Defence engineering giant Babcock International Plc has made a £165million annual loss as the coronavirus pandemic grounded its aviation division.
The company, which operates huge dockyards in Plymouth and Rosyth, blamed a £503million “exceptional” hit to the business, which was mainly due to a write-down in the value of its aviation goodwill, and in its oil and gas division.
The company runs aviation services, mostly involving helicopters, for civil and military clients, including in the oil and gas exploration industry, for instance in the North Sea. This was affected by the Covid-19 pandemic.
The Devonport dockyard operator had been predicting a £540million profit but in February 2020, before the coronavirus lockdown began in the UK, it had already warned that trading in its aviation business was facing challenges and was undergoing a restructuring.
Babcock, which made a pre-tax profit of £196.5million in 2019, has now deferred making a decision on whether to pay shareholders a dividend until the “Covid-19 situation becomes clearer”.
Archie Bethel, Babcock’s chief executive, was nevertheless upbeat and said: “We end a busy year in a strong position to deal with the current Coronavirus (Covid-19) uncertainty. We saw strong performances across our Marine, Nuclear and Land sectors and have taken action to address weaknesses in Aviation, including writing down goodwill to reflect our updated expectations of the oil and gas market.
“The early impact of the global Covid-19 pandemic had a limited impact on the group in the last financial year but is creating uncertainty as we head into this new financial year.”
And, indeed, the company stressed its underlying profitability was still £524million, with a small impact from the Covid-19 pandemic, which is what the firm would have made if it had not suffered the aviation problem.
However, this was down from £588.4million in 2019, and statutory revenue was down to £4.449billlion from £4.474billion.
The firm did, however, point to a record combined order book and pipeline of about £35billion, which was up by £4billion on a year ago.
Mr Bethel, who is due to leave his job when a replacement is announced, added: “I am extremely grateful to HM Government and in particular the Cabinet Office and Ministry of Defence who acted quickly and decisively to ensure that contracts continue to be funded and that cash flowed effectively through the main suppliers and down into the supply chain.
“Also, working with us and other major suppliers, we have together quickly developed safe working solutions at site level supported by our employees, trades unions and regulators. These solutions are being widely shared to ensure that the entire sector is benefiting from the experiences of individual companies.
“The majority of our work has been declared to be critical and our people designated as key workers. All of our major sites have remained open, and we have worked closely with our customers to understand and support their changing requirements and operational priorities.”
He added: "Our area of weakness was in the Oil and Gas aviation business. The global oil and gas market has become even more competitive and we have written down the value of assets in that business to reflect this and impaired Aviation goodwill to reflect how the market has changed and that we do not expect any recovery any time soon.
“We have also addressed the cost base of our civil aviation and civil nuclear businesses to right size them for the future given the weaker oil and gas market, price and cost pressures in our emergency services business and the smaller civil nuclear business following the end of the Magnox contract and a slowing UK civil nuclear market, exacerbated by Covid-19.”
