Babcock to cut 1,000 jobs

Engineering giant Babcock - which has operations in Plymouth - is set to cut 1,000 jobs as part of a shake-up.

The company say they are changing their operating model to create a business that is "more efficient and effective".

A recent review has identified impairment and charges totalling at approximately £1.7 billion, which is understood to have been written off.

The restructuring will have a one-off cost of around £40 million and they are expected to save around the same amount annually.

In an official statement, Babcock say the changes will see around 1,000 employees leaving the Group within the next twelve months.

"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 show significant write offs and a smaller ongoing reduction in the profitability of the Group.

"Through self-help actions, we aim to return Babcock to strength without the need for an equity issue. We are creating a more effective and efficient company through our new operating model and, in line with our new strategic direction, will rationalise the Group’s portfolio to help strengthen our balance sheet."

David Lockwood - CEO

The group employs 30,000 people globally - most of them in the UK.

Babcock say around 850 people will be affected by the jobs cuts in the UK, but could provide no further details on how it will affect those based at Devonport Dockyard.

Key takeaways from their business update include:

• Babcock will focus on being an international aerospace, defence and security company with a leading naval business and providing value add services across the UK, France, Canada, Australia and South Africa

• The contract profitability and balance sheet review (“CPBS”) has identified impairments and charges totalling approximately £1.7 billion

• The vast majority of the impact of the CPBS is one-off in nature and non-cash affecting

• The CPBS is expected to result in an ongoing reduction in Group underlying operating profit of approximately £30 million each year

• Changing the operating model to simplify the business and reduce layers. The consequential restructuring will have a one off cash cost of approximately £40 million and is expected to deliver realisable annualised savings of approximately £40 million. The benefit in FY22 will be roughly half this due to timing

• Rationalising the Group’s portfolio by divesting certain businesses. They anticipate this will generate proceeds of at least £400 million over the next twelve months

• Draft unaudited management results show FY21 underlying revenue of £4,690 million (FY20: £4,872 million) with underlying operating profit of £307 million (FY20: £524 million) before CPBS impacts. These results include our share of joint ventures and associates

• Net debt (excluding lease obligations) at 31 March 2021 was £750 million, with an estimated net debt to EBITDA ratio of 2.5 times

• Babcock have confidence that the markets they address and their capabilities to address those markets will be favourable in the medium term. However, they will be revising their forecasts for profitability for future periods as they continue to assess the business. They are cautious about progress in FY22 profitability as it will be a year of transition

• They aim to return Babcock to strength without the need for an equity issue

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