Shares in Babcock International
soared more than 37% on Tuesday, after the U.K.’s second-largest defense contractor unveiled a £1.7 billion ($2.3 billion) write-down and said it would look to raise £400 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 £30 million each year.
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 £40 million a year and will result in a one-off, largely cash cost of about £40 million, it said.
Disposals of noncore businesses are expected to generate £400 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 to U.S.-based helicopter services company CHC Group
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 £4.69 billion, down from £4.87 billion for the previous year. Underlying operating profit fell from £524 million to £307 million before the exceptional charge.