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UK's Babcock warns that 'challenging' year to take its toll

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EDINBURGH (Reuters) – British engineering services group Babcock said on Wednesday it expected revenue and underlying operating profit to fall in 2019/2020 in a “challenging” year overshadowed by a sluggish domestic market.

Babcock shares tumbled 8 percent in early business, touching their lowest levels so far this year.

Babcock, whose biggest customer is Britain’s Ministry of Defence, announced flat full year profit before tax of 517.9 million pounds in the year to March 2019 on a 4% decline in revenues as a cost-cutting effort helped it offset difficult operating conditions.

The group is a supplier of defence services, maintaining nuclear submarines and army vehicles in Britain and abroad.

Investor confidence has been sapped by doubts over its management and strategy and in April it announced Ruth Cairnie would take over from Mike Turner as chair in July.

“As we begin the new financial year we do not expect the wider market environment to be any less challenging than we have experienced this past year,” Chief Executive Archie Bethel said in a statement.

Speaking to Reuters, Bethel predicted that once the sale of some non-core units had taken place this year, underlying profit growth would return to around 3 percent after 2021.

Bethel saw growth in international defence and aerial emergency services but not in Babcock’s civil nuclear business, while he predicted returns from the group’s British defence business would be flat or modestly higher.

Babcock forecast underlying revenue of around 4.9 billion pounds in 2019/2020 and underlying operating profit of 515 million to 535 million pounds.

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

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