Babcock International Group PLC

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Babcock International Group PLC

2 Cavendish Square
London W1G OPX
United Kingdom
Telephone: +44 20 7291 5000
Fax: +44 20 7291 5055
Web site: http://www.babcock.co.uk

Public Company
Incorporated: 1891 as Babcock & Wilcox Ltd.
Employees: 6,110
Sales: £452.0 million ($833.95 million) (2004)
Stock Exchanges: London
Ticker Symbol: EPIC:BAB
NAIC: 336611 Ship Building and Repairing; 541330 Engineering Services; 551112 Offices of Other Holding Companies

Babcock International Group PLC is one of the world's leading support services groups. Traditionally specializing in military work, the company has bolstered its commercial offerings through the acquisition of Peterhouse Group, a leader in civil infrastructure services. Based in the United Kingdom, which accounted for three-quarters of 2004 sales, Babcock also has operations in continental Europe, Africa, and North America.

Origins

Babcock International Group PLC can trace its origins to the British offshoot of the American steam boiler manufacturer, Babcock & Wilcox Co. (Babcock & Wilcox is now a completely separate company.) George Herman Babcock and Stephen Wilcox formed Babcock & Wilcox Co. after introducing a design for a steam boiler in 1867. A sales office opened in Glasgow in 1881 and within two years the firm was sourcing components from local contractors. Clydebank's Singer Works began building complete boilers in 1885.

A new company was established in Britain on July 4, 1891, to supply the boilers outside the United States and Cuba. Babcock & Wilcox Ltd. launched a factory of its own at Renfrew, Scotland, in 1895. In 1900, the start-up capital of £240,000 was raised to £1.57 million as the firm embarked on a century of leadership in the global boiler markets, establishing operations in a number of other countries.

According to a profile in Manufacturing, Babcock began its involvement with the Rosyth Dockyard in 1913 when it won a bid to build a steam raising plant there. The plant eventually became the base for extensive ship repairing operations.

Babcock was a leader in supplying boilers for conventional and nuclear power plants from the 1950s on. The company also diversified into a number of international businesses.

International in the 1970s and 1980s

In the mid-1970s, Babcock began to increase its investments in North America. By 1979, the company's North American subsidiary accounted for one-third of total sales (£844 million) and more than half of profits. During the year, the firm acquired Toronto construction equipment manufacturer Allatt Ltd. as well as Keeler Corporation, a Michigan-based metal casting company.

While Babcock was increasing overseas production, it was also raising overseas sales of U.K. plants, such as the Babcock Renfrew boiler making operation in Scotland. Renfrew was where huge boilers for conventional and nuclear power plants were constructed. The factory's exports rose from 10 percent of output in 1975 to 65 percent in 1983, noted the Economist, as the British economy slugged its way through a recession.

British power stations, Babcock's traditional main customer, would be slow to place orders for new boilers for the next ten years. In 1977, 1,100 workers at Renfrew had been laid off due to declining orders. Six years later, 300 white-collar employees were let go. The company was investing in new equipment to remain competitive.

Babcock's Materials Handling group supplied large conveyor belts to the auto industry through its Acco Industries, Inc. subsidiary in the United States. Acco, acquired in 1975, traced its origins back to 1904. (Acco would go to FKI after its demerger from Babcock in 1989.)

Babcock International's turnover was £1.1 billion in 1985. The company's subsidiaries were active in projects such as power stations in Brazil and coal reclaiming equipment in Australia. FATA European Group, based in Turin, Italy, provided materials handling equipment for the European market (it was divested in the late 1980s). There was also the Babcock Africa boiler-related business and a contracting business in South Africa.

Claudius Peters was the center of Babcock International's materials handling business. It had been unprofitable since the early 1970s and in 1986 got a new managing director, Rainer Herold, formerly of Siemens. A round of staff cuts and restructuring followed. Babcock's considerable contracting operations, which managed long-term construction and engineering projects, also included the British firm Woodall Duckham.

Late 1980s Merger/Demerger

The firm was acquired in August 1987 by FKI Electricals for £415 million. Lord King, Babcock chairman since 1972 (and also chairman of British Airways beginning in 1981), became chairman of the new combined company, called FKI Babcock. FKI Chairman Tony Gartland was the chief executive. About 6,000 jobs, more than half of them in the United Kingdom, were subsequently cut at Babcock International's operations, reducing the workforce to less than 30,000. Its head office in London and more than two-dozen plants were closed. Some of these operations were shifted to other FKI Babcock sites.

With annual sales of £84 million, FKI had been much, much smaller than £1.2 billion Babcock International before the merger. It was a diversified group, though, with interests ranging from the Fisher-Karpark parking meter business, to tea plantations, to lighting controls. FKI specialized in acquiring loss-making companies and turning them around. In the mid-1980s, it bought engineering businesses from Thorn EMI, four transport companies from TI Group, and a maker of boiler components called Laurence Scott. Systems engineer Stone International was acquired earlier in 1987.

After two years, FKI and Babcock were demerged in August 1989. Oliver Whitehead then became Babcock's chief executive.

Acquisitive in the 1990s

Babcock International had sales of £46.7 million in 1990. The company's plant at Renfrew had expanded beyond boilers, producing other large objects such as wind tunnels and ships' propellers.

Babcock International made a number of acquisitions in the early 1990s. Coventry-based Tickford Rail, which refurbished train carriages, was bought in 1991. King Wilkinson, an energy industry contractor in the Middle East, was added in April 1992. The Swedish-based ship-to-shore handling business Consilium was acquired by Claudius Peters in 1992. Consilium also produced wood processing equipment.

In October 1993, Babcock got a new chief executive, John Parker, formerly head of Belfast shipbuilder Harland and Wolff. He was joined by Managing Director Nick Salmon, formerly an executive with GEC Alsthom. Parker became chairman in 1994, succeeding Lord King, while Salmon was named CEO. Salmon left three years later to return to GEC Alsthom.

The materials handling business, based in Germany, was reorganized in fiscal 1994, when the division's sales reached £153 million. Renamed Babcock Materials Handling (BMH), it produced equipment for moving things such as paper, pulp, cement, and coal. Customers included ports, steel plants, and power stations.

Babcock held a joint contract to manage the Rosyth Royal Dockyard in Scotland with Thorn EMI. Rosyth, which refurbished warships, was the base for Babcock's facilities management division. In 1994, Babcock bought out Thorn EMI's 35 percent interest, creating Babcock Rosyth Defence, which subsequently won a ten-year contract to run New Zealand's Devonport Dockyard.

Losing Energy in the Mid-1990s

Babcock had a £42 million loss on sales of £805 million for the fiscal year ended March 1994. Much of this was from the troubled energy division, including a $15 million loss on a £420 million flue gas desulphurization contract at the Drax power station. This prompted a change of strategy. Afterward, Babcock shied away from contracts that large, unless the risk was shared with other partners.

The company also sold off risky businesses altogether. In 1995, Babcock sold a 75 percent stake in the entire energy division—including the historic boilermaking operation at Renfrew—to Mitsui Engineering & Shipbuilding (MES) of Japan. MES paid £56 million in cash. The unit was then renamed Mitsui Babcock Energy. The deal included a schedule to allow MES to eventually acquire the remainder of the division for another £14 million.

There were also big changes in the works at Rosyth. The company began seeking civil business in the oil industry through Babcock OGL, a joint venture with Laing Oil and Gas. In late 1996, Babcock bought Rosyth from the Ministry of Defence at a net cost of just £21 million ($33 million). The facility then employed 3,200 people, down from 7,000 when the management contract started in 1987. Its sales exceeded £200 million a year. The deal came complete with another ten years of business from the government, worth up to £1.5 billion. The company also joined A&P International, the largest ship repair company in the United Kingdom, in a bid to acquire New Zealand's Devonport Dockyard, where Babcock held a management contract.

Company Perspectives:

Our vision is to become the partner of choice for supporting the outsourcing needs of government and private sector customers who have exacting technical and operational requirements.

Our mission is to deliver high quality support services solutions through applying specialist knowledge, expertise and original thinking to the challenges of public and private sector customers.

By this time, Babcock had 10,000 employees around the world. It was working contracts in 60 countries and had offices in 25. A new Environmental division, made up of one plant in Texas, was developing ways to recycle electric arc furnace dust. Babcock soon divested this unprofitable unit. In-house manufacturing activities at the company's materials handling business in Germany were also scaled back.

After two dozen or so divestments in the previous five years, Babcock had sales of £500 million in 1998. It then specialized in just two areas of operation: materials handling and facilities management. The latter category, based at Rosyth, included a massive, three-year refurbishment project for the HMS Ark Royal aircraft carrier.

New Focus Beyond 2000

Babcock strengthened its shipbuilding capabilities in 2000. It acquired Armstrong Technology, a Newcastle warship designer, and FBM Marine, a producer of smaller vessels based in Cowes. FBM's shipyard was not included in the deal, and its staff was transferred to new offices at Southampton and Babcock's other facilities.

The company's rail division, also based at Rosyth, was developing innovative, flexible rail wagons. In January 2001, Babcock signed a deal to run naval maintenance at Faslane, a base for four British Vanguard class nuclear submarines.

Babcock acquired Hunting Contract Services (HCS), the military support services business of Hunting, an oil services provider, in 2001. The deal was worth £60.9 million, and included the transfer of 1,800 employees to Babcock. The acquisition was part of a new strategic focus on support services, rather than engineering.

The entire materials handling business was slated for sale in 2001, but a slowing global economy scuttled the offering, recorded Sunday Business. The Scandinavian wood pulp-handling business was divested, however.

SGI, a civil support services group, was acquired in 2002. Military work continued to keep the Rosyth shipyard busy, and Executive Chairman Gordon Campbell (appointed in 2001) was making government work the company's main strategic focus, according to the Evening Standard. Babcock also managed several army bases and helped train pilots, the latter business picked up in the Hunting acquisition.

After losing £7.3 million in fiscal 2001 and £13.9 million in 2002, Babcock posted a pretax profit of £13.4 million in fiscal 2003. Sales rose 25 percent to £409 million.

Peterhouse Group PLC was acquired in June 2003 for £99 million. Peterhouse had formerly competed with Babcock in the support services business but was stronger in the civil sector.

Babcock posted sales of £452 million ($825.3 million) in the 2004 fiscal year, up 23.8 percent. Net income rose 130 percent to £16.4 million ($30.3 million).

Babcock won contracts to refit four British warships in the 2004 calendar year. The news was accompanied by layoffs of nearly 300 workers at Rosyth, part of the restructuring meant to make the company more competitive in such bids.

Principal Subsidiaries

Babcock Eagleton, Inc.; Certas PLC; Peterhouse Group PLC.

Principal Divisions

Babcock Defence Services; Babcock Engineering Services; Eve Group; First Engineering; Babcock Infrastructure Services; Babcock Naval Services.

Principal Competitors

BAE Systems PLC; Capita; DML Group; Serco Group; VT Group PLC; Weir Group.

Key Dates:

1891:: Babcock & Wilcox Ltd. is formed to supply boilers outside the United States and Cuba.
1913:: The company wins a contract to build a steam boiler at Rosyth Dockyard.
1987:: FKI Electricals merges with Babcock International.
1989:: FKI and Babcock demerge.
1995:: Babcock's historic boiler business is sold off.
1997:: Rosyth Dockyard is acquired.
2000:: Babcock shifts focus to support services.
2003:: The Peterhouse Group acquisition boosts civilrelated business.