Babcock’s £80 million impairment lower than expected

Babcock Group has taken an £80 million ($102 million) impairment charge on its oil ad gas helicopter transport business. Analysts had been expecting £100 million.

In its half-year results released today, Babcock cited overcapacity and underutilisation of its helicopter assets as the reason for the £80 million impairment charge. £38 million ($48 million) of the impairment is to reduce the carrying value of the group’s owned oil and gas helicopter fleet to its market value with the remaining £42 million ($53 million) related to leased oil and gas aircraft.

The report states: “We have taken an asset impairment charge of £38 million to reduce owned Oil and Gas assets to their market value and have recognised an onerous lease provision of £42 million against leased assets to reflect the cost of these commitments versus current market rates. The recent oil price improvement has not materially changed helicopter market values.”

Further into the report, Babcock notes that ‘intense competition’, oversupply and underutilisation has driven profit margins for the group’s oil and gas segment to low single digits. However, revenue for the period grew slightly.

Chief Executive Archie Bethel added: “We are taking actions necessary to further improve the quality of our earnings and our returns to shareholders. That is why we are exiting low-margin businesses, restructuring in areas and combating the overcapacity in our Oil and Gas helicopter services business. These actions, with minimal cash costs, will strengthen the business going forward.”

This follows on from reports that the group would take a £100 million hit on the value of its helicopter business earlier this week. Sky News and the Financial Times reported that an impairment charge of £100 million ($130 million) was expected to be revealed in the half-year report.

A link to the half-year results can be found here.