10th Feb 2015 10:12
LONDON (Alliance News) - Shares in Babcock International Group PLC were trading higher on Tuesday after the company said the strong performance in the first half of its financial year has continued into the second and said it is confident on meeting full-year expectations.
However, Babcock did warn it faces some impact from the oil and gas industry spending cuts resulting from the drop in the world oil price.
The FTSE 100-listed support services company said it entered the fourth quarter of its financial year, starting January 1, with its order book at around GBP20 billion and a bid pipeline of around GBP13 billion. Its order book provides 70% revenue visibility for its 2015-16 financial year, it said.
Despite an impact from foreign exchange fluctuations, it remains confident it will meet its expectations for the year to the end of March.
Shares in Babcock were up 2.8% to 1,057.10 pence on Tuesday, one of the best performers in the FTSE 100.
The group said its financial position remains healthy, with good cash generation and an expected full-year operating cash conversion rate, excluding capital expenditure, of over 100%. Including capital expenditure, the rate will be around 80%, it said.
Babcock said the integration of helicopter and fixed-wing services company Avincis, which it acquired for GBP920 million last year, was progressing to plan and it has now renamed the business Babcock Mission Critical Services.
After a strong first-half performance, the Mission Critical Services arm has continued to perform in line with expectations on a constant currency basis, Babcock said. Its Emergency Services operation, which represents 70% of revenue for the division, has been trading well in Europe. That strong performance has offset some weakness in the unit's Oil & Gas division, which has suffered from the uncertainty caused by the fall in the oil price.
The group said the majority of the oil and gas arm is benefiting from long-term contracts in the North Sea and Australia, but warned that around 3% of its oil and gas business relies on discretionary spend from customers and is therefore at risk in the current market conditions. It added it is seeing some delays to the award of exploration contracts and said the Mission Critical Services unit could take a GBP6 million hit in the next financial year from the issues.
Babcock's said its Marine and Technology business is performing in line with its expectations, with growth driven by in-service and deep maintenance contract wins in the Technology arm.
Work on behalf of the Army, the Royal Navy and Royal Air Force in its Defence and Security arm is in line with expectations, Babcock said. It reiterated that its Infrastructure business completed work on the Regional Prime estate management contract at the end of January and said the end of the contract will cause a GBP50 million hit to revenue for the division in the financial year to the end of March against the year before.
The Infrastructure business has entered into contracts with the Ministry of Defence for the acquisition of the Defence Support Group. The associated service provision contract linked to the acquisition will be worth around GBP2 billion over ten years, the company said.
The group's Support Services arm is performing in line, boosted by the progress being made by its Cavendish Nuclear subsidiary, which recently signed a deal with energy company EDF Energy to provide fuel route and other services for the French company's fleet of UK nuclear power stations for 16 years.
In its International business, Babcock said it is making progress in its South African arm in local currency, but said the division is being hit by the depreciation of the rand.
Babcock said its outlook looks strong both in the UK and in its international markets, adding its order book provides strong revenue visibility. The group does expect to take a hit from the weaker euro and the depreciating South African rand, but said the deterioration of the euro should not impact its cashflow as it maintained GBP550 million of debt to hedge its European business.
By Sam Unsted; [email protected]; @SamUAtAlliance
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