Naval shipbuilder Babcock to focus on defence but shed less profitable businesses
Warship Technology May 2021
Aerospace, defence and security group Babcock, which is building the UK Royal Navy’s Type 31 frigates, is to rationalise its business portfolio, and is expecting to make around 1,000 staff redundant, mainly in the UK. The wide-ranging changes will see the company divest less profitable parts of the group but is not expected to affect its naval construction business.
The company said it is commencing discussions with its banks to secure protection to the potential downside risks in its scenario planning but believes that a strong balance sheet provides resilience to the group as well as operational and strategic advantages. “After the completion of our various reviews, we will determine the appropriate capital structure for the group which we believe we can achieve within the next 24-36 months,” the company said.
A contract profitability and balance sheet (CPBS) review at the company 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.
In a 13 April trading announcement, Babcock International Group PLC outlined reviews currently taking place at the company ahead of the group’s preliminary results announcement, in order to provide what it called “some early transparency on key issues.
“We are changing our operating model to create a business that is more efficient and effective,” said the group. “We are reducing layers of management within the business to form 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.
“This will reinforce a ‘one company’ culture and remove the duplication and lower quality delivery that a siloed approach delivered. However, this, unfortunately, will result in headcount reductions.”
Babcock said that, in future, it will focus on being an international aerospace, defence and security company with a leading naval business and on the provision of value-added services across the UK, France, Canada, Australia and South Africa.