Engineering giant Babcock International Group PLC has scrapped its dividend after seeing revenues decimated during the coronavirus pandemic.
The defence and aerospace company, which operates the huge dockyards at Devonport in Plymouth and Rosyth in Scotland, said the coronavirus pandemic had the effect of reducing underlying revenue for the first quarter by 11% compared with 2019.
Part of this is due to the company’s 2018 loss of the Magnox contract with the Government to clean up nuclear reactor sites, and weaknessin the firm’s land adjacent market short cycle businesses,including South Africa.
But COVID-19 had a “significant impact” on the financial results in the period the firm said. Necessary safety constraints on close proximity working had a significant impact on costs and efficiency,directly impacting margins and profitability.
These included restricted access to customer sites, complex safety measures, reduced numbers of staff on site, changed shift patterns and additional costs.
These led to slower progress on some work streams which has impacted margins on some of Babcock’s long-term contracts in the quarter.
It meant underlying operating profit for the first quarter was about 40%lower than in 2019. About half of this profit reduction was due to lower levels of productivity in the core business while Magnox, South Africa and Land adjacent market businesses accounted for the other half.
The company said there is uncertainty around the duration and extent of the impact of COVID-19 on productivity, margins and pipeline development.
It said that after careful consideration the board has made an“exceptional” decision not to pay a final dividend for the financial year ended March 31, 2020, given the continued uncertainty around the out-turn for this financial year.
The firm did, however, point to an order book at June 30 of £17.3billion and a bid pipeline of about £17billion and said orders in the quarter were£0.7billion and in July the company secured about£500million of new contracts in its aviation business, helped by the delays in bid decisions beginning to clear.
Ruth Cairnie, chair,said: "We continue to deliver critical programmes for our customers but our financial performance is being impacted by the challenges created by COVID-19. Given the continued uncertainty over the impacts of the pandemic, we are not giving detailed financial guidance for the year at this stage.
"The board has decided not to pay the final dividend for the 2020 financial year in order to prioritise strengthening our balance sheet and reducing net debt. We recognise the importance of dividends to our shareholders and we will resume dividend payments at the earliest opportunity.
"Our experience of the pandemic so far has demonstrated that the foundations of our business - long term programmes in critical and non-discretionary areas - provide a solid platform for delivery in the medium term. "
