Babcock Falls on Reduced Value of Helicopters Idled After Crash

(Bloomberg) -- Babcock International Group Plc shares fell 12 percent after it laid bare issues at its defense and helicopter arms, posting a decline in profit and booking charges for closing, shrinking or selling a range of businesses.

Earnings fell by almost two-thirds in the first half through Sept. 30, and Babcock will take charges totaling 120 million pounds ($154 million) for a raft of restructuring moves, the London-based company said Wednesday.

Key Insights

  • Two-thirds of the costs concern a unit that operates helicopters for the offshore oil industry and emergency services, and come as a particular blow because Babcock bought the business for 1.6 billion pounds as recently as 2014 in one of its biggest-ever purchases.
  • Chief Executive Officer Archie Bethel said the hit concerns 13 Airbus SE EC225 Super Pumas that have slumped in value as the model is boycotted by North Sea rig owners after a crash unrelated to Babcock in 2016. He argues that the business, which has 535 choppers, is otherwise healthy.
  • Other charges relate to exits from renewables, construction support and North American mining, plus the previously flagged shutdown of Britain’s historic Appledore shipyard. While wide-ranging, Bethel said the cash impact of the measures should be only 10 million pounds after disposals.
  • Babcock sought to assure investors that it’s on good terms with the U.K. Ministry of Defence, to which it’s the No. 2 contractor, citing 650 million pounds of new work. The company is battling for credibility after anonymous firm Boatman Capital Research claimed it had lost the MoD’s confidence. Bethel said he has no idea who was behind the comments.

Market Reaction

  • The stock dropped the most since July and was down 8.7 percent as of 9:14 a.m. in London. Babcock, known as an engineer but in the spotlight for its outsourcing work after the collapse of Carillion Plc in January, has slumped 23 percent this year, valuing it at 2.69 billion pounds.

Read More

  • Pretax profit fell 64 percent to 65.1 million pounds in the first half, though Babcock said the drop was 2.5 percent on an underlying basis.
  • The group reiterated its fiscal 2019 outlook for like-for-like revenue growth in low single digits. To see the earnings statement click here.
  • Babcock faces a 20 million-pound earnings hit in fiscal 2020 amid delays in awarding nuclear power station decommissioning contracts

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