The cost is high. Babcock's ailing energy division, main cause of the company's woes, will see its workforce at Renfrew halved within an overall loss of 450 jobs in a pounds 25m restructuring programme.
Shorn of a final dividend, shareholders - in order to repair a ravaged balance sheet where net assets have been halved by after-tax losses of pounds 42.2m - are being asked to stump up pounds 78.6m by way of a four- for-seven rights issue at 27p. Undeterred, Babcock shares rose 3.75p to 37p in a clear vote of confidence.
Dr Parker, who is due to take over as chairman from Lord King when he retires in July, has taken, with the help of LEK Partnership, a brave and imaginative series of decisions over the future of the energy division. Problems here were highlighted in November with news of a pounds 15m provision for a gas desulphurisation contract at National Power's Drax power station.
Babcock has decided that it is hopeless to try to compete in Asian and Pacific markets from a high- cost UK manufacturing base. In a far-sighted move it has formed a partnership with Wuhan Boiler Works of China to do basic fabrication while retaining high value- added manufacturing and design work at Renfrew.
A much strengthened balance sheet will allow greater investment in its more successful divisions spanning process engineering, materials handling, facilities management and Africa.
Pre-tax profits of pounds 20m in the year to next March should allow a 1p dividend. A prospective yield of 3.3 per cent underpins the shares at the start of a three-year recovery plan that should see outperformance.Reuse content