REG - Babcock Intnl Group - FY26 post close trading update

Babcock InternationalAnnouncement

Today 07:00

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RNS Number : 1359E  Babcock International Group PLC  13 May 2026

13 May 2026

 

 

FY26 post close trading update and Type 31 contract update - FY27 expectations
unchanged

 

Babcock International Group ("Babcock" or "the Group") provides a post close
trading update for the financial year ending 31 March 2026 (FY26) and an
update on the Type 31 contract.

FY26 performance

We delivered a strong underlying operational and financial performance in
FY26, reflecting continued momentum and particularly strong performances in
Nuclear and Aviation. The Group's strong underlying financial results were
partly offset by a non-recurring charge on the Type 31 contract, estimated to
be £140 million, fully recognised in FY26. Based on unaudited management
accounts, subject to detailed review by the Audit Committee and the external
audit process, we expect the FY26 results to be:

 Unaudited underlying FY26 financial highlights                       31 March 2026  31 March 2025
 Contract backlog                                                     £9.6bn         £10.4bn
 Revenue*                                                             £5,273m        £4,831m
 Underlying operating profit                                          £293m          £363m
 Underlying operating margin                                          5.7%           7.5%
 Underlying basic earnings per share                                  39.6p          50.3p
     Type 31 charge                                                   £140m          -
     Underlying operating profit excluding Type 31 charge             £433m          £363m
     Underlying operating margin excluding Type 31 charge             8.2%           7.5%
     Underlying basic earnings per share excluding Type 31 charge     60.5p          50.3p

 Underlying free cash flow                                            £262m          £153m
 Net debt (1)                                                         £(329)m        £(373)m
 Net debt/EBITDA (covenant basis)                                     0.2x           0.3x

* before c.£100 million revenue reversal resulting from Type 31 charge

Financial highlights

·     Revenue of £5,273 million (before c.£100 million revenue reversal
as a result of the Type 31 charge), represents organic growth at constant FX
of 10%, driven by strong performance in Nuclear and Aviation

·     Underlying operating profit increased 19% at constant FX to £433
million, excluding the Type 31 charge. Including the charge, underlying
operating profit was £293 million

·     Underlying operating margin increased to 8.2%, excluding the Type 31
charge, exceeding our FY26 target of 8.0%. Including the charge, underlying
operating margin was 5.7%

·     Underlying free cash flow increased significantly to £262 million,
driven by strong underlying operating cash conversion of 85%, excluding the
impact of the Type 31 charge on underlying operating profit

·     Net debt reduced to £329 million(1), delivering a gearing ratio of
0.2x

·     Contract backlog of £9.6 billion, reflects execution on long-term
contracts

·     Completed £200 million share buyback programme. New £200 million
share buyback programme announced

Outlook

·     FY27 expectations are unchanged, supported by good revenue
visibility with around 70% revenue under contract at 01 April 2026, a similar
percentage to the prior year

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

Sector performance:

Nuclear revenue increased 14% (at constant FX) to £2,070 million (FY25:
£1,816 million) driven by strong growth in our Cavendish Nuclear business
(+18%) and higher submarine support activity, more than offsetting the
expected decline in Major Infrastructure Programme revenue. Underlying
operating profit increased by 23% to £197 million, driven by revenue growth,
mix and the final year of trading the Future Maritime Support Programme (FMSP)
contract. As a result, underlying margin increased 70 basis points to 9.5%,
meeting our Group medium-term margin target of at least 9%.

Marine revenue increased 8% (at constant FX) to £1,687 million (FY25: £1,576
million), before a c.£100 million revenue reversal as a result of the Type 31
charge, due to higher volumes in our LGE business and growth in the Skynet
programme. Underlying operating profit increased 15% (at constant FX) to £110
million (FY25: £97 million), excluding the Type 31 charge of £140 million,
generating an underlying margin of 6.5%. Including the charge, the underlying
operating loss was £30 million, generating an underlying margin of (1.9)%.

Land revenue returned to growth in the second half of the year, as expected,
but declined 3% overall in FY26 (at constant FX) to £1,084 million (FY25:
£1,117 million). 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 10% (at constant FX) to £95 million
reflecting growth in higher margin defence programmes and contract completion.
As a result, underlying margin increased 110 basis points to 8.8%.

Aviation revenue increased 34% (at constant FX) to £431 million (FY25: £322
million), due to the ramp up of the Mentor 2 programme in France and the
British Columbia helicopter emergency services contract in Canada, and
increased scope in UK military support contracts. Underlying operating profit
increased 52% (at constant FX) to £31 million, due to revenue growth and mix.
As a result, underlying margin increased 90 basis points to 7.1%.

Continued strategic and operational momentum

As the nature of defence and energy security continues to evolve amid an
increasingly complex and rapidly changing geopolitical context, Babcock's
critical defence and nuclear energy capabilities remain highly relevant to its
customers. As a result, strong business momentum was maintained throughout the
year while the Group continued to deliver against its growth strategy. This
included strengthening and expanding strategic partnerships globally,
enhancing product and export capabilities, and reinforcing our position in key
strategic markets, including civil nuclear.

Notable recent developments and milestones included:

·    Indonesia: signed a Letter of Intent for the sale of a further two
Arrowhead 140 frigate licences, to be delivered in early FY27, under the £4
billion Maritime Partnerships Programme (MPP) framework to develop maritime
security and capability for Indonesia's navy and fishing fleets. We continue
to make good progress on negotiations to define contract structures to deliver
the broader MPP programme.

 

·     US Virginia Class submarine build programme: through expansion of
our strategic partnership with HII, Babcock is now authorised to manufacture
and build complex submarine assemblies at Rosyth for Virginia Class Block VI
fast-attack submarines. A small initial engineering contract is underway.

 

·    Initial light utility vehicle orders: we are delivering 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 and have also
secured a contract for the first tranche of a small number of vehicles to the
Albanian Ministry of Defence.

 

·    FMSP follow on contracts: at the year end, we agreed a six-month
bridging agreement with the UK Ministry of Defence to maintain continuity of
our nuclear submarine fleet support and naval base management services,
critical to the UK. In addition, we received a two-year contract extension of
vital surface ship fleet maintenance and infrastructure support for the Royal
Navy.

 

·    Civil Nuclear - Small Modular Reactor (SMR) Owners Engineer contract:
after the year end, in early April, 'Litmus Nuclear', a joint venture between
our Cavendish Nuclear business and Amentum was selected by Great British
Energy - Nuclear (GBE-N) for the Owner's Engineer contract to deploy GBE-N's
preferred SMR reactor technology for the UK's first SMR project at the Wylfa
site in North Wales. The contract, worth up to £300 million over 14 years,
will ensure that the SMR programme meets regulatory requirements while
delivering reliable, low-carbon power for decades to come.

Type 31 contract update

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 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
enable the work to be performed to support increasing levels of programme
productivity 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 work 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 an expected charge on the contract (subject to audit) of
£140 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. We estimate
c.£100 million of this £140 million will be recognised as a revenue reversal
in FY26 with the balance increasing the contract loss provision.

Capital allocation - new £200 million share buyback announced

We continue to combine strong operational performance with disciplined capital
allocation to drive shareholder value creation through investment in both
organic and inorganic opportunities and shareholder returns. In April 2026, we
completed the £200 million share buyback programme started in July 2025.
Today, due to the Group's balance sheet strength, and continuing strong
underlying performance and cash generation, we are announcing a further £200
million share buyback programme. The new share buyback programme will commence
at or around the time of the announcement of the Group's full results.

CEO succession

In January 2026, we announced David Lockwood's decision to retire as Group CEO
to be succeeded by Harry Holt, previously the Chief Executive of Babcock's
Nuclear sector. As of 1 April 2026, Harry assumed the role of Deputy CEO and
will join the Board in June 2026.

FY26 publication

Further details and the outlook for FY27 will be provided on publication of
our FY26 full year results. The FY26 external audit is progressing well and
would have been complete by the end of May. Given the re-estimate of Type 31,
the audited Preliminary Results are now expected to be in late June.

Conference call

There will be a conference call at 08:30 BST today, Wednesday 13th May, for
investors and analysts.

Babcock Conference Call dial in details

·      UK                           +44 (0)203
481 4247

·      UK                           +44 (0)800
260 6466 (toll free)

·      US                           (646) 307
1963

·      USA & Canada       (800) 715 9871 (toll free)

·      ROW                       +1 (646) 307 1963

Notes

(1) Net debt excluding leases as at 31 March 2026 reduced to £23 million
(FY25: £101 million)

Consensus: As at 13 May 2026, the average of analysts' forecasts, compiled by
Modular Finance, for FY26 was

·      Revenue of £5,112 million (Range: £5,072 million to £5,201
million)

·      Underlying operating profit of £411 million (Range: £405
million to £417 million)

·      Free cash flow of £215 million (Range: £192 million to £236
million)

Consensus can be found on our website at:
www.babcockinternational.com/investors/consensus
(http://www.babcockinternational.com/investors/consensus)

This announcement contains inside information: the person responsible for
arranging the release of this announcement on behalf of Babcock is Jack
Borrett as Company Secretary.

 

ENDS

 

For further information:

Andrew Gollan, Director of Investor Relations
        +44 (0)7936 039004

Karen Mitchell, Group Director of Communications
 +44 (0)7568 103242

Harry Cameron, Teneo
                              +44 (0)20 7353 4200

 

Certain statements in this announcement are forward-looking statements. Such
statements may relate to Babcock's business, strategy and plans. Statements
that are not historical facts, including statements about Babcock's or its
management's beliefs and expectations, are forward-looking statements. Words
such as 'believe', 'anticipate', 'estimates', 'expects', 'intends', 'aims',
'potential', 'will', 'would', 'could', 'considered', 'likely', and variations
of these words and similar future or conditional expressions are intended to
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so. By their nature, forward-looking statements involve a number of risks,
uncertainties or assumptions, some known and some unknown, many of which are
beyond Babcock's control that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements.
These risks, uncertainties or assumptions could adversely affect the outcome
and financial effects of the plans and events described herein.
Forward-looking statements contained in this announcement regarding past
trends or activities should not be taken as a representation that such trends
or activities will continue in the future. Nor are they indicative of future
performance and Babcock's actual results of operations and financial condition
and the development of the industry and markets in which Babcock operates may
differ materially from those made in or suggested by the forward-looking
statements. You should not place undue reliance on forward-looking statements
because such statements relate to events and depend on circumstances that may
or may not occur in the future. Except as required by law, Babcock is under no
obligation to update (and will not) or keep current the forward-looking
statements contained herein or to correct any inaccuracies which may become
apparent in such forward-looking statements.

 Forward-looking statements reflect Babcock's judgement at the time of
preparation of this announcement and are not intended to give any assurance as
to future results.

 

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