UK — Babcock International reported a £140 million charge on its contract to build five Type 31 frigates for the Royal Navy. The company also reported a 19% decrease in underlying operating profits, totaling £293.3 million for the year ending in March.

Babcock International stated that the 2019 contract had limited protection from macroeconomic changes. These changes, including Brexit, Covid, raw material prices, and UK labor shortages, increased costs for the frigate contract. The company stated the Type 31 frigate contract is now loss-making due to these cost increases and the maturing of the design.

Babcock International made late-stage changes to the designs for the first two ships in the Type 31 fleet. The company published an illustrative scenario which indicated that a 10% increase in estimated production hours would increase losses on the Type 31 contract by £29 million. A six-month delay to its production schedule would increase the loss by £15 million, and a 10% increase in the average labor rate would increase the loss by £34 million.

Outside of the Type 31 contract, Babcock International reported an increase in operating profits by 19% to £433 million. David Lockwood, chief executive at Babcock, stated, "Against an increasingly uncertain geopolitical backdrop, Babcock has delivered continued strategic and operational progress." He added, "We achieved strong underlying growth, improved margins and robust cash generation, while securing important contract wins that further strengthen our position in defence and nuclear markets, where long-term demand is increasingly structural." Babcock also stated that its operations in the nuclear and aviation sectors performed strongly.

Shares in Babcock International fell more than 3% following the announcement. The company also expanded its partnership with HII to include a nuclear submarine program. Lockwood is scheduled to leave Babcock International at the end of the year. Aarin Chiekrie, an analyst at Hargreaves Lansdown, stated, "Governments around the globe are becoming more focused on improving their defensive capabilities, and Babcock looks well placed to benefit from this long tailwind and capture some of this extra spending."