By Lina Saigol
Babcock looks to raise GBP400 million through asset disposals over the next 12 months
Shares in Babcock International soared more than 37% on Tuesday, after the U.K.'s second-largest defense contractor unveiled a GBP1.7 billion ($2.3 billion) write-down and said it would look to raise GBP400 million from asset sales as part of a wider restructuring to turn around the company's performance.
The FTSE 250-listed group said in a statement that the one-off, noncash charge, which was identified following a profitability review of its contracts, was expected to result in the reduction of the group's underlying operating profit of about GBP30 million (link)each year.
Babcock , which employs 30,000 staff worldwide, also said it was simplifying its business, which will lead to the loss of 1,000 jobs, mainly in the U.K., but also overseas. The cuts are expected to save GBP40 million a year and will result in a one-off, largely cash cost of about GBP40 million, it said.
Read:U.S. transport giant CHC Group to buy Babcock's helicopter business (link)
Disposals of noncore businesses are expected to generate GBP400 million in the next 12 months, Babcock said, adding that three processes are currently under way to test the market. Last month, Babcock said it was in talks to sell its oil and gas division (link) to U.S.-based helicopter services company CHC Group (CHHCF).
Investors welcomed the proposals, sending shares in Babcock up more than 37% to 333 pence in midmorning trading in London on Tuesday. The stock is up 19.15% in the year to date, according to data from FactSet.
Analysts had been concerned that Babcock, which provides maintenance and support for the U.K.'s nuclear submarines at Faslane, Scotland, would need to tap shareholders to raise new funds.
However, Babcock Chief Executive David Lockwood said that "through self-help actions we aim to return Babcock to strength without the need for an equity issue."
"A return to the core, strategic service business, has felt overdue to us. If the restructure and disposal program 'go to plan,' we see material value creation ahead," wrote the equity research team at Shore Capital in a research note on Tuesday.
Babcock also released draft, unaudited results for the full year to end March 2021, showing underlying revenue of GBP4.69 billion, down from GBP4.87 billion for the previous year. Underlying operating profit fell from GBP524 million to GBP307 million before the exceptional charge.
-Lina Saigol; 415-439-6400; AskNewswires@dowjones.com
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