Babcock Intnl Group BAB Half Yearly Report

  Babcock Intnl Group (BAB) - Half Yearly Report

RNS Number : 3820Q
Babcock International Group PLC
06 November 2012




Babcock International Group PLC
Half year report

for six months ended 30 September 2012

                                                                             

                                                                             



                               6 November 2012

Strong core businesses delivering growth - long-term prospects supported by
significant bid pipeline

                             Financial highlights

  Continuing operations^† - underlying    September 2012 September 2011 Change
Revenue*                                       £1,556.7m      £1,472.0m   + 6%
Operating profit**                               £174.0m        £155.2m  + 12%
Profit before tax***                             £142.7m        £126.3m  + 13%
Basic earnings per share****                      32.40p         28.52p  + 14%
Continuing and discontinued operations
basic earnings per share ****                     32.62p         29.79p   + 9%
   Continuing operations^† - statutory                                     
Revenue                                        £1,450.3m      £1,383.9m   + 5%
Operating profit                                 £108.8m         £94.1m  + 16%
Profit before tax                                £101.9m         £77.8m  + 31%
Basic earnings per share                          24.70p         19.64p  + 26%
Continuing and discontinued operations
basic earnings per share                          19.86p         20.25p   - 2%
                                                                           
Net debt                                         £581.1m        £678.8m      
Net debt/ebitda annualised (per financial
covenants)                             1.7 x          2.0 x      
Half year dividend                                 6.30p          5.70p      
Order book                                       £12.5bn          £12bn      

† Continuing operations - following the disposal of VT Services Inc., its
results are reported as discontinued and the comparatives restated.

*Underlying revenue includes the Group's share of joint venture and associates
revenue. **Underlying operating profit includes IFRIC 12 investment income
and joint venture and associates operating profit but is before amortisation
of acquired intangibles and exceptional items. ***Underlying profit before
tax is inclusive of pre-tax joint venture and associates income but before
amortisation of acquired intangibles and exceptional items. ****Underlying
basic earnings per share is before amortisation of acquired intangibles,
exceptional items and before the related tax effects and before the effect of
UK tax rate changes.

                            Operational highlights

· Strong underlying organic growth in revenue and profit

- 7.3% organic growth in underlying revenue (excluding the effect of foreign
exchange movements)

- 13.3 % organic growth in underlying operating profit (excluding the effect
of foreign exchange movements)

· Order book £12.5 billion (2011: £12 billion) providing excellent
visibility of future revenue streams

· Bid pipeline increased to over £13 billion during first half (15 May
2012: £9.5 billion)

-new outsourcing opportunities in bid support long-term growth prospects

· Cash conversion of 113%, net debt reduced to £581.1million

· Strong first half performance and confidence in growth prospects
reflected in 10.5% increase in half year dividend to 6.30p pershare

Peter Rogers, Chief Executive commented

"Babcock's strong first half performance reflects our leadership in UK
engineering support services, the continuing growth in our major markets and
our increasing international presence. We achieved double-digit growth in
underlying profit and earnings and we further strengthened our balance sheet
by sustaining our track record of excellent cash conversion. As a result, we
have once again been able to increase returns to our shareholders. The
strength of our order book and bid pipeline underpin our confidence in the
future."

Contact:

Babcock International Group PLC

Peter Rogers, Chief Executive

Tel: 020 7355 5300
Bill Tame, Finance Director
Terri Wright, Head of Investor Relations

FTI Consulting

Andrew
Lorenz
Tel: 020 7269 7291
Nick Hasell



A meeting for investors and analysts will be held today at 9:00 am at RBS, 250
Bishopsgate, London EC2M 4AA. A webcast of the presentation will be available
at www.babcockinternational.com from mid afternoon on 6 November 2012.





Overview



Babcock is the UK's leading engineering support services company. We have
made excellent progress in the first half of the 2012/13 financial year,
delivering strong financial results and continued organic growth in both
revenue and profit.

The Group has maintained its secure financial position. Cash generation
across the business has remained strong and we have continued our track record
of debt reduction.

These results reflect the strength and stability of our underlying business
and the significant capability we offer in our market sectors. Babcock is now
well positioned to deliver long-term growth by realising the opportunities we
have created through the consistent focus on our strategy.

These opportunities are reflected in the strength of our order book and bid
pipeline. In addition, with markets remaining buoyant, we continue to track a
number of opportunities in the UK and overseas, that have not yet come to
market.



Financial review



Continuing operations - following the disposal of VT Services Inc., its
results are reported as discontinued and the comparatives restated.
Underlying results are based on the results from continuing businesses only.

Underlying - In this review, unless otherwise stated, revenue, operating
profit, operating margin, net finance costs, profit before tax and earnings
per share refer to results before amortisation of acquired intangibles and
exceptional items. Revenue, operating profit, operating margins and net
finance costs also include the Group's share of equity accounted joint
ventures and associates (jv). Operating profit and operating margin include
investment income arising under IFRIC12 (Accounting for Service Concession
Arrangements) which is presented as financial income in the income statement.
Collectively these adjustments are made to derive the underlying operating
results of the business. All numbers are stated before the effect of tax rate
changes.

A reconciliation of statutory to underlying results is set out below. We feel
that the underlying figures provide a consistent measure of business
performance year to year thereby enabling comparison and understanding of the
Group's financial performance.

                               Income statement

Revenue for the first half increased to £1,556.7 million (2011: £1,472.0
million), resulting in an organic growth rate for the combined business of
7.3%, excluding the effects of changes in exchange rates (principally the
South African Rand). The main contributor to this growth was the Support
Services division, which delivered organic growth of 18% as contract awards in
the second half of the 2011/12 financial year became operational. The Marine
and Technology division delivered 5% organic growth, as expected, as
international operations continue to expand.

Underlying operating profit increased to £174.0 million (2011: £155.2
million). Organic growth for the combined business, excluding the effect of
foreign exchange movements, was 13.3%. The South African business reported
54% growth in profits in local currency, as a result of increased demand for
crane hire and equipment as well as improved operational gearing across the
business.

The Group operating margin increased to 11.2% (2011: 10.5%). Operating
margins for the Marine and Technology division were 12.8%, broadly flat on
last year (2011: 12.5%). The Defence and Security division's margins
increased to 13.0%, in line with expectations (2011: 11.5%), as milestones
within the Future Strategic Tanker Aircraft (FSTA) joint venture contract were
achieved. In line with guidance at the full year, the Support Services margin
fell to 9.3% (2011: 9.8%) as a result of significant new long-term contracts
starting during the period.

                    Statutory to underlying reconciliation

                          Joint ventures and                                            
                            associates                                                    
                                                                       
           Continuing   Revenue                IFRIC                                 Continuing
           operations       and                   12 Amortisation Change Exceptional operations
                    - operating Finance               of acquired  in UK                      -
            statutory    profit   cost   Tax income  intangibles    tax       items underlying
                                                                    rate
                  £m        £m      £m    £m     £m           £m     £m          £m         £m
30                                                                               
September
2012                                                                                     
Revenue       1,450.3     106.4                                                   1,556.7
Operating                                                                       2.6
profit          108.8      10.6               19.6         32.4                         174.0
Share of                                                                          
profit
from jv           6.7    (10.6)    16.8   2.7 (18.7)          3.1                             -
Investment                                                                       
income            0.9                        (0.9)                                         -
Net                                                                              
finance
costs          (14.5)            (16.8)                                               (31.3)
Profit                        -                                        -         2.6
before tax      101.9                 -   2.7      -         35.5                         142.7
Tax            (10.9)                 (2.7)              (8.5)  (1.3)       (0.7)     (24.1)
Profit                        -                                    (1.3)         1.9
after tax        91.0                 -     -      -         27.0                         118.6
30                                                                               
September
2011                                                                                     
Revenue       1,383.9      88.1                                                   1,472.0
Operating                                                                       4.9
profit           94.1       4.6               12.9         38.7                         155.2
Share of                                                                          
profit
from jv           0.8     (4.6)    10.5   1.8 (11.6)          3.1                             -
Investment                                                                       
income            1.3                        (1.3)                                         -
Net                                                                              
finance
costs          (18.4)            (10.5)                                               (28.9)
Profit                        -                                        -         4.9
before tax       77.8                 -   1.8      -         41.8                         126.3
Tax             (6.7)                 (1.8)             (10.9)  (2.7)       (1.3)     (23.4)
Profit                        -                                    (2.7)         3.6
after tax        71.1                 -     -      -         30.9                         102.9



Total net finance costs were £31.3 million (2011: £28.9 million) with the
Group's interest on net debt reducing to £14.5 million (2011: £18.4 million)
as a result of both reducing debt and reduced interest rates paid. The
Group's share of joint venture net interest expense increased to £16.8 million
(2011: £10.5 million). As highlighted at the full year, joint venture finance
costs are primarily related to financing structures on the FSTA and the
Military Flying Training System (MFTS) Private Finance Initiative (PFI)
contracts and these will increase as the PFI delivers assets into service for
the customer. During 2011/12 operating bases for both FSTA and MFTS were
delivered and the first tanker aircraft was brought into service with the
related non-recourse debt drawn down under the PFI.

Profit before tax increased to £142.7 million (2011: £126.3 million), an
increase of 13%. Taxation charges were £24.1 million, including the Group's
share of joint venture income tax.

The Group's effective rate of income tax based on underlying profit before tax
was 18% (2011: 19%).

                              Earnings per share

Underlying earnings per share for the first half year was 32.40 pence (2011:
28.52 pence) an increase of 14% over last year. Basic continuing earnings per
share as defined by IAS 33 was 24.70 pence (2011: 19.64 pence).

                      Exceptional items and discontinued

Exceptional items of £2.6 million were incurred in the first half in respect
of the VT synergy cost programme which will end within this financial year.
The cumulative VT synergy costs at 30 September 2012 were £26 million.

A loss of £17.4 million from discontinued operations arose principally in
relation to the sale of VT Services Inc following movement in the disposal
balance sheet and provision for other disposal costs. 

                               Interim dividend

In line with the strong performance in the first half of the year and the
Board's confidence in the future growth prospects of the Group, the interim
dividend will be 6.30 pence per share (2011: 5.70 pence per share), an
increase of 10.5% over last year. This will be paid on 11 January 2013 to
shareholders on the register at 14 December 2012.

                            Cash flow and net debt

Cash generated from operations was £142.1 million (2011: £157.7 million)
resulting in a conversion rate of underlying operating profit to cash of 113%
(2011: 117%). Cash collection remained strong during the first six months but
certain contract based repayments to customers remained outstanding at the
period end, which are increasingly likely to be settled in the second half of
the year. As highlighted last year, a major IT transformation project is being
undertaken across the business. Expenditure on the project totalled £7.7
million in the first half of this year and total capital expenditure for the
Group was £26.3 million (including leases, intangibles and PPE) (2011: £23.8
million). After tax, interest and dividend payments totalling £101.6 million
(2011: £88.3 million), less disposal proceeds of £57.7 million, net cash flow
was £60.0 million (2011: £50.2 million). Net debt reduced to £581.1 million
(30 September 2011: £678.8 million; 31 March 2012: £641.1 million) and we
expect the key performance indicator of net debt to earnings before interest
tax depreciation and amortisation (ebitda) to approach 1.5 times by 31 March
2013.

Pensions

Accounting valuations

The volatility created by uncertainty in financial markets makes
mark-to-market valuations particularly unhelpful when looking at the very
long-term liabilities represented by defined benefit pension schemes. A
reduction in discount rates and depressed asset values have been offset by a
reduction in the expected level of inflation, such that the value of the IAS
19 accounting deficit on the Group's combined defined benefit pension schemes
was the same as at 30 September 2011 but up from £266 million at 31 March
2012. The net deficit, pre-tax, at 30 September was £318 million (September
2011: £317 million).

As at 30 September 2012, the key assumptions used in valuing pension
liabilities were

Discount rate4.4% (31 March 2012: 4.8%)
Inflation rate2.2% (31 March 2012: 2.7%)

Funding valuations

Cash contributions by the Group to the combined schemes during the first half
of the year were £26 million with a further approximately £54 million expected
to be paid in the period to 31 March 2013.

                         Order book and bid pipeline

The order book has reduced slightly to £12.5 billion from £13 billion at the
beginning of the financial year (2011: £12 billion), pending a number of bid
announcements. It continues to benefit from a steady flow of orders,
extensions and scope enhancements balancing conversion into revenue.

The changing market environment in which we operate and the trend to outsource
activities to achieve both financial and operational efficiency is reflected
in the strength of our bid pipeline as well as the further significant
opportunities we are tracking.

The bid pipeline now stands in excess of £13 billion (30 September 2011: £9
billion) increasing from £9.5 billion at the beginning of the financial year.
During the first half, new opportunities in civil and defence markets in the
UK and overseas have come into the pipeline. 67% of the pipeline comprises
bids with a total contract value of over £100 million and rebids and
extensions make up only 11% of the pipeline.

Building on the strength of our current operations, we have been in discussion
with customers about a number of significant future outsourcing opportunities
which we expect to come to market over the next two years, particularly in the
UK and international defence training and equipment support markets. In
addition we are exploring a number of opportunities in civil markets to build
on the key elements of our strategy.



                                   Outlook

Babcock is well positioned to help our customers develop cost efficient
support solutions and we believe the current economic climate will continue to
create significant medium and long-term growth opportunities, both in the UK
and overseas.

The strength of the order book continues to provide excellent visibility of
future revenue streams across the Group. As a result we entered the second
half with around 90% of the 2012/13 financial year's anticipated revenue
currently contracted and over 50% for the 2013/14 financial year. Since the
beginning of the financial year this position has been further supported by
growth in the bid pipeline and new opportunities coming into the tracking
pipeline.

The Board therefore remains confident of meeting its expectations for this
financial year and delivering strong progress on last year.





Operational review

                               Defence markets

Since the Strategic Defence and Security Review in October 2010, the Ministry
of Defence (MoD) has been considering a range of options to reduce overall
costs whilst maintaining operational efficiency and balancing the current and
future requirements of the armed forces. This has resulted in a number of
significant change programmes being implemented across the MoD and the armed
forces.

In May 2012 The Secretary of State for Defence announced that the MoD's budget
was in balance and its focus will now be on building a platform for the
'Future Force 2020'. As a result we expect a number of the initiatives we
have been discussing with our customer over the past few years will start to
come to market, and we have seen some evidence of this during the first half.

Our business model in both the Marine and Technology and Defence and Security
divisions is based on long-term partnering relationships and contracts which
reward the delivery of efficiencies. In the current environment, we believe
our customers will seek to outsource more of their support activities as a key
driver to achieving their goals and this approach is entirely consistent with
our business model.

The outlook for defence outsourcing in Canada, Australia, Brazil and the
Middle East remains positive as governments seek to strengthen their defence
forces and find improved equipment and infrastructure support solutions as
well as training delivery.

Marine and Technology

                 
                       30 Sept 30 Sept
                        2012    2011 Change
Revenue          total £564.3m £538.0m   + 5%
Operating profit total  £72.5m  £67.4m   + 8%
Operating margin total   12.8%   12.5%      

Financial review

The Marine and Technology division has delivered a solid first half with 5%
organic revenue growth, benefiting in particular from continued growth
overseas. International revenue, including exports, in the first half
increased by 43% compared with the same period last year and now accounts for
c19% of the division.

Operating profit increased by 8% to £72.5 million, benefiting from strong
contract performance within the Technology business units and the division's
international operations. Operating margins for the division at 12.8%
remained broadly similar to the same period last year and to the full year
2012 margin of 12.5%. 

Operational review

Under the Terms of Business Agreement (ToBA), our long-term partnership with
the MoD, we continue to benefit from predictable and long-term programmes of
work in submarine and warship deep maintenance and support, as well as a
continuing role as the MoD's partner at HMNB Devonport and Clyde. In return
the MoD will benefit from delivery of significant cost reductions over the
period of the ToBA, which are currently running ahead of the agreed plan.

We are making good progress on discussions with the MoD about the introduction
of the Maritime Support Delivery Framework. This will replace the current
Warship Support Modernisation Initiative (WSMI) contract for delivery of
services at HMNB Devonport and Clyde. Under the framework of the ToBA, this
contract will provide a platform for further development of our role in both
naval bases.

Throughout the first half we have continued to provide through-life support to
the UK's submarine fleet with a significant position in the Submarine
Enterprise Performance Programme (SEPP), where we are seeking to build on our
engineering and integration expertise to broaden and deepen our involvement.
Good progress is being made in the early stages of HMS Vengeance's Long
Overhaul Period (refuel) (LOP (R)), currently being undertaken at Devonport.
At Faslane, we are supporting HMS Astute's continuing sea trials before
becoming fully operational in 2013. HMS Ambush has now arrived at Faslane to
start her sea-trials and commissioning activities.

We have increased our involvement in the engineering and design support for
the Successor future submarine programme with a new role that supports our
long-term, Tier 1 engineering involvement in the programme. We will be using
our expertise as through-life support partners to the Royal Navy to ensure the
design of the new submarines adequately considers their in-service
availability and performance.

Through the Surface Ship Support Alliance (SSSA) we have successfully
undertaken a number of refit projects at both Devonport and Rosyth dockyards
during the period and also at Rosyth, as part of the Aircraft Carrier Alliance
(ACA), the Queen Elizabeth class aircraft carrier project continues to make
good progress.

Our naval base management contracts continue to perform well at both HMNB
Devonport and Clyde. We are now working closely with the MoD to transfer
support for the Strategic Weapons System at the UK Strategic Weapons Facility
Coulport to the ABL Alliance (AWE, Babcock and Lockheed Martin). This is due
to be completed by January 2013.

Equipment support activities, delivering engineering support for a range of
key assets as well as procurement and logistics support, have performed well
during the first half and we continue to discuss future options for equipment
support with the MoD.

Our international in-service submarine and weapons handling and launch system
(WHLS) support operations in Canada and Australia, as well as our involvement
in future submarine programmes in Australia, Spain and South Korea, all
continue to progress well.

In Australia the Anzac class frigate support contract, our first warship
support contract outside the UK, is still in its transition phase, which runs
until December 2012. Good progress is being made with supply chain agreements
and maintenance planning for HMAS Stuart and HMAS Perth, the first vessels
scheduled to come into the programme.

We continue to strengthen our market positions in Australia and Canada where
we are pursuing a range of opportunities to increase our existing warship and
submarine support activities. We are also exploring opportunities to enter
the Brazilian naval support market where we can build on the strength of our
UK position.

Divisional outlook

The strength of the division's current market positions and the excellent
visibility of future revenue through long-term agreements and alliances with
the Royal Navy and MoD create an extremely secure outlook. This is further
supported by significant opportunities, both in the bidding pipeline and being
tracked, to deliver long-term growth in the UK and increasingly overseas.

                             Defence and Security

                 
                       30 Sept 30 Sept
                        2012    2011 Change-
Revenue          group £339.9m £338.6m       -
                jv     £55.5m  £58.7m    - 5%
                total £395.4m £397.3m       -
Operating profit group  £29.2m  £33.4m   - 13%
                jv     £22.2m  £12.4m   + 79%
                total  £51.4m  £45.8m   + 12%
Operating margin group    8.6%    9.9%       
                jv      40.0%   21.1%       
                total   13.0%   11.5%       

In order to achieve closer alignment of our operational businesses with our
customers' requirements, the defence related elements of our Infrastructure
business unit, previously reported as part of the Support Services division,
were moved to the Defence and Security division during the first half and its
results are included in the division's financial results for this period and
for the comparative period last year.

The division now provides essential support to all three armed services, with
major roles on programmes delivering, infrastructure, equipment and training
support.

Financial review

The Defence and Security division's total revenue was broadly flat on last
year, benefiting from increased volumes in vehicle fleet management contracts
and scope increases within the Regional Prime contracts offsetting some
reduction in naval training activities.

Total operating profit, including the division's share of joint venture
profit, increased by 12%, benefiting from good contract performance within the
Infrastructure business, as well as additional joint venture profit from the
Future Strategic Tanker Air (FSTA) and Military Flying Training System (MFTS)
programmes. As previously indicated, the division's operating margin
increased to 13.0% (2011: 11.5%) as milestones within the FSTA joint venture
contract were achieved.



Operational review

Both the South West and East Regional Prime contracts have performed well
during the first half with significant levels of additional out-of-scope works
being managed within both contracts.

Our contract to support the military estate in Germany continues to mature and
develop well, with the team actively involved in supporting the Army in its
draw down programme and the associated reconfiguration of the residual estate
in Germany.

The contract to maintain the estate and infrastructure owned by the MoD
Defence Support Group has been extended for a further three years.

The Defence Infrastructure Organisation continues to progress its Next
Generation Estates contracts. Babcock is the only organisation to have been
down selected to bid on all six contracts. The Tranche One bids (Scotland and
Northern Ireland, Training Estate and Housing) have been submitted and are
being evaluated by the DIO and tender documents for Tranche Two (South West,
South East and Central) have been received. The programme has been extended
slightly but is progressing according to the revised timetable. 

Our aircraft maintenance and support contracts continue to perform in line
with our expectations. During the period we were successful in our rebid for
the RAF Cosford multi activity contract. The new contract will become
operational in December 2012 and is for a further 4 years valued at £8
million.

Our support of the flypast in celebration of the Queen's Diamond Jubilee
involved assuring the availability of significant numbers of Hawk and Tucano
aircraft from multiple sites to enable the successful '60' and 'EIIR'
formations to be flown. Our engineering effort received widespread praise.

The two joint ventures FSTA and MFTS are now both established in the
operational delivery phase. We have achieved all milestones associated with
the fit out of facilities at RAF Brize Norton to support FSTA. Through MFTS we
are anticipating beginning the formal competition phase for the delivery of
fixed wing flying training. We will be bidding into the programme with our
partners BAE Systems, Pilatus and GAMA.

With our partners Bond, we have submitted our proposal to the Department of
Transport for the future delivery of the UK's Search and Rescue capability.
The programme is expected to be awarded in the first half of the 2013 calendar
year.

Our vehicle fleet management contracts are performing well. Project Phoenix
(formerly Whitefleet) has achieved full operational capability and the service
roll-out programme across all sites has been agreed with the customer. As
part of the contract, we provided over 100 coaches, drivers and mechanical
support to the MoD during the London 2012 Olympics. This enabled the troops
to deliver their support to the event and earned Babcock customer praise for
our flexible and co-operative approach to delivering this critical service.

We continue to focus on delivering the highest standards of training for the
Army and Royal Navy. At the Royal School of Military Engineering we have
successfully moved the Defence Explosive Munitions and Search School from
Chatham to Bicester.

We are entering the competitive phase for the Defence College of
Electro-Mechanical Engineering. Babcock has been the incumbent for both the
Army and Navy for delivery of this training for over a decade and we believe
our preparations for the bid leave us well placed to compete for the new
service.

The new naval training contract covering 800 courses at HMS Collingwood, HMS
Excellent, HMS Raleigh and at Britannia Royal Naval College Dartmouth has been
implemented to plan. All the required naval training outputs have been
delivered from day 1, demonstrating strong performance for our customer.

Our contract at Bovington to provide training, maintenance and support
services to the Royal Armoured Corps has now been extended for a further three
years through to 2016 at a value of £22 million. This leaves us well placed
to support our customer with its drive to improve training delivery and will
enable us to enhance the efficiency of the services we deliver.

During the summer we have seen progress in a series of significant MoD
business opportunities that we have been tracking. This has included our
participation in two market testing initiatives; the first, an assessment by
the MoD as to the appetite of industry to purchase the Defence Support Group;
and the second, a market interest assessment in the services currently
delivered by the Defence Fire Risk Management Organisation. We have also seen
the Minister for Defence Equipment, Support and Technology confirm the MoD's
commitment to the Logistics and Commodities Services Transformation with the
launch of the Assessment Phase of the programme. It is anticipated that this
will conclude during the summer of 2013 and lead to a competition for the
service.

In addition to tracking significant equipment and training support
opportunities within the MoD, the division continues to review opportunities
overseas where it can leverage its UK expertise and capabilities.

Divisional outlook

With an excellent track record of delivering operational and financial
efficiencies through its current contracts, the Defence and Security division
is well placed to compete for future tri-service outsourcing programmes that
the MoD is progressing. In addition the division has identified further
international opportunities, where it can build on its UK expertise and
capabilities.

                           Support Services markets

For the Support Services division, the ongoing constraint on public and
private sector budgets continues to provide a positive trading environment as
customers seek alternative, value for money support solutions. The division's
business model is based on delivering cost-effective, high value, complex and
critical support for its customers. This enables the business to operate in
long-term strategic partnerships and play a critical role in our customers'
success. Many of our customers are trying to manage delivery of key services,
including the delivery of large investment programmes to upgrade or
life-extend critical infrastructures and assets, all within increasingly
constrained budgets. For these customers, we expect their solution will be to
outsource more of their support activities.

We have a broad range of skills and capabilities across the division that will
enable us to deliver growth by growing our existing contracts, extending our
customer relationships to offer a broader range of services or by seeking to
create new opportunities across our key growth areas, Nuclear, Education and
Training and Mobile Assets.

                               Support Services

                 
                       30 Sept 30 Sept
                        2012    2011 Change
Revenue          group £403.0m £355.8m  + 13%
                jv     £50.9m  £29.4m  + 73%
                total £453.9m £385.2m  + 18%
Operating profit group  £35.0m  £34.1m   + 3%
                jv      £7.1m   £3.8m  + 87%
                total  £42.1m  £37.9m  + 11%
Operating margin group    8.7%    9.6%      
                jv      13.9%   12.9%      
                total    9.3%    9.8%      

Financial review

Following the start-up of a number of significant contract wins during the
second half of the last financial year, revenue for the division has increased
by 18%. These included the Dounreay decommissioning contract (c £800 million
over 10-13 years), London Fire Brigade training (c £500 million over 25
years), Devon County Council schools effectiveness (c £100 million over 7
years). In addition the division benefited from a 65% increase in revenue
from the Mobile Asset business.

Operating profit increased by 11%, in part supported by growth within the
Nuclear and Civil Infrastructure business units. As previously highlighted,
with a number of new contracts starting during the period, the operating
margin for the division reduced to 9.3%.

Operational review

The Nuclear business has seen steady progress in the civil nuclear
decommissioning market as the delivery of major projects at Sellafield and
Magnox enter the later detailed design and implementation phases. The Design
Services Alliance contract, a potential 15 year major specialist design,
engineering and safety case assessment contract that was won last year is
starting to gain momentum and we are confident that this will continue in the
second half of the year.

Through our major project role and our long term alliance contract we believe
we are well placed to compete for other upcoming major engineering projects
and services that are to be undertaken at Sellafield and the wider Nuclear
Decommissioning Authority (NDA) estate.

The Babcock Dounreay Partnership consortium took over management of the
Dounreay site on 1 April 2012. The contract has started well and we are now
putting in place the ambitious decommissioning programme and the teams to
implement it in order to achieve the accelerated end closure state. The NDA
will achieve an estimated £1 billion saving to its budgets and the UK economy
through this competitive process.

The Babcock Fluor Partnership (BFP) submitted the Magnox/RSRL Parent Body
Organisation (PBO) competition pre-qualification questionnaire (PQQ) on 12
October. Our team brings together a wealth of international nuclear
decommissioning experience, focussed on proven UK delivery, providing value
for money to the taxpayer. Currently the BFP team is preparing for the next
phase of the competitive dialogue process, due to start on 3 December 2012.

On 30 October 2012, we announced that we had signed an MoU to join with
Hitachi Ltd to plan and deliver its new nuclear reactors in the UK following
its acquisition of Horizon Nuclear Power. Under the terms of the agreement we
will discuss with Hitachi how our skills and capabilities can be best used to
support the delivery of Hitachi's nuclear new build programme in the UK.

We continue to bid new build work for EDF at Hinkley Point and the Babcock
Boccard Partnership submitted a tender to EDF on
1 October for the Balance of Nuclear Island Mechanical Installation. This is
the first stage in a two stage tender with preferred bidder announcement
currently expected in the second half of the next financial year.

This team brings together the experience and competency of Boccard SA, who is
designing, fabricating and installing this same mechanical installation for
EDF at Flamanville 3 in France, with Babcock's workforce who have completed
similar types of installation for the marine market in the UK. The team will
deliver a proven supply chain solution and low risk implementation to EDF,
providing value for money and on time delivery.

Babcock continues to provide specialist fuel route support to EDF's existing
UK reactor fleet and we are working with them to help deliver their target of
an average 7 year life extension for their AGR stations.

The Education and Training business has performed well across its range of
automotive, engineering and service training contracts. The schools
effectiveness contract for Surrey County Council continues to perform well.
The new contracts to deliver education and inclusion support and improvement
services to Devon County Council and training services to the London Fire
Brigade have started well and continue to make good progress.

The business is reviewing a number of further opportunities to build on its
existing contracts, particularly in the Emergency Services markets. The
business has withdrawn from the Staffordshire County Council schools
effectiveness competition, as the customer's requirements would have
conflicted with some of our existing contracts. 

The Mobile Asset business has had a strong first half. It continues to make
good progress with Lafarge in North America where the contract is working well
as it approaches its first anniversary. The next phase of delivery for the
Aggregates and Cement businesses is expected to go live in the second half of
the year. Progress also continues to be made in Europe.

Our emergency service fleet management contracts performed extremely well
during the first half. We received recognition from our emergency services
customers for the high level of support we provided through the Olympic and
Paralympic Games. This included 24/7 support for the Metropolitan Police
Service's fleet, procurement and cover of Highways Agency vehicles on Olympic
routes, and providing dedicated resources to support the New Dimension
vehicles and equipment that shadowed the Olympic Torch Relay.

Building on the strength of its current operations, the Mobile Asset business
is engaged in outsourcing discussions on its ALCAMiE through-life support
model with other organisations in the mining and construction and emergency
services sectors as well as others who own and operate complex vehicle fleets.

Elsewhere in the division, we continue to experience strong demand for our
high voltage overhead powerline business and we recently won the competition
for the Beauly to Denny works for Scottish Power.

Our baggage handling and ground support activities at Heathrow are performing
well. Our baggage handling operations worked extremely well during both the
Olympics and Paralympics and were highly praised by BAA. The business is
currently submitting a rebid for its existing baggage operations as well as a
further bid to extend its current operations to new terminals. The business
is also currently rebidding its British Airways ground support equipment
contract with an announcement expected by the end of this calendar year.

The Rail business continued to perform well with good demand for its track
renewal, power and signalling operations. The business is delivering
excellent standards of track renewal for its customer and is Network Rail's
'Supplier of the Year'.

Divisional outlook

The pressure on our customers to deliver services within restricted budgets
continues to create growth opportunities across the Support Services
division's operations. The depth of our technical knowledge and experience
and our track record of managing complex projects and activities
cost-effectively places us in a strong position for further outsourcing.

International

                 
                       30 Sept 30 Sept
                        2012    2011 Change
Revenue          total £143.1m £151.5m   - 6%
Operating profit total  £11.1m   £9.1m  + 22%
Operating margin total    7.8%    6.0%      

                                 South Africa

Financial review

On a local currency basis, the South African operations have seen good growth
in revenue which increased by 13% although the impact of exchange rate
movement has reduced revenue by 6% for the International division as a whole.
The South African operations benefited from record sales of equipment in the
first half and strong demand for the crane hire business.

Operating profit increased by 22% including the effect of foreign exchange
rates and by 54% excluding foreign exchange effects. This has been driven by
strong margins within the crane hire operations as well as some improvement in
the Volvo equipment market.

Operational review

The first half has seen strong demand for mining and construction equipment;
however as slowdowns in Europe and the US impact China there is a slowing
demand for South African resources. In addition, as union action within the
platinum mines spreads, customers could postpone orders for new equipment.
The business has already taken actions to reduce operational costs to limit
the impact of a potential slowdown in the equipment market.

Eskom has continued to delay outages and planned maintenance during the winter
months but we expect it to try and catch up with required maintenance works
over the local summer period.

The investment in infrastructure in South Africa continues and as a result
there has been strong demand for our plant hire operations. We expect this to
continue during the second half of the year.

Outlook

As global economic trends begin to affect the demand for South Africa's
mineral resources we may see revenue from the equipment business slow. We
expect the strong demand for plant hire to offset some of this reduction and
previous actions to mitigate any further financial impact.

We continue to explore a number of opportunities to develop our current
businesses into new geographies and markets. In addition, we are exploring
opportunities for new business streams where we can build on expertise
elsewhere in the Group.

                                 Middle East

We continue to see the Middle East as an attractive market and are focusing
our business development activities on the United Arab Emirates, Kuwait and
Oman. In these markets the drive for economic diversification away from oil
is creating an increased focus on vocational training, in both civil and
defence sectors, as well as a rising investment in education and
infrastructures. This supports our belief that these markets will provide the
Group with significant growth opportunities.

We continue to make good progress in pursuing these opportunities, although,
as anticipated, the process is taking time. We have signed strategic
partnership agreements with two local organisations to progress the
opportunities we have identified. We believe these opportunities are in areas
where we can exploit the capabilities across the Group, as well as our
successful track record of delivery.





Peter Rogers

Group Chief Executive



Bill Tame

Group Finance Director



Income statement

For the six months ended 30 September 2012

                                                                   Six months
                                             Six months                  ended
    Year                                          ended                    30
   ended                                             30              September
31 March                                      September                   2011
    2012                                           2012             (restated)
      £m                    Note      £m          £m      £m           £m
 3,070.4  Total revenue        2            1,556.7             1,472.0
   222.0  Less: joint
           venture and
           associate revenue                  106.4                88.1
 2,848.4  Group revenue                    1,450.3             1,383.9
         Group                                                     
          Operating profit
           before
           amortisation of
           acquired
           intangibles and
   290.2   exceptional items    2   143.8              137.7            
          Amortisation of
           acquired
  (77.3)   intangibles          3  (32.4)             (38.7)            
  (10.9)  Exceptional items    3   (2.6)              (4.9)            
          Group operating
   202.0   profit                             108.8                94.1
          Joint ventures
          and associates                                            
          Share of
    11.0   operating profit         10.6                4.6            
    25.6  Investment income        18.7               11.6            
          Amortisation of
           acquired
   (6.2)   intangibles          3   (3.1)              (3.1)            
  (19.4)  Finance costs          (16.8)             (10.5)            
          Income tax
   (6.7)   (expense)/credit        (2.7)              (1.8)            
          Share of results
           of joint ventures
     4.3   and associates                       6.7                 0.8
          Group and joint
           ventures and
          associates                                                
          Operating profit
           before
           amortisation of
           acquired
           intangibles and
   301.2   exceptional items       154.4              142.3            
    27.8  Investment income        19.6               12.9            
          Underlying
   329.0   operating profit*    2   174.0              155.2            
          Amortisation of
           acquired
  (83.5)   intangibles            (35.5)             (41.8)            
  (10.9)  Exceptional items       (2.6)              (4.9)            
          Group investment
   (2.2)   income                  (0.9)              (1.3)            
          Joint venture and
           associate finance
  (19.4)   costs                  (16.8)             (10.5)            
          Joint venture and
           associate income
   (6.7)   tax expense             (2.7)              (1.8)            
          Group operating
           profit plus share
           of joint ventures
   206.3   and associates                     115.5                94.9
         Finance costs                                             
     2.2  Investment income         0.9                1.3            
  (46.0)  Finance costs          (19.2)             (23.0)            
    10.5  Finance income            4.7                4.6            
  (33.3)                                   (13.6)              (17.1)
   173.0  Profit before tax    2              101.9                77.8
          Income tax
  (15.8)   expense              4             (10.9)               (6.7)
          Profit for the
           period from
           continuing
   157.2   operations                          91.0                71.1
          Discontinued
          operations                                                
          (Loss)/profit for
           the year from
           discontinued
           operations
           attributable to
           owners of the
  (53.1)   parent                            (17.4)                 2.2
          Profit for the
   104.1   period                              73.6                73.3
         Attributable to:                                          
          Owners of the
   100.8   parent                              71.3                72.5
          Non-controlling
     3.3   interest                             2.3                 0.8
   104.1                                     73.6                73.3
         Earnings per
           share from
           continuing
           operations           5                                     
  42.93p  - Basic                           24.70p              19.64p
  42.76p  - Diluted                         24.50p              19.62p
         Earnings per
           share from
           continuing and
           discontinued
           operations           5                                     
  28.11p  - Basic                           19.86p              20.25p
  28.01p  - Diluted                         19.70p              20.23p
                                                                  
         *Including IFRIC 12 investment income, but before exceptional items
           and amortisation of acquired intangibles



Statement of comprehensive income

For the six months ended 30 September 2012

                                                       Six months   Six months
Year ended                                                  ended        ended
  31 March                                           30 September 30 September
      2012                                                   2012         2011
        £m                                                   £m           £m
     104.1  Profit for the period                           73.6         73.3
           Other comprehensive income                                     
     (6.2)  Currency translation differences                 0.9        (8.1)
             Fair value adjustment of interest rate
       4.3  and foreign exchange hedges                    (0.2)          6.3
             Tax on fair value adjustment of
             interest rate and foreign exchange
       0.5  hedges                                           0.1        (0.2)
             Fair value adjustment of joint venture
    (65.1)  and associate derivatives                     (30.4)       (43.3)
             Tax on fair value adjustment of joint
      16.9  venture and associate derivatives                7.4         11.3
             Net actuarial loss in respect of
   (106.9)  pensions                                      (71.5)       (97.7)
             Tax on net actuarial loss in respect of
      27.8  pensions                                        17.1         25.4
     (5.7)  Impact of change in UK tax rates               (3.5)        (3.4)
   (134.4)  Other comprehensive income, net of tax        (80.1)      (109.7)
    (30.3)  Total comprehensive loss                       (6.5)       (36.4)
             Total comprehensive income attributable
           to:                                                            
    (33.3)  Owners of the parent                           (8.3)       (36.7)
       3.0  Non-controlling interests                        1.8          0.3
    (30.3)  Total comprehensive loss                       (6.5)       (36.4)





Statement of changes in equity

For the six months ended 30 September 2012

                                                                              Owners
                  Share   Share    Capital Retained      Hedging Translation      of Non-controlling   Total
                capital premium redemption earnings reserve     reserve  parent       interests  equity
                    £m      £m         £m       £m           £m          £m      £m              £m      £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
income                -       -          -    (3.1)       (25.9)       (7.7)  (36.7)             0.3  (36.4)
Shares issued
in the period       0.2     0.2          -        -            -           -     0.4               -     0.4
Dividends             -       -          -   (50.9)            -           -  (50.9)           (1.0)  (51.9)
Share-based
payments              -       -          -      2.5            -           -     2.5               -     2.5
Tax on
share-based
payments              -       -          -        -            -           -       -               -       -
Own shares and
other                 -       -          -      0.1            -           -     0.1               -     0.1
Net movement in
equity              0.2     0.2          -   (51.4)       (25.9)       (7.7)  (84.6)           (0.7)  (85.3)
At 30 September
2011              215.5   873.0       30.6  (160.9)       (24.4)       (6.7)   927.1             8.2   935.3
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                -       -          -     13.4       (23.1)         1.4   (8.3)             1.8   (6.5)
Shares issued
in the period       0.7       -          -        -            -           -     0.7               -     0.7
Dividends             -       -          -   (61.0)            -           -  (61.0)           (1.4)  (62.4)
Share-based
payments              -       -          -      4.6            -           -     4.6               -     4.6
Tax on
share-based
payments              -       -          -      3.6            -           -     3.6               -     3.6
Acquisition of
non-controlling
interests             -       -          -        -            -           -       -            19.8    19.8
Disposal of
non-controlling
interests             -       -          -        -            -           -       -             0.4     0.4
Transactions
with
non-controlling
interests             -       -          -    (4.6)            -           -   (4.6)           (8.7)  (13.3)
Own shares and
other                 -       -          -    (1.3)            -           -   (1.3)               -   (1.3)
Net movement in
equity              0.7       -          -   (45.3)       (23.1)         1.4  (66.3)            11.9  (54.4)
At 30 September
2012              216.2   873.0       30.6  (206.2)       (65.0)       (3.5)   845.1            20.5   865.6





Balance sheet

As at 30 September 2012

   As at                                                    As at        As at
31 March                                             30 September 30 September
    2012                                                     2012         2011
      £m                                      Note           £m           £m
         Assets                                                          
         Non-current assets                                              
 1,540.9  Goodwill                                      1,543.8      1,621.7
   347.2  Other intangible assets                         319.6        434.3
   213.7  Property, plant and equipment                   239.3        216.0
           Investments in joint ventures and
    19.3  associates                              7          2.0         30.2
           Loans to joint ventures and
    24.9  associates                              7         31.0         25.4
    10.2  Retirement benefits                    11         11.9         10.3
     1.8  Trade and other receivables                       1.2          2.8
    23.1  IFRIC 12 financial assets                        23.2         25.4
    20.1  Other financial assets                           24.2         39.8
    31.3  Deferred tax asset                               46.7         18.2
 2,232.5                                               2,242.9      2,424.1
         Current assets                                                  
    81.6  Inventories                                      89.2         88.1
   476.9  Trade and other receivables                     514.2        515.5
       -  Income tax recoverable                              -          2.7
     3.3  Other financial assets                            5.3          3.7
   100.3  Cash and cash equivalents              10        101.7        122.2
   662.1                                                 710.4        732.2
   103.0  Assets held for sale                                -            -
 2,997.6  Total assets                                  2,953.3      3,156.3
         Equity and liabilities                                          
           Equity attributable to equity
         holders of the parent                                           
   215.5  Share capital                                   216.2        215.5
   873.0  Share premium                                   873.0        873.0
           Capital redemption and other
  (16.2)  reserves                                       (37.9)        (0.5)
 (160.9)  Retained earnings                             (206.2)      (160.9)
   911.4                                                 845.1        927.1
     8.6  Non-controlling interest                         20.5          8.2
   920.0  Total equity                                    865.6        935.3
         Non-current liabilities                                         
   757.3  Bank and other borrowings              10        699.3        822.0
     8.9  Trade and other payables                          8.6         11.8
       -  Other financial liabilities                      14.6            -
   276.1  Retirement liabilities                 11        329.8        327.7
   117.2  Provisions for other liabilities                121.0        133.8
 1,159.5                                               1,173.3      1,295.3
         Current liabilities                                             
     4.2  Bank and other borrowings              10          7.7         18.8
   819.5  Trade and other payables                        868.3        854.9
    10.0  Income tax payable                                1.0         22.8
     8.2  Other financial liabilities                      10.6          4.9
    27.8  Provisions for other liabilities                 26.8         24.3
   869.7                                                 914.4        925.7
    48.4  Liabilities held for sale                           -            -
 2,077.6  Total liabilities                             2,087.7      2,221.0
 2,997.6  Total equity and liabilities                  2,953.3      3,156.3



Cash flow statement

For the six months ended 30 September 2012

                                                       Six months   Six months
Year ended                                                  ended        ended
  31 March                                           30 September 30 September
      2012                                                   2012         2011
        £m                                    Note           £m           £m
             Cash flows from operating
           activities                                                    
     260.7  Cash generated from operations        8        142.1        157.7
    (28.0)  Income tax paid                              (24.5)       (16.3)
    (47.4)  Interest paid                                (19.3)       (25.1)
      10.3  Interest received                               4.6          5.0
             Net cash flows from operating
     195.6  activities                                    102.9        121.3
             Cash flows from investing
           activities                                                    
             Disposal of subsidiaries, joint
             ventures and associates, net of
       5.7  cash disposed                        13         57.7            -
             Dividends received from joint
       6.6  ventures and associates                         0.8          3.7
             Proceeds on disposal of property,
       2.7  plant and equipment                             0.3          1.5
             Purchases of property, plant and
    (42.7)  equipment                                    (21.0)       (19.8)
     (6.0)  Purchases of intangible assets                (5.3)        (4.0)
             Investment in and loans to joint
     (2.7)  ventures and associates                       (5.4)        (3.0)
             Transactions with non-controlling
     (1.7)  interests                            14          1.3            -
             Acquisition of subsidiaries net of
       0.2  cash acquired                        12        (0.8)            -
             Net cash flows from investing
    (37.9)  activities                                     27.6       (21.6)
             Cash flows from financing
           activities                                                    
    (71.4)  Dividends paid                               (61.0)       (50.9)
     (2.0)  Finance lease principal payments              (2.8)        (1.0)
   (305.6)  Bank loans repaid                            (65.9)      (263.6)
     251.0  Loans raised                                      -        251.0
             Dividends paid to non-controlling
     (2.1)  interests                                     (1.4)        (1.0)
       0.4  Net proceeds on issue of shares                 0.7            -
       0.2  Movement on own shares                        (1.3)          0.4
             Net cash flows from financing
   (129.5)  activities                                  (131.7)       (65.1)
             Net increase in cash, cash
      28.2  equivalents and bank overdrafts               (1.2)         34.6
             Cash, cash equivalents and bank
      72.7  overdrafts at start of period                  98.4         72.7
             Effects of exchange rate
     (2.5)  fluctuations                                  (1.1)        (2.6)
             Cash, cash equivalents and bank
      98.4  overdrafts at end of period          10         96.1        104.7



Notes to the consolidated half year financial statements

For the six months ended 30 September 2012

1. Basis of preparation

The consolidated half year financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the Financial
Services Authority, the Listing Rules and with IAS 34, 'Interim financial
reporting' as adopted by the European Union. They should be read in
conjunction with the Annual Report for the year ended 31 March 2012 (the
'Annual Report'), which has been prepared in accordance with IFRSs as adopted
by the European Union. The accounting policies used and presentation of these
consolidated half year financial statements are consistent with those in the
Annual Report except as detailed below:

·  IAS 12 (amendment), 'Income taxes'

·  IFRS 7 (amendment), 'Financial instruments;
disclosures'

The consolidated half-yearly financial information has been prepared on a
going concern basis. The Directors of the Group have a reasonable expectation
that, on the basis of current financial projections and borrowing facilities
available, the Group is well positioned to meet its commitments and
obligations for the next 12 months from the date of this report and will
remain in operational existence for the foreseeable future.

The half year report for the six months ended 30 September 2012 was approved
by the Directors on 5 November 2012. The half year report has not been audited
or reviewed by auditors.

                            2. Segmental analysis

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 restated. The VT US defence business
formerly included in International is now under Discontinued operations.

                                                                                             Discontinued
                                                                     Continuing operations    operations   Total
                                                                                      Total
                 Marine and   Defence and      Support                           continuing                 Group
                 Technology      Security    Services International Unallocated operations International   total
2012                     £m            £m           £m            £m          £m         £m            £m      £m
Continuing                                                                                             
operations                                                                                                 
Total                                                                               1,556.7          38.9
revenue               564.3         395.4        453.9         143.1           -                          1,595.6
Joint                                                                                 106.4             -
venture and
associate
revenue                   -          55.5         50.9             -           -                            106.4
Group                                                                               1,450.3          38.9
revenue               564.3         339.9        403.0         143.1           -                          1,489.2
Operating                                                                             143.8           1.1
profit -
Group                  72.5          28.7         34.6          11.1       (3.1)                            144.9
IFRIC 12                                                                                0.9             -
investment
income -
Group                     -           0.5          0.4             -           -                              0.9
Share of
operating
profit -
joint
ventures and
associates                -           7.6          3.0             -           -       10.6             -    10.6
Share of
IFRIC 12
investment
income -
joint
ventures and
associates                -          14.6          4.1             -           -       18.7             -    18.7
Underlying                                                                            174.0           1.1
operating
profit                 72.5          51.4         42.1          11.1       (3.1)                            175.1
Share of
interest -
joint
ventures and
associates                -        (12.4)        (4.4)             -           -     (16.8)             -  (16.8)
Share of tax
- joint
ventures and
associates                -         (2.1)        (0.6)             -           -      (2.7)             -   (2.7)
Acquired
intangible
amortisation
- Group               (5.2)         (6.0)       (21.2)             -           -     (32.4)             -  (32.4)
Share of
acquired
intangible
amortisation
- joint
ventures and
associates                -         (2.9)        (0.2)             -           -      (3.1)             -   (3.1)
Net finance
costs -
Group                     -             -            -             -      (14.5)     (14.5)             -  (14.5)
Exceptional
items                     -             -            -             -       (2.6)      (2.6)        (18.2)  (20.8)
Group profit                                                                          101.9        (17.1)
before tax             67.3          28.0         15.7          11.1      (20.2)                             84.8
                                                                                                      



2. Segmental
analysis
(continued)                                                                                                
                                                                                             Discontinued
                                                                     Continuing operations    operations   Total
                                    Defence                                           Total
                                        and    Support                           continuing                 Group
                      Marine and   Security  Services International Unallocated operations International   total
                      Technology (restated) (restated)    (restated)             (restated)    (restated)
2011                          £m         £m         £m            £m          £m         £m            £m      £m
Continuing                                                                                             
operations                                                                                                 
Total revenue              538.0      397.3      385.2         151.5           -    1,472.0         115.9 1,587.9
Joint venture and                                                                      88.1             -
associate revenue              -       58.7       29.4             -           -                             88.1
Group revenue              538.0      338.6      355.8         151.5           -    1,383.9         115.9 1,499.8
Operating profit -                                                                    137.7           6.5
Group                       67.4       32.5       33.7           9.1       (5.0)                            144.2
IFRIC 12                                                                                1.3             -
investment income
- Group                        -        0.9        0.4             -           -                              1.3
Share of operating
profit - joint
ventures and
associates                     -        4.0        0.6             -           -        4.6             -     4.6
Share of IFRIC 12
investment income
- joint ventures
and associates                 -        8.4        3.2             -           -       11.6             -    11.6
Underlying                                                                            155.2           6.5
operating profit            67.4       45.8       37.9           9.1       (5.0)                            161.7
Share of interest
- joint ventures
and associates                 -      (7.3)      (3.2)             -           -     (10.5)             -  (10.5)
Share of tax -
joint ventures and
associates                     -      (1.7)      (0.1)             -           -      (1.8)             -   (1.8)
Acquired
intangible
amortisation -
Group                      (6.5)      (6.3)     (25.9)             -           -     (38.7)         (3.9)  (42.6)
Share of acquired
intangible
amortisation -
joint ventures and
associates                     -      (2.9)      (0.2)             -           -      (3.1)             -   (3.1)
Net finance costs
- Group                        -          -          -             -      (18.4)     (18.4)             -  (18.4)
Exceptional items              -          -          -             -       (4.9)      (4.9)             -   (4.9)
Group profit                                                                           77.8           2.6
before tax                  60.9       27.6        8.5           9.1      (28.3)                             80.4

          3. Exceptional items and acquired intangible amortisation

                                      Joint ventures and 
                             Group            associates                 Total
                      Six       Six        Six       Six        Six       Six
                   months    months      months    months      months    months
                    ended     ended       ended     ended       ended     ended
                       30        30          30        30          30        30
                September September   September September   September September
                     2012      2011        2012      2011        2012      2011
                      £m        £m          £m        £m          £m        £m
Continuing                                           
operations                                                                   
Reorganisation        2.6       4.9          -         - 
and
rationalisation
costs                                                             2.6       4.9
Exceptional           2.6       4.9          -         - 
items                                                             2.6       4.9
Acquired             32.4      38.7        3.1       3.1 
intangible
amortisation                                                     35.5      41.8
Continuing           35.0      43.6        3.1       3.1 
operations                                                       38.1      46.7
Discontinued                                         
operations                                                                   
Acquired                -       3.9          -         - 
intangible
amortisation                                                        -       3.9
Loss on              18.2         -          -         - 
disposal of
subsidiaries                                                     18.2         -
Discontinued         18.2       3.9          -         - 
total                                                            18.2       3.9

Exceptional items are those items which are exceptional in nature or size.

Loss on disposal of subsidiaries relates to the VT US disposal. £5 million
reflects recycling of exchange rate fluctuations from date of acquisition to
completion of sale. The balance relates to movement in the disposal balance
sheet and provision for other disposal costs.

The reorganisation and rationalisation costs relate to redundancies, property
costs and IT rationalisation costs arising in achieving synergy benefits on
the VT Group plc acquisition. In addition to the above, a £1.3 million (2011:
£2.7 million) exceptional tax credit arose on the change in UK tax rates.

                               4. Income taxes

The charge for taxation has been based on the estimated effective tax rate
of18.1% on profit before amortisation of acquired intangibles and exceptional
items for the full year ended 31 March 2013, together with a prior year credit
of £1.6 million. (For September 2011, the charge for tax was based on an
estimated effective tax rate of 19% for the full year ended 31 March 2012). An
additional tax credit of £8.5 million relates to acquired intangible
amortisation of which £0.7 million is included in share of profit from joint
ventures and associates; and a further tax credit of £0.6 million relates to
exceptional items.

                            5. Earnings per share

The calculation of the basic and diluted EPS is based on the following data:

                                            Six months ended  Six months ended
                                          30 September 2012 30 September 2011
Number of shares                                                            
Weighted average number of ordinary shares
for the purpose of basic EPS                     358,740,182       358,456,519
Effect of dilutive potential ordinary
shares: share options                              3,004,109           398,320
Weighted average number of ordinary shares
for the purpose of diluted EPS                   361,744,291       358,854,839

Earnings

                     Six months ended 30 September         Six months ended 30
                                             2012             September 2011
                                  Basic                         Basic  Diluted
                                    per    Diluted                per      per
                       Earnings   share  per share    Earnings  share    share
                            £m   pence      pence         £m  pence    pence
Continuing
operations                                                             
Earnings from
continuing
operations                 88.7   24.70      24.50       70.3  19.64    19.62
Add back:                                                              
Amortisation of
acquired intangible
assets, net of tax         27.0    7.52       7.46       30.9   8.62     8.61
Exceptional items
and other, net of
tax                         1.9    0.54       0.54        3.6   1.01     1.01
Impact of change in
UK tax rate               (1.3)  (0.36)     (0.36)      (2.7) (0.75)   (0.75)
Earnings before
discontinued
operations,
amortisation,
exceptional items
and other                 116.3   32.40      32.14      102.1  28.52    28.49
Discontinued
operations                                                             
Earnings from
discontinued
operations               (17.4)  (4.84)     (4.80)        2.2   0.61     0.61
Add back:                                                              
Amortisation of
acquired intangible
assets, net of tax            -       -          -        2.4   0.66     0.66
Exceptional items
and other, net of
tax                        18.2    5.06       5.00          -      -        -
Earnings from
discontinued
operations before
amortisation,
exceptional items
and other                   0.8    0.22       0.20        4.6   1.27     1.27
Continuing and
discontinued
operations                                                             
Earnings from
continuing and
discontinued
operations                 71.3   19.86      19.70       72.5  20.25    20.23
Add back:                                                              
Amortisation of
acquired intangible
assets, net of tax         27.0    7.52       7.46       33.3   9.28     9.27
Exceptional items
and other, net of
tax                        20.1    5.60       5.54        3.6   1.01     1.01
Impact of change in
UK tax rate               (1.3)  (0.36)     (0.36)      (2.7) (0.75)   (0.75)
Earnings before
amortisation,
exceptional items
and other                 117.1   32.62      32.34      106.7  29.79    29.76

                                 6. Dividends

An interim dividend of 6.30 pence per 60 pence ordinary share (2011: 5.70
pence per 60 pence ordinary share) was declared after the balance sheet date
and will be paid on 11 January 2013 to shareholders registered on 14 December
2012.



7. Investments in and loans to joint ventures and associates

               Investment in joint       Loans to joint 
                      ventures and          ventures and
                       associates            associates                 Total
                     Six       Six        Six       Six        Six       Six
                  months    months      months    months      months    months
                   ended     ended       ended     ended       ended     ended
                      30        30          30        30          30        30
               September September   September September   September September
                    2012      2011        2012      2011        2012      2011
                     £m        £m          £m        £m          £m        £m
At 1 April          19.3      64.9       24.9      22.1       44.2      87.0
Investments in                                          
joint ventures
and associates     (0.2)       0.2           -         -       (0.2)       0.2
Loans                                                   
to/(repayments
from) joint
ventures and
associates             -         -         7.6       3.4         7.6       3.4
Share of                                                
profits              6.7       0.8           -         -         6.7       0.8
Dividends                                               
received           (0.8)     (3.7)           -         -       (0.8)     (3.7)
Interest                                                
accrued                -         -         0.5       0.5         0.5       0.5
Interest                                                
received               -         -       (2.0)     (0.6)       (2.0)    -(0.6)
Fair value                                              
adjustment of
derivatives       (30.4)    (43.3)           -         -      (30.4)    (43.3)
Tax on fair                                             
value
adjustment of
derivative           7.4      11.3           -         -         7.4      11.3
Total                2.0      30.2       31.0      25.4       33.0      55.6

8. Reconciliation of operating profit to cash generated from operations

                                                       Six months   Six months
Year ended                                                  ended        ended
  31 March                                           30 September 30 September
      2012                                                   2012         2011
        £m                                                   £m           £m
           Cash flows from operating activities                           
             Operating profit before amortisation of
             acquired intangibles and exceptional
     290.2  items                                          143.8        137.7
             Amortisation of acquired intangibles
    (88.2)  and exceptional items                         (35.0)       (43.6)
             (Loss)/profit from discontinued
    (53.1)  operations                                    (17.4)          2.2
             Tax on (loss)/profit from discontinued
       1.3  operations                                       0.3          0.4
     150.2  Operating profit                                91.7         96.7
             Depreciation of property, plant and
      33.6  equipment                                       18.7         16.5
      90.3  Amortisation of intangible assets               34.8         44.4
       2.2  Investment income                                0.9          1.3
       5.0  Equity share-based payments                      4.6          2.5
             Loss/(profit) on disposal of
     (1.9)  subsidiaries                                    18.2            -
      58.5  Impairment of goodwill                             -            -
             Profit on disposal of property, plant
     (0.8)  and equipment                                  (0.2)        (0.2)
       0.2  Loss on disposal of intangible assets              -            -
             Operating cash flows before movement in
     337.3  working capital                                168.7        161.2
       8.6  (Increase)/decrease in inventories            (11.6)          0.3
      23.3  (Increase)/decrease in receivables            (42.2)         16.8
    (26.4)  Increase/(decrease) in payables                 54.0        (8.8)
    (16.0)  Decrease in provisions                         (7.2)        (6.3)
             Retirement benefit payments in excess
    (66.1)  of income statement                           (19.6)        (5.5)
     260.7  Cash generated from operations                 142.1        157.7

                           9. Movement in net debt

                                                       Six months   Six months
Year ended                                                  ended        ended
  31 March                                           30 September 30 September
      2012                                                   2012         2011
        £m                                                   £m           £m
             (Decrease)/increase in cash in the
      28.2  period                                         (1.2)         34.6
             Cash flow from the decrease in debt and
      56.6  lease financing                                 68.6         13.6
             Change in net funds resulting from cash
      84.8  flows                                           67.4         48.2
             Loans and finance leases acquired with
         -  subsidiaries                                   (6.3)            -
             Foreign currency translation
       3.1  differences and other                          (1.1)          2.0
      87.9  Movement in net debt in the period              60.0         50.2
   (729.0)  Net debt at the beginning of the period      (641.1)      (729.0)
   (641.1)  Net debt at the end of the period            (581.1)      (678.8)

                           10. Changes in net debt

                                                                            At
                                 At                        Exchange         30
                            1 April  Cash Acquisitions and movement  September
                               2012  flow        disposals   /other       2012
                               £m    £m               £m       £m         £m
Cash and bank balances       100.3   1.9              1.2    (1.7)      101.7
Bank overdrafts              (1.9) (4.3)                -      0.6      (5.6)
Cash, cash equivalents
and bank overdrafts at
end of period                 98.4 (2.4)              1.2    (1.1)       96.1
Debt                       (757.8)  65.9                -    (4.2)    (696.1)
Finance leases               (1.8)   2.7            (6.3)      0.1      (5.3)
                          (759.6)  68.6            (6.3)    (4.1)    (701.4)
Net debt before
derivatives                (661.2)  66.2            (5.1)    (5.2)    (605.3)
Net debt derivative           20.1     -                -      4.1       24.2
Net debt including
derivative                 (641.1)  66.2            (5.1)    (1.1)    (581.1)

                                 11. Pensions

Analysis of movement in the balance sheet

                                       Six months ended  Six months ended
                                      30 September 2012 30 September 2011

                                                    £m                £m
Fair value of plan assets                                              
At 1 April                                      2,782.7           2,579.9
Transfers in                                        3.9                 -
Expected return                                    84.2              86.0
Actuarial loss                                    (6.6)           (158.1)
Change in reimbursement rights                     52.6              13.6
Employer contributions                             26.4              15.0
Employee contributions                              2.5               3.0
Benefits paid                                    (68.8)            (66.7)
Exchange differences                                  -               0.1
At 30 September                                 2,876.9           2,472.8
Present value of benefit obligations
At 1 April                                      3,039.9           2,794.6
Transfers in                                        3.9                 -
Service cost                                       22.5              22.7
Interest cost                                      68.6              72.8
Employee contributions                              2.5               3.0
Actuarial loss/(gain)                             126.1            (45.6)
Benefits paid                                    (68.8)            (66.7)
Exchange differences                                  -               0.1
At 30 September                                 3,194.7           2,780.9
Present value of unfunded obligations             (0.1)             (0.1)
IFRIC 14 adjustment                                   -             (9.2)
Net deficit at 30 September                     (317.9)           (317.4)
Net deficit at 31 March 2012                    (265.9)           (225.1)

                    Analysis of charge to income statement

                                        Six months ended  Six months ended
                                       30 September 2012 30 September 2011

                                                     £m                £m
Current service cost                              (22.5)            (22.7)
Interest on obligations                           (68.6)            (72.8)
Expected return on plan assets                      84.2              86.0
Total included within operating profit             (6.9)             (9.5)

As at 30 September 2012 the key assumptions used in valuing pension
liabilities were:

Discount rate 4.4% (31 March 2012:
4.8%)

Inflation rate 2.2% (31 March 2012:
2.7%)

                               12. Acquisition

On 1 June 2012 the Group acquired a controlling interest of 52% of Target
Cranes (Pty) Limited (Target Cranes) 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.

The goodwill arising on the acquisition derives from the market position of
the entities involved.

Details of final assets acquired and the final goodwill are as follows:

                                          Target Cranes Other Total
                                                    £m    £m    £m
Cost of acquisition                                             
Cash paid                                             -   2.0   2.0
Deemed consideration                               19.8     -  19.8
Purchase consideration                             19.8   2.0  21.8
Fair value of assets acquired (see below)          16.7   2.0  18.7
Goodwill                                            3.1     -   3.1

Net assets and liabilities arising from the acquisition are as follows:

                   Target Cranes                 Other                 Total
                 Book                  Book                  Book
             value of Provisional   value of Provisional   value of Provisional
               assets  fair value     assets  fair value     assets  fair value
             acquired    acquired   acquired    acquired   acquired    acquired
                  £m          £m         £m          £m         £m          £m
Acquired                                                
intangibles*        -           -          -         2.0          -         2.0
Property,                                               
plant and
equipment        23.3        25.6          -           -       23.3        25.6
Deferred tax    (4.6)       (5.5)         -           -     (4.6)       (5.5)
Income tax        0.1       (0.2)         -           -       0.1       (0.2)
Cash, cash                                              
equivalents
and bank
overdrafts        1.2         1.2          -           -        1.2         1.2
Finance                                                 
leases          (6.3)       (6.3)          -           -      (6.3)       (6.3)
Inventory         0.1         0.1         -           -       0.1         0.1
Current                                                 
assets            3.0         2.3          -           -        3.0         2.3
Current and                                             
non current
liabilities     (0.5)       (0.5)          -           -      (0.5)       (0.5)
Net assets                                              
acquired         16.3        16.7          -         2.0       16.3        18.7

* Acquired intangibles represents customer relationships which are in part
contracted (order book) and in part non contracted.

Cash outflow to acquire business net of cash acquired:

                                                    Target Cranes Other Total
                                                              £m    £m    £m
Purchase consideration paid in cash                             -   2.0   2.0
Cash, cash equivalents and bank overdrafts acquired         (1.2)     - (1.2)
Cash outflow/(inflow) in period                             (1.2)   2.0   0.8

The revenue and operating profit of Target Cranes since the date of
acquisition and as if they had been acquired on 1 April 2012 are:

                   Since date of acquisition For full six months
                                        £m                  £m
Revenue                                 4.6                 6.8
Operating profit                        1.3                 1.9

                                13. Disposals

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.

Details of final assets disposed of are as follows:

                                                              VT Services Inc.
                                                                         £m
Held for sale assets and liabilities                                    62.2
Cash, cash equivalents and bank overdrafts                               2.6
Non-controlling interest                                                 0.4
Translation adjustments recycled from translation reserve                4.9
Assets sold                                                             70.1
Other disposal costs                                                     8.9
Sale proceeds                                                         (60.8)
Loss on disposal of subsidiaries                                        18.2

Costs of £0.5 million have been settled since the completion date.

Included in the results to September 2011 is revenue of £6.2 million and
operating profit of £1.1 million relating to Babcock Eagleton Inc, which was
sold in December 2011.

               14. Transactions with non-controlling interests

The following are the transactions for the period:

                                           Increase/       Increase/
                                       (decrease) in   (decrease) in      Cash
                                            retained non-controlling outflow/
                                            earnings       interests  (inflow)
                                                 £m              £m        £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 certain
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.             (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)

                        15. Related party transactions

Related party transactions in the half year to 30 September 2012 are; sales to
joint ventures and associates amounting to £130.7 million (2011: £92.3
million), purchases from joint ventures and associates amounting to £19.9
million (2011: £27.6 million) and sales to companies with common directors
amounting to £4.7 million (2011: £5.4 million).

                          16. Financial information

The financial information in this half year report does not constitute
statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 March 2012 were approved by the
Board on 14 May 2012 and delivered to the Registrar of Companies. The report
of the auditors on those accounts was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statement under section 498 of the
Companies Act 2006.





Risks and uncertainties

The Directors consider that the principal risks and uncertainties affecting
the Group remain unchanged from those described in the 2012 Annual Report and
are those arising from: reliance on large contracts with a relatively
limited number of major clients, including clients affected by political and
public spending decisions; operations carrying significant health, safety and
environmental risks; the need for experienced management resource and skilled
employees, who can sometimes be in short supply; IT and cyber-security risks;
and the risk of exposure to significant defined benefit pension schemes.
These risks, and mitigating actions taken in respect of them, are explained
and described in more detail on pages 40 to 43 of the 2012 Annual Report, a
copy of which is available at www.babcockinternational.com. This half year
report also includes comments on the outlook for the Group for the remaining
six months of the financial year.



The Directors have considered the Financial Reporting Council's guidance to
heightened country and currency risk in interim financial reports but the
Group is not directly exposed to significant overseas sovereign and currency
risks, although it is exposed indirectly to increased counter party risk. The
Group attempts to mitigate risk by counter party monitoring and the avoidance
of concentrations of counter party risk. The significant Group risks remain
those referred to above.



Forward-looking statements

Certain statements in this half year report are forward-looking statements.
By their nature, forward-looking statements involve a number of risks,
uncertainties or assumptions that could cause actual results or events to
differ materially from those expressed or implied by the forward-looking
statements. These risks, uncertainties or assumptions could adversely affect
the outcome and financial effects of the plans and events described herein.
Forward-looking statements contained in this half year report regarding past
trends or activities should not be taken as a representation that such trends
or activities will continue in the future. You should not place undue
reliance on forward-looking statements, which speak only as of the date of
this half year report. Except as required by law, Babcock is under no
obligation to update or keep current the forward-looking statements contained
in this half year report or to correct any inaccuracies which may become
apparent in such forward-looking statements.



Statement of Directors' responsibilities

This half-year report is the responsibility of the Directors who confirm that,
to the best of their knowledge

· this condensed set of financial statements has been prepared in
accordance with IAS 34 (Interim Financial Reporting) as adopted by the
European Union; and

· the interim management report herein includes a fair review of the
information required by

o Rule 4.2.7 of the Disclosure and Transparency Rules (indication of the
important events during the first six months, and their impact on the
condensed set of financial statements, and a description of principal risks
and uncertainties for the remaining six months of the year) and

o Rule 4.2.8. of the Disclosure and Transparency Rules (disclosure of
related parties' transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or the performance of the entity during that period; and any changes
in the related parties transactions described in the last annual report that
could have a material effect on the financial position or performance of the
enterprise in the first six months of the current financial year.).



The names and functions of each of the Directors of Babcock International
Group PLC are as listed in its 2012 Annual Report, save that, since its
publication, Anna Stewart has joined the board as a Non-Executive Director
with effect from 1 November 2012. A copy of the Annual Report can be found,
and a list of current Directors is maintained, on the Group's website:
www.babcockinternational.com.

Approved by the Board and signed on its behalf by







Peter Rogers 


Group Chief
Executive





Bill Tame

Group Finance Director

5 November 2012

                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


IR KMMGMNKRGZZM -0- Nov/06/2012 07:00 GMT
 
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