Defense and aerospace giant Babcock International Group Plc has warned that the amount of cash at its disposal this year is expected to be “significantly negative” due to rising costs and expenses.
The FTSE-250 company, which operates the huge Devonport shipyard in Plymouth, said free cash flow – the amount of cash available to pay things such as creditors and dividends – has been hit by the surge in spending arrow.
In a statement to investors, it cited additional pension contributions, restructuring costs and investments in IT facilities and upgrades as drains on its cash flow.
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Negative free cash flow can sometimes be seen as a warning to business owners about a company’s financial health and ability to service debt, but Babcock had previously warned of this possibility when publishing his half-year results in December 2021.
These showed it had made a statutory operating profit of £75.4million from a loss of £785.3million the previous year, and revenue jumped to £2.223billion sterling compared to £2.054 billion in the same period of 2020.
And now Babcock has moved to reassure investors that trading for the first 10 months of its financial year has remained in line with expectations and its outlook for the full year remains unchanged.
In a business update for the 10 months to January 31, 2022, Babcock stressed that it continues to manage costs associated with Covid-19, continued inflation and supply chain pressures.
He said a new operating model is on track to deliver savings of around £20m this financial year.
The company also highlighted that it has continued to make progress on strategic priorities, including portfolio alignment.
The company has been working on a turnaround plan to streamline the group and deal with losses suffered during the Covid pandemic, which involved selling off some of its businesses to raise a target of £400m.
Babcock completed the sale of its UK Power business in December for gross proceeds of £50m and its 15.4% stake in AirTanker Holdings Ltd in February for £95m.
This is the fourth disposal completed in the current financial year, bringing the gross proceeds generated to £448m, above the targeted minimum of £400m required to strengthen the balance sheet.
Earlier in February, Babcock entered into a put and purchase agreement to acquire the remaining 50% stake in its Australian Naval Ship Management (NSM) joint venture for around £32 million.
“The acquisition, in one of the group’s target countries, will allow the group to further strengthen its support to the Australian Defense Force,” a company statement said.
He added: “The group’s overall trading for the first ten months to January 31, 2022 was in line with expectations. The group’s results are weighted for the fourth quarter and, based on current projections, our outlook for the full year is unchanged.
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