Magnox decommissioning contract

RNS Number : 5408A

Babcock International Group PLC

27 March 2017

Babcock International Group PLC (Babcock or the Group)

Babcock today confirmed that the Cavendish Fluor Partnership (CFP), in which the Group has a 65% stake, has come to a mutual agreement with the UK's Nuclear Decommissioning Authority (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.

Following the detailed contract Consolidation phase, it has 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. Last year a High Court judge ruled against the NDA in respect of its award of the Magnox contract.

NDA CEO David Peattie 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."

Babcock Chief Executive Archie Bethel 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 change to the contract will result in the removal of around £800 million from the Group's £20 billion order book, creating an annual step down in revenue of around £100m (less than 2% of the Group's turnover) from financial year 2020/21 which we would expect to replace in the normal course of business over that timeframe.

Around £1 billion will be removed from the c £11 billion bidding pipeline; however a number of new identified opportunities coming forward from our tracking pipeline is likely to result in the bidding pipeline being broadly unchanged. This contract change is 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.

The ongoing decommissioning of Dounreay by the Cavendish Dounreay Partnership (Babcock share 50%) is not affected by today's announcement.

Ends

This announcement contains inside information.

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