Babcock suffers from UK row with Saudis

Babcock International stunned the stock market yesterday after revealing that the UK's diplomatic row with Saudi Arabia would contribute to an pounds 18m operating loss for last year. The news comes after the group revealed big problems at its German materials handling division last year and the shares plunged 15.5p to 113p yesterday.

Babcock said the losses would be more than offset by pounds 21m of exceptional gains, principally from the sale of its Renfrew-based energy business, leaving a profit of pounds 3m for the year to March. But the trading losses are a big setback after two years of a three-year recovery programme led by new management and their size dismayed analysts. One said: "This is obviously absolutely dismal. Everyone saw the company in March and this level of problem was not indicated then. It means that 1995 and 1996 profits will be decimated."

Nick Salmon, the chief executive who is trying to turn the group around with chairman John Park, said the Saudi losses would be less than half the pounds 18m.

The company had been unexpectedly turned down for a big project in Saudi Arabia, thought to be a pounds 70m deal to build a petro-chemicals plant for Saudi Aramco, which has now gone to the Japanese.

"We built up staff and project teams on the expectation of the start of a major project which was first delayed and then switched to a non- UK contractor", he said.

Similar experiences have reportedly been had by other UK companies. "The official position is there is no difficulty with the UK and I think both governments are making strenuous efforts to support that aim. I think what is happening with Davy, John Brown and ourselves is that the reality is different."

Mr Salmon made no comment on the continued presence in the UK of the Saudi dissident, Mohammed Al-Masari, which is at the heart of the diplomatic dispute.

However, he said: "You have to regret that having made a concerted effort to develop a business in an area, that effort has been frustrated."

The loss of the business has cost 40 to 50 jobs and means that plans to recruit around 200 extra staff have been abandoned.

The Saudi business represents over a third of Babcock's process engineering business, which had a turnover of pounds 86.7m in 1994/5, and has been built up rapidly over the past two to three years.