Key facts
- Babcock International reported a £140 million charge on its Type 31 frigate contract for the Royal Navy.
- Annual underlying operating profits fell 19% to £293.3m due to the contract being loss-making.
- The company blamed Brexit, Covid, raw material prices, and labour shortages for increased costs.
- Nuclear revenue rose 14% to £2bn, and aviation revenue increased 34% to £431.4m.
- Babcock announced a 15% dividend hike to 7.5p per share and plans a new share buyback program.
Babcock International has reported a £140 million charge related to delays and cost increases on its contract to build five Type 31 frigates for the Royal Navy. The company's annual underlying operating profits fell 19% to £293.3m for the year ending March, with the frigate contract proving loss-making due to limited escalation clauses protecting against macroeconomic changes like Brexit, Covid, rising raw material prices, and UK labour shortages.
Despite the setback, Babcock's nuclear revenue increased 14% to £2bn, and aviation revenue grew 34% to £431.4m, driven by new contracts. Marine revenue saw a modest 2% increase to £1.6bn, while land revenue declined 3% to £1.1bn.
Babcock announced a 15% increase in its dividend to 7.5p per share and plans a new share buyback program, signalling confidence despite the Type 31 contract issues. The company's contract backlog stands at £9.8bn, down from £10.4bn a year prior.
Chief executive David Lockwood noted continued strategic and operational progress, with strong underlying growth, improved margins, and robust cash generation, particularly in defence and nuclear markets where long-term demand is structural. Analysts believe Babcock is well-positioned to benefit from increased global defence spending.