Babcock shrugs off legacy contract losses due to nuclear gross sales
- Babcock’s underlying operating profits jumped by 34% to £238m last year
- Defence firms have benefited from governments ramping up military spending
Babcock enjoyed bumper earnings growth last year despite continuing to incur high losses from a legacy shipbuilding contract.
The defence contractor said its underlying operating profits jumped by 34 per cent to £238million in the year ending March thanks to strong demand from the nuclear, land, and aviation industries.
Organic revenues grew 11 per cent to £4.4billion, driven by strong 29 per cent growth in its nuclear division. The land unit was up 17 per cent.
Profitability was impacted by a £100million loss on a 2019 deal to build five Type 31 general-purpose frigates for the Royal Navy.
Walking on water: Defence contractor Babcock said its underlying operating profits jumped by 34 per cent to £238million in the year ending March
It posted another £90million loss from the legacy contract last year owing to major engineering and labour costs, but the group still managed to boost core profits by around £60million.
In addition, Babcock’s underlying free cash flow more than doubled from £75million to £160million, which it credited to a solid operational performance and ‘the timing benefits of early customer receipts’.
The London-based company achieved this while contributing an extra £35million towards lowering its pension deficit.
Babcock said this helped one of its pension funds become self-sufficient two years faster than expected and should reduce its total pension shortfall repair payments to around £40million per annum.
Like other defence giants, Babcock has benefited from governments ramping up military spending in response to elevated tensions across Asia, the Middle East, and Eastern Europe.
Global defence expenditure increased by 7 per cent to a record $2.4trillion in 2023, which was the steepest rise since 2009, according to the Stockholm International Peace Research Institute.
Just last November, Babcock gained a £120million deal to build Dreadnought-class submarines, a £750million contract for infrastructure upgrades at the Devonport naval base, and a seven-year agreement to maintain equipment at French military bases.
Since then, it has struck contracts to refit HMS Victorious, train the British Army’s armoured vehicle operators, and manufacture weapons systems for South Korean Navy submarines.
The new deals helped raise the London-based firm’s contract backlog by 9 per cent year-on-year to £10.3billion in March.
Over that same period, Babcock bolstered its organic revenue by 9 per cent and cut its net debt by £129million to £435.4million.
It has also reinstated dividends after cancelling them during the start of the Covid-19 pandemic, declaring an interim payment of 1.7 pence per share and a final dividend of 3.3 pence per share for the 2024 financial year.
Babcock International Group shares were 1 per cent down at £5.33 on Wednesday morning, although they have still risen by nearly three-quarters over the past year.
