Babcock International

Babcock International: Underperformance and Overcomplexity

In our opinion, Babcock International needs to write down the value of its Defence Support Group (DSG) subsidiary, which was acquired for £148 million. According to our calculations, Babcock DSG has overvalued its main contract by £50 million, based on an average assessment of underlying operating profits. An impairment on this scale would be equivalent to 12.8% of Babcock’s pre-tax profits.

Babcock International: Burying the Bad News

In our opinion, Babcock has systematically misled investors by burying bad news about its performance. We believe that Babcock’s senior leadership team – specifically the chairman and chief executive – are not up to the job and their failings will damage the company’s future prospects.

Mike Turner has been the chairman for 10 years and can no longer be considered independent under the UK’s Corporate Governance Code.

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