Babcock, a leading defence engineering company, released their fiscal year financials for 2024 in which they accounted an 11% increase in organic growth.
Each year the company selects a theme for their annual report and 2024 honed in on ‘purpose’, or as Babcock put it more meaningfully, “What we do matters.” This focus demonstrates how Babcock is responding to the recent growth in military demand in a more uncertain world, from the war in Ukraine to adversarial postures in the Indo Pacific.
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However, this newfound demand far exceeds what governments appear to be willing to spend on defence, agreed the company Chair, Ruth Cairnie, and CEO, David Lockwood.
“The growth in defence budgets is still not matched by the growth in military demand, making Babcock’s ability to affordably add increased value, essential,” Lockwood maintained in his review.
“Additionally, the threats that governments face are here today, while typically new product development programmes take years to deliver. Increasing availability and capability with existing assets have become ever more important.”
UK Defence struggles to reach 2.5% target
Pending a thorough Defence Strategic Review, the third of its kind in the last five years, the new Labour government will lay to bare its “root and branch” assessment of policy and capability before the end of the first half of next year.
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By GlobalDataThis much-anticipated document will determine the government’s priorities going into a contentious period in world affairs.
Ahead of that though, the Minister for the Armed Forces, Luke Pollard, revealed that a roadmap for the government’s plan to spend 2.5% of the country’s gross domestic product (GDP) on defence will be revealed in a Treasury speech due to be given by the Chancellor, Rachel Reeves, in the autumn period.
At the moment, the latest figures tell us that the UK spent 2.3% of GDP on defence last year.
While the government nears its target, some commentators have urged allocating a larger portion than that, perhaps 3%, bringing UK Defence up to the leading spending standard of fellow Nato members, Poland and the US.
However, as necessary as the suggestion may be, this seems unlikely given Reeves’ account of the public finances in a speech to Parliament this week (29 July 2024). Citing an audit that began when the Labour Party came to government, the Chancellor claimed that the former Conservative administration accrued a projected overspend of £22bn, which she added included unfunded military aid to Ukraine.
“Threats are here today”
Nonetheless, Babcock was able to report organic revenue growth of £4.3bn driven, largely, by its Nuclear (+29%) and Land (+17%) services, which the company says offset an expected revenue decline in Aviation (-17%).
Furthermore, within the underlying operating profit there was a £90m loss on the Type 31 contract (FY23: £100m loss), as set out in an update on 17 July.
Despite the growth this year, Lockwood added that Babcock must also think about delivering orders going forward.
“The threats that governments face are here today, while typically new product development programmes take years to deliver. Increasing availability and capability with existing assets have become ever more important.”
One well-regarded airpower academic, Justin Bronk, with the Royal United Services Institute, painted a sobering picture of Britain’s warpath in the coming years:
“We need to be ready by 2028 to war fight against the Russians because we may not have a choice about it.”
This examination of the Russian threat perception as an imminent crisis has led to a corollary that services do not have the time to buy new platforms; that only so much can be prepared in such a short amount of time.
