Babcock says FY20 operating profit to drop by £63m

In the year to 31 March 2019, statutory pre-tax profit slumped 43% to £235.2m while operating profit declined 47% to £196.5m as the company took a hit from £161m of exceptional costs.

On an underlying basis, pre-tax profit edged up 1 .1% to £517.9m, while revenue dropped 3.8% to £5.16bn.

Revenue, which was in line with the guidance given in February, was dented by exits from non-strategic businesses as the company sharpens its focus on its three key markets of defence, aerial emergency services and civil nuclear, disposals and lower activity in the short cycle parts of business. However, performance across long-term contracts remained strong.

Last year, Babcock sold its civil infrastructure businesses and started to exit renewables. In the first half of this year, the group exited its North American mining and construction support business, scaled down the powerlines business in South Africa, and sold its media services business. In the second half, it exited the Surrey Schools education business, UK cabling, UK telecoms infrastructure support and its South African powerlines business, all of which were in its land sector. Babcock also sold its 50% stake in the Helidax joint venture in our aviation sector.

Underlying operating profit during the year rose 0.7% to £588.4m. However, for the year to the end of March 2020, the company expects underlying operating profit to drop to between £515m and £535m, while underlying revenue is expected to decline to £4.9bn. Babcock said the next financial year will be impacted by a number of factors such as the end of the QEC and Magnox contracts, exits and disposals and Brexit-related restructuring in aviation.

Goldman Sachs said the guidance is slightly below company-compiled consensus expectations for £4.99bn revenues and earnings before interest, tax and amortisation of £553m.

"We believe the lower outlook for FY20 will be viewed negatively by the market," it said.

The full-year dividend was lifted 1.7% to 30p a share and net debt fell 14.1% to £957.7m. Free cash flow post pension payouts increased 29.4% to £323.7m.

Chief executive Archie Bethel said: "We have delivered a robust performance this year, operating profit is in line with our expectations, we have sustained our strong margins and we have improved our cash generation.

"As we begin the new financial year we do not expect the wider market environment to be any less challenging than we have experienced this past year. However, Babcock's strength continues to be our focus, our position as a trusted partner in critical, complex areas of national importance, in both the UK and internationally, and our knowledge and expertise. The guidance we have issued today for the 2019/20 financial year reflects the market environment we face and the strengths we deploy in these markets."

At 1310 BST, the shares were down 7.3% at 470p.