EDINBURGH (Reuters) - British engineer Babcock (BAB.L) will take a charge of 120 million pounds to shrink parts of its business after it warned that income from nuclear decommissioning would fall sharply next year, sending its shares tumbling.
Babcock, a key partner of Britain’s Ministry of Defence (MoD), has come under intense scrutiny in recent weeks after an anonymous research group questioned the management of its business, meaning its results had been highly anticipated.
On Wednesday the group said the exceptional charge would cover the closure of a shipyard and the restructuring of its Oil and Gas business, including the sale of helicopters facing less demand for transporting workers to offshore platforms.
Analysts said the first-half results were broadly in line with forecasts but the cut to future revenue and profit from decommissioning Magnox nuclear sites led to 2019/20 downgrades.
Its shares were down 10 percent, taking the stock down 36 percent since June and to its lowest level in seven years.
For Magnox sites, it now sees a drop in revenue of 250 million pounds in the 2019/20 year, compared with a previous expectation of a drop of around 100 million pounds, and an operating profit shortfall of 20 million pounds.
“We do believe we will continue to be a major supplier to Magnox, but ... they are changing their procedures and we have taken a prudent view,” CEO Archie Bethel told Reuters.
Tracing its history back to 1891, Babcock employs more than 34,000 people to maintain Britain’s nuclear submarines, manage army equipment from small arms to battle tanks and provide helicopter rescue and firefighting services.
Its oil and gas business transports passengers to platforms in the North Sea and other destinations.
The group reported a 2.3 percent drop in first-half revenue to 2.58 billion pounds while operating profit rose 1.4 percent to 280 million pounds. It left its full year to March 2019 guidance unchanged.
Bethel, chief executive since September 2016, told Reuters the company was frustrated by the research report put out by a group calling itself Boatman Capital Research.
He said the most “damaging” accusation was that its relationship with the MoD was bad which was “simply not true”.
“Our relationship (with the MoD) is much as its always been: robust, frank... and enduring,” Bethel told analysts, adding that it had recently signed a cooperation agreement with the government department on how they work together.
The company stuck to guidance for this year for low single digit underlying organic revenue growth based on a strong pipeline of work.
Reporting by Elisabeth O'Leary; editing by Kate Holton and Alexandra Hudson