Babcock wins £2.5bn boost from MoD after VT merger

BABCOCK International will receive a £2.5 billion boost to its order book after agreeing a 15-year renewal of its deal to provide support services to the Ministry of Defence.

The contract, which runs from 2010 until 2025, guarantees Babcock's role as the UK's leading industrial partner for submarine support, maintenance and decommissioning. The agreement will increase the engineering giant's order book to 8.5bn.

Archie Bethel, chief executive of Babcock Marine, said the deal would allow the company to plan and invest for the future. The agreement includes provisions to deliver cost savings of at least 1.2bn to the MoD. Any cost savings beyond that will be split between the two.

"The Babcock operations in Devonport, Clyde, Rosyth and Bristol will play key roles in support of the existing Royal Navy fleet of submarines and ships," the company said. "We are also making major contributions to the development of new naval platforms including the Queen Elizabeth class aircraft carriers, the future surface combatant and the future deterrent submarine."

The signing of the agreement with the MoD came in the wake of Babcock's successful acquisition of rival defence services specialist VT group earlier this week. The two announced on Tuesday that they had agreed terms of a 1.3bn cash-and-shares merger. .

The boost to Babcock's order book does not include any future refit work, which is subject to individual valuation at the time of award. Shares in Babcock closed 5p higher yesterday at 572p.