Babcock sinks to a loss

Aviation spans the defence, emergency medical services and oil and gas markets. The last of these segments – which accounts for 13 per cent of the sector’s £1bn revenue – “deteriorated significantly” during the year, after two competitors in helicopter services emerged from bankruptcy and pushed down global pricing. These woes have been compounded by the recent oil price turmoil.

Weakness in aviation prompted the group to reduce guidance for full-year underlying operating profit from £540m-£560m to £540m in February. In the end, it fell 11 per cent year on year to £524m after Covid-19 hit the end of the period. The pandemic has reduced demand for short-cycle work – which accounts for a fifth of revenue – and impeded flying activities.

The order book has expanded to £17.6bn, with the £5.3bn order intake more than replenishing the £4.9bn of revenue booked during the year. Meanwhile, the bid pipeline has increased to £17bn, from £14bn a year earlier, with more than two-thirds of opportunities relating to the defence sector.

Excluding lease liabilities and its share of joint venture (JV) net debt, Babcock’s net debt decreased by 4 per cent to £922m. This is equivalent to 1.7 times cash profits (excluding JV contributions) and above its 1.0-1.5 times target range. But following the £85m sale of its stake in military training services business Holdfast post-period, pro-forma leverage has come down to 1.5 times.

Underlying free cash flow (which is after pension contributions) dropped by over two-fifths to £192m, falling short of Babcock's £250m guidance. This has been attributed to Covid-19 disrupting the collection of customer payments and delaying asset sales, leading to higher-than-expected capital expenditure.

Liberum forecasts adjusted pre-tax profit of £313m and EPS of 50.8p for March 2021, down from £426m and 70.4p in FY2020.