Shares in Babcock International, the UK aerospace engineering company, fell sharply on Friday after the company reported deepening annual losses following a £2bn ($2.8bn) impairment charge.
Babcock's shares were down 10% to 274.2p during the first hour of trade on the London Stock Exchange after the company unveiled what had been expected to be a poor set of results.
Operating losses extended to £1.64bn for the full year after the company conducted a review of its contracts and balance sheet, and reported impairments and charges totalling £2bn.
This turned out worse than expected as, after the company had stated in an April trading update following the internal profitability review, it would take a one-time hit of £1.7bn.
On Friday, the company broke down the charges as follows:
- Impairment of goodwill and acquired intangibles – £1,349m
- Estimate changes – £464m
- Cumulative correction of prior period errors – £171m
- Change in accounting policy – £60m
The company further stressed that the vast majority of charges were one-offs and would not have any impact on future cash flows.
Revenues, however, were also disappointing: down 3% from the previous year to £4.18bn, due to the effects of the pandemic on trading and sales no longer generated by divisions that were sold during the year.
Babcock outlined a plan for five strategic actions to turn around the company’s performance:
- Targeting at least £400m in asset disposals over the next year
- New operating model that will deliver annual savings of around £40m
- Focusing on talent, innovation and best practice from its employees
- New ESG strategy and plan for net zero on estate and assets by 2040
- Exploring growth opportunities in international markets
The company said it intended to achieve the turnaround without the need for raising further equity, but it remained cautious on full-year 2022, saying it was to be a “year of transition”.
David Lockwood, chief executive, said: “Looking forward, Babcock will be a simplified and more focused group with a renewed emphasis on the exceptional engineering skills of its people.”
He concluded: “We will be well placed to take advantage of the many opportunities we see in both UK and international markets, leading to improved cash generation and profitability in the medium term.”