March 27, 2017 / 9:48 AM / 4 months ago

Babcock agrees termination of UK nuclear decommissioning deal

2 Min Read

(Reuters) - Babcock International (BAB.L) reached a deal with Britain's Nuclear Decommissioning Authority (NDA) on Monday to end a contract to clean up 12 Magnox nuclear sites, pulling 800 million pounds ($1.01 billion) from Babcock's order book.

The British engineering outsourcer said the contract will be scrapped at the end of August 2019 because the amount of work needed to decommission the sites is "materially different" from that specified in NDA's 2012 tender.

That mismatch puts the contract at risk of a legal challenge, it said.

In response British energy secretary Greg Clark announced an inquiry, led by the former Chief Executive of National Grid (NG.L) Steve Holliday, into the NDA's tender process.

The inquiry will examine the conduct of the 2012 procurement process by the NDA as well as the reasons why the 2014 award to a joint venture led by Babcock International proved unsustainable, Clark said.

Under these new terms, the Cavendish Flour Group -- in which Babcock has a 65 percent stake -- will now hold the Magnox contract for five years instead of the 14 initially envisaged to decommission the UK's first fleet of nuclear power stations.

Before it expires, the NDA will arrange for a replacement contract to pick up from where the existing one ends, Clark said.

The move reduces Babcock's annual revenue by 100 million pounds from financial year 2020/2021, or less than two percent of group revenue, but the group said it would expect to replace lost revenue over that time frame with new contracts.

The company's order book stands at 20 billion pounds, it said, cautioning investors not to expect any change in financial guidance due at the firm's full-year results in May.

Shares in Babcock were down 3 percent at 889 pounds by 0917 GMT, while the FTSE 100 .FTSE was down by just 0.7 percent.

($1 = 0.7952 pounds)

Reporting by Oleg Vukmanovic and Bengaluru Newsroom; Editing by Edmund Blair

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