Babcock sees £10m annual hit from Brexit

The aerospace and defence outfit said it would have to restructure the unit to comply with European operating requirements.

In a trading statement, Babcock said underlying earnings expectations for the year remained unchanged as it continued to make good progress and grow its businesses across defence, aerial emergency services and nuclear.

Group underlying revenue for the year was expected to fall to around £5.2bn from £5.36bn as its major QEC contract wound down and the company disposed of or exited more businesses in the second half.

The company said it would also incur a £30m charge related to a pension liabilities adjustment to equalise guaranteed minimum pension benefits for men and women, after a High Court judgement on Lloyds Banking Group last October.

“The cash cost associated with the pension charge will be spread over the next six years and the tax charge will be paid in the next financial year,” Babcock said.

The order book and pipeline remains strong at around £32bn, consisting of a £18bn order book £14bn pipeline, up £1bn year on year.

The impact of contract step downs, and continued business exits, was expected to reduce underlying revenue by around £400m and underlying operating profit by around £40m.

“We are currently finalising our plans for next year and will provide further guidance in May alongside our full year results,” Babcock said.

Chief Executive Archie Bethel said the group's underlying earnings and cash generation outlook for the current year was unchanged.

“We continue to make good operational and strategic progress and won some great new contracts in the period including an expansion into the aerial emergency services market in North America, a significant win in Australia and securing the next ten years for our Rail business,” he said.

“Whilst preparing for the UK exiting the EU and for our QEC and Magnox contracts coming to an end, we continue to grow our business across our three key markets.”