David Lockwood insists Babcock International was not “broken” when he joined as chief executive in September and that he has “never read” the brutal research on the defence group by the mysterious Boatman Capital, which warned more than two years ago that Babcock had “terrible” relations with the Ministry of Defence and faced “potentially massive exceptional costs”.
Yet despite Lockwood’s comments, his new strategy rather suggests that Babcock was a broken company and that Boatman’s
hit-job, while inaccurate in some places, hit the spot in others. Take a look at the measures laid out by Lockwood yesterday — £1.7 billion of impairments, which is larger than the company’s market capitalisation, even if they are mostly non-cash charges, 1,000 job cuts, and £400 million of disposals. Lockwood also set out “key enablers” which he said the company will need to “execute our strategy”. These include “a new operating model, a new culture and people strategy, an innovation strategy and a stronger balance sheet”. Sounds like Babcock was broken to me. “When I was at Cobham we thought we should be more frightened of Babcock than we were,” Lockwood said. Ouch.
Some of the things Lockwood plans to do are remarkably simple. He will introduce a group HR function to help ensure that the company’s talent is deployed in the most effective places. He is also getting rid of supply chain financing — which apparently didn’t include Greensill, before you ask — which Lockwood admits was more expensive than conventional borrowing. The new Babcock boss said that it was a “waste of energy” looking to the past and would not apportion any blame for what he found at the company, but this does not reflect well on the former chairman Mike Turner and chief executive Archie Bethel.
Babcock is a big supplier to the MoD so it is in the UK’s interests that Lockwood succeeds. Shareholders clearly liked what they heard, sending the shares up 32 per cent as Lockwood ruled out an equity raise unless something goes seriously wrong. Boatman, whose identity is still unknown, also couldn’t resist a comment after two years of silence on Twitter. “We did warn you this company had problems,” it said.
Be a good sport
The list of UK retailers who have prospered in the US is far shorter than those who have failed. Tesco, Marks & Spencer and Dixons are among the brands to have blown up spectacularly when they attempted to cross the Atlantic.
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However, JD Sports is thriving. The sports retailer said yesterday that trading under its Finish Line and JD fascias was “exceptional” and that the US accounted for £171 million of its £421 million profits before tax and exceptional items in the last financial year. It has also opened a new JD shop in Times Square in New York. This success in the US could bring benefits around the world to JD as it will cement its reputation and relationship with the key trainer suppliers such as Nike and Adidas, ensuring access to their top products.
However, it is difficult to celebrate JD as a UK success story when it pays a dividend but declines to hand back furlough money or business rates relief. The dividend payment of about £15 million was made after “careful and considered review” by the board, according to the boss, Peter Cowgill. JD refused to disclose how much the taxpayer support was worth.
Sure, a large part of JD’s success is outside the UK and it has to answer to US shareholders who care little about the political debate here; and yes, JD says the furlough money saved “tens of thousands” of jobs in the UK and it did actually have to close shops, meaning the case for repaying the state aid is not as strong as it is for the likes of Waitrose or Co-op. But Cowgill freely admits that JD managed to retain 70 per cent of its normal sales in the first lockdown and 100 per cent from November onwards thanks to the performance of its online business. Cowgill says that he understands the debate about taxpayer support but also hits out at the “cookie cutter approach” the government took to which stores were allowed to open in lockdown.
“If we had we put two bags of crisps and a can of coke on our front counter we would probably have been allowed to open,” he says. Maybe so, but JD has thrived over the past year and does not need government support to help it. It should hand back the money.
Haldane heads out
So long, Andy Haldane. The departure of the Bank of England’s chief economist has been on the cards since he lost out to Andrew Bailey in the race to succeed Mark Carney as governor. His exit robs the Bank of an “imaginative and creative thinker”, as Bailey says. Haldane was a hawk among doves, a Yorkshireman on Threadneedle Street. It is no surprise that Dominic Cummings, a fan of “weirdos and misfits”, fancied him for the top job at the Bank.
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Brum deal
Talking of misfits, Goldman Sachs has announced plans to open an office in Birmingham. Andy Street, the mayor of the West Midlands, hailed the move as “brilliant news”. Sure, as long as the people of Birmingham are ready for an employer who was accused of allowing 100-hour weeks and treatment worse than foster care in a survey by first-year analysts earlier this year. David Solomon, the boss of Goldman, pledged to make changes after the survey leaked. Let’s hope so for the sake of England’s second city.
