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Babcock International shares fell in early trading on Monday after the UK engineering company said it would end its contract with Britain’s Nuclear Decommissioning Authority in 2019 for the clean up of 12 Magnox reactor sites in the UK.
The move will reduce the value of Babcock’s pipeline by around £800m, cutting revenues from 2020-21 by £100m a year.
Shares were trading at £8.77, down 4.3 per cent at publication time.
Babcock said in a statement the Cavendish Fluor Partnership (CFP), in which it has a 65 per cent stake, has come to a mutual agreement with the NDA to bring to an end the Magnox decommissioning contract at the end of August 2019, having operated the contract for a full five years.
Babcock said it had become apparent that the work that needs to be done at the 12 Magnox sites is now materially different in volume from that specified in the NDA’s tender, and this puts the contract at risk of a legal challenge.
The contract involves the clean-up of 12 of the UK’s 25 nuclear sites, including the Sizewell, Hinkley and Dungeness “Magnox” nuclear power stations built in the 1960s which have reached the end of their lives.
The High Court last year found the NDA had wrongly awarded one of the government’s largest contracts to Babcock and Texas-based Fluor. The claim was filed by Energy Solutions, the US-based company that lost the contract after managing the nuclear sites for 14 years.
David Peattie, NDA chief executive said:
Terminating is no reflection on CFP as performance on the sites under its ownership has been strong. Making progress on the ground and keeping our sites safe and secure remain our collective priorities. I would like to thank CFP for its ongoing commitment, as we transition to new arrangements.
Archie Bethel. his Babcock counterpart, said:
I am pleased that the NDA has confirmed that CFP’s performance has been strong. We have developed a good working relationship with the NDA and we look forward to working with them, not only to bring this contract to an orderly end in two and a half years’ time but also on future projects, including the completion of the decommissioning of the Magnox power stations.
The company said the loss of the contract would result in the removal of around £800 million from the Group’s £20 billion order book. This would lower revenues from 2020-21 by £100m which it said was around 2 per cent of group turnover.
But it said: “A number of new identified opportunities coming forward from our tracking pipeline is likely to result in the bidding pipeline being broadly unchanged.”
It said the contract change was “not expected to have any negative financial impacts over the next three years and we do not expect this announcement to change the financial guidance we expect to give at the Group’s full year results in May”.