Babcock Regulatory News (BAB)

Babcock International Group PLCFull year results for the year ended 31 March 2026

This announcement contains inside information

22 June 2026

Capability for a changing world

David Lockwood, Chief Executive Officer, said:

"Against an increasingly uncertain geopolitical backdrop, Babcock has delivered continued strategic and operational progress. 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.

"We remain on track to deliver our medium-term guidance. With our core capabilities aligned to our customers' evolving priorities, we are building a high-quality pipeline of long-term growth opportunities. Babcock is a more resilient business today, with clear momentum and strong visibility. Our people remain our most important asset, and we continue to build a talent-led culture with the right skills, capability and leadership. I leave with confidence that the Group is well positioned for its next phase of delivery, growth and value creation."

Strong momentum driving underlying performance

Continued delivery driving growth and margin expansion

Strategic progress to drive long-term growth in defence and nuclear in UK and internationally

Strong balance sheet and disciplined capital allocation drive value creation and returns

Outlook

Notes to statutory and underlying results above

1. Alternative Performance Measures (APMs):

The Group provides alternative performance measures (APMs), including underlying operating profit, underlying margin, underlying earnings per share, underlying operating cash flow, underlying free cash flow, net debt and net debt excluding leases to enable users to have a more consistent view of the performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in analysing business performance.

The Group's APMs are not defined by IFRS and are therefore considered to be non-GAAP measures. The measures may not be comparable to similar measures used by other companies, and they are not intended to be a substitute for, or superior to, measures defined under IFRS. The Group's APMs are consistent with those for the year ended 31 March 2025. The Group has defined and outlined the purpose of its APMs in the Financial Glossary below.

2. Type 31 contract charge

The Type 31 contract charge of £140.0 million, which covers the remaining cost of the programme, includes a revenue reversal of £95.5 million. The table below sets out the impacts of the charge. Further details are available below.

3. Net debt

Net debt excluding leases as at 31 March 2026 reduced to £22.7 million (FY25: £101.2 million).

The person responsible for arranging for the release of this announcement on behalf of the Company is Jack Borrett, the Corporate Secretary, Babcock International

Results presentation:

A presentation for investors and analysts will be held on 22 June 2026 at 09:00 am (BST). The presentation will be webcast live and will be available on demand at www.babcockinternational.com/investors/results-and-presentations.

A transcript of the presentation and Q&A will also be made available on our website.

For further information:

CEO review

Introduction

FY26 was another year of strong strategic, operational and financial progress. We delivered good underlying growth, improved margins and cash generation, and further strengthened Babcock's position in defence and nuclear, which now account for around 80% of Group revenue. This reflects our focus on markets where our engineering expertise, critical infrastructure and customer relationships create durable competitive advantage.

That focus is increasingly aligned with the priorities of our customers. In a more uncertain world, defence and energy security have become strategic imperatives for the UK and its allies. Rapid technological change, the need for sovereign capability and greater operational agility are reshaping customer requirements. Babcock's deep engineering know-how, proven operational delivery and close customer relationships position us well to deliver the mission-critical capabilities they need.

FY26 performance

The Group's strong underlying financial results were partly offset by a charge of £140 million on the Type 31 contract, which covers the remaining cost of the programme, fully recognised in FY26 (see note 2 on page 3).

Revenue grew 8% at constant currency, with particularly strong growth in Nuclear and Aviation. Underlying operating profit decreased to £293 million (FY25: £363 million) due to the Type 31 charge. Excluding this, operating profit increased 19%, driving a 70 basis point improvement in operating margin to 8.2%, with progress in all sectors.

Cash performance was also robust, with free cash flow increasing to £262 million (FY25: £153 million). This further strengthened the balance sheet, reducing net debt to £329 million (FY25: £373 million) and covenant gearing to 0.2x (FY25: 0.3x).

Sector performance (at constant FX) was resilient across the Group. Marine revenue grew 2%, with growth in LGE and Skynet offset by the revenue reversal due to the Type 31 charge. Excluding the Type 31 charge, margin improved 40 basis points to 6.5%. Nuclear delivered another strong year, with revenue up 14% and margin up 70 basis points to 9.5%. Land revenue declined 3% due to lower civil activity but returned to growth in the second half, delivering a 110 basis points increase in margin to 8.8%. Aviation delivered the highest growth, with revenue up 34% and margin up 90 basis points to 7.1%.

Contract backlog was £9.8 billion (FY25: £10.4 billion), reflecting large multi-year orders won in FY25 and ongoing contract execution. At year-end, the £3.5 billion Future Maritime Support Programme (FMSP) moved to a six-month bridging agreement while the multi-year follow-on contract is finalised. Our long-duration backlog, which excludes around £2.8 billion of framework orders, continues to provide strong revenue visibility.

Confidence in our platform and future growth has enabled us to increase the full-year dividend by 15% and launch a further £200 million share buyback, following successful completion of the previous £200 million programme in April.

Type 31

During the year, operational progress continued, including the float-off of ships one and two, keel laying for ship three, and steel cut for ship four.

As announced in our trading update on 13 May 2026, we recognised a £140 million charge at the year-end following higher-than-expected rework during the outfitting of ship one and an updated estimate of the cost to complete the programme. The full charge is recognised in FY26 operating profit, with related cash costs expected over the remainder of the contract. We outline in more detail in the Financial Review on page 8.

Importantly, through the Type 31 programme, we are establishing a leading naval shipbuilding capability with a flexible build and support model which is already having success in export markets, including Indonesia and Poland. While we were disappointed not to be selected for the Swedish corvette opportunity, we remain well positioned for further multi-billion-pound naval programmes, as allied governments expand and upgrade their fleets.

Delivering momentum across strategic areas

Against a rapidly changing geopolitical backdrop, demand for Babcock's critical defence and nuclear capabilities remains strong. During the year, we continued to deliver against our strategy through consistent operational performance, stronger product and export capability, deeper strategic partnerships and an enhanced position in key markets. We also secured a number of important contract wins with the potential to generate significant medium and long-term revenue.

In November we signed the Maritime Partnerships Programme (MPP) framework with the Indonesian Government for up to £4 billion. Indonesia has since signed a Letter of Intent for two further Arrowhead 140 frigate licences, expected in the coming months, while negotiations continue on the contract structures for the broader programme. This reinforces our position as a trusted government delivery partner on strategically important international programmes.

Our partnership with HII, the United States' largest military shipbuilder, strengthened further during the year, expanding to support the US Virginia Class nuclear submarine programme. Babcock is now authorised to manufacture complex submarine assemblies at our advanced manufacturing facility in Rosyth. The initial engineering contract is underway and could expand materially over time.

In Land, we secured contracts to deliver 270 Light Utility Vehicles to the British Army and the first tranche of off-road vehicles to Albania. These early wins, developed in partnership with Toyota, strengthen our position in future UK and export vehicle opportunities., including the British Army's Land Rover replacement programme.

At year-end, we agreed a six-month FMSP bridging agreement with the UK MOD to maintain continuity of nuclear submarine fleet support and naval base management services, while the MOD signed a Letter of Intent to finalise the multi-year replacement contract, Gateway, by October 2026. We also secured a two-year extension for critical Royal Navy surface ship maintenance and infrastructure support.

In civil nuclear, we secured an important role on Great British Energy - Nuclear's first small modular reactor (SMR) project at the Wylfa site in North Wales. Through Litmus Nuclear, our joint venture with Amentum, we will deliver the Owner's Engineer contract, worth up to £300 million over 14 years, supporting regulatory compliance and long-term low-carbon power generation.

Structural growth in our core markets 

This year, organic growth in defence was 8% and in civil nuclear 19%, reflecting the strength of our exposure to markets with attractive structural growth.

Higher defence spending from governments continues to support demand as the nature of conflict evolves rapidly, shaped by new technologies and changing operational requirements. While some governments are balancing these priorities against fiscal constraints, as reflected in the delayed publication of the UK's Defence Investment Plan (DIP), the long-term trend remains clear. Demand is increasingly structural, driven by the need for more advanced, adaptable and integrated capability.

Energy security is also driving renewed government commitment to nuclear power. Global expenditure on new nuclear is expected to reach $2.2 trillion by 2050, with growing interest in SMRs and advanced modular reactors (AMRs). In the UK, the Government has already allocated £2.5 billion to support early SMR deployment.

Together, these trends are expected to support sustained defence demand and increased civil nuclear investment for the foreseeable future.

Capabilities aligned to structural growth trends

These structural growth drivers, together with accelerating technological change, are reshaping customer priorities across our core markets.

Autonomy: Autonomous technology is transforming defence demand across all domains, as an enabler of interoperability and operational effectiveness. Babcock's expertise in complex assets, mission-critical support and systems integration positions us well to help customers adopt and integrate new technologies.

Energy security: Rising electricity demand, energy security and decarbonisation are strengthening the long-term case for nuclear. The ongoing conflicts in Europe and the Middle East have further highlighted the importance of sovereign capability and energy resilience. Against this backdrop, the UK Government has set out a roadmap to increase nuclear power generation capacity from 6GW to 24GW by 2050, underlining the scale of the opportunity. With specialist capabilities across the full nuclear lifecycle, from legacy reactors to next-generation technologies, Babcock is well placed to support the Government's evolving nuclear agenda and broader global demand.

Supply chain sovereignty: Customers are increasingly prioritising sovereign capability and supply chain resilience. As an integrator of complex supply chains, Babcock brings together major partners, SMEs and specialist technology providers, with SMEs accounting for 30% of our supplier spend. Our new SME Charter is designed to help broaden access and participation across Babcock and the wider UK defence sector.

Agility: Customers need capability delivered faster and more affordably. The increasing adoption of autonomy and artificial intelligence is shortening technology cycles and accelerating upgrade requirements, while legacy platforms still need to remain relevant and interoperable for decades to come. As an OEM-agnostic technology and systems integrator, Babcock is uniquely positioned to upgrade, operate and support both current and next-generation capability at scale.

Through-life support: In a more demanding global environment, asset availability and readiness are critical at the same time militaries modernise and scale. We deliver integrated product and service solutions that meet customers' requirements for availability, affordability and capability across long asset lifecycles.

Babcock's advantage

In our core defence and nuclear markets, we provide technology-enabled support and product solutions that strengthen customer capability and resilience.

Building pipeline of significant long-term growth opportunities across defence and nuclear

Aligned to these emerging structural trends, Babcock has increasing visibility of multi-decade, multi-billion GBP growth opportunities across three pillars: defence nuclear (submarines), broader defence programmes and energy security. Most sit within our core capabilities, where we see potential for meaningful long-term scale.

In defence nuclear, long-duration contracts and high incumbency provide significant growth potential. In the UK, submarine fleet expansion and transition will increase long-term support and infrastructure requirements. Internationally, AUKUS offers further upside through Australia's developing nuclear submarine capability under Pillar I, including supply chain, training, infrastructure and support. Momentum is building with the AUKUS partner nations, Australia, the UK and the US, signing the first Pillar II project last month, to develop enabling systems for Uncrewed Undersea Vehicles (UUVs).

Across defence programmes, our naval shipbuilding capability, Arrowhead 140 platform, Indonesian framework agreement, autonomous maritime partnerships and growing land vehicle activities all create opportunities for significant medium- and long-term growth in the UK and internationally. In Aviation, we also see multiple opportunities to scale our military aviation technical training and specialist support services.

In energy security, the UK's civil nuclear renaissance could represent up to a £25-30 billion addressable opportunity for Babcock through to 2050. Our existing position at Hinkley Point C can be scaled through Sizewell C and further new large gigawatt reactors that may be required to meet the UK's future energy requirements. We also see multiple routes to long-term growth across SMRs, AMRs and fuels, both in the UK and internationally, built from our Owners Engineer status in the UK and our wider advanced nuclear capabilities.

Building capability to support sustainable growth

Our people remain a critical strategic asset and a key enabler of growth. We continue to build a talent-led culture focused on having the right skills, capability and leadership to support performance, delivery and growth.

In FY26, we welcomed 500 apprentices and more than 260 graduates, our largest UK intake to date, taking total apprentice and graduate roles across the business to around 1,800.

Our successful STEM outreach programme continues to build future skills resilience. During the year, we delivered more than 300 engagement events across the UK, reaching over 27,000 young people.

Disciplined capital allocation

Robust cash generation and a healthy balance sheet give us flexibility to invest for growth while increasing shareholder returns. In FY26, we continued to invest in the business through capital expenditure, while assessing further organic growth opportunities and selective inorganic options. We also increased the full-year dividend by 15% to 7.5 pence per share. In April 2026, we completed the £200 million share buyback launched last summer and have since announced a further £200 million programme, expected to commence imminently and complete in the current financial year.

CEO succession and Board changes

In January 2026, I was pleased the Board announced that Harry Holt would succeed me as CEO upon my retirement later this year. Harry has been an integral member of my senior management team for the past three years as CEO of Babcock's Nuclear sector. He also brings more than a decade of executive experience across the aerospace, defence, security and nuclear sectors, following a long and distinguished military career as an officer in the British Army. I am confident in his ability to lead Babcock through its next phase of growth and delivery.

We have been undertaking a thorough transition process over the last five months, which is progressing well. Harry was appointed Deputy CEO on 1 April and will become CEO and join the Board on 1 August.

Outlook

For FY27, we expect another year of good progress, supported by strong visibility with around 70% of revenue under contract at 1 April 2026.

Looking further ahead, we reaffirm our medium-term guidance of average mid-single digit organic revenue growth, underlying operating margin of at least 9% and average underlying operating cash conversion of at least 80%.

Other information

Dividend

A final dividend of 5.0 pence per ordinary share (FY25: 4.5 pence) is payable on 25 September 2026 to shareholders whose names appear on the register at the close of business on 14 August 2026. If approved by the Shareholders at the AGM on 16 September 2026 this will give a total dividend for the year of 7.5 pence (FY25: 6.5 pence). Shareholders may participate in the dividend re-investment plan and elections must be made by 4 September 2026. Details of the dividend re-investment plan can be found, and shareholders can make elections, at www.babcock-shares.com.

Notes to CEO Statement

All profit and earnings figures are stated on an underlying basis as defined in the Group's alternative performance measures (APMs). See note 1 above.

Financial review

The Group provides alternative performance measures (APMs), including underlying operating profit, underlying margin, underlying earnings per share, underlying operating cash flow, underlying free cash flow, net debt and net debt excluding leases, to enable users to have a more consistent view of the performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in analysing business performance.

The Group's APMs are not defined by IFRS and are therefore considered to be non-GAAP measures. The measures may not be comparable to similar measures used by other companies, and they are not intended to be a substitute for, or superior to, measures defined under IFRS. The Group's APMs are consistent with those for the year ended 31 March 2025. The Group has defined and outlined the purpose of its APMs in the Financial Glossary below.

The reconciliation from the IFRS statutory income statement to the underlying income statement is shown below.

Income statement

A full statutory income statement can be found below.

As described above, statutory operating profit includes specific adjusting items (SAIs) that are not included in underlying operating profit, which is a key APM for the Group. A reconciliation of statutory operating profit to underlying operating profit is shown in the table above and in note 2 of the preliminary financial statements.

Revenue of £5,177.7 million after £95.5 million revenue reversal at the year-end, due to the Type 31 charge, represents an increase of 8% on an organic basis, driven by strong growth in Nuclear and Aviation.

See segmental tables below:

Underlying operating profit decreased 19% to £293.3 million, with strong underlying performance offset by the Type 31 charge at the year-end of £140.0 million. As a result, underlying operating margin decreased to 5.7% (FY25: 7.5%). Excluding the Type 31 charge, underlying operating profit increased 19% to £433.3 million and underlying operating margin increased 70 basis points to 8.2%, ahead of our target of 8%, with all four sectors delivering increased margin. See segmental tables on page 18:

Further analysis of financial performance is included in each sector's operational review below.

Type 31 contract update

The Type 31 contract typically represents less than 4% of Group revenue. During the year we floated off the first and second ships in the five-ship programme, laid the keel of ship three and formally commenced the build of ship four at its steel cutting ceremony.

As outlined in our trading update on 13 May 2026, as we finish structural completion of ship one, the bulk of the remaining work now relates to outfitting and commissioning. During the outfitting stage we have experienced higher than expected levels of rework as a result of changes to the design and the long-term impacts of out-of-sequence build activity earlier in the programme. Whilst the number of such rework events is not entirely unexpected, the work is being performed in the later stages of completion and therefore is more complex and more costly. The ability to increase levels of programme productivity through full enablement of production tasks has also been impacted. As the build of ship two is close behind ship one, there is also some cross over in the design-related rework necessary to this ship. With ships three and four still in the early construction stages, the extent of impact on these and future vessels is comparatively reduced. 

As a consequence, we have performed an engineering maturity review, and we have updated our financial estimates to complete the programme, given the elevated levels of rework due to engineering change and productivity. These re-estimates not only cover the production costs of material and personnel, but also an increased programme risk contingency.

This is reflected in a charge on the contract at the year-end of £140.0 million for the revised costs to complete delivery of the Type 31 design and build contract, which is fully recognised in FY26, but the cash costs of which will be incurred over the remainder of the programme. Within the £140.0 million charge, £95.5 million is recognised as a revenue reversal in FY26 (with a corresponding increase in contract liabilities) and the balance increases the contract loss provision. See further disclosures on page 43.

Statutory operating profit decreased to £305.1 million (FY25: £363.9 million) due to the impact of the Type 31 charge, with a small positive impact from the revaluation of derivatives, and the final recovery of loan receivables originating from the disposal of the Civil Training business in FY23. As a result, statutory operating margin decreased to 5.9% (FY25: 7.5%). The specific adjusting items between statutory and underlying operating profit are set out in the table below.

Reconciliation of statutory to underlying operating profit

Share of joint ventures and associates on a statutory basis was a £7.4 million profit (FY25: £2.7 million loss, which included an £11.1 million charge following a review by our Ascent flight training joint venture to align its accounting to IFRS principles). The underlying share of results from joint ventures and associates was a profit of £7.4 million (FY25: £8.4 million profit).

Net finance costs

Income tax expense

Basic earnings per share

Reconciliation of statutory profit and basic EPS to underlying profit and basic EPS

Dividend per share

The Board has recommended a final dividend of 5.0 pence per ordinary share for approval by shareholders at the 2026 Annual General Meeting, which will result in a total dividend for FY26 of 7.5 pence (FY25: 6.5 pence), a 15% increase.

Exchange rates

The translation impact of foreign currency movements resulted in an increase in revenue of £14.2 million and an increase in underlying operating profit of £0.2 million. The main currencies that have impacted our results are the Australian Dollar, Canadian Dollar, Euro, New Zealand Dollar and South African Rand. The currencies with the greatest potential to impact results are the South African Rand, the Australian Dollar, the Euro and the Canadian Dollar:

Cash flow and net debt

Underlying cash flow and net debt

Underlying cash flows are used by the Group to measure operating performance as they provide a more consistent measure of business performance from year to year.

A full statutory cash flow statement can be found below and a reconciliation to net debt.

Underlying operating cash flow increased to £348.2 million (FY25: £296.2 million), representing underlying operating cash conversion of 119%. Excluding the impact of the Type 31 charge at the year-end, underlying cash conversion was 84% (FY25: 82%). Net capex of £107.2 million (FY25: £122.2 million) remains ahead of depreciation as we continue to invest across the portfolio. See financial glossary page 29 for the reconciliation of underlying cash conversion and page 33 for the reconciliation of capital expenditure.

The £12.0 million inflow of working capital includes a £95.5 million increase in contract liabilities due to the Type 31 revenue reversal as described below. Together with deposits received on new contracts, this more than offset the expected unwind of advance payments on certain existing contracts, notably LGE due to the record order intake in the prior year and the increase in inventory due to slower sales of construction equipment in Africa.

Underlying free cash flow of £261.8 million (FY25: £153.4 million), reflects higher underlying operating cash flow and lower pension deficit repair contributions following the agreement of long-term funding arrangements for our three main schemes.

Acquisitions and disposals

Cash receipts and related fair value gains of £8.1 million arose on the final settlement of loan receivables originating from the disposal of the Civil Training business in FY23.

New lease arrangements

In addition to net capital expenditure, £73.3 million of net additional lease liabilities were entered into in the year (FY25: £87.2 million). The increase includes aircraft leases to support new contracts in Australia and Canada. These are new lease obligations and are therefore included in net debt, but do not involve any cash outflows at inception.

Reconciliation of underlying operating cash flow to statutory net cash flows from operating activities

Statutory cash flow summary

Net cash flow from operating activities was £402.4 million (FY25: £308.8 million). This reflects lower operating profit and lower pension deficit payments.

Net cash flow from investing activities was an outflow of £91.7 million (FY25: outflow of £110.8 million), reflecting lower net capex.

Net cash flow from financing activities was an outflow of £239.5 million (FY25: outflow of £92.7 million), including£44.5 million lease payments (FY25: £45.4 million), £36.7 million dividends paid (FY25: £28.0 million) and £155.3 million purchase of own shares (FY25: £18.8 million).

Movement in net debt - reconciliation of statutory cash flows to net debt

Net debt

Net debt at 31 March 2026 was £329.0 million, a reduction of £44.3 million due to increased underlying free cash flow, partially offset by dividend payments of £36.7 million (FY25: £28.0 million), purchases of own shares of £155.3 million (FY25: £18.8 million) and net new leases of £73.3 million (FY25: £87.2 million) in excess of lease principal payments of £44.5 million (FY25: £45.4 million). Net debt excluding leases was £22.7 million, representing a reduction of £78.5 million.

Cash components of net debt

Summarised balance sheet

Property, plant and equipment (PP&E) and right of use assets were £849.8 million, an increase of £62.1 million. PP&E increased by £42.4 million to £601.3 million, reflecting additions of £155.4 million (FY25: £105.0 million) less disposals of £50.9 million (FY25: £5.4 million), depreciation of £66.0 million (FY25: £59.0 million) and impairment and currency adjustments. The disposals primarily relate to aircraft acquired and then sold and leased back within the year. Right of use assets increased by £19.7 million to £248.5 million including new leases of £63.5 million (net of disposals) less depreciation and impairment of £50.4 million (FY25: £33.0 million) and currency adjustments.

Working capital was £(704.3) million, a decrease of £10.1 million. This reflects a £95.5 million increase in contract liabilities due to the Type 31 revenue reversal and deposits received on new contracts, which more than offset the expected unwind of advance payments on certain existing contracts and an increase in inventory from slower sales of construction equipment in Africa.

Funding and liquidity

As of 31 March 2026, the Group had access to a total of £1.4 billion of borrowings and facilities. These comprised:

At 31 March 2026, the Group's net cash (cash and cash equivalents less overdrafts) balance was £723.6 million. This, combined with the undrawn amounts under our committed RCF and overdraft facilities, gave us liquidity of around £1.4 billion.

Net debt to EBITDA (covenant basis)

While there are several facets to balance sheet strength, a primary measure relevant to Babcock is the net debt/EBITDA gearing ratio within our debt covenant of a maximum of 3.5x. This measure is used in the covenant in our RCF and includes several adjustments from reported net debt and EBITDA. The net debt/EBITDA gearing ratio (covenant basis) at 31 March 2026 reduced to 0.2x (FY25: 0.3x) due to strong underlying free cash flow and lower underlying operating profit.

1.  Various adjustments made to EBITDA to reflect accounting standards at the time of inception of the original RCF agreement. The main adjustments are to the treatment of leases within operating profit and pension costs.

2.  Removing loans to JVs, finance lease receivables and non-recourse debt.

Return on invested capital, pre-tax (ROIC)

This measure is one of the Group's key performance indicators.

Pensions

The Group has a number of defined benefit pension schemes. The principal defined benefit pension schemes in the UK are the Devonport Royal Dockyard Pension Scheme (DRDPS), the Babcock International Group Pension Scheme (BIGPS) and the Rosyth Royal Dockyard Pension Scheme (RRDPS) - the principal schemes.

IAS 19

At 31 March 2026, the IAS 19 valuation for accounting purposes was a net deficit of £34.0 million (FY25: £8.4 million). The increase in net accounting deficit is driven by the lower fair value of plan assets of £2,804.4 million (down by £26.6 million year on year), driven by contributions of £31.7 million offset by asset returns of £145.1 million and benefits paid of £200.3 million. The present value of pension benefit obligations of £2,838.4 million decreased by £1.0 million driven by interest costs and experience losses offsetting benefits paid. The fair value of the assets and liabilities of the Group pension schemes at 31 March 2026 and the key assumptions used in the IAS 19 valuation of our schemes are set out in note 17.

Income statement charge

The charge included within underlying operating profit in FY26 was £8.3 million (FY25: £17.9 million), of which£3.4 million (FY25: £11.1 million) related to service costs and £4.9 million (FY25: £6.8 million) related to expenses. In addition to this, there was a net interest credit of £0.4 million (FY25: charge of £4.5 million). The reduction follows the closure of defined benefit schemes to future accrual.

Technical provision

An estimate of the aggregate actuarial deficits of the Group's defined benefit pension schemes (excluding those in surplus), including all longevity swap funding gaps, calculated using each scheme's technical provisions basis, as at 31 March 2026 was approximately £100 million (FY25: c.£125 million). Such valuations use discount rates based on UK gilts which differ from the corporate bond approach of IAS 19. This technical provision estimate reflects the assumptions used within the latest agreed valuation prior to 31 March 2026 for each of the principal schemes.

Actuarial valuations are carried out every three years to determine the Group's cash contributions to the schemes. The valuation of the three largest schemes is set so only one scheme is undertaking its valuation in any one year, to spread the financial impact of market conditions. The valuation of the DRDPS as at 31 March 2023 was completed in FY24, the valuation of the RRDPS as at 31 March 2024 was finalised in April 2025, and the valuation of the BIGPS at 31 March 2025 was finalised in May 2026.

We expect annual deficit repair payments to be c.£20 million per annum over the coming years.

Cash contributions

Group cash contributions made into the defined benefit pension schemes, excluding expenses and salary sacrifice contributions, were as follows:

Segmental analysis

The Group reports its performance through four reporting sectors.

Operational reviews

Marine

Our c.7,500 employees design, develop, build, manufacture and integrate specialist systems, and deliver technical through-life support for complex systems and platforms in the marine sector. Over 75% of Marine's revenue is derived from defence, with our technology-led Liquid Gas Equipment (LGE) business delivering civil revenue.

Operational highlights

Financial review

* Alternative Performance Measures are defined in the Financial Glossary below.

Contract backlog reduced to £2,807 million, reflecting delivery of the record LGE order intake in FY25 and revenue recognised on long-term contracts, partially offset by scope increases and renewals in UK and international defence contracts and the two-year extension to the FMSP ship support contract.

As outlined in the Financial Review, a £140.0 million charge was recorded in relation to Type 31, which is fully recognised in FY26. The cash impact of this charge is expected to be realised over the remainder of the programme. This has resulted in a revenue reversal of £95.5 million in FY26.

Revenue increased 2% (at constant FX) to £1,591.5 million, with growth in our LGE business and the Skynet programme partly offset by the Type 31 revenue reversal and lower UK and international ship support activity, as expected.

The underlying operating loss of £29.8 million reflects the Type 31 charge of £140.0 million, resulting in an underlying operating margin of (1.9)% (FY25: 6.1%). Excluding the Type 31 charge, underlying operating profit increased 14% to £110.2 million driven by performance on LGE orders and improvements in the profitability of existing contracts, increasing the operating margin to 6.5%.

Operational review

Defence

UK defence (48% of Marine revenue)

The Type 31 Inspiration Class programme to build five frigates for the Royal Navy at our facility in Rosyth continues to progress across multiple ships. During the year we floated off the first and second ships in the five-ship programme, laid the keel of ship three and formally commenced the build of ship four at its steel cutting ceremony.

Also at Rosyth, the advanced manufacturing of missile tubes for the UK-US Common Missile Compartment has achieved record levels of output, delivering 12 missile tube assemblies over the year for the US Columbia Class and UK Dreadnought submarine programmes. Following Rosyth's success as a centre of excellence for advanced manufacturing of complex nuclear submarine components, Babcock has further expanded its strategic partnership with HII, with an initial contract to support the US Virginia Class submarine build programme.

Babcock delivered the final year of critical surface ship support within the Future Maritime Support Programme (FMSP) contract, and at the year-end, agreed a two-year extension ahead of the future long-term Naval Support Integrated Global Network (NSIGN) contract. During the year we delivered upgrade and maintenance work on Type 23 vessels, alongside fleet time support in the UK and overseas. Deployed support for Type 23s was delivered in South Korea, Australia, Crete and Gibraltar, ensuring high availability for the UK Carrier Strike Group. We also assumed further support packages for two Type 23 frigates as they enter extended readiness.

As the Type 23 fleet is phased out, Babcock is expanding its support focus to the new Type 26 frigates, planned to be base-ported at HMNB Devonport. Our specialist in-service support team is already planning routes to support these vessels when they enter service, ensuring they are delivered, upgraded, and maintained efficiently. As the new ships enter service, managing their critical equipment under a single, integrated support arrangement will become increasingly important, improving efficiency and reducing reliance on multiple external contracts.

As part of our ten-year contract to deliver maintenance and docking on the UK Queen Elizabeth Class aircraft carriers, HMS Queen Elizabeth successfully docked in Rosyth for routine work during the year. 

In December 2025, our Mission Systems business led a group of established and startup companies to demonstrate integrated autonomous Maritime Domain Awareness (MDA) technology to several European navies. The MDA demonstration included a range of autonomous platforms, delivering aerial, surface and sub-surface Intelligence Surveillance and Reconnaissance outcomes.

The Mission Systems team continues to provide critical, long-term support, evidenced by the third renewal contract supporting in‑service Royal Navy submarine effector systems, worth £110 million over nine years. Meanwhile we've completed two years of service on the Skynet contract, where we are responsible for operating the UK's constellation of military satellites and ground stations, including the integration of terminals into the MOD network.

International defence (29% of Marine revenue)

In Canada, we are continuing to deliver an Extended Docking Work Period (EDWP), for the HMCS Victoria submarine, on schedule as part of the Victoria In-Service Support Contract (VISSC). This year, we received a contract amendment aligning HMCS Victoria's EDWP with the current VISSC contract end date in 2027. Babcock also supports the Fleet Maintenance Facility Cape Scott in Nova Scotia where the submarine HMCS Windsor's EDWP is taking place.

During the year, we signed a teaming agreement focused on in-service support with Hanwha Ocean, one of two short-listed suppliers for the Canadian Patrol Submarine Project (CPSP), to acquire Canada's next-generation conventionally-powered submarines.

In South Africa, we secured our first defence contract, for the survey and refit of two submarines at Simonstown Dockyard, alongside spares and product supply contracts. This marks a major strategic milestone and our entry into the defence sector in South Africa.

In Australia, we play a critical role as the Royal Australian Navy's surface ship sustainment provider in Western Australia, supporting four ship classes in parallel at Henderson. As Regional Maintenance Provider - West, we expanded our sustainment portfolio to include Arafura Class offshore patrol vessels, supply class auxiliary oiler replenishment ships, and Anzac Class frigates.

Under contract with BAE Systems Maritime Australia, Babcock completed the Critical Design Review for the Air Weapons Handling System for the Royal Australian Navy's new Hunter Class frigates.

In New Zealand, as Strategic Maritime Partner to the New Zealand Defence Force, we work closely with our 600 local suppliers to deliver maritime fleet sustainment services to the Royal New Zealand Navy (RNZN). During the year, we completed the largest maintenance package to date on HMNZS Te Mana, an Anzac Class frigate, as well as critical maintenance work on the RNZN fleet tanker HMNZS Aotearoa.

In Sweden, we were disappointed to learn our Arrowhead 120 design was not selected for preferred bidder on the Luleå Class surface combatant programme, after a decision was made in late May 2026.

In Denmark, we are awaiting an announcement from the Danish Government as to its preferred naval platform, with the Arrowhead 140 design under consideration.

In Poland, Babcock signed a strategic cooperation agreement with PGZ SA to collaborate on naval design, construction, maintenance, military aircraft sustainment and strategic asset management for the Polish armed forces.

In Indonesia, we signed the £4 billion Maritime Partnership Programme framework agreement to support Indonesia in areas of maritime defence, maritime security and maritime modernisation alongside an agreement for the sale of two further Arrowhead 140 frigate licences.

In Brazil, we have extended our support contract on landing platform dock, NAM Atlantico (previously HMS Ocean), to August 2026, with negotiations ongoing to extend further. Meanwhile we are also engaged to offer support to NDM Oiapoque (previously HMS Bulwark) to integrate into the Marinha do Brazil in FY27.

Civil (23% of Marine revenue)

Our LGE business performed well in the year, successfully delivering 42 projects featuring cargo handling and fuel gas supply systems for LPG, LNG, CO2, and ethane liquefied gas carriers, including the successful delivery and trials of the cargo handling system for a world-first CO2 carrier. A further milestone was reached with the winning of the 150th ecoSMRT® system. The business completed nine dry dock service operations globally to support its patented ecoSMRT® LNG reliquefaction systems, with a significant number already secured for FY27.

The company also secured its first contracts for the design and supply of ammonia fuel gas supply systems using our ecoFGSS-FLEX® technology, supporting the transition to ammonia as a zero-carbon marine fuel.

Nuclear

Our c.11,100 employees provide complex through-life engineering support to the entirety of the UK's nuclear submarine fleet. We own and manage critical national infrastructure and provide engineering integration support to AWE. We operate across UK civil nuclear, including new build, generation support and decommissioning.

Operational highlights

Financial review

* Alternative Performance Measures are defined in the Financial Glossary below.

Contract backlog decreased to £1,793 million, primarily reflecting trading on our multi-year FMSP submarine support, HMS Victorious deep maintenance and Major Infrastructure Programme (MIP) contract maturity, partly offset by the £0.5 billion six-month FMSP bridging agreement at the year-end

Revenue increased 14% (at constant FX) to £2,070.4 million due to strong growth in our Cavendish Nuclear business (+18%) and higher submarine support activity, more than offsetting the expected decline in MIP revenue to £438 million (FY25: £504 million).

Underlying operating profit increased 23% to £197.1 million due to revenue growth, mix and the final year of trading of the Future Maritime Support Programme (FMSP) contract. As a result, underlying operating margin increased 70 basis points to 9.5% (FY25: 8.8%).

Operational review

Defence

UK Defence (86% of Nuclear revenue)

A six-month bridging arrangement, under our FMSP contract with the UK MOD, has been secured to maintain continuity of critical submarine fleet support and naval base management services. The contract bridges to a longer-term agreement, which is in the latter stages of negotiation. As part of the bridging arrangement, the MOD, the Royal Navy and Babcock have signed a Letter of Intent that reinforces the commitment to a long-term strategic relationship.

As a core partner in Team Plymouth, we announced the location of the new Babcock Capability Centre in Plymouth city centre, to relocate 2,000 colleagues from our Devonport Dockyard facility. This will bring thousands of highly skilled roles into the city centre, increasing footfall, supporting local businesses, and stimulating wider economic activity. First announced in June 2025, the centre will support Babcock's long‑term operations, strengthen Plymouth's role as a national defence engineering hub, and free up dockyard capacity to enable the efficient delivery of complex defence programmes.

Operationally, we are nearing completion of the base maintenance period for the first Astute Class submarine to undergo this type of maintenance activity in Devonport. Final activities are progressing in 15 Dock, to enable the transition to sea-readiness activities. This marks a return to our capability to maintain two nuclear-powered submarines in parallel at our Devonport facility.

HMS Victorious continues its deep maintenance period in dry dock at Devonport, extending its operational life into the 2030's ahead of the transition to the Dreadnought Class submarines. The programme is progressing through to the rebuild phase.

Our Major Nuclear Capital Programmes (MNCP) business, which manages the delivery of MIP, continues to focus on providing modern facilities and major upgrades that meet the evolving needs of the Royal Navy. This work now spans significant infrastructure delivery across Devonport, including the close‑out of the 9 Dock buildings, the major upgrades to 10 Dock and the 5 Basin berths, and the delivery of essential secondary facilities. Work is also progressing well on the Submarine Refit Complex at Devonport, enabling essential maintenance required for the future defueling programme. In addition, Rosyth has been designated by the MOD to host a Contingent Dock Facility (CDF) for the future Dreadnought Class submarines due in the early 2030s. Activity on the CDF continues to accelerate, with the design passing through concept phase before entering detailed design and manufacture later in 2026.

In Scotland, major infrastructure and development work is required at HMNB Clyde, the MOD operational submarine base where we manage and deliver all in-service support and base maintenance periods for all UK nuclear submarines. The UK Government has announced the Clyde 2070 programme, a multi-decade, multi-billion programme representing one of the most significant UK Government investments over the coming decades, to ensure the Royal Navy can deliver the Continuous At Sea Deterrent from a modern, efficient base. The MOD's initial three-year, £250 million investment into their site aims to fund early site enabling activity, development and approval for the first major programmes and working with industry to design an organisation and structure to deliver transformation at scale. Through our continued delivery at the naval base and our prime expertise delivering the Devonport MIP, we are well positioned to capture future opportunities to support delivery of this complex programme.

During the year, we progressed work to enable the first defueling of a decommissioned Trafalgar Class submarine in over two decades, completing key activities on the first defuel platform and advancing a second as part of the programme rollout. Further afloat work planned for FY27 will improve efficiency and reduce docking duration, supporting a three‑year, £114 million programme awarded in June 2025 and delivered with the wider Defence Nuclear Enterprise to defuel four submarines.

Our Rosyth facility marked a milestone in March 2026 with 40% of material removed from Swiftsure as we progress to complete dismantling by the end of 2026, using a world-first methodology. This project is on track to ensure that 90% of materials can be reused or recycled, setting a new standard for sustainable submarine recycling.

At AWE Aldermaston and Burghfield sites, work continues on the design, installation and commissioning of complex plant and engineering equipment in support of the Continuous at Sea Deterrent (CASD).

International defence

Our joint venture with HII, H&B Defence, secured its first contract to enhance supply chain capabilities for the global AUKUS enterprise through the Australian Submarine Supplier Qualification (AUSSQ) pilot programme, Australia's gateway into the US submarine supply chain. In August 2025, the first Australian supplier received an RFQ for the US Virginia Class submarine programme following successful qualification through AUSSQ. The AUSSQ programme also enables Australian suppliers to compete for future maintenance activity in Australia on Astute Class submarines. H&B Defence is developing a syllabus to advance nuclear knowledge amongst Western Australian businesses after securing a state government grant to deliver a series of new defence industry training courses.

Internationally, MNCP delivery in the UK strengthens our ability to support global programmes, including opportunities related to AUKUS‑aligned infrastructure at Henderson in Western Australia and at Osborne in South Australia.

We continue to provide in-service support, deploying specialists to Australia to support the Astute Class submarine maintenance period, an important step in deepening the AUKUS trilateral partnership ahead of Submarine Rotational Force-West from 2027. 

Civil

UK Civil (14% of Nuclear revenue)

At Hinkley Point C, Cavendish Nuclear's contribution to the MEH alliance, a partnership of four organisations, has grown to around 900 people (up from around 550 in FY25), with further growth anticipated as programme activity continues to increase.

During the year, the UK Government confirmed full funding for Sizewell C as Britain's next nuclear power station, adopting a Regulated Asset Base funding model in contrast to the approach used for Hinkley Point C. As part of the Sizewell C consortium and alliance partnership, we are coordinating the supply of materials and equipment to enhance installation efficiency, while also creating jobs and apprenticeships, and supporting delivery of this nationally significant project and the UK's clean energy future. Alongside our role in nuclear build, we continue to provide critical support to EDF as it extends the operational lives of the UK's existing generating nuclear reactors.

Our Cavendish Nuclear business, as part of the Litmus Nuclear Joint Venture with Amentum, has been selected as Owner's Engineer for the Great British Energy-Nuclear (GBE-N) as a UK-first for the SMR programme. In this role, we provide independent technical advice and oversight, supporting safe and efficient delivery. This 14-year programme, valued at around £300 million, positions us at the centre of the UK's SMR market, creating opportunities to export UK owner-engineer expertise and services. This follows the selection of GBE-N's preferred bidder to build SMRs in the UK, and we will play a key role in supporting deployment. As GBE-N moves from design into the delivery phase of the SMR procurement programme, it is expected to award a series of contracts to the supply chain over the next two years. We continue to actively develop manufacturing and wider delivery ecosystem opportunities.

The UK Government has provided clarity on how privately led advanced nuclear technology projects can be accelerated, with the launch of the Advanced Nuclear Framework. It provides a structured route for credible developers to progress toward deployment, supported by clearer planning, regulatory reform and access to specialist expertise. Coupled with the announcement of the Atlantic Partnership, a UK-US Government Agreement for Advanced Nuclear Energy, we see significant potential to support advanced nuclear technology developers.

We are also supporting Urenco in the design of an expansion to the tails management facility, a specialist nuclear site used to manage and process 'tails', converting the depleted uranium hexafluoride that remains after uranium enrichment to the lower hazard uranium oxide material for long term storage. We have started the front-end engineering design for the facility, which is expected to complete at the end of 2026.

In decommissioning, we continue to target major framework opportunities with Sellafield. In October 2025, our joint venture, Nuclear Decommissioning Solutions (NDS), secured a contract under the £4.6 billion Sellafield Ltd Decommissioning and Nuclear Waste Partnership framework to support retrievals activities within the site's high-hazard risk reduction programme.

We have also signed contracts for the provision of radiometric and environmental analysis support, which secures our position as a critical service supplier to Sellafield over the next four years.

International Civil

In the USA, Cavendish Nuclear, as part of the Southern Ohio Cleanup Company (SOCCo) joint venture, transitioned into the site management and operations phase of the decommissioning and dismantling contract with the US Department of Energy, to lead environmental remediation at the former Portsmouth Gaseous Diffusion Plant in Piketon, Ohio. The ten-year contract, with a potential five-year extension, will see the joint venture safely demolish a legacy nuclear power plant facility and deliver environmental restoration.

In Japan, Alkali Metal Processing Limited, a further joint venture between Cavendish Nuclear and Amentum, was awarded a contract by the Japan Atomic Energy Agency to construct a new facility at the Port of Workington, UK, to treat sodium coolant removed from the Japanese reactor and convert it safely into sodium hydroxide for general industrial reuse. This is the next phase of work to support the decommissioning of the Monju Prototype Fast Reactor, in Fukui Prefecture. Construction activities will now progress alongside installation of process equipment and preparations for operations, working closely with locally based supply chain partners.

Our previously announced MOU with Lucideon remains in place, a partnership that brings together our engineering and project delivery expertise with Lucideon's MIDAR® geopolymer technology, and continues to explore opportunities in decommissioning and nuclear waste management, initially focused on the Japanese market.

Land

Our c.6,000 employees provide essential services to our customers through three core capabilities: build, support and train. We do this through the delivery of through-life engineering support and systems integration for military vehicles and equipment. We provide individual and collective training for customers with critical missions and deliver engineering services in power generation and transport networks and through-life support of mining equipment.

Operational highlights

Financial review

* Alternative Performance Measures are defined in the Financial Glossary below.

Contract backlog decreased to £3,087 million due to revenue traded on multi-year contracts, primarily the newc.£1 billion DSG vehicle support contract which was booked into backlog in FY25.

Revenue decreased 3% (at constant FX) to £1,084.4 million, although returned to growth in the second half of the year as expected. Growth in our defence businesses was more than offset by lower volumes in our Civil businesses, particularly Rail and South Africa.

Underlying operating profit increased 11% to £95.3 million, reflecting growth in higher margin defence programmes and contract completion. As a result, underlying operating margin increased 110 basis points to 8.8% (FY25: 7.7%).

Operational review

Defence

UK defence (43% of Land revenue)

During the year, the £1 billion five-year DSG follow-on contract extension for the maintenance, repair and asset management of over 30,000 British Army vehicles and equipment was successfully mobilised. This will see Babcock maximise the availability of critical equipment through improved readiness, regeneration and asset management services, cementing our position as a strategic partner to the British Army. Within the period, Babcock has secured additional work to support critical new platforms.

Metis, our network of enterprise-wide systems and data, continues to be developed at pace to support both our customers' operational needs today, while creating long-term value through realisable lifecycle intelligence. Metis turns fragmented, siloed data into actionable, real‑time intelligence.

During the year, we were awarded the Phoenix 3 contract by the UK MOD, a new five-year, £60 million contract managing the MOD's 'white' fleet of 15,000 civilian transport vehicles across the UK and overseas. We were also awarded a small contract to provide the British Army with in-service support for its Field Electrical Power Supplies power generators.

Through our HECTOR contract, which see us delivering personnel training and refurbishment and renewal of equipment to Ukraine's Armed Forces, we continue to provide and have expanded our support to Ukraine throughout the year, supporting essential battle winning equipment. We also secured a 12-month extension supporting the Army transport personnel under Op Interflex.

Working with Supacat and the UK MOD, we completed the first tranche of the High Mobility Transporter Jackal 3 programme for the British Army. We are now delivering tranche two, which consists of 53 six-wheeled 'Extenda' variants, known as the Jackal 3 (E), with the final deliveries due later in 2026, completing the programme delivery of 123 Jackal 3 and Jackal 3 (E) vehicles. 

In September 2025, in a UK-first, we successfully demonstrated the integration of the light 120mm mortar with the in-service UK tactical communications systems, enabling first-of-its-kind networked firepower from sensor to effector, and providing a 'ready-now' digital capability for the British Army.

Also in September 2025, we signed a teaming agreement with Patria to be the build partner for its armoured personnel carrier in the UK. The agreement coincided with confirmation that the UK had signed a technical arrangement to join the Common Armoured Vehicles (CAVs) programme, which encompasses a growing number of nations across the Joint Expeditionary Force.

We have been awarded a sub-contract to deliver 270 units of a Light Utility Vehicle to the British Army's 11 Brigade, as part of the Army's RAPSTONE taskforce to deliver high performance products at speed.

Our defence training business was awarded a one-year extension to our Electro-Mechanical Training Contract to deliver individual technical training to the British Armed Forces at MOD Lyneham, worth around £20 million.

International defence (10% of Land revenue)

In Poland, our training business signed an MOU with the Polish Air Force University to conduct joint research and development for the armed forces. We have also signed a teaming agreement with Airbus Helicopters and CAE to offer a comprehensive helicopter air crew training solution to the Polish Armed Forces.

In Australia, we have secured a three-year, A$42 million contract extension for the asset management programme for Counter-Chemical, Biological, Radiological, Nuclear and Explosive (C-CBRNE) capability, which involves leading-edge technologies to prevent and defeat CBRNE threats used against Australia's national interests. The programme was also awarded Land Programme of the Year at the 2025 Australian Defence Industry Awards. We have also expanded our Woodville North facility in South Australia by 50% to support the upgrade and enhancement of Australia's Defence High Frequency Communications System.

In Albania: working with our local partner Timak Defence we have secured the delivery of the first tranche of vehicles to Albanian MOD. This export showcases the growing export potential of our GLV platform.

Civil

UK Civil (14% of Land revenue)

Our Rail business has experienced lower volumes year on year. This has been driven by our Translink frameworks, following the completion of the Belfast Grand Central Station project. Volumes in the Rail Systems Alliance Scotland (Babcock, in partnership with Network Rail and Arcadis) were delivered as expected in year two of Control Period 7, with a seamless transition to the new Network Rail National Plant Framework that commenced in April 2025. We also secured the new Translink track framework, which commenced in January 2026.

We have made further progress in decarbonising the London Fire Brigade's (LFB) fleet. We have replaced the first batch of light commercial vehicles from the LFB current diesel models to the electric vehicle equivalent. This builds on the success in converting the majority of the LFB's car and van fleets to electric variants. Having co-written the LFB's fleet strategy, Babcock is supporting the LFB to become a world leader in decarbonising its operational fleet.

Following a successful trial period, Babcock secured the LFB's longer term wildfire fighting capability through purchasing a fleet of specialist vehicles and equipment designed to cater for the unique and growing risks global warming brings to grasslands and rural areas.

International Civil (33% of Land revenue)

In Africa, we continue to experience reduced demand in our equipment business as a result of constrained commodity conditions and elevated electricity costs, following the temporary closure of several mining smelters across South Africa.

Aviation

Our c.2,600 employees deliver military pilot training support for the two largest Air Forces in Europe (France and UK), through-life support to operational military flying assets and critical air operations for government customers.

Operational highlights

Financial review

* Alternative Performance Measures are defined in the Financial Glossary below.

Contract backlog increased to £2,069 million with the award of the A$230 million Australian Border Force contract, partly offset by trading on long-term contracts.

Revenue increased 34% (at constant FX) to £431.4 million, reflecting the ramp up of the Mentor 2 programme in France and the British Columbia HEMS contract in Canada, and increased scope in UK military support contracts.

Underlying operating profit increased 54% to £30.7 million, due to the mix of revenue growth. As a result, underlying operating margin increased 90 basis points to 7.1% (FY25: 6.2%).

Operational review

Defence

UK defence (36% of Aviation revenue)

The LAFT contract has been extended for a further four years, ensuring sustained service delivery. Currently it continues to deliver high levels of aircraft availability, with the team recently completing 750,000 flying hours. Support also continues for the fast jet lead in training for the Ukrainian Pilot Force, as pilots prepare to fly F-16s.

Performance remains strong on the HADES contract, delivering critical technical support services to the RAF, Joint Aviation Command and Strategic Command at 16 stations across the UK.

The contract supporting the RAF fleet of 28 Hawk T2 jets maintains a strong level of performance, with the team recently supporting an operational training detachment in Corsica. We welcomed our tenth cohort of aerospace apprentices to RAF Valley, bringing the total number of apprentices who have been through the scheme to over 60. The scheme continues to strengthen technical capability and workforce resilience, while supporting regional economic growth.

We were also awarded a £70 million contract to deliver new infrastructure facilities as part of a £300 million Military Flying Training System contract secured by Ascent, our 50/50 joint venture with Lockheed Martin. Ascent will deliver the Future ISTAR and Rear Crew Training System programmes.

International defence (19% of Aviation revenue)

In France, we continue to deliver Mentor 1 and FOMEDEC contracts and have begun the ramp‑up phase of Mentor 2, awarded in January 2025 for up to 17 years, to deliver military air training solutions for the French Air and Space Force and the French Navy. The contract, worth up to €800 million, comprises the provision of aircraft, simulators and initial pilot training as well as through-life support of the aircraft, and infrastructure. This agreement represents a significant expansion of our military activity in France. FY27 will be the final year of programme mobilisation.

As part of our contract with the French MOD, the H160 helicopter fleet has successfully completed more than 300 rescue missions again during the period. We have also completed the world's first 900‑hour periodic maintenance for an H160 aircraft at our dedicated facility in France. In addition, the H160 has reached a major milestone, surpassing 1,000 flight hours on one of the six aircraft deployed by the French Navy for Search and Rescue (SAR) operations. The overall H160 fleet has now accumulated more than 5,000 flight hours.

In August 2025, we were awarded a new ten‑year contract by the French Ministry of Armed Forces' Directorate of Aeronautical Maintenance to support the French Government's fleet of 46 new Airbus H145‑D3 helicopters. In parallel, under our existing 12‑year contract with the Sécurité Civile and the French Gendarmerie Nationale, and our seven‑year contract with the French Customs and the Gendarmerie Nationale, we completed major maintenance on nine helicopters, with three additional maintenance visits currently underway, Babcock now supports more than 85 French military helicopters every day.

During the period, we marked another milestone with the first multi-year training support contract for an L-39 fighter jet to support the training of test pilots for the International Test Pilots School of the French DGA. This achievement further strengthens our position in the pilot training market. Over the first two lease periods, we delivered both in-flight and maintenance training.

We have also secured a new contract, Ariane2, with the Armed Forces Commissariat Service to provide training for pilots of the FASF and the French Navy. Our teams will deliver both theoretical instruction and hands‑on flight training for student pilots, Weapons Systems Officers, and simulator instructor trainees in Cognac on the Grob 120 and in Salon‑de‑Provence on the Cirrus SR22.

We have signed an MOU with French aircraft manufacturer AURA AERO, to jointly offer and promote INTEGRAL, the new-generation electric training aircraft with aerobatic capabilities, along with a complete packaged service, covering technical, logistical, training and support services.

Civil

UK Civil (7% of Aviation revenue)

During the year, we secured a four-year contract extension with Hampshire and Isle of Wight Air Ambulance, reinforcing our long-standing partnership and commitment to saving lives. We also celebrated 35 years of partnership with Midlands Air Ambulance Charity, one of the busiest air ambulance charities in the UK.

We delivered Scotland's most advanced air ambulance as part of our ten-year contract with Scotland's Charity Air Ambulance services through the adaption of helicopters into air ambulances. The helicopter is equipped with state-of-the-art technology, including night vision imaging systems, enabling the extension of flying hours.

We enabled Police Scotland's air support unit to be the first police force in the UK to operate with a drop in sustainable aviation fuel as they look to transition their whole fleet to a more sustainable model.

International Civil (38% of Aviation revenue)

In France, we are currently the leading operator of EC/H145 helicopters, and we successfully delivered around 10,300 Helicopter Emergency Medical Services (HEMS) missions and 8,700 flight hours with our H145/H135 fleet for five French regions.

We expanded our Angers base to pilot a full 24/7 operational cycle and enhanced annual activity at La Roche-sur-Yon with a mixed fleet of H135 and EC145 helicopters.

In Canada, as part of our ten-year contract with Ascent Helicopters Ltd., we continue to support the delivery of rotary-wing air ambulance services to British Columbia Emergency Health Services, with all five operating bases in British Columbia now operational, as well as all seven Leonardo AW169's.

In 2025, Canada saw the second worst wildfire season on record, resulting in unprecedented flying hours. Throughout this demanding season, our team continued to successfully deliver aerial wildfire suppression services for the Government of Manitoba, achieving a consistent aircraft availability rate of 98%. Our team also completed an out-of-province deployment in Nova Scotia and finished the winter maintenance of a CL415 and Turbo Commander ahead of schedule in February 2026, enabling the earliest test flights of the aircraft since the start of Manitoba's aerial firefighting programme.

In Australia, after being awarded a new eight-year A$230 million contract with Australian Border Force in late-2025, Babcock is mobilising to deliver two new H145 helicopters and staff - including pilots, surveillance crew and engineers - to support the airborne services enabling critical deterrence, prevention and response operations from Horn Island, in the Torres Strait. The service provides multi-agency capability for a range of maritime security threats including illegal fishing, illegal immigration and marine pollution.

Financial glossary - Alternative Performance Measures (APMs)

The Group provides alternative performance measures APMs, including underlying operating profit, underlying margin, underlying earnings per share, underlying operating cash flow, underlying free cash flow, net debt and net debt excluding leases to enable users to have a more consistent view of the performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in analysing business performance.

The Group's APMs are not defined by IFRS and are therefore considered to be non-GAAP measures. The measures may not be comparable to similar measures used by other companies, and they are not intended to be a substitute for, or superior to, measures defined under IFRS. The Group's APMs are consistent with the prior year. Measures, definitions and reconciliations to relevant IFRS measures are included below, where appropriate.

Organic revenue growth - Group KPI

Closest equivalent IFRS measure: Revenue growth year on year

Definition: Growth excluding the impact of foreign exchange (FX) and contribution from acquisitions and disposals in the year of, and following, completion.

Purpose: A good indicator of business growth.

Contract backlog

Closest equivalent IFRS measure: No direct equivalent

Definition: The remaining transaction price on contracts with customers that has been allocated to unsatisfied or partially satisfied performance obligations, excluding the impact of termination for convenience clauses and excluding orders not yet secured on framework agreements.

Purpose: Contract backlog is used to support future years' sales performance.

Underlying operating profit

Closest equivalent IFRS measure: Operating profit

Definition: Operating profit before the impact of specific adjusting items (see below).

Purpose: Underlying operating profit is a key measure of the Group's performance.

Specific adjusting items (note 2)

Underlying operating margin - Group KPI

Closest equivalent IFRS measure: Operating margin

Definition: Underlying operating profit as a percentage of revenue.

Purpose: Provides a measure of operating profitability, excluding specific adjusting items, and is an important indicator of operating efficiency across the Group.

Underlying net finance costs

Closest equivalent IFRS measure: Net finance costs

Definition: Net finance costs excluding specific adjusting items.

Purpose: To provide an alternative measure of finance costs, excluding items such as fair value re-measurement of derivatives which are economically hedged.

Underlying profit before tax

Closest equivalent IFRS measure: Profit before tax

Definition: Profit before tax excluding all specific adjusting items.

Purpose: Provides a measure of profitability which includes finance costs.

Underlying effective tax rate

Closest equivalent IFRS measure: Effective tax rate

Definition: Tax expense excluding the impact of specific adjusting items, as a percentage of underlying profit before tax excluding the share of post-tax income from joint ventures and associates.

Purpose: This provides an indication of the ongoing tax rate across the Group, excluding one-off items.

Underlying basic and diluted earnings per share

Closest equivalent IFRS measure: Basic earnings per share

Definition: The Group's underlying profit after tax less items attributable to non-controlling interest, being underlying net income attributable to shareholders, divided by the weighted average number of shares.

Purpose: A measure of the Group's underlying performance.

Net debt

Closest equivalent IFRS measure: No direct equivalent

Definition: Cash and cash equivalents, bank overdrafts, loans, including the interest rate and foreign exchange derivatives which hedge the loans, lease liabilities, lease receivables, and loans to joint ventures and associates.

Purpose: Used as a measure of the Group's cash position and balance sheet strength.

Net debt (excluding leases)

Closest equivalent IFRS measure: No direct equivalent

Definition: Net debt (defined above) excluding lease liabilities recognised under IFRS 16.

Purpose: Used by credit agencies as a measure of the Group's net cash position and balance sheet strength.

Net debt / EBITDA (covenant basis) - Group KPI

Closest equivalent IFRS measure: No direct equivalents

Definition: Net debt (excluding leases), before loans to joint ventures and associates and finance lease receivables, divided by EBITDA (as defined in our banking covenants - being underlying operating profit, defined on page 29, excluding depreciation and amortisation and including certain covenant adjustments) plus JV and associate dividends. See above.

Purpose: A key measure of balance sheet strength used by analysts and credit agencies, and the basis of our debt covenant over the RCF (3.5x).

Return on invested capital (pre-tax) (ROIC) - Group KPI

Closest equivalent IFRS measure: No direct equivalent

Definition: Underlying operating profit plus share of JV profit after tax, divided by the sum of net debt (excluding leases), shareholders' funds and retirement benefit deficit/(surplus). See above.

Purpose: Used as a measure of profit earned by the Group generated by the debt and equity capital invested, to indicate the efficiency of allocated capital.

Net capital expenditure

Closest equivalent IFRS measure: Property, plant and equipment and intangible additions

Definition: Property, plant and equipment and intangible additions less proceeds received from disposal of property, plant and equipment, right of use assets and intangible assets.

Purpose: To understand net capital investment included in underlying operating cash flow.

Underlying operating cash flow

Closest equivalent IFRS measure: Net cash flow from operating activities

Definition: Cash flow from operating activities excluding net income tax, net interest paid, pension contributions in excess of the income statement charge and cash flows related to specific adjusting items and including net capital expenditure and lease principal payments. See above.

Purpose: Provides a measure of operating cash generation on an equivalent basis to underlying operating profit.

Underlying operating cash conversion - Group KPI

Closest equivalent IFRS measure: No direct equivalent

Definition: Underlying operating cash flow as a percentage of underlying operating profit.

Purpose: Used as a measure of the Group's efficiency in converting profits into cash.

Underlying free cash flow

Closest equivalent IFRS measure: No direct equivalent

Definition: Underlying free cash flow includes cash flows from pension deficit payments, interest, tax, JV dividends, specific adjusting items, in addition to underlying operating cash flow. See above.

Purpose: Provides a measure of cash generated which is available for use in line with the Group's capital allocation policy.

Going concern and viability statement

The Directors have undertaken reviews of the business financial forecasts, in order to assess whether the Group has adequate resources to continue in operational existence for the foreseeable future and as such can continue to adopt the going concern basis of accounting. For assessing going concern, the Board considered the 12-month period from the date of signing the Group's financial statements for the year ended 31 March 2026.

The annually prepared budgets and forecasts are compiled using a bottom-up process, aggregating those from the individual business units into sector-level budgets and forecasts. Those sector submissions and the consolidated Group budget and forecasts are then reviewed by the Board and used to monitor business performance.

The Board considered the budgets alongside the Group's available finances, strategy, business model, market outlook and principal risks. The process for identifying and managing the principal risks of the Group is set out in the Principal risks and management controls section in the forthcoming annual report. The Board also considered the mitigation measures being put in place and potential for further mitigation.

In making its going concern assessment, the Board's view is supported by:

Available financing

As at 31 March 2026, net debt excluding operating leases was £(23) million and net cash (cash and cash equivalents less overdrafts) balance was £724 million. This, combined with the undrawn amounts under our committed RCF and overdraft facilities, gave us liquidity of around £1.4 billion.

These facilities are considered more than adequate to meet current and other liabilities as they fall due and support the Group's negative working capital position largely arising from securing customer advances ahead of contract work starting. All of the Group's facilities mature during the viability period, and therefore, in assessing liquidity in future periods, we have assumed that it will be possible to re-finance the Group's facilities at current market rates.

As at 31 March 2026, the Group's facilities and bonds totalling £1.4 billion were as follows:

The RCF is the only facility with covenants attached, which are applicable if the Group has a rating of less than BBB. If applicable the key covenant ratios are (i) net debt to EBITDA (gearing ratio) of 3.5x, and (ii) EBITDA to net interest (interest cover) of 4.0x. In event these become applicable, they are measured twice per year - on 30 September and 31 March.

The RCF lenders are fully committed to advance funds under the RCF to the Group, provided that the Group has satisfied the usual ongoing undertakings. The creditworthiness of the Group's relationship banks is closely monitored; based on their credit ratings, we have no credit concerns with our relationship banks. Given the importance of the RCF to the Group's liquidity position, our assessments of going concern and viability have tested the Group's gearing ratio, interest cover and liquidity headroom throughout the period under review up to their current maturity dates and to the end of the five-year plan, assuming renewal of the RCF with consistent covenants to those currently applied.

Base case scenario

The base case budgets and forecasts show significant levels of headroom against both financial covenants, and liquidity headroom based on the current committed facilities outlined above. That base case largely assumes we maintain our incumbent programme positions if re-let during the assessment period, with margin recovery if they are currently below the Group average. Many opportunities available to the Group, where we do not yet have high conviction of securing the work, have been excluded from the base case to maintain a degree of caution.

The base case assumes no further reshaping of the business portfolio, so it is not dependent upon any future cash proceeds from divestments. It also reflects pension deficit contributions in excess of income statement charges of around £25 million in each period of the model.

Reverse stress testing of the base case

To assess the level of headroom within the available facilities, a reverse stress test was performed to see what level of performance deterioration against the base case budgets and forecasts (in both EBITDA and net debt) was required to challenge covenant levels.

Of the remaining measurement points within the available facility period, the lowest required reduction in forecast EBITDA to hit the gearing covenant level was £376 million and the lowest net debt increase was 1,260%. The lowest required reduction in forecast EBITDA to hit the interest cover covenant was £308 million. Given the mitigating actions that are available and within management's control, such movements are not considered plausible.

Severe but plausible downside scenarios

The Directors also considered a series of severe but plausible downside scenarios which are sensitivities run against the base case budget and forecasts for the duration of the assessment period. These sensitivities include - separately - a reduction in bid pipeline closure (business winning), a deterioration in large programme performance across the Group, a deterioration in the Group's working capital position, and a regulator-imposed cessation in flying two of the largest aircraft fleets in the Group.

All of these separate scenarios showed compliance with the financial covenants throughout the period. As with any company or group, it would be possible, however unlikely, to model individual risks or combinations of risks that would threaten the financial viability of the Group. The Board has not sought to model events where it considers the likelihood of such events not to be plausible. In preparing a combined severe but plausible (SBP) downside case, the Board considered the feed of individual risks from the sectors covering the above sensitivities. Overall, there were c.90 profit and cash flow risks identified.

A simple aggregation of all these risks is not considered plausible as the Group operates businesses and contracts which run largely independently of each other, albeit with a relatively small number of customers within each geography.

These identified risks were seen as 'sector independent' (ie there is no direct read across from one sector to another). The Board decided to reduce the aggregation of the risks by 25% to reflect the implausibility of all such risks fully crystallising within the same period.

Conclusion

After undertaking the assessment described above, the Directors, at the time of approving the financial statements, have a reasonable expectation that the Company and the Group have adequate financial resources to continue in operational existence for the foreseeable future. As such, the consolidated financial statements have been prepared on a going concern basis. The Directors do not believe there are any material uncertainties to disclose in relation to the Group's ability to continue as a going concern.

Viability statement

The Directors have also looked further out to consider the viability of the business. Consistent with previous years, in considering the Group's viability, the Directors looked at a five-year view as this is the period over which the Group prepares its strategic plan forecasts.

The use of a five-year period provides a planning tool against which long-term decisions can be made concerning strategic priorities, addressing the Group's stated net zero target and climate-related risks and opportunities, funding requirements (including commitments to Group pension schemes), returns made to shareholders, capital expenditure and resource planning.

In assessing the longer-term viability of the Group, the Directors have reviewed base case, downside and severe but plausible scenarios for the five-year period. The approach to modelling downside and severe but plausible scenarios for viability is consistent with the approach described for going concern above but projected over the course of the five-year assessment period.

The Board considers that the long-term prospects of the Group underpin its conclusions on viability as outlined in our strategy, business model and markets summaries in the forthcoming annual report and by those items highlighted within the going concern assessment above.

Based on the assessment of viability taken through the base case, downside and severe but plausible scenarios, the Directors have a reasonable expectation that the Group will be able to continue to meet its liabilities as they fall due over the next five years.

Risks and uncertainties

The principal risks and uncertainties affecting the Group are listed below and will be set out in more detail in the Company's Annual Report and Financial Statements 2026, which should be read in conjunction with this announcement when published. This list is not a substitute for reading the Company's Annual Report and Financial Statements 2026 in full. The Group's principal risks and uncertainties are:

Safety, health and environmental protection: The Group's operations around the world involve the potential risk of significant harm to people and the planet. Risk appetite: Low. For moral, financial, and reputational reasons, the risk of harm should be kept as low as reasonably practicable.

Cyber and information security: A key factor for the Group's customers, suppliers and employees is the ability to deliver secure IT and other information assurance systems to maintain the confidentiality of sensitive information. Risk appetite: Low. Given the nature of the information the Group holds, the potential consequences associated with any breach could be very significant.

Engineering integrity, product technology disruption and product safety: It is important the Group, customers and shareholders have confidence that the Group's technical products (goods and services) have high levels of technical integrity and safety. This means they are safe to own, operate, maintain, store and dispose of over their life, perform as they are intended to, are secure from physical and cyber threats and are of high quality. Risk appetite: Low. The realisation of the risk could have significant consequences for the Group, including physical harm and customers and end users losing confidence in the integrity of the Group's technical products and services.

Compliance with legislation or other regulatory requirements: As a diverse global organisation, the Group operates in multiple highly regulated industries for customers with specialist requirements. The compliance landscape is vast and complex with many regulations, legal obligations and contractual and certification requirements. Risk appetite: Low. The impact of a legal or regulatory issue could be very significant and wide ranging.

Contract and project performance: The Group's business model revolves around securing and executing long-term, high-value contracts for complex, integrated programmes. These contracts often require long term pricing and can involve fixed prices. Risk appetite: Medium. The Group strategically accepts and manages a level of risk that is within its control to mitigate, in order to achieve an appropriate level of margin.

Market risk: The Group relies on winning and retaining large contracts in both existing and new markets, often characterised by a relatively small number of major customers, which are owned or controlled by local or national governments with a regulated environment. Risk appetite: Medium. The successful pursuit and maintenance of a secure and assured pipeline is essential for continued growth, and therefore certain market risks that can be confidently and securely managed may be accepted.

Operational resilience and business interruption: The Group provides critical support to governments and commercial customers, operating in an increasingly volatile, uncertain and complex environment, where a diverse range of internal and external threats could disrupt the business, affecting the Group's ability to operate safely, effectively and to the high standards expected by customers, regulators and partners. Risk appetite: Low. Ineffective operational resilience arrangements can undermine safety, financial stability and regulatory compliance, as well as damaging the Group's reputation.

Climate and environmental sustainability: Climate-related risks have the potential to cause significant harm and disruption on a global scale. Risks are typically described as either physical risks (damage and disruption as a result of the increased exposure to hazards driven by climate change eg coastal flooding, wildfires and heat stress) or transition risks (risks associated with the transition to a low carbon economy including policy and legal changes). Risk appetite: Low. Climate change has the potential to cause profound consequences and have a significant impact on the Group's operations.

Supply chain management: The Group is dependent on the timely and satisfactory delivery of services and materials by its supply chain partners, in order to successfully deliver its contracts. Supply chain disruption could occur through volatile economic conditions, ongoing global conflicts and geopolitical tensions, external events and natural disasters and cybersecurity. Risk appetite: Low. Supply chain risk could have significant consequences on the Group's ability to deliver its contractual commitments.

Defined benefit pensions: The Group has significant defined benefit pension schemes in the UK, which provide for a specified level of pension benefits to scheme members. Risk appetite: Low. The Group has significant defined benefit pension schemes, which, if not managed appropriately could have a significant financial impact on the Group.

IT and data architecture: The way in which the Group's IT and data architecture is managed and evolves potentially exposes various risks including not responding quickly enough to digital change and the ability to manage and manipulate data. Risk appetite: Low. The risk associated with an IT or data issue could have a very significant impact on the Group

Resourcing, retention and skills: The Group's business delivery and future growth depend on its ability to recruit, develop and retain an experienced, highly skilled and diverse leadership team and workforce across a broad range of disciplines. A number of the competencies and skills relied on are deeply specialist and in scarce supply in the territories in which the Group operates. Risk appetite: Medium. Some risk is accepted given the increased cost associated with avoidance and the potential mitigations within the Group's control, such as sharing capability across the global business and compensating for skills shortages in particular areas through investment in training and early careers.

Acquisitions and divestments: The Group has built its business organically and through acquisition. Decisions to acquire companies, as well as the process of their acquisition and integration, are complex, time consuming and expensive. If the Group believes that a business is not 'core', the decision may be taken to sell that business. Risk appetite: Medium. Whilst acquisition activity continues to be inherently high risk, some risk will be accepted, to the extent it can be appropriately managed and is balanced against the potential rewards and opportunity.

Financial resilience of the Group: The Group is exposed to a number of financial risks, some of which are of a macroeconomic nature (for example, foreign currency and interest rates) and some of which are more specific to the Group (for example, liquidity risk, credit risk and weakening operational performance) all of which could undermine the financial resilience of the Group. Risk appetite: Low. A lack of financial resilience and the potential inability to raise finance could have a very significant impact on the business.

The risks listed above, together with their potential impacts and mitigating actions taken in respect of them, are explained and described in detail in the 2026 Annual Report, which will be available at www.babcockinternational.com.

Group income statement

Group statement of comprehensive income

Group statement of changes in equity

The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates to the issue and redemption of redeemable 'B' preference shares in 2001.

Group statement of financial position

Group cash flow statement