Babcock profits surge despite £90m negative hit from Navy contract

The outturn over the lifetime of the so-called Type 31 contract – signed in 2019 to build five next-generation Navy warships (the Type 31 general purpose frigates) – has been cut by £90m due to higher-than-expected costs and forecasted labour spend.

"These cost increases cause the total contract outturn to deteriorate by £90m, which has been fully recognised in FY24. The cash impact of the loss is expected to be realised over the remaining five years of the programme," Babcock said.

Nevertheless, annual underlying operating profits (which include the £90m loss from Type 31) still increased to £238m, up from £178m the year before.

Underlying free cash flow was "significantly ahead of expectations" at £160m, more than double the £75m reported last year.

Full-year revenues were up 11% on an organic basis at £4.4bn, driven by strong growth in the Nuclear division (+29%) and in Land (+17%), while the contract backlog swelled to £10.3bn by year-end, up from £9.5bn previously.

Meanwhile, Babcock announced that its pension deficit had reduced to £200m, from £400m at the end of the previous financial year.

Long-term funding plans have now been agreed with two of its three large pension schemes and, following a £35m accelerated pension deficit repair payment to one scheme, total group pension payments will reduce to £40m per annum, down from £65m previously.