VT deal on track as Babcock profits rise

DEFENCE services group Babcock, on course to create a giant to challenge BAE Systems after it struck a recent deal to buy rival VT Group, last year saw profits jump by over a fifth on the back of a strong performance at its marine, defence and nuclear units.

Babcock reported a pre-tax profit of £129.2m for the year to March, up 21 per cent on last year despite revenues remaining broadly flat at £1.895bn.

Babcock’s results were supported by a bulging forward order book worth £8.3bn, a record for the firm.

The company was boosted over the year by robust activity in its most important market, the marine division, where revenues rose seven per cent on the back of the Ministry of Defence’s efficiency-led Maritime Change Programme. Defence and nuclear revenues also soared, though they were offset by a slump at the rail and engineering arms of the business.

“We consider the major markets in which we operate remain attractive with significant long-term growth prospects,” said chief executive Peter Rogers, adding that the VT acquisition continues on track.

The deal has been one of the most closely-watched in the City so far this year, with Babcock finally clinching an agreement after being snubbed twice by its target. The firm has now agreed to pay the equivalent of 750p per share for VT in cash and its own shares, valuing the company at around £1.33m.

Babcock is expecting the deal, which closes in July, to allow it to combine maintenance and training contracts covering the British Army, Navy and Air Force, thereby helping the MoD cut costs. It anticipates achieving cost savings of around £50m per annum after the deal, which is expected to be earnings enhancing in the first year.