Description Page - Doosan Power Systems

DOOSAN BABCOCK ENERGY
Annual Report and Financial Statements 2007
Directors’ Report
for the period ended 31 December 2007
The directors present their annual report on the affairs of the Group,
together with the financial statements, for the nine-month period ended
31 December 2007. Comparative figures given in this report are for the
year ended 31 March 2007. In addition, to ease comparability, proforma
figures are included for the 12 months ended 31 December 2007.
Principal activities
The principal activities of the Group are associated with providing high
value added energy services and innovative technology led business
solutions and coal-fired power plant to the power generation industry
and associated markets.
Details of subsidiary undertakings are given in note 9.
On 12 November 2007 DH Dampfkessel- und Behälterbau Hohenthurm
GmbH and DH Kraftwerksservice Hohenthurm Verwaltungs GmbH
merged into Doosan Babcock Energy Germany GmbH (formerly Doosan
Babcock Energy GmbH), combining the share capital of the individual
companies.
Business Review
Trading Performance
The nine months to December 2007 has been a period of continued
growth for Doosan Babcock Energy with returns outstripping those of
the previous 12 month period. Our Services business continued to
deliver outstanding returns with a strong growth in operating profit %.
Against this our New Build business contribution in margin terms is
more modest however it has been a period of significant development
for the future with major New Build orders secured or in the pipeline.
The predicted synergies following our acquisition by Doosan Heavy
Industries & Construction are being exceeded and the order intake in
the nine month period of more than £670m highlights the direction we
are moving in.
In the nine month period turnover increased to £350m with proforma
12 month figures standing at £472m, a 15% increase on the year to
March 2007. Growth has been seen both in our Service business
(especially in the area of NOx reduction solutions) and New Build
business as recently won orders start to flow through. Profit Before
taxation for the nine months at £11.6m exceeded that of the 12 months
to March 2007 with proforma figures for the year at £22.7m more than
double this. This reflects excellent performance on the Services side
where good performance is being rewarded by early completion and
similar bonuses as customers recognise our excellent performance.
Added to this is a significant improvement in net interest receivable
which reflects excellent cash management in the year along with growth
in the return on our pension scheme assets following the injection of
substantial employer contributions.
With a tax charge of £3.9m for the nine months related in the main to
deferred tax on the pension scheme liability and withholding tax on
overseas royalties, profit after tax at £7.7m is also higher than that in
the 12 months to March 2007. Again proforma 12 month figures with tax
of £5.3m and profit after tax of £17.4m are more than double this, a sign
of the significant progress and growth being achieved following the
acquisition.
16
Year end position
The year end cash position of £72.7m shows a major increase of
£21.4m from the previous reporting date. This reflects the strong cash
generation in the period and advances on recently awarded contracts.
Our strong cash position continues to highlight the underlying strength
of the balance sheet; this is still affected by the impact of the pension
scheme deficit although this has reduced substantially in the period
from £18.3m to £11.0m on the back of sound management and the
significant contributions from the company. Year end debtor and
creditor balances have increased reflecting the increased volume of
trading at that date.
Non-financial key performance indicators
The Directors consider that the following key performance indicators are
the most effective measures of achievement of the Group’s objective to
provide the highest standards of Quality, Health, Safety and
Environment.
These measures are reviewed each month by senior management and
highlight excellent performance and identify any areas for improvement.
The objectives are supported by initiatives developed to drive forward
continuous improvements to procedures and processes.
Key performance indicators and 2007 performance:
• Customer compliments received - 33% increase on previous year
• Reportable Lost Time Accidents - same level as previous year
• All Injury Frequency Rate - 0.08 per 100,000 hours worked
• Recordable Injury Frequency Rate - 0.88 per 200,000 hours worked
• Health and Safety regulatory breaches - none (2006: none)
• Environmental issues and compliance with Regulator Licence – none
• Environmental Management System application score by 3rd party
industry sector “Achilles” audit scheme - improved by 7% to 96.4%
Principal Risks & Uncertainties
The Directors take the management of risk very seriously and as such
all activities are conducted with a framework of policies and guidelines
authorised by the Board.
In respect of foreign currencies, the Group’s policy is to hedge all
significant exposure to movements in exchange rates primarily through
the use of the forward market. No trading or speculation in financial
instruments is undertaken.
With regard to the recognition of the pension scheme position the
Group is exposed to the performance of the assets invested in equities
and bonds as well as the impact on liabilities of movements in bond
rates and other actuarial assumptions which can vary significantly over
time. To tackle these risks the Group has taken a number of actions over
the previous years including closing the scheme to new entrants and
increasing contributions. There is an investment sub-committee jointly
appointed by the Company and Pension Trustees in addition to the
financial advisors appointed by the Trustees who aim to optimise the
performance of the scheme’s assets.