Babcock strikes £864m Australian navy deal

Naval Ship Management, a 50/50 joint venture between Babcock and UGL, has been awarded a 15-year deal by the Australian Defence Force.

The entity will provide support services to the largest vessels in the Royal Australian Navy – two flagship Canberra Class Landing Helicopter Docks (LHD) and their 12 associated amphibious landing crafts.

The joint venture will begin the work to sustain and support these critical vessels in July 2019.

Babcock includes the Defence Support Group operation at MoD Donnington, in Telford, and the former Macneillie specialist vehicle conversions business at Aldridge near Walsall, now renamed Babcock Vehicle Engineering.

The award builds on Babcock's long standing relationship with the Australian Defence Force. NSM provides sustainment support to the Royal Australian Navy's fleet of ANZAC class frigates through to the end of their life. Babcock also supports the Australian Defence Force's ground support equipment.

"We are delighted to have been chosen for this strategically important role which builds on our existing relationship with the Australian Defence Force," said Babcock chief executive Archie Bethel.

"Through NSM we will apply Babcock's digitally enabled asset management capabilities to support this strategically important capability over the next decade and beyond."

It comes after Babcock also recently won a £100 million aerial firefighting services contract in Canada, the first such deal the firm has struck outside Europe.

The FTSE 250 company was awarded the Wildfire Suppression Services contract by the government of Manitoba.

The deals come at a sensitive time for the firm, which last month revealed a 64 per cent plunge in half-year profits after charges linked to its overhaul.

Shares tanked after the group – the Ministry of Defence's second largest contractor – reported pre-tax profits falling to £65.1 million in the six months to September 30, down from £181.9 million a year earlier.

Profits were pushed lower by a £120 million charge related to the restructuring of its oil and gas business and also including costs such as its decision to sell the Appledore shipyard in Devon.

Babcock also worried investors as it cut its 2019-20 guidance for revenue from its joint venture for decommissioning of Magnox nuclear sites in the UK.

The contract is due to end in August 2019 and Babcock does not now expect any additional revenue after that date.

The results followed a torrid time for Babcock shares, which have been sent tumbling after a highly critical research paper posted last month by a mystery analyst called Boatman Capital.