(Sharecast News) - Babcock said on Tuesday that it would not be paying a final dividend for the year ended 31 March, as revenue and profits remained weaker in the first quarter of the new financial year.
The FTSE 250 company said underlying revenue for the first quarter was 11% lower year-on-year, reflecting the absence of Magnox revenue and weakness in its land adjacent market short cycle businesses, including South Africa.
Group revenue from the core business grew slightly, the board claimed, demonstrating the "high level of continuing work" across the majority of its business.
Babcock said safety constraints on proximity working had a significant impact on costs and efficiency, directly impacting its margins and profitability.
Those include restricted access to customer sites, complex safety measures, reduced numbers of staff on site, changed shift patterns, and additional costs, leading to slower progress on some work streams, which impacted margins on some of the company's long term contracts in the quarter.
Underlying operating profit for the first quarter was about 40% lower than last year, with around half of that profit reduction due to lower levels of productivity in the core business, while Magnox, South Africa and land adjacent market businesses account for the other half.
Order intake in the quarter was £0.7bn, and in July the firm secured around £500m of new contracts in its aviation business, helped by the delays in bid decisions beginning to clear.
The company said it made progress on its cash performance, with the receivables outstanding at 31 March now collected, and its working capital position at 30 June better than it was a year earlier.
Babcock said its "substantial" long term order book and "strong" liquidity position underpinned its confidence in navigating the short-term financial impacts of Covid-19, while safeguarding its key capabilities for the future.
The company said that, as it progressed through the year, assuming it is able to make steady progress without further major setbacks from Covid-19, it was expecting to see a gradual improvement in group performance from the 40% reduction in operating profit in the first quarter.
As with previous years, performance for the year was expected to be weighted to the second half.
Babcock said that, after careful consideration, it had made an "exceptional decision" not to pay a final dividend for the financial year ended 31 March, given the continued uncertainty around the outturn for the current financial year.
That, it said, supported its strategy of continuing to reduce net debt, and was described as "appropriate" given its limited use of the UK government's Coronavirus Job Retention Scheme.
The board said it recognised the importance of dividends to shareholders, and would resume dividend payments "at the earliest opportunity".
Babcock said that during the period, it repaid its revolving credit facility and extended its term by a year.
The facility of up to £775m would now expire in August 2025, and in total, the group said it has access to around £2.4bn of borrowings and facilities of mostly long-term maturities.
Assuming a gradual improvement in performance, as well as cash mitigation measures including reducing capital expenditure and accelerating aircraft fleet rationalisation, it aimed to end the financial year with a net debt-to-EBITDA ratio of around 2x, which the board said would be "well within" the company's covenant levels of 3.5x.
"We continue to deliver critical programmes for our customers but our financial performance is being impacted by the challenges created by Covid-19," said chair Ruth Cairnie.
"Given the continued uncertainty over the impacts of the pandemic, we are not giving detailed financial guidance for the year at this stage.
"The board has decided not to pay the final dividend for the 2020 financial year in order to prioritise strengthening our balance sheet and reducing net debt."
Cairnie said Babcock's experience of the pandemic thus far had demonstrated that the foundations of the business, being long-term programmes in critical and non-discretionary areas, provided a "solid platform" for delivery in the medium term.
"David Lockwood will join the board on 17 August as CEO-designate and replace Archie Bethel as CEO on 14 September," Cairnie noted.
"Franco Martinelli has informed the board of his intention to retire and a search will be initiated for a new group finance director."
At 1916 BST, shares in Babcock International Group were down 13.11% at 251.9p.
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