Annual Report and Financial Statements 2026
Capability
for a changing
world
Forward-looking statements
Statements in this Annual Report, including those regarding the possible or assumed future or performance
of Babcock or its industry, as well as any trend projections or statements about Babcock’s or
management’s beliefs or expectations, may constitute forward-looking statements. By their nature,
forward-looking statements involve known and unknown risks and uncertainties as well as other factors,
many of which are beyond Babcock’s control. These risks, uncertainties and factors may cause actual
results, performance or developments to differ materially from those expressed or implied by such
forward-looking statements. No assurance is given that any forward-looking statements will prove
to be correct. The information and opinions contained in this Annual Report do not purport to be
comprehensive, are provided as at the date of the Annual Report and are subject to change without notice.
Babcock is not under any obligation to update or keep current any information in the Annual Report,
including any forward-looking statements.
Strategic report
1 Financial highlights
2 At a glance
8 Investment case
10 Chair’s statement
12 CEO review
16 In focus: Civil Nuclear
18 Market review
20 Strategic framework
22 In focus: Technology
24 Our business model
26 In focus: People and skills
28 In focus: Commitment to society
31 – SME Charter
32 Key performance indicators
34 Financial review
46 – Financial Glossary
52 Operational reviews
52 – Marine
56 – Nuclear
60 – Land
64 – Aviation
68 Stakeholder engagement
and s172(1) statement
70 Sustainability
93 Responsible business
106 Non-financial and sustainability
information statement
110 Principal risks and management controls
130 Going concern and viability statement
Governance
132 Chair’s introduction to Governance
134 Board of Directors
136 Governance statement
148 Nominations Committee report
150 Audit Committee report
154 Remuneration Committee report
180 Other statutory information
186 Directors’ responsibility statement
Financial statements
187 Independent auditor’s report
to the members of Babcock International
Group PLC
196 Group financial statements:
196 – Group income statement
196 – Group statement of comprehensive
income
197 – Group statement of changes in equity
198 – Group statement of financial position
199 – Group cash flow statement
200 – Notes to the Group financial statements
269 Company financial statements
269 – Company statement of financial position
270 – Company statement of changes in equity
271 – Notes to the Company financial
statements
281 Shareholder information
Contents
At Babcock, we believe the long game is the only game that matters.
This long-term perspective shapes everything we do. We set our sights
across generations by building deep, enduring partnerships with our
customers to understand their evolving requirements in a rapidly changing
world. Through world-class engineering, we deliver the innovative
capability our customers need today and into the future.
Capability
for a changing world
● babcockinternational.com
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Financial statements
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Adjustments between statutory and underlying
The Group provides 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 year ended 31 March 2025. The Group
has defined and outlined the purpose of its APMs in the Financial Glossary on page 46.
Financial highlights
£5,178m
2025: £4,831m
Revenue
Statutory operating profit
Underlying operating profit* Net debt (excluding leases)*
Underlying free cash flow*
Statutory cash generated
from operations
£305m
2025: £364m
£293m
2025: £363m
£447m
2025: £357m
£262m
2025: £153m
£(23)m
2025: £(101)m
* Underlying operating profit, underlying free cash flow and net debt
(excluding leases) are defined as Alternative Performance Measures;
see below for more detail.
Enabling readiness
We sustain the entirety of the UK’s nuclear
submarine fleet, including the Continuous
At Sea Deterrent – critical to the UK,
through our long history of expertise in
deep maintenance, through-life support
and complex nuclear infrastructure.
UK MOD © Crown copyright
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Babcock is a FTSE100 global defence company that designs,
manufactures and supports complex defence and critical assets
across land, sea, air, space, energy and security domains. We provide
through-life engineering, specialist equipment, critical training and
technology enabled solutions that enhance operational capability,
availability and affordability, delivering lifetime engineering and
strategic resilience for defence, nuclear and civil customers.
At a glance
Our Purpose is to create a
safe and secure world, together
Delivering through-life support, globally
As a trusted partner to the UK Royal Navy, we shape
solutions across through-life and fleet-time support,
delivering services on the front line and across the
globe, enabling our customers to deliver their mission.
UK MOD © Crown copyright
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What we do
Engineering
support
Design, build
& manufacture
Frontline
support
Technical
training
Systems &
integration
FY26 global
revenue profile
FY26 revenue
market split
FY26 contract backlog
market split
FY26 revenue
by sector
UK Defence UK Defence UK MarineAUS & NZ
North America Defence International Defence International NuclearSouth Africa
Europe Civil UK Civil UK Land
Civil International Aviation
Civil International
ROW
70%
4%
7%
7%
7%
5%
61%
17%
9%
13%
60%
10%
14%
16%
31%
21%
8%
40%
£5.2bn £5.2bn £9.8bn £5.2bn
£5.2bn
FY26 revenue
74%
Defence
£9.8bn
FY26 contract backlog
c.29,000
Employees
Our footprint
People
•
Skilled workforce
of around 29,000
delivering complex
programmes
• Comprehensive skills
agenda to support
strategic growth
framework
Engineering
capability
•
Engineering
knowhow,
deep technical
competence,
and experience
• Multi-domain
capabilities
embedded across the
asset life-cycle
Assets and
infrastructure
•
Own and operate
critical infrastructure
supporting national
capability
• Operate a range of
customer owner
critical assets
• Critical assets
support with data
led solutions
Credibility and
reputation
•
Trusted partner with
unique understanding
of customer
requirements
• Proven ability to
shape and deliver
complex solutions in
highly regulated
sectors
Integration and
collaboration
•
Focused on
partnerships,
collaboration and
alliances
• Long-term
relationships with
customer intimacy
• Critical integrator of
complex supply
chains
What sets us apart: our capabilites
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At a glance (continued)
Delivering through
our four sectors
We deliver differentiated and complex programme support, product and training
capabilities, in core markets critical to our customers. We do this through our four
operating sectors, Marine, Nuclear, Land and Aviation. Our multi-domain expertise,
strategic assets and long-standing customer relationships underpin delivery of
complex, high-barrier programmes, providing trusted, lifetime engineering.
Engineering the future
Our people are our most important
asset, and a key driver of Babcock’s
long-term strategy. We are
strengthening our capabilities and
building a robust pipeline of talent to
support growth and delivery.
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Our c.7,500-strong workforce delivers:
• Design, build and through-life
support of warships
• Submarine and equipment
through-life support
• Design and manufacture of weapons
handling and launch systems for ships
and submarines
• Design, build and support of secure
military communications systems
• World-leading commercial liquid
gas equipment systems
• See our Marine operational review on
page 52
FY26 revenue profile
Defence UK
Defence Intl.
Civil Intl.
Our c.11,100-strong workforce delivers:
• Through-life complex engineering support
to the entire UK submarine fleet
• Through-life management of critical
national defence infrastructure: own and
manage Devonport dockyard
• End-to-end engineering integration
support for Atomic Weapons
Establishment deterrent production
• UK civil nuclear new build, generation
support and decommissioning projects
• Growing international nuclear services
portfolio across defence and civil markets
• See our Nuclear operational review on
page 56
FY26 revenue profile
Defence UK
Civil UK
Our c.6,000-strong workforce delivers:
• Strategic asset management and
through-life engineering support
for complex military equipment
• Defence and security vehicle build
and systems integration
• Individual and collective training,
delivering operational readiness
for customers with critical missions
• Engineering services in power generation
and transport networks, and through-life
support of mining equipment
• See our Land operational review on
page 60
FY26 revenue profile
Defence UK
Defence Intl.
Civil UK
Civil Intl.
Our c.2,600-strong workforce delivers:
• End-to-end military flying training for
UK’s Royal Airforce, French Airforce and
French Navy
• Through-life support of operational military
flying assets
• Through-life support of operational
military infrastructure
• Critical air operations for government
programmes, saving lives and
protecting communities
• See our Aviation operational review on
page 64
FY26 revenue profile
Defence UK
Defence Intl.
Civil UK
Civil Intl.
48%
23%
29%
43%
14%
33%
10%
36%
7%
38%
19%
£0.4bn
£1.1bn
£1.6bn
86%
14%
£2.1bn
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Delivering
lifetime engineering
We offer customers deeply pragmatic and integrated solutions, delivered in
dynamic collaboration through strategic partnerships. A lifecycle of product
and support, informed by decades-long operational asset knowledge
resulting in long-term differentiators: capability, availability and affordability.
Commanded autonomy
The defence landscape is changing.
Our technology systems integration
and data-led engineering provide
our customers with the innovative
capability they need for agility in
evolving environments.
At a glance (continued)
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Capability life-cycle: our end-to-end vision
Lifetime engineering
Delivering complex solutions for our defence and civil customers is
about expertise, technical engineering, operational asset knowledge,
and delivery excellence over decades. Typically, a capability or
asset is procured for a specific and critical objective. Throughout the
lifetime of the capability, there are many challenging factors that
impact operational effectiveness, deviating from its original purpose
or competitive advantage.
Where operational assets face wear and tear, we have the capability
and technology to provide long-term repair and overhaul, from deep
maintenance to front-line support, using predictive data and
technology to maximise asset availability.
Where requirements change we have the expertise to deliver enhanced
capability by integrating new technologies and best-in-class systems,
improving readiness and overall operational effectiveness.
If operational gaps or readiness requires a further commission, we have
unique infrastructure and engineering skills to life-extend complex
assets while also integrating cutting-edge systems and technologies.
And as obsolescence finally dictates a new solution, not only are we
trusted to sustainably decommission, dismantle and dispose, but our
operational asset knowledge, through-life engineering and strategic
partnering, twinned with our strong product design, development,
build and manufacture capabilities, enable us to collaborate and
engineer the next generation, delivered with affordability, availability
and capability for a lifetime.
Aligned with
our customers’
requirements
Standard operating life End of life,
follow on
capability
Extended lifeCapability
procured
Wear and tear
Procured operational
defence capability
Enhanced
capability
Decommission,
disposal
Design, build and
manufacture…
Enhanced
capability
Capability degrades
Obsolescence
Mid-life upgrade
Design, build,
and manufacture
Life extension
MRO
MRO
MRO
Babcock understands what it
takes for assets to perform at
their best for the longest. Our
approach increases asset
availability and reduces cost of
ownership, maximising the
value and utility of assets from
beginning to end.
Availability
Our customers require
high utilisation of complex
assets, from ships and
submarines to military and
emergency services aircraft
and vehicles. Our fleet
support and sustainment
models are increasingly
geared to higher value-add,
availability-based solutions
designed to optimise asset
utilisation and reduce
lifetime costs.
Affordability
Our customers demand value for money on support
programmes and new platforms. Our deep
understanding of our customers’ needs, and our
ability to bring suppliers and technologies together
to deliver an integrated solution, enable us to
provide the affordability and flexibility they require.
Capability
Our customers operate in
complex and ever-changing
environments, which drives a
continual need to adapt and
enhance capability. We apply
our understanding of
technology integration,
infrastructure management
and specialist training to
improve their capability,
whether it be through product,
support or training solutions.
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Investment case
Babcock is a long-duration, high-visibility business with structural tailwinds in defence,
nuclear and critical infrastructure. Following a strategic refocus on core markets, we have
built a track record of stronger growth, improved profitability and growing shareholder
returns. With a clear strategy, a disciplined operating model and a defined capital allocation
framework, we are positioned to deliver long-term value for all our stakeholders.
Our compelling
investment case
1. Mission-critical
defence and strategic
resilience
• Mission-critical engineering expertise
across defence and nuclear markets
• Own and operate critical infrastructure
supporting national capabilities
• Largest UK-owned nuclear services
company with a nuclear workforce of
around 11,100 and specialist capabilities in
a highly regulated market
2. Differentiated
capability in complex,
lifetime engineering
• Lifetime engineering: decades of
accumulated technical and engineering
know-how from long-term through-life
support and operational asset knowledge
feeds into multi-domain capabilities
embedded across the asset life-cycle
• Specialist capability in mission-critical and
safety-critical infrastructure
3. Deep customer
embed and long-term
relationships
• Trusted partner with a unique
understanding of customer requirements
shaped, by long-term delivery
• A know-how business: complex
engineering and delivery experience that
reduces execution risk for customers
• Proven ability to shape solutions across
requirements, delivery and sustainment
Why it matters
Defence and energy resilience are
national priorities; programmes are
strategic, regulated and high-barrier,
underpinning long-term demand
and incumbency.
● See our new nuclear spread on page
16 and Market review on page 18
Why it matters
Deep engineering capability supports
repeat work and scope expansion.
Provides: high barriers to entry,
long term visibility and resilience
against short-term volatility.
● See our Technology spread on
page 22
Why it matters
In regulated, high-consequence
environments, pedigree wins – driving
high risk of change, high visibility and
durable competitive advantage
● Read more on alignment with customer
requirements on page 6
Our capital allocation framework…
Priorities
1. Organic investment
Investment to support business operations
and enhance growth potential
FY26 organic revenue growth
8%
2. Financial strength
Maintain strong balance sheet
and investment-grade rating
Net debt/EBITDA (covenant basis)
0.2x
Pay ordinary dividend
3. Ordinary dividend
Full-year dividend per share
+15% 7.5p
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4. Partnership-led
model with supply-
chain integration
strength
• Strategic partnerships with leading global
industry (eg, HII, Saab, PGZ)
• A critical integrator of complex supply
chains – technology and supplier agnostic
• Increasingly positioned as a global
government delivery partner
across programmes
5. Clear growth
runway with
improving returns
• Strong track record of revenue growth
and underlying margin expansion
• Supportive market trends: defence
modernisation, energy transition, and
critical infrastructure investment
• £9.8 billion backlog supporting multi-year
revenue visibility
• Further margin upside from mix
improvement, delivery performance and
efficiency (medium-term guidance:
underlying operating margin ≥9%)
6. Cash generative
with disciplined
capital allocation
• Low capital intensity model with
strong free cash flow potential
• Medium-term underlying cash
conversion guidance ≥80% supported by
operating discipline
• Capital allocated to highest-return
priorities: capability investment, selective
M&A where value-accretive, and
shareholder returns within clear balance
sheet guardrails
Why it matters
Partnerships expand addressable
opportunity (e.g. AUKUS/AMR/SMR-type
ecosystems), accelerate capability
access and enhance participation in
evolving defence and nuclear
programmes.
● Read more on our strategic
partnerships on page 30
Why it matters
A growing pipeline plus execution
discipline supports sustained growth, and
margin expansion at attractive returns
● See our track record of growth and
returns in our KPIs on page 32
…creating value for shareholders
Further Capital Options
Mergers and Acquisitions Pensions
Tracking an active pipeline
Underlying free cash flow
£262m
Technical provisions position has
decreased by around £600 million
over five years
Technical provision
c.£100m
Why it matters
Strong cash generation enables
self-funded growth and consistent
shareholder value creation, while
preserving flexibility through the cycle.
● See our track record of cash
generation in our KPIs on page 32 and
cash commentary on page 39
Shareholder returns
Completed £200 million share buyback
in April 2026
Further buyback announced
£200m
Image credit: Pilatus Aircraft
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Chair’s statement
Dear fellow Shareholder
It has been another year shaped by an evolving geopolitical
backdrop, with defence and security assuming a level of importance
not seen since the Cold War. This is reflected in the United
Kingdom’s reinforced commitment to both NATO and the Joint
Expeditionary Force, and more broadly in the growing global demand
for investment in national defence capabilities.
Babcock’s strategic relevance is apparent, with our mission-critical
capabilities and expertise that underpin sovereign security delivering
clear value to all our stakeholders. At the same time, advances in
warfare technologies are reshaping the defence and energy security
landscape, further highlighting the importance of resilient, sovereign
capabilities in an increasingly complex and uncertain world.
Last year I mentioned how energy transition is also driving demand,
in this case for our specialist capabilities across the full lifecycle of
nuclear power generation, including new build, operations and
decommissioning. This trend has continued with our Cavendish
Nuclear business delivering 18% growth in FY26 and being selected
by Great British Energy – Nuclear (GBE – N), in a joint venture with
Amentum, as Owner’s Engineer for the UK’s flagship small modular
reactor (SMR) project. This highly technical contract, of up to 14
years, could position Babcock for significant future activity as the
SMR market evolves, both in the UK and internationally.
The context of these strong fundamentals positions Babcock well for
future growth. Our multi-year contract backlog of £9.8 billion
provides current visibility of this, while a strong pipeline of further
significant opportunities across the Group supports our long-term
growth ambitions.
Financial strength
Excluding the increase in estimated programme costs of our legacy
Type 31 contract, FY26 has been a strong year which saw growth in
revenue and underlying operating profit across the Group. This has
resulted in further operating margin expansion, as we consistently
make progress towards our medium-term margin target of at least 9%.
While the charge on the Type 31 contract is disappointing, it does not
detract from the world-class shipbuilding capability we are building
which positions us strongly for significant growth opportunities.
The Board has maintained a disciplined approach to capital allocation
throughout the year, underpinning sustainable growth while
delivering strong and consistent returns to shareholders.
These factors have given the Board the confidence to increase the
full year dividend to 7.5 pence per share, a 15% increase on FY25.
Furthermore, in April 2026, we successfully completed the
£200 million share buyback programme started in July 2025.
Considering the Group’s balance sheet strength and continued
strong underlying performance and cash generation, we announced
a further £200 million share buyback programme which is expected
to be completed in the current financial year.
“It has been another
year shaped by an
evolving geopolitical
backdrop, with
defence and security
assuming a level of
importance not seen
since the Cold War.”
Dame Ruth Cairnie
Strongly
positioned
Chair’s statement
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Process and controls
As the Group continues to grow the Board has
maintained a strong focus on governance and risk
oversight, with further maturing of our framework and
controls. As a programme-driven business we have
been strengthening controls across the delivery
lifecycle. The most complex programmes are subject
to additional scrutiny through senior-level watchlist
reviews. Improvements this year have included the
rollout of an updated Global Delivery Governance
Framework and cross-functional deep dives on critical
delivery areas.
We have fully aligned our enabling functions (project
management, engineering, procurement and supply
chain, and IT) under the central leadership of the Chief
Delivery Officer, ensuring greater consistency,
accountability and operational effectiveness across
the Group.
As discussed in the Audit Committee report, during
FY26 we have continued our work to address the
requirements of Provision 29 of the 2024 UK
Corporate Governance Code, which will require a
formal declaration on the effectiveness of material
controls in the March 2027 Annual Report and
Accounts (see page 114 for further detail).
Technology
Technology is central to our role as a mission-critical
business. Our investment in technology ensures we
remain competitive amid the rapid pace of
technological change, particularly in Defence, where
the shift towards hybrid warfare and increasingly
digitally enabled capabilities are reshaping how
customer operations are conducted.
The Athena programme, launched last year, continues
to be rolled out across the Group and is delivering a
modern, secure and cloud-based IT platform. This
substantial modernisation and upgrade to our IT base
supports enhanced collaboration, strengthens cyber
resilience and increases productivity.
During the year, Babcock has established an AI and
Data Centre of Excellence to professionalise,
accelerate and enhance the quality of our digital
development activities across the organisation,
building on the new Athena capabilities.
Investing in people
Our people are fundamental to the long-term success
of Babcock, with the strength and depth of talent
across the company representing a significant
competitive advantage that underpins both our
operational performance and future growth ambitions.
We have been strengthening clarity of purpose and
alignment across the organisation, and this year
marked an important step in advancing our ownership
culture: in August we launched our inaugural free
share award with over 27,000 colleagues across 26
jurisdictions receiving the equivalent of £300 in
Babcock shares. This initiative aims to align
colleagues directly with the company’s long-term
performance and value creation. We are pleased to be
continuing this scheme into FY27 with a further free
share award to be made soon this year.
Our focus over recent years on talent development,
strengthening pipelines and succession planning has
resulted in several instances of seamless transition
this year, filling executive vacancies with high-calibre
internal candidates. This included the appointment of
our new Group CEO from within the organisation.
Inclusion remains central to our business, and we are
committed to achieving 30% women across the
organisation by 2030. This year, we continued to make
strong progress in improving gender balance at senior
levels. While this is encouraging, women still represent
only 19% of our total workforce, highlighting the need
to accelerate progress across the organisation.
Our connections with the communities we operate in
remain strong. Programmes such as Team Plymouth,
alongside sustained investment in STEM engagement,
demonstrate our commitment to building future
capability and supporting long-term regional resilience
and prosperity.
During the year I had a number of opportunities to
engage directly with colleagues during site visits. A
highlight was visiting Devonport Dockyard to meet
many of our apprentice and graduate colleagues; it
was great to see the strong pipeline of talent we have
coming into our business who will play a crucial role in
delivering for our customers.
Leadership and confidence in the future
I would like to extend my personal thanks to David
Lockwood for his outstanding contribution to
Babcock’s transformation over these last 6 years.
Under his stewardship, Babcock has returned to the
FTSE 100 and recovered the respect of the market, is
better valued by our customers and is an increasingly
attractive employer. The Group has demonstrated
resilience, focus, and a clear strategic direction,
delivering against priorities while strengthening
operational and financial performance.
Under David’s tenure the company has also
developed a significant pipeline of growth
opportunities and has secured its largest ever contract
framework – the UK and Indonesia landmark £4 billion
maritime deal where we have proudly been chosen as
the prime industrial partner for the Maritime
Partnership Programme.
I am also delighted to congratulate Harry Holt on his
appointment as Group CEO, bringing deep experience
from various high profile leadership roles, most recently
as our Chief Executive, Nuclear. I look forward to his
leadership in the next phase of our journey.
As we look ahead, the Board believes the Group is
well positioned to deliver sustainable growth,
supported by our strong market positions, disciplined
strategy and continued focus on execution.
Finally, I would like to thank all our colleagues for their
commitment and contribution during the year,
underpinning our performance and future prospects;
together, we remain on track to deliver our medium-
term ambitions.
Dame Ruth Cairnie
Chair
“As we look
ahead, the Board
believes the
Group is well
positioned to
deliver
sustainable
growth,
supported by our
strong market
positions,
disciplined
strategy and
continued focus
on execution.”
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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 reflects the
increase in cost over the remaining programme life, fully recognised in
FY26 (see page 36).
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%.
CEO review
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.”
David Lockwood
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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 36.
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.
2026
8%
Organic revenue growth,
see page 35
2026
£9.8bn
Contract backlog
2026
£433m
Underlying operating
profit*, see page 36
2026
8.2%
Underlying operating
margin*, see page 36
*
Excluding the impacts of the
Type 31 charge, see page
36 for detail.
Babcock International Group PLC Annual Report and Financial Statements 2026 13
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CEO review (continued)
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.
• Mission-critical provider of defence and strategic resilience:
We deliver engineering expertise through long-term, highly
regulated programmes and critical infrastructure aligned to
national defence and energy priorities.
• Differentiated capability in complex, long-life assets: We have
decades of technical, and operational expertise developed
through the design, build, integration and support of complex
assets with long lifecycles. These capabilities are difficult to
replicate and support repeat work and scope opportunities.
• Deep customer embed and long-term relationships: Our delivery
heritage gives us a unique understanding of our customer’s
requirements and a durable advantage in highly regulated,
high-consequence environments.
• Partnership-led model with supply chain integration:
Strategic partnerships and supply chain integration broaden our
opportunity set and strengthen our ability to solve complex
customer challenges.
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).
14 Babcock International Group PLC Annual Report and Financial Statements 2026
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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 are reaffirming 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%.
David Lockwood
CEO
Notes to CEO Statement
All profit and earnings figures are stated on an underlying basis as
defined in our Alternative Performance Measure (APM) set out on page 1,
34 and in our Financial Glossary on page 46.
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.
Babcock International Group PLC Annual Report and Financial Statements 2026 15
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In focus: Civil Nuclear
Strongly positioned for the
new nuclear renaissance
Babcock, is the UK’s largest sovereign
provider of civil and defence nuclear
services. In the civil nuclear market,
powerful global mega-trends are
driving secular market growth.
Rising demand for power, the need for
resilience and energy independence,
and the drive to decarbonise
our planet are fuelling a
resurgence in new nuclear.
As a long-established provider of
nuclear capabilities critical to the UK,
new nuclear presents a significant
growth opportunity for our clean
energy business, both in the UK
and internationally, over the
near, medium and long term.
UK new nuclear: entering a multi-decade growth cycle
Roadmap from 6GW today to 24GW is driving unprecedented growth and opportunities.
Up to
£25-30 bn
Estimated addressable opportunity to 2050
Structural growth driver Opportunities and scale
Engineering the next generation
Hinkley Point C: the UK’s first
new large gigawatt build site.
Generating capacity
New build target
1955 2030 2050
20GW
10GW
New reactors: LGWs, SMRs, and AMRs
•
Hinkley Point C under construction
• Sizewell C now funded
• Scope for additional LGW projects by 2050
• First SMR project underway and AMR
framework launched
Sovereign fuels capability
•
UK is transitioning to a secure, domestically led
nuclear fuels supply chain underpinned by
Government investment
Major long-term new build programmes are beginning to
address current power demands, while potential future
growth is expected to be driven by further large gigawatt
(LGW) reactors, small modular reactors (SMRs), advanced
modular reactors (AMRs) and fuels supporting greater
national resilience.
16 Babcock International Group PLC Annual Report and Financial Statements 2026
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Cavendish Nuclear
Already scaled and growing
We are a leading provider of nuclear solutions, critical to the
UK, with strong capabilities in specialist engineering, technical
consulting and fuels. In Cavendish Nuclear, we deliver:
• Clean Energy: design, build, operations and fuels
• Defence: specialised engineering
• Decommissioning: defuel and decommissioning
Our strategic partnerships
Our strong position in the market is underpinned by our deep
relationships with government customers, regulators, and
industry partners and alliances.
What sets us apart
• People: Highly specialist workforce of >3,000
• Assets and Infrastructure: advanced manufacturing, test
and assembly facilities
• Credibility and reputation: 70 years experience across all
36 UK nuclear sites
• Integration and collaboration: shared cross-sector
expertise and long-term industry collaboration
● See our Nuclear operational review on page 56
Clean Energy
Enduring growth potential
38%
5-year revenue CAGR
(FY22-FY26)
>3,000
Specialist workforce
70 years experience
c.£380 m
FY26 revenue
>7% of Group
c.£300 m
FY30 medium-term
revenue guidance
>£1.9 bn
FY26 contract backlog
and framework orders
>11%
FY26 underlying
operating margin
Near term growth Long term growth
Existing new nuclear projects driving strong growth
Hinkley Point C
We are a key partner in the Mechanical, Electrical and HVAC
(MEH) Alliance, delivering high integrity nuclear equipment
design, manufacture, and systems integration for a first-in a
generation large gigawatt reactor in the UK.
• £820m in contract backlog and framework orders
• Duration: 10+ years to 2029+
• Babcock Workforce: c.900 and expected to grow
Sizewell C
Strategic framework role with EDF, where we aim to
replicate MEH engineering and further infrastructure
delivering the UK’s second new LGW.
• Strategic Framework and support work contracted
• £38bn: UK Government backed spending
• Engineering schedule: 2026 to 2035+
Leveraging capabilities to capture major growth
potential in modular reactors and fuels
Manufacturing
• Large-scale SMR and AMR structures
• Leverage existing advanced manufacturing capability
• Potential to materially increase scale in 5-10 years
Infrastructure
• Lead technical integration of SMRs and AMRs
• Leverage existing nuclear infrastructure capability
• Potential to materially increase scale in 10 years
Owner’s Engineer
• Secure further government strategic partner roles
• Leverage first-mover advantage in UK SMR rollout
• Potential to scale sustainable long-term revenue stream
over next 10 years+
Fuels
• Leverage fuel facility design engineering and specialist
fuel cycle knowledge
21%
5-year revenue CAGR
(FY22-FY26)
c.£600 m
FY30 medium-term
revenue guidance
FY22 FY23 FY24 FY25 FY26
Clean Energy
Defence Decommisioning
Five-year revenue profile
Babcock International Group PLC Annual Report and Financial Statements 2026 17
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Market review
Continued focus on defence and civil nuclear
Over the past five years, Babcock has strengthened its position as an
international defence company and the largest sovereign UK nuclear
services provider. In both markets, we provide technology-enabled
support and product solutions to enhance our customers’ capabilities
and critical assets.
Geopolitical tensions have continued to rise over the past year,
creating an increasingly uncertain global environment. This has
driven increased global defence spending, which reached a record
high of $2.6 trillion in 2025. As national governments continue to
increase their defence expenditure, particularly NATO members,
ongoing regional conflicts have also highlighted significant changes
in how conflicts are fought and the technology drivers that underpin
them. The pace of technological advancement continues to
accelerate, demanding innovative, adaptable and integrated
capability that is suitable for the modern, multi-domain battlespace.
In the UK, our main defence market, a new National Armaments
Director has been appointed in the last year. They are responsible
for managing a £20 billion annual defence procurement budget,
whilst also supporting industry to deliver significant growth in
defence exports. This development is supporting Babcock’s ongoing
drive to increase both the scale and quality of new international
business in our portfolio.
Across the world, increased geopolitical uncertainty is also driving
governments to improve energy security by renewing their
commitment to nuclear power, with global expenditure on new nuclear
now expected to reach $2.2 trillion by 2050. This includes a growing
interest globally in Small Modular Reactors (SMRs), particularly in the
UK, where the Government has already allocated £2.5 billion from the
2025 Spending Review to enable early deployment.
Our unique position
Babcock operates side-by-side with our customers as they prepare
for and return from operational deployments. This provides us with a
unique insight into the real-world challenges they face, particularly
those related to the availability, performance and supportability of
their critical assets. These insights and our experience working with
a wide range of international partners enables us to deliver tailored
solutions to our customers, using a proven approach to sustainment,
product development and systems integration. Whether delivering
capability for submarines, ships, land vehicles or satellites, our focus
remains firmly on providing value for money and maximising
operational benefit.
As the leading provider of nuclear services in the UK, Babcock has a
distinctive position across both civil nuclear and defence nuclear
markets. Our strength is underpinned by a pool of experienced
subject-matter experts, whose expertise spans the full nuclear
lifecycle. In clean energy, this includes design, build, operations, and
fuelling and defuelling, across both legacy reactor technologies and
next-generation solutions. Our broad capability ensures we are well
positioned to support the UK’s evolving nuclear requirements and
the wider global transition to advanced nuclear technologies.
Our growing markets
Defence
The UK’s Strategic Defence Review (SDR), published in June 2025,
aims to strengthen the nation’s defence readiness and accelerate
technological innovation, securing warfighting advantages for the UK
and its allies. It also reinforces some of the long-standing pillars of
UK defence, including the sustainment of the Continuous At Sea
Deterrent and the UK’s support for NATO through a ‘NATO First’
policy. In response to rising geopolitical pressure, the majority of
NATO members, including the UK, agreed in June 2025 to raise
national security spending to 5% of GDP by 2035. At least 3.5% is
aimed at core defence, with the remaining 1.5% for infrastructure
and resilience.
The SDR and the commitment to meet the NATO funding pledge
indicates a clear intention to increase investment to strengthen the
UK’s defence posture, whilst also creating opportunities for UK
exporters. This momentum, supported further by the Defence
Industrial Strategy’s focus on deepening collaboration with UK
industry to enhance national industrial resilience, should continue to
present opportunities for Babcock. As for many allied governments,
the UK Government is balancing defence and strategic priorities
against fiscal constraints. The expected Defence Investment Plan
should detail how the Government plans to fund and deliver the SDR.
While political uncertainty remains, the UK Government has
committed to an increase in core defence spending to 2.5% of GDP
by April 2027, with an ambition for this to rise to 3% of GDP in the
next Parliament.
Beyond our core UK market, Babcock continues to see a growing
opportunity set across several of our key growth countries,
particularly in Eastern Europe, Scandinavia and the Indo-Pacific
region, where security challenges are driving increased defence
budgets and major defence procurement activities. Across these
markets, governments are prioritising sovereign resilience, major
capability development, industrial investment and long-term platform
modernisation. These priorities closely match Babcock’s strengths in
complex engineering, sustainment, systems integration and defence
nuclear capability. Babcock continues to develop and leverage
partnerships with governments, prime contractors and SMEs to
expand the scale and reach of our international defence exports.
Civil nuclear
The UK Government’s civil nuclear roadmap, published in January
2024, targets an increase in nuclear capacity from 6GW to 24GW by
2050, driving significant long-term growth across both large-scale
gigawatt reactors and advanced nuclear technologies including
SMRs and Advanced Modular Reactors (AMRs), alongside the
reinstatement of sovereign fuel production. This is creating
significant long-term growth opportunities across multi-billion pound
engineering, construction, commissioning and through-life support
programmes. Demand is also increasing for specialist SMR and AMR
services including site preparation, modular assembly, digital
engineering and regulatory support. In February 2026, the UK’s
Nuclear Decommissioning Authority set out a long-term, integrated
strategy for the safe, secure and sustainable decommissioning of the
UK’s legacy nuclear sites, underpinning decades of future delivery
and investment opportunity.
Internationally, our civil nuclear markets are also growing. Sustained
investment in decommissioning programmes across the United
States and Japan presents opportunities for Babcock to develop our
export offering, applying our full-lifecycle expertise to further
support the clean-up of legacy nuclear sites. In parallel, increasing
global demand for SMRs and AMRs presents further opportunities for
Babcock to support the global deployment of next-generation
modular reactor technologies, leveraging and building upon our
strategic role in the UK civil nuclear programme. This will further
enhance the visibility of our core technical capabilities with major
international nuclear services customers.
● See more detail on new nuclear on page 16.
18 Babcock International Group PLC Annual Report and Financial Statements 2026
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c.£70bn
2025 defence budget
1
c.£75bn
2025 defence budget
2
c.£290bn
2025 defence budget
3
c.£720bn
2025 defence budget
4
c.£2bn
2025 defence budget
5
70% of FY26 revenue
Our primary defence market is the UK, the
third-largest defence budget in NATO,
where we provide critical support to all the
UK’s armed forces. As part of the Strategic
Partnering Programme, we work alongside
the UK Government and MOD across
multiple critical programmes to ensure the
increasingly complex needs of our armed
forces are met.
5% of FY26 revenue
We have a strong history of supporting the
Royal Canadian Navy and the US Navy.
7% of FY26 revenue
We have a strong position in South Africa
through our engineering, construction and
power services business. We recently
secured our first defence contract
supporting submarines.
14% of FY26 revenue
We are a key defence company in
Australasia, providing maritime sustainment
and defence communications capability to
the Australian and New Zealand Defence
Forces, with product capability exports
further afield.
4% of FY26 revenue
We have an established position in France,
while exporting selected capabilities to
Poland, Ukraine and Spain in support of
equipment modernisation initiatives.
Sources:
1. The International Institute for Strategic
Studies (IISS) 2026
2. IISS 2026: AUS, NZL, ROK, IDN
3. IISS 2026: FRA, POL, UKR, BEL, ESP, DNK,
GER, IRL, NOR, NLD, SWE, ROM
4. IISS 2026: US, CAN, CHL
5. IISS 2026: RSA
United Kingdom Asia Pacific Europe
Americas Africa
Market dynamics
Priorities and future opportunities
Defence
• Maritime autonomous capability
• Arrowhead frigate exports
• Land and aviation training
• Submarines WHLS
• Light mobility vehicles
• Land MRO
• Maritime MRO
Priorities and future opportunities
Defence
• Maritime autonomous capability
• AUKUS
• Arrowhead frigate exports
• UK-Indonesia Maritime Partnership
Programme
• Land MRO
• Maritime MRO
• Critical infrastructure management
Priorities and future opportunities
Defence
• Hybrid navy solutions
• UAS and counter UAS
• Light and medium mobility vehicles
• MRO
• Weapons systems
• Training
• Artillery
• AWE fissile support
Priorities and future opportunities
Defence
• Maritime MRO
• Land MRO
• Land and aviation training
• Critical infrastructure management
Priorities and future opportunities
Defence
• Submarine components
• Submarine MRO
• Submarine WHLS
• Light mobility vehicles
Babcock International Group PLC Annual Report and Financial Statements 2026 19
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Strategic framework
Following a multi-year turnaround
focused on portfolio simplification,
balance sheet strength, and
operational discipline, Babcock has
successfully shifted from stabilisation
to high-value growth.
Guided by our Purpose, ‘to create
a safe and secure world, together’,
our strategic framework prioritises
capability, delivery, performance and
efficiency, focusing on seven key
areas of strategic development to
drive and deliver long-term growth
and shareholder value.
Positioned for
long-term growth
20 Babcock International Group PLC Annual Report and Financial Statements 2026
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Our Purpose
To create a safe and secure world, together
Our long-term strategy
To maintain and grow our position as a trusted, long-term partner to
the UK and allied governments, delivering critical defence and nuclear
capabilities, and strengthening national resilience.
Achieved through our
strategic framework
...to progress against our medium-term targets…
Average annual
organic growth
Mid-single digit
Underlying operating
margin
≥9%
Average underlying
operating cash conversion
≥80%
Leverage technical
capability
Solve complex customer challenges
across defence and nuclear,
underpinned by deep domain expertise
and regulated capability
Delivery
excellence
Execute with discipline – on safety,
schedule and quality – to deepen and
protect customer relationships
Operational performance
efficiency
Drive productivity and efficiency
to expand margins, improve cash
generation and enhance
competitiveness
And a strategic
focus to…
Grow in Defence
and Nuclear:
Strengthen and expand capabilities aligned
to evolving requirements; position in
emerging ecosystems
Expand our
international business:
Scale in priority markets, build positions in
strategic geographies and grow direct exports
Develop and grow
product-led capability:
Drive product and integration and through-life
support opportunities to deepen customer embed
Increase agility:
Leverage engineering and technology expertise
to respond rapidly to changing defence and
energy needs
Build strategic partnerships:
Partner with best-in-class primes and OEMs;
strengthen our role as a reliable government
delivery partner
Invest in our people:
Attract, retain and develop critical skills; maintain
a high-performance, safe and inclusive culture
Be a responsible business:
Embed sustainability and responsible practices in
all that we do
…and deliver value for all our stakeholders
Customers
improved capability outcomes
with high delivery confidence
Colleagues
a safer, more engaging
place to work with strong
development pathways
Suppliers
benefiting from collaborative
relationships with those who
share our values
Shareholders
sustainable
value creation
Communities
providing positive benefits
to the places where we live
and work
Babcock International Group PLC Annual Report and Financial Statements 2026 21
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Capability for
the future
In focus: Technology
Autonomy
Providing, integrating,
manufacturing and
supporting effective
autonomy solutions.
Project example:
Autonomous and Remote
Maritime Operational
Response (ARMOR) Force
architecture to control a
network of uncrewed
systems from an Arrowhead
Common Command Vessel.
Advanced manufacturing
Developing flexible
manufacturing capability to
deliver and scale high-
integrity engineering.
Project example: deploying
advanced technologies and
robotics to deliver the US-UK
common missile
compartment assemblies for
US Columbia Class and UK
Dreadnought Class
submarine programmes.
C5ISR
Developing comprehensive
capabilities in Command and
Control, Computers,
Communications, Cyber,
Intelligence, Surveillance and
Reconnaissance.
Project example: NOMAD
AI-powered real-time
military intelligence system
for the battlefield.
Sustainable energy
Providing sustainable,
resilient power solutions.
Project example:
Development of small and
micro modular nuclear
reactor propositions to
provide resilient power at the
point of need.
Babcock’s seven strategic technology themes:
1
7
3
6
5
2
3
4
Technology is embedded in everything we do. Geopolitical shifts and
emerging technologies are changing the nature of the defence and
energy security landscape, and highlighting the importance of critical
sovereign capabilities and resilience. Babcock’s intimate knowledge
of our customers’ requirements and their assets enables us to select
the right technologies to support current and future mission needs.
To deliver the best capabilities at the point of need for our customers and support our growth
ambitions, technology underpins our aim to be the leading provider of integrated solutions.
Our approach is to identify and collaborate with innovative SMEs and apply our expertise to integrate
the technology into an effective solution, often enabling SMEs an easier route to engage with the
defence and energy sectors.
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Digital through-life
support
Providing optimised,
data-driven, through-life
asset management,
maintenance, repair and
overhaul, and digital
engineering services.
Project example: METIS, an
AI-enabled digital asset
management platform.
Human performance
augmentation
Optimising training,
predicting performance
and enabling human
machine teaming.
Project example: Babcock
Immersive Training
Environment (BITE), using
technology to layer effects
and simulate modern
operational environments to
optimise training.
Effectors and
countermeasures
Integrating modular capability
to tackle large numbers of
varying threats.
Project example: Modular
launcher, a containerised
platform for launching
low-cost missiles to
defend against one-way
attack drones.
Leveraging assured
Artificial Intelligence (AI)
AI is a foundational
technology that underpins all
seven technology themes.
Babcock’s global AI and Data
Centre of Excellence (AIDEX)
centralises expertise to
deliver assured AI solutions
that optimise our existing
lifetime engineering
capability, unlock new
opportunities and achieve
operational advantage
for our customers.
Key technology growth areas
The three key growth areas being disrupted by technology that have significant upside potential for Babcock:
Underwater battlespace
Protecting the undersea battlespace
against emerging surface and subsea
threats, including hybrid warfare.
Capability at scale
Creating, delivering, supporting, connecting
and countering increasingly large masses
of attritable and consumable capabilities
at scale.
Sustainable power
Providing resilient power at the point of
need to meet increasing demands in
both military and civilian contexts.
To deliver growth in the three key areas and enhance existing capability, seven strategic technology themes are defined. The
themes are governed under a global approach that protects our intellectual property and that ensures that we develop once, do it
well and use it many times.
2
4
1
5
6
7
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Our business model
Strengths and
resources
Drawing on the key strengths that underpin our success
Our people
We rely on our people, and their experience
and skills, to deliver for our customers and
solve challenges every day. We aim to better
support, train and empower our workforce.
Customer relationships
We are a trusted partner, critical to our
customers’ ability to solve complex problems.
Through long-term programmes and contracts,
we work collaboratively with our customers
to understand their needs and identify solutions
that add value.
Our assets
We own critical national infrastructure across
the UK, including the Rosyth and Devonport
Royal dockyards. We also operate a range of
customer-owned critical assets such as naval
and air force bases, complex engineering
facilities and aircraft for the delivery of
emergency services and military training.
Our technology and know-how
We use our technology and our highly
specialised engineering know-how to solve
customer challenges. We have a deep
understanding of our customers’ assets and are
able to integrate technologies and capabilities
to support their needs and provide services that
add value.
Safety and regulatory compliance
We and our customers operate in heavily
regulated environments where the health,
safety and wellbeing of all stakeholders is the
number one priority, underpinning all work.
Strategic partnerships
Collaboration with key industry partners is a
significant enabler to access and accelerate
addressable opportunities to deliver complex
customer solutions in evolving environments,
with reduced risk.
How we operate
Our business model is focused on securing and
executing long-term, high-value contracts for
complex, integrated solutions, underpinned by
rigorous commercial and technical risk frameworks.
4. Sustainability
Our sustainability strategy is a key component of how we deliver
and increase the sustainability and growth of our business. Our
business has a significant impact on society and the
environment, and sustainability is an integral part of our
corporate strategy and how we do business.
● See page 70 for our sustainability review.
1. Foundations
We work collaboratively with government departments, public
bodies, highly regulated industries and blue chip companies, and are
embedded on crucial long-term programmes. We focus on markets
and customers with outsourcing models that require value-add
engineering-based support and product development. Our five focus
markets are the UK, Australasia, France, Canada and South Africa,
with operations in and exports to other countries.
2. Bidding and business development
We continually monitor opportunities across our markets, using strong
reference cases and deep sector expertise to identify ways to solve
new and existing customers’ challenges and support their
programmes. We have a multi-gate review process for contract bids to
help ensure we only bid on value-creating work.
3. Contracting
A significant proportion of our business is carried out on a
long-term contract or multi-year framework basis. Our contract
backlog of £9.8 billion of contracted work provides a base level of
revenue for the years ahead, supplemented by new business wins,
framework orders, contract extensions and variations, and other
short-cycle work.
Revenue is recognised as we deliver on our contracts and
performance obligations are satisfied. We have an established
review process to manage contract risk.
● See page 110 for our principal risks.
How we create value,
our competitive advantage
Market trends and opportunities
● Read more on page 18
Strategic framework
● Read more on page 20
Key performance indicators
● Read more on page 32
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Customers
Delivering for our customers and partnering with
them on the challenges they face.
Colleagues
Creating a better place to work, where colleagues
are valued and motivated at all times.
Investors
Creating shareholder value through growth, cash
generation and the efficient allocation of capital.
Delivering shareholder returns through dividends
and increased share value.
Communities
Providing jobs and investment across the UK and
internationally where we operate, and ensuring we
act responsibly at all times in the interests of local
communities around our sites.
Suppliers
Creating jobs and nurturing investment through
collaboration with our supply chain.
Creating stakeholder
value
● See page 68 for more on our
stakeholder engagement
5. Technology-based solutions
We apply technology-based solutions to solve complex customer
problems. We invest in technologies that optimise asset utilisation,
advance manufacturing, enhance support capabilities and add value
to customers. Our data analytics, digital design and integration
capabilities reduce costs and increase the customer’s ability to adapt to
technology developments.
6. Partnerships and collaboration
Partnering and collaboration are key to our success in bringing market-
leading capabilities to our customers. We bring together organisations to
deliver engineering and technology-based products and support solutions
that add value to our customers and increase access to markets.
7. Investment and capability
The cash we generate funds selective reinvestment into the business,
principally through capital expenditure to develop our unique
infrastructure, equipment, IT systems and engineering talent.
● See page 8 for our capital allocation framework.
As a long-cycle global business in defence and civil markets, our business model is critical for
strong delivery and operational excellence. We’re focused on securing the right contracts and
managing them effectively to deliver value to all our stakeholders over the long-term.
Our competitive advantage
Decades of
accumulated
engineering
expertise in
complex long-life
assets
Deep customer
embed – unique
understanding
of complex
customer
requirements
Strategic
partnerships with
leading global
players
Critical integrator
of complex
supply chains –
supplier and
technology
agnostic
Scale and agility
– cross-Group
capabilities to
respond to
changing
requirements
Broad portfolio
of opportunities
in strategically
important sectors
(Defence and
Nuclear)
Risk management
● Read more on page 110
Stakeholder engagement
● Read more on page 68
Governance
● Read more on page 132
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At Babcock, we take a foundations-to-future
approach to developing our people and their
skills. Our focus is on building a diverse
and resilient workforce, equipped with the
engineering and technical capabilities required
to deliver complex programmes and pursue
new opportunities across defence and
civil markets.
“As a major sovereign UK defence company, Babcock
relies on a strong domestic pipeline of talent to
underpin our growth. We work across all levels, ages
and backgrounds, from young people and students to
returners and those seeking a career change, creating
inclusive pathways that unlock opportunity and support
the delivery of our critical programmes.”
Harry Holt, Deputy CEO
Skills investment
Sustained investment in our skills capability is key to our long-term
competitiveness, resilience and ability to deliver enduring value for
our customers and investors. This year, we launched our new
apprenticeship welding school in Bristol, fusing traditional welding
training with augmented reality technology. As part of the wider
Babcock Academy, the new welding apprentices will progress
through their training programme with our academic partners,
Weston College.
The UK is experiencing growing demand for these critical skills,
driven by growth in global defence programmes and technological
advancement, alongside an ageing workforce and a decline in
welding apprenticeship opportunities.
In Scotland, we recently signed a Memorandum of Understanding
with Forth Valley College and Fife College focused on accelerating
the development of Scotland’s defence and advanced manufacturing
workforce. This initiative is further supported by the UK
Government’s Scotland Defence Growth Deal with up to £10 million
of the £50 million deal focusing on skills investment.
Lifetime
Engineered…
In focus: People and skills
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Early careers and returners programmes
Our early careers, returners and other emerging talent programmes
are essential to developing the strong pipeline of skills needed to
support continuity, succession and the long-term capabilities
required for future growth. We develop these skills through our
1,800 apprentice and graduate roles. This year, in the UK we
welcomed over 500 apprentices and over 260 graduates,
representing our largest early careers intake in the UK to date.
STEM outreach
Through our STEM outreach programmes, we are inspiring and
developing the next generation of engineers and technicians,
reaching 1 in every 130 UK school children every year. Our flagship
initiative, The Festival of Engineering, is our national programme of
events designed to raise awareness of STEM opportunities and
career pathways. The programme aims to build a more diverse and
inclusive workforce by encouraging greater participation in
engineering careers, particularly among women, and by helping to
break down barriers where they exist.
Partnering for the future
In 2025, we became a founding partner for International Defence
Esports Games, a new international Esports tournament designed to
train military personnel and upskill the wider defence community in
critical cyber and digital skills. Military teams from 12 allied nations
competed as part of a collaborative initiative involving the Ministry of
Defence, the British Esports Federation, and industry partners.
Alongside this, we are leveraging our partnership with the Royal
Academy of Engineering to help change people’s perceptions of
engineering careers and strengthen the talent pipeline needed to
secure the critical defence skills of the future.
…building skills
that last
Babcock International Group PLC Annual Report and Financial Statements 2026 27
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Being a responsible corporate citizen is
fundamental to how Babcock creates
sustainable, long-term value for all our
stakeholders. Across our operations
and supply chain, we deliver impactful
initiatives that reinforce trust, strengthen
partnerships and create a positive, lasting
impact for society and the communities we
work within.
Unlocking the defence dividend
We are demonstrating the strategic importance of defence to unlocking
economic growth and regional prosperity. In the UK, we recently
announced the Babcock Capability Centre in the heart of Plymouth. This
initiative will relocate up to 2,000 colleagues from Devonport dockyard
to Plymouth city centre, significantly increasing footfall and providing a
boost to local businesses and services.
This new facility will enable us to free up vital space in the dockyard,
supporting the continued delivery of critical defence programmes,
while acting as a catalyst for local regeneration and economic growth.
The announcement builds on recent momentum for the city, including
its designation as a National Defence Growth Area and the Ministry of
Defence’s £4.4 billion investment in Devonport.
Earlier this year, in partnership with the Royal Navy and Ministry of
Defence, we opened the gates of Devonport dockyard to the general
public for the first time in 19 years, shining a spotlight on the people,
skills and sovereign capability that help keep our country secure. Over
the two-day event, we welcomed c.10,000 guests, including members
of the public, colleagues, supply chain partners and customer staff,
along with their families. Our guests were given a unique view into what
we do, why we do it and how they can join us. Thanks to the success of
the event, another open day is planned for the Summer of 2026.
Responsible Business,
Lasting Impact
In focus: Commitment to society
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Supporting the Armed Forces community
We are proud to be a longstanding and active partner to the Armed
Forces community. Our connection to serving personnel, veterans,
reservists and military families is integral to who we are and how we
operate. During the year, we strengthened our position as a leading
employer of veterans, rising to joint number one in the Great British
Employers of Veterans ranking.
We were also recognised as ‘Best Employer’ at the Ex-Forces in
Business Awards, reflecting the strength, consistency and maturity
of our approach across the UK. In addition, we re-signed the Armed
Forces Covenant, reaffirming our enduring commitment to
supporting those who serve, or who have served.
Making a meaningful difference together
We support charitable initiatives that deliver tangible outcomes, both
nationally and internationally. Our partnership with The Vine Trust
continues to thrive, from our work at Babcock’s Rosyth facility
repurposing naval vessels for humanitarian use to sending
volunteers into remote communities across the Amazon and
Tanzania to provide hands-on support.
This year, we were honoured to host the Trust’s 40
th
anniversary
celebration in the presence of Her Royal Highness the Princess
Royal. We further strengthened our partnership through the signing
of a new Memorandum of Understanding, creating a strong
foundation for continued collaboration and future impact.
Across our global business, colleagues continue to use their Be Kind
days to support local causes. Together they contributed more than
10,600 volunteer hours this year – making a meaningful difference in
the communities where they live and work.
Stronger governance through smarter insight
Robust governance and oversight drive responsible decision-
making, reinforcing trust with all stakeholders. Across the business,
we continue to strengthen data, reporting and governance, from
sustainability to supply chain management.
This year, we fully implemented Envizi, our environmental data
management system, enabling faster, more accurate data collection
that allows us to better monitor progress against our sustainability
priorities as we work to tackle climate change, protect the natural
environment and manage our resources responsibly.
We also launched ‘Mission Control’, a unified platform that turns
fragmented procurement and supply chain data into actionable
insights. With real-time visibility, automated reporting and live
supplier scorecards, it helps us identify trends, manage risks
proactively and make informed decisions across our network of over
9,500 global suppliers.
Babcock International Group PLC Annual Report and Financial Statements 2026 29
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Unlocking SME potential
We commissioned the University of Exeter to carry out a research
project to identify ways to dismantle the barriers preventing SMEs
from contributing their innovative potential to UK defence.
Despite their vital role in innovation and local economies, SMEs
currently account for only around 4% of defence expenditure.
Increasing SME participation would not only strengthen UK defence
capability and resilience, but also unlock a powerful defence
dividend, creating jobs, stimulating growth and delivering lasting
benefits to communities across the UK.
Published in January 2026, The Next Line of Defence: Unlocking
SME Potential in UK Defence from Policy to Practice, calls for
significant reforms to help SMEs more readily support UK defence
and overcome common challenges. The report identifies six areas
of focus:
• Beyond Bureaucracy: simplifying procurement
• Recasting Prime: from gatekeepers to partners
• Stabilising Funding: patient finance and private capital
• Reframing Defence Careers: building a skills pipeline
• Modernising Infrastructure: digital and physical security
• Protecting the Country: ensuring sovereign capability
SME Engagement Charter
In March 2026 we built on the findings of the Next Line of Defence
report by launching the UK defence industry’s first SME Engagement
Charter (see next page), supported by UK defence trade body ADS
Group. The charter sets out a clear and practical set of commitments
to drive meaningful change, providing a consistent framework to
strengthen SME engagement and encourage industry-wide adoption.
Applied partnerships
We recognise that small and medium-sized enterprises are critical to
accelerating innovation and bolstering long-term defence resilience.
Informed by the insights and evidence from the thought leadership
report, the charter addresses areas where greater awareness,
collaboration and action are needed. It focuses on removing practical
barriers, tackling long-standing challenges and creating a more
inclusive defence ecosystem – enabling SMEs to contribute fully,
innovate faster and play a stronger role in supporting UK sovereign
defence capability.
Babcock kicked off DSEI 2025, hosting a panel on stand to
explore the impact of overlooking SMEs in defence.
Our report, together with the University of Exeter, examines
the barriers and opportunities for SMEs engaging with UK
defence supply chains.
Small and medium-sized enterprises are the lifeblood of British industry, accounting for over 99%
of UK employers and over 60% of employees. British SMEs bring innovation, creativity, agility and
specialist capabilities to every sector of the economy, not least national security.
David Lockwood, CEO
In focus: Commitment to Society (continued)
Powering innovation,
through partnerships
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The next line of defence | © 2026 Babcock International Group
Validate & Pull Through
06
Sandbox to
Battlefield
We will aim to provide
accessible physical and
digital ‘sandboxesʼ for low-
burden experimentation
and integration, enabling
secure collaboration
environments for SME
partners.
08
Investment
& Scaling
Pathways
We will actively support the
growth of high-potential
SMEs by helping to pilot
financial instruments,
including co-investment,
to crowd-in private capital
and bridge from prototype
to deployment.
Build & Scale
07
Embedded
Expertise
We will share practical
expertise through
mentoring, mutual
secondments and targeted
training, building real-world
capacity and providing
hands-on support to help
SMEs meet standards and
win work.
Industry Ecosystem
09
Inspiring Future
Generations
We will continue to
champion defence as
a high-tech, purpose-
driven career for young
people and diverse talents
across all communities
and regions, supporting
sector-wide reforms to
attract the next generation
of innovators.
Govern & Improve
10
Accountability
We will embed the
principles from this
Charter throughout our
organisation and will aim
to publicly tracking our
performance. This Charter
is a lived commitment,
providing tangible proof
of our dedication to
fostering a collaborative
and supportive defence
ecosystem.
Discover & Engage
01
Clear Path to
Engagement
We will make engagement
simple and consistent,
giving clear advice, with
a single digital interface
and named points of
contact, guiding suppliers
to opportunities and
decision-makers.
02
Scout
& Signal
We will proactively
scout novel sovereign
capabilities and publish
clear demand signals and
requirements, collaborating
with industry partners to
match high potential SMEs
to real problems earlier.
03
Best Solution
Wins
We will choose the best
solution based on the
mission, no
t incumbent
status or company size.
Transparent criteria,
challenge-led processes,
fair evaluations and
feedback will create a level
playing field, prioritising
agility, merit and outcomes.
Contract
04
Proportionate
Partnerships
We will adopt a risk-
proportionate approach
to commercial terms
where appropriate with
simplified contracts and
proportionate liability
aligned to the size,
scope and risk of work.
Intellectual property will
be respected and default
license in models will be
prioritised to preserve SME
value where required.
05
Cashflow
Confidence
We will ensure cashflow
confidence by paying
SMEs promptly and
transparently, targeting
to pay 95% of invoices in
30 days or les
s, aiming for
the Gold Standard for the
Fair Payment Code and
supporting their business
and enabling their
investment in growth
and R&D.
SME
Engagement
Charter
n
t
The next line of defence
● Read our report “The Next Line
of Defence: Unlocking SME
Potential in UK Defence from
Policy to Practice”
Babcock International Group PLC Annual Report and Financial Statements 2026 31
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How we measure progress
Key performance indicators
2026 Financial performance
Definition
The movement in revenue compared to that of the
previous year excluding the impact of FX, contribution
from acquisitions and disposals over the prior and
current year.
● See note 1 of the accounts for details of
our revenue recognition policy
Commentary
Revenue growth of 7.6% on an organic basis was
driven by strong growth in Nuclear and Aviation.
Excluding the revenue reversal impact of the Type 31
charge, organic revenue growth was 9.5%.
● See our commentary on page 35
G
Organic revenue growth
T
Organic revenue growth
Organic revenue growth (%)
7.6%
Definition
Underlying operating profit, expressed as a percentage
of revenue.
● See page 37 for a reconciliation of
statutory to underlying operating profit
Commentary
Underlying operating margin decreased year on year,
driven by the £140 million charge on the Type 31
contract, more than offsetting strong performances
across all sectors. Exlcuding the Type 31 charge, Group
underlying operating margin was 8.2%.
● See our commentary on page 36
G
Underlying operating profit
Underlying operating margin
T
Underlying operating margin
Underlying operating margin (%)
Definition
Underlying earnings after tax divided by the weighted
average number of ordinary shares.
Commentary
Underlying EPS decreased due to lower underlying
operating profit for the year driven by the £140 million
Type 31 charge. Excluding the Type 31 charge, Group
underlying EPS was 60.5 pence.
● See reconciliation on page 37
G
Underlying basic earnings per share
Underlying EPS (p)
5.7%
We have six financial and three non-financial key performance
indicators (KPIs). The six financial metrics we use to monitor
underlying performance are Alternative Performance Measures
(APMs), which are not defined by International Financial
Reporting Standards (IFRS) and are therefore considered to be
non-GAAP (Generally Accepted Accounting Principles) measures.
● The Group has defined and outlined the purpose of
its APMs on page 1, 34 and 46.
Definition
Underlying operating cash conversion is defined as
underlying operating cash flow after capital expenditure
as a percentage of underlying operating profit.
Commentary
Underlying operating cash conversion of 119%
represents strong operational performance, expected
unwind of working capital and the impact on the Type
31 charge to underlying operating profit. Excluding the
Type 31 charge, cash conversion was 84%. For more
information, see page 39.
● See calculation on page 38
G
Underlying operating cash conversion
Underlying operating profit
Underlying operating cash flow
T
Underlying operating cash conversion
Underlying operating cash
conversion (%)
Net debt/EBITDA (covenant basis) Underlying return on invested
capital, pre-tax (ROIC) (%)
Definition
Net debt to EBITDA as measured in our banking
covenants. This uses net debt (excluding leases)
divided by underlying earnings before interest, tax,
depreciation and amortisation plus JV dividends
received. This definition makes a series of adjustments
to both Group net debt and Group EBITDA; see page 41
for a reconciliation.
Commentary
Net debt/EBITDA (covenant basis) reduced to 0.2x, due
to strong underlying free cash flow.
● See reconciliation on page 41
G
EBITDA
Net debt/EBITDA (covenant basis)
Definition
Underlying return on invested capital is defined as
underlying operating profit plus share of JV profit after
tax, divided by the sum of net debt, shareholders’ funds
and retirement deficit or surpluses.
Commentary
Return on invested capital was lower year
on year, driven by lower underlying operating profit
driven by the £140 million Type 31 charge.
● See calculation on page 41
G
Underlying return on invested capital
39.6p
30.3%0.2x118.7%
FY26
FY25
FY24
FY23
FY22
7.6
11.4
9.9
4.7
10.7
FY26
FY25
FY24
FY23
FY22
5.4
4.0
5.8
7.5
5.7
FY26
FY25
FY24
FY23
FY22
39.6
30.8
30.7
17.7
50.3
FY26
FY25
FY24
FY23
FY22
118.7
135.7
172.6
1.9
82.0
FY26
FY25
FY24
FY23
FY22
0.2
0.8
1.8
1.5
0.3
FY26
FY25
FY24
FY23
FY22
30.3
26.0
17.4
18.8
37.0
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Definition
The Days Lost Rate (DLR) is a 12-month rolling average
that relates to the number, per 200,000 working hours
(200,000 represents 100 employees working 40 hours
for 50 weeks per year), of calendar days that Babcock
colleagues were unavailable for work during that period
due to a work-related injury or occupational illness.
Injury or illness diagnosis may have occurred in a
previous reporting period but absences are accounted
within the period of the absence.
Commentary
We have increased the governance of absence
management, invested in training, wellbeing support
and workforce engagement to ensure we build a
capable, empowered and future-ready organisation
with an engaged culture. Our commitment to create a
safer and healthier workplace remains solid, and our
focus for FY27 is to strengthen critical controls and
develop leaders to enable the growth of our culture of
care. As the days lost rate is a new target without full
historical data, this year we will continue to show our
total recordable injury rate below.
Maintaining our unwavering commitment to the health,
safety and wellbeing of our colleagues, we have
continued to embed the Home Safe commitments and
engage colleagues throughout the value chain. Whilst
the injury rate had reduced mid-year, it has risen again.
The severity of many of the reported injuries is low and
we continue to encourage all injuries to be reported.
We will continue to strive to reduce injuries and
occupational illnesses through strong risk controls.
● See page 79 for more information
Total recordable injuries rate
Days lost rate Total Scope 1 and 2 emissions
(tCO
2
e)
% Women across total workforce
2026 Non-financial performance
Definition
Tonnes of Scope 1 and 2 emissions within our
organisational boundary using the operational control
approach and market-based Scope 2 accounting
methodology. The reporting period for our emissions is
the calendar year (1 January to 31 December).
Commentary
Scope 1 and 2 emissions have reduced by 20.1% since
our 2021 baseline. This has been driven by several key
factors, including reduced electricity and fuel
consumption at Devonport Royal Dockyard, reduced
consumption of electricity supplied by the carbon-
intensive Energy from Waste (EfW) plant at Devonport
Dockyard, introduction of biodiesel Hydrotreated
Vegetable Oil (HVO) to replace diesel in generators,
reduced diesel use in our rail business, and
electrification of our vehicle fleet.
Figures for prior years have been restated, see page 105.
Scope 1 and 2 year-on-year emissions have dropped
by 11.1%. This has been primarily driven by the EfW
outage as mentioned above. This KPI does not include
Scope 3 emissions.
● See page 105 for more information
Definition
We have set a Gender Balance target of ‘30% women
across our workforce’; our definition of ‘workforce’
includes global, permanent and agency.
Commentary
While we have seen significant progress for female
representation in senior positions, representation across
the whole workforce remains static reflecting the
structural challenges within the defence sector and the
time required for interventions to translate into
workforce change. Further actions are being taken in
FY27 to support this KPI.
● See page 83 for more information
15.93 109,389 19.4%
Appointment key
G
Link to Glossary
T
Link to medium-term guidance
2025
2024
2023
2022
2021
109,389
129,461
136,917
138,457
123,092
FY26
FY25
FY24
FY23
FY22
19.1%
18.2%
19.2%
20.5%
19.4%
FY26
FY25
15.81
15.93
FY26
FY25
FY24
FY23
FY22
0.92
0.74
0.73
0.73
0.73
Babcock International Group PLC Annual Report and Financial Statements 2026 33
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Financial statements
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Strong year
of underlying
performance
and shareholder
returns
Financial review
“Significant track record
of growth, performance,
and delivery creating a
platform for further
long-term value creation”
David Mellors
Group CFO
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 on page 46.
The reconciliation from the IFRS statutory income statement to the
underlying income statement is shown below.
34 Babcock International Group PLC Annual Report and Financial Statements 2026
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○
Financial statements
○
Income statement
31 March 2026 31 March 2025
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Revenue 5,177.7 – 5,177.7 4,831.3 – 4,831.3
Operating profit 293.3 11.8 305.1 362.9 1.0 363.9
Operating margin 5.7% – 5.9% 7.5% 7.5%
Share of results of joint ventures and associates 7.4 – 7.4 8.4 (11.1) (2.7)
Net finance costs (33.5) 4.7 (28.8) (31.9) (0.2) (32.1)
Profit before tax 267.2 16.5 283.7 339.4 (10.3) 329.1
Income tax (expense)/benefit (69.2) (3.8) (73.0) (84.1) 3.9 (80.2)
Profit/(loss) after tax 198.0 12.7 210.7 255.3 (6.4) 248.9
Non-controlling interest 0.5 – 0.5 (1.8) – (1.8)
Profit/(loss) attributable to the owners of the parent 198.5 12.7 211.2 253.5 (6.4) 247.1
Basic EPS 39.6p 42.1p 50.3p 49.1p
Diluted EPS 38.8p 41.3p 49.3p 48.0p
A full statutory income statement can be found on page 196.
As described on the prior page, 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 financial statements.
8%
5,178
109
8% 14% (3)% 34%
5,273
Organic growth - at constant FX
Organic revenue bridge
(£m)
10%
4,831
(17)
(32)
128
254
(96)
FY26
excl. Type 31
FY26 Type 31
total reversal
AviationLandNuclearMarineFX
and disposals
FY25
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 on page 45:
• Marine revenue increased 2% (at constant FX) to £1,591.5 million, with higher volumes in our LGE business and growth of the Skynet
programme partly offset by the £95.5 million Type 31 reversal and lower UK and international ship support activity, as expected.
• Nuclear 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 Major Infrastructure Programme revenue.
• Land 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.
• Aviation revenue increased 34% (at constant FX) to £431.4 million, due 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.
All figures rounded
Babcock International Group PLC Annual Report and Financial Statements 2026 35
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Financial statements
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Underlying operating profit decreased 19% to £293.3 million, with strong underlying performance offset by the Type 31 charge 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% at the
year-end, with all four sectors delivering increased margin. See segmental tables on page 45:
• Marine 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 contract profitability increasing the operating margin to 6.5%.
• Nuclear underlying operating profit increased 23% to £197.1 million, due to revenue growth, mix and the final year of trading on the Future
Maritime Support Programme (FMSP) contract. As a result, underlying operating margin increased to 9.5% (FY25: 8.8%).
• Land 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 to 8.8% (FY25: 7.7%).
• Aviation underlying operating profit increased 54% to £30.7 million, due to growth in higher-margin defence revenues. As a result,
underlying operating margin increased 90 basis points to 7.1% (FY25: 6.2%).
Further analysis of financial performance is included in each sector’s operational review, starting on page 52.
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 204.
Financial review (continued)
363
1
8
14
37
11
6.5%
margin
+40bps
7.5%
margin
9.5%
margin
+70bps
8.8%
margin
+110bps
7.1 %
margin
+90bps
5.7%
margin
433
(140)
293
8.2%
margin
FY26
excl. Type 31
FY26 Type 31
total charge
AviationLandNuclearMarineFX
and disposals
FY25
Underlying operating profit bridge
(£m)
All figures rounded
36 Babcock International Group PLC Annual Report and Financial Statements 2026
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Financial statements
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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
31 March 2026
£m
31 March 2025
£m
Statutory operating profit 305.1 363.9
Amortisation of acquired intangibles 10.0 8.2
Business acquisition, merger and divestment-related items (10.2) (1.5)
Curtailment gain on pension scheme closure – (1.2)
Fair value movement on derivatives (11.6) (6.5)
Specific adjusting items impacting operating profit (11.8) (1.0)
Underlying operating profit 293.3 362.9
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
• Underlying net finance costs increased to £33.5 million (FY25: £31.9 million), with higher net interest income on cash balances and lower
interest charges on pension liabilities more than offset by interest costs arising from the outcome of a legacy legal case.
• Statutory net finance costs decreased to £28.8 million (FY25: £32.1 million), reflecting the items above and the fair value movement of
derivatives which hedge interest cost.
Income tax expense
• Underlying income tax expense decreased to £69.2 million (FY25: £84.1 million), reflecting lower underlying operating profits. This
represents an effective underlying tax rate of 26.6% (FY25: 25.4%), calculated using underlying profit before tax excluding the share of
income from joint ventures and associates (which is a post-tax number). The Group’s effective underlying tax rate is expected to remain
broadly stable over the medium term, depending on country profit mix.
• Statutory income tax expense decreased to £73.0 million (FY25: £80.2 million), higher than the underlying income tax expense, due to
the tax impact of the specific adjusting items outlined above and in note 2 of the financial statements.
Basic earnings per share
• Underlying basic earnings per share of 39.6 pence (FY25: 50.3 pence) decreased due to lower underlying operating profit for the year
driven by the Type 31 charge. Excluding the Type 31 charge, underlying basic earnings per share increased to 60.5 pence.
• Basic earnings per share on a statutory basis decreased to 42.1 pence (FY25: 49.1 pence), reflecting the lower underlying earnings per
share and the post-tax impact of the specific adjusting items outlined above.
Reconciliation of statutory profit and basic EPS to underlying profit and basic EPS
31 March 2026 31 March 2025
£m Basic EPS £m Basic EPS
Statutory profit after tax for the year 210.7 42.1p 248.9 49.1p
Specific adjusting items, net of tax (12.7) 2.5p 6.4 1.2p
Underlying profit after tax for the year 198.0 39.6p 255.3 50.3p
Dividend per share
31 March 2026
pence
31 March 2025
pence
Interim 2.5 2.0
Final 5.0 4.5
Total 7.5 6.5
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.
Babcock International Group PLC Annual Report and Financial Statements 2026 37
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Financial statements
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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:
• A 10% movement in the South African Rand against Sterling would affect revenue by around £37 million and underlying operating profit by
around £3 million per annum
• A 10% movement in the Australian Dollar against Sterling would affect revenue by around £30 million and underlying operating profit by
around £2 million per annum
• A 10% movement in the Euro against Sterling would affect revenue by around £20 million and underlying operating profit by around
£2 million per annum
• A 10% movement in the Canadian Dollar against Sterling would affect revenue by around £21 million and underlying operating profit by
around £2 million per annum
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.
31 March 2026
£m
31 March 2025
£m
Statutory operating profit 305.1 363.9
Add back: specific adjusting items (see table on page 47) (11.8) (1.0)
Underlying operating profit 293.3 362.9
Right of use asset depreciation & impairment 50.4 33.0
Other depreciation & amortisation 85.2 78.3
Non-cash items 10.9 11.0
Working capital movements 12.0 2.1
Provisions 48.1 (23.5)
Net capital expenditure (107.2) (122.2)
Lease principal payments (44.5) (45.4)
Underlying operating cash flow 348.2 296.2
Underlying operating cash conversion (%) 119% 82%
Pension contributions in excess of income statement (23.4) (89.1)
Interest paid (net) (26.6) (26.8)
Tax paid (47.5) (39.1)
Dividends from joint ventures and associates 11.1 12.2
Underlying free cash flow 261.8 153.4
Net acquisitions and disposals of subsidiaries 8.1 (1.1)
Purchase of other investments (3.9) –
Dividends paid (including non-controlling interests) (36.7) (28.0)
Purchase of own shares (155.3) (18.8)
Lease principal payments 44.5 45.4
Net new lease arrangements (73.3) (87.2)
Leases disposed of/(acquired) with subsidiaries – 1.1
Other non-cash debt movements (3.2) (2.1)
Fair value movement in debt and related derivatives 9.3 0.5
Exchange movements (7.0) (1.1)
Movement in net debt 44.3 62.1
Opening net debt (373.3) (435.4)
Closing net debt (329.0) (373.3)
Add back: leases 306.3 272.1
Closing net debt excluding leases (22.7) (101.2)
A full statutory cash flow statement can be found on page 199 and a reconciliation to net debt on page 49.
Financial review (continued)
38 Babcock International Group PLC Annual Report and Financial Statements 2026
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Financial statements
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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
46 for the reconciliation of underlying cash conversion and page 51 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 on page 36. 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
31 March 2026
£m
31 March 2025
£m
Underlying operating cash flow 348.2 296.2
Add: net capital expenditure 107.2 122.2
Add: lease principal payments 44.5 45.4
Less: pension contributions in excess of income statement (23.4) (89.1)
Less: Non-operating cash items (excluded from underlying cash flow) (29.2) (17.3)
Cash generated from operations 447.3 357.4
Tax paid (18.3) (21.8)
Net interest paid (26.6) (26.8)
Net cash flows from operating activities 402.4 308.8
Statutory cash flow summary
31 March 2026
£m
31 March 2025
£m
Net cash flow from operating activities 402.4 308.8
Net cash flow from investing activities (91.7) (110.8)
Net cash flow from financing activities (239.5) (92.7)
Net increase in cash, cash equivalents and bank overdrafts 71.2 105.3
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).
Babcock International Group PLC Annual Report and Financial Statements 2026 39
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Financial statements
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Movement in net debt – reconciliation of statutory cash flows to net debt
31 March 2026
£m
31 March 2025
£m
Net increase in cash, cash equivalents and bank overdrafts 71.2 105.3
Cash flow from the (increase)/decrease in debt (13.8) 29.9
Change in net funds resulting from cash flows 57.4 135.2
Additional lease obligations (73.1) (96.2)
New lease receivables granted 60.9 24.7
Debt held by disposed subsidiaries – 1.1
Other non-cash movements and changes in fair value 6.1 (1.6)
Foreign currency translation differences (7.0) (1.1)
Movement in net debt in the year 44.3 62.1
Opening net debt (373.3) (435.4)
Closing net debt (329.0) (373.3)
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
31 March 2026
£m
31 March 2025
£m
Cash and cash equivalents 723.6 646.5
Current liabilities – bank debt and other loans (299.7) (0.5)
Non-current liabilities – bank debt and other loans (474.9) (750.7)
Other debt instruments (includes loans to JVs) (16.6) (38.6)
Net finance leases 44.9 42.1
Closing net debt excluding leases (22.7) (101.2)
Include leases (306.3) (272.1)
Closing net debt (329.0) (373.3)
Summarised balance sheet
31 March 2026
£m
31 March 2025
£m
Intangible assets 913.8 920.6
Property, plant and equipment and right of use assets 849.8 787.7
Investment in joint ventures and associates, and other investments 44.2 43.5
Working capital (704.3) (694.2)
Provisions (201.5) (138.3)
Net retirement benefit deficits (34.0) (8.4)
Net tax assets 73.3 76.1
Net other financial assets and liabilities 17.0 8.1
Leases (306.3) (272.1)
Net debt excluding leases (22.7) (101.2)
Net assets 629.3 621.8
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.
Financial review (continued)
40 Babcock International Group PLC Annual Report and Financial Statements 2026
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Financial statements
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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:
• £600 million RCF, maturing July 2031
• £300 million bond maturing on 5 October 2026
• €550 million bond, hedged at £493 million, maturing on 13 September 2027
• An overdraft facility of £50 million
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.
31 March 2026
£m
31 March 2025
£m
Underlying operating profit 293.3 362.9
Depreciation and amortisation 85.2 78.3
Covenant adjustments
1
1.5 (2.6)
EBITDA 380.0 438.6
JV and associate dividends 11.1 12.2
EBITDA + JV and associate dividends (covenant basis) 391.1 450.8
Net debt excluding lease liabilities (22.7) (101.2)
Covenant adjustments
2
(54.0) (51.9)
Net debt (covenant basis) (76.7) (153.1)
Net debt/EBITDA 0.2x 0.3x
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.
31 March 2026
£m
31 March 2025
£m
Underlying operating profit 293.3 362.9
Underlying share of results of joint ventures and associates 7.4 8.4
Underlying operating profit plus results of JVs and associates 300.7 371.3
Net debt excluding leases 22.7 101.2
Leases 306.3 272.1
Shareholder funds – see balance sheet on page 197 629.3 621.8
Retirement deficit – note 25 34.0 8.4
Invested capital 992.3 1,003.5
ROIC 30.3% 37.0%
Babcock International Group PLC Annual Report and Financial Statements 2026 41
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Financial statements
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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 performing 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 25 starting on page 254.
31 March 2026
£m
31 March 2025
£m
Fair value of plan assets (note 25) 2,804.4 2,831.0
Present value of benefit obligations (note 25) (2,838.4) (2,839.4)
Net (deficit) at 31 March (34.0) (8.4)
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:
31 March 2026
£m
31 March 2025
£m
Future service contributions 4.7 14.6
Deficit recovery 18.5 52.7
Longevity swap 1.8 27.2
Total cash contributions – employer 25.0 94.5
Financial review (continued)
42 Babcock International Group PLC Annual Report and Financial Statements 2026
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Treasury
Treasury activities within the Group are managed in accordance with the parameters set out in the treasury policies and guidelines approved
by the Board. A key principle within the treasury policy is that trading in financial instruments for the purpose of profit generation is prohibited,
with all financial instruments being used solely for risk management purposes. The treasury team is only permitted to enter into financial
instruments where it has a high level of confidence in the hedged item occurring. Both the treasury department and the sectors have
responsibility for monitoring compliance within the Group to ensure adherence to the principal treasury policies and guidelines. The Group’s
treasury policies in respect of the management of debt, interest rates, liquidity and currency are outlined below. The Group’s treasury policies
are kept under close review, particularly given the ongoing economic and market uncertainty.
Debt
Objective
With debt as a key component of available financial capital, the Group seeks to ensure that there is an appropriate balance between
continuity, flexibility and cost of debt funding through the use of borrowings, whilst also diversifying the sources of these borrowings with a
range of maturities and rates of interest, to reflect the long-term nature of the Group’s contracts, commitments and risk profile.
Policy
All the Group’s material borrowings are arranged by the treasury department, and funds raised are lent onward to operating subsidiaries as
required. It remains the Group’s policy to ensure the business is prudently funded and that sufficient headroom is maintained on its facilities
to fund its future growth.
Updates
The Group continues to keep its capital structure under review to ensure that the sources, tenor and availability of finance are sufficient to
meet its stated objective.
The Group refinanced its RCF to a £600 million facility maturing in July 2031.
The Group’s main corporate debt comprises a £300 million Sterling bond, maturing October 2026 and a €550 million bond, maturing
September 2027. Together, these provide the Group with a total of around £1.4 billion of available committed facilities and bonds.
FY31FY30FY29FY28FY27FY26
Debt maturity profile
GBP bond 2026 £300m Euro bond 2027 €550m
£1.5bn
£1.0bn
£0.5bn
£0bn
RCF 2031 £600m
Babcock International Group PLC Annual Report and Financial Statements 2026 43
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Interest rates
Objective
To manage exposure to interest rate fluctuations on borrowings by varying the proportion of fixed rate debt relative to floating rate debt to
reflect the underlying nature of the Group’s commitments and obligations. As a result, the Group does not maintain a specific set proportion
of fixed versus floating debt but monitors the mix to ensure that it is compatible with its business requirements and capital structure.
Policy
Interest rate hedging and the monitoring of the mix between fixed and floating rates is the responsibility of the treasury department and is
subject to the policy and guidelines set by the Board and updated from time to time.
Performance
As at 31 March 2026, the Group had 85% fixed rate debt (31 March 2025: 85%) and 15% floating rate debt (31 March 2025: 15%) based on
gross debt (excluding leases) of £793 million (31 March 2025: £793 million).
Liquidity
Objective
1. To maintain adequate undrawn committed borrowing facilities.
2. To monitor and manage bank credit risk, and credit capacity utilisation.
3. To diversify the sources of financing with a range of maturities and interest rates, to reflect the long-term nature of Group contracts,
commitments and risk profile.
Policy
All the Group’s material borrowings are arranged by the treasury department and funds raised are lent onward to operating subsidiaries
as required.
Each of the Group’s sectors provides regular cash forecasts for both management and liquidity purposes. These cash forecasts are used to
monitor and identify the liquidity requirements of the Group and ensure that there is sufficient cash to meet operational needs while
maintaining sufficient headroom on the Group’s committed borrowing facilities.
The Group adopts a conservative approach to the investment of its surplus cash. It is deposited with financial institutions only for a short
duration, and the bank counter-party credit risk is monitored closely on a systematic and ongoing basis.
A credit limit is allocated to each institution taking account of its credit rating and market information.
Performance
The Group continues to keep under review its capital structure to ensure that the sources, tenor and availability of finance are sufficient to
meet its stated objectives. The Group continues to monitor the liquidity position and will seek to extend or replace committed debt as the
need arises. Surplus cash during the year was invested in short term deposits diversified across several well rated financial institutions in
accordance with policy.
Foreign exchange
Objective
To reduce exposure to volatility in earnings and cash flows from movements in foreign currency exchange rates. The Group is exposed to a
number of foreign currencies, the most significant being the Euro, US Dollar, South African Rand, Australian Dollar and Canadian Dollar.
Policy — Transaction risk
The Group is exposed to movements in foreign currency exchange rates in respect of foreign currency denominated transactions. To
mitigate this risk, the Group’s policy is to hedge all material transactional exposures, using financial instruments where appropriate.
Policy — Translation risk
The Group is exposed to movements in foreign currency exchange rates in respect of the translation of net assets and income statements of
foreign subsidiaries and equity accounted investments. It is not the Group’s policy to hedge through the use of derivatives the translation
effect of exchange rate movements on the income statement or balance sheet of overseas subsidiaries and equity accounted investments it
regards as long-term investments. However, where the Group has material assets denominated in a foreign currency, it will consider some
matching of those aforementioned assets with foreign currency denominated debt.
Performance
There was a net foreign exchange gain of £3.4 million in the income statement for the year ending 31 March 2026 (31 March
2025: £0.4 million gain).
Financial review (continued)
44 Babcock International Group PLC Annual Report and Financial Statements 2026
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Segmental analysis
The Group reports its performance through four reporting sectors.
31 March 2026
Marine
£m
Nuclear
£m
Land
£m
Aviation
£m
Total
£m
Contract backlog 2,806.8 1,792.7 3,086.9 2,068.8 9,755.2
Revenue 1,591.5 2,070.4 1,084.4 431.4 5,177.7
Add back Type 31 revenue reversal 95.5 – – – 95.5
Revenue excluding Type 31 revenue reversal 1,687.0 2,070.4 1,084.4 431.4 5,273.2
Statutory operating profit / (loss) (28.4) 197.1 103.4 33.0 305.1
Statutory operating margin (1.8)% 9.5% 9.5% 7.7% 5.9%
Underlying operating profit / (loss) (29.8) 197.1 95.3 30.7 293.3
Add back Type 31 charge 140.0 – – – 140.0
Underlying operating profit excluding Type 31 charge 110.2 197.1 95.3 30.7 433.3
Underlying operating margin (1.9)% 9.5% 8.8% 7.1% 5.7%
Underlying operating margin excluding Type 31 charge 6.5% 9.5% 8.8% 7.1% 8.2%
31 March 2025
Marine
£m
Nuclear
£m
Land
£m
Aviation
£m
Total
£m
Contract backlog 3,026.5 1,983.9 3,466.1 1,939.7 10,416.2
Revenue 1,576.4 1,816.0 1,116.6 322.3 4,831.3
Statutory operating profit 99.3 161.4 86.3 16.9 363.9
Statutory operating profit margin 6.3% 8.9% 7.7% 5.2.% 7.5%
Underlying operating profit 96.5 160.3 86.2 19.9 362.9
Underlying operating margin 6.1% 8.8% 7.7% 6.2% 7.5%
Babcock International Group PLC Annual Report and Financial Statements 2026 45
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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.
31 March 2026
£m
31 March 2025
£m
Prior year revenue 4,831.3 4,390.1
FX (14.2) (22.4)
Disposals (3.1) (2.8)
Prior year revenue adjusted for FX and disposals (b) 4,814.0 4,364.9
Revenue growth (a) 363.7 466.4
Current year revenue 5,177.7 4,831.3
Organic revenue growth (a)/(b) 8% 11%
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.
31 March 2026
£m
31 March 2025
£m
Contract backlog 9,755 10,416
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.
31 March 2026
£m
31 March 2025
£m
Underlying operating profit 293.3 362.9
Specific adjusting items (note 2) 11.8 1.0
Operating profit 305.1 363.9
Financial review (continued)
46 Babcock International Group PLC Annual Report and Financial Statements 2026
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Specific adjusting items (note 2)
31 March 2026
£m
31 March 2025
£m
Amortisation of acquired intangibles (10.0) (8.2)
Business acquisition, merger and divestment-related items 10.2 1.5
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes – 1.2
Fair value movement on derivatives 11.6 6.5
Specific adjusting items impacting operating profit 11.8 1.0
Non-recurring amounts in results from joint ventures and associates – (11.1)
Fair value movement on derivatives and related items 4.7 (0.2)
Specific adjusting items impacting profit before tax 16.5 (10.3)
Income tax expense
Amortisation of acquired intangibles 2.9 2.2
Business acquisition, merger and divestment-related items (2.5) –
Profit/(loss) from amendment, curtailment, settlement or equalisation of Group pension schemes – (0.3)
Fair value movement on derivatives and related items (4.2) (1.6)
Other tax items including rate change impact – 3.6
Specific adjusting items impacting income tax expense (3.8) 3.9
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.
31 March 2026
£m
31 March 2025
£m
Revenue 5,177.7 4,831.3
Underlying operating profit 293.3 362.9
Underlying operating margin 5.7% 7.5%
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.
31 March 2026
£m
31 March 2025
£m
Underlying net finance costs (33.5) (31.9)
Add: specific adjusting items impacting finance costs (note 2) 4.7 (0.2)
Net finance costs (note 5) (28.8) (32.1)
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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.
31 March 2026
£m
31 March 2025
£m
Underlying profit before tax 267.2 339.4
Specific adjusting items impacting profit before tax (note 2) 16.5 (10.3)
Profit before tax (note 2) 283.7 329.1
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.
Year ended 31 March 2026 Year ended 31 March 2025
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Profit before tax (note 2) 267.2 16.5 283.7 339.4 (10.3) 329.1
Share of (profit) / loss from JVs and associates
(note 2) (7.4) – (7.4) (8.4) 11.1 2.7
Profit before tax excluding profit from joint
ventures and associates (a) 259.8 16.5 276.3 331.0 0.8 331.8
Income tax expense (b) (69.2) (3.8) (73.0) (84.1) 3.9 (80.2)
Effective tax rate (b)/(a) 26.6% 26.4% 25.4% 24.2%
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.
Year ended 31 March 2026 Year ended 31 March 2025
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Profit/(loss) before tax (note 2) 267.2 16.5 283.7 339.4 (10.3) 329.1
Income tax (expense)/benefit (note 2) (69.2) (3.8) (73.0) (84.1) 3.9 (80.2)
Profit/(loss) after tax for the year 198.0 12.7 210.7 255.3 (6.4) 248.9
Amount attributable to owners of the parent 198.5 9.3 211.2 253.5 (6.4) 247.1
Amount attributable to non-controlling interests (0.5) – (0.5) 1.8 – 1.8
Weighted average number of shares (m) 501.3 501.3 503.6 503.6
Effect of dilutive securities (m) 9.8 9.8 10.8 10.8
Diluted weighted average number of shares (m) 511.1 511.1 514.4 514.4
Basic EPS (note 9) 39.6p 42.1p 50.3p 49.1p
Diluted EPS (note 9) 38.8p 41.3p 49.3p 48.0p
Financial review (continued)
48 Babcock International Group PLC Annual Report and Financial Statements 2026
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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.
31 March 2026
£m
31 March 2025
£m
Cash and bank balances 739.9 646.6
Bank overdrafts (16.3) (0.1)
Cash, cash equivalents and bank overdrafts 723.6 646.5
Debt (774.6) (751.2)
Derivatives hedging debt (3.1) (10.8)
Lease liabilities (307.3) (274.6)
Liabilities from financing arrangements (1,085.0) (1,036.6)
Lease receivables 45.9 44.6
Loans to joint ventures and associates 3.3 3.6
Derivatives hedging interest on debt (16.8) (31.4)
Net debt (329.0) (373.3)
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.
31 March 2026
£m
31 March 2025
£m
Net debt (329.0) (373.3)
Leases 306.3 272.1
Net debt (excluding leases) (22.7) (101.2)
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 46, excluding depreciation and amortisation and
including certain covenant adjustments) plus JV and associate dividends. See page 41.
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 page 41.
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.
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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.
31 March 2026
£m
31 March 2025
£m
Purchases of property, plant and equipment (PP&E) (note 12) (155.4) (105.0)
Purchases of intangible assets (note 11) (13.5) (22.3)
Movements in unpaid capital expenditure 8.6 (1.0)
Gross capital expenditure (160.3) (128.3)
Proceeds on disposal of PP&E, intangible assets and right of use assets (statement of cash flows) 53.1 6.1
Net capital expenditure (107.2) (122.2)
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
page 38.
Purpose: Provides a measure of operating cash generation on an equivalent basis to underlying operating profit.
31 March 2026
£m
31 March 2025
£m
Underlying operating cash flow 348.2 296.2
Add: net capex 107.2 122.2
Add: capital element of lease payments 44.5 45.4
Less: pension contributions in excess of income statement (23.4) (89.1)
Non-operating cash items (excluded from underlying cash flow) (29.2) (17.3)
Cash generated from operations 447.3 357.4
Tax (paid) (18.3) (21.8)
Less: net interest paid (26.6) (26.8)
Net cash flow from operating activities 402.4 308.8
Financial review (continued)
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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.
31 March 2026
£m
31 March 2025
£m
Underlying operating profit 293.3 362.9
Underlying operating cash flow 348.2 296.2
Operating cash conversion 119% 82%
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 page 38.
Purpose: Provides a measure of cash generated which is available for use in line with the Group’s capital allocation policy.
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Shaping the future of hybrid navies
To counter escalating global maritime threats, modern navies
demand a balance of fleet readiness and cost-effective
modernisation. Our Marine sector directly addresses these demands
through its multi-domain capabilities.
Working with HII, the United States’ largest military shipbuilder and a
global leader in maritime unmanned autonomous platforms, and
defence technology company, Arondite, our technology plans are
geared to supercharge the delivery of a hybrid navy concept.
We are combining advanced autonomy, modular systems, and digital
innovation to create a fleet that is more agile, resilient, and ready for
tomorrow’s challenges. What we are proposing will keep the navies
at the forefront of global maritime security for decades to come and
redefine what is possible at sea.
Safeguarding mission critical
naval systems
Operational reviews
52 Babcock International Group PLC Annual Report and Financial Statements 2026
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59%
12%
29%
48%
23%
29%
FY26 revenue
market split
Five-year revenue history FY26 contract backlog
market split
Defence UK
Defence International
Civil International
Defence UK
Defence International
Civil International
£1.6bn
£2.8bn
What we do
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 the remainder primarily comprising
our Liquid Gas Equipment (LGE) business.
Support
Through-life support, life extension
and upgrade of platforms, systems
and equipment
Build
Digitally-enabled, high-integrity advanced
manufacturing of platforms, systems
and equipment
Design
Complex platforms, systems and equipment
design for through-life affordability,
capability, availability
• Two UK Type 31 Inspiration Class frigates now
floated-off and in outfitting phase, ships three and
four in build
• Signed Maritime Partnership Programme
framework agreement with Indonesia,
worth up to £4 billion
• Awarded initial engineering contract on US
Virginia Class nuclear submarine build programme
• Secured a two-year FMSP extension to
support the UK Royal Navyʼs surface ships
and infrastructure
• LGE completed significant milestones securing
150
th
ecoSMRT® order for LNG reliquification
technology, and successfully completed delivery
of a world-first CO
2
carrier cargo handling system
Operational highlights
FY22 FY23 FY24 FY25 FY26
£1,259m
£1,440m
£1,429m
£1,576m
£1,592m
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Financial review
31 March 2026
£m
31 March 2025
£m
Contract backlog* 2,806.8 3,026.5
Revenue 1,591.5 1,576.4
Underlying operating (loss)/profit* (29.8) 96.5
Underlying operating margin* (1.9)% 6.1%
Revenue excluding the Type 31
revenue reversal 1,687.0 1,576.4
Underlying operating profit
excluding the Type 31 charge* 110.2 96.5
Underlying operating margin
excluding the Type 31 charge* 6.5% 6.1%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 46.
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 on page 36, 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.
Marine (continued)
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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, CO
2
, and ethane liquefied gas carriers, including the
successful delivery and trials of the cargo handling system for a
world-first CO
2
carrier. A further milestone was reached with the
winning of the 150
th
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.
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Tackling the need for clean energy
The global renaissance of nuclear energy, fuelled
by net-zero mandates, energy security, and
exponential power demands, presents a multi-
decade growth catalyst in the UK. Our long history
of expertise and specialist capabilities in our wholly
owned subsidiary, Cavendish Nuclear, positions
the Group well to capture multi-billion, long-
duration opportunities.
Our work at the UK’s large gigawatt new build site,
Hinkley Point C, through the Mechanical, Electrical
and HVAC (MEH) Alliance, is bringing together
manufacturing and build activities into an integrated
model delivering: engineering and design,
advanced manufacturing, construction readiness,
systems integration and completion. Read more on
new nuclear on page 16.
Nuclear capability
for generations
Operational reviews
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86%
14%
Naval Nuclear
Submarines Major
infrastructure
Cavendish Nuclear
Defence Clean Energy Decommissioning
£2.1bn
Defence UK
Civil UK
FY26 revenue
market split
Five-year revenue history FY26 contract backlog
market split
Defence UK
Civil UK
£1,010m
£1,179m
£1,521m
£1,816m
£2,070m
FY22 FY23 FY24 FY25 FY26
What we do
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.
• Signed a six-month FMSP bridging agreement
with the UK MOD to continue delivery of critical
submarine support and naval base management
until the expected replacement contract in FY27
• Devonportʼs 9 Dock complete with HMS
Victorious docked down to continue deep
maintenance programme
• Ramped up activity on the large gigawatt nuclear
new build programme at Hinkley Point-C
• Secured major role as Great British Energy-
Nuclearʼs Owners Engineer for the UK Small
Modular Reactors
• H&B Defence (JV with HII) secured its first contract
to enhance AUKUS supply chain capabilities
Operational highlights
83%
17%
£1.8bn
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Nuclear (continued)
Financial review
31 March 2026
£m
31 March 2025
£m
Contract backlog* 1,792.7 1,983.9
Revenue 2,070.4 1,816.0
Underlying operating profit* 197.1 160.3
Underlying operating margin* 9.5% 8.8%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 46.
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.
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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.
Babcock International Group PLC Annual Report and Financial Statements 2026 59
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Enabled-support
delivering
readiness
Supporting the British Army wherever, whenever and however they need it
Amidst rising global instability, continuous military readiness is a
non-negotiable customer need. Aligning with the UK’s demand for
increased vehicle availability, we recently secured a five-year, £1 billion
extension to our DSG contract to deliver complex vehicle support and
fleet maintenance for the British Army. This strategic follow-on contract
underscores Babcock’s key role in the land domain.
Supporting vital military assets, ranging from Land Rovers up to
Challenger II main battle tanks, we provide technology enabled
preventative maintenance repair and overhaul, frontline support and
complex supply chain management.
The contract capitalises on modern defence trends by integrating digital
transformation into fleet management. By utilising data-driven asset
management and predictive support techniques, we aim to maximise
combat-readiness to deliver capability, availability and affordability.
Operational reviews
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67%
18%
11%
4%
43%
14%
33%
10%
Defence UK
Defence International
Civil UK
Civil International
FY26 revenue
market split
Five-year revenue history FY26 contract backlog
market split
Defence UK
Defence International
Civil UK
Civil International
• Successfully mobilised the £1 billion five-year
British Army strategic support partner DSG
follow-on contract and secured additional work to
support new platforms
• Progressed the High Mobility Transporter Jackal 3
programme for the British Army, completing
delivery in FY27
• Awarded a contract to deliver 270 Light Utility
Vehicles for the British Army
• Signed a teaming agreement with Patria to offer
its 6x6 armoured personnel carrier to the UK
Armed Forces
• Demonstrated the digital integration of light
mortars with in-service UK tactical
communications systems
Operational highlights
What we do
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.
Support
Individual and collective training, delivering
operational readiness for customers with
critical missions
Build
Vehicle build and systems integration.
Engineering services in power generation
and transport networks
Design
Through-life engineering support for
complex military equipment
£1.1bn £3.1bn
£1,016m
£1,017m
£1,099m
£1,117m
£1,084m
FY22 FY23 FY24 FY25 FY26
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Land (continued)
Financial review
31 March 2026
£m
31 March 2025
£m
Contract backlog* 3,086.9 3,466.1
Revenue 1,084.4 1,116.6
Underlying operating profit* 95.3 86.2
Underlying operating margin* 8.8% 7.7%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 46.
Contract backlog decreased to £3,087 million due to revenue traded
on multi-year contracts, primarily the new c.£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.
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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.
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Mission-critical
military pilot training
Delivering military air power requirements
As European defence requirements intensify, allied nations
increasingly rely on specialised industry partners to accelerate force
readiness. Addressing this critical need, we continue to mobilise the
landmark 17-year, Mentor 2 contract for the French Air and Space
Force and Navy, where we aim to evolve technical pilot training by
deploying 22 advanced Pilatus PC-7 MkX aircraft and 12 high-fidelity
Exail flight simulators, and centralising instruction.
Our streamlined approach aims to increase training efficiency while
ensuring technical preparation for up to 120 student pilots annually.
Our track record in France illustrates European market penetration,
aligning our technical training and support capabilities with sovereign
security needs of allied nations.
Operational reviews
Image credit: Pilatus Aircraft
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30%
8%
20%
42%
36%
7%
38%
19%
• Progressed mobilisation of our Mentor 2 military air
training contract in France
• Secured a four-year contract extension to continue
Light Aircraft Flying Task technical training for
the RAF
• Awarded a £70 million contract to provide new
infrastructure facilities for the UKʼs military flying
training system
• Awarded an eight-year AUS$230 million contract
with Australian Border Force for helicopter
protection and security
• Awarded new contract up to 10 years to
support Airbus H145-D3 helicopters for the
French Government
FY26 revenue
market split
Five-year revenue history FY26 contract backlog
market split
Defence UK
Defence International
Civil UK
Civil International
Critical air operations
Global mission-critical air operations
delivered to save lives and protect
communities for government customers
Through-life support
Multi-domain support of operational
military flying assets and operational
military infrastructure
Technical training
We deliver end-to-end military flying training
for UK’s Royal Air Force, French Air Force
and French Navy
Defence UK
Defence International
Civil UK
Civil International
*
Excluding divested businesses (FY23, FY22)
What we do
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
£0.4bn £2.1bn
FY22 FY23 FY24 FY25 FY26
£337m*
£416m*
£342m
£322m
£431m
FY22 FY23 FY24 FY25 FY26
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Financial statements
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Aviation (continued)
Financial review
31 March 2026
£m
31 March 2025
£m
Contract backlog* 2,068.8 1,939.7
Revenue 431.4 322.3
Underlying operating profit* 30.7 19.9
Underlying operating margin* 7.1% 6.2%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 46.
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, 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.
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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.
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Maintaining our strong and lasting relationships with our global
stakeholder groups is not only vital to our success, it’s central to
our Purpose: To create a safe and secure world, together.
We’re here for the long term; delivering lifetime engineering means
setting our sights across generations. That’s why we’re committed
to forging close and enduring partnerships with our stakeholders.
Because we know that to go far, we must go together.
Go Together,
Go Far
s172(1) statement
The Directors confirm that they, both individually and collectively, have acted in a way
that they consider, in good faith, to be most likely to promote the long-term success of
the Company for the benefit of the shareholders as a whole, while having regard for all
stakeholders. By considering key stakeholder groups and aligning our activities with
our strategic plan, as well as the Company’s culture and values, we aim to act fairly,
transparently and in the best interests of the Company over the long term.
More information on how stakeholders are factored into our decision-making and the Board’s
engagement with stakeholders can be found in the Governance section, in the Chair’s
introduction on page 132 and on pages 140 to 142, which form part of this statement. Further
information on how the Board addressed the different matters set out in s172(1) in performing its
duties during the year can be found as follows:
s172(1) factor Relevant disclosures
a. the likely consequences of any decision
in the long term
• Driving sustainable growth (pages 8
and 24)
• Sustainability strategy (page 70)
b. the interests of the Company’s
employees
• Investing in skills (pages 26 and 85)
• Building an inclusive, diverse and resilient
workforce (page 82)
c. the need to foster the Company’s
business relationships with suppliers,
customers and others
• Stakeholder engagement (page 68)
• Commercial integrity (page 93)
d. the impact of the Company’s operations
on the community and environment
• Supporting our communities
(pages 28 and 89)
• Protecting the natural environment
(page 77)
e. the desirability of the Company
maintaining a reputation for high
standards of business conduct
• Responsible business (page 93)
f. the need to act fairly between members
of the Company
• Investors (page 69)
Our deep understanding of the
needs of our customers and the
challenges they face allows us to
help them to succeed. We have
long-term relationships with our
customers, including as a
Strategic Supplier to the UK
Government. We seek to deliver
deeply pragmatic and integrated
solutions for our customers’
critical programmes and
services, working together for
our mutual success.
What matters to them
• Health and safety
• Operational excellence
• Affordability, Availability,
Capability
• Integrated solutions
• Innovation
• Collaboration
How we engaged
This year, Babcock was
designated a risk rating of ‘1’ by
the UK Government – the best
risk rating attainable for a
company under the Strategic
Partnering Programme (SPP).
• Regular engagement with
customers at all levels
• Held up as a Strategic
Partnering role model by UK
Cabinet Office
• Held a One Government Day in
October 2025 and continued
programme of Partnering
Executive Meetings across all
of our sectors
• Collaborated with UK
Government and MOD on the
largest Strategic Partnering
performance workstream
• Maintained Corporate
Resolution Planning
certification
• For critical programmes, like
AUKUS, we regularly meet
with various Federal and State
Government stakeholders
Customers
Stakeholder engagement
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Babcock’s value, first and
foremost, is in its people. Our
collective know-how is the key to
our success, both now and in the
future. Our people deserve an
environment in which they can
thrive – one that requires an
unwavering commitment to their
health, safety and wellbeing, and
a culture where talent is
recognised, supported and
developed through meaningful
action so that everyone can
reach their full potential.
What matters to them
• Fair pay and reward
• Opportunities for career
development
• Health, safety and wellbeing
• An empowering, inclusive
culture with strong leadership
• Collaboration
How we engaged
Our Global People Survey
remains a key indicator of
organisational health and
engagement, with a strong
participation rate of 79%.
• Regular engagement with
leaders at all levels
• Our designated Director for
workforce engagement, Lord
Parker, visited several
Babcock sites, holding
10 meetings and engaging with
over 200 colleagues
• ‘Go Together, Go Far’
immersive bus tour visited
several operational sites across
the UK
• Improving systems and
processes
• Internal communication
channels
• Ongoing programme of ‘Safety
Stand-Down’ sessions held
across the business
• Held the second year of
Babcock’s Ignite Awards
• Regular training programmes
• Targeted career development
and mentoring initiatives
for women
Babcock is a major employer,
often operating in deprived
areas. We have the power and
responsibility to provide positive
benefits to the places where we
live and work, not only through
employment but also by working
with local suppliers, local
community groups and charities,
through volunteering and STEM
outreach. We seek to work in
partnerships with the
communities we serve so that we
can thrive together.
What matters to them
• Employment opportunities and
economic contribution
• Health, safety and wellbeing
• Making a positive impact on
the community, including
through volunteering
• Engagement in local education
and STEM activities
• Sustainability and protection of
the local environment
• Support for Indigenous
peoples
• Support for the Armed Forces
community
• Broad community engagement
How we engaged
In July 2025, Devonport
dockyard was opened to the
public in July for the first time
since 2009, welcoming over
10,000 visitors over two days.
• Regular dialogue at our
largest sites on matters of
mutual interest
• Working with SMEs to support
local economies
• Colleague volunteering
• University and skills
partnerships
• Sponsorship and donations
• STEM outreach
• Engagement with and support
for local community
programmes
The support of our equity and
debt investors and continued
access to capital is vital to the
long-term success of the
Company. We work hard to
provide clear and transparent
information to the market which
enables informed decisions,
delivered by our active Investor
Relations and Treasury teams.
What matters to them
• Creation of shareholder value
• Clarity of communications
• Appropriate access to
management
• Responsive investor relations
• Leadership
• Strategy and business
development
• Capital allocation model
• Governance
How we engaged
Babcock completed its first year
back in the FTSE100 and was
nominated for three awards,
including ‘Company of the Year’
at the prestigious UK PLC awards
in February 2026.
• Improved transparency and
consistency of formal
communications
• Delivered Civil Nuclear
and Marine ‘teach-ins’ for
analyst community
• Treasury team engagement
with banks, noteholders and
credit rating agencies
• Extensive investor roadshow
programme with management
and Investor Relations team
• Chair engagement with
top shareholders
Our sustainable growth requires
an efficient, resilient and highly
effective supply chain. This
means we need to foster trusted
and collaborative relationships
with suppliers who share our
values and appetite to drive
operational improvement through
innovation and best practice.
These partnerships allow us to
ensure continuity of supply,
minimise risk and bring integrated
solutions to our customers.
What matters to them
• Collaboration
• Fair treatment and respect
• Transparent communication
and engagement
• Equal access to opportunities
• Prompt payment and
predictable supplier cash flows
How we engaged
In FY26, Babcock launched
the UK’s first defence industry
Small and Medium-Sized
Enterprise (SME) Engagement
Charter (page 30), built on the
findings from the Next Line of
Defence Report.
• Regular open and honest
two-way communications
• Supplier Code of Conduct and
Supplier’s Guide
• Supplier conferences and
workshops
• Supplier due diligence
Colleagues Investors Communities Suppliers
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Sustainability:
Delivering our strategy
considering the financial risks and opportunities for the business
posed by these factors.
Our DMA was based on the principles established by the Corporate
Sustainability Reporting Directive (CSRD) and considered over 90
topics. From this, we identified 19 factors material to Babcock. The
most material form the basis of our six strategic priorities in our
sustainability strategy.
Our priorities
The scale of Babcock’s operations, and the sectors and locations in
which we operate, mean we have a duty to help safeguard our
planet and support our people and communities. This is how we
encapsulate our strategy to build a more sustainable business.
Within this strategy we have six priorities, three environmentally
focused and three socially focused.
To help safeguard our planet and support our people and communities
Tackling
climate
change
Managing our
resources
responsibly
Protecting
the natural
environment
Ensuring the
health, safety
and wellbeing
of our people
Supporting our
communities
Building an
inclusive, diverse
and resilient
workforce
● See page 72 ● See page 79● See page 75 ● See page 81● See page 77 ● See page 89
Sustainability is one of the four pillars of
our business strategy; it is a key enabler
to achieving Babcock’s Purpose and our
overall success. See page 24.
Last year, we announced a new sustainability strategy to enable us to
meet the increasingly complex requirements placed on the business
and which reflected our growing level of ambition. We are now
delivering this strategy, making progress on our targets and building
capability across the business to prepare us for the future.
Making an impact
Our sustainability strategy is grounded in where we can have
the greatest effect. In FY25, we undertook a Double Materiality
Assessment (DMA) examining the impact of our operations
on environmental, social and governance factors, while also
Good governance is critical to the delivery of our sustainability strategy
as well as the business as a whole. Governance of this strategy is led
by the Corporate Sustainability Committee (CSC), a sub-committee of
the Executive Committee. The CSC is comprised of Executive
Committee members and key functional leads. The Executive
Committee also reviews progress against our sustainability targets on a
quarterly basis. The Board plays an active role in oversight of our
sustainability strategy, reviewing the whole strategy annually and
discussing specific topics on a regular basis.
Delivering our targets
Each of our priorities encapsulates a wide range of activities to
ensure compliance, manage risk and improve the sustainability
performance of the business. In addition, to support progress in each
priority area and ensure focus, a 2030 target was set to support
each one.
A summary indication of performance to date against each target
is given below, with further detail provided in the relevant section.
● Full methodology and details of our
double materiality assessment are
available on our website
● Please view our sustainability video to
learn more about our approach
We strive to help safeguard our planet and
support our people and communities
Strategic Priorities
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Summary table of targets and progress in FY26
Priority Target Progress Learn more
Tackling climate
change
*^ A 42% reduction by 2030 in our
Scope 1 and 2 emissions against a
2021 baseline
20.1%
reduction
● See pages 72 and
33 for details
Managing our
resources responsibly
A 15% energy efficiency improvement
target by 2030 against a 2024 baseline
14.1%
improvement
● See page 75
for details
Protecting the
natural environment
A 10% biodiversity net gain across our
most significant sites (where we have
full operational control) by 2030
In progress
● See page 77
for details
Ensuring the health,
safety and wellbeing
of our people
* A 10% reduction in the number of
days lost to work-related injuries and
occupational illness by 2030 against a
2025 baseline
0.8%
increase
● See pages 79 and
33 for details
Building an inclusive, diverse and
resilient workforce
*^ 30% women in our workforce
by 2030
19.4%
● See page 81 and
33 for details
Supporting our
communities
50,000 hours of volunteering per year
in our communities by 2030
10,624
hours
● See page 89
for details
*
Targets with an asterisk are also KPI
^
Targets with a caret are Board remuneration measures
Our Scope 1 and 2 greenhouse gas emissions continue to fall, aided
by the continued roll-out of lower-emissions fuel for generators and
introduction of renewables for electricity. To support our energy
efficiency target, this year we launched a Company-wide energy
savings campaign, as well as rolling out our energy action plans to all
parts of the business. See page 75. We also took our next steps in
improving biodiversity at our key sites, with plans developed for
Devonport and Rosyth dockyards, and being implemented in
Cavendish’s Greeson Court laboratory. See page 78 for more details.
Last year, we announced that, following the progress we have made
on reducing the number of accidents in the business, we would
target reducing the number of lost workdays, broadening our focus
to improvements in occupational health and case management. We
continue to work towards this target. See page 79.
We have developed a strategy to help meet our gender target, focusing
on attraction, recruitment, retention and progression. While we have
seen improvements in the number of women in senior positions, the
number of women across our workforce remains static, and this will
continue to be a focus next year. See page 83.
Finally, the culture of volunteering in the business continues to grow
with a 20% rise in volunteering hours in FY26. With the creation of
new, simplified mechanisms for volunteering, we are confident
participation will continue to rise. Learn more on page 91.
Embedding sustainability into the business
While important, our sustainability targets are only one aspect of our
strategy. Our six sustainability priorities are much broader, ensuring
that we are not only regulation-compliant and ready for future
requirements, but also that a culture of sustainability is embedded
across the business.
We already see this with many of our products and services enabling
more sustainable practices. Our award-nominated Babcock Immersive
Training Experience (BITE) is not only realistic and flexible, it provides a
lower-carbon training solution by providing scenarios without utilising
military assets. Babcock’s ecoSMRT® Liquid Natural Gas reliquefaction
technology significantly improves efficiency and sustainability for LNG
carriers, with a further 12% improvement in the efficiency of the
technology announced this year. Meanwhile, our submarine dismantling
programme took significant strides forward in FY26, ensuring the
responsible recycling and disposal of the Swiftsure class submarine.
This year saw further improvements in sustainability reporting with
the full implementation of our Environmental Data Management
system – Envizi – enabling fast, accurate and fully auditable data
collection. The continued roll-out of the Thrive platform is also
helping the business to accurately report on social sustainability
initiatives to our customers.
We completed detailed assessments of our physical and transitional
climate risks, creating a robust approach that ensures the business is
well positioned for the future.
Work has continued with key functions such as procurement,
commercial and facilities management to ensure sustainability
criteria are embedded in business policies and processes in an
effective and proportionate manner. Work with these and other
functions will continue into FY27.
The following pages give greater detail on both the implementation of
our sustainability strategy and the work undertaken against our
priorities, demonstrating significant progress in FY26 and setting our
programme of work into the medium term.
● View our sustainability pages
on our website
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Sustainability (continued)
We recognise Babcock’s operations produce
significant greenhouse gas emissions and that
climate change has the potential to significantly
impact our business. This means we not only
have a responsibility to reduce our emissions
but must also have a mature understanding
of how we will respond to the impacts of
climate change.
Climate change presents profound environmental, social and
economic risks. For Babcock, as a provider of critical defence,
aerospace and security infrastructure, the implications are both
strategic and operational. We are committed to minimising the
environmental impacts of our activities, and to supporting our
customers and partners in their own transition journeys.
Taking decisive action to reduce emissions will:
• Enhance long-term shareholder value
• Reduce exposure to energy price volatility
• Maintain our licence to operate
• Align with evolving regulatory and customer expectations
• Unlock innovation and efficiency opportunities.
In FY25, we launched our refreshed sustainability strategy,
reaffirming our commitment to decarbonisation and setting a clear
roadmap for delivery. Through disciplined investment, operational
rigour and innovation, we aim to ensure that climate action
strengthens our competitive position, enhances resilience, and
supports sustainable long-term value creation for our shareholders
and stakeholders alike.
Updated framework
Previously, we structured our climate activity across four strands:
Estate, Transport, Products, and Value Chain. During FY26, we
evolved this framework into a more execution-focused model,
identifying six enterprise-wide priority programmes to accelerate
delivery across our most material emissions sources:
Priority programmes
1. Strategic decarbonisation of Devonport
His Majesty’s Naval Base (HMNB) Devonport represents one of
the most complex and energy-intensive operational environments
within the Group. Its scale makes it both a significant emissions
source and a major opportunity for transformation. During FY26, we
commenced infrastructure planning, technical feasibility
assessments and stakeholder engagement to support phased
decarbonisation of energy supply and site operations. Given the long
asset lifecycles and critical national security role of the facility,
decarbonisation must be incorporated into resilience plans, carefully
sequenced and aligned with investment cycles. Addressing
Devonport is a challenging undertaking; however, it is strategically
important in enabling Babcock to meet our emissions reduction
target, whilst also allowing us to demonstrate leadership in
decarbonising defence infrastructure.
2. Heating systems transition
Legacy fossil fuel-based heating systems remain a key contributor to
Scope 1 emissions. We have begun a systematic evaluation of
electrification pathways and alternative low-carbon heating solutions
across priority sites. Transition planning for this incorporates
lifecycle cost analysis and infrastructure availability and readiness
assessment, ensuring that decarbonisation initiatives are technically,
operationally and financially viable.
3. Estate optimisation
Babcock has a large and complex estate which is varied in terms of
archetype, geographic location, tenure, use, age and size across our
global operations. Over recent years, we have worked hard to
rationalise and optimise our estate, which has delivered operational,
financial and environmental benefits. We are continuing to assess
improvement and rationalisation opportunities across the estate to
support our journey to Net Zero.
4. Energy demand reduction
Babcock consumes a wide range of energies across our
global operations, which is a significant contributor to our
environmental footprint. Whilst we will always need energy to
perform our operations, we understand the need to eliminate
unnecessary energy demand and our teams are taking proactive
measures to ensure any areas of energy wastage are identified and
addressed. More details on our energy improvement activities are on
page 75.
5. Renewable energy deployment
We are progressing feasibility assessments for on-site renewable
energy generation and exploring longer-term renewable energy
procurement solutions. These initiatives support decarbonisation
whilst enhancing energy security – an increasingly material
consideration for critical infrastructure operators.
6. Fleet transition
Fleet decarbonisation represents both an emissions reduction
opportunity and a visible signal of transition. During FY26,
we advanced electrification pathway analysis, infrastructure
assessments and phased transition planning to align fleet renewal
cycles with decarbonisation objectives.
Priority target – Reduce our own greenhouse gas emissions by 42% compared to 2021
Tackling climate change
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Expanding influence across the value chain
The majority of our total carbon footprint resides within Scope 3 –
particularly in purchased goods and lifecycle impacts of our
products. During FY26, we strengthened data collection and supplier
engagement processes to improve Scope 3 accuracy and
transparency. As customers increasingly incorporate carbon
performance into procurement criteria, proactive engagement across
our value chain enhances both competitiveness and resilience. Over
time, we expect that integrating lifecycle carbon considerations into
engineering and support solutions will become a differentiator in
defence and infrastructure markets.
Progress towards target
Baseline
Emissions (2021)
(tCO
2
e)
2024
Emissions
(tCO
2
e)
2025
Emissions
(tCO
2
e)
Scope 1 and 2
Emissions 136,917 123,092 109,389
Scope 1 and 2 emissions have reduced by 20.1% since our
2021 baseline. This has been driven by several key factors,
including:
• Reduced electricity and fuel consumption at Devonport
Royal Dockyard
• Energy from Waste (EfW) outages in 2025
• Introduction of biodiesel Hydrotreated Vegetable Oil (HVO) to
replace diesel in generators
• Reduced diesel use in our rail business
• Electrification of our vehicle fleet.
Scope 1 and 2 year-on-year emissions have dropped by
11.1%. This has been primarily driven by the EfW outage as
mentioned above.
While we are reviewing our Scope 3 target during FY27, we
continue to monitor performance. Scope 3 emissions have
increased by 14.8% since our 2021 baseline. This is primarily
due to an increase in ‘category 11 – Use of Sold products’
emissions, which is caused through increased sales associated
with Babcock’s energy-saving Liquefied Natural Gas (LNG)
reliquefaction solution.
Baseline
Emissions (2021)
(tCO
2
e)
2024
Emissions
(tCO
2
e)
2025
Emissions
(tCO
2
e)
Scope 3
emissions
(excluding
pensions) 4,660,147 5,556,341 5,350,707
Our emissions table can be found on page 105.
● A further exploration of our emissions
can be found on our website
Focus for FY27
The work undertaken during FY26 has shifted our climate
programme from framework development to structured enterprise
execution. During FY27, we aim to:
• Progress implementation of priority decarbonisation
infrastructure projects
• Advance heating systems transition at key sites
• Scale Energy Action Plan delivery
• Continue the roll-out of renewable energy deployment where
commercially viable
• Continue phased fleet electrification
• Enhance Scope 3 data quality and supplier collaboration
• Further embed climate considerations into capital allocation and
programme design.
Through FY27, we also plan to review our Scope 1, 2 and 3
emissions reduction targets in line with updated Science Based
Targets initiative (SBTi) standards.
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Sustainability (continued)
Babcock wins Sanctuary Award for
hydrogen innovation
Our pioneering hydrogen-from-wastewater initiative at our
Devonport facility was recognised at the Ministry of Defence
Sanctuary Awards, winning the Net Zero Resource Efficiency
category. The project demonstrates the feasibility of producing
sustainable hydrogen fuel from contaminated wastewater
streams. Strategically, this initiative:
• Explores alternative zero-carbon fuel pathways
• Supports potential long-term dockyard decarbonisation
• Positions Babcock at the forefront of maritime
hydrogen innovation.
This recognition highlights how engineering expertise
can translate climate ambition into practical, scalable solutions.
Design innovations deliver further benefits
Babcock has announced a 12% performance upgrade to our
market-leading ecoSMRT® Liquefied Natural Gas (LNG)
reliquefaction technology. The ecoSMRT® system is designed
to minimise energy consumption and reduce greenhouse gas
emissions by efficiently managing boil-off gas during transit and
at anchor, delivering greater efficiency and sustainability for
LNG carriers. Responding to growing demand for higher
capacity, driven by evolving vessel performance requirements
and environmental legislation, Babcock has also developed
ecoSMRT® 2.5, a next-generation reliquefaction solution.
These progressive improvements demonstrate our ongoing
investment in innovation and operational excellence, ensuring
customers benefit from the highest levels of performance
without requiring modifications to existing installations. This
breakthrough technology represents an increase of more than
30% in capacity. ecoSMRT® 2.5 will set a new benchmark for
LNG carrier efficiency, offering even greater operational
flexibility and environmental benefits.
● Watch our video to
learn more
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Managing our resources responsibly
Babcock is a significant consumer of natural
resources through our supply chain and
operations. We recognise we have a
responsibility to work with our suppliers and on
our own sites to ensure we use resources
effectively and efficiently.
Babcock operates a complex, asset-intensive infrastructure across
marine, nuclear, land and aviation sectors. The efficient management
of energy, water and materials is therefore both an environmental
responsibility and a strategic business imperative.
Resource efficiency directly supports our broader corporate
priorities by:
• Enhancing operational resilience across
critical national infrastructure
• Reducing cost volatility associated with energy markets
• Improving asset performance and lifecycle value
• Strengthening customer alignment on sustainability objectives
• Supporting delivery of our Group decarbonisation commitments.
Within our refreshed sustainability strategy, responsible resource
management has been identified as a core enabler of operational
excellence and long-term value creation.
Energy
Energy has been prioritised as our primary resource efficiency
metric due to its material financial impact, its link to carbon emissions
and the significant opportunity it presents for operational
optimisation. Performance against this target is embedded within our
governance framework and incorporated into executive
remuneration, reinforcing accountability and ensuring alignment
between sustainability delivery and leadership incentives. To learn
more, see page 154.
During FY26, we formalised our approach to energy optimisation
through the launch of a Group-wide Energy Action Plan (EAP). This
initiative provides a consistent framework for identifying, prioritising
and delivering efficiency opportunities across diverse operational
environments. Our methodology follows the established energy
hierarchy, ensuring disciplined and value-focused decision-making.
By embedding this structured approach across business units, we
are shifting from opportunistic energy savings to systematic and
scalable improvement. Identified initiatives include:
• Estate rationalisation and asset optimisation
• LED lighting upgrades and Heating Ventilation and Air Conditioning
(HVAC) efficiency improvements
• Building management system optimisation
• Improved shutdown protocols and operational practices
• Enhanced metering and real-time performance tracking.
This programme establishes a repeatable improvement
model capable of supporting our 2030 target.
Energy, it all adds up
During 2025, we launched our ‘Energy, it all adds up’
behavioural change campaign which aims to raise awareness
of how we use energy across our operations, and to
empower individuals to take action to reduce energy wastage
and improve our energy efficiency. As part of the campaign,
a bespoke toolkit was developed to guide our colleagues
and teams through a suite of activities to enable us to
Check, Challenge, Change.
Priority target – Improve the energy efficiency of our operations by 15% compared to 2024
Check what energy we use
Does my work use a lot of energy?
Do I know where energy may be being wasted in
my workplace?
Challenge the way we use it
Are we leaving equipment or lighting on
unnecessarily? Do we need this window or
door open?
Change to use it more efficiently
Can we adapt our habits to turn off the things
we aren’t using? Are there alternative ways of
working to reduce our energy consumption?
The campaign is part of a range of activities we have
planned to improve the energy efficiency
of the organisation and reduce our
environmental impacts.
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South Africa energy efficiency
Babcock Africa partnered with the National Cleaner Production
Centre South Africa (NCPC-SA) to conduct resource-efficient and
cleaner production (RECP) assessments across selected priority
sites in South Africa, focusing on energy, water and waste
management. The RECP assessments identified a range of no-cost,
low-cost and medium- to high-cost investment interventions. In
total, over 400 individual initiatives were identified.
Waste and water-related initiatives identified include:
• Installing water sub-metering for monitoring and leak detection
• Installing rainwater harvesting systems and onsite water re-use
• Identification of material reuse opportunities
• Enhanced waste-separation systems at source.
Energy initiatives identified include:
• Replacement of non-LED lighting with LED units, and installation
of occupancy sensors
• Replacing electric water heaters with heat pumps
• Installing solar PV hybrid systems.
Babcock Africa has begun implementing the no-cost and low-cost
initiatives, and continues to evaluate medium- to high-cost
investment opportunities.
Sustainability (continued)
Focus for FY27
FY26 has established the structural and cultural foundations required
to deliver sustained improvement. During FY27, we aim to:
• Expand Energy Action Plans across all priority sites
• Prioritise high-return opex and capex investment opportunities
• Strengthen internal accountability mechanisms
• Continue behavioural engagement initiatives
• Continue to investigate circular economy opportunities.
Through effective execution, enhanced data governance
and leadership accountability, Babcock is positioning
resource efficiency not only as an environmental commitment, but as
a driver of operational excellence, resilience and long-term
shareholder value.
Progress towards target
2024 Energy Efficiency
(Baseline)
2025 Energy
Efficiency
Energy Efficiency (kWh/£k revenue) 60.33 51.80
Over 2025, our energy efficiency has improved by 14.1% year on year against the 2024 baseline. Our underlying energy consumption
reduced year on year by 6.0%, which was largely due to reduced operations and associated energy consumption at Devonport
Dockyard during infrastructure improvements works. Excluding Devonport Dockyard, underlying energy consumption across the Group
has increased by 4.0%. Strong revenue growth has been a primary driver behind the 14.1% improvement. Whilst the improvement over
2025 has been positive, energy consumption is forecast to rise in line with increased production and operations, and therefore we need
to maintain focus if we are to achieve and maintain our 15% improvement by 2030.
Data
A critical enabler of our strategy has been the successful
implementation of our new Environmental Data Management System
which has materially improved the quality, granularity and reliability
of consumption data across the Group. This enhanced visibility
allows us to:
• Identify abnormal consumption patterns rapidly
• Quantify site-level performance
• Target capital investment with greater precision
• Strengthen accountability across operational leadership.
This data foundation has strengthened confidence in our 2024
baseline, enabling performance to be managed with the same rigour
as financial and operational metrics.
Whilst energy reduction remains our primary quantitative target, our
commitment extends across all material resource streams. Our
businesses continue to expand recycling programmes and explore
circular economy opportunities, including increasing diversion from
landfill and extending asset life through design. These initiatives
enhance supply chain resilience, reduce material dependency
and unlock cost efficiencies, while supporting customer
sustainability expectations.
76 Babcock International Group PLC Annual Report and Financial Statements 2026
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Protecting the natural
environment
Many of Babcock’s operations are in areas of
environmental sensitivity. Not only is it essential
to comply with laws and regulations, but, where
possible, we want to enhance the environments
we operate in, providing both ecological and
social benefits.
Protecting and enhancing the natural environment is fundamental to
maintaining our licence to operate, supporting customer
requirements and safeguarding long-term value.
Our natural environment programme aims to strengthen the
integration of biodiversity, water stewardship and environmental
risk management into enterprise governance processes. In doing so,
we are transitioning from a compliance-led model to a more
structured, risk-based and opportunity-focused approach. This
enhanced approach builds on our existing site Environmental
Management Systems and aligns with emerging corporate
requirements and global reporting frameworks, enabling us to better
understand and manage our material impacts and dependencies on
the natural environment.
Our overarching programme provides a framework
for delivery, ensuring:
• Tangible site-level biodiversity enhancements in the short term
through our enterprise projects
• Natural environment risks and opportunities are embedded into
our operations, through:
• Improving the reporting of nature impact within existing
Environmental Management Systems
• Integrating nature-related financial risk identification into
our business-wide enterprise risk management systems
• Improving nature and biodiversity data collection
to support emerging disclosure expectations
• Enhancing cross-functional collaboration between sustainability,
operations, estates and risk teams
• Building internal capability and knowledge of natural capital and
its value to Babcock.
We record the net gain delivery against the predicted Biodiversity
Unit value set out in the metric, rather than waiting for habitats to
reach their full maturity. Once a habitat is created and the
improvement has been delivered on the ground, we record the
associated Biodiversity Units immediately, rather than deferring
recognition until the habitat reaches its target condition. Future
surveys will be conducted to review any habitat delivery condition
over time and update our overall metric results.
Alongside delivery across our key sites, we are assessing the material
nature-related financial impacts and dependencies across the
business, using the internationally recognised assessment
methodology set within the Taskforce on Nature-related Financial
Disclosures (TNFD). Although TNFD reporting remains voluntary, we
recognise that nature-related risk awareness and transparency is
becoming increasingly relevant to investors, regulators and
customers. Early alignment strengthens our preparedness and
supports long-term resilience.
Progress towards target
Two of the four sites have now entered the delivery phase, with
activities underway including the creation of wildflower
meadows, woodland enhancement and the design of wellbeing
gardens. The following table provides details of the
improvement opportunities identified and the improvements
delivered during FY26:
Improvement
opportunity
identified during
Biodiversity Net
Gain assessments
Improvements
delivered
during FY26
HMNB Devonport 23.14% 3.88%
Rosyth Dockyard 16.67% 0%
Greeson Court 29.31% 22.57%
Undisclosed location 20.77% 0%
Enterprise projects
During FY26, we launched four enterprise-level biodiversity projects
across key operational sites, with a commitment to deliver a 10%
biodiversity improvement at each location. These sites were selected
based on ecological sensitivity, the scale and nature of our
operational footprint and the opportunity for achieving measurable
enhancement. The sites include HMNB Devonport, Rosyth Dockyard,
Greeson Court and a confidential location. Together, these
sites provide a representative cross-section of our operations.
Priority target – Improve biodiversity in our most significant sites by 10%
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Site-level environmental management
Preventing pollution and managing environmental risk remain core
priorities across our industrial operations. Babcock currently
operates Environmental Management Systems that cover over
80% of the business, ensuring effective frameworks are in place
across our operations to reduce environmental impact and risk.
Key controls include:
• Site-level risk controls such as hazardous material management
plans, spill prevention and response planning
• Structured annual environmental audits and inspections to
monitor compliance and drive continuous improvement
• Ongoing Environmental Incident reporting, supported by root
cause analysis and corrective action to prevent recurrence
• Ongoing development of corporate requirements, guidance and
workforce training, coordinated through our Group-wide
Environmental Protection Working Group.
Environmental risks, including nature-related risks, are integrated
into our Environmental Risk Management (ERM) framework with
oversight at senior leadership and Board level. Water management is
closely linked to biodiversity outcomes, particularly at our coastal
and dockyard facilities. During FY26, we enhanced water monitoring
capability and the understanding of our infrastructure integrity, and
we are also working to strengthen controls surrounding discharges.
As climate variability increases pressure on water resources,
proactive stewardship forms an integral part of our natural
environment strategy.
Focus for FY27
During FY27, we aim to:
• Implement and monitor site-specific biodiversity improvements in
line with our site action plans
• Refine measurement methodologies to quantify 10%
improvement outcomes
• Continue developing our corporate nature risk
assessment approach, in alignment with TNFD
• Identify additional sites for future biodiversity
enhancement programmes.
Biodiversity improvements at Greeson Court
During FY26, a programme of targeted woodland management
began at the Science and Technology Park in West Cumbria.
Working with both the Cumbria Woodland Trust and West
Cumbria Rivers Trust, improvement activities included
ring-barking selected trees to create standing deadwood
habitat, coppicing hazel to open the understorey, laying
over-mature aspen to introduce low horizontal structure, and
installing live willow stakes to support future shrub growth.
Light-touch access improvements were also made by creating a
narrow informal path, and all arising brash was repurposed into
habitat piles, dead hedges and decomposition sites.
These interventions have already begun to diversify
the woodland’s structure, improving light penetration
and creating a mosaic of habitats that will support
fungi, invertebrates, birds, bats and small mammals.
By introducing deadwood, encouraging fresh regrowth
and enhancing the shrub layer, the works directly address the
woodland’s previously uniform age and species structure,
accelerating ecological resilience and biodiversity recovery.
The improvements are calculated to have delivered a 22.57%
biodiversity improvement, with further improvements planned to
take place.
Sustainability (continued)
78 Babcock International Group PLC Annual Report and Financial Statements 2026
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Ensuring the health, safety and
wellbeing of our people
Our first duty as a business is to look after
our own people. This is not just in relation to
matters of safety, but also their physical and
mental health. Doing so not only improves the
quality of life of our workforce, but it makes
us a more productive and successful business.
Babcock’s Purpose – to create a safe and secure world, together –
includes our unwavering commitment to the health, safety and
wellbeing of our people. We strive to achieve the highest standards
in all areas to ensure everyone can go home safe every day. We
have renewed our five-year safety strategy to provide solid
foundations for Babcock’s growth and deliver lasting improvements
with enduring impact.
Governance and assurance
As Babcock continues to grow, both in the UK and internationally, our people remain central to our success. Over the past year, we have
invested in leadership development, technical training and workforce engagement, to ensure we build a capable, empowered, and future-
ready organisation with an engaged culture. However, whilst the injury rates did reduce slightly mid-year, they have returned to previous
rates and we recognise that these improvements will take time to fully embed. Regrettably, there have been some significant injuries and
these contribute to our absence rates, but overall the severity of work-related injuries continues to reduce.
Total Recordable Injury (TRIR) and Days Away Case (DACR) rates
Safety, Health and Environmental Protection strategic vision
Through our five-year strategy we will create an industry-
leading culture of care, enabling safe, sustainable and resilient
business, for good.
1. TRIR – Number of recordable work-related injuries and illnesses multiplied by 200,000/total working hours (200,000 hours represents 100
employees working 40 hours for 50 weeks per year).
2. DACR – Number of recordable work-related injuries and illnesses resulting in one or more days away from work multiplied by 200,000/total working
hours (200,000 hours represents 100 employees working 40 hours for 50 weeks per year).
We have conducted thorough investigations into significant events in FY26 to enable us to learn, and have implemented actions to strengthen
our operational risk controls. We are developing strategic programmes to enhance safety leadership and culture, build greater operational
resilience, improve our management of contractors, and renovate our workplaces beyond compliance.
Actual severity of reported injuries
TRIR DACR
0.2
0
0.4
0.6
0.8
Mar-26Feb-26Jan-26Dec-25Nov-25Oct-25Sep-25Aug-25Jul-25Jun-25May-25Apr-25Mar-25
Priority target – Reduce the number of lost workdays by 10% compared to 2025
Severe Major Moderate Minor Insignificant
22/23 23/24
24/25 25/26
0.2%
0.0%
0.0%
0.0%
0.6%
0.6%
0.5%
0.5%
9.5%
12.0%
7.7%
8.3%
34.1%
31.2%
30.9%
29.8%
55.5%
56.2%
61.0%
61.3%
10.0%
0.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
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Home Safe Every Day
We continue to embed our Home Safe commitments. These are
core safety behaviours for all, including every leader, to create
the right environment for those behaviours to thrive.
Recognising the importance of physical and mental health, our
Home Safe Summit in November focused on how behaviours
and actions can impact our own, and others’, health and how
this can then affect the risk of a safety or a security event. The
interactive learning with realistic personas prompted
meaningful, insightful discussions as colleagues considered
what the colleague would do and how they would feel in
various scenarios.
The Home Safe Summit was delivered to over 5,000 colleagues
across 60 sites, showing a 42% increase in engagement. The
programme helped to build a better understanding of how we
can all contribute to our own, and others’, health. Learn more on
the Wellbeing element of our work on page 87.
Separately, the annual Safety Stand-Down, which is delivered to
colleagues globally across Babcock, focused on identifying
when ‘work done’ differs from ‘work as imagined’ and facilitated
discussions to consider when to pause or stop work by thinking
‘what if?’
The feedback from colleagues in our Global People Survey was
that the majority of respondents were confident to pause or stop
work, but we will continue to reinforce that empowerment
through the Home Safe commitments campaign.
Consistent improvement through
strategic alignment
We have areas of excellence across Babcock and an improving
safety performance in key areas, such as the Nuclear and Aviation
sectors, so our focus is on spreading the consistency of the good
practices and building upon existing work on sites, sectors and
countries. As part of enabling us to “deliver better, together” we have
formed the Security, Safety and Resilience function to bring together
the elements that protect our people and assets. Together, we will
deliver our strategic vision by:
• Evolving a culture of engagement and responsibility through
leadership where every action and engagement has people
and the environment at the centre
• Insights-led, risk-based decision-making where data, evidence
and risk analysis guide every decision and enable resources
to be focused where they will have the greatest impact
• Building our capability and resilience by developing the skills,
systems and adaptability needed to respond to challenges
and deliver safely and consistently over the long term
• Integrating security, safety and resilience across the business
to enable colleagues to do their best work.
Focus for FY27
Our commitment to create a safer and healthier workplace
remains solid, with our focus for FY27 to strengthen critical
controls and develop leaders to enable the growth of our culture
of care.
Sustainability (continued)
Progress towards target
As part of our sustainability strategy, we set ourselves the target to reduce the number of days lost due to work-related injuries and
occupational illnesses by 10% by 2030 using FY25 as the baseline. The days lost due to work-related absences and occupational
illnesses in FY26 is 15.93 compared with 15.81 in FY25. The strategic programme towards achieving this target has brought together
reductions in severity of harm and enhancements in case and colleague management across the business. We will continue to deliver
improvements in proactive interventions to support and build individual resilience, including occupational health and wellbeing
provisions to support colleagues back to health and back to work.
plan work with safety in mind
make sure I am fit and trained to safely carry out
my work
protect myself, others and the planet from
safety, health and environmental hazards
assess and control risks before I set to work
use the correct and safest tools and equipment
for the job
speak up if I see something unsafe
pause or stop work if things change, or I have
a safety concern
‘I always…’
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Building an inclusive, diverse
and resilient workforce
Inclusion and diversity in Babcock not only
benefits our communities, but also enables us to
build a stronger, more innovative business. We
want to nurture the potential of our colleagues,
supporting them throughout their career,
regardless of background.
Our People Strategy underpins delivery of the Group's strategic
priorities and our refreshed employee value proposition. It provides a
clear roadmap for building the capabilities required to execute
today's commitments while preparing for future growth.
We are strengthening core capability – the engineering depth,
programme delivery discipline and operational leadership required to
deliver safely and reliably at scale. In parallel, we are developing
strategic capability in priority growth areas, digital integration and
advanced technical domains to support long-term competitiveness.
We continue to build a more inclusive and accessible working
environment, recognising that this is fundamental to attracting,
retaining and enabling diverse talent. During the year, we enhanced
our approach to workplace adjustments and site accessibility, with a
clear focus on creating conditions where everyone can perform at
their best. As part of this, we are progressing towards Disability
Confident Level 3 accreditation, reinforcing our commitment to
inclusive practices across our operations and our leadership within
the Defence and Nuclear sectors.
As we enter the next phase of our growth, clarity of identity,
capability and culture is essential. During the year, we introduced a
refreshed corporate brand to reflect who we are today
and the standards we set for ourselves, strengthening the
connection between individual contribution and enterprise
performance. For our 30,481 colleagues, this clarity matters; whether
designing, maintaining, supporting or leading complex programmes,
their work contributes directly to national security and long-term
value creation.
To learn more about the related remuneration target see page 154.
Go Together, Go Far: An immersive experience
During the year, we took our strategy on the road through the
Go Together, Go Far immersive bus tour, visiting operational
sites across the UK.
Designed to make our Purpose, principles and performance
tangible, the mobile experience enabled colleagues to step
inside our strategy – exploring how it shapes the way we work,
deliver and grow. Through interactive content, real stories and
forward-looking insights, colleagues saw how their role was
connected directly to business outcomes and long-term
ambition. The bus also provided practical access to information
on reward, wellbeing and wider benefits, ensuring colleagues
better understood the support available to them and how to
make the most of it.
Members of the Executive team and senior leaders joined the
tour, reinforcing visible and accountable leadership
and encouraging open dialogue. The initiative responded
directly to feedback from our Global People Survey (GPS),
particularly the need for greater clarity on strategy, performance
and connection to leadership.
Our GPS remains an important measure of organisational health
and engagement. Participation continues to be strong at 79%,
reflecting high levels of colleague voice across the business.
Survey insights inform local action plans and Group-wide
priorities, ensuring focus, accountability and measurable
progress in areas including leadership effectiveness, inclusion
and performance culture.
By aligning brand, strategy, capability and culture,
we are strengthening organisational resilience and building
a platform for sustained operational excellence.
Priority target – Increase the proportion of women in our workforce to 30%
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Leadership and capability
Our leadership strategy focuses on building the capability required to
execute at scale, manage complexity and drive performance.
Central to this approach is our Leadership Framework, which
establishes clear and consistent expectations across all global
grades. Fully aligned to our People Priorities, the framework provides
structured development pathways that support personal growth,
career progression and leadership capability.
It ensures colleagues have access to learning that supports both
current performance and future leadership requirements.
The framework is structured around four progressive levels of
leadership – Leading Self, Leading Others, Leading Leaders and
Leading Babcock – allowing colleagues to take ownership of their
development while ensuring leaders are equipped with the right
skills and capability at each stage of their career.
Building an inclusive, resilient and high-
performing culture
Creating an inclusive, resilient, high-performing culture is
fundamental to building a diverse and respectful workforce. It
enables us to attract and retain talent, strengthen capability and
support long-term business performance.
As a defence business operating in complex, safety-critical
environments, creating an inclusive and trusted culture is essential
for our long-term success. Our GPS results have a meaningful
increase of +12 percentage points in positive responses to the
statement “I feel respected at work”, since we started the Global
People Survey in 2022. This improvement reflects continued
progress in building a culture grounded in respect, psychological
safety and inclusion.
We continue to embed inclusion across our organisation through
clear leadership accountability.
Networks
Our colleague-led networks play an important role in providing
insight, advocacy and support, and helping to shape our approach to
inclusion across the business.
During FY26, we invested in capability at the Leading Others level,
supporting approximately 3,500 colleagues. Over the next
18 months, we will further align our leadership programmes globally
and expand development to ensure consistent standards. This builds
on pilot activity within our Nuclear sector, where we are embedding
executive coaching into day-to-day operational activity.
Alongside this, we are broadening access to high-impact
development through a blend of masterclasses and digital learning
solutions that provide support at the point of need.
Together, these investments strengthen leadership capability,
reinforce accountability and position the business for stronger
performance, resilience and sustainable long-term success.
Executive Committee-level sponsorship of our colleague networks
strengthens accountability and demonstrates our ongoing
commitment to inclusion. We have also clarified roles and
responsibilities within the networks to better support their chairs and
enable greater impact.
Networks collaborate across shared themes including disability,
caring responsibilities and neurodiversity. Joint activity during Grief
Awareness Week and National Inclusion Week supported open
conversations, increased understanding and strengthened peer
support, particularly during periods of challenge and change.
We are taking targeted action to ensure our workplaces are safe and
respectful for everyone. This includes enhancing manager guidance,
tools and training to prevent inappropriate behaviours, alongside
initiatives such as our White Ribbon ambassadors and champions
programme, reinforcing a culture where everyone is treated with
dignity and respect.
We continue to enhance our policies and support at key moments
that matter. This includes the introduction of our Premature Baby
policy, aligned to our commitment to The Smallest Things Charity
charter, ensuring colleagues are supported through challenging life
events. See also page 87.
Together these actions are strengthening our culture and creating an
environment where colleagues feel supported to contribute, develop
and perform at their best.
Sustainability (continued)
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Gender balance
In addition to our Senior Leadership population, we are also focusing
on increasing female representation across our broader leadership
community, which currently stands at 28%. Our internal goal is to
reach 30% female representation within this group.
Building an inclusive, diverse and resilient workforce is a priority. We
are driving gender balance through targeted efforts in recruitment,
succession planning, support, retention and celebration – ensuring
all colleagues can thrive.
Addressing our gender balance requires sustained, long-term action
across the employee lifecycle. Our focus is on strengthening the
foundations that enable more women to join, remain and progress
within Babcock.
Attraction – We are increasing our focus on attracting more women
into engineering, technical and emerging talent roles through
targeted outreach, partnerships and STEM engagement. These
actions are designed to broaden access to opportunities and
strengthen the diversity of our future talent pipeline.
Recruitment – We continue to embed inclusive recruitment
practices, including structured assessment processes and diverse
interview panels, to support fair and consistent hiring decisions and
ensure we are selecting from the widest possible pool of talent.
Retention – We are committed to creating an environment where
women can build long and rewarding careers. This includes
strengthening inclusive policies and support, alongside broader
efforts to enhance the employee experience and ensure colleagues
feel supported at key moments that matter.
Progression – We are supporting women to develop and progress
through targeted development and mentoring initiatives, including
programmes such as Illuminate and mentoring opportunities.
These initiatives are designed to strengthen capability, support
career progression and increase representation in senior roles
over time.
Gender representation and progress
Graduate intake
Senior management
Executive Committee
and direct reports in
Management roles
Executive Committee
Total workforce
Board
19% 81%
23,6945,610
40% 60%
64
17% 83%
102
32% 68%
9544
31% 69%
8638
27% 73%
282102
19% 81%
24,4745,924
40% 60%
64
27% 73%
83
36% 64%
9050
32% 68%
9444
26% 74%
21777
FY 2025 FY 2026
Female Male
1. Our total workforce is 30,481, which includes 24,474 men, 5,924 women, 15 people identifying as non-binary, or 'I use another term', 12 who 'did not
specify' and 56 who chose 'prefer not to say'. This figure includes both permanent staff and agency employees.
2. Executive Committee total is 11. This figure excludes Executive Committee members on the Board.
3. Executive Committee and direct reports in management roles total 140. This excludes Executive Committee members on the Board.
4. Senior management refers to the Senior Leadership Team defined as colleagues who have responsibility for planning, directing and controlling the
activities of the Group (Executive Committee) or a strategically significant part of the Group (sector/functional leadership teams) and/or who are
directors of subsidiary business units (BU leadership).
5. Senior management total is 138.
6. Graduate intake is 294 (264 UK, 25 Australasia, 5 South Africa).
7. Non-Executive Directors are only included in total headcount and Board figures.
8. All percentages provided in the Gender balance table have been rounded to the nearest whole number.
Progress towards target
Women currently represent 19.4% of our workforce. Increasing
representation remains a strategic priority for Babcock and forms
part of our sustainability target to reach 30% women in our
workforce by 2030. While we have seen significant progress for
female representation in senior positions, representation across
the whole workforce remains static, reflecting the structural
challenges within the defence sector and the time required for
interventions to translate into workforce change.
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Gender Pay Gap
Our median Gender Pay Gap for 2025 stands at 6.2%, which remains significantly lower than the UK national average of 12.8%. This reflects
the strength of our position and the impact of our ongoing work to support representation, progression, and equitable opportunities for
all colleagues.
Gender Pay Gap (2017-2025)
Our approach is focused on strengthening representation, particularly in senior and technical roles, where the Gender Pay Gap is most
pronounced. Gender Pay Gap continues to be driven primarily by representation, rather than unequal pay for equal work, with lower female
representation in higher-paying roles influencing overall pay distribution.
● We publish our Gender Pay
Gap data annually with full
transparency on methodology
trends and drivers
We re-signed the Armed Forces Covenant during the year,
reaffirming our commitment to supporting those who serve or
have served. Our Gold Award status under the Ministry of
Defence’s Employer Recognition Scheme remains in place,
recognising our sustained advocacy and practical support for
the armed forces community.
Support for the armed forces community
We are proud to be a longstanding and active partner to the armed
forces community. As a defence company, our connection to serving
personnel, veterans, reservists and military families is fundamental to
who we are and how we operate.
In FY26, we strengthened our position as a leading employer of
veterans. We rose to joint number one in the Great British Employers
of Veterans ranking and were recognised as ‘Best Employer’ in the
Ex-Forces in Business Awards. We were also named Best Employer
at the Scottish Ex-Forces in Business Awards in January. These
independent accolades reflect the consistency and maturity of our
approach across the UK. See page 88 for more of our awards.
Sustainability (continued)
ONS UK Gender Pay Gap Babcock Mean Pay Gap Babcock Median Pay Gap
18.4%
16.5%
16.2%
17.8%
16.0%
14.1%
17.4%
15.9%
13.5%
14.9%
12.5%
12.3%
15.1%
12.2%
11.8%
14.4%
9.6%
9.5%
14.2%
6.7%
6.8%
13.1%
5.9%
5.5%
12.8%
6.6%
6.2%
20.0%
15.0%
10.0%
5.0%
0.0%
2017 20252024202320222021202020192018
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Our impact is tangible. In FY26, we hired 838 individuals from the
armed forces community. We also attended or created 28 armed
forces recruitment events during the year, strengthening access to
opportunity and building sustainable talent pipelines into critical
capability areas across the Group.
Armed forces recruitment
Beyond recruitment, we continue to provide up to 10 days additional
paid leave annually for reservists to fulfil training and operational
duties. We maintain our sponsorship of the Inter-Service Rugby
Championship, supporting men's and women's competitions and
reinforcing our long-term commitment to service communities. We
also continue our multi-year partnership with the Army Benevolent
Fund and other military charities (see also page 90).
Through these actions, we do more than honour our Armed Forces
commitments. We embed military skills, leadership capability and
operational experience into our workforce, strengthening resilience
and performance for our customers and shareholders.
● Learn more about our armed
forces commitment on our
website
Talent, skills and capability
A talent-led culture
We are building a talent-led culture where talent is actively
discussed, developed and deployed across the business.
This is underpinned by three clear commitments:
• Talent is a continuous priority – Talent is embedded into regular
leadership conversations rather than treated as a one-off activity.
• Potential is identified and developed – All colleagues are
supported to perform at their best and encouraged to take
ownership of their development.
• Opportunities are visible and accessible – We promote internal
mobility and talent visibility, recognising capability as a shared
organisational asset.
Our talent and capability activity is delivered through a clear
and consistent framework.
We use an externally recognised leadership assessment to validate
talent decisions and strengthen leadership development across our
senior leadership population. Over the last 12 months, we have
assessed 31 senior leaders, each of whom also receives a 90-minute
coaching session as part of the process. Learn more about our
succession planning refresh on page 140.
Building a sustainable talent pipeline
Our Emerging Talent strategy underpins long-term workforce
sustainability and supports the delivery of our growing order book.
As demand across our defence and nuclear programmes continues
to increase, securing early-stage capability in critical disciplines
remains a strategic priority.
During the year, we transitioned from a traditional early careers
model to a more flexible emerging talent framework, reflecting
evolving skill demands and the need to access talent through
multiple entry routes.
We welcomed 503 apprentices and 264 graduates, our largest UK
intake to date, with planned growth to around 850 next year. These
intakes are targeted towards disciplines directly aligned to the needs
of our complex programmes, including nuclear engineering, marine
systems, project management and advanced manufacturing.
The first cohort of our Group Project Management
graduate programme completed their development
pathway, strengthening capability in assistant project management
roles that directly support contract performance and delivery
milestones.
Across Devonport, Bristol, Rosyth and Clyde, we expanded
apprenticeship and graduate pathways in engineering,
manufacturing, electro-mechanical disciplines, data analytics,
logistics and operational roles.
Programmes include:
• Pre-apprenticeship programme (Devonport and Clyde)
• T-level industry placement pathways
• Group project management graduate programme
• Engineering and manufacturing apprenticeship frameworks.
Pre-apprenticeship pathways continue to deliver strong progression
into full apprenticeship roles, widening participation while addressing
future workforce risk.
We also continued to strengthen alternative entry routes through
targeted veterans recruitment and structured training pathways.
Science, Technology, Engineering and Maths (STEM) outreach
remains central to long-term resilience. Through Festivals of
Engineering, the Defence Industry Joint Council STEM pilot in
Plymouth and over 300 engagement events, we reached more than
27,000 young people within the UK, strengthening future talent
supply in regions critical to our operations.
Together, these initiatives provide a diversified and scalable talent
pipeline, designed to mitigate medium- to long-term skill shortages
and support predictable programme execution.
FY24 Hires FY25 Hires FY26 Hires
Veterans Service
Leavers
Reservists Forces
Family
Cadets
502
359
106
76
24
368
424
225
269
82
69
37
38 38
15
0
50
100
150
200
250
300
350
400
450
500
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Devonport Futures programme
Through the Connect to Work programme, we are developing a
supplier-led pathway to support workforce requirements across
the Devonport dockyard and wider supply chain.
The programme focuses on improving access to skilled local
labour, strengthening supplier capability and building a
sustainable talent pipeline aligned to operational demand,
supporting long-term workforce resilience across the region.
In the UK, our STEM outreach is helping build a stronger future
talent pipeline. In Plymouth, our teams have worked with
Plymouth City Council on the 5E model, designed to raise
aspiration and encourage engagement with STEM from an early
age. With more than 300 activities planned across the South
West, this work is helping widen access to opportunity and
support the long-term development of critical skills.
● Learn more about
Team Plymouth on
our website
Recognising demographic risk within elements of the nuclear
workforce, we introduced a Retiree Knowledge Transfer pilot,
designed to retain critical expertise and support structured
succession planning.
To support consistent capability development at scale, we are
introducing a new Learning and Competency Management System
(LCMS). This will enable the creation and delivery of high-quality,
standardised and role-specific learning across the organisation,
improving accessibility, strengthening technical consistency and
accelerating skills development in critical areas.
We are also enhancing workforce data, digital reporting and social
value measurement platforms to improve forecasting accuracy,
strengthen governance oversight and align skills investment directly
to contract requirements.
Strengthening capability and
workforce resilience
In a market characterised by constrained technical labour supply and
demographic concentration within specialist disciplines, proactive
skills management is essential to delivery confidence.
During the year, we expanded specialist training infrastructure,
including the launch of a new Apprentice Welding School in Bristol,
combining traditional craft expertise with augmented learning
technologies. This investment supports sustained fabrication
capability aligned to our marine and nuclear programme requirements.
Graduate engineering pathways were consolidated into
a single framework aligned to a professional registration, promoting
mobility, consistency and technical depth across the organisation.
In Rosyth and Clyde, structured welding and fabrication development
pathways support long-term workforce planning. Structured ‘Train to
Fit’ programmes continued to build role-specific capability where
labour market shortages persist.
In Scotland, collaboration through the Nuclear Skills Hub
and partnership with academic institutions has strengthened
postgraduate capability development, particularly in nuclear
safety-case and specialist engineering disciplines. In the South
West, initiatives such as Project Score and Devonport Futures have
delivered measurable employability outcomes, supporting workforce
expansion in key operational regions.
Sustainability (continued)
Project Score
Project Score is a partnership between Argyle Community Trust,
Babcock and Kaefer, designed to address critical recruitment
gaps while supporting individuals into sustainable employment.
Working with Jobcentres in Plymouth and Liskeard, the
programme delivers a structured employability pathway,
combining work-readiness training, industry exposure, essential
skills, health and safety, and application support. Participants
then move into paid placement with both Babcock and Kaefer,
supported by mentoring, wellbeing provision and ongoing
development.
The programme has created a pipeline of job-ready candidates,
strengthened collaboration across our supply chain and
established a scalable model aligned to real workforce demand.
Twelve months on, 80% of participants remain in employment,
demonstrating the programme’s impact in building sustainable
careers and strengthening workforce capability.
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Wellbeing
Supporting the health and wellbeing of our people remains
fundamental to sustain performance and operational resilience. In a
complex, safety-critical environment, we know that enabling
colleagues to feel well, supported and able to perform at their best is
both a responsibility and an important part of delivering consistently
for our customers.
Our approach is structured, preventative and informed by data.
Drawing on insights from our Global People Survey and operational
metrics, we continue to focus investment where it can have the
greatest impact. This support spans four connected areas of
wellbeing: mental, physical, financial and social, reflecting our belief
that sustained performance depends on supporting the whole person.
During FY26, we continued to strengthen our wellbeing framework
through improved access to care, preventative support and practical
help at key moments that matter. This included enhancing colleague
benefits in the UK through annual health assessments, online GP
appointments and nutritional consultations, alongside continued
access to a global employee assistance programme and trained
mental health support across our operations. We also continued to
invest in our Mental Health First Aiders network and expanded
clinical mental health support through the roll-out of our colleague
assistance programme and proactive wellbeing platform in
Australasia and France.
We also delivered a range of tools, guidance and campaigns to
promote positive everyday wellbeing support. These included
initiatives covering topics such as menopause, mindfulness
and suicide prevention, our Global Move More challenge and
conversation guides to help managers create supportive team
environments. A new peer recognition programme linked to our
principles also helps strengthen the connection between wellbeing,
culture and day-to-day experience at work.
We continue to enhance support for colleagues during significant life
events. Building on our inclusive leave approach, we introduced both
maternal and paternal fully paid neonatal leave ahead of legislative
change and, in February 2026, launched premature baby leave.
Through this, Babcock became the first defence company to sign the
Employer with Heart Charter in partnership with The Smallest Things
charity (see also page 82). These steps reflect our commitment to
responsible employment practices and to supporting colleagues
through complex and challenging circumstances.
Progress during the year was recognised externally through a silver
award in the Reward Gateway Appreciation Awards for Best Strategy
for Supporting Employee Health and Wellbeing, recognising the
continued development of our wellbeing strategy and colleague
benefits. See a fuller range of our awards on page 88.
To learn more about the safety element of this work, please
see page 79.
Recognition and reward
Recognising and rewarding our people is fundamental to our culture
and how we drive performance. Our approach to recognition and
reward is designed to reinforce fairness, motivate high performance
and strengthen the alignment between individual contribution, our
principles and business outcomes.
Principle-aligned recognition
We recognise not only what colleagues deliver but how they deliver
it. Our recognition framework is aligned to our principles and
behaviours, ensuring consistent reinforcement of the culture we
expect across the business.
During the year, we strengthened our UK-wide recognition
programme BRAVO, evolving it into a points-based system with
monetary awards. BRAVO is designed to celebrate excellence through
our principles, whether that reflects delivering a complex project,
demonstrating exceptional collaboration or a simple act of kindness.
This provides a consistent and accessible mechanism for
recognising both everyday contributions and outstanding
performance, supporting engagement and retention.
We also delivered the Ignite Awards for the second consecutive
year, recognising individuals and teams whose contributions
demonstrate our principles in action, delivered exceptional results, or
showed exemplary leadership. Engagement continued to increase,
with over 1,000 nominations submitted across the global business.
The programme will be extended globally in FY27, further
embedding a culture of recognition across all markets.
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JUNE '25 – British Ex-Forces in Business Awards
Joint winner – Employer of the Year
Finalist – Advocate of the Year
Finalist – Champion of Women Award
SEPTEMBER '25 – LGBTQ+ Defence Awards
Finalist – LGBTQ+ Network of the Year
Finalist – LGBTQ+ Trailblazer of the Year
Sponsored – Veteran of the Year
NOVEMBER '25 – AFBE UK Gala Awards
Winner – Company of the Year
NOVEMBER '25 – Women in Defence Awards
Finalist – Most Improved Charter
Finalist – Champion for Maximising Talent
Finalist – Unsung Heroine
JANUARY '26 – Scottish Forces in
Business Awards
Winner – Employer of the year
FEBRUARY '26 – TLC Lions – Human Awards
Sponsored – Employee Network of the Year
MARCH '26 – Help the Heroes Partnership Event
International Women's Day Event
Focus for FY27
As we enter the next phase of delivery, our focus is on strengthening
the organisational capability required to execute our strategy at scale.
This means embedding our People Strategy consistently across the
Group, aligning workforce planning to future demand and accelerating
the development of critical technical and leadership capability.
We will continue to invest in leadership effectiveness and
accountability, ensuring our leaders are equipped to drive
performance, develop their teams and foster inclusive, high-
engagement environments. Insights from the Global People Survey
will inform targeted action at local and functional level, with clear
ownership for outcomes.
Building on the global free share award, we will further reinforce our
ownership culture, helping colleagues connect operational
performance and long-term value creation. Transparent performance
measures, disciplined execution and strong line leadership will
underpin this approach.
Alongside this, we will maintain momentum in emerging talent and
skills development, strengthening pathways into the business, and
ensuring we remain competitive in attracting and retaining the
capabilities essential to our future growth.
Our ambition is straightforward: to be the destination for talent in the
defence sector, create an environment where talented people
choose to build long-term careers, where leaders are accountable
for performance and culture, and where every colleague
understands how their contribution drives sustainable success.
Sustainability (continued)
Global free share award programme
In FY26, we introduced a global free share award for eligible
colleagues worldwide – a significant milestone in strengthening our
ownership culture and aligning colleagues directly with the long-term
success of the business.
By offering shares, we are deepening colleagues’ sense of
ownership and reinforcing the connection between everyday
performance and long-term value creation. The programme enables
colleagues to share directly in Babcock’s success and, over time, to
benefit from the expected appreciation in value that their collective
efforts help to create. It strengthens morale, supports retention and
further aligns colleagues with shareholder interest.
In jurisdictions where local, legal or tax administrative constraints
prevent the award of traditional shares, equivalent phantom awards
were implemented to mirror the value of Babcock’s shares, ensuring
fairness and broad participation across our global workforce.
This initiative reflects our belief that shared success should be
tangible and inclusive. It is helping to build a more connected
organisation in which colleagues can clearly see the impact of their
work on performance and enterprise value. Please see the
Remuneration report on page 154 for further information.
External recognition and awards
External recognition provides an important benchmark for progress
on the impact of our people and culture initiatives. During the year,
we received a number of awards and accreditations reflecting the
strength of our approach across areas including wellbeing, inclusion
and support of women in defence, and the armed forces community.
While we remain focused on continued improvement, these external
endorsements demonstrate the progress we are making and
reinforce our position as a responsible and inclusive employer.
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As a major employer, we play an important role
in our communities, often operating in deprived
areas. Beyond employment, we contribute
through our supply chain, local partnerships,
volunteering and educational initiatives,
creating positive and lasting impacts
in the regions we serve.
Working with SMEs and local suppliers
Babcock recognises the essential contribution that small and
medium-sized enterprises (SMEs) make in creating a sustainable and
resilient supply chain. Collaborating with smaller enterprises
strengthens our adaptability, innovation and cost-effectiveness, as
they can respond rapidly to shifting market demands and bring
specialist capabilities in areas such as advanced materials, cyber
security, unmanned aerial systems, AI and additive manufacturing.
These partnerships help build strong, mutually beneficial
relationships that support high standards of service and reliability.
Supporting local SMEs also stimulates employment and economic
growth within our communities, benefiting the local economy.
An example of how Babcock supports local suppliers is our
involvement in the Find it in Plymouth initiative, a commitment
to strengthening the local supply chain and widening opportunities
for local suppliers. Babcock uses the platform to make Devonport-
related opportunities more visible and accessible to local businesses,
helping them compete for work and build long-term capability.
Through this partnership, Babcock encourages transparent
procurement, supports skills development across SMEs and
community organisations, and ensures that more economic value is
retained within the region, ultimately reinforcing the resilience of the
Devonport supply chain and delivering broader social and economic
benefits for the local community.
Following on from the completion of our report with the University of
Exeter on Unlocking SME Potential in Defence, we have developed a
10-point industry SME Charter, designed to reshape how SMEs
engage with the UK defence sector. To strengthen our overall
collaboration with SMEs, Babcock has reviewed the way we onboard
SMEs and identified several improvements to streamline the process,
making it easier for SMEs to work with us.
Building on the 31% SME spend achieved in FY25, SME spend was
sustained at 30% in FY26, demonstrating continuity in our
engagement with SME suppliers.
See our SME Engagement Charter on page 30.
● Learn more about
how Babcock unlocks
SME potential on
our website
Supporting our communities
The needs of our communities vary, and our approach reflects this
– empowering local teams to respond to what matters most while
maintaining a strong and consistent culture of community
engagement across the business.
In our most recent GPS, our score against the question “Babcock’s
commitment to social sustainability allows us to make a positive
difference (eg, volunteering, inclusion, charity/ community
outreach)” increased significantly by +10 percentage points, showing
our engagement is bringing our colleagues with us.
Priority target – Spend 50,000 hours volunteering
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Charity
Our charitable strategy works at different levels, with community
always at its heart.
Local
At a local level, our individual sites support the communities
that surround our sites, and from which we draw our employees.
For example, in Rosyth employees made the most of their Be Kind
Days by supporting The Big House Multibank, helping redistribute
surplus goods from retailers to vulnerable families – preventing over
one million items from going to landfill. Our Rosyth volunteers also lent
their support to EATS Rosyth, a local charity dedicated to sustainable
growing practices, biodiversity, and wildlife conservation.
Sectors
At the next level up, our sectors work with several charities
supporting both serving and veteran military communities that are
linked with their primary service area. For example, our Land sector
has a long-standing relationship with the Army Benevolent Fund
(ABF) where it continues to sponsor the Operation Bletchley
codebreaking challenge, this year expanding it to develop a STEM
activity for use in schools. It also supports the RAF Association
(RAFA) where our colleagues have supported the RAFA Rides event,
veteran outreach calls and RAFAKidz nurseries through volunteering,
fundraising and corporate donations.
Meanwhile, our Marine sector continues to support the Royal Navy
and Royal Marines Charity (RNRMC) where, as a Platinum Partner in
the Bridge Partnership scheme, Babcock is directly supporting
initiatives that enhance the wellbeing of sailors, marines, and their
families. Our commitment helps strengthen critical programmes that
provide lifelong care, resilience, and support to those who serve.
International
Internationally, our Direct Reporting Countries (DRCs) have a
long-standing commitment to the communities in which they
operate. In Australia this is reflected in more than a decade of
partnership with both MESHA (Military and Emergency Services
Health Australia), supporting the mental health and wellbeing of
military and emergency service communities, and Yalari, providing
educational opportunities for Aboriginal and Torres Strait Islander
students.
Meanwhile, South Africa supports organisations such as the
Thandulwazi Trust, supporting women in leadership alongside our
Student Sponsorship Programme (SSP) and St Dunstan’s College
partnership, enabling students from underprivileged backgrounds to
gain access to quality education.
We have also supported for the Vine Trust, an international
development charity working with isolated and vulnerable communities
in the Amazon and on Lake Victoria, for many years. In FY26, it had its
40
th
Anniversary which we celebrated with an event supported by HRH
The Princess Royal, Patron of the Vine Trust. At the event, we signed a
Memorandum of Understanding further strengthening our relationship
as we look forward to future projects together.
Group
This focus on the communities that support us and those impacted
by our sites and operations continues at a Group level where we look
to national initiatives and charities across the UK. This includes our
support for the tri-service Soldiers’, Sailors’ and Airmens’ Families
Association (SSAFA), where this year our contributions have helped
fund five successful mentoring courses, fully training 98 individuals
to provide non-judgemental, holistic mentoring to veterans
transitioning into civilian life.
We also support Scotty’s Little Soldiers, a charity dedicated
to supporting bereaved military children and their families.
As a three-star member of its Scotty’s Business Heroes Club, our
funding has been spent on respite breaks, one-to-one emotional
support and educational grants.
Rapaid is another national charity supported at a Group level with a
community impact. With Babcock’s support, it has successfully rolled
out its life-saving emergency bandages into Plymouth’s taxis and
has been able to kit out 300 taxi cabs in Edinburgh alongside a
scheduled roll-out onto the city’s trams. This is coupled with a plan
to roll out its emergency kits to Bristol’s taxis in the coming year.
Sustainability (continued)
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Volunteering
Volunteering remains a key part of how we contribute
to our communities while strengthening colleague engagement
and pride.
We are also improving how volunteering is recorded and assessed,
simplifying processes and enabling more accurate tracking of
impact. This will allow us to better understand our progress and
continue to build momentum across the business.
Alongside this, our Global People Survey shows a continued
increase in positive responses to our commitment to social
sustainability, reflecting the growing impact of volunteering, inclusion
and community outreach activities.
We introduced an internal volunteering hub to help colleagues
easily find local and virtual opportunities. Alongside this, we
celebrate international volunteering day by sharing stories from
across the business, showcasing the difference our colleagues
make in their communities.
Inclusive communities and global belonging
We are committed to building inclusive communities that reflect
the societies in which we operate and which support our
long-term business performance. Across our global footprint,
we focus on creating equitable access to opportunity, strengthening
skills and employment pathways and working in partnership with
local communities.
Our approach combines clear Group-wide standards with locally
relevant action. This includes engagement with Indigenous and
historically disadvantaged communities in Canada, South Africa and
Australasia, where we continue to work with partners, educators and
suppliers to deliver meaningful social and economic impact.
In the UK, we are signatories to the Race at Work Charter,
and promote awareness and inclusive leadership through our Race
Equality Network, formerly known as the B4ME Network.
The network supports open dialogue, education and practical action
across the organisation, helping to embed inclusion into everyday
leadership and decision-making. Learn more about our networks on
page 82.
Canada
In Canada, our approach to inclusion is centred on long-term
partnership, workforce development and inclusive economic
participation. We recognise that meaningful engagement with
Indigenous communities is essential in reflecting the communities
we serve and supporting sustainable outcomes.
Babcock Canada participates in the Canadian Council for Indigenous
Business’s Partnership Accreditation in Indigenous Relationships
(PAIR) Programme, and achieved Bronze Status in 2025. The PAIR
framework provides independent assessment of corporate
performance across leadership, employment, business development
and community engagement, and supports our continued progress
towards stronger Indigenous relations.
We invest in Indigenous skills and education through
multi-year partnerships with academic institutions and foundations,
supporting access to STEM education and career pathways through
co-operative placements, internships and apprenticeships. These
initiatives are designed to strengthen long-term employability and
broaden participation in high-value skills.
Alongside this, we are expanding Indigenous participation within our
supply chain, particularly in support of Emergency Health Services
operations in British Columbia. This focus on inclusive procurement
complements our wider commitment to responsible business
practices and community partnerships.
Learn more about Babcock Canada’s Indigenous peoples policy
on page 108.
South Africa
In South Africa, our approach to diversity, equity and inclusion
is aligned to Broad-Based Black Economic Empowerment (B-BBEE)
objectives and the communities in which we operate. It focuses on
socio-economic transformation through inclusive education,
employability and enterprise development, supporting both national
priorities and long-term business sustainability.
During the year, we strengthened our Employment Equity framework
in response to the legislative change. Employment Equity objectives
are embedded within workforce planning, recruitment, development
and succession, supporting a balanced approach to compliance
transformation and sustainable capability.
Community initiatives are focused on improving access to education
and employment opportunities within the communities where
we operate. We continue to support youth employability through
participation in the Youth Employment Service (YES) programme,
providing a structured workplace experience that supports skills
development and long-term employability.
STEM education remains a strategic enabler, supporting future skills
development and improved gender representation, particularly within
technical and leadership pipelines. Our long-standing partnership
with the Thandulwazi Trust supports mathematics, science and
leadership capability alongside pathways for secondary education
into tertiary study.
Supply chain development supports inclusive economic participation
and operational resilience. Through our Entrepreneurship
Development Programme, delivered in partnership with the
Student Sponsorship Programme (SSP), we continue to support
small and medium-sized enterprises within our supply chain,
with an increasing number transitioning into active suppliers within
the Group.
Progress towards target
Through our global Be Kind Day, colleagues are given one paid
day each year to support a charity or community organisation
of their choice. Participation continues to grow with more
colleagues using their volunteering day to support local
initiatives across our regions. In FY26, volunteering activity
increased by 20% over FY25, with 10,624 hours requested.
To further embed a culture of giving back, we have a
Company-wide target of 50,000 hours of volunteering per year
in our communities by 2030.
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Together these activities demonstrate a consistent and integrated
approach in South Africa, contributing to inclusive growth while
strengthening long-term business resilience.
Australasia – community engagement and capability
In Australia, our community engagement activity is focused
on strengthening workforce capability, widening participation
in STEM and supporting the wellbeing of defence and emergency
services communities.
We have supported Military and Emergency Services Health
Australia (MESHA) for over a decade, expanding our partnership in
2025 to support its growth in Western Australia. This includes
establishing a locally based lived-experience workforce and piloting
a programme tailored to regional service personnel and their
families, ensuring accessible, evidence-based support where it's
needed most.
Developing future engineering capability remains a priority. Since
2018, we have supported Engineering Aid Australia's Indigenous
Australian Engineering School (IAES) programme, introducing First
Nations secondary students to engineering and technology careers
through immersive workshops, mentoring and industry engagement.
This partnership contributes to building practical skills
and strengthening the diversity and sustainability
of the future workforce.
In 2025, we marked 10 years of partnership with Yalari, supporting
Aboriginal and Torres Strait Islander students from remote, rural and
regional communities through access to secondary education,
including the Rosemary Bishop Indigenous Education Scholarship.
We also continue our national partnership with Eat Up, combining
financial support and colleague volunteering, with more than 10,000
sandwiches prepared and delivered to schools across Sydney,
Melbourne and Perth in 2025.
Supporting women in STEM remains central to our long-term
capability strategy. We have extended our partnership with Auckland
University of Technology's Women in Tech programme and continue
to support the University of Adelaide’s Women in STEM careers
(WiSC) programme, providing financial and in-kind support, industry
site visits and direct engagement with engineering professionals to
strengthen career pathways for female students.
Collectively these partnerships reflect our focus on inclusive growth,
sustainable skills development and long-term workforce resilience.
Learn more about Babcock Australasia’s Indigenous Peoples policy
on page 108.
Sustainability (continued)
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Responsible business
We utilise the Joint Supply Chain Accreditation Register (JOSCAR) to
access ESG ratings for over 3,000 suppliers, evaluating their
environmental performance, social responsibility and governance
standards including ethical practices. These ratings help suppliers
understand where improvements can be made, reinforcing our
sustainability ambitions, boosting supply chain resilience, reducing
environmental impact and supporting global sustainability objectives.
Our AI-driven risk resilience solution further enhances
our risk control and visibility of our supply base, providing
real-time monitoring of our key supply chain. Continuous
development ensures that the system delivers the most current
and relevant insights, enabling us to identify and address potential
disruptions proactively.
Ethical practices remain fundamental to our supply chain
governance. Through adherence to our Supplier Code of Conduct
(updated during 2025), we emphasise the Babcock expectations that
suppliers uphold fair labour standards, respect human rights and
demonstrate environmental responsibility. This ethical foundation
reduces risk, protects our reputation and supports long-term value
creation. Combining strong ethical standards with on-time delivery,
cost efficiency, compliance and quality is essential to Babcock’s
success. Reliable delivery keeps projects on schedule, cost
efficiency maintains competitiveness, and high-quality standards
ensure we consistently provide exceptional products and services
to our customers.
Our broad network of more than 9,500 global suppliers continues to
be a significant asset to support our delivery. Robust due diligence,
ongoing improvement initiatives and continuous monitoring enable
strong compliance and effective risk management. This includes
comprehensive supplier assessments, regular audits and consistent
oversight to maintain alignment with our standards.
To further strengthen this governance framework, we have
implemented a unified data platform that integrates procurement and
supply chain information from multiple internal and external sources.
Providing real-time insights, it automates reporting and facilitates live
supplier performance scorecards, enabling leaders to identify trends,
manage risks, and make informed decisions to optimise value. We
are continuing to develop the platform to enable dynamic risk
management through alerts and scenario planning. By transforming
fragmented data into actionable intelligence, the platform enhances
decision-making across our procurement function and reinforces our
commitment to responsible, resilient and high-performing supply
chain management.
● See our Supplier Assurance
handbook for more information
Commercial integrity
We are committed to conducting our business to the highest
standards of honesty and integrity. It is the right and proper way to
behave, ensuring we uphold high ethical standards across the Group.
It also supports our long-term success. We understand our reputation
and good name are amongst our greatest assets and could easily be
lost by actual or suspected corrupt or unethical behaviour.
Our policies
To support good governance and ethical behaviour across our
Group, our actions and those of our colleagues, suppliers and
partners are guided by a series of Group policies. These include our
Code of Business Conduct and Anti-bribery and Corruption/Ethical
policy (see page 108), Human Rights policy (see page 107) and
Modern Slavery Statement (see page 107) which are available on our
website. Other policies such as our Fraud Risk Management policy
and Anti-Trust (Competition) Law policy are available to colleagues
through our internal Business Management System. To learn more
about these policies, please see our Non-financial and sustainability
information statement from page 106.
Our policies are periodically reviewed to ensure that they continue to
meet current best practice principles and legislative needs. By
establishing transparent policies and procedures, we can reduce risk
to our business and to our customers. We treat breaches of our
Codes or associated guidance seriously. We implement appropriate
training and procedures designed to ensure that we, and others
working for us, understand what our Code of Business Conduct and
our Suppliers’ Code of Business Conduct (see also page 107 and
our website) mean in practice.
This training includes mandatory completion of courses on an annual
basis in all our geographies, translated where applicable, such as
anti-bribery and corruption, security, and data protection.
Completion of these courses is monitored.
Whistleblowing
Our Whistleblowing policy encourages colleagues to come forward
and voice any concerns they have about suspected breaches of the
Babcock Code of Conduct. It is the responsibility of every Babcock
colleague to bring to the attention of appropriate management any
concerns they have that our Code or its associated guidance is not
being followed, and they can do this without fear of unfavourable
consequences for themselves.
To ensure that anyone with a concern is able to access advice and
support, our independent whistleblowing hotline, EthicsPoint
(operated by NAVEX Global), allows for confidential and anonymous
reporting and is available 24 hours a day, seven days a week, in all
territories where we are based (see also page 109). Further details
are available on our website.
Supply chain governance
Strong supply chain governance remains central to Babcock’s
business strategy, underpinning ethical, sustainable and transparent
operations. We underline this commitment through our Supplier
Assurance Handbook, giving suppliers clearer visibility of our
assessment, audit and development processes. This transparency
supports effective collaboration and encourages responsible
practices across our supply chain.
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Governance
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Financial statements
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Responsible business (continued)
Fair operating practices
Babcock is committed to upholding fair and responsible operating
practices across our supply chain, aligning business activities with
our ethical standards as defined within our Supplier Code of
Conduct. This commitment underpins the integrity, transparency and
sustainability of our operations, fostering trust and accountability
among suppliers, customers and stakeholders. We expect all
suppliers to be able to demonstrate they operate ethically and in full
compliance with applicable requirements, thereby mitigating risk,
protecting reputations and supporting long-term value creation.
Our suppliers are required to demonstrate fair labour practices,
environmental stewardship, social responsibility and respect for
human rights. To uphold these expectations, we conduct compliance
assessments during supplier onboarding and undertake periodic
revalidations, utilising our due diligence tool to reinforce high
standards of accountability and sustainability. In 2025, we revised
and enhanced our Supplier Code of Conduct to more accurately
reflect our ethical operating requirements across the supply chain.
Babcock is committed to treating suppliers with fairness and respect,
providing clear guidance, timely payments and appropriate
development support. These practices strengthen partnerships,
enhance collaboration and contribute to a resilient, responsible and
sustainable supply chain.
Payments to suppliers
By ensuring the prompt settlement of invoices, we cultivate strong,
trust-based relationships with our suppliers, relationships that are
essential to maintaining a stable and resilient supply chain. Babcock
upholds the principles of the Fair Payment Code, reflecting our
commitment to ethical business conduct and corporate
responsibility. Timely payments support suppliers’ cash flow,
enabling them to sustain operations, invest in innovation and
continue delivering high-quality products and services.
We also actively encourage our suppliers to adopt prompt payment
practices throughout their own supply chains, thereby promoting
financial stability and reinforcing trust across the broader network. In
FY26, we achieved an average supplier payment term of 19.3 days,
remaining within agreed payment terms and broadly consistent with
prior periods.
Cyber security
Babcock acknowledges the significant threat posed by cyber-attacks
and the potential consequences, such as operational disruption,
unlawful access or theft of information, and damage to our
reputation. To mitigate and reduce cyber-related risks, Babcock has
established a Cyber and Information Security Framework that
provides governance, direction and assurance that the Company’s
security posture is both appropriate and effective.
We recognise that the increased use of artificial intelligence (AI) may
contribute to cyber risk by making social engineering more
convincing and enabling some forms of attack activity to be scaled
more quickly. We are responding through strengthened governance
and secure-by-design controls for the use of AI, enhanced
monitoring and threat intelligence, and ongoing colleague awareness
to help reduce the likelihood and impact of AI-enabled attacks.
Collaboration with both external stakeholders and the internal Group
Executive Risk and Controls Committee ensures that cyber and
information risk management is appropriately managed across all
levels of the organisation. Our security risk appetite is underpinned
by a set of unified security controls which can be implemented
across our corporate technology stack. Processes and controls are
pragmatic, replicable and auditable, to protect Babcock and our
customers’ assets through their lifecycles and adhere to the
principles of secure-by-design.
Babcock adheres to all required international and government
security standards for the secure installation and operation
of information systems. Cyber security operations are in place
to identify threats and protectively monitor risks to information,
systems and networks.
We are committed to ensuring that our core IT services maintain their
ISO 27001 (Information Security) and ISO 22301 (Business
Continuity) certifications. In relation to our UK Government contracts,
we remain focused on upholding our Cyber Essentials Plus
certification and are actively working towards meeting
the requirements of the UK Defence Cyber Certification and Defence
Standard 05-138 Issue 4.
We engage with our colleagues and external customers and our
supply chain to ensure that security principles are embedded within
programmes of work. Security enables the effective and efficient
delivery of projects and programmes, and provides our customer
community with confidence in our security practices and capabilities.
Babcock informs and empowers our colleagues to be knowledgeable
about information security risk and cyber threat both at work and at
home, to better prepare them for an increasingly interconnected
digital environment. Babcock actively seeks to address the
challenges faced by the cyber industry to source suitably qualified
experts through investment and development of its own workforce.
Learn more about cyber security on page 118.
94 Babcock International Group PLC Annual Report and Financial Statements 2026
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Governance
○
Financial statements
○
Babcock remains dedicated to managing climate-related risks, reducing greenhouse gas emissions, tackling climate-related challenges and
seizing opportunities that arise from climate change. We have made ongoing efforts to enhance our reporting to align with the Task Force on
Climate-related Financial Disclosures (TCFD) recommendations.
In accordance with Listing Rule 6.6.6 (8), we provide disclosures for each of the TCFD's four pillars: governance, strategy, risk management,
and metrics and targets. We confirm that these disclosures follow the TCFD guidance and align with all 11 TCFD recommendations.
Since FY25, we have made improvements to the following sections of the report:
• Governance – we have added a climate change organisation chart to clearly outline lines of responsibility and accountability relating to
identification, assessment and management of climate-related risks and opportunities.
• Strategy – we have conducted a financial quantification exercise to assess how climate-related risks and opportunities might impact
our business strategy under different scenarios. We have also assessed our ability to control the risks and the resulting financial impact
post controls.
• Risk management – we have refreshed and enhanced our approach to risk identification and assessment, and have integrated that with
Babcock’s Enterprise Risk Management framework.
• Metrics and targets – we have updated our metrics and targets to align with identified climate-related risks and opportunities,
where possible.
Our climate-related financial disclosures comply with requirements (a-h) of the Companies Act 2006 as amended by the Companies
(Strategic Report) (Climate-related Financial Disclosure) Regulations 2022.
TCFD recommendations Updates in FY26 Section / Page
Governance
Board’s oversight of climate-related risks
and opportunities
Inclusion of climate change organisation chart. 96
Management’s role in assessing and managing
climate-related risks and opportunities
As above. 96
Strategy
Climate-related risks and opportunities the organisation
has identified over the short, medium and long term
Enhanced the Group’s approach to the identification
and assessment of risks and opportunities. Reviewed
and updated climate-related risks and opportunities.
97
The impact of climate-related risks and opportunities
on the organisation’s businesses, strategy, and
financial planning
Conducted a financial quantification assessment of
climate-related risks and opportunities.
98
The resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios,
including a 2°C or lower scenario
Updated our resilience assessment in line with findings
from our enhanced approach.
98
Risk management
The organisation's processes for identifying and
assessing climate-related risks
Enhanced the Group’s approach to the identification
and assessment of risks and opportunities.
99
The organisation’s processes for managing climate-
related risks
As above. 99
How processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation’s overall risk management
As above. 99
Metrics and targets
The metrics used by the organisation to assess
climate-related risks and opportunities in line
with its strategy and risk management process
Updated to align with identified climate-related
risks and opportunities. Reviewed and updated
climate-related risks and opportunities.
103
Scope 1, Scope 2, and, if appropriate, Scope 3
greenhouse gas (GHG) emissions, and the related risks
Updated figures stated. 105
The targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets
Updated to align with identified
climate-related risks and opportunities.
73
Climate-related Financial Disclosures
Babcock International Group PLC Annual Report and Financial Statements 2026 95
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Governance
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Financial statements
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Governance
Climate change is a principal risk for Babcock, and we have effective governance, oversight and management of our
climate-related risks and opportunities. The following details the role Babcock’s Board plays in overseeing climate-related
risks, as well as Executive management’s role in assessing and managing these risks.
Throughout FY26, the Board and the Executive Committee conducted multiple evaluations of the Group-led sustainability initiatives, which
included updates to the sustainability strategy, climate scenario analysis, principal risks and materials controls, decarbonisation efforts, and
energy-saving opportunities.
The Board has ultimate responsibility for the Company’s strategy and risk management. The Board oversees climate-related risks and
opportunities and discusses Group-wide sustainability matters as an integral part of Board strategic discussions, with a dedicated
session once a year as a minimum.
The Executive Committee has direct oversight of climate-related risks and opportunities via the Corporate Sustainability Committee,
Executive Safety Committee, and Group Executive Risk and Controls Committee. These matters are then in turn reported to the Board.
Group Executive Committee
Board oversight on climate change
Audit Committee
Oversees ESG reporting, ensuring
data reliability, to integrate sustainability
into strategy through enhanced internal
controls and external assurance.
Remuneration Committee
Determines and applies the Remuneration
policy where environmental considerations
are linked to remuneration awards as
outlined by the Committee.
Nominations Committee
Ensures the Board has the right skills
for long-term value, linking Board
composition directly to sustainable
governance and performance.
Principal Management Committees
Corporate Sustainability
Committee
Monitors Group-wide sustainability
initiatives, the management of climate-
related issues, and driving the wider
sustainability strategy including monitoring
climate-related metrics and targets. Meets
on a quarterly basis.
Executive Safety Committee
Considers the current and short-term
expected impacts of climate change on
health, safety and environmental
protection. Meets on a quarterly basis.
Group Executive Risk
and Controls Committee
Oversees actions required to further
climate-related risk management activities
in line with Babcock’s Enterprise Risk
Management (ERM) framework. Meets on
a quarterly basis.
Strategy and operations
Group Sustainability Team
Directs and co-ordinates Babcock’s
approach to sustainability and climate risk
management, working closely with
operational sustainability professionals
throughout the business.
Climate Risk Working Group
Responsible for the process for identifying,
assessing, and managing climate- and
nature-related risks and opportunities
across physical, transition and systemic
risks, and enabling Babcock to align with
the Task Force for Climate-related
Financial Disclosures (TCFD) and
Taskforce for Nature-related Financial
Disclosures (TNFD).
Sectors, DRCs and Functions
Responsible for managing and controlling
their respective climate-related risks as an
integrated part of enterprise risk
management. Utilise the insights and
results from climate risk assessments to
identify actions that ensure effective
implementation of control measures.
Responsible business (continued)
96 Babcock International Group PLC Annual Report and Financial Statements 2026
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Governance
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Financial statements
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How we manage climate-related risks
Babcock continues to employ a top-down, bottom-up approach for
managing climate risks. The top-down approach involves setting
policies and strategies at the Group level, providing a unified
direction. Meanwhile, the bottom-up approach assigns responsibility
for implementation to sectors and Direct Reporting Countries (DRCs),
enabling them to leverage local insights and outputs from climate
risk assessments to identify necessary actions for meeting corporate
climate impact reduction targets.
Our Enterprise Risk Management (ERM) framework incorporates the
identification and assessment of climate risks, ensuring they are
reported, escalated, and overseen at the corporate level. Every
quarter, the Climate Risk Working Group reviews and reports on
climate-related risks and opportunities, tracking both individual and
thematic issues across the organisation. This quarterly process
includes updates on proposed and existing control measures.
Climate risks identified by specific sectors and countries are
examined quarterly by the Group Executive Risk and Controls
Committee, reported to the Audit Committee each quarter,
and presented to the Board annually.
How we identify and assess climate-related
risks and opportunities
Over the past year, we have refined and enhanced our approach to
identifying and assessing climate-related risks and opportunities, with
support from external sustainability specialists. The work included
extensive stakeholder engagement to identify material risks and
evaluate their impact, enhancing our understanding of the climate-
related risks and opportunities our business is exposed to.
As part of refreshing our approach to climate risk and opportunity
assessment, we conducted a range of activities. This included a
thorough review of our existing climate risk registers, review of our
Environmental Management Systems’ aspects and impacts registers,
review of climate risks disclosed by peer organisations, extensive
review and research of technical literature, and engagement with
industry specialists. We utilised a leading global climate risk analytics
platform to plot over 100 key sites across Babcock’s global
operations, to identify and assess our exposure to nine physical
climate-related hazards (including flooding, wildfire, heat stress etc).
An alternative approach was adopted for the transition risk
identification, where a tool was not considered appropriate.
Our teams undertook extensive internal stakeholder engagement,
with support from industry specialists, to review and assess a range
of potential transition risks. Subsequently, we developed a
comprehensive list of relevant climate-related risks, which was
debated and refined to arrive at the final shortlist. This process
enabled us to prioritise our climate-related risks, focusing our
assessment on the risks most material to the organisation. The
following is the shortlist of climate risks and opportunities included
within our assessment:
• Extreme weather
• Coastal flooding
• Supply chain disruption
• Carbon taxation and pricing
• Energy prices
• Changing demand for services resulting from the Net
Zero transition*
• Products becoming uncompetitive*
• Market expectations on decarbonisation
• Growing demand for services responding to the changing climate*
• Growing demand for products and services
supporting the Net Zero transition*
• Market expectations on decarbonisation.
To assess the climate-related risks and opportunities, we conducted
extensive stakeholder engagement and workshops to debate and map
the potential impacts to the organisation across a range of scenarios
and time horizons. Control measures were also explored to mitigate the
risks and unlock the opportunities. Details of the time horizons used and
our approach to climate scenario analysis are described below. As part
of this enhanced approach, we conducted financial analysis of the
climate risks and opportunities identified. We evaluated the potential
financial impacts of each risk under two climate scenarios described
below, over each time horizon. We assessed impacts both pre and post
controls (referred to as controlled and uncontrolled below), enabling us
to explore the improved resilience of our business resulting from our
control measures.
As part of the financial analysis, risk impact distributions were created in
collaboration with our internal stakeholders during facilitated
workshops. These sessions helped establish key assumptions and
provided a foundation for quantifying the expected lower- and
higher-end impacts under the scenarios we analysed. We then
used a proprietary tool to model the combined effects of individual
risk impact distributions. This tool utilised Monte Carlo analysis^ to
generate indicative aggregate impact distributions, enabling us to
address some of the uncertainties inherent in long-term climate
impact forecasting.
Assessing business resilience across
different time horizons
We analyse and model climate risks across different timeframes:
• short term (now until 2030)
• medium term (2030 to 2040)
• long term (2040 to 2055)
• very long term (2055 to 2100)
These periods correspond with our near-term science-based targets
for 2030, decarbonisation goals for 2040, and our Net Zero target
for 2050. The use of the ‘very long term’ time horizon allows us to
model and evaluate certain risks across our strategic and critical
assets over an extended timeframe and informs long-term
infrastructure planning.
*
In the table on page 101, these four risks and opportunities are grouped
under the heading ”Changing demand for products and services”.
^
Monte Carlo analysis is a statistical technique to model uncertainty
by running many simulations with randomly sampled inputs from
defined probability distributions. It produces a range of possible
outcomes and their likelihoods, helping quantify risk rather than relying
on a single estimate.
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Financial statements
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Scenario analysis – financial quantification of climate risk
Scenario analysis is a powerful tool that allows organisations to assess how climate change may impact business strategy. This year, we
have advanced our approach to scenario analysis by quantifying the impact of climate change in financial terms. This will also help us to align
with the requirements of IFRS S2 and UK SRS S2.
Two scenarios were developed for assessment of the impact of climate risks and opportunities:
• Lower warming: In this world, we can expect strong global policy action and the successful implementation of Net Zero commitments.
Global emissions are rapidly reduced, limiting warming to 1.5°C, resulting in relatively lower physical climate risks but higher transition risks
due to significant changes in regulation, technology, and market expectations.
• Higher warming: In this world, there are no new policies added, and policy action is limited to current commitments. As a result, Net Zero
goals are not fully achieved. Global emissions decline slowly, leading to warming of 3°C, with higher physical climate risks and lower
transition risks due to less regulatory and technology disruption.
For coastal flooding we also assessed impacts in a third scenario:
• Very high warming: In this world, there is no/minimal global policy action and no meaningful progress toward net zero. Emissions continue
to rise, resulting in warming exceeding 4°C and very high physical climate risks, while transition risks remain low due to the absence of
significant decarbonisation efforts.
See table below for the agreed scenarios and their alignment to third-party scenarios.
In addition, for coastal flooding we assessed a fourth time horizon, the very long term (2055 to 2100). This enabled the consideration of a
wider range of threat magnitude for the business’s marine operations, some of which involve very long-term contracts and comprise a
substantial portion of Group-level revenues.
Scenario Risk type Alignment
IPCC NGFS IEA
Lower warming
Physical SSP1-2.6 Below 2°C Announced Pledges
Scenario (APS)
Transition SSP1-1.9 Net Zero 2050 Net Zero Emissions
by 2050 (NZE)
Higher warming
Transition and physical SSP2-4.5 Current Policies Stated Policies Scenario
(STEPS)
Very high warming
Coastal flooding only SSP5-8.5 N/A N/A
Climate-related risks and opportunities
We evaluated the potential financial impacts of each risk under the two climate scenarios, over each time horizon. We assessed impacts both
pre and post controls (controlled/uncontrolled, as described below), enabling us to explore the improved resilience of our business resulting
from our control measures. We modelled the combined (aggregate) impacts, including expected values using lower and higher estimates, to
accommodate some of the uncertainty inherent in forecasting climate risk and the significant judgement and assumptions incorporated into
the assessment. The financial impacts of the risks and opportunities are assessed to be either a threat (where there is a negative financial
impact) or an opportunity (where there is a positive financial impact).
Key:
Uncontrolled
In which no controls are implemented
Controlled
In which controls are implemented to mitigate the threats, and proactive actions are taken to unlock opportunities
Financial impact scale – threat and opportunity
A threat represents a negative financial impact: An opportunity represents a positive financial impact:
Low – Less than 10% reduction in operating profit Low – Less than 10% increase in operating profit
Moderate – Between 10% and 25% reduction
in operating profit
Moderate – Between 10% and 25% increase
in operating profit
High – Greater than 25% reduction in operating profit High – Greater than 25% increase in operating profit
Evaluated using median values of annual impact within a range of uncertainty between lower and higher estimates.
Responsible business (continued)
98 Babcock International Group PLC Annual Report and Financial Statements 2026
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Financial statements
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We present our climate-related risks and opportunities that could have a material financial impact on the business in the table below:
Risk/Opportunity Description Assessment and
quantification of
uncontrolled risk
Control measures Assessment and
quantification of
controlled risk
Extreme weather
Increasing occurrence
of extreme weather
could lead to disruption
to our staff and
operations. This in turn
could lead to an
increase in operating
costs associated with
additional staff
requirements and
repairs to damaged
facilities, and reduced
revenue due to
business interruption.
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Whilst our analysis indicates
that the risk to our business
is greater in the higher
warming scenario, the threat
remains low.
Control measures
to mitigate the
risk include:
1. Insurance cover
2. Contractual
protections
3. Infrastructure
enhancements
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
The control measures lower
the risk exposure. However,
given the nature of physical
risks, post mitigation there
still remains a low threat.
Coastal flooding
An increased risk of
coastal flooding due
to sea-level rise
exacerbated by
increased frequency of
extreme weather events
could impact dockyards
owned/operated
by Babcock.
This in turn could lead
to an increase in costs
associated with repairs
to damaged facilities
and loss of revenue due
to business interruption.
Lower warming
Short term
Medium term
Long term
Very long term
Higher warming
Short term
Medium term
Long term
Very long term
The impact of coastal
flooding only materialises in
the very long term in the
higher warming scenario. The
expected impact is greatest in
the very high warming
scenario, equating to a high
threat in the very long term.
Control measures
to mitigate the
risk include:
1. Insurance cover
2. Infrastructure
enhancements
– site drainage
systems and flood
defences
Lower warming
Short term
Medium term
Long term
Very long term
Higher warming
Short term
Medium term
Long term
Very long term
The control measures lower
the risk exposure, however
given the nature of physical
risks, post mitigation there
still remains a low threat,
particularly over the very
long term.
Supply chain
Climate change could
disrupt our supply chain
and in turn increase
procurement costs and
cause interruption to
the business.
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
The low threat changes to a
low opportunity in the lower
warming scenario over the
long term, due to the
assumption suppliers address
their own climate-related
risks and opportunities
leading to reduced costs. The
impact is highest in the higher
warming scenario over the
long term as the impact of
extreme weather worsens.
Control measures
to mitigate the
risk include:
1. Diversified supply
chain
2. Effective supply
chain risk
management
3. Supplier
engagement
– climate awareness
training and support
being provided
to suppliers
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Our analysis indicates that
the mitigation measures
would reduce the threat
impacts and enhance the
opportunity over the lower
warming scenario.
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Financial statements
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Risk/Opportunity Description Assessment and
quantification of
uncontrolled risk
Control measures Assessment and
quantification of
controlled risk
Carbon taxation
and pricing
Operating costs
sensitive to climate-
related taxes and
carbon pricing
mechanisms could
increase.
This may happen
due to:
1. Direct exposure to
carbon taxation
2. Indirect exposure
resulting in higher
costs for carbon-
intensive products
in the supply chain
The shortlist of
carbon-intensive
products considered
comprised: steel,
cement, aluminium,
glass and energy.
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
The cost of the uncontrolled
risk increases in the lower
warming scenario, driven
entirely by global carbon
price projections.
Control measures
to mitigate the
risk include:
1. Implementation and
delivery of
decarbonisation
initiatives
and targets
2. Delivery of energy
efficiency targets
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Our analysis indicates that
the control measures will
reduce exposure to
projected carbon costs
across all scenarios and
timeframes.
Under the higher warming
scenario, given the impact of
carbon taxation and pricing
is less significant, the threat
is transitioned to a small
opportunity, as the savings
delivered from
decarbonisation initiatives
and the reduction in energy
usage more than offset the
impact of carbon taxation
and pricing.
Energy prices
Energy costs could
increase, driven by
climate-related factors
including supply
volatility, Net Zero
regulation, and extreme
weather impacts on
energy infrastructure.
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
The cost of the uncontrolled
risk increases in both
scenarios, reaching moderate
levels in the lower warming
scenario, due to potential cost
increases associated with a
quicker phase-out of
fossil fuels.
Control measures to
mitigate the risk
include:
1. Delivery of
energy- and
carbon-reduction
initiatives
2. Long-term energy
arrangements
(such as Power
Purchase
Agreements)
3. Onsite energy
generation
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Our analysis indicates that the
control measures will reduce
the exposure to potentially
increasing energy prices
across all time horizons.
Under the higher warming
scenario, given the impact of
energy price increases is less
significant, the threat is
transitioned to an opportunity,
as the savings delivered
through energy reduction and
onsite generation initiatives
more than offset the energy
price increases.
Financial impact scale – threat and opportunity
A threat represents a negative financial impact: An opportunity represents a positive financial impact:
Low – Less than 10% reduction in operating profit Low – Less than 10% increase in operating profit
Moderate – Between 10% and 25% reduction
in operating profit
Moderate – Between 10% and 25% increase
in operating profit
High – Greater than 25% reduction in operating profit High – Greater than 25% increase in operating profit
Evaluated using median values of annual impact within a range of uncertainty between lower and higher estimates.
Responsible business (continued)
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Risk/Opportunity Description Assessment and
quantification of
uncontrolled risk
Control measures Assessment and
quantification of
controlled risk
Changing demand
for products
and services
Demand for services
linked to fossil fuel
consumption and large
energy-intensive assets
will vary significantly
between high- and
low-carbon futures,
impacting customer
needs and strategic
positioning particularly
with regards to:
1. Engineering
services at
combustion plants
2. HGV and mining
truck dealership
business
3. Liquid Gas
Equipment (LGE)
business
4. Civil nuclear
services
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Whilst the threat to our
business is moderate, this
risk is greatest in the lower
warming scenario, with shifts
away from fossil-powered
trucks and liquefied fossil-
fuel gas shipping impacting
profits in the long term.
Control measures
to mitigate the
risk include:
1. A diverse portfolio
of services
2. Innovation
to support
customers’
changing demands
3. Capitalising on
high-growth
sustainable
business
opportunities
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Across both the lower and
higher warming scenarios,
Babcock has significant
opportunities to transition
a potential risk into a
moderate to high opportunity
over the medium to long
term, particularly in markets
such as clean nuclear power
and green shipping.
Market expectations
on decarbonisation
Customer-imposed
decarbonisation criteria
could affect the award of
future contracts leading
to a reduction in market
share if the Group
doesn't demonstrate its
commitment to
decarbonise or
comply with relevant
reporting requirements.
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Without controls in the lower
warming scenario, risks are
present from non-UK
defence, global civil and
UK competitive defence
business areas.
In the higher warming
scenario, the impact in the long
term is lower, reflecting a lower
general level of
decarbonisation expectations
from customers.
Control measures
to mitigate the
risk include:
1. Delivering
Babcock’s Net
Zero targets
2. Strong stance and
action on mitigating
climate change
impacts
3. Effective
stakeholder
engagement
Lower warming
Short term
Medium term
Long term
Higher warming
Short term
Medium term
Long term
Achieving our
decarbonisation targets
would mean the risk is fully
mitigated, resulting in no
financial impact.
Aggregate financial quantification
The heatmaps below illustrate the aggregate impacts of risks and opportunities under the two scenarios:
Lower warming
Short Medium Long
Uncontrolled
Moderate threat High threat High threat
Controlled
Low opportunity Low opportunity High opportunity
Higher warming
Short Medium Long
Uncontrolled
Low threat Moderate threat High threat
Controlled
Low opportunity Moderate opportunity Moderate opportunity
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The enhancements we have made this year have provided greater
ability to understand and assess business resilience against
climate-related risks and opportunities.
If uncontrolled, climate-related risks present a moderate to high
threat over the medium to long term under both the lower and higher
warming scenarios. The greatest financial threats come from
extreme weather, energy prices, carbon pricing and market
expectations on decarbonisation.
Individually, the risk threats are generally classified as low, though
the aggregate impacts rise to moderate to high. In both scenarios,
transition risks are dominant. However, in the very long term, there is
an increased risk and high threat associated with coastal flooding.
Controlling the threats and unlocking the opportunities presents a
high and moderate opportunity in the long term under the lower and
higher warming scenarios respectively. Control measures will enable
us to reduce the negative impacts and realise the significant
opportunities to grow products and services that help society
transition to net zero and adapt to climate change.
To summarise, Babcock is exposed to a range of climate-related
risks which could, over the medium to long term, result in a moderate
to high threat. However, Babcock also has significant opportunity.
With appropriate control of risks and unlocking of opportunities, this
could result in a net moderate to high opportunity for Babcock over
the medium to long term.
Over the coming year, our teams plan to further develop the maturity
of our approach to climate risk management, including working with
the business to assess, plan and deliver mitigation activities as
appropriate to reduce risks and unlock opportunities.
As in previous years, we have reviewed our climate risks and
opportunities register for potential impacts on financial reporting,
particularly concerning critical accounting judgements or estimation
uncertainties, though currently no material impact is identified.
Responsible business (continued)
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Metrics and targets
This year we have expanded our climate-related metrics and targets to include those related to the implementation of a broader set of
controls, focused on surrounding our sustainability strategy to manage the risks and opportunities. The table below describes our current
metrics and targets:
Metric Details Target Progress against the base year /
Progress in FY26
GHG emissions
(Absolute Scope 1
and 2 emissions
– tCO
2
e)
Reduction of Babcock’s Scope 1 and 2 emissions, and
delivery of Net Zero targets.
Risks controlled
• Carbon taxation and prices
• Market expectations on decarbonisation
42%
reduction
by 2030
Net Zero
by 2040
20.1% reduction against
2021 baseline
11.1% reduction year on year
Details relating to the progress
can be found on our factsheet
through the QR code on
page 105
GHG emissions
(Absolute Scope 3
emissions – tCO
2
e)
Reduction of Babcock’s Scope 3 emissions, both upstream
and downstream, and delivery of Net Zero targets.
Risks controlled
• Carbon taxation and prices
• Market expectations on decarbonisation
• Changing demand for products and services resulting
from the net zero transition
• Supply chain
Net Zero
by 2050
14.8% increase against 2021
baseline
3.7% reduction year on year
Details relating to the progress
can be found on our factsheet
through the QR code on
page 105
Renewable energy
(% of electricity
derived from
renewables)
Powering Babcock’s operations with renewable
energy through both on-site and off-site renewable
energy generation.
Risks controlled
• Carbon taxation and prices
• Energy prices
• Supply chain
No stated
target
2024 – 33%
2025 – 31%
During 2025, we experienced
a small increase in electricity
consumption at sites which
do not have renewable
energy supplies
Executive
remuneration
(% of Executives
with remuneration
linked to climate-
related metrics)
Inclusion of climate-related metrics within executive
remuneration assessments. The FY25 and FY26 metric is
the energy efficiency metric as detailed below.
Risks controlled
• Carbon taxation and prices
• Energy prices
• Changing demand for products and services resulting
from the net zero transition
• Market expectations on decarbonisation
See below FY25 – 100%
FY26 – 100%
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Metric Details Target Progress against the base year /
Progress in FY26
Energy efficiency
(Energy
consumption
divided by revenue
– kWh/£k)
Reducing energy wastage and leakage across the
organisation, whilst allowing for sustainable growth. This is
a newly added metric, and is the metric used within
executive remuneration.
Risks controlled
• Carbon taxation and prices
• Energy prices
• Changing demand for products and services resulting
from the net zero transition
• Market expectations on decarbonisation
15% by 2030
against a
2024
baseline
14.1% improvement year
on year
Details relating to the progress
can be found on page 76.
Capital deployment
Delivery of initiatives to deliver on Babcock’s energy
efficiency and carbon-reduction objectives.
Risks controlled
• Carbon taxation and prices
• Energy prices
• Market expectations on decarbonisation
No stated
target
We track and disclose the
delivery of energy-saving and
emissions-reduction initiatives
in line with requirements of the
Energy Saving Opportunity
Scheme to the Environment
Agency. We monitor and track
the associated delivery cost as
an internal metric only.
Internal carbon
price
Babcock has implemented a shadow carbon price to assess
and highlight the potential exposure to carbon pricing. The
assessment is completed at the end of the financial year,
utilising the reported Scope 1 and 2 emissions and a spot
price on the UK Emissions Trading Scheme.
Risks controlled
• Carbon taxation and prices
• Changing demand for products and services resulting
from the net zero transition
• Market expectations on decarbonisation
• Supply chain
No stated
target
Babcock’s shadow carbon
price is based on the UK
market cost of carbon and is
considered internally.
The shadow carbon cost to the
business has reduced in line
with the reduced emissions.
We recognise the role of insurance as a crucial control measure in
mitigating exposure to physical risks such as flooding and extreme
weather. Whilst we have insurance contracts in place, we are not yet
in a position to disclose specific metrics and targets, which we are
looking to develop in the coming years. Additionally, we understand
the significance of establishing targets relating to the financial impact
of climate-related risks and opportunities on our business.
The initial quantification of climate risks we have conducted this
year has helped us understand the potential impact of risks and
opportunities. We will consider developing appropriate targets in
due course.
As a result of the refinements and enhancements made in our
approach to climate risk assessment, we now have a clearer,
up-to-date understanding of our key climate-related risks and
opportunities, along with a structured process for identifying and
prioritising them, in alignment with TCFD recommendations.
Responsible business (continued)
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Babcock Group energy consumption and emissions
Units 2021 2022 2023 2024 2025
UK
UK Scope 1
1
tCO
2
e 45,043 35,357 28,136 28,367 28,419
UK Scope 2 (Location-Based) tCO
2
e 70,846 79,223 79,952 71,581 51,799
UK Scope 2 (Market-Based) tCO
2
e 70,593 79,648 76,792 70,651 57,355
Total UK Scope 1 and 2 (Market-Based) tCO
2
e 115,636 115,005 104,927 99,019 85,774
Underlying Consumption kWh 365,787,410 353,031,427 339,959,428 329,216,281 303,144,225
Global (excluding UK)
Global (excl. UK) Scope 1
1
tCO
2
e 16,891 18,838 18,588 19,072 18,021
Global (excl. UK) Scope 2
(Location-Based) tCO
2
e 3,715 4,147 3,418 4,174 4,901
Global (excl. UK) Scope 2 (Market-Based) tCO
2
e 4,390 4,614 5,946 5,001 5,594
Total Global Scope 1 and 2 (Market-Based) tCO
2
e 21,281 23,452 24,534 24,073 23,615
Underlying Consumption kWh 84,272,429 92,267,640 91,757,355 92,605,206 94,706,634
Babcock Group Total
2
(UK and Global)
Total Scope 1 tCO
2
e 61,935 54,195 46,724 47,439 46,440
Total Scope 2 (Market-Based) tCO
2
e 74,983 84,263 82,737 75,653 62,949
Total Scope 1 and 2 (Market-Based) tCO
2
e 136,917 138,457 129,461 123,092 109,389
Total Scope 3 (excluding pensions)
3
tCO
2
e 4,660,147 4,963,553 5,474,611 5,556,341 5,350,707
Total Value Chain Emissions (Scope 1, 2
and 3) tCO
2
e 4,797,065 5,102,010 5,604,072 5,679,433 5,460,097
Adjusted Revenue
4
£m 3,263 3,853 4,369 4,682 5,121
Intensity Ratio
5
tCO
2
e/£m 1,470 1,324 1,283 1,213 1,066
Our emissions data is reported in line with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard under the ‘Operational Control’
approach. The reporting period for our energy consumption and GHG emissions is the calendar year (01 January to 31 December) due to availability of
data to meet annual reporting timescales. Our base year is 2021, aligned to our approved science-based targets. Our reporting exceeds the Streamlined
Energy and Carbon Reporting (SECR) requirements, including a full Scope 3 footprint. Scope 3 emissions have been calculated in line with the GHG
Protocol Corporate Value Chain (Scope 3) Standard and include elements of future emissions from sold products. Total emissions are based on
market-based Scope 2 emissions, since they are more representative of our energy supply contracts. Figures for UK operations follow conversion
factors published by the Department for Energy Security and Net Zero (except the supplier-provided energy from waste factors). Non-UK operations
use emission factors applicable to the emission source and location. Appropriate conversion factors have been used to calculate the underlying energy
consumption figures. In line with our base year recalculation policy, emissions data for prior years has been adjusted in line with methodology and
organisational changes and includes corrected or additional data unavailable in previous Annual Reports. Material methodology changes in this report
are: use of the supplier-provided energy from waste factors for location-based emissions as well as market-based, increases to the energy from waste
factors to account for sale of renewable certificates to third parties by the supplier, and revised policy on operational control. Emissions figures include
an element of estimated data. Certain data, estimated to be immaterial to the Group’s emissions, has been omitted as it has not been practical to obtain
(including some historical fuel data in South Africa and energy at the Winnipeg Airport site). Certain data has been excluded on the basis of exceptional
sensitivity. In line with SECR requirements, figures reported for the previous period must be stated as disclosed in the report in the preceding year
(despite these figures no longer being comparable with our current reporting period or our revised baseline): UK Scope 1 emissions – 27,196 tCO
2
e, UK
Scope 2 emissions – 57,477 tCO
2
e, UK underlying energy consumption – 333,153,659 kWh. Global (excluding UK) Scope 1 emissions – 15,518 tCO
2
e,
Global (excluding UK) Scope 2 emissions – 3,339 tCO
2
e, Global (excluding UK) underlying energy consumption – 76,302,062 kWh, Babcock Group
total (UK and Global) Intensity Ratio – 783.9 tCO
2
e/£1m revenue. For the FY25 reporting period, we disclosed the following energy efficiency
improvements: “we delivered a number of improvement initiatives including ‘low-hanging fruit’ energy conservation measures, reduced use of diesel,
reduced aviation operations and improvements to our energy management practices”. During FY26, the reporting financial year, we delivered a number
of improvement initiatives including ‘low-hanging fruit’ energy conservation measures, a behaviour change “Energy – It all adds up” campaign, reducing
the use of diesel generators, and solar photovoltaic installations in South Africa. Further details are included on page 75.
1. Scope 1 emissions exclude biogenic emissions. Our Outside of Scopes emissions from biodiesel HVO and forecourt petrol and diesel fuel in 2025
were 4,820 tCO
2
e.
2. Figures are presented rounded to the nearest whole number, so may not sum precisely to totals (which are based on unrounded figures).
3. Category 15 emissions associated with pensions investments have been calculated, but we have elected not to include these in our total Scope 3
figures. Further detail is available on our website GHG factsheet or can be viewed on the QR code below.
4. The revenue figures detailed have been adjusted for disposals and acquisitions. The revenue figures are calendar year to align with the
emissions periods.
5. The intensity ratio is based on the recalculated total value chain emissions and adjusted revenue figures.
● Read our GHG factsheet here
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Reporting on material yet non-financial measures is important in understanding the performance, opportunities and long-term sustainability of
Babcock and our ability to generate value for all our stakeholders. We disclose non-financial information in the Sustainability report and
throughout the Strategic report.
The following summarises where to find further information on each of the key areas of disclosure required by Sections 414CA and 414CB of
the Companies Act. This includes the requirement to include Climate Financial Disclosures (CFD) within the Annual Report and Financial
Statements. These have been incorporated throughout our TCFD disclosures. See from page 95.
Policy / Statement Description
Environment
**Sustainability policy The policy explains that it delivers through the Group sustainability strategy, which identifies
six strategic priorities (three environmental and three social priorities) and associated targets
which address the sustainability issues that are most material to the business. Sectors, Direct
Reporting Countries (DRCs), and functions may develop their own sustainability programmes
appropriate to their operations in alignment to this policy. All parts of the business must
undertake relevant actions, including identified ‘enterprise projects’, to ensure the Company
meets these targets. Finally, the policy clarifies that all parts of the business must report
relevant sustainability data to ensure compliance with corporate reporting requirements.
● Learn more on page 70
**Environmental
Sustainability policy
The Environmental Sustainability policy details the Group’s three strategic environmental
sustainability priorities: Tackling climate change, Managing our resources responsibly and
Protecting the natural environment. This policy establishes a framework across the Group to
co-ordinate actions to deliver against our targets, whilst also providing the flexibility for our
businesses to address their local challenges and unlock opportunities.
● Learn more on page 70
**Sustainable
Procurement policy
Our supply chain is key to successfully delivering our sustainability plan. When selecting
suppliers and subcontractors, we seek evidence of their ability to meet our requirements
against 12 priorities for sustainable procurement. The effectiveness is assured through our
Supplier Information Management process, where suppliers are required to agree to our
sustainability standards. To further ensure adherence, we have incorporated sustainability
criteria into our supplier audits and assessments, and maintain continuous engagement with
our suppliers.
● Learn more on page 93
CFD disclosures
s414CB(2A)
See Climate-related Financial Disclosures.
● Learn more on page 95
Employees
** Safety, Health and
Environmental
Protection policy
Babcock aims to ensure the highest Safety, Health and Environmental Protection (SH&EP)
standards in all its activities by meeting and exceeding global regulatory requirements
associated with SH&EP and those additionally pertinent to Aviation and Nuclear. The SH&EP
policy ensures we manage the risks of harm to people and the planet through organisational
arrangements, and have competent people working within an engaged safety culture. Our
risk controls are assessed by routine and risk-based, internal and external assurance
throughout the value chain to verify compliance and identify areas of learning and
improvement.
● Learn more on pages 78, 79 and 87
**Code of Business
Conduct
The Code of Business Conduct states clearly that Babcock will conduct its business to the
highest standards of honesty and integrity. It sets out the minimum expectations for the
behaviour of our colleagues, business advisors and business partners. This includes treating
others with respect, ensuring the safety of others at work, being honest in our dealings and
complying with the law. The Code of Business Conduct must be displayed at all Babcock
facilities and be included in all new colleagues’ induction packs. See also Anti-Bribery and
Corruption below.
● Learn more on page 93
Non-financial and sustainability
information statement
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Policy / Statement Description
** Be Kind Day –
volunteering policy
At Babcock, we want to make a positive impact in the communities and environments in
which we operate. As such, we have set a Company-wide target of '50,000 hours of
volunteering per year in our communities by 2030’. We'll further support colleagues in
volunteering with a new volunteering policy and associated guidance which enables
activities to take place during working hours or reclaimed as time off. Volunteering is
available through three avenues (Be Kind Days, Contractual, or other Locally Agreed
Volunteering). To improve colleague experience further and to support our ability to record
and report more accurately, we'll be streamlining the way colleagues request hours –
simplifying the process so it sits in our absence recording system. This allows us to track
and review our progress towards our target, on a monthly basis.
● Learn more on page 91
***Gender Pay
Gap report
Our Gender Pay Gap report reflects our ongoing commitment to building an inclusive and
equitable working environment, where opportunity is accessible to all. We support this
through the implementation of inclusive policies, the strength of our employee networks,
targeted development and mentorship initiatives, and active collaboration with industry
partners. Together, these actions underpin our progress and reinforce our focus on building
a diverse and sustainable workforce.
● Learn more on page 84
Human rights
**Supplier Code
of Conduct
This responsible sourcing policy was updated in 2025 as part of our regular review process
and outlines the principles and expectations we hold for our suppliers, reflecting our
commitment to ethical, responsible and sustainable business practices. Aligned with global
best practices, this details our shared responsibility in creating a transparent, inclusive and
resilient supply chain. The effectiveness of our policy is assured through our Supplier
Information Management process, where suppliers are required to agree to our policy or
provide equivalent standards they will adhere to. To ensure further adherence, we conduct
regular audits and maintain continuous engagement with our suppliers.
● Learn more on page 93
**Human Rights
policy
We recognise our responsibility to conduct our dealings with the utmost integrity. We are
committed to the protection of human rights and we comply with all national laws in the
jurisdictions in which we operate, in our operations across the world. Where national law and
international human rights standards differ, we will, where possible, follow the higher
standard; where they are in conflict, we will adhere to national law, while seeking ways
to respect international human rights to the greatest extent possible. The effectiveness of
our policy is assured by assessing actual and potential human rights impacts, integrating
and acting upon the findings, tracking responses, and communicating how impacts
are addressed.
***Modern Slavery
Transparency
Statement
Our annual Modern Slavery Transparency Statement sets out the approach taken to
understand the potential modern slavery risks associated with our business, and explains
the actions taken to prevent slavery and human trafficking within the Group’s operations and
supply chains. We continue to believe that our exposure to the risks of modern slavery is
low within our own business and supply chain. This assessment is under continuous review
so that we can determine if circumstances change that require us to take additional actions.
Our strategic Risk Resilience tool enables real-time monitoring through AI and machine-
learning technology. It enables us to map our supply chain ecosystem, monitor activities,
and proactively identify hidden risks in our sub-tier supply chain, tracking and generating
alerts for indicators such as unethical labour practices, including modern slavery.
Additionally, approximately 1,000 suppliers are monitored for their ESG scores, inclusive of
individual attribute scores for forced and child labour as well as human rights, to identify any
exposures in our supply chain. Our statement is available on our website or through the QR
code at the end of this section.
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Non-financial and sustainability information statement (continued)
Policy / Statement Description
Social
*Australasia
Indigenous Peoples
Engagement policy
This policy outlines the overarching Indigenous Peoples Engagement commitments for the
region. Babcock Australasia strives to improve social and economic outcomes for
Indigenous peoples within the region, to create a more equitable and fair future for all, and is
committed to embedding opportunities for Indigenous peoples and their businesses in our
day-to-day business. We recognise that specific initiatives are required for the geographic
areas in which Babcock Australasia operates. For the geographic area of Australia, this
refers to Aboriginal and Torres Strait Islanders, and for New Zealand, Māori and Pasifika.
● Learn more on page 92
*Canada Indigenous
Peoples policy
As a corporate citizen doing business within Canada and working in areas that are protected
and lived on by Indigenous peoples, Babcock Canada is committed to strengthening
relationships with Indigenous peoples and their communities. Babcock Canada is recognised
by the Canadian Council for Indigenous Business (CCIB) as achieving Partnership
Accreditation in Indigenous Relations (PAIR) Bronze Status. In 2025, Babcock was certified
as an Indigenous Procurement Champion by the CCIB. Aligned with those CCIB PAIR criteria,
our policies and actions focus on corporate leadership action, Indigenous workforce
investment, business engagement with Indigenous communities and community outreach to
strengthen existing relationships. These are responsive to the spirit and intent of the
reconciliation frameworks within the United Nations Call to Action 92 to Canada’s corporate
sector and leaders. Oversight of the operation of the Indigenous Peoples policy is managed
by the Indigenous Relations and Participation Governance Committee. It, along with the
Canada EXCO, ensures that awareness training and functional strategies support the
Company’s continual improvement against the CCIB PAIR certification objectives.
● Learn more on page 91
**Charities policy Babcock is committed to the communities in which we operate and the broader interests of
the customers we serve. We want to make a positive impact on the communities in which
we operate. Sectors and DRCs retain responsibility and management of their charitable
donations / sponsorship from their own budget, to ensure it goes where it can serve the
greatest need and be of most value to that community within our guidelines and criteria. Our
Group Charities policy aligns with Babcock’s corporate Purpose “To create a safe and
secure world, together”, permitting donations and charitable sponsorship under two broad
criteria: military charities and events; and supporting our local communities. Oversight of the
operation of the policy is managed by the Corporate Sustainability Committee.
● Learn more on page 90
Anti-bribery and
anti-corruption
**Anti-Bribery
and Corruption /
Ethics policy
The intent of this policy is to ensure that Babcock at all times acts responsibly and ethically
when pursuing and awarding business, and that we fulfil the principles expressed in our
Code of Business Conduct relating to avoiding acts of bribery and corruption. The policy
contains rules, procedures and guidelines that Babcock colleagues must follow in order to
help ensure that we do not become involved, either directly or indirectly, in bribery or
corruption and that we do what we reasonably can to reduce the risk of those we work with
engaging in corrupt or unethical activities in connection with their dealings for us. It sets out
the Group’s zero tolerance policy in relation to bribery and corruption, including prohibitions
on improper and facilitation payments, and penalties for breach of policy. The effectiveness
of the Code of Business Conduct and Anti-Bribery and Corruption policy is assured by the
annual training of our staff and the monitoring of compliance through full-year and half-year
letters of representation from all sectors and Direct Reporting Countries. Whistleblowing
lines are in place in all jurisdictions for reporting any wrongdoing. See also Code of Business
Conduct above.
● Learn more on page 93
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Policy / Statement Description
**Whistleblowing
policy
Encourages colleagues to report any concerns they may have in relation to unethical, unfair,
dangerous or illegal behaviour or any breaches of the Code of Business Conduct, and sets
out how to do so. The policy also confirms no action will be taken against a colleague who
alerts management to these concerns if they turn out to be unfounded so long as the
information and any allegations made were passed on in good faith; in the genuine belief
that they were substantially true; with no intention of personal gain; and without malice. The
effectiveness of our policy is assured by the availability and promotion of the whistleblowing
lines throughout the business, ongoing review by the Group Company Secretary and regular
reporting to the Board.
● Learn more on page 93
*Data Protection
policy
Babcock International Group PLC and its subsidiary undertakings need to collect and use
certain information about individuals in order to run our businesses effectively. This
information comes from colleagues, workers, job applicants, students, customers, suppliers,
and other individuals with whom Babcock communicates and does business. Our Data
Protection policy sets out Babcock’s commitment to its colleagues, other personnel and
individuals whose information Babcock processes, and the ways in which each colleague
must process personal data to ensure that Babcock, and the colleagues themselves, do not
breach their obligations under the data protection laws. In support of our policy, specialist
staff have been appointed and colleagues are required to complete mandatory data
protection training on an annual basis.
*Supply Chain Cyber
Security policy
As part of the Babcock commitment to creating a safe and secure world, our supply chain
security is vital. Any compromise of information poses a serious threat to the reputational
and economic standing of Babcock and our customers. Our Supply Chain Cyber Security
policy ensures that the cyber security arrangements among delivery partners, third-party
suppliers and supply chains are appropriate to the requirements of the goods and services
being procured. This includes appropriate governance and management arrangements to
manage risk, monitor compliance, report and respond effectively to any security incidents.
Babcock’s approach to ensuring security in our supply chain includes through-life
management. All purchases of goods and services must follow the appropriate Babcock
process, ensuring due diligence is carried out and managed throughout the supplier’s
relationship with Babcock in accordance with policy requirements. The effectiveness of our
policy is assured by external ISO 27001 certification.
● Learn more on page 94
Description of
principal risks
and impact on
business activity
**Group Risk
Management policy
See “Principal risks and management controls”
● Learn more on page 110
Description of our
business model
See “Our business model”
● Learn more on page 24
Non-financial KPIs
See “Key performance indicators”
● Learn more on page 32
*
Available to employees through the Babcock intranet but not published externally.
**
Available on the Babcock website and available to employees through the Babcock intranet.
***
Available on the Babcock website.
● Read our Modern Slavery
Transparency Statement here
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Principal risks and management controls
Our principal risks and
management controls
“In FY26 we have continued our journey to
improve the maturity of our risk and control
environment, underpinned by our Provision 29
readiness work.”
David Lockwood
Chief Executive Officer
Provision 29 of the 2024 UK Corporate
Governance Code
Provision 29 of the 2024 UK Corporate Governance Code introduces
the requirement for a declaration on the effectiveness of the material
controls at the balance sheet date, a requirement effective for the FY27
Annual Report and Financial Statements. Work continues to address the
new requirements, and more detail is included in the Provision 29
readiness case study on page 114.
Enterprise Risk Management Framework
The ERM Framework is used consistently across the Group,
clarifying ownership and the differing levels of assurance required
for each risk. The Group has invested in continuous improvement of
the Global Risk Management policy and User Requirements manual,
which are embedded via tailored training and awareness sessions
across the Group.
The Board sets the Group’s strategy on page 21. To help deliver this
strategy, the Board has in place procedures for identifying, evaluating
and managing the inherent risks to the strategy, alongside the emerging
risk landscape. As part of those procedures, the Board reviews and
approves the principal and emerging risks on an annual basis. It makes
this determination using a consistently applied risk-rating matrix, which
assesses the likelihood and impact of each risk occurring and its target
state, after taking into consideration the controls and mitigations in
place. The Board also conducts at least two risk deep dives a year.
Co-ordinated by a network of Global Risk Leads, the Group builds the
hierarchy of risk by bringing together the risk registers of our sectors,
Direct Reporting Countries (“DRCs”) and functions. These registers
include principal, strategic, operational and emerging risks and are
compiled using the Global ERM Framework for consistency in
approach. The framework requires the risks to be described, along
with the measures in place to control or manage each risk, an
assessment of their effectiveness and the inherent and current rating
of each risk as well as the target state. The Group Risk function
consolidates the registers to prepare the Group’s risk register. Risks
are monitored for adherence to risk appetite ratings and those that
fall outside of this are managed back to appetite with oversight from
Group Risk. Risk ratings measure risks for likelihood and impact,
using a five-by-five matrix as set out below.
Likelihood
Very likely
More than
90% chance
Impact
Severe
Likely 60–90%
chance
Major
Possible
30–60%
chance
Moderate
Unlikely
10–30%
chance
Minor
Very unlikely
Less than
10% chance
Insignificant
Risk and internal control enhancement
highlights in the year
• Identification and enhancement of material controls to
address the requirements of Provision 29 of the 2024 UK
Corporate Governance Code
• Continued maturity of the Group Executive Risk and Controls
Committee leading to an enhanced level of focused debate
and discussion into the principal risks, the relevant controls
and the future control enhancements.
• Development of the Fraud Risk Management Framework in
response to the requirements of Economic Crime and
Corporate Transparency Act 2023.
• The roll-out of the next-generation IT security platform.
• The migration of businesses to the Group’s common
Enterprise Resource Planning (“ERP”) solution.
• The strengthening of controls across the delivery lifecycle
including gate reviews and delivery reviews.
Risk management continues to be an integral
part of the Group’s activities
The Risk Management Framework exists to manage the risk and
opportunities inherent within the Group’s strategy. Risk management
continues to be at the core of the Group’s management practice and
an integral part of all activities, helping to deliver our commitments to
customers, colleagues and communities.
FY26 saw further improvement in the quality of the Group’s Risk
Registers with a particular focus on the underlying control activities,
specifically those identified as material controls under Provision 29
of the 2024 UK Corporate Governance Code. The Group Executive
Risk and Controls Committee has continued to develop Enterprise
Risk Management (“ERM”) practice with a healthy level of cross-
functional challenge around principal risks and their associated
material controls.
Effective risk management starts with the right conversations, to
enable better risk-based decision-making. The Group’s Risk
Management Framework considers management of risk in the round,
top-down and bottom-up, correlated through a series of risk
conversations with the members of the Group Executive Committee
and critical risk influencers.
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Group Risk engages with sectors, DRCs and functions at least
quarterly, providing guidance and ensuring a common approach as
to how to measure likelihood and impact. The Group has included
the current rating for each principal risk alongside its description on
page 116.
The Group Executive Risk and Controls Committee provides executive
management leadership and oversight of the Group’s ERM Framework,
acting as an interface between the Audit Committee and the business.
The Committee has as its principal deliverable the review and challenge
of the mitigation and control of the principal risks. All principal risks have
an allocated Committee member owner and are presented and
discussed on a rolling basis. Discussion includes the risk, risk appetite,
mitigating controls and their associated effectiveness. On an annual
basis, the Committee reviews the risk scoring matrix for the Group’s
principal risks and, following its evaluation, the matrix is reviewed by the
Board. The Committee also has standing agenda items considering
Corporate Governance Code requirements, a review of significant
operational risks as articulated in the bottom-up risk register process,
and consideration of fraud and fraud risk. During the year, the
Committee undertook an externally facilitated session on emerging risk
to provide thought leadership on this important area.
Risk appetite
As part of the ERM framework, consideration is given to the risk
appetite associated with individual risks. The risk appetite defines
the level of risk that the Group is willing to take on and manage. The
Group adopts the following risk appetite levels:
• Low – Avoidance of risk and uncertainty with low, or in some
cases no, appetite for risk that is likely to have adverse
consequences, and aim to eliminate or substantially reduce such
risks.
• Medium – A degree of risk is tolerated with some appetite for risk
and a balance of mitigation effects, with a view of the potential
rewards and opportunities.
• High – Open to opportunities that may result in a higher residual
risk where we have the capability and capacity to manage
that risk.
Internal control environment
In FY26, the Group has continued to enhance its internal control
environment which aims to protect the Group’s assets and to check
the reliability and integrity of the Group’s information, thereby
providing assurance that the Group appropriately manages the risks
in the business model and the delivery of the strategy.
Internally published policies set the framework for the Group’s
internal controls. These policies cover a range of matters intended to
mitigate risk, such as health and safety, delivery management,
information security, trade controls, contracting requirements,
financial transactions and financial reporting.
The Document of Controls continues to be the cornerstone of
internal control systems over financial, reporting and compliance
controls, operating as the risk and control matrix for the Group,
defining the risk, control description and other relevant control
attributes, including, for example the control owner and control
operator. The key focus throughout the year has been on the
determination and refinement of the Group’s material controls
and more information is included in the Provision 29 readiness
case study.
A number of specific control enhancements have been set out on
the pages covering the individual principal risks. Certain notable
enhancements include the strengthening of gate reviews and
delivery reviews and the roll-out of associated training, the roll-out of
our next-generation IT security platform, the migration of businesses
to our common ERP system, enhancing the use of third-party tools in
procurement and supply chain to provide better and more targeted
risk alerts, and the roll-out of a Group-wide incident management
and emergency notification plan.
The internal audit function has continued to operate as an
independent third line of assurance. The status of the internal audit
work programme and the results of each audit are presented
periodically to the Audit Committee.
Risk and internal control assurance
The Group uses a three lines model to provide assurance over the
management of the risks we face. The first line is management
control, policies and procedures, together with management
oversight. The second line is internal assurance activities including
Group risk management and compliance teams who deliver
functional oversight. The third line is independent assurance
activities, such as the work performed by the Group Internal
Audit team.
Risk management and internal control
annual review
To provide assurance, the Audit Committee performs an annual
review of the risk management and internal control systems to
assess their effectiveness. After this year’s review, the Committee
concluded the Group has successfully implemented several planned
control improvements and has a plan in place to drive further
improvement in FY27. The Committee also concluded that the risk
management process within the Group provides effective
management of the principal, emerging and underlying risks. This
assessment allows the Board to monitor and review the
effectiveness of these processes in adherence to the UK Corporate
Governance Code.
Forward-looking risk and control priorities –
FY27
• Continued training and reinforcement of the requirements of the
Group’s material controls to ensure full operating effectiveness.
• Execution of the assurance plan to underpin the declaration of
effectiveness of material controls.
• Continued review and refinement of the broader Document
of Controls.
• Continued maturity of the internal audit function, both to support
the declaration of effectiveness of material controls and provide
underlying assurance.
Babcock International Group PLC Annual Report and Financial Statements 2026 111
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Principal risks and management controls (continued)
Our ERM framework
Board
• Has overall responsibility for the Group’s strategy and risk management.
• Reviews and approves the Group’s principal and emerging risks on an annual basis to ensure alignment with
the Group’s strategy.
• Reviews the Group’s financial reports, including annual budget and five-year plan, to monitor financial
performance and identify potential issues/emerging risks.
Audit Committee
• Reviews and monitors the adequacy and effectiveness of the Group’s ERM Framework and internal
control environment.
• Approves the Annual Audit Plan for the external and internal audits.
• Authorised to provide the internal audit function with the appropriate authority, role and responsibilities, and
ensure adequate funding and headcount.
Group Executive Risk and Controls Committee
• Provides executive management leadership and oversight of the Group’s ERM Framework and acts as an
interface between the Audit Committee and the business.
• Committee members sponsor and own the principal risks.
• Reviews and monitors the Group’s principal and emerging risks including an understanding of the risk, the
risk appetite, the risk scoring, the mitigating controls and their effectiveness, and the further actions required
to reduce the risk rating to target.
• Performs a review of the principal risks and emerging risks prior to the annual review and approval by
the Board.
• Maintains oversight of all legislative requirements associated with risk and controls.
Sectors, Direct Reporting Countries and functions
• Projects, programmes, portfolio and operational risks are managed and escalated to their sectors, DRCs and
functions as appropriate.
• Sector, DRC and function strategic risk registers are reported to Group Risk on a quarterly basis, with
individual risks or changes highlighted as appropriate to the Group Executive Risk and Controls Committee.
• Global Risk Leads Forum for sharing risk, feedback from governance meetings, reviewing the effectiveness
of the ERM Framework and process, sharing of good practice and development of risk visualisation reporting
tools, reviewing central policies and processes to consider specialist and regional applications, and
organisational learning.
Group Executive Committee
• Provides consistent, visible and positive tone from the top, and ensures risk management is integrated into
all Babcock’s activities.
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Management Internal assurance Independent assurance
• Identifies and evaluates risks.
• Implements internal controls
as defined by second
line management.
• Applies risk appetite, delegated
authorities, policies and procedures.
• Reports risks and operational and
financial performance through the
Group structure ultimately to
the Board.
• Twice a year completes a letter
of representation to confirm
compliance with the Group’s
policies and a control effectiveness
self-assessment.
• Independent of the first line
and performs oversight of
underlying risk management
and control activities.
• Sets policies and internal
control requirements.
• The Board and Group Executive
Committee review the Group’s
operational and financial
performance on a regular basis.
• The Group Risk function provides
risk expertise and support, and the
Group Executive Risk and Controls
Committee oversees application of
the ERM Framework.
• Group functions and specific
committees monitor certain risks
such as health and safety, security,
sustainability, pensions, tax
and treasury.
• The Group Director of Controls
reviews the letter of representation
and control self-assessment
submissions, and oversees a
programme of controls
effectiveness testing performed by
independent management.
• The Group maintains a
comprehensive international
insurance programme.
Our risk assurance – Three Lines Model
First
Line
Second
Line
Third
Line
• Internal Audit, which reports
directly to the Audit Committee,
performs risk-based audits with
its scope encompassing all
principal risks.
• Other external regulators and
bodies, such as national Civil
Aviation Authorities, the UK Office
of Nuclear Regulation, and the
International Office for
Standardisation, regularly inspect
parts of the Group.
• The whistleblowing line allows
employees to report any
concerns they may have.
All incidents together with
investigation conclusions are
presented to the Board.
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Principal risks and management controls (continued)
Provision 29 readiness case study
Following the publication of the 2024 UK Corporate Governance
Code, the Group has performed significant work to ensure
compliance with the requirements of Provision 29 for the year
ending 31 March 2027. This case study provides an overview of our
approach and the key milestones to achieve compliance.
Approach
The detailed programme to respond to the changes introduced
by Provision 29 is being led by the Group Director of Controls,
a newly created role to ensure appropriate focus is dedicated
to this important area. The Group CFO is the executive
sponsor, with oversight and governance provided by the
Group Executive Risk and Controls Committee and ultimately
the Group Audit Committee.
Our approach has been, wherever possible, to leverage the
existing processes, controls and assurance processes already in
place, with the focus on strengthening any gaps and further
defining and enhancing what we currently do.
Identifying material controls
In order to identify the material controls, an exercise has been
performed to review and assess the Group’s principal and other
risks and to assess the heightened areas of risk associated with
financial and non-financial reporting. Against each of these areas,
individual transactional material controls or a framework of
controls have been identified through engagement with risk
owners, members of the finance community and relevant
individuals responsible for areas of non-financial reporting. The
initial list of material controls was presented to and reviewed by
the Audit Committee in April 2025.
During FY26, efforts have been focused on refining the
underlying control attributes that underpin the material controls,
including the detailed control description and the underlying
evidence required to demonstrate the control has operated
effectively. As risks and controls have been further defined,
discussed and challenged, the underlying number and make-up of
the material controls has changed. Given the dynamic nature of
risks, the material controls will continue to be re-assessed to ensure
they remain up to date and appropriate. The Audit Committee has
been updated on the changes throughout the year, and Internal
Audit performed a high-level review of the underlying
approach adopted.
FY26 has also included a significant focus on briefing and training
underlying control operators, and working with the respective
control and governance leads in each sector and DRC to ensure
underlying controls are effectively operated and embedded
across the business.
Assurance
In order to provide the Board with the necessary comfort to sign
the declaration of material control effectiveness, an assurance
plan has been developed and agreed with the Audit Committee.
This plan places reliance across all three levels of our risk and
controls assurance model:
• First line (management self-assessment) – as part of the
existing Document of Controls self-assessment process, all
material controls will be self-assessed by relevant
management twice a year.
• Second line (independent management testing) – all material
controls will be subject to a level of independent management
testing performed by a combination of the Group Controls
team, central Group functions and control and governance
leads in the sectors and DRCs.
• Third line (Internal Audit) – A sample of material controls will be
tested by Internal Audit each year.
The results of the testing performed are shared with the Audit
Committee once available.
Key activities and milestones to compliance
March 2026
H2 FY27
May 2027
H1 & H2 FY26
September 2026
May 2027
Completed Progress
Initial material controls reviewed by the Audit Committee
Second line testing
Continued training and control enhancement
First line self-assessment and further second line testing as required
Work to develop, define and brief on material control requirements
Full dry run of first line self-assessment
Material controls assurance paper to be reviewed by the Audit Committee
Full dry run of first line self-assessment
Second and third line testing
Continued training and control enhancement
Annual Report and Financial Statements for the year ending 31 March 2027 to
include Boardʼs declaration of effectiveness of material controls
April 2025
H1 FY27
March 2027
Progress updates
presented to the
Audit Committee
To be completed
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Principal and emerging risks
The ERM Framework is described on page 112. Using this framework, the Board has identified on pages 117 to 128 the principal risks that it
currently believes to be of greatest significance to the Group, as they have the potential to undermine our ability to achieve our strategic
goals and to have a detrimental effect on our financial performance. As part of the Group’s ongoing risk analysis, two emerging risks have
been identified which are kept under review by the Group Executive Risk and Controls Committee.
Identification and reporting of emerging risk themes or issues is encouraged across Babcock, with the process detailed in the ERM Group
Manual including the tools to support emerging risk identification. The key part of the process involves discussion and debate at the Group
Executive Risk and Controls Committee. The following two risks are demanding particular focus.
Emerging risk Description and management
Geopolitical tension
The Group mostly operates in, or exports to, stable and peaceful democracies, closely allied with the UK through
NATO or other structures. Nevertheless, the international geopolitical situation is constantly evolving, so work is
performed with governments and independent advisors to keep abreast of global developments. For new territories,
this due diligence includes country risk reports and a formal approval process requiring Board-level authorisation to
proceed. In the short to medium term, there are many factors causing volatility within domestic and global markets.
These include, but are not limited to, the ongoing wars in Ukraine and the Middle East, growing instability in the
Euro-Atlantic and Indo-Pacific, changes in governments and political policy shifts resulting in changing political
priorities and defence posture, and changes to the foreign and trade policies of the US Administration. This volatility
could increase commodity prices, disrupt supply chains and increase cyber threats from state actors. The changing
threat environment is driving a significant increase in expenditure on defence globally, although some markets,
including the EU, are also adopting a more protectionist approach to defence procurement. The changing nature of
warfare may also see a reprioritisation of budgets away from traditional large, complex platforms to smaller,
uncrewed platforms and cyber.
Speed of
technology
advancement
including AI
The speed of technology evolution across multiple domains, including AI, is very significant and this brings with it
heightened levels of risk and opportunity. Opportunities can include productivity gains, new and enhanced
capabilities, and speed to market, among others. However, if adequate time is not given to identifying,
understanding and managing the potential risks to within acceptable levels, the benefits of new technology will be
offset by potentially significant negative unintended consequences arising from privacy, ethical, sustainability, data
and information security, technical integrity, product safety, cost and compliance issues. The Group is adopting a
proactive and responsible approach to development and adoption of advanced technologies through appropriate
technical governance and assurance processes, and a ‘responsible-by-design’ approach where potential risks are
identified and mitigated early in the engineering and technology lifecycle.
Changes to the principal risks
Last year’s principal risks and uncertainties remain relevant and appropriate. Of last year’s fourteen principal risks, three have decreased in
risk score as follows:
• Defined benefits pension risk likelihood has decreased following the improved funding position of the three main schemes, as reflected by
reduced technical provision deficits, and the collaborative working of the Trustees and the Group to ensure sustainable long-term funding
agreements are in place.
• Climate and environmental sustainability risk impact has decreased following the detailed risk assessment and financial quantification
exercise performed during the year, allowing a better determination of the potential impacts and associated controls and opportunities.
The risk likelihood has been increased, reflecting the fact extreme weather events are likely to occur on a more frequent basis.
• Resourcing, retention and skills risk likelihood has decreased following the positive progress that has been made during the year to
improve the underlying processes and controls across future workforce visibility, the recruitment process and underlying reward and
engagement policies.
One principal risk has increased in risk score as follows:
• Safety, health and environmental protection risk likelihood has increased following the changing nature of our operations and increased
visibility of our control performance as our assurance processes mature.
Whilst on a net basis, the other risk scores are unchanged, progress has been made on improving underlying controls, but it is either felt the
progress does not yet warrant a change in score or other external factors have separately increased, offsetting the overall score.
The risk previously called Corporate Technology Disruption has been renamed IT and Data Architecture to better reflect the risk associated
with digital change, both from an IT and data architecture perspective.
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Principal risks and management controls (continued)
Principal risk trend
The Group operates in a complex global environment and is exposed
to a wide range of risks that may undermine our ability to execute
our strategy.
Enterprise Risk Management is an evolving and dynamic process;
therefore, the Group might identify new risks, or better understand
the significance of existing risks, or identify a change in a risk. This
means that the risks identified on pages 117 to 128, which are listed
as per the table below, are not and cannot be an exhaustive list of all
principal risks that could affect the Group. Risks are plotted on a net
basis including current mitigations.
Impact
Likelihood
12, 13
2,3
10, 11
4
Insignificant Minor Major
Very unlikely
Severe
Very likelyPossible LikelyUnlikely
Moderate
14
5, 6, 7
1
8, 9
2025
Principal risks
2026
Principal risks
Overall annual
risk score trend
1
Safety, health and
environmental
protection
Safety, health and
environmental
protection
2
Cyber and
information security
Cyber and
information security
3
Engineering integrity,
product technology
disruption and
product safety
Engineering integrity,
product technology
disruption and
product safety
4
Compliance with
legislation or other
regulatory
requirements
Compliance with
legislation or other
regulatory
requirements
5
Contract and project
performance
Contract and project
performance
6
Market Market
7
Operational
resilience and
business interruption
Operational
resilience and
business interruption
8
Climate &
environmental
sustainability
Climate &
environmental
sustainability
9
Supply chain
management
Supply chain
management
10
Defined benefit
pensions
Defined benefit
pensions
11
Corporate
technology
disruption
IT and data
architecture
12
Resourcing,
retention and skills
Resourcing,
retention and skills
13
Acquisitions and
divestments
Acquisitions and
divestments
14
Financial resilience
of the Group
Financial resilience
of the Group
Key
Increased Decreased
No movement
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Principal risks, their impact
and mitigation
1. Safety, health and environmental protection
Likelihood: Possible Impact: Severe
Risk appetite: Low
For moral, financial and reputational reasons, we keep the risk of harm as low as reasonably practicable.
Description
The Group’s operations involve colleagues and contractors working
in potentially hazardous environments, with hazardous materials,
high-energy systems and in challenging locations around the world.
Many of the activities undertaken are in high-hazard industries with
inherent risk of harm, such as aerial emergency services and heavy
industrial production including shipbuilding. There is also a risk to
our workforce from external targeting as a direct consequence of
the sector in which we operate. The risks associated with the
Group’s activities and workplace can cause harm to our people,
those affected by our operations and the environment; we work to
minimise the risk of harm to as low as reasonably practicable.
The Group has moral, regulatory and legal obligations to prevent
harm to people and the planet, and there could be significant
impacts if we fail to reach the standards and mandated
requirements to adequately mitigate safety, health and
environmental risks. Accidents and debilitating health conditions can
have major, long-term impacts on the lives of those directly
affected, and on their families, friends, colleagues and community.
Releases of harmful chemicals and emissions can have significant
effects on our local environments and wildlife. The Group may face
criminal and civil prosecution, which could result in substantial
penalties and fines (some of which are uninsurable); and there may
also be serious damage to our reputation with both the public and
with our customers (whether justified or not). The Group could be
prevented from operating due to colleagues being unavailable for
work, workplaces being unusable, investigations being conducted,
or if regulatory approval, permits and certification are withdrawn.
These could potentially lead to contractual penalties due to loss of
productivity or inability to deliver the contract, which could lead to a
loss of business or future opportunities.
These impacts could occur if we cause or contribute to an incident
due to a failing on our part; or it is found that we have failed to meet
the requirements to adequately mitigate these risks, even if an
incident did not occur. These could be caused by failing to prevent
critical equipment failure; inadequate information and
communication; poor training and supervision; or the inadequate
management of change and learning from previous events.
Mitigation
Safety, health and environmental protection remains a top priority
with mitigation focused across the areas that could lead to harm,
including the working environment, the tools and equipment in use,
people’s behaviours and the organisation and its processes. The
key mitigation activities include:
• The presence of policies, procedures and management systems,
delivered and certified to international standards, to clearly define
standards and expectations and drive consistency and quality
across the Group.
• Oversight by the Board and Executive Committee through
monthly review of events and monitoring of leading and lagging
performance indicators, and a quarterly Executive Safety
Committee where performance and improvement actions are
reviewed in-depth.
• A centrally led function with teams in each sector and DRC
working under the direction of the Group Director and the
Corporate Safety Leadership Team to support operations to
implement improvements in safety, health and environmental
protection performance through both central and local
improvement plans.
• Induction and task-specific training to build competency
of colleagues.
• Reviews to ensure that tools, equipment and personal protective
equipment are appropriate.
• Recognised safety risk assessment processes that are task-
specific and seek to ensure hazards are identified, classified and
controlled prior to activities taking place.
• Health surveillance and support programmes to assist workers to
protect themselves in the short and long term, whilst at home, on
sites and working away.
• A global management system enabling reporting and
investigation of all events, near misses, observations and findings
to identify and address issues and causes, and to share learnings.
• The focus on safety behaviours aligned to our engaged safety
culture and “Home Safe Every Day” commitment. This includes
Safety Stand-Downs, safety summits and visible leadership
safety tours.
During the year, a reset has been undertaken in relation to
the risk and its corresponding controls, together with investment
in leadership development, new technology to reduce risk
exposure, the provision of technical training and increased
workforce engagement.
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Principal risks and management controls (continued)
2. Cyber and information security
Likelihood: Likely Impact: Major
Risk appetite: Low
Given the nature of the information the Group holds, the potential consequences associated with any breach could be very significant.
Description
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.
The nature of the Group’s operations and the requirement to hold
and process sensitive and confidential information on behalf of
customers makes the Group, and its supply chain, a target for cyber
attackers. Despite controls designed to protect such information,
there can be no guarantee that security measures will be sufficient
to prevent security attacks being successful in their attempts to
breach or compromise IT systems and misappropriate sensitive and
confidential information, or otherwise cause destructive or
disruptive harm to the Group. The risk is also increasing through the
ongoing developments in Artificial Intelligence.
The Group may be seen as a threat target for attack by ’state actors’
from overseas countries because of the nature of the Group’s
activities for its government customers. In addition, failure to invest
in IT infrastructure, for example in replacing legacy systems or
introducing new technologies, could create vulnerabilities that may
lead to a breach.
The impact of an IT or cyber security breach or compromise may be
loss of reputation, loss of business advantage, disruptions in
business operations or inability to meet contractual obligations.
The risk of loss of information or data by other means (such as
physical loss) is also a risk that we cannot entirely eliminate.
Significant data breaches or losses could lead to litigation and fines
for breach of applicable regulations such as data protection laws.
This could have an adverse effect on the Group’s operations and
its ability to win future contracts, which may affect our overall
financial condition.
Mitigation
The Group seeks to assure cyber security through a multi-layered
approach that provides a hardened environment, including robust
physical security arrangements and data resilience strategies. The
key mitigation activities include:
• The presence of formal security and information assurance
governance structures to oversee and manage IT, cyber and
information assurance risks.
• To maintain organisational awareness, cyber security education is
provided to all staff, which includes awareness of social
engineering and insider threat.
• The presence of security controls to manage access into
underlying systems and ongoing staff-vetting procedures
as appropriate.
• Protective monitoring of activity on the core networks via the
Group’s Security Operations Centres.
• The employment of specialists in threat intelligence and the
conduct of comprehensive internal and external testing and
remediation of potential vulnerabilities.
• The performance of risk-based due diligence and assurance over
the supply chain, and (where relevant) requiring suppliers to
comply with cyber security-related contractual provisions.
• The presence of business continuity plans that are regularly
tested, covering a range of scenarios including loss of
IT availability.
• The presence of cyber insurance in the event of any incident.
During the year, work has continued to roll out the Group’s
next-generation security platform which is further enhancing
underlying IT security.
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3. Engineering integrity, product technology
disruption and product safety
Likelihood: Likely Impact: Major
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.
Description
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. Without that
confidence, the Group and others are exposed to potentially
significant safety, compliance, financial, reputational and legal risk.
Safety risks can materialise if products cause harm to people or the
environment. Financial risks can result from re-work and product
recalls as well as from non-compliance. Legal risks, including to the
Group’s licence to operate in regulated areas, can arise from
product safety issues or contractual issues associated with a
non-compliant product. Reputational issues can arise from any of
these, or from poor quality and/or poor performance of products,
for example, if products do not meet customer expectations
and requirements around capability, reliability or availability
(among others).
The nature of the complex technical work the Group undertakes
also means it needs to be embedded in the forefront of advanced
technology deployment to ensure the products and services do not
lag behind those of the competition. However, this must be done in
a responsible way. This means identifying, understanding and
managing the uncertainties and potential risks and opportunities
associated with rapidly evolving technologies. These considerations
include areas such as privacy, ethics, sustainability, data and
information security, technical integrity, product safety, cost
and compliance.
Mitigation
The Group continues its journey to further implement a technical
risk management framework. The key parts of the framework are
as follows:
• The presence of a global set of engineering policies
and processes.
• The presence of a network of suitably qualified and experienced
people, both within the business and across the extensive
network of partners and supply chain.
• The involvement of appropriately qualified technical engineering
experts in bid gate reviews and delivery reviews, to ensure
technical engineering is appropriately considered on a
timely basis.
• Review and approval of technical designs both at the outset and
throughout the product lifecycle.
• An end-to-end product quality control process to ensure
products conform to their approved designs and specifications.
• Independent Technical Authority sign off prior to a product being
delivered to a customer, confirming compliance in both design
and quality.
• The performance of horizon scanning and innovation reviews
by the Technology function, to discuss and agree future
innovation and technical investment required to deliver the
Group’s strategic objectives.
During the year, progress has been made to continue to build and
expand the Engineering Integrity team, re-assessing and updating
policies and procedures. This has specifically increased emphasis
on product quality and product cyber assurance, expanding the
engineering focus of the business / delivery lifecycle and enacting
technical assurance reviews and cross-functional deep dives on
critical programmes and contracts.
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Principal risks and management controls (continued)
4. Compliance with legislation or other
regulatory requirements
Likelihood: Very unlikely Impact: Severe
Risk appetite: Low
The impact of a legal or regulatory issue could be very significant and wide-ranging.
Description
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, contractual and certification
requirements in each area, including export controls, data protection
and site licences. The laws and regulations that the Group is subject
to include, but are not limited to, disclosure regulations, anti-bribery
laws, import and export controls, tax, procurement rules, human
rights laws, and data protection regulations.
Failure to maintain compliance with applicable requirements could
result in fines and criminal prosecution, the removal of a licence to
operate, reputational damage, cost of rectification, debarment from
bidding, loss of access to markets, loss of substantial business
streams, possible damages claims, and loss of opportunities for
future business. If an applicable law or regulation changes, it may
cause the Group substantial expenditure to comply, which may not
be recoverable (either fully or at all) under customer contracts.
Compliance with some regulatory requirements is a precondition for
being able to carry on a business activity at all, for example in the
Nuclear and Aviation businesses.
Given the nature of the Group’s customers, the markets in which it
operates and the services provided, reputation, not only in terms of
delivery but also in terms of behaviour, is a fundamental business
asset. Failings or misconduct (perceived or real) in dealing with a
customer or in providing services to them or on their behalf
could substantially damage this reputation with that customer or
more generally.
Mitigation
• The Group maintains internal policies and procedures to ensure
compliance with applicable laws and regulations.
• The Group has a Code of Conduct together with an Ethics policy
to set out clear expectations of our employees. These messages
are reinforced through training, and employees are encouraged
to use the whistleblowing reporting lines if they see evidence of
behaviour which is not in keeping with the Group’s values.
• The identification of suitably qualified and experienced
colleagues with clear accountability for all areas of legal and
regulatory compliance.
• Expert external advisors to provide assistance and advice as and
when necessary.
• Assurance programmes to ensure compliance with operational
regulatory requirements.
• Training programmes for employees to ensure they understand
and comply with the relevant requirements.
• Relevant Board and operational management oversight of
compliance and of any issues arising, including Board review of
all investigations into unethical behaviour.
• The Group holds indemnities from the UK Nuclear
Decommissioning Authority and the UK MOD for nuclear risks, to
protect against liability for injury or damage caused by nuclear
contamination or incidents.
During the year, work has continued to strengthen the underlying
control environment principally through enhanced documentation of
the specific controls in place.
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5. Contract and project performance
Likelihood: Possible Impact: Major
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.
Description
The Group’s business model revolves around securing and
executing long-term, high-value contracts for complex, integrated
programmes. Whilst the aim is to understand, accept and minimise
the risks that are within its control to mitigate to a manageable level,
it is important to acknowledge that uncertainties are inherent in
project delivery and, despite the significant efforts taken, some level
of risk remains unavoidable. The Group prioritises robust risk
management to mitigate these uncertainties, ensure successful
outcomes and achieve an appropriate margin.
Contract terms from the Group’s customer base (including
government departments) can be stringent, with sometimes
onerous terms and conditions. Underestimating or under-pricing
risk exposure, unforeseen costs or supply chain disruptions can
impact the contract delivery costs. Fixed-price contracts can
exacerbate this, especially if actual costs exceed projections due to
factors like inflation or extended programme durations. Future
changes to the Singe Source Contract Regulations, and how they
are implemented, could also impact the level of margin earned (both
up and down).
The Group’s projects and extensive supply chains expose the
Group to risks such as shortages in raw materials or electronic
components, or failures in supplier delivery schedules or quality,
which can lead to increased costs or missed deadlines.
Furthermore, long-term contracts often undergo changes in scope
or emergent work, requiring diligent change management to avoid
additional costs, avoid or minimise schedule delays to the customer
and maximise contract opportunities. If key risks materialise, they
can escalate the delivery costs, trigger penalties or cause
reputational damage, jeopardising current and future contracts.
As the Group continues to move up the integration value chain, the
nature of the risks taken on will become increasingly complex and
require increasing focus to ensure they are appropriately mitigated.
Mitigation
• A thorough gating process in advance of taking on new contracts,
ensuring alignment with the Group’s capabilities and risk appetite.
This includes strict acceptance criteria for all new contracts
identified as fixed price.
• The monitoring of contractual performance through delivery
reviews at contract, business unit, and (where appropriate) sector
and Group level, continuously managing risks and opportunities
through contract lifecycles. Remediation plans are implemented
when performance falls short.
• A specific programme of Group-level reviews for the most
significant and high-risk contracts.
• A programme of Group-initiated and resourced deep dives
conducted by resources independent of the business area, to
challenge assumptions and maintain best practices.
• The risk assessment and ongoing monitoring of supply
chain performance (refer to the Supply chain management
principal risk).
During the year, several enhancements have been made to the
controls across the delivery lifecycle including the strengthening of
gate reviews and delivery reviews, continuous improvement of the
framework governing all types of delivery, design and
implementation of what will be an ongoing programme to
enhance and mature our risk approach across the Group, and
the roll-out of a training programme to enhance the effectiveness
of delivery reviews.
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Principal risks and management controls (continued)
6. Market risk
Likelihood: Possible Impact: Major
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.
Description
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.
Major customers, particularly those government-owned or with
government backing, have significant bargaining power and can
exert pressure to change, amend or even cancel programmes and
contracts. As governments in stable democracies own, fund or are
many of the Group’s major customers, political and public spending
decisions may have a significant impact on our contracts and
pipeline. For example, the UK Government’s national security and
international policy objectives control the budget of the MOD.
Unforeseen social, political, economic or geographical
developments (for example armed conflict and the subsequent
impact on the economy, trade and defence requirements, social/
political unrest, climatic or geographical events, pandemics,
changes in governments and significant political / policy shifts
resulting in changing political priorities and defence posture) whilst
potentially presenting opportunities can also present the following
risks in the way customer policies and budgets can change:
• Reductions in the number, frequency, size, scope, profitability
and/or duration of future contract opportunities.
• In the case of existing contracts, early termination, non-extension
or non-renewal, or lower contract spend than anticipated, and
pressure to renegotiate contract terms in the customer’s favour.
• Favouring small or medium-sized suppliers or adopting a more
transactional rather than a cooperative, partnering approach to
customer/supplier relationships.
• Favouring overseas competitors, potentially benefiting from lower
production costs and state ownership or subsidies.
• Increased focus on sovereignty and the favouring of
domestic suppliers.
• Imposing new or extra eligibility requirements or tariffs as a
condition of doing business with the customer that we may not
be able readily to comply with, or that might involve significant
extra costs, thereby affecting the profitability of doing business
with them.
All defence contracts have regulations covering contract terms and
pricing. A number of the Group’s contracts with the MOD are
subject to the Single Source Contract Regulations (“SSCR”), which
the Single Source Regulations Office (“SSRO”) administers. The
SSRO sets the baseline profit rate for single source contracts let by
the MOD on an annual basis. Future changes to these regulations
and how they are implemented, could impact the level of margin
earned (both up and down).
The Group may face challenges in securing contracts in new
markets. These include the risk of failing to ensure the required
level of market understanding or customer intimacy to anticipate
and shape future market requirements; failure to align approaches
with customer expectations; and a preference for, or state funding
of, domestic suppliers. The delivery of contracts may be further
challenged by commercial, legal and licensing issues which have
the potential to impact bidding success, operations and recruitment.
Mitigation
• The Group’s focus on its four key markets (Marine, Nuclear, Land
and Aviation) together with its geographical presence, provides a
degree of portfolio diversification and potential upside to
changing market dynamics.
• The Group has a clear business strategy to maintain a substantial
bid pipeline, both in the UK and, increasingly, internationally. The
Group bids for contracts that are aligned to the Group strategy
and where there is a realistic chance of success.
• As appropriate, the Group invests in the development of
capabilities, innovation and people, to ensure products and
services are competitive, and meet global market and
customer requirements.
• The Group pursues ongoing dialogue with key customers to
understand their requirements, objectives and constraints, in
order to remain as aligned to them as possible.
• In the principal markets and to assess the ongoing instability in
the Euro-Atlantic region, the Indo-Pacific and the Middle East,
the Group works with governments and uses in-house and
external advisors to monitor developments from across the
political spectrum.
• The Group monitors expenditure changes in key markets to allow
appropriate adjustments to be made. In the UK, the Group
maintains a public listing, as it is believed to be an important
factor in winning contracts and retaining a appropriate business
position, particularly with government customers.
• When seeking business in new territories, due diligence includes
country risk reports and a formal approval process requiring
Board-level authorisation to proceed.
During the year, the Group has enhanced its focus on technological
development and strengthened the in-house team responsible for
managing international government relations.
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7. Operational resilience and business
interruption
Likelihood: Possible Impact: Major
Risk appetite: Low
Ineffective operational resilience arrangements can undermine safety, financial stability and regulatory compliance, as well as damaging the
Group’s reputation.
Description
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.
Operations can be disrupted by the loss of key dependencies,
including people, infrastructure, utilities, information, technology
and supply chain provisions. In highly regulated domains, approvals
to operate are critical dependencies, requiring robust resilience
measures to maintain compliance.
Following any operational incident, the Group’s ability to respond
and recover effectively is vital to minimising operational, financial
and reputational consequences. Ineffective response and recovery
measures can amplify business disruption, leading to increased
costs, regulatory scrutiny and potential penalties.
Mitigation
• A clearly defined Operational Resilience strategy, policy and
framework focused on increasing standardisation, alignment and
proactive resilience across the Group.
• Appointed Operational Resilience leads across the Group
ensure governance, collaboration and accountability for
resilience initiatives.
• The Group maintains established resilience disciplines
including business continuity, emergency response, and
crisis management to protect its operations. Across sectors,
DRCs and sites, emergency response and business continuity
plans and crisis communication protocols are in place, aligned
to the specific risks and regulatory requirements of each
operational area.
• The Group’s IT services continue to provide secure technology
and access to information, supported by a range of IT Disaster
Recovery Plans accredited to the ISO 22301 standard, ensuring
critical systems and data can be restored within agreed recovery
time objectives.
• Operational resilience plans and procedures continue to be
developed and validated through regular exercises and drills,
conducted in collaboration with key stakeholders and relevant
authorities. These exercises ensure that resilience capabilities
remain effective, well-practised and continuously improved.
During the year, work has continued to strengthen resilience
arrangements to ensure they remain appropriate as and when
required. This has included the roll-out of a Group-wide incident
management and emergency notification system, enhanced risk
assessments across key workplaces and facilities to better
understand critical vulnerabilities, and the transition to updated
Group standards. The Group has also introduced a new crisis
management plan to further strengthen its strategic response and
recovery capabilities.
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Principal risks and management controls (continued)
8. Climate and environmental sustainability
Likelihood: Likely Impact: Moderate
Risk appetite: Low
Climate change has the potential to cause profound consequences and have a significant impact on the Group’s operations.
Description
Climate-related risks have the potential to cause significant harm
and disruption on a global scale. Risks are typically categorised as
either physical or transition risks:
• Physical climate risk describes the potential for physical damage
and disruption to people, property and productivity as result of
the increased exposure to hazards driven by climate change,
such as coastal flooding, wildfires and heat stress.
• Transition risk describes those risks associated with the transition
to a low-carbon economy, including policy and legal changes,
technological advancements and market movements to address
mitigation and adaptation requirements.
Over the past year, work has been ongoing to mature the climate
risk management system, improve the understanding of the
climate-related risks the business is exposed to, and to assess the
severity of the risks. Climate change may also present a range of
opportunities for the Group to support its customers and lead the
sustainable transition.
Acknowledging the inherent uncertainties surrounding climate
change impacts, an effective approach to identify, assess and
quantify (using scenario analysis and statistical analysis) the
climate-related risks and opportunities has been developed.
Without controls, climate change presents a moderate to high
adverse financial impact to the Group over the medium to long term.
Through implementing appropriate controls and realising
opportunities, climate change presents a moderate to high financial
opportunity for the business over the medium to long term.
Full details of Babcock’s approach to climate risk management, and
the risks and opportunities identified, are included within the
Sustainability section of the Annual Report and Financial Statements
on page 70.
Mitigation
• Ensuring adequate insurance is in place for potential physical
climate impacts.
• Further development and integration of the Group’s climate risk
management system, and embedding of climate risk
considerations within the Group’s commercial processes and
operational delivery.
• Delivery of decarbonisation aligned to the Group’s science-based
targets for net zero.
• Enhanced due diligence associated with the Group's estate and
assets (including acquisitions and developments).
• Detailed physical climate change risk assessments across critical
sites and assets for specific hazards.
• Infrastructure improvements to increase resilience to physical
risks as appropriate (eg, flood defences).
• Robust supply chain strategy to manage exposure to cost
escalations, materials shortages and logistic disruptions.
During the year, work has been performed to improve the climate
risk management system, enhancing the understanding of the
Group’s climate-related risks and opportunities. Moving forward,
further work will be performed to mature the approach, ensure
controls are effective, and take action to unlock opportunities.
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9. Supply chain management
Likelihood: Likely Impact: Moderate
Risk appetite: Low
Supply chain risk could have significant consequences on the Group’s ability to deliver its contractual commitments.
Description
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 in several ways described below, potentially leading to
increased costs, programme delays and penalties, and the
associated reputational impact.
Volatile economic conditions, including persistent inflationary
pressures, fluctuating energy costs, and tight labour markets,
continue to challenge supplier financial stability. These factors can
erode profitability, strain fixed-price contracts, and introduce
uncertainty into long-term planning. Suppliers may face increased
difficulty in maintaining operational continuity, meeting contractual
obligations, or accessing affordable credit, all of which pose risks to
supply chain resilience and performance.
Ongoing global conflicts and geopolitical tensions in regions such
as the Middle East and Eastern Europe pose significant risks to the
global economic outlook. The evolving landscape of global trade,
marked by reciprocal tariffs and trade wars, adds further uncertainty
to international relations. These disruptions may have a significant
impact on suppliers, impacting their ability to meet contractual
obligations and maintain operational stability.
Global supply chains can face disruption from a range of external
events. Natural disasters such as floods, hurricanes and wildfires
can damage infrastructure and delay transportation, while
economic-driven labour actions and workforce reductions introduce
volatility into production schedules. Additionally, congestion and
instability at key logistics choke points, including major shipping
canals and straits, can lead to extended delivery times, increased
costs, and reduced reliability.
Cybersecurity threats present notable risks to supply chains,
as increasingly sophisticated attacks, such as ransomware
and AI-powered cybercrime can disrupt operations and
compromise sensitive data. Weak security protocols, reliance
on sub-tier suppliers and outdated technologies can also increase
these vulnerabilities.
Supporting ageing customer assets presents increasing challenges
as critical components become obsolete or unavailable due to high
costs or extended lead times, impacting the ability to ensure timely
repairs and continued functionality.
The Group continues to adapt its supply chain model to support its
global expansion whilst at the same time continuing to support our
local suppliers. Underutilisation of small and medium enterprises will
reduce agility and innovation, while over-reliance may introduce
scalability and resilience concerns. As the Group increases its
development and manufacturing activity, both in the UK and
overseas, the growing requirement for goods and materials will
heighten supply chain dependency and the associated risk.
Mitigation
• The presence of procurement and supply chain policies, risk
management reviews and underlying governance processes to
monitor and mitigate the risks.
• Risk-based due diligence, for both new and existing suppliers, is
carried out with reference to a range of financial and non-
financial factors.
• Ongoing monitoring and risk assessment of the supply chain
using third-party tools including supplier disruption alerts,
financial alerts, credit monitoring and risk resilience assessments.
• Ongoing assurance and performance management of the supply
chain through the setting and measurement of key performance
indicators, regular communication and the performance of
supplier quality assurance reviews.
• The use of flexible contract terms to minimise the impact of
market volatility, inflation and global tariff changes.
During the year, work has been performed to enhance the use of
third-party tools to provide better and more targeted alerts and risk
assessments, in addition to the strategic upskilling of the
procurement and supply chain function.
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Principal risks and management controls (continued)
10. Defined benefit pensions
Likelihood: Unlikely Impact: Major
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.
Description
The Group has significant defined benefit pension schemes in
the UK, which provide for a specified level of pension benefits
to scheme members. Member and employer contributions paid
into the pension scheme funds and the investment returns made
in those funds over time have to meet the cost of the defined
benefit obligations.
Various assumptions underpin the level of contributions. These
assumptions are subject to change, such as life expectancy of
members, gilt yields, investment returns, inflation, and regulatory
changes. Based on the assumptions used at any time, there is
always a risk of a significant shortfall in the schemes’ assets below
the calculated cost of the pension obligations. For example, pension
liabilities can increase due to rising life expectancy, higher-than-
expected inflation rates in the future and lower interest rates.
If the pension trustees believe the assets in the pension schemes
are insufficient to meet the liabilities, or if the Group’s balance sheet
strength does not meet the pension trustees’ expectations, they
may require increased contributions and/or lump sum cash
payments into the schemes or the provision of additional security
from the Group. The toughening stance of the UK Pensions
Regulator may influence the pension trustees’ perspectives.
Increased contributions or lump sum cash payments may reduce
the cash available to meet other obligations or business needs of
the Group and may restrict future growth.
Accounting standards governing the measurement of pension
liabilities can lead to significant accounting volatility from year to
year, due to the need to take account of macroeconomic
circumstances beyond the control of the Group. Companies,
including Babcock, do not calculate actuarial valuations used for
funding on the same basis as IFRS accounting standards. This
means the future cash contributions are difficult to derive from the
Group’s IFRS balance sheet.
When accounting for the Group’s defined benefit schemes,
corporate bond-related discount rates are used to value the pension
liabilities. Variations in bond yields and inflationary expectations can
materially affect the pensions charge in our income statement from
year to year, as well as the value of the net difference between the
pension assets and liabilities shown on our balance sheet.
There is a risk that future accounting, regulatory and legislative
changes may also adversely impact pension valuations, both
accounting and funding, and, hence, costs and cash for the Group.
Mitigation
• Senior management strategic monitoring and review of the assets
and liabilities of the pension schemes, and engagement with the
scheme trustee chairs and UK Pensions Regulator.
• The pension scheme mitigates the risk of liability increases by
having investment strategies that hedge against interest rate and
inflation risk, and by using longevity swaps to limit exposure to
increasing life expectancy. The Trustees also use professional
advisors to assist in the hedging of risks.
Over the last few years, the funding positions of the three main
schemes have continued to improve as reflected by reduced
technical provision deficits. Collaborative working with the Trustees
has also ensured that sustainable long-term funding agreements are
in place.
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11. IT and data architecture
Likelihood: Unlikely Impact: Major
Risk appetite: Low
The risk associated with an IT or data issue could have a significant impact on the Group.
Background
The way in which the Group’s IT and data architecture is managed
and evolves potentially exposes various risks.
To the extent the Group does not respond to digital change, it could
reduce opportunities to augment existing contracts or build new
commercial offerings. The Group’s ability to be responsive to the
advancement of modern IT and solutions, in a commercially
sensitive and secure way, has a material impact on its ability to
unlock new business and enhance existing contracts. The Group’s
products and services could lag behind competitors and customer
requirements if it is unable to incorporate appropriate data and
technology-enabled capabilities. Older technology and systems are
also typically slower and less stable, increasing the risk of
operational inefficiencies and system outages.
The ability to manage and manipulate data is also becoming
an important differentiator in the market. As the quantity of data
and information increases, there is an increased risk associated
with data management and compliance. The consequences of a
data breach or compliance incident could be very significant
causing potential fines, operational disruption and significant
reputational damage.
Mitigation
• An established programme is in place and ongoing to move all
employees to the Group’s next-generation digital platform.
• The establishment of a centralised IT architecture department for
scanning, assessment and implementation, where relevant, of
industry best practice.
• Working with suppliers to understand the potential of new
technologies on the market.
• The establishment of a centralised AI Centre of Excellence to
drive technical transformation.
• Continuing the programme to migrate away from older
technology and systems both to reduce the quantity and to
ensure global adoption of standardised solutions.
• The continued development of a data governance framework to
clearly define standards and expectations, and drive consistency
and quality across the Group.
• The use of data monitoring tools to review and manage the
underlying data that is retained.
During the year, significant progress has been made in migrating
employees to the next-generation digital platform, migrating
businesses to the common ERP solution, and setting up a
centralised AI Centre of Excellence.
12. Resourcing, retention and skills
Likelihood: Possible Impact: Moderate
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.
Description
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.
This is exacerbated by the additional restrictions related to the
Group’s sector, including security and nationality. Changes to visa
requirements have also impacted the ability to easily transfer people
from EU nations and to deploy people internationally. If the Group
has insufficient qualified and experienced employees, this could
impair service delivery to customers or the ability to pursue new
business, with consequent risks to the financial results, growth,
strategy and reputation, and the risk of contract claims. Industry
salary benchmarks are increasing due to both scarcity of supply
and increased demand, which could impact contract profitability.
Mitigation
• The Group recognises that its employees are key to delivering its
contractual commitments and future growth. Senior management
therefore proactively considers both the current and future
workforce planning requirements in terms of staffing volumes,
capabilities and geographies.
• Well-established graduate and apprentice programmes to build a
pipeline of skilled, motivated talent.
• Investment in people through skills and leadership training and
upskilling throughout their career to meet future requirements.
• The Group’s engagement and reward strategies are regularly
reviewed and updated to ensure they remain appropriate to
attract and retain the required level of talent.
• The leadership transition plan is well developed and in place for
both colleagues and external stakeholders to support the
leadership through the transition year, ensuring strong continuity
and focus.
During the year, a number of specific targeted programmes to drive
attraction and retention of a more diverse pool of talent have been
run, delivering accelerated development to the Group’s people to
enable them to progress their careers and add more value to the
Group and its communities (refer to the Sustainability section for
further details).
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Principal risks and management controls (continued)
13. Acquisitions and divestments
Likelihood: Possible Impact: Moderate
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.
Description
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.
While the Group’s focus remains primarily on operational execution,
potential acquisition opportunities that align with its strategy are
continually reviewed.
If the Group acquires companies, the financial benefits of the
acquisition may not be realised as expected, due to poor integration
execution or to acquisition business cases relying on market
conditions or other business assumptions that subsequently do not
materialise, challenging the logic of the acquisition decision.
Those companies that the Group considers to be non-core, and
therefore disposal candidates, may become distracted or
demotivated or lose key employees, which may lead to poor
performance, whilst also undermining their value to their customers
and a potential buyer.
Mitigation
• The Group has established policies and procedures in
place for acquisitions including conducting appropriate due
diligence, managing the acquisition process and monitoring the
business integration.
• Approval of any acquisition or disposal is made at the appropriate
level in the organisation according to the defined delegation
of authority.
During the year, work has been performed to review and enhance
the procedures required in the event of an acquisition (both
acquisition and integration) to ensure the Group is ready at the
appropriate time in the future.
14. Financial resilience of the Group
Likelihood: Very unlikely Impact: Major
Risk appetite: Low
A lack of financial resilience and the potential inability to raise finance could have a very significant impact on the business.
Description
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.
A lack of financial resilience may hinder the ability to raise debt
funding to invest in existing or future business, or cause existing
banks to increase the cost of funding. To the extent debt is
denominated in a currency other than Sterling, movements in
exchange rates may make that debt more costly when it is due
for repayment.
Customers and/or suppliers may question the Group’s long-term
sustainability if there is a lack of financial resilience through a weak
balance sheet. This may tighten the terms of business on which
they are prepared to contract or, in the extreme, cause them to not
award work due to their perception of risk. Credit rating agencies
may downgrade our credit rating, which could increase the cost
of borrowing.
A lack of financial resilience may trigger certain pension scheme
financial thresholds, requiring further resource to be allocated to
the schemes.
The Group could face capital allocation constraints and
consequently have reduced capital to invest in the business, to
meet all its obligations or to pay a dividend.
In addition, if companies working in defence or nuclear sectors
were deemed not suitable for investment by certain investment
funds (eg due to strict ESG policies), the cost and/or availability of
capital could be adversely affected.
Mitigation
• Over recent years, through an improved trading performance and
the raising of proceeds from disposals, the Group has
significantly strengthened its balance sheet and the associated
financial resilience of the Group. The only material debt of the
Group is now the long-term Eurobonds which are uneconomic
to repay.
• In respect of immediate liquidity, the Group has a committed bank
revolving credit facility of £600 million which was not drawn as of
31 March 2026.
• Foreign exchange risk is managed through contractual protection
and/or the hedging of the risk through derivative contracts.
• The underlying processes and controls the Group has in place
to manage and monitor its underlying operational performance
(including by the Board) and specifically its contract and
project performance.
• A clearly defined capital allocation policy to allow the balance
sheet strength to be maintained.
• The Group is proactive in its dealings with credit rating agencies
and lenders, in order to maintain an investment-grade credit
rating and maintain the ability to access the debt capital markets.
• The Group has a proactive ESG agenda and regularly
communicates Group activities to assist in more-informed
investment decisions by providers of capital.
During the year, the Group has continued to strengthen its financial
resilience and balance sheet through strong operational
performance combined with disciplined capital allocation.
128 Babcock International Group PLC Annual Report and Financial Statements 2026
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Inspiring the next generation
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 1 in every 130 UK school children.
Babcock International Group PLC Annual Report and Financial Statements 2026 129
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Going concern and viability statement
Going concern
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 on pages 110 to 128. 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:
• the Group’s diverse portfolio of businesses based on well-
established market positions, focused on design, manufacture,
engineering support and training for complex and critical assets
and infrastructure across naval, land, air and nuclear domains.
In FY26, 74% of Group sales were defence-related and 26% civil;
• a geographically diverse business with a high proportion of sales
to governments and other major prime defence contractors.
In FY26, 70% of sales were to defence and civil customers in
the UK, and 30% were international;
• long-term visibility of sales and future sale prospects through an
order backlog of £9.8 billion as at 31 March 2026, including
incumbent positions on major defence programmes; and
• market positions underpinned by a highly skilled workforce,
intellectual property assets and proprietary know-how, which are
safeguarded and developed for the future by customer and
Group-funded investment.
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:
• £600 million revolving credit facility (RCF), maturing July 2031
• £300 million bond maturing 5 October 2026
• €550 million bond, hedged at £493 million, maturing
13 September 2027
• One overdraft facility totalling £50 million.
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 the
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.
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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 of 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 on pages 20, 24 and 18 of
this 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.
Babcock International Group PLC Annual Report and Financial Statements 2026 131
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Chair’s
introduction
to Governance
Dear fellow Shareholder
On behalf of the Board, I am pleased to present the governance
report for the year ended 31 March 2026. This part of the report
focuses on the Group’s governance structures, the work of the Board
and its committees, and our compliance with the 2024 UK Corporate
Governance Code (the Code) as well as other regulatory
requirements. The report comprises the following segments:
1. Board of Directors
2. Governance statement
3. Nominations Committee report
4. Audit Committee report
5. Remuneration Committee report
6. Other statutory information
The importance of governance
Since becoming Chair in 2019, one of our key aims as a Board has
been to hold ourselves to the highest standards of governance. We
believe that strong governance establishes a framework that helps
companies ensure they are acting in the best interests of their
stakeholders. It defines clear roles and responsibilities and promotes
transparent reporting of financial and operational performance,
building trust between investors, employees, and customers. The
purpose for this part of our report is to provide an understanding of
our framework and how it operates.
Culture and people development
As highlighted in previous years, Babcock’s success in the future is
critically dependent on the people in the business. We need to
attract, motivate and develop people with the skills needed for the
future, and work as an organisation in ways that ensure everyone
can contribute fully. To support the progress on people and culture,
we have been focusing on developing the right sort of leadership
capabilities across our leadership cadre. This started by developing
a Babcock Leadership Framework which provides our leaders with a
structured toolkit to make decisions, foster collaboration and achieve
our strategic goals. It aligns our leaders and their actions to our
Purpose and principles. The Framework defines the competencies,
behaviours and skills required of effective leaders at all levels
within Babcock.
Given the dependency of the business on our people, our culture is
a key asset. The change in culture that we have witnessed over
recent years has been a major part of our transformation. The Board
has been supporting and monitoring this closely through the
Nominations Committee, and information about how the Board plays
this role is covered in that report.
Succession
One of the most important actions of the Board in FY26 was
preparing for CEO succession. We have been developing our
succession planning approach over several years, building on the
Leadership Framework and an intensifying focus on talent
development. During this process, we have increasingly been
assessing talent and undertaking targeted development to create a
strong pool of internal candidates for our senior roles. For the most
senior roles, we also periodically horizon-scan for potential external
candidates, both to benchmark our internal talent and to identify
possible opportunities to strengthen our team.
Governance
Dame Ruth Cairnie
Chair
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This strong preparation meant that, when David advised us of his
intention to retire, we were well placed to execute a robust selection
process built on the in-depth knowledge we had already developed.
More details are provided in the Nominations Committee report.
Harry Holt was chosen as our future CEO on the basis of his proven
experience in leading Babcock’s defence and civil nuclear
operations, his strong relationships with Babcock’s key customers
and his deep working knowledge of the wider defence sector.
Our approach to succession planning is now being embedded for
the Group Executive Committee level and below, and for other key
roles. It supports us in nurturing and retaining valuable skills,
essential for the long-term sustainability of our business.
Risk and controls
Throughout the transformation of the business, we have been
steadily enhancing our approach to risk and the control environment,
recognising that this has been a multi-year journey. We have been
pleased to note further progress this year, as presented in the report
of the Audit Committee. Over the year, we have been undertaking
the necessary work to prepare for the introduction of the new
Provision 29 of the Corporate Governance Code of the Financial
Reporting Council, requiring boards to make a declaration on the
effectiveness of their material controls. For Babcock, this provision
will come into effect for our 2027 Annual Report and Accounts.
We have a roadmap in place which sets out key activities to achieve
compliance in time for 31 March 2027. We have tested our roadmap
and are monitoring our progress against the milestones identified in
the roadmap. I would like to thank the team and the Audit Committee
for their hard work in preparing for this new requirement.
Sustainability
Last year, we announced our refreshed strategy for sustainability.
Our new strategy is simpler, more focused, and deliverable. It takes
a twin-track approach: first, to focus on six Group-level strategic
priorities where we believe we can have the greatest impact,
supported by six targets with delivery plans in place; second, to
build capability in Babcock to embed sustainability principles across
the business.
We launched our refreshed sustainability strategy in June 2025 with
new internal and external websites, a CEO vlog, and presentations to
internal and external stakeholders such as our senior leadership
teams, graduates, and our principal customers. The feedback we
received was positive. In November, we launched the next stage of
our strategy by engaging all employees with an energy efficiency
campaign. This will be followed with further campaigns aligned to
our priorities.
As enablers to help ensure that sustainability is fully embedded into
the business, we are focusing on the roles that our commercial,
procurement, and property functions can play. These three functions
are well placed to bring sustainability considerations into decisions
and plans across the business: the commercial function can identify
and understand the sustainability targets that our customers build
into their programmes; procurement will allow us not only to improve
our supply chain emissions reporting, but also ensure that our
strategic suppliers support us in delivering our sustainability
commitments; and the property function will work with our estate to
focus on the sustainability of the properties that we use or own.
Board membership and effectiveness
During the year, the Board welcomed the appointment of Aedamar
Comiskey as a member, following Lucy Dimes’s retirement. Aedamar
is the Senior Partner of Linklaters and an eminent corporate lawyer.
She brings extensive experience of leading and growing complex
organisations in competitive international markets.
Having conducted an external Board review last year, this year our
Board review was led internally. I was grateful that Aedamar led the
review for us, which also contributed helpfully to her induction to the
Board. The review concluded that we are operating effectively, with
an open and collegiate culture and with the right balance of skills and
experience around the Board table for effective governance and
decision-making. The review highlighted that a challenge for the
Board over the coming year was to apply these skills and experience
effectively to support and oversee the CEO transition.
The year ahead
The focus for the Board over the next year will be to ensure
continuity and a smooth CEO transition, with the business continuing
to build on the momentum created over the last few years. To do
this, we will maintain our focus on governance alongside the further
strengthening of controls. The strength of the Board in terms of
skills and open and constructive debate will be important as we
navigate the high levels of uncertainty caused by technology and
geopolitical change.
I would like to thank my colleagues on the Board for their counsel
and support over the last year. As ever, I look forward to meeting our
shareholders at our AGM on 16 September 2026.
Dame Ruth Cairnie
Chair
Statement of compliance
The Board confirms that, for the year ended 31 March 2026, the
principles of good corporate governance contained in the 2024
UK Corporate Governance Code (the Code) have been
consistently applied and, with the exception of Provision 29 on
which the Company will report next year, all provisions have
been complied with.
Further information on the Code can be found on the Financial
Reporting Council’s website at: www.frc.org.uk.
We describe how the Company has applied the Code principles
on the following pages through to page 179. For further
information on the work carried out in readiness to report next
year on the effectiveness of our material internal controls in
compliance with Provision 29, please see pages 110 to 144
and 150 to 153.
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Dame Ruth Cairnie DBE
N
Chair
Appointed: April 2019
Nationality: British
Key contribution: Extensive experience of the engineering sector,
strong strategic vision and leadership.
Skills and experience: Ruth brings experience of the engineering
sector gained from a 37-year international career spanning senior
functional and line roles at Royal Dutch Shell plc. She has also
advised government departments on strategic development and
capability building. She has been a Non-Executive Director of
Rolls-Royce Holdings plc, Associated British Foods plc,
ContourGlobal plc and Keller Group PLC as well as a member of the
finance committee of the University of Cambridge. Ruth is a Master
of Advanced Studies in Mathematics from the University of
Cambridge and holds a BSc Joint Honours in Mathematics and
Physics from the University of Bristol.
Current appointments: Non-Executive Director of BT Group plc
and Serendipity Capital, a venture capital investor focused on
critical technologies. She is a patron of the Women in Defence
Charter, a director of The White Ensign Association and a member
of the CBI Board.
Carl-Peter Forster
R
N
Senior Independent Director
Appointed: June 2020
Nationality: German and British
Key contribution: Extensive manufacturing and
international experience.
Skills and experience: Carl-Peter held senior leadership positions in
some of the world’s largest automotive manufacturers, including
BMW, General Motors and Tata Motors (including Jaguar Land
Rover). He was also previously a Non-Executive Director of Rexam
PLC and Rolls-Royce plc, and Senior Independent Director of IMI plc,
as well as being Chair of Chemring Group PLC.
Current appointments: Chair of Vesuvius plc and Keller Group Plc.
John Ramsay
A
N R
Independent
Non-Executive Director
Appointed: January 2022
Nationality: British
Key contribution: Extensive financial, international and
boardroom experience.
Skills and experience: John, a Chartered Accountant, brings with
him over 30 years of international business and finance experience.
He served as Chief Financial Officer of Syngenta AG from 2007 to
2016, and interim Chief Executive Officer of Syngenta from October
2015 to June 2016. Prior to joining Syngenta, he held senior
international finance roles with Zeneca Agrochemicals and ICI. He
was also the chair of the Audit Committee for Croda International Plc.
Current appointments: Member of the Supervisory Board at DSM
Firmenich AG and Non-Executive Director of RHI Magnesita N.V. He
is Audit Committee Chair at each of these companies.
David Lockwood OBE
E
Chief Executive Officer
Appointed: September 2020
Nationality: British
Key contribution: Wide-ranging knowledge of defence and
aviation markets, and a wealth of experience in both technology
and innovation.
Skills and experience: David was CEO of Cobham plc (from 2016 to
March 2020), and prior to that he was CEO of Laird PLC (from 2012
to September 2016). His career includes senior management roles at
BT Global Services, BAE Systems and Thales Corporation. He
received an OBE for services to industry in Scotland in 2011. David
has a degree in Mathematics from the University of York and is a
Chartered Accountant. He is a Fellow of the Royal Aeronautical
Society and the Royal Society of Arts and Commerce.
Current external appointments: President of ADS, the UK trade
association for the aerospace, defence, security and space industry.
David Mellors
E
Chief Financial Officer
Appointed: November 2020
Nationality: British
Key contribution: Extensive CFO experience in defence, aerospace,
and commercial markets.
Skills and experience: David was previously CFO of Cobham plc
and prior to that he was CFO of QinetiQ Group plc from 2008 to
2016, where he also served as interim Chief Executive for a period.
His career includes several roles at Logica PLC, CMG plc and Rio
Tinto PLC. David has a degree in Physics from Oxford University
and is a member of the Institute of Chartered Accountants in England
and Wales.
Current external appointments: None.
The Right Honourable The Lord
Parker of Minsmere, GCVO, KCB
Independent Non-Executive Director
Appointed: November 2020
Nationality: British
Key contribution: Extensive experience of working at the highest
level of public service, including a focus on new technology-centred
change and championing inclusion.
Skills and experience: Lord Parker has had a long career in a wide
range of national security and intelligence roles in the UK, which
culminated in him becoming the Director General of MI5, the UK
Government’s national security agency, in 2013. He retired from this
role in 2020 after which he served as Lord Chamberlain (head of the
Royal Household). Lord Parker is a graduate of Natural Sciences
from Cambridge University.
Current appointments: Member of the House of Lords, a Non-
Executive Director of Vertical Aerospace and Board Adviser to
Telicent Ltd. Lord Parker is a Distinguished Fellow at the Royal
United Services Institute.
Board of Directors
Governance
D N R
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Aedamar Comiskey
A N R
Independent
Non-Executive Director
Appointed: September 2025
Nationality: Irish
Key contribution: Extensive expertise in the leading and growing of
complex organisations in competitive international markets.
Skills and experience: Aedamar is a leading public and private M&A
lawyer who has advised on many of the market’s most significant
transactions. She has spent her career at Linklaters, where she was
elected Senior Partner and Chair in May 2021 and re-elected in June
2025. Prior to becoming Senior Partner, Aedamar served for five
years as the firm’s Global Head of Corporate and sat on the
Executive Committee; she now chairs the Partnership Board. From
2014 to 2024, Aedamar was a Non-Executive Director at James
Fisher and Sons plc, where she chaired the Remuneration
Committee from 2018 and served as Senior Independent Director
from 2019.
Current appointments: Senior Partner and Chair, Linklaters LLP.
Sir Kevin Smith CBE
A N
Independent
Non-Executive Director
Appointed: June 2023
Nationality: British
Key contribution: Expertise in aerospace, defence and engineering
sectors and boardroom experience.
Skills and experience: Sir Kevin spent almost 20 years at BAE
Systems plc, predominantly in its Military Aircraft Division and BAe
Defence, before becoming Group Managing Director with
responsibilities for new business and international strategy.
Following this, Sir Kevin joined the Board of GKN PLC, the FTSE-
listed global engineering and manufacturing company, initially
leading the Aerospace and Defence businesses, and then serving
nine years as Group Chief Executive. He went on to spend four
years in Hong Kong as a Partner at Unitas Capital. His non-executive
career includes eight years at Rolls-Royce where he served as
Senior Independent Director.
Current appointments: Member of L.E.K. Consulting’s European
Advisory Board.
Dr Claudia Natanson MBE
N
Independent
Non-Executive Director
Appointed: March 2024
Nationality: British and Jamaican
Key contribution: Extensive information and
cybersecurity expertise.
Skills and experience: Claudia works internationally as an
information and cybersecurity professional and brings over 20 years
of experience in this field across globally diverse industries in the
public and private sectors. She has previously held senior roles
in cyber security, as security strategic advisor and chief security
officer with Aramark Corporation in the USA, the Department for
Work and Pensions, Smiths Group plc and Diageo Global. Claudia
holds a PhD in computing and education from the University of
Birmingham. In 2022, she was awarded an MBE for services to the
cyber security profession.
Current appointments: The Digital Cyber Practice and a registered
European Commission Security and Cyber expert.
Jane Moriarty
A N R
Independent
Non-Executive Director
Appointed: December 2022
Nationality: Irish
Key contribution: Extensive international business and
finance experience.
Skills and experience: Jane, a Chartered Accountant, brings with
her over 30 years of international business and finance experience.
After a long executive career with KPMG, where she was a senior
advisory partner, Jane has held a number of non-executive roles,
including at Quarto Group Inc where she was Vice-Chair and Chair
of the audit and remuneration committees.
Current appointments: Non-Executive Director, Chair of the audit
committee and Senior Independent Director of Mitchells & Butlers plc
and Non-Executive Director of Nyrstar.
Appointment key
E
Executive Committee
N
Nominations Committee
A
Audit Committee
D
Director designated for
workforce engagement
R
Remuneration Committee Board Committee Chair
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Governance statement
Governance framework
Maintaining the highest standards of governance is integral to the successful delivery of our strategy. Our governance framework aims to
ensure that the Board provides effective leadership in both making decisions and maintaining oversight, mapping where accountability
resides and playing a key role in our internal controls.
Executive Safety Committee Group Executive Risk and
Controls Committee
Corporate Sustainability Committee
Reviews and discusses all matters of material significance to the Group’s management, operational and financial performance, as well
as strategic development. The Committee consists of the CEO, the CFO, the Chief Corporate Affairs Officer, the Chief Executive Marine,
the Chief Executive Nuclear, the Chief Executive Land, the Chief Executive Aviation and France, the Chief Executive Mission Systems,
the Chief Executive Africa, the Chief Executive Australasia, the Chief People Officer, the Chief Delivery Officer and the Group
Company Secretary.
For more information see www.babcockinternational.com/who we are/leadership-and-governance
Audit Committee Remuneration Committee
Nominations Committee
The Board’s role is to lead the Group for the long-term sustainable success of Babcock, by setting our strategy and supervising the
conduct of the Group’s activities within a framework of prudent and effective internal controls.
The Board has adopted a schedule of matters reserved for its specific approval (see page 144). For other matters, authority is delegated
to management according to a delegation matrix.
The Board
Group Executive Committee
Principal Board Committees
Principal Management Committees
Responsible for overseeing the Company’s
systems for internal financial control, risk
management and financial reporting.
Determines and applies the Remuneration
policy for the Executive Directors, as well
as the Group Executive Committee, and
is responsible for oversight of the
remuneration policies and practices
relating to the wider workforce.
Reviews the composition of the Board and
leads on Board appointments, as well as
succession planning at both Board and
senior management level and leading on the
Company’s Diversity and Inclusion policy.
● See pages 150 to 153 ●See pages 154 to 179 ● See pages 148 and 149
Responsible for Group-wide sustainability
initiatives, the management of climate-
related issues and driving the wider
sustainability agenda. The Committee is
chaired by the Chief Executive Land and
members include the CFO, the sector Chief
Executives, the Chief People Officer, the
Group Company Secretary, the Group
Director of Sustainability, and the Group
Health and Safety Director.
Provides direction and executive
management of the safety, health and
environmental protection framework
controls, to ensure risks are as low as
reasonably practicable and our approach
is coherent to enable continuous
improvement in performance across
Babcock. The Group Health and Safety
Director chairs the Committee and its
members include sector and DRC CEOs,
the Chief People Officer and the Chief
Delivery Officer.
Provides leadership and oversight of the
Group’s Enterprise Risk Management
Framework, acting as an interface between
the Audit Committee and the business.
The Committee has as its principal
deliverable the review and challenge
of the mitigation and control of the
Company’s principal risks. The Committee
membership includes the Executive
Committee, the Group Financial Controller,
the Group Director of Internal Audit, Risk
Assurance & Insurance and the Group
Director of Controls.
● See page 70 ● See page 117 ●See page 110
136 Babcock International Group PLC Annual Report and Financial Statements 2026
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Financial statements
○
Company purpose
The Board sets the Company’s Purpose, to create a safe and secure
world, together, and reviews how the Company aligns to it, including
assessing how the Company’s strategy is set to fulfil our Purpose.
Our principles of be curious, think: outcomes, be kind, collaborate,
be courageous, and own and deliver underpin our Purpose and the
culture the Board is seeking to embed in the Company.
Effective decision-making and oversight
The Board has an annual plan of business around which the Chair,
the CEO and the Company Secretary structure agendas and consider
the status of projects, strategic workstreams and the overarching
operating context. Standing agenda items and papers are presented
at each Board meeting; other matters are considered on a less
frequent but regular basis. Appropriate amounts of time are allocated
to items of business to allow for open and frank debate and to
encourage informed decision-making.
All scheduled meetings consider:
• Health and safety reports
• Operational update
• Financial update
• Investor relations update
• Legal/governance reports
• Conflicts of interest review
• Reports from Chairs of Remuneration, Audit and Nominations
Committees.
The Board regularly considers:
• Strategy update, including Sustainability
• Review of major and emerging risks
• Delegated authorities
• Committee terms of reference
• Whistleblowing reports
• Tax policy
• Treasury arrangements
• Modern Slavery Transparency Statement
• Deep-dive presentations from sectors, direct reporting countries
and Group functions
• Results announcements, annual report and notice of annual
general meeting.
Setting and overseeing strategy
The Board held its dedicated strategy review meeting in July 2025,
offsite. At the meeting, the Board reviewed the Company’s strategic
aims and tested their alignment to the interests of the Company’s
stakeholders. In addition to its dedicated review, the Board has
regular updates throughout the year, as the Board believes that
strategy should be a dynamic process, benefiting from regular
Board engagement and supported by dedicated deep-dive
review sessions.
More information on the implementation of the strategy overseen by
the Board can be seen on pages 20 and 21 and throughout the
Strategic report.
How the Board monitors culture
The Board believes that a company’s culture must align with
and support its strategy. The Board monitors culture
throughout the Group in the following ways:
Leading by example
Our Directors and senior managers act with integrity and lead
by example, promoting our culture to our colleagues through
living our principles and demonstrating them in action.
Listening to our people
Our Non-Executive Directors regularly visit our sites. At least
once a year, the Board holds one of its meetings at a site to
give the Non-Executive Directors the opportunity to engage
with colleagues together. As well as the Board site visit,
individual Non-Executive Directors take time to visit other sites
to engage with colleagues. In addition, our designated
Non-Executive Director for workforce engagement has his
own programme of site visits. His programme includes
extensive engagement with colleagues, and he feeds back the
key themes to the Board. As well as visiting sites, the
Non-Executive Directors engage in other ways with
colleagues, such as meeting with different colleague groups
such as the upcoming talent cohort and attendance at
leadership events. The Board also hears from colleagues
through the questions and feedback received by the CEO’s
dedicated email ’Ask David’, as well as from employee forums
and surveys. This year, the Company conducted its fourth
Group-wide Global People Survey (GPS). The Board reviewed
the results of the survey along with an action plan for
responding to the key themes.
● See pages 80 to 91
Ethics and whistleblowing
Whistleblowing lines are available throughout our business for
reporting any departure from our principles. The Board
reviews all whistleblowing reports, together with their
outcomes, on a regular basis as well as via an annual review.
Other cultural indicators
The Board receives health and safety metrics at its meetings
as well as receiving thematic reviews through its regular
‘People’ sessions. These sessions also cover Diversity
and Inclusion.
Embedding our culture
The Board has made sure that the Group-wide Global People
Survey (GPS) includes questions that focus on employee
satisfaction, so that the Board can assess employee
sentiment, helping the Board to understand what employees
value and the alignment of employees with the Company’s
culture. This year, Babcock had our largest ever response to
our survey, both in terms of participants and comments (79%
of employees participating with 80% commenting). These
responses show that Babcock is making progress, with 64%
of the 87,867 comments being favourable compared to 60%
in 2024, and our engagement score rising 4% on 2024.
However, Babcock is still behind our external benchmark, so
there is more work to do. To address this gap, the Board has
launched its Culture dashboard, for more information please
see page 138.
Babcock International Group PLC Annual Report and Financial Statements 2026 137
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Governance statement (continued)
Board leadership
To deliver the best outcome for the Company, we seek to understand our stakeholders’ priorities and factor these into our decision-making.
Accordingly, the Board works to establish and maintain strong stakeholder relationships. We gather an understanding of stakeholder views
via a combination of direct and indirect engagement.
Details of how the Directors receive information on our key stakeholders, and how they engage with them directly to support effective
decision-making and oversight, are set out below.
This section, through to page 142, forms part of the s172(1) statement which can be found in the Strategic report on page 68.
● Further information on how the Company engages with its stakeholders can be found on pages 68 and 69
How the Board engages
Information flow
to the Board
Direct Board
engagement
Matters and measures
reviewed by the Board
1
Customers
• Monthly written reports from
Executive Directors include
material customer matters
• Sector CEOs and the Executive
Directors give briefings at
Board meetings
During the year the Executive Directors had
regular meetings with the Group’s key
customers. These meetings happen
throughout the year and across all levels of
our key customers. At these meetings,
customers will discuss all issues relating to
Babcock, including the state of their
relationship with Babcock and Babcock’s
performance. The Executive Directors
report these meetings to the Board as part
of their monthly reporting. The Board
considers these reports in its discussions,
for example, on strategy and growth.
• Order intake by sector
• Major operational programmes’
RAG status
Investors
• Reports from Investor Relations
• Treasury reports
• Investor meetings/roadshow
• AGM
The Board engaged directly with its
investors, principally through meetings
with the Executive Directors and the Chair.
In addition, the Board receives regular
feedback from the Group Head of Investor
Relations. The Committee Chairs are
available to meet shareholders when
required. This year, the Chair of our
Remuneration Committee consulted with
shareholders on the Committee’s proposals
to amend the Remuneration policy. Our
AGM gives the Board an annual opportunity
to meet with private investors and for them
to ask questions directly to the Board.
This exchange of information has a direct
impact on the Board’s discussions on
strategy and budget.
• Underlying operating profit
• Operating cash flow
• Analysis of share
register movements
• Investor feedback from
results presentations and
investor meetings
• AGM feedback and voting
from shareholders and
proxy agencies
Employees
• Bottom-up reports from Lord
Parker, the Non-Executive
Director designated for
workforce engagement
• Global People Survey, our
Group-wide employee survey
• Top-down reports from the
Chief People Officer
• Principal trade union meeting
with the CEO and the Chief
People Officer
• Whistleblowing reports
Lord Parker continued his visits around the
Group’s many sites. After his visits, Lord
Parker gives an overview of his findings to
the Board. Other members of the Board
also meet with colleagues during their visits
to our sites. Additionally, the CEO engages
with colleagues Group-wide via vlogs, and
colleagues can contact him directly via a
dedicated email address. Members of the
Senior Leadership Team regularly present
to the Board. These discussions led to the
launch of the Culture dashboard.
• Participation rate and
engagement score in Global
People Survey
• Safety balanced scorecard
together with monthly overview
of significant safety events and
Total Recordable Injury Rate
• Ethics training compliance rate
• Gender pay gap
• Subject matter of
whistleblowing reports
138 Babcock International Group PLC Annual Report and Financial Statements 2026
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Information flow
to the Board
Direct Board
engagement
Matters and measures
reviewed by the Board
1
Communities
• Health, safety and
environment updates
• Material issues are included in
the monthly reports from
Executive Directors or in sector
CEO briefings
• Annual Report review
In the main, the sectors hold these
relationships at a local level where the most
relevant knowledge is concentrated, with
no direct engagement by the Board of
Directors. The Board continues to believe
that this level of engagement is appropriate,
as any material issues are brought to the
Board’s attention through the monthly
operational reports or the functional reports
to the Board. However, the Board does take
the opportunity to engage when
appropriate. For example, on site visits, the
Board seeks to engage the community
leaders as well as colleagues.
• Diversity performance
against target
• Performance against carbon
emissions target
• Whistleblowing reports
Suppliers
• Briefings from the Chief
Delivery Officer on an
annual basis
• Supply chain risk considered in
reports on major tenders
• Approval of the Modern
Slavery Transparency
Statement
Principal engagement is undertaken by
operational management, which reports
annually to the Board to give it oversight of
the function and its operations.
• Subject matter of
whistleblowing reports
• Modern Slavery Transparency
Statement review
1. Measures in bold are reviewed at every Board meeting, others at least once a year.
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How the Board took stakeholders’ interests into account in its decision-making
When the Board makes its decisions, it seeks to consider the Company’s stakeholders and their interests. Sometimes these interests are
aligned, but on other occasions the Board must balance different stakeholder interests and take the decision that it believes is most likely to
promote the long-term success of the Company in accordance with its duties under s172 of the Companies Act 2006. In all its decisions, the
Board keeps in mind the Company’s Purpose and principles to ensure alignment. Set out below is a description of how the Board addressed
stakeholder interests in its discussions and decision-making in relation to the Board’s key areas of focus.
Matters
considered
Discussion and outcome Stakeholders most
affected and relevant
s172 (1)
a-f factors1
More
information
1
Succession
planning
One of the Board’s most important duties is the Company’s succession
planning. The Nominations Committee leads this work on behalf of
the Board.
Over recent years, the Committee has developed a framework setting out
the competencies, experience and traits that will be critical for future
leadership and has used this framework on talent development,
strengthening pipelines and succession planning.
This framework balanced the priorities of the Company’s stakeholders with
its focus on sustainable profitable growth for shareholders, inspirational
leadership for employees, and operational excellence for customers.
The Committee used this framework to develop its internal candidates for
the CEO succession as well as a means of measuring external candidates.
This work extended over the recent years and readied the Committee for
when David informed it of his intention to retire, as it could move
seamlessly from preparation to execution.
• Shareholders
• Employees
• Customers
• a, b, c, d, e,
and f
●
Pages 148
and 149
2
Free share
award
Over the summer, the Board approved the introduction of an All-Employee
Free Share Award Programme. In coming to its decision the Board considered
three stakeholders. For shareholders, the Board believed that shareholders
would benefit as the award would align the interests of employees and
shareholders fostering a culture of ownership and high performance. For
employees, the Board felt they would see the awards as a recognition of their
contribution to the Company’s success. This would enhance the Company’s
ability to attract, motivate and retain talent for the benefit of the Company and
its shareholders. For customers, this culture of ownership would foster in turn
a culture of high performance. The Board set the award at £300 a year per
employee. This gave each employee an award of 29 shares in 2025. The
Board did not apply any performance conditions to the award, but if an
employee leaves before the end of the three-year holding period, they will
forfeit their shares.
• Employees
• Shareholders
• Customers
• a, b, and d
●
Page 88
1. s172(1) a-f factors are detailed in the s172(1) statement on page 68.
Governance statement (continued)
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Matters
considered
Discussion and outcome Stakeholders most
affected and relevant
s172 (1)
a-f factors1
More
information
3
Brand refresh
As part of its strategy process, the Board commissioned a review of the
“Babcock” brand. The review looked at the perception of Babcock
amongst its stakeholder groups and found that, while the brand had key
strengths, there were areas where the Company could develop it. The
Board decided that the best way to address those areas identified through
its stakeholder discussions was to adopt a new visual identity.
The new brand reflects the Company’s evolution over the last five years
and sets a clear and united direction. For employees it will help the
Company stand out in the jobs market to attract and retain talent with the
aim that the Company is seen as an employer of choice. For existing and
potential investors and customers, the new brand underlines that the
Company has transformed itself and is now one of the UK’s leading
defence companies.
The Company successfully launched its new visual identity at the Defence
and Security Equipment International Exhibition in the summer of 2025.
Following the launch, there were further campaigns targeted at different
stakeholder groups to raise the profile of and support for the new identity.
• Employees
• Shareholders
• Customers
• a, b, c, d, e, f
●
Page 81
4
Share buyback
programme
The Board reviewed and approved plans for a £200 million share buyback
programme. The programme commenced on 23 July 2025 and completed
in April 2026. Before approving the buyback, the Board measured the
programme against its capital allocation policy. With the Company’s strong
cash flow performance, the Board’s assessment was that the buyback
would not impede any of the policy’s priority items (organic investment,
financial strength, and ordinary dividend). This disciplined approach to
capital allocation benefits all stakeholders through its transparency and
certainty. The share buyback should benefit shareholders by reducing the
number of shares in circulation, leading to an increased share price and
better returns on dividends in the future. This in turn benefits employees
as an increased share price should make the company’s shares more
attractive to new investors, leading to job creation and creating a more
stable and attractive work environment.
• Shareholders
• Employees
• a, b, f
●
Page 251
1. s172(1) a-f factors are detailed in the s172(1) statement on page 68.
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How the Board keeps s172 on its agenda
The Board makes sure that, in its decisions, it considers the long-term success of the Company and considers the interests of its
stakeholders as follows:
• The Board sets the Company’s Purpose and strategy. Every year, it carries out an annual strategy review to assess the long-term
sustainable future of the Group and its impact on key stakeholders. As part of those discussions, it considers the matters the
Directors must have regard to as part of their Section 172 duties.
• The Board’s risk management procedures identify the principal risks facing the Group and the mitigations in place to manage the
impact of these risks. Many of these risks relate to our stakeholder groups.
• The Board’s standing agenda covers areas of stakeholder interest, such as sector operational reports, functional reports, financial
reports, health and safety reports, and litigation reports, to ensure that the Board receives relevant updates on matters of interest to
our stakeholders.
• There are regular reports from the Audit Committee Chair and the Remuneration Committee Chair on items within their remit.
• When making decisions which require judgement to balance the interests of different stakeholder interests, the Board is careful to
consider the interests of each different stakeholder in the context of the long-term consequences: for examples, please see above.
Members of the Board regularly engage with our investors and colleagues, and the Board uses the stakeholder engagement
summarised on pages 68 and 69 and on pages 138 and 139 to understand the priorities of each stakeholder group, and then uses
that understanding to inform its decision-making process.
Governance statement (continued)
142 Babcock International Group PLC Annual Report and Financial Statements 2026
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Defining Board responsibilities
The role specifications below set out the clear division of responsibility between the Executive and Non-Executive members of the Board,
which supports the integrity of the Board’s operations.
A more detailed description of these roles is available online at www.babcockinternational.com.
Non-Executive Executive
Chair
• Independent on appointment;
• Leads the Board and sets the tone and agenda, promoting a culture of
openness and debate;
• Ensures the effectiveness of the Board and that Directors receive accurate,
timely and clear information;
• Ensures effective communication with shareholders;
• Acts on the results of the Board performance evaluation and leads on the
implementation of any required changes; and
• Holds periodic meetings with Non-Executive Directors without the
Executive Directors present.
Senior Independent Director
• Acts as a sounding board for the Chair;
• Available to shareholders if they have any concerns which
require resolution;
• Leads the annual evaluation of the Chair’s performance; and
• Serves as an intermediary to other Directors when necessary.
Independent Non-Executive Directors
• Support and constructively challenge the Executive team;
• Contribute to the development of the Company’s strategy;
• Provide an external perspective and bring a diverse range of skills and
experience to the Board’s decision-making;
• Contribute to Board discussions on the nature and extent of the risks the
Company is willing to take to achieve its strategic objectives;
• Satisfy themselves as to the integrity of financial information;
• Ensure financial controls and systems of risk management are robust and
defensible; and
• Play a primary role in appointing and, where necessary, removing
Executive Directors, setting their remuneration and succession planning.
Designated Non-Executive Director for workforce engagement
• Gauges the views and feedback of the workforce and identifies any areas
of concern;
• Communicates the views of the workforce to the Board;
• Ensures the views of the workforce are considered in Board decision-
making; and
• Ensures the Board takes appropriate steps to evaluate the impact of any
proposals that influence the experiences of the workforce, and considers
what steps the Board should take to mitigate any adverse impact.
Chief Executive Officer
• Oversees the day-to-day operation and
management of the Group’s businesses
and affairs;
• Responsible for the implementation of Group
strategy as approved by the Board, including
driving performance and optimising the
Group’s resources;
• Accountable to the Board for the Group’s
operational performance; and
• Takes primary responsibility for managing the
Group’s risk profile, identifying and executing
new business opportunities, and management
development and remuneration.
Chief Financial Officer
• Accountable to the Board for the Group’s
financial performance;
• Responsible for raising the finance required to
fund the Group’s strategy, and servicing the
Group’s financing whilst maintaining
compliance with its covenants; and
• Maintains a financial control environment
capable of delivering robust financial
reporting information to indicate the Group’s
financial position.
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Articles of Association
The powers of the Directors are set out in the Company’s Articles of
Association (the Articles), which the members of the Company may
amend by a Special Resolution. The Board may exercise all powers
conferred on it by the Articles, in accordance with the Companies
Act 2006 and other applicable legislation. The Articles are available
for inspection online at www.babcockinternational.com.
The Board has established a formal schedule of matters specifically
reserved for its approval. It has delegated other specific
responsibilities to its Committees. These are clearly defined in their
terms of reference (available online at www.babcockinternational.
com/wp-content/uploads/2025/06/Articles-of-Association.pdf).
Other responsibilities are delegated to management under a
delegated authorities matrix.
Summary of key matters reserved for the Board
• Group strategy
• Interim and final results announcements and the
Annual Report
• Dividend policy
• Acquisitions, disposals and other transactions outside
delegation limits
• Significant contracts not in the ordinary course of business
• Major changes to the Group’s management or
control structure
• Changes relating to the Company’s capital structure or status
as a listed PLC
• Annual budgets
• Major capital expenditure
• Major changes in governance, accounting, tax or
treasury policies
• Internal controls and risk management (advised by the
Audit Committee)
• Major press releases and shareholder circulars
Meetings and attendance
Each financial year, the Board has eight scheduled full Board
meetings held in person, which includes a meeting dedicated to
strategy, and two operational updates held by video conference or in
person. The Chair also meets separately with Non-Executive
Directors without Executive Directors or other managers present.
See the table opposite for further information about the meetings
held during the year. There was 100% attendance at scheduled
Board, Audit Committee, and Nominations Committee meetings and
96% for the Remuneration Committee.
Conflicts of interest and independence
Babcock has a procedure for the disclosure, review, authorisation
and management of Directors’ actual and potential conflicts of
interest or related party transactions in accordance with the
Companies Act 2006. The procedure requires Directors formally to
notify the Board (via the Company Secretary) as soon as they
become aware of any new actual or potential conflict of interest, or
when there is a material change in any of the conflicts of interest
they have already disclosed.
A register is maintained of all the disclosures made and the terms
of any authorisations granted. Authorisations can be revoked,
or the terms on which they were given varied, at any time, if
judged appropriate.
In the event of any actual conflict arising in respect of a particular
matter, mitigating action would be taken (for example, non-
attendance of the Director concerned at all or part of Board meetings
and non-circulation to them of relevant papers).
Possible conflicts of interest are reviewed annually by the Board.
The Committee also considers the circumstances set out in the Code
which could compromise an individual’s position of independence.
The Board is satisfied that, throughout the year, all Non-Executive
Directors remained independent and accordingly the Company is
compliant with Provision 10 of the Code.
Time commitment
The expected time commitment of the Chair and Non-Executive
Directors is agreed and set out in writing in their respective letters of
appointment, at which point the existing external demands on an
individual’s time are assessed to confirm their capacity to take on the
role. Further appointments can only be accepted with the approval of
the Chair, following consideration of whether there would be an
impact on the independence and objectivity required to discharge
the agreed responsibilities of each role, and whether the resultant
position is believed to be consistent with recognised proxy advisor
guidelines.
The Board is satisfied that each Director has the necessary time to
effectively discharge their responsibilities and that, between them,
the Directors have a blend of skills, experience, knowledge and
independence suited to the Company’s needs and its continuing
development.
Board and Committee membership, meetings
and attendance
Board
Nominations
Committee
Audit
Committee
Remuneration
Committee
Number of scheduled
meetings held 8 8 7 6
Dame Ruth Cairnie 8/8 8/8 – –
Carl-Peter Forster 8/8 8/8 – 6/6
John Ramsay 8/8 8/8 7/7 6/6
Lord Parker 8/8 8/8 – 3/3
Jane Moriarty
1
8/8 8/8 7/7 5/6
David Lockwood 8/8 – – –
David Mellors 8/8 – – –
Sir Kevin Smith 8/8 8/8 7/7 –
Claudia Natanson 8/8 8/8 – –
Aedamar Comiskey 6/6 5/5 4/4 4/4
1. Jane Moriarty was unable to attend one Remuneration Committee
meeting due to a prior commitment.
Governance statement (continued)
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Composition
The Nominations Committee keeps the composition of the Board under constant review to ensure a balance of skills, experience and
knowledge to lead the Group. As at 31 March 2026, the Board comprised the Chair, who was independent on appointment, seven
Independent Non-Executive Directors and two Executive Directors. All continuing Directors are required to offer themselves for re-election
by shareholders each year at the Annual General Meeting and each appointment is put to a separate vote. Biographical details can be
found on pages 134 and 135 and there is more information on appointments to the Board in the Nominations Committee report on
pages 148 and 149.
Diversity policy
Our policy is that, to be effective in delivering our customers’ needs and our future ambitions, the Company must attract, retain, motivate
and develop highly capable colleagues. Attracting talent is competitive and therefore the Company must work to ensure that it attracts
potential colleagues from every part of society. This requires the Company to foster an inclusive culture where all colleagues feel valued
and welcomed. Our aim is to build talented teams with a range of backgrounds, skills and experience, but all aligned around our Purpose
“To create a safe and secure world, together”.
Board diversity
Throughout FY26, the Board was in line with the Financial Conduct Authority’s diversity and inclusion Listing Rules of having at least 40%
female representation on the Board, at least one senior Board position held by a female and at least one member of the Board being from an
ethnic minority background, as well as those for the FTSE Women Leaders Review (at least 40% female representation on the Board) and the
Parker Review (at least one Board member being from an ethnic minority background). For more information on the Group’s diversity policy
and its objectives, please see page 149.
Board and executive management ethnicity
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
Executive
Committee
Percentage of
Executive
Committee
White British or other White (including minority-white
groups) 9 90% 4 13 100%
Mixed/Multiple Ethnic Groups – – – – –
Asian/Asian British – – – – –
Black/African/Caribbean/Black British 1 10% – – –
Other ethnic group, including Arab – – – – –
Not specified/prefer not to say – – – – –
Board and executive management gender
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
Executive
Committee
Percentage of
Executive
Committee
Men 6 60% 3 10 77%
Women 4 40% 1 3 23%
Non-binary – – – – –
Use another term – – – – –
Not specified/prefer not to say – – – – –
The tables and charts in this section show the position at 31 March 2026. The Company has collected the data on which the tables above are
based by the individuals concerned self-reporting their data on being asked about their ethnicity and gender in the categories listed.
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Independence Gender Ethnicity Nationality
UK
Non-UK/dual national
Men
Women
White British or other white
(including minority-white
groups)
Black/African/Caribbean/
Black British
Chair
Executive Directors
Independent
Board information
Board tenure
The average Board tenure at 31 March 2026 was 4.2 years.
Dame Ruth Cairnie
Carl-Peter Forster
David Lockwood
David Mellors
Lord Parker
John Ramsay
Jane Moriarty
Sir Kevin Smith
Claudia Natanson
Aedamar Comisky
Years served at 31 March 2026
5.8
5.6
5.4
5.4
4.3
3.3
2.8
2.1
0.6
7
Succession
The Chair, Senior Independent Director and Independent Non-
Executive Directors are appointed for a three-year term, subject to
annual re-election by the shareholders. At the end of the first
three-year term, the Nominations Committee reviews each Non-
Executive Director’s tenure to make sure that renewing the
appointment is the right decision. The Nominations Committee will
usually renew the appointment for a further three years. After the
second three-year term, the Nominations Committee reviews the
appointment annually.
The ongoing replenishment of the Board is a key focus for the
Nominations Committee and more information about succession
planning can be found in its report on pages 148 and 149.
Director training
With the ever-changing environment in which Babcock operates,
it is important for our Executive and Non-Executive Directors to
remain aware of recent and upcoming developments, and keep
their knowledge and skills up to date. Each Non-Executive
Director is expected to participate in their own continuous
professional development.
Non-Executive Directors may at any time make visits to Group
businesses or operational sites and are encouraged to do so at least
once per year. Visits are coordinated by the Group Company
Secretary’s office. Presentations on the Group’s businesses and
specialist functions are made regularly to the Board.
Our Company Secretary also provides updates to the Board and its
Committees on regulatory and corporate governance matters.
Our new Directors receive comprehensive and tailored induction
programmes. The programmes for Non-Executive Directors
typically involve:
• Meetings with the Executive Directors, the sector CEOs and
functional leads
• An overview of the Group’s governance policies, corporate
structure and business functions
• Details of risks and operating issues facing the Group
• Visits to key operational sites
• Briefings on key contracts and customers.
Governance statement (continued)
146 Babcock International Group PLC Annual Report and Financial Statements 2026
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Evaluation
FY26 Board performance review
Each year we review the Board’s ways of working as well as its skills, experience, independence and knowledge, to confirm it is able to
discharge its duties and responsibilities effectively. The composition and diversity of the Board and its Committees and how well the
Directors are working together is considered, as well as the individual performance of the Directors and the Chair. This year the review was
internally led by Aedamar Comiskey. The review identified that the key strengths of the Board were its collegiate ways of working and its
diversity of skills and experience. The review did identify actions for the Board to work on over FY27, which are detailed below.
Progress made on actions identified in the FY25 review
Recommendations for FY25 Outcome
Review the Company’s brand as a tool to establish a
joint vision for the Company
The Board engaged with its stakeholders and, using the results of the
engagement, refreshed the Company’s brand. For more information, please
see page 81.
Review the Board’s monthly reports to increase the
focus on key KPIs
The Board reviewed the monthly Board pack and agreed a set of changes to
improve the clarity and focus of the monthly Board packs.
Agree an approach to tracking progress on the steps
that the Company is taking to embed the Board’s
plans for the Company’s culture
Since 2022, the Board had improved the Group’s engagement scores, closing
the gap with the global average. The Company broke the engagement score
down into five pillars and devised plans on how to address each pillar. The
Board had a dedicated session to review those plans, which included the
introduction of a Culture dashboard for use by the Company’s senior leadership.
Continue to develop a single Leadership Framework
for implementation across all levels of the Company
Over the year, the Nominations Committee has developed a single Leadership
Framework, which it used for succession planning for the Group CEO. This
framework will act as a template for the succession planning for the Company’s
Senior Leadership Team.
Discuss the best way for the Board to leverage the
strengths of each of its members
The Board decided that the best way to leverage the strengths of each of its
members was to ensure that, at its informal meetings, the Board makes time to
discuss their respective strengths and experiences. This will allow Board
members to be aware of their respective domain knowledge in respect of the
topics raised for discussion at Board level.
Actions identified in the FY26 review
• Support the CEO transition
• Refresh the Company’s approach to strategy
• Consider how to refine the Company’s reporting on operational performance
• Continue the Board’s discussion on the Group’s AI strategy.
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The Committee
Dame Ruth chairs the Committee.
The other members throughout the year were all the Non-
Executive Directors.
● For biographies of the members, please see pages 134
and 135
● For attendance, please see page 144
Key responsibilities
• Board and Committee composition
• Succession and talent
• Culture
• Inclusion
Nominations
Committee
report
Highlights
Development of Senior
Leadership succession plans
Review of the structure, size,
and composition of the Board
Dear fellow Shareholder
I am pleased to present the Nominations Committee report for the
year ending 31 March 2026.
Senior leadership and succession
Over the year the Nominations Committee has been very busy with
preparing for and then making key decisions regarding CEO
succession, with David’s advice in January of his intention to retire.
We have been developing and enhancing our approach to talent
development and succession planning over recent years and
significant progress had already been achieved prior to the start of
FY26. A number of moves to strengthen leadership at senior levels
had been made, externally supported and benchmarked assessment
of top talent had been undertaken and tailored development plans
were in place. During FY26 the process of development, mentoring
and assessment continued while we introduced a focus on CEO
succession by developing the Board’s expectations of required
capabilities for a future CEO, recognising that the detail would
depend on the timing, strategic progress of the Company and
external factors in an uncertain environment. We also extended the
depth of assessments of potential external candidates.
Dame Ruth
Cairnie
Chair of the
Nominations
Committee
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The level of preparation meant that, when David advised the Board
of his retirement intention, we were well placed to progress from a
preparation to an execution phase, building on the in-depth
knowledge we had accumulated. We refreshed our view on priorities
in the profile for our future CEO and conducted a selection process
considering both internal and external candidates. We were very
pleased to choose Harry Holt as David’s successor and were
pleased that talent development over a sustained period resulted in
our ability to appoint an internal successor.
As CEO of Babcock’s Nuclear sector, the Company’s largest sector,
Harry has been an integral part of David’s senior management team
since November 2023, successfully helping to deliver the Group’s
transformation and growth programme. Under his leadership, the
sector has improved performance on its many critical programmes
and has grown revenue by c54%, between FY23 and FY25,
achieving margins reaching 9%. Both the defence and civil
businesses within the Nuclear sector are well-set for exciting
future growth.
Prior to joining the Company, Harry spent seven years on the
Executive Team of Rolls Royce plc at a senior level, including
President of its Nuclear Division and latterly as Chief People Officer,
leading a group-wide transformation and restructuring. His industrial
career has also included a range of other senior appointments in the
aerospace, defence, security and nuclear sectors. Before joining
Rolls-Royce, Harry had a long and distinguished career as an officer
in the British Army.
Harry's experience in leading Babcock’s defence and civil nuclear
operations, allied to his strong existing relationships with the Group's
key customers and deep working knowledge of the wider defence
sector, means that he is exceptionally well-qualified to lead the
Company through the next stage of its strategy.
We have appointed Harry to a newly created role of Deputy CEO and
he will join the Board over the summer. We will have a
comprehensive and seamless transition before Harry succeeds
David as Group Chief Executive and David steps down from the
Board. Thereafter, David will continue to support the business as
needed. The Company used Russell Reynolds to assist in the
appointment process and to advise on the Company’s development
of its senior leadership. Russell Reynolds has no other connection to
the Company or its Directors.
Board composition
We announced last year that Lucy Dimes had decided to retire from
the Board. To appoint her replacement, we used our skills matrix to
understand the strengths we had around the Board table and the
areas where we could add extra strengths. We agreed that the Board
would benefit from the experience of someone with a background in
leading a complex international business. As a consequence, we
were delighted to appoint Aedamar Comiskey as our latest Non-
Executive Director. Aedamar is a leading public and private corporate
lawyer and has led the international law firm, Linklaters, since 2021,
advising on many significant transactions. From 2014 to 2024,
Aedamar was a Non- Executive Director at James Fisher and Sons
plc, where she was chair of the Remuneration Committee from 2018
and the Senior Independent Director from 2019. Since her
appointment at Babcock, Aedamar has been following our tailored
induction process, which involves meeting the Senior Leadership
Team and our key advisers, as well as visiting our key sites and
engaging with our employees. The Committee used MWM to assist
in the appointment of Aedamar. MWM does not have any other
connection with the Company or its Directors.
Inclusion and diversity
As a Board, we recognise our role in setting the tone from the top in
respect of inclusion and diversity We pay close attention to the three
externally set targets we are expected to comply with at Board level:
the FTSE Women Leaders Review target to have 40% women by
2026; the Parker Review target for at least one minority ethnic Board
member; and the Financial Conduct Authority target to have at least
one of the senior Board roles (Chair, SID, CEO, CFO) being a woman.
We are pleased to say that we met all three of these targets in FY26.
In the wider group, however, there is still more work to be done.
Our aspiration is to be a destination employer, where the best people
can do the most meaningful work of their careers. As part of our
plan to achieve our aim, this year we have launched our new People
strategy which aims to engage with our people across their time
with us from attraction right through to retention and progression.
Our new strategy will unify our colleague experience, encourage
our leaders to lead with purpose and impact, grow organisational
strength and capability, as well as driving performance and potential.
We look forward to monitoring the progress of our new strategy
through the regular reports that we receive as well as the extensive
engagement that we have our people across the organisation.
Culture
Culture plays a key role in our drive to continue the improvement of
our performance. Back in 2021, we launched our culture change with
the introduction of six principles. These principles guide and direct
Babcock, aligning all those who work in the business. This year to
support our principles, we launched a Culture dashboard for our
leadership teams to focus them on what we believe to be the key
indicators of an improving culture and to ensure consistency of
expectations throughout the Group. We will monitor the roll-out of
the dashboard over FY27. For more information on the work that we
are doing across the Group please see the report on sustainability
on page 70.
I hope this report gives you an understanding of the work of the
Committee over FY26 and look forward to meeting as many of you
as possible at this year’s AGM.
Dame Ruth Cairnie
Chair of the Nominations Committee
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Audit
Committee
report
Highlights
Review of the key
management judgements
and estimates for the FY26
financial statements
Review of the Company’s
approach to the new 2024
UK Corporate Governance
Code requirements
Dear fellow Shareholder
On behalf of the Committee, I am pleased to present to you our
report for FY26.
FY25 audit
FY25 was the first year that Forvis Mazars (FM) had acted as our
auditor. In my report to you last year, I explained our focus has been
on ensuring that we had the best possible transition and supporting a
good, but challenging, working relationship between the Babcock
and FM teams. We were happy with the result of our work, and, as
reported in last year’s report, we assessed the FY25 audit to have
been delivered to schedule and to a high-quality standard.
We were especially pleased as the AQR inspection report by the
Financial Reporting Council (FRC) of FM’s FY25 audit supported
our assessment. The FRC is the UK’s independent regulator
for audit quality and inspects audit files on a rotational basis.
The audit was assessed as requiring no more than limited
improvements, with no ‘key findings’ which would require
improvement. Two areas of good practice were noted – contract
revenue and Group audit oversight.
The FRC highlighted that FM’s substantive testing of certain
significant risk contracts demonstrated a detailed understanding of
those contracts, facilitating the design and execution of appropriate
audit procedures. The audit working papers captured FM’s
extensive challenge of management and its evaluation of
management’s judgements and assumptions.
John Ramsay
Chair of the Audit Committee
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150 Babcock International Group PLC Annual Report and Financial Statements 2026
As for the Group audit oversight, the FRC observed that the
evidence of FM’s involvement in and oversight of the work of
their overseas component auditors was of a high standard. In
particular, FM prepared detailed evidence covering their review
of component auditors’ working papers and FM’s site visits,
including their challenge and evaluation of underlying audit work
and reporting deliverables.
As regards the limited improvements suggested by the FRC, FM
prepared a report for the Audit Committee setting out how they
would address the points raised in the FY26 audit. For further
information on the FRC’s findings on key matters relevant to audit
quality at FM, please see the FRC’s report on media.frc.org.uk/
documents/Forvis_Mazars_LLP_Audit_Quality_Inspection_and_
Supervision_2025.pdf.
FY26 audit
Our plan for the FY26 audit was to build on the knowledge and
experience gained last year. This was made easier as there was
good continuity across the senior members of both teams. We
ensured that the teams invested the time up front in debriefing the
experiences of the FY25 audit, to identify any development areas to
improve the overall efficiency and effectiveness of the FY26 audit,
while ensuring our number one priority of high audit quality. Similar
to FY25, FM has applied a substantive approach to the FY26 audit,
with some limited reliance on IT controls.
To allow us to monitor the progress of the audit, we agreed with FM
a set of critical milestones and asked FM to report on progress
against those milestones on a regular basis. These milestones gave
us a clear line of sight so that we could discuss any deviations from
the agreed audit plan and could intervene if required. I would like to
thank both FM and the Babcock teams for their hard work and effort
in delivering another successful high-quality audit.
Internal controls
Our other key focus for FY26 has been the work to prepare
the Company for the new requirement introduced by the 2024
UK Corporate Governance Code, which requires boards to
formally review the effectiveness of their company’s risk
management and internal control framework at least annually,
and to report on the effectiveness of their company's risk
management and material controls.
This requirement will have effect from FY27 and we will report on it
in our FY27 Annual Report. Nevertheless, we have prioritised this
work and we are well advanced in our planning; the case study on
page 114 provides more detail on our approach and progress. We
have developed a dashboard for the tracking and monitoring of
material control effectiveness, which we will review throughout
FY27. This dashboard will provide sufficient visibility and detail to
enable us to challenge management, and to form the basis of our
judgement to agree with the Board the report we will make in our
future annual reports.
Priorities for FY27
Our priority is to maintain high-quality audit standards and to
look for opportunities to continuously improve. We will continue
with this in FY27.
As mentioned above, the planning and preparation to enable the
Board to comply with provision 29 of the 2024 Corporate
Governance Code is well underway and we will be focused on
ensuring that this is effectively implemented.
Given the advances in effectiveness of the audit achieved in FY25
and FY26, we believe that a further advance in the year-end
reporting timetable can be made in FY27.
As ever, I am available to all shareholders to discuss any significant
matter related to our work. Alternatively, all the Committee will be at
the 2026 AGM, where we will be available to answer any questions
you may have on this report or the Committee’s activities.
Finally, I would like to thank all the Committee members for their
work over the year, as well as welcoming our newest member of the
Committee, Aedamar Comiskey, who joined in September 2025.
John Ramsay
Chair of the Audit Committee
The Committee
John Ramsay chairs the Committee.
John is a Chartered Accountant, formerly the Chief Financial
Officer of Syngenta AG, and an experienced Audit Committee
chair (see page 134 for John’s full biography). The Board has
designated him as the financial expert on the Committee for the
purposes of the UK Corporate Governance Code.
In FY26, the other members of the Committee were Jane Moriarty,
Sir Kevin Smith and Aedamar Comiskey. All members of the
Committee are Independent Non-Executive Directors. Please see
pages 134 and 135 for their biographies and page 144 for
attendance and number of meetings.
During the year, the Committee invited the Chair of the Board,
other Non-Executive Directors, the CEO, the CFO, the Group
Financial Controller, the external audit team, the internal audit
team, and key senior management to attend its meetings,
as appropriate.
From time to time, the Committee meets separately with the
external audit lead partner as well as with the Head of Internal
Audit, to give them the opportunity to discuss matters without
management being present.
In addition, the Committee Chair maintains regular contact with the
external audit lead partner and Head of Internal Audit between
meetings, often without the presence of management.
Key responsibilities
• Ensuring the independence and quality of the audit
conducted by the external auditor
• Reviewing the Company’s Annual Report and Financial
Statements, as well as any announcements relating to
financial performance
• Challenging the accounting policies, judgements and
estimates, as well as disclosures, in those statements
• Reviewing the scope, remit, objectivity and effectiveness of
the internal audit function
• Reviewing the effectiveness of Babcock’s internal control and
risk management systems
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Audit Committee report (continued)
Audit Committee report
Below is our report on our activities over FY26. The report, along
with my letter, describes our activities over the year including how
we are meeting the requirements of the Financial Reporting Council
(FRC)’s Audit Committees and External Audit: Minimum Standard.
Audit independence
One of our key responsibilities is to ensure the independence and
objectivity of Babcock’s external auditors. To do this, we have set a
policy to control the mandates Babcock can give its external auditors
outside the external audit itself. Before instructing its external
auditors for any non-external audit work, Babcock must obtain prior
approval as follows: for the provision of non-audit services for fees
up to £10,000, the CFO may give the approval; for fees between
£10,000 and £100,000, the approval must come from the Committee
Chair; and, for fees of more than £100,000, Babcock will need the
approval of the Committee.
To supplement our policy, we also ask Forvis Mazars (FM) for a
confirmation that they comply with their relevant ethics codes and
believe themselves to be independent. FM have provided this
confirmation. The only non-audit services that they have supplied to
the Company related to Babcock Australia and Rosyth Royal
Dockyard. In both cases, FM were engaged to provide an audit of a
grant claim for immaterial compensation in the context of the Group
and the audit fee. In addition, they have confirmed that, if any issue
with their independence did arise during the audit, they would
formally report this to us in their Audit Completion Report.
Accordingly, we are satisfied that FM are independent and have the
required objectivity to deliver our external audit. For the FY26 audit,
Louis Burns was the lead audit partner and is in his second year.
Audit quality
Our number one priority is to ensure audit quality and effectiveness.
That was why, as reported above, we were pleased with the
conclusion of the review by the FRC into FM’s audit of our FY25
Annual Report.
With the experience of FY25, we were able to agree a more precise
assessment of the risk of material misstatement, which allowed us to
reduce scope for the FY26 audit: c.90% of our revenue was subject
to a full scope audit (FY25: 98%), c.7% was not in scope (FY25: 1%),
and 3% was subject to specific scope (FY25: 1%). This is in line with
the approach taken by other groups and allowed focus on those
areas with greater risks of material misstatement without reducing
audit quality or effectiveness.
At the same time as agreeing the scope of the audit, FM provided us
with their plan for the audit which documented the procedures that
they would adopt at different stages of the audit, as well as the work
they would perform on Babcock’s material components. They listed
the significant risks, key audit matters, and other key judgement
areas that would be relevant to their work. For their audit, they set a
financial statement materiality of £26.0 million (FY25: £24.0 million)
with a performance materiality of £15.6 million (FY25: £12.0 million)
and a “de minimis” threshold of £1.3 million (FY25: £0.7 million). At
the end of the process, we were satisfied that FM has delivered an
audit to the standard that we require.
FY26 financial statements
A central responsibility for our Board is to confirm that the Company
has prepared its financial statements in accordance with the relevant
financial reporting framework and that those statements give a true
and fair view of the assets, liabilities, financial position, and profit or
loss, as well as ensuring that its annual report including the financial
statements are fair, balanced, and understandable and provide the
information necessary for shareholders to assess the Company’s
position, performance, business model and strategy.
To assist the Board in complying with this responsibility, we reviewed
the Company’s Annual Report and Financial Statements and
recommended them for approval to the Board. Our review included the
basis for the preparation of the Company’s financial statements,
including challenging management on the assumptions supporting the
Going Concern and Viability statements (please see pages 130 and 131
for more detail). After our review, we were satisfied that Babcock
should prepare its financial statements as a going concern. We
challenged management on all material judgements and estimates that
the Company had incorporated into the financial statements, together
with the related disclosures, to ensure that the financial statements gave
a true and fair view. We also considered the totality of the Annual Report
alongside the financial statements to decide whether they, taken as a
whole, were fair, balanced, and understandable. Throughout our
review, we ensured that we challenged and tested the positions taken
by management.
In our review, the areas that we considered most significant were:
• The Company’s Type 31 programme: in FY23, Babcock
announced that its Type 31 contract would be loss-making. As
such, the accounting standards require Babcock to base the
expected loss on its best estimate of the costs of delivering the
programme with no bias towards prudence or optimism. Since
then, we have taken great care to review the judgements and
estimates management has used to calculate the expected loss.
This year, as the Company finished structural completion of ship
one, the focus has been on outfitting and commissioning. During
the outfitting stage, the programme 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, resulting in a £140 million charge at the year end.
The estimate of the expected loss is a complex process involving
multiple assumptions, which interlink with each other. We took
great care to review and challenge the assumptions taken by
management, the key ones being rework, productivity, labour
costs, schedule, and risk. This involved dedicated meetings to
review the process management had undertaken to determine
their judgement, which key representatives from the contract team
attended, as well as challenging the assumptions themselves. In
particular, we challenged management on the events in the year
which have increased the expected loss, particularly the causes of
rework, and tested the level of prudence that management had
used to assess future rework. In our review, we were aware of the
complexity involved in making the judgements and estimates, as
not only was there a range of possible outcomes for each
judgement and estimate, but the judgements and estimates were
also often inter-related. This complexity could result in a material
increase or decrease in the value of the expected loss. Remaining
contract costs are estimated to be circa £700 million. If actual
costs were to differ from those management has assumed by
10%, the potential impact on the contract loss could be circa
£70 million. For more information, please see page 203.
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• Contract revenue and margin recognition: we reviewed the
accounting treatment of other key programmes, principally the
Company’s contract to deliver engineering and other services to
support the MOD at Devonport and Clyde, which expired on
31 March 2026, its contract to operate the UK’s military satellite
communications network, and its contract to support the British
Army’s armoured fleet. The positions included in the FY26
accounts in respect of these contracts are judgemental. The
Committee reviewed the relevant judgements as well as the
evidence to support them, and concluded that the judgements
were highly probable and unlikely to be reversed.
The conclusion of our review was that we were pleased to
recommend to the Board that the FY26 Annual Report and Financial
Statements were representative of the Company’s year and
presented a fair, balanced, and understandable overview of the year.
A key support for our review is FM’s audit (please see page 187 for
their independent auditor’s report). The total fees paid to Forvis
Mazars in respect of their audit of the Company’s FY26 financial
statements was £8.9 million.
FY26 internal audit
We agreed an annual plan for internal audit at the start of FY26,
based on Babcock’s principal risks and uncertainties (please see
page 115). The plan delivered audits split across sectors, Direct
Reporting Countries, and Group functions. Over the course of the
year, Babcock’s internal audit team regularly reports to us the results
of its audits. Material actions are brought to our attention. We ensure
that each action has an owner responsible for the implementation of
the improvement, as well as a date for implementation. At our
meetings, we regularly review the implementation of all actions.
If any action becomes overdue, the internal audit team chases
progress on our behalf until the action is complete, while keeping us
abreast of progress.
The Committee assessed the effectiveness of the internal audit
function over the year using qualitative and quantitative indicators
including the delivery of the internal audit plan, the quality of audit
reports, the actions raised, the pace for closing out the raised
actions, and the resourcing of the team. Through our assessment,
we are satisfied that the team is both objective and effective.
Risk management and internal control systems
The Board has ultimate responsibility for risk management and
internal control processes. It has delegated to the Committee the
review of the effectiveness of these systems to assist it in
discharging this responsibility. A description of Babcock’s Risk
Management Framework can be found on pages 112 and 113.
The Group continues its journey to strengthen its underlying
processes and controls, underpinned by the work to prepare for the
2024 UK Corporate Governance Code. The case study on page 114
provides more detail on our approach and progress to date.
To carry out the review of the effectiveness of risk management and
internal controls for the Board, we receive reports on both over the
course of the year, which the Director of Risk and the Group Director
of Controls prepare and present to us, giving us the opportunity to
challenge and test the reports. This year, like last year, we were
satisfied with the progress that the Company is making in both
strengthening and improving the underlying controls, and in
preparation for the new reporting requirements under Provision 29 of
the 2024 UK Corporate Governance Code.
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Remuneration
Committee
report
Highlights
Completion of our review of the
Company’s Remuneration policy
Engagement with shareholders on
the implementation of the
Company’s Remuneration policy
Review of FY26 Remuneration
outcomes
Deciding on the implementation of
the Remuneration policy for FY27
Implementation of our Remuneration policy
Last year, we consulted extensively with shareholders over certain
changes that we wanted to make to our Remuneration policy. With
the benefit of shareholder feedback, we proposed three changes for
shareholders to approve at the 2025 AGM: the introduction of an
absolute total shareholder return “kicker” to our Performance Share
Plan (PSP), an increase to the annual bonus opportunity for the
Executive Directors from 150% to 180% of salary, and the inclusion
of a discretion to waive our requirement to defer 40% of any earned
bonus where Executive Directors have achieved their shareholding
requirement. We were pleased that c.68% of shareholders voted in
favour of these proposals. However, reconsidering our position later
in the year and the overall market situation, we decided not to
implement the changes immediately and to undertake a further
round of consultation prior to implementing any of the changes
in the future.
Dear fellow Shareholder
Thank you again for the time and care that you have taken in
responding to our consultation requests. Over the last year, we
have written to shareholders representing approximately 60% of
our register, initially in respect of changes to our Remuneration
policy and subsequently in respect of the implementation of those
changes. We have received a good level of feedback, which has
been invaluable in shaping our decisions and in ensuring they are
aligned to shareholder interests.
Carl-Peter Forster
Chair of the Remuneration Committee
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During FY26, we revisited the rationale for the changes. While we
continue to believe that our rationale for each change remains
compelling, we concluded that the change most appropriate to
implement this year was the waiver of the bonus deferral where an
Executive Director has met their shareholding requirement.
We view bonus deferral as a means of aligning the interests of
shareholders and executives over the medium term through
exposure to Babcock’s share price. However, where an Executive
Director has a significant holding of Babcock shares (either through
self-purchases or our share-based schemes), we believe that it is
appropriate to waive the deferral requirement and instead pay the
bonus entirely in cash. This approach is fairer overall and does not
dilute our clear emphasis on the importance of an alignment of
executive and shareholder interests through meaningful share
ownership, which is reflected in our requirements for our CEO to
hold Babcock shares with a value of 300% of salary and our CFO to
hold 200%. The waiver does not undermine our malus and clawback
powers, as we can exercise those powers to future cash bonuses
and the in-flight (three-year performance period) PSP awards as well
as those PSP awards in the two-year post-vesting holding period.
Accordingly, we wrote to shareholders representing c.60% of our
register to ask for their views on implementing the bonus deferral
waiver for FY26. As with the first consultation, most shareholders
who engaged agreed with our rationale and supported our proposal.
So we decided to implement the bonus deferral waiver with effect
from the FY26 bonus. As both Executive Directors have
shareholdings significantly in excess of their shareholding
requirement, the waiver applies to the FY26 bonus payout for David
Lockwood and David Mellors.
Remuneration in FY26
We always consider the business context to assure ourselves that
our remuneration outcomes reflect the Company’s performance and
the broader context, including shareholders’ experience and
interests. The Group delivered a strong underlying operational and
financial performance reflecting continued momentum in FY26, with
particularly strong performances in Nuclear and Aviation,
notwithstanding a partial offset to our strong underlying financial
results from a charge on the Type 31 contract. The Committee took
this context into account when reviewing incentive outcomes for
FY26 and, in particular, the formulaic impact of Type 31 on both the
profit element of the FY26 bonus outcome and the margin element
of the FY24 PSP.
We considered carefully whether the formulaic impact on each
scheme was appropriately aligned to the shareholder experience
and reinforced the desired behaviours and performance outcomes
that each scheme was intended to incentivise.
For the FY26 bonus, we decided that it was appropriate to reflect
the in-year impact of Type 31 on the operating profit element of the
bonus, even though this was a legacy contract entered into before
the tenures of both Executive Directors. The result is a nil payout
under the operating profit element, which is worth 40% of the
bonus opportunity.
The Committee
Carl-Peter Forster has chaired the Committee since September
2022 and has been a member of the Committee since joining
the Board in June 2020. The other Committee members are
currently John Ramsay, Jane Moriarty, Aedamar Comiskey and
Lord Parker. Please see pages 134 and 135 for biographies and
page 144 for attendance.
Key responsibilities
• Setting the Company’s Remuneration policy
• Oversight of reward matters across the Group
• Maintenance of a strong link between strategy, stakeholder
experience and Executive Director reward
• Approval of reward outcomes for the Executive Directors
In respect of the FY24 PSP, the Committee discussed at length
whether the impact of the Type 31 programme on the margin
element of the scheme was proportionate. In this case, we went
back to the original intent of including the margin element, namely, to
incentivise improved profitability of contracts through all available
levers including new contracting effectiveness, contract preparation,
efficiency improvements and, over time, the roll-off of some legacy
contracts. Meaningful progress has been made in this multi-year
improvement and we are on track to achieve our medium-term
guidance. It is this strategic progress that the margin element was
designed to capture, which, absent an adjustment for Type 31, the
PSP outcome would not appropriately recognise. We also noted that
shareholders’ perception of margin improvement had not appeared
to be impacted by the announcement of the Type 31 charge, as well
as noting the strong shareholder returns (c.296%) over the FY24
PSP performance period.
In the round, the Committee concluded that, for the FY24 PSP, it
should adjust the margin calculation to exclude the impact of Type 31
and we anticipate taking the same approach when assessing the
outcomes of the FY25 PSP and the FY26 PSP. Further details in
respect of the FY24 PSP are set out later in this Report.
This year, we approved the following outcomes:
FY26 salary: We disclosed the increase in salary for FY26 for David
Lockwood and David Mellors in our report last year. We were
pleased that shareholders overwhelmingly supported our decisions
by approving the Directors’ Remuneration report with a c.98% vote
in favour of the resolution.
FY26 annual bonus: As we reported last year, we kept the same
structure for the FY26 annual bonus for Executive Directors as used
over previous years. Underlying financial performance measures
comprise 80% of the bonus, split equally between underlying
operating cash flow (OCF) and underlying operating profit (OP), with
the remaining 20% allocated to non-financial measures. As in
previous years, we adopted a wide range for the performance
targets and retained discretion to ensure that the outcome aligned to
the experience of the Group’s stakeholders. We assessed and
carefully reviewed the performance of the Company over the year,
resulting in an annual bonus payout for FY26 of 59.0% of maximum
being awarded to the Executive Directors. The Committee approved
these outcomes having first completed a formulaic assessment and
then assessing that against Babcock’s wider performance alongside
the experience of our key stakeholders. Please see page 168 for
more detail.
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FY24 PSP vesting: We granted the FY24 PSP award in September
2023. This was the first year that we changed our scorecard to
include ESG measures alongside an expanded number of financial
measures – underlying free cash flow (an indicator of cash
generation), underlying operating margin (an indicator of operating
efficiency), and organic revenue growth (an indicator of business
growth). We included the ESG measures as we believe they not only
have operational and financial benefits through cost reductions and
operational efficiencies, but they also strengthen stakeholder trust
and confidence. All the measures share the same three-year
performance period ending on 31 March 2026. As we do every year,
at the time of grant, we reviewed the Company’s share price
performance to satisfy ourselves that the award of the full
opportunity (then 250% of salary for the CEO and 200% for the CFO)
was appropriate.
The outturn for the FY24 PSP award will be 95.3% of maximum. In
approving this vesting outcome, we undertook our normal
assessment for windfall gains, using a range of quantitative tests.
These tests supported our view that the value at vesting, which we
are reporting for the FY24 PSP in respect of the Executive Directors,
reflects the intrinsic value of the business following its successful
transformation under the leadership of David Lockwood and David
Mellors. For more information, please see page 169.
FY26 PSP grant: We granted the FY26 PSP award for the Executive
Directors in September 2025. In line with our approach to the FY25
PSP award, we set the core award opportunity for the CEO at 250%
of salary and at 200% for the CFO. The TSR kicker does not apply to
the FY26 PSP grant. We retained the same PSP measures as we had
used for FY25 and FY24 to align closely with the drivers of the
Company’s long-term performance and strategy. We have set the
targets for each measure to ensure that they are appropriately
stretching. For more detail, please see page 170.
Remuneration for FY27
For FY27, we have decided the following:
FY27 salary increase: Our practice is to review the Executive
Directors’ base salaries once we have completed the salary review
for our UK colleagues not covered by collective bargaining, being
the population that we believe is the best internal comparator for the
Executive Directors. Using this comparator as a guide, we will
increase David Lockwood’s salary by 3% with effect from 1 July
2026. We have set the annual salary of Harry Holt, our CEO
successor, as Deputy CEO, at £650,000. On Harry becoming CEO,
we will increase his annual salary to £900,000. We believe that this
salary reflects the challenge of leading a complex and large business
like Babcock. Harry is exceptionally well-qualified to take on this
challenge due to his experience of leading our defence and civil
nuclear operations, allied to his strong existing relationships with our
key customers and his deep working knowledge of the wider
defence sector. He will not receive any further increase in salary in
FY27. For David Mellors, we have increased his salary with effect
from 1 July 2026 by 5%. This increase is in line with the increase
awarded to our top performing colleagues in the UK not covered by
collective bargaining. We believe that David Mellors merits this
increase due to his sustained leadership and contribution which was
central to delivering in FY26 a strong underlying operational and
financial performance, reflecting continued momentum albeit partly
offset by the charge on the Type 31 contract.
Remuneration Committee report (continued)
FY27 annual bonus: We will keep the structure of the Executive
Directors’ annual bonus consistent with that for FY26, with measures
based on underlying OCF, underlying OP and non-financial
objectives. Following the policy vote last year, the maximum
allowable award opportunity has increased to 180%, however,
we will keep the bonus maximum at 150% of salary for this award.
We will not increase the maximum award without first consulting
with shareholders. As discussed above, following our consultation
with shareholders during the year, we will pay the bonus entirely in
cash to those Executive Directors who meet their shareholding
guidelines. We will disclose the targets in full in our report next year.
David Lockwood will participate in the FY27 annual bonus, with any
award pro-rated to the date of his retirement. Please see page 173
for more detail.
FY27 PSP grant: We will grant awards under the PSP to the
Executive Directors. The award will cover the three-year period
FY27 to FY29. Vesting of this core PSP award will continue to be
based on the measures we adopted for the last three years
(underlying free cash flow, underlying operating margin, organic
revenue growth and ESG), as we continue to believe they align
closely with the drivers of the Company’s long-term performance
and strategy. We have set the targets for each measure to ensure
that they are appropriately stretching. As David Lockwood is retiring,
he will not receive a FY27 PSP grant. The TSR kicker, as permitted
under the policy, will not be used on the FY27 awards. For more
detail, please see page 172.
Focus for FY27
Our focus as ever remains to further the interests of shareholders
through the implementation of our Remuneration policy. If you have
any questions, I am always available to answer them and would be
happy to discuss any aspects of this report at the AGM.
Carl-Peter Forster
Chair of the Remuneration Committee
156 Babcock International Group PLC Annual Report and Financial Statements 2026
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Remuneration at a glance
This section provides an overview of the remuneration received by our Executive Directors. You can find full details in the Annual report on
remuneration on pages 166 to 179.
FY26 remuneration outcomes
FY26 annual bonus
The Committee based the FY26 bonus on a mix of financial and non-financial measures; the performance targets for which (and actual
performance against these) are set out below. Due to the impact of Type 31, there was no payout under the underlying operating profit
element. For a full description of the FY26 annual bonus, please see page 168.
Measures Warranted payout (% of maximum bonus) Performance targets
D Lockwood D Mellors H Holt
3
Underlying operating
profit (OP)
1
40% Max 0% Outturn 40% Max 0% Outturn 40% Max 0% Outturn
Threshold £407.6m
Target £429.0m
Stretch £471.9m
Outturn
4
£294.1m
Underlying operating
cash flow (OCF)
1
40% Max 40% Outturn 40% Max 40% Outturn 40% Max 40% Outturn
Threshold £255.0m
Target £300.0m
Stretch £345.0m
Outturn
4
£348.3m
Non-financial
2
20% Max 19% Outturn 20% Max 19% Outturn 20% Max 19% Outturn
Total 100% Max 59.0% Outturn 100% Max 59.0% Outturn 100% Max 59.0% Outturn
1. For definitions, please see pages 46 and 50.
2. The Committee has merged several measures into an overall assessment in this table for disclosure purposes.
3. Pro-rated from the date of appointment as Deputy CEO.
4. Based on budgeted foreign exchange rates.
FY24 PSP
The Committee approved the FY24 PSP grant in September 2023. Measures and vesting are in the table below. The performance period was
three years to 31 March 2026. Performance against the measures warranted 95.3% vesting. As described on page 170, margin is calculated
to exclude the impact of Type 31 during the performance period.
% weighting
Threshold performance
(16.7% vesting)
Stretch performance
(100% vesting) Outturn
Vesting
(% of overall award)
3-year organic revenue growth 25% 15.7% 23.6% 31.4% 25.0%
3-year weighted average underlying
operating margin
1
30% 6.8% 8.0% 7.8% 25.3%
3-year cumulative underlying free cash flow 30% £216m £324m £575.6m 30.0%
ESG measures
2
15% 15.0%
Total vesting 95.3%
1. FY24 and FY25 account for 25% each of the measure whereas FY26 accounts for 50%.
2. The Committee has merged two separate measures into an overall assessment in this table for disclosure purposes
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Implementation of the Remuneration policy in FY27
For the current financial year, the Committee intends to implement the Remuneration policy as set out in the table below.
Base salary Pension Benefits
David Lockwood: £960,921 10% of salary Unchanged from FY26
David Mellors: £677,862 10% of salary Unchanged from FY26
Harry Holt (as CEO): £900,000 10% of salary In line with the Remuneration policy
The Committee reviewed the base salary of David Lockwood and David Mellors in June 2026 and increased their salaries by 3%
and 5% respectively. Harry Holt will not receive a salary increase in FY27 once he has started as CEO.
Annual bonus and Deferred Bonus Plan (DBP) PSP
The bonus structure will be consistent with that used for FY26
with awards of up to 150% of salary based on the achievement
of financial targets (underlying operating profit (OP) and
underlying operating cash flow (OCF), each a 40% weighting)
and non-financial measures (a 20% weighting).
The bonus will be paid in cash if an Executive Director meets
their shareholding guidelines. Otherwise, 40% of any bonus
earned will be deferred into shares for three years. For more
information about the guidelines, please see page 163.
PSP awards of 250% and 200% of salary will be granted to the incoming
CEO (Harry Holt) and CFO (David Mellors) respectively, with vesting based
on measures the Committee believes are most appropriate: underlying free
cash flow (weighted 30%), underlying operating margin (weighted 30%),
organic revenue growth (weighted 25%, and subject to a discretionary
operating margin underpin) and ESG (weighted 15%).
The TSR kicker, although permitted under the policy, will not be used
in FY27.
As he is retiring, David Lockwood will not receive a FY27 PSP grant.
Compliance statement
This report has been prepared in compliance with all relevant remuneration reporting regulations in force at the time and in respect of the
financial year under review.
This report contains both auditable and non-auditable information. The information subject to audit is marked.
Remuneration Committee report (continued)
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Our Remuneration policy for Executive Directors reflects a preference that we believe the majority
of our shareholders share – to rely more heavily on the value of variable performance-related
rewards than on the fixed elements of pay, to incentivise and reward success.
We weight the focus of executive remuneration towards performance-related pay with
a particular emphasis on long-term performance, as we believe that, properly structured
and with suitable safeguards, variable performance-related rewards are the best way of
linking pay to strategy, risk management and shareholders’ interests. Shareholders approved the
policy at the 2025 AGM. The full details of our Remuneration policy are available at
www.babcockinternational.com/who-we-are/leadership-and-governance.
Remuneration policy for Executive Directors
Base salary
Purpose and link
to strategy
To recruit and retain the best executive talent to execute our strategic objectives at appropriate cost.
Operation
The Committee reviews base salaries annually, with reference to the individual’s role, experience and
performance; salary levels at relevant comparators are considered, but do not in themselves drive
decision-making.
Opportunity
The Committee anticipates that increases in salary for the wider employee population over the term of this policy
will guide it on any increases for the Executive Directors. In certain circumstances (including, but not limited to, a
material increase in job size or complexity, market forces, promotion or recruitment), the Committee has discretion
to make appropriate adjustments to salary levels to ensure they remain fair and competitive.
Performance
metrics
Business and individual performance are considerations in setting base salary.
Pension
Purpose and link
to strategy
To provide market-competitive retirement benefits.
Operation
Cash supplement in lieu (wholly or partly) of pension benefits for ongoing service and/or membership of the
Group’s defined benefit or defined contribution pension scheme.
Opportunity
Executive Directors receive pension benefits up to the value (10% of salary, as of FY26) equivalent to the
maximum level of pension benefits provided under the Company’s regular defined contribution pension plans as
offered to the wider workforce in the relevant market, as may be in effect or amended from time
to time.
Performance
metrics
Not performance-related.
Remuneration policy report
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Benefits
Purpose and link
to strategy
Designed to be competitive in the market in which the Group employs the individual, or to meet costs effectively
incurred at the Company’s request.
Operation
The Group provides a range of benefits, which may include (but are not limited to): life insurance; medical
insurance; car and fuel benefits and allowances; home-to-work travel and related costs; and accommodation
benefits and related costs.
The Group may offer other benefits (eg relocation) if the Committee considers it appropriate and reasonable.
Opportunity
Benefit values vary by role and are periodically reviewed and set at a level that the Committee considers
appropriate in light of relevant market practice for the role and individual circumstances.
The cost of the benefits provided changes in accordance with market conditions, which will determine the
maximum amount that the Company would pay in the form of benefits during the period of this policy. The
Committee retains discretion to approve a higher cost in certain circumstances (eg relocation) or in circumstances
where factors outside the Company’s control have changed materially.
Performance
metrics
Not performance-related.
Annual bonus
Purpose and link
to strategy
To underpin delivery of year-on-year financial performance and progress towards strategic non-financial
objectives, being structured to motivate delivery against targets and achievement of stretching outperformance,
whilst mindful of the achievement of long-term strategy and longer-term risks to the Company.
The requirement to defer a substantial part of the bonus into Company shares, while building up a holding to meet
the in-post shareholding guideline, strengthens the link to long-term sustainable growth.
Operation
Performance targets are set at the start of the year and reflect the responsibilities of the Executive Directors in
relation to the delivery of our strategy.
At the end of the year, the Committee determines the extent to which the Group has achieved these targets. The
Committee has the discretion to adjust the outcome (up or down) within the limits of the plan for corporate
transactions, unforeseen events, factors outside reasonable management control, and changes to business
priorities or operational arrangements, to ensure targets represent and remain a fair measure of performance. In
addition, the Committee considers health and safety performance and may reduce or cancel any annual bonus
otherwise payable if it considers it appropriate to do so in light of that performance.
At least 40% of annual bonus payments for Executive Directors are deferred into Company shares for three years.
Dividend equivalents accrued during the deferral period are payable in respect of deferred shares when (and to
the extent) these vest. The Committee may waive the requirement to defer any element of annual bonus in respect
of any Executive Director who has met their shareholding guideline.
Malus and clawback provisions apply to cash and deferred bonus awards until the third anniversary of the
payment/vesting date, which is considered appropriate by the Committee, as it reflects the period over which the
Group’s processes and systems are likely to flag any occurrence of any of the key trigger events. Triggers include:
if the accounts used to determine the bonus level have to be materially corrected; if the Committee subsequently
comes to a view that bonus year performance was materially worse than originally believed; in the event of gross
misconduct; or if the award holder leaves employment in circumstances in which the deferred bonus did not lapse
and facts emerge which, if known at the time, would have caused the deferred bonus to lapse on leaving or would
have caused the Committee to exercise any discretion differently.
Opportunity
Maximum bonus opportunity is 180% of salary.
For achievement of threshold, the Executive Directors earn up to 15% of maximum bonus; for achievement of
target, they earn up to 55% of maximum bonus.
Performance
metrics
The Committee determines performance on an annual basis by reference to Group financial measures,
eg underlying operating profit, underlying OCF, as well as the achievement of non-financial objectives.
The weighting of non-financial objectives is limited to 20%, unless the Committee believes exceptional
circumstances merit a higher weighting.
The Committee retains discretion to vary the financial measures and their weightings annually, to ensure alignment
with the business priorities for the year.
Remuneration Committee report (continued)
160 Babcock International Group PLC Annual Report and Financial Statements 2026
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Performance Share Plan (PSP)
Purpose and link
to strategy
To incentivise delivery of sustainable value creation over the longer term.
Long-term measures guard against the Company taking short-term steps to maximise annual rewards at the
expense of future performance.
Operation
The Committee has the ability to grant nil-cost options or conditional share awards under the PSP.
The Committee reviews award levels and performance conditions, on which vesting depends, from time to time to
ensure they remain appropriate.
Participants will receive cash or shares equal to the value of any dividends that they would have received over the
vesting period on awards that vest.
The Committee has the ability to exercise discretion to override the PSP outcome in circumstances where
strict application of the performance conditions would produce a result inconsistent with the Company’s
remuneration principles.
An additional two-year holding period will apply to Executive Directors’ vested PSP awards, whether or not these
are exercised before the expiry of the period.
Malus and clawback provisions apply to PSP awards until the third anniversary of the payment/vesting date,
which is considered appropriate by the Committee, as it reflects the period over which the Group’s processes
and systems are likely to flag any occurrence of any of the key trigger events. Triggers include: if there is a
misstatement of the Group’s financial results for any period; if the Committee subsequently comes to a view that
performance was materially worse than originally believed; in the event of gross misconduct; or if the award
holder leaves employment in circumstances in which the award did not lapse and facts emerge which, if known
at the time, would have caused the award to lapse on leaving or caused the Committee to exercise any
discretion differently.
The Committee may introduce an absolute “TSR kicker”, acting as a multiplier to the core PSP awards based on
the Company’s absolute Total Shareholder Return, subject to prior shareholder consultation.
Opportunity
The maximum annual PSP award opportunity is, with the application of the TSR kicker, 500% of salary. Without the
TSR kicker, the maximum annual ‘core’ PSP award opportunity is 250% of salary.
16.7% of the core award will vest for threshold performance.
Performance
metrics
Vesting of PSP awards is subject to continued employment and Company performance over a three-year
performance period.
Core PSP awards made during the life of this policy will vest on the achievement of stretching targets that align to
key drivers of strategy (including, but not limited to, free cash flow, operating margin, organic revenue growth
and ESG). The vesting of any TSR kicker will be based on absolute total shareholder return, with full vesting of the
TSR kicker at 30% pa and with no kicker below 10% pa (with a straight-line sliding scale between these points).
The Committee will review the performance measures, their weightings and performance targets annually to
ensure continued alignment with Company strategy.
All-employee plans – Babcock Colleague Share Plan
Purpose and link
to strategy
To encourage employee ownership of Company shares.
Operation
Open to all UK tax-resident employees, including Executive Directors, of participating Group companies.
The plan is an HMRC-approved share incentive plan that allows an employee to purchase shares out of
pre-tax salary.
The Company can also make matching awards on purchased shares, as well as make awards of free shares that
are not conditional on employees purchasing shares. If held for a period approved by HMRC (currently three to
five years), awards are taxed on a favourable basis.
Opportunity
Participants can purchase shares up to the prevailing HMRC limit from time to time.
The Company currently offers to match purchases made through the plan at the rate of one free matching share
for every 10 shares purchased. The Committee reviews the matching rate periodically, but it will remain bound by
the prevailing HMRC limit. The Company may also make awards of free shares to eligible employees, the value of
which will be determined by the Committee within the prevailing HMRC limit.
Performance
metrics
Not performance-related.
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Approach to recruitment remuneration
In the case of hiring or appointing a new Executive Director, the
Committee may make use of any of the components of remuneration
(and subject to the same limits) set out in the policy above.
In determining appropriate remuneration for new Executive
Directors, the Committee will take into consideration all relevant
factors (including quantum, the nature of remuneration and from
where the Company recruited the candidate) to ensure that
arrangements are in the best interests of the Company and its
shareholders. The Committee may also make an award in respect of
a new external appointment to ‘replace’ incentive arrangements
forfeited on leaving a previous employer over and above the limits
set out in the policy in the table above. In doing so, the Committee
will consider relevant factors, including any performance conditions
attached to these awards, time to vesting and the likelihood of those
conditions being met. The fair value of the compensatory award
would not be greater than the awards the Company was replacing.
In order to facilitate like-for-like compensatory awards on
recruitment, the Committee may avail itself of the relevant Listing
Rule, if required.
When appointing a new Executive Director by way of promotion from
an internal role, the pay structure will be consistent with the policy
for external hires detailed above. Where an individual has contractual
commitments, outstanding incentive awards and/or pension
arrangements prior to their promotion to Executive Director, the
Company may honour those arrangements; however, where
appropriate, the Committee would expect these to transition over
time to the arrangements stated above.
When recruiting a new Non-Executive Director, the Committee or
Board will structure pay in line with the existing policy, namely a
base fee in line with the current fee schedule, with additional fees for
fulfilling the role of Senior Independent Director, Chair of the Audit
and Remuneration Committees, and Director designated for
workforce engagement.
Payments from existing awards
and commitments
Executive Directors are eligible to receive payment from any award
or other commitment made prior to the approval and implementation
of the Remuneration policy detailed in this report.
Performance measure selection and approach
to target setting
The Committee selects measures used under the annual bonus
plans annually to reflect the Group’s main strategic objectives for the
year. They reflect both financial and non-financial priorities.
The Committee sets performance targets to be stretching but
achievable, considering the Company’s strategic priorities and the
economic environment in which the Company operates. The
Committee sets financial targets taking into account a range
of reference points, including the Group’s strategic and
operating plan.
The Committee considers at length the appropriate financial
conditions and non-financial objectives to attach to annual bonus
awards, as well as the financial targets to attach to share awards, to
ensure they continue to be: (i) relevant to the Group’s strategic
objectives and aligned with shareholders’ interests, mindful of risk
management; and (ii) fair, by being suitably stretching whilst realistic.
The Committee has discretion to adjust the calculation of short- and
long-term performance outcomes in circumstances where
application of the formula would produce a result inconsistent with
the Company’s remuneration principles. Such circumstances may
include changes in accounting standards and certain major
corporate events such as rights issues, share buybacks, special
dividends, corporate restructurings, acquisitions and disposals.
The Committee reviews the performance conditions for share
awards prior to the start of each cycle to ensure they remain
appropriate. The Committee would not make a material reduction in
long-term incentive targets for future awards without prior
consultation with our major shareholders.
Executive Director and general
employee remuneration
The policy with regard to the remuneration of senior executives
below the Board is broadly consistent with that for the Executive
Directors, in that it weights remuneration to variable components
which are delivered through an annual bonus and equity-based
incentives, albeit that the Company reserves the discretion to use
restricted stock awards, and not the PSP, for some participants
below Board level, when appropriate. The Committee considers the
Remuneration policy for our Executive Directors while keeping in
mind the remuneration philosophy and principles that underpin
remuneration for the wider Group. The remuneration arrangements
for other employees reflect local market practice and the seniority of
each role. As a result, the levels and structure of remuneration for
different groups of employees will differ from the policy for
Executive Directors as set out above, but with the common intention
that remuneration arrangements for all groups might reasonably be
considered to be fair having regard to such factors.
Balance of remuneration for Executive Directors
The charts below provide an estimate of the potential future reward
opportunities for the Executive Directors, and the potential split
between the different elements of remuneration under four different
performance scenarios: ‘Minimum’, ‘On-target’, ‘Maximum’ and
‘Maximum+50%’.
Potential reward opportunities are based on the Company’s
Remuneration policy and implementation in FY27, as outlined in the
Committee Chair’s statement and later in the Annual report on
remuneration, applied to base salaries as at 1 July 2026. Note that
the projected values exclude the impact of any share price
movements except in the ‘Maximum+50%’ scenario.
0
500 1,000 1,500 2,000 2,500 3,000
Minimum
On-target
Maximum
Maximum
+50%
Chief Executive
David Lockwood (£’000)
45%
60%
55%
40%
100%
45% 55%
Fixed Bonus
£2,618
£1,970
£1,177
£2,618
Remuneration Committee report (continued)
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Fixed Bonus PSP
0
1,000 2,000 3,000 4,000 5,000
Minimum
On-target
Maximum
Maximum
+50%
Chief Financial Officer
David Mellors (£’000)
24%
49%
32%
36% 15%
44% £3,133
20% 27%
53%
£3,811
£1,546
100%
£760
0
1,000 2,000 3,000 4,000 5,000
Minimum
On-target
Maximum
Maximum
+50%
Deputy CEO
Harry Holt (£’000)
24%
51%
28%
33% 16%
48%
100%
20% 23%
57%
Fixed Bonus PSP
£3,441
£1,649
£841
£4,254
The ‘Minimum’ scenario shows base salary, pension (and/or pay
in lieu of pension) and taxable benefits (ie fixed remuneration).
These are the only elements of the remuneration packages that
are not at risk.
The ‘On-target’ scenario reflects fixed remuneration as above, plus a
payout of 55% of the annual bonus and threshold vesting of 16.7% of
the maximum core award under the PSP (ie c42% of salary for Harry
Holt, c33% for David Mellors, nil for David Lockwood who will not be
granted a PSP award in FY27).
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout
under the annual bonus (of 150% of salary), and full vesting of the
core PSP award (250% of salary for Harry Holt and 200% for David
Mellors, nil for David Lockwood who will not be granted a PSP award
in FY27).
The ‘Maximum+50%’ scenario reflects fixed remuneration, full
payout under the bonus, plus full vesting of the core PSP award
(250% of salary for Harry Holt and 200% for David Mellors, nil for
David Lockwood who will not be granted a PSP award in FY27), with
PSP awards also reflecting an increase of 50% in the share price
from grant.
Shareholding guidelines for Executive Directors
The Committee sets shareholding guidelines for the Executive
Directors. The current guideline is to build and maintain, over time, a
personal (and/or spousal) holding of shares in the Company
equivalent in value to at least twice the Executive Director’s annual
base salary (three times for the CEO). Executive Directors are
expected to retain at least half of any shares acquired on the
exercise of a share award that remain after the sale of sufficient
shares to cover tax and national insurance triggered by the exercise
(and associated dealing costs) until the guideline level is achieved
and thereafter maintained.
The shareholding requirements include a post-cessation extension
such that departing Executive Directors will be required to hold
vested Company shares, received through incentive plans granted
from FY21 onwards, for two years at a level equal to the lower of
their actual shareholding on cessation and the in-post shareholding
requirement. Any shares purchased by an Executive Director will not
be part of this holding requirement.
Details of Directors’ service contracts and
exit payments and treatment of awards
on a change of control
The following summarises the key terms (excluding remuneration) of
the Executive Directors’ service contracts:
Executive Directors
Name Date of service
contract
Notice period
David Lockwood
(Chief Executive)
29 July 2020 12 months from
Company, 12 months
from Director
David Mellors
(Chief Financial
Officer)
29 September 2020 12 months from
Company, 12 months
from Director
Harry Holt
(Deputy Chief
Executive)
1
23 February 2026 12 months from
Company, 12 months
from Executive
1. On becoming CEO and an Executive Director, Harry will enter into a
new service contract but the notice period will remain the same.
The latest Executive Director service contracts are available for
inspection at the Company’s registered office and will also be
available at the Company’s Annual General Meeting.
The Company’s policy is that Executive Directors’ service contracts
should be capable of being terminated by the Company on not more
than 12 months’ notice. The Executive Directors’ service contracts
entitle the Company to terminate their employment without notice by
making a payment of salary and benefits in lieu of notice. Under the
Executive Directors’ contracts, the Company may choose to make
the payment in lieu by monthly instalments, and mitigation applies
such that the Committee may decide to reduce or discontinue further
instalments. When Harry Holt becomes Chief Executive, he will also
have a notice period of 12 months from the Company and a notice
period of 12 months from him.
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In addition to the contractual provisions regarding payment on termination set out above, the Company’s incentive plans contain provisions
for termination of employment, where the Committee has the discretion to determine the level of award vesting as described in the table
below.
Name Treatment on a change of control Treatment for a good leaver* Treatment for
other leavers
Annual bonus
Will be paid a time pro-rated
proportion, subject to performance
during the year, generally paid
immediately, with Committee
discretion to treat otherwise.
Will be paid a time pro-rated
proportion, subject to performance
during the year, generally paid at the
year end, with Committee discretion to
treat otherwise.
No annual bonus entitlement, unless
the Committee exercises discretion to
treat otherwise.
Deferred bonus
awards
Participants may exercise awards
in full on the change of control,
with Committee discretion to
treat otherwise.
Entitled to retain any award, which will
generally vest at the normal vesting
date, with Committee discretion to
treat otherwise.
Outstanding awards are forfeited
unless the Committee exercises
its discretion to treat otherwise.
PSP
Awards generally vest immediately
and, for performance-related awards,
will be pro-rated for time and remain
subject to performance conditions,
with Committee discretion to
treat otherwise.
Entitled to retain a time pro-rated
proportion, which remains subject to
performance conditions tested at the
normal vesting date. In very
exceptional circumstances, the
Committee has discretion to allow
immediate vesting, but time pro-rating
will always apply.
Outstanding awards are forfeited
unless the Committee exercises its
discretion to treat otherwise.
*
An individual would generally be considered a ‘good leaver’ if they leave the Group’s employment by reason of injury, ill-health, disability,
redundancy or retirement. The treatment of share awards held by Directors who leave on other grounds is entirely at the discretion of the
Committee, and, in deciding whether (and the extent to which) it would be appropriate to exercise that discretion, the Committee will have regard
to all the circumstances.
External appointments of Directors
The Directors may accept external appointments with the prior approval of the Chair, provided that such appointments do not prejudice the
individual’s ability to fulfil their duties for the Group. Any fees for outside appointments are retained by the Director. The Chair will approve
such appointments, as the Board believes it is beneficial for Directors to gain experience of practice in other organisations. However, before
approving any appointment, she must satisfy herself that there are no conflict issues with the Company (or they can be appropriately dealt
with) and the Director will have sufficient time to devote to the Company.
Chair and Non-Executive Directors
Name Date of appointment as a Director Date of current appointment letter Anticipated expiry of present term of
appointment (subject to annual re-election)
Dame Ruth Cairnie (Chair) 3 April 2019 1 April 2026 AGM 2027
Carl-Peter Forster 1 June 2020 1 April 2026 AGM 2027
Lord Parker 10 November 2020 1 April 2026 AGM 2027
John Ramsay 6 January 2022 25 March 2025 AGM 2028
Jane Moriarty 1 December 2022 25 March 2025 AGM 2028
Sir Kevin Smith 1 June 2023 1 April 2026 AGM 2029
Claudia Natanson 1 March 2024 12 February 2024 AGM 2027
Aedamar Comiskey 1 September 2025 11 August 2025 AGM 2028
The Group’s Non-Executive Directors serve under letters of appointment as detailed in the table above, normally for no more than three-year
terms at a time; however, in all cases appointments are terminable at will at any time by the Company or the Director. All Non-Executive
Directors are subject to annual re-election by the Company in general meeting in line with the UK Corporate Governance Code.
The latest written terms of appointment are available for inspection at the Company’s registered office and at the Company’s Annual General
Meeting. The expected time commitment of Non-Executive Directors is set out in their current written terms of appointment.
Details of the Non-Executive Directors’ terms of appointment are shown in the table. The appointment and re-appointment, and the
remuneration, of Non-Executive Directors are matters reserved for the Nominations Committee and Executive Directors, respectively. The
remuneration of the Chair is a matter reserved for the Remuneration Committee.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order to carry
out their duties as members of the Board and its Committees. The Non-Executive Directors are not eligible to participate in the Company’s
performance-related incentive plans and do not receive any pension contributions.
Remuneration Committee report (continued)
164 Babcock International Group PLC Annual Report and Financial Statements 2026
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Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Function Operation Opportunity Performance
measures
To attract and
retain high-calibre
Non-Executive
Directors with
commercial and
other experience
relevant to
the Company
Fee levels are reviewed against market practice from time
to time (by the Chair and the Executive Directors in the case
of Non-Executive Director fees and by the Committee in
respect of fees payable to the Chair). Additional fees are
payable for additional responsibilities such as acting as
Senior Independent Director, Chair of the Audit Committee,
Chair of the Remuneration Committee and Director
designated for workforce engagement. Allowances may also
be paid to reflect the time commitment of travel required to
fulfil the role.
Non-Executive Directors do not participate in any incentive
schemes, nor do they receive any pension or benefits (other
than the cost of travel and accommodation expenses).
The Company reviews fee levels by reference to FTSE-listed
companies of similar size and complexity. It takes into
account time commitment, level of involvement required and
responsibility when it reviews fee levels. This may result in
higher fee levels for overseas Directors.
Non-Executive Director fee
increases are applied in line
with the outcome of the periodic
fee review.
Any increases to the Non-
Executive Director fee will
typically be in line with general
movements in market levels of
Non-Executive Director fees. In
the event that there is a material
misalignment with the market or a
change in the complexity,
responsibility or time commitment
required to fulfil a Non-Executive
Director role, the Board has
discretion to make an appropriate
adjustment to the fee level.
None
Consideration of employee views
When reviewing Executive Directors’ remuneration, the Committee is aware of the proposals for remuneration of all colleagues. When
considering executive pay, the Committee takes into account the experience of colleagues and their pay. The Committee considers these
matters when it conducts its annual review of executive remuneration.
The Company seeks to promote and maintain good relationships with employee representative bodies as part of its employee engagement
strategy, and consults on matters affecting colleagues and business performance as required. The Committee engages with colleagues
through its Annual Report on remuneration, which sets out in detail executive pay. However, in addition, the Company also engages directly
with colleagues through the Global People Survey and through the ‘ask David’ email. The Committee takes any feedback it receives into
account in its decision-making on executive remuneration.
Consideration of shareholder views
When determining remuneration, the Committee takes into account the views of shareholders and best practice guidelines issued
by institutional shareholder bodies. The Committee welcomes feedback from shareholders on the Remuneration policy and arrangements. It
commits to consulting with leading shareholders in advance of any significant changes to the Remuneration policy. In developing the policy
set out in this report, we consulted with shareholders representing c.60% of our issued share capital and also engaged shareholder
representative bodies. We had a good level of engagement and are pleased to report that the majority of all investors who provided feedback
indicated support for the approach proposed.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the structure of
executive remuneration remains appropriate.
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The Committee
The Board appoints the members of the Committee on the recommendation of the Nominations Committee. In accordance with the UK
Corporate Governance Code, only independent Non-Executive Directors are members of the Committee.
In total, there were six meetings in the year to 31 March 2026. The Chair and the CEO attend meetings by invitation, as does the CFO on
occasion, but they are not present when their own remuneration is being decided. The Chief People Officer also attends meetings.
The terms of reference for the Committee are available for inspection on the Company’s website. The Committee reviewed them during the
year. Duties of the Committee include the setting of the policy for the remuneration of the Executive Directors and the Chair, as well as their
specific remuneration packages. In determining the Remuneration policy, the Committee takes into account all factors which it deems
necessary to ensure that the Company provides members of the senior executive management of the Group with appropriate incentives to
encourage strong performance, and rewards them for their individual contributions to the success of the Company in a fair and responsible
manner. The composition of the Committee and its terms of reference comply with the provisions of the UK Corporate Governance Code.
Advisors
Ellason advised the Committee during the year. Ellason reports directly to the Committee Chair and provides objective and independent
analysis, information and advice on all aspects of executive remuneration and market practice, within the context of the objectives and policy
set by the Committee. A representative from Ellason typically attends Committee meetings. Ellason also provides participant communications,
performance reporting and Non-Executive Directors’ fee benchmarking services to the Company. Ellason is a member of the Remuneration
Consultants Group and a signatory to the Code of Conduct for consultants to remuneration committees of UK listed companies. Please see
www.remunerationconsultantsgroup.com for details.
Ellason adheres to this Code of Conduct. The Company paid fees to Ellason in respect of work for the Committee carried out in the year
under review totalling £82,558 based on time and materials, excluding expenses and VAT.
The Committee reviews Ellason’s involvement each year, and considers any other relationships that it has with the Company that may limit its
independence. Ellason has no relationship with the Company or its Directors beyond those formed in its capacity as appointed advisor to the
Committee. The Committee is satisfied that the advice provided by Ellason is objective and independent.
Matters considered
The Committee considered a number of matters during the year to 31 March 2026, including:
• renewing the Remuneration policy, bearing in mind market trends and corporate governance best practice
• considering performance against the measures applied to, and level of payout of, the annual bonus
• approving the level of vesting of PSP awards
• reviewing share ownership guidelines for senior executives
• approving Executive Director salaries for the financial year
• considering implementation of the Remuneration policy approved at the AGM in 2025
• considering performance targets and non-financial objectives for the annual bonus plan
• agreeing the level of PSP awards granted in the year
• approving the performance measures and targets to be applied under the Company’s PSP
• approving the Directors’ Remuneration report
• making share awards under the Company’s share plans
• considering trends in executive remuneration, remuneration governance and investor views
• reviewing the Committee’s terms of reference
• reviewing the continued appointment of the Committee’s independent advisors.
Summary of shareholder voting
The following table shows the results of the last binding shareholder vote on the Remuneration policy (at the 2025 AGM), as well as the
advisory vote on the Annual report on remuneration (at the 2025 AGM):
2025 Remuneration policy 2025 Annual report on remuneration
Votes cast
Total number
of votes
% of votes cast
for and against
Total number
of votes
% of votes cast
for and against
For (including discretionary) 231,644,685 67.65% 341,354,485 98.43%
Against 110,755,325 32.35%
1
5,441,821 1.57%
Total votes cast (excluding withheld votes) 342,400,010 100% 346,796,306 100%
Votes withheld 4,449,044 52,748
Total votes cast (including withheld votes) 346,849,054 346,849,054
1. In line with Provision 4 of the UK Corporate Governance Code 2024, more information on the outcome following this vote can be found on page 155.
Annual report on remuneration
Remuneration Committee report (continued)
166 Babcock International Group PLC Annual Report and Financial Statements 2026
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As required by The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, throughout this
report we have provided information on the Deputy CEO’s FY26 and FY27 pay even though he is not due to join the Board until after the date
of this report.
Single total figure of remuneration for Executive Directors for FY26 (audited)
The table below sets out a single figure for the total remuneration received by each executive.
David Lockwood David Mellors Harry Holt
8
FY26
£’000
FY25
£’000
FY26
£’000
FY25
£’000
FY26
£’000
FY25
£’000
Fixed remuneration
Salary
1
926 883 638 609 108 N/A
Benefits in kind and cash
2
120 120 15 15 21 N/A
Pension
3
93 88 64 61 11 N/A
Annual variable remuneration
Annual bonus (cash)
4
820 795 564 548 56 N/A
DBP (deferred annual bonus plan)
5
Nil 530 Nil 365 37 N/A
Long-term incentives
PSP
6
6,852 4,732 3,972 3,313 N/A N/A
Dividends
7
69 33 40 23 N/A N/A
Total (of which) 8,880 7,181 5,293 4,934 233 N/A
Total fixed remuneration
1,2,3
1,139 1,091 717 685 140 N/A
Total variable remuneration
4,5,6,7
7,741 6,090 4,576 4,249 93 N/A
The figures have been calculated as follows:
1. Salary: Base salary amount paid in the year.
2. Benefits in kind and cash: The value of benefits and salary supplements (other than those in lieu of pensions) including medical insurance, home
to work travel expenses incurred at the request of the Company, accommodation-related benefits, and car and fuel benefits. David Lockwood in
FY26 received £98k in connection with his accommodation costs in London, which were at the Company’s request, to enable him to lead the
business effectively.
3. Pension: The numbers above represent for each year the value of the cash supplement, which was 10% of base salary.
4. Annual bonus (cash): Following consultation with shareholders, the Committee has applied its discretion to pay the Executive Directors’ FY26 bonus
entirely in cash as permitted within the Remuneration policy, as both have exceeded their shareholding requirement. Please see page 156.
5. DBP: This is the deferred element of the FY25 annual bonus earned for performance during the year (40% of earned bonus), which will vest after
three years. For Harry Holt in FY26, this is the deferred element of the FY26 annual bonus.
6. PSP: The FY24 PSP award was granted in September 2023 with a three-year performance period to 31 March 2026 and will vest in September
2026. The values in the table are based on 95.3% of the award vesting at an average share price for the three months to 31 March 2026 of 1381.7p.
The values attributable to share price appreciation over the FY24 PSP vesting period are presently estimated to 31 March 2026, at £4,908k and
£2,845k for David Lockwood and David Mellors, respectively. The PSP FY25 value has been updated to reflect the share price of 997.5p on the vest
date of the FY23 PSP award. Harry Holt did not participate in the FY24 PSP. His RSP award granted in FY24 is not reflected in his FY26 single figure,
as this was subject only to continued employment.
7. Dividends: All dividends accrued to the FY24 PSP will be payable in cash on exercise of the award.
8. Harry Holt: Harry was appointed Deputy CEO on 1 February 2026 and his remuneration for FY26 has been pro-rated from that date.
Neither of the Executive Directors participated in a Group pension scheme or otherwise received pension benefits from the Group for
service during the year to 31 March 2026. They instead received a cash supplement equal to 10% of salary. There are no additional early
retirement benefits.
Supplements paid in lieu of pension do not count for pension, share award or bonus purposes.
Directors benefit from life assurance cover of four times base salary. The cost of providing that life assurance cover was:
Director FY26 £’000 FY25 £’000
David Lockwood 6 5
David Mellors 4 3
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FY26 annual bonus (audited)
The Committee based the FY26 annual bonus on a mix of financial and non-financial measures. The financial element, weighted 80%, was
based equally on Group underlying operating profit performance and Group underlying operating cash flow (based on budgeted foreign
exchange rates). There was no payout under the underlying operating profit element and a 100% payout under the underlying operating
cash flow element. Please see pages 32 to 51 for more information on the Company’s performance. The non-financial measures were
principally the themes that the Committee considers to be of material importance to the continued success of the Company. The Committee
concluded that the outturn for the non-financial measures should be a 95% payout for the Executive Directors and Deputy CEO.
The Committee was satisfied that the total outturn of the FY26 bonus reflected the Company’s performance over the year and aligned
to shareholders’ experience.
The table below summarises performance against each financial measure, and the bonus outcome.
Bonus element Threshold
1
Target Maximum Outturn David Lockwood David Mellors Harry Holt
Achieving budgeted
underlying operating
profit
2
£407.6m £429.0m £471.9m £294.1m
Maximum potential
(% of salary) 60% 60% 60%
Outturn (% of salary) 0% 0% 0%
Achieving budgeted
underlying operating
cash flow
3
£255.0m £300.0m £345.0m £348.3m
Maximum potential
(% of salary) 60% 60% 60%
Outturn (% of salary) 60% 60% 60%
Non-financial
objectives
4
Maximum potential
(% of salary) 30% 30% 30%
Outturn (% of salary) 28.5% 28.5% 28.5%
Total
Maximum potential
(% of salary) 150% 150% 150%
Outturn (% of salary) 88.5% 88.5% 88.5%
1. Threshold vesting is 18.8% of maximum for the operating profit and cash flow elements, and 0% for non-financial measures. In line with our policy,
overall vesting at threshold is no more than 15% when all measures are considered. Vesting outcomes are determined on a straight-line sliding scale
for performance outturns between threshold and target, and between target and maximum.
2. For the definition, please see page 46.
3. For the definition, please see page 50.
4. Further details on the non-financial objectives set for FY26 are given below.
FY26 annual bonus non-financial measures
The Committee set non-financial objectives for David Lockwood and David Mellors at the start of the year around strategic management
‘Themes’ of strategy, people and culture, and ESG, as the Committee believed these themes align to the Company’s turnaround.
David Lockwood
Theme Progress Assessment
Strategy,
delivery and
growth
• Continued leadership on embedding organisational capability on risk, execution and
performance, with greater cross-business and cross-functional collaboration.
• Relentless focus on the Company’s strategic agenda through the progress made
with key international relationships, both with customers such as Indonesia and
strategic partners such as HII.
Exceeded expectations
People and
Culture
• Effective roll-out of Leadership Framework and performance management aligned
to strategic aims. This included the development of talent review plans for senior
leaders, as well as training for first line and middle managers. Execution of this
objective was reflected by the further progress in the results of Babcock’s Global
People Survey.
• Building on the Global People Survey, follow-up activities were identified to deliver
improvements in key areas of the business with the aim of delivering a joined-up
approach to cultural development that includes safety, security, and engagement.
Exceeded expectations
Sustainability
• Delivery of key near-term milestones on diversity and carbon reduction while
improving the scores relating to sustainability in the Global People Survey. Effective
leadership on sustainability to build confidence in Babcock’s commitment to its six
key priorities.
Exceeded expectations
Remuneration Committee report (continued)
168 Babcock International Group PLC Annual Report and Financial Statements 2026
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David Mellors
Theme Progress Assessment
Strategy,
delivery and
growth
• Clear and effective leadership on Babcock’s operations, which continue to underpin
progress to meeting its medium-term targets, while maintaining the balance of
risk appetite for the benefit of all stakeholders and building strong cohesion
between functions.
Exceeded expectations
People and
Culture
• Leadership on the cultural change at Babcock by championing the people agenda,
with substantial progress made in this area in the finance function during the year.
Exceeded expectations
Sustainability
• Led on the revision of Babcock’s sustainability strategy to ensure continued focus
on the six key priorities being embedded across the operations of the business
through more effective targets and actions to achieve them.
Exceeded expectations
The Deputy CEO’s non-financial measures were based on the same strategic themes as the Executive Directors’ non-financial measures.
However, as the measures were focused on his management of the Nuclear sector, the Committee believes that the description of progress
on the Deputy CEO’s measures is commercially sensitive. The outturn for the Deputy CEO was 95% of the maximum opportunity of 20% of
his annual bonus.
As it does every year, the Committee reviewed the Company’s health and safety performance as it is an underpin for the annual bonus. The
Committee considered the totality of the Group’s health and safety environment over the year and determined that it did not need to exercise
its discretion. In addition, no application of malus or clawback provisions was required.
The FY26 bonus outcomes for each are as follows:
Payment for
financial targets
(% salary)
Payment for
non-financial
targets
(% salary)
Total bonus
(% salary)
Total bonus
(£’000)
David Lockwood 60.0% 28.5% 88.5% 820
David Mellors 60.0% 28.5% 88.5% 564
Harry Holt 60.0% 28.5% 88.5% 93
1
1. Pro-rated from date of appointment as Deputy CEO.
Long-term incentive scheme (PSP) awards vesting during the year (audited)
FY24 PSP
The Committee granted PSP awards in September 2023 over 520,408 shares to David Lockwood and 301,628 shares to David Mellors.
Vesting of the awards is based on financial measures and the non-financial measures described below. The performance period for these
awards was the three financial years from 1 April 2023 through to 31 March 2026.
% weighting
Threshold
performance
(16.7% vesting)
Stretch
performance
(100% vesting) Outcome
Vesting (% of
overall award)
3-year organic revenue growth 25% 15.7% 23.6% 31.4% 25.0%
3-year weighted average underlying operating margin
1
30% 6.8% 8.0% 7.8% 25.3%
3-year cumulative underlying free cash flow
2
30% £216m £324m £575.6m 30.0%
Reduction in Babcock’s carbon emissions in FY26 7.5% (6.7)% (8.5)% (36.0)% 7.5%
Gender diversity of senior management in FY26
3
7.5% 28.5% 31.5% 32.4% 7.5%
1. FY24 and FY25 account for 25% each of the measure whereas FY26 accounts for 50%. Margin performance has been adjusted for the impact of
Type 31, to ensure that the PSP outcome appropriately reflected the significant performance improvement over the last three years, as described in
more detail on page 155.
2. The Committee evaluated the outperformance in respect of free cash flow, to ensure this aligned with underlying performance. It concluded that this
outcome reflected strong operational delivery and continued focus on cash discipline. In doing so, the Committee noted that the outcome was
primarily driven by higher operating profit from strong underlying trading performance, and the improved cash conversion resulting from effective
working capital management.
3. The definition of senior management is employees excluding the Executive Directors who have responsibility for planning, directing or controlling the
activities of the Group or a strategically significant part of the Group (sector/functional leadership teams) and/or are directors of subsidiary business
units (business unit leadership).
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The Committee decided to adjust the margin calculation to exclude the impact of Type 31 as the Committee concluded that the margin
element was designed to capture the progress made on the improved profitability of the Group. The Group has made meaningful progress
over the performance period of the FY24 PSP to meet this strategic aim and is on track to achieve its medium-term guidance. The revenue
element of the PSP included a margin underpin, introduced to ensure management would not benefit from driving revenue growth at the cost
of quality of business won. The reported margin including the Type 31 impact would have been below threshold, bringing this underpin into
question. However, excluding this, margin progress has been very satisfactory and the Committee was satisfied that there was no reason to
apply the underpin.
In line with its standard practice, the Committee considered whether any windfall gains have arisen on this PSP vesting cycle. After assessing
the vesting of the FY24 PSP from a range of perspectives, the Committee was satisfied that the outcomes against the measures were
reflective of the strong underlying performance of the Company. In addition, no application of malus or clawback provisions was required.
As a result, 95.3% of the Executive Directors’ FY24 awards will vest in September 2026 (though subject to a two-year holding period from
that date). Dividends were accrued on these awards, which will also vest in September 2026.
As a member of the Group Executive Committee, the Deputy CEO received in FY24 a restricted stock award without any performance
measures, consistent with the practice at the time of grant for members of the Committee and did not receive a PSP award; this award will
vest in September 2026.
Long-term incentive scheme (PSP) award granted during FY26 (audited)
The Committee granted PSP awards in the form of nil-cost options in September 2025 to the Executive Directors and the Deputy CEO,
consistent with the Remuneration policy.
Director
Number of
shares
1
Face value
2
Face value
(% of salary)
3
% of award
receivable for
threshold
performance
David Lockwood 187,235 £2,332,330 250% 16.7%
David Mellors 103,652 £1,291,162 200% 16.7%
Harry Holt 61,011 £759,996 N/A
4
16.7%
1. Awards are in the form of nil-cost options.
2. Based on three-day average share price (of 1,245.67p) at time of grant.
3. Expressed as a percentage of salary at the date of the award (29 September 2025).
4. Percentage of salary not disclosed as related to his appointment as CEO Nuclear and is commercially sensitive.
The FY26 PSP awards are subject to a scorecard of measures comprising underlying free cash flow (weighted 30%), underlying operating
margin (30%), organic revenue growth (25%, subject also to a discretionary underpin if operating margin performance is below threshold),
and ESG (15%). The performance period for these awards is the three financial years from 1 April 2025 through to 31 March 2028. The TSR
kicker does not apply to these awards.
% weighting
Threshold
performance
(16.7% vesting)
Stretch
performance
(100% vesting)
3-year organic revenue growth 25% 16.9% 25.4%
3-year weighted average underlying operating margin
1
30% 8.0% 9.2%
3-year cumulative underlying free cash flow 30% £538.4m £807.6m
1. Weighted to focus more heavily on the final year of the performance period: FY26 and FY27 each accounts for 25% of the measure whereas
FY28 accounts for 50%.
Remuneration Committee report (continued)
170 Babcock International Group PLC Annual Report and Financial Statements 2026
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Awards vest on a straight-line sliding scale between threshold and stretch.
The targets for the ESG measures are:
• Three-year cumulative energy efficiencies improvements against FY25 baseline. This measure will have a weighting of 7.5% (ie half of the
ESG total weighting of 15%). A reduction of (8.6)% will result in 16.7% vesting of this portion of the ESG element, with a reduction of (9.5)%
warranting full vesting.
• Senior management gender diversity in FY28, with a threshold of 28.5% and a maximum of 31.5%. This measure will have a 7.5%
weighting, with 16.7% vesting at threshold and full vesting at maximum. The definition of senior management has been extended to include
Group Executive Committee minus two levels.
Deferred Bonus Plan awards made during FY26 (audited)
In 2025, the Committee approved the payment of annual bonuses to the CEO and CFO under the FY25 annual bonus plan. For more detail,
please see the single total figure table on page 167.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the total remuneration received by each Non-Executive Director. For details of the fees that applied during FY26,
please see page 173:
Base fee Additional fee
1
Total
2
Total fixed
remuneration
Total variable
remuneration
FY26
£’000
FY25
£’000
FY26
£’000
FY25
£’000
FY26
£’000
FY25
£’000
FY26
£’000
FY25
£’000
FY26
£’000
FY25
£’000
Fixed remuneration
Dame Ruth Cairnie 368 346 – – 368 346 368 346 – –
Carl-Peter Forster
3
93 76 15 15 108 91 108 91 – –
Lord Parker 74 65 15 15 89 80 89 80 – –
John Ramsay 82 65 18 23 100 88 100 88 – –
Jane Moriarty 82 65 – – 82 65 82 65 – –
Sir Kevin Smith 74 65 – – 74 65 74 65 – –
Claudia Natanson 82 65 – – 82 65 82 65 – –
Aedamar Comiskey
4
47 – _ _ 47 – 47 – – –
Lucy Dimes
5
33 65 – – 33 65 33 65 – –
1. Relating to role as Chair of the Audit Committee (John Ramsay), Remuneration Committee (Carl-Peter Forster), and Director designated for workforce
engagement (Lord Parker).
2. Non-Executive Directors did not receive any taxable benefits in FY25 or FY26.
3. Carl-Peter Forster is the Senior Independent Director and Remuneration Committee Chair.
4. Aedamar Comiskey joined the Board on 1 September 2025.
5. Lucy Dimes retired from the Board on 25 September 2025.
Sourcing of shares
Shares needed to satisfy share awards for Directors are shares that the Company either newly issues to the Group’s employee share trusts,
or are shares that those trusts purchase in the market using funds advanced by the Company, or are treasury shares. The Company finalises
the source selection on or before vesting, depending on the Board’s view of the best interests of the Company at the time, within the limits of
available headroom and dilution restrictions.
Executive Directors’ remuneration for FY27
The Committee has set the remuneration for Executive Directors for FY27 in line with its Remuneration policy.
Babcock International Group PLC Annual Report and Financial Statements 2026 171
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Fixed pay
The Committee reviewed the base salaries of the Executive Directors after the Company had completed its review of the pay of those UK
employees who are not subject to collective bargaining. The increases for David Lockwood and David Mellors along with the rationale for
them are described on page 156. Harry Holt will not receive further increases to salary in FY27 beyond those shown below in respect of his
appointment as CEO during 2026.
Salary 1 July 2026
1
1 July 2025
2
1 July 2024
David Lockwood £960,921 £932,933 £905,760
David Mellors £677,862 £645,582 £614,840
Harry Holt £900,000 £650,000 n/a
1. On appointment as CEO in the case of Harry Holt.
2. On appointment as Deputy CEO in the case of Harry Holt.
The Executive Directors will receive the same pension arrangements (ie at 10% of salary) and the same benefits as in FY26. The Deputy
CEO’s salary was set at £650,000 on appointment as Deputy CEO but will increase to £900,000 once he steps up to be CEO. In future
years, the Committee will consider pay increases greater than those awarded to UK employees who are not subject to collective bargaining,
if required, to align his salary with the median pay level for his role. He will receive a cash payment equivalent to 10% of his salary in lieu
of pension.
FY27 annual bonus
The scorecard of the Executive Director and Deputy CEO annual bonus for FY27 is consistent with that for FY26, with measures based on
underlying operating cash flow, underlying operating profit and non-financial objectives. The Committee has agreed the targets but, due to
their commercial sensitivity, it will disclose them only in next year’s Annual report on remuneration.
FY27 PSP awards
The Committee intends to grant awards under the PSP to the CFO (at 200% of salary) and the Deputy CEO (at 250% of salary) in 2026
covering the three-year period FY27 to FY29, with the measures for this core award scorecard being underlying free cash flow (weighted
30%), underlying operating margin (30%), organic revenue growth (25%, subject also to a discretionary underpin if operating margin
performance is below threshold), and ESG (15%), as follows:
% weighting
Threshold
performance
(16.7% vesting)
Stretch
performance
(100% vesting)
3-year organic revenue growth 25% 16.0% 24.0%
3-year weighted average underlying operating margin
1
30% 8.5% 10.0%
3-year cumulative underlying free cash flow 30% £608.8m £913.2m
1. Weighted to focus more heavily on the final year of the performance period: FY27 and FY28 each accounts for 25% of the measure, whereas
FY29 accounts for 50%. In determining the range for the underlying operating margin measure, the Committee approved the setting of the threshold
in line with the Company’s medium-term guidance, to incentivise achievement of this goal.
Awards vest on a straight-line sliding scale between threshold and stretch.
The targets for the ESG measures are:
• Environment: based on the Company’s energy efficiency improvement, with a weighting of 7.5% (ie half of the ESG total weighting of 15%).
The target range is a cumulative reduction over the three-year performance period of (11.4)% to (12.6)%. A reduction of (11.4)% will result
in 16.7% vesting of this portion of the ESG element, while a reduction of (12.6)% will warrant full vesting.
• Gender diversity: we want to build on the good work that the Company has done at the Senior Leadership Team level, and for the FY27
PSP cycle continue to use the expanded scope of this measure to take in the next level of senior management, which will include
functional and business unit leadership teams that typically sit three layers below the CEO. This measure will have a 7.5% weighting, with
16.7% vesting at threshold and full vesting at maximum. The target range will be 30.4% to 33.6% of this senior leadership community being
female by FY29.
The TSR kicker, although permitted under the policy, will not be used on the FY27 awards.
A two-year holding period will apply to Executive Directors’ FY27 PSP awards to the extent that they vest. Malus and clawback provisions
apply. In keeping with its typical practice, the Committee will assess for any windfall gains at vesting.
Remuneration Committee report (continued)
172 Babcock International Group PLC Annual Report and Financial Statements 2026
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Retirement of David Lockwood
David will receive fixed pay (salary, pension and benefits) over the remainder of his contractual notice period. He will remain eligible for a
pro-rated FY27 bonus, subject to performance and deferral in the normal way.
As he is retiring, David is a good leaver for the purpose of all share schemes. PSP awards will remain eligible to vest on the normal vesting
dates subject to performance, and pro-rating to the end of David's time with Babcock. All in-flight awards will be subject to the two-year
holding period after vesting.
No payments fall to be made to David by way of compensation for loss of office.
Further details will be disclosed as required under section 430(2B) of the Companies Act 2006, after David has stepped down from the
Board, and in the Company's 2027 Annual Report.
Payments for loss of office (audited)
There were no payments for loss of office during the year ended 31 March 2026.
Payments to past Directors (audited)
There were no payments to past Directors during the year ended 31 March 2026.
Non-Executive Directors’ fees (including the Chair)
The fees for the Chair and the Non-Executive Directors were increased on 1 September 2025. There have been no other increases in the
year. Effective 1 July 2026, the Committee resolved to increase the Chair’s fee by 9%, to £415,290, as part of a phased progression to ensure
the fee better reflects the strong performance of the Chair and the significant time commitment of the role after a prolonged period of
restraint on fee increases. Any increases approved by the Board in respect of NED fees later in the year will be reported in next year’s
Remuneration Report.
Annual rate fee
1 July 2026
£
31 March 2026
£
1 September 2025
£
1 September 2024
£
Chair 415,290 381,000 381,000 349,440
Senior Independent Director (inclusive of basic fee) 91,000 91,000 91,000 77,000
Basic Non-Executive Director’s fee
1
80,000 80,000 80,000 66,000
Chair of Audit Committee
2
18,000 18,000 18,000 18,000
Chair of Remuneration Committee
2
15,000 15,000 15,000 15,000
Director designated for workforce engagement
2
15,000 15,000 15,000 15,000
1. For those Non-Executive Directors who, due to their residence, have long-distance commutes to fulfil their duties, the Company has decided
to pay an additional £13,000 pa on top of the basic Non-Executive Director’s fee to compensate for the extra time commitment involved in
attending meetings.
2. The Company pays fees for chairing Board Committees in addition to the basic applicable Non-Executive Director’s fee and for acting as the Director
designated for workforce engagement. The Company does not pay additional fees for membership of Committees.
Babcock International Group PLC Annual Report and Financial Statements 2026 173
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Percentage change in the remuneration of all Directors compared to the workforce
The table below shows the annual percentage changes in remuneration over the last five years for each individual who was a Director during
the year ended 31 March 2026, compared to the average UK colleague, as required under the Companies (Directors’ Remuneration policy
and Directors’ Remuneration Report) Regulations 2019 (the Regulations).
The Regulations require this disclosure to provide a comparison of year-on-year changes in Directors’ remuneration compared to all other
colleagues of the parent company in the Group. However, the Company does not have any employees, meaning there would be no data to
disclose for the broader colleague population. The Committee has therefore elected to compare the change in Directors’ remuneration with
the change in remuneration for the average of the UK colleague population, as a suitable comparator group for this purpose.
The Committee monitors this information to ensure that there is appropriate alignment over time in fixed pay between Executive Directors,
Non-Executive Directors and UK colleagues.
Base salary/fees Taxable benefits Single-year variable
FY25 to
FY26
FY24 to
FY25
FY23 to
FY24
1
FY22 to
FY23
FY21 to
FY22
FY25 to
FY26
FY24 to
FY25
FY23 to
FY24
1
FY22 to
FY23
FY21 to
FY22
FY25 to
FY26
FY24 to
FY25
FY23 to
FY24
1
FY22 to
FY23
FY21 to
FY22
Executive Directors
David Lockwood 5% 8% 0% 1% 1% 0% 0% (1)% 1% 1% (38)% 82% 1% (25)% n/a
David Mellors 5% 4% 3% 1% 1% 0% 0% 0% 0% 1% (38)% 79% 3% (26)% n/a
Non-Executive
Directors
2
Dame Ruth Cairnie 6% 3% 0% 0% 5% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Carl-Peter Forster 19% 3% 6% 16% 11% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Lord Parker 12% 8% 10% 10% 5% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
John Ramsay 14% 5% 11% 0% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Jane Moriarty
3
27% 4% 2% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Sir Kevin Smith
4
15% 4% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Claudia Natanson
4
27% 4% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Aedamar Comiskey
5
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Former Directors
Lucy Dimes
6
5% 4% 2% 0% 5% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Average for all
UK employees
7
4% 5% 7% 5% 2% 0% 0% 0% 0% 0% (12)% 32% 11% (18)% 100%
1. It should be noted that the Directors received an increase in pay or fee part-way through the year.
2. A Committee, made up of the Chair and the Executive Directors, reviews the Non-Executive fees and agrees increases in the basic fee, the fee for
the Senior Independent Director, the Audit Committee Chair and the Director designated for workforce engagement, as well as the one-off payment
for the Audit Committee Chair in recognition of the material additional time the role required. Non-Executive Directors receive fees only. They do not
receive taxable benefits and do not participate in incentive schemes.
3. Jane Moriarty joined the Board in FY23. To facilitate a comparison with FY24, her FY23 fee has been annualised.
4. Sir Kevin Smith and Claudia Natanson joined during FY24. To facilitate a comparison with FY25, their FY24 fees have been annualised.
5. Aedamar Comiskey joined during FY26 and hence no year-on-year comparison is available.
6. Lucy retired from the Board during FY26. The year-on-year comparison with FY25 is calculated on the basis of full-time equivalence.
7. The single-year variable figure for our UK colleagues is provided in respect of our annual bonus plan, which has been estimated based on our
expected bonus outturn for FY26 at the time of disclosure. This estimate is prior to any discretionary adjustments and for prior years has been trued
up once actual results are known.
Remuneration Committee report (continued)
174 Babcock International Group PLC Annual Report and Financial Statements 2026
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Relative importance of spend on pay
FY26 FY25 % change
Distribution to shareholders £35m £33m 6%
Employee remuneration £1,879m £1,660m 13%
Distribution to shareholders includes all amounts distributed to shareholders.
CEO pay ratio
The table below provides disclosure of the ratio between the CEO’s total remuneration and that of the lower quartile, median and upper
quartile UK-based colleagues.
Figures for the CEO come from the Executive Directors’ single figure table on page 167. The Committee determined total remuneration figures
for the lower quartile (P25), median (P50) and upper quartile (P75) colleagues on 31 March 2026 using the ‘single figure’ methodology to
provide a like-for-like comparison with CEO remuneration.
The reporting regulations offer three calculation approaches for determining the P25, P50 and P75 colleagues – Options A, B and C. Since
FY23, the Committee has adopted Option B, in recognition of the significant workload placed on our colleagues of the previous methodology
in adopting Option A. The Company used the data collected for gender pay gap reporting purposes to identify the three colleagues
representing P25, P50 and P75, calculating the total full-time equivalent remuneration for these three colleagues on a similar basis to that
adopted for the CEO’s single figure of total remuneration.
As with last year, the Company excluded bonus payments from the calculations, because it was not feasible to identify those payments for
services delivered within the financial year, and because the Company does not know all bonus pay relating to FY26 at the time of
publication. Analysis of past data indicates that the three colleagues would not typically be eligible for a bonus and the exclusion of this
element is unlikely to have a significant impact on the ratios reported.
To validate that the figures presented are representative of the pay and benefits of the UK workforce, the Company considered the pay and
benefits of colleagues centred on each of the three colleagues. Whilst there can be variation in the pay mix for individuals throughout the
organisation, the Committee believes that the information presented fairly reflects pay at the relevant quartiles amongst our UK workforce.
The three individuals identified were full-time colleagues during the year and none received an exceptional incentive award, which would
otherwise inflate their pay figures. The Company made no adjustments or assumptions to the total remuneration of these colleagues and
calculated the total remuneration in accordance with the methodology used to calculate the single figure of the CEO.
The median CEO pay ratio in FY26 was 178:1, compared to 163:1 in FY25 (based on the restated FY25 single figure remuneration for CEO).
The Committee calculated the CEO pay ratio by comparing the CEO’s pay to that of Babcock’s UK-based workforce. The pay ratio for FY26 is
slightly higher than the ratio for FY25, with the lower bonus outcome in FY26 offset by the impact on the reported (and estimated) FY24 PSP
vesting value of sustained share price growth over the last three years.
As the remuneration of the CEO has a significant weighting towards variable pay to align his remuneration with Company performance, it is
likely that there will be greater variability in his pay year to year than that observed at other levels which have a greater proportion of their pay
linked to fixed components. This is consistent with market practices and the Company’s reward policies across the organisation. In respect of
the general workforce, Babcock understands the need to ensure competitive pay packages across the organisation. For the Committee, it
considers the ratios below when making its decisions around the remuneration of the Executive Directors.
Financial year
Calculation
methodology
P25 (lower
quartile) P50 (median)
P75 (upper
quartile)
FY26 Option B 218:1 178:1 151:1
FY25 Option B 191:1 163:1 129:1
FY24 Option B 111:1 94:1 75:1
FY23 Option B 102:1 84:1 62:1
FY22 Option A 61:1 48:1 36:1
FY21 Option A 30:1 22:1 17:1
FY20 Option C 47:1 37:1 27:1
Financial year
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
FY26 Total remuneration (£’000) £40.9 £50.0 £59.0
Salary (£’000) £39.2 £44.7 £53.0
Babcock International Group PLC Annual Report and Financial Statements 2026 175
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Performance graphs
The following graph shows the TSR for the Company compared to the FTSE 100 and FTSE 350 Aerospace & Defence index, assuming an
investor invested £100 on 31 March 2016. The Board considers that the FTSE 100 Index and FTSE 350 Aerospace & Defence Index currently
represent the most appropriate indices (of which Babcock is a constituent) against which to compare Babcock’s performance.
The table below details the historical CEO pay over a 10-year period.
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26
Peter Rogers
1
Single figure (£’000) 1,091
Bonus vesting (% max) 66%
DBMP matching shares vesting (% max) 17.0%
PSP/CSOP vesting (% max) 26.5%
Archie Bethel
2,3
Single figure (£’000) 1,012 2,079 1,969 1,385 334
Bonus vesting (% max) 66% 61% 58% 14% 0%
DBMP matching shares vesting (% max) 17.0% 20.0% n/a n/a n/a
PSP vesting (% max) 26.5% 23.9% 15.1% 0% 0%
David Lockwood
4
Single figure (£’000) 547 1,975 3,288 4,161 7,181 8,880
Bonus vesting (% max) 0% 80% 59% 59.6% 100% 59%
PSP vesting (% max) n/a n/a 100% 100% 100% 95.3%
1. Until retirement on 31 August 2016.
2. Excludes remuneration received whilst undertaking the role of Chief Operating Officer until August 2016.
3. Until he stepped down as CEO on 14 September 2020.
4. Excludes his salary between joining the Company in August and joining the Board as CEO on 14 September 2020.
0
700
600
500
300
200
100
400
20262025202420232022202120202019201820172016
Value of £100 invested on 31 March 2016
Babcock FTSE 100 Index FTSE 350 Aerospace & Defence Index
Remuneration Committee report (continued)
176 Babcock International Group PLC Annual Report and Financial Statements 2026
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Directors’ share ownership (audited)
The Committee sets out below the interests of the Directors (and/or their spouses) in the ordinary shares of the Company as at 31 March
2026 (or on the date of retiring from the Board in the case of former Directors):
At 31 March 2025 At 31 March 2026
Shares held Shares held Options held
Director
Owned outright
by Director or
spouse
1
Owned
outright by
Director or
spouse
1
Vested but
subject to
holding period
Vested but
not exercised
Unvested and
subject to
performance
conditions
Unvested and
subject to
continued
employment
S/holding req.
(% salary)
Current
shareholding
(% of salary)
2
Req. met?
David Lockwood 719,465 1,029,845 – – 1,133,548 180,599 300% 1,667% Yes
David Mellors 501,017 718,804 – – 636,567 124,938 200% 1,680% Yes
Harry Holt n/a – – 18,737 181,387 92,376 200% 125% Building
Dame Ruth Cairnie 120,000 120,000
Carl-Peter Forster 10,000 10,000
Lord Parker – –
John Ramsay 40,000 40,000
Jane Moriarty – –
Sir Kevin Smith 6,000 6,000
Claudia Natanson – –
Aedamar Comiskey – –
Former Director
Lucy Dimes 5,000 5,000
1. Beneficially held shares of Director and/or spouse.
2. Current shareholdings for comparison with the shareholding requirements for Executive Directors are calculated based on salary as at 31 March
2026 and by reference to shares owned outright by Director or spouse, options vested but subject to holding periods, options vested but not
exercised, and options unvested but subject only to continued employment. Holdings are valued assuming options are exercised on 31 March 2026
and a three-month average share price to 31 March 2026 of 1381.7p and are calculated post tax. For Harry Holt, the current shareholding is
calculated by reference to his salary as Deputy CEO (£650,000 per annum).
There have been no changes to the continuing Directors’ (or their spouses’) shareholdings between 31 March 2026 and 19 June 2026.
Babcock International Group PLC Annual Report and Financial Statements 2026 177
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Directors’ share-based awards and options (audited)
The tables below show the various share awards held by Directors under the Company’s various share plans. The Company’s mid-market
share price at close of business on 31 March 2026 was 1158.0p. The highest and lowest mid-market share prices in the year ended
31 March 2026 were 1502.0p and 655.5p, respectively.
Director
Plan and
year of award
1
Number of
shares subject
to award at
1 April 2025
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Number of
shares subject
to award at
31 March 2026
Exercise
price
(pence)
2
Market value
of each share
at date of
award (pence)
Exercisable
from Expiry date
3
David Lockwood
PSP FY23 474,418 474,418 0 1008 344.00 Aug 2025 Aug 2026
DBP FY23
4
112,549 112,549 0 1008 344.00 Aug 2025 Aug 2026
PSP FY24 520,408 520,408 392.00 Sept 2026 Sept 2027
DBP FY24
4
76,472 76,472 377.73 Aug 2026 Aug 2027
PSP FY25 425,905 425,905 531.67 Aug 2027 Aug 2028
DBP FY25
4
54,884 54,884 531.67 Aug 2027 Aug 2028
PSP FY26 187,235 187,235 1245.67 Sept 2028 Sept 2029
DBP FY26
4
49,243 49,243 1076.33 Jul 2028 Jul 2029
Director
Plan and
year of award
1
Number of
shares subject
to award at
1 April 2025
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Number of
shares subject
to award at
31 March 2026
Exercise
price
(pence)
2
Market value
of each share
at date of
award (pence) Exercisable from Expiry date
3
David Mellors
PSP FY23 332,093 332,093 0 1008 344.00 Aug 2025 Aug 2026
DBP FY23
4
77,798 77,798 0 1008 344.00 Aug 2025 Aug 2026
PSP FY24 301,628 301,628 392.00 Sept 2026 Sept 2027
DBP FY24
4
52,623 52,623 377.73 Aug 2026 Aug 2027
PSP FY25 231,287 231,287 531.67 Aug 2027 Aug 2028
DBP FY25
4
38,370 38,370 531.67 Aug 2027 Aug 2028
PSP FY26 103,652 103,652 1245.67 Sept 2028 Sept 2029
DBP FY26
4
33,945 33,945 1076.33 Jul 2028 Jul 2029
Director
Plan and
year of award
1
Number of
shares subject
to award at
1 April 2025
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Number of
shares subject
to award at
31 March 2026
Exercise
price
(pence)
2
Market value
of each share
at date of
award (pence) Exercisable from Expiry date
3
Harry Holt
RSP FY24 78,571 78,571 392.00 Sept 2026 Sept 2027
PSP FY25 120,376 120,376 531.67 Aug 2027 Aug 2028
DBP FY25 18,737 18,737 531.67 Aug 2025 Aug 2026
PSP FY26 61,011 61,011 1245.67 Sept 2028 Sept 2029
DBP FY26
4
13,805 13,805 1076.33 Jul 2026 Jul 2027
1. PSP is the Company’s Performance Share Plan. Further details about these plans and, where applicable, performance conditions attaching to the
awards listed, are to be found on page 169. The FY23 PSP award completed its performance period during FY26, and the awards vested in full. Both
David Lockwood and David Mellors exercised their vested awards following the completion of the performance period, selling sufficient shares to
pay the tax, and the remaining balance is being held in Trust until the completion of the holding period, ie the end of the five-year period from grant.
2. The PSP awards are structured as nil-priced options and are subject to the rules of the PSP, including as to meeting performance targets for
PSP awards.
3. Where this date is less than 10 years from the date of award, the Committee may extend the expiry date on one or more occasions, but not beyond
the tenth anniversary of the award.
4. The Company requires the Executive Directors to defer 40% of any annual bonus awarded into shares, which vest after three years, with the
remaining 60% of any annual bonus paid in cash, unless they have met their shareholding requirement. For Harry Holt, the DBP FY26 award
represents 25% of his FY25 bonus, in line with the deferral requirements operated at the Executive Committee level.
Remuneration Committee report (continued)
178 Babcock International Group PLC Annual Report and Financial Statements 2026
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Summary of share-based awards and options vested during the year
During the year to 31 March 2026, the following awards vested:
Director Award Number vesting Vesting date
Market value of
vested shares on
award
£
Market value
of vested shares on
vesting date
£
Exercise price
payable for vested
shares (if any)
£
David Lockwood PSP FY23 474,418 Aug 2025 1,631,998 4,732,320 Nil
David Lockwood DBP FY23 112,549 Aug 2025 387,169 1,122,676 Nil
David Mellors PSP FY23 332,093 Aug 2025 1,142,400 3,312,628 Nil
David Mellors DBP FY23 77,798 Aug 2025 267,625 776,035 Nil
Harry Holt DBP FY25 18,737 Aug 2025 99,619 186,902 Nil
Closing share price on the vesting date (1 August 2025) was 997.5p.
Other interests
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.
External appointments of Executive Directors in FY26
In January 2024, David Lockwood became President of ADS, the UK trade association for the aerospace, defence, security and space
industry for which there is no fee. There were no fees received by Executive Directors for any external appointment during the year.
The Board approved this Remuneration report on 19 June 2026.
Carl-Peter Forster
Committee Chair
Babcock International Group PLC Annual Report and Financial Statements 2026 179
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Financial statements
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Directors’ report and other disclosures
The Directors’ report comprises this section, as well as the rest of the Governance section, the Directors’ responsibility statement on page
186 and those sections incorporated by reference below.
Disclosures required by UKLR 6.6.4 and which form part of the Directors’ report can be found as provided in the table below:
Listing Rule Topic Location
6.6.1 (1) Capitalised interest Financial statements, note 5 on page 228
6.6.1 (11) and (12) Shareholder waivers of dividends and future dividends Financial statements, note 23 on page 252
Other disclosure requirements set out in UKLR 6.6.4 are not applicable to the Company.
Disclosures required pursuant to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as updated
by the Companies (Miscellaneous Reporting) Regulations 2018 can be located as follows:
Topic Location
Financial risk management regarding financial instruments
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Note 22, page 243
Greenhouse gas emissions
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Page 105
Employee engagement
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Pages 69 and 138
Fostering business relationships with suppliers, customers and others
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Pages 68 and 69, 138 and 139 and throughout
the Strategic report
Subsequent events
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Note 32 on page 264
Likely future developments in the business of the Group
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Pages 18 and 19
Details of important events affecting the Group
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Strategic and Directorsʼ reports, in particular
pages 12 to 15 and 34 to 51
For the purposes of DTR 4.1.5 R (2) and DTR 4.1.8 R, the required content of the Management report can be found in the Strategic report and
the Directors’ report including the sections of the Annual Report and Financial Statements incorporated by reference.
The Company
company for the Babcock International Group of companies.
Dividends
An interim dividend of 2.5p per share was declared during the year (2025: 2.0p). The Directors are recommending that shareholders approve
at the forthcoming Annual General Meeting a final dividend of 5.0p (2025: 4.5p) on each of the ordinary shares of 60 pence to be paid on
Friday 25 September 2026 to shareholders on the register at close of business on Friday 14 August 2026.
Issued share capital
As at 31 March 2026 the Company had 505,596,597 ordinary shares of 60 pence each in issue of which 10,740,335 were held in treasury.
Authority to purchase own shares and share buyback
At the Annual General Meeting in September 2025, members authorised the Company to make market purchases of up to 50,559,660 of its
own ordinary shares of 60 pence each. That authority expires at the forthcoming Annual General Meeting when a resolution will be put to
renew it so as to allow purchases of up to a maximum of 10% of the Company’s issued share capital.
During the year 12,543,295 ordinary shares of 60 pence each were repurchased under the buyback programme of up to £200 million
announced on 25 June 2025. A total of 16,954,061 were bought back during the programme which completed on 28 April 2026 and all of
such repurchased shares were transferred to Treasury.
Details of Treasury shares used to satisfy awards under the Company’s share plans are to be found in note 23 on page 250. The percentage
of the called-up share capital (excluding Treasury shares) as at 31 March 2026 which the shares repurchased during FY26 represents, is
2.48% and over the whole programme is 3.35%.
Details of purchases of the Company’s shares made during the year to 31 March 2026 by the Babcock Employee Share Trust in connection
with the Company’s share plans are to be found in note 23 on page 252.
Other statutory information
180 Babcock International Group PLC Annual Report and Financial Statements 2026
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Major shareholdings
As at 31 March 2026, the Company has been notified pursuant to the Disclosure and Transparency Rules (DTR) of the following major
interests in voting rights attached to its ordinary shares.
Name
Number of 60 pence ordinary
shares on date of notification
% of issued share capital
on date of notification
The Capital Group Companies, inc. 33,889,108 6.70%
Blackrock, Inc. 31,784,750 6.29%
Artisan Partners 26,270,916 5.20%
There have been no further notifications between 31 March 2026 and the date of this report.
The holdings set out above relate only to notifications of interests in the issued share capital received by the Company pursuant to DTR 5 and
consequently do not necessarily represent current levels of interest.
Employment of disabled persons/
equal opportunities
Equal opportunities are available for all at Babcock including
a commitment to providing a fair and inclusive environment for our
colleagues with a disability or caring for a close family member with
a disability.
We recognise that disability covers a broader range of both visible
and non-visible conditions, and we define disability as: a person is
disabled under the Equality Act 2010 if they have a physical or
mental impairment that has a ‘substantial’ and ‘long-term’ negative
effect on their ability to do normal daily activities. This does not
mean a person must be registered as disabled. A long-term disability
might include something physical (such as a mobility issue, hearing
or sight impairment or long-term illness). It also covers people with
mental health conditions. Additionally, neurodivergence (for example
dyslexia, dyspraxia, Asperger’s, and autism) are caught within the
definition, including where someone is undergoing diagnosis.
We are committed to fostering an inclusive environment where every
colleague feels supported, respected and able to be their authentic
self at work. We do not tolerate discrimination in any form. Guided by
our principles, we embed this commitment into our everyday
practices, and across our interactions with colleagues, customers
and partners. We continue to support the employment, development
and progression of disabled colleagues, while also engaging all other
colleagues to build awareness, challenge assumptions and remove
barriers, whether physical, procedural or cultural, to ensure equal
opportunity for all.
We are a Disability Confident Employer Level 2, demonstrating our
commitment to attracting, recruiting, onboarding and retaining
disabled people and those with caring responsibilities, and
supporting them in the workplace to achieve their full potential.
We have a dedicated Group-wide employee-led Disability Network,
supported through a number of peer support groups delivering on
members’ needs.
For more information about our inclusion strategy, see pages 81 to 85.
Research and development
The Group commits resources to research and development to the
extent management considers necessary for the evolution and
growth of its business.
Political donations
No donations were made during the year for political purposes.
Qualifying third-party indemnity provisions
The Company has entered into deeds of indemnity with each of its
Directors (who served during the year and/or who are currently
Directors) which are qualifying third-party indemnity provisions for
the purposes of the Companies Act 2006 in respect of their
directorships of the Company and, if applicable, of its subsidiaries.
Under their respective Articles of Association, Directors of Group UK
subsidiary companies may be indemnified by the company
concerned of which they are or were Directors, against liabilities and
costs incurred in connection with the execution of their duties or the
exercise of their powers, to the extent permitted by the Companies
Act 2006.
Qualifying pension scheme indemnity provisions are also in place for
the benefit of Directors of the Group companies that act as trustees
of Group pension schemes.
Significant agreements that take effect,
alter or terminate upon a change of control
Many agreements entered into by the Company or its subsidiaries
contain provisions entitling the other parties to terminate them in the
event of a change of control of the Group company concerned,
which could be triggered by a takeover of the Company.
Although the Group has some contracts that on their own are not
significant to the Group, several may be with the same customer.
If, upon a change of control, the customer decided to terminate all
such agreements, the aggregate impact could be very material. In
addition, the National Security and Investment Act 2021 that came
into force on 4 January 2022 provides the UK Government with new
powers to scrutinise and potentially make void transactions on the
grounds of national security. The legislation is part of a global trend
towards introducing investment laws which has seen a number of
other countries introduce similar protections.
The following agreements are those individual agreements which the
Company considers to be significant to the Group as a whole that
contain provisions giving the other party a specific right to terminate
them if the Company is subject to a change of control.
Borrowing facilities
The Group has a Revolving Credit Facility of up to £600 million
maturing in July 2030, with an option to extend for a further 2 years,
providing funds for general corporate and working capital purposes.
In the event of a change of control, the facility provides that the
lenders may, within a certain period, call for the payment of any
outstanding loans and cancel the facilities.
Babcock International Group PLC Annual Report and Financial Statements 2026 181
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£1,800,000,000 Euro Medium-Term
Note Programme
The Company has a Euro Medium-Term Note Programme under
which it has issued three tranches: €550,000,000 1.75% Notes
redeemed in 2022; £300,000,000 1.875% Notes due in 2026; and
€550,000,000 1.375 % Notes due in 2027.
If there is a change of control of the Company and the Notes then in
issue carry an investment-grade credit rating which is either
downgraded to non-investment-grade, or carry a non-investment-
grade rating which is further downgraded or withdrawn, or do not
carry an investment-grade rating and the Company does not obtain
an investment-grade rating for the Notes, a Note holder may require
that the Company redeem or, at the Company’s option, repurchase
the Notes.
Share plans
The Company’s share plans contain provisions as a result of which
options and awards may vest and become exercisable on a change
of control of the Company in accordance with the rules of the plans.
Contracts with employees or Directors
A description of those agreements with Directors that contain
provisions relating to payments in the event of a termination
of employment following a change of control of the Company is set
out on pages 163 and 164.
Articles of Association of DRDL and RRDL
The Articles of Association of Devonport Royal Dockyard Limited
(DRDL) and Rosyth Royal Dockyard Limited (RRDL), both subsidiaries
of the Company, grant the MOD as the holder of a special share in
each of those companies certain rights in certain circumstances.
Such rights include the right to require the sale of shares in, and the
right to remove Directors of, the company concerned. The
circumstances in which such rights might arise include where the
MOD considers that unacceptable ownership, influence or control
(domestic or foreign) has been acquired over the company in
question and that this is contrary to the essential security interests of
the UK. This might apply, for example, in circumstances where any
non-UK person(s) directly or indirectly acquire control over more
than 30% of the shares of the relevant subsidiary, although such a
situation is not of itself such a circumstance unless the MOD in the
given situation considers it to be so.
Services Contract related to the supply of training
and associated services to the Royal School of
Military Engineering dated 30 August 2008 between
(1) Holdfast Training Services Limited and (2)
Babcock Land Defence Limited (as novated
and amended)
The Services Contract (Babcock) is obliged to inform the
Contractor (Holdfast) as soon as reasonably practicable and in
any event within 15 business days of a change of ownership of
the Service Contractor.
Surface Ship Support Alliance Agreement (SSSA)
dated 23 September 2009 between (1) The
Secretary of State for Defence, (2) Devonport Royal
Dockyard Limited and (3) BAE Surface Ships Limited
(as amended)
Any change of control of Devonport Royal Dockyard Limited must be
approved in advance by the Secretary of State for Defence. Consent
may be withheld to prevent an unsuitable third party taking control.
Breach may result in exclusion from the alliance.
Land Equipment Service Provision and
Transformation Contract (LECOM/1006) dated
31 March 2015 between (1) the Secretary of State for
Defence and (2) Babcock Land Defence Limited
(formerly DSG Land Equipment Support Limited)
(as amended)
Any transfer of any legal or beneficial interest in the share in the
contractor and any change of control of the contractor or of the
guarantor is to be notified in advance to the Secretary of State. A
change of control of the contractor or the guarantor is subject to the
approval of the Secretary of State for Defence. Any change resulting
in an affiliate of the contractor of the guarantor having control of the
contractor may only be refused on the grounds of national security.
A change of control of any shareholder of the contractor or of the
guarantor that arises as a result of an acquisition of listed shares
requires notification to the Secretary of State. Any breach of the
terms relating to a change of control is a Contractor Default giving
rise to a right for the Secretary of State to terminate the contract.
Competitive Design Phase Contract for the Type 31
Programme dated 7 December 2018 (as amended
and restated on 15 November 2019) between
(1) The Secretary of State for Defence and (2) Rosyth
Royal Dockyard Limited
The Secretary of State for Defence may terminate if, in its reasonable
opinion, a change of control of Rosyth Royal Dockyard Limited or
any holding company will be contrary to the defence, national
security or national interest of the UK.
Design and Build Contract for the Type 31
Programme dated 7 December 2018 (as amended
and restated on 15 November 2019) between (1) The
Secretary of State for Defence and (2) Rosyth Royal
Dockyard Limited
The Secretary of State for Defence may terminate if, in its reasonable
opinion, a change of control of Rosyth Royal Dockyard Limited or
any holding company will be contrary to the defence, national
security or national interest of the UK.
Future Maritime Support Programme Lot 11
(Warehousing and Distribution at HMNB Clyde)
dated 30 March 2021 between (1) The Secretary
of State for Defence and (2) Devonport Royal
Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
Devonport Royal Dockyard Limited or any other company in the
Group that it objects to and in respect of which its concerns have not
been addressed.
Future Maritime Support Programme Lot 1
(Naval Bases) dated 28 July 2021 between
(1) The Secretary of State for Defence and
(2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited, the Company or a critical
key sub-contractor and the Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal Dockyard Limited does
not terminate the sub-contract.
Other statutory information (continued)
182 Babcock International Group PLC Annual Report and Financial Statements 2026
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Future Maritime Support Programme Lot 2
(Ships Engineering) dated 30 September 2021
between (1) The Secretary of State for Defence
and (2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited, the Company or a critical
key sub-contractor and the Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal Dockyard Limited does
not terminate the sub-contract.
Future Maritime Support Programme Lot 3
(Submarine Engineering) dated 30 September 2021
between (1) The Secretary of State for Defence
and (2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited, the Company or a critical
key sub-contractor and the Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal Dockyard Limited does
not terminate the sub-contract.
Future Maritime Support Programme Lot 4 (Hard
Facilities Management and Alongside Services
at HMNB Clyde) dated 30 September 2021 between
(1) The Secretary of State for Defence and
(2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited, the Company or a critical
key sub-contractor and the Secretary of State’s concerns are not
addressed or, if relevant, Devonport Royal Dockyard Limited does
not terminate the sub-contract.
Integration Partner Framework Agreement relating
to the provision of professional services and works
at Devonport Royal Dockyard dated 2 December
2020 and pursuant to a Contract of Accession and
Variation of Contract dated 13 March 2025 between
(1) The Secretary of State for Defence, (2) Devonport
Royal Dockyard Limited and (3) Rosyth Royal
Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited or Rosyth Royal Dockyard
Limited and the Secretary of State’s concerns are not addressed.
Interim Support to the AUKUS Programme
agreement dated 1 March 2024 between
(1) The Secretary of State for Defence and
(2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited and the Secretary of
State’s concerns are not addressed.
Dreadnought Supply and Support Contract (DSSC)
Dreadnought Phase 3 (DP3) agreement dated
1 October 2023 between (1) The Secretary of
State for Defence and (2) Devonport Royal
Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited and the Secretary of
State’s concerns are not addressed.
Future Naval Design Partnership (FNDP) dated
13 September 2024 between (1) The Secretary of
State for Defence and (2) Devonport Royal Dockyard
Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited or Rosyth Royal Dockyard
Limited and the Secretary of State’s concerns are not addressed.
Ship Submersible Nuclear (AUJUS) (SSN(A))
Detailed Design and Long Lead (D2L2) – design for
support contract dated 1 August 2023 between (1)
The Secretary of State for Defence and (2)
Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of control of
any of Devonport Royal Dockyard Limited and the Secretary of
State’s concerns are not addressed.
Victoria Class In-Service Support Contract (VISSC)
dated 30 June 2008 between (1) Public Services
and Procurement Canada (PSPC) and (2) Babcock
Canada Inc (BCI)
The Minister of PSPC may terminate, either for convenience
or possibly default, including on a change of control, if there is a risk
of change in foreign ownership control or influence (FOCI) that the
Minister considers contrary to the best interests of Canada’s security
needs. The Minister may also deny the assignment of contracts and
subcontracts which would be required if a change of control were to
be pursued.
Volvo Construction Equipment Dealer Agreement
dated February 2018 between (1) Volvo Construction
Equipment AB and (2) Babcock Africa Services
Pty Limited
Volvo Construction Equipment may terminate on certain grounds
including if there is a change of control of Babcock Africa Services
without prior written consent. Share capital and rights attaching to
the Company’s shares.
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Share capital and rights attaching to the
Company’s shares
General
Under the Company’s Articles of Association, any share in
the Company may be issued with such rights or restrictions, whether
in regard to dividend, voting, return of capital or otherwise, as the
Company may from time to time by ordinary resolution determine
(or, in the absence of any such determination, as the Directors may
determine). The Directors’ practice is to seek authority from
shareholders at each year’s Annual General Meeting to allot shares
(including authority to allot free of statutory pre-emption rights) up to
specified amounts and also to buy back the Company’s shares,
again up to a specified amount.
At a general meeting of the Company, every member has one vote
on a show of hands and, on a poll, one vote for each share held. The
notice of general meeting specifies deadlines for exercising voting
rights, either by proxy or by being present in person, in relation to
resolutions to be proposed at a general meeting.
No member is, unless the Board decides otherwise, entitled to attend
or vote at, either personally or by proxy, a general meeting or to
exercise any other right conferred by being a shareholder if they or
any person with an interest in their shares has been sent a notice
under s793 of the Companies Act 2006 (which confers upon public
companies the power to require the provision of information with
respect to interests in their voting shares) and they or any interested
person have failed to supply the Company with the information
requested within 14 days after delivery of that notice. The Board may
also decide that no dividend is payable in respect of those defaulting
shares and that no transfer of any defaulting shares shall be
registered. These restrictions end seven days after receipt by the
Company of a notice of an approved transfer of the shares or all the
information required by the relevant Section 793 notice, whichever is
the earlier.
The Directors may refuse to register any transfer of any share which
is not a fully-paid share, although such discretion may not be
exercised in a way which the Financial Conduct Authority regards as
preventing dealings in the shares of the relevant class or classes
from taking place on an open or proper basis. The Directors may
likewise refuse to register any transfer of a share in favour of more
than four persons jointly.
The Company is not aware of any other restrictions on the transfer of
shares in the Company other than certain restrictions that may from
time to time be imposed by laws and regulations (for example,
insider trading laws) or by the nationality-related restrictions, more
particularly described below.
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities or voting
rights in the Company.
At the date of this report 505,596,597 ordinary shares of 60 pence
each have been issued and are fully paid up and quoted on the
London Stock Exchange.
Nationality-related restrictions on share ownership
Companies which provide aviation services in the EU must comply
with the requirements of EC Regulation 1008/2008 (the Regulation)
which, amongst other matters, requires those companies to be
majority-owned and majority-controlled by EEA nationals (the
licensed companies).
At the Company’s Annual General Meeting in July 2014,
shareholders approved the amendment of the Company’s Articles of
Association (the Articles) to include provisions intended to assist the
Company in ensuring continuing compliance with these obligations
by giving the Company and the Directors powers to monitor and, in
certain circumstances, actively manage nationality requirements as
regards ownership of its shares with a view to protecting the value of
the Group undertakings that hold the relevant operating licences.
A summary of these powers is set out below. Reference should,
however, also be made to the Company’s Articles, a copy of which
may be found on its website at
www.babcockinternational.com. In the event of any conflict between
the Articles and this summary, the Articles shall prevail.
Relevant Shares
Relevant Shares are any shares which the Directors have determined
or the holders have acknowledged are shares owned by non-EEA
nationals for the purposes of the Regulation (Relevant Shares).
It is open to shareholders to make representations to the Directors
with a view to demonstrating that shares should not be treated as
Relevant Shares.
Maintenance of a register of non-EEA shareholders
The Company maintains a register (which is separate from the
statutory register of members) containing details of Relevant
Shares. This assists the Directors in assessing, on an ongoing
basis, whether the number of Relevant Shares is such that action
(as outlined below) may be required to prevent or remedy a breach
of the Regulation.
The Directors will remove from the separate register particulars of
shares where they are satisfied that either the share is no longer a
Relevant Share or that the nature of the interest in the share is such
that the share should not be treated as a Relevant Share.
Disclosure obligations on share ownership
The Articles empower the Company to, at any time, require
a shareholder (or other person with a confirmed or apparent interest
in the shares) to provide in writing such information as the Directors
determine is necessary or desirable to ascertain such person’s
nationality and, accordingly, whether details of the shares should be
entered in the separate register as Relevant Shares or are capable of
being ‘Affected Shares’ (see below).
If the recipient of a nationality information request from the Company
does not respond satisfactorily to the request within the prescribed
period (being 21 days from the receipt of the notice), the Company
has the power to suspend the right of such shareholder to attend or
speak (whether by proxy or in person) at any general or class
meeting of the Company or to vote or exercise any other right
attaching to the shares in question. Where the shares represent at
least 0.25% of the aggregate nominal value of the Company’s share
capital, the Company may also (subject to certain exceptions) refuse
to register the transfer of such shares. The Articles also require that
a declaration (in a form prescribed by the Directors) relating to the
nationality of the transferee is provided to the Directors upon the
transfer of any shares in the Company, failing which the Directors
may refuse to register such transfer (see further below).
Other statutory information (continued)
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Power to treat shares as ‘Affected Shares’
The Articles empower the Directors, in certain circumstances,
to treat shares as ‘Affected Shares’. If the Directors determine that
any shares are to be treated as Affected Shares, they may serve an
‘Affected Share Notice’ on the registered shareholder and any other
person that appears to have an interest in those shares.
The recipients of an Affected Share Notice are entitled to make
representations to the Directors with a view to demonstrating that
such shares should not be treated as Affected Shares. The Directors
may withdraw an Affected Share Notice if they resolve that the
circumstances giving rise to the shares being treated as Affected
Shares no longer exist.
Consequences of holding or having an interest in
Affected Shares
A holder of Affected Shares is not entitled, in respect of those
shares, to attend or speak (whether by proxy or in person) at any
general or class meeting of the Company or to vote or to exercise
any other right at such meetings, and the rights attaching to
such shares will vest in the Chair of the relevant meeting
(who may exercise, or refrain from exercising, such rights at
his/her sole discretion).
The Affected Shares Notice may, if the Directors determine,
also require that the Affected Shares must be disposed of within 10
days of receiving such notice (or such longer period as the Directors
may specify) such that the Affected Shares become owned by an
EEA national, failing which the Directors may arrange for the sale of
the relevant shares at the best price reasonably obtainable at the
time. The net proceeds of any sale of Affected Shares would be held
in trust and paid (together with such rate of interest as the Directors
deem appropriate) to the former registered holder upon surrender
of the relevant share certificate in respect of the shares.
Circumstances in which the Directors may determine that
shares are Affected Shares
The Articles provide that where the Directors determine that it is
necessary to take steps in order to protect an operating licence of
the Group they may: (i) seek to identify those shares which have
given rise to the determination and to deal with such shares as
Affected Shares; and/or (ii) specify a maximum number of shares
(which will be less than 50% of the Company’s issued share capital)
that may be owned by non-EEA nationals and then treat any shares
owned by non-EEA nationals in excess of that limit as Affected
Shares (the Directors will publish a notice of any specified maximum
within two business days of resolving to impose such limit). In
deciding which shares are to be dealt with as Affected Shares, the
Directors shall be entitled to determine which Relevant Shares in
their sole opinion have directly or indirectly caused the relevant
determination. However, so far as practicable, the Directors shall
have regard to the chronological order in which the Relevant Shares
have been entered in the separate register.
Right to refuse registration
The Articles provide the Directors with the power to refuse
registration of a share transfer if, in their reasonable opinion, such
transfer would result in shares being treated or continuing to be
treated as Affected Shares.
The Articles also provide that the Directors shall not register
any person as a holder of any share in the Company unless the
Directors receive a declaration of nationality relating to such person
and such further information as they may reasonably request with
respect to that nationality declaration.
The Directors believe that, following the restructuring of the Aviation
sector, those companies in which the Company has an interest and
which are required to comply with the Regulation (being those
companies operating aviation services in the EU) do meet the
requirement of the Regulation, including those relating to nationality.
This belief is based on the Company’s understanding of the
application of the Regulation. There can, however, be no guarantee
that this will continue to be their assessment and that it will not be
necessary to declare a Permitted Maximum or exercise any other of
their or the Company’s powers in the Articles referred to above.
Internal controls and risk management
There is a robust process in place to enable the Board to have
assurance around the overall management of risk, including the
determination of the nature and extent of the Group’s principal risks.
Management monitors the financial reporting process and the
process for preparing the consolidated accounts through regular
reporting and review. Management reviews data for consolidation
into the Group’s financial statements to ensure that it gives a true
and fair view of the Group’s results in compliance with applicable
accounting policies.
The Board, through the Audit Committee, reviews the effectiveness
of the Group’s internal control and risk management. More
information on the work to prepare the Group for the introduction of
the new reporting requirement under the 2024 UK Corporate
Governance Code in respect of the declaration of effectiveness of
the material controls that
will come into effect for FY27 can be found in the Strategic report on
pages 110 and 114 and in the Audit Committee report on page 151.
Further information on the principal risks and management
controls for the Group can be found in the Strategic report on
pages 110 to 128.
Auditor
Forvis Mazars LLP is willing to continue in office as independent
auditor of the Company and a resolution to reappoint it will be
proposed at the forthcoming Annual General Meeting.
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The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors are required to
prepare the Group financial statements in accordance with United
Kingdom adopted international accounting standards. The Directors
have chosen to prepare the parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
including FRS 101 ‘Reduced Disclosure Framework’. Under company
law, the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period.
In preparing the parent company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific
requirements of the financial reporting framework are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
So far as the Directors are aware there is no relevant audit
information of which the Company’s auditor is unaware.
The Directors have taken all the steps that they ought to have taken
as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of
that information.
Responsibility statement
Each of the Directors, being each Director who is in office at the date
the Directors’ report is approved and whose names and functions
are listed below, confirms that, to the best of their knowledge:
• the financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken
as a whole;
• the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and
• the Annual Report and Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
Dame Ruth Cairnie Chair
Carl-Peter Forster Non-Executive Director
John Ramsay Non-Executive Director
Lord Parker Non-Executive Director
Aedamar Comiskey Non-Executive Director
Jane Moriarty Non-Executive Director
Sir Kevin Smith Non-Executive Director
Claudia Natanson Non-Executive Director
David Lockwood Chief Executive Officer
David Mellors Chief Financial Officer
Approval of the Strategic report and the
Directors’ report
The Strategic report and the Directors’ report (pages 1 to 186) for the
year ending 31 March 2026 have been approved by the Board and
signed on its behalf by:
Dame Ruth Cairnie
Chair
David Lockwood
Chief Executive Officer
19 June 2026
Directors’ responsibility statement
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Opinion
We have audited the financial statements of Babcock International Group PLC (the ‘Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 March 2026 which comprise the Group income statement, Group statement of comprehensive income, Group and Company
statements of changes in equity, Group and Company statements of financial position, Group cash flow statement and notes to the Group
and Company financial statements, including material accounting policy information.
The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting
standards and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion, the financial statements:
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2026 and of the Group’s profit for the year
then ended;
• have been properly prepared in accordance with UK-adopted international accounting standards and, as regards the Company financial
statements, as applied in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, including FRS 101 “Reduced Disclosure Framework” and applicable law); and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and public interest entities and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of
the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit procedures
performed to address each matter and our key observations arising from those procedures.
These matters, together with our findings, were communicated to those charged with governance through our Audit Completion Report.
Independent auditor’s report to the members
of Babcock International Group PLC
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Independent auditor’s report to the members of Babcock International Group PLC (continued)
Contract revenue and margin recognition (Group)
Key audit matter
description
Key information is provided in the following notes in the financial statements:
• Note 1(a)(i) – Critical accounting judgements;
• Note 1(b)(i) – Key sources of estimation uncertainty;
• Note 3 – Material accounting policy information;
• Note 16 – Trade and other receivables and contract assets; and
• Note 18 – Trade and other payables and contract liabilities.
The Group’s contract portfolio comprises of a number of multi-year, highly material projects and programmes. The
estimation of lifetime contract margin and the appropriate level of revenue and profit to recognise in any single
accounting period requires the exercise of management judgement. We consider that revenue and margin
recognition and the associated accounting for contract assets, liabilities, provisions, contingent liabilities and
contingent assets, within contracts with indicators of heightened audit risk, represent a significant audit risk and a
key audit matter.
We performed contract risk assessment procedures on the Group’s revenue portfolio to identify contracts which
exhibit indicators of heightened audit risk. An area of heightened audit risk could be illustrated by, and not limited to,
one of the following characteristics:
• Fixed priced contracts which use the estimate at completion (EAC) method to determine revenue and
profit margin;
• Contracts with a loss provision;
• “Design and build” contracts;
• Risk of schedule delivery or technical complexity;
• Judgement as to whether the Group is the principle or agent in the transaction;
• Complex IFRS 15 accounting treatment;
• Cost-plus style contracts with significant disallowed costs or costs subject to potential disallowance; and
• Variable consideration.
Four contracts were determined to be a significant risk for the group audit. One of these contracts, Type 31, has a
range of heightened risk factors. This is a key contract for the users of the financial statements and we have included
this as a separate key audit matter per below.
How our scope
addressed this
matter
Due to the nature of the Group’s portfolio of revenue contracts and their associated risk, we developed a specific
set of audit procedures to address the identified audit risks. The designed audit procedures were impacted by
the following:
• Type of revenue contract;
• Type of service provided;
• Whether there is homogeneity between services provided; and
• Whether a contract has a unique audit risk, for example a cost saving assumption where the business aims to
reduce expected production hours due to a technological investment. A specific procedure may be required if the
unique assumption has a material impact on revenue recognition.
Our audit procedures relevant across the contract portfolio included, but were not limited to:
• Gaining an understanding of the Group’s accounting policy and considering its compliance with IFRS 15 “Revenue
from Contracts with Customers”;
• Obtaining an understanding of the design and implementation of the key controls throughout the contract cycle,
including any IT-related controls;
• Enquiring with in-house legal counsel regarding contract related litigation and claims and analysing legal opinions
where applicable; and
• Comparing underlying inflation assumptions to other relevant benchmarks.
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Contract revenue and margin recognition (Group) (continued)
How our scope
addressed
this matter
continued
The procedures for contracts selected for testing included, where relevant, but were not limited to:
• Meeting the contract teams to gain an understanding of the contract, including principal opportunities and risks;
• Attending contract review meetings and performing site visits;
• Evaluating the key contract terms and conditions;
• Performing an IFRS 15 assessment to assess whether management is accounting for the contract appropriately;
• Comparing forecast revenue with the signed initial contract value and any contract modifications, including signed
contract amendments;
• Testing a sample of variations to contractual terms as appropriate;
• Assessing the appropriateness of the recognition of variable revenue;
• Comparing year end contract assets against subsequent evidence, including billing and cash receipts;
• Where relevant, challenging the completeness and accuracy of management’s cost to complete estimates, as well
as provisions for onerous contracts, by reference to projected outturns;
• Obtaining evidence for entries included in contract risk registers and challenging management’s assumptions
through assessment against historical performance, known technical issues and the stage of completion of
the contract;
• Testing the accuracy of the calculation of revenue recognised, contract asset and/or liability through
reperformance;
• Substantive testing on actual costs incurred in the year;
• Where relevant, comparing the contractual completion date together with any agreed extension-of-time with the
Group’s anticipated completion date to assess any exposure to potential liquidated damages;
• Where relevant, assessing certain one-off judgements that have arisen due to contract events, including the
completeness of management’s judgements and consideration of relevant contradictory evidence; and
• Assessing any judgements made in respect of significant principle versus agent considerations where relevant to
a specific contract.
Our observations
We are satisfied that the key judgements and estimates applied across the contract portfolio in recognising revenue
and profit are acceptable in the context of the financial statements taken as a whole.
Type 31 Estimates (Group)
Key audit matter
description
Key information is provided in the financial statements within note 1(b)(i) - Key sources of estimation uncertainty.
The Type 31 programme is a design and build contract for the provision of five general-purpose frigates, the first of
its class. It is a part of the United Kingdom Government’s National Shipbuilding Strategy and is a closely monitored
contract by users of the accounts. The contract is fixed price with indexation clauses and revenue recognised using
an input method based on actual and forecast costs.
The contract became onerous in previous reporting periods due to a variety of factors, including high inflation,
design maturity and resource constraints. The expected loss for the contract as a whole was impacted by a charge
of £140 million at the year-end due to 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. The ability to increase levels of programme productivity
through full enablement of production tasks has also been impacted.
Management’s estimate of the costs to complete totals £0.7 billion and includes a range of individually key
assumptions. These assumptions include, but are not limited to:
• Assumptions around production norms, rework levels, and the achievability of forecasted productivity gains;
• Achievability of build schedule and vessel acceptance date (VAD) within agreed timelines relevant for
liquidated damages;
• Assumptions surrounding the cost of labour;
• Items included in the risk register; and
• Other forecasted economic benefits to be derived from the programme.
The overall significance of the expected loss coupled with the range of critical judgements and key estimates leads
to a significant risk of material misstatement. Additionally, there has been heightened user focus on this contract in
recent years. We have therefore identified this as a key audit matter.
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Independent auditor’s report to the members of Babcock International Group PLC (continued)
Type 31 Estimates (Group) (continued)
How our scope
addressed this
matter
Our audit procedures included, but were not limited to, the below. We have split this across the procedures
applicable for the contract as a whole and then focussing on the key areas of estimation uncertainty.
General
• Multiple physical site visits to inspect work performed to date;
• Enquiries of various operational team members including the Programme Director, Ship Directors, management
experts in design, engineering, weight, Group Procurement and Group Human Resources, as well as Customer
representatives, to obtain a detailed understanding of the build schedule and planned build activities;
• Inspection of the signed contract, relevant contract modifications, and management’s IFRS 15 assessment to
confirm our understanding of the contractual terms remains appropriate;
• Obtaining an understanding of relevant controls in place to review the financial performance of the contract,
including the forecast future revenue and costs and to account for the onerous contract in the Group’s
financial statements;
• Evaluating the reasonableness of future cash flow forecasts with reference to current performance, both in year
and post year end to date, and performing trend analysis, assessing historical forecasting accuracy, and forecast
operational improvements in the contract to test the future build cost and schedule duration;
• Assessing management’s best estimate and sensitivity analysis against our own sensitivity calculations to
challenge the reasonableness of the loss provision;
• Challenging the modelling approach taken in line with the accounting standard and industry norms, as well as
testing the arithmetic accuracy of the cost model; and
• Challenging the Group’s onerous contract disclosures and their compliance with the requirements of IAS 37
“Provisions, Contingent Liabilities and Contingent Assets” and IAS 1 “Presentation of Financial Statements”.
Production hours
• Challenging lifetime contract production hour estimates to complete the build and fit-out of the five ships;
• Evaluating the achievability of forecast operational and productivity improvements expected to reduce production
costs through improved production norms and lower levels of rework. Our procedures included assessing actual
performance against planned assumptions and rework trends to date; and
• Performing sensitivity analysis on the key judgements used by management in forming the production hours
forecast to identify a range of outcomes and determine whether management’s estimate is reasonable.
Labour assumptions
• Challenging management’s resourcing plans and assumed labour cost by assessing overtime, shift patterns and
sick leave trends and assessing whether actual staffing is in line with management assumptions;
• Assess the appropriateness of the inflation assumptions in relation the industrial and non-industrial employees;
and
• Assess the appropriateness of central overhead rates which are allocated to the onerous contract provision based
on hours incurred.
Supply chain costs
• Challenging the achievability of assumed procurement cost actions by sampling forecast procurement cost actions
to underlying evidence such as correspondence with suppliers and sub-contractors.
Schedule and final acceptance
• Challenging schedule assumptions against the current build progress, which included assessing the assumptions
for typical costed timelines to complete each ship;
• Challenging the achievability of the schedule through extrapolation of actual timelines versus contractual delivery
dates, considering the impact of key dependencies in the build plan. Sampling was performed on workstreams to
interrogate the expected timetables; and
• Evaluating expected compliance against performance-related liquidated damages.
Risk register
• Assessing management’s basis for the additional risk provisions included in the risk register; and
• Comparing the value of the risk register entries against our sensitivity calculations to challenge the reasonableness
of the total risk provision
Our observations
We are satisfied that the key judgments and estimates used to recognise revenue and the onerous loss provision on
the Type 31 programme are reasonable. We consider the provision to be in accordance with IAS 37, and that the
revenue and margin for this contract has been recognised in accordance with IFRS 15.
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Our application of materiality and an overview of the scope of our audit
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Company financial statements
Overall materiality
£26.0 million (2025: £24.0 million) £36.8 million (2025: £40.0 million)
How we determined
overall materiality
0.5% (2025: 0.5%) of total revenue 1% (2025: 1%) of total assets
Rationale for
benchmark applied
Total revenue was selected as the basis for
materiality. The key considerations supporting our
judgement for selection of this benchmark were:
• Volatility of results in recent financial years;
• Revenue is a key metric of user focus;
• No market consensus of benchmarks selected for
the audits of the Group’s competitors; and
• Consistency with materiality levels applied in
previous audits.
Total assets was selected as the basis for
materiality. This was due to the Company’s
main operations being that of a non-trading
holding company.
Performance
materiality
£15.6 million (2025: £12.0 million) £22.1 million (2025: £20.0 million)
How we determined
performance
materiality
Performance materiality is set to reduce to an appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements in the financial statements exceeds materiality for
the financial statements as a whole. Both Group and Company measures represent 60% (2025: 50%)
of overall materiality.
The prior year was the first year of being the Group’s auditor. We have applied an increase to our
performance materiality threshold given our improved understanding of the Group. Additionally, when
setting performance materiality, we considered the history of misstatements detected in previous years
and the effectiveness of the control environment. For matters included within the Company financial
statements that impact the Group financial statements, we capped performance materiality at Group
performance materiality.
Reporting threshold
We agreed with those charged with governance that we would report to them misstatements identified
during our audit above £1.3 million (2025: £0.7 million) as well as misstatements below that amount that, in
our view, warranted reporting for qualitative reasons. An increase in the current year was agreed due to this
being the second year of being auditor.
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Independent auditor’s report to the members of Babcock International Group PLC (continued)
An overview of the scope of our audit
As part of designing our audit, we assessed the risk of material
misstatement in the financial statements, whether due to fraud or
error, and then designed and performed audit procedures
responsive to those risks. In particular, we looked at where the
Directors made subjective judgements, such as assumptions on
significant accounting estimates.
We tailored the scope of our audit to ensure that we performed
sufficient work to be able to give an opinion on the financial
statements as a whole. We used the outputs of our risk assessment,
our understanding of the Group and the Company, their
environment, controls, and critical business processes, to consider
qualitative factors to ensure that we obtained sufficient coverage
across all financial statement line items.
Our Group audit scope included an audit of the Group and the
Company financial statements. The Group consists of four sectors:
Marine, Nuclear, Land and Aviation, and within sectors there are
more disaggregated business units across multiple geographies.
Each business unit prepares individual group reporting packages.
We combined reporting packages to create components based on
sectors and geographies, for example Marine UK. There were 13
components in-scope for audit procedures, including the Company.
Four components of the Group were subject to full scope audit
performed by the Group audit team. Under the direction and
oversight of the Group audit partner, component audit teams
performed full scope audit procedures on six components and
specific scope audit procedures were performed on three others.
All component auditors are integrated partners of Forvis Mazars
Group SC.
The Group audit team issued instructions to component auditors
after completing its top-down risk assessment. In the prior year, the
Group audit partner visited Canada, South Africa and Australasia
component teams to direct and supervise the audit procedures. In
the current year he also visited the French component team and
senior members of the group engagement team visited the
Australasia and South Africa component teams. In both years the
group engagement partner organised office visits for the UK-based
component teams as well as holding regular roundtable discussions
with our UK senior team members across group and component
teams. There were frequent remote communications throughout the
audit and the Group audit team reviewed all appendices submitted
by components and directly reviewed key working papers.
The Group audit team tested certain areas centrally, such as
IT-related procedures, treasury, UK defined benefit pension
schemes, UK tax, assessment of incremental borrowing and discount
rates, and share-based payments. The Group audit team also tested
the consolidation process and carried out analytical procedures to
confirm our conclusion that there were no significant risks of material
misstatement of the aggregated financial information.
The components within scope of our work accounted for 93%
(2025: 99%) of the Group’s revenue, 83% (2025: 99%) of the
Group’s profit before taxation, 91% (2025: 98%) of the Group’s total
assets and 93% (2025: 99%) of the Group’s net assets. The
reduction in coverage is due to this being our second year of being
auditor to the Group. This allows for a more precise risk assessment
and scoping exercise based on an enhanced understanding from the
prior year audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the Directors’ assessment of the
Group’s and the Company’s ability to continue to adopt the going
concern basis of accounting included but were not limited to:
• Undertaking an initial assessment at the planning stage of the
audit to identify events or conditions that may cast significant
doubt on the Group’s and the Company’s ability to continue as a
going concern;
• Understanding and evaluating the process used by management
in preparing its going concern assessment, including the
appropriateness and supportability of underlying cash flow
forecasts, covenant measure and liquidity headroom calculations;
• Assessing the reasonableness of key assumptions used in
management’s assessment and challenging them where
necessary, using both internal and external sources of evidence;
• Assessing the historical accuracy of forecasts prepared
by management;
• Evaluating the feasibility of management’s plans for addressing
possible going concern risks and assessing whether these plans
are realistic and achievable within the relevant timeframe;
• Ensuring consistency between management’s going concern
assessment and other areas of the audit, such as work on
goodwill impairment and assessments of contract cost to
complete estimates;
• Evaluating the adequacy of severe and plausible downside
scenarios considered by the Directors to ensure they capture all
material and relevant risks identified during the risk assessment
process, and assessments of any relevant mitigating actions;
• Evaluating the reasonableness of the Director’s stress testing with
respect to covenant compliance to assess the Group’s resilience
under adverse conditions;
• Evaluating market sentiment by inspection of analyst reports and
reviewing available market data;
• Reviewing and challenging the contract backlog and forecasted
contract wins to support the revenue pipeline included in cash
flow forecasts;
• Evaluating the Group’s financial performance and position,
including key metrics such as cash flows and liquidity, as well as
evaluating the current debt structure and the ongoing refinancing
of expiring facilities;
• Assessing the Group’s wider risks and uncertainties, including
risks around supply chain management, operations, technology,
cyber and the environment, with reference to industry analysis;
and
• Evaluating the appropriateness of the disclosures in the financial
statements on going concern.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s
and the Company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements
are authorised for issue.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections of
this report.
In relation to Babcock International Group PLC’s reporting on how it has
applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the Directors’ statement in the
financial statements about whether the Director’s considered it
appropriate to adopt the going concern basis of accounting.
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Other information
The other information comprises the information included in the
Annual Report other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of
the audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the Remuneration Committee report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
• the information given in the Strategic report and the Directors’
report for the financial year for which the financial statements are
prepared is consistent with the financial statements and those
reports have been prepared in accordance with applicable legal
requirements;
• the information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5 and
7.2.6 in the Disclosure Guidance and Transparency Rules
sourcebook made by the Financial Conduct Authority (the FCA
Rules), is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements; and
• information about the Company’s corporate governance code and
practices and about its administrative, management and
supervisory bodies and their committees complies with rules
7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report
by exception
In light of the knowledge and understanding of the Group and the
Company and their environment obtained in the course of the audit,
we have not identified material misstatements in the:
• Strategic report or the Directors’ report; or
• information about internal control and risk management systems in
relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the
FCA Rules.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Company financial statements and the part of the
Remuneration Committee report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we
require for our audit; or
• a corporate governance statement has not been prepared by
the Company.
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Corporate governance statement
The Listing Rules require us to review the Directors’ statement in
relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to Babcock International
Group PLC’s compliance with the provisions of the UK Corporate
Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
• Directors’ statement with regards the appropriateness of adopting
the going concern basis of accounting and any material
uncertainties identified, set out on page 130;
• Directors’ explanation as to its assessment of the entity’s
prospects, the period this assessment covers and why this period
is appropriate, set out on page 130;
• Directors’ statement on fair, balanced and understandable, set out
on page 152;
• Board’s confirmation that it has carried out a robust assessment of
the emerging and principal risks, set out on page 110;
• The section of the annual report that describes the review of
effectiveness of risk management and internal control systems,
set out on page 153; and
• The section describing the work of the Audit Committee, set out
on page 150.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement
set out on page 186, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are responsible
for assessing the Group’s and the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of
assurance but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance with
laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in
respect of irregularities, including fraud.
Based on our understanding of the Group and the Company and
their industry, we considered that non-compliance with the following
laws and regulations might have a material effect on the financial
statements: employment regulation, health and safety regulation,
anti-money laundering regulation, data protection legislation,
environmental legislation and Single Source Contract Regulations.
To help us identify instances of non-compliance with these laws and
regulations, and in identifying and assessing the risks of material
misstatement in respect to non-compliance, our procedures
included, but were not limited to:
• Gaining an understanding of the legal and regulatory framework
applicable to the Group and the Company, the industry in which
they operate, and the structure of the Group, and considering the
risk of acts by the Group and the Company which were contrary to
the applicable laws and regulations, including fraud;
• Inquiring of the Directors, management and, where appropriate,
those charged with governance, as to whether the Group and the
Company is in compliance with laws and regulations, and
discussing their policies and procedures regarding compliance
with laws and regulations;
• Reviewing minutes of Directors’ meetings in the year; and
• Discussing amongst the engagement team the laws and
regulations listed above, and remaining alert to any indications of
non-compliance.
Independent auditor’s report to the members of Babcock International Group PLC (continued)
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We also considered those laws and regulations that have a direct
effect on the preparation of the financial statements, such as
financial reporting legislation (including related companies’
legislation such as the Companies Act 2006), Financial Conduct
Authority (FCA) regulations including the Listing Rules, taxation
legislation, and pensions legislation.
In addition, we evaluated the Directors’ and management’s
incentives and opportunities for fraudulent manipulation of the
financial statements, including the risk of management override of
controls, and determined that the principal risks related to posting
manual journal entries to manipulate financial performance,
management bias through judgements and assumptions in
significant accounting estimates, in particular in relation to revenue
recognition and significant one-off or unusual transactions.
Our procedures in relation to fraud included but were not limited to:
• Making enquiries of the Directors and management on whether
they had knowledge of any actual, suspected or alleged fraud;
• Gaining an understanding of the internal controls established to
mitigate risks related to fraud;
• Discussing amongst the engagement team the risks of fraud; and
• Addressing the risks of fraud through management override of
controls by performing journal entry testing;
The primary responsibility for the prevention and detection of
irregularities, including fraud, rests with both those charged with
governance and management. As with any audit, there remained a
risk of non-detection of irregularities, as these may involve collusion,
forgery, intentional omissions, misrepresentations or the override of
internal controls.
The risks of material misstatement that had the greatest effect on our
audit are discussed in the “Key audit matters” section of this report.
A further description of our responsibilities is available on the
Financial Reporting Council’s website at www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
auditor’s report.
Other matters which we are required to address
Following the recommendation of the audit committee, we were
appointed by the members on 19 September 2024 to audit the
financial statements for the year ended 31 March 2025 and
subsequent financial periods. The period of total uninterrupted
engagement is 2 years.
Non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the Company and we remain
independent of the Group and the Company in conducting our audit.
Our audit opinion is consistent with our additional report to the
Audit Committee.
Use of the audit report
This report is made solely to the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members
as a body for our audit work, for this report, or for the opinions we
have formed.
As required by the Financial Conduct Authority Disclosure Guidance
and Transparency Rules, these financial statements will form part of
the electronic reporting format prepared annual financial report filed
on the National Storage Mechanism of the Financial Conduct
Authority. This auditor’s report provides no assurance over whether
the annual financial report will be prepared using the correct
electronic reporting format.
Louis Burns (Senior Statutory Auditor)
for and on behalf of Forvis Mazars LLP
Chartered Accountants and Statutory Auditor
Three Chamberlain Square,
Birmingham,
B3 3AX
19 June 2026
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Group income statement
For the year ended 31 March
2026 | 2025 | ||
For the year ended 31 March | Note | £m | £m |
Revenue | 2,3 | ||
Operating costs | ( | ( | |
Profit resulting from acquisitions and disposals | 27 | ||
Operating profit | 2,3,4 | ||
Results from joint ventures and associates | 2,14 | ( | |
Finance income | 5 | ||
Finance costs | 5 | ( | ( |
Profit before tax | 2,3 | ||
Income tax expense | 7 | ( | ( |
Profit for the year | |||
Attributable to: | |||
Owners of the parent | |||
Non-controlling interest | ( | ||
Earnings per share | |||
Basic | 2,9 | ||
Diluted | 2,9 |
Group statement of comprehensive income
For the year ended 31 March
Note
2026
2025 | |||
| £m | £m | ||
Profit for the year | |||
Other comprehensive income | |||
Items that may be subsequently reclassified to income statement | |||
Currency translation differences | ( | ||
Reclassification of cumulative currency translation reserve on disposal | 2 | ( | ( |
Fair value adjustment of interest rate and foreign exchange hedges | ( | ||
Hedging gains reclassified to profit or loss | 22 | ( | |
Share of other comprehensive income of joint ventures and associates | 14 | ( | |
Tax, including rate change impact, on items that may subsequently reclassify to the income | ( | ||
statement | |||
Items that will not be reclassified to income statement | |||
Remeasurement of retirement benefit obligations | 25 | ( | |
Tax on remeasurement of retirement benefit obligations | 7 | ( | |
Other comprehensive loss, net of tax | ( | ( | |
Total comprehensive income | |||
Total comprehensive income attributable to: | |||
Owners of the parent | |||
Non-controlling interest | ( | ||
Total comprehensive income |
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Group statement of changes in equity
Total equity | |||||||||||
| attributable | |||||||||||
| to owners | Non- | ||||||||||
| Share | Share | Other | Capital | Retained | Hedging | Translation | of the | controlling | Total | ||
| capital | premium | reserve | redemption | earnings | reserve | reserve | Company | interest | equity | ||
| Note | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
At 1 April 2024 | ( | ( | |||||||||
Profit for the year | |||||||||||
Other comprehensive | |||||||||||
(loss)/income | ( | ( | ( | ||||||||
Total comprehensive income | ( | ||||||||||
Dividends | 8 | ( | ( | ( | ( | ||||||
Disposal of non -controlling | |||||||||||
interest | ( | ( | |||||||||
Purchase of own shares | 23 | ( | ( | ( | |||||||
Share -based payments | 24 | ||||||||||
Tax on share -based payments | |||||||||||
Net movement in equity | ( | ||||||||||
At 31 March 202 5 | ( | ( | |||||||||
At 1 April 2025 | ( | ( | |||||||||
Profit for the year | ( | ||||||||||
Other comprehensive | |||||||||||
(loss)/income | ( | ( | ( | ( | |||||||
Total comprehensive income | ( | ( | |||||||||
Dividends | 8 | ( | ( | ( | ( | ||||||
Purchase of own shares | 23 | ( | ( | ( | |||||||
Share -based payments | 24 | ||||||||||
Tax on share -based payments | |||||||||||
Net movement in equity | ( | ( | ( | ||||||||
At 31 March 2026 | ( | ( |
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.
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Group statement of financial position
Note
31 March 2026 | 31 March 2025 | ||
| £m | £m | ||
Assets | |||
Non-current assets | |||
Goodwill | 10 | ||
Other intangible assets | 11 | ||
Property, plant and equipment | 12 | ||
Right of use assets | 13 | ||
Investment in joint ventures and associates | 14 | ||
Other investments | |||
Loan to joint ventures and associates | 14 | ||
Retirement benefits surpluses | 25 | ||
Other financial assets | |||
Lease receivables | 13, 21 | ||
Derivatives | 21 | ||
Deferred tax asset | 7 | ||
Trade and other receivables | 16 | ||
Current assets | |||
Inventories | 15 | ||
Trade and other receivables | 16 | ||
Contract assets | 16 | ||
Income tax recoverable | |||
Lease receivables | 13, 21 | ||
Other financial assets | |||
Derivatives | 21 | ||
Cash and cash equivalents | 17, 26 | ||
Total assets | |||
Equity and liabilities | |||
Equity attributable to owners of the parent | |||
Share capital | 23 | ||
Share premium | |||
Capital redemption and other reserves | |||
Retained earnings | ( | ( | |
Non-controlling interest | |||
Total equity | |||
Non-current liabilities | |||
Bank and other borrowings | 19 | ||
Lease liabilities | 13, 19 | ||
Trade and other payables | 18 | ||
Deferred tax liabilities | 7 | ||
Derivatives | 21 | ||
Retirement benefit deficits | 25 | ||
Provisions for other liabilities, including other employee benefits | 20 | ||
Current liabilities | |||
Bank and other borrowings | 19 | ||
Lease liabilities | 13, 19 | ||
Trade and other payables | 18 | ||
Contract liabilities | 18 | ||
Income tax payable | |||
Derivatives | 21 | ||
Other financial liabilities | |||
Provisions for other liabilities, including other employee benefits | 20 | ||
Total liabilities | |||
Total equity and liabilities |
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Group cash flow statement
For the year ended 31 March
2026 | 2025 | ||
| Note | £m | £m | |
Cash flows from operating activities | |||
Profit for the year | |||
Results from joint ventures and associates | 14 | ( | |
Income tax expense | 7 | ||
Finance income | 5 | ( | ( |
Finance costs | 5 | ||
Depreciation and impairment of property, plant and equipment | 12 | ||
Depreciation and impairment of right of use assets | 13 | ||
Amortisation and impairment of intangible assets | 11 | ||
Equity share-based payments | 24 | ||
Net derivative fair value and currency movement through profit or loss | ( | ( | |
Fair value movement on assets held at fair value through profit or loss | ( | ( | |
Gain on disposal of subsidiaries, businesses and joint ventures and associates | 27 | ( | |
Profit on disposal of property, plant and equipment | ( | ( | |
(Profit)/loss on disposal of right of use assets | ( | ||
Loss on disposal of intangible assets | |||
Cash generated from operations before movement in working capital and retirement | |||
benefit payments | |||
(Increase)/decrease in inventories | ( | ||
Increase in receivables | ( | ( | |
Increase in contract assets | ( | ( | |
Increase in payables | |||
Increase in contract liabilities | |||
Increase/(decrease) in provisions | ( | ||
Retirement benefit contributions in excess of current period expense | ( | ( | |
Cash generated from operations | |||
Income tax paid | ( | ( | |
Interest paid | ( | ( | |
Interest received | |||
Net cash flows from operating activities | |||
Cash flows from investing activities | |||
Disposal of subsidiaries and joint ventures and associates, net of cash disposed | 27 | ( | |
Dividends received from joint ventures and associates | 14 | ||
Proceeds on disposal of property, plant and equipment | |||
Proceeds on disposal of right of use assets | |||
Purchases of property, plant and equipment | ( | ( | |
Purchases of intangible assets | ( | ( | |
Purchase of other investments | ( | ||
Loans repaid by joint ventures and associates | 14 | ||
Net cash flows from investing activities | ( | ( | |
Cash flows from financing activities | |||
Dividends paid | 8 | ( | ( |
Lease payments | 26 | ( | ( |
Bank loans repaid | 26 | ( | ( |
Loans raised and facilities drawn down | 26 | ||
Dividends paid to non-controlling interest | ( | ( | |
Purchase of own shares | ( | ( | |
Net cash flows from financing activities | ( | ( | |
Net increase in cash, cash equivalents and bank overdrafts | |||
Cash, cash equivalents and bank overdrafts at beginning of year | 26 | ||
Effects of exchange rate fluctuations | 26 | ( | |
Cash, cash equivalents and bank overdrafts at end of year | 26 |
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Notes to the Group financial statements
For the year ended 31 March
1. Preparation of the Group financial statements
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1. Preparation of the Group financial statements (continued)
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Notes to the Group financial statements (continued)
1. Preparation of the Group financial statements (continued)
New IFRS accounting standards, amendments and interpretations not yet adopted ( continued)
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1. Preparation of the Group financial statements (continued)
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Notes to the Group financial statements (continued)
1. Preparation of the Group financial statements (continued)
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1. Preparation of the Group financial statements (continued)
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Notes to the Group financial statements (continued)
1. Preparation of the Group financial statements (continued)
Material accounting policy information
The material accounting policy information relevant to specific accounting areas is set out within the associated note. Other general policy
information is set out below. Material accounting policies have been applied consistently throughout the year and the comparative year
except as otherwise stated.
2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting items
The Group provides alternative performance measures, including underlying operating profit, underlying earnings per share and net debt
(Note 26), 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.
Other alternative performance measures are presented in the Financial Review on pages 32 to 51 where reconciliations to statutory
information are also provided.
The Group’s alternative performance measures 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 alternative performance measures are consistent with the year ended 31 March 2025.
Underlying operating profit
In any given year the statutory measure of operating profit includes a number of items which the Group considers to either be one-off in
nature or otherwise not reflective of underlying performance. Underlying operating profit therefore adjusts statutory operating profit to
provide readers with a measure of business performance which the Group considers more consistently analyses the underlying performance
of the Group by removing these one-off and other items not reflective of underlying performance that otherwise add volatility to performance.
Underlying operating profit eliminates potential differences in performance caused by purchase price allocations on business combinations in
prior periods (amortisation of acquired intangibles), business acquisition, merger and divestment related items, large, infrequent restructuring
programmes and fair value movements on derivatives. Transactions such as these may happen regularly and could significantly impact the
statutory result in any given year. Adjustments to underlying operating profit may include both income and expenditure items.
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2. Adjustments between statutory and underlying information (continued)
Specific adjusting items include:
•
Amortisation of acquired intangibles;
•
Business acquisition, merger and divestment related items (being amounts related to corporate transactions and gains or losses on
disposal of assets or businesses);
•
Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography, including closure costs,
severance costs, the disposal of assets and termination of leases;
•
The costs of large restructuring programmes that significantly exceed the minor restructuring which occurs in most years as part of normal
operations. Restructuring costs incurred as a result of normal operations are included in operating costs and are not excluded from
underlying operating profit;
•
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes;
•
Fair value gain/(loss) on forward rate contracts that are open during the period; and
•
Exceptional items that are significant, non-recurring and outside of the normal operating practice. These items are described as
exceptional in order to appropriately represent the Group’s underlying business performance. No exceptional items have been identified in
the current or comparative period.
Underlying earnings per share
Basic underlying earnings per share are calculated by dividing the underlying profit after tax attributable to ordinary shareholders by the
weighted average number of ordinary shares in issue less the weighted average number of shares held by the Employee Share Trust as
treasury shares. Diluted underlying earnings per share is calculated by dividing the underlying profit after tax attributable to ordinary
shareholders by the weighted average number of ordinary shares in issue less the weighted average number of shares held by the Employee
Share Trust, plus the number of ordinary shares which are considered potentially dilutive ordinary shares in respect of share incentive
schemes, should the vesting conditions have been met as at the year end. Details of share incentive schemes are provided in note 23 and
note 24.
Income statement including underlying results
The below table, disclosed as supplementary information, reconciles the non-GAAP measure of underlying operating profit to statutory profit.
Year ended 31 March 2026 | Year ended 31 March 2025 | ||||||
Specific | Specific | ||||||
| adjusting | adjusting | ||||||
| Underlying | items | Statutory | Underlying | items | Statutory | ||
| Note | £m | £m | £m | £m | £m | £m | |
Revenue | 3 | 5,177.7 | – | 5,177.7 | 4,831.3 | – | 4,831.3 |
Operating profit | 3,4 | 293.3 | 11.8 | 305.1 | 362.9 | 1.0 | 363.9 |
Operating margin % | 5.7% | – | 5.9% | 7.5% | – | 7.5% | |
Results from joint ventures and associates | 14 | 7.4 | – | 7.4 | 8.4 | (11.1) | (2.7) |
Net finance costs | 5 | (33.5) | 4.7 | (28.8) | (31.9) | (0.2) | (32.1) |
Profit/(loss) before tax | 267.2 | 16.5 | 283.7 | 339.4 | (10.3) | 329.1 | |
Income tax (expense)/benefit | 7 | (69.2) | (3.8) | (73.0) | (84.1) | 3.9 | (80.2) |
Profit/(loss) after tax for the year | 198.0 | 12.7 | 210.7 | 255.3 | (6.4) | 248.9 |
Earnings per share including underlying measures
Year ended 31 March 2026 | Year ended 31 March 2025 | |||||
Specific | Specific | |||||
| adjusting | adjusting | |||||
| Underlying | items | Statutory | Underlying | items | Statutory | |
| £m | £m | £m | £m | £m | £m | |
Profit/(loss) after tax for the year | 198.0 | 12.7 | 210.7 | 255.3 | (6.4) | 248.9 |
Amount attributable to owners of the parent | 198.5 | 12.7 | 211.2 | 253.5 | (6.4) | 247.1 |
Amount attributable to non-controlling interests | (0.5) | – | (0.5) | 1.8 | – | 1.8 |
Weighted average number of shares (m) | 501.3 | 501.3 | 503.6 | 503.6 | ||
Effect of dilutive securities (m) | 9.8 | 9.8 | 10.8 | 10.8 | ||
Diluted weighted average number of shares (m) | 511.1 | 511.1 | 514.4 | 514.4 | ||
Basic EPS (note 9) | 39.6p | 42.1p | 50.3p | 49.1p | ||
Diluted EPS (note 9) | 38.8p | 41.3p | 49.3p | 48.0p |
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Notes to the Group financial statements (continued)
2. Adjustments between statutory and underlying information (continued)
Details of specific adjusting items
The impact of specific adjusting items is set out below:
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Amortisation of acquired intangibles | (10.0) | (8.2) |
Business acquisition, merger and divestment related items | 10.2 | 1.5 |
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes | ||
(note 25) | – | 1.2 |
Fair value movement on derivatives and related items | 11.6 | 6.5 |
Adjusting items impacting operating profit | 11.8 | 1.0 |
Non -recurring amounts in results from joint ventures and associates | – | (11.1) |
Fair value movement on derivatives and related items | 4.7 | (0.2) |
Adjusting items impacting profit before tax | 16.5 | (10.3) |
Income tax benefit | ||
Amortisation of acquired intangibles | 2.9 | 2.2 |
Business acquisition, merger and divestment related items | (2.5) | – |
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes | ||
(note 25) | – | (0.3) |
Fair value movement on derivatives and related items | (4.2) | (1.6) |
Other tax items including rate change impact | – | 3.6 |
Income tax benefit | (3.8) | 3.9 |
Reconciliation of statutory to underlying tax rate
| Year ended 31 March 2026 | Year ended 31 March 2025 | ||||||
Specific | Specific | ||||||
| adjusting | adjusting | ||||||
| Underlying | items | Statutory | Underlying | items | Statutory | ||
| Note | £m | £m | £m | £m | £m | £m | |
Profit/(loss) before tax | 267.2 | 16.5 | 283.7 | 339.4 | (10.3) | 329.1 | |
Share of (profit)/loss from joint ventures | |||||||
and associates | 14 | (7.4) | – | (7.4) | (8.4) | 11.1 | 2.7 |
Profit/(loss) before tax excluding profit from joint ventures and associates | 259.8 | 16.5 | 276.3 | 331.0 | 0.8 | 331.8 | |
Income tax (expense)/benefit | (69.2) | (3.8) | (73.0) | (84.1) | 3.9 | (80.2) | |
Tax rate | 26.6% | 26.4% | 25.4% | 24.2% |
Explanation of specific adjusting items
Amortisation of acquired intangibles
Underlying operating profit excludes the amortisation of acquired intangibles. This item is excluded from underlying results as it arises
as a result of purchase price allocations on business combinations and is a non-cash item which does not change each year dependent
on the performance of the business. It is therefore not considered to represent the underlying activity of the Group and is removed to aid
comparability with peers who have grown organically as opposed to through acquisition. Intangible assets arising as a result of the purchase
price allocation on business combinations include customer lists, technology-based assets, order book and trade names. Amortisation of
internally generated intangible assets is included within underlying operating profit.
Business acquisition, merger and divestment related items
Transaction related costs and gains or losses on acquisitions, mergers and divestments of businesses are excluded from underlying
operating profit as business combinations and divestments are not considered to result from underlying business performance.
The total net profit relating to business acquisition, merger and divestment related items for the year ended 31 March 2026 was £10.2 million
(2025: £1.5 million). The profit for the current year comprises a gain of £8.1 million on loan receivable instruments created on the disposal of
the Group’s Civil Training business in a prior period. These loan notes were held at fair value and an accounting gain arose on final settlement
of the outstanding balance. Further detail is given in Note 27. In addition, the Group has recorded a £2.1 million gain from amounts being
settled on intercompany balances previously designated as net investments in a foreign operation under IAS 21 further to internal group
reorganisation activities.
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2. Adjustments between statutory and underlying information (continued)
The prior year balance comprises the disposal of the Group’s interest in the NTI business in Oman. Further detail is included in note 27.
Fair value movement on derivatives and related items
These are open forward currency contracts, taken out in the ordinary course of business to manage foreign currency exposures, where
the transaction will occur in future periods. Hedge accounting under IFRS is not applied, however these do represent economic hedges.
On maturity the currency contract will be closed and recognised in full within underlying operating profit at the same time as the hedged sale
or purchase. The net result, at that time, will then more appropriately reflect the related sales price or supplier cost being hedged.
Hedge ineffectiveness on debt and debt-related derivatives that are designated in a hedge relationship are also presented as a specific
adjusting item in finance costs. This is presented as a specific adjusting item as this ineffectiveness is caused by a historic off-market
designation, the transactions are considered by the Group to represent an economic hedge.
The fair value movement on lease-related derivatives and foreign exchange movements on lease liabilities are also presented as a specific
adjusting item in finance costs, as hedge accounting under IFRS is also not applied to these transactions but are also considered by the
Group to represent an economic hedge.
Tax
Specific adjusting items in respect of tax are £nil. In the year ended 31 March 2025 the Group recorded a credit of £3.6 million arising from
the impact of the increase in the rate of corporation tax. The rate change impact arose from adjustments to the Group’s UK tax position for
years ended before 1 April 2023.
Results from joint ventures and associates
In the prior year it was noted that our Ascent flight training joint venture, as part of FRS102 aligning with IFRS on revenue recognition, had
recorded a one-off reduction in its overall measure of contract completion under IFRS 15. This reduction in share of profits from JVs was
reported as a Specific Adjusting Item as it is met our criteria for an exceptional item, being significant, non-recurring and outside of the
normal operating practice. No one-off items in respect of results from joint ventures and associates have been noted in the current year.
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Notes to the Group financial statements (continued)
3. Segmental information and revenue recognition (continued)
Revenue recognition (continued)
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3. Segmental information and revenue recognition (continued)
Revenue recognition (continued)
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Notes to the Group financial statements (continued)
3. Segmental information and revenue recognition (continued)
Marine | Nuclear | Land | Aviation | Unallocated | Total | |
Year ended 31 March 202 6 | £m | £m | £m | £m | £m | £m |
Revenue | 1,591.5 | 2,070.4 | 1,084.4 | 431.4 | – | 5,177.7 |
Underlying operating profit/(loss) | (29.8) | 197.1 | 95.3 | 30.7 | – | 293.3 |
Specific Adjusting Items (note 2) | ||||||
Amortisation of acquired intangibles | (7.8) | – | – | (2.2) | – | (10.0) |
Business acquisition, merger and divestment related items | – | – | 8.1 | 2.1 | – | 10.2 |
Fair value gain on forward rate contracts to be settled in future periods | 9.2 | – | – | 2.4 | – | 11.6 |
Operating profit | (28.4) | 197.1 | 103.4 | 33.0 | – | 305.1 |
Results from joint ventures and associates | 1.3 | (0.3) | – | 6.4 | – | 7.4 |
IFRIC 12 investment income | – | – | 0.3 | – | – | 0.3 |
Other net finance costs* | – | – | – | – | (29.1) | (29.1) |
Profit/(loss) before tax | (27.1) | 196.8 | 103.7 | 39.4 | (29.1) | 283.7 |
Marine | Nuclear | Land | Aviation | Unallocated | Total | |
Year ended 31 March 202 5 | £m | £m | £m | £m | £m | £m * |
Revenue | 1,576.4 | 1,816.0 | 1,116.6 | 322.3 | – | 4,831.3 |
Underlying operating profit | 96.5 | 160.3 | 86.2 | 19.9 | – | 362.9 |
Specific Adjusting Items (note 2) | ||||||
Amortisation of acquired intangibles | (5.5) | – | – | (2.7) | – | (8.2) |
Business acquisition, merger and divestment related items | 1.5 | – | – | – | – | 1.5 |
Fair value gain/(loss) on forward rate contracts to be settled in future periods | 6.8 | – | – | (0.3) | – | 6.5 |
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes | – | 1.1 | 0.1 | – | – | 1.2 |
Operating profit | 99.3 | 161.4 | 86.3 | 16.9 | – | 363.9 |
Results from joint ventures and associates | (0.5) | 0.3 | – | (2.5) | – | (2.7) |
IFRIC 12 investment income | – | – | 0.4 | – | – | 0.4 |
Other net finance costs* | – | – | – | – | (32.5) | (32.5) |
Profit/(loss) before tax | 98.8 | 161.7 | 86.7 | 14.4 | (32.5) | 329.1 |
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Assets | Liabilities | Capital expenditure | Lease payments | |||||
2026 | 2025 | 2026 | 2025 | 2026 | 2025 | 2026 | 2025 | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Marine | 916.6 | 845.9 | 1,066.5 | 901.8 | 34.4 | 18.9 | 4.1 | 4.4 |
Nuclear | 761.0 | 761.9 | 378.9 | 378.3 | 54.8 | 69.8 | 4.1 | 5.7 |
Land | 663.4 | 665.9 | 387.7 | 424.5 | 3.5 | 6.1 | 6.6 | 10.3 |
Aviation | 521.1 | 453.5 | 366.6 | 313.0 | 58.2 | 25.3 | 18.8 | 17.9 |
Unallocated* | 1,068.0 | 963.0 | 1,101.1 | 1,050.8 | 9.4 | 8.2 | 10.9 | 7.1 |
Group total | 3,930.1 | 3,690.2 | 3,300.8 | 3,068.4 | 160.3 | 128.3 | 44.5 | 45.4 |
Depreciation of property, | Depreciation of | Amortisation of | ||||
| plant and equipment | right of use assets | intangible assets | ||||
2026 | 2025 | 2026 | 2025 | 2026 | 2025 | |
| £m | £m | £m | £m | £m | £m | |
Marine | 12.7 | 12.1 | 3.8 | 3.1 | 10.5 | 8.7 |
Nuclear | 32.8 | 28.1 | 5.1 | 6.2 | 8.4 | 3.5 |
Land | 3.4 | 4.4 | 6.1 | 7.3 | 0.5 | 0.6 |
Aviation | 9.4 | 7.2 | 21.5 | 11.3 | 2.3 | 2.8 |
Unallocated | 7.7 | 7.2 | 9.7 | 3.3 | 6.0 | 11.9 |
Group total | 66.0 | 59.0 | 46.2 | 31.2 | 27.7 | 27.5 |
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3. Segmental information and revenue recognition (continued)
Impairment of property, | Impairment of | Impairment of | ||||
| plant and equipment | right of use assets | intangible assets | ||||
2026 | 2025 | 2026 | 2025 | 2026 | 2025 | |
| £m | £m | £m | £m | £m | £m | |
Marine | 0.1 | – | – | – | – | – |
Nuclear | – | – | 0.1 | – | – | – |
Land | – | – | 1.4 | 0.1 | – | – |
Aviation | (1.9) | – | – | – | – | – |
Unallocated | 3.3 | – | 2.7 | 1.7 | – | – |
Group total | 1.5 | – | 4.2 | 1.8 | – | – |
2026 | 2025 | |
| £m | £m | |
United Kingdom | 1,493.0 | 1,473.3 |
Rest of Europe | 66.4 | 64.9 |
Africa | 28.5 | 26.0 |
North America | 78.9 | 58.3 |
Australasia | 162.5 | 154.3 |
Rest of World | 2.4 | 0.9 |
Non-current segment assets | 1,831.7 | 1,777.7 |
Retirement benefits | 77.3 | 98.8 |
Lease receivables | 31.4 | 26.2 |
Derivatives | 9.9 | 5.1 |
Deferred tax asset | 96.2 | 102.8 |
Total non-current assets | 2,046.5 | 2,010.6 |
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Marine | Nuclear | Land | Aviation | Total | |
Year ended 31 March 202 6 | £m | £m | £m | £m | £m |
United Kingdom | 769.3 | 2,068.5 | 622.1 | 185.1 | 3,645.0 |
Rest of Europe | 38.8 | – | 26.1 | 155.0 | 219.9 |
Africa | – | – | 336.9 | – | 336.9 |
North America | 215.4 | 1.9 | – | 26.8 | 244.1 |
Australasia | 187.2 | – | 99.3 | 64.5 | 351.0 |
Rest of World | 380.8 | – | – | – | 380.8 |
Group total | 1,591.5 | 2,070.4 | 1,084.4 | 431.4 | 5,177.7 |
Marine | Nuclear | Land | Aviation | Total | |
Year ended 31 March 202 5 | £m | £m | £m | £m | £m |
United Kingdom | 853.3 | 1,815.8 | 628.4 | 150.8 | 3,448.3 |
Rest of Europe | 40.6 | – | 31.0 | 95.7 | 167.3 |
Africa | – | – | 348.6 | – | 348.6 |
North America | 197.7 | 0.2 | – | 13.0 | 210.9 |
Australasia | 195.4 | – | 108.6 | 62.8 | 366.8 |
Rest of World | 289.4 | – | – | – | 289.4 |
Group total | 1,576.4 | 1,816.0 | 1,116.6 | 322.3 | 4,831.3 |
Marine | Nuclear | Land | Aviation | Total | |
Year ended 31 March 202 6 | £m | £m | £m | £m | £m |
Defence | 1,230.4 | 1,784.1 | 571.2 | 236.4 | 3,822.1 |
Civil | 361.1 | 286.3 | 513.2 | 195.0 | 1,355.6 |
Revenue | 1,591.5 | 2,070.4 | 1,084.4 | 431.4 | 5,177.7 |
Marine | Nuclear | Land | Aviation | Total | |
Year ended 31 March 202 5 | £m | £m | £m | £m | £m |
Defence | 1,296.4 | 1,575.0 | 547.3 | 160.8 | 3,579.5 |
Civil | 280.0 | 241.0 | 569.3 | 161.5 | 1,251.8 |
Revenue | 1,576.4 | 1,816.0 | 1,116.6 | 322.3 | 4,831.3 |
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Year ended | Year ended | ||
| 31 March 2026 | 31 March 2025 | ||
| £m | £m | ||
Raw materials, subcontracts and other bought-in items used | 2,215.5 | 2,093.0 | |
Change in inventories of finished goods and work-in-progress | (40.9) | 29.4 | |
Other operating charges | 104.4 | 12.2 | |
Employee costs (note 6) | 1,878.9 | 1,659.3 | |
Non-payroll people-related costs (including health and safety, travel, training, recruitment and subcontracted labour) | 267.2 | 278.4 | |
Facility costs (excluding amortisation charges shown below) | 148.0 | 114.9 | |
Legal and professional fees | 98.8 | 98.3 | |
Hire and vehicle costs (including short and low-value leases) | 59.5 | 53.2 | |
Insurance costs | 23.1 | 21.9 | |
Depreciation of property, plant and equipment ( note 12) | 66.0 | 59.0 | |
Depreciation of right-of-use assets (note 13) | 46.2 | 31.2 | |
Amortisation of intangible assets (note 11) | |||
• | Acquired intangibles | 10.0 | 8.2 |
• | Other | 17.7 | 19.3 |
Impairment of property, plant and equipment (note 12) | 1.5 | – | |
Impairment of right of use assets (note 13) | 4.2 | 1.8 | |
Gain on disposal of property, plant and equipment | (0.5) | (0.7) | |
Loss on disposal of intangible assets | 0.2 | – | |
(Gain)/loss on disposal of right-of-use assets | (4.1) | 0.1 | |
Net foreign exchange gain | (3.4) | (0.4) | |
Gain on disposal of subsidiaries and joint ventures | – | (1.5) | |
Gain on derivative instruments at fair value through profit or loss | (11.6) | (6.6) | |
Gain on trade and other receivables measured at fair value | (8.1) | (3.6) | |
Total operating charges | 4,872.6 | 4,467.4 |
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Audit fees: | ||
Fees payable to the parent auditor and its associates for the audit of the parent company’s individual | ||
and consolidated financial statements | 2.7 | 2.7 |
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s subsidiaries | 6.2 | 6.4 |
Additional fees payable to the parent auditor and its associates in respect of the prior year audits of the Company’s subsidiaries | 1.3 | |
Audit related assurance fees | – | – |
Fees for other services: | ||
Other non-audit services | – | – |
Total fees paid to the Group’s auditor and network firms | 10.2 | 9.1 |
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Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Finance costs | ||
Loans, overdrafts and associated interest rate hedges | 32.7 | 37.1 |
Lease interest and foreign exchange movements on lease liabilities | 15.3 | 15.1 |
Amortisation of issue costs of bank loan | 3.1 | 2.1 |
Retirement benefit interest cost (note 25) | 5.3 | 4.5 |
Other | 11.1 | 7.4 |
Capitalised borrowing costs (note 12) | (3.7) | (5.0) |
Total finance costs | 63.8 | 61.2 |
Finance income | ||
Bank deposits, loans and leases | 29.0 | 28.7 |
IFRIC 12 Investment income | 0.3 | 0.4 |
Retirement benefit interest income (note 25) | 5.7 | – |
Total finance income | 35.0 | 29.1 |
Net finance costs | 28.8 | 32.1 |
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Wages and salaries | 1,507.2 | 1,379.6 |
Social security costs | 190.8 | 147.1 |
Share-based payments (note 24) | 17.2 | 14.3 |
Pension costs – defined contribution plans (note 25) | 155.4 | 101.6 |
Pension charges – defined benefit plans (note 25) | 8.3 | 16.7 |
1,878.9 | 1,659.3 |
2026 | 2025 | |
| Number | Number | |
Marine | 7,639 | 7,358 |
Nuclear | 10,510 | 9,326 |
Land | 6,132 | 6,346 |
Aviation | 2,616 | 2,558 |
Central functions | 1,294 | 1,270 |
28,191 | 26,858 |
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Notes to the Group financial statements (continued)
6. Employee costs (continued)
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Salaries and other short term employee benefits | 16.0 | 16.1 |
Post-employment benefits | 0.8 | 0.6 |
Termination benefits | 0.7 | 0.8 |
Share-based payments | 6.2 | 6.5 |
23.7 | 24.0 |
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7. Taxation (continued)
Income tax expense
| Total | |||
Year ended | Year ended | ||
| 31 March 2026 | 31 March 2025 | ||
| £m | £m | ||
Analysis of tax expense in the year | |||
Current tax | |||
• | UK current year expense | 15.7 | 15.7 |
• | UK prior year expense | 9.9 | 2.5 |
• | Overseas current year expense | 28.5 | 20.6 |
• | Overseas prior year benefit | (0.9) | – |
53.2 | 38.8 | ||
Deferred tax | |||
• | UK current year expense | 47.2 | 53.0 |
• | UK prior year benefit | (25.6) | (9.1) |
• | Overseas current year (benefit)/expense | (1.6) | 1.7 |
• | Overseas prior year benefit | (0.2) | (0.6) |
• | Impact of changes in tax rates | – | (3.6) |
19.8 | 41.4 | ||
Total income tax expense | 73.0 | 80.2 |
The tax for the year is higher (2025: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Profit before tax | 283.7 | 329.1 |
Profit on ordinary activities multiplied by rate of corporation tax in the UK of 25% (2025: 25%) | 70.9 | 82.3 |
Effects of: | ||
Expenses not deductible for tax purposes | 11.8 | 5.7 |
Re-measurement of deferred tax in respect of statutory rate changes | – | (3.6) |
Difference in respect of share of results of joint ventures and associates’ results | (1.9) | 0.7 |
Prior year adjustments | (16.8) | (7.1) |
Differences in respect of foreign rates | (1.5) | 1.4 |
Unrecognised deferred tax movements | 10.2 | 6.3 |
Deferred tax not previously recognised/derecognised | 3.1 | (0.9) |
Non-taxable profits on disposals and non-deductible losses on disposals | – | (0.2) |
Pillar Two top-up tax | – | 0.5 |
Other | (2.8) | (4.9) |
Total income tax expense | 73.0 | 80.2 |
Further information on exceptional items and tax on exceptional items is detailed in note 2.
The Group is subject to taxation in several jurisdictions. The complexity of applicable rules may result in legitimate differences of
interpretation between the Group and taxing authorities, especially where an economic judgement or valuation is involved. The outcome of
tax authority disputes in such areas is not predictable, and to reflect the effect of these uncertain tax positions a provision is recorded which
represents management’s assessment of the most likely outcome of each issue. At 31 March 2026 the Group held uncertain tax positions of
£38.1 million (2025: £44.6 million). Of this amount, £24.7 million (2025: £32.3 million) relates to ongoing discussions with HMRC regarding
prior periods.
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Notes to the Group financial statements (continued)
7. Taxation (continued)
Income tax expense (continued)
2026 | 2025 | |
| £m | £m | |
Deferred tax asset | 96.2 | 102.8 |
Deferred tax liability | (5.1) | (5.9) |
91.1 | 96.9 |
Retirement | |||||
| benefit | |||||
| Tangible assets | obligations | Tax losses | Other | Total | |
| £m | £m | £m | £m | £m | |
At 1 April 2025 | (41.2) | 1.5 | 115.5 | 21.1 | 96.9 |
Income statement (debit)/credit | (12.9) | (5.8) | (5.8) | 4.7 | (19.8) |
Tax credit to other comprehensive income/equity | – | 12.3 | – | 1.2 | 13.5 |
Exchange differences | (0.2) | – | 0.3 | 0.4 | 0.5 |
At 31 March 2026 | (54.3) | 8.0 | 110.0 | 27.4 | 91.1 |
At 1 April 2024 | (45.1) | 27.0 | 128.0 | 16.0 | 125.9 |
Income statement credit/(debit) | 4.0 | (21.6) | (33.6) | 6.0 | (45.2) |
Tax credit to other comprehensive income/equity | – | (3.9) | – | (0.4) | (4.3) |
Transfer to income tax receivable | – | – | 17.2 | – | 17.2 |
Disposal of business | – | – | – | (0.1) | (0.1) |
Income statement effect of changes in tax rates | – | – | 4.2 | (0.6) | 3.6 |
Exchange differences | (0.1) | – | (0.3) | 0.2 | (0.2) |
At 31 March 2025 | (41.2) | 1.5 | 115.5 | 21.1 | 96.9 |
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7. Taxation (continued)
Deferred tax (continued)
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Interim dividend for the year ended 31 March 2026 of 2.5p (2025: 2.0p) per 60p share | 12.0 | 9.7 |
Final dividend for the year ended 31 March 2025 of 4.5p (2024: 3.3p) per 60p share | 22.7 | 17.0 |
34.7 | 26.7 |
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Notes to the Group financial statements (continued)
2026 | 2025 | |
| Number | Number | |
Weighted average number of ordinary shares for the purpose of basic EPS | 501,329,647 | 503,557,679 |
Effect of dilutive potential ordinary shares: share options | 9,811,970 | 10,854,861 |
Weighted average number of ordinary shares for the purpose of diluted EPS | 511,141,617 | 514,412,540 |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||||
Earnings | Earnings | |||||
| attributable to | Basic | Diluted | attributable to | Basic | Diluted | |
| shareholders | per share | per share | shareholders | per share | per share | |
| £m | Pence | Pence | £m | Pence | Pence | |
Earnings for the year | 211.2 | 42.1 | 41.3 | 247.1 | 49.1 | 48.0 |
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10. Goodwill (continued)
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Cost | ||
At 1 April | 1,820.1 | 1,822.0 |
On disposal of business (note 27) | – | (0.5) |
Exchange adjustments | 1.6 | (1.4) |
At 31 March | 1,821.7 | 1,820.1 |
Accumulated impairment | ||
At 1 April | 1,041.9 | 1,041.9 |
At 31 March | 1,041.9 | 1,041.9 |
Net book value at 31 March | 779.8 | 778.2 |
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Marine | 295.2 | 293.6 |
Nuclear | 233.1 | 233.1 |
Land (excluding Africa) | 217.8 | 217.8 |
Aviation | 32.0 | 32.0 |
Africa | 1.7 | 1.7 |
779.8 | 778.2 |
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Notes to the Group financial statements (continued)
10. Goodwill (continued)
| 31 March 2026 | 31 March 2025 | |||||||
Aviation | Land | Marine | Nuclear | Aviation | Land | Marine | Nuclear | |
Pre-tax discount rate | 11.1% | 12.4% | 11.8% | 13.3% | 12.6% | 11.9% | 11.5% | 11.9% |
Post -tax discount rate | 9.8% | 9.4% | 9.5% | 9.5% | 9.3% | 8.8% | 8.5% | 8.8% |
Long-term real growth rate | 2.1% | 2.0% | 2.0% | 2.0% | 2.0% | 2.0% | 2.0% | 2.0% |
Group of CGUs | Key future cash flow assumption |
Marine | Continuing delivery of work programmes with the UK Ministry of Defence, including the design and build of Type 31 |
frigates and the production of vertical missile tubes for the US -UK common missile compartment programme. | |
Future international opportunities in shipbuilding. | |
Nuclear | Continuing delivery of naval nuclear services to the UK Ministry of Defence, including the FMSP contract and successor |
programmes . Continuing delivery of opportunities in the UK civil nuclear decommissioning programme together with | |
maintenance of ongoing spend in provision of nuclear engineering services to operational power stations. | |
Land | Continuing demand for equipment support and training from both military and civil customers, noting that significant |
elements of equipment support and training are the subject of long -term contracts, not all of which have been assumed | |
to renew. | |
Aviation | Continuing delivery of long-term contracts with the UK Ministry of Defence. Expansion of activities in key overseas territories. |
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11. Other intangible assets (continued)
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Notes to the Group financial statements (continued)
| 11. Other intangible assets (continued) | |||||
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Freehold property | 2.0% to 8.0% |
Leasehold property | Lower of useful economic life or lease term |
Plant and equipment | 6.6% to 33.3% |
Aircraft airframes | 2% |
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Notes to the Group financial statements (continued)
12. Property, plant and equipment (continued)
Assets in | ||||||
| Freehold | Leasehold | Plant and | Aircraft | course of | ||
| property | property | equipment | fleet | construction | Total | |
| £m | £m | £m | £m | £m | £m | |
Cost | ||||||
At 1 April 2025 | 225.2 | 34.3 | 602.4 | 112.3 | 128.7 | 1,102.9 |
Additions | 14.1 | 0.6 | 8.1 | 21.8 | 110.8 | 155.4 |
Transfers to other intangible assets (note 11) | – | – | (0.4) | – | – | (0.4) |
Reclassification from AUC to in-use assets | 1.6 | – | 72.6 | 8.5 | (82.7) | – |
Reclassification cost/depreciation | (0.4) | – | 2.8 | – | – | 2.4 |
Reclassification between categories | (0.8) | (16.4) | 17.1 | 0.1 | – | – |
Disposals | (7.6) | (7.3) | (79.7) | (27.8) | (27.0) | (149.4) |
Capitalised borrowing costs | – | – | – | – | 3.7 | 3.7 |
Exchange adjustments | 0.3 | 0.2 | 3.7 | 3.3 | 1.4 | 8.9 |
At 31 March 2026 | 232.4 | 11.4 | 626.6 | 118.2 | 134.9 | 1,123.5 |
Accumulated depreciation | ||||||
At 1 April 2025 | 90.3 | 15.1 | 398.6 | 33.7 | 6.3 | 544.0 |
Depreciation charge for the year | 9.8 | 0.9 | 49.6 | 5.7 | – | 66.0 |
Impairment charge for the year | – | – | 3.3 | 0.1 | – | 3.4 |
Impairment reversals in the year | – | – | – | – | (1.9) | (1.9) |
Transfers to other intangible assets (note 11) | – | – | 3.2 | – | – | 3.2 |
Reclassification between categories | (0.7) | (1.1) | 1.8 | – | – | – |
Reclassification cost/depreciation | (0.4) | – | 2.8 | – | – | 2.4 |
Disposals | (7.3) | (7.3) | (78.8) | (5.1) | – | (98.5) |
Exchange adjustments | 0.1 | 0.2 | 1.9 | 1.4 | – | 3.6 |
At 31 March 2026 | 91.8 | 7.8 | 382.4 | 35.8 | 4.4 | 522.2 |
Net book value at 31 March 2026 | 140.6 | 3.6 | 244.2 | 82.4 | 130.5 | 601.3 |
Cost | ||||||
At 1 April 2024 | 220.9 | 15.4 | 572.6 | 87.4 | 124.1 | 1,020.4 |
Additions | 2.3 | 1.0 | 11.8 | 17.8 | 72.1 | 105.0 |
Transfers to other intangible assets (note 11) | – | – | (4.4) | – | – | (4.4) |
Transfers from right of use assets (note 13) | – | – | 5.0 | – | 0.5 | 5.5 |
Reclassification from AUC to in-use assets | 2.5 | 18.6 | 36.2 | 13.5 | (70.8) | – |
Disposals | (0.4) | (0.7) | (13.3) | (3.6) | (1.7) | (19.7) |
Disposal of business | – | – | (3.6) | – | – | (3.6) |
Capitalised borrowing costs | – | – | – | – | 5.0 | 5.0 |
Exchange adjustments | (0.1) | – | (1.9) | (2.8) | (0.5) | (5.3) |
At 31 March 2025 | 225.2 | 34.3 | 602.4 | 112.3 | 128.7 | 1,102.9 |
Accumulated depreciation | ||||||
At 1 April 2024 | 79.8 | 13.0 | 378.8 | 25.4 | 6.3 | 503.3 |
Depreciation charge for the year | 13.7 | 2.9 | 37.8 | 4.6 | – | 59.0 |
Transfers to other intangible assets (note 11) | – | – | (2.9) | – | – | (2.9) |
Transfers from right of use assets (note 13) | – | – | 5.0 | – | – | 5.0 |
Reclassification between categories | (3.4) | – | (4.3) | 7.7 | – | – |
Disposal of business | – | – | (3.6) | – | – | (3.6) |
Disposals | – | (0.7) | (11.0) | (2.6) | – | (14.3) |
Exchange adjustments | 0.2 | (0.1) | (1.2) | (1.4) | – | (2.5) |
At 31 March 2025 | 90.3 | 15.1 | 398.6 | 33.7 | 6.3 | 544.0 |
Net book value at 31 March 2025 | 134.9 | 19.2 | 203.8 | 78.6 | 122.4 | 558.9 |
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Leasehold | Plant and | Aircraft | ||
| property | equipment | fleet | Total | |
| £m | £m | £m | £m | |
Cost | ||||
At 1 April 2025 | 138.5 | 69.4 | 215.2 | 423.1 |
Additions | 31.1 | 21.9 | 28.0 | 81.0 |
Disposals | (35.1) | (10.2) | (2.9) | (48.2) |
Exchange adjustments | 2.4 | 0.1 | 11.5 | 14.0 |
At 31 March 2026 | 136.9 | 81.2 | 251.8 | 469.9 |
Accumulated depreciation | ||||
At 1 April 2025 | 58.5 | 45.8 | 90.0 | 194.3 |
Depreciation charge for the year | 16.6 | 10.4 | 19.2 | 46.2 |
Impairment charge for the year | 4.2 | – | – | 4.2 |
Disposals | (19.9) | (8.1) | (2.7) | (30.7) |
Exchange adjustments | 1.0 | 0.1 | 6.3 | 7.4 |
At 31 March 2026 | 60.4 | 48.2 | 112.8 | 221.4 |
Net book value at 31 March 2026 | 76.5 | 33.0 | 139.0 | 248.5 |
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Notes to the Group financial statements (continued)
13. Leases (continued)
| Leasehold | Plant and | Aircraft | ||
| property | equipment | fleet | Total | |
| £m | £m | £m | £m | |
At 1 April 2024 | 140.1 | 74.1 | 153.1 | 367.3 |
Additions | 12.3 | 9.5 | 75.8 | 97.6 |
Transfers to property, plant & equipment (note 12) | – | (5.5) | – | (5.5) |
Disposals | (9.7) | (8.4) | (4.1) | (22.2) |
Disposal of business | (2.0) | – | – | (2.0) |
Exchange adjustments | (2.2) | (0.3) | (9.6) | (12.1) |
At 31 March 202 5 | 138.5 | 69.4 | 215.2 | 423.1 |
Accumulated depreciation | ||||
At 1 April 2024 | 53.9 | 49.3 | 88.5 | 191.7 |
Depreciation charge for the year | 13.0 | 8.9 | 9.3 | 31.2 |
Impairment charge for the year | 1.7 | 0.1 | – | 1.8 |
Transfers to property, plant & equipment (note 12) | – | (5.0) | – | (5.0) |
Disposals | (8.3) | (7.4) | (3.4) | (19.1) |
Disposal of business | (0.8) | – | – | (0.8) |
Exchange adjustments | (1.0) | (0.1) | (4.4) | (5.5) |
At 31 March 2025 | 58.5 | 45.8 | 90.0 | 194.3 |
Net book value at 31 March 2025 | 80.0 | 23.6 | 125.2 | 228.8 |
Lease liabilities
The following tables show the discounted Group lease liabilities and a reconciliation of opening to closing lease liabilities:
Total | |
| £m | |
At 1 April 2025 | 274.6 |
Additions | 78.5 |
Disposals | (5.4) |
Exchange adjustments | 4.1 |
Lease interest | 17.1 |
Lease repayments | (61.6) |
At 31 March 2026 | 307.3 |
Non-current lease liabilities | 254.2 |
Current lease liabilities | 53.1 |
At 31 March 2026 | 307.3 |
At 1 April 2024 | 230.5 |
Additions | 99.2 |
Disposals | (3.0) |
Disposal of business | (1.1) |
Exchange adjustments | (5.6) |
Lease interest | 14.1 |
Lease repayments | (59.5) |
At 31 March 2025 | 274.6 |
Non-current lease liabilities | 227.4 |
Current lease liabilities | 47.2 |
At 31 March 2025 | 274.6 |
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13. Leases (continued)
2026 | 2025 | |
| £m | £m | |
Interest on lease liabilities | 17.1 | 14.1 |
Right-of-use asset depreciation | 46.2 | 31.2 |
Right-of-use asset impairment | 4.2 | 1.8 |
(Gain)/loss on disposal of right-of-use assets | (4.1) | 0.1 |
2026 | 2025 | |
| £m | £m | |
Total cash outflow for principal element of leases | 44.5 | 45.4 |
Total cash outflow for interest element of leases | 17.1 | 14.1 |
Total cash outflow for leases | 61.6 | 59.5 |
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Finance lease – interest income | 5.3 | 5.0 |
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Within one year | 16.6 | 18.8 |
Greater than one year but less than two years | 12.6 | 18.7 |
Greater than two years but less than three years | 7.3 | 9.2 |
Greater than three years but less than four years | 5.3 | 2.9 |
Greater than four years but less than five years | 2.4 | 0.2 |
Greater than five years | 12.6 | – |
Total undiscounted finance lease payments receivable | 56.8 | 49.8 |
Impact of discounting | (10.9) | (5.2) |
Finance lease receivable (net investment in the lease) | 45.9 | 44.6 |
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Notes to the Group financial statements (continued)
| Nature of | % interest | % interest | Country of | Principal area | |||
relationship | Year end | Business activity | held (2026) | held (2025) | incorporation | of operation | |
AirTanker Services Limited | Associate | 31 Dec | Provision of | 23.5% | 23.5% | United | United |
air-to-air refuelling | Kingdom | Kingdom | |||||
Ascent Flight Training | Joint venture | 31 Mar | Provision of | 50.0% | 50.0% | United | United |
(Holdings) Limited | training services | Kingdom | Kingdom |
31 March 2026 | 31 March 2025 | |||
Ascent Flight | Ascent Flight | |||
| Training | AirTanker | Training | AirTanker | |
| (Holdings) | Services | (Holdings) | Services | |
Summarised income statement extract (year ended) | Limited | Limited | Limited | Limited |
Revenue | 176.8 | 275.2 | 165.3 | 239.6 |
Depreciation and amortisation | (0.4) | (2.2) | (0.6) | (3.3) |
Interest income | 3.2 | 3.9 | 3.7 | 3.7 |
Interest expense | (2.0) | (0.1) | (2.3) | (0.2) |
Income tax expense | (6.6) | (2.7) | (5.9) | (1.8) |
Profit/(loss) from continuing operations | 20.2 | 0.4 | (2.6) | 1.0 |
Other comprehensive income | – | – | (3.2) | – |
Total comprehensive income | 20.2 | 0.4 | (5.8) | 1.0 |
Summarised statement of financial position | ||||
Non-current assets | 16.5 | 52.9 | 48.5 | 75.7 |
Current assets (excluding cash and cash equivalents) | 55.8 | 72.7 | 25.0 | 65.4 |
Cash and cash equivalents | 61.9 | 114.3 | 57.3 | 111.8 |
Non-current liabilities | (97.1) | (53.2) | (91.6) | (55.0) |
Current liabilities | (9.8) | (86.7) | (12.6) | (79.3) |
Net assets | 27.3 | 100.0 | 26.6 | 118.6 |
Ownership | 50% | 23.5% | 50% | 23.5% |
Carrying value of investment | 13.7 | 23.5 | 13.3 | 27.9 |
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14. Investment in and loans to joint ventures and associates (continued)
Investment in joint ventures | Loans to joint ventures | |||||
| and associates | and associates | Total | ||||
2026 | 2025 | 2026 | 2025 | 2026 | 2025 | |
| £m | £m | £m | £m | £m | £m | |
At 1 April | 43.5 | 59.7 | 3.6 | 3.9 | 47.1 | 63.6 |
Results from joint ventures and associates | 7.4 | (2.7) | – | – | 7.4 | (2.7) |
Acquisition and disposal of joint ventures and associates (note 27) | – | 0.4 | – | – | – | 0.4 |
Loans repaid by joint ventures and associates | – | – | (0.2) | (0.3) | (0.2) | (0.3) |
Interest accrued and capitalised | – | – | 0.2 | 0.2 | 0.2 | 0.2 |
Interest received | – | – | (0.3) | (0.2) | (0.3) | (0.2) |
Dividends received | (11.1) | (12.2) | – | – | (11.1) | (12.2) |
Fair value adjustment of derivatives | – | (2.2) | – | – | – | (2.2) |
Tax on fair value adjustment of derivatives | – | 0.5 | – | – | – | 0.5 |
Foreign exchange | 0.5 | – | – | – | 0.5 | – |
At 31 March | 40.3 | 43.5 | 3.3 | 3.6 | 43.6 | 47.1 |
2026 | 2025 | |
| £m | £m | |
Marine | 4.7 | 3.2 |
Nuclear | 0.1 | 0.9 |
Land | 0.2 | 0.2 |
Aviation | 38.6 | 42.8 |
Net book value | 43.6 | 47.1 |
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Notes to the Group financial statements (continued)
15. Inventories (continued)
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Raw materials and spares | 66.1 | 62.3 |
Work -in-progress | 6.0 | 5.4 |
Finished goods and goods for resale | 134.8 | 94.5 |
Total | 206.9 | 162.2 |
Write-downs of inventories amounted to £20.0 million (2025: £18.7 million). These were recognised as an expense during the year ended
31 March 2026 and included in operating costs in the income statement. Inventory recognised as an expense in the year amounted to
£388.3 million (2025: £354.7 million).
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16. Trade and other receivables and contract assets (continued)
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Non-current assets | ||
Costs to obtain a contract | 0.1 | 0.1 |
Costs to fulfil a contract | 16.0 | 8.6 |
Other debtors | 1.6 | 9.4 |
Non -current trade and other receivables | 17.7 | 18.1 |
Current assets | ||
Trade receivables | 316.1 | 303.4 |
Less: provision for impairment of receivables | (9.1) | (8.4) |
Trade receivables – net | 307.0 | 295.0 |
Retentions | 5.1 | 8.8 |
Amounts due from related parties (note 31) | 5.8 | 3.3 |
Other debtors 1 | 18.1 | 22.1 |
Other taxes and social security receivables | 94.6 | 63.2 |
Prepayments | 107.6 | 96.8 |
Costs to obtain a contract | – | 0.1 |
Costs to fulfil a contract | 13.9 | 18.1 |
Current trade and other receivables | 552.1 | 507.4 |
Contract assets | 352.8 | 329.7 |
Current trade and other receivables and contract assets | 904.9 | 837.1 |
Contract | |
| assets | |
| £m | |
1 April 2025 | 329.7 |
Transfers from contract assets recognised at the beginning of the year to trade receivables | (287.9) |
Increase due to work done not transferred from contract assets | 306.6 |
Exchange adjustment | 4.4 |
31 March 2026 | 352.8 |
1 April 2024 | 260.9 |
Transfers from contract assets recognised at the beginning of the year to receivables | (228.8) |
Increase due to work done not transferred from contract assets | 300.5 |
Exchange adjustment | (2.9) |
31 March 2025 | 329.7 |
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Notes to the Group financial statements (continued)
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Cash at bank and in hand | 182.6 | 167.9 |
Short-term bank deposits | 557.3 | 478.7 |
739.9 | 646.6 |
31 March 2026 | 31 March 2025 | |||
Total | Floating rate | Total | Floating rate | |
Currency | £m | £m | £m | £m |
Sterling | 479.1 | 479.1 | 420.6 | 420.6 |
Euro | 32.7 | 32.7 | 4.8 | 4.8 |
US Dollar | 21.0 | 21.0 | 14.0 | 14.0 |
South African Rand | 51.2 | 51.2 | 43.5 | 43.5 |
Canadian Dollar | 80.5 | 80.5 | 63.7 | 63.7 |
Omani Rial | 1.0 | 1.0 | 1.1 | 1.1 |
Australian Dollar | 47.8 | 47.8 | 65.9 | 65.9 |
Norwegian Krone | 0.7 | 0.7 | 2.4 | 2.4 |
Swedish Krona | 6.0 | 6.0 | 5.0 | 5.0 |
New Zealand Dollar | 17.3 | 17.3 | 12.4 | 12.4 |
Other currencies | 2.6 | 2.6 | 13.2 | 13.2 |
739.9 | 739.9 | 646.6 | 646.6 |
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2026 | 2025 | |
| £m | £m | |
Current liabilities | ||
Contract liabilities | 786.2 | 759.4 |
Trade creditors | 274.3 | 229.2 |
Amounts due to related parties (note 31) | – | 3.3 |
Other creditors | 18.9 | 12.2 |
Defined contribution pension creditor | 6.7 | 8.2 |
Other taxes and social security | 100.5 | 84.6 |
Accruals | 641.1 | 610.5 |
Trade and other payables | 1,041.5 | 948.0 |
Trade and other payables and contract liabilities | 1,827.7 | 1,707.4 |
Non-current liabilities | ||
Non-current accruals | 5.9 | 3.8 |
Other creditors | 0.2 | 0.4 |
6.1 | 4.2 |
Contract | |
| liabilities | |
| £m | |
1 April 2025 | 759.4 |
Revenue recognised that was included in the contract liability balance at the beginning of the year | (628.7) |
Cash advanced | 649.4 |
Exchange adjustment | 6.1 |
31 March 2026 | 786.2 |
1 April 2024 | 685.3 |
Revenue recognised that was included in the contract liability balance at the beginning of the year | (552.3) |
Cash advanced | 631.0 |
Exchange adjustment | (4.6) |
31 March 2025 | 759.4 |
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Notes to the Group financial statements (continued)
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Current liabilities | ||
Bank loans and overdrafts due within one year or on demand | ||
Secured | 0.7 | 0.6 |
Unsecured | 315.3 | – |
316.0 | 0.6 | |
Lease obligations* | 53.1 | 47.2 |
369.1 | 47.8 | |
Non-current liabilities | ||
Bank and other borrowings | ||
Secured | 5.8 | 6.2 |
Unsecured | 469.1 | 744.5 |
474.9 | 750.7 | |
Lease obligations* | 254.2 | 227.4 |
729.1 | 978.1 |
31 March 2026 | 31 March 2025 | |||
Loans and | Lease | Loans and | Lease | |
| overdrafts | obligations | overdrafts | obligations | |
| £m | £m | £m | £m | |
Within one year | 316.0 | 53.1 | 0.6 | 47.2 |
Between one and two years | 469.8 | 46.3 | 297.7 | 41.4 |
Between two and three years | 5.1 | 36.7 | 453.0 | 32.9 |
Between three and four years | – | 32.5 | – | 25.6 |
Between four and five years | – | 28.7 | – | 25.0 |
Greater than five years | – | 110.0 | – | 102.5 |
790.9 | 307.3 | 751.3 | 274.6 |
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19. Bank and other borrowings (continued)
31 March 2026 | 31 March 2025 | |||||
Total | Floating rate | Fixed rate | Total | Floating rate | Fixed rate | |
Currency | £m | £m | £m | £m | £m | £m |
Sterling | 413.1 | 10.4 | 402.7 | 394.6 | – | 394.6 |
Euro* | 516.3 | 107.3 | 409.0 | 500.4 | 93.9 | 406.5 |
US Dollar | 82.5 | – | 82.5 | 46.6 | – | 46.6 |
South African Rand | 9.6 | 4.6 | 5.0 | 8.4 | 4.2 | 4.2 |
Canadian Dollar | 8.5 | – | 8.5 | 3.3 | – | 3.3 |
Australian Dollar | 60.3 | – | 60.3 | 71.1 | – | 71.1 |
New Zealand Dollar | 0.9 | – | 0.9 | 1.2 | – | 1.2 |
South Korean Won | 1.3 | – | 1.3 | 0.2 | – | 0.2 |
Other | 5.7 | 5.7 | – | 0.1 | – | 0.1 |
1,098.2 | 128.0 | 970.2 | 1,025.9 | 98.1 | 927.8 |
31 March 2026 | 31 March 2025 | |
| % | % | |
UK bank overdraft | N/A | N/A |
8-year Eurobond September 2027– fixed | 2.9 | 2.9 |
8 -year Eurobond September 2027 – floating | 6.2 | 6.7 |
£300 million bond 2026 | 1.9 | 1.9 |
Other borrowings | 5.6 – 9.3 | 5.6 – 10.0 |
Leases obligations | 3.3 – 14.6 | 3.3 – 14.6 |
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Expiring in more than one year but not more than five years | 600.0 | 775.0 |
600.0 | 775.0 |
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Notes to the Group financial statements (continued)
20. Provisions for other liabilities, including other employee benefits (continued)
| Contract/ | Employee related and | |||||
| warranty | business reorganisation | Property | Legal | Other | Total | |
| (a) | costs (b) | (c) | (d) | (e) | provisions | |
| £m | £m | £m | £m | £m | £m | |
At 1 April 2025 | 97.0 | 15.2 | 17.6 | 6.0 | 2.5 | 138.3 |
Charge to income statement | 70.3 | 7.3 | 4.7 | 25.6 | 7.8 | 115.7 |
Release to the income statement | (22.3) | (3.2) | (2.1) | (0.3) | (0.4) | (28.3) |
Utilised in year | (20.7) | (5.2) | (0.1) | (0.3) | (1.0) | (27.3) |
Unwinding of discount | 2.0 | 0.1 | 0.2 | – | – | 2.3 |
Foreign exchange | 0.5 | 0.1 | 0.2 | – | – | 0.8 |
At 31 March 2026 | 126.8 | 14.3 | 20.5 | 31.0 | 8.9 | 201.5 |
Current | 119.7 | |||||
Non -current | 81.8 | |||||
At 1 April 202 4 | 117.8 | 12.4 | 23.5 | 2.5 | 2.0 | 158.2 |
Charge to income statement | 31.5 | 8.3 | 7.1 | 4.0 | 1.3 | 52.2 |
Release to the income statement | (13.9) | (1.3) | (9.9) | – | (0.7) | (25.8) |
Utilised in year | (42.3) | (5.0) | (0.5) | (0.5) | (0.3) | (48.6) |
Reclassification | 1.4 | 0.7 | (2.3) | – | 0.2 | – |
Disposal of business | – | – | (0.3) | – | – | (0.3) |
Unwinding of discount | 2.7 | 0.1 | – | – | – | 2.8 |
Foreign exchange | (0.2) | – | – | – | – | (0.2) |
At 31 March 202 5 | 97.0 | 15.2 | 17.6 | 6.0 | 2.5 | 138.3 |
Current | 80.2 | |||||
Non -current | 58.1 |
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Notes to the Group financial statements (continued)
21. Financial instruments and fair value measurement (continued)
Financial | Financial | |||||
| Financial | assets at | Financial | liabilities at | |||
| assets at | amortised | liabilities at | amortised | Total carrying | ||
31 March 202 6 (£m) | fair value | cost | fair value | cost | amount | Fair value |
Non-current financial assets | ||||||
Loans to joint ventures and associates | – | 3.3 | – | – | 3.3 | 3.3 |
Trade and other receivables* | – | 0.6 | – | – | 0.6 | 0.6 |
Financial assets | – | 2.9 | – | – | 2.9 | 2.9 |
Derivatives | 9.9 | – | – | – | 9.9 | 9.9 |
Lease receivables | – | 31.4 | – | – | 31.4 | 31.4 |
Current financial assets | ||||||
Trade and other receivables* | – | 325.1 | – | – | 325.1 | 325.1 |
Financial assets | – | 1.3 | – | – | 1.3 | 1.3 |
Lease receivables | – | 14.5 | – | – | 14.5 | 14.5 |
Derivatives | 8.8 | – | – | – | 8.8 | 8.8 |
Cash and cash equivalents | – | 739.9 | – | – | 739.9 | 739.9 |
Non -current financial liabilities | ||||||
Bank and other borrowings | – | – | – | (474.9) | (474.9) | (458.0) |
Lease liabilities | – | – | – | (254.2) | (254.2) | (254.2) |
Derivatives | – | – | (21.9) | – | (21.9) | (21.9) |
Current financial liabilities | ||||||
Bank and other borrowings | – | – | – | (316.0) | (316.0) | (316.0) |
Trade and other payables* | – | – | – | (908.5) | (908.5) | (908.5) |
Lease liabilities | – | – | – | (53.1) | (53.1) | (53.1) |
Other financial liabilities | – | – | – | (1.0) | (1.0) | (1.0) |
Derivatives | – | – | (2.9) | – | (2.9) | (2.9) |
Net financial assets / (financial liabilities) | 18.7 | 1,119.0 | (24.8) | (2,007.7) | (894.8) | (877.9) |
Financial | Financial | |||||
| Financial | assets at | Financial | liabilities at | |||
| assets at | amortised | liabilities at | amortised | Total carrying | ||
31 March 202 5 (£m) - Restated | fair value | cost | fair value | cost | amount | Fair value |
Non-current financial assets | ||||||
Loans to joint ventures and associates | – | 3.6 | – | – | 3.6 | 3.6 |
Trade and other receivables* | 2.4 | 5.7 | – | – | 8.1 | 8.1 |
Financial assets | – | 4.2 | – | – | 4.2 | 4.2 |
Derivatives | 5.1 | – | – | – | 5.1 | 5.1 |
Lease receivables | – | 26.2 | – | – | 26.2 | 26.2 |
Current financial assets | ||||||
Trade and other receivables* | – | 317.1 | – | – | 317.1 | 317.1 |
Financial assets | – | 1.2 | – | – | 1.2 | 1.2 |
Lease receivables | – | 18.4 | – | – | 18.4 | 18.4 |
Derivatives | 9.3 | – | – | – | 9.3 | 9.3 |
Cash and cash equivalents | – | 646.6 | – | – | 646.6 | 646.6 |
Non-current financial liabilities | ||||||
Bank and other borrowings | – | – | – | (750.7) | (750.7) | (721.8) |
Lease liabilities | – | – | – | (227.4) | (227.4) | (227.4) |
Derivatives | – | – | (44.8) | – | (44.8) | (44.8) |
Current financial liabilities | ||||||
Bank and other borrowings | – | – | – | (0.6) | (0.6) | (0.6) |
Trade and other payables* | – | – | – | (830.6) | (830.6) | (830.6) |
Lease liabilities | – | – | – | (47.2) | (47.2) | (47.2) |
Derivatives | – | – | (9.1) | – | (9.1) | (9.1) |
Net financial assets / (financial liabilities) | 16.8 | 1,023.0 | (53.9) | (1,856.5) | (870.6) | (841.7) |
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21. Financial instruments and fair value measurement (continued)
Objective | To manage exposure to interest rate fluctuations on borrowings by varying the proportion of fixed rate debt relative to | |||
floating rate debt to reflect the underlying nature of its commitments and obligations. As a result, the Group does not | ||||
maintain a speci fic set proportion of fixed versus floating debt, but monitors the mix to ensure that it is compatible | ||||
with its business requirements and capital structure. | ||||
Policy | The Group’s interest rate management policy is to monitor the mix of fixed versus floating interest rate debt to ensure | |||
that it is compatible with its business requirements and capital structure. | ||||
Risk management | The Group manages interest rate risk through the maintenance of a mixture of fixed and floating rate debt and interest | |||
rate swaps, each being reviewed on a regular basis to ensure the appropriate mix is maintained. | ||||
Performance | As | at 31 March | 2026 | , the Group had 88% fixed rate debt (2025: 90%) and 12% floating rate debt (2025: 10%) based |
on gross debt, including lease liabilities, of £1,098.2 million (2025: £1,025.9 million). |
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Notes to the Group financial statements (continued)
22. Financial risk management (continued)
31 March 2026 | 31 March 2025 | |||||
Between one | Between one | |||||
| Less than | and two | Greater than | Less than | and two | Greater than | |
| one year | years | two years | one year | years | two years | |
| £m | £m | £m | £m | £m | £m | |
Cash and cash equivalents | 739.9 | – | – | 646.6 | – | – |
Bank and other borrowings | 369.1 | 516.1 | 213.0 | 47.8 | 339.2 | 638.9 |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||
Effect on profit | Effect on profit | |||
| Change in | before tax | Change in | before tax | |
| interest rate | £m | interest rate | £m | |
GBP | 3.0% | 0.3 | 3.0% | – |
EUR | 3.0% | 3.2 | 3.0% | 2.8 |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||||
Change in | ||||||
| fair value of | Change in | |||||
| hedging | fair value of | |||||
| instrument | hedging | |||||
| Carrying | used for | Carrying | instrument used | |||
| Notional | amount of | calculating | Notional | amount of | for calculating | |
| principal | hedging | hedge | principal | hedging | hedge | |
Hedging instruments (£m) | amount | instrument | ineffectiveness | amount | instrument | ineffectiveness |
Cross currency interest rate swap 1 | 246.7 | (16.8) | 14.6 | 246.7 | (31.4) | 5.3 |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||||||
Amount of | Amount of | |||||||
| Change in | ineffectiveness | Change in | ineffectiveness | |||||
| Carrying | Accumulated | fair value used | recognised in | Carrying | Accumulated | fair value used | recognised in | |
| amount of | fair value | for calculating | the income | amount of | fair value | for calculating | the income | |
Hedged item (£m) | hedged item | adjustments | ineffectiveness | statement | hedged item | adjustments | ineffectiveness | statement |
Debt | 240.3 | 9.7 | (13.0) | 1.6 | 230.3 | 12.7 | (4.7) | (0.5) |
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Objective | The Group’s objective with regards to liquidity risk is to ensure that there is an appropriate balance between |
continuity, flexibility and cost of debt funding through the use of borrowings, whilst also diversifying the sources of | |
these borrowings with a r ange of maturities and rates of interest, to reflect the long-term nature of the Group’s | |
contracts and commitments and its risk profile. | |
Policy | The Group’s policy is to ensure the business is prudently funded and that sufficient liquidity headroom is maintained |
on its facilities. | |
Risk management | Liquidity risk management includes maintaining sufficient cash and the availability of funding from an adequate |
amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Group treasury | |
maintains flexibility in funding b y maintaining cash and/or availability under committed credit lines. | |
Each of the sectors in the Group provides regular cash forecasts for liquidity planning purposes. These cash forecasts | |
are used to monitor and identify the liquidity requirements of the Group, and to ensure that there is sufficient liquidity | |
to meet operat ional needs while maintaining sufficient headroom on the Group’s committed borrowing facilities. | |
The Group utilises debt factoring in support of the non -UK operations of its Aviation sector as part of its working | |
capital management arrangements. | |
Performance | The Group continues to keep under review its capital structure to ensure that the sources, tenor and availability of |
finance are sufficient to meet its stated objectives. No new facilities have been entered into. |
Less than | Between | Between | Over | ||
| 1 year | 1 and 2 years | 2 and 5 years | 5 years | Total | |
| £m | £m | £m | £m | £m | |
At 31 March 2026 | |||||
Bank and other borrowings – repayment of overdraft and loan principal | 316.9 | 471.8 | 5.1 | – | 793.8 |
Bank and other borrowings – interest payments | 9.7 | 3.4 | 0.4 | – | 13.5 |
Derivatives cash outflows settled gross | 464.2 | 763.1 | 875.4 | 30.4 | 2,133.1 |
Undiscounted lease payments | 66.6 | 58.9 | 124.3 | 131.4 | 381.2 |
At 31 March 2025 | |||||
Bank and other borrowings – repayment of overdraft and loan principal | 0.6 | 299.8 | 453.0 | – | 753.4 |
Bank and other borrowings – interest payments | 12.5 | 9.7 | 3.4 | – | 25.6 |
Derivatives cash outflows settled gross | 590.7 | 274.5 | 897.2 | 8.4 | 1,770.8 |
Undiscounted lease payments | 55.5 | 53.7 | 106.0 | 130.0 | 345.2 |
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Notes to the Group financial statements (continued)
22. Financial risk management (continued)
Objective | The Group’s objective is to reduce exposure to volatility in earnings and cash flows from movements in foreign |
currency exchange rates. The Group is exposed to a number of foreign currencies, the most significant being the | |
EUR, ZAR, AUD and CAD. | |
Policy – | In order to mitigate the currency risk of adverse currency movements on foreign currency denominated |
Transactional risk | transactions, the Group’s policy is to hedge all foreign currency transactions greater than £10k, using financial |
instruments where appropriate. The Group applies IFRS 9 hedge accounting treatment where appropriate. | |
Policy – | The Group is also exposed to adverse foreign currency movements on translation of net assets and income |
Translational risk | statements of foreign subsidiaries and joint ventures and associates. It is not the Group’s policy to hedge through the |
use of derivatives the translati on effect of exchange rate movements on the income statements or statement of | |
financial positions of overseas subsidiaries and joint ventures and associates it regards as long -term investments. | |
However, where the Group has material assets denominated in a foreign currency, it will consider matching the | |
assets with foreign currency denominated debt. | |
Risk management | Currency risk management includes hedging the underlying foreign currency exposures in the foreign exchange |
market with approved counterparties. Currency transactions are recorded and monitored in the treasury | |
management system. Each of the sectors in the Group provides a quarterly foreign currency exposure report to | |
monitor the level of currency hedge cover is appropriate. | |
Performance | All material firm transactional exposures are economically hedged using foreign exchange forward contracts. |
| Year ended 31 March 2026 | ||||||||
Amount | ||||||||
| Change in fair | Change in fair | reclassified | ||||||
| value used for | value recognised | from cash | Ineffectiveness | |||||
| calculating | in other | flow hedge | recognised in | |||||
| Nominal | Carrying | Hedged | hedge | comprehensive | reserve to | profit and loss | ||
Hedging instruments (£m) | amount | value | Maturity | rate | effectiveness | income | finance cost | (finance cost) |
Hedge instrument: Cross currency swap | €275m | (3.9) | 13/09/27 | 1.115 | 7.7 | 7.7 | (10.0) | – |
Hedged item: EUR-denominated debt | €275m | N/A | 13/09/27 | N/A | (10.0) | N/A | N/A | N/A |
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| Year ended 31 March 2025 | ||||||||
Amount | ||||||||
| Change in fair | Change in fair | reclassified | ||||||
| value used for | value recognised | from cash | Ineffectiveness | |||||
| calculating | in other | flow hedge | recognised in | |||||
| Nominal | Carrying | Hedged | hedge | comprehensive | reserve to | profit and loss | ||
Hedging instruments (£m) | amount | value | Maturity | rate | effectiveness | income | finance cost | (finance cost) |
Hedge instrument: Cross currency swap | €275m | (£11.6) | 13/09/27 | 1.115 | 1.9 | (1.9) | 4.8 | – |
Hedged item: EUR-denominated debt | €275m | N/A | 13/09/27 | N/A | (4.8) | N/A | N/A | N/A |
| Year ended 31 March 2026 | Year ended 31 March 2025 | |||||
Effect | Effect | |||||
| Change in | Effect | on other | Change in | Effect | on other | |
| foreign | on profit | components | foreign | on profit | components | |
| currency | before tax | of equity | currency | before tax | of equity | |
| rate | £m | £m | rate | £m | £m | |
EUR * | 5% | (1.6) | (1.6) | 5% | (1.0) | (1.0) |
ZAR | 5% | (1.4) | (1.4) | 5% | (1.6) | (1.6) |
AUD | 5% | (0.3) | (0.3) | 5% | (0.3) | (0.3) |
CAD | 5% | (0.8) | (0.8) | 5% | (0.7) | (0.7) |
Objective | The Group’s objective is to ensure that the Group continues to operate with an acceptable level of credit risk, based |
on management’s judgement, associated with its operating activities, such as customer trade receivables, and | |
financial activities, including cash deposits and financial instruments. | |
Policy | The Group’s policy is to manage credit risk by setting and reviewing appropriate credit limits for non-government |
commercial customers, being the Group’s main exposure to credit risk. With regards to financial institutions, credit | |
limits will be set accord ing to the respective financial institution’s credit rating. Counterparty bank credit risk is closely | |
monitored on a systematic and ongoing basis. | |
Risk management | Credit risk management includes performing credit checks on non-government commercial customers and setting |
and only performing financial transactions with approved investment grade counterparties. | |
Performance | Expected credit loss on trade receivable portfolio/provisions of £9.1 million (2025: £8.4 million). The carrying amount |
of the Group’s financial assets represents the maximum exposure to credit risk. |
31 March 2026 | 31 March 2025 | |
AA- or higher | 39.6% | 14.8% |
A+ to A- | 55.6% | 77.4% |
BBB+ to BB- | 4.8% | 7.8% |
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22. Financial risk management (continued)
2026 | 2025 | |
| £m | £m | |
Balance at 1 April | (8.4) | (8.5) |
Charged to the income statement | (2.6) | (1.0) |
Unused amounts reversed | 0.5 | 0.3 |
Disposal of businesses | – | 0.6 |
Receivables written off as uncollectable | 1.4 | 0.1 |
Exchange differences | – | 0.1 |
Balance at 31 March | (9.1) | (8.4) |
| Year ended 31 March 2026 | Year ended 31 March 2025 | |||||
Gross | Provision | Net | Gross | Provision | Net | |
| £m | £m | £m | £m | £m | £m | |
Not past due | 249.0 | – | 249.0 | 250.0 | – | 250.0 |
Up to 90 days overdue | 32.7 | (0.1) | 32.6 | 29.6 | (0.3) | 29.3 |
Past 90 days overdue | 34.4 | (9.0) | 25.4 | 23.8 | (8.1) | 15.7 |
316.1 | (9.1) | 307.0 | 303.4 | (8.4) | 295.0 |
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| Year ended 31 March 2026 | Year ended 31 March 2025 | |||||
Balance | Amounts not | Net | Balance | Amounts not | Net | |
| sheet | offset 1 | balances | sheet | offset 1 | balances | |
| £m | £m | £m | £m | £m | £m | |
Assets | ||||||
Cash and cash equivalents | 739.9 | (16.3) | 723.6 | 646.6 | (0.1) | 646.5 |
Derivatives | 18.7 | (18.7) | – | 14.4 | (14.4) | – |
Liabilities | ||||||
Bank and other borrowings | (16.3) | 16.3 | – | (0.1) | 0.1 | – |
Derivatives | (24.8) | 18.7 | (6.1) | (53.9) | 14.4 | (39.5) |
Objective | The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, and to |
provide returns for shareholders and other stakeholder benefits. | |
Policy | The Group’s policy is to protect and strengthen the Group statement of financial position through the appropriate |
balance of debt and equity funding. | |
Risk management | The Group manages its capital structure and makes adjustments in response to changes to economic conditions and |
the strategic objectives of the Group. The Group raises finance in the public debt market from financial institutions, | |
using a variety of capital market instruments and borrowing facilities. | |
Performance | No new facilities have been entered into in the current or prior period nor have any facilities been withdrawn or removed. |
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Ordinary shares of | ||
| 60p | Total | |
| Number | £m | |
Allotted, issued and fully paid | ||
At 1 April 2025 and 31 March 2026 | 505,596,597 | 303.4 |
Allotted, issued and fully paid | ||
At 1 April 2024 and 31 March 2025 | 505,596,597 | 303.4 |
2026 | 2025 | |||
Grant date | Type | Exercise period | Number | Number - restated |
1 December 2020 | PSP 1 | 01/12/2025 – 01/12/2026 | – | 318,585 |
1 December 2020 | PSP 1 | 01/12/2023 – 01/12/2024 | – | 9,089 |
24 September 2021 | PSP 1 | 24/09/2024 – 24/09/2025 | – | 224,829 |
24 September 2021 | PSP 1 | 24/09/2026 – 24/09/2027 | 80,948 | 80,948 |
1 August 2022 | DBP 2 | 01/08/2025 – 01/08/2026 | 28,548 | 218,895 |
1 August 2022 | PSP 1 | 01/08/2025 – 01/08/2026 | 211,805 | 1,841,596 |
1 August 2022 | PSP 1 | 01/08/2027 – 01/08/2028 | 49,476 | 1,328,136 |
1 August 2023 | PSP 1 | 01/08/2026 – 01/08/2027 | 2,402,124 | 2,606,362 |
1 August 2023 | DBP 2 | 01/08/2026 – 01/08/2027 | 129,095 | 129,095 |
1 August 2023 | DBP 3 | 01/08/2024 – 01/08/2025 | – | 27,212 |
1 August 2023 | PSP 1 | 01/08/2028 – 01/08/2029 | 24,549 | 24,549 |
29 September 2023 | PSP 1 | 29/09/2028 – 29/09/2029 | 900,607 | 900,607 |
15 December 2023 | PSP 1 | 15/12/2025 – 15/12/2026 | – | 42,077 |
15 December 2023 | PSP 1 | 15/12/2026 – 15/12/2027 | 145,199 | 175,643 |
1 August 2024 | DBP 2 | 01/08/2027 – 01/08/2028 | 93,254 | 93,254 |
1 August 2024 | DBP 3 | 01/08/2025 – 01/08/2026 | 23,823 | 142,343 |
1 August 2024 | PSP 1 | 02/12/2027 – 02/12/2028 | 3,084,641 | 3,364,295 |
1 August 2024 | PSP 1 | 02/12/2027 – 02/12/2030 | – | 15,634 |
2 December 2024 | PSP 1 | 02/12/2025 – 02/12/2026 | – | 4,860 |
2 December 2024 | PSP 1 | 02/12/2026 – 02/12/2027 | 14,582 | 14,582 |
2 December 2024 | PSP 1 | 02/12/2027 – 02/12/2028 | 61,772 | 61,772 |
7 July 2025 | DBP 3 | 07/07/2026 - 07/07/2027 | 139,512 | – |
7 July 2025 | DBP 3 | 07/07/2028 - 07/07/2029 | 83,188 | – |
7 July 2025 | PSP 1 | 07/07/2028 - 07/07/2029 | 854,448 | – |
29 September 2025 | PSP 1 | 29/09/2028 - 29/09/2029 | 770,928 | – |
15 December 2025 | PSP 1 | 15/12/2028 - 15/12/2029 | 45,712 | – |
9,144,211 | 11,624,363 |
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23. Share capital (continued)
2026 | 2025 | |||
Grant date | Type | Exercise period | Number | Number |
20 August 2025 | Colleague Share Plan | 20/08/2028 | 749,041 | – |
749,041 | – |
31 March 2026 | 31 March 2025 | |
Number | Number | |
| ’000 | ’000 | |
Outstanding at 1 April | 11,624 | 12,491 |
Granted | 2,782 | 4,095 |
Exercised | (3,845) | (3,917) |
Forfeited/lapsed | (668) | (1,045) |
Outstanding at 31 March | 9,893 | 11,624 |
Exercisable at 31 March | 212 | 261 |
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Notes to the Group financial statements (continued)
23. Share capital (continued)
| Year ended 31 March 2026 | Year ended 31 March 2025 | |||
Total cost | Total cost | |||
Treasury shares | # of shares | £m | # of shares | £m |
Shares in treasury as at 1 April | – | – | – | – |
Own shares purchased | 12,543,295 | 152.6 | – | – |
Shares transferred to BEST | (1,100,000) | (12.2) | – | – |
Shares transferred to MUFG | (702,960) | (7.4) | – | – |
Shares remaining in Treasury as at 31 March | 10,740,335 | 133.0 | – | – |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||
Total cost | Total cost | |||
Shares held by BEST | # of shares | £m | # of shares | £m |
Shares in BEST as at 1 April | 1,196,571 | 7.6 | 1,872,433 | 5.6 |
Own shares purchased | 1,846,399 | 16.7 | 3,267,012 | 18.8 |
Shares transferred from treasury shares | 1,100,000 | 12.2 | – | – |
Shares issued to satisfy employee share plans | (3,837,620) | (33.4) | (3,942,874) | (16.8) |
Shares remaining as at 31 March | 305,350 | 3.1 | 1,196,571 | 7.6 |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||
Total cost | Total cost | |||
Shares held by MUFG | # of shares | £m | # of shares | £m |
Shares held as at 1 April | – | – | – | – |
Shares transferred from treasury shares | 702,960 | 7.4 | – | – |
Shares issued to satisfy employee share plans | (8,613) | (0.1) | – | – |
Shares remaining as at 31 March | 694,347 | 7.3 | – | – |
24. Share-based payments
For awards which are subject to performance conditions, the charge to the income statement has been based on the assumptions below and
is based on the application of Black Scholes model or on the binomial model as adjusted, allowing for a closed form numerical-integrated
solution, which makes it analogous to the Monte Carlo simulations, including performance conditions as deemed necessary. The detailed
description of the plans below is included within the Remuneration report. For other awards not subject to performance conditions, the
charge is based on the share price on grant issue or modification date.
During the year the total charge relating to employee share-based payment plans was £17.2 million (2025: £14.3 million), all of which related
to equity-settled share-based payment transactions.
After tax, the income statement charge was £12.9 million (2025: £10.7 million).
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24. Share-based payments (continued)
The fair value per option granted and the assumptions used in the calculation are as follows:
PSP, DBP and CSP
1
Share price at | Expectations of | Fair value per | ||||||||
| grant or | meeting | Fair value | option – non- | |||||||
| Options | modification | Expected | performance criteria – | per option – | market | Grant or | ||||
| awarded | date | volatility | Option life non -market conditions | TSR | conditions | Correlation | modification | |||
| Number | Pence | % | Years | % | Pence | Pence | % | date | ||
2025 | DBP | 139,512 | 1,101 | – | 2.0 | 100.0% | – | 1,101 | – | 07/07/25 |
2025 | DBP | 83,188 | 1,101 | – | 4.0 | 100.0% | – | 1,101 | – | 07/07/25 |
2025 | CSP | 702,960 | 980 | – | 3.0 | 100.0% | – | 980 | – | 20/08/25 |
2025 | PSP | 929,031 | 1,101 | – | 4.0 | 100.0% | – | 1,101 | – | 07/07/25 |
2025 | PSP | 45,712 | 1,259 | – | 4.0 | 100.0% | – | 1,259 | – | 15/12/25 |
2025 | PSP | 803,271 | 1,302 | 32.9% | 4.0 | 100.0% | – | 1,167 | – | 29/09/25 |
2024 | DBP | 93,254 | 523 | – | 4.0 | 100.0% | – | 523 | – | 01/08/24 |
2024 | DBP | 162,444 | 523 | – | 2.0 | 100.0% | – | 523 | – | 01/08/24 |
2024 | PSP | 1,799,822 | 523 | – | 4.0 | 100.0% | – | 523 | – | 01/08/24 |
2024 | PSP | 1,887,244 | 523 | 31.5% | 4.0 | 100.0% | – | 470 | – | 01/08/24 |
2024 | PSP | 70,742 | 523 | 31.5% | 6.0 | 100.0% | – | 470 | – | 01/08/24 |
2024 | PSP | 61,772 | 510 | – | 4.0 | 100.0% | – | 510 | – | 02/12/24 |
2024 | PSP | 4,860 | 510 | – | 2.0 | 100.0% | – | 510 | – | 02/12/24 |
2024 | PSP | 14,582 | 510 | – | 3.0 | 100.0% | – | 510 | – | 02/12/24 |
2023 | PSP | 1,259,675 | 371 | 32.6% | 4.0 | 100.0% | – | 334 | – | 01/08/23 |
2023 | PSP | 1,234,901 | 371 | – | 4.0 | 100.0% | – | 371 | – | 01/08/23 |
2023 | PSP | 737,280 | 371 | 32.6% | 6.0 | 100.0% | – | 334 | – | 01/08/23 |
2023 | PSP | 78,571 | 413 | 32.0% | 6.0 | 100.0% | – | 372 | – | 29/09/23 |
2023 | PSP | 822,036 | 413 | – | 6.0 | 100.0% | – | 413 | – | 29/09/23 |
2023 | PSP | 42,077 | 385 | – | 3.0 | 100.0% | – | 385 | – | 15/12/23 |
2023 | PSP | 127,553 | 385 | – | 4.0 | 100.0% | – | 385 | – | 15/12/23 |
2023 | PSP | 131,707 | 385 | 32.0% | 6.0 | 100.0% | – | 347 | – | 15/12/23 |
2023 | DBP | 129,095 | 371 | – | 4.0 | 100.0% | – | 371 | – | 01/08/23 |
2023 | DBP | 179,247 | 371 | – | 2.0 | 100.0% | – | 371 | – | 01/08/23 |
2022 | PSP | 2,302,009 | 351 | 19.0% | 4.0 | 100.0% | – | 351 | – | 01/08/22 |
2022 | PSP | 613,078 | 351 | 19.0% | 6.0 | 100.0% | – | 316 | – | 01/08/22 |
2022 | PSP | 806,511 | 351 | 19.0% | 6.0 | 100.0% | 169 | 316 | 55.0% | 01/08/22 |
2022 | DBP | 218,895 | 351 | 19.0% | 4.0 | 100.0% | – | 351 | – | 01/08/22 |
2022 | DBP | 551,420 | 351 | 19.0% | 2.0 | 100.0% | – | 351 | – | 01/08/22 |
2021 | PSP | 769,165 | 372 | 19.0% | 6.0 | 100.0% | 149 | 316 | 55.0% | 24/08/21 |
2021 | PSP | 626,704 | 380 | 19.0% | 6.0 | 100.0% | – | 325 | – | 24/09/21 |
2021 | PSP | 1,780,849 | 380 | 19.0% | 4.0 | 100.0% | – | 380 | – | 24/09/21 |
2020 | PSP | 695,458 | 350 | 19.0% | 6.0 | 100.0% | – | 305 | – | 01/12/20 |
2020 | PSP | 2,091,247 | 350 | 19.0% | 4.0 | 100.0% | – | 350 | – | 01/12/20 |
2020 | PSP | 1,341,477 | 350 | 19.0% | 6.0 | 100.0% | 138 | 305 | 55.0% | 01/12/20 |
1. PSP = 2019 Performance Share Plan, DBP = 2022 Deferred Bonus Plan, CSP = Colleague Share Plan.
All awards have an exercise price of £nil and as such the weighted average exercise price for shares granted, exercised, forfeited and
outstanding are all £nil.
The vesting period and the expected life of PSP awards are between one and three years. The vesting period and expected life of DBP
awards was one year for awards made in August 2022 and two years for previous, other than for Executives where the vesting period is
three years. The holders of all awards receive dividends. The vesting period for the CSP is three years.
For PSP awards made in December 2020, 2,786,705 were made via the use of restricted shares with a three-year vesting period. There are
no performance conditions attached. A further 1,341,477 awards were made where the performance criteria is 50% against free cash flow
and 50% TSR.
PSP awards made in August 2021 of 769,165 shares include performance criteria weighted to 50% against free cash flow targets and 50%
against TSR performance.
PSP awards made in September 2021 of 2,407,553 shares were made via the use of restricted shares with a three-year vesting period.
There are no performance conditions attached.
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Notes to the Group financial statements (continued)
24. Share-based payments (continued)
For PSP awards made in August 2022, 3,318,343 were made via the use of restricted shares with a three-year vesting period. There are no
performance conditions attached. A further 403,255 awards were made where the performance criteria is 50% against free cash flow and
50% TSR.
For PSP awards made in August to December 2023, 3,611,764 were made via the use of restricted shares with a three-year to five year
vesting period. There are no performance conditions attached. A further 822,036 awards were made where the performance criteria is 30%
against free cash flow, 30% underlying operating margin, 25% organic revenue growth and 15% ESG.
For PSP awards made in August to December 2024, 1,881,036 were made via the use of restricted shares with a three-year to five year
vesting period. There are no performance conditions attached. A further 1,957,986 awards were made where the performance criteria is 30%
against free cash flow, 30% underlying operating margin, 25% organic revenue growth and 15% ESG.
For PSP awards made in July to December 2025, 974,743 were made via the use of restricted shares with a three-year to five year vesting
period. There are no performance conditions attached. A further 803,271 awards were made where the performance criteria is 30% against
free cash flow, 30% underlying operating margin, 25% organic revenue growth and 15% ESG.
There are no performance conditions attached to the DBP or the Colleague Share Plan (‘CSP’).
The expected volatility is based on historical volatility over the last one to three years. The expected life is the average expected period to
exercise. The risk-free rate of return is the yield on zero-coupon government bonds of a term consistent with the assumed option life.
The weighted average remaining contractual life for share options outstanding at the end of the period was 2 years.
In addition to the Colleague Share Plan providing employees with free shares during 2025, the Colleague Share Plan allows employees to
contribute up to £150 per month to the fund, which then purchases shares on the open market on the employees’ behalf. The Group provides
matching shares, purchased on the open market, of one share for every 10 purchased by the employee. During the year the Group bought
53,397 matching shares (2025: 92,641 matching shares) at a cost of £0.4 million (2025: £0.5 million).
The Group also operates the Babcock Colleague Share Plan International (‘BCSPI’) which reflects the structure of the UK Plan. During the
year no matching shares were purchased on the open market (2025: no matching shares) and 1,056 matching shares vested (2025: 1,182
matching shares). 1,056 shares were transferred to the BCSPI from the Employee Share Trust leaving a balance of 2,544 matching shares
(2025: 2,544 matching shares).
Year ended | Year ended | |
| 31 March 2026 | 31 March 2025 | |
| £m | £m | |
Defined contribution schemes | 155.4 | 101.6 |
31 March 2026 | 31 March 2025 | |
| £m | £m | |
Retirement benefits – funds in surplus | 77.3 | 98.8 |
Retirement benefits – funds in deficit | (111.3) | (107.2) |
(34.0) | (8.4) |
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25. Retirement benefits and liabilities (continued)
Risk | Mitigation |
Asset volatility – discount rates (determined with reference to | Pension scheme assets are held in a diversified portfolio of assets in order |
AA corporate bond yields) are used to determine expected | to minimize risk arising from asset return volatility. Investments are well |
returns on plan assets. Asset yields which vary from this | diversified, such that failure of any singular investment would not have a |
expected return will result in an increase or decrease in the | material impact on the overall level of assets. The asset investment strategy |
overall surplus/deficit. | is agreed following consult ation between the Group and the plan Trustees. |
The Group and the plan Trustees monitor the schemes closely – especially | |
during periods of significant turmoil and will maintain a diversified investment | |
strategy intended to minimize asset volatility. | |
Inflation – the majority of pension scheme obligations are | The plan Trustees asset management policy includes investing in inflation |
index - linked and therefore exposed to inflation risk. Increasing | hedging assets such as inflation linked bonds to mitigate this risk. |
inflation will lead to higher liabilities. Inflation assumptions as applied to pension obligations are a long -term assessment of inflation over the life of the scheme. | |
Life expectancy – the majority of obligations are to provide | The Group monitors the risk of increasing life expectancy and will, from time |
benefits for the life of the member and therefore changes in | to time, take out longevity swaps to mitigate this risk – the most recent of |
life expectancy of the scheme participants will impact the liability position. | which was in 2009. |
Interest rate – movements in corporate bond yields will result | The trustee’s asset management policy includes investing in bonds and |
in a change to the plan liabilities. Similarly, movements in gilt | therefore any impact on change in bond yields on the plan liabilities is |
yields in isolation will have an impact on the schemes | partially offset by returns on assets. |
funding positions. | The asset portfolio invests in assets which increase in value as interest rates |
decrease and thus the schemes holdings are designed to hedge against | |
interest rate risk for most of the funded liabilities. |
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25. Retirement benefits and liabilities (continued)
Risk | Mitigation | |
Salary increases – changes in long-term salary increases | In 2019, | the Group closed the Babcock International Group Pension Scheme |
will impact the final salary position on which pension benefits | to future accrual for some employees but they retained the salary link to their | |
are determined. | accrued benefits at that time. Subsequently, in September 2024, the salary | |
link was broken following the scheme closure. The Devonport Royal Dockyard | ||
Pension Scheme was closed to future accrual for all members with effect | from 30 November 2024, with some members opting to break the salary link | |
in return for a cash sum. The Rosyth Royal Dockyard Pension Scheme was | ||
closed to future accrual and salary link broken for all employees in 2020. | ||
Babcock Rail Ltd | ||||
| Devonport | Babcock | Rosyth | section of the | |
| Royal Dockyard | International | Royal Dockyard | Railways Pension | |
| Scheme | Group Scheme | Scheme | Scheme | |
Date of last formal completed actuarial valuation | 31/03/2023 | 31/03/2025 | 31/03/2024 | 31/12/2022 |
Number of active members at above date | 1,181 | – | – | 131 |
Actuarial valuation method | Projected unit | Projected unit | Projected unit | Attained age |
Results of formal actuarial valuation: | ||||
Value of assets | £1,330m | £908m | £653m | £262m |
Level of funding | 92% | 107% | 89% | 100% |
Babcock Rail | ||||||
| Babcock | Ltd section of | |||||
| Devonport | International | Rosyth Royal | the Railways | |||
| Royal Dockyard | Group | Dockyard | Pension | |||
| Scheme | Scheme | Scheme | Scheme | Other | Total | |
Future service contribution rate | – | – | – | 7.68% | – | – |
Future service cash contributions | – | – | – | £0.2m | £2.9m | £3.1m |
Deficit contributions | £12.7m | – | £4.5m | – | £0.9m | £18.1m |
Additional longevity swap payments | £1.8m | – | – | – | – | £1.8m |
Expected employer cash costs for 2026/27 | £14.5m | – | £4.5m | £0.2m | £3.8m | £23.0m |
Expected salary sacrifice contributions | – | – | – | £0.1m | £0.8m | £0.9m |
Expected total employer contributions | £14.5m | – | £4.5m | £0.3m | £4.6m | £23.9m |
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25. Retirement benefits and liabilities (continued)
Babcock Rail | ||||
| Devonport | Ltd section of | |||
| Royal | Babcock | Rosyth Royal | the Railways | |
| Dockyard | International | Dockyard | Pension | |
March 202 6 | Scheme | Group Scheme | Scheme | Scheme |
Rate of increase in pensionable salaries | 3.20% | – | – | 0.50% |
Rate of increase in pensions (past service) | 3.00% | 3.25% | 3.35% | 2.95% |
Discount rate | 6.00% | 5.95% | 6.00% | 6.10% |
Inflation rate (RPI) | 3.35% | 3.35% | 3.35% | 3.30% |
Inflation rate (CPI) | 3.00% | 3.00% | 3.00% | 2.90% |
Weighted average duration of cash flows (years) | 11 | 10 | 11 | 12 |
Total life expectancy for current pensioners aged 65 (years) – male | 85.5 | 86.7 | 84.9 | 85.2 |
Total life expectancy for current pensioners aged 65 (years) – female | 87.4 | 89.0 | 86.9 | 87.3 |
Total life expectancy for future pensioners currently aged 45 (years) – male | 86.6 | 87.4 | 85.9 | 86.2 |
Total life expectancy for future pensioners currently aged 45 (years) – female | 88.8 | 89.9 | 88.1 | 88.5 |
March 202 5 | ||||
Rate of increase in pensionable salaries | 2.90% | – | – | 0.50% |
Rate of increase in pensions (past service) | 2.70% | 3.00% | 3.10% | 2.70% |
Discount rate | 5.70% | 5.70% | 5.70% | 5.70% |
Inflation rate (RPI) | 3.10% | 3.10% | 3.10% | 3.10% |
Inflation rate (CPI) | 2.70% | 2.70% | 2.70% | 2.70% |
Weighted average duration of cash flows (years) | 11 | 10 | 11 | 12 |
Total life expectancy for current pensioners aged 65 (years) – male | 85.2 | 86.1 | 84.5 | 84.9 |
Total life expectancy for current pensioners aged 65 (years) – female | 87.3 | 88.8 | 86.8 | 87.2 |
Total life expectancy for future pensioners currently aged 45 (years) – male | 86.2 | 87.1 | 85.6 | 85.9 |
Total life expectancy for future pensioners currently aged 45 (years) – female | 88.5 | 89.9 | 88.0 | 88.4 |
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Notes to the Group financial statements (continued)
25. Retirement benefits and liabilities (continued)
2026 | 2025 | |||||||
Principal | Railways | Other | Principal | Railways | Other | |||
| schemes | scheme | schemes | Total | schemes | scheme | schemes | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Fair value of plan assets | ||||||||
Growth assets | ||||||||
Equities and equity-related derivatives | 154.5 | 9.8 | 11.3 | 175.6 | 56.2 | 9.5 | 27.4 | 93.1 |
Property funds | 145.8 | – | 3.5 | 149.3 | 147.7 | 0.1 | 5.1 | 152.9 |
High yield bonds/emerging market debt | – | – | 6.0 | 6.0 | – | – | 0.4 | 0.4 |
Absolute return and multi-strategy funds | 1.3 | 107.8 | 48.5 | 157.6 | 1.5 | 110.7 | 30.9 | 143.1 |
Low-risk assets | ||||||||
Bonds | 1,143.6 | 10.1 | 33.6 | 1,187.3 | 992.6 | 10.7 | 52.5 | 1,055.8 |
Matching assets* | 1,235.1 | 70.9 | 75.3 | 1,381.3 | 1,513.0 | 68.5 | 48.9 | 1,630.4 |
Longevity swaps and annuities | (239.4) | – | (10.2) | (249.6) | (234.6) | – | (10.1) | (244.7) |
Fair value of assets before impact of asset ceiling | 2,440.9 | 198.6 | 168.0 | 2,807.5 | 2,476.4 | 199.5 | 155.1 | 2,831.0 |
Impact of IFRIC 14 asset ceiling | – | – | (3.1) | (3.1) | – | – | – | – |
Fair value of assets | 2,440.9 | 198.6 | 164.9 | 2,804.4 | 2,476.4 | 199.5 | 155.1 | 2,831.0 |
Percentage of assets quoted | 89% | 38% | 10% | 81% | 83% | – | 33% | 74% |
Percentage of assets unquoted | 11% | 62% | 90% | 19% | 17% | 100% | 67% | 26% |
Present value of defined benefit obligations | ||||||||
Active members | – | 28.0 | 71.4 | 99.4 | – | 27.4 | 71.9 | 99.3 |
Deferred pensioners | 791.3 | 60.1 | 27.3 | 878.7 | 819.6 | 58.0 | 26.3 | 903.9 |
Pensioners | 1,695.4 | 118.0 | 46.9 | 1,860.3 | 1,668.5 | 125.7 | 42.0 | 1,836.2 |
Total defined benefit obligations | 2,486.7 | 206.1 | 145.6 | 2,838.4 | 2,488.1 | 211.1 | 140.2 | 2,839.4 |
Net (liabilities)/assets recognised in the statement of financial position | (45.8) | (7.5) | 19.3 | (34.0) | (11.7) | (11.6) | 14.9 | (8.4) |
| 2026 | 2025 | |||||||
Principal | Railways | Other | Principal | Railways | Other | |||
| schemes | scheme | schemes | Total | schemes | scheme | schemes | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Current service cost | – | – | 3.4 | 3.4 | 7.9 | 0.1 | 3.1 | 11.1 |
Incurred expenses | 3.9 | 0.2 | 0.8 | 4.9 | 6.1 | 0.4 | 0.3 | 6.8 |
Past service cost | – | – | – | – | (1.2) | – | – | (1.2) |
Total included within operating profit | 3.9 | 0.2 | 4.2 | 8.3 | 12.8 | 0.5 | 3.4 | 16.7 |
Net interest cost/(credit) | – | 0.6 | (1.0) | (0.4) | 5.1 | 0.1 | (0.7) | 4.5 |
Total included within income statement | 3.9 | 0.8 | 3.2 | 7.9 | 17.9 | 0.6 | 2.7 | 21.2 |
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25. Retirement benefits and liabilities (continued)
| Year ended 31 March 2026 | Year ended 31 March 2025 | |||||||
Principal | Railways | Other | Principal | Railways | Other | |||
| schemes | scheme | schemes | Total | schemes | scheme | schemes | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Actual return less interest on pension scheme assets | (17.5) | 2.0 | 3.7 | (11.8) | (239.8) | (34.8) | (18.0) | (292.6) |
Experience losses arising on scheme liabilities | (24.4) | (1.0) | (3.6) | (29.0) | (9.4) | (0.5) | (1.9) | (11.8) |
Changes in assumptions on scheme liabilities | (13.3) | 3.7 | 4.1 | (5.5) | 276.4 | 26.1 | 17.4 | 319.9 |
Asset ceiling restriction | – | – | (3.1) | (3.1) | – | – | – | – |
At 31 March | (55.2) | 4.7 | 1.1 | (49.4) | 27.2 | (9.2) | (2.5) | 15.5 |
Year ended 31 March 2026 | Year ended 31 March 2025 | |||||||
Principal | Railways | Other | Principal | Railways | Other | |||
| schemes | scheme | schemes | Total | schemes | scheme | schemes | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Fair value of plan assets | ||||||||
At 1 April | 2,476.4 | 199.5 | 155.1 | 2,831.0 | 2,739.0 | 235.1 | 110.2 | 3,084.3 |
Interest on assets | 136.9 | 11.0 | 9.0 | 156.9 | 124.4 | 11.0 | 6.7 | 142.1 |
Actuarial loss on assets | (17.5) | 2.0 | 3.7 | (11.8) | (239.8) | (34.8) | (18.0) | (292.6) |
Employer contributions | 25.0 | 0.2 | 6.5 | 31.7 | 99.7 | 0.5 | 6.8 | 107.0 |
Employee contributions | – | – | – | – | – | – | – | – |
Benefits paid | (179.9) | (14.1) | (6.3) | (200.3) | (192.0) | (12.3) | (5.5) | (209.8) |
Settlements | – | – | – | – | (54.9) | – | 54.9 | – |
At 31 March | 2,440.9 | 198.6 | 168.0 | 2,807.5 | 2,476.4 | 199.5 | 155.1 | 2,831.0 |
Impact of IFRIC 14 asset ceiling | – | – | (3.1) | (3.1) | – | – | – | – |
Fair value of assets | 2,440.9 | 198.6 | 164.9 | 2,804.4 | 2,476.4 | 199.5 | 155.1 | 2,831.0 |
Present value of benefit obligations | ||||||||
At 1 April | 2,488.1 | 211.1 | 140.2 | 2,839.4 | 2,856.2 | 237.4 | 100.4 | 3,194.0 |
Current service cost | – | – | 3.4 | 3.4 | 7.9 | 0.1 | 3.1 | 11.1 |
Incurred expenses | 3.9 | 0.2 | 0.8 | 4.9 | 6.1 | 0.4 | 0.3 | 6.8 |
Past service cost | – | – | – | – | (1.2) | – | – | (1.2) |
Interest cost | 136.9 | 11.6 | 8.0 | 156.5 | 129.5 | 11.1 | 6.0 | 146.6 |
Employee contributions | – | – | – | – | – | – | – | – |
Experience loss | 24.4 | 1.0 | 3.6 | 29.0 | 9.4 | 0.5 | 1.9 | 11.8 |
Actuarial loss/(gain) – demographics | 36.7 | 1.0 | (0.7) | 37.0 | (4.0) | (0.4) | (0.3) | (4.7) |
Actuarial gain – financial | (23.4) | (4.7) | (3.4) | (31.5) | (272.4) | (25.7) | (17.1) | (315.2) |
Benefits paid | (179.9) | (14.1) | (6.3) | (200.3) | (192.0) | (12.3) | (5.5) | (209.8) |
Settlements | – | – | – | – | (51.4) | – | 51.4 | – |
At 31 March | 2,486.7 | 206.1 | 145.6 | 2,838.4 | 2,488.1 | 211.1 | 140.2 | 2,839.4 |
Net (deficit)/surplus at 31 March | (45.8) | (7.5) | 19.3 | (34.0) | (11.7) | (11.6) | 14.9 | (8.4) |
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25. Retirement benefits and liabilities (continued)
Defined benefit | ||
| obligations | Income | |
| 2026 | statement 2027 | |
| £m | £m | |
Initial assumptions | 2,838.4 | 8.8 |
Discount rate assumptions increased by 0.5% | (144.7) | (9.6) |
Discount rate assumptions decreased by 0.5% | 159.0 | 8.9 |
Inflation rate assumptions increased by 0.5% | 112.8 | 7.0 |
Inflation rate assumptions decreased by 0.5% | (106.3) | (6.6) |
Total life expectancy increased by half a year | 52.5 | 3.2 |
Total life expectancy decreased by half a year | (52.3) | (3.2) |
Salary increase assumptions increased by 0.5% | 5.6 | 0.5 |
Salary increase assumptions decreased by 0.5% | (5.4) | (0.4) |
Other | ||||||||
| 31 March | Lease | Additional | non-cash | Changes in | Exchange | 31 March | ||
| 2025 | Cash flow | interest | leases | movement 1 | fair value | movement | 2026 | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Cash and bank balances | 646.6 | 87.4 | – | – | – | – | 5.9 | 739.9 |
Bank overdrafts | (0.1) | (16.2) | – | – | – | – | – | (16.3) |
Cash, cash equivalents and bank overdrafts | 646.5 | 71.2 | – | – | – | – | 5.9 | 723.6 |
Debt | (751.2) | 3.0 | – | – | (3.1) | (13.0) | (10.3) | (774.6) |
Derivatives hedging Group debt | (10.8) | – | – | – | – | 7.7 | – | (3.1) |
Lease liabilities | (274.6) | 61.6 | (17.1) | (73.1) | – | – | (4.1) | (307.3) |
Changes in liabilities from financing | ||||||||
arrangements | (1,036.6) | 64.6 | (17.1) | (73.1) | (3.1) | (5.3) | (14.4) | (1,085.0) |
Lease receivables | 44.6 | (66.3) | 5.2 | 60.9 | – | – | 1.5 | 45.9 |
Loans to joint ventures and associates | 3.6 | (0.2) | – | – | (0.1) | – | – | 3.3 |
Derivatives hedging interest on Group debt | (31.4) | – | – | – | – | 14.6 | – | (16.8) |
Net debt | (373.3) | 69.3 | (11.9) | (12.2) | (3.2) | 9.3 | (7.0) | (329.0) |
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26. Changes in net debt (continued)
| Other | |||||||||
| 31 March | Lease | Additional | non-cash | Disposal of | Changes in | Exchange | 31 March | ||
| 2024 | Cash flow | interest | leases | movement 1 | business | fair value | movement | 2025 | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
Cash and bank balances | 570.6 | 87.1 | – | – | – | – | (11.1) | 646.6 | |
Bank overdrafts | (18.0) | 18.2 | – | – | – | – | – | (0.3) | (0.1) |
Cash, cash equivalents and bank | |||||||||
overdrafts | 552.6 | 105.3 | – | – | – | – | – | (11.4) | 646.5 |
Debt | (749.5) | 0.5 | – | – | (2.1) | – | (4.7) | 4.6 | (751.2) |
Derivatives hedging Group debt | (11.1) | – | – | – | – | – | 0.3 | – | (10.8) |
Lease liabilities | (230.5) | 59.5 | (14.1) | (96.2) | – | 1.1 | – | 5.6 | (274.6) |
Changes in liabilities from financing | |||||||||
arrangements | (991.1) | 60.0 | (14.1) | (96.2) | (2.1) | 1.1 | (4.4) | 10.2 | (1,036.6) |
Lease receivables | 35.5 | (20.7) | 5.0 | 24.7 | – | – | – | 0.1 | 44.6 |
Loans to joint ventures and associates | 3.9 | (0.3) | – | – | – | – | – | – | 3.6 |
Derivatives hedging interest on Group debt | (36.3) | – | – | – | – | – | 4.9 | – | (31.4) |
Net debt | (435.4) | 144.3 | (9.1) | (71.5) | (2.1) | 1.1 | 0.5 | (1.1) | (373.3) |
1. Other non-cash movements predominantly relate to amortisation of loan fees.
27. Acquisition and disposal of subsidiaries, businesses and joint ventures and associates
Acquisitions
There have been no acquisitions in the year ended 31 March 2026 nor in the prior financial year.
Disposals
During the current year, the Group has received settlement of loan notes held at fair value through profit and loss related to the historic
disposal of its Civil Training business. The gain on settlement of £8.1 million has been recorded as a specific adjusting item (Note 2).
During the prior year the Group disposed of its 70.0% investment in National Training Institute LLC in Oman (‘NTI’). The details of the disposal
are provided in the table below. In addition, during the prior year, Airwork Technical Services & Partners LLC (‘ATS’), a partly owned
subsidiary registered in Oman, entered liquidation proceedings. As a result of the liquidation (combined with the Group only holding a 51.0%
interest that limits the ability to further influence or unwind the liquidation process), the Group has concluded that the IFRS 10 criteria
regarding control are no longer satisfied and, as such, the entity has been deconsolidated. Details are provided in the table below.
| Year ended 31 March 2025 | ||
NTI | ATS | |
| £m | £m | |
Net assets disposed (excluding cash & goodwill) | 0.2 | (0.4) |
Goodwill disposed | 0.5 | – |
Cash and cash equivalents disposed | 0.4 | 0.8 |
Recycling of translation reserve | (2.5) | – |
Net assets/(liabilities) disposed adjusted for movements in translation reserve | (1.4) | 0.4 |
Cash consideration | 0.1 | – |
Recognition of investment in associate | – | 0.4 |
Gain on disposal | 1.5 | – |
Disposal related items – release of provisions | – | – |
Business acquisition, merger and divestment related items | 1.5 | – |
28. Transactions with non-controlling interests
There were no material transactions with non-controlling interests in the current or prior year.
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31 March 2026 | 31 March 2025 | |
| £m | £m | |
Contracts placed for future capital expenditure not provided for in the financial statements | 14.2 | 17.1 |
Company | Company | ||
Legal entity name | number | Legal entity name | number |
Airwork Limited | 00322249 | Babcock Marine (Rosyth) Limited | SC333105 |
Appledore Shipbuilders (2004) Limited | 02052982 | Babcock Marine Limited | 02141109 |
Babcock Airports Limited | 03954520 | Babcock Marine Design Limited | 16393958 |
Babcock Assessments Limited | 02881056 | Babcock Marine Products Limited | 03658278 |
Babcock Aviation Services (Holdings) Limited | 08993601 | Babcock Marine Shipbuilding Limited | 14302509 |
Babcock Company Holdings Limited (previously | 15413856 | Babcock Mission Critical Services Design and | 05035651 |
Babcock IP Management (Number Three) Limited) | Completions Limited | ||
Babcock Contractors Limited | 04540026 | Babcock Mission Critical Services Leasing Limited | 04635275 |
Babcock Critical Assets Holdings LLP | OC376675 | Babcock Mission Critical Services Limited | 08010453 |
Babcock Defence & Security Holdings LLP | OC376674 | Babcock Mission Critical Services Topco Limited | 08338012 |
Babcock Defence and Security Investments Limited | 08132272 | Babcock Mission Critical Services UK Limited | 07527245 |
Babcock Defence Systems Limited | 02999029 | Babcock MSS Limited | 01996548 |
Babcock Design & Technology Limited | SC173117 | Babcock Nuclear Limited | 05265567 |
Babcock DS 2019 Limited | 01199791 | Babcock Overseas Investments Limited | 02669327 |
Babcock Education & Training Holdings LLP | OC376676 | Babcock Project Investments Limited | 03463927 |
Babcock Education and Skills Limited | 03494815 | Babcock Project Services Limited | 04539887 |
Babcock Education Holdings Limited | 08132276 | Babcock Services Group Limited | 03939840 |
Babcock Fire Services Limited | 03707192 | Babcock Services Limited | 10278084 |
Babcock Group (US Investments) Limited | 07445425 | Babcock Southern Careers Limited | 03007083 |
Babcock Information Analytics and Security Limited | 02275471 | Babcock Southern Holdings Limited | 01915771 |
Babcock Integrated Technology (Korea) Limited | 09566389 | Babcock Support Services (Investments) Limited | 04393168 |
Babcock Integration LLP | OC356460 | Babcock UK Finance | 00096730 |
Babcock International Limited | 00065805 | Babcock Ukraine Limited | 15155796 |
Babcock International Support Services Limited | 03335786 | Babcock US Investments Limited | 07422616 |
Babcock Investments (Fire Services) Limited | 04380306 | Bond Aviation Topco Limited | 08493398 |
Babcock Investments (Number Four) Limited | 05269128 | Brooke Marine Shipbuilders Limited | 02113314 |
Babcock Investments Limited | 00165086 | FBM Babcock Marine Holdings (UK) Limited | 02530482 |
Babcock Land Limited | 03493110 | FBM Babcock Marine Limited | 00828219 |
Babcock Learning and Development Partnership LLP | OC372058 | FBM Marine International (UK) Limited | 02530345 |
Babcock M 2019 Limited | 02530351 | Flagship Fire Fighting Training Limited | 03700728 |
Babcock Management 2019 Limited | 03613756 | LGE IP Management Company Limited | SC695940 |
Babcock Management Limited | 00107414 | Marine Engineering & Fabrications (Holdings) Limited | 03936451 |
Babcock Marine (Clyde) Limited | SC220243 | Marine Engineering & Fabrications Limited | 02742584 |
Babcock Marine (Devonport) Limited | 02959785 | Peterhouse Group Limited | 01517100 |
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2026 | 2026 | |||
| 2026 | Year-end | Year-end | ||
| 2026 | Purchases | debtor | creditor | |
| Revenue to | from | balance | balance | |
202 6 | £m | £m | £m | £m |
Joint ventures and associates | ||||
Ascent Flight Training (Management) Limited | 4.3 | – | 0.8 | – |
Rotary Wing Training Limited | 6.0 | – | 0.6 | – |
Fixed Wing Training Limited | 6.3 | – | 0.6 | – |
Advanced Jet Training Limited | 3.2 | – | 0.3 | – |
Rear Crew Training Limited | 1.4 | – | 0.1 | – |
AirTanker Services Limited | 13.0 | – | 2.7 | – |
Alert Communications Limited | 5.2 | – | 0.7 | – |
Alkali Metal Processing Limited | 1.8 | (15.2) | – | – |
41.2 | (15.2) | 5.8 | – | |
Other Fusion Business Solutions (UK) Limited | – | (0.3) | – | – |
– | (0.3) | – | – |
2025 | 2025 | |||
| 2025 | Year-end | Year-end | ||
| 2025 | Purchases | debtor | creditor | |
| Revenue to | from | balance | balance | |
202 5 | £m | £m | £m | £m |
Joint ventures and associates | ||||
Ascent Flight Training (Management) Limited | 2.8 | – | 1.2 | – |
Rotary Wing Training Limited | 6.5 | – | 0.5 | – |
Fixed Wing Training Limited | 5.3 | – | 0.5 | – |
Advanced Jet Training Limited | 3.3 | – | – | – |
Rear Crew Training Limited | 1.2 | – | 0.1 | – |
AirTanker Services Limited | 12.1 | – | 0.1 | – |
Alert Communications Limited | – | – | 0.5 | – |
Alkali Metal Processing Limited | 1.7 | (4.9) | 0.4 | (3.3) |
32.9 | (4.9) | 3.3 | (3.3) |
32. Events after the reporting period
The Group announced a further £200 million share buyback programme on 13 May 2026 (subsequent to the £200 million share buyback
programme announced in June 2025 and completed in April 2026). This buyback programme is planned to be executed over the course of
the year ended 31 March 2027. This will reduce cash and the number of shares in issue and impact future earnings per share.
In June 2026, the Group utilised the ability to extend the Maturity Date of the RCF by a further 365 days to 18 July 2031.
There are no other events after the reporting period which would materially impact the balances reported in this Annual Report.
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Notes to the Group financial statements (continued)
33. Group entities (continued)
Subsidiaries, wholly owned (continued)
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33. Group entities (continued)
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Notes to the Group financial statements (continued)
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Company statement of financial position
As at 31 March
Note
31 March 2026
£m
31 March 2025
£m
Non-current assets
Investment in subsidiaries
5 3,452.1 3,451.4
Right of use assets
6 1.7 2.6
Trade and other receivables
7
154.5
324.5
Retirement benefit surplus
11
56.1
–
3,664.4
3,778.5
Current assets
Trade and other receivables
7
14.0
201.3
Other financial assets
–
0.8
Cash and cash equivalents
–
–
14.0
202.1
Total assets
3,678.4
3,980.6
Non-current liabilities
Bank and other borrowings
8 468.2 744.5
Lease liabilities
6 1.5 2.4
Deferred tax liabilities
2.8 –
Provisions
– 0.3
Other financial liabilities
9
20.1
43.0
492.6 790.2
Current liabilities
Bank and other borrowings
8
300.0
–
Trade and other payables
10
47.6
490.4
Other financial liabilities
9 1.1 –
Lease liabilities
6 0.9 0.9
349.6 491.3
Total liabilities
842.2 1,281.5
Net assets
2,836.2
2,699.1
Equity
Called up share capital
12
303.4
303.4
Share premium account
873.0 873.0
Capital redemption reserve
30.6
30.6
Other reserve
768.8 768.8
Retained earnings
860.4 723.3
Total equity
2,836.2 2,699.1
The accompanying notes are an integral part of this Company statement of financial position. Company number 02342138.
The Company has taken advantage of the exemption granted by Section 408 of the Companies Act 2006 whereby no individual income
statement of the Company is disclosed. The Company’s profit (2025: loss) for the financial year was £286.6 million (2025: £44.5 million).
The financial statements on pages 269 to 280 were approved by the Board of Directors on 19 June 2026 and are signed on its behalf by:
David Lockwood OBE David Mellors
Director Director
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Company statement of changes in equity
Share
capital
£m
Share
premium
£m
Other
reserve
£m
Capital
redemption
£m
Retained
earnings
£m
Total
equity
£m
At 31 March 2024
303.4
873.0
768.8
30.6
795.2
2,771.0
Loss for the year
–
–
–
–
(44.5)
(44.5)
Other comprehensive income
(1)
–
–
–
–
1.6
1.6
Total comprehensive income
–
–
–
–
(42.9)
(42.9)
Dividends
–
–
–
–
(26.7)
(26.7)
Share-based payments
–
–
–
–
14.3
14.3
Tax on share-based payments
–
–
–
–
2.2
2.2
Purchase of own shares
– – – – (18.8) (18.8)
Net movement in equity
–
–
–
–
(71.9)
(71.9)
At 31 March 2025
303.4
873.0
768.8
30.6
723.3
2,699.1
Profit for the year
–
–
–
–
286.6
286.6
Other comprehensive income
(1)
–
–
–
–
36.2
36.2
Total comprehensive income
–
–
–
–
322.8
322.8
Dividends
–
–
–
–
(34.7)
(34.7)
Share-based payments
–
–
–
–
17.2
17.2
Tax on share-based payments
–
–
–
–
1.1
1.1
Purchase of own shares
–
–
–
–
(169.3)
(169.3)
Net movement in equity
–
–
–
–
137.1
137.1
At 31 March 2026
303.4
873.0
768.8
30.6
860.4
2,836.2
1. Other comprehensive income relates to pension movements and hedge reserve movements net of deferred tax of £36.8 million (2025: £1.6 million).
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.
The retained earnings account includes £327.3 million (2025: £290.9 million), the distribution of which is limited by statutory or other restrictions.
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Notes to the Company financial statements
1. General information
Babcock International Group PLC (‘the Company’) is incorporated and domiciled in England, UK. The address of the registered office is
33 Wigmore Street, London, W1U 1QX. The Company has no ultimate controlling party. The principal activity of the Company is that of a
holding company. The Company also arranges certain borrowing facilities on behalf of the wider Group.
2. Material accounting policy information
The material accounting policy information relevant to specific notes is set out within the associated note. Other general policy information
is set out below. Material accounting policies have been applied consistently throughout the year and the comparative year except as
otherwise stated.
Basis of accounting
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting
Council. Accordingly, these financial statements have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (FRS 101). In preparing these financial statements, the company applies the recognition and measurement requirements of
International Financial Reporting Standards (IFRS) as adopted by the UK, but makes amendments where necessary in order to comply with
the Companies Act 2006 and sets out below where advantage of the FRS 101 disclosure exemptions has been taken:
•
Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payments’
•
IFRS 7, ‘Financial instruments: Disclosures’
•
Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value measurement of
assets and liabilities)
•
Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information in respect of:
•
paragraph 79(a) (iv) of IAS 1, ‘Share capital and reserves’;
•
paragraph 73(e) of IAS 16, ‘Property, plant and equipment’; and
•
paragraph 118(e) of IAS 38, ‘Intangible assets’ (reconciliations between the carrying amount at the beginning and end of the year).
•
The following paragraphs of IAS 1, ‘Presentation of financial statements’:
•
10(d), 10(f), 16, 38A-38D, 40A-40D, 111, and 134-136.
•
IAS 7, ‘Statement of cash flows’
•
Paragraphs 30 and 31 of IAS 8, ‘Accounting policies, changes in accounting estimates and errors’
•
Paragraph 17 of IAS 24, ‘Related party transactions’ in respect of key management compensation
•
The requirements of IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members
of a group.
The financial statements have been prepared on a going concern basis using the historical cost convention, as modified by the revaluation of
certain financial instruments. The financial statements are prepared in Sterling which is the functional currency of the Company and rounded
to the nearest £0.1 million.
There were no changes to accounting standards that had a material impact on these Financial Statements. New accounting standards,
amendments and interpretations not yet adopted are also not anticipated to have a material impact on future periods.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Company’s accounting policies.
After making enquiries, the Directors, at the time of approving the financial statements, have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors consider it appropriate to
continue to adopt the going concern basis in preparing these financial statements.
Taxation
Current income tax
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively
enacted by the statement of financial position date.
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and
liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of an asset
or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit
or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantively
enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in either other comprehensive
income or in equity.
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Notes to the Company financial statements (continued)
2. Material accounting policy information (continued)
Finance costs
Finance costs are recognised as an expense in the year in which they are incurred.
Employee benefits
(a) Share-based compensation
The Company operates equity-settled, share-based compensation plans which are either recharged to the relevant subsidiaries or
recognised as capital contributions in the associated investments. Full details of the share-based compensation plans are disclosed in note
24 to the Group financial statements.
(b) Pension arrangements
The Company operates a multi-employer defined benefit pension scheme. See note 11 for further details.
Financial risk management
All treasury transactions are carried out only with investment grade counterparties as are investments of cash and cash equivalents.
Company guarantees
The Company had previously guaranteed or had joint and several liability for bank facilities that were shared across multiple Group
companies, these were cancelled in the period to 31 March 2025. The Company reviewed and concluded that these arrangements constitute
financial guarantee contracts. IFRS 17 allows an accounting policy choice to account for such contracts under either IFRS 9 or IFRS 17. This
policy choice can vary from contract to contract however the choice for each contract is irrevocable. The Company has elected to apply IFRS
9 (rather than IFRS 17) to such arrangements. These guarantees are measured initially at their fair values, and subsequently measured at the
higher of the expected credit loss and the amount initially recognised less cumulative amortisation.
The Company has guaranteed the performance of certain contracts by subsidiaries with their customers. The Company has reviewed and
concluded that some of these performance guarantee contracts also meet the definition of financial guarantee contracts (thereby granting a
policy choice between IFRS 9 and IFRS 17), whilst others do not meet the definition of a financial guarantee contract (thereby requiring
accounting under IFRS 17). In all instances, the Company has elected to apply IFRS 17 (rather than IFRS 9) to performance guarantee
contracts in issue as at 31 March 2026.
The probability of losses on performance guarantees has been assessed and it has been determined that the probability is remote after
consideration of both historical and forward-looking triggers. As such the estimated liability is immaterial.
Dividends
Dividends are recognised in the Company’s financial statements in the year in which they are approved and in the case of interim dividends,
when paid.
Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts
reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and expenses during
the year. However, the nature of estimation means that actual outcomes could differ from those estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. We have not identified any key sources of estimation uncertainty
impacting the reporting period. Other estimates that are not key sources of estimation uncertainty are discussed below.
Estimates which are not key sources of estimation uncertainty
The carrying value of investment in subsidiaries is tested annually for impairment, in accordance with IAS 36. The impairment assessment is
based on assumptions in relation to the cash flows expected to be generated by the subsidiaries, together with appropriate discounting of the
cash flows.
In the current and prior years, we have not identified the carrying value of investments in subsidiaries as a critical accounting estimate as the
headroom in the base case in both periods is such that no reasonably possible changes in assumptions could result in the complete
elimination of the headroom.
Critical accounting judgements
There are not considered to be any critical accounting judgements in respect of the Company for the current period.
3. Company profit
The Company has no employees other than the Directors.
The Company has taken advantage of the exemption granted by section 408 of the Companies Act 2006 whereby no individual profit and
loss account of the Company is disclosed. The Company’s profit (2025: loss) for the financial year was £286.6 million (2025: £44.5 million).
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s financial statements were £1.8 million (2025:
£1.8 million).
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4. Directors’ emoluments
Under Schedule 5 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (Schedule 5), total
Directors’ emoluments, excluding Company pension contributions, were £4.2 million (2025: £5.2 million); these amounts are calculated
on a different basis from emoluments in the Remuneration report which are calculated under Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (Schedule 8 (2013)). These emoluments were paid for the
Directors’ services on behalf of Babcock International Group. No emoluments relate specifically to their work for the Company. Under
Schedule 5, the aggregate gain made by Directors from the exercise of Long Term Incentive Plans in 2026 as at the date of exercise was
£3.5 million (2025: £5.0 million) and the net aggregate value of assets received by Directors in the year ended 31 March 2026 from Long
Term Incentive Plans as calculated at the date of vesting was £10.1 million (2025: £7.6 million); these amounts are calculated on a different
basis from the valuation of share plan benefits under Schedule 8 (2013) in the Remuneration report.
5. Investment in subsidiary undertakings
31 March
2026
£m
31 March
2025
£m
Cost at 1 April
3,451.4
3,450.7
Additions
0.7
0.7
Cost at 31 March
3,452.1
3,451.4
Investment additions in the current year and prior year relate to the capitalisation of share-based payments charges not recharged to the
associated Group undertaking.
As at 31 March 2026, the Group’s market capitalisation of £5.7 billion (2025: £3.7 billion) exceeded the net assets of the Company of £2.8 billion
(2025: £2.7 billion). Given this position, and the Directors’ consideration of other factors, no impairment indicators have been identified.
Notwithstanding the lack of impairment indicators, management has performed an impairment test of the Company’s investments in line with the
Group’s accounting policy and consistent with the wider requirements of IAS 36 ‘Impairment of assets’.
Babcock (UK) Holdings Limited is the only entity held directly by Babcock International Group PLC. Babcock International Group PLC holds
100% of the ordinary shares and voting rights in Babcock (UK) Holdings Limited which has a place of domicile of the United Kingdom and
registered office of 33 Wigmore Street, London, W1U 1QX.
Results of the impairment test for the year ended 31 March 2026
This impairment test for the year ended 31 March 2026 did not result in an impairment (2025: £nil).
Impairment methodology
Cash-generating units
The CGU for the purpose of this analysis is the Group as a whole, as the Company has an investment in a single holding company through
which it indirectly owns the rest of the Group. The recoverable amount of the CGU is the higher of its value-in-use and its fair value less
costs of disposal.
Calculation of recoverable amount
The recoverable amount of the Company’s investment in subsidiary undertakings was assessed by reference to value-in-use calculations.
Note 10 of the Group financial statements sets out further details in relation to how the value-in-use calculations are determined.
Key assumptions
The key assumptions to which the recoverable amount of the Company’s investment in subsidiary undertakings is most sensitive are future
cash flows, long-term growth rates and discount rates. Further details on how these inputs are determined are set out in Note 10 of the Group
financial statements.
The discount rates and long-term growth rates used to determine the recoverable amount of the Company’s investment in subsidiary
undertakings are set out below.
Investments are stated at cost less provision for impairment in value.
Investments are reviewed for impairment at least annually. The recoverable amount is measured as the higher of fair value less costs
of disposal, and value-in-use. In assessing value in use, the estimated future cash flows of the underlying investment are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
When the recoverable amount is less than the carrying amount, an impairment loss is recognised immediately in the Company
income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of the recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined if no
impairment loss had been recognised in prior years.
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Notes to the Company financial statements (continued)
5. Investment in subsidiary undertakings (continued)
31 March 2026
31 March 2025
Aviation
Land
Marine
Nuclear
Aviation
Land
Marine
Nuclear
Pre-tax discount rate
11.1%
12.4%
11.8%
13.3%
12.6%
11.9%
11.5%
11.9%
Post-tax discount rate
9.8%
9.4%
9.5%
9.5%
9.3%
8.8%
8.5%
8.8%
Long-term growth rate
2.1%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
Sensitivity
The Directors carried out sensitivity analyses on the reasonably possible changes in key assumptions used to determine the recoverable
value of the Company’s investment in subsidiary undertakings. No reasonably possible changes in estimates led to any potential impairment
being identified with headroom remaining under these reasonably possible sensitivities.
6. Leases
Right of use assets
Leasehold
property
£m
Total
£m
Cost
At 1 April 202
4
–
–
Additions
3.4
3.4
At
31 March 2025
3.4
3.4
Additions
–
–
At 31 March 2026
3.4
3.4
Accumulated depreciation
At 1 April 2024
–
–
Depreciation charge for the year
0.8
0.8
At 31 March 202
5 0.8 0.8
Depreciation charge for the year
0.9
0.9
At 31 March 202
6 1.7 1.7
Net book value at 31 March 2026
1.7
1.7
For all leases in which the Company is a lessee (other than those meeting the criteria detailed below), the Company recognises a right of
use asset and corresponding lease liability at commencement of the lease.
The lease liability is the present value of future lease payments discounted at the rate implicit in the lease, if available, or the applicable
incremental borrowing rate. The incremental borrowing rate is determined at lease inception based on a number of factors including
asset type, lease currency and lease term. Lease payments include fixed payments and variable lease payments dependent on an index
or rate, initially measured using the index or rate at the commencement date. The lease term reflects any extension or termination options
that the Company is reasonably certain to exercise.
The lease liability is subsequently measured at amortised cost using the effective interest rate method, with interest on the lease liability
being recognised as a finance expense in the income statement. The lease liability is remeasured, with a corresponding adjustment to
the right of use asset, if there is a change in future lease payments, for example resulting from a rent review, change in a rate/index or
change in the Group’s assessment of whether it is reasonably certain to exercise an extension, termination or purchase option.
The right of use asset is initially recorded at cost, being equal to the lease liability, adjusted for any initial direct costs, lease payments
made prior to commencement date, lease incentives received and any dilapidation costs. Depreciation of right of use assets is
recognised as an expense in the income statement on a straight-line basis over the shorter of the asset’s useful life or expected term of
the lease.
Right of use assets arising from sale and leaseback transactions are measured at the proportion of the previous carrying amount of the
asset that relates to the right of use retained by the Group. Gains arising on sale and leaseback transactions are recognised to the extent
that they relate to the rights transferred to the buyer-lessor whilst losses arising on sale and leaseback transactions are recognised in full.
Right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable, with the impairment expense being recognised in the income statement. Where a lease is terminated early, any
termination fees or gain or loss relating to the release of right of use asset and lease obligation are recognised as a gain or loss through
the income statement.
Payments in respect of short-term leases not exceeding 12 months in duration or low-value leases are expensed on a straight-line basis
to the income statement as permitted by IFRS 16, ‘Leases’. The total expense for short term and low value leases was £nil in both the
current and prior year.
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6. Leases (continued)
Lease liabilities
The following tables show the discounted Group lease liabilities and a reconciliation of opening to closing lease liabilities:
Total
£m
At 1 April 2024
–
Additions
4.1
Lease interest
0.1
Lease repayments
(0.9)
At 31 March / 1 April 2025
3.3
Non
-current lease liabilities 0.9
Current lease liabilities
2.4
At 31 March / 1 April 2025
3.3
Additions
–
Lease interest
0.1
Lease repayments
(1.0)
At 31 March 2026
2.4
Non-current lease liabilities
0.9
Current lease liabilities
1.5
At 31 March 2026
2.4
7. Trade and other receivables
31 March
2026
£m
31 March
2025
£m
Non-current
Amounts due from subsidiary undertakings
154.5
314.5
Deferred tax
–
10.0
Total non-current trade and other receivables
154.5
324.5
Current
Amounts due from subsidiary undertakings
3.9
201.0
Income tax receivable
9.8
–
Prepayments
0.3
0.3
Total current trade and other receivables
14.0
201.3
Amounts due from subsidiary undertakings that do not carry interest are repayable on demand.
Amounts due from subsidiary undertakings are held at amortised cost less expected credit losses. The Company’s profit for the year includes
a reduction from the release of expected credit losses of £57.2 million (2025: income statement charge of £9.7 million). As at 31 March 2026,
the amount due from subsidiary undertakings is stated net of an expected credit loss provision of £nil (2025: £57.2 million).
Financial assets at amortised cost
Amounts due from subsidiary undertakings are classified as financial assets held at amortised cost. These balances are initially
recognised at fair value and then held at amortised cost using the effective interest rate method. The Company assesses on a forward-
looking basis the expected credit losses associated with financial assets held at amortised cost. The impairment methodology applied
depends on whether there has been a significant increase in credit risk. As at 31 March 2026, we have not assessed any significant
increase in credit risk and therefore a 12-month expected credit loss has been measured.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
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Notes to the Company financial statements (continued)
7. Trade and other receivables (continued)
Interest rates on amounts owed by subsidiary operations:
Non-current
Current
31 March
2026
£m
31 March
2025
£m
31 March
2026
£m
31 March
2025
£m
SONIA + 1.5%
154.5
221.6
–
–
4.5%
–
92.9
–
–
Interest-free
–
–
3.9
201.0
154.5
314.5
3.9
201.0
8. Bank and other borrowings
31 March
2026
£m
31 March
2025
£m
Non-current
Bank loans and other borrowings
468.2
744.5
31 March
2026
£m
31 March
2025
£m
Current
Bank loans and other borrowings
300.0
–
The Company has £1,368.0 million (2025: £1,519.5 million) of committed borrowing facilities, of which £768.2 million (2025: £744.5 million) was
drawn at the year end. The effective interest rates applying to bank loans and other borrowings were as follows:
31 March
2026
%
31 March
2025
%
UK bank overdraft
N/A
N/A
8-year Eurobond September 2027 – fixed
2.9
2.9
8-year Eurobond September 2027 – floating
6.2
6.7
£300 million bond 2026
1.9
1.9
9. Other financial liabilities
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into, and they are subsequently remeasured at their
fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative
is designated as a hedging instrument and, if so, the nature of the item being hedged.
The Company designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised assets or
liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that qualify as cash flow hedges, the effective portion of gains and losses are deferred in equity until such time as the
firm commitment is recognised. The gain or loss relating to the ineffective portion is recognised in the income statement immediately.
The full fair value of hedging derivatives is classified as a non-current asset or liability where the remaining maturity of the hedged
item is more than 12 months. It is classified as a current asset or liability where the remaining maturity of the hedged item is less than
12 months.
Certain derivatives do not qualify or are not designated as hedging instruments and any movement in their fair value is recognised in
profit or loss immediately.
Financial liabilities at amortised cost
Amounts due to subsidiary undertakings and bank loans and overdrafts are classified as financial liabilities held at amortised cost. These
balances are initially recognised at fair value and then held at amortised cost using the effective interest rate method.
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9. Other financial liabilities (continued)
31 March
2026
£m
31 March
2025
£m
Non-current
Other financial liabilities – currency and interest rate swaps
20.1
43.0
31 March
2026
£m
31 March
2025
£m
Current
Other financial liabilities
1.1
–
Disclosures in respect of the fair value of other financial assets and liabilities are provided in note 21 to the Group accounts.
10. Trade and other payables
31 March
2026
£m
31 March
2025
£m
Current
Amounts due to subsidiary undertakings
22.5
480.4
Accruals and deferred income
25.1
10.0
47.6
490.4
The amounts due to subsidiary undertakings are repayable on demand and £22.5 million (2025: £480.4 million) is interest-free.
11. Retirement benefits and liabilities
Defined benefit schemes
Statement of financial position assets and liabilities recognised are as follows:
31 March 2026
£m
31 March 2025
£m
Retirement benefits – funds in surplus
56.1
–
Details of key matters impacting the Group’s pension schemes (including those impacting BIGPS), the scheme’s principal risks and the most
recent formal valuation are provided in Note 25 of the Group’s consolidated financial statements.
Financial liabilities at amortised cost
Amounts due to subsidiary undertakings and bank loans and overdrafts are classified as financial liabilities held at amortised cost. These
balances are initially recognised at fair value and then held at amortised cost using the effective interest rate method.
The Company operates and sponsors the Babcock International Group Pension Scheme (‘BIGPS’) – a defined benefit scheme. A defined
benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent
on one or more factors such as age, years of service and compensation.
Following closure of the scheme to future benefit accrual in the year ended 31 March 2025, the Group has reassessed its allocation
basis in respect of this scheme with the scheme being fully recognised within the accounts of the Company. The reassessment in
allocation basis has been accounted for as a remeasurement of plan assets and plan liabilities with effect from the point of reassessment
(1 April 2025) resulting in a £81.5 million credit recognised in other comprehensive income.
The scheme is funded through payments to trustee-administered funds, determined by periodic actuarial calculations. A defined
contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity.
For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial valuation
method. The service cost and associated administration costs of the pension scheme are charged to operating profit. In addition,
a retirement benefit interest charge on the net pension deficit or interest credit on the net pension surplus is included in the income
statement as a finance cost or finance income, respectively. Actuarial gains and losses are recognised directly in equity through the
statement of comprehensive income so that the statement of financial position reflects the IAS 19 measurement of the schemes’
surpluses or deficits at the reporting date.
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Notes to the Company financial statements (continued)
11. Retirement benefits and liabilities (continued)
The latest full actuarial valuations of the defined benefit pension scheme have been updated to 31 March 2026 by independent qualified
actuaries for IAS 19 purposes, on a best estimate basis, using the following assumptions:
March
2026
Babcock
International
Group Scheme
Rate of increase in pensionable salaries
–
Rate of increase in pensions (past service)
3.20%
Discount rate
5.95%
Inflation rate (RPI)
3.35%
Inflation rate (CPI)
3.0%
Weighted average duration of cash flows (years)
10
Total life expectancy for current pensioners aged 65 (years) – male
86.7
Total life expectancy for current pensioners aged 65 (years) – female
89.0
Total life expectancy for future pensioners currently aged 45 (years)
– male 87.4
Total life expectancy for future pensioners currently aged 45 (years) – female
89.9
The fair value of the assets and the present value of the liabilities of the pension scheme at 31 March were as follows:
31 March
2026
£m
31 March
2025
£m
Fair value of plan assets
Growth assets
Equities
and equity-related derivatives (1.1) –
High yield bonds/emerging market debt
0.4
–
Low-risk assets
Bonds
442.8
–
Matching assets*
446.9
–
Longevity swaps and annuities
(49.1)
–
Fair value of assets
839.9
–
Percentage of assets quoted
Percentage of assets unquoted
73%
–
Present value of defined benefit obligations
27%
–
Active members
–
–
Deferred pensioners
223.1
–
Pensioners
560.7
–
Total defined benefit obligations
783.8
–
Net assets recognised in the statement of financial position
56.1
–
The scheme does not invest directly in assets or shares of the Group.
The longevity swaps have been valued in line with assumptions that are consistent with the requirements of IFRS 13 using Level 3 inputs.
The key inputs to the valuation are the discount rate and mortality assumptions.
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11. Retirement benefits and liabilities (continued)
Amounts recorded in the income statement
2026
£m
2025
£m
Incurred expenses
2.2
–
Total included within operating profit
2.2 –
Net interest credit
(4.6)
–
Total included within income statement
(2.4)
–
Amounts recorded in the statement of comprehensive income
2026
£m
2025
£m
Re-measurement of change in allocation basis
81.5
–
Actual return less interest on pension scheme assets
(4.6)
–
Experience losses arising on scheme liabilities
(9.2)
–
Changes in assumptions on scheme liabilities
(16.9)
–
Total included within the statement of comprehensive income
50.8
–
Analysis of movement in the Group statement of financial position
2026
£m
2025
£m
Fair value of plan assets
At 1 April
–
–
Re-measurement of change in allocation basis
855.1
–
Interest on assets
47.1
–
Actuarial loss on assets
(4.6)
–
Employer contributions
3.0
–
Benefits paid
(60.7)
–
At 31 March
839.9
–
Present value of benefit obligations
–
At 1 April
–
–
Re-measurement of change in allocation basis
773.7
Incurred expenses
2.2
–
Interest cost
42.5
–
Experience loss
9.2
–
Actuarial gain – demographics
24.2
–
Actuarial gain – financial
(7.3)
–
Benefits paid
(60.7)
–
At 31 March
783.8
–
Net surplus at 31 March
56.1
–
The movement in net deficits for the year ended 31 March 2026 is as a result of the movement in assets and liabilities shown above. The
disclosures below relate to post-retirement benefit schemes which are accounted for as defined benefit schemes in accordance with IAS 19.
The changes to the statement of financial position at 31 March 2026 and the changes to the Group income statement for the year to March
2027, if the assumptions were sensitised by the amounts below, would be:
Defined benefit
obligations
2026
£m
Income
statement 2027
£m
Initial assumptions
783.8
(1.1)
Discount rate assumptions increased by 0.5%
(35.7)
(2.6)
Discount rate assumptions decreased by 0.5%
30.8
2.4
Inflation rate assumptions increased by 0.5%
21.2
1.3
Inflation rate assumptions decreased by 0.5%
(20.9)
(1.2)
Total life expectancy increased by half a year
16.3
0.2
Total life expectancy decreased by half a year
(15.1)
(0.9)
Babcock International Group PLC Annual Report and Financial Statements 2026 279
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Notes to the Company financial statements (continued)
11. Retirement benefits and liabilities (continued)
The figures in the previous table have been calculated on an approximate basis, using information about the expected future benefit
payments out of the schemes. The analysis above may not be representative of actual changes to the position since changes in assumptions
are unlikely to happen in isolation. The change in inflation rates is assumed to affect the assumed rate of RPI inflation, CPI inflation and future
pension increases by an equal amount. The fair value of the schemes’ assets are assumed not to be affected by any sensitivity changes
shown and so the statement of financial position values would increase or decrease by the same amount as the change in the defined benefit
obligations. There have been no changes in the methodology for the calculation of the sensitivities since the prior year.
12. Share capital
Ordinary shares
of 60p
Number
Total
£m
Allotted, issued and fully paid
At 1 April 2025 and 31 March 2026
505,596,597
303.4
Allotted, issued and fully paid
At 1 April 2024 and 31 March 2025
505,596,597
303.4
The Company holds its own shares through the Babcock Employee Share Trust and via Treasury Shares. For more details on transactions in
own shares see note 23 of the Group financial statements.
13. Contingent liabilities, financial guarantee contracts and performance guarantee contracts
a) The Company had previously guaranteed or had joint and several liability for bank facilities that are shared across multiple Group
companies, these were cancelled in the period to 31 March 2025
b) Throughout the Group, guarantees exist in respect of performance bonds and indemnities issued on behalf of Group companies by banks
and insurance companies in the ordinary course of business. At 31 March 2026 these amounted to £224.9 million (2025: £293.2 million),
of which the Company had counter-indemnified £133.1 million (2025: £177.9 million).
c) The Company has given guarantees on behalf of Group companies in connection with the completion of contracts within specification.
The liability recognised in respect of these guarantees in the balance sheet as at both 31 March 2026 and 31 March 2025 is immaterial.
d) The company has given guarantees on behalf of certain Group companies in connection with payments due into their pension schemes.
The liability recognised in respect of these guarantees in the balance sheet as at both 31 March 2026 and 31 March 2025 is immaterial.
e) The company has provided specific guarantees to the Group’s banking partners that Group companies will honour certain derivative and
other performance obligations. The liability recognised in respect of these guarantees in the balance sheet as 31 March 2026 is immaterial
(2025: Immaterial).
14. Group entities
See note 33 of the Group financial statements for further details.
15. Events after the reporting period
See note 32 of the Group financial statements for further details.
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence or non-
occurrence of uncertain future events outside the Company’s control, or a present obligation that is not recognised because it is not
probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably. The Company does
not recognise contingent liabilities.
280 Babcock International Group PLC Annual Report and Financial Statements 2026
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This report is printed on paper certified in accordance with the FSC
®
(Forest Stewardship Council
®
)
and is recyclable and acid-free. Pureprint Ltd is FSC certified and ISO 14001 certified showing that
it is committed to all round excellence and improving environmental performance is an important
part of this strategy. Pureprint Ltd aims to reduce at source the effect its operations have on the
environment and is committed to continual improvement, prevention of pollution and compliance
with any legislation or industry standards. Pureprint Ltd is a CarbonNeutral
®
Printing Company.
Consultancy and design by Black Sun Global
www.blacksun-global.com
Notes to the Company financial statements (continued)
11. Retirement benefits and liabilities (continued)
The figures in the previous table have been calculated on an approximate basis, using information about the expected future benefit
payments out of the schemes. The analysis above may not be representative of actual changes to the position since changes in assumptions
are unlikely to happen in isolation. The change in inflation rates is assumed to affect the assumed rate of RPI inflation, CPI inflation and future
pension increases by an equal amount. The fair value of the schemes’ assets are assumed not to be affected by any sensitivity changes
shown and so the statement of financial position values would increase or decrease by the same amount as the change in the defined benefit
obligations. There have been no changes in the methodology for the calculation of the sensitivities since the prior year.
12. Share capital
Ordinary shares
of 60p
Number
Total
£m
Allotted, issued and fully paid
At 1 April 2025 and 31 March 2026
505,596,597
303.4
Allotted, issued and fully paid
At 1 April 2024 and 31 March 2025
505,596,597
303.4
The Company holds its own shares through the Babcock Employee Share Trust and via Treasury Shares. For more details on transactions in
own shares see note 23 of the Group financial statements.
13. Contingent liabilities, financial guarantee contracts and performance guarantee contracts
a) The Company had previously guaranteed or had joint and several liability for bank facilities that are shared across multiple Group
companies, these were cancelled in the period to 31 March 2025
b) Throughout the Group, guarantees exist in respect of performance bonds and indemnities issued on behalf of Group companies by banks
and insurance companies in the ordinary course of business. At 31 March 2026 these amounted to £224.9 million (2025: £293.2 million),
of which the Company had counter-indemnified £133.1 million (2025: £177.9 million).
c) The Company has given guarantees on behalf of Group companies in connection with the completion of contracts within specification.
The liability recognised in respect of these guarantees in the balance sheet as at both 31 March 2026 and 31 March 2025 is immaterial.
d) The company has given guarantees on behalf of certain Group companies in connection with payments due into their pension schemes.
The liability recognised in respect of these guarantees in the balance sheet as at both 31 March 2026 and 31 March 2025 is immaterial.
e) The company has provided specific guarantees to the Group’s banking partners that Group companies will honour certain derivative and
other performance obligations. The liability recognised in respect of these guarantees in the balance sheet as 31 March 2026 is immaterial
(2025: Immaterial).
14. Group entities
See note 33 of the Group financial statements for further details.
15. Events after the reporting period
See note 32 of the Group financial statements for further details.
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence or non-
occurrence of uncertain future events outside the Company’s control, or a present obligation that is not recognised because it is not
probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably. The Company does
not recognise contingent liabilities.
Shareholder information
Financial calendar
Financial year end
31 March 2026
2025/26 full year results announced
22 June 2026
Annual General Meeting
16 September 2026
Final dividend payment date (record date 14 August 2026)
25 September 2026
Registered office and Company number
Registered in England
Company number 02342138
Registrars
MUFG Corporate Markets
Central Square
29 Wellington Street
Leeds, LS1 4DL
Email: shareholderenquiries@cm.mpms.mufg.com
www.babcock-shares.com
Shareholdings can be managed by registering for the Share Portal at www.babcock-shares.com. Alternatively, shareholder enquiries
relating to shareholding, dividend payments, change of address, loss of share certificate etc, can be addressed to MUFG using their postal
or email addresses given above.
Tel: +44 (0)37 1664 0300
(Calls are charged at standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open 9.00am – 5.30pm, Monday to Friday excluding public holidays in England and Wales.)
www.babcock-shares.com
ShareGift
If you have only a small number of shares which would cost more for you to sell than they are worth, you may wish to consider donating
them to the charity ShareGift (Registered Charity 1052686) which specialises in accepting such shares as donations.
Further information about ShareGift may be obtained on 020 7930 3737 or from www.ShareGift.org
Babcock International Group PLC Annual Report and Financial Statements 2026 281
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Babcock International Group PLC Annual Report and Financial Statements 2026
Babcock International Group PLC
33 Wigmore Street
London
W1U 1QX
United Kingdom
+44(0)20 7355 5300
babcockinternational.com