Babcock lower profit expectations for financial year

Babcock lower profit expectations for financial year

Babcock International Group PLC (LON:BAB) have lowered their profit guidance on Wednesday as shares have been hit.

Shares in Babcock trade at 530p (-4.71%). 12/2/20 10:29BST.

The defense firm said that profit guidance is expected to be lower and that the firm could face a £85 million one off costs from its oil and gas business.

Within the annual period, which ends in March the firm said that they are speculating underlying profit to be around £540 million.

Notably, this would see an 8.2% slump from the £588.4 figure one year ago, which may concern shareholders.

Babcock’s previous guidance for financial 2020 was for operating profit in the range of £540 million and £560 million.

On a better note, the firm held its forecast for underlying revenue which lies around the £4.9 billion figure, seeing a 5.1% drop from £5.16 billion year on year.

Underlying earnings per share are expected to meet analyst and market forecasts which range between 71.1 pence to 71.4 pence. This would see a year-on-year fall as high as 15% from 84.0p.

Babcock did praise their performance in the year however, as its order book and pipeline is at a record level of £34 billion.

The firm said: “As flagged in November, 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 £600 million but the delays have pushed revenue into future periods.

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.”

Interim profit growth for Babcock

Back in November, the form reported strong profit gains within its interim results.

For the six months to September, the firm reported pretax profit of £152.5 million, which was a huge rise from the £65.1 million figure a year ago.

However on an underlying basis the figure dropped by 18% to £202.5 million from £245.5 million.

Revenue meanwhile dropped by 2.7% to £2.19 billion from £2.25 billion the prior year, with underlying revenue also slipping by 4.7% to £2.46 billion from £2.58 billion.

Babcock said that the revenue dropped because of the step downs in its Queen Elizabeth Class aircraft carriers contract, which contributed heavily to the falling revenue figures.

Revenue declined on the ending of Babcock’s Magnox contract with the UK’s Nuclear Decommissioning Authority, as well as a one-off benefit of £90 million a year before in asset sales related to the group’s Fomdec contract in Aviation.

Babcock’s CEO departs

One week ago, the CEO of Babcock announced that he would be departing the company.

The firm said that Chief Executive Officer Archie Bethel will be stepping down from his role, and will depart when a suitable replacement is found.

Bethel has held his role for four years, and has been with Babcock for 16 years since his initial appointment since 2004.

Babcock also announced that it would be appointing United Utilities Group PLC’s Chief Financial Officer Russ Houlden as non-executive director with effect on April 1.

Houlden has held his role at United Utilities for ten years since 2010, and has also held senior roles on the reporting committee of the 100 Group.

This is a rather interesting time for Babcock, however shareholders will remain optimistic for current operations in 2020.