Babcock takes £140m hit from reworks to new Royal Navy warships

Defence giant Babcock has revealed it took a £140 million hit for late-stage reworks to its newest Royal Navy warships.

The London-listed company, which is a major contractor for the Ministry of Defence, told investors that its annual financial results had been impacted by the charge on its Type 31 contract.

Under the contract, Babcock is set to deliver five frigates that are being built at its manufacturing site in Rosyth in Fife.

The first and second ships took to the water for the first time during the past year after four years of construction.

But Babcock said on Wednesday it had experienced “higher than expected levels of rework as a result of changes to the design” and that the work “is being performed in the later stages of completion, and therefore is more complex and more costly”.

The third and fourth ships are still in early construction stages so will not be as affected by reworks as the first two, it said.

Babcock said the £140m charge reflects the revised costs needed to complete the design and building of the Type 31 programme, including an estimated £100m worth of revenue reversal.

The five frigates are set to patrol the ocean for the next decade, supporting future maritime operations, including interception and disruption of those using the sea for unlawful purposes, intelligence-gathering, defence engagement and humanitarian support.

Meanwhile, Babcock said its revenues increased in the year to the end of March, particularly following a stronger performance for its nuclear and aviation divisions.

However, its underlying operating profit fell to £293m from £363m the prior year, including the impact of the Type 31 charge.

“As the nature of defence and energy security continues to evolve amid an increasingly complex and rapidly changing geopolitical context, Babcock’s critical defence and nuclear energy capabilities remain highly relevant to its customers,” the company told investors.

Babcock also announced plans to return a further £200m to shareholders through buybacks after completing its previous programme.