This has been another successful year for the Group. We have enhanced the long-term visibility of our business and expanded the range of our engineering support services into new high growth sectors.

Turnover increased by 20 per cent to GBP1,201 million (2007: GBP1,005m). Underlying profit before taxation improved by 20 per cent to GBP89.1 million (2007: GBP74.2m) with the corresponding adjusted earnings per share improving by 15 per cent to 35.5p (2007: 30.9p). Operating cash conversion during the period was 81 per cent. This performance has enabled the Board to recommend a final dividend of 9.55 pence, giving a total dividend for the year of 13.1p pence per share, an increase of 11 per cent over last year.

It is pleasing to note that of the 20 per cent increase in turnover achieved across all our divisions, over half was attributable to organic growth.

We continue to be encouraged by the performance of the Group, the dedication and capability of its employees and the strong culture of working together that prevails across the Group and with our key customers. These are important strengths as we become involved in larger programmes and engage with new customers.

Our strategy will continue to concentrate upon engineering-based support services which utilise our technical and project management skills. Our focus on higher value services will remain an important driver as we continue to grow our existing business organically and identify further suitable acquisition targets.

All our divisions have made significant progress over the past year and we have plans to increase our presence in areas such as nuclear services and waste management.

The Group has won important roles in some of the largest defence Private Finance Initiative (PFI) and support services programmes placed by the Ministry of Defence, namely the Future Strategic Tanker Aircraft (FSTA) and UK Military Flying Training System (MFTS). We expect the latter to reach contract close shortly.

Our emphasis on engineering support services will increase when we form the shipbuilding and naval support Joint Venture with BAE Systems (BVT Surface Fleet Limited). We have been reassured by the recent statements from HM Government and comments from the Prime Minister that the aircraft carrier project will go ahead. It has also been positive to see significant long lead forward orders being placed for equipment and steel for the ships. We understand that the Ministry of Defence is now in the final stages of its spending decision planning and we are optimistic that an announcement will be made shortly.

The formation of BVT will create a world class company that will serve the interests of the UK market and will successfully address overseas markets, securing the future for the industry and benefiting the UK. VT and BAE Systems are ready to implement the joint venture once approval is given for the CVF manufacturing programme.

Our shipbuilding business continues to perform well. We will complete our contribution to the Type 45 destroyer programme on time by the end of this year and the export orders for Oman and Trinidad and Tobago provide us with a workload until 2011. We also have encouraging further export prospects.

Our support services businesses have all contributed to the progress of the Group with VT Communications maintaining good profit margins; VT Education and Skills showing marked improvement in underlying operating profit and margins; VT Support Services strengthening its position in key markets; and in the US we grew margins by developing higher value technical services.

Board and People

In November last year, we were delighted to welcome Philip Harrison to the Board as Group Financial Director. Phil took over the financial reins from Chris Cundy, who had been temporarily fulfilling the role of Finance and Commercial Director. His arrival means that Chris is now free to concentrate on his commercial role which has become increasingly important to the Group as we become involved in larger programmes.

This month's Board meeting also saw David Thorpe step down as a non-executive director after five years serving VT Group. David has been a valued member of the board and we thank him for his important contribution to VT's progress.

In his place we welcome Balfour Beatty Chief Executive Officer Ian Tyler. Ian joined Balfour Beatty as Finance Director in 1996. He subsequently became Chief Operating Officer and took over as CEO in 2005. Ian's business knowledge and experience, especially in Balfour Beatty's development as a major services provider, will be of great benefit as we continue to implement the Group strategy.

Peter McIntosh has rejoined VT after a two-year spell on secondment as Chief Executive of the Aircraft Carrier Alliance. Peter has returned to the Board and is responsible both for our shipbuilding business and for our new activities in the nuclear and waste sectors.

The continuing success of our business can only be achieved through our people: their drive and enthusiasm is fundamental to our unique VT culture. In our management teams, we have the experience and expertise to pursue our corporate strategy and to drive the business forward.

STRATEGY AND PROSPECTS

The progress of the Group and the growth of our order book to GBP4.9 billion reflect the continuing successful implementation of our corporate strategy. We intend to concentrate on the organic development of new business in engineering support services whilst maintaining a well planned acquisition policy.

The formation of BVT will provide us with a further opportunity to take the Group forward. Our continuing development into a broader based support services group will capitalise on the engineering-based heritage that has been the foundation for VT's success. We will continue to apply this expertise to markets which are critical to the success of our customers, primarily in Government sectors. This model has been evident in our two most recent acquisitions, VT Aepco in the United States and VT Nuclear Services.

The Future Strategic Tanker Aircraft (FSTA) and the forthcoming Military Flying Training System (MFTS) projects are good examples of our ability to augment our organic business by securing long-term programmes which provide excellent visibility of earnings. As pressure mounts on defence and other UK Government budgets, we believe that our position as a leading support services company will be enhanced as HM Government looks increasingly to the private sector to provide efficient, cost-effective support activities.

In the immediate future, we are competing for further programmes including Whole Fleet Management (WFM), New Dimensions and Search and Rescue (Helicopter) where our capability means that we are well placed to provide the solution which the customer is seeking.

Customer requirements for more efficient, more affordable support also place us in a good position to expand our role in new markets, including nuclear services and waste management. The GBP75 billion budget for decommissioning nuclear facilities that is projected until 2035 was an important factor in our acquisition of VT Nuclear Services, formerly British Nuclear Group Project Services, and this move has been further highlighted by the Government identifying nuclear power as a fundamental part of future energy requirements in the UK.

Having achieved preferred bidder status in the competition to provide a Private Finance Initiative (PFI) waste management and recycling facility in the Metropolitan Borough of Wakefield, Yorkshire, several other opportunities have now emerged as local authorities look to reduce their dependence on landfill schemes to meet EU regulatory requirements.

Environmental services businesses offer a considerable opportunity as we move towards becoming a broadly based engineering support services business.

VT Communications will benefit from providing information, communications and technology services to both the FSTA and MFTS programmes and the business continues to strengthen its position in the provision of new media distribution and digital transmission. It has also secured business in relation to the television switchover from analogue to digital signalling. VTC's organic growth is expected to be strengthened by the extension of its Government contract.

VT Education and Skills (VTE&S) has shown an improvement in profit. The division has expanded its work in providing education services and has also exploited an opportunity to strengthen its position in supplying engineering training for the automotive industry. Further potential exists to improve our market share in this sector. VTE&S continues to address new Building Schools for the Future opportunities, concentrating on its role as a specialist provider of education services.

Education and skills remains a challenging market but we believe that VT is now recognised as a significant player in the sector and can leverage this position to further develop the business. The planned acquisition of the rest of Flagship Training, through the BVT JV agreement, will make VTE&S the UK's biggest education and training provider.

The acquisition of VT Aepco in the US has strengthened our links with the US Army and the US Government. We have already seen the benefits of the acquisition through the continued improvement in margins of the US business and this strategy to increase returns from the activities of VT Services Inc. will continue.

VT Support Services continues to make good progress and the addition of FSTA and MFTS will provide further long-term organic growth. With several major prospects, the division is set to maintain its role as a leading provider of support services in the defence, emergency services and commercial markets.

VT Shipbuilding continues to develop prospects for work overseas. We are working closely with our Greek partners, Elefsis Shipbuilding, to secure a further order from the Hellenic Navy for fast attack craft and prospects in Saudi Arabia and Libya are progressing.

Last Updated ( Wednesday, 14 May 2008 )