(Alliance News) - Defence firm Babcock International Group PLC on Wednesday edged its profit guidance slightly lower, and added it expects a GBP85 million one-off hit from its oil and gas business.
The oil and gas unit is part of Babcock's Aviation division, which it announced it would restructure "in response to current trading".
For the year ending March, the company now expects underlying operating profit at around GBP540 million, which would represent an 8.2% decline from GBP588.4 million the year prior. Babcock's previous guidance for financial 2020 was for operating profit in the range of GBP540 million and GBP560 million.
The company held its forecast for underlying revenue of roughly GBP4.9 billion, which would reflect a 5.1% year-on-year retreat from GBP5.16 billion.
Free cash flow is still forecast at GBP250 million and the net debt is also expected to be reduced, Babcock added.
Underlying earnings per share are expected to meet analyst forecasts which range between 71.1 pence to 71.4 pence. This would represent a year-on-year fall as high as 15% from 84.0p.
The company added that its order book and pipeline is at a record level of GBP34 billion.
In its Aviation unit, Babcock said it restructuring "to ensure we remain on track to deliver for the medium term".
Trading in the Aviation unit during the first nine months of Babcock's financial year was mixed, with challenges in southern Europe and in the oil and gas business offsetting "good performances" in the UK and internationally.
"There have been delays in the award of new contracts for aerial emergency services in Italy and Spain. Since then, we have won or been selected as preferred bidder for contracts worth around GBP600 million but the delays have pushed revenue into future periods," Babcock said.
The company added: "Oil and gas continues to be a tough market. The three large providers of helicopter services who operate worldwide in oil and gas have all emerged from Chapter 11 bankruptcy protection with reduced debt and written-down assets. This has effectively reset global market pricing levels, forcing us to respond quickly to remain competitive. We will also exit our oil and gas businesses in Ghana and Congo."
In oil and gas, Babcock expects to write down assets and leases, resulting in exceptional costs of GBP85 million.
Elsewhere, Marine "continues to perform well and exceed expectations", Land has progressed amid "strong trading" in South Africa but Babcock reported mixed fortunes at Nuclear.
Babcock said: "In Nuclear, revenue growth in UK defence continues in line with our expectations, underpinned by ongoing submarine engineering support work. The civil nuclear market remains subdued and we continue to progress closer integration of our nuclear engineering businesses."
Shares in the company were 2.2% lower at 544.19 pence each in early dealings in London on Wednesday.
By Eric Cunha; ericcunha@alliancenews.com
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Babcock (BAB)
