Babcock's rail division runs into ВЈ6m operating loss

Babcock International might have had a grand time last year when looked at overall but its rail division was in turmoil – running up an operating loss of more than £6m on turnover of £230m.

The previous year was hardly fantastic – with a similar turnover in rail generating an operating profit of just £500,000.

Babcock’s latest financial figures published today cover the 12 months to 31 March.

The insight offered into the group’s rail business reports: “The division has focused on recovery and delivering financial improvements.

“We continue to manage out a number of underperforming multi-disciplinary projects that have had an adverse impact on our performance.
 
“Our effort is now on using our expertise to secure track renewal, power and signalling contracts efficiently to ensure the division delivers acceptable levels of return.

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“Our track, signalling and telecommunication framework contracts provide a steady flow of profitable work.

“Network Rail is seeking to reduce volumes placed through existing track renewal frameworks and increase work placed through track enhancement frameworks. We are one of seven qualified contractors for these enhancement works, valued in excess of £100m over five years.”
 
Building on a five-year partnership with Swietelsky for high-output track renewals, the Swietelsky Babcock Rail (SB Rail) joint venture has submitted a tender for the high-output track renewals framework contract currently valued in excess of ВЈ500m over five years.

The name of the successful contractor should be known in June/July with work expected to start in September 2009.

“Despite a 30% reduction in Network Rail's track renewal budget we believe there are a number of opportunities for the division to benefit from growth in track enhancement projects and high output track renewal as well as other framework opportunities,” says Babcock.

Nuclear
Babcock’s nuclear division made an operating profit of £13m on turnover of £110m.

Networks
There was an operating profit of ВЈ7m on turnover of ВЈ120m.

The division has achieved major contract wins in the transmission business and continued growth in the National Grid Electricity Alliance contract (a joint venture with AMEC).

Long-term alliance partnering has helped insulate the division from some market volatility and provide greater visibility and increased work streams, although this is at a slightly reduced operating margin.

Margins were also impacted by start up losses in the Irish telecoms business.

Both the National Grid and EDF Energy Networks Alliances have had successful second years, delivering “strong volumes” with notable improvements in efficiency, innovation and safety performance. 

Specialist transmission design activities again increased throughout the year. Sustained recruitment for both our London and Sofia offices helped the design function respond to the increasing business needs.

The division's communication business successfully completed its first fixed line communication network contract and there have been consistent work loads throughout the year.

“We are now established in this market with a strong pipeline of further opportunities,” said Babcock.
 
Digital Switchover work has provided a steady revenue stream. Following the acquisition of National Grid Wireless by Arqiva, Babcock now works with a single customer who is responsible for the entire new network being built for the UK Digital Switchover programme. 
 
The group made an overall pre-tax profit of ВЈ110m on turnover running to ВЈ1.9bn.