Defence and aerospace giant Babcock International Group Plc has warned that the amount of cash at its disposal this year is expected to be “significantly negative” due to mounting costs and spending.
The FTSE-250 company, which operates Plymouth’s enormous Devonport Dockyard, said free cash flow - the amount of cash available to pay such things as creditors and dividends - has been hit by soaring outgoings.
In a statement to investors it cited additional pension contributions, restructuring costs, and investments in facilities and IT upgrades as drains on its cash.
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Negative free cash flow can sometimes be seen as a warning to company bosses about a business’ financial health and ability to pay debts, but Babcock had already warned of this possibility when its half-year results were published in December 2021.
These showed it made a statutory operating profit of £75.4m compared to a £785.3m loss in the prior year, and revenue jumped to £2.223bn from £2.054bn in the same period in 2020.
And now Babcock has moved to reassure investors that trading for the first 10 months of its financial year has remained in line with expectations and its full year outlook remains unchanged.
In a trading update for the 10 months to January 31, 2022, Babcock stressed it continued to manage costs associated with Covid-19, ongoing inflation and supply chain pressures. It said a new operating model is on track to deliver savings of about £20m in this financial year.
The company also stressed it had continued to make progress on strategic priorities, including portfolio alignment. The company has been working on a turnaround plan to streamline the group and tackle losses made during the Covid pandemic, which has involved selling off some of its businesses to raise a targeted £400m.
Babcock completed the sales of its UK Power business in December for gross proceeds of £50m, and its 15.4% stake in AirTanker Holdings Ltd in February for £95m.
This was the fourth disposal completed in the current financial year bringing gross proceeds generated to £448m, above the targeted minimum of £400m required to strengthen the balance sheet.
Earlier in February Babcock entered into a sales and purchase agreement to acquire the remaining 50% interest in its Australian Naval Ship Management (NSM) joint venture for about £32m.
“The acquisition, in one of the group's focus countries, will allow the group to further strengthen its support to the Australian Defence Force,” a company statement said.
It added: “Overall group trading for the first ten months to January 31, 2022, was in line with expectations. Results for the group are fourth quarter weighted, and based on current projections our full year outlook is unchanged.”
