Sector reorganisation pushes Babcock in first half

Support services group Babcock International said it was “continuing to deliver” in its half-year report on Tuesday, with a £146m increase in underlying revenue to £2.64bn - a 6% improvement year-on-year.

The FTSE 100 firm said underlying profit before tax in the six months to 30 September was ahead £11m, or 5%, to £239.5m.

Underlying operating profit grew £6m - or 2% - to £275.8m, while the last 12 months free cash flow was £281m, excluding FOMEDEC.

Babcock’s earnings per share grew 4.0% to 38.7p, and the board confirmed a 5.4% uplift to the interim dividend, to 6.85p.

“Babcock made good progress during the first half, building on our leadership position in the engineering services market,” said chief executive Archie Bethel.

“We increased revenue, profit and earnings with underlying organic revenue growth at constant exchange rates of 5%, and are maintaining our track record of increasing returns to shareholders by again raising our interim dividend.”

Bethel said the firm completed its sector realignment, successfully establishing the springboard for its next phase of development.

“Our competitive strength is reflected in our double-digit margin, our continued strong win rates and the increase in our combined order book and pipeline to £31bn.”

On the operational front, Babcock said its sector realignment had been successfully implemented, while the order book and bid pipeline increased to £31bn - from £30bn at the start of the period.

The board said 92% of revenue was in place for the current financial year; with 59% of revenue in place for the 2019 year.

Its French military air training mobilisation (FOMEDEC) was underway, while in its aircraft carrier operations, the Queen Elizabeth was on sea trials and the Prince of Wales had been named.

Babcock was also involved in the major firefighting effort across Southern Europe.

The board said it had agreed Magnox terms to contract end in 2019, and was awarded new Royal Air Force TSSP contracts in November.

“The increasing number and value of our opportunities both in the UK and internationally, where we continue to gain traction, highlights Babcock's long-proven ability to grow despite uncertain market conditions,” Archie Bethel added.

“Our focus on technology-intensive critical services where barriers to entry are high has consistently enabled us to generate sustainable growth regardless of any decline in spending on original equipment.”

Bethel said he expected that to remain a “key element” of differentiation for Babcock in the coming months and years.

“We have excellent revenue visibility with 92% of budgeted revenue now in place for FY18, and we expect a slight improvement in overall group margin during the second half.

“We therefore remain confident that full year results will be in line with our expectations and that we will make further good progress beyond this year.”