the times | Thursday November 26 2020 1GM 49
Business
Costs racked up during the coronavirus
pandemic have sent profits tumbling at
Babcock.
The defence contractor yesterday
reported a 9 per cent year-on-year fall
in underlying revenue to £2.2 billion for
the half-year to the end of September,
while pre-tax profits were down by al-
most two thirds at £55.3 million.
Babcock was hit by the cost of
operating a socially distanced navy
base at Devonport in Plymouth, train-
ing military engineers during lockdown
and operating emergency helicopters
when there were fewer emergencies.
Shares in Babcock have rallied since
hitting a 15-year low of 212p last month,
but they fell by 4¼p, or 1.2 per cent, to
350¾p yesterday after the latest results,
which investors had expected to be
poor, were published. The company
also said that it would not pay a divi-
dend, as profit guidance to the end of its
financial year in March was impossible
to call because of continuing Covid-19
restrictions.
Babcock is one of the largest contrac-
tors to the Ministry of Defence, with
deals ranging from managing Devon-
port and the Faslane nuclear subma-
rine base west of Glasgow to helping to
build warships and submarines at
Rosyth near Edinburgh and Barrow in
Cumbria to a host of military support
operations. The MoD accounts for
nearly half of its revenues.
The group is also involved in nuclear
decommissioning and operates 492
civil aircraft helping out with coastal or
ski resort emergencies in Spain and
Italy, in addition to ferrying workers to
North Sea oil and gas installations. The
group employs about 30,000 people.
It has had a chequered spell since the
2016 retirement of the late Peter Rogers
as chief executive, who built up the
company via the £1.75 billion acquisi-
tion of the Avincis helicopter business,
£1.46 billion spent on VT, the military
support business, and the £356 million
paid for Devonport.
Much is expected of David Lock-
wood, 58, the company’s new chief
executive, who was in the equivalentjob at the Cobham aerospace group
before shareholders sold out to a take-
over by an American private equity
firm. Mr Lockwood said that his
expected shake-up of Babcock would
not come until the company’s full-year
results next May, although he has
started work on unifying a group that
had been acting internally as a con-
glomerate of federated businesses and
which had not focused on cashflow.
“Cash is a cultural issue and we need
to get people to understand that every
penny counts,” he said. “There is a lackof corporate infrastructure, but there
will not be change for change’s sake.”
There is talk that Mr Lockwood is
reviewing Babcock’s civil aviation busi-
nesses to understand why its 492-
strong fleet comprises 31 aircraft types.
Stephen Rawlinson, an independent
sector analyst, said: “We concur with
the early conclusions of the new chief
executive that there is much that is very
good about Babcock, but right now
there are several legacy issues, com-
mercial and financial, to resolve which
can no longer be kicked down the road.”Babcock profits sink after rough year
Robert Lea Industrial Editor
A FTSE 100 conglomerate that is
heavily exposed to the troubled aero-
space and automotive sectors has told
shareholders that its businesses are
beginning to stabilise.
Melrose Industries, which became
involved in the sectors after its conten-
tious £8 billion takeover of GKN in
2018, indicated in a third-quarter
trading statement that it expected to
achieve earnings at the higher end of
City expectations for 2020. Analysts
had pencilled in a small profit at the
pre-tax level, which was effectively a
wipe-out from the £889 million report-
ed for 2019.
The update sent Melrose shares to
their highest point since the stock
market sell-off in March, up 2½p, or 1.5
per cent, to 165¾p, valuing the group at
£7.9 billion.
Melrose said that its automotive
business was trading down 3 per cent on
the year, but its aerospace business,
supplying parts to Airbus and Boeing, is
down 37 per cent. There was no word on
the planned sale of Nortek, an indus-
trial air conditioning business that
could provide investors with £3 billion.
Justin Dowley, 65, the chairman,
said: “While short-term uncertainty re-
mains, we are confident that our
businesses can substantially improve
their margins from today over the
medium term.”Stability on
the horizon
for Melrose
Robert LeaGRAEME MACDONALDBabcock helicopters are used in coastal and ski emergencies and also to ferry workers to North Sea oil and gas installations