Half year results for the six months ended 30 September 2018 21 - - PowerPoint PPT Presentation

Marine Land Aviation Nuclear

Half year results

for the six months ended 30 September 2018

21 November 2018

Marine Land Aviation Nuclear

2

Disclaimer

This document has been prepared by Babcock International Group PLC (the “Company”) solely for use at a presentation in connection with the Company's half year results announcement for the half year ended 30 September 2018. For the purposes of this notice, the presentation that follows (the “Presentation”) shall mean and include the slides that follow, the oral presentation of the slides by the Company, the question and answer session that follows that oral presentation, hard copies of this document and any materials distributed at, or in connection with, that presentation. The Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue, or the solicitation of an offer to buy or acquire, securities of the Company in any jurisdiction or an inducement to enter into investment activity. No part

• f this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or

commitment or investment decision whatsoever. Statements in this Presentation, including those regarding the possible or assumed future or other performance of the Company or its industry or other trend projections, as well as statements about Babcock’s or management’s beliefs or expectations, may constitute forward-looking statements. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond Babcock’s control. These risks, uncertainties and factors may cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements. Accordingly, no assurance is given that such forward-looking statements will prove to have been correct. Forward looking statements in the Presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. They speak only as at the date of this Presentation and the Company undertakes no obligation to update these forward-looking statements. The information and opinions contained in this Presentation do not purport to be comprehensive, are provided as at the date of the Presentation and are subject to change without notice. The Company is not under any obligation to update or keep current the information contained herein.

Marine Land Aviation Nuclear

Introduction

Archie Bethel, Chief Executive

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Underlying results in line Full year guidance confirmed De-gearing

• n track

Interim dividend up 3.6% Exceptional costs (mostly non-cash) as we take action to further strengthen Babcock

Taking actions to further strengthen Babcock

Marine Land Aviation Nuclear

Agreement for consistent and enduring relationship with UK Government

5

• UK Government Strategic Partner Programme
• MOD Strategic Supplier Management Programme
• Cabinet Office, MOD and Babcock signed

‘Joint Ways of Working’ Charter

Marine Land Aviation Nuclear

Our Oil and Gas business

• Two main geographies: UK North Sea and Australia
• Around 50 helicopters (c.10% of total Aviation fleet)
• Includes 13 EC225s

Tough markets conditions

• Platform crew shift patterns reduced
• Exploration and new platforms on hold
• EC225 taken out of North Sea operations

6

Business acquired EC225 cleared to fly Bristow & Columbia merge + impair EC225s CHC into Chapter 11 2014 2015 2016 2017 2019 Oil price drops: $114 to $46 Oil price drops: $30 2018 EC225 grounded

Taking action: addressing Oil and Gas

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Focus on UK North Sea and Australia

Reshaping our Oil and Gas business

Maintain revenue levels Refocus cost base and rightsize the fleet Sell surplus helicopters / repurpose some for firefighting

Marine Land Aviation Nuclear

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Magnox update

Award NDA decide to terminate Holliday report findings Our contract terminates NDA under review Energy Solutions claim begins

Magnox JV contract

• Decommissioning 10 reactor sites and two test sites
• c.£3.8bn, 14-year contract now ending in Aug 2019

Termination

• Early termination a result of flawed procurement process
• No reflection on performance (confirmed by NDA)
• Committed to achieving a smooth transition back to NDA

Additional scope required High court rule against NDA Bid starts

Future

• NDA to repackage into smaller contracts
• Expect similar approach to Sellafield supply chain model
• More prudent scenario in revenue step down

assumptions

• Cavendish Nuclear will compete for future packages
• Significant medium term opportunities remain

Holliday report begins NDA announce subsidiary model

2014 2018 2015 2016 2017 2019 2012

Consolidation period

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Marine Land Aviation Cavendish Nuclear

Operational highlights for the half year

• Type 23 frigate life extension:

HMS Northumberland, HMS Kent

• HMS Monmouth and HMS

Albion deployment support

• First delivery of Dreadnought

submarine missile launch tube to USA

• Babcock-Schulte Kairos LNG

service vessel

• c.500 vehicles deployed to

Oman for British Army

• Progressing with DSG

transformation

• Mobilised Hinkley

Point C training contract for EDF

• Mobilised new rail contract

Northern Ireland

• HADES (17 RAF bases) fully
• perational
• FOMEDEC planes and

simulators delivered

• Mobilising air ambulance

contracts in Sweden, Finland and Norway

• Renewed search and rescue

contract in Spain

• Dounreay fast reactor now

20% defueled

• Wylfa reactors now

75% defueled

• Bradwell entered care and

maintenance

• Office opened in Japan

Marine Land Aviation Nuclear

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Our strategy focuses on three markets

Defence Emergency Services Nuclear

Marine Land Aviation Nuclear

Delivered across our four sectors: With international a key growth driver

Marine Land Aviation Nuclear

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Actions to sharpen our strategic focus

Exits and disposals Restructure and reshaping

• Media services
• Renewables
• North America mining and

construction support

• Powerlines (South Africa)
• Oil and Gas business
• Appledore shipyard
• Rosyth, QEC
• Magnox ahead of contract end

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Strong order book and bid pipeline

67% 16% 10% 7%

Order book - £18bn

63% 6% 18% 13%

Pipeline - £14bn

Defence Emergency Services1 Nuclear Other

• £2.6 billion order intake in period,

£0.9 billion of which not through pipeline

• 92% of FY19 revenue secured,

60% of FY20

• 88% contracts > £25 million
• £1 billion increase since March 2018
• £3.7 billion of opportunities added2
• Group win rates maintained
• 87% contracts > £25 million

1. Emergency Services contracts typically have shorter bid periods and as such are underrepresented in our pipeline 2. Includes: Marine training, UK defence fleet vehicles, Eskom boiler maintenance (South Africa) and aerial emergency services in Canada

Marine Land Aviation Nuclear

Financial review

Franco Martinelli, Group Finance Director

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Maintaining underlying performance

Underlying performance Taking action Cash Returns

£120m exceptional charges Net cash costs

• nly c.£10m

FCF2: increasing to £140m Cash conversion3: 120% pre capex 82% post capex Net debt: £159m down year on year Underlying EPS: up 3.1% Interim dividend: up 3.6% Revenue: £2,577m, down 1.1%1 Operating profit: £280m, up 2.4%1

1. Organic growth at constant rates 2. Before pension payments in excess of income statement 3. Defined as underlying operating cash flow over underlying operating profit

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Underlying results in line

HY19 (£m) HY18 (£m) Change Organic growth1

Total revenue 2,577 2,639

• 2.3%
• 1.1%

Operating profit 280 276 +1.4% +2.4% Operating margin 10.9% 10.5% Profit before tax 246 240 +2.5% EPS 39.9p 38.7p +3.1% Interim dividend 7.10p 6.85p +3.6%

1. At constant exchange rates

• Organic revenue growth -1.1%1,

+0.5% adjusting for exits

• Organic operating profit growth

+2.4%1

• Margin supported by exits from

low margin businesses

• Underlying results exclude

£120 million of exceptional charges

All results throughout this presentation are shown on an underlying basis unless otherwise stated and all percentages are calculated on non-rounded figures

Marine Land Aviation Nuclear

£2,500 £2,501 £2,501 £2,502 £2,502 £2,503 £2,503 £2,504 £2,504 £2,505 £2,505 £2,506 £2,506 £2,507 £2,507 £2,508 £2,508 £2,509 £2,509 £2,510 £2,510 £2,511 £2,511 £2,512 £2,512 £2,513 £2,513 £2,514 £2,514 £2,515 £2,515 £2,516 £2,516 £2,517 £2,517 £2,518 £2,518 £2,519 £2,519 £2,520 £2,520 £2,521 £2,521 £2,522 £2,522 £2,523 £2,523 £2,524 £2,524 £2,525 £2,525 £2,526 £2,526 £2,527 £2,527 £2,528 £2,528 £2,529 £2,529 £2,530 £2,530 £2,531 £2,531 £2,532 £2,532 £2,533 £2,533 £2,534 £2,534 £2,535 £2,535 £2,536 £2,536 £2,537 £2,537 £2,538 £2,538 £2,539 £2,539 £2,540 £2,540 £2,541 £2,541 £2,542 £2,542 £2,543 £2,543 £2,544 £2,544 £2,545 £2,545 £2,546 £2,546 £2,547 £2,547 £2,548 £2,548 £2,549 £2,549 £2,550 £2,550 £2,551 £2,551 £2,552 £2,552 £2,553 £2,553 £2,554 £2,554 £2,555 £2,555 £2,556 £2,556 £2,557 £2,557 £2,558 £2,558 £2,559 £2,559 £2,560 £2,560 £2,561 £2,561 £2,562 £2,562 £2,563 £2,563 £2,564 £2,564 £2,565 £2,565 £2,566 £2,566 £2,567 £2,567 £2,568 £2,568 £2,569 £2,569 £2,570 £2,570 £2,571 £2,571 £2,572 £2,572 £2,573 £2,573 £2,574 £2,574 £2,575 £2,575 £2,576 £2,576 £2,577 £2,577 £2,578 £2,578 £2,579 £2,579 £2,580 £2,580 £2,581 £2,581 £2,582 £2,582 £2,583 £2,583 £2,584 £2,584 £2,585 £2,585 £2,586 £2,586 £2,587 £2,587 £2,588 £2,588 £2,589 £2,589 £2,590 £2,590 £2,591 £2,591 £2,592 £2,592 £2,593 £2,593 £2,594 £2,594 £2,595 £2,595 £2,596 £2,596 £2,597 £2,597 £2,598 £2,598 £2,599 £2,599 £2,600 £2,600 £2,601 £2,601 £2,602 £2,602 £2,603 £2,603 £2,604 £2,604 £2,605 £2,605 £2,606 £2,606 £2,607 £2,607 £2,608 £2,608 £2,609 £2,609 £2,610 £2,610 £2,611 £2,611 £2,612 £2,612 £2,613 £2,613 £2,614 £2,614 £2,615 £2,615 £2,616 £2,616 £2,617 £2,617 £2,618 £2,618 £2,619 £2,619 £2,620 £2,620 £2,621 £2,621 £2,622 £2,622 £2,623 £2,623 £2,624 £2,624 £2,625 £2,625 £2,626 £2,626 £2,627 £2,627 £2,628 £2,628 £2,629 £2,629 £2,630 £2,630 £2,631 £2,631 £2,632 £2,632 £2,633 £2,633 £2,634 £2,634 £2,635 £2,635 £2,636 £2,636 £2,637 £2,637 £2,638 £2,638 £2,639 £2,639 £2,640 £2,640 £2,641 £2,641 £2,642 £2,642 £2,643 £2,643 £2,644 £2,644 £2,645 £2,645 £2,646 £2,646 £2,647 £2,647 £2,648 £2,648 £2,649 £2,649 £2,650 £2,650 £2,651 £2,651 £2,652 £2,652 £2,653 £2,653 £2,654 £2,654 £2,655 £2,655 £2,656 £2,656 £2,657 £2,657 £2,658 £2,658 £2,659 £2,659 £2,660 £2,660 £2,661 £2,661 £2,662 £2,662 £2,663 £2,663 £2,664 £2,664 £2,665 £2,665 £2,666 £2,666 £2,667 £2,667 £2,668 £2,668 £2,669 £2,669 £2,670 £2,670 £2,671 £2,671 £2,672 £2,672 £2,673 £2,673 £2,674 £2,674 £2,675 £2,675 £2,676 £2,676 £2,677 £2,677 £2,678 £2,678 £2,679 £2,679 £2,680 £2,680 £2,681 £2,681 £2,682 £2,682 £2,683 £2,683 £2,684 £2,684 £2,685 £2,685 £2,686 £2,686 £2,687 £2,687 £2,688 £2,688 £2,689 £2,689 £2,690 £2,690 £2,691 £2,691 £2,692 £2,692 £2,693 £2,693 £2,694 £2,694 £2,695 £2,695 £2,696 £2,696 £2,697 £2,697 £2,698 £2,698 £2,699 £2,699 £2,700 £2,700

HY18 FX Disposals HY18 rebased Exits HY18 continuing Growth HY19 £2,639m

• £15m
• £42m

£2,565m

+ £60m

£2,577m

16

Revenue impacted by exits and disposals

• £16.9m
• £17m
• 1.1%

Organic growth + 0.5%

• Excl. exits1

1. Growth rate adjusting for both years 2. Expected full year impact of exits c.£50m 3. Includes QEC stepdown of £47m

+ £12m 3 2

£2,607m

Marine Land Aviation Nuclear

£265.0 £265.5 £266.0 £266.5 £267.0 £267.5 £268.0 £268.5 £269.0 £269.5 £270.0 £270.5 £271.0 £271.5 £272.0 £272.5 £273.0 £273.5 £274.0 £274.5 £275.0 £275.5 £276.0 £276.5 £277.0 £277.5 £278.0 £278.5 £279.0 £279.5 £280.0 £280.5 £281.0 £281.5 £282.0 £282.5 £283.0 £283.5 £284.0 £284.5 £285.0

HY18 FX Disposals HY18 rebased Growth HY19

• £1.4m

£273.0m + £6.6m £279.6m 17 £275.8m

• £1.4m

Operating profit growth

+ £3.5m

Organic growth +2.4%

Marine Land Aviation Nuclear

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HY19 HY18 Underlying operating profit 280 276 Exceptional items (120)

• Joint ventures and associates

(45) (39) IFRIC 12 (16) (16) Amortisation of acquired intangibles (50) (49) Statutory operating profit 49 172

Underlying results reconciliation

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Net cash cost of exceptional items c.£10m

P&L cost £m

Oil and Gas 80 Capacity reduction & restructuring 40 Exits 15 Business disposal (15) Total 120 Tax (19) Net 101

• Total net cash costs c.£10m
• £5m net cash costs in H11
• Expected asset sales reduce cash costs
• Reshaping Oil and Gas:
• £38m asset write downs
• £42m lease provision
• Capacity reduction and restructuring: mainly

Appledore, Rosyth (QEC rundown) and Magnox

• Exits and disposals: Renewables, North American

mining and construction support, media services, powerlines in South Africa

1. Expected H2 net cash costs of around £10m, expected small net cash inflow in future years

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Marine: growth maintained excl. QEC

HY19 (£m) HY18 (£m) Change Organic growth1 Revenue 825 883

• 6.6%
• 6.2%

Continuing revenue 819 854

• 4.1%
• 3.5%

Operating profit 108 116

• 6.3%
• 6.0%

Operating margin 13.1% 13.1%

• 1. at constant exchange rates
• +2.1% organic revenue growth1 excl.

renewables exit and QEC step down

• QEC revenue step down of £47m
• Mix of business led to stable margins

Outlook:

• FY19: Revenue broadly stable and stable

margins

• FY20: QEC step down c. £75m to

revenue, minimal impact to operating profit

Business units: Naval Marine | Technology | International

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Land: margins improved

HY19 (£m) HY18 (£m) Change Organic growth1 Revenue 798 934

• 14.6%
• 11.9%

Continuing revenue 759 862

• 12.0%
• 9.9%

Operating profit 63 57 +12.0% +15.6% Operating margin 7.9% 6.0%

• Revenue lower: business exits, lower

procurement in Defence and lower Rail electrification

• Operating profit increase driven by:
• Contract performance
• Cost reduction
• South African equipment
• Holdfast (RSME) savings

Outlook:

• FY19: c.10% lower reported revenue

(c.£75m impact from exits and disposals), strengthening margin

Business units: Defence | Training & Emergency Services | Networks & Equipment Support | South Africa

• 1. at constant exchange rates

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Aviation: strong revenue growth

HY19 (£m) HY18 (£m) Change Organic growth1 Revenue 616 498 +23.6% +24.2% Operating profit 82 79 +3.9% +4.5% Operating margin 13.3% 15.8%

• Revenue growth led by FOMEDEC
• Emergency Services and UK Military Air

growth H2 weighted

• Operating profit:
• FOMEDEC initial contract phase
• Lower margins in early phase of new

contracts Outlook:

• FY19: Strong revenue growth for full year

(weaker in H2), softening margin year on year

Business units: Military Air | Aerial Emergency Services | Oil & Gas

• 1. at constant exchange rates

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Nuclear: good growth, Magnox impacts FY20

HY19 (£m) HY18 (£m) Change Organic growth1 Revenue 338 323 +4.8% +4.8% Operating profit 30 29 +3.1% +3.1% Operating margin 8.8% 9.0%

• Revenue growth across the business
• Margin reflects stable business mix

Outlook:

• FY19: Revenue flat and stable margin
• Magnox step down assumed to be larger:
• FY20: c.£250m revenue, c.£20m
• perating profit
• FY21: c.£100m revenue, c.£7m
• perating profit
• Significant medium term opportunities remain
• 1. at constant exchange rates

Business units: Decommissioning JVs | Projects

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Operating cash flow in line with expectations

Cash flow

HY19 (£m) HY18 (£m)

Underlying operating profit1 219.7 221.3 Amortisation and depreciation 52.9 50.7 Other non-cash items 2.0 6.6 Working capital (excl. pensions) 10.4 (115.1) Provisions (20.9) (10.4) Operating cash flow 264.1 153.1 Cash conversion before capex 120% 69% Net capital expenditure (capex) (83.9) (63.1) Operating cash flow after capex 180.2 90.0 Cash conversion after capex 82% 41% Capital expenditure/Depreciation 1.6x 1.2x

1. Excludes exceptional items and amortisation of acquired intangibles 2. FY18 included £109m of FOMEDEC debtors and £59m of FOMEDEC creditors, net outflow of £50m

• FOMEDEC had a £50m working capital
• utflow in FY182 which unwinds in full in FY19
• Slightly larger benefit in H1 helped offset

expected phasing of other working capital

• FOMEDEC contract now cash positive
• Group cash generation H2 weighted
• Full year outlook unchanged
• Aircraft payments drove capex in H1,

reversing in H2 as converted to operating leases

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Net cash flow weighted to H2

1. Includes £26m net proceeds from disposal of media services business 2. Net debt increase due to FX in H1: £16.1m

Cash flow

HY19 (£m) HY18 (£m)

Operating cash flow after capex 180.2 90.0 Interest paid (net) (14.0) (17.2) Taxation (46.7) (43.6) Dividends from JVs 20.0 15.1 Free cash flow before pensions 139.5 44.3 Pensions contributions in excess of income statement (20.7) (11.3) Free cash flow after pensions 118.8 33.0 Dividends paid (115.5) (112.8) Acquisitions / other 1.2 (5.8) Net cash cost of exceptional items1 (5.3)

• Net cash outflow (before FX)2

(0.8) (85.6)

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De-gearing remains on track

0.0 0.5 1.0 1.5 2.0 2.5 FY15 FY16 FY17 FY18 HY19 FY19 FY20

Net debt / EBITDA

• Net debt1: £1,132m – down £159m year on year
• Includes £163m FOMEDEC lease debtor which

converts to cash in H2

• Net debt to EBITDA2 ratio 1.6x (HY18: 1.9x)
• FY19 expected: c.1.4x
• FY20 expected: c.1.1x
• IFRS 163 expected impacts to FY20:
• Net debt: + c.£550m
• EBITDA: + c.£150m
• Net debt to EBITDA: + c.0.4
• EPS: negligible
• Operating profit increase offset by interest

increase: c.£30m

1. Net debt excludes £345m of non-recourse JV net debt, mainly held in AirTanker and Ascent 2. EBITDA of £695m (12 months to 30 September 2018). H1 EBITDA was £333m 3. IFRS 16 (Leases) effective for FY20. Based on lease profile of group as at 30 September 2018 4. Based on current accounting standards

4

Marine Land Aviation Nuclear

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Capital allocation priorities

Invest in the business Return capital to shareholders

Drive growth Sustainable dividend

• Disciplined investment criteria to support ROIC
• Bolt-on M&A if meets hurdles
• Growing ordinary dividend, well covered by free cash

flow

• De-gearing on track and offers scope for additional

returns

De-gear balance sheet

• Well-positioned for any environment
• Safeguard credit rating
• Additional funding for pension schemes

Flexibility

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Pensions update

HY19 HY18 Assets (£m)

4,652 4,593

Obligations (£m)

4,626 4,709

Net surplus / (deficit) (£m)

26 (116)

Income statement impact HY19 HY18 Operating profit impact (£m)

(23) (25)

Net interest costs (£m)

• (1)

Total impact (£m)

(23) (26)

Key assumptions HY19 HY18 Discount rate 2.7% 2.7% Inflation (RPI) 3.2% 3.2%

• IAS19 position now in surplus:
• Discount rates, asset performance, deficit contribution
• Trustee funding
• Devonport valuation signed off: no effect on deficit,

cash service cost increase of £5m

• Rosyth under discussion – more challenging
• FY19 impacts
• Cash service cost increasing above IAS 19 service cost
• Contributions in excess of income statement – deficit

recovery and cash service cost dependent

• Continued actions
• Increased employee cash contributions
• Restructuring reduces number of active members
• Interest rate/age/inflation hedging continues

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Joint ventures: JV debt is non-recourse

Cash £m Loans £m Net debt £m Babcock share £m AirTanker 350 (2,320) (1,970) (260) Ascent 50 (180) (130) (65) Others 50 (100) (50) (20) Total 450 (2,600) (2,150) (345)

• JV debt mostly in AirTanker
• Significant cash balances
• JV performance
• Scheduled debt repayments
• Babcock share of net debt of c.£345m
• All non-recourse

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Joint ventures: significant cash dividend stream

HY19 (£m) HY18 (£m)

TOTAL Asset Operational TOTAL Asset Operational Operating Profit 45.1 23.2 21.9 39.2 19.9 19.3 IFRIC 12 14.1 14.1

• 14.3

14.3

• Total underlying profit

59.2 37.3 21.9 53.5 34.2 19.3 Finance costs (11.8) (11.8)

• (12.2)

(12.2)

• Profit before tax

47.4 25.5 21.9 41.3 22.0 19.3 Tax (7.1) (2.4) (4.7) (5.6) (1.6) (4.0) Profit after tax 40.3 23.1 17.2 35.7 20.4 15.3 Dividends 20.0 5.4 14.6 15.1 3.8 11.3 Cash Gap 20.3 17.7 2.6 20.6 16.6 4.0

• 12% of underlying

revenue (HY18: 12%)

• 21% of underlying profit

(HY18: 19%)

• Distributable reserves:

c.£140m

• Dividends expected in:
• FY19: c.£50m
• FY20: c.£45m

See appendix for definitions of asset and operational JVs

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FY19 (as per July) FY19 (updated)

Revenue Margin Revenue Margin

Reported basis by sector: Marine

Flat Stable Broadly stable Stable

Land

Slight decline Strengthening c.10% decline Strengthening

Aviation

Strong growth Softening Strong growth Softening

Cavendish Nuclear

Flat Stable Flat Stable

Group impact of FX and disposals1

c.£70m revenue, <£5m OP impact

Group organic revenue growth2

Low single digit growth Low single digit growth

Margins

Broadly stable Stronger

Tax rate

c.18% c.18%

Cash conversion: pre capex/post capex

> 100% pre capex/ c.80% post capex > 100% pre capex/ c.80% post capex

Capex to depreciation ratio

c.1.2x c.1.2x

Net debt to EBITDA ratio

c.1.4x c.1.4x

JV dividends

c.£45m c.£50m

Pension contributions in excess of income statement

c.£50m c.£55m

Updated FY19 guidance: no overall change

1. Based on FX rates as of 30 Sept 2018 and assumptions on disposals. Expected full year FX impact c.£20m (HY18: £17m). Expected full year impact of disposals c.£50m (HY18: £15m) 2. At constant exchange rates. Excludes expected full year impact of exits of c.£50m, of which £42m impact in H1

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FY20 modelling considerations

Exits and disposals QEC stepdown Magnox stepdown

• Revenue impact of c.£40m, operating profit impact small
• Revenue impact of c.£75m at low margin
• Revenue impact of c.£250m (previously guided c.£100m)
• Operating profit impact of c.£20m (previously guided c.£7m)

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Our priorities: drive value for customers and shareholders

Sustain margins De-gearing Cash generation

• On track this year
• Continuing cost focus
• Bidding control

Customer and shareholder value

• H1 performance in line overall
• On track for full year expectations
• Zero based budgeting for working capital
• Deliver savings for customers
• Focus on cash returns on capital
• On track to reach 1.4x at March 2019, 1.1x at March 2020
• Supports growing and sustainable dividend

Marine Land Aviation Nuclear

Further strengthening Babcock

Archie Bethel, Group Chief Executive

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International growth a key part of our strategy

• International now around 30% of revenue
• Focus on key markets:
• Australia, Canada, South Africa
• France, Spain, Italy, Scandinavia
• South Korea, Japan, Oman, New Zealand
• Leveraging our strengths across all sectors and our

experience in the UK

• Pipeline includes significant opportunities

UK International

£14bn

Order book Pipeline

£18bn

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Strong market positions, high barriers to entry

Sector specific technical expertise Deep customer relationships Unique infrastructure assets Long-term contract visibility

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Market trends: Defence

Global

• Increasing air, sea, land and cyber threats
• Budget pressures driving need for efficiencies
• Increasing need for capability upgrades and life extension of key

equipment and facilities

• New equipment programmes and platform development continues

UK

• Recent Government announcements confirmed commitments to Defence
• Continue to identify support needs across Marine, Land and Aviation
• Modernising Defence Programme driving Strategic Partnering approach
• Large programmes continuing: Dreadnought, Type 26, Type 31, ASDOT

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Market trends: Emergency Services

Global trends

• Population growth driving greater need
• Budget pressures driving need for efficiencies and critical mass
• Increasing levels of regulation around safety and operations
• Innovative technology increasing effectiveness of service provision
• Increasing use of unmanned equipment for monitoring and inspection

Europe

• Increasingly shared and pooled fire fighting efforts across countries
• Scale of fleet increasingly important to achieve economies of scale
• Investment in support infrastructure and development of skills critical to

safety, performance and growth

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Market trends: Nuclear

Decommissioning

• Growing requirement as ageing power stations come offline
• Less certainty on timing of Magnox work post August 2019
• Sellafield programme progressing and international opportunities emerging

Nuclear New Build

• Increased UK activity following continued Government support for Nuclear
• Hinkley Point C progressing, MoU signed, promising progress at Wylfa

Nuclear Services

• Expert support for active UK Reactor Fleet is growing
• Major project opportunities across the UK’s nuclear installations in areas of

nuclear engineering, safety and health physics

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Focus on core markets Develop UK business Sustain margins International expansion

• Disposals and exits programme

Customer and shareholder value

• On track this year, exiting low margin businesses
• Ahead of schedule, key growth driver
• Growing and sustainable dividend
• Continuous performance improvement
• #2 supplier to MOD for over a decade
• Significant opportunities in pipeline

Our priorities: drive value for customers and shareholders

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Underlying results in line Full year guidance confirmed De-gearing

• n track

Interim dividend up 3.6%

Conclusion: further strengthening Babcock

Marine Land Aviation Nuclear

Additional slides

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43

Single Source Regulations Office (SSRO)

Contract profit rate steps 2018/19 Rates Babcock Commentary Baseline profit rate (BPR) 6.81% Cost risk adjustment: +/-25% x BPR +/- 1.7% No cost reimbursable contracts Expect close to +25% x BPR SSRO funding adjustment

• 0.024%

Incentive adjustment Up to 2.0% Typically at the top end Capital servicing adjustment Average 1.36%

Maximum CPR 11.85% Before shared cost savings

Source: www.gov.uk SSRO 2018 contract profit rate

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We are the MOD’s second largest supplier

Source: www.gov.uk MOD Trade, Industry & Contracts, Sept 2018

BAE

Airbus Rolls-Royce Leonardo Lockheed Martin QinetiQ DXC

General Dynamics Thales

Leidos Boeing Serco

Innisfree Raytheon BT Jacobs

Marshall of Cambridge

Capita Terra Firma Cobham

3I Fujitsu

Northup Grumman

BP

Infrared Sodexo

KBR Interserve Ferrovial

Galliford Try

Nats

Macquarie

Allianz Safran Vinci Mears

Hocomm Compass Groupe CGI Hogg Robinson

Chart: MOD suppliers paid above £50m last year (to rough scale)

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Half of our MOD work is competed

5%

BAE

12%

Rolls-Royce

85%

Lockheed Martin

68%

Leonardo

10%

QinetiQ

74%

General Dynamics

45%

Thales

68%

Airbus

50%

Source: www.gov.uk MOD Trade, Industry & Contracts, Sept 2018

Amount of revenue from competed contracts vs. non-competed contracts

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Summary of actions taken

Business Sector Exit date Rationale Renewables Marine 2017/18 Non-strategic, low margin Civil infrastructure Land 2017/18 Non-strategic, low margin North American mining and construction support Land H1 2018/19 Non-strategic, low margin Media services Land H1 2018/19 Non-strategic, net proceeds of £26m South Africa powerlines Land H1 2018/19 Non-strategic, low margin Exit from Appledore Marine H1 2018/19 No pipeline of future work

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Marine (FY18 figures)

Addressable market

49% 19% 32%

Bid pipeline

UK 79% UK 67% Intl 21% Intl 33%

Revenue Pipeline

Geography

58% 14% 28%

Revenue split

UK Naval International Naval Technology2

£12bn

7%-11% 8%-12% 6%-15%

Typical margin range1

• 1. Excludes gain share
• 2. Includes customer procurement related revenue

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Land (FY18 figures)

Addressable market

31% 23% 46%

Bid pipeline

UK 71% UK 83% Intl 29% Intl 17%

Revenue Pipeline Geography

34% 12% 32% 22%

Revenue split

Defence2 Emergency Services & Training

£9bn

South Africa Networks & Equipment Support 8%-10% 8%-12% 4%-6%

Typical margin range1

5%-8%

• 1. Excludes gain share
• 2. Excludes pass-through customer procurement related revenue

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Aviation (FY18 figures)

Addressable market

67% 29% 4%

Bid pipeline

UK 40% UK 31% Intl 60% Intl 69%

Revenue Pipeline Geography

33% 51% 16%

Revenue split

Defence2 Emergency Services Oil & Gas

£8bn

8%-12% 10%-18% Low

Typical margin range1

• 1. Excludes gain share
• 2. Excludes JVs

Marine Land Aviation Nuclear Addressable market

68% 32%

Revenue split

Projects (incl. New Builds)

50

Cavendish Nuclear (FY18 figures)

34% 4% 62%

Bid pipeline

UK 99% UK 98% Intl 1% Intl 2%

Revenue Pipeline Geography

Decommissioning JVs

£8bn

New Build Operational Support Decommissioning

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Key defence contracts

Land

Babcock Defence Support Group (DSG) UK Royal School of Military Engineering (RSME/Holdfast) UK British Forces Germany UK Training, Maintenance & Support Services (TMASS) UK Phoenix (White Fleet) UK ALC JV (provision and maintenance) UK Defence College of Technical Training (DCTT) UK

Aviation

HADES, technical support services contract UK Light Aircraft Flying Task (LAFT2) UK Tucano In Service Support (TISC) UK Hawk integrated operational support UK Hawk advanced jet training T II UK UK Military Flying Training System (UKMFTS) UK Ascent JV (flight training) UK Airtanker Ltd JV (Asset JV) UK Airtanker Services JV (Operational JV) UK FOMEDEC training, maintenance, flying systems France HELIDAX army helicopter training France

Marine

Queen Elizabeth Class (QEC) Aircraft Carriers UK HMS Vanguard refit and refuel UK Dreadnought missile launch tubes UK Dreadnought & Astute Weapons Handling and Launch System (WHLS) UK Dreadnought design phase services UK Submarine Dismantling Project UK Fleet Outsourced Activity Project (FOAP) naval training UK Astute Class Training Service (ACTS) submarine training UK Maritime composite training site UK MSDF Devonport, Clyde, Rosyth (incl. ships & subs fleet time support) UK T23 life-ex: HMS Portland, HMS Lancaster, HMS Richmond refits UK HMS Scott through-life support UK Marine Systems Support Partner (T45 & QEC design authority) UK Maritime Training Systems through-life support availability UK Pumps repair and overhaul management UK Valves – equipment management service UK Engineering and support for WHLS & submerged signal ejectors UK Design Support Alliance – naval ship design support UK 4.5" Gun through-life support UK Phalanx close in weapon system availability UK Naval Design Partnership UK ANZAC Class support Australia Collins Class submarine support Australia Australian submarine WHLS Australia Dockyard management & naval support New Zealand Victoria Class submarines In Service Support (VISSC) Canada Duqm JV, naval and commercial ship support Oman Jangbogo III submarine WHLS South Korea S80 submarine WHLS Spain US Coastguard Cutter design USA

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Key civil contracts

Marine

LNG/LPG transportation systems China Gas Supply Vessel JV with Bernard Schulte Germany

Land

Rail track renewal, electrification UK Power Networks UK Metropolitan Police vehicle fleet management UK London Fire Brigade fleet management UK London Fire Brigade training UK Technical apprentice training (BMW, EDF, Network Rail) UK Heathrow Airport baggage handling systems UK Heathrow Airport ground support fleet UK QANTAS ground support equipment Australia Schiphol Airport baggage handling Netherlands Fiumicino Airport ground support Italy ESKOM power station support South Africa Vehicle fleets (Volvo, DAF) South Africa

Aviation

Emergency Medical Services (multiple) Norway, Sweden, Finland, Australia, UK, Italy, Spain, Portugal, France Aerial Fire Fighting (multiple) Spain/Portugal/Italy SASEMAR Search and Rescue Spain Offshore Oil and Gas helicopter services (multiple) UK, Europe, Australia

Cavendish Nuclear

Magnox decommissioning UK Dounreay decommissioning UK Sellafield gloveboxes UK Sellafield Silo Maintenance Facility project UK Atomic Weapons Establishment MENSA Doors UK EDF Hinkley Point C new build station UK EDF fuel route management (all stations) UK Engineering, safety, design and mechanical construction UK

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Joint ventures

Babcock underlying JVs Share Country Sector Start End Asset JVs Holdfast (RSME) 74% UK Land 2008 2038 ALC 50% UK Land 2005 2021 Ascent 50% UK Aviation 2016 2033 Helidax 50% UK Aviation 2008 2029 AirTanker 13% UK Aviation 2008 2035 Helidax 50% France Aviation 2008 2029 Operational JVs Cavendish Fluor Partnership 65% UK Nuclear 2014 2019 Cavendish Dounreay Partnership 50% UK Nuclear 2012 2030s Naval Ship Management Australia 50% Aus Marine 2018 2024 ABC Electrification 33% UK Land 2014 2019 AirTanker Services 22% UK Aviation 2008 2035

Asset JVs

• Typically assets and debt
• Dividends follow after

paying down JV debt

• Typically long-term

Operational JVs

• Capability partnerships
• No debt
• Dividends follow profits,

subject to short-term phasing

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Revenue by sector

HY19 (£m) HY 18 (£m) Reported growth Organic growth at constant rates Organic growth at constant rates excluding exits

Marine 824.7 883.3

• 6.6%
• 6.2%
• 3.5%

Land 798.1 934.4

• 14.6%
• 11.9%
• 9.9%

Aviation 615.8 498.4 +23.6% +24.2% +24.2% Cavendish Nuclear 338.3 322.8 +4.8% +4.8% +4.8% Total 2,576.9 2,638.9

• 2.3%
• 1.1%

+0.5%

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Underlying segmental analysis

Revenue (£m) Operating profit (£m) Operating margin

HY 19 HY 18 HY 19 HY 18 HY 19 HY 18 Marine

Group 814.2 873.0 105.6 114.0 13.0% 13.1% JV 10.5 10.3 2.7 1.6 25.7% 15.5% Total 824.7 883.3 108.3 115.6 13.1% 13.1%

Land

Group 782.6 892.3 46.8 42.4 6.0% 4.8% JV 15.5 42.1 16.5 14.1 106.5% 33.5% Total 798.1 934.4 63.3 56.5 7.9% 6.0%

Aviation

Group 551.0 453.2 59.6 57.5 10.8% 12.7% JV 64.8 45.2 22.0 21.0 34.0% 46.5% Total 615.8 498.4 81.6 78.5 13.3% 15.8%

Cavendish Nuclear

Group 107.0 98.2 11.9 12.2 11.1% 12.4% JV 231.3 224.6 18.0 16.8 7.8% 7.5% Total 338.3 322.8 29.9 29.0 8.8% 9.0%

Total

Unallocated (3.5) (3.8) Group 2,254.8 2,316.7 220.4 222.3 9.8% 9.6% JV 322.1 322.2 59.2 53.5 18.4% 16.6% Total 2,576.9 2,638.9 279.6 275.8 10.9% 10.5%

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Statutory to underlying reconciliation

All values in £m

Statutory Joint Ventures and Associates IFRIC 12 income Amortisation of acquired intangibles Exceptional items Change in tax rate Underlying Revenue and

• perating profit

Finance costs Tax

30 Sept 2018 Revenue

2,254.8 322.1 2,576.9

Operating profit

49.3 45.1 14.8 50.0 120.4 279.6

Share of profit from JV

37.4 (45.1) 11.8 7.1 (14.1) 2.9

• Investment income

0.7 (0.7)

• Net finance costs

(22.3) (11.8) (34.1)

Profit before tax

65.1

• 7.1
• 52.9

120.4

• 245.5

Tax

(6.9) (7.1) (11.4) (19.8) 1.0 (44.2)

Profit after tax

58.2

• 41.5

100.6 1.0 201.3

Return on revenue

2.2% 10.9%

30 Sept 2017 Revenue 2,316.7 322.2 2,638.9 Operating profit 172.2 39.2

• 15.3

49.1

• 275.8

Share of profit from JV 32.8 (39.2) 12.2 5.6 (14.3) 2.9

• Investment income

1.0

• (1.0)
• Net finance costs

(24.1)

• (12.2)
• (36.3)

Profit before tax 181.9

• 5.6
• 52.0
• 239.5

Tax (26.6) (5.6) (11.1) 0.2 (43.1) Profit after tax 155.3

• 40.9
• 0.2

196.4 Return on revenue 7.4% 10.5%

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Underlying organic growth

All values in £m

Marine Land Aviation Cavendish Nuclear Unallocated Total

UNDERLYING REVENUE At 30 September 2017 883.3 934.4 498.4 322.8

• 2,638.9

Exchange adjustment (3.5) (10.2) (3.2)

• (16.9)

Disposals

• (14.8)
• (14.8)

Exits (23.8) (18.6)

• (42.4)

Organic growth (31.3) (92.7) 120.6 15.5

• 12.1

30 September 2018 824.7 798.1 615.8 338.3

• 2,576.9

Underlying revenue growth

• 6.6%
• 14.6%

+23.6% +4.8%

• 2.3%

Organic growth1

• 6.2%
• 11.9%

+24.2% +4.8%

• 1.1%

Organic growth1 excluding exits

• 3.5%
• 9.9%

+24.2% +4.8% +0.5% UNDERLYING OPERATING PROFIT As at 30 September 2017 115.6 56.5 78.5 29.0 (3.8) 275.8 Exchange adjustment (0.4) (0.6) (0.4)

• (1.4)

Disposals

• (1.4)
• (1.4)

Organic growth (6.9) 8.8 3.5 0.9 0.3 6.6 30 September 2018 108.3 63.3 81.6 29.9 (3.5) 279.6 Underlying operating profit growth

• 6.3%

+12.0% +3.9% +3.1% +1.4% Organic growth1

• 6.0%

+15.6% +4.5% +3.1% +2.4%

• 1. At constant exchange rates

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Exchange rate movements

Average rates for HY19 Average rates for HY18 Change Impact of FX movement on revenue (£m) Impact of FX movement on underlying

• perating profit (£m)

Impact of FX movement on profit before tax (£m) 1% 5% 10% 1% 5% 10% 1% 5% 10%

EUR 1.1282 1.1374

• 0.8%

3.4 16.9 33.9 0.4 2.0 4.0 0.3 1.3 2.7 ZAR 17.4540 17.0221 +2.5% 1.6 8.1 16.2 0.1 0.4 0.9 0.1 0.4 0.8 CAD 1.7259 1.6814 +2.6% 0.7 3.4 6.9 0.1 0.3 0.7 0.1 0.3 0.7 SEK 11.7282 10.9208 +6.9% 0.3 1.5 3.0 0.1 0.4 0.8 0.1 0.4 0.7 AUD 1.7841 1.6795 +5.9% 0.9 4.3 8.6 0.1 0.3 0.6 0.1 0.3 0.5

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Cash flow reconciliation

HY19 (£m) HY18 (£m) Cash generated from operations 243.4 141.8 Retirement benefit contributions in excess of income statement 20.7 11.3 Operating cash flow 264.1 153.1

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Underlying to statutory cash flow reconciliation

Underlying Exceptional items Statutory

Operating profit before amortisation of acquired intangibles 219.7 (120.4) 99.3 Amortisation and depreciation 52.9 28.0 80.9 Other non-cash items 2.0 (15.2) (13.2) Working capital (excl. excess retirement benefits) 10.4 19.5 29.9 Provisions (20.9) 56.7 35.8 Operating cash flow 264.1 (31.4) 232.7

Net proceeds from disposal of media services business: £26.1m Net exceptional cash cost: £5.3m

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Provisions

• Half year net release £2.7m1
• Average of last eight and a half years:
• 0.6% cumulative net charge as a % of underlying

profit

• 6% cash utilisation of underlying operating profit
• Half year: £21m cash outflow
• Utilised: contracts (gain share and warranty),

personnel (taxation and reorganisation), property and assets

• Provisions made as required by accounting

standards

• Contract costs, property, personnel, warranty,
• nerous leases, acquisitions and disposals

1. Excluding provisions in relation to exceptional items 2. Excluding JVs

• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 H1 FY19 Total

Charge/(release) as % of underlying profit2

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Net capital expenditure

HY19 (£m) HY18 (£m) Purchases of property, plant and equipment 84.0 66.8 Purchases of intangible assets 19.2 11.1 Proceeds on disposal of property, plant and equipment (19.3) (14.8) Capital expenditure (net) 83.9 63.1

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