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Babcock's operating profit takes a hit

By James Pugh | Aldridge | Business | Published:

Engineering contractor Babcock has revealed profits fell by nearly a half last year amid a “challenging” market environment.

The company, which employs 35,000 people and is a major contractor to the MoD, Royal Navy, Army and RAF, was hit by £161 million of exceptional costs throughout the year.

It tried to reshape various parts of the business, deal with new pension reporting rules and set money aside for a potential no-deal Brexit.

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.

Operating profit before tax fell 47 per cent to £196.5 million in the year ending March 31, from £370.6 million last year. Revenue was £4.47 billion, four per cent down on last year’s £4.66 billion.

Babcock had flagged most of the exceptional charges at its interim results in November when it took a £120 million hit mainly due to the restructuring of its oil and gas business.

It has also sold a number of businesses and two of its largest contracts are coming to an end – a contract to decommission the UK’s Magnox nuclear reactors finishes in August while work on the Royal Navy aircraft carriers is also coming to an end.

The company, led by chief executive Archie Bethel, is expected to focus on future growth opportunities over the next 12 months.

It has forecast underlying revenue to be about £4.9 billion in 2019/2020 and underlying operating profit of between £515 million and £535 million.

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Mr Bethel said: “We have delivered a robust performance this year, operating profit is in line with our expectations, we have sustained our strong margins and we have improved our cash generation.

"More importantly for the delivery of our strategic goals and our future performance, we have sharpened our focus on our three key markets of defence, aerial emergency services and civil nuclear. We have strengthened our position in these areas with some important contract wins that partially offset the upcoming completion of the QEC contract and the loss of the Magnox contract and we have delivered further growth in our international businesses.

"As we begin the new financial year we do not expect the wider market environment to be any less challenging than we have experienced this past year. However, Babcock’s strength continues to be our focus, our position as a trusted partner in critical, complex areas of national importance, in both the UK and internationally, and our knowledge and expertise.

"As in 2018/19, in the coming year we will continue to build a stronger business platform for the future."

James Pugh

By James Pugh
@JamesP_Star

Shropshire Star Business and Farming Editor.

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