Babcock recovers from heavy pandemic losses with £400m disposals plan and UK contracts
Babcock has recovered from heavy losses to report an operating profit of £75.4m, after being in the red to the tune of £758.3m this time last year.
Its strengthened half-year performance has been powered by sales of multiple businesses, including its Frazer-Nash consultancy for £290m, the sale of its AirTanker holdings for £95m, and its oil and gas aviation business for £10m.
The deals were part of a £400m disposals plan.
The aerospace and defence giant has also benefited from cost savings of £20m, growing revenues and an increased contract backlog.
Revenues have risen eight per cent to £2.23bn, up from £2.05bn while earnings per share have also trebled to 15.3p, up from 5.8p.
Meanwhile, its contract backlog has increased from £9.4bn to £10.9bn.
Deals reached include increased business with the UK armed forces, such as a £3.5bn five-year deal with the Royal Navy for its Future Maritime Support Programme, a £150 million logistic support contract with the armed forces, and a £110 million contract to deliver the new strategic radio service for critical UK military operations.
The group also recently reached a deal with the Australian government to oversee its defence communications for its land and sea forces.
The industry has proved resilient throughout the pandemic, with governments maintaining defence spending commitments and contract opportunities.
Net debt remains high, but has been reduced, with £1.35bn reported for the six months to September, a moderate reduction on £1.61bn reported this time last year.
Interestingly, operating cash flow also remains an issue – with minus figures of £160.6m reported in the results, a vast year-on-year increase from £4.4m in the red in 2020.
Babcock says this reflects material cash outflows including additional pension contributions, restructuring costs, investments in facilities and IT upgrades and the unwinding over time of the historical management of working capital around period ends.
The company is keeping its outlook for the year unchanged, and remains confident in its medium term prospects.
David Lockwood, chief executive officer, said: “While our half year results show some recovery from the financial impact of COVID-19, we remain cautious as we are early on in our transformation and as we manage inflationary and supply chain pressures across the business and potential interruptions from COVID-19. However, the board believes the actions we are taking will enable the group to take advantage of the many opportunities ahead of us, leading to improved cash generation and profitability in the medium term.”
Neil Shah, executive director at Edison Group described the results as broadly in line with expectations – benefitting from contract wins and cost reduction measures.
He said: “Looking ahead, the group remains cautious in light of ongoing external pressures of Covid-19 variants and supply chain disruption, however, the progress made during this period leaves the Group well placed to continue its transformation and recovery.”
Following the results, the company’s shares are up 1.37 per cent on the London Stock Exchange’s main market on Tuesday afternoon.