Babcock shedding 1,000 jobs amid overhaul plan
DEFENCE and aerospace giant Babcock International is to axe 1,000 jobs this year as it wrestles with a £30 million annual dip in profits.
The engineering company, which operates the dockyards at Devonport in Plymouth and Rosyth in Scotland, said it has written off £1.7 billion on its balance sheet in impairments and charges.
The company, in an update to investors, said although this loss is a one-off it is expected to result in an ongoing reduction in group underlying operating profit of about £30 million each year.
The company is therefore changing its operating model to simplify the business and reduce layers, which will have a one-off cash cost of about £40 million and is expected to deliver annual savings of about £40 million. But the move to an operating model which is “more efficient and effective” will mean reducing layers of management which will “unfortunately result in headcount reductions”.
The statement said that about 1,000 employees will be leaving the group within the next 12 months.
Babcock also plans to rationalise the group’s portfolio by divesting certain businesses, generating proceeds of at least £400 million over the next 12 months
Draft unaudited management results show full-year 2021 underlying revenue of £4.69 billion, down from 2020’s £4.872 billion, with underlying operating profit of £307 million, down from 2020’s £524 million.
David Lockwood, Babcock chief executive, said: “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.
“Through our new operating model, the future Babcock will be a better place to work, a better partner to our customers and will be well placed to capture the many opportunities ahead of us”.
In its statement to the Stock Exchange the company said that its aims for a “simpler, flatter structure that will simplify how we operate, improve line of sight, shorten communication lines and therefore increase business flexibility and our responsiveness to market conditions”.
It said this will reinforce a “one company culture and remove the duplication and lower quality delivery that a siloed approach delivered”. But said: “This, unfortunately, will result in headcount reductions. The changes will result in approximately 1,000 employees leaving the group within the next twelve months with an approximate restructuring cost of £40 million, most of which are cash costs.
“This will reduce our overall operating cost base. Some of the savings will be recognised across long term projects, for example where they form part of existing contract efficiency assumptions, and some savings will benefit our customers via the contract structure.”