Babcock International Group PLC, the UK defense contractor, said that a comet review for the financial year ending March 21 had identified impairments and charges totaling approximately £1.7 billion, more than double the amount analysts had estimated.
The balance sheet review is expected to result in an ongoing reduction in Group’s underlying operating profit of approximately £30 million each year.
“We are changing our 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 realizable annualized savings of approximately £40 million. The benefit in FY22 will be roughly half this due to timing,” said a company statement.
The company has plans to cut 1,000 jobs as part of its restructuring plans.
David Lockwood, who was appointed chief executive last year, also announced a disposal program targeting £400m over the next twelve months. An independent accounting firm was brought in to review the company’s accounts. A review of the group’s contracts revealed that some were less profitable than the company had accounted for.
The company said most of the job losses would be in the UK itself. It has declared that it will cut 850 jobs in the country. Babcock has its headquarters in London and has offices, training facilities, dockyards, testing centers and research and development facilities across the country.
Babcock is Britain’s second-biggest defense contractor and is a key supplier to the Ministry of Defence. It provides maintenance and support for the UK’s nuclear submarines at Faslane and was a member of the consortium that built the Royal Navy’s new aircraft carriers.
The company has been facing a dip in confidence since a little-known group, Boatman Capital Research, published a list of highly critical claims about the company two years ago, saying that it faced “potentially massive exceptional costs”.
Lockwood said he hopes that for workers affected by the review, the group will be able to find a “place where people can flourish” through the sale of assets to new owners. He added: “People will see this as a watershed moment when the new company starts to emerge.”
Babcock employs around 30,000 staff worldwide.
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 the company’s share of joint ventures.
“We have confidence that the markets we address and our capabilities to address those markets will be favorable in the medium term. However, we will be revising our forecasts for profitability for future periods as we continue to assess the business. We are cautious about progress in FY22 profitability as it will be a year of transition,” said a company note.
