p
32.1p
(357.0)p
(357.0)p
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March
Profit/(loss) for the year
Other comprehensive income
Items that may be subsequently reclassified to income statement
Currency translation differences
Reclassification of cumulative currency translation reserve on disposal
Fair value adjustment of interest rate and foreign exchange hedges
Tax, including rate change impact, on fair value adjustment of interest rate and foreign
exchange hedges
Hedging gains/(losses) reclassified to profit or loss
Reclassification of cumulative hedge reserve on disposal of joint venture
Share of other comprehensive income of joint ventures and associates
Tax, including rate change impact, on share of other comprehensive income of joint ventures
and associates
Items that will not be reclassified to income statement
Remeasurement of retirement benefit obligations
Tax, including rate change impact, on remeasurement of retirement benefit obligations
Other comprehensive income/(loss), net of tax
Total comprehensive income/(loss)
Total comprehensive income/(loss) attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income/(loss)
Note
2022
£m
167.9
2021 (restated)
£m
(1,803.0)
16
16
27
0.2
(7.3)
(14.7)
(1.0)
17.1
20.8
30.2
(5.7)
322.5
(64.2)
297.9
465.8
461.2
4.6
465.8
1.7
10.5
18.4
(4.5)
6.9
–
7.0
(1.4)
(445.6)
84.7
(322.3)
(2,125.3)
(2,126.4)
1.1
(2,125.3)
In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in
note 3.
158
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
159
GROUP STATEMENT OF CHANGES IN EQUITY
At 1 April 2020 (previously stated)
Prior period restatements
At 1 April 2020 restated
(Loss)/profit for the year
Other comprehensive income/(loss)
Total comprehensive loss
Dividends
Share-based payments
Tax on share-based payments
Own shares
Net movement in equity
At 31 March 2021 restated
At 1 April 2021 as restated
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends
Share-based payments
Tax on share-based payments
Net movement in equity
At 31 March 2022
Note
3
26
–
–
Share
capital
£m
Share
premium
£m
Other
reserve
£m
303.4 873.0 768.8
–
303.4 873.0 768.8
–
–
–
–
–
–
–
–
303.4 873.0 768.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
303.4 873.0 768.8
–
–
–
–
–
–
–
303.4 873.0 768.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26
Capital
redemption
£m
30.6
–
30.6
Retained
earnings
£m
480.1
8.8
488.9
– (1,803.0)
(360.9)
–
– (2,163.9)
–
–
3.2
–
2.3
–
–
(2.2)
– (2,160.6)
30.6 (1,671.7)
30.6 (1,671.7)
164.2
258.3
422.5
–
5.5
2.3
430.3
30.6 (1,241.4)
–
–
–
–
–
–
–
Hedging
reserve
£m
(97.3)
28.2
(69.1)
–
26.4
26.4
–
–
–
–
26.4
(42.7)
(42.7)
–
46.7
46.7
–
–
–
46.7
4.0
Translation
reserve
£m
–
Total equity
attributable
to owners
of the
Company
£m
(59.5) 2,299.1
37.0
(59.5) 2,336.1
– (1,803.0)
(323.4)
11.1
11.1 (2,126.4)
–
3.2
2.3
(2.2)
11.1 (2,123.1)
(48.4) 213.0
–
–
–
–
Non-
controlling
interest
£m
–
Total
equity
£m
15.7 2,314.8
37.0
15.7 2,351.8
– (1,803.0)
(322.3)
1.1
1.1 (2,125.3)
(0.8)
(0.8)
3.2
–
2.3
–
(2.2)
–
0.3 (2,122.8)
229.0
16.0
–
(48.4) 213.0
164.2
(8.0) 297.0
(8.0) 461.2
–
5.5
2.3
(8.0) 469.0
(56.4) 682.0
–
–
–
16.0
3.7
0.9
4.6
(1.1)
–
–
3.5
19.5
229.0
167.9
297.9
465.8
(1.1)
5.5
2.3
472.5
701.5
The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates to the
issue and redemption of redeemable ‘B’ preference shares in 2001.
160
Babcock International Group PLC Annual Report and Financial Statements 2022
GROUP STATEMENT OF CHANGES IN EQUITY
GROUP STATEMENT OF FINANCIAL POSITION
Share
Share
Other
Capital
capital
premium
reserve
redemption
Note
£m
£m
£m
£m
30.6
3
Retained
earnings
£m
480.1
Hedging
Translation
of the
controlling
reserve
£m
reserve
Company
£m
£m
Non-
interest
£m
Total
equity
£m
(97.3)
(59.5) 2,299.1
15.7 2,314.8
8.8
28.2
–
37.0
–
37.0
303.4 873.0 768.8
30.6
488.9
(69.1)
(59.5) 2,336.1
15.7 2,351.8
Total equity
attributable
to owners
– (1,803.0)
(360.9)
– (2,163.9)
– (1,803.0)
– (1,803.0)
26.4
26.4
11.1
(323.4)
1.1
(322.3)
11.1 (2,126.4)
1.1 (2,125.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
2.3
(2.2)
164.2
258.3
422.5
–
5.5
2.3
430.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
2.3
(2.2)
(0.8)
–
–
–
(0.8)
3.2
2.3
(2.2)
46.7
46.7
–
164.2
(8.0) 297.0
(8.0) 461.2
229.0
167.9
297.9
465.8
(1.1)
5.5
2.3
3.7
0.9
4.6
(1.1)
–
–
–
5.5
2.3
At 1 April 2020 (previously stated)
303.4 873.0 768.8
Prior period restatements
At 1 April 2020 restated
(Loss)/profit for the year
Other comprehensive income/(loss)
Total comprehensive loss
Dividends
Share-based payments
26
Tax on share-based payments
Own shares
Net movement in equity
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends
Share-based payments
26
Tax on share-based payments
Net movement in equity
At 31 March 2022
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 March 2021 restated
303.4 873.0 768.8
30.6 (1,671.7)
(42.7)
(48.4) 213.0
16.0
229.0
– (2,160.6)
26.4
11.1 (2,123.1)
0.3 (2,122.8)
At 1 April 2021 as restated
303.4 873.0 768.8
30.6 (1,671.7)
(42.7)
(48.4) 213.0
16.0
303.4 873.0 768.8
30.6 (1,241.4)
46.7
4.0
(8.0) 469.0
(56.4) 682.0
3.5
19.5
472.5
701.5
The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates to the
issue and redemption of redeemable ‘B’ preference shares in 2001.
As at
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Investment in joint ventures and associates
Loan to joint ventures and associates
Retirement benefits surpluses
Other financial assets
Lease receivables
Derivatives
Deferred tax asset
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Contract assets
Income tax recoverable
Lease receivables
Derivatives
Cash and cash equivalents
Total assets
Equity and liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Capital redemption and other reserves
Retained earnings
Non-controlling interest
Total equity
Non-current liabilities
Bank and other borrowings
Lease liabilities
Trade and other payables
Deferred tax liabilities
Derivatives
Retirement benefit deficits
Provisions for other liabilities
Current liabilities
Bank and other borrowings
Lease liabilities
Trade and other payables
Contract liabilities
Income tax payable
Derivatives
Provisions for other liabilities
Total liabilities
Total equity and liabilities
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Note
12
13
14
15
16
16
27
15, 23
23
8
18
17
18
18
15, 23
23
19, 28
25
21
15, 21
20
8
23
27
22
21
15, 21
20
20
23
22
31 March
2022
£m
31 March
2021 (restated)
£m
1 April
2020 (restated)
£m
782.4
175.7
710.6
334.3
54.3
12.1
300.9
10.0
24.1
–
47.0
9.7
2,461.1
142.7
488.8
299.3
25.4
23.3
11.4
1,146.3
2,137.2
4,598.3
956.3
199.9
734.4
518.3
73.5
42.1
46.8
11.2
12.9
4.3
129.7
26.7
2,756.1
153.0
435.7
276.4
50.0
26.7
8.2
904.8
1,854.8
4,610.9
303.4
873.0
747.0
(1,241.4)
682.0
19.5
701.5
303.4
873.0
708.3
(1,671.7)
213.0
16.0
229.0
847.7
329.3
1.0
9.6
59.3
109.3
60.3
1,416.5
863.4
104.8
888.1
518.3
17.7
34.8
53.2
2,480.3
3,896.8
4,598.3
1,323.8
486.2
1.9
7.7
51.0
325.7
73.7
2,270.0
383.7
126.1
1,110.2
396.5
9.7
13.9
71.8
2,111.9
4,381.9
4,610.9
2,381.3
332.9
840.9
609.0
161.9
48.6
298.4
12.8
6.9
14.6
69.4
25.9
4,802.6
191.6
480.7
319.2
57.2
31.7
122.2
1,845.9
3,048.5
7,851.1
303.4
873.0
670.8
488.9
2,336.1
15.7
2,351.8
2,055.0
548.5
2.1
33.7
35.5
200.2
32.7
2,907.7
987.9
140.9
1,058.0
243.2
3.8
27.7
130.1
2,591.6
5,499.3
7,851.1
160
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
161
In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in
note 3. The notes on pages 163 to 232 are an integral part of the consolidated financial statements. The Group financial statements
on pages 159 to 162 were approved by the Board of Directors on 28 July 2022 and are signed on its behalf by:
DAVID LOCKWOOD OBE
Director
DAVID MELLORS
Director
GROUP CASH FLOW STATEMENT
For the year ended 31 March
Cash flows from operating activities
Profit/(loss) for the year
Share of results of joint ventures and associates
Income tax expense/(benefit)
Finance income
Finance costs
Depreciation and impairment of property, plant and equipment
Depreciation and impairment of right of use assets
Amortisation and impairment of intangible assets
Goodwill impairment
Equity share-based payments
Impairment of joint venture loans
Net derivative fair value and currency movement through profit or loss
(Profit)/loss on disposal of subsidiaries, businesses and joint ventures and associates
(Profit)/loss on disposal of property, plant and equipment
Profit on disposal of right of use assets
Loss on disposal of intangible assets
Cash generated from operations before movement in working capital and
retirement benefit payments
Decrease in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables
(Decrease) in provisions
Retirement benefit contributions in excess of current period expense
Cash generated from operations
Income tax received
Interest paid
Interest received
Net cash flows from operating activities
Cash flows from investing activities
Disposal of subsidiaries and joint ventures and associates, net of cash disposed
Acquisition of subsidiaries, net of cash acquired
Dividends received from joint ventures and associates
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Investment in joint ventures
Loans repaid by joint ventures and associates
Increase in loans to joint ventures and associates
Net cash flows from investing activities
Cash flows from financing activities
Lease principal payments
Cash outflow from non-hedging derivatives
Cash inflow from settlement of derivatives
Bank loans repaid
Loans raised and facilities drawn down
Dividends paid to non-controlling interest
Repurchase of own shares
Net cash flows from financing activities
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at beginning of year
Effects of exchange rate fluctuations
Cash, cash equivalents and bank overdrafts at end of year
162
Babcock International Group PLC Annual Report and Financial Statements 2022
Note
16
8
6
6
16
29
29
16
16
28
28
28
28
28
28
2022
£m
2021 (restated)
£m
167.9
(20.1)
14.4
(9.6)
80.4
117.5
123.1
94.7
7.2
5.5
–
(0.9)
(172.8)
(1.5)
(3.2)
0.7
403.3
10.6
(111.7)
(77.8)
(30.9)
(151.7)
41.8
10.0
(54.9)
9.9
6.8
420.7
(15.5)
41.6
68.0
(190.8)
(12.4)
(2.6)
31.0
(1.4)
338.6
(113.0)
–
–
(31.7)
23.1
(1.1)
–
(122.7)
222.7
530.9
2.9
756.5
(1,803.0)
13.1
(8.0)
(16.6)
77.8
199.9
179.8
148.5
1,336.6
3.2
7.0
6.9
49.7
26.4
–
–
221.3
32.9
87.8
212.5
(14.6)
(64.5)
475.4
19.4
(79.4)
12.0
427.4
90.6
–
36.8
33.2
(156.9)
(19.6)
(8.8)
4.2
(3.9)
(24.4)
(140.6)
(3.6)
52.6
(1,154.4)
25.1
(0.8)
(2.2)
(1,223.9)
(820.9)
1,348.7
3.1
530.9
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
GROUP CASH FLOW STATEMENT
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 31 March
Cash flows from operating activities
Profit/(loss) for the year
Share of results of joint ventures and associates
Income tax expense/(benefit)
Finance income
Finance costs
Depreciation and impairment of property, plant and equipment
Depreciation and impairment of right of use assets
Amortisation and impairment of intangible assets
Goodwill impairment
Equity share-based payments
Impairment of joint venture loans
Net derivative fair value and currency movement through profit or loss
(Profit)/loss on disposal of subsidiaries, businesses and joint ventures and associates
(Profit)/loss on disposal of property, plant and equipment
Cash generated from operations before movement in working capital and
Profit on disposal of right of use assets
Loss on disposal of intangible assets
retirement benefit payments
Decrease in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables
(Decrease) in provisions
Retirement benefit contributions in excess of current period expense
Cash generated from operations
Disposal of subsidiaries and joint ventures and associates, net of cash disposed
Income tax received
Interest paid
Interest received
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Dividends received from joint ventures and associates
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Investment in joint ventures
Loans repaid by joint ventures and associates
Increase in loans to joint ventures and associates
Net cash flows from investing activities
Cash flows from financing activities
Lease principal payments
Cash outflow from non-hedging derivatives
Cash inflow from settlement of derivatives
Bank loans repaid
Loans raised and facilities drawn down
Dividends paid to non-controlling interest
Repurchase of own shares
Net cash flows from financing activities
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at beginning of year
Effects of exchange rate fluctuations
Cash, cash equivalents and bank overdrafts at end of year
2022
2021 (restated)
£m
£m
167.9
(20.1)
14.4
(9.6)
80.4
117.5
123.1
94.7
7.2
5.5
–
(0.9)
(172.8)
(1.5)
(3.2)
0.7
403.3
10.6
(111.7)
(77.8)
(30.9)
(151.7)
41.8
10.0
(54.9)
9.9
6.8
420.7
(15.5)
41.6
68.0
(190.8)
(12.4)
(2.6)
31.0
(1.4)
–
–
23.1
(1.1)
–
(1,803.0)
13.1
(8.0)
(16.6)
77.8
199.9
179.8
148.5
1,336.6
3.2
7.0
6.9
49.7
26.4
–
–
221.3
32.9
87.8
212.5
(14.6)
(64.5)
475.4
19.4
(79.4)
12.0
427.4
90.6
–
36.8
33.2
(156.9)
(19.6)
(8.8)
4.2
(3.9)
(3.6)
52.6
25.1
(0.8)
(2.2)
338.6
(24.4)
28
(113.0)
(140.6)
(31.7)
(1,154.4)
(122.7)
(1,223.9)
222.7
530.9
2.9
756.5
(820.9)
1,348.7
3.1
530.9
Note
16
8
6
6
16
29
29
16
16
28
28
28
28
28
1. Basis of preparation and significant accounting policies
Basis of preparation
The consolidated financial statements have been prepared on a going concern basis, as set out in the Going concern and viability
statement on page 88. The Board considered the period from 31 July 2022 to 30 September 2023 in its assessment of going
concern. The financial statements have been prepared in accordance with United Kingdom adopted International Accounting
Standards, which has not differed from the previously EU-adopted International Financial Reporting Standards (IFRS), and the
Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under
the historical cost basis, except for certain financial instruments that have been measured at fair value. Babcock International Group
PLC is listed on the London Stock Exchange and is incorporated and domiciled in England, UK.
New and amended standards adopted by the Group
The Group applied the following standards and amendments for the first time for the year beginning on 1 April 2021:
The following standards and amendments to IFRSs became effective for the annual reporting period beginning on 1 April 2021 and
did not have a material impact on the consolidated financial statements:
• The IFRS Interpretations Committee (IFRIC) published an agenda decision in April 2021 which clarified how a customer should
account for the costs of configuring or customising the supplier’s application software in a Software-as-a-service arrangement. As a
result of this decision the Group has revised its accounting policy and will not capitalise costs associated with Software-as-a-service
arrangements where it does not control the underlying software and will no longer capitalise configuration or customisation costs
associated with Software-as-a-service arrangements unless those costs result in the creation of an asset controlled by the Company.
Where amounts are paid to a Software-as-a-service supplier for implementation services and those services are determined not to be
distinct from the underlying Software-as-a-service arrangement, a prepayment asset is initially recognised then amortised to expense
as the services are received. This policy has been retrospectively applied and all costs capitalised in relation to Software-as-a-service
arrangements have been reviewed. This has not had a material impact on the consolidated financial statements. The Group will
continue to apply this accounting policy to new Software-as-a-service arrangements as we continue to upgrade and standardise our
IT environment. As this policy requires costs to be expensed as incurred, this may lead to a higher up-front charge to the income
statement in future years but will not impact on the Group’s cash flows.
• Interest Rate Benchmark Reform, Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments
enables the Group to reflect the effects of transitioning from interbank offered rates to alternative benchmark interest rates without
giving rise to accounting impacts that would not provide useful information to users of financial statements.
New IFRS accounting standards, amendments and interpretations not yet adopted
The Group has not early adopted any other amendment, standard or interpretation that has been issued but is not yet effective. It is
expected that these standards and amendments will be adopted on the applicable effective date. The following new or amended IFRS
accounting standards, amendments and interpretations not yet adopted are not expected to have a significant impact on the Group:
• IFRS 3, ‘Business Combinations’. Amendment effective for periods commencing on or after 1 January 2022. The amendment relates
to the identification of liabilities assumed and contingent assets acquired in a business combination.
• IAS 37, ‘Provisions, contingent liabilities and contingent assets’. Amendment effective for periods commencing on or after 1 January
2022. The amendment relates to the clarification of costs that an entity should include as the cost of fulfilling a contract when
assessing whether a contract is onerous. Management’s review to determine the impact of this amendment is ongoing, however this
is not expected to have a material impact.
• IAS 16, ‘Property, plant and equipment’. Amendment effective for periods commencing on or after 1 January 2022. The
amendment relates to proceeds from selling items produced while bringing an asset into the location and condition necessary for it
to be capable of operating in the manner intended by management.
• IFRS 17 ‘Insurance Contracts’. Amendment effective from 1 January 2023.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings together with
its share of joint ventures’ and associates’ results. Intra-Group transactions, balances, income and expenses are eliminated on
consolidation.
(a) Subsidiaries
A subsidiary is an entity controlled by the Group. An entity is controlled by the Group regardless of the level of the Group’s equity
interest in the entity, when the Group is exposed or has rights to variable returns from its involvement with the entity and has the
ability to impact those returns through its power over the entity.
In determining whether control exists, the Group considers all relevant facts and circumstances to assess its control over an entity such
as contractual commitments and potential voting rights held by the Group if they are substantive.
Subsidiaries are fully consolidated from the date control has been transferred to the Group and de-consolidated from the date control
ceases. Where control ceases the results for the year up to the date of relinquishing control or closure are analysed as continuing or
discontinued operations.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Basis of consolidation (continued)
(b) Joint ventures and associates
Associates are those entities over which the Group exercises its significant influence when it has the power to participate in the
financial and operating policy decisions of the entity but it does not have the power to control or jointly control the entity.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the arrangement, rather than rights to its assets and obligations for its liabilities.
The Group’s interests in joint ventures and associates are accounted for by the equity method of accounting and are initially recorded
at cost. The Group’s investment in joint ventures and associates includes goodwill (net of any accumulated impairment loss) identified
on acquisition. The carrying values of associates and joint ventures are reviewed on a regular basis and if there is objective evidence
that an impairment in value has occurred as a result of one or more events during the period, the investment is impaired.
The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses after tax is recognised in the income statement,
and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. If the Group’s share of losses in a joint venture or associate equals or exceeds
its investment in the joint venture or associate, the Group does not recognise further losses unless it has incurred obligations to do so.
Unrealised gains and losses on transactions between the Group and its joint ventures and associates are eliminated to the extent of the
Group’s interest in the joint venture and associate. Loans to joint ventures are valued at amortised cost less provision for impairment.
Critical accounting estimates and judgements
In the course of preparation of the financial statements judgements and estimates have been made in applying the Group’s
accounting policies that have had a material effect on the amounts recognised in the financial statements. The application of
the Group’s accounting policies requires the use of estimates and the inherent uncertainty in certain forward-looking estimates
may result in a material adjustment to the carrying amounts of assets and liabilities in the next financial year. Critical accounting
estimates are subject to continuing evaluation and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable in light of known circumstances. Critical accounting estimates and judgements
in relation to these financial statements are considered below:
Critical accounting judgements
Critical accounting judgements, apart from those involving estimations, that are applied in the preparation of the consolidated
financial statements are discussed below. Detail of the Group’s key judgements involving estimates are included in the Key sources of
estimation uncertainty section.
Revenue and profit recognition
A number of the Group’s contracts include promises in relation to procurement activity undertaken on behalf of customers at low or nil
margin, sub-contractor arrangements, and other pass-through costs. Management is required to exercise judgement on these revenue
streams in considering whether the Group is acting as principal or agent. This is based on an assessment as to whether the Group
controls the relevant goods or services under the performance obligations prior to transfer to customers. Factors that influence this
judgement include the level of responsibility the Group has under the contract for the provision of the goods or services, the extent to
which the Group is incentivised to fulfil orders on time and within budget, either through gain share arrangements or KPI deductions in
relation to the other performance obligations within the contract, and the extent to which the Group exercises responsibility in
determining the selling price of the goods and services. Taking all factors into consideration, the Group then comes to a judgement as
to whether it acts as principal or agent on a performance obligation-by-performance obligation basis. Note that any changes in this
judgement would not have a material impact on profit, although there may be a material impact to revenue and cost of revenue.
The Group has re-examined the principal versus agent assessment in relation to pass-through revenue on three of the Group’s
contracts. Further detail is included in note 3.
Determining the Group’s cash generating units
Management exercises judgement in determining the Group’s cash generating units for the goodwill impairment assessment. This
determination is generally straightforward and factual, however in some cases judgement is required, for example it was determined
that Africa is a separate cash generating unit, whilst operations of the Group in other territories do not represent separate cash
generating units. Over time management reviews the cash generating units to ensure they remain appropriate as businesses are
acquired and divested and reporting structures change, including how information is reported to the Chief Operating Decision
Maker. If there was a change in this judgement this could result in a material adjustment to goodwill. Further detail is included in
notes 4 and 12.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Basis of consolidation (continued)
(b) Joint ventures and associates
Associates are those entities over which the Group exercises its significant influence when it has the power to participate in the
financial and operating policy decisions of the entity but it does not have the power to control or jointly control the entity.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the arrangement, rather than rights to its assets and obligations for its liabilities.
The Group’s interests in joint ventures and associates are accounted for by the equity method of accounting and are initially recorded
at cost. The Group’s investment in joint ventures and associates includes goodwill (net of any accumulated impairment loss) identified
on acquisition. The carrying values of associates and joint ventures are reviewed on a regular basis and if there is objective evidence
that an impairment in value has occurred as a result of one or more events during the period, the investment is impaired.
The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses after tax is recognised in the income statement,
and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. If the Group’s share of losses in a joint venture or associate equals or exceeds
its investment in the joint venture or associate, the Group does not recognise further losses unless it has incurred obligations to do so.
Unrealised gains and losses on transactions between the Group and its joint ventures and associates are eliminated to the extent of the
Group’s interest in the joint venture and associate. Loans to joint ventures are valued at amortised cost less provision for impairment.
Critical accounting estimates and judgements
In the course of preparation of the financial statements judgements and estimates have been made in applying the Group’s
accounting policies that have had a material effect on the amounts recognised in the financial statements. The application of
the Group’s accounting policies requires the use of estimates and the inherent uncertainty in certain forward-looking estimates
may result in a material adjustment to the carrying amounts of assets and liabilities in the next financial year. Critical accounting
estimates are subject to continuing evaluation and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable in light of known circumstances. Critical accounting estimates and judgements
in relation to these financial statements are considered below:
Critical accounting judgements
Critical accounting judgements, apart from those involving estimations, that are applied in the preparation of the consolidated
financial statements are discussed below. Detail of the Group’s key judgements involving estimates are included in the Key sources of
estimation uncertainty section.
Revenue and profit recognition
A number of the Group’s contracts include promises in relation to procurement activity undertaken on behalf of customers at low or nil
margin, sub-contractor arrangements, and other pass-through costs. Management is required to exercise judgement on these revenue
streams in considering whether the Group is acting as principal or agent. This is based on an assessment as to whether the Group
controls the relevant goods or services under the performance obligations prior to transfer to customers. Factors that influence this
judgement include the level of responsibility the Group has under the contract for the provision of the goods or services, the extent to
which the Group is incentivised to fulfil orders on time and within budget, either through gain share arrangements or KPI deductions in
relation to the other performance obligations within the contract, and the extent to which the Group exercises responsibility in
determining the selling price of the goods and services. Taking all factors into consideration, the Group then comes to a judgement as
to whether it acts as principal or agent on a performance obligation-by-performance obligation basis. Note that any changes in this
judgement would not have a material impact on profit, although there may be a material impact to revenue and cost of revenue.
The Group has re-examined the principal versus agent assessment in relation to pass-through revenue on three of the Group’s
contracts. Further detail is included in note 3.
Determining the Group’s cash generating units
Management exercises judgement in determining the Group’s cash generating units for the goodwill impairment assessment. This
determination is generally straightforward and factual, however in some cases judgement is required, for example it was determined
that Africa is a separate cash generating unit, whilst operations of the Group in other territories do not represent separate cash
generating units. Over time management reviews the cash generating units to ensure they remain appropriate as businesses are
acquired and divested and reporting structures change, including how information is reported to the Chief Operating Decision
Maker. If there was a change in this judgement this could result in a material adjustment to goodwill. Further detail is included in
notes 4 and 12.
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1. Basis of preparation and significant accounting policies (continued)
Key sources of estimation uncertainty
The key sources of estimation uncertainty at the reporting period end that may result in significant risk of material adjustment to the
carrying amount of assets and liabilities within the next financial year are set out below:
Revenue and profit recognition
The Group’s revenue recognition policies require management to make an estimate of the cost to complete for long-term contracts.
Management estimates outturn costs on a contract-by-contract basis and estimates are carried out by suitably qualified and
experienced personnel. Estimates of cost to complete include assessment of contract contingencies arising out of technical,
commercial, operational and other risks. The assessments of all significant contract outturns are subject to review and challenge, and
judgements and estimates are reviewed regularly throughout the contract life based on latest available information and adjustments
are made where necessary. As contracts near completion, often less judgement is required to determine the expected outturn. One
key contract for the Group includes a critical estimate around the realisation of future transformational savings. If these savings fail to
be realised, this will impact on the margin for this contract and could result in a reduction to revenue and contract assets, and
therefore profit, of £10 million.
Defined benefit pension schemes obligations
The Group’s defined benefit pension schemes are assessed annually in accordance with IAS 19, ‘Employee benefits’ and the valuation
of the defined benefit pension obligations is sensitive to the inflation and discount rate actuarial assumptions used. There is a range of
possible values for the assumptions and small changes to the assumptions may have a significant impact on the valuation of the
defined benefit pension obligations. In addition to the inflation and discount rate estimates, management is required to make an
accounting judgement relating to the expected availability of future accounting surpluses under IFRIC 14, `IAS 19 - The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction’. Further information on the key assumptions and
sensitivities is included in note 27.
The carrying value of goodwill
Goodwill is tested annually for impairment, in accordance with IAS 36, Impairment of Assets (‘IAS 36’). The impairment assessment is
based on assumptions in relation to future cash flows expected to be generated by cash generating units, together with appropriate
discounting of the cash flows. The assessment of the carrying value of goodwill is included as a critical accounting estimate given the
significance of the remaining carrying value of goodwill and the inherent level of estimation uncertainty required to undertake
impairment testing. The key assumptions in estimating the carrying value of goodwill are discount rate, long-term growth rate and
short-term growth rates. Further information on key assumptions and sensitivity analyses are included in note 12.
Inflation
The level to which the Group’s revenue and cost for each contract will be impacted by inflation is a key accounting estimate, as this
could cause the cost of contract delivery to be greater than was expected at the time of contracting. The Group’s contracts are
exposed to inflation due to rising employment costs, as well as increased costs of raw materials.
Significant accounting policies
The significant accounting policies adopted by the Group are set out below. They have been applied consistently throughout the year
and the comparative year except as specified below.
Revenue
Revenue recognised represents income derived from contracts with customers for the provision of goods and services in the
ordinary course of the Group’s activities. The Group recognises revenue in line with IFRS 15, Revenue from Contracts with Customers
(‘IFRS 15’). IFRS 15 requires the identification of performance obligations in contracts, determination of contract price, allocation of
the contract price to the performance obligations and recognition of revenue as performance obligations are satisfied.
(a) Performance obligations
Contracts are assessed to identify each promise to transfer either a distinct good or service or a series of distinct goods or services that
are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct if the customer can
benefit from them either on their own or together with other resources readily available to the customer and they are separately
identifiable in the contract.
In assessing whether the performance obligations are separately identifiable, the services are reviewed to determine the extent to
which the goods or services within a contract are interrelated and whether they modify other goods or services within a contract.
The Group also considers whether the goods and/or services are integrated and represent a combined output for which the customer
has contracted.
The integrated output nature of many of the services provided by the Group results in some contracts only having one
performance obligation.
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165
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Revenue (continued)
(b) Determination of contract price
The contract price represents the amount of consideration which the Group expects to be entitled in exchange for delivering the
promised goods or services to the customer. Contracts can include both fixed and variable consideration.
Inclusion of variable consideration in the contract price requires the exercise of judgement in relation to the amount to be received
through unpriced contract variations and claims (see section (e) below for further details) and variable elements of existing contracts,
such as performance-based penalties and incentives, and gain/pain share arrangements where cost under/over spends are shared with
the customer. Elements of variable consideration are estimated at contract inception and at the end of each reporting period. Any
required adjustment is made against the contract price in the period in which the adjustment occurs.
Variable consideration is estimated using either the expected value or the most likely amount only to the extent that it is highly
probable that there will not be a reversal in the amount of cumulative revenue recognised. This judgement is made by suitably
qualified and experienced personnel based on the contract terms, status of negotiations with customers and historical experience with
customers and with similar contracts. Variable consideration may be included in the total transaction price or, in certain
circumstances, may be allocated to a specific time period. Where variable consideration is allocated to a specific time period this will
typically be in relation to performance related deductions.
As part of this judgement, variable consideration may be constrained. The Group recognises variable consideration only to the extent
that it is highly probable that there will not be a significant reversal in the amount of cumulative revenue recognised when the
uncertainty associated with the variable consideration is subsequently resolved.
(c) Allocation of contract price to performance obligations
Given the bespoke nature of many of the goods and services the Group provides, standalone selling prices are generally not observable
and, in these circumstances, the Group allocates the contract price to performance obligations based on cost plus margin. This
amount would be the standalone selling price of each performance obligation if contracted with a customer separately.
(d) Revenue and profit recognition
Performance obligations are satisfied, and revenue recognised, as control of goods and services is transferred to the customer. Control
can be transferred at a point in time or over time and the Group determines, for each performance obligation, whether it is satisfied
over time or at a point in time.
Revenue recognised over time
Performance obligations are satisfied over time if any of the following criteria are satisfied:
• the customer simultaneously receives and consumes the benefits of the Group’s performance as it performs; or
• the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to
payment for work done; or
• the Group’s performance creates or enhances an asset controlled by the customer.
Typical performance obligations in the Group’s contracts that are recognised over time include the delivery of services (such as
maintenance, engineering and training), as the customer simultaneously receives and consumes the benefits of the Group’s
performance as it performs the services. Revenue from the design, manufacture and enhancement of bespoke assets is also recognised
over time, as the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable
right to payment for performance completed to date, being recovery of costs incurred in satisfying the performance obligation plus a
reasonable profit margin.
Where the Group satisfies performance obligations over time, the Group primarily uses an input method to measure satisfaction of
each performance obligation based on costs incurred compared to total estimated contract costs. For the majority of the Group’s
contracts, this is deemed to be the most appropriate method to measure Babcock’s effort in satisfying the applicable performance
obligations. Costs are included in the measurement of progress towards satisfying the performance obligation to the extent that there
is a direct relationship between the input and satisfaction of the performance obligation. For contracts where costs incurred is not
deemed to be the most appropriate measure, the Group uses time elapsed to measure satisfaction of the performance obligation.
Under most of the Group’s contracts, the customer pays in accordance with a pre-arranged payment schedule or once milestones have
been met. If the value of the goods or services rendered by the Group exceed payments, a contract asset is recognised. If payments
exceed the value of the goods or services rendered, a contract liability is recognised. See section (h) for further details on how contract
assets and liabilities are recognised.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Revenue (continued)
(b) Determination of contract price
The contract price represents the amount of consideration which the Group expects to be entitled in exchange for delivering the
promised goods or services to the customer. Contracts can include both fixed and variable consideration.
Inclusion of variable consideration in the contract price requires the exercise of judgement in relation to the amount to be received
through unpriced contract variations and claims (see section (e) below for further details) and variable elements of existing contracts,
such as performance-based penalties and incentives, and gain/pain share arrangements where cost under/over spends are shared with
the customer. Elements of variable consideration are estimated at contract inception and at the end of each reporting period. Any
required adjustment is made against the contract price in the period in which the adjustment occurs.
Variable consideration is estimated using either the expected value or the most likely amount only to the extent that it is highly
probable that there will not be a reversal in the amount of cumulative revenue recognised. This judgement is made by suitably
qualified and experienced personnel based on the contract terms, status of negotiations with customers and historical experience with
customers and with similar contracts. Variable consideration may be included in the total transaction price or, in certain
circumstances, may be allocated to a specific time period. Where variable consideration is allocated to a specific time period this will
typically be in relation to performance related deductions.
As part of this judgement, variable consideration may be constrained. The Group recognises variable consideration only to the extent
that it is highly probable that there will not be a significant reversal in the amount of cumulative revenue recognised when the
uncertainty associated with the variable consideration is subsequently resolved.
(c) Allocation of contract price to performance obligations
Given the bespoke nature of many of the goods and services the Group provides, standalone selling prices are generally not observable
and, in these circumstances, the Group allocates the contract price to performance obligations based on cost plus margin. This
amount would be the standalone selling price of each performance obligation if contracted with a customer separately.
Performance obligations are satisfied, and revenue recognised, as control of goods and services is transferred to the customer. Control
can be transferred at a point in time or over time and the Group determines, for each performance obligation, whether it is satisfied
(d) Revenue and profit recognition
over time or at a point in time.
Revenue recognised over time
Performance obligations are satisfied over time if any of the following criteria are satisfied:
• the customer simultaneously receives and consumes the benefits of the Group’s performance as it performs; or
• the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to
payment for work done; or
• the Group’s performance creates or enhances an asset controlled by the customer.
Typical performance obligations in the Group’s contracts that are recognised over time include the delivery of services (such as
maintenance, engineering and training), as the customer simultaneously receives and consumes the benefits of the Group’s
performance as it performs the services. Revenue from the design, manufacture and enhancement of bespoke assets is also recognised
over time, as the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable
right to payment for performance completed to date, being recovery of costs incurred in satisfying the performance obligation plus a
reasonable profit margin.
Where the Group satisfies performance obligations over time, the Group primarily uses an input method to measure satisfaction of
each performance obligation based on costs incurred compared to total estimated contract costs. For the majority of the Group’s
contracts, this is deemed to be the most appropriate method to measure Babcock’s effort in satisfying the applicable performance
obligations. Costs are included in the measurement of progress towards satisfying the performance obligation to the extent that there
is a direct relationship between the input and satisfaction of the performance obligation. For contracts where costs incurred is not
deemed to be the most appropriate measure, the Group uses time elapsed to measure satisfaction of the performance obligation.
Under most of the Group’s contracts, the customer pays in accordance with a pre-arranged payment schedule or once milestones have
been met. If the value of the goods or services rendered by the Group exceed payments, a contract asset is recognised. If payments
exceed the value of the goods or services rendered, a contract liability is recognised. See section (h) for further details on how contract
assets and liabilities are recognised.
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1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Revenue (continued)
Revenue recognised at a point in time
If control of the goods or services is not transferred to the customer over time, then revenue is recognised at the point in time that
control is transferred to the customer.
Point in time recognition mainly applies to sale of goods. Control typically transfers to the customer when the customer has legal title
to the goods and this is usually coincident with delivery of the goods to the customer and right to receive payment by the Group. As
can be seen from note 4, sale of goods at a point in time represents approximately 6% of Group revenues. These revenues are
delivered predominantly by the Aviation and Land sectors and include sales of equipment to commercial customers and procurement
of consumables on behalf of the Ministry of Defence (MOD).
Assessment of contract profitability
Profit is recognised to the extent that the final outcome on contracts can be reliably assessed. Contract outturn assessments
are carried out on a contract-by-contract basis, including consideration of technical and other risks, by suitably qualified and
experienced personnel and the assessments of all significant contracts are subject to review and challenge.
Estimating contract revenues can involve judgements around whether the Group will meet performance targets and earn incentives,
as well as consideration as to whether it is necessary to constrain variable revenues to meet the highly probable not to significantly
reverse test set out in paragraph 56 of IFRS 15. When considering variations, claims and contingencies, the Group analyses various
factors including the contractual terms, status of negotiations with the customer and historical experience with that customer and
with similar contracts. Estimates of costs include assessment of contract contingencies arising out of technical, commercial,
operational and other risks. The assessments of all significant contract outturns are subject to review and challenge and estimation
uncertainty is resolved on a contract-by-contract basis as contracts near the end of the project lifecycle.
If a contract is deemed to be loss making the present obligation is recognised and measured a provision. Further detail is included in
the Provisions accounting policy.
(e) Contract modifications
Claims and variations
The Group’s contracts are often amended for changes in the customers’ requirements. Contract modifications can relate to changes in
both contract scope and price arising in the ordinary course of delivering contracts, which are referred to as contract variations. Such
variations may arise as a result of customer requests or instructions or from requests from the Group in response to matters arising
during the delivery of contracts. For example, some contracts include the requirement to conduct surveys and to report on or to
recommend additional work as required. Some contracts may require the Group to proceed with variations and to agree pricing
subsequently. See further detail on accounting for contract modifications below.
Contract modifications can also refer to changes in price only, with no change in scope, where there is a difference of view or dispute
in relation to interpretation of contracts.
These contract claims and variations are considered to be modifications as referred to in paragraph 18 of IFRS 15.
Accounting for contract modifications
The Group accounts for contract modifications in one of three ways, based on the facts and circumstances of the contract
modification:
1. Prospectively, as an additional, separate contract;
2. Prospectively, as a termination of the existing contract and creation of a new contract; or
3. As part of the original contract using a cumulative catch-up.
The Group recognises contract variations, which impact both scope and price, when they are approved in accordance with IFRS 15.
The Group’s preferred approach is to approve contract modifications by formal contract amendment. However the approval of
contract modifications often requires to be carried out at pace and other mechanisms, informed by established customer relationships
and local working arrangements, can be used to achieve approval of contract modifications. In approving contract modifications in
these circumstances, the Group considers the scope of the contract modification in the context of the contract scope and contract
terms. Contract variations where the formal contract amendment has not been received but which are, in management’s judgement,
approved are accounted for as a contract modification in accordance with IFRS 15 paragraph 18. Revenue from these contract
variations is treated as variable consideration and subject to constraint as outlined in section (b) above, until the pricing is agreed.
Contract claims are also considered to be contract modifications in accordance with IFRS 15, and revenue is subject to constraint as
outlined in section (b).
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Revenue (continued)
Claims and variations which are not deemed to be contract modifications
Claims can also be raised by Babcock against third-party sub-contractors or suppliers to the Group. As these do not relate to contracts
with customers, but rather relate to contracts with suppliers, they are not accounted for under IFRS 15. The Group’s accounting policy
is to account for such claims in accordance with the contingent asset guidance per IAS 37. Income in relation to these claims will only
be recognised once it is virtually certain.
(f) Costs of obtaining a contract
Costs to obtain a contract that would have been incurred regardless of whether the contract was won or lost are recognised as an
expense when incurred.
Directly attributable costs to obtain a contract with a customer that the Group would not have incurred if the contract had not been
won are recognised as an asset. These costs are capitalised as an asset after the point that it can be reliably expected that a contract
will be obtained. The costs are capitalised as an asset in capitalised contract costs and amortised to cost of revenue on a typically
straight-line basis consistent with the transfer to the customer of the goods and services to which the asset relates, provided that the
contract is expected to result in future net cash inflows.
(g) Costs to fulfil a contract
Post contract award but pre contract operational start-up costs which satisfy the criteria for capitalisation under another standard,
such as property, plant and equipment (IAS 16, 'Property, Plant and Equipment') or intangible assets (IAS 38, `Intangible assets'), are
accounted for in accordance with those standards. Costs to fulfil a contract which do not fall within the scope of another standard are
recognised under IFRS 15 as an asset in capitalised contract costs where they meet all of the following criteria:
(i) the costs relate directly to a contract or to an anticipated contract that can be specifically identified;
(ii) the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance
obligations in the future; and
(iii) the costs are expected to be recovered.
Costs of recruiting or training staff are expensed as incurred.
Capitalised contract costs are amortised to cost of revenue on a straight-line basis consistent with the transfer to the customer of the
goods and services to which the asset relates.
(h) Contract assets and liabilities
Contract assets represent amounts for which the Group has a conditional right to consideration in exchange for goods or services that
the Group has transferred to the customer. Contract liabilities represent the obligation to transfer goods or services to a customer for
which consideration has been received, or consideration is due, from the customer.
Payment terms are set out in the contract and reflect the timing and performance of service delivery. For substantially all contracts the
payment terms are broadly in line with satisfaction of performance obligations, and therefore recognition of revenue, such that each
contract has either a contract asset or contract liability, however these are not overly material in the context of the contract.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Revenue (continued)
Claims and variations which are not deemed to be contract modifications
Claims can also be raised by Babcock against third-party sub-contractors or suppliers to the Group. As these do not relate to contracts
with customers, but rather relate to contracts with suppliers, they are not accounted for under IFRS 15. The Group’s accounting policy
is to account for such claims in accordance with the contingent asset guidance per IAS 37. Income in relation to these claims will only
be recognised once it is virtually certain.
(f) Costs of obtaining a contract
expense when incurred.
Costs to obtain a contract that would have been incurred regardless of whether the contract was won or lost are recognised as an
Directly attributable costs to obtain a contract with a customer that the Group would not have incurred if the contract had not been
won are recognised as an asset. These costs are capitalised as an asset after the point that it can be reliably expected that a contract
will be obtained. The costs are capitalised as an asset in capitalised contract costs and amortised to cost of revenue on a typically
straight-line basis consistent with the transfer to the customer of the goods and services to which the asset relates, provided that the
contract is expected to result in future net cash inflows.
(g) Costs to fulfil a contract
Post contract award but pre contract operational start-up costs which satisfy the criteria for capitalisation under another standard,
such as property, plant and equipment (IAS 16, 'Property, Plant and Equipment') or intangible assets (IAS 38, `Intangible assets'), are
accounted for in accordance with those standards. Costs to fulfil a contract which do not fall within the scope of another standard are
recognised under IFRS 15 as an asset in capitalised contract costs where they meet all of the following criteria:
(i) the costs relate directly to a contract or to an anticipated contract that can be specifically identified;
(ii) the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance
obligations in the future; and
(iii) the costs are expected to be recovered.
Costs of recruiting or training staff are expensed as incurred.
goods and services to which the asset relates.
(h) Contract assets and liabilities
Capitalised contract costs are amortised to cost of revenue on a straight-line basis consistent with the transfer to the customer of the
Contract assets represent amounts for which the Group has a conditional right to consideration in exchange for goods or services that
the Group has transferred to the customer. Contract liabilities represent the obligation to transfer goods or services to a customer for
which consideration has been received, or consideration is due, from the customer.
Payment terms are set out in the contract and reflect the timing and performance of service delivery. For substantially all contracts the
payment terms are broadly in line with satisfaction of performance obligations, and therefore recognition of revenue, such that each
contract has either a contract asset or contract liability, however these are not overly material in the context of the contract.
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1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Underlying financial information and specific adjusting items
Definitions and a description of the use of the underlying performance measures can be found in note 2.
Transactions with non-controlling interest
The Group’s policy is to treat transactions with non-controlling interest as transactions with owners of the Company. These are
therefore reflected as movements in reserves.
Provisions
A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a
result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can
be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at an
appropriate discount rate.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been publicly announced. Future operating costs are not provided for.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than
the unavoidable cost of meeting its obligations under the contract. Onerous contract provisions are recognised after impairment of
any assets directly related to the onerous contract. A provision for warranties is recognised on completed contracts and disposals when
there is a realistic expectation of the Group incurring further costs.
Provisions for losses on contracts are recorded when it becomes probable that total estimated contract costs will exceed total contract
revenues. Such provisions are recorded as write downs of contract balances for that portion of the work which has already been
completed, and as provisions for the remainder. Losses are determined on the basis of estimated results on completion of contracts
and contract assessments are updated regularly.
A provision for the contractual maintenance, overhaul and repair requirements of right of use aircraft and specific associated aircraft
components arising from return condition obligations in aircraft lease contracts is recognised as the obligation to perform contractual
maintenance arises with each hour flown. Where lease contracts contain contractual penalties in the event that the Group returns
leased aircraft in a condition that does not meet the contractual return condition obligation, the associated provision is measured at
the lower of the restoration cost and the detriment penalty in the lease. When maintenance of a leased aircraft component is
performed, if the component’s remaining flying hours are greater than the return condition outlined in the lease contract then a
leasehold improvement asset is recognised in proportion to the excess flying hours above the contractual return condition.
Maintenance provisions are not recognised in respect of aircraft components which are maintained under Power By the Hour
maintenance arrangements, instead the associated payments to the maintenance provider are expensed as incurred. Any additional
payments made to or received from maintenance providers at the conclusion of Power By the Hour maintenance arrangements are
recognised as an expense or as income at the time at which they are incurred or received.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Goodwill and intangible assets
(a) Goodwill
When the fair value of the consideration for an acquired undertaking exceeds the fair value of its separable net assets, the difference is
treated as purchased goodwill and capitalised. Goodwill is monitored at operating segment level and goodwill is allocated to the
operating segment expected to benefit from the business combination’s synergies. The Group currently has five operating segments:
Marine, Land, Aviation, Nuclear and Africa.
When the fair value of the consideration for an acquired undertaking is less than the fair value of its separable net assets, the difference
is taken directly to the income statement.
Goodwill relating to acquisitions prior to 1 April 2004 is maintained at its net book value on the date of transition to IFRS. From that
date goodwill is not amortised but is reviewed at least annually for impairment.
Goodwill is reviewed for impairment annually at 31 March by assessing the recoverable amount of operating segments by reference to
value-in-use calculations or fair value less cost to dispose in relation to certain businesses which the Group plans to dispose. Goodwill
impairments are not subsequently reversed. See note 12 for further information on goodwill impairment reviews.
On disposal of a subsidiary, joint venture or associate, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
(b) Acquired intangibles
Acquired intangibles are the estimated fair value of customer relationships and brands which are in part contractual, represented by
the value of the acquired order book, and in part non-contractual, represented by the risk-adjusted value of future orders expected to
arise from the relationships.
The carrying value of the contractual element is amortised straight-line over the remaining period of the orders that are in process
or the future period in which the orders will be fulfilled, as the case may be. The amortisation periods, reflecting the lengths of the
various contracts, are mainly in the range one year to five years, with a minority of contracts and hence amortisation periods, up
to 15 years.
The carrying value of the non-contractual element is amortised over the period in which it is estimated that the relationships are likely
to bring economic benefit via future orders.
Relationships are valued on a contract-by-contract and customer-by-customer basis and the pattern of amortisation reflects the
expected pattern of benefit in each case. The amortisation profile is determined on a case-by-case basis and in all cases results
in a front-loaded profile, reflecting the greater certainty of future orders in the near term compared with the longer term.
The amortisation period is in the range one year to 20 years.
Acquired brand names are valued dependent on the characteristics of the market in which they operate and the likely value a third
party would place on them. Useful lives are likewise dependent on market characteristics of the acquired business brand. These are
amortised on a straight-line basis over a period of up to five years.
(c) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects are recognised as intangible
assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if
the cost can be measured reliably. Other development expenditure is recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been
capitalised are amortised from the date the product is available for use on a straight-line basis over the period of its expected
benefit but not exceeding seven years.
(d) Computer software
Computer software, excluding the Group’s Enterprise Resource Planning (ERP) system, includes software licences acquired.
Configuration and customisation costs relating to Software-as-a-service agreements are expensed as incurred. Computer software is
measured at cost less accumulated amortisation and is amortised on a straight-line basis over its expected useful life of between three
and seven years.
The Group is implementing an ERP system in phases over several years. The ERP system is amortised over its useful life of
10 years from the date when the asset is available for use, which occurs once the implementation has been completed for
each respective phase.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Goodwill and intangible assets
(a) Goodwill
Marine, Land, Aviation, Nuclear and Africa.
is taken directly to the income statement.
When the fair value of the consideration for an acquired undertaking exceeds the fair value of its separable net assets, the difference is
treated as purchased goodwill and capitalised. Goodwill is monitored at operating segment level and goodwill is allocated to the
operating segment expected to benefit from the business combination’s synergies. The Group currently has five operating segments:
When the fair value of the consideration for an acquired undertaking is less than the fair value of its separable net assets, the difference
Goodwill relating to acquisitions prior to 1 April 2004 is maintained at its net book value on the date of transition to IFRS. From that
date goodwill is not amortised but is reviewed at least annually for impairment.
Goodwill is reviewed for impairment annually at 31 March by assessing the recoverable amount of operating segments by reference to
value-in-use calculations or fair value less cost to dispose in relation to certain businesses which the Group plans to dispose. Goodwill
impairments are not subsequently reversed. See note 12 for further information on goodwill impairment reviews.
On disposal of a subsidiary, joint venture or associate, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
(b) Acquired intangibles
arise from the relationships.
to 15 years.
Acquired intangibles are the estimated fair value of customer relationships and brands which are in part contractual, represented by
the value of the acquired order book, and in part non-contractual, represented by the risk-adjusted value of future orders expected to
The carrying value of the contractual element is amortised straight-line over the remaining period of the orders that are in process
or the future period in which the orders will be fulfilled, as the case may be. The amortisation periods, reflecting the lengths of the
various contracts, are mainly in the range one year to five years, with a minority of contracts and hence amortisation periods, up
The carrying value of the non-contractual element is amortised over the period in which it is estimated that the relationships are likely
to bring economic benefit via future orders.
Relationships are valued on a contract-by-contract and customer-by-customer basis and the pattern of amortisation reflects the
expected pattern of benefit in each case. The amortisation profile is determined on a case-by-case basis and in all cases results
in a front-loaded profile, reflecting the greater certainty of future orders in the near term compared with the longer term.
The amortisation period is in the range one year to 20 years.
Acquired brand names are valued dependent on the characteristics of the market in which they operate and the likely value a third
party would place on them. Useful lives are likewise dependent on market characteristics of the acquired business brand. These are
amortised on a straight-line basis over a period of up to five years.
(c) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects are recognised as intangible
assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if
the cost can be measured reliably. Other development expenditure is recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been
capitalised are amortised from the date the product is available for use on a straight-line basis over the period of its expected
benefit but not exceeding seven years.
(d) Computer software
and seven years.
each respective phase.
Computer software, excluding the Group’s Enterprise Resource Planning (ERP) system, includes software licences acquired.
Configuration and customisation costs relating to Software-as-a-service agreements are expensed as incurred. Computer software is
measured at cost less accumulated amortisation and is amortised on a straight-line basis over its expected useful life of between three
The Group is implementing an ERP system in phases over several years. The ERP system is amortised over its useful life of
10 years from the date when the asset is available for use, which occurs once the implementation has been completed for
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1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment is shown at cost less subsequent depreciation and impairment, except for land, which is shown at cost
less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items after the deduction of trade
discounts and rebates.
Depreciation is provided, normally on a straight-line basis, to write off the cost of items of property, plant and equipment over their
estimated useful lives to any estimated residual value, using the following rates:
Freehold property
Leasehold property
Plant and equipment
Aircraft airframes
2.0% to 8.0%
Lower of useful economic life or lease term
6.6% to 33.3%
2%
Major strategic aircraft spares are classified within property, plant and equipment. Aircraft assets, including spares, are disaggregated
into separate components where the components have differing useful lives with the value of each rotable component being
measured at the cost of replacement or overhaul of the component and the remaining value of the asset being attributed to the
airframe component.
Depreciation is provided on a straight-line basis, or in the case of certain aircraft components on an hours flown basis, to write off the
cost of PPE over the estimated useful lives to their estimated residual value (reassessed at each financial year end).
Subsequent expenditure on the replacement or overhaul of aircraft components is capitalised with the carrying value of the part
replaced being written off. Subsequent expenditure on maintenance which enhances the performance of aircraft airframes is
capitalised whilst expenditure on replacing elements of aircraft airframes is expensed. Components of owned aircraft which are
maintained under Power By the Hour maintenance arrangements are not depreciated with the associated payments to the
maintenance provider instead being expensed as incurred, as the residual value of the asset is deemed to be equivalent to the cost of
the asset. Any additional payments made to or received from maintenance providers at the conclusion of Power By the Hour
maintenance arrangements are recognised as an expense or as income at the time at which they are incurred or received.
The useful economic life of aircraft is based on management’s estimate of how long the aircraft will continue to be operated in the
same manner or a similar manner, typically not exceeding 30 years. Where the Group acquires aircraft which have already been used,
and may already exceed the typical useful economic life, an individual assessment of useful economic life is performed.
Impairment of non-current assets
Goodwill and indefinite life intangibles are reviewed for impairment at least annually. For all other non-financial non-current assets
(including acquired intangible assets, capitalised development costs, software assets, property, plant and equipment and right of use
assets) the Group performs impairment testing where indicators of impairment are identified. Impairment testing is performed at the
individual asset level. Where an asset does not generate cash flows that are separately identifiable from other assets, the Group
estimates the recoverable amount of the CGU to which the asset belongs.
The recoverable amount is the higher of fair value less costs of disposal, and value-in-use. When the recoverable amount is less than
the carrying amount, an impairment loss is recognised immediately in the Group income statement.
Where an impairment loss on other non-financial non-current assets subsequently reverses, the carrying amount of the asset is
increased to the revised estimate of the recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined if no impairment loss had been recognised in prior years. Goodwill impairments are not
subsequently reversed.
Net debt excluding loans to joint ventures and associates and lease receivables
Net debt excluding loans to joint ventures and associates and lease receivables is an alternative performance measure of the Group
and consists of the total of loans, bank overdrafts, cash and cash equivalents, loans to joint ventures and associates, leases granted or
received, lease obligations and any derivatives used to hedge the underlying debt. This includes swaps of the currency of the debt into
the functional currency of the company carrying the debt. The Group’s key performance indicators exclude certain lease obligations in
order to more closely align with the Group’s debt covenants which are prepared on a pre-IFRS 16 basis and the Financial Review
presents net debt and related performance measures including and excluding certain lease obligations for this purpose.
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171
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Leases
The Group as lessee
For all leases in which the Group is a lessee (other than those meeting the criteria detailed below), the Group recognises a right of use
asset and corresponding lease liability at commencement of the lease.
The lease liability is the present value of future lease payments discounted at the rate implicit in the lease, if available, or the
applicable incremental borrowing rate. The incremental borrowing rate is determined at lease inception based on a number of factors
including asset type, lease currency and lease term. Lease payments include fixed payments and variable lease payments dependent
on an index or rate, initially measured using the index or rate at the commencement date. The lease term reflects any extension or
termination options that the Group is reasonably certain to exercise.
The lease liability is subsequently measured at amortised cost using the effective interest rate method, with interest on the lease
liability being recognised as a finance expense in the income statement. The lease liability is remeasured, with a corresponding
adjustment to the right of use asset, if there is a change in future lease payments, for example resulting from a rent review, change
in a rate/index or change in the Group’s assessment of whether it is reasonably certain to exercise an extension, termination or
purchase option.
The right of use asset is initially recorded at cost, being equal to the lease liability, adjusted for any initial direct costs, lease payments
made prior to commencement date, lease incentives received and any dilapidation costs. Depreciation of right of use assets is
recognised as an expense in the income statement on a straight-line basis over the shorter of the asset’s useful life or expected term of
the lease.
Right of use assets arising from sale and leaseback transactions are measured at the proportion of the previous carrying amount of the
asset that relates to the right of use retained by the Group. Gains arising on sale and leaseback transactions are recognised to the
extent that they relate to the rights transferred to the buyer-lessor whilst losses arising on sale and leaseback transactions are
recognised in full.
Right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable, with the impairment expense being recognised in the income statement. Where a lease is terminated early, any
termination fees or gain or loss relating to the release of right of use asset and lease obligation are recognised as a gain or loss through
the income statement.
Payments in respect of short-term leases not exceeding 12 months in duration or low-value leases are expensed straight line to the
income statement as permitted by IFRS 16, ‘Leases’.
The Group as lessor
As a lessor, the Group classifies lessor arrangements as finance or operating leases. Leases are classified as finance leases when the
terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases. All lessor arrangements in the Group meet the criteria for a finance lease.
Amounts due from lessees under a finance lease are held on the statement of financial position as a financial asset at an amount equal
to the Group’s net investment in the lease. The finance lease payments received are treated as finance income and a repayment of
principal including initial direct costs. Finance income is allocated over the lease term, with the gross receivable being reviewed for
impairment on a regular basis.
Inventory
Inventory is valued at the lower of cost and net realisable value, being the estimated selling price of the assets in the ordinary course of
business less estimated costs of completion and costs of sale. In the case of finished goods and work in progress, cost comprises direct
material and labour and an appropriate proportion of overheads.
Spare parts that are consumed in the sale of goods or in the rendering of services are classified as inventory.
Contingent liabilities
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence or non-
occurrence of uncertain future events outside the Group’s control, or a present obligation that is not recognised because it is not
probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably. The Group does
not recognise contingent liabilities. See note 31 for details of contingent liabilities.
Cash and cash equivalents
Group cash and cash equivalents consist of cash at bank and cash in hand, together with short-term deposits with an original maturity
of three months or less and money market funds.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Leases
The Group as lessee
For all leases in which the Group is a lessee (other than those meeting the criteria detailed below), the Group recognises a right of use
asset and corresponding lease liability at commencement of the lease.
The lease liability is the present value of future lease payments discounted at the rate implicit in the lease, if available, or the
applicable incremental borrowing rate. The incremental borrowing rate is determined at lease inception based on a number of factors
including asset type, lease currency and lease term. Lease payments include fixed payments and variable lease payments dependent
on an index or rate, initially measured using the index or rate at the commencement date. The lease term reflects any extension or
termination options that the Group is reasonably certain to exercise.
The lease liability is subsequently measured at amortised cost using the effective interest rate method, with interest on the lease
liability being recognised as a finance expense in the income statement. The lease liability is remeasured, with a corresponding
adjustment to the right of use asset, if there is a change in future lease payments, for example resulting from a rent review, change
in a rate/index or change in the Group’s assessment of whether it is reasonably certain to exercise an extension, termination or
purchase option.
the lease.
recognised in full.
The right of use asset is initially recorded at cost, being equal to the lease liability, adjusted for any initial direct costs, lease payments
made prior to commencement date, lease incentives received and any dilapidation costs. Depreciation of right of use assets is
recognised as an expense in the income statement on a straight-line basis over the shorter of the asset’s useful life or expected term of
Right of use assets arising from sale and leaseback transactions are measured at the proportion of the previous carrying amount of the
asset that relates to the right of use retained by the Group. Gains arising on sale and leaseback transactions are recognised to the
extent that they relate to the rights transferred to the buyer-lessor whilst losses arising on sale and leaseback transactions are
Right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable, with the impairment expense being recognised in the income statement. Where a lease is terminated early, any
termination fees or gain or loss relating to the release of right of use asset and lease obligation are recognised as a gain or loss through
Payments in respect of short-term leases not exceeding 12 months in duration or low-value leases are expensed straight line to the
the income statement.
income statement as permitted by IFRS 16, ‘Leases’.
The Group as lessor
As a lessor, the Group classifies lessor arrangements as finance or operating leases. Leases are classified as finance leases when the
terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases. All lessor arrangements in the Group meet the criteria for a finance lease.
Amounts due from lessees under a finance lease are held on the statement of financial position as a financial asset at an amount equal
to the Group’s net investment in the lease. The finance lease payments received are treated as finance income and a repayment of
principal including initial direct costs. Finance income is allocated over the lease term, with the gross receivable being reviewed for
impairment on a regular basis.
Inventory
Inventory is valued at the lower of cost and net realisable value, being the estimated selling price of the assets in the ordinary course of
business less estimated costs of completion and costs of sale. In the case of finished goods and work in progress, cost comprises direct
material and labour and an appropriate proportion of overheads.
Spare parts that are consumed in the sale of goods or in the rendering of services are classified as inventory.
Contingent liabilities
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence or non-
occurrence of uncertain future events outside the Group’s control, or a present obligation that is not recognised because it is not
probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably. The Group does
not recognise contingent liabilities. See note 31 for details of contingent liabilities.
Cash and cash equivalents
of three months or less and money market funds.
Group cash and cash equivalents consist of cash at bank and cash in hand, together with short-term deposits with an original maturity
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1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Taxation
(a) Current income tax
Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantively enacted by the reporting date.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the Company and its subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group
measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a
better prediction of the resolution of the uncertainty.
Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a
net basis, or to realise the asset and settle the liability simultaneously.
(b) Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial
recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects
neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that
have been enacted, or substantively enacted, by the reporting date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax assets are recognised where deferred tax liabilities exist and are expected to
reverse in the same period as the deferred tax asset or in periods into which a loss arising from a deferred tax asset can be carried
forward or back. In the absence of sufficient deferred tax liabilities, deferred tax assets are recognised where it is probable that there
will be future taxable profits from other sources against which a loss arising from the deferred tax asset can be offset. In assessing the
availability of future profits, the Group uses profit forecasts consistent with those used for goodwill impairment testing. Profits forecast
beyond the Group’s five-year budget cycle are risk-weighted to reflect commercial uncertainties.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and
where the deferred tax balances relate to the same taxation authority.
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in either other
comprehensive income or in equity.
Foreign currencies
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Sterling,
which is the Company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency of subsidiaries of the Group using the exchange rates
prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the
functional currency at the year-end exchange rates. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at exchange rates ruling at the reporting date of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement.
Exchange differences arising from the translation of the statement of financial positions and income statements of foreign operations
into Sterling are recognised as a separate component of equity on consolidation. Results of foreign operations are translated using the
average exchange rate for the month of the applicable results, the net assets translated at year-end exchange rates and equity held at
historic exchange rates. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of
the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at period-end exchange rates.
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Babcock International Group PLC Annual Report and Financial Statements 2022
173
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Finance costs
Finance costs are recognised as an expense in the period in which they are incurred unless they are attributable to an asset under
construction, in which case finance costs are capitalised.
Finance income
Finance income is recognised in the period to which it relates using the effective interest rate method.
Employee benefits
(a) Pension obligations
The Group operates a number of pension schemes. The schemes are generally funded through payments to trustee-administered
funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans. A defined
benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under
which the Group pays fixed contributions into a separate entity.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial valuation
method. The service cost and associated administration costs of the Group’s pension schemes are charged to operating profit.
In addition, a retirement benefit interest charge on the net pension deficit or interest credit on the net pension surplus is included in
the income statement as a finance cost or finance income, respectively. Actuarial gains and losses are recognised directly in equity
through the statement of comprehensive income so that the Group’s statement of financial position reflects the IAS 19 measurement
of the schemes’ surpluses or deficits at the reporting date.
(b) Share-based compensation
The Group operates equity-settled, share-based compensation plans. The economic cost of awarding shares and share options to
employees is recognised as an expense in the income statement equivalent to the fair value of the benefit awarded. The fair value
is determined by reference to option pricing models. The charge is recognised in the income statement over the vesting period of
the award.
The shares purchased by the Group’s Employee Stock Ownership Plan (ESOP) trusts are recognised as a deduction to equity. Dividends
paid on these shares are accounted for as a deduction to equity.
(c) Holiday pay
Paid holidays are regarded as an employee benefit and as such are charged to the income statement as the benefits are earned.
Financial instruments
(a) Financial assets and liabilities at amortised cost
Cash and cash equivalents, trade receivables, amounts due from related parties and other debtors are classified as financial assets held
at amortised cost as they are held within a business model to collect contractual cash flows and these cash flows consist solely of
payments of principal and interest on the principal amount outstanding. Trade receivables, contract assets and lease receivables
include a provision for expected credit losses. The Group measures the provision at an amount equal to lifetime expected credit losses,
estimated by reference to past experience and relevant forward-looking factors. For all other financial assets carried at amortised cost,
including loans to joint ventures and associates and other debtors, the Group measures the provision at an amount equal to 12-month
expected credit losses. See note 24 for further information on how the Group assesses credit risk.
Trade creditors, amounts due to related parties, other creditors, accruals and bank loans and overdrafts are classified as financial
liabilities held at amortised cost.
(b) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into and are subsequently remeasured at fair value.
The Group designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised assets or
liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that qualify as cash flow hedges, fair value gains or losses are deferred in equity until the underlying transaction is
recognised.
Interest Rate Benchmark Reform
In the current year, the Group adopted the Phase 2 amendments Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the Group to reflect the effects of transitioning from interbank offered
rates (IBOR) to alternative benchmark interest rates without giving rise to accounting impacts that would not provide useful
information to users of financial statements.
Both the Phase 1 and Phase 2 amendments are relevant as the Group applies hedge accounting to its interest rate benchmark
exposures. Details of the derivative and non-derivative financial instruments affected by the interest rate benchmark reform together
with a summary of the actions taken by the Group to manage the risks relating to the reform and the accounting impact, including the
impact on hedge accounting relationships, appear in note 24.
174
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Finance costs
Finance costs are recognised as an expense in the period in which they are incurred unless they are attributable to an asset under
construction, in which case finance costs are capitalised.
Finance income is recognised in the period to which it relates using the effective interest rate method.
Finance income
Employee benefits
(a) Pension obligations
The Group operates a number of pension schemes. The schemes are generally funded through payments to trustee-administered
funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans. A defined
benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under
which the Group pays fixed contributions into a separate entity.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial valuation
method. The service cost and associated administration costs of the Group’s pension schemes are charged to operating profit.
In addition, a retirement benefit interest charge on the net pension deficit or interest credit on the net pension surplus is included in
the income statement as a finance cost or finance income, respectively. Actuarial gains and losses are recognised directly in equity
through the statement of comprehensive income so that the Group’s statement of financial position reflects the IAS 19 measurement
of the schemes’ surpluses or deficits at the reporting date.
(b) Share-based compensation
The Group operates equity-settled, share-based compensation plans. The economic cost of awarding shares and share options to
employees is recognised as an expense in the income statement equivalent to the fair value of the benefit awarded. The fair value
is determined by reference to option pricing models. The charge is recognised in the income statement over the vesting period of
the award.
(c) Holiday pay
The shares purchased by the Group’s Employee Stock Ownership Plan (ESOP) trusts are recognised as a deduction to equity. Dividends
paid on these shares are accounted for as a deduction to equity.
Paid holidays are regarded as an employee benefit and as such are charged to the income statement as the benefits are earned.
Financial instruments
(a) Financial assets and liabilities at amortised cost
Cash and cash equivalents, trade receivables, amounts due from related parties and other debtors are classified as financial assets held
at amortised cost as they are held within a business model to collect contractual cash flows and these cash flows consist solely of
payments of principal and interest on the principal amount outstanding. Trade receivables, contract assets and lease receivables
include a provision for expected credit losses. The Group measures the provision at an amount equal to lifetime expected credit losses,
estimated by reference to past experience and relevant forward-looking factors. For all other financial assets carried at amortised cost,
including loans to joint ventures and associates and other debtors, the Group measures the provision at an amount equal to 12-month
expected credit losses. See note 24 for further information on how the Group assesses credit risk.
Trade creditors, amounts due to related parties, other creditors, accruals and bank loans and overdrafts are classified as financial
liabilities held at amortised cost.
(b) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into and are subsequently remeasured at fair value.
The Group designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised assets or
liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that qualify as cash flow hedges, fair value gains or losses are deferred in equity until the underlying transaction is
recognised.
Interest Rate Benchmark Reform
In the current year, the Group adopted the Phase 2 amendments Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the Group to reflect the effects of transitioning from interbank offered
rates (IBOR) to alternative benchmark interest rates without giving rise to accounting impacts that would not provide useful
information to users of financial statements.
Both the Phase 1 and Phase 2 amendments are relevant as the Group applies hedge accounting to its interest rate benchmark
exposures. Details of the derivative and non-derivative financial instruments affected by the interest rate benchmark reform together
with a summary of the actions taken by the Group to manage the risks relating to the reform and the accounting impact, including the
impact on hedge accounting relationships, appear in note 24.
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1. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
Financial instruments (continued)
Interest Rate Benchmark Reform (continued)
The amendments are relevant for the following types of hedging relationships and financial instruments of the Group:
• Fair value hedges where IBOR-linked derivatives are designated as a fair value hedge of debt; and
• Cash flow hedges where IBOR-linked derivatives are designated as a cash flow hedge.
As a result of the Phase 2 amendments:
• If the contractual terms of the Group’s bank borrowings are amended as a direct consequence of the interest rate benchmark
reform and the new basis for determining the contractual cash flows is economically equivalent to the basis immediately
preceding the change, the Group changes the basis for determining the contractual cash flows prospectively by revising the
effective interest rate.
• If a lease is modified as a direct consequence of the interest rate benchmark reform and the new basis for determining the lease
payments is economically equivalent to the previous basis, the Group remeasures the lease liability to reflect the revised lease
payments discounted using a revised discount rate that reflects the change in the basis for determining the contractual cash flows.
• If changes are made to the hedging instruments, hedged item and hedged risk as a result of the interest rate benchmark reform, the
Group updates the hedge documentation without discontinuing the hedging relationship and, in the case of a cash flow hedge, the
amount accumulated in the cash flow hedge reserve is deemed to be based on Sterling Overnight Interest Average (‘SONIA’).
Fair value measurement
The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the year-end date. Fair value measurements are used on a recurring basis except where
used in the acquisition of assets and liabilities through a business combination.
The fair values of derivative financial instruments are determined by the use of valuation techniques based on assumptions that are
supported by observable market prices or rates. The fair values of non-financial assets and liabilities are based on observable market
prices or rates (SOIA).
The carrying values of financial assets and liabilities which are not held at fair value in the Group balance sheet are assumed to
approximate to fair value due to their short-term nature, with the exception of fixed rate bonds.
There have been no changes to the valuation techniques used during the year.
Debt factoring
The Group engages in factoring of trade receivables in relation to certain non-UK operations of its Aviation sector as part of its working
capital management arrangements. Under these arrangements, the Group transfers the rights to receive factored receivables to the
factor in exchange for cash. The Group does not retain late payment or credit risk, and therefore trade receivables are not recognised
under the applicable contracts. Any cash received from customers under these contracts is received as agent and transferred directly
to the counterparty.
Supply chain financing
Suppliers can choose to access supplier financing arrangements provided by different third-party banks in different countries.
Commercial requirements, including payment terms or the price paid for goods, do not depend on whether a supplier chooses to
access such arrangements. Under the arrangements, suppliers may choose to access payment early rather than on our normal
payment terms, at a funding cost to the supplier that is set by the factoring agent. Management reviews supplier financing
arrangements to determine the appropriate presentation of balances outstanding as trade payables or borrowings, dependent on the
nature of each arrangement. Factors considered in determining the appropriate presentation include the commercial rationale for the
arrangement, impact on the Group’s working capital positions, credit enhancements or other benefits provided to the bank and
recourse exposures.
Dividends
Dividends are recognised as a liability in the Group’s financial statements in the period in which they are approved. Interim dividends
are recognised when paid.
Identification of prior year restatements
The results of the Group have been restated where practicable by retrospectively restating the Group’s prior period results for the
affected periods. Any restatements identified relating to reporting periods before 1 April 2020 have been corrected by cumulatively
restating the impacted balance sheet line item, including retained earnings, at 1 April 2020.
Changes in accounting policies
Management implemented one change in accounting policy during the year ended 31 March 2022. See note 3 for further details.
Changes in presentation
The Group changed the presentation of the Group statement of financial position to disaggregate lease receivables, trade and other
receivables, contract assets, trade and other payables and contract liabilities.
174
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Babcock International Group PLC Annual Report and Financial Statements 2022
175
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting items
The Group provides alternative performance measures, including underlying operating profit, to enable users to better understand the
performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business
performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and
decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in
analysing business performance.
The Group’s alternative performance measures are not defined by IFRS and are therefore considered to be non-GAAP measures. The
measures may not be comparable to similar measures used by other companies and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group’s alternative performance measures are consistent with the year ended 31
March 2021.
Underlying operating profit
Underlying operating profit excludes certain specific adjusting items that distort the reporting of underlying business performance
measures if they are not adjusted for. Underlying operating profit eliminates potential differences in performance caused by purchase
price allocations on business combinations in prior periods (amortisation of acquired intangibles), business acquisition, merger and
divestment related items and large, infrequent restructuring programmes. Transactions such as these may happen regularly and could
be lumpy and may be profits or losses.
For the year ended 31 March 2022, the Group has amended its definition of specific adjusting items to include the fair value
gain/(loss) on forward rate contracts used to hedge the operational activity of the Group. The fair value movement on these items is
driven by external economic variables and not the operational activity of the Group, as such they may distort the reporting of
underlying business performance measures if they are not adjusted for. On maturity, the final gain/loss on the forward rate contracts
will be included in cost of revenue or administration and distribution costs, depending on the nature of the item being hedged.
Specific adjusting items include:
• Amortisation of acquired intangibles;
• Business acquisition, merger and divestment related items (being amounts related to corporate transactions and gains or losses on
disposal of assets or businesses);
• Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography, including closure costs,
severance costs, the disposal of assets and termination of leases;
• The costs of large restructuring programmes that significantly exceed the minor restructuring which occurs in most years as part of
normal operations. Restructuring costs incurred as a result of normal operations are included in operating costs and are not
excluded from underlying operating profit;
• Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes;
• Fair value gain/(loss) on open forward rate contracts; and
• Exceptional items that are significant, non-recurring and outside of the normal operating practice. These items are described as
exceptional in order to appropriately represent the Group’s underlying business performance. Exceptional items are set out in the
Exceptional items section below.
Income statement including underlying results
Revenue
Operating profit/(loss)
Other income
Share of results of joint ventures and
associates
Investment income
Other net finance costs
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) after tax for the year
Note
4
4,5
16
6
6
8
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Underlying
£m
4,101.8
Specific
adjusting items
£m
–
Statutory
£m
4,101.8
Underlying
£m
3,971.6
Specific
adjusting items
£m
–
Statutory
£m
3,971.6
237.7
6.2
20.1
0.8
(62.0)
202.8
(43.9)
158.9
(10.9)
–
–
–
(9.6)
(20.5)
29.5
9.0
226.8
6.2
20.1
0.8
(71.6)
182.3
(14.4)
167.9
(27.9)
–
(1,708.8)
–
(1,736.7)
–
(13.1)
0.9
(62.1)
(102.2)
(21.8)
(124.0)
–
–
–
(1,708.8)
29.8
(1,679.0)
(13.1)
0.9
(62.1)
(1,811.0)
8.0
(1,803.0)
176
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting items
The Group provides alternative performance measures, including underlying operating profit, to enable users to better understand the
performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business
performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and
decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in
analysing business performance.
The Group’s alternative performance measures are not defined by IFRS and are therefore considered to be non-GAAP measures. The
measures may not be comparable to similar measures used by other companies and they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The Group’s alternative performance measures are consistent with the year ended 31
March 2021.
Underlying operating profit
Underlying operating profit excludes certain specific adjusting items that distort the reporting of underlying business performance
measures if they are not adjusted for. Underlying operating profit eliminates potential differences in performance caused by purchase
price allocations on business combinations in prior periods (amortisation of acquired intangibles), business acquisition, merger and
divestment related items and large, infrequent restructuring programmes. Transactions such as these may happen regularly and could
be lumpy and may be profits or losses.
For the year ended 31 March 2022, the Group has amended its definition of specific adjusting items to include the fair value
gain/(loss) on forward rate contracts used to hedge the operational activity of the Group. The fair value movement on these items is
driven by external economic variables and not the operational activity of the Group, as such they may distort the reporting of
underlying business performance measures if they are not adjusted for. On maturity, the final gain/loss on the forward rate contracts
will be included in cost of revenue or administration and distribution costs, depending on the nature of the item being hedged.
Specific adjusting items include:
• Amortisation of acquired intangibles;
disposal of assets or businesses);
• Business acquisition, merger and divestment related items (being amounts related to corporate transactions and gains or losses on
• Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography, including closure costs,
severance costs, the disposal of assets and termination of leases;
• The costs of large restructuring programmes that significantly exceed the minor restructuring which occurs in most years as part of
normal operations. Restructuring costs incurred as a result of normal operations are included in operating costs and are not
excluded from underlying operating profit;
• Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes;
• Fair value gain/(loss) on open forward rate contracts; and
• Exceptional items that are significant, non-recurring and outside of the normal operating practice. These items are described as
exceptional in order to appropriately represent the Group’s underlying business performance. Exceptional items are set out in the
Exceptional items section below.
Income statement including underlying results
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Underlying
adjusting items
Specific
£m
4,101.8
Statutory
£m
4,101.8
£m
3,971.6
Underlying
adjusting items
Specific
£m
–
Statutory
£m
3,971.6
(10.9)
(27.9)
(1,708.8)
(1,736.7)
Revenue
Operating profit/(loss)
Other income
associates
Investment income
Other net finance costs
Profit/(loss) before tax
Share of results of joint ventures and
Income tax (expense)/benefit
Profit/(loss) after tax for the year
Note
4
4,5
16
6
6
8
£m
–
–
–
–
(9.6)
(20.5)
29.5
9.0
226.8
6.2
20.1
0.8
(71.6)
182.3
(14.4)
167.9
237.7
6.2
20.1
0.8
(62.0)
202.8
(43.9)
158.9
–
(13.1)
0.9
(62.1)
–
–
–
–
–
(13.1)
0.9
(62.1)
(102.2)
(1,708.8)
(1,811.0)
(21.8)
29.8
8.0
(124.0)
(1,679.0)
(1,803.0)
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2. Adjustments between statutory and underlying information (continued)
Earnings per share including underlying measures
Profit/(loss) after tax for the year
Amount attributable to owners of the parent
Amount attributable to non-
controlling interests
Weighted average number of shares (m)
Effect of dilutive securities (m)
Diluted weighted average number
of shares (m)
Basic EPS
Diluted EPS
Details of specific adjusting items
The impact of specific adjusting items is set out below:
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Underlying
£m
158.9
155.2
Specific
adjusting items
£m
9.0
9.0
Statutory
£m
167.9
164.2
Underlying
£m
(124.0)
(124.0)
Specific
adjusting items
£m
(1,679.0)
(1,679.0)
Statutory
£m
(1,803.0)
(1,803.0)
3.7
–
3.7
–
–
–
505.1
6.1
511.2
30.7p
30.4p
505.1
6.1
505.0
4.0
511.2
509.0
32.5p
32.1p
(24.6)p
(24.6)p
505.0
4.0
509.0
(357.0)p
(357.0)p
Amortisation of acquired intangibles
Business acquisition, merger and divestment related items
Gains, losses and costs directly arising from withdrawal from a specific market or geography
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes
Restructuring
Fair value loss on forward rate contracts
Exceptional items
Loss before tax
Income tax benefit
Amortisation of acquired intangibles
Gains, losses and costs directly arising from withdrawal from a specific market or geography
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes
Restructuring
Fair value loss on forward rate contracts
Exceptional tax items and tax on exceptional items
Income tax benefit
Year ended
31 March 2022
£m
(21.4)
163.1
–
–
(33.8)
(9.6)
(118.8)
(20.5)
Year ended
31 March 2021
£m
(40.2)
(49.7)
(11.1)
(8.9)
(8.4)
–
(1,590.5)
(1,708.8)
5.5
–
–
6.5
2.5
15.0
29.5
8.2
1.0
1.7
0.5
–
18.4
29.8
176
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
177
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
2. Adjustments between statutory and underlying information (continued)
Explanation of specific adjusting items
Amortisation of acquired intangibles
Underlying operating profit excludes the amortisation of acquired intangibles. This item is excluded from underlying results as it arises
as a result of purchase price allocations on business combinations, and is a non-cash item which does not change each year dependent
on the performance of the business. It is therefore not considered to represent the underlying activity of the Group and is removed to
aid comparability with peers who have grown organically as opposed to through acquisition. Intangible assets arising as a result of the
purchase price allocation on business combinations include customer lists, technology-based assets, order book and trade names.
Amortisation of internally generated intangible assets is included within underlying operating profit.
Business acquisition, merger and divestment related items
Transaction related costs and gains or losses on acquisitions, mergers and divestments of businesses are excluded from underlying
operating profit as business combinations and divestments are not considered to result from underlying business performance.
The total net gain relating to business acquisition, merger and divestment related items was £163.1 million. This comprised of £172.8
million profit resulting from acquisitions and disposals completed in the year offset by £9.7 million of costs incurred in relation to the
Group’s divestment programme for disposals that had not completed at 31 March 2022. The profit resulting from acquisitions and
disposals completed in the year included a £140.4 million gain on disposal of the Oil and Gas business, Frazer-Nash Consultancy,
Power and AirTanker Holdings Limited, plus a gain on acquisition on Naval Ship Management (Australia) Pty Limited of £32.4 million, as
detailed in note 29.
The prior year included a total net loss of £49.7 million, consisting of a £38.2 million loss on disposal of the Group’s share in the
Holdfast joint venture and losses arising on disposal of subsidiary undertakings of £0.6 million for Cavendish Nuclear Manufacturing
Limited and £10.9 million for Conbras Servicos Tecnicos de Suporte Ltda.
Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography
In the prior year the Group ceased its Airport baggage handling contract, incurring costs of £4.2 million. Further costs were incurred in
relation to exits in the previous financial year from the oil and gas business in Congo (£3.6 million), the overseas Powerlines business
(£1.4 million) and certain Rail related contracts (£1.9 million).
Restructuring
The Group has incurred £36.8 million of restructuring costs in relation to the implementation of the new operating model announced
and implemented during the year ended 31 March 2022. This has been offset by the release of £3.0 million of restructuring provisions
created in previous years that were classified as exceptional but are no longer needed.
In the prior period, the Group incurred a restructuring charge of £9.3 million. This was offset by the release of £0.9 million of unused
provision from prior year restructuring costs in the Nuclear and Land sectors.
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes.
In the prior year, the Group incurred a curtailment charge of £7.5 million in relation to the closure of the Rosyth defined benefit
pension scheme to future accrual. A charge of £1.4 million was incurred following a court ruling in November 2020 regarding
equalisation of pension rights.
Exceptional items
Exceptional items are those items which are significant, non-recurring and outside the normal operating practice of the Group.
Operating costs
Impairment of goodwill
Impairment of acquired intangibles
Impairment of internally generated intangible assets
Impairment of property, plant and equipment and aircraft fleet rationalisation
Impairment of right of use assets
Release of onerous contract provisions
Release of provisions relating to the Italy fine and related costs
Other
Exceptional items – Group
Exceptional tax items and tax on exceptional items
Exceptional items – net of tax
Year ended
31 March 2022
£m
Year ended
31 March 2021
£m
(7.2)
(57.6)
–
(58.8)
–
1.8
3.6
(0.6)
(118.8)
15.0
(103.8)
(1,336.6)
(56.4)
(32.7)
(142.6)
(46.4)
–
24.2
–
(1,590.5)
18.4
(1,572.1)
178
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
2. Adjustments between statutory and underlying information (continued)
Explanation of specific adjusting items
Amortisation of acquired intangibles
Underlying operating profit excludes the amortisation of acquired intangibles. This item is excluded from underlying results as it arises
as a result of purchase price allocations on business combinations, and is a non-cash item which does not change each year dependent
on the performance of the business. It is therefore not considered to represent the underlying activity of the Group and is removed to
aid comparability with peers who have grown organically as opposed to through acquisition. Intangible assets arising as a result of the
purchase price allocation on business combinations include customer lists, technology-based assets, order book and trade names.
Amortisation of internally generated intangible assets is included within underlying operating profit.
Business acquisition, merger and divestment related items
Transaction related costs and gains or losses on acquisitions, mergers and divestments of businesses are excluded from underlying
operating profit as business combinations and divestments are not considered to result from underlying business performance.
The total net gain relating to business acquisition, merger and divestment related items was £163.1 million. This comprised of £172.8
million profit resulting from acquisitions and disposals completed in the year offset by £9.7 million of costs incurred in relation to the
Group’s divestment programme for disposals that had not completed at 31 March 2022. The profit resulting from acquisitions and
disposals completed in the year included a £140.4 million gain on disposal of the Oil and Gas business, Frazer-Nash Consultancy,
Power and AirTanker Holdings Limited, plus a gain on acquisition on Naval Ship Management (Australia) Pty Limited of £32.4 million, as
detailed in note 29.
The prior year included a total net loss of £49.7 million, consisting of a £38.2 million loss on disposal of the Group’s share in the
Holdfast joint venture and losses arising on disposal of subsidiary undertakings of £0.6 million for Cavendish Nuclear Manufacturing
Limited and £10.9 million for Conbras Servicos Tecnicos de Suporte Ltda.
Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography
In the prior year the Group ceased its Airport baggage handling contract, incurring costs of £4.2 million. Further costs were incurred in
relation to exits in the previous financial year from the oil and gas business in Congo (£3.6 million), the overseas Powerlines business
(£1.4 million) and certain Rail related contracts (£1.9 million).
Restructuring
The Group has incurred £36.8 million of restructuring costs in relation to the implementation of the new operating model announced
and implemented during the year ended 31 March 2022. This has been offset by the release of £3.0 million of restructuring provisions
created in previous years that were classified as exceptional but are no longer needed.
In the prior period, the Group incurred a restructuring charge of £9.3 million. This was offset by the release of £0.9 million of unused
provision from prior year restructuring costs in the Nuclear and Land sectors.
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes.
In the prior year, the Group incurred a curtailment charge of £7.5 million in relation to the closure of the Rosyth defined benefit
pension scheme to future accrual. A charge of £1.4 million was incurred following a court ruling in November 2020 regarding
equalisation of pension rights.
Exceptional items
Exceptional items are those items which are significant, non-recurring and outside the normal operating practice of the Group.
Operating costs
Impairment of goodwill
Impairment of acquired intangibles
Impairment of internally generated intangible assets
Impairment of property, plant and equipment and aircraft fleet rationalisation
Impairment of right of use assets
Release of onerous contract provisions
Release of provisions relating to the Italy fine and related costs
Other
Exceptional items – Group
Exceptional tax items and tax on exceptional items
Exceptional items – net of tax
Year ended
Year ended
31 March 2022
31 March 2021
£m
£m
(7.2)
(1,336.6)
(57.6)
(58.8)
–
–
1.8
3.6
(0.6)
(56.4)
(32.7)
(142.6)
(46.4)
24.2
–
–
(118.8)
(1,590.5)
15.0
18.4
(103.8)
(1,572.1)
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2. Adjustments between statutory and underlying information (continued)
Explanation of exceptional items
Impairment of goodwill
The Group has recorded a goodwill impairment of £7.2 million in the Aviation operating segment, due to changes in the forecast
future business performance informed by the Group’s disposal programme. This change has impacted on the ability of the Aviation
operating segment to share assets, capability and management across the entire contract and asset base. Previously, assets were
shared cross-sector, however during the year ended 31 March 2022 management reduced the sharing of assets to a country level,
which has resulted in a reduced value-in-use. Further detail is included in note 12.
The prior year impairment test resulted in an impairment of the Land operating segment goodwill of £437.4 million, the Aviation
operating segment goodwill of £890.3 million and the goodwill allocated to the Aviation oil and gas business CGU of £8.9 million.
Impairment of acquired intangibles
The Group has recorded an impairment of acquired intangibles of £57.6 million in the Aviation operating segment, due to changes in
the forecast future business performance informed by the Group’s disposal programme. This change has impacted on the ability of the
Aviation operating segment to share assets, capability and management across the entire contract and asset base. Previously, assets
were shared cross-sector, however during the year ended 31 March 2022 management reduced the sharing of assets to a country
level, which has resulted in a reduced value-in-use. Further detail is included in note 13.
In prior year, the Land operating segment impaired an acquired intangible in relation to the DSG contract.
Impairment of internally generated intangible assets
In the prior year, impairment charges of £32.7 million were recorded on mainly software assets.
Impairment of property, plant and equipment and aircraft fleet rationalisation
The Group has recorded an impairment of property, plant and equipment of £58.8 million in the Aviation operating segment, due to
changes in the forecast future business performance informed by the Group’s disposal programme. This change has impacted on the
ability of the Aviation operating segment to share assets, capability and management across the entire contract and asset base.
Previously, assets were shared cross-sector, however during the year ended 31 March 2022 management reduced the sharing of
assets to a country level, which has resulted in a reduced value-in-use. Further detail is included in note 14.
In the prior year, an impairment charge of £113.3 million was recorded on property, plant and equipment. This charge included the
results of a major aircraft fleet rationalisation programme which resulted in a refreshed fleet strategy and the identification of surplus
aircraft. Impairments were recorded on surplus aircraft and as the result of value-in-use tests. Losses on disposal were incurred on
aircraft disposed of during the year. In addition, we carried out an aircraft rationalisation programme which resulted in asset
impairments and crystallisation of losses on disposal of surplus aircraft of £29.3 million.
Impairment of right of use assets
In prior year, following a review of carrying amounts, a total impairment charge of £46.4 million was recorded in relation to the
Group’s right of use assets. This included impairments of aircraft supporting oil and gas and emergency services contracts and the
impairment of assets directly attributable to the Group’s DSG contract.
Onerous contracts
In the year ended 31 March 2022, the Group released an onerous contract provision that was no longer required and was previously
classified as exceptional, which totalled £1.8 million.
Italy fine
In the year ended 31 March 2020, the Lazio Regional Administrative Court confirmed a €51 million fine issued by the Italian
Competition Authority to our subsidiary, Babcock Mission Critical Services Italia SpA (BMCS Italia), for certain anti-trust violations. As a
result, the Group recognised a provision of £47.3 million.
In the year ended 31 March 2021, BMCS Italia appealed the decision of the Court to the Italian Council of State. In July 2021, the
Council, whilst upholding the decision of the Court on the facts, annulled the fine, though allowing the Authority leave to re-calculate
it. Taking into account the guidance given by the Council to the Authority on the recalculation, the Group expected the Authority to
reduce the fine and reduced the provision to £20 million as at 31 March 2021.
In February 2022 management received notice that the fine had been set at €18 million, which was subsequently paid by the Group.
This has resulted in the release of unused provision of £3.6 million.
Tax
Tax includes tax on exceptional items (£13.1 million credit), tax recorded in the year relating to Specific Adjusting Items in prior
periods (£1.0 million charge) and a credit arising from the impact on the Group’s deferred tax asset of the increase in the UK rate of
corporation tax to 25% with effect from 1 April 2023 (£2.9 million).
178
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
179
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. Prior year restatements
In the year ended 31 March 2022, the Group restated the prior year financial information. The impact of these restatements on
underlying operating profit for the year ended 31 March 2021 was £0.3 million. The restatements are summarised below:
Impact on the income statement for the year ended 31 March 2021
Group income statement
Revenue
Cost of revenue
Administration and distribution expenses
Goodwill impairment
Loss on divestments
Share of results of joint ventures and associates
Finance income
Finance costs
Loss before tax
Income tax benefit
Loss for the period
Impact on basic earnings per share (pence)
Impact on diluted earnings per share (pence)
Year ended
31 March 2021
(previously
published)
4,182.7
(4,156.6)
(376.2)
(1,243.2)
(49.7)
(13.1)
16.6
(77.8)
(1,717.3)
15.3
(1,702.0)
(337.0)p
(337.0)p
(i) Principal versus
agent assessment
(vi) Goodwill
impairment
(vii) Taxation
contract asset
(viii) Land
(ix) Software-
as-a-service
Year ended
31 March 2021
(restated)
(211.1)
211.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(81.8)
–
–
–
–
(81.8)
–
(81.8)
(16.2)p
(16.2)p
–
–
–
–
–
–
–
–
–
(7.3)
(7.3)
(1.4)p
(1.4)p
–
–
–
(11.6)
–
–
–
–
(11.6)
–
(11.6)
(2.3)p
(2.3)p
–
–
(0.3)
–
–
–
–
–
3,971.6
(3,945.5)
(376.5)
(1,336.6)
(49.7)
(13.1)
16.6
(77.8)
(0.3)
(1,811.0)
–
(0.3)
(0.1)p
(0.1)p
8.0
(1,803.0)
(357.0)p
(357.0)p
Year ended 31 March 2021 – Group statement of other comprehensive income (extract)
The table below shows the impact of the prior year restatements on the statement of other comprehensive income.
Other comprehensive income/(loss)
Remeasurement of retirement benefit obligations
Tax, including rate change impact, on remeasurement of retirement benefit obligations
Year ended
31 March 2021
(previously published)
(ii) Pensions
Year ended
31 March 2021
(restated)
(506.8)
96.3
61.2
(11.6)
(445.6)
84.7
180
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. Prior year restatements
In the year ended 31 March 2022, the Group restated the prior year financial information. The impact of these restatements on
underlying operating profit for the year ended 31 March 2021 was £0.3 million. The restatements are summarised below:
Impact on the income statement for the year ended 31 March 2021
Year ended
31 March 2021
(previously
published)
(i) Principal versus
agent assessment
(vi) Goodwill
impairment
(viii) Land
(ix) Software-
31 March 2021
Year ended
(vii) Taxation
contract asset
as-a-service
(restated)
Group income statement
Revenue
Cost of revenue
Administration and distribution expenses
Share of results of joint ventures and associates
Goodwill impairment
Loss on divestments
Finance income
Finance costs
Loss before tax
Income tax benefit
Loss for the period
Impact on basic earnings per share (pence)
Impact on diluted earnings per share (pence)
(81.8)
(11.6)
4,182.7
(4,156.6)
(376.2)
(1,243.2)
(49.7)
(13.1)
16.6
(77.8)
(1,717.3)
15.3
(1,702.0)
(337.0)p
(337.0)p
(211.1)
211.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(81.8)
(81.8)
(16.2)p
(16.2)p
–
–
–
–
–
–
–
–
–
(7.3)
(7.3)
(1.4)p
(1.4)p
–
–
–
–
–
–
–
–
(0.3)
–
–
–
–
–
–
–
–
3,971.6
(3,945.5)
(376.5)
(1,336.6)
(49.7)
(13.1)
16.6
(77.8)
8.0
(1,803.0)
(357.0)p
(357.0)p
(11.6)
(0.3)
(1,811.0)
(11.6)
(2.3)p
(2.3)p
(0.3)
(0.1)p
(0.1)p
Year ended 31 March 2021 – Group statement of other comprehensive income (extract)
The table below shows the impact of the prior year restatements on the statement of other comprehensive income.
Other comprehensive income/(loss)
Remeasurement of retirement benefit obligations
Tax, including rate change impact, on remeasurement of retirement benefit obligations
Year ended
31 March 2021
(previously published)
(ii) Pensions
Year ended
31 March 2021
(restated)
(506.8)
96.3
61.2
(11.6)
(445.6)
84.7
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
3. Prior year restatements (continued)
1 April 2020 – Group statement of financial position (extract)
1 April 2020
(previously
published)
(ii) Pensions
(iii) Cross
currency
interest rate
swap valuation
(iv) Hedging
(v) Balance sheet
reclassification
(vi) Goodwill
impairment
(viii) Land
contract asset
(ix) Software-
as-a-service
1 April 2020
(restated)
Assets
Non-current assets
Goodwill
Other intangible assets
Retirement benefit surpluses
Deferred tax asset
Trade and other receivables
2,287.9
334.7
325.3
60.5
–
–
–
(26.9)
8.9
–
Total non-current assets*
4,703.1
(18.0)
Current assets
Trade and other receivables
Contract assets
Total current assets*
Liabilities
Non-current liabilities
Bank and other borrowings
Derivatives
Retirement benefit deficits
Total non-current liabilities*
Equity
Capital redemption and other reserves
Retained earnings
Total equity*
506.6
330.8
3,086.0
(2,050.0)
(35.6)
(180.1)
(2,882.7)
(642.6)
(480.1)
(2,314.8)
–
–
–
–
–
(20.1)
(20.1)
–
38.1
38.1
–
–
–
–
–
–
–
–
–
(5.0)
0.1
–
(4.9)
(11.3)
16.2
4.9
–
–
–
–
–
–
–
–
–
–
–
–
–
(16.9)
16.9
–
–
–
–
–
25.9
25.9
(25.9)
–
(25.9)
–
–
–
–
–
–
–
81.8
11.6
–
2,381.3
–
–
–
–
–
–
–
–
(1.8)
–
–
–
332.9
298.4
69.4
25.9
81.8
11.6
(1.8)
4,802.6
–
–
–
–
–
–
–
–
(81.8)
(81.8)
–
(11.6)
(11.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.8
1.8
480.7
319.2
3,048.5
(2,055.0)
(35.5)
(200.2)
(2,907.7)
(670.8)
(488.9)
(2,351.8)
* The table above includes only those financial statement line items which have been restated. The total non-current assets, current assets, non-current liabilities,
and equity do not therefore represent the sum of the line items presented above.
180
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
181
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. Prior year restatements (continued)
31 March 2021 – Group statement of financial position (extract)
31 March 2021
(previously
published)
(ii) Pensions
(iii) Cross
currency
interest rate
swap valuation
(iv) Hedging
(v) Balance sheet
reclassification
(vii) Taxation
(viii) Land
contract asset
(ix) Software-
as-a-service
31 March 2021
(restated)
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Retirement benefit surpluses
Deferred tax asset
Trade and other receivables
956.3
202.0
731.5
521.2
40.8
141.3
–
Total non-current assets*
2,737.1
Current assets
Inventory
Trade and other receivables
Contract assets
Income tax recoverable
Total current assets*
Liabilities
Non-current liabilities
Bank and other borrowings
Derivatives
Retirement benefit deficits
162.4
462.4
278.6
48.4
1,891.5
(1,318.8)
(51.1)
(333.9)
Total non-current liabilities*
(2,273.3)
–
–
–
–
6.0
(2.7)
–
3.3
–
–
–
–
–
–
–
8.2
8.2
–
–
–
–
–
–
–
–
–
–
–
–
–
(5.0)
0.1
–
(4.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Equity
Capital redemption and other
reserves
Retained earnings
Total equity*
(680.1)
1,629.1
(243.4)
–
(11.5)
(11.5)
(11.3)
16.2
4.9
(16.9)
16.9
–
–
–
2.9
(2.9)
–
–
26.7
26.7
(9.4)
(26.7)
9.4
–
(26.7)
–
–
–
–
–
–
–
–
–
–
–
–
(8.9)
–
(8.9)
–
–
–
1.6
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11.6)
–
(11.6)
–
–
–
–
–
–
(2.1)
–
–
–
–
–
956.3
199.9
734.4
518.3
46.8
129.7
26.7
(2.1)
2,756.1
–
–
–
–
–
–
–
–
–
–
153.0
435.7
276.4
50.0
1,854.8
(1,323.8)
(51.0)
(325.7)
(2,270.0)
(708.3)
1,671.7
(229.0)
7.3
7.3
11.6
11.6
2.1
2.1
* The table above includes only those financial statement line items which have been restated. The total non-current assets, current assets, non-current liabilities,
and equity do not therefore represent the sum of the line items presented above.
182
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. Prior year restatements (continued)
31 March 2021 – Group statement of financial position (extract)
31 March 2021
(previously
published)
(iii) Cross
currency
interest rate
(ii) Pensions
swap valuation
(iv) Hedging
reclassification
(vii) Taxation
contract asset
as-a-service
(restated)
(v) Balance sheet
(viii) Land
(ix) Software-
31 March 2021
Total non-current assets*
2,737.1
(2.1)
2,756.1
Assets
Goodwill
Non-current assets
Other intangible assets
Property, plant and equipment
Right of use assets
Retirement benefit surpluses
Deferred tax asset
Trade and other receivables
Current assets
Inventory
Trade and other receivables
Contract assets
Income tax recoverable
Total current assets*
Liabilities
Non-current liabilities
Bank and other borrowings
Derivatives
Retirement benefit deficits
Capital redemption and other
Equity
reserves
Retained earnings
Total equity*
–
–
–
–
–
–
–
–
–
–
–
–
–
956.3
202.0
731.5
521.2
40.8
141.3
–
162.4
462.4
278.6
48.4
1,891.5
(1,318.8)
(51.1)
(333.9)
6.0
(2.7)
–
3.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.9
(2.9)
–
–
–
–
26.7
26.7
(9.4)
(26.7)
9.4
–
(26.7)
–
–
–
–
–
–
–
(8.9)
–
(8.9)
1.6
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11.6)
(11.6)
(2.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
956.3
199.9
734.4
518.3
46.8
129.7
26.7
153.0
435.7
276.4
50.0
1,854.8
(1,323.8)
(51.0)
(325.7)
(2,270.0)
(708.3)
1,671.7
(229.0)
(680.1)
1,629.1
(243.4)
–
(11.5)
(11.5)
(11.3)
16.2
4.9
(16.9)
16.9
7.3
7.3
11.6
11.6
2.1
2.1
* The table above includes only those financial statement line items which have been restated. The total non-current assets, current assets, non-current liabilities,
and equity do not therefore represent the sum of the line items presented above.
Total non-current liabilities*
(2,273.3)
(5.0)
0.1
–
(4.9)
8.2
8.2
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3. Prior year restatements (continued)
i. Principal versus agency assessment
The Group has re-examined the presentation of revenue and cost of revenue in relation to pass-through revenue on three of the
Group’s contracts. The Group had previously taken the judgement that it acted as a principal in these arrangements, informed by the
contractual terms and practical delivery of the contract to the customer. This approach was disclosed as a judgemental area in the
Annual Report for the year ended 31 March 2021. Following the transition to the Group’s new auditors, this has been further
considered and the Group has reassessed this judgement, which had always been a finely balanced one. This change of judgement,
and the resultant accounting policy, means that revenue and cost of revenue are now presented net for these contracts. Restatement
of the financial information in accordance with the new accounting policy results in a decrease in revenue and cost of revenue of
£211.1 million in the year ended 31 March 2021. There is no impact to reported profit or cash flow as a result of this adjustment.
ii. Pensions
Longevity swap valuation
The longevity swaps related to the three main Group pension schemes were previously valued in line with the collateral posted by
each scheme with their intermediary. This was deemed a proxy for fair value in line with IAS 19. Having considered valuations of a
notional replacement swap, or exit, we now believe the previous approach no longer accurately reflects fair value and so we have
changed our valuation approach accordingly. This restatement has reduced retirement benefit surpluses by £26.9 million, increased
deferred tax assets by £8.9 million, increased retirement benefit deficits by £20.1 million and decreased retained earnings by £38.1
million as at 1 April 2020. In the year ended 31 March 2021 there was a £5.9 million gain through the statement of other
comprehensive income resulting in a cumulative reduction to retirement benefit surpluses of £26.2 million, an increase to deferred
tax assets of £7.6 million, an increase to retirement benefit deficits of £13.6 million and an increase to retained earnings of £11.5
million as at 31 March 2021. There is no impact on the Group income statement. This change does not affect the technical provisions
assessed for those schemes during triennial valuations, their funding requirements, or the deficit recovery cash contributions agreed
with each scheme. There is no impact to earnings per share as a result of this restatement.
Allowance for the 2021 pension increases in the 31 March 2021 benefit obligation
Furthermore, a refinement in the calculation of the value of defined benefit obligation for the principal schemes now allows for the
inclusion of the actual known rate of the next pension increase, rather than using the longer-term assumed inflation rate of pension
increases. This approach was not appropriately followed in the year ended 31 March 2021. Application of the correct methodology at
31 March 2021 results in an increase to the retirement benefit surplus of £32.2 million, a decrease to deferred tax assets of £10.3
million and a decrease to the retirement benefit deficit of £21.8 million, due to actual inflation being lower than assumed long-term
inflation as at 31 March 2021.
Babcock Naval Services Pension Scheme (BNSPS)
The Group hosts the BNSPS (Babcock Naval Services Pension Scheme), which is underwritten by the previous principal employer, with a
full indemnity given by them to the Babcock Group. In the previous year a buy-in was undertaken and scheme assets and liabilities
were valued by reference to the premium paid, rather than valuing the obligation in accordance with IAS 19 with a corresponding
amount of plan assets. We have now adopted methodologies in line with IAS 19 ‘Employee Benefits’ and reflected this change as a
prior year restatement. There is no impact to net assets, given the underwritten nature, however scheme assets and liabilities are both
reduced by £121.6m as at 31 March 2021. De-risking continues in the scheme, supported by the previous principal employer, with a
buyout process expected to commence before the end of 2022, with no cost to the Group.
iii. Cross currency interest rate swaps
The Group uses cross currency interest rate swaps to manage foreign currency and interest rate risk. Further detail is included in
note 24.
During the year ended 31 March 2022 it was identified that the valuation methodology applied by the Group was not appropriate, as
it did not incorporate the impact of credit risk. Additionally, the hedge effectiveness assessment did not account for the difference in
timing between when the debt facility and derivative were entered into. Application of the appropriate valuation methodology and
hedge effectiveness has resulted in an increase to bank and other borrowings of £5.0 million, a decrease to other financial liabilities of
£0.1 million, an increase in the cash flow hedge reserve of £11.3 million and a decrease to retained earnings of £16.2 million.
iv. Hedging
In the year ended 31 March 2015 the Group disposed of its 50% ownership in the joint ventures Greenwich BSF SPV Limited and
Lewisham Schools for the Future. These joint ventures had a combined accumulated balance of £12.3 million in the cash flow hedge
reserve which was not eliminated when these joint ventures were disposed of. Furthermore, there is a balance of £4.6 million that has
incorrectly accumulated in the cash flow hedge reserve relating to the ALC joint venture. This restatement has resulted in a
reclassification from the cash flow hedge reserve to retained earnings of £16.9 million at 1 April 2020.
v. Balance sheet reclassifications
Inventory to contract assets
In the year ended 31 March 2022 it was identified that certain contract assets were incorrectly recognised as inventory. Reclassifying
these reduces inventory and increases contract assets by £9.4 million at 31 March 2021.
Non-current capitalised contract costs
Certain costs to obtain a contract and costs to fulfil a contract were capitalised as current when a portion of these balances should
have been capitalised as non-current, based on when the expense it expected to be realised in the income statement. This
restatement has resulted in £26.7 million at 31 March 2021 and £25.9 million at 1 April 2020 being reclassified to non-current.
182
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Babcock International Group PLC Annual Report and Financial Statements 2022
183
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. Prior year restatements (continued)
Right of use assets to property, plant and equipment
Additionally, in the year ended 31 March 2022 it was identified that leases which were purchased during the year ended 31 March
2021 were not reclassified from right of use assets to property, plant and equipment. Reclassifying these reduces right of use assets by
£2.9 million and increases property, plant and equipment by £2.9 million at 31 March 2021.
vi. Goodwill impairment
A prior year restatement has been identified in relation to the Aviation goodwill impairment for the year ended 31 March 2020 and
31 March 2021. An impairment of acquired intangibles identified through the contract profitability and balance sheet review was not
reflected in the carrying value used in the Aviation goodwill impairment assessment at 31 March 2020. This restatement results in an
increase of £81.8 million to the goodwill balance at 31 March 2020, a decrease of £81.8 million to the impairment charge for the
year ended 31 March 2020 and an increase of £81.8 million to the impairment charge for the year ended 31 March 2021. There is
no impact on goodwill or retained earnings at 31 March 2021.
vii. Taxation
During the year management identified that deferred tax balances recognised at 31 March 2021 were not recoverable. This
restatement has decreased the deferred tax asset balance by £8.9 million at 31 March 2021. There is also an increase to income tax
recoverable of £1.6 million at 31 March 2021.
viii. Land contract asset
Management have identified a restatement in relation to one of the Group’s contracts which reduces the contract asset and retained
earnings by £11.6 million at 1 April 2020 and 31 March 2021. This restatement reduces the carrying value of the Land operating
segment used in the impairment assessment at 1 April 2020 by £11.6 million, resulting in an increase to the goodwill balance at
1 April 2020 of £11.6 million. At 31 March 2021, the carrying value of the Land operating segment used in the impairment
assessment is increased by £11.6 million, resulting in an increase to the goodwill impairment charge for the year ended 31 March
2021 of £11.6 million. There is no impact on the goodwill balance at 31 March 2021 as a result of this restatement.
ix. Software-as-a-service
In April 2021 the IFRS Interpretations Committee (IFRIC) published an agenda decision which clarified how a customer should account
for the costs of configuring or customising the supplier’s application software in a Software-as-a-service arrangement.
The Group’s policy has historically been to capitalise configuration and customisation costs as an intangible asset, including costs
directly payable to the software provider, sub-contractor costs and related third-party costs. As a result of the IFRIC agenda decision
the Group reviewed its cloud computing arrangements and, for those arrangements where the Group does not control the underlying
software, the Group has derecognised the intangible asset previously capitalised. Application of this new policy accounting has
resulted in a reduction to other intangible assets of £1.8 million at 1 April 2020 and £2.1 million at 31 March 2021. There is an
increase to administration and distribution costs of £0.3 million for the year ended 31 March 2021.
The Group will continue to apply this accounting policy to new Software-as-a-service arrangements as we continue to upgrade and
standardise our IT environment. As this policy requires costs to be expensed as incurred, this may lead to a higher up-front charge to
the income statement in future years but will not impact on the Group’s cash flows.
184
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. Prior year restatements (continued)
Right of use assets to property, plant and equipment
Additionally, in the year ended 31 March 2022 it was identified that leases which were purchased during the year ended 31 March
2021 were not reclassified from right of use assets to property, plant and equipment. Reclassifying these reduces right of use assets by
£2.9 million and increases property, plant and equipment by £2.9 million at 31 March 2021.
vi. Goodwill impairment
A prior year restatement has been identified in relation to the Aviation goodwill impairment for the year ended 31 March 2020 and
31 March 2021. An impairment of acquired intangibles identified through the contract profitability and balance sheet review was not
reflected in the carrying value used in the Aviation goodwill impairment assessment at 31 March 2020. This restatement results in an
increase of £81.8 million to the goodwill balance at 31 March 2020, a decrease of £81.8 million to the impairment charge for the
year ended 31 March 2020 and an increase of £81.8 million to the impairment charge for the year ended 31 March 2021. There is
During the year management identified that deferred tax balances recognised at 31 March 2021 were not recoverable. This
restatement has decreased the deferred tax asset balance by £8.9 million at 31 March 2021. There is also an increase to income tax
no impact on goodwill or retained earnings at 31 March 2021.
vii. Taxation
recoverable of £1.6 million at 31 March 2021.
viii. Land contract asset
Management have identified a restatement in relation to one of the Group’s contracts which reduces the contract asset and retained
earnings by £11.6 million at 1 April 2020 and 31 March 2021. This restatement reduces the carrying value of the Land operating
segment used in the impairment assessment at 1 April 2020 by £11.6 million, resulting in an increase to the goodwill balance at
1 April 2020 of £11.6 million. At 31 March 2021, the carrying value of the Land operating segment used in the impairment
assessment is increased by £11.6 million, resulting in an increase to the goodwill impairment charge for the year ended 31 March
2021 of £11.6 million. There is no impact on the goodwill balance at 31 March 2021 as a result of this restatement.
ix. Software-as-a-service
In April 2021 the IFRS Interpretations Committee (IFRIC) published an agenda decision which clarified how a customer should account
for the costs of configuring or customising the supplier’s application software in a Software-as-a-service arrangement.
The Group’s policy has historically been to capitalise configuration and customisation costs as an intangible asset, including costs
directly payable to the software provider, sub-contractor costs and related third-party costs. As a result of the IFRIC agenda decision
the Group reviewed its cloud computing arrangements and, for those arrangements where the Group does not control the underlying
software, the Group has derecognised the intangible asset previously capitalised. Application of this new policy accounting has
resulted in a reduction to other intangible assets of £1.8 million at 1 April 2020 and £2.1 million at 31 March 2021. There is an
increase to administration and distribution costs of £0.3 million for the year ended 31 March 2021.
The Group will continue to apply this accounting policy to new Software-as-a-service arrangements as we continue to upgrade and
standardise our IT environment. As this policy requires costs to be expensed as incurred, this may lead to a higher up-front charge to
the income statement in future years but will not impact on the Group’s cash flows.
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4. Segmental information
The Group has four reportable segments, determined by reference to the goods and services they provide and the markets they serve.
Marine – through-life support of naval ships, equipment and marine infrastructure in the UK and internationally.
Nuclear – through-life support of submarines and complex engineering services in support of major decommissioning programmes
and projects, training and operation support, new build programme management and design and installation in the UK.
Land – large-scale critical vehicle fleet management, equipment support and training for military and civil customers.
Aviation – critical engineering services to defence and civil customers worldwide, including pilot training, equipment support, airbase
management and operation of aviation fleets delivering emergency services.
The Board, the chief operating decision maker as defined by IFRS 8, monitors the results of these reportable segments and makes
decisions about the allocation of resources. The Group’s business in Africa meets the definition of an operating segment, as defined by
IFRS 8. However, as permitted by IFRS 8, the Group includes the Africa operating segment in the Land reportable segment.
The table below presents the underlying results for each reportable segment in accordance with the definition of underlying revenue
and underlying operating profit, as set out in note 2, and reconciles the underlying operating profit/(loss) to the statutory profit/(loss)
before tax.
Year ended 31 March 2022
Revenue
Underlying operating profit
Specific Adjusting Items (note 2)
Amortisation of acquired intangibles
Business acquisition, merger and divestment related items
Gains, losses and costs directly arising from the Group’s
withdrawal from a specific market or geography
Restructuring costs
Profit or loss from amendment, curtailment, settlement or
equalisation of group pension schemes
Exceptional items
Operating profit/(loss)
Other income
Share of results of joint ventures and associates
Investment income
Other net finance costs**
Profit/(loss) before tax
Year ended 31 March 2021 (restated*)
Revenue
Underlying operating profit/(loss)
Specific Adjusting Items (note 2)
Amortisation of acquired intangibles
Business acquisition, merger and divestment related items
Gains, losses and costs directly arising from the Group’s
withdrawal from a specific market or geography
Restructuring costs
Profit or loss from amendment, curtailment, settlement or
equalisation of group pension schemes
Exceptional items
Operating profit/(loss)
Share of results of joint ventures and associates
Investment income
Other net finance costs**
Profit/(loss) before tax
Marine
£m
1,259.3
98.0
Nuclear
£m
1,009.7
62.4
Land
£m
1,015.5
58.8
Aviation
£m
817.3
18.5
Unallocated
£m
–
–
Total
£m
4,101.8
237.7
(0.6)
221.3
–
(8.6)
–
(0.4)
309.7
–
3.5
–
–
313.2
–
–
–
(5.5)
–
–
56.9
–
0.4
–
–
57.3
Marine
£m
1,230.6
56.2
Nuclear
£m
975.9
63.8
(0.8)
–
–
–
(7.5)
(4.2)
43.7
3.1
–
–
46.8
–
(0.6)
–
0.7
–
(5.8)
58.1
(15.0)
–
–
43.1
(1.3)
(6.1)
–
(16.9)
–
1.7
36.2
–
2.5
0.8
–
39.5
Land
£m
910.7
(17.5)
(16.0)
(49.1)
(7.5)
0.2
–
(528.3)
(618.2)
5.1
0.9
–
(612.2)
(19.5)
(52.1)
–
(2.8)
–
(120.1)
(176.0)
6.2
13.7
–
–
(156.1)
–
–
–
–
–
–
–
–
–
(71.6)
(71.6)
(21.4)
163.1
–
(33.8)
–
(118.8)
226.8
6.2
20.1
0.8
(71.6)
182.3
Aviation
£m
854.4
(130.4)
Unallocated
£m
–
–
Total
£m
3,971.6
(27.9)
(23.4)
–
(3.6)
(9.3)
–
(1,052.2)
(1,218.9)
(6.3)
–
–
(1,225.2)
–
–
–
–
(40.2)
(49.7)
(11.1)
(8.4)
(1.4)
–
(1.4)
–
–
(62.1)
(63.5)
(8.9)
(1,590.5)
(1,736.7)
(13.1)
0.9
(62.1)
(1,811.0)
* The results for 31 March 2021 have been restated due to a change in accounting policy. Further details are set out in note 3.
** Other net finance costs are not allocated to a specific sector.
184
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
185
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
4. Segmental information (continued)
Revenues of £2.0 billion (2021: £2.1 billion) are derived from a single external customer. These revenues are attributable across
all reportable segments.
Segment assets and liabilities
The reportable segment assets and liabilities at 31 March 2022 and 31 March 2021 and capital expenditure and lease principal
payments for the years then ended are as follows:
Marine
Nuclear
Land
Aviation
Unallocated **
Group total
Assets
Liabilities
Capital expenditure
Lease payments
2022
£m
773.8
561.1
626.5
997.8
1,639.1
4,598.3
2021
(restated*)
£m
770.5
529.6
770.8
1,327.8
1,212.2
4,610.9
2022
£m
601.8
271.6
335.3
321.5
2,366.6
3,896.8
2021
(restated*)
£m
384.5
227.7
487.2
494.1
2,788.4
4,381.9
2022
£m
41.8
56.9
5.3
90.3
8.9
203.2
2021
(restated*)
£m
45.2
32.5
13.9
72.9
12.0
176.5
2022
£m
6.4
3.4
17.2
82.3
3.7
113.0
2021
£m
8.9
4.2
18.1
107.1
2.3
140.6
*
In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in note 3.
** All assets and liabilities are allocated to their appropriate reportable segments except for cash, cash equivalents, borrowings including lease liabilities, income
and deferred tax balances and retirement benefit surpluses which are included in the unallocated segment.
Capital expenditure represents additions to property, plant and equipment and intangible assets. Proceeds from the sale of assets
totalled £68.0 million (2021: £33.2 million) and are predominantly in the Aviation sector. See note 20 relating to the treatment of
amounts payable in respect of capital expenditure.
The segmental analysis of joint ventures and associates is detailed in note 16.
Segmental depreciation and amortisation
The segmental depreciation on property, plant and equipment, right of use assets and amortisation of intangible assets for the years
ended 31 March 2022 and 31 March 2021 is as follows:
Marine
Nuclear
Land
Aviation
Unallocated
Group total
Depreciation of property,
plant and equipment
Depreciation of right of
use assets
Amortisation of
intangible assets
2022
£m
8.2
22.3
4.4
18.0
5.8
58.7
2021
£m
8.3
22.8
8.1
41.6
5.8
86.6
2022
£m
7.4
3.7
12.5
78.8
2.7
105.1
2021
£m
9.0
4.6
17.1
100.6
2.1
133.4
2022
£m
4.6
0.3
2.6
20.2
9.4
37.1
2021
£m
5.6
0.4
20.6
24.2
8.6
59.4
Segmental asset impairments
The segmental impairment on property, plant and equipment, right of use assets and intangible assets for the years ended 31 March
2022 and 31 March 2021 is as follows:
Marine
Nuclear
Land
Aviation
Unallocated
Group total
Impairment of property,
plant and equipment
Impairment of right of
use assets
Impairment of
intangible assets
2022
£m
–
–
–
58.8
–
58.8
2021
£m
–
2.4
7.9
103.0
–
113.3
2022
£m
–
–
–
18.0
–
18.0
2021
£m
–
0.7
9.1
36.6
–
46.4
2022
£m
–
–
–
57.6
–
57.6
2021
£m
0.6
–
70.5
8.0
10.0
89.1
186
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
all reportable segments.
Segment assets and liabilities
The reportable segment assets and liabilities at 31 March 2022 and 31 March 2021 and capital expenditure and lease principal
payments for the years then ended are as follows:
Marine
Nuclear
Land
Aviation
Unallocated **
Group total
Assets
Liabilities
Capital expenditure
Lease payments
2022
£m
773.8
561.1
626.5
997.8
1,639.1
4,598.3
2021
(restated*)
£m
770.5
529.6
770.8
1,327.8
1,212.2
4,610.9
2022
£m
601.8
271.6
335.3
321.5
2021
(restated*)
£m
384.5
227.7
487.2
494.1
2,366.6
3,896.8
2,788.4
4,381.9
2022
£m
41.8
56.9
5.3
90.3
8.9
2021
(restated*)
£m
45.2
32.5
13.9
72.9
12.0
2022
£m
6.4
3.4
17.2
82.3
3.7
2021
£m
8.9
4.2
18.1
107.1
2.3
140.6
203.2
176.5
113.0
*
In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in note 3.
** All assets and liabilities are allocated to their appropriate reportable segments except for cash, cash equivalents, borrowings including lease liabilities, income
and deferred tax balances and retirement benefit surpluses which are included in the unallocated segment.
Capital expenditure represents additions to property, plant and equipment and intangible assets. Proceeds from the sale of assets
totalled £68.0 million (2021: £33.2 million) and are predominantly in the Aviation sector. See note 20 relating to the treatment of
amounts payable in respect of capital expenditure.
The segmental analysis of joint ventures and associates is detailed in note 16.
Segmental depreciation and amortisation
The segmental depreciation on property, plant and equipment, right of use assets and amortisation of intangible assets for the years
ended 31 March 2022 and 31 March 2021 is as follows:
Depreciation of property,
plant and equipment
Depreciation of right of
use assets
Amortisation of
intangible assets
The segmental impairment on property, plant and equipment, right of use assets and intangible assets for the years ended 31 March
Segmental asset impairments
2022 and 31 March 2021 is as follows:
Impairment of property,
plant and equipment
Impairment of right of
use assets
Impairment of
intangible assets
2022
£m
8.2
22.3
4.4
18.0
5.8
58.7
2022
£m
–
–
–
–
58.8
58.8
2021
£m
8.3
22.8
8.1
41.6
5.8
86.6
2021
£m
–
2.4
7.9
103.0
–
113.3
2022
£m
7.4
3.7
12.5
78.8
2.7
105.1
2022
£m
–
–
–
–
18.0
18.0
2021
£m
9.0
4.6
17.1
100.6
2.1
133.4
2021
£m
–
0.7
9.1
36.6
–
46.4
2022
£m
4.6
0.3
2.6
20.2
9.4
37.1
2022
£m
–
–
–
–
57.6
57.6
2021
£m
5.6
0.4
20.6
24.2
8.6
59.4
2021
£m
0.6
–
70.5
8.0
10.0
89.1
Marine
Nuclear
Land
Aviation
Unallocated
Group total
Marine
Nuclear
Land
Aviation
Unallocated
Group total
4. Segmental information (continued)
Revenues of £2.0 billion (2021: £2.1 billion) are derived from a single external customer. These revenues are attributable across
4. Segmental information (continued)
Geographic analysis of non-current assets
The geographic analysis for non-current assets by location of those assets for the years ended 31 March 2022 and 31 March 2021 is
as follows:
United Kingdom
Rest of Europe
Africa
North America
Australasia
Rest of World
Non-current segment assets
Retirement benefits
IFRIC 12 financial assets
Lease receivables
Derivatives
Deferred tax asset
Total non-current assets
2022
£m
1,250.3
548.0
69.7
21.3
187.8
2.0
2,079.1
300.9
10.0
24.1
–
47.0
2,461.1
2021
(restated)
£m
1,649.9
639.2
56.8
23.0
179.5
2.8
2,551.2
46.8
11.2
12.9
4.3
129.7
2,756.1
Geographic analysis of revenue
The geographic analysis of revenue by origin of customer for the years ended 31 March 2022 and 31 March 2021 is as follows:
Geographic analysis
United Kingdom
Rest of Europe
Africa
North America
Australasia
Rest of World
Group total
Revenue
2022
£m
2,593.5
546.8
318.9
172.9
218.6
251.1
4,101.8
*
In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in note 3.
The analysis of revenue for the years ended 31 March 2022 and 31 March 2021 is as follows:
Sale of goods – transferred at a point in time
Sale of goods – transferred over time
Sale of goods
Provision of services – transferred over time
Rental income
Revenue
2022
£m
257.5
258.1
515.6
3,580.8
5.4
4,101.8
2021
(restated)
£m
2,614.3
515.5
269.6
161.6
204.4
206.2
3,971.6
2021
£m
298.8
175.7
474.5
3,492.6
4.5
3,971.6
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187
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
5. Operating profit /(loss) for the year
The following items have been included in arriving at operating (loss)/profit for the year:
Employee costs (note 7)
Cost of inventories recognised as an expense
Depreciation of property, plant and equipment (PPE) (note 14)
Depreciation of right of use assets (note 15)
Amortisation of intangible assets (note 13)
• Acquired intangibles
• Other
Impairment of goodwill (note 12)
Impairment of intangible assets (note 13) *
Impairment of property, plant and equipment (PPE) (note 14) *
Impairment of right of use assets (note 15) *
(Gain)/loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Net foreign exchange loss
Loss on derivative instruments at fair value through profit or loss
*
Included in cost of revenue in the income statement.
Year ended
31 March 2022
£m
1,523.6
Year ended
31 March 2021
(restated)
£m
1,622.4
295.7
406.5
58.7
105.1
86.6
133.4
21.4
15.7
37.1
7.2
57.6
58.8
18.0
(1.5)
0.7
10.5
7.2
40.2
19.2
59.4
1,336.6
89.1
113.3
46.4
26.4
–
7.8
6.9
Operating costs includes research and development expenditure of £2.6 million (2021: £1.1 million) funded by the Group.
Services provided by the Group’s auditor and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor
as detailed below. Deloitte LLP were the Group’s auditor for the year ended 31 March 2022, having replaced
PricewaterhouseCoopers LLP:
Audit fees:
Fees payable to the parent auditor and its associates for the audit of the parent company’s individual
and consolidated financial statements
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s subsidiaries
Audit related assurance fees
Fees for other services:
Other non-audit services
Total fees paid to the Group’s auditor and network firms
Year ended
31 March 2022
£m
Year ended
31 March 2021
£m
2.3
4.3
0.5
–
7.1
2.3
3.7
–
–
6.0
188
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
5. Operating profit /(loss) for the year
The following items have been included in arriving at operating (loss)/profit for the year:
Employee costs (note 7)
Cost of inventories recognised as an expense
Depreciation of property, plant and equipment (PPE) (note 14)
Depreciation of right of use assets (note 15)
Amortisation of intangible assets (note 13)
• Acquired intangibles
• Other
Impairment of goodwill (note 12)
Impairment of intangible assets (note 13) *
Impairment of property, plant and equipment (PPE) (note 14) *
Impairment of right of use assets (note 15) *
(Gain)/loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Net foreign exchange loss
Loss on derivative instruments at fair value through profit or loss
*
Included in cost of revenue in the income statement.
Operating costs includes research and development expenditure of £2.6 million (2021: £1.1 million) funded by the Group.
Services provided by the Group’s auditor and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor
as detailed below. Deloitte LLP were the Group’s auditor for the year ended 31 March 2022, having replaced
PricewaterhouseCoopers LLP:
Audit fees:
Fees payable to the parent auditor and its associates for the audit of the parent company’s individual
and consolidated financial statements
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s subsidiaries
Audit related assurance fees
Fees for other services:
Other non-audit services
Total fees paid to the Group’s auditor and network firms
Year ended
Year ended
31 March 2021
31 March 2022
£m
(restated)
£m
1,523.6
1,622.4
295.7
406.5
58.7
105.1
86.6
133.4
21.4
15.7
37.1
7.2
57.6
58.8
18.0
(1.5)
0.7
10.5
7.2
40.2
19.2
59.4
1,336.6
89.1
113.3
46.4
26.4
–
7.8
6.9
Year ended
Year ended
31 March 2022
31 March 2021
£m
£m
2.3
4.3
0.5
–
7.1
2.3
3.7
–
–
6.0
6. Net finance costs
Finance costs
Loans, overdrafts and associated interest rate hedges
Lease interest
Amortisation of issue costs of bank loan
Retirement benefit interest
Other
Total finance costs
Finance income
Bank deposits, loans and leases
IFRIC 12 Investment income
Retirement benefit interest
Total finance income
Net finance costs
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Year ended
31 March 2022
£m
Year ended
31 March 2021
£m
57.3
17.4
2.0
3.7
–
80.4
8.8
0.8
–
9.6
70.8
50.0
23.5
1.4
–
2.9
77.8
11.7
0.9
4.0
16.6
61.2
Other net finance costs increased to £71.6 million (FY21: £62.1 million), with lower net interest costs due to lower average debt and
reduced IFRS 16 lease interest, more than offset by a £7.7 million higher pension finance charge and a one-off, non-cash finance
charge on derivative instruments of £9.6 million.
7. Employee costs
Wages and salaries
Social security costs
Share-based payments (note 26)
Pension costs – defined contribution plans (note 27)
Pension charges – defined benefit plans (note 27)
The average monthly number of people employed by the Group was:
Operations
Administration and management
Year ended
31 March 2022
£m
1,252.8
143.4
5.5
83.4
38.5
1,523.6
Year ended
31 March 2021
(restated)
£m
1,318.9
164.1
4.2
90.9
44.3
1,622.4
2022
Number
25,428
3,547
28,975
2021
Number
28,569
3,840
32,409
Emoluments of the Executive Directors are included in employee costs above and reported in the Remuneration report.
Key management compensation
Key management is defined as those employees who are directly responsible for the operational management of the operating
segments. The employees would typically report to the Chief Executive. The key management figures given below include Directors.
Salaries
Share-based payments
Year ended
31 March 2022
£m
7.3
1.9
9.2
Year ended
31 March 2021
£m
6.7
0.2
6.9
188
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189
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
8. Taxation
Income tax expense
Analysis of tax expense/(benefit) in the year
Current tax
• UK current year charge
• UK prior year (benefit)
• Overseas current year charge
• Overseas prior year charge
Deferred tax
• UK current year charge/(benefit)
• UK prior year charge
• Overseas current year (benefit)/charge
• Overseas prior year charge
• Impact of changes in tax rates
Total income tax expense/(benefit)
Total
Year ended
31 March 2022
£m
Year ended
31 March 2021
(restated)
£m
1.9
(10.8)
19.3
2.5
12.9
17.5
11.5
(25.3)
0.7
(2.9)
1.5
14.4
13.4
(28.0)
10.5
–
(4.1)
(36.7)
8.5
24.5
–
(0.2)
(3.9)
(8.0)
The tax for the year is lower (2021: higher) than the standard rate of corporation tax in the UK. The differences are explained below:
Profit/(loss) before tax
Profit/(loss) on ordinary activities multiplied by rate of corporation tax in the UK of 19% (2021: 19%)
Effects of:
Expenses not deductible for tax purposes
Non-deductible write-off of goodwill
Re-measurement of deferred tax in respect of statutory rate changes
Difference in respect of share of results of joint ventures and associates’ results
Prior year adjustments
Differences in respect of foreign rates
Unrecognised deferred tax movements
Deferred tax not previously recognised/derecognised
Non-taxable profits on disposals and non-deductible losses on disposals
Other
Total income tax expense/(benefit)
Further information on exceptional items and tax on exceptional items is detailed in note 2.
Year ended
31 March 2022
£m
182.3
34.6
Year ended
31 March 2021
(restated)
£m
(1,811.0)
(344.1)
2.4
1.4
(2.9)
(2.1)
3.9
(0.4)
25.0
(8.1)
(37.8)
(1.6)
14.4
3.3
254.0
(0.2)
2.5
(19.5)
3.9
83.4
3.3
9.4
(4.0)
(8.0)
During the year the Group concluded discussions with certain tax authorities regarding prior year tax positions, resulting in a tax credit
of £12.6 million (2021: tax credit of £21.6 million).
The Group is subject to taxation in several jurisdictions. The complexity of applicable rules may result in legitimate differences of
interpretation between the Group and taxing authorities, especially where an economic judgement or valuation is involved. The
principal elements of the Group’s uncertain tax positions relate to the pricing of intra-group transactions and the allocation of profits in
overseas territories. The outcome of tax authority disputes in such areas is not predictable, and to reflect the effect of these uncertain
tax positions a provision is recorded which represents management’s assessment of the most likely outcome of each issue. At 31
March 2022 the Group held uncertain tax provisions of £16.5 million (2021: £5.4 million).
During the period the Group made disposals that are expected to be exempt from UK tax due to qualification for the UK substantial
shareholding exemption.
The increase in the UK rate of corporation tax to 25% with effect from 1 April 2023 was substantively enacted during the period, The
effect has been to increase the Group’s net deferred tax asset by £1.4 million, comprising a credit to Income Statement of £2.9
million, a debit to Other Comprehensive Income of £2.0 million and a credit to equity of £0.5 million.
190
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
8. Taxation
Income tax expense
Analysis of tax expense/(benefit) in the year
Current tax
• UK current year charge
• UK prior year (benefit)
• Overseas current year charge
• Overseas prior year charge
Deferred tax
• UK current year charge/(benefit)
• UK prior year charge
• Overseas current year (benefit)/charge
• Overseas prior year charge
• Impact of changes in tax rates
Total income tax expense/(benefit)
The tax for the year is lower (2021: higher) than the standard rate of corporation tax in the UK. The differences are explained below:
Profit/(loss) on ordinary activities multiplied by rate of corporation tax in the UK of 19% (2021: 19%)
Profit/(loss) before tax
Effects of:
Expenses not deductible for tax purposes
Non-deductible write-off of goodwill
Prior year adjustments
Differences in respect of foreign rates
Unrecognised deferred tax movements
Re-measurement of deferred tax in respect of statutory rate changes
Difference in respect of share of results of joint ventures and associates’ results
Deferred tax not previously recognised/derecognised
Non-taxable profits on disposals and non-deductible losses on disposals
Other
Total income tax expense/(benefit)
Further information on exceptional items and tax on exceptional items is detailed in note 2.
During the year the Group concluded discussions with certain tax authorities regarding prior year tax positions, resulting in a tax credit
of £12.6 million (2021: tax credit of £21.6 million).
The Group is subject to taxation in several jurisdictions. The complexity of applicable rules may result in legitimate differences of
interpretation between the Group and taxing authorities, especially where an economic judgement or valuation is involved. The
principal elements of the Group’s uncertain tax positions relate to the pricing of intra-group transactions and the allocation of profits in
overseas territories. The outcome of tax authority disputes in such areas is not predictable, and to reflect the effect of these uncertain
tax positions a provision is recorded which represents management’s assessment of the most likely outcome of each issue. At 31
March 2022 the Group held uncertain tax provisions of £16.5 million (2021: £5.4 million).
During the period the Group made disposals that are expected to be exempt from UK tax due to qualification for the UK substantial
shareholding exemption.
The increase in the UK rate of corporation tax to 25% with effect from 1 April 2023 was substantively enacted during the period, The
effect has been to increase the Group’s net deferred tax asset by £1.4 million, comprising a credit to Income Statement of £2.9
million, a debit to Other Comprehensive Income of £2.0 million and a credit to equity of £0.5 million.
Total
Year ended
Year ended
31 March 2021
31 March 2022
£m
(restated)
£m
1.9
(10.8)
19.3
2.5
12.9
17.5
11.5
(25.3)
0.7
(2.9)
1.5
14.4
£m
182.3
34.6
2.4
1.4
(2.9)
(2.1)
3.9
(0.4)
25.0
(8.1)
(37.8)
(1.6)
14.4
13.4
(28.0)
10.5
–
(4.1)
(36.7)
8.5
24.5
–
(0.2)
(3.9)
(8.0)
Year ended
(restated)
£m
(1,811.0)
(344.1)
3.3
254.0
(0.2)
2.5
(19.5)
3.9
83.4
3.3
9.4
(4.0)
(8.0)
Year ended
31 March 2021
31 March 2022
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8. Taxation (continued)
Deferred tax
Deferred tax assets and deferred tax liabilities have been offset if, and only if, there is a legally enforceable right in that jurisdiction to
set off corporation tax assets and corporation tax liabilities and the deferred tax assets and deferred tax liabilities relate to income
taxes levied by the same Taxation Authorities:
Deferred tax asset
Deferred tax liability
The movements in deferred tax assets and liabilities during the year are shown below.
At 1 April 2021
Income statement credit/(debit)
Tax credit/(debit) to other comprehensive income/equity
Transfer from income tax receivable
Acquisition of subsidiary
Disposal of subsidiary
Effect of changes in tax rates
• Income statement
• Other comprehensive income/equity
Exchange differences
At 31 March 2022
At 1 April 2020 as previously stated
Prior year restatement (note 2)
At 1 April 2020 (restated)
Income statement credit/(debit)
Tax credit/(debit) to equity
Disposal of subsidiary
Effect of changes in tax rates
• Income statement
Exchange differences
At 31 March 2021
Tangible assets
£m
(17.0)
(8.4)
–
–
–
(1.2)
(6.6)
–
0.5
(32.7)
1.9
–
1.9
(18.9)
–
–
–
–
(17.0)
Retirement
benefit
obligations
£m
53.2
(28.3)
(61.2)
–
–
–
(8.7)
(3.0)
–
(48.0)
(27.7)
8.9
(18.8)
(12.7)
84.7
–
–
–
53.2
Tax losses
£m
98.9
(15.7)
–
–
–
–
17.2
–
1.1
101.5
71.6
–
71.6
27.1
–
–
0.2
–
98.9
2022
£m
47.0
(9.6)
37.4
Other
£m
(13.1)
48.0
(0.2)
4.4
(18.6)
(6.4)
1.0
1.5
–
16.6
(19.0)
–
(19.0)
8.2
(2.2)
(0.1)
–
–
(13.1)
2021
£m
129.7
(7.7)
122.0
Total
£m
122.0
(4.4)
(61.4)
4.4
(18.6)
(7.6)
2.9
(1.5)
1.6
37.4
26.8
8.9
35.7
3.7
82.5
(0.1)
0.2
–
122.0
Transfers represent transfers between current and deferred tax, including £10.8 million in respect of UK research and development tax credits.
The net deferred tax assets of £37.4 million (2021: £122.0 million) include deferred tax assets of £31.6 million (2021: £28.3 million)
and deferred tax liabilities of £9.6 million (2021: £7.4 million) in respect of the Group’s non-UK operations.
Deferred tax assets have been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets
because the Directors believe that it is probable that these assets will be recovered. The recognition of deferred tax assets in respect of
losses can be subjective. The Group’s approach to the recognition of deferred tax assets in respect of losses, including how the Group
assesses future profitability for recognition purposes, is set out in note 1 to the Accounts.
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191
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
8. Taxation (continued)
Net deferred tax assets have been recognised in respect of operations in the following jurisdictions, each of which experienced a loss
in the preceding period: UK (DTA £15.4 million); Italy (£9.8 million); Australia (£8.9 million); Spain (£3.5 million). In the year ended
31 March 2021 the Group undertook a contract profitability and balance sheet review, resulting in significant losses being recorded in
many jurisdictions, including the above. The Directors do not consider that the results for this period are representative of future
trading performance and are satisfied that these net deferred tax assets are recoverable based on future profit forecasts. The net
deferred tax liability in respect of “Other” includes a liability relating to acquired intangible assets of £25.1 million (2021:
£25.5 million).
No deferred tax has been recognised in respect of temporary differences associated with investments in subsidiaries, branches,
associates and interests in joint ventures and joint operations where the Group is in a position to control the timing of the reversal of
the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate amount of
temporary differences associated with such investments in subsidiaries, branches, associates and interests in joint ventures and joint
operations is represented by their post acquisition retained earnings and amounted to £291 million (2021: restated £261 million).
The aggregate amount of temporary differences previously stated at 31 March 2021 was £47 million. The difference reflects a
change in the basis for determining retained earnings, which now comprise the post acquisition retained earnings of the relevant non
UK subsidiaries.
At the statement of financial position date, deferred tax assets of £101.5 million (2021: £98.9 million) have been recognised in
respect of unused tax losses available for carry forward. No deferred tax asset has been recognised in respect of further unutilised tax
losses carried forward (excluding capital losses) of £519 million (2021: £754 million). In addition to these amounts, UK capital losses
of £92.0 million (2021: £92.0 million) are being carried forward, with no deferred tax asset having been recognised. Where a
deferred tax asset has not been recognised in respect of losses, this is because management considers that those jurisdictions are not
likely to generate sufficient taxable income of the appropriate type in the foreseeable future (see note 1). The amounts shown can be
carried forward indefinitely.
9. Dividends
Final dividend for the year ended 31 March 2021 of nil (2020: nil p) per 60p share
Interim dividend for the year ended 31 March 2022 of nil (2021: nil p) per 60p share
Year ended
31 March 2022
£m
–
–
–
Year ended
31 March 2021
£m
–
–
–
10. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number
of ordinary shares outstanding during the year excluding those held in the Babcock Employee Share Trust. Where there is a loss arising
the effect of potentially dilutive ordinary shares is anti-dilutive.
The calculation of the basic and diluted earnings/(loss) per share is based on the following data:
Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS
Effect of dilutive potential ordinary shares: share options
Weighted average number of ordinary shares for the purpose of diluted EPS
Earnings
2022
Number
2021
Number
505,091,970 504,993,024
3,998,687
511,175,735 508,991,711
6,083,765
Earnings/(loss) for the year
(Deduct)/add back:
Specific Adjusting Items, net of tax (note 2)
Earnings before Specific Adjusting Items
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Earnings/(loss)
from continuing
operations
£m
164.2
Basic
per share
Pence
32.5
Earnings/(loss)
from
continuing
operations
£m
(1,803.0)
Diluted
per share
Pence
32.1
Basic
per share
Pence
(357.0)
Diluted
per share
Pence
(357.0)
(9.0)
155.2
(1.8)
30.7
(1.7)
30.4
1,679.0
(124.0)
332.4
(24.6)
332.4
(24.6)
192
Babcock International Group PLC Annual Report and Financial Statements 2022
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
8. Taxation (continued)
Net deferred tax assets have been recognised in respect of operations in the following jurisdictions, each of which experienced a loss
in the preceding period: UK (DTA £15.4 million); Italy (£9.8 million); Australia (£8.9 million); Spain (£3.5 million). In the year ended
31 March 2021 the Group undertook a contract profitability and balance sheet review, resulting in significant losses being recorded in
many jurisdictions, including the above. The Directors do not consider that the results for this period are representative of future
trading performance and are satisfied that these net deferred tax assets are recoverable based on future profit forecasts. The net
deferred tax liability in respect of “Other” includes a liability relating to acquired intangible assets of £25.1 million (2021:
£25.5 million).
No deferred tax has been recognised in respect of temporary differences associated with investments in subsidiaries, branches,
associates and interests in joint ventures and joint operations where the Group is in a position to control the timing of the reversal of
the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate amount of
temporary differences associated with such investments in subsidiaries, branches, associates and interests in joint ventures and joint
operations is represented by their post acquisition retained earnings and amounted to £291 million (2021: restated £261 million).
The aggregate amount of temporary differences previously stated at 31 March 2021 was £47 million. The difference reflects a
change in the basis for determining retained earnings, which now comprise the post acquisition retained earnings of the relevant non
UK subsidiaries.
At the statement of financial position date, deferred tax assets of £101.5 million (2021: £98.9 million) have been recognised in
respect of unused tax losses available for carry forward. No deferred tax asset has been recognised in respect of further unutilised tax
losses carried forward (excluding capital losses) of £519 million (2021: £754 million). In addition to these amounts, UK capital losses
of £92.0 million (2021: £92.0 million) are being carried forward, with no deferred tax asset having been recognised. Where a
deferred tax asset has not been recognised in respect of losses, this is because management considers that those jurisdictions are not
likely to generate sufficient taxable income of the appropriate type in the foreseeable future (see note 1). The amounts shown can be
carried forward indefinitely.
9. Dividends
Final dividend for the year ended 31 March 2021 of nil (2020: nil p) per 60p share
Interim dividend for the year ended 31 March 2022 of nil (2021: nil p) per 60p share
10. Earnings/(loss) per share
the effect of potentially dilutive ordinary shares is anti-dilutive.
The calculation of the basic and diluted earnings/(loss) per share is based on the following data:
Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS
Effect of dilutive potential ordinary shares: share options
Weighted average number of ordinary shares for the purpose of diluted EPS
Earnings
Year ended
Year ended
31 March 2022
31 March 2021
£m
–
–
–
£m
–
–
–
2022
Number
2021
Number
505,091,970 504,993,024
6,083,765
3,998,687
511,175,735 508,991,711
Earnings/(loss) for the year
(Deduct)/add back:
Specific Adjusting Items, net of tax (note 2)
Earnings before Specific Adjusting Items
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Basic
per share
Pence
32.5
Diluted
per share
Pence
32.1
Basic
per share
Pence
Diluted
per share
Pence
(1,803.0)
(357.0)
(357.0)
Earnings/(loss)
from
continuing
operations
£m
(1.8)
30.7
(1.7)
30.4
1,679.0
(124.0)
332.4
(24.6)
332.4
(24.6)
Earnings/(loss)
from continuing
operations
£m
164.2
(9.0)
155.2
11. Contract profitability and balance sheet review
As outlined in the Annual Report and financial statements for the year ended 31 March 2021, the Group performed a review of the
profitability of its contract portfolio and the carrying values of assets and liabilities on the balance sheet.
The contract profitability and balance sheet review has impacted on the results for the year ended 31 March 2021, consisting of a
charge of £1,813.7 million, the vast majority of which is due to changes in estimates.
Of the adjustments recorded (see table below), £274.7m were charged within underlying operating profit and the vast majority of
these amounts related to changes in estimates. Their inclusion within underlying operating profit reflects the fact that the occurrence
of such transactions, when taken individually, is part of the ordinary course of business. However, the number and magnitude of the
adjustments as a result of the contract profitability and balance sheet review far exceeded what would normally be expected in the
Group in any one period, hence the additional disclosure.
The impacts of the contract profitability and balance sheet review adjustments on the income statement for the year ended 31 March
2021, including the results of the annual goodwill impairment test, are summarised as follows:
Revenue impacts
Operating profit/(loss) impacts
Impairment/disposal of goodwill and acquired intangible assets
Impairment of non-current assets
Impairment of property, plant and equipment and right of use assets
Impairment/write down of current assets
Introduction of/increase to liabilities
Operating profit/(loss)
Share of income from JVs and associates
Profit/(loss) before tax impacts
Tax adjustments
Tax effect
Loss after tax for the year impacts
Basic earnings/(loss) per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number
of ordinary shares outstanding during the year excluding those held in the Babcock Employee Share Trust. Where there is a loss arising
12. Goodwill
Cost
At 1 April (restated)
On disposal of subsidiaries (note 29)
Additions (note 29)
Exchange adjustments
At 31 March
Accumulated impairment
At 1 April (restated)
On disposal of subsidiaries (note 29)
Impairment
Exchange adjustments
At 31 March
Net book value at 31 March
Year ended 31 March 2021
Underlying
£m
(207.4)
Specific Adjusting Items
£m
–
Statutory
£m
(207.4)
–
(5.8)
–
(142.6)
(126.3)
(274.7)
(37.1)
(311.8)
(7.5)
29.3
(290.0)
(1,349.4)
(32.7)
(156.9)
(0.8)
(1.0)
(1,540.8)
–
(1,540.8)
–
17.1
(1,523.7)
(1,349.4)
(38.5)
(156.9)
(143.4)
(127.3)
(1,815.5)
(37.1)
(1,852.6)
(7.5)
46.4
(1,813.7)
31 March 2022
£m
31 March 2021
(restated)
£m
2,487.3
(197.9)
21.3
1.0
2,311.7
1,531.0
(8.9)
7.2
–
1,529.3
782.4
2,571.1
(72.6)
–
(11.2)
2,487.3
189.8
–
1,336.6
4.6
1,531.0
956.3
192
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
193
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
12. Goodwill (continued)
Goodwill is allocated to the operating segments as set out in the table below:
Marine
Nuclear
Land
Aviation
Africa
31 March 2022
£m
296.7
233.1
218.6
32.0
2.0
782.4
31 March 2021
£m
339.2
233.1
262.7
119.3
2.0
956.3
During the year, goodwill was tested for impairment at 31 March 2022 in accordance with IAS 36. This impairment analysis is
performed on an annual basis at operating segment level, as outlined in the Group’s accounting policies. The Group monitors goodwill
at operating segment level, with the exception of the establishment of a separate cash generating unit during the year for part of the
Aviation business (‘Aviation – Europe’). The Group’s disposal programme impacted on the ability of the Aviation operating segment to
share assets, capability and management across the entire contract and asset base. A portion of the goodwill previously allocated in
full to the Aviation operating segment has been allocated to this part of the Aviation business, and a separate value-in-use analysis has
been prepared.
The Group considered the potential disposal in the context of the held for sale criteria set out in IFRS 5 and assessed that the business
should not be classified as held for sale.
The goodwill allocated to the Africa operating segment is immaterial and the Directors do not consider there to be any reasonably
possible changes in estimates that would result in impairment of this goodwill. No further disclosures are provided in relation to the
Africa operating segment.
During the year the Group disposed of goodwill of £189.0 million through the disposal of the Oil and Gas business (£0.4 million) and
AirTanker Holdings Limited (£80.0 million) in Aviation, Frazer-Nash Consultancy (£64.5 million) in Marine and Power (£44.1 million) in
Land. Further details are set out in note 29. The Group recognised goodwill on the acquisition of Naval Ship Management Pty Ltd of
£21.3 million.
Results of goodwill impairment test
The current year impairment test results in an impairment of the goodwill allocated to Aviation – Europe of £7.2 million, this
impairment reflects changes in the future business performance, which was informed by the Group’s disposal programme. This change
has impacted on the ability of the Aviation operating segment to share assets, capability and management across the entire contract
and asset base. Previously, assets were shared cross-sector, however during the year ended 31 March 2022 management reduced the
sharing of assets to a country level, which has resulted in a reduced value-in-use. This has also resulted in an acquired intangible
impairment of £57.6 million and an aircraft fleet impairment of £58.8 million. Further detail is included in notes 13 and 14,
respectively.
Value-in-use calculations
The recoverable amount of the Group’s goodwill was assessed by reference to value-in-use calculations. The value-in-use calculations
are derived from risk-adjusted cash flows from the Group’s five-year plan. Terminal value assessments are included based on year five
and an estimated long-term, country-specific growth rate of 1.8 – 2.5% (2021: 2.0%). The process by which the Group’s budget is
prepared, reviewed and approved benefits from historical experience, visibility of long–term work programmes in relation to work
undertaken for the UK Government, available government spending information (both UK and overseas), the Group’s contract backlog,
bid pipeline and the Group’s tracking pipeline which monitors opportunities prior to release of tenders. The budget process includes
consideration of risks and opportunities at contract and business level, and considered matters such as COVID-19 and inflation.
Furthermore, in preparing this assessment we have considered the potential impact of climate change. In particular, we have
considered the impact of climate change on the useful economic lives of assets, disruption to key operating sites and supply chain,
and potential asset impairments. These considerations did not have a material impact on the goodwill impairment assessment.
The value-in-use calculations include the anticipated benefits of the Group’s revised operating model, reflecting the fact that the
Group was committed to the project at 31 March 2022.
194
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
12. Goodwill (continued)
Goodwill is allocated to the operating segments as set out in the table below:
Marine
Nuclear
Land
Aviation
Africa
31 March 2022
31 March 2021
£m
296.7
233.1
218.6
32.0
2.0
782.4
£m
339.2
233.1
262.7
119.3
2.0
956.3
During the year, goodwill was tested for impairment at 31 March 2022 in accordance with IAS 36. This impairment analysis is
performed on an annual basis at operating segment level, as outlined in the Group’s accounting policies. The Group monitors goodwill
at operating segment level, with the exception of the establishment of a separate cash generating unit during the year for part of the
Aviation business (‘Aviation – Europe’). The Group’s disposal programme impacted on the ability of the Aviation operating segment to
share assets, capability and management across the entire contract and asset base. A portion of the goodwill previously allocated in
full to the Aviation operating segment has been allocated to this part of the Aviation business, and a separate value-in-use analysis has
been prepared.
should not be classified as held for sale.
The Group considered the potential disposal in the context of the held for sale criteria set out in IFRS 5 and assessed that the business
The goodwill allocated to the Africa operating segment is immaterial and the Directors do not consider there to be any reasonably
possible changes in estimates that would result in impairment of this goodwill. No further disclosures are provided in relation to the
Africa operating segment.
During the year the Group disposed of goodwill of £189.0 million through the disposal of the Oil and Gas business (£0.4 million) and
AirTanker Holdings Limited (£80.0 million) in Aviation, Frazer-Nash Consultancy (£64.5 million) in Marine and Power (£44.1 million) in
Land. Further details are set out in note 29. The Group recognised goodwill on the acquisition of Naval Ship Management Pty Ltd of
£21.3 million.
Results of goodwill impairment test
The current year impairment test results in an impairment of the goodwill allocated to Aviation – Europe of £7.2 million, this
impairment reflects changes in the future business performance, which was informed by the Group’s disposal programme. This change
has impacted on the ability of the Aviation operating segment to share assets, capability and management across the entire contract
and asset base. Previously, assets were shared cross-sector, however during the year ended 31 March 2022 management reduced the
sharing of assets to a country level, which has resulted in a reduced value-in-use. This has also resulted in an acquired intangible
impairment of £57.6 million and an aircraft fleet impairment of £58.8 million. Further detail is included in notes 13 and 14,
respectively.
Value-in-use calculations
The recoverable amount of the Group’s goodwill was assessed by reference to value-in-use calculations. The value-in-use calculations
are derived from risk-adjusted cash flows from the Group’s five-year plan. Terminal value assessments are included based on year five
and an estimated long-term, country-specific growth rate of 1.8 – 2.5% (2021: 2.0%). The process by which the Group’s budget is
prepared, reviewed and approved benefits from historical experience, visibility of long–term work programmes in relation to work
undertaken for the UK Government, available government spending information (both UK and overseas), the Group’s contract backlog,
bid pipeline and the Group’s tracking pipeline which monitors opportunities prior to release of tenders. The budget process includes
consideration of risks and opportunities at contract and business level, and considered matters such as COVID-19 and inflation.
Furthermore, in preparing this assessment we have considered the potential impact of climate change. In particular, we have
considered the impact of climate change on the useful economic lives of assets, disruption to key operating sites and supply chain,
and potential asset impairments. These considerations did not have a material impact on the goodwill impairment assessment.
The value-in-use calculations include the anticipated benefits of the Group’s revised operating model, reflecting the fact that the
Group was committed to the project at 31 March 2022.
12. Goodwill (continued)
Key assumptions
Key assumptions are based on past experience and expectations of future changes in the market, including prevailing economic
forecasts, industry specific data, competitor activity and market dynamics.
Pre-tax discount rates derived from the Group’s post tax weighted average cost of capital, and adjusted for the gearing impact of
lease liabilities, were used to discount the estimated risk-adjusted cash flows. Management estimates discount rates using pre-tax rates
that reflect the market assessment as at the balance sheet date of the time value of money and the risks specific to the cash-
generating units.
The country-specific long-term growth rates and discount rates for the Group’s operating segments are as follows:
Pre-tax discount rate
Post-tax discount rate
Long-term growth rate
31 March 2022
31 March 2021
Aviation
11.3
8.5
1.8
Land
11.7
8.8
2.2
Marine
11.3
8.5
2.5
Nuclear
11.3
8.5
2.0
Aviation
10.9
8.2
2.0
Land
10.9
8.2
2.0
Marine
10.9
8.2
2.0
Nuclear
10.9
8.2
2.0
Expected future cash flows used in discounted cash flow models are inherently uncertain and could materially change over time. They
are significantly affected by a number of factors, such as demand for the Group’s services, together with economic factors such as
estimates of costs of revenue and future capital expenditure requirements. Where discounted cash flow models based on
management’s assumptions are used, the resulting fair value measurements are considered to be at Level 3 in the fair value hierarchy,
as defined in IFRS 13, ‘Fair Value Measurement’, as they depend to a significant extent on unobservable valuation inputs.
Key assumptions in relation to future cash flows included in the value-in-use models are set out below:
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Operating segment Key future cash flow assumption
Marine
Nuclear
Land
Aviation
Continuing delivery of work programmes with the UK Ministry of Defence, including the design and build of
Type 31 frigates and the production of vertical missile tubes for the US-UK common missile compartment
programme.
Continuing delivery of naval nuclear services to the UK Ministry of Defence, including the FMSP contract.
Continuing delivery of opportunities in the UK civil nuclear decommissioning programme together with
maintenance of ongoing spend in provision of nuclear engineering services to operational power stations.
Continuing demand for equipment support and training from both military and civil customers, noting that
significant elements of equipment support and training are the subject of long-term contracts, not all of which
have been assumed to renew.
Continuing delivery of long-term contracts with the UK Ministry of Defence and key overseas territories.
Delivery of cost savings through an embedded performance improvement programme.
Sensitivity
The value-in-use for Marine and Nuclear results in these operating segments having significant headroom. It would require a long-term
growth of nil combined with discount rates in excess of 25% to reduce the headroom in Marine and Nuclear to £nil. Additionally, it
would take a reduction in the short-term cash flows of Marine and Nuclear in excess of 50% to reduce the headroom in these
operating segments to £nil. The Directors do not consider these to be plausible assumptions.
In Aviation, following the allocation and impairment of goodwill to Aviation – Europe there is a remaining goodwill balance of £32.0
million. In Land there is a goodwill balance of £218.6 million. The decrease in headroom that would result from a change in the
discount rate and long-term growth rate are set out in the table below:
Pre-tax discount rate
Increase of 100bps
Long-term growth rate
Decrease of 50bps
31 March 2022
Aviation
31 March 2021
Land
Aviation
Land
30.2
63.9
46.8
26.8
12.5
25.1
16.8
9.8
Management have also identified the growth rate in the short-term cash flows as a key assumption. If the year-on-year growth is
decreased by 15%, the collective headroom across Marine, Nuclear, Land, Africa and Aviation is reduced by £160.0 million, however
this does not change the impairment conclusion for any of these cash generating units. If the year-on-year growth for Aviation –
Europe is decreased by 15%, this would cause a reduction in the value-in-use for this cash generating unit of £33.9 million.
194
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
195
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
13. Other intangible assets
Cost
At 1 April 2021
On acquisition of subsidiaries and joint ventures (note 29)
Additions
Reclassification to property, plant and equipment
Reclassification
Disposal of subsidiary undertakings (note 29)
Disposals at cost
Exchange adjustments
At 31 March 2022
Accumulated amortisation and impairment
At 1 April 2021
Amortisation charge
Impairment
Reclassification
Disposal of subsidiary undertakings (note 29)
Disposals
Exchange adjustments
At 31 March 2022
Net book value at 31 March 2022
Cost
At 1 April 2020 as previously stated
Prior year adjustment
At 1 April 2020 restated
On disposal of subsidiaries (note 29)
Additions
Reclassification from property, plant and equipment
Disposals at cost
Exchange adjustments
At 31 March 2021
Accumulated amortisation and impairment
At 1 April 2020 as previously stated
Prior year adjustment
At 1 April 2020 restated
On disposal of subsidiaries and joint ventures (note 29)
Amortisation charge
Impairment (note 2)
Reclassification from property, plant and equipment
Disposals
Exchange adjustments
At 31 March 2021
Net book value at 31 March 2021
Internally generated
software
development
costs and
licences
£m
Internally generated
development
costs and
other
£m
Acquired
intangibles –
relationships
£m
1,031.5
62.0
–
–
–
–
–
0.8
1,094.3
927.5
21.4
57.6
–
–
–
(0.7)
1,005.8
88.5
1,042.9
–
1,042.9
(5.2)
–
–
–
(6.2)
1,031.5
840.3
–
840.3
(5.2)
40.2
56.4
–
–
(4.2)
927.5
104.0
189.3
–
7.0
0.1
0.9
(3.9)
(1.4)
0.2
192.2
115.0
13.9
–
0.1
(1.8)
(1.0)
0.2
126.4
65.8
187.1
(2.8)
184.3
(0.1)
11.0
–
(6.0)
0.1
189.3
79.8
(1.0)
78.8
(0.1)
18.2
24.0
–
(6.0)
0.1
115.0
74.3
26.1
–
4.4
(1.6)
(0.9)
–
(0.3)
(0.1)
27.6
4.5
1.8
–
(0.1)
–
–
–
6.2
21.4
26.8
–
26.8
–
7.0
1.3
(8.4)
(0.6)
26.1
2.0
–
2.0
–
1.0
8.7
1.3
(8.4)
(0.1)
4.5
21.6
Total
£m
1,246.9
62.0
11.4
(1.5)
–
(3.9)
(1.7)
0.9
1,314.1
1,047.0
37.1
57.6
–
(1.8)
(1.0)
(0.5)
1,138.4
175.7
1,256.8
(2.8)
1,254.0
(5.3)
18.0
1.3
(14.4)
(6.7)
1,246.9
922.1
(1.0)
921.1
(5.3)
59.4
89.1
1.3
(14.4)
(4.2)
1,047.0
199.9
Acquired intangible amortisation charges for the year are recorded through cost of revenue.
In the year ended 31 March 2022 the Group amended its accounting policy in related to Software-as-a-service agreements, which
would previously have been capitalised within ‘Internally generated software development costs and licences’. Further detail is
included in note 1.
In the year ended 31 March 2022, the Aviation operating segment recorded an impairment to acquired intangibles of £57.6 million
on an acquired intangible that was initially recognised in relation to the acquisition of the Avincis business. The Group’s disposal
programme impacted on the ability of the Aviation operating segment to share assets, capability and management across the entire
contract and asset base, resulting in reassessment of the value-in-use for the operating segment in line with an assessment under IAS
36, as outlined in note 12 resulting in this asset being fully impaired.
Included in Internally generated software development costs and licences is £40.7 million relating to the Group’s ERP system, which
will be fully amortised in 10 years. Included in the acquired intangible balance is £63.6 million relating to the acquisition of the NSM
joint venture (refer to note 29 for further details). This will be fully amortised in 20 years.
196
Babcock International Group PLC Annual Report and Financial Statements 2022
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
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e
m
e
n
t
s
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
On acquisition of subsidiaries and joint ventures (note 29)
Reclassification to property, plant and equipment
Disposal of subsidiary undertakings (note 29)
Cost
At 1 April 2021
Additions
Reclassification
Disposals at cost
Exchange adjustments
At 31 March 2022
At 1 April 2021
Amortisation charge
Impairment
Reclassification
Disposals
Exchange adjustments
At 31 March 2022
Accumulated amortisation and impairment
Disposal of subsidiary undertakings (note 29)
Net book value at 31 March 2022
Cost
At 1 April 2020 as previously stated
Prior year adjustment
At 1 April 2020 restated
On disposal of subsidiaries (note 29)
Additions
Disposals at cost
Exchange adjustments
At 31 March 2021
Reclassification from property, plant and equipment
Accumulated amortisation and impairment
At 1 April 2020 as previously stated
On disposal of subsidiaries and joint ventures (note 29)
Reclassification from property, plant and equipment
Prior year adjustment
At 1 April 2020 restated
Amortisation charge
Impairment (note 2)
Disposals
Exchange adjustments
At 31 March 2021
Net book value at 31 March 2021
Internally generated
software
Internally generated
Acquired
intangibles –
relationships
£m
development
costs and
licences
£m
development
costs and
other
£m
1,031.5
62.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.8
1,094.3
927.5
21.4
57.6
(0.7)
1,005.8
88.5
1,042.9
1,042.9
(5.2)
(6.2)
1,031.5
840.3
840.3
(5.2)
40.2
56.4
(4.2)
927.5
104.0
189.3
–
7.0
0.1
0.9
(3.9)
(1.4)
0.2
192.2
115.0
13.9
–
0.1
(1.8)
(1.0)
0.2
126.4
65.8
187.1
(2.8)
184.3
(0.1)
11.0
–
(6.0)
0.1
189.3
79.8
(1.0)
78.8
(0.1)
18.2
24.0
–
(6.0)
0.1
115.0
74.3
1,246.9
Total
£m
62.0
11.4
(1.5)
–
(3.9)
(1.7)
0.9
1,314.1
1,047.0
37.1
57.6
–
(1.8)
(1.0)
(0.5)
1,138.4
175.7
(2.8)
(5.3)
18.0
1.3
(14.4)
(6.7)
1,246.9
922.1
(1.0)
921.1
(5.3)
59.4
89.1
1.3
(14.4)
(4.2)
1,047.0
199.9
26.1
–
4.4
(1.6)
(0.9)
–
(0.3)
(0.1)
27.6
4.5
1.8
(0.1)
–
–
–
–
6.2
21.4
–
–
7.0
1.3
(8.4)
(0.6)
26.1
2.0
2.0
–
–
1.0
8.7
1.3
(8.4)
(0.1)
4.5
21.6
26.8
1,256.8
26.8
1,254.0
Acquired intangible amortisation charges for the year are recorded through cost of revenue.
In the year ended 31 March 2022 the Group amended its accounting policy in related to Software-as-a-service agreements, which
would previously have been capitalised within ‘Internally generated software development costs and licences’. Further detail is
included in note 1.
In the year ended 31 March 2022, the Aviation operating segment recorded an impairment to acquired intangibles of £57.6 million
on an acquired intangible that was initially recognised in relation to the acquisition of the Avincis business. The Group’s disposal
programme impacted on the ability of the Aviation operating segment to share assets, capability and management across the entire
contract and asset base, resulting in reassessment of the value-in-use for the operating segment in line with an assessment under IAS
36, as outlined in note 12 resulting in this asset being fully impaired.
Included in Internally generated software development costs and licences is £40.7 million relating to the Group’s ERP system, which
will be fully amortised in 10 years. Included in the acquired intangible balance is £63.6 million relating to the acquisition of the NSM
joint venture (refer to note 29 for further details). This will be fully amortised in 20 years.
13. Other intangible assets
14. Property, plant and equipment
Cost
At 1 April 2021
On acquisition of subsidiaries (note 29)
On disposal of subsidiaries (note 29)
Additions
Disposals
Reclassification
Reclassification from intangible assets
Exchange adjustments
At 31 March 2022
Accumulated depreciation
At 1 April 2021
On disposal of subsidiaries (note 29)
Charge for the year
Impairment
Disposals
Exchange adjustments
At 31 March 2022
Net book value at 31 March 2022
Cost
At 1 April 2020 as previously stated
Reclassification of assets in the course of
construction
At 1 April 2020 restated
On disposal of subsidiaries (note 29)
Additions (restated)
Disposals
Reclassification
Reclassification to intangible assets
Capitalised borrowing costs
Exchange adjustments
At 31 March 2021
Accumulated depreciation
At 1 April 2020
On disposal of subsidiaries (note 29)
Charge for the year
Impairment (note 2)
Disposals
Reclassification
Reclassification to intangible assets
Exchange adjustments
At 31 March 2021
Net book value at 31 March 2021
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
159.8
–
(7.6)
1.8
(2.5)
1.5
0.4
–
153.4
69.5
(4.7)
8.1
–
(1.5)
–
71.4
82.0
15.8
–
(0.6)
3.8
(0.8)
4.9
–
0.1
23.2
10.9
(0.2)
0.5
–
(0.7)
–
10.5
12.7
506.5
0.4
(21.6)
32.3
(14.2)
(1.5)
1.1
4.4
507.4
373.1
(13.7)
38.1
–
(10.8)
1.8
388.5
118.9
Aircraft
fleet
£m
365.3
–
(17.4)
28.9
(56.0)
0.9
–
(0.4)
321.3
45.4
(7.7)
12.0
58.8
(38.9)
1.0
70.6
250.7
Assets in
course of
construction
£m
187.6
–
(0.9)
112.6
(46.5)
(5.8)
–
(0.7)
246.3
1.7
–
–
–
(1.6)
(0.1)
–
246.3
Total
£m
1,235.0
0.4
(48.1)
179.4
(120.0)
–
1.5
3.4
1,251.6
500.6
(26.3)
58.7
58.8
(53.5)
2.7
541.0
710.6
125.2
32.0
605.7
533.8
88.5
1,385.2
18.7
143.9
–
2.5
(3.3)
16.9
–
0.1
(0.3)
159.8
66.6
–
5.0
0.3
(2.9)
0.7
–
(0.2)
69.5
90.3
–
32.0
–
1.2
(0.4)
(17.0)
–
–
–
15.8
9.5
–
1.0
2.5
(0.4)
(1.7)
–
–
10.9
4.9
(61.4)
544.3
(1.7)
39.5
(79.5)
0.1
(1.3)
1.4
3.7
506.5
390.7
(0.9)
46.7
9.2
(70.9)
0.2
(1.3)
(0.6)
373.1
133.4
–
533.8
–
39.2
(210.7)
11.1
–
–
(8.1)
365.3
77.5
–
33.9
99.3
(165.0)
0.8
–
(1.1)
45.4
319.9
42.7
131.2
–
76.0
(4.9)
(11.1)
–
–
(3.6)
187.6
–
–
–
2.0
–
–
–
(0.3)
1.7
185.9
–
1,385.2
(1.7)
158.4
(298.8)
–
(1.3)
1.5
(8.3)
1,235.0
544.3
(0.9)
86.6
113.3
(239.2)
–
(1.3)
(2.2)
500.6
734.4
In the year ended 31 March 2022 it was identified that assets in the course of construction were incorrectly classified as plant and
equipment and freehold property. The reclassification results in an increase to assets in the course of construction and a decrease to
plant and equipment of £42.7 million at 1 April 2020. At 31 March 2021 there is an increase to assets in the course of construction of
£94.3 million and a decrease to plant and equipment of £76.2 million and freehold property of £18.1 million. Furthermore, it was
identified that freehold property totalling £18.7m was incorrectly classified as plant and equipment. This reclassification results in an
increase to freehold property of £18.7 million at 1 April 2020 and 31 March 2021, with a resulting decrease to plant and equipment.
In the year ended 31 March 2022, the Group recognised an impairment charge of £58.8 million in relation to the aircraft fleet in the
Aviation operating segment due to changes in the future business performance, as informed by the Group’s disposal programme. This
change has impacted on the ability of the Aviation operating segment to share assets, capability and management across the entire
contract and asset base. In making this assessment management have grouped the aircraft at the lowest level for which there are
identifiable and separable cashflows, which is generally at the fleet level. The asset valuations have been calculated based on
estimated discounted cashflows over the remaining useful expected lives of the assets. The impairment charge of £58.8 million is
based on a recoverable amount for the relevant assets of £220.0 million.
196
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
197
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
15. Leases
Group as a lessee
Lease liabilities represent rentals payable by the Group for certain operational, distribution and office properties and other assets such
as aircraft. The leases have varying terms, purchase options, escalation clauses and renewal rights.
Right of use assets
Cost
At 1 April 2021
Additions
Acquisition of subsidiary (note 29)
Disposals
Disposal of subsidiaries (note 29)
Exchange adjustments
At 31 March 2022
Accumulated depreciation
At 1 April 2021
Charge for the year
Impairment
Disposals
Disposal of subsidiaries (note 29)
Reclassification
Exchange adjustments
At 31 March 2022
Net book value at 31 March 2022
Cost
At 1 April 2020
Additions
Disposals
Exchange adjustments
At 31 March 2021
Accumulated depreciation
At 1 April 2020
Charge for the year
Impairment (note 2)
Disposals
Exchange adjustments
At 31 March 2021
Net book value at 31 March 2021
Leasehold
property
£m
Plant and
equipment
£m
Aircraft
fleet
£m
152.9
24.0
0.5
(31.1)
(21.1)
2.1
127.3
51.1
23.5
–
(23.7)
(9.5)
–
1.1
42.5
84.8
72.1
3.4
–
(7.8)
(3.0)
–
64.7
42.2
9.5
–
(6.9)
(1.9)
(2.0)
–
40.9
23.8
Leasehold
property
£m
Plant and
equipment
£m
148.2
18.2
(15.3)
1.8
152.9
26.4
27.7
7.3
(10.7)
0.4
51.1
101.8
70.6
8.0
(6.5)
–
72.1
30.1
12.6
4.4
(4.8)
(0.1)
42.2
29.9
584.2
61.2
–
(33.0)
(228.4)
(1.0)
383.0
197.6
72.1
18.0
(21.8)
(109.5)
2.0
(1.1)
157.3
225.7
Aircraft
fleet
£m
549.4
65.5
(38.3)
7.6
584.2
102.7
93.1
34.7
(32.3)
(0.6)
197.6
386.6
Total
£m
809.2
88.6
0.5
(71.9)
(252.5)
1.1
575.0
290.9
105.1
18.0
(52.4)
(120.9)
–
–
240.7
334.3
Total
£m
768.2
91.7
(60.1)
9.4
809.2
159.2
133.4
46.4
(47.8)
(0.3)
290.9
518.3
198
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
Lease liabilities represent rentals payable by the Group for certain operational, distribution and office properties and other assets such
as aircraft. The leases have varying terms, purchase options, escalation clauses and renewal rights.
15. Leases (continued)
Lease liabilities
The following tables show the discounted Group lease liabilities and a reconciliation of opening to closing lease liabilities:
At 1 April 2021
Additions
Acquisition of subsidiaries (note 29)
Disposals
Disposal of subsidiaries (note 29)
Exchange adjustments
Lease interest
Lease repayments
At 31 March 2022
Non-current lease liabilities
Current lease liabilities
At 31 March 2022
At 1 April 2020
Additions
Disposals
Exchange adjustments
Lease interest
Lease repayments
At 31 March 2021
Non-current lease liabilities
Current lease liabilities
At 31 March 2021
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Total
£m
612.3
93.8
0.5
(22.6)
(137.1)
0.2
17.4
(130.4)
434.1
329.3
104.8
434.1
689.4
91.7
(9.4)
(18.8)
23.5
(164.1)
612.3
486.2
126.1
612.3
See note 24 for a maturity analysis of the contractual undiscounted lease payments.
Amounts recognised in the Group income statement
Interest on lease liabilities
2022
£m
17.4
2021
£m
23.5
The total expense for short term and low value leases was £8.9 million, which is deemed approximate to the cash outflow for short
term and low value leases.
15. Leases
Group as a lessee
Right of use assets
Cost
At 1 April 2021
Additions
Acquisition of subsidiary (note 29)
Disposals
Disposal of subsidiaries (note 29)
Exchange adjustments
At 31 March 2022
Accumulated depreciation
At 1 April 2021
Charge for the year
Impairment
Disposals
Disposal of subsidiaries (note 29)
Reclassification
Exchange adjustments
At 31 March 2022
Net book value at 31 March 2022
Cost
At 1 April 2020
Additions
Disposals
Exchange adjustments
At 31 March 2021
Accumulated depreciation
At 1 April 2020
Charge for the year
Impairment (note 2)
Disposals
Exchange adjustments
At 31 March 2021
Net book value at 31 March 2021
Leasehold
property
£m
Plant and
equipment
£m
Aircraft
fleet
£m
72.1
3.4
(7.8)
(3.0)
–
–
64.7
42.2
9.5
–
(6.9)
(1.9)
(2.0)
–
40.9
23.8
70.6
8.0
(6.5)
–
72.1
30.1
12.6
4.4
(4.8)
(0.1)
42.2
29.9
584.2
61.2
–
(33.0)
(228.4)
(1.0)
383.0
197.6
72.1
18.0
(21.8)
(109.5)
2.0
(1.1)
157.3
225.7
Aircraft
fleet
£m
549.4
65.5
(38.3)
7.6
584.2
102.7
93.1
34.7
(32.3)
(0.6)
197.6
386.6
Total
£m
809.2
88.6
0.5
(71.9)
(252.5)
1.1
575.0
290.9
105.1
18.0
(52.4)
(120.9)
–
–
240.7
334.3
Total
£m
768.2
91.7
(60.1)
9.4
809.2
159.2
133.4
46.4
(47.8)
(0.3)
290.9
518.3
152.9
24.0
0.5
(31.1)
(21.1)
2.1
127.3
51.1
23.5
(23.7)
(9.5)
–
–
1.1
42.5
84.8
148.2
18.2
(15.3)
1.8
152.9
26.4
27.7
7.3
(10.7)
0.4
51.1
101.8
Leasehold
property
£m
Plant and
equipment
£m
198
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
199
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
15. Leases (continued)
Amounts recognised in the Group cash flow statement
Total cash outflow for principal element of leases
Total cash outflow for interest element of leases
Total cash outflow for leases
2022
£m
113.0
17.4
130.4
2021
£m
140.6
23.5
164.1
Group as a lessor
The Group is the lessor in an arrangement for the lease of vehicles and sub-lease of leased properties. These are solely finance lease
arrangements.
Amounts recognised in the Group income statement
Finance lease – interest income
Finance lease payments receivable
Within one year
Greater than one year but less than two years
Greater than two years but less than three years
Greater than three years but less than four years
Greater than four years but less than five years
Greater than five years
Total undiscounted finance lease payments receivable
Impact of discounting
Finance lease receivable (net investment in the lease)
There was no material impairment of lease receivables in the year ended 31 March 2022 (2021: £nil).
Year ended
31 March 2022
£m
3.1
Year ended
31 March 2021
£m
1.8
Year ended
31 March 2022
£m
23.3
12.2
8.1
4.0
–
–
47.6
(0.2)
47.4
Year ended
31 March 2021
£m
26.7
7.9
4.7
0.4
–
–
39.7
(0.1)
39.6
200
Babcock International Group PLC Annual Report and Financial Statements 2022
The Group is the lessor in an arrangement for the lease of vehicles and sub-lease of leased properties. These are solely finance lease
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
15. Leases (continued)
Amounts recognised in the Group cash flow statement
Total cash outflow for principal element of leases
Total cash outflow for interest element of leases
Total cash outflow for leases
Group as a lessor
arrangements.
Amounts recognised in the Group income statement
Finance lease – interest income
Finance lease payments receivable
Within one year
Greater than one year but less than two years
Greater than two years but less than three years
Greater than three years but less than four years
Greater than four years but less than five years
Total undiscounted finance lease payments receivable
Greater than five years
Impact of discounting
Finance lease receivable (net investment in the lease)
There was no material impairment of lease receivables in the year ended 31 March 2022 (2021: £nil).
2022
£m
113.0
17.4
130.4
2021
£m
140.6
23.5
164.1
Year ended
Year ended
31 March 2022
31 March 2021
£m
3.1
£m
1.8
Year ended
Year ended
31 March 2022
31 March 2021
£m
23.3
12.2
8.1
4.0
–
–
47.6
(0.2)
47.4
£m
26.7
7.9
4.7
0.4
–
–
39.7
(0.1)
39.6
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
16. Investment in and loans to joint ventures and associates
The Group’s principal joint ventures and associates are:
Nature of relationship
Year end
AirTanker Services Limited
Ascent Flight Training (Holdings)
Limited
Associate
31 Dec
Joint venture
31 Mar
Business activity
Provision of
air-to-air refuelling
Provision of
training services
% interest
held (2022)
% interest
held (2021)
23.5%
23.5%
50.0%
50.0%
Country of
incorporation
United
Kingdom
United
Kingdom
Principal area
of operation
United
Kingdom
United
Kingdom
During the year the Group increased its shareholding in Naval Ship Management (Australia) Pty Limited, and acquired the remaining
50% interest for a cash consideration of £33.1 million.
The Group disposed of its share in AirTanker Holdings Limited for a cash consideration of £95.6 million (note 29).
Summarised financial information for joint ventures and associates
The summarised financial information below reflects the amounts presented in the financial statements of the relevant joint ventures
and associates, and not the Group’s share of those amounts. These amounts have been adjusted to conform to the Group’s accounting
policies where required. The summarised financial information has been aggregated in order to provide useful information to users
without excessive detail. Joint ventures that are not considered material to the Group are not shown below.
31 March 2022
31 March 2021
Summarised income statement extract (year ended)
Ascent Flight Training
(Holdings) Limited
AirTanker Services
Limited
Ascent Flight Training
(Holdings) Limited
AirTanker Services
Limited
Revenue
Depreciation and amortisation
Interest income
Interest expense
Income tax expense
Profit from continuing operations
Other comprehensive income
Total comprehensive income/(loss)
Summarised balance sheet
Non-current assets
Current assets (excluding cash and cash equivalents)
Cash and cash equivalents
Non-current financial liabilities (excluding trade and other
payables and provisions)
Current financial liabilities (excluding trade and other
payables and provisions)
Current trade and other payables and provisions
Net assets
164.8
–
6.1
(6.2)
(3.7)
15.4
0.4
15.8
29.4
101.5
60.4
189.2
(14.5)
–
(0.3)
(2.5)
6.5
–
6.5
78.2
69.0
54.4
155.1
–
7.7
(7.2)
(2.9)
15.3
–
15.3
94.2
75.2
25.5
(137.5)
(49.3)
(113.3)
–
(4.6)
49.2
–
(51.9)
100.4
(3.5)
(35.4)
42.7
144.6
(3.3)
–
(0.2)
–
5.7
–
5.7
41.8
91.0
64.3
(9.9)
–
(93.6)
93.6
Ownership
50.0%
23.5%
50.0%
23.5%
Carrying value of investment
24.6
23.6
21.4
22.0
200
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
201
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
16. Investment in and loans to joint ventures and associates (continued)
Reconciliation to carrying amounts
Investment in joint ventures
and associates
Loans to joint ventures
and associates
At 1 April
Acquisition and disposal of joint ventures and
associates (note 29)
Loans repaid by joint ventures and associates
Increase in loans to joint ventures and associates
Impairment of loans to joint ventures and associates
Investment in joint ventures and associates
Share of profits/(losses)
Interest accrued and capitalised
Interest received
Dividends received
Fair value adjustment of derivatives
Tax on fair value adjustment of derivatives
Foreign exchange
At 31 March
2022
£m
73.5
(24.5)
–
–
–
2.6
20.1
–
–
(41.6)
30.2
(5.7)
(0.3)
54.3
2021
£m
161.9
(53.2)
–
–
–
8.8
(13.1)
–
–
(36.8)
7.0
(1.4)
0.3
73.5
2022
£m
42.1
–
(31.0)
1.4
–
–
–
3.2
(3.6)
–
–
–
–
12.1
2021
£m
48.6
–
(4.2)
3.9
(7.0)
–
–
3.1
(2.3)
–
–
–
–
42.1
Total
2022
£m
115.6
(24.5)
(31.0)
1.4
–
2.6
20.1
3.2
(3.6)
(41.6)
30.2
(5.7)
(0.3)
66.4
2021
£m
210.5
(53.2)
(4.2)
3.9
(7.0)
8.8
(13.1)
3.1
(2.3)
(36.8)
7.0
(1.4)
0.3
115.6
In the prior year, the share of results of joint ventures and associates loss reported of £13.1 million was due to a £37.1 million
reduction to share of results of joint ventures and associates identified through the contract profitability and balance sheet review
(refer to note 11 for further details). The contract profitability and balance sheet review also identified an impairment of £7.0 million
in relation to loans to joint ventures and associates. This joint venture had entered the final stages of its operations and the loan was
no longer deemed recoverable and was fully impaired.
The total investments in joint ventures and associates are attributable to the following reportable segments:
Marine
Nuclear
Land
Aviation
Net book value
2022
£m
4.8
0.3
1.5
59.8
66.4
2021
£m
6.5
9.6
13.1
86.4
115.6
The joint ventures and associates have no significant contingent liabilities to which the Group is exposed. The Group does not have any
commitments that have been made to the joint ventures or associates and not recognised at the reporting date.
Joint arrangements are shown as joint ventures as the Group has the right to net assets of the joint arrangement rather than separate
rights and obligations to the assets and liabilities of the joint arrangement respectively.
There are no significant restrictions on the ability of joint ventures and associates to transfer funds to the owners, other than those
imposed by the Companies Act 2006 or equivalent local regulations.
202
Babcock International Group PLC Annual Report and Financial Statements 2022
S
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r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
Reconciliation to carrying amounts
At 1 April
Acquisition and disposal of joint ventures and
associates (note 29)
Loans repaid by joint ventures and associates
Increase in loans to joint ventures and associates
Impairment of loans to joint ventures and associates
Investment in joint ventures and associates
Share of profits/(losses)
Interest accrued and capitalised
Interest received
Dividends received
Fair value adjustment of derivatives
Tax on fair value adjustment of derivatives
Foreign exchange
At 31 March
Investment in joint ventures
Loans to joint ventures
and associates
and associates
2022
£m
73.5
2021
£m
161.9
(24.5)
(53.2)
–
–
–
–
–
–
–
–
–
–
2.6
20.1
8.8
(13.1)
(41.6)
30.2
(5.7)
(0.3)
54.3
(36.8)
7.0
(1.4)
0.3
73.5
2022
£m
42.1
(31.0)
1.4
–
–
–
–
–
–
–
–
2021
£m
48.6
–
(4.2)
3.9
(7.0)
–
–
–
–
–
–
3.2
(3.6)
3.1
(2.3)
12.1
42.1
Total
2022
£m
115.6
(24.5)
(31.0)
1.4
–
2.6
20.1
3.2
(3.6)
(41.6)
30.2
(5.7)
(0.3)
66.4
2021
£m
210.5
(53.2)
(4.2)
3.9
(7.0)
8.8
(13.1)
3.1
(2.3)
(36.8)
7.0
(1.4)
0.3
115.6
In the prior year, the share of results of joint ventures and associates loss reported of £13.1 million was due to a £37.1 million
reduction to share of results of joint ventures and associates identified through the contract profitability and balance sheet review
(refer to note 11 for further details). The contract profitability and balance sheet review also identified an impairment of £7.0 million
in relation to loans to joint ventures and associates. This joint venture had entered the final stages of its operations and the loan was
no longer deemed recoverable and was fully impaired.
The total investments in joint ventures and associates are attributable to the following reportable segments:
Marine
Nuclear
Land
Aviation
Net book value
2022
£m
4.8
0.3
1.5
59.8
66.4
2021
£m
6.5
9.6
13.1
86.4
115.6
The joint ventures and associates have no significant contingent liabilities to which the Group is exposed. The Group does not have any
commitments that have been made to the joint ventures or associates and not recognised at the reporting date.
Joint arrangements are shown as joint ventures as the Group has the right to net assets of the joint arrangement rather than separate
rights and obligations to the assets and liabilities of the joint arrangement respectively.
There are no significant restrictions on the ability of joint ventures and associates to transfer funds to the owners, other than those
imposed by the Companies Act 2006 or equivalent local regulations.
16. Investment in and loans to joint ventures and associates (continued)
17. Inventories
Raw materials and spares
Work-in-progress
Finished goods and goods for resale
Total
31 March 2022
£m
77.3
4.1
61.3
142.7
31 March 2021
(restated)
£m
69.8
7.2
76.0
153.0
£9.4m of inventory has been reclassified as contract assets at 31 march 2021. See note 3 for further details.
Write-downs of inventories amounted to £15.8 million (2021: £28.6 million). These were recognised as an expense during the year
ended 31 March 2022 and included in cost of revenue in the income statement.
18. Trade and other receivables and contract assets
Non-current assets
Costs to obtain a contract
Costs to fulfil a contract
Non-current trade and other receivables
Current assets
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Retentions
Amounts due from related parties (note 33)
Other debtors
Prepayments
Costs to obtain a contract
Costs to fulfil a contract
Trade and other receivables
Contract assets
Current trade and other receivables and contract assets
31 March 2022
£m
31 March 2021
(restated)
£m
8.9
0.8
9.7
311.5
(14.6)
296.9
4.4
2.0
106.2
71.1
7.6
0.6
488.8
17.5
9.2
26.7
283.8
(14.0)
269.8
8.0
1.7
83.8
66.8
3.7
1.9
435.7
299.3
276.4
788.1
712.1
£9.4m of inventory has been reclassified as contract assets at 31 March 2021. Separately, an £11.6m restatement has been
recognised reducing contract assets as at 31 March 2021. See note 3 for further details.
£26.7m of costs to obtain and fulfil a contract as at 31 March 2021 have been restated as non-current assets based on when the
expense is expected to be realised in the income statement. See note 3 for further details. Costs to obtain and fulfil contracts are also
now presented separately from contract assets.
Trade and other receivables are stated at amortised cost. There has been no impairment to other debtors during the year ended
31 March 2022.
The Group recognises that there is an inherent element of estimation uncertainty and judgement involved in assessing contract
profitability, as disclosed in note 1. Management have taken a best estimate view of contract outcomes based on the information
currently available, after allowing for contingencies, and have applied a constraint to the variable consideration within revenue
resulting in a revenue estimate that is suitably cautious under IFRS 15.
In the year ended 31 March 2022, amortisation of costs to obtain a contract and costs to fulfil a contract totalled £2.8 million (2021:
£11.2 million). No impairment was recorded in relation to costs to obtain a contract or costs to fulfil a contract (2021: £15.5 million).
202
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
203
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
18. Trade and other receivables (continued)
Significant changes in contract assets during the year are as follows:
31 March 2021 (restated)
Acquisition of subsidiary undertaking
Disposal of subsidiary undertaking
Transfers from contract assets recognised at the beginning of the year to trade
receivables
Increase due to work done not transferred from contract assets
Exchange adjustment
31 March 2022
31 March 2020 (restated)
Disposal of subsidiary undertaking
Transfers from contract assets recognised at the beginning of the year to receivables
Increase due to work done not transferred from contract assets
Write down of contract assets
Exchange adjustment
31 March 2021 (restated)
Contract assets
£m
276.4
16.3
(20.8)
(228.7)
255.1
1.0
299.3
319.2
(4.0)
(291.6)
262.0
(6.9)
(2.3)
276.4
The Group does not have the information presently available to disclose revenue recognised in respect of performance obligations
satisfied or partially satisfied in previous periods. We will seek to extend the scope of this disclosure in due course to include the full
population of the Group’s contracts, as we adopt data collection on to common systems with common controls.
At 31 March 2022, there is £4.1 billion (2021: £3.6 billion) of transaction price on contracts with customers that has been allocated
to unsatisfied or partially satisfied performance obligations (note this has metric has been prepared for IFRS 15 disclosure purposes and
therefore does not align to the Group’s contract backlog). Management expects that 43.2% (2021: 32.7%) of the transaction price
allocated to unsatisfied performance obligations as at 31 March 2022 will be recognised as revenue during the next reporting period.
A further 46.6% (2021: 49.5%) of the transaction price allocated to unsatisfied performance obligations is expected to be recognised
as revenue in years two to five after 31 March 2022.
Details on the Group’s approach to assess credit risk are included in note 24.
19. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:
31 March
2022
£m
616.0
530.3
1,146.3
31 March
2021
£m
610.5
294.3
904.8
Currency
Sterling
Euro
US Dollar
South African Rand
Canadian Dollar
Omani Rial
Australian Dollar
Norwegian Krone
Swedish Krona
New Zealand Dollar
Other currencies
31 March 2022
31 March 2021
Total
£m
Floating rate
£m
Total
£m
Floating rate
£m
1,023.9
15.0
25.5
27.8
12.2
4.7
22.2
1.4
6.5
1.0
6.1
1,146.3
1,023.9
15.0
25.5
27.8
12.2
4.7
22.2
1.4
6.5
1.0
6.1
1,146.3
734.0
52.7
28.3
39.9
16.5
4.9
9.4
3.1
3.7
3.1
9.2
904.8
734.0
52.7
28.3
39.9
16.5
4.9
9.4
3.1
3.7
3.1
9.2
904.8
Surplus cash balances are typically invested at short-term floating rates, linked to SONIA in the case of Sterling, EURIBOR in the case of
Euro, the prime rate in the case of South African Rand and the local prime rate for other currencies.
Expected credit losses of cash and cash equivalents has been determined to be immaterial.
204
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
Transfers from contract assets recognised at the beginning of the year to trade
Increase due to work done not transferred from contract assets
31 March 2021 (restated)
Acquisition of subsidiary undertaking
Disposal of subsidiary undertaking
receivables
Exchange adjustment
31 March 2022
31 March 2020 (restated)
Disposal of subsidiary undertaking
Write down of contract assets
Exchange adjustment
31 March 2021 (restated)
Transfers from contract assets recognised at the beginning of the year to receivables
Increase due to work done not transferred from contract assets
£m
276.4
16.3
(20.8)
(228.7)
255.1
1.0
299.3
319.2
(4.0)
(291.6)
262.0
(6.9)
(2.3)
276.4
18. Trade and other receivables (continued)
Significant changes in contract assets during the year are as follows:
20. Trade and other payables and contract liabilities
Contract assets
Current liabilities
Contract liabilities
Trade creditors
Amounts due to related parties (note 33)
Other creditors
Other taxes and social security
Accruals
Trade and other payables
2022
£m
2021
£m
518.3
396.5
164.7
1.5
26.9
76.6
618.4
888.1
410.6
0.4
37.4
144.5
517.3
1,110.2
Trade and other payables and contract liabilities
1,406.4
1,506.7
Non-current liabilities
Other creditors
1.0
1.9
Included in creditors is £6.7 million (2021: £19.1 million) relating to capital expenditure which has therefore not been included in
working capital movements within the cash flow statement.
Significant changes in contract liabilities during the year are as follows:
The Group does not have the information presently available to disclose revenue recognised in respect of performance obligations
satisfied or partially satisfied in previous periods. We will seek to extend the scope of this disclosure in due course to include the full
population of the Group’s contracts, as we adopt data collection on to common systems with common controls.
At 31 March 2022, there is £4.1 billion (2021: £3.6 billion) of transaction price on contracts with customers that has been allocated
to unsatisfied or partially satisfied performance obligations (note this has metric has been prepared for IFRS 15 disclosure purposes and
therefore does not align to the Group’s contract backlog). Management expects that 43.2% (2021: 32.7%) of the transaction price
allocated to unsatisfied performance obligations as at 31 March 2022 will be recognised as revenue during the next reporting period.
A further 46.6% (2021: 49.5%) of the transaction price allocated to unsatisfied performance obligations is expected to be recognised
as revenue in years two to five after 31 March 2022.
Details on the Group’s approach to assess credit risk are included in note 24.
19. Cash and cash equivalents
The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:
31 March 2021
Revenue recognised that was included in the contract liability balance at
the beginning of the year
Cash advanced
Acquisition of subsidiary undertaking
Disposal of subsidiary undertaking
Exchange adjustment
31 March 2022
31 March 2020
Revenue recognised that was included in the contract liability balance at
the beginning of the year
Increase due to cash received, excluding amounts recognised as revenue
Disposal
Exchange adjustment
31 March 2021
Contract
liabilities
£m
396.5
(294.7)
419.0
8.2
(12.5)
1.8
518.3
243.2
(163.5)
318.1
(0.5)
(0.8)
396.5
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Cash at bank and in hand
Short-term bank deposits
Currency
Sterling
Euro
US Dollar
South African Rand
Canadian Dollar
Omani Rial
Australian Dollar
Norwegian Krone
Swedish Krona
New Zealand Dollar
Other currencies
31 March
31 March
2022
£m
616.0
530.3
1,146.3
2021
£m
610.5
294.3
904.8
31 March 2022
31 March 2021
Total
£m
Floating rate
£m
Total
£m
Floating rate
£m
1,023.9
1,023.9
734.0
734.0
15.0
25.5
27.8
12.2
4.7
22.2
1.4
6.5
1.0
6.1
15.0
25.5
27.8
12.2
4.7
22.2
1.4
6.5
1.0
6.1
52.7
28.3
39.9
16.5
4.9
9.4
3.1
3.7
3.1
9.2
52.7
28.3
39.9
16.5
4.9
9.4
3.1
3.7
3.1
9.2
1,146.3
1,146.3
904.8
904.8
Surplus cash balances are typically invested at short-term floating rates, linked to SONIA in the case of Sterling, EURIBOR in the case of
Euro, the prime rate in the case of South African Rand and the local prime rate for other currencies.
Expected credit losses of cash and cash equivalents has been determined to be immaterial.
204
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
205
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
21. Bank and other borrowings
Current liabilities
Bank loans and overdrafts due within one year or on demand
Secured
Unsecured
Lease obligations*
Non-current liabilities
Bank and other borrowings
Secured
Unsecured
Lease obligations*
31 March 2022
£m
31 March 2021
(restated**)
£m
0.4
863.0
863.4
104.8
968.2
0.2
383.5
383.7
126.1
509.8
24.0
823.7
847.7
329.3
1,177.0
18.5
1,305.3
1,323.8
486.2
1,810.0
* Leases are secured against the assets to which they relate.
** In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in note 3.
The Group’s overdraft totalled £389.8 million at 31 March 2022 (2021: £373.9 million).
The Group has £3.5 million (2021: £3.9 million) of secured debt in the Land operating segment that is secured against a property
owned by the Group and £20.9 million (£14.6 million) of debt that is secured against contracts with customers, which will cede to the
bank in the event of default.
The Group has entered into interest rate and currency swaps, details of which are included in note 24.
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Currency
Sterling
Euro*
US Dollar
South African Rand
Canadian Dollar
Australian Dollar
Norwegian Krone
Swedish Krona
New Zealand Dollar
South Korean Won
Botswana Pula
Danish Krone
31 March 2022
Total
£m
Floating rate
£m
832.1
1,181.1
44.4
30.0
7.5
28.2
4.7
15.6
0.2
1.2
0.2
–
405.6
252.8
19.1
20.8
0.7
1.5
3.9
–
–
–
–
Fixed rate
£m
426.5
928.3
25.3
9.2
6.8
26.7
0.8
15.6
0.2
1.2
0.2
–
31 March 2021
Total
£m
Floating rate
£m
851.8
1,253.9
123.9
23.0
8.5
36.7
0.7
18.5
0.8
1.5
0.5
399.4
250.7
18.8
14.8
–
–
–
–
–
–
–
Fixed rate
£m
452.4
1,003.2
105.1
8.2
8.5
36.7
0.7
18.5
0.8
1.5
0.5
2,145.2
704.4
1,440.8
2,319.8
683.7
1,636.1
* €1,100 million (2021: €550 million) has been swapped into Sterling, with €275 million (2021: €275 million) equivalent into floating rates and
€825 million (2021: €275 million) equivalent into fixed rates. This is included in the Euro amount above.
The weighted average interest rate of Sterling fixed rate borrowings is 1.9% (2021: 1.9%). The weighted average period for which
these interest rates are fixed is 4.6 years (2021: five years).
The floating rate for borrowings is linked to SONIA in the case of Sterling, EURIBOR in the case of Euro, the prime rate in the case of
South African Rand and the local prime rate for other currencies.
206
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
21. Bank and other borrowings
Bank loans and overdrafts due within one year or on demand
Current liabilities
Secured
Unsecured
Lease obligations*
Non-current liabilities
Bank and other borrowings
Secured
Unsecured
Lease obligations*
31 March 2021
31 March 2022
(restated**)
£m
£m
0.4
863.0
863.4
104.8
968.2
24.0
823.7
847.7
329.3
0.2
383.5
383.7
126.1
509.8
18.5
1,305.3
1,323.8
486.2
1,177.0
1,810.0
* Leases are secured against the assets to which they relate.
** In the year ended 31 March 2022, the Group restated the prior year financial information. Details of the restatement are contained in note 3.
The Group’s overdraft totalled £389.8 million at 31 March 2022 (2021: £373.9 million).
The Group has £3.5 million (2021: £3.9 million) of secured debt in the Land operating segment that is secured against a property
owned by the Group and £20.9 million (£14.6 million) of debt that is secured against contracts with customers, which will cede to the
bank in the event of default.
The Group has entered into interest rate and currency swaps, details of which are included in note 24.
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Currency
Sterling
Euro*
US Dollar
South African Rand
Canadian Dollar
Australian Dollar
Norwegian Krone
Swedish Krona
New Zealand Dollar
South Korean Won
Botswana Pula
Danish Krone
Total
£m
832.1
1,181.1
44.4
30.0
7.5
28.2
4.7
15.6
0.2
1.2
0.2
–
31 March 2022
Floating rate
Fixed rate
31 March 2021
Total
£m
Floating rate
£m
£m
405.6
252.8
19.1
20.8
0.7
1.5
3.9
–
–
–
–
£m
426.5
928.3
25.3
9.2
6.8
26.7
0.8
15.6
0.2
1.2
0.2
–
851.8
1,253.9
123.9
23.0
8.5
36.7
0.7
18.5
0.8
1.5
0.5
Fixed rate
£m
452.4
1,003.2
105.1
8.2
8.5
36.7
0.7
18.5
0.8
1.5
0.5
399.4
250.7
18.8
14.8
–
–
–
–
–
–
–
2,145.2
704.4
1,440.8
2,319.8
683.7
1,636.1
* €1,100 million (2021: €550 million) has been swapped into Sterling, with €275 million (2021: €275 million) equivalent into floating rates and
€825 million (2021: €275 million) equivalent into fixed rates. This is included in the Euro amount above.
The weighted average interest rate of Sterling fixed rate borrowings is 1.9% (2021: 1.9%). The weighted average period for which
these interest rates are fixed is 4.6 years (2021: five years).
The floating rate for borrowings is linked to SONIA in the case of Sterling, EURIBOR in the case of Euro, the prime rate in the case of
South African Rand and the local prime rate for other currencies.
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
21. Bank and other borrowings (continued)
The exposure of the Group to interest rate changes when borrowings re-price is as follows.
Total borrowings
As at 31 March 2022
As at 31 March 2021
1 year
£m
968.2
509.8
1–2 years
£m
113.1
596.5
2–5 years
£m
510.7
265.5
>5 years
£m
553.2
948.0
Total
£m
2,145.2
2,319.8
The effective interest rates at the statement of financial position dates, including the impact of hedging, were as follows:
UK bank overdraft
UK bank borrowings
8-year Eurobond September 2027 – fixed
8-year Eurobond September 2027 – floating
8-year Eurobond October 2022
£300 million bond 2026
Other borrowings
Leases obligations
Repayment details
The total borrowings of the Group at 31 March are repayable as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Greater than five years
31 March
2022
%
1.1
1.4
2.9
3.3
1.8
1.9
4.8 – 6.9
2.2 – 11.8
31 March
2021
%
1.1
0.6
2.9
2.4
1.8
1.9
4.8 – 6.4
2.2 – 11.8
31 March 2022
31 March 2021
Loans and
overdrafts
£m
863.4
22.6
0.6
0.7
356.4
467.4
1,711.1
Lease
obligations
£m
104.8
90.5
67.9
46.4
38.7
85.8
434.1
Loans and
overdrafts
£m
383.7
476.4
15.0
0.3
0.3
831.8
1,707.5
Lease
obligations
£m
126.1
120.1
91.4
96.6
61.9
116.2
612.3
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available at 31 March:
Expiring in less than one year
Expiring in more than one year but not more than five years
31 March 2022
£m
–
1,012.2
1,012.2
31 March 2021
£m
3.0
783.5
786.5
Bank loans include £12.5 million (2021: £25.1 million) that suppliers have chosen to early-fund under supplier financing
arrangements, under which the suppliers can elect to receive a discounted early payment from the partner bank rather than being
paid in line with the agreed payment terms. The total supplier financing facility available to the Group is £108.3 million at 31 March
2022 (2021: £230.0 million). The typical factoring fee is 0.1% – 0.5% (2021: 0.9% – 1.5%) and the Group has payment terms with the
partner banks of 120-360 days. If the option is taken the Group’s liability is assigned by the supplier to be due to the partner bank
rather than the supplier. The value of the liability payable by the Group remains unchanged. The Group assesses the terms and
conditions of the arrangement to determine whether the arrangement should be classified as trade payables or debt.
206
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
207
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
22. Provisions for other liabilities
At 31 March 2021
On disposal of subsidiaries (note 29)
On acquisition of subsidiaries (note 29)
Net charge/(release) to income statement
Utilised in year
Unwinding of discount
Foreign exchange
At 31 March 2022
Employee benefits
and business
reorganisation
costs
(b)
£m
35.8
(1.3)
–
40.1
(35.4)
0.2
0.3
39.7
Contract/
warranty
(a)
£m
67.1
–
1.3
(8.6)
(8.5)
–
(0.2)
51.1
Italian
anti-trust fine
(c)
£m
20.0
–
–
(3.6)
(16.1)
–
–
0.3
Property
(d)
£m
21.5
(1.2)
–
1.8
(0.8)
–
(0.3)
21.0
Other
(e)
£m
1.1
–
–
0.3
–
–
–
1.4
Total
provisions
£m
145.5
(2.5)
1.3
30.0
(60.8)
0.2
(0.2)
113.5
(a) The contract/warranty provisions relate to onerous contracts and warranty obligations on completed contracts and disposals.
Warranty provisions are provided in the normal course of business and are recognised when the underlying products and services
are sold. The provision is based on an assessment of future claims with reference to historical warranty data and a weighting of
possible outcomes against their associated probabilities.
(b) The net charge to the employee benefits and reorganisation provision comprises a charge in the year of £43.5 million and a
release of £3.4 million.
(c) For further details of the provision in relation to the Italian anti-trust fine see note 2.
(d) Property and other provisions primarily relate to dilapidation costs and contractual obligations in respect of infrastructure.
(e) Other provisions include provisions for insurance claims arising within the Group’s captive insurance company, Chepstow Insurance
Limited. They relate to specific claims assessed in accordance with the advice of independent actuaries.
Provisions have been analysed between current and non-current as follows:
Current
Non-current
31 March 2022
£m
53.2
60.3
113.5
31 March 2021
£m
71.8
73.7
145.5
Included within provisions is £7.4 million (2021: £5.0 million) expected to be utilised over approximately 10 years. Other than these
provisions the Group’s non-current provisions are expected to be utilised within two to five years.
208
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
22. Provisions for other liabilities
At 31 March 2021
On disposal of subsidiaries (note 29)
On acquisition of subsidiaries (note 29)
Net charge/(release) to income statement
Utilised in year
Unwinding of discount
Foreign exchange
At 31 March 2022
Employee benefits
and business
reorganisation
Contract/
warranty
(a)
£m
67.1
1.3
(8.6)
(8.5)
–
–
(0.2)
51.1
costs
(b)
£m
35.8
(1.3)
–
40.1
(35.4)
0.2
0.3
39.7
Italian
anti-trust fine
(c)
£m
20.0
(3.6)
(16.1)
–
–
–
–
0.3
Property
(d)
£m
21.5
(1.2)
1.8
(0.8)
–
–
(0.3)
21.0
Other
(e)
£m
1.1
0.3
–
–
–
–
–
Total
provisions
£m
145.5
(2.5)
1.3
30.0
(60.8)
0.2
(0.2)
1.4
113.5
(a) The contract/warranty provisions relate to onerous contracts and warranty obligations on completed contracts and disposals.
Warranty provisions are provided in the normal course of business and are recognised when the underlying products and services
are sold. The provision is based on an assessment of future claims with reference to historical warranty data and a weighting of
possible outcomes against their associated probabilities.
(b) The net charge to the employee benefits and reorganisation provision comprises a charge in the year of £43.5 million and a
release of £3.4 million.
(c) For further details of the provision in relation to the Italian anti-trust fine see note 2.
(d) Property and other provisions primarily relate to dilapidation costs and contractual obligations in respect of infrastructure.
(e) Other provisions include provisions for insurance claims arising within the Group’s captive insurance company, Chepstow Insurance
Limited. They relate to specific claims assessed in accordance with the advice of independent actuaries.
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Included within provisions is £7.4 million (2021: £5.0 million) expected to be utilised over approximately 10 years. Other than these
provisions the Group’s non-current provisions are expected to be utilised within two to five years.
31 March 2022
31 March 2021
£m
53.2
60.3
£m
71.8
73.7
113.5
145.5
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
23. Financial instruments and fair value measurement
The following table presents the Group’s assets and liabilities:
* Trade and other receivables and trade and other payables only include balances which meet the definition of a financial instrument.
31 March 2022
Non-current financial assets
Investment in joint ventures and associates
Loans to joint ventures and associates
Financial assets
Lease receivables
Current financial assets
Trade and other receivables *
Lease receivables
Derivatives
Cash and cash equivalents
Non-current financial liabilities
Bank and other borrowings
Derivatives
Current financial liabilities
Bank and other borrowings
Trade and other payables *
Derivatives
Net financial assets / ( financial liabilities)
31 March 2021
Non-current financial assets
Investment in joint ventures and associates
Loans to joint ventures and associates
Financial assets
Lease receivables
Derivatives
Current financial assets
Trade and other receivables *
Lease receivables
Derivatives
Cash and cash equivalents
Non-current financial liabilities
Bank and other borrowings
Derivatives
Current financial liabilities
Bank and other borrowings
Trade and other payables *
Derivatives
Net financial assets / ( financial liabilities)
–
–
–
–
–
–
11.4
–
–
–
–
–
–
11.4
–
–
–
–
4.3
–
–
8.2
–
–
–
Financial assets
at fair value
£m
Financial
assets at
amortised cost
£m
Financial
liabilities at
fair value
£m
Financial
liabilities at
amortised cost
£m
Total carrying
amount
£m
54.3
12.1
10.0
24.1
335.3
23.3
–
1,146.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fair value
£m
54.3
12.1
10.0
24.1
54.3
12.1
10.0
24.1
335.3
23.3
11.4
1,146.3
335.3
23.3
11.4
1,146.3
–
–
–
(59.3)
(847.7)
–
(847.7)
(59.3)
(819.6)
(59.3)
–
–
–
1,605.4
–
–
(34.8)
(94.1)
(863.4)
(460.0)
–
(2,171.1)
(863.4)
(460.0)
(34.8)
(648.4)
(833.1)
(460.0)
(34.8)
(590.0)
Financial assets
at fair value
£m
Financial
assets at
amortised cost
£m
Financial
liabilities at
fair value
£m
Financial
liabilities at
amortised cost
£m
Total carrying
amount
£m
73.5
42.1
11.2
12.9
–
353.8
26.7
–
904.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
73.5
42.1
11.2
12.9
4.3
353.8
26.7
8.2
904.8
Fair value
£m
73.5
42.1
11.2
12.9
4.3
353.8
26.7
8.2
904.8
–
–
–
(51.0)
(1,323.8)
–
(1,323.8)
(51.0)
(1,377.2)
(51.0)
–
–
–
12.5
–
–
–
1,425.0
–
–
(13.9)
(64.9)
(383.7)
(674.8)
–
(2,382.3)
(383.7)
(674.8)
(13.9)
(1,009.7)
(399.2)
(674.8)
(13.9)
(1,078.6)
* Trade and other receivables and trade and other payables only include balances which meet the definition of a financial instrument.
208
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
209
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
23. Financial instruments and fair value measurement (continued)
The fair value hierarchy is as follows:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
• Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices) (Level 2); and
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
All of the financial assets and liabilities measured at fair value are classified as Level 2 using the fair value hierarchy. There were no
transfers between levels during the period.
The fair values of financial instruments held at fair value have been determined based on available market information at the balance
sheet date, and the valuation methodologies listed below:
• The fair values of forward foreign exchange contracts are calculated by discounting the contracted forward values and translating at
the appropriate balance sheet rates; and
• The fair values of cross-currency interest rate swaps are calculated by discounting expected future principal and interest cash flows
and translating at the appropriate balance sheet rates.
Financial assets and liabilities in the Group’s Consolidated balance sheet are either held at fair value or their carrying value
approximates to fair value, with the exception of loans, which are held at amortised cost. Due to the variability of the valuation factors,
the fair values presented at 31 March may not be indicative of the amounts the Group would expect to realise in the current market
environment.
Derivative financial instruments and hedging activities
The Group enters into forward foreign currency contracts and cross currency interest rate swaps to hedge the currency exposures that
arise on sales, purchases, deposits, borrowings and leasing arrangements denominated in foreign currencies as the transactions occur.
Where derivatives do not meet the hedge accounting criteria, they are accounted for at fair value through profit or loss. The Group’s
policy regarding classification of derivatives is set out in note 1.
Cash flow hedges
The Group uses forward contracts to hedge the foreign currency cost of future purchases of goods to be consumed in operations,
future income to be received and debt payments to be made. The Group designates the spot element of these contracts to hedge the
foreign currency risk. Undesignated components of the Group’s derivatives are recognised immediately in the income statement.
Fair value hedges
The Group maintains interest rate and cross-currency swap contracts as fair value hedges of the interest rate and currency risk on fixed-
rate debt issued by the Group. These derivative contracts receive a fixed rate of interest and pay a variable rate of interest. These are
formally designated in fair value hedging relationships and are used to hedge the exposure to changes in the fair value of debt which
has been issued by the Group at fixed rates.
210
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
23. Financial instruments and fair value measurement (continued)
The fair value hierarchy is as follows:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
• Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices) (Level 2); and
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
All of the financial assets and liabilities measured at fair value are classified as Level 2 using the fair value hierarchy. There were no
transfers between levels during the period.
The fair values of financial instruments held at fair value have been determined based on available market information at the balance
sheet date, and the valuation methodologies listed below:
• The fair values of forward foreign exchange contracts are calculated by discounting the contracted forward values and translating at
the appropriate balance sheet rates; and
• The fair values of cross-currency interest rate swaps are calculated by discounting expected future principal and interest cash flows
and translating at the appropriate balance sheet rates.
Financial assets and liabilities in the Group’s Consolidated balance sheet are either held at fair value or their carrying value
the fair values presented at 31 March may not be indicative of the amounts the Group would expect to realise in the current market
environment.
Derivative financial instruments and hedging activities
The Group enters into forward foreign currency contracts and cross currency interest rate swaps to hedge the currency exposures that
arise on sales, purchases, deposits, borrowings and leasing arrangements denominated in foreign currencies as the transactions occur.
Where derivatives do not meet the hedge accounting criteria, they are accounted for at fair value through profit or loss. The Group’s
policy regarding classification of derivatives is set out in note 1.
The Group uses forward contracts to hedge the foreign currency cost of future purchases of goods to be consumed in operations,
future income to be received and debt payments to be made. The Group designates the spot element of these contracts to hedge the
foreign currency risk. Undesignated components of the Group’s derivatives are recognised immediately in the income statement.
Cash flow hedges
Fair value hedges
24. Financial risk management
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt
obligations with floating interest rates and the Group’s cash and cash equivalents.
The Group’s risk management objective, policy and performance are as follows:
Objective
Policy
Risk management
Performance
To manage exposure to interest rate fluctuations on borrowings by varying the proportion of fixed rate debt
relative to floating rate debt to reflect the underlying nature of its commitments and obligations. As a result,
the Group does not maintain a specific set proportion of fixed versus floating debt, but monitors the mix to
ensure that it is compatible with its business requirements and capital structure.
The Group’s interest rate management policy is to monitor the mix of fixed versus floating interest rate debt to
ensure that it is compatible with its business requirements and capital structure.
The Group manages interest rate risk through the maintenance of a mixture of fixed and floating rate debt and
interest rate swaps, each being reviewed on a regular basis to ensure the appropriate mix is maintained.
As at 31 March 2022, the Group had 66% fixed rate debt (2021: 70%) and 34% floating rate debt (2021: 30%)
based on gross debt, including derivatives, of £2,290.1 million (2021: £2,340.0 million).
S
t
r
a
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g
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p
o
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t
G
o
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n
a
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F
i
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a
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c
i
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S
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a
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e
m
e
n
t
s
approximates to fair value, with the exception of loans, which are held at amortised cost. Due to the variability of the valuation factors,
The following balances are exposed to interest rate risk as shown below:
The Group maintains interest rate and cross-currency swap contracts as fair value hedges of the interest rate and currency risk on fixed-
rate debt issued by the Group. These derivative contracts receive a fixed rate of interest and pay a variable rate of interest. These are
formally designated in fair value hedging relationships and are used to hedge the exposure to changes in the fair value of debt which
has been issued by the Group at fixed rates.
Hedging instruments
Cross currency interest rate swap1
Interest rate swap2
Year ended 31 March 2022
Year ended 31 March 2021
Change in
fair value of
hedging
instrument used
for calculating
hedge
ineffectiveness
£m
(14.6)
0.4
Carrying
amount of
hedging
instrument
£m
(34.6)
0.4
Notional
principal amount
£m
246.7
3.9
Change in
fair value of
hedging
instrument used
for calculating
hedge
ineffectiveness
£m
(8.9)
0.1
Carrying
amount of
hedging
instrument
£m
(21.1)
0.7
Notional
principal
amount
£m
246.7
3.9
Cash and cash equivalents
Bank and other borrowings
31 March 2022
31 March 2021
Less than
one year
£m
1,146.3
968.2
Between one
and two
years
£m
–
113.1
Greater than
two years
£m
–
1,063.9
Less than
one year
£m
904.8
509.8
Between one
and two years
£m
–
596.5
Greater than
two years
£m
–
1,213.5
The effect of fair value hedges on the Group’s financial position and performance for the year is as follows:
1. The Group has entered into a cross currency interest rate swap to convert €275 million of fixed rate (1.375%) debt to GBP debt linked to SONIA. This matures on
13 September 2027.
2. The Group has entered into an interest rate swap with a nominal value of £3.9 million. This interest rate swap converts fixed debt with an interest rate of 4.745%
to SONIA.
Hedged item
Debt
Year ended 31 March 2022
Year ended 31 March 2021
Carrying
amount of
hedged item
£m
234.8
Accumulated
fair value
adjustments
£m
22.7
Change in
fair value used
for calculating
ineffectiveness
£m
13.7
Amount of
ineffectiveness
211ecognized in
the income
statement
£m
0.1
Carrying
amount of
hedged item
£m
237.8
Accumulated
fair value
adjustments
£m
8.7
Change in
fair value used
for calculating
ineffectiveness
£m
8.7
Amount of
ineffectiveness
211ecognized in
the income
statement
£m
0.1
Ineffectiveness is included in the income statement in finance costs.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and
borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before tax is
affected through the impact on floating rate borrowings, as follows:
GBP
EUR*
Year ended 31 March 2022
Year ended 31 March 2021
Change in
interest rate
0.5%
0.5%
Effect on profit
before tax
£m
2.5
1.2
Change in
interest rate
0.5%
0.5%
Effect on profit
before tax
£m
2.0
1.2
* The majority of the Group’s floating rate relates to €275 million of the Eurobond. If interest rates increased by 0.5% there would be an impact to equity of
£3.0 million.
210
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
211
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
24. Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Group becomes unable to meet payment obligations in a timely manner when they become due.
The Group’s risk management objective, policy and performance are as follows:
Objective
Policy
The Group’s objective with regards to liquidity risk is to ensure that there is an appropriate balance between
continuity, flexibility and cost of debt funding through the use of borrowings, whilst also diversifying the sources
of these borrowings with a range of maturities and rates of interest, to reflect the long-term nature of the Group’s
contracts and commitments and its risk profile.
The Group’s policy is to ensure the business is prudently funded and that sufficient liquidity headroom is
maintained on its facilities.
Risk management Liquidity risk management includes maintaining sufficient cash and the availability of funding from an adequate
amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Group treasury
maintains flexibility in funding by maintaining cash and/or availability under committed credit lines.
Each of the sectors in the Group provides regular cash forecasts for liquidity planning purposes. These cash
forecasts are used to monitor and identify the liquidity requirements of the Group, and to ensure that there is
sufficient liquidity to meet operational needs while maintaining sufficient headroom on the Group’s committed
borrowing facilities.
The Group utilises debt factoring in support of the non-UK operations of its Aviation sector as part of its working
capital management arrangements. Further detail is included in note 21.
Performance
The Group continues to keep under review its capital structure to ensure that the sources, tenor and availability of
finance are sufficient to meet its stated objectives. In the year ended 31 March 2022, the Group signed a new
£300 million RCF maturing in 2024 and extended the maturity of £730 million of its existing RCF to 2026.
Surplus cash during the year was invested in short-term deposits diversified across several well-rated financial
institutions in accordance with policy.
The contracted cash outflows on bank and other borrowings and derivatives at the reporting date are shown below, based on
contractual undiscounted payments.
At 31 March 2022
Bank and other borrowings
Derivatives cash outflows settled net
Derivatives cash outflows settled gross
At 31 March 2021
Bank and other borrowings
Derivatives cash outflows settled net
Derivatives cash outflows settled gross
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
Total
£m
968.2
555.7
–
509.8
97.6
–
113.1
300.5
–
596.5
167.7
–
510.7
246.4
–
265.5
132.9
–
553.2
549.6
0.4
2,145.2
1,652.2
0.4
948.0
545.0
0.7
2,319.8
943.2
0.7
A maturity analysis showing the contract cash outflows on lease liabilities is shown below:
Lease payments maturity profile
Within one year
Greater than one year but less than two years
Greater than two years but less than three years
Greater than three years but less than four years
Greater than four years but less than five years
Greater than five years
Total undiscounted lease payments
Impact of discounting
Lease liability
31 March 2022
£m
115.6
100.6
76.8
53.1
42.1
106.3
494.5
(60.4)
434.1
31 March 2021
£m
156.0
136.1
124.9
90.7
67.1
110.4
685.2
(72.9)
612.3
212
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
24. Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Group becomes unable to meet payment obligations in a timely manner when they become due.
The Group’s risk management objective, policy and performance are as follows:
Objective
The Group’s objective with regards to liquidity risk is to ensure that there is an appropriate balance between
continuity, flexibility and cost of debt funding through the use of borrowings, whilst also diversifying the sources
of these borrowings with a range of maturities and rates of interest, to reflect the long-term nature of the Group’s
Policy
The Group’s policy is to ensure the business is prudently funded and that sufficient liquidity headroom is
contracts and commitments and its risk profile.
maintained on its facilities.
Risk management Liquidity risk management includes maintaining sufficient cash and the availability of funding from an adequate
amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Group treasury
maintains flexibility in funding by maintaining cash and/or availability under committed credit lines.
Each of the sectors in the Group provides regular cash forecasts for liquidity planning purposes. These cash
forecasts are used to monitor and identify the liquidity requirements of the Group, and to ensure that there is
sufficient liquidity to meet operational needs while maintaining sufficient headroom on the Group’s committed
borrowing facilities.
The Group utilises debt factoring in support of the non-UK operations of its Aviation sector as part of its working
capital management arrangements. Further detail is included in note 21.
finance are sufficient to meet its stated objectives. In the year ended 31 March 2022, the Group signed a new
£300 million RCF maturing in 2024 and extended the maturity of £730 million of its existing RCF to 2026.
Surplus cash during the year was invested in short-term deposits diversified across several well-rated financial
institutions in accordance with policy.
The contracted cash outflows on bank and other borrowings and derivatives at the reporting date are shown below, based on
contractual undiscounted payments.
A maturity analysis showing the contract cash outflows on lease liabilities is shown below:
At 31 March 2022
Bank and other borrowings
Derivatives cash outflows settled net
Derivatives cash outflows settled gross
At 31 March 2021
Bank and other borrowings
Derivatives cash outflows settled net
Derivatives cash outflows settled gross
Lease payments maturity profile
Within one year
Greater than one year but less than two years
Greater than two years but less than three years
Greater than three years but less than four years
Greater than four years but less than five years
Greater than five years
Total undiscounted lease payments
Impact of discounting
Lease liability
Less than
Between
Between
1 year
1 and 2 years
2 and 5 years
£m
£m
£m
Over
5 years
£m
Total
£m
968.2
555.7
113.1
300.5
510.7
246.4
553.2
2,145.2
549.6
1,652.2
0.4
0.4
–
–
–
–
509.8
97.6
596.5
167.7
265.5
132.9
948.0
2,319.8
545.0
943.2
0.7
0.7
–
–
31 March 2022
31 March 2021
£m
115.6
100.6
76.8
53.1
42.1
106.3
494.5
(60.4)
434.1
£m
156.0
136.1
124.9
90.7
67.1
110.4
685.2
(72.9)
612.3
24. Financial risk management (continued)
Currency risk
Currency risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign
exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating
activities, when revenue or expense is denominated in a foreign currency, and the Group’s net investments in foreign subsidiaries.
The functional currency of Babcock International Group PLC and its UK subsidiaries is GBP. The presentation currency of the Group is
GBP. The Group has exposure primarily to EUR, ZAR, AUD and CAD, and some exposure to NOK and SEK.
The Group’s risk management objective, policy and performance are as follows:
Objective
Policy –
Transactional risk
Policy –
Translational risk
Performance
The Group continues to keep under review its capital structure to ensure that the sources, tenor and availability of
Risk management
Performance
The Group’s objective is to reduce exposure to volatility in earnings and cash flows from movements in foreign
currency exchange rates. The Group is exposed to a number of foreign currencies, the most significant being
the EUR, ZAR, AUD and CAD.
In order to mitigate the currency risk of adverse currency movements on foreign currency denominated
transactions, the Group’s policy is to hedge all foreign currency transactions greater than £10k, using financial
instruments where appropriate. The Group applies IFRS 9 hedge accounting treatment where appropriate.
The Group is also exposed to adverse foreign currency movements on translation of net assets and income
statements of foreign subsidiaries and joint ventures and associates. It is not the Group’s policy to hedge
through the use of derivatives the translation effect of exchange rate movements on the income statements or
statement of financial positions of overseas subsidiaries and joint ventures and associates it regards as long-
term investments. However, where the Group has material assets denominated in a foreign currency, it will
consider matching the assets with foreign currency denominated debt.
Currency risk management includes hedging the underlying foreign currency exposures in the foreign
exchange market with approved counterparties. Currency transactions are recorded and monitored in the
treasury management system. Each of the sectors in the Group provides a quarterly foreign currency exposure
report to monitor the level of currency hedge cover is appropriate.
All material firm transactional exposures are hedged using foreign exchange forward contracts and the Group
aims, where possible, to apply hedge accounting to these transactions.
S
t
r
a
t
e
g
i
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r
e
p
o
r
t
G
o
v
e
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n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Under the Group’s hedging policy, the terms of the forward contracts are arranged to align with the expected timing, currency and
amounts of the hedged items. The hedging instruments and hedged items will therefore have values which generally move in opposite
directions because of the same hedged risk, and an economic relationship can be demonstrated on an ongoing basis. Under the
Group’s hedging policy, the Group typically enters into transactions where the hedge ratio is 1:1 on the basis that the notional amount
of the designated hedging instruments matches the principal amount of the forecast foreign currency transaction.
The Group considers the potential sources of hedge ineffectiveness to be:
• Changes to the timing and amount of forecast transactions;
• Currency basis spread;
• Non-occurrence of the designated hedged items; and
• Valuation adjustments for credit risk made to derivative hedging instruments at each hedge effectiveness measurement date.
The effect of cash flow hedges on the Group’s financial position and performance for the year is as follows:
Contracts:
Hedging forecast purchases in EUR
Hedging forecast sales in GBP
Hedging forecast purchases/sales
in CHF/EUR**
Hedging forecast purchase/sales in
EUR/NOK**
Hedging forecast purchases/sales
in other currencies**
Hedging debt denominated in
EUR***
Cash flow hedges
Year ended 31 March 2022
Maturity date
05/03/2023
17/04/2023
20/11/2022
Weighted average
hedged rate
1.3617
0.8929
0.9387
Change in value of
instruments
(3.0)
(1.1)
1.0
Change in value of
item
3.0
1.1
(1.0)
Carrying value of
derivative
(2.2)
(1.1)
1.0
Notional amount
73.3
110.0
22.1
21/09/2022
10.4500
19/10/2022
N/A
–
0.2
14/03/2025
1.1295
(11.8)
(14.7)
–
(0.2)
15.6
18.5
–
–
(0.4)
38.7
(30.7)
695.1
(33.4)
939.2
* The notional amount is the GBP equivalent of the net currency amount purchased or sold.
** Individually immaterial items
*** Instruments used are the cross-currency swaps used to swap fixed rate EUR denominated debt into fixed rate GBP denominated
debt and foreign currency forward rate contracts.
212
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
213
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
24. Financial risk management (continued)
Currency risk (continued)
The following table demonstrates the effect on profit before tax for reasonably possible changes in EUR, ZAR, AUD and CAD
exchange rates.
EUR
ZAR
AUD
CAD
Year ended 31 March 2022
Year ended 31 March 2021
Change in
foreign
currency
rate
5%
5%
5%
5%
Effect
on profit
before tax
£m
0.8
(1.6)
(1.6)
(0.5)
Effect
on other
components
of equity
£m
0.8
(1.6)
(1.6)
(0.5)
Change in
interest rate
5%
5%
5%
5%
Effect
on profit
before tax
£m
2.0
1.2
1.4
(0.2)
Effect
on other
components
of equity
£m
2.0
1.2
1.4
(0.2)
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations to the Group, which would result in a loss for the Group. Credit
risk arises from trade and other receivables, cash and cash equivalents, investments and derivative financial instruments.
The Group’s risk management objective, policy and performance are as follows:
Objective
Policy
The Group’s objective is to ensure that the Group continues to operate with an acceptable level of credit risk,
based on management’s judgement, associated with its operating activities, such as customer trade receivables,
and financial activities, including cash deposits and financial instruments.
The Group’s policy is to manage credit risk by setting and reviewing appropriate credit limits for non-government
commercial customers, being the Group’s main exposure to credit risk. With regards to financial institutions,
credit limits will be set according to the respective financial institution’s credit rating. Counterparty bank credit
risk is closely monitored on a systematic and ongoing basis.
Risk management Currency risk management includes performing credit checks on non-government commercial customers and
Performance
setting and only performing financial transactions with approved investment grade counterparties.
Expected credit loss on trade receivable portfolio / provisions of £14.6 million (2021: £14.0 million). The
carrying amount of the Group’s financial assets represents the maximum exposure to credit risk.
Cash and cash equivalents and derivative financial instruments
The Group utilises approved investment-grade counterparties to carry out treasury transactions, including investments of cash and cash
equivalents, with counterparty bank credit risk being monitored closely on a systematic and ongoing basis. A credit limit is allocated to
each institution taking account of its market capitalisation and credit rating, and as such credit risk on these counterparties is not
considered to be material to the financial statements.
At 31 March 2022, 15.3% of the Group’s cash and cash equivalents was held with a counter-party with a credit rating of AA- or higher,
78.7% with counter-party with a credit rating of A+ to A-, and 6.0% with a counter-party with a credit rating of BBB+ to BB-. Total
balance for those assets as at 31 March 2022 is £1,146.3 million (2021: £904.8 million).
Trade receivables
The Group’s assessment is that credit risk in relation to customers or sub-contractors to governments is limited as their probability of
default is considered to be extremely low. The provision for expected credit losses for receivables from governments and sub-
contractors to government customers is therefore considered immaterial in the context of the receivables balance. The Group
manages credit risk in relation to trade and other receivables for all non-government commercial customers through various mitigating
controls including credit checks, credit limits and ongoing monitoring. Expected credit losses are assessed for all non-government
customers, however this is not considered to be material to the financial statements.
For trade receivables, the Group measures a provision for expected credit losses at an amount equal to lifetime expected credit losses,
estimated by reference to past experience and relevant forward-looking factors. For all other assets the loss allowance is measured
using 12-months expected credit losses unless there was a significant increase in credit risk since initial recognition.
214
Babcock International Group PLC Annual Report and Financial Statements 2022
24. Financial risk management (continued)
Currency risk (continued)
exchange rates.
The following table demonstrates the effect on profit before tax for reasonably possible changes in EUR, ZAR, AUD and CAD
24. Financial risk management (continued)
Credit risk (continued)
The Group considers that default has occurred when receivables are more than 90 days overdue and recognises a provision of 100%
against all such receivables unless there is evidence of recoverability at the individual receivable level. The movement on the provision
for expected credit losses is as follows:
Balance at 1 April
Charged to the income statement
Receivables written off during the year as uncollectable
Unused amounts reversed
Exchange differences
Balance at 31 March
2022
£m
(14.0)
(1.0)
–
0.7
(0.3)
(14.6)
2021
(restated)
£m
(8.1)
(7.6)
0.2
1.0
0.5
(14.0)
The creation and release of provisions for impairment of receivables have been included in cost of revenue in the income statement.
The Group writes off a receivable when there is evidence that the debtor is in significant financial difficulty and there is no realistic
prospect of recovery, for example, when a debtor enters bankruptcy or financial reorganisation. None of the trade receivables that
were written off during the year are still subject to enforcement activity. The ageing of trade receivables is detailed below:
Not past due
Up to 90 days overdue
Past 90 days overdue
Year ended 31 March 2022
Year ended 31 March 2021
Gross
£m
298.0
7.4
6.1
311.5
Provision
£m
(1.1)
(7.4)
(6.1)
(14.6)
Net
£m
296.9
–
–
296.9
Gross
£m
263.4
4.8
15.6
283.8
Provision
£m
–
–
(14.0)
(14.0)
Net
£m
263.4
4.8
1.6
269.8
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The
Group does not hold any collateral as security other than retention of title clauses issued as part of the ordinary course of business.
Capital risk
Capital risk is the risk that the entity may not be able to continue as a going concern.
The Group’s risk management objective, policy and performance are as follows:
Objective
Policy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, and to
provide returns for shareholders and other stakeholder benefits.
The Group’s policy is to protect and strengthen the Group balance sheet through the appropriate balance of debt
and equity funding.
Risk management The Group manages its capital structure and makes adjustments in response to changes to economic conditions
Performance
and the strategic objectives of the Group. The Group raises finance in the public debt market from financial
institutions, using a variety of capital market instruments and borrowing facilities.
During the current financial year, the Group entered into a £300 million three-year RCF maturing 20 May 2024
and extended the maturity of £730 million of the existing RCF facility to 28 August 2026.
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
Year ended 31 March 2022
Year ended 31 March 2021
Change in
foreign
currency
rate
5%
5%
5%
5%
before tax
of equity
Change in
before tax
of equity
£m
interest rate
Effect
Effect
on other
on profit
components
£m
0.8
(1.6)
(1.6)
(0.5)
0.8
(1.6)
(1.6)
(0.5)
5%
5%
5%
5%
Effect
Effect
on other
on profit
components
£m
2.0
1.2
1.4
(0.2)
£m
2.0
1.2
1.4
(0.2)
EUR
ZAR
AUD
CAD
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations to the Group, which would result in a loss for the Group. Credit
risk arises from trade and other receivables, cash and cash equivalents, investments and derivative financial instruments.
The Group’s risk management objective, policy and performance are as follows:
Objective
The Group’s objective is to ensure that the Group continues to operate with an acceptable level of credit risk,
based on management’s judgement, associated with its operating activities, such as customer trade receivables,
and financial activities, including cash deposits and financial instruments.
Policy
The Group’s policy is to manage credit risk by setting and reviewing appropriate credit limits for non-government
commercial customers, being the Group’s main exposure to credit risk. With regards to financial institutions,
credit limits will be set according to the respective financial institution’s credit rating. Counterparty bank credit
risk is closely monitored on a systematic and ongoing basis.
Risk management Currency risk management includes performing credit checks on non-government commercial customers and
setting and only performing financial transactions with approved investment grade counterparties.
Performance
Expected credit loss on trade receivable portfolio / provisions of £14.6 million (2021: £14.0 million). The
carrying amount of the Group’s financial assets represents the maximum exposure to credit risk.
Cash and cash equivalents and derivative financial instruments
The Group utilises approved investment-grade counterparties to carry out treasury transactions, including investments of cash and cash
equivalents, with counterparty bank credit risk being monitored closely on a systematic and ongoing basis. A credit limit is allocated to
each institution taking account of its market capitalisation and credit rating, and as such credit risk on these counterparties is not
considered to be material to the financial statements.
At 31 March 2022, 15.3% of the Group’s cash and cash equivalents was held with a counter-party with a credit rating of AA- or higher,
78.7% with counter-party with a credit rating of A+ to A-, and 6.0% with a counter-party with a credit rating of BBB+ to BB-. Total
balance for those assets as at 31 March 2022 is £1,146.3 million (2021: £904.8 million).
Trade receivables
The Group’s assessment is that credit risk in relation to customers or sub-contractors to governments is limited as their probability of
default is considered to be extremely low. The provision for expected credit losses for receivables from governments and sub-
contractors to government customers is therefore considered immaterial in the context of the receivables balance. The Group
manages credit risk in relation to trade and other receivables for all non-government commercial customers through various mitigating
controls including credit checks, credit limits and ongoing monitoring. Expected credit losses are assessed for all non-government
customers, however this is not considered to be material to the financial statements.
For trade receivables, the Group measures a provision for expected credit losses at an amount equal to lifetime expected credit losses,
estimated by reference to past experience and relevant forward-looking factors. For all other assets the loss allowance is measured
using 12-months expected credit losses unless there was a significant increase in credit risk since initial recognition.
S
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214
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
215
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
25. Share capital
Allotted, issued and fully paid
At 1 April 2021 and 31 March 2022
Allotted, issued and fully paid
At 1 April 2019 and 31 March 2021
Ordinary shares of 60p
Number
Total
£m
505,596,597
303.4
505,596,597
303.4
Potential issues of ordinary shares
The table below shows options and conditional share awards existing over the Company’s shares as at 31 March 2022 that are
capable of being met on exercise or vesting by the issue of new shares. They represent outstanding awards granted under the
Company’s executive share plans. The awards were granted directly by the Company and satisfied by the Trustees of the Babcock
Employee Share Trust (BEST) – a total of 9,945,822 shares (2021: 10,438,350 shares). The Company decides from time to time
whether to satisfy the awards by way of a fresh issue of shares (either to the award holder or to the employee share trust) or by way of
financing the employee share trusts to purchase already issued shares in the market. This decision is made according to available
headroom within the dilution limits contained in the relevant share plan rules and what the Directors consider to be in the best
interest of the Company at the time.
Grant date
14 June 2017
13 June 2018
13 June 2018
13 June 2018
13 June 2018
13 June 2019
13 June 2019
13 June 2019
13 June 2019
3 August 2020
3 August 2020
13 August 2020
13 August 2020
1 December 2020
1 December 2020
24 August 2021
24 September 2021
24 September 2021
24 September 2021
Type
DBP3
DBP2
DBP3
PSP1
PSP1
DBP2
DBP3
PSP1
PSP1
DBP2
DBP3
DBP2
DBP3
PSP1
PSP1
PSP1
DBP3
PSP1
PSP1
2022
Number
–
–
23,335
2021
Number
Exercise period
12,439
14/06/2020 – 14/06/2021
18,092
13/06/2020 – 13/06/2021
187,433
13/06/2021 – 13/06/2022
– 1,311,264
13/06/2021 – 13/06/2022
758,280
–
13/06/2023 – 13/06/2024
83,466
14,668
13/06/2021 – 13/06/2022
13/06/2022 – 13/06/2023
313,909
224,369
13/06/2022 – 13/06/2023 2,330,777 2,545,970
803,839 1,134,950
13/06/2024 – 13/06/2025
146,306
146,306
3/08/2022 – 3/08/2023
118,320
109,929
3/08/2023 – 3/08/2024
8,474
8,474
13/08/2022 – 13/08/2023
192,096
192,096
13/08/2023 – 13/08/2024
1/12/2025 – 1/12/2026 1,389,984 1,667,742
1/12/2023 – 1/12/2024 1,653,975 1,939,609
–
–
–
–
9,945,822 10,438,350
769,165
24/08/2026 – 24/08/2027
45,312
24/09/2024 – 24/09/2025
24/09/2024 – 24/09/2025 1,606,889
626,704
24/09/2026 – 24/09/2027
Options granted to Directors are summarised in the Remuneration report on pages 113 to 133 and are included in the outstanding
options set out above.
1. 2009 Performance Share Plan (‘PSP’).
2. DBP – Award issued without matching shares, has two-year vesting period.
3. DBP – Award issued without matching shares, has three-year vesting period.
216
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
The table below shows options and conditional share awards existing over the Company’s shares as at 31 March 2022 that are
capable of being met on exercise or vesting by the issue of new shares. They represent outstanding awards granted under the
Company’s executive share plans. The awards were granted directly by the Company and satisfied by the Trustees of the Babcock
Employee Share Trust (BEST) – a total of 9,945,822 shares (2021: 10,438,350 shares). The Company decides from time to time
whether to satisfy the awards by way of a fresh issue of shares (either to the award holder or to the employee share trust) or by way of
financing the employee share trusts to purchase already issued shares in the market. This decision is made according to available
headroom within the dilution limits contained in the relevant share plan rules and what the Directors consider to be in the best
interest of the Company at the time.
25. Share capital
Allotted, issued and fully paid
At 1 April 2021 and 31 March 2022
Allotted, issued and fully paid
At 1 April 2019 and 31 March 2021
Potential issues of ordinary shares
Grant date
14 June 2017
13 June 2018
13 June 2018
13 June 2018
13 June 2018
13 June 2019
13 June 2019
13 June 2019
13 June 2019
3 August 2020
3 August 2020
13 August 2020
13 August 2020
1 December 2020
1 December 2020
24 August 2021
24 September 2021
24 September 2021
24 September 2021
Type
DBP3
DBP2
DBP3
PSP1
PSP1
DBP2
DBP3
PSP1
PSP1
DBP2
DBP3
DBP2
DBP3
PSP1
PSP1
PSP1
DBP3
PSP1
PSP1
Ordinary shares of 60p
Number
Total
£m
505,596,597
303.4
505,596,597
303.4
Exercise period
14/06/2020 – 14/06/2021
13/06/2020 – 13/06/2021
2022
Number
–
–
2021
Number
12,439
18,092
13/06/2021 – 13/06/2022
23,335
187,433
13/06/2021 – 13/06/2022
13/06/2023 – 13/06/2024
– 1,311,264
–
758,280
13/06/2021 – 13/06/2022
14,668
83,466
13/06/2022 – 13/06/2023
224,369
313,909
13/06/2022 – 13/06/2023 2,330,777 2,545,970
13/06/2024 – 13/06/2025
803,839 1,134,950
3/08/2022 – 3/08/2023
3/08/2023 – 3/08/2024
13/08/2022 – 13/08/2023
146,306
109,929
8,474
146,306
118,320
8,474
13/08/2023 – 13/08/2024
192,096
192,096
1/12/2025 – 1/12/2026 1,389,984 1,667,742
1/12/2023 – 1/12/2024 1,653,975 1,939,609
24/08/2026 – 24/08/2027
769,165
24/09/2024 – 24/09/2025
45,312
24/09/2024 – 24/09/2025 1,606,889
24/09/2026 – 24/09/2027
626,704
–
–
–
–
9,945,822 10,438,350
Options granted to Directors are summarised in the Remuneration report on pages 113 to 133 and are included in the outstanding
options set out above.
1. 2009 Performance Share Plan (‘PSP’).
2. DBP – Award issued without matching shares, has two-year vesting period.
3. DBP – Award issued without matching shares, has three-year vesting period.
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25. Share capital (continued)
The table below shows shares already held by the trustees of the BEST in order to meet these awards.
BEST
Total
A reconciliation of PSP and DBMP movements is shown below:
Outstanding at 1 April
Granted
Exercised
Forfeited/lapsed
Outstanding at 31 March
Exercisable at 31 March
31 March 2022
31 March 2021
Shares newly
issued by the
Company
–
–
Shares
bought in
the market
398,036
398,036
Shares newly
issued by the
Company
–
–
Shares
bought in
the market
661,463
661,463
31 March 2022
31 March 2021
Number
’000
10,438
3,222
(263)
(3,451)
9,946
38
Number
’000
9,527
4,593
(258)
(3,424)
10,438
31
The weighted average share price for awards exercised during the year was 319.3p per share (2021: 301.8p per share).
During the year no ordinary shares (2021: 697,886 shares) were acquired or subscribed for through the Babcock Employee Share
Trust (‘the Trust’). The Trust holds shares to be used towards satisfying awards made under the Company’s employee share schemes.
During the year ended 31 March 2022, 263,427 shares (2021: 257,743 shares) were disposed of by the Trust resulting from options
exercised. At 31 March 2022, the Trust held a total of 398,036 ordinary shares (2021: 661,463 ordinary shares) at a total market
value of £1,291,682 (2021: £1,512,104) representing 0.08% (2021: 0.13%) of the issued share capital at that date. The Company
did not pay dividends to the Trust during the year. The Company meets the operating expenses of the Trust.
The Trust enables shares in the Company to be held or purchased and made available to employees through the exercise of rights
or pursuant to awards made under the Company’s employee share scheme. The Trust is a discretionary settlement for the benefit of
employees within the Group. The Company is excluded from benefitting under it. It is controlled and managed outside the UK and has
a single corporate trustee which is an independent trustee services organisation. The right to remove and appoint the trustees rests
ultimately with the Company. The trustee of the Trust is required to waive both voting rights and dividends payable on any share in the
Company in excess of 0.001p, unless otherwise directed by the Company.
216
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
217
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
26. Share-based payments
The charge to the income statement has been based on the assumptions below and is based on the binomial model as adjusted,
allowing for a closed form numerical-integrated solution, which makes it analogous to the Monte Carlo simulations, including
performance conditions. The detailed description of the plans below is included within the Remuneration report.
During the year the total charge relating to employee share-based payment plans was £5.5 million (2021: £4.2 million), all of which
related to equity-settled share-based payment transactions.
After tax, the income statement charge was £4.5 million (2021: £3.3 million).
The fair value per option granted and the assumptions used in the calculation are as follows:
DBMP, PSP and DBP1
Options
awarded
Number
769,165
626,704
1,780,849
45,312
695,458
2,091,247
1,341,477
118,320
146,306
192,096
8,474
1,370,671
3,019,033
313,909
93,430
860,157
1,699,323
187,433
90,777
902,424
1,769,338
186,949
Share price
at grant or
modification
date
Pence
371.6
380.2
380.2
380.2
350.0
350.0
350.0
289.0
289.0
284.2
284.2
472.8
472.8
472.8
472.8
856.0
856.0
856.0
856.0
905.5
905.5
905.5
Expectations
of meeting
performance
criteria –
non-market
conditions
%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
–
–
100.0%
100.0%
–
–
100.0%
100.0%
–
–
100.0%
Option life
Years
6.0
6.0
4.0
4.0
6.0
4.0
6.0
4.0
3.0
4.0
3.0
6.0
4.0
4.0
3.0
6.0
4.0
4.0
3.0
6.0
4.0
4.0
Fair value
per option –
TSR
Pence
148.6
–
–
–
–
–
137.9
–
–
–
–
70.9
70.9
–
–
370.9
370.9
–
–
131.2
131.2
–
Fair value
per option –
non-market
conditions
Pence
315.9
325.0
380.2
380.2
305.2
350.0
305.2
289.0
289.0
284.2
284.2
472.8
472.8
472.8
472.8
856.0
856.0
856.0
856.0
905.5
905.5
905.5
Expected
volatility
%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
11.0%
11.0%
11.0%
11.0%
14.0%
14.0%
14.0%
14.0%
15.0%
15.0%
15.0%
Correlation
%
Grant or
modification
date
55.0% 24/08/21
55.0% 24/09/21
55.0% 24/09/21
55.0% 24/09/21
55.0% 01/12/20
55.0% 01/12/20
55.0% 01/12/20
55.0% 03/08/20
55.0% 03/08/20
55.0% 13/08/20
55.0% 13/08/20
45.0% 13/06/19
45.0% 13/06/19
45.0% 13/06/19
45.0% 13/06/19
56.0% 13/06/18
56.0% 13/06/18
56.0% 13/06/18
56.0% 13/06/18
46.0% 14/06/17
46.0% 14/06/17
46.0% 14/06/17
2021 PSP
2021 PSP
2021 PSP
2021 DBP
2020 PSP
2020 PSP
2020 PSP
2020 DBP
2020 DBP
2020 DBP
2020 DBP
2019 PSP
2019 PSP
2019 DBP
2019 DBP
2018 PSP
2018 PSP
2018 DBP
2018 DBP
2017 PSP
2017 PSP
2017 DBP
Both the vesting period and the expected life of all DBMP and PSP awards are three years, but for the DBP they are two years, other
than for Executives where the vesting period is three years. The holders of all awards receive dividends.
PSP awards for 2017 to 2019 are split evenly between the performance criteria of TSR, EPS and ROCE.
For PSP awards made in December 2020, 2,786,705 were made via the use of restricted shares with a three-year vesting period.
There are no performance conditions attached. A further 1,341,477 awards were made where the performance criteria is 50% against
free cash flow and 50% TSR.
PSP awards made in August 2021 of 769,165 shares include performance criteria weighted to 50% against free cash flow targets and
50% against TSR performance.
PSP awards made in September 2021 of 2,407,553 shares were made via the use of restricted shares with a three-year vesting period.
There are no performance conditions attached.
There are no performance conditions attached to the DBP.
The expected volatility is based on historical volatility over the last one to three years. The expected life is the average expected
period to exercise. The risk-free rate of return is the yield on zero-coupon government bonds of a term consistent with the assumed
option life.
The Group also operates the Babcock Employee Share Plan which allows employees to contribute up to £150 per month to the fund,
which then purchases shares on the open market on the employees’ behalf. The Group provides matching shares, purchased on the
open market, of one share for every 10 purchased by the employee. During the year the Group bought 159,494 matching shares
(2021: 180,175 matching shares) at a cost of £0.5 million (2021: £0.5 million).
The Group also operates the Babcock Employee Share Plan International which reflects the structure of the UK Plan. During the
year 4,784 matching shares were purchased on the open market (2021: 5,000 matching shares) and 2,823 matching shares vested
(2021: 1,193 matching shares) leaving a balance of 6,973 matching shares (2021: 5,012 matching shares).
218
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
26. Share-based payments
The charge to the income statement has been based on the assumptions below and is based on the binomial model as adjusted,
allowing for a closed form numerical-integrated solution, which makes it analogous to the Monte Carlo simulations, including
performance conditions. The detailed description of the plans below is included within the Remuneration report.
During the year the total charge relating to employee share-based payment plans was £5.5 million (2021: £4.2 million), all of which
related to equity-settled share-based payment transactions.
After tax, the income statement charge was £4.5 million (2021: £3.3 million).
The fair value per option granted and the assumptions used in the calculation are as follows:
DBMP, PSP and DBP1
27. Retirement benefits and liabilities
Defined contribution schemes
Pension costs for defined contribution schemes are as follows:
Defined contribution schemes
Defined benefit schemes
Statement of financial position assets and liabilities recognised are as follows:
non-market
per option –
Option life
conditions
Years
%
Grant or
Correlation
modification
%
date
Retirement benefits – funds in surplus
Retirement benefits – funds in deficit
Year ended
31 March 2022
£m
83.4
Year ended
31 March 2021
£m
90.9
31 March 2022
£m
300.9
(109.3)
191.6
31 March 2021
(restated)
£m
46.8
(325.7)
(278.9)
The Group has a number of defined benefit pension schemes. The principal defined benefit pension schemes in the UK are the
Devonport Royal Dockyard Pension Scheme, the Babcock International Group Pension Scheme and the Rosyth Royal Dockyard Pension
Scheme (the Principal schemes). The nature of these schemes is that the employees contribute to the schemes with the employer
paying the balance of the cost required. The contributions required and the assessment of the assets and the liabilities that have
accrued to members and any deficit recovery payments required are agreed by the Group with the trustees of each scheme who are
advised by independent, qualified actuaries.
In the year ended 31 March 2022, the Group has changed the methodology used to value the longevity swaps, as the previous
approach no longer accurately reflects fair value. Further details are included in note 3.
The key risks in all of the defined benefit schemes relate primarily to longevity, the expected inflation rate in the future which impacts
on pension increases and indirectly salary increases, and the discount rate used to value the liabilities. The Principal schemes have
mitigated some of these risks by (i) in 2009, taking out longevity swaps in respect of pensioners and their spouses at the time; (ii)
through investment strategies which have significantly hedged the interest rate and inflation risks; (iii) in 2019, closed the Babcock
International Group Pension Scheme to future accrual for some employees; and (iv) in 2020, closed the Rosyth Royal Dockyard Pension
Scheme to future accrual for all employees.
The Group also participates in the Babcock Rail Ltd Shared Cost Section of the Railways Pension Scheme (the Railways scheme). This
scheme is a multi-employer shared cost scheme with the contributions required, the assessment of the assets and the liabilities
that have accrued to members and any deficit recovery payments all agreed with the trustees who are advised by an independent,
qualified actuary. The costs are, in the first instance, shared such that the active employees contribute 40% of the cost of providing the
benefits and the employer contributes 60%. However the assumption is that as the active membership reduces, the liability will
ultimately revert to the Group. The Group’s share of the assets and liabilities is separately identified to those of other employers in the
scheme and therefore the Group cannot be held liable for the obligations of other entities that participate in the Railways scheme.
The defined benefit schemes are prudently funded by payments to legally separate trustee-administered funds. The trustees of each
scheme are required by law to act in the best interests of each scheme’s members. In addition to determining future contribution
requirements (with the agreement of the Group), the trustees are responsible for setting the schemes’ investment strategy (subject to
consultation with the Group). All the schemes have at least one independent trustee and member nominated trustees. The schemes
are subject to regulation under the funding regime set out in Part III of the Pensions Act 2004. The details of the latest formal actuarial
valuation of the scheme are as follows (the actuarial valuation of the Babcock International Group Scheme as at 31 March 2022 has
commenced):
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Options
awarded
Number
769,165
626,704
1,780,849
45,312
695,458
2,091,247
1,341,477
118,320
146,306
192,096
8,474
1,370,671
3,019,033
313,909
93,430
860,157
1,699,323
187,433
90,777
902,424
1,769,338
186,949
Share price
at grant or
modification
date
Pence
371.6
380.2
380.2
380.2
350.0
350.0
350.0
289.0
289.0
284.2
284.2
472.8
472.8
472.8
472.8
856.0
856.0
856.0
856.0
905.5
905.5
905.5
Expected
volatility
%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
19.0%
11.0%
11.0%
11.0%
11.0%
14.0%
14.0%
14.0%
14.0%
15.0%
15.0%
15.0%
Expectations
of meeting
performance
criteria –
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
–
–
–
–
–
–
6.0
6.0
4.0
4.0
6.0
4.0
6.0
4.0
3.0
4.0
3.0
6.0
4.0
4.0
3.0
6.0
4.0
4.0
3.0
6.0
4.0
4.0
Fair value
TSR
Pence
148.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
137.9
70.9
70.9
370.9
370.9
131.2
131.2
Fair value
per option –
non-market
conditions
Pence
315.9
325.0
380.2
380.2
305.2
350.0
305.2
289.0
289.0
284.2
284.2
472.8
472.8
472.8
472.8
856.0
856.0
856.0
856.0
905.5
905.5
905.5
55.0% 24/08/21
55.0% 24/09/21
55.0% 24/09/21
55.0% 24/09/21
55.0% 01/12/20
55.0% 01/12/20
55.0% 01/12/20
55.0% 03/08/20
55.0% 03/08/20
55.0% 13/08/20
55.0% 13/08/20
45.0% 13/06/19
45.0% 13/06/19
45.0% 13/06/19
45.0% 13/06/19
56.0% 13/06/18
56.0% 13/06/18
56.0% 13/06/18
56.0% 13/06/18
46.0% 14/06/17
46.0% 14/06/17
46.0% 14/06/17
2021 PSP
2021 PSP
2021 PSP
2021 DBP
2020 PSP
2020 PSP
2020 PSP
2020 DBP
2020 DBP
2020 DBP
2020 DBP
2019 PSP
2019 PSP
2019 DBP
2019 DBP
2018 PSP
2018 PSP
2018 DBP
2018 DBP
2017 PSP
2017 PSP
2017 DBP
Both the vesting period and the expected life of all DBMP and PSP awards are three years, but for the DBP they are two years, other
than for Executives where the vesting period is three years. The holders of all awards receive dividends.
PSP awards for 2017 to 2019 are split evenly between the performance criteria of TSR, EPS and ROCE.
For PSP awards made in December 2020, 2,786,705 were made via the use of restricted shares with a three-year vesting period.
There are no performance conditions attached. A further 1,341,477 awards were made where the performance criteria is 50% against
PSP awards made in August 2021 of 769,165 shares include performance criteria weighted to 50% against free cash flow targets and
PSP awards made in September 2021 of 2,407,553 shares were made via the use of restricted shares with a three-year vesting period.
free cash flow and 50% TSR.
50% against TSR performance.
There are no performance conditions attached.
There are no performance conditions attached to the DBP.
The expected volatility is based on historical volatility over the last one to three years. The expected life is the average expected
period to exercise. The risk-free rate of return is the yield on zero-coupon government bonds of a term consistent with the assumed
option life.
The Group also operates the Babcock Employee Share Plan which allows employees to contribute up to £150 per month to the fund,
which then purchases shares on the open market on the employees’ behalf. The Group provides matching shares, purchased on the
open market, of one share for every 10 purchased by the employee. During the year the Group bought 159,494 matching shares
(2021: 180,175 matching shares) at a cost of £0.5 million (2021: £0.5 million).
The Group also operates the Babcock Employee Share Plan International which reflects the structure of the UK Plan. During the
year 4,784 matching shares were purchased on the open market (2021: 5,000 matching shares) and 2,823 matching shares vested
(2021: 1,193 matching shares) leaving a balance of 6,973 matching shares (2021: 5,012 matching shares).
The Group also participates in or provides a number of other smaller pension schemes including a number of sections of the
local government pension schemes where in most cases the employer contribution rates are fully reimbursed by the administering
authorities. It also participates in the Magnox Electric Group Section of the Electricity Supply Pension Scheme and runs the Babcock
Naval Services Pension Scheme, which commenced winding up in 2021, and for which the MOD retains liability.
218
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
219
Babcock Rail Ltd
section of the
Railways Pension
Scheme
31/03/2020 31/03/2019 31/03/2021 31/12/2019
180
Projected unit Projected unit Projected unit Attained age
Date of last formal completed actuarial valuation
Number of active members at above date
Actuarial valuation method
Results of formal actuarial valuation:
Value of assets
Level of funding
£1,894m
90%
£1,480m
97%
£946m
86%
£271m
92%
Babcock
International Group
Scheme
Rosyth
Royal Dockyard
Scheme
Devonport
Royal Dockyard
Scheme
1,607
643
–
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
27. Retirement benefits and liabilities (continued)
The Group’s cash contribution rates payable to the schemes are expected to be as follows:
Future service contribution rate
Future service cash contributions
Deficit contributions
Additional longevity swap payments
Expected employer cash costs for 2022/23
Expected salary sacrifice contributions
Expected total employer contributions
Devonport
Royal
Dockyard
Scheme
21.6%
£12.1m
£18.6m
£7.3m
£38.0m
£6.3m
£44.3m
Babcock
International
Group Scheme
51.1%
£5.3m
–
£3.6m
£8.9m
£0.4m
£9.3m
Rosyth Royal
Dockyard
Scheme
–
–
£66.6m
£4.7m
£71.3m
–
£71.3m
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
Other
12.5% 15.3% – 48.0%
£0.4m
£1.6m
–
£2.0m
£0.5m
£2.5m
Total
–
£2.1m £19.9m
£1.5m £88.3m
£15.6m
£3.6m £123.8m
£0.6m
£7.8m
£4.2m £131.6m
–
Where salary sacrifice arrangements are in place, the Group effectively meets the members’ contributions. The above level of funding
is expected to continue until the next actuarial valuation of each scheme is completed; valuations are carried out every three years.
The expected payments from the schemes are primarily pension payments and lump sums. Most of the pensions increase at a fixed
rate or in line with RPI or CPI inflation when in payment. Benefit payments commence at retirement, death or incapacity and are
predominantly calculated with reference to final salary. The levels of deficit contributions reflected above are expected to continue
until technical provisions (self-sufficiency for the Babcock International Group Pension Scheme) funding levels are met either through
asset performance or funding.
Although the Group anticipates that scheme surpluses will be utilised during the life of the scheme to address member benefits, the
Group recognises its retirement benefit surpluses in full in respect of the schemes in surplus, on the basis that it is management’s
judgement that there are no substantive restrictions on the return of residual scheme assets in the event of a winding-up of the
scheme after all member obligations have been met. The Group also considers that the trustees do not have the power to unilaterally
wind up the schemes or vary benefits.
The latest full actuarial valuations of the Group’s defined benefit pension schemes have been updated to 31 March 2022 by
independent qualified actuaries for IAS 19 purposes, on a best estimate basis, using the following assumptions:
March 2022
Rate of increase in pensionable salaries
Rate of increase in pensions
Discount rate
Inflation rate (RPI)
Inflation rate (CPI)
Weighted average duration of cash flows (years)
Total life expectancy for current pensioners aged 65 (years)
Total life expectancy for future pensioners currently aged 45 (years)
March 2021
Rate of increase in pensionable salaries
Rate of increase in pensions (past service)
Discount rate
Inflation rate (RPI)
Inflation rate (CPI)
Weighted average duration of cash flows (years)
Total life expectancy for current pensioners aged 65 (years)
Total life expectancy for future pensioners currently aged 45 (years)
Devonport
Royal
Dockyard
Scheme
3.4%
3.2%
2.7%
3.7%
3.2%
16
85.9
86.6
2.9%
2.7%
2.0%
3.2%
2.7%
17
85.7
86.8
Babcock
International
Group Scheme
3.4%
3.5%
2.7%
3.7%
3.2%
14
86.8
87.4
Rosyth Royal
Dockyard
Scheme
–
3.7%
2.7%
3.7%
3.2%
16
85.0
85.9
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
0.5%
3.2%
2.7%
3.6%
3.2%
17
85.3
86.4
2.9%
3.1%
2.0%
3.2%
2.7%
17
87.1
87.7
2.9%
3.2%
2.0%
3.2%
2.7%
17
84.8
85.9
2.9%
2.7%
2.0%
3.2%
2.7%
17
85.9
86.9
220
Babcock International Group PLC Annual Report and Financial Statements 2022
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
Future service contribution rate
Future service cash contributions
Deficit contributions
Additional longevity swap payments
Expected employer cash costs for 2022/23
Expected salary sacrifice contributions
Expected total employer contributions
Devonport
Royal
Dockyard
Scheme
21.6%
£12.1m
£18.6m
£7.3m
£38.0m
£6.3m
£44.3m
Babcock
Rosyth Royal
International
Group Scheme
Dockyard
Scheme
51.1%
£5.3m
–
£3.6m
£8.9m
£0.4m
£9.3m
–
–
–
£66.6m
£4.7m
£71.3m
£71.3m
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
£0.4m
£1.6m
–
£2.0m
£0.5m
£2.5m
12.5% 15.3% – 48.0%
Other
Total
–
£2.1m £19.9m
£1.5m £88.3m
–
£15.6m
£3.6m £123.8m
£0.6m
£7.8m
£4.2m £131.6m
Where salary sacrifice arrangements are in place, the Group effectively meets the members’ contributions. The above level of funding
is expected to continue until the next actuarial valuation of each scheme is completed; valuations are carried out every three years.
The expected payments from the schemes are primarily pension payments and lump sums. Most of the pensions increase at a fixed
rate or in line with RPI or CPI inflation when in payment. Benefit payments commence at retirement, death or incapacity and are
predominantly calculated with reference to final salary. The levels of deficit contributions reflected above are expected to continue
until technical provisions (self-sufficiency for the Babcock International Group Pension Scheme) funding levels are met either through
asset performance or funding.
Although the Group anticipates that scheme surpluses will be utilised during the life of the scheme to address member benefits, the
Group recognises its retirement benefit surpluses in full in respect of the schemes in surplus, on the basis that it is management’s
judgement that there are no substantive restrictions on the return of residual scheme assets in the event of a winding-up of the
scheme after all member obligations have been met. The Group also considers that the trustees do not have the power to unilaterally
wind up the schemes or vary benefits.
The latest full actuarial valuations of the Group’s defined benefit pension schemes have been updated to 31 March 2022 by
independent qualified actuaries for IAS 19 purposes, on a best estimate basis, using the following assumptions:
March 2022
Rate of increase in pensionable salaries
Rate of increase in pensions
Discount rate
Inflation rate (RPI)
Inflation rate (CPI)
Weighted average duration of cash flows (years)
Total life expectancy for current pensioners aged 65 (years)
Total life expectancy for future pensioners currently aged 45 (years)
March 2021
Rate of increase in pensionable salaries
Rate of increase in pensions (past service)
Discount rate
Inflation rate (RPI)
Inflation rate (CPI)
Weighted average duration of cash flows (years)
Total life expectancy for current pensioners aged 65 (years)
Total life expectancy for future pensioners currently aged 45 (years)
Devonport
Royal
Dockyard
Scheme
Babcock
Rosyth Royal
International
Group Scheme
Dockyard
Scheme
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
3.4%
3.2%
2.7%
3.7%
3.2%
16
85.9
86.6
2.9%
2.7%
2.0%
3.2%
2.7%
17
85.7
86.8
3.4%
3.5%
2.7%
3.7%
3.2%
14
86.8
87.4
2.9%
3.1%
2.0%
3.2%
2.7%
17
87.1
87.7
–
3.7%
2.7%
3.7%
3.2%
16
85.0
85.9
2.9%
3.2%
2.0%
3.2%
2.7%
17
84.8
85.9
0.5%
3.2%
2.7%
3.6%
3.2%
17
85.3
86.4
2.9%
2.7%
2.0%
3.2%
2.7%
17
85.9
86.9
27. Retirement benefits and liabilities (continued)
The Group’s cash contribution rates payable to the schemes are expected to be as follows:
27. Retirement benefits and liabilities (continued)
The fair value of the assets and the present value of the liabilities of the Group pension schemes at 31 March were as follows:
2022
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
2021 (restated)
Railways
scheme
£m
Other
schemes
£m
Total
£m
Fair value of plan assets
Growth assets
Equities
Property funds
High yield bonds/emerging market debt
Absolute return and multi-strategy funds
Low-risk assets
Bonds
Matching assets*
Longevity swaps
Fair value of assets
Percentage of assets quoted
Percentage of assets unquoted
Present value of defined
benefit obligations
Active members
Deferred pensioners
Pensioners
Total defined benefit obligations
Net assets/(liabilities) recognised in the
statement of financial position
31.6
364.0
44.1
46.0
1,924.1
2,094.0
(283.5)
4,220.3
100%
–
14.3
0.1
–
182.9
77.2
1.3
–
275.8
100%
–
30.6
5.1
0.4
31.8
76.5
369.2
44.5
260.7
55.0
437.1
348.4
428.5
12.5
2.1
–
194.6
23.0
4.7
–
25.4
90.5
443.9
348.4
648.5
77.5 2,078.8
101.8 2,197.1
(10.2)
(293.7)
237.0 4,733.1
100%
100%
–
–
1,422.9
1,682.7
(250.9)
4,123.7
100%
–
54.7
1.7
–
265.6
100%
–
(10.7)
83.4 1,561.0
108.5 1,792.9
(261.6)
234.3 4,623.6
100%
–
100%
–
756.0
1,066.2
2,170.4
3,992.6
65.7
93.5
167.9
327.1
35.8
857.5
132.7 1,292.4
53.3 2,391.6
221.8 4,541.5
857.6
1,227.3
2,205.1
4,290.0
126.1
107.4
136.1
369.6
39.4 1,023.1
152.4 1,487.1
51.1 2,392.3
242.9 4,902.5
227.7
(51.3)
15.2
191.6
(166.3)
(104.0)
(8.6)
(278.9)
* The Babcock International Group Pension Scheme, Devonport Royal Dockyard Pension Scheme and Rosyth Royal Dockyard Pension Scheme invest in segregated
portfolios, pooled investment vehicles and derivative contracts. The Trustee has authorised the use of derivatives by the investment managers for efficient
portfolio management purposes including to reduce certain investment risks such as interest rate risk and inflation risk. The principal investment in derivatives is
gilt repurchase agreements, interest rate and inflation swaps in the liability matching portfolio; total return swaps in the return seeking portfolios. These
derivatives are included within the matching assets and equities classifications. The matching assets category includes gross assets of £3,966 million (2021:
£3,860 million) and associated repurchase agreement liabilities of £1,872 million (2021: £2,177 million). Repurchase agreements are entered into with
counterparties to better offset the scheme’s exposures to interest and inflation rates, whilst remaining invested in assets of a similar risk profile.
The schemes do not invest directly in assets or shares of the Group.
The longevity swaps have been valued in line with assumptions that are consistent with the requirements of IFRS 13 using Level 3
inputs. The key inputs to the valuation are the discount rate and mortality assumptions.
The amounts recognised in the Group income statement are as follows:
Current service cost
Incurred expenses
Past service costs
Curtailment
Total included within operating profit
Net interest cost/(credit)
Total included within income statement
2022
2021
Principal
schemes
£m
25.7
6.6
–
–
32.3
1.5
33.8
Railways
scheme
£m
2.0
0.5
–
–
2.5
2.1
4.6
Other
schemes
£m
3.4
0.3
–
–
3.7
0.1
3.8
Total
£m
31.1
7.4
–
–
38.5
3.7
42.2
Principal
schemes
£m
24.1
6.4
1.4
7.5
39.4
(5.2)
34.2
Railways
scheme
£m
2.0
0.7
–
–
2.7
1.3
4.0
Other
schemes
£m
2.0
0.2
–
–
2.2
(0.1)
2.1
Total
£m
28.1
7.3
1.4
7.5
44.3
(4.0)
40.3
220
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
221
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
27. Retirement benefits and liabilities (continued)
Amounts recorded in the Group statement of comprehensive income
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Actual return less interest on pension
scheme assets
Experience gains/(losses) arising on
scheme liabilities
Changes in assumptions on
scheme liabilities
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
77.0
13.1
(1.7)
88.4
231.5
26.3
40.0
297.8
(70.6)
14.2
2.4
(54.0)
20.5
(0.6)
2.2
22.1
238.8
245.2
27.4
54.7
21.9
22.6
288.1
322.5
(638.2)
(386.2)
(72.4)
(46.7)
(54.9)
(12.7)
(765.5)
(445.6)
Analysis of movement in the Group statement of financial position
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Fair value of plan assets
(including reimbursement rights)
At 1 April
Restatement (note 3)
At 1 April (restated)
Interest on assets
Actuarial gain on assets*
Employer contributions
Employee contributions
Benefits paid
At 31 March
Present value of benefit obligations
At 1 April
Restatement (note 3)
At 1 April
Service cost
Incurred expenses
Interest cost
Employee contributions
Experience (gain)/loss*
Actuarial loss/(gain) – demographics*
Actuarial (gain)/loss – financial*
Benefits paid
Past service costs
Curtailment
At 31 March
Net surplus/(deficit) at 31 March
4,123.7
82.3
77.0
182.5
0.2
(245.4)
4,220.3
265.6
5.2
13.1
2.6
–
(10.7)
275.8
234.3 4,623.6
92.2
88.4
190.2
0.2
(261.5)
237.0 4,733.1
4.7
(1.7)
5.1
–
(5.4)
4,290.0
25.6
6.6
83.8
0.2
70.6
(11.5)
(227.3)
(245.4)
–
–
3,992.6
227.7
369.6
2.0
0.5
7.3
–
(14.2)
(3.5)
(23.9)
(10.7)
–
–
327.1
(51.3)
3.5
0.3
4.8
–
(2.4)
–
(21.9)
(5.4)
–
–
242.9 4,902.5
31.1
7.4
95.9
0.2
54.0
(15.0)
(273.1)
(261.5)
–
–
221.8 4,541.5
191.6
15.2
3,989.2
(47.0)
3,942.2
91.6
231.5
102.5
0.2
(244.3)
4,123.7
3,790.8
–
3,790.8
24.1
6.4
86.4
0.2
(20.5)
8.5
629.7
(244.5)
1.4
7.5
4,290.0
(166.3)
241.4
–
241.4
5.7
26.3
2.8
–
(10.6)
265.6
297.5
–
297.5
2.0
0.7
7.0
–
0.6
(0.6)
73.0
(10.6)
–
–
369.6
(104.0)
10.1
180.7 4,411.3
(36.9)
190.8 4,374.4
101.9
297.8
108.8
0.2
(259.5)
234.3 4,623.6
4.6
40.0
3.5
–
(4.6)
10.1
177.8 4,266.1
10.1
187.9 4,276.2
28.1
7.3
97.9
0.2
(22.1)
7.2
758.3
(259.5)
1.4
7.5
242.9 4,902.5
(278.9)
2.0
0.2
4.5
–
(2.2)
(0.7)
55.6
(4.4)
–
–
(8.6)
* Remeasurement of net retirement benefit obligations resulted in a gain of £322.5 million (2021: £445.6 million loss)
The Group has restated the results for the year ended 31 March 2021 due to an updated approach for the valuation of the longevity
swap. Further detail is included in note 3.
The movement in net deficits for the year ending 31 March 2022 is as a result of the movement in assets and liabilities shown above.
222
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
27. Retirement benefits and liabilities (continued)
Amounts recorded in the Group statement of comprehensive income
Analysis of movement in the Group statement of financial position
Actual return less interest on pension
scheme assets
Experience gains/(losses) arising on
scheme liabilities
Changes in assumptions on
scheme liabilities
Fair value of plan assets
(including reimbursement rights)
Present value of benefit obligations
At 1 April
Restatement (note 3)
At 1 April (restated)
Interest on assets
Actuarial gain on assets*
Employer contributions
Employee contributions
Benefits paid
At 31 March
At 1 April
Restatement (note 3)
At 1 April
Service cost
Incurred expenses
Interest cost
Employee contributions
Experience (gain)/loss*
Benefits paid
Past service costs
Curtailment
At 31 March
Actuarial loss/(gain) – demographics*
Actuarial (gain)/loss – financial*
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
77.0
13.1
(1.7)
88.4
231.5
26.3
40.0
297.8
(70.6)
14.2
2.4
(54.0)
20.5
(0.6)
2.2
22.1
238.8
245.2
27.4
54.7
21.9
22.6
288.1
322.5
(638.2)
(386.2)
(72.4)
(46.7)
(54.9)
(12.7)
(765.5)
(445.6)
Year ended 31 March 2022
Year ended 31 March 2021 (restated)
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
3,989.2
241.4
180.7 4,411.3
(47.0)
–
10.1
(36.9)
4,123.7
265.6
234.3 4,623.6
3,942.2
241.4
190.8 4,374.4
82.3
77.0
182.5
0.2
5.2
13.1
2.6
–
4.7
(1.7)
5.1
–
92.2
88.4
190.2
0.2
91.6
231.5
102.5
0.2
5.7
26.3
2.8
–
4.6
40.0
3.5
–
101.9
297.8
108.8
0.2
(245.4)
(10.7)
(5.4)
(261.5)
(244.3)
(10.6)
(4.6)
(259.5)
4,220.3
275.8
237.0 4,733.1
4,123.7
265.6
234.3 4,623.6
3,790.8
297.5
177.8 4,266.1
–
–
10.1
10.1
4,290.0
369.6
242.9 4,902.5
3,790.8
297.5
187.9 4,276.2
25.6
6.6
83.8
0.2
70.6
(11.5)
(227.3)
(245.4)
–
–
2.0
0.5
7.3
–
(14.2)
(3.5)
(23.9)
(10.7)
–
–
3.5
0.3
4.8
–
(2.4)
–
31.1
7.4
95.9
0.2
54.0
(15.0)
(21.9)
(5.4)
(273.1)
(261.5)
–
–
–
–
24.1
6.4
86.4
0.2
(20.5)
8.5
629.7
(244.5)
1.4
7.5
2.0
0.7
7.0
–
0.6
(0.6)
2.0
0.2
4.5
–
(2.2)
(0.7)
28.1
7.3
97.9
0.2
(22.1)
7.2
73.0
(10.6)
55.6
(4.4)
758.3
(259.5)
–
–
–
–
1.4
7.5
3,992.6
327.1
221.8 4,541.5
4,290.0
369.6
242.9 4,902.5
Net surplus/(deficit) at 31 March
227.7
(51.3)
15.2
191.6
(166.3)
(104.0)
(8.6)
(278.9)
* Remeasurement of net retirement benefit obligations resulted in a gain of £322.5 million (2021: £445.6 million loss)
The Group has restated the results for the year ended 31 March 2021 due to an updated approach for the valuation of the longevity
swap. Further detail is included in note 3.
The movement in net deficits for the year ending 31 March 2022 is as a result of the movement in assets and liabilities shown above.
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
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a
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c
i
a
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S
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a
t
e
m
e
n
t
s
27. Retirement benefits and liabilities (continued)
The disclosures below relate to post-retirement benefit schemes which are accounted for as defined benefit schemes in accordance
with IAS 19. The changes to the Group statement of financial position at 31 March 2022 and the changes to the Group income
statement for the year to March 2023, if the assumptions were sensitised by the amounts below, would be:
Initial assumptions
Discount rate assumptions increased by 0.5%
Discount rate assumptions decreased by 0.5%
Inflation rate assumptions increased by 0.5%
Inflation rate assumptions decreased by 0.5%
Total life expectancy increased by half a year
Total life expectancy decreased by half a year
Salary increase assumptions increased by 0.5%
Salary increase assumptions decreased by 0.5%
Defined
benefit
obligations
2022
£m
4,541.5
(352.0)
394.2
277.6
(262.5)
103.1
(100.4)
29.6
(28.3)
Income
statement
2023
£m
26.0
(14.9)
12.6
8.9
(8.4)
3.1
(3.1)
1.4
(1.4)
The figures in the table above have been calculated on an approximate basis, using information about the expected future benefit
payments out of the schemes. The analysis above may not be representative of actual changes to the position since changes in
assumptions are unlikely to happen in isolation. The change in inflation rates is assumed to affect the assumed rate of RPI inflation, CPI
inflation and future pension increases by an equal amount. The fair value of the schemes’ assets (including reimbursement rights) are
assumed not to be affected by any sensitivity changes shown and so the statement of financial position values would increase or
decrease by the same amount as the change in the defined benefit obligations.
28. Changes in net debt excluding loans to joint ventures and associates and lease receivables
Cash and bank balances
Bank overdrafts
Cash, cash equivalents and bank overdrafts
Debt
Lease liabilities
Derivative designated as hedge of Group debt
Changes in liabilities from financing
arrangements
Lease receivables
Net debt before loans to joint ventures
and associates
Loans to joint ventures and associates
Net debt excluding loans to joint ventures
and associates and lease receivables
31 March
2021
£m
904.8
(373.9)
530.9
(1,333.6)
(612.3)
(19.1)
(1,965.0)
39.6
(1,394.5)
42.1
Cash flow
£m
238.6
(15.9)
222.7
8.6
113.0
–
121.6
(36.9)
307.4
(29.6)
Additional
leases
£m
–
–
–
–
(93.8)
–
Other non-cash
movement
£m
–
–
–
(2.0)
159.2
–
Changes in fair
value
£m
–
–
–
(1.6)
–
(10.2)
Exchange
movement
£m
2.9
–
2.9
7.3
(0.2)
–
31 March
2022
£m
1,146.3
(389.8)
756.5
(1,321.3)
(434.1)
(29.3)
(93.8)
41.9
(51.9)
–
157.2
–
157.2
(0.4)
(11.8)
–
(11.8)
–
7.1
2.8
(1,784.7)
47.4
12.8
–
(980.8)
12.1
(1,352.4)
277.8
(51.9)
156.8
(11.8)
12.8
(968.7)
222
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
223
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
29. Acquisition and disposal of subsidiaries, businesses and joint ventures and associates
Acquisitions
On 15 March 2022, the Group acquired the remaining 50% of Naval Ship Management (Australia) Pty Limited (‘NSM’). The Group had
previously held a 50% interest in this entity since May 2012 which was classified as a joint venture. NSM provides repair,
engineering and maintenance services to the Australian Navy. The Group paid cash consideration of £33.1 million (AUD60 million)
for this acquisition.
The fair value of assets and liabilities recognised as a result of the acquisition are as follows:
Fair value gain on previously held interest:
Carrying value of previously held interest
Fair value gain on previously held interest
Fair value of previously held interest at acquisition date
Purchase consideration:
Cash consideration
Fair value of previously held interest
Total consideration
Assets acquired:
Property, plant and equipment
Right of use assets
Deferred tax assets
Contract assets
Trade and other receivables
Cash and cash equivalents
Deferred tax liability
Income tax payable
Lease liabilities
Contract liabilities
Trade and other payables
Provisions
Net identifiable assets acquired
Goodwill
Intangible assets
Net assets acquired
Naval Ship
Management
£m
0.7
32.4
33.1
33.1
33.1
66.2
0.4
0.5
0.3
16.3
11.6
17.6
(18.9)
(0.4)
(0.5)
(8.2)
(34.5)
(1.3)
(17.1)
21.3
62.0
66.2
Post-acquisition, Naval Ship Management (Australia) Pty Limited contributed £0.7 million to the profit before tax of the Group. If this
entity had been owned for the full financial year the contribution to profit before tax would have been £10.5 million.
The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by intangible assets of
£62.0 million, relating to customer relationships, and goodwill of £21.3 million, representing potential for future synergies arising
from combining the acquired businesses with the Group’s existing business. Goodwill is not deductible for tax purposes.
Disposals
On 11 March 2021, the Group announced that it had entered into a sale and purchase agreement to dispose of the Oil and Gas
business, which provides offshore Oil and Gas crew transportation services in the UK, Denmark and Australia. The disposal was made as
part of the Group’s targeted disposals programme. The disposal completed on 1 September 2021, on which date control of the Oil
and Gas business passed to CHC Group LLC. The Group received consideration of £10.0 million.
On 13 August 2021, the Group announced that it had entered into a sale and purchase agreement to dispose of Frazer-Nash
Consultancy, which provides engineering and technology solutions across a broad range of critical national infrastructure. The disposal
was made as part of the Group’s targeted disposals programme. The disposal completed on 20 October 2021, on which date control
of Frazer-Nash Consultancy passed to KBR Inc. The Group received consideration of £291.7 million.
On 24 December 2021, the Group announced the disposal of the Power business to M Group Services, which provides engineering
services in the UK overhead line electric transmission and distribution industry. The disposal was made as part of the Group’s targeted
disposals programme. The disposal completed on 24 December 2021, on which date control passed to M Group Services. The Group
received consideration of £50.0 million.
224
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
29. Acquisition and disposal of subsidiaries, businesses and joint ventures and associates
Acquisitions
for this acquisition.
On 15 March 2022, the Group acquired the remaining 50% of Naval Ship Management (Australia) Pty Limited (‘NSM’). The Group had
previously held a 50% interest in this entity since May 2012 which was classified as a joint venture. NSM provides repair,
engineering and maintenance services to the Australian Navy. The Group paid cash consideration of £33.1 million (AUD60 million)
The fair value of assets and liabilities recognised as a result of the acquisition are as follows:
Fair value gain on previously held interest:
Carrying value of previously held interest
Fair value gain on previously held interest
Fair value of previously held interest at acquisition date
Purchase consideration:
Cash consideration
Fair value of previously held interest
Total consideration
Assets acquired:
Property, plant and equipment
Right of use assets
Deferred tax assets
Contract assets
Trade and other receivables
Cash and cash equivalents
Deferred tax liability
Income tax payable
Lease liabilities
Contract liabilities
Trade and other payables
Provisions
Net identifiable assets acquired
Goodwill
Intangible assets
Net assets acquired
Post-acquisition, Naval Ship Management (Australia) Pty Limited contributed £0.7 million to the profit before tax of the Group. If this
entity had been owned for the full financial year the contribution to profit before tax would have been £10.5 million.
The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by intangible assets of
£62.0 million, relating to customer relationships, and goodwill of £21.3 million, representing potential for future synergies arising
from combining the acquired businesses with the Group’s existing business. Goodwill is not deductible for tax purposes.
Disposals
On 11 March 2021, the Group announced that it had entered into a sale and purchase agreement to dispose of the Oil and Gas
business, which provides offshore Oil and Gas crew transportation services in the UK, Denmark and Australia. The disposal was made as
part of the Group’s targeted disposals programme. The disposal completed on 1 September 2021, on which date control of the Oil
and Gas business passed to CHC Group LLC. The Group received consideration of £10.0 million.
On 13 August 2021, the Group announced that it had entered into a sale and purchase agreement to dispose of Frazer-Nash
Consultancy, which provides engineering and technology solutions across a broad range of critical national infrastructure. The disposal
was made as part of the Group’s targeted disposals programme. The disposal completed on 20 October 2021, on which date control
of Frazer-Nash Consultancy passed to KBR Inc. The Group received consideration of £291.7 million.
On 24 December 2021, the Group announced the disposal of the Power business to M Group Services, which provides engineering
services in the UK overhead line electric transmission and distribution industry. The disposal was made as part of the Group’s targeted
disposals programme. The disposal completed on 24 December 2021, on which date control passed to M Group Services. The Group
received consideration of £50.0 million.
Naval Ship
Management
£m
0.7
32.4
33.1
33.1
33.1
66.2
0.4
0.5
0.3
16.3
11.6
17.6
(18.9)
(0.4)
(0.5)
(8.2)
(34.5)
(1.3)
(17.1)
21.3
62.0
66.2
S
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a
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i
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p
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G
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29. Acquisition and disposal of subsidiaries, businesses and joint ventures and associates
(continued)
Disposals (continued)
On 13 September 2021, the Group announced a definitive agreement with Equitix Investment Management Limited for the sale of its
15.4% shareholding in AirTanker Holdings Limited, a joint venture with Airbus, Thales and Rolls-Royce which owns 14 A330 Voyager
aircraft to support air-to-air refuelling, air transport and ancillary services for the MOD. The Group has retained its 23.5% shareholding
in AirTanker Services Limited, which operates these aircraft. The disposal was made as part of the Group’s targeted disposals
programme. The disposal completed on 9 February 2022, on which date control passed to Equitix. The Group received consideration
of £95.6 million, and shareholder loans of £31.5 million were repaid.
In the prior year the Group disposed of its 74% shareholding in Holdfast Training Services Limited for a cash consideration of £85.0
million which resulted in a loss on disposal of £38.2 million. The Group also disposed of Cavendish Nuclear Manufacturing Limited for
no consideration, which resulted in a loss on disposal of £0.6 million, and Conbras Servicos Tecnicos de Suporte Ltda for a
consideration of £9.7 million which resulted in a loss on disposal of £10.9 million.
Goodwill
Investment in joint ventures and
associates
Other intangible assets
Property, plant and equipment
Right of use assets
Deferred tax assets
Inventory
Trade and other receivables
Other current assets
Income tax receivable
Cash, cash equivalents and bank
overdrafts
Lease liabilities
Deferred tax liability
Income tax payable
Trade and other payables
Other current liabilities
Provisions
Net assets disposed
Disposal costs
Cumulative currency translation
Recycle of hedge reserve
Profit/(loss) on disposal
Sale proceeds
Sale proceeds less cash disposed of
Less transaction costs
Net cash inflow/(outflow)
Year ended 31 March 2022
Oil and Gas
business
£m
0.4
Frazer-Nash
Consultancy
£m
64.5
Power
£m
44.1
AirTanker
£m
80.0
–
–
15.1
125.8
18.8
3.6
46.5
–
1.5
–
(129.7)
(12.0)
(1.0)
(39.6)
–
(1.3)
28.1
2.0
(7.3)
–
(12.8)
10.0
10.0
(2.0)
8.0
–
2.1
2.2
3.9
0.5
–
31.0
–
2.9
4.9
(5.4)
–
–
(13.9)
–
–
92.7
10.1
–
–
188.9
291.7
286.8
(10.1)
276.7
–
–
4.5
1.9
0.3
0.1
9.3
–
–
4.2
(2.0)
–
–
(9.9)
–
(1.2)
51.3
2.7
–
–
(4.0)
50.0
45.8
(2.7)
43.1
23.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103.8
2.7
–
20.8
(31.7)
95.6
95.6
(2.7)
92.9
Total
£m
189.0
23.8
2.1
21.8
131.6
19.6
3.7
86.8
–
4.4
9.1
(137.1)
(12.0)
(1.0)
(63.4)
–
(2.5)
275.9
17.5
(7.3)
20.8
140.4
447.3
438.2
(17.5)
420.7
Year ended 31 March 2021
Holdfast
Training
Services
Limited
£m
68.4
Cavendish
Nuclear
Manufacturing
Limited
£m
–
Conbras
Servicos
Tecnicos de
Suporte Ltda
£m
4.2
53.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121.6
1.6
–
–
(38.2)
85.0
85.0
–
85.0
–
–
–
–
–
0.5
–
0.7
–
0.4
–
–
–
–
(1.0)
–
0.6
–
–
–
(0.6)
–
(0.4)
–
(0.4)
–
–
0.8
–
–
0.1
–
11.1
–
3.1
–
–
–
–
(8.2)
(2.5)
8.6
1.5
10.5
–
(10.9)
9.7
6.6
(0.6)
6.0
Total
£m
72.6
53.2
–
0.8
–
–
0.6
–
11.8
–
3.5
–
–
–
–
(9.2)
(2.5)
130.8
3.1
10.5
–
(49.7)
94.7
91.2
(0.6)
90.6
Total profit resulting from acquisitions and disposals is £172.8 million (2021: loss £49.7 million), comprising of £140.4 million profit
on disposal and £32.4 million fair value gain on previously held interest in the NSM joint venture.
224
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
225
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
30. Transactions with non-controlling interests
There were no material transactions with non-controlling interests in the current or prior year.
31. Contingent liabilities
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence or non-
occurrence of uncertain future events outside the Group’s control, or a present obligation that is not recognised because it is not
probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably. The Group does
not recognise contingent liabilities. There are a number of contingent liabilities that arise in the normal course of business, including:
a) The Group has given certain indemnities and warranties in the course of disposing of businesses and companies and in
completing contracts. The Group believes that any liability in respect of these is unlikely to have a material effect on the Group’s
financial position.
b) The nature of the Group’s long-term contracts means that there are reasonably frequent contractual issues, variations and
renegotiations that arise in the ordinary course of business, including liabilities that arise on completion of contracts and on
conclusion of relationships with joint ventures and associates. The Group takes account of the advice of experts, both internal and
external, in making judgements on contractual issues and whether the outcome of negotiations will result in an obligation to the
Group. The Directors do not believe that the outcome of these matters will result in any material adverse change in the Group’s
financial position.
c) As a large contracting organisation, the Group has a significant number of contracts with customers to deliver services and
products, as well as with its supply chain, where the Group cannot deliver all those services and products itself. The Group is
involved in disputes and litigation, which have arisen in the course of its normal trading in connection with these contracts. Whilst
the Directors do not believe that the outcome of these matters will result in any material adverse change in the Group’s financial
position, it is possible that, if any of these disputes come to court, the court may take a different view to the Group. In addition,
certain overseas territories have offset obligations, which if not fully discharged during the contract may become a liability.
d) The Group is subject to corporate and other tax rules in the jurisdictions in which it operates. Changes in tax rates, tax reliefs and
tax laws, or interpretation of the law, by the relevant tax authorities may result in financial and reputational damage to the Group.
This may affect the Group’s financial condition and performance.
In addition, tax enforcement has become a higher priority for many tax authorities in jurisdictions in which the Group operates,
which has led to an increase in tax audits, enquiries and challenges, or the testing through litigation of the boundaries of the
correct interpretation of legislation. Tax authorities may also actively pursue additional taxes based on retroactive changes to tax
laws and the Group may have disagreements with tax authorities which could result in a material restatement to the tax position.
However, no such contingencies have a significant risk of giving rise to a material adjustment within the next financial year.
226
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
30. Transactions with non-controlling interests
There were no material transactions with non-controlling interests in the current or prior year.
31. Contingent liabilities
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence or non-
occurrence of uncertain future events outside the Group’s control, or a present obligation that is not recognised because it is not
probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably. The Group does
not recognise contingent liabilities. There are a number of contingent liabilities that arise in the normal course of business, including:
a) The Group has given certain indemnities and warranties in the course of disposing of businesses and companies and in
completing contracts. The Group believes that any liability in respect of these is unlikely to have a material effect on the Group’s
financial position.
financial position.
b) The nature of the Group’s long-term contracts means that there are reasonably frequent contractual issues, variations and
renegotiations that arise in the ordinary course of business, including liabilities that arise on completion of contracts and on
conclusion of relationships with joint ventures and associates. The Group takes account of the advice of experts, both internal and
external, in making judgements on contractual issues and whether the outcome of negotiations will result in an obligation to the
Group. The Directors do not believe that the outcome of these matters will result in any material adverse change in the Group’s
c) As a large contracting organisation, the Group has a significant number of contracts with customers to deliver services and
products, as well as with its supply chain, where the Group cannot deliver all those services and products itself. The Group is
involved in disputes and litigation, which have arisen in the course of its normal trading in connection with these contracts. Whilst
the Directors do not believe that the outcome of these matters will result in any material adverse change in the Group’s financial
position, it is possible that, if any of these disputes come to court, the court may take a different view to the Group. In addition,
certain overseas territories have offset obligations, which if not fully discharged during the contract may become a liability.
d) The Group is subject to corporate and other tax rules in the jurisdictions in which it operates. Changes in tax rates, tax reliefs and
tax laws, or interpretation of the law, by the relevant tax authorities may result in financial and reputational damage to the Group.
This may affect the Group’s financial condition and performance.
In addition, tax enforcement has become a higher priority for many tax authorities in jurisdictions in which the Group operates,
which has led to an increase in tax audits, enquiries and challenges, or the testing through litigation of the boundaries of the
correct interpretation of legislation. Tax authorities may also actively pursue additional taxes based on retroactive changes to tax
laws and the Group may have disagreements with tax authorities which could result in a material restatement to the tax position.
However, no such contingencies have a significant risk of giving rise to a material adjustment within the next financial year.
S
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32. Capital and other financial commitments
Capital commitments
Contracts placed for future capital expenditure not provided for in the financial statements
31 March 2022
£m
21.3
31 March 2021
£m
57.9
Subsidiary audit exemptions
The following UK subsidiary undertakings are exempt from the requirements of the Companies Act 2006 (the Act) relating to the audit
of individual accounts by virtue of section 479A of the Act.
Company number
Legal entity name
01915771
Babcock Southern Holdings Limited
00070274
Vosper Thornycroft (UK) Limited
07445425
Babcock Group (US) Investments Limited
05269128
Babcock Investments (Number Four) Limited
03463927
Babcock Project Investments Limited
07422616
Babcock US Investments Limited
02999029
Babcock Defence Systems Limited
04540026
Babcock Contractors Limited
01517100
Peterhouse Group Limited
05265567
Babcock Nuclear Limited
02141109
Babcock Marine Limited
Babcock Project Services Limited
04539887
Babcock Marine and Technology Holdings Limited 04539974
OC356460
Babcock Integration LLP
08338012
Babcock Mission Critical Services Topco Limited
Company number
Legal entity name
08010453
Babcock Mission Critical Services Limited
07527245
Babcock Mission Critical Services UK Limited
08493398
Bond Aviation Topco Limited
Babcock Defence & Security Holdings LLP
OC376674
Babcock Defence and Security Investments Limited 08132272
03335786
Babcock International Support Services Limited
03954520
Babcock Airports Limited
02881056
Babcock Assessments Limited
08132276
Babcock Education Holdings Limited
OC376675
Babcock Critical Assets Holdings LLP
OC376676
Babcock Education and Training Holdings LLP
Cavendish Nuclear (Overseas) Limited
05339062
Babcock Integrated Technology (Korea) Limited 09566389
Babcock Information Analytics and Security Limited 02275471
02052982
Appledore Shipbuilders (2004) Limited
Babcock International Group PLC will guarantee all outstanding liabilities that these subsidiaries are subject to as at the financial year
ended 31 March 2022 in accordance with section 479C of the Act, as amended by the Companies and Limited Liability Partnerships
(Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012. In addition, Babcock International Group
PLC will guarantee any contingent and prospective liabilities that these subsidiaries are subject to.
226
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
227
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
33. Related party transactions
Related party transactions for the year ended 31 March 2022 are:
2022
Joint ventures and associates
First Swietelsky Operation and Maintenance
Ascent Flight Training (Management) Limited
Ascent Flight Training (Holdings) Limited
ALC (Superholdco) Limited
Rotary Wing Training Limited
Fixed Wing Training Limited
Advanced Jet Training Limited
Rear Crew Training Limited
AirTanker Services Limited
Alert Communications Limited
Naval Ship Management (Australia) Pty Limited
Cavendish Dounreay Partnership Limited
2021 (restated*)
Joint ventures and associates
Holdfast Training Services Limited
First Swietelsky Operation and Maintenance
Ascent Flight Training (Management) Limited
Ascent Flight Training (Holdings) Limited
ALC (Superholdco) Limited
Rotary Wing Training Limited
Fixed Wing Training Limited
Advanced Jet Training Limited
Rear Crew Training Limited
AirTanker Services Limited
Alert Communications Limited
Naval Ship Management (Australia) Pty Limited
Cavendish Dounreay Partnership Limited
Duqm Naval Dockyard SAOC
2022
Revenue to
£m
2022
Purchases
from
£m
2022
Year-end
debtor
balance
£m
2022
Year-end
creditor
balance
£m
9.1
3.3
1.1
0.4
3.6
3.5
1.8
1.1
11.3
4.4
–
–
39.6
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
0.1
–
–
0.7
0.3
0.2
0.2
0.1
–
–
–
2.1
(1.5)
–
–
–
–
–
–
–
–
–
–
–
(1.5)
2021
Revenue to
£m
2021
Purchases
from
£m
2021
Year-end
debtor
balance
£m
2021
Year-end
creditor
balance
£m
10.8
9.0
2.0
0.3
–
4.0
4.2
2.7
1.3
11.1
3.5
–
6.7
0.2
55.8
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
(0.4)
–
0.8
0.2
0.1
0.1
–
–
0.2
–
0.1
–
–
0.2
–
1.7
–
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
* The results for 31 March 2021 have been restated in line with IAS 24, due to related party transactions which were unnecessarily added into the disclosure in
the prior year.
a) All transactions noted above arise in the normal course of business and on normal, arm’s length commercial terms.
b) Defined benefit pension schemes. Please refer to note 27 for transactions with the Group defined benefit pension schemes.
c) Key management compensation is shown in note 7.
d) Transactions in employee benefits trusts are shown in note 26.
34. Events after the reporting period
On 19 July 2022, the Group announced the sale of its Aerial Emergency Services business in the Aviation operating segment for gross
cash consideration of £115 million. This business provides aerial emergency medical services, firefighting and search & rescue to
customers and communities in Italy, Spain, Portugal, Norway, Sweden and Finland. The disposal was made as part of the Group’s
targeted disposals programme.
228
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
33. Related party transactions
Related party transactions for the year ended 31 March 2022 are:
2022
Joint ventures and associates
First Swietelsky Operation and Maintenance
Ascent Flight Training (Management) Limited
Ascent Flight Training (Holdings) Limited
ALC (Superholdco) Limited
Rotary Wing Training Limited
Fixed Wing Training Limited
Advanced Jet Training Limited
Rear Crew Training Limited
AirTanker Services Limited
Alert Communications Limited
Naval Ship Management (Australia) Pty Limited
Cavendish Dounreay Partnership Limited
2021 (restated*)
Joint ventures and associates
Holdfast Training Services Limited
First Swietelsky Operation and Maintenance
Ascent Flight Training (Management) Limited
Ascent Flight Training (Holdings) Limited
ALC (Superholdco) Limited
Rotary Wing Training Limited
Fixed Wing Training Limited
Advanced Jet Training Limited
Rear Crew Training Limited
AirTanker Services Limited
Alert Communications Limited
Naval Ship Management (Australia) Pty Limited
Cavendish Dounreay Partnership Limited
Duqm Naval Dockyard SAOC
2022
Revenue to
£m
2022
Purchases
from
£m
2022
Year-end
debtor
balance
£m
2022
Year-end
creditor
balance
£m
(1.5)
2021
Revenue to
£m
2021
Purchases
from
£m
2021
Year-end
debtor
balance
£m
2.1
(1.5)
2021
Year-end
creditor
balance
£m
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
0.1
–
–
0.7
0.3
0.2
0.2
0.1
–
–
–
–
0.8
0.2
0.1
0.1
0.2
0.1
–
–
–
–
–
–
0.2
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.1
3.3
1.1
0.4
3.6
3.5
1.8
1.1
11.3
4.4
–
–
39.6
10.8
9.0
2.0
0.3
–
4.0
4.2
2.7
1.3
11.1
3.5
–
6.7
0.2
55.8
* The results for 31 March 2021 have been restated in line with IAS 24, due to related party transactions which were unnecessarily added into the disclosure in
the prior year.
a) All transactions noted above arise in the normal course of business and on normal, arm’s length commercial terms.
b) Defined benefit pension schemes. Please refer to note 27 for transactions with the Group defined benefit pension schemes.
(0.4)
(0.4)
(0.4)
c) Key management compensation is shown in note 7.
d) Transactions in employee benefits trusts are shown in note 26.
34. Events after the reporting period
On 19 July 2022, the Group announced the sale of its Aerial Emergency Services business in the Aviation operating segment for gross
cash consideration of £115 million. This business provides aerial emergency medical services, firefighting and search & rescue to
customers and communities in Italy, Spain, Portugal, Norway, Sweden and Finland. The disposal was made as part of the Group’s
targeted disposals programme.
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35. Group entities
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries and equity accounted investments as at
31 March 2022 is disclosed below. Unless otherwise stated, the Group’s shareholding represents ordinary shares held indirectly by
Babcock International Group PLC, the entities are unlisted, and have one type of ordinary share capital, the year end is 31 March and
the address of the registered office is 33 Wigmore Street, London, W1U 1QX. The Group’s interest in the voting share capital is 100%
unless otherwise stated. No subsidiary undertakings have been excluded from the consolidation.
Subsidiaries, wholly owned
Airwork Limited
Appledore Shipbuilders (2004) Limited2
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG, United Kingdom
Armstrong Technology Associates Limited*
Babcock (Ireland) Treasury Limited
Custom House Plaza, Block 6, IFSC, Dublin, 1, Ireland
Babcock (NZ) Limited
C/O Babcock Central Office, HMNZ Dockyard,
Devonport Naval Base, Queens Parade, Devonport,
Auckland, 0744, New Zealand
Babcock (UK) Holdings Limited1,10
Babcock Aerospace Limited
Babcock Africa Investments (Pty) Ltd
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Airports Limited
Babcock Assessments Limited
Babcock Australia Holdings Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
Babcock Aviation Services (Holdings)
Limited1, 8
Babcock B.V.
Bezuidenhoutseweg 1, 2594 AB The Hague,
The Netherlands
Babcock Canada Inc.
45 O’Connor Street, Suite 1500, Ottawa, Ontario
K1P 1A4, Canada
Babcock Communications Cyprus Limited
Spyrou Kyprianou, 47, 1st Floor, Mesa Geitona, 4004
Limassol, Cyprus
Babcock Communications Limited
Babcock Contractors Limited2
Babcock Corporate Secretaries Limited*
Babcock Corporate Services Limited
Babcock Critical Assets Holdings LLP
Babcock Critical Services Limited
103 Waterloo Street, Glasgow, Scotland, G2 7BW,
United Kingdom
Babcock Defence & Security Holdings LLP
Babcock Defence and Security Investments
Limited
Babcock Defence Systems Limited
Babcock Defense (USA) Incorporated
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Babcock Design & Technology Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock DS 2019 Limited*
Babcock Education & Training Holdings LLP
Babcock Education and Skills Limited
Babcock Education Holdings Limited
Babcock Engineering Limited*
Babcock Engineering Portugal,
Unipessoal, LDA
Heliporto de Salemas, Lousa, 2670-769, Lisboa,
Loures, Portugal
Babcock Europe Finance Limited2
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Fire Services (SW) Limited
Babcock Fire Services Limited
Babcock Fire Training (Avonmouth) Limited
Babcock Group (US Investments) Limited
Babcock Holdings (USA) Incorporated7
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Babcock Holdings Limited10
Babcock Information Analytics and
Security Holdings Limited*
Babcock Information Analytics and
Security Limited5
Babcock Integrated Technology (Korea)
Limited
Babcock Integrated Technology GmbH
Am Zoppenberg 23, 41366 Schwalmtal, Germany
Babcock Integrated Technology Limited
Babcock Integration LLP
Babcock International France Aviation SAS
Lieu dit le Portaret, 83340, Le Cannet-des-Maures,
France
Babcock International France SAS
21 Rue Leblanc 75015, Paris, France
Babcock International France Terre SAS
21 Rue Leblanc 75015, Paris, France
Babcock International Holdings BV
Bezuidenhoutseweg 1, 2594 AB The Hague,
The Netherlands
Babcock International Holdings Limited2
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock International Italy S.p.A.
Piazza Castello no.26 – 20121 Milan, Italy
Babcock International Limited5
Babcock International Spain S.L.U.
Mutxamel, Alicante, Aeródromo de Mutxamel,
03110, Partida la Almaina 92, Spain
Babcock International Support Services
Limited
Babcock International US Inc
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Babcock Investments (Fire Services)
Limited
Babcock Investments (Number Four)
Limited
Babcock Investments (Number Nine)
Limited
Babcock Investments Limited
Babcock IP Management (Number One)
Limited
Babcock IP Management (Number Two)
Limited
Babcock Ireland Finance Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Korea Limited
72-1, Shinsan-ro, Saha-gu, Busan, 49434, South
Korea
Babcock Land Defence Limited
Babcock Luxembourg Finance S.a.r.l.
12F rue Guillaume Kroll, L – 1882 Luxembourg
Babcock Luxembourg Investments I S.a.r.l.
12F rue Guillaume Kroll, L – 1882 Luxembourg
Babcock Luxembourg Investments S.a.r.l.
12F rue Guillaume Kroll, L – 1882 Luxembourg
Babcock Luxembourg S.a.r.l.
12F rue Guillaume Kroll, L – 1882 Luxembourg
Babcock M 2019 Limited*
Babcock Malta Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Malta (Number Two) Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Malta Finance (Number Two)
Limited3
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Malta Finance Limited3
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Malta Holdings (Number Two)
Limited3
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Malta Holdings Limited3
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Management 2019 Limited*
Babcock Management Limited
Babcock Marine & Technology Holdings
Limited
Babcock Marine (Clyde) Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Marine (Devonport) Limited6
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG, England
Babcock Marine (Rosyth) Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Marine Holdings (UK) Limited5
Babcock Marine Limited
Babcock Marine Products Limited*
Babcock Marine Training Limited2
Babcock MCS Congo SA
Avenue Charles de Gaulle, PB 5871, Pointe-Noire,
PB 5871, The Republic of Congo
Babcock MCS Fleet Management S.p.A.
Piazza Castello no. 26, 20121, Milan, Italy
228
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
229
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
35. Group entities (continued)
Subsidiaries, wholly owned (continued)
Babcock Mission Critical Services Asset
Management SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services
Australasia Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
Babcock Mission Critical Services Design
and Completions Limited
Babcock Mission Critical Services Galicia SL
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services Germany
GmbH
Augsburg Airport, Flughafenstrasse 19, 86169
Augsburg, Germany
Babcock Mission Critical Services Group,
S.A.U.
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services Holdings,
S.L.U.
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services
International SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services Leasing
Limited
Babcock Mission Critical Services Ltd
Babcock Mission Critical Services Onshore
Limited
Babcock Mission Critical Services SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services
Topco Ltd2
Babcock Mission Critical Services
UK Limited
Babcock MSS Limited
Babcock Mission Critical Services Fleet
Management SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Norway AS
Rådhusgata 3, 9008 TROMSØ, Norway
Babcock Nuclear Limited
Babcock Oman LLC
P.O. Box 2315, Ghala, Muscat, 130, Oman
Babcock Overseas Investments Limited
Babcock Project Investments Limited
Babcock Project Services Limited
Babcock Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
Babcock Rail Limited
Babcock Scandinavia Holding AB
Flygstationsvägen 4, 972 54, Luleå, Sweden
Babcock Services Group Limited
Babcock Services Limited
Babcock Skills Development and Training
Limited
Babcock Southern Careers Limited*3
Babcock Southern Holdings Limited6
Babcock Support Services (Investments)
Limited
Babcock Support Services GmbH
Am Zoppenberg 23, 41366 Schwalmtal, Germany
Babcock Support Services Limited10
103 Waterloo Street, Glasgow, Scotland, G2 7BW,
United Kingdom
Babcock Support Services s.r.l.
Corso Vercelli, 40, 20145, Milano, Italy
Babcock Training Limited
Babcock UK Finance
Babcock USA LLC
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Babcock US Investments
(Number Two) LLC2
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Babcock US Investments Inc.2
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Babcock US Investments Limited5
Babcock Vehicle Engineering Limited4
BNS Pension Trustees Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
BNS Pensions Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Bond Aviation Topco Limited5
Brooke Marine Shipbuilders Limited*
Cavendish Nuclear (Overseas) Limited
Cavendish Nuclear (USA) Incorporated
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Cavendish Nuclear Japan KK
Regus Tokyo, Arca Central - Office 104, Arca Central
Building 14F 1-2-1, Kinshi , Sumida-ku, Tokyo, Japan
Cavendish Nuclear Limited5
Chepstow Insurance Limited
PO Box 155, Mill Court, La Charroterie, St Peter Port,
GY1 4ET, Guernsey
Devonport Royal Dockyard Limited12
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG, United Kingdom
Devonport Royal Dockyard Pension
Trustees Limited*
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG, United Kingdom
FBM Babcock Marine Holdings (UK)
Limited*
FBM Babcock Marine Limited*
FBM Marine International (UK) Limited*
Flagship Fire Fighting Training Limited
Heli Aviation China Limited*
Rooms 05-15, 13 A/F South Tower, World Finance
Centre, Harbour City, 17 Canton Road, Tsim Sha Tsui,
Kowloon, Hong Kong
iMAST Limited*
INAER Helicopter Chile S.A.*
2880 Americo Vespucio Norte Avenue, Suite 1102,
Conchali, Santiago, Chile
LGE IP Management Company Ltd
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Scotland, KY11 2YD, United Kingdom
Liquid Gas Equipment Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Scotland, KY11 2YD, United Kingdom
Liquid Gas Equipment LLC2
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Marine Engineering & Fabrications
(Holdings) Limited*
Marine Engineering & Fabrications Limited*
Marine Industrial Design Limited
c/o Babcock Central Office, HMNZ Dockyard,
Devonport Naval Base, Queens Parade, Devonport,
Auckland, 0744, New Zealand
Naval Ship Management (Australia) Pty Ltd
9, 70 Franklin Street, Adelaide, SA 5000, Australia
Peterhouse Group Limited
Peterhouse GmbH
Am Zoppenberg 23, 41366 Schwalmtal, Germany
Port Babcock Rosyth Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Limited12
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Pension Trustees
Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
SBRail Limited*
Skills2Learn Ltd
Vosper Thornycroft (UK) Limited
230
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
35. Group entities (continued)
Subsidiaries, wholly owned (continued)
Babcock Mission Critical Services Asset
Babcock Rail Limited
Management SAU
Alicante, Spain
Partida La Almaina, nro. 92, 03110, Mutxamel,
Babcock Mission Critical Services
Australasia Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
Babcock Mission Critical Services Design
and Completions Limited
Babcock Scandinavia Holding AB
Flygstationsvägen 4, 972 54, Luleå, Sweden
Babcock Services Group Limited
Babcock Services Limited
Babcock Skills Development and Training
Limited
Babcock Southern Careers Limited*3
Babcock Southern Holdings Limited6
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG, United Kingdom
FBM Babcock Marine Holdings (UK)
Limited*
FBM Babcock Marine Limited*
FBM Marine International (UK) Limited*
Flagship Fire Fighting Training Limited
Heli Aviation China Limited*
Rooms 05-15, 13 A/F South Tower, World Finance
Centre, Harbour City, 17 Canton Road, Tsim Sha Tsui,
Babcock Mission Critical Services Galicia SL
Partida La Almaina, nro. 92, 03110, Mutxamel,
Limited
Babcock Support Services (Investments)
Kowloon, Hong Kong
Babcock Support Services GmbH
iMAST Limited*
INAER Helicopter Chile S.A.*
Babcock Mission Critical Services Germany
Am Zoppenberg 23, 41366 Schwalmtal, Germany
2880 Americo Vespucio Norte Avenue, Suite 1102,
Babcock Support Services Limited10
Conchali, Santiago, Chile
103 Waterloo Street, Glasgow, Scotland, G2 7BW,
LGE IP Management Company Ltd
Partida La Almaina, nro. 92, 03110, Mutxamel,
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
Alicante, Spain
GmbH
S.A.U.
Alicante, Spain
S.L.U.
Alicante, Spain
Augsburg Airport, Flughafenstrasse 19, 86169
Augsburg, Germany
Babcock Mission Critical Services Group,
Partida La Almaina, nro. 92, 03110, Mutxamel,
Babcock Mission Critical Services Holdings,
Babcock Mission Critical Services
International SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services Leasing
Limited
Limited
Babcock Mission Critical Services Ltd
Babcock Mission Critical Services Onshore
United Kingdom
Babcock Support Services s.r.l.
Corso Vercelli, 40, 20145, Milano, Italy
Babcock Training Limited
Babcock UK Finance
Babcock USA LLC
United States
Babcock US Investments
(Number Two) LLC2
251 Little Falls Drive, Wilmington, Delaware 19808,
United States
United States
Babcock US Investments Inc.2
251 Little Falls Drive, Wilmington, Delaware 19808,
Babcock US Investments Limited5
Babcock Vehicle Engineering Limited4
BNS Pension Trustees Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Babcock Mission Critical Services SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
KY11 2YD, Scotland
Alicante, Spain
Topco Ltd2
Babcock Mission Critical Services
BNS Pensions Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Mission Critical Services
Bond Aviation Topco Limited5
Brooke Marine Shipbuilders Limited*
Cavendish Nuclear (Overseas) Limited
UK Limited
Babcock MSS Limited
Management SAU
Alicante, Spain
Babcock Norway AS
Rådhusgata 3, 9008 TROMSØ, Norway
Babcock Nuclear Limited
Babcock Oman LLC
P.O. Box 2315, Ghala, Muscat, 130, Oman
Babcock Overseas Investments Limited
Babcock Project Investments Limited
Babcock Project Services Limited
Babcock Pty Ltd
Australia
Level 9, 70 Franklin Street, Adelaide SA 5000,
Trustees Limited*
Cavendish Nuclear Japan KK
Regus Tokyo, Arca Central - Office 104, Arca Central
Building 14F 1-2-1, Kinshi , Sumida-ku, Tokyo, Japan
Cavendish Nuclear Limited5
Chepstow Insurance Limited
PO Box 155, Mill Court, La Charroterie, St Peter Port,
GY1 4ET, Guernsey
Devonport Royal Dockyard Limited12
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG, United Kingdom
Devonport Royal Dockyard Pension
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Scotland, KY11 2YD, United Kingdom
Liquid Gas Equipment Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Scotland, KY11 2YD, United Kingdom
Liquid Gas Equipment LLC2
251 Little Falls Drive, Wilmington, Delaware 19808,
Marine Engineering & Fabrications
(Holdings) Limited*
Marine Engineering & Fabrications Limited*
Marine Industrial Design Limited
c/o Babcock Central Office, HMNZ Dockyard,
Devonport Naval Base, Queens Parade, Devonport,
Auckland, 0744, New Zealand
Naval Ship Management (Australia) Pty Ltd
9, 70 Franklin Street, Adelaide, SA 5000, Australia
Peterhouse Group Limited
Peterhouse GmbH
Am Zoppenberg 23, 41366 Schwalmtal, Germany
Port Babcock Rosyth Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Limited12
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Pension Trustees
Limited*
KY11 2YD, Scotland
SBRail Limited*
Skills2Learn Ltd
Vosper Thornycroft (UK) Limited
Babcock Mission Critical Services Fleet
Cavendish Nuclear (USA) Incorporated
Partida La Almaina, nro. 92, 03110, Mutxamel,
United States
251 Little Falls Drive, Wilmington, Delaware 19808,
Rosyth Business Park, Rosyth, Dunfermline, Fife,
S
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35. Group entities (continued)
Subsidiaries, partly owned:
Airwork Technical Services & Partners LLC
(51.0%)
PO Box 248 (Muaskar Al Murtafa’a (MAM) Garrison),
Muscat, 100, Sultanate of Oman
Babcock Africa (Pty) Limited (90.0%)7
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Africa Holdings (Pty) Ltd (90.0%)13
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Africa Services (Pty) Ltd (90.0%)
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Aviation Services Holdings
International Limited (49.82%)13
52 St Christopher Street, Valletta, VLT 1462, Malta
Babcock Education and Training (Pty) Ltd
(90%)
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Emergencias Aéreas España
Holding, S.L.U. (49.82%)
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Financial Services (Pty) Ltd
(90.0%)
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Holdings (Italy) S.p.A. (49.82%)
Piazza Castello 26, 20121, Milan, Italy
Babcock Learning and Development
Partnership LLP (80.1%)
Babcock MCS Ghana Limited (90%)
No. 9, Carrot Avenue, Adjacent Lizzy Sport Complex,
East Legon, Accra, Ghana
Babcock MCS Mozambique, Limitada
(90.0%)
Sala no. 2022, 1 Andar, Terminal A, Aeroporto
Internacional do Maputo, Distrito Urbano 2,
Mozambique
Babcock Mission Critical Services (Ireland)
Limited (49.82%)
13-18 City Quay, Dublin 2, Ireland
Babcock Mission Critical Services España
SAU (49.82%)
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services France SA
(49.82%)
Lieu dit le Portaret, 83340, Le Cannet-des-Maures,
France
Babcock Mission Critical Services Galicia SL
(91.1%)
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services Italia
S.p.A (49.82%)
Piazza Castello no. 26, 20121, Milan, Italy
Babcock Mission Critical Services Portugal,
Unipessoal, LDA (49.82%)
Heliporto de Salemas, Lousa, 2670-769, Lisboa,
Loures, Portugal
Babcock Mission Critical Services,
Scandinavia AB (49.82%)2
c/o Ashurst Advokatbyra AB, PO Box 7124, 10387,
Stockholm, Sweden
Babcock Moçambique Limitada (90.0%)
Av. Zedequias Manganhela, no 267, 1 Andar, Direito,
Mozambique
Babcock Namibia Services Pty Ltd (90.0%)
Unit 3 Ground Floor, Dr Agostinho Neto Road,
Ausspann Plaza, Ausspanplatz, Windhoek, Namibia
Babcock Ntuthuko Aviation (Pty) Limited
(66.78%)*
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Ntuthuko Engineering (Pty)
Limited (46.37%)
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Ntuthuko Powerlines (Pty) Limited
(46.81%)*
Unit G3 Victoria House, Plot 132 Independence
Avenue, Gaborone, Botswana
Babcock Plant Services (Pty) Ltd (64.82%)5
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock SAA FW AB (49.82%)
Flygstationsvägen 4, 972 54, Luleå, Sweden
Babcock Scandinavian AirAmbulance AB
(49.82%)
Lägervägen 3, 832 56, Frösön, Sweden
Babcock Scandinavian AirAmbulance AS
(49.82%)
Rådhusgata 3, 9008 TROMSØ, Norway
Babcock Scandinavian Aviation Services AS
(49.82%)
Rådhusgata 3, 9008 TROMSØ, Norway
Babcock Scandinavian Engineering AS
(49.82%)
Rådhusgata 3, 9008 TROMSØ, Norway
Babcock Scandinavian Holding AS
(49.82%)
Rådhusgata 3, 9008 TROMSØ, Norway
Babcock TCM Plant (Proprietary) Limited
(90%)7
Unit G3 Victoria House, Plot 132 Independence
Avenue, Gaborone, Botswana
Babcock Zambia Limited (90.0%)
16 Arusha, Town Centre, Ndola, Copper Belt, Zambia
Cognac Formation Aero (90.0%)
Base Aérienne 709 Cognac 16100 Châteaubernard,
France
INAER Helicopter Peru S.A.C.
(In liquidation) (70.0%)
1118 Av. Los Conquistadores, Santa Cruz, San Isidro,
Lima, Peru
National Training Institute LLC (70.0%)
PO Box 267, MadinatQaboos, Sultanate of Oman,
115 Oman
230
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
231
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
35. Group entities (continued)
Joint ventures and associates
(equity accounted):
ABC Electrification Ltd (33.3%)11
8th Floor, The Place, High Holborn, London,
WC1V 7AA
AirTanker Services Limited (23.5%)15
AirTanker Hub RAF Brize Norton, Carterton,
Oxfordshire, England, OX18 3LX, United Kingdom
Alert Communications Group Holdings
Limited (20.0%)
Ascent Flight Training (Holdings) Limited
(50.0%)
Cavendish Boccard Nuclear Limited
(51.0%)
Cavendish Dounreay Partnership Limited
(50.0%)12
Cavendish Fluor Partnership Limited
(65.0%)
Debut Services (South West) Limited
(50.0%)
20 Triton Street, Regent’s Place, London, NW1 3BF,
United Kingdom
Duqm Naval Dockyard SAOC (49.0%)
The Special Economic Zone at Duqm, Al-Duqm,
Al-Wusta’a, 3972 112, Oman
European Air-Crane S.p.A. (24.41%)
Via Vittorio Emanuele 11, 50134, Florence, Italy
FSP (2004) Limited (50.0%)2
Kintail House, 3 Lister Way, Hamilton International
Park, Blantyre, G72 0FT, Scotland
Okeanus Vermogensverwaltungs
GmbH & Co. KG (50.0%)
Vorsetzen 54, 20459, Hamburg, Germany
Wholly owned subsidiaries with registered
office at 55 Baker Street, London,
W1U 7EU, United Kingdom, currently in
Members Voluntary Liquidation:
2019 S&H Limited; Babcock Civil
Infrastructure Limited; Babcock
Infrastructure Holdings LLP; BIL Solutions
Limited; Bond Aviation Leasing Limited.
Wholly owned subsidiaries with registered
office at 5 Temple Square, Temple Street,
Liverpool L2 5RH, United Kingdom,
currently in Members Voluntary Liquidation:
Babcock Emergency Services Limited;
Babcock Leaseco Limited; Babcock
Technical Services Limited; HCTC Limited;
INS Innovation Limited; KML (UK) Limited;
Scimco Limited; Touchstone Learning &
Skills Ltd; Westminster Education
Consultants Limited.
Wholly owned subsidiary with registered
office at 4 Atlantic Quay, 70 York Street,
Glasgow, G2 8JX currently in Members
Voluntary Liquidation:
First Engineering Holdings Limited
Joint venture, with registered office at
18-22 Lloyd Street, Manchester, M2 5WA
United Kingdom, currently in Members
Voluntary Liquidation:
ALC (Superholdco) Limited (50.0%)15
Notes
*
1.
Dormant entity.
Babcock International Group PLC has direct
holdings in Babcock (UK) Holdings Limited,
and preference shares class A and B in
Babcock Aviation Services (Holdings) Limited.
2. Holding of two types of ordinary shares.
3. Holding of three types of ordinary shares.
4. Holding of six types of ordinary shares.
5. Holding of ordinary and preference shares.
6. Holding of ordinary and deferred shares.
7. Holding of ordinary and redeemable
preference shares.
8. Holding of ordinary and three types of
preference shares.
9. Holding of ordinary and five types of
preference shares.
10. Holding of two types of ordinary shares and
two types of preference shares.
11. Holding of one type of ordinary share only,
where more than one type of share is
authorised or in issue.
12. Holding of two types of ordinary shares, where
more than two types of share are authorised
or in issue.
13. Holding of one type of ordinary share and one
type of preference share, where more than
two types of share are authorised or in issue.
14. Year end 31 December.
15. Year end 30 June.
232
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
COMPANY STATEMENT OF FINANCIAL POSITION
Ascent Flight Training (Holdings) Limited
Liverpool L2 5RH, United Kingdom,
35. Group entities (continued)
Joint ventures and associates
(equity accounted):
ABC Electrification Ltd (33.3%)11
8th Floor, The Place, High Holborn, London,
WC1V 7AA
AirTanker Services Limited (23.5%)15
AirTanker Hub RAF Brize Norton, Carterton,
Oxfordshire, England, OX18 3LX, United Kingdom
Alert Communications Group Holdings
Limited (20.0%)
(50.0%)
(51.0%)
(50.0%)12
(65.0%)
(50.0%)
Cavendish Boccard Nuclear Limited
Cavendish Dounreay Partnership Limited
Cavendish Fluor Partnership Limited
Debut Services (South West) Limited
United Kingdom
Duqm Naval Dockyard SAOC (49.0%)
The Special Economic Zone at Duqm, Al-Duqm,
Al-Wusta’a, 3972 112, Oman
European Air-Crane S.p.A. (24.41%)
Via Vittorio Emanuele 11, 50134, Florence, Italy
FSP (2004) Limited (50.0%)2
Kintail House, 3 Lister Way, Hamilton International
Park, Blantyre, G72 0FT, Scotland
Okeanus Vermogensverwaltungs
GmbH & Co. KG (50.0%)
Vorsetzen 54, 20459, Hamburg, Germany
Wholly owned subsidiaries with registered
office at 55 Baker Street, London,
W1U 7EU, United Kingdom, currently in
Notes
*
Dormant entity.
Members Voluntary Liquidation:
2019 S&H Limited; Babcock Civil
Infrastructure Limited; Babcock
Infrastructure Holdings LLP; BIL Solutions
Limited; Bond Aviation Leasing Limited.
Wholly owned subsidiaries with registered
office at 5 Temple Square, Temple Street,
1.
Babcock International Group PLC has direct
holdings in Babcock (UK) Holdings Limited,
and preference shares class A and B in
Babcock Aviation Services (Holdings) Limited.
2. Holding of two types of ordinary shares.
3. Holding of three types of ordinary shares.
4. Holding of six types of ordinary shares.
5. Holding of ordinary and preference shares.
currently in Members Voluntary Liquidation:
6. Holding of ordinary and deferred shares.
Babcock Emergency Services Limited;
Babcock Leaseco Limited; Babcock
7. Holding of ordinary and redeemable
preference shares.
Technical Services Limited; HCTC Limited;
8. Holding of ordinary and three types of
INS Innovation Limited; KML (UK) Limited;
Scimco Limited; Touchstone Learning &
Skills Ltd; Westminster Education
Consultants Limited.
Wholly owned subsidiary with registered
Glasgow, G2 8JX currently in Members
Voluntary Liquidation:
First Engineering Holdings Limited
Joint venture, with registered office at
18-22 Lloyd Street, Manchester, M2 5WA
United Kingdom, currently in Members
Voluntary Liquidation:
ALC (Superholdco) Limited (50.0%)15
preference shares.
9. Holding of ordinary and five types of
preference shares.
10. Holding of two types of ordinary shares and
two types of preference shares.
11. Holding of one type of ordinary share only,
where more than one type of share is
authorised or in issue.
12. Holding of two types of ordinary shares, where
more than two types of share are authorised
or in issue.
13. Holding of one type of ordinary share and one
type of preference share, where more than
two types of share are authorised or in issue.
14. Year end 31 December.
15. Year end 30 June.
20 Triton Street, Regent’s Place, London, NW1 3BF,
office at 4 Atlantic Quay, 70 York Street,
As at 31 March
Non-current assets
Investment in subsidiaries
Trade and other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Non-current liabilities
Bank and other borrowings
Other financial liabilities
Current liabilities
Bank and other borrowings
Other financial liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Capital redemption reserve
Other reserve
Retained earnings
Total equity
S
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Note
2022
£m
2021
(restated)
£m
6
7
7
8
9
8
9
10
11
2,466.5
2,633.5
5,100.0
2,303.5
2,570.0
4,873.5
1,175.7
337.1
1,512.8
6,612.8
1,175.9
115.0
1,290.9
6,164.4
819.4
51.4
870.8
1,283.1
39.3
1,322.4
502.5
41.5
2,465.2
3,009.2
3,880.0
2,732.8
303.4
873.0
30.6
768.8
757.0
2,732.8
203.3
4.7
2,067.5
2,275.5
3,597.9
2,566.5
303.4
873.0
30.6
768.8
590.7
2,566.5
*
In the year ended 31 March 2021, the financial information for the Company has been restated. Details of the restatement are contained in note 5. The
presentation of the statement of financial position has been amended to more closely align to the Group statement of financial position.
The accompanying notes are an integral part of this Company statement of financial position. Company number 02342138.
The Company has taken advantage of the exemption granted by Section 408 of the Companies Act 2006 whereby no
individual income statement of the Company is disclosed. The Company’s profit for the financial year was £169.4 million (2021:
£156.2 million loss).
The financial statements on pages 233 to 243 were approved by the Board of Directors on 28 July 2022 and are signed on
its behalf by:
DAVID LOCKWOOD OBE
Director
DAVID MELLORS
Director
232
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
233
COMPANY STATEMENT OF CHANGES IN EQUITY
At 31 March 2020
Profit for the year (restated)
Other comprehensive income
Total comprehensive income (restated)
Share-based payments
Tax on share-based payments
Own shares
Net movement in equity
At 31 March 2021 (restated)
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payments
Tax on share-based payments
Net movement in equity
At 31 March 2022
Share
capital
£m
303.4
–
–
–
–
–
–
–
303.4
–
–
–
–
–
–
303.4
Share
premium
£m
873.0
–
–
–
–
–
–
–
873.0
–
–
–
–
–
–
873.0
Other
reserve
£m
768.8
–
–
–
–
–
–
–
768.8
–
–
–
–
–
–
768.8
Capital
redemption
£m
30.6
–
–
–
–
–
–
–
30.6
–
–
–
–
–
–
30.6
Retained
earnings
£m
763.1
(156.2)
(19.5)
(175.7)
3.2
2.3
(2.2)
(172.4)
590.7
169.4
(8.6)
160.8
5.5
–
166.3
757.0
Total
equity
£m
2,738.9
(156.2)
(19.5)
(175.7)
3.2
2.3
(2.2)
(172.4)
2,566.5
169.4
(8.6)
160.8
5.5
–
166.3
2,732.8
* In the year ended 31 March 2021, the financial information for the Company have been restated. Details of the restatement are contained in note 5.
The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates to the
issue and redemption of redeemable ‘B’ preference shares in 2001.
234
Babcock International Group PLC Annual Report and Financial Statements 2022
Total comprehensive income (restated)
At 31 March 2020
Profit for the year (restated)
Other comprehensive income
Share-based payments
Tax on share-based payments
Own shares
Net movement in equity
At 31 March 2021 (restated)
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payments
Tax on share-based payments
Net movement in equity
At 31 March 2022
Share
capital
£m
303.4
Share
premium
£m
873.0
Other
reserve
£m
768.8
Capital
redemption
£m
30.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
303.4
873.0
768.8
30.6
Retained
earnings
£m
Total
equity
£m
763.1
2,738.9
(156.2)
(156.2)
(19.5)
(19.5)
(175.7)
(175.7)
3.2
2.3
(2.2)
3.2
2.3
(2.2)
(172.4)
(172.4)
590.7
169.4
(8.6)
2,566.5
169.4
(8.6)
160.8
160.8
5.5
–
5.5
–
166.3
757.0
166.3
2,732.8
–
–
–
–
–
–
–
–
–
–
–
–
–
* In the year ended 31 March 2021, the financial information for the Company have been restated. Details of the restatement are contained in note 5.
303.4
873.0
768.8
30.6
issue and redemption of redeemable ‘B’ preference shares in 2001.
COMPANY STATEMENT OF CHANGES IN EQUITY
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. General information
Babcock International PLC is incorporated and domiciled in England, UK. The address of the registered office is 33 Wigmore Street,
London, W1U 1QX.
2. Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented.
Basis of accounting
The financial statements have been prepared in accordance with the Companies Act 2006 as applicable to companies using Financial
Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). The financial statements have been prepared under the historical
cost convention, as modified by the revaluation of certain financial instruments on a going concern basis. The financial statements are
prepared in Sterling which is the functional currency of the Company and rounded to the nearest £ million.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Company’s accounting policies.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in
accordance with FRS 101:
• Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payments’
• IFRS 7, ‘Financial instruments: Disclosures’
• Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value
The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates to the
measurement of assets and liabilities)
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• Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information in respect of:
• paragraph 79(a) (iv) of IAS 1, ‘Share capital and reserves’;
• paragraph 73(e) of IAS 16, ‘Property, plant and equipment’; and
• paragraph 118(e) of IAS 38, ‘Intangible assets’ (reconciliations between the carrying amount at the beginning and end of
the year).
• The following paragraphs of IAS 1, ‘Presentation of financial statements’:
• 10(d), 10(f), 16, 38A-38D, 40A-40D, 111, and 134-136.
• IAS 7, ‘Statement of cash flows’
• Paragraphs 30 and 31 of IAS 8, ‘Accounting policies, changes in accounting estimates and errors’
• Paragraph 17 of IAS 24, ‘Related party transactions’ in respect of key management compensation
• The requirements of IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more
members of a group.
After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, the Directors consider it appropriate to continue to adopt the going
concern basis in preparing these financial statements.
New standards adopted by the Company
The Company has applied the following standards and amendments for the first time for its annual reporting period commencing
1 April 2021:
• Interest Rate Benchmark Reform, Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments
enables the Group to reflect the effects of transitioning from interbank offered rates to alternative benchmark interest rates without
giving rise to accounting impacts that would not provide useful information to users of financial statements.
The adoption of these standards has not had any impact on the amounts recognised in the prior period and is not expected to affect
the current or future periods.
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
235
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
2. Significant accounting policies (continued)
Investments
Fixed asset investments are stated at cost less provision for impairment in value.
Taxation
Current income tax
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted by the statement of financial position date.
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and
liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of
an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting
nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted,
or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in either other
comprehensive income or in equity.
Finance costs
Finance costs are recognised as an expense in the year in which they are incurred.
Employee benefits
(a) Share-based compensation
The Company operates equity-settled, share-based compensation plans which are recharged to the relevant subsidiaries. Full details of
the share-based compensation plans are disclosed in note 26 to the Group financial statements.
(b) Pension arrangements
The Company operates a multi-employer defined benefit pension scheme, however all assets and liabilities are recognised in the
relevant subsidiary in which the employee operates. See note 27 to the Group financial statements for further details.
Financial instruments
(a) Financial assets and liabilities at amortised cost
Amounts due from subsidiary undertakings and preference shares in subsidiary undertakings are classified as financial assets held at
amortised cost. Amounts due to subsidiary undertakings and bank loans and overdrafts are classified as financial liabilities held at
amortised cost. These balances are initially recognised at fair value and then held at amortised cost using the effective interest
rate method.
The Company assesses on a forward-looking basis the expected credit losses associated with financial assets held at amortised cost.
The impairment methodology applied depends on whether there has been a significant increase in credit risk.
(b) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into and are subsequently remeasured at their fair
value. The Company designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised
assets or liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that qualify as cash flow hedges, gains and losses are deferred in equity until such time as the firm commitment is
recognised. These gains or losses are then realised through the income statement as the asset is sold.
Certain derivatives do not qualify or are not designated as hedging instruments and any movement in their fair value is recognised in
profit or loss immediately.
236
Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
2. Significant accounting policies (continued)
Fixed asset investments are stated at cost less provision for impairment in value.
Investments
Taxation
Current income tax
Deferred income tax
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted by the statement of financial position date.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and
liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of
an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting
nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted,
or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in either other
temporary differences can be utilised.
comprehensive income or in equity.
Finance costs
Employee benefits
(a) Share-based compensation
Finance costs are recognised as an expense in the year in which they are incurred.
The Company operates equity-settled, share-based compensation plans which are recharged to the relevant subsidiaries. Full details of
the share-based compensation plans are disclosed in note 26 to the Group financial statements.
(b) Pension arrangements
The Company operates a multi-employer defined benefit pension scheme, however all assets and liabilities are recognised in the
relevant subsidiary in which the employee operates. See note 27 to the Group financial statements for further details.
Financial instruments
(a) Financial assets and liabilities at amortised cost
Amounts due from subsidiary undertakings and preference shares in subsidiary undertakings are classified as financial assets held at
amortised cost. Amounts due to subsidiary undertakings and bank loans and overdrafts are classified as financial liabilities held at
amortised cost. These balances are initially recognised at fair value and then held at amortised cost using the effective interest
rate method.
The Company assesses on a forward-looking basis the expected credit losses associated with financial assets held at amortised cost.
The impairment methodology applied depends on whether there has been a significant increase in credit risk.
(b) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into and are subsequently remeasured at their fair
value. The Company designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised
assets or liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that qualify as cash flow hedges, gains and losses are deferred in equity until such time as the firm commitment is
recognised. These gains or losses are then realised through the income statement as the asset is sold.
Certain derivatives do not qualify or are not designated as hedging instruments and any movement in their fair value is recognised in
profit or loss immediately.
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2. Significant accounting policies (continued)
Financial risk management
All treasury transactions are carried out only with investment grade counterparties as are investments of cash and cash equivalents.
Company guarantees
The Company has guaranteed or has joint and several liability for bank facilities with nil utilisation at 31 March 2022 (2021: nil)
provided to certain Group companies. These guarantees are measured initially at their fair values, and subsequently measured at the
higher of the expected credit loss and the amount initially recognised less cumulative amortisation.
Dividends
Dividends are recognised in the Company’s financial statements in the year in which they are approved and in the case of interim
dividends, when paid.
Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the
amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and
expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. The key assumptions about the future, and other key
sources of estimation uncertainty at the reporting year end that may have a significant risk of causing a material adjustment to the
carrying amount of assets and liabilities within the next financial year are discussed below:
Critical accounting estimates – Impairment of investment in subsidiaries
The carrying value of investment in subsidiaries is tested annually for impairment, in accordance with IAS 36. The impairment
assessment is based on assumptions in relation to the cash flows expected to be generated by the subsidiaries, together with
appropriate discounting of the cash flows. Note 5 provides information on key assumptions and sensitivity analyses performed.
3. Company profit
The Company has no employees other than the Directors.
The Company has taken advantage of the exemption granted by section 408 of the Companies Act 2006 whereby no individual
profit and loss account of the Company is disclosed. The Company’s profit for the financial year was £169.4 million (2021: loss
£156.2 million).
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s financial statements were £1.8 million
(2021: £0.7 million).
4. Directors’ emoluments
Under Schedule 5 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (Schedule 5), total
Directors’ emoluments, excluding Company pension contributions, were £3.9 million (2021: £2.9 million); these amounts are
calculated on a different basis from emoluments in the Remuneration report which are calculated under Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (Schedule 8 (2013)). These
emoluments were paid for the Directors’ services on behalf of Babcock International Group. No emoluments relate specifically to their
work for the Company. Under Schedule 5, the aggregate gain made by Directors from the exercise of Long Term Incentive Plans in
2022 as at the date of exercise was £nil million (2021: £0.1 million) and the net aggregate value of assets received by Directors in the
year ended 31 March 2022 from Long Term Incentive Plans as calculated at the date of vesting was £nil million (2021: £0.1 million);
these amounts are calculated on a different basis from the valuation of share plan benefits under Schedule 8 (2013) in the
Remuneration report.
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
237
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
5. Prior year restatement
31 March 2021 – Group statement of financial position (extract)
Non-current assets
Investment in subsidiary undertakings
Trade and other receivables
Total non-current assets*
Current assets
Trade and other receivables
Total current assets*
Current liabilities
Bank and other borrowings
Derivatives
Total current liabilities*
Equity
Retained earnings
Total equity*
31 March 2021
(previously published)
(i) Cross currency
interest rate
swap valuation
(ii) Impairment of
investment in
subsidiary
undertakings
(iii) Tax
(iv) Balance sheet
reclassification
31 March 2021
(restated)
2,466.5
–
2,466.5
3,764.7
3,879.7
(198.3)
(4.8)
(2,270.6)
(777.4)
(2,753.2)
–
–
–
–
–
(5.0)
0.1
(4.9)
4.9
4.9
(163.0)
–
(163.0)
–
–
–
–
–
163.0
163.0
–
(12.6)
(12.6)
(6.2)
(6.2)
–
–
–
18.8
18.8
–
2,582.6
2,582.6
(2,582.6)
(2,582.6)
–
–
–
–
–
2,303.5
2,570.0
4,873.5
1,175.9
1,290.9
(203.3)
(4.7)
(2,275.5)
(590.7)
(2,566.5)
* The table above includes only those financial statement line items which have been restated. The total non-current assets, current assets, current liabilities, and
equity do not therefore represent the sum of the line items presented above.
i. Cross currency interest rate swaps
The Group uses cross currency interest rate swaps to manage foreign currency and interest rate risk. Further detail is included in
note 24.
During the year ended 31 March 2022 it was identified that the valuation methodology applied by the Group was not appropriate, as
it did not incorporate the impact of credit risk. Additionally, the hedge effectiveness assessment did not account for the difference in
timing between when the debt facility and derivative were entered into, and was therefore incorrect. Application of the appropriate
valuation methodology and hedge effectiveness has resulted in an increase to bank and other borrowings of £5.0 million, a decrease
to other financial liabilities of £0.1 million, an increase in the cash flow hedge reserve of £11.3 million and a decrease to retained
earnings of £16.2 million.
ii. Impairment of investment in subsidiary undertakings
In the year ended 31 March 2022 it was identified that the prior year impairment assessment for the Company’s investment in
subsidiary undertakings incorrectly calculated the recoverable amount. Re-performance of this assessment using the appropriate
recoverable amount results in an impairment to the Company’s investment in subsidiary undertakings of £163.0 million, resulting in an
investment value of £2,303.5 million. This impairment is reversed in full in the year ended 31 March 2022, as the impairment
assessment for this year has sufficient headroom. Further detail is included in note 6.
The impairment does not affect cash and has been reversed in full during the year ended 31 March 2022, as the results of the
impairment assessment resulted in sufficient headroom and were accompanied by indicators that the service potential of the
investment had increased.
iii. Tax
Management have identified that the income tax receivable and deferred tax balances at 31 March 2021 were not recoverable.
This has resulted in a decrease to income tax receivable of £6.2 million and a reduction in the deferred tax asset of £12.6 million.
iv. Balance sheet reclassification
In the prior year, amounts owed by subsidiary undertakings were presented as falling due within one year and classified within current
assets. Based on the underlying terms of the agreement and considering the fact that these assets are not expected to be settled
within the next 12 months the classification has been reassessed, and the amounts owed by subsidiary undertakings presented within
non-current assets. The balance sheet and applicable note in the comparative period have been restated accordingly.
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Babcock International Group PLC Annual Report and Financial Statements 2022
5. Prior year restatement
6. Investment in subsidiary undertakings
31 March 2021 – Group statement of financial position (extract)
31 March 2021
(previously published)
(i) Cross currency
interest rate
swap valuation
(ii) Impairment of
investment in
subsidiary
undertakings
(iv) Balance sheet
31 March 2021
(iii) Tax
reclassification
(restated)
Cost
Accumulated impairment
31 March
2022
£m
2,466.5
–
2,466.5
31 March
2021
(restated)
£m
2,466.5
(163.0)
2,303.5
Prior year impairment
In the year ended 31 March 2022 it was identified that the prior year impairment assessment for the Company’s investment in
subsidiary undertakings incorrectly calculated the recoverable amount. Re-performance of this assessment using the appropriate
recoverable amount results in an impairment to the Company’s investment in subsidiary undertakings of £163.0 million, resulting in an
investment value of £2,303.5 million. This impairment is reversed in full in the year ended 31 March 2022, as the impairment
assessment for this year has sufficient headroom. Further detail is included below.
Results of the impairment test for the year ended 31 March 2022
This impairment test for the year ended 31 March 2022 resulted in a reversal of the prior year impairment of £163.0 million, as the
results of the impairment assessment resulted in sufficient headroom and were accompanied by indicators that the service potential of
the investment had increased.
Impairment methodology
Cash-generating units
The CGU for the purpose of this analysis is the Group as a whole, as the Company has an investment in a single holding company
through which it indirectly owns the rest of the Group. The recoverable amount of the CGU is the higher of its value-in-use and its fair
value less costs of disposal.
Calculation of recoverable amount
The recoverable amount of the Company’s investment in subsidiary undertakings was assessed by reference to value-in-use
calculations. Note 12 of the Group financial statements sets out further details in relation to how the value-in-use calculations are
determined.
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
Non-current assets
Investment in subsidiary undertakings
Trade and other receivables
Total non-current assets*
Current assets
Trade and other receivables
Total current assets*
Current liabilities
Bank and other borrowings
Derivatives
Total current liabilities*
Equity
Retained earnings
Total equity*
note 24.
2,466.5
–
2,466.5
3,764.7
3,879.7
(198.3)
(4.8)
(2,270.6)
(777.4)
(2,753.2)
–
–
–
–
–
(5.0)
0.1
(4.9)
4.9
4.9
(163.0)
(163.0)
–
–
–
–
–
–
163.0
163.0
–
(12.6)
(12.6)
(6.2)
(6.2)
–
–
–
18.8
18.8
–
2,582.6
2,582.6
(2,582.6)
(2,582.6)
–
–
–
–
–
2,303.5
2,570.0
4,873.5
1,175.9
1,290.9
(203.3)
(4.7)
(2,275.5)
(590.7)
(2,566.5)
* The table above includes only those financial statement line items which have been restated. The total non-current assets, current assets, current liabilities, and
equity do not therefore represent the sum of the line items presented above.
i. Cross currency interest rate swaps
The Group uses cross currency interest rate swaps to manage foreign currency and interest rate risk. Further detail is included in
During the year ended 31 March 2022 it was identified that the valuation methodology applied by the Group was not appropriate, as
it did not incorporate the impact of credit risk. Additionally, the hedge effectiveness assessment did not account for the difference in
timing between when the debt facility and derivative were entered into, and was therefore incorrect. Application of the appropriate
valuation methodology and hedge effectiveness has resulted in an increase to bank and other borrowings of £5.0 million, a decrease
to other financial liabilities of £0.1 million, an increase in the cash flow hedge reserve of £11.3 million and a decrease to retained
earnings of £16.2 million.
ii. Impairment of investment in subsidiary undertakings
In the year ended 31 March 2022 it was identified that the prior year impairment assessment for the Company’s investment in
subsidiary undertakings incorrectly calculated the recoverable amount. Re-performance of this assessment using the appropriate
recoverable amount results in an impairment to the Company’s investment in subsidiary undertakings of £163.0 million, resulting in an
investment value of £2,303.5 million. This impairment is reversed in full in the year ended 31 March 2022, as the impairment
assessment for this year has sufficient headroom. Further detail is included in note 6.
The impairment does not affect cash and has been reversed in full during the year ended 31 March 2022, as the results of the
impairment assessment resulted in sufficient headroom and were accompanied by indicators that the service potential of the
investment had increased.
iii. Tax
iv. Balance sheet reclassification
Management have identified that the income tax receivable and deferred tax balances at 31 March 2021 were not recoverable.
This has resulted in a decrease to income tax receivable of £6.2 million and a reduction in the deferred tax asset of £12.6 million.
In the prior year, amounts owed by subsidiary undertakings were presented as falling due within one year and classified within current
assets. Based on the underlying terms of the agreement and considering the fact that these assets are not expected to be settled
within the next 12 months the classification has been reassessed, and the amounts owed by subsidiary undertakings presented within
non-current assets. The balance sheet and applicable note in the comparative period have been restated accordingly.
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
239
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
6. Investment in subsidiary undertakings (continued)
Impairment methodology (continued)
Key assumptions
The key assumptions to which the recoverable amount of the Company’s investment in subsidiary undertakings is most sensitive are
future cash flows, long-term growth rates and discount rates. Further details on how these inputs are determined are set out in note
12 of the Group financial statements. The value-in-use calculations do not include the anticipated benefits of the Group’s revised
operating model or the implementation costs of this project, reflecting that the Group was not committed to the project at
31 March 2022.
The discount rates and long-term growth rates used to determine the recoverable amount of the Company’s investment in subsidiary
undertakings are set out below.
Pre-tax discount rate
Post-tax discount rate
Long-term growth rate
31 March 2022
31 March 2021
Aviation
11.3%
8.5%
2.2%
Land
11.8%
8.8%
2.2%
Marine
11.3%
8.5%
2.4%
Nuclear
11.3%
8.5%
2.0%
Aviation
12.0
9.0
2.0
Land
11.0
8.25
2.0
Marine
11.0
8.25
2.0
Nuclear
11.0
8.25
2.0
Sensitivity
The recoverable amount, headroom and carrying value of the Company’s investment in subsidiary undertakings are set out in the
table below:
£m
Carrying value
Headroom
Reversal of impairment/(impairment)
Recoverable amount
31 March
2022
£m
3,649.0
405.0
163.0
4,217.0
31 March
2021
(restated)
£m
4,150.0
–
(163.0)
3,987.0
This assessment was prepared for the purposes of IAS 36 – Impairment of assets and does not reflect the internal valuation of
the Group.
The Directors carried out sensitivity analyses on the reasonably possible changes in key assumptions used to determine the recoverable
value of the Company’s investment in subsidiary undertakings.
The Company’s calculation of recoverable value presents a headroom of £405.0 million following reversal of impairment (2021:
£163.0 million impairment). Accordingly, reasonably possible changes in estimates could give rise to a material impairment in the
following year. The Company carried out sensitivity analyses on the reasonably possible changes in the discount rate and long-term
growth rate used in the value-in-use models for the Company’s investment in subsidiary undertakings. An increase to the pre-tax
discount rate of 100 basis points would cause an impairment of £115.1 million. A decrease to the long-term growth rate of 50 basis
points would reduce headroom by £199.5 million.
The Directors consider that key cash flow assumptions in the calculation of the recoverable value of the Company’s investment in
subsidiary undertakings include short-term cash flows. If the year-on-year growth is decreased by 15%, the value in use for the
Company’s investment in subsidiary undertakings decreases by £217.0 million.
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Babcock International Group PLC Annual Report and Financial Statements 2022
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
The key assumptions to which the recoverable amount of the Company’s investment in subsidiary undertakings is most sensitive are
future cash flows, long-term growth rates and discount rates. Further details on how these inputs are determined are set out in note
12 of the Group financial statements. The value-in-use calculations do not include the anticipated benefits of the Group’s revised
operating model or the implementation costs of this project, reflecting that the Group was not committed to the project at
The discount rates and long-term growth rates used to determine the recoverable amount of the Company’s investment in subsidiary
31 March 2022
31 March 2021
Aviation
11.3%
8.5%
2.2%
Land
11.8%
8.8%
2.2%
Marine
11.3%
8.5%
2.4%
Nuclear
11.3%
8.5%
2.0%
Aviation
12.0
9.0
2.0
Land
11.0
8.25
2.0
Marine
11.0
8.25
2.0
Nuclear
11.0
8.25
2.0
The recoverable amount, headroom and carrying value of the Company’s investment in subsidiary undertakings are set out in the
Impairment methodology (continued)
Key assumptions
31 March 2022.
undertakings are set out below.
Pre-tax discount rate
Post-tax discount rate
Long-term growth rate
Sensitivity
table below:
£m
Carrying value
Headroom
the Group.
Reversal of impairment/(impairment)
Recoverable amount
This assessment was prepared for the purposes of IAS 36 – Impairment of assets and does not reflect the internal valuation of
The Directors carried out sensitivity analyses on the reasonably possible changes in key assumptions used to determine the recoverable
value of the Company’s investment in subsidiary undertakings.
The Company’s calculation of recoverable value presents a headroom of £405.0 million following reversal of impairment (2021:
£163.0 million impairment). Accordingly, reasonably possible changes in estimates could give rise to a material impairment in the
following year. The Company carried out sensitivity analyses on the reasonably possible changes in the discount rate and long-term
growth rate used in the value-in-use models for the Company’s investment in subsidiary undertakings. An increase to the pre-tax
discount rate of 100 basis points would cause an impairment of £115.1 million. A decrease to the long-term growth rate of 50 basis
points would reduce headroom by £199.5 million.
The Directors consider that key cash flow assumptions in the calculation of the recoverable value of the Company’s investment in
subsidiary undertakings include short-term cash flows. If the year-on-year growth is decreased by 15%, the value in use for the
Company’s investment in subsidiary undertakings decreases by £217.0 million.
6. Investment in subsidiary undertakings (continued)
7. Trade and other receivables
Non-current
Amounts due from subsidiary undertakings
Deferred tax
Total non-current trade and other receivables
Current
Amounts due from subsidiary undertakings
Preference shares in a subsidiary undertaking
Prepayments
Total current trade and other receivables
31 March
2022
£m
2,628.4
5.1
2,633.5
31 March
2021
(restated)
£m
2,566.2
3.8
2,570.0
241.9
930.4
3.4
1,175.7
257.9
918.0
–
1,175.9
31 March
2022
£m
31 March
2021
(restated)
£m
3,649.0
4,150.0
405.0
163.0
–
(163.0)
4,217.0
3,987.0
There are no material provisions held against trade and other receivables under the expected credit loss model. Amounts due from
subsidiary undertakings that do not carry interest are repayable on demand.
Based on the investment in subsidiary undertakings impairment analysis above, the Company does not consider that there was an
increased credit risk in relation to amounts due from subsidiaries. The Group concluded that the credit risk for intercompany balances
is low as the borrower has a strong capacity to meet the contractual cash flow obligations in the near term and adverse changes in
economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its
contractual cash flow obligations.
Of the preference shares in a subsidiary undertaking, the B preference shares of USD500 million mature by mutual agreement of both
parties and carry interest at 5.64%. The remaining preference shares in subsidiary undertakings are Euro-denominated preference
shares, totalling €652 million, carrying a coupon rate of EURIBOR + 4.0%.
Interest rates on amounts owed by subsidiary operations:
EURIBOR + 4.0%
EURIBOR + 2.0%
SONIA + 4.0%
SONIA + 5.0%
USD LIBOR + 4.0%
STIBOR + 4%
BBSW + 4.0%
NIBOR + 4.0%
1.5%
4.5%
5.4%
Interest-free
Non-current
Current
31 March
2022
£m
62.4
–
115.1
–
5.7
19.4
25.1
–
0.7
100.8
–
2,299.2
2,628.4
31 March
2021
£m
78.4
12.1
84.0
140.0
5.8
1.8
12.8
24.0
–
–
1.9
2,205.4
2,566.2
31 March
2022
£m
160.4
–
41.3
–
–
3.3
–
5.3
8.5
–
1.9
21.2
241.9
31 March
2021
£m
88.1
–
51.4
–
1.5
7.2
3.3
5.6
–
100.8
–
–
257.9
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Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
241
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
8. Bank and other borrowings
Non-current
Bank loans and overdrafts
Current
Bank loans and other borrowings
31 March
2022
£m
31 March
2021
(restated)
£m
819.4
1,283.1
502.5
203.3
The Company has £2,301.8 million (2021: £2,011.3 million) of committed borrowing facilities, of which £1,289.6 million (2021:
£1,293.1 million) was drawn at the year end. The effective interest rates applying to bank loans and other borrowings were as follows:
UK bank overdraft
UK bank borrowings
8-year Eurobond October 2022
8-year Eurobond September 2027 – fixed
8-year Eurobond September 2027 – floating
£300 million bond
9. Other financial liabilities
Non-current
Other financial liabilities – currency and interest rate swaps
Current
Other financial liabilities – currency and interest rate swaps
31 March
2022
%
1.1
0.6
1.8
2.9
3.3
1.9
31 March
2022
£m
31 March
2021
%
1.1
0.5
1.8
2.9
2.8
1.9
31 March
2021
(restated)
£m
51.4
39.3
41.5
4.7
Disclosures in respect of the fair value of other financial assets and liabilities are provided in note 24 to the Group accounts.
242
Babcock International Group PLC Annual Report and Financial Statements 2022
The Company has £2,301.8 million (2021: £2,011.3 million) of committed borrowing facilities, of which £1,289.6 million (2021:
£1,293.1 million) was drawn at the year end. The effective interest rates applying to bank loans and other borrowings were as follows:
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
8. Bank and other borrowings
Non-current
Bank loans and overdrafts
Current
Bank loans and other borrowings
UK bank overdraft
UK bank borrowings
8-year Eurobond October 2022
8-year Eurobond September 2027 – fixed
8-year Eurobond September 2027 – floating
£300 million bond
9. Other financial liabilities
Non-current
Current
31 March
2022
£m
31 March
2021
(restated)
£m
819.4
1,283.1
502.5
203.3
31 March
31 March
2022
%
1.1
0.6
1.8
2.9
3.3
1.9
2021
%
1.1
0.5
1.8
2.9
2.8
1.9
31 March
2022
£m
31 March
2021
(restated)
£m
10. Trade and other payables
Current
Amounts due to subsidiary undertakings
Accruals and deferred income
31 March
2022
£m
31 March
2021
£m
2,455.6
9.6
2,465.2
2,059.3
8.2
2,067.5
The amounts due to subsidiary undertakings are repayable on demand and £2,455.6 million (2021: £2,059.3 million) is interest-free.
11. Share capital
Allotted, issued and fully paid
At 1 April 2021 and 31 March 2022
Allotted, issued and fully paid
At 1 April 2019 and 31 March 2021
Ordinary shares
of 60p
Number
Total
£m
505,596,597
303.4
505,596,597
303.4
12. Contingent liabilities
(a) The Company has guaranteed or has joint and several liability for bank facilities with nil utilisation at 31 March 2022 (2021: nil)
provided to certain Group companies.
(b) Throughout the Group, guarantees exist in respect of performance bonds and indemnities issued on behalf of Group companies by
banks and insurance companies in the ordinary course of business. At 31 March 2022 these amounted to £396.5 million (2021:
£329.7 million), of which the Company had counter-indemnified £378.9 million (2021: £307.1 million).
(c) The Company has given guarantees on behalf of Group companies in connection with the completion of contracts
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Other financial liabilities – currency and interest rate swaps
51.4
39.3
within specification.
Other financial liabilities – currency and interest rate swaps
41.5
4.7
Disclosures in respect of the fair value of other financial assets and liabilities are provided in note 24 to the Group accounts.
13. Group entities
See note 35 of the Group financial statements for further details.
14. Events after the reporting period
See note 34 of the Group financial statements for further details.
242
Babcock International Group PLC Annual Report and Financial Statements 2022
Babcock International Group PLC Annual Report and Financial Statements 2022
243
31 March 2022
28 July 2022
19 September 2022
ShareGift
If you have only a small number of shares
which would cost more for you to sell
than they are worth, you may wish to
consider donating them to the charity
ShareGift (Registered Charity 1052686)
which specialises in accepting such shares
as donations.
Further information about ShareGift may
be obtained on 020 7930 3737 or from
www.ShareGift.org
SHAREHOLDER INFORMATION
Financial calendar
Financial year end
2021/22 full-year results announced
Annual General Meeting
Registered office and
Company number
33 Wigmore Street
London, W1U 1QX
Registered in England
Company number 02342138
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds, LS1 4DL
Email: enquiries@linkgroup.co.uk
www.babcock-shares.com
Shareholdings can be managed by
registering for the Share Portal at
www.babcock-shares.com. Alternatively,
shareholder enquiries relating to
shareholding, dividend payments, change
of address, loss of share certificate etc,
can be addressed to Link using their
postal or email addresses given above.
Tel: +44 (0)37 1664 0300
(Calls are charged at standard geographic
rate and will vary by provider. Calls
outside the United Kingdom will be
charged at the applicable international
rate. Lines are open 9.00am – 5.30pm,
Monday to Friday excluding public
holidays in England and Wales.)
www.babcock-shares.com
244
Babcock International Group PLC Annual Report and Financial Statements 2022
31 March 2022
28 July 2022
19 September 2022
ShareGift
If you have only a small number of shares
which would cost more for you to sell
than they are worth, you may wish to
consider donating them to the charity
ShareGift (Registered Charity 1052686)
which specialises in accepting such shares
as donations.
Further information about ShareGift may
be obtained on 020 7930 3737 or from
www.ShareGift.org
SHAREHOLDER INFORMATION
Financial calendar
Financial year end
2021/22 full-year results announced
Annual General Meeting
Registered office and
Company number
33 Wigmore Street
London, W1U 1QX
Registered in England
Company number 02342138
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds, LS1 4DL
Email: enquiries@linkgroup.co.uk
www.babcock-shares.com
Shareholdings can be managed by
registering for the Share Portal at
www.babcock-shares.com. Alternatively,
shareholder enquiries relating to
shareholding, dividend payments, change
of address, loss of share certificate etc,
can be addressed to Link using their
postal or email addresses given above.
Tel: +44 (0)37 1664 0300
(Calls are charged at standard geographic
rate and will vary by provider. Calls
outside the United Kingdom will be
charged at the applicable international
rate. Lines are open 9.00am – 5.30pm,
Monday to Friday excluding public
holidays in England and Wales.)
www.babcock-shares.com
244
Babcock International Group PLC Annual Report and Financial Statements 2022
This report is printed on paper certified in accordance
with the FSC® (Forest Stewardship Council®) and is
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and ISO 14001 certified showing that it is committed
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Pureprint Ltd aims to reduce at source the effect its
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Babcock International Group PLC
33 Wigmore Street
London
W1U 1QX
UK
+44(0)20 7355 5300
www.babcockinternational.com