Charge on frigate contract dents profits at Babcock

(Sharecast News) - Babcock International posted a jump in annual revenues on Wednesday, but confirmed profits had been hit by a one-off charge on a contract to build five ships for the Royal Navy.

Updating on trading post-close, the engineer said revenues in the year to 31 March had risen to an above-consensus £5.27bn from £4.83bn, boosted by strong performances in its nuclear and aviation divisions. However, underlying operating profits fell to £293m from £363m, following a £140m non-recurring charge on the Type 31 frigate contract.

Once the charge was stripped out, underlying operating profits rose 19% to £433m.

Babcock said the charge related to higher-than-expected levels of rework following changes to the design and the long-term impacts of out of sequence build activity earlier in the programme.

It noted: "While the number of such rework events is not entirely unexpected, the work is being performed in the later stages of completion and therefore is more complex and more costly."

Under the terms of the contract, Babcock is building five smaller frigates at pace for the Royal Navy at the Rosyth Dockyard near Edinburgh.

The marine division was pushed into an underlying loss of £30m once the charge was included. However, other divisions helped offset that, with a 23% jump in underlying operating profits in nuclear, to £197m, and a 52% hike in aviation, to £31m.

Preliminary results are now expected to be published in late June, following the re-estimate of Type 31, Babcock confirmed.

But it continued: "2027 full-year expectations are unchanged, supported by good revenue visibility with around 70% revenue under contract at 1 April 2026, a similar percentage to the prior year.

"We remain confident in our medium-term guidance of average revenue growth of mid-single digit, underlying operating margin of at least 9% and average underlying operating cash conversion of at least 80%."

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