Babcock profits plunge 19% due to Royal Navy contract losses

AI Summary

Babcock International's annual profits fell by 19% due to a £140m charge on its Royal Navy contract. The company cited Brexit and Covid-19 as factors contributing to the losses.

The Impact of Brexit and Covid-19 on Babcock's Profits

Babcock International, one of the UK's biggest defence contractors, has reported a 19% fall in underlying operating profits to £293.3m. The company's annual profits plunged due to a £140m charge on its contract to build five Type 31 frigates for the Royal Navy.

Royal Navy Contract Losses

The company cited Brexit and Covid-19 as factors contributing to the losses, stating that the contract had "limited protection from macroeconomic changes" related to these issues. Babcock also mentioned that raw material prices and UK labour shortages had significantly increased costs.

Financial Impact

19% fall in underlying operating profits to £293.3m
£140m charge on the Royal Navy contract
10% increase in estimated production hours would increase losses by £29m
6-month delay to production schedule would increase losses by £15m
10% increase in average labour rate would increase losses by £34m

Future Outlook

Despite the losses, Babcock's chief executive, David Lockwood, stated that the company had delivered "continued strategic and operational progress" and secured important contract wins. The company has £9.8bn in forward contracts and is well-positioned to benefit from long-term demand in defence and nuclear markets.