Babcock warns of potential hit to balance sheet after contract review

Shares in Babcock International shed almost a fifth of their value after the UK defence contractor signalled that it could be forced to cut the expected value of contracts and future income.

The company on Friday said that early indications of a review of its contract profitability suggested “negative impacts on the balance sheet and/or income statement for current and/or future years”.

Babcock aims to finish the review, which is supported by an independent accountancy firm, in time for its full-year results in May.

The company said it had been hit by weakness in its civil aviation businesses and the pandemic. Underlying operating profit plunged 34 per cent to £202m in the latest nine-month period, with revenue falling 3 per cent to £3.4bn.

The group took £3.1bn worth of orders to bring its tally at December 31 to £16.8bn. That compares with £17.6bn as of March 31.

Shares in Babcock were down 18 per cent in early London trading. They have fallen 65 per cent over the past 12 months.

The group ruled out providing any guidance for this financial year on account of the coronavirus crisis intensifying in most of its markets. The fourth quarter is historically Babcock’s strongest.

“While trading in the third quarter has continued to reflect the challenges of the first half and there remain a number of near-term uncertainties, the fundamental strengths of the group and the opportunities ahead give us confidence for future years,” said David Lockwood, who has been chief executive since July.