Babcock profits fall 19% on Royal Navy frigate contract costs
8 reported
Babcock International, a major UK defence contractor, reported a 19% drop in underlying operating profits to £293.3 million for the year ending March, attributing the decline to a £140 million charge on its contract to build five Type 31 frigates for the Royal Navy. The company stated that the contract, awarded in 2019, included only limited escalation clauses that failed to protect against cost increases from Brexit, Covid, raw material prices, and UK labour shortages. Babcock noted that late-stage design changes were required for the first two ships, and the contract has become loss-making due to rising costs and maturing design estimates. Shares fell more than 3% on Monday morning. The company’s nuclear and aviation sectors performed strongly, with operating profits excluding the frigate contract rising 19% to £433 million. Babcock’s forward contracts total £9.8 billion, down from £10.4 billion a year ago.
What’s reported
Babcock’s underlying operating profits fell 19% to £293.3 million for the year ending March.
The company reported a £140 million charge on its Type 31 frigate contract for the Royal Navy.
The contract, won in 2019, had only “certain escalation clauses” for cost increases.
Babcock blamed Brexit, Covid, raw material prices, and UK labour shortages for cost increases.
Late-stage design changes were made to the first two of five frigates.
Shares fell more than 3% on Monday morning.
Excluding the frigate contract, operating profits rose 19% to £433 million.
Babcock has £9.8 billion in forward contracts, down from £10.4 billion a year ago.
Key figures
David Lockwood, chief executive at Babcock (to leave at year-end)
Aarin Chiekrie, analyst at Hargreaves Lansdown
John Healey, former defence secretary (resigned earlier in June)
Keir Starmer (mentioned in relation to Healey’s resignation)
Sources: The Guardian
