A perfect storm, but turnaround plans afoot
The early termination of the HIOS contract with the UK MoD cast a long shadow across the remainder of the Group. Despite the best efforts of Group Property and Advanced Composites, revenues and profitability declined in the prior financial year. Unfortunately, cash levels also fell, reflecting delays in the sale of the UK C-130 fleet and compounding issues on legacy contracts at Land Systems. As a result, the Board is not recommending a final dividend. Changes in management reflect a shift in focus, and a strategic review process is underway.Kathy Jenkins stepped down at the end of May from the CEO role, having served the Group for seven years, latterly as COO then CEO. She has been replaced by the Interim Chair, Roger Hardy, who assumes an Executive role. Roger has extensive expertise within the defence sector, holding several senior positions within Babcock International.
The reduction in profitability, with losses across the three largest engineering businesses, has led to a material reduction in cash levels. Major factors in the decline were i) the timing of the disposal of the UK C-130 fleet which has been heavily delayed and ii) further problems emerging on Land Systems’ legacy contracts. Now the focus of future value creation has shifted in favour of Group Property and the potential plans for Cambridge East and the current Marleigh development.
To indicate value we still use an estimated NAV, taking the level at end December ’23 minus the likely H1 ’24 cash outflow. On this basis, our fair value/share declines to 432p. This could prove conservative, given that the Airport land is included at cost and was purchased some 90 years ago.
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