YESTERDAY'S Cabinet changes contained one positive factor for Babcock
International in that Defence Secretary Malcolm Rifkind remains
ensconced and so will be able within the next three weeks to give the
decision on the submarine refit contracts which are essential to the
future of the Rosyth Dockyard -- and to rival bidder Devonport.
The company was pushing home the message that whoever wins the
#100m-a-year submarine contract will inevitably end up with the surface
business in due course. Some 3800 direct jobs would be at risk in the
Rosyth area.
Thorn-EMI is looking for a buyer for its 35% stake with talks
currently taking place with GEC although Babcock has pre-emption rights.
Fortunately, there is an increasing amount of commercial work with an
overall order book of #286m out of the group total as at end-March of
#733m, up 32%.
Not that Rosyth was a major money-spinner for Babcock with its
contributing about #4m pre-tax last year out of total profits slumping
from #56m to #21.1m. However, the latest group figures were depressed by
a #13m reorganisation charge whereas the 1991-92 result was boosted by
the release of a #6m provision.
Retrenchment at Renfrew is costing #8m as just over a quarter of
employees are made redundant as Babcock Energy now has to concentrate
upon exports for its future. Divisional profits halved to #8.75m with
the Renfrew contribution being around #2m.
The downturn was exacerbated by a #6.2m provision on the #30m contract
for the Killingholme power station on the Humber. The problem was
essentially that of prime contractor Siemens being subjected to
continual changes called for by PowerGen.
Changes in Government policy towards UK power generation for over two
decades has been highly destructive whether it be in the 1970's
indecision as to the type of nuclear reactor and in the 1986 the
planning of 900MW of coal-fired capacity which was cancelled in 1989,
while more recently the Orimulsion oil/coal fuel has effectively been
put on hold.
So Babcock claims it has no alternative but to concentrate on overseas
business.
Group turnover dropped 10% to #748m largely reflecting a downturn in
Africa partially offset by an increase in materials handling which is
now the most profitable group segment thanks in part to the contribution
from the Consilium ship-handling acquisition.
Acting chief executive Jeff Whalley expects that his replacement will
be announced by July -- predecessor Oliver Whitehead's compensation is
thought to be very substantial.
The dividend total has been reduced from 3.15p to 2.1p with a 1.1p
final for a 7.6% yield with the shares at 34[1/2]p. Current year profits
should show a marginal recovery to about #37m after adding back the
exceptional charge to leave the stock trading at just over eight times
earnings. It is going to be a long, slow haul.
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