Engineering support services company Babcock International Group PLC (BAB.L, BCKIF.PK) Tuesday said trading since October 1, 2009 remains consistent with its expectations, helped by strong performance from its marine and defense divisions. In an interim management statement for the period, the company said its business continues to benefit from the long-term nature of its contracts and framework agreements. Babcock expects to report another year of "excellent" progress.
The UK-based company operates in five segments: Marine, Defence, Nuclear, Networks, and Engineering and Plant.
Segment-wise, Babcock said its largest business, the Marine division, continued to perform strongly across all its business streams with excellent margin performance, while markets remain robust for the Defence division, where the company continues to benefit from additional work program injected into the regional Prime contracts. However, at the Nuclear division, the civil decommissioning market remained subdued. The company hopes that recent management changes at the Nuclear Decommissioning Agency will bring more focus to the UK nuclear decommissioning program and an acceleration in project tenders during the next financial year. The power generation support market remained strong during the period. According to Babcock, integration of the recently acquired UKAEA Limited into the Nuclear division is progressing well.
Having completed a detailed review of its operations reported in November, the Rail division announced further restructuring to align its cost base and business structure with the reduced scale of its operations. Restructuring costs of GB 4 million are expected to be incurred by March 31. Excluding restructuring costs, the segment is now performing profitably, Babcock added.
In Networks segment, Babcock said its framework contracts with National Grid and EDF continue to perform well with a steady flow of work at expected levels. The company's design offices in the UK and Bulgaria continue to experience strong demand for their services.
However, Telecommunications markets remained generally quiet during the period and the company exited the unprofitable Irish telecommunications business. Exit costs of GBP 1.5 million will be included as part of the division's full year results.
The Engineering and Plant division continues to be affected by global economic conditions. The power engineering business remains stable, as continuing demand for power across Southern Africa is driving demand for generation support and Powerlines businesses. However, the construction equipment business has seen no recovery in demand to date. The company is hopeful that the requirement for infrastructure upgrade and the resurgence in demand for minerals will help the division's long-term growth.
The company's order book remains stable at around GBP 6 billion. Cash generation remained strong during the period and Babcock continued to use cash to pay down debt. The company noted that its GBP 38 million acquisition of UKAEA that concluded in October 2009 was funded from existing debt facilities.
In order to reduce its reliance on bank lending, Babcock recently issued GBP 100 million of US private placement loan notes. This is in addition to the revolving credit facilities of GBP 600 million available until 2012.
Further, Babcock said its IAS19 balance sheet liabilities would reflect an additional GBP 25 million related to the completion of the last of its planned longevity swap transactions for the Group's major pension schemes.
''Overall, trading for the Group remains consistent with our expectations outlined at the time of our half year results on 10 November 2009 and there has been no significant change to market conditions,'' the company noted.
The company had said in November that fiscal 2009/10 continues to be another year of excellent progress for the Group and that it remains confident that results for the full year will be in line with its expectations.
Looking ahead, the company said its key markets remain attractive as well as resilient and provide the Group with significant growth opportunities in the UK and overseas. Additionally, the company believes that its ability to deliver cost efficiencies will provide further opportunities as pressure on public spending continues to increase.
Since the company receives most of its contracts from governments, the recession is helping it win more business as governments are trying to cut costs by outsourcing.
''The strength of our order book and bid pipeline along with the long-term programs of work we are involved in provide us with excellent visibility and security of revenue for this financial year and beyond. We remain confident that this will be another year of excellent progress for the Group,'' Babcock said.
BAB.L is currently trading at 560.50 pence, down 1 pence or 0.18%, on 973,754 shares.
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