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Babcock takes one-off charge and lowers nuclear outlook

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EDINBURGH (Reuters) – British defence contractor Babcock <BAB.L> took a one-off charge of 120 million pounds to reshape its business on Wednesday and warned that revenue from its nuclear decommissioning division would drop more than expected.

First-half revenue fell 2.3 percent to 2.58 billion pounds versus analyst expectations of 2.61 billion pounds, according to Refinitiv data.

Babcock, whose biggest customer is Britain’s Ministry of Defence due to roles such as the maintenance of its naval fleet, has come under close scrutiny in recent weeks after an anonymous research group questioned the management of the business.

Babcock has been hit by delays in government spending and poor investor sentiment in the outsourcing sector, and shares have fallen 17.6 pct versus a 11.35 percent decline in the FTSE 250 index over 3 months, and by one fifth over the past year.

It said on Wednesday it had lowered its expectations for revenue and profit coming from its contract to decommission Magnox nuclear sites.

It now sees a drop in revenue of 250 million pounds in the 2019/20 year, compared with a previous expectation of a drop of around 100 million pounds, and an operating profit shortfall of 20 million pounds.

Babcock forecast that Britain’s Nuclear Decommissioning Authority (NDA) procurement strategy would be “insufficiently advanced for us to assume any additional revenue” after August 2019, when its Magnox decommissioning contract comes to an end.

It reiterated guidance, however, for low single digit underlying organic revenue growth at constant exchange rates with improved margins for the full year.

(Reporting by Elisabeth O’Leary; editing by Kate Holton)

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