28 January 2009
Defence and support services company VT Group issues the following Interim Management Statement, covering the Group's performance for the period since September 30, 2008.
BVT Surface Fleet (“BVT”)
As set out in the circular to shareholders dated 11 June 2008, the Group has the right from 1 July 2009 to put its 45% shareholding in BVT to its joint venture partner, BAE Systems (the “Put Option”) for a minimum exit price of £380m, subject to specific adjustments downwards in respect of pension liabilities, notional interest on BAE loans to BVT and certain other items set out in the circular. In addition on completion of the Put Option, the deferred consideration (plus interest) in respect of VT Group’s purchase of BAE Systems’ 50% shareholding in Flagship becomes payable.
VT Group has decided to exercise the Put Option which requires UK Ministry of Defence approval in addition to the approval of VT Group’s shareholders and other regulatory bodies. VT Group has been advised by the UK Ministry of Defence that it has approved the exercise of the Put Option subject to finalising the details of the 15 year Terms of Business Agreement (ToBA). VT Group therefore expects to be in a position to exercise its Put Option by 1 July 2009.
The exit from the joint venture will enable VT to concentrate on further expansion of its services businesses.
The BVT board is in the process of finalising the review of export contracts which was in progress at the time of our half year announcement. The result of this cost to complete review, following the integration of these contracts into the new BVT business, is likely to give rise to a significant non-recurring loss provision. Although a range of outcomes has been presented by BVT management, VT currently estimates the loss provision to be in the order of £50m of which VT will recognise a 45% share within its share of the result of BVT for the year ending 31 March 2009. As part of the review of the export contracts contributed by VT into BVT, VT is in negotiation with BAE Systems regarding a possible injection of capital by VT into the business, in a form which will not impact the existing equity holdings or management rights.
Services Businesses:
VT’s Services Businesses continue to make good progress in the period and are in line with our expectations at the time of our interim statement.
VT Education and Skills (VTE&S), working with construction group Costain, has opened its first new school in the London Borough of Lewisham under the Building Schools for the Future programme. VTE&S has long-term contracts for the provision of ICT and facilities management. VTE&S is also part of a consortium that has been named preferred bidder for the BSF programme in the Borough of Luton where VTE&S will provide education services.
In addition, VTE&S has expanded its portfolio in automotive training following award of a contract to provide all technical and non-technical training to UK-based BMW employees. This contract is valued at more than £30 million over five years.
VT Flagship has also expanded its facilities management work with the supply of support services, worth some £30 million over a period up to five years, to Royal Air Force Brampton Wyton Henlow.
VT Nuclear Services has secured two framework contracts to support the Nuclear Installations Inspectorate (NII) in the licensing of new reactors in the UK. We will provide support in the areas of Safety and Quality Assurance Management, and Radioactive Waste and Decommissioning for the next generation of reactors announced by the Government in 2008. VT has also signed a contract in Lithuania to expand its decommissioning activities there. In addition, VT is building its business with British Energy through assisting with engineering studies for spent fuel, a significant move in VT’s strategy to move beyond its traditional nuclear waste and decommissioning market.
Wakefield Metropolitan District Council Planning Committee has granted planning consent for the new waste management treatment plant to be built, operated and maintained by VT in Wakefield, Yorkshire. Commercial close is expected by the end of the financial year. Contract start is anticipated in the first half of our next financial year subject to financing.
VT Support Services has signed a contract valued at £160 million over ten years to provide initial flying training for all three Armed Forces.
VT Communications has completed the first phase of its support for Arqiva in the television Digital Switch Over (DSO) programme by helping to provide engineering and infrastructure solutions for the Border region. Work in further regions is underway.
VT Group Chief Executive Paul Lester commented: “Our Services businesses continue to show good growth and to perform in line with our expectations for the full year. Our exit from BVT Surface Fleet later this year will enable us to refocus exclusively on expanding our core engineering based support services offerings.”
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