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Babcock International - Pre-Close Trading Statement


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Babcock International Group PLC
: 29 March, 2007  (New Product)
29 March 2007 Babcock International Group PLC Pre-Close Trading Statement
In line with its usual practice, Babcock International Group PLC ('Babcock' or 'the Group')the support services company, makes the following trading statement prior to the close of its financial year on 31 March 2007.

Babcock is pleased to confirm that it expects the full year results to 31 March 2007 to be in line with its previous expectations expressed at the time of the interim announcement in November 2006.

Our order book remains in excess of 2 billion and cash flow has been strong throughout the second half of the year. Our target markets have remained buoyant and a number of important developments, which are outlined in this statement, have occurred during the period, providing the Group with access to significant potential growth opportunities.

Operations

Key developments for Defence Services in 2006 and 2007 include the award of an extension to the Single Living Accommodation Modernisation or 'SLAM' contract (known as SLAM II) and the securing of its position supporting the UK Hawk jet trainer fleet by participation in the HAWK Integrated Operational Support or IOS contract with BAE Systems PLC.

Contract award for the management of training and facilities at the Royal School of Military Engineering, where the Babcock-led consortium is the preferred bidder, is progressing toward financial close, which is expected towards the end of the new financial year.

Babcock has previously confirmed that it is fully supportive of the MOD's Defence Industrial Strategy ('DIS'). Babcock has been discussing various possibilities with other industry participants and with the MOD in order to progress the twin objectives of achieving industry restructuring consistent with the DIS and delivering shareholder value. Against this background Babcock has made an indicative offer to acquire the entire share capital of Devonport Management Limited ('DML').

In the past year Technical Services has been operating at a high level of activity. Babcock design teams have been engaged with both commercial contracts and engagement in the design phase for the Future Aircraft Carrier (or 'CVF'). The recognition of Rosyth as the only facility in the United Kingdom appropriate for final integration, test and commissioning of the aircraft carriers has had a beneficial impact on the Group's warship support activities. The need to maintain a core capability for the programme, plus the performance of Babcock through time, is being recognised in the allocation of warships for refit by the surface support allliance.

The Alstec nuclear support business has outperformed our planning assumptions and is well placed to benefit from the accelerating pace of decommissioning and reactor life extensions. The Nuclear Decommissioning Authority forecast in 2005/06 that total decommissioning activities in the United Kingdom would have a value of some 62.7 billion over the coming years. In January 2007, Babcock acquired 24.5% of the issued share capital of International Nuclear Solutions PLC ('INS'), a specialist operator in the nuclear engineering services sector at 63 pence per share. Discussions are continuing with the Board of INS about the possibility of making a cash offer for the remainder of INS's issued share capital. A combination of Alstec and INS together with our nuclear experience at Rosyth and Faslane would create a comprehensive Tier 2 service offering for nuclear site licencees and operators.

Engineering and Plant Services has achieved a record year of growth. The South African Government's commitment to infrastructure spending and further growth in the resources sector continues to underpin confidence in the further growth of this business. In March, the South African Government launched a R97 billion (6.8 billion), five year investment programme to boost power generation. The acquisition of the South African power lines division of ABB in the summer of 2006 is performing well, with a four-fold increase in order book already achieved. We believe that the momentum being seen in the development of infrastructure in South Africa will begin to be replicated in other Southern African states and Babcock Africa is well placed to benefit from this opportunity.

Earlier this month, Networks closed a contract as part of a joint venture within the Energy Alliance (the Alliance) with National Grid PLC to maintain its electricity transmission infrastructure across Western England & Wales. The contract is for an initial five year period and valued at some 100 million per annum to the Alliance. In addition, Babcock announced yesterday that its transmission business has successfully pursued a contract to support EDF Energy Networks in the South East of England over a five year period, valued at some 10 million per annum.

As anticipated at the half year, mobile telecoms mast work has been slow and therefore in the communications business within Networks, the emphasis has been to focus on meeting the requirements of the digital switch-over, upgrading technology for handling broadcast of the digital television signal.

During the year, the Rail business commenced a restructuring programme to align it more closely with the new structure of its principal customer, Network Rail. During the period, the business continued to win contracts, notably the two signalling framework contracts which will secure work for the next five years, and the 25 million Trent Valley capacity enhancement project also on behalf of Network Rail. We have also been short-listed as one of the final two bidders for the Greater Manchester Passenger Transport Executive tramways infrastructure bid.

Summary

The overall trading environment for the Babcock businesses remains excellent. The order book is strong and markets in which Babcock is active continue to offer significant growth opportunities.
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