Babcock profits shrink by £118m
DEFENCE and engineering giant Babcock International Group PLC has seen profits fall by £118million compared to a year ago and has now raised concerns about future income levels.
The company, which operates the huge dockyards at Devonport, in Plymouth, and Rosyth, in Scotland, has seen trading hit by the ongoing coronavirus pandemic – especially at its civil aviation section.
The company said underlying revenue for the past nine months was £3.399billion, down from £3.574billion for the same nine-month period a year earlier, a 3% drop excluding disposals and currency fluctuations.
Underlying operating profit in the nine months was £202million, a dip from £320million for the same period a year before, down 34% excluding disposals and FX (foreign exchange), with a negative impact from civil nuclear insourcing, Covid19 and civil aviation all blamed.
Shares dropped 18% following the announcement to the Stock Exchange and have now fallen 65% over a year.
The aerospace and defence company - updating investors for the first nine months of the financial year ending March 31, 2021 – revealed that order intake stood at £3.1 billion with the order book standing at £16.8 billion at December 31, 2020, down from £17.6 billion at the end of March 2020.
Babcock said it has recently started a detailed review of its balance sheet and contract profitability and early indications suggest there may be “negative impacts” for current and/or future years.
This review is being supported by an independent accounting firm and the outputs will be reviewed by the firm’s auditor PWC, its audit committee and board prior to the publication of results for the year ending March 31, 2021, expected in May.
Babcock said uncertainty remains for the rest of this financial year, especially given that its fourth quarter is historically its strongest and that the Covid-19 situation has worsened in most of the company’s markets.
Given this uncertainty, and the start of the review of contract profitability and balance sheet, the company will continue not to provide financial guidance for this financial year.
Babcock announced a review of strategic priorities in November 2020, now well underway, which will focus on cash delivery, being a strategic partner to the UK Government, international growth, driving innovation, and transforming the “ESG (environmental, social and governance) and people agenda”.
Net debt at the end of 2020 was £1.207 billion, a reduction of £255 million compared to 2019 and although this position is higher than that reported on September 30, 2020, when it stood at £871 million, the company said it is consistent with the average net debt for the first nine months of this financial year of £1.222 billion.
Babcock is currently in the midst of a £600million project to refit and extend the life of the UK’s fleet of Type 23 frigates, with work being carried out at Devonport where is due to start a major upgrade of facilities in 2021. David Lockwood, Babcock chief executive, said: “While trading in the third quarter has continued to reflect the challenges of the first half and there remain a number of near term uncertainties, the fundamental strengths of the group and the opportunities ahead give us confidence for future years and I look forward to reporting back at the full year results”.