Revenue growth on course for Babcock
Engineering contractor Babcock said it was trading in line with expectations and was on course to deliver “low single digit” underlying revenue growth.
In a trading update, the firm sought to reassure investors after cutting its full-year targets in July.
The company includes the Defence Support Group operation at MoD Donnington, in Telford, and the former Macneillie specialist vehicle conversions business at Aldridge, now renamed Babcock Vehicle Engineering.
It said its order book and pipeline remained strong with a combined value unchanged at about £32 billion for the period from April 1. About 87 per cent of revenue is now in place for 2018/19 and about 57 per cent for the year 2019/20, Babcock said.
The trading update came after the company unnerved investors in July when it cut its full-year revenue targets. Shares in Babcock dropped by 10 per cent on the day to 720p at one stage after the marine division, which provides specialist support to Britain’s defence ministry and other governments, was hit by delays in government spending on submarines. The company’s shares closed at 692p on Tuesday.
Babcock also said its underlying earnings guidance remained unchanged, with both revenue and cash flow performance weighted towards the second half of the year. It expects its net debt to earnings before interest, tax, depreciation and amortisation ratio to be around 1.4 times by the end of the year.
The company confirmed it had exited two small, low-margin business, including the sale of a business which provides services to broadcasters and content owners for around £30 million. It expects to exit its powerlines business in South Africa in the second half of the year and said it would “reshape” its oil and gas crew change business. A further update will be made at the company’s half year results in November.
Babcock last year refocused the group into four sectors – marine, land, aviation and Cavendish nuclear – a move which it said intensified its concentration on “core higher-margin businesses”.
It said it had secured a number of new defence orders in the period, including additional contracts worth around £12 million with the Ministry of Defence to maintain equipment.
