Shares in Babcock tumbled by as much as 12 per cent this morning as the defence contractor took a £120m hit to restructure its business.
Babcock’s revenue dropped 2.7 per cent to £2.3bn for the six months to the end of September, the company said this morning.
Hit by exceptional charges, profit before tax fell by almost two-thirds to £65.1m. Discounting the £120m hit, underlying pre-tax profit rose 2.5 per cent to £245.5m.
The company posted better news on other fronts. Net debt fell by 12 per cent to £1.1bn, while cash flow more than tripled to £139.5m.
Basic earnings per share fell by 62 per cent to 11.5p.
The company’s interim dividend was 7.1p, a 3.6 per cent increase on 2017.
Why it’s interesting
Babcock said it was following through on plans to concentrate on the defence, emergency services and nuclear parts of its business, which make up around three quarters of revenues.
The company took an £80m exceptional charge as it reshapes its oil and gas helicopter services division and a further £35.1m costs from other exits of low-margin businesses like its Appledore shipyard, which it quit last month.
Management also said it was expecting a bigger hit to its nuclear decommissioning division next year, with revenue for Magnox expected to drop £250m, compared to past estimates of around £100m.
The company has faced a torrid time of late, with shares dropping by over a quarter since an anonymous note in October claimed the company was having difficulties with its largest customer.
Earlier this month the firm refuted the accusation that it was struggling to work with the Ministry of Defence, and vowed to track down the report’s unheard-of author, Boatman Capital.
Its outlook remains unchanged for the full year as the company performed broadly in line with expectations.
What Babcock said
Chief executive Archie Bethel said: “We had a solid first half with underlying results in line with our expectations and we have confirmed guidance for the full year. We are taking decisive actions to further strengthen the group which will deliver benefits next year and beyond.
“We are taking actions necessary to further improve the quality of our earnings and our returns to shareholders. That is why we are exiting low-margin businesses, restructuring in areas and combating the overcapacity in our oil and gas helicopter services business. These actions, with minimal cash costs, will strengthen the business going forward.
“We will continue to reduce net debt and focus on delivering value to our shareholders, partly through a growing and sustainable dividend. We have excellent opportunities both in the UK and internationally to build on our strengths and I am determined to build on them.”