Babcock sees profits boost from austerity
DEFENCE services group Babcock International expects a profit boost from austerity measures, as governments farm out more work to the private sector to cut costs.
“The current economic climate is favourable to the further growth of our business,” chief executive Peter Rogers said yesterday, adding that 2012-13 earnings should be ahead of Babcock’s previous expectations.
“We are benefiting from a recognition that things need to be done differently and made more efficient. Austerity means people doing things a better way and that is what we do.”
Governments around the world have been cutting spending as they look to slash budget deficits. Babcock said its focus on services and maintenance puts it in a strong position as clients look to cut costs by outsourcing.
Babcock, which maintains British navy submarines, said pretax profit rose 26 per cent to £274m in the year to March, on revenue up 14 per cent to £3.07bn.
It was expected to report a 2012-13 pretax profit of £314m.
Babcock said it had secured preferred bidder status on a number of new long-term contracts as well as extensions to existing deals.
New contracts include the refit of Britain’s Vanguard submarines at its Devonport dockyard and a vehicle replacement deal with Britain’s defence ministry.
It said it also sees significant opportunities in defence training and equipment support markets. Contracts in British nuclear, training, defence and infrastructure markets were expected to be awarded later this year.
Babcock shares, which had risen seven per cent in the past three months, closed 9.2 per cent higher yesterday at 73.5p, valuing the company at around £2.86bn.
“These are strong figures and whilst there may be some pause for breath, we maintain our ‘Buy’,” said Investec analyst John Lawson.
The company, which this week sold its US defence services unit, said its order book stood at £13bn, up eight per cent on last year.