Shares in Babcock spark despite profits hit

Babcock International Group reported a jump in annual revenues on Thursday and said it had made “excellent” progress, despite seeing profits slide.

The engineering firm said revenues in the year to 31 March rose 8% to £4.44bn, while the contract backlog rose 7% organically to £9.5bn.

Operating profits, however, tumbled to £45.5m from £226.8m a year previously, after Babcock was hit by a £100.1m loss on a Type 31 frigate contract. Losses per share were 6.9p, compared to earnings per share of 32.5p in 2022.

Once the frigate-related loss was stripped out, underlying operating profits rose to £278m from £237.7m.

David Lockwood, chief executive, said the firm remained committed to reinstating the dividend.

He said: “We’ve made excellent progress this year, with better-than-expected cash generation, margin expansion and double-digit revenue growth.

“In a world of significant instability, national security has never been more important. With defence making up two-thirds of the group, the combination of capability, availability and affordability we offer is increasingly relevant.

“I am excited by the momentum building across the business and that confidence is reflected in our expectation of continuing cash-backed profitable growth and reintroducing a divided in the 2024 full year.”

Shares in Babcock sparked in early trading, up 6% at 334.2p as at 0830 BST.

In November 2019, Babcock was awarded the Type 31 contract by the Ministry of Defence to deliver five frigates for the Royal Navy.

Since then costs have risen, but both sides has been unable to reach agreement over who is responsible for the extra costs. Dispute resolution is ongoing, but Babcock has taken the £100.1m one-off provision to cover the duration of the contract.