Annual Report and Financial Statements 2024

What we do

matters

Strategic report Governance Financial statements

Contents

Introduction

110 Chair’s introduction

112 Board of Directors

114 Board leadership and company

purpose

120 Division of responsibilities

122 Composition, succession and

evaluation

126 Nominations Committee report

128 Audit, risk and internal control

128 Audit Committee report

136 Remuneration

136 Remuneration Committee report

157 Other statutory information

162 Directors’ responsibility statement

163 Independent auditor’s report

tothemembers of

BabcockInternational Group PLC

177 Group financial statements:

177 Group income statement

177 Group statement of

comprehensiveincome

178 Group statement of changes

inequity

179 Group statement of

financialposition

180 Group cash flow statement

181 Notes to the Group financial

statements

247 Company financial statements:

247 Company statement of

financialposition

248 Company statement of

changesinequity

249 Notes to the Company financial

statements

256 Shareholder information

1 Financial highlights

2 At a glance

4 Investment case

6 Chair’s statement

8 CEO review

12 Developing our people

14 Strategic framework

16 Our business model

18 Risk management

20 Market review

22 Key performance indicators

24 Financial review

39 Financial Glossary

44 Operational reviews

44 Marine

48 Nuclear

52 Land

56 Aviation

60 Stakeholder engagement and

s172(1) statement

62 ESG

67 Environmental

80 Social

86 Governance

88 Non-financial and sustainability

information statement

89 Principal risks and management

controls

107 Going concern and viability

statement

Babcock is an international

defence, aerospace and

security company

Our mission has never been clearer:

in times of geopolitical instability and

disruption, we play a crucial role.

More than ever, what we do matters

Creating a safe and secure

world, together

Protecting lives, maintaining lines of

defence, ensuring critical services and

assets are readily available, affordable,

future proof

Side by side with the

armed forces

Enabling them to fulfil their duty, we make

their mission, our mission. From nuclear

submarines beneath the waves, to the

latest land vehicle technology, to secure

communications in space

What we do matters

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.

Babcock International Group PLC / Annual Report and Financial Statements 2024

Revenue

£4,390m

2023: £4,439m

Statutory cash generated

from operations

£374m

2023: £349m

Statutory operating profit

£242m

2023: £46m

Underlying operating profit*

£238m

2023: £178m

Underlying free cash flow*

£160m

2023: £75m

Net debt/EBITDA (covenant basis)*

0.8x

2023: 1.5x

Financial highlights

Making sure the services we

support are equipped for

their missions

Delivering the capability they need,

where and when they need it. Harnessing

the right technology for the greatest

impact at the right cost

Delivering without

compromise

Always striving for excellence, bringing

integrity and ingenuity to meet today’s

challenges. Unlocking potential in our

business, in our communities and in our

customers to meet tomorrow’s challenges

What we do matters – this film

explains how and why

Cooperation agreement with Saab to

develop an advanced naval corvette for

Sweden; initial design contract award

Strategic agreement with HII to

collaborate on nuclear-powered

submarine capabilities to support the

AUKUS endeavour

Babcock General Logistics Vehicle (GLV)

launched to target emerging UK and

international opportunities

Type 31 programme restructured

following detailed operational review

Launched Babcock Skills Academy to

develop submarine support capabilities

in our growing workforce

Validation of our net zero targets from

the Science Based Targets initiative

Long-term funding agreements

reached with two of our three large

pension schemes

Strategic highlights

* Underlying operating profit, underlying free cash flow and net debt/EBITDA (covenant

basis) are defined as Alternative Performance Measures; see page 39 for more detail.

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 2023. The Group has defined and outlined the purpose of its APMs in the Financial Glossary on page 39.

1Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Product design, manufacture

andintegration

We design and manufacture a range of defence and specialist

equipment from naval ships and weapons handling systems

toliquid gas handling systems. We also provide integrated,

technology-enabled solutions to our defence customers

in areas such as secure communications, electronic warfare

and air defence.

Deliver support on complex

programmes

We provide through-life technical and engineering support

for our customers’ assets, delivering improvements in

performance, availability and programme cost.

We deliver these critical services to defence and civil

customers, including engineering support to naval, land, air

and nuclear operations, frontline support, specialist training

and asset management.

Our Purpose is to create a safe and secure world, together.

Babcock is an international defence, aerospace and security company providing support

and product solutions to enhance our customers’ defence capabilities and critical assets.

What we do

Our capabilities Our customer requirements

Understanding Babcock

FY24 global revenue profile

At a glance

Equipment

support

Technical

training

Frontline

support

Technology and

systems integration

Design, develop,

manufacture

£4.4bn

FY24 revenue

74%

Defence

>26,000

Employees

£10.3bn

Contract backlog

Availability

Affordability

Capability

70%

ANZ

FRA

ROW

CAN

2 Babcock International Group PLC / Annual Report and Financial Statements 2024

12%

88%

39%

36%

10%

15%

32%

34%

24%

10%

15%

31%

53%

Our c.7,200-strong workforce delivers:

• Design and build of warships

• Warship through-life support

• Submarine and equipment through-life support

• 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

Our c.8,600-strong workforce delivers:

• Complex engineering support to the entire

UKnuclear submarine fleet, and to

international navies

• Management of critical national infrastructure

• End-to-end engineering integration

partnership for AWE deterrent production

• UK civil nuclear new build, generation support

and decommissioning projects

• Growing international nuclear services portfolio

Our c.6,400-strong workforce delivers:

• Military vehicle build and systems integration

• Strategic asset management and through-life

engineering support for military equipment

• Engineering services in power generation and

transport networks, and through-life support

of mining equipment

• Modern individual and collective training

forcustomers with critical missions

Strategy and

business model

See pages 14 and 16

Investment case

See page 4

Market review

See page 20

ESG strategy

See page 62

Marine

Nuclear

Land

FY24 revenue profile

Our c.2,500-strong workforce delivers:

• Military training for the two largest Air Forces

inEurope (France and UK), training pilots

andoperators from university through

tocombat operations

• Through-life support of operational military

flying assets

• Critical air operations for governments,

savinglives and protecting communities

Aviation

FY24 revenue profile

£1.1bn

£0.3bn

£1.4bn

£1.5bn

Defence UK Defence Intl.

Civil UK Civil Intl.

Defence UK

Civil UK

Defence UK Defence Intl.

Civil UK Civil Intl.

Defence UK Defence Intl.

Civil UK Civil Intl.

3Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Investment case

Strongly

positioned

Supportive market dynamics

• Defence budget growth in core

markets

• Customers’ need for military

capability:

• Equipment modernisation

• Increased value for money

• Demand for asset availability

• Energy transition driving nuclear

Clear growth strategy

• Underpinned by £10.3 billion

contract backlog and incumbent

positions

• Growing opportunity set across

allsectors, addressed by:

• Leveraging our technical

capabilities to create incremental

and adjacent opportunities

• Developing our people and

capabilities

• New strategic partnerships

andcollaborations

Differentiated proposition

• Focused portfolio in growth

markets: 74% defence

• Critical supplier to governments

• Own critical assets

• Highly differentiated proposition

combining:

• Engineering know-how

• Product development capability

• Customer intimacy

• Operational asset knowledge

• Strong focus on ESG

Margin improvement

• Improved contract terms

and discipline

• Focus on operational

improvement

• Improved programme delivery

• Growth of quality business

• Unwind of legacy contracts

Sustainable

growth

Improving

margins and

cash flow

Strong embedded position

underpins sustainable growth

Complex programme delivery:

• High barriers to entry

• End-to-end through-life support

• Proven track record

• Strong visibility

• Capability transfer

See page 10

See page 9

See page 11

Cash flow improvement and

balance sheet

• Programme execution

• Enhanced controls

• Improved bidding governance

• Focus on cash efficiency

• Strong balance sheet: investment-

grade credit rating

• Clear capital allocation framework

to maximise value for our

stakeholders

4 Babcock International Group PLC / Annual Report and Financial Statements 2024

Underpinned by our capital allocation framework

1. Organic investment

Sustain investment to support business operations and enhance growth potential

Priority

Pensions

Accelerate de-risking

M&A

Bolt-on opportunities

Shareholder returns

Further returns of surplus capital

to our shareholders

2. Financial strength

Maintain strong balance sheet and investment-grade rating

3. Ordinary dividend

Pay an ordinary dividend

Further capital options

Strong focus on our medium-term targets

Average annual organic

revenue growth

Mid-single digit

Underlying operating

margin

≥8%

Underlying operating

cash conversion

≥80%

Creating shareholder value

Strong embedded

position and

sustainable growth

Confidence

in driving value

Clear financial

targets

Disciplined capital

allocation

5Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Chair’s statement

This year has seen a shift to an increased focus on defence in

public discourse around the world. The sober nature of these

conversations reflects the undiminished tensions from the war in

Ukraine and adversarial postures in the Indo-Pacific, augmented

by the substantial increase in tension in the Middle East following

the attack on Israel and subsequent devastating conflict in Gaza.

Chair’s statement

“Our systematic approach, which combines

our technical capability, commercial

processes and contract governance,

willcontinue to drive improved contract

discipline and quality of earnings.”

Ruth Cairnie

Chair

In response to this uncertain future and recognising its

implications, we have seen a proposed increase in defence

budgets in all our key countries. However, the expected growth

inspend is not yet matched by military demand.

6 Babcock International Group PLC / Annual Report and Financial Statements 2024

In addition to increasing our well-established graduate and

apprentice programmes, we have been deploying some

innovative routes to employment. I was delighted to meet some

of our Production Support Operatives (PSOs) when I visited Rosyth,

who have joined Babcock through a new initiative focused on

attracting people from a range of backgrounds and experience,

including those not currently in education, employment or

training. Developed in partnership with trade union and local

community partners, our PSOs both support and learn from

experienced colleagues. We also launched a pilot pre-

apprenticeship programme, which we intend to roll-out to

Devonport in FY25.

Babcock is a people business, which is why our ongoing cultural

change programme is critical to our success. On each of my visits

to our operational sites through the year, I have spent time with

people in different roles across the organisation, listening to their

views on our strategy, transformation and leadership. From this,

Ihave been delighted to see first-hand some real signs of tangible

changes in our culture, for example understanding of how

individual team roles link to our broader objectives; recognising

the Company’s enduring commitment to safety and what it

means; and appreciation of increased engagement and

communication.

Outlook

With a strong balance sheet, improving operational performance

and an increasing opportunity set before us, the Company is well

set to deliver its objective of sustainable growth. The Board is

confident of making further progress against our medium-term

ambitions in FY25.

Ruth Cairnie

Chair

While the threats are already present and responding is urgent,

development programmes for new ships, submarines and land

vehicles typically take a long time. The Group’s ability to deliver

an increase in the availability and capability of existing resources

is therefore ever more relevant, alongside our involvement in

product development programmes. These market dynamics led

toa 9% increase in our contract backlog in FY24 to £10.3 billion.

Improving delivery

Against this backdrop, I’m pleased to report another year of

substantial strategic progress for the Group.

Our transformation is continuing to deliver improved performance

both operationally and financially. FY24 saw continued growth in

organic revenue and underlying profit. Our cash performance was

ahead of the Board’s expectations and we ended the year with

astronger balance sheet, despite the increase in the overall

estimated programme costs of our legacy Type 31 contract.

We made further progress on improving operational controls,

supported by the development of a dedicated Group Risk

function, and a framework that enables us to consider risk at all

levels across the Group. The Board will maintain its focus on risk as

we work through the delivery of legacy contracts. Our systematic

approach, which combines our technical capability, commercial

processes and contract governance, will continue to drive

improved contract discipline and quality of earnings.

Sustainable growth

We have a clear strategy to capture sustainable growth

acrossthesectors; our key drivers for growth are leveraging

ourtechnical capability, developing our people and building

strategic partnerships. We were delighted to present our strategy

toinvestors at our Capital Markets Day in February 2024.

One of the encouraging signs of progress this year was the

partnerships we forged with major international companies.

InJuly2023 we entered a global agreement with HII to collaborate

on nuclear opportunities in the civil and defence market.

In September 2023 we signed a Strategic Cooperation

Agreement with Saab to leverage our collective strengths to

offera broad range of products, services and solutions. Saab

subsequently awarded Babcock an initial contract to support the

design for the development of the Swedish Navy’s new Corvette.

And in November we signed a Memorandum of Understanding

with South Korea’s Hanwha Aerospace to offer enhanced

capabilities across land, air and sea defence domains, with

aninitial focus on conventional submarines.

These partnerships not only enhance our ability to offer customers

compelling solutions, they provide a high-value, low-risk and fast

route to effective market entry and are a keystone of our

approach to building out our international portfolio.

Developing our workforce

Success in capturing and delivering the opportunities that

liebefore us will depend on us developing the necessary skills;

thechallenge here covers both the size and shape of our future

workforce. Therefore, the recruitment, retention and

development of our people is a key element of our strategy

andwe are taking active steps to prepare for future needs.

In August 2023 we launched the Babcock Skills Academy,

designed to address the current and future demand for nuclear

skills. It will focus initially on developing the expertise needed

tomanage complex submarine maintenance. In FY24 we also

introduced an accelerated training programme for high-demand

roles, and we are supporting current employees to gain additional

skills, developing our leaders of the future.

7Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

CEO review

Introduction

FY24 was another year of improving delivery and increasing

momentum for Babcock, with growth in underlying profit and

cash flow performance ahead of our expectations. Revenue grew

organically

by 11% to £4.4 billion and underlying operating

profit

improved 34% to £238 million, which generated

underlying operating cash flow

of £323 million, an underlying

CEO review

“Babcock is well positioned to benefit from the

sustained uplift in global defence budgets,

driven by the need to recapitalise, re-equip and

modernise militaries, resulting in an increase in

our opportunity set.”

David Lockwood

CEO

operating cash conversion

of 136%. On a statutory basis, we

delivered operating profit of £242 million and cash generated

from operations of £374 million. We ended the year strongly

positioned for future success, and remain confident of delivering

sustainable growth and improving margins in the medium term

and beyond.

8 Babcock International Group PLC / Annual Report and Financial Statements 2024

Our contract backlog

increased by 9% to £10.3 billion, reflecting

demand for our specialist capabilities in our core defence and

security markets and demonstrating our potential for continued

growth. In addition, we made good strategic progress, entering

into a number of important partnerships and cooperation

agreements, including with Saab in Sweden and Huntington

Ingalls Industries (HII) in the US, where we will leverage our

complementary technical capabilities to address opportunities

emerging in both existing and new markets.

Our balance sheet continues to strengthen. Since we began our

transformation during FY21, net debt

is down £1.2 billion to

£435 million at the end of FY24, and our aggregate pension

deficit has reduced by more than £500 million to c.£200 million

on a technical provision basis.

Reflecting this strengthened financial base and improved outlook,

in December 2023, S&P Global upgraded our credit rating for the

second time in 15 months to BBB+ (stable). In November 2023,

following a four-year hiatus, the Board reinstated the dividend,

and has recommended a final dividend of 3.3 pence per share,

taking the total dividend for FY24 to 5.0 pence per share

(FY23:nil), in line with our capital allocation priorities set out

inFY23 todeliver shareholder value.

Our global people strategy continues to place our c.26,000

workforce at the heart of our business, fostering inclusion and

diversity and providing the critical skills training, development,

recruitment and retention that will enable us to deliver our

growth aspirations.

Strong underlying FY24 results

Revenue of £4,390 million was in line with FY23, with strong

organic revenue growth

of 11%. The growth was delivered

acrossNuclear (+29%) and Land (+17%), which offset an expected

revenue decline in Aviation (-17%).

The 34% increase in underlying operating profit

to £238 million

(FY23: £178 million) reflects strong performance across the

Group, in particular Nuclear, Aviation and Land, and a £17 million

one-off profit on a property disposal. Also within underlying

operating profit

is a £90 million loss on the Type 31 contract

(FY23: £100 million loss), as set out in our trading update 17 July

2024. As a result, underlying operating margin improved 140

basis points to 5.4%.

Excluding the Type 31 impact and material one-off credits,

underlying operating profit

increased 17% to £311 million,

generating a margin of 7.0% (as described on page 38). The FY23

baseline underlying operating profit and underlying operating

margin for our medium-term guidance was £265 million and

6.6% respectively (see page 38).

Margin expansion remains a key focus. At a sector level, Nuclear

delivered a 180 basis points improvement in underlying operating

margin

to 7.2%. Land also performed well, delivering an

underlying operating margin of 8.8% including the one-off profit

on property disposal. Aviation profitability improved significantly,

with a 360 basis points improvement to 5.6% driven by pricing,

contract timing and prior year disposals. Marine underlying

operating margin of 0.9% was impacted by the Type 31 loss,

which more than offset the positive impact of licence income

onthe Polish frigate programme.

Due to our strong underlying operating cash performance, we

made additional pension deficit repair payments of £35 million as

part of a long-term funding agreement in one of our three major

pension schemes. As a result, this scheme has reached self-

sufficiency and is not expected to require further deficit repair

contributions and we are in the process of closure to future

accruals. We also reached an agreement with the Trustees on

another of our major pension schemes regarding a long-term

funding plan and closure of the scheme to future accrual,

providing clarity to both the scheme and the Company. As a result

of these actions, we now expect the total Group pension deficit

repair payments to reduce to around £40 million per annum

(previously £65 million per annum).

Our aggregate pension deficit position on a technical provision

basis reduced to c.£200 million (FY23: c.£400 million). We also

reduced our net debt excluding leases

to £211 million. As a result

of this and improved profitability, net debt to EBITDA (covenant

basis) reduced to 0.8x (FY23: 1.5x).

Babcock is strongly positioned with a wide opportunity set.

Asaresult, we are confident that we can deliver sustainable

growth and improved margins and cash flow over the medium

term and beyond.

Type 31 programme

Signed in 2019, the Type 31 contract for five ships is the last

material legacy onerous contract the Group is managing. We have

continued to make good operational progress on the programme

through the year, with the superstructure of the first ship almost

complete and work is also progressing on the second ship. During

the year we settled the Dispute Resolution Process with the

customer, which has enabled the restructuring of the programme

to drive efficiency.

However, overall estimated programme costs have increased due

to the maturing of the design and an increase in the forecast cost

of labour in Rosyth, which is expected to be higher than CPI, the

indexation within the Type 31 contract. These cost increases have

caused the total contract outturn to deteriorate by £90 million

over the life of the programme.

During the year, we initiated an operational improvement

programme to challenge all aspects of the contract, facilitated by

the fact that the design is now more mature. Although this has

increased the volume of work, the design maturity has allowed us

to target improvements in productivity and ongoing support costs

as well as benefitting prospective export sales of our Arrowhead

140 design. As a result, we expect to deliver additional

programme benefits over the course of the programme from

improvements in productivity and further work relating to

thecontinuation of the Type 31 contract. We considered the

available evidence in respect of these benefits against the

evidential bar required to recognise them and decided not to take

them fully into account in the loss, although we do expect the

benefits to be delivered over the course of the programme.

Strongly positioned

With 74% of Group revenue and 78% total contract backlog

the Defence sector, our portfolio is increasingly focused and

well-placed to address rising global security requirements. Rising

geopolitical tensions are driving the recent growth in defence

budgets. However, the growth in defence budgets is still not

matched by the growth in military demand, making Babcock’s

ability to affordably add increased value, essential. Additionally,

the threats that governments face are here today, while typically

new product development programmes take years to deliver.

Increasing availability and capability with existing assets have

become ever more important.

Our deep understanding of our customers’ needs, their assets

andthe regulatory environment in which they operate is

embedded in our workforce, creating high barriers to entry.

Asathrough-life capability partner, we are able to not only

support assets but deliver capability and system upgrades and

apply our own product development capabilities to deliver a full

lifecycle engineering offering.

9Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Sustainable growth

Current market dynamics, in particular the growth in defence

budgets driven by the need to recapitalise, re-equip and

modernise militaries, have resulted in an increase in our

opportunity set. This translated to a 9% increase in our contract

backlog

in FY24 to £10.3 billion. This was driven by further major

contract awards and renewals, for example in Nuclear, both major

infrastructure and programme contracts related to the UK’s

nuclear submarine enterprise, and in Marine, extension of the

Canadian submarine support contract. Our contract backlog gives

us significant visibility and a deep understanding of customer

requirements.

We have a clear strategy to deliver sustainable growth across

theGroup by leveraging our technical capability, developing

ourpeople and building strategic partnerships.

UK growth

IIn UK defence, our largest market, accounting for around 60%

ofGroup revenue, we continue to optimise our position as the

second largest supplier to the UK MOD, strengthening our

relationships and targeting selective new programmes.

Optimise our position

The major recapitalisation of our Devonport facility, which plays

acritical role in delivering the UK’s nuclear submarine support

capability, continues at pace, in preparation for the next 50+

years of nuclear submarine support. In November 2023, we were

awarded a c.£750 million infrastructure contract to upgrade a

key dry dock in readiness for the deep maintenance programme

for the Royal Navy’s Astute Class submarines, scheduled to

commence in the coming years. This, together with more Astute

Class submarines entering the fleet and further infrastructure

programme contract awards, including ongoing refurbishment

ofthe dry dock for deep maintenance of Vanguard Class nuclear

deterrent submarines and the future Dreadnought Class deterrent

submarine, will underpin revenue growth in our defence nuclear

activities over the medium and long-term. Discussions are also

ongoing to establish a formal long-term partnership to help

improve submarine availability against a backdrop of increasing

operational requirements.

We continue to develop our position as a leading provider in

secure communications to the military, having successfully begun

the management and operation of Skynet, the UK MOD’s military

communication system, following a 12-month mobilisation

process. This vital work is being delivered with our partners SES,

Intelsat and GovSat, global leaders in the commercial and military

satellite industry. We believe that the successful implementation

of this operationally critical service will create opportunities for

further growth.

Selective new programmes

We are also selectively targeting new programmes in the UK,

many of which will also position Babcock for emerging

international opportunities.

We continue to develop our Land portfolio of product-based

offerings which reflect our deep understanding of customer

requirements. Babcock’s General Logistics Vehicle (GLV), built

around the proven Toyota Land Cruiser 70 series platform,

waslaunched in September 2023 with an initial focus on the

upcoming UK MOD tender to replace the current British Army

Land Rover fleet.

The GLV meets the requirements of military and security forces

across the world and we are pursuing a number of export

opportunities. In June 2024 we launched a medium wheelbase

variant and a six-wheel drive variant will follow in FY25.

We have also signed a collaboration agreement with Singapore

Technology Engineering for the manufacture of its 120mm

mortar system in the UK and we are tracking a number of

opportunities to supply and integrate this capability.

In Devonport, we commenced initial production of the Jackal 3

High Mobility Transporter vehicle at our newly created facility

within the Plymouth Freeport. The contract, to deliver 70 vehicles

for the British Army, is one of the first to deliver on the UK’s Land

Industrial Strategy. Production is ramping up and we see

opportunity to provide further vehicles to the UK, whilst also

pursuing international opportunities in collaboration with

Supacat.

Our bid to become the Strategic Training Partner for the Army

Collective Training Service (ACTS), together with our partners in

Team Crucible, has progressed to the Invitation to Tender stage.

We are offering a digitally enabled and data driven solution,

building out the technological and commercial infrastructure

needed to support an ever-evolving collective training system

thatcan adapt as fast as the operating environment evolves.

In naval nuclear, AUKUS represents a significant opportunity,

bothin the UK and internationally. In October 2023 we signed

afive-year contract with the UK MOD to provide input in the

detailed design for the new Ship Submersible Nuclear AUKUS

(SSN-A) submarine, which will replace the Astute Class and is

planned to be the design on which the Australian Navy builds its

future fleet. Ensuring that future support is properly considered

atthe design stage is expected to result in increased availability

throughout the life of the submarine.

International growth

We see significant opportunity to grow international revenues

through expansion in our focus countries, increased direct exports

and the establishment of strategic industrial partnerships.

Expansion in focus countries:

In France we continue to support military fighter pilot training.

Asa result of the success of that programme, the French Air Force

has decided to outsource further training support opportunities

for the first time. We are currently bidding for an initial training

stage outsourcing opportunity, MENTOR2, and are undergoing

pre-qualification on the future transport pilot training opportunity.

We are also looking at opportunities to expand our operations

inmainland Europe and are actively bidding an opportunity

tosupport fighter pilot training for the Belgian Air Force from

Babcock France. The French and Belgian Air Forces have a long

history of working closely together, so our track record in France

represents a compelling reference case.

In Canada, we have signed a Technical Cooperation Agreement

with Hanwha Ocean and HD Hyundai Heavy Industries to

collaborate on the Canadian Patrol Submarine Project, which will

research procurement options for its next generation submarines.

Direct exports

We celebrated a number of major milestones in the MIECZNIK

frigate programme in Poland, including the keel-laying of the first

ship in the programme. Following the Strategic Cooperation

Agreement signed in 2022, we were pleased to finalise the

design licence agreement which allows the PGZ-MIECZNIK

consortium to build three frigates for the Polish Navy. We also

entered into a framework agreement that will further strengthen

our partnership.

We continue to support Ukraine. In July 2023, we were awarded

acontract by the UK MOD to support urgent operational

requirements for Ukraine’s military assets.

CEO review continued

10 Babcock International Group PLC / Annual Report and Financial Statements 2024

The contract sees Babcock provide operational support to

armoured vehicles provided by the UK to the Ukrainian military,

such as Challenger 2 tanks and the Combat Vehicle

Reconnaissance (Tracked) – known as CVRT, train Ukrainian

personnel and manage vital equipment, supply chains and spares.

In May 2024, we announced work was underway on an in-country

facility to deliver engineering support, including the repair and

overhaul of military vehicles. In partnership with UDI, Ukraine’s

state-owned defence industry, Babcock will ensure that critical

military assets are available when and where they are needed

most, enhancing the country’s defence capability.

Strategic partnerships

Our ability to form partnerships with leading industry players

isakey part of our growth strategy. Working with a strong local

partner represents the highest-value, lowest-risk and fastest route

to effective market entry.

We formed a number of significant strategic partnerships in FY24.

In July 2023, we entered into a global strategic agreement with

HII, America’s largest shipbuilder, to collaborate on naval and civil

nuclear decommissioning and construction opportunities in the

UK and US, as well as for AUKUS. The companies agreed to apply

their complementary capabilities, including in build and support,

to existing nuclear decommissioning contracts for US ships and

UKsubmarines, and to look at opportunities to work together

toupskill and enhance both organisations’ capability for the

benefit of the UK, US and future Australian programmes.

Thememorandum of understanding (MoU) also identified

opportunities for cooperation in civil nuclear, including power

plant and component design, fabrication and construction in

North America and the UK. The launch of the H&B Defence Joint

Venture in Australia in June 2024 is the first tangible outcome

from that collaboration and offers Australia a one-stop-shop for

support of their emerging nuclear submarine operational and

support requirements.

In addition, Babcock, HII and Bechtel signed an MoU to

collaborate in Australia to support the AUKUS nuclear submarine

enterprise. Our complementary capabilities represent an

opportunity to play a key role in development of the specialist

infrastructure needed for the planned fleet of up to eight Virginia

Class and SSN-AUKUS nuclear-powered submarines.

In September 2023, we signed a Strategic Cooperation

Agreement with Saab to enable the delivery of enhanced

capabilities to customers by leveraging our collective strengths to

offer a broad range of products, services and integrated solutions.

Subsequently, in May 2024 Babcock was selected by Saab to

support the development of the Swedish Navy’s new Luleå-class

Surface Combatant. Babcock will initially provide engineering

support, including structural design and auxiliary systems,

supporting Saab to complete the basic design phase. The two

companies will also work together to identify potential export

markets for the Luleå design.

In November, we signed an MoU with South Korea’s Hanwha

Aerospace to offer enhanced capabilities across land, air and sea

domains. Under the agreement we will work together to pursue

global opportunities, with an initial focus on conventional

submarines.

Improving margins and cash flow

We are making good progress towards delivering our medium-

term guidance set out in FY23 of average annual revenue

growthin the mid-single digits, an underlying operating margin

of at least 8% and underlying operating cash conversion

of at

least 80%.

We will achieve this through further progress in execution

anddelivery, improved systems and overhead rationalisation,

supported by the improvements we have made to internal

governance.

Our systematic approach to programme risk management

through the coordination of our technical capability, commercial

processes and contract governance is driving contract discipline

and an improving mix of higher-margin new business.

Our focus on improving programme execution and efficiency

isevidenced in the 10-year DSG contract to support the British

Army land vehicles fleet. Following a major overhaul of operations

in recent years, delivery has significantly improved, resulting in

ade-risking of the final two years of delivery of the base contract

which will complete in FY25.

As a result, profitability improved sufficiently in FY24 to elevate

the contract out of the category of legacy low to zero margin

programmes. Following notification by our UK MOD customer

ofits intention to exercise up to five option years for DSG from

FY26, we have commenced a period of negotiation and transition

as we move towards contract signature. The revised model will

result in better outcomes for all stakeholders throughout the rest

of the decade.

In FY24, we returned HMS Vanguard to the Royal Navy after the

most complex nuclear submarine deep maintenance programme

(DMP) and life-extension (LIFEX) ever undertaken in the UK,

representing a significant de-risking of our nuclear business. DMP

and LIFEX of the second of the class, HMS Victorious, is underway

following an agreed full cost recovery contract in March 2024

worth an estimated £560 million, with the Submarine Delivery

Agency (SDA). The new commercial framework for the delivery

ofthis programme represents a truly collaborative effort with the

SDA to support an essential part of the UK’s defences.

Our focus on operational cash efficiency has delivered

overperformance in cash generation over the last two years,

withaverage underlying operating cash conversion of over 100%,

despite ongoing investment catch up in systems and assets. There

remains some risk of reversal of the contract timing factors such

as early customer receipts that drove strong cash outperformance

in FY24 and FY23, leading to an expected second half cash flow

weighting in FY25.

Trading in the first quarter of FY25

Trading in the first quarter ended 30 June 2024 was in line

withexpectations.

Outlook

Our expectations for FY25 remain unchanged. With c.70% of FY25

expected revenue under contract at 1 April 2024, we enter the

year strongly positioned with good momentum and are confident

of making further progress against our medium-term guidance: to

deliver mid-single digit average annual revenue growth and

achieve underlying operating margins of at least 8% and

underlying operating cash conversion of at least 80%.

David Lockwood OBE

Chief Executive

1. A defined Alternative Performance Measure (APM) as set out in the Financial

Glossary on pages 39 to 43

11Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

In focus: Production Support Operative

350 new Production Support Operative (PSO) jobs are being

created at Rosyth. This new programme, developed in

partnership with trade unions and local community partners,

offers people a different route to employment.

“I was a cleaner in the company for seven years.

When I found out I had secured a place on the

PSO programme I was over the moon. This was

really the start of a career for me.

“The best part about the programme is that

I have a clear purpose and understanding of

how I am making an impact to the company,

our customers and the defence industry.”

Steph

Production Support Operative, Rosyth

Babcock is a people business. We have a lot of opportunities ahead of us and are ensuring

we have the workforce we need, both now and in the future. That means delivering the

growth, skills and capability enhancements that will support our customers’ critical

programmes for years to come.

The right people, with the right skills, in the right place.

Skills – capable today,

ready for tomorrow

New approaches to identify people and talent

Creating futures

Developing our people

New initiatives introduced:

• skills-based work academy programme developed, in conjunction

with the Department of Work and Pensions and Plymouth City

Council, to help people transition back to the workforce,

supporting the new Jackal vehicles for the British Army

• employability pilot with Argyle Community Trust and KAEFER,

offering valuable insights into various roles at Babcock including

electrical engineering, insulating and labouring, supporting

people in the local community who may be facing challenges

getting back into work.

A career with Babcock can start from anywhere

We have introduced new approaches outside traditional routes,

opening up opportunities to a broader range of people, as well as

supporting existing employees to gain additional skills and retrain

into new roles and careers:

• attracting people from a range of backgrounds and experience,

including those not currently in education, employment or training

• assessing people first on characteristics such as attitude and

teamwork rather than qualifications, broadening our talent pool.

We are continuing to grow our early careers programmes,

with over 1,600 apprentices and graduates currently working

across the Group. New initiatives introduced:

• roll-out of pre-apprenticeship programmes in Clyde, Rosyth

and Devonport, designed for those who need some support

and training to meet engineering apprenticeship entry

requirements

• launch of our Group-wide Project Management graduate

programme, allowing graduates to rotate across different

sectors within the Group, giving them valuable exposure

and skill development across the sectors in which we work.

View Steph’s story and hear from others

enjoying new career opportunities at Babcock

1,000

new jobs to be created at

Rosyth over four years

600+

new early

careers

employees

in year

See our Early Careers website for more information

12 Babcock International Group PLC / Annual Report and Financial Statements 2024

View Cheri’s story and hear from others building

their capabilities and skills with Babcock

2,000+

people expected to

flow through in its

first three years,

and 10,000+ over

the next five years

Developing complex

skills for deep

submarine

maintenance

through the

Babcock

Skills Academy

Building strategic partnerships through collaboration

Leveraging our technical skills

In focus: Nuclear Skills Taskforce

Operating across both defence and civil nuclear, we are leading

the way to retain and grow the critical mass of nuclear skills we

need today and tomorrow.

We are a key industrial partner on the Nuclear Skills Taskforce,

which has developed the 10-year National Nuclear Strategic

Plan for Skills to secure the specialist skills needed to deliver the

national nuclear enterprise, including:

• full-time executive support to this Government-led task force

• leading the development of a South West regional hub

collaboration

• actively supporting Destination Nuclear, the UK’s first-ever

national nuclear communications and recruitment campaign.

Collaborate to accelerate

We work with a variety of organisations to deliver impactful

results which leverage our scale and minimise duplication, while

providing our customers and communities with what they need.

Key strategic partnerships include:

• a new partnership between the University of Adelaide and our

Australasian business to collaborate on talent attraction and

development, designed to support national security and realise

the potential presented by AUKUS

• continuation of our active support for Women in Defence and

Women in Nuclear to improve the representation of women

including in leadership roles

• partnering with a range of other universities including

Strathclyde University and Cranfield University to support and

develop leaders of the future

• working with EngineeringUK, focusing on early careers.

In focus: Babcock Skills Academy

Launched in August 2023, our Skills Academy is focused on

addressing the current and future nuclear skills demand for

our programmes, as well as the wider civil and defence

nuclear enterprise.

The complex and critical nature of our work means we can

provide unique career opportunities and skilled technical training,

which contribute to creating a safe and secure world, together.

Programmes being delivered include:

• operation and upgrade of the Defence High Frequency

Communications System, providing operation, management and

maintenance upgrades to support our servicemen and women

on critical operations in Australia and overseas. The new system

is providing an enhanced communications capability with

reliability and operational resilience not seen before within this

technology domain

• enhancing and maximising the skills and talent within our

engineering community through a consistent global engineering

framework. This will ensure the complex and critical work for

which we are renowned is delivered, in a collaborative way, by

the best people, wherever they happen to be in the world.

In focus: Train to Fit

‘Train to Fit’ accelerated training programmes for high-demand

roles for motivated candidates.

“My background is in the healthcare sector, but

when the opportunity arose to be part of the

Babcock team, a well-established organisation

which improves lives, I couldn’t resist. The ‘Train to

Fit’ accelerated training programme was intense

but invaluable. I learned so much that I have been

able to take forward into my new role.”

Cheri

Scheduler, Devonport

13Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

To create a safe and secure world, together

Our strategy

Strategic framework

Creating a safe and secure

world, together

Over the medium and long term, we are focused on delivering value for all our stakeholders

Improved outcomes

for our customers

A better place

to work

Returns for our

shareholders

Our capabilities span four key markets, with 74% of our business in defence

Marine Nuclear Land Aviation

See page 44 See page 48 See page 52 See page 56

Our four sectors

Our strategy aims to deliver

Our Purpose

Leverage our

technical capability

• Grow our UK business

through optimising our

existing position and

entering selective new

programmes

• Grow our international

business through

expanding activity in our

focus countries, direct

exports and strategic

partnerships

Develop our people

and capabilities

• Build our engineering

capability, enhancing the

mobility of our engineers

• Progress our early careers

and back to work

programmes

• Develop engineering and

nuclear skills through the

Babcock Skills Academy

as well as via national and

industry initiatives

Build strategic

partnerships

• Work with our customers

to deliver critical

solutions

• Develop innovative

solutions to solve

complex customer

challenges

• Work with industry

partners to enter new

markets and programmes

Be a responsible

corporate citizen

• Progress our five ESG

priorities and apply our

framework for integrating

sustainability into growth

• Promote the vital role

of defence and national

security aligned with ESG

In growth areas of defence, aerospace and security

14 Babcock International Group PLC / Annual Report and Financial Statements 2024

UK International

Optimise

position

Expansion

in focus

countries

Selective new

programmes

Direct exports Strategic

partnerships

Our growth strategy

Our growth strategy in action

Direct exports:

Case study – Polish frigate

programme

The Transfer of Knowledge and

Technology (TOKAT) framework

agreement between Babcock and

Poland’s PGZ-Miecznik consortium is

providing opportunities for us to forge

closer ties with our Polish partners.

Strategic partnership:

Case study – HII

In 2023 we entered into a strategic

agreement with Huntington Ingalls

Industries (HII) to collaborate onnaval

and civil nuclear decommissioning

and construction opportunities in

both the UK and US.

We have a sustainable growth strategy.

In the UK, where we have a strong

position, we are optimising our existing

positions and bidding selectively for

newprogrammes.

Internationally, we are expanding

ourfootprint in, and from, our focus

countries. We are also developing

ourexports from the UK, particularly

inourMarine sector. And finally, we are

forming alliances with strong partners

who see value in working with us and who

understand the markets we’re entering.

Optimise position:

Case study – DSG extension

The MOD has notified us of its

intention to exercise up to five option

years on our current contract to

deliver equipment and support to

over 30,000 British Army vehicles.

The transition activity will result in

better outcomes for all stakeholders.

Selective new programmes:

Case study – MRSS

The MOD has begun the first,

orconcept, phase of a programme

todevelop Multi Role Support Ships

(MRSS), extremely versatile warships

which will replace the Royal Navy’s

current amphibious flagships and

support vessels.

Expansion in focus countries:

Case study – Belgium military air

Babcock France is bidding on a

contract to support the training

ofBelgium’s military fighter pilots.

Wealready support training for

French military pilots and the two

airforces have historically worked

closely together.

15Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Our business model

Our key strengths and resources

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 and empower our workforce of over 26,000.

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

This underpins all work. We and our customers operate in heavily

regulated environments where the health, safety and wellbeing

ofall stakeholders is the number one priority.

How we operate

We provide a range of products and service solutions to enhance our customers’ defence

capabilities and critical assets. Our business model is underpinned by a deep understanding

of technology integration and engineering, infrastructure management and specialist

training. We help our customers around the world to cost effectively improve the

capability, reliability and availability of their most critical assets.

Driving sustainable growth

Our business model is

focused on securing and

executing long-term,

high-value contracts for

complex, integrated

services, underpinned by

rigorous commercial and

technical risk frameworks.

16 Babcock International Group PLC / Annual Report and Financial Statements 2024

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 main markets are

the UK, Australasia, France, Canada and

South Africa, with operations

in and exports to other countries.

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.

Contracting

A significant proportion of our business

iscarried out on a long-term contract or

multi-year framework basis. Our contract

backlog of £10.3 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

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

89 for our principal risks.

Customers

Delivering for our customers and partnering

with them on the challenges they face.

Investors

Creating shareholder value through

growth, cash generation and the

efficient allocation of capital. Delivering

shareholder returns through dividends

and increased share value.

Employees

Creating a better place to work where

employees are valued and motivated

atall times.

Regulatory and industry bodies

Never compromising on safety and

complying with regulations at all times.

Supply chain

Creating jobs and nurturing investment

through collaboration with our supply

chain.

Communities

Providing jobs and investment across

theUK and ensuring we act responsibly

at all times in the interests of local

communities around our sites.

Creating stakeholder value

Sustainability

Our ESG 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 62 for our

ESGreview.

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.

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.

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 5 for our capital

allocation framework.

See page 60 for more on our

stakeholder engagement

See how we are managing commercial and technical risk on pages 18

17Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Managing commercial and

technical risk

What we do is complex. We’re a business that delivers a wide range of programmes

withinterdependencies across our partnerships, our supply chain and our customers.

Ouraverage programme length is five years, but some are decades-long, spanning

multiple governments, geopolitical changes and unforeseen economic challenges.

Risk management

winning,mobilising and delivering, all the way to closing the

programmedown at its completion. It’s about understanding

thetechnological environment and requirements, and making

surewe have the capability to deliver.

Our risk framework is structured around contract risk phasing. We

judge around 50% of contract risk can be managed and mitigated

before signing a contract, around 30% during the mobilisation

phase and 20% during contract execution and delivery. Our risk

framework enables us to prepare for and take on appropriate risk

and manage it effectively, resulting in predictable outcomes

forallour stakeholders.

Every contract and programme we deliver is different, so there’s

no one-size-fits-all approach. That means we need more than red

tape and oversight. We need an approach and leadership that

deliver high levels of programme discipline, taking account of

thespecific needs of each contract whilst delivering a common

best-in-class methodology.

For existing contracts, this is about managing commercial risk

andprotecting our margins. And for new contracts, it’s about

embedding those principles right from the start with a gated

approach to capturing, understanding and managing risk.

It’sabout getting it right throughout the entire project lifecycle,

fromidentifying the opportunity, through bidding and

Contract risk phasing

Pre-contract signature

20%

Delivery/

execution

50%

Pre-contract

signature

30%

Mobilisation

Customer-funded projects

Internally-funded projects

Mobilisation

Pre-contract signature

Delivery initiation

Capture

Purpose

ClosingBiddingTracking

Pursuing

Capturing

Technical governance framework

• Improved focus on contractual set up and

‘what Babcock needs’

• Linked to Global Management Framework

• Renewed bid governance

Why? To ensure we sign contracts we can deliver that

best benefit all stakeholders

Questions we ask ourselves

1. Is the proposed technical solution compliant

(customer and regulatory requirements)?

2. Is the technical solution achievable

(technical, workforce, cost, schedule)?

3. Do we have a known, acceptable and

manageable risk profile?

Ensures we can commit to deliver the technical solution

See how we are managing our principal risks and

management controls on pages 89

18 Babcock International Group PLC / Annual Report and Financial Statements 2024

Key themes of our operations and business delivery

People

Process

Controls

People deliver through

integrated cross-

functional teams

Enabled, accountable

and highly competent

workforce

Consistent end-to-end lifecycle

management, supported by

mature governance

Agile and integrated

ways of working

Proportionate controls

delivering predictable

outcomes

Enabling systems

and technology

Predictable delivery,

predictable business

Delivery

Mobilisation

Delivery

Define

Execute

Handover

and close

Technical governance framework

• Increased oversight

• Effective course correct

• Restructured relationships

• Rationalised supply chain

• Strategic supplier relationships

Why? To delight all stakeholders and maximise

margin return

• Early in the business lifecycle

• Resourcing contractual requirements

• Cross-organisation communication

Why? To ensure a smooth transition to delivery,

with a lower risk profile

Technical reviews aligned with engineering lifecycle

transition points to test:

1. Progress against requirements

2. Cost and schedule

3. Managing risks

Ensures the delivered technical solution is compliant,

on time and within cost

Ensure we have defined and planned engineering work scope:

1. Alignment with customer on requirements

2. Appropriate resource mobilisation

3. Access to tools and facilities

4. Technical risk management plan

Ensures everything is in place before we start delivering

the solution

19Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

• An unstable geopolitical environment, evolving threats

and unpredictable crises

• The need to deliver value for money

• The need to develop and apply enhanced technology

to counter new threats

• The need for supply chain resilience

• Customer ESG requirements

Market review

Defence remains our largest market

Babcock is an international defence, aerospace and security

company providing support and product solutions to enhance

ourcustomers’ defence capabilities and critical assets. We have

acritical role in global defence and security with operations in the

UK, Australia, New Zealand, Canada and France. We also design

and manufacture equipment and systems for several other nations

including the US and South Korea, and we continue to grow our

international revenues from other allied nations through direct

exports and partnerships.

Our defence customers all have increasingly complex capability

requirements with a focus on value for money, high utilisation

oftheir assets, modernisation and flexibility. These requirements

are driven by:

Driven by our customer requirements

Babcock combines extensive experience of customers’ assets

inoperation with strong engineering know-how and highly

collaborative customer relationships.

This highly differentiated proposition enables us to deliver

complex product and service solutions which meet our key

customer requirements of availability, affordability and capability.

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 are also demanding 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.

Babcock is the second largest supplier to UK MOD with a growing global presence

Babcock

HII

Thales

Leonardo

L3Harris

Rostec

BAE Systems

General Dynamics

Northrop Grumman

Raytheon

Lockheed Martin

Global defence companies

with >50% defence revenue (2023, £bn)

General Dynamics

Thales

Leidos

Boeing

Leonardo

Rolls-Royce

Airbus

QinetiQ

Babcock

BAE Systems

UK MOD expenditure

(£bn)

4.6

2.4

1.0

0.9

0.7

0.6

0.4

20 Babcock International Group PLC / Annual Report and Financial Statements 2024

Supportive market dynamics

The geopolitical environment is increasingly unstable with multiple global flashpoints. This is driving increasing defence budgets in our

focus countries, alongside greater demand for equipment modernisation, maximum asset availability and better value-add. Net zero and

energy security are also driving greater and increasingly complex requirements around the energy transition.

UK 70% of FY24 revenue Our defence capabilities Opportunities

c.£54bn

defence budget

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 are working

with the UK Government and

MOD across multiple critical

programmes to ensure the

increasingly complex needs

of our armed forces are met.

• Submarine infrastructure

• Submarine and systems support

• Naval base management

• Submarine defuel and

dismantling

• Submarine and systems design

• Frigate design and build

• Warship support

• Space

• Electronic warfare

• High frequency comms

• Army vehicle build and support

• Pilot training

• Army Collective Training

• UK Aircraft Autonomy

programme

• UK Protected Mobility

programme

• AWE fissile support

• Mobile Fires system

• AUKUS

• Naval Support Integrated

Global Network (NSIGN)

Asia Pacific 13% of FY24 revenue

c.£75bn

defence budgets

We are a key defence company in

Australasia as a strategic maritime

sustainment and defence

communications partner to both

Australia and New Zealand with

product export capability

furtherafield.

• AUS, NZ warship support

• AUS submarine and systems

support

• AUS, NZ high frequency comms

• KOR submarine systems

• IDN frigate development

• AUKUS

• General Purpose Frigate

• Fleet support

Europe 5% of FY24 revenue

c.£150bn

defence budgets

We have an established position in

France while exporting selected

capabilities to Poland, Ukraine,

Belgium and Spain in response to

equipment modernisation based

on strong UK track record.

• FRA pilot training

• FRA aircraft support

• FRA land support

• POL frigate development

• UKR warship support

• UKR vehicle and equipment

support

• BEL specialist vehicles

• ESP submarine systems

• Flying training

• RED Air

• Vehicle maintenance,

repairand overhaul

• Marine support

North America 4% of FY24 revenue

c.£760bn

defence budgets

We have a strong history of

supporting the Canadian Navy

and the US Department

ofdefense.

• CAN submarine support

• US submarine components

• Canadian Future

Submarine Programme

• Fleet support

Sources:

1. UK Ministry Of Defence (MOD) 2023.

2. Stockholm International Peace Research Institute (SIPRI) 2023.

3. SIPRI 2023: AUS, NZL, KOR, IDN.

4. SIPRI 2023: FRA, POL, UKR, BEL, ESP.

5. SIPRI 2023: US, CAN.

21Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

How we measure our progress

Key performance indicators

2024 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

Organic revenue growth in our continuing

businesses was 11.4%, driven by Nuclear and

Land, partly offset by the expected organic

decline in Aviation.

See our operational reviews on page 44

• Organic revenue growth

Organic revenue growth (%)

11.4%

Definition

Underlying operating profit, expressed as a

percentage of revenue.

See page 25 for a reconciliation of statutory to

underlying operating profit.

Commentary

Group margin was up 140 basis points year

onyear due to an out-performance in Nuclear,

Land and Aviation, and a lower loss on the Type

31 contract than FY23.

See our commentary on page 27

• Underlying operating margin

• Underlying operating profit

• Underlying operating margin

Underlying operating margin (%)

Definition

Underlying earnings after tax divided by the

weighted average number of ordinary shares.

Commentary

Underlying earnings per share increased 74%

inthe year, driven by higher underlying profit

forthe year and a lower loss on the Type 31

contract than FY23. Excluding the Type 31 loss,

EPS was 44.2 pence.

See reconciliation on page 27

• Underlying basic earnings per share

Underlying EPS (p)

5.4%

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 in the

Financial Glossary starting on page 39.

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 136%

reflects better than expected operational

performance and early customer receipts

affording an accelerated £35 million pension

deficit repair contribution and pension deal.

See calculation on page 43

• Underlying operating cash conversion

• Underlying operating profit

• Underlying operating cash flow

• 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 33 for a

reconciliation.

Commentary

Our net debt to EBITDA (covenant basis)

decreased 0.7x to 0.8x. The decrease was

driven by lower net debt due to higher

underlying operating cash flow and underlying

free cash flow performance.

See reconciliation on page 33

• 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

The increase in underlying ROIC reflects a

greater underlying operating profit compared

tosimilar invested capital levels year on year.

While net debt reduced, shareholder funds

andretirement deficit increased.

See calculation on page 33

• Underlying return on invested capital

30.8p

26.0%0.8x136%

FY24

FY23

FY22

FY21

9.9

4.7

n/a

11.4

FY24

FY23

FY22

FY21

4.0

5.8

5.5

5.4

FY24

FY23

FY22

FY21

17.7

30.7

28.8

30.8

FY24

FY23

FY22

FY21

172.6

135.1

1.9

135.7

FY24

FY23

FY22

FY21

1.5

1.8

2.4

0.8

FY24

FY23

FY22

FY21

18.8

17.4

12.9

26.0

22 Babcock International Group PLC / Annual Report and Financial Statements 2024

Our approach

We went through the process of the Contract Profitability and

Balance Sheet review (CPBS) in FY21 to set our approach to

running the Group, including creating the right baseline for future

performance. We show our financial-based KPI performance for

three years, excluding the one-off CPBS adjustments in FY21. This

is to provide a meaningful measurement and ongoing baseline,

and reflect how weassess operational performance.

Link to Glossary

Link to medium-term guidance

Definition

The Total Recordable Injury Rate (TRIR) is

a12-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 recordable work-related

injuries and illnesses that require medical

treatment beyond first aid. In any one year,

further assessment of an injury/illness or

information from an extended investigation

mayresult in a restatement of prior year figures.

Commentary

Following reductions in previous years, the TRIR

had risen during 2023 as the types of activity

undertaken changed and the proportion of

industrial workforce increased. While the

severity of work-related injuries continues to

reduce, all of our leaders are committed to

visible safety leadership to ensure we reduce

injury rates overall. Following the period we

have also relaunched our Home Safe Every Day

and Safety Starts with Me behaviour

programmes across the Group.

See page 81 for more details

Total injuries rate CO

e emissions (tCO

e/£m) Senior management gender diversity (%)

2024 Non-financial performance

Link to management remuneration

Our Remuneration policy, as detailed on pages 140 to 145, includes

reference to underlying profit before tax, underlying operating cash flow

and non-financial measures.

Operational performance measures

In the operational reviews on pages 44 to 59, we use our first two KPIs

(organic revenue growth and underlying operating margin) to measure

sector performance. Please see our Financial Glossary on page 39.

Definition

Estimated tonnes of CO

e emitted as a direct

result of revenue-generating operations. The

reporting period for our energy consumption

and carbon emissions is the calendar year

(1January to 31 December). Reporting calendar

year data enables more time to collate, analyse

and report our environmental data, which has

improved the accuracy and completeness of

ourdata sets. In line with our Scope 3 emission

investigations over the last year, figures have

been updated to include our comprehensive

Scope 3 emission figures dating back to FY22,

which were not previously available. FY21 data

was not available for Scope 3 emissions.

Commentary

Our CO

e emissions intensity ratio was down

1%year on year. The absolute carbon emissions

increased by 12%, however disproportionate

tothe revenue growth from operations. Despite

an increase in emissions, our intensity ratio has

reduced due to the increased revenue from

operations.

See page 67 for more details on our emission

performance

Definition

Senior managers are defined as employees

(excluding Executive Directors) who have

responsibility for planning, directing or

controlling the activities of the Group (Executive

Committee) or a strategically significant part

ofthe Group (sector or functional leadership

teams) and/or who are directors of subsidiary

business units (business unit leadership). We also

report the gender diversity of the Executive

Committee and their direct reports in line with

the UK Corporate Governance Code‘s

requirement to report on ‘senior management’

(see page 82).

Commentary

The volume of senior managers increased during

the year, however the senior management

gender diversity level remains consistent with

the previous year at 23%.

See page 82 for more details on Babcock’s

gender diversity statistics

0.92 563.4 23%

FY24

FY23

FY22

FY21

0.73

0.74

0.86

0.92

FY24

FY23

FY22

FY21

567.7

741.4

n/a

563.4

FY24

FY23

FY22

FY21

23Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review

“This year, we’ve delivered double digit organic

revenue and underlying operating profit

growth, with cash flow significantly ahead. We

are confident in our medium-term guidance

and delivering shareholder value.”

David Mellors

Chief Financial Officer

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 2023. The Group has defined

andoutlined the purpose of its APMs in the Financial Glossary

onpage 39.

The reconciliation from the IFRS statutory income statement

tothe underlying income statement is shown across the page.

24 Babcock International Group PLC / Annual Report and Financial Statements 2024

Income statement

31 March 2024 31 March 2023

Underlying

£m

Specific

adjusting

items

£m

Statutory

£m

Underlying

£m

Specific

adjusting items

£m

Statutory

£m

Revenue 4,390.1 – 4,390.1 4,438.6 – 4,438.6

Operating profit 237.8 3.8 241.6 177.9 (132.4) 45.5

Operating margin 5.4% 5.5% 4.0% 1.0%

Share of results of joint ventures and associates 9.2 – 9.2 9.3 – 9.3

Net finance costs (35.9) 1.8 (34.1) (58.3) 9.7 (48.6)

Profit before tax 211.1 5.6 216.7 128.9 (122.7) 6.2

Income tax (expense)/benefit (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)

Profit/(loss) after tax 157.6 10.6 168.2 91.2 (124.5) (33.3)

Non-controlling interest (2.5) – (2.5) (1.7) – (1.7)

Profit/(loss) attributable to the owners of the parent 155.1 10.6 165.7 89.5 (124.5) (35.0)

Basic EPS 30.8p 32.9p 17.7p (6.9)p

Diluted EPS 30.1p 32.2p 17.4p (6.9)p

A full statutory income statement can be found on page 177.

As described on page 1, 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

below and in note 2 of the financial statements on page 198.

Revenue bridge

2000

2500

3000

3500

4000

4500

FY23 FY24OrganicFXFY23

excluding

disposals

Disposals

4,439

449

(422)

(76)

4,390

£m

+11%

Organic growth

at constant FX

4,017

Revenue of £4,390.1 million was similar to FY23 with 11% organic growth offset by a (9)% impact of disposals and a (2)% currency

translation headwind. The European AES and Civil Training businesses, both sold in February 2023, contributed

£421.6 million to FY23 revenue. The organic increase was driven by strong growth in Nuclear and Land, while Marine was in line with

the prior year and Aviation decreased as expected, due to the phasing of French military contracts.

By sector:

• Marine revenue of £1,429.1 million, was similar to the prior year, with growth led by major ship and submarine programmes

including the Polish MIECZNIK frigate programme and Dreadnought, offset by lower volumes in LGE and ship support.

• Nuclear revenue increased 29% to £1,520.9 million. Growth was driven by Major Infrastructure Programme (MIP) revenue, submarine

support and new defence contracts in our civil nuclear business.

• Land revenue increased 8% to £1,098.6 million, or 17% on an organic basis. Growth was from a broad range of military activities

inboth UK and international markets, including the first full year of the Defence High Frequency Communications contract in Australia

and higher vehicle volumes in defence vehicle engineering as well as in our South Africa business.

• Aviation revenue declined 57% to £341.5 million primarily due to the disposal of the European AES business in FY23. Organic

revenuedeclined by 17% due to the expected change in revenue profile of our French defence contracts between aircraft delivery

andservice phases.

25Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

Underlying operating profit increased by 34% to £237.8 million driven by improved performance across the Group and a one-off

£17.0 million profit on property disposal, partly offset by a 4% currency translation impact. Also within underlying operating profit

isa£90.0 million loss on the Type 31 contract (FY23: £100.1 million loss). By sector:

• Marine underlying operating profit was in line with FY23, with improvement driven by three licence sales on the Polish Arrowhead

140 programme and a £10.1 million lower loss on Type 31, offset by lower volume in LGE and lower profitability in Mission Systems,

primarily due to contract timing. Excluding the impact of the Type 31 loss, Marine underlying operating profit declined (9%) to

£103.1million.

• Nuclear underlying operating profit grew to £109.2 million, a 72% organic increase, driven by revenue growth and non-repeat

ofa£16 million contract loss in FY23 (this contract has now finished).

• Land underlying operating profit grew to £96.3 million, a 12% increase including a one off £17 million profit on property disposal.

FY23 underlying operating profit of £85.9 million included a one-off accounting credit of £11.6 million.

• Aviation underlying operating profit grew to £19.2 million, a 22% increase reflecting improved pricing, contract timing and lower

bidcosts.

See segmental analysis tables on page 37.

Type 31 programme

The Type 31 programme represents around 5% of the Group’s revenue. Over the year, overall costs have increased due to the maturing

of the design and the increase in the cost of labour in the market available in Rosyth, which is forecast to be higher than CPI, the

indexation within the Type 31 contract. As a result, the outturn over the lifetime of the contract has deteriorated by £90 million,

whichhas been fully recognised in FY24. The cash impact of this loss is expected to be realised over the remainder of the contract.

During the year, we initiated an operational improvement programme to challenge all aspects of the contract, including a significant

focus on cost drivers and financial modelling, supported by external consultants. The Audit Committee has reviewed the programme

team’s plans to deliver additional programme benefits from improvements in productivity and further work relating to the continuation

of the Type 31 contract. We considered the available evidence in respect of these benefits against the evidential bar required to

recognise them, and decided not to take them fully into account in the loss, although we do expect the benefits to be delivered over

the course of the programme.

Statutory operating profit of £241.6 million increased from £45.5 million in FY23, driven by improved performance across the

Group, a one-off £17.0 million profit on disposal and non-repeat of a £117.7 million loss on disposals in FY23, mainly associated with

the divestment of the European AES business in February 2023.

100

150

200

250

300

FY22 Profit on

property

disposal

FY24

(excl. Type

31 loss)

Type 31 loss FY24FY24

(excl. Type 31

loss and profit

on property

disposal)

TradingFXFY23

(excl. Type 31

loss, one-off

credit,

disposals

Type 31 loss,

one-off credit,

disposals

178

328

238

311

+21%

at constant FX

265

311

(8)

£m

4.0%

margin

6.6%

margin

(90)

7.0%

margin*

5.4%

margin

Underlying operating profit bridge

* See page 38

26 Babcock International Group PLC / Annual Report and Financial Statements 2024

Reconciliation of statutory to underlying operating profit

31 March

2024

£m

31 March

2023

£m

Operating profit 241.6 45.5

Amortisation of acquired intangibles 10.8 15.8

Business acquisition, merger and divestment related items (8.2) 117.7

Fair value movement on derivatives (6.4) (1.1)

Specific adjusting items impacting operating profit (3.8) 132.4

Underlying operating profit 237.8 177.9

Underlying operating margin of 5.4% (FY23: 4.0%), which includes (2.0)% from the Type 31 loss and 0.4% from the profit on property

disposal. The increase in the year was driven by improved operating performance and a lower Type 31 charge. Excluding the impact

ofthe Type 31 loss and the profit on property disposal, the underlying operating margin was 7.0% (FY23: 6.6%) (see page 38).

Statutory operating margin of 5.5% reflects the same drivers as underlying operating margin. The FY23 statutory operating margin

of1.0% was also impacted by a £117.7 million loss on disposals, mainly associated with the divestment of the European AES business

inFebruary 2023.

Further analysis of financial performance is included in each sector’s operational reviews on page 44 to 59.

Share of joint ventures and associates: The Group’s share of results of joint ventures and associates of £9.2 million was similar

toFY23, reflecting improved trading in the core Ascent Training (Holdings) Limited and AirTanker Services Limited joint ventures, offset

by a £1.1 million write down in Oman.

Underlying net finance costs decreased to £35.9 million (FY23: £58.3 million). Reduced interest costs were driven by a combination

of lower debt balances, reduced finance costs following termination of the £300 million RCF in October 2023 and higher interest rates

applied to surplus cash balances. In addition, underlying lease interest decreased to £9.8million (FY23: £16.1 million) following the sale

of our European AES business in the prior year and net finance costs associated with defence contract receivables in France reduced

to£4.4 million (FY23: £12 million). IAS19 retirement benefit interest represents a charge of £0.8 million (FY23: credit of £7.5 million).

Statutory net finance costs decreased to £34.1 million (FY23: £48.6 million). In addition to the £22.4 million improvement in

underlying net finance costs, there was a £7.9 million reduction in the credit related to the fair value movement on derivative and

related items to £1.8 million (FY23: £9.7 million).

Underlying income tax expense: Group underlying income tax expense increased to £53.5 million (FY23: £37.7 million) reflecting

higher underlying pre-tax profit and a higher UK corporation tax rate in the year. This represents an effective underlying tax rate of 27%

(FY23: 32%), or 26% excluding the impact of the Type 31 loss (FY23: 26%), calculated on 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: The Group income tax expense was £48.5 million (FY23: £39.5 million), lower than the underlying

income tax expense due to the tax impact of the specific adjusting items outlined above and in note 2 of the preliminary financial statements.

Underlying basic earnings per share of 30.8 pence (FY23: 17.7 pence) represents an increase of 74%, driven by higher underlying

operating profit for the year. The impact on earnings per share of the £17.0 million profit on disposal and the Type 31 loss was 3.3

pence and (13.4) pence respectively.

Basic earnings per share, on a statutory basis, increased to 32.9 pence (FY23: 6.9 pence loss) reflecting improved profit for the year.

The FY23 loss per share was due to lower underlying profit for the year, including the £100.1 million loss on the Type 31 contract, and

a loss after tax of £124.5 million from specific adjusting items, mainly associated with the loss on disposal of the European AES business.

Dividend: A final dividend of 3.3 pence per ordinary share (FY23: nil) is payable on Monday 30 September 2024 to shareholders

whosenames appear on the register at the close of business on Friday 23 August 2024. Shareholders may participate in the dividend

re-investment plan and elections must be made by Monday 9 September 2024. Details of the dividend re-investment plan can be found,

and shareholders can make elections, at www.babcock-shares.com.

Reconciliation of statutory profit/(loss) and basic EPS to underlying profit and basic EPS

31 March 2024 31 March 2023

£m Basic EPS £m Basic EPS

Profit/(loss) after tax for the year 168.2 32.9p (33.3) (6.9)p

Specific adjusting items, net of tax (10.6) (2.1)p 124.5 24.6p

Underlying profit after tax for the year 157.6 30.8p 91.2 17.7p

27Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

Exchange rates

The translation impact of foreign currency movements resulted in a decrease in revenue of £76 million and a decrease in underlying

operating profit of £8 million. The main currencies that have impacted our results are the Canadian Dollar, South African Rand,

EuroandAustralian Dollar. The currencies with the greatest potential to impact results are the South African Rand and the Australian

andCanadian Dollar:

• A 10% movement in the South African Rand against Sterling would affect revenue by around £33 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 Canadian Dollar against Sterling would affect revenue by around £16 million and underlying operating profit

by around £1 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 2024

£m

31 March 2023

£m

Statutory operating profit 241.6 45.5

Add back: specific adjusting items (see table on page 27) (3.8) 132.4

Underlying operating profit 237.8 177.9

Right of use asset depreciation 39.8 91.3

Other depreciation & amortisation 67.3 84.9

Non-cash items (8.7) 6.9

Working capital movements 127.5 103.5

Provisions 20.4 37.2

Net capital expenditure (111.8) (86.2)

Lease principal payments (49.6) (108.5)

Underlying operating cash flow 322.7 307.0

Underlying operating cash conversion (%) 136% 173%

Pension contributions in excess of income statement (107.6) (141.9)

Interest paid (net) (32.2) (62.2)

Tax paid (27.4) (25.4)

Dividends from joint ventures and associates 7.1 8.7

Cash flows related to specific adjusting items (2.2) (10.9)

Underlying free cash flow 160.4 75.3

Net acquisitions and disposals of subsidiaries (1.3) 158.6

Dividends paid (including non-controlling interests) (10.3) (2.2)

Purchase of own shares (12.5) –

Lease principal payments 49.6 108.5

Net new lease arrangements (54.8) (115.1)

Leases disposed of/(acquired) with subsidiaries – 218.1

Other non-cash debt movements (3.2) (1.8)

Clarification of net debt definition – (36.1)

Fair value movement in debt and related derivatives 0.5 56.0

Exchange movements 0.6 (57.0)

Movement in net debt 129.0 404.3

Opening net debt (564.4) (968.7)

Closing net debt (435.4) (564.4)

Add back: leases 224.5 218.2

Closing net debt excluding leases (210.9) (346.2)

A full statutory cash flow statement can be found on page 180 and a reconciliation to net debt on page 33.

28 Babcock International Group PLC / Annual Report and Financial Statements 2024

UOP OCFOther

(including

provisions)

Capital lease

payments

Net capexROU asset

depreciation and

amortisation

Working

capital

Depreciation and

amortisation

238

(112)

128

(50)

323

£m

136% cash

conversion

Underlying operating profit to operating cash flow bridge

Underlying operating cash flow increased to £322.7 million (FY23: £307.0 million). The conversion ratio to underlying operating

profit of 136% (FY23: 173%) reflects reduced working capital and the impact of the Type 31 long-term contract accounting loss

onunderlying operating profit. Operating cash conversion was higher in FY23 primarily reflecting lower net capital expenditure and

ahigher Type 31 loss. Excluding the Type 31 impact on operating profit, underlying operating cash conversion was 98% (FY23: 110%).

• Working capital: An inflow of £127.5 million, compared to an inflow of £103.5 million last year, reflects our continued focus on cash

flow as a performance measure coupled with earlier than anticipated customer receipts, as well as the impact of the Type 31 loss.

There is some risk that favourable timing factors on cash receipts could reverse in the short term depending on the flow of new orders

and contract phasing.

• Net capital expenditure of £111.8 million increased £25.6 million, driven by a combination of continued investment across the

Group to support programme delivery and drive operational performance, and lower proceeds from asset disposals.

• Gross capex increased to £142.4 million (FY23: £125.1 million) driven by further investment in Devonport to support future growth

and ongoing upgrades to systems and controls across the Group, including the roll-out of SAP. We expect FY25 gross capital

expenditure to be in the range of £120million to £150 million.

• Proceeds from asset disposals reduced £8.3 million to £30.6 million despite a £20.1 million inflow on a property sale in Land in the

year, primarily due to lower aircraft sales in our Aviation business.

• Lease principal payments, representing the capital element of payments on lease obligations, reduced to £49.6 million (FY23:

£108.5 million) following the sale of the European AES business in FY23. This is reversed out below underlying free cash flow as the

payment reduces our lease liability (ie no effect on net debt).

29Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

OCF Interest Tax JV dividends Cash flows related to

specific adjusting items

FCFPension deficit

payments in excess

of income statement

323

(108)

(32)

(27)

(2)

160

£m

Financial review continued

Underlying free cash flow of £160.4 million compares to £75.3 million in the prior year, reflecting higher underlying operating cash

flow, lower pension contributions and lower net interest payments.

• Pension: A cash outflow in excess of the income statement charge of £107.6 million (FY23: £141.9 million) was higher than expected

due to acceleration of £35 million of contributions as part of a long-term funding deal agreed with Babcock International Group

Pension Fund (BIGPF). The higher outflow in FY23, which also included a £35 million accelerated pension payment, reflects the

decreasing contribution profile as deficits reduce. As a result of the agreed funding deals (see page 34), we expect future annual

pension deficit payments to reduce from around £65 million to around £40 million.

• Interest: Net interest paid, excluding that paid by JVs and associates, decreased to £32.2 million (FY23: £62.2 million) due to lower

net debt and higher interest earned on surplus cash, lower interest on leases and a reduced finance charge associated with the

financing of long-term French defence contract receivables.

• Taxation: Tax paid in the year was £27.4 million (FY23: £25.4 million). We expect cash tax paid in FY25 to be approximately

£35million.

• Dividends received from joint ventures and associates decreased to £7.1 million (FY23: £8.7 million). We expect dividends

fromJVs and associates to be slightly higher in FY25.

• Cash flows related to specific adjusting items: The £2.2 million cash flows relate mainly to the final costs of disposals provided

foras a specific adjusting item in the prior year.

Acquisitions and disposals

A £1.3 million outflow was due to final settlement of certain items in relation to the disposal of businesses in the prior year. An inflow

of£158.6 million in FY23 represents net proceeds from the disposal of the European AES business and the sale of the civil training

business, net of costs.

New lease arrangements

In addition to net capital expenditure, and not included in underlying free cash flow, £55.2 million (FY23: £117.0 million) of additional

lease liabilities were entered into in the period, significantly lower than FY23 following the sale of the European AES business in February

2023. These represent new lease obligations and so are included in net debt but do not involve any cash outflows at inception.

Underlying operating cash flow to free cash flow bridge

30 Babcock International Group PLC / Annual Report and Financial Statements 2024

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

31 March

2024

£m

31 March

2023

£m

Underlying operating cash flow 322.7 307.0

Add: net capital expenditure 111.8 86.2

Add: lease principal payments 49.6 108.5

Less: pension contributions in excess of income statement (107.6) (141.9)

Cash flows related to specific adjusting items (2.2) (10.9)

Cash generated from operations 374.3 348.9

Tax paid (27.4) (25.4)

Net interest paid (32.2) (62.2)

Net cash flows from operating activities 314.7 261.3

Statutory cash flow summary

31 March

2024

£m

31 March

2023

£m

Net cash flow from operating activities 314.7 261.3

Net cash flow from investing activities (100.6) 83.5

Net cash flow from financing activities (85.5) (666.1)

Net increase/(decrease) in cash, cash equivalents and bank overdrafts 128.6 (321.3)

Net cash flow from operating activities was £314.7 million, an increase of £53.4 million. The main drivers were higher Group

operating profit, lower net interest and pension deficit payments.

Net cash flow from investing activities was an outflow of £100.6 million (FY23: inflow of £83.5 million), reflecting continued capital

investment across the Group and lower proceeds from asset disposals. On a gross basis, capital expenditure increased to £142.4million

(FY23: £125.1 million). The FY23 inflow included £158.6 million of proceeds from disposals, primarily from the sale of the European

AESbusiness.

Net cash flow from financing activities was an outflow of £85.5 million (FY23: outflow of £666.1 million), including

£49.6 million lease payments (FY23: £108.5 million), £12.5 million purchase of own shares (FY23: £nil) and £13.1 million repayment

of debt (FY23: £556.2 million net repayment, primarily repayment of the €550 million Eurobond in October 2022).

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

31 March

2024

£m

31 March

2023

£m

Net increase/(decrease) in cash, cash equivalents and bank overdrafts 128.6 (321.3)

Cash flow from the (increase)/decrease in debt 25.3 629.6

Change in net funds resulting from cash flows 153.9 308.3

Additional lease obligations (55.2) (117.0)

New lease receivables granted 32.4 28.5

Debt held by disposed subsidiaries – 219.7

Other non-cash movements and changes in fair value (2.7) 57.9

Clarification of net debt definition – (36.1)

Foreign currency translation differences 0.6 (57.0)

Movement in net debt in the year 129.0 404.3

Opening net debt (564.4) (968.7)

Closing net debt (435.4) (564.4)

31Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

Net debt

Net debt at 31 March 2024 was £435.4 million, a reduction of £129.0 million driven primarily by underlying free cash flow, offset by

payment of the interim dividend reinstated in November 2023 and £12.5 million to purchase own shares for Babcock share schemes.

Net debt excluding leases was £210.9 million, representing a reduction of £135.3 million compared to the beginning of the year.

Balance sheet

31 March

2024

£m

31 March

2023

£m

Intangible assets 928.9 922.2

Property, plant and equipment and right of use assets 692.7 637.6

Investment in joint ventures and associates 59.7 57.4

Working capital (691.4) (565.8)

Provisions (158.2) (148.7)

Net retirement benefit deficits (109.7) (61.4)

Net tax assets 119.9 97.1

Net other financial assets and liabilities (0.4) (3.1)

Leases (224.5) (218.2)

Net debt excluding leases (210.9) (346.2)

Net assets 406.1 370.9

Property, plant and equipment (PP&E) and right of use assets was £693 million, an increase of £55 million. PP&E increased by

£39million to £517 million reflecting net capital expenditure of £(93) million less depreciation and currency adjustments. Right of

useassets increased £17 million to £176 million reflecting net new leases of £59 million less depreciation and currency adjustments.

Working capital was £(691) million, a decrease of £126 million. Net contract liabilities increased £131 million, driven by earlier than

anticipated customer receipts, as well as the impact of the Type 31 loss.

Net retirement benefit deficits were £(110) million, an increase of £48 million. The fair value of plan assets of £3,084 million

decreased £104 million, driven by negative asset returns less contributions. The present value of pension benefit obligations of

£3,194million decreased £55 million driven by modest changes in actuarial financial and demographic assumptions.

Funding and liquidity

As of 31 March 2024, the Group had access to a total of £1.6 billion of borrowings and facilities. These comprised:

• £775 million RCF, with £45 million maturing on 28 August 2025 and £730 million extended to 28 August 2026

• £300 million bond maturing on 5 October 2026

• €550 million bond, hedged at £493 million, maturing on 13 September 2027

• Two committed overdraft facilities totalling £100 million

At 31 March 2024, the Group’s net cash (cash and cash equivalents, less overdrafts) balance was £553 million. This, combined with

theundrawn amounts under our committed RCFs and overdraft facilities, gave us liquidity headroom of around £1.4 billion.

32 Babcock International Group PLC / Annual Report and Financial Statements 2024

Net debt to EBITDA (covenant basis)

While there are several facets to balance sheet strength, a primary measurement relevant to Babcock is the net debt/EBITDA gearing

ratio within our debt covenant of 3.5x. This measure is used in the covenant in our RCF facility and includes several adjustments from

reported net debt and EBITDA. The net debt/EBITDA gearing ratio (covenant basis) at 31 March 2024 reduced to 0.8x (FY23: 1.5x)

dueto strong underlying free cash flow and higher underlying operating profit.

31 March

2024

£m

Last 12 months

31 March

2023

£m

Last 12 months

Underlying operating profit 237.8 177.9

Depreciation and amortisation 67.3 84.9

Covenant adjustments

(6.3) (8.4)

EBITDA 298.8 254.4

JV and associate dividends 7.1 8.7

EBITDA + JV and associate dividends (covenant basis) 305.9 263.1

Net debt excluding lease liabilities (210.9) (346.2)

Covenant adjustments

(41.8) (49.3)

Net debt (covenant basis) (252.7) (395.5)

Net debt/EBITDA 0.8x 1.5x

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.

Interest cover (covenant basis)

This measure is also used in the covenant in our RCF facility, with a covenant level of 4.0x.

31 March

2024

£m

Last 12 months

31 March

2023

£m

Last 12 months

EBITDA + JV and associate dividends (covenant basis) 305.9 263.1

Net finance costs (34.1) (48.6)

Covenant adjustments

9.6 7.1

Net finance costs (covenant basis) (24.5) (41.5)

Interest cover 12.5x 6.3x

1. Various adjustments made to reflect accounting standards at the time of inception of the original RCF agreement, including lease and retirement benefit interest.

Return on invested capital, pre-tax (ROIC)

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

31 March

2024

£m

Last 12 months

31 March

2023

£m

Last 12 months

Underlying operating profit 237.8 177.9

Share of results of joint ventures and associates 9.2 9.3

Underlying operating profit plus share of JV PAT 247.0 187.2

Net debt excluding leases 210.9 346.2

Leases 224.5 218.2

Shareholder funds – see balance sheet on page 178 406.1 370.9

Retirement deficit/(surplus) – note 25 109.7 61.4

Invested capital 951.2 996.7

ROIC 26.0% 18.8%

33Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

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 2024, the IAS 19 valuation for accounting purposes was a net deficit of £109.7 million (FY23: a net deficit of £61.4million).

The increase in net accounting deficit is a result of a greater reduction in the fair value of plan assets (by £103.7million to £3,084.3

million, net of £250.8 million longevity swaps) than the reduction in present value of pension benefit obligations (by£55.4million

to£3,194.0 million). The reduction in fair value of plan assets was driven by negative net asset returns, partly offset byscheme

contributions. The reduction in pension benefit obligations was mainly a result of modest changes in actuarial financial and demographic

assumptions. The fair value of the assets and liabilities of the Group pension schemes at 31 March 2024 and the key assumptions used

in the IAS 19 valuation of our schemes are set out in note 25.

31 March

2024

£m

31 March

2023

£m

Fair value of plan assets (note 25) 3,084.3 3,188.0

Present value of benefit obligations (note 25) (3,194.0) (3,249.4)

Net (deficit) at 31 March (109.7) (61.4)

Income statement charge

The charge included within underlying operating profit in FY24 was £23.9 million (FY23: £32.6 million), of which £15.4 million (FY23:

£25.8 million) related to service costs and £8.5 million (FY23: £6.8 million) related to expenses. In addition to this, there was an

interest charge of £0.8 million (FY23: credit of £7.5 million).

Technical provision

An estimate of the aggregate actuarial deficits of the Group’s defined benefit pension schemes, including all longevity swap funding

gaps, calculated using each scheme’s technical provision basis, as at FY24 was approximately £200 million (FY23: c.£400 million).

Suchvaluations use discount rates based on UK gilts – which differs from the corporate bond approach of IAS 19. This technical

provision estimate reflects the discussions and agreements on assumptions with the Trustee of the Babcock Rail Section of the Railways

Pension Scheme with respect to the actuarial valuation as at 31 December 2022, and for the other schemes uses assumptions within

the latest agreed valuation prior to 31 March 2024.

Actuarial valuations are carried out every three years to determine the Group’s cash contributions to the schemes. The valuation dates

ofthe three largest schemes are set so that only one scheme is undertaking its valuation in any one year, to spread the financial impact

of market conditions. The valuation of the BIGPS as at 31 March 2022 was completed in the last financial year, the valuation of the

DRDPS as at 31 March 2023 has been agreed, and work has commenced on the valuation of the RRDPS at 31 March 2024.

There has been significant progress in reducing the risk of pension scheme deficits during the year. We made additional pension deficit

repair payments of £35 million. The BIGPS has around £985 million of pension liabilities (less than 30% of the total Group pension

liabilities) on an technical provision basis. The scheme has now reached self-sufficiency and is not expected to require further deficit

repair contributions from the company ahead of reaching either buy-in or buy-out, expected by FY29. The Scheme is also in the process

of closing to future service accruals.

In addition, the Company has now reached agreement with the Trustees of the DRDPS regarding a long-term funding plan and closure

of the scheme to future accrual as well as the most recent triennial valuation. The DRDPS has around £1,400 million of pension liabilities

on an technical provision basis (around 40% of total Group pension liabilities). As a result, we expect the total Group pension deficit

repair payments to reduce to around £40 million in FY25 (previously £65 million).

Cash contributions

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

31 March

2024

£m

31 March

2023

£m

Future service contributions 17.2 20.0

Deficit recovery 82.8 123.5

Longevity swap 15.2 15.6

Total cash contributions – employer 115.2 159.1

34 Babcock International Group PLC / Annual Report and Financial Statements 2024

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.

In 2021 the Group signed a new three-year Revolving Credit Facility (RCF) of £300 million, which expired in May 2024. This facility was

cancelled early by the Group in October 2023. The Group has an existing £775 million RCF, of which £45 million matures in August

2025, and the remaining £730 million matures in August 2026.

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 £1.6 billion of available committed facilities and bonds.

500

1000

1500

2000

FY24 FY25 FY26 FY27

Euro bond 2027

€550m

GBP bond 2026

£300m

RCF 2026

£775m

Debt maturity profile

(£m)

1. Chart shows notional value of the debt

2. £730m of £775m RCF extended to 2026, matures 28 August 2026

3. GBP bond 2026 £300m, matures 5 October 2026

4. Euro bond 2027 €550m, hedged at £493m, matures 13 September 2027

35Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

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 2024, the Group had 85% fixed rate debt (31 March 2023: 85%) and 15% floating rate debt (31 March 2023: 15%)

based on gross debt of £793 million (31 March 2023: £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 £3.0m million in the income statement for the year ending 31 March 2024 (31 March 2023:

£12.7 million loss).

36 Babcock International Group PLC / Annual Report and Financial Statements 2024

Segmental analysis

The Group reports its performance through four reporting sectors.

31 March 2024

Marine

£m

Nuclear

£m

Land

£m

Aviation

£m

Group

£m

Contract backlog 2,992.7 3,104.8 2,593.7 1,641.4 10,332.6

Revenue 1,429.1 1,520.9 1,098.6 341.5 4,390.1

Operating profit 11.0 109.2 96.1 25.3 241.6

Operating margin 0.8% 7.2% 8.7% 7.4% 5.5%

Underlying operating profit 13.1 109.2 96.3 19.2 237.8

Underlying operating margin 0.9% 7.2% 8.8% 5.6% 5.4%

31 March 2023

Marine

£m

Nuclear

£m

Land

£m

Aviation

£m

Total

£m

Contract backlog 2,580.7 2,453.8 2,809.8 1,633.0 9,477.3

Revenue 1,439.6 1,179.2 1,017.1 802.7 4,438.6

Operating profit 5.8 63.6 80.9 (104.8) 45.5

Operating profit margin 0.4% 5.4% 8.0% (13.1)% 1.0%

Underlying operating profit 12.7 63.5 85.9 15.8 177.9

Underlying operating margin 0.9% 5.4% 8.4% 2.0% 4.0%

37Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

Segmental analysis continued

FY24

Revenue

Marine

£m

Nuclear

£m

Land

£m

Aviation

£m

Group

£m

Revenue 1,429.1 1,520.9 1,098.6 341.5 4,390.1

Add: reversal of Type 31 revenue 66.3 – - – 66.3

Revenue excl. Type 31 loss 1,495.4 1,520.9 1,098.6 341.5 4,456.4

Underlying operating profit

Underlying operating profit (UOP) 13.1 109.2 96.3 19.2 237.8

Add: Type 31 loss 90.0 – – – 90.0

UOP excluding Type 31 loss 103.1 109.2 96.3 19.2 327.8

Less: non-trading credits – – (17.0) – (17.0)

UOP excl. Type 31 loss and non-trading credits 103.1 109.2 79.3 19.2 310.8

Underlying operating margin

Underlying operating margin (UOM) 0.9% 7.2% 8.8% 5.6% 5.4%

UOM excl. Type 31 loss and non-trading credits 6.9% 7.2% 7.2% 5.6% 7.0%

FY23

Revenue

Marine

£m

Nuclear

£m

Land

£m

Aviation

£m

Group

£m

Revenue 1,439.6 1,179.2 1,017.1 802.7 4,438.6

Less: Non-trading credits and disposals – – (46.7) (386.5) (433.2)

Revenue excluding non-trading credits and disposals 1,439.6 1,179.2 970.4 416.2 4,005.4

Add: reversal of Type 31 revenue 42.6 – – – 42.6

Revenue excl. non-trading credits, disposals and Type 31 loss 1,482.2 1,179.2 970.4 416.2 4,048.0

Underlying operating profit (£m)

Underlying operating profit (UOP) 12.7 63.5 85.9 15.8 177.9

Add: Type 31 loss 100.1 – – – 100.1

UOP excluding Type 31 loss 112.8 63.5 85.9 15.8 278.0

Less: non-trading (credits)/debits – – (13.8) 1.1 (12.7)

UOP excl. non-trading credits, disposals and Type 31 loss 112.8 63.5 72.1 16.9 265.3

Underlying operating margin

Underlying operating margin (UOM) 0.9% 5.4% 8.4% 2.0% 4.0%

UOM excl. non-trading credits, disposals and Type 31 loss 7.6% 5.4% 7.4% 4.1% 6.6%

38 Babcock International Group PLC / Annual Report and Financial Statements 2024

Financial glossary – Alternative Performance Measures (APMs)

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 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 im pact of foreign exchange (FX) and contribution from acquisitions and disposals over the year.

Purpose: A good indicator of business growth.

31 March

2024

£m

31 March

2023

£m

Prior year revenue 4,438.6 4,101.8

FX (76.1) 23.5

(Disposals) / acquisitions (421.6) (92.3)

Prior year revenue adjusted for FX and disposals (b) 3,940.9 4,033.0

Revenue growth (a) 449.2 405.6

Current year revenue 4,390.1 4,438.6

Organic revenue growth (a)/(b) 11% 10%

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 adjusted for 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

2024

£m

31 March

2023

£m

Contract backlog 10,333 9,477

39Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

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

2024

£m

31 March

2023

£m

Underlying operating profit 237.8 177.9

Specific adjusting items 3.8 (132.4)

Operating profit (note 2) 241.6 45.5

Specific adjusting items (note 2)

31 March

2024

£m

31 March

2023

£m

Amortisation of acquired intangibles (10.8) (15.8)

Business acquisition, merger and divestment related items (note 27) 8.2 (117.7)

Fair value movement on derivatives (note 2) 6.4 1.1

Specific adjusting items impacting operating profit/(loss) 3.8 (132.4)

Fair value movement on derivatives and related items 1.8 9.7

Specific adjusting items impacting profit/(loss) before tax 5.6 (122.7)

Income tax benefit/(expense)

Amortisation of acquired intangibles 3.9 4.1

Business acquisition, merger and divestment related items (1.0) (2.1)

Fair value movement on derivatives and related items (note 2) (2.0) (2.6)

Tax on Group reorganisation activities 4.7 –

Other tax items including rate change impact (0.6) (1.2)

Specific adjusting items impacting income tax benefit/(expense) 5.0 (1.8)

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

2024

£m

31 March

2023

£m

Revenue 4,390.1 4,438.6

Underlying operating profit 237.8 177.9

Underlying operating margin 5.4% 4.0%

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

2024

£m

31 March

2023

£m

Underlying net finance costs (35.9) (58.3)

Add: specific adjusting items impacting finance costs (note 2) 1.8 9.7

Net finance costs (note 5) (34.1) (48.6)

40 Babcock International Group PLC / Annual Report and Financial Statements 2024

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

2024

£m

31 March

2023

£m

Underlying profit before tax 211.1 128.9

Specific adjusting items impacting profit before tax (note 2) 5.6 (122.7)

Profit before tax 216.7 6.2

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 2024 Year ended 31 March 2023

Underlying

£m

Specific

adjusting items

£m

Statutory

£m

Underlying

£m

Specific

adjusting items

£m

Statutory

£m

Profit before tax (note 2) 211.1 5.6 216.7 128.9 (122.7) 6.2

Share of profit from joint ventures and associates*

(note 14) (10.3) – (10.3) (9.3) – (9.3)

Profit/(loss) before tax excluding profit from joint

ventures and associates (a) 200.8 5.6 206.4 119.6 (122.7) (3.1)

Income tax expense (b) (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)

Effective tax rate (b)/(a) 26.6% 23.5% 31.5% (1,274.2%)

* Share of profit from joint ventures and associates excludes an impairment of £1.1 million, see note 14.

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 2024 Year ended 31 March 2023

Underlying

£m

Specific

adjusting items

£m

Statutory

£m

Underlying

£m

Specific

adjusting items

£m

Statutory

£m

Profit/(loss) before tax (note 2) 211.1 5.6 216.7 128.9 (122.7) 6.2

Income tax (expense)/benefit (note 2) (53.5) 5.0 (48.5) (37.7) (1.8) (39.5)

Profit/(loss) after tax for the year 157.6 10.6 168.2 91.2 (124.5) (33.3)

Amount attributable to owners of the parent 155.1 10.6 165.7 89.5 (124.5) (35.0)

Amount attributable to non-controlling interests 2.5 – 2.5 1.7 – 1.7

Weighted average number of shares (m) 503.5 503.5 505.4 505.4

Effect of dilutive securities (m) 11.8 11.8 9.5 9.5

Diluted weighted average number of shares (m) 515.3 515.3 514.9 514.9

Basic EPS (note 9) 30.8p 32.9p 17.7p (6.9)p

Diluted EPS (note 9) 30.1p 32.2p 17.4p (6.9)p

41Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Financial review continued

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

2024

£m

31 March

2023

£m

Cash and bank balances 570.6 451.7

Bank overdrafts (18.0) (22.2)

Cash, cash equivalents and bank overdrafts 552.6 429.5

Debt (749.5) (765.8)

Derivatives hedging debt (11.1) (8.3)

Lease liabilities (230.5) (228.8)

Liabilities from financing arrangements (991.1) (1,002.9)

Lease receivables 35.5 38.6

Loans to joint ventures and associates 3.9 9.5

Derivatives hedging interest on debt (36.3) (39.1)

Net debt (435.4) (564.4)

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

2024

£m

31 March

2023

£m

Net debt (435.4) (564.4)

Leases 224.5 218.2

Net debt (excluding leases) (210.9) (346.2)

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 39, excluding depreciation and amortisation

and including certain covenant adjustments) plus JV and associate dividends. See page 33.

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).

Interest cover (covenant basis)

Closest equivalent IFRS measure: No direct equivalent

Definition: EBITDA (on a covenant basis), divided by net finance costs and various covenant adjustments made to reflect accounting

standards at the time of inception of the RCF agreement, including lease and retirement benefit interest. See page 33.

Purpose: Used in the covenant over our RCF facility with a covenant ratio of 4.0x.

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 33.

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.

42 Babcock International Group PLC / Annual Report and Financial Statements 2024

Net capital expenditure

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

Definition: Property, plant and equipment and intangible additions less proceeds on disposal of property, plant and equipment

andintangible assets.

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

31 March

2024

£m

31 March

2023

£m

Purchases of property, plant and equipment (PP&E) (note 12) (107.6) (109.9)

Purchases of intangible assets (note 11) (33.3) (21.5)

Movements in unpaid capital expenditure (1.5) 6.3

Gross capital expenditure (142.4) (125.1)

Proceeds on disposal of PP&E and intangible assets (statement of cash flows) 30.6 38.9

Net capital expenditure (111.8) (86.2)

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 28.

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

31 March 2024

£m

31 March 2023

£m

Underlying operating cash flow 322.7 307.0

Add: net capex 111.8 86.2

Add: capital element of lease payments 49.6 108.5

Less: pension contributions in excess of income statement (107.6) (141.9)

Non-operating cash items (excluded from underlying cash flow) (2.2) (10.9)

Cash generated from operations 374.3 348.9

Tax (paid)/received (27.4) (25.4)

Less: net interest paid (32.2) (62.2)

Net cash flow from operating activities 314.7 261.3

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

2024

£m

31 March

2023

£m

Underlying operating profit 237.8 177.9

Underlying operating cash flow 322.7 307.0

Operating cash conversion 135.7% 172.6%

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 28.

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

43Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Marine

Our c.7,200 employees design, develop, manufacture and integrate specialist systems,

and deliver technical through-life support for complex platforms in the marine sector.

Around 80% of Marine’s revenue is derived from defence, with the remainder primarily

comprising our Liquid Gas Equipment (LGE) business.

Marine

Marine – at a glance

Defence UK Defence International Civil UK Civil International

Revenue

£1.4bn

% of Group revenue

32%

Contract backlog

£3.0bn

Number of employees

7,200

Operational highlights

• Type 31: HMS Venturer (ship 1) superstructure almost

complete, HMS Active (ship 2) keel laid, and HMS

Formidable (ship 3) steel cut due 2024. Programme

restructured following a detailed operational review

• Three Arrowhead 140 licences delivered and keel laid

onfirst MIECZNIK-Class frigate for the Polish Navy

• Selected by Saab to support the design of the Swedish

Navy’s Surface Combatant, Luleå Class. Initial

contractawarded

• Achieved Operation Service Commencement of the

Skynet Service Delivery Wrap space communications

contract

• Ukraine Mine Counter Measure Vessel (MCMV) upgrade

and support contract fully operational

• Achieved Operative Date for the Australian Regional

Maintenance Provider (RMP) West contract

FY24 revenue

“Offering best-of-class technology and

leveraging all our support capability is a really

key theme for us continuing forward.”

Paul Armstrong

Chief Executive, Marine

15%

31%

53%

See what we do in Marine and watch Paul talk about

the Sector at our recent Capital Markets Day at our

recent Capital Markets Day

44 Babcock International Group PLC / Annual Report and Financial Statements 2024

• In-service support to

every UK class of warship

• Deep maintenance support

to 50% of UK surface

warships

• Through-life capability

partner for all UK naval guns

• Using digital twin data

to improve operational

support solutions

• Technical Babcock

personnel deployed

internationally

• Market-leading adaptable

naval designs for through-

life affordability

• Delivering innovative and

complex naval systems and

equipment using advanced

manufacturing capabilities

• Leader in marine LGE

systems

• Leading Five Eyes provider

of secure defence

communications

• Delivering multi-Original

Equipment Manufacturer

(OEM) solutions which offer

better availability,

affordability and capability

• Unique ability to

collaborate with a range of

international OEM partners

• Clear focus on customer

need, based on intimacy

and operational asset

knowledge

What differentiates us

• Long-term warship support

partner to the UK, Canada,

Australia and New Zealand

• Working in alliances

with our customers in joint

support teams

across the same sites

• Developing additional

international long-term

partnerships

‘Best in class’ integration

capability

Operational asset

understanding

Product development

and systems expertise

Customer

intimacy

Financial review

31 March 2024

£m

31 March 2023

£m

Contract backlog* 2,992.7 2,580.7

Revenue 1,429.1 1,439.6

Underlying operating profit* 13.1 12.7

Underlying operating margin* 0.9% 0.9%

* Alternative Performance Measures are defined in the Financial Glossary

on page 39.

Revenue decreased by 1% to £1,429.1 million which primarily

related to FX translation. Growth from our Arrowhead 140

programmes, including the Polish MIECZNIK frigate programme,

and increased activity on Dreadnought systems, was offset by

lower volumes in warship support and LGE.

Underlying operating profit of £13.1 million (FY23 £12.7 million),

representing an underlying operating margin of 0.9% (FY23: 0.9%),

was impacted by a £90.0 million loss on the Type 31 contract

(FY23: £100.1 million loss) (see below).

Excluding the Type 31 loss, underlying operating profit decreased

by 9% to £103.1 million with the positive contribution from

licence fees on the Polish Arrowhead 140 programme more than

offset by lower activity in warship support and the LGE business,

aswell as lower profitability in Mission Systems, primarily due

tocontract timing and therefore expected to recover.

Type 31: As set out in the CEO review on page 9 and the Financial

Review on page 26, we have fully reviewed the Type 31 programme

during the year, including resolving the Dispute Resolution Process.

Over the year, overall costs have increased due to the maturing

ofthe design and the increase in costs of labour in the market

available in Rosyth, which is forecast to be higher than CPI, the

indexation contained within the Type 31 contract. As a result,

theoutturn over the life of the contract has deteriorated by

£90.0 million, which has been fully recognised inFY24. The cash

impact of this loss is expected to be realised over the remainder

of the contract.

Contract backlog increased 16% in the year to £2,993 million

(FY23: £2,581 million), driven by a two-year extension to the

Canadian Victoria Class submarine support contract, strong liquid

gas equipment orders and service expansion of the UK MOD’s

Skynet satellite communications support contract, offsetting

revenue traded on long-term contracts.

45Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

UK, Australian and

New Zealand warship through-life

support and LIFEX

Delivering at every step in the asset lifecycle

Affordable improvements in capability and availability

1st commission Customer intimacy 2nd commission

Deep maintenance

capability upgrades

Marine continued

In focus

Operational review

Defence

UK defence

We continue to deliver the Type 31 frigate programme, with the

superstructure of HMS Venturer almost complete. Work on the second

ship, HMS Active, is progressing, with the keel laid and first double

bottom blocks in the build cradle. In March 2024, we announced

theintention to create more than 1,000 new jobs over the next

fouryears at our advanced manufacturing and shipbuilding facility

inRosyth. These new roles, which include 400 apprenticeships,

willbenefit the UK economy and local community.

Following award of the 10-year warship support contract for the UK

Royal Navy’s QEC aircraft carriers, HMS Prince of Wales departed our

Rosyth dockyard in July 2023 following a docking period to repair

shaft lines, as well as undertaking planned activities on other

underwater equipment and systems. We also welcomed HMS Queen

Elizabeth back to Rosyth in March 2024 for docking, repairs and

planned maintenance.

At Devonport, the Type 23 frigate life-extension (LIFEX) programme

continues, with HMS Iron Duke achieving Ready for Sea and HMS

Argyll achieving her undocking ahead of schedule. HMS Argyll is the

first Type 23 to undergo a post-LIFEX upkeep under Project RENOWN,

designed to reduce the amount of time spent in dock. Also in the

period, we completed repairs and docking activity on HMS Somerset,

and commenced the use of new hull and structure survey technology

on HMS Richmond.

We continue to prepare for the arrival of the first Type 26 frigate,

establishing the first remote office at BAE’s Scotstoun shipyard to

support the transition of the Type 26 Class to in-service support,

withthe new fleet of frigates base-ported at HMNB Devonport.

We were awarded two new five-year contracts by the UK Ministry

ofDefence (MOD) to continue providing in-service support for the

Royal Navy’s Ships Protective System (SPS) equipment.

The US-UK common missile compartment tube assembly programme

continues for the US Columbia submarine programme, with further

assemblies being delivered in support of the UK’s Dreadnought

programme. We have a market leading position in submarine missile

tube assembly, underpinned by our deployment of advanced

manufacturing technology.

Babcock is now on contract to deliver major systems modules for

allfour Dreadnought Class submarines, with a contract uplift for the

remaining boats. During the period, we demonstrated our new

complex weapons stowage equipment which will also be installed on

the Dreadnought Class.

We were awarded a three-year contract to continue providing critical

support to the Royal Navy’s Phalanx Close-In Weapon System (CIWS),

arapid-fire, computer-controlled, radar-guided gun that can defeat

anti-ship missiles and other close-in threats. The system is installed

onmultiple Royal Navy platforms, including the Queen Elizabeth Class

aircraft carriers.

We achieved the Critical Design Review in the delivery of the UK Royal

Navy’s next-generation Maritime Electronic Warfare Systems Integrated

Capability (MEWSIC) to install cutting edge radar electronic support

and electronic warfare command and control capabilities across the

new Type 31 and Type 26 frigates, Type 45 air-defence destroyers

and QEC aircraft carriers.

Babcock has also been awarded a configuration management

contract for the Royal Navy and the Royal Fleet Auxiliary surface ship

fleet. The five-year contract will see us continue to operate the Master

Record Data Centre, through which the configuration data and

information of all surface ships will be managed.

Following a successful mobilisation and seamless transition, Babcock

and its partners took over the operation of SKYNET, the UK’s military

satellite communications capability. The six-year service delivery wrap

contract includes the management of the UK military satellite fleet

and ground infrastructure for this 24/7 critical capability. When

combined with our existing Defence Strategic Radio Service (DSRS)

contract to deliver the MOD’s secure High Frequency communications

capability, Babcock now has a leading position delivering the UK

Armed Force’s critical communications in both a satcom and

satcom-denied environment.

International defence

In Australasia, our contract to sustain the Royal Australian Navy

(RAN) ANZAC frigate fleet, in alliance with BAE and Saab Australia,

is due to phase into the new RAN Maritime Sustainment Model at

the end of 2026. Babcock has completed the first maintenance

periods on the replacement contract, Regional Maintenance

Provider (RMP) – West, which will provide support for all RAN

major surface ships located in Western Australia for the next five

46 Babcock International Group PLC / Annual Report and Financial Statements 2024

Modular, adaptable

general purpose frigate,

designed for availability

Delivering at every step in the asset lifecycle

3rd commission

Disposal/

second owners

LIFEX

Replacement

years. We were unsuccessful in our tender to deliver the

replacement contract, RMP – East capability, however a sub-

contract to transition our support from the RAN’s flagship

LHDamphibious platforms to the new sustainment model

hasbeen secured.

We agreed a new Capability Partnering Arrangement for

sustainment of Australia’s Collins Class submarines which will see

us support existing operational requirements and seek to extend

the life of the Babcock managed systems. We continue to deliver

the Maritime Fleet Sustainment Services contract which supports

the entire New Zealand navy fleet, including the operation of

themain naval base infrastructure in Auckland.

In Canada, we continue to deliver the Victoria Class in-service

submarine support (VISSC), which was extended to 2027, and

arecurrently working on HMCS Victoria’s extended docking work

period. Milestones through the year include completion of over

800 hull and system surveys, removal of the diesel generators

– afirst-in-class evolution – and the commencement of major

structural repairs, a large and complex work package to maintain

the availability of the ageing platform.

We also signed Technical Cooperation Agreements with Hanwha

Ocean and HD Hyundai Heavy Industries and have had ongoing

engagements with other submarine OEMs. These activities

position Babcock to be an integral partner in the Canadian Patrol

Submarine Project, which will succeed the current Victoria Class

inthe mid-to-late 2030s.

In Poland, we finalised the design licence agreement with

theMIECZNIK consortium for the build of three Arrowhead

140frigates for the Polish Navy. The steel-cut for ship one was

held at the Gdynia shipyard in August 2023.

In Sweden, we were selected by Saab as their programme

partner to support their work on the Swedish Navy’s next

generation Luleå Class naval corvette programme. Under the

initial contract, Babcock will provide front-end engineering

andprogramme management for design.

In Indonesia, our customer PT PAL laid the keel for the first

oftwofrigates, based on our Arrowhead 140 design.

In Ukraine, we completed the regeneration of UK Sandown

ClassMine Counter Measure Vessels (MCMVs) at our Rosyth

facility. The Royal Navy provided two of the vessels to the Navy

ofUkraine who awarded Babcock a three-year contract to

maintain and support the two minehunters. A further two MCMVs

have been sold to the Romanian Navy with Babcock providing

refurbishment support.

In South Korea, we are delivering systems for Boat 4 of the

Jangbogo-III Class submarine programme. Additionally, we have

been awarded a seven-year contract to manufacture and install

the weapons handling and launch system for Boat 6 of the

programme. Babcock is working with the Republic of Korea Navy

and Hanwha Ocean to develop an in-service support strategy

forthe Class.

Civil

Our LGE business marked another year of significant achievements

with record order intake of over £300 million. We have cemented

our significant market share, winning new orders from existing

and new customers and delivery of 50 projects in South East Asia.

With increasing utilisation of hydrogen as a sustainable fuel and

with broad application across several sectors, our ecoVLAC®

technology is well positioned for growth, and we have secured

sixcontracts for design and build of Cargo Handling Systems for

VeryLarge Ammonia Carriers (VLAC). Additionally, we launched

ecoFGSS-FLEX® technology for the use of Ammonia as a ship main

engine fuel.

At our Rosyth facility we welcomed two of the UK’s fleet of

scientific research vessels for planned maintenance. RRS Discovery

and RRS Sir David Attenborough spent a total of 16 weeks at

Rosyth undergoing through-life support and will return to Rosyth

in 2024. We also converted a former UK Royal Navy patrol ship

into a medical vessel for Vine Trust at Portsmouth, an international

volunteering charity supporting some of the most isolated

communities in Tanzania and Peru.

47Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Defence UK Civil UK

Nuclear

Our c.8,600 employees provide complex through-life engineering support to

theentirety of the UK’s nuclear submarine fleet, 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.

Nuclear – at a glance

Operational highlights

• Commenced c.£560 million HMS Victorious Deep

Maintenance Programme (DMP) – one of the

UK’sVanguard Class nuclear submarines

• Returned HMS Vanguard to Royal Navy after her

DeepMaintenace Period (DMP) and Life Extension

Programme (LIFEX)

• Awarded £750 million infrastructure contract

inpreparation for Astute Class DMP

• Awarded new contracts in support of the UK’s

Dreadnought and SSN-AUKUS submarine development

programmes

• X-energy and Cavendish Nuclear selected for UK

Government’s Future Nuclear Enabling Fund (FNEF)

FY24 revenue

Nuclear

Revenue

£1.5bn

% of Group revenue

35%

Contract backlog

£3.1bn

Number of employees

c.8,600

12%

88%

“In the nuclear sector we have a fantastic

opportunity to play a key part in the UK’s

national recommitment to nuclear power

in both the civil and the defence market.”

Harry Holt

Chief Executive, Nuclear

See what we do in Nuclear and watch Harry talk

about the Sector at our recent Capital Markets Day

48 Babcock International Group PLC / Annual Report and Financial Statements 2024

• Long-term UK MOD

submarine support partner

• Strong nuclear regulator

relationships

• Growing international

portfolio and partnerships

eg HII

• Support to every class

of UK nuclear submarine

• Deploying innovative

technology at AWE fissile

production facilities

• OEM for fuel route and

primary control systems

for EDF-Energy UK fleet

• AUKUS SSN-A platform

design for maximum

support efficiency

• UK’s largest nuclear

workforce for civil and

defence at c.8,600

• Prime partner for Nuclear

Skills Taskforce

• Babcock Skills Academy

totrain 10,000 people

innext five years

• Leveraging digital asset

data to improve

engineering decisions

• Own and operate highly

regulated nuclear sites

atDevonport and Rosyth

• Management of critical

national infrastructure

atDevonport, Faslane

andRosyth Naval Bases

What differentiates us

Unique

infrastructure

Operational asset

understanding

Engineering

know-how

Customer

Financial review

31 March 2024

£m

31 March 2023

£m

Contract backlog* 3,104.8 2,453.8

Revenue 1,520.9 1,179.2

Underlying operating profit* 109.2 63.5

Underlying operating margin* 7.2% 5.4%

* Alternative Performance Measures are defined in the Financial Glossary

onpage 39

Revenue increased by 29% to £1,520.9 million, driven by strong

growth in Major Infrastructure Programme (MIP) revenue,

increased Future Maritime Support Programme (FMSP) submarine

support activity and new contracts in our civil nuclear business.

MIP revenue increased to £459 million (FY23: £267 million).

Underlying operating profit increased by 72% to £109.2 million

driven by the revenue growth above and non-recurrence of

a£16million loss on a FY23 programme, which has now

completed. As a result, underlying operating margin improved

180 basis points to 7.2%.

Contract backlog increased 27% in the year to £3,105 million

(FY23: £2,454 million), driven primarily by the £750 million

MIPcontract to modernise 10 Dock at our Devonport facility.

49Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Nuclear continued

Estimated total contract value

c.£560m

Strip and replace

90% of internals

>42,000

engineering tasks

Optimised

working patterns

Innovative welding

techniques

HMS Victorious deep maintenance programme

Engineering

know-how

Deep understanding

of assets

Operational review

Defence

UK Defence

The UK is going through a phase of class transition for nuclear

submarines. Astute Class submarines are currently replacing the

Trafalgar Class and the future Dreadnought Class will replace the

Vanguard Class. We continue to make progress in meeting the

current and future requirements of the UK MOD and Royal Navy

and are working closely with them to jointly develop long-term

strategies for people, infrastructure and transformation.

We are delivering substantial upgrades to existing critical

infrastructure at Devonport to support the UK’s future capability

through a Major Infrastructure Programme (MIP). Following the

award of the manufacturing phase contract, the programme to

upgrade 10 Dock has entered the formal construction phase,

which will deliver a new dock, berth, logistics and production

support facilities, primarily for the Astute Class. We are also

undertaking the refurbishment of 9 Dock, currently used for the

Vanguard Class, the most significant work carried out on the dock

for over 20 years, and 15 Dock.

Deep maintenance and life-extension of the second of the UK’s

Vanguard Class nuclear submarines, HMS Victorious, are underway

at Babcock’s facility at Devonport following an agreed full cost

recovery contract worth an estimated £560 million with the

Submarine Delivery Agency (SDA). This follows the completion

in-year of HMS Vanguard’s deep maintenance period, the most

complex submarine maintenance and life-extension programme

that has ever been delivered within the enterprise. The first Astute

Class submarine has also been received in Devonport and is

currently undergoing surveys and work ahead of an in-dock base

maintenance programme (BMP). At HMNB Clyde, we continue to

deliver a strong performance on submarine maintenance periods

against a backdrop of increasing operational demands.

We were awarded a five-year contract to provide input into the

detailed design for the new Ship Submersible Nuclear AUKUS

(SSNA) submarines which will replace the Astute Class from

thelate 2030s and will be the future SSN design for the Royal

Australian Navy. We also agreed with the SDA a 12-month

extension to our Interim Support to the AUKUS Contract to

provide consultancy support to the UK and Australian

Governments in acquiring, operating, and maintaining nuclear

powered submarines for the Royal Australian Navy.

Babcock was awarded a further contract to support the UK’s new

Dreadnought Class submarines, providing input into the

development of the support solution, with a focus on engineering

best practice and submarine maintenance to enable improved

in-service availability. We continue to deliver good performance

and ongoing improvements against our FMSP contract.

We are supporting the SDA on the Submarine Dismantling Project,

working towards the full dismantling of the ex-HMS Swiftsure,

which will be a UK first. The decision has been made to undertake

the full vessel recycling at Rosyth. We are engaging to shape the

future Submarine Disposal Capability programme with the SDA.

Work continues to deliver the Process, Plant and Equipment

(PP&E)contract for AWE Aldermaston, with Babcock leading the

design, installation and commissioning of complex plant and

equipment engineering.

We have taken a leading role to support the UK’s Nuclear Skills

Task Force, following the recent announcement by the UK Prime

Minister of a funded skills plan. We continue to lead on the

collaborative work to deliver critically needed skills across the

Babcock Nuclear enterprise, developing on the Babcock Skills

Academy offering, significantly increasing our early careers intake,

upskilling the Babcock workforce and targeting mid-career

switchers through our engagement in Destination Nuclear, the

first national communications campaign targeting recruitment

into the industry.

In focus

50 Babcock International Group PLC / Annual Report and Financial Statements 2024

Significant capability

upgrades

15+

Deliver 15+ more years of service

Major upgrade

to 9 dock nuclear

facilities

HMS Victorious deep maintenance programme

• Contracting differently

• Innovative technologies

• Improved productivity

• Developing our people:

• Nuclear Skills Taskforce

• Babcock Academy

Customer intimacy

Infrastructure

International defence

Babcock and HII have combined forces in Australia to work

together to support the critical capabilities required to deliver

theAUKUS programme, collaborating to develop the optimal

models for nuclear-powered submarine capability, including

infrastructure, sustainment, and the necessary skills development.

We have signed an MoU with Bechtel Australia to identify

opportunities to leverage complementary expertise to establish

and support Australia’s conventionally armed nuclear-powered

submarine programme (AUKUS). Babcock Australasia has also

joined forces with HII, the University of Adelaide, Curtin University

and the University of NSW to form the AUKUS Workforce Alliance.

Civil

UK civil nuclear

We continue to support Sellafield with their decommissioning

programme and have been short-listed for the Invitation to

Tender phase for two key Lots of the 15-year Decommissioning

and Nuclear Waste Partners programme.

We have diversified our customer portfolio in the UK, securing

work with both Westinghouse and Urenco, supporting the

Government’s focus on security and front-end fuel cycle.

Thereprocessed uranium front end conversion project for

Westinghouse will design and build a facility to process uranium

to enable its future enrichment and use as a nuclear fuel, while

the tails management facility project for Urenco will convert

depleted uranium hexafluoride to the lower hazard uranium

oxidematerial for long term storage. At Magnox we have

mobilised the Hinkley Point A Vault Retrievals Phase 2 contract

toprovide the design and delivery of an automated solution to

safely retrieve, process and package waste from the site’s vaults,

ready for safe storage.

Cavendish Nuclear and X-energy welcomed a funding award

fromthe UK Government’s Future Nuclear Enabling Fund to

further develop Advanced Modular Reactors (AMRs) in the UK.

TheGovernment’s award of £3.4 million will be matched

byX-energy for a total programme of £6.8 million. The funds

willbeused to develop UK-specific deployment plans including

anassessment ofdomestic manufacturing and supply chain

opportunities, constructability, modularisation studies, and

spentfuel management.

In addition to AMRs, we continue to support Rolls Royce and

GE-Hitachi, two of the six Small Modular Reactor (SMR) vendors

whose designs have recently advanced to the next phase of the

UK’s SMR competition. We continue to support EDF with Large

Gigawatt Reactor delivery at Hinkley Point C and Sizewell C

through the MEH Alliance, an unincorporated JV.

International civil nuclear

In Japan, work is now underway to deliver a 10-year contract with

Japan Atomic Energy Agency (JAEA), providing specialist capability

in support of decommissioning and sodium treatment of the

Monju Prototype Fast Reactor in Fukui Prefecture, Japan.

In the US we are continuing to position for other major Tier 1

clean-up opportunities, on the back of the successful award last

year of the Portsmouth Gaseous Diffusion Plant Decontamination

and Decommissioning Contract with our joint venture partners.

Investment in Babcock

Skills Academy

51Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Land

Our c.6,400 employees provide essential services to our customers through three core

capabilities, Build, Support and Train. We do this through management, through-life

engineering support and build, engineering 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.

Land

Land – at a glance

Defence UK Defence International Civil UK Civil International

Revenue

£1.1bn

% of Group revenue

25%

Contract backlog

£2.6bn

Number of employees

6,400

Operational highlights

• DSG contract extension under negotiation

• Launched GLV for the upcoming MOD tender to

replace the legacy Army Land Rover fleet; actively

exploring export opportunities

• Officially launched production of the High Mobility

Transporter Jackal 3 for the British Army, with Supacat

• Signed collaboration agreement with Singapore

Technology Engineering for UK mortar systems

• Awarded second ground and equipment support

contract for the French Navy, Army and Air Force

• Awarded contract expansion to support UK gifted

in-kind platforms to Ukraine

• Secured REME Apprenticeships contract to 2029

• Won ARMCEN support contract for armoured vehicle

technical training for British Army

FY24 revenue

“The Land business today is refocused and

upgraded and the macro environment is

generating demand for our services. The

world needs us more than ever before.”

Tom Newman

Chief Executive, Land

24%

10%

34%

32%

See what we do in Land and watch Tom talk about

the Sector at our recent Capital Markets Day

52 Babcock International Group PLC / Annual Report and Financial Statements 2024

• Deep expertise in operational

support

• UK civilian armoured vehicle market

leader

• Customer intimacy drives better

product solutions

• Archer Artillery Alliance (BAE,

Babcock, RBSL)

• Integrated with British Army

equipment support and planning

• Market data leadership through

Palantir collaboration

• Leading industry in deployment

of advanced manufacturing

• Largest training supplier to

British Army

• 20+ years of delivering critical

mission training to reference

customers

• R&D on human performance

in high-pressure environments

What differentiates us

Build Support

Train

Financial review

31 March 2024

£m

31 March 2023

£m

Contract backlog* 2,593.7 2,809.8

Revenue 1,098.6 1,017.1

Underlying operating profit* 96.3 85.9

Underlying operating margin* 8.8% 8.4%

* Alternative Performance Measures are defined in the Financial Glossary

onpage 39

Revenue increased 8% to £1,098.6 million (FY23: £1,017.1

million) with organic growth of 17% offset by a 5% FX translation

headwind due to the weakening of the South African Rand

againstthe Pound Sterling and the impact of the disposal

oftheCivil Training business in FY23. Strong organic growth

wasacross ourmilitary activities including equipment support

andtraining for our UK and international customers, ramp up

ofvehicle engineering contracts and the Australian Defence

HighFrequency Communication (DHFC) system contract,

andcontinued growth inour South African business, driven

bydemand for mining equipment.

Underlying operating profit increased 12% to £96.3 million,

including a £17.0 million profit on freehold property disposal.

FY23 included an £11.6 million one-off accounting credit. The

increase was also driven by revenue growth outlined above and

improved performance across a number of our Land contracts,

including the legacy DSG contract as it approaches its final

delivery year. Performance in our South African business was in

line with FY23, which benefitted from the close out of the Eskom

contract. Underlying margin improved 40 basis points to 8.8%

(FY23: 8.4%), including a 1.5% impact (FY23: 1.0%) from the

one-off items described above.

Contract backlog decreased 8% to £2,594 million (FY23: £2,810

million) due to revenue traded on long-term contracts and the

end of the Metropolitan Police Support contract in FY24.

53Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

High potential military product business

Land continued

From civilian armoured vehicle

conversion to the design, build

and through-life upgrade of

militarised mobility vehicles

• Harnessing reliable commercial/

military off-the-shelf platforms

• Support expertise influences design

• Sustainable vehicle technologies

• Freeport facility created to support

Land Industrial Strategy

In focus

Babcock General

Logistics Vehicle

Civilian armoured

vehicle (LC300)

Operational review

Defence

UK Defence

We delivered a strong performance in our defence equipment

business. We provided critical support to prepare, repair and

regenerate the Army’s fleet for the Steadfast Defender exercise,

the largest NATO exercise since the Cold War. Following notification

by our UK MOD customer of its intention to exercise up to five

option years for DSG from FY25/26, we have commenced

aperiod of negotiation and transition as we move through the

approvals process to contract signature. The transition activity

willresult in better outcomes for all stakeholders throughout

therest of the decade.

Babcock’s steadfast commitment to providing critical support

toUkraine’s military operations continues, providing training of

personnel and the refurbishment and regeneration of equipment

for Ukraine’s Armed Forces through our Project HECTOR contract

with the MOD. Having been awarded a contract in June 2023

tosupport the UK’s gifted platforms to Ukraine, we achieved

fulloperational capability and contract expansion in the period.

InMay 2024, we announced work was underway on an in-country

facility to deliver engineering support, including the repair and

overhaul of military vehicles, to be delivered in partnership with

UDI, Ukraine’s state-owned defence industry.

Our ambition to develop a portfolio of product-based offerings

remains on track. In February, in collaboration with Supacat, we

launched the production of 70 High Mobility Transporters (HMT

400 series) Jackal 3 for the British Army. Production will be

undertaken at our new facility within the free port of Devonport.

We launched the Babcock General Logistics Vehicle in September

2023, with a focus on the upcoming MOD tender to replace the

legacy Army Land Rover fleet and are pursuing other international

opportunities. In June 2025, we launched a medium wheelbase

variant and expect to add six-wheel drive variant in FY26.

Babcock remains the principal supplier of Toyota LC300 Civilian

Armoured Vehicles to UK government agencies and we celebrated

the successful conversion of the 50th vehicle in August 2023.

We signed a collaboration agreement with Singapore Technology

Engineering for the manufacture of 120 mm mortar systems in

the UK. Our Advanced Manufacturing Business continues to make

significant developments in tackling supply chain problems

caused by obsolete parts. We co-chair the defence accelerator

programme which seeks to increase the availability of defence

materiel. Babcock has also successfully converted 25% of the MOD’s

white fleet to electric vehicles. The programme is creating greater

fuel efficiencies and supporting the MODs sustainability goals.

Our Defence Training business performed well in the period,

securing a number of key contracts including the Armour Support

Contract, an extension to our contract to provide driver training

and a further contract to support REME Apprenticeships to August

2029. We have been awarded a three-year contract, supporting

Mabway, for the provision of support for the design, preparation

and delivery of military training exercises, which will replace

ourcurrent Hannibal contract. Our bid to become the Strategic

Training Partner for the Army Collective Training System (ACTS)

has progressed to the Invitation to Tender stage and we continue

to have positive engagements with the customer as part of the

bid process.

We continue to develop leading edge capabilities. Most notably

we were recently able to announce an Enterprise Agreement with

Palantir Technologies UK to strengthen our integrated planning

function by enhancing our digital capabilities across the Sector.

Working with Palantir and investing in our own data science

anddata engineering capabilities, we are on a journey of better

cohering, understanding and modelling thousands of data-points

relating to both critical and complex assets and their value chains.

The relationship also extends to the synthesis of performance

andbehavioural data relating to individual and collective training

tooptimise learning and enhance training outcomes.

International defence

In France, we have successfully completed the transition of the

ground support equipment contract awarded last year. Babcock

has also been awarded a new seven-year contract to provide

in-service support to airfield ground support equipment

throughout France’s mainland and overseas military bases. This

isBabcock’s second significant Land Sector contract in France.

54 Babcock International Group PLC / Annual Report and Financial Statements 2024

High potential military product business

Land Mobility

pipeline

Significant export

opportunities

Strong UK

Government support

through Land

Industrial Strategy

High Mobility

Transporter (Jackal 3)

In Australasia, we continue to mature design of the new Defence

Australian High Frequency Communications System through the

JP9101 programme. We also signed a three-year contract

extension to provide the Australian Department of Defence with

streamlining sustainment and acquisition processes for Counter–

Chemical Biological Radiological, Nuclear and Explosive (C-CBRNE)

capability using our industry-leading asset management systems.

We continue to work closely with the New Zealand Ministry of

Defence on the Fixed High Frequency Radio Refresh programme.

We continue to be in an active process with the Australian Defence

Force (ADF) for a first generation contract for sustainment

management services for Land equipment. We aredeveloping

solutions to export leading capabilities from the UK to streamline

existing support provision, and enhance fleet management,

inventory management, engineering and technical management,

procurement management, and support to ADF Operations.

In Canada, we signed a Memorandum of Understanding

withRoshel to collaboratively explore opportunities to support

theCanadian Armed Force’s land requirements, providing

innovative solutions through the combination of our global

assetmanagement expertise and Roshel’s specialist vehicle

manufacturing. This relationship provides us with the potential

tobuild our civilian armoured vehicle (CAV) in Canada

andsupport the Government of Canada, and address export

opportunities in the North American defence and security market.

Civil

UK civil

Both our London Fire Brigade and Metropolitan Police (MPS)

training contracts have performed well in the period. However,

we have seen lower volumes on the MPS contract as the customer

seeks to meet its challenging recruitment targets. We are leading

an optimisation programme to support the design of a new entry

route programme, focused on improving operational performance

in support of transforming the approach to initial recruit training.

We continue to provide effective support to the London Fire

Brigade through equipment and vehicle management, servicing

and repair.

The trial to reduce the number of planned vehicle movements

byup to 50% across the Greater London region willreduce wear

and tear and emissions. This allows for greater flexibility in fleet

management practices such as vehicle rotation and whole life

cost, helping to preserve high-vehicle availability. The trial has

provided successful results with a full roll-out across the London

Fire Brigade fleet being implemented.

We continue to explore ways in which we can support the

UKGovernment’s increasing focus on national resilience efforts,

including enhancing the asset management services we provide

as part of the New Dimensions programme for event response

readiness at national, regional and local level.

Our Rail business continues to deliver strong performance in

itskey regions of Scotland and Northern Ireland and has started

toexpand its operations into the significant market in Ireland.

Major investment in national rail infrastructure by the Irish

Government is a key enabler for building on, levelling up and

sustaining recent economic growth across the country.

Engagement with industry stakeholders around major engineering

programmes progresses, which will see the network modernised,

decarbonised and have capacity more than doubled over the next

5 to 10 years.

International civil

South Africa performed strongly, primarily driven by the

equipment business, which supplies vehicles and vehicle support

to the mining industry. A sustained high demand for commodities

continues to drive open cast mining activities, resulting in

anexpansion of our market share. Our Engineering and Plant

businesses delivered results in accordance with forecast. We are

actively exploring opportunities within the marine and nuclear

sectors to further diversify our portfolio and drive future growth.

We received orders for delivery of strategic spares for Eskom

power stations to be delivered over three years. We were

awarded five-year milling plant maintenance contracts for

twopower stations and began work on a significant contract

toengineer and replace electrostatic plates at Lethabo power

station to reduce particulate emissions.

55Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Aviation

Our c.2,500 employees deliver military pilot training for the two largest Air Forces

in Europe (France & UK), through-life support to operational military flying assets

and critical air operations for government customers

Aviation – at a glance

Defence UK Defence International Civil UK Civil International

Operational highlights

• Completed delivery of six H160 helicopters

totheFrench Navy as part of a 10-year contract

• Partnered with RAF to deliver the first Elementary

Flying Training (EFT) phase of the Ukrainian Pilot

Forceprogramme

• Delivered unprecedented firefighting operations

inCanada with >99% aircraft availability

• Explored opportunities with Zero Petroleum

fortheuse of synthetic fuels in defence aircraft

• Secured a five-year extension to Victoria Air

Ambulance contract in Australia

• After the year end, awarded 12-year contract

alongside Airbus to support 48 EC145 helicopters

forthe Générale de la Sécurité Civile and the French

Gendarmerie Nationale

FY24 revenue

Aviation

Revenue

£0.3bn

% of Group revenue

Contract backlog

£1.6bn

Number of employees

c.2,500

39%

10%

36%

15%

“Our growth plan isn’t just an ambition. We are

delivering it now, focusing on opportunities

wecan win and deliver, managing carefully our

operational risks and protecting our margins.”

Pierre Basquin

Chief Executive, Aviation

See what we do in Aviation and watch Pierre talk

about the Sector at our recent Capital Markets Day

56 Babcock International Group PLC / Annual Report and Financial Statements 2024

• Embedded into Air Forces and their

organisations. We deliver alongside

them through long-term partnering

contracts

• Our performance directly influences

military operational readiness

• As a critical air missions operator, we

understand the operational challenges

faced by Air Forces: specialist pilot

training and asset availability

• Extensive experience of providing

operational support and training on

multiple fixed wing and rotary wing

platforms

• Not reliant on OEMs to maintain and

repair the platforms we fly: we do it

ourselves

• We optimise flying platforms through

the lifecycle to maximise availability

and reduce operational costs

• Platform agnostic, we deliver

tailored solutions to Air Forces

• Ability to mutualise engineering

services to jointly support our

assets and those owned by

military customers

• Wide range of in-house

engineering capabilities

What differentiates us

Financial review

31 March 2024

£m

31 March 2023

£m

Contract backlog* 1,641.4 1,633.0

Revenue 341.5 802.7

Underlying operating profit* 19.2 15.8

Underlying margin* 5.6% 2.0%

* Alternative Performance Measures are defined in the Financial Glossary

onpage 39

Revenue decreased 57% to £341.5 million (FY23: £802.7 million)

primarily due to the impact of the sale of the European Aerial

Emergency Services (AES) business in February 2023, which

contributed revenue of £387 million in FY23. On an organic basis,

revenue declined 17% due to the sales mix of our French defence

contracts, particularly MENTOR, between aircraft delivery and

service phases. Our remaining UK, Australia and Canada aviation

businesses all delivered modest growth.

Underlying operating profit increased 22% to £19.2 million (FY23:

£15.8 million), despite lower revenue due to favourable sales mix

of our French defence contracts, improved pricing and lower bid

costs. The prior year also included a £1.1 million loss contribution

from the disposed European AES business. As a result, underlying

operating margin increased 360bp to 5.6%.

Contract backlog was in line with the prior year at £1,641 million

(FY23: £1,633 million), with new orders matched by revenue

traded on long-term contracts.

Customer

intimacy

Operational asset

understanding

Engineering

know-how

57Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

The leading training partner to the French Air Force

Aviation continued

Revenue up

10x

since FY16, driven primarily by defence

opportunities (now c.50% defence)

Grown our position as the

leading training partner to

the French Air Force

The largest engineering partner

for armed forces’ medium-size

helicopters (H160, H145, H135)

Strong partnership with leading

defence OEMs Dassault Aviation

and Airbus Helicopters

Successful expansion into

supporting military ground assets

In France, Babcock is now

perceived as a French defence

company with appropriate access

to classified opportunities and

defence investments

In focus

Operational review

Defence

UK Defence

Performance on the RAF HADES contract remains strong against

abackground of customer site laydown and base closures and we

are in positive discussions regarding a further contract extension.

We continue to deliver good organic growth in our 11-year

agreement with BAE Systems, supporting the RAF’s Hawk TMk1

and TMk2 fleet.

Despite some fleet challenges earlier in the year, operations on

the RAF Light Aircraft Flying Task contract (LAFT2) are continuing

as normal with high levels of availability. We delivered the first

Elementary Flying Training (EFT) phase of the Ukrainian Pilot Force

training as they prepare to fly F-16 jets, with zero sorties lost

dueto aircraft unavailability.

We successfully negotiated a 13-year extension to the ground

handling support contract for the Future Strategic Tanker Aircraft

contract. We continue to provide IT service and improvement

projects for the customer and are continuing to build a strong

working relationship.

Project MONET, a two-year research and development project

toexplore the application of emerging technologies to minimise

the environmental impact of the Light Aircraft Flying Task, has

concluded its first year with a successful environmental impact

assessment of the Grob Tutor. Work continues on the next phase

to develop a flying testbed aircraft to test technologies in the air.

We signed the Defence Aviation Net Zero Charter, confirming our

commitment to help UK Defence meet the challenges of climate

change and to advance the testing of synthetic fuels in the

military environment across air defence platforms.

We are exploring the use of uncrewed air system technologies

tosupport UK defence, security and government aviation, and

working on methods of integrating autonomous and collaborative

platforms into the RAF.

International defence

In France, activity continues to ramp up on the MENTOR contract

with flying activity above forecast, further enhancing the training

delivery. On the FOMEDEC contract, an additional simulator has

been set up to deliver 1,500 additional simulator hours (+18%)

tothe customer. In total, we delivered c.13,500 flight hours

and8,500 simulator hours this year for the French Air Force under

both contracts (FOMEDEC and MENTOR). We are also extremely

proud to have reached a key milestone this year of 40,000 flight

hours on our PC-21 aircraft.

We completed the delivery of our six Airbus H160 helicopters

tothe French Navy as part of our contract with the French MOD.

The aircraft are used to perform Search and Rescue (SAR) missions

and have already flown more than 1,750 hours and carried out

numerous rescue missions in the Mediterranean and across the

Normandy and Brittany coasts. We have also opened the first

H160 site for SAR operations in the world, located in

Cherbourg(France).

After the year end, we have been awarded a new contract

alongside Airbus Helicopters to support the EC145 fleet of

theDirection Générale de la Sécurité Civile and the French

Gendarmerie Nationale. The 12-year contract covers the aircraft

in-service support of a 48 Airbus EC145 helicopters fleet across

France mainland and overseas. Additional maintenance work has

been delivered to our current seven-year contract with French

Customs and Gendarmerie Nationale where we deliver in-service

support to their EC135 helicopter fleets. Flying activity is also

above contract expectations with a total of 8,141 flight hours

(expected 6,500 flying hours).

Bidding activity on military aviation tenders remains high

withmany ongoing opportunities such as Mentor 2 contract

(outsourcing of French military pilots initial training stage),

FrenchAir Force tactical and combat training contract and BFTC

(outsourcing of the Belgium fighter pilot training).

In Canada, we were unsuccessful in our bid to deliver Canada's

Future Aircrew Training (FAcT). We continue to explore

opportunities in the military spectrum, leveraging our current

civilian capabilities and our international military know-how

tosupport the Royal Canadian Air Force and other Federal

Departments in the future.

58 Babcock International Group PLC / Annual Report and Financial Statements 2024

The leading training partner to the French Air Force

Why we succeed:

• Differentiated value proposition

combining equipment acquisition

and conversion, maintenance,

operation and training

• Strong track record in UK – flexible

model adaptable to French

requirements

• We shaped the French Air Force’s

approach to outsourcing

• Consistent delivery

Civil

UK civil

We have been awarded a new contract with Midlands Air

Ambulance Charity (MAAC) to continue as the charity’s aviation

partner for the next 10 years, operating MAAC’s fleet of

helicopters as well as providing ground support, engineering

andpilots. We have been by MAAC’s side since the charity

startedoperating over 33 years ago, responding to over 75,000

lifesaving missions. We are continuing to deliver our other air

ambulance activities in the country with a fleet availability

atover98%.

International civil

In France, we are growing our ambition to protect citizens and

communities in new territories, by developing a joint solution with

the Sultanate of Oman to implement a robust and comprehensive

Aerial Emergency Medical Service for all citizens and tourists

inthe country.

In Australasia, we continue to deliver critical emergency services

while strengthening our relationships with our customers. We

were awarded three key contract extensions this year, making

Babcock the biggest provider of aerial emergency medical

services in Australia.

The Queensland Government has extended our contract to

provide emergency medical services and search and rescue for

afurther 12 years. The South Australian Government granted

afour-year contract extension for the delivery of a State Rescue

Helicopter Service. Lastly, we have been awarded a five-year

contract extension to continue to provide critical air ambulance

operations in Victoria until December 2030.

In Canada, we continued to deliver air ambulance and wildfire

suppression services for the Province of Manitoba, helping to

protect citizens, communities and natural resources. Last year

Canada experienced an unprecedented number of wildfires,

which saw our operations deliver over 1,500 flight hours, 674 fire

missions and 5,006 water drops. In March 2024, we successfully

completed the delivery of the LifeFlight critical care air ambulance

services contract for the Province of Manitoba which saw 100%

aircraft availability during the year.

We have begun to ramp up the in-service support for British

Columbia’s new aerial emergency services contract using a fleet

of AW169 aircraft. This 10-year contract will start in FY25 with

facilities construction.

59Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Stakeholder engagement

Building 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 recognise the impact we have on our stakeholders and our responsibility to them,

which is why increased stakeholder engagement is a key part of our turnaround strategy.

We are committed to open and productive engagement with all our stakeholders.

Why they matter to us

Understanding the needs and challenges of our customers allows us

to help them to succeed. We make their mission, our mission; working in

partnership with our customers to deliver critical programmes and services.

We seek to solve their challenges through the introduction of innovative

solutions and technology to support their needs. We build and maintain

long-term relationships with our customers to promote our mutual success.

Customers

What matters to them

• Safety

• Operational excellence

• Affordability (value for money)

• Availability

• Capability

• Innovation and expertise

• Reliability

• Collaboration

• Deep understanding of their

needs, both now and in the future

• Sustainability performance

and agenda

What matters to them

• Good working relationships

• Access to opportunities

• Prompt payment and predictable

supplier cash flows

What matters to them

• Regulations, policies and

standards

• Governance and transparency

• Trust and ethics

• Safety and compliance

ofoperations

• Sustainability

• Site-specific issues

What matters to them

• Shareholder value

• Financial and operational

performance

• Strategy and business

development

• Capital structure

• Dividend policy

• Transparency of

communications

• Access to management

• Governance

• Sustainability strategy

How Babcock engages

• Regular ongoing relationship

engagement at all levels

• Contract negotiation

and execution

• Strategic Partnering

Programme

• Collaborating on joint

initiatives

• Attendance at key

industry events

• Provision of information

on sustainability goals

How Babcock engages

• Regular open and honest two-way

communications

• Supplier Code of Conduct

• Supplier conferences

andworkshops

• Supplier due diligence

• Involvement in security

supply chain development

programme SC21

How Babcock engages

• Regular engagement (national,

local and official level)

• Briefing on key issues

• Dedicated compliance teams

• Response to direct queries

• Coordinated safety improvement

programmes

How Babcock engages

• Annual Report and Financial

Statements and AGM

• Results materials and presentations

• Proactive IR team: met with over

300 investors in FY24

• Treasury team engagement with

banks, noteholders and credit

rating agencies

• Investor roadshows with

management and IR team

• Chair and NED engagement with

top shareholders

• Investor site visits, including 2024

Capital Markets Day

• Stock exchange announcements

and press releases published on

various channels including social

media

Why they matter to us

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 to ensure

that we provide clear and transparent information to the market which

allows investors and potential investors to make informed decisions,

viamarket updates, information published on our website, appropriate

access to management and active Investor Relations (IR) and Treasury teams.

Investors

Why they matter to us

To support our global business operations and strategy we require an efficient

and highly effective supply chain. This means we need to foster trusted and

collaborative relationships with suppliers who share our appetite to drive

improvement through innovation and best practice.

Our external supply chains are an important part of our performance, and

byworking collaboratively with suppliers we can ensure continuity of supply,

minimise risk and bring innovative solutions to our customers.

Why they matter to us

We manage complex assets in highly regulated sectors: nuclear, defence

and aviation. We are committed to providing safe and effective operations.

We have to maintain positive and constructive relationships with regulators

in order to be able to operate, to help shape policy in our markets and to

position for future opportunities.

Suppliers Regulators

60 Babcock International Group PLC / Annual Report and Financial Statements 2024

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 people

• Support for the armed forces

community

• Broad community engagement

What matters to them

• Remuneration, reward

andrecognition

• Professional development

and career progression

• Health, safety and wellbeing

• The Group’s aims, goals,

priorities and reputation

• Regular engagement

withleaders

• An empowering culture

• Inclusion and diversity

• Our ESG agenda

• Employee networks

• Collaboration

How Babcock engages

• Regular dialogue at our largest

sites on matters of mutual interest

• Sponsorship and donations

• Independent research to analyse

our contribution to the local

andUK economy

• Employee volunteering

• University and skills partnerships

• Schemes to support people

returning to work

• STEM ambassadors

• Significant employer of service

leavers, veterans and reservists

• Engagement with and support

forlocal community programmes

How Babcock engages

• Employee forums and meetings

• Global engagement platforms,

including an employee app

• Weekly CEO and senior

management vlogs

• Access to the CEO via

adedicated email

• A Global People Survey

• Regular internal updates

• Cascade briefings

• Regular safety stand downs

and annual safety summit

• Regular training

• Access to independent

whistleblowing process

• Senior management and

Board visits

• Non-Executive Director

responsible for employee

engagement at Board level

• Free confidential employee

support helpline

• Shadow Executive Committee

Why they matter to us

Our success depends on our people. We are committed to creating

aninclusive and diverse organisation where employees can develop their

full potential. Informed by the responses to our annual Global People

Survey, we are focusing on developing and supporting a truly engaged

workforce, living our principles and working on shared goals, united by

ourcommon Purpose.

Why they matter to us

We are committed to the communities in which we operate and the broader

interests of the customers we serve. We have a responsibility to support the

communities in which we operate both economically and socially; community

engagement and social value creation are key aspects of our ESG strategy.

Wewant to be a force for good in our communities, particularly where we have

major sites of operation and are one of the largest employers in the local area.

Employees Communities

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 111 and on pages 116 to 119, 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 15 to 17), ESG strategy

(page 62)

b. the interests of the Company’s employees Social (page 80)

c. the need to foster the Company’s business relationships

withsuppliers, customers and others

Stakeholder engagement (page 60), Commercial integrity

(page 86)

d. the impact of the Company’s operations on the community

andenvironment

Social (page 84), Environment (page 67)

e. the desirability of the Company maintaining a reputation

for high standards of business conduct

Governance (page 86)

f. the need to act fairly between members of the Company Investors (page 60)

61Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Our ESG strategy

ESG strategy

Sustainability remains an integral part

ofour corporate strategy, underpinning

ourcorporate Purpose: to create a safe

andsecure world, together.

Our five corporate Environmental, Social and Governance (ESG)

priorities provide the framework for how we incorporate

sustainability into our business, by minimising risk, reducing

ourenvironmental footprint, contributing to our communities

andtransitioning to a more sustainable future for all.

We continue to progress our corporate ESG strategy, ensuring

progress towards our commitments and five priorities. Our

continued progress against this strategy is evidenced by our

ongoing success in reducing our gender pay gap year on year

(seepage 81) and our award-winning Production Support

Operative (PSO) programme (see our sustainability pages on

ourcorporate website). We have also gained approval for our

science-based near and long-term emissions reduction targets

andverification of our Net Zero target by 2050 from the Science

Based Targets initiative (SBTi) (see page 68).

Being a responsible citizen matters to Babcock. Our annual

GlobalPeople Survey (GPS) showed a 5% improvement on

ourengagement score against the question “Babcock really

demonstrates its commitment to our Purpose – creating a safe

and secure world, together”. We have also captured the views

ofsome of our stakeholders for our materiality assessment

whichshows those areas of most importance to them. More

detailon this is available on the sustainability pages of our

corporate website.

Our commitment to the safety of our staff and anyone on our

sitesremains a key area of focus for us, with 83% of our people

believing Babcock is committed to the health and safety of

employees (2023 annual GPS). Our TRIR has increased during

2023 as we undertake more complex activities but we expect

ourincreased supervision levels and the growth of experienced

workers to result in this rate reducing going forward. Our Global

Safety Director also co-chairs the UK Defence Industry Safety

Forum where we collaborate with industry partners and the

UKMOD to share good practice.

During the past year our Chief Executive Officer, David Lockwood,

was appointed the president of ADS Group and Babcock became

a founding signatory of the ADS ESG Charter. We have also signed

the Defence Aviation Net Zero Charter and we are a Pankhurst

Partner for Women in Defence UK, co-designing its first critical

mass summit which was held in the summer last year.

Environment Governance

We will reduce

emissions in line

with our short-

term science-

based targets and

long-term Net Zero

targets

We will ensure

the safety and

wellbeing of

allourpeople

We will integrate

environmental

sustainability into

programme design

to minimise waste

and optimise

resources

We will make a

positive difference

to the communities

we’re proud to be

part of and provide

high-quality jobs

that support local

economies

We will be a

collaborative,

trusted partner

across the supply

chain, helping

totackle common

challenges

Our ESG priorities

Social

We continue to engage with ratings agencies, enhancing, where

possible, our level of transparency to provide further insight into

arange of environmental, social and governance topics. Our main

ESG disclosures and external ratings are listed on page 65 and our

GRI and SASB report is available to view on the sustainability pages

of our corporate website.

Following the UK Government’s ‘Sustainability Disclosure

Requirements Implementation Update’ in May 2024, we are

awaiting the release of the UK Sustainability Reporting Standards,

which are due in Q1 2025. Following their release we will

undertake the necessary preparations to ensure we comply

withthese standards. As the UK Government referred to in their

Implementation Update, we do not expect these standards

tocome into force before 2026 at the earliest.

To aid our ongoing efforts to increase transparency, we have

consolidated a list of our publicly available policies and codes

ofconduct on our corporate website. We have also started

toproduce a series of fact sheets on topics, such as Information

Security and Health and Safety, to provide insight on our approach.

ESG policies and statements

62 Babcock International Group PLC / Annual Report and Financial Statements 2024

Progress against our ESG priorities

Priorities Highlights from FY24

We will reduce emissions in

line with our short-term

science-based targets and

long-term Net Zero targets

• Validation of our science-based targets by the SBTi

• 28% of Babcock fleet now made up of Ultra Low Emission Vehicles (ULEV)

• Enhanced accuracy and completeness in Babcock’s Scope 3 footprint

See page 68

We will integrate

environmental sustainability

into programme design to

minimise waste and

optimise resources

• Conducted biodiversity assessments and drafted Babcock’s Nature Positive Roadmap

• Commenced delivery of renewable energy installations

• Development of Babcock’s Environmental Data Management System

See page 70

We will ensure the safety

and wellbeing of all our

people

• 83% of employees believe that Babcock is truly committed to the health and safety

ofemployees according to our Global People Survey, up from 81% in 2022’s survey

• Our gender pay gap continued to narrow from 9.6% to 6.7%

• We launched our Group-wide Project Management graduate programme

See page 80

We will make a positive

difference to the

communities we’re proud

to be part of and provide

high-quality jobs that

support local economies

• We established a dedicated External Engagement team to engage with the local Devonport

community, raise awareness of STEM and enhance students’ employability skills

• Our 582 active STEM Ambassadors visited 708 schools nationwide over the year

• We have completed the three Commitment Phases of the Progressive Aboriginal Relations

(PAR) programme offered by the Canadian Council for Aboriginal Business (CCAB)

See page 84

We will be a collaborative,

trusted partner across the

supply chain, helping to

tackle common challenges

• We published our updated Supplier Code of Conduct, which aligns with the principles of

ISO20400, underscoring our dedication to human rights, fair practices and environmental

responsibility

• 27.7% of our total spend was with our SME supplier base compared to 24% in FY23

• Our average payment term was 16.3 days to our suppliers versus 21.4 days in FY23

See page 86

Our focus for FY25

• Continue development and delivery of Carbon Reduction Plans

• Deliver renewable energy installations

• Enhance environmental and Net Zero support capabilities

• Build upon the Safety Starts with Me behaviour programme to reinforce our Home Safe Every Day promise

• Continue to focus on closing our gender pay gap

• Significantly increase communication and employee participation in our Be Kind volunteering programme

to enhance uptake, community engagement and social impact

• Seek further ways to improve our wellbeing provisions to ensure they continue to respond to the needs

ofour people

• Introduce our Supplier Assurance manual to transparently communicate our collaboration expectations

tooursupply base

• Implement carbon emissions tracking software to reduce our supply chain carbon footprint

• Establish ESG ratings to reinforce our commitment to responsible practices

63Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

ESG strategy continued

Progress vs ESG commitments and targets

Commitment and targets Commentary

Progress Plan Zero 40 and minimise the impact on the environment

Progress Plan Zero 40 • We have reduced our Scope 1 and 2 emissions by 7.6% against our 2021 baseline

• Our Scope 3 emissions have increased by 2.4% against our 2021 baseline

Preparing waste management plans

across all significant sites by 2024

• Following initial pilots to establish the approach, we have now completed

assessments across 42% of our significant sites

• We are working to complete the outstanding plans by the end of the year

Zero controlled waste to landfill by 2025 • We are investigating a range of initiatives and working with our partners to identify

opportunities to eliminate our waste to landfill by 2025

Eliminate the use of avoidable single-use

plastic by 2027

• Our waste working group is investigating a range of initiatives to support delivery

ofour target

Prepare water management plans across

all significant sites by 2024

• Following initial pilots to establish the approach, we have now completed

assessments across 38% of our significant sites

• We are working to complete the outstanding plans by the end of the year

Maintaining and enhancing biodiverse ecosystems

Conduct biodiversity assessments across

all significant sites by 2024

• Following initial pilot assessments to establish the approach, we have now

completed assessments across 31% of our significant sites

Deliver a 10% biodiversity increase across

the estate by 2030

• We have conducted a biodiversity Net Gain pilot study and drafted a Nature Positive

Roadmap which we are incorporating into our Climate and Nature Transition Plan

TCFD metrics and targets

Develop a baseline for Scope 1 and 2

emissions by end of 2023

• Complete. We have developed Carbon Reduction Plans covering 95% of our UK

operations and are satisfied this has established our emissions reduction pathway

baseline

• We are working to develop the plans across the remaining international sites over

the coming year

Complete an assessment of climate-

related risk of all critical Babcock

infrastructure by end of 2024

• We are working to conduct detailed climate-related risk assessments across our

critical infrastructure by the end of 2024

100% of electricity for Babcock facilities

tobe sourced from renewable supplies

by2030

• In 2023 approximately 29% of Babcock’s electricity was from renewable energy sources,

anincrease from 25%* in 2022

Complete a review of climate-related

changes to working conditions covering

all employees who are exposed at

geographical locations by April 2023

• Complete

Make a science-based targets submission

by April 2023

• Complete

Underpinned by conducting business with honesty, transparency and integrity

* In the 2023 Annual Report and Financial Statements we reported our percentage of energy from renewable sources for 2022 at 32%. During 2023 we have

improved the coverage of our data sets (particularly across international sites) and we therefore restate the 2022 figure at 25%.

64 Babcock International Group PLC / Annual Report and Financial Statements 2024

GRI Standards and SASB Standards Reporting with reference to GRI Standards 2021 and SASB Standards (updated in January

2024) for the period April 2023 to March 2024. The report is available on the external

website

DJSI score for FY23 Completed DJSI submission in November 2023 and achieved a score of 45/100, which

wastwo points lower than last year

FTSE Russell Submitted in April 2024 and received an increased score of 3.5, up from 3.0 in 2023

ISS ESG Corporate Rating Rating is C- in line with prior year

MSCI ESG Rating Rating is unchanged at ‘A’

Progress vs ESG commitments and targets continued

Commitment and targets Commentary

Creating a people-centred business where everyone is included

30% women within senior leadership

teams by 2025

• Female representation in senior leadership teams remains consistent at 23%

30% female representation at all levels

by2030

• Our female population has increased to 19% this year and we remain committed

toreaching our gender-balance target

Setting clear and measurable objectives

that act as the catalyst for driving our

longer-term inclusion and diversity goals

• In 2023 we undertook a discovery project across the Group exploring culture,

behaviours and leadership through the lens of inclusion and our people’s day-to-day

experience

• In response we have further developed our approach to inclusion that includes

adopting Global Stated Commitments focused on internal and external priorities;

therelease of a Group Inclusion Roadmap to address consistently emerging themes

from the discovery work; and the completion of the transition to a centrally led

andbusiness-owned inclusion model that is bespoke to each area of our business

Reduce inequalities through a thorough

review of our recruitment practices

andhow we support progression once

inemployment

• We are taking a range of actions including new policies and ways of working,

suchasrefreshed recruitment processes and supporting leadership development

programmes amongst others

Underpinned by conducting business with honesty, transparency and integrity

ESG disclosure and external ratings

We continue to develop our approach to ESG reporting and work proactively with ratings agencies to enhance, where possible,

thelevelof transparency and provide further insight into a range of environmental, social and governance topics.

GRI and SASB Report

65Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

ESG strategy continued

ESG and our shareholders

Over the year we have progressed our ESG strategy and ensured

progress on our corporate commitments and five ESG priorities

while furthering our disclosure on key sustainability interests in

line with best practice and regulation. This year we have continued

to develop our approach to ESG reporting and enhanced the

levelof transparency, providing further insight into a range

ofenvironmental, social and governance impacts against GRI,

SASB and TCFD standards and disclosures.

Environmental: During the year we were proud to be one of the

first international defence companies to have gained approval for

our science-based near and long-term emissions reduction targets

and verification of our Net Zero target by 2050 from the Science

Based Targets initiative (SBTi). During the year we were also able

to enhance our accuracy and completeness of Scope 3 emissions

in line with the Greenhouse Gas Protocol. Read more on page 67.

Social: The health, safety and wellbeing of our employees,

customers and the community comes first. Our Global Safety

Director co-chairs the Defence Industry Safety Forum where

wecollaborate with industry partners and the UK MOD to share

good practice. During the year, David Lockwood was appointed

the president of ADS Group and Babcock became a founding

signatory of the ADS ESG Charter. Our gender pay gap continued

to narrow this year and we have become a Pankhurst Partner for

Women in Defence UK, co-designing its first critical mass summit

which was held in the summer last year. Senior management

gender diversity is also one of our remuneration targets.

Seepage150.

Governance: We have continued to support the Company’s

turnaround by making improvements to the governance of the

Group. As covered in our Chair’s report (page 110) and our Audit

Committee Chair’s report (page 128), we have developed our

controls enhancement programme and dedicated Group Risk

function, enhanced internal capability and a risk framework that

considers management of risk at all levels throughout the Group.

Our approach to risk management is discussed on page 89.

During the year we also published our updated Supplier Code

ofConduct, which aligns with the principles of ISO 20400,

underscoring our dedication to human rights, fair practices

andenvironmental responsibility.

Defence and civil nuclear

The Group today is over 74% defence focused, reflecting our

growth strategy and portfolio alignment programme which

started in FY21 when our defence exposure was 56%. We

recognise that our business is therefore of increasing relevance

toinvestors assessing stocks through an ESG lens: most notably

that we operate in defence and civil nuclear markets. We have

acritical role in global defence and national security with

operations in the UK, Australia, New Zealand, Canada and France.

We also design and manufacture equipment and systems for

several other nations including the US and South Korea. As global

and political instability increases, we support the view that

democracies need to be able to defend themselves from aggressors.

Nuclear deterrents and nuclear power are both crucial to our

customers and a democratically elected mandate. Babcock has

been supporting the UK’s commitment to the Continuous-At-Sea

Deterrent for over 50 years, while also delivering complex and

critical civil nuclear through-life engineering.

We will continue to support our customers, both with their

defence agenda and their commitment to generate low emission

power from nuclear energy.

Certain ESG agencies and investment funds have identified

internal screening policies to minimise their portfolio’s exposure

to specific defence and civil nuclear activities. To enable

compliance with their requirements, we disclose key ESG metrics

to measure our exposure to these activities as a percentage

ofrevenue. Below we describe our involvement in these areas:

•

We do not design, manufacture or sell nuclear weapons

orcontroversial weapons or their components.

•

We provide support for our Atomic Weapons Establishment

customer’s programmes. This work represents less than 2%

ofFY24 revenue.

•

We provide in-service support and through-life maintenance for

the entirety of the UK Royal Navy’s nuclear powered submarine

fleet which includes non-nuclear armed ship-submersible nuclear

(SSN) submarines and the nuclear armed ship-submersible

ballistic nuclear (SSBN) submarines delivering the Continuous-At-

Sea Deterrent. FMSP is our contract to deliver all dockside and

fleet time support, base maintenance and deep maintenance

periods, including infrastructure and naval base management

forboth SSNs and SSBNs. We estimate the split of SSBN related

support work to be around 2% of FY24 revenue.

•

We design and manufacture the non-nuclear weapons handling

systems for the UK’s future Dreadnought Class SSBNs and

manufacture the missile tube assemblies for the joint US/UK

common missile compartment for integration into future US

andUK SSBNs. This work represents less than 2% of FY24 revenue.

•

Nuclear power provides a reliable source of low-carbon

electricity and is a critical component of countries’ national

energy strategies as they move towards net zero carbon. Our

civil nuclear business is involved in new build, power generation

support, fuel route management and decommissioning.

Thiswork represents around 4% of FY24 revenue.

“Investing in defence companies contributes

toournational security, defends the civil liberties

we all enjoy, while delivering long-term returns

forpensions funds and retail investors. That is why

theUK’s world leading investment management

industry supports our defence sector, with the

Investment Association’s members having

invested £35 billion in UK defence companies.

Investing in good, high-quality, well-run defence

companies is compatible with ESG considerations

as long-term sustainable investment is about

helping all sectors and all companies in the

economy succeed.”

Joint statement from the UK Government (HM Treasury)

and the Investment Association, 23 April 2024

66 Babcock International Group PLC / Annual Report and Financial Statements 2024

Environment

Babcock is an environmentally conscious organisation and we are working hard to ensure our operations have the least possible impacts.

Our environmental and Net Zero strategies strive to ensure sustainability is at the core of our operations as part of our commitment

toimplement sustainable practices. Over the past year we have continued to make good progress on our sustainable transition.

Babcock Group energy consumption and emissions

Dec-20 Dec-21 Dec-22 Dec-23

Scope 1: Direct emissions from owned/controlled

operations

tCO

e 43,795 47,836 35,602 32,458

Scope 2 location-based: Indirect emissions from the use of

electricity and steam tCO

e 49,853 41,425 38,945 41,607

Scope 2 market-based: Indirect emissions from the use of

electricity and steam tCO

e 57, 142 62,901 70,166 73,779

Total Scope 1 and 2 emissions market-based tCO

e 100,937 110,737 105,768 106,237

Underlying energy consumption

kWh 426,100,863 422,100,145 373,636,265 356,948,259

Global (excluding UK)

Scope 1: Direct emissions from owned/controlled

operations

tCO

e 32,361 29,251 22,785 21,676

Scope 2 location-based: Indirect emissions from the use of

electricity and steam tCO

e 4,485 4,626 3,725 5,585

Scope 2 market-based: Indirect emissions from the use of

electricity and steam tCO

e 4,479 4,627 3,718 5,700

Total Scope 1 and 2 emissions market-based tCO

e 36,840 33,878 26,503 27,376

Underlying energy consumption

kWh 139,234,549 128,027,641 100,726,110 98,725,583

Babcock Group total (UK and global)

Scope 1: Direct emissions from owned/controlled

operations

tCO

e 76,156 77,087 58,387 54,134

Scope 2 market-based: Indirect emissions from the use of

electricity and steam tCO

e 61,621 67,528 73,884 79,479

Total Scope 1 and 2 emissions tCO

e 137,777 144,615 132,271 133,613

Total Scope 3 emissions (excluding pensions)

tCO

e n/a 2,285,752 2,067,540 2,339,896

Total value chain emissions (excluding pensions)

tCO

e n/a 2,430,367 2,199,811 2,473,509

Adjusted revenue

£m n/a 3,278 3,875 4,390

Intensity ratio

tCO

e/£1m

Revenue n/a 741.4 567.7 563.4

Our emissions data is reported in line with the Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard under the ‘Operational Control’

approach. The reporting period for our energy consumption and carbon emissions is the calendar year (1 January to 31 December) due to availability of data

tomeet annual reporting timescales. This year we have changed our base year to 2021; this aligns to our approved science-based targets and is due to 2021

beingthe most recent year with a full emissions inventory across all scopes. Our reporting exceeds the Streamlined Energy and Carbon Reporting (SECR)

requirements, including a full Scope 3 footprint for the first time this year, backdated to 2021. 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. This year we have switched to reporting progress

against market-based Scope 2 emissions, in line with our improved data granularity. Our market-based Scope 2 emissions are higher than location-based due to

significant energy being provided by the energy from waste plant at Devonport (Plymouth) with a high emission intensity. Figures for UK operations follow

conversion factors published by BEIS, except the supplier-provided energy from waste factors. Non-UK operations utilise emission factors applicable to the fuel

source and location. Appropriate conversion factors have been used to calculate the underlying energy consumption figures. Total Scope 1, 2 and 3 emissions have

been divided by annual revenue (adjusted in line with emission boundary) to provide the intensity ratio (tCO

e per £1m). Organisational changes including the sale

of our European aviation business have cumulatively exceeded our materiality threshold (5% emission variance). Accordingly, emissions data for prior years have

been adjusted in line with the organisational changes and to include additional data unavailable last year. Emission figures include an element of estimated data,

at7% for 2020, 8% for 2021, 5% for 2022 and 0.03% for 2023. Certain data, estimated to be immaterial to the Group’s emissions, has been omitted as it has

notbeen practical to obtain (including operations in Japan and the USA). Metering and monitoring improvements are being implemented to capture these data

streams. During the reporting period 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. In previous periods we implemented a range of energy

conservation measures such as LED lighting, boiler replacements, metering improvements and solar panel investigations. We do not have the data maturity to

report quantitative reductions generated through energy efficiency measures for the current or previous years.

1. Scope 1 emissions include biogenic emissions from combustion of biofuels. In 2023 this equated to 7,261 tCO

2. Underlying energy consumption figures include an element of Scope 3 business travel in line with SECR requirements.

3. A full Scope 3 footprint (excluding emissions associated with category 15 pensions investments) has been calculated for 2023, 2022 and our 2021 base year.

Abreakdown of emissions by GHG protocol category is provided on our website. Scope 3 emissions reported in 2020 are only those associated with business

travel and fuel and energy-related emissions not reported in Scope 1 or 2.

4. The revenue figures detailed have been adjusted for disposals and acquisitions so as to align with the adjusted emissions baseline.

5. The intensity ratio is based on the adjusted emissions baseline and adjusted revenue.

67Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

Bottom-up carbon strategies

• strategy planning

• base-year emissions

Full Scope 3 mapping

to be complete

All new buildings to be

Net Zero operational

emissions

2020 2021 2023

Strategy delivery

2024 2025

Our Net Zero journey

ESG strategy continued

Plan Zero 40

We are delighted to announce that Babcock’s Net Zero targets

and decarbonisation plans have been validated by the SBTi.

Achieving the SBTi validation is a significant milestone on our

journey to Net Zero and validates that our targets and plans to

transition Babcock to Net Zero are robust and evidence-based.

Over the past 12 months we have continued our efforts

todecarbonise the organisation. Under our Plan Zero 40

decarbonisation strategy we are approaching decarbonisation

through four strands: Estate and Assets, Transport, Products

andServices, and Value Chain.

Following the successful completion of our Pathfinder Carbon

Reduction Plans, we have been working to scale the plans across

our global operations. The Carbon Reduction Plans completed

todate capture 95% of our Estate and Assets-related carbon

emissions. You can find out more about our Carbon Reduction

Plans on the environmental pages of our website.

Through the year, we have implemented a range of energy

conservation and ‘low-hanging fruit’ measures across the

organisation, such as LED lighting replacements, boiler

replacements and Building Management System (BMS)

improvements. These measures have reduced energy leakage,

improved energy efficiency and reduced costs. We continued

investigations into renewable energy opportunities across the

estate and during FY24 we commenced the installation of over

100kW of solar photovoltaics. We also gained planning

permission for over 6MW of installed solar photovoltaics and

wehave a further 40MW of solar opportunity being investigated,

or the equivalent of powering15,000 homes for a year.

Focus for FY25:

• Continued development and delivery of Carbon Reduction Plans

• Delivery of renewable energy installations

• Low-hanging fruit energy conservation measures

• Conduct physical climate risk assessments across critical sites

Estate and Assets carbon emissions

2023

Baseline emissions

Estate and Assets

129,764 tCO

128,701 tCO

Science Based Targets initiative (SBTi) validation

68 Babcock International Group PLC / Annual Report and Financial Statements 2024

Net Zero target

(90% Scope 1 and 2

reduction)

All Babcock estate

to be Net Zero

in operation

All buildings to be

Net Zero embodied

carbon

42% reduction science-

based targets,

Ultra Low Emission

Vehicles

2032 2035 2040 2050

Net Zero

90% (Scope 1, 2

and 3)

2030

In focus: Electric assisted cargo bike gets green light

at Devonport

After a successful trial, Devonport Dockyard approved the

permanent use of Electric Assisted Vehicle (EAV) cargo bikes for

on-site deliveries. Compared with diesel van alternatives, the

EAV cargo bike is cheaper to operate, reduces transportation

times and has a significantly lower environmental footprint.

Sustainable transport is a key component of the transition

toNetZero. We have been working to develop our low-carbon

and people-focused Sustainable Transport Strategy which will

drive decarbonisation across four key areas: Vehicle Fleet,

BusinessTravel, Homeworking and Commuting, and Logistics.

Whilst we fine tune our strategy, over the past 12 months we

have continued to make good progress with our transition

to100% Ultra Low Emission Vehicles (ULEV) fleet by 2030,

withULEV now making up 28% of our fleet. In addition to this,

ourElectric Vehicle (EV) salary sacrifice scheme has continued

tosupport our sustainable transition and we now have over

140EV vehicles on the scheme. Alongside this, we have

progressed investigations into a range of low-carbon transport

opportunities across our operations. Dec-23 transport emissions

are higher due to increased business travel post COVID-19, and

anincrease in logistics spend in the year.

Focus for FY25:

• Continued ULEV roll-out and deployment of EV charging

infrastructure

• Enhanced engagement with logistics and distribution

supplychain

Transport

Clarifying Babcock’s emissions reduction targets

We previously committed to Net Zero (Scope 1 and 2 emissions)

by 2040, and Net Zero across the value chain (Scope 1, 2 and 3)

by 2050. Our targets have remained the same, however to

comply with our SBTi validation criteria, we are required to use

the SBTi’s technically accurate and consistent terminology and

communicate in adherence with the SBTi guidance. Our Net Zero

targets are stated as our ‘Long-Term Targets’, as follows:

Long-Term targets:

• Reduce absolute Scope 1 and 2 GHG emissions 90% by 2040

from a 2021 base year.*

• Reduce absolute Scope 3 GHG emissions 90% by 2050 from

a2021 base year.

Overall Net Zero target:

• Net Zero greenhouse gas emissions across the

value chain by 2050.

Delivery of our Net Zero targets includes:

a. reducing emissions to zero or to a residual level that is

consistent with reaching Net Zero emissions at the global or

sector level in eligible 1.5°C scenarios or sector pathways; and

b. neutralising any residual emissions at the Net Zero target date

and any GHG emissions released into the atmosphere

thereafter.

Transport carbon emissions

2023

Baseline emissions

88,870 tCO

120,300 tCO

* The target boundary includes land-related emissions and removals from bioenergy feedstocks

69Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

ESG strategy continued

During FY24 we have continued to mature our Scope 3 footprint

and calculation methodologies, and we have now developed

agood understanding of our emissions and hot spots. Products

and services equate to a large percentage of our carbon footprint

and reducing our associated impacts is a priority. Further work

isplanned to develop the maturity of our calculations and our

teams are working to investigate opportunities to integrate Net

Zero and environmental considerations into all aspects of delivery.

In creating a safe and secure world, westrive to support our

customers on their journeys to Net Zero and become a leader in

low-carbon enablement. Across the organisation we are already

exploring innovative technologies and low-carbon opportunities

with our partners and customers:

• Partnered with Vertical Aerospace on electrified aircraft with

potential to replace helicopter operations

• Supported the Shetland Islands on decarbonisation of

smallboats

• Announced contracts to support the British Army with electric

conversion of Land Rovers

• Support the Royal Air Force with experiments on synthetic

fuelsand hybrid electric aircraft

Focus for FY25:

• Unlock further low-carbon commercial opportunities

• Enhance environmental and Net Zero support capabilities

• Preparation of product and service decarbonisation plans

• Improved maturity of Scope 3 calculations

At Babcock we understand our responsibility to support the

sustainable transition across our value chain. The impacts from

our Value Chain strand equate to 25.5% of our footprint. We have

continued to utilise the Environmentally Extended Input Output

(EEIO) methodology to calculate our footprint and we are working

with our peers, customers and supply chain partners to improve

the accuracy of this approach. Decarbonisation of the supply

chain is a crucial part of the sustainable transition and we are

working to collaborate, influence and support the transition

across the Defence value chain.

Focus for FY25:

• Enhanced supply chain engagement

• Implementation of JOSCAR Zero (a supplier management tool

which provides visibility of supply chain carbon emissions)

• Improved maturity of Scope 3 calculations

Products and Services

Value Chain

Products and Services carbon emissions

2023

Baseline emissions

1,618,573 tCO

1,593,457 tCO

Value chain carbon emissions

2023

Baseline emissions

593,160 tCO

631,051 tCO

In focus: Defence Aviation Net Zero Charter

Babcock is a co-signatory to the Defence Aviation Net Zero

Charter, which seeks to embed sustainability across Defence

Aviation. Signing the Charter demonstrates both Babcock’s

commitment to sustainability in its own operations and

tocollaborating with its customers and peers in achieving

common goals.

In focus: Small Modular Reactors

Funded by the UK Government’s Department for Energy

Security and Net Zero’s Future Nuclear Enabling Fund,

Cavendish Nuclear is collaborating as part of an experienced

industry team to support the deployment of Small Modular

Reactors in the UK. This will contribute towards delivering the

UK Government’s commitment to reach Net Zero carbon

emissions by 2050.

Find out more about our Scope 3 footprint and

calculation methodologies

70 Babcock International Group PLC / Annual Report and Financial Statements 2024

In focus: Climate and Nature Transition Plan

Over the past 12 months we have made good progress in

developing Babcock’s Climate and Nature Transition Plan. Our

transformational plan will enhance our Plan Zero 40 strategy,

and ensure climate and nature considerations are fully

embedded and integrated into Babcock’s operations. Our plan

will ensure we have an effective approach to managing

climate-related risks and reducing greenhouse gas emissions

and allow us to seize opportunities presented by the transition

to a low-carbon economy. This proactive approach will allow

the Company to assess the physical and transition risks it faces,

ensuring that it can adapt and thrive in a changing business

landscape. Embedding the plan will build resilience by

integrating climate considerations into our decision-making

processes, future-proofing our operations, and enabling

long-term, sustainable growth.

Climate management instruments

To reinforce our dedication to climate action, we have linked

executive remuneration to our carbon emissions reduction

targets. This approach ensures that our Group CEO and CFO

areincentivised to make sustainable choices, prioritise carbon

reduction strategies, and drive the integration of environmental

considerations into our business operations. By aligning

executiverewards with our climate goals, we foster a culture

ofsustainability and accountability. The remuneration is aligned

to delivery of the Carbon Reduction Plans covering our Estate

andAssets strand of decarbonisation. Further information can be

found on page 152.

As part of our commitment to mitigating carbon emissions, we

are investigating the use of an internal carbon pricing mechanism.

This tool could allow us to assign a financial value to carbon

emissions, enabling us to account for the true cost of our

environmental impact.

Data management

Data is central to Babcock’s environmental strategy and enables

evidence-based decisions. During FY24, we conducted an audit of

our data management systems which identified a number of gaps,

which we are working to address. We are continuing to mature

our data management systems and enhance our processes to

improve the accuracy and completeness of our data sets.

Following extensive investigations, we have decided to transition

to a new data management platform which will deliver significant

benefits to the organisation and be a key enabler to delivering our

sustainable transition. We will be working to implement the new

system over the coming year.

Natural environment

Throughout our global operations we interact with a range of

natural ecosystems. Maintaining and enhancing the biodiversity of

these ecosystems is a priority as we strive to protect and enhance

the environment and create a safe and secure world. Babcock

istaking a strategic approach to assess and align natural

environment considerations into our business strategies. Over

2023, we developed our first Nature Positive Roadmap which will

be integrated into our developing Climate and Nature Transition

Plan. As part of our Roadmap development, we have commenced

the delivery of biodiversity assessments across our organisation.

During FY24 we conducted a Taskforce for Nature-related

Financial Disclosures (TNFD) gap analysis across part of our

organisation. We generally achieved a basic level of maturity,

withsome progress in five of the 14 disclosure recommendations.

Feedback from the analysis has supported development of the

Nature Positive Roadmap which includes planned improvements

to: governance and risk management frameworks; biodiversity

assessment/calculation methodologies; and approach to

target-setting and improvement planning.

Find out more about our Nature Positive Roadmap

and biodiversity assessments on our corporate

website

71Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

ESG strategy continued

Task Force on Climate-related

Financial Disclosures

Climate-related financial disclosures

We are committed to decarbonising the organisation, addressing

climate-related risks and unlocking climate-related opportunities.

We have continued to work to improve our disclosures in line

withthe Task Force on Climate-related Financial Disclosures

(TCFD) requirements.

During the prior year, we conducted a strategic climate-related

risk assessment to assess the financial impact of key risk themes

on the organisation’s business strategy and financial planning.

Thisyear, we have utilised the prior assessment to inform

andprioritise areas of focus as part of our Climate and Nature

Transition Plan (CNTP) investigations, which is currently under

development. Wehave also made good progress in calculating

our Scope 3 footprint (find further details on page 67). We have

commenced work to develop our reporting of metrics in line with

the TCFD recommended cross-industry metrics. The following

areour priorities over the coming year:

• Continue development of our holistic CNTP; for further

information on the CNTP please see page 71

• Continue to mature our climate risk identification and

assessment processes to ensure that the Group quantifies

thespecific potential cost or revenue impact of risks

andopportunities

• Continue to develop our approach to Metrics and Targets

toensure consistency with all 11 TCFD Recommendations.

As per Listing Rule 9.8.6(8)R we provide disclosure against each

ofthe TCFD’s 4 pillars (governance, strategy, risk management

and metrics & targets) and confirm that these disclosures

areconsistent with 9 of the 11 TCFD recommendations

andrecommended disclosures with the exception of the

followingmatters.

Following our Scope 3 footprint works we are now consistent

withMetrics and Targets part b. We do not yet provide sufficient

disclosures to be fully consistent with Metrics and Targets part a,

as we haven’t yet established intended metrics associated with

internal carbon prices, transition risks, physical risks or climate-

related opportunities. We also do not yet provide potential

quantification of each key climate risk presented on specific

financial performance metrics (revenues, costs), and therefore

arenot fully consistent with Strategy part b.

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.

We are working to ensure our Plan Zero 40 and climate risk

workstreams are aligned through our holistic CNTP. The CNTP

isbeing developed to capture and manage all aspects of

environmental sustainability across Babcock’s global operations.

Additional climate-related disclosures can be found in the Risk

management, Governance and Financial sections see pages 103,

111 and 187.

Governance

Board oversight of climate-related risks and

opportunities

The Board has ultimate responsibility for the Company’s strategy

and risk management. Our Board oversees climate-related risks

and opportunities and discusses Group-wide ESG matters as an

integral part of Board strategic discussions. In FY24, the Board

conducted a strategy and risk management review. Climate and

environmental sustainability is one of Babcock Group’s principal

risks (for more information please refer to page 103) and

therefore climate-related risks are appropriately reviewed and

considered when reviewing strategy and the annual budget and

five-year plan. The Board had two reviews on Group-led

sustainability workstreams including updates on the Plan Zero 40

strategy and the development of the Group’s CNTP: covering the

Group’s externally committed targets to address climate and

nature impacts of the Company’s operations. To ensure

effectiveness and continual improvement, our climate governance

framework is being reviewed as part of the CNTP.

See page 114 for further details on our organisational governance

framework.

Management’s role in assessing and managing climate-

related risks and opportunities

Babcock’s Corporate ESG Committee is a Principal Management

Committee which reports into the Group Executive Committee.

The ESG Committee is responsible for Group-wide ESG initiatives,

the management of climate-related issues and driving the wider

sustainability agenda. Babcock’s executive sponsor for ESG is the

Land Chief Executive Officer, appointed in September 2023.

TheESG Committee meets on a quarterly basis and includes

representatives from the Executive Committee.

Board leadership and company purpose outlines the remit and key

membership of the Corporate ESG Committee, the Group Executive

Committee and the Group Risk Committee (see page 114).

Progress on TCFD compliance, CNTP and our environmental

targets is reported to the ESG Committee and the Board. Actions

required to further climate-related risk management activities are

overseen by the ESG Committee.

Climate and environmental sustainability is one of Babcock Group’s

principal risks and, as part of our Enterprise Risk Management

approach, the risk and its management is reviewed by both the

Group Executive Committee and the Group Risk Committee.

Through our CNTP, we are working to develop the policies,

processes and procedures to ensure climate risk assessment and

management is integrated into all operational decision-making

processes, supported by planned investment in environmental

data management systems. Over the coming year we are

integrating TCFD compliance activities into our CNTP to align with

our wider climate and environmental sustainability workstreams

and reporting.

72 Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategy

How the Company is responding to short, medium

andlong term risks and opportunities

We identify and model climate risks over the following horizons:

short term (present to 2030), medium term (2030 to 2040)

andlong term (2040 to 2100). The horizons are aligned with

ourshort-term 2030 science-based targets, medium-term 2040

decarbonisation targets and our longer-term 2050 Net Zero

targets. Modelling risks over a long term horizon allows us to

identify and assess impacts which may materialise up to the end

of the century, depending on the global climatic conditions.

Babcock continues to operate a top-down, bottom-up approach

to climate risk management, with the policy and strategy set at

Group level, and responsibility for delivery within the sectors and

direct reporting countries (DRCs). Sectors and regions consider

the insight and outputs from the climate-related risk assessments,

and identify the actions required to deliver corporate climate

impact reduction commitments. Such risks and actions are

considered in forecasts including in the annual budget and

five-year strategic plan.

In addition, consideration has been given to the climate risks

andopportunities register as potential areas of material financial

reporting impact on critical accounting judgements or key sources

of estimation uncertainty, with no current perceived material

impact on such judgements or estimates. While climate-related

matters are not considered to have a material impact on the

Group’s critical accounting judgements or key sources of

estimation uncertainty, the Group has implemented an effective

approach to identify, assess and respond to climate risks

appropriately to ensure the continuing resilience of the business

model. The climate risk identification and assessment approach

isto be matured in the coming year to ensure that the Group

quantifies the specific potential cost or revenue impact of risks

andopportunities.

Scenario analysis that the Company considers to assess

risks and inform strategy

In line with the prior year, the Company considers two potential

future climate scenarios which use economic constraints

associated with the International Panel on Climate Change’s

(IPCC’s) Shared Socioeconomic Pathway 2 middle of the road

scenario: a Paris-aligned 1.5°C for the best-case scenario and

abusiness-as-usual 4°C scenario for the baseline scenario.

The 1.5°C scenario simulates a potential future pathway of the

world economy assuming a successful introduction of climate

policies, thereby reducing the likelihood of severe climate-related

weather events. The 4°C baseline, utilised and agreed by climate

modelling experts within the IPCC, assumes the scenario in which

no further intervention on climate change is taken, leading to

aglobal-mean temperature rise of 4°C above pre-industrial levels

by 2100 and an associated increased likelihood of climate-change

related weather events.

Scenario

details 1.5ºC warming 4ºC warming

Economic

constraints

Moderate global population growth which

levels off in the second half of the century.

GDP growth in line with historical growth

Policy

expectations

Global climate policies

align with emissions

to 1.5ºC pathway

No further climate

policy intervention

Physical

impacts

Reduced likelihood of

severe climate-related

weather events

Likely increased

severity of

climate-related

weather events

As outlined in the climate risks and opportunities on page 76,

wehave assessed the impact of physical and transition climate

change risks on the relevant parts of the business, and outlined

how identified climate-related issues are considered in our

business decisions and how these may shape future strategy.

Onpage 74 we outline near term or existing opportunities that

we are exploring to capitalise on climate-related opportunities.

We have an effective process for identifying and assessing climate

change risks and opportunities and responding appropriately to

ensure resilience of the overall business strategy. A summary of

our perceived exposure to climate risk and opportunities against

the above scenarios is outlined on page 76 and details of the

control measures are also provided.

Risk management

Identification, assessment and management of climate-

related risks

We have assessed the maturity of our approach to climate risk

management; currently this is low and improving our approach

isa focus for FY25. Climate risk identification and assessment

isintegrated into our Enterprise Risk Management Framework

forreporting, escalation and corporate oversight. On a quarterly

basis, climate-related risks and opportunities are reported and

reviewed by Group Risk and Group Environmental teams to

monitor individual and thematic risks and opportunities across the

Group. Quarterly reporting and review includes proposed control

measures, and updates against prior control measures.

Specific sector and country identified climate risks are reviewed

quarterly by the Group Risk Committee, as well as being reported

into the Audit Committee quarterly and the Board annually. We

are continuing to mature our climate change risk identification

and quantification process, so that we can comply with specific

climate risk and opportunity quantification disclosure

requirements as they become applicable. Our Enterprise Risk

Management Framework provides a consistent basis for assessing

the severity of risks against different classes of risk impact such

asthose relating to financial or people impacts. For more

information on our Enterprise Risk Management Framework please

refer to page 131.

Climate risks are assessed from physical and transition

perspectives and are assessed over two scenarios (1.5°C and 4°C).

Physical risks: assessed against eight climate hazards. Acute

physical risks were considered, which are event-driven, including

increased frequency and severity of extreme weather events

including: river flooding, forest fires, extreme wind, soil

subsidence, surface water flooding and freeze-thaw effects.

Twochronic physical risks were also considered which refer to

longer-term shifts in climate patterns: extreme heat and coastal

inundation.

Transition risks: our assessment disaggregates these economic

considerations to a market level, producing price and volume

impacts on commodities and sectors across the global economy,

against which our supply chain cost structure was assessed.

Ourapproach has not changed since our previous assessment,

however our Climate Risk Working Group is planning to review

and mature our approach over the year.

We have recently established a Climate Risk Working Group

whichis tasked with reviewing and improving our climate risk

assessment and quantification approach.

73Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

ESG strategy continued

Metrics and targets

Metrics and targets used to assess climate-related risks and

opportunities

We have reviewed the TCFD guidance on Metrics and Targets

andthe cross-industry metric categories. We monitor and report

against the following cross-industry metrics:

Greenhouse gas emissions are reported externally in line with

the Greenhouse Gas (GHG) Protocol Corporate Accounting

andReporting Standard. Throughout the year we have matured

the understanding of our Scope 3 footprint and we now have

adetailed view of our entire value chain footprint. We are

continuing to develop the maturity of our Scope 3 footprint

calculations. For Scope 1, 2 and 3 greenhouse gas emissions

anddetails on calculation methodology, please refer to page 67.

Progress against the commitment is included on page 64.

Electricity from renewable sources is an externally reported

metric. Find details on page 64.

Executive remuneration is linked to the greenhouse emission

performance of the organisation. The Remuneration Committee

set ESG-related targets relating to reduction in carbon emissions

for the PSP grant. For further details on remuneration linked

toESG-related targets, please refer to page 152.

Capital deployment metric used internally to assess progress

against our Carbon Reduction Plans.

In addition, Babcock’s Net Zero targets and decarbonisation plans

have now been validated by the SBTi.

Our recently formed Climate Risk Working Group is working

todevelop metrics and associated reporting for the below

categories. These include the remaining TCFD guidance cross-

industry metric categories.

• Internal carbon price Opportunity to implement a shadow

carbon pricing metric to standardise the approach to assessment

of the GHG emission impact of business and investment

opportunities, and use in ongoing review of business

performance

• Supply chain resilience to transition and physical risk for use

insupplier due diligence and ongoing monitoring

• Occupational health review outcomes to monitor exposure

of sites and employees to adverse weather events

• Physical risk to key facilities including flood (river and surface)

and coastal fire risks

• Climate-related opportunities Proportion of revenue, assets

orother business activities aligned with climate-related

opportunities

• Transition risks Amount and extent of assets or business

activities vulnerable to transition risks.

Climate–related opportunities

This year we have pushed to capitalise on opportunities which

willsupport the development of a greener economy.

Babcock’s LGE business has won a milestone contract from a ship

owner in South Korea to deliver its first cutting-edge ecoCO2®

cargo handling system for two 22,000m³ liquefied CO

(LCO

)

carriers. In an exciting development for the business, the

ecoCO2® cargo handling system is the world’s first cargo

handling and reliquification system for a low-pressure cargo

tankdesign. LGE is also investigating bulk marine transportation

ofhydrogen, in the form of ammonia (rather than pure liquid

hydrogen), and the capture, transportation and storage of

from current emitters (ie end-to-end solution for liquefied

carriers).

Across our UK operations we have identified energy and cost saving

opportunities as part of our Energy Saving Opportunity Scheme

(ESOS) Phase 3 compliance works. Over the coming year our

Energy Action Plan will be published as part of our ESOS compliance.

We are continuing to develop Marine R&D programmes to

capitalise on potential new markets, and our PHD student is

conducting studies to identify sustainable maritime opportunities.

Within our Aviation business, Project MONET is on track to deliver

a flying testbed aircraft for the RAF that will demonstrate how

new technologies to minimise the environmental impact of flying

training can be certified for wider use.

Significant milestones have been maturing the aircraft design,

production of the net carbon zero synthetic fuel that will power

itand completion of a Life Cycle Assessment of the environmental

impact of producing light training aircraft. Early concept work

ona hybrid powertrain has produced better than expected

results, prompting the RAF to request further information on

howthis may be developed.

Babcock’s helicopter emergency services business is to explore

ajoint trial with an engine OEM on the use and environmental

impact of Sustainable Aviation Fuel with an air ambulance charity.

Babcock UK Aviation is working with the Ministry of Defence

toevaluate how to develop materials circularity in a circular

economy model. Together with a UK SME, it is aiming to

demonstrate and assess the scalability of extracting critical

materials from composite materials from defence equipment

across sea, land and air. This will provide resilient material supply

chains and reduce the environmental impact of current

disposalmethods.

Across the organisation we continue to work with a variety

ofcustomers to support their decarbonisation journeys which

present commercial opportunities for Babcock which, due

tosensitivities, we are unable to disclose further information.

74 Babcock International Group PLC / Annual Report and Financial Statements 2024

TCFD progress vs priorities

FY24 progress FY25 priorities

Governance

• ESG updates to the Board included climate action

and progress on initiatives

• FY24 Remuneration Committee considerations

included specific ESG objectives and measures

• Review and enhancement of Babcock’s climate

governance framework in line with the Climate

and Nature Transition Plan works

Strategy

• Aligned Plan Zero 40 and climate risk workstreams

to create a Babcock CNTP aligned with Transition

Plan Taskforce (TPT) requirements

• Integration of the Climate and Nature Transition

Plan requirements into Babcock’s business-as-usual

operations

• Embedding climate and nature into all aspects

of Babcock’s operations

Risk

management

• Risk management policy and climate-related Risk

Registers updated to fully embed climate risks into

our Enterprise Risk Management Framework

• Delivery of expanded report into critical suppliers’

climate-related risks and associated impact,

embedding sustainable procurement checkpoints

and on-boarding requirements for new suppliers

andsub-contracts

• Climate Risk Working Group to review and refine

Babcock’s approach to climate risk management

• Conduct physical climate risk assessments across

critical infrastructure

Metrics

and targets

• SBTi submission and gained validation of targets

• Scaled Carbon Reduction Plans across the UK estate

and progressed investigations into energy efficiency

and renewable energy projects

• Make progress against Babcock’s corporate ESG

commitments and targets

• Development of further metrics in line with TCFD

recommendations

75Babcock International Group PLC / Annual Report and Financial Statements 2024

Strategic report Governance Financial statements

ESG strategy continued

Climate risk Description Affected sectors and regions Impact horizon Analysis findings Control measures

People welfare

(Physical risk)

Disruption to operations

Disruption to staff and operations

due to weather conditions and

challenging or unsafe working

conditions.

All

(Global)

Short/medium Risk of site disruptions due to physical risks is dominated by potential

flooding at our Bristol Ashton Vale facility. There are also three sites

identified with potential extreme heat increases impacting operations.

Physical risks are more acute under a 4°C increase scenario but under

a1.5°C scenario, such physical risks could still result in high levels of

lostrevenue.

At our three sites exposed to potential extreme heat risk, occupational

health assessments have identified those working in higher risk scenarios,

such as field service mechanics and confined space maintenance

operatives. Training, hazard notices and health guidance are installed

atthese sites to recognise early signs of temperature-related health

conditions, such as heat stroke.

Cost of business

(Transition risk)

Supply chain disruption

Increased climate-related regulation,

such as taxes on fossil fuels, may

affect Babcock’s supply chain cost

base or viability of supply chain

companies.

All

(Global)

Short/medium Labour cost changes drive the risk within Babcock’s supply chain. Direct

carbon costs also increase significantly as a result of government pressure

on decarbonisation. Variations in other costs are seen to be less significant

up to 2050.

Cost increases could be greater in the 1.5°C scenario because of larger

labour and carbon cost increases.

In FY24, we broadened our analysis to encompass 1,000 of Babcock’s key

suppliers, a significant increase from the 300 suppliers analysed during FY23.

This comprehensive analysis allowed us to map the trajectories of six critical

physical hazards and socioeconomic risks. Following the extensive nature of

our study, we did not identify any immediate significant impacts. To enhance

our risk resilience, we have updated our tool to map our supply chain against

vital climate change indicators. This proactive approach enables us to identify

and address vulnerabilities effectively.

In our continuous effort to improve our operations, we have implemented

anew spend management and supplier onboarding platform, ensuring a

consistent approach to supplier due diligence and monitoring. Furthermore,

we have updated our Supplier Code of Conduct to incorporate sustainable

practices as a standard requirement; reaffirming our commitment to

sustainable and responsible business practices.

Business delivery

and continuity

(Physical risk)

Asset damage and

operational disruptions

Dockyards owned/operated by

Babcock may be flooded due to

anincrease in sea level and higher

frequency of extreme weather,

resulting in storm surges.

Marine and Nuclear

(UK and Australasia)

Medium/long Dockyard disruption due to coastal flooding has not been identified as

asignificant physical risk in terms of business interruption or value at risk.

However, the scope of this assessment does not consider all aspects of

dockyard construction and further on-site analysis for key sites is planned.

Projected sea level rise is greater in the 4°C scenario but under a 1.5°C

scenario, such coastal inundation could still result in high levels of lost

revenue or asset damage.

Across parts of our operations, we use natural external hazards assessments

toconsider the impact of low probability risks, such as extreme weather

events. Devonport mandates these assessments on-site as part of our

requirement to ensure full through-life management of our nuclear facilities

and to meet established nuclear safety standards, subject to both defence and

civil nuclear regulation. To then appraise the best environmental options for

infrastructure designs, Devonport works with industry leads, our customers

and the local authority to conduct environmental assessments and Best

Available Technique reviews where applicable.

Future services

(Transition risk)

Global energy mix changes

Demand impact to Liquid

GasEquipment (LGE) and civil

nuclear services.

Marine

Nuclear

(Global)

Medium/long Demand for LGE’s services in the 4°C scenario could see strong growth,

but significant reduction in the demand for gas in the 1.5°C scenario

could result in reduced revenue. Under a 1.5°C scenario there is potential

for growth in the medium term civil nuclear market with other competing

power sources exposed to higher carbon taxes.

The transition to low-carbon fuels in the 1.5°C scenario may limit the

global demand for gas, potentially reducing demand for LGE’s services.

Higher carbon taxes may also impact the competitiveness of nuclear

power, increasing demand for civil nuclear services. In 2050, the

combined impact of these changes in demand results in a significant

difference between scenarios.

In the medium term, there will likely be an increased demand for

emergency services, search and rescue, and emergency firefighting

activity in Canada due to extreme weather. Similarly, South Africa has

alsoidentified the long-term opportunity to enter the firefighting sector

due to extreme weather.

As a further result of extreme weather, Australia has identified the

opportunity to provide Emergency Medical Support and aid to new

geographies in Australia, whilst Canada has identified the opportunities

associated with infrastructure development, resource extraction and

marine access due to the melting ice.

Our control measures are unchanged from the previous year. We aim to

continue to develop our ammonia fuel gas supply system, as well as solutions

for the transportation and storage of CO

in line with customer and legislative

requirements. This will ensure that we are optimising efficiency while

developing zero-carbon solutions and increasing business resilience against

carbon pricing and its potential result of falling LNG demand.

To maximise these opportunities, the given sectors have identified the need

tomonitor any changes or surges in requirement, the need to conduct careful

feasibility planning/assessment, and be able to respond rapidly and agilely

tocustomer requirements, such as the redeployment of assets, in the medium

to long term.

Climate-related risks and opportunities

76 Babcock International Group PLC / Annual Report and Financial Statements 2024