A tough approach to a thorny problem paid off in a big way last week for Babcock International. Just four years after taking the helm, chief executive Dr John Parker was able to point to a massive recovery in profits as evidence that his hefty restructuring programme has finally paid off.
Parker, whose previous life included stints in the shipbuilding industry at Harland and Woolf, has turned Babcock from a business that was haemorrhaging cash into a highly cash-generative company.
With the latest set of results Parker has accomplished what many thought impossible when he started work at Babcock. A large, sprawling industrial outfit which was highly exposed to several low-value contracting operations has now been transformed into a smaller rump of highly-profitable, cash-generative engineering activities.
There are still some clouds on the horizon in the form of Babcock’s continued exposure to market downturns in Africa and Asia, but these are minor when set against the depth of the group’s difficulties just three years ago.
Babcock now provides a range of engineering support services to the defence, rail, marine and secure facilities sectors.
Recent high-profile contracts include naval ship and nuclear submarine refitting, including HMS Ark Royal and HMS Spartan – work worth about £200m.
The success is underlined by a cash pile of £81m which will stand it in good stead as it moves to the next stage of Parker’s recovery programme: targeted acquisitions.
With a moderate increase in gearing, the ungeared balance sheet should easily stand acquisitions of up to £150m.
But Parker, who has overseen the disposal of numerous operations, is determined that future deals will not dilute the good work achieved so far.
Although Babcock operates in the facilities management industry, it is no bit-part player.
`I do not want us to be in the low-end FM business, driving vans around with a couple of lawnmowers in the back,’ Parker remarked drily last week.
Work such as the management of the nuclear weapons establishment at Aldermaston, unthinkable three years ago, features in several defence-related contracts Babcock is bidding for.
These are now central to Babcock’s future – and helped profits in the engineering services division by 28% last year. Babcock, once a by-word for engineering strife, is back in the fast lane.