Babcock Reports £140 Million Charge on Royal Navy Frigate Contract

Babcock has reported a £140 million charge linked to higher than expected reworks on its Type 31 frigate contract for the Royal Navy. The London-listed defence contractor told investors the charge affected its annual financial results for the year ended in March.

The company is contracted to deliver five frigates that are under construction at its manufacturing site in Rosyth in Fife. The first two ships were launched during the past year after four years of construction. The company said on Wednesday it had experienced higher than expected levels of rework as a result of changes to the design.

It added that the work is being performed in the later stages of completion and is therefore more complex and more costly. The third and fourth ships remain in early construction stages and will not be affected by reworks to the same extent. The £140 million charge reflects revised costs to complete the design and building of the Type 31 programme, including an estimated £100 million revenue reversal.

The five frigates are scheduled to patrol the ocean for the next decade. They will support maritime operations that include interception and disruption of unlawful activity at sea, intelligence gathering, defence engagement and humanitarian support.

Babcock reported higher revenues in the year to the end of March, driven by stronger performance in its nuclear and aviation divisions. Underlying operating profit fell to £293 million from £363 million the previous year, including the impact of the Type 31 charge.

The company told investors its defence and nuclear energy capabilities remain highly relevant to its customers as defence and energy security requirements evolve. It also announced plans to return a further £200 million to shareholders through buybacks after completing its previous programme.