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Babcock International is paying its first dividend in four years as the defence contractor reaps the benefits of a turnaround plan and higher military spending amid rising geopolitical tensions.
David Lockwood, chief executive, said the strengthening order pipeline combined with a much stronger balance sheet had enabled Britain’s second-largest defence contractor to reinstate the dividend “with confidence”.
“For a company that was struggling to be predictable we are becoming positively predictable,” said Lockwood.
Babcock has in recent months supported UK government-led efforts to help Ukraine with both training and equipment and recently set up an office in the country. Lockwood said Babcock was in talks with the UK government about expanding its activities there.
The company is also benefiting from significant government investment in the UK’s nuclear submarine activities following the signing of the trilateral Aukus security pact with the US and Australia earlier this year. It also secured a £750mn four-year contract last week for a big infrastructure upgrade at the Devonport naval base to support the maintenance of Britain’s submarine fleet.
The defence contractor designs and builds warships such as the Type 31 frigate, but it generates the bulk of its revenues from support and training activities, including the maintenance of the UK’s nuclear submarines.
Lockwood said there was a “catch-up” to be done in terms of work on the physical infrastructure but insisted that none of the maintenance programmes for the fleet were late.
The company is building the Type 31 frigate for the Royal Navy and is also supporting programmes in Poland and Indonesia to build vessels based on the same design.
Babcock said in April it would reinstate its payout to shareholders after a period of extensive restructuring and on Tuesday declared it would pay out an interim dividend of 1.7p per share, to be paid in January.
The company reported a 27 per cent rise in underlying operating profit for the six months to the end of September of £154mn, boosted by the receipt of earlier than expected licence fee income from Poland in relation to the frigate programme.
Revenues over the period rose 2 per cent to £2.17bn. Underlying free cash flow was £67mn. The company reported lower net debt of £493mn driven by positive cash flow and giving it a net debt to earnings ratio of 1.1 times.
Babcock said it was on track to meet its full-year target for organic revenue growth and underlying operating margin expansion.
Its shares, which have risen 42 per cent since the start of the year, were up 2 per cent to 418p in early morning trading.