(Bloomberg) -- Babcock International Group Plc said it’s considerably narrowed the risks on its contract with the UK government to deliver five warships.
The £90 million ($116 million) loss on the Type 31 frigate contract only equates to 5% of group revenue and is not “life-threatening,” Chief Executive Officer David Lockwood said on Friday in an interview. There’s improvement on a monthly basis and the cost of fixing the program hasn’t impacted the company’s economic choices, he said after Babcock reported full-year earnings.
The UK Ministry of Defence awarded Babcock a contract in 2019 to build five Type 31 warships for the Royal Navy by 2028. The company then landed in a dispute with the defense ministry over the program’s increased costs, which was later resolved. Lockwood said Babcock has rescheduled the timing to make sure it can meet the navy’s timeline.
“I think we have dramatically narrowed the range of outcomes but we’ve always said, until we’ve got the first ship launched with an integrated combat system, we won’t have gotten through all of the major risks,” he said.
The contract is still on schedule, with the first ship structurally complete, the second ship currently being built and construction of the third ship expected to start next year. Lockwood said he was confident that the next four ships will be built better and faster than the first.
Babcock rose as much as 5.8% on Friday in London trading, taking the gain this year to about 31%.
The British defense company reported a 34% gain in underlying operating profit to £237.8 million, taking into account the loss from the frigate program. The company said it sees “good momentum” as it enters 2025 and its expectations for the year remain unchanged.
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