Under-fire defence contractor Babcock International Group PLC (LON:BAB) has taken a one-off hit of £120mln as part of efforts to reshape its oil and gas business, although it said cash costs would be “minimal”.
The company, which has a range of contracts with the Ministry of Defence such as maintaining Britain’s warships, has come under pressure in recent weeks after a shadowy research group called Boatman Capital which claimed management was simply “not up to the job”.
READ: Babcock slams “malicious” research report
Babcock saw pre-tax profits plunge by almost two-thirds to £65.1mln (H1 17: £181.9mln) in the six months ended September 30.
That was largely down to the hefty write-down, which had been flagged by Sky News earlier in the week. The net cash costs of that are likely to be around £10mln.
Revenue also fell, albeit not as sharply, by 2.7% to £2.25bn (H1 17: £2.32bn).
Still, the interim dividend was lifted by almost 4% to 7.1p (H1 17: 6.85p).
Nuclear guidance slashed
But looking further ahead, Babcock slashed the amount of revenue and profit it expects to generate from its contract to decommission Magnox nuclear sites.
It had previously expected a drop-off in revenue of around £100mln in the 2019-20 financial year but reckons this figure will now be closer to £250mln, while profits are expected to fall by £20mln.
Babcock said Britain’s Nuclear Decommissioning Authority (NDA) procurement strategy would be “insufficiently advanced for us to assume any additional revenue” after August 2019, when its Magnox decommissioning contract comes to an end.
‘Actions will strengthen firm in long-run’
“We are taking actions necessary to further improve the quality of our earnings and our returns to shareholders,” said chief executive Archie Bethel.
“That is why we are exiting low-margin businesses, restructuring in areas and combating the overcapacity in our Oil and Gas helicopter services business. These actions, with minimal cash costs, will strengthen the business going forward.
“Additionally, as a result of the Nuclear Decommissioning Authority's timing, we are re-setting our expectations for Magnox.”
Shares dived another 10% to 534.6p on Wednesday morning. They are down more than 17% for the year so far, versus a loss of 11% for the wider FTSE 100.