LONDON (ShareCast) - (ShareCast News) - Babcock International said it was on track to meet profit forecasts but that revenue would be lower than expected amid concerns about cuts to defence spending and the viability of government contractors.
In a trading update, the engineering services company said annual revenue and earnings for the twelve months to 31 January would be at record levels and that the group profit margin would be higher than forecast.

But Babcock warned revenue would be "slightly lower" than expected at between £5.3bn and £5.4bn due to tough trading in the oil and gas industry and slower business at its defence arm.

Britain's defence ministry is Babcock's biggest customer. The company warned in November that a review of defence spending could delay projects and investor concerns deepened when Carillion, a giant government contractor, collapsed in January.

Babcock shares fell more than 5% in early trading amid a wider market sell-off and were down 3% to 633p at 08:46 GMT. The shares have fallen by about 15% since 16 January.

Babcock said: "The group has continued to make steady progress in the second half of the year and is on track to achieve another record year in terms of revenue and underlying earnings. Supported by a strong order book and bid pipeline, the board remains confident of making good progress in the future, with an increasing proportion of international business."

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