Babcock International Group PLC ("Babcock" or "the Group") issues the following update for the financial year ending 31 March 2021 (FY21) including an update on reviews currently taking place and our headline unaudited results. This announcement is being made ahead of the Group's Preliminary Results announcement to provide some early transparency on key issues.
Note: these are subject to the finalisation of our reviews and the year end audit
· 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
· 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 realisable annualised savings of approximately £40 million. The benefit in FY22 will be roughly half this due to timing
· We will rationalise the Group's portfolio by divesting certain businesses. We 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 (note 1)
· Net debt (excluding lease obligations) at 31 March 2021 was £750 million, with an estimated net debt to EBITDA ratio of 2.5 times
· We have confidence that the markets we address and our capabilities to address those markets will be favourable 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
· We aim to return Babcock to strength without the need for an equity issue
We will set out further details of the above at our Preliminary Results, the publication of which is likely to be delayed as a result of COVID-19 working constraints and the large number of potential adjustments under consideration in our CPBS. We will prioritise quality of reporting over speed.
David Lockwood, CEO 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".