Babcock International PLC (LSE:BAB) unveiled a new £200 million share buyback despite taking a £140 million hit on its Type 31 frigate programme, as the defence contractor said strong cash generation and trading momentum left its outlook for 2027 unchanged.
The defence and nuclear engineering group said underlying operational performance in the year to 31 March was strong, particularly in its Nuclear and Aviation divisions, though profits were dragged lower by a non-recurring charge linked to the Royal Navy frigate contract.
Babcock said the Type 31 charge followed an engineering maturity review of the five-ship programme after higher-than-expected levels of rework during the outfitting stage of the first two vessels.
The company said design changes and the long-term effects of earlier out-of-sequence build activity had increased complexity and costs as work moved into later stages of completion.
Around £100 million of the £140 million charge will be recognised as a revenue reversal in the 2026 financial year, with the balance added to contract loss provisions.
Despite the setback, Babcock said underlying operating profit excluding the Type 31 charge rose 19% at constant currency to £433 million, while revenue climbed 10% to £5.3 billion.
Underlying free cash flow jumped to £262 million from £153 million a year earlier, helping reduce net debt by £44 million to £329 million.
The company said it would begin the new programme around the time of full-year results, which will be pushed back to late June as the external audit process would now take longer because of the Type 31 re-estimate.
Babcock reiterated its medium-term guidance for mid-single-digit average revenue growth, operating margins of at least 9% and operating cash conversion of at least 80%.