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The built in
advantage
Annual Report and Accounts 2018
Marine » Land » Aviation » Cavendish Nuclear
Strategic report
Financial and operational highlights
Babcock at a glance
Advantage: Unique infrastructure
Advantage: Technical skills
Advantage: Long-term relationships
and contracts
Chairman’s review
Our culture
Business model and strategy
Our markets
Chief Executive’s review
Key performance indicators
Financial review
Operational review:
Marine
Land
Aviation
Cavendish Nuclear
Sustainability
Principal risks and
management controls
Viability statement
Governance statement
Chairman’s introduction
Leadership:
Governance framework
Board Directors
Executive Committee
Effectiveness:
Report of the Nominations Committee
Accountability:
Report of the Audit and Risk Committee
Remuneration:
Report of the Remuneration Committee
Relations with Shareholders
Additional statutory information:
Directors’ responsibility statement
Independent auditors’ report
to the members of Babcock
International Group PLC
Group financial statements
Group income statement
Group statement of
comprehensive income
Group statement of changes in equity
Group balance sheet
Group cash flow statement
Notes to the Group financial
statements
Company financial statements
Company balance sheet
Company statement of
changes in equity
Notes to the Company
financial statements
Other information
Shareholder information
Five‑year financial record
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30
38
46
54
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68
79
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131
133
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142
150
151
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154
200
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207
208
The built in advantage
Engineering is embedded in our DNA.
Babcock provides skilled, bespoke engineering
services which allow our customers to improve
their own performance whilst reducing costs.
We work in highly regulated environments
managing complex assets for both
defence and civil customers.
We maintain, upgrade, operate and manage
expensive infrastructure and essential equipment
for a range of government bodies and private
sector customers in the UK and internationally.
We provide them with better capability, reliability
and availability of their critical assets, and in
doing so, provide significant cost savings.
We are a trusted partner who understands the
critical role that our customers’ assets and
infrastructure play in delivering their business;
we share risk with them in delivering innovation
and efficiency, and we share the benefits.
Realignment and reporting structure
Following the realignment on 1 April 2017, we formally report the
Group in four sectors to reflect how we manage the business. In this year’s
Annual Report and Accounts we report for the first time the Strategic, Financial,
Operational reports and Accounts in full alignment with our reporting structure.
Financial and operational highlights
A year of progress
Statutory results
Group revenue
£4,659.6m
+2%
Operating profit
£370.6m
+3%
,
4
5
4
7
1
.
,
4
1
5
8
4
.
,
3
9
9
6
6
.
,
3
3
2
1
0
.
,
4
6
5
9
6
.
3
5
2
3
.
3
5
2
5
.
3
5
9
6
.
3
7
0
6
.
2
3
3
1
.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Profit before tax
£391.1m
+8%
Basic earnings per share
66.6p
+8%
Sustainable profitable growth
We have continued to deliver across new
and existing contracts, demonstrating the
quality of our operations and the resilience
of our business. A healthy combined order
book and bid pipeline of £31 billion was
replenished with £4.5 billion of booked
contracts and the bid pipeline had £7
billion of opportunities added, providing
clear visibility of revenues. At 28%, the
Group is on target to reach its aspiration
to grow international revenue to 30% by
2022 while also growing the UK business.
Full year dividend*
29.5p
+5%
3
9
1
1
.
3
6
2
1
.
3
1
3
1
.
3
3
0
1
.
2
1
8
8
.
5
2
9
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5
7
0
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4
4
3
.
6
1
8
.
6
6
6
.
2
3
6
.
2
1
4
.
2
5
8
.
2
8
1
5
.
2
9
5
.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Underlying results
Total revenue*
£5,362.8m
+3%
Operating profit*
£584.6m
+2%
,
4
5
0
3
3
.
,
4
8
4
2
1
.
,
5
2
1
6
6
.
,
5
3
6
2
8
.
5
1
8
7
.
5
3
9
7
.
5
7
4
8
.
5
8
4
6
.
3
7
7
9
.
,
3
5
4
7
6
.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Profit before tax*
£512.5m
+4%
Basic earnings per share*
83.0p
+4%
4
5
9
7
.
4
1
7
7
.
4
9
4
8
.
5
1
2
5
.
6
8
5
.
7
4
2
.
6
2
1
.
8
0
1
.
8
3
0
.
3
1
6
1
.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
*Underlying
The adjustments described below,
collectively, are made to derive the
underlying operating results of the Group.
The underlying figures provide a consistent
measure of business performance year to
year. They are used by management to
measure operating performance and as
a basis for forecasting and the Group
believes they are used by investors in
analysing business performance.
Throughout the Strategic report, unless
otherwise stated, revenue, operating
profit, operating margin, net finance costs,
profit before tax and earnings per share
refer to results before amortisation of
acquired intangibles and exceptional
items. Underlying revenue, operating
profit, operating margins and net finance
costs also include the Group’s share of
equity accounted joint ventures and
associates. Underlying operating profit
and operating margin include investment
income arising under IFRIC12 which is
presented as financial income in the
Income Statement. All numbers are stated
before the effect of corporate tax rate
changes. A reconciliation of statutory to
underlying results is set out on page 23.
Babcock International Group PLC Annual Report and Accounts 2018
1
Strategic reportGovernance statementFinancials Babcock at a glance
The built in advantage
Defence
47%
of 2018 revenues
2nd
biggest supplier to UK MOD
Largest support provider to UK MOD
No1
flying trainer in UK
Largest maritime support business
Provide support and training worldwide
to armies, navies and air forces
Defence technical support operations in
10 countries
Emergency
services
12%
of 2018 revenues
World leader in aviation
emergency services
Manage and own fleet of over
500 aircraft across 320 bases
Provide complex fleet
management for large
blue-light ground fleets
Own unique infrastructure
across the sector
Nuclear
13%
of 2018 revenues
No1
UK civil nuclear engineer
Operate 17 of the UK’s
37 nuclear licensed sites
Working on Europe’s
largest and most complex
decommissioning project
Lead partner in
decommissioning 12
Magnox sites
Support decommissioning,
nuclear services and new build
2
Babcock International Group PLC Annual Report and Accounts 2018
Our sectors
Historically, we have consistently built up our expertise and commercial positions across four key sectors:
marine, land, aviation and nuclear. The realignment into our four new sectors provides employees,
customers and investors with a clearer, more aligned Babcock and an improved platform for growth.
Marine
UK Naval
International Naval
Technology
72%
14%
14%
Delivers a wide array of complex
through-life marine engineering
services, supporting UK and
international naval fleets,
commercial marine, engineering
consultancy, weapons handling,
equipment support, intelligence
and cyber security and technical
training, all delivered through
unique owned and managed
infrastructure to defence and
civil customers internationally.
Land
Defence
Emergency Services
and Training
Networks and
Equipment Support
South Africa
34%
12%
32%
22%
Provides large-scale critical fleet
management and training for
customer-owned defence,
emergency services, global airport
and commercial vehicle fleets —
comprising around 80,000
vehicles — while also providing
engineering services and technical
training for customers worldwide.
Aviation
Defence
Emergency Services
Oil and Gas
33%
51%
16%
Delivers a wide array of critical
engineering services to defence
and civil customers, ranging from
technical training of advanced
fixed and rotary wing pilots,
engineering, equipment
support and maintenance,
airbase management and
logistics, to the operation of
owned and customer‑owned
aviation fleets delivering
emergency and offshore
services around the globe.
Cavendish Nuclear
Decommissioning JVs
Projects
69%
31%
Delivers complex nuclear
engineering on major nuclear
decommissioning programmes
and projects across the UK. Our
Projects business delivers nuclear
decommissioning engineering
services in training, operation
support, new build programme
management, design and
installation and critical safety
to both public and private
customers in the UK and,
increasingly, internationally.
Civil vs defence
UK vs international
Public vs private
53%
47%
72%
28%
80%
20%
Civil
Defence
UK
International
Public
Private
Our capabilities
Over the years we have continued to develop our capabilities and specialist skills in our four sectors, each of which provides good
opportunities for growth both in the UK and, increasingly, internationally. Our four customer facing sectors enable us to effectively
leverage our capabilities and share expertise across the Group through four key enablers:
Technology
We have deep sector-specific
technical expertise with decades
of experience; we understand risk
and resilience and are able to
deliver availability with innovation.
We are equipment-agnostic which
enables us to work with any OEM
to specify and support its
products. We have the ability to
identify and integrate technology
into our through-life support.
Training
Technical training is an
integral part of our engineering
offering. It is a fundamental
and ongoing requirement and
a core part of our expertise.
Driving technical training across
the Group allows us to share
innovation and successful
methodology across sectors to
ensure our customers make the
best use of their critical resources.
Infrastructure
We have experience of operating
and managing complex and
critical infrastructure assets in
highly regulated environments,
ranging from unique owned
marine facilities, critical air and
land fleets, nuclear licensed sites,
naval, air and army bases, and
technical training sites to
customer-owned aircraft.
Global Growth
A fundamental driver of Babcock’s
realignment is the aim to grow
our international business. This
focus will allow us to recognise
international opportunities and
support all four sector teams to
sell and deliver innovative services
and transformation models to
targeted markets and customers.
Babcock International Group PLC Annual Report and Accounts 2018
3
Strategic reportGovernance statementFinancials
Strategic report:
Overview
Advantage: Unique infrastructure
Advantage: Technical skills
Advantage: Long-term
relationships and contracts
Chairman’s review
Our culture
Business model and strategy
Our markets
Chief Executive’s review
Key performance indicators
Financial review
Operational review:
Marine
Land
Aviation
Cavendish Nuclear
Sustainability
Principal risks and
management controls
Viability statement
6
8
10
12
13
14
16
18
20
22
30
38
46
54
60
68
79
“Managing and being involved
at each stage of the hybrid
electric vessel project is the
kind of work I dreamt of doing
after graduating.”
4
Babcock International Group PLC Annual Report and Accounts 2018
Eirini
Naval Architecture graduate
at Devonport Royal Dockyard
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Babcock International Group PLC Annual Report and Accounts 2018
5
Advantage:
Unique infrastructure
We have a deep understanding of how to manage both our and our customers’
highly regulated critical infrastructure assets, including naval, aviation and vehicle
fleets, unique dockyards, nuclear licensed sites, naval, aviation and army bases,
customer‑owned aircraft fleets and technical training centres.
Nuclear
– Own and manage
13 of 37 UK nuclear
licensed sites
Advanced nuclear
facilities
Decommissioning
major sites
–
–
–
–
–
Land
DSG sites
Training centres
Major fleet
management sites
Aviation
–
Technical support
for 17 RAF bases
– Owned, leased and
–
managed aircraft fleets
Training centres
and advanced
maintenance, repair
and overhaul sites
6
Babcock International Group PLC Annual Report and Accounts 2018
–
–
–
–
–
Marine
Devonport
Royal Dockyard
Rosyth Royal
Dockyard
HMNB Clyde
HMNB Devonport
Devonport
Dockyard
(New Zealand)
Babcock International Group PLC Annual Report and Accounts 2018
7
Strategic reportGovernance statementFinancials Advantage:
Technical skills
Decades of sector‑specific expertise provide us with a sound understanding of risk
and resilience and enable us to forecast demand to deliver availability effectively.
We are equipment-agnostic and have technology agreements with all the main
equipment manufacturers. We seek to drive innovation for our customers,
using our expertise to identify and integrate technology.
–
– Deep sector-specific
expertise
– Expert understanding
of risk and resilience
We refit 100%
of UK and Canadian
submarines and
75% of UK surface fleets
Provide expert
training to growing
workforces
–
–
–
–
–
Drive innovation
and capability
insertions across
all platforms
125+ years’
experience
Platform-agnostic,
work with any OEM
Ability to identify
and integrate
innovation and
technology
–
–
–
–
Through-life
support expertise
in all four sectors
Highly regulated
environments
Proprietary
Intellectual Property
Excellent health
and safety record
8
Babcock International Group PLC Annual Report and Accounts 2018
In December, we were awarded the
Sellafield ‘Glove box’ contract to
design and fabricate technically
complex engineering solutions for
the treatment, handling and
management of nuclear materials.
Following the success of synergies
with the Marine sector in delivering
the Sellafield PFCS project, the
expertise and unique equipment in
technical fabrication at Rosyth will
again be employed for this 10-year
framework contract.
Babcock International Group PLC Annual Report and Accounts 2018
9
Strategic reportGovernance statementFinancials Advantage:
Long-term relationships and contracts
Babcock is used to working in long-term partnerships with governments
and blue chip companies, often embedded with our customers.
We are incentivised to perform, aligning our interests with theirs, using strong
management of balancing and sharing risks and rewards through pain share/gain
share agreements. Our strong track record includes unique reference cases
which prove our ability to deliver. Our £18 billion order book and
£13 billion pipeline of long‑term contracts and framework agreements give
excellent visibility of future revenues. We are aligned with our customers and
we have an excellent track record of delivery with a rebid win rate of over 90%.
– Bid review processes
–
Pain share/
gain share
Management of
risk and reward
Proven track record
of delivery
–
–
–
Innovative output/
availability-based
contracting models
– Target cost/fixed price
–
–
–
Trusted partner
Incentivised
to perform
Embedded and
aligned with customers
– Long-term contracts:
ToBA, LFB, UKMFTS,
SASEMAR, RSME
10
Babcock International Group PLC Annual Report and Accounts 2018
In April 2018, the HADES contract
to deliver technical support for
17 air bases for the UK RAF began
mobilising. RAF Valley was one
such site where we also train
advanced jet pilots as part of
UK MFTS contract, reflecting the
UK Government’s commitment
to future military air capabilities
outlined in the 2015 SDSR.
Babcock International Group PLC Annual Report and Accounts 2018
11
Strategic reportGovernance statementFinancials Chairman’s review
A year of further progress
Last October it was with deep sadness
that we announced that Anna Stewart, our
Non-Executive Director, had passed away.
Anna had served on the Board for five years,
and made an invaluable contribution
during that time. She will be greatly missed.
I also want to thank Bill Tame, our CEO
of Global Growth and Operations, who
is retiring this summer after 16 years
with the Company. Bill has been a key
member of the leadership team during our
transformation from a small cap business
to a leading engineering company, and we
all wish him the very best for his retirement.
The loss of Anna and Bill’s retirement left
a gap on the Board and we were keen to
ensure that their replacements were of a
similar high standard. I am delighted to say
that we found two excellent candidates
who were invited to join the Board as
Non-Executive Directors with effect from
1 April 2018.
Kjersti Wiklund brings international
technology and business expertise gained
across Western and Eastern Europe and
Asia, having held a number of senior roles,
including Director, Group Technology
Operations for Vodafone and CEO of
VimpelCom Russia. A Norwegian national,
Kjersti is currently a non-executive director
of Laird PLC and Spectris PLC.
Lucy Dimes also has significant experience
in technology-based industries. A UK
national, Lucy is currently CEO, EMEA of
UBM, and was previously Fujitsu’s CEO,
UK & Ireland and an Executive Director
of Equiniti Group. Lucy served as a
non-executive director at Berendsen PLC
between 2012 and 2017.
Valuing diversity
Babcock’s strong culture and our
continued commitment to be Trusted
to Deliver — by our customers, our
stakeholders and by each other — remains
hugely important to all of us across the
Group. A key element of this is our pledge
to respect people and value their diversity.
We want to keep building a business
which is about fairness, equality and
inclusion. In the last three years the total
number of women working at Babcock
has increased by 24%, faster than the 10%
total increase in employees during that
time. But we recognise there is still much
to be done, particularly in terms of having
more women in senior roles. We are
committed to doing everything we can to
encourage women to succeed throughout
their careers.
Closing the gap will take time — the
engineering sector has traditionally been
male dominated, and at 10% the UK has
one of the lowest percentages of women
engineering professionals in Europe —
but we are working closely with schools,
universities and youth organisations to
encourage girls and young women to
consider a career in STEM. We are also
working to increase the number of
women on our early career programmes,
and in 2017 were a finalist in the
Women In Science and Engineering (WISE)
apprenticeship awards. We work closely with
organisations like the Women’s Engineering
Society and the Institute of Marine
Engineering, Science and Technology to
help encourage women to return to the
sector after career breaks and keep our
recruitment processes under regular review
to guard against any unconscious bias.
We’re not yet as diverse as we want to be
and we acknowledge that the gender pay
gap is still too big — but we’re working on it.
Maintaining a strong health and safety
performance continues to be a focus for
all our businesses. The Board was deeply
saddened by the loss of two of colleagues
in our South African business, and our
thoughts are with their families and
friends. We are determined to live up to
our commitment to get our people ‘home
safe every day’.
Looking forward
We expect to make further progress this
year and are confident about Babcock’s
longer-term prospects which are
underpinned by our technical expertise,
unique infrastructure and a sustainable
business model which is increasingly
relevant to our key customers in non-
cyclical and highly regulated markets.
Mike Turner CBE
Chairman
Mike Turner CBE, Chairman
We had another year of
progress in 2018/19;
taking in £4.5 billion
of orders and again
reducing our net debt.
We had another year of progress in
2018/19; taking in £4.5 billion of
orders and again reducing our net
debt. The Board is delighted therefore
to recommend a 4.6% increase in the
final dividend for 2017/8 of 22.65 pence
per share (2017: 21.65 pence per share).
This will give a total dividend for the year
of 29.5 pence per share (2017: 28.15
pence per share), an increase of 4.8%.
The final dividend will be paid on
10 August 2018 to Shareholders on
the register at 29 June 2018.
Governance and the Board
The realignment of our divisional structure
at the start of the financial year into the
four industry sectors of Marine, Land,
Aviation and Cavendish Nuclear has
helped us to focus on developing the
opportunities that play to our unique
strengths — our technical skills in what
are highly regulated industries, our owned
and operated critical infrastructure and
our deep customer relationships. Each
year the Board reviews the five-year
strategy, and I’m delighted to confirm
that there is a great deal to play for over
the coming years, both in the UK and
internationally. In particular, we expect
to continue to build our presence across
the key markets of defence, emergency
services and civil nuclear using our unique
skills to do critical work needed to keep
countries and communities safe.
12
Babcock International Group PLC Annual Report and Accounts 2018
Our culture
being babcock
being
babcock
Babcock International Group PLC Annual Report and Accounts 2018
13
Strategic reportGovernance statementFinancials
Business model and strategy
Delivering through
a consistent strategy
Babcock is the UK’s leading engineering services company.
Our objective is to grow from our position both in the UK and overseas,
delivering sustainable value for our stakeholders.
Key differentiators
Underpinning everything we do is our breadth and depth of knowledge, the experience of our people,
our successful long-term partnerships and the unique infrastructure we own and operate.
Technical skills
Decades of sector-specific expertise provide us with
a sound understanding of risk and resilience and
enable us to forecast demand to deliver availability
effectively. We are equipment-agnostic and have
technology agreements with all the main equipment
manufacturers. We seek to drive innovation for
our customers, using our expertise to identify
and integrate technology.
Long‑term relationships
Babcock is used to working in long-term partnerships
with governments and blue chip companies, often
embedded with our customers. We align our interests
with theirs so that we share risks and rewards through
pain share/gain share agreements. Our strong track
record includes unique reference cases which prove
our ability to deliver.
Unique infrastructure
We have a deep understanding of how to manage
both our and our customers’ highly regulated critical
infrastructure assets, including naval, aviation and
vehicle fleets, unique dockyards, nuclear licensed
sites, naval, aviation and army bases, customer-owned
aircraft fleets and technical training centres.
Long‑term contracts
Our £18 billion order book and £13 billion pipeline
of long-term contracts give excellent visibility of future
revenues. We are aligned with our customers and
incentivised to perform, with strong management of
balancing risk and reward. We have an excellent track
record of delivery with a rebid win rate of over 90%.
14
Babcock International Group PLC Annual Report and Accounts 2018
‘Trusted to deliver’
We believe our business model and strategy, built around our reputation for being ‘trusted to deliver’, set us apart.
They have provided a strong foundation for our success and are vital to ensuring we continue to deliver value.
Babcock thrives in complex environments which require specialist engineering expertise. We continue to deliver
value on targeted contracts, selected to fit our strategy and match our capabilities. We look to combine
technical and engineering capabilities to provide a single integrated solution.
Growth delivered through
a consistent strategy
Creating value for
all stakeholders
Leading market positions
We expect our businesses to be, or have plans to be, one of the top
three in their market sectors, with the aim of ensuring we achieve
economies of scale and create strong competitive positions.
Public bodies and blue chip customers
Our customers tend to be government departments, public bodies,
highly regulated industries or blue chip companies that own large,
strategically important assets or infrastructure. We encourage our
customers to partner with us and to build long-term relationships.
Customer focused long-term relationships
We place great emphasis on doing the right thing for our customers.
We listen and seek to be flexible and responsive to their needs. We work
collaboratively, often through long-term partnerships or alliances, to
ensure we understand their priorities and align our objectives.
Integrated engineering and technical expertise
We are able to integrate a broad range of engineering and technical
expertise to provide services that are complex, critical and bespoke.
We manage the interface between all these activities to provide full
operational outcomes and help to take risk from our customers.
Balancing risk and reward
We aim to operate through long-term, integrated output-based
contracts. We believe this approach creates a commercial framework
which fairly balances risk and reward between us and our customers.
Target cost contracts incentivise us to remove cost via a pain-share/
gain-share mechanism.
Excellent health and safety record
We never compromise on health and safety and expect all our sectors
to deliver a market-leading safety performance. We believe all our
employees and others working on or visiting our operations should
be able to return home safe and well at the end of the working day.
We aim to serve the interests and
meet the needs of all our stakeholders:
employees, customers and shareholders
and have regard for suppliers and the
environment, by conducting business
responsibly. A strong Babcock culture
integrates our values and beliefs into
every aspect of our business, ensuring value
creation. The foundations on which we build
value for our stakeholders are the six pillars
of our consistent strategy.
We seek to create value for our employees
by: creating a safe working environment;
providing continuous professional
development; providing equal opportunities
for all; and creating a rewarding place to
work. Our skilled workforce of over 35,000
enables us to meet the operational
requirements of our customers.
We seek to create value for our customers
by: working through long‑term collaborative
relationships; reducing the cost of
delivering key services; increasing asset
availability or providing life-extensions;
and providing technical knowledge and
skills to manage complex transformation
programmes. Long-term successful
relationships with our customers help
create strong cash flows that can be used
to generate growth and returns to deliver
shareholder value.
We seek to create value for our shareholders
by investing in and growing the business,
growing the value of their investment over
time, maintaining a strong balance sheet
and returning capital to shareholders.
Babcock International Group PLC Annual Report and Accounts 2018
15
Strategic reportGovernance statementFinancials Our markets
Long-term business in
sustainable markets
Our markets
Marine
• New platforms in build
• Sustainment of existing naval platforms
• Capability upgrades to fleet and infrastructure
• Increasing need for efficiency savings
• Insertion of new technology
• International and commercial market opportunities
Read more on page 33
Land
• Large army vehicle sustainment programmes
• Continued need for additional efficiencies
• Increased demand for technical training
• Increased demand for savings across fleets
• Safety and improved operations driving investment in Rail and Power Networks
• International opportunities
Read more on page 41
Aviation
• International Military Aviation training
• Continued growth in UK and international Aerial Emergency Services
• UK Military Air seeking greater efficiencies and improved availability
• HADES air base technical support a significant win
• Oil and Gas helicopter market remains under pressure
Read more on page 49
Cavendish Nuclear
• UK requirement for expertise in decommissioning
• Fuel management for active AGR reactor fleet UK
• UK new build underway at Hinkley Point C
• International consultancy opportunities
• Continuing demand for expert projects services
Read more on page 57
16
Babcock International Group PLC Annual Report and Accounts 2018
International revenue
28%
UK 72%
International 28%
Order book and pipeline
£31bn
1
0
5
.
2
0
0
.
1
0
5
.
2
0
0
.
1
0
5
.
1
9
0
.
1
3
0
.
1
8
0
.
1
7
5
.
1
1
5
.
FY14
FY15
FY16
FY17
FY18
Order book
Pipeline
Delivering
profitable growth
Our focus is on delivering returns and
cash and strengthening the balance
sheet. This means our contracts deliver
— and management are incentivised
on — profitable growth.
We therefore have a tightly controlled
bidding process. This requires a multi-gate
review process of each bid, at business
unit, sector and — for all contracts worth
over £25 million or lasting five or more
years — approval from the Chief Executive
and Group Finance Director. Bid teams are
embedded in the business and typically
transition to the operational team.
Once a contract is underway, it is subject
to regular reviews at business unit, sector
and Group level to ensure that we are on
track, both in terms of operational delivery
and financial performance.
Public bodies
and blue chip
customers
Excellent
health and
safety record
Leading
market
positions
Our Strategy
Balancing
risk and
reward
Customer focused
long‑term
relationships
Integrated
engineering and
technical
expertise
Babcock International Group PLC Annual Report and Accounts 2018
17
Strategic reportGovernance statementFinancials Chief Executive’s review
Sustaining profitable growth
Babcock has enviable
market positions with
a broad base of loyal
customers, enabling us to
deliver improved financial
results, year on year,
for well over a decade.
Overview
Babcock enjoyed another successful year
in 2017/18, with underlying revenue,
operating profit and profit before tax at
record levels. The Group delivered growth
of 2.8% in underlying revenue, 1.7% in
underlying operating profit and 3.6% in
underlying profit before tax. This has
resulted in a 3.6% growth in underlying
basic earnings per share.
Our focus remains on delivering returns
and cash and on strengthening the
balance sheet. We have further reduced
net debt and have achieved targeted cash
conversion of 106% before capex (2017:
115%) and 82% after capex (2017: 86%).
Excluding the one-year effect on working
capital outflow of the French Air Force
pilot training contract (FOMEDEC), this
represents cash conversion of 116%
before capex and a five-year high
conversion rate of 92% after capex.
This improved financial and operational
performance, delivered in a year when
the political and economic environment
has created concern and uncertainty,
demonstrates the stability and quality of
our business. Babcock has unique market
positions in many areas with a broad base
of loyal customers whom we support
through thick and thin.
Over the last fifteen years or so, Babcock
has steadily established strong long term
positions in three major markets: defence,
emergency services and civil nuclear —
initially in the UK but increasingly
worldwide. These three long term markets
currently account for over 70% of our
underlying revenue and will be the main
focus of growth over the next few years.
Archie Bethel CBE, Chief Executive
This strategy is supported by the
realignment of the Group into four sectors
— Marine, Land, Aviation and Cavendish
Nuclear — at the beginning of the
financial year. The realignment was
implemented quickly and smoothly
and has brought added clarity and
transparency to our operations and
financial results. It has brought together
our capabilities and our specific sector
expertise and experience, equipping us
to compete for contracts which we would
not otherwise have been able to pursue.
Importantly, the realignment has helped
us to transition from our old ways of
working into an organisation which is
structured to take our business model
outside the UK and create a compelling
proposition for new customers.
This focus on international markets has
seen our non-UK business growing to
28% of Group underlying revenue (2017:
25%) without any change to overall Group
margin, positioning us to beat our target
of securing 30% by 2022. Australia and
South Africa have been established as
our first international ‘home countries’,
recognising that they are delivering
Babcock solutions across multiple sectors.
We have secured a number of important
new contracts in Spain, Australia, Sweden,
Oman and Norway, and mobilisation for
the French Air Force pilot training contract
at Cognac, France is well advanced in
preparation for the service starting later
this year.
We have also established a new
Technology Group, focused on driving
technology transfer across the four
sectors. Technology is playing an ever
more important role in delivering
innovative support and sustainment
solutions across the Group — and
technology and data are at the heart of
our operating solutions. We have designed
the weapons handling and discharge
systems for every UK submarine ever
built, and are the technical authority for a
number of classes of ships and submarines
in the UK and Canada — and are often
the partner of choice to introduce new
helicopters to the market. We have
developed and operate sophisticated
training simulations to help train French
and UK military pilots. We use Augmented
and Virtual Reality to enhance our training
and smart through-life sustainment
solutions and are a technology application
partner. We recently won a contract to
provide specialist equipment for Sellafield
which will utilise our unique engineering
expertise at Rosyth and in Cavendish
Nuclear — this is the kind of complex
engineering work which really plays to
our strengths.
18
Babcock International Group PLC Annual Report and Accounts 2018
market has been challenging this year,
we believe that through sustained strong
cash generation and future improvement
in Return On Invested Capital, we will
see the share price return to levels that
better reflect the true underlying value
of the business.
Outlook
The revenue visibility provided by around
£31 billion of secured orders and near
term opportunities offers continued
prospects for growth in line with previous
expectations for this year and over the
medium term. The Board is confident
that the Group will achieve low mid-single
digit organic revenue growth with broadly
stable margins in 2018/19, despite the
scheduled step downs in the Aircraft
Carrier and Magnox decommissioning
programmes. The Group expects
continuing good cash generation and
is targeting a net debt to EBITDA ratio
of 1.4 times at the end of the current
financial year.
2018/19 sector outlook:
• Marine: low to mid single digit
underlying revenue growth with stable
margins
• Land: underlying revenue flat with
stable margins
• Aviation: strong underlying revenue
growth but mix of business will result
in a softening margin
• Cavendish Nuclear: underlying revenue
flat with stable margins.
Archie Bethel CBE
Chief Executive
We continue to successfully deliver
major projects, and after twelve years
are now in the final stages of the UK’s
Queen Elizabeth Class Aircraft Carrier build
programme. This year saw two significant
milestones in this landmark project —
HMS Queen Elizabeth was officially
handed over to the Royal Navy, and her
sister ship, HMS Prince of Wales, was
formally named and floated out of the
build dock.
We also completed a review of our
contracts against the new IFRS 15
accounting standard, and were able
to confirm at the half year that adoption
of the standard will not result in changes
to our contract control and revenue
recognition processes.
Finally, we continue to focus on
continuous improvement of our Health
and Safety performance, and once again
had an excellent year achieving even
higher standards across the Group.
Being Babcock
Babcock is a well-founded business
with a solid track record of delivering
engineering and operational solutions
for our customers. The vast majority
of the work we do — which very few
people can do — isn’t optional; we
enable the delivery of the vital services
which help safeguard both countries
and communities.
We make sure that navies are ready
to sail, that air forces are fit to fly, that
army and blue light vehicles are ready to
respond when needed. We provide the
technical training that helps the Armed
Forces to serve, the fire brigade to fight
fires and apprentices to learn the skills
they need. We support the nuclear power
stations that generate energy for the UK,
and we decommission them when they
come to the end of their life. We are
trusted to deliver.
We can do all of this because we own
and operate extensive equipment,
facilities and infrastructure, and within
our circa 35,000-strong workforce,
we protect and develop our intellectual
property and hard-earned know-how by
having one of the highest concentrations
of qualified technician and professional
engineers in our sector. And that’s
as well as employing almost 2,500
qualified pilots.
Fundamentally, we support our customers,
doing critical work in challenging and
highly regulated environments. We are
the UK Ministry of Defence’s largest
provider of complex engineering support,
we are the UK’s largest provider of nuclear
engineering services, and we are Europe’s
largest integrated supplier of Aerial
Emergency Services operating a fleet of
around 400 helicopters and fixed wing
aircraft across Italy, Spain, Portugal,
France, Australia and Scandinavia, as well
as the UK.
This unique profile, with its high barriers
to entry and our focus on our areas of
expertise, sets us apart in many ways. It
drives our ability to maintain relationships
with our customers over decades and
even generations, and to deliver returns
and cash to our shareholders.
And this is all made possible by our
values and guiding principles — you
can see those principles on page 13.
Our reputation is built on not just
technical expertise and a track record of
delivery, but on a strong health and safety
culture and respect for people and the
communities in which we operate. We
continually invest in the development and
improvement of the skills and capabilities
of our teams around the world. We value
diversity, and are committed to recruiting
and training young people through
our large apprenticeship and graduate
intake programmes.
Creating shareholder value
As we continue to grow the business, I’m
very clear that our focus continues to be
on protecting margins, improving returns
and delivering strong cash flow — which
is of course how our management team is
incentivised. That’s how we look to create
value for our shareholders and for our
people — by continuing to deliver on the
bottom line.
Maintaining a strong balance sheet is
also crucially important, and we plan
to continue to reduce net debt,
particularly during this period of political
and economic uncertainty. Whilst the
Babcock International Group PLC Annual Report and Accounts 2018
19
Strategic reportGovernance statementFinancials KPIs
Delivering on our strategy
The areas we focus on
We have identified a number of Group and sector level financial and
non‑financial key performance indicators (KPI) that reflect the internal
benchmarks we use to measure the success of our business and strategy.
These enable investors and other stakeholders to measure our progress.
Operating cash flows (%)
106%
Net debt/EBITDA (times)
1.6x
Operating return on revenue (%)
10.9%
1
1
3
1
1
4
1
1
5
1
0
3
1
0
6
.
2
2
1
1
5
.
1
0
7
.
1
1
1
.
1
1
0
.
1
0
9
.
2
0
.
1
8
.
.
1
6
1
3
.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Operating cash flow (OCF) conversion
rate is defined as cash generated by
operations after adding back retirement
benefit contributions in excess of income
statement as a percentage of operating
profit (page 25).
Net debt/EBITDA is calculated as net debt
divided by earnings before interest, tax,
depreciation and amortisation (page 25).
Operating return on revenue (ORR) is
defined as underlying operating profit
expressed as a percentage of underlying
revenue (page 23).
Revenue growth (%)
2.8%
EBITDA/interest cover (times)
14.5x
Gearing ratio (%)
38%
2
6
9
.
9
4
.
7
5
.
7
7
.
2
8
.
1
6
2
.
1
1
7
.
1
0
0
.
1
4
5
.
1
3
5
.
4
1
5
6
4
8
4
2
3
8
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Underlying revenue growth is defined
as the increase in the Group’s revenue
(including jvs) when compared to that
of the previous year (page 23).
Interest cover is earnings before interest,
tax, depreciation, and amortisation,
(page 25), divided by net Group interest
payable (income statement). EBITDA in
this KPI is redefined to aid understanding.
Gearing ratio measures the extent to
which a company is funded by debt,
calculated as net debt (page 25) divided
by shareholder funds (balance sheet),
excluding retirement benefit deficits or
surpluses (Note 24).
20
Babcock International Group PLC Annual Report and Accounts 2018
Total injuries rate
per 100,000 hours worked
1.35
.
2
5
1
.
2
2
3
.
1
9
2
.
1
5
8
.
1
3
5
2014
2015
2016
2017
2018
Health and safety is a core value
for Babcock. The data includes all
injuries reported each year across the
entire Group.
Return on invested capital
(ROIC) (%)
14.5%
2
0
7
.
1
4
0
.
1
4
2
.
1
4
5
.
1
4
5
.
2014
2015
2016
2017
2018
Return on invested capital is defined as
underlying operating profit (page 23)
divided by shareholder funds (balance
sheet) excluding retirement benefit
deficits or surpluses (Note 24).
Operational performance
measures
In the Operational reviews
we used the following
KPIs to measure each
sector’s performance.
Operating return
on revenue (ORR)
Operating profit before
amortisation of acquired intangibles
and exceptional items expressed as
a percentage of revenue.
Revenue growth
The percentage increase in the
sector’s continuing underlying
revenue when compared to that of
the previous year.
More information: Read the
operational review starting on
page 30.
Non‑financial statistics and
measures
In addition to our KPIs
we have a number of
non‑financial statistics
and measures.
605
Number of graduates
Number of graduates currently on
a graduate programme across the
Group (2017: 597).
905
Number of apprentices
Number of apprentices currently on
apprenticeships across the Group
(2017: 717).
More information: Read our report
on sustainable development and
people starting on page 60.
Babcock International Group PLC Annual Report and Accounts 2018
21
Strategic reportGovernance statementFinancials Financial review
Continuing to deliver
Overview
Babcock continued to deliver sustainable
profitable growth in 2017/18, with
growth of 1.7% in underlying operating
profit (1.6% organic growth at constant
exchange rates) and 2.8% growth in
underlying revenue (2.8% organic growth
at constant exchange rates). This growth
demonstrates the quality of our operations
and the resilience of the Group’s business,
and has resulted in an 3.6% increase in
underlying basic earnings per share.
We continue to focus on cash generation
and on maintaining a secure financial base
to support our future growth. We have
reduced our net debt during the year,
reducing the ratio of net debt to EBITDA
to 1.6x, and expect to continue to reduce
that ratio over the coming years.
Operational performance
We have made significant progress and
provided critical support to customers
dealing with exceptional issues in a
number of long term contracts, including:
• UKMFTS flying training started at the
new training school, RAF Cranwell
• Successful delivery of the Royal
School of Military Engineering (RSME)
benchmarking programme
• Supported the Metropolitan Police
and London Fire Brigade through a
challenging period
• Delivered first batch of Missile
Launch Tube Assemblies for the
new Dreadnought Class of Trident
nuclear submarines
• Naval Service Apprenticeships
scheme awarded Outstanding rating
from OFSTED
• Four vessel OPV contract for Irish Naval
Service approaches successful completion
• In Oman, Duqm JV: successful
completion of first packages of marine
support work for the US Navy
• Reached formal agreement on hand
back of Magnox contract to BEIS at the
end of August 2019
• At the Sellafield nuclear facility, Pile Fuel
Cladding Silo decommissioning project
is progressing well
• FOMEDEC French Air Force pilot training
contract on track.
Long term visibility continues to be one
of our consistent strengths, with the
combined order book and bid pipeline
growing to around £31 billion (2017:
c£30 billion). This provides clear visibility
of future underlying revenues, with 76%
of underlying revenue already secured
for 2018/19 and 50% for 2019/20.
The bid pipeline continues to be
supported by a buoyant tracking pipeline
of opportunities which have yet to
formally come to market.
During the year, we maintained our win
rates, achieving success in over 40% of
our bids for new contracts, and over
90% for renewals.
Franco Martinelli, Group Finance Director
Contract awards
Order intake remained strong in the
period, with over £4.5 billion of new
contracts added to the order book.
Contracts secured include:
• HADES, a new contract to provide
technical support services at 17
RAF bases
• 10‑year Sellafield nuclear
decommissioning contract to provide
‘Glovebox’ equipment
• First orders received for patented
ecoSMRT® liquid natural gas marine
transportation system
• Renewed core firefighting contract in
Italy for a further seven years
• Selected as preferred bidder for renewal
of significant Spanish aerial search and
rescue contract (SASEMAR)
• Further Type 23 frigate life extension
awards: HMS Lancaster and Richmond
• Hinkley Point C: new contract from EDF
to deliver training for the new build
nuclear plant
• Naval support contracts for Collins Class
submarines and ANZAC Class frigates
• Australian Defence Force ground
support equipment.
22
Babcock International Group PLC Annual Report and Accounts 2018
Statutory to underlying reconciliation
31 March 2018
Revenue
Operating profit
Share of profit from jv
Investment income
Net finance costs
Profit before tax
Tax
Profit after tax
Return on revenue
31 March 2017
Revenue
Operating profit
Share of profit from jv
Investment income
Net finance costs
Profit before tax
Tax
Profit after tax
Return on revenue
Joint ventures and associates
Statutory
£m
Revenue
and operating
profit £m
Finance
costs
£m
Tax
£m
IFRIC 12
income
£m
Amortisation
of acquired
intangibles £m
Change in
tax rate
£m
Underlying
£m
4,659.6
370.6
68.5
1.9
(49.9)
391.1
(53.4)
337.7
8.0%
4,547.1
359.6
56.7
1.2
(55.4)
362.1
(46.5)
315.6
7.9%
703.2
85.9
(85.9)
22.2
17.5
30.0
(28.1)
(1.9)
98.1
5.8
(22.2)
–
–
–
–
17.5
(17.5)
–
–
–
103.9
(22.2)
81.7
–
0.8
0.8
669.5
72.8
(72.8)
24.6
14.2
(24.6)
–
–
–
–
14.2
(14.2)
–
29.7
(28.5)
(1.2)
–
–
112.7
5.8
118.5
(26.4)
92.1
–
0.5
0.5
5,362.8
584.6
–
–
(72.1)
512.5
(92.3)
420.2
10.9%
5,216.6
574.8
–
–
(80.0)
494.8
(86.6)
408.2
11.0%
Income statement
Statutory revenue for the year was
£4,659.6 million (2017: £4,547.1
million), an increase of 2.5%. Statutory
operating profit increased by 3.1% to
£370.6 million (2017: £359.6 million).
Statutory profit before tax increased by
8.0% to £391.1 million (2017: £362.1
million), reflecting the net profit growth
from joint ventures and associates and a
reducing finance cost. Basic earnings per
share, as defined by IAS 33, was 66.6
pence (2017: 61.8 pence) per share,
an increase of 7.8%.
Underlying revenue for the year was
£5,362.8 million (2017: £5,216.6
million), an increase of 2.8%. The Babcock
businesses, excluding acquisitions,
delivered underlying revenue growth at
constant exchange rates of 2.8% (2017:
4.9%). The largest contributors to this
growth were the Aviation and Cavendish
Nuclear sectors which reported underlying
organic revenue growth at constant
exchange rates of 15.6% and 11.7%
respectively, with continued progress in
Aviation Defence contracts, further
Emergency Services contract wins and
in Cavendish Nuclear where additional
work in the Projects business combined
with continuing progress in the
Decommissioning JVs.
Marine sector underlying organic revenue
declined 5.6% at constant exchange rates
reflecting the step down in QEC revenue
during the year. Excluding the step down
in QEC revenue, the sector achieved
underlying organic revenue growth of
1.3% at constant exchange rates with
International and UK Naval growing well.
The Land sector’s underlying organic
revenue at constant exchange rates grew
by 2.3% in the year. Good performances
in Defence and South Africa were
largely offset by a slowdown in Rail as
the Network Rail Control Period 5 slowed
into its final year and some slowing in
apprentice training as the new
government levy scheme transitioned
during the year.
Total underlying operating profit
across the Group increased by 1.7% to
£584.6 million (2017: £574.8 million).
At constant exchange rates, Babcock
achieved organic growth in operating
profit of 1.6%, with the Group’s operating
margin stable at 10.9% (2017: 11.0%).
Improving Marine margins were offset by
declining Aviation margins.
In the Marine sector, underlying operating
profit increased by 0.5%, with margin
improvement driven by contract
performance, efficiency and the removal
of low margin QEC revenue partially offset
by an increase in pension costs.
The Land sector achieved a 0.3% increase
in underlying operating profit, with South
Africa and Defence (including the RSME JV)
offsetting revenue shortfalls in Rail and
apprentice training.
The Aviation sector’s underlying operating
profit declined by 0.8%, with continued
pressure in the oil and gas sector on
contract renewals and H225 costs offset
by the increased revenues in the Military
air and Emergency Services business.
Babcock International Group PLC Annual Report and Accounts 2018
23
Strategic reportGovernance statementFinancials Financial review, continued
The Cavendish Nuclear sector’s
underlying operating profit grew by
12.1% with both the Projects businesses
and the Decommissioning JVs showing
good growth.
Total net finance costs reduced to £72.1
million (2017: £80.0 million) reflecting
reductions in net debt and pensions
interest, together with some favourable
movement on Ascent JV swap valuations.
The Group net finance costs reduced to
£47.6 million (2017: £49.0 million) and
we expect these to reduce further in
future, in line with the decrease in the
average amount drawn on the Group’s
revolving credit facilities at a marginal rate
of around 1%. The Group’s share of joint
venture net interest expense reduced to
£22.2 million (2017: £24.6 million),
largely reflecting favourable swap
valuations within the Ascent JV. The IAS
19 pension finance charge was £2.3
million (2017: £6.4 million) as expected.
Underlying profit before tax increased
by 3.6% to £512.5 million (2017:
£494.8 million). The associated tax
charge, including the Group’s share of
joint venture tax of £17.5 million (2017:
£14.2 million), totalled £92.3 million
(2017: £86.6 million), representing an
effective underlying rate of tax of 18.0%
(2017: 17.5%). The effective tax rate is
calculated by using the Group’s underlying
Underlying Organic Growth
Underlying revenue
31 March 2017
Exchange adjustment
Disposals
Organic growth
31 March 2018
Underlying revenue growth
Organic growth at constant exchange rates
Underlying operating profit
31 March 2017
Exchange adjustment
Disposals
Organic growth
31 March 2018
Underlying operating profit growth
Organic growth at constant exchange rates
profit before tax and therefore excludes
the tax effect of amortisation of acquired
intangibles. We expect the effective
underlying rate of tax to be around 18% in
2018/19. The Group’s net pension deficit
reduced to £5.0 million (2017: £104.5
million), as growth assets performed well
along with continuing annual deficit
contributions. The projected pension
charge within operating profit for
2018/19 is £44.1 million (2018: £47.3
million), a £3.2 million cost decrease
which will be enhanced by a £2.8 million
reduction in retirement benefit interest.
Amortisation of acquired intangibles
was £103.9 million (2017: £118.5
million). This represents the amortisation
of the value attributed on business
acquisitions to customer relationships
(both contractual and non‑contractual)
and acquired brands.
Half year income statement phasing for
2018/19 is expected to be similar to the
phasing in 2017/18.
Exchange rates
The impact of foreign currency
movements over the year resulted in an
increase in underlying revenue of £7.7
million and a corresponding £2.4 million
increase in underlying operating profit.
A 10% movement in the Euro against
Sterling would affect full year revenue by
around £50 million and operating profit
by £5 million. A 10% movement in the
Rand would affect full year revenue by
around £38 million and operating profit
by £2 million. A 10% movement in
Canadian Dollars would affect full year
revenue by around £15 million and
operating profit by £2 million.
Earnings per share
Underlying earnings per share for the
year was 83.0 pence (2017: 80.1 pence),
an increase of 3.6%. Basic continuing
earnings per share, as defined by IAS 33,
was 66.6 pence (2017: 61.8 pence) an
increase of 7.8%.
Dividend
This year, underlying basic earnings
per share increased by 3.6%. The Group
continued to strengthen the balance
sheet and achieved its target of delivering
pre capital expenditure cash conversion
of over 100%. Together with a combined
order book and bid pipeline of around
£31 billion, this enables the Board to
remain confident in the long‑term future
of our business and it therefore is
recommending a 4.6% increase in the
final dividend per share for 2018 of 22.65
pence (2017: 21.65 pence). If approved
by shareholders at the AGM on 19 July
2018, this will give a total dividend for
the year of 29.5 pence per share (2017:
Marine
£m
Land
£m
Aviation
£m
Nuclear
£m
Unallocated
£m
Total
£m
1,901.6
(5.8)
–
(106.9)
1,788.9
(5.9%)
(5.6%)
233.9
(0.7)
–
1.9
235.1
0.5%
0.8%
1,811.7
2.1
(7.2)
42.5
1,849.1
2.1%
2.3%
139.7
0.9
(1.8)
1.3
140.1
0.3%
0.9%
874.0
11.4
–
136.7
1,022.1
16.9%
15.6%
145.5
2.3
–
(3.5)
144.3
(0.8%)
(2.4%)
629.3
–
–
73.4
702.7
11.7%
11.7%
61.4
–
–
7.4
68.8
12.1%
12.1%
–
–
–
–
–
–
–
(5.7)
(0.1)
–
2.1
(3.7)
5,216.6
7.7
(7.2)
145.7
5,362.8
2.8%
2.8%
574.8
2.4
(1.8)
9.2
584.6
1.7%
1.6%
24
Babcock International Group PLC Annual Report and Accounts 2018
28.15 pence per share), an increase of
4.8%. The final dividend will be paid on
10 August 2018 to shareholders on the
register at 29 June 2018.
Acquisitions and disposals
There were no acquisitions in the current
year. During the previous year, in April
2016 the Group acquired 100% of Heli
Aviation GmbH for £5.7 million plus
acquired loans of £5.2 million giving a
total cost of £10.9 million.
Deferred consideration of £19.0 million
was paid in the previous year in respect of
the Defence Support Group, Scandinavian
AirAmbulance AB, Context Information
Services Limited and Skills2Learn Limited.
During the year the Group disposed of its
schools infrastructure business, which
resulted in a loss of £0.9 million.
During both the current and the previous
year the Group paid certain accrued costs
on previously disposed of businesses of
£2.0 million (2017: £0.6 million).
Cash flow and net debt
The Group has once again achieved
its target of delivering pre capital
expenditure cash conversion of over 100%
and around 80% post capital expenditure.
The cash flow has delivered a net debt to
EBITDA reduction to 1.6 times at the year
end and we expect to continue to reduce
the net debt to EBITDA ratio to around
1.4 times by the end of 2018/19. We
continue to focus on the generation of
cash and cash conversion remains an
important key performance indicator
(KPI) for the Group. The analysis below
reconciles the management KPI for
cash conversion.
Cash generated from operations was
£447.9 million (2017: £504.0 million),
from which the Group’s operating cash
flow calculation is derived. Operating
cash flow after movements in working
capital was down 8.7% to £495.2 million
(2017: £542.2 million), however this was
principally due to the FOMEDEC contract
cash flows of £50.4 million which will
reverse in 2018/19. Excluding these,
operating cash flow was £545.6 million
and represents a conversion rate of
operating profit to cash of 116%
(2017: 115%).
Cash flow and net debt
Operating profit before amortisation of acquired intangibles
Amortisation and depreciation
Other non‑cash items
Working capital (excluding excess retirement benefits
and FOMEDEC)
FOMEDEC
Provisions
Operating cash flow
Cash conversion % /excluding FOMEDEC
Capital expenditure (net)
Operating cash flow after capital expenditure
Cash conversion % — after capital expenditure/
excluding FOMEDEC
Interest paid (net)
Taxation
Dividends from joint ventures
Free cash flow before pension contribution in excess of
income statement
Retirement benefit contributions in excess of income
statement
Free cash flow after pension contribution in excess of
income statement
Acquisitions and disposals net of cash/debt acquired
Issue of shares
Investments in joint ventures
Movement in own shares
Dividends paid
Net cash inflow
Net debt reconciliation (Note 26)
Opening net debt
Net cash inflow
Exchange difference/other
Closing net debt
2018
£m
468.7
104.3
4.3
(4.0)
(50.4)
(27.7)
495.2
106%/116%
(112.7)
382.5
82%/92%
(53.6)
(74.3)
42.9
2017
£m
472.3
92.3
13.7
(7.7)
–
(28.4)
542.2
115%
(134.9)
407.3
86%
(51.6)
(61.5)
26.7
297.5
320.9
(47.3)
(38.2)
250.2
(0.2)
–
(6.0)
(4.2)
(147.7)
92.1
282.7
(30.5)
0.9
2.1
(7.8)
(133.8)
113.6
(1,173.5)
92.1
(33.6)
(1,115.0)
(1,228.5)
113.6
(58.6)
(1,173.5)
A reconciliation between the statutory cash flow and trading cash flow table above.
Cash generated from operations (Note 25)
Retirement benefit contributions in excess of income
statement
Operating cash flow
447.9
504.0
47.3
495.2
38.2
542.2
Net debt to EBITDA
Underlying operating profit (page 23)
Depreciation
Amortisation of software and development costs
Non‑controlling interests
EBITDA
Net debt
Net debt/EBITDA
584.6
91.3
13.0
(1.4)
687.5
1,115.0
1.6x
574.8
82.4
7.6
(3.8)
661.0
1,173.5
1.8x
Babcock International Group PLC Annual Report and Accounts 2018
25
Strategic reportGovernance statementFinancials
Financial review, continued
Cash flow and net debt continued
Working capital cash outflows during
the period, excluding excess retirement
benefits, were £4.0 million (2017:
£7.7 million) excluding FOMEDEC. These
contract‑driven modest working capital
cash outflows over the last two years are
better than expected and may see some
reversal in 2018/19. FOMEDEC working
capital outflows were £109.3 million
in debtors offset by £58.9 million in
creditors, with a net effect of a £50.4
million outflow which will reverse in
2018/19. The FOMEDEC working capital
will reverse in the first half of 2018/19
as a result of finance leases accepted by
the government customer and some
securitisation proceeds from the sale of
the first finance leases offset by supplier
payments. In the second half the balance
of finance leases will be sold and
outstanding supplier payments made.
The cash outflow includes £27.7 million
of provision movements (2017: £28.4
million) relating to contracts (primarily
pain share/gain share and warranties),
Cash conversion pre-capex (%)
1
1
1
1
3
3
1
1
1
1
4
4
1
1
1
1
5
5
1
1
0
0
3
3
1
1
6
*
1
1
6
1
0
6
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
Cash conversion post-capex (%)
8
8
2
2
8
8
3
3
8
8
3
3
8
8
6
6
9
2
*
9
2
8
2
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
* excluding FOMEDEC
onerous leases, personnel (taxation and
reorganisation) and property. There has
been some acceleration of the settlement
of contract matters, which is expected to
occur again in 2018/19. The level of
provision outflow in 2018/19 is expected
to be similar to 2017/18, after which we
expect the provisions balance to stabilise.
During the year there was a £9 million
income statement charge to provisions
and over the last eight financial years the
cumulative net provisions charge was
£19.7 million and averaged 0.8% of
underlying operating profit.
Net capital expenditure, including new
finance leases, during the year was
£112.7 million (2017: £134.9 million).
The Group achieved a conversion rate of
operating cash flow after movements in
working capital and capital expenditure
to operating profit of 82% (2017: 86%);
excluding FOMEDEC we achieved a
conversion rate of 92%, a five‑year high.
Capital expenditure for the year was
1.1 times the Group’s depreciation and
amortisation charge of £104.3 million.
For the 2018/19 financial year capital
expenditure will be around 1.2 times
depreciation. Net Group cash interest
paid, excluding that paid by joint ventures,
was £53.6 million (2017: £51.6 million),
which reflects the refinancing of the
Group’s debt and the timing of
due payments.
Pension cash outflows in excess of
income statement charge were
£47.3 million (2017: £38.2 million).
Guidance for 2018/19 is an outflow
of around £50 million. However, the
pension environment has deteriorated in
the year and, combined with the uneven
distribution of funding deficits between
the three large schemes, may see more
volatility in pensions funding, although
funding levels have improved.
Cash taxation payments of £74.3 million
(2017: £61.5 million) increased due to
increased overseas profits and prior year
utilisation of overseas tax losses, but
benefited from pension deficit payments
in the UK.
Free cash flow pre‑excess pension
payments and FOMEDEC improved to
£347.9 million (2017: £320.9 million),
up 8.4%, representing a free cash flow
yield at 31 March 2018 of 10.3% (2017:
7.2%). Free cash flow post excess pension
payments and FOMEDEC increased to
£300.6 million (2017: £282.7 million),
up 6.3%.
During the year the Group received
£42.9 million in dividends from its joint
ventures (2017: £26.7 million). Cash
dividends (including to minorities of
£3.8 million) paid out in the year totalled
£147.7 million (2017: £133.8 million).
The Group expects dividends from its joint
ventures to increase to around £45 million
in 2018/19 and 2019/20.
Group net cash inflow was £92.1 million
(2017: £113.6 million inflow), decreasing
total net debt at 31 March 2018 to
£1,115 million (31 March 2017:
£1,174 million). This gives a net debt
to EBITDA ratio of 1.6 times (31 March
2017: 1.8 times).
Half year cash flow phasing for 2018/19
is expected to be at a similar level to
2017/18, with the exception of the
FOMEDEC reversion.
Return on invested capital (ROIC)
We define ROIC as underlying earnings
before financing costs, divided by the
average of opening and closing equity
plus net debt, excluding retirement
benefit deficits. ROIC, pre tax, was 14.5%
(2017: 14.5%). Post tax ROIC was 11.9%
(2017: 11.9%). This compares to the
Group’s current weighted average cost
of capital of c7.5%. The Group continues
to focus on capital employed and on
improving returns, and management
compensation includes this as a
performance measure.
Available financial capital
The Company defines available
financial capital (AFC) as shareholder
equity, net debt plus undrawn committed
borrowing facilities.
Objective
To ensure an appropriate level of AFC to:
i. maintain operational flexibility
and meet financial obligations
ii. fund the Group’s organic and
acquisitive growth
26
Babcock International Group PLC Annual Report and Accounts 2018
Available financial capital performance
Debt service cover
Debt cover
Gearing
Net debt/
shareholders’ funds
Net debt/EBITDA
Net debt/
shareholders’ funds
iii. maintain necessary headroom to
cover the peaks and troughs in the
Group’s working capital cycle
iv. provide sufficient liquidity to see
the Group through any periods of
tightened liquidity in the market.
Policy
The Board aims to maintain a balance
between equity and debt capital which
optimises the Group’s cost of carry whilst
allowing access to both equity and debt
capital markets at optimum pricing when
appropriate. The Group, in considering
its capital structure and financial capital,
views net debt to EBITDA at circa 2.0
times or below as being steady state
and sustainable in normal market and
economic conditions. This level may
be tempered in periods of market
volatility and economic and/or
political uncertainty. This is not to rule
out acquisition spikes above 2.5 times,
as illustrated by previous acquisitions,
but only if the Group can see a clear
path to reducing net debt to EBITDA
back to circa 2.0 times or below within
a reasonable time frame.
Performance
The Group’s gearing and debt cover ratios,
used by the Group to evaluate capital, saw
an improvement to 1.6 times net debt to
EBITDA in 2017/18 (2017: 1.8 times),
demonstrating further progress in bringing
gearing down, both in the pay down of
debt and through increasing profits
attributable to shareholders. Debt ratios
are below covenanted levels and gearing
has continued to reduce, leaving sufficient
headroom for bolt‑on acquisitions and the
funding of organic growth. The Company
believes that capital markets remain
accessible if or when required.
Covenant
2018
2017
>4
<3.5
n/a
13.0x
1.6x
12.0x
1.8x
38%
42%
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 Group only enters into
financial instruments where it has a high
level of confidence in the hedged item
occurring. Both the treasury department
and the divisions 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, given the continuing
volatility in financial markets.
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.
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 objective.
During the financial year, US private
placement loan notes of US$150 million
were repaid at maturity, the Group issued
a £50 million note, in a tap of the ten year
October 2026 Sterling bond, increasing
the total in issue to £300 million, and
entered into a two and a half year £100
million Term Debt Facility, maturing
August 2020. The revised Group capital
structure of committed facilities and
headroom are sufficient to meet the
Group’s ongoing commitments. In
addition to the aforementioned Sterling
bond and Term Debt Facility, the other
main Group debt facilities comprise of:
£40 million loan note maturing
January 2020, US$500 million US private
placement notes maturing in March
2021, a €550 million Eurobond maturing
in October 2022 and a Revolving Credit
Facility of £750 million maturing
December 2021. Taken together, these
debt facilities provide the Group with
a total of c £2.0 billion of available
committed banking facilities and loan
notes. For further information see note 2
to the Group financial statements.
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 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.
Babcock International Group PLC Annual Report and Accounts 2018
27
Strategic reportGovernance statementFinancials
Financial review, continued
Performance
As at 31 March 2018, the Group had
69% fixed rate debt (31 March 2017:
74%) and 31% floating rate debt
(31 March 2017: 26%) based on gross
debt of £1,475.6 million (31 March
2017: £1,424.8 million). For further
information see note 2 to the Group
financial statements.
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
i. All the Group’s material borrowings
are arranged by the treasury
department and funds raised are
lent onward to operating
subsidiaries as required.
ii. To ensure that the Group has
sufficient cash on hand and that
its committed RCF is appropriately
sized and has sufficient term to
meet the Group’s general
corporate funding requirements.
Each of the business divisions in
the Group 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 cash performance of the
business divisions is a key
performance indicator.
iii. 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
i. 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.
During the year, the Group raised a
further £50 million via a tap of the
2026 Sterling bond, entered into
a £100 million Term Debt Facility,
repaid US$150 million of US
private placement notes.
ii. The Group had cash and cash
equivalents as at 31 March 2018
of £286.3 million (2017:
£191.4 million).
For further information see note 2 to the
Group financial statements.
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,
Omani Rial 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 IAS 39
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.
Performance
There was a net foreign exchange loss of
£16.1 million in the income statement for
the year ending 31 March 2018 (2017:
£9.3 million. For further information see
note 2 to the Group financial statements.
Pensions
The Group provides a number of defined
benefit and defined contribution pension
schemes for its employees. The largest
schemes are the Babcock International
Group Pension Scheme, the Devonport
Royal Dockyard Pension Scheme and the
Rosyth Royal Dockyard Pension Scheme
whose combined assets are £4.3 billion
representing 88% of the total assets of the
Group’s defined benefit schemes. It also
has employees in two industry‑wide
schemes, the Railways Pension Scheme
and the Cavendish Nuclear section of the
Magnox Group of the Electricity Supply
Pension Scheme, as well as employees
in other smaller occupational defined
benefit schemes and local and central
government schemes. All the occupational
defined benefit schemes have been closed
to new members for some years. The
Group continues to review all options to
reduce the risks inherent in such schemes.
In the last financial year, it consulted with
employees of two of the largest schemes
on changes to better share costs of the
scheme to help ensure the schemes
remain sustainable and will be consulting
with employees in the third of the largest
schemes this year including alternative
28
Babcock International Group PLC Annual Report and Accounts 2018
options for those employees who
may wish to leave the schemes whilst
remaining employed. In the last financial
year it made a significant investment in
the education of current and former
members coming up to retirement to help
them understand all their options under
the so‑called ‘pension freedom changes’
introduced by the UK Government. The
Group anticipates that some members
will take advantage of these freedoms and
will transfer their funds out of the scheme.
The Group also provides an occupational
defined contribution scheme used to
comply with the automatic enrolment
legislation across the Group for all new
employees and for those not in a defined
benefit scheme. Over 70% of its UK
employees are now members of the
defined contribution scheme. The Group
pays contributions to these schemes
based on a percentage of employees’ pay.
It has no legal obligations to pay any
additional contributions. All investment
risk is borne by the employees.
Investment strategy
The Group has agreed a long‑term
investment strategy with trustees across
the three largest schemes designed to
generate sufficient assets by April 2037
to be fully self‑sufficient, although our
expectation is that this target will be
met significantly earlier. It also operates
within an agreed risk budget to ensure
the level of risk taken is appropriate. An
investment committee operating across
the three schemes, which includes Group
representation, has been established for a
number of years to maximise effectiveness
and to ensure consistency. To implement
the strategy, the committee has divided
the schemes’ assets into growth assets,
low risk assets and matching assets, with
the proportion of assets held in each
category varying by scheme reflecting the
schemes’ different maturities. The growth
assets are systematically de‑risked over
time by comparing and equating the
expected and required returns each
month. 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,
and this approach has protected the
schemes against the falls in interest rates
over the last few years.
Funding 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. Work has
commenced on the valuation of the
Rosyth scheme as at 31 March 2018.
Cash contributions
Future service
contributions
Deficit recovery
Longevity swap
Total cash contributions
— employer
2018
£m
2017
£m
47.2 34.6
41.5 36.4
6.0
10.7
99.4 77.0
Cash contributions made by the Group
into the defined benefit pension schemes
during the year are set out in the table
below. In the 2018/19 financial year, the
total cash contributions expected to be
paid by the Group into the defined benefit
pension schemes are £97.8 million.
£9.6 million of this is for salary sacrifice
contributions, £30.1 million is in respect
of the cost of future service accrual,
£47.4 million is to recover deficits over
periods of time agreed with the Trustee
and £10.7 million is in respect of the
three longevity swaps transacted for each
of the largest schemes during 2009/10 to
mitigate the financial impact of increasing
longevity. This total cash cost is expected
to be around £50 million in excess of the
charge within the income statement
per annum over the medium term.
Accounting valuations
Discount rate %
The current level of bond yields and
inflation expectations has increased
cash service costs for pension schemes.
The members’ pension contributions
are increasing for two schemes and
consultation has begun on a third in
order to mitigate the increase in cash
service cost.
Accounting valuations
The IAS 19 valuation for accounting
purposes showed a market value of
assets of £4,735 million, net of longevity
swaps, in comparison to a valuation of
the liabilities based on AA corporate
bond yields of £4,740 million. The total
net accounting deficit, pre deferred tax,
at 31 March 2018, was £5.0 million
(2017: £104.5 million), representing
a 99.9% 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, the rate of
future pensionable salary increases and
the expected rate of inflation. The impact
of the longevity swaps transacted during
2009/10 has helped to mitigate the risk
of increasing allowances for longevity.
Governance
The Group believes that the complexity of
defined benefit schemes requires effective
governance and supports an increasingly
professional approach. It has appointed an
independent chairman across the three
largest schemes as well as an independent
professional trustee in each scheme and
has appointed professional trustees with
specialist investment expertise. The Group
established a governance committee
across the schemes to improve the
effectiveness of the trustee boards as
well as enhancing trustees’ knowledge
and decision‑making.
Devonport
Babcock
Rosyth
2018 2017 2018 2017 2018 2017
2.6 2.6
2.6 2.6
2.6 2.6
Rate of increase in pensionable salaries %
2.2 2.3
2.2 2.3
2.2 2.3
Rate of increase in pensions in payment %
2.2
2.2
2.9 3.0
3.2 3.3
Life expectancy of male currently aged 65 years
21.1 21.2 22.2 22.6 20.2 20.3
Babcock International Group PLC Annual Report and Accounts 2018
29
Strategic reportGovernance statementFinancials
Operational review
Technology
in action:
Marine
The future
of support
Babcock is harnessing the power
of innovative technology to advance
through-life support opportunities,
improving platform availability
and readiness.
The use of iFrigateTM architecture is
heralding a new world of optimised
engineering support. The introduction
of a suite of technology, equipment and
system sensors into build projects means
that a wide range of operational data
can be fused, modelled, transformed
and visualised, improving proactive
maintenance decision support and
optimising planning.
An on-board analytics suite allows
informed risk-based maintenance
decisions to be made and aids defect
diagnosis, whilst shore-side data analysis
helps forward deployed support,
optimising the next maintenance period
and de-risking Class support. This enables
our expert engineers to plan, procure for
and execute cutting-edge remote and
shore side capabilities to deliver next
generation efficiency.
Babcock thrives in complex environments
which require specialist engineering
expertise. The future of engineering
support is here, and Babcock is shaping
its application.
30
Babcock International Group PLC Annual Report and Accounts 2018
Prediction
The predictive
analysis of equipment
is a game-changer
in informing future
service and
maintenance
requirements
Optimisation
The use of digital
‘smart’ technology
on naval vessels will
ensure maintenance
planning is optimised
against known risks
Availability
Understanding the
condition of existing
equipment to support
maintenance decisions
is a key driver to
constantly improve
through-life
management and
support of customers’
critical assets
Design
Babcock’s focus on
designing and trialling
embedded technology
allows engineers to
better understand, and
visualise, platform and
system performance in
real time
Specialist expertise
This functionality
empowers the
maintainer by giving
access to up-to-the-
second performance
data and maintenance
documentation at the
right time, allowing
them to optimise
availability
Babcock International Group PLC Annual Report and Accounts 2018
31
Strategic reportGovernance statementFinancials Operational review
Marine
Strategy in action
The Marine sector remains focused on providing through-life support of submarines,
naval ships and infrastructure, whilst continuing to grow its international naval
support business. With unique owned and managed infrastructure around the world,
we also look to apply our technical expertise to adjacent energy and commercial
marine markets, using our capabilities in engineering, equipment management,
consultancy, information and knowledge management.
2018 Underlying performance highlights
Revenue
total (including jvs)
joint ventures
Operating profit
total (including jvs)
joint ventures
Operating margin
total (including jvs)
joint ventures
2018
£m
1,789
22
235
4
13.1%
17.0%
2017
£m
1,902
28
234
7
12.3%
24.8%
Key highlights
Revenue %
of Group
33%
Operating
margin
13.1%
Revenue
growth*
-6%
*Excluding QEC, 1.1%
• The first of two new
aircraft carriers, HMS Queen
Elizabeth, entered service
in December 2017
• Won missile tube assembly
work for UK Dreadnought
and US Columbia submarine
programmes
• Our Australian NSM JV
extended its contract to
support the ANZAC fleet
for a further five years
• Successfully completed a
• Third WHLS contract for
• UK Royal Navy training
record package of work for
HMS Albion
• Flood-up of fourth Irish OPV
in March 2018
South Korea
• Our Oman JV has
successfully completed five
packages of work for the
US Navy and US Military
Sealift Command
contract rated outstanding
in all five categories
by OFSTED
• Appledore and Rosyth
awarded the British Safety
Council 5 Star award, with
Rosyth receiving the Sword
of Honour for the 11th time
32
Babcock International Group PLC Annual Report and Accounts 2018
Market overview
The Marine sector’s core UK naval
market has remained stable, with the
Ministry of Defence (MOD)’s 10-year
Equipment Plan forecasting a planned
spend of £20 billion over the next decade
on procurement and support for surface
ships, including the Queen Elizabeth Class
(QEC) aircraft carriers, and Type 26 and
Type 31e frigates; and £44 billion on
submarine programmes, including the
new Dreadnought Class submarines.
In the UK, we provide 100% of submarine
and 75% of surface fleet refits at our own
facilities. Our Terms of Business Agreement
with the MOD defines our position as the
MOD’s strategic support partner at both
HMNB Devonport and HMNB Clyde and
enables us to support the transition of
HMNB Clyde to be the UK submarine
centre of specialisation from 2021.
Additionally, our experience of delivering
technical training to more than 30,000
service personnel each year gives us a
strong platform to grow our training
business in the UK and internationally.
With increasing but ever-present pressure
on support budgets, the MOD continues
to work closely with industry partners to
deliver better military capability and value
for money in a sustainable and affordable
way. This includes seeking opportunities
for industry to expand its role in the
delivery of core support capabilities.
The UK’s Modernising Defence
Programme, due later in 2018, should
provide a welcome clarification of the
wider future naval support programme.
Launched in September 2017, the UK
National Shipbuilding Strategy represents
a step change in the Government’s
approach to naval ship procurement,
presenting immediate opportunities for
the design and build of five Type 31e
frigates and up to three Future Solid
Support Ships as well as providing a
platform to develop our position in the
growing global light frigate market.
Internationally, the Canadian Government
has published its revised defence policy
confirming its commitment to life-extend
the existing fleet of four Victoria Class
submarines and invest in a range of new
build marine requirements, including
Prince of Wales
HMS Prince of Wales, the second of the
Royal Navy’s two new flagships being
built by the Aircraft Carrier Alliance,
was officially named in September
during a ceremony at our Rosyth
facility by the ship’s new sponsor, Her
Royal Highness The Duchess of
Rothesay. The significant milestone
came just three weeks after the first
aircraft carrier HMS Queen Elizabeth
made her first entry into her home
port of Portsmouth as part of her
maiden sea trials programme. The
Queen Elizabeth Class Aircraft Carrier
project represents one of the largest
and most complex engineering
projects currently being undertaken in
the UK and will give the UK a world-
class capability over the next 50 years.
HMS Prince of Wales will be the eighth
ship in the Royal Navy to bear the
name, honouring Britain’s history as a
seafaring nation from the Sixth Rate
gun ship in 1693 to the ‘King George V’
Class Battleship that fought in World
War II. With a crew of 679, HMS Prince
of Wales is expected to carry out sea
trials in 2019 before entering Royal
Navy service. The ship is fitted with a
unique and innovative Highly
Mechanised Weapon Handling System
that allows the automated movement
and storage of the ship’s weapon load
in a safe manner that significantly
reduces the ship’s crew numbers.
15 new surface combatants and a range
of Coast Guard vessels. These programmes
are likely to increase the demand for
technically complex naval support
services. In Oman, the overall market
environment remains positive, and we
expect more contracts over the course of
2018. In Europe, we see potential future
opportunities from a number of submarine
programmes which are currently in the
early concept phases. In New Zealand, the
defence force intends to acquire around
NZ$3 billion of marine capability over the
next 14 years.
The UK and international specialised
manufacturing markets continue to
provide opportunities within
defence, civil nuclear, decommissioning
and commercial marine, including
programmes like the UK Dreadnought
and US Columbia Class submarine build,
North Sea decommissioning and civil
nuclear new build with Cavendish Nuclear.
The gas equipment market continues
to provide a strong pipeline of future
opportunities for our new technologies in
Gas Supply Vessels and Liquefied Natural
Gas (LNG) handling. We see opportunities
in the liquefied gas carrier market driven
by demand from major economies such
as China, South Korea, India and Africa.
Babcock International Group PLC Annual Report and Accounts 2018
33
Strategic reportGovernance statementFinancials Operational review: Marine Strategy in action, continued
Strategy
Across our naval support business we
remain focused on offering our customers
the potential to combine reductions in
the cost of providing complex engineering
support services with improvements in the
availability of equipment, platforms and
infrastructure. Customer feedback
suggests that this mix of cost reduction
and performance improvements remains
vitally important to the delivery of our
customers’ strategies.
In addition to our core service offering,
we expect technology to play an
increasing role in our strategy. Our
iSupport embedded system brings
together our specialist support
expertise with targeted data analytics
and information management to
improve the way we design, build and
support naval platforms and shore side
facilities and will offer improvements in
availability and reductions in operating
costs. iSupport is capable of being
bundled with the whole spectrum of
our specialist engineering, support,
equipment management and training
capabilities to offer our customers a
unique support capability for both new
and existing platforms.
We also see opportunities to provide a
trusted and secure global support solution
for international naval customers and
operators of worldwide fleets of complex
commercial vessels. With the number of
planned new international submarine
programmes growing, we see
opportunities for the provision of our
specialist systems and equipment, building
on our strong track-record on a number
of existing international programmes.
Our strategy of pursuing an increased
international presence is being supported
by our naval support JV in Oman and our
recent decision to establish an in-country
facility in South Korea to build our
relationship with both the defence and
commercial shipbuilding businesses.
In the commercial market we are focused
on building our market position in new
technology areas for gas handling and
processing for commercial marine
platforms. We continue to build a portfolio
of technologies including solutions for
LNG and LPG, ethane/ethylene cargo
handling systems, ecoSMRT® LNG
re-liquefaction, ecoVOCC® volatile organic
compound capture and recovery for oil
shuttle tankers and specialist software to
optimise the design of gas carrier tanks.
Our strong capability in specialised
complex manufacturing continues to
offer opportunities for growth, including
the Dreadnought and Columbia Class
submarine programmes as well as civil
nuclear new build and decommissioning
work (for Cavendish Nuclear).
Within the cyber, intelligence and
security market we continue to see
growth in the cyber market and demand
for support in the intelligence and
security sectors as the international
security environment becomes less
predictable. In the UK, General Data
Protection Regulation (GDPR) regulations
are increasing business awareness of the
need for cyber security and the rise in UK
military spending on Command, Control,
Communications, Computers, Intelligence,
Surveillance and Reconnaissance (C4ISR)
continues to present opportunities, with
a number of large-scale programmes
currently being monitored.
Babcock to develop base in Busan, South Korea
Further strengthening our international
reach and presence in South Korea, we
have opened a facility in Busan. With a
long-standing presence in the country
through our Weapons Handling and
Launch System (WHLS) design and
manufacture contract for the Jangbogo
III submarine programme, and work in
the commercial marine market,
Babcock is looking to further invest in
the country as we drive forward with
our global growth ambitions. A key
element of Babcock’s in-country
investment is to maximise the pool of
local engineering talent to champion
Babcock’s marine capability and to
grow our Korean portfolio.
In late 2017 we secured a seven-year
contract with Daewoo Shipbuilding and
Marine Engineering to continue the
manufacture and delivery of WHLS
equipment for the South Korean
Jangbogo III submarine programme, third
boat set. The WHLS features an air turbine
pump and programmable firing valve
launch system and is based on the
principles used in the WHLS supplied by
Babcock for other international navies.
With procurement and manufacture
already underway, boat one is due to be
handed over to the Republic of Korea
Navy (ROK) at the end of 2020, and boat
two at the end of 2022.
Working from its new Korean base and
from its UK facility in Bristol, Babcock is
well positioned to deliver its long-term
commitments to Jangbogo III by
utilising a global supply chain network
that spans from leading South Korean
companies such as Hyundai Heavy
Industries (HHI), to suppliers in the UK,
Spain and Germany.
34
Babcock International Group PLC Annual Report and Accounts 2018
Financial review
Marine revenues excluding the QEC
Aircraft Carriers grew by 1% in the year
with UK and international naval marine
growing well and the Technology
business gaining orders towards the
year end which provide a good start
to 2018/19. Including QEC revenues,
Marine underlying revenue decreased
5.9% to £1,788.9 million (2017:
£1,901.6 million).
In the UK, Technology equipment orders
delayed in financial year 2017/18 are
now forthcoming, and there is increasing
demand for our complex technology
applications such as ecoSMRT®. The
large, one-off, QEC build and assembly
programme is on schedule for completion
in FY20. During the year major
programme milestones were passed;
HMS Queen Elizabeth was handed over
to the Royal Navy for sea trials and HMS
Prince of Wales was undocked; as such
QEC revenue declined 45% to £163
million (2017: £294 million). QEC step
down in 2018/19 is expected to be
around £90 million as the further
milestones are passed. International Naval
saw good growth in the year with progress
across contracts in Australia, New Zealand,
South Korea and Canada.
Efficiency and contract performance,
combined with a change of mix with the
reduction in QEC volumes, allowed
margins to improve to 13.1% (2017:
12.3%) despite an increased pension cost.
Margins excluding the QEC effect were flat
year on year with profit flat overall.
Operational review
UK naval marine
Babcock is successfully operating 23 naval
support projects for the UK Royal Navy and
we are on track to deliver the cost and
performance requirements at HMNBs
Clyde and Devonport through our
five-and-a-half year Maritime Support
Delivery Framework (MSDF) agreement.
We have also achieved significant
milestones on the Type 23 Frigate Life
Extension programme having completed
the first three of the planned 13 vessel
programme. We have also completed
work on a range of in-service submarines
including a major work package for the
first of the seven Astute Class submarines,
HMS Astute.
At our unique Devonport Dockyard facility,
we are continuing to progress the first life
extension package for the Vanguard Class
ballistic missile submarines whilst, at
Rosyth, the first submarine dismantling
project is now underway.
We are leading ‘Team 31’ a group of
industry leaders, including Thales, with the
capability to deliver a competitive design
and build solution for the MOD’s new Type
31e general purpose frigate, destined for
both UK and export markets. The project
is expected to be awarded in 2019.
As a leading member of the Aircraft
Carrier Alliance, we were delighted
to see the first of these iconic vessels,
HMS Queen Elizabeth, enter service
with the Royal Navy in December 2017.
The second vessel, HMS Prince of Wales,
was named at our Rosyth facility in
September 2017 and is now afloat
while we complete the vessel and begin
systems testing. At our Appledore facility,
the fourth Offshore Patrol Vessel for the
Irish Naval Service was floated out in
March 2018, with commissioning
expected in summer 2018.
As part of our contracted commitments
under MSDF, and recognising that the
QEC project is nearing completion, we
are undertaking a headcount reduction
programme across the business aimed at
ensuring that we are ready to respond to
the growth challenge whilst meeting our
customer commitments and supporting
our financial forecasts. A total of 1,100
redundancies have been announced
across the business with the vast majority
of the reductions likely to be achieved
through voluntary means.
We are approaching completion of the
first block of missile launch tube
assemblies for the UK Dreadnought and
US Columbia submarine programmes,
and have already started work on the
second. We have prequalified to bid for
assemblies for the US Virginia Class
submarine programme.
We have extended our Royal Navy training
contract to 2020, worth c£60 million,
and have successfully completed the
delivery of a new suite of training tools
to enable the Royal Navy to train the next
generation of naval engineers. We have
also augmented our Future Training Unit,
increasing our support offering for the
aircraft carriers.
International naval marine
In Canada, our Victoria In-Service Support
Contract continues to meet expectations,
and we are providing support to all Royal
Canadian Navy submarines, in particular
HMCS Corner Brook, which is currently
in refit, to be followed by HMCS Victoria.
Additionally, we are examining the
potential to offer a similar complex
support capability to other Canadian
federal vessels (Navy and Coast Guard).
In Australia, while Government studies
begin on potential life extension of the
Collins Class submarines, our sustainment
contract with the Australian Submarine
Corporation was renewed with a five-year
programme. Our capability in submarine
life extension should create further
opportunities on the Collins Class
programme whilst we continue to work
with both Naval Group and Lockheed
Martin in equipment supply and
sustainment options for the Australian
SEA1000 Future Submarine programme.
Technical support capabilities are critical
selection criteria and will demand the
transfer of know-how to Babcock Australia,
which will increasingly become the focus
for delivery of all contracted solutions.
Our NSM JV extended its contract to
provide support to the Royal Australian
Navy’s ANZAC Class frigates for a further
five years. Within the wider Warship Asset
Management Agreement, the programme
is designed to ensure the frigates stay in
service until 2031.
In Oman, we have undertaken deployed
support periods for Royal Navy vessels as
well as a number of vessels for the US
Navy and US Military Sealift Command.
The unique strategic location of the
Duqm facility will provide a number of
opportunities to build our relationship
with the US and other international navies.
Babcock International Group PLC Annual Report and Accounts 2018
35
Strategic reportGovernance statementFinancials Operational review: Marine Strategy in action, continued
In South Korea, we secured a contract to
deliver Weapons Handling and Launch
Systems for the third Jangbogo III
submarine and have opened a facility in
Busan to support ongoing projects and
future growth.
Technology
We have mobilised to provide both
an equipment support capability and a
technical authority service for the platform
systems fitted to the Type 45 Destroyer
and QEC aircraft carriers. We have also
delivered significant improvements in
performance from our Equipment
Management Operations Centre (EMOC)
across a range of equipment support
contracts with the UK MOD.
Within our analytics business, we have
been successful in providing secure
collaboration and information
management capability to the UK’s
Naval Marine enterprise. We have helped
Network Rail transform their management
of asset-related data. We continue to
push our technical capabilities into new
sectors, including helping United Utilities
develop their asset management strategy
by embedding predictive analytics into
their decision-making process.
Additionally, we have had a record level
of demand for our cyber products and
incident response services and supported
our financial services customers through
the establishment of offices in New York
and Frankfurt.
In our Energy and Marine business we
have maintained market share of around
50% in the LPG sector and have secured
our first orders for our proprietary system
ecoSMRT® in LNG reliquefaction. Our After
Market Operational Support Services for
ship owners, which includes plant
performance monitoring and analysis,
control system upgrades and
obsolescence control, is progressing
well. Highlights include the successful
delivery of 22 LPG ships, including our
first LPG projects in China and successful
patents for our VentGasCooler technology
in South Korea, China, Japan, Vietnam
and USA.
The future is ecoSMRT® with Babcock
Babcock has been contracted to supply
its ground-breaking ecoSMRT® LNG
reliquefaction technology to four
recently ordered LNG carriers being
built at Hyundai Heavy Industries’ Ulsan
and Samho shipyards in South Korea.
Offering unparalleled efficiency,
cost and footprint savings, ecoSMRT®
innovative technology enables
LNG carriers to operate at the
cutting edge of efficiency with greater
reliquefaction capacity and significantly
reduced power consumption —
at a lower cost — than competing
mixed refrigerant or nitrogen
expansion systems.
Requiring only one compressor,
ecoSMRT® benefits from a significantly
lower power consumption, meaning
reduced maintenance requirements
and lower operating costs (OPEX).
The technology also minimises
emissions, and ecoSMRT®, the result
of a joint-development project
between HHI and Babcock, leads the
way in meeting and exceeding global
environmental legislation requirements
within the industry.
A specialist technology provider within
the marine and onshore liquefied gas
markets, Babcock LGE is celebrating
50 years of providing unrivalled
engineering, procurement and
operational support services to the
liquefied gas and petrochemical
industries across a significant stream
of business activities.
Since 1967, the business has
been developing strategic global
relationships, especially in Asia, from
the mid-eighties, and business has
been thriving. The continued success
has included several ground-breaking
patented technologies and
enhancements for gas carriers and
crude oil shuttle tankers, bolstering
Babcock’s proven capability within the
global marine transportation industry.
36
Babcock International Group PLC Annual Report and Accounts 2018
Outlook
Through our ToBA and strong relationship
with the MOD, we continue to have
excellent visibility of the UK future naval
support programme of work. We are
continuing to apply new and innovative
technologies, thereby increasing the scale
and scope of engineering support that we
are able to deliver, not just from the UK,
but as a global support provider.
Outside our core defence business we
continue to see opportunities to apply
our expertise in complex and critical
engineering in adjacent commercial
marine and energy markets, both in the
UK and internationally. We believe the
outlook for the Marine sector is positive,
with a strong bidding and tracking
pipeline of growth opportunities in the
UK and our established international
markets, complemented by our
continually increasing intellectual
property and internal capability.
We expect a c£90 million step down in
QEC revenue in 2018/19, and overall we
expect low to mid single digit underlying
revenue growth with stable margins.
The last 12 months have also seen
Babcock deliver on the E-On Rampion
and Ørsted Hornsea 1 offshore renewable
contracts from our Rosyth base, with one
element of the Siemens Beatrice contract
complete and the second element to be
delivered shortly. There are no current
plans to pursue further opportunities in
this market.
Sustainability
Marine works within highly regulated
and tightly governed environments,
supporting some of the UK’s most critical
assets and infrastructure. We demand
the highest levels of security and
compliance and safety is paramount
across all of our operations.
During the period, we reduced our
‘total accident’ and ‘over three day’
injury rates by 20% and 19% respectively
on already low levels. Across the sector,
reporting of injuries, diseases and
dangerous occurrences regulations
(riddor) rates of note are Sea Training
with 4,000,000 work-hours riddor-free.
We continue to develop numerous
initiatives to support our health, safety
and environmental directives through
our Visible Leadership programme,
Safety Lens and SHE passport, which
have all been designed with our employee
and site welfare at the core. Our Rosyth
team recently celebrated its eleventh
consecutive Sword of Honour from the
British Safety Council for the exemplary
management of health and safety risks
on site. Our Appledore site achieved BS
OHSAS 18001 and ISO 14001 and was
awarded a prestigious five star rating by
the British Safety Council.
‘Zero Waste to Landfill’ remains a key
priority with ongoing mandatory training
and awareness sessions across sites to
support our target of diverting all suitable
landfill waste to alternative legitimate
routes wherever possible. Our Rosyth site
has successfully achieved ZWTL for the last
two quarters consecutively.
At HMNB Clyde we have invested in
campaigns to support and understand the
local environment in which we operate.
We have developed species awareness
booklets in support of World Environment
Day highlighted environmental concerns
— including ecological protection,
energy conservation and spill mitigation
— through annual events with over 400
attendees across the base. Devonport
supports environmental sustainability
and, along with customer and trade
union partners, has signed up to an
annual charter to reduce emissions,
minimise consumption and manage risk.
We have an extremely active STEM
outreach programme which promotes
initiatives with local community groups.
The Future Brunels programme is run
by first year graduates in our Defence
Systems Technology business in
association with SS Great Britain. HMNB
Clyde has supported 25 STEM and careers
events reaching more than 150 school
pupils and hundreds of older students
interested in a career in engineering.
Devonport has held educational days on
board HMS Bulwark while Rosyth has
hosted vessel build and design activities.
Our Diversity and Inclusion programme
has recorded an award-winning
performance this year with many
individuals and teams recognised for their
impressive technical and innovative skills.
Our ‘Pride in Babcock’ network was
awarded Best LGBT+ Employee Network
at the Bristol Pride awards, and is now
working with OUTstanding to further
develop our LGBT+ inclusion work.
All of our networks — Pride in Babcock,
Babcock Women’s Network and the ‘good
allies’ programme — are led by under-
represented groups. With a combined
membership of over 1,000, the groups
are working collaboratively with the
business to develop, share and promote
best practice across the sector. Supporting
this, we continually work with external
stakeholders, including WISE and the
Association of BAME Engineers, to solidify
our brand as an employer of choice.
Babcock International Group PLC Annual Report and Accounts 2018
37
Strategic reportGovernance statementFinancials Operational review
Technology
in action:
Land
Augmented
reality driving
efficiencies
We use technology to support our
customers by adapting and implementing
innovative solutions often in highly
regulated and complex areas. Whatever
the business need, we have created
virtual reality (VR) scenarios to port people
into the environment they need to be in
— at the touch of a button.
When we were challenged by the UK
MOD to see how we could improve
efficiencies for engineers working in
remote environments, we gave them a
pair of digitally enhanced glasses to see
things a little differently.
Working together with the customer
we created a scenario focused on the
benefits of Augmented Reality that could
support the maintenance activity with any
asset. We developed a prototype offering
a truly immersive Augmented Reality
experience which overlaid digital
information in the real world and in real
time for them.
Through our technology concept the
engineer could now access several layers
of information on any aspect of the asset
he or she was working on.
38
Babcock International Group PLC Annual Report and Accounts 2018
Driving efficiencies
As the volume of data
we have to deal with
increases, Babcock
works to secure
solutions that enable
information to be
called up seamlessly
and on demand —
empowering
employees whilst
being safer and
more efficient.
Maintenance support
We work with
the customer to
provide them with
a seamless view into
the digital world,
reducing timelines
whilst enhancing skills,
safety and auditability.
Informed decisions
The technology in
these glasses informs
the engineer if a
pump is overheating
or offers the history
of a particular asset,
allowing them to make
better informed
decisions.
Collaboration
and partnership
The success of this
prototype and the
efficiencies its innovation
has created are leading us
to develop even further
our technological
capabilities for Babcock
and our customers.
Design
Our technology support
is always designed with
the customer in mind,
whether it’s our defence,
education or blue light
partnerships.
Babcock International Group PLC Annual Report and Accounts 2018
39
Strategic reportGovernance statementFinancials Operational review
Land
Strategy in action
The Land sector provides large-scale critical vehicle fleet management,
equipment support and technical training for military and civil customers worldwide.
We are building on our experience of delivering critical services
to key customers, including the UK’s Ministry of Defence and
Emergency Services, to continue to grow our business internationally.
2018 Underlying performance highlights
Revenue
total (including jvs)
joint ventures
Operating profit
total (including jvs)
joint ventures
Operating margin
total (including jvs)
joint ventures
2018
£m
1,849
89
140
31
7.6%
35.4%
2017
£m
1,812
126
140
27
7.7%
21.1%
Revenue %
of Group
35%
Operating
margin
7.6%
Revenue
growth
2.1%
• New contract to support
the Australian Defence
Force’s fleet of ground
support equipment
• Developed Babcock-
designed virtual reality
training system for
engineers
• Babcock Sponsored
Reserves deployed alongside
British Army personnel
overseas
Key highlights
• Strong support for
London’s emergency
services during a
challenging year in
the capital
• Successful delivery of
Royal School of Military
Engineering benchmarking
programme
• Airports baggage team
contributed towards record-
breaking performance at
Heathrow airport
• New contract won to
deliver training for EDF
Energy’s new nuclear plant
at Hinkley Point C
• Jaguar Land Rover training
delivery expanded with new
technical apprenticeship
programme
• Eskom contract extension
for high pressure systems
40
Babcock International Group PLC Annual Report and Accounts 2018
Market overview
We continue to see demand for fleet
management, equipment support and
technical training services in the UK and
overseas, particularly for customers with
critical and complex fleets in the defence
and civil sectors.
In our Defence business, we continue
to build our relationship with the British
Army through our strategic partnership for
equipment support and individual training.
We use enhanced data and analytics
to inform their decisions on equipment
support solutions and we have developed
innovative solutions to support planning
for major change programmes. We
see opportunities to provide fleet
management and equipment support
solutions to new ‘blue light’ emergency
services customers in the UK and
overseas. Our investment in strategic
fleet management capabilities and
decision support and data analytics
has positioned us strongly in this sector.
We experience continuing demand
for our specialist technical training
services. The introduction of the
Apprenticeship Levy in 2017 has had
a significant impact on the market for
apprentice training. Whilst SMEs have
reduced their uptake of new apprentices,
larger firms are seeking support from
large-scale providers such as Babcock to
enable them to extract maximum value
from the levy by optimising the mix of
training they provide.
In our Rail business, we continue to
support Network Rail and expect this
relationship to continue as they move
into Control Period 6 from April 2019,
which will see the delivery of a £47 billion
five-year expenditure plan.
In South Africa, political uncertainty has
remained which has significantly impacted
economic growth, however we have seen
a resurgence in the mining markets with
international demand driving production
output and demand for our specialist
mining equipment. The latter part of
the year saw some political leadership
changes relating to Eskom, the state
owned power facility, which has brought
some stability to the landscape.
The HUB — advanced data analytics
Babcock’s complex information analysis
capability, the HUB, has fused multiple
data sources together for the Army on
a single analysis platform, minimising
information siloes. The ‘at a glance’
dashboards allow the user to view key
facts about a whole fleet, or drill down
to an individual vehicle type, studying
aspects such as fleet usage, failure and
maintenance patterns, location analysis
and availability.
By providing a life map view of a
vehicle, we have given the customer an
improved understanding of the
complexity of vehicle programmes and
their interrelation with other aspects
such as training and supply chain
management.
The Army and Babcock now have a
decision support capability for testing
fleet-related questions, forecasts and
assumptions, modelling and simulating
fleets. Skilled cognitive analysis means
we are visualising and understanding
today’s issues as well as predicting and
testing the impact of future challenges.
This gives the customer the ability to
plan effectively and make the most of
valuable resources.
Strategy
The Land sector provides engineering-led
critical vehicle fleet management,
equipment support and technical training
services to customers operating in
mission-critical environments. We have
established a successful track record of
delivery and developed strong long-term
relationships with customers in our core
markets of defence and emergency services,
and will continue to develop our specialist
services to meet the changing requirements
of our customers, exploiting advances in
technology and information systems.
We are focused on growing our vehicle
support and technical training services
to UK and international defence and
emergency services customers including
vehicle support for European military
customers and on increasing the scale of
our technical training and apprenticeship
work for key UK customers.
This growth will be supported by
investment in technology and technical
capabilities to deepen and extend our
data and analytics activities. We will
introduce new technologies to increase
the value and competitiveness of
our services and broaden the scope
of our vehicle systems engineering and
integration capabilities. In other businesses
that are of relatively small scale or are in
markets offering more limited near-term
growth, our activities and investments
will be aimed at improving operational
efficiency and maximising shorter-term
value creation.
In South Africa, we continue to develop
a route to market for Fleet, expand
export markets in the South African region
and organically grow profitability in our
product businesses through market share
expansion and new technology from our
OEM partners.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Operational review: Land Strategy in action, continued
Financial review
The Land sector underlying revenue
grew 2.1% to £1,849.1 million (2017:
£1,811.7 million) as Defence and South
Africa performed well. Organic growth at
constant exchange rates was 2.3% in the
period. DSG is progressing well, with
discussions to transition into an availability
based contract ongoing. South Africa has
benefited from improved commodity
pricing in the equipment business and
continuing strong demand from its main
power customer.
Organic underlying operating profit at
constant exchange rates increased 1% to
£140.1 million (2017: £139.7 million).
Operating margin for the sector was
broadly stable at 7.6% (2017: 7.7%). There
was some weakness in Rail as previously
flagged as the Control Period 5 slows
down in anticipation of Control Period 6,
and some disruption in apprentice training
as the new Government levy regime is
introduced. This was largely offset by
performance in the South Africa business
and the Royal School of Military
Engineering (RSME) JV.
Operational review
The Land sector continues to perform well
in its chosen markets, providing critical
services to civil and military organisations
worldwide. It remains focused on its core
capabilities, providing vital support for its
customers’ large-scale fleets of complex
vehicles and equipment, and delivering
high quality technical training to our
customers’ workforces.
Defence
In our Defence business, we have also
provided around 300 vehicles as part of
the Army’s deployment in Estonia,
demonstrating our ability to meet
changing demands. We continued our
work building the Warrior Capability
Sustainment Programme demonstration
vehicles for Lockheed Martin and were
awarded a further year’s extension of
maintenance to the Protected Mobility
Vehicle Fleet. We have recruited and
trained two units of sponsored reserves,
who work for Babcock each day, but who
can be deployed as soldiers by the British
Army. This capability has been used as part
of the Whole Force Approach, supporting
the Army’s equipment repair in Canada.
Following our contract extension, last
summer, to provide critical asset support
to British Forces Germany up to their
planned drawdown in March 2020, we
have now been awarded an extension to
our service delivery in Italy, supporting the
European Support Group, in their role for
NATO. Babcock Australia was awarded the
Australian Defence Force ground support
equipment asset management services
contract, which is due to begin operations
in the first half of 2018/19.
Our Defence Training business continues
to perform well, delivering over 20,000
training days to the British Army. We
successfully concluded the benchmarking
of the RSME PPP contract, and have
implemented the service transformation
which will provide the MOD with around
£80 million of further efficiencies over
the rest of the contract.
We continue to develop training
technology. We have designed and
delivered a £2 million virtual reality system
Mobile technology in Emergency Services fleets
This secure new technology supports
the faster completion of jobs,
benefiting customer fleet availability.
It also enables enhanced real-time
fleet status reporting to customers and
improves our overall Fleet Management
capability through improved
measurement of asset productivity,
efficiency and utilisation. This latest
initiative builds upon other recent
innovations including a stores
barcoding system and the workshop
touchscreen terminals.
By connecting our entire workforce
through technology we are able to
drive overall benefits in performance,
cost and operational efficiency across
Babcock-managed fleets.
The demands placed upon our
Emergency Services customer vehicle
fleets continue to grow as a result of
increasing budgetary and operational
challenges, demanding ever-faster
turn-around of maintenance activities.
Thanks to a series of innovative
technological solutions, Babcock’s
Mobile Maintenance Technicians
are now able to manage their daily
activities via 4G-enabled rugged
tablets. Repair information is entered
directly into our Fleet Management
system via an app, eliminating the
need for paper job cards and employee
timesheets. Mobile Technicians are also
able to request parts and additional
repair activities without the need to
pause repairs. A built-in authorisation
process ensures that all stock requests
are logged automatically, reducing
the administration burden across
the organisation.
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Babcock International Group PLC Annual Report and Accounts 2018
for the Electro-Mechanical training
contract and have started to use data and
analytics to support service improvements
and drive further efficiencies. Our close
relationship with the Royal Electrical and
Mechanical Engineers (REME) continues,
as we prepare for their move to the new
Apprenticeship Standard for REME
engineers later this year.
Our ALC joint venture, which provides
construction vehicles for the MOD, has
performed strongly, with high demand
for the service throughout the year. We
are working on a bid to bring together
the construction vehicle fleet and the
mechanical handling fleet. The contract
to deliver fleet services for the MOD’s
17,000 administrative vehicles, Phoenix II,
continues to progress, with the integration
of the fleets in Germany, the rest of
Europe, and the MOD Military Police.
Enhanced capabilities are being evaluated
for future implementation that will deliver
greater efficiencies for our customer
through better utilisation of the fleet.
Emergency services and training
We have continued to provide strong
support and high levels of equipment
availability to UK emergency services
customers in a challenging year. In
September, we were awarded a
12-month extension to our contract
with the Metropolitan Police Service (MPS),
ensuring continuation of service delivery
until the MPS announces the preferred
bidder for its future fleet management
contract later this year. In parallel,
Babcock Vehicle Engineering (formerly
MacNeillie) extended its contract with
the MPS to provide vehicle conversions.
Further progress has been made, assisting
London Fire Brigade in modernising
its fleet of vehicles and appliances
Technology in simulator training
In our training business we developed
a virtual reality simulator to support
the blue light driver training work
we do with emergency services. Our
technology experts took that training
to a whole new level when they
created a simulator with built-in
haptic feedback and a 200 degree
wraparound screen which is now used
to teach drivers in a safe and risk-free
learning zone.
Initially created to replicate the
experience of driving a real fire engine,
our concept can also be adapted
to simulate any emergency response
vehicle, and support the training
of blue light drivers anywhere in
the world.
It’s equipped with true to life
cutting-edge technology and is
another example of Babcock’s ability
to design and create a fully flexible
and portable product that reflects
and meets the changing needs of
our Emergency Services, not just in
the UK but internationally.
under its asset replacement programme.
Throughout the year, we have engaged
with a number of international emergency
services customers and in the year
ahead we anticipate participating in
competitive programmes to provide fleet
management services outside the UK.
In our civil training business, we were
successful in our bid to deliver training
services for the Project Management
Office of EDF Energy’s Hinkley Point C
construction project. We will provide
systems and assurance to ensure that
site personnel are suitably qualified
and experienced to operate on this key
engineering project, and will procure
and deliver related training. Operational
performance on our training contract for
the London Fire Brigade has been strong
and we are in early discussions with
a range of other emergency services
customers around their training needs,
all of which are also impacted by the
introduction of the Apprentice Levy.
Our engineering and technical training
contracts continue to perform well, and
we have seen encouraging account
growth with some of our key customers,
such as Network Rail. We won a contract
with Jaguar Land Rover for their technical
apprenticeship programme in the UK.
We now train over 500 Jaguar Land Rover
apprentices each year across a range of
technical, commercial and manufacturing
specialisms. We see further potential
training opportunities with other UK
automotive sector customers.
Despite challenging weather conditions
throughout the winter, our fleet
management team also delivered strong
operational performance to our Heathrow
airport customers, and is participating
in competitive tenders to extend these
relationships, with preferred bidder
announcements expected during FY19.
In Australia, the Qantas ground support
equipment contract became operational
on 1 July 2017, and the focus is now on
rolling out new systems and processes to
improve availability and performance.
Our Airports baggage operations business
had a second year of record performance
and has successfully secured a two-year
extension to the Heathrow baggage
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Operational review: Land Strategy in action, continued
system maintenance contract. In addition
to delivering baggage operations at
Heathrow and Schiphol, our team has
also delivered baggage upgrade projects
at a number of major UK airports and
secured new contracts at Heathrow,
Gatwick and Birmingham.
Networks and equipment support
In Network Engineering, our Rail business
continues to experience a slowdown as
we approach the end of Network Rail’s
Control Period 5 in March 2019. We will
begin bidding for Control Period 6 shortly.
Our on-track joint venture SB Rail
successfully rebid a National Plant
contract, with our share worth around
£70 million, which will see its fleet of
machines contracted until 2025.
Our work on Translink’s seven-year
signalling and telecommunications
contract is progressing well, with
further framework opportunities being
explored in Northern Ireland. Our ABC
joint venture successfully completed the
electrification of Scotland’s busiest rail
route between Edinburgh and Glasgow
as part of an alliance with Network Rail
and Morgan Sindall.
The Power business delivered a full
programme of work, including three
major overhead line refurbishment
projects for National Grid and a number
of complex schemes for Western Power
Distribution. Tenders won during autumn
and winter mean a substantially full
order book for the coming year, with the
focus already on the pipeline for FY20
and beyond.
South Africa
All of the African businesses, with the
exception of our transmission line
operation, have grown significantly
during the year with underlying revenue
growth being 21% over prior year in
local currency. The stand out performer
has been our Equipment business that
has grown 38% over prior year on the
back of market share won and new
products launched. The power generation
business has grown 16% over prior
year and the truck business has met
budget expectations.
London Fire Brigade training
Babcock manages a portfolio of over
250 courses and trains circa 24,000
delegates each year through a 25-year
contract with the London Fire Brigade,
We have two purpose-built dedicated
training centres in London, and also
operate out of a number of fire stations
across the capital.
At Beckton, a three-storey firehouse
simulates real fires within a number of
different scenarios. As the number of
fire related incidents has fallen over
time within London, so this has placed
increased importance on providing
high quality, realistic training to
London’s firefighters. Beckton also
offers an Urban Search and Rescue
(USAR) facility, consolidating USAR
elements under one roof, including
breaching and breaking, shoring, lifting
and moving, technical search, line
rescue and confined space.
Our indoor rig facility is a true to life
environment where we can be
confident we can deliver the best
training courses covering a whole host
of crisis situations.
We have been delivering our new
Firefighter Development (FFD) trainee
programme for over three years and
have trained close to 300 trainees.
A combination of our blended learning
approach and highly skilled trainers
has seen a significant improvement
in the pass rate. The FFD programme
will develop into an 18-month
apprenticeship programme from
September 2018, with circa 300
trainees per year over the next
three years.
Sustainability
We have continued to invest in our
people through initiatives to develop
talent, recognise achievements and
increase diversity across our business.
We implemented a new Talent
Management Framework to identify the
highest performers with potential for our
Talent Development programme, and to
enable those with potential to develop in
a structured, formal and supported way.
During the year we launched a ‘First Line
Leader Programme’ to enhance our First
Line Leader skills and maximise the
potential in their teams.
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Babcock International Group PLC Annual Report and Accounts 2018
DSG breakout for Estonia
When equipment was required at
short notice for NATO operations in
Estonia and Poland, the Army called
upon Babcock to deploy vehicles from
the high readiness fleet maintained
in Ashchurch.
Just over 300 vehicles, ranging from
Challenger tanks to quad bikes, were
made ready in only five days and
delivered to nine locations across the
UK. Each vehicle had to be inspected,
possibly repaired and prepared for
We remain focused on attracting,
employing and developing future
talent. Our graduate programme
was again a finalist in the Institute
of Student Employers’ Development
awards, in the ‘Strategic Alignment’
category. Recognising the valuable
contribution our graduates make to
the sector, we held the first alumni
programme which helps to continue their
professional development. We also work
closely with schools to promote STEM
activities — our graduates have all
become STEM Ambassadors.
In Australia we joined a procurement
initiative with the Indigenous Defence
Consortium which supports Aboriginal
and Torres Strait Islander businesses as
part of the national agenda on
Reconciliation in Australia.
We continue to focus on improving our
health and safety procedures and systems
to ensure that everything reasonably
practicable is being done so everyone
affected by our operations goes ‘home
safe every day’. We have seen a reduction
in the over three-day accident frequency
rate of 20% and the all accident frequency
rate of 15% compared to last year.
Implementing a structured approach to
the safety lens survey process has seen a
26% increase in the number of staff being
consulted on health and safety across the
sector. These consultation sessions
produced valuable feedback which has
enabled a sector-focused improvement
programme to be implemented to drive
common standards.
deployment by the combined Army
and Babcock team, working in close
partnership together.
At Ashchurch, Babcock’s Receipt,
Inspection, Issue and Storage (RIIS)
team of over 200 people maintains
and repairs a vital fleet of over 7,000
vehicles and pieces of equipment,
ensuring they are ready to meet
future demand.
The event successfully demonstrated
the viability and practicality of holding
large numbers of vehicles at high
readiness in specialist storage
conditions, whilst simultaneously
supporting the move to Central Europe
of several hundred British military
personnel. Army units received the
right equipment, correctly configured,
at the right time, easing the
preparations for a major deployment.
Outlook
Our specialist experience and technical
capability in delivering critical fleet
management and technical training
solutions place us in a strong position
to capitalise on the outsourcing
opportunities that are emerging, both
in the UK and internationally.
In Defence, we expect our strong working
relationship with the UK MOD to continue
as the next generation of programmes
is determined, and we have identified
equipment support opportunities for
European defence customers. We
expect Holdfast joint venture profits in
2018/19 to step down by £5-10 million.
In the civil sector we will continue
to expand our footprint with key UK
customers for equipment support and
training services and we are pursuing
several similar opportunities in
European markets.
2018/19 underlying revenue is expected
to be flat with stable margins.
Babcock International Group PLC Annual Report and Accounts 2018
45
Strategic reportGovernance statementFinancials Operational review
Technology
in action:
Aviation
Innovation
We recruit, develop
and value people
with a passion for
technology and
innovation. That’s why
we got our graduates
directly involved in the
Lua project.
Technology at
full flight
Technology underpins everything we do
at Babcock, but it’s our proven ability to
innovate, implement and integrate our
technology solutions for our customers
that sets us apart.
Our international footprint in technology
is growing too. We collaborated with
leading Spanish technology organisation,
Indra, to develop and create an
unmanned aerial vehicle (UAV) concept
called Lua. The pioneering concept
behind using the drone is in its ability
to identify and combat outbreaks of
forest fire.
Lua is pioneering in several ways. It is
equipped with three hours of flight
autonomy and, through the use of
predictive modelling of changing
meteorological conditions, we are able
to use these UAVs to help decide which
incident locations to focus on and how
best to optimise the number of
helicopters available.
Through our innovative technology
collaboration Lua supports the safety-
critical work of our firefighting teams and
also demonstrates a prototype that can
be rolled out to other areas of the world.
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Babcock International Group PLC Annual Report and Accounts 2018
Design
The Lua is designed
with a maximum
take-off weight of 25kg
and an endurance
airspeed of 100 kph.
Inspiring future engineers
Supporting our STEM agenda,
we are also working with
Spanish universities to ensure
we have a steady flow of young
engineers coming through.
Life saving
Since the start of
the 2017 firefighting
season, Babcock
has supported the
extinction of 613
fires in Spain alone,
with more than 17,000
flight hours and 72,500
water drops from our
aircraft.
Surveillance
The Lua’s capabilities
include on-shore
emergency surveillance,
day and night time
operations and vehicle
and people detection.
Babcock International Group PLC Annual Report and Accounts 2018
47
Strategic reportGovernance statementFinancials Operational review
Aviation
Strategy in action
We have four strategic priorities. In UK Military we aim to broaden
our customer base into naval aviation and Joint Helicopter Command.
In European Military we are delivering our first major French contract
and have good prospects for delivering training in other countries.
In Aerial Emergency Services we are developing excellent new capabilities,
and in Aerial Fire Fighting we are building new approaches for this vital service.
2018 Underlying performance highlights
Revenue
total (including jvs)
joint ventures
Operating profit
total (including jvs)
joint ventures
Operating margin
total (including jvs)
joint ventures
2018
£m
1,022
101
144
41
14.1%
40.8%
2017
£m
874
81
146
39
16.6%
47.7%
Revenue %
of Group
19%
Operating
margin
14.1%
Revenue
growth
17%
• Awarded HADES contract to
provide technical support
services at 17 Royal Air Force
sites across the UK
• Delivered the first group of
PC-21 training aircraft and
construction of new PC-21
simulation building underway
in Cognac, in support of our
French Air Force flying
training contract
Key highlights
• Renewed a major firefighting
contract with the Italian
Ministry of the Interior
• Opened a new school for
Ascent’s UK Military Flying
Training System at Cranwell
• Secured a new four-year
air ambulance contract
in Gothenburg
• Signed a new four-year
search and rescue contract
with the Coast Guard of
Galicia, Spain
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Babcock International Group PLC Annual Report and Accounts 2018
FOMEDEC progressing well
In December 2016, Babcock was
awarded an 11-year FOMEDEC
contract by the French Ministry of
Defence, DGA (French Defence
Procurement Agency), to deliver and
maintain new training aircraft and
simulation systems and provide related
services for the fighter jet crews of the
French Air Force.
The first flight of the aircraft took place
in July 2017 at the Pilatus factory in
Stans, Switzerland.
Market overview
Our business covers both military and
civil aviation, with several sector-wide
capabilities including technology, safety
and training. Our competitors range from
large multi-national aviation companies to
smaller localised competitors, particularly
in our civil aviation business.
Our focus in military is the delivery of
airbase support, training support and
aircraft engineering support to UK and
European customers including France
and Spain. The Royal Air Force (RAF) is
undergoing a period of ground-breaking
training and estate transformation and
the UK Military Flying Training System
(UKMFTS) is moving into the operational
training phase. We expect to see a
number of major programmes developing
in the UK military air domain to support
the broad range of new capabilities and
platform investments as well as legacy
fleets of helicopters and training aircraft.
European defence aviation markets are
developing, with an increasing desire to
engage with non-OEMs for support and
training capabilities such as our FOMEDEC
contract in France. European air forces
are procuring latest generation combat
aircraft and live flying training is an
increasingly expensive activity, with fewer,
and increasingly obsolescent, training
assets available. Simulation and synthetic
training is becoming more prominent.
Broader international markets show strong
growth potential and we see increasing
interest in our full life-cycle offering and
capabilities, which we are already
delivering in the UK, France and Spain.
In our civil aviation business, aerial
Emergency Medical Services (EMS)
is a large and growing global market
providing complex and critical services.
Babcock is the second largest EMS
provider in the world with around
10% of the market and the leading
position in all markets where we operate.
We see an increasingly complex medical
care market, with an estimate of global
spend between £2-3 billion annually.
Search and Rescue is a small part of our
Babcock will provide aircraft
maintenance and integrated logistics
services as part of the contracted
delivery. When fully operational, 14
aircraft will be required to be ready
for flying operations on any given day
to support up to four sorties of 14
aircraft per day, plus a demanding
night flying programme. 11,000 flight
hours are to be delivered each year.
FOMEDEC also provides for pilots’
basic flying training on new PC-21
aircraft in Cognac. On 12 February
2018, the FAF and Babcock laid the
foundation stone for the Simulation
Building. It will house three Part Task
Trainers, two Full Mission Simulators
and an Ejection Seat Training Device
together with other equipment
(cockpit egress trainer, ejection seat
trainer and under canopy trainer) and
training areas. The building is set for
completion by summer 2018.
business today, but with a multi-billion
global market, only 20% of which is
currently outsourced, we believe it
presents significant opportunities.
Babcock is one of the world’s leading
providers of fixed-wing and rotary-wing
firefighting services. Wildfires are
becoming a serious global issue, increasing
in frequency and ferocity annually, as the
world saw last year. Current operations
primarily rely on unsophisticated small
operators with limited capability and
technology enhancement. With our scale
and investment Babcock is beginning to
professionalise the sector and will develop
a global deployable model offering
technology-based differentiated services.
In the commoditised oil and gas
helicopter market we are a relatively
small operator, with roughly 4% of the
global market share. Competition in this
area remains intense.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Operational review: Aviation Strategy in action, continued
and technical support partner, with
early evidence seen in our recent
HADES win, and to develop a UK
military rotary-wing support business.
We are currently exploring the air
support to defence operational training
market, which globally is worth around
£1.5 billion a year.
Western air forces commit around
80% of their time in training and they
are increasingly looking to industry
support to deliver the outputs that they
demand and we are developing a number
of new opportunities to become the flight
training partner for a number of European
air forces.
Our strategic vision for Emergency Medical
Services is to become the global market
leader through innovation driving a higher
quality and more cost effective service
than our competitors. We also aim to be
the world’s first fully integrated and
professional aerial firefighting company
building on the best practice that we
already deliver across southern Europe,
supported by technology to improve
safety and operations.
Financial review
The Aviation sector had a year of strong
growth with underlying revenue up
16.9% to £1,022.1 million (2017: £874.0
million). Organic growth at constant
exchange rates was 15.6%. Both UK and
European Defence alongside Emergency
Services were strong drivers of growth
with contract wins throughout the year.
Our training support contract with the
French air force, FOMEDEC, is progressing
well with revenue and cash improving.
Aircraft delivery will be completed during
2018/19 with the customer accepting
finance leases, which will then be
converted into cash through our signed
securitisation agreements with a major
French bank. UK training programmes are
also progressing well, and we expect our
prudent margin recognition to build
towards Group levels as risks are retired
and project milestones are met.
Despite a strong year of revenue growth,
underlying operating profit decreased
marginally to £144.3 million (2017:
£145.5 million). As defence contracts
build to Group margin levels, our oil and
gas helicopter business continues to
in order to return them to an approved
airworthiness baseline and allow safe
cadet gliding operations to continue
into the future. We are now halfway
through the recovery programme at
Membury in West Berkshire, working
with our partner Southern Sail Planes
who are the UK’s leading experts in
glider maintenance.
In March 2019, at the end of a c £6
million programme, the RAF will once
again have their fleet of Viking gliders
back to an airworthiness condition,
allowing them to continue their
essential air cadet flying training
programme giving access to flying to
many air cadets all over the UK. This
programme of youth engagement is a
core tenant of the RAF100 celebrations
that Babcock is proud to be sponsoring
this year, aiming to commemorate,
celebrate and inspire.
Strategy
We have four strategic priorities. In UK
Military we aim to broaden our customer
base into naval aviation and Joint
Helicopter Command. In European
Military we are delivering our first major
French contract and have good prospects
for delivering training in other countries.
In Emergency Services we are developing
excellent new capabilities, and in
Firefighting we are building new
approaches for this vital service.
Aviation brings together all of Babcock’s
military and civil aviation capabilities
under a single leadership, which has
resulted in an updated strategy that
we believe will deliver growth in both
revenue and profits.
We plan to grow our successful UK
military aviation business to become an
indispensable aviation support partner to
the Royal Air Force, Royal Navy and British
Army. Today we are a critical component
of the UK military flying training system
and we provide engineering support to
more than 30% of all UK military aircraft.
Our aim is to become the UK MOD’s
aviation training, operational assurance
Viking Recovery Programme
The Viking glider is used by the RAF Air
Cadet organisation to give basic gliding
training to air cadets. Nine volunteer
gliding squadrons operate the type at
locations around the UK, training air
cadets to a standard sufficient for them
to fly solo. Since 2014 the entire fleet
of Viking gliders has been grounded
due to airworthiness concerns. This
grounding has resulted in the loss of the
aircraft available to air cadets meaning
they no longer have access to the
fundamental early RAF flying training
that is such an important part of their
youth engagement programme.
In 2016, the RAF came to Babcock to
help recover their fleet of gliders and
we were awarded a contract to lead
and manage a programme to recover
sufficient Viking gliders to provide UK
wide coverage. The contract is to strip,
inspect, repair and refurbish the aircraft
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Babcock International Group PLC Annual Report and Accounts 2018
underperform in a deteriorating and
saturated market environment, and are
furthered hampered by H225 helicopter
costs. Aviation margin for the year was
14.1% (2017: 16.6%), a reduction from
the previous year, which benefited from
the end of long-term contracts at a
closing phase of margin recognition.
Emergency Services continues to deliver
healthy margins.
Operational review
UK military air
The UK Military Air business secured a
key new contract in November 2017
with the award of the £160 million
Royal Air Force (RAF) HADES contract.
The contract went live on 1 April 2018
and provides a wide range of technical
support to 17 RAF stations employing over
800 people. In support of the UKMFTS,
Babcock has programme-managed the
commissioning of 10 new facilities
comprising five training buildings and five
hangars used for aircraft storage, aircraft
maintenance and simulator housing.
HADES
Babcock has been awarded three
significant new regional contracts
by the UK Ministry of Defence under
the Technical Support Services
Provision (TSSP) programme for
17 sites across the whole of the UK.
Worth a total of around £160 million
for the first five years for all three
regions, with options for a further
These facilities will now be used by Ascent
(a Babcock joint venture) alongside the
recently procured fleets of new aircraft to
deliver a world class training programme
for all future military pilots. Looking
forward, the business is currently
preparing a bid for the RAF Air Support
to Defence Operational Training (ASDOT)
opportunity to provide adversary air
combat training in partnership with
experienced military air training provider
Elbit Systems.
European military air
As our European Military Air business
approaches its first anniversary, it
has delivered on its key targets and
positioned itself successfully to
execute its strategy. The mobilisation of
FOMEDEC has progressed well to reach
critical milestones including the successful
first qualification test flight, the laying
of the foundation stone on the simulator
building, the relocation of the team to
the site in Cognac and signing of the
securitisation agreement. We are
developing strategic military OEM
relationships across Europe, including
with Leonardo and Airbus. Helidax,
our helicopter pilot training contract,
continues to perform well in France
and our European pipeline continues to
develop with more strategic opportunities
of scale.
Aerial emergency services
We are a leading provider of aerial EMS,
both in existing territories and in new
countries. Earlier this year we were
awarded a contract by the Norwegian
Government to provide high-specification
fixed-wing air ambulance services across
Norway for an initial six years, with options
to extend by a further five years. We
continue to drive technological innovation
in markets characterised by world-leading
standards, with the aim of continuously
delivering operational excellence and
safety, improving patient outcomes, and
consequently the efficiency of health
agencies. In Italy we enhanced our
service by introducing night operations in
several Italian regions, as well as starting
new trials to integrate Remotely Piloted
two one-year extensions which
could increase the value to around
£220 million, the TSSP contracts
include the provision of aircraft
maintenance and operations,
airfield support and operations
and vehicle fleet logistics, together
with specialist armoury and
engineering support.
Babcock’s programme will support
over 19 separate services and almost
5,000 requirements to Single, Joint
and Tri Services. These contracts
cement our position as a key support
partner to the RAF. We will deliver
excellent integrated service capability
as well as significant cost savings to
our customer.
The three HADES contracts went
live on 1 April 2018 on two existing
Babcock sites, Wyton and Henlow,
and eight new sites. These will be
added to in June with Cosford and
in July with Linton and five more
new sites, making a total of 17 sites.
Following a very collaborative discovery
exercise with the customer we will
be TUPEing over around 800 new
staff after which we then enter a
stabilisation phase, followed by a
transition phase culminating in
around 1,000 people working on
HADES at steady state.
Babcock International Group PLC Annual Report and Accounts 2018
51
Strategic reportGovernance statementFinancials Operational review: Aviation Strategy in action, continued
Aircraft System technology into EMS.
In Spain, we successfully renewed
EMS contracts, including a new service
covering the Canary Islands, while in
France we are delivering multi-base
operations for the South West contract.
We will continue to deliver as we grow
our global presence and reputation as a
leading EMS provider. Also in Spain, we
have been selected by the Spanish Safety
Maritime Agency (SASEMAR), part of the
Public Works Ministry of Spain, as preferred
bidder for the renewal of a nationally
significant aerial search and rescue
contract worth around £160 million
for the first four years.
Last summer, Southern Europe
experienced the worst forest fires in over
five years. Since the start of the 2017
firefighting season, we have supported
the extinction of 613 fires in Spain alone,
with more than 17,000 flight hours and
72,500 water drops from our aircraft. In
addition, the Italian Government’s fleet of
amphibious firefighting aircraft, which we
operate and maintain, played a crucial
role in the extinction of major fires in
Portugal and Southern France. Babcock
participated in the European Union
firefighting pool in these two countries.
We were a trusted partner to local,
regional and national governments all
over Europe throughout this complex
firefighting campaign. We also successfully
renewed a number of contracts for
nationwide and regional services in Spain.
Deep engagements on high standards of
health and safety have resulted in a safe
campaign. Investing in innovation and
cutting edge technology is positioning
Babcock as a leading company on
firefighting resources.
Oil and gas
Whilst the Oil and Gas business is a small
part of the Aviation sector, it continues
to be impacted by challenging industry
conditions, with options to use aircraft
in other lines of business being explored.
Our operational delivery however remains
strong with significant focus on safety
where we continue our work as a
founding member of HeliOffshore and
customer satisfaction remains positive.
Southern Europe firefighting support
Wildfires are becoming a serious
global issue, increasing in frequency
and ferocity annually, with seasonal
patterns affecting different regions
throughout the year. 2017 saw some
of the most ferocious wildfires for
many years. Babcock supports the
fight against these fires across the
Mediterranean from our bases in
Italy and Spain, and using our fleet of
more than 100 aircraft. In 2017 we
extinguished 613 fires in Spain alone
with more than 17,000 flight hours
and 72,500 water drops. Our aim
is to continue this support and
develop a globally deployable
model offering technology-based
differentiated services.
Demonstrating our world-class
capability in this area, Babcock has
been awarded a significant national
contract by the Italian Ministry of
Interior for a fully outsourced aerial
firefighting service.
The contract started in February
2018, and is worth a total of around
£160 million for the first four years
and includes an option for a further
four-year extension which could
increase this value to around
£320 million.
The contract, which Babcock has been
successfully operating for seven years,
will see the delivery of firefighting
services across up to 10 bases across
Italy, together with fleet management,
operations and maintenance of 19
CL-415 Canadair aircraft owned by the
Italian Government.
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Babcock International Group PLC Annual Report and Accounts 2018
Cutting edge firefighting
Every second counts when it comes
to tackling fires and preventing loss of
life. In Southern Europe, our work in
aerial fighting is at the forefront of
technology innovation and it’s where
our EINFOREX technology solution is
making a real difference. The EINFOREX
system gathers intelligence and data
from firefighting missions, which is then
sent in real time to command and
control centres. Analysis of vital
information is then used to enhance
firefighting tactics and safety for
firefighters, and to save lives.
Mapped images of the fire are
sent to emergency control centres
giving them an instant picture of the
incident they are working on including
temperature changes within the fire so
they can decide from the information
received the best places to deploy
firefighters. Using the helicopter as a
relay, the geo-position of the aircraft,
firefighters and ground vehicles,
are also transmitted back to the
command and control centre,
giving accurate information on the
locations of all those involved in the
firefighting mission.
Sustainability
Safety remains our highest priority.
Throughout the year we have continued
to develop and implement an industry
leading Safety Management System within
our civil businesses, which we are now
expanding across the wider sector. Our
safety culture stresses the importance of
learning from experience and working to
develop and maintain an efficient learning
cycle through communication, reporting
and feedback. At the end of 2017 we
rolled out a refreshed Safety Behaviours
& Expectations programme.
Our civil business continues to improve its
safety performance, which remains well
below industry peers. Workplace Health,
Safety and Environment has enjoyed an
overall reduction in workplace injuries and
lost time.
Our technology solution doesn’t stop
there. EINFOREX can also detect the
mobile phones of civilians in the fire
affected areas and can advise those
running the mission of the best escape
routes for those caught up in the fire.
Our technology solutions such as
EINFOREX show how Babcock
really does thrive in complex
environments which require specialist
engineering expertise.
We continue to develop safety initiatives
such as Fatigue Risk Management and
Crisis Preparedness. We continue to be
the global leader in the implementation
of aviation fatigue risk management
systems in advance of regulation.
We have extended our talent recognition
and talent development capability,
developing international graduate
placement opportunities to foster more
diverse and international talent. Our 2018
graduate intake has increased by 50% and,
working with other Babcock sectors, we
have implemented a behavioural graduate
development programme to ensure
our graduates are equipped to work
effectively in cross-cultural, dynamic
and complex environments.
We have continued to build on developing
leadership capability, extending our
successful first line manager behavioural
development programme into Spain
and delivering an Executive Leadership
Coaching programme for senior
managers. In UK Military Air, we have
developed and implemented a bespoke
framework and toolkit to support our
people in working inclusively and
respecting each other, in line with the
Group’s guiding principles.
In November, 20 apprentices and their
managers participated in an Outward
Bound Trust development programme
to integrate development of a range
of personal and professional skills into
our existing technical apprenticeship
programmes. We have also extended
our involvement with educational STEM
activities, working with Women In Science
& Engineering to develop a STEM Toolkit
and partnering with STEM Learning on
a range of educational liaison activities
within our contractual areas.
Outlook
Our prospects are strong in our
chosen markets of UK Military, European
Military, EMS and Firefighting. We have
an excellent pipeline of opportunities in
UK Military as the RAF introduces new
platforms and needs increased training
and cost effective ways of supporting
them. Our new European Military Aviation
business has quickly established a pipeline
of new training related opportunities.
EMS remains an area of ever increasing
demand and, after an incredibly busy
summer in 2017, we look to add new
technical capability in our Firefighting
business to improve the capacity and
effectiveness of this service.
We expect strong underlying revenue
growth in 2019 but that the mix of
business will result in a softening margin.
Babcock International Group PLC Annual Report and Accounts 2018
53
Strategic reportGovernance statementFinancials
—
Operational review
Technology
in action:
Cavendish
Nuclear
Technology
minimising
risk
Cavendish Nuclear and its key supplier
have been awarded a 10-year contract
to supply Sellafield Ltd with Glove Box
Systems to process nuclear material. As
part of this contract Cavendish Nuclear
will be applying the innovative use of
virtual reality (VR) simulation to de-risk
and, where possible, accelerate delivery.
The design of the glove boxes will be
completed using the latest 3D tools.
Once the 3D design of each glove box is
complete, the models will be transferred
to a VR interface. Users will wear VR
headsets and gloves, which will allow
them to test out the ergonomics and
identify any modifications at the earliest
possible stage. The VR suite will comprise
a single skeleton glove box incorporating
moveable rings and real gloves to
accurately simulate operator constraints.
A key advantage of this arrangement is
that it can be located within the design
office, whilst providing the ability to
simulate any glove box in the entire plant.
This approach helps mitigate the risk of
requirements to change the design
identified after assembly, which can
impact delivery of the project and
schedule and cost.
54
Babcock International Group PLC Annual Report and Accounts 2018
—
Ergonomics
Mitigating risk
Simulated glove box
environments will
enable the customer to
test the ergonomics.
Applying VR to
delivery of nuclear
decommissioning
solutions de-risks and
accelerates delivery.
Smart simulation
Problem solving
Virtual reality
simulation will play
a key role in the
Sellafield Glove Box
Systems contract.
Trusted to deliver
This will be delivered
by drawing on our
proven VR capability
from within the wider
Babcock Group.
Use of VR will
enable any required
modifications to be
identified early.
Glove box
manufactured by
Jordan Manufacturing
Limited
Babcock International Group PLC Annual Report and Accounts 2018
55
Strategic reportGovernance statementFinancials Operational review
Cavendish Nuclear
Strategy in action
Delivering complex nuclear engineering on major nuclear decommissioning
programmes and projects across the UK, as well as nuclear engineering services
in training and operation support, new build programme management,
design and installation and critical safety training to both public and private
customers in the UK and, increasingly, internationally.
2018 Underlying performance highlights
Revenue
total (including jvs)
joint ventures
Operating profit
total (including jvs)
joint ventures
Operating margin
total (including jvs)
joint ventures
2018
£m
2017
£m
703
491
69
38
9.8%
7.7%
629
435
61
29
9.8%
6.7%
Revenue %
of Group
13%
Operating
margin
9.8%
Revenue
growth
12%
• Won 10-year Sellafield
Glovebox framework
contract
Key highlights
• Significant milestone
at Wylfa: reactors are
50% defuelled
• Bidding £1.6bn of new
• Delivered a successful
work including Hinkley Point
C Auxiliary pipework & PPP
at Sellafield
outage at EDF Dungeness
site both on time and
on budget
• Reached formal agreement
on terms of hand back
of Magnox contract in
August 2019
• Pile Fuel Cladding Silo
project — all six doors
installed, six penetrations
cut, concrete monoliths
removed, doors sealed and
handed over to Sellafield
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Babcock International Group PLC Annual Report and Accounts 2018
Market overview
The civil nuclear market in the UK
continues to progress. The global
energy market is still impacted by
relatively low prices, which has resulted
in pressure on decision making for new
major programmes both in the UK and
internationally as the wider industry
seeks further investment. We have
seen an increase in Tier 2 and 3
decommissioning projects issued for
tender, despite budgetary pressures,
and there is still opportunity within the
UK new build programmes. We are
currently bidding in excess of £1.6 billion
of new Tier 2 and Tier 3 work across
new build, decommissioning and
international markets.
In the UK, the Nuclear Decommissioning
Authority (NDA) is currently determining
the structure of Magnox decommissioning
work following the end of the initial
contract in August 2019, which is
expected to provide further potential
opportunities for the sector. The sector
is also investigating entering into
new markets where it can deploy
its programme management,
decommissioning and hazard
management expertise in other
highly regulated industries.
Strategy
Our strategy is to accelerate growth
by developing the current Tier 2 and 3
capabilities in the UK, underpinned by
our order book and growing pipeline of
opportunities. We will also continue to
develop our products and the expertise
of our workforce to maintain our position
as the UK’s leading nuclear engineering
services business. We aim to secure and
deliver projects at Hinkley Point C (HPC)
new build facility while developing a
position in both Wylfa and Moorside.
Following the NDA’s decision to terminate
the current Magnox contract in August
2019, the sector aims to secure further
opportunities to support the
decommissioning programme.
Across the sector our focus is on improving
performance and efficiency by safely
accelerating programmes where possible
and by implementing and applying
Pile fuel cladding silo
A Cavendish Nuclear joint venture
is behind the opening up of the
world’s oldest radioactive waste
store for the first time. Experts at
the Sellafield nuclear site have cut
the first hole in the Pile Fuel Cladding
Silo (PFCS), a locked vault which was
never designed to be opened.
It follows years of collaboration,
designs, innovation and
painstaking rehearsals by Bechtel
Cavendish Nuclear Solutions for
Sellafield Ltd and the Nuclear
Decommissioning Authority.
It’s the first of six holes that will allow
radioactive waste to be removed from
one of the site’s most hazardous
buildings. Preparations have been
under way for a number of years,
which involved practising the cutting
operation at a full-scale replica test rig
in Rosyth, Scotland.
The six holes are cut at the top of
each of the facility’s six compartments,
allowing access to the waste within
the silo’s walls for the first time in 65
years. Each section is cut away in a
single piece and withdrawn into a
containment bag. A containment
door is then lowered over the
aperture and closed.
The giant steel doors will provide a
safe barrier between the waste inside
the silo and the outside world. Work to
remove the material will start in 2019.
To remove the waste, a crane
will extend through the cut holes,
a grabber will then drop down to
scoop the waste up, lifting it out of the
container and back through the hole.
It will then be dropped into a
specially-designed metal box, for safe
and secure storage in a modern facility.
Steven Carroll, Head of the PFCS, said:
“I am incredibly proud of the work that
our teams have achieved together, in
preparing the silo for successful waste
retrievals. The level of challenge
involved with this facility is
unparalleled, considering the age
of the building, the lack of historical
information about the waste itself,
the atmosphere inside the silo and its
position on one of the most congested
sites anywhere in the world. Despite
this, the teams have carried out some
world class engineering in difficult
environments to get us closer to
getting the waste out and into safer
storage earlier than planned.”
“This project harnesses the engineering
expertise and ingenuity of two
companies with global reach to
provide Sellafield with the tools it
needs to deliver hazard reduction
on a truly epic scale,” said Paul Smith,
managing director of UK projects at
Cavendish Nuclear.
Babcock International Group PLC Annual Report and Accounts 2018
57
Strategic reportGovernance statementFinancials Operational review: Cavendish Nuclear Strategy in action, continued
technical innovation across our sites and
services while managing and mitigating
risk. We continue to build on current
capabilities and infrastructure through
collaboration with our Marine sector
colleagues to develop highly complex
nuclear module fabrication capability for
both the decommissioning and new build
markets. We continue to drive new
technology and innovation to embed
simpler processes and increase efficiency.
Above all, we continue to drive for the
highest health, safety and environmental
performance across our operations.
Financial review
Cavendish Nuclear saw strong growth
during the year in underlying organic
revenue and underlying operating profit
as both the Projects business and the
Decommissioning JVs performed well.
Underlying organic revenue increased
11.7% to £702.7 million (2017: £629.3
million). New build activity has increased
at Hinkley Point C and the Decommissioning
JVs have increased volume at
both Magnox and Dounreay. As
previously flagged we expect the
step down in Magnox revenue to be
around £60 million in 2018/19 as
decommissioning progresses.
Strong growth in underlying organic
operating profit of 12.1% delivered profit
of £68.8 million (2017: £61.4 million).
Project margins were softer on prudent
profit recognition during the ramp up
stages of newly awarded contracts with
some additional IT costs following the
implementation of new systems. The
Decommissioning JVs saw margin increase
and we expect the Magnox margin to
remain at current levels until contract
completion in August 2019.
Operational review
Throughout the year the sector’s
long-term contracts continued to perform
well with the Decommissioning JVs
delivering on schedule. We have seen a
wide selection of technical contract wins
including full life-cycle decommissioning
solutions for Magnox sites, major design
contracts, complex module fabrication
and waste package flasks for Sellafield,
additional maintenance projects for the
EDF AGR fleet and new packages of work
from Hinkley Point C.
Decommissioning JVs
During the year we reached successful
agreements with the NDA for the
termination of the Magnox contract,
our joint venture with Fluor. The
productive negotiations resulted in
commercial arrangements for the period
until contract completion in August 2019.
Performance at the 12 sites continues
aligned with our commitments and
schedule, with milestones achieved in line
with expectations and a continued focus
on delivering cost effective solutions to
the decommissioning programme. The
NDA is undergoing a review and the
intended operational arrangements for
Dungeness B outage
Cavendish Nuclear works with EDF
Energy to support all eight of its
nuclear generating plants in the UK.
But Dungeness B alone accounts for
25% of the company’s business.
It’s day 47 of the statutory outage. The
twin reactors at the heart of the
station’s output are shut down for their
scheduled service.
On one, three of the four huge gas
circulators that drive the heat from the
reactor’s core have been removed from
line, maintained and re-instated. Any
moment now, EDF Energy will remove
the fourth unit and the pressure will be
on the Cavendish Nuclear team
again to turn around the last one as
quickly as possible, working round-the-
clock in shifts.
To the untrained eye, it’s hard to tell
the difference between those working
for EDF Energy and those working for
Cavendish Nuclear. They all wear the
same coveralls, get the same toolbox
talk information, and fill out the same
safety reporting forms.
There’s a good reason for that, as
Gavin Schlechter, outage manager
and year-round operations manager
for the EDF Energy business at
Cavendish Nuclear, explains:
“The more we can do to make it
feel like ‘one team’, the better it
becomes for efficiency and morale.
There’s less stress. It makes for a
more open reporting culture, too.
We get very good feedback from
the customer about our willingness
to report things that some others may
feel less inclined to flag up, especially
the very minor events.”
The closeness of the working
relationship between EDF Energy and
Cavendish Nuclear isn’t unique to
Dungeness B — Cavendish Nuclear
supports the operation of all seven
AGRs and one PWR in its generating
fleet. But there is one aspect that
definitely is.
Dungeness B was the first production
model of the Advanced Gas-Cooled
Reactor to be built in the UK.
Construction started in 1965 but it
wasn’t completed until 1983 — a full
13 years late. Later models learned
from the difficulties experienced during
construction and changed their design,
which means some features are unique
to Dungeness B.
It’s the only AGR station where
Cavendish Nuclear, as heir to the
original equipment manufacturer, has
the added responsibility of looking after
the four huge gas circulators attached
to each of the twin reactors.
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Babcock International Group PLC Annual Report and Accounts 2018
Magnox beyond August 2019 are still
to be determined, but we believe our
continued strong operational performance
and technical expertise combined with
experience on the Magnox sites put us
in a good position to benefit from any
new opportunities. Additionally we are
working with the NDA, under the Nuclear
Sector Deal, to accelerate up to two
demonstrator projects for reactor
dismantling in 2020.
Key operational deliverables include
completing all remaining work at
Bradwell to deliver site closure, continued
defuelling of Wylfa, commencement of
the construction phase for the SGHWR
reactor core removal, construction of
interim storage at Chapel Cross, Hinkley
and Harwell, and progression of removal
of the two remaining waste streams in
the Berkeley vaults. Magnox will also
be focused on delivering the required
throughput improvements in the
commissioned waste processing plants
at Berkeley, Trawsfynedd, Hunterston,
Dungeness and Harwell. Asbestos
remediation and removal, as well as
the management of deteriorating asset
conditions, remain priorities across
the sites.
The joint venture contract at Dounreay,
Europe’s most complex decommissioning
project, is delivering to the revised scope
associated with the Exotics Waste Removal
Project as part of the UK Government’s
strategy. The site operations team has
also removed fuel elements from the Fast
Reactor, the first time that this has been
completed in several decades,
representing a significant milestone for
the contract. The restructuring is on track,
including a reduction in headcount in
order that costs and skillsets match the
requirements of the future
decommissioning programme.
Projects
Our Projects performance remains
strong and we have achieved multiple
critical milestones either on or ahead of
target across the business. At Sellafield,
we continue to deliver exemplary
performance preparing the ageing
facility for waste retrieval. On the Pile
Fuel Cladding Silo (PFCS) project, a joint
venture with Bechtel, we have successfully
installed all of the ‘Magnificent Six’ 12.4
tonne doors (playing a key role in reducing
hazard at the site), cut six penetrations,
removed the concrete monoliths, sealed
the doors and handed over to Sellafield
under budget and ahead of schedule.
The strong performance in the design
frameworks at Sellafield continues to be
rewarded with additional new scope.
In December, we were awarded the
Sellafield ‘Glovebox’ contract to design
and fabricate technically complex
engineering solutions for the treatment,
handling and management of nuclear
materials. The contract, valued at around
£100 million, is currently being mobilised.
Following the success of synergies with
the Marine sector in delivering the PFCS
project, the expertise and unique
equipment in technical fabrication at
Rosyth will again be employed for this
10-year framework contract.
As we leverage our position as a lifetime
partner with EDF, we continue to provide
for their generating fleet, providing critical
reactor core analysis allowing the plant
life extension of the AGR reactors,
maintenance and outage support. During
the year we delivered a planned outage
at Dungeness on time and on budget.
Internationally there has been significant
management focus on developing
the Japanese business, with Cavendish
Nuclear established as the leading UK
decommissioning expert with both the
Japanese Government and industry.
As a result, we successfully completed
a contract for Japan Atomic Power
Company and are working on bidding
preparations for the upcoming Tokai
Bunker project. Fukushima work has also
been delivered in support of Hitachi GE
Nuclear Energy (HGNE) with the potential
for expanded scope and follow on work
packages. Cavendish Nuclear is currently
the only non-Japanese company to
participate in HGNE’s seven-strong
Fukushima Fuel Debris Removal team.
At the beginning of the year we
transitioned from Early Works Involvement
to an Early Works Contract, covering
supply chain engagement for long lead
time materials, design work and
preparations for site mobilisation for the
new build work on the Balance of Nuclear
Island mechanical installation for Hinkley
Point C. The sector also continues to
provide a range of engineering and design
support for Horizon Nuclear Power’s Wylfa
Newydd project, including support to
Menter Newydd for the design of the
radiation waste facilities, under contract
to Menter Newydd’s partner, JGC.
Sustainability
Long-term business sustainability is a
core focus at Cavendish Nuclear and we
continue to focus on three key themes
of safety, people and performance. We
actively recruit talented young individuals
into our graduate and apprenticeship
schemes and this year employed around
55 young engineers, supported by a
three-year development programme
to maximise their experience and
expertise across the sector. Over 20% of
the current workforce joined as a graduate
or apprentice at some point during their
technical career at Cavendish Nuclear,
including senior and management roles.
We are also implementing new planning
training for leaders and managers and will
roll out the delivery for 100+ employees
over the next year.
Outlook
The outlook for next year looks strong with
underlying revenue growth expected in
the Nuclear Services business from recent
new contract wins, the development of
new products and services for our EDF
business and an expectation of new
opportunities coming from the UK Atomic
Weapons Establishment.
This growth will offset revenue step-downs
from the Magnox and Dounreay joint
ventures as decommissioning works
progress in line with the agreed
programme. The New Build and Japan
businesses will continue to grow as
projects start to mobilise, and the sector
is expected to benefit from securing
projects, inward investment and a
continuing focus on efficiency.
2018/19 underlying revenue is expected
to be flat with stable margins.
Babcock International Group PLC Annual Report and Accounts 2018
59
Strategic reportGovernance statementFinancials Sustainability
Delivering and evolving
a sustainable business
In order to maintain
the resilience of our
business over time, our
consistent focus remains
on creating long-term
value for stakeholders
through a strong and
sustainable Babcock.
Our commitment to sustainability means
that the relationships we have with our
shareholders, customers, employees,
suppliers and local communities and the
regard we have for the environment are
core to how we plan to deliver
performance and achieve our goals.
Reporting on material yet non-financial
measures is also necessary in understanding
the performance, opportunities and
long-term sustainability of generating value
for all our stakeholders. We have chosen
not to prepare a separate Non-Financial
Information Statement, but rather address
the disclosure of non-financial matters in
the following pages and throughout the
Strategic report.
Babcock has deep technical expertise in
providing bespoke, complex engineering
services across four sectors, with a
growing international footprint. We
work in highly regulated environments
managing complex assets in a range of
markets and countries, operating and
supporting critical infrastructure,
equipment and training programmes.
We therefore have a responsibility to
consider a diverse range of stakeholders,
interests and concerns. Our approach is
thorough; we maintain three overarching,
underpinning and interlinking pillars of
sustainability as discussed further in this
report and additionally in each of our
sectors’ operational reviews.
A fundamental part of our Group
realignment was, and continues to be,
our focus on supporting and investing in
our people to deliver sustainable growth
across the sectors. At Babcock, we believe
that a truly sustainable business is essential
to our success, which is why we pride
Archie Bethel CBE, Chief Executive
ourselves on upholding the strictest
standards of business ethics, delivering
a competitive talent development
programme and ensuring that health
and safety remain at the forefront.
Looking to the future, our people and
their potential are central to our plans for
growth, both in the UK and internationally.
We firmly believe that we can sustain the
long-term success of our business in ways
that also serve local communities and
individuals. We do this by investing in and
supporting our people, whether through
technical apprenticeship schemes,
graduate schemes, training or career
development and succession opportunities
across the Group. We strive to identify and
train talented people to implement
growth, for example, through our tailored
Babcock MBA programme in partnership
with the University of Strathclyde.
Our ability to continue attracting,
recruiting and developing the people
we need to help us thrive as a business is
key to both our current and long-term
success. Initiatives such as the graduate
recruitment campaign and annual
apprentice networking events as well
as talent development and management
schemes are all part of our plan to equip
our business with the talent we need to
grow sustainably.
Protecting the health and safety of our
employees is a fundamental value of our
business; we work hard to get everyone
home safe, every day. This extends to our
wider operations, where we seek to avoid
or minimise any adverse effects on the
surrounding environment. Our Group wide
Code of Business Conduct outlines our
commitment to strict ethical conduct
together with the importance we place
on conducting our work safely and with
integrity. Supplemented by appropriate
training and guidance, our Code of
Conduct reinforces our honest approach
to doing business, as well as supporting
long-term success by minimising financial
risk and sustaining our reputation.
This year, we have demonstrated our
support for diversity in engineering by
growing our relationships with universities
and schools to encourage young people
to take up science, technology,
engineering and mathematics (STEM)
internationally and we are proud to be
official partners of the UK Government’s
Year of Engineering campaign. We
continue to foster diversity in the
workforce, sponsoring the World Award
at this year’s Women In Science and
Engineering (WISE) Awards, which
recognised the invaluable contribution
made by women in the industry. Building
on the establishment of staff networks in
recent years, we continue to support our
internal staff Diversity and Inclusion
networks as they grow. Our LGBT network,
Pride in Babcock, was recognised for its
fantastic work within the Diversity and
Inclusion arena this year, winning Best
Staff Network at the Bristol Pride Awards.
Initiatives like these form part of our
continued commitment to enhancing our
highly skilled workforce, enabling us to
foster the talent needed to achieve and
sustain our strategic aims.
Archie Bethel CBE
Chief Executive
60
Babcock International Group PLC Annual Report and Accounts 2018
Our approach
to sustainability
Profit and
performance
How our investment in:
building long-term relationships;
delivering critical through-life
support; using high performing and
ethical suppliers; and supporting
local and diverse economies
supports our target of building
market leading positions and
delivering value to our customers,
our colleagues and our investors.
People and
potential
How our focus on: discovering
and developing diverse talent
and progression routes; inspiring
and encouraging the next
generation of engineers;
and our open dialogue with
management delivers measurable
benefits to a sustainable business
and its communities.
Environment
and ethics
How our commitment to the
standards set out in our Code of
Conduct underpins how we act
with our customers, our employees
and our suppliers as well as the
communities and environments
we work in.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Sustainability, continued
Profit and performance
The efficiencies we deliver through
effective contract management,
innovation and through-life management
enable us to return value to our
customers, our colleagues and our
investors. We buy a wide range of goods
and services and need reliable, high-
performing suppliers across all aspects of
our supply chain. Babcock seeks to ensure
that our customers’ money is spent
efficiently and responsibly and that our
supply contracts are managed effectively.
We expect our supply chain to adhere to
our standards of ethical behaviour, and
our environmental, health and safety and
other working practices.
Profit
Profit is largely delivered through
our ability to manage our operations
effectively. A significant part of this is
driven through our relationships with
suppliers. Over 50% of our cost base is
via third party suppliers including with
Original Equipment Manufacturers (OEMs),
and our approach and ability to manage
these relationships impact our ability to
deliver performance and margin.
Over the past year, we have looked
for supplier efficiencies across the
organisation. This has included
contract efficiencies through upfront
procurement, involvement in the bid
process, operational productivity through
increased innovation and quality, and
streamlined internal processes. Babcock
has implemented a rigorous programme
across our procurement and supply chain
function. The objective has been to drive
best practices across the organisation. As
a result of this initiative, procurement is
engaging earlier in order to help provide
our customers with the best possible
solution, while improving profitability.
Early pre-bid engagement by the
procurement function allows our bid
teams to understand potential market
capabilities, while engagement as part
of the team means we can aim to put
together a proposal for our customers
that meets their needs and requirements
in the most efficient way possible, while
establishing supplier relationships that are
robust and sustainable in the long term.
The output of successful procurement
activities is better value for our customers
and shareholders, through the delivery of
effective and efficient sourcing activities.
Savings targets are ambitious, and
ongoing efforts to obtain efficiencies
and lower our cost base help to increase
profitability. Key metrics are reported each
month to a sector and Group Governance
Board and approved by each business unit
Finance Director.
Performance
Building long-term relationships
We are always looking for better,
innovative ways of serving our customers.
Our responsibility is to provide them
with the best options to ensure success.
When we identify a more efficient way
of servicing their requirements we discuss
these options and work in collaboration
with our customers to bring efficiency
benefits, while delivering a quality service.
The Procurement and Supply Chain team
is actively engaged in the bidding process
with existing and new customers. This
enables us to bring the most effective
offer to our customers. We are often able
to leverage existing arrangements to offer
a cost-effective solution.
Suppliers
We believe that establishing long-term
relationships with our suppliers is an
important part of building long-term
relationships with our customers. As
part of a structured programme across
business units and Group categories, the
procurement and supply chain function is
raising commercial capability by engaging
in supplier relationship management
programmes with strategic suppliers.
We have over 10,000 suppliers; however,
we have strategic relationships with
around 250 of them. By building an
appropriate engagement model with our
suppliers, we are able to effectively drive
quality and innovation across our supplier
base. Strategic suppliers are key partners
in our ability to deliver quality service. As a
result, we work closely with these suppliers
to ensure optimal performance, ongoing
improvement and innovation support.
We continue to develop end-to-end
procurement tools that enable us to
transact efficiently with our suppliers.
These tools also provide a common
approach, which helps us to share best
practice across the organisation. We
are able to use consistent business
intelligence, which allows us to work
collaboratively with our suppliers and
focus on innovation and other value-
adding initiatives.
The e-procurement tools that we are
implementing provide a faster and more
effective way of transacting with our
supply base, resulting in sustainable
relationships that are based on
operationally robust processes.
We want to spend time talking to our
suppliers about new ideas, operational
performance and total cost opportunities
— not about payment. We understand
the importance of predictable customer
payments when running a business. That
is why Babcock is a signatory in the UK to
the Prompt Payment Code and we would
encourage others in our supply chain to
make the same commitment.
Delivering critical support using
high-performing, ethical suppliers
Our customers rely on our ability to
provide a robust and effective supply
chain. We take this responsibility very
seriously and work in collaboration with
other industry leaders to create a
process that optimises risk management
while encouraging the use of SMEs.
Potential suppliers must demonstrate
their financial, commercial and technical
capability to meet our contractual
requirements. We also look for a clear
demonstration of commitment to
corporate social responsibility.
We expect high standards of conduct
from our suppliers in what they do for us
or our customers and will not accept any
behaviour contrary to our codes, including
bribery, corruption and fraud, threats to
health and safety, conflicts of interest or
other improper practices.
We pre-qualify suppliers for certain types
of supply, before admitting them to the
supply chain. This involves satisfying
ourselves that they can meet our
standards. Certain suppliers will be
selected for audit and close monitoring,
62
Babcock International Group PLC Annual Report and Accounts 2018
based on risk assessment or supplier
performance. Planned reviews of
supply chain risk are undertaken by
our businesses.
Babcock is a key member of the joint
MOD/industry initiative to deliver an
effective Defence Cyber Protection
Partnership. The Group is tasked with
improving the protection of the defence
supply chain from cyber threat. Babcock
is represented on working groups for
each of the three core work strands:
information sharing, measurements and
standards, and supply chain awareness.
A primary objective has been to define
a number of risk-based controls to be
applied across the relevant supplier base.
We continuously review whether our
suppliers comply with the standards set
out in our Code of Business Conduct.
Last year, we simplified and standardised
these procedures in line with the criteria
in the anti-corruption and competition
compliance policy. Consequently, the
self-assessment process for suppliers was
updated. In addition to the self-assessment
initiative, we now require additional
evidence which gives us objective,
verifiable supplier ratings.
Babcock is committed to creating a safe
working environment that aims to enable
all those working on, or visiting, Babcock
operations to be able to return ‘Home
Safe Everyday’. We seek to work only with
suppliers who, we believe, are able to
both meet and promote our standards
— those that share our commitment to
safe behaviour and performance in
delivering services and solutions for our
customers. Our teams aim to work with
suppliers on safety and share continuous
improvement practices to reduce or
prevent accidents and injuries.
Protecting the information and physical
assets of our customers is an increasingly
important part of what we do. We always
expect the highest controls of commercial
confidentiality. For certain types of supply,
we are developing exacting standards of
security compliance. For these companies,
we need to be certain that information is
well managed and protected throughout
the supply chain.
Babcock deploys Sponsored Reserves to Canada
As part of the DSG contract, Babcock
provides the British Army with 40 fully
qualified sponsored reserves — skilled
personnel who are employed by
Babcock and capable of being
deployed world-wide as vehicle
mechanics to support the Army’s
critical vehicle fleet in operations.
Last year, 11 Babcock employees were
deployed to the British Army Training
Unit Suffield (BATUS) in Canada, the
largest military training area in the
Commonwealth, having undergone
extensive military training.
They worked alongside their Army
colleagues to provide invaluable
expert, real-time support to the largest
overseas unit vehicle fleet (over 1,300
vehicles). Although not required within
the commitment, four of these
Sponsored Reserves were deployed to a
separate exercise (Dark Horse), making
up a sixth of the whole unit deployed.
Supporting local economies by using
diverse, locally procured services
We take our responsibility to support
local economies seriously. The varied
nature of what we do means that we
depend on a wide range of talents and
abilities from a wide range of suppliers.
As part of our supplier programme,
we have been managing compliance
through a system of preferred suppliers.
This approach is enhancing our supplier
relationships and allows us to focus on
effective management of our SME supplier
base. Supplier credibility, responsibility,
quality and service performance matter.
Many of our suppliers are small and
medium sized enterprises. We select
and manage suppliers to support our
own experienced workforce in delivering
complex, critical and often bespoke
engineering services. Diversification of
supply, where possible, makes our supply
chain more robust in helping us to deliver
for our customers.
The successful deployment to
BATUS not only helped to reduce
the burden on regular Army units to
support the summer training season,
but also proved the concept of a
genuine ‘whole force approach’ in
the Land environment, bringing
regular Army, reserves and
Babcock into one coherent,
high performing organisation.
Critical supply partner for
through-life support
Joint teams from Babcock and our supply
chain engage on a wide range of issues
such as maintenance planning, supply
support, support and test equipment,
training and training devices, and
technical data. Targeted supply
relationships use data dashboards to
monitor performance and progress.
Babcock is actively involved with our
suppliers in the Aerospace, Defence
and Security Supply Chain development
programme. We also lead dialogue with
Government, suppliers and skills agencies
to help address the skills requirement
agenda, with the aim of ensuring that
there are enough people with the right
skills to fill our own vacancies and those
in our supply chain.
Babcock International Group PLC Annual Report and Accounts 2018
63
Strategic reportGovernance statementFinancials Sustainability, continued
People and potential
To underpin and sustain long-term
strategic growth, Babcock must ensure
that it has the right people to be able
and trusted to deliver to customers on
technically complex, long-term contracts,
both today and in the future. This means
that the development of our people is
a critical part of our business strategy.
Our Group Director of Organisation and
Development coordinates this activity
across the Group, ensuring that each of
our sectors has appropriate strategies in
place to resource and develop the skills
required. Our business arrangements
require us to deliver services across an
array of projects and assets. Our
people need to have a range of
experience, skills and competencies:
engineering, management, technical,
commercial, administrative and
developmental, to name but a few.
We recognise that it is the skills and
commitment of our employees that
represent our uniqueness and our ability
to deliver services to our customers.
Planning for growth and succession
Succession planning is a key focus
throughout the businesses, from
apprentices to Board level. We have
plans in place that identify immediate
and/or future potential successors to
key senior management posts, with
personal training and development
plans for those identified. Through our
annually refreshed resource planning
process, we assess whether we have
the right number of staff with the
necessary skills and capabilities, both
now and for the future. This process is
based on data and assumptions such
as workforce demographics, attrition
and business growth and feeds into
our resourcing strategies.
Apprentice week
Tiegan Duff, a Mechanical Engineering
Apprentice at our Rosyth site, was
one of six ‘Hero Apprentices’ chosen
to be a face of National Apprenticeship
Week 2018 for Skills Development
Scotland. The campaign sees
employers and apprentices from across
the UK coming together to celebrate
the success of apprenticeships whilst
encouraging even more people to
choose apprenticeships as a pathway
to a great career. This is something
which Babcock is passionate about
through our work in STEM, in
partnership with Primary Engineer
and STEM Ambassadors, as well as our
involvement in the Year of Engineering.
18 year old Tiegan, from Fife,
decided on a modern apprenticeship
(MA) after a teacher encouraged her
to do a foundation apprenticeship (FA)
in Mechanical Engineering alongside
her Highers. With an interest in
engineering whilst studying Graphic
Communication, Design Manufacture,
Physics and Maths, a hands on
apprenticeship is just the beginning
of her engineering career.
“At the moment, I am focused on
completing my apprenticeship and
gaining an HNC and after that I hope
to progress my career at Babcock.
I am very proud to work for such a
respected and well-known company
and really excited to see what the
future holds.”
She is currently studying with the rest
of her intake at Fife College and will
begin working at our Rosyth site in
June where she will be hands on in the
machine shop, on vessels and on the
Prince of Wales aircraft carrier. Her
apprenticeship is competency based
and takes between three and four years
to complete.
64
Babcock International Group PLC Annual Report and Accounts 2018
Total workforce diversity
80%
20%
Men
Women
Senior Executive diversity
82%
18%
Men
Women
Board diversity
73%
27%
Men
Women
Graduate diversity
78%
22%
Men
Women
Focus on recruitment, retention
and development of talent
We have found our existing employees
to be great advocates for our organisation
and we have used their experiences to
underpin some of our recruitment
campaigns, particularly for graduates.
Working with our recruitment partners,
a variety of routes are used to ensure
vacancies are marketed to the widest
possible audience. Our aim is that
candidates experience a professional,
efficient and friendly recruitment and
‘on-boarding’ procedure.
Sectors and business units place
significant emphasis on the retention
and development of talent, with
processes in place to identify potential
for the future. In addition to local
development programmes, we have
a number of Group wide management
development resources:
• Babcock offers an accredited MBA
programme with Strathclyde University
to our high-potential employees.
• The Babcock Academy, run in
conjunction with Strathclyde University
since 2005, continues to provide a
structured framework for our managers
to improve their managerial skills and
strategic awareness.
• Babcock has always been a strong
supporter of apprenticeships and will
make increasing use of higher
apprenticeships to both retain existing
employees and invest in future talent.
Diversity
At Babcock, we believe diversity is about
embracing the advantages different
experiences, skills and outlooks can
bring. Our diversity initiative, ‘All together
different’, is championed by a Diversity
Steering Group, which drives our diversity
agenda and coordinates our diversity
conference, ‘Dialogue’. This year’s
conference focused on health and
wellbeing, with a particular emphasis on
mental health, and provoked significant
interest from amongst our workforce.
Across the organisation a number of
employee networks are supported such as
the Babcock Women’s Network and Pride
in Babcock and we will continue to use
these and other groups to motivate and
sustain energy around the topic of
diversity. As a business, it is imperative
that we ensure access to the widest pool
of talent available, selecting the best
candidates based on their ability to do the
job. Working with these expectations for
diversity enables us to deliver our best for
our customers and to safeguard the future
of Babcock. Babcock operates principally
in sectors that have until recently
traditionally been regarded as ‘male’ such
as engineering, aviation and the Armed
Forces. Inevitably, companies with this
background will tend to be starting from a
level of relatively low female participation,
especially in management positions.
However, we are working hard to change
this: 20.2% (around 6,900) of our total
workforce is female, (male: 27,255) with
18.3% (98) female senior executives
(male: 438), and three (27%) female
Directors on our Board (male: eight). We
have continued to work on the challenges
of being a woman within our organisation.
A series of actions and development
programmes are being implemented
across the organisation to address this.
We focus our graduate recruitment
programme, particularly for engineering
graduates, on those universities that have
a richer gender mix. In 2018, 22% (2017:
21%) of those employed on our graduate
scheme were female.
In his review on page 12, our
Chairman also discusses how we value
diversity. Our first UK Gender Pay Gap
report is available on our website
www.babcockinternational.com.
Our commitment to the
Armed Forces
As a holder of the Gold Award from
the Armed Forces Covenant Employer
Recognition Scheme (ERS), we are
committed to the Total Support Force
and actively recruit service leavers and
reservists. In 2017 we hosted a reservist
conference, bringing together reservists
from across the Group with line managers
and in-house recruiters. The conference
was an opportunity to reaffirm our
commitment to the Armed Forces
Covenant, and also to share experiences
and demonstrate the wider benefits that
reservists bring to our organisation.
Babcock International Group PLC Annual Report and Accounts 2018
65
Strategic reportGovernance statementFinancials Sustainability, continued
Environment and Ethics
Our commitment to strict ethical conduct,
together with the importance we place on
health and safety and our respect towards
the wider society and environment in
which we work, are the foundation of
a sustainable business.
Ethics and governance
We understand that our reputation and
good name are amongst our greatest
assets, which could easily be lost by actual
or suspected unethical behaviour. To
protect the Company and reduce these
risks, we have set out a policy on how
we should conduct business, which we
summarise 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 Babcock
Suppliers Code of Business Conduct
further promotes these values throughout
our supply chain. The policy comprises
a detailed manual, available on the
Group’s intranet, that contains guidelines,
authorisation and other procedures aimed
at identifying and reducing ethical risks.
The controls that we have in place form
an integral part of our risk management
arrangements and include the training
of employees, regular risk assessments
throughout the business and availability
of whistleblowing hotlines.
More details of these risk management
procedures can be found on pages 68
to 70 and the Ethics Policy and Code of
Business Conduct and Suppliers’ Code
of Conduct are on our website. Further
information about our whistleblowing
process can be found on page 70.
Human rights
As an international business, we recognise
our responsibility for upholding and
protecting the human rights of our
employees and other individuals with
whom we deal in our operations around
the world. While we continue to believe
that our exposure to the risks of human
rights abuses and modern slavery is low
within our own business and supply chain,
we welcome the opportunity we have to
Sword of honour
Babcock has been presented with its
11th Sword of Honour award from the
British Safety Council for the exemplary
management of Health and Safety risks
at its Rosyth site.
The prestigious Sword of Honour is
awarded to organisations that have
demonstrated excellence in the
management of Health and Safety risks
at work, with Babcock being one of 57
organisations worldwide to achieve it.
In order to compete for the Sword of
Honour, Babcock first had to achieve
the maximum five stars in the British
Safety Council’s Health and Safety
management audit scheme in the
period August 2016-July 2017.
The company also had to demonstrate
to an independent panel of experts
that their Health and Safety
management throughout the business
is excellent — from the build hall to
the boardroom.
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. The Group’s Modern
Slavery Transparency Statement, which
is published annually on our website,
details action taken to support the
elimination of modern slavery and
human trafficking.
Babcock Rosyth picked up the accolade
at an awards ceremony in London.
Mark Dixon, Managing Director of
Babcock’s Energy and Marine business,
said: “Ensuring that all of our
employees go home safe every day is
our number one priority at Babcock.
We invest a lot of time to ensure that
our staff are appropriately trained and
equipped to carry out their roles.
Our 11th Sword of Honour is due
to the combined efforts of everyone
on-site and I am extremely proud
of them all for helping to achieve
this award.”
Safety the Babcock way
Governance
We are committed to ensuring that
Babcock sets and achieves high standards
for safety across all its operations. Our goal
is for everybody to go ‘home safe every
day’. The key principles that guide us to
achieve this goal are:
• Looking after yourself and each other
• Caring about how we deliver, as well
as what we deliver
• Setting an example to others by not
walking past an unsafe act or unsafe
condition
• Continually improving our safety.
2017/18
2013/14
1,386
1,979
Total number of injuries
2
0
Fatalities
13
36
Major injuries
101
98
Over-three-day injuries
Babcock riddor1 totals
116
134
1. In 2012, the UK Health and Safety Executive changed riddor reporting from time lost through injury from
three days to seven days. We have, however, continued to monitor and report on the lower three-day
threshold and record this as ‘Babcock riddor’.
2014/15 2015/162
2,084
1
38
164
202
2016/17
1,720
7
27
107
141
2,054
0
41
127
168
2. Incidents relating to MCS and Babcock DSG are included for the 2015/16 period onwards.
66
Babcock International Group PLC Annual Report and Accounts 2018
Total injury rates per
100,000 hours worked
.
2
5
1
.
2
2
3
.
1
9
2
.
1
5
8
.
1
3
5
FY14
FY15
FY16
FY17
FY18
Babcock riddor1 rate per
100,000 hours worked
.
0
1
8
.
0
1
8
.
0
1
9
.
0
1
3
.
0
1
1
FY14
FY15
FY16
FY17
FY18
Sector safety leadership teams and the
Corporate Safety Steering Group oversee
implementation of policy, strategy and
initiatives across all of our businesses.
The Group Executive Committee reviews
monthly commentary and performance
reports and the Board receives half yearly
commentary and performance reports
for discussion.
During the year, we launched a Group
wide internal safety audit programme
which aims to ensure:
• Alignment of business safety policy with
the Group safety policy and capability
to discharge duties therein
• Compliance with Babcock’s Safety
Behaviours and Expectations
• Adequate safety improvement plans
are implemented, based on a balanced
assessment of safety performance
that delivers the commitment to
continuous improvement
• Share business unit learning across the
Group, supporting continual
improvement
• Promote a consistent Babcock approach
to safety and share best practice.
Formal audit reports are provided to
the business units, with feedback
also provided to the Group
Executive Committee.
Performance
Tragically, two of our colleagues died
in separate incidents in South Africa
whilst working on towers within
our powerlines business. Extensive
investigations by Babcock, our
client and the authorities resulted in
a comprehensive review of procedures
and retraining of erection teams.
Health and safety is a core value for
the Group and we monitor performance
through a number of measures. Over
the last year, across the Group, we have
seen a 15% reduction in the total injuries
and a 15% reduction in our ‘Babcock
riddor’ accidents.
Managing environmental
impacts
Babcock seeks to achieve the highest
standards in the management of
environmental matters. We recognise the
impact our operations may have on the
environment and seek to minimise or
eliminate adverse effects.
An Energy and Environmental Working
Group meets quarterly, attended by
representatives of each sector and chaired
by the Group Energy Manager. The Group
reviews our energy and environmental
policy and seeks to share best practice.
Each sector sets environmental policies
that are appropriate to its business.
Energy consumption data is collated into
a centrally managed data base that can
be accessed by all stakeholders, enabling
reduction targets to be set and monitored
regularly. In the coming year, Babcock will
once again seek reaccreditation for its UK
operations to the Carbon Trust, a standard
that it has held since 2010.
The continuous monitoring of energy
consumption and the attention to
environmental policies ensure that the
environmental impact of the Group’s
operations is minimised.
We regularly review our built estate to
ensure that the requirements of our clients
can be efficiently met, while providing
a good standard of environmental
conditions for our employees. The utility
markets are tracked to enable our utility
requirements to be purchased at the
best cost. Forward contingency planning
ensures that should we lose a utility supply
to any of our built estate, the impact to
our customers is minimised.
We review our transport fleet regularly to
seek means to reduce our fleet’s impact
on the environment.
Our high level performance indicator
for energy consumption is to reduce our
overall CO2 emissions year on year against
a metric of tCO2/£m revenue.
Total Group emissions — UK and overseas
Year ending
Scope 1: Direct emissions
from owned/controlled
operations
Scope 2: Indirect emissions
from the use of purchased
electricity and steam
tCO2e
tCO2e
105,479.66
93,558.18
March 2016
March 2017
March 2018
103,337.30
86,666.26
114,514.90
104,074.81
Scope 3: Emissions —
business travel
Absolute footprint
Revenue
Intensity ratio
tCO2e
tCO2e
£m
tCO2e/£m
10,724.80
9,496.18
22,033.71
209,762.64
227,348.38
212,774.78
4,158.40
50.44
4,547.10
50.00
4,659.60
45.66
Due to the highly diverse nature of the Company’s business, the metric of ‘tonnes of CO2e per £m revenue’
has been used to provide a more meaningful measure of energy use throughout the business. The total
emissions from Scope 1, 2 and 3 sources have been divided by the annual revenue to provide a final
benchmark figure, the Intensity ratio.
Babcock International Group PLC Annual Report and Accounts 2018
67
Strategic reportGovernance statementFinancials
Principal risks and management controls
Our principal risks and
how we manage them
The Board, principally through the Audit
and Risk Committee, keeps under review
the risks facing the Group, including the
appropriateness of the level of risk the
Group may accept in order to achieve its
strategic objectives. The Board ensures
that it controls the risk appetite of the
Group through its delegated authorities,
which impose strict controls on the Group
— for example, all acquisitions and
disposals, all material capital expenditure,
all material non-ordinary course tenders
(material ordinary course tenders are
approved by the Chief Executive and the
Group Finance Director) and all financing
arrangements (unless delegated to the
Board’s Finance Committee) must be
approved by the Board. The Board
considers and reviews the controls and
mitigation plans in place; these are
intended to manage and reduce the
potential impact of the risks the Company
takes to ensure, so far as possible, that
the assets and reputation of the Group are
protected. The Group’s risk management
and internal control systems can, however,
only seek to manage, not eliminate, the
risk of failure to achieve business
objectives, as any system can only provide
reasonable, not absolute, assurance
against material misstatement or loss.
Franco Martinelli, Group Finance Director
Babcock has an established formal process
that aims to identify and evaluate risks and
how they are to be managed. A range of
internal control processes is in place as part
of the risk management regime.
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Babcock International Group PLC Annual Report and Accounts 2018
The Board is ultimately responsible for
the Company’s risk management and
internal control system. This is overseen
on its behalf by the Audit and Risk
Committee (which is currently usually
attended by all Board members).
The Audit and Risk Committee reviews
aspects of the risk management and
control system at its meetings and,
at least once a year, formally reviews
the system’s effectiveness as a whole
on behalf of the Board (see the
effectiveness review statement on
page 138). It also receives in-depth
presentations on individual major risks
throughout the year.
The Audit and Risk Committee receives
regular reports from Ernst & Young, the
internal audit function provider, and
management reports relating to
internal control and risk issues.
Employees undertake a selection of
compulsory risk management training
programmes (for example: security,
data protection and anti-bribery and
corruption training) appropriate to
their roles in order to increase
awareness of potential risks.
Risk management framework
Board
Executive Committee
Audit and Risk
Committee
Group Security
Committee
The Executive Committee considers a
monthly report from the Chief Executive,
the Group Finance Director and each of the
sector Chief Executives on the operational
and financial performance of their respective
areas of responsibility.
Babcock has a Group Security Committee
made up of senior functional and operational
managers with responsibility for security
and information assurance at Group and
operational level. They meet regularly
to discuss cyber and other security and
information assurance issues and threats
facing the Group. The Committee oversees
the Group’s security and information
assurance management infrastructure and
specific security projects. The Group Finance
Director is Chairman of the Committee, and
each meeting is attended by the Group’s
Chief Information Officer and Chief
Information Security Officer. The Board
receives regular reports on security and
information assurance matters.
Internal Audit
Operationally, internal control systems are
monitored by senior Group management
with sector Chief Executives having
responsibility for risk identification and risk
management in their businesses.
Read more on page 70
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The Group Risk and Insurance Manager
(who reports to the Group Finance
Director), working with senior operational
management teams, keeps the risk register
and risk assessment and evaluation process
under review and development. We seek
to ensure a coherent and consistent Group
best practice approach to risk assessment
and risk management. Risk assessments
made at business unit level are subject
to regular review and challenge by
Group senior management.
Group risk
management
Company employees
Babcock International Group PLC Annual Report and Accounts 2018
69
Strategic reportGovernance statementFinancials
Principal risks and management controls, continued
Our internal controls include:
Budget process
Management and
financial reporting
Security and information
governance structure
Clear delegation and
limits of authority
Insurance
Claims and litigation
reporting
Credit controls
Code of Conduct and
ethical, anti-bribery and
corruption policies and
procedures
Group policies and
procedures
Whistleblowing hotline
Critical supplier reviews
Business continuity and
disaster recovery plans
Annual budgets and medium-term financial plans are reviewed by Group management before submission to
the Board for approval. Updated forecasts for the year are prepared at least quarterly.
The Board receives details of monthly actual financial performance compared against budget, forecast and
the prior year, with a written commentary on significant variances from approved plans.
The Chief Executive, Group Finance Director and sector Chief Executives report to each Board meeting
on operating performance and matters of potential strategic significance.
Group senior management receives a monthly narrative operating report from all business units.
There is a formal security and information assurance governance structure in place to oversee and manage
security and similar risks.
The Board regularly reviews and approves a schedule of delegated authorities setting out levels of specific
financial decision-making authority delegated by it.
The Group has a large and comprehensive insurance programme, preferring to place risk in the
insurance market, where available on acceptable terms, rather than to self-insure or make significant
use of captive insurance.
The Group has a full-time Risk and Insurance Manager who reports annually to the Board on the strategic
approach being taken to insurance and on the placing of the programme.
The Board and the Group Executive Committee receive monthly summaries of material disputes and actual
or potential claims, their progress and potential outcomes. The Group has an internal legal service.
All significant credit risks are reviewed by Group Finance and an Executive Director, and, where appropriate
and available, risk limitation actions are taken.
The Group has a Code of Conduct, summarising ethical and anti-bribery and corruption policies, making clear
its commitment to the highest ethical standards and the ethical standards it demands from its employees and
those who work for it and with whom it does business.
There is an anti-bribery and corruption governance structure in place and detailed policy and procedures
(available on the Babcock website), with supporting training programmes, which the Company believes meet
the requirements of ‘adequate procedures’ under the Bribery Act 2010. Due diligence is carried out on actual
or potential business partners as appropriate. Those working on our behalf or in consortium with us are
required to abide by our Code of Conduct (or an equivalent) and to undertake not to behave corruptly.
The Group has written policies and procedures, which are kept under review, covering a range of matters
intended to reduce or mitigate risk, such as health, safety and environmental policies, security and
information assurance, export controls, contracting requirements and guidelines, and legal, financial and
accounting matters.
These policies and procedures are available to employees on the Group intranet and are supplemented
at sector level by further business unit specific policies and procedures.
All employees have access to a confidential whistleblowing hotline with the opportunity to call, email or write
letters detailing any area of concern (whether financial irregularities, non-compliance with laws, breaches of
our Code of Business Conduct, threats to health and safety, conflicts of interest or improper practices) to be
brought to the attention of senior management if they feel unable to raise them with line management or if
they have raised matters, but are not satisfied with the response. A report on all whistleblowing cases and
the resultant investigations and conclusions is submitted to each Audit and Risk Committee meeting
— see page 96.
Sectors regularly review the vulnerability of key supply chain partners whose continued ability to supply the
Group is considered critical to its business performance, and also consider fall-back plans when first deciding
to appoint such suppliers.
All sectors, business units and Group functions are required to consider the need for, and put in place,
appropriate plans to minimise the risk of interruption to business and contract performance in the event of
a major disruption to normal functioning arrangements.
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Babcock International Group PLC Annual Report and Accounts 2018
Principal risks, risk mitigation and controls
The risks and uncertainties described below through to page 79 are those that the Board currently considers to be of greatest significance
to Babcock in that they have the potential to affect materially and adversely Babcock’s business, the delivery of its strategy and/or its
financial results, condition or prospects. For each risk there is a short description of the Company’s view of the possible impact of the risk
on the Group should it occur, and the mitigation and control processes in place to manage the risk (which should be read in conjunction
with the information above about our risk management approach and general controls).
Babcock is, however, a large and developing group of businesses, and factual circumstances, business and operating environments will
change with new risks being identified or the evaluation of the significance of existing risks changing or being better appreciated and
understood. This means that the risks identified below are not and cannot be an exhaustive list of all principal risks that could affect
the Group.
Risks and uncertainties which might affect businesses in general and that are not specific to the Group are not included, but Babcock,
of course, faces such risks as well.
Our customer profile
We rely heavily on winning and retaining large contracts with a relatively limited number of major customers, whether in the UK or
overseas. Many of our major customers are (directly or indirectly) owned or controlled by government (national or local) and/or are
(wholly or partly) publicly funded. Our single biggest customer is currently the UK Ministry of Defence (MOD).
These customers are affected by political and public spending decisions. Commercial customers are also affected by conditions in their
market sector which affect their levels of, and priorities for, spending.
Risk description
Policy changes (following a change of
political administration or otherwise) and
spending constraints on customers are
material factors for the Group’s business
and outlook.
Whilst the Board believes that policy
changes, spending reviews and restraints
can offer significant opportunities to the
Group to assist in the delivery of services
to customers more efficiently and at lower
cost, these factors inevitably also carry risk.
Large customers, whether public or
private sector, have significant bargaining
power and the ability (contractual or
otherwise) to cancel contracts without,
or on short, notice, often without cause,
or they can exert pressure to renegotiate
them in their favour.
The consequences for the Group’s
business of the UK vote to leave the
European Union are difficult to predict,
as there is likely to be a period of
uncertainty over the effects on the
nature, timing and scope of the policies
and procurement plans of both our
current and potential customers in
the UK and overseas.
Potential impact
Periods of uncertainty as to the course
of customer policy and spending can
result in the delay, suspension or
withdrawal of tendering processes and
the award of contracts.
Whilst customer policy changes or
spending constraints can potentially offer
more outsourcing opportunities for us to
pursue, they can also be a risk in that they
could lead to changes in customer
outsourcing 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 or return of
in-house service provision, either
generally or in the sectors in which
we operate
• favouring of small or medium-
sized suppliers or adopting a
more transactional rather than
cooperative, partnering approach to
customer/supplier relationships; and
• 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 impacting the
profitability of doing business
with them.
Mitigation
We have extensive and regular dialogue
with key customers, involving, as
appropriate, our Chief Executive, sector
Chief Executives and/or other members
of the senior management team.
We actively monitor actual and potential
political and other developments and
spending constraints that might affect our
customers’ demand for our services.
We aim to be innovative and responsive
in helping customers meet their needs
and challenges.
Babcock International Group PLC Annual Report and Accounts 2018
71
Strategic reportGovernance statementFinancials Principal risks and management controls, continued
The nature of our contracts, bid processes and markets
We seek to win relatively long-term contracts for the provision of complex and integrated services to our customers. Bidding for these
contracts typically involves a protracted and detailed tendering process, often under public procurement rules. There are typically only a
relatively limited number of customers in each of the market sectors we serve. The contracts we bid for often entail a substantial transfer
of risk from the customer to the supplier.
Failure to realise the pipeline of opportunities and to secure rebids can mean missed opportunities for growth and loss of revenue.
Mitigation
We have a clear business strategy to target
a large bid pipeline, both in the UK and
internationally, and will only tender bids
for contracts we consider have a clear
alignment with the Group strategy and
where we believe we stand a realistic
chance of success, both in the UK
and overseas.
There are formal and rigorous reviews and
gating processes. Those at key stages of
each material bid are intended to reduce
the risk of underestimating risks and costs
and ensure that limited bid resources are
targeted at opportunities where we
consider that we have the best prospects
of winning or retaining business.
Group policies and procedures 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.
Risk description
Bidding requires a substantial investment
in terms of manpower resource and is
very expensive. Bids can be subject to
cancellation, delays or changes in scope.
Contract award decisions made under
public procurement rules can be subject
to legal challenge by losing bidders.
Given the size and often long-term
nature of the contracts we bid for and the
relatively limited numbers of customers
in the markets we serve, significant
contracting opportunities tend not to arise
on a regular or frequent basis.
When we are bidding for such contracts
we have to price for the long term and for
risk transfer, and the scope for later price
adjustment may be limited or not exist.
Our contracts typically impose strict
performance conditions and use key
performance indicators (KPI) that if not
complied with trigger compensation for
the customer and/or may result in loss
of the contract.
Bid and rebid success rates determine how
much of the pipeline of opportunities is
realised and turned into profitable
business and how much existing business
is retained.
Potential impact
If we lose a bid or a bid process is aborted
by the customer or we withdraw due to
scope changes as it progresses, this is a
significant waste of limited resource and
substantial expenditure that has to be
written off.
If we win a public procurement bid and
this is challenged, this could lead to delay
in contract award, expensive legal
proceedings or the competition having
to be re-run.
Not winning a new bid can be a significant
missed opportunity for growth which may
not soon be replaced by another.
Not winning rebids could mean the
loss of significant existing revenue and
profit streams.
If we underestimate or under-price actual
risk exposure or the cost of performance,
this could significantly and adversely affect
our future profitability, cash generation
and growth.
Compensation to the customer for
poor KPI performance could significantly
impair profitability under the contract
and damages following termination could
be substantial.
Unsuccessful bids or rebids may adversely
impact the strategic development and
growth plans of the Group.
A lack of success in exporting the Group’s
business model outside the UK and its
current core markets could adversely
impact the growth prospects and strategic
development of the Group.
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Babcock International Group PLC Annual Report and Accounts 2018
Reputation
Given the nature of our customers and the markets in which we operate, our reputation is a fundamental business asset. Our businesses
include activities that have a high public profile and/or if they were to involve adverse incidents or accidents, they could attract a high level
of publicity.
Potential impact
Given our dependence on individual
major customers and the relatively narrow
customer base in the markets in which we
currently operate, loss of our reputation
(whether justified or not) with a major
customer or more generally could put at
risk substantial existing business streams
and the prospect of securing future
business from that or other customers
in that or other sectors.
Non-compliance with anti-bribery
and corruption laws could result in
debarment from bidding as well as
criminal penalties.
Mitigation
Senior management at Group and sector
level are keenly aware of reputational risks,
which can come from many sources. Our
risk control procedures relating to
contract performance, anti-bribery and
corruption, health and safety performance
and other matters that could impact our
reputation are described elsewhere on
pages 60 to 67. (See also health, safety
and environmental risks on page 75.)
Risk description
We have a relatively limited number of
customers and potential customers in our
market sectors and they typically have
high public profiles.
We are involved in the direct delivery to
the public on behalf of our customers of
high-profile and sensitive services. We also
provide services which are critical to our
customers’ ability to discharge their own
public responsibilities or deliver critical
services to their customers.
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. The
same would be true of high-profile
incidents or accidents.
Attitudes to the outsourcing of
services generally or in a particular
sector can also be adversely affected by
the poor performance or behaviour of
other service providers or incidents in
which we are not involved.
As well as our reputation for service
delivery, our ethical reputation is key.
Babcock International Group PLC Annual Report and Accounts 2018
73
Strategic reportGovernance statementFinancials Principal risks and management controls, continued
Regulatory and compliance burden
Our major businesses are dependent on being able to comply with applicable customer or industry-specific requirements or regulations.
Following the UK vote to leave the European Union, the terms of British exit will have implications for the requirements or regulations that
are applicable to the business of the Group, including where a licence to operate in the European Union is required.
Potential impact
Failure to maintain compliance with
applicable requirements could result in
the loss of substantial business streams
(and possible damages claims) and
opportunities for future business.
A change in requirements could entail
substantial expenditure which may not
be recoverable (either fully or at all) under
customer contracts.
Changing international circumstances
could result in the rise of trade
protectionism and reduce the Group’s
access to non-UK markets.
Risk description
The cost of compliance can be high.
Requirements can change.
Compliance with some regulatory
requirements is a precondition for being
able to carry on a business activity at all.
For example:
• Our Mission Critical Services business is
subject to a high degree of regulation
relating to aircraft airworthiness and
certification and also to ownership
and control requirements (for example,
European air operators must be
majority-owned and controlled by
European Economic Area nationals —
see page 136 for more information).
• Our civil and defence-related nuclear
businesses operate in a highly regulated
environment. For example, as part of
Brexit, the UK may leave the Euratom
treaty and it is unclear what agreements
will replace the existing arrangements
and what the impact of those new
agreements will be.
Geopolitical factors, for example the
terms of the UK’s exit from the EU, could
lead to significant tensions between
trading countries.
Mitigation
We seek to maintain a clear understanding
of ongoing regulatory requirements and
to maintain good working relationships
with regulators.
We have suitably qualified and
experienced employees and/or expert
external advisors to advise and assist
on regulatory compliance.
We have management systems involving
competent personnel with clear
accountabilities for operational regulatory
compliance.
Our Articles of Association empower us
to take steps to protect our European air
operating licences, if necessary, by
controlling the level and/or limiting the
rights of non-European Economic Area
owners of our shares (see pages 136 to
137 for more information). However,
we will be taking steps to structure our
Mission Critical Services business such that
it continues to satisfy the requirements of
the relevant regulation.
Where possible, our non-UK businesses are
based locally so that they can deliver the
services they need to deliver from within
the relevant jurisdiction.
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Babcock International Group PLC Annual Report and Accounts 2018
Health, safety and environmental
Some of our operations entail the potential risk of significant harm to people, property or the environment.
Risk description
Many of our businesses involve working
in potentially hazardous operations or
environments, which need to be properly
managed and controlled to minimise the
risk of injury or damage.
Potential impact
Serious accidents can have a major
impact on the lives of those directly
involved and on their families, friends,
colleagues and community, as can serious
environmental incidents.
Some, for example, the mission
critical operations of our helicopter
services, 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 and offshore oil
and gas crew change services) or the
environments in which they operate
(low-altitude flying in adverse weather,
terrain or operational conditions).
To the extent that we have caused or
contributed to an incident as a result
of failings on our part, or because as
a matter of law we would be strictly
liable without fault, the Group could
be exposed to substantial damages
claims, not all of which exposure may
be insured against, and also to criminal
proceedings which could result in
substantial penalties.
Such incidents (which may have a high
public profile given the nature of our
operations) may also seriously and
adversely affect the reputation of the
Group or its brand (whether that would
be justified or not), which could lead to
a significant loss of business or future
business opportunities.
Mitigation
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 and extensive and ongoing
education and training programmes
for staff.
The Board receives half-yearly reviews
of health and safety and environmental
performance and the management
reports tabled at each of its meetings
also address health, safety and
environmental issues on an ongoing basis.
We believe we have appropriate insurance
cover against civil liability exposures.
Nuclear risks: we believe, having regard
to the statutory regime for nuclear liability
in the UK, the terms on which we do
nuclear engineering business and the
terms of indemnities given to us by the
UK Nuclear Decommissioning Authority
and the UK MOD in respect of the nuclear
site licensee companies in which we are
interested, that the Group would have
adequate protection against risk of
liability for injury or damage caused by
nuclear contamination or incidents, but
a reputational risk as a result of any serious
incident would remain.
Babcock International Group PLC Annual Report and Accounts 2018
75
Strategic reportGovernance statementFinancials Principal risks and management controls, continued
People
Our business delivery and future growth depend on our ability adequately and successfully to plan for management succession and for our
continuing and future need to recruit, develop and retain experienced senior managers, business development teams and highly skilled
employees (such as suitably qualified and experienced engineers, technicians, pilots and other specialist skills groups).
Risk description
Competition for the skilled and
experienced personnel we need is intense
and they are likely to remain in limited
supply for the foreseeable future. This
poses risks in both recruiting and retaining
such staff.
Potential impact
Losing experienced senior managers
for any reason without plans for their
replacement could have a material
adverse effect on the prospects for,
or performance of, the Group and the
delivery of our strategy.
If we have insufficient experienced
business development or bidding
personnel, this could impair our ability
to achieve strategic aims and financial
targets or to pursue business in new areas.
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, and this could impact
our contract profitability.
Mitigation
We give a high priority and devote
significant resources to recruiting
skilled professionals, training and
development, succession planning
and talent management.
The Board, the Nominations
Committee and the Group Executive
Committee regularly receive reports
on and/or discuss these matters.
Apprentice and graduate recruitment
programmes are run in all sectors.
Further information about this subject and
how we address it is on pages 64 to 65 of
this Annual Report.
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Babcock International Group PLC Annual Report and Accounts 2018
Pensions
The Group has significant defined benefit pension schemes. These provide for a specified level of pension benefits to scheme members,
the cost of which is met from both member and employer contributions paid into pension scheme funds and the investment returns made
in those funds over time.
Risk description
The level of our contributions is based
on various assumptions, which are subject
to change, such as life expectancy of
members, investment returns, inflation,
regulatory environment, etc. 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.
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.
Potential impact
Should the assets in the pension schemes
be judged insufficient to meet pension
liabilities, we may be required to make
increased contributions and/or lump
sum cash payments into the schemes.
This may reduce the cash available to
meet the Group’s other obligations or
business needs, and may restrict the
future growth of the business.
Accounting standards for pension
liabilities can lead to significant
accounting volatility from year to year
due to the need to take account of
macro-economic circumstances
beyond the control of the Company.
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.
Mitigation
Continuous strategic monitoring and
evaluation is undertaken by Group senior
management of the assets and liabilities of
the pension scheme and, as appropriate,
the execution of mitigation opportunities.
The Company and the schemes’ trustees
have agreed a long-term investment
strategy and risk framework intended
to reduce the impact of the schemes’
exposure to changes in inflation and
interest rates.
Longevity swaps have been used to
reduce the impact of the schemes’
exposure to increasing life expectancy.
Babcock International Group PLC Annual Report and Accounts 2018
77
Strategic reportGovernance statementFinancials Principal risks and management controls, continued
IT and security
Our ability to deliver secure IT and other information assurance systems to maintain the confidentiality of sensitive information is a key
factor for our customers.
The Group is rolling out a new Enterprise Resource Planning (ERP) application for our ‘back office’ operations which also provides some front
end functionality.
Risk description
Despite controls designed to protect
such information, there can be no
guarantee that security measures
will be sufficient to prevent all risk
of security breaches or cyber-attacks
being successful in their attempts to
penetrate our network security and
misappropriate confidential information.
The risk of loss of information or data
by other means is also a risk that cannot
be entirely eliminated.
Installing major new IT systems carries the
risk of key system failures and disruption.
Potential impact
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. This could have
an adverse effect on the Group’s ability
to win future contracts and, consequently,
on our results of operations and overall
financial condition.
Failure adequately to plan and resource
the implementation of the new ERP
systems or difficulties experienced in
doing so could cause both trading and
financial reporting difficulties that could
be material.
Mitigation
We have made and will continue to make
significant investment in enhancing IT
security and security awareness generally.
We have formal security and information
assurance governance structures in place
to oversee and manage cyber-security and
similar risks.
The Board receives reports at least
quarterly on security and information
assurance matters.
The ERP implementation project is
overseen and closely monitored by
steering and working groups, is regularly
reported on to the Group Executive
Committee and will be implemented in
a phased approach (with parallel running
of old and new systems for a period) to
what we believe is a realistic timetable.
Currency exchange rates
As we expand outside the UK, our financial results are increasingly exposed to the impact of currency exchange rates.
Risk description
We prepare our consolidated results in
Sterling and translate the value of assets,
liabilities and turnover reported or
accounted for in non-Sterling currencies.
Exchange rate movements can therefore
affect the Sterling financial statements and
results of the Group.
Expenses or commitments may be
incurred in a currency that is different
from the related turnover or income
needed to discharge them.
Non-Sterling currencies to which we are
currently most exposed are the Euro and
South African Rand.
Potential impact
If the currencies in which our non-UK
business is conducted are weak or
weaken against the value of Sterling,
this will adversely affect our reported
results and the value of any dividend
income received by the Company from
non-UK operations. If the cost of an
operation or a contractual commitment
is denominated or incurred in a currency
different from the currency of the income
received from that operation or that is
being relied on to discharge that
commitment, movements in exchange
rates can reduce the profitability of the
operation and increase the effective cost
of discharging the commitment.
Mitigation
We seek to mitigate exposure to
movements in exchange rates in
respect of material foreign currency
denominated transactions (for example,
through use of derivative instruments).
Although we do not use these to hedge
against the currency effect of translating
for our financial statements. The net assets
and income of non-UK subsidiaries and
long-term equity accounted investments,
we maintain foreign currency borrowings
to limit, in part, the net foreign
currency exposure.
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Babcock International Group PLC Annual Report and Accounts 2018
Acquisitions
The Group has grown and expects to continue to grow by making acquisitions as well as organically.
Mitigation
Full financial and other due diligence
is conducted as far as may reasonably
be achievable in the context of each
acquisition and a detailed business
case, with forward looking projections,
is submitted to the Board in respect
of each acquisition. Integration risk is
considered at an early stage as part of the
review of acquisition opportunities and
detailed integration planning takes place
before completion of the acquisition.
We believe we have a good track record
in, and experience of, integrating
acquisitions, both large and small.
The Directors considered whether
in their view there were any scenarios
that were plausible, the potential
impact of which, taking account
of their assessment of the above
controls and mitigating actions,
was such as to threaten the ability of
the Group to meet its liabilities over
the three-year period.
The Directors have a reasonable
expectation that the Company and
the Group will be able to continue in
operation and meet all their liabilities
as they fall due up to March 2021.
Risk description
The financial benefits of acquisitions
may not be realised as quickly and as
efficiently as expected.
Potential impact
Failure to realise the anticipated
benefits of an acquisition, or delay or
higher than expected costs in so doing,
could adversely affect the strategic
development, business, financial
condition, results of operations or
prospects of the Group.
The diversion of management attention
to unexpected difficulties encountered
with acquisitions could adversely affect
the Group’s business.
Post-acquisition performance of the
acquired business may not meet the
financial performance expected at the
time the acquisition terms were agreed
and could fail to justify the price paid,
which could adversely affect the Group’s
future results and financial position.
Viability statement
The Directors have assessed the
Company’s viability over the three-year
period to March 2021. The Directors
elected to make their assessment
on a three-year basis as that is the
period of the Group’s budget and
forecasting review process, which
the Directors believe gives the
appropriate level of visibility for them
to make their assessment.
During the year to 31 March 2018, the
Directors carried out a robust
assessment of the principal strategic,
financial and operational risks,
including the principal risks listed on
pages 71 to 79 to the Group’s solvency
and liquidity that were identified within
the Group’s risk management
framework in the context of the
controls and mitigating matters
described on pages 68 to 70.
In their assessment the Directors
considered strategic risks faced by the
Group under a number of strategic
themes together with the probability
of occurrence and likely impact of
the risks materialising, as well as the
adequacy of the control and mitigation
measures in place to counter them.
Separately, the detailed and bottom-up
risk management process continued
throughout the year and this required,
at business unit and sector level, that
business risks were identified and that
the probability and impact of the risks
materialising were considered together
with risk mitigation measures and the
extent to which monitoring of the
effectiveness of the mitigation
measures was in place. Risk registers,
located at business unit level, are
subject to robust review and challenge
by the Group Risk and Insurance
Manager and the Group Financial
Controller. The results of these reviews
were presented to the Audit and Risk
Committee during the course of the
year to 31 March 2018.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Governance statement:
Overview
Chairman’s introduction
Leadership
Governance framework
Board Directors
Executive Committee
Effectiveness:
Report of the Nominations
Committee
Accountability :
Report of the Audit and Risk
Committee
Remuneration :
Report of the Remuneration
Committee
Relations with Shareholders
Additional statutory information
Directors’ responsibility
statement
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92
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131
133
138
“I’ve been able to
explore different uses
of Virtual Reality (VR)
and the capabilities
we could integrate
into our products
to make significant
cost savings.”
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Babcock International Group PLC Annual Report and Accounts 2018
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Babcock International Group PLC Annual Report and Accounts 2018
81
Strategic reportGovernance statementFinancials
Governance statement
Chairman’s introduction
Mike Turner CBE, Chairman
The Board is committed
to working in an
effective, transparent
and ethical manner
so that it can set and
implement strategy
in a way it believes will
benefit Shareholders
by promoting and
maintaining the
long-term success of
the Company while
having regard to other
stakeholders.
Board effectiveness
I described key developments in
governance during the year in my
review on page 12. To help us meet our
commitment to good governance, we
undertake an annual evaluation of the
performance of the Board and its
committees to allow the Board to test
whether it has the appropriate balance
of skills, experience, independence and
knowledge of the Company. This year,
this evaluation exercise was carried out
internally. No significant concerns were
highlighted as a result of this process and
a summary of the evaluation’s review is
described on page 91.
We are satisfied as a Board that all our
Non-Executive Directors are independent
for UK Corporate Governance Code
purposes and have the necessary time
to devote to their duties.
In July 2018, Sir David Omand will have
served nine years as an Independent
Non-Executive Director. The Nominations
Committee carefully considered whether
Sir David remained independent. They
decided that Sir David remained
independent in character and judgement,
and were satisfied that any existing
relationships or circumstances did not
affect his judgement or independence.
The Committee believes that the
Company and the Board benefit from
Sir David’s specific skills and experience.
Accordingly, the Committee extended
Sir David’s appointment for a further
three years until the Company’s AGM
in July 2021. He will continue in his
role as Senior Independent Non-
Executive Director and will continue
to be a member of the Audit and Risk
Committee, Remuneration Committee
and Nominations Committee. The
Remuneration Committee will review
Sir David’s membership on an annual
basis to ensure that it continues to remain
appropriate. In addition, Myles Lee will
have served for three years at the time
of the Company’s AGM in July 2018 and
the Committee has decided to extend
his appointment for a further three years
to the Company’s AGM in 2021. We,
therefore, recommend to Shareholders
that they reappoint each of our Non-
Executive Directors at the forthcoming
Annual General Meeting in July.
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Babcock International Group PLC Annual Report and Accounts 2018
Compliance with the UK
Corporate Governance Code
This year the Company is required to
report on how it has applied the UK
Corporate Governance Code published
in June 2016 (the Code). The Code
contains broad principles and specific
provisions which set out standards of
good governance practice in relation to
leadership, effectiveness, remuneration,
accountability and relations with
Shareholders.
The Board considers that the Company
complied with all the provisions of
the Code throughout the year to
31 March 2018.
The required governance and regulatory
assurances are provided throughout this
Governance statement and in some cases
in other parts of the Annual Report. The
Additional Statutory Information section
on page 133 provides further cross
references to where in this Annual Report
disclosures under the Disclosure and
Transparency Rules and Listing Rules can
be found.
Structure of the Governance
statement
We have structured our Governance
statement to align with the principles
set out in the Code:
Leadership
The Board, led by the Chairman, sets
the strategic direction for the Company,
providing leadership within a framework
of prudent and effective controls, which
enable risk to be assessed and managed.
This section details the governance
framework, the composition of the Board
and its committees, how responsibilities
are divided, and the key areas of focus for
the Board during the year.
Effectiveness
The Board and its committees review
their skills, experience, independence
and knowledge to enable the discharge
of their duties and responsibilities
effectively. This section provides details
of the 2018 Board evaluation process,
including the progress made since the
2017 Board evaluation, and sets out
the induction process for new Directors.
The Nominations Committee report
(on pages 92 and 93) expands on
the process for Board appointments,
including our diversity policy.
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Accountability
The Board, principally acting through the
Audit and Risk Committee, which reviews
the effectiveness of the risk management
systems and internal controls in place,
believes that it has presented a fair,
balanced and understandable assessment
of the Company’s position and prospects
throughout this Annual Report. Principal
risks and management controls are
described in the Strategic report (pages
68 to 79), where the Board also makes its
viability statement. Internal controls and
risk management are further discussed in
the Audit and Risk Committee report
(pages 94 to 97).
Remuneration
The Remuneration Committee has
principal responsibility for determining,
in agreement with the Board, the overall
remuneration of the Executive Directors.
The Directors’ Remuneration report (on
pages 98 and 99) details the Company’s
Remuneration policy and how it is applied.
Relations with Shareholders
The Board recognises the importance
of maintaining open dialogue with
its Shareholders. Throughout the
year, the Company undertook a wide
variety of presentations, meetings and
roadshows. This section (on pages 131
and 132) outlines how the Board has
communicated with Shareholders and
how the Shareholders can engage with
the Company.
Mike Turner CBE
Chairman
Babcock International Group PLC Annual Report and Accounts 2018
83
Leadership
Creating the right culture through
our governance framework
Senior Independent Director
Sir David Omand is currently
and has throughout the year
been the Senior Independent
Director. Shareholders can bring
matters to his attention, if they
have concerns, which have not
been resolved through the
normal channels of Chairman,
Chief Executive or Group Finance
Director, or if these channels are
not deemed appropriate. The
Chairman looks to the Senior
Independent Director as a
sounding board and he is
available as an intermediary
between the other Directors
and the Chairman. The Senior
Independent Director is also
responsible for leading the
Non-Executive Directors in the
annual performance evaluation of
the Chairman. The specific role of
the Senior Independent Director
has been set out in writing and
approved by the Board.
Group Executive Committee
The 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. It is not
a formal Board Committee but
the minutes of its meetings are
circulated to Board members.
For membership of the
Committee see page 88.
Board
The Board of Directors of
Babcock International Group
PLC (the Board) is collectively
responsible to the Company’s
Shareholders for the long-term
success of the Company. This
responsibility includes matters
of strategy, performance,
resources, standards of conduct
and accountability. The Board
also has ultimate responsibility
for corporate governance,
which it discharges either
directly or through its
Committees, as well as the
structures described in this
Governance statement.
Chairman
The Chairman is responsible for the leadership
and overall effectiveness of the Board. In particular,
his role is to:
• With the Chief Executive, demonstrate ethical
leadership and promote the highest standards of
integrity throughout the business
• Ensure effective operation of the Board, and its
Committees
• Set the agenda, style and tone of Board discussions
in order to promote constructive debate and
effective decision-making
• Foster effective working relationships between the
Executive and Non-Executive Directors, support the
Chief Executive in his development of strategy and,
more broadly, support and advise the Chief Executive
• Ensure effective communication with Shareholders
and other key stakeholders and make the Board
aware of their views.
Executive
Responsible for implementing
the strategy, led by the
Chief Executive.
Chief Executive
The Chief Executive is responsible for the day to day
leadership of the business. In particular, his role is to:
• Develop strategic proposals for recommendation
to the Board and implement the agreed
strategies
• Develop an organisational structure, establishing
processes and systems to ensure that the
Company has the capabilities and resources
required to achieve its plans
• Be responsible to the Board for the performance
of the business consistent with agreed plans,
strategies and policies
• Oversee the application of Group policies and
governance procedures
• Develop and promote effective communication
with Shareholders and other key stakeholders.
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock’s culture is defined through 'being babcock' and our Code of Conduct. Together, these set out what our
Company stands for, what we expect from our employees and how we expect our business to deliver our strategy.
The Board recognises that strong governance underpins a healthy culture and it is important that the Board leads by
example, setting the tone from the top and championing the behaviours we expect to see.
Group Finance Committee
Approves borrowing, guarantees,
treasury and related matters within
its terms of reference delegated
by the Board. Comprises any two
Directors, one of whom must be
the Group Finance Director.
Audit and Risk Committee
Responsible for overseeing the
Company’s systems for internal
financial control, risk management
and financial reporting.
Remuneration Committee
Oversees the remuneration
arrangements for Babcock’s Directors
and senior employees across all
sectors. The Committee is keenly
conscious of the importance of having
in place a fair remuneration structure,
one that strikes a balance between
rewarding employees’ hard work and
Shareholders’ interests.
Nominations Committee
Refreshing the Board and succession
planning are issues which the
Committee, and the Board as a
whole, see as important aspects of
its governance of the Company.
Sector Management Boards
Each of our four business sectors have
their own management boards
responsible for: setting sector strategy
and objectives; ensuring adequate
financial and human resources to
achieve those objectives; reviewing
sector performance; and ensuring the
sector’s obligations to Shareholders
and other stakeholders are understood
and met.
Non-Executive Directors
The Non-Executive Directors bring
external perspectives and insight to
the deliberations of the Board and its Committees,
providing a range of knowledge and business
or other experience from different sectors and
undertakings (see their biographies on page 87).
They play an important role in the formulation
and progression of the Board’s agreed strategy,
and review and monitor the performance of the
executive management in the implementation
of this strategy.
Steering Groups
Group Security Committee: chaired by the Group
Finance Director and made up of senior functional
and operational managers with responsibility for
security and information assurance at Group and
operational level. See page 69.
Diversity Steering Group: coordinates the
implementation of our equality and diversity policy.
See page 65.
Corporate Safety Steering Group: ensures the
delivery of Group policy and initiatives relating to
all matters relevant to the health and safety of the
Group’s employees and any other persons affected
by the Group’s undertakings. See pages 66 and 67.
Energy/Environmental Working Group: responsible
for developing and sharing best practice for cost
effective energy and environmental control and
for developing strategy for meeting energy and
environmental targets. See page 67.
Babcock International Group PLC Annual Report and Accounts 2018
85
Strategic reportGovernance statementFinancials Leadership
Board Directors
Mike Turner CBE
Chairman
Sir David Omand GCB
Senior Independent Director
N
A
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Archie Bethel CBE
Chief Executive
E
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Franco Martinelli
Group Finance Director
E
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John Davies
Chief Executive, Land
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Ian Duncan
Independent Non-Executive Director
Jeff Randall
Independent Non-Executive Director
Myles Lee
Independent Non-Executive Director
A
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Executive Committee
Audit Committee
Remuneration Committee
Nominations Committee
Prof. Victoire de Margerie
Independent Non-Executive Director
Lucy Dimes
Independent Non-Executive Director
Kjersti Wiklund
Independent Non-Executive Director
Board Committee
Chairperson
Mike Turner CBE
Chairman
Appointed: June 2008 as a Non-Executive
Director and November 2008 as Chairman
Archie Bethel CBE
Chief Executive
Appointed: Board Director May 2010
and Chief Executive September 2016
Tenure: 10 years
Nationality: British
Tenure: 8 years
Nationality: British
Experience: Mike brings extensive aerospace
and defence industry experience.
External appointments: He was
appointed as a Non-Executive Director
of Barclays PLC on 1 January 2018.
He is a member of the UK Government’s
Apprenticeship Ambassadors Network.
Previous roles: He was Chairman of GKN
PLC until April 2018. He was formerly Chief
Executive of BAE Systems PLC, Chairman of
the UK Defence Industries Council (DIC) and
a Non-Executive Director of Lazard Limited.
Qualifications: Whilst working for Hawker
Siddeley Aviation, as an undergraduate
Commercial Apprentice, Mike gained a
BA Honours degree from Manchester
Metropolitan. Mike has honorary degrees
from Manchester Metropolitan, Cranfield
and Loughborough universities.
Experience: Archie was Chief Executive,
Marine and Technology division, from June
2007, having joined the Group in January
2004. He acted as Chief Operating Officer
from 1 April 2016 until his appointment as
Chief Executive on 1 September 2016.
He is President of the Society of Maritime
Industries and is a Lay Member of the Court
of the University of Strathclyde.
Previous roles: He held various senior roles
working for Vetco Gray, Lanarkshire
Development Agency and Motherwell Bridge.
Qualifications: Archie is a Chartered
Engineer and a Fellow of the Royal Academy
of Engineering.
Franco Martinelli
Group Finance Director
Appointed: Board Director August 2014
Tenure: 4 years
Nationality: British
Experience: Franco served 12 years with the
Group as Group Financial Controller, prior to his
appointment as Group Finance Director. Before
joining Babcock, Franco worked across the
support services and engineering sector.
Previous roles: He was Group Financial
Controller at Powell Duffryn PLC and before that
he held divisional and group roles at Courtaulds,
James Capel and BP.
Qualifications: Franco is a Chartered
Accountant and has a degree in Physics from
Exeter University.
John Davies
Chief Executive, Land
Appointed: Board Director January 2013
Tenure: 5 years
Nationality: British
Experience: John joined Babcock in 2010,
following the acquisition of VT Group, and
was appointed Divisional Chief Executive of
the then Defence and Security division. He
joined the Group Board on 1 January 2013.
In November 2015 he moved to lead the
Support Services division.
Previous roles: He worked extensively across
the support services and defence sectors within
Bombardier, BAE Systems and VT Group.
Qualifications: John is a lawyer by background
and a graduate of the University of Manchester
and Chester Law College.
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Babcock International Group PLC Annual Report and Accounts 2018
Non-Executive Directors
Sir David Omand GCB
Senior Independent Director
Appointed: April 2009 and Senior Independent
Director January 2012
Tenure: 9 years
Nationality: British
Experience: Sir David brings extensive
UK intelligence and change management
experience.
External appointments: He is a visiting
professor in the Department of War Studies,
King’s College London, and PSIA Sciences Po
in Paris, where he teaches intelligence studies.
He is a senior advisor to Paladin Capital Group
LLP, investing in the cyber security sector.
Previous roles: He served in various senior
roles in the UK Government service, including
as UK Government Security and Intelligence
Coordinator, Permanent Secretary of the
Home Office, Director of GCHQ (the UK Signals
Intelligence and Information Assurance Agency)
and Deputy Under-Secretary of State for Policy
in the Ministry of Defence.
Qualifications: Sir David holds a degree in
Economics from Cambridge University, has an
honorary Doctorate from Birmingham University
and he recently completed a degree in
Mathematics and Theoretical Physics with the
Open University.
Ian Duncan
Independent Non-Executive Director
Appointed: November 2010
Tenure: 7 Years
Nationality: British
Experience: Ian brings extensive financial and
change management experience.
External appointments: He is currently the
Senior Independent Non-Executive Director of
Bodycote PLC, as well as being the Chairman of
its Audit Committee. He is also a Non-Executive
Director and Audit Committee Chair of SIG PLC.
Previous roles: He is a former Group Finance
Director of Royal Mail Holdings PLC and has also
formerly been the Corporate Finance Director at
British Nuclear Fuels, the Chief Financial Officer
and Senior Vice President at Westinghouse
Electric Company LLC in Pennsylvania, USA,
and a Non-Executive Director and the Chairman
of the Audit Committee of Fiberweb PLC,
Mouchel Group and WANdisco PLC.
Qualifications: Ian is a Chartered Accountant
and holds an MA from Oxford University.
Jeff Randall
Independent Non-Executive Director
Appointed: April 2014
Tenure: 4 years
Nationality: British
Experience: Jeff brings extensive experience of
the media, particularly in politics, business and
finance.
External appointments: He is an Independent
Non Executive (INE) at BDO, the accounting and
business-services firm, and a Visiting Fellow at
Oxford University’s Saïd Business School.
Previous roles: He worked at Sky News and was
editor-at-large of the Daily Telegraph. He was
business editor of the BBC, the launch editor of
Sunday Business and, for six years, City Editor of
the Sunday Times. He is a former director of
Times Newspapers.
Qualifications: Jeff holds a degree in Economics
from the University of Nottingham, where he is
an Honorary Professor in the School of
Economics.
Myles Lee
Independent Non-Executive Director
Appointed: April 2015
Tenure: 3 years
Nationality: Irish
Experience: Myles brings extensive global
experience in management, M&A and finance.
External appointments: He is a Non-Executive
Director of UDG Healthcare PLC and Ingersoll
Rand PLC, which is listed on the New York
Stock Exchange.
Previous roles: He was Chief Executive Officer
(from 2009 to 2013) and Finance Director
(from 2003 to 2008) of CRH PLC.
Qualifications: Myles holds a degree in Civil
Engineering and is a Fellow of the Institute of
Chartered Accountants in Ireland.
Prof. Victoire de Margerie
Independent Non-Executive Director
Appointed: February 2016
Tenure: 2 years
Nationality: French
Experience: Victoire brings strong international
strategic and commercial experience.
External appointments: She is the
Executive Chairman of Rondol (France), a
start up developing micro machinery for
advanced industry applications. She is also a
Non-Executive Director of Eurazeo S.A. (France)
and Arkema (France).
Previous roles: She was a Non-Executive
Director of Banque Transatlantique, Italcementi
S.p.A (Italy), Morgan Advanced Materials PLC
(UK), Norsk Hydro ASA (Norway) and Outokumpu
OyJ (Finland). During her earlier executive
career, she held senior management positions
in France, Germany and the USA, with Atochem,
Carnaud MetalBox and Pechiney.
Qualifications: She holds a PhD in Strategic
Management from Université Panthéon-Assas
and a Master in Business Administration from
HEC Paris.
Lucy Dimes
Independent Non-Executive Director
Appointed: April 2018
Tenure: 1 month
Nationality: British
Experience: Lucy brings experience in industries
at the forefront of growth and technology-
based innovation and an understanding of
complex outsourcing and long-term global
strategic partnerships.
External appointments: Chief Executive
Officer, UBM EMEA
Previous roles: She was a Non-Executive Director
of Berendsen PLC and a member of its Audit,
Remuneration and Nominations Committees.
Previously in her executive career, she was Chief
Executive Officer, UK & Ireland, of Fujitsu, the
Chief Operating Officer and Executive Director
of Equiniti Group, Chief Executive Officer UK &
Ireland of Alcatel Lucent (now Nokia) and had
a 19-year career at BT, where she held various
senior roles, including Managing Director of
Group and Openreach Service Operations.
Qualifications: She holds an MBA from London
Business School and a First Class Honours
Degree in Business Studies from Manchester
Metropolitan University.
Kjersti Wiklund
Independent Non-Executive Director
Appointed: April 2018
Tenure: 1 month
Nationality: Norwegian
Experience: Kjersti brings broad technology
and business experience gained across Europe,
Eastern Europe/Russia and Asia.
External appointments: She is a Non-Executive
Director of Laird PLC and Spectris PLC.
Previous roles: She has held senior roles,
including Director, Group Technology
Operations of Vodafone, and Chief Operating
Officer of VimpelCom Russia, Deputy Chief
Executive Officer and Chief Technology Officer
of Kyivstar in Ukraine, Executive Vice President
and Chief Technology Officer of Digi
Telecommunications in Malaysia, and Executive
Vice President and Chief Information Officer at
Telenor in Norway. She was also a Non-Executive
Director of Cxense ASA in Norway, Fast Search &
Transfer ASA in Norway and Telescience Inc in
the US.
Qualifications: She holds a Master of
Business Management from BI Norwegian
Business School and an MSc in Electronical
Engineering from Chalmers University of
Technology, Sweden.
Babcock International Group PLC Annual Report and Accounts 2018
87
Strategic reportGovernance statementFinancials Leadership
Executive Committee
B
B
B
Archie Bethel CBE
Chief Executive
Franco Martinelli
Group Finance Director
John Davies
Chief Executive, Land
Roger Hardy
Chief Executive, Aviation
John Howie
Chief Executive, Marine
Simon Bowen
Chief Executive, Cavendish Nuclear
Jon Hall
Managing Director, Technology
Kevin Goodman
Group Director of Organisation
and Development
B
Board
Jack Borrett
Group Company Secretary
and General Counsel
Kate Hill
Group Director of IR
and Communications
Biographies for Archie Bethel CBE, Franco Martinelli and
John Davies are on page 86.
Roger Hardy
Chief Executive, Aviation
Appointed: Executive Committee
November 2015
Experience: Roger started in Devonport 30
years ago and joined Babcock in 2007 following
Babcock’s acquisition of Devonport, when he
was appointed Managing Director of Babcock’s
Submarine Business. In 2010, Roger took up a
new role as Managing Director for Cavendish
Nuclear, Babcock’s civil nuclear business, before
moving in 2015 to Chief Executive of the then
Defence and Security division. In April 2017
Roger was appointed to Chief Executive,
Aviation, leading Babcock’s military and civil
aviation businesses.
John Howie MBE
Chief Executive, Marine
Appointed: Executive Committee April 2016
Experience: Prior to succeeding Archie Bethel
as Chief Executive, Marine and Technology
division in April 2016, John was Managing
Director of Naval Marine, with responsibility
for the management of Babcock’s submarine,
warship and naval base operations, having
joined Babcock in April 2001. 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.
Simon Bowen
Chief Executive, Cavendish Nuclear
Appointed: Executive Committee April 2017
Experience: Simon was appointed Chief
Executive of Cavendish Nuclear in April 2017,
having been Managing Director since December
2015. Simon was previously the Managing
Director of Urenco UK, which he joined in 2010.
Prior to this, Simon worked at BP, undertaking
a variety of senior roles, culminating in his
appointment as Vice President of Manufacturing
and Procurement for Petrochemicals.
Jon Hall
Managing Director, Technology
Appointed: Executive Committee April 2017
Experience: Jon joined Babcock in 2008
as Managing Director, Technology. Prior to
that, Jon held senior roles within the Weir
Group, covering defence, nuclear and
commercial sectors and, before that, worked
in the power and process sectors with Balfour
Beatty International and Monenco Inc. Jon is a
Chartered Engineer and Fellow of the Institution
of Mechanical Engineers, and holds a PhD from
Bath University for research work in technology.
Kevin Goodman
Group Director of Organisation and
Development
Appointed: Executive Committee July 2010
Experience: Kevin joined Babcock in 2001. He
was a Director of both our Defence and Security
and Marine and Technology Divisions prior to
his current Group appointment. In his present
role, he is responsible for remuneration, talent
management, executive development and
diversity. He is a trustee of the Babcock
International Group pension scheme.
Jack Borrett
Group Company Secretary
and General Counsel
Appointed: Executive Committee April 2016
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 and Risk and Nominations Committees and
a member of the Executive Committee. Prior to
joining Babcock, Jack was a solicitor at law firm
Clifford Chance.
Kate Hill
Group Director of IR
and Communications
Appointed: Executive Committee April 2017
Experience: Kate joined Babcock following its
acquisition of Avincis, and became the Group’s
Head of Investor Relations in 2015.
Prior to that, she was a Partner in the financial
PR consultancy Kreab Gavin Anderson, which
she joined from Royal Dutch Shell PLC. Originally
trained as a journalist, Kate has also held a
variety of roles managing communications in
the rail industry.
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Babcock International Group PLC Annual Report and Accounts 2018
Board of Directors
The Board is satisfied that each Director
has the necessary time to devote to the
effective discharge of 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.
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 and
can also be seen at the Company’s
registered office.
Board meeting attendance
The Board has at least 10 scheduled full
Board meetings each financial year and
two other meetings devoted solely to
strategy. The Chairman also meets
separately with Non-Executive Directors
without Executive Directors or other
managers present. Debate and discussion
at Board and committee meetings is
encouraged to be open, challenging
and constructive. Directors regularly
receive presentations by senior managers.
In the annual Board and committee
evaluation review, no Directors expressed
dissatisfaction with the timing or quality
of information provided to them.
Attendance at Board meetings
Chairman
Mike Turner
Executive Directors
Archie Bethel
Franco Martinelli
John Davies
Bill Tame
Non-Executive Directors
Sir David Omand
Ian Duncan
Anna Stewart¹
Jeff Randall
Myles Lee
Victoire de Margerie²
12 of 12
12 of 12
12 of 12
12 of 12
12 of 12
12 of 12
12 of 12
4 of 5
12 of 12
12 of 12
10 of 12
1. Anna Stewart sadly died on 5 October 2017.
2. Victoire de Margerie was unavailable to attend two meetings due to overseas business commitments.
Composition of the Board
The composition of the Board during the year, and as it currently stands, is shown below:
Date
1 April 2017 – 5 October 2017
5 October 2017 – 31 March 2018
1 April 2018 – 22 May 2018
Chairman
Executive
Directors
Independent
Non-Executive
Directors
1
1
1
4
4
3
6
5
7
During the financial year and up to the date of this report, there were the following
changes to the Board: on 5 October 2017, Anna Stewart sadly died; on 31 March 2018,
Bill Tame stepped down from the Board, prior to his retirement on 30 June 2018; and on
1 April 2018, Lucy Dimes and Kjersti Wiklund joined the Board.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Leadership
Board matters and delegation
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 within their
terms of reference.
Summary of key Board reserved
matters
• Group strategy and resourcing
• Interim and final results announcements
and the Annual Report and financial
statements
• Dividend policy
• Acquisitions, disposals and other
transactions outside delegated 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
systems (advised by the Audit and
Risk Committee)
• Major press releases and Shareholder
circulars.
Board committee terms of reference
and other delegated authorities are
formalised and reviewed from time to
time, usually at least once a year. Key
committee terms of reference are
available to view on our website:
www.babcockinternational.com.
In addition to the principal committees
of the Board — the Remuneration
Committee, the Audit and Risk Committee
and the Nominations Committee — and
the Finance Committee operating under
its terms of reference, the Board from
time to time establishes committees to
deal with specific matters on its behalf.
The Board also allows for routine matters,
or the implementation of formal steps
for matters approved in principle by
the Board, to be dealt with by a Board
meeting of any two Directors, but
these are later ratified by the full Board.
Key areas of focus during the year
During the year key areas focused on by the Board included:
Strategy and
business
development
• Group strategy, with particular
reference to the Group’s
international development, which
included two special Board meetings
dedicated to strategy
• Business unit strategy updates and
presentations
• Financial planning, including
budgets and dividend policy
• Business development opportunities
and pipeline review
• The implementation of a new
Enterprise Resource Planning (ERP)
application
• Succession planning and (through
the Remuneration Committee)
Executive Directors’ remuneration
Risk
• Review (either by itself and/or
through the Audit and Risk
Committee) of the Company’s
principal risks to determine the
nature and extent of the risks the
Company is willing to take and to
review the management of those
risks, including internal controls
and risk management
• Assessment of viability, as well as
considering the principal risks to
the Group’s solvency and viability
• Succession planning and talent
development
• Consideration of the implications of
political developments and outlook
• Cyber-security and information
assurance risk management
• Legal updates and litigation reports
• Insurance strategy
Shareholder relations
Governance
• Annual Report and Accounts
and half-year results
• Annual General Meeting
• Independent investor relations
surveys and feedback reports
• Monthly investor relations and
Shareholder engagement reports
• Review of analyst reports
• Annual review of Board, Committee
and Director effectiveness
• Health and safety management
reports and annual and half-
yearly reviews
• Annual anti-bribery and corruption
and risk management update
• Review of terms of reference
of Board committees
• Monthly management reports
• Tax affairs
• Review of delegated authorities
• Potential conflicts of interest
of Directors
• Consideration of revisions to the
Governance Code
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Babcock International Group PLC Annual Report and Accounts 2018
Effectiveness
Board evaluation
The evaluation for the financial year
ending 31 March 2018 was carried
out internally by the Company Secretary.
He carried out confidential one on one
meetings with each Director and other
senior managers. The review considered
the balance of skills, experience,
independence and knowledge on the
Board; its diversity; how the Board, its
committees, the Chairman and individual
Directors performed and how they worked
together; as well as other factors relevant
to effectiveness. The review found that the
feedback from Board members was
positive and concluded that the Board was
functioning well. No significant concerns
were expressed by Board or committee
members as to the way in which the Board
or its committees functioned, the support
given to them, the matters covered at
their meetings or how they were dealt
with, or as to the contribution of any
individual Director.
Recommendations for primary areas
of focus or consideration going
forward were:
• A refresh of the presentation at the
Board’s strategy day of the Group’s
core strategy
• More presentations from the Group’s
business unit MDs.
The Board is addressing and will continue
to address the above matters and will
report back to Shareholders on progress
in the 2019 Annual Report.
Follow-up on the review for year
ending 31 March 2017
As reported last year, the Board evaluation
for the year ending 31 March 2017 was
led externally by Independent Board
Evaluation. Key areas of focus to come
out of that review and how they were
addressed in the year to 31 March
2018 included:
Overseeing a changing organisation
Since 1 April 2017, the Group has been
realigned into four sectors: Marine, Land,
Aviation and Cavendish Nuclear. The
Board believes that this realignment has
gone well and will facilitate the Group’s
future growth in the UK and
internationally.
Talent management
The Board recognises that a key factor
in the continuing growth of the Group
is succession planning to ensure that the
senior management team has strength
in depth, so that there are candidates
ready to step up as and when
opportunities arise. To this end, the
Board has had presentations from senior
managers of business units within the
Group and has considered a specific
report on succession planning.
Diversity
The Board recognises the importance
of diversity and is pleased that it has
improved its gender balance. However,
the Board continues to work with senior
management in order to improve diversity
throughout the Group.
Induction and training for Directors
New Non-Executive Directors receive
detailed business briefings on the Group’s
operations and make induction visits to
operational sites. Those who have not
previously served as a Director of a listed
company receive a briefing from the
Company’s external lawyers on their
duties and responsibilities.
Training for new Directors and ongoing
general Director training is arranged as
necessary or as they may request, and
the Company Secretary briefs, or arranges
briefings for, Board members about
significant changes in the law, regulations
or governance codes affecting their duties
as Directors.
Non-Executive Directors may at any
time make visits to Group businesses or
operational sites. Presentations on the
Group’s businesses and specialist functions
are made to the Board from time to time.
Information and support
for the Board
The Chairman, with the assistance
of the Company Secretary, ensures
appropriate information flows to the
Board and its Committees to facilitate
their discussions and allow fully informed
decisions to be made. Non-Executive
Directors receive copies of minutes
of meetings of the Group Executive
Committee and sector Boards and
monthly sector operating reports
which also cover health, safety and
environmental matters and compliance
with the Group’s ethical and security
standards. They are also invited to
attend the Group’s senior management
conferences. The Company Secretary
attends all Board meetings and all
Directors have access to his advice and,
if necessary, to independent professional
advice at the Company’s expense to assist
with the discharge of their responsibilities
as Directors.
Election of Directors
The rules relating to the appointment and
replacement of Directors are contained
within the Articles. The Articles provide
that Directors may be appointed by an
ordinary resolution of the members or
by a resolution of the Directors, provided
that, in the latter instance, a Director
appointed in that way retires and
is submitted for election at the first
AGM following their appointment. In
compliance with provision B.7.1 of the
Code, all existing Directors will be seeking
re-election at the 2018 AGM. The names
and biographical details of each of the
Directors are set out on pages 86 and 87.
Executive Directors are entitled under
their service agreements to 12 months’
notice of termination of employment from
the Company; Non-Executive Directors,
including the Chairman, have letters of
appointment which can be terminated
at will.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Effectiveness
Nominations Committee
Mike Turner CBE, Chairman
Committee membership and
attendance
Mike Turner (Chairman)
Sir David Omand
Ian Duncan
Anna Stewart*
Jeff Randall
Myles Lee
Victoire de Margerie
4 of 4
4 of 4
4 of 4
0 of 1
4 of 4
4 of 4
4 of 4
* Anna Stewart sadly died on 5 October 2017.
Membership of the Committee
The Nominations Committee is chaired
by the Chairman of the Company and
its other members are the Company’s
Non-Executive Directors (all of whom are
independent). The Committee sometimes
invites Executive Directors to attend
meetings of the Committee, if
appropriate. The current membership
of the Committee, and its membership
throughout the year to 31 March 2018,
as well as attendance at Committee
meetings during the year, is shown above.
No individual participates in discussion
or decision-making when the matter
under consideration relates to him or
her. The Company Secretary is Secretary
to the Committee.
In addition to its formal meetings,
members of the Committee also met
together informally to discuss senior
executive succession planning.
Matters within the Committee’s remit
are also sometimes taken as specific
items at full Board meetings, principally
consideration of succession planning
more widely within the Group and
talent identification, management
and development.
Responsibilities of the Committee
The Committee is responsible for
making recommendations to the Board,
within its agreed terms of reference,
on appointments to the Board. The
terms of reference of the Committee
are available on the Company’s website.
The Committee also assists the Board
in discharging its responsibilities in
respect of:
• Regularly reviewing and evaluating
the size, structure and composition
(including the balance of skills, diversity,
knowledge and experience) of the
Board and making recommendations
to the Board with regard to any changes
• Considering succession planning for
Directors and other senior executives,
taking into account the challenges and
opportunities facing the Company and
the skills and expertise needed on the
Board in the future
• Reviewing the leadership needs of
the Group, both executive and
non-executive, with a view to ensuring
the continued ability of the Group to
compete effectively in the marketplace
• Identifying and making
recommendations for the approval
of the Board regarding candidates to fill
Board vacancies and reviewing the time
required from Non-Executive Directors
for the performance of their duties to
the Company.
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Babcock International Group PLC Annual Report and Accounts 2018
Activities undertaken by the
Committee during the year
During the year ended 31 March 2018,
the Committee:
• Oversaw the appointment of Kjersti
Wiklund and Lucy Dimes, effective
1 April 2018 and
• Considered the governance structure
of the Group.
In the search for the Non-Executive
Directors, the Committee set the
candidate specification and reviewed
a number of potential candidates, using
the services and advice of Egon Zehnder
as search consultants. Egon Zehnder
does not have any connection with the
Group other than as a senior recruitment
consultant. The Committee will continue
to focus on ensuring that the Board
has the appropriate balance of skills,
experience, independence and knowledge
of the Company in order to meet the
Company’s strategic goals.
Mike Turner CBE
Committee Chairman
Diversity
When considering recommendations
for appointment to the Board, the
Committee has in mind the strategic plans
and the development of the business in
both existing and new market sectors and
with new, and new types of, customers,
both in the UK and internationally, and the
need to maintain the Board’s credibility in
its chosen business areas. The Committee
also takes into account as part of its
deliberations the Board’s policy to foster
and encourage greater diversity of gender,
outlook, background, perception and
experience at Board level.
The Board has a clear objective to see
an increasing number of women in
senior executive management roles and
throughout the workforce as a whole.
However, we believe that diversity
should not be about firm quotas or solely
a gender debate and that instead we
should look at a wide-ranging approach.
For this reason the Board has chosen
not to set any specific targets but
will continue to maintain its practice
of embracing diversity in all its forms
when compiling a shortlist of suitable
candidates and recommending any future
Board appointments. Further insight into
the work being done to foster female
participation in the industries in which we
operate is provided in the Strategic report
on page 65 and in the Chairman’s review
on page 12.
Babcock International Group PLC Annual Report and Accounts 2018
93
Strategic reportGovernance statementFinancials Accountability
Audit and Risk Committee
Ian Duncan, Chairman
Committee membership and
attendance
Ian Duncan (Chairman)
Sir David Omand
Anna Stewart*
Jeff Randall
Myles Lee
Victoire de Margerie**
4 of 4
4 of 4
2 of 2
4 of 4
4 of 4
3 of 4
* Anna Stewart sadly died on 5 October 2017.
** Victoire de Margerie could not attend one
meeting due to overseas business
commitments.
Membership of the Committee
The Audit and Risk Committee was
during the year, and at the date of this
report is, made up entirely of independent
Non-Executive Directors. Committee
membership and attendance at its
meetings in the year are set out above.
Unless otherwise stated, members were
members throughout the year. Further
details of the backgrounds and
qualifications of the members of the
Committee can be found on pages 86
and 87. The Group Company Secretary
and General Counsel was Secretary to
the Committee throughout the year.
The Board is satisfied that Ian Duncan,
who has been Chairman of the Committee
since July 2011, has recent and relevant
financial experience and that the
Committee complies with Code provision
C.3.1. Ian is a chartered accountant and
former Group Finance Director of Royal
Mail Holdings PLC. Currently, Ian is a
Non-Executive Director and Chairman
of the Audit Committee of Bodycote PLC
and SIG PLC. He has also formerly been
Corporate Finance Director at British
Nuclear Fuels PLC, and CFO and Senior
Vice President at Westinghouse Electric
Company LLC in Pennsylvania, USA.
Role of the Committee
The principal responsibilities of the
Audit and Risk Committee are to:
• Monitor the integrity of the full-year and
half-year financial statements and any
formal announcements relating to the
Company’s financial performance
• Make recommendations to the Board,
for it to put to the Shareholders for
their approval in general meeting,
in relation to the appointment of
the external auditor
• Review and monitor at least
once a year the external auditor’s
independence and objectivity and
the effectiveness of the audit
process, taking into consideration
relevant UK professional and
regulatory requirements
• Develop and implement policy on the
engagement of the external auditor to
supply non-audit services, taking into
account relevant ethical guidance
regarding the provision of non-audit
services by the external audit firm
• Keep under review the adequacy and
effectiveness of the Company’s internal
financial controls as well as its internal
control and risk management systems
• Monitor and keep under review the
effectiveness of the Company’s internal
audit service
• Report to the Board, identifying any
matters in respect of which it considers
that action or improvement is needed,
and make recommendations as to the
steps to be taken.
The full terms of reference for the
Committee can be found on the
Company’s website.
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Babcock International Group PLC Annual Report and Accounts 2018
Who attends Committee meetings?
In addition to the members of the
Committee, the Committee, at its
discretion, usually invites the Group
Chairman, the Chief Executive, the Group
Finance Director and the sector Chief
Executives. The Committee is satisfied
that having these invited attendees
present does not influence or constrain the
Committee’s discussions or compromise
the Committee’s independence. Their
presence ensures that all Board Directors
and the senior management of the Group
are directly aware of the Committee’s
deliberations, how it goes about
discharging its responsibilities on behalf of
the full Board and any areas of concern or
focus for the Committee. It also assists the
Committee by allowing direct questioning
of executives on matters that the
Committee thinks need further challenge,
clarification, explanation or justification.
Should a situation arise where the presence
of any such attendee would be
inappropriate or might compromise
discussion, the Committee would either
not invite the attendee concerned or
request that they not attend the relevant
part of that meeting.
The Group Risk Manager attended
Committee meetings for its discussion
of Group risk reports and related items.
During the year to 31 March 2018,
Ernst & Young LLP provided internal
audit services to the Company and
PricewaterhouseCoopers LLP was the
Group’s external auditor. Both auditors
attended the Committee’s meetings
during the year to 31 March 2018.
The Committee Chairman also met
PricewaterhouseCoopers LLP (PwC) and
Ernst & Young LLP in the absence of
executive management. The auditors
are also invited to address the Committee
without executives present at least once
a year.
The Committee’s terms of reference
were reviewed during the year to
ensure that they are in line with best
practice guidelines.
Activities undertaken by the
Committee during the year
During the year to 31 March 2018 the
Committee met four times. The agenda
for each meeting is set by the Committee
Chairman in conjunction with the
Company Secretary and other members
of the Committee as appropriate. At these
meetings, the following matters and issues
were considered:
Financial results
• full-year and half-year financial
statements and related results
announcements including, following
correspondence with the FRC,
improving our disclosure in respect of
our alternative performance measures
and further clarifying the reconciliation
between the Group's statutory and
underlying results
• reports and reviews from the
external auditors
• matters that required the exercise of
a significant element of management
judgement in relation to the financial
statements for the year to 31 March
2018 (see page 96)
• advice to the Board on the requirement
for a statement from it that the Annual
Report and Accounts for the year to
31 March 2018 are fair, balanced and
understandable and provide the
information necessary for Shareholders
to assess the Company’s position,
performance, business model and
strategy during the relevant period. The
Committee satisfies itself that this is so
by circulating to Board members draft
wording at an early stage with sufficient
time and detailed content to allow for
an assessment of the content against
the reports and accounts provided to
the Board and its discussions
throughout the relevant period. In
addition, the Committee asks the Group
Financial Controller to prepare a formal
written report for the Committee
reviewing the relevant draft, its
consistency with his knowledge and
understanding of matters and the
appropriateness of the weighting given
to them, in each case to allow for their
review and consideration by the
Committee (with all Directors and
sector Chief Executives present) in the
context of their own understanding of
reports and accounts provided to the
Board and its discussions throughout
the year. Before drafts are submitted
to the Board, the Group Director of
Investor Relations and Communications
reviews the content of the Strategic
report to ensure consistency with other
financial statements made by the Group
during the year
• review of the assumption that the
Company’s financial statements are
prepared on a going concern basis
• the Company’s approach to the
requirement on the Company to
examine the Company’s longer term
solvency and viability (please see
page 79 for further details).
Audit plans
Internal and external audit plans for
the year.
Internal audit
At each meeting, the Committee receives
internal audit reports on findings from
audit visits to business units, which, as
a matter of course, look at accounting,
anti-bribery and corruption controls,
business continuity, contract performance
and contract bidding risks. These include
follow-up reports on any matters identified
in earlier reports as requiring attention
or improvement. The reports contain
tracking information to enable the
Committee easily to see the control
performance of business units over
time and how quickly any matters
are addressed.
Risk and internal controls
• review of internal control processes
and their effectiveness
• regular detailed reports identifying
areas of risk at business unit, sector and
Group level, assessing and prioritising
potential impact, risk mitigation steps in
place and the pre- and post-mitigation
risk levels
• focused reviews of selected major risk
areas: insurance strategy, business
critical suppliers, treasury risk, and
contract performance.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Accountability
Fraud
Reports covering any suspected incidents
of fraud, their investigation and any
remedial or preventive action.
Whistleblowing
The Committee is responsible for
monitoring the Group whistleblowing
policy and receives regular reports of
calls and emails to the Group’s external
independent whistleblowing services
and how these have been investigated
and concluded. The total number of
whistleblowing reports in the year to
31 March 2018 was 66 (2017: 41). For
further explanation of the whistleblowing
procedure please see page 70.
Audit/non-audit fees and auditor
independence
Audit and non-audit fees for the external
and internal auditors were reviewed by
the Committee and considered in relation
to their effect on auditor independence.
Significant issues considered by
the Committee in relation to the
financial statements
We are required to provide an explanation
of the significant issues that the
Committee considered in relation to
the financial statements for the year to
31 March 2018 and how these issues
were addressed, having regard to
matters communicated to the Committee
by the auditors.
In planning the year end audit,
the Committee considered with
management and the Company’s
auditors the key areas of focus for the
audit having in mind their significance
to the Group’s reporting of results and
the degree of judgement involved in
their evaluation. The significant issues
considered in relation to the financial
statements for the year ended 31 March
2018 and how the Committee addressed
them are set out in the table below.
Significant issue
How the Committee addressed it
Contract accounting and revenue
recognition
Pensions accounting — the choice
of assumptions in the valuation for
accounting purposes of the liabilities
of the Group’s defined benefit schemes
Business acquisitions — goodwill
impairment assessment
The Committee considered the material contracts, which require a significant degree of
management judgement and could materially affect the appropriate accounting treatment
for them; these were the subject of discussion and challenge with management to ensure that
the Committee was satisfied as to the reasonableness of those judgements.
The Committee assessed the particular assumptions proposed to be used by management and
their impact on scheme assets and liabilities in the context of assumptions being used in respect
of the same factors by other companies and the pensions industry more widely. See note 24
on pages 186 to 190.
The Committee reviewed and challenged management’s assessment of the goodwill balance
by considering, amongst other things, management’s evaluation of cash flow forecasts, budget,
and growth rates. See note 10 on page 170.
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Babcock International Group PLC Annual Report and Accounts 2018
to non-audit fees payable to them
in the year exceeding 20% of their audit
fee, the Committee Chairman’s approval
is required. In addition, any fee for
non-audit work in excess of £100,000
must be approved by the Committee
Chairman. Having considered the
non-audit services provided by the
auditor during the year ended 31 March
2018, the Committee is satisfied that
these services were provided effectively
and did not prejudice the objectivity or
independence of the auditor.
For the year ended 31 March 2018,
the Committee has approved the
payment to PwC of fees of £2.4 million
for audit services (£0.4 million of which
was for the statutory audit of the
Company’s consolidated financial
statements) and of fees of £0.1 million
for other assurance services. Non-audit
related work accounted for 4% of the total
audit and non-audit related fees paid to
the external auditor during the year. A
breakdown of fees paid to the auditor is
set out in note 4 on page 166.
Ian Duncan
Committee Chairman
Internal controls and risk
management
The Committee believes that the
identification, control, mitigation and
reporting of risk is central to the delivery
of the Company’s strategy. The way that
the Company manages risk is set out in
the Strategic report on pages 68 to 70,
with the principal risks facing the Group
described on pages 71 to 79. The
Committee has conducted a rigorous
and robust review of the ongoing
effectiveness of the Company’s risk
management processes in light of the
2016 UK Corporate Governance Code
(and the Financial Reporting Council’s
associated Guidance on Risk Management,
Internal Control and Related Financial and
Business Reporting).
A statement regarding the effectiveness
of the internal controls and control
processes, including those over financial
reporting, can be found on page 138.
Internal audit
The Committee considers that it is
still appropriate to have an internal audit
service provided by an external advisor,
but keeps this under review. In the year
to 31 March 2018, the Committee
was satisfied with the service provided
by Ernst & Young LLP acting as
internal auditor.
External audit
The Committee manages the
relationship with the external auditor
on behalf of the Board and monitors the
auditor’s independence and objectivity,
along with the effectiveness of the
external audit, on an annual basis. Audit
fees are re-evaluated periodically.
For the year to 31 March 2018, PwC
has been the Group’s external auditor,
having been reappointed by Shareholders
at the AGM on 13 July 2017 on the
recommendation of the Board. The
Chairman and the Committee regularly
assess PwC’s effectiveness in the provision
of audit services in their meetings with
PwC. After each annual audit, there is a
rigorous review of PwC’s audit services
in that audit, examining the level and
consistency of expertise and resources,
the effectiveness of the audit (including,
inter alia, the understanding of our
business and reporting processes for
subsidiary audit teams), and PwC’s
independence and leadership. The
review includes the provision to PwC,
and discussion with it, of detailed
feedback from those exposed to the audit
process within the Group. The question
of PwC’s continuing independence in the
provision of audit services is considered
and discussed with PwC, including the
basis upon which that assessment can
reasonably be made and supported.
The Company expects to tender the
external audit function in three years and
PwC, having been auditor since 2002,
will not be invited to participate in that
tender. The Committee confirms that the
Group is in compliance with the Statutory
Audit Services for Large Companies Market
Investigation (Mandatory use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
Non-audit fees
The Committee regularly considers the
engagement of, and level of fees payable
to, the auditor for non-audit work,
considering potential conflicts and the
possibility of actual or perceived threats to
their independence. The Company’s policy
is to consider whether to place material
non-audit services work with the external
auditor on a case-by-case basis, based on
an assessment of who is best placed to do
the work having regard to the availability,
resources, capability, experience and any
conflicts of interest of potential candidate
firms for the work. The Committee makes
the choice based on what it considers to
be in the Company’s best interest overall,
having regard to potential independence
issues, if the work is placed with the
Company’s auditor. Non-audit services
offered to the auditor would not include
the design or operation of financial
information systems, internal audit
services, maintenance or preparation of
accounting records or financial statements
that would be subject to external audit,
or work that the Committee considers as
reasonably capable of compromising their
independence as auditors. If use of the
auditors for non-audit work would lead
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Strategic reportGovernance statementFinancials Remuneration
Report of the Remuneration Committee
Jeff Randall, Committee Chairman
Committee membership
and attendance
Jeff Randall (Chairman)
Sir David Omand
Ian Duncan
Anna Stewart*
Myles Lee
Victoire de Margerie
7 of 7
7 of 7
7 of 7
2 of 2
7 of 7
7 of 7
* Anna Stewart sadly died on 5 October 2017.
Activities undertaken by the
Committee during the year
Following an in-depth review of our
Remuneration policy for Executive
Directors, which included seeking the
views of our largest Shareholders and
investor bodies, the Committee was
pleased to put its updated policy to
Shareholders for their approval at the
2017 AGM. The Committee believes that
the updated policy simplifies executive
remuneration by removing the deferred
bonus matching plan, whilst broadly
maintaining the fair value of total
remuneration and continuing the
Committee’s policy of setting fixed
remuneration at or below median with
total remuneration remaining capable of
delivering upper quartile reward for upper
quartile performance. The Committee was
pleased that Shareholders approved the
proposed policy by 96%.
Annual Statement
of the Remuneration
Committee Chairman
Dear Shareholder
I am pleased to present the Directors’
Remuneration report for 2017/18.
This Directors’ Remuneration report has
three parts: this, the Chairman’s Annual
Statement, a Policy Report and an Annual
Report on Remuneration. Together, they
present full and transparent disclosure of
the Company’s intentions as to Directors’
remuneration and how our remuneration
arrangements operate. Our current
Remuneration policy was approved at
the 2017 AGM and is set out on pages
101 to 110 below. We are not proposing
to make any changes to the policy this
year and are intending next to submit our
policy with any changes to Shareholders
for approval at the 2020 AGM. We will,
however, be seeking an advisory vote
as to your approval of this Annual
Statement and the Annual Report
on Remuneration at the AGM on Thursday,
19 July 2018.
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Babcock International Group PLC Annual Report and Accounts 2018
In the period under review, Bill Tame
announced his decision to retire from
the Company on 30 June 2018,
having joined the Company as Group
Finance Director in January 2001.
He stepped down from the Board on
31 March 2018. The Committee
announced the arrangements of his
retirement on 21 December 2017.
Bill will continue to be remunerated
up to his date of retirement, in
accordance with his contractual
entitlement and the Company’s
Remuneration policy, as approved by
Shareholders at the 2017 AGM. Bill was
not given a salary increase for 2018/19,
nor did he receive a 2018 grant under the
Company’s 2009 Performance Share Plan.
He is eligible for a time pro-rated bonus for
the financial year 2018/19. As regards his
outstanding share awards, the Committee
exercised its discretion and decided that
Bill should be treated as a ‘good leaver’.
This means that all unvested share awards
remain subject to any performance
conditions attached to them and, to the
extent the vesting periods have not been
completed by the date of Bill’s retirement,
the awards will be pro-rated for time to
the date of his retirement. All awards will
vest on their normal vesting dates.
Finally, I am pleased to welcome two new
Non-Executive Directors to the Committee
and look forward to working with them.
Remuneration outcomes for 2017/18
Against the background reported in
the Chairman’s statement earlier in this
Annual Report:
• annual bonus payments in respect of
the year to 31 March 2018 ranged
from 53% to 62% of maximum (see
page 115 for more detail); and
• performance over the longer-term
performance period from 1 April 2015
to 31 March 2018 is expected to result
in 24% vesting of the PSP awards made
in 2015 and 20% vesting of the
matching awards made that year under
the DBMP.
Jeff Randall
Committee Chairman
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Strategic reportGovernance statementFinancials Remuneration
Glossary of terms
As used in this Remuneration report
CSOP
DBP
DBMP
EBIT
EPS
OCF
PSP
PBT
PBIT
ROCE
TSR
means the 2009 Babcock Company Share Option Plan
means the 2009 Babcock Deferred Bonus Plan
means the 2012 Babcock Deferred Bonus Matching Plan
means Earnings Before Interest and Tax
means basic underlying Earnings Per Share
means Operating Cash Flow as determined for management purposes
means the 2009 Babcock Performance Share Plan
means underlying Profit Before Tax
means underlying Profit Before Interest and Tax
means Return on Capital Employed
means Total Shareholder Return
Remuneration Committee (the Committee)
Terms of reference for the Committee are available for inspection on the Company’s website and were reviewed during the year.
Duties of the Committee include the review of the policy for the remuneration of the Executive Directors and the Chairman, 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 members of the senior executive management of the Group are provided with appropriate incentives
to encourage strong performance and that they are rewarded for their individual contributions to the success of the Company in a fair
and responsible manner.
The composition of the Committee (see page 111) and its terms of reference comply with the provisions of the UK Corporate
Governance Code.
Compliance statement
This report covers the reporting period from 1 April 2017 to 31 March 2018 and provides details of the Committee’s membership,
its deliberations on executive remuneration during the year under review and Remuneration policy for the Company. This report has
been prepared by the Committee according to the requirements of the Companies Act 2006 (the Act), Regulation 11 and Schedule 8 of
the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations) and other
relevant requirements of the FCA Listing Rules. In addition, the Committee has applied the principles of good corporate governance set
out in the UK Corporate Governance Code 2016, and has considered guidelines issued by its leading Shareholders and bodies such as the
Investment Association, Institutional Shareholder Services and the Pensions and Lifetime Savings Association. In accordance with Section
439 of the Act, an advisory resolution to approve this Annual Statement and the Annual Report on Remuneration will be proposed at the
Annual General Meeting on 19 July 2018.
This report contains both auditable and non-auditable information. The information subject to audit is so marked.
The Regulations require the Company’s auditors to report that the ‘Audited information’ in this report has been properly prepared in
accordance with the Regulations.
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Extract from 2018 Remuneration Report
Remuneration Policy Report
Our current Remuneration policy was approved at the 2017 AGM and it is intended that this policy will apply for three years from that date,
although the Committee may seek approval for a new policy at an earlier point if it is considered appropriate. The Policy Report that follows
is unchanged from that published in last year’s annual report save for the following minor changes:
• Update to page references
• Update to pay scenario charts
• Update to reference dates, as appropriate.
Key principles of the Remuneration policy
Objective
To provide fair remuneration arrangements that allow for enhanced rewards for delivery of superior performance by allowing for
the possibility of upper quartile rewards for upper quartile performance, that align Directors’ and Shareholders’ interests and take
account of risk.
Our policy for executives reflects a preference that we believe is shared by the majority of our Shareholders — to rely more heavily on the
value of variable performance-related rewards, rather than on the fixed elements of pay. The rationale is to incentivise and reward success.
Weighting towards long-term, performance-related pay
The focus of our executive remuneration is, therefore, weighted towards performance-related pay with a significant element weighted
towards long-term rather than short-term performance. We believe 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.
Directors’ Remuneration policy
Opportunity
Summary of the Remuneration policy for Executive Directors (Policy Table)
Purpose and link to strategy Operation
Fixed pay
Base salary
Should be at a level
that is (i) fair and
(ii) capable, when taken
with the gearing effect
of performance-related
pay, of delivering upper
quartile actual
remuneration for
upper quartile
performance.
Base salaries are
reviewed 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.
In respect of existing Executive Directors, it is anticipated
that decisions on any salary increases will be guided by the
increases for the wider employee population over the term
of this policy. 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.
Latest salaries are set out in the Annual Report on
Remuneration on page 118.
Performance metrics
Business and
individual performance
are considerations in
setting base salary.
Pension
To provide market
competitive retirement
benefits.
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.
All the Executive Directors currently receive a cash
supplement of 25% of base pay in lieu of all pension benefits.
Not performance-
related.
The cash supplement payable is set having regard to market
practice, and in the context of the other elements of the
remuneration package, notably base salary. Other than in
exceptional cases (such as to replace existing arrangements
for new recruits), the Committee does not anticipate
employer contributions into a defined contribution pension
scheme or cash in lieu of benefit as being at a cost to the
Company that would exceed 25% of base salary.
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Strategic reportGovernance statementFinancials
Remuneration
Purpose and link to strategy Operation
Fixed pay
Benefits
Designed to be
competitive in the
market in which
the individual is
employed or to meet
costs effectively
incurred at the
Company’s request.
A range of benefits are provided which may include: life
insurance; medical insurance; car and fuel benefits and
allowances; home to work travel and related costs, if
agreed on an individual basis or if incurred at the request
of the Company; accommodation benefits and related
costs, if based away from home at the request of the
Company; Board function-related costs; and, in certain
circumstances, cash allowances in respect of the tax
charge on accommodation or travel to work benefit,
if incurred at the request of the Company or with its
prior approval.
Other benefits (e.g. relocation) may be offered if
considered appropriate and reasonable by
the Committee.
Opportunity
Performance metrics
Not performance-
related.
Benefit values vary by
role and are periodically
reviewed and set at
a level which 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 and will,
therefore, determine
the maximum amount
that would be paid in
the form of benefits
during the period of this
policy. The Committee
retains the discretion
to approve a higher cost
in certain circumstances
(e.g. relocation) or
in circumstances
where factors outside
the Company’s control
have changed materially.
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Babcock International Group PLC Annual Report and Accounts 2018
Purpose and link to strategy Operation
Variable pay
Annual bonus
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.
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 these targets have been achieved. 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, 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 it may reduce or cancel any annual
bonus otherwise payable if it considers it appropriate to
do so in light of that performance.
The requirement to
defer a substantial part
of bonus into Company
shares strengthens the
link to long-term
sustainable growth.
At least 40% of annual bonus payments for Executive
Directors must be deferred into awards over Company
shares for three years. Mandatory deferred bonus awards
are subject to potential forfeiture if the holder leaves before
the awards vest. Malus and clawback 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
caused the Committee to exercise any discretion differently.
Opportunity
Performance metrics
Maximum bonus
opportunity is
150% of salary.
For achievement
of threshold, up to
15% of maximum
bonus is earned; for
achievement of target
up to 55% of maximum
bonus is earned.
Performance is
determined by the
Committee on an
annual basis by
reference to Group and/
or sector financial
measures, e.g. EPS
growth, PBT, OCF,
as well as the
achievement of
non-financial objectives.
The financial and
personal/strategic
objectives are typically
weighted 80% and
20% of maximum,
respectively.
The Committee
retains discretion to
vary the financial
measures and their
weightings annually, to
ensure alignment with
the business priorities for
the year.
Measures used for the
2017/18 annual bonus
and proposed for
2018/19 are included
in the Annual Report on
Remuneration on
pages 115 and 119.
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Strategic reportGovernance statementFinancials
Remuneration
Purpose and link to strategy Operation
Variable pay
Performance Share Plan (PSP)
To incentivise
delivery of top quartile
Shareholder returns
and earnings growth
over the longer term.
The Committee has the ability to grant nil-cost options
or conditional share awards under the PSP.
The award levels and performance conditions, on
which vesting depends, are reviewed from time to time
to ensure they remain appropriate.
Long-term measures
guard against
short-term steps being
taken to maximise
annual rewards at the
expense of future
performance.
Participants will receive cash or shares equal to the value
of any dividends that would have been paid 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 shares before they
are released.
Malus and clawback 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.
All-employee plans — Babcock Employee Share Plan
To encourage
employee ownership
of Company shares.
Open to all UK tax resident employees of participating
Group companies. Executive Directors are eligible
to participate.
The plan is an HMRC approved share incentive plan that
allows an employee to purchase shares (through the plan
trustees) out of pre-tax salary which, if held for periods of
time 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. Matching shares are forfeited if employees
leave within three years of their award (other than for
‘good leaver’ reasons).
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Opportunity
Performance metrics
Vesting of PSP awards
is subject to continued
employment and
Company performance
over a three-year
performance period.
2018/19 PSP awards
will be based on the
achievement of
stretching EPS, TSR
and ROCE targets.
The Committee
will review the
performance measures,
their weightings, and
performance targets
annually to ensure
continued alignment
with Company strategy.
Details of measures and
targets used for specific
PSP grants are included
in the Annual Report on
Remuneration on pages
120 to 122.
Not performance-
related.
Maximum annual PSP
awards of up to 200%
of base pay.
For each performance
condition applying to
an award, 16.7% of
the maximum award
will vest for threshold
performance.
Participants can
purchase shares up
to the prevailing
HMRC limit at the
time employees are
invited to participate.
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 matching rate is
reviewed periodically,
and any future offer
will be bound by the
prevailing HMRC limit.
Approach to recruitment remuneration — (Recruitment policy)
In the case of hiring or appointing a new Executive Director, the Committee may make use of any of the existing components of
remuneration, as follows:
Pay element
Salary
Pension
Benefits
Policy on recruitment
Based on size and nature of responsibilities of the proposed role; the candidate’s
experience; implications for total remuneration positioning vs. market pay levels for
comparable roles; internal relativities; and the candidate’s current salary.
Membership of pension scheme or salary supplement on a similar basis to other
executives, as described in the policy table.
Provision of benefits on a similar basis to other executives, as described in the
policy table.
As described in the policy table, and may be pro-rated for proportion of year served.
Annual bonus
Performance Share Plan New appointees may be granted awards under the PSP on similar terms to
All-employee plans
Other
other executives.
New appointees may be granted awards under all-employee plans on similar terms
to other executives.
In determining appropriate remuneration for new Executive Directors, the Committee
will take into consideration all relevant factors (including quantum, the nature of
remuneration and where the candidate was recruited from) 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 appointment to ‘replace’
incentive arrangements forfeited on leaving a previous employer. 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
being replaced. In order to facilitate like for like compensatory awards on recruitment,
the Committee may avail itself of Listing Rule 9.4.2(2), if required.
Maximum
N/A
N/A
N/A
150% of salary
200% of salary
As per Policy Table
N/A
Other recruitment events
Internal promotion
When appointing a new Executive Director by way of promotion from an internal role,
the Committee 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, these would be
expected to transition over time to the arrangements stated above.
N/A
Non-Executive Director When recruiting a new Non-Executive Director, the Committee or Board will structure
N/A
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
Chairmanship of the Audit and Risk and Remuneration Committees.
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Strategic reportGovernance statementFinancials Remuneration
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 measures used under annual bonus plans are selected annually to reflect the Group’s main strategic objectives for the year and reflect
both financial and non-financial priorities. Performance targets are set to be stretching but achievable, taking into account the Company’s
strategic priorities and the economic environment in which the Company operates. Financial targets are set 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 and
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 believes that TSR, EPS and ROCE continue to be effective measures of long-term performance for the Company, providing
a good balance between Shareholder value creation and line of sight for executives.
The TSR performance measure is tested by reference to the Company’s relative long-term share price performance against suitable peers.
The Committee believes that the use of relative TSR provides strong alignment with Shareholders’ interests by incentivising management
for the delivery of above-market returns. The TSR calculation would normally use a 12-month average for opening and closing share prices
adjusted for dividends paid during the period. The Company feels that this is the most appropriate period because a 12-month average
ensures both that short-term market volatility is excluded and that for each company a 12-month period will capture the impact of the
announcement of results and payment of dividends. A shorter period would not capture all these events and would not necessarily put
all companies on an equal footing.
The use of an EPS growth performance measure, in the opinion of the Committee, focuses management on continued strong financial
performance and is heavily dependent on the Company’s success in achieving its strategic goals. The Committee believes that ROCE
reinforces the focus on returns for Shareholders and encourages capital discipline.
The Remuneration Committee has the discretion to make adjustments to 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. No
material reduction in long-term incentive targets for future awards would be made without prior consultation with our major Shareholders.
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Differences between Executive Director and general employee remuneration
The policy and practice with regard to the remuneration of senior executives below the Board is consistent with that for the Executive
Directors. Senior executives generally participate in the same long-term incentives as the Executive Directors with similar performance
measures applied. The Remuneration policy for our Executive Directors is considered 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
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 three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’.
Potential reward opportunities are based on the Company’s Remuneration policy and implementation in 2018/19, as outlined in the
Chairman’s statement and later in the Annual Report on Remuneration, applied to base salaries as at 1 April 2018. Note that the projected
values exclude the impact of any share price movements. For this reason, were the PSP shares to vest in full, actual total remuneration may
exceed the value shown in the chart below.
Chief Executive
Archie Bethel (£’000)
Group Finance Director
Franco Martinelli (£’000)
Chief Executive, Land
John Davies (£’000)
Maximum
30%
30%
40% £3,933
Maximum
26%
32%
42% £2,077
Maximum
28%
31%
41% £2,044
On-target
57%
31%
12%
£2,107
On-target
52%
34%
14%
£1,054
On-target
54%
33%
13%
£1,058
Minimum
100% £1,202
Minimum
100% £547
Minimum
100% £570
0
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
0
500
1,000
1,500
2,000
2,500
0
500
1,000
1,500
2,000
2,500
Fixed remuneration
Annual variable remuneration
Long-term incentives
The ‘Minimum’ scenario shows base salary, pension (and/or pay in lieu of pension) and benefits (i.e. fixed remuneration). These are the
only elements of the Executive Directors’ remuneration packages which are not at risk.
The ‘On-target’ scenario reflects fixed remuneration as above, plus a pay-out 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 pay-out of all incentives.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Remuneration
Shareholding guidelines for Executive Directors
The Committee sets shareholding guidelines for 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).
The guidelines also state that an Executive Director is 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 Executive Directors’ compliance with these guidelines is shown
in the table on page 126.
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 Directors’ service contracts or terms of appointment:
Executive Directors
Name
Archie Bethel
(Chief Executive)
Franco Martinelli
(Group Finance Director)
Bill Tame
(Chief Executive, Global Growth and Operations)*
John Davies
(Chief Executive, Land)
Date of service contract
1 April 2016
1 August 2014
1 October 2001 (amended by letters
dated 5 May 2004 and 3 April 2006
20 December 2012
Notice period
12 months from Company,
12 months from Director
12 months from Company,
12 months from Director
12 months from Company,
6 months from Director
12 months from Company,
12 months from Director
*
Bill Tame gave notice of his retirement in accordance with his service contract. He stepped down from the Board on 31 March 2018 and will retire from the
Company on 30 June 2018.
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.
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. In these circumstances, since 2012, new Executive Directors’ contracts (those for
Archie Bethel, John Davies and Franco Martinelli) allow the Company to 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. For contracts made before 2012
(for Bill Tame only) such a payment would be by way of a lump sum payment on termination. If the Company terminates an Executive
Director’s service contract, it will have regard to all the circumstances (including the scope for mitigation) and the Company’s
interests in determining the amount of compensation, if any, payable to him in connection with that termination.
The contract for Bill Tame contains provisions which provide that, within 90 days of the occurrence of a change of control of the Company,
he may terminate his employment forthwith. If he exercises this right, he is entitled, for a 12-month period, to be paid (on a monthly basis)
his base salary plus 40% (compared to a maximum entitlement under the annual bonus plan of 150%) in lieu of bonus and all other
contractual entitlements. From this payment there is to be deducted any amount that he receives by way of income, if it exceeds 10% of
his Babcock salary, from other sources that he would not have been able to earn had he continued in employment with the Company.
The contract for Bill Tame also provides that, if the Company terminates his appointment within 12 months of a change of control,
he would be entitled to a termination payment equal to 100% of annual salary (plus 40% in lieu of bonus and all other benefits), subject
to any additional entitlement as outlined below.
No other Executive Director has these arrangements in their service contract.
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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.
Component
Annual bonus
Deferred bonus awards
PSP
Treatment on a change of control
Will be paid a time pro-rated
proportion, subject to performance
during the year, generally paid
immediately, with Committee
discretion to treat otherwise1.
Awards may be exercised in
full on the change of control,
with Committee discretion to
treat otherwise.
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.
Treatment for a good leaver2
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.
Entitled to retain a time pro-rated
proportion which will generally
vest at the normal vesting date,
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.
Treatment for other leavers
No annual bonus entitlement, unless
the Committee exercises discretion
to treat otherwise.
Outstanding awards are forfeited
unless the Committee exercises its
discretion to treat otherwise.
Outstanding awards are forfeited,
unless the Committee exercises
discretion to treat otherwise.
1. Treatment of bonus on a change of control for Bill Tame is also subject of the provisions outlined on page 108 above.
2. 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
(in each case evidenced to the Committee’s satisfaction). 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 Executive Directors
The Executive Directors may accept external appointments with the prior approval of the Chairman, provided that such appointments do
not prejudice the individual’s ability to fulfil their duties at the Group. Any fees for outside appointments are retained by the Director.
Chairman and Non-Executive Directors
Name
Mike Turner (Chairman)
Sir David Omand
Ian Duncan
Anna Stewart*
Jeff Randall
Myles Lee
Victoire de Margerie
Lucy Dimes
Kjersti Wiklund
Date of appointment as a Director
1 June 2008
1 April 2009
10 November 2010
1 November 2012
1 April 2014
1 April 2015
1 February 2016
1 April 2018
1 April 2018
Date of current appointment letters
22 February 2017
17 May 2018
25 January 2016
26 March 2015
22 February 2017
17 May 2018
3 December 2015
5 March 2018
5 March 2018
Anticipated expiry
of present term of appointment
(subject to annual re-election)
AGM 2020
AGM 2021
AGM 2019
AGM 2020
AGM 2021
AGM 2019
AGM 2021
AGM 2021
* Anna Stewart sadly died on 5 October 2017.
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.
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.
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.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Remuneration
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
Opportunity
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.
Function
To attract and
retain high-calibre
Non-Executive
Directors with
commercial and
other experience
relevant to the
Company
Operation
Fee levels are reviewed against market
practice from time to time (by the Chairman
and the Executive Directors in the case
of Non-Executive Director fees and by the
Committee in respect of fees payable to the
Chairman), with any adjustments normally
being made on 1 April in the review year.
Additional fees are payable for acting as
Chairman of the Audit and Risk, and
Remuneration Committees.
Non-Executive Directors do not participate
in any incentive schemes, nor do they
receive any pension or benefits (other
than the cost of nominal travel and
accommodation expenses).
Fee levels are reviewed by reference to
FTSE listed companies of similar size and
complexity. Time commitment, level of
involvement required and responsibility
are taken into account when reviewing fee
levels. This may result in higher fee levels
for overseas Directors.
Fees for the year ending 31 March 2018 and
those for the year ending 31 March 2019 are
set out in the Annual Report on Remuneration
on page 124.
Consideration of employee views
When reviewing Executive Director pay the Committee is aware of the proposals for review of remuneration of all employees.
The Committee receives regular updates on salary increases, bonus and share awards made to employees throughout the Group.
These matters are considered when conducting the 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 in each case by law and regulation in the
jurisdictions in which the Company operates. The Company now formally presents a summary of its policy for remuneration arrangements
for Executive Directors to the Babcock Employee Forum, which is attended by representatives from across the business operations, and will
consider any feedback from that Forum.
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 is always open to feedback from Shareholders on Remuneration policy and arrangements
and commits to undergoing consultation with leading Shareholders in advance of any significant changes to Remuneration policy. The
Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the structure of the
executive remuneration remains appropriate.
Further details of the votes received on the 2017 Directors’ Remuneration policy report and the 2017 Annual Report on Remuneration are
provided on page 112.
110
Babcock International Group PLC Annual Report and Accounts 2018
Annual Report on Remuneration
The Committee
The members of the Committee are appointed by the Board on the recommendation of the Nominations Committee and, in accordance
with provision D.2.1 of the UK Corporate Governance Code, the Committee is made up of the independent Non-Executive Directors. The
membership of the Committee currently and during the year to 31 March 2018 (with each member serving throughout the year with the
exception of Anna Stewart, who sadly died on 5 October 2017) as well as attendance at Committee meetings in the year is shown below.
The Company Secretary is Secretary to the Committee.
Committee attendance
Member
Jeff Randall
Sir David Omand
Ian Duncan
Anna Stewart
Myles Lee
Victoire de Margerie
Number of meetings attended/Number of meetings possible (year to 31 March 2018)
7 of 7
7 of 7
7 of 7
2 of 2
7 of 7
7 of 7
The Group Chairman and the Chief Executive normally attend meetings by invitation, as does the Group Finance Director on occasion,
but they are not present when their own remuneration is being decided. The Company Secretary attends meetings as Secretary to the
Committee. The Group Director of Organisation and Development also attends meetings.
Advisors
Mercer | Kepler (which is part of the MMC group of companies) was appointed by the Committee in late 2008, following a
selection process, including interviewing a number of candidate firms, to provide it with 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. Mercer | Kepler reports directly to the Committee Chairman. A representative from Mercer | Kepler typically
attends Committee meetings. Mercer | Kepler also provides participant communications, performance reporting, and Non-Executive
Directors’ fee benchmarking services to the Company. Mercer | Kepler is a member of the Remuneration Consultants Group and is a
signatory to the Code of Conduct for consultants to remuneration committees of UK listed companies, details of which can be found
at www.remunerationconsultantsgroup.com. Mercer | Kepler adheres to this Code of Conduct. The fees paid to Mercer | Kepler
in respect of work for the Committee carried out in the year under review totalled £75,595 on the basis of time and materials,
excluding expenses and VAT.
The Committee reviews Mercer | Kepler’s involvement each year and considers any other relationships that Mercer | Kepler’s parent
company has with the Company that may limit its independence. The Committee is satisfied that the advice provided by Mercer | Kepler
is objective and independent and that any services provided by its parent to the Company do not impair its independence.
How often it meets
In total there were seven meetings in the year to 31 March 2018. The Committee plans to meet at least six times in the year to
31 March 2019.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Remuneration
Matters considered
The Committee considered a number of matters during the year to 31 March 2018, including:
• agreeing Executive Director salaries for the year under review
• consulting our largest Shareholders and investor bodies on proposed changes to Remuneration policy
• reviewing the Committee’s terms of reference
• considering trends in executive remuneration, remuneration governance and investor views
• making share awards under the Company’s share plans
• reviewing the performance measures and targets to be applied under the Company’s share plans
• finalising performance targets and non-financial objectives for the 2018/19 annual bonus plan
• agreeing the level of vesting of PSP and DBMP awards granted in 2014
• considering performance against the measures to be applied for the 2017/18 annual bonuses
• agreeing the level of 2017/18 annual bonuses
• reviewing share ownership guidelines for senior executives
• agreeing pay reviews for other senior executives for the year to 31 March 2019
• reviewing the Directors’ Remuneration report
• approving the procedure for the authorisation of Chairman and CEO expenses
• reviewing the continued appointment of the Committee’s independent advisors.
Summary of Shareholder voting at the 2017 AGM
The following table shows the results of the binding Shareholder vote on the 2017 Remuneration policy and the advisory Shareholder vote
on the 2017 Annual Report on Remuneration at the 2017 AGM:
Votes cast
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
2017 Remuneration policy
2017 Annual Report on Remuneration
Total number
of votes
368,814,605
13,528,165
382,342,770
4,341,748
386,684,518
% of votes cast
96.5%
3.5%
100.0%
Total number
of votes
379,124,151
1,796,792
380,920,943
5,763,575
386,684,518
% of votes cast
99.5%
0.5%
100.0%
112
Babcock International Group PLC Annual Report and Accounts 2018
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 for the years ending 31 March 2018
and 31 March 2017.
Fixed remuneration
1. Salary
2. Benefits in kind and cash
3. Pension
Annual variable remuneration
4. Annual bonus (cash or voluntarily
deferred bonus)
5. DBMP (deferred annual bonus)
Long-term incentives
6. DBMP (matching awards)
7. PSP
8. Dividends
Total (of which)
Fixed remuneration(1,2,3)
Annual variable remuneration(4,5)
Long-term incentives(6,7,8)
Archie Bethela
£’000
Franco Martinelli
£’000
Bill Tame
£’000
John Davies
£’000
17/18
16/17
17/18
16/17
17/18
16/17
17/18
16/17
765
227
191
422
281
63
76
16
2,041
1,183
704
154
667
179
167
390
260
69
97
14
1,844
1,013
651
180
428
1
107
238
159
27
76
12
1,048
536
397
115
420
1
105
246
164
18
91
9
1,054
526
410
118
428
18
107
197
131
44
85
15
1,025
554
328
143
420
20
105
167
112
53
112
13
1,002
545
279
178
413
43
103
211
141
52
72
14
1,049
559
352
138
405
90
101
172
115
61
93
13
1,051
596
287
167
(a) Archie Bethel was appointed as Chief Operating Officer on 1 April 2016 on a salary of £550,000. On 1 September 2016, he was appointed as Chief Executive on a
salary of £750,000.
The figures have been calculated as follows:
1. Salary: basic 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.
Archie Bethel in 17/18 received £225,728 (16/17: £173,806) in connection with his accommodation costs in London, at the Company’s request, to enable him
to lead the business effectively. John Davies received a similar allowance in 17/18 of £20,789 (16/17: £62,200).
3. Pension: for all Executive Directors the numbers above represent for each year the value of the cash supplement of 25% of salary paid to each of them.
4. Annual bonus (cash or voluntarily deferred bonus): this is the part of total annual bonus earned for performance during the year (see page 115 that is not required
to be mandatorily deferred into a basic award of shares under the DBMP (see page 116) and that is to be satisfied in cash.
5. DBMP 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. DBMP (matching awards): for 17/18, represents the market value of the 2015 awards that vest on performance to 31 March 2018: based on vesting as to 20% of
the total award (see page 118) and an average share price in the three months to 31 March 2018 of 679.6p. Note: the difference between the DBMP figures shown
for 2016/17 in the table above and the equivalent numbers disclosed in last year’s Annual Report on Remuneration reflects trueing up for the actual share price on
subsequent actual vesting of 890.5p on 12 June 2017.
7. PSP: for 17/18, represents the market value of the 2015 awards that vest on performance to 31 March 2018: based on vesting as to 23.9% of the total award (see
page 117) and an average share price in the three months to 31 March 2018 of 679.6p. Note: the difference between the PSP figures shown for 2016/17 in the
table above and the equivalent numbers disclosed in last year’s Annual Report on Remuneration reflects the actual share price on subsequent actual vesting of
890.5p on 12 June 2017 for all awards except Franco Martinelli’s PSP award granted on 29 January 2015 that vested on 29 January 2018 when the share price was
731.4p.
8. Dividends: the total value of dividends accruing on long-term incentive awards (other than on mandatory and voluntary deferral of bonus awards under the DBMP)
vesting on performance to 31 March 2018 (for 17/18) and 31 March 2017 (for 16/17), payable in cash on exercise of the award.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Remuneration
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended
31 March 2018 and the prior year:
Mike Turner
Sir David Omand
Ian Duncan
Jeff Randall
Anna Stewart2
Myles Lee
Victoire de Margerie
Base fee £000
Additional fees £000
Total £000
17/18
330
71
60
60
35
64
64
16/17
310
69
58
58
58
62
62
17/18
15
15
16/17
0
0
15¹
15¹
0
0
0
17/18
330
71
75
75
35
64
64
16/17
310
69
73
73
58
62
62
1. Relating to Chairmanship of the Audit and Risk Committee (Ian Duncan), and Remuneration Committee (Jeff Randall).
2. Anna Stewart sadly died on 5 October 2017.
Pensions
None 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 2018. They instead received a cash supplement equal to 25% of their base salary in lieu of pension benefits.
There are no additional early retirement benefits.
Supplements paid in lieu of pension do not count for pension, share award or bonus purposes.
Babcock International Group Pension Scheme (the Scheme) (audited)
Bill Tame was an active member of the senior executive tier of the Scheme until 30 September 2011. Archie Bethel was an active
member of the executive tier of the Scheme until 31 March 2012. Franco Martinelli was an active member of the executive tier of
the Scheme until 31 March 2015. Whilst still members of the Scheme, Bill Tame accrued benefits at the rate of one-thirtieth, and for
Archie Bethel and Franco Martinelli the rate of accrual was one-forty-fifth, of pensionable salary for each year of service, with a cash
supplement on earnings over the applicable scheme earnings cap. Archie Bethel transferred his benefits out of the Scheme during the
year on the standard terms offered under the Scheme. Until 31 March 2016, John Davies was a member of the VT Upper Section Ex-Short
Brothers section of the Scheme and accrued benefits on earnings up to the scheme earnings cap at the rate of one-sixtieth of
pensionable salary for each year of service.
Pension entitlements under the Scheme (defined benefit) for the year to 31 March 2018 are set out in the following table:
Accrued pension at 31 March 2018
Normal retirement date2
Director1
Bill Tame
John Davies
Franco Martinelli
£ pa
54,768
59,594
62,573
60
65
65
1. None of the Executive Directors were active members of the scheme during the year.
2. Date from which payment can be drawn with no actuarial reduction.
Note: The figures in the above table make no allowance for the cost of death in service benefits under the Scheme, or for any benefits in
respect of earnings in excess of the earnings cap. In calculating the above figures no account has been taken of any retained benefits that
the Director may have from previous employments.
Directors also benefit from life assurance cover of four times base salary. The cost of providing that life assurance cover was:
Director
Archie Bethel
Bill Tame
John Davies
Franco Martinelli
2017/18
£’000
5
3
3
3
2016/17
£’000
5
3
3
3
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Babcock International Group PLC Annual Report and Accounts 2018
Annual bonus
2017/18 Annual bonus (audited)
For our Executive Directors’ annual bonus plans in 2017/18, as in previous years, a mix of financial and non-financial measures was used.
The non-financial measures were principally based on the key themes that the Committee considers to be of material importance to the
continued success of the Company. Objectives for the 2017/18 bonus were set by the Committee at the beginning of the year.
The table below sets out the annual bonus plan in place for the Executive Directors and the outturn under them in 2017/18. The figures
in the table below for actual outturn exclude the effect of changes in exchange rates.
Threshold
81.0p
Target
83.1p
Maximum
85.6p
Actual
outturn
82.8p
Bonus element
EPS1 performance
Stretching targets, with
a sliding scale between
threshold and maximum
Achieving budgeted
Group cash flow
95%
of budget
Budget
(£213.7m)
105%
of budget
Achieving budgeted
Group PBT2
97%
of budget
Budget
(£516.5m)
103%
of budget
Achieving budgeted
sector cash flow
95%
of budget
Budget3
105%
of budget
Achieving budgeted
sector PBIT2
97%
of budget
Budget3
103%
of budget
Non-financial objectives4
Global Growth &
Operations5
Total
Archie
Bethel
60%
Franco
Martinelli
60%
Bill
Tame
60%
John
Davies
60%
26.3%
26.3% 26.3% 26.3%
30%
30%
30%
30%
15%
15%
30%
30%
15%
15%
11.1%
11.1%
5.6% 5.6%
15%
15%
15%
15%
15%
15%
0%
0%
30%
30%
30%
30%
24.5%
25.2%
19% 23.4%
15%
10.7%
150%
150%
150% 150%
92.0%
92.7% 76.6% 85.3%
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)
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)
1. Threshold vesting is 10% of maximum for each financial bonus element except for EPS performance, where 8% of maximum vests at threshold. In line with our policy,
overall vesting at threshold is no more than 15% when all measures are taken into account.
2. Before amortisation of acquired intangibles. The treatment of exceptional items is at the discretion of the Committee.
3. The Committee considers that the sector budgets remain commercially sensitive given the strategic nature of some of our customers or their activities, and they
would also be of assistance to competitors, and will not be published.
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Remuneration
4. Non-financial objectives were set around the strategic and risk management ‘Themes’, which for the year were Growth, Technology, Resources, Reputation and
Processes. At the end of the bonus year, the Committee reviewed progress against the Themes overall having regard to all relevant circumstances and made an
assessment as to performance on non-financial measures and what the appropriate bonus payment was for that. In making its assessment in respect of the award
under the non-financial measures, the Committee considered the following issues in respect of each Theme:
• Growth: As described in the Strategic report, the Group continued to grow profit, earnings per share and dividend payments at an acceptable return on capital.
Each of the sectors have won important new contracts during the period, both in the UK and internationally. In addition, the opportunities for further growth
are evidenced by the increase in value of the bid pipeline.
• Technology: In the year, a position of Group MD, Technology, has been created. The Group MD, Technology, sits on the Group Executive Committee and
is responsible for developing the Group’s technology strategy. As a first step, the Group MD, Technology, has established a cross sector Technology capability
in order to develop and support each sector’s increased application of technology. The Group believes that the innovative application of technology is a
differentiator for its business. For example, Aviation further developed the mission and communications capability on UK National Police Air Service aircraft.
These improvements created a “best in class” and helped the sector to win contracts with the Dutch Police and Western Power Generation.
• Resources: From 1 April 2017, the Group was realigned into its current four sectors. This realignment has allowed each sector to focus better on the possible
opportunities, as evidenced by the increase in value of the pipeline, while realising operational efficiencies. At the same time, each sector has continued to look
to improve the diversity of its workforce. Marine has established Diversity & Inclusion Leadership Groups at all its main sites. Aviation has increased the number of
female candidates in its talent programme from 14% to 21% since last year.
• Reputation: Each sector has delivered a good year of operational performance to customers. The Group has leveraged its reputation in order to expand its
offering internationally, for example, the new contract to deliver training to the French Air Force.
• Processes: During the year, the Group has improved its IT infrastructure with the further introduction of IT platforms for employee management and procurement
across most of its UK businesses. In addition, the Group has also continued with the roll out of the Group Enterprise Resource Planning platform, which is now
operational in its UK defence and nuclear businesses. This platform will allow for the adoption of a common systems approach and will increase the effectiveness
of the Group’s operations.
5. For Bill Tame (in his role as Chief Executive, Global Growth & Operations), the Committee determined that a proportion of his annual bonus should be based on
growth in the International order book and International revenue.
Annual bonus deferral into shares (audited)
To ensure that a substantial part of the Directors’ annual bonus is exposed to the longer-term impact of decision-making and further
to align their interests with Shareholders, 40% of any annual bonus earned by Executive Directors (and other senior executives) must be
deferred into Company shares (by means of an award of nil-cost options).
Mandatorily deferred annual bonus awards (Basic Awards) are subject to potential forfeiture if the holder leaves before the awards vest
(other than by reason of death, disability, redundancy, retirement or the company or business in which they are employed ceasing to be
part of the Group).
Long-term incentive schemes (PSP)
PSP awards made in 2017/18* (audited)
Director
Archie Bethel
Franco Martinelli
Bill Tame
John Davies
Basis
As per the policy.
Performance
measures and
targets are
set out below.
Number of shares
Face value(£)1
171,588
£1,530,000
96,112
96,112
92,635
£857,000
£857,000
£826,000
1. Based for Directors on three-day average share price (of 891.67p) at time of grant.
2. Expressed as a percentage of salary at the date of the award (14 June 2017).
*
In the form of nil-cost options.
Face value
(% of salary)2
% receivable
for threshold
performance
End of
performance
period
200%
200%
200%
200%
16.7%
16.7%
16.7%
16.7%
31 March 2020
31 March 2020
31 March 2020
31 March 2020
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Babcock International Group PLC Annual Report and Accounts 2018
The performance targets that were attached to these awards — split equally between TSR performance relative to the peer group,
EPS growth and ROCE — are illustrated in the charts below:
EPS element
(33% of award)
100%
ROCE element
(33% of award)
100%
TSR element
(33% of award)
100%
t
n
e
m
e
e
S
P
E
l
f
o
%
75%
50%
25%
0%
16.7%
4%
11%
l
t
n
e
m
e
e
E
C
O
R
f
o
%
75%
50%
25%
0%
16.7%
12%
14.5%
Babcock’s three-year annualised
EPS growth (% p.a.)
Babcock’s three-year average
ROCE (% p.a.)
t
n
e
m
e
e
S
R
T
l
f
o
%
75%
50%
25%
0%
16.7%
Median
Median +9%
Babcock’s three-year TSR out performance
of FTSE 350 Median (% p.a.)
Note: TSR comparators are the companies that comprise the FTSE 350 (excluding investment trusts and financial services companies). Threshold vesting (16.7% of this
element) for the EPS element was set at growth of 4% per annum and maximum vesting at growth of 11% per annum. We believe that growth of 11% would represent
exceptional performance. For the comparative TSR element, threshold vesting (16.7% of this element) would be for performance in line with the median of the FTSE 350
(excluding investment trusts and financial services companies) and maximum vesting would be for 9% pa outperformance of the median, representing upper quartile
performance. For the ROCE element, the target for maximum vesting of these awards was set at 14.5% and for threshold vesting at 12%.
Deferred Bonus Plan awards made in 2017/18* (audited)
Director
Archie Bethel
Franco Martinelli
Bill Tame
John Davies
Basis
As per the policy.
No additional
performance
conditions required
for vesting.
Number of shares
Face value(£)1
29,185
18,387
12,519
12,890
£260,233
£163,951
£111,628
£114,936
1. Based for Directors on three-day average share price of 891.67p at time of grant.
2. Expressed as a percentage of salary at the date of award (14 June 2017).
*
In the form of nil-cost options.
Face value
(% of salary)2
% receivable for
threshold
performance
End of performance
period
34%
38%
26%
28%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2015 PSP awards vesting (audited)
Awards granted in 2015 under the PSP were subject to three-year TSR and EPS targets outlined on page 120. Performance against these
measures, and resulting vesting, is as follows:
Outcome of three-year TSR to 31 March 2018
Outcome of three-year adjusted basic underlying
EPS growth to 31 March 2018
2015 PSP awards expected to vest to Executive Directors in June 2018:
14% pa below median TSR for the FTSE 350
(excluding investment trusts and financial services)
6.6% pa (historical EPS numbers were restated to
ensure they were on the same accounting basis)
Director
Archie Bethel
Franco Martinelli
Bill Tame
John Davies
Award
PSP 2015
PSP 2015
PSP 2015
PSP 2015
% weighting on
each element
50%
% of each
element vesting
0%
50%
47.8%
23.9%
Number expected to vest
11,118
11,118
12,474
10,622
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Remuneration
2015 DBMP awards vesting (audited)
Awards granted in 2015 under the DBMP were subject to the three-year TSR, EPS and average ROCE targets outlined on page 120.
The maximum match is 2 for 1 on any shares held under the plan; 0.25 matching shares would be released for each such share at
threshold vesting. Performance against these measures, and resulting vesting, is as follows:
Outcome of three-year TSR
to 31 March 2018
Outcome of three-year adjusted basic
underlying EPS growth to 31 March 2018
Outcome of three-year average ROCE
14% pa below median TSR for the FTSE 350
(excluding investment trusts and financial services)
6.6% pa (historical EPS numbers were restated to
ensure they were on the same accounting basis)
12.1%
Match expected on 2015 DBMP awards for Executive Directors on vesting in June 2018:
Director
Archie Bethel
Franco Martinelli
Bill Tame
John Davies
% weighting
on each element
33%
Match on
each element
0x
33%
33%
0.90x
0.31x
0.40x
Award Number expected to vest
9,256
4,016
6,428
7,660
DBMP 2015
DBMP 2015
DBMP 2015
DBMP 2015
Sourcing of shares
Shares needed to satisfy share awards for Directors are either fresh issue shares issued to the Group’s employee share trusts to meet share
awards or shares purchased in the market by the trusts using funds advanced by the Company. The source selection is finalised on or before
vesting, the choice being based on what the Board considers is in the best interests of the Company at the time, and what is permissible
within available headroom and dilution limits.
Executive Directors’ remuneration for 2018/19
The Committee has set the remuneration for Executive Directors for 2018/19 in line with the Group’s policy, as approved by Shareholders
at the 2017 AGM.
Base salary
Executive Directors’ base salaries are reviewed each year with any changes usually taking effect from 1 April. The Remuneration policy
is pitched to deliver fixed remuneration at or below median and total remuneration capable of delivering upper quartile performance.
The increase in Executive Directors’ salaries for 2018/19 was in line with increases for the wider UK workforce (see below).
Archie Bethel
Franco Martinelli
Bill Tame
John Davies1
1. Salary reflects that he receives car and fuel benefits.
Salary 2018/19 £
780,300
437,070
428,500
421,260
Salary 2017/18 £
765,000
428,500
428,500
413,000
Internal relativity
As noted in our Remuneration policy, when reviewing Executive Directors’ remuneration, the Committee takes note of proposals for
pay in the wider Group. Each business within the Group determines its own pay structures and remuneration in light of its own position
and the employment market in which it operates.
The overall average salary increase for employees in the UK generally for the year to 31 March 2019 is expected to be 2% (although,
in certain specific cases, individuals may receive above this amount) dependent on business and personal performance and local market
conditions. The salary increase for the Executive Directors has been set at 2%.
118
Babcock International Group PLC Annual Report and Accounts 2018
2018/19 Annual bonus
Executive Directors’ annual bonus plans for 2018/19 are unchanged from the structure adopted in 2017/18 as set out on page 115.
Measures are based 40% on EPS, 20% on PBT, 20% on OCF and 20% on non-financial objectives. For John Davies, a portion of the PBT and
OCF element will be based on performance of his area of the business. The Committee intends to disclose the Group financial performance
targets for 2018/19 and non-financial objectives retrospectively in next year’s Annual Report on Remuneration, subject to these no longer
being considered by the Board to be commercially sensitive. As disclosed last year, non-financial objectives will fall under the categories of:
• Growth: continue delivery of value-creating growth
• Technology: improve our technical offering, build barriers to entry and drive cross-sector synergies
• Resources: develop robust resourcing plans to meet the future growth plans of the business
• Reputation: deliver value to our customers, enhance our reputation and sustain operational performance
• Processes: continually improve our systems, technologies and processes to maximise business opportunities.
The weighting of the elements of bonus is kept under review.
For all Executive Directors, 40% of any earned bonus will continue to be deferred into shares for three years.
PSP awards for 2018/19
The Committee intends to grant awards in 2018/19 under the PSP of 200% of salary for all Executive Directors, with the performance
measures and targets as follows: EPS growth targets for 2018 awards in nominal terms of 4% pa to 11% pa over three years; TSR targets
between median and median+9% relative to the peer group; ROCE targets (based on the average return over the performance period)
will vest from 12% to 14%.
Summary of the structure of Executive Directors’ remuneration
Based on the Committee’s policy, the principal elements of the remuneration arrangements (other than pension benefits or supplements in
lieu of pension benefits) for Executive Directors in the year to 31 March 2019 and for the year to 31 March 2019 are summarised in the
table below.
Director
Archie Bethel
Franco Martinelli
Bill Tame1
John Davies
2018/19
Annual bonus
potential (% of salary)
150%
150%
n/a
150%
Base pay £
780,300
437,070
n/a
421,260
Performance share
awards (% of salary)
200%
200%
n/a
200%
2017/18
Annual bonus
potential (% of salary)
150%
150%
150%
150%
Base pay £
765,000
428,500
428,500
413,000
Performance share
awards (% of salary)
200%
200%
200%
200%
1. Bill Tame stepped down from the Board on 31 March 2018
Bill Tame
As announced on 21 December 2017, Bill Tame will retire from Babcock on 30 June 2018. Bill will continue to be remunerated up to
his date of leaving, in accordance with his contractual entitlements and the Company’s Directors’ Remuneration policy, as approved
by Shareholders on 13 July 2017. Bill will not be eligible for a salary increase for 2018/19, nor will he receive a 2018 grant under the
Company’s PSP, although he will be eligible for a time pro-rated bonus for the financial year 2018/19. Details of the remuneration payable
to Bill in respect of the year ending 31 March 2018 will be disclosed in next year’s Directors’ Remuneration report.
The Committee has exercised its discretion and determined that Bill will be treated as a ‘good leaver’. Outstanding share awards that
he currently holds will, accordingly, be treated consistently with the terms of the Company’s Directors’ Remuneration policy, as follows:
• The 2015 PSP grant (over 52,193 shares) will vest on the normal vesting date in accordance with the PSP rules, subject to the
achievement of the performance conditions attached to them. A cash sum equivalent to the dividends that accrue on the shares
that vest will also be paid.
• The 2015 Deferred Bonus Matching Plan (DBMP) basic grant (over 16,070 shares) and basic matching grant (over 32,140 shares)
will vest on the normal vesting date, in accordance with the DBMP rules. The extent to which the basic matching grant shall vest will
be determined by the extent to which the performance conditions attached to the grant have been met over the performance period.
A cash sum equivalent to the dividends that accrue on the shares that vest will also be paid.
Babcock International Group PLC Annual Report and Accounts 2018
119
Strategic reportGovernance statementFinancials
Remuneration
The vesting periods for the above awards will have been completed by Bill’s date of retirement and, therefore, the performance-based
awards will not be pro-rated for time.
• Outstanding Deferred Bonus Plan (DBP) grants made in 2016 (over 12,498 shares) and 2017 (over 12,519 shares) shall vest on their
normal vesting dates, in accordance with the DBP rules. A cash sum equivalent to the dividends that accrue on the shares that vest will
also be paid. To the extent that Bill receives a bonus for the financial year 2017/18 and for 2018/19, 40% of any such bonus will be
deferred into the DBP.
• Bill will also retain an interest in the PSP grants made in 2016 (over 84,238 shares) and 2017 (over 96,112 shares). These interests will
be pro-rated for time to the date of leaving, and will vest (to the extent the performance conditions attaching to the awards are met)
on their normal vesting date, in accordance with the PSP rules. A cash sum equivalent to the dividends that accrue on any shares that
vest will also be paid. The two-year post-vesting holding period will apply to any shares that vest under the 2017 PSP grant. As stated
above, Bill will not receive a 2018 PSP grant.
No payments fall to be made to Bill by way of compensation for loss of office.
Outstanding share awards summaries: grants made up to and during 2017
The following tables on pages 120 to 122 summarise the performance targets (if applicable) and other information about the plans
relevant to currently outstanding share awards held by Executive Directors (i.e. those awards yet to vest) and those that vested during the
year to 31 March 2018 (the awards made in 2014 under the PSP, the CSOP and the DBMP).
Performance Share Plan (nil price options) and Company Share Option Plan (market price options) 2014-2017
For the 2014 awards: 1 April 2014 to 31 March 2017 (vested in June 2017 as to 26.5%)
For the 2015 awards: 1 April 2015 to 31 March 2018 (expected to vest in June 2018 as to 23.9%)
For the 2016 awards: 1 April 2016 to 31 March 2019
For the 2017 awards: 1 April 2017 to 31 March 2020
EPS growth test
Compound annual
growth: 2014 awards: 11%
or more in excess of RPI
2015, 2016 and 2017
awards: 11% or more
Compound annual
growth in:
2014 awards: 4% or more
in excess of RPI
2015, 2016 and 2017
awards: 4% or more
Intermediate growth
between the above points
Comparative TSR test
Outperformance of the
median TSR performance
for the peer group taken
as a whole by 9% or more
ROCE test
2016 awards: ROCE of more
than 15%, 2017 awards:
ROCE of more than 14.5%
Proportion of total award that
can vest under each measure
50% on EPS and TSR for
2014 and 2015 awards
33% on EPS, TSR and ROCE
for 2016 and 2017 awards
TSR performance equivalent
to the median for the peer
group as a whole
2016 and 2017 awards:
ROCE of 12%
8.3% on EPS and TSR for
2014 and 2015 awards
Intermediate ranking
between the above points
Intermediate ROCE
between the above points
5.6% on EPS, TSR and ROCE
for 2016 and 2017 awards
Straight-line basis between
8.3% and 50% on EPS and
TSR for 2014 and 2015
awards; and between 5.6%
and 33% on EPS, TSR and
ROCE for 2016 and 2017
awards
Compound annual
growth below threshold
Performance less than
equivalent to median for the
whole peer group
ROCE of less than threshold 0%
TSR comparator
group
For the TSR element the peer group is the FTSE 350 (excluding investment trusts and financial services). This group
was chosen after careful review due to the fact that Babcock’s closest peers straddle multiple sectors, not just support
services, and the broader group makes the calibration more robust.
120
Babcock International Group PLC Annual Report and Accounts 2018
Scheme
Performance
period
General
performance
target
Maximum
Threshold
Performance Share Plan (nil price options) and Company Share Option Plan (market price options) 2014-2017 continued
Other information
The awards are not subject to re-testing. The TSR element will vest only to the extent the Committee is
satisfied that the recorded TSR is a genuine reflection of the underlying performance of the Company over
the performance period.
EPS is adjusted to exclude acquired intangible amortisation, but, unless the Committee decides otherwise
in respect of any item, is after exceptional items.
ROCE is underlying EBIT after amortisation of acquired intangibles but before exceptional items and including
IFRIC 12 investment income and the Group’s share of the EBIT of JVs, as a percentage of Average Capital
Employed over the Performance Period where Capital Employed is calculated as Total Shareholders’ Equity
plus Net Debt (or minus Net Funds), as stated in the Company’s consolidated audited accounts for the relevant
Financial Year; and Average Capital Employed will be calculated as the average of the opening and closing value
of Capital Employed for each year of the applicable Performance Period. ROCE targets set at the start of each
cycle represent challenging returns in relation to the capital structure at that time, including the impact of any
acquisitions or disposals made in the period prior to grant. The Committee has discretion to adjust the ROCE
outcome for significant changes to the capital structure made during the performance period (e.g. acquisitions
and disposals) to ensure a fair outcome for participants and Shareholders.
The awards carry the right to receive on vesting a payment equal to the value of any dividends in the period
between grant and vesting but this right applies only to the shares that actually vest under the award. Exercise
periods commence not less than three years from actual or nominal award grant date.
CSOP and PSP awards are linked so that in aggregate the holder cannot receive more gross value from them
than a standalone PSP award of shares equal to the relevant award multiple of the Director’s base salary.
Scheme
Performance period
Deferred Bonus Matching Plan (nil price options) 2014-ƒ2016 matching awards
For the 2014 awards: 1 April 2014 to 31 March 2017 (vested in June 2017 as to 17.0%)
For the 2015 awards: 1 April 2015 to 31 March 2018 (expected to vest in June 2018 as to 20.0%)
For the 2016 awards: 1 April 2016 to 31 March 2019
General performance target
Maximum
EPS growth test
Compound annual
growth:
Threshold
2014 awards: 11% or
more in excess of RPI
2015 and 2016 awards:
11% or more
Compound annual
growth:
2014 awards: 4% or
more in excess of RPI
2015 and 2016 awards:
4% or more
Intermediate growth
between the above points
Comparative TSR test
Outperformance of the
median TSR performance
for the peer group taken
as a whole by 9% or more
ROCE test
ROCE of more than 17%
(2014); 15% (2015 and
2016)
Match that can vest
under each measure
0.33x maximum
TSR performance
equivalent to the median
for the peer group as
a whole
ROCE of 15% (2014);
12% (2015 and 2016)
0.042x maximum
Intermediate ranking
between the above points
Intermediate ROCE
between the above points
Straight-line basis between
0.042x and 0.33x
maximum
0x
Compound annual growth
below threshold
Performance less than
equivalent to median for
the whole peer group
ROCE of less than
threshold
Babcock International Group PLC Annual Report and Accounts 2018
121
Strategic reportGovernance statementFinancials
Remuneration
Deferred Bonus Matching Plan (nil price options) 2014-2016 matching awards continued
TSR comparator group
Other information
For the TSR element the peer group is the FTSE 350 (excluding investment trusts and financial services). This
group was chosen after careful review due to the fact that the Company’s closest peers straddle multiple sectors,
not just support services, and the broader group makes the calibration more robust.
No further DBMP awards will be made following approval last year of our new 2017 Remuneration policy.
Outstanding matching awards are not subject to re-testing. The TSR element will vest only to the extent the
Committee is satisfied that the recorded TSR is a genuine reflection of the underlying performance of the
Company over the performance period.
EPS is adjusted to exclude acquired intangible amortisation, but, unless the Committee decides otherwise in
respect of any item, is after exceptional items. For the 2015 and 2016 awards, ROCE is underlying EBIT after
amortisation of acquired intangibles but before exceptional items and including IFRIC 12 investment income and
the Group’s share of the EBIT of JVs, as a percentage of Average Capital Employed over the Performance Period
where Capital Employed is calculated as Total Shareholders’ Equity plus Net Debt (or minus Net Funds), as stated
in the Company’s consolidated audited accounts for the relevant Financial Year; and Average Capital Employed
will be calculated as the average of the opening and closing value of Capital Employed for each year of the
applicable Performance Period. For 2014 awards, the test is based on Average Capital Employed in the 2016/17
Financial Year, with EBIT for the Babcock businesses excluding Avincis (now called Mission Critical Services) being
calculated after amortisation of acquired intangibles and EBIT for the Avincis business being calculated before
amortisation of acquired intangibles in each case before exceptional items and including IFRIC 12 investment
income and the Group’s share of the EBIT of JVs, as a percentage of Capital Employed calculated as the average
of the opening and closing value of Capital Employed for that year. In addition, for the 2014 awards, the
Committee has to be satisfied that ROCE for 2014/15 and 2015/16 was satisfactory, and that the recorded
ROCE performance is a genuine reflection of the underlying performance of the Company. ROCE targets set at
the start of each cycle represent challenging returns in relation to the capital structure at that time, including the
impact of any acquisitions or disposals made in the period prior to grant. The Committee has discretion to adjust
the ROCE outcome for significant changes to the capital structure made during the performance period
(e.g. acquisitions and disposals) to ensure a fair outcome for participants and Shareholders.
The awards carry the right to receive on vesting a payment equal to the value of any dividends in the period
between grant and vesting but this right applies only to the shares that actually vest under the award.
Exercise periods commence not less than three years from actual or nominal award grant date.
122
Babcock International Group PLC Annual Report and Accounts 2018
Linkage of remuneration to strategic objectives, risk management and alignment with
Shareholder interests
The Committee links the remuneration of executives to the long-term interests of Shareholders and key strategic and risk management
objectives by the performance criteria it uses in the annual bonus and long-term incentive plans. Examples include the following:
Strategic objective (SO)/Risk (R)
SO/R: Delivering superior and
sustainable value for our Shareholders,
whilst balancing risk and reward.
Annual bonus scheme metric
Financial measures focused on annual delivery of
sustainable earnings and/or profits with stretch
targets, whilst maintaining strict control of cash.
Long-term incentive metric
Incentivising delivery of top quartile
Shareholder returns and earnings growth
over the longer term.
Long-term measures and deferral of
significant part of annual bonus to guard
against short-term steps being taken to
maximise annual rewards at the expense
of future performance.
SO: Growth.
Setting challenging budgets and stretch targets,
as well as non-financial measures specifically aimed at:
• laying the foundations for sustainable growth in
specific existing and new geographical business
markets
• winning key bids and rebids
• fostering strategically important partnering
arrangements.
Specific non-financial objectives for:
• progressing plans for entry into or expansion
in targeted domestic and overseas markets
• securing key business development milestones.
Non-financial objectives linked to:
• customer satisfaction
• continuing improvement of management processes
• meeting and planning for existing and future
customer expectations on capability and compliance,
for example, in the field of security and information
assurance.
Non-financial objectives linked to recruitment and
development, resource and succession planning,
and fostering diversity and employee engagement.
Retentive nature of the requirement for deferral
into shares of 40% of annual bonuses earned by
senior executives.
Overriding health, safety and environmental
performance criterion in annual bonus plans.
SO: Developing and maintaining
leading market positions in the UK
and selected overseas markets.
SO: Building and maintaining
customer focused, long-term
relationships with strategically
important customers. R: Loss of
business reputation, poor contract
performance.
SO/R: Ensuring the Group will
continue to retain and attract the
suitably qualified and experienced
people it needs to deliver its growth
and strategic plans, maintain and
develop its technical and
management expertise.
SO/R: Maintenance of an
excellent health, safety and
environmental record.
Exit payments made in year (audited)
No exit payments were made to Executive Directors during the year under review.
Retentive nature of the long-term plans.
Babcock International Group PLC Annual Report and Accounts 2018
123
Strategic reportGovernance statementFinancials
Remuneration
Payments to past Directors (audited)
Details of the treatment of awards for Peter Rogers (retired 31 August 2016) and Kevin Thomas (retired 31 March 2016) were included
in last year’s Annual Report on Remuneration.
Peter Rogers retired from the Company on 31 August 2016. During the year under review, 26.5% and 17.0% of his retained interest in
the 2014 PSP and 2014 DBMP matching awards, totalling 42,684 shares, vested at the normal time and in line with other participants
on 12 June 2017. In addition to the vesting of these shares, Mr Rogers was paid a cash sum of £30,861, representing the total value of
dividends accruing on his 2014 PSP and DBMP matching awards.
Kevin Thomas retired from the Company on 31 March 2016, having previously served as an Executive Director until stepping down on
31 December 2015. During the year under review, 26.5% and 17.0% of his retained interest in the 2014 PSP and 2014 DBMP matching
awards, totalling 19,072 shares, vested at the normal time and in line with other participants on 12 June 2017. Mr Thomas was also paid
a cash sum of £13,789, representing the total value of dividends accruing on his 2014 PSP and DBMP matching awards. In addition,
Kevin Thomas acted as Chairman on two joint ventures for Cavendish Nuclear and was paid £120,000 in the year. Kevin Thomas stepped
down from both joint ventures on 31 March 2018.
Non-Executive Directors’ fees (including the Chairman)
The Chairman and Non-Executive Directors receive fixed fees. These fees are reviewed against market practice. From this year the review
will take place annually (by the Chairman and the Executive Directors in the case of the Non-Executive Director fees and by the Committee
in respect of the fees payable to the Chairman). The Chairman and Non-Executive Director fees were reviewed and set as of 1 April 2017.
Prior to this, they were last increased in April 2015.
Annual rate of fees
Chairman
Senior Independent Director (inclusive of basic fee)
Basic Non-Executive Director’s fee (UK based Directors)1
Chairmanship of Audit and Risk Committee2
Chairmanship of Remuneration Committee2
Year to
31 March 2019 £
330,000
71,000
60,000
15,000
15,000
Year to
31 March 2018 £
330,000
71,000
60,000
15,000
15,000
% change since last review
(% p.a.)
0%
0%
0%
0%
0%
1. Fees for non-UK based Directors will be set having regard to the extra time commitment involved in attending meetings. For Myles Lee, appointed 1 April 2015 and
based in Ireland, and for Victoire de Margerie, appointed 1 February 2016 and based in France, the fee has been set at £64,200 for the year to 31 March 2019
(unchanged from that for the year to 31 March 2018).
2. Committee chairmanship fees are paid in addition to the basic applicable Non-Executive Directors’ fee. No additional fees are paid for membership of Committees.
Percentage change in Chief Executive remuneration
The table below shows the percentage change in the Chief Executive’s remuneration (as disclosed in the single total figure of
remuneration table on page 113) from the prior year compared to the average percentage change in remuneration for other employees.
The analysis is based on UK employees as they are operating in the same geography and macro-economic background as the
Chief Executive.
Base salary
Taxable benefits
Single-year variable
% change 2016/17 to 2017/18
Chief Executive1
7%2
92%3
(6)%
Other employees
2.2%
0.8%
(35)%
1. The percentage change for the Chief Executive has been determined with reference to the aggregate 2016/17 remuneration for Archie Bethel and Peter Rogers for
the period they were undertaking the role of Chief Executive.
2. Increase reflects the restructuring of remuneration for 2016/17. As disclosed in last year’s report, following the removal of the DBMP, Archie Bethel was appointed as
Chief Executive on a salary of £750,000 pa which was higher than his predecessor’s salary.
3. Increase reflects additional costs (£279,473) in 2017/18 in connection with Archie Bethel’s accommodation in London, at the Company’s request, to enable him to
lead the business effectively. Note that Peter Rogers did not receive this benefit.
Relative importance of spend on pay
Distribution to Shareholders
Employee remuneration
2017/18
£144m
£1,588m
2016/17
£133m
£1,547m
% change
8.3%
2.7%
124
Babcock International Group PLC Annual Report and Accounts 2018
Performance graphs
The following graph shows the TSR for the Company compared to the FTSE 100 Index and FTSE 350 Support Services Index, assuming
£100 was invested on 1 April 2009 (investment in the Company was worth £217 on 31 March 2018). The Board considers that these
indices currently represent the most appropriate of the published indices for these purposes as they provide a view of performance against
the broad equity market and sector index of which the Company is a constituent.
The table below details the CEO’s single figure remuneration and actual variable pay outcomes over the same period.
Babcock International vs. FTSE 350 Support Services Index and FTSE 100 Index
9
0
0
2
l
i
r
p
A
1
n
o
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
400
350
300
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Babcock
FTSE 350 Support Services Index
FTSE 100 Index
CEO single figure of remuneration and % of variable awards vesting
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
Peter Rogers1
Single figure (£’000)
Bonus vesting (% max)
DBMP matching shares vesting (% max)
PSP/CSOP vesting (% max)
Archie Bethel2
Single figure (£’000)
Bonus vesting (% max)
DBMP matching shares vesting (% max)
PSP/CSOP vesting (% max)
1,706
97%
n/a
100%
1,792
98%
n/a
82.9%
2,185
99%
n/a
57.8%
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%
1,844
66%
17.0%
26.5%
2,041
61%
20.0%
23.9%
1. Until retirement on 31 August 2016.
2. Includes remuneration received whilst undertaking the role of Chief Operating Officer until August 2016.
Babcock International Group PLC Annual Report and Accounts 2018
125
Strategic reportGovernance statementFinancials
Remuneration
Directors’ share ownership
Directors’ interests in shares (audited)
The interests of the Directors (and/or their spouses) in the ordinary shares of the Company as at 31 March 2018 and Directors’ interests in
shares and options under the Company’s long-term incentives are set out in the sections below:
At 31 March 2018
Options held
Vested but
subject to
holding
period
10,955
0
0
7,366
Unvested and
subject to
performance
conditions
374,703
246,953
264,683
256,614
Unvested and
subject to
continued
employment
54,534
41,272
41,087
38,246
Vested but
not exercised
0
3,761
0
0
S/holding req.
(% salary)
300%
200%
200%
200%
Current
share-
holding
(% of
salary)2
370
506
925
326
Req.
met?2
Yes
Yes
Yes
Yes
At 31 March
2017
Shares held
Shares held
Owned
outright by
Director or
spouse1
351,333
292,210
551,891
157,359
75,384
4,375
0
0
5,000
1,000
Owned
outright by
Director or
spouse1
388,191
300,219
571,020
177,246
84,884
5,520
0
0
10,000
3,000
Director
Archie Bethel
Franco Martinelli
Bill Tame
John Davies
Mike Turner
Jeff Randall
Sir David Omand
Ian Duncan
Myles Lee
Victoire de Margerie
1. Beneficially held shares (of Director and/or spouse).
2. Current shareholdings for comparison with the shareholding requirements for Executive Directors is calculated based on salary as at 31 March 2018 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, valued assuming exercise of options on 31 March 2018 (at the closing price on that date of 668.8p) and calculated post-tax.
There have been no changes to the continuing Directors’ (or their spouses’) shareholdings between 31 March 2018 and 22 May 2018.
126
Babcock International Group PLC Annual Report and Accounts 2018
Directors’ share-based awards and options (audited)
The tables below shows 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 29 March 2018 was 668.8p. The highest and lowest mid-market share prices in the year ended
31 March 2018 were 969.5p and 626.2p, respectively.
Director
Archie
Bethel
Plan1 and year
of award
PSP 2014
DBMP 2014
(basic award)
DBMP 2014
(basic
matching
award)
DBMP 2014
(voluntary
deferral award)
DBMP 2014
(voluntary
deferral
matching
award)
PSP 2015
DBMP 2015
(basic award)
DBMP 2015
(basic
matching
award)
DBMP 2015
(voluntary
deferral award)
DBMP 2015
(voluntary
deferral
matching
award)
PSP 2016
DBP 2016
PSP 2017
DBP 2017
Number of
shares
subject to
award at 1
April 2017
41,286
12,705
25,410
Granted
during
the year
Exercised
during
the year
10,940a
12,705a
Lapsed
during
the year
30,346
Number
of shares
subject to
award at 31
March 2018
0
0
Market value
of each share
at date of
award
(pence)
Exercise
price
(pence)2
Exercisable
from3
1,223.67 Jun 2017
1,223.67 Jun 2017
Expiry
date4
Jun 2018
Jun 2018
4,294a
21,116
10,215
10,215a
20,430
3,452a
16,978
46,519
12,187
24,374
10,955
21,910
0
0
0
1,223.67 Jun 2017
Jun 2018
1,223.67 Jun 2017
Jun 2018
1,223.67 Jun 2017
Jun 2018
46,519
12,187
1,141.00 Jun 2018
1,141.00 Jun 2018
Jun 2019
Jun 2019
24,374
1,141.00 Jun 2018
Jun 2019
10,955
1,141.00 Jun 2018
Jun 2019
21,910
1,141.00 Jun 2018
Jun 2019
110,312
13,162
171,588
29,185
110,312
13,162
171,588
29,185
997.17 Jun 2019
997.17 Jun 2019
891.67 Jun 2020
891.67 Jun 2020
Jun 2020
Jun 2020
Jun 2021
Jun 2021
(a) Market value of each share at date of exercise (15 Jun 2017) = 886.88p.
For other notes to the table see page 129.
Babcock International Group PLC Annual Report and Accounts 2018
127
Strategic reportGovernance statementFinancials
Remuneration
Granted
during the
year
Exercised
during the
year
7,178a
5,966a
2,016a
Number of
shares
subject to
award at
31 March
2018
0
3,761
0
0
Lapsed
during the
year
19,912
10,435
9,916
Market
value of
each share
at date of
award
(pence)
Exercise
price
(pence)2
Exercisable
from3
Expiry
date4
1,223.67 Jun 2017 Jun 2018
1,015.00 Jan 2018 Jan 2019
1,223.67 Jun 2017 Jun 2018
1,223.67 Jun 2017 Jun 2018
46,519
10,042
20,084
84,238
12,843
96,112
18,387
Number of
shares
subject to
award at
31 March
2018
0
0
0
0
0
44,447
11,785
23,570
1,141.00 Jun 2018 Jun 2019
1,141.00 Jun 2018 Jun 2019
1,141.00 Jun 2018 Jun 2019
997.17 Jun 2019 Jun 2020
997.17 Jun 2019 Jun 2020
891.67 Jun 2020 Jun 2021
891.67 Jun 2020 Jun 2021
Market
value of
each share
at date of
award
(pence)
Exercise
price
(pence)2
Exercisable
from3
Expiry
date4
1,223.67 Jun 2017 Jun 2018
1,223.67 Jun 2017 Jun 2018
1,223.67 Jun 2017 Jun 2018
1,223.67 Jun 2017 Jun 2018
1,223.67 Jun 2017 Jun 2018
1,141.00 Jun 2018 Jun 2019
1,141.00 Jun 2018 Jun 2019
1,141.00 Jun 2018 Jun 2019
Granted
during the
year
Exercised
during the
year
10,453a
12,139a
4,102a
Lapsed
during the
year
28,995
20,177
8,172a
2,762a
13,582
7,366
1,141.00 Jun 2018 Jun 2019
14,732
1,141.00 Jun 2018 Jun 2019
81,230
13,571
92,365
12,890
997.17 Jun 2019 Jun 2020
997.17 Jun 2019 Jun 2020
891.67 Jun 2020 Jun 2021
891.67 Jun 2020 Jun 2021
92,365
12,890
Number
of shares
subject to
award at 1
April 2017
27,090
14,196
5,966
11,932
46,519
10,042
20,084
84,238
12,843
Director
Franco
Martinelli
Plan1 and year of award
PSP 20145
PSP 2014
DBMP 2014 (basic award)5
DBMP 2014 (basic
matching award)5
PSP 2015
DBMP 2015 (basic award)
DBMP 2015 (basic
matching award)
PSP 2016
DBP 2016
PSP 2017
DBP 2017
(a) Market value of each share at date of exercise (15 Jun 2017) = 886.88p.
For other notes to the table see page 129.
96,112
18,387
Director
John
Davies
Number
of shares
subject to
award at 1
April 2017
39,448
12,139
24,279
8,172
16,344
44,447
11,785
23,570
7,366
14,732
81,230
13,571
Plan1 and year of award
PSP 2014
DBMP 2014 (basic award)
DBMP 2014
(basic matching award)
DBMP 2014 (voluntary
deferral award)
DBMP 2014 (voluntary
deferral matching award)
PSP 2015
DBMP 2015 (basic award)
DBMP 2015
(basic matching award)
DBMP 2015 (voluntary
deferral award)
DBMP 2015 (voluntary
deferral matching award)
PSP 2016
DBP 2016
PSP 2017
DBP 2017
(a) Market value of each share at date of exercise (15 Jun 2017) = 886.88p.
For other notes to the table see page 129.
128
Babcock International Group PLC Annual Report and Accounts 2018
Director
Bill Tame
Number of
shares
subject to
award at 1
April 2017
47,479
17,649
35,299
52,193
16,070
32,140
84,238
12,498
Plan1 and year of
award
PSP 2014
DBMP 2014
(basic award)
DBMP 2014 (basic
matching award)
PSP 2015
DBMP 2015
(basic award)
DBMP 2015 (basic
matching award)
PSP 2016
DBP 2016
PSP 2017
DBP 2017
Granted
during the
year
Exercised
during the
year
12,581
17,649
Lapsed
during the
year
34,898
Number of
shares
subject to
award at
31 March
2018
0
0
Market value
of each
share at
date of
award
(pence)
Exercise
price
(pence)2
Exercisable
from3 Expiry date4
1,223.67 Jun 2017 Jun 2018
1,223.67 Jun 2017 Jun 2018
5,965
29,334
0
1,223.67 Jun 2017 Jun 2018
52,193
16,070
32,140
84,238
12,498
96,112
12,519
1,141.00 Jun 2018 Jun 2019
1,141.00 Jun 2018 Jun 2019
1,141.00 Jun 2018 Jun 2019
997.17 Jun 2019 Jun 2020
997.17 Jun 2019 Jun 2020
891.67 Jun 2020 Jun 2021
891.67 Jun 2020 Jun 2021
96,112
12,519
(a) Market value of each share at date of exercise (15 Jun 2017) = 886.88p.
Notes applicable to all tables on pages 127 to 129.
1. PSP = 2009 Performance Share Plan; CSOP = 2009 Company Share Option Plan; DBMP = 2012 Deferred Bonus Matching Plan; DBP = 2012 Deferred Bonus Plan.
Further details about these plans and, where applicable, performance conditions attaching to the awards listed are to be found on pages 120 to 122.
2. The PSP and DBMP awards are structured as nil priced options. DBMP basic awards represent the amount of the annual bonus mandatorily deferred and DBMP
voluntary deferral awards represent the amount voluntarily deferred by the Director, in each case converted into shares at their value at the award date.
3. Subject to the rules of the plan concerned, including as to meeting performance targets for PSP, CSOP and DBMP matching awards.
4. 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 tenth
anniversary of the award.
5. Awards shown in the table for Franco Martinelli for June 2014 were made prior to his appointment as a Director, which took effect on 1 August 2014.
General notes:
1. ‘Dividend equivalent cash’ (an amount representing dividends earned) of 72.30p per vested share had accrued on the PSP 2014 awards
and on the DBMP 2014 awards (78.9p for Franco Martinelli’s PSP award made in January 2015), in each case for the period between grant
and vesting. It is payable by the Company to the award holder on exercise of the award concerned.
2. Closing share price on the last dealing date before vesting was 882.5p (9 June 2017) for PSP 2014 and DBMP 2014 awards.
Babcock International Group PLC Annual Report and Accounts 2018
129
Strategic reportGovernance statementFinancials
Remuneration
Exercise price
payable for
vested shares
(if any) £
Summary of share-based awards and options vested during the year
During the year to 31 March 2018 the following awards vested:
Director
Archie
Bethel
Franco
Martinelli
John
Davies
Bill Tame
Award
PSP 2014
DBMP 2014 (basic award)
DBMP 2014 (basic matching award)
DBMP 2014 (voluntary deferral award)
DBMP 2014 (voluntary deferral matching award)
PSP 2014
PSP 2014
DBMP 2014 (basic award)
DBMP 2014 (basic matching award)
PSP 2014
DBMP 2014 (basic award)
DBMP 2014 (basic matching award)
DBMP 2014 (voluntary deferral award)
DBMP 2014 (voluntary deferral matching award)
PSP 2014
DBMP 2014 (basic award)
DBMP 2014 (basic matching award)
Number vesting
Vesting date
10,940 12 Jun 2017
12,705 12 Jun 2017
4,294 12 Jun 2017
10,215 12 Jun 2017
3,452 12 Jun 2017
7,178 12 Jun 2017
3,761 29 Jan 2018
5,966 12 Jun 2017
2,016 12 Jun 2017
10,453 12 Jun 2017
12,139 12 Jun 2017
4,102 12 Jun 2017
8,172 12 Jun 2017
2,762 12 Jun 2017
12,581 12 Jun 2017
17,649 12 Jun 2017
5,965 12 Jun 2017
Market value of
vested shares on
award £
133,869
155,467
52,544
124,998
42,241
87,835
38,174
73,004
24,669
127,910
148,541
50,195
99,998
33,798
153,950
215,966
72,992
Market value of
vested shares on
vesting date £
97,421
113,138
38,238
90,965
30,740
63,920
27,508
53,127
17,952
93,084
108,098
36,528
72,772
24,596
112,034
157,164
53,118
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 2017/18
The table below details the fee received by Bill Tame during the year, in respect of his other directorship, which is retained by him.
Name of Director
Bill Tame
Company
Southern Water
Fees received £000
250
This Remuneration report was approved by the Board on 22 May 2018 and signed on its behalf by:
Jeff Randall
Chairman of the Remuneration Committee
130
Babcock International Group PLC Annual Report and Accounts 2018
Relations with Shareholders
Dialogue with Shareholders
The Board believes it is important
to maintain open and constructive
relationships with all of its Shareholders
— large and small, institutional and
private. The Chief Executive, the Group
Finance Director and the Group Director
of Investor Relations and Communications
undertake a programme of meetings,
conference calls and presentations to
discuss the Group’s strategy and financial
performance with investors, brokers’
sales teams and analysts. The Company
offers meetings with the Chief Executive
and Group Finance Director to its top
20 Shareholders at least twice a year
and, additionally, during the year the
Chairman wrote to our largest
Shareholders inviting them to meet
with him to discuss strategy, performance
and corporate governance matters.
The Chairman of the Remuneration
Committee was also in contact with
leading Shareholders as further
explained in his annual statement on
pages 98 and 99. Both the Chairman
and Sir David Omand, the Senior
Independent Director, are available
to Shareholders should they have any
concerns where contact through the
normal channels is deemed inappropriate
or where Shareholders believe a matter
has not been adequately resolved.
How we communicate
Results and trading updates (available as audiocasts at www.babcockinternational.com/investors)
When
Full-year and half-year results: announcement and presentation
May and November 2017
Interim management statements and conference call with Group Finance Director
July 2017 and February 2018
Other presentations
By Group Finance Director at broker organised conferences and events
Dealings with Shareholders, investors and analysts
Resolutions of AGM available at www.babcockinternational.com/investors
Meetings with Shareholders and potential investors
Meetings with sell-side analysts and brokers’ sales teams
Letter from the Group Chairman to our Shareholders
Annual General Meeting
Roadshow in London and Edinburgh
When
June, July and September 2017
and March 2018
When
Throughout
Throughout
December 2017
July 2017
May and November 2017
Babcock International Group PLC Annual Report and Accounts 2018
131
Strategic reportGovernance statementFinancials
Relations with Shareholders, continued
Annual General Meeting
The 2018 AGM will be held at
11:00 am on Thursday 19 July 2018
at the Grosvenor House Hotel, Park Lane,
London W1K 7TN. The Company will send
notice of the AGM and any related papers
at least 20 working days prior to the date
of the meeting in accordance with best
practice standards.
All Shareholders are welcome. The event
provides a platform for the Chairman
and Chief Executive to explain how the
Company has progressed during the year.
It also provides all Shareholders with the
opportunity to put questions to the
Chairman of the Board, the Chairmen
of the Audit and Risk, Nominations and
Remuneration Committees, and the Senior
Independent Director. At these meetings,
a poll is conducted on each Resolution.
Shareholders also have the opportunity to
cast their votes by proxy in advance of the
meeting. Directors also make themselves
available before and after the AGM to talk
informally to Shareholders. Following each
AGM the results of the polls are published
on the Company’s website and released
to the London Stock Exchange.
Over 94% of Babcock shares are held
by institutional Shareholders. Whilst it is
normal practice for institutional funds to
have a greater degree of contact with the
Company, all Shareholders are welcome
to raise questions with the Board at the
Annual General Meeting.
In addition, on a day to day basis, our
investor relations team engages with
Shareholders on a wide range of issues
on a variety of platforms. To assist our
private and international Shareholders,
the investor relations team makes sure
that all price-sensitive information is
released in accordance with the
applicable legal and regulatory
requirements. All announcements and
major presentations given to institutional
Shareholders, along with annual reports,
shareholder circulars, shareholder services
information, other stock exchange
releases and share price information,
are made available to all Shareholders
through the Babcock website
(www.babcockinternational.com/
investors). The Company ensures that
the Board has an up to date perspective
on the views and opinions of Shareholders
and the investment market. An investor
relations report summarising share price
performance compared to market,
changes to the Shareholder register and
feedback from Shareholders is produced
for each Board meeting. During 2017/18,
the Company once again commissioned
Clare Williams Associates to undertake a
market perception review to provide an
independent evaluation of investor
attitudes towards the Group, (which this
year involved 28 buy-side institutional
investors (seven US institutions, 15 UK
institutions and six European institutions).
The results were formally presented to the
Board in September 2017.
132
Babcock International Group PLC Annual Report and Accounts 2018
Additional statutory information
Directors’ report and other disclosures
The Directors’ report comprises this section, as well as the rest of the Governance
section 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 (1)
Topic
Interest capitalised by the
Group during the year
9.8.4 (12-13) Shareholder waivers of
dividends and future dividends
Location
Financial statements, notes 11 and 12
on pages 171 and 172
Financial statements, note 22 on
page 184
Other disclosure requirements set out in LR 9.8.4 R are not applicable to the Company.
Other information that is also relevant and which is incorporated by reference can be
located as follows:
Topic
Financial risk management regarding financial instruments
Greenhouse gas emissions
Post balance sheet events
Likely future developments in the business of the Group
Details of important events affecting the Group
Location
Note 2, pages 160 to 163
Page 67
Note 35, page 194
Strategic report
Strategic report
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 Accounts incorporated by reference.
The Company
Babcock International Group PLC, registered and domiciled in England and Wales, with
the registered number 2342138, is the holding company for the Babcock International
Group of companies.
Results and dividends
The profit attributable to the owners of the Company for the financial year was £336.3
million (2017: £311.8 million). An interim dividend of 6.85 pence per 60 pence ordinary
share was declared in the year (2017: 6.50 pence). The Directors are recommending that
Shareholders approve at the forthcoming Annual General Meeting a final dividend for the
year of 22.65 pence (2017: 21.65 pence) on each of the ordinary shares of 60 pence to
be paid on 10 August 2018 to those Shareholders on the register at the close of business
on 29 June 2018.
Major shareholdings
As at 31 March 2018, 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
Invesco Ltd
The Capital Group Companies Inc.
Standard Life Aberdeen PLC
Woodford Investment Management LLP
Number of 60 pence ordinary
shares on date of notification
51,258,266
50,380,653
29,409,369
25,474,689
% of issued share capital on
date of notification
10.13%
9.96%
5.81%
5.04%
Employee involvement
Engagement with our employees is
important to Babcock.
The Company operates a UK-approved
share plan, the Babcock Employee Share
Plan, which is open to all employees of
participating UK Group companies. The Plan
allows the Company to award free and/
or matching shares to participants. The
shares bought on behalf of the employee
are held in a tax-approved employee trust.
The trustees of the Plan exercise
voting rights attached to those shares
in accordance with directions from the
employees on whose behalf they are held.
The Company has also established for
certain non-UK employees an International
Plan which reflects the structure of the
UK Plan.
Senior employees of the Group are given
awards under the Company’s long-term
incentive plans as detailed in the
Remuneration report on pages 98 to 130.
Shares intended to be used for satisfying
existing share awards and options are held
by the trustees of the Babcock Employee
Share Trust and the Peterhouse Employee
Share Trust. The trustees of these Schemes
have no present intention of exercising
the voting rights attached to the shares
held by them.
Twice a year representatives from across
the UK and the other European countries
in which we operate attend the Babcock
International Group Employee Forum,
which informs employee representatives
about developments in the management
of the Group. As outlined in the Report of
the Remuneration Committee on page
110, the Employee Forum considers and is
given the opportunity to provide feedback
on a summary of the Company’s
Remuneration policy for Executive Directors.
Further information regarding our
employees and their involvement within
the business, including the Company’s
policy on discrimination and diversity,
can be found within the Sustainability
report on pages 64 and 65 and the
Governance statement on page 93.
Since 31 March 2018 the Company has been notified by Deutsche Bank AG that it has an interest in 25,594,321 shares representing
5.07% in the share capital of the Company and by Standard Life Aberdeen PLC that it has an interest in 25,088,864 shares representing
4.96% in 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.
Babcock International Group PLC Annual Report and Accounts 2018
133
Strategic reportGovernance statementFinancials Additional statutory information, continued
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.
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 July
2017, members authorised the Company
to make market purchases of up to
50,559,659 of its own ordinary shares
of 60 pence each.
That authority expires at the forthcoming
Annual General Meeting in July 2018
when a Resolution will be put to renew
it so as to allow purchases of up to a
maximum of no more than 10% of the
Company’s issued share capital. No shares
in the Company have been purchased by
the Company in the period from 13 July
2017 (the date the current authority was
granted) to the date of this Report. The
Company currently does not hold any
treasury shares.
Details of issues to and purchases of the
Company’s shares made in the year to
31 March 2018 by the Babcock Employee
Share Trust and the Peterhouse Employee
Share Trust in connection with the
Company’s executive share plans are to
be found in note 22 on pages 182 to 184
and details of purchases of the Company’s
shares by Link Market Services Trustee
Limited in connection with matching
share awards under the Babcock
Employee Share Plan can be found in
note 23 on page 185.
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
purpose 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.
There are also qualifying third-party
indemnity provisions entered into
between the Company and Archie Bethel
and Kevin Thomas in their capacity as
Directors of International Nuclear
Solutions PLC (a former subsidiary of the
Company) which were in force at the date
of approval of this report.
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 can often 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 significant.
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.
Group
Borrowing facilities
The Company extended the maturity
date of its five-year £750,000,000
Revolving Credit Facility by a further
year, from December 2019 to
December 2020.
The facility provides funds for general
corporate and working capital purposes.
In the event of a change of control of
the Company, the facility agreement
provides that the lenders may, within
a certain period, call for the payment
of any outstanding loans and cancel
the credit facility.
In February 2018, the Company
entered into a two and half year
£100,000,000 credit facility with
Lloyds Bank PLC. The Company may use
the facility for general corporate and
working capital purposes. On a change of
control of the Company, Lloyds Bank PLC
may, within a certain period, call for
payment of any outstanding amount and
cancel the facility.
134
Babcock International Group PLC Annual Report and Accounts 2018
Multi-Currency Loan Note facility
The Company has in issue £40 million
5.405% Series B Shelf Notes due
21 January 2020 (the Notes), a facility
which is unsecured and unsubordinated
and ranks pari passu with all other
unsecured and unsubordinated financial
indebtedness obligations of the Company.
Unless previously redeemed or purchased
and cancelled, the Company will redeem
the Notes on 21 January 2020 at their
principal amount. In the event of a change
of control of the Company before then,
the Company must offer to repay the Notes
together with a make-whole premium.
US Dollar Loan Notes
The Company has in issue US$500 million
aggregate principal amount of 5.64% Series
B Senior Notes due 17 March 2021. The
notes are unsecured and unsubordinated
and rank pari passu with all other unsecured
and unsubordinated financial indebtedness
obligations of the Company. In the event of
a change of control of the Company before
then, the Company must offer to purchase
the Notes.
£1,800,000,000 Euro Medium-Term
Note Programme
The Company has in place a Euro
Medium-Term Note Programme under
which the Company could issue notes
up to £1,800,000,000. Under the Note
Programme, the Company has in issue
€550,000,000 1.75% Notes due in 2022
as well as £300,000,000 1.875% Notes
due in 2026.
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 108 and 109.
Marine
Articles of Association of Devonport
Royal Dockyard Limited and Rosyth
Royal Dockyard Limited
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. Any level of ownership by particular
foreign or domestic persons may, on the
facts of the case, be so treated.
Under its Articles of Association RRDL is
not entitled to redeem the special share.
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)
Babcock Marine (Rosyth) Limited
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 the Company in circumstances
where, acting on the grounds of
national security, the MOD considers
that it is inappropriate for the new owners
of the Company to become involved,
or interested, in the Marine division.
‘Change in control’ occurs where a person
or group of persons that controls the
Company ceases to do so or if another
person or group of persons acquires
control of the Company.
Maritime Support Delivery Framework
Agreement dated 1 October 2014
between (1) The Secretary of State for
Defence (2) Devonport Royal Dockyard
Limited (3) Babcock Marine (Clyde)
Limited and (4) Babcock Marine
(Rosyth) Limited
In October 2014, Babcock signed the
Maritime Support Delivery Framework
(MSDF) with MOD. Working within the
ToBA, which runs through to 2025, MSDF
confirms the continuation of Babcock’s
contract to deliver services at HMNB Clyde
and HMNB Devonport to March 2020,
replacing Babcock’s Warship Support
Modernisation Initiative (WSMI) contracts.
The MSDF agreement also covers a
number of surface ship projects which will
be delivered through the Surface Ship
Support Alliance. MOD can terminate the
MSDF in the event of a change in control
of the Company. The provisions follow
those in ToBA in this respect.
Cavendish Nuclear
Parent Body Agreement between
Cavendish Fluor Partnership (CFP)
and the Nuclear Decommissioning
Authority (NDA) dated 27 August 2014
CFP, a joint venture between Cavendish
Nuclear, part of Babcock International,
and US-based Fluor Corporation, with
ownership split 65:35 to Cavendish
and Fluor respectively, is the parent
body organisation (PBO) for the site
licence company Magnox Limited.
Magnox Limited is responsible for 10
Magnox nuclear power plants, as well
as the Harwell and Winfrith research
centres. The sites are all owned by the
Nuclear Decommissioning Authority
(NDA). The NDA has appointed CFP as
the PBO in respect of the management
of the 12 UK nuclear sites and their
respective decommissioning programmes.
Under the terms of appointment the
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135
Strategic reportGovernance statementFinancials Additional statutory information, continued
NDA may terminate CFP’s appointment if
there is a change of control to which it has
not consented.
Aviation
MCS Operator’s Licences
Certain of the operating subsidiaries of
Babcock Mission Critical Services Limited
engaged in the provision of the air services
described on pages 48 to 53 of this report
are required to hold operating licences in
order to operate their principal business.
Under Regulation (EC) No. 1008/2008
(the Regulation), a holder of an operating
licence is required to be majority-owned
and majority-controlled by European
Economic Area (EEA) nationals, which
includes for these purposes nationals of
member states of the European Union,
Norway and Switzerland. If the relevant
operators cease to be owned and
effectively controlled by EEA nationals,
this could lead to aviation regulators
refusing, withholding, suspending or
revoking the relevant operating licence
which in turn could have a material
adverse effect on the business, financial
condition and/or operations of the Group.
The Board believes that these companies
currently satisfy the relevant nationality
requirements of the Regulation. However,
as compliance with the Regulation is an
ongoing requirement, the risk of this
ceasing to be so cannot be ruled out.
See also Nationality-related restrictions
on share ownership below.
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 Section 793
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 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
later on this page.
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 are
quoted on the London Stock Exchange.
Nationality-related restrictions
on share ownership
As noted above under MCS Operator’s
Licences certain Group companies must
comply with the requirements of EC
Regulation 1008/2008 (the Regulation)
which, amongst other things, requires
those companies to be majority-owned
and majority-controlled by EEA nationals.
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 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.
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Babcock International Group PLC Annual Report and Accounts 2018
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).
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
Chairman of the relevant meeting (who
may exercise, or refrain from exercising,
such rights at his 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 on 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
to 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 currently
the nationality requirements, set out in
the Regulation, are met and, based on
the Company’s understanding of the
application of the Regulation and of its
Shareholder base, more than 70% of the
share capital of those companies which
are required to be majority-EEA-owned
and controlled is owned by EEA nationals
or funds managed in the EEA. There can
Babcock International Group PLC Annual Report and Accounts 2018
137
Strategic reportGovernance statementFinancials Additional statutory information, continued
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.
Directors’ duty to avoid
conflicts of interest
The Company has adopted a formal
procedure for the disclosure, review,
authorisation and management of
Directors’ conflicts of interest and
potential conflicts of interest in
accordance with the provisions of
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 actual or potential
conflict of interest with their duties to the
Company or of any material change in
existing actual or potential conflicts that
may have been authorised by the Board.
Notified actual or potential conflicts will
be reviewed by the Board as soon as
possible. The Board will consider whether
a conflict or potential conflict does,
in fact, exist and, if so, whether it is in
the interest of the Company that it be
authorised and, if so, on what terms.
In making their judgement on this, the
other Directors must have regard to
their general duties to the Company.
A register is maintained for the Board
of all such disclosures and the terms of
any such authorisation.
Authorisations may be revoked, or the
terms on which they were given varied,
at any time. Cleared conflicts will in any
event be reviewed annually by the Board.
In the event of any actual conflict arising
in respect of any matter, mitigating
action would also be considered (for
example, non-attendance of the Director
concerned at all or part of Board meetings
and non-circulation to him or her of
relevant papers).
Internal controls and risk
management
There has been a process for identifying,
evaluating and managing principal risks
throughout the year to 31 March 2018
and up to the date of the approval of
the financial statements for that year.
In respect of our financial reporting
process and the process for preparing
our consolidated accounts, management
monitors the processes underpinning
the Group’s financial reporting systems
through regular reporting and review,
and data for consolidation into the
Group’s financial statements is reviewed
by management to ensure that it reflects
a true and fair view of the Group’s
results in compliance with applicable
accounting policies.
The Board, through the Audit and Risk
Committee, reviews the effectiveness of
the Company’s internal control processes
formally at least once a year. The Group
Financial Controller is asked to report on
the effectiveness of the Group’s internal
controls and the Audit and Risk
Committee reviews this report in light
of all the other information supplied to
it during the course of the year including
internal audit reports, risk reports and
monthly financial and operational reports.
The Board considers the system to be
effective and in accordance with
Guidance for Risk Management, Internal
Control, and Related Financial and
Business reporting. Further information
on the principal internal controls in use
in the Company is to be found on pages
68 to 70.
Going concern
statement
The going concern assessment
considers whether it is appropriate to
prepare the financial statements on a
going concern basis.
The Group’s forecasts and projections,
taking into account reasonably possible
changes in trading performance, show
that the Group has sufficient financial
resources. The Directors have reasonable
expectations that the Company and the
Group are well placed to manage business
risks and to continue in operational
existence for the foreseeable future
(which accounting standards require
to be at least a year from the date of
this report) and have not identified any
material uncertainties to the Company’s
and the Group’s ability to do so.
For these reasons, they continue to adopt
the going concern basis in preparing the
financial statements.
Auditor and
disclosure of relevant
audit information
So far as the Directors who are in office
at the time of the approval of this report
are aware, there is no relevant audit
information (namely, information
needed by the Company’s auditor in
connection with the preparation of its
auditor’s report) of which the auditor is
unaware. Each such Director has taken all
steps that he or she ought to have taken
as a Director in order to make himself or
herself aware of any relevant audit
information and to establish that the
auditor is aware of that information.
PricewaterhouseCoopers LLP is willing to
continue in office as independent auditor
of the Company and a resolution to
reappoint it will be proposed at the
forthcoming Annual General Meeting.
Directors’ responsibility
statement
The Directors are responsible for
preparing the Annual Report and the
financial statements in accordance
with applicable law and regulation.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law, the
Directors have prepared the Group
financial statements in accordance
with International Financial Reporting
Standards (IFRS) as adopted by the
European Union and the Company
financial statements in accordance
with UK Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards, comprising FRS 101 Reduced
Disclosure Framework, and applicable
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Babcock International Group PLC Annual Report and Accounts 2018
law). 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 Group and the Company and of the
profit or loss of the Group and Company
for that period. In preparing the financial
statements the Directors are required to:
• select suitable accounting policies
and then apply them consistently
• state whether applicable IFRS as
adopted by the European Union have
been followed for the Group financial
statements and United Kingdom
Accounting Standards, comprising
FRS 101, have been followed for
the Company financial statements,
subject to any material departures
disclosed and explained in the
financial statements
• make judgements and accounting
estimates that are reasonable
and prudent
• prepare the financial statements on
the going concern basis, unless it is
inappropriate to presume that the
Group and Company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group
and Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the Group and the
Company, and enable them to ensure that
the Group’s financial statements and the
Directors’ Remuneration report comply
with the Companies Act 2006 and, as
regards the Group financial statements,
Article 4 of the IAS Regulation.
The Directors are also responsible for
safeguarding the assets of the Group
and the Company, and hence for
taking reasonable steps for the
prevention and detection of fraud
and other irregularities.
The Directors are responsible for the
Company’s website. Legislation in
the United Kingdom governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
The Directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
Shareholders to assess the Group and
Company’s performance, business
model and strategy.
Each of the Directors, whose names
and functions are listed in the Directors’
report, confirm that, to the best of
their knowledge:
• the Company financial statements,
which have been prepared in
accordance with United Kingdom
Generally Accepted Accounting Practice
(United Kingdom Accounting Standards,
comprising FRS 101 Reduced Disclosure
Framework, and applicable law), give
a true and fair view of the assets,
liabilities, financial position and profit
of the Company
• the Group financial statements, which
have been prepared in accordance with
IFRS as adopted by the European Union,
give a true and fair view of the assets,
liabilities, financial position and profit
of the Group
• the Directors’ report includes a fair
review of the development and
performance of the business and the
position of the Group and Company,
together with a description of the
principal risks and uncertainties that
it faces.
In the case of each Director in office at the
date the Directors’ report is approved:
• so far as the Director is aware, there
is no relevant audit information of
which the Group and Company’s
auditors are unaware;
• they have taken all the steps that they
ought to have taken as a Director in
order to make themselves aware of
any relevant audit information and
to establish that the Group and
Company’s auditors are aware of
that information.
Each of the Directors listed below (being
the Board of Directors at the date of
this Annual Report and these financial
statements) confirms that to the best
of his or her knowledge:
• the Group financial statements (set out
on pages 150 to199) which have been
prepared in accordance with IFRS as
adopted by the EU, give a true and fair
view of the assets, liabilities, financial
position and profit of the Group taken
as a whole; and the Strategic report and
Directors’ report contained on pages 1
to 139 include a fair review of the
development and performance of the
business and the position of the Group,
together with a description of the
principal risks and uncertainties that
it faces.
In addition, each of the Directors
listed below considers that the
Annual Report, taken as a whole, is fair,
balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
position, performance, business model
and strategy.
Chief Executive, Land
Chairman
Chief Executive
Mike Turner
Archie Bethel
Franco Martinelli Group Finance Director
John Davies
Sir David Omand Non-Executive Director
Non-Executive Director
Ian Duncan
Non-Executive Director
Jeff Randall
Non-Executive Director
Myles Lee
Non-Executive Director
Prof. Victoire
de Margerie
Kjersti Wiklund
Lucy Dimes
Non-Executive Director
Non-Executive Director
Approval of the Strategic report
and the Directors’ report
The Strategic report and the Directors’
report (pages 1 to 139) for the year
ending 31 March 2018 have been
approved by the Board and signed on
its behalf by:
Mike Turner CBE
Chairman
22 May 2018
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials Financials: Overview
Group financial statements
Independent auditors’ report to
the members of Babcock
International Group PLC
Group income statement
Group statement of
comprehensive income
Group statement of changes
in equity
Group balance sheet
Group cash flow statement
Notes to the Group financial
statements
Company financial statements
Company balance sheet
Company statement of
changes in equity
Notes to the Company
financial statements
142
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151
152
153
154
200
202
201
“One moment I could be working
on a rail contract, the next an
aircraft or a tank. Applying the
correct accounting to the
company’s complex operations
is truly fascinating.”
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Babcock International Group PLC Annual Report and Accounts 2018
Stephen
Regional Controller
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Babcock International Group PLC Annual Report and Accounts 2018
141
Independent auditors’ report to the members of Babcock International Group PLC
Report on the audit of the financial statements
Opinion
In our opinion:
• Babcock International Group PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2018 and of the Group’s profit and cash flows for
the year then ended;
• The Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• The Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the
Group and Company statements of financial position as at 31 March 2018; the Group income statement and statement of comprehensive
income, the Group statement of cash flows, and the Group and Company statements of changes in equity for the year then ended; and
the notes to the Group and Company financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to
the Group or the Company.
Other than those disclosed in note 4 of the financial statements, we have provided no non-audit services to the Group or the Company in
the period from 1 April 2017 to 31 March 2018.
Our audit approach
Overview
Materiality
• Overall Group materiality: £26 million (2017: £24 million), based on 5% of profit before tax adjusted for amortisation of acquired
intangible assets.
• Overall Company materiality: £20 million (2017: £20 million), based on 1% of total assets.
Audit scope
• We conducted our audit work over the complete financial information for 23 reporting components, located in five countries, including
one financially significant component, Devonport.
• In addition, we performed the audit of specific balances and transactions at one further reporting component and for the Group’s share
of the results of six joint ventures, selected based on their relative contribution to Group results.
• Where the reporting components were located outside the UK, we worked together with our network firms located in the relevant
territory to make sure we had sufficient evidence upon which to base our audit opinion.
• Taken together, the reporting components and functions where we performed our audit work accounted for 79% of Group revenue,
69% of the Group’s share of results of joint ventures and associates, and 81% of Group profit before tax adjusted for amortisation of
acquired intangibles.
Key audit matters
• Contract accounting and revenue/profit recognition (Group).
• Valuation of defined benefit pension liabilities (Group).
• Goodwill impairment (Group).
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain. As in all our audits we also addressed the risk of
management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors
that represented a risk of material misstatement due to fraud.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and
considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit
procedures at the Group and component level to respond to these risks, recognising that the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material
misstatement in the financial statements, including, but not limited to industry regulations, anti-bribery laws and financial reporting
regulations. Our procedures included, but were not limited to: Understanding management’s approach to ensuring compliance with laws
and regulations; enquiries with local, sector and Group management teams; meetings with Group and local legal counsel to discuss legal
matters; and focussing our testing of balances and transactions (in addition to those listed as key audit matters below) that are subject to
estimation and judgement. There are inherent limitations in the audit procedures described above, and the further removed non-
compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would
become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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)
identified by the auditors, including 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. These matters, and any comments we make on the results of our procedures
thereon, 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. This is not a complete list of all risks identified by our audit.
Babcock International Group PLC Annual Report and Accounts 2018
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Independent auditors’ report to the members of Babcock International Group PLC, continued
Key audit matter
Contract accounting and revenue/profit
recognition (Group)
Refer to note 1 to the Group financial statements,
and to the Report of the Audit and Risk Committee on
page 94.
The Group’s business involves entering into contractual
relationships with customers to provide a range of
services with a significant proportion of the Group’s
revenues and profits derived from long term contracts.
Due to the contracting nature of the business, revenue
recognition involves a significant degree of judgement
and estimates including to:
• Estimate total contract costs;
• Estimate the stage of completion of the contract;
• Forecast the profit margin, after consideration of
additional revenue relating to cost and time
completion incentive targets; and
• Appropriately provide for loss making contracts.
How our audit addressed the key audit matter
We read the relevant clauses within new and amended key contracts and
discussed each with management to obtain a full understanding of the specific
terms and risks, which informed our consideration as to whether revenue and
profit for these contracts was appropriately recognised.
We evaluated the design, implementation and operation of controls designed
to address the accuracy and timing of revenue recognised in the financial
statements, including:
• Contract reviews, which are performed by management, reviewed and
signed off at both a Group and sector level, and include the estimation of
total costs, stage of completion, profit margin and evaluating profitability; and
• Transactional controls that underpin the production of underlying contract
related cost balances, including the purchase to pay and payroll cycles.
We found the controls to be satisfactory for the purposes of our audit.
For a sample of contracts, based on quantitative and qualitative factors
including size and risk, we:
• Attended management’s contract review meetings and, through discussions
with the contract project teams, we obtained an understanding of the
performance and status of the contracts;
There is a broad range of acceptable outcomes
resulting from these estimates and judgements that
could lead to different revenue and profit being
reported in the financial statements.
• Evaluated management’s positions through the examination of externally
generated evidence, such as customer correspondence (including the
validation of any incentives), acceptance certificates and/or milestone
agreements;
• Performed work on management’s models, testing the mathematical
accuracy and agreeing amounts recognised in the financial statements,
including the consideration of the valuation and recoverability of balances;
• Discussed and understood management’s estimates for total contract costs
and forecast costs to complete, including taking into account the historical
accuracy of such estimates;
• Evaluated any correspondence in respect of customer disputes, including
discussion with legal counsel; and
• Compared management’s position on the recognition of any cost and time
completion incentive target amounts to the actual costs incurred and
current progress of the contract.
Our testing did not identify any factors that management had not taken into
account in their estimates of the total contract costs, stage of completion and
expected profit margin of each contract (including the expected losses on loss
making contracts). We consider the contract positions taken by management
to be reasonable.
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Key audit matter
Goodwill impairment
Refer to note 10 to the Group financial statements and to the
Report of the Audit and Risk Committee on page 94.
The Group has goodwill of £2,601m (2017: £2,608m), principally
related to the acquisitions of the VT Group in 2010 and Avincis
in 2015, which is subject to an annual impairment review.
No impairment charge has been recorded against these balances
in the current financial year.
The impairment assessments used to support the carrying value
of goodwill cash generating units (‘CGUs’) involves the application
of subjective judgement about future business performance.
We considered certain assumptions made by management in the
value in use calculations supporting the impairment assessments to
be key areas of judgement, including the forecast cash flows, the
short and longer term growth rates and the discount rates applied.
Changes to the key assumptions used by management could result
in the calculated value in use being lower than the carrying value
of the CGU.
Key audit matter
Valuation of defined benefit pension liabilities (Group)
Refer to note 24 to the Group financial statements, and to the
Report of the Audit and Risk Committee on page 94.
The Group operates a number of defined benefit pension plans,
giving rise to net and gross pension liabilities of £5m (2017:
£105m) and £4,740m (2017: £4,781m) respectively, which are
significant in the context of the overall balance sheet of the Group.
The valuation of pension liabilities requires judgement and
technical expertise in choosing appropriate assumptions such as
salary increases, mortality rates, discount rates and inflation levels.
Management engaged external actuarial specialists to assist them
in selecting appropriate assumptions and to calculate the liabilities.
Inappropriate selection of assumptions or methodologies for
calculating the pension liabilities could result in a material
difference in the value of the liabilities.
How our audit addressed the area of focus
We evaluated management’s cash flow forecasts, and the process
by which they were determined and approved. This included
confirming that the forecasts were consistent with the latest Board
approved budgets and the mathematical accuracy of the
underlying calculations, with no exceptions identified.
We also considered the accuracy of previous forecasts made by
management. We evaluated the inputs included in the value in use
calculations, and challenged the key assumptions, by obtaining
evidence including in respect to:
• The growth rates used in the cash flow forecasts, by comparing
them to historical results and economic forecasts; and
• The key market-related assumptions, including discount rates and
long term growth rates, by benchmarking these against external
data, using our valuation expertise.
We performed sensitivity analyses on the key driver of the cash flow
forecasts, being the operating profit, and market-related assumptions.
Our work found that management’s assessment that there were no
material impairments, to be reasonable.
We assessed the related disclosures in note 10 of the Group
financial statements, and consider them to be appropriate.
How our audit addressed the area of focus
We used our actuarial specialists to assess whether the assumptions
used in calculating the pension liabilities were reasonable, by
performing the following:
• Assessing whether salary increases and mortality rate assumptions
were consistent with the specifics of each plan and, where
applicable, with relevant national and industry benchmarks;
• Verifying that the discount and inflation rate assumptions were
consistent with our internally developed benchmarks, based on
national data and other companies’ recent external reporting; and
• Reviewing the calculations prepared by external actuaries to
assess the consistency of the assumptions used.
Based on our procedures, we noted no exceptions and considered
management’s key assumptions to be within acceptable ranges.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
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Independent auditors’ report to the members of Babcock International Group PLC, continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in
which they operate.
The Group is primarily structured and managed across four sectors: Marine, Land, Aviation and Cavendish Nuclear. The Group financial
statements are a consolidation of multiple reporting components, including both operating businesses and central functions.
The Group’s reporting components vary significantly in size and we identified 23 components that, in our view, required an audit of their
complete financial information due to their size and/or risk. This included one component, Devonport, whose results were individually
financially significant to the Group. Specific risk-based audit procedures were performed at one further reporting component and over the
Group’s share of the results of six joint ventures. In scope reporting components, including joint ventures, were based in five countries: the
UK, Spain, Italy, Canada and South Africa.
Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at
those locations to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the
Group financial statements as a whole. We issued formal, written instructions to component auditors setting out the work to be performed
by each of them and maintained regular communication throughout the audit cycle.
The Group engagement leader and senior members of the Group team undertook visits to four components in the UK, Italy and Spain
during the audit, including the Group’s only financially significant component, Devonport. Senior team members also attended the
Devonport and the four sector clearance meetings in person. During both the site visits and the clearance meetings, the findings reported
by all component teams were discussed. The Group team also evaluated the sufficiency of the audit evidence obtained through
discussions with, and review of the work performed by, component teams.
This, together with additional procedures performed at the Group level (including audit procedures over material head office entities,
pensions, impairment assessments, financial statement disclosures, tax, treasury, share based payments and consolidation adjustments),
gave us the evidence we needed for our opinion on the financial statements as a whole. Taken together, the reporting components and
functions where we performed our audit work accounted for 79% of Group revenue, 69% of the Group’s share of results of joint ventures
and associates, and 81% of Group profit before tax adjusted for amortisation of acquired intangibles.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate, on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
How we determined it
Rationale for benchmark applied
Group financial statement
£26 million (2017: £24 million).
Company financial statements
£20 million (2017: £20 million)
5% of profit before tax, adjusted for
amortisation of acquired intangibles assets.
1% of total assets
Given the contractual nature of the business,
and consistent with last year, we adjusted for
amortisation of acquired intangibles assets as
this better reflects the underlying performance
and nature of the Group’s operations.
We consider a total asset measure to reflect the
nature of the Company, which primarily acts as
a holding company for the Group’s
investments.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £1.6m to £20m. Certain components were audited to a local statutory audit
materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1.0 million (Group
audit) (2017: £1.2 million) and £1.0 million (Company audit) (2017: £1.2 million) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
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Babcock International Group PLC Annual Report and Accounts 2018
Going Concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in
respect of the Directors’ statement in the financial statements about whether the Directors
considered it appropriate to adopt the going concern basis of accounting in preparing the
financial statements and the Directors’ identification of any material uncertainties to the
Group’s and the Company’s ability to continue as a going concern over a period of at least
twelve months from the date of approval of the financial statements.
Outcome
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted, this
statement is not a guarantee as to the Group’s
and Company’s ability to continue as a going
concern.
We are required to report if the Directors’ statement relating to Going Concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, 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 audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other
information. 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 based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report
for the year ended 31 March 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and Directors’ report. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 79 of the Annual Report that they have carried out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on page 79 of the Annual Report as to how they have assessed the prospects of the Group, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering
whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment
obtained in the course of the audit. (Listing Rules)
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Independent auditors’ report to the members of Babcock International Group PLC, continued
Reporting on other information (continued)
Other Code provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 139, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
• The section of the Annual Report on page 94 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ remuneration
In our opinion, the part of the Report of the Remuneration Committee to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Directors’ responsibilities statement on page 138, the Directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors
are also responsible for such internal control as they 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.
Auditors’ responsibility 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 auditors’ 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 auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
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Babcock International Group PLC Annual Report and Accounts 2018
Other required reporting
Companies Act 2006 exception reporting
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
• Certain disclosures of Directors’ remuneration specified by law are not made; or
• The Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were originally appointed by the members to audit the financial statements
for the year ended 31 March 2003 and subsequent financial periods. Following an audit tender, we were reappointed by the members
on 25 May 2016 for the year ended 31 March 2017 and subsequent financial periods. The period of total uninterrupted engagement is
16 years, covering the years ended 31 March 2003 to 31 March 2018.
Nicholas Campbell-Lambert (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
22 May 2018
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Strategic reportGovernance statementFinancials
Group income statement
For the year ended 31 March 2018
Revenue1
Cost of revenue
Gross profit
Distribution expenses
Administration expenses
Operating profit before share of results of joint ventures and associates
Share of results of joint ventures and associates
Note
3
3, 4
3
Group and joint ventures and associates
Operating profit before amortisation of acquired intangibles
Investment income
Underlying operating profit2
Amortisation of acquired intangibles
Group investment income
Joint ventures and associates finance costs
Joint ventures and associates income tax expense
Operating profit
Finance costs
Investment income
Retirement benefit interest
Finance costs
Finance income
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Owners of the parent
Non-controlling interest
Earnings per share
Basic
Diluted
3
24
5
5
7
9
2018
£m
Total
£m
4,659.6
(3,971.7)
687.9
(12.8)
(304.5)
370.6
68.5
2017
£m
Total
£m
4,547.1
(3,883.0)
664.1
(13.0)
(291.5)
359.6
56.7
554.6
30.0
584.6
(103.9)
(1.9)
(22.2)
(17.5)
1.9
(2.3)
(61.9)
14.3
545.1
29.7
574.8
(118.5)
(1.2)
(24.6)
(14.2)
439.1
416.3
1.2
(6.4)
(60.4)
11.4
(48.0)
391.1
(53.4)
337.7
336.3
1.4
337.7
66.6p
66.5p
(54.2)
362.1
(46.5)
315.6
311.8
3.8
315.6
61.8p
61.7p
1 Revenue does not include the Group’s share of revenue from joint ventures and associates of £703.2 million (2017: £669.5 million).
2 Including IFRIC 12 investment income but before exceptional items and amortisation of acquired intangibles.
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
Group statement of comprehensive income
For the year ended 31 March 2018
Profit for the year
Other comprehensive income
Items that may be subsequently reclassified to income statement
Currency translation differences
Fair value adjustment of interest rate and foreign exchange hedges
Tax on fair value adjustment of interest rate and foreign exchange hedges
Fair value adjustment of joint ventures and associates derivatives
Tax, including rate change impact, on fair value adjustment of joint ventures and associates
derivatives
Items that will not be reclassified to income statement
Remeasurement of retirement benefit obligations
Tax on remeasurement of retirement benefit obligations
Impact of change in UK tax rates
Other comprehensive income, net of tax
Total comprehensive income
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income
Group statement of changes in equity
Note
2018
£m
337.7
2017
£m
315.6
13
13
24
(25.9)
(6.1)
1.2
24.3
88.8
4.3
(0.9)
2.6
(7.4)
(0.5)
49.7
(10.3)
1.9
27.4
365.1
363.6
1.5
365.1
66.8
(13.3)
1.1
148.9
464.5
458.0
6.5
464.5
For the year ended 31 March 2018
At 31 March 2016
Total comprehensive income
Shares issued in the year
Dividends
Share-based payments
Tax on share-based payments
Transactions with
non-controlling interests
Own shares and other
Net movement in equity
At 31 March 2017
At 1 April 2017
Total comprehensive income
Dividends
Share-based payments
Tax on share-based payments
Transactions with
non-controlling interests
Own shares and other
Net movement in equity
At 31 March 2018
Share
capital
£m
302.5
–
0.9
–
–
–
–
–
0.9
303.4
–
–
–
–
Share
premium
£m
Other
reserve
£m
873.0 768.8
–
–
–
–
–
–
–
–
–
–
Capital
redemption
£m
30.6
–
–
–
–
–
Retained
earnings
£m
519.2
366.3
–
(132.5)
15.0
(0.8)
Hedging
reserve
£m
(92.0)
5.5
–
–
–
–
Translation
reserve
£m
Owners
of the
parent
£m
(63.6) 2,338.5
458.0
86.2
0.9
–
(132.5)
–
15.0
–
(0.8)
–
Non-
controlling
interest
£m
Total
equity
£m
17.8 2,356.3
464.5
0.9
(133.8)
15.0
(0.8)
6.5
–
(1.3)
–
–
–
–
–
–
–
–
873.0 768.8
–
–
–
30.6
(1.5)
(7.8)
238.7
757.9
–
–
5.5
(86.5)
(1.5)
–
(7.8)
–
331.3
86.2
22.6 2,669.8
(0.6)
–
4.6
(2.1)
(7.8)
335.9
22.4 2,692.2
–
–
–
–
–
–
–
–
–
–
–
–
377.5
(143.9)
6.4
1.9
12.0
–
–
–
(25.9) 363.6
(143.9)
6.4
1.9
–
–
–
1.5
(3.8)
–
–
365.1
(147.7)
6.4
1.9
–
–
–
303.4
–
–
–
–
–
–
873.0 768.8
–
(0.7)
(4.2)
–
– 237.0
994.9
30.6
–
–
12.0
(74.5)
–
–
(0.7)
(4.2)
(25.9) 223.1
(3.3) 2,892.9
(2.0)
–
(2.7)
(4.2)
(4.3) 218.8
18.1 2,911.0
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Group balance sheet
As at 31 March 2018
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment in joint ventures and associates
Loan to joint ventures and associates
Retirement benefits
Trade and other receivables
IFRIC 12 financial assets
Other financial assets
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Income tax recoverable
Other financial assets
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
Trade and other payables
Deferred tax liabilities
Other financial liabilities
Retirement liabilities
Provisions for other liabilities
Current liabilities
Bank and other borrowings
Trade and other payables
Income tax payable
Other financial liabilities
Provisions for other liabilities
Total liabilities
Total equity and liabilities
Note
2018
£m
2017
£m
10
11
12
13
13
24
16
20
14
15
16
20
17
22
19
18
14
20
24
21
19
18
20
21
2,600.9
529.3
1,028.4
119.3
27.8
240.1
6.7
17.8
76.0
104.0
4,750.3
181.4
1,060.1
15.4
27.5
286.3
1,570.7
6,321.0
303.4
873.0
721.6
994.9
2,892.9
18.1
2,911.0
1,485.2
2.3
112.8
5.0
245.1
61.1
1,911.5
38.1
1,392.1
21.7
11.9
34.7
1,498.5
3,410.0
6,321.0
2,608.8
608.0
1,036.9
71.9
32.3
193.5
29.4
20.0
152.6
113.1
4,866.5
159.2
885.4
16.5
11.9
191.4
1,264.4
6,130.9
303.4
873.0
735.5
757.9
2,669.8
22.4
2,692.2
1,398.1
3.7
134.6
9.7
298.0
90.3
1,934.4
154.3
1,297.6
11.1
4.3
37.0
1,504.3
3,438.7
6,130.9
The notes on pages 154 to 199 are an integral part of the consolidated financial statements. The Group financial statements on
pages 150 to 199 were approved by the Board of Directors on 22 May 2018 and are signed on its behalf by:
A Bethel
Director
F Martinelli
Director
152
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Babcock International Group PLC Annual Report and Accounts 2018
Group cash flow statement
For the year ended 31 March 2018
Cash flows from operating activities
Cash generated from operations
Income tax paid
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
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, loan movements and interest received from joint ventures and associates
Acquisition of subsidiaries net of cash acquired
Net cash flows from investing activities
Cash flows from financing activities
Dividends paid
Finance lease principal payments
Finance lease assets repaid
Bank loans repaid
Loans raised
Dividends paid to non-controlling interest
Net proceeds on issue of shares
Transactions with non-controlling interest
Movement on own shares
Net cash flows from financing activities
Net increase 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
Note
25
29
28
8
27
2018
£m
2017
£m
447.9
(74.3)
(67.9)
14.3
320.0
(0.2)
42.9
70.0
(150.4)
(32.3)
(1.5)
–
(71.5)
(143.9)
(27.5)
9.6
(88.4)
121.9
(3.8)
–
(5.3)
(4.2)
(141.6)
106.9
185.6
(6.2)
286.3
504.0
(61.5)
(63.0)
11.4
390.9
(0.6)
26.7
71.9
(175.9)
(30.9)
2.4
(24.7)
(131.1)
(132.5)
(26.4)
5.2
(334.7)
250.0
(1.3)
0.9
(2.1)
(7.8)
(248.7)
11.1
168.8
5.7
185.6
Babcock International Group PLC Annual Report and Accounts 2018
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153
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements
1. Basis of preparation and significant accounting policies
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
and IFRS Interpretations Committee interpretations as adopted by the European Union and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost
convention as modified by the revaluation of certain financial instruments and on a going concern basis. The Company is a public limited
company, is listed on the London Stock Exchange and is incorporated and domiciled in the UK.
Principal accounting policies
The principal accounting policies adopted by the Group are disclosed below. They have been applied consistently throughout the year.
Basis of consolidation
The Group financial statements comprise the Company and all of its subsidiary undertakings made up to 31 March.
(a) Subsidiaries
An entity is controlled by the Group regardless of the level of the Group’s equity interest in the entity, when the Group has power over
the entity, when it is exposed, or has rights to variable returns from its involvement with the entity and has the ability to use its power
to affect those returns.
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.
(b) Joint ventures and associates
Associates are those entities in which the Group exercises its significant influence over the entity 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 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.
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. The Group’s share of joint venture revenue is disclosed after elimination of sales to
that joint venture. Loans to joint ventures are valued at amortised cost.
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured. The following specific recognition criteria must also be met before revenue is recognised:
(a) Sale of goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be reliably
measured and recovery of consideration is considered probable. As can be seen from note 3, this represents approximately 10% of
the business.
(b) Provision of services
Revenue from services rendered is recognised by reference to the stage of completion of the transaction. The provision of services
over a long-term period are accounted for under the principles of construction contracts, and the revenue recognised as set out below.
In a limited number of contracts where performance and revenue are measured annually, the revenue and costs are similarly recognised
over the course of the year.
(c) Long-term service contracts
Revenue from long-term service contracts is recognised by reference to the stage of completion of the contract in accordance with
IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’. The stage of completion is determined according to the nature of the specific
contract concerned. Methods used to assess the stage of completion include incurred costs as a proportion of total costs, labour hours
incurred or earned value of work performed.
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1. Basis of preparation and significant accounting policies (continued)
Revenue (continued)
(c) Long-term service contracts (continued)
The profit element of the revenue attributable to a contract is recognised if the final outcome can be reliably assessed. In order to assess
the likely outcome of a contract a full estimated cost of completion is produced which will assess risks and opportunities including cost
rates, time, volume and performance for the contract and apply a probability to these being realised. As time elapses these risks and
opportunities will become more predictable. Risks and opportunities will vary dependent on the terms of each contract and the
commercial environment of each market. Certain contracts will have pain/gain share arrangements whereby target cost under/over
spends are shared with the customer. These sharing arrangements are included in assessing the overall contract outturn and the
expected profit.
Any expected loss on a contract is recognised immediately in the income statement.
Exceptional items
Items that are exceptional in size or nature are presented as exceptional items within the consolidated income statement. The separate
reporting of exceptional items helps provide a better indication of the Group’s underlying business performance. Events which may give
rise to the classification of items as exceptional include gains or losses on the disposal of properties and businesses, material acquisition
costs along with the restructuring of businesses and asset impairments.
Transactions with non-controlling interest
The Group policy is to treat transactions with non-controlling interest as transactions with owners of the parent which are therefore
reflected in movements in reserves.
Provisions
A provision is recognised in the balance sheet 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. 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 work-in-progress for that portion of the work which has already been completed,
and as liability provisions for the remainder. Losses are determined on the basis of estimated results on completion of contracts and are
updated regularly.
A provision is made where operating leases are deemed to be onerous.
A provision for deferred consideration on acquisitions is recognised at the fair value at acquisition. Fair value is based on an assessment
of the likelihood of payment.
A provision for employee benefits is recognised when there is a probable outflow of economic benefits that can be reliably estimated.
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 is capitalised. 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.
Annual impairment reviews are performed as outlined in note 10.
(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 contracted 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 fifteen years.
155
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155
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
1. Basis of preparation and significant accounting policies (continued)
Goodwill and intangible assets (continued)
(b) Acquired intangibles (continued)
The carrying value of the non-contracted element is amortised over the period in which it is estimated that the relationships are likely
to bring economic benefit via future orders. The method of amortisation is tailored to the expectations of the timing of the receipt of
specific future orders and therefore the charge to the income statement matches the timing of value likely to be generated in those years.
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 fifteen 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 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 plus the costs
incurred in bringing the software into use and is shown at cost less accumulated amortisation and is amortised over its expected useful life
of between three and five 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.
Property, plant and equipment (PPE)
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. Depreciation is provided on a straight-
line basis to write off the cost of PPE over the estimated useful lives to their estimated residual value (reassessed at each balance sheet
date) at the following annual rates:
Freehold property
Leasehold property
Plant and equipment
Aircraft airframes
Aircraft components
2% to 8%
Lease term
6.6% to 33.3%
3.33%
14% to 33.3%
PPE is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the fixed asset may not
be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds
the higher of an asset’s fair value less cost to sell or value in use.
Net debt
Net debt consists of the total of loans, bank overdrafts, cash and cash equivalents, joint venture and associate loans and finance leases
granted or received plus any derivatives whose objective is to fair value hedge the underlying debt. This will include swaps of the currency
of the debt into the functional currency and interest rate basis of the company carrying the debt and fair value hedges.
Leases
Assets under finance leases are capitalised and the outstanding capital element of instalments is included in borrowings. The interest
element is charged against profits so as to produce a constant periodic rate of charge on the outstanding obligations. Depreciation is
calculated to write the assets off over their expected useful lives or over the lease terms where these are shorter.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis. A provision is made where the
operating leases are deemed to be onerous.
As a lessor, the Group recognises assets held under a finance lease in the balance sheet as a financial asset. The lease payment receivable
is 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.
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1. Basis of preparation and significant accounting policies (continued)
Inventory and work in progress
Inventory is valued at the lower of cost and net realisable value. Cost is determined on a first-in first-out basis. In the case of finished goods
and work in progress, cost comprises direct material and labour and an appropriate proportion of overheads.
Contract accounting balances
The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs
incurred plus recognised profits (less recognised losses) exceed progress billings.
The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress
billings exceed costs incurred plus recognised profits (less recognised losses).
Pre-contract costs are recognised as expenses as incurred, except that directly attributable costs are recognised as an asset and amortised
over the life of the contract when it can be reliably expected that a contract will be obtained and the contract is expected to result in
future net cash inflows.
Post-contract award but pre-contract operational start-up mobilisation costs are recognised as an asset and amortised over the life of
the contract.
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 balance sheet date.
(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 balance sheet 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 income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing
of the reversal of the temporary difference is controlled by the Group, and it is probable that the temporary difference will not reverse in
the foreseeable future.
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 presentational 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 presentational currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the local 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 balance sheet date of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement
except when deferred in equity as part of the net investment of a foreign operation.
Exchange differences arising from the translation of the balance sheets and income statements of foreign operations into Sterling are
recognised as a separate component of equity on consolidation. Results of foreign subsidiary undertakings are translated using the average
exchange rate for the month of the applicable results. 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.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
157
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
1. Basis of preparation and 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.
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 is charged to the income statement as a finance cost. Actuarial gains and
losses are recognised directly in equity through the statement of comprehensive income so that the Group’s balance sheet reflects the
IAS19 measurement of the schemes’ surpluses or deficits at the balance sheet 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 ESOP trusts are recognised 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.
Discontinued and held for sale
A significant business stream sold in a prior year or during the year or being actively marketed with an expectation of being sold within
a year will be treated as discontinued within the income statement. The prior year comparatives will be restated. If such a business has
not been sold at year end the relevant assets and liabilities will be shown as held for sale within the balance sheet.
In addition businesses bought as part of a larger acquisition but identified for sale on purchase will be treated as discontinued.
Service concession arrangements
IFRIC 12 ‘Service concession arrangements’ addresses the accounting by private sector operators involved in the provision of public
sector infrastructure assets and services. For all arrangements falling within the scope of the Interpretation (essentially those where the
infrastructure assets are not controlled by the operator), the infrastructure assets are not recognised as property, plant and equipment
of the operator. Rather, depending on the terms of the arrangement, the operator recognises:
• a financial asset – where the operator has an unconditional right to receive a specified amount of cash or other financial asset over
the life of the arrangement; or
• an intangible asset – where the operator’s future cash flows are not specified (eg where they will vary according to usage of the
infrastructure asset); or
• both a financial asset and an intangible asset where the operator’s return is provided partially by a financial asset and partially by
an intangible asset.
As a consequence of this treatment the operator recognises investment income in respect of the financial asset on an effective interest
basis and amortisation of any intangible asset arising.
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 Group designates certain 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.
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1. Basis of preparation and significant accounting policies (continued)
Derivative financial instruments (continued)
For derivatives that qualify as cash flow hedges, gains and losses are deferred in equity until such time as the firm commitment is
recognised, at which point any deferred gain or loss is included in the assets’ carrying amount. 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 values is recognised
in the income statement immediately.
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.
Critical accounting estimates and judgements
Estimates are continually evaluated 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. The key areas of estimates for the Group are contract accounting
and revenue recognition (see above), the accounting for defined benefit pension schemes (see note 24) and impairment of goodwill
(see note 10).
Fair value adjustments on acquisitions are by nature subject to critical estimates.
Profit and revenue recognition on contracts is a key estimate on a contract-by-contract basis. In order to make an estimate of contract
outturn judgement is exercised by management for all significant contracts. Contract accounting and revenue recognition also includes
key judgements made by management. Local management, sector level management and Group review and challenge estimates and
judgements made.
Standards, amendments and interpretations to published standards
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s
accounting periods beginning on or after 1 January 2018 or later periods but which the Group has not early adopted.
(a) Standards, amendments and interpretations that are not yet effective and the impact on the Group’s operations is
currently being assessed but is not expected to be significant:
• IFRS 2, ‘Share based payments’, effective 1 January 2018;
• IFRS 9, ‘Financial Instruments’, effective from 1 January 2018 and endorsed by the EU. The Group has reviewed the differences between
IFRS 9 and the current accounting policies under IAS 39. IFRS 9 introduces new classification and measurement models for financial
assets and methodology for impairment of financial assets, but this will not have a material effect on the measurement basis of the
Group’s financial assets. The Group will amend its methodology for impairment of trade receivables and contract assets; however
the net impact of applying these changes to the impairment model will be immaterial particularly given the high proportion of
government customers.
• IFRS 15, ‘Revenue from contracts with customers’, effective from 1 January 2018 and endorsed by the EU, identifies performance
obligations in contracts with customers, allocates the transaction price to the performance obligations and recognises revenue as the
performance obligations are satisfied. We have completed a detailed review of all significant contracts and the results of our review
indicate that IFRS 15 is not expected to result in any change to the timing of revenue or profit recognition on service provision contracts
or long-term service contracts. This assessment reflects, amongst other matters, that the Group’s contracting arrangements meet the
requirements set out in IFRS 15 to satisfy performance obligations and recognise revenue over time. The review also indicated that the
new standard will not introduce any change to the Group’s revenue recognition policy in relation to revenue from the sale of goods not
under service provision contracts or long-term service contracts. The standard does however increase disclosure requirements for both
the annual report and interim financial statements.
• 2016 Annual improvements, effective 1 January 2018.
(b) Standards, amendments and interpretations that are not yet effective and the impact on the Group’s operations is
currently being assessed:
• IFRS 16, ‘Leases’, effective from 1 January 2019 and endorsed by the EU. Currently, operating leases are not recognised on the balance
sheet and the impact of this standard will be to recognise a lease liability and right of use asset on the Group’s balance sheet in relation
to most leases currently classified as operating leases. The change will result in an improvement in operating profit, with the
depreciation of the right of use asset being less than the current operating lease charge. This will however be offset by an increase in
interest charge with the net position dependent on the average lease maturity on adoption. The Group is still assessing the exemptions
to be applied, including transition options, and the impact on systems and processes.
• 2017 Annual improvements, effective 1 January 2019.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
2. Financial risk management
The Group’s treasury and capital 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 given the continuing volatility and uncertainty in the financial markets.
Capital availability
The Company defines capital as shareholder equity plus net debt but in addition considers available financial capital which adds
committed undrawn facilities to capital as a measure.
Objective on available
financial capital
Policy
Performance
To ensure an appropriate level of capital and available financial capital to maintain operational flexibility
and meet financial obligations whilst funding the Group’s organic and acquisitive growth. The Group seeks
to maintain the necessary headroom to cover the peaks and troughs in its working capital cycle, and
sufficient liquidity to see it through any periods of tightened liquidity in the market.
The Board aims to maintain a balance between equity and debt capital which optimises the Group’s cost of
carry whilst allowing access to both equity and debt capital markets at optimum pricing when appropriate.
The Group, in considering its capital structure and financial capital, views net debt to EBITDA at circa two
times or below as being steady state and sustainable in normal market and economic conditions. This level
may be tempered in periods of market volatility and economic and/or political uncertainty. This is not to
rule out acquisition spikes above two times, as illustrated by previous acquisitions, but only to the extent that
the Group can see a clear path to reducing net debt to EBITDA back to circa two times or below within a
reasonable time frame.
The Group’s gearing and debt cover ratios, used by the Group to evaluate capital, saw an improvement to
1.6 times net debt to EBITDA in 2018 (2017: 1.8 times), demonstrating further progress in reducing
gearing, both through the pay down of debt and increasing profits attributable to shareholders.
Debt service cover
Debt cover
Gearing
EBITDA/net interest
Net debt/EBITDA
Net debt/shareholders’ funds
Covenant
>4
<3.5
n/a
2018
13.0
1.6x
38%
2017
12.0
1.8x
42%
Debt ratios are below covenanted levels and gearing has continued to reduce, leaving sufficient headroom
for bolt-on acquisitions and funding of organic growth. The Group believes that capital markets remain
accessible, if or when required.
Financial risk management
Financial instruments, in particular forward currency contracts and interest rate swaps, are used to manage the financial risks arising
from the business activities of the Group and the financing of those activities.
The Group looks in the first instance to prime rated counterparties with which to carry out treasury transactions, including investments
of cash and cash equivalents.
The Group’s customers are mainly from government, government backed institutions or blue chip corporations and as such credit risk
is considered small.
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 Group only enters into financial instruments where it has a high level of confidence of the hedged item occurring. Both the treasury
department and the business sectors have responsibility for monitoring compliance within the Group to ensure adherence with the
principal treasury policies and guidelines.
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2. Financial risk management (continued)
Management of capital
The Group’s capital structure is derived from equity and net debt and is overseen by the Board through the Group Finance Committee.
All the Group’s material borrowings are arranged by the treasury department, and funds raised are lent onward to operating subsidiaries
as required.
A range of gearing and liquidity ratios are used to monitor and measure capital structure and performance, including: Net debt to
EBITDA (defined as net debt divided by earnings before interest, tax, depreciation, amortisation and exceptionals), Gearing ratio (defined
as net debt, excluding retirement benefit deficits or surpluses, divided by shareholders’ funds), ROIC (defined as net income divided by
total capital (equity, excluding retirement benefit deficits or surpluses, plus net debt)) and EBITDA interest cover (defined as earnings
before interest, tax, depreciation, amortisation and exceptionals divided by net interest payable). These ratios are discussed under the
Financial review.
Through the monitoring of these metrics it remains the Group’s intention to ensure the business is prudently funded, balancing risk
and price on the capital markets and retaining sufficient flexibility to fund future organic and acquisitive growth.
Foreign exchange risk
The functional and presentational currency of Babcock International Group PLC and its UK subsidiaries is Sterling. The Group has exposure
primarily to EUR, USD, ZAR and increasingly AUD, CAD, NOK, OMR and SEK. The USD exposure arises firstly through the US$500 million
US Private Placements which are swapped into Sterling and secondly, through a number of activities in the Babcock Mission Critical
Services business, where it has some revenue and costs denominated in USD. The EUR exposure is largely due to the activities of the
Babcock Mission Critical Services business in Europe, where both translational and transactional exposure exists. The ZAR exposure arises
from the activities of Babcock’s subsidiaries in South Africa where both translational and transactional exposure exist. The increasing AUD,
CAD, NOK, OMR and SEK exposure arises from the activities of Babcock’s subsidiaries in those countries where both transactional and
translational exposure exists.
Objective
Policy –
Transactional risk
Policy –
Translational risk
Performance
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 and South
African Rand.
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 IAS 39 hedge accounting
treatment to all derivatives that hedge material foreign currency transaction exposures.
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 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 balance sheets 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 aforementioned assets with foreign currency denominated debt.
There have been no material unhedged foreign exchange losses in the year.
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 Group only enters into financial instruments where it has a high level of confidence of the hedged item occurring. Both the treasury
department and the business sectors have responsibility for monitoring compliance within the Group to ensure adherence with the
principal treasury policies and guidelines.
The largest foreign exchange exposure of Group entities on the net monetary position against their respective functional currencies results
from exposure of Euro to US Dollars, exposure being £25.7 million (2017: Euro to US Dollars £17.4 million).
The pre-tax effect on profit and equity, increase or decrease, if the rates moved up or down by an appropriate percentage volatility,
assuming all other variables remained constant, would in total be £0.2 million (2017: £0.8 million). The reasonable shifts in exchange
rates are based on historical volatility and range from 10% for Sterling and US Dollars; 15% for Euro and Omani Rial; and 25% for Canadian
and Australian Dollars and South African Rand.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
161
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
2. Financial risk management (continued)
Interest rate risk
The fair values of debt, and related hedging instruments are affected by movements in interest rates. The following table illustrates the
sensitivity in interest rate-sensitive instruments and associated debt to a hypothetical parallel shift of the forward interest rate curves of
±50bp (2017: ±50bp), with pre-tax effect annualised and an additional shift in variable rates for the floating rate element of the gross
debt. All other variables are held constant. The Group believes ±50bp is an appropriate measure of volatility at this time.
Net results for the year
Equity
£m +50bp
(2.3)
2.1
2018
£m –50bp
2.3
(2.1)
£m +50bp
(2.2)
3.7
2017
£m –50bp
2.2
(3.7)
Interest rate risk is managed 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.
Objective
Policy
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.
Interest hedging and the monitoring of the mix between fixed and floating rates are the responsibility of the
treasury department, and are subject to the policy and guidelines set by the Board.
As at 31 March 2018, the Group had 69% fixed rate debt (2017: 74%) and 31% floating rate debt
(2017: 26%) based on gross debt including derivatives of £1,475.6 million (2017: £1,424.8 million). For further
information see note 19 to the Group financial statements.
Liquidity risk
The key objectives are to ensure that the Group has 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.
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
availability under committed credit lines (see note 19).
The Group’s committed Revolving Credit Facility (RCF) of £750 million has an expiry date of December 2021, and is available to meet
general corporate funding requirements. At 31 March 2018, £100.8 million (2017: £120.7 million) was drawn on this facility.
The Group has a Term Debt Facility of £100 million with an expiry date of August 2020.
The Group has US Private Placements with a value of US$500 million, with notes maturing in March 2021.
The Group has a Sterling loan note with a value of £40 million, with the note maturing in January 2020.
The Group has a Eurobond with a value of EUR 550 million, with notes maturing in October 2022.
The Group has a Sterling bond with a value of £300 million, with the notes maturing in October 2026.
Each of the sectors in the Group 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 cash performance of the business divisions
is a KPI.
The Group adopts a conservative approach to the investment of its surplus cash. It is deposited with strong financial institutions for short
periods, with bank counterparty 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.
162
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Babcock International Group PLC Annual Report and Accounts 2018
2. Financial risk management (continued)
Liquidity risk (continued)
Objective
With debt as a key component of available 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 and commitments and its risk profile.
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.
Policy
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 objective. During the course of the financial year, US private placement loan notes of
US$150 million were repaid at maturity, the Group issued a £50 million note in a tap of the ten year October 2026
Sterling bond, increasing the total in issue to £300 million, and entered into a £100 million Term Debt Facility maturing
in August 2020. In addition to the aforementioned Term Debt Facility and Sterling bond, the Group’s other main debt
facilities include: a £750 million Revolving Credit Facility maturing in December 2021, a £40 million loan note maturing
in January 2020, US$500 million US private placement notes maturing in March 2021, a EUR 550 million Eurobond
maturing in October 2022. These debt facilities provide the Group with total available committed banking facilities and
loan notes of £1.98 billion and sufficient sources of liquidity and headroom to meet the Group’s ongoing commitments.
For further information see note 19 to the Group financial statements.
The table below analyses the Group’s liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining
period at the balance sheet date to the contract maturity date. The amounts disclosed in the table are the contractual undiscounted cash
flows. Balances due within 12 months equal their carrying balances, as the impact of interest is not significant.
At 31 March 2018
Bank and other borrowings
Derivative financial instruments
Trade and other payables*
At 31 March 2017
Bank and other borrowings
Derivative financial instruments
Trade and other payables*
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
47.0
(7.5)
1,374.8
153.1
24.0
1,278.6
81.9
(1.5)
0.6
39.9
0.5
2.1
1,095.8
50.3
0.4
628.4
105.6
0.5
Over
5 years
£m
322.5
(1.2)
0.9
753.4
(2.0)
0.8
* Does not include other taxes and social security.
The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows. Held for trading contracts are economic hedges and not hedge accounted.
At 31 March 2018
Forward derivative contracts – hedges:
– outflow
– inflow
Forward derivative contracts – held for trading:
– outflow
– inflow
At 31 March 2017
Forward derivative contracts – hedges:
– outflow
– inflow
Forward derivative contracts – held for trading:
– outflow
– inflow
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
461.3
443.5
141.5
140.0
360.1
409.8
1.2
1.3
199.8
223.9
0.5
0.5
–
–
26.4
27.0
3.6
3.6
–
–
373.3
472.7
–
–
17.5
16.9
–
–
17.8
16.5
–
–
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
163
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
3. Segmental information
The segments reflect the accounting information reviewed by the Executive Committee which is the Chief Operating Decision
Maker (CODM). The 2017 comparatives are being presented for the first time in the new reporting sector structure.
2018
Revenue including joint ventures and associates
Less: joint ventures and associates revenue
Revenue
Operating profit before share of results of joint ventures
and associates
Acquired intangible amortisation
Operating profit*
IFRIC 12 investment income – Group
Share of operating profit – joint ventures and associates
Share of IFRIC 12 investment income – joint ventures
and associates
Underlying operating profit
Share of finance costs – joint ventures and associates
Share of tax – joint ventures and associates
Acquired intangible amortisation – Group
Share of acquired intangible amortisation – joint ventures
and associates
Net finance costs – Group
Group profit before tax
* Before amortisation of acquired intangibles and exceptional items.
2017
Revenue including joint ventures and associates
Less: joint ventures and associates revenue
Revenue
Operating profit before share of results of joint ventures
and associates
Acquired intangible amortisation
Operating profit*
IFRIC 12 investment income – Group
Share of operating profit – joint ventures and associates
Share of IFRIC 12 investment income – joint ventures
and associates
Underlying operating profit
Share of finance costs – joint ventures and associates
Share of tax – joint ventures and associates
Acquired intangible amortisation – Group
Share of acquired intangible amortisation – joint ventures
and associates
Net finance costs – Group
Group profit before tax
* Before amortisation of acquired intangibles and exceptional items.
Marine
£m
1,788.9
22.4
1,766.5
Land
£m
1,849.1
88.7
1,760.4
Aviation
£m
1,022.1
101.0
921.1
Nuclear
£m
702.7
491.1
211.6
Unallocated
£m
–
–
–
Total
£m
5,362.8
703.2
4,659.6
225.6
5.3
230.9
0.4
3.8
–
235.1
–
(1.3)
(5.3)
–
–
228.5
59.7
47.5
107.2
1.5
29.9
1.5
140.1
(0.9)
(5.4)
(47.5)
(2.0)
–
84.3
Marine
£m
1,901.6
27.8
1,873.8
Land
£m
1,811.7
126.3
1,685.4
216.4
9.9
226.3
0.7
6.9
–
233.9
–
(2.1)
(9.9)
–
–
221.9
66.2
46.3
112.5
0.5
25.2
1.5
139.7
(1.4)
(3.9)
(46.3)
(2.0)
–
86.1
58.9
44.2
103.1
–
14.6
26.6
144.3
(21.3)
(3.7)
(44.2)
(3.8)
–
71.3
Aviation
£m
874.0
80.9
793.1
51.8
55.1
106.9
–
11.6
27.0
145.5
(23.2)
(2.3)
(55.1)
(3.8)
–
61.1
30.1
1.1
31.2
–
37.6
–
68.8
–
(7.1)
(1.1)
–
–
60.6
(3.7)
–
(3.7)
–
–
–
(3.7)
–
–
–
–
(49.9)
(53.6)
370.6
98.1
468.7
1.9
85.9
28.1
584.6
(22.2)
(17.5)
(98.1)
(5.8)
(49.9)
391.1
Nuclear
£m
629.3
434.5
194.8
Unallocated
£m
–
–
–
Total
£m
5,216.6
669.5
4,547.1
30.9
1.4
32.3
–
29.1
–
61.4
–
(5.9)
(1.4)
–
–
54.1
(5.7)
–
(5.7)
–
–
–
(5.7)
–
–
–
–
(55.4)
(61.1)
359.6
112.7
472.3
1.2
72.8
28.5
574.8
(24.6)
(14.2)
(112.7)
(5.8)
(55.4)
362.1
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Babcock International Group PLC Annual Report and Accounts 2018
3. Segmental information (continued)
Inter divisional revenue is immaterial.
Revenues of £2.4 billion (2017: £2.5 billion) are derived from a single external customer. These revenues are attributable across all
sectors.
The segment assets and liabilities at 31 March 2018 and 31 March 2017 and capital expenditure for the years then ended are as follows:
Marine
Land
Aviation
Nuclear
Unallocated
Group total
Assets
Liabilities
Capital expenditure
2018
£m
1,062.8
1,744.0
2,561.7
163.4
789.1
6,321.0
2017
£m
1,001.6
1,751.8
2,484.9
141.9
750.7
6,130.9
2018
£m
589.6
529.9
367.1
36.3
1,887.1
3,410.0
2017
£m
649.4
545.0
295.4
37.4
1,911.5
3,438.7
2018
£m
44.8
22.8
80.2
0.1
34.8
182.7
2017
£m
46.5
14.0
121.7
1.0
23.6
206.8
Capital expenditure represents additions to property, plant and equipment and intangible assets. Proceeds from the sale of assets totalled
£70.0 million (2017: £71.9 million). Proceeds are in the main within the Aviation section. See note 18 relating to the treatment of
amounts payable in respect of capital expenditure.
All assets and liabilities are allocated to their appropriate segments except for cash, cash equivalents, borrowings, income and deferred
tax and discontinued operations which are included in the unallocated segment.
The segmental analysis of joint ventures and associates is detailed in note 13.
The segmental depreciation on tangible assets and amortisation of intangible assets for the years ended 31 March 2018 and
31 March 2017 are as follows:
Marine
Land
Aviation
Nuclear
Unallocated
Group total
Depreciation
2018
£m
30.3
17.7
36.0
1.3
6.0
91.3
2017
£m
27.2
12.7
35.7
1.4
5.4
82.4
Amortisation of
intangible assets
2018
£m
11.2
49.4
45.1
1.2
4.2
111.1
2017
£m
11.9
50.2
47.6
7.0
3.6
120.3
The geographic analysis by origin for the years ended 31 March 2018 and 31 March 2017 is as follows:
Geographic analysis
United Kingdom
Rest of Europe
Africa
North America
Australasia
Rest of World
Group total
Revenue
Assets
Capital expenditure
2018
£m
3,159.0
586.1
413.5
205.8
162.8
132.4
4,659.6
2017
£m
3,423.5
428.8
322.0
150.9
143.2
78.7
4,547.1
2018
£m
3,912.7
1,627.1
333.2
110.3
269.3
68.4
6,321.0
2017
£m
3,947.9
1,433.2
268.8
100.6
303.4
77.0
6,130.9
2018
£m
102.5
70.4
3.7
1.0
4.6
0.5
182.7
2017
£m
95.1
99.0
3.4
0.4
8.3
0.6
206.8
The analysis of revenue for the years ended 31 March 2018 and 31 March 2017 is as follows:
Sales of goods
Provision of services
Rental income
Total
2018
£m
641.2
4,010.3
8.1
4,659.6
2017
£m
611.7
3,931.6
3.8
4,547.1
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
165
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
4. Operating profit for the year
The following items have been included in arriving at operating profit for the year:
Employee costs (note 6)
Inventories
– cost of inventories recognised as an expense
– increase/(decrease) in inventory provisions
Depreciation of Property, plant and equipment (PPE)
– owned assets
– under finance leases
Amortisation of intangible assets
– acquired intangibles
– other
Impairment of goodwill
Profit on disposal of PPE
Operating lease rentals payable
– property
– vehicles, plant and equipment
Research and development
Trade receivables charged
Net foreign exchange loss
2018
£m
1,588.3
2017
£m
1,546.9
444.0
1.8
373.3
(1.9)
81.7
9.6
91.3
98.1
13.0
111.1
–
(4.1)
30.0
87.2
1.0
1.3
16.1
69.7
12.7
82.4
112.7
7.6
120.3
2.3
(2.8)
27.6
81.1
1.6
2.4
9.3
Exceptional items are those items which are exceptional in nature or size. These include material acquisition costs and
reorganisation costs.
In addition to the vehicle operating lease rentals above is £53.6 million (2017: £37.2 million) for the Phoenix contract where the leases
are directly on behalf of and benefit to the customer.
There were no exceptional costs in the current year nor the previous year.
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:
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 for other services:
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s subsidiaries
Audit related services
Taxation advisory services
Other non-audit services
Total fees paid to the Group’s auditor and network firms
2018
£m
2017
£m
0.4
1.8
0.2
–
0.1
2.5
0.4
1.7
–
0.1
–
2.2
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
5. Net finance costs
Finance costs
Loans, overdrafts and associated interest rate hedges
Finance leases
Amortisation of issue costs of bank loan
Other
Total finance costs
Finance income
Bank deposits, loans and finance leases
Total finance income
Net finance costs
6. Employee costs
Wages and salaries
Social security costs
Share-based payments (note 23)
Pension costs – defined contribution plans (note 24)
Pension charges – defined benefit plans (note 24)
The average number of people employed by the Group during the year was:
Operations
Administration and management
2018
£m
42.7
5.4
1.7
12.1
61.9
14.3
14.3
47.6
2018
£m
1,306.6
162.4
6.4
65.6
47.3
1,588.3
2018
Number
30,950
4,477
35,427
2017
£m
43.6
7.1
1.4
8.3
60.4
11.4
11.4
49.0
2017
£m
1,281.6
148.9
15.0
62.6
38.8
1,546.9
2017
Number
31,220
4,530
35,750
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 key cash-generating
units. The employees would typically report to the Chief Executive. The key management figures given below include Directors.
Salaries
Post-employment benefits
Share-based payments
2018
£m
10.8
–
1.4
12.2
2017
£m
9.3
0.2
3.5
13.0
Babcock International Group PLC Annual Report and Accounts 2018
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167
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
7. Income tax expense
Analysis of tax charge in the year
Current tax
– UK current year charge
– Overseas current year charge
Deferred tax
– UK current year credit
– Overseas current year credit
– Overseas prior year credit
– Impact of change in UK tax rate
– Impact of change in French (2017: French) tax rate
Total income tax expense
Total
2018
£m
67.3
26.0
93.3
(22.3)
(18.4)
–
1.3
(0.5)
(39.9)
53.4
2017
£m
72.5
14.2
86.7
(26.7)
(7.1)
(6.9)
0.5
–
(40.2)
46.5
The tax for the year is lower (2017: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
Profit before tax
Profit on ordinary activities multiplied by rate of corporation tax in the UK of 19% (2017: 20%)
Effects of:
Expenses not deductible for tax purposes
Re-measurement of deferred tax re change in UK tax rate
Re-measurement of deferred tax re change in French (2017: French) tax rate
Difference in respect of joint venture results
Differences in respect of foreign rates and UK consortium relief rates
Adjustments in respect of earlier years
Other
Total income tax expense
2018
£m
391.1
74.3
0.5
1.3
(0.5)
(13.0)
(5.1)
–
(4.1)
53.4
2017
£m
362.1
72.4
0.4
0.5
–
(11.3)
(1.1)
(6.9)
(7.5)
46.5
In the UK 2015 Budget it was announced that the UK corporation tax rate would reduce to 19% from April 2017. It was announced in the
2016 UK Budget that it will be further reduced to 18% from April 2020. It was subsequently announced in the 2017 budget that it will be
reduced to 17% from April 2020. As a result of this change, UK deferred tax balances have been remeasured at 17% as this is the tax rate
that will apply on reversal. As a result a charge of £1.3 million has been taken to the Income statement in respect of the remeasurement of
year end UK deferred tax balances to 17%. In addition a £0.5 million credit has been taken to the Income statement in respect of the
change in the French tax rate. A further £1.9 million has been credited to reserves in respect of the remeasurement of year end UK
deferred tax balances to 17%.
168
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
8. Dividends
Final dividend for the year ended 31 March 2017 of 21.65p (2016: 19.75p) per 60p share
Interim dividend for the year ended 31 March 2018 of 6.85p (2017: 6.50p) per 60p share
2018
£m
109.2
34.7
143.9
2017
£m
99.7
32.8
132.5
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 March 2018 of 22.65p (2017: 21.65p)
per share which will absorb an estimated £114.3 million (2017: £109.2 million) of shareholders’ equity. It will be paid on 10 August 2018
to shareholders who are on the register of members on 29 June 2018. These financial statements do not reflect this dividend payable
which is subject to approval at the Annual General Meeting on 19 July 2018.
9. Earnings per share
Basic earnings per share is calculated by dividing the profit 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 and the Peterhouse Employee
Share Trust.
The calculation of the basic and diluted EPS 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
2018
Number
2017
Number
504,881,495 504,571,769
737,251
505,739,645 505,309,020
858,150
Earnings from continuing operations
Add back:
Amortisation of acquired intangible assets,
net of tax
Impact of change in statutory tax rates
Earnings before amortisation, exceptional items
and other
2018
Earnings
£m
336.3
2018
Basic
per share
Pence
66.6
2018
Diluted
per share
Pence
66.5
2017
Earnings
£m
311.8
2017
Basic
per share
Pence
61.8
2017
Diluted
per share
Pence
61.7
81.7
0.8
16.2
0.2
16.2
0.2
92.1
0.5
18.2
0.1
18.2
0.1
418.8
83.0
82.9
404.4
80.1
80.0
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
169
169
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
10. Goodwill
Cost
At 1 April
On acquisition of subsidiaries (note 28)
Exchange adjustments
At 31 March
Accumulated impairment
At 1 April
Impairment
At 31 March
Net book value at 31 March
2018
£m
2017
£m
2,615.9
–
(7.9)
2,608.0
7.1
–
7.1
2,600.9
2,555.4
1.7
58.8
2,615.9
4.8
2.3
7.1
2,608.8
During the year, the goodwill was tested for impairment in accordance with IAS 36. The recoverable amount for all the cash-generating
units (CGUs) has been measured based on a value-in-use calculation derived from Board approved three year budgeted cash flows and
extrapolated cash flows thereafter based on an estimated growth rate of 3%. A pre-tax discount rate in the range 8.5% to 9.8% was used
in the value-in-use calculation for the CGUs within each segment. The Group’s weighted average cost of capital post-tax is approximately
7.0% to 8.0% (2017: 7.0% to 8.0%).
Goodwill is allocated to the Group’s CGUs based on value in use, identified according to the business sector. The 2017 comparatives are
being presented for the first time in the new reporting sector structure. A sector level summary of goodwill allocation is presented below:
Marine
Land
Aviation
Nuclear
2018
£m
522.4
900.0
1,108.5
70.0
2,600.9
2017
£m
525.4
903.4
1,110.0
70.0
2,608.8
170
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
11. Other intangible assets
Cost
At 1 April 2017
Additions
Disposals at cost
Exchange adjustments
At 31 March 2018
Accumulated amortisation
and impairment
At 1 April 2017
Amortisation charge
Amortisation on disposals
Exchange adjustments
At 31 March 2018
Net book value at 31 March 2018
Cost
At 1 April 2016
Acquisition of subsidiaries
Additions
Disposals at cost
Reclassification
Capitalised interest
Exchange adjustments
At 31 March 2017
Accumulated amortisation
and impairment
At 1 April 2016
Amortisation charge
Amortisation on disposals
Reclassification
Exchange adjustments
At 31 March 2017
Net book value at 31 March 2017
Acquired
intangibles –
relationships
£m
Acquired
intangibles –
brands
£m
Acquired
intangibles –
total
£m
Software
development
costs and
licences
£m
Development
costs and
other
£m
IFRIC 12
intangibles
£m
1,175.3
–
–
(0.9)
1,174.4
655.3
97.5
–
(1.3)
751.5
422.9
1,147.4
5.0
–
–
–
–
22.9
1,175.3
542.6
106.7
–
–
6.0
655.3
520.0
23.9
–
–
–
23.9
19.2
0.6
–
(0.1)
19.7
4.2
22.9
–
–
–
–
–
1.0
23.9
12.5
6.0
–
–
0.7
19.2
4.7
1,199.2
–
–
(0.9)
1,198.3
674.5
98.1
–
(1.4)
771.2
427.1
1,170.3
5.0
–
–
–
–
23.9
1,199.2
555.1
112.7
–
–
6.7
674.5
524.7
–
–
–
–
–
–
–
–
–
–
–
5.9
–
–
–
(5.9)
–
–
–
3.2
–
–
(3.2)
–
–
–
123.4
30.1
(0.3)
(0.2)
153.0
45.8
12.7
(0.3)
(0.3)
57.9
95.1
93.8
–
30.5
(0.8)
–
0.1
(0.2)
123.4
39.2
7.3
(0.5)
–
(0.2)
45.8
77.6
6.2
1.7
–
0.1
8.0
0.5
0.3
–
0.1
0.9
7.1
3.9
–
2.0
–
–
–
0.3
6.2
0.2
0.3
–
–
–
0.5
5.7
Total
£m
1,328.8
31.8
(0.3)
(1.0)
1,359.3
720.8
111.1
(0.3)
(1.6)
830.0
529.3
1,273.9
5.0
32.5
(0.8)
(5.9)
0.1
24.0
1,328.8
597.7
120.3
(0.5)
(3.2)
6.5
720.8
608.0
All amortisation charges for the year have been charged through cost of revenue.
Acquired intangibles are in part the estimated fair value of customer relationships 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 contracted 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 of one year to five years, with a minority of contracts and hence amortisation periods, up to fifteen years.
The carrying value of the non-contracted element is amortised over the period in which it is estimated that the relationships are likely
to bring economic benefit via future orders. The method of amortisation is tailored to the expectations of the timing of the receipt of
specific future orders and therefore the charge to the income statement matches the timing of value likely to be generated in those years.
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 of one year to fifteen 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 up to five years.
The reclassification of IFRIC 12 assets to financial assets follows a review of those contracts and the certainty of revenue regulations.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
171
171
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
12. Property, plant and equipment
Cost
At 1 April 2017
Additions
Disposals
Reclassification
Capitalised borrowing costs
Exchange adjustments
At 31 March 2018
Accumulated depreciation
At 1 April 2017
Charge for the year
Disposals
Exchange adjustments
At 31 March 2018
Net book value at 31 March 2018
Cost
At 1 April 2016
On acquisition of subsidiaries (note 28)
Additions
Disposals
Reclassification
Capitalised borrowing costs
Exchange adjustments
At 31 March 2017
Accumulated depreciation
At 1 April 2016
Charge for the year
Disposals
Exchange adjustments
At 31 March 2017
Net book value at 31 March 2017
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
Aircraft
fleet
£m
Assets in
course of
construction
£m
117.4
8.0
(0.7)
–
–
0.2
124.9
50.1
6.5
–
0.2
56.8
68.1
112.2
–
2.9
(0.7)
1.4
–
1.6
117.4
45.2
4.4
(0.6)
1.1
50.1
67.3
32.4
4.6
(1.9)
–
0.2
0.1
35.4
7.2
2.2
(0.3)
–
9.1
26.3
14.9
3.5
13.3
(0.4)
–
0.3
0.8
32.4
5.4
1.7
(0.1)
0.2
7.2
25.2
568.3
61.5
(16.3)
0.2
1.6
(1.3)
614.0
282.1
58.8
(12.6)
(0.8)
327.5
286.5
501.6
0.3
59.8
(16.4)
1.9
1.0
20.1
568.3
234.5
51.6
(12.1)
8.1
282.1
286.2
598.1
44.7
(27.8)
9.3
–
1.1
625.4
52.7
23.8
(6.6)
(2.0)
67.9
557.5
547.6
3.2
62.0
(58.3)
8.8
–
34.8
598.1
37.4
24.7
(12.3)
2.9
52.7
545.4
112.8
23.7
(38.6)
(9.5)
–
1.6
90.0
–
–
–
–
–
90.0
97.0
–
37.7
(18.3)
(12.1)
–
8.5
112.8
–
–
–
–
–
112.8
Total
£m
1,429.0
142.5
(85.3)
–
1.8
1.7
1,489.7
392.1
91.3
(19.5)
(2.6)
461.3
1,028.4
1,273.3
7.0
175.7
(94.1)
–
1.3
65.8
1,429.0
322.5
82.4
(25.1)
12.3
392.1
1,036.9
A capitalisation rate of 3% (2017: 3%) was used to determine the amount of borrowing costs eligible for capitalisation.
Assets held under finance leases have the following net book value within plant and equipment:
Cost
Aggregate depreciation
Net book value
2018
£m
206.5
(43.0)
163.5
2017
£m
227.5
(33.6)
193.9
172
172
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
13. Investment in and loans to joint ventures and associates
At 1 April
Disposal of joint ventures and associates
(note 29)
Loans repaid by joint ventures and associates
Investment in joint ventures and associates
Share of profits
Interest accrued
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
and associates
2018
£m
71.9
(1.8)
–
6.9
68.5
–
–
(42.9)
24.3
(7.4)
(0.2)
119.3
2017
£m
39.9
–
–
(1.0)
56.7
–
–
(26.7)
2.6
(0.5)
0.9
71.9
Loans to joint ventures and
associates
2018
£m
32.3
2017
£m
32.6
–
(4.5)
–
–
0.9
(0.9)
–
–
–
–
27.8
–
–
–
–
1.1
(1.4)
–
–
–
–
32.3
Included within investment in joint ventures and associates is goodwill of £1.2 million (2017: £1.2 million).
The total investment in joint ventures is attributable to the following segments:
Marine
Land
Aviation
Nuclear
Net book value
Total
2018
£m
104.2
(1.8)
(4.5)
6.9
68.5
0.9
(0.9)
(42.9)
24.3
(7.4)
(0.2)
147.1
2018
£m
7.0
49.1
65.6
25.4
147.1
2017
£m
72.5
–
–
(1.0)
56.7
1.1
(1.4)
(26.7)
2.6
(0.5)
0.9
104.2
2017
£m
1.2
38.3
42.1
22.6
104.2
Included within joint ventures and associates are:
Country of
incorporation
Assets
£m
Liabilities
£m
Revenue
£m
Operating
profit
£m
Retained
profit
£m
% interest
held
2018
Holdfast Training Services Limited
ALC (Superholdco) Limited
AirTanker Limited
AirTanker Services Limited
Ascent Flight Training (Holdings) Limited
Naval Ship Management (Australia) Pty Limited
Helidax S.A.S.
Cavendish Dounreay Partnership Limited
Cavendish Fluor Partnership Limited
ABC Electrification Limited
Other
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Australia
France
United Kingdom
United Kingdom
United Kingdom
40.1
18.6
421.0
29.8
116.5
5.0
30.2
38.2
100.1
2.9
20.2
822.6
(14.0)
–
(410.2)
–
(104.7)
(4.3)
(24.7)
(24.8)
(88.2)
–
(4.6)
(675.5)
77.4
20.1
29.9
41.3
48.0
26.5
8.6
118.5
395.6
69.4
64.3
899.6
18.4
10.9
4.0
4.4
3.1
4.3
3.2
5.8
31.8
0.2
(0.2)
85.9
14.8
7.4
2.6
2.7
5.2
3.0
1.3
4.7
25.8
0.2
0.8
68.5
74%
50%
13%
22%
50%
50%
50%
50%
65%
33%
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
173
173
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
13. Investment in and loans to joint ventures and associates (continued)
Country of
incorporation
Assets
£m
Liabilities
£m
Revenue
£m
Operating
profit
£m
Retained
profit
£m
% interest
held
2017
Holdfast Training Services Limited
ALC (Superholdco) Limited
AirTanker Limited
AirTanker Services Limited
Ascent Flight Training (Holdings) Limited
Naval Ship Management (Australia) Pty Limited
Helidax S.A.S.
Cavendish Dounreay Partnership Limited
Cavendish Fluor Partnership Limited
ABC Electrification Limited
Other
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Australia
France
United Kingdom
United Kingdom
United Kingdom
44.9
17.3
334.6
27.1
86.2
9.3
29.7
31.2
95.4
2.7
16.2
694.6
(29.9)
–
(341.1)
–
(77.5)
(8.0)
(25.6)
(18.9)
(85.1)
–
(4.3)
(590.4)
65.2
18.5
30.4
46.7
37.7
31.3
8.7
107.8
336.7
94.0
53.1
830.1
12.6
9.3
1.5
4.3
2.5
6.9
3.3
7.6
21.7
2.2
0.9
72.8
9.9
6.0
1.9
2.5
1.7
4.8
1.5
6.1
17.4
2.2
2.7
56.7
74%
50%
13%
22%
50%
50%
50%
50%
65%
33%
Joint ventures and associates revenue excluding Group sub-contract revenue is £703.2 million (2017: £669.5 million).
The joint ventures and associates have no significant contingent liabilities to which the Group is exposed.
Holdfast Training Services Limited and Cavendish Fluor Partnership Limited are shown as joint ventures as the Group does not have
management control. AirTanker Limited is shown as an associate due to the level of management input and the relative share ownership.
The Cavendish Fluor Partnership Limited is deemed material to the Group. All the assets and liabilities are current. Of the assets shown
above £6.2 million (2017: £8.2 million) was cash and cash equivalents. During the year dividends of £24.2 million (2017: £8.7 million)
were received. The retained profit is after income tax expense of £6.0 million (2017: £4.3 million).
174
174
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
14. Deferred tax
Deferred tax asset
Deferred tax liability
2018
£m
104.0
(112.8)
(8.8)
2017
£m
113.1
(134.6)
(21.5)
The movements in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction as permitted by IAS 12)
during the period are shown below:
At 1 April 2017
Income statement credit
Tax credit to equity
Transfer to corporation tax
Effect of change in UK tax rate
– income statement
– equity
Effect of change in Italian tax rate
– income statement
Exchange differences
At 31 March 2018
At 1 April 2016
Income statement credit
Tax credit to equity
Transfer to corporation tax
Acquisition of subsidiaries
Effect of change in UK tax rate
– income statement
– equity
Exchange differences
At 31 March 2017
Accelerated
tax
depreciation
£m
(8.0)
–
–
–
Retirement
benefit
obligations
£m
17.8
9.4
(10.3)
(18.1)
Tax losses
£m
37.7
3.7
–
–
–
–
–
–
(8.0)
(8.5)
–
–
–
–
0.5
–
–
(8.0)
–
2.0
–
–
0.8
36.7
9.0
(13.4)
(15.4)
–
–
0.9
–
17.8
–
–
–
–
41.4
24.8
12.9
–
–
–
–
–
–
37.7
Other
£m
(69.0)
27.7
3.1
(2.6)
(1.3)
(0.1)
0.5
(1.3)
(43.0)
(79.4)
18.5
(1.7)
(1.9)
(1.5)
(1.0)
0.2
(2.2)
(69.0)
Total
£m
(21.5)
40.8
(7.2)
(20.7)
(1.3)
1.9
0.5
(1.3)
(8.8)
(26.4)
40.4
(15.1)
(17.3)
(1.5)
(0.5)
1.1
(2.2)
(21.5)
The net deferred tax liability of £8.8 million includes a deferred tax asset of £62.6 million and a deferred tax liability of £65.8 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 it is probable that these assets will be recovered.
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
Deferred tax asset
Deferred tax liability
Deferred tax expected to be recovered within 12 months:
Deferred tax liability
2018
£m
99.6
(110.0)
(10.4)
2018
£m
(19.6)
(19.6)
2017
£m
112.6
(134.4)
(21.8)
2017
£m
(21.2)
(21.2)
At the balance sheet date, the Group has unused tax losses (excluding UK capital losses) of £68.0 million (2017: £70.0 million) available
for offset against future profits. A deferred tax asset has been recognised in respect of £41.4 million (2017: £37.7 million) of such losses,
which may be carried forward.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
175
175
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
15. Inventories
Raw materials and spares
Work-in-progress and long-term contracts
Finished goods and goods for resale
Total
16. Trade and other receivables
Current assets
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Amounts due from customers for contract work
Retentions
Amounts due from related parties (note 34)
Other debtors
Prepayments
Accrued income
Non-current assets
Other debtors
2018
£m
65.6
5.7
110.1
181.4
2017
£m
67.4
15.1
76.7
159.2
2018
£m
2017
£m
283.1
(4.9)
278.2
462.8
9.4
13.3
115.1
62.8
118.5
1,060.1
356.0
(6.1)
349.9
222.4
8.9
17.2
85.9
76.7
124.4
885.4
6.7
29.4
Trade and other receivables are classified as loans and receivables and are stated at amortised cost.
As of 31 March 2018, trade receivables with gross value of £6.1 million (2017: £6.7 million) were impaired. Impairment arises in the main,
through contract disputes rather than credit defaults. The amount of the provision was £4.9 million (2017: £6.1 million). The individually
impaired receivables mainly relate to receivables in the Aviation sector and in Africa. It was assessed that a portion of these receivables is
expected to be recovered.
The aging of the net impaired receivables is as follows:
Less than three months
Three to six months
Over six months
2018
£m
–
–
1.2
1.2
2017
£m
–
–
0.6
0.6
176
176
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
16. Trade and other receivables (continued)
As of 31 March 2018, trade receivables of £37.2 million (2017: £38.6 million) were past due but not impaired. These relate to a
number of independent customers for whom there is no recent history of default and no indication that the receivable may be impaired.
The ageing analysis of these trade receivables is as follows:
Less than three months
Three to six months
Over six months
Movements on the provision for impairment of trade receivables are as follows:
Balance at 1 April
Provision for receivables impairment
Receivables written off during the year as uncollectable
Unused amounts reversed
Exchange differences
Balance at 31 March
2018
£m
20.5
6.9
9.8
37.2
2018
£m
(6.1)
(1.3)
0.2
2.3
–
(4.9)
2017
£m
20.3
2.3
16.0
38.6
2017
£m
(3.9)
(2.4)
0.1
1.4
(1.3)
(6.1)
The creation and release of provisions for impairment of receivables have been included in cost of revenue in the income statement.
Amounts charged to the impairment provision are generally written off when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the fair 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 (note 20).
17. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits (overnight)
The carrying amount of the Group’s cash and cash equivalents are denominated in the following currencies:
2018
£m
277.3
9.0
286.3
2017
£m
182.8
8.6
191.4
Currency
Sterling
Euro
US Dollar
South African Rand
Canadian Dollar
Omani Rial
Australian Dollar
Swedish Krone
New Zealand Dollar
Brazilian Real
Other currencies
2018
Total
£m
Floating rate
£m
2017
Total
£m
Floating rate
£m
62.2
83.6
13.4
65.7
32.9
6.5
3.3
2.9
6.8
4.4
4.6
286.3
62.2
83.6
13.4
65.7
32.9
6.5
3.3
2.9
6.8
4.4
4.6
286.3
31.4
28.2
26.7
48.0
23.9
7.2
9.7
2.0
4.2
3.4
6.7
191.4
31.4
28.2
26.7
48.0
23.9
7.2
9.7
2.0
4.2
3.4
6.7
191.4
The above balances are typically invested at short-term, floating rates linked to LIBOR 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.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
177
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
18. Trade and other payables
Current liabilities
Contract cost accruals
Amounts due to customers for contract work
Trade creditors
Amounts due to related parties (note 34)
Other creditors
Other taxes and social security
Accruals
Deferred income
Non-current liabilities
Other creditors
2018
£m
2017
£m
179.9
173.4
545.3
0.8
84.6
119.6
228.5
60.0
1,392.1
186.0
180.4
433.1
1.6
60.6
128.0
241.0
66.9
1,297.6
2.3
3.7
Included in trade creditors is £10.8 million (2017: £17.3 million) relating to capital expenditure which has therefore not been included in
working capital movements within the cashflow.
19. Bank and other borrowings
Current liabilities
Bank loans and overdrafts due within one year or on demand
Secured
Unsecured
Finance lease obligations*
Non-current liabilities
Bank and other borrowings
Secured
Unsecured
Finance lease obligations*
* Finance leases are secured against the assets to which they relate.
The Group has entered into interest rate and currency swaps, details of which are included in note 20.
2018
£m
2017
£m
2.0
20.3
22.3
15.8
38.1
2.0
125.7
127.7
26.6
154.3
38.9
1,371.0
1,409.9
75.3
1,485.2
27.2
1,279.3
1,306.5
91.6
1,398.1
178
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
19. Bank and other borrowings (continued)
The carrying amount of the Group’s borrowings are denominated in the following currencies:
Currency
Sterling
Euro
US Dollar*
South African Rand
Currency
Sterling
Euro
US Dollar*
South African Rand
Total
£m
576.3
558.3
354.9
33.8
1,523.3
Total
£m
458.0
544.3
526.7
23.4
1,552.4
2018
Floating rate
£m
200.8
36.1
212.9
33.8
483.6
2017
Floating rate
£m
126.4
49.3
243.1
23.4
442.2
Fixed rate
£m
375.5
522.2
142.0
–
1,039.7
Fixed rate
£m
331.6
495.0
283.6
–
1,110.2
* US$500 million have been swapped into Sterling, with US$300 million equivalent into floating rates and US$200 million equivalent into fixed rates.
The weighted average interest rates of Sterling fixed rate borrowings are 2.3%. The weighted average period for which these interest
rates are fixed is four years.
The floating rate for borrowings is linked to LIBOR 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.
The exposure of the Group to interest rate changes when borrowings re-price is as follows:
Total borrowings
As at 31 March 2018
As at 31 March 2017
The effective interest rates at the balance sheet dates were as follows:
1 year
£m
415.4
578.2
1–5 years
£m
317.9
242.1
>5 years
£m
790.0
732.1
Total
£m
1,523.3
1,552.4
UK bank overdraft
UK bank borrowings
US private placement – fixed
US private placement – floating
Eurobond
£300 million bond
Other borrowings
Finance leases
Repayment details
The total borrowings of the Group at 31 March are repayable as follows:
2018
%
1.3
1.6
6.0
2.9
1.8
1.9
4.8 – 5.5
0.7 – 9.0
2017
%
1.3
1.8
5.7
2.6
1.8
1.9
4.8 – 5.5
0.8 – 10.5
Within one year
Between one and two years
Between two and five years
Greater than five years
2018
2017
Loans and
overdrafts
£m
22.3
40.0
1,067.6
302.3
1,432.2
Finance
lease
obligations
£m
15.8
17.5
43.8
14.0
91.1
Loans and
overdrafts
£m
127.7
–
584.8
721.7
1,434.2
Finance
lease
obligations
£m
26.6
15.8
50.9
24.9
118.2
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
179
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
19. Bank and other borrowings (continued)
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
The minimum lease payments under finance leases fall due as follows:
Not later than one year
Later than one year but not more than five years
More than five years
Future finance charges on finance leases
Present value of finance lease liabilities
20. Other financial assets and liabilities
Financial instruments and finance leases granted
Non-current
US private placement – currency and interest rate swaps
Interest rate hedges
Other currency hedges
Non-controlling interest put option
Financial instruments
Finance leases granted
Total non-current other financial assets and liabilities
Current
Interest rate hedges
Other currency hedges
Financial instruments
Finance leases granted
Total current other financial assets and liabilities
2018
£m
64.0
722.3
786.3
2018
£m
20.3
68.4
14.5
103.2
(12.1)
91.1
2017
£m
75.0
683.7
758.7
2017
£m
32.1
78.0
26.2
136.3
(18.1)
118.2
Liabilities
2018
£m
2017
£m
–
0.9
4.1
–
5.0
–
5.0
0.2
11.7
11.9
–
11.9
–
1.2
3.3
5.2
9.7
–
9.7
0.2
4.1
4.3
–
4.3
Fair value
Assets
2018
£m
47.7
1.5
3.5
–
52.7
23.3
76.0
–
4.3
4.3
23.2
27.5
2017
£m
127.6
6.5
1.7
–
135.8
16.8
152.6
–
1.1
1.1
10.8
11.9
The Group enters into forward foreign currency contracts to hedge the currency exposures that arise on sales, purchases, deposits and
borrowings denominated in foreign currencies, as the transactions occur.
The Group enters into interest rate hedges against interest rate exposure and to create a balance between fixed and floating interest rates.
The fair values of the financial instruments are based on valuation techniques (level 2) using underlying market data and discounted
cash flows.
180
180
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
20. Other financial assets and liabilities (continued)
Interest rate hedges
The notional principal amount of outstanding interest rate swap contracts at 31 March 2018 included £6.3 million of UK interest rate
swaps and interest rate swaps in relation to the US$500 million US$ to GBP cross-currency swap.
The Group held the following interest rate hedges at 31 March 2018:
Hedged
Interest rate swap
Interest rate swap
Total interest rate swaps
Hedged
Cross currency and interest rate swap
Cross currency and interest rate swap
Amount
£m
1.6
4.7
6.3
Amount
US$m
Fixed
payable
%
5.45
4.745
Amount at
swapped
rates
£m
200.0
122.9
300.0
184.3
Floating
receivable
%
Maturity
Six month LIBOR 31/3/2019
Six month LIBOR 31/3/2029
Swap
%
Maturity
Fixed 5.64% US$ to
fixed 5.95% GBP
Fixed 5.64% US$ to
floating three–month
LIBOR + margin GBP
17/3/2021
17/3/2021
Total cross currency and interest rate swap
500.0
307.2
Finance leases granted
In South Africa the Group operates its own finance company to facilitate the sale of DAF vehicles. It obtains external borrowings and
sells vehicles on finance leases to external customers. At the year end the present value of the minimum lease receivable amounted
to £37.2 million (2017: £27.6 million), these were split as £13.9 million (2017: £10.8 million) due within one year and £23.3 million
(2017: £16.8 million) between one and five years. In addition there is £9.3 million due within one year in respect of our
FOMEDEC contract.
Fair values of non-current borrowings and loans
The fair values of non-current borrowings and loans at the balance sheet date were:
Fair value of non-current borrowings and loans
Long-term borrowings
Loan to joint venture
2018
2017
Book value
£m
Fair value
£m
Book value
£m
Fair value
£m
(1,485.2)
27.8
(1,457.4)
(1,531.8)
27.8
(1,504.0)
(1,398.1)
32.3
(1,365.8)
(1,455.0)
32.3
(1,422.7)
* Does not include other taxes and social security.
Fair values of long-term borrowings are based on cash flows discounted using a rate of 4% to 5% (2017: 4% to 5%).
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
181
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Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
21. Provisions for other liabilities
At 1 April 2017
(Released)/charged to income statement
Utilised in year
Foreign exchange
At 31 March 2018
Employee
benefits and
business
reorganisation
costs
(c)
£m
35.4
29.8
(19.6)
0.1
45.7
Contract/
warranty
(b)
£m
34.8
(4.0)
(18.0)
–
12.8
Insurance
provisions
(a)
£m
1.0
–
–
–
1.0
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Property
and other
(d)
£m
56.1
(17.1)
(1.6)
(1.1)
36.3
Total
provisions
£m
127.3
8.7
(39.2)
(1.0)
95.8
2018
£m
34.7
61.1
95.8
2017
£m
37.0
90.3
127.3
(a) The insurance provisions arise in the Group’s captive insurance companies, Chepstow Insurance Limited, Peterhouse Insurance Limited
and VT Insurance Services Limited. They relate to specific claims assessed in accordance with the advice of independent actuaries.
(b) The contract/warranty provisions relate to onerous contracts and warranty obligations on completed contracts and disposals.
(c) The employee benefits and reorganisation costs arise mainly in relation to acquired businesses personnel related costs and payroll
taxes.
(d) Property and other in the main relate to provisions for onerous leases, dilapidation costs and contractual obligations in respect
of infrastructure.
Included within provisions is £20 million expected to be utilised over approximately ten years. Other than these provisions the Group’s
non-current provisions are expected to be utilised within two to five years.
22. Share capital
Allotted, issued and fully paid
At 1 April 2017
Shares issued
At 31 March 2018
Allotted, issued and fully paid
At 1 April 2016
Shares issued
At 31 March 2017
Ordinary shares of 60p
Number
505,596,597
–
505,596,597
504,196,597
1,400,000
505,596,597
Total
£m
303.4
–
303.4
302.5
0.9
303.4
182
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
22. Share capital (continued)
Potential issues of ordinary shares
The table below shows options and conditional share awards existing over the Company’s shares as at 31 March 2018 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 either by the Trustees of the Babcock Employee Share Trust
(BEST) – a total of 8,023,002 shares (2017: 7,366,007 shares) – or the Trustees of the Peterhouse Employee Share Trust (PEST) – a total of
4,085 shares (2017: 58,658 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.
Exercise price
Pence
–
–
–
–
–
–
–
–
–
–
Grant date
13 June 2013
13 June 2013
13 June 2013
14 June 2014
29 January 2015
14 June 2014
11 June 2015
2 November 2015
11 June 2015
11 June 2015
15 June 2016
15 June 2016
15 June 2016
12 October 2016
15 June 2016
14 June 2017
14 June 2017
14 June 2017
14 June 2017
Type
PSP1 – vested in year
CSOP2 – vested in year
DBMP3 – vested in year
PSP1
PSP1
DBMP3
PSP1
PSP1
DBMP3
DBMP4
DBMP5
DBMP4
PSP1
PSP1
DBMP3
DBMP4
DBMP5
PSP1
PSP1
3,761
34,162
2018
Number
–
–
–
2017
Number
Exercise period
87,562
13/06/2016 – 13/06/2017
29,192
13/06/2016 – 13/06/2017
70,907
13/06/2016 – 13/06/2017
55,731 1,318,972
12/06/2017 – 12/06/2018
14,196
29/01/2018 – 29/01/2019
12/06/2017 – 12/06/2018
841,071
11/06/2018 – 11/06/2019 1,512,199 1,539,462
27,388
11/06/2018 – 11/06/2019
903,310
11/06/2018 – 11/06/2019
3,863
11/06/2018 – 11/06/2019
15/06/2019 – 15/06/2020
62,845
14,714
15/06/2019 – 15/06/2020
15/06/2019 – 15/06/2020 1,951,615 2,008,906
27,578
27,578
15/06/2019 – 15/06/2020
474,699
474,699
15/06/2019 – 15/06/2020
103,246
–
14/06/2019 – 14/06/2020
–
14/06/2020 – 14/06/2021
186,949
–
14/06/2020 – 14/06/2021 1,769,338
–
902,424
14/06/2022 – 14/06/2023
8,027,087 7,424,665
27,388
900,438
–
62,845
14,714
Options granted to Directors are summarised in the Remuneration report on pages 98 to 130 and are included in the outstanding options
set out above.
1. 2009 Performance Share Plan.
2. 2009 Company Share Option Plan.
3. 2012 Deferred Bonus Matching Plan.
4. Award issued without matching shares, has two year vesting period.
5. Award issued without matching shares, has three year vesting period.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
183
183
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
22. Share capital (continued)
The table below shows shares already held by the trustees of the BEST and PEST in order to meet these awards.
BEST
PEST
Total
2018
2017
Shares newly
issued by the
Company
Shares
bought in
the market
– 1,051,973
2,748
15,000
2,748 1,066,973
Shares newly
issued by the
Company
442,491
20,842
463,333
Shares
bought in
the market
791,114
15,000
806,114
Share awards granted under the 2009 Deferred Bonus Plan are required by the rules of that plan to be satisfied with already issued shares
purchased in the market.
A reconciliation of PSP, CSOP and DBMP movements is shown below:
Outstanding at 1 April
Granted
Exercised
Forfeited/lapsed
Outstanding at 31 March
Exercisable at 31 March
2018
Number
’000
7,425
3,016
(800)
(1,614)
8,027
94
2017
Number
’000
7,414
2,670
(1,224)
(1,435)
7,425
188
The weighted average share price for awards exercised during the year was 856.3p per share (2017: 934.8p per share).
During the year 600,000 ordinary shares (2017: 2,206,114 shares) were acquired or subscribed for through either the Babcock Employee
Share Trust or the Peterhouse Employee Share Trust (together ‘the Trusts’). The Trusts hold shares to be used towards satisfying awards
made under the Company’s employee share schemes. During the year ended 31 March 2018, 799,726 shares (2017: 1,217,957 shares)
were disposed of by the Trusts resulting from options exercised. At 31 March 2018, the Trusts held between them a total of 1,069,721
ordinary shares (2017: 1,269,447 ordinary shares) at a total market value of £7,154,294 (2017: £11,196,523) representing 0.21%
(2017: 0.25%) of the issued share capital at that date. The Company elected to pay dividends to the Babcock Employee Share Trust at the
rate of 0.001p per share during the year, though full dividends were paid in respect of shares held by the Peterhouse Employee Share
Trust. The Company meets the operating expenses of the Trusts.
The Trusts enable 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 schemes. The Trusts are discretionary settlements for the benefit of
employees within the Group. The Company is excluded from benefiting under them. They are controlled and managed outside the UK
and each 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 Babcock Employee Share 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, but the trustee of the
Peterhouse Employee Share Trust does not have the power to waive dividends due on Babcock ordinary shares and therefore receives the
full amount of any dividends declared.
184
184
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
23. 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 £6.4 million (2017: £15.0 million), all of which
related to equity-settled share-based payment transactions.
After tax, the income statement charge was £5.2 million (2017: £12.0 million).
The fair value per option granted and the assumptions used in the calculation are as follows:
DBMP, PSPs and DBP1
Share price
at grant or
modification
date
Pence
905.5
905.5
905.5
905.5
974.5
974.5
974.5
974.5
991.0
1,121.0
1,121.0
1,121.0
Options
awarded
Number
902,424
1,769,338
186,949
103,246
479,065
2,085,427
14,714
62,845
27,578
936,197
1,688,368
3,863
Expectations
of meeting
performance
criteria –
EPS/ROCE
%
30%
30%
100%
100%
17%
17%
100%
100%
17%
17%
22%
100%
Option life
Years
6.0
4.0
4.0
3.0
4.0
4.0
3.0
4.0
3.75
4.0
4.0
4.0
Fair value
per option –
TSR
Pence
131.2
131.2
–
–
379.1
389.9
–
–
396.4
364.0
374.0
–
Fair value
per option –
EPS/ROCE
Pence
905.5
905.5
905.5
905.5
974.5
974.5
974.5
974.5
991.0
1,121.0
1,121.0
1,121.0
Expected
volatility
%
15.0%
15.0%
15.0%
15.0%
14.0%
14.0%
14.0%
14.0%
14.0%
12.0%
12.0%
12.0%
Correlation
%
Grant or
modification
date
46% 14/06/17
46% 14/06/17
46% 14/06/17
46% 14/06/17
46% 15/06/16
46% 15/06/16
46% 15/06/16
46% 15/06/16
46% 12/10/16
46% 11/06/15
46% 11/06/15
46% 11/06/15
2017 PSP
2017 PSP
2017 DBP
2017 DBP
2016 DBMP Matching
2016 PSP
2016 DBP
2016 DBP
2016 PSP
2015 DBMP Matching
2015 PSP
2015 DBP
Both the vesting period and the expected life of all DBMP, PSP and CSOP awards is three years, but for the DBP it is two years, other than
for Executive Directors where the vesting period is three years. The holders of all awards receive dividends, except for CSOP awards.
The DBMP Matching and PSP awards are split evenly between the performance criteria of TSR, EPS and ROCE, except that in 2015 the PSP
awards are split evenly between TSR and EPS. 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 79,475 matching shares (2017: 61,292
matching shares) at a cost of £0.6 million (2017: £0.6 million).
The Group also operates the Babcock Employee Share Plan International which reflects the structure of the UK Plan. During the year the
Group bought no matching shares (2017: 1,000 matching shares) to be used when vesting is due to begin in 2019.
1. DBMP = 2012 Deferred Bonus Matching Plan, PSP = 2009 Performance Share Plan and DBP = 2012 Deferred Bonus Plan.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
185
185
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
24. Retirement benefits and liabilities
Defined contribution schemes
Pension costs for defined contribution schemes are as follows:
Defined contribution schemes
Defined benefit schemes
Balance sheet assets and liabilities recognised are as follows:
Retirement benefits – funds in surplus
Retirement benefits – funds in deficit
2018
£m
65.6
2017
£m
62.6
2018
£m
240.1
(245.1)
(5.0)
2017
£m
193.5
(298.0)
(104.5)
The Group provides a number of pension schemes for its employees. The principal defined benefit pension schemes for employees 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 who are advised by an independent,
qualified actuary.
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 taking out longevity swaps in respect of pensioners and their spouses at the time, through a common investment
strategy which has significantly hedged the interest rate and inflation risk through derivative instruments and introduced benefit changes
in 2014 and 2015 impacting future service benefits which included capping of pensionable salaries, capping pension increases, increased
normal retirement age in line with state pension ages and increased the level of members’ contributions.
The Group also participates in the Babcock Rail Shared Cost Section of the Railways Pension Scheme (the Railways scheme). This scheme is
a multi-employer shared cost scheme with the contributions required and the assessment of the assets and the liabilities that have accrued
to members and any deficit recovery payments 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 this scheme.
The 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 detail of the latest formal actuarial valuation of the scheme is
as follows. The valuations of the Railways scheme and the Devonport Royal Dockyard Pension Scheme are currently being finalised.
The valuations of the Rosyth Royal Dockyard scheme is currently being undertaken:
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
Babcock
International
Group Scheme
Devonport
Royal Dockyard
Scheme
Babcock Rail Ltd
section of the
Railways Pension
Scheme
31/03/2014 31/03/2016 31/03/2015 31/12/2013
426
Projected unit Projected unit Projected unit Projected unit
Rosyth
Royal Dockyard
Scheme
2,955
1,103
829
£1,218.0m
85%
£1,230.0m
91%
£714.0m
74%
£213.7m
95%
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 of the Electricity Supply Pension Scheme and runs the Babcock Naval Services Pension
Scheme for which the MOD fully reimburses the contributions payable.
186
186
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
24. Retirement benefits and liabilities (continued)
The Group’s cash contribution rates payable to the schemes are as follows:
Future service contribution rate
Future service cash contributions
Deficit contributions
Longevity swap payments
Expected employer cash costs for 2018/19
Expected salary sacrifice contributions
Expected total employer contributions
Devonport
Royal Dockyard
Scheme
20.0%
£14.2m
£18.6m
£2.7m
£35.5m
£4.2m
£39.7m
Babcock
International
Group
Scheme
30.5%
£9.0m
£8.5m
£3.6m
£21.1m
£1.8m
£22.9m
Rosyth Royal
Dockyard
Scheme
21.5%
£4.7m
£17.5m
£4.4m
£26.6m
£1.9m
£28.5m
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
12.48%
£0.9m
£1.6m
–
£2.5m
£1.5m
£4.0m
Other
–
£1.3m
£1.2m
–
£2.5m
£0.2m
£2.7m
Total
–
£30.1m
£47.4m
£10.7m
£88.2m
£9.6m
£97.8m
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; valuations are carried out every three years.
The expected payments from the schemes are primarily pension payments, most of which increase at a fixed rate or in line with RPI or
CPI inflation when in payment and lump sums. Benefit payments commence at retirement, death or incapacity and are predominantly
calculated with reference to final salary.
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 valuation of the Group’s defined benefit pension schemes have been updated to 31 March 2018 by independent
qualified actuaries for IAS 19 purposes, on a best estimate basis, using the following assumptions:
March 2018
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 cashflows (years)
Total life expectancy for current pensioners aged 65 (years)
Total life expectancy for future pensioners currently aged 45 (years)
Devonport
Royal
Dockyard
Scheme
2.2%
2.2%
2.6%
3.1%
2.0%
17
86.1
87.2
Babcock
International
Group Scheme
2.2%
2.9%
2.6%
3.1%
2.0%
15
87.2
88.2
Babcock Rail
Ltd section of
the Railways
Pension
Scheme
2.2%
2.2%
2.6%
3.1%
2.0%
18
86.1
87.4
Rosyth Royal
Dockyard
Scheme
2.2%
3.2%
2.6%
3.1%
2.0%
17
85.2
86.3
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
187
187
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
24. 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:
Fair value of plan assets
Growth assets
Equities
Property
Absolute return and multi-strategy
funds
Low risk assets
Bonds
Matching assets*
Active position on 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 liabilities
Deficit/(surplus)
Present value of unfunded obligations
Net liabilities/(assets) recognised in the
balance sheet
2018
2017
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
892.2
305.5
15.7
7.8
64.8
7.9
972.7
321.2
1,044.9
252.2
20.8
11.6
60.5
7.4
1,126.2
271.2
78.5
158.6
16.1
253.2
16.0
128.0
20.2
164.2
1,165.3
1,869.7
(168.0)
4,143.2
100%
–
1,257.1
929.0
1,879.7
4,065.8
(77.4)
–
57.7
–
–
239.8
100%
–
91.1
83.8
123.9
298.8
59.0
–
95.1
168.0
–
351.9
100%
–
201.2
88.3
85.6
375.1
23.2
0.2
1,318.1
2,037.7
(168.0)
4,734.9
100%
–
1,012.8
1,916.9
(153.9)
4,088.9
100%
–
1,549.4
1,101.1
2,089.2
4,739.7
4.8
0.2
1,325.0
932.9
1,855.2
4,113.1
24.2
–
80.9
0.1
–
241.4
100%
–
93.3
87.0
122.7
303.0
61.6
–
82.5
175.3
–
345.9
100%
–
191.0
87.0
86.4
364.4
18.5
0.2
1,176.2
2,092.3
(153.9)
4,676.2
100%
–
1,609.3
1,106.9
2,064.3
4,780.5
104.3
0.2
(77.4)
59.0
23.4
5.0
24.2
61.6
18.7
104.5
* The matching assets aim to hedge the liabilities and consist of gilts, repos, cash and swaps. They are shown net of repurchase obligations of £1,977 million (2017:
£2,091 million).
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, the valuation of which
is equal to the amount of collateral posted by the schemes as at balance sheet date. This is a level 3 derivative and 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
Total included within operating profit
Net interest cost
Total included within profit
Principal
schemes
£m
37.7
3.7
41.4
0.3
41.7
2018
Railways
scheme
£m
3.2
0.2
3.4
1.6
5.0
Other
schemes
£m
2.4
0.1
2.5
0.4
2.9
Total
£m
43.3
4.0
47.3
2.3
49.6
Principal
schemes
£m
31.1
3.6
34.7
5.1
39.8
2017
Railways
scheme
£m
1.6
0.2
1.8
1.2
3.0
Other
schemes
£m
2.2
0.1
2.3
0.1
2.4
Total
£m
34.9
3.9
38.8
6.4
45.2
188
188
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
24. Retirement benefits and liabilities (continued)
Amounts recorded in the Group statement of comprehensive income
Actual return less interest on pension
scheme assets
Experience losses arising on scheme
liabilities
Changes in assumptions on
scheme liabilities
At 31 March
2018
2017
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
Principal
schemes
£m
Railways
scheme
£m
Other
schemes
£m
Total
£m
53.5
(1.5)
8.8
60.8
757.6
16.9
47.2
821.7
(35.8)
–
6.2
(29.6)
12.7
(0.5)
1.0
13.2
33.2
50.9
4.9
3.4
(19.6)
(4.6)
18.5
49.7
(662.1)
108.2
(43.8)
(27.4)
(62.2)
(14.0)
(768.1)
66.8
Analysis of movement in the Group balance sheet
2018
2017
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
Interest on assets
Actuarial gain/(loss) on assets
Employer contributions
Employee contributions
Benefits paid
At 31 March
Present value of benefit obligations
At 1 April
Service cost
Incurred expenses
Interest cost
Employee contributions
Experience losses/(gain)
Actuarial loss/(gain) – demographics
Actuarial (gain)/loss – financial
Benefits paid
At 31 March
Present value of unfunded obligations
Net deficit/(surplus) at 31 March
4,088.9
105.3
53.5
92.4
0.5
(197.4)
4,130.2
4,113.1
37.7
3.7
105.6
0.5
35.8
(0.8)
(32.4)
(197.4)
4,065.8
–
(77.4)
241.4
6.2
(1.5)
4.2
–
(10.5)
239.8
303.0
3.2
0.2
7.8
–
–
(1.2)
(3.7)
(10.5)
298.8
–
59.0
345.9
4.3
8.8
2.8
0.2
(10.1)
351.9
364.4
2.4
0.1
4.7
0.2
(6.2)
2.1
17.5
(10.1)
375.1
0.2
23.4
4,676.2
115.8
60.8
99.4
0.7
(218.0)
4,734.9
4,780.5
43.3
4.0
118.1
0.7
29.6
0.1
(18.6)
(218.0)
4,739.7
0.2
5.0
3,306.1
114.5
757.6
70.9
0.4
(160.6)
4,088.9
3,469.6
31.1
3.6
119.6
0.4
(12.7)
(10.2)
672.3
(160.6)
4,113.1
–
24.2
222.2
7.7
16.9
2.1
1.1
(8.6)
241.4
255.5
1.6
0.2
8.9
1.1
0.5
(12.7)
56.5
(8.6)
303.0
–
61.6
296.5
4.9
47.2
4.0
0.3
(7.0)
345.9
302.6
2.2
0.1
5.0
0.3
(1.0)
(6.7)
68.9
(7.0)
364.4
0.2
18.7
3,824.8
127.1
821.7
77.0
1.8
(176.2)
4,676.2
4,027.7
34.9
3.9
133.5
1.8
(13.2)
(29.6)
797.7
(176.2)
4,780.5
0.2
104.5
The movement in net deficits for the year ending 31 March 2018 is as a result of the movement in assets and liabilities shown above.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
189
189
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
24. Retirement benefits and liabilities (continued)
The changes to the Group balance sheet at March 2018 and the charges to the Group income statement for the year to March 2018,
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
2018
£m
4,739.7
(364.5)
364.5
287.6
(264.6)
86.4
(86.4)
54.3
(53.9)
Income
statement
2019
£m
43.7
(15.8)
12.0
10.2
(9.4)
2.8
(2.7)
2.7
(2.6)
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 balance sheet values would increase or decrease by the same
amount as the change in the defined benefit obligations.
25. Reconciliation of operating profit to cash generated from operations
2018
£m
Cash flows from operating activities
Operating profit before amortisation of acquired intangible and exceptional items
Amortisation of acquired intangible and exceptional items
Operating profit before share of results of joint ventures and associates
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Investment income
Equity share-based payments
Profit on disposal of property, plant and equipment
Loss on disposal of intangible assets
Operating cash flows before movement in working capital
Increase in inventories
Increase in receivables
Increase in payables
Decrease in provisions
Retirement benefit contributions in excess of income statement
Cash generated from operations
468.7
(98.1)
370.6
91.3
111.1
1.9
6.4
(4.1)
–
577.2
(19.5)
(137.4)
102.6
(27.7)
(47.3)
447.9
2017
£m
472.3
(112.7)
359.6
82.4
122.6
1.2
15.0
(2.8)
0.3
578.3
(0.4)
(78.3)
71.0
(28.4)
(38.2)
504.0
190
190
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
26. Movement in net debt
Increase in cash in the year
Cash flow from the (increase)/decrease in debt and lease financing
Change in net funds resulting from cash flows
Loans and finance leases acquired with subsidiaries
New finance leases – received
New finance leases – granted
Movement in joint venture and associate loans
Foreign currency translation differences and other
Movement in net debt in the year
Net debt at the beginning of the year
Net debt at the end of the year
27. Changes in net debt
Cash and bank balances
Bank overdrafts
Cash, cash equivalents and bank overdrafts
Debt
Finance leases – received
Finance leases – granted
Net debt before derivatives and joint ventures
and associates loans
Net debt derivative
Joint ventures and associates loans
Net debt
28. Acquisitions
There were no acquisitions in the year.
2018
£m
106.9
(43.7)
63.2
–
28.1
(4.5)
(28.3)
58.5
(1,173.5)
(1,115.0)
Exchange/
other
movement
£m
(6.2)
–
(6.2)
43.0
(0.4)
0.4
43.0
36.8
(65.1)
–
(28.3)
2017
£m
11.1
91.0
102.1
(5.2)
–
14.8
(0.3)
(56.4)
55.0
(1,228.5)
(1,173.5)
31 March
2018
£m
286.3
–
286.3
(1,432.2)
(91.1)
46.5
(1,476.8)
(1,190.5)
47.7
27.8
(1,115.0)
31 March
2017
£m
191.4
(5.8)
185.6
(1,428.4)
(118.2)
27.6
(1,519.0)
(1,333.4)
127.6
32.3
(1,173.5)
Cash flow
£m
101.1
5.8
106.9
(46.8)
27.5
(9.6)
(28.9)
78.0
(14.8)
(4.5)
58.7
New finance
leases
£m
–
–
–
–
–
28.1
28.1
28.1
–
–
28.1
During the previous year, in April 2016 the Group acquired 100% of Heli Aviation GmbH for £5.7 million plus acquired loans of £5.2
million giving a total cost of £10.9 million.
Deferred consideration of £19.0 million was paid in the previous year in respect of the DSG, Scandinavian AirAmbulance AB, Context
Information Services Limited and Skills2Learn Limited
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
191
191
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
29. Disposals
During the year the Group disposed of its schools infrastructure business, which resulted in a loss of £0.9 million.
During both the current and previous years the Group paid certain accrued costs on previously disposed of businesses of £2.0 million
(2017: £0.6 million).
30. Transactions with non-controlling interests
During the year the put option in respect of the non-controlling interest in Scandinavian AirAmbulance AB was exercised resulting in the
Group paying £5.3 million plus deferring a further payment of £2.4 million for a year, in order to acquire the balance of the share capital
in that company.
31. Operating lease commitments – minimum lease payments
Commitments under non-cancellable operating leases payable:
Within one year
Later than one year and less than five years
After five years
2018
2017
Vehicles,
plant and
equipment
£m
126.9
287.0
114.2
528.1
Property
£m
29.9
82.3
61.6
173.8
Vehicles,
plant and
equipment
£m
110.7
293.0
110.3
514.0
Property
£m
31.5
78.6
49.1
159.2
The Group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have various terms,
escalation clauses and renewal rights. The Group also leases plant and machinery under non-cancellable operating leases.
Included within the above are £389.5 million (2017: £389.4 million) of operating lease commitments which are matched in time
to customer contracts and are directly attributable to them.
32. Contingent liabilities
(a) Pursuant to the Rosyth Dockyard privatisation agreement, the MOD will share in the net proceeds of sale or development of the
dockyard following planning enhancement, on terms set out in the asset purchase agreement between the RRDL and the MOD dated
30 January 1997. By way of security for the MOD’s rights to such share, the Company has granted a fixed charge (standard security)
over the dockyard in favour of the Authority.
(b) 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.
(c) The Group is involved in disputes and litigation which have arisen in the course of normal trading. The Directors do not believe that
the outcome of these matters will result in any material adverse change in the Group’s financial position.
(d) As part of its role in the Submarine Enterprise Performance Program, the Group has provided a £9 million financial guarantee for a
supplier to ensure continuity of supply.
192
192
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
33. Capital and other financial commitments
Contracts placed for future capital expenditure not provided in the financial statements
2018
£m
11.8
2017
£m
29.4
34. Related party transactions
(a) The following related parties either sell to or receive services from the Group. Loans to joint ventures and associates are detailed
in note 13.
Joint ventures and associates
Holdfast Training Services Limited
ABC Electrification Limited
First Swietelsky Operation and Maintenance
FSP (2004) Limited
Ascent Flight Training (Management) Limited
Ascent Flight Training Holdings Limited
Fixed Wing Training Limited
Advanced Jet Training Limited
Rear Crew Training Limited
AirTanker Services Limited
Alert Communications Limited
ALC (Superholdco) Limited
Naval Ship Management (Australia) Pty Limited
Cura Classis (UK) Limited
Cura Classis (US) LLC
Cura Classis Canada (Hold Co) Inc.
Cavendish Dounreay Partnership Limited
Cavendish Fluor Partnership Limited
Cavendish Boccard Nuclear Limited
Duqm Naval Dockyard SAOC
2018
Revenue to
£m
2018
Purchases
from
£m
2018
Year end
debtor
balance
£m
2018
Year end
creditor
balance
£m
72.0
–
10.5
–
0.5
0.8
9.6
–
4.2
9.1
7.3
–
4.6
3.7
5.0
12.9
3.9
32.3
2.4
–
178.8
–
–
–
(0.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.2)
–
–
(0.5)
0.3
3.8
0.5
–
–
–
–
–
–
0.5
0.7
5.3
–
–
–
–
0.3
0.6
0.3
1.0
13.3
–
–
(0.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.8)
All transactions noted above arise in the normal course of business.
(b) Defined benefit pension schemes.
Please refer to note 24 for transactions with the Group defined benefit pension schemes.
(c) Key management compensation is shown in note 6 and in the Remuneration report.
(d) Transactions in employee benefits trusts are shown in note 22.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
193
193
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
34. Related party transactions (continued)
(a) The following related parties either sell to or receive services from the Group. Loans to joint ventures and associates are detailed
in note 13.
Joint ventures and associates
Holdfast Training Services Limited
ABC Electrification Limited
First Swietelsky Operation and Maintenance
FSP (2004) Limited
Ascent Flight Training (Management) Limited
Ascent Flight Training Holdings Limited
Advanced Jet Training Limited
Rear Crew Training Limited
Airtanker Services Limited
ALC (Superholdco) Limited
Naval Ship Management (Australia) Pty Limited
Cura Classis (UK) Limited
Cura Classis (US) LLC
Cura Classis Canada (Hold Co) Inc.
Cavendish Dounreay Partnership Limited
Cavendish Fluor Partnership Limited
Cavendish Boccard Nuclear Limited
2017
Revenue to
£m
2017
Purchases
from
£m
2017
Year end
debtor
balance
£m
2017
Year end
creditor
balance
£m
73.9
28.2
10.6
–
1.9
0.7
1.8
2.9
8.9
2.2
3.8
5.3
5.6
11.3
4.3
22.1
1.4
184.9
(0.1)
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
(0.1)
(0.1)
–
(0.9)
7.3
3.2
2.2
–
–
–
0.1
0.5
0.5
–
0.4
–
–
–
0.3
2.3
0.4
17.2
(0.1)
–
(1.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.6)
All transactions noted above arise in the normal course of business.
(b) Defined benefit pension schemes.
Please refer to note 24 for transactions with the Group defined benefit pension schemes.
(c) Key management compensation is shown in note 6.
(d) Transactions in employee benefits trusts are shown in note 22.
35. Post balance sheet events
Details on dividends are given in note 8. There are no further material events subsequent to 31 March 2018 that require disclosure.
194
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
36. 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
2018 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. No subsidiary undertakings have been excluded from the consolidation.
Subsidiaries: Incorporated in the
United Kingdom, wholly owned:
Active Management Limited
Air Power International Limited
110 Queen Street, Glasgow, G1 3HD, Scotland
Airwork Limited
Alstec Automation Limited
Alstec Defence Limited
Alstec Limited
Appledore Shipbuilders (2004) Limited c
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG
Armstrong Technology Associates Limited
Babcock (UK) Holdings Limited a i
Babcock 1234 Limited
Babcock 2010 Limited
Babcock Aerospace Limited
Babcock Airports Limited
Babcock Assessments Limited
Babcock Aviation Services
(Holdings) Limited a i
Babcock Brazil Investments Limited
Babcock Brisco Limited
Babcock Careers Guidance Limited m
Babcock Civil Infrastructure Limited
Babcock Communications Limited
Babcock Contractors Limited
Babcock Corporate Secretaries Limited
Babcock Education and Skills Limited
Babcock Education Holdings Limited
Babcock Emergency Services Limited
Babcock Engineering Assessments Limited d
Babcock Engineering Limited
Babcock Environmental Services Limited
Babcock Finance Limited
Babcock Fire Services (SW) Limited
Babcock Fire Services Limited
Babcock Fire Training
(Avonmouth) Limited
Babcock Flagship Limited c
Babcock Group (US Investments) Limited
Babcock Group International Limited
Babcock Group Limited
Babcock Holdings Limited i
Babcock HSPS Trustees Limited
Babcock Information Analytics and Security
Holdings Limited
Lincoln House, Wellington Crescent, Fradley Park,
Lichfield, Staffordshire, WS13 8RZ
Babcock Information Analytics and
Security Limited f
Lincoln House, Wellington Crescent, Fradley Park,
Lichfield, Staffordshire, WS13 8RZ
Babcock Infrastructure Holdings LLP
Babcock Integrated Technology
(Korea) Limited
Babcock Corporate Services Limited
Babcock Integrated Technology Limited
Babcock Critical Assets Holdings LLP
Babcock Integration LLP
Babcock Investments
(Number Three) Limited
Babcock Investments Limited
Babcock IP Management
(Number One) Limited
Babcock IP Management
(Number Two) Limited
Babcock Land (Whitefleet
Management) Limited
Babcock Land Limited
Babcock Leaseco Limited
Babcock Lifeskills Limited
Babcock Managed Security
Services Limited m
Babcock Management Limited
Babcock Marine & Technology
Holdings Limited
Babcock Marine (Clyde) Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Marine (Devonport) Limited c
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG
Babcock Marine (Rosyth) Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Marine Holdings (UK) Limited f
Babcock Marine Limited
Babcock Marine Products Limited
Babcock Media Services Limited
Babcock Mission Critical Services Design
and Completions Limited
Babcock Critical Services Limited
110 Queen Street, Glasgow, G1 3HD, Scotland
Babcock Defence & Security Holdings LLP
Babcock Defence and Security
Investments Limited
Babcock Defence Systems Limited
Babcock Design & Technology Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock DSG Limited
Babcock Education & Training
Holdings LLP
Babcock International Guarantee Company
Babcock International Limited f
Babcock Mission Critical Services
Leasing Limited
Babcock International Middle East Limited
Babcock Mission Critical Services Limited
Babcock International Support Services
Limited
Babcock Investments (Fire Services) Limited
Babcock Investments
(Number Eight) Limited
Babcock Investments
(Number Four) Limited
Babcock Mission Critical Services
Offshore Limited
Babcock Mission Critical Services
Onshore Limited
Babcock Mission Critical Services
Topco Limited c
Babcock Mission Critical Services UK Limited
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
195
195
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
36. Group entities (continued)
Subsidiaries: Incorporated in the
United Kingdom, wholly owned:
– continued
Babcock MSS Limited
Babcock-Moxey Limited
BCRA Chesterfield Limited l
BIL Solutions Limited
Eve NCI Limited
Eve Power Limited
Eve Transmission Limited
Babcock Networks Limited
Babcock Nominees Limited
Babcock Nuclear Limited
Babcock Overseas Investments Limited
Babcock Partner No 6 Limited
Babcock Partner No 7 Limited
Babcock Partners No 2010 Limited
Babcock Power Maintenance Limited
Babcock Project Investments Limited
Babcock Project Services Limited c
Babcock Rail Limited
Babcock Services Group Limited
Babcock Services Limited g
Babcock Skills Development and
Training Limited
Babcock Southern Careers Limited d
Babcock Southern Holdings Limited m
Babcock SSD Services Limited
Babcock Support Services
(Investments) Limited
Babcock Support Services Limited j
110 Queen Street, Glasgow, G1 3HD, Scotland
Babcock Systems Limited
Babcock Technical Services Limited
Babcock Training Limited
Babcock Transmission Limited c
Babcock Trustees Limited
Babcock UK Finance
Babcock US Investments Limited
Babcock Vehicle Engineering Limited e
Babcock Welbeck Limited
Babcock Woodall-Duckham
(Overseas) Limited l
Babcock2 Limited
Birchill Investment Co. Limited
FBM Babcock Marine Holdings (UK) Limited
BMH (2002) Limited
BMPT Limited
BNS Nuclear Services Limited
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 Leasing Limited
FBM Babcock Marine Limited
FBM Marine International (UK) Limited
First Engineering Holdings Limited
Kintail House, 3 Lister Way, Hamilton International
Park, Blantyre, G72 0FT, Scotland
First Engineering Limited
First Fire and Rescue Service Limited
First Fire and Rescue Service No 2 Limited
First Projects Limited
Bond Aviation Topco Limited f
Flagship Fire Fighting Training Limited
Bond Mission Critical Services PLC
British Nuclear Services Limited
Brooke Marine Shipbuilders Limited
Cavendish Nuclear (Overseas) Limited
Cavendish Nuclear Limited f
Cavendish Nuclear Manufacturing Limited
Certas Limited
Chart Distribution Services Limited
Chart Services Limited
110 Queen Street, Glasgow, G1 3HD, Scotland
Chart Storage & Transportation Limited
Context Information Security Limited
11 Westferry Circus, London, E14 4HD
Costpool Limited
Defence SCS Limited
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG
Devonport Management Limited
Devonport Royal Dockyard Limited b
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG
Devonport Royal Dockyard Pension
Trustees Limited
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG
Eve Construction Limited
Eve Developments Limited
Eve Group Limited
FN Consultancy Limited
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG
FNC Group Limited
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG
FNC Limited
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG
Form Land Support Limited
Frazer-Nash Consultancy Group Limited c
Devonport Royal Dockyard, Devonport, Plymouth,
PL1 4SG
Frazer-Nash Consultancy Limited h
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG
FW 1B SPV Limited m
Gaycrete Limited
Gibraltar Investments (No. 7) Limited c
HCTC Limited
Hiberna Contract Services Limited
Hiberna FM Limited
Hiberna Limited
Hiberna Network Solutions Limited
INS Innovation Limited
Jackson (EBP) Limited
Jackson Management Services Limited
196
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
36. Group entities (continued)
Subsidiaries: Incorporated in the
United Kingdom, wholly owned:
– continued
KML (UK) Limited
Learning21 Limited
Liquid Gas Equipment Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife, K11
2YD, Scotland
Locam Limited
Lincoln House, Wellington Crescent, Fradley Park,
Lichfield, Staffordshire, WS13 8RZ
Marine Engineering & Fabrications
(Holdings) Limited
Marine Engineering & Fabrications Limited
Merlin Communications Group Limited h
Merlin Orfordness Limited
Municipal Vehicle Hire Limited
Northern Cable Installations Limited
Pearson & Raby Limited
Peterhouse Group Limited
Peterhouse5 (Shorco) Limited c
Peterhouse6 (IETG) Limited
Port Babcock Rosyth Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Limited n
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
Scimco Limited
Skills2Learn Limited
St Helen’s Securities Limited
Strachan & Henshaw Limited
The Stirling Boiler Company Limited
110 Queen Street, Glasgow, G1 3HD, Scotland
Touchstone Learning & Skills Limited
Transfleet Distribution Limited
Transfleet Truck Rentals Limited
Tyneham Investments Limited
UKAEA Limited
Vosper ManTech Limited c
Vosper Thornycroft (UK) Limited
Westminster Education
Consultants Limited
Subsidiaries: Incorporated
overseas, wholly owned:
AUH-Bidco Pty Limited
Level 10, 70 Franklin Street, Adelaide SA 5000, Australia
Babcock (NZ) Limited
Babcock Central Office, HMNZ Dockyard, Devonport
Naval Base, Queens Parade, Devonport, Auckland,
0744, New Zealand
Babcock Africa (Pty) Limited k
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Africa Holdings (Pty) Ltd (i) f
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Africa Investments (Pty) Ltd
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Africa Investments BV
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Africa Services (Pty) Ltd
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Australia Holdings Pty Limited
Level 10, 70 Franklin Street, Adelaide SA 5000, Australia
Babcock Aviation Services (Holdings) SL
Plaza Pablo Ruiz, Picasso 1, Torre Picasso,
28020, Madrid, Spain
Babcock B.V.
Bezuidenhoutseweg 1,
2594AB,The Hague, The Netherlands
Babcock Canada Inc
45 O’Connor Street, Suite 1500,
Ottawa ON K1P 1A4, Canada
Babcock Communications Cyprus Limited
199 Mariakos III Ave, Neoclous House,
CY 3030 Limassol, Cyprus
Babcock Education and Training (Pty) Ltd
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Financial Services (Pty) Ltd
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Holdings (USA) Incorporated k
S32 Loockerman Square, Ste. L-100 Dover, Delaware,
United States
Babcock Integrated Technology GmbH
Berliner Platz 12, 41061, Moenchgladbach, Germany
Babcock International France SAS
4 rue Lord Byron, 75008 Paris, France
Babcock International Holdings BV
Bezuidenhoutseweg 1, 2594 AB The Hague,
The Netherlands
Babcock International Italy S.p.A.
Piazza Castello no.26 – 20121 Milan, Italy
Babcock International Spain S.L.U.
Mutxamel, Alicante, Aeródromo de Mutxamel, 03110,
Partida la Almaina 92, Spain
Babcock International US Inc
21001 Great Mills Road, Lexington Park, Maryland DE
20653, United States
Babcock Ireland Finance Limited
44 Esplanade, St Helier, Jersey, JE4 9WG
Babcock Luxembourg
Investments I S.a.r.l.
12F rue Guillaume Kroll, L-1882 Luxembourg,
Luxembourg
Babcock Luxembourg Finance S.a.r.l.
12F rue Guillaume Kroll, L-1882 Luxembourg,
Luxembourg
Babcock Luxembourg Investments S.a.r.l.
12F rue Guillaume Kroll, L - 1882 Luxembourg,
Luxembourg
Babcock Luxembourg S.a.r.l.
12F rue Guillaume Kroll, L-1882 Luxembourg,
Luxembourg
Babcock Malta (Number Two) Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Malta Finance
(Number Two) Limited d
Verdala Business Centre, Level 1, LM Complex,
Brewery Street, Mriehel, Birkirkara, BKR 3000, Malta
Babcock Malta Finance Limited d
Verdala Business Centre, Level 1, LM Complex,
Brewery Street, Mriehel, Birkirkara, BKR 3000, Malta
Babcock Malta Holdings
(Number Two) Limited d
Verdala Business Centre, Level 1, LM Complex,
Brewery Street, Mriehel, Birkirkara, BKR 3000, Malta
Babcock Malta Holdings Limited d
Verdala Business Centre, Level 1, LM Complex,
Brewery Street, Mriehel, Birkirkara, BKR 3000, Malta
Babcock Malta Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock MCS Congo SA
Avenue Charles de Gaulle, PB 5871, Pointe-Noire, PB
5871, Republic of the Congo
Babcock MCS Fleet Management S.p.A.
Piazza Castello no. 26, 20121, Milan, Italy
Babcock Mission Critical Services Asset
Management SAU
Partida La Almaina, nro. 92, 03110,
Mutxamel, Alicante, Spain
Babcock Mission Critical Services
Australasia Pty Ltd
Level 10, 70 Franklin Street, Adelaide, SA 5000,
Australia
Babcock Mission Critical
Services España SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services Fleet
Management SAU
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
197
197
Strategic reportGovernance statementFinancials
Notes to the Group financial statements, continued
36. Group entities (continued)
Subsidiaries: Incorporated
overseas, wholly owned: –
continued
Babcock Mission Critical Services
France SA
Lieu dit le Portaret, 83340, Le Cannet-des-Maures,
France
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 S.A.U.
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services
Ireland Limited
24/26 City Quay, Dublin 2, Ireland
Babcock Mission Critical Services Italia S.p.A
Piazza Castello no. 26, 20121, Milan, Italy
Babcock Mission Critical Services Portugal,
Unipessoal, LDA
Heliporto de Salemas, Lousa, 2670-769, Lisboa,
Loures, Portugal
Babcock Mission Critical Services, S.A.U.
Partida La Almaina, nro. 92, 03110, Mutxamel,
Alicante, Spain
Babcock Mission Critical Services,
Scandinavia AB c
Ashurst Advokatbyra AB, PO Box 7124 10387,
Stockholm, Sweden
Babcock Moçambique Limitada
Av. Samora Macel 3380/1, Mozambique
Babcock MCS Mozambique Limitada
Sala no. 2022, I Andar, Terminal A, Aeroporto
Internationaldomaputo, Distrito Urbano2,
Mozambique
Babcock Namibia Services Pty Ltd
Unit 5, Ground Floor, Dr Agostinho Neto Road,
Ausspannplatz, Windhoek, Namibia
Babcock Networks Ireland Limited
Unit 2, Red Cow Interchange Estate, Ballymounth,
Dublin, 22, Ireland
Babcock Offshore Services Australasia Pty Ltd
Level 10, 70 Franklin Street, Adelaide SA 5000, Australia
Babcock Oman LLC
Al Raid Business Centre, Qurum, PO Box 2315,
Muscat, PC130, Oman
Babcock Pty Limited
Level 10, 70 Franklin Street, Adelaide SA 5000, Australia
Babcock SAA FW AB
Flygstationsvägen 4, 972 54, Luleå, Sweden
Babcock Scandinavia Holding AB
Flygstationsvägen 4, 972 54, Luleå, Sweden
Babcock Scandinavian AirAmbulance AB
Lägervägen 3, 832 56, Frösön, Sweden
Babcock Scandinavian Air Ambulance AS
Nerstranda 55, 9008 Troms, Norway
Babcock Support Services (Canada) Inc.
44, Chipman Hill Suite 1000,
Saint John NB NB E2L 2A9, Canada
Babcock Support Services Canada
Investments Inc. f
45 O’Connor Street, Suite 1500, Ottawa, ON K1P
1A4, Canada
Babcock Support Services (USA) LLC
251 Little Falls Drive, Wilmington, DE 19808,
United States
Babcock Support Services GmbH
Berliner Platz 12, 41061,
Moenchengladbach, Germany
Babcock Support Services s.r.l.
Via Foro Buonaparte, 70 20121, Milano, Italy
Babcock TCM Plant (Proprietary) Limited k
Unit G3, Victoria House, Plot 132, Independence
Avenue, Gaborone, Botswana
Babcock US Investments (Number Two) LLC c
160 Greentree Drive, Suite 101, Dover DE 19904,
United States
Babcock US Investments Inc. c
160 Greentree Drive, Suite 101, Dover, Kent County
DE 19904, United States
Babcock Zambia Limited
PO Box 28037, Kitwe, Copperbelt Province,
101010, Zambia
BMH Technologies (Holdings) GmbH c
Berliner Platz 12, 41061,
Moenchengladbach, Germany
Chepstow Insurance Limited
St Martin’s House, Le Bordage, St Peter Port, GY1 4AU
Cognac Formation Aero
Lieu dit le Portaret, 83340,
Le Cannet des Maures, France
Conbras Servicos Tecnicos
de Suporte Limiteda
Rua Nilo Pecanha no 50, Suites 314 & 315, Centro,
Rio de Janeiro, 20020.100, Brazil
Context Information Security GmbH
Ernst-Ludwig-Ring 2, Bad Nauheim, 61231,
Amtsgericht Friedberge (Hessen), Germany
Context Information Security LLC c
2711 Centerville Road, Suite 400, Wilmington DE
19808, United States
Frazer-Nash Consultancy (Australia)
Pty Limited
689-695 Mersey Road, Osborne SA 5017, Australia
Heli Aviation (Tianjin) Helicopter
Sales Co., Ltd.
Room 514/515, The Aviation Industry Support
Center, Comprehensive Free Trade Zone, Airport
Industrial Park, 1 Boahang Riad, Tianjin, China
198
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Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
Heli Aviation China Ltd
World Finance Centre, Kowloon Hong Kong/
Room 1102-1103 11/F, Kowloon Building,
555 Nathan Road, Mongkok, Kowloon, Hong Kong
INAER Helicopter Australia Pty Limited
Level 10, 70 Franklin Street,
Adelaide SA 5000, Australia
INAER Helicopter Chile S.A.
2880 Americo Vespucio Norte Avenue, Suite 1102,
Conchali, Santiago, Chile
INAER Helicopter Peru S.A.C. (ii)
Av. De La Floresta No 497 Int., Lima, Peru
INAER Ireland Finance Limited
Custom House Plaza, Block 6, IFSC, DUBLIN 1, Ireland
Marine Industrial Design Limited
Babcock Central Office, HMNZ Dockyard, Devonport
Naval Base, Queens Parade, Devonport, Auckland,
0744, New Zealand
Naiad Marine B.V
Prins Bernhardplein 200, 1097 JB, Amsterdam
Netherlands
National Training Institute LLC (iii)
PO Box 267, Madinat Qaboos, Sultanate of Oman,
115, Oman
Peterhouse GmbH
Berliner Platz 12, 41061, Moenchengladbach,
Germany
PHG Insurance Limited
St Martin’s House, Le Bordage, St Peter Port,
GY1 4AU, Guernsey
Strachan & Henshaw Canada Inc
45 O'Connor Street, Suite 1500, Ottawa, ON,
K1P 1A4, Canada
Strachan & Henshaw, Inc
155 Federal Street, Suite 700, Boston
MA 02110, United States
VT Communications GmbH
Mainzer Landstrasse 16, 60325,
Frankfurt Am Main, Germany
VT Insurance Services Limited
St Martins House, Le Bordage, St Peter Port, Guernsey,
GY1 4AU
World Helicopters Norway AS
Norske Helikopterservice Flyplassvegen 214,
Sola, 4055, Norway
Subsidiaries: partly owned:
Airwork Technical Services
& Partners LLC (51%)
PO Box 248 (located at Muaskar Al Murtafa’a (MAM)
Garrison), Muscat, 100, Sultanate of Oman
Babcock 4S Limited (80.1%) c
Babcock Communications
& Partners LLC (99%) (iv)
PO Box 40 Jalaan, Al Ashkhara, 422, Sultanate of Oman
Babcock Dyncorp Limited (56%) c
36. Group entities (continued)
Subsidiaries: partly owned
– continued:
Babcock Learning and Development
Partnership LLP (80.1%)
Babcock MCS Ghana Limited (90%)
2nd Floor, Opeibea House, 37 Liberation Road, P.O.
Box CT 9347, Cantonments, Accra, Ghana
Babcock Mission Critical Services
Galicia SL (91.1%)
Lugar Lavacolla-Aeropuerto Santiago, S/N, C.P.,
15820, Santiago de Compostela, A Coruna, Spain
Babcock Ntuthuko Aviation
(Pty) Limited (74.2%)
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Ntuthuko Engineering (Proprietary)
Limited (75%)
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Babcock Ntuthuko Powerlines (Proprietary)
Limited (75.3%)
Unit G3, Victoria House, Plot 132, Independence
Avenue, Gaborone, Botswana
Babcock Plant Services (Pty) Limited (72%) f
Riley Road Office Park, 15E Riley Road, Bedfordview,
Gauteng, 2007, South Africa
Capital Careers Limited (88.3%)
Surrey Careers Services Limited (94.1%) f
Joint ventures and associates
(equity accounted):
ABC Electrification Limited (33.3%) b
8th Floor, The Place, High Holborn,
London, WC1V 7AA
Advanced Jet Training
Holdings Limited (50%)
Advanced Jet Training Limited (50%)
AirTanker Finance Limited (13.3%)*
6th Floor, London Wall, London, EC2Y 5EB
AirTanker Holdings Limited (13.3%)*
6th Floor, London Wall, London, EC2Y 5EB
AirTanker Limited (13.3%)*
6th Floor, London Wall, London, EC2Y 5EB
AirTanker Services Limited (22.3%)*
Airtanker Hub RAF Brize Norton, Carterton,
Oxfordshire, OX18 3LX
ALC (FMC) Limited (50%)*
The Sherard Building, Edmund Halley Road, Oxford,
Oxfordshire, OX4 4DQ
ALC (Holdco) Limited (50%)*
The Sherard Building, Edmund Halley Road, Oxford,
Oxfordshire, OX4 4DQ
ALC (SPC) Limited (50%)*
The Sherard Building, Edmund Halley Road, Oxford,
Oxfordshire, OX4 4DQ
ALC (Superholdco) Limited (50%)*
The Sherard Building, Edmund Halley Road, Oxford,
Oxfordshire, OX4 4DQ
Alert Communications (2006)
Limited (20%) f
Alert Communications (Holdings)
Limited (20%)
Alert Communications Group
Holdings Limited (20%)
Alert Communications Limited (20%)
Ascent Flight Training (Holdings)
Limited (50%)
Ascent Flight Training (Management)
Limited (50%)
Ascent Flight Training (Services) Limited
(50%)
Babcock Middle East LLC (49%)
Suite 702, Tower A, Al Jazira Sports Club,
Muroor Road, Abu Dhabi, PO BOX 114851,
United Arab Emirates
Cavendish Boccard Nuclear Limited (51%)
Cavendish Dounreay Partnership
Limited (50%) b
Cavendish Fluor Partnership Limited (65%)
Cura Classis (Canada) Inc. (48%)
44 Chipman Hill, Suite 1000, PO Box 7289, Stn. “A”,
Saint John, NB E2L 2A9, Canada
Cura Classis (UK) Limited (48%)
Cura Classis (US) Hold Co LLC (48%)
251 Little Falls Drive, Wilmington, DE 19808, United
States
Cura Classis (US) LLC (48%)
251 Little Falls Drive, Wilmington, DE 19808, United
States
Cura Classis Canada (Hold Co) Inc. (48%) n
44 Chipman Hill, Suite 1000, PO Box 7289, Stn. “A”,
Saint John, NB E2L 2A9, Canada
Cura Classis UK (Hold Co) Limited (48%)
Debut Services (South West) Limited (50%)
20 Triton Street, Regent’s Place, London, NW1 3BF
Debut Services Limited (15%)
20 Triton Street, Regent’s Place, London, NW1 3BF
Dounreay Site Restoration Limited (50%) c
Building D2003, Dounreay, Thurso, Caithness,
KW14 7TZ, Scotland
Duqm Naval Dockyard SAOC (49%)
Wadi Say, Al-Duqm, Al-Wusta’a, 3972 112, Oman
European Air-Crane S.p.A. (49%)
Via Duca D’Aosta no. 20, 50129, Florence, Italy
Falck Air Ambulance A/S (49.1%)
Polititorvet 1, 1569, Copenhagen, Denmark
FBV Designs Limited (50%) b
Fixed Wing Training Holdings Limited (50%)
Fixed Wing Training Limited (50%)
FSP (2004) Limited (50%) c
Kintail House, 3 Lister Way, Hamilton International
Park, Blantyre, G72 0FT, Scotland
Helidax S.A.S. (50%)*
Route de Tercis, 40100, Dax, France
Holdfast Training Services Limited (74%)
Magnox Limited (65%) c
Oldbury Technical Centre, Oldbury Naite, Thornbury,
South Gloucestershire, BS35 1RG
Naval Ship Management (Australia)
Pty Limited (50%)
Level 10, 40 Miller Street,
North Sydney NSW 2060, Australia
Rear Crew Training Holdings Limited (50%)
Rear Crew Training Limited (50%)
Research Sites Restoration Limited (65%) c
Oldbury Technical Centre, Oldbury Naite, Thornbury,
South Gloucestershire, BS35 1RG
Rotary Wing Training Limited (50%)
a
(ii)
S.I.M.A. Societa Italiana de Manutenzioni
Aeronautiche SpA (29.4%)
Via Duca D’Aosta no. 20, 50129, Florence, Italy
Notes
(i)
The Group’s interest in Babcock Africa Holdings
(Pty) Limited carries 90% of the voting rights, and
the right to substantially all of the distributable
profits.
The Group’s interest in INAER Helicopter
Peru S.A.C. carries 70% of the voting rights, and
the rights to substantially all distributable profits.
(iii) The Group’s interest in National Training Institute
LLC carries over 70% of the voting rights, and the
rights to substantially all distributable profits.
(iv) The Group’s interest in Babcock Communication
& Partners LLC carries over 70% of the voting
rights, and the rights to 99% of the distributable
profits.
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.
Holding of one type of ordinary share only,
where more than one type of share is authorised
or in issue.
Holding of two types of ordinary shares.
Holding of three types of ordinary shares.
Holding of six types of ordinary shares.
Holding of ordinary and preference shares.
Holding of two types of ordinary and preference
shares.
Holding of ordinary and two types of preference
shares.
Holding of ordinary and three types of
preference shares.
Holding of ordinary and five types of preference
shares.
Holding of ordinary and redeemable preference
shares.
Holding of two ordinary and redeemable
preference shares.
Holding of ordinary and deferred shares.
Holding of two types of ordinary shares, where
more than two types of share are authorised or
in issue.
Year end 31 December.
c
d
e
f
g
m
n
b
h
j
i
k
*
l
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
199
199
Strategic reportGovernance statementFinancials
Company balance sheet
As at 31 March 2018
Fixed assets
Investment in subsidiaries
Current assets
Trade and other receivables
Creditors: Amounts falling due within one year:
Trade and other payables
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year:
Trade and other payables
Net assets
Equity
Called up share capital
Share premium account
Capital redemption reserve
Other reserve
Retained earnings
Total shareholders’ funds
Note
2018
£m
2017
£m
5
2,466.5
2,359.5
6
7
7
9
3,433.7
3,049.2
(1,813.1)
1,620.6
4,087.1
(1,820.4)
1,228.8
3,588.3
(1,371.7)
2,715.4
(1,281.9)
2,306.4
303.4
873.0
30.6
768.8
739.6
2,715.4
303.4
873.0
30.6
768.8
330.6
2,306.4
The accompanying notes are an integral part of this Company balance sheet. Company number 02342138.
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 £538.5 million (2017: £146.8 million).
The financial statements on pages 200 to 206 were approved by the Board of Directors on 22 May 2018 and are signed on its behalf by:
A Bethel
Director
F Martinelli
Director
200
200
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
Company statement of changes in equity
For the year ended 31 March 2018
At 1 April 2016
Profit for the year
Other comprehensive income
Shares issued in the year
Dividends
Share-based payments
Tax on share-based payments
Own shares and other
Net movement in equity
At 31 March 2017
At 1 April 2017
Profit for the year
Other comprehensive income
Dividends
Share-based payments
Tax on share-based payments
Own shares and other
Net movement in equity
At 31 March 2018
Share
capital
£m
302.5
–
–
0.9
–
–
–
–
0.9
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
269.8
146.8
40.1
–
(132.5)
15.0
(0.8)
(7.8)
60.8
330.6
538.5
10.3
(143.9)
6.4
1.9
(4.2)
409.0
739.6
Total
equity
£m
2,244.7
146.8
40.1
0.9
(132.5)
15.0
(0.8)
(7.8)
61.7
2,306.4
538.5
10.3
(143.9)
6.4
1.9
(4.2)
409.0
2,715.4
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
201
201
Strategic reportGovernance statementFinancials
Notes to the Company financial statements
1. General information
Babcock International PLC is incorporated and domiciled in the 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 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 measurement
of assets and liabilities)
• 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 period)
• The following paragraphs of IAS 1, ‘Presentation of financial statements’:
• 10(d), 10(f), 16, 38, 40, 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.
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 balance sheet 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 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 substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
202
202
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
2. Significant accounting policies (continued)
Taxation (continued)
Deferred income tax (continued)
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 period 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 23 to the Group financial statements.
(b) Treasury shares
The shares purchased by the Company’s ESOP trusts are recognised as a deduction to equity. See note 22 to the Group financial
statements for further details.
(c) 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 24 to the Group financial statements for further details.
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, at which point any deferred gain or loss is included in the assets’ carrying amount. 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 the
profit and loss account immediately.
Financial risk management
All treasury transactions are carried out only with prime rated counterparties as are investments of cash and cash equivalents.
Dividends
Dividends are recognised in the Company’s financial statements in the period in which they are approved and in the case of interims,
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 balance sheet 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. There are no key estimate or judgements for the Company.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
203
203
Strategic reportGovernance statementFinancials
Notes to the Company financial statements, continued
3. Company profit
The Company has no employees.
The fee payable to the parent auditor and its associates in respect of the audit of the Company’s financial statements was £0.4 million
(2017: £0.4 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 £6.5 million (2017: £6.7 million); these amounts are
calculated on a different basis to 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 gains made by Directors from the exercise of Long Term Incentive Plans in 2018 as at the
date of exercise was £0.6 million (2017: £2.8 million) and the net aggregate value of assets received by Directors in 2018 from Long
Term Incentive Plans as calculated at the date of vesting was £0.6 million (2017: £2.9 million); these amounts are calculated on a
different basis from the valuation of share plan benefits under Schedule 8 (2013) in the Remuneration report.
5. Investment in subsidiary undertakings
At 1 April
Additions
At 31 March
2018
£m
2017
£m
2,359.5
107.0
2,466.5
2,359.5
–
2,359.5
During the year preference shares of US$150 million (£107.0 million) converted to increase the investment in Babcock (UK) Holdings
Limited. The Directors believe that the carrying value of the investments is supported by the underlying net assets.
6. Trade and other receivables
Non-current debtors
Amounts due from subsidiary undertakings
Preference shares in a subsidiary undertaking
Other debtors
Current debtors
Amounts due from subsidiary undertakings
Prepayments and accrued income
Income tax recoverable
Deferred tax
Total trade and other receivables
2018
£m
2017
£m
337.7
926.7
0.6
1,265.0
2,154.6
0.5
6.2
7.4
2,168.7
3,433.7
112.7
1,084.7
0.9
1,198.3
1,835.3
–
–
15.6
1,850.9
3,049.2
Of the preference shares in a subsidiary undertaking, the B preference shares of US$500 million mature on 17 March 2021 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%, and with a maturity date of 29 July 2019. The A preference shares of US$150 million
matured on 19 March 2018 and carried interest at 4.94%.
204
204
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
6. Trade and other receivables (continued)
Interest rates on amounts owed by subsidiary operations.
EURIBOR + 4%
EURIBOR + 2%
LIBOR +5%
LIBOR +4%
LIBOR +1%
USD LIBOR + 4%
STIBOR + 4%
BBSW +4%
4.5%
Interest free
7. Trade and other payables
Amounts due within one year
Bank loans and overdrafts
Amounts due to subsidiary undertakings
Accruals and deferred income
Amounts due after one year
Bank loans and other borrowings
Other creditors
Non-current
Current
2018
£m
158.2
11.8
140.0
–
–
22.1
2.7
2.9
–
–
337.7
2017
£m
91.0
–
–
–
–
13.6
4.9
3.2
–
–
112.7
2018
£m
24.7
–
–
29.2
–
23.3
27.5
0.5
100.8
1,948.6
2,154.6
2017
£m
63.8
–
140.0
36.2
5.0
28.0
24.4
0.5
100.8
1,436.6
1,835.3
2018
£m
2017
£m
314.8
1,490.4
7.9
1,813.1
162.6
1,650.2
7.6
1,820.4
1,371.0
0.7
1,371.7
1,281.0
0.9
1,281.9
The Company has £2,026.6 million (2017: £2,030.2 million) of committed borrowing facilities, of which £1,379.4 million (2017:
£1,400.9 million) was drawn at the year end. The interest rate applying to bank loans is 1.6% (2017: 1.8%) and is linked to LIBOR, the
Eurobond is at 1.8% (2017: 1.75%) whilst the interest rate applying to overdrafts is 1.3% (2017: 1.3%).
The amounts due to subsidiary undertakings are repayable on demand and £1,490.4 million (2017: £1,469.2 million) is interest free. In
2017 a further £136.3 million carried interest at LIBOR + 4%, £9.1 million carried interest at LIBOR + 1% and £35.6 million carried interest
at 4.5%.
8. Other financial assets and liabilities
The notional principal amount of outstanding interest rate swap contracts at 31 March 2018 included interest rate swaps in relation
to the US$500 million US$ to GBP cross-currency swap.
The fair values of the financial instruments are based on valuation techniques (level 2) using underlying market data and discounted
cash flows.
The Company has taken advantage of the exemptions within FRS 101 not to disclose all IFRS 7 and IFRS 13 requirements, as it and its
subsidiary undertakings are included by full consolidation in the Group accounts on pages 150 to 199.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
205
205
Strategic reportGovernance statementFinancials
Notes to the Company financial statements, continued
9. Share capital
Allotted, issued and fully paid
At 1 April 2017 and 31 March 2018
Allotted, issued and fully paid
At 1 April 2016
Shares issued
At 31 March 2017
Ordinary shares
of 60p
Number
Total
£m
505,596,597
303.4
504,196,597
1,400,000
505,596,597
302.5
0.9
303.4
10. Contingent liabilities
(a) The Company has guaranteed or has joint and several liability for bank facilities with nil utilisation at 31 March 2018 (2017: £5.7
million) 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 2018 these amounted to £252.8 million
(2017: £279.2 million), of which the Company had counter-indemnified £184.4 million (2017: £182.5 million).
(c) The Company has given guarantees on behalf of Group companies in connection with the completion of contracts within
specification.
11. Group entities
See note 36 to the Group financial statement for further details.
12. Post balance sheet events
The Directors have proposed a final dividend of 22.65p per 60p ordinary share (2017: 21.65p per 60p ordinary share) and it will be paid
on 10 August 2018 to shareholders registered on 29 June 2018, subject to approval at the Annual General Meeting on 19 July 2018.
206
206
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
Shareholder information
Financial calendar
Financial year end
2017/18 full year results announced
Annual General Meeting
Final dividend payment date (record date 29 June 2018)*
* See also ‘Results and dividends’ on page 133.
31 March 2018
23 May 2018
19 July 2018
10 August 2018
Registered office and
company number
33 Wigmore Street
London, W1U 1QX
Registered in England
Company number 2342138
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent, BR3 4TU
Tel: 0871 664 0300
(Calls cost 12p per minute plus your phone
company’s access charge, from overseas –
call +44 371 664 0300, calls outside the
UK 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.)
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 Asset Services using
their postal or email addresses given above.
Independent auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London, WC2N 6RH
Share dealing services
A simple and competitively priced service
to buy and sell shares is provided by
Link Asset Services. There is no need to pre-
register and there are no complicated
application forms to fill in.
For further information on this
service, or to buy and sell shares,
visit www.linksharedeal.com or call
0371 664 0445. (Calls are charged at
the standard geographic rate and will
vary by provider. Calls outside the United
Kingdom will be charged at the applicable
international rate. Lines are open between
8.00am and 4.30pm, Monday to Friday
excluding public holidays in England
and Wales.)
This is not a recommendation to buy
and sell shares and this service may not be
suitable for all shareholders. The price of
shares can go down as well as up and you
are not guaranteed to get back the amount
you originally invested, Terms, conditions
and risks apply. Link Asset Services is a
trading name of Link Market Services
Trustees Limited which is authorised and
regulated by the Financial Conduct
Authority. This service is only available to
private shareholders resident in the
European Economic Area, the Channel
Islands or the Isle of Man.
Dividend Reinvestment Plan
This is a convenient way to build up
your shareholding by using your cash
dividends to buy more shares in the
Company. If you would prefer to receive
shares for your next dividend instead of
cash, please complete an application form
online at www.babcock-shares.com or call
Link Market Services Trustees Limited on
+44 (0) 371 664 0381. (Calls are charged
at standard geographic rate and vary by
provider, calls outside the UK are charged
at the applicable international rate. Lines
are open from 9.00am to 5.30pm Monday
to Friday.) Alternatively, email
enquiries@linkgroup.co.uk.
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.
The relevant stock transfer form can
be obtained from Capita Asset Services.
There are no implications for Capital Gains
Tax purposes (no gain or loss) on gifts of
shares to charity and it is also possible
to obtain income tax relief. Further
information about ShareGift may be
obtained on 020 7930 3737 or from
www.ShareGift.org.
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
207
207
Strategic reportGovernance statementFinancials
Five-year financial record
Continuing revenue
Operating profit from continuing operations
Share of profit from joint ventures
Profit before interest from continuing operations
Net interest and similar charges
Profit before taxation from continuing operations
Income tax expense
Profit from continuing operations
Profit for the year
Non-controlling interest
Profit attributable to owners of parent
Non-current assets
Net current assets/(liabilities)
Non-current liabilities
Total net assets
Equity holders of the parent
Non-controlling interest
Total equity
Total earnings per share – basic
Dividend per share (proposed)
2018
£m
4,659.6
370.6
68.5
439.1
(48.0)
391.1
(53.4)
337.7
337.7
(1.4)
336.3
4,750.3
72.2
(1,911.5)
2,911.0
2,892.9
18.1
2,911.0
66.6p
29.5p
2017
£m
4,547.1
359.6
56.7
416.3
(54.2)
362.1
(46.5)
315.6
315.6
(3.8)
311.8
4,866.5
(239.9)
(1,934.4)
2,692.2
2,669.8
22.4
2,692.2
61.8p
28.15p
2016
£m
4,158.4
352.5
34.6
387.1
(57.0)
330.1
(39.0)
291.1
291.1
(4.5)
286.6
4,551.8
(245.7)
(1,949.8)
2,356.3
2,338.5
17.8
2,356.3
57.0p
25.8p
2015
£m
3,996.6
352.3
29.4
381.7
(68.6)
313.1
(46.7)
266.4
266.4
(6.2)
260.2
4,499.1
(221.4)
(2,079.6)
2,198.1
2,180.1
18.0
2,198.1
52.9p
23.6p
2014
£m
3,321.0
233.1
20.9
254.0
(35.2)
218.8
(30.8)
188.0
188.0
(7.5)
180.5
2,323.9
(246.6)
(1,051.2)
1,026.1
1,004.4
21.7
1,026.1
44.3p
21.4p
208
208
Babcock International Group PLC Annual Report and Accounts 2018
Babcock International Group PLC Annual Report and Accounts 2018
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Babcock International Group PLC
33 Wigmore Street
London W1U 1QX
UK
+44 (0)20 7355 5300
www.babcockinternational.com