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BAB - Babcock International News Story

225.4p 11.0  5.1%

Last Trade - 4:35pm

Sector
Industrials
Size
Mid Cap
Market Cap £1.08bn
Enterprise Value £2.87bn
Revenue £4.45bn
Position in Universe 357th / 1807

INTERVIEW-Babcock CEO sees pressure for more defence spending

Tue 7th March, 2017 12:34pm
By Elisabeth O'Leary 
    EDINBURGH, March 7 (Reuters) - British engineering 
outsourcer Babcock  BAB.L  expects to benefit from U.S. 
President Donald Trump's demand that NATO members spend more on 
defence, helping it to avoid the turmoil hitting peers who are 
winning fewer contracts after Brexit.  
    Chief Executive Archie Bethel said Babcock, which maintains 
Britain's nuclear submarines, had not seen any delay in 
contracts after last year's vote to leave the European Union, 
and expected the election of Trump to boost defence spending.  
    "The benefit we have is that the bulk of our business, 40 
percent, is with the (UK) ministry of defence and that is the 
one department that is unaffected by Brexit," Bethel told 
Reuters.  
    "No one is talking about leaving NATO (North Atlantic Treaty 
Organisation) and in fact they are getting pressure from the 
Americans, the main member, to increase the defence spend, not 
decrease it."  
    Britain's outsourcing market, the second biggest in the 
world behind the United States, has been hit in recent months by 
clients in the private and public sector delaying new spending 
decisions, leading to profit warnings from the likes of Capita 
 CPI.L  and Mitie  MTO.L  who provide a wide range of 
administrative services.  
    Babcock offers engineering and technology-related services 
to the defence, energy, emergency services, transport and 
education sectors, and more than three quarter of its revenue 
comes from the UK. Revenue is predicted at 4.8 billion pounds  
($5.85 billion) in the year to March 2017, according to Reuters 
estimates. 
    The company is gradually increasing the share of its revenue 
that comes from abroad, but Bethel said the group was not 
looking to ramp that up more aggressively than already stated, 
despite the uncertainty sparked by Brexit.  urn:newsml:reuters.com:*:nL8N1DN1QO 
    Babcock said last week it had entered the fourth quarter 
with its order book and bid pipeline maintained at its half-year 
level of 30.8 billion pounds. 
    Debt, forecast to fall to 1.8 percent times earnings before 
interest, taxes, depreciation and amortisation for 2018 and 
roughly 1.5 times next year from around two times now, was on 
the right track, Bethel said, adding it was too soon to talk 
about returning cash to shareholders. 
    Acquisitions had to be the exact fit for a company which he 
said had rejected about 20 potential purchases in the last year. 
    "There's no doubt that if the growth (of the market) slows 
we'll produce cash, that's what happens, and if the acquisitions 
that suit us aren't there then paying back cash to shareholders 
is one way of doing it. 
    "But we're not there yet."  
($1 = 0.8203 pounds) 
 
 (Reporting by Elisabeth O'Leary; editing by Susan Thomas) 
 ((elizabeth.oleary@tr.com; +44 131 248 9208; Reuters Messaging: 
elizabeth.oleary.thomsonreuters.com@reuters.net)) 
 
Keywords: BRITAIN BABCOCK/
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