THERE was a blow to Britain’s manufacturing sector today when Babcock International said it would cut 1000 jobs and take a £1.7 billion hit to its finances.
New management at the storied engineer – a key player in both World Wars and a major supplier to the Ministry of Defence – say the business is worth less than the City once thought.
CEO David Lockwood and CFO David Mellors arrived from Cobham, replacing under-fire Archie Bethel and Franco Martinelli, who had lost the confidence of investors.
Today they said they have “identified impairments and charges totaling approximately £1.7 billion”. Businesses worth £400 million will be sold - it hasn’t yet said which ones.
Lockwood added: “We announced a series of reviews in January and promised to report back on our strategic direction, a new operating model and a new financial baseline at our full-year results. Today we give you an update on all of these areas. The early results from our reviews showsignificant write-offs and a smaller ongoing reduction in the profitability of the group.”
Babcock shares rose 68p to 310p on City relief that the news wasn’t even worse, but they are down from 450p last June. Debts stand at £750 million.
Babcock did offer reassurance that it shouldn’t need to tap the City for more money, saying “we aim to return to Babcock to strength without the need for an equity issue”, hence share price strength today.
The job losses, out of 30,000 employed globally, will mostly fall in the UK.
Babcock has contracts in the aerospace, defence, emergency services and nuclear power sectors and counts the Ministry of Defence as its biggest customer.
It maintains the UK’s nuclear submarines at Faslane and helped build the Royal Navy’s new aircraft carriers.
The business said that it expected to play a "crucial role" as a partner to the UK government across key defence programmes includingshipbuilding.
Babcock has taken a financial hit as a result of the COVID-19 pandemic and in its most recent half-year results, covering the six months to the end of September, reported a 64% fall in pre-tax profits to £55.3 million.
Babcock has struggled for momentum since Boatman Capital produced stinging research two years ago saying the company faced “potentially massive exceptional costs”. It issued a run of profit warnings.
The company goes back to the 1800s and was major part of the first and second world war efforts. It rained 70,000 airmen in World War II. It floated on the stock market in 1982.
It said adapting to work during the pandemic had resulted in higher costs while there was also weak trading in its civil aviation operations - trends that the company said had continued lately.