However, the MoU will not dent Babcock’s revenue and profits, the company said.
The company said that it has been involved in a series of discussions with key customers at the Ministry of Defence (MoD) and with the Cabinet Office ever since the coalition government began its cost cutting efforts.
Babcock said: “As part of these discussions, using our experience of working with the Armed Forces and other public bodies, we have agreed additional savings on existing contracts, as well as areas for potential future savings. Discussions with the Cabinet Office have now been concluded positively and we have signed a Memorandum of Understanding (MoU) to progress these initiatives. The MoU has had no net impact on the group's financial expectations.”
In a pre-closing statement to shareholders this morning (29 March) Babcock announced that its business continues to be stable, with its divisions experiencing no significant changes to market conditions.
All major contracts continue to perform well, it said, while cash generation throughout the year has been strong and used to pay down debt.
Since the completion of the VT acquisition in July, the order book for the combined group has been stable at around £12bn, reflecting a steady inflow of new contracts, rebids and contract extensions from the bid pipeline.
During the first half of the year, there was some slowing in the number of new contracts coming out to tender, but this trend started reversed in the second half of the year, Babcock said. In just the past two months, the pipeline of bids at PQQ or ITT stage currently has increased from £6bn to £7bn. Since the award of the five-year €200m British Forces Germany facilities management contract announced in February, Babcock has also been down-selected by the MoD as the sole industry bidder for the 10-year £300m Maritime Equipment Transformation (MET) programme.
“As new outsourcing opportunities are created, the breadth of our capabilities and track record of delivering both operational and financial efficiencies will place us in a strong position from which to benefit,” the company said.
“The board remains confident in the outlook for the group. We have excellent long-term visibility of future revenue streams from a strong order book, a growing bid pipeline and our involvement in long-term programmes delivering critical support for our customers.”
Babcock will announce full year results on 17 May 2011.
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