Revenue graphs for Babcock and Cobham

Defence-dependent firms set out survival strategies

US defence cuts continue to bite at several UK companies, while sluggish European markets hit jobs at a major industrial firm.

Government spending cuts in Europe and the US are producing mixed fortunes for leading aerospace and defence companies. One, engineering support services group Babcock International, seems to be turning the public sector cost reductions to its advantage. It recently posted a 17 per cent hike in half-year profits to £141.7m, on the back of a 9 per cent rise in revenues to £1.7bn. Babcock, whose activities range from submarine maintenance to airport baggage handling, is benefiting from companies turning to outsourcing to cut costs. The group also sees opportunities arising from new nuclear power stations in Britain.

Meanwhile, the company is in talks about a joint venture with Avincis Group, which provides helicopter services for mission-critical operations. That would help its strategy of growing beyond the UK. But discussions are still at an early stage.

In contrast to Babcock, defence group Chemring said that its order book figure of £702m at the end of October - the close of its financial year - was 8 per cent down on a year ago. The group reported that annual revenue is expected to come in at around £625m, compared with £740m in the year to end-October 2012. The company said its focus in coming years would be on the Nato markets, and it was moving ahead with plans to divest some of its business units.

Washington spending cuts continue to take their toll on Cobham, which relies on the US defence and security sector for over a third of its revenue. The avionics and communications specialist announced that it now expected to return to growth in 2015, a year later than previously predicted. However, its business in commercial markets - also accounting for one-third of group revenue - has seen growth.

Qinetiq saw its half-year profits to end-September 2013 dive 40 per cent to £52m. But the former UK Ministry of Defence research body said that while it too had been hit by the shrinking US market, it enjoyed a “robust” performance in EMEA (Europe, Middle East, Africa) and it expected to see a “sustainable increase in earnings” in the coming year.

The company’s share price rose 7 per cent after the half-year results posting, despite the plunge in profits. The group remains confident in the performance of its core activities and new opportunities for growth, according to chief executive Leo Quinn.

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