Babcock trading in line, reaffirms full-year guidance

Babcock reiterated its guidance for the year on Wednesday as it said trading has been in line with its expectations.

In an update for the period from 1 April, the group said revenue visibility has continued to improve, with 89% of revenue now in place for 2017/18 and around 57% for 2018/19. Meanwhile, the order book and bid pipeline of opportunities are stable and continue to provide the group with the confidence to grow revenue as expected over the medium term.

Babcock said it continues to make progress across all four of its divisions and has been awarded several contracts since the start of the financial year.

In the marine business, it has begun work on the £360m contract to be the technical authority and support partner for the Royal Navy's new aircraft carriers, HMS Queen Elizabeth and HMS Prince of Wales, and Type 45 destroyers. In addition, it secured a new seven-year contract for the design, production and delivery of weapons handling and launch equipment for the South Korean Jangbogo III submarine, which is the third in a potential multi-boat programme.

Babcock said trading in its LPG business was slow in the early part of the financial year, but it has now won a contract for the design and supply of its cargo handling system for two LPG carriers to be delivered at Jiangnan Shipyard in Shanghai, China.

In the aviation division, there has been good momentum internationally and the group has now begun to mobilise to deliver the new £500m emergency medical services contract in Norway. The group will operate 11 fixed-wing aircraft providing patients with access to specialist healthcare centres across the country from summer 2019.

In its land business, it continues to progress its vehicle asset support contracts with customers such as the UK MOD, emergency services and airlines, while the nuclear division has now agreed the terms under which it will take the Magnox estate to the end of the first phase of decommissioning at the beginning of September 2019.

Babcock said revenue in the marine sector is expected to be slightly lower than in the previous financial year due to the stepdown in the volumes from the Queen Elizabeth Class aircraft carrier programme and the phased introduction of contracts, but this should be offset by growth in the other sectors.

“The introduction of accounting standard IFRS15 in 2018/19 is not expected to have a significant impact on earnings, given the nature of the contracts the group delivers. Detailed work on the standard continues, and the group will provide a view of the anticipated impact at the full year results in May 2018, prior to its adoption in financial year 2018/19.”