- Babcock aims to achieve average annual sales growth in the mid-single digits
- In the year ending March 2024, the company’s turnover stagnated at £4.4bn.
Babcock said on Friday it is making progress toward achieving its medium-term guidance as higher global defense spending continues to drive profit growth.
The defense contractor aims to achieve average annual sales growth in the mid-single digits, a minimum underlying operating margin of 8 percent and underlying operating cash conversion of at least 80 percent.
In the year ending March 2024, the company’s revenue stagnated at £4.4 billion but rose 11 percent in organic terms thanks to strong results from its land and nuclear divisions.
Outlook: Babcock said it was making progress towards achieving its medium-term guidance
Babcock said trading in the first segment was boosted by vehicle engineering contracts, a major deal with the Australian Defence Force and demand for mining equipment in its South African business.
Meanwhile, the group’s nuclear arm saw revenues rise 29 per cent to £1.5bn thanks to new contracts in its civil nuclear business and work on nuclear submarines.
Last November, Babcock won a £750m contract to carry out infrastructure improvements at Devonport naval base in Plymouth to support the Royal Navy’s Astute-class submarines.
Since then, he has secured contracts to refit HMS Victorious, support air ambulance operations in Victoria, Australia, and was selected by Saab to help design ships for the Swedish Navy.
By the end of March, the FTSE 250 group had increased its contract portfolio by 9 percent to £10.3 billion.
Defence companies like Babcock are benefiting from increased military spending by governments in response to conflicts and rising tensions in Asia, the Middle East and Eastern Europe.
Total global defense spending rose 7 percent to a record $2.4 trillion last yearthe steepest annual increase since 2009, according to the Stockholm International Peace Research Institute.
David Lockwood, Babcock’s chief executive, said his company “is well positioned to benefit from the continued rise in global defence budgets, driven by the need to recapitalise, re-equip and modernise militaries.”
He added: “We combine strong engineering know-how, close customer proximity and extensive knowledge of operating assets together with highly collaborative relationships and product development capabilities.”
Babcock also saw its underlying operating profit rise by about a third to £238m last year, despite the company making a £100m loss on a 2019 deal to build five Type 31 general purpose frigates for the Royal Navy.
In addition, the company restarted paying dividends after a four-year pause, and its underlying free cash flow more than doubled from £75 million to £160 million.
Babcock International Group shares rose 1.85 percent to 496.8 pence on Friday morning and are up around 23 percent over the past year.