Babcock Profit Rises as Nuclear Sales Expansion Bolsters Defense

Babcock International Group Plc (BAB), the engineering company helping design the U.K.’s future submarines, said full-year operating profit rose 14 percent on overseas defense sales and nuclear-energy activities.

“Nuclear is becoming a significant business,” Chief Executive Officer Peter Rogers said in an interview. “In addition, even in the defense world, we are growing pretty rapidly overseas.”

Babcock’s civil nuclear activities include dismantling and decontaminating existing plants as it pursues work on new reactors with partners such as Electricite de France SA (EDF) and Hitachi Ltd. (6501)

The company’s shares rose as much as 4.5 percent, the steepest intraday gain since Oct. 2, and were trading 3.8 percent higher at 1,130 pence as of 9:43 a.m. in London. Adjusted operating profit rose to 376.6 million pounds in the 12 months through March and its bid pipeline, a measure of potential future business, advanced 63 percent to 15.5 billion pounds, Babcock said.

The London-based company has been looking to grow in markets such as Australia, the Middle East, and Brazil to win defense service business to help offset lower volumes in the U.K. It also has bet on expanding non-military work through its training and nuclear energy work.

‘Hotting Up’

“The business is growing well,” wrote Joe Brent, a London-based analyst at Liberum Capital with a hold recommendation on the share. “Nuclear is hotting up.”

U.K. defense business, which recently accounted for 65 percent of sales, is now just above 50 percent and will drop to less than half of revenue in the medium-term, Rogers said. New contracts in the U.K. have meant the switch in business mix has been slower to materialize than expected, he said.

The company also is seeing its first contract wins in the Middle East in training and education and military activities, Rogers said.

Babcock ended March with a 12 billion-pound backlog, 8 percent below last year’s level. Rogers said bureaucratic delays on two U.K. defense contracts led to the dip. “Both of which will come home,” he said.

Babcock also had to contend with a decline in the South African rand in the past year which erased around 17 percent in sales growth for its infrastructure and energy project activities in the country, Chief Financial Officer Bill Tame said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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