Babcock profits hit by £140m charge on reworks to Royal Navy ships
Babcock’s annual profits were dragged lower by a £140million charge relating to its Royal Navy warships.
The defence firm, which is a major contractor for the Ministry of Defence, said that it had taken a hit on a contract to build five Type 31 frigates following an ‘engineering maturity review’.
In an unscheduled trading update, Babcock said the outfitting of the first two vessels had ‘higher than expected levels of rework’. It added that the work is ‘more complex and more costly’ because it is being performed in the later stages of completion.
The charge dragged Babcock’s annual underlying operating profits lower, from £363million to £293million.
Profits excluding the Type 31 charge increased by 19 per cent at constant currency to £433million.
Babcock said that the third and fourth ships are in early construction stages, so they will not be as affected by reworks as the first two.
Impact: Babcock took a £140m hit in the last financial year, an update posted on Wednesday showed
Approximately £100million of the £140million charge will be recognised as a revenue reversal in the 2026 financial year, with the balance added to contract loss provisions.
Meanwhile, Babcock’s revenues rose 10 per cent to £5.3billion in the year to 31 March, before the expected revenue reversal, driven by the defence boom.
Revenue from the group’s aviation arm increased by 34 per cent, reaching a high of £431million, while nuclear jumped 14 per cent to £2.1billion, driven by submarine support where the company plays a key role in Britain.
The revenue rise beat analyst forecasts of £5.1billion for the 2026 financial year by nearly £161million.
The business also unveiled a new £200million share buyback despite taking the hit on its Type 31 frigate programme.
Babcock shares rose as much as 1.29 per cent or 13.00p to 1,020.00p on Wednesday morning, having increased by more than 23 per cent in the past year.
Underlying free cash flow jumped to £262 million from £153million a year earlier, helping reduce net debt by £44million to £329million.
Russ Mould, investment director at AJ Bell, said: ‘Having stormed ahead for much of the past 18 months, Babcock’s share price has taken a pause for breath in recent weeks, but its latest update has helped to restore momentum.’
He added: ‘Thanks to its relevant expertise, Babcock is benefiting both from increased spending on defence but also from a growing focus on nuclear power.
‘One area of concern for the business may be the growing use of drone warfare and a suggestion this might render some expensive military kit obsolete, but there is little sign of that yet in Babcock’s order book which remains healthy.’
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