Babcock says Brexit and Covid beset Royal Navy contract as profits plunge
Summary
Babcock International, a major UK defence company, reported a 19% drop in profits due to increased costs on a Royal Navy shipbuilding contract. The company said Brexit, Covid, higher raw material prices, and labour shortages made the contract unprofitable.Key Facts
- Babcock’s annual profits fell by nearly one-fifth to £293.3 million by the end of March.
- The company took a £140 million charge on its contract to build five Type 31 frigates for the Royal Navy.
- The contract, won in 2019, offered limited protection against rising costs caused by Brexit, Covid, and labour shortages.
- Design changes to the first two ships in the contract caused additional cost increases.
- A delay or increase in production hours or labour costs could increase losses by tens of millions of pounds.
- Babcock’s nuclear and aviation divisions performed well, increasing profits by 19% excluding the ship contract losses.
- The company has £9.8 billion in forward contracts, including a US partnership to build nuclear submarines.
- Babcock’s chief executive said the company is positioned to benefit from growing global demand for defence capabilities.
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