Annual Report • Mar 31, 2013
Annual Report
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Babcock International Group PLC Annual Report and Accounts 2013 trusted to deliver
Operating in the UK and overseas, we are trusted WRbGHOLYHUFRPSOH[DQGFULWLFDOVXSSRUWWRWKHGHIHQFH energy, emergency services, transport, education and telecommunications sectors. We pride ourselves RQRXUbORQJWHUPFXVWRPHUIRFXVHGUHODWLRQVKLSV DQGbXOWUDUHOLDEOHHQJLQHHULQJH[FHOOHQFH
| Overview | |
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| Our business today | 02 |
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| Marine and Technology | |
| 'HIHQFHDQG6HFXULW\ | 20 |
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| Governance statement | 58 |
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| Group income statement | 102 |
| Group statement of comprehensive income | 103 |
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The Directors present the Annual Report and Accounts for the year ended 31 March 2013. This page and pages 2 to 100, inclusive, of this Annual Report and Accounts comprise a Report RIWKH'LUHFWRUVWKDWKDVEHHQGUDZQXSDQGSUHVHQWHGLQDFFRUGDQFHZLWK(QJOLVKFRPSDQ\ODZDQGWKHOLDELOLWLHVRIbWKHb'LUHFWRUVLQFRQQHFWLRQZLWKWKDWUHSRUWVKDOOEHVXEMHFWWR WKHbOLPLWDWLRQVDQGUHVWULFWLRQVSURYLGHGE\VXFKODZ,QSDUWLFXODU'LUHFWRUVZRXOGEHOLDEOHWRWKH&RPSDQ\EXWQRWWRDQ\WKLUGSDUW\ LIWKH'LUHFWRUVŒUHSRUWFRQWDLQVHUURUVDVDUHVXOW RIbUHFNOHVVQHVVRUNQRZLQJPLVVWDWHPHQWRUGLVKRQHVWFRQFHDOPHQWRIDPDWHULDOIDFWEXWZRXOGQRWRWKHUZLVHEHOLDEOH
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Operating through four divisions, we deliver critical and FRPSOH[bVXSSRUWWRVWUDWHJLFDOO\LPSRUWDQWDVVHWVLQIUDVWUXFWXUH DQGWUDLQLQJSURJUDPPHVLQWKHbGHIHQFHHQHUJ\WUDQVSRUW WHOHFRPPXQLFDWLRQVDQGHGXFDWLRQPDUNHWV
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Marine and Technology is the UK's leading provider of through-life engineering support services to the 5R\DO1DY\'UDZLQJRQDQXQPDWFKHG range of engineering and technical VNLOOVWKHGLYLVLRQRSHUDWHVDZLGHUDQJH of strategic shore-based naval support facilities and provides through-life services and deep maintenance to WKHb5R\DO1DY\ŒVPDMRUZDUVKLSVDQG nuclear-powered submarines.
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| Group snapshot eP |
1 4 Revenue by division 3 |
1 4 3 |
|
|---|---|---|---|
| &RQWLQXLQJXQGHUO\LQJ revenue |
2 | 2 | |
| 1. Marine and Technology | 37% | ||
| 2. Defence and Security | 25% | ||
| eP | 3. Support Services | 29% | |
| 4. International | 9% |
Telecommunications 2%
UK Defence 55% 2. UK Civil 29% 3. International Civil 9% 4. International Defence 7%
Customer by category
| 3 | 1 4 |
|---|---|
| 2 | Primary activity |
| 1. Asset support | 65% |
|---|---|
| 2. Infrastructure support | 23% |
| 3. Military training | 7% |
| 4. Civil training | 5% |
| 4 1 3 2 |
|---|
| Customer by geography |
| 1. UK | 84% |
|---|---|
| 2. Africa | 8% |
| 3. Canada | 4% |
| 4. RoW | 4% |
| Statutory results | ||
|---|---|---|
| Group revenue | £3,029.4m (2012: £2,848.4m) |
$+6%$ |
| Operating profit | £234.5m (2012: £202.0m) |
$+16%$ |
| Profit before tax | £224.6 $m$ (2012: £173.0m) |
$+30%$ |
| Basic earnings per share Continuing |
53.0 p (2012: 42.9p) |
$+24%$ |
| Operating profit | £m $+14%$ |
|||
|---|---|---|---|---|
| 2009 | 147.3 | |||
| 2010 | 164.7 | |||
| 2011 | 275.4 | |||
| 2012 | 329.0 | |||
| 2013 | 376.6 |
| Basic earnings per share | $+16%$ | |||
|---|---|---|---|---|
| .2009 | 41.9 | |||
| 2010 | 51.4 | |||
| 2011 | 52.5 | |||
| 2012 | 61.5 | |||
| 2013 | 71.3 |
| Total revenue | £m | ||
|---|---|---|---|
| 2009 | 1,915.2 | ||
| 2010 | 1,923.4 | ||
| 2011 | 2,703.2 | ||
| 2012 | 3,070.4 | ||
| 2013 | 3,243.5 |
| £m $\frac{1}{2}$ |
Profit before tax | £m $+16%$ |
|||
|---|---|---|---|---|---|
| 2009 | 120.9 | ||||
| 2010 | 145.2 | ||||
| 2011 | 216.7 | ||||
| 2012 | 274.1 | ||||
| 6.6 | 2013 | 317.8 |
| p 6 |
Full year dividend | D $+16%$ |
|||
|---|---|---|---|---|---|
| 2009 | 14.4 | ||||
| 2010 | 17.6 | ||||
| 2011 | 19.4 | ||||
| 2012 | 22.7 | ||||
| 3 | 2013 | 26.3 |
7KHXQGHUO\LQJƂJXUHVSURYLGHDFRQVLVWHQWPHDVXUHRIEXVLQHVV performance year-to-year thereby enabling comparison and understanding RI*URXSƂQDQFLDOSHUIRUPDQFH
Throughout the overview and business review sections, unless RWKHUZLVHVWDWHGUHYHQXHRSHUDWLQJSURƂWRSHUDWLQJUHWXUQRQ UHYHQXHQHWƂQDQFHFRVWVSURƂWEHIRUHWD[DQGHDUQLQJVSHUVKDUHUHIHU WRUHVXOWVEHIRUHDPRUWLVDWLRQRIDFTXLUHGLQWDQJLEOHVDQGH[FHSWLRQDO LWHPVDQGLQFOXGLQJWKH*URXSŒVVKDUHRIMRLQWYHQWXUHVMY DQGLQFOXGLQJ LQYHVWPHQWLQFRPHDULVLQJIURP,)5,&\$FFRXQWLQJIRU6HUYLFH &RQFHVVLRQ\$UUDQJHPHQWV
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,DPSURXGWRUHSRUWWKDWLQ-XQH%DEFRFNZDV recognised as one of the largest companies in the UK and HQWHUHGWKH)76(LQGH[:HKDYHFRPHDORQJZD\ IURPWKHőVPDOOFDSŒFRPSDQ\ZHZHUHVRPHWHQ\HDUVDJR ZKHQZHƂUVWHPEDUNHGRQRXUVWUDWHJ\WREHFRPHWKH UK's leading engineering support services company.
Over this period our fundamental strategy has remained unchanged and by consistently focusing on our strategy we have created a business that is set apart from many others LQRXUVHFWRU7KH%RDUGKDVKDGDNH\UROHVXSSRUWLQJDQG challenging the businesses as they focused on delivering growth, through a series of transformational, and smaller, DFTXLVLWLRQVDVZHOODVE\ELGGLQJDQGZLQQLQJDQXPEHURI VWUDWHJLFDOO\LPSRUWDQWORQJWHUPFRQWUDFWV\$V&KDLUPDQ ,DPFRPPLWWHGWRFRQWLQXLQJWKLVSURFHVVHQVXULQJ our business is governed with openness, honesty and transparency and that our core focus is on creating longterm, sustainable value for shareholders.
\$V,VHWRXWLQWKH&KDLUPDQŒVFRUSRUDWHJRYHUQDQFH VWDWHPHQWRQSDJHWKH%RDUGFRQWLQXHVWRIRFXVRQ achieving the highest standards of corporate governance. 3DUWRIWKLVLVHQVXULQJZHKDYHWKHDSSURSULDWHVNLOOVDQG H[SHULHQFHRQWKH%RDUGWRGULYHWKHEXVLQHVVIRUZDUG supporting the growth and strategic ambitions of the Group.
'XULQJWKH\HDUZHVDLGJRRGE\HWR6LU1LJHO(VVHQKLJK ZKRbUHWLUHGIURPWKH%RDUGDIWHURYHUQLQH\HDUVRI H[HPSODU\VHUYLFH,ZRXOGOLNHWRWKDQN6LU1LJHOSHUVRQDOO\ for the commitment, insight, constructive and robust FKDOOHQJHKHJDYHWRWKH%RDUGGXULQJKLVSHULRGRIVHUYLFH :HZHOFRPHG\$QQD6WHZDUWDVD1RQ([HFXWLYH'LUHFWRU LQ1RYHPEHUDQG-RKQ'DYLHV&KLHI([HFXWLYHRI RXUb'HIHQFHDQG6HFXULW\GLYLVLRQDVDQ([HFXWLYH'LUHFWRU LQ-DQXDU\%RWK\$QQDDQG-RKQEULQJZLWKWKHPD ZHDOWKRIH[SHULHQFHDQG,ORRNIRUZDUGWRZRUNLQJZLWK them in the future.
This year underlying basic earnings per share has increased E\WRSHQFHSHUVKDUHSHQFHSHUVKDUH WKH*URXSKDVFRQWLQXHGWRFRQYHUWPRUHWKDQRI RSHUDWLQJSURƂWWRFDVKDQGYLVLELOLW\RIIXWXUHUHYHQXHbKDV
UHPDLQHGVWURQJ\$VHDUQLQJVKDYHJURZQWKH%RDUGKDV always been committed to ensuring our shareholders share in this success and have maintained our policy of dividend cover, on underlying earnings per share, of between bDQGWLPHV7KHUHIRUHUHƃHFWLQJWKHVWUHQJWKRI RXUbFRQƂGHQFHLQWKHORQJWHUPIXWXUHRIRXUEXVLQHVV WKHb%RDUGLVUHFRPPHQGLQJDƂQDOGLYLGHQGRISHQFH per share. This will give a total dividend for the year of bSHQFHSHUVKDUHDQLQFUHDVHRIWRWDO GLYLGHQGSHQFHSHUVKDUH 7KHGLYLGHQGZLOOEHSDLG on 8 August 2013 to shareholders on the register at close of business on 5 July 2013.
2XUHPSOR\HHVDUHFULWLFDOWRRXUVXFFHVV,WLVWKHLU FRPPLWPHQWWKDWHQVXUHVZHPHHWRUH[FHHGRXU FXVWRPHUVŒH[SHFWDWLRQVDQGPDLQWDLQRXUőWUXVWHGWR GHOLYHUUHSXWDWLRQŒ2QEHKDOIRIWKH%RDUG,ZRXOGOLNHWR WKDQNHYHU\RQHZKRZRUNVIRU%DEFRFNDFURVVWKHJOREH IRUWKHLUKDUGZRUNDQGGHGLFDWLRQ2QFHDJDLQWKH\KDYH EHHQUHVSRQVLEOHIRUWKHGHOLYHU\RIDQRWKHUVHWRIH[FHOOHQW ƂQDQFLDOUHVXOWV
ZDVDVWURQJ\HDUIRU%DEFRFN:HGHOLYHUHGJRRG growth in underlying revenue and further strengthened our RSHUDWLRQDOSHUIRUPDQFHWRGHOLYHUVLJQLƂFDQWJURZWKLQ underlying earnings.
2XUPDUNHWVUHPDLQSRVLWLYHDVWKHFXUUHQWHFRQRPLFFOLPDWH continues to create long-term opportunities. Our business model, the scale of our operations, the depth and breadth RIRXUH[SHULHQFHDQGRXUWUDFNUHFRUGRIGHOLYHULQJ RSHUDWLRQDODQGƂQDQFLDOHIƂFLHQFLHVSURYLGHDQH[FHOOHQW SODWIRUPIURPZKLFKWREHQHƂW
7KH*URXSFRQWLQXHVWREHQHƂWIURPH[FHOOHQWYLVLELOLW\ RIIXWXUHUHYHQXHWKURXJKLWVVWURQJRUGHUERRNDQGELG SLSHOLQH,QOLJKWRIWKLVWKH%RDUGLVFRQƂGHQWWKDWWKH *URXSZLOOFRQWLQXHWRPDNHIXUWKHUVWURQJSURJUHVVRYHU the coming year.
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2012/13 has been another successful year for Babcock, our 12th consecutive year of growth. Once again we have EXLOWRQRXUWUDFNUHFRUGRIGHOLYHULQJVWURQJƂQDQFLDOUHVXOWV and have maintained our commitment to provide superior and sustainable returns for our shareholders. Our consistent DELOLW\WRGHOLYHUH[FHOOHQWƂQDQFLDOUHVXOWVVWURQJJURZWK DQGYDOXHUHƃHFWVWKHVWUHQJWKRIRXUXQGHUO\LQJEXVLQHVV and the strong platform this creates for Babcock's future.
Throughout the year our markets have remained buoyant and we have seen neither change to the scale or range, nor any slowdown in the pace of new outsourcing opportunities we are tracking or that have come into our ELGSLSHOLQH\$VDUHVXOWWKURXJKRXWWKHƂQDQFLDO year, we have reported continued increases in our bid pipeline, demonstrating further progress in securing the long-term future of our businesses.
We have established ourselves as the UK's leading engineering support services business. Since 2001 we have grown our business through a series of successful acquisitions and major contract wins all of which have been aligned to our strategy and helped us achieve our strategic REMHFWLYH%\VWLFNLQJWRDFRQVLVWHQWDQGFOHDUO\GHƂQHG strategy, (set out below), we have created a distinctive and unrivalled engineering support services business.
2XUVWUDWHJ\VXSSRUWVDQGKDVKHOSHGGHƂQHRXULQGLYLGXDO business model: together our strategy and business model set us apart from others operating in our markets. They have been the basis of our successful track record of growth for more than ten years and have created the strong platform which we believe will continue to deliver long-term, sustainable growth and value.
Fundamental to the future success of our business is our commitment to delivering operational excellence for our customers. We will focus on designing innovative engineering and support solutions to ensure they achieve WKHHIƂFLHQF\DQGYDOXHIRUPRQH\WKH\UHTXLUH%\IRFXVLQJ on working in partnership with our customers, developing a deeper understanding of their businesses and delivering outstanding customer service, we are able to offer them PRUHŏERWKLQWHUPVRIƂQDQFLDORURSHUDWLRQDOEHQHƂWV 2XUDELOLW\WRGRWKLVLVUHƃHFWHGLQWKHVWUHQJWKRIRXU ƂQDQFLDOUHVXOWVRUGHUERRNDQGSLSHOLQHDORQJZLWKWKH successful growth in total shareholder returns.
We intend to keep building on and developing from this position – we do not expect our businesses to stand still.
We are currently operating in markets in the UK and RYHUVHDVZLWKVLJQLƂFDQWJURZWKRSSRUWXQLWLHV,QDGGLWLRQ ZHKDYHLGHQWLƂHGQHZPDUNHWVDQGJHRJUDSKLHVZLWK similar growth characteristics where we believe our business model will be an advantage.
Over the past few years, there has been no change to the economic environment. Many of our customers are facing LQFUHDVLQJO\GLIƂFXOWGHFLVLRQVZKHQWU\LQJWRPDQDJH the delivery of critical services with progressively scarce resources. The options they have are to:
As a result, across our chosen markets new outsourcing opportunities are being created by customers who:
For our customers, who manage critical and complex assets, infrastructures and training programmes, by
moving from an in-house support solution to a specialist engineering outsourcing solution they will be able to DFKLHYHVLJQLƂFDQWƂQDQFLDOEHQHƂWVDVZHOODVRSHUDWLRQ HIƂFLHQFLHV:HEHOLHYHRXUGLVWLQFWLYHEXVLQHVVPRGHO LVLGHDOO\VWUXFWXUHGWRKHOSRXUFXVWRPHUVEHQHƂWIURP outsourcing and we are extremely well positioned to help them formulate the best support solutions for WKHLUbRSHUDWLRQV
The success of our business in future, both in the UK and RYHUVHDVZLOOFRPHIURPWKHVLJQLƂFDQWRSSRUWXQLWLHV we are currently bidding or tracking, the further new outsourcing opportunities we are helping to formulate and new market prospects we are considering. All these have been carefully selected as ones where our business PRGHOZLOOEHEHQHƂFLDOWRRXUFXVWRPHUVDQGZKHUH ZHDUHFRQƂGHQWZHFDQFRQWLQXHWRPHHWRXUVWUDWHJLF objectives. We remain very focused on what we do and KDYHLGHQWLƂHGWKUHHFOHDUZD\VLQZKLFKZHZLOOVHHNWR deliver growth:
6L[bDFTXLVLWLRQVEHWZHHQDQG have created the largest specialist nuclear VHUYLFHVbFRPSDQ\LQWKH8.ZLWKDVNLOOHGQXFOHDU ZRUNIRUFHRIDQGRSHUDWLQJDWDOOOHYHOVRIWKH FLYLObDQGGHIHQFHQXFOHDUPDUNHWV
Site owner kOwner of nuclear licensed sites at Devonport and Rosyth Dockyard
Nuclear new build
with Hitachi for Horizon
and maintenance
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kMemorandum of Understanding signed
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kBidding into EDF Hinkley Point new build project
page 29
Tier 1 – managing licensed sites kDounreay (Parent Body Organisation) kHMNB Clyde kHarwell and Winfrith
Power generation support
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Growth opportunities
Tier 2 – main contractor k6HOODƂHOGPDMRUSURMHFWV kAWE A1 decommissioning
Tier 3 – sub-contractor kSite licensing and safety case support
Overview
Strategy and Business model
Operating review and KPIs
Decommissioning UK civil nuclear
All our chosen growth routes will ensure we build on our strengths, reputation and proven track record. I have set out within this report, three examples which demonstrate how, through carefully targeted acquisitions and contract wins, we have established market-leading positions across the Group with unrivalled depth and breadth of skills, knowledge and experience. These case studies also demonstrate how we will use the strength of the business today to address a range of new markets and customers.
We understand there can be many risks associated with growing a business and so have many processes and FRQWUROVLQSODFHWROLPLWWKLVVHH3ULQFLSDOULVNVSDJH WRb
We will only be able to achieve our growth ambitions if we continue to meet or exceed our customers' requirements. As our businesses continue to target opportunities with greater criticality and complexity and to focus on contracts with high levels of technical or engineering content, we need to ensure we have the best people in place to meet these requirements and deliver these contracts successfully. We have built an unrivalled workforce of highly skilled and TXDOLƂHGHQJLQHHUVWHFKQLFLDQVSURMHFWDQGSURJUDPPH managers. For example, we are the single largest employer RIQXFOHDUTXDOLƂHGHQJLQHHUVLQWKH8.WRGD\:HQHHGWR ensure we continue to bring new people in and develop the talented people we already employ if we are to achieve sustainable growth. We have many programmes across our business to do this (see page 46) and are committed to making Babcock an exciting and rewarding place to work.
We seek to add further value to our customer relationships by designing contract structures that allow us to share the risk and reward of contract outputs. By operating as strategic partners and entering into long-term, integrated output based contracts, we can work together with our customers to improve or enhance the expected outcomes. :HDUHWKHQERWKDEOHWREHQHƂWIURPWKHƂQDQFLDOVDYLQJV achieved. This way of working is becoming increasingly attractive for our customers particularly as budgets become ever more constrained.
We would not have been able to establish leading positions in any of our markets or have the scale of opportunities ahead of us if we did not also have an excellent Health DQG6DIHW\UHFRUG\$FURVVWKH*URXSVDIHW\LVRXUƂUVW priority and we are committed to ensuring our employees, contractors or anyone visiting any of our sites goes 'Home Safe Everyday'. We strive for continual improvement in all our Health and Safety activities as we work towards our ő]HURDFFLGHQWŒJRDOVHHSDJHVDQG
If organisations are to introduce alternative delivery models or contract structures to their operations, they need to know they can do so without damaging their businesses. 7KH\QHHGWRKDYHFRQƂGHQFHWKDWWKH\FDQDFKLHYH the required level of savings without damage to their operational requirements or reputations. They need to know that their chosen supplier has a proven track record and can be 'trusted to deliver'.
Babcock has that proven track record. As a result of our strategy and business model, developed over a number of years, and our focus on meeting or exceeding our customers' expectations, we have been successful in GHOLYHULQJVLJQLƂFDQWRSHUDWLRQDODVZHOODVƂQDQFLDO HIƂFLHQFLHV\$VDUHVXOWZHKDYHEHHQDEOHWRGULYH FRQWLQXRXVLPSURYHPHQWLQRXUƂQDQFLDOUHVXOWVJURZ our business steadily year-on-year and support our future growth plans by increasing our bidding and tracking pipeline. As a result, we have driven increased value for RXUbVKDUHKROGHUVDQGPDNH%DEFRFNDPRUHUHZDUGLQJ place to work for our employees.
Leveraging our experience as the UK's leading provider of through-life engineering support services to the Royal Navy to grow both in the UK and overseas
Building on our core capabilities and unique naval infrastructure to enhance our position with UK customers
kMaritime capability partner
Overview
Strategy and Business model
k%DEFRFNDZDUGHG\HDU Victoria In-Service Support Contract Support for all four Victoria class submarines in 2008 page 18
kProvision and subsequent through-life support of weapons handling systems for international customers including the Spanish and South Korean navies
kCommercial engineering and design services of integrity and complex
marine equipment
Chief Executive's report (continued)
Our proven capability in the through-life PDQDJHPHQWbRIbFRPSOH[DQGFULWLFDOPRELOHDVVHWV continues to drive opportunities in new and existing markets. Using our engineering expertise and proven systems, we successfully deliver cost VDYLQJVbHIƂFLHQFLHVDQGLQFUHDVHGDYDLODELOLW\ LQbRXWSXWEDVHGPRELOHDVVHWFRQWUDFWV
řePLOOLRQLQYHVWHGLQQHZ equipment for Lafarge across Babcock supported geographies
| kDefence Support Group( DSG) | |
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| for the MoD | page 21 |
| kScope increases to existing contracts | page 24 |
| kInternational opportunities | |
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page 27
A key feature of our business is the excellent visibility we have of future revenues. This is a result of the long-term contracts and partnering agreements which form the basis of our order book. The order book at the end of 2013 VWRRGDWeELOOLRQeELOOLRQ \$VZHVWDUWWKH QHZƂQDQFLDO\HDUZHKDYHQHDUO\RIRXUDQWLFLSDWHG UHYHQXHIRUWKLV\HDUDOUHDG\FRQWUDFWHGDQGRYHU IRUbƂQDQFLDO\HDU
The bid pipeline has seen strong growth over the year and FXUUHQWO\VWDQGVDWeELOOLRQeELOOLRQ 7KLVLVD UHVXOWRIDQXPEHURIVLJQLƂFDQWWUDQVIRUPDWLRQLQYHVWPHQW or long-term support programmes moving from tracking to formal competitive processes, including Magnox and Research decommissioning, Logistics and Commodities Services Transformation programme, BBC domestic radio services support as well as a number of new through-life vehicle support contracts for the Mobile Assets business and long-term training opportunities. These will be the key drivers of growth over the next few years and include opportunities in the UK and overseas as in both civil and GHIHQFHPDUNHWV\$URXQGRIWKHSLSHOLQHFRPSULVHV ELGVZLWKDYDOXHLQH[FHVVRIePLOOLRQRIZKLFKRQO\ 12% are rebids.
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7KHFXUUHQWHQYLURQPHQWRIƂQDQFLDODXVWHULW\DQGWKH demands placed on our customers to achieve increased operational outputs, improved availability of assets as ZHOODVƂQDQFLDOHIƂFLHQF\SODFHVXVLQDVWURQJSRVLWLRQ Our strategy, business model and our consistent track record of successful delivery for our customers set us apart from others in our markets. We have many opportunities ahead of us, in our current markets and in new markets in WKH8.DQGRYHUVHDVDQGZHDUHFRQƂGHQWWKDWZHFDQ continue to build on the strength of our business today and our position as the UK's leading engineering support VHUYLFHVbFRPSDQ\
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The UK market remains positive. The Ministry of Defence's (MoD) outsourcing of maritime contracts continues to develop with a number of opportunities expected over the next 18 months. We believe that the proposed changes to the MoD's procurement organisation, Defence Equipment and Support (DE&S), are likely to create further outsourcing opportunities for larger, more complex programmes well suited to the depth and breadth of our capabilities.
Although there is a general downsizing of the current UK QDYDOƃHHWERWKWKH6XFFHVVRUDQG7\SHSURJUDPPHV RIIHUVLJQLƂFDQWRSSRUWXQLWLHVWRVXSSO\RXUFRUHSURGXFWV and provide broader engineering service capabilities.
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| Return on revenue KPI % |
|||||
|---|---|---|---|---|---|
| 2011 | 6.8 | ||||
| 2012 | 6.9 | ||||
| 2013 | 8.9 | ||||
| Revenue % |
Order book % |
||||
| 9% of Group |
I 1% of Group |
||||
| ł |
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| 2009 | 23 | ||||
|---|---|---|---|---|---|
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| 2012 | 14 | ||||
| 2013 | 6 |
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| 2009 | 4.15 | |
|---|---|---|
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| 2009 | 5.7 | ||
|---|---|---|---|
| 2010 | 8.3 | ||
| 2011 | 12.0 | ||
| 2012 | 13.0 | ||
| 2013 | 12.0 |
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Overview
Strategy and Business model
"Babcock's unique commercial offering has meant that our focus on cost reduction for our customers' operations as well as our own overheads has delivered a Group operating margin of over 11%."
| Joint ventures and associates | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Continuing operations – statutory £m |
Revenue and operating SURƂW £m |
Finance costs £m |
Tax £m |
IFRIC 12 income £m |
Amortisation of acquired intangibles £m |
Change in UK tax rate £m |
Exceptional items £m |
Continuing operations – underlying £m |
|
| 31 March 2013 | |||||||||
| Revenue | 3,029.4 | 214.1 | 3,243.5 | ||||||
| 2SHUDWLQJSURƂW | 234.5 | 21.2 | 40.2 | 66.4 | 14.3 | 376.6 | |||
| 6KDUHRISURƂWIURPMY | 18.0 | (21.2) | 29.2 | 6.3 | (38.5) | 6.2 | – | ||
| Investment income | 1.7 | (1.7) | – | ||||||
| 1HWƂQDQFHFRVWV | (29.6) | (29.2) | (58.8) | ||||||
| 3URƂWEHIRUHWD[ | 224.6 | – | – | 6.3 | – | 72.6 | – | 14.3 | 317.8 |
| Tax | (28.3) | (6.3) | (17.4) | (1.2) | (2.7) | (55.9) | |||
| 3URƂWDIWHUWD[ | 196.3 | – | – | – | – | 55.2 | (1.2) | 11.6 | 261.9 |
| 31 March 2012 | |||||||||
| Revenue | 2,848.4 | 222.0 | 3,070.4 | ||||||
| 2SHUDWLQJSURƂW | 202.0 | 11.0 | 27.8 | 77.3 | 10.9 | 329.0 | |||
| 6KDUHRISURƂWIURPMY | 4.3 | (11.0) | 19.4 | 6.7 | (25.6) | 6.2 | – | ||
| Investment income | 2.2 | (2.2) | – | ||||||
| 1HWƂQDQFHFRVWV | (35.5) | (19.4) | (54.9) | ||||||
| 3URƂWEHIRUHWD[ | 173.0 | – | – | 6.7 | – | 83.5 | – | 10.9 | 274.1 |
| Tax | (15.8) | (6.7) | (21.7) | (3.4) | (2.8) | (50.4) | |||
| 3URƂWDIWHUWD[ | 157.2 | – | – | – | – | 61.8 | (3.4) | 8.1 | 223.7 |
2012/13 marks over ten consecutive years of growth for %DEFRFN7KH*URXSŒVPDMRUFRQWUDFWZLQVLQWKHƂQDO quarter 2011/12 helped to deliver growth in revenue of DQGLQXQGHUO\LQJRSHUDWLQJSURƂWRI%DEFRFNŒV unique commercial offering has meant that our focus on cost reduction for our customers' operations, as well as our own overheads, has delivered a Group operating margin of over 11%. We are entering 2013/14 with an order book of £12 billion and a bid pipeline of £15.5 billion which will be the drivers of growth for the next few years. The Group FRQWLQXHVWRKDYHDVHFXUHƂQDQFLDOEDVHZKLFKLVNH\WR VXSSRUWLQJRUJDQLFJURZWKDVZHOODVSURYLGLQJƃH[LELOLW\ to make acquisitions when opportunities arise. Throughout the year the Group has maintained its strong track record of cash generation and it is therefore pleasing to report another year in which debt has been reduced still further to only 1.5 times EBITDA (earnings before interest, tax, depreciation and amortisation) from 1.8 times at 31 March 2012.
Total revenue for the year was £3,243.5 million (2012: £3,070.4 million) which represents growth of 6% (2012: 14%) W KPI: page 34 \$GMXVWLQJIRUPRYHPHQWVLQIRUHLJQ exchange and acquisitions during the year growth was 7% (2012: 6%).
Marine and Technology saw growth of 11% driven by increased activity levels in the submarine and warship support programmes, the Queen Elizabeth aircraft carrier programme and continued growth in international DFWLYLWLHV\$VDQWLFLSDWHGUHYHQXHIRUbWKH'HIHQFHDQG Security division declined by 9% to £820.2 million which was related principally to reductions in naval training activities and the timing of completion of construction DQG,76LQWRVHUYLFH PLOHVWRQHVRQWKH\$LUWDQNHUMRLQW venture and at the Royal School of Military Engineering. New contracts won across the Support Services division, in particular in the Nuclear, Education and Training and Mobile Assets business units have driven revenue growth of 17%. In the International division, growth in South Africa in local currency was 12% with the equipment and power markets remaining buoyant. The effect of movement in foreign exchange rates, principally the South African Rand, saw revenue on a like-for-like basis decline by 1%.
Underlying RSHUDWLQJSURƂW increased by 14% to £376.6 million (2012: £329.0 million) which gave a Group operating return on revenue of 11.6% (2012: 10.7%) W KPI: page 35 . Excluding the effect of foreign exchange PRYHPHQWVJURZWKLQRSHUDWLQJSURƂWZDV 15%). Margins improved in all divisions except Support Services. The Marine and Technology margin at 13.1% (2012: 12.5%) was boosted by international activities and the additional gainshare earned of £26 million due on achievement of stretch targets under the Terms of Business Agreement for naval support activities. Income DULVLQJIURPWKH)XWXUH6WUDWHJLF7DQNHU\$LUFUDIW)67\$ MRLQW venture increased margins within the Defence and Security division to 13.7% (2012: 10.9%). As previously highlighted, margins in the Support Services division reduced to 9.7% (2012: 10.9%) as a result of long-term contracts mobilising DWWKHEHJLQQLQJRIWKH\HDUFRPELQHGZLWKVLJQLƂFDQW H[SHQGLWXUHRQPDMRUELGV0DUJLQVLQWKH,QWHUQDWLRQDO GLYLVLRQLQFUHDVHGWR EHQHƂWLQJIURP strong market conditions in the equipment and crane hire operations in South Africa.
Overview
Strategy and Business model
Charges to exceptional items were £14.3 million (2012: £10.9 million) and comprised the following items
| 2012/13 £m |
2011/12 £m |
|
|---|---|---|
| Reorganisation costs | 14.5 | 12.8 |
| 3URƂWRQGLVSRVDORI subsidiaries |
(0.2) | (1.9) |
| Total | 14.3 | 10.9 |
Reorganisation costs represent the costs of combining IT networks, rationalisation of property and redundancy FRVWVIROORZLQJWKHDFTXLVLWLRQRI97LQ7KHƂQDO cumulative expenditure on integration was £38 million out of an estimated total of £45 million, delivering in excess RIbePLOOLRQRIV\QHUJ\VDYLQJVSHUDQQXP1RIXUWKHU 97bUHODWHGLQWHJUDWLRQFRVWVZLOOEHLQFXUUHG
Amortisation of acquired intangibles of £72.6 million (2012: £83.5 million) represents the amortisation of the value attributed on business acquisitions to order books and customer relationships (both contractual and non-contractual). The value is amortised over its estimated useful life, which does not exceed ten years, by reference to the duration of contracts in hand at the time of acquisition and for non-contractual customer relationships, the risk DGMXVWHGYDOXHRISRWHQWLDOIXWXUHRUGHUVIURPH[LVWLQJ customers with an average estimated duration. Details of the basis of amortisation of acquired intangible assets is set RXWLQQRWHWRWKH*URXSƂQDQFLDOVWDWHPHQWV
1HWƂQDQFHFRVWV were £58.8 million (2012: £54.9 million) DQGLQFOXGHGWKH*URXSŒVVKDUHRIMRLQWYHQWXUHQHWLQWHUHVW expense of £29.2 million (2012: £19.4 million). Joint YHQWXUHƂQDQFHFRVWVDUHSULPDULO\UHODWHGWRƂQDQFLQJ structures on the FSTA and UK Military Flying Training System (MFTS) Private Finance Initiative (PFI) contracts and will increase as the PFI continues to deliver assets into service for the customer. 2012/13 saw three tanker aircraft delivered, with the related non-recourse debt drawn down under the PFI facilities. We expect further aircraft to be constructed and delivered over the coming year and this HOHPHQWRIQHWƂQDQFHFRVWVZLOOLQFUHDVH)LQDQFHFRVWVRQ the Group's own facilities decreased to £29.6 million (2012: £35.5 million) in line with the decrease in the amount drawn on the Group's revolving credit facility and improved ƂQDQFHWHUPV
3URƂWEHIRUHWD[ before amortisation of acquired intangibles and exceptional charges increased by 16% to £317.8 million (2012: £274.1 million). The associated tax charge, including WKH*URXSŒVVKDUHRIMRLQWYHQWXUHWD[RIePLOOLRQ £8.3 million), totalled £55.9 million (2012: £50.4 million) representing an effective rate of tax of 18% (2012: 19%). The effective tax rate is calculated by using the Group's XQGHUO\LQJSURƂWEHIRUHWD[DQGWKHUHIRUHH[FOXGHVWKHWD[ effect of amortisation and exceptional charges.
Continuing underlying earnings per share for the year was 71.3 pence (2012: 61.5 pence) an increase of 16%. Basic HDUQLQJVSHUVKDUHDVGHƂQHGE\,\$6ZDVSHQFH (2012: 42.9 pence) per share.
The Board is recommending an increase in the total dividend per share of 3.6 pence to 26.3 pence (2012: bSHQFH DQLQFUHDVHRIUHSUHVHQWLQJGLYLGHQG cover on underlying eps of 2.71 times (2012: 2.71 times). 7KHƂQDOGLYLGHQGSHUVKDUHIRUZRXOGWKHUHIRUH EHbSHQFHSHUVKDUHSHQFH
For continuing operations, the Marine and Technology division acquired LGE Process at the end of December 2012 for cash consideration of £21 million. LGE, based in Edinburgh, designs and builds plants for the processing, storage and handling of liquid gases and is a market leader in the supply of these solutions to the marine and onshore liquid gas sectors. In the International division, South Africa acquired Target Cranes in June 2012. In the Support Services division, the UKAEA Pension Administration business was sold in December 2012 for £6.5 million, LQFOXGLQJePLOOLRQGHIHUUHGLQWRIRUDSURƂWRI £0.2 million.
For discontinued operations, the sale of the VT US business was completed in July 2012 and a further loss on disposal RIbePLOOLRQZDVUHDOLVHG\$VDQWLFLSDWHGIROORZLQJ WKHb97DFTXLVLWLRQWKH6XSSRUW6HUYLFHVGLYLVLRQVROGWKH Waste business in January 2013 for a cash consideration RIbePLOOLRQ\LHOGLQJDSURƂWRIePLOOLRQ
A total of £17.1 million was charged to discontinued operations. This comprises a loss on disposal of £18.2 million DULVLQJRQƂQDQFLDOFRPSOHWLRQRIWKHVDOHRIWKH9786 EXVLQHVVLQ-XO\QHWRIWKHSURƂWRQWKHVDOHRI:DVWH and an increase in the provision for an onerous lease on a previously discontinued business.
| 2012/13 £m |
2011/12 £m |
|
|---|---|---|
| Cash generated from operations | 293.4 | 260.7 |
| Capital expenditure (net) | (53.7) | (46.0) |
| Interest paid (net) | (30.5) | (37.1) |
| Taxation | (45.8) | (28.0) |
| )UHHFDVKƃRZ | 163.4 | 149.6 |
| Acquisitions and disposals net of cash/debt acquired |
40.8 | 4.2 |
| ,QYHVWPHQWVLQMRLQWYHQWXUHV | (30.2) | (2.7) |
| Movement in own shares | (2.2) | 0.6 |
| 'LYLGHQGVUHFHLYHGIURPMRLQW ventures and associates |
7.1 | 6.6 |
| Dividends paid | (86.7) | (73.5) |
| Exchange difference | (1.7) | 3.1 |
| 1HWFDVKLQƃRZ | 90.5 | 87.9 |
| Opening net debt | (641.1) | (729.0) |
| Closing net debt | (550.6) | (641.1) |
2012/13 has been another successful year for cash generation and the pay down of debt and at 31 March 2013 net debt had reduced to £550.6 million from ebPLOOLRQDWWKHSUHYLRXV\HDUHQG
Cash generated from operations was £293.4 million (2012: £260.7 million) and represents a conversion rate W KPI: page 34 of 117% (2012: 111%). Capital expenditure at £53.7 million (2012: £46.0 million) was primarily focused on the upgrade of dockyard facilities in Marine DQG7HFKQRORJ\ZKLFKZLOOFRQWLQXHLQWRWKHQHZƂQDQFLDO year, and the purchase of equipment in the South African crane hire business. The programme of expenditure on the integration and upgrading of IT infrastructure concluded during the year and the focus has now turned to the upgrading of cyber security systems and enterprise software. Further investment in Marine and Technology, ,7bDQGIDFLOLWLHVWRVXSSRUWUHFHQWFRQWUDFWZLQVLVH[SHFWHG to result in capital expenditure in 2013/14 of c 1.5 times annual depreciation.
:RUNLQJFDSLWDOFDVKƃRZVZHUHƃDWLQWKH\HDUZLWK increased activity increasing debtors offset by increased payments in advance of revenue included in creditors.
1HWFDVKLQWHUHVWSDLGH[FOXGLQJWKDWSDLGE\MRLQWYHQWXUHV ZDVePLOOLRQePLOOLRQ DQGEHQHƂWHGIURP the further reduction in drawn debt and improved terms on the Group banking facility.
After taxation payments of £45.8 million (2012: £28 million) IUHHFDVKƃRZZDVePLOOLRQePLOOLRQ UHSUHVHQWLQJDIUHHFDVKƃRZ\LHOGRQ0DUFKRI 4% (2012: 5%), the reduction being driven entirely by the increase in share price over the year.
Acquisitions and disposals principally comprise the completion of the sale of the VT US business for £56 million, the purchase of LGE Process in December 2012 for £25.2 million and the sale of the waste management business for £10 million.
'LYLGHQGVUHFHLYHGIURPMRLQWYHQWXUHVGXULQJWKHSHULRG totalled £7.1 million (2012: £6.6 million). Cash dividends paid out in the year totalled £86.7 million (2012: £73.5 million).
Group QHWFDVKLQƃRZ was £90.5 million (2012: £87.9 million) reducing total net debt to £550.6 million.
:HGHƂQH52,&DVHDUQLQJVEHIRUHƂQDQFLQJDQGWD[ excluding exceptional charges divided by equity, excluding UHWLUHPHQWEHQHƂWGHƂFLWVSOXVGHEW)RUWKH\HDU ROIC was 21.2% (2012: 18.0%). Measured against the current weighted average pre-tax cost of capital of c 8%, the track record of performance demonstrates the Group's ability to generate value enhancing rates of return today and in the long-term.
7KH&RPSDQ\GHƂQHVDYDLODEOHƂQDQFLDOFDSLWDO\$)& DV VKDUHKROGHUHTXLW\QHWGHEWSOXVXQGUDZQFRPPLWWHG ERUURZLQJIDFLOLWLHV
7RHQVXUHDQDSSURSULDWHOHYHORI\$)&WR
7KH%RDUGDLPVWRPDLQWDLQDEDODQFHEHWZHHQHTXLW\DQG GHEWFDSLWDOZKLFKRSWLPLVHVWKH*URXSŒVFRVWRIFDUU\ZKLOVW DOORZLQJDFFHVVWRERWKHTXLW\DQGGHEWFDSLWDOPDUNHWVDW optimum pricing when appropriate.
7KH*URXSLQFRQVLGHULQJLWVFDSLWDOVWUXFWXUHDQGƂQDQFLDO capital, views net debt to EBITDA at below two times as being steady state and sustainable in the current market and against the current economic backdrop. This is not to UXOHRXWDFTXLVLWLRQVSLNHVDERYHWZRWLPHVDVUHSRUWHG IROORZLQJDFTXLVLWLRQVLQWKHSDVWEXWRQO\LIWKH*URXS FDQbVHHDFOHDUSDWKWRUHGXFLQJQHWGHEWWR(%,7'\$ W KPI: page 34 back below two times within a reasonable WLPHIUDPH
The Group's gearing and debt cover ratios W KPI: page 34 , used by the Group to evaluate AFC, have continued to LPSURYH\HDURQ\HDUERWKLQWKHSD\GRZQRIGHEWDQG WKURXJKLQFUHDVHGSURƂWVDWWULEXWDEOHWRVKDUHKROGHUV
| Covenant | 2012/13 | 2011/12 | ||
|---|---|---|---|---|
| Debt service | EBITDA/net | |||
| cover | interest | >4 | [ | [ |
| Net debt/ | ||||
| Debt cover | EBITDA | [ | [ | |
| Net debt/ shareholders' |
||||
| Gearing | IXQGV | n/a |
Debt ratios are well below covenanted levels and gearing LVDWDOHYHOZKHUHWKHFRVWRIFDSLWDOLVRSWLPDO\$VVXFK we believe capital markets remain readily accessible ZKHQbUHTXLUHG
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 ƂQDQFLDOLQVWUXPHQWVIRUWKHSXUSRVHRISURƂWJHQHUDWLRQLV SURKLELWHGZLWKDOOƂQDQFLDOLQVWUXPHQWVEHLQJXVHGVROHO\ IRUULVNPDQDJHPHQWSXUSRVHV
7KH*URXSRQO\HQWHUVLQWRƂQDQFLDOLQVWUXPHQWVZKHUH LWKDVDKLJKOHYHORIFRQƂGHQFHRIWKHKHGJHGLWHP occurring. Both the treasury department and the divisions KDYHUHVSRQVLELOLW\IRUPRQLWRULQJFRPSOLDQFHZLWKLQWKH Group to ensure adherence with the principal treasury policies and guidelines.
7KH*URXSŒVWUHDVXU\SROLFLHVLQUHVSHFWRIWKHPDQDJHPHQW RIGHEWLQWHUHVWUDWHVOLTXLGLW\DQGFXUUHQF\DUHRXWOLQHG below. The Group's treasury policies are kept under close review given the continuing volatility and uncertainty in the ƂQDQFLDOPDUNHWV
:LWKGHEWDVDNH\FRPSRQHQWRIDYDLODEOHƂQDQFLDOFDSLWDO the Group seeks to ensure that there is an appropriate EDODQFHEHWZHHQFRQWLQXLW\ƃH[LELOLW\DQGFRVWRIGHEW IXQGLQJWKURXJKWKHXVHRIERUURZLQJVZKLOVWDOVR GLYHUVLI\LQJWKHVRXUFHVRIWKHVHERUURZLQJVZLWKDUDQJH RIPDWXULWLHVDQGUDWHVRILQWHUHVWWRUHƃHFWWKHORQJWHUP QDWXUHRIWKH*URXSŒVFRQWUDFWVDQGFRPPLWPHQWVDQGLWV ULVNSURƂOH
All the Group's material borrowings are arranged by the WUHDVXU\GHSDUWPHQWDQGIXQGVUDLVHGDUHOHQWRQZDUGWR RSHUDWLQJVXEVLGLDULHVDVUHTXLUHG
It remains the Group's policy to ensure the business LVSUXGHQWO\IXQGHGDQGWKDWVXIƂFLHQWKHDGURRPLV PDLQWDLQHGRQLWVIDFLOLWLHVWRIXQGLWVIXWXUHJURZWK
The Group continues to keep under review its capital structure to ensure that the sources, tenor and availability RIƂQDQFHLVVXIƂFLHQWWRPHHWLWVVWDWHGREMHFWLYH &XUUHQWbFRPPLWWHGIDFLOLWLHVDQGKHDGURRPDUHWKRXJKW WRbEHVXIƂFLHQWWRPHHWWKH*URXSŒVRQJRLQJFRPPLWPHQWV IROORZLQJWKHLVVXDQFHRIWKH86PLOOLRQ86SULYDWH SODFHPHQWQRWHVLQ0DUFKDQGWKHUHƂQDQFLQJRI WKHePLOOLRQ5HYROYLQJ&UHGLW)DFLOLW\5&) LQ-XQH ZLWKDWHUPRIƂYH\HDUVWKUHHPRQWKV7KHWZR DIRUHPHQWLRQHGGHEWUDLVLQJVDORQJZLWKWKHePLOOLRQ RIORDQQRWHVLVVXHGLQ-DQXDU\SURYLGHWKH*URXS ZLWKWRWDOFRPPLWWHGEDQNLQJIDFLOLWLHVDQGORDQQRWHVRI £1 billion.
)RUIXUWKHULQIRUPDWLRQVHHQRWHWRWKH*URXSƂQDQFLDO statements.
7RPDQDJHH[SRVXUHWRLQWHUHVWUDWHƃXFWXDWLRQVRQ ERUURZLQJVE\YDU\LQJWKHSURSRUWLRQRIƂ[HGUDWHGHEW UHODWLYHWRƃRDWLQJUDWHGHEWWRUHƃHFWWKHXQGHUO\LQJ nature of its commitments and obligations. As a result, the *URXSGRHVQRWPDLQWDLQDVSHFLƂFVHWSURSRUWLRQRIƂ[HG YHUVXVƃRDWLQJGHEWEXWPRQLWRUVWKHPL[WRHQVXUHWKDW it is compatible with its business requirements and capital structure.
Interest hedging and the monitoring of the mix between Ƃ[HGDQGƃRDWLQJUDWHVLVWKHUHVSRQVLELOLW\RIWKHWUHDVXU\ GHSDUWPHQWDQGLVVXEMHFWWRWKHSROLF\DQGJXLGHOLQHVVHW by the Board.
\$VDW0DUFKWKH*URXSKDGƂ[HGUDWH GHEWb0DUFK DQGƃRDWLQJUDWHGHEW (March 2012: 55%) based on gross debt of £647.7 million (March 2012: £741.3 million).
)RUIXUWKHULQIRUPDWLRQVHHQRWHWRWKH*URXSƂQDQFLDO statements.
iii the Group adopts a conservative approach to the investment of its surplus cash. It is deposited with ƂQDQFLDOLQVWLWXWLRQVRQO\IRUVKRUWGXUDWLRQVDQGWKH bank counterparty 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.
7RUHGXFHH[SRVXUHWRYRODWLOLW\LQHDUQLQJVDQGFDVKƃRZV from movements in foreign currency exchange rates. 7KHb*URXSLVH[SRVHGWRDQXPEHURIIRUHLJQFXUUHQFLHV WKHbPRVWVLJQLƂFDQWEHLQJ6RXWK\$IULFDQUDQG
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 KHGJHDOOPDWHULDOWUDQVDFWLRQDOH[SRVXUHVXVLQJƂQDQFLDO instruments where appropriate. Where possible, the Group seeks to apply IAS 39 hedge accounting treatment to all derivatives that hedge material foreign currency WUDQVDFWLRQbH[SRVXUHV
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 the translation effect of exchange rate movements on the income statement or balance sheet of overseas subsidiaries and equity accounted investments it regards DVbORQJWHUPLQYHVWPHQWV
Overview
There was a net foreign exchange gain of £0.8 million in the income statement for the year ending 31 March 2013 (2012: £0.8 million loss).
)RUIXUWKHULQIRUPDWLRQVHHQRWHWRWKH*URXSƂQDQFLDO statements.
7KH*URXSSURYLGHVDQXPEHURIGHƂQHGEHQHƂWDQG GHƂQHGFRQWULEXWLRQVFKHPHVIRULWVHPSOR\HHV7KHODUJHVW schemes are the Babcock International Group Pension Scheme, the Devonport Royal Dockyard Pension Scheme and the Rosyth Royal Dockyard Pension scheme whose combined assets of £2.8 billion represent 87% of the total DVVHWVRIDOOWKH*URXSŒVGHƂQHGEHQHƂWVFKHPHV\$OOWKH GHƂQHGEHQHƂWVFKHPHVDUHFORVHGWRQHZPHPEHUV except where such provision is mandated for former public sector employees transferring into the Group in relation to VSHFLƂFFRQWUDFWV
7KH*URXSRSHUDWHVDFRPSDQ\ZLGHGHƂQHGFRQWULEXWLRQ scheme open to all new employees and to current UK HPSOR\HHVZKRDUHQRWPHPEHUVRIWKHGHƂQHGEHQHƂW schemes. This scheme was used to comply with the automatic enrolment legislation from 1 April 2013.
The Group works constructively with an investment sub-committee which operates across the three largest schemes implemented a consistent investment strategy which will dynamically derisk the schemes as funding OHYHOVbLPSURYH
A risk budget has been agreed with the trustees of the WKUHHbVFKHPHVZLWKLQZKLFKWKHLQYHVWPHQWVXEFRPPLWWHH FDQRSHUDWH2YHUWKH\HDUDVLJQLƂFDQWKHGJLQJ programme was undertaken to substantially reduce the ULVNbRIYRODWLOLW\LQWKHVFKHPHVIXQGLQJSRVLWLRQVDQG,\$6 GHƂFLWGXHWRDGYHUVHPRYHPHQWVLQLQWHUHVWUDWHVDQG H[SHFWHGLQƃDWLRQWKHUHE\UHVXOWLQJLQDPRUHVWDEOH ƂQDQFLDOSRVLWLRQ
The valuation dates for the three largest schemes are set such that only one scheme is undertaking an actuarial valuation each year in order to spread the impact of market movements in assets and liabilities. The valuation for Babcock scheme is due as at 31 March 2013 and the Devonport scheme as at 31 March 2014 with any consequent cash requirements expected to be implemented from 1 April 2014 and 1 April 2015 respectively.
An actuarial valuation of the Rosyth scheme as at 31 March 2012 will be completed in June 2013 based on the market value of assets and assumptions for the valuation of liabilities as agreed with the sponsoring company.
| 12/13 £m |
11/12 £m |
|
|---|---|---|
| Future service contributions | 53.3 | 60.7 |
| 'HƂFLWUHFRYHU\ | 39.3 | 30.5 |
| Longevity swap | 5.0 | 8.0 |
| Pension pre-payments (net) | (20.0) | (10.0) |
| Total cash contributions – | ||
| employer | 77.6 | 84.3 |
The total cash contributions expected to be paid by WKH*URXSLQWRWKHGHƂQHGEHQHƂWSHQVLRQVFKHPHV in 2013/14 are £99 million. £52 million is in respect of the cost of future service accrual of which £32 million LQ0DULQHbDQG7HFKQRORJ\LVUHFRYHUHGYLDFRQWUDFWXDO terms. Of the balance, £4 million of the contributions are in respect of the three longevity swaps transacted during WRPLWLJDWHWKHƂQDQFLDOLPSDFWRILQFUHDVLQJ longevity, leaving £63 million to be funded from other Group contracts.
The IAS 19 valuation for accounting purposes showed a market value of assets of £3.2 billion in comparison to a valuation of the liabilities based on AA corporate bond yields of £3.5 billion representing a 92% funding level.
\$VXPPDU\RIWKHNH\DVVXPSWLRQVXVHGWRYDOXHWKHODUJHVWVFKHPHVLVVKRZQEHORZ7KHPRVWVLJQLƂFDQWDVVXPSWLRQV that impact on the results are the discount rate, the rate of future pensionable salary increases and the expected rate of LQƃDWLRQ7KHLPSDFWRIWKHORQJHYLW\VZDSVWUDQVDFWHGGXULQJKDVKHOSHGWRPLWLJDWHWKHLPSDFWRILQFUHDVLQJ allowance for longevity.
| Devonport | Babcock | Rosyth | ||||
|---|---|---|---|---|---|---|
| 12/13 | 11/12 | 12/13 | 11/12 | 12/13 | 11/12 | |
| Discount rate (%) | 4.4 | 4.9 | 4.4 | 4.9 | 4.4 | 4.9 |
| Rate of increase in salaries (%) | 2.5 | 2.5 | 2.5 | 2.5 | 2.5 | 2.5 |
| Rate of increase in pensions in payment (%) | 2.4 | 2.2 | 3.0 | 3.2 | 3.4 | 3.2 |
| Life expectancy of male currently aged 65 years | 21.6 | 20.9 | 22.8 | 22.7 | 17.7 | 17.7 |
7KHWRWDODFFRXQWLQJGHƂFLWSUHGHIHUUHGWD[DWb0DUFKbZDVePLOOLRQePLOOLRQ DQGWKH H[SHFWHG,\$6VHUYLFHFRVWLQLVebPLOOLRQePLOOLRQ
\$FWLRQVWDNHQGXULQJWKH\HDUWRPLWLJDWHIXUWKHUYRODWLOLW\RIDVVHWVDQGOLDELOLWLHVLQFOXGHWKHKHGJLQJRILQƃDWLRQDQG LQWHUHVWUDWHFKDQJHVDQGWKHHVWDEOLVKPHQWRIƃH[LEOHGHƂQHGFRQWULEXWLRQSHQVLRQDUUDQJHPHQWV
The Group has assessed the impact of IAS 19 Revised. Had the standard applied for the year ended 31 March 2013 the LPSDFWRQWKHLQFRPHVWDWHPHQWZRXOGKDYHEHHQWRUHGXFHRSHUDWLQJSURƂWE\ePLOOLRQLQFUHDVHƂQDQFHFRVWV by £11.8 million and reduce the taxation charge by £10.3 million, resulting in an overall decrease in earnings per share of bSHQFH7KHUHZRXOGKDYHEHHQQRLPSDFWRQWKHEDODQFHVKHHWRUFDVKƃRZVWDWHPHQW
The net pensions charge to the income statement for 2013/14 under IAS 19 Revised, including the service cost of ebPLOOLRQDVDERYHDQGDIWHUDOORZLQJIRULQWHUHVWRQOLDELOLWLHVDQGH[SHFWHGUHWXUQRQDVVHWVLVePLOOLRQRU ebPLOOLRQDIWHUWD[ZKLFKLVDQHVWLPDWHGGHFUHDVHLQHDUQLQJVSHUVKDUHRISHQFHFRPSDUHGWRWKHHSVXQGHU WKHbRXWJRLQJ,\$6VWDQGDUG)URPWKHQHWLQWHUHVWFRVWHOHPHQWRIWKHSHQVLRQVFKDUJHZLOOEHVKRZQXQGHU ƂQDQFHFRVWVLQWKHLQFRPHVWDWHPHQW
)XUWKHUGHWDLOVRQWKH*URXSŒVSHQVLRQVFKHPHVFDQEHIRXQGLQQRWHWRWKH*URXSƂQDQFLDOVWDWHPHQWV
3URIHVVLRQDODQGHIIHFWLYHSHQVLRQVFKHPHPDQDJHPHQWLVSDUDPRXQWWRHQDEOHPHPEHUVDQGVSRQVRUVWREHFRQƂGHQW in the trustees' stewardship of the schemes. The Group and the cross scheme Governance Committee have continued to work constructively to improve the effectiveness of the trustee boards of the three largest schemes and their subcommittees as well as enhancing trustees' knowledge through training and decision-making. All trustees are required to sign a charter regarding their duties.
"At Babcock we understand that how we take care of our reputation, our customers, our people, the environment and those affected by what we do, as well as how we plan for the future needs of our business is of critical importance to our having a sustainable and ethical business and being able to create long-term value for our shareholders." Peter Rogers
In the sections below, we discuss the principal ways in which we address business sustainability
*LYHQWKHORQJWHUPQDWXUHRIRXUFRQWUDFWVDQGWKHSURƂOHV of our major customers, Babcock favours a partnering or collaborative approach and looks to build strong, long-term customer relationships; this is at the heart of our business philosophy. By this collaborative approach we aim to develop an in-depth understanding of our customers, what they value, what matters most to them, their present and future needs and objectives, and how and why they make their procurement decisions so that we can offer and best deliver what they are truly looking for and can anticipate and plan for their future requirements.
So how do we establish strong customer relationships?
Babcock believes that the most enduring relationships are built around seven key elements
We understand that one of the critical elements to building a strong business relationship is that both parties XQGHUVWDQGDQGDUHDZDUHRIKRZWKHRWKHUGHƂQHV őVXFFHVVŒLQDZD\WKDWLVERWKLGHQWLƂDEOHDQGPHDVXUDEOH Since this cannot be left to chance, we commission regular reviews of the workings of our business partnering arrangements to assess if they are working well and DOVRWRbORRNIRUWKHWHOOWDOHVLJQVRIZKHUHWKH\PLJKW HQFRXQWHUbSUREOHPV
:HQHHGWREHFRQƂGHQWWKDWWKHNH\VXSSO\FKDLQVRQ which we depend to perform our customer contracts can meet our required standards for ethical behaviour, health and safety management, security management and other key criteria. Key suppliers and sub-contractors are subject WRTXDOLƂFDWLRQDVVHVVPHQWVDQGZKHUHDSSURSULDWHZH will verify this through targeted audits. The content and nature of the assessments and audits are designed to PHHWVWDQGDUGVVHWE\RXUFXVWRPHUVDQGUHƃHFWOHJLVODWLYH changes. Processes are in place to report inappropriate behaviours, practices and activities.
We are a signatory to the Prompt Payment Code which encourages and promotes best payment practice between organisations and their suppliers.
'Home Safe Everyday' is the standard we live by. Our work can involve hazardous situations and the health and VDIHW\bRIRXUHPSOR\HHVDQGRWKHUVDIIHFWHGE\RXUZRUN is of paramount importance. We take our responsibilities seriously and work hard to ensure our employees and contractors understand their role in remaining vigilant to risk on a day-to-day basis.
As noted last year, we are rolling out the 'Safety Lens' which is our tool for employees and management designed to help in the continual improvement of our safety culture. The Safety Lens lays down a set of commitments that our managers and employees believe are important and make the biggest difference to our safety performance.
These commitments have three themes
The Safety Lens is designed as a mechanism to enable our employees to talk about safety; in their teams, to their managers and to customers. It is a way of looking at things from a safety perspective and challenging each other to see if things could be done more safely.
Governance
Although the rate of reduction in our total injuries rate has slowed, the increasing use of the Safety Lens and local divisional and business unit initiatives have helped reduce the year-on-year RIDDOR (Reporting of Injuries, Diseases DQG'DQJHURXV2FFXUUHQFHV5HJXODWLRQV UDWHE\ DQG5,''25DFFLGHQWVE\GXULQJFRPSDUHG WR
| Total number | |||||
|---|---|---|---|---|---|
| of injuries | |||||
| Fatalities | 1 | 2 | |||
| Major Injuries | 42 | 22 | |||
| Over-three | |||||
| day injuries | 164 | 131 | 123 | ||
| RIDDOR | |||||
| totals | 153 | 153 | 132 | ||
| 2007/08 | 3.87 |
|---|---|
| 2008/09 | 4.15 |
| 2009/10 | 3.67 |
| 2010/11 | 2.86 |
| 2011/12 | 2.65 |
| 2012/13 | 2.64 |
| 2007/08 | 0.27 |
|---|---|
| 2008/09 | 0.28 |
| 2009/10 | 0.28 |
| 2010/11 | 0.22 |
| 2011/12 | 0.21 |
| 2012/13 | 0.17 |
During the year the UK Health and Safety Executive changed RIDDOR reporting from time lost through injury from three days to seven days. However we have taken the decision to continue to monitor and report on the lower three day threshold.
Our business arrangements with our customers require us to deliver services across a complex array of projects and assets. Our people have an impressive range of skills and competencies: engineering, management, technical, commercial, administrative and developmental to name but a few.
As our business expands, the development of our people, present and future, is a critical part of our business development activity. To underpin and sustain our longterm 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. We aim to achieve this by continually improving our comprehensive talent management system. Our Group Director of Organisation and Development co-ordinates this activity across the Group.
Succession planning is a key focus at Board level and throughout the businesses. We have plans in place that identify immediate and/or future potential successors to key senior management posts. We also have individual training DQGGHYHORSPHQWSODQVIRUWKRVHVRLGHQWLƂHG2YHURI H[HFXWLYHSRVLWLRQVKDYHLGHQWLƂHGUHSODFHPHQWV
In addition to the training and development provided at divisional and business unit level we have Group-wide management development resources
Our graduate and apprenticeship schemes are intended to support business requirements with the aim of securing the skills and expertise we need now and in the future, and we seek to provide as many opportunities as those requirements justify.
With regard to graduates, we reported last year that we ZHUHH[SHFWLQJWRUHFUXLWJUDGXDWHVIRUWKH intake. In the event, business requirements were such that ZHQHHGHGWRUHFUXLWDQDGGLWLRQDOJUDGXDWHVEULQJLQJ WKHWRWDOIRUWR
There are currently 251 graduates on the graduate SURJUDPPHRIZKRPDUHLQHQJLQHHULQJGLVFLSOLQHV DQGLQEXVLQHVVVXSSRUWUROHV\$WWKHGDWHRIWKLVUHSRUW ZHH[SHFWWRUHFUXLWJUDGXDWHVIRUWKHLQWDNH In addition to our graduate scheme, we recruit many graduates directly to management positions.
\$W0DUFKWKHUHZHUHDSSUHQWLFHVDFURVVWKH *URXS RIZKRPZHUHUHFUXLWHGGXULQJWKH \HDU 7KHLQFUHDVHLQQXPEHUVVLQFHODVW\HDU demonstrates the commitment we have to apprenticeship WUDLQLQJ2IWKRVHFRPSOHWLQJWKHLUWUDLQLQJRYHUZHUH appointed into substantive roles within the Group.
We are committed to equal opportunities and do not discriminate on the basis of age, race, colour, ethnic origin, gender, marital status, religious beliefs, sexual orientation or disability; but diversity is about more than this. It is about embracing the advantages and richness different experiences, skills and outlooks can bring and learning from that diversity to deliver our best for our customers and safeguard the future of Babcock. Equal opportunities and awareness of diversity are integral to our talent management system. 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.
Babcock operates principally in sectors that have until recently traditionally been regarded as 'male', such as engineering and working with 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 ZRUNLQJKDUGWRFKDQJHWKLV\$VVHWRXWRQSDJH RIRXUWRWDOZRUNIRUFHLVIHPDOHZLWKIHPDOHVHQLRU H[HFXWLYHV2XUbGLYHUVLW\LQLWLDWLYHő\$OOWRJHWKHUGLIIHUHQWŒ is championed by a Diversity Management Group, which co-ordinates the implementation of our equality and diversity policy. We focus our graduate recruitment programme, particularly for engineering graduates, on WKRVHXQLYHUVLWLHVWKDWKDYHDULFKHUJHQGHUPL[,Q RIWKRVHHPSOR\HGLQRXUJUDGXDWHVFKHPHZHUH female. Further information on the work we are doing around our diversity can be found on page 63 of this Report.
In many places, we are the largest employer in the area. :HbVHHNWRHQJDJHZLWKWKHFRPPXQLWLHVDURXQGRXUVLWHV and operations and to provide opportunities for employees to assist with local initiatives and support local charities that are important to them. We have Group-wide guidelines setting out our approach to charitable donations, our commitment to the communities in which we operate and the broader interests of our customers. As well as ensuring ƂQDQFLDOGRQDWLRQVDUHDSSURSULDWHO\WDUJHWHGWKH\ also encourage active engagement in local community VXSSRUWbSURJUDPPHV
At Group level, we have continued to provide corporate sponsorship for the Soldiers, Sailors, Airmen and Families Association (SSAFA), the forces charity providing support to service families in times of need.
Across the Group, our donations to charitable causes during WKH\HDUDPRXQWHGWRee
Babcock seeks to achieve the highest standards in its management of environmental matters. We recognise the impact our operations can have on the environment and seek to keep to a minimum or eliminate adverse effects so far as we reasonably can. Although we operate at many sites, some of them are customer-owned or operated sites and our ability to manage environmental matters is restricted by the terms of our contracts or the budgets that our customers are willing to support.
At Babcock, it is recognised that our own business RSHUDWLRQVbDUHGHSHQGHQWRQWKHXVHRIHQHUJ\IURPD number of sources; we therefore collect and report on FDUERQHPLVVLRQVbGDWDUHODWLQJWRHDFKDFWLYLW\2YHUWKH FRXUVHRIWKH\HDUZHKDYHXQGHUWDNHQVLJQLƂFDQWDPRXQWV RIZRUNWRGHOLYHUORQJWHUPHQHUJ\VDYLQJVDQGHIƂFLHQFLHV for both ourselves and our customers in a way that is PLQGIXORIbHQYLURQPHQWDObLPSDFWV
%DVHGRQUHYHQXH RIWKH*URXSŒV operations have environmental management systems that DUH,62FHUWLƂHGDQGWKHEUHDNGRZQE\GLYLVLRQFDQ be found below. Where our environmental processes are QRWFHUWLƂHGZHVHHNWRHQVXUHWKDWWKH\DUHLQDFFRUGDQFH with customer requirements and, where appropriate, ZHbDUHDOVRZRUNLQJWRZDUGV,62FHUWLƂFDWLRQ
Best practice refers to our environmental management controls at VLWHVQRW\HW,62FHUWLƂHG
%DEFRFNKDVDFKLHYHGUHFHUWLƂFDWLRQWRWKHSUHVWLJLRXV Carbon Trust Standard for all of its UK operations and is continuing to work hard to reduce its carbon footprint DJDLQVWDEDFNJURXQGRIVLJQLƂFDQWEXVLQHVVJURZWKDQG further acquisitions. An ongoing programme of rationalising DQGLPSURYLQJWKHHIƂFLHQF\RIWKH*URXSŒVEXLOWHVWDWH continues to drive down the Company's own carbon emissions. The Group's absolute carbon footprint showed a PRGHVWUHGXFWLRQEXWIDUPRUHVLJQLƂFDQWLVWKHLPSUHVVLYH reduction achieved against the revenue benchmark – see table below.
| Absolute footprint | ||
| (Tonnes CO2e) | ||
| Relative benchmark | ||
| (Tonnes CO2e/£m revenue) | 65.4 |
The Group has again reported to the Carbon Reduction &RPPLWPHQWŏ(QHUJ(IƂFLHQF\6FKHPH&5& DQGLQWKH ƂQDO&5&/HDJXH7DEOHSXEOLVKHGLQ0DUFKWKH*URXS LPSURYHGLWVSRVLWLRQIURPUDQNLQJDPRQJWKHWRS RIVRPHRUJDQLVDWLRQVUHTXLUHGWRUHSRUWWRWKH scheme – see extract from CRC League Table below.
| Rank | 43 |
|---|---|
| Registration number | &5& |
| Organisation name | Babcock International Group PLC |
| Weighted score | |
| Emissions (tonnes of CO2) | 131,461 |
| (DUO\DFWLRQPHWULF | |
| \$EVROXWHPHWULF | |
| *URZWKPHWULF |
8QGHUQHZUHJXODWLRQVLQWURGXFHGLQ\$SULOIURP WKH*URXSZLOODOVRKDYHWRLQFOXGHGHWDLOVRILWV Greenhouse Gas Emissions (GHG) for the entire Company, including overseas operations, as part of its annual report. 7KHUHJXODWLRQVDULVHRXWRIWKH5LRVXPPLWDQGIRUP SDUWRIWKH8.ŒV&OLPDWH&KDQJH\$FWDQGUHTXLUHDOO companies registered on the main market of the London Stock Exchange to measure and report their GHG emissions as part of the drive to meet the carbon reduction target of RIOHYHOVE\
Babcock aims at all times to act responsibly and ethically when pursuing and awarding business. The Company understands that its reputation and its good name are its greatest assets which could easily be lost by actual or suspected corrupt or unethical behaviour. To protect the Company and reduce these risks the Company has set out its policy in a Babcock Code of Business Conduct and requires employees, business advisors and business partners WRFRPSO\ZLWKWKDW&RGHRUbLQbWKHFDVHRIEXVLQHVV advisors and partners to have equivalent standards and procedures in their own businesses).
The Babcock Code of Business Conduct is a Group-wide policy that sets out the following principles to ensure that those who work with or within the Company work to the highest of ethical standards
As a company Babcock
kMust agree to comply, and actually comply, with our Code and this guidance, so far as it is relevant to them, as if they were our employees
kShould either be willing to subscribe to our Code and its associated guidance or have equivalent standards and procedures in their own businesses
This policy is supplemented by a detailed manual available on the Group's intranet that contains guidelines, authorisation and other procedures aimed at identifying and reducing corruption and ethical risks, for example: an explanation of the law and how it can apply; 'Red Flags' to look out for; guidelines and authorisation procedures for giving or accepting gifts and hospitality or making charitable or political donations guidelines; due diligence and approval requirements before engaging new business partners; and how to whistleblow concerns. Employees take online training courses in anti-bribery and FRUUXSWLRQbULVNV
Each division and Group function must also have a designated member of its senior management team, who KDVVSHFLƂFUHVSRQVLELOLW\IRUHQVXULQJWKHGLVWULEXWLRQ communication and implementation of the anti-bribery and corruption guidance, how to apply it, and which employees need to be trained in its content and application. Divisions and Group functions are also required to consider carefully whether they need also to designate business unit level or VLWHVSHFLƂFPDQDJHUVZLWKWKHVDPHUHVSRQVLELOLW\$QWL bribery and corruption risks have expressly to be considered each year in business unit risk reviews as an integral part of our risk management arrangements. Internal audit carries out a review of the implementation of the guidance as part of the annual internal audit plan.
%DEFRFNKDVFRQƂGHQWLDOőZKLVWOHEORZHUŒKRWOLQHVSURYLGHG by independent third parties who promptly report messages received via the service to central Group senior management. Callers can remain anonymous if they wish. The hotlines are intended for use by employees to report concerns that they feel unable to raise with line management (or where they have raised matters, but they DUHQRWVDWLVƂHGZLWKWKHUHVSRQVH UHJDUGLQJƂQDQFLDO irregularities, concerns about non-compliance with laws, or breaches of our Code of Business Conduct, threats to health DQGVDIHW\FRQƃLFWVRILQWHUHVWRULPSURSHUSUDFWLFHV 1HZHPSOR\HHVDUHPDGHDZDUHRIWKHH[LVWHQFHRIbWKH KRWOLQHVDVSDUWRIWKHLULQGXFWLRQGHWDLOVRIbWKHbKRWOLQHVDUH advertised at operating sites.
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Bill Tame Group Finance Director
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The Group's risk management and internal control systems can only seek to manage, not eliminate, the risk of failure to achieve business objectives, DVDQ\V\VWHPFDQRQO\SURYLGHUHDVRQDEOHQRWDEVROXWHDVVXUDQFHDJDLQVWPDWHULDOPLVVWDWHPHQWRUORVV
| Board | 7KH%RDUGLVXOWLPDWHO\UHVSRQVLEOHIRUWKH&RPSDQ\ŒVULVNPDQDJHPHQWDQGLQWHUQDOFRQWUROV\VWHP ZKLFKLVRYHUVHHQRQLWVEHKDOIE\WKH\$XGLWDQG5LVN&RPPLWWHH |
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| \$XGLWDQG5LVN&RPPLWWHH | 7KH\$XGLWDQG5LVN&RPPLWWHHUHYLHZVDVSHFWVRIWKHULVNPDQDJHPHQWDQGFRQWUROV\VWHPDWLWV meetings and at least once a year formally reviews the system's effectiveness on behalf of the Board VHHWKHHIIHFWLYHQHVVUHYLHZVWDWHPHQWRQSDJH ,WDOVRUHFHLYHVLQGHSWKSUHVHQWDWLRQVRQ LQGLYLGXDONH\ULVNV |
| 6HFXULW\&RPPLWWHHV | %DEFRFNKDVWZRVHQLRUOHYHO6HFXULW\&RPPLWWHHVZKLFKHDFKPHHWUHJXODUO\WRGLVFXVVVHFXULW\DQG LQIRUPDWLRQDVVXUDQFHLVVXHVDQGWKUHDWVIDFLQJWKHURXS7KH&RPPLWWHHVDOVRSURYLGHRYHUVLJKW RIWKHURXSŒVVHFXULW\DQGLQIRUPDWLRQDVVXUDQFHLQIUDVWUXFWXUHDQGRQJRLQJVHFXULW\SURMHFWV 7KHb*URXS)LQDQFH'LUHFWRULV&KDLUPDQRIWKH&RPPLWWHHVDQGUHSRUWVRQVHFXULW\DQGLQIRUPDWLRQ DVVXUDQFHPDWWHUVWRWKH%RDUG |
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| ,QWHUQDOFRQWUROV | Operationally, internal control systems are monitored by senior Group management with divisional &KLHI([HFXWLYHVKDYLQJUHVSRQVLELOLW\IRUULVNLGHQWLƂFDWLRQDQGULVNPDQDJHPHQWLQWKHLUEXVLQHVVHV |
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| Budget process | \$QQXDOEXGJHWVDQGPHGLXPWHUPƂQDQFLDOSODQVDUHUHYLHZHGE*URXSPDQDJHPHQWEHIRUH VXEPLVVLRQWRWKH%RDUGIRUDSSURYDO8SGDWHGIRUHFDVWVIRUWKH\HDUDUHSUHSDUHGDWOHDVWTXDUWHUO\ |
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| Security and information governance structure |
There is a formal security and information assurance governance structure in place to oversee and PDQDJHVHFXULW\DQGVLPLODUULVNV |
| &OHDUGHOHJDWLRQDQGOLPLWVRIDXWKRULW\ | The Board annually reviews and approves a schedule of delegated authorities setting out levels of VSHFLƂFƂQDQFLDOGHFLVLRQPDNLQJDXWKRULW\GHOHJDWHGE\LW |
| ,QVXUDQFH | The Group has a large and comprehensive insurance programme, preferring to place risk in the LQVXUDQFHPDUNHWZKHUHDYDLODEOHRQDFFHSWDEOHWHUPVUDWKHUWKDQWRVHOILQVXUHRUPDNHVLJQLƂFDQW XVHRIFDSWLYHLQVXUDQFH7KH*URXSKDVDIXOOWLPH,QVXUDQFH0DQDJHUZKRUHSRUWVDQQXDOO\WRWKH %RDUGRQWKHVWUDWHJLFDSSURDFKEHLQJWDNHQWRLQVXUDQFHDQGRQWKHSODFLQJRIWKHSURJUDPPH |
| &ODLPVDQGOLWLJDWLRQUHSRUWLQJ | 7KH%RDUGDQGURXS([HFXWLYH&RPPLWWHHUHFHLYHPRQWKO\VXPPDULHVRIPDWHULDOGLVSXWHVDQG DFWXDORUSRWHQWLDOWKUHDWVRIFODLPVWKHLUSURJUHVVDQGSRWHQWLDORXWFRPHV7KHURXSKDVDQ LQWHUQDOOHJDOVHUYLFH |
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| &RGHRI%XVLQHVV&RQGXFW DQGDQWLEULEHU\DQGFRUUXSWLRQSROLFLHV and procedures |
7KH*URXSKDVD&RGHRI%XVLQHVV&RQGXFWPDNLQJFOHDULWVFRPPLWPHQWWRWKHKLJKHVWHWKLFDO standards and the ethical standards it demands from its employees and those who work for it and ZLWKZKRPLWGRHVEXVLQHVV |
| 7KHUHLVDQH[SOLFLWDQWLEULEHU\DQGFRUUXSWLRQJRYHUQDQFHVWUXFWXUHLQSODFHDQGGHWDLOHGSROLF\ DQGSURFHGXUHVZLWKVXSSRUWLQJWUDLQLQJSURJUDPPHVZKLFKWKH&RPSDQ\EHOLHYHVPHHWWKH UHTXLUHPHQWVRIőDGHTXDWHSURFHGXUHVŒXQGHUWKH%ULEHU\$FW\$SSURSULDWHGXHGLOLJHQFHLV FDUULHGRXWRQDFWXDORUSRWHQWLDOEXVLQHVVSDUWQHUV7KRVHZRUNLQJRQRXUEHKDOIRULQFRQVRUWLXP ZLWKXVDUHUHTXLUHGWRDELGHE\RXU&RGHRI%XVLQHVV&RQGXFWRUDQHTXLYDOHQW DQGWRXQGHUWDNH QRWWREHKDYHFRUUXSWO\ |
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| Group policies and procedures | The Group has written policies and procedures, which are kept under review, covering a range RIPDWWHUVLQWHQGHGWRUHGXFHRUPLWLJDWHULVNVXFKDVKHDOWKVDIHW\DQGHQYLURQPHQWDOSROLFLHV VHFXULW\DQGLQIRUPDWLRQDVVXUDQFHH[SRUWFRQWUROVFRQWUDFWLQJUHTXLUHPHQWVDQGJXLGHOLQHVOHJDO ƂQDQFLDODQGDFFRXQWLQJPDWWHUV7KHVHSROLFLHVDQGSURFHGXUHVDUHDYDLODEOHWRHPSOR\HHVRQWKH *URXSLQWUDQHWDQGDUHVXSSOHPHQWHGDWGLYLVLRQDOOHYHOE\IXUWKHUEXVLQHVVXQLWVSHFLƂFSROLFLHV DQGbSURFHGXUHV |
| Whistleblowing hotline | \$OOHPSOR\HHVKDYHDFFHVVWRDFRQƂGHQWLDOZKLVWOHEORZLQJKRWOLQHZLWKWKHRSSRUWXQLW\WR call, email or write letters detailing any area of concern to be brought to the attention of senior PDQDJHPHQW\$UHSRUWRQDOOZKLVWOHEORZLQJFDVHVDQGWKHUHVXOWDQWLQYHVWLJDWLRQVDQGFRQFOXVLRQV LVVXEPLWWHGWRHDFK\$XGLWDQG5LVN&RPPLWWHH |
| &ULWLFDOVXSSOLHUUHYLHZV | Divisions regularly review the vulnerability of supply chain partners whose continued ability to supply WKH*URXSLVFRQVLGHUHGFULWLFDOWRLWVEXVLQHVVSHUIRUPDQFHDQGDOVRFRQVLGHUIDOOEDFNSODQVZKHQ ƂUVWGHFLGLQJWRDSSRLQWVXFKVXSSOLHUV |
| Business continuity and disaster recovery plans |
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The business of Babcock International is managed by our Board of Directors. Biographical details of the Directors and the Company Secretary as at 13 May are as follows:
Chairman of the Board and Nominations Committee Period of service on the Board: 4 years 11 months
Mike Turner was appointed to the Board as a Non-Executive Director on 1 June 2008 and as Chairman of the Board on 1 November 2008. Since 3 May 2012 he has also been Chairman of GKN plc, where he was previously Senior Independent Director. He is a former Chief Executive of BAE Systems plc and a former Chairman of the UK Defence Industries Council (DIC). He is a member of the UK Government's Apprenticeship Ambassadors Network and is a Non-Executive Director of Lazard Limited.
Peter Rogers CBE Chief Executive Period of service on the Board: 10 years 11 months
Experience
Peter Rogers joined the Board as Chief Operating Officer in June 2002 and became Chief Executive in August 2003. He is a Non-Executive Director of Galliford Try PLC and a former Director of Courtaulds PLC and Acordis BV. He has also served as a President RIb\$'6\$HURVSDFH'HIHQFH6HFXULW\
Bill Tame Group Finance Director Period of service on the Board: 11 years 3 months
Bill Tame joined the Board as Group Finance Director in January 2002. He is a former Finance Director RIb6FDSD*URXS3/&+HLVD1RQ([HFXWLYH'LUHFWRU RIb&DUFOR3/&
Sir David Omand GCB Senior Independent Director Member of the Audit and Risk, Remuneration and Nominations Committees Period of service on the Board: 4 years 1 month
Sir David joined the Board as a Non-Executive Director on 1 April 2009, and became Senior Independent Director on 1 January 2012. He is a Non-Executive Director of Finmecannica UK Limited and is a visiting professor in the department of War Studies, King's College London. He left UK Government service in 2006, having served in various senior roles, including as UK Government Security and Intelligence Co-ordinator, Permanent Secretary of the Home Office, Director RIb*&+4WKH8.6LJQDOV,QWHOOLJHQFHDQG,QIRUPDWLRQ Assurance Agency) and Deputy Under-Secretary of State for Policy in the Ministry of Defence.
Justin Crookenden Independent Non-Executive Director Chairman of the Remuneration Committee Member of the Audit and Risk and Nominations Committees
Period of service on the Board: 7 years 5 months Experience
Justin Crookenden joined the Board as a Non-Executive Director in December 2005. He qualified as a Chartered Accountant and is a former investment banker, having worked at UBS, Barclays de Zoete Wedd and Credit Suisse First Boston – where he was Managing Director, UK Investment Banking.
Ian Duncan
Independent Non-Executive Director Chairman of the Audit and Risk Committee Member of the Remuneration and Nominations Committees
Period of service on the Board: 2 years 6 months Experience
Ian Duncan joined the Board as a Non-Executive Director on 10 November 2010. He is a Chartered Accountant and is a former Group Finance Director of Royal Mail Holdings PLC. He has also been Corporate Finance Director at British Nuclear Fuels plc and Chief Financial Officer and Senior Vice President at Westinghouse Electric Company LLC in Pennsylvania, USA. Ian is currently a Non-Executive Director and Chairman of the Audit Committees of Fiberweb plc, WANdisco plc and Mouchel Group.
Chief Executive, Support Services Period of service on the Board: 3 years
Kevin Thomas became a Director on 1 May 2010. He joined the Group in June 2002. Before joining Babcock, he spent 12 years in facilities management, including seven years with Serco Group PLC and 15 years in local government with Merton, Surrey and Southwark Councils. Kevin is a Fellow of the Royal Institute of Chartered Surveyors and a Freeman of the City of London.
Archie Bethel CBE Chief Executive, Marine and Technology Period of service on the Board: 3 years
Archie Bethel became a Director on 1 May 2010. He joined the Group in January 2004. He is a Chartered Engineer and a Fellow of the Royal Academy of Engineering. He is also President of the Society of Maritime Industries, Vice President of the Institution of Mechanical Engineers and is a Lay Member of the Court of the University of Strathclyde.
John Davies Chief Executive, Defence and Security Period of service on the Board: 4 months
John Davies joined Babcock in 2010, following the acquisition of VT Group. He was appointed Divisional Chief Executive, Defence and Security in 2010 and joined the Group Board on 1 January 2013. John is a lawyer by background and a graduate of the University of Manchester and Chester Law College. He has worked extensively across the Support Services and Defence sectors within Bombardier, BAE Systems and VT Group.
Overview
Strategy and Business model
Independent Non-Executive Director Member of the Audit and Risk, Remuneration and Nominations Committees Period of service on the Board: 1 year 11 months
Kate Swann joined the Board as a Non-Executive Director on 1 June 2011. Kate is currently Group Chief Executive of WH Smith PLC until 30 June 2013 when she will step down. She is a former Managing Director of Argos, and a former Managing Director of Homebase Ltd.
Anna Stewart Independent Non-Executive Director Member of the Audit and Risk, Remuneration and Nominations Committees Period of service on the Board: 6 months
Anna Stewart became a Non-Executive Director of WKHb&RPSDQ\RQ1RYHPEHU\$QQDLV&KLHI Executive of Laing O'Rourke Corporation. She was previously Group Finance and Commercial Director. Anna is a Chartered Surveyor.
Albert Dungate Group Company Secretary and General Counsel
Albert Dungate is a Solicitor. He has been Group Company Secretary and General Counsel since February 2002. He is Secretary to the Board and WRbWKHb\$XGLWDQG5LVN5HPXQHUDWLRQDQG1RPLQDWLRQV Committees.
Your Board is fully committed to maintaining the highest standards of corporate governance at Board level and throughout the Group as a whole, ,DPWKHUHIRUHSOHDVHGWREHDEOHWRFRQƂUPWKDWWKH&RPSDQ\EHOLHYHVLWKDVIXOO\FRPSOLHGZLWKWKH8.&RUSRUDWH*RYHUQDQFH&RGHIRUWKH\HDU ended 31 March 2013. It is the Board's belief that fostering a culture of good governance, integrity and business ethics from the top down is critical WRPDLQWDLQLQJVKDUHKROGHUDQGFXVWRPHUFRQƂGHQFHLQWKHZRUNWKDWZHGRDQGFUHDWHVDVWURQJEDVHIRUWKH*URXSŒVFRQWLQXHGJURZWKDQG success for the future. With this in mind I ensure that time is spent at Board and Board Committee meetings discussing any important governance LVVXHVDQGWKDWWKLVIRFXVLVDSSOLHGWKURXJKRXWWKH*URXSE\WKHH[HFXWLYHPDQDJHPHQW,ƂUPO\EHOLHYHWKDWWKLVGULYHIRUJRRGJRYHUQDQFH underpins a better and more responsible business.
I, along with the Nominations Committee, have been and will continue to be focused on the key issue of succession planning. We want to ensure that the skills, experience and leadership we have available on the Board and at senior management level both now and in the future are those required to continue Babcock's impressive track record. This will enable us to drive the business still further forward at the same time maintaining our focus on delivering long-term, sustainable value to our shareholders. As I discussed on page 5, Sir Nigel Essenhigh retired as a Non-Executive Director during the year, and we welcomed Anna Stewart and John Davies to the Board. Both Anna and John bring with them a wealth of valuable DQGUHOHYDQWH[SHULHQFHDQG,bORRNIRUZDUGWRWKHLUFRQWLQXLQJFRQWULEXWLRQVWRWKH%RDUG
As a Board we understand the importance of the continued assessment of our performance in order to identify and address areas where improvements may be made. One way we achieve this is by talking to and receiving feedback from investors. A list of meetings we held with our shareholders during the year can be found on page 64. In addition to this investor feedback we also use internal and external board reviews. 7KLVb\HDURXUDQQXDOSHUIRUPDQFHHYDOXDWLRQZDVFRQGXFWHGLQWHUQDOO\:HGLVFXVVWKHUHVXOWVRIWKLVUHYLHZDQGZKDWZHDUHGRLQJWRDGGUHVV WKHbPDWWHUVUDLVHGRQSDJH:HKDGDQH[WHUQDOUHYLHZODVW\HDUDQGZLOOGRVRDJDLQLQWKHƂQDQFLDO\HDU
\$VH[SODLQHGLQPRUHGHWDLORQSDJHWKH%RDUGLVƂUPLQLWVDVSLUDWLRQDQGLQWHQWWRIRVWHUDQGHQFRXUDJHJUHDWHUGLYHUVLW\LQFOXGLQJJHQGHU diversity, at all levels in our organisation, as part of our 'best for the job' approach.
In summary, I am pleased with the progress we have made on our governance agenda during the year. Our corporate governance policies, practices and procedures have continued to evolve as the business continues to grow targeting the highest standards of best practice. :HbKLJKOLJKWbWKHVHDUHDVDQGGHVFULEHRXUFRUSRUDWHJRYHUQDQFHIUDPHZRUNLQPRUHGHWDLORQWKHIROORZLQJSDJHV
Mike Turner CBE Chairman
Babcock International Group PLC is required to report on how it has complied for the year under review with the UK Corporate Governance Code, published in June 2010 ('the Code'). The Code sets out the main SULQFLSOHVDQGVSHFLƂFSURYLVLRQVRQKRZFRPSDQLHVVKRXOGEHGLUHFWHG and controlled in order to follow good governance practice.
The Board of Directors of Babcock International Group PLC ('the Board') considers that the Company complied with all the principles and SURYLVLRQVRIWKH&RGHWKURXJKRXWWKH\HDUWRb0DUFK
The Board is collectively responsible to the Company's shareholders for the long-term success of the business. 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 and structures described in the following pages of this Governance report.
The current Directors' biographies are set out on pages 56 and 57. 7KHb%RDUGLVVDWLVƂHGWKDWHDFK'LUHFWRUKDVWKHQHFHVVDU\WLPHWR 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 LWVbFRQWLQXLQJGHYHORSPHQW
The powers of 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 and in accordance with the Companies Act 2006, and other applicable legislation. The Articles are available for inspection online at www.babcockinternational.com and FDQDOVREHVHHQDWWKH&RPSDQ\ŒVUHJLVWHUHGRIƂFH
7KH%RDUGKDVHVWDEOLVKHGDIRUPDOVFKHGXOHRIPDWWHUVVSHFLƂFDOO\ UHVHUYHGIRULWVDSSURYDO,WKDVGHOHJDWHGRWKHUVSHFLƂFUHVSRQVLELOLWLHV WRLWV&RPPLWWHHVDQGWKHVHDUHFOHDUO\GHƂQHGZLWKLQWKHUHVSHFWLYH Committee's terms of reference.
Board Committee terms of reference and other delegated authorities are formalised and reviewed from time to time. Key Committee terms RIbUHIHUHQFHDUHDYDLODEOHWRYLHZRQRXUZHEVLWH www.babcockinternational.com
In addition to the principal Committees of the Board – the Remuneration Committee, the Audit and Risk Committee and the Nominations Committee – each of which has its own report in the pages that follow – the Board from time to time establishes committees to deal with VSHFLƂFPDWWHUVRQLWVEHKDOI7KH%RDUGDOVRDOORZVIRUURXWLQHPDWWHUV 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, EXWWKHVHDUHODWHUUDWLƂHGE\WKHIXOO%RDUG
There is also a Group Finance Committee consisting of any two Directors, one of whom is the Group Finance Director, to approve borrowing, guarantees, treasury and related matters within its terms RIbUHIHUHQFH
Overview
During the year some of the key areas the Board focused on included
7KH%RDUGFRPSULVHVWKH&KDLUPDQƂYH([HFXWLYH'LUHFWRUVDQGƂYH LQGHSHQGHQW1RQ([HFXWLYH'LUHFWRUVZKLFKLVLQDFFRUGDQFHZLWK Code provision B1.2. The Board believes that this balance allows for the promotion of high-quality discussion and consideration of key issues affecting the Group, including 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. The composition of the Board is kept under review to ensure that the skill, knowledge and experience of its members is suitable to meet the needs of the business and its strategic development plans; this is the primary focus of the Nominations Committee.
The following changes were made to the Board during the year
| New Directors | Date of appointment |
|---|---|
| Anna Stewart | 1 November 2012 |
| John Davies | 1 January 2013 |
| Directors who retired | Date of retirement |
| 6LU1LJHO(VVHQKLJK | 31 December 2012 |
The Board has established a formal, rigorous and transparent process for the selection and subsequent appointment of new Directors to the Board. This process is described in the Nominations Committee section on page 65 of this Report. 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 IRUHOHFWLRQDWWKHƂUVW\$QQXDO*HQHUDO0HHWLQJ\$*0 IROORZLQJWKHLU appointment.
([HFXWLYH'LUHFWRUVDUHHQWLWOHGWRQRWOHVVWKDQPRQWKVŒQRWLFH RIWHUPLQDWLRQRIWKHLUVHUYLFHDJUHHPHQWV1RQ([HFXWLYH'LUHFWRUV including the Chairman, have letters of appointment which can be terminated at will.
Anna Stewart and John Davies, as Directors newly appointed during WKHb\HDUZLOOVHHNHOHFWLRQWRWKH%RDUGDWWKH\$*0,QDGGLWLRQ LQbFRPSOLDQFHZLWK&RGHSURYLVLRQ%DOOH[LVWLQJ'LUHFWRUVZLOO EHbVHHNLQJUHHOHFWLRQDWWKH\$*07KHQDPHVDQGELRJUDSKLFDO GHWDLOVRIHDFKRIWKH'LUHFWRUVDUHVHWRXWRQSDJHVDQG
The roles and responsibilities of the Chairman and the Chief Executive are separate, clearly established, set out in writing, and have been approved by the Board. The Chairman is responsible for the leadership and governance of the Board as a whole, and the Chief Executive for the management of the Group and the successful planning and implementation of Board strategy. The table below summarises their respective roles and responsibilities. A copy of the formal written statement is available on the Company's website at www.babcockinternational.com
The Chairman is responsible for leadership and overall effectiveness RIbWKH%RDUG,QSDUWLFXODUKLVUROHLVWR
The Chief Executive is responsible for the day-to-day leadership of the business and managing it within the authorities delegated by the Board. In particular, his role is to
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 HYDOXDWLRQRIWKH&KDLUPDQ7KHVSHFLƂFUROHRIWKH6HQLRU,QGHSHQGHQW Director has been set out in writing and approved by the Board.
The independent Non-Executive Directors bring external perspectives and insight to the Board and its Committees' deliberations, providing a wide range of knowledge and business experience from other sectors and businesses (see their biographies on pages 56 and 57). 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.
The Code recommends that there should be a balance between Executive and Non-Executive Directors (particularly independent Directors) and that at least half the Board, excluding the Chairman, should comprise Non-Executive Directors determined by the Board to be independent. For the year ending 31 March 2013 the Board considers the balance of independent Non-Executive Directors and Executive Directors (as set out on page 60) was in accordance with the requirements of the Code.
Non-Executive Directors are appointed for an initial three year term, subject to their annual re-election by shareholders at the AGM, FRPPHQFLQJZLWKWKHLUHOHFWLRQE\VKDUHKROGHUVDWWKHƂUVW\$*0 following their appointment by the Board. Reappointment after the expiry of their three year terms is subject to review by the Nominations Committee. The Board considers the independence of each Non- ([HFXWLYH'LUHFWRUDJDLQVWFULWHULDVSHFLƂHGLQWKH&RGHDQGGHWHUPLQHV whether it considers each to be independent in character and judgement (which the Board currently does). The terms and conditions of appointment of the Non-Executive Directors, together with the service contracts for Executive Directors, are available for inspection at WKH&RPSDQ\ŒVUHJLVWHUHGRIƂFHGXULQJQRUPDOEXVLQHVVKRXUVDQGDW the AGM. During the year, the Non-Executive Directors, including the Chairman, met independently of management on several occasions.
The Company Secretary is responsible, under direction from the &KDLUPDQIRUHQVXULQJWKHDSSURSULDWHLQIRUPDWLRQƃRZVWRWKH%RDUG and its Committees to facilitate their discussions and allow fully informed decisions to be made. The Company Secretary also ensures the Non-Executive Directors have access to the senior management where required, as well as ensuring an appropriate induction process and ongoing training is in place for Executive and Non-Executive Directors. The Company Secretary advises the Board and its Committees on governance matters.
7KH*URXS([HFXWLYH&RPPLWWHHLVQRWDIRUPDO%RDUG&RPPLWWHHDQG KDVQRGHOHJDWHGSRZHUVDVVXFK,WLVPDGHXSRIWKH&KLHI([HFXWLYH WKH*URXS)LQDQFH'LUHFWRU'LYLVLRQDO&KLHI([HFXWLYHVWKH&RPSDQ\ Secretary and General Counsel and the Group Director of Organisation and Development. It is also attended by the heads of the principal overseas operations. It meets ten times a year and reviews and discusses DOOPDWWHUVRIPDWHULDOVLJQLƂFDQFHWRWKH*URXSŒVPDQDJHPHQW RSHUDWLRQDODQGƂQDQFLDOSHUIRUPDQFHDVZHOODVVWUDWHJLFGHYHORSPHQW Minutes of its meetings are circulated to Board members.
7KH%RDUGKDVDWOHDVWWHQVFKHGXOHGIXOOERDUGPHHWLQJVHDFKƂQDQFLDO year and two other meetings devoted solely to strategy. The Chairman DOVRPHHWVVHSDUDWHO\ZLWK1RQ([HFXWLYH'LUHFWRUVZLWKRXW([HFXWLYH Directors or other managers present. Debate and discussion at Board and Committee meetings is open, challenging and constructive. Directors regularly receive presentations by functional and operational senior managers. In the Board and Committee evaluation reviews, no Directors expressed dissatisfaction with the timing and quality of information provided to them.
| Name | Attendance at Board meetings |
|---|---|
| Chairman | |
| Mike Turner | 12 of 12 |
| Peter Rogers | 12 of 12 |
|---|---|
| Bill Tame | 12 of 12 |
| Kevin Thomas | 12 of 12 |
| Archie Bethel1 | 11 of 12 |
| John Davies2 | 3 of 3 |
| Sir David Omand | 12 of 12 |
|---|---|
| Justin Crookenden | 12 of 12 |
| Ian Duncan | 12 of 12 |
| Kate Swann | 12 of 12 |
| Anna Stewart3 | 6 of 6 |
| 6LU1LJHO(VVHQKLJK4 | 9 of 9 |
Absence due to personal reasons
John Davies was appointed as a Director on 1 January 2013
Anna Stewart was appointed as a Director on 1 November 2012
6LU1LJHO(VVHQKLJKUHVLJQHGDVD'LUHFWRURQ'HFHPEHU
The Board commissions an external independent review of its effectiveness and that of its Committees and members at least every other year, with an internally-led review in the alternate years.
)RUWKHƂQDQFLDO\HDUWR0DUFKWKH%RDUGHYDOXDWLRQZDV facilitated externally by Professor Stuart Timperley, a former professor DWbWKH/RQGRQ%XVLQHVV6FKRROZLWKFRQVLGHUDEOHH[SHULHQFHRIZRUNLQJ on and with boards and as an advisor on growth, transition and capability issues.
7KHUHYLHZIRUWKHƂQDQFLDO\HDUHQGLQJ0DUFKZDVIDFLOLWDWHG internally by the Company Secretary, and also involved one-on-one discussions between the Chairman and each Director.
7KH%RDUGZLOOXQGHUJRDQLQGHSHQGHQWH[WHUQDOUHYLHZIRUWKHƂQDQFLDO year beginning 1 April 2013.
1HLWKHU3URIHVVRU7LPSHUOH\ŒVHYDOXDWLRQLQQRUWKHLQWHUQDO review in 2012/13, found immediate or short-term issues relating to the effectiveness of the Board, its members or its Committees that required urgent attention. The noted areas of focus for the Board were the same for both years and are set out in the table below, which also shows how the Board is addressing these matters
Babcock recognises that in making decisions regarding succession planning, recruitment, promotion and training there needs to be an DFWLYHFRQVLGHUDWLRQRIWKHEHQHƂWVRIGLYHUVLW\LQFOXGLQJJHQGHU GLYHUVLW\DQGbWKH%RDUGLVFOHDUWKDWLWVDVSLUDWLRQDQGLQWHQWLVWRVHHDQ LQFUHDVLQJbQXPEHURIZRPHQLQVHQLRUH[HFXWLYHPDQDJHPHQWUROHVDQG throughout the workforce as a whole to be achieved consistently with %DEFRFNŒVőEHVWIRUWKHMREŒSKLORVRSK\
In considering the issues around gender diversity we can report that Babcock has
Babcock is also actively considering how to make management roles more attractive and amenable to female candidates.
A breakdown of gender diversity throughout the Company is given in the illustration below
* Senior executive refers to all Divisional business unit managing directors and their direct reports
\$OOQHZ1RQ([HFXWLYH'LUHFWRUVXQGHUWDNHDVWUXFWXUHGLQGXFWLRQ process on joining the Board, facilitated by the Company Secretary, to ensure they have a full understanding of the business, our customers and the markets in which we operate. As part of this induction new 1RQ([HFXWLYH'LUHFWRUVZLOOUHFHLYHGHWDLOHGEXVLQHVVEULHƂQJVRQWKH *URXSŒVRSHUDWLRQVIURP'LYLVLRQDO&KLHI([HFXWLYHŒVDQGWKHKHDGVRI key Group functions. Induction visits to important operational sites are DUUDQJHGDQGZKHUHQHFHVVDU\WKHQHZ1RQ([HFXWLYH'LUHFWRUZLOO EHbJLYHQDIXOOEULHƂQJRQWKHLUOHJDOGXWLHVDVD'LUHFWRUE\DQH[WHUQDO legal advisor.
Training for new Directors and ongoing general Director training is arranged as necessary or as requested. The Company Secretary briefs %RDUGPHPEHUVDERXWVLJQLƂFDQWFKDQJHVLQWKHODZRUJRYHUQDQFH codes affecting their duties as Directors.
1RQ([HFXWLYH'LUHFWRUVPD\DWDQ\WLPHPDNHYLVLWVWR*URXSEXVLQHVVHV or operational sites and Board visits are also made to sites. Presentations RQWKH*URXSŒVEXVLQHVVHVDQGVSHFLDOLVWIXQFWLRQVDUHPDGHWRWKH Group Board from time to time.
1RQ([HFXWLYH'LUHFWRUVUHFHLYHFRSLHVRIDOOPLQXWHVRIPHHWLQJVRI WKH*URXS([HFXWLYH&RPPLWWHHDQGRIWKHSULQFLSDOGLYLVLRQDOERDUGV together with copies of monthly divisional operating reports.
1RQ([HFXWLYH'LUHFWRUVDUHLQYLWHGWRDWWHQGWKH*URXSŒVVHQLRU management conferences.
The Board believes it is important to maintain open and constructive relationships with all of its shareholders – large and small, institutional DQGSULYDWH7KH&KLHI([HFXWLYH*URXS)LQDQFH'LUHFWRUDQG+HDGRI Investor Relations undertake a programme of meetings, conference FDOOVDQGSUHVHQWDWLRQVWRGLVFXVVWKH*URXSŒVVWUDWHJ\DQGƂQDQFLDO performance with investors, brokers, sales teams and analysts. During WKH\HDUWKH&RPSDQ\PHWRYHUVHSDUDWHLQVWLWXWLRQVLQ PHHWLQJVLQWKH8.86\$DQG(XURSH7KH&RPSDQ\RIIHUVPHHWLQJV ZLWKWKH&KLHI([HFXWLYHDQG*URXS)LQDQFH'LUHFWRUWRLWVWRS shareholders at least twice a year, and in the year to 31 March a total of 42 meetings were held with our top 20 shareholders. In addition, the Chairman wrote to our largest 15 shareholders inviting them to meet with him to discuss strategy, performance and corporate governance matters. 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 they believe their matter has not been adequately resolved.
| Results and trading updates available as audio casts at www.babcockinternational.com/investors |
When |
|---|---|
| Full year and half year results: announcement and presentation | May and November 2012 |
| Interim management statements and pre-close trading statements and conference call with CFO |
July and September 2012, January and March 2013 |
| Other presentations | When |
| %*URXS)LQDQFH'LUHFWRU'LYLVLRQDO&KLHI([HFXWLYHVDQG+HDGRI,QYHVWRU5HODWLRQV at broker organised conferences |
September and November 2012 and March 2013 |
| Dealings with shareholders, investors and analysts Resolutions of AGM available at www.babcockinternational.com/investors |
When |
| PHHWLQJVZLWKVKDUHKROGHUVDQGSRWHQWLDOLQYHVWRUV | Throughout |
|---|---|
| 22 meetings with sell side analysts and brokers sales teams | Throughout |
| Letter from the Group Chairman to leading shareholders | July 2012 |
| 5RDGVKRZLQ/RQGRQDQG(GLQEXUJK | May and November 2012 |
| Roadshow in Paris | May 2012 |
| Annual General Meeting | July 2012 |
| Roadshow in USA | September 2012 |
| Roadshow in Frankfurt | December 2012 |
| Roadshow in Copenhagen and Stockholm | January 2013 |
2YHURI%DEFRFNŒVVKDUHKROGHUUHJLVWHULVEDVHGLQWKH8.DQGRYHURIDOO%DEFRFNVKDUHVDUHKHOGE\LQVWLWXWLRQDOVKDUHKROGHUV:KLOVWLWLV 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. To assist our private and international shareholders, the investor relations team makes sure that all price-sensitive information is released to all shareholders at the same time, 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. \$QbLQYHVWRUUHODWLRQVUHSRUWVXPPDULVLQJVKDUHSULFHSHUIRUPDQFHFRPSDUHGWRWKHPDUNHWFKDQJHVWRWKHVKDUHKROGHUUHJLVWHUDQGIHHGEDFNIURP shareholders is produced for each Board meeting. The Company also commissioned Clare Williams Associates to undertake study of perceptions of the Group amongst some of its major shareholders, accounting for 30% by value of the shareholder register, and also of some non-holding LQVWLWXWLRQV7KHbUHVXOWVZHUHIRUPDOO\SUHVHQWHGWRWKH%RDUGLQ6HSWHPEHU
\$VDW0DUFKWKH&RPSDQ\KDGEHHQQRWLƂHGLQDFFRUGDQFHZLWK&KDSWHURIWKH'LVFORVXUHDQG7UDQVSDUHQF\5XOHVRIWKHIROORZLQJPDMRU interests in voting rights attached to its ordinary shares (which represent interests in 3% or more of its issued ordinary share capital).
| Name | Number of 60p ordinary shares RQGDWHRIQRWLƂFDWLRQ |
% of issued share capital at 31 March 2013 |
|---|---|---|
| Blackrock, Inc. | 5.01 | |
| Cantillon Capital LLC | 4.95 | |
| Standard Life Investments Limited | 4.95 | |
| FMR LLC | 4.89 | |
| The Capital Group Companies Inc. | 4.06 | |
| Legal & General Group Plc | 14,325,920 | 3.96 |
| JP Morgan Chase & Co. | 3.13 | |
| Ameriprise Financial Inc. | 11,330,063 | 3.13 |
7KHUHKDGEHHQQRIXUWKHUQRWLƂFDWLRQVEHWZHHQWKH0DUFKDQGWKHGDWHRIWKLVUHSRUW
7KH\$*0ZLOOEHKHOGDWDPRQ-XO\DWWKH*URVYHQRU+RXVH+RWHO3DUN/DQH/RQGRQ:.717KH&RPSDQ\ZLOOVHQGQRWLFH 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.
\$OOVKDUHKROGHUVDUHZHOFRPH7KHHYHQWSURYLGHVDSODWIRUPIRUWKH&KDLUPDQDQG&KLHI([HFXWLYHWRH[SODLQKRZWKH&RPSDQ\KDVSURJUHVVHG 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, Nomination 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, either electronically or by post. Directors also make themselves available before and after the formal general meeting to talk informally to shareholders.
)ROORZLQJHDFKJHQHUDOPHHWLQJWKHUHVXOWVRIWKHSROODUHSXEOLVKHGRQWKH&RPSDQ\ŒVZHEVLWHDQGUHOHDVHGWRWKH/RQGRQ6WRFN([FKDQJH
"I, along with the Nominations Committee, have been and will continue to be focused on WKHbNH\bLVVXHRIVXFFHVVLRQSODQQLQJERWKDW%RDUGOHYHODQGEHORZ:HZDQWWRHQVXUHWKDWWKH skills, experience and leadership we have available on the Board and at senior management OHYHObERWKQRZDQGLQWKHIXWXUHDUHWKRVHUHTXLUHGWRFRQWLQXH%DEFRFNŒVLPSUHVVLYHWUDFNUHFRUG 7KLVbZLOOHQDEOHXVWRGULYHWKHEXVLQHVVVWLOOIXUWKHUIRUZDUGDWWKHVDPHWLPHPDLQWDLQLQJRXU IRFXVbGHOLYHULQJORQJWHUPVXVWDLQDEOHYDOXHWRRXUVKDUHKROGHUVŕ
Mike Turner Chairman
The Nominations Committee is appointed by the Board and, in accordance with Code provision B.2.1, is made up of Non-Executive Directors (with a requirement for there to be a majority of independent directors). It is chaired by the Chairman of the Board. Other Directors are invited to attend meetings of the Committee, if appropriate. The current membership of the Committee, and its membership during the year to 31 March 2013, as well as attendance at Committee meetings, is shown below. The Company Secretary is Secretary to the Committee.
| Member | 1XPEHURIPHHWLQJVDWWHQGHG Number of meetings possible |
|---|---|
| Mike Turner (Chairman) | 3 of 3 |
| Ian Duncan | 3 of 3 |
| Sir David Omand | 3 of 3 |
| Justin Crookenden | 3 of 3 |
| Kate Swann | 3 of 3 |
| Sir Nigel Essenhigh1 | 2 of 2 |
| Anna Stewart2 | 2 of 2 |
Sir Nigel Essenhigh left the Committee on 31 December 2012
Anna Stewart joined the Committee on 1 November 2012
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 is also to assist the Board in discharging its responsibilities in respect of
When considering recommendations on the 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. With the assistance of an external search consultant, where required, the Nominations Committee agrees objective criteria against which candidates can be assessed.
Many of the matters within the Committee's remit are addressed with all %RDUGPHPEHUVSUHVHQWRUWDNHQDVVSHFLƂFLWHPVDWIXOO%RDUGPHHWLQJV
During the year ended 31 March 2013, the Committee
Mike Turner CBE Committee Chairman 13 May 2013
"I am pleased to present the report of the Audit and Risk Committee, my second as Chairman RIbWKH&RPPLWWHH'XULQJWKH\HDUWKH&RPPLWWHHKDVIRFXVHGRQWKHULVNSURƂOHVRIRXU EXVLQHVVbXQLWVDQGULVNPLWLJDWLRQWRHQVXUHULVNVIDOOZLWKLQDQDFFHSWDEOHEXVLQHVVDSSHWLWH The Committee has provided oversight and reassurance to the Board with regard to the Company's ULVNPDQDJHPHQWDQGLQWHUQDOFRQWUROSROLFLHVƂQDQFLDOUHSRUWLQJDQGDFFRXQWLQJSROLFLHVDQG JRYHUQDQFHIUDPHZRUNŕ
Ian Duncan Chairman
The Audit and Risk Committee is appointed by the Board on the recommendation of the Nominations Committee and is and was during the year made up entirely of the independent Non-Executive Directors listed below
| Member | 1XPEHURIPHHWLQJVDWWHQGHG Number of meetings possible |
|---|---|
| Ian Duncan (Chairman) | 4 of 4 |
| Sir David Omand | 4 of 4 |
| Justin Crookenden | 4 of 4 |
| Kate Swann | 4 of 4 |
| Anna Stewart1 | 2 of 2 |
7KH%RDUGLVVDWLVƂHGWKDW,DQ'XQFDQZKREHFDPH&KDLUPDQRIWKH &RPPLWWHHLQ-XO\KDVUHFHQWDQGUHOHYDQWƂQDQFLDOH[SHULHQFH and that the Committee complies with Code provision C3.1. Ian was until June 2010 Finance Director of Royal Mail Holdings PLC. He is a Chartered Accountant who is currently also Chairman of the Audit Committees of Fiberweb plc, WANdisco plc and Mouchel Group, and his former roles have included the position of Corporate Finance Director at %ULWLVK1XFOHDU)XHOVDQG&KLHI)LQDQFLDO2IƂFHUDQG6HQLRU9LFH3UHVLGHQW at Westinghouse Electric Company LLC in Pennsylvania, USA.
The purpose of the Audit and Risk Committee is to assist the Board in discharging its responsibilities in respect of
Only the members of the Committee have the right to attend Committee meetings; however, the Committee invites the Group Chairman, Chief Executive, Group Finance Director and Group Financial Controller to attend its meetings. Divisional Chief Executives are also invited to attend its meetings and do so on a regular basis. The Group Risk Manager attends Committee meetings for discussion of Group risk reports and related items. Ernst & Young LLP provides internal audit services to the Company. PricewaterhouseCoopers LLP is the Group's external auditor. Both auditors usually attend the Committee's meetings. The Committee Chairman also meets PricewaterhouseCoopers LLP and Ernst & Young LLP in the absence of executive management, and other Committee members have the opportunity to do so. The auditors are also invited to address the Committee without executives present at least once a year.
The Committee undertakes its duties in accordance with its terms RIbUHIHUHQFHZKLFKZHUHUHYLHZHGGXULQJWKH\HDUWRHQVXUHWKDWWKH\ UHPDLQHGƂWIRUSXUSRVHDQGLQOLQHZLWKEHVWSUDFWLFHJXLGHOLQHV 7KHbWHUPVRIUHIHUHQFHDUHDYDLODEOHRQWKH&RPSDQ\ŒVZHEVLWH
During the year to 31 March 2013 the Committee met four times; attendance at these meetings is set out on page 66. The agenda for each meeting is approved by the Committee Chairman in conjunction with the Committee Secretary and other members of the Committee as appropriate. During the year ended 31 March 2013, the Committee's deliberations included the following key matters
kAn annual review of the Company's system of internal controls DQGbWKHLUHIIHFWLYHQHVV
kAn assessment of cyber-security maturity in the Group's operations
kInternal and external audit plans for the year or particular audits
k\$WHDFKPHHWLQJLQWHUQDODXGLWUHSRUWVRQƂQGLQJVIURPDXGLWYLVLWVWR EXVLQHVVXQLWVLQFOXGLQJIROORZXSUHSRUWVRQDQ\PDWWHUVLGHQWLƂHG 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
kReports to each meeting on fraud risk, covering any suspected incidents of fraud, their investigation and remedial or preventive action
kRegular reports of calls to the Group's external independent whistleblowing services and how these have been investigated DQGbFRQFOXGHG
kAudit and non-audit fees for the external and internal auditors were reviewed by the Committee and considered as to their effect on auditor independence
The risk management framework, risk mitigation and control processes and other internal controls are detailed on pages 50 to 55.
Ernst & Young LLP has provided an internal audit service to the Group VLQFH'XULQJWKH\HDUWKH&RPPLWWHHFRQƂUPHGWKDWLWZDVVWLOO appropriate to have an internal audit service provided by an external advisor; however it agreed that this would be kept under review. 7KHb&RPPLWWHHFRQWLQXHVWREHVDWLVƂHGZLWKWKHVHUYLFHbSURYLGHGE\ DQGWKHLQGHSHQGHQFHRI(UQVW <RXQJ//3DFWLQJDVbLQWHUQDODXGLWRU
PricewaterhouseCoopers LLP (PwC) has been the external auditor of the Group since 2002. The Committee manages the relationship with the external auditor on behalf of the Board and monitors their independence and objectivity along with the effectiveness of the external audit on an annual basis. Audit fees are re-evaluated periodically.
PwC has expressed its willingness to be reappointed as auditors of the Company. The Committee does not consider it necessary to re-tender IRUWKHDXGLWZRUNDWWKLVWLPHDQGLVVDWLVƂHGZLWKWKHHIIHFWLYHQHVV objectivity and independence of the external auditors. Therefore it has recommended to the Board that PwC be reappointed as the Company's auditors for a further year. The Board has accepted this recommendation and will be proposing a resolution to shareholders at the 2013 AGM for the reappointment of PwC as auditors.
The external auditors are required to rotate the audit partners UHVSRQVLEOHIRUWKH*URXSDXGLWHYHU\ƂYH\HDUV7KHFXUUHQWOHDG partner has been in place for one year. The Company has not entered into a limitation of liability agreement with its auditors. There are no contractual obligations that restrict the Company's choice of auditors.
The Committee regularly considers the engagement of, and level of fees payable to, the auditors for non-audit work, considering potential FRQƃLFWVDQGWKHSRVVLELOLW\RIDFWXDORUSHUFHLYHGWKUHDWVWRWKHLU independence. If their use would lead to non-audit fees in the year exceeding 20% of their audit fee, the Committee Chairman's approval is required. Having considered the non-audit services provided by the auditor during the year ended 31 March 2013, the Committee LVVDWLVƂHGWKDWWKHVHVHUYLFHVZHUHSURYLGHGHIIHFWLYHO\DQGGLGQRW prejudice the objectivity or independence of the auditor.
For the year ended 31 March 2013, the Committee approved fees of £1.6 million to PwC, for audit services. In addition, the Committee approved fees of £0.2 million to PwC for non-audit related work. Nonaudit related work accounted for 11% of the total audit and audit related fees paid to the external auditor during the year. A breakdown of fees paid to the auditor is set out in note 5 on page 117.
Overview
The Company is the holding company for the Babcock International Group of companies whose principal activities are described in the business review on pages 14 to 33 of this Report.
Biographies of the current Directors of the Company are to be found on pages 56 and 57.
The table on page 62 shows the Directors who served during the year to 31 March 2013.
\$WWKHGDWHRIWKLV5HSRUWWKHUHLVQRFRQWUDFWRUDUUDQJHPHQWZLWKWKH&RPSDQ\RUDQ\RILWVVXEVLGLDULHVWKDWLVVLJQLƂFDQWLQUHODWLRQWRWKHEXVLQHVV of the Group as a whole in which a Director of the Company is materially interested.
7KHSURƂWDWWULEXWDEOHWRWKHRZQHUVRIWKHSDUHQW&RPSDQ\IRUWKHƂQDQFLDO\HDUZDVePLOOLRQePLOOLRQ \$QLQWHULPGLYLGHQGRI 6.3p per 60p ordinary share was declared in the year (2012: 5.7p). The Directors are recommending that shareholders approve at the forthcoming \$QQXDO*HQHUDO0HHWLQJDƂQDOGLYLGHQGIRUWKH\HDURISS RQHDFKRIWKHRUGLQDU\VKDUHVRISWREHSDLGRQ\$XJXVWWR those shareholders on the register at the close of business on 5 July 2013.
The Company has all-employee share ownership plans for UK employees as described below
| Name of Plan | Who it covers | Performance related? |
Summary description | Source of shares |
|---|---|---|---|---|
| The Babcock Approved |
Open to all UK employees (including Executive Directors) who meet |
No | Employees can buy Company shares (partnership shares) LQWKHPDUNHWRXWRIbSUHWD[LQFRPH |
Purchased in the market |
| Employee Share Ownership Plan |
necessary service criteria | 7KH3ODQDOORZVIRUWKH&RPSDQ\WRDZDUGIUHHDQGRU matching shares to participants, though the Company has not yet done so |
||
| Shares are bought on behalf of the employee via a tax approved employee trust which holds them on behalf of the individual participants. The shares must generally be kept in trust for at least three years to obtain any WD[DGYDQWDJHVDQGbIRUƂYH\HDUVWRREWDLQPD[LPXP WD[bDGYDQWDJHV |
||||
| VT Group Share Incentive Plan |
UK employees of VT Group at the time of its acquisition by the Company in July 2010, who held shares in VT Group plc and accepted Company shares wholly or partly in exchange for such shares under the terms of the acquisition |
No | As above for the Babcock shares acquired on WKHbDFTXLVLWLRQ |
The Company issued and allotted new shares to the Trustee under the terms of the acquisition by the Company of VT Group PLC |
Employees of the Group (who are not directors of the Company) also hold outstanding share options under the discretionary schemes described in the table below. As these schemes have expired no further awards are to be made under them.
| Name of Plan | Who it covers | Performance related? |
Summary description | Source of shares |
|---|---|---|---|---|
| The Babcock 1999 Approved Executive Share Option Scheme |
UK employees who met necessary service criteria |
Yes | Expired 2009 HM Revenue and Customs approved performance linked share awards in the form of options to acquire shares in the Company at market price at the time of the award |
Market purchase or fresh issue |
| Babcock 1999 Unapproved Executive Share Option Scheme |
Employees selected by the Remuneration Committee |
Yes | Expired 2009 Options to acquire shares (at their market price on the date of grant) subject to achievement of performance targets measured over a three-year performance period |
Market purchase or fresh issue |
Name of Plan Who it covers Performance related? Summary description Source of shares 2003 Long Term ,QFHQWLYHb3ODQ Directors and employees selected by the Remuneration Committee Yes Nil cost options to acquire shares, subject to achievement of performance conditions over a three year performance period Market purchase or fresh issue
Already vested awards are also held by Directors and senior employees under the following plan (which since 2009 is no longer being operated)
Currently active shareplans namely, The Performance Share Plan, The Company Share Option Plan, The Deferred Bonus Plan and the Deferred Bonus 0DWFKLQJ3ODQDUHGHVFULEHGLQWKH'LUHFWRUVŒ5HPXQHUDWLRQ5HSRUWRQSDJHVWR
Share awards outstanding under all plans are as follows
| Number of shares covered by Outstanding Awards | |||
|---|---|---|---|
| Scheme | Yet to Vest | Vested | |
| Performance Share Plan | 4,491,503 | 503,349 | |
| Company Share Option Plan | 238,356 | ||
| 7KH%DEFRFN\$SSURYHG([HFXWLYH6KDUH2SWLRQ6FKHPH | – | 21,665 | |
| 7KH%DEFRFN8QDSSURYHG([HFXWLYH6KDUH2SWLRQ6FKHPH | – | 33,393 | |
| Long Term Incentive Plan | – | ||
| Deferred Bonus Plan | 383,963 | ||
| Deferred Bonus Matching Plan | 490,116 | – |
6KDUHVLQWHQGHGWREHXVHGWRZDUGVVDWLVI\LQJH[LVWLQJVKDUHDZDUGVDQGRSWLRQVDUHKHOGE\WKHWUXVWHHVRIWKH%DEFRFN(PSOR\HH6KDUH7UXVWDQG WKH3HWHUKRXVH(PSOR\HH6KDUH7UXVW7KHWUXVWHHVRIWKHVH6FKHPHVKDYHQRSUHVHQWLQWHQWLRQRIH[HUFLVLQJWKHYRWLQJULJKWVDWWDFKHGWRWKHVKDUHV KHOGE\WKHP\$VDW0D\WKHWRWDOQXPEHURIRUGLQDU\VKDUHVLQWKHWUXVWVZDVZKLFKUHSUHVHQWHGRIWKH&RPSDQ\ŒVLVVXHG VKDUHFDSLWDO6KDUHVDUHDOVRKHOGE\WKHWUXVWHHVRIWKH\$SSURYHG(PSOR\HH6KDUH2ZQHUVKLS3ODQ7KHWUXVWHHVRIWKDWSODQH[HUFLVHYRWLQJULJKWV attached to those shares in accordance with directions from the employees on whose behalf they are held.
7KHWUXVWHHVRIWKH%DEFRFN(PSOR\HH6KDUH7UXVWHIIHFWLYHO\ZDLYHGLYLGHQGVRQVKDUHVKHOGE\WKHPŏVHHQRWHRQSDJHVDQG
At the Annual General Meeting in July 2012, members authorised the Company to make market purchases of up to 35,915,405 of its own ordinary shares of 60p each. That authority expires at the forthcoming Annual General Meeting in July 2013 when a resolution will be put to renew it so as to DOORZSXUFKDVHVRIXSWRDPD[LPXPRIQRPRUHWKDQRIWKH&RPSDQ\ŒVLVVXHGVKDUHFDSLWDO1RVKDUHVLQWKH&RPSDQ\KDYHEHHQSXUFKDVHGE\ the Company in the period from 5 July 2012 (the date the current authority was granted) to the date of this Report. The Company currently does not hold any treasury shares.
'HWDLOVRILVVXHVDQGSXUFKDVHVRIWKH&RPSDQ\ŒVVKDUHVPDGHLQWKH\HDUWR0DUFKRUVLQFHWKHQWRWKHGDWHRIWKLV5HSRUWE\WKH%DEFRFN (PSOR\HH6KDUH7UXVWDQGWKH3HWHUKRXVH(PSOR\HH6KDUH7UXVWDUHWREHIRXQGLQQRWHRQSDJHVDQG
The Group commits resources to research and development to the extent management considers necessary for the evolution and growth of its business.
'XULQJWKH\HDUWKH*URXSGRQDWHGee WRFKDULWDEOHRUJDQLVDWLRQV'RQDWLRQVZHUHW\SLFDOO\RIUHODWLYHO\VPDOOLQGLYLGXDO amounts made to a range of local and national charitable organisations or events, for example: schools and other educational or training institutions or charities; hospital, hospice or medical charities; charities helping serving and/or former servicemen and women; sporting events or charities; and FKDULWLHVLQWHQGHGWREHQHƂWFKLOGUHQDQG\RXQJDGXOWV1RGRQDWLRQVZHUHPDGHGXULQJWKH\HDUIRUSROLWLFDOSXUSRVHV
7KH*URXSŒVSROLF\LVWRSD\VXSSOLHUVLQDFFRUGDQFHZLWKSUDFWLFHVRUDUUDQJHPHQWVDJUHHGZLWKWKHP7KH&RPSDQ\LWVHOIKDGeLQWUDGH FUHGLWRUVDW0DUFKUHSUHVHQWLQJFUHGLWRUGD\V DQGeLQWUDGHFUHGLWRUVDW0DUFKUHSUHVHQWLQJWZRFUHGLWRUbGD\V
The Company is a signatory to the Prompt Payment Code which encourages and promotes best payment practice between organisations and WKHLUbVXSSOLHUV
The Company has entered into deeds of indemnity with each of its FXUUHQW'LUHFWRUVDQG6LU1LJHO(VVHQKLJKZKRUHWLUHGDVD'LUHFWRU RQb'HFHPEHUZKLFKDUHTXDOLI\LQJWKLUGSDUW\LQGHPQLW\ 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 VXEVLGLDU\FRPSDQLHVPD\EHLQGHPQLƂHGE\WKHFRPSDQ\FRQFHUQHG 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 WKHEHQHƂWRI'LUHFWRUVRIWKH*URXSFRPSDQLHVWKDWDFWDVWUXVWHHV RIb*URXSSHQVLRQVFKHPHV
7KHPDMRULW\RIWKH*URXSŒVUHYHQXHFRPHVIURPWKH8QLWHG.LQJGRP Ministry of Defence through various contracts across different businesses, which together are essential to the business of the Group DVbDZKROHDVDUHLWVERUURZLQJIDFLOLWLHVZLWKEDQNVDQGRWKHUOHQGHUV
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 in many cases be triggered by a takeover of the Company.
Although the Group has some contracts that on their own are not VLJQLƂFDQWWRWKH*URXSVHYHUDOPD\EHZLWKWKHVDPHFXVWRPHU ,IbXSRQDFKDQJHRIFRQWUROWKHFXVWRPHUGHFLGHGWRWHUPLQDWHDOO VXFKbDJUHHPHQWVWKHDJJUHJDWHLPSDFWFRXOGEHVLJQLƂFDQW
The following agreements are those individual agreements which WKH&RPSDQ\FRQVLGHUVWREHVLJQLƂFDQWWRWKH*URXSDVDZKROHWKDW FRQWDLQSURYLVLRQVJLYLQJWKHRWKHUSDUW\DVSHFLƂFULJKWWRWHUPLQDWH them if the Company is subject to a change of control.
3DUWQHULQJ\$JUHHPHQWGDWHG\$XJXVWEHWZHHQ b7KHb6HFUHWDU\ RI6WDWHIRU'HIHQFH %DEFRFN0DULQH&O\GH /LPLWHGő&O\GHŒ (formerly Babcock Naval Services Limited) and (3) Babcock ,QWHUQDWLRQDOb*URXS3/&
Under the Partnering Agreement (as subsequently amended), Babcock Marine (Clyde) Limited provides services to the Ministry of Defence ő0R'Œ LQUHODWLRQWRWKHRSHUDWLRQRI+01DYDO%DVH&O\GH7KHSHULRG of the Agreement expires in 2014. In the event of a change of majority control of Babcock International Group PLC, the MoD may request information regarding the new controlling entity and in certain FLUFXPVWDQFHVLQFOXGLQJLILWLVQRWVDWLVƂHGDVUHJDUGVWKHƂQDQFLDODIIDLUV DQGVWDQGLQJRIWKHQHZHQWLW\VHUYHDő&KDQJHLQ&LUFXPVWDQFHŒQRWLFH and thereafter can elect to terminate the Agreement. The Agreement can also be terminated if the MoD considers that unacceptable RZQHUVKLSLQƃXHQFHRUFRQWUROGRPHVWLFRUIRUHLJQ KDVEHHQDFTXLUHG over Clyde 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 Company, though 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.
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 when such rights might arise include where the MoD FRQVLGHUVWKDWXQDFFHSWDEOHRZQHUVKLSLQƃXHQFHRUFRQWUROGRPHVWLF 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 company, though such a situation is not of itself such a circumstance unless the MoD in the given situation considers it to be so. Any level RIbRZQHUVKLSE\SDUWLFXODUIRUHLJQRUGRPHVWLFSHUVRQVPD\RQWKH IDFWVbRIWKHFDVHEHVRWUHDWHG
The Company believes that RRDL presently has the right under its Articles of Association to request that the special share held by the MoD in RRDL be redeemed.
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
7KH7R%\$FRQƂUPV%DEFRFNDVWKH0R'ŒVNH\VXSSRUWSDUWQHULQWKH maritime sector and covers the 15-year period from 2010 to 2025. 7KHb0R'PD\WHUPLQDWHWKH7R%\$LQWKHHYHQWRIDő&KDQJHLQ&RQWUROŒ 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 GLYLVLRQő&KDQJHLQ&RQWUROŒRFFXUVZKHUHDSHUVRQRUJURXSRISHUVRQV that control the Company ceases to do so or if another person or group of persons acquires control of the Company.
On 26 March 2012, BNS Nuclear Services Limited, a wholly-owned subsidiary of the Company, ('BNS') entered into a shareholders' agreement with CH2M Hill International Nuclear Services Limited and URS International Holdings (UK) Limited ('the Shareholders' Agreement'). The purpose of the Shareholders' Agreement was to prepare and submit a bid as Babcock Dounreay Partnership Limited ('BDPL') for the competition conducted by the Nuclear Decommissioning Authority ('the NDA') to hold the shares in Dounreay Site Restoration Limited ('DSRL'). DSRL is the nuclear site licence holder which manages and operates the Dounreay nuclear site under an agreement with the NDA ('the SLC Agreement').
The NDA selected BDPL to hold the shares in, and to act as the parent body organisation in respect of, DSRL. On 29 March 2012, the NDA entered into the parent body organisation agreement ('the PBO Agreement') with BDPL.
In the event of a change of control in the Company, under the Shareholders' Agreement, BNS, under its new ownership, would be subject to a one-year 'probationary period'. If during that period either of the other BDPL shareholders reasonably believes that the change of control has materially adversely affected BDPL's or the other shareholders' ability to perform the PBO Agreement or the SLC Agreement, either of the other BDPL shareholders may ask BNS to withdraw from the joint venture.
Under the PBO Agreement, in the event of a change of control affecting BNS, the NDA may elect to terminate the PBO Agreement with BDPL with immediate effect.
£500 million facility agreement dated 17 June 2011 between the Company and Australia and New Zealand Banking Group Limited, BoA Netherlands Cooperatiev U.A., Barclays Corporate, HSBC Bank plc, -3b0RUJDQ/LPLWHG/OR\GV76%%DQNSOFDQGWKH5R\DO%DQNRI6FRWODQG plc as mandated lead arrangers and the Royal Bank of Scotland plc DVbIDFLOLW\bDJHQW
The facility provides funds for general corporate and working capital purposes. The facility agreement provides that in the event of a change of control of the Company, the lenders may, within a certain period, call for the prepayment of any outstanding loans and cancel the FUHGLWbIDFLOLW\
On 21 January 2010, the Company issued two series of loan notes to 3UXGHQWLDO,QYHVWPHQW0DQDJHPHQW,QFDQGFHUWDLQRILWVDIƂOLDWHV (a) £60 million 4.995% Series A Shelf Notes due 21 January 2017 (the 'Series A Shelf Notes'); and (b) £40 million 5.405% Series B Shelf Notes due 21 January 2020 (the 'Series B Shelf Notes') (together, the 'Multi-Currency Loan Notes'). Each series is unsecured and unsubordinated and ranks pari passu with all other unsecured and unsubordinated ƂQDQFLDOLQGHEWHGQHVVREOLJDWLRQVRIWKH&RPSDQ\8QOHVVSUHYLRXVO\ redeemed or purchased and cancelled, the Company will redeem the Series A Shelf Notes on 21 January 2017 and the Series B Shelf Notes on 21 January 2020, respectively at their principal amount. In the event RIbDFKDQJHRIFRQWURORIWKH&RPSDQ\EHIRUHWKHQWKH&RPSDQ\PXVW offer to pre-pay the Multi-Currency Loan Notes together with a make ZKROHbSUHPLXP
2Q0DUFKWKH&RPSDQ\LVVXHGWRƂQDQFLDOLQVWLWXWLRQV L b86PLOOLRQDJJUHJDWHSULQFLSDODPRXQWRI6HULHV\$6HQLRU 1RWHVGXH0DUFKDQGLL 86PLOOLRQDJJUHJDWHSULQFLSDO amount of its 5.64% Series B Senior Notes due 17 March 2021. Each series is unsecured and unsubordinated and ranks pari passu with all RWKHUXQVHFXUHGDQGXQVXERUGLQDWHGƂQDQFLDOLQGHEWHGQHVVREOLJDWLRQV of the Company. In the event of a change of control of the Company before then, the Company must offer to pre-pay the Notes.
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.
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 page 81. One senior employee, who is not a Director of the Company, has an agreement providing for payment of 12 months' salary plus 40% in lieu RIDOOEHQHƂWVLQWKHHYHQWRIDGLVPLVVDOLQFOXGLQJFRQVWUXFWLYHGLVPLVVDO by the Company within 12 months following a change of control.
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 annual authority from shareholders at each year's Annual General Meeting to allot shares (including authority to allot free RIVWDWXWRU\SUHHPSWLRQULJKWV XSWRVSHFLƂHGDPRXQWVDQGDOVRWR EX\EDFNWKH&RPSDQ\ŒVVKDUHVDJDLQXSWRDVSHFLƂHGDPRXQW
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 RIJHQHUDOPHHWLQJVSHFLƂHVGHDGOLQHVIRUH[HUFLVLQJYRWLQJULJKWVHLWKHU 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 default shares and that no transfer of any default 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).
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 362,071,802 ordinary shares of 60p each KDYHbEHHQLVVXHGDQGDUHIXOO\SDLGXSDQGDUHTXRWHGRQWKH/RQGRQ Stock Exchange.
The Company has adopted a formal procedure for the disclosure, review, DXWKRULVDWLRQDQGPDQDJHPHQWRI'LUHFWRUVŒFRQƃLFWVRILQWHUHVWDQG SRWHQWLDOFRQƃLFWVRILQWHUHVWLQDFFRUGDQFHZLWKWKHSURYLVLRQVRIWKH 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 SRWHQWLDOFRQƃLFWRILQWHUHVWZLWKWKHLUGXWLHVWRWKH&RPSDQ\RURIDQ\ PDWHULDOFKDQJHLQH[LVWLQJDFWXDORUSRWHQWLDOFRQƃLFWVWKDWPD\KDYH EHHQDXWKRULVHGE\WKH%RDUG1RWLƂHGDFWXDORUSRWHQWLDOFRQƃLFWVZLOO be reviewed by the Board as soon as possible. The Board will consider ZKHWKHUDFRQƃLFWRUSRWHQWLDOFRQƃLFWGRHVLQIDFWH[LVWDQGLIVR 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. \$bUHJLVWHULVPDLQWDLQHGIRUWKH%RDUGRIDOOVXFKGLVFORVXUHVDQGWKH terms of any such authorisation.
Authorisations may be revoked, or the terms on which they were given YDULHGDWDQ\WLPH&OHDUHGFRQƃLFWVZLOOLQDQ\HYHQWEHUHYLHZHG DQQXDOO\E\WKH%RDUG,QWKHHYHQWRIDQ\DFWXDOFRQƃLFWDULVLQJLQ respect of any matter, mitigating action would also be considered IRUbH[DPSOHQRQDWWHQGDQFHRIWKH'LUHFWRUFRQFHUQHGDWDOORUSDUW RIb%RDUGPHHWLQJVDQGQRQFLUFXODWLRQWRKLPRIUHOHYDQWSDSHUV
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the JRLQJFRQFHUQEDVLVLQSUHSDULQJWKHƂQDQFLDOVWDWHPHQWV
There has been a process for identifying, evaluating and managing VLJQLƂFDQWULVNVWKURXJKRXWWKH\HDUWR0DUFKDQGXSWRbWKH GDWHRIWKHDSSURYDORIWKHƂQDQFLDOVWDWHPHQWVIRUWKDW\HDU,QUHVSHFW RIRXUƂQDQFLDOUHSRUWLQJSURFHVVDQGWKHSURFHVVIRUSUHSDULQJbRXU consolidated accounts, management monitors the processes XQGHUSLQQLQJWKH*URXSŒVƂQDQFLDOUHSRUWLQJV\VWHPVWKURXJKUHJXODU reporting and review, and data for consolidation into the Group's ƂQDQFLDOVWDWHPHQWVDUHUHYLHZHGE\PDQDJHPHQWWRHQVXUHWKDWWKH\ UHƃHFWDWUXHDQGIDLUYLHZRIWKH*URXSŒVUHVXOWVLQFRPSOLDQFHZLWK 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 Board considers the system to be effective and in accordance with Internal Controls: Guidance for Directors on the Combined Code ('the Turnbull Guidance'). Further information on the principal internal controls in use in the Company is to be found on SDJHVbDQG
3ULFHZDWHUKRXVH&RRSHUV//3LVZLOOLQJWRFRQWLQXHLQRIƂFHDV independent auditor of the Company, and a resolution to reappoint it will be proposed at the forthcoming Annual General Meeting.
6RIDUDVWKH'LUHFWRUVZKRDUHLQRIƂFHDWWKHWLPHRIWKHDSSURYDORI this Report are aware, there is no relevant audit information (namely, information needed by the Company's auditors in connection with the preparation of their auditors' report) of which the auditors are unaware. Each such Director has taken all steps that he or she ought to KDYHWDNHQbDVD'LUHFWRULQRUGHUWRPDNHKLPRUKHUVHOIDZDUHRIDQ\ UHOHYDQWbDXGLWLQIRUPDWLRQDQGWRHVWDEOLVKWKDWWKHDXGLWRUVDUHDZDUH RIbWKDWLQIRUPDWLRQ
The Directors' report for the year ended 31 March 2013, from pages bWRRIWKLV\$QQXDO5HSRUWGRFXPHQWKDVEHHQDSSURYHGE\WKH %RDUGbRI'LUHFWRUVRQ0D\DQGVLJQHGRQLWVEHKDOIE\
Albert Dungate Company Secretary 13 May 2013
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration report and the Group's and the Company's ƂQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWKDSSOLFDEOHODZ
&RPSDQ\ODZUHTXLUHVWKH'LUHFWRUVWRSUHSDUHƂQDQFLDOVWDWHPHQWV IRUHDFKƂQDQFLDO\HDU,QDFFRUGDQFHZLWKWKDWODZWKH'LUHFWRUV KDYHSUHSDUHGWKH*URXSŒVƂQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWK International Financial Reporting Standards (IFRS) (as adopted in the (XURSHDQ8QLRQ DQGWKH&RPSDQ\ŒVƂQDQFLDOVWDWHPHQWVDQGWKH Directors' Remuneration report in accordance with applicable law and UK Generally Accepted Accounting Practice (UK GAAP). The Group's and WKH&RPSDQ\ŒVƂQDQFLDOVWDWHPHQWVDUHUHTXLUHGE\ODZWRJLYHDWUXH and fair view of the state of affairs of the Group and the Company and of WKHSURƂWDQGORVVRIWKH*URXSIRUWKDW\HDU,QSUHSDULQJWKRVHƂQDQFLDO statements the Directors are required to
The Directors are responsible for keeping adequate accounting records WKDWDUHVXIƂFLHQWWRVKRZDQGH[SODLQWKH&RPSDQ\ŒVWUDQVDFWLRQVDQG GLVFORVHZLWKUHDVRQDEOHDFFXUDF\DWDQ\WLPHWKHƂQDQFLDOSRVLWLRQ of the Group and the Company, and enable them to ensure that the *URXSŒVƂQDQFLDOVWDWHPHQWVFRPSO\ZLWKWKH&RPSDQLHV\$FW DQG\$UWLFOHRIWKH,\$65HJXODWLRQDQGWKDWWKH&RPSDQ\ŒVƂQDQFLDO statements and the Directors' Remuneration report comply with the Companies Act 2006. They 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 maintenance and integrity of WKHFRUSRUDWHDQGƂQDQFLDOLQIRUPDWLRQLQFOXGHGRQWKH&RPSDQ\ŒV website. Legislation in the United Kingdom governing the preparation DQGGLVVHPLQDWLRQRIƂQDQFLDOVWDWHPHQWVPD\GLIIHUIURPOHJLVODWLRQLQ RWKHUbMXULVGLFWLRQV
Each of the Directors listed below (being the Board of Directors at the GDWHRIWKLV\$QQXDO5HSRUWDQGWKHVHƂQDQFLDOVWDWHPHQWV FRQƂUPVWKDW to the best of his or her knowledge
| Mike Turner | Chairman |
|---|---|
| Peter Rogers | Chief Executive |
| Bill Tame | Group Finance Director |
| Archie Bethel | CEO, Marine and Technology |
| Kevin Thomas | CEO, Support Services |
| John Davies | CEO, Defence and Security |
| Justin Crookenden | Non-Executive Director |
| Sir David Omand | Non-Executive Director |
| Ian Duncan | Non-Executive Director |
| Kate Swann | Non-Executive Director |
| Anna Stewart | Non-Executive Director |
On behalf of the Board
Mike Turner CBE Chairman 13 May 2013
On behalf of the Remuneration Committee, I am pleased to present the Directors' Remuneration report for the year to 31 March 2013. In the following pages you will find the formal disclosures we are required to make in the report and additional detail to help our shareholders better understand how we link remuneration to the performance of the Company, its strategic objectives and risk management.
We have made a number of changes in recent years to the structure of the pay packages for our Executive Directors and other senior executives, most recently last year introducing a new share plan – the Deferred Bonus Matching Plan – and increasing the limit for Performance Share Plan awards in the ordinary course. We made these changes to ensure that our Directors, who have, in our view, delivered consistent, strong share price growth for shareholders over many years, are appropriately rewarded for delivering that performance and incentivised to continue it. We are not this year proposing any changes to our overall remuneration structure or to our existing remuneration policy.
That policy, as explained in the Committee's report last year, and which was overwhelmingly approved by shareholders, is to provide remuneration arrangements that
The Committee has carried out a detailed review as to whether the remuneration packages for its Executive Directors are currently implementing that policy successfully. In that review the Committee identified that the considerable growth of the Company over the last few years has meant the executive team's base pay has fallen significantly below market rates (c 20%–25% below median for the Company's size).
This being so, the Committee concluded that the implementation of remuneration policy was not being fully achieved in that base salaries at this level were no longer considered fair and, importantly, when taken together with the variable performance related pay structures, might not be capable of appropriately rewarding upper quartile performance if such performance is achieved. Moreover, the Committee was concerned that maintaining base pay at these levels would pose a real risk for the Board's strategic development and succession planning agenda by making more difficult than need be the recruitment and retention of senior executives essential to the delivery of that strategy and the mitigation of succession risk. The Committee has shared these concerns with some of the Company's leading shareholders and has taken the decision to increase base pay for Directors by 9%, effective 1 April 2013. These increases leave base pay below median, in line with the stated policy. Further details about these changes can be found in the policy implementation section on pages 84 and 85.
The Committee also reviewed the performance targets that it intends to apply to the 2013 PSP, CSOP and DBMP matching awards to ensure they remain challenging but appropriate in the economic climate at the time of grant. Details of these targets were shared with our leading shareholders, and are also provided within the implementation report on page 90.
We have no hesitation as a Committee in commending these changes to shareholders, not only based on the need to deliver on our policy, but also in the light of the performance of the senior executive team in developing the business, both organically and by successful acquisitions, which has delivered excellent returns for shareholders on a sustained basis over many years. By way of putting that in context the following table shows the performance and growth of your Company over the last five to ten years:
| Babcock | FTSE 350 | ||
|---|---|---|---|
| 10 year Total Shareholder Return1 | 1470% | 177% | |
| 5 year Total Shareholder Return1 | 118% | 40% | |
| 1 year Total Shareholder Return1 | 40% | 17% | |
| Market Capitalisation2 | 31 March 2013 | £3,772m | n/a |
| 31 March 2012 | £2,690m | ||
| 31 March 2008 | £1,282m | ||
| 31 March 2003 | £144m |
Whilst the new regulations governing shareholder approval of and reporting of executive rewards do not apply to the Company until 2014, we have incorporated a number of the changes to the Remuneration report this year, where practical to do so, whilst still remaining compliant with the current Regulations. In summary, this report is now divided into two sections; the first section outlines Babcock's forward looking remuneration policy, sets out components of pay, how they are linked to the business strategy, and reward opportunities for the Executive Directors. The second section reviews how the policy was implemented in the year to 31 March 2013, and includes a table showing a single figure of total remuneration for Executive Directors. This single figure (shown on page 84) relates to remuneration earned in relation to performance periods ending on 31 March 2013 and includes the value of long-term incentives that will vest in July 2013, being three years from the date of grant. This table has been prepared in accordance with the latest draft guidelines from the Department for Business, Innovation and Skills (BIS). The current Regulations that govern this report require us to present an emoluments table (as shown on page 99) which provides the same information for fixed and short-term pay but which excludes the value of any long-term incentives. As in previous years, and in accordance with the current Regulations, the details of all outstanding long-term incentives are included in the detailed tables in pages 95 to 98.
Committee Chairman
| Glossary of terms | |
|---|---|
| As used in this Remuneration report | |
| CSOP | means the 2009 Babcock Company Share Option Plan |
| DBP | means the 2009 Babcock Deferred Bonus Plan |
| DBMP | means the 2012 Babcock Deferred Bonus Matching Plan |
| LTIP | means the 2003 Babcock Long Term Incentive Plan (a plan replaced by the PSP in 2009) |
| PSP | means the 2009 Babcock Performance Share Plan |
Terms of reference for the Remuneration Committee have been approved by the Board. Duties of the Committee include the determination of the policy for the remuneration of the Executive Directors and the Chairman, as well as their specific remuneration packages, including pension rights and, where applicable, any compensation payments. In determining the remuneration policy, the Remuneration 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 Remuneration Committee and its terms of reference comply with the provisions of the Corporate Governance Code. The terms of reference are available for inspection on the Company's website.
This report covers the reporting period from 1 April 2012 to 31 March 2013 and provides details of the Remuneration Committee and remuneration policy for the Company. This report has been prepared by the Committee based on the proposed new remuneration disclosure and reporting regulations put forward by the Department of Business, Innovation and Skills (BIS) in July 2012 to the extent that the Committee considers it appropriate or useful to do so ahead of the finalisation of the new regulations. The Government intends the reforms to be enacted by October 2013, so to the extent that this report is prepared in the BIS style it is on a voluntary basis.
The Board considers that in all its activities the Remuneration Committee has adopted the principles of good governance as set out in the UK Corporate Governance Code 2010 and complies with the Listing Rules of the Financial Services Authority, the relevant schedules of the Companies Act and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 ('the Regulations'). 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. In accordance with section 439 of the Companies Act, an advisory resolution to approve this report will be proposed at the Annual General Meeting of the Company to be held on 11 July 2013.
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 performance1 , 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.
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.
Our policy is not to chase a median for base pay. We are comfortable with base pay for our Executive Directors being below market median provided the total remuneration package is fair and capable of delivering total actual remuneration that appropriately rewards superior performance, primarily through the mechanism of long-term incentives linked to strategy and shareholder investment returns. We have to ensure that base pay, when working with the variable performance-related elements of the package, is capable of delivering on this policy. We also have to keep in mind that we compete in a market to recruit and retain the best executives to ensure Babcock's continuing success and therefore need to consider whether the various elements of remuneration, including base pay will be seen as fair. The Committee reviews the market positioning of total remuneration from time to time to ensure that base salaries are fair, and are sufficiently competitive to achieve our stated remuneration policy.
After the increase in base pay of 9% that took effect on 1 April 2013, on a fair value basis around 60% of a Babcock Executive Director's package is performance-related. Base pay for the Chief Executive and Group Finance Director will still be lower quartile and for the other Executive Directors between lower quartile and median, with the total remuneration package, on a fair value basis, for each Executive Director being below market median1 .
| Purpose and link to strategy | Operation | Opportunity | Performance metrics | Changes for 2013/14 |
|---|---|---|---|---|
| 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. Ranges of salary increases applying across the Group, and investor sentiment, are also borne in mind. |
Fixed remuneration need not be at median but in combination with variable performance-related elements of remuneration, needs to be fair and able to deliver actual total remuneration consistent with the Committee's general policy. Base salary increases are applied in line with the outcome of the review. |
Business and individual performance are considerations in setting base salary. |
No policy changes. Latest salary increases were agreed in May 2013 following discussions with leading shareholders, and are effective 1 April 2013. These are set out in the implementation report on page 85. |
| Pension To provide retirement benefits. |
Cash supplement in lieu of pension benefits for ongoing service. |
25% of base pay if in lieu of all pension benefits for future service. For Directors who receive pension benefits up to a scheme earnings cap, an individualised rate in lieu of pension benefits on salary above that cap. |
Not performance related. | No policy changes. |
| 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. |
Benefits include, where applicable, car and fuel allowances; home to work travel 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. |
Benefits values vary by role and personal situation and are reviewed periodically. |
Not performance related. | No policy changes. |
Overview
| Purpose and link to strategy | Operation | Opportunity | Performance metrics | Changes for 2013/14 |
|---|---|---|---|---|
| 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. When operating with base pay and long-term incentives, annual bonus should be capable of meeting the general policy objective (see above). To retain the link to long term sustainable growth through the requirement to defer a substantial part of bonus exposing it (and any voluntary self-investment and matching share awards) to the potential longer term risks inherent in current year decision-making. |
Performance targets are set at the start of the year and are set to reflect the responsibilities of the executive. At the end of the year, the Remuneration Committee determines the extent to which these have been achieved. The Remuneration Committee has the ability to exercise discretion to adjust for unforeseen events, factors outside reasonable management control, changes to business priorities or operational arrangements. At least 40% of annual bonus payments for Executive Directors must now be deferred into Company shares for three years for awards under the DBMP (before 2012 it was two years under the DBP). Mandatory deferred bonus awards ('Basic Awards') are subject to potential forfeiture if the holder leaves before the awards vest. The number of shares covered by a Basic Award may later be reduced if the accounts used to determine the bonus level have to be materially corrected or the Committee subsequently comes to a view that bonus year performance was materially worse than originally believed or will have material adverse impacts in future years. |
Maximum bonus opportunity for Group Chief Executive and Group Finance Director is150% of salary; for other Executive Directors it is 125% of base salary. |
Performance measures and their respective weightings may vary each year depending on strategic priorities. Measures used for the 2011/2012 annual bonus and proposed for 2012/2013 are set out in the implementation report on pages 87 and 88. |
No policy changes. |
| Purpose and link to strategy | Operation | Opportunity | Performance metrics | Changes for 2013/14 |
|---|---|---|---|---|
| Variable pay | ||||
| Deferred bonus matching plan (DBMP) To ensure that a substantial part of the Directors' short term incentive rewards is exposed to the longer-term impact of decision-making and to further align their interests with shareholders. |
The Committee may grant performance-related matching awards to Directors on deferred bonuses. Participants can make an additional voluntary investment (including by voluntary extra deferral of bonus) of up to 40% of salary, regardless of any annual bonus earned. This means that the maximum investment opportunity for the Chief Executive and Group Finance Director is 100% of salary (assuming maximum bonus payment and full take-up of the voluntary investment opportunity) and for other Executive Directors is 90% of salary. Dividends accrue on basic, voluntary deferral and matching awards over the vesting period, and are paid on shares that vest. |
The maximum match would be 2 for 1 on any shares held under the deferred bonus matching plan. |
The vesting of Basic and matching awards is usually subject to: • continued employment • for matching awards, the Company's performance over a three year performance period. The performance measures to be applied on grant to DBMP matching awards are reviewed from time to time to ensure they remain appropriate and aligned with shareholder interests. Measures used for 2012 DBMP awards, and proposed for 2013 DBMP awards, are set out in the Implementation report on pages 89 and 90. |
No policy changes. Targets for awards in 2013 are explained on page 90. |
| Performance share plan (PSP) To incentivise delivery of top quartile shareholder returns and earnings growth over the longer term. Long-term measures guard against short-term steps being taken to maximise annual rewards at the expense of future performance. (Company Share Ownership Plan (CSOP): Options granted under this HMRC approved option scheme have an exercise price based on market price at the date of the award and can be linked to PSP awards as explained further on page 97 below, but are otherwise the same as for PSP awards.) |
The Remuneration Committee has the ability to grant performance shares or nil-cost options under the PSP. To date, the Remuneration Committee has only awarded nil-cost options to executives. The award levels and performance conditions on which vesting depends are reviewed from time to time to ensure they remain appropriate. Dividends accrue on shares under the PSP over the vesting period, and are paid on shares that vest. |
Maximum annual awards of up to 200% of base pay (though currently only the Chief Executive receives awards at this level). |
The vesting of awards is usually subject to: • continued employment • the Company's performance over a three year performance period. The performance measures to be applied on grant to PSP awards are reviewed from time to time to ensure they remain appropriate and aligned with shareholder interests. Measures used for 2012 PSP and CSOP awards and proposed for the 2013 awards, are set out in the Implementation report on pages 88 and 90. |
No policy changes. Targets for awards in 2013 are explained on page 90. |
Overview
Strategy and Business model
Operating review and KPIs
Performance and Risk
The chart below shows the relative proportions of each element of the Executive Directors' total remuneration for the year to 31 March 2014.
The chart assumes that PSP awards over shares have a value on grant equal to 150% of the Director's base salary (200% for Peter Rogers). For the 'fair-value' scenario, the chart is based on the following assumptions: annual bonus fair values (including the mandatorily deferred share element) of 71% of salary for Peter Rogers and Bill Tame (who have a 150% maximum bonus opportunity) and 59% of salary for Archie Bethel, Kevin Thomas and John Davies (who have a 125% maximum bonus opportunity); the maximum self-investment opportunity is taken-up under the DBMP, with a fair value of the matching award of 67% of salary for Peter Rogers and Bill Tame and 62% of salary for Archie Bethel, Kevin Thomas and John Davies; and PSP fair values of 70% of salary for the Directors other than Peter Rogers, and 93% of salary for Peter Rogers (reflecting his higher 200% award). The fair value of an incentive is its long-run average outcome. This takes into account the difficulty of achieving the associated performance conditions. It also takes account of factors such as volatility, time value of money, risk of forfeiture, correlation between the value of a share and the performance conditions. The 'stretch' scenario assumes maximum bonus, the maximum self-investment opportunity is taken-up under the DBMP and full vesting of awards under both the PSP and the DBMP.
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 Director's annual base salary. The guidelines also state that normally (and subject to the Committee's discretion to allow a dispensation) 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 other than John Davies currently meet these guidelines, as shown in the table on page 95. John Davies only became subject to the two times salary guideline on his appointment as a Director on 1 January 2013. Prior to that date the guideline shareholding for an executive at his level was one times base salary, with which he was complying.
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 participate in the same long-term incentives as the Executive Directors with the same performance measures applied.
The following table summarises the key terms (excluding remuneration) of the Directors' service contracts or terms of appointment:
| Name | Date of service contract | Notice period |
|---|---|---|
| Peter Rogers (Chief Executive) | 31 July 2003 (amended by letters dated 5 May 2004 and 3 April 2006) |
12 months from Company, 6 months from Director |
| Bill Tame (Group Finance Director) | 1 October 2001 (amended by letters dated 5 May 2004 and 3 April 2006) |
12 months from Company, 6 months from Director |
| Archie Bethel (Chief Executive, Marine and Technology) |
21 April 2010 | 12 months from Company, 6 months from Director |
| Kevin Thomas (Chief Executive, Support Services) |
20 April 2010 | 12 months from Company, 6 months from Director |
| John Davies (Chief Executive, Defence and Security) |
20 December 2012 | 12 months from Company, 12 months from Director |
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. Each of the Directors' service contracts entitles the Company to terminate their employment by making a payment of pay in lieu of notice. In the case of Executive Directors other than John Davies such a payment, if this right is exercised by the Company, would be by way of a lump sum payment on termination. In the case of John Davies, his contract allows the Company in these circumstances to choose to make the payment in lieu by monthly instalments. If it does, he would be obliged to seek alternative sources of income in a comparable role during what would have been his notice period. If he fails to use, in the Committee's reasonable opinion, reasonable efforts to secure such an alternative source of income, the Committee may decide to reduce or discontinue further instalments. If he does secure such alternative remuneration the Committee may reduce the instalments by the amount of the alternative income being received.
If the Company terminates a Director's service contract, the Company will, to the extent it is free to do so, have regard to all the circumstances in determining the amount of compensation, including as to the scope for mitigation, if any, payable to him in connection with that termination.
The agreements for Peter Rogers and Bill Tame (but not the agreements for Archie Bethel, Kevin Thomas and John Davies) contain provisions which provide that within 90 days of the occurrence of the change of control, each 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 scheme of 150%) in lieu of bonus and all other contractual entitlements. From this there is to be deducted any amount that the Director 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 agreements for Peter Rogers and Bill Tame (but not the agreements for Kevin Thomas, Archie Bethel and John Davies) also provide that if the Company terminates their appointment within 12 months of a change of control, they would be entitled to a termination payment equal to 100% of annual salary (plus 40% in lieu of bonus and all other benefits).
For leavers, the Committee has the discretion to determine the level of PSP, CSOP, DBP and DBMP (Basic and Matching) award vesting. A 'good leaver' as determined under the relevant rules will, as regards performance-based awards under the PSP, CSOP and DBMP (matching awards) as a minimum be entitled to retain a time pro-rated proportion, which remains subject to outstanding performance conditions. In the event of a change of control of the Company, PSP, CSOP, DBP and DBMP awards will generally vest immediately, and, for performance-related awards, will as a minimum be pro-rated for time and remain subject to performance conditions.
The Committee has discretion to allow awards held by leavers to vest immediately and/or in full or for a 'good leaver' or on a change of control at a higher proportion than strict time-apportionment if it considers this to be appropriate. In deciding whether and how to exercise its discretion the Committee will take account of all the circumstances arising including, in the case of a leaver, the reasons for and circumstances of the termination of employment, the leaver's length of service, level of responsibility and business impact, individual performance during their tenure, exceptional contribution to the business and the extent to which that contribution is expected to still have an impact during the remainder of the applicable performance period. The Committee may also make any favourable exercise of its discretion subject to conditions.
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.
| Name | Date of appointment as a Director |
Date of current appointment letters |
Anticipated expiry of present term of appointment (subject to annual re-election)1 |
|---|---|---|---|
| Mike Turner (Chairman) | 1 June 2008 | 14 April 2011 | AGM for 2014 |
| Justin Crookenden | 1 December 2005 | 14 April 2011 | AGM for 2014 |
| David Omand | 1 April 2009 | 31 May 2012 | AGM for 2015 |
| Ian Duncan | 10 November 2010 | 5 March 2013 | AGM for 2016 |
| Kate Swann | 1 June 2011 | 18 April 2011 | AGM for 2014 |
| Anna Stewart | 1 November 2012 | 19 June 2012 | AGM for 2015 |
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.
Before taking up any new outside appointment, an Executive Director must first seek the approval of the Chairman. Any fees for outside appointments are retained by the Director. Peter Rogers is a Non-Executive Director of Galliford Try plc. During the year to 31 March 2013 he received £40,000 by way of fees for that role. Bill Tame is a Non-Executive Director of Carclo PLC. During the year to 31 March 2013 his fees in that role were £32,500.
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. Going forward, the Company intends formally to present a summary of its policy for remuneration arrangements for Executive Directors to the Babcock Employee Forum, which is attended by representatives from across the UK business operations, and will consider any feedback from that Forum.
The Committee has in the last few years, in accordance with its policy, consulted leading shareholders on proposed changes of significance in the remuneration arrangements for Executive Directors.
The members of the Remuneration Committee are appointed by the Board on the recommendation of the Nomination 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 listed below. The current membership of the Committee, and its membership during the year to 31 March 2013 as well as attendance at Committee meetings, is shown below. The Company Secretary is Secretary to the Committee.
| Member | Number of Meetings attended/ Number of meetings possible |
|---|---|
| Justin Crookenden (Chairman) | 8 of 8 |
| Sir David Omand | 8 of 8 |
| Ian Duncan1 | 7 of 8 |
| Kate Swann | 8 of 8 |
| Anna Stewart2 | 4 of 4 |
Ian Duncan missed one meeting due to a previously made engagement.
Anna Stewart joined the Committee on 1 November 2012.
The Group Chairman and the Chief Executive normally attend meetings by invitation, but 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.
Kepler Associates ('Kepler') was appointed by the Committee in late 2008 to provide it with 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. Kepler reports directly to the Committee Chairman. A representative from Kepler typically attends Committee meetings. Kepler provides no other services to the Company. Kepler is a signatory to the Remuneration Consultants Group Code of Conduct. The fees paid to Kepler in respect of work carried out in the year under review totalled £135,000 (including VAT).
In total there were eight meetings in the year to 31 March 2013. Details of each member's attendance at these meetings are set out on the table on page 82. The Committee plans to meet at least six times in the current financial year.
The Committee considered at length the appropriate financial conditions and non-financial objectives to attach to annual bonus awards for 2012/13 and for 2013/14 and the financial targets to attach to share awards in those years to ensure they continue to be: (i) relevant to our strategic objectives and aligned with shareholders' interests mindful of risk management; and (ii) fair by being suitably stretching whilst realistic. Further details on the measures we propose to use for the 2013/14 annual bonus schemes and for performance-related share awards to be made in 2013 are set out in the following pages of this report.
The Committee also considered other matters during the year, including:
As noted above, 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 increases for employees generally for the year to 31 March 2014 is expected to be in the order of 3% (with individual increases significantly above this amount in some cases) dependent on business and personal performance and local market conditions.
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ending 31 March 2013
| Peter Rogers (£k) |
Bill Tame (£k) |
Archie Bethel (£k) |
Kevin Thomas (£k) |
|
|---|---|---|---|---|
| 1 Salary | 561 | 355 | 309 | 309 |
| 2 Benefits in kind and cash | 20 | 36 | 9 | 1 |
| 3 Pension | 140 | 89 | 77 | 77 |
| 4 Cash annual bonus | 500 | 317 | 229 | 229 |
| 5 DBMP (basic awards) | 334 | 211 | 153 | 153 |
| 6 DBMP (matching awards) | 0 | 0 | 0 | 0 |
| 7 PSP | 993 | 636 | 546 | 546 |
| 8 Dividends | 64 | 41 | 36 | 36 |
| Total | 2,612 | 1,685 | 1,359 | 1,351 |
* Prepared on the basis of the latest draft regulations issued by the Department for Business Innovation and Skills. For statutory information see the table on page 99. See also the reference to this table in the Summary Statement on page 75.
John Davies is not included in the above as he has only been a Director since 1 January 2013.
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 2013 and for the year to 31 March 2014 are summarised in the table below. Further details on the annual bonus schemes, share awards, and pension schemes (and pension benefits) are to be found in the following pages of this Remuneration report.
| 2013/14 | 2012/13 | |||||||
|---|---|---|---|---|---|---|---|---|
| Director | Base pay £ |
Annual bonus potential (% of salary) |
Performance share awards (% of salary) |
Maximum Matching Share opportunity under DBMP1 (% of salary) |
Base pay £ |
Annual bonus potential (% of salary) |
Performance share awards (% of salary) |
Maximum Matching Share opportunity under DBMP1 (% of salary) |
| Peter Rogers | 611,871 | 150% | 200% | 200% | 561,350 | 150% | 200% | 200%1 |
| Bill Tame | 387,331 | 150% | 150% | 200% | 355,350 | 150% | 150% | 200% |
| Archie Bethel | 336,810 | 125% | 150% | 180% | 309,000 | 125% | 150% | 180% |
| Kevin Thomas | 336,810 | 125% | 150% | 180% | 309,000 | 125% | 150% | 180% |
| John Davies | 321,810 | 125% | 150% | 180% | – | – | – | – |
Assumes maximum bonus and maximum self-investment and 2 for 1 share match.
John Davies was appointed as a Director on 1 January 2013. Salary reflects that he receives car and fuel benefits.
Executive Directors' base salaries and benefits are reviewed each year with any changes usually taking effect from 1 April. The Committee believes that a key driver of Babcock's performance has been the Company's effective use of variable remuneration to focus and incentivise its staff and senior management on delivering value for shareholders. Towards the end of the financial year, the Committee conducted a detailed review of the Company's remuneration policy and practice, and concluded that whilst the policy and structure of remuneration are appropriate, the considerable growth of the Company over the last few years has meant the executive team's base pay has fallen significantly below market rates (c 20%–25% below median). Whilst the Company's policy is not to chase a median, the Committee is keen to ensure that salaries remain sufficiently attractive to allow us to attract and retain top talent and capable of working with variable pay elements to deliver superior rewards for superior performance. The Committee felt that this disparity was not consistent with its policy and objectives and, as a result, approached its leading shareholders with proposals to address this.
As part of its evaluation, information on market pay data is considered by the Committee. Market data for pay benchmarking is based on two reference groups for the CEO and FD: (i) companies of similar size (market cap) to Babcock, and (ii) companies operating in a similar sector to Babcock, for the Divisional Chief Executives total remuneration was benchmarked against FTSE350 companies with Divisional or regional heads on the Board. With respect to the sector peers, and the peer group for the Divisional Chief Executives, pay data takes into account the disparity in size of the peer companies, some of whom are significantly bigger, or significantly smaller, than Babcock. A summary of the market pay data is provided below:
| Director | CEO | FD | Divisional Chief Executives | |||
|---|---|---|---|---|---|---|
| Salary (£k) |
Fair Value of Total remuneration (£k) |
Salary (£k) |
Fair Value of Total remuneration (£k) |
Salary (£k) |
Fair Value of Total remuneration (£k) |
|
| Benchmark median | 730 | 2,240 | 440 | 1,270 | 380 | 1,050 |
| Benchmark lower quartile | 650 | 1,940 | 410 | 1,180 | 310 | 800 |
| Babcock 2012/13 | 561 | 1,926 | 355 | 1,136 | 309 | 937 |
| Compa ratio to median | 77% | 86% | 81% | 89% | 81% | 89% |
The 'fair value' of total remuneration at Babcock and the comparator companies is taken as actual base pay, allowance in lieu of pension and/or pension benefits as applicable, target bonus with long-term incentives valued based on long-run average outcome taking into account the difficulty of achieving the associated performance conditions, and factors such as volatility, time value of money, risk of forfeiture, and the correlation between the value of a share and the performance conditions. For matching plans, the valuation assumes a two-thirds take-up of any voluntary investment opportunity.
As discussed in the Summary Statement on page 74, the Committee has decided to award the following basic salary increases for the year to 31 March 2014:
| Director | Salary 2012/13 £ |
Salary 2013/14 £ |
% increase |
|---|---|---|---|
| Peter Rogers | 561,350 | 611,871 | 9% |
| Bill Tame | 355,350 | 387,331 | 9% |
| Archie Bethel | 309,000 | 336,810 | 9% |
| Kevin Thomas | 309,000 | 336,810 | 9% |
| John Davies1 | n/a | 321,810 | n/a |
The salary increases outlined above would result in the Executive Director salaries remaining below market but would move the fair value of total remuneration within 15% of median, and would help support the remuneration policy of allowing for the possibility of upper quartile rewards for upper quartile performance. It also assists the Company in retaining and attracting the necessary executive talent to continue to deliver strong performance for shareholders. It is not anticipated that a further significant salary increase will be required in the near future.
The Executive Directors, other than John Davies, did not participate in a Group pension scheme or otherwise receive pension benefits from the Group for service during the year to 31 March 2013. These Executive Directors received a cash supplement equal to 25% of their base salary in lieu of pension benefits.
John Davies is a member of the Babcock International Group Pension Scheme. During the year to 31 March 2013, he received a cash supplement equal to £36,000 in lieu of pension benefits on that part of his base salary as exceeded the applicable scheme earnings cap.
Supplements paid in lieu of pension do not count for pension, share award or bonus purposes.
Bill Tame was a member of the senior executive tier of the Scheme until 30 September 2011. Archie Bethel and Kevin Thomas were members of the executive tier of the Scheme until 31 March 2012. All three Directors are no longer active members of the Scheme. Whilst still members of the Scheme, Bill Tame accrued benefits at the rate of one-thirtieth, and for Archie Bethel and Kevin Thomas at the rate of one-forty-fifth, of pensionable salary for each year of service.
John Davies is a member of the VT Upper Section Ex-Short Brothers section of the Scheme. He accrues benefits on earnings up to the Scheme earnings cap (currently £137,400) 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 2013 are set out in the following table:
| Accrued | Increase in accrued benefits excluding inflation during |
Change in accrued benefits |
Transfer value at |
Transfer | Transfer value of increase in accrued benefits less |
Increase in transfer value |
|
|---|---|---|---|---|---|---|---|
| Director | pension at 31 March 2013 £ p.a. |
the year ended 31 March 2013 £ |
after allowing for inflation £ |
1 April 2012 £ |
value at 31 March 2013 £ |
Director's contributions £ |
less Director's contribution £ |
| Bill Tame | 42,548 | 1,239 | – | 1,089,821 | 1,233,636 | – | 143,815 |
| Archie Bethel | 34,798 | 1,014 | – | 575,617 | 644,892 | – | 69,275 |
| Kevin Thomas | 58,730 | 1,711 | – | 932,467 | 1,048,940 | – | 116,473 |
| John Davies | 46,681 | 4,810 | 3,889 | 425,117 | 538,993 | 44,999 | 101,510 |
Transfer values do not represent amounts that a Director is entitled to receive, they are an actuarial calculation of the cost of providing for the potential benefits. Changes in transfer values reflect both additional pension earned and changes in valuation factors such as stock market performance, bond values and discount rates.
Inflation has been taken as 3% for Bill Tame, Archie Bethel and Kevin Thomas and 2.2% for John Davies the purposes of calculating increases in transfer values and pension earned (reflecting the relevant deferred revaluation rates).
The transfer value of the increase in pension accrued is calculated in accordance with regulations 7 to 7E of the Occupational Pension Schemes (Transfer Values) regulations 1996, and is stated after deducting members' contributions.
The figures in the above table make no allowance for the cost of death in service benefits under the Scheme.
The figures in the above table make no allowance 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 he may have from previous employments.
No payments have been made to retired Directors in excess of the retirement benefit to which they were entitled on the date the benefits first became payable or, if later, 31 March 1997.
Directors also benefit from life assurance cover of 4 times base salary. The cost of providing that life assurance cover was:
| Director | 2013 £'000 |
2012 £'000 |
|---|---|---|
| Bill Tame | 3 | 3 |
| Archie Bethel | 2 | 2 |
| Kevin Thomas | 2 | 2 |
| John Davies (appointed 1 January 2013) | 0.5 | – |
Before 1 April 2006, the Company provided a Funded Unapproved Retirement Benefit Scheme (FURBS) for Bill Tame in respect of his salary in excess of the earnings cap. The Company contributed to the FURBS an amount equal to 20% of the excess (including employer's national insurance contributions), with him making contributions into the Company's pension scheme on his full uncapped salary.
For our Executive Directors' annual bonus schemes in 2012/13, as in previous years, a mix of financial and non-financial measures was used. The nonfinancial measures were principally based on the key themes that are of central importance to the continued success of the Company, including: reputation protection; setting the building blocks for developing and underpinning future growth; executive succession and talent management planning and gaining wider employee engagement in the Company's success. Maintaining a satisfactory health and safety and environmental performance is always an overriding bonus objective. The financial measures were focused on delivery of budget profitability, cash management and growth in earnings.
The table below sets out the annual bonus schemes in place for the Executive Directors and the outturn under them in 2012/13.
| Peter Rogers | Bill Tame | Archie Bethel | Kevin Thomas | John Davies | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Bonus element | Maximum potential % of salary |
Outturn | Maximum potential % of salary |
Outturn | Maximum potential % of salary |
Outturn | Maximum potential % of salary |
Outturn | Maximum potential % of salary |
Outturn |
| EPS1 performance |
90% | 90% | 90% | 90% | 70% | 70% | 70% | 70% | 70% | 70% |
| Stretching targets, with a sliding scale between threshold and maximum |
||||||||||
| Achieving budgeted Group cash flow |
15% | 15% | 15% | 15% | ||||||
| Achieving budgeted Group PBT1 |
15% | 15% | 15% | 15% | ||||||
| Achieving budgeted Divisional PBIT1 |
15% | 15% | 15% | 15% | 15% | 15% | ||||
| Achieving budgeted Divisional cash flow |
15% | 15% | 15% | 15% | 15% | |||||
| Non-financial objectives2 | 30% | 28.5% | 30% | 28.5% | 25% | 23.8% | 25% | 23.8% | 25% | 23.8% |
| Total (maximum potential) | 150% | 148.5% | 150% | 148.5% | 125% | 123.8% | 125% | 123.8% | 125% | 123.8% |
Before amortisation of acquired intangibles. The treatment of exceptional items is at the discretion of the Committee.
These included raising the profile of our Mobile Assets, Emergency Services and Training businesses, enhancement of existing and development of new senior level customer and regulator relationships, progress in identifying and developing international business opportunities, efforts to improve bid win rates, executive talent development and succession planning progress, the implementation of a major cyber-security and information assurance enhancement and training programme and securing customer accreditation for the same.
For our annual bonus schemes for 2013/14 we are continuing to use the approach and structure adopted in 2012/13 as set out in the table above.
The weighting of the elements of bonus is kept under review and, in particular, the weighting for non-financial objectives for the annual bonus scheme for 2014/15 and future years is a matter the Committee will be considering during the current financial year.
To ensure that a substantial part of the Director's annual bonus is exposed to the longer term impact of decision-making and to further align their interests with shareholders, 40% of any annual bonus earned by Executive Directors (and other senior executives) must be deferred into Babcock shares. Under the Deferred Bonus Plan (applicable to deferred bonus awards made to Directors before 2012) the deferral period was two years. From 2012 deferred awards have been made to Directors under the Deferred Bonus Matching Plan. In addition to mandatory deferral of 40% of bonus the DBMP allows for Directors to be invited to make a voluntary additional investment (including by way of accepting deferral of extra amounts of bonus) of an amount equal to up to 40% of salary. Both mandatorily deferred and voluntary investments are eligible for matching share awards of up to a 2 for 1 match. The DBMP has a deferral period for both mandatory and voluntary deferral of bonus awards of three years. The Committee granted performance-related matching awards under the DBMP to Directors on the amount of bonus for 2011/12 mandatorily or voluntarily deferred into shares under that scheme. The performance conditions relating to matching awards made in 2012 and those proposed for matching awards to be made in 2013 are shown on pages 89 and 90. Bonuses mandatorily deferred into shares in 2010 and 2011 did not have any associated matching share awards.
In 2012, PSP awards were made to each of the Executive Directors. Awards were made over shares having a total value on grant equal to 200% of basic salary for Peter Rogers and 150% of salary for the other Executive Directors. The performance targets attached to those awards – split equally between TSR performance relative to the peer group and real EPS growth – are illustrated in the charts below:
Note: real EPS growth is that in excess of the change in the retail prices index. TSR comparators are the companies comprised in the FTSE 350 (excluding investment trusts and financial services companies).
Threshold vesting (16.7% of this element) for the EPS element was set at real growth of 4% per annum and maximum vesting at real growth of 12.5% per annum. We believe that real growth of 12.5% would represent exceptional performance. For the comparative TSR element, threshold vesting of that element (16.7% of this element) would be for performance in line with the median of the FTSE 350 (excluding investment trusts and financial companies) and maximum vesting would be for 9% p.a. outperformance of the median, representing upper quartile performance.
Following approval of the DBMP at the Annual General Meeting in July 2012, matching awards were made to Executive Directors in respect of their deferred annual bonus awards and voluntary investment (by way of extra voluntary deferral of bonus) under the DBMP.
The DBMP allows the Committee to make matching share awards of up to 2 times the deferred bonus shares (40% of bonus) and any additional shares or extra bonus deferral self-invested under the scheme by the Director (of an amount equal to up to 40% of salary). The matching share award is performance-related and only vests to the extent that the performance criteria are met in respect of the three-year performance period. For the 2012 cycle, the performance period runs from 1 April 2012 to 31 March 2015, the same as for PSP awards made in 2012. The performance targets attached to those awards – split equally between TSR performance relative to the peer group, real EPS growth, and average return on capital employed (ROCE) over the period – are illustrated in the charts below:
The target for maximum vesting is ROCE of 20.5% and for threshold vesting it is 17.5%. The maximum match is 2 for 1 on any shares held under the deferred bonus plan; 0.25 matching shares would be released for each such share at threshold vesting. Therefore for each measure, threshold vesting would be a (0.25/3) for 1 match (4.2% of maximum) and maximum vesting would be a (2/3) for 1 match (33% of maximum).
For 2012 Executive Directors received awards in lieu of mandatorily and voluntarily deferred bonus and matching awards as follows:
| Director | Basic Awards (mandatorily deferred bonus) no of shares |
Voluntarily Deferral Awards (no of shares) |
Total shares invested in the DBMP |
Potential maximum number of matching shares |
|---|---|---|---|---|
| Peter Rogers | 37,433 | 25,963 | 63,396 | 126,792 |
| Bill Tame | 23,696 | Nil | 23,696 | 47,392 |
| Archie Bethel | 17,344 | 14,292 | 31,636 | 63,272 |
| Kevin Thomas | 17,344 | 14,292 | 31,636 | 63,272 |
| John Davies | 13,008 | Nil | 13,008 | 26,016 |
The Committee believes that TSR, EPS and ROCE continue to be effective measures of long-term performance for Babcock, 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 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 focuses management on continued strong financial performance and is heavily dependent on the Company's success in achieving its strategic goals.
ROCE reinforces the focus on returns for shareholders and encourages capital discipline. It also provides good line of sight for management.
The Remuneration Committee reviews the performance conditions to be attached to share awards prior to the start of each cycle to ensure they remain appropriate. No material reduction in targets would be made without prior consultation with shareholders.
The Committee intends to grant awards under the PSP and DBMP with the same maximum opportunities as in 2012.
As referenced in the Summary Statement on page 74, the Committee has discussed three-year performance targets with the Company's major shareholders, and intends to amend the EPS performance targets for the 2013 PSP awards, and the EPS and ROCE performance targets for the 2013 DBMP matching awards to ensure they remain stretching but achievable, and remain appropriate and challenging in the economic climate at the time of grant. The changes are:
(i) to reduce the top-end EPS target for the 2013 PSP and DBMP awards from RPI +12.5% p.a. over three years to RPI +11% p.a. over three years.
(ii) to increase the three-year average ROCE targets for the 2013 DBMP from 17.5% to 21.5% at threshold, and from 20.5% to 23.5% for full vesting.
The performance period for the awards will be the three years to 31 March 2016.
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 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 to be in the best interests of the Company at the time, and what is permissible within available headroom and dilution limits.
The following tables summarise the performance targets (if applicable) and other information about the schemes relevant to currently outstanding share awards held by Directors (i.e. those awards yet to vest) and those that vested during the year to 31 March 2013 (the awards made in 2009 under the PSP and the CSOP and the DBP awards made in 2010).
| Scheme | Performance Share Plan (nil price options) and Company Share Option Plan (market price options) – 2009–2012 awards |
|---|---|
| Performance period | For the 2009 awards: 1 April 2009 to 31 March 2012. (Note: vested in July 2012 as to 57.8%) |
| For the 2010 awards: 1 April 2010 to 31 March 2013. (Expected to vest in July 2013 as to 58.8% for Peter Rogers and 78.4% for other Executive Directors) |
|
| For the 2011 awards: 1 April 2011 to 31 March 2014. | |
| For the 2012 awards: 1 April 2012 to 31 March 2015. |
| General performance target | EPS growth test | Comparative TSR test | Proportion of total award that can vest |
|---|---|---|---|
| Maximum | Real compound annual growth of 11% (2009)/12.5% (2010–2012) or more |
Outperformance of the median TSR performance for the peer group taken as a whole by 9% or more |
50% |
| Threshold | Real compound annual growth of 4% | TSR performance equivalent to the median for the peer group as a whole |
8.3% |
| Intermediate growth between the above points |
Intermediate ranking between the above points |
Straight-line basis between 8.3% and 50% |
|
| Real compound annual growth of less than 4% |
Performance less than equivalent to median for the whole peer group |
0% | |
| Chief Executive's additional award in 2011 over shares equal to a further 50% of salary |
If comparative TSR performance exceeds median TSR performance for the peer group taken as a whole by more than 9% per annum further shares vest. This will affect the relative proportion of the award vesting in his case. |
||
| TSR comparator group | support services, and the broader group makes the calibration more robust. | 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 |
|
| Other information | underlying performance of the Company over the performance period. | The awards are not subject to re-testing. Participants will be entitled to a vesting of shares under the TSR element only to the extent the Remuneration Committee is satisfied that the recorded TSR is a genuine reflection of the EPS is adjusted to exclude acquired intangible amortisation, but, unless the Committee decides otherwise in respect of any item, is after exceptional items. Real EPS growth is that in excess of the change in the retail prices index. The awards carry the right to receive on vesting any dividends in the period between grant and vesting but this |
|
| right applies only to the shares that actually vest under the award. | CSOP and PSP awards are linked so that in aggregate the holder cannot get more value from them than a standalone PSP award of shares equal to the relevant award multiple of the Director's base salary. |
||
| discretion to allow a greater proportion to be released. | Exercise periods commence not less than three years from actual or nominal award grant date. Subject to the rules of the plan, an earlier release of shares under unvested awards may be allowed by the Remuneration Committee (for example, in the event of a cessation of employment or a change in control), but of not more than a time apportioned proportion and then only having regard to the Company's performance, though the Committee has |
Overview
| Scheme | Deferred Bonus Plan awards (nil price options) 2010 and 2011; Deferred Bonus Matching Plan basic and voluntary deferral awards (nil price options) 2012 |
||||
|---|---|---|---|---|---|
| Performance period | Not applicable: these awards represent amounts of annual bonus mandatorily (DBP) and/or mandatorily and voluntarily deferred into awards under the DBMP. Awards under the DBP vest and become exercisable two years, those under the DBMP three years, after the date of grant. The DBP awards made in 2010 vested in July 2012 and those made in July 2011 will vest in July 2013. |
||||
| Other information | 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). |
||||
| The number of shares into which bonus has been mandatorily deferred may be reduced by the Committee if the accounts by reference to which the bonus was calculated have to be materially corrected or if, in the opinion of the Committee, there is evidence that performance against performance conditions in the bonus year or the impact of that performance on the Group in respect of future financial years was or will be materially worse than was believed to be the case at the time of the original assessment. |
|||||
| The shares carry the right to dividends in the period of deferral, but payable only when the shares are released. | |||||
| Scheme | Deferred Bonus Matching Plan (nil price options) 2012 matching awards | ||||
| Performance period | For the 2012 awards: 1 April 2012 to 31 March 2015. | ||||
| General performance target | EPS growth test | Comparative TSR test | ROCE test | Match that can vest under each measure |
|
| Maximum | Real compound annual growth of 11% (2009)/12.5% (2010–2012) or more |
Outperformance of the median TSR performance for the peer group taken as a whole by 9% or more |
ROCE of 20.5% or more | 2/3 times (33% of maximum) |
| Threshold | Real compound annual growth of 4% |
TSR performance equivalent to the median for the peer group as a whole |
ROCE of 17.5% | 0.25/3 times (4.2% of maximum) |
|---|---|---|---|---|
| Intermediate growth between the above points |
Intermediate ranking between the above points |
Intermediate ROCE between the above points |
Straight-line basis between 0.25/3 times and 2/3 times |
|
| Real compound annual growth of less than 4% |
Performance less than equivalent to median for the whole peer group |
ROCE of less than 4% | 0 times | |
| 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. |
Other information Matching awards are not subject to re-testing. Participants will be entitled to a vesting of shares under the TSR element only to the extent the Remuneration 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. Real EPS growth is that in excess of the change in the retail prices index.
ROCE is underlying Earnings Before Interest and Tax ('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 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 Performance Period.
Matching awards carry the right to receive on vesting any dividends that 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. Subject to the rules of the plan, an earlier release of shares under unvested awards may be allowed by the Remuneration Committee (for example, in the event of a cessation of employment or a change in control), but of not more than a time-apportioned proportion and then only having regard to the Company's performance, though the Committee has discretion to allow a greater proportion to be released.
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 (both financial and non-financial) it uses in the annual bonus and long-term incentive schemes. Examples include the following:
| Strategic Objective (SO)/Risk (R) | Annual bonus scheme metric | Long-term incentive metric |
|---|---|---|
| SO/R: Delivering superior and sustainable value for our shareholders, whilst balancing risk and reward. |
Financial measures focused on annual delivery of sustainable earnings and/or profits with stretch targets, whilst maintaining strict control of cash. |
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 geographical and existing and new business markets; • winning key bids and rebids; • fostering strategically important partnering arrangements. |
|
| SO: Developing and maintaining leading market positions in the UK and selected overseas markets. |
Specific non-financial objectives for: • progressing plans for entry into or expansion in targeted domestic and overseas markets; • securing key business development milestones. |
|
| SO: Building and maintaining customer-focused, long-term relationships with strategically important customers. R: Loss of business reputation, poor contract performance. |
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. |
|
| 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. |
Non-financial objectives linked to talent development and succession planning, and fostering employee engagement. Retentive nature of the requirement for deferral into shares of 40% of annual bonuses earned by senior executives. |
Retentive nature of the long-term schemes. |
| SO/R: Maintenance of an excellent health, safety and environmental record. |
Overriding health, safety and environmental performance criterion in annual bonus schemes. |
No exit payments were made to Executive Directors during the year under review.
The Chairman and Non-Executive Directors receive fixed fees. These fees are reviewed against market practice from time to time (by the Chairman and the Executive Directors in the case of the Non-Executive Director fees and by the Remuneration Committee in respect of the fees payable to the Chairman). The fees were last reviewed as of 1 April 2013. Prior to that review, they were last reviewed for April 2011, but no changes were then made to the Chairman's fee or the fee for Chairmanship of the Remuneration Committee: those fees were last increased in 2009.
| Annual rate of fees | Year to 31 March 2014 £ |
Year to 31 March 2013 £ |
|---|---|---|
| Chairman | 295,000 | 255,000 |
| Senior Independent Director (inclusive of basic fee) | 65,000 | 60,000 |
| Basic Non-Executive Director's fee | 55,000 | 50,000 |
| Chairmanship of Audit and Risk Committee1 | 12,500 | 12,500 |
| Chairmanship of Remuneration Committee1 | 12,500 | 7,500 |
The table below shows the holdings of fully paid ordinary shares of 60p by each of the Directors (including family interests) who served in the year to 31 March 2013 or who hold office at the date of this Report in the issued share capital of the Company. The interests were beneficial interests of the Director and/or their spouse.
| Director | At 31 March 20131 |
At 1 April 20122 |
|---|---|---|
| Chairman and Executive Directors | ||
| Mike Turner | 40,000 | 40,000 |
| Peter Rogers | 710,535 | 710,535 |
| Bill Tame | 362,927 | 362,927 |
| Archie Bethel | 124,304 | 124,304 |
| Kevin Thomas | 84,149 | 84,149 |
| John Davies (appointed 1 January 2013) | 18,962 | – |
| Non-Executive Directors | ||
| Nigel Essenhigh (retired 31 December 2012) | – | – |
| Justin Crookenden | 11,647 | 11,647 |
| David Omand | – | – |
| Ian Duncan | – | – |
| Kate Swann (appointed 1 June 2011) | 5,000 | 5,000 |
| Anna Stewart (appointed 1 November 2012) | – | – |
There were no changes in these interests between 31 March 2013 and 13 May 2013. For Nigel Essenhigh, the interest in shares shown is the interest in shares on the date he resigned as a Director.
For Anna Stewart and John Davies the figure is as at the date of their appointments as a Director.
| Director | Level of Shareholding as % of Salary for Guidelines Purposes1 (2 x salary target)1 |
|---|---|
| Peter Rogers | 1,515% |
| Bill Tame | 1,194% |
| Archie Bethel | 588% |
| Kevin Thomas | 502% |
| John Davies2 | 111% |
As a % of base salary applying from 1 April 2013. Calculated as at 9 May 2013 at a share price of 1071p in accordance with our guidelines. These included shares held under the Deferred Bonus Plan, shares held as basic or voluntary deferral (but not matching) awards under the Deferred Bonus Matching Plan, shares subject to vested but unexercised performance-related share awards (less in each case that number as would need to be sold to meet tax and national insurance obligations on exercise), but do not include shares covered by performance-related awards that are not yet vested.
John Davies only became subject to a 2 times holding requirement on his appointment to the Board on 1 January 2013. Prior to his appointment as a Director he complied with the relevant applicable guidelines
The table below shows the various share awards held by Directors under the Company's various share schemes. There were no changes between 31 March 2013 and 13May 2013. The Company's mid-market share price at close of business on 28 March 2013 was 1088p. The highest and lowest mid-market share prices in the year ended 31 March 2013 were 1106.5p and 792.75p, respectively.
| Director | Scheme1 and year of award |
Number of shares subject to award at 1 April 2012 |
Granted during the year |
Exercised during the year |
Lapsed during the year |
Number of shares subject to award at 31 March 2013 |
Exercise price (pence)2 |
Market value of each share at date of award (pence) |
Exercisable from3 |
Expiry date4 |
|---|---|---|---|---|---|---|---|---|---|---|
| Peter Rogers | L-TIP 2008 | 65,596 | 65,596 | 594.33 May 2011 | Jun 2018 | |||||
| PSP 2009 | 132,0536 | (55,726) | 76,327 | 544.67 | Jul 2012 | Jul 2014 | ||||
| PSP (A) 20105, 6 | 156,494 | 156,494 | 619.83 | Jul 2013 | Jul 2014 | |||||
| PSP(B) 20105. 5A, 6 | 4,840 | 4,840 | 619.83 | Jul 2013 | Jul 2014 | |||||
| CSOP 20105, 6 | 4,840 | 4,840 | 619.83 | 619.83 | Jul 2013 | Jul 2020 | ||||
| DBP 2010 | 45,023 | 45,023 | 619.83 | Jul 2012 | Jul 2014 | |||||
| PSP 2011 | 157,971 | 157,971 | 690.00 | Jun 2014 | Jun 2015 | |||||
| DBP 2011 | 42,609 | 42,609 | 690.00 | Jun 2013 | Jun 2014 | |||||
| PSP 2012 | 32,454 | 32,454 | 864.83 | Jul 2015 | Jul 2016 | |||||
| PSP 2012 | 95,975 | 95,975 | 877.33 | Jun 2015 | Jun 2016 | |||||
| DBMP 2012 (basic award) |
37,433 | 37,433 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (basic matching award) |
74,866 | 74,866 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (voluntary deferral award) |
25,963 | 25,963 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (voluntary deferral matching award) |
51,926 | 51,926 | 864.83 | Jul 2015 | Jul 2016 |
Overview
| Director | Scheme1 and year of award |
Number of shares subject to award at 1 April 2012 |
Granted during the year |
Exercised during the year |
Lapsed during the year |
Number of shares subject to award at 31 March 2013 |
Exercise price (pence)2 |
Market value of each share at date of award (pence) |
Exercisable from3 |
Expiry date4 |
|---|---|---|---|---|---|---|---|---|---|---|
| Bill Tame | PSP 2009 | 85,9246 | (36,260) | 49,664 | 544.67 | Jul 2012 | Jul 2014 | |||
| PSP (A) 20105 | 76,182 | 76,182 | 619.83 | Jul 2013 | Jul 2014 | |||||
| PSP (B)5, 5A 2010 | 1,258 | 1,258 | 619.83 | Jul 2013 | Jul 2014 | |||||
| CSOP 20105. 6 | 1,258 | 1,258 | 619.83 | 619.83 | Jul 2013 | Jul 2020 | ||||
| DBP 2010 | 29,598 | 29,598 | 619.83 | Jul 2012 | Jul 2014 | |||||
| PSP (A) 20115 | 71,782 | 71,782 | 690.00 | Jun 2014 Jun 2015 | ||||||
| PSP (B) 20115. 5A | 3,217 | 3,217 | 690.00 | Jun2014 | Jul 2015 | |||||
| CSOP 20115 | 3,217 | 3,217 | 690.00 | 690.00 | Jun 2014 Jun 2021 | |||||
| DBP 2011 | 27,270 | 27,270 | 690.00 | Jun 2013 Jun 2014 | ||||||
| PSP 2012 | 60,755 | 60,755 | 877.33 | Jun 2015 Jun 2016 | ||||||
| DBMP 2012 (basic award) |
23,696 | 23,696 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (basic matching award) |
47,392 | 47,392 | 864.83 | Jul 2015 | Jul 2016 | |||||
| Archie Bethel | PSP (A) 20095 | 62,5156 | 28,705 | 33,810 | 544.67 | Jul 2012 | Jul 2014 | |||
| PSP (B) 20095, 5A | 5,507 | See Notes 5, 5A |
See Notes 5, 5A |
544.67 | Jul 2012 | Jul 2014 | ||||
| CSOP 20095 | 5,5076 | 5,507 | 544.67 | 544.67 | Sep 2012 Sep 2019 | |||||
| PSP 2010 | 66,550 | 66,550 | 619.83 | Jul 2013 | Jul 2014 | |||||
| DBP 2010 | 19,128 | 19,128 | 619.83 | Jul 2012 | Jul 2014 | |||||
| PSP 2011 | 65,217 | 65,217 | 690.00 | Jun 2014 Jun 2015 | ||||||
| DBP 2011 | 18,939 | 18,939 | 690.00 | Jun 2013 Jun 2014 | ||||||
| PSP 2012 | 52,831 | 52,831 | 877.33 | Jun 2015 Jun 2016 | ||||||
| DBMP 2012 (basic award) |
17,344 | 17,344 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (basic matching award) |
34,688 | 34,688 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (voluntary deferral award) |
14,292 | 14,292 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (voluntary deferral matching award) |
28,584 | 28,584 | 864.83 | Jul 2015 | Jul 2016 |
| Director | Scheme1 and year of award |
Number of shares subject to award at 1 April 2012 |
Granted during the year |
Exercised during the year |
Lapsed during the year |
Number of shares subject to award at 31 March 2013 |
Exercise price (pence)2 |
Market value of each share at date of award (pence) |
Exercisable from3 |
Expiry date4 |
|---|---|---|---|---|---|---|---|---|---|---|
| Kevin Thomas | L-TIP 2008 | 31,786 | 31,786 | 594.33 May 2011 | Jun 2018 | |||||
| PSP (A)5 2009 |
61,662 | (27,021) | 34,641 | 544.67 | Jul 2012 | Jul 2014 | ||||
| PSP (B)5, 5A 2009 | 2,368 | See Notes 5, 5A |
See Notes 5, 5A |
544.67 | Jul 2012 | Jul 2014 | ||||
| CSOP 2009 | 2,3686 | 2,368 | 544.67 | 544.67 | Sep 2012 Sep 2019 | |||||
| PSP 2010 | 66,550 | 66,550 | 619.83 | Jul 2013 | Jul 2014 | |||||
| DBP 2010 | 17,825 | 17,825 | 619.83 | Jul 2012 | Jul 2014 | |||||
| PSP 2011 | 65,217 | 65,217 | 690.00 | Jun 2014 | Jun 2015 | |||||
| DBP 2011 | 18,939 | 18,939 | 690.00 | Jun 2013 | Jun 2014 | |||||
| PSP (A) 20125 | 50,881 | 50,881 | 877.33 | Jun 2015 | Jun 2016 | |||||
| PSP (B) 20125, 5A | 1,949 | 1.949 | 877.33 | Jun 2015 | Jun2016 | |||||
| CSOP 2012 | 1,949 | 1,949 | 877.33 | 877.33 | Jun 2015 | Jun 2016 | ||||
| DBMP 2012 (basic award) |
17,344 | 17,344 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (basic matching award) |
34,688 | 34,688 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (voluntary deferral award) |
14,292 | 14,292 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (voluntary deferral matching award) |
28,584 | 28,584 | 864.83 | Jul 2015 | Jul 2016 | |||||
| John Davies7 | PSP (A) 20105 | 45,980 | 45,980 | 619.83 | Jul 2013 | Jul 2014 | ||||
| PSP(B) 20105, 5A | 4,840 | 4,840 | 619.83 | Jul 2013 | Jul2014 | |||||
| CSOP 2010 | 4,840 | 4,840 | 619.83 | Jul 2013 | Jul 2020 | |||||
| PSP 2011 | 48,913 | 48,913 | 690.00 | Jun 2014 | July 2015 | |||||
| DBP 2011 | 14,463 | 14,463 | 690.00 | Jun 2013 | Jun 2014 | |||||
| PSP 2012 | 42,743 | 42,743 | 877.33 | Jun 2015 | Jun 2016 | |||||
| DBMP 2012 (basic award) |
13,008 | 13,008 | 864.83 | Jul 2015 | Jul 2016 | |||||
| DBMP 2012 (basic matching awards) |
26,016 | 26,016 | 864.83 | Jul 2015 | Jul 2016 |
L-TIP = 2003 Long-Term Incentive Plan; PSP = 2009 Performance Share Plan; CSOP = 2009 Company Share Option Plan; DBP = 2009 Deferred Bonus Plan. DBMP = 2012 Deferred Bonus Matching Plan. Further details about these plans and, where applicable, performance conditions attaching to the awards listed are to be found on pages 88 to 92 above.
The PSP, DBP, DBMP and L-TIP awards are structured as nil priced options. DBP awards and 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.
Subject to the rules of the scheme concerned, including as to meeting performance targets for PSP, LTIP, CSOP and DBMP Matching Awards.
Where this date is less than ten 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.
The vesting of the CSOP award is subject to performance measures that are identical to those for the PSP award granted on the same date. When a CSOP award is granted at the same time as a PSP award, the PSP award has two parts. The CSOP and PSP awards are linked so that the maximum aggregate number of shares that can be acquired on exercise of the two awards is limited to that number of shares that had a market value on the date of the awards (and after deducting any exercise price payable on exercise of the CSOP award) equal to the relevant grant multiple of the Director's base salary at the date of the awards (the 'Limit'). This is achieved by making the level of vesting of Part B of the PSP Award accord to the level of vesting of the linked CSOP award; the actual number of vested Part B award shares that can be exercised is then limited according to the exercise price on the day of exercise such that the total value of Part B PSP award shares so exercisable does not then exceed the exercise price payable on exercise of the vested CSOP award. If there is less than full vesting, it is possible for the Director to choose to exercise the CSOP to its fullest extent within the Limit and then to exercise the PSP award to the extent of any balance left within the Limit.
5A. The actual number of shares capable of being exercised under Part B of the PSP award can only be determined on the exercise date as explained in note 5 above.
The PSP awards and any associated CSOP awards made to the Directors in 2010 are expected to vest overall in July 2013 as to 78.4% based on the performance measures attached to them in the case of Directors other than Peter Rogers and as to 58.8% overall for him.
All awards shown in the table for John Davies were made prior to his appointment as a Director, which took effect on 1 January 2013.
Overview
| Director | Award | Number vesting | Vesting date | Market value of vested shares on award £ |
Market value of vested shares on vesting date £ |
Exercise price payable for vested shares (if any) £ |
|---|---|---|---|---|---|---|
| Peter Rogers | PSP 2009 | 76,327 | 16 July 2012 | 415,730 | 662,900 | – |
| DBP 2010 | 45,023 | 13 July 2012 | 279,066 | 388,774 | – | |
| Bill Tame | PSP 2009 | 49,664 | 16 July 2012 | 270,505 | 431,332 | – |
| DBP 2010 | 29,598 | 13 July 2012 | 183,457 | 255,579 | – | |
| Archie Bethel | PSP 2009 | 33,810 (Part A) plus Part (B) £30k worth |
16 July 2012 | 214,153 | 323,640 | – |
| CSOP 2009 | 5,507 | 11 September 2012 | 30,000 | 50,664 | 30,000 | |
| DBP 2010 | 19,128 | 13 July 2012 | 118,561 | 165,170 | – | |
| Kevin Thomas | PSP 2009 | 34,641 (Part A), plus Part (B) £12,898 worth |
16 July 2012 | 201,577 | 330,857 | – |
| CSOP 2009 | 2,368 | 11 September 2012 | 12,898 | 21,786 | 12,898 | |
| DBP 2010 | 17,825 | 13 July 2012 | 110,485 | 153,919 | – | |
Notes:
'Dividend equivalent cash' (an amount representing dividends earned) of 70.1p per vested share had accrued on the PSP 2009 awards and of 42.1p per vested share on the DBP 2010 awards, 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.
NB: the DBP awards represented, on award, the gross amount of annual bonus compulsorily deferred into shares out of the annual bonus awards in respect of the financial year 2009/10.
Closing Share Price on Vesting dates was for PSP 2009 awards 874.5p (16 July 2012), for CSOP 2009 awards 918.5p (11 September 2012) and for the DBP 2010 awards 868p (13 July 2012).
None of the Directors exercised share awards during the year to 31 March 2013.
| Director | Salary or fee year ending 31 March 20131 £'000 |
Cash allowances in lieu of pension benefits2 £'000 |
Other cash allowances3 £'000 |
Annual bonus4 £'000 |
Benefits in kind5 £'000 |
Total year ended 31 March 20131 £'000 |
Total year ended 31 March 2012 £'000 |
|---|---|---|---|---|---|---|---|
| Chairman and Executive Directors | |||||||
| Mike Turner (Chairman) | 255 | 255 | 255 | ||||
| Peter Rogers (Chief Executive) | 561 | 140 | 834 | 20 | 1,555 | 1,464 | |
| Bill Tame (Group Finance Director) | 355 | 89 | 23 | 528 | 13 | 1,008 | 946 |
| Archie Bethel | 309 | 77 | 4 | 382 | 5 | 777 | 710 |
| Kevin Thomas | 309 | 77 | 382 | 1 | 769 | 690 | |
| John Davies (appointed 1 January 2013) | 76 | 9 | 97 | 3 | 185 | – | |
| Non-Executive Directors | |||||||
| Justin Crookenden | 58 | 58 | 58 | ||||
| David Omand | 60 | 60 | 53 | ||||
| Ian Duncan | 63 | 63 | 59 | ||||
| Kate Swann (appointed 1 June 2011) | 50 | 50 | 42 | ||||
| Anna Stewart (appointed 1 November 2012) |
21 | 21 | – | ||||
| Former Directors | |||||||
| Nigel Essenhigh (retired 31 December 2012) |
38 | 38 | 50 | ||||
| John Rennocks (retired 31 December 2011) |
– | – | 48 | ||||
| Total | 2,155 | 392 | 27 | 2,223 | 42 | 4,839 | 4,375 |
Notes:
Emoluments for John Davies and Anna Stewart for the year to 31 March 2013 are for the period from their appointment as Directors. Emoluments for that year for Sir Nigel Essenhigh are for the period from 1 April 2012 until his retirement on 31 December 2012. Emoluments for the year ended 31 March 2012 for Kate Swann were for the period from the date of her appointment.
The emoluments disclosed above do not include any amounts for the value of options or other share-based rewards.
Details of share-based awards held by the Directors are to be found on pages 95 to 98.
The fees for Ian Duncan reflected his role as Audit and Risk Committee Chairman throughout the year to 31 March 2013 and in the year to 31 March 2012 for the period from 7 July 2011. The fees for Sir David Omand reflected his role as Senior Independent Director throughout the year to 31 March 2013 and in the year to 31 March 2012 for the period from 1 January 2012. Justin Crookenden's fees reflected his additional duties as Chairman of the Remuneration Committee throughout both years.
Cash allowances, bonus payments and benefits in kind paid to Directors are not pensionable and do not count for share award or bonus purposes.
Overview
The graphs below were prepared by Kepler Associates. They show the total shareholder return for a holding in the Company's shares for the period from 1 April 2008 to 31 March 2013 relative to a holding of shares representing respectively the FTSE 350 Index (excluding investment trusts) and the FTSE 350 Support Services sector. The calculation of the return assumes dividends are reinvested to purchase additional equity. This FTSE 350 Index (excluding investment trusts) is a broad index that allows comparison of the Company's performance against the performance of the stock market as a whole; Support Services is the sector in which the Company's share price is reported. Over the five-year period, the Company has significantly outperformed both indices. An investment of £100 in the Company on 1 April 2008 would have been worth (assuming the dividends were reinvested in further Company shares) £212.80 at 31 March 2013. This compares to an investment in each of the indices of £100 which, on the same basis and over the same period, would have been worth £156.69 (FTSE 350 Support Services Index) and £112.38 (FTSE 350 Index excluding Investment Trusts).
This Remuneration report was approved on behalf of the Board by a Committee of the Board on 13 May 2013 and signed on its behalf by:
Chairman of the Remuneration Committee 13 May 2013
We have audited the Group financial statements of Babcock International Group PLC for the year ended 31 March 2013 which comprise the Group income statement, the Group statement of comprehensive income, the Group statement of changes in equity, the Group balance sheet, the Group cash flow statement, and the Notes to the Group financial statements. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
As explained more fully in the Directors' responsibility statement on page 73, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
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.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts 2013 to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the Group financial statements:
In our opinion the information given in the Directors' report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.
We have nothing to report in respect of the following matters:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have reported separately on the parent Company financial statements of Babcock International Group PLC for the year ended 31 March 2013 and on the information in the Remuneration report that is described as having been audited.
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London, United Kingdom
| 2013 | 2012 | |||
|---|---|---|---|---|
| For the year ended 31 March 2013 | Note £m |
Total £m |
£m | Total £m |
| Total revenue | 3,243.5 | 3,070.4 | ||
| Less: joint ventures and associates revenue | 214.1 | 222.0 | ||
| Group revenue | 3 | 3,029.4 | 2,848.4 | |
| Group | ||||
| Operating profit before amortisation of acquired intangibles | ||||
| and exceptional items 3, 4, 5 |
315.2 | 290.2 | ||
| Amortisation of acquired intangibles | (66.4) 3, 6 |
(77.3) | ||
| Exceptional items | (14.3) 6 |
(10.9) | ||
| Group operating profit | 3 | 234.5 | 202.0 | |
| Joint ventures and associates | ||||
| Share of operating profit | 21.2 3 |
11.0 | ||
| Investment income | 38.5 3 |
25.6 | ||
| Amortisation of acquired intangibles | (6.2) 3, 6 |
(6.2) | ||
| Finance costs | (29.2) 3 |
(19.4) | ||
| Income tax expense | (6.3) 3 |
(6.7) | ||
| Share of results of joint ventures and associates | 18.0 | 4.3 | ||
| Group and joint ventures and associates | ||||
| Operating profit before amortisation of acquired intangibles | ||||
| and exceptional items | 336.4 | 301.2 | ||
| Investment income | 40.2 | 27.8 | ||
| Underlying operating profit* | 376.6 | 329.0 | ||
| Amortisation of acquired intangibles | (72.6) | (83.5) | ||
| Exceptional items | (14.3) | (10.9) | ||
| Group investment income | (1.7) | (2.2) | ||
| Joint ventures and associates finance costs | (29.2) | (19.4) | ||
| Joint ventures and associates income tax expense | (6.3) | (6.7) | ||
| Group operating profit plus share of joint ventures and associates | 252.5 | 206.3 | ||
| Finance costs | ||||
| Investment income | 1.7 3 |
2.2 | ||
| Finance costs | (38.7) 7 |
(46.0) | ||
| Finance income | 9.1 7 |
10.5 | ||
| (27.9) | (33.3) | |||
| Profit before tax | 224.6 | 173.0 | ||
| Income tax expense | 9 | (28.3) | (15.8) | |
| Profit for the year from continuing operations | 196.3 | 157.2 | ||
| Discontinued operations | ||||
| Loss for the year from discontinued operations attributable to | ||||
| owners of the parent | 10 | (15.2) | (53.1) | |
| Profit for the year | 181.1 | 104.1 | ||
| Attributable to: | ||||
| Owners of the parent | 175.2 | 100.8 | ||
| Non-controlling interest | 5.9 | 3.3 | ||
| 181.1 | 104.1 | |||
| Earnings per share from continuing operations | 12 | |||
| Basic | 53.0p | 42.9p | ||
| Diluted | 52.4p | 42.8p | ||
| Earnings per share from continuing and discontinued operations | 12 | |||
| Basic | 48.8p | 28.1p | ||
| Diluted | 48.2p | 28.0p |
* Including IFRIC 12 investment income but before exceptional items and amortisation of acquired intangibles.
| For the year ended 31 March 2013 Note |
2013 £m |
2012 £m |
|---|---|---|
| Profit for the year | 181.1 | 104.1 |
| Other comprehensive income | ||
| Currency translation differences | (0.6) | (6.2) |
| Fair value adjustment of interest rate and foreign exchange hedges | 1.2 | 4.3 |
| Tax on fair value adjustment of interest rate and foreign exchange hedges | (0.3) | 0.5 |
| Fair value adjustment of joint venture and associates derivatives 16 |
(23.0) | (65.1) |
| Tax on fair value adjustment of joint venture and associates derivatives 16 |
5.5 | 16.9 |
| Net actuarial loss in respect of pensions 27 |
(59.0) | (106.9) |
| Tax on net actuarial loss in respect of pensions | 14.2 | 27.8 |
| Impact of change in UK tax rates | (3.1) | (5.7) |
| Other comprehensive loss net of tax | (65.3) | (134.4) |
| Total comprehensive income /(loss) | 115.8 | (30.3) |
| Attributable to: | ||
| Owners of the parent | 111.0 | (33.3) |
| Non-controlling interest | 4.8 | 3.0 |
| Total comprehensive income/(loss) | 115.8 | (30.3) |
| For the year ended 31 March 2013 | Share capital £m |
Share premium £m |
Capital redemption £m |
Retained earnings £m |
Hedging reserve £m |
Translation reserve £m |
Owners of the parent £m |
Non controlling interest £m |
Total equity £m |
|---|---|---|---|---|---|---|---|---|---|
| At 1 April 2011 | 215.3 | 872.8 | 30.6 | (109.5) | 1.5 | 1.0 | 1,011.7 | 8.9 | 1,020.6 |
| Total comprehensive (loss)/income | – | – | – | 16.0 | (43.4) | (5.9) | (33.3) | 3.0 | (30.3) |
| Shares issued in the financial year | 0.2 | 0.2 | – | – | – | – | 0.4 | – | 0.4 |
| Dividends | – | – | – | (71.4) | – | – | (71.4) | (2.1) | (73.5) |
| Share-based payments | – | – | – | 5.0 | – | – | 5.0 | – | 5.0 |
| Tax on shared-based payments | – | – | – | (0.6) | – | – | (0.6) | – | (0.6) |
| Own shares and other | – | – | – | 0.2 | – | – | 0.2 | – | 0.2 |
| Non-controlling interest acquired | – | – | – | (0.6) | – | – | (0.6) | (1.2) | (1.8) |
| Net movement in equity | 0.2 | 0.2 | – | (51.4) | (43.4) | (5.9) | (100.3) | (0.3) | (100.6) |
| At 31 March 2012 | 215.5 | 873.0 | 30.6 | (160.9) | (41.9) | (4.9) | 911.4 | 8.6 | 920.0 |
| At 1 April 2012 | 215.5 | 873.0 | 30.6 | (160.9) | (41.9) | (4.9) | 911.4 | 8.6 | 920.0 |
| Total comprehensive income/(loss) | – | – | – | 127.2 | (16.6) | 0.4 | 111.0 | 4.8 | 115.8 |
| Shares issued in the financial year | 1.7 | – | – | – | – | – | 1.7 | – | 1.7 |
| Dividends | – | – | – | (83.6) | – | – | (83.6) | (3.1) | (86.7) |
| Share-based payments | – | – | – | 8.6 | – | – | 8.6 | – | 8.6 |
| Tax on shared-based payments | – | – | – | 6.5 | – | – | 6.5 | – | 6.5 |
| Acquisition of non-controlling interest | – | – | – | – | – | – | – | 19.8 | 19.8 |
| Disposal of non-controlling interest | – | – | – | – | – | – | – | 0.4 | 0.4 |
| Transaction with non-controlling interest | – | – | (4.6) | – | – | (4.6) | (8.7) | (13.3) | |
| Own shares and other | – | – | – | (3.9) | – | – | (3.9) | – | (3.9) |
| Net movement in equity | 1.7 | – | – | 50.2 | (16.6) | 0.4 | 35.7 | 13.2 | 48.9 |
| At 31 March 2013 | 217.2 | 873.0 | 30.6 | (110.7) | (58.5) | (4.5) | 947.1 | 21.8 | 968.9 |
Overview
| 2013 | 2012 | ||
|---|---|---|---|
| As at 31 March 2013 | Note | £m | £m |
| Assets | |||
| Non-current assets | |||
| Goodwill | 13 | 1,563.0 | 1,540.9 |
| Other intangible assets | 14 | 299.2 | 347.2 |
| Property, plant and equipment | 15 | 248.9 | 213.7 |
| Investment in joint ventures and associates | 16 | 18.6 | 19.3 |
| Loan to joint ventures and associates | 16 | 51.1 | 24.9 |
| Retirement benefits | 27 | 10.1 | 10.2 |
| Trade and other receivables | 19 | 0.5 | 1.8 |
| IFRIC 12 financial assets | 22.2 | 23.1 | |
| Other financial assets | 23 | 45.1 | 20.1 |
| Deferred tax | 17 | 43.4 | 31.3 |
| 2,302.1 | 2,232.5 | ||
| Current assets | |||
| Inventories | 18 | 73.9 | 81.6 |
| Trade and other receivables | 19 | 519.0 | 476.9 |
| Income tax recoverable | 8.6 | – | |
| Other financial assets | 23 | 3.5 | 3.3 |
| Cash and cash equivalents | 20 | 97.1 | 100.3 |
| 702.1 | 662.1 | ||
| Assets held for sale | 32 | – | 103.0 |
| Total assets | 3,004.2 | 2,997.6 | |
| Equity and liabilities | |||
| Equity attributable to owners of the parent | |||
| Share capital | 25 | 217.2 | 215.5 |
| Share premium | 873.0 | 873.0 | |
| Capital redemption and other reserves | (32.4) | (16.2) | |
| Retained earnings | (110.7) | (160.9) | |
| 947.1 | 911.4 | ||
| Non-controlling interest | 21.8 | 8.6 | |
| Total equity | 968.9 | 920.0 | |
| Non-current liabilities | |||
| Bank and other borrowings | 22 | 684.0 | 757.3 |
| Trade and other payables | 21 | 7.9 | 8.9 |
| Deferred tax liabilities | 4.0 | – | |
| Other financial liabilities | 10.0 | – | |
| Retirement liabilities | 27 | 271.2 | 276.1 |
| Provisions for other liabilities | 24 | 115.2 | 117.2 |
| 1,092.3 | 1,159.5 | ||
| Current liabilities | |||
| Bank and other borrowings | 22 | 8.8 | 4.2 |
| Trade and other payables | 21 | 884.4 | 819.5 |
| Income tax payable | – | 10.0 | |
| Other financial liabilities | 23 | 7.2 | 8.2 |
| Provisions for other liabilities | 24 | 42.6 | 27.8 |
| 943.0 | 869.7 | ||
| Liabilities held for sale | 32 | – | 48.4 |
| Total liabilities | 2,035.3 | 2,077.6 | |
| Total equity and liabilities | 3,004.2 | 2,997.6 |
The notes on pages 106 to 148 are an integral part of the consolidated financial statements. The Group financial statements were approved by the Board of Directors on 13 May 2013 and are signed on its behalf by:
| 2013 | 2012 | ||
|---|---|---|---|
| For the year ended 31 March 2013 | Note | £m | £m |
| Cash flows from operating activities | |||
| Cash generated from operations | 28 | 293.4 | 260.7 |
| Income tax paid | (45.8) | (28.0) | |
| Interest paid | (38.7) | (47.4) | |
| Interest received | 8.2 | 10.3 | |
| Net cash flows from operating activities | 217.1 | 195.6 | |
| Cash flows from investing activities | |||
| Disposal of subsidiaries and joint ventures and associates, net of cash disposed | 32 | 68.0 | 5.7 |
| Dividends received from joint ventures and associates | 7.1 | 6.6 | |
| Proceeds on disposal of property, plant and equipment | 6.2 | 2.7 | |
| Purchases of property, plant and equipment | (52.7) | (42.7) | |
| Purchases of intangible assets | (6.6) | (6.0) | |
| Investment in, loans to and interest received from joint ventures and associates | (30.2) | (2.7) | |
| Transactions with non-controlling interest | 1.3 | (1.7) | |
| Acquisition of subsidiaries net of cash acquired | 31 | (22.2) | 0.2 |
| Net cash flows from investing activities | (29.1) | (37.9) | |
| Cash flows from financing activities | |||
| Dividends paid | 11 | (83.6) | (71.4) |
| Finance lease principal payments | (3.7) | (2.0) | |
| Loans repaid | (101.1) | (305.6) | |
| Loans raised | – | 251.0 | |
| Dividends paid to non-controlling interest | (3.1) | (2.1) | |
| Net proceeds on issue of shares | 1.7 | 0.4 | |
| Movement on own shares | (3.9) | 0.2 | |
| Net cash flows from financing activities | (193.7) | (129.5) | |
| Net (decrease)/increase in cash, cash equivalents and bank overdrafts | (5.7) | 28.2 | |
| Cash, cash equivalents and bank overdrafts at beginning of year | 98.4 | 72.7 | |
| Effects of exchange rate fluctuations | (2.1) | (2.5) | |
| Cash, cash equivalents and bank overdrafts at end of year | 30 | 90.6 | 98.4 |
Overview
Strategy and Business model
Operating review and KPIs
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) 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.
The principal accounting policies adopted by the Group and applied consistently throughout the year, are disclosed below:
The Group financial statements comprise the Company and all of its subsidiary undertakings made up to 31 March.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. If, however, more than 50% of the voting rights are owned but the Group does not govern the financial and operating policies then this investment is not consolidated as a subsidiary. Acquisitions are included from the date of acquisition and the results of the businesses disposed of or terminated are included in the results for the year up to the date of relinquishing control or closure and analysed as continuing or discontinued operations.
The Group's interests in jointly controlled entities are accounted for by the equity method of accounting and are initially recorded at cost. The Group's investment in jointly controlled entities includes goodwill (net of any accumulated impairment loss) identified on acquisition.
The Group's share of its jointly controlled entities' post-acquisition profits or losses after tax is recognised in the income statement, and its share of postacquisition 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 jointly controlled entities are eliminated to the extent of the Group's interest in the joint controlled entities.
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 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:
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.
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.
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.
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.
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.
The Group policy is to treat transactions with non-controlling interest as transactions with owners of the parent and therefore result in movements in reserves.
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 has been 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.
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.
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 13.
Acquired intangibles are 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 one year to five years, with a minority of contracts and hence amortisation periods, up to ten 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 one year to ten years.
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.
Computer software is shown at cost less amortisation and is amortised over its expected useful lives of between three and five years.
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 | 2% to 8% |
|---|---|
| Leasehold property | Lease term |
| Plant and equipment | 6.6% 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 consists of the total of loans, bank overdrafts, cash and cash equivalents and finance leases 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.
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.
Inventory is valued at the lower of cost and net realisable value. Cost is determined on a first-in first-out method. In the case of finished goods and work in progress, cost comprises direct material and labour and an appropriate proportion of overheads.
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.
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 substantially enacted by the balance sheet date.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the 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.
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 equity, in which case it is recognised in equity.
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Sterling, which is the Company's functional and presentation currency.
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.
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. Capitalisation of applicable interest commenced in 2009/10.
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 Group's current and past service cost and imputed interest on the defined benefit schemes' obligations, net of the expected return on the schemes' assets, are charged to operating profit within the income statement. Actuarial gains and losses are recognised directly in equity through the Statement of comprehensive income so that the Group's balance sheet reflects the fair value of the schemes' surpluses or deficits at the balance sheet date.
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.
Paid holidays are regarded as an employee benefit and as such are charged to the income statement as the benefits are earned.
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.
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:
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.
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 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 values is recognised in the income statement immediately.
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.
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 in light of known circumstances. The key areas of estimates and judgements for the Group are contract accounting (see above), the accounting for defined benefit pension schemes (see note 27), impairment of goodwill (see note 13) and income tax recognition.
Fair value adjustments on acquisitions are by nature subject to critical judgements. The size of recent acquisitions do not make them significant in Group terms however any future acquisitions might do so.
Assets and liabilities held for sale are judgemental and reflects management's best estimate of sale proceeds less costs to sell.
Profit recognition on contracts is a key judgement exercised by management on a contract by contract basis. In order to make such a judgement an estimate of contract outturn is made and for all significant contracts both local management and Group review and challenge estimates made.
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 April 2012 or later periods but which the Group has not early adopted.
(a) Standards, amendments and interpretations effective in 2012 with minimal or no impact on the Group:
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.
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 |
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. |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 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 below two times as being steady state and sustainable in the current market and against the current economic backdrop. This is not to rule out acquisition spikes above two times, as reported following acquisitions in the past, but only if the Group can see a clear path to reducing net debt to EBITDA back below two times within a reasonable time frame. |
|||||||||
| Performance | The Group's gearing and debt cover ratios, used by the Group to evaluate capital, have continued to improve year-on-year both in the pay down of debt and through increased profits attributable to shareholders. |
|||||||||
| Covenant | 2013 | 2012 | ||||||||
| Debt service cover | EBITDA/net interest | >4 | 12.7x | 10.3x | ||||||
| Debt cover | Net debt/EBITDA | <3.5 | 1.5x | 1.8x | ||||||
| Gearing | Net debt/shareholders' funds | n/a | 45% | 54% | ||||||
| Debt ratios are well below covenanted levels and gearing is at a level where the cost of capital is enhanced. As such we believe capital markets remain readily accessible when required. |
Governance
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.
All treasury transactions are carried out only with prime rated counterparties as are 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 divisions have responsibility for monitoring compliance within the Group to ensure adherence with 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 and uncertainty in the financial markets.
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 and amortisation), 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 profit before interest, tax, depreciation, amortisation and exceptionals divided by net interest payable). These ratios are discussed under the business 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 to retain sufficient flexibility to fund future organic and acquisitive growth.
The functional and presentational currency of Babcock International group PLC and its UK subsidiaries is pounds Sterling. The Group has two main areas of currency exposure; firstly, the US\$650 million US Private Placements which are swapped into Sterling and secondly, through its activities in South Africa where both translational and transactional exposure exist.
| 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 US Dollar, Euro and South African Rand. |
|---|---|
| Policy – | The Group is exposed to movements in foreign currency exchange rates in respect of foreign currency denominated |
| Transactional risk | 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 – Translational 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 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. |
| Performance | 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 divisions have responsibility for monitoring compliance within the Group to ensure adherence with the principal treasury policies and guidelines.
The foreign exchange exposure of Group entities on the net monetary position against their respective functional currencies expressed in the Group's presentation currency is insignificant with the largest exposure being £1.5 million Sterling to Omani Rials (2012: Sterling to Euro £12.2 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 £0.1 million (2012: £1.5 million). The reasonable shifts in exchange rates are based on historic volatility and range from 10% for Sterling to Euro and US Dollars to 15% for South African Rand to Euro and 15% Sterling to Omani Rial.
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 (2012: ±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.
| 2013 | 2012 | |||
|---|---|---|---|---|
| £m +50bp |
£m –50bp |
£m +50bp |
£m –50bp |
|
| Net results for the year | (1.6) | 1.6 | (2.1) | 2.1 |
| Equity | 13.6 | (13.6) | 14.3 | (14.3) |
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 | 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. |
|---|---|
| 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. |
| Performance | As at 31 March 2013, the Group had 55% fixed rate debt (March 2012: 45%) and 45% floating rate debt (March 2012: 55%) based on gross debt including derivatives of £647.7 million (March 2012: £741.3 million). For further information see note 22 to the Group accounts. |
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 22).
The Group's committed Revolving Credit Facility (RCF) of £500 million has an expiry date of September 2016, and is available to meet general corporate funding requirements. At 31 March 2013, £125 million was drawn on this facility.
The Group has US Private Placements with a value of US\$650 million maturing between five and eight years.
The Group has two Sterling loan notes with a value of £100 million maturing between four and seven years.
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 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.
| 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. |
|---|---|
| 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. Current committed facilities and headroom are thought to be sufficient to meet the Group's ongoing commitments, following the issuance of the US\$650 US Private Placement notes in March 2011 and the refinancing of the £500 million Revolving Credit Facility (RCF) in June 2011, with a term of five years three months, with no new material debt being raised in the financial year ending 31 March 2013. The two aforementioned debt raisings together with the £100 million of loan notes issued in January 2010, provide the Group with total committed banking facilities and loan notes of £1 billion. For further information see note 22 to the Group accounts. |
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.
| Less than 1 year £m |
Between 1 and 2 years £m |
Between 2 and 5 years £m |
Over 5 years £m |
|
|---|---|---|---|---|
| At 31 March 2013 | ||||
| Bank and other borrowings | 37.5 | 31.6 | 370.6 | 456.7 |
| Derivative financial instruments | 1.6 | 0.4 | 0.5 | (33.8) |
| Trade and other payables* | 867.2 | 1.3 | 3.1 | 2.3 |
| At 31 March 2012 | ||||
| Bank and other borrowings | 31.7 | 29.7 | 370.4 | 552.2 |
| Derivative financial instruments | 1.1 | 0.3 | 0.2 | (16.8) |
| Trade and other payables* | 803.9 | 1.5 | 4.2 | 4.6 |
* 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.
| Less than 1 year £m |
Between 1 and 2 years £m |
Between 2 and 5 years £m |
Over 5 years £m |
|
|---|---|---|---|---|
| At 31 March 2013 | ||||
| Forward derivative contracts – hedges: | ||||
| – outflow | 50.7 | 21.5 | 121.4 | 307.7 |
| – inflow | 50.2 | 21.5 | 126.5 | 348.3 |
| Forward derivative contracts – held for trading: | ||||
| – outflow | 43.1 | – | – | – |
| – inflow | 42.5 | – | – | – |
| At 31 March 2012 | ||||
| Forward derivative contracts – hedges: | ||||
| – outflow | 25.7 | 17.5 | 48.0 | 400.0 |
| – inflow | 25.1 | 17.6 | 48.7 | 420.1 |
| Forward derivative contracts – held for trading: | ||||
| – outflow | 9.4 | – | – | – |
| – inflow | 9.4 | – | – | – |
The segments reflect the accounting information reviewed by the Chief Operating Decision Maker (CODM). The defence infrastructure business, formerly reported under Support Services, has been moved and is now reported under Defence and Security and the comparatives have been restated. The VT US defence business is now under Discontinued operations within International. The analysis of discontinued exceptional items is within note 6 and 32.
| Continuing operations | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2013 | Marine and Technology £m |
Defence and Security £m |
Support Services £m |
International £m |
Unallocated £m |
Total continuing operations £m |
International/ unallocated £m |
Group Total £m |
| Total revenue | 1,201.6 | 820.2 | 943.7 | 278.0 | – | 3,243.5 | 38.9 | 3,282.4 |
| Less; joint ventures and associates revenue | 7.8 | 110.8 | 95.5 | – | – | 214.1 | – | 214.1 |
| Group revenue | 1,193.8 | 709.4 | 848.2 | 278.0 | – | 3,029.4 | 38.9 | 3,068.3 |
| Operating profit* – Group | 156.3 | 67.0 | 75.6 | 24.7 | (8.4) | 315.2 | 1.1 | 316.3 |
| IFRIC 12 investment income – Group | – | 1.0 | 0.7 | – | – | 1.7 | – | 1.7 |
| Share of operating profit – joint ventures and associates |
0.6 | 14.3 | 6.3 | – | – | 21.2 | – | 21.2 |
| Share of IFRIC 12 investment income – joint ventures and associates |
– | 29.9 | 8.6 | – | – | 38.5 | – | 38.5 |
| Underlying operating profit | 156.9 | 112.2 | 91.2 | 24.7 | (8.4) | 376.6 | 1.1 | 377.7 |
| Share of finance costs – joint ventures and associates |
– | (20.0) | (9.2) | – | – | (29.2) | – | (29.2) |
| Share of tax – joint ventures and associates | (0.2) | (4.7) | (1.4) | – | – | (6.3) | – | (6.3) |
| Acquired intangible amortisation – Group | (11.7) | (12.1) | (42.6) | – | – | (66.4) | – | (66.4) |
| Share of acquired intangible amortisation –joint ventures and associates |
– | (5.8) | (0.4) | – | – | (6.2) | – | (6.2) |
| Net finance costs – Group | – | – | – | – | (29.6) | (29.6) | – | (29.6) |
| Exceptional items – Group | – | – | – | – | (14.3) | (14.3) | (18.2) | (32.5) |
| Group profit before tax | 145.0 | 69.6 | 37.6 | 24.7 | (52.3) | 224.6 | (17.1) | 207.5 |
* Before amortisation of acquired intangibles and exceptional items.
| Continuing operations | Discontinued operations |
Total | ||||||
|---|---|---|---|---|---|---|---|---|
| 2012 | Marine and Technology £m |
Defence and Security (restated) £m |
Support Services (restated) £m |
International £m |
Unallocated £m |
Total continuing operations £m |
International £m |
Group Total £m |
| Total revenue | 1,084.7 | 901.1 | 804.6 | 280.0 | – | 3,070.4 | 202.1 | 3,272.5 |
| Less: joint ventures and associates revenue | – | 167.3 | 54.7 | – | – | 222.0 | – | 222.0 |
| Group revenue | 1,084.7 | 733.8 | 749.9 | 280.0 | – | 2,848.4 | 202.1 | 3,050.5 |
| Operating profit* – Group | 135.1 | 69.0 | 78.5 | 19.3 | (11.7) | 290.2 | 14.7 | 304.9 |
| IFRIC 12 investment income – Group | – | 1.4 | 0.8 | – | – | 2.2 | – | 2.2 |
| Share of operating profit – joint ventures and associates |
– | 9.5 | 1.5 | – | – | 11.0 | – | 11.0 |
| Share of IFRIC 12 investment income – joint ventures and associates |
– | 18.4 | 7.2 | – | – | 25.6 | – | 25.6 |
| Underlying operating profit | 135.1 | 98.3 | 88.0 | 19.3 | (11.7) | 329.0 | 14.7 | 343.7 |
| Share of finance costs – joint ventures and associates |
– | (12.3) | (7.1) | – | – | (19.4) | – | (19.4) |
| Share of tax – joint ventures and associates | – | (6.5) | (0.2) | – | – | (6.7) | – | (6.7) |
| Acquired intangible amortisation – Group | (13.0) | (12.6) | (51.7) | – | – | (77.3) | (7.9) | (85.2) |
| Share of acquired intangible amortisation – joint ventures and associates |
– | (5.8) | (0.4) | – | – | (6.2) | – | (6.2) |
| Net finance costs – Group | – | – | – | – | (35.5) | (35.5) | – | (35.5) |
| Exceptional items – Group | – | – | – | – | (10.9) | (10.9) | (58.6) | (69.5) |
| Group profit before tax | 122.1 | 61.1 | 28.6 | 19.3 | (58.1) | 173.0 | (51.8) | 121.2 |
* Before amortisation of acquired intangibles and exceptional items
Overview
Inter divisional revenue is immaterial.
Revenues of £1.9 billion (2012: £2.0 billion) are derived from a single external customer. These revenues are attributable to the Marine and Technology, Defence and Security, and Support Services segments.
The segment assets and liabilities at 31 March 2013 and 31 March 2012 and capital expenditure for the years then ended are as follows:
| Assets | Liabilities | Capital expenditure | ||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 (restated) £m |
2013 £m |
2012 (restated) £m |
2013 £m |
2012 £m |
|
| Marine and Technology | 784.9 | 710.7 | 639.4 | 535.2 | 29.0 | 24.5 |
| Defence and Security | 900.5 | 855.6 | 239.3 | 268.3 | 2.7 | 1.4 |
| Support Services | 941.4 | 944.0 | 262.9 | 263.7 | 7.7 | 3.6 |
| International | 158.5 | 155.5 | 105.9 | 87.3 | 11.0 | 8.1 |
| Unallocated | 218.9 | 331.8 | 787.8 | 923.1 | 9.5 | 11.1 |
| Group total | 3,004.2 | 2,997.6 | 2,035.3 | 2,077.6 | 59.9 | 48.7 |
Capital expenditure represents additions to property, plant and equipment and intangible assets.
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 depreciation on tangible assets and amortisation of intangible assets for the years ended 31 March 2013 and 31 March 2012 are as follows:
| Depreciation | Amortisation of intangible assets |
|||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 (restated) £m |
2013 £m |
2012 (restated) £m |
|||
| Marine and Technology | 19.2 | 17.2 | 12.5 | 14.2 | ||
| Defence and Security | 5.0 | 4.5 | 12.3 | 14.7 | ||
| Support Services | 6.0 | 5.8 | 43.4 | 52.7 | ||
| International | 4.3 | 3.6 | 0.2 | 0.3 | ||
| Unallocated | 2.9 | 1.5 | 5.2 | 0.3 | ||
| Total continuing operations | 37.4 | 32.6 | 73.6 | 82.2 | ||
| Discontinued operations | – | 1.0 | – | 8.2 | ||
| Group total | 37.4 | 33.6 | 73.6 | 90.4 |
| Revenue | Assets | Capital expenditure | |||||
|---|---|---|---|---|---|---|---|
| Geographic analysis | 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
| United Kingdom | 2,542.0 | 2,423.2 | 2,731.0 | 2,502.0 | 45.7 | 38.6 | |
| Africa | 272.1 | 264.1 | 169.0 | 159.3 | 11.0 | 6.9 | |
| North America | 129.9 | 93.7 | 62.0 | 289.7 | 1.8 | 1.7 | |
| Rest of World | 85.4 | 67.4 | 42.2 | 46.6 | 1.4 | 1.5 | |
| Group total | 3,029.4 | 2,848.4 | 3,004.2 | 2,997.6 | 59.9 | 48.7 |
| Continuing operations | Discontinued operations | Group total | |||||
|---|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
||
| Sales of goods | 268.3 | 295.2 | – | – | 268.3 | 295.2 | |
| Sales of services | 2,740.7 | 2,550.0 | 38.9 | 202.1 | 2,779.6 | 2,752.1 | |
| Rental income | 20.4 | 3.2 | – | – | 20.4 | 3.2 | |
| 3,029.4 | 2,848.4 | 38.9 | 202.1 | 3,068.3 | 3,050.5 |
| Continuing operations | Discontinued operations | Group total | |||||
|---|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
||
| Cost of sales | 2,631.9 | 2,507.4 | 37.8 | 184.3 | 2,669.7 | 2,691.7 | |
| Distribution expenses | 11.2 | 9.3 | – | – | 11.2 | 9.3 | |
| Administration expenses | 151.8 | 129.7 | 18.2 | 69.6 | 170.0 | 199.3 | |
| 2,794.9 | 2,646.4 | 56.0 | 253.9 | 2,850.9 | 2,900.3 |
The following items have been included in arriving at operating profit for the year.
| Continuing operations | Discontinued operations | Group total | ||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
| Employee costs (note 8) | 1,033.9 | 986.0 | 17.7 | 89.7 | 1,051.6 | 1,075.7 |
| Inventories | ||||||
| – cost of inventories recognised as an expense | 322.3 | 290.8 | – | 0.6 | 322.3 | 291.4 |
| – increase in inventory provisions | 1.9 | 1.5 | – | – | 1.9 | 1.5 |
| Depreciation of Property, Plant and Equipment (PPE) | ||||||
| – owned assets | 36.5 | 31.8 | – | 0.9 | 36.5 | 32.7 |
| – under finance leases | 0.9 | 0.9 | – | – | 0.9 | 0.9 |
| 37.4 | 32.7 | – | 0.9 | 37.4 | 33.6 | |
| Amortisation of intangible assets | ||||||
| – acquired intangibles | 66.4 | 77.3 | – | 7.9 | 66.4 | 85.2 |
| – other | 7.2 | 4.9 | – | 0.2 | 7.2 | 5.1 |
| 73.6 | 82.2 | – | 8.1 | 73.6 | 90.3 | |
| (Profit)/loss on disposal of PPE | (4.1) | (0.3) | – | (0.5) | (4.1) | (0.8) |
| Loss on disposal of intangibles | 1.1 | 0.2 | – | – | 1.1 | 0.2 |
| Operating lease rentals payable | ||||||
| – property | 19.9 | 19.5 | 0.4 | 1.6 | 20.3 | 21.1 |
| – vehicles, plant and equipment | 13.9 | 12.3 | – | 0.3 | 13.9 | 12.6 |
| Research and development | 1.9 | 1.9 | – | – | 1.9 | 1.9 |
| Trade receivables (release)/impairment | (0.9) | 0.9 | – | (1.0) | (0.9) | (0.1) |
| Net foreign exchange (gains)/losses | (0.8) | 0.8 | – | – | (0.8) | 0.8 |
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditor as detailed below:
| Total | ||
|---|---|---|
| 2013 £m |
2012 £m |
|
| Audit fees: | ||
| Fees payable to the parents auditor and its associates for the audit of the parent company's individual and consolidated financial statements |
0.8 | 0.8 |
| Fees for other services: | ||
| Fees payable to the parents auditor and its associates in respect of the audit of the Company's subsidiaries | 0.8 | 0.8 |
| Taxation advisory services | 0.2 | 0.1 |
| All other services | – | 0.2 |
| Total fees paid to the Group's auditor and network firms | 1.8 | 1.9 |
Other services in 2012 include £0.2 million for work on non statutory audits.
| Group | Joint ventures and associates | Total | ||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
| Continuing operations | ||||||
| Profit on disposal of subsidiaries (note 32) | (0.2) | (1.9) | – | – | (0.2) | (1.9) |
| Reorganisation cost | 14.5 | 12.8 | – | – | 14.5 | 12.8 |
| Exceptional items | 14.3 | 10.9 | – | – | 14.3 | 10.9 |
| Acquired intangible amortisation | 66.4 | 77.3 | 6.2 | 6.2 | 72.6 | 83.5 |
| Continuing total | 80.7 | 88.2 | 6.2 | 6.2 | 86.9 | 94.4 |
| Discontinued operations | ||||||
| Loss on disposal, in year, of subsidiaries (note 32) | 8.9 | – | – | – | 8.9 | – |
| Reorganisation costs | – | 0.1 | – | – | – | 0.1 |
| Impairment of US defence goodwill | – | 58.5 | – | – | – | 58.5 |
| Provision for costs on previous years disposals (note 32) | 9.3 | – | – | – | 9.3 | – |
| Exceptional items | 18.2 | 58.6 | – | – | 18.2 | 58.6 |
| Acquired intangible amortisation | – | 7.9 | – | – | – | 7.9 |
| Discontinued total | 18.2 | 66.5 | – | – | 18.2 | 66.5 |
Exceptional items are those items which are exceptional in nature or size. These include material acquisition costs and reorganisation costs. Reorganisation costs relate to the integration of Babcock International Group PLC and VT Group plc which is now complete.
Following the exchange of conditional contracts, in 2012, for the sale of the US defence business acquired with the VT Group plc there was an impairment of goodwill reflecting the sales value expected. The sale was completed in 2012/13 and resulted in a further loss on disposal. Included within the loss on disposal of the VT US business is £4.8 million of foreign exchange translation previously taken to reserves, which is now recycled. Previous year disposal losses arise from long-term property liabilities retained as part of past disposals.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Finance costs | ||
| Loans, overdrafts and associated interest rate hedges* | 36.1 | 43.7 |
| Finance leases | 0.3 | 0.2 |
| Amortisation of issue costs of bank loan | 1.2 | 1.0 |
| Other | 1.1 | 1.1 |
| Total finance costs | 38.7 | 46.0 |
| Finance income | ||
| Bank deposits and loans | 9.1 | 10.5 |
| Total finance income | 9.1 | 10.5 |
| Net finance costs | 29.6 | 35.5 |
* Interest rate hedges included above is £0.1 million costs (2012: £2.8 million income).
| Continuing operations | Discontinued operations | Group total | ||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
| Wages and salaries | 893.0 | 852.5 | 16.5 | 81.3 | 909.5 | 933.8 |
| Social security costs | 86.9 | 80.6 | 1.2 | 5.9 | 88.1 | 86.5 |
| Share-based payments (note 26) | 8.6 | 4.8 | – | 0.2 | 8.6 | 5.0 |
| Pension costs – defined contribution plans (note 27) | 31.6 | 30.0 | – | 2.3 | 31.6 | 32.3 |
| Pension charges – defined benefit plans (note 27) | 13.8 | 18.1 | – | – | 13.8 | 18.1 |
| 1,033.9 | 986.0 | 17.7 | 89.7 | 1,051.6 | 1,075.7 |
The average number of people employed by the Group during the year were:
| Continuing operations | Discontinued operations | Group total | ||||
|---|---|---|---|---|---|---|
| 2013 Number |
2012 Number |
2013 Number |
2012 Number |
2013 Number |
2012 Number |
|
| Operations | 22,257 | 21,855 | 337 | 1,838 | 22,594 | 23,693 |
| Administration and management | 3,535 | 3,470 | 26 | 114 | 3,561 | 3,584 |
| 25,792 | 25,325 | 363 | 1,952 | 26,155 | 27,277 |
Emoluments of the Executive Directors are included in employee costs above and reported in the Remuneration report.
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.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Salaries | 7.9 | 7.3 |
| Post-employment benefits | 0.2 | 0.4 |
| Share-based payments | 3.0 | 1.9 |
| 11.1 | 9.6 |
Overview
| Continuing operations | Discontinued operations | Group total | ||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
| Analysis of tax charge in the year | ||||||
| Current tax | ||||||
| – UK current year charge/(credit) | 37.2 | 32.8 | – | – | 37.2 | 32.8 |
| – Overseas current year charge | 13.1 | 10.4 | 0.3 | 4.4 | 13.4 | 14.8 |
| – UK prior year (credit)/charge | (4.5) | 3.0 | – | – | (4.5) | 3.0 |
| 45.8 | 46.2 | 0.3 | 4.4 | 46.1 | 50.6 | |
| Deferred tax | ||||||
| – UK current year credit | (17.1) | (24.8) | (2.2) | – | (19.3) | (24.8) |
| – Adjustment in respect of prior year | – | (3.0) | – | – | – | (3.0) |
| – Overseas current year charge/(credit) | 0.8 | 0.8 | – | (3.1) | 0.8 | (2.3) |
| – Impact of change in UK tax rate | (1.2) | (3.4) | – | – | (1.2) | (3.4) |
| (17.5) | (30.4) | (2.2) | (3.1) | (19.7) | (33.5) | |
| Total income tax expense | 28.3 | 15.8 | (1.9) | 1.3 | 26.4 | 17.1 |
The tax for the year is lower (2012: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Profit before tax | 224.6 | 173.0 |
| Profit on ordinary activities multiplied by rate of corporation tax in the UK of 24% (2012: 26%) | 53.9 | 45.0 |
| Effects of: | ||
| Expenses not deductible for tax purposes | 1.6 | 2.2 |
| Re-measurement of deferred tax re change in UK tax rate | (1.2) | (3.4) |
| Difference in respect of joint venture results | (4.3) | (1.1) |
| Adjustment in respect of foreign rates and UK consortium relief rates | (6.1) | (12.7) |
| Adjustments in respect of earlier years | (4.6) | – |
| Other (including R&D tax relief) | (11.0) | (14.2) |
| Total income tax expense | 28.3 | 15.8 |
As a result of the change in the UK corporate tax rate from 24% to 23% for the 2013/14 financial year, a credit of £1.2 million (2012: £3.4 million) has been taken to the income statement in respect of the re-measurement of the year end deferred tax balances, and a charge of £3.1 million (2012: £5.7 million) has been taken to reserves.
Following the sale of the US defence business, it has been treated as a discontinued operation within these financial statements. In 2012 the business was impaired to its expected fair value less costs to sell and was included as assets and liabilities held for sale. (See note 32).
The Waste business was sold during the year and as a subsidiary intended for sale on the acquisition of the VT Group plc, is treated as discontinued.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Financial performance of discontinued operations | ||
| Revenue | 38.9 | 202.1 |
| Operating profit before amortisation of acquired intangibles | 1.1 | 14.7 |
| Amortisation of acquired intangibles | – | (7.9) |
| Profit before tax and exceptional items | 1.1 | 6.8 |
| Taxation | (0.3) | (1.3) |
| Profit after taxation and before exceptional items | 0.8 | 5.5 |
| Exceptional items: | ||
| Loss on disposal, in year, of subsidiary (US defence business) (note 32) | (18.2) | – |
| Profit on disposal, in year, of subsidiary (Waste business) (note 32) | 9.3 | – |
| Provision for costs on previous years disposals (note 32) | (9.3) | – |
| Impairment | – | (58.5) |
| Reorganisation costs | – | (0.1) |
| (18.2) | (58.6) | |
| Taxation | 2.2 | – |
| Exceptional loss | (16.0) | (58.6) |
| Loss after taxation from discontinued operations | (15.2) | (53.1) |
| Cash flows from discontinued operations | ||
| Net cash flows from operating activities | (10.2) | 7.9 |
| Net cash flows from investing activities | 66.3 | (0.4) |
| Net cash flows from financing activities | – | (2.8) |
| 56.1 | 4.7 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Final dividend for the year ended 31 March 2012 of 17.0p (2011: 14.2p) per 60p share | 61.0 | 50.9 |
| Interim dividend for the year ended 31 March 2013 of 6.3p (2012: 5.7p) per 60p share | 22.6 | 20.5 |
| 83.6 | 71.4 |
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 March 2013 of 20.0p (2012: 17.0p) per share which will absorb an estimated £71.8 million (2012: £61.0 million) of shareholders' equity. It will be paid on 8 August 2013 to shareholders who are on the register of members on 5 July 2013. These financial statements do not reflect this dividend payable. Subject to approval at the Annual General Meeting on 11 July 2013.
Overview
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:
| 2013 Number |
2012 Number |
|
|---|---|---|
| Weighted average number of ordinary shares for the purpose of basic EPS | 358,912,359 | 358,568,556 |
| Effect of dilutive potential ordinary shares: share options | 4,084,538 | 1,312,457 |
| Weighted average number of ordinary shares for the purpose of diluted EPS | 362,996,897 | 359,881,013 |
| 2013 Earnings £m |
2013 Basic per share Pence |
2013 Diluted per share Pence |
2012 Earnings £m |
2012 Basic per share Pence |
2012 Diluted per share Pence |
|
|---|---|---|---|---|---|---|
| Continuing operations | ||||||
| Earnings from continuing operations | 190.4 | 53.0 | 52.4 | 153.9 | 42.9 | 42.8 |
| Add back: | ||||||
| Amortisation of acquired intangible assets, net of tax |
55.2 | 15.4 | 15.2 | 61.8 | 17.2 | 17.1 |
| Exceptional items, net of tax | 11.6 | 3.2 | 3.2 | 8.1 | 2.3 | 2.2 |
| Impact of change in UK tax rate | (1.2) | (0.3) | (0.3) | (3.4) | (0.9) | (0.9) |
| Earnings before discontinued operations, amortisation, exceptional items and other |
256.0 | 71.3 | 70.5 | 220.4 | 61.5 | 61.2 |
| Discontinued operations | ||||||
| Earnings from discontinued operations | (15.2) | (4.2) | (4.2) | (53.1) | (14.8) | (14.8) |
| Add back: | ||||||
| Amortisation of acquired intangible assets, net of tax |
– | – | – | 4.8 | 1.3 | 1.3 |
| Exceptional items, net of tax | 16.0 | 4.4 | 4.4 | 58.6 | 16.3 | 16.3 |
| Earnings from discontinued operations before amortisation, exceptional items and other |
0.8 | 0.2 | 0.2 | 10.3 | 2.8 | 2.8 |
| Continuing and discontinued operations | ||||||
| Earnings from continuing and discontinued operations |
175.2 | 48.8 | 48.2 | 100.8 | 28.1 | 28.0 |
| Add back: | ||||||
| Amortisation of acquired intangible assets, net of tax |
55.2 | 15.4 | 15.2 | 66.6 | 18.5 | 18.4 |
| Exceptional items, net of tax | 27.6 | 7.6 | 7.6 | 66.7 | 18.6 | 18.5 |
| Impact of change in UK tax rate | (1.2) | (0.3) | (0.3) | (3.4) | (0.9) | (0.9) |
| Earnings before amortisation, exceptional items and other |
256.8 | 71.5 | 70.7 | 230.7 | 64.3 | 64.0 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Cost | ||
| At 1 April | 1,545.7 | 1,627.0 |
| On acquisition of subsidiaries (note 31) | 25.1 | – |
| On disposal of subsidiary (note 32) | (3.4) | (1.2) |
| Reclassified as assets held for sale | – | (81.7) |
| Exchange adjustments | 0.4 | 1.6 |
| At 31 March | 1,567.8 | 1,545.7 |
| Accumulated impairment | ||
| At 1 April | 4.8 | 4.8 |
| Impairment charge | – | 58.5 |
| Reclassified as assets held for sale | – | (58.3) |
| Exchange adjustments | – | (0.2) |
| At 31 March | 4.8 | 4.8 |
| Net book value at 31 March | 1,563.0 | 1,540.9 |
During the year, the goodwill was tested for impairment in accordance with IAS 36. The recoverable amount for all the cash-generating units 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% (effectively zero real growth allowing for inflation). A pre-tax discount rate in the range 9.5% to 11.0% was used in the pre tax value in use calculation for the cash-generating units within each segment. The Group's weighted average cost of capital post-tax is approximately 7.0% to 8.0% (2012: 7.5% to 8.5%). The above impairment in 2012 relates to the discontinued US defence business and reflects the then expected proceeds less costs of sale (note 10).
Goodwill is allocated to the Group's cash-generating units (CGUs) based on value in use, identified according to the business segment and country of operation. The defence infrastructure business, formerly reported under Support Services, has been moved and is now reported under Defence and Security and the comparatives have been restated. A segment level summary of goodwill allocation is presented below:
| 2013 £m |
2012 (restated) £m |
|
|---|---|---|
| Marine and Technology | 409.3 | 387.1 |
| Defence and Security | 627.4 | 626.9 |
| Support Services | 523.4 | 526.8 |
| International – Africa | 2.9 | 0.1 |
| 1,563.0 | 1,540.9 | |
| United Kingdom | 1,546.6 | 1,527.8 |
| Africa | 2.9 | 0.1 |
| North America | 2.4 | 2.4 |
| Middle East | 11.1 | 10.6 |
| 1,563.0 | 1,540.9 |
| Acquired intangibles £m |
IFRIC 12 intangibles £m |
Software £m |
Development costs £m |
Total £m |
|
|---|---|---|---|---|---|
| Cost | |||||
| At 1 April 2012 | 543.9 | 5.9 | 29.8 | – | 579.6 |
| Additions | – | – | 6.6 | – | 6.6 |
| Disposals | – | – | (3.0) | – | (3.0) |
| On acquisition of subsidiaries (note 31) | 20.1 | – | – | – | 20.1 |
| On disposal of subsidiaries (note 32) | – | – | (0.3) | – | (0.3) |
| Exchange adjustments | 2.6 | – | (0.2) | – | 2.4 |
| At 31 March 2013 | 566.6 | 5.9 | 32.9 | – | 605.4 |
| Accumulated amortisation and impairment | |||||
| At 1 April 2012 | 214.8 | 2.4 | 15.2 | – | 232.4 |
| Amortisation charge | 66.4 | 0.2 | 7.0 | – | 73.6 |
| Disposals | – | – | (1.9) | – | (1.9) |
| On disposal of subsidiary (note 32) | – | – | (0.2) | – | (0.2) |
| Exchange adjustments | 2.3 | – | – | – | 2.3 |
| At 31 March 2013 | 283.5 | 2.6 | 20.1 | – | 306.2 |
| Net book value at 31 March 2013 | 283.1 | 3.3 | 12.8 | – | 299.2 |
| Cost | |||||
| At 1 April 2011 | 602.6 | 5.9 | 25.4 | 3.2 | 637.1 |
| Additions | – | – | 6.0 | – | 6.0 |
| Disposals | – | – | (1.1) | (3.2) | (4.3) |
| Reclassified as assets held for sale (note 32) | (58.7) | – | (0.3) | – | (59.0) |
| Exchange adjustments | – | – | (0.2) | – | (0.2) |
| At 31 March 2012 | 543.9 | 5.9 | 29.8 | – | 579.6 |
| Accumulated amortisation and impairment | |||||
| At 1 April 2011 | 146.9 | 0.3 | 13.3 | 3.2 | 163.7 |
| Amortisation charge | 85.2 | 2.1 | 3.0 | – | 90.3 |
| Disposals | – | – | (0.9) | (3.2) | (4.1) |
| Reclassified as assets held for sale (note 32) | (17.2) | – | (0.1) | – | (17.3) |
| Exchange adjustments | (0.1) | – | (0.1) | – | (0.2) |
| At 31 March 2012 | 214.8 | 2.4 | 15.2 | – | 232.4 |
| Net book value at 31 March 2012 | 329.1 | 3.5 | 14.6 | – | 347.2 |
All amortisation charges for the year have been charged through cost of sales.
Acquired intangibles are 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 one year to five years, with a minority of contracts and hence amortisation periods, up to ten 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 one year to ten years.
| Freehold property £m |
Leasehold property £m |
Plant and equipment £m |
Total £m |
|
|---|---|---|---|---|
| Cost | ||||
| At 1 April 2012 | 66.7 | 5.4 | 292.5 | 364.6 |
| Exchange adjustments | (0.1) | – | (5.9) | (6.0) |
| On acquisition of subsidiaries (note 31) | – | – | 25.6 | 25.6 |
| Additions | 4.4 | 1.3 | 47.2 | 52.9 |
| Capitalised borrowing costs | – | – | 0.4 | 0.4 |
| Disposals | (2.5) | (0.4) | (10.6) | (13.5) |
| At 31 March 2013 | 68.5 | 6.3 | 349.2 | 424.0 |
| Accumulated depreciation | ||||
| At 1 April 2012 | 29.2 | 2.0 | 119.7 | 150.9 |
| Exchange adjustments | – | – | (1.8) | (1.8) |
| Charge for the year | 4.1 | 0.7 | 32.6 | 37.4 |
| Disposals | (2.5) | – | (8.9) | (11.4) |
| At 31 March 2013 | 30.8 | 2.7 | 141.6 | 175.1 |
| Net book value at 31 March 2013 | 37.7 | 3.6 | 207.6 | 248.9 |
| Cost | ||||
| At 1 April 2011 | 69.4 | 5.9 | 255.4 | 330.7 |
| Exchange adjustments | – | (0.1) | (4.7) | (4.8) |
| On disposal of subsidiaries (note 32) | – | – | (1.2) | (1.2) |
| Additions | 0.8 | 0.6 | 41.0 | 42.4 |
| Capitalised borrowing costs | – | – | 0.3 | 0.3 |
| Reclassified – see note below | – | – | 10.2 | 10.2 |
| Reclassified as assets held for sale (note 32) | (2.9) | (0.6) | (2.6) | (6.1) |
| Disposals | (0.6) | (0.4) | (5.9) | (6.9) |
| At 31 March 2012 | 66.7 | 5.4 | 292.5 | 364.6 |
| Accumulated depreciation | ||||
| At 1 April 2011 | 25.1 | 1.1 | 98.7 | 124.9 |
| Exchange adjustments | (0.1) | (0.1) | (1.7) | (1.9) |
| On disposal of subsidiaries (note 32) | – | – | (0.6) | (0.6) |
| Charge for the year | 4.5 | 1.0 | 28.1 | 33.6 |
| Reclassified as assets held for sale (note 32) | (0.1) | – | – | (0.1) |
| Disposals | (0.2) | – | (4.8) | (5.0) |
| At 31 March 2012 | 29.2 | 2.0 | 119.7 | 150.9 |
| Net book value at 31 March 2012 | 37.5 | 3.4 | 172.8 | 213.7 |
A capitalisation rate of 4% was used to determine the amount of borrowing costs eligible for capitalisation.
During the year to March 2012 two contracts were renewed on different terms resulting in a reclassification from other financial assets of £11.2 million and to inventory of £1.0 million.
Assets held under finance leases have the following net book value within plant and equipment:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Cost | 16.0 | 10.1 |
| Aggregate depreciation | (6.0) | (5.4) |
| Net book value | 10.0 | 4.7 |
Overview
| Investment in joint ventures and associates |
Loans to joint ventures and associates |
Total | ||||
|---|---|---|---|---|---|---|
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
| At 1 April | 19.3 | 64.9 | 24.9 | 22.1 | 44.2 | 87.0 |
| Joint venture becoming a subsidiary (note 31) | – | 4.0 | – | – | – | 4.0 |
| Loans to/(repayments from) joint ventures and associates | – | – | 28.3 | 3.2 | 28.3 | 3.2 |
| Investment in joint ventures and associates | 5.9 | 0.9 | – | – | 5.9 | 0.9 |
| Share of profits | 18.0 | 4.3 | – | – | 18.0 | 4.3 |
| Interest accrued | – | – | 1.8 | 1.1 | 1.8 | 1.1 |
| Interest received | – | – | (3.9) | (1.5) | (3.9) | (1.5) |
| Dividend received | (7.1) | (6.6) | – | – | (7.1) | (6.6) |
| Fair value adjustment of derivatives | (23.0) | (65.1) | – | – | (23.0) | (65.1) |
| Tax on fair value adjustment of derivatives | 5.5 | 16.9 | – | – | 5.5 | 16.9 |
| At 31 March | 18.6 | 19.3 | 51.1 | 24.9 | 69.7 | 44.2 |
Included within investment in joint venture and associates is goodwill of £1.2 million (2012: £1.2 million)
Included within joint ventures and associates are:
| Country of incorporation |
Assets £m |
Liabilities £m |
Revenue £m |
Operating profit £m |
Retained profit £m |
% interest held |
|
|---|---|---|---|---|---|---|---|
| 2013 | |||||||
| Holdfast Training Services Limited | United Kingdom | 38.1 | (26.1) | 29.3 | 1.0 | – | 74% |
| ALC (Superholdco) Limited | United Kingdom | 58.2 | (47.7) | 18.1 | 6.7 | 5.5 | 50% |
| Airtanker Limited | United Kingdom | 316.4 | (299.0) | 45.1 | 1.9 | 5.0 | 13% |
| Airtanker Services Limited | United Kingdom | 40.0 | (19.6) | 8.4 | 1.3 | 1.0 | 23% |
| Ascent Flight Training (Holdings) Limited | United Kingdom | 43.5 | (37.1) | 9.9 | 3.3 | 1.6 | 50% |
| Greenwich BSF SPV Limited | United Kingdom | 53.1 | (57.9) | 2.4 | 0.2 | 0.1 | 50% |
| Lewisham Schools for the Future LEP Limited | United Kingdom | 89.7 | (78.5) | 7.7 | 0.3 | (0.6) | 40% |
| Babcock Dounreay Partnership Limited | United Kingdom | 3.3 | (2.0) | 68.7 | 4.4 | 3.3 | 50% |
| Other | 24.5 | (29.2) | 24.5 | 2.1 | 2.1 | ||
| 666.8 | (597.1) | 214.1 | 21.2 | 18.0 | |||
| Country | Assets | Liabilities | Revenue | Operating profit |
Retained profit |
% interest |
| Country of incorporation |
Assets £m |
Liabilities £m |
Revenue £m |
profit £m |
profit £m |
% interest held |
|
|---|---|---|---|---|---|---|---|
| 2012 | |||||||
| Holdfast Training Services Limited | United Kingdom | 50.6 | (36.6) | 42.9 | 1.1 | (0.1) | 74% |
| ALC (Superholdco) Limited | United Kingdom | 58.4 | (43.7) | 20.5 | 5.1 | 4.1 | 50% |
| Airtanker Limited | United Kingdom | 269.5 | (274.7) | 86.4 | 3.1 | 0.5 | 13% |
| Airtanker Services Limited | United Kingdom | 31.3 | (11.0) | 3.4 | 0.2 | 0.1 | 23% |
| Ascent Flight Training (Holdings) Limited | United Kingdom | 48.7 | (43.7) | 14.1 | – | (2.9) | 50% |
| Greenwich BSF SPV Limited | United Kingdom | 52.7 | (55.9) | 8.1 | 0.2 | – | 50% |
| Other | 84.9 | (86.3) | 46.6 | 1.3 | 2.6 | ||
| 596.1 | (551.9) | 222.0 | 11.0 | 4.3 |
The joint ventures and associates have no significant contingent liabilities to which the Group is exposed.
Holdfast Training Services Limited is shown as a joint venture as the Group does not have management control. Airtanker Limited as shown as an associate due to the level of management input and the relative share ownership.
| 2013 £m |
2012 (restated) £m |
|
|---|---|---|
| Deferred tax asset | 43.4 | 31.3 |
| Deferred tax liability | (4.0) | – |
| 39.4 | 31.3 |
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:
| Accelerated tax depreciation £m |
Retirement benefit obligations £m |
Tax losses £m |
Other £m |
Total £m |
|
|---|---|---|---|---|---|
| At 1 April 2012 | (9.2) | 63.8 | 0.8 | (24.1) | 31.3 |
| Income statement credit | – | 3.3 | – | 15.1 | 18.4 |
| Tax credit to equity | – | 14.2 | – | 6.0 | 20.2 |
| Transfer to corporation tax | – | (18.6) | – | (0.6) | (19.2) |
| Acquisition of subsidiaries (note 31) | – | – | – | (9.4) | (9.4) |
| Effect of change in UK tax rate | |||||
| – Income statement | 0.4 | – | – | 0.8 | 1.2 |
| – Equity | – | (2.6) | – | (0.5) | (3.1) |
| At 31 March 2013 | (8.8) | 60.1 | 0.8 | (12.7) | 39.4 |
| At 1 April 2011 | (10.5) | 58.5 | 4.1 | (69.4) | (17.3) |
| Income statement credit | – | 4.7 | – | 22.4 | 27.1 |
| Tax credit to equity | – | 27.8 | – | (0.1) | 27.7 |
| Prior year adjustment | 0.5 | – | 2.5 | – | 3.0 |
| Transfer to corporation tax | – | (21.9) | (5.8) | 0.1 | (27.6) |
| Acquisition of subsidiaries (note 31) | – | – | – | 0.3 | 0.3 |
| Effect of change in UK tax rate | |||||
| – Income statement | 0.8 | – | – | 2.6 | 3.4 |
| – Equity | – | (5.3) | – | (0.4) | (5.7) |
| Reclassified as asset held for sale (note 32) | – | – | – | 20.4 | 20.4 |
| At 31 March 2012 | (9.2) | 63.8 | 0.8 | (24.1) | 31.3 |
The deferred tax in respect of 'other' includes a liability of £3.2 million (2012: £4.4 million asset) 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:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Deferred tax asset | (60.1) | (63.8) |
| Deferred tax liability | 17.5 | 37.7 |
| (42.6) | (26.1) | |
| Deferred tax expected to be recovered within 12 months: | ||
| 2013 £m |
2012 £m |
|
| Deferred tax asset | – | – |
| Deferred tax liability | (13.1) | (17.0) |
| (13.1) | (17.0) |
At the balance sheet date, the Group has unused tax losses (excluding UK capital losses and advance corporation tax) of £16.0 million (2012: £42.8 million) available for offset against future profits. A deferred tax asset has been recognised in respect of £nil million (2012: £nil million) of such losses, which may be carried forward. No deferred tax has been recognised in respect of the remaining £26.8 million (2012: £42.8 million) due to the unpredictability of future profit streams.
In addition to the changes in rates of corporation tax disclosed in note 9, a number of further changes to the UK corporation tax system were announced in the March 2013 Budget Statement. Further reductions to the main rate are proposed to reduce the rate to 20% by 1 April 2015. These further changes had not been substantively enacted at the balance sheet date and, therefore the impact is not included in these financial statements.
The effect of the change to reduce to a corporation tax rate of 21% would be to reduce the deferred tax asset provided at the balance sheet date by £3.8 million. This £3.8 million decrease in the deferred tax asset would increase profit by £2.3 million and decrease equity by £6.1 million.
The proposed reductions of the main rate of corporation tax to 20% by 1 April 2015, if these applied to the deferred tax balance at the balance sheet date, would be to further reduce the deferred tax asset by an additional £1.9 million.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Raw materials | 11.2 | 11.7 |
| Work-in-progress and long-term contracts | 9.6 | 17.3 |
| Finished goods and goods for resale | 53.1 | 52.6 |
| Total | 73.9 | 81.6 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Current assets | ||
| Trade receivables | 197.7 | 183.9 |
| Less: provision for impairment of receivables | (3.7) | (6.4) |
| Trade receivables – net | 194.0 | 177.5 |
| Amounts due from customers for contract work | 176.4 | 195.5 |
| Retentions | 6.1 | 6.3 |
| Amounts owed by related parties (note 37) | 20.6 | 21.0 |
| Other debtors | 65.4 | 45.0 |
| Prepayments and accrued income | 56.5 | 31.6 |
| 519.0 | 476.9 | |
| Non-current assets | ||
| Other debtors | 0.5 | 1.8 |
Trade and other receivables are classified as loans and receivables and are stated at amortised cost.
As of 31 March 2013, trade receivables of £3.8 million (2012: £6.8 million) were impaired. Impairment arises in the main, through contract disputes rather than credit defaults. The amount of the provision was £3.7 million (2012: £6.4 million). The individually impaired receivables mainly relate to receivables in the International division. It was assessed that a portion of these receivables is expected to be recovered.
The ageing of the net impaired receivables is as follows:
| 0.1 | 0.4 | |
|---|---|---|
| Over six months | – | – |
| Three to six months | 0.1 | – |
| Less than three months | – | 0.4 |
| 2013 £m |
2012 £m |
As of 31 March 2013, trade receivables of £26.5 million (2012: £19.8 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Less than three months | 20.8 | 16.6 |
| Three to six months | 4.4 | 2.8 |
| Over six months | 1.3 | 0.4 |
| 26.5 | 19.8 |
The carrying amounts of the Group's trade and other receivables are, in the main, denominated in Sterling.
Movements on the provision for impairment of trade receivables are as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Balance at 1 April | (6.4) | (9.9) |
| Provision for receivables impairment | (1.3) | (2.1) |
| Receivables written off during the year as uncollectable | 1.2 | 0.6 |
| Unused amounts reversed | 2.4 | 2.2 |
| Reclassified as assets held for sale | – | 2.3 |
| Exchange differences | 0.4 | 0.5 |
| Balance at 31 March | (3.7) | (6.4) |
The creation and release of provisions for impairment of receivables have been included in cost of sales in the income statement (note 5). 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.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Cash at bank and in hand | 83.1 | 88.0 |
| Short-term bank deposits (overnight) | 14.0 | 12.3 |
| 97.1 | 100.3 |
The carrying amount of the Group's cash and cash equivalents are denominated in the following currencies:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Total £m |
Floating rate £m |
Total £m |
Floating rate £m |
|
| Currency | ||||
| Sterling | 60.6 | 60.6 | 48.0 | 48.0 |
| Euro | 21.8 | 21.8 | 5.3 | 5.3 |
| US Dollar | 4.8 | 4.8 | 17.8 | 17.8 |
| South African Rand | 6.3 | 6.3 | 19.4 | 19.4 |
| Canadian Dollar | 0.6 | 0.6 | 6.2 | 6.2 |
| Omani Rial | – | – | 2.5 | 2.5 |
| Australian Dollar | – | – | 0.5 | 0.5 |
| New Zealand Dollar | 2.8 | 2.8 | 0.5 | 0.5 |
| Other currencies | 0.2 | 0.2 | 0.1 | 0.1 |
| 97.1 | 97.1 | 100.3 | 100.3 |
The above balances are invested at short-term, floating rates linked to LIBOR in the case of Sterling, the prime rate in the case of South African Rand and the local prime rate for other currencies.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Current liabilities | ||
| Contract cost accruals | 171.2 | 166.8 |
| Amounts due to customers for contract work | 198.7 | 159.3 |
| Trade creditors | 169.3 | 154.7 |
| Amounts owed to related parties (note 37) | 0.5 | 2.4 |
| Other creditors | 34.7 | 33.5 |
| Other taxes and social security | 39.4 | 34.7 |
| Accruals and deferred income | 270.6 | 268.1 |
| 884.4 | 819.5 | |
| Non-current liabilities | ||
| Other creditors | 7.9 | 8.9 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Current liabilities | ||
| Bank loans and overdrafts due within one year or on demand | ||
| Secured | 1.7 | 2.3 |
| Unsecured | 5.1 | 0.6 |
| 6.8 | 2.9 | |
| Finance lease obligations* | 2.0 | 1.3 |
| 8.8 | 4.2 | |
| Non-current liabilities | ||
| Bank and other loans | ||
| Secured | 12.8 | 14.5 |
| Unsecured | 668.6 | 742.3 |
| 681.4 | 756.8 | |
| Finance lease obligations* | 2.6 | 0.5 |
| 684.0 | 757.3 |
* Finance leases are secured against the assets to which they relate.
Bank and other loans and overdrafts are denominated in a number of currencies and bear interest based on LIBOR, base rates or foreign equivalents appropriate to the country in which the borrowing is incurred. The Group has entered into interest rate and currency swaps, details of which are included in note 23.
The carrying amount of the Group's borrowings are denominated in the following currencies:
| 2013 | |||
|---|---|---|---|
| Currency | Total £m |
Floating rate £m |
Fixed rate £m |
| Sterling | 239.5 | 125.0 | 114.5 |
| South African Rand | 9.2 | 9.2 | – |
| US Dollar* | 442.3 | – | 442.3 |
| Other | 1.8 | 1.8 | – |
| 692.8 | 136.0 | 556.8 |
| 2012 | |||
|---|---|---|---|
| Currency | Total £m |
Floating rate £m |
Fixed rate £m |
| Sterling | 342.4 | 225.0 | 117.4 |
| South African Rand | 1.6 | 1.6 | – |
| US Dollar* | 416.0 | – | 416.0 |
| Other | 1.5 | 1.5 | – |
| 761.5 | 228.1 | 533.4 |
* US Dollars 650 million have been swapped into Sterling and US Dollars 300 million into floating rates.
The weighted average interest rates of Sterling fixed rate borrowings are 5.1%. 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, 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 | 1 year £m |
1–5 years £m |
>5 years £m |
Total £m |
|---|---|---|---|---|
| As at 31 March 2013 | 341.2 | 164.8 | 186.8 | 692.8 |
| As at 31 March 2012 | 442.4 | 60.0 | 259.1 | 761.5 |
Accounts and other information
The effective interest rates at the balance sheet dates were as follows:
| 2013 % |
2012 % |
|
|---|---|---|
| UK bank overdraft | 1.5 | 1.5 |
| UK bank borrowings | 3.0 | 3.0 |
| US private placement – fixed | 5.7 | 5.7 |
| US private placement – floating | 3.1 | 3.1 |
| Other borrowings | 4.8–5.5 | 2.0–7.8 |
| Finance leases | 8.0–14.0 | 5.0–11.0 |
The total borrowings of the Group at 31 March are repayable as follows:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Loans and overdrafts £m |
Finance lease obligations £m |
Loans and overdrafts £m |
Finance lease obligations £m |
|
| Within one year | 6.8 | 2.0 | 2.9 | 1.3 |
| Between one and two years | 1.7 | 2.6 | 1.7 | 0.5 |
| Between two and five years | 287.8 | – | 287.9 | – |
| Greater than five years | 391.9 | – | 467.2 | – |
| 688.2 | 4.6 | 759.7 | 1.8 |
The Group had the following undrawn committed borrowing facilities available at 31 March:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Expiring in less than one year | 32.4 | 8.3 |
| Expiring in more than one year but not more than five years | 375.0 | 275.0 |
| 407.4 | 283.3 |
The minimum lease payments under finance leases fall due as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Not later than one year | 2.2 | 1.4 |
| Later than one year but not more than five years | 2.9 | 0.5 |
| More than five years | – | – |
| 5.1 | 1.9 | |
| Future finance charges on finance leases | (0.5) | (0.1) |
| Present value of finance lease liabilities | 4.6 | 1.8 |
| Fair value | |||||
|---|---|---|---|---|---|
| Assets | Liabilities | ||||
| 2013 £m |
2012 £m |
2013 £m |
2012 £m |
||
| Non-current | |||||
| US private placement – currency and interest rate swaps | 45.1 | 20.1 | – | – | |
| Total non-current other financial assets and liabilities | 45.1 | 20.1 | – | – | |
| Current | |||||
| Interest rate hedges | – | – | 3.1 | 5.1 | |
| Other currency hedges | 3.5 | 3.3 | 4.1 | 3.1 | |
| Total current other financial assets and liabilities | 3.5 | 3.3 | 7.2 | 8.2 |
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).
The notional principal amount of outstanding interest rate swap contracts at 31 March 2013 included £14.5 million of UK interest rate swaps and interest rate swaps in relation to the US\$650 million US\$ to GBP cross-currency swap.
The Group held the following interest rate hedges at 31 March 2013:
| Amount £m |
Fixed payable % |
Floating receivable % |
Maturity | |
|---|---|---|---|---|
| Hedged | ||||
| Interest rate swap | 0.2 | 5.45 | 0.6025 | 31/3/2014 |
| Interest rate swap | 8.5 | 5.45 | 0.6025 | 31/3/2019 |
| Interest rate swap | 5.8 | 4.745 | 0.6025 | 31/3/2029 |
| Total interest rate swaps | 14.5 |
| Amount | Amount at swapped rates |
Swap | ||
|---|---|---|---|---|
| Hedged | US\$m | £m | % | Maturity |
| Cross currency and interest rate swap | 150.0 | 92.1 | Fixed 4.94% US\$ to fixed 5.4% GBP |
19/3/2018 |
| Cross currency and interest rate swap | 200.0 | 122.9 | Fixed 5.64% US\$ to fixed 5.95% GBP |
17/3/2021 |
| Cross currency and interest rate swap | 300.0 | 184.3 | Fixed 5.64% US\$ to floating three month LIBOR +margin GBP |
17/3/2021 |
| Total cross currency and interest rate swap | 650.0 | 399.3 |
Overview
Governance
The fair values of financial assets and liabilities at the balance sheet date were:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Book value £m |
Fair value £m |
Book value £m |
Fair value £m |
|
| Fair value of non-current borrowings and loans | ||||
| Long-term borrowings | (684.0) | (683.4) | (757.3) | (756.7) |
| Loan to joint venture | 51.1 | 51.1 | 24.9 | 24.9 |
| (632.9) | (632.3) | (732.4) | (731.8) | |
| Fair value of other financial assets and financial liabilities | ||||
| Short-term borrowings | (8.8) | (8.8) | (4.2) | (4.2) |
| Trade and other payables* | (875.1) | (874.0) | (812.9) | (811.6) |
| Trade and other receivables | 519.5 | 519.5 | 478.7 | 478.7 |
| Other financial assets – IFRIC 12 | 22.2 | 22.2 | 23.1 | 23.1 |
| Short-term deposits | 14.0 | 14.0 | 12.3 | 12.3 |
| Cash at bank and in hand | 83.1 | 83.1 | 88.0 | 88.0 |
| Income tax payable | – | – | (10.0) | (10.0) |
| Income tax receivable | 8.6 | 8.6 | – | – |
| Other financial assets and liabilities | 31.4 | 31.4 | 15.2 | 15.2 |
| (205.1) | (204.0) | (209.8) | (208.5) |
* 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% (2012: 4% to 5%).
| Insurance provisions (a) £m |
Contract/ warranty (b) £m |
Reorganisation costs (c) £m |
Property and other (d) £m |
Total provisions £m |
|
|---|---|---|---|---|---|
| At 1 April 2012 | 4.4 | 47.5 | 16.0 | 77.1 | 145.0 |
| On acquisition of subsidiaries (note 31) | – | 2.9 | – | – | 2.9 |
| Charged/(released) to income statement | (0.6) | 9.9 | (0.2) | 9.2 | 18.3 |
| Utilised in year | (0.4) | (5.5) | (0.8) | (2.0) | (8.7) |
| Foreign exchange | 0.3 | – | – | 0.3 | |
| At 31 March 2013 | 3.4 | 55.1 | 15.0 | 84.3 | 157.8 |
Provisions have been analysed between current and non-current as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Current | 42.6 | 27.8 |
| Non-current | 115.2 | 117.2 |
| 157.8 | 145.0 |
(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 reorganisation costs arise mainly in relation to acquired businesses personnel related costs.
(d) Property and other in the main relate to provisions for onerous leases, dilapidation costs and contractual obligations in respect of infrastructure.
Included within property and other provisions is £40 million expected to be utilised in approximately ten years. In addition within contract/warranty provisions there is £18 million expected to be materially utilised in approximately ten years. Other than these provisions the Group's non-current provisions are expected to be utilised within two to five years.
| Ordinary shares of 60p Number |
Total £m |
|
|---|---|---|
| Allotted, issued and fully paid | ||
| At 1 April 2012 | 359,146,705 | 215.5 |
| Shares issued | 2,925,097 | 1.7 |
| At 31 March 2013 | 362,071,802 | 217.2 |
| At 1 April 2011 | 358,838,092 | 215.3 |
| Shares issued | 308,613 | 0.2 |
| At 31 March 2012 | 359,146,705 | 215.5 |
The table below shows options existing over the Company's shares as at 31 March 2013 that are capable of being met on exercise by the issue of new shares. They represent outstanding options granted under the Company's executive share plans. The options were either granted directly by the Company or by the Trustees of the Babcock Employee Share Trust (BEST) – a total of 5,917,922 shares – or the Trustees of the Peterhouse Employee Share Trust (PEST) – a total of 206,973 shares. The Company decides from time to time whether to meet the exercise of such options by way of a fresh issue of shares (either to the option holder or to the employee share trust) or by way of financing the employee share trusts to purchase already-issued shares in the market. This decision is made according to available headroom within the dilution limits contained in the relevant share plan rules and what the Directors consider to be in the best interest of the Company at the time.
| Grant date | Type | Exercise price Pence |
Exercise period | 2013 Number |
2012 Number |
|---|---|---|---|---|---|
| 27 November 2002 | Option – vested | 106.33 | 27/11/2005 – 26/11/2012 | – | 7,346 |
| 30 June 2003 | Option – vested | 115.60 | 30/06/2006 – 29/06/2013 | 9,940 | 28,539 |
| 06 July 2004 | Option – vested | 126.00 | 06/07/2007 – 05/07/2014 | 45,118 | 48,579 |
| 06 July 2004 | LTIP1 – vested |
– | 06/07/2007 – 05/07/2014 | 83,333 | 83,333 |
| 11 July 2005 | LTIP1 – vested |
– | 11/07/2008 – 10/07/2015 | – | 33,038 |
| 24 July 2006 | LTIP1 – vested |
– | 24/07/2009 – 23/07/2016 | 17,060 | 17,060 |
| 19 June 2008 | LTIP1 – vested |
– | 19/06/2011 – 18/06/2018 | 146,401 | 146,401 |
| 11 September 2009 | PSP2 – vested in year |
– | 11/09/2012 – 10/09/2013 | 503,349 | 1,325,648 |
| 11 September 2009 | CSOP3 – vested in year |
– | 11/09/2012 – 10/09/2013 | 113,719 | 306,536 |
| 13 July 2010 | PSP2 | – | 13/07/2013 – 12/07/2014 | 1,471,563 | 1,575,271 |
| 13 July 2010 | CSOP3 | – | 13/07/2013 – 12/07/2014 | 91,007 | 95,847 |
| 14 June 2011 | PSP2 | – | 14/06/2014 – 13/06/2015 | 1,526,516 | 1,670,871 |
| 14 June 2011 | CSOP3 | – | 14/06/2014 – 13/06/2015 | 77,110 | 80,703 |
| 14 June 2012 | PSP2 | – | 14/06/2015 – 13/06/2016 | 1,449,353 | – |
| 14 June 2012 | CSOP3 | – | 14/06/2015 – 13/06/2016 | 70,239 | – |
| 16 July 2012 | PSP2 | – | 16/07/2015 – 15/07/2016 | 32,454 | – |
| 24 January 2013 | PSP2 | – | 24/01/2016 – 24/01/2017 | 11,617 | – |
| 16 July 2012 | DBMP4 | – | 16/07/2015 – 15/07/2016 | 490,116 | – |
| 6,138,895 | 5,419,172 |
Options granted to Directors are summarised in the Remuneration report on pages 74 to 100 and are included in the outstanding options set out above.
2003 Long Term Incentive Plan,
2009 Performance Share Plan,
2009 Company Share Option Plan,
2012 Deferred Bonus Matching Plan.
The table below shows shares already held by the trustees of the BEST and PEST in order to meet these options and also awards made under the 2009 Deferred Bonus Plan.
| 2013 | 2012 | |||
|---|---|---|---|---|
| Shares newly issued by the Company |
Shares bought in the market |
Shares newly issued by the Company |
Shares bought in the market |
|
| BEST | 2,394,033 | 529,179 | – | 389,539 |
| PEST | 117,880 | – | – | 33,628 |
| Total | 2,511,913 | 529,179 | – | 423,167 |
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 share option movements is shown below:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Number '000 |
Weighted average exercise price |
Number '000 |
Weighted average exercise price |
|
| Outstanding at 1 April | 84 | £1.21 | 524 | £1.21 |
| Exercised | (29) | £1.15 | (440) | £1.21 |
| Outstanding at 31 March | 55 | £1.24 | 84 | £1.21 |
| Exercisable at 31 March | 55 | £1.24 | 84 | £1.21 |
Weighted average share price for options exercised during the year was 958.35p per share (2012: 675.10p per share).
A reconciliation of LTIP, PSP, CSOP and DBMP movements is shown below:
| 2013 | 2012 | |
|---|---|---|
| Number '000 |
Number '000 |
|
| Outstanding at 1 April | 5,335 | 3,998 |
| Granted | 2,067 | 1,784 |
| Exercised | (531) | (219) |
| Forfeited/lapsed | (787) | (228) |
| Outstanding at 31 March | 6,084 | 5,335 |
| Exercisable at 31 March | 864 | 280 |
Weighted average share price for options exercised during the year was 933.50p per share (2012: 700.64p per share).
During the year 3,257,686 ordinary shares (2012: no 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 2013 639,761 shares (2012: 352,386) were disposed by the Trusts resulting from options exercised. At 31 March 2013, the Trusts held between them a total of 3,041,092 (2012: 423,167) ordinary shares at a total market value of £33,087,081 (2012: £3,370,525) representing 0.84% (2012: 0.12%) 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 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.
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 £8.6 million (2012: £5.0 million) all of which related to equitysettled share-based payment transactions.
After tax, the income statement charge was £6.5million (2012: £3.7 million).
The fair value per option granted and the assumptions used in the calculation are as follows:
| Options awarded Number |
Share price at grant or modification date Pence |
Expected volatility % |
Option life Years |
Expectations of meeting performance criteria – EPS/ROCE % |
Fair value per option – TSR Pence |
Fair value per option – EPS/ROCE Pence |
Correlation % |
Grant or modification date |
|
|---|---|---|---|---|---|---|---|---|---|
| 2012 DBMP Matching | 326,744 | 874.5 | 18.0% | 4.0 | 40% | 623.5 | 874.5 | 46% | 16/7/12 |
| 2012 PSP | 32,454 | 874.5 | 18.0% | 4.0 | 40% | 628.8 | 874.5 | 46% | 16/7/12 |
| 2012 PSP Main | 1,389,376 | 879.5 | 18.0% | 4.0 | 40% | 653.5 | 879.5 | 46% | 14/6/12 |
| 2012 PSP Funding | 70,239 | 879.5 | 18.0% | 4.0 | 40% | 575.2 | 792.4 | 46% | 14/6/12 |
| 2012 CSOP | 70,239 | 879.5 | 18.0% | 4.0 | 40% | 78.3 | 87.1 | 46% | 14/6/12 |
| 2011 PSP Main | 1,622,534 | 701.0 | 25.9% | 4.0 | 40% | 433.0 | 701.0 | 46% | 14/6/11 |
| 2011 PSP Funding | 80,703 | 701.0 | 25.9% | 4.0 | 40% | 339.0 | 582.0 | 46% | 14/6/51 |
| 2011 CSOP | 80,703 | 701.0 | 25.9% | 4.0 | 40% | 92.0 | 116.0 | 46% | 16/6/11 |
| 2010 PSP Main | 1,564,465 | 635.0 | 27.8% | 4.0 | 58% | 369.0 | 635.0 | 46% | 13/7/10 |
| 2010 PSP Funding | 130,455 | 635.0 | 27.8% | 4.0 | 58% | 285.0 | 525.0 | 46% | 137/710 |
| 2010 CSOP | 130,455 | 635.0 | 27.8% | 4.0 | 58% | 81.0 | 107.0 | 46% | 13/7/10 |
Both the vesting period and the expected life of all DBMP, PSP and CSOP awards is three years. The holders of all awards receive dividends, except for CSOP awards.
The DBMP Matching awards are split evenly between the performance criteria of TSR, EPS and ROCE, whilst the PSP and CSOP awards are just split evenly between TSR and EPS.
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 has established a number of pension schemes around the world covering many of its employees. The principal funds are those in the UK.
Pension costs for defined contribution schemes are as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Defined contribution schemes | 31.6 | 32.3 |
Balance sheet assets and liabilities recognised are as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Retirement benefits – funds in surplus | 10.1 | 10.2 |
| Retirement benefits – funds in deficit | (271.2) | (276.1) |
| (261.1) | (265.9) |
Governance
The Group operates four principal defined benefit schemes for employees in the United Kingdom: the Devonport Royal Dockyard Pension Scheme, the Babcock International Group Pension Scheme, the Rosyth Royal Dockyard Pension Scheme and the Babcock Rail Ltd (formerly First Engineering) Shared Cost Section of the Railways Pensions Scheme. All four schemes are funded by payments to separate trustee-administered funds and the level of the Group's contributions to the schemes is assessed in accordance with the advice of independent, qualified actuaries. The details of the latest formal actuarial valuations of these four schemes are as follows:
| Babcock International Group Scheme | Babcock Rail Ltd | ||||
|---|---|---|---|---|---|
| Devonport Royal Dockyard Scheme |
Pre-merger section |
Former VT Group section of SIPS |
Rosyth Royal Dockland Scheme |
section of the Railways Pension Scheme |
|
| Date of last formal completed actuarial valuation | 31/03/11 | 01/04/10 | 31/3/10 | 31/03/09 | 31/12/10 |
| Number of active members at above date | 3,328 | 909 | 1,348 | 1,036 | 481 |
| Actuarial valuation method | Projected unit | Projected unit | Projected unit | Projected unit | Projected unit |
| Results of formal actuarial valuation: | |||||
| Value of assets | £977.0m | £502.9m | £319.4m | £335.6m | £189.0m |
| Level of funding | 90% | 92% | 78% | 90% | 101% |
| Principal valuation assumptions: | |||||
| Excess of investment returns over earnings increases | (1.3%)–2.4% | 2.4% | c. 1.4% | 3.5% | 3.5% |
| Excess of investment returns over pension increases | (0.3%)–3.6% | 1.3%–2.5% | c. 1.4% | 2.5% | 2.9% |
The Group's future service contribution rate for members of the Babcock International Group Pension Schemes depends upon the section of the Scheme, but will be 33.1% of pensionable pay for former members of the VT Group Section of SIPS and 20% of pensionable pay for the majority of other members. The Group will also pay the following amounts – deficit contributions starting at £17.05 million for the year to 31 March 2014, £680,000 per annum to meet the cost of insuring the lump sum death-in-service benefits for DC members and members who are covered for the life assurance benefits only; and £648,000 per annum to meet the funding gap in relation to the Scheme's longevity swap.
The Group's future service contribution rate for the vast majority of members in the Devonport Royal Dockyard Pension Scheme is 19.1% of pensionable pay, with additional payments of £13.5 million per annum to meet the funding deficit and £14.8 million per annum to meet the funding gap in relation to the Scheme's longevity swap.
The Group's future service contribution rate for the Rosyth Royal Dockyard Pension Scheme is 15.0% of pensionable pay, with additional payments of £7.84 million per annum (rising in line with RPI) to meet the funding deficit and £2.52 million per annum to meet the funding gap in relation to the Scheme's longevity swap.
The Group's contribution rate for the Babcock Rail Ltd Section of the Railways Pension Scheme is 18.0% of pensionable pay.
Where salary sacrifice arrangements are in place the Group effectively meet the members' contributions in addition.
The Group cash contributions forecast for next year, excluding salary sacrifice, are: £35.2 million to the Devonport Royal Dockyard Pension Scheme; £36.6 million to the Babcock International Group Pension Scheme; £14.8 million to the Rosyth Royal Dockyard Pension Scheme; £2.0 million to the Babcock Rail Ltd section of the Railways Pension Scheme; other scheme contributions of £4.2 million.
The HMNB Clyde contract includes a contract specific defined benefit pension scheme where all funding risk is borne by the customer and hence the costs are included within the defined contribution analysis above.
The latest full actuarial valuation of the Group's defined benefit pension schemes have been updated to 31 March by qualified independent actuaries for IAS 19 purposes using the following assumptions:
| 2013 (weighted average) % |
2012 (weighted average) % |
|
|---|---|---|
| Rate of increase in pensionable salaries | 2.6 | 2.4 |
| Rate of increase in pensions | 2.8 | 2.7 |
| Discount rate | 4.4 | 4.8 |
| Inflation rate | 2.8 | 2.7 |
| Expected return on plan assets | 5.4 | 6.6 |
| Total life expectancy – future pensioners (years) | 86.9 | 86.7 |
The fair value of the assets, the present value of the liabilities and the expected rates of return of the Group pensions schemes at 31 March were as follows:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Expected rate of return % |
Fair value £m |
Expected rate of return % |
Fair value £m |
|
| Equities | 8.4 | 792.0 | 8.4 | 1,159.9 |
| Property | 7.7 | 152.0 | 7.7 | 158.6 |
| Bonds – corporate | 4.3 | 1,413.9 | 4.8 | 1,168.7 |
| Bonds – government* | 2.8 | 719.8 | 3.1 | 347.5 |
| Cash plus infrastructure | 7.7 | 12.9 | 7.7 | 17.4 |
| Collateral | 5.2 | 51.6 | – | – |
| Funds awaiting investment | 5.2 | 162.5 | 6.3 | 54.7 |
| Active position of longevity swap | (99.9) | (124.1) | ||
| Fair value of assets | 3,204.8 | 2,782.7 | ||
| Present value of funded obligations | (3,465.8) | (3,039.9) | ||
| Funded status | (261.0) | (257.2) | ||
| Present value of unfunded obligations | (0.1) | (0.1) | ||
| IFRIC 14 adjustment | – | (8.6) | ||
| Net liabilities recognised in the balance sheet | (261.1) | (265.9) |
* Government bonds are shown net of repurchase obligations of £1,495 million. Over the year, a significant hedging programme was undertaken to reduce the risk of volatility in the schemes funding positions and IAS deficit due to adverse movements in interest rates.
The amounts recognised in the Group income statement are as follows:
| 2013 £m |
2012 £m |
|
|---|---|---|
| Current service cost | (44.8) | (44.5) |
| Interest on obligation | (137.3) | (145.7) |
| Expected return on plan assets | 168.3 | 172.1 |
| Total included within operating profit | (13.8) | (18.1) |
The expected change in pension costs as a result of revisions to IAS 19 are shown in note 1.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Actual return less expected return on pension scheme assets | 282.3 | 70.1 |
| Experience gain/(losses) arising on scheme liabilities | (59.1) | (23.8) |
| Changes in assumptions relating to present value of scheme liabilities | (315.0) | (152.5) |
| Reimbursement right | 24.2 | (2.5) |
| IFRIC 14 adjustments | 8.6 | 1.8 |
| At 31 March | (59.0) | (106.9) |
| Cumulative other comprehensive income at 31 March | (552.4) | (493.4) |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Fair value of plan assets | ||
| At 1 April | 2,782.7 | 2,579.9 |
| Contract wins | 3.9 | – |
| Expected return | 168.3 | 172.1 |
| Actuarial gains | 282.3 | 70.1 |
| Change in reimbursement rights (longevity swaps) | 24.2 | (2.5) |
| Employer contributions | 77.6 | 84.3 |
| Employee contributions | 5.1 | 7.3 |
| Benefits paid | (139.5) | (128.5) |
| Exchange differences | 0.2 | – |
| At 31 March | 3,204.8 | 2,782.7 |
| Present value of benefit obligations | ||
| At 1 April | 3,039.9 | 2,794.6 |
| Contract wins | 3.9 | – |
| Service cost | 44.8 | 44.5 |
| Interest cost | 137.3 | 145.7 |
| Employee contributions | 5.1 | 7.3 |
| Actuarial loss | 374.1 | 176.3 |
| Benefits paid | (139.5) | (128.5) |
| Exchange differences | 0.2 | – |
| At 31 March | 3,465.8 | 3,039.9 |
| Present value of unfunded obligations | (0.1) | (0.1) |
| IFRIC 14 adjustment | – | (8.6) |
| Net deficit at 31 March | (261.1) | (265.9) |
| Actual return on plan assets | ||
| Year ending 31 March | 450.6 | 242.2 |
The expected return on plan assets is based on long-term market expectations at the beginning of the year. In the case of equities there is a premium over the risk free rate.
| 2013 £m |
2012 £m |
2011 £m |
2010 £m |
2009 £m |
|
|---|---|---|---|---|---|
| Fair value of plan assets | 3,204.8 | 2,782.7 | 2,579.9 | 1,979.8 | 1,702.9 |
| Present value of benefit obligations | (3,465.8) | (3,039.9) | (2,794.6) | (2,303.8) | (1,652.2) |
| Present value of unfunded obligations | (0.1) | (0.1) | – | – | – |
| IFRIC 14 adjustment | – | (8.6) | (10.4) | – | – |
| (Deficits)/surpluses at 31 March | (261.1) | (265.9) | (225.1) | (324.0) | 50.7 |
| History of experience gains and losses | |||||
| 2013 £m |
2012 £m |
2011 £m |
2010 £m |
2009 £m |
|
| Difference between the expected and actual return on scheme assets | 282.3 | 70.1 | 7.8 | 375.5 | (383.0) |
| Percentage of scheme assets at 31 March | 9% | 3% | 0% | 19% | (22%) |
| Experience gains/(losses) of scheme liabilities | (59.1) | (23.8) | 17.0 | (41.6) | 6.1 |
| Percentage of present value of scheme liabilities at 31 March | 2% | 1% | (1%) | 2% | 0% |
| Total amount recognised in the Group statement of comprehensive income |
(59.0) | (106.9) | 103.5 | (403.5) | (145.6) |
| Percentage of present value of scheme liabilities at 31 March | (2%) | (4%) | 4% | (18%) | (9%) |
The changes to the Group balance sheet at March 2013 and the charges to the Group income statement for the year to March 2014, if the assumptions were sensitised by the amounts below, would be:
| Balance sheet 2013 £m |
Income statement 2014 £m |
|
|---|---|---|
| Initial assumptions | (261.1) | 61.4 |
| Discount rate moves up or down by 0.1% | ±54.0 | ±3.1 |
| Inflation rate moves up or down by 0.1% | ±38.0 | ±2.0 |
| Total life expectancy changes by half a year up or down | ±40.6 | ±2.4 |
| Real salaries move up or down by 0.25% | ±20.2 | ±1.7 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Cash flows from operating activities | ||
| Operating profit before amortisation of acquired intangible and exceptional items | 315.2 | 290.2 |
| Amortisation of acquired intangible and exceptional items | (80.7) | (88.2) |
| Pre-tax loss from discontinued operations | (17.1) | (51.8) |
| Operating profit | 217.4 | 150.2 |
| Depreciation of property, plant and equipment | 37.4 | 33.6 |
| Amortisation of intangible assets | 73.6 | 90.3 |
| Investment income | 1.7 | 2.2 |
| Equity share-based payments | 8.6 | 5.0 |
| Loss/(profit) on disposal of subsidiaries | 18.0 | (1.9) |
| Impairment of goodwill | – | 58.5 |
| Profit on disposal of property, plant and equipment | (4.1) | (0.8) |
| Loss on disposal of intangible assets | 1.1 | 0.2 |
| Operating cash flows before movement in working capital | 353.7 | 337.3 |
| Decrease in inventories | 1.4 | 8.6 |
| (Increase)/decrease in receivables | (34.8) | 23.3 |
| Increase/(decrease) in payables | 48.5 | (26.4) |
| Decrease in provisions | (11.5) | (16.0) |
| Retirement benefit payments in excess of income statement | (63.9) | (66.1) |
| Cash generated from operations | 293.4 | 260.7 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| (Decrease)/increase in cash in the year | (5.7) | 28.2 |
| Cash flow from the decrease in debt and lease financing | 104.8 | 56.6 |
| Change in net funds resulting from cash flows | 99.1 | 84.8 |
| Finance leases acquired with subsidiaries | (6.3) | – |
| New finance leases | (0.6) | – |
| Foreign currency translation differences and other | (1.7) | 3.1 |
| Movement in net debt in the year | 90.5 | 87.9 |
| Net debt at the beginning of the year | (641.1) | (729.0) |
| Net debt at the end of the year | (550.6) | (641.1) |
| 31 March 2012 £m |
Cash flow £m |
Acquisitions and disposals £m |
New finance leases £m |
Exchange/ other movement £m |
31 March 2013 £m |
|
|---|---|---|---|---|---|---|
| Cash and bank balances | 100.3 | (2.8) | 2.4 | – | (2.8) | 97.1 |
| Bank overdrafts | (1.9) | (5.3) | – | – | 0.7 | (6.5) |
| Cash, cash equivalents and bank overdrafts | 98.4 | (8.1) | 2.4 | – | (2.1) | 90.6 |
| Debt | (757.8) | 101.1 | – | – | (25.0) | (681.7) |
| Finance leases | (1.8) | 3.7 | (6.3) | (0.6) | 0.4 | (4.6) |
| (759.6) | 104.8 | (6.3) | (0.6) | (24.6) | (686.3) | |
| Net debt before derivatives | (661.2) | 96.7 | (3.9) | (0.6) | (26.7) | (595.7) |
| Net debt derivative | 20.1 | – | – | – | 25.0 | 45.1 |
| Net debt including derivatives | (641.1) | 96.7 | (3.9) | (0.6) | (1.7) | (550.6) |
On 1 June 2012 the Group acquired a controlling interest of 52% of Target Cranes (Pty) Limited (Target) a company based in South Africa involved in the rental of mobile cranes. The transaction was made via an exchange of shares and with Target also acquiring the assets and liabilities of the Plant division of Babcock Africa Services (Pty) Limited.
On 28 December 2012 the Group acquired the entire business of LGE Process a company based in Scotland that designs and builds plants for processing, storage and handling of liquid gasses and is the market leader in the supply of these solutions to the marine and onshore liquid gas sectors.
The goodwill arising on the acquisition derives from the market position of the entities involved and the value of the workforce acquired.
Details of the assets acquired and the provisional goodwill are as follows:
| LGE Process £m |
Target Cranes £m |
Other £m |
Total £m |
|
|---|---|---|---|---|
| Cost of acquisition | ||||
| Cash paid | 25.2 | – | 2.0 | 27.2 |
| Deemed consideration | – | 19.8 | – | 19.8 |
| Purchase consideration | 25.2 | 19.8 | 2.0 | 47.0 |
| Fair value of assets acquired (see below) | 3.2 | 16.7 | 2.0 | 21.9 |
| Goodwill | 22.0 | 3.1 | – | 25.1 |
Net assets and liabilities arising from the acquisition are as follows:
| LGE Process | Target Cranes | Other | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Book value of assets acquired £m |
Provisional fair value acquired £m |
Book value of assets acquired £m |
Provisional fair value acquired £m |
Book value of assets acquired £m |
Provisional fair value acquired £m |
Book value of assets acquired £m |
Provisional fair value acquired £m |
|
| Goodwill | 8.9 | – | – | – | – | – | 8.9 | – |
| Acquired intangibles* | – | 18.1 | – | – | – | 2.0 | – | 20.1 |
| Property plant and equipment | – | – | 23.3 | 25.6 | – | – | 23.3 | 25.6 |
| Deferred tax | – | (3.9) | (4.6) | (5.5) | – | – | (4.6) | (9.4) |
| Income tax | – | – | 0.1 | (0.2) | – | – | 0.1 | (0.2) |
| Cash, cash equivalents and bank overdraft | 3.8 | 3.8 | 1.2 | 1.2 | – | – | 5.0 | 5.0 |
| Finance leases | – | – | (6.3) | (6.3) | – | – | (6.3) | (6.3) |
| Inventory | – | – | 0.1 | 0.1 | – | – | 0.1 | 0.1 |
| Current assets | 6.8 | 6.3 | 3.0 | 2.3 | – | – | 9.8 | 8.6 |
| Current and non-current liabilities | (16.7) | (18.2) | (0.5) | (0.5) | – | – | (17.2) | (18.7) |
| Provisions | (2.9) | (2.9) | – | – | – | – | (2.9) | (2.9) |
| Net assets acquired | (0.1) | 3.2 | 16.3 | 16.7 | – | 2.0 | 16.2 | 21.9 |
* Acquired intangibles are: customer relationships, both contracted and non-contracted (see note 14).
Cash outflow to acquire businesses net of cash acquired:
| LGE Process £m |
Target Cranes £m |
Other £m |
Total £m |
|
|---|---|---|---|---|
| Purchase consideration paid in cash | 25.2 | – | 2.0 | 27.2 |
| Cash, cash equivalents and bank overdrafts | (3.8) | (1.2) | – | (5.0) |
| Cash outflow/(inflow) in period | 21.4 | (1.2) | 2.0 | 22.2 |
The revenue and operating profit of acquired businesses since the date of acquisition and as if they had been acquired on 1 April 2010 are:
| LGE Process | Target Cranes | |||
|---|---|---|---|---|
| Since date of acquisition £m |
For full year £m |
Since date of acquisition £m |
For full year £m |
|
| Revenue | 9.7 | 41.2 | 8.0 | 10.2 |
| Operating profit | (0.7) | 1.5 | 3.2 | 3.8 |
Mark-to-market losses on forward exchange contracts of £0.7 million are included above within LGE Process since date of acquisition as the contracts are deemed ineffective since acquisition.
On 6 October 2011 the Group acquired a controlling interest in Careers Enterprises (Futures) Limited for a cost of £nil. Prior to this the Group had an investment in the company and accounted for it as a joint venture. The net assets acquired were £nil after allowing for the negative value of the joint venture brought forward and a provision of £3.7 million.
In July 2012 the Group completed the disposal of its holding in VT Services Inc. (the US defence business), the net assets of which had been disclosed as held for sale at 31 March 2012.
On 5 December 2012 the Group sold the trade and assets of the UKAEA Pension Administration Office that had been acquired as part of the UKAEA Limited acquisition in 2009.
In January 2013 the Group disposed of its interest in the Waste business.
In the year ending March 2012 the Group disposed of its holding in Babcock Eagleton Inc.
| 2013 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| UKAEA Pensions £m |
Waste business £m |
VT Services £m |
Previously disposed of business £m |
Total £m |
Babcock Eagleton Inc. £m |
Held for sale £m |
Total £m |
|
| Goodwill | 3.4 | – | – | – | 3.4 | 1.2 | 23.4 | 24.6 |
| Other intangible assets | 0.1 | – | – | – | 0.1 | – | 41.7 | 41.7 |
| Property plant and equipment | – | – | – | – | – | 0.6 | 6.0 | 6.6 |
| Cash, cash equivalents and bank overdrafts | – | – | 2.6 | – | 2.6 | – | – | – |
| Taxation | – | – | – | – | – | – | (20.4) | (20.4) |
| Current and non-current assets | – | – | – | – | – | 3.4 | 31.7 | 35.1 |
| Inventories | – | – | – | – | – | – | 0.2 | 0.2 |
| Current and non-current liabilities | – | – | – | – | – | (1.4) | (21.2) | (22.6) |
| Provisions | – | – | – | – | – | – | (6.8) | (6.8) |
| Non-controlling interests | – | – | 0.4 | – | 0.4 | – | – | – |
| Held for sale assets and liabilities | – | – | 62.2 | – | 62.2 | – | – | – |
| Translation adjustment recycled from translation reserve |
– | – | 4.9 | – | 4.9 | – | – | – |
| Net assets disposed/held for sale | 3.5 | – | 70.1 | – | 73.6 | 3.8 | 54.6 | 58.4 |
| (Loss)/profit on disposal of subsidiary | 0.2 | 9.3 | (18.2) | (9.3) | (18.0) | 1.9 | – | 1.9 |
| Other disposal costs accrued/deferred consideration | (1.4) | 2.6 | 8.9 | 9.3 | 19.4 | – | – | – |
| Net assets held for sale | – | – | – | – | – | – | (54.6) | (54.6) |
| Sale proceeds | 2.3 | 11.9 | 60.8 | – | 75.0 | 5.7 | – | 5.7 |
| Sale proceeds less cash disposed of | 2.3 | 11.9 | 58.2 | – | 72.4 | 5.7 | – | 5.7 |
| Less costs paid in the year | (0.8) | (1.7) | (1.9) | – | (4.4) | – | – | – |
| Net cash flow | 1.5 | 10.2 | 56.3 | – | 68.0 | 5.7 | – | 5.7 |
The following are the transactions for the period:
| Increase/ (decrease) in retained earnings £m |
Increase/ (decrease) in non-controlling interests £m |
Cash outflow/ (inflow) £m |
|
|---|---|---|---|
| Following the acquisition of Target Cranes, a further 12.4% of shares were purchased, in cash, from the non-controlling interest for £5.1 million. This resulted in a net gain on non-controlling interest of £4.0 million. |
4.0 | (9.1) | 5.1 |
| Following the acquisition of Target Cranes, an agreement was reached for a put option providing the non-controlling interest shareholders the right to force the Group to purchase further shares. The option exercise price is a multiple of EBITDA. The put option liability is shown as non-current Other financial liabilities on the balance sheet. (See below) |
(14.6) | – | – |
| The non-controlling interest in one of the Group's subsidiaries has been acquired with the vendor paying £6.4 million. |
6.0 | 0.4 | (6.4) |
| Transactions with non-controlling interests | (4.6) | (8.7) | (1.3) |
The £14.6 million shown above reflects the option at inception which will be revalued at period ends.
| 2013 | 2012 | |||
|---|---|---|---|---|
| Property £m |
Vehicles, plant and equipment £m |
Property £m |
Vehicles, plant and equipment £m |
|
| Commitments under non-cancellable operating leases payable: | ||||
| Within one year | 21.2 | 10.2 | 20.5 | 10.2 |
| Later than one year and less than five years | 52.4 | 14.1 | 49.9 | 14.2 |
| After five years | 24.0 | – | 24.6 | – |
| 97.6 | 24.3 | 95.0 | 24.4 |
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.
| 2013 £m |
2012 £m |
|
|---|---|---|
| Contracts placed for future capital expenditure not provided in the financial statements | 6.2 | 4.2 |
Governance
(a) The following related parties either sell to or receive services from the Group. Loans to joint ventures and associates are detailed in note 16.
| 2013 Revenue to £m |
2013 Purchases from £m |
2013 Year end debtors' balance £m |
2013 Year end creditor balance £m |
|
|---|---|---|---|---|
| Joint ventures and associates | ||||
| Debut Services (South West) Limited | 128.9 | 1.2 | – | – |
| Holdfast Training Services Limited | 73.4 | 0.4 | 12.7 | – |
| First Swietelsky Operation and Maintenance | 9.5 | – | 1.2 | 0.5 |
| Ascent Management Company (Weybridge) Limited | 0.5 | – | – | – |
| Ascent Flight Training (Management) Company Limited | 1.8 | – | 0.7 | – |
| Advanced Jet Training Limited | 1.5 | – | 0.3 | – |
| Rear Crew Training Limited | 0.8 | – | 0.2 | – |
| Airtanker Services Limited | 6.9 | – | 1.0 | – |
| Whitefleet Limited | 0.4 | 17.9 | – | – |
| ALC (Superholdco) Limited | 3.1 | – | – | – |
| Naval Ship Management (Australia) Pty Limited | 2.1 | – | 0.2 | – |
| Lewisham Schools for the Future LEP Limited | 0.1 | – | – | – |
| Lewisham Schools for the Future SPV Limited | 2.2 | – | 0.9 | – |
| Lewisham Schools for the Future SPV2 Limited | 0.4 | – | – | – |
| Lewisham Schools for the Future SPV3 Limited | 0.5 | – | 0.1 | – |
| Lewisham Schools for the Future SPV4 Limited | 0.8 | – | 0.2 | – |
| Greenwich BSF SPV Limited | 0.2 | – | – | – |
| Cura Classis (UK) Limited | 5.1 | – | – | – |
| Cura Classis (US) LLC | 6.8 | – | 0.1 | – |
| Cura Classis Canada Hold Co Inc. | 7.2 | – | – | – |
| Dounreay Site Licence Company | 9.5 | – | 2.1 | – |
| Related by common directorships | ||||
| Finmeccanica UK Group | 9.3 | 0.1 | 0.9 | – |
| Northrop Grumman Sperry Marine Limited | – | – | – | – |
| 271.0 | 19.6 | 20.6 | 0.5 |
| 2012 | 2012 | 2012 Year end |
2012 Year end |
|
|---|---|---|---|---|
| Revenue to £m |
Purchases from £m |
debtors' balance £m |
creditor balance £m |
|
| Joint ventures and associates | ||||
| Debut Services (South West) Limited | 122.5 | 1.2 | – | – |
| Holdfast Training Services Limited | 69.2 | 0.2 | 11.9 | – |
| First Swietelsky Operation and Maintenance | 9.7 | – | 1.2 | – |
| Ascent Management Company (Weybridge) Limited | 0.5 | – | – | – |
| Ascent Flight Training (Management) Company Limited | 1.2 | – | 0.2 | – |
| Advanced Jet Training Limited | 2.3 | – | 0.3 | – |
| Rear Crew Training Limited | 0.8 | – | 0.1 | – |
| Airtanker Services Limited | 36.1 | – | 2.9 | – |
| Whitefleet Limited | 2.2 | 56.2 | 0.1 | 2.3 |
| ALC (FMC) Limited | 3.7 | – | 0.1 | – |
| Lewisham Schools for the Future LEP Limited | 0.3 | – | – | – |
| Lewisham Schools for the Future SPV Limited | 1.9 | 0.1 | 0.3 | – |
| Lewisham Schools for the Future SPV2 Limited | 0.5 | – | 0.1 | – |
| Greenwich BSF SPV Limited | 0.3 | – | – | – |
| Cura Classis (UK) Limited | 4.1 | – | 0.1 | – |
| Other | 22.8 | 0.8 | 1.9 | 0.1 |
| Related by common directorships | ||||
| Finmeccanica UK Group | 10.0 | 0.2 | 1.8 | – |
| Northrop Grumman Sperry Marine Limited | – | 0.1 | – | – |
| 288.1 | 58.8 | 21.0 | 2.4 |
All transactions noted above arise in the normal course of business.
(b) Defined benefit pension schemes
Please refer to note 27 for transactions with the Group defined benefit pension schemes.
(c) Key management compensation is shown in note 8.
(d) Transactions in employee benefits trusts are shown in note 25.
Details on dividends are given in note 11. There are no further material events subsequent to 31 March 2013 that require disclosure.
Overview
| Principal related undertakings | Principal activities | Group interest in allotted capital |
Country of incorporation |
|---|---|---|---|
| Babcock Marine (Rosyth) Limited | Trading company | 100% | Scotland |
| Rosyth Royal Dockyard Limited | Owner of Rosyth dockyard | 99.999% | Scotland |
| Babcock Marine (Devonport) Limited | Trading company | 100% | England and Wales |
| Devonport Royal Dockyard Limited | Maintains Royal Navy ships and provides support services to naval base |
100% | England and Wales |
| Babcock Marine (Clyde) Limited | Trading company | 100% | Scotland |
| LSC Group Limited | Consultancy and project management | 100% | England and Wales |
| Frazer-Nash Consultancy Limited | Systems and engineering technology services | 100% | England and Wales |
| Appledore Shipbuilders (2004) Limited | Shipbuilding | 100% | England and Wales |
| Babcock (Pty) Limited | Engineering and maintenance support | 100% | Australia |
| Babcock Integrated Technology Limited | Design, supply and installation of specialist handling equipment |
100% | England and Wales |
| Air Power International Limited | Compressed air management and support services | 100% | Scotland |
| Babcock Support Services Limited | Support services and facilities management | 100% | England and Wales |
| Babcock Flagship Limited | Naval training services | 100% | England and Wales |
| Babcock Aerospace Limited | Airfield support services | 100% | England and Wales |
| Babcock Land Limited | Fleet management and training services | 100% | England and Wales |
| Babcock Land (Whitefleet Management) Limited | Contract management services | 100% | England and Wales |
| BNS Nuclear Services Limited | Engineering solutions and services | 100% | England and Wales |
| Babcock Airports Limited | Airport support services | 100% | England and Wales |
| Babcock Rail Limited | Rail infrastructure repair and maintenance | 100% | England and Wales |
| Babcock Networks Limited | Powerline erection and maintenance | 100% | England and Wales |
| Babcock Communications Limited | Communication services | 100% | England and Wales |
| Babcock Africa Services (Pty) Limited | Equipment sales, hire and maintenance | 100% | South Africa |
| Equity accounted investments | |||
| Holdfast Training Services Limited | Military training | 74% | England and Wales |
| ALC (Superholdco) Limited | PFI operator | 50% | England and Wales |
| Airtanker Limited | In-flight refuelling support | 13.3% | England and Wales |
| Ascent Flight Training (Holdings) Limited | Flight training | 50% | England and Wales |
| Babcock Dounreay Partnership Limited | Nuclear site decommissioning | 50% | England and Wales |
The Company has taken advantage of the exemption under section 410(2) of the Companies Act 2006 by providing information only in relation to related undertakings whose results or financial position, in the opinion of the Directors, principally affected the financial statements. A full list of subsidiary, equity accounted investments and other associated undertakings as at 31 March 2013 will be annexed to the Company's next annual return filed with the Registrar of Companies.
All subsidiary undertakings are included in the consolidation, except for Research Site Restoration Limited which is treated as an investment due to restrictions in control.
Of the undertakings listed above, the Company holds 100% of the Group's interest in Babcock (Pty) Limited. It does not directly hold any share of the Group's interest in the other listed undertakings.
We have audited the parent Company financial statements of Babcock International Group PLC for the year ended 31 March 2013 which comprise the Company balance sheet and the Notes to the Company financial statements. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
As explained more fully in the Directors' responsibility statement on page 73, the Directors are responsible for the preparation of the parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
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.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts 2013 to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the parent Company financial statements:
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
We have reported separately on the Group financial statements of Babcock International Group PLC for the year ended 31 March 2013.
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London, United Kingdom
13 May 2013
| As at 31 March 2013 | Note | 2013 £m |
2012 £m |
|---|---|---|---|
| Fixed assets | |||
| Investment in subsidiary undertakings | 3 | 2,121.7 | 1,600.8 |
| Tangible fixed assets | 4 | – | 0.1 |
| 2,121.7 | 1,600.9 | ||
| Current assets | |||
| Debtors – amounts due after more than one year | 5 | 445.0 | 583.2 |
| Debtors – amounts due within one year | 5 | 280.7 | 612.2 |
| Cash at bank and in hand | 31.2 | – | |
| 756.9 | 1,195.4 | ||
| Creditors – amounts due within one year | 6 | 885.7 | 806.9 |
| Net current (liabilities)/assets | (128.8) | 388.5 | |
| Total assets less current liabilities | 1,992.9 | 1,989.4 | |
| Creditors – amounts due after one year | 6 | 667.3 | 738.8 |
| Net assets | 1,325.6 | 1,250.6 | |
| Capital and reserves | |||
| Called up share capital | 7 | 217.2 | 215.5 |
| Share premium account | 8 | 873.0 | 873.0 |
| Capital redemption reserve | 8 | 30.6 | 30.6 |
| Profit and loss account | 8 | 204.8 | 131.5 |
| Total shareholders' funds | 1,325.6 | 1,250.6 |
The accompanying notes are an integral part of this Company balance sheet. Company number 02342138.
The financial statements were approved by the Board of Directors on 13 May 2013 and are signed on its behalf by:
P L Rogers W Tame Director Director
The principal accounting policies adopted by the Company are disclosed below:
The Company's financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments and in accordance with applicable United Kingdom Accounting Standards and in compliance with the Companies Act 2006 and on a going concern basis. The Directors have reviewed the Company's existing accounting policies and consider that they are consistent with last year.
Fixed asset investments are stated at cost less provision for impairment in value.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis.
Current UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries and associates only to the extent that, at the balance sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary or associate.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.
Finance costs are recognised as an expense in the period in which they are incurred.
The Company 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 and recharged to subsidiaries. Full details of the share-based compensation plans are disclosed in note 26 of the Group financial statements.
The shares purchased by the Company's ESOP trusts are recognised as a deduction to equity. Refer to the Group financial statements note 25 for further details.
The Company operates a multi-employer defined benefit pension scheme. The scheme is accounted for on a defined contribution basis as the Company is unable to identify its share of the underlying assets and liabilities.
There is no material difference between the FRS 17 (as amended): 'Retirement Benefits' and IAS 19: 'Employee Benefits' valuation. Refer to the Group financial statements note 27 for further details.
As a result of the level of surplus the Company's compulsory contribution to the Babcock International Group Pension Scheme is currently suspended until at least the results of the next formal valuation are available although voluntary contributions have been made (see note 27 of the Group financial statements).
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.
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.
All treasury transactions are carried out only with prime rated counterparties as are investments of cash and cash equivalents.
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.
A cash flow statement has not been prepared by the Company under the terms of FRS 1, available to wholly owned subsidiaries of a company whose consolidated financial statements include a consolidated cash flow statement and are publicly available. The Company is also exempt under the terms of FRS 8 from disclosing related party transactions with entities that are part of the Babcock International Group PLC group.
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 £147.0 million (2012: £106.0 million).
Fees payable to the parent auditors and its associates in respect of the audit of the Company's financial statements was £0.1 million (2012: £0.1 million).
| 2013 £m |
2012 £m |
|
|---|---|---|
| At 1 April | 1,600.8 | 2,004.3 |
| Additions | 520.9 | 1,067.8 |
| Disposals | – | (1,471.3) |
| Investments in shares | 2,121.7 | 1,600.8 |
On 19 November 2012 the Company acquired shares in Babcock (UK) Holdings Limited for £520.9 million.
On 14 June 2011 the Company sold its investment in Babcock Southern Holdings Limited to Babcock Overseas Investments Limited for a profit of £3.7 million. On the same day the Company acquired shares in Babcock (UK) Holdings Limited for £1,067.8 million.
| Leasehold property £m |
|
|---|---|
| Cost | |
| At 1 April 2012 | 0.5 |
| Additions | – |
| At 31 March 2013 | 0.5 |
| Accumulated depreciation | |
| At 1 April 2012 | 0.4 |
| Charge for the year | 0.1 |
| At 31 March 2013 | 0.5 |
| Net book value at 31 March 2013 | – |
| Net book value at 31 March 2012 | 0.1 |
| 2013 £m |
2012 £m |
|
|---|---|---|
| Non-current debtors | ||
| Amounts owed by subsidiary undertakings | 0.7 | 163.9 |
| Preference shares in a subsidiary undertaking | 444.3 | 419.3 |
| 445.0 | 583.2 | |
| Current debtors | ||
| Amounts owed by subsidiary undertakings | 268.2 | 608.0 |
| Deferred tax | 9.8 | 3.4 |
| Prepayments and accrued income | 2.7 | 0.8 |
| 280.7 | 612.2 |
Of the preference shares in a subsidiary undertaking, the A preference shares of US\$150 million mature on 19 March 2018 and carry interest at 4.94%. The B preference shares of US\$500 million mature on 17 March 2021 and carry interest at 5.64%. The non-current amount owed by subsidiary undertakings is repayable on demand and is interest free. The current amounts owed by subsidiary undertakings are repayable on demand and are interest free apart from £7.0 million which carries interest at LIBOR +4% and another loan of £ 5.0 million which carries interest at LIBOR + 1%
| 2013 £m |
2012 £m |
|
|---|---|---|
| Amounts due within one year | ||
| Bank loans and overdrafts | – | 86.7 |
| Amounts owed to subsidiary undertakings | 881.5 | 715.5 |
| Accruals and deferred income | 4.2 | 4.7 |
| 885.7 | 806.9 | |
| Amounts due after one year | ||
| Bank loans | 667.3 | 738.8 |
| 667.3 | 738.8 |
The Company has £1,028.1 million (2012: £1,006.8 million) of committed borrowing facilities, of which £653.1 million (2012: £731.8 million) was drawn at the year end. The interest rate applying to bank loans is 1.25% (2012: 1.66%) and is linked to LIBOR, whilst the interest rate applying to overdrafts is 1.5% (2012: 1.5%).
The amounts due to subsidiary undertakings are repayable on demand and £713.5 million is interest free. £125.2 million carries interest at LIBOR + 4% and £9.1 million carries interest at LIBOR + 1%.
| Ordinary shares of 60p Number |
Total £m |
|
|---|---|---|
| Allotted, issued and fully paid | ||
| At 1 April 2012 | 359,146,705 | 215.5 |
| Shares issued | 2,925,097 | 1.7 |
| At 31 March 2013 | 362,071,802 | 217.2 |
| At 1 April 2011 | 358,838,092 | 215.3 |
| Shares issued | 308,613 | 0.2 |
| At 31 March 2012 | 359,146,705 | 215.5 |
| Share premium account £m |
Capital redemption reserve £m |
Profit and loss account £m |
|
|---|---|---|---|
| At 1 April 2012 | 873.0 | 30.6 | 131.5 |
| Shares issue in the period | – | – | – |
| Share-based payments | – | – | 4.5 |
| Tax on share-based payments | – | – | 6.4 |
| Fair value adjustments to interest rate hedges (net of tax) | – | – | (1.0) |
| Retained profit for the year – profit for the year | – | – | 147.0 |
– dividends |
– | – | (83.6) |
| At 31 March 2013 | 873.0 | 30.6 | 204.8 |
| At 1 April 2011 | 872.8 | 30.6 | 87.0 |
| Shares issue in the period | 0.2 | – | – |
| Share-based payments | – | – | 5.0 |
| Tax on share-based payments | – | – | (0.6) |
| Fair value adjustments to interest rate hedges (net of tax) | – | – | 5.5 |
| Retained profit for the year – profit for the year | – | – | 106.0 |
– dividends |
– | – | (71.4) |
| At 31 March 2012 | 873.0 | 30.6 | 131.5 |
The Company has an operating lease commitment for land and buildings as at 31 March 2013 with an annual commitment expiring after more than five years of £2.2 million (2012: £2.2 million).
The Directors have proposed a final dividend of 20.0p per 60p ordinary share (2012: 17.0p per 60p ordinary share) and it will be paid on 8 August 2013 to shareholders registered on 5 July 2013. Subject to approval at the Annual General Meeting on 11 July 2013.
| Financial year end | 31 March 2013 |
|---|---|
| 2012/13 preliminary results announced | 14 May 2013 |
| Annual General Meeting | 11 July 2013 |
| Final dividend payment date (record date 5 July 2013)* | 8 August 2013 |
* See also 'Results and dividends' on page 68.
33 Wigmore Street London W1U 1QX
Registered in England Company number 2342138
Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Tel: 0871 664 0330 (calls cost 10p per minute plus network extras – lines are open 8.30 am to 5.30 pm Monday to Friday) Tel (from overseas): +44 20 8639 3399 Email: [email protected] www.babcock-shares.com
Shareholder enquiries relating to shareholding, dividend payments, change of address, loss of share certificate etc., should be addressed to Capita Registrars at their address given above.
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH
The Royal Bank of Scotland plc 135 Bishopsgate London EC2M 3UR
The Lloyds Banking Group Level 7 − Bishopsgate Exchange 155 Bishopsgate London EC2M 3YB
Barclays Bank PLC Level 27 1 Churchill Place London E14 5HP
JPMorgan Cazenove 10 Aldermanbury London EC2V 7RF
JPMorgan Cazenove 10 Aldermanbury London EC2V 7RF
Jefferies Hoare Govett Vintners Place 68 Upper Thames Street London EC4V 3BJ
Capita Share Dealing Services provide Babcock shareholders with a quick and easy way to buy or sell Babcock International Group PLC ordinary shares. Commission starts from £20 if you deal online and £27.50 if you deal by phone.
In addition, stamp duty, currently 0.5%, is payable on purchases.
There is no need to open an account in order to deal and you can trade at live market prices during stock market hours. You also have the added convenience of placing 'limit' orders which are valid for up to 90 days. This means that you decide the price at which you wish to sell and your shares will only be sold if the price reaches this pre-set limit during the 90-day period.
To use the service, either log on to www.capitadeal.com or call 0871 664 0448 (calls cost 10p per minute plus network extras – lines are open 8.00 am to 4.30 pm Monday to Friday). Please have your share certificate(s) to hand when you log on or call. If you are planning to purchase shares, you will need to have your debit card at hand with cleared funds available at your bank.
These services are offered on an execution-only basis and are subject to terms and conditions which are available on request or at www.capitadeal.com
Capita Share Dealing Services is a trading name of Capita IRG Trustees Limited, which is authorised and regulated by the Financial Services Authority.
This is not a recommendation to buy, sell or hold shares in Babcock International Group PLC. Shareholders who are unsure of what action to take should obtain independent financial advice. Share values may go down as well as up, which may result in a shareholder receiving less than he/she originally invested.
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 Capita IRG Trustees on 0871 664 0381 (calls cost 10p per minute plus network extras, lines are open 9.00 am to 5.30 pm Monday to Friday) from UK or +44 208 639 3402 from overseas.
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 Registrars. 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
| 2013 £m |
2012 £m |
2011 £m |
2010 £m |
2009 £m |
|
|---|---|---|---|---|---|
| Continuing revenue | 3,029.4 | 2,848.4 | 2,564.5 | 1,895.5 | 1,901.9 |
| Operating profit from continuing operations | 234.5 | 202.0 | 153.2 | 148.1 | 133.1 |
| Share of profit/(loss) from joint ventures | 18.0 | 4.3 | 6.1 | (0.5) | (0.2) |
| Profit before interest from continuing operations | 252.5 | 206.3 | 159.3 | 147.6 | 132.9 |
| Net interest and similar charges | (27.9) | (33.3) | (48.2) | (18.4) | (26.2) |
| Profit before taxation from continuing operations | 224.6 | 173.0 | 111.1 | 129.2 | 106.7 |
| Income tax expense | (28.3) | (15.8) | (10.1) | (20.8) | (19.1) |
| Profit from continuing operations | 196.3 | 157.2 | 101.0 | 108.4 | 87.6 |
| Discontinued operations | (15.2) | (53.1) | 3.7 | – | (13.3) |
| Profit for the year | 181.1 | 104.1 | 104.7 | 108.4 | 74.3 |
| Non-controlling interest | (5.9) | (3.3) | (3.6) | (2.4) | (2.3) |
| Profit attributable to owners of parent | 175.2 | 100.8 | 101.1 | 106.0 | 72.0 |
| Non-current assets | 2,302.1 | 2,232.5 | 2,447.6 | 877.4 | 858.4 |
| Net current liabilities | (240.9) | (153.0) | (219.5) | (88.9) | (117.3) |
| Non-current liabilities | (1,092.3) | (1,159.5) | (1,207.5) | (702.7) | (448.3) |
| Total net assets | 968.9 | 920.0 | 1,020.6 | 85.8 | 292.8 |
| Equity holders of the parent | 947.1 | 911.4 | 1,011.7 | 80.6 | 288.4 |
| Non-controlling interest | 21.8 | 8.6 | 8.9 | 5.2 | 4.4 |
| Total equity | 968.9 | 920.0 | 1,020.6 | 85.8 | 292.8 |
| Total earnings per share – basic | 48.8p | 28.1p | 31.3p | 46.3p | 37.4p |
| Dividend per share (proposed) | 23.6p | 22.7p | 19.4p | 17.6p | 14.4p |
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Babcock International Group PLC 33 Wigmore Street London W1U 1QX Tel +44(0)20 7355 5300 Fax +44(0)20 7355 5360 www.babcockinternational.com
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