Babcock has revealed a £140 million cost over-run on its Royal Navy frigate building contract as a result of design changes.

These modifications are late in build programme and will have knock on effects on the five-ship programme under way at Rosyth. They were due to come in at an average of £250m each.

The company floated the first two ships during the financial year ending 31 March, laid the keel of ship three, and began construction of the fourth vessel.

Babcock said the number of rework events was not entirely unexpected. However, as work on the lead ship progresses, rework requirements during outfitting have proven “more complex and more costly than anticipated” as they occurred in the later stages of completion.

The company has completed an “engineering maturity review” and updated its estimates to complete the programme, incorporating higher production costs and an increased risk contingency.

About £100m of the charge will be recognised as a “revenue reversal” in FY26, with the remainder added to the contract loss provision. Cash costs will be spread across the remainder of the programme.

The update came in a post-close trading update which showed underlying operating profit increased 19% at constant foreign exchange rates to £433 million, excluding the Type 31 charge. Including the charge, underlying operating profit was £293m.

The group has announced a further £200m share buyback, which should begin around the time of the group’s annual results at the end of May.

It said full-year 2027 expectations are unchanged, supported by good revenue visibility with around 70% under contract at 1 April 2026, a similar to the previous year.

“We remain confident in our medium-term guidance of average revenue growth of mid-single digit, underlying operating margin of at least 9% and average underlying operating cash conversion of at least 80%,” read the statement.

In January, Babcock announced David Lockwood’s decision to retire as group chief executive to be succeeded by nuclear division chief executive Harry Holt, who assumed the role of deputy CEO in April and will join the board in June.