By Karen Peattie

DEFENCE engineering group Babcock International has booked one-off costs of around £85 million, mainly in its oil and gas business, amid “tough” market conditions.

But the company, which was named preferred bidder for the UK Type 31 frigate programme last September, said expectations for full-year underlying profits remain in line with previous guidance at around £540m.

The aerospace and defence contractor, which transports oil and gas workers to platforms, pointed to increased competition in the provision of helicopter services.

In a trading update for the first nine months of the financial year ahead of its full-year results in May, it said that its underlying revenue guidance remained at about £4.9 billion, with free cash flow estimates unchanged at more than £250m.

Last year, it confirmed a new three-year contract to provide the expanding UK-based oil and gas company Serica Energy with offshore helicopter crew transport services to and from the company’s Bruce complex in the North Sea, 340km northeast of Aberdeen

The company said: “In response to current trading in aviation we are implementing improvement and restructuring programmes to ensure we remain on track to deliver for the medium term.

“We will also write down assets and leases in our oil and gas business and expect to incur an exceptional charge related to these issues of around £85m, predominantly in oil and gas.”

Babcock, which announced last week that its Scottish chief executive Archie Bethel will retire, said: “This has effectively reset global market pricing levels, forcing us to respond quickly to remain competitive. We will also exit our oil and gas businesses in Ghana and Congo.”

The company added that trading in its aviation business was “mixed with good performances across our UK and international defence businesses offset by continued challenges in Southern Europe and in our oil and gas business”.

“As flagged in November, there have been delays in the award of new contracts for aerial emergency services in Italy and Spain,” it said. “Since then, we have won or been selected as preferred bidder for contracts worth around £600m but the delays have pushed revenue into future periods.”

Babcock’s marine sector continues to perform well and exceed expectations. “Strong revenue growth has been helped by warship support activity in the UK and Australia, and continued high growth in our technology businesses,” it said. “Demand for complex liquid gas transportation systems has been higher than expected.”

The company confirmed that revenue growth in its nuclear division “continues in line with our expectations, underpinned by ongoing submarine engineering support work”. However, Babcock said that the civil nuclear market “remains subdued and we continue to progress closer integration of our nuclear engineering businesses”.

Babcock continued to secure work across all sectors in the period with win rates in line with targets. “Our combined order book and pipeline remains at the record level of £34 billion, with an order book of £18bn and pipeline of £16bn,” it said.

Babcock International owns and operates complex marine engineering infrastructure at Rosyth in Fife and also manages the Clyde naval base at Faslane.

It has 6,000 permanent employees in Scotland and the largest single engineering employee in the country, says Scottish Engineering.