UK engineering company Babcock confirmed this week that it has struck a deal with the Australian navy worth A$1.5billion to provide a range of services in an agreement that will span the next 15 years.
The Australian Defense Force (ADF) awarded the contract to a partnership between Babcock and UGL called Naval Ship Management (NSM), and equity in the agreement will be split half and half.
Babcock, based mainly in the UK, has ties in many projects worldwide but has hit rocky waters in the last couple of years. Dwindling demand for shipbuilding in some areas has seen the company sell off assets, and it has also struggled to deal with the changing complexities presented by an oil and gas market in somewhat of a transition.
Securing this contract alongside UGL is likely to do Babcock wonders in terms of persuading investors that it is worth infusing more capital. The company is looking to increase its liquidity to take on more projects such as the one with the ADF.
NSM will be providing the ADF with support services to keep their largest vessels afloat for the long term. These consist of two Canberra Class Helicopter Landing Docks and the 12 amphibious vehicles that come with them.
Babcock CEO Archie Bethel said that the project will allow the company to ‘apply Babcock’s digitally enabled asset management capabilities to support this strategically important capability over the next decade and beyond.’
This follows the company’s recent deal with Canada, the first of its kind to take place outside of Europe. Through this agreement, Babcock will be providing expertise on aerial firefighting.
Manitoba’s state government confirmed that it enlisted Babcock’s services to help suppress wildfire damage, which has made world news recently after the US state of California found itself dealing with wildfires that claimed hundreds of lives.
Babcock has been trying to overhaul its product offering in the last few years, but this has taken a toll on its share price, which plummeted after the company announced that half-year profits would fall by 64%. This saw a run on shares from which Babcock has yet to recover, but it hopes that by carving out a new path and securing new long-term projects, it can once again convince investors that it is going to see positive returns.
The company’s pre-tax profits fell from £181.9m (A$315m) in the half-year to September 2017 to just £65.1m (A$113m) this year. It also saw the effects of a £120m (A$208m) charge that it had to account for when restructuring its oil and gas assets.
Babcock has also recently reduced its forecasted profits for next year based on the end of a UK contract for decommissioning Magnox nuclear sites, which is not likely to renew. This means that it will see a dip in income after the contract ends in August 2019, which will affect its September earnings.
The company has also found itself in the spotlight after receiving heavy criticism in a research paper from a mystery investor known only as Boatman Capital. Activist investors have a habit of trying to influence the direction of a company from its shareholdings, but some are able to weather the storm better than others. The way out for Babcock looks as though it will take longer than the company would prefer.