At Babcock, we believe the long game is the only game that matters.
We set our sights across generations, not just quarters. That’s why
Babcock approaches everything with a broader perspective. Forging
close and committed partnerships with customers. We deliver defence
engineering that creates their big picture.
Contents
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.
Lifetime
engineering
Strategic report
1 Financial highlights
2 At a glance
4 Chair’s statement
6 Investment case
8 Strategic framework
10 Skills
12 Our business model
14 What sets us apart
16 CEO review
22 Market review
24 Community showcase
26 Key performance indicators
28 Financial review
41 – Financial Glossary
46 Operational reviews
46 – Marine
50 – Nuclear
54 – Land
58 – Aviation
62 Stakeholder engagement
and s172(1) statement
64 Sustainability
96 Responsible business
100 Non-financial and sustainability
information statement
104 Principal risks and management
controls
124 Going concern and viability
statement
Governance
126 Chair’s introduction
128 Board of Directors
132 Board leadership and company
purpose
139 Division of responsibilities
140 Composition, succession and
evaluation
144 – Nominations Committee report
146 Audit, risk and internal control
146 – Audit Committee report
150 Remuneration
150 – Remuneration Committee report
178 Other statutory information
184 Directors’ responsibility statement
Financial statements
185 Independent auditor’s report
to the members of
Babcock International Group PLC
195 Group financial statements:
195 – Group income statement
195 – Group statement of
comprehensive income
196 – Group statement of changes
in equity
197 – Group statement of
financial position
198 – Group cash flow statement
199 – Notes to the Group financial
statements
266 Company financial statements
266 – Company statement of financial
position
267 – Company statement of changes
in equity
268 – Notes to the Company financial
statements
275 Shareholder information
Introduction
Strategic report
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Governance
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Financial statements
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Financial highlights
£4,831m
2024: £4,390m
Revenue
Statutory operating profit
Underlying operating profit* Net debt (excluding leases)*
Underlying free cash flow*
Statutory cash generated
from operations
£364m
2024: £242m
£363m
2024: £238m
£357m
2024: £374m
£153m
2024: £160m
£(101)m
2024: £(211)m
Operational highlights
• The first Type 31 frigate, HMS Venturer,
entered the water and returned to Rosyth
for fit-out in June 2025
• Devonport’s 9 Dock open after a significant
regeneration, and HMS Victorious docked
• First Astute Class submarine docked in
Devonport’s 15 Dock facility
• Awarded £114 million contract to support first
nuclear submarine defueling operations in
over 20 years
• Awarded sole-source five-year British Army
strategic support partner contract extension
‘Reframe’ (formerly DSG) worth £1 billion
• Awarded Mentor 2 contract for military
air training solutions for the French Navy,
Air and Space Force, for up to 17 years
• Launched H&B Defence joint venture with
HII in Australia to support AUKUS
• Signed an MOU with Patria to offer the UK
the Patria 6x6 Armoured Personnel Carrier
• Expanded the General Logistics Vehicle
offering through launch of a medium
wheelbase, with plans for six-wheel variant
• Launched South West UK Hub for Nuclear
Skills to support the delivery of the UK
strategic plan for skills
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 2024. The Group has defined
and outlined the purpose of its APMs in the Financial Glossary on page 41.
* Underlying operating profit, underlying free cash flow and net debt
(excluding leases) are defined as Alternative Performance Measures;
see page 41 for more detail.
Babcock International Group PLC Annual Report and Financial Statements 2025 1
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Financial statements
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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.
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.
Our Purpose is to create a safe and secure world, together.
Babcock is an international defence company providing
support and product solutions to enhance our customers’
defence capabilities and critical assets.
Our business
What we do
At a glance
FY25 global revenue profile
£4,831m
FY25 revenue
c 27,700
Employees
as at 31 March 2025
74%
Defence
£10.4bn
Contract backlog
Our customers’ requirements
Our capabilities
Frontline support
Equipment support
Technology and systems integration
Design, develop, manufacture
Technical training
Capability
Affordability
Availability
UK 71% SA 7%
ANZ 8%
FRA 2%
ROW 9%CAN
3%
2 Babcock International Group PLC Annual Report and Financial Statements 20252 Babcock International Group PLC Annual Report and Financial Statements 2025
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Financial statements
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Strategy and
business model
Investment case Market review Sustainability
strategy
● See pages 8 and 12 ● See page 6 ● See page 22 ● See page 64
Our c.7,300-strong workforce delivers:
• Design, build and through-life
support of warships
• Submarine and equipment
through-life support
• Design and manufacture of weapons
handling and launch systems for ships
and submarines
• Design, build and support of secure
military communications systems
• World-leading commercial liquid
gas equipment systems
FY25 revenue profile
Defence UK
Defence Intl.
Civil Intl.
Our c. 10,000-strong workforce delivers:
• Through-life complex engineering
support to the entire UK submarine fleet
• Through-life management of critical
national defence infrastructure: own
and manage Devonport dockyard
• End-to-end engineering integration
support for AWE deterrent production
• UK civil nuclear new build, generation
support and decommissioning projects
• Growing international nuclear
services portfolio across defence
and civil markets
FY25 revenue profile
Defence UK
Civil UK
Our c.6,300-strong workforce delivers:
• Strategic asset management and
through-life engineering support
for complex military equipment
• Defence and security vehicle build
and systems integration
• Engineering services in power
generation and transport networks,
and through-life support of mining
equipment
• Individual and collective training,
delivering operational readiness
for customers with critical missions
FY25 revenue profile
Defence UK
Defence Intl.
Civil UK
Civil Intl.
Our c.2,600-strong workforce delivers:
• End-to-end military flying training for
UK’s Royal Airforce, French Airforce
and French Navy
• Through-life support of operational
military flying assets
• Through-life support of operational
military infrastructure
• Critical air operations for government
programmes, saving lives and
protecting communities
FY25 revenue profile
Defence UK
Defence Intl.
Civil UK
Civil Intl.
53%
29%
18%
39%
18%
33%
10%
38%
9%
41%
12%
£0.3bn
£1.1bn
£1.6bn
87%
13%
£1.8bn
Babcock International Group PLC Annual Report and Financial Statements 2025 3
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Governance
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Financial statements
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Dear fellow Shareholder
This has been a pivotal year for Babcock. Looking
inwards, the strength of our performance in FY25
shows the progress that a disciplined, purpose-led
Group can achieve. Looking outwards, the
continuing evolution of the geopolitical security
landscape brings the value we can deliver to all
our stakeholders into ever sharper relief.
I was delighted to see that value reflected when
Babcock rejoined the FTSE 100 index in March
2025 after an absence of more than seven years.
Last year I talked about the increased focus on
defence in public discourse around the world.
This has continued, with increasing political
attention on defence capability driving uplifts in
defence budgets in our target markets. There is
greater demand for equipment modernisation,
increased asset availability and supply chain
resilience. Against this backdrop, our long
experience of supporting NATO governments
is a competitive advantage.
The energy transition and energy security are also
driving greater and increasingly complex demands
on the energy system. As a company which is
active throughout the nuclear energy supply
chain, we also have an important role to play here.
In the UK, where we are the second largest
supplier to the Ministry of Defence, the
Government is actively encouraging investment
in our sector.
It recognises that sovereign defence companies
like ours are not only essential to safeguard
national security, but that the investment and
skilled jobs we provide make us an engine for
growth and prosperity. This year, research by the
independent Oxford Economics global advisory
firm showed that in FY24 Babcock contributed
£4.3 billion to the UK’s GDP (see page 96).
Financial strength
FY25 saw growth in revenue and underlying
operating profit above expectations, and overall
cash generation better than forecast at the
beginning of the year. As a result, the balance
sheet has further strengthened, resulting in
a gearing ratio (net debt to EBITDA) of 0.3x.
The combination of balance sheet strength,
increasing operating momentum and opportunities
for sustainable growth have given the Board the
confidence to increase the total dividend for the
year by 30% to 6.5p per share and announce the
intention to launch a £200 million share buyback
programme to be completed over the next
twelve months.
●
The continuing evolution
of the geopolitical
security landscape brings
the value we can deliver
to all our stakeholders
into ever sharper relief.
Dame Ruth Cairnie
A pivotal year
Chair’s statement
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Improving processes
The Group’s performance in FY25 demonstrates
the efficacy of our enhanced focus on controls
across the business, a key pillar of our multi-year
turnaround. We are committed to maintaining this
focus as we move beyond the turnaround phase.
Throughout FY25, the Board has overseen the
continuing maturation of our programme
governance and performance review processes
which help to drive the consistency and
effectiveness of delivery, and aim to ensure robust
and proportionate challenge at all levels.
Building on these internal control improvements,
we have worked to prepare the Company for
the reforms introduced in the 2024 Corporate
Governance Code, which will require the Board
to monitor and review the Company’s framework
for all material controls (see more on page 147).
The Group monitors delivery across our most
complex programmes via our watchlist review
process. This ensures compliance to policy and
process requirements for reviews, maintains the
quality of evidence at reviews, facilitates
appropriate challenge and directs interventions,
such as independent deep dives, where required.
We continue to embed the programme of process
improvements across our commercial function.
We recognise that targeting contract risk
identification and mitigation before we sign is a
crucial way to protect our margins, so in FY25 we
rolled out a series of commercial policies and
guidance, including improved governance controls
for bidding. These included a strengthened legal
review process covering contract terms and
conditions, which identifies how we prefer
to contract.
We have aligned processes between our project
management, engineering and commercial
functions to facilitate smoother contract
mobilisation. In addition, the increased adoption
of core tools in support of our Global Business
Management System will enable improved trend
analysis across our portfolio, earlier problem
detection, improved decision-making and
continuous improvement.
We also published our first Supplier Assurance
Handbook in FY25, enhancing transparency by
detailing our sustainability considerations, risk
management, supplier assessment, audit and
development processes. This will further foster
our collaboration and sustainable supply chain
management in line with our commitment
to excellence. We also implemented a new
procurement risk governance process, effectively
identifying and mitigating the most critical risks
in our procurement function.
Improving technology
Technology will play an increasingly important part
in our future. You can read more on our approach
and our strategic technology themes on page 9.
Internally we are also investing in technology to
increase our efficiency.
Our investment in Athena, a next-generation
replacement for our current IT operating model,
delivers a suite of technical capabilities that will
address the changing digital landscape in which
we operate, and the evolving threats we face.
The introduction of Athena will support our work,
including the use of Artificial Intelligence and
effective global collaboration, within a modern
security model. As we look to FY26, the
programme will focus on large-scale migration
across the business, supporting our governance
of costs and efficiencies.
Investment in people
We continue to invest in the skills of our people,
including a renewed focus on succession planning
for key delivery roles and on training. For example,
our commercial function has built on the training
provided in 2024, on topics including negotiation
skills, pricing methodology, risk management,
business winning and commercial governance
for bids, with a series of knowledge sessions
delivered in conjunction with our legal team.
Our engineering function has introduced a
comprehensive training regime to support our
maturing approach to product safety.
We are also continuing to invest in initiatives
to address engineering skills shortages in the
locations in which Babcock operates, including
introducing an Engineering Role Framework
supported by skills and competency training.
This provides our engineers with clear, achievable
career progression opportunities and improves our
ability to move people across the business to meet
customer needs.
We strengthened and deepened our talent pool,
welcoming our largest-ever early careers intake of
over 400 apprentices and 285 graduates in 2024.
We continue to break down barriers to
employment through our Production Support
Operative scheme and our pre-apprenticeship
programmes. Our investment in the Babcock Skills
Academy programmes, our leadership role in the
UK’s National Nuclear Strategic Plan for Skills and
our creation of apprenticeships in space systems
and cyber security are all helping to create a talent
pipeline that underpins our customers’ future
sovereign defence capabilities.
I would like to take this opportunity on behalf
of the Board to thank all our colleagues in the
business for their continued hard work and
dedication, and their focus on ensuring we live
up to our Purpose and principles.
Your Board believes that we will continue to
capitalise on these strong foundations. We look
forward to delivering sustainable growth and
continuing to create value for our shareholders
over the coming years.
Dame Ruth Cairnie
Chair
●
The Group’s
performance
in FY25
demonstrates
the efficacy
of our
enhanced
focus on
controls
across the
business.
We are
committed
to maintaining
this focus as
we move
beyond the
turnaround
phase.
Babcock International Group PLC Annual Report and Financial Statements 2025 5
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Strongly
positioned
Growth drivers
• Growing global threat environment
• 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 capital allocation framework
• Value enhancing model – increased
military capability and asset availability
at affordable price
Clear growth strategy
• £10.4 billion contract backlog
• 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
• Disciplined and targeted investment
Differentiated
proposition
• Focused portfolio in growth markets:
74% defence and 5% civil nuclear
• 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 sustainability
Margin
improvement
• Contract risk management
• Focus on operational improvement
• Improved programme delivery
• Growth of quality business
• Unwind of legacy contracts
• Upgrades to business systems
ongoing
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
• Long lifecycle assets
• Capability transfer
• High incumbency on critical
programmes
• Strategic partnerships
• Sustainability embedded
in our strategic framework
● See page 19
● See page 18
● See page 28
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
Investment case
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Underpinned by our capital allocation framework
Pensions
Accelerate de-risking
M&A
Bolt-on opportunities
Shareholder returns
Further returns of surplus
capital to our shareholders
Further capital options
Priority
Strong focus on our updated medium-term targets
Average annual organic
revenue growth
Mid-single digit
Underlying operating
margin
≥9%
Average underlying operating
cash conversion
≥80%
Creating shareholder value
Strong embedded
position and
sustainable growth
=
Confidence
in driving value
+
Clear financial
targets
+
Disciplined capital
allocation
Organic investment
Sustain investment to support business operations and enhance growth potential
1
Financial strength
Maintain strong balance sheet and investment-grade rating
2
Ordinary dividend
Pay an ordinary dividend
3
Formula for growth
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Strategic framework
Our strategy
Focused on delivering value for all our stakeholders
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 a diverse and resilient workforce
• Grow our engineering and technical capabilities
• Develop skills through the Babcock Academy and national
and industry initiatives
• Progress our early careers and returners programmes
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 six sustainability priorities
• Further develop sustainability capability within the business
• Ensure effective governance and oversight processes
• Communicate the vital role of defence and national security
Improved outcomes
for our customers
A better place
to work
Returns for our
shareholders
Creating a safe and secure
world, together
Our capabilities span four key markets, with 74% of our business in defence
To create a safe and secure world, together
Our Purpose
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Our growth strategy
Our strategic technology themes deliver a combination of growth and increased competitiveness
Optimise
position
New
programmes &
markets
Expansion in
focus countries
Direct
exports
Strategic
partnerships
UK International
New products and services to generate growth
Enhancing existing products and services to increase competitiveness
C5ISR
Developing comprehensive
capabilities in Command
and Control, Computers,
Communications, Cyber,
Intelligence, Surveillance
and Reconnaissance
Effectors and
countermeasures
Enabling scalable
defensive and offensive
capabilities against a range
of threats using the latest
technology.
Green technologies
Expanding green
technology solutions
including energy
generation, emissions
capture and storage,
alternative fuels and
novel propulsion.
Advanced
manufacturing
Developing manufacturing
capability to meet
high-integrity, mass
manufacture and repair
demands.
Autonomy
Building an autonomous
capability covering scale
assembly, systems
integration, certification,
launch and recovery,
operation, training and
through life-support
of uncrewed systems.
Human performance
augmentation
Enhancing human
capability through
optimised training,
biometric monitoring
and augmentation.
Digital through-life
support
Providing optimised,
data-driven, through-life
asset management,
maintenance, repair and
overhaul, and digital
engineering services.
Building on our intimate understanding of defence assets
and their owners, we offer our customers deeply pragmatic
answers to the problems they face.
We seek to provide integrated solutions, delivered in
dynamic collaboration with the best in the industry: products
informed by service and services informed by product.
That means we don’t look to own the whole technology
stack. Instead, we keep ourselves free to work with the right
small & medium enterprises and industry partners, bringing
together the best technology to deliver the outcomes our
customers need, with the pace and agility they are looking
for. And we all share in the value created.
Our own investments are focused on developing technology
at the integration layer to access new markets, such as
autonomy, with deliverable products, or on using enabling
technology that equip us to deliver our existing work better.
We are organised across the Group to make sure that we
are able to get the best value out of our focus on
technology. In FY25, we refocused our technology team,
establishing cross-sector and country working groups for
each of our strategic technology capability themes (see the
chart below for more detail).
These themes drive innovation, ensure our technology
relevance and empower us to deliver cutting-edge,
pragmatic solutions. Solutions that deliver the capability,
availability and affordability our customers require.
Our new technology team is also playing a pivotal role
in fostering collaboration and knowledge exchange across
the Group. By sharing our ongoing initiatives and leveraging
our collective expertise, we aim to maximise the return
on our innovations whilst cultivating a learning environment
for our people.
Key internal initiatives include: the internal publication of
our first research and development stocktake for the Group,
the release of quarterly horizon scanning reports, the
showcasing of our subject-matter experts and the creation
of dedicated knowledge-sharing forums. These efforts are
strengthening our ability to exploit emerging technologies
and make full use of the wealth of expertise across the Group.
In FY26, we will be building on these initiatives, with
a particular focus on developing our understanding
of technology partners in the autonomy space, and
in developing our own IP.
Underpinned by technology
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Our customers rely on us to deliver their vital
defence and national security programmes.
As the defence environment becomes ever
more complex, we recognise the need to
ensure that our people have the skills and
know-how to deliver for decades to come.
We’re growing and adapting our workforce
to make sure we continue to do just that.
Taking a structured approach
We’re investing in talent management across our people’s
careers, from recruitment to retirement. We’ve introduced a
Global Competency Framework, which helps us set consistent
standards for everyone across Babcock. This allows us to
identify gaps in our skills so we can close them, and lets us see
where we need to develop new capabilities to deliver for our
customers today and in the future. It allows us to be agile and
mobile across the Group, and for us to drive innovation through
‘meta’ competencies.
The common framework allows us to align our UK engineering
skills with those of colleagues in Australia and Canada, so our
engineers can move more freely to where the business need is.
For example, the know-how needed for submarine support
in the UK translates to the know-how needed to support
submarines in Australia. We want to be able to mobilise our
people to meet business requirements, whenever and wherever
we’re needed.
Skills
the future
Engineering
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Increasing our defence skillset in Australia
We’ve opened a cutting-edge facility in Adelaide where over
100 engineers and technical experts will work across significant
defence programmes, including future AUKUS endeavours.
The move presents hands-on opportunities for engineers and
graduates to perform detailed design work and apply their
technical skills to create mechanical systems.
This new facility will enhance our ability to attract local, national
and international talent, and support South Australia’s growing
defence manufacturing ambitions.
Bringing staff from different programmes together on a single,
open plan floorplate will encourage knowledge sharing and the
exchange of new ideas, plus create fresh avenues for career
advancement.
Right skills and right mindset? We’ll do the rest
The complex and critical work we do means that the roles
we need to fill are far from ordinary. We routinely hire for skills
that are in short supply, so we’ve had to take an innovative
approach to getting the right people for the job. We’ve gone
beyond traditional routes, and as a result have opened up
opportunities to a broader range of people.
New apprenticeships for new domains
With space and cyber becoming increasingly important
elements of national security, these skills are in great demand.
We’ve introduced new apprenticeship programmes to bolster
our resilience for years to come.
Our space systems engineering apprenticeships will play
an essential role in developing the skills needed to support
programmes like Skynet, managing the UK’s military satellite
communications system. The apprentices will learn the skills
needed to play a critical role in maintaining and modernising
the UK’s sovereign space communications capabilities.
Our cyber security engineering apprentices will work with
our teams to ensure the confidentiality, integrity and availability
of our customers’ data is appropriately protected.
By investing in these programmes now, we’re creating a talent
pipeline that underpins the UK’s future sovereign defence
capability.
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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,
train and empower our workforce.
Customer relationships
We are a trusted partner, critical to our
customers’ ability to solve complex
problems. Through long-term
programmes and contracts, we work
collaboratively with our customers
to understand their needs and identify
solutions that add value.
Our assets
We own critical national infrastructure
across the UK, including the Rosyth
and Devonport Royal dockyards.
We also operate a range of customer-
owned critical assets such as naval
and air force bases, complex
engineering facilities and aircraft for
the delivery of emergency services
and military training.
Our technology and know-how
We use our technology and our highly
specialised engineering know-how to
solve customer challenges. We have
a deep understanding of our
customers’ assets and are able to
integrate technologies and capabilities
to support their needs and provide
services that add value.
Safety and regulatory
compliance
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.
Delivering 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.
1
2
3
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
£10.4 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 104 for our principal risks.
Our business model
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Customers
Delivering for our customers and
partnering with them on the challenges
they face.
Colleagues
Creating a better place to work where
colleagues are valued and motivated
at all times.
Investors
Creating shareholder value through
growth, cash generation and the
efficient allocation of capital. Delivering
shareholder returns through dividends
and increased share value.
Communities
Providing jobs and investment across
the UK and internationally where we
operate, and ensuring we act
responsibly at all times in the interests
of local communities around our sites.
Suppliers
Creating jobs and nurturing
investment through collaboration
with our supply chain.
Creating
stakeholder value
● See page 62 for more on
our stakeholder engagement
Sustainability
Our sustainability strategy is a key component of how we deliver and
increase the sustainability and growth of our business. Our business has
a significant impact on society and the environment, and sustainability
is an integral part of our corporate strategy and how we do business.
See page 64 for our sustainability review.
5
4
6
7
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 7 for our capital
allocation framework.
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What sets us apart
Mid-life upgrade
MRO
Wear
and tear
MRO
MRO
Procured
operational
defence
capability
Enhanced
capability
Life extension
Disposal and
replacement
We offer customers deeply pragmatic and integrated solutions,
delivered in dynamic collaboration through committed partnerships.
Products informed by service and services informed by product,
resulting in assets that work, and work hard, year after year.
Maximising asset value and utility, with end-to-end vision.
1
st
Commission
Capability
upgrades
Standard life of asset Extended operational life Disposal
LIFEX Replacement
System
2
nd
Commission 3
rd
Commission
Delivering
lifetime engineering
Enhanced
capability
Capability
degrades
Obsolescence
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We set our
sights across
generations,
not just quarters.
Design
Build
Maintain
Upgrade
Defuel
Dispose
Recycle
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Introduction
FY25 was a pivotal year for Babcock,
demonstrating the strength of the business we
have built over recent years. Financial
performance was particularly strong with full year
results ahead of our upgraded guidance, while
a complex and rapidly changing global context
for defence has highlighted the increasing
relevance of our specialist capabilities.
Babcock is in a position of financial strength,
with operational momentum across the business.
We have a clear capital allocation framework
which, in combination with our robust balance
sheet, enables us to address both the growing
international opportunity set to deliver sustained
good growth, and to deliver improved returns
for shareholders over the coming years.
Our increased confidence in the potential for
future value creation is underlined by today’s
upgrade to our medium-term guidance, in addition
to a 30% increase in full year ordinary dividend
and the announcement of the launch of a
£200 million share buyback programme to be
completed in FY26.
We are building a track record of growth,
margin expansion, cash generation and
investment that will sustain attractive growth
and create shareholder value over the long term.
Well-positioned for a new era
ofdefence
CEO review
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Our specialist capabilities
are increasingly relevant
and, with a growing set
ofopportunities before us,
Babcock is committed
toplay its part in driving
prosperity alongside
itscustomers.
David Lockwood
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Strong results
Performance in FY25 was strong, with growth
in revenue and underlying operating profit
1
above
our expectations at the beginning of the year,
and overall cash generation better than forecast.
Revenue grew organically
1
by 11% to £4.8 billion,
with particularly strong growth in Nuclear
and Marine.
Underlying operating profit of £363 million is
an increase of 17%, excluding the one-off items
in FY24. On the same basis, underlying operating
margin
1
of 7.5% represents a 50-basis points
improvement, demonstrating significant progress
towards our previous medium-term guidance of
at least 8%. At the sector level, margins increased
in Nuclear, Land and Aviation, while Marine
declined as expected due to high margin AH140
licence sales in FY24.
Strong underlying operating cash conversion
1
of 82% despite ongoing investment in the
business (capex to depreciation ratio 1.6x),
resulted in underlying free cash flow
1
of
£153.4 million (FY24: £160.4 million), which
included an additional pension deficit repair
payment of £40 million (FY24: £35 million).
We completed a long-term funding arrangement
(LTFA) for the Rosyth Royal Dockyard Pension
Scheme (discussed below). This is the last
of three main schemes to reach an LTFA and
demonstrates a significant de-risking of our
pension liabilities over the last three years.
As a result, the balance sheet has further
strengthened. Net debt excluding leases
1
reduced
to £101.2 million (FY24: £210.9 million), resulting
in a gearing ratio (net debt to EBITDA)
1
of 0.3x
(FY24: 0.8x).
On a statutory basis, we delivered operating profit
of £364 million, and generated cash from
operations of £357 million.
Given the Group’s strong performance,
the Board has recommended a final dividend of
4.5 pence per share, taking the full year dividend
to 6.5 pence per share, an increase of 30%
compared to FY24.
Our contract backlog increased slightly to
£10.4 billion (FY24: £10.3 billion), reflecting firm
orders related to the five-year DSG contract
extension (now called ‘Reframe’) and Mentor 2
contract in France, offset by revenue traded
on the existing long-term contract portfolio.
The Group’s largest programme, Future Maritime
Support Programme (FMSP), enters its final year
of trading in FY26 with Heads of Terms agreed
and commercial discussions under way for the
follow-on multi-year programme.
Continuing to prioritise delivery
We continue to make good operational progress
and to deliver for our customers. Through the year
we achieved several important milestones that
position us well for future growth.
Following a significant upgrade to 9 Dock in our
Devonport facility, the dry dock critical to the
support of the Vanguard Class of nuclear deterrent
submarine, HMS Victorious docked in January
and was removed from the water. This is a key
step in the multi-year £560 million HMS Victorious
life extension programme and for the future
support of the UK’s deterrent fleet.
We also achieved the first docking of an Astute
Class nuclear attack submarine, HMS Audacious,
in February, paving the way to deliver the
significant support requirement for the Astute
fleet over the coming decades.
The five-ship UK Type 31 frigate programme made
good progress through the year, with work starting
on the third ship, HMS Formidable, using an
enhanced build strategy to drive production
efficiencies that will be realised through the rest
of the build programme. After the year end, the
first-in-class ship, HMS Venturer, marked the
significant execution milestone of leaving the
assembly hall and entering the water, before
returning, as planned, to dry dock to continue
work. Ship 2 is expected to float off in H2 FY26.
Separately, we secured a £65 million Capability
Insertion Period (CIP) contract for the Type 31 fleet
to deliver additional military capability for the vessels
beyond the initial design and build contract.
This contract, awarded on a sole-source basis,
recognises that our differentiated capabilities
will deliver enhanced value to this key Royal
Navy programme.
In March, we finalised negotiations for ‘Reframe’,
a five-year extension to the British Army land
equipment support contract following successful
execution and completion of the original contract,
DSG. Worth around £1 billion, and awarded on
a sole source basis, Reframe supports delivery
of the UK Government’s Defence Industrial
Strategy and is a model for addressing complex
equipment support opportunities, focused on
delivering improved readiness, regeneration
and asset management services. It will maximise
the availability of critical army equipment whilst
delivering increased value for money and better
outcomes for both partners.
Our Cavendish Nuclear business is successfully
delivering a significant ramp up in activity at
Hinkley Point C, as the construction phase of
the large gigawatt nuclear power plant project
progresses. As a key partner in the Mechanical,
Electrical and HVAC (MEH) Alliance, we have
increased resources from 250 to over 600 people
in the last year; we anticipate our team continuing
to grow significantly in support of the overall
project requirement.
2025
11%
Organic revenue
growth, see page 29
2025
£10.4
bn
Contract backlog
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CEO review (continued)
We continue to invest in systems and processes to improve
operational efficiency. We made good progress on our
ERP upgrade and consolidation strategy, with successful
implementation of SAP in Devonport, our largest SAP investment
in our largest trading entity, and in Land, to enable and support
of the DSG contract extension negotiation.
Design and rollout of our next-generation digital platform
(Athena) is on track, which will give us a more agile, secure
and efficient foundation from which to deliver our customer
solutions, increasing standardisation and process automation,
and improving business control.
Increasing global market opportunity in defence
and nuclear
A combination of continued global insecurity, rising global
threats and rapidly evolving technology has led to a
strengthening of stance on defence and security by
governments across all our markets. There is clear recognition
of the need for increased investment in defence capabilities
and energy security, in particular nuclear power generation.
Nations are increasingly focused on securing national
sovereignty and industrial resilience, prioritising equipment
and infrastructure modernisation, evolving technologies and the
need to work in partnership with industry. These trends are
likely to drive significant defence spending and increased
investment in the civil nuclear sector for the foreseeable future.
Positioned to deliver the UK’s near and
long-term goals
The dynamic in the UK has shifted significantly over the last six
months. In its 2025 Spending Review, the new Government
confirmed it will increase its commitment to defence spending
to 2.6% of GDP by 2027 (from 2.3%) with cross-party support
for an ambition for this to rise to 3% of GDP in the next
Parliament. This will include £6 billion to upgrade nuclear
submarine production and £4.5 billion spend on munitions.
The Prime Minister also announced at the Nato Summit in June
2025, a commitment to spend 5% of GDP on national security
with a target date of 2035.
In addition, the UK Government set out its defence and security
priorities in the Strategic Defence Review (SDR), announced
on 2 June, which is strongly aligned with our capabilities
(discussed below). At the meeting of NATO defence ministers,
the UK committed to an ambitious new set of capability targets
which will form the basis for a new defence investment plan.
With UK defence representing 62% of Group revenue in FY25,
this backdrop provides a significant opportunity for
sustained growth.
The SDR emphasised the contribution of defence to broader
economic prosperity, the need to drive a new partnership
with industry and to radically reform the current procurement
system. As the second-largest supplier to the UK Ministry of
Defence, contributing £4.3 billion of value to the country’s GDP
in FY24 (Oxford Economics report – March 2025), Babcock
is a key part of delivering the UK Government’s ambitions.
The SDR sets out five key principles:
• NATO first: Babcock supports several key NATO forces
as well as working directly with NATO
• Move to warfighting readiness: Babcock supports all three
UK Armed Forces, providing submarine design, systems
and support, warship build, integration and support,
advanced manufacturing, mission systems autonomy,
mission systems and digital. land defence build and support,
and technical training
• Engine for growth: Babcock is a critical UK-based supplier
to the MOD, driving jobs and prosperity across the country,
including a UK-first supply chain approach, and creating
further growth through exports from the UK
• UK innovation driven by lessons from Ukraine:
Babcock plays a significant role in Ukraine, supporting
the UK MOD-gifted equipment and training
• Whole of society approach: In addition to its financial
contribution to UK GDP, Babcock is a leading member
of the National Nuclear Skills Taskforce, is investing in skills
and training, and is the UK’s largest employer of veterans.
The priorities outlined in the SDR align strongly with our
capabilities and expertise, including our naval and civil nuclear
capability, advanced manufacturing and mission systems
expertise, and exports of warships, equipment, vehicles,
autonomy and specialist training.
In particular, the UK Government has signalled it is focused
on nuclear, both defence and civil. Nuclear is our biggest sector
in revenue and profit terms and Babcock is the largest civil and
defence nuclear services provider in the UK. We are the only
company with the capability and critical assets to support the
UK’s nuclear-powered submarine fleet.
The Government’s commitment to the nuclear deterrent, with
the new fleet of Dreadnought Class submarines, and to increase
in the nuclear attack submarine fleet from 7 to 12 through the
AUKUS programme, will drive activity in our submarine support
business for decades.
We are also involved in the intergovernmental AUKUS programme,
both in the UK and Australia. We recently announced the first
Australian AUKUS contract for H&B Defence, our joint venture
with HII in Australia, to enhance Australia’s supply chain
capabilities in preparation for delivery of the first three nuclear-
powered submarines under the AUKUS trilateral partnership.
The SDR also outlined a £15 billion investment in a new
sovereign nuclear warhead, supporting our role with the Atomic
Weapons Establishment (AWE).
With the Government having set out its priorities in the SDR,
it will take time for the practical aspects of implementation
to be determined and fiscal constraints will likely remain a key
determining factor. We expect further clarity with publication
of the Defence Industrial Strategy expected Summer 2025.
Nevertheless, the importance of UK defence has undoubtedly
increased significantly, and we are encouraged by the
Government’s strong intention to increase industrial
collaboration. We are confident that significant opportunities
will emerge, including investment, driving growth in both our
UK and international businesses over the medium and
long-term.
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Positioned for UK civil nuclear renaissance
In civil nuclear, commitments by the UK Government earlier
this month to a £14 billion investment in the Sizewell-C large
gigawatt nuclear plant project and to develop the first three
small modular reactor (SMR) power stations, represent
significant opportunities for our Cavendish Nuclear business.
Cavendish is also involved in the design of assets required
for nuclear fuel manufacture, conversion and enrichment
in support of developing a sovereign nuclear fuel capability.
Disciplined capital allocation
Our clear and consistent capital allocation framework is designed
to be flexible and thereby allow us to maximise value creation.
In FY25, supported by our strong balance sheet, we delivered
on our capital allocation priorities with further investment
in the business (capex to depreciation 1.6x (FY24: 1.7x)),
accelerated pension deficit payments by £40 million as part of
the strategy to materially de-risk the Group’s pension liabilities
and proposed a 30% increase in full year dividend.
With net cash generation of £105.3 million and our gearing
ratio (net debt to EBITDA) down to 0.3x, we have the financial
capacity to invest in the growing opportunity set and also return
surplus capital to shareholders. Therefore today, we have
announced our intention to launch a £200 million share buyback
programme, to be executed over FY26. This demonstrates
responsible capital allocation whilst retaining balance sheet
strength for investment opportunities.
Investment for growth: In addition to ongoing capex, we see
growing opportunity to invest for growth. It is too early to identify
specific opportunities as governments determine their priorities
and overall intended growth in spending. However, our investment
considerations include, in Rosyth, advanced manufacturing
capability and expansion of production capacity to address
opportunities in domestic and international marine and nuclear
markets, as well as SMR large scale modular manufacturing.
In addition, we will be investing in new growth contracts such as
Mentor 2, which has an initial capital phase of aircraft acquisition.
To further enhance our ability to grow, both in the UK and
internationally, and to attract the talent required to support that
growth, we continue to focus on embedding our Purpose-led
culture across the Group. To support this, in June 2025 we
introduced a brand refresh, which will enable us to more clearly
articulate our value to all of our stakeholders.
Our people are the foundation of Babcock’s success and are
critical to delivering sustained growth. We remain committed
to investing in their development and to creating opportunities
to support their long-term career goals. Our people strategy
includes developing highly skilled jobs, training, and investment
in early careers. In the UK, this fully aligns Babcock with the
Government’s aim to deliver the ‘Defence Dividend’; namely
for increased investment in the industry to generate growth
and prosperity for the nation as a whole.
We continue to break down barriers to employment. In FY25
we delivered our third Skills-based Work Academy Programme
at our Vehicle Engineering site in Walsall, building on successful
initiatives at our Devonport site. Developed in partnership with
local councils and the Department for Work and Pensions, this
provides unemployed individuals with qualifications and skills.
Earlier in the year, we welcomed our fifth intake of Production
Support Operatives (PSOs) at our Rosyth facility.
As a key industrial partner on the UK’s Nuclear Skills Taskforce,
we are playing a leading role in securing the critical skills needed
across the defence and civil nuclear sectors. In September,
the UK Minister for Defence Procurement, Maria Eagle, officially
opened the Babcock Engineering & Nuclear Skills building at
City College Plymouth. This facility will support the development
of complex submarine maintenance capabilities and marks the
next phase of our Babcock Skills Academy — focused on building
a pipeline of talent and upskilling our workforce to meet future
nuclear programme demands. After the year end, we opened
a new apprenticeship welding school in Bristol.
FY25 saw us welcome our largest-ever early careers intake
in the UK, hiring apprentices and graduates across a wide range
of high-demand disciplines, including space systems
engineering. We expect to increase this programme in FY26.
As part of our commitment to retaining and rewarding our
people, we are launching a free share award programme for
all employees globally. This initiative allows eligible employees
to share directly in Babcock’s success, recognising their
contributions and strengthening their connection to the
Company’s future.
Investing in partnerships: We continue to develop strategic
partnerships with leading global players where we share
investment and risk to influence, disrupt and shape a market.
In the Land domain, we are building our equipment production
business through an increasing number of partnerships.
During the year we received a contract for the manufacture
of 53 Jackal ‘Extenda’ variants of the High Mobility Transporter
for the British Army, in partnership with Supacat. The initial order
for 70 Jackal 3 vehicles began production within the Devonport
Freeport earlier this year.
We have also partnered with ST Engineering to offer the UK
an integrated, end-to-end solution to enhance British mortar
capability, as part of the MOD’s 120mm mortar procurement.
In line with the priorities set out in the UK SDR, we will deliver
a sovereign solution that boosts British capability whilst driving
economic and social benefit.
In January 2025, Babcock signed a memorandum of
understanding with Finnish company Patria to offer the Patria
6x6 Armoured Personnel Carrier to meet the operational
requirements of the British Army, in line with the UK’s Defence
Land Industrial Strategy. Under the agreement, Patria will lead
on design and development of the system, while Babcock will
lead on the manufacture, assembly, integration and testing.
We are exploring export potential through all of these partnerships.
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In the marine and naval nuclear sectors, Babcock and HII
launched an Australian joint venture, H&B Defence, to
accelerate the development of critical sovereign capability for
the AUKUS conventionally armed, nuclear-powered submarine
programme. In May 2025, the joint venture secured its first
contract to deliver a two-year Australian Submarine Supplier
Qualification Pilot Program which will accelerate the
identification of Australian suppliers with the requisite skills
and products to enable them to access the US Virginia Class
submarine supply chain.
We continue to work in partnership with Saab, currently
supporting design deliverables on the Swedish Navy’s next
generation Luleå Class surface combatant programme. We are
working together to identify export markets for the Luleå Class.
In FY25, we built on our strategic partnerships in the Republic of
Korea with two new agreements to support the growth of global
opportunities: a Strategic Cooperation Agreement with Hanwha
Ocean, to jointly address solutions for major global naval
procurement projects, and a Memorandum of Understanding
with Korea Aerospace Industries to jointly explore military flying
training, air base support and engineering opportunities in
Central, Eastern and Southern Europe.
After the year end, we signed an MOU with Safran, the world’s
second largest aircraft equipment manufacturer, to jointly
pursue opportunities across multi-domain mission systems,
aircraft engines, space systems, tactical and strategic
communications and uncrewed airborne vehicles.
Inorganic investment: Our bolt-on M&A strategy is an important
component of our capital allocation framework and supporting
the Group’s future growth potential and expansion of capability.
We have a disciplined and structured approach to assessing
opportunities, focusing on their fit with our core capabilities and
our confidence that they will create shareholder value.
Whilst we have been active in reviewing opportunities through
FY25, including two low triple-digit million targets, we ultimately
decided against proceeding in each case, having determined
through detailed due diligence that the balance of risk and value
potential did not reach our value creation thresholds. We will
continue to assess potential acquisition opportunities which
meet our criteria.
Upgraded medium term guidance
Two years ago, having reset our financial baseline, we provided
medium term guidance of average revenue growth in the
mid-single digits, underlying margin of at least 8% and
operating cash conversion of at least 80%. This reflected
our confidence in the growth, profitability and cash generation
potential of the business.
To date, we have met or exceeded guidance for both revenue
growth and cash conversion and delivered a trajectory of margin
improvement each year towards the earlier end of the guidance
period. We now expect to meet our target underlying operating
margin in FY26, at least one year earlier than we anticipated.
We are now refreshing our guidance and over the next
medium-term period we expect to deliver:
• Average revenue growth of mid-single digit
• Underlying operating margin of at least 9%
• Average underlying operating cash conversion of at least 80%
Our new medium-term guidance is underpinned by the current
outlook for our businesses and nearer-term pipeline.
The strengthening stance on defence and security by governments,
and the clear recognition of the need for increased investment
in defence capabilities and energy security, provides a positive
backdrop for many of our addressable markets. Babcock
is well-positioned for future opportunities that may arise in
the longer-term.
David Lockwood
Chief Executive
Dividend
A dividend of 4.5 pence per ordinary share (FY24: 3.3 pence)
is payable on Tuesday 30 September 2025 to shareholders
whose names appear on the register at the close of business
on Friday 22 August 2025. If approved by the Shareholders at
the AGM on 25 September 2025 this will give a total dividend
for the year of 6.5 pence (FY24: 5.0 pence). Shareholders may
participate in the dividend re-investment plan and elections
must be made by Tuesday 9 September 2025. Details of the
dividend re-investment plan can be found, and shareholders
can make elections, at www.babcock-shares.com
CEO review (continued)
1. A defined Alternative Performance Measure (APM) as set out on page
1 and in the Financial Glossary on page 41.
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Market review
Defence is a growing sector
Babcock is an international defence company providing support and product solutions to enhance our customers’ defence
capabilities and critical assets.
Geopolitical tensions are driving unprecedented growth in the global defence sector with spending reaching a record high
of $2.46 trillion in 2024.
1
Nations around the world are increasing investment in military capabilities, at a time when technological
advances are driving rapid changes in how capability is developed and deployed.
In the UK, defence is undergoing considerable change to enable the MOD to deal with this rapidly changing environment.
The new structures will include a full-time National Armaments Director and Directorate, who will oversee all defence procurement
and export, increasing the focus on procuring equipment and technology that can be sold to allies abroad.
What sets us apart
Babcock understands what it takes for assets to perform at their best for the longest. Our approach increases asset availability
and reduces cost of ownership, maximising the value and utility of assets from beginning to end.
We offer customers deeply pragmatic and integrated solutions – products informed by service and services informed by product.
Engineered with pragmatism and delivered through collaborative and committed partnerships, resulting in assets that ‘work’ in use
and over time, achieving 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.
1. The Military Balance 2025: Defence Spending and Procurement Trends.
UK: a changing environment for defence
Since the General Election in July 2024, the new UK Government
has increasingly focused on defence, necessitated by rising
geopolitical volatility.
In February 2024, Prime Minister Keir Starmer committed
to increase in defence spending to 2.5% of GDP by 2027,
with an ambition for this to rise to 3% of GDP in the next
Parliament. This would represent the UK’s largest sustained
increase in defence spending since the end of the Cold War
and signals a robust commitment to both national security
and industrial growth.
In its 2025 Spending Review, the Government confirmed it will
increased its commitment to defence spending to 2.6% of GDP
by 2027 (from 2.3%). This will include £6 billion to upgrade
nuclear submarine production and £4.5 billion on munitions.
Additionally, the UK Government actively encouraged
investment in the UK defence sector through a multi-pronged
strategy unveiled in March 2025. This included an additional
£2.2 billion allocated for defence in the 2025–2026 fiscal year.
It has repeatedly framed defence investment as a tool for
broader economic development, aiming to create skilled jobs
and stimulate advanced manufacturing across the UK, by
encouraging increased private sector investment through
initiatives such as the Defence and Economic Growth Taskforce.
(See Babcock’s contribution to UK GDP in FY24 on page 96)
The 2025 Strategic Defence Review marked a transformative
moment for UK defence policy. It aims to re-orientate the
Armed Forces towards warfighting readiness, with a strong
emphasis on technological innovation and the sustainment
of the Continuous-At-Sea Deterrent as the foundation of UK
defence, in addition to seeking to use the UK’s defence sector
as a vehicle for economic growth.
The direction of travel set by the Review is expected to result
in increased investment to strengthen the UK’s defence posture
and enhance its global competitiveness. This will create
significant opportunities for UK defence firms like Babcock, due
to the Government’s desire to prioritise investment into British
business to enhance national industrial resilience, as set out
in the Defence Industrial Strategy statement of intent.
The recently agreed UK-EU Security and Defence Partnership
is expected to increase access to collaborative projects and
funding streams, such as the EU’s SAFE initiative, while reinforcing
the UK’s role as a key security actor on the continent. This will
enable companies like Babcock to further strengthen its
partnerships in Europe.
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Supportive market dynamics
The geopolitical environment continues to be unstable, resulting in a continued political focus on defence capability. This is driving
increased defence budgets in our target markets, alongside greater demand for equipment modernisation, maximum asset
availability, supply chain resilience and better value-add. Against this backdrop, our long experience of supporting all branches
of the UK’s Armed Forces is a competitive advantage, both as a supplier to government customers and as a partner to international
defence companies. Net Zero and energy security are also driving greater and increasingly complex requirements around the
energy transition.
UK 71% of FY25 revenue Our defence capabilities Opportunities
c.£64bn
2024 defence budget
1
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
• Secure comms
• Army vehicle build and support
• Pilot training
• Next Generation Technical
Training
• UK Air Power Enablement
programme
• UK Land Mobility programme
• AWE fissile support
• 120mm GDAMS
• AUKUS
• Naval Support Integrated
Global Network (NSIGN)
• MRSS
• T83 FADS
Asia Pacific 13% of FY25 revenue
c.£73bn
2024 defence budgets
2
We are a key defence
company in Australasia,
providing maritime
sustainment and defence
communications capability
to the Australian and New
Zealand Defence Forces,
with product capability
exports further afield.
• AUS, NZ warship asset
management and sustainment
• AUS submarine onboard systems
support
• AUS, NZ high-frequency comms
– operation, maintenance and
upgrade
• ROK submarine systems
• IDN frigate development
• AUKUS
• AH140 General Purpose
Frigate
• Fleet support
• Defence Search and Rescue
• Pilot/Aircrew training
• Theatre Logistics and
Vehicle MRO
• Battlefield communications
• UaX operations and training
• Strategic communications
• Shipbuilding support services
• Critical Infrastructure
Management
Europe 3% of FY25 revenue
c.£115bn
2024 defence budgets
3
We have an established
position in France while
exporting selected capabilities
to Poland, Ukraine and Spain
in response to equipment
modernisation, based on our
strong track record in the UK.
• FRA pilot training
• FRA aircraft support
• FRA land support
• POL frigate development
• UKR warship support
• UKR vehicle and equipment
support
• ESP submarine systems
• Flying training
• RED Air
• Vehicle maintenance, repair
and overhaul
• Marine support
• AH140 frigates
• General Logistics Vehicle
(GLV)
• Corvette design and build
North America 4% of FY25 revenue
c.£770bn
2024 defence budgets
4
We have a strong history
of supporting the Canadian
Navy and the US Department
of Defense.
• CAN submarine support
• US submarine components
• Canadian Patrol Submarine
Project (CPSP)
• Fleet support
Sources:
1. The International Institute For Strategic Studies (IISS) 2025.
2. IISS 2025: AUS, NZL, ROK, IDN.
3. IISS 2025: FRA, POL, UKR, BEL, ESP.
4. IISS 2025: US, CAN.
Babcock International Group PLC Annual Report and Financial Statements 2025 23
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Part of the
Community
Community showcase
Figures relate to Babcock in South West England,
from The contribution of Babcock to the UK economy,
An independent report by Oxford Economics, March 2025
What we do in the UK doesn’t just help protect
the country; our presence drives growth and
prosperity.
We are an intrinsic part of the areas in which
we operate. We create jobs, support local
businesses and contribute to the wellbeing
of the communities that we’re proud to be
a part of. Because we know that to go far,
we must go together.
Contributed
12,000
staff
Employed
Paid
21,500
jobs
Sustained nearly
£1.3bn
to UK GDP
£290m
to suppliers, and just under £540m
to workers in the region
Babcock in South West England
24 Babcock International Group PLC Annual Report and Financial Statements 202524 Babcock International Group PLC Annual Report and Financial Statements 2025
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Babcock in Plymouth
We are proud to own and operate Devonport Royal Dockyard,
the UK’s sole licensed site for submarine maintenance,
defueling, and refueling. As the largest employer in the South
West outside the military, Babcock’s Devonport base supports
critical defence programmes and hosts two thirds of our
UK workforce.
For over 50 years, we’ve backed the UK’s Continuous-At-Sea
Deterrent with the nation’s largest nuclear-capable contractor
workforce. Co-located with HMNB Devonport – the largest naval
base in Western Europe – Devonport is vital to maintaining the
UK’s sovereign defence capabilities now and into the future.
Investment: In 2022, we began a £1 billion programme to
develop advanced Royal Navy facilities. By September 2024,
we reopened 9 Dock – the site’s largest dry dock – and
modernised 15 Dock. This investment aligns with a wider
£4.4 billion Government defence commitment to Devonport
over the next decade.
Skills: We’re investing in skills development in the region,
working with local partners, such as City College Plymouth and
the University of Plymouth, to underpin apprentice and graduate
programmes. We are also providing wider vocational
opportunities and creating new career pathways.
Jobs: We’re securing skilled jobs in the region. In September
2024, alongside Supacat, we won a contract to build 53 High
Mobility Transporter Jackal 3s for the British Army, securing
100 jobs in the South West. Production will take place at our
advanced Devonport facility within the Plymouth and South
Devon Freeport.
Embedded in the local community
As a major employer in the region, we’re deeply engaged
with the local community in Devonport and the wider area
of Plymouth, providing opportunities to a broad range of people
and helping to foster a thriving community.
Our community support includes:
• Breaking down barriers to employment for Devonport’s young
people – changing how we assess our pre-apprenticeships,
hiring candidates on characteristics and behaviours rather
than just looking at their qualifications
• Supporting local charities through volunteering – our
colleagues donate their time to a wide range of local causes,
including the Plymouth Soup Run and working with Headway
to transform its rehabilitation centre
• Sponsoring and attending key community events such as
Plymouth Armed Forces Day, to inspire the next generation
through STEM activities.
Partnering to support those who need it most
In 2023, we established a three-year community connection
partnership with Plymouth Argyle Football Club, which includes
supporting its Argyle Community Trust.
Every year the partnership delivers tailored physical,
educational and social programmes to 15 primary schools
and hosts the Babcock Community Cup, a football competition
involving hundreds of children from across the city.
At Christmas, we help create and deliver hampers to some
of Plymouth’s most vulnerable residents.
We’re also proud to partner with the Community Hub at Foulston
Park in the heart of Devonport, which opened its door to the
community this year. The hub offers meeting places, a
community gym, classrooms and a digital suite with the latest
technology. It is an ideal location for a wide range of workshops
and events to educate and inspire the engineers of the future.
Community
Babcock International Group PLC Annual Report and Financial Statements 2025 25
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How we measure progress
2025 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 was 10.7%, driven
by strong growth in Nuclear and Marine,
and partly offset by the expected decline
in Aviation.
● See our operational reviews on page 46
G
Organic revenue growth
T
Organic revenue growth
Organic revenue growth (%)
10.7%
Definition
Underlying operating profit, expressed
as a percentage of revenue.
● See page 31 for a reconciliation of
statutory to underlying operating profit.
Commentary
Group margin was up 210 basis points
year on year, due to the prior year loss
on Type 31 and an out performance
in Nuclear and Aviation.
● See our commentary on page 30
G
Underlying operating profit
Underlying operating margin
T
Underlying operating margin
Underlying operating margin (%)
Definition
Underlying earnings after tax divided
by the weighted average number of
ordinary shares.
Commentary
Underlying earnings per share increased
due to higher underlying operating profit
for the year and lower underlying net
finance costs. In FY24, excluding the
impacts on earnings per share of the
contract loss and the profit on disposal of
property, underlying earnings per share was
40.8p. The increase on this basis was 23%.
● See reconciliation on page 31
G
Underlying basic earnings per share
Underlying EPS (p)
7.5%
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 41.
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 82% reflects better-than-expected
operational performance, expected unwind
of working capital affording another year
of accelerated £40 million pension deficit
repair contribution and pension deal.
● See calculation on page 32
G
Underlying operating cash conversion
Underlying operating profit
Underlying operating cash flow
T
Underlying operating cash conversion
Underlying operating cash
conversion (%)
Net debt/EBITDA
(covenant basis)
Underlying return on invested
capital, pre-tax (ROIC) (%)
Definition
Net debt to EBITDA as measured in our
banking covenants. This uses net debt
(excluding leases) divided by underlying
earnings before interest, tax, depreciation
and amortisation plus JV dividends received.
This definition makes a series of adjustments
to both Group net debt and Group EBITDA;
see page 35 for a reconciliation.
Commentary
Our net debt to EBITDA (covenant basis)
decreased 0.5x to 0.3x. The decrease was
driven by lower net debt due to high
underlying operating cash flow and
underlying free cash flow performance.
● See reconciliation on page 35
G
EBITDA
Net debt/EBITDA (covenant basis)
Definition
Underlying return on invested capital is
defined as underlying operating profit plus
share of JV profit after tax, divided by the
sum of net debt, shareholders’ funds and
retirement deficit or surpluses.
Commentary
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 leases increased.
● See calculation on page 36
G
Underlying return on invested capital
50.3p
37%0.3x82%
FY25
FY24
FY23
FY22
10.7
9.9
4.7
11.4
FY25
FY24
FY23
FY22
4.0
5.8
5.4
7.5
FY25
FY24
FY23
FY22
50.3
17.7
30.7
30.8
FY25
FY24
FY23
FY22
82.0
172.6
1.9
135.7
FY25
FY24
FY23
FY22
0.3
1.5
1.8
0.8
FY25
FY24
FY23
FY22
37.0
18.8
17.4
26.0
Key performance indicators
26 Babcock International Group PLC Annual Report and Financial Statements 2025
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Definition
The Total Recordable Injury Rate (TRIR)
is a 12-month rolling average that relates
to the number, per 200,000 working hours
(200,000 represents 100 employees
working 40 hours for 50 weeks per year),
of 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
We work in challenging environments and
high-hazard industries and continuously
improve our risk controls and develop
our people, which has enabled us to
significantly reduce the number and severity
of work-related injuries and illnesses
requiring medical treatment beyond first aid
during FY25. Our Home Safe commitments
ensure work is planned, risk-assessed and
people are encouraged to stop work when
things change.
Having made significant progress in
reducing the number of accidents, we will
continue our efforts and the focus will be to
reduce absences through improvements in
occupational health provision and individual
case management, to support workers back
to work safely. We have set ourselves the
objective to reduce the number of days lost
due to work-related injuries and occupational
illnesses by 10% by 2030 and will use
FY25 as the baseline. This will be reflected
in our KPI from FY26.
● See page 83 for more information
Total recordable injuries rate CO
2
e emissions (tCO
2
e/£m)
Total Scope 1 & 2 tCO
2
e
emissions
% women across total
workforce
Senior management gender diversity (%)
2025 Non-financial performance
Definition
Estimated tonnes of CO
2
e emitted as
a direct result of revenue-generating
operations, reported as tonnes CO
2
e / £m
of revenue. The reporting period for our
energy consumption and carbon emissions
is the calendar year (1 January to
31 December).
Commentary
Scope 1 and 2 emissions reduced (year-on-
year) by 6.7%, however Scope 3 emissions
increased (year-on-year) by 14.3% as
Group revenue also increased through the
period. This has resulted in an increase
of 6.7% in the Group’s carbon intensity.
In order to align with our emissions target
which focuses on an absolute emissions
reduction, from FY26 we will move to
a new KPI “Total estimated tonnes of
Scope 1 and 2 CO
2
e emitted from operations
and activities which fall under Babcock’s
‘Operational Control’ “. Emissions are
reported in line with requirements of the
Greenhouse Gas Protocol Corporate
Reporting Standard.
This KPI does not include Scope 3
emissions. This is due to the volatility
of Scope 3 reporting arising from changes
in methodology and because we will review
our Scope 3 emissions target and pathways
in FY26 in line with pending SBTi updates.
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 87).
Commentary
This increase in female representation is
a result of both organisational restructuring
and our continued focus on inclusive hiring
practices. It also reflects our broader gender
balance strategy, including initiatives like
Illuminate, flexible working, targeted STEM
outreach and partnerships such as Women
in Defence, which are strengthening our
female talent pipeline and creating a culture
where women are thriving.
At Babcock, we are committed to increasing
the representation of women in our
senior-level roles. We are also focusing on
supporting women throughout our business.
To reflect this commitment, we have set
a Gender Balance Target of ‘30% women
across our workforce’; our definition
of ‘workforce’ includes global, permanent
and agency. This new target will be
reflected in our KPI from FY26.
0.73 783.9
103.5 19%
31%
FY25
FY24
FY23
FY22
0.73
0.74
0.92
0.73
2024
2023
2022
2021
783.9
757.7
881.1
734.8
2024
2023
2022
2021
126.020
125.052
111.010
103.530
FY25
FY24
FY23
FY22
18
21
19
19
FY25
FY24
FY23
FY22
23
23
23
31
● See page 71 for more information ● See page 87 for more information
Appointment key
G
Link to Glossary
T
Link to medium-term guidance
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The Group provides alternative performance
measures (APMs), including underlying operating
profit, underlying margin, underlying earnings per
share, underlying operating cash flow, underlying
free cash flow, net debt and net debt excluding
leases to enable users to have a more consistent
view of the performance and earnings trends of
the Group. These measures are considered to
provide a consistent measure of business
performance from year to year. They are used by
management to assess operating performance
and as a basis for forecasting and decision-
making, as well as the planning and allocation of
capital resources. They are also understood to be
used by investors in analysing business
performance.
The Group’s APMs are not defined by IFRS and
are therefore considered to be non-GAAP
measures. The measures may not be comparable
to similar measures used by other companies, and
they are not intended to be a substitute for, or
superior to, measures defined under IFRS. The
Group’s APMs are consistent with those for the
year ended 31 March 2024. The Group has
defined and outlined the purpose of its APMs in
the Financial Glossary on page 41.
The reconciliation from the IFRS statutory income
statement to the underlying income statement is
shown below.
●
A strong set of results with
revenue and profit growing
well and ahead of our
expectations. Cash flow was
very strong alongside
significant investment in the
business, which when
coupled with the pensions
progress, further
strengthened the balance
sheet. We have also
upgraded our medium-term
guidance and announced a
share buyback.
David Mellors
A year of strong financial performance
Financial review
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Income statement
31 March 2025 31 March 2024
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Underlying
£m
Specific
adjusting items
£m
Statutory
£m
Revenue 4,831.3 – 4,831.3 4,390.1 – 4,390.1
Operating profit 362.9 1.0 363.9 237.8 3.8 241.6
Operating margin 7.5% 7.5% 5.4% 5.5%
Share of results of joint ventures and associates 8.4 (11.1) (2.7) 9.2 – 9.2
Net finance costs (31.9) (0.2) (32.1) (35.9) 1.8 (34.1)
Profit before tax 339.4 (10.3) 329.1 211.1 5.6 216.7
Income tax (expense)/benefit (84.1) 3.9 (80.2) (53.5) 5.0 (48.5)
Profit/(loss) after tax 255.3 (6.4) 248.9 157.6 10.6 168.2
Non-controlling interest (1.8) – (1.8) (2.5) – (2.5)
Profit/(loss) attributable to the owners of the parent 253.5 (6.4) 247.1 155.1 10.6 165.7
Basic EPS 50.3p 49.1p 30.8p 32.9p
Diluted EPS 49.3p 48.0p 30.1p 32.2p
A full statutory income statement can be found on page 195.
As described on page 28, 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.
FY25AviationLandNuclearMarineFXFY24
4,390
(22)
161
295
12% 19% 2% (4)% 11%
21
(14)
4,831
Organic growth - at constant FX
Organic revenue bridge
(£m)
Revenue of £4,831.3 million was 11% higher than FY24 on an organic basis, driven by strong growth in Nuclear and Marine.
See segmental tables on page 40:
• Marine revenue increased 12% (at constant FX) to £1,576.4 million. Growth was led by a full year of trading on the Skynet
programme and higher volumes in LGE, as well as increased naval support activity on our New Zealand and Canada programmes
and ramp up of new contracts in Ukraine and Sweden. This was partly offset by the FY24 license sales in Poland not repeated in
FY25 and lower support volumes in Australia.
• Nuclear revenue increased 19% (at constant FX) to £1,816.0 million led by strong growth in our Cavendish Nuclear business
(+28%) driven by the expansion of new civil nuclear projects. In addition, submarine support activity grew strongly under the
Future Maritime Support Programme (FMSP) and ramp up of the HMS Victorious Deep Maintenance Programme, in addition to
further growth in Major Infrastructure Programme (MIP) revenue to £504 million (FY24: £459 million).
• Land revenue increased 2% (at constant FX) to £1,116.6 million comprising growth from a broad range of defence activities in both
the UK and international markets, including DSG, Jackal production and Ukraine support, and an increase in our South Africa
business. This was substantially offset by a reduction in our Rail business.
• Aviation revenue declined 4% as expected (at constant FX) to £322.3 million primarily due to completion of the aircraft delivery
phase in the H160 French defence programme.
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Financial review (continued)
FY25TradingFXFY24
(excl. contract provision
and profit on disposal)
Contract provision
and profit on disposal
FY24 reported
238
73
311
7.0 %
margin
(2)
54
363
Underlying operating profit bridge
(£m)
5.4%
margin
+17%
at constant FX
7.5%
margin
Underlying operating profit was up 53% to £363 million, in line with our post-close trading update. The prior year included two
non-recurring items, a £90 million contract loss and a one-off £17 million profit on disposal of property. Excluding these, underlying
operating profit increased 17%, driven by strong performance in Nuclear and Land.
Underlying operating margin increased to 7.5% (FY24: 5.4%). FY24 includes (2.0)% from the Type 31 loss and 0.4% from the
profit on property disposal. Excluding these, underlying operating margin improved 50 basis points reflecting good performance in
Nuclear, Land and Aviation, which more than offset the reduction in Marine margin due to the AH140 frigate licence income in FY24.
See segmental tables on page 40:
• Marine underlying operating profit increased to £96.5 million (FY24: £13.1 million), primarily reflecting non-repeat of the
£90.0 million contract loss in FY24 as well as revenue growth outlined above, offset by the impact of licence contribution in FY24.
As a result, underlying operating margin was 6.1% (FY24: 0.9%; FY24 excluding contract loss 6.9%).
• Nuclear underlying operating profit increased to £160.3 million (FY24: £109.2 million), driven by revenue growth in civil nuclear,
submarine support and infrastructure, and project delivery improvements as well as some contract changes. As a result,
underlying operating margin increased to 8.8% (FY24: 7.2%).
• Land underlying operating profit decreased 10% to £86.2 million (FY24: £96.3 million) as FY24 included a one-off £17.0 million
profit on disposal of property. Excluding this, underlying operating profit increased 9% reflecting revenue growth outlined above
net of the decrease in Rail, improvement in training margins and the final year of trading of the DSG contract. As a result,
underlying operating margin was 7.7% (FY24: 8.8%; FY24 excluding property profit 7.2%).
• Aviation underlying operating profit increased 4% to £19.9 million (FY24: £19.2 million), despite lower revenue, reflecting
improved project profitability, programme timing and contract renegotiations, including price. As a result, underlying operating
margin increased to 6.2%. (FY24: 5.6%).
Further analysis of financial performance is included in each sector’s operational review starting on page 46.
Statutory operating profit increased to £363.9 million (FY24: £241.6 million). FY24 was impacted by the two non-recurring items,
the £90.0 million contract provision and the £17.0 million profit on disposal of property. Excluding these, the drivers of profit growth
are the same as outlined above. The specific adjusting items between statutory and underlying operating profit are set out in the
table below.
Statutory operating margin increased to 7.5% (FY24: 5.5%), reflecting the same drivers as for underlying operating margin.
30 Babcock International Group PLC Annual Report and Financial Statements 2025
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Reconciliation of statutory to underlying operating profit
31 March 2025
£m
31 March 2024
£m
Statutory operating profit 363.9 241.6
Amortisation of acquired intangibles 8.2 10.8
Business acquisition, merger and divestment related items (1.5) (8.2)
Curtailment gain on pension scheme closure (1.2) –
Fair value movement on derivatives (6.5) (6.4)
Specific adjusting items impacting operating profit (1.0) (3.8)
Underlying operating profit 362.9 237.8
Share of joint ventures and associates on a statutory basis was a £2.7 million loss including an £11.1m charge following a review
by our Ascent flight training joint venture to align its accounting to IFRS principles. This resulted in a c.1% lower overall measure of
contract completion than the revenue estimate previously applied under IFRS. This adjustment has no impact on dividends received
within our underlying free cash flow and has been treated as a specific adjusting item to profit before tax. The underlying share
of results from joint ventures and associates was £8.4 million (FY24: £9.2 million).
Net finance costs
• Underlying net finance costs decreased to £31.9 million (FY24: £35.9 million), reflecting reduced finance costs following
termination of the £300 million RCF in October 2023 and higher interest income on surplus cash balances. This was partly offset
by higher lease interest charges on aircraft in Australia and in Canada to support new Aviation programmes and a higher IAS 19
retirement benefit interest charge of £4.5 million (FY24: charge of £0.8 million).
• Statutory net finance costs decreased to £32.1 million (FY24: £34.1 million), reflecting the £4.0 million decrease in underlying
net finance costs and a £2.0 million difference in fair value movement on derivative and related items.
Income tax expense
• Underlying income tax expense increased to £84.1 million (FY24: £53.5 million) reflecting higher underlying operating profits
and geographical mix. This represents an effective underlying tax rate of 25.4% (FY24: 26.5%), calculated using underlying profit
before tax excluding the share of income from joint ventures and associates (which is a post-tax number). The Group’s effective
underlying tax rate is expected to remain broadly stable over the medium term depending on country profit mix.
• Statutory income tax expense increased to £80.2 million (FY24: £48.5 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 financial statements.
Basic earnings per share
• Underlying basic earnings per share of 50.3 pence (FY24: 30.8 pence) increased due to higher underlying operating profit
for the year and lower underlying net finance costs. In FY24, excluding the impacts on earnings per share of the contract loss
and the profit on disposal of property, underlying earnings per share was 40.8p. The increase on this basis was 23%.
• Basic earnings per share on a statutory basis increased to 49.1 pence (FY24: 32.9 pence) reflecting the improvement in underlying
earnings per share and the post tax impact of the specific adjusting items outlined above.
Reconciliation of statutory profit/(loss) and basic EPS to underlying profit and basic EPS
31 March 2025 31 March 2024
£m Basic EPS £m Basic EPS
Statutory profit after tax for the year 248.9 49.1p 168.2 32.9p
Specific adjusting items, net of tax 6.4 1.2p (10.6) (2.1)p
Underlying profit after tax for the year 255.3 50.3p 157.6 30.8p
Dividend per share
31 March 2025
pence
31 March 2024
pence
Interim 2.0 1.7
Final 4.5 3.3
Total 6.5 5.0
The Board has recommended a final dividend of 4.5 pence per ordinary share for approval by shareholders at the 2025 Annual
General Meeting, which will take the total dividend for FY25 to 6.5 pence (FY24: 5.0 pence), a 30% increase.
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Financial statements
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Financial review (continued)
Exchange rates
The translation impact of foreign currency movements resulted in a decrease in revenue of £22.4 million and a decrease in underlying
operating profit of £1.9 million. The main currencies that have impacted our results are the Australian Dollar, Canadian Dollar, Euro,
New Zealand Dollar and South African Rand. The currencies with the greatest potential to impact results are the South African Rand,
the Australian Dollar, the Euro and the Canadian Dollar:
• A 10% movement in the South African Rand against Sterling would affect revenue by around £34 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 £25 million and underlying operating
profit by around £1 million per annum
• A 10% movement in the Euro against Sterling would affect revenue by around £11 million and underlying operating profit by around
£1 million per annum
• A 10% movement in the Canadian Dollar against Sterling would affect revenue by around £8 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 2025
£m
31 March 2024
£m
Statutory operating profit 363.9 241.6
Add back: specific adjusting items (see table on page 31) (1.0) (3.8)
Underlying operating profit 362.9 237.8
Right of use asset depreciation & impairment 33.0 39.8
Other depreciation & amortisation 78.3 67.3
Non-cash items 11.0 (8.7)
Working capital movements 2.1 127.5
Provisions (23.5) 20.4
Net capital expenditure (122.2) (111.8)
Lease principal payments (45.4) (49.6)
Underlying operating cash flow 296.2 322.7
Underlying operating cash conversion (%) 82% 136%
Pension contributions in excess of income statement (89.1) (107.6)
Interest paid (net) (26.8) (32.2)
Tax paid (39.1) (27.4)
Dividends from joint ventures and associates 12.2 7.1
Cash flows related to specific adjusting items – (2.2)
Underlying free cash flow 153.4 160.4
Net acquisitions and disposals of subsidiaries (1.1) (1.3)
Dividends paid (including non-controlling interests) (28.0) (10.3)
Purchase of own shares (18.8) (12.5)
Lease principal payments 45.4 49.6
Net new lease arrangements (87.2) (54.8)
Leases disposed of/(acquired) with subsidiaries 1.1 –
Other non-cash debt movements (2.1) (3.2)
Fair value movement in debt and related derivatives 0.5 0.5
Exchange movements (1.1) 0.6
Movement in net debt 62.1 129.0
Opening net debt (435.4) (564.4)
Closing net debt (373.3) (435.4)
Add back: leases 272.1 224.5
Closing net debt excluding leases (101.2) (210.9)
A full statutory cash flow statement can be found on page 198 and a reconciliation to net debt on page 34.
32 Babcock International Group PLC Annual Report and Financial Statements 2025
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Underlying operating cash flow decreased to £296.2 million (FY24: £322.7 million), which was slightly higher than expected due
to working capital performance, predominantly the timing of contract milestones and customer advanced payments at the year end.
Gross capex of £128.3 million (FY24 £142.4 million) remains well ahead of depreciation as we continue to invest across the portfolio,
in our operations and systems, including the roll-out of SAP. Capital expenditure is reconciled in the financial glossary on page 41).
Overall, the conversion ratio of operating cash to underlying operating profit was 82% (FY24: 136%).
Underlying free cash flow of £153.4 million (FY24: £160.4 million) includes an additional £40 million (FY24: £35 million) pension
deficit repair contribution as part of finalising long-term funding arrangements for two of our three main schemes. As a result,
we expect annual deficit repair payments to reduce from around £40 million per annum to around £20 million per annum for the
next six years.
Acquisitions and disposals
The £1.1 million outflow arose from deconsolidation of cash relating to disposals in Oman. The outflow of £1.3 million in FY24
represents the final settlement in relation to the disposal of the European AES business in FY23.
New lease arrangements
In addition to net capital expenditure, and not included in underlying free cash flow, £87.2 million (FY24: £54.8 million) of net additional
lease liabilities were entered into in the year. The increase includes aircraft leases to support new contracts in Australia and Canada.
These are new lease obligations and are therefore included in net debt, but do not involve any cash outflows at inception.
Reconciliation of underlying operating cash flow to statutory net cash flows from operating activities
31 March 2025
£m
31 March 2024
£m
Underlying operating cash flow 296.2 322.7
Add: net capital expenditure 122.2 111.8
Add: lease principal payments 45.4 49.6
Less: pension contributions in excess of income statement (89.1) (107.6)
Less: Non-operating cash items (excluded from underlying cash flow) (17.3) (2.2)
Cash generated from operations 357.4 374.3
Tax paid (21.8) (27.4)
Net interest paid (26.8) (32.2)
Net cash flows from operating activities 308.8 314.7
Statutory cash flow summary
31 March 2025
£m
31 March 2024
£m
Net cash flow from operating activities 308.8 314.7
Net cash flow from investing activities (110.8) (100.6)
Net cash flow from financing activities (92.7) (85.5)
Net increase in cash, cash equivalents and bank overdrafts 105.3 128.6
Net cash flow from operating activities was £308.8 million (FY24: £314.7). This reflects higher operating profit and lower pension
deficit payments, offset by the working capital inflow in FY24.
Net cash flow from investing activities was an outflow of £110.8 million (FY24: outflow of £100.6 million), reflecting higher net capex.
Net cash flow from financing activities was an outflow of £92.7 million (FY24: outflow of £85.5 million), including £45.4 million
lease payments (FY24: £49.6 million), £28.0 million dividends paid (FY24: £10.3 million) and £18.8 million purchase of own shares
(FY24: £12.5 million).
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Financial review (continued)
Movement in net debt – reconciliation of statutory cash flows to net debt
31 March 2025
£m
31 March 2024
£m
Net increase in cash, cash equivalents and bank overdrafts 105.3 128.6
Cash flow from the decrease in debt 29.9 25.3
Change in net funds resulting from cash flows 135.2 153.9
Additional lease obligations (96.2) (55.2)
New lease receivables granted 24.7 32.4
Debt held by disposed subsidiaries 1.1 –
Other non-cash movements and changes in fair value (1.6) (2.7)
Foreign currency translation differences (1.1) 0.6
Movement in net debt in the year 62.1 129.0
Opening net debt (435.4) (564.4)
Closing net debt (373.3) (435.4)
Net debt
Net debt at 31 March 2025 was £373.3 million, a reduction of £62.1 million driven by underlying free cash flow, offset by dividend
payments of £28.0 million, £18.8 million to purchase own shares and net new leases (£87.2 million) in excess of lease principal
payments (£45.4 million). Net debt excluding leases was £101.2 million, representing a reduction of £109.6 million.
Cash components of net debt
31 March 2025
£m
31 March 2024
£m
Cash and cash equivalents 646.5 552.6
Current liabilities – bank debt and other loans (0.5) (2.4)
Non-current liabilities – bank debt and other loans (750.7) (747.1)
Other debt instruments (includes loans to JVs) (38.6) (43.5)
Net finance leases 42.1 29.5
Closing net debt excluding leases (101.2) (210.9)
Include leases (272.1) (224.5)
Closing net debt (373.3) (435.4)
Summarised balance sheet
31 March 2025
£m
31 March 2024
£m
Intangible assets 920.6 928.9
Property, plant and equipment and right of use assets 787.7 692.7
Investment in joint ventures and associates 43.5 59.7
Working capital (694.2) (691.4)
Provisions (138.3) (158.2)
Net retirement benefit deficits (8.4) (109.7)
Net tax assets 76.1 119.9
Net other financial assets and liabilities 8.1 (0.4)
Leases (272.1) (224.5)
Net debt excluding leases (101.2) (210.9)
Net assets 621.8 406.1
Property, plant and equipment (PP&E) and right of use assets were £787.7 million, an increase of £95.0 million. PP&E increased
by £41.8 million to £558.9 million reflecting gross capital expenditure of £105.3 million less depreciation of £59.0 million and
currency adjustments. Right of use assets increased by £53.2 million to £228.8 million including new leases less disposals of
£94.5 million less depreciation and impairment of £33.0 million and currency adjustments.
Working capital was £(694.2) million, broadly unchanged over the year. Working capital performance was slightly better than
expected due to the timing of contract milestones and lower reversals of customer advance payments.
34 Babcock International Group PLC Annual Report and Financial Statements 2025
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Funding and liquidity
As of 31 March 2025, 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 on 28 August 2026
• £300 million bond maturing on 5 October 2026
• €550 million bond, hedged at £493 million, maturing on 13 September 2027
• An overdraft facility of £50 million
At 31 March 2025, the Group’s net cash (cash and cash equivalents less overdrafts) balance was £646.5 million. This, combined
with the undrawn amounts under our committed RCFs and overdraft facilities, gave us liquidity of around £1.4 billion.
Net debt to EBITDA (covenant basis)
While there are several facets to balance sheet strength, a primary measurement relevant to Babcock is the net debt/EBITDA
gearing ratio within our debt covenant of a maximum 3.5x. This measure is used in the covenant in our RCF and includes several
adjustments from reported net debt and EBITDA. The net debt/EBITDA gearing ratio (covenant basis) at 31 March 2025 reduced
to 0.3x (FY24: 0.8x) due to strong underlying free cash flow and higher underlying operating profit.
31 March 2025
£m
31 March 2024
£m
Underlying operating profit 362.9 237.8
Depreciation and amortisation 78.3 67.3
Covenant adjustments
1
(2.6) (6.3)
EBITDA 438.6 298.8
JV and associate dividends 12.2 7.1
EBITDA + JV and associate dividends (covenant basis) 450.8 305.9
Net debt excluding lease liabilities (101.2) (210.9)
Covenant adjustments
2
(51.9) (41.8)
Net debt (covenant basis) (153.1) (252.7)
Net debt/EBITDA 0.3x 0.8x
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 2025
£m
31 March 2024
£m
EBITDA + JV and associate dividends (covenant basis) 450.8 305.9
Net finance costs (32.1) (34.1)
Covenant adjustments
1
18.0 9.6
Net finance costs (covenant basis) (14.1) (24.5)
Interest cover 31.9x 12.5x
1. Various adjustments made to reflect accounting standards at the time of inception of the original RCF agreement, including lease and retirement
benefit interest.
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Financial review (continued)
Return on invested capital, pre-tax (ROIC)
This measure is one of the Group’s key performance indicators.
31 March 2025
£m
31 March 2024
£m
Underlying operating profit 362.9 237.8
Underlying share of results of joint ventures and associates 8.4 9.2
Underlying operating profit plus results of JVs and associates 371.3 247.0
Net debt excluding leases 101.2 210.9
Leases – note 10, 15 272.1 224.5
Shareholder funds – see balance sheet on page 41 621.8 406.1
Retirement deficit – note 25 8.4 109.7
Invested capital 1,003.5 951.2
ROIC 37.0% 26.0%
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 2025, the IAS 19 valuation for accounting purposes was a net deficit of £8.4 million (FY24: net deficit of £109.7 million).
The reduction in net accounting deficit is driven by employer contributions in excess of the income statement charge (£89.1 million).
The fair value of plan assets of £2,831.0 million decreased by £253.3 million, driven by negative asset returns less contributions.
The present value of pension benefit obligations of £2,839.4 million decreased by £354.6 million driven by an increase in the
discount rate. The fair value of the assets and liabilities of the Group pension schemes at 31 March 2025 and the key assumptions
used in the IAS 19 valuation of our schemes are set out in note 17 on page 64.
31 March 2025
£m
31 March 2024
£m
Fair value of plan assets (note 17) 2,831.0 3,084.3
Present value of benefit obligations (note 17) (2,839.4) (3,194.0)
Net (deficit) at 31 March (8.4) (109.7)
Income statement charge
The charge included within underlying operating profit in FY25 was £17.9 million (FY24: £23.9 million), of which £11.1 million
(FY24: £15.4 million) related to service costs and £6.8 million (FY24: £8.5 million) related to expenses. In addition to this, there was
an interest charge of £4.5 million (FY24: charge of £0.8 million).
Technical provision
An estimate of the aggregate actuarial deficits of the Group’s defined benefit pension schemes (excluding those in surplus),
including all longevity swap funding gaps, calculated using each scheme’s technical provisions basis, as at FY25 was approximately
£125 million (FY24: c.£200 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 assumptions used within the latest agreed valuation prior to
31 March 2025 for each of the Principal schemes.
Actuarial valuations are carried out every three years to determine the Group’s cash contributions to the schemes. The valuation
of the three largest schemes is set so only one scheme is undertaking its valuation in any one year, to spread the financial impact
of market conditions. The valuation of the DRDPS as at 31 March 2023 was completed in FY24, the valuation of the RRDPS as at
31 March 2024 has been agreed in FY25, and work has commenced on the valuation of the BIGPS at 31 March 2025.
There has been significant progress in reducing the risk of pension scheme deficits during the year. We made additional pension
deficit repair payments of c.£40 million. The BIGPS has around £840 million of pension liabilities (c.30% of the total Group pension
liabilities) on a technical provisions basis. The BIGPS has now reached self-sufficiency and is not expected to require further deficit
repair contributions from the Group ahead of reaching either buy-in or buy-out, expected by FY29. The BIGPS severed the link
to salary and closed to future service accruals on 30 September 2024.
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A long-term funding arrangement (LFTA) is now in place for DRDPS following completion of the 2023 triennial valuation.
In addition, the DRDPS closed to future service accruals on 30 November 2024. In respect of their accrued benefits active members
in DRDPS were given an option to either retain their salary link or break the salary link for a cash lump sum. The DRDPS has around
£1,250 million of pension liabilities on a technical provisions basis (c.40% of the total Group pension liabilities).
The Group has also agreed a LFTA for RRDPS following completion of the 2024 triennial valuation. The RRDPS has around
£665 million of pension liabilities on a technical provisions basis (c.20% of the total Group pension liabilities). Within the last
12 months, the Company has finalised LTFA’s with all three main pension schemes with additional deficit repair lump sums.
As a result, we expect annual deficit repair payments to reduce from c.£40 million to c.£20 million per annum for the next six years.
Cash contributions
Group cash contributions made into the defined benefit pension schemes, excluding expenses and salary sacrifice contributions
were as follows:
31 March 2025
£m
31 March 2024
£m
Future service contributions 14.6 17.2
Deficit recovery 52.7 82.8
Longevity swap 27.2 15.2
Total cash contributions – employer 94.5 115.2
Treasury
Treasury activities within the Group are managed in accordance with the parameters set out in the treasury policies and guidelines
approved by the Board. A key principle within the treasury policy is that trading in financial instruments for the purpose of profit
generation is prohibited, with all financial instruments being used solely for risk management purposes. The treasury team is only
permitted to enter into financial instruments where it has a high level of confidence in the hedged item occurring. Both the treasury
department and the sectors have responsibility for monitoring compliance within the Group to ensure adherence to the principal
treasury policies and guidelines. The Group’s treasury policies in respect of the management of debt, interest rates, liquidity and
currency are outlined below. The Group’s treasury policies are kept under close review, particularly given the ongoing economic
and market uncertainty.
Debt
Objective
With debt as a key component of available financial capital, the Group seeks to ensure that there is an appropriate balance between
continuity, flexibility and cost of debt funding through the use of borrowings, whilst also diversifying the sources of these borrowings
with a range of maturities and rates of interest, to reflect the long-term nature of the Group’s contracts, commitments and risk profile.
Policy
All the Group’s material borrowings are arranged by the treasury department, and funds raised are lent onward to operating
subsidiaries as required. It remains the Group’s policy to ensure the business is prudently funded and that sufficient headroom
is maintained on its facilities to fund its future growth.
Updates
The Group continues to keep its capital structure under review to ensure that the sources, tenor and availability of finance are
sufficient to meet its stated objective.
The Group 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 facilities and bonds.
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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 2025, the Group had 85% fixed rate debt (31 March 2024: 85%) and 15% floating rate debt (31 March 2024: 15%)
based on gross debt of £793 million (31 March 2024: £793 million).
FY27FY26FY25
FY25 net debt
1
£(101)m
Debt maturity profile
(£m)
GBP bond 2026
3
£300m Euro bond 2027
4
€550m
Chart shows notional value of the debt
1. Net debt shown excluding leases
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
RCF 2026
2
£775m
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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 £0.4m million in the income statement for the year ending 31 March 2025 (31 March
2024: £3.0 million loss).
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Financial review (continued)
Segmental analysis
The Group reports its performance through four reporting sectors.
31 March 2025
Marine
£m
Nuclear
£m
Land
£m
Aviation
£m
Total
£m
Contract backlog 3,026.5 1,983.9 3,466.1 1,939.7 10,416.2
Revenue 1,576.4 1,816.0 1,116.6 322.3 4,831.3
Statutory operating profit 99.3 161.4 86.3 16.9 363.9
Statutory operating margin 6.3% 8.9% 7.7% 5.2.% 7.5%
Underlying operating profit 96.5 160.3 86.2 19.9 362.9
Underlying operating margin 6.1% 8.8% 7.7% 6.2% 7.5%
31 March 2024
Marine
£m
Nuclear
£m
Land
£m
Aviation
£m
Total
£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
Statutory operating profit 11.0 109.2 96.1 25.3 241.6
Statutory operating profit 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%
FY24 excluding non-recurring items
Revenue (£m) Marine Nuclear Land Aviation Group
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 (£m)
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%
40 Babcock International Group PLC Annual Report and Financial Statements 2025
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Financial glossary – Alternative Performance Measures (APMs)
The Group provides alternative performance measures APMs, including underlying operating profit, underlying margin, underlying
earnings per share, underlying operating cash flow, underlying free cash flow, net debt and net debt excluding leases to enable
users to have a more consistent view of the performance and earnings trends of the Group. These measures are considered to
provide a consistent measure of business performance from year to year. They are used by management to assess operating
performance and as a basis for forecasting and decision-making, as well as the planning and allocation of capital resources.
They are also understood to be used by investors in analysing business performance.
The Group’s APMs are not defined by IFRS and are therefore considered to be non-GAAP measures. The measures may not be
comparable to similar measures used by other companies, and they are not intended to be a substitute for, or superior to, measures
defined under IFRS. The Group’s APMs are consistent with the prior year. Measures, definitions and reconciliations to relevant IFRS
measures are included below, where appropriate.
Organic revenue growth – Group KPI
Closest equivalent IFRS measure: Revenue growth year on year.
Definition: Growth excluding the impact of foreign exchange (FX) and contribution from acquisitions and disposals in the year of,
and following, completion.
Purpose: A good indicator of business growth.
31 March 2025
£m
31 March 2024
£m
Prior year revenue 4,390.1 4,438.6
FX (22.4) (76.1)
(Disposals) (2.8) (421.6)
Prior year revenue adjusted for FX and disposals (b) 4,364.9 3,940.9
Revenue growth (a) 466.4 449.2
Current year revenue 4,831.3 4,390.1
Organic revenue growth (a)/(b) 11% 11%
Contract backlog
Closest equivalent IFRS measure: No direct equivalent
Definition: The remaining transaction price on contracts with customers that has been allocated to unsatisfied or partially satisfied
performance obligations, excluding the impact of termination for convenience clauses and excluding orders not yet secured on
framework agreements.
Purpose: Contract backlog is used to support future years’ sales performance.
31 March 2025
£m
31 March 2024
£m
Contract backlog 10,416 10,333
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 2025
£m
31 March 2024
£m
Underlying operating profit 362.9 237.8
Specific adjusting items 1.0 3.8
Operating profit (note 2) 363.9 241.6
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Financial review (continued)
Specific adjusting items (note 2)
31 March 2025
£m
31 March 2024
£m
Amortisation of acquired intangibles (8.2) (10.8)
Business acquisition, merger and divestment related items 1.5 8.2
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes 1.2 –
Fair value movement on derivatives 6.5 6.4
Specific adjusting items impacting operating profit 1.0 3.8
Non-recurring amounts in results from joint ventures and associates (11.1) –
Fair value movement on derivatives and related items (0.2) 1.8
Specific adjusting items impacting profit before tax (10.3) 5.6
Income tax expense
Amortisation of acquired intangibles 2.2 3.9
Business acquisition, merger and divestment related items – (1.0)
Profit/(loss) from amendment, curtailment, settlement or equalisation of Group pension schemes (0.3) –
Fair value movement on derivatives and related items (1.6) (2.0)
Tax on Group reorganisation activities – 4.7
Other tax items including rate change impact 3.6 (0.6)
Specific adjusting items impacting income tax expense 3.9 5.0
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 2025
£m
31 March 2024
£m
Revenue 4,831.3 4,390.1
Underlying operating profit 362.9 237.8
Underlying operating margin 7.5% 5.4%
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 2025
£m
31 March 2024
£m
Underlying net finance costs (31.9) (35.9)
Add: specific adjusting items impacting finance costs (note 2) (0.2) 1.8
Net finance costs (note 5) (32.1) (34.1)
42 Babcock International Group PLC Annual Report and Financial Statements 2025
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Underlying profit before tax
Closest equivalent IFRS measure: Profit before tax
Definition: Profit before tax excluding all specific adjusting items.
Purpose: Provides a measure of profitability which includes finance costs.
31 March 2025
£m
31 March 2024
£m
Underlying profit before tax 339.4 211.1
Specific adjusting items impacting profit before tax (note 2) (10.3) 5.6
Profit before tax (note 2) 329.1 216.7
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 2025 Year ended 31 March 2024
Underlying
£m
Specific
adjusting
items
£m
Statutory
£m
Underlying
£m
Specific
adjusting
items
£m
Statutory
£m
Profit before tax (note 2) 339.4 (10.3) 329.1 211.1 5.6 216.7
Share of (profit) / loss from JVs and associates*
(note 11) (8.4) 11.1 2.7 (10.3) – (10.3)
Profit before tax excluding profit from joint ventures
and associates (a) 331.0 0.8 331.8 200.8 5.6 206.4
Income tax expense (b) (84.1) 3.9 (80.2) (53.5) 5.0 (48.5)
Effective tax rate (b)/(a) 25.4% 24.2% 26.6% 23.5%
*
FY24 Share of profit from joint ventures and associates excludes an impairment of £1.1 million, see note 11.
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 2025 Year ended 31 March 2024
Underlying
£m
Specific
adjusting
items
£m
Statutory
£m
Underlying
£m
Specific
adjusting
items
£m
Statutory
£m
Profit/(loss) before tax (note 2) 339.4 (10.3) 329.1 211.1 5.6 216.7
Income tax (expense)/benefit (note 2) (84.1) 3.9 (80.2) (53.5) 5.0 (48.5)
Profit/(loss) after tax for the year 255.3 (6.4) 248.9 157.6 10.6 168.2
Amount attributable to owners of the parent 253.5 (6.4) 247.1 155.1 10.6 165.7
Amount attributable to non-controlling interests 1.8 – 1.8 2.5 – 2.5
Weighted average number of shares (m) 503.6 503.6 503.5 503.5
Effect of dilutive securities (m) 10.8 10.8 11.8 11.8
Diluted weighted average number of shares (m) 514.4 514.4 515.3 515.3
Basic EPS (note 6) 50.3p 49.1p 30.8p 32.9p
Diluted EPS (note 6) 49.3p 48.0p 30.1p 32.2p
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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 2025
£m
31 March 2024
£m
Cash and bank balances 646.6 570.6
Bank overdrafts (0.1) (18.0)
Cash, cash equivalents and bank overdrafts 646.5 552.6
Debt (751.2) (749.5)
Derivatives hedging debt (10.8) (11.1)
Lease liabilities (274.6) (230.5)
Liabilities from financing arrangements (1,036.6) (991.1)
Lease receivables 44.6 35.5
Loans to joint ventures and associates 3.6 3.9
Derivatives hedging interest on debt (31.4) (36.3)
Net debt (373.3) (435.4)
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 2025
£m
31 March 2024
£m
Net debt (373.3) (435.4)
Leases 272.1 224.5
Net debt (excluding leases) (101.2) (210.9)
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 41, excluding depreciation and
amortisation and including certain covenant adjustments) plus JV and associate dividends. See page 35.
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 35.
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 36.
Purpose: Used as a measure of profit earned by the Group generated by the debt and equity capital invested, to indicate the
efficiency of allocated capital.
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Net capital expenditure
Closest equivalent IFRS measure: Property, plant and equipment and intangible additions
Definition: Property, plant and equipment and intangible additions less proceeds on disposal of property, plant and equipment and
intangible assets.
Purpose: To understand net capital investment included in underlying operating cash flow.
31 March 2025
£m
31 March 2024
£m
Purchases of property, plant and equipment (PP&E) (note 9) (105.0) (107.6)
Purchases of intangible assets (note 8) (22.3) (33.3)
Movements in unpaid capital expenditure (1.0) (1.5)
Gross capital expenditure (128.3) (142.4)
Proceeds on disposal of PP&E and intangible assets (statement of cash flows) 6.1 30.6
Net capital expenditure (122.2) (111.8)
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 32.
Purpose: Provides a measure of operating cash generation on an equivalent basis to underlying operating profit.
31 March 2025
£m
31 March 2024
£m
Underlying operating cash flow 296.2 322.7
Add: net capex 122.2 111.8
Add: capital element of lease payments 45.4 49.6
Less: pension contributions in excess of income statement (89.1) (107.6)
Non-operating cash items (excluded from underlying cash flow) (17.3) (2.2)
Cash generated from operations 357.4 374.3
Tax (paid) (21.8) (27.4)
Less: net interest paid (26.8) (32.2)
Net cash flow from operating activities 308.8 314.7
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 2025
£m
31 March 2024
£m
Underlying operating profit 362.9 237.8
Underlying operating cash flow 296.2 322.7
Operating cash conversion 82% 136%
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 32.
Purpose: Provides a measure of cash generated which is available for use in line with the Group’s capital allocation policy.
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Our c.7,300 employees design, develop, build, manufacture and
integrate specialist systems, and deliver technical through-life
support for complex platforms in the marine sector. Over 80%
of Marine’s revenue is derived from defence, with the remainder
primarily comprising our Liquid Gas Equipment (LGE) business.
Operational reviews
Marine
Marine – at a glance
FY25 revenue profile
Defence UK
Defence International
Civil International
£1.6bn 33%
£3.0bnc.7,300
Revenue % of Group revenue
Number of employees Contract backlog
Operational highlights
• In June 2025, we achieved a major milestone, as the first of five Type 31 Frigates, HMS Venturer, left the assembly hall
and entered the water and returned to dry dock for fit out in Rosyth
• Awarded an additional c.£65 million Capability Insertion Period contract for Type 31 programme
• Secured a further c.£240 million contract for Missile Tube Assembly for US Columbia Class submarines programme
• Achieved record order intake in LGE of c.£430 million (up 43%), with more than 70 international contracts
• Successful first year of in-service delivery of the Skynet contract to manage the UK’s military satellite and space operations
5 3%
29%
18%
£1.6bn
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Financial review
31 March 2025
£m
31 March 2024
£m
Contract backlog* 3,026.5 2,992.7
Revenue 1,576.4 1,429.1
Underlying operating profit* 96.5 13.1
Underlying operating margin* 6.1% 0.9%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 41.
Revenue increased 12% (at constant FX) to £1,576.4 million.
Growth was led by a full year of trading on the Skynet
programme and higher volumes in LGE, as well as increased
naval support activity on our New Zealand and Canada
programmes and ramp up of new contracts in Ukraine and
Sweden. This was partly offset by the FY24 license sales
in Poland not repeated in FY25 and lower support volumes
in Australia.
Underlying operating profit increased to £96.5 million
(FY24: £13.1 million), primarily reflecting non-repeat of the
£90.0 million contract loss in FY24, as well as revenue growth
outlined above, offset by the impact of licence contribution in
FY24 and lower initial margin recognised on Skynet. As a result,
underlying operating margin was 6.1% (FY24: 0.9%; FY24
excluding contract loss: 6.9%).
Contract backlog of £3,027 million (FY24: £2,993 million) was
in line with the prior year. Record LGE order intake, the Type 31
Capability Insertion Programme and scope expansion of the
Skynet contract was offset by revenue traded on long-term
contracts.
Operational review
Defence
UK defence
The Type 31 Inspiration Class five-frigate programme being built
for the Royal Navy at our facility in Rosyth has made significant
progress. We cut steel on the third ship in the programme, HMS
Formidable, in October 2024, and in June 2025 the first ship,
HMS Venturer, left the assembly hall and entered the water
(float-off), marking a major execution milestone. The ship has
since returned, as planned, to dry dock to continue fit out. This
has created space in our Venturer Hall facility for work on HMS
Formidable, which has commenced using an enhanced build
strategy. The superstructure and outfitting of the second ship,
HMS Active, is progressing towards float-off in H2 FY26.
In April 2025, Babcock was awarded a c.£65 million, five-ship
contract to deliver the Capability Insertion Period (CIP) for the
frigates. The CIP adds further capabilities that will support the
ships throughout their life and includes the insertion, testing
and enhancement of upgrades that will enhance the Type 31’s
military capability.
We continue to deliver further missile tube assemblies for
both the UK Dreadnought and US Columbia submarine Classes,
in support of the common missile compartment programme.
Our leading position in advanced manufacture of missile tube
assemblies led to a further contract award of 36 missile tubes
by General Dynamics Electric Boat, who is responsible for
the design and the construction of the U.S. Naval Columbia
submarines programme.
Similarly, we continue our work with the Royal Navy and
industry partners to support requirements on both the Future Air
Dominance Systems (FADS) and Multi-Role Strike Ship (MRSS)
programmes.
During the period, Babcock successfully completed docking
support periods for the aircraft carrier HMS Queen Elizabeth
at our Rosyth dockyard, delivering the aircraft carrier back into
service three weeks ahead of schedule.
In the first half of the year, we achieved a major milestone for
the UK Royal Navy with HMS Sutherland’s crew now able to live
and work on board during the upgrade and modernisation
programme. The ship is now preparing to undergo sea trials
before returning to active service. The period also saw the start
of maintenance work on HMS Kent, which will deliver significant
capability updates and sustainment support, and the successful
undocking of HMS Bulwark from Devonport after an extensive
four-year maintenance programme.
Our Mission Systems business was awarded two significant
contracts in FY25. These included a contract for Long Lead
Items for the Astute replacement, Submersible Ship Nuclear
AUKUS (SSNA), enabling us to place orders for the first
elements of the Weapon Handling and Launch System, and
an additional contract to supply Integrated Tube Hulls in support
of the US Columbia Class programme. We also secured a
contract to provide technical support to the in-service TLAM
Tomahawk missile.
Delivery of the UK Royal Navy’s next-generation Maritime
Electronic Warfare Systems Integrated Capability (MEWSIC)
continues to make progress, with testing of the next generation
system commenced. The capabilities will be installed on current
and future warships including the Queen Elizabeth Class aircraft
carriers, Type 45 destroyers and the Type 26 and Type 31
frigates currently in build. We also celebrated our first full year
of managing and operating Skynet, the UK MOD’s military
communication system, with contract growth to meet customer
operational requirements.
Work to support the UK Royal Marines and Navy continues,
with the delivery of the first two Maritime Interdiction Craft
under our Hurracan contract, with 24 vessels expected to be
delivered over the next two years, and the contract extension
of the Gun System Automation to enable continued support
to the Type 45 destroyers including electro-optical controls,
sensor platforms and other onboard systems.
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Marine (continued)
International defence
In Australia, we completed the first major maintenance period
on ANZAC Class frigate, HMAS Stuart, through our new
Regional Maintenance Provider West contract. This included
replacement of the propulsion diesel engine which required
removal of the vertical launch system.
We were awarded a $30 million lift and hoists contract to
enhance operational capabilities on board the Royal Australian
Navy’s first three Hunter Class frigates. The three-ship
agreement will see Babcock procure, modify and set to work
separate lift and hoist systems as part of its partnership with
BAE Systems Maritime Australia.
Our new contract to support the Amphibious Combat and Sealift
Capability Life Cycle Management successfully began
operations in July 2024, providing support to maintenance
activities in Sydney’s Garden Island facility as a part of the
new Maritime Sustainment Model.
Babcock also joined the Australian Government’s Global Supply
Chain Program which is designed to develop a sustainable and
resilient sovereign defence capability by integrating Australian
solutions into international markets.
In New Zealand, we continue to provide support to the
country’s entire naval fleet via the New Zealand Maritime Fleet
Sustainment Services (MFSS) contract. Following the grounding
and sinking of HMNZS Manawanui in Samoan waters in October
2024, we have worked closely with the New Zealand Navy both
in the immediate recovery efforts and in preparing for the
regeneration of HMNZS Otago into the operational fleet.
We continue to work closely with the Government and Ministry
of Defence on its Fixed High Frequency Radio Refresh
programme.
In Canada, our Victoria In-Service Support Contract (VISSC)
sustainment work underwent significant customer budgetary
fluctuations that resulted in workforce adjustments with
additional funding made available late in 2024. We submitted
an updated bid for HMCS Victoria’s Extended Docking Work
Period and have significantly improved on our industrial offset
obligations. We continue to position for the VISSC I follow-
on contract.
Canada continues its process to acquire the next generation
of conventionally powered submarines. A contract to build up
to twelve submarines is expected to be awarded by 2028, with
the first platform delivered in 2035. Our focus is on provision
of equipment solutions and long-term submarine sustainment,
and we continue to build on partnerships with multiple OEMs.
In Poland, we signed a long-term contract extension with PGZ,
the Polish Armaments Groups, to continue our support to
Poland’s Miecznik frigate programme until the completion
of three ships, providing engineering services, supply chain
support, transfer of knowledge and project management
through the Programme Management Office. In May 2025,
first steel was cut for ORTP Burza, (Ship 2) in Gdynia. Babcock
continues to work closely with Polish stakeholders to grow
opportunities in maintenance, repair and operations (MRO).
The strength of the partnership was seen in the signing of
an MOU with the Polish Naval Academy for a new programme
of professional internships.
In Sweden, we continue to work in partnership with Saab,
successfully supporting design deliverables on the Swedish
Navy’s next generation Luleå Class surface combatant
programme. Babcock is providing front-end engineering, design
and project management support during the initial design phase.
We have successfully delivered Phase 1 of the Luleå contract
to schedule and cost and are progressing towards the next key
design milestones, as well as working together to identify export
markets for the Luleå Class.
In Ukraine, having completed the regeneration of UK Sandown
Class Mine Counter Measure Vessels (MCMVs) before their sale
to the Ukrainian Navy, we were awarded a three-year contract
to maintain and support the vessels and have successful
delivered the first support period.
In South Korea, Babcock signed a Strategic Cooperation
Agreement with Hanwha Ocean in November 2024. The
agreement outlines the joint aim to deepen the companies’
cooperation in major global naval procurement projects
including the Polish Orka submarine programme and the
Canadian Patrol Submarine Project, with each organisation
leveraging their respective strengths to provide tailored
solutions for naval platforms from acquisition to operation.
Babcock also signed an MOU with LIG Nex1, to grow
opportunities in maintenance, repair and operations, training
centre management and weapons systems technology markets.
Our work on the Jangbogo submarines continues to meet all
milestones, with delivery of Boat 3 in the first half of the period,
and all the deliverables for Boat 4 completed on schedule.
In Indonesia, we entered into an MOU with PT Len Industri
during the Indonesia presidential visit to the UK in November
2024. The MOU further formalises the commitment to provide
the technologies and capabilities that Indonesia’s Maritime
Defence Capability will require.
Civil
Our LGE business saw record order intake of approximately
£430 million over the year, with more than 70 international
contracts driven by growing demand in China and South Korea.
Sales continue to be strong through the period across our
portfolio of products including the ecoSMRT® for LNG
reliquefaction, ecoETHN® for Ethane Cargo Handling Systems
and Ammonia Cargo Handling Systems. This is reflected in a
robust end of year order book of 150 projects.
In December, we secured a contract to deliver six cargo
handling and fuel gas supply systems for the world’s largest
Ultra Large Ethane Carriers. Achievements like this are
supported by ongoing technology development which has seen
the successful applications for three technology patents,
with seven more pending, and 10 trademarks granted.
Innovation in our LGE business was recognised with a King’s
Award for Enterprise this year, which follows previous awards
for Innovation and International Trade.
We welcomed two of the UK’s fleet of National Environmental
Research Council (NERC) scientific research vessels for
planned maintenance at Rosyth in the period and subsequently,
marking the end of the initial contract, and delivered an
engineering programme to support the future decarbonisation
of NERCs fleet. All three vessels in the NERC fleet will have
returned to Rosyth by the end of 2025.
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Leaders in advanced systems
We have more than 50 years’ experience as leaders in the
design, manufacture and support of advanced Weapons
Handling and Launch Systems (WHLS) for both submarines
and surface vessels. Our expertise has been deployed from
the UK to Canada, from Spain to South Korea and Australia.
Submarine and surface ship systems
Babcock is the Technical Authority for WHLS across
all classes of UK submarines. Notably, the Astute Class
submarines are equipped with Babcock’s Weapon Launch
System which incorporates our advanced Air Turbine Pump
and Programmable Firing Valve technology.
Internationally, Babcock has supplied WHLS for several
submarine classes including S-80 Class (Spain), Jangbogo-
III Class (South Korea), Victoria Class (Canada) and the Collins
Class (Australia).
Our expertise on surface vessels includes:
• The UK’s Queen Elizabeth Class Aircraft Carriers – we
developed the automated system that moves palletised
munitions between magazines, hangars and the flight deck.
• The UK’s Type 26 Global Combat Ship – we designed,
and now supply, the Air Weapons Handling System which
features modular stowage and automated handling.
• Australia’s Hobart Class Air Warfare Destroyers – we
supplied MK32 Mod 9 torpedo launchers, demonstrating
our capability to deliver comprehensive solutions for
complex naval platforms.
We have also been contracted to design and assemble the
Weapons Handling System for Australia’s new Hunter class
frigates.
Innovation and support
We continue to develop and integrate cutting-edge technologies
like the Air Turbine Pump and Programmable Firing Valve,
reducing noise impact while providing compatibility with
a wide range of torpedoes, mines and missiles.
We are a trusted partner delivering technology design,
engineering build, systems integration and platform
management. As such, we are actively pursuing product
supply into numerous future surface ship and submarine
programmes around the world, including as the Canadian
Surface Combatant, AUKUS, Orka (Poland) and the Canadian
Patrol Submarine Programme.
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Our c.10,000 employees provide complex through-life
engineering support to the entirety of the UK’s nuclear
submarine fleet. We own and manage critical national
infrastructure and provide engineering integration support
to AWE. We operate across UK civil nuclear, including new
build, generation support and decommissioning.
Operational reviews
Nuclear
Nuclear – at a glance
FY25 revenue profile
£1.8bn 37%
£2.0bnc.10,000
Revenue % of Group revenue
Number of employees Contract backlog
Operational highlights
• Reopened Devonport’s 9 Dock following significant regeneration work and successfully docked down HMS Victorious
• Docked down an Astute Class submarine for the first time in Devonport’s 15 Dock facility
• Awarded first AUKUS contract through the H&B joint venture to strengthen AUKUS supply chain capabilities post year end
• Awarded £114 million three-year contract to support first nuclear submarine defueling operations in 20 years post year end
• Continued significant ramp up at Hinkley Point C to install mechanical and electrical services
87%
13 %
£1.8bn
Defence UK
Civil UK
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Financial review
31 March 2025
£m
31 March 2024
£m
Contract backlog* 1,983.9 3,104.8
Revenue 1,816.0 1,520.9
Underlying operating profit* 160.3 109.2
Underlying operating margin* 8.8% 7.2%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 41.
Revenue increased 19% to £1,816.0 million, with growth across
the portfolio. Our Cavendish nuclear business grew 28% driven
by the ramp up of new civil nuclear projects, while submarine
support activity also grew strongly under the Future Maritime
Support Programme (FMSP) and ramp up of the HMS Victorious
deep maintenance contract. In addition, Major Infrastructure
Programme (MIP) revenue increased to £504 million
(FY24: £459 million).
Underlying operating profit increased by 47% to £160.3 million
(FY24: £109.2 million), driven by revenue growth in civil nuclear,
submarine support and infrastructure, and project delivery
improvements, as well as some contract changes. As a result,
underlying operating margin improved 160 basis points to 8.8%.
Contract backlog decreased to £1,984 million (FY24: £3,105 million),
primarily reflecting trading on our multi-year FMSP submarine
support contract which has entered its final year (expected
to be replaced by a new contract by the end of FY26) and the
HMS Victorious Deep Maintenance Programme (£560 million
recognised in backlog FY24), as well as MIP contract maturity
(£750 million recognised in backlog in FY24).
Operational review
Defence
UK defence
The UK is going through a phase of Class transition for nuclear
submarines with the Astute Class currently replacing the
Trafalgar Class, and the future Dreadnought Class to replace
the Vanguard Class.
To ensure we continue to meet the current and future
requirements of the UK MOD and Royal Navy, we have
instituted a new Major Nuclear Capital Programmes (MNCP)
business unit to expand our capability. MNCP will utilise our
expertise to apply engineering know-how and the latest
technology to deliver capable infrastructure in the most
challenging environments. This will provide our customers
with highly capable facilities that support the critical and
complex work our people undertake and maximise the through-
life availability of assets, enabling us to deliver platforms back
to sea faster and more efficiently.
In our Devonport facility, our long-term Major Infrastructure
Projects (MIP) portfolio is delivering substantial upgrades to
existing critical infrastructure and developing state-of-the-art
facilities to meet the Royal Navy’s evolving needs, including
increased capacity for submarine support over the long-term.
In September 2024, while work is ongoing, we reopened
9 Dock following one of the most significant packages
of infrastructure works in 20 years. The maintenance, life
extension and facility improvements support the UK’s Vanguard
Class submarines, which are critical in supporting the UK’s
Continuous at Sea Deterrent which secures the long-term
defence of the nation.
Having successfully docked down this year in the upgraded
facility, HMS Victorious will continue the next phase of the
current £560 million programme to extend its operational life
well into the 2030s.
The completion of extensive upgrades to 15 Dock have enabled
an Astute Class submarine to successfully dock down in the
facility for the first time, to continue the next phase of her base
maintenance period. The modernisation of the dock will further
support Astute Class submarines’ maintenance cycles in the
coming years and marks a critical step towards our commitment
to increase the availability of attack submarines. We have a
strong commitment to sustainability and environmental
protection, and works have been completed with an impeccable
safety and environmental record, with no recorded RIDDOR or
environmental incidents throughout the project. Collaboration,
innovation, and engineering know-how has driven the progress
for this critical work package, which supports national security
and a more resilient UK.
10 Dock continues its transformative journey to be able to
deliver future submarine capability at Devonport. Following
the signing of a £750 million contract with the UK’s Submarine
Delivery Agency (SDA) in FY24, with further scope growth in
FY25, the redevelopment of 10 Dock is progressing well, and
this year has seen a number of significant milestones reached,
including completion of demolition of legacy facilities. In April
2025 we passed the landmark of 3 million hours without a ‘Lost
Time Incident’. The work will deliver a new dock, berth, logistics
and production support facilities, primarily for the Deep
Maintenance Period (DMP) for Astute Class submarines.
The installation of the first construction tower crane at Devonport
for over two decades has also taken place. This new feature
to Devonport’s skyline is critical in supporting the construction
of the new reinforced concrete caisson and marks a significant
advancement in our construction capabilities.
Work is underway to provide a safe, environmentally
responsible, secure, and cost-effective solution for fleet end-of-
life support at Devonport, where we are readying 14 Dock as
part of the ongoing development of defuel capability. In June
2025, we were awarded a three-year contract to carry out
enabling works in preparation for the first nuclear defueling of
a decommissioned Trafalgar Class submarine in over 20 years.
The £114 million contract will see Babcock working
collaboratively with the UK’s Defence Nuclear Enterprise (DNE)
and leading industry partners to prepare for the defuel of four
decommissioned submarines. Defueling is a requirement for
nuclear submarines to be safely dismantled and is a key enabler
for the wider UK submarine dismantling programme, freeing
up critical space on site to support in-service and future Royal
Navy assets.
In parallel, we have reached the next significant milestone to
fully dismantle a nuclear-powered submarine, Swiftsure, at our
facility in Rosyth. As part of the UK’s demonstrator project, we
awarded the recycling contract to KDC Veolia Decommissioning
Services UK Ltd in the first half of the year. This milestone builds
on work already completed by our highly skilled teams to
remove the submarine’s reactor systems and low-level
radioactive waste.
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Nuclear (continued)
With safety and environmental protection at the centre of
our operations, and using a specially designed in-dock facility,
the waste has been processed for removal from site through
Rosyth’s state-of-the-art active waste management facility.
The physical dismantling of the submarine, using a world’s first
methodology, is expected to be completed by the end of 2026.
The innovative programme will enable around 90% of the
structure and components to be reused or recycled, providing
a proven approach for the recycling of the current UK
decommissioned fleet of submarines.
Additionally, Rosyth Dockyard has been chosen by the MOD
as a contingent docking facility to support the new HMS
Dreadnought submarine, should a docking-dependant defect
repair be required at the start of her time at sea.
This year, alongside the SDA and Navy Command, we opened
a collaborative Submarine Availability Support Hub in Bristol.
Our investment in the hub represents our commitment to
supporting the UK MoD to improve Submarine Availability.
The bespoke facility brings together partners from across
the DNE including Babcock, the SDA and the UK’s Royal Navy,
and demonstrates how collaboration between industry and
government is strengthening Britain’s submarine enterprise
as part of a critical national endeavour. The facility is also
creating more than 100 jobs, as we further invest in supporting
the development of nuclear skills and defence infrastructure
in the South West of England.
Work continues on the design and early manufacture of complex
plant and engineering equipment for AWE Aldermaston, as well
as on further developing our partnership with AWE. We are
strongly developing supply chain capability and capacity to
meet future manufacturing demand in line with requirements.
In FY25 we formally marked the launch of the South West
Regional Hub at an event in Exeter, bringing together industry
across nuclear civil and defence, key economic stakeholders
and learning and educational providers, to maximise the impact
of key activities to address the region’s specific skills
challenges. We are a key industrial partner on the UK’s Nuclear
Skills Taskforce and lead the UK’s South West Regional Hub for
Nuclear Skills, which seeks to help secure the critical nuclear
skills needed across the defence and civil nuclear enterprise.
The UK Minister for Defence Procurement and Industry,
Maria Eagle officially opened the Babcock Engineering &
Nuclear Skills building at City College Plymouth in September
2024. The modern facility will enhance our growing workforce’s
capabilities by continuing to build a new pipeline of talent, while
upskilling the existing workforce on the complex skills required
to perform deep submarine maintenance.
International defence
In FY25 Babcock and HII launched a joint venture, H&B Defence
to accelerate the development of critical sovereign capability
for the once-in-a-generation AUKUS conventionally armed,
nuclear-powered submarine program. H&B Defence will support
all steps of Australia’s optimal pathway to sovereign nuclear-
powered submarines, including workforce, nuclear
infrastructure design and build, submarine defueling and
decommissioning, nuclear waste and future sustainment.
In May 2025, the joint venture secured its first contract to
deliver a two-year Australian Submarine Supplier Qualification
Pilot Program which will accelerate the identification and
qualification of Australian suppliers and products who can
access the US Virginia Class submarine supply chain
Civil
UK civil
We continue to support Sellafield with its decommissioning
programme, and in FY25 we signed contracts for the provision
of radiometric and environmental analysis support which
secures our position as a critical service supplier to Sellafield
over the next four years. We have also submitted proposals
for two key lots of the 15-year Decommissioning and Nuclear
Waste Partners (DNWP) programme.
We have diversified our customer portfolio in the UK, securing
opportunities with both Westinghouse and Urenco in support of
the Government’s focus on security of the front-end fuel cycle.
We have implemented a baseline programme for Westinghouse
for the design and build of a facility to process uranium to
enable its future enrichment and use as a nuclear fuel and have
completed a multi-discipline design review of the tails
management facility for Urenco which will convert depleted
uranium hexafluoride to the lower hazard uranium oxide material
for long term storage.
Following last year’s £2.4 million funding award from the UK
Government’s Future Nuclear Enabling Fund (FNEF), we have
now delivered our FNEF programme for our partner X-Energy’s
Advanced Modular Reactor (AMR). The funding award, which
was matched by X-energy, has been used to develop UK-specific
deployment plans, including an assessment of domestic
manufacturing and supply chain opportunities, constructability,
modularisation studies, and spent fuel management. We continue
to position for deployment support for Small Modular Reactors
(SMRs) and remain engaged with Great British Nuclear (GBN)
for the next phases of the UK SMR competition.
We continue to support EDF with Large Gigawatt Reactor
delivery at Hinkley Point C (HPC) and Sizewell C through
the MEH Alliance, an unincorporated JV which works across
the site. At HPC our team continues to grow, with over
600 people now working on the installation of mechanical
and electrical services.
International civil
In Japan, work is progressing well 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.
The first phase of this project is due to complete in September
2025 and will be immediately followed by a second phase
through to 2027 to construct and commission the facility
in preparations for the start of operations in 2028.
In the US, we have begun transition work on our Portsmouth
Decommissioning and Dismantling (D&D) Tier 1 contract, and we
will receive the notice to proceed and move into formal contract
later in 2025. We are positioning for other Tier 1 clean-up
opportunities and site operation contracts, the next of which will
be for management and operations of the Savannah River site
which is expected to come to market in the first half of FY26.
52 Babcock International Group PLC Annual Report and Financial Statements 2025
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Tackling the need for clean energy
Civil nuclear has a key role to play in tackling climate change,
particularly given the growing demand for energy from new
technologies such as AI and quantum computing.
At the same time, governments are becoming increasingly
concerned to onshore energy generation and ensure the
security of the fuel for those facilities.
From enrichment to storage
Babcock’s Cavendish Nuclear business is involved in all
aspects of the civil nuclear industry: from enrichment to fuel
fabrication, electricity generation, and dealing with legacy
assets and waste material storage.
With 2,600 skilled employees, and experience supporting all
36 of the UK’s nuclear licensed sites, we are the country’s
largest civil and defence nuclear services provider.
We are involved in the design of new reactors, such as small
modular reactors (SMRs) and large modular reactors. We
provide operational support to the entire UK operating reactor
fleet.
When those assets come to the end of their life, we support
the decommission and cleanup of those redundant facilities,
which involves the design and build of complex facilities to
handle and process waste, and to store radioactive material.
We support the decommissioning and clean-up of those
redundant facilities in the UK, and also in our international
markets in the US and in Japan.
Future growth
We're designing new nuclear plants for Westinghouse at
Springfields and Urenco at Capenhurst to support their fuel
development aspirations. We’re also helping to optimise the
replication of Hinkley Point C (HPC) at Sizewell C. HPC is
under construction and enabling works have commenced
at Sizewell C, and they're procuring long-lead items.
We're a key alliance partner at HPC, where today we have
600 people integrating and installing 350 kilometres of
pipework, 35,000 valves and 7,500 rooms. Over the next
few years, we expect that team to more than double in size.
Potentially there could be two further gigawatt power stations
in the UK, in addition to SMRs and AMRs. We expect the
modular reactor opportunity to accelerate over the next few
years, with real potential beyond this period.
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Our c.6,300 employees provide essential services to our customers
through three core capabilities: build, support and train. We do this
through the delivery of through-life engineering support and systems
integration for military vehicles and equipment. We provide individual
and collective training for customers with critical missions and deliver
engineering services in power generation and transport networks
andthrough-life support of mining equipment.
Operational reviews
Land
Land – at a glance
FY25 revenue profile
Operational highlights
• Awarded five-year British Army strategic support partner contract extension (‘Reframe’, formerly DSG) worth £1 billion
• Awarded additional contract to build 53 High Mobility Transporter Jackal 3 six-wheeled ‘Extendas’ for the British Army
• Signed an MOU with Patria to offer its 6x6 Armoured Personnel Carrier to the UK Armed Forces
• Launched 120mm Ground Deployed Advance Mortar System with ST Engineering with live firing demo for the UK
• Awarded first NATO training contract and several key UK training contract extensions
• Continued to provide critical support to Ukraine delivering defence support capability
39%
18%
33%
10%
£1.1bn
Defence UK
Defence International
Civil UK
Civil International
£1.1bn 23%
£3.5bnc.6,300
Revenue % of Group revenue
Number of employees Contract backlog
54 Babcock International Group PLC Annual Report and Financial Statements 2025
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Financial review
31 March 2025
£m
31 March 2024
£m
Contract backlog* 3,466.1 2,593.7
Revenue 1,116.6 1,098.6
Underlying operating profit* 86.2 96.3
Underlying operating margin* 7.7% 8.8%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 41.
Revenue increased 2% to £1,116.6 million comprising growth
from a broad range of defence activities in both the UK and
international markets, including DSG, Jackal production and
Ukraine support, and an increase in our South Africa business.
This was largely offset by a reduction our Rail business.
Underlying operating profit decreased 10% to £86.2 million
as FY24 included a one-off £17.0 million profit on disposal of
property. Excluding this, underlying operating profit increased
10% (at constant FX) reflecting revenue growth outlined above
net of the decrease in Rail, improvement in training margins
and the final year of trading of the DSG contract. As a result,
underlying operating margin was 7.7% (FY24: 8.8%; FY24
excluding property profit 7.2%).
Contract backlog increased 34% to £3,466 million
(FY24: £2,594 million) driven by a five-year extension,
‘Reframe’, (formerly DSG) worth c.£1 billion, defence contract
extensions including UK training and Australia.
Operational review
Defence
UK defence
Following a period of strong operational performance on our
contract for the maintenance, repair and asset management
of the British Army vehicles and equipment (DSG), we were
awarded a sole-source five-year extension worth around
£1 billion, (now called ‘Reframe’) on terms that will result
in better outcomes for all stakeholders.
We have commenced mobilisation of the contract extension
which will deliver improved readiness, regeneration and asset
management services underpinned by extensive engineering
and supply chain expertise to maximise the availability of critical
army equipment. This contract cements our position as strategic
partner to the British Army, thereby setting the foundation for
the army modernisation programme in the coming decades.
To enhance delivery of the contract extension, we launched
our strategic asset management platform, Metis in partnership
with Palantir Technologies. This capability includes the
equipment support enterprise’s digital footprint, from which
the optimal balance of cost, risk and performance is derived
to maximise the value of assets throughout their lifecycle.
We continue to support the UK in providing critical support
to Ukraine’s Armed Forces, delivering personnel training and
refurbishment and renewal of equipment through our Project
HECTOR contract. In January 2025, we secured a 15-month
contract extension from the UK MOD to continue to support
urgent operational requirements for Ukraine’s military land
assets. In addition, Babcock secured a multi-million-pound
contract with the UK MOD to undertake in-country maintenance
and repair of the Ukrainian owned Combat Vehicle
Reconnaissance (Tracked) (CVR(T)) fleet, in collaboration
with Ukrainian industry, and continue to support Operation
Interflex, the British-led multinational military operation to train
and support the Armed Forces of Ukraine. Finally, in March
2025, we won a proof-of-concept contract from the UK MOD
which will enable Ukraine’s armed forces to use innovative
technology to 3D print military equipment, demonstrating our
ability to deliver defence support capability whenever and
wherever it is required.
We successfully delivered the first package of work for Project
TAMPA, the MOD’s accelerator programme focused on the use
of additive manufacturing to increase material availability and
tackle obsolescence. The project aims to reduce cost and
improve the performance and availability of defence capabilities
and critical assets.
Babcock, in partnership with Supacat, was awarded an
additional contract to manufacture 53 Jackal 3 ‘Extenda’ variants
of the High Mobility Transporter for the British Army. The initial
contract awarded for 70 Jackal 3 (HMT 400 series) vehicles
which began production in our new production facility within
the Devonport Freeport earlier this year.
We launched a new medium wheelbase variant of our
General Logistics Vehicle in June 2024 and plan to unveil
a six-wheeled variant at DSEi in September 2025. Initial focus
has been on the British Army Land Rover fleet replacement,
with c.7,000 vehicles required. With the military Land Rover
no longer in production, we are pursuing a number of
international opportunities.
We have partnered with ST Engineering, to offer the UK
an integrated, end-to-end solution to enhance British mortar
capability, as part of the MOD’s 120mm mortar procurement.
By bringing ST Engineering’s Ground Deployed Advanced
Mortar System (GDAMS) technology to the UK, we will deliver
a sovereign solution that boosts British capability whilst driving
economic and social benefit. In November 2024, we facilitated
a successful live firing demonstration in South Africa with UK
MOD, showcasing the breadth and depth of GDAMS’ power
and potential for UK and future export.
In January 2025, Babcock signed a MOU with Patria to offer
the 6x6 Armoured Personnel Carrier to meet the operational
requirements of the British Army. Under the agreement, Patria
will lead on design and development of the system, while
Babcock will lead on the manufacture, assembly, integration
and testing.
Our Defence Training business has been awarded its first
training contracts by NATO. These strategically important
contract awards include a five-year contract to support military
exercises by providing subject matter experts to fulfil play
functions, and a one-year contract for the delivery of
wargaming expertise to the Alliance’s Joint Warfare Centre.
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Land (continued)
The business was also awarded several key UK contract extensions,
including the continuing delivery of training for Falcon, the
battlefield communications system used by the British Army
and Royal Air Force, and a one-year extension to the Electro-
Mechanical Training contract for the British Army at MOD
Lyneham. In April 2024, we successfully mobilised a new
seven-year ARMCEN support contract, which will provide
technical training for the British Army.
The Babcock Immersive Training Experience (BITE) was
launched in the UK, Europe, USA and Canada. BITE is a
best-in-class training capability solution for the defence and
emergency services markets. It uses innovative and futureproof
technology to replicate the physical, sensory and cognitive
challenges of operating in a high stress environment.
Following a comprehensive evaluation of commercial terms,
Babcock and its partners in Team Crucible made the decision
to exit the bid to become the Strategic Training Partner for the
Army Collective Training System.
International defence
In Australasia, we have embedded the first cohort of
maintenance technicians at Royal Australian Air Force base
Amberley to conduct maintenance of ground support equipment
for the ADF. We delivered a A$14 million fleet of Squad
Packable Utility Robots to the ADF which will be utilised
across tri-service applications for intelligence, surveillance
and reconnaissance activities to mitigate and deny the use
of improvised explosive devices.
In Melbourne we opened a new A$3.5 million International
Engineering and Technology Hub. The hub will support
Babcock’s global operations and provide a local base for
key programmes.
In New Zealand, we continue to work closely with the NZ
Ministry of Defence on the Fixed High Frequency Radio Refresh
programme. Factory acceptance testing of the system was
delivered in November 2024 and installation of the system
in country began in 2025.
In France, we continued to strengthen our relationship with the
French MOD as we successfully delivered the transition phases
on our two Land contracts. Our Land military team in France
continues to grow and we have recently opened a new central
office in Bordeaux overseeing our in-country service delivery.
Civil
UK Civil
Our Emergency Services businesses performed well through
the year however London Fire Brigade training and fleet support
performance was offset by the end of the Metropolitan Police
Service fleet support contract in FY24.
Our Rail business was down significantly year on year driven
by reduced volumes across our Translink and Network rail
Scotland alliance contracts due to phasing.
International Civil
In Africa, the Equipment business, which supplies mining
industry vehicles, delivered strong growth. High machine
demand was supported by a leading product offering,
outstanding customer support and trusted relationships.
56 Babcock International Group PLC Annual Report and Financial Statements 2025
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Delivering product solutions
We play a critical role in helping the Armed Forces rise
to the challenge of an uncertain world. Through strategic
partnerships and innovative engineering, Babcock’s Land
sector has contributed to the build, integration and support
of several key platforms.
Supporting the British Army’s capabilities
Last year, together with Devon-based SME Supacat, we
began production of High Mobility Transporters (HMT 400
series) for the British Army. The initial order of 70 vehicles is
well underway at our state-of-the-art production facility within
the Devonport Freeport Zone. The award of a subsequent
contract in September 2024 is testament to the close working
relationship between the British Army, the Ministry of Defence,
Babcock and Supacat.
Initially developed for Afghanistan, the British Army has made
Jackal integral to its tactics and operations, with variants used
for deep battlespace reconnaissance, rapid assault, fire
support roles and convoy protection.
Transformational innovation and technology have been
optimised throughout the production line at our advanced
manufacturing site, including bespoke ‘Pulse’ software which
maximises efficiency during vehicle assembly.
The programme is also delivering social value, securing
100 new jobs and helping people back into employment,
through our Skills-based Work Academy Programme.
Our groundbreaking GLV series
Our series of General Logistics Vehicles (GLV) can fulfil a
multitude of tasks across the world. This hugely reliable GLV
family provides military and security forces with a complete
value-for-money solution for light-utility vehicles, increasing
the availability of these critical assets.
We have applied our deep understanding of the needs of the
Armed Forces to our engineering, to offer the best possible
vehicle for operational success. The GLV family includes
the long wheelbase and the medium wheelbase variant,
with the heavy-duty variant expected in FY26.
Partnering with Patria
Babcock and Patria are working together to offer the Patria
6x6 Armoured Personnel Carrier to the British Army,
combining the highest-quality British and Finnish engineering
to make sure the Army is ready for its next mission. Babcock
will provide the sovereign build solution, and develop a
platform support package that will maintain operational
readiness of the vehicle throughout its life.
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Our c.2,600 employees deliver military pilot training support for
the two largest Air Forces in Europe (France and the UK),
through-life support to operational military flying assets and
critical air operations for government customers.
Operational reviews
Aviation
Aviation – at a glance
FY25 revenue profile
Operational highlights
• Awarded Mentor 2 contract, for up to 17-years, to deliver military air training solutions for French Air and Space Force, and Navy
• Awarded two-year HADES contract extension to provide technical airbase support services across the UK tri-forces
• Secured 12-year contract with Airbus to support 48 French defence and security EC145s across France and overseas
• Secured a £70 million contract to deliver new infrastructure facilities for Ascent UK Military Flying Training System
• Reached milestone of 60,000 flight training hours for the French Air and Space Force
38%
9%
41%
12%
£0.3bn
Defence UK
Defence International
Civil UK
Civil International
£0.3bn 7%
£1.9bnc.2,600
Revenue % of Group revenue
Number of employees Contract backlog
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Financial review
31 March 2025
£m
31 March 2024
£m
Contract backlog* 1,939.7 1,641.4
Revenue 322.3 341.5
Underlying operating profit* 19.9 19.2
Underlying operating margin* 6.2% 5.6%
*
Alternative Performance Measures are defined in the Financial
Glossary on page 41.
Revenue decreased 4% as expected (at constant FX) to
£322.3 million (FY24: £341.5 million) primarily due to completion
of the aircraft delivery phase in the H160 French defence
contract.
Underlying operating profit increased 3% (at constant FX)
to £19.9 million (FY24: £19.2 million), despite lower revenue,
reflecting improved project profitability, programme timing and
contract renegotiations, including price. As a result, underlying
operating margin increased to 6.2% (FY24: 5.6%).
Contract backlog increased to £1,940 million
(FY24: £1,641 million) with the award of the Mentor 2 contract.
Approximately £310 million has been recorded in the contract
backlog so far for this contract.
Operational review
Defence
UK defence
Performance remains strong on the HADES contract to deliver
essential critical services to the RAF, Joint Aviation Command
and Strategic Command at 16 stations across the UK. We have
successfully commenced work to deliver a two-year extension
to the contract, which we were awarded in October 2024.
In May 2025, Babcock was awarded a £70 million contract to
deliver new infrastructure facilities as part of a
£300 million military flying training contract secured by Ascent,
our 50/50 joint venture with Lockheed Martin. Ascent will deliver
the Future ISTAR (Intelligence, Surveillance, Target Acquisition
and Reconnaissance) and Rear Crew Training System (FIRCTS)
programmes.
Operations on the Royal Air Force Light Aircraft Flying Task
(LAFT) contract are delivering high levels of availability.
We continue to provide fast jet lead-in training for the Ukrainian
Pilot Force, ensuring trainers and pilots have full aircraft
availability as they prepare to fly F-16 jets.
We successfully completed ground and flight testing using
synthetic fuel as part of Project MONET, a two-year research
and development project with the RAF to explore the application
of emerging technologies to minimise the environmental impact
of LAFT.
We continue to partner with Uplift360, a company that develops
chemical technologies to recycle advanced materials and are
exploring solutions for the management and recycling of
composite materials used in defence equipment. Research into
the use of uncrewed air system technologies to support UK
defence, security and government aviation is ongoing, with
a focus on integrating autonomous and collaborative platforms.
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Aviation (continued)
International defence
In France, in January, we were awarded Mentor 2, a new
17-year contract (including two year options), by the Direction
Générale de l’Armement for the provision and support of military
air training solutions for the French Air and Space Force (FASF)
and the French Navy. The contract, worth up to €800 million
including around €200 million of options, comprises the
provision of aircraft, simulators and initial pilot training as well
as the through-life support of the aircraft, and infrastructure.
We expect c.£180 million of initial revenue relating to new
infrastructure and delivery of assets over the three-year period
FY26-FY28. The programme will then have transitioned to the
long-term service. In FY26, the programme will require
c.£30 million of working capital investment from Babcock,
which we expect to recover in FY27. This agreement represents
a significant expansion of our military activity in France.
Babcock is now the sole contractor supporting FASF in its
fighter training programmes.
We continue to deliver the Mentor 2 and FOMEDEC contracts
in line with expectations, achieving over 14,600 flying hours and
over 9,000 synthetic hours in FY25. We are now extremely
proud to have reached a key milestone of 60,000 flight hours on
our PC-21 aircraft. We also contributed to air surveillance during
the 80
th
World War 2 anniversary in Normandy and the Olympic
Games in France.
As part of our contract with the French MOD, the H160
helicopters fleet has now carried out more than 300 rescue
missions with more than 95% of contractual availability in the
Mediterranean Sea and across the Normandy and Brittany
coasts. We have also completed the world's first 900-flying-
hour periodic maintenance of an H160 helicopter at our
workshop in France.
With Airbus Helicopters, we completed the first year of our
12-year contract to support the fleet of EC145C2 aircraft of the
Direction Générale de la Sécurité Civile and the French
Gendarmerie Nationale. We delivered two EC145C2 helicopters
to the Sécurité Civile in the period, and three additional major
maintenance inspections are currently underway.
Our partnership with Airbus Helicopters remains strong, and we
were awarded an additional contract for the in-service support
of the forthcoming nine Sécurité Civile H145D3 aircraft. We are
preferred bidder on a contract to deliver in-service support
services to the French Army’s Gazelle Fleet.
We are currently in the final stage of bidding to provide Belgium
fighter pilot training, and are progressing a bid for the French Air
Force tactical and combat training contract.
In Australasia, in response to the evolving needs of the
Australian and New Zealand defence forces we are exploring
opportunities in Defence Search & Rescue, initial flight training
and in service support and MRO contracts, leveraging
Babcock’s global expertise and experience in civil aviation.
Civil
UK civil
In the period we mobilised a 10-year contract with Midlands
Air Ambulance. This continues a 33-year relationship with
the charity, during which we have responded to over 75,000
lifesaving missions.
We won a further 10-year contract to continue as the aviation
partner for Scotland’s Charity Air Ambulance (SCAA), providing
aviation support to the charity from bases in Perth and Aberdeen
International Airport and bringing a new aircraft into service.
We continue to provide flying operations, ground support
and engineering services for a number of other air ambulance
services in the UK, providing fleet technical availability in
excess of 98%.
International civil
In France, we successfully delivered around 11,000 HEMS flight
hours. We have expanded our Bordeaux and Bayonne bases to
operate 24/7, strengthening our ability to support our customers
and becoming a key asset in managing the surge in seasonal
activity.
We are currently the leading operator of EC/H145 helicopters
in France. In FY25, we expanded our fleet of versatile
helicopters with the addition of two new aircraft, further
reinforcing our partnership with Airbus Helicopters and Safran
Helicopter Engines & Components.
In Australasia, we provided the Queensland Government with
two AW139 helicopters, custom fitted with specialist medical
equipment, in support of our new 12-year contract to provide
aeromedical retrieval and search and rescue. The new aircraft
allow for greater range and operational capability and include
the latest aeromedical configuration including roll-on-roll-off
stretchers for increased patient care.
As part of our South Australia (SA) State Helicopter Rescue
Service contract, we delivered a new Airbus H145 helicopter
to increase capability for law enforcement, and a new Bell 412
helicopter to SA Ambulance Service. Our bid for the new
contract to deliver fixed and rotary wing emergency medical
services to the South Australian Ambulance was not successful
and therefore our current contract will conclude in FY28.
We have signed an MOU with US-based autonomous aircraft
pioneer PteroDynamics to explore opportunities for unmanned
aerial systems within defence and civil contracts across the
region. We have also signed an MOU with Surf Life Saving
New South Wales Partnership to pursue long-range drone
technology and services to transform lifesaving operations
into a broader national asset for disaster prevention, response
and recovery.
In Canada, we successfully achieved initial operating capability
for British Columbia’s new 10-year aerial emergency services
contract with a new fleet of AW169 aircraft. Initial operations
are taking place from Ascent Helicopters’ base at Parksville.
Our firefighting contract for the Province of Manitoba performed
well in FY25, completing 475 missions during the 2024 wildfire
season, with 98% aircraft availability.
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Securing the skies
We play an important role in training military pilots for the
demands of modern worldwide operating environments.
In the UK
In the UK, Ascent Flight Training, our 50/50 joint venture with
Lockheed Martin, is responsible for delivering the UK Military
Flying Training System (UKMFTS), in partnership with the
MOD. UKMFTS delivers fast jet, rotary wing, fixed wing
multi-engine and rear crew training across the Royal Air
Force, Royal Navy and Army Air Corps.
In FY26, Babcock was awarded a contract to deliver new
infrastructure facilities as part of a £300 million defence
contract to deliver the Future ISTAR (Intelligence, Surveillance,
Target Acquisition and Reconnaissance) and Rear Crew
Training System.
We will manage the build of two state-of-the-art training
facilities at RAF Cranwell in Lincolnshire and RNAS Culdrose
in Cornwall that prepare RAF and Navy trainees for the
demands of modern worldwide operating environments.
Supporting Ukraine
We also provide vital support to the Ukrainian Air Force.
We supply the Grob Tutor aircraft, including all the technical
and operational support functions, ensuring aircraft availability
is 100%. Aircraft availability is crucial to military operations and
our team is by the RAF’s side, ensuring the UK’s best flying
instructors have everything they need to train Ukraine’s next
generation of fast-jet pilots.
In France
In France, we continue to support military fighter pilot training
under the FOMEDEC and Mentor 1 contracts. Our world-class
programme prepares future jet pilots and weapons systems
officers to operate today’s increasingly sophisticated aircraft.
We are extremely proud to have reached a key milestone
of 60,000 flight hours on our PC-21 fleet.
This year we expanded our activity in France with the award
of Mentor 2, a new 17-year contract for the provision and
support of military air training solutions for the French Air and
Space Force, and the French Navy. We will provide aircraft,
simulators and initial pilot training as well as the through-life
support of the aircraft, and infrastructure.
We see more opportunities to expand our pilot training in
mainland Europe, including an opportunity to provide Belgium
fighter pilot training.
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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’re not just here for the short term; delivering lifetime
engineering means setting our sights across generations.
That’s why we’re committed to forging close and committed
partnerships with our stakeholders. Because we know that
to go far, we must go together.
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 126 and on page 136
to 138, 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 6 and 16)
• Sustainability strategy (page 64)
b. the interests of the Company’s
employees
• Investing in skills (pages 10 and 89)
• Building an inclusive, diverse and
resilient workforce (page 85)
c. the need to foster the
Company’s business
relationships with suppliers,
customers and others
• Stakeholder engagement
(page 62)
• Commercial integrity (page 97)
d. the impact of the Company’s
operations on the community
and environment
• Supporting our communities
(page 92)
• Protecting the natural
environment (page 82)
e. the desirability of the Company
maintaining a reputation for high
standards of business conduct
• Responsible business (page 96)
f. the need to act fairly between
members of the Company
• Investors (page 63)
Oxford Economics report
An independent report by Oxford Economics in March 2025 found the Group made a total contribution of £4.3 billion
to UK GDP in FY24, positively impacting all of our stakeholders. This included a total contribution of £510 million in Scotland
and £1.3 billion in the South West. Additionally, Babcock contributed AU$758 million to Australia’s GDP.
Our deep understanding of the
needs of our customers and
the challenges they face allows
us to help them to succeed.
We have long-term relationships
with our customers, including
as a Strategic Supplier to the
UK Government. We seek to
deliver deeply pragmatic and
integrated solutions for our
customers’ critical programmes
and services, working together
for our mutual success.
What matters to them
• Health and safety
• Operational excellence
• Affordability, Availability,
Capability
• Integrated solutions
• Innovation
• Collaboration
How we engaged
In the UK we reaffirmed our
commitment to the
Government’s Strategic
Partnering Programme (SPP)
with a jointly signed Charter.
• Regular engagement with
customers at all levels
• Held up as a strategic
partnering role model by
UK Cabinet Office
• Hosting UK Government’s
One Government Day
in FY26
• Collaborating on joint
initiatives
• Maintained Corporate
Resolution Planning
certification
• Implementing improved
contracting models
Customers
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Babcock’s value, first and
foremost, is in its people.
Our collective know-how is the
key to our success, both now
and in the future. Our people
deserve an environment in
which they can thrive – one
that requires an unwavering
commitment to their health,
safety and wellbeing, and
a culture where talent is
recognised, supported and
developed through meaningful
action so that everyone can
reach their full potential.
What matters to them
• Fair pay and reward
• Opportunities for career
development
• Health, safety and wellbeing
• An empowering, inclusive
culture with strong
leadership
• Collaboration
How we engaged
In 2024, our annual Global
People Survey had its highest
ever participation rate of 80%.
• Regular engagement with
leaders at all levels
• Our designated Director for
workforce engagement, Lord
Parker, held 12 meetings
with colleagues, including
group-based forums
• Improving systems and
processes
• Internal communication
channels, including intranet
and weekly senior
management vlogs
• ‘Safety Starts with Me’ and
Safety Stars programmes
• New colleague recognition
Ignite Award scheme
• Regular training programmes
• Introduced ‘Mentor Match’ to
support career development
for women
Babcock is a major employer,
often operating in deprived
areas. We have the power and
responsibility to provide positive
benefits to the places where we
live and work, not only through
employment but also by working
with local suppliers, local
community groups and charities,
through volunteering and STEM
outreach. We seek to work
in partnerships with the
communities we serve so
that we can thrive together.
What matters to them
• Employment opportunities
and economic contribution
• Health, safety and wellbeing
• Making a positive impact on
the community, including
through volunteering
• Engagement in local
education and STEM activities
• Sustainability and protection
of the local environment
• Support for indigenous people
• Support for the armed forces
community
• Broad community engagement
How we engaged
Independent report by Oxford
Economics conducted in
March 2025.
• In December 2024,
established a city-wide
partnership with Plymouth
City Council and the Royal
Navy to focus on future
growth
• Regular dialogue at our
largest sites on matters
of mutual interest
• Working with local SMEs
to support local economies
• Colleague volunteering
• University and skills
partnerships
• Sponsorship and donations
• STEM outreach
• Engagement with and
support for local community
programmes
The support of our equity and
debt investors and continued
access to capital is vital to
the long-term success of the
Company. We work hard to
provide clear and transparent
information to the market
which enables informed
decisions, delivered by our
active Investor Relations
and Treasury teams.
What matters to them
• Creation of shareholder value
• Clarity of communications
• Appropriate access
to management
• Responsive Investor
Relations
• Leadership
• Strategy and business
development
• Capital allocation model
• Governance
How we engaged
Babcock won ‘Best Investor
Communications’ at the
prestigious UK PLC Awards
in February 2025 and was
promoted to the FTSE100
in March 2025.
• Improved transparency
and consistency of formal
communications
• Increased tempo of investor
meetings
• Increased engagement
with analyst community
• Developing programme of
analyst ‘teach-ins’ for FY26
• Treasury team engagement
with banks, noteholders and
credit rating agencies
• Investor roadshows with
management and IR team
• Chair and NED engagement
with top shareholders
Our sustainable growth
requires 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
operational improvement
through innovation and best
practice. These partnerships
allow us to ensure continuity
of supply, minimise risk and
bring integrated solutions
to our customers.
What matters to them
• Collaboration
• Fair treatment and respect
• Transparent communication
• Access to opportunities
• Prompt payment and
predictable supplier
cash flows
How we engaged
In FY24, we published a
Supplier Assurance Handbook.
• Regular open and honest
two-way communications
• Supplier Code of Conduct
and Supplier’s Guide
• Supplier conferences and
workshops
• Supplier due diligence
• Implemented ESG ratings
for our suppliers
Colleagues Investors Communities Suppliers
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Sustainability: our refreshed strategy
For our world to be safe and secure it must
also be sustainable. Consequently, we see
sustainability as a key enabler to achieving
Babcock’s Purpose.
Since outlining our ESG strategy in 2020 our ambition has
grown, but the level and complexity of requirements placed
on the business have also increased. Therefore, we have
undertaken a full review and refresh of our sustainability
strategy, to prepare us for the years ahead.
This new strategy is
• Simpler – giving clear guidance on our priorities.
• More focused – driving action in the areas where we can
have the greatest impact.
• Deliverable – empowering the business to effectively allocate
resources to build a more sustainable enterprise.
Our view of sustainability
Just as the Purpose of Babcock is focused on people and
planet, so too is our view of sustainability. Babcock plays
a critical role in the communities in which we operate, as well
as acting as stewards of the environment.
For this reason, our view of sustainability at Babcock is to help
safeguard our planet and support our people and communities.
Based on an updated materiality assessment which is outlined
on the following page, we have identified six strategic priorities
which are of the greatest importance to Babcock as a whole,
three in the environmental sphere and three in the social sphere.
• Tackling climate change – We recognise Babcock’s
operations produce significant greenhouse gas emissions.
Climate change also has the potential to significantly impact
our business. This means that we not only have a
responsibility to reduce our emissions but must also have a
mature understanding of how we will respond to the impacts
of climate change (see page 66)
• Managing our resources responsibly – Babcock is a
significant consumer of natural resources through our supply
chain and operations. We have a responsibility to work
with our suppliers and on our own sites to ensure we use
resources effectively and efficiently (see page 80)
Our new sustainability strategy takes a twin track approach
First, we will focus our action on six strategic priorities where
the business can have the greatest impact, ensuring compliance
and business improvement (see graphic below). These are
supported by six 2030 sustainability targets, each of which
has associated delivery plans in place. Non-core sustainability
targets will no longer be reported on, as explained in the
following pages.
Second, we are building capability within the business to
embed sustainability principles across Babcock for the long
term, to ensure compliance with evolving regulations and to
build a culture of continuous improvement.
Good governance is critical and remains core to the delivery
of our whole business strategy, including sustainability.
The sustainability strategy is overseen by the Corporate
Sustainability Committee, a new sub-committee of the Executive
Committee, to ensure robust governance of its implementation.
The Board also continues to play an active role in oversight
of our sustainability strategy (see page 126).
• Protecting the natural environment – Many of Babcock’s
operations are in areas of environmental sensitivity. Not only
is it important to comply with laws and regulations, but where
possible we want to enhance the environments we operate in,
providing both ecological and social benefits (see page 82)
• Ensuring the health, safety and wellbeing of our people
– Our first duty as a business is to look after our own people.
This is not just in relation to matters of safety, but also their
physical and mental health. Doing so not only improves
the quality of life of our workforce, but it makes us a more
productive and successful business (see page 83)
• Building an inclusive, diverse and resilient workforce –
Inclusion and diversity in Babcock not only benefits our
communities, but it also enables us to build a stronger, more
innovative business. We want to nurture and support talent
throughout people’s careers, regardless of background
(see page 85)
• Supporting our communities – Babcock is a major employer,
often operating in deprived areas. We provide positive
benefits to the places in which we operate, not only through
employment, but also by working with local suppliers, local
community groups and charities, through volunteering
and STEM outreach (see pages 92 and 96)
To help safeguard our planet and support our people and communities
Tackling
climate
change
Managing our
resources
responsibly
Protecting
the natural
environment
Ensuring the
health, safety
and wellbeing
of our people
Supporting our
communities
Building an
inclusive, diverse
and resilient
workforce
Strategic Priorities
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Double materiality
This year we conducted our first double materiality assessment
examining the impact of our operations on environmental, social
and governance factors, while also considering the financial
risks and opportunities posed by these factors.
Based on an assessment of over 90 topics, we identified 19
sustainability and governance factors which are material to
Babcock. Depending on sector or jurisdiction, each of these
factors may have greater or lesser levels of importance; the
matrix included here assesses the materiality of these factors
to the business as a whole. The most material factors form the
basis of the six strategic priorities outlined in our new
sustainability strategy. See previous page.
This analysis was carried out based on the double materiality
principle established by the Corporate Sustainability Reporting
Directive (CSRD).
SDG framework
The work on our double materiality assessment has a natural progression
to identify seven Sustainability Development Goals which Babcock most
closely aligns with.
Our materiality issues relating to ESG
Full methodology
and details of our
double materiality
assessment are
available on our
website
Process
Identify
• Framework, standards and regulatory
requirements identified
• Key ESG issues for Babcock shortlisted
Consult
• Internal stakeholders consulted via survey
• Subject Matter Experts reviewed input to assess
opportunities and risks
Analyse
• Corporate Sustainability Committee survey
validated results
Impact materiality
Lower
Financial materiality
Lower Higher
Higher
Environmental issues Social issues Governance issues
Corporate Culture and Governance
Inclusion and Diversity
Social Impacts of Our Products
Sustainable Local Communities
Working Conditions in the Supply Chain
Water Consumption and Management
Political Engagement
Rights of Indigenous People
Talent and
Development
Data and Cyber Security
Promotion of Health,
Safety and Wellbeing
Bribery and Corruption
Energy Consumption and Management
Risk Management
Pollution of Air, Water, Soil and
Substances of Concern
Climate Change
Use of Natural
Material
Working
Conditions
Delivering Net Zero
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Climate change poses a significant global
threat, with far-reaching consequences for
the environment, society and economies.
Babcock is committed to reducing its
environmental impacts. We believe taking
firm action and transitioning to a Net Zero
and sustainable economy will deliver long-
term value to our stakeholders.
In 2021, we launched our decarbonisation strategy, Plan Zero
40, where we committed to delivery of a 2030 Science Based
Target in line with a 1.5-degree pathway, delivering Net Zero
across our own operations (Scope 1 and 2) by 2040 and
delivering total Net Zero (Scope 1, 2 and 3) by 2050. In 2024,
we gained validation of our targets from the Science Based
Targets initiative (SBTi).
As part of our new sustainability strategy, we are reaffirming
our commitment to our long-term emission reduction targets
which are:
• Reduce absolute Scope 1 and 2 greenhouse gas emissions
(GHG) 90% by 2040 from a 2021 base year.
• Net Zero greenhouse gas emissions across the value chain
by 2050.
We also remain committed to our short-term target.
A 42% reduction by 2030 in our Scope 1 and 2 emissions
against a 2021 baseline.
This has been validated by SBTi and we are currently reviewing
our short-term Scope 3 targets in line with the SBTi standard.
2021
Plan Zero 40
launch
BASELINE
New
sustainability
strategy
Science
Based
Target
Net Zero
target
(Scope 1 and 2)
Total
Net Zero target
(Scope 1, 2 and 3)
2025 2030 2040 2050
Our Net Zero journey
Tackling climate change
Sustainability (continued)
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Woodville North facility in Australia
Babcock’s state-of-the-art, carbon-neutral facility in
South Australia opened in October 2024. The defence
maintenance and manufacturing facility features a range
of sustainable technologies such as solar array, ground
water harvesting, electric vehicle charging stations,
energy-saving lighting and intelligent controls.
Estate and assets
Babcock operates a complex estate across its global portfolio,
including critical assets and infrastructure. Based on the nature
of our land, air and sea operations, our estate portfolio is
diverse, from dockyards and aircraft hangers to offices and
manufacturing facilities. The emission profiles of our estate
vary depending on site-specific operations.
Over the past few years, we have worked to develop
comprehensive greenhouse gas inventories across our estate
to understand our emission sources. Estate and asset-related
emissions equate to 2.1% of our total footprint and arise from
a variety of sources, including:
• Gas and electricity used across our sites
• Fuels (stationary combustion)
• Fugitive emissions
• Waste generated through our operations
Estate and assets emissions
Baseline emissions – 94,298 tCO
2
e
FY25 emissions – 77,003 tCO
2
e
Since our baseline, we have been working to deliver energy
and carbon-saving improvements across our estate, including
a range of ‘low hanging fruit’ initiatives and renewable energy
installations. We continue to investigate further opportunities
to improve the efficiency of our operations.
Having a strong understanding of our emissions has allowed us
to develop targeted decarbonisation plans which aim to address
the most carbon-intensive parts of our operations. Our Carbon
Reduction Plans cover over 95% of Babcock’s related emissions.
Within our new sustainability strategy, we have taken the
insights and intelligence gained from the comprehensive works
carried out to date, and refined the strategy to focus and target
the most significant emissions sources across our operations.
Whilst we continue to deliver environmental improvements
across all of our estate and integrate sustainability into our
estate developments, we have identified six key ‘Enterprise
Projects’ which are critical to the decarbonisation of Babcock.
The focused Enterprise Projects include initiatives related
to estate management, energy demand, energy sources
and energy infrastructure. Our dedicated teams are developing
and implementing the delivery plans to meet our targets.
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Sustainable fuel trials
Babcock involvement in hydrogen trials
HM Naval Base Devonport in collaboration with
UKSTRATCOM, Babcock and Geopura have been
conducting hydrogen trials on site since October 2023.
Phase 1 of the trial provided an off-grid EV charging
capability that generates electricity via fuel cell technology
from within a hydrogen power unit.
During Phase 2, two hydrogen-fuelled fleet vehicles
were successfully trialled for a month, demonstrating
how hydrogen power can be used at a complex and
sensitive site. Further work is planned to investigate the
wider use of hydrogen.
Products and services
Babcock has a varied product portfolio. We understand the
challenges posed by climate change and aim to support
our customers to address their risks and unlock opportunities.
Products-and-service-related emissions equate to 74.2% of
our total footprint and arise from a variety of sources, including:
• Use of sold products and services
• End-of-life treatment
We have matured our Scope 3 footprint capabilities over recent
years and are continuing to refine our calculations.
Products and services emissions
Baseline emissions – 2,102,751 tCO
2
e
FY25 emissions – 2,723,220 tCO
2
e
Since our baseline we have been working to build a greater
understanding of the carbon footprint and impacts of our
products and services. This has included carbon footprinting
and baselining activities, PhD research and investigations,
investigating low-carbon products and funding opportunities
with our customers, and providing climate awareness training
to our workforce.
The emissions associated with our products and services have
increased since our baseline due to growth across a number
of key products, including shipbuilding production activities
and sales within our LGE business.
For further
information on our
Scope 3 footprint
and methodologies
Transport
Sustainable transport is key to our transition to Net Zero. Across
the organisation, we operate a diverse range of vehicles from
helicopters and fixed wing planes to delivery bikes, cars and
trucks. Transport-related emissions equate to 2.1% of our total
footprint and arise from a variety of sources, including:
• Aviation fuels
• Fleet vehicles
• Business travel
• Fuels used as part of distribution and logistics
Over the last 12 months we have made good progress
in implementing sustainable transport solutions:
• Successfully rolled out six electric assisted vehicles (EAV)
at Devonport Dockyard
• Increased the proportion of UK electric vehicles in the
fleet to 31%
• Continued to harness the use of Sustainable Aviation
Fuels (SAF)
Transport emissions
Baseline emissions – 64,780 tCO
2
e
FY25 emissions – 75,463 tCO
2
e
Since our baseline, we have delivered a range of improvements
to reduce the impacts associated with transport. These include
initiatives such as the introduction of an electric vehicle (EV)
salary sacrifice scheme, transitioning the fleet to Ultra Low
Emissions Vehicles (ULEV), the installation of electric vehicle
chargers across parts of the estate, and providing colleagues
with greater knowledge and awareness associated with the
carbon impacts of their travel activities.
The emissions associated with our transport activities have
increased since our baseline due to an increase in business
travel activities and also an increase in product transportation
and distribution activities.
Within our new sustainability strategy, we will focus our efforts
on transitioning the Babcock fleet to ULEV and reducing
business travel-related emissions.
Electric assisted vehicles at Devonport Dockyard
Following a successful trial period, Devonport Dockyard added
six EAVs to its fleet. For further information on the EAVs and
the launch event, please scan the QR code below.
The EAV launch
at Devonport
Sustainability (continued)
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Value chain
Babcock has an extensive value chain across its global
operations. We have thousands of suppliers providing essential
products and services which allow us to deliver our operations.
Supporting the decarbonisation of our value chain is essential
to our sustainable transition and we are working to collaborate,
influence and support the value chain.
Value chain-related emissions equate to 21.6% of our total
footprint and arise from a variety of sources, including:
• Purchased goods and services
• Capital goods
• Leased assets
• Investments
We prioritise responsible sourcing and sustainability to maintain
strong and ethical supply chains. Collaborating closely with
our suppliers, we encourage sustainable practices to reduce
environmental impact while achieving business objectives.
Our efforts include promoting good labour practices, minimising
carbon emissions, and conserving natural resources to create
long-term value for all stakeholders.
We have published our Sustainable Procurement Policy,
companion Sustainable Procurement Supplier Guidance and
Supplier Code of Conduct, which align with ISO 20400
principles. These guidelines outline our sustainability
expectations and emphasise reducing environmental impacts,
promoting resource efficiency, and supporting ethical sourcing.
They focus on reducing energy use and carbon emissions,
using safer materials, ensuring workforce diversity, fair
treatment and wellbeing. Additionally, they uphold high
standards of business ethics, human rights, environmental
protection, risk management and transparency, to create
a resilient and ethical supply chain.
Sustainability considerations are integrated into our processes,
from sourcing and onboarding to supplier assessments.
In 2024, we published our Supplier Assurance Handbook
to enhance transparency by detailing our ESG considerations,
risk management, supplier assessments, audits and
development processes. This handbook aims to foster
collaboration, responsible practices and sustainable supply
chain management in line with ISO 44001 standards.
Reporting Scope 3 emissions is a key focus, as it represents
a significant portion of our carbon footprint and offers
substantial opportunity for reduction. By engaging suppliers
in sustainability efforts, we enhance supply chain resilience,
reduce overall emissions and contribute to global climate goals.
Our new supplier sustainability assessment tool focuses
specifically on measuring and reducing carbon emissions
across our supply chain.
Value chain emissions
Baseline emissions – 613,501 tCO
2
e
FY25 emissions – 794,595 tCO
2
e
We utilise a hybrid Environmentally Extended Input-Output
(EEIO) approach to calculate the emissions from our value
chain. Our value chain emissions have increased since our
baseline, predominantly as a result of an increase in our
procurement spend, which due to the EEIO calculation approach
results in a direct increase in emissions. We are investigating
alternative emission calculation methodologies to address the
challenges with the EEIO approach.
Climate management instruments
Climate management instruments are used within Babcock
to identify risks and support the delivery of our climate-related
targets. During the previous year, we implemented Internal
Carbon Pricing to allow the organisation to better understand
the financial implications of our carbon footprint and ensure
climate considerations are embedded within our decision-
making processes.
We have decided initially to utilise a shadow carbon price,
and will assess whether to implement an Internal Carbon Fee
over the coming years as our maturity develops.
In FY22, we aligned Babcock’s Executive remuneration with
the climate-related objectives of the organisation. We believe
our approach showcases our commitment to delivering positive
action, spearheaded by our executive leadership. We believe
this instrument has supported us to foster and embed a culture
of sustainability and accountability, driving positive behaviours
and rewarding for sustainable decisions that deliver our
climate objectives.
In FY26, the basis of the remuneration targets will be updated
to reflect and align with the new sustainability strategy.
Further details can be found on page 171.
Data management
Data is the cornerstone to Babcock’s sustainability strategy and
fundamental in allowing us to understand, monitor and report
our impacts. Supported by a dedicated sustainability data team,
in recent years we have made significant improvements to the
accuracy and completeness of our data sets.
Having gained approval for our data management platform in
FY24, over the last year we have progressed implementation of
this system.
Our new system utilises an industry-leading advanced data
management platform (Envizi) which has been tailored to meet
Babcock’s specific needs. The system includes the end-to-end
processes to enable effective and efficient data collection,
analysis and reporting.
Combined with a range of process and governance improvements,
Envizi will deliver significant benefits to the organisation,
ensuring we are able to make evidence-based decisions and
allowing us to efficiently deliver our transition to Net Zero.
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Find out more about
our Scope 3 footprint
and calculation
methodologies
Babcock Group energy consumption and emissions
2021 2022 2023 2024
UK
Scope 1: Direct emissions
from owned/controlled operations
1
tCO
2
e 42,079 40,268 28,574 27,196
Scope 2 location-based: Indirect emissions from the use
of electricity and steam (for illustrative purposes only) tCO
2
e 34,101 36,423 39,356 36,493
Scope 2 market-based: Indirect emissions from the use
of electricity and steam tCO
2
e 58,214 61,088 63,220 57,477
Total Scope 1 and 2 emissions market-based tCO
2
e 100,293 101,356 91,794 84,673
Underlying energy consumption kWh 356,705,922 377,085,531 349,834,720 333,153,659
Global (excluding UK)
Scope 1: Direct emissions from owned/controlled
operations
1
tCO
2
e 21,099 21,296 15,937 15,518
Scope 2 location-based: Indirect emissions from the use
of electricity and steam (for illustrative purposes only) tCO
2
e 3,659 3,241 3,279 3,339
Scope 2 market-based: Indirect emissions from the use
of electricity and steam tCO
2
e 3,659 3,366 3,279 3,339
Total Scope 1 and 2 emissions market-based tCO
2
e 24,758 24,663 19,217 18,857
Underlying energy consumption kWh 98,756,242 99,573,158 78,305,941 76,302,062
Babcock Group total
2
(UK and Global)
Scope 1: Direct emissions
from owned/controlled operations
1
tCO
2
e 63,179 61,565 44,511 42,714
Scope 2 market-based: Indirect emissions from the use
of electricity and steam tCO
2
e 61,873 64,455 66,499 60,816
Total Scope 1 and 2 emissions tCO
2
e 125,052 126,020 111,010 103,530
Total Scope 3 emissions (excluding pensions) tCO
2
e 2,750,279 2,793,062 3,098,916 3,566,750
Total value chain emissions (excluding pensions)
3
tCO
2
e 2,875,331 2,919,081 3,209,926 3,670,280
Adjusted revenue
4
£m 3,263 3,853 4,369 4,682
Intensity ratio
5
tCO
2
e/ £1m
Revenue 881.1 757.7 734.8 783.9
Our emissions data is reported in line with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard under the ‘Operational Control’
approach. The reporting period for our energy consumption and GHG emissions is the calendar year (01 January to 31 December) due to availability
of data to meet annual reporting timescales. Our base year is 2021, aligned to our approved science-based targets. Our reporting exceeds the
Streamlined Energy and Carbon Reporting (SECR) requirements, including a full Scope 3 footprint. Scope 3 emissions have been calculated in line with
the GHG Protocol Corporate Value Chain (Scope 3) Standard and include elements of future emissions from sold products. Total emissions are based
on market-based Scope 2 emissions, since they are more representative of our energy supply contracts. Our market-based Scope 2 emissions are
higher than location-based due to significant energy being provided by the energy from the waste plant at Devonport (Plymouth, UK) which has a high
emission intensity. Figures for UK operations follow conversion factors published by the Department for Business, Energy and Industrial Strategy
(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. In line with our base year recalculation policy,
emissions data for prior years have been adjusted in line with organisational changes and include corrected or additional data unavailable in previous
Annual Reports. Emissions figures include an element of estimated data. Certain data, estimated to be immaterial to the Group’s emissions, has been
omitted as it has not been practical to obtain (including transport fuel in South Africa). Metering and monitoring improvements are being implemented
to capture these datastreams. In line with SECR requirements, figures reported for the previous period must be stated as disclosed in the report in the
preceding year, (despite these figures no longer being comparable with our current reporting period or our revised baseline): UK Scope 1 emissions
– 32,458tCO
2
e, UK Scope 2 emissions – 73,779tCO
2
e, UK underlying energy consumption – 356,948,259kWh. Global (excluding UK) Scope 1 emissions
– 21,676tCO
2
e, Global (excluding UK) Scope 2 emissions – 5,700tCO
2
e, Global (excluding UK) underlying energy consumption – 98,725,583kWh,
Babcock Group total (UK and Global) Intensity Ratio – 563.4tCO
2
e/£1m revenue. For the FY24 reporting period, we disclosed the following energy-
efficiency improvements: “we delivered a number of improvement initiatives including ‘low-hanging fruit’ energy conservation measures, reduced
use of diesel, reduced aviation operations and improvements to our energy management practices”. In previous periods, we implemented a range of
energy conservation measures such as LED lighting, boiler replacements, metering improvements and solar panel investigations. During FY25, the
reporting period, we delivered a number of improvement initiatives including ‘low-hanging fruit’ energy conservation measures, switching from fossil
diesel to biodiesel, and solar photovoltaic installations in South Africa. See also Middleburg case study on page 81.
1. Scope 1 emissions exclude biogenic emissions. Our Outside of Scopes emissions in 2024 were 7,148.
2. Figures are presented rounded to the nearest whole number, so may not sum precisely to totals (which are based on unrounded figures).
3. Category 15 emissions associated with pensions investments have been calculated, but we have elected not to include these in our total Scope 3
figures. Further detail is available on our website or can be viewed on the QR code below.
4. The revenue figures detailed have been adjusted for disposals and acquisitions so as to align with the recalculated emissions.
5. The intensity ratio is based on the recalculated total value chain emissions and adjusted revenue figures.
Babcock International Group PLC Annual Report and Financial Statements 2025 71
Strategic report
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Governance
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Financial statements
○

Climate-related Financial Disclosures
Pillar (and TCFD recommendation) Response
Governance
Board oversight of climate-
related risks and opportunities
a) Describe the Board’s 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
sustainability matters as an integral part of Board strategic discussions, with a dedicated
session once a year as a minimum.
Climate and environmental sustainability is one of Babcock Group’s principal risks (for more
information please refer to page 120) and therefore climate-related risks are appropriately
reviewed and considered when reviewing business strategy, the annual budget and
five-year plan.
During FY25, the Board or the Executive Committee had several reviews on Group-led
sustainability workstreams including updates on the new sustainability strategy,
decarbonisation, and Energy Saving Opportunities. The Executive Committee has direct
oversight of climate-related risks and opportunities via the Risk Committee and Corporate
Sustainability Committee. These matters are then in turn reported to the Board.
See page 132 for further details on our organisational governance framework.
Management’s role in assessing
and managing climate-related
risks and opportunities
b) Describe management’s role in
assessing and managing
climate-related risks and
opportunities.
Babcock’s management has direct ownership and accountability for sustainability matters
across the organisation, including climate-related risks and opportunities, through the Risk
Committee and the Corporate Sustainability Committee (CSC). Babcock’s CSC is a Principal
Management Sub-Committee to the Group Executive Committee. The CSC is responsible
for Group-wide sustainability initiatives, the management of climate-related issues and
driving the wider sustainability agenda. The CSC meets on a quarterly basis and is attended
by Sector and Direct Reporting Country (DRC) CEOs along with other Executive Committee
members. The CSC is chaired by Babcock’s executive sponsor for sustainability, Land Chief
Executive Officer, Tom Newman.
Progress on TCFD compliance and our environmental targets is reported to the CSC.
Actions required to further climate-related risk management activities are overseen by
the Risk Committee in line with Babcock’s Risk Management System (RMS). Babcock’s
approach to sustainability and climate risk management is directed and co-ordinated by
the Group Sustainability Team, working closely with operational sustainability professionals
throughout the business.
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.
As per Listing Rule 6.6.6 (8), we provide disclosures against
each of the TCFD’s four pillars (governance, strategy,
risk management, and metrics and 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.
Over the last 12 months we have worked to improve our
consistency with the TCFD recommendations (including
implementing an internal carbon price), however we do not
yet provide sufficient disclosures to be fully consistent with
Metrics and Targets part a, as we have not yet established
metrics associated with capital deployment, 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 teams are working to enhance our approach to climate
risk management and address gaps in our TCFD disclosures,
allowing us to disclose consistently with the TCFD
recommendations. The following are our priorities over the
coming year:
• 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.
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.
Additional climate-related disclosures can be found in the Risk
management, Governance and Financial sections, see pages
120, 127 and 204.
Sustainability (continued)
72 Babcock International Group PLC Annual Report and Financial Statements 2025
Strategic report
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Governance
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Financial statements
○

Pillar (and TCFD recommendation) Response
Strategy
How the Company is responding
to short-, medium- and long-
term risks and opportunities
a) Describe the climate-related
risks and opportunities the
organisation has identified over
the short, medium, and long term;
and
b) Describe the impact of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial planning.
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 is working to implement 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 currently being updated 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
c) Describe the resilience of the
organisation’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower scenario.
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.
Climate risks are evaluated from physical and transition perspectives and are assessed over
the 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.
As outlined in the climate risks and opportunities table on (page 76), we have assessed the
impact of physical and transition climate change risks on the relevant parts of the business,
and also outlined how identified climate-related issues are considered in our business
decisions and how these may shape future strategy. As part of our risk management
process, we have a 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 in the climate risks and opportunities table on (page 76)
and details of the control measures are also provided.
Babcock International Group PLC Annual Report and Financial Statements 2025 73
Strategic report
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Governance
○
Financial statements
○

Pillar (and TCFD recommendation) Response
Risk management
Identification, assessment and
management of climate-related
risks
a) Describe the organisation’s
processes for identifying and
assessing climate-related risks.
b) Describe the organisation’s
processes for managing climate-
related risks.
c) Describe how processes for
identifying, assessing and
managing climate-related risks
are integrated into the
organisation’s overall risk
management.
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
Sustainability teams to monitor individual and thematic risks and opportunities across the
Group. Quarterly reporting and review include proposed control measures, and updates
against prior control measures. Specific sector and country-identified climate risks are
reviewed quarterly by the Risk Committee, as well as being reported into the Audit
Committee quarterly and the Board annually.
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 107.
We previously identified the maturity of climate risk management as low and our approach
has not changed for the current assessment; however, our Climate Risk Working Group has
been working with industry specialists over the past 12 months to refine and enhance our
approach. Following investigations, we have refined our approach to the identification of
physical and transitional climate-related risks and opportunities, and we shall continue to
roll out this improved approach during 2025. These enhancements will allow us to be fully
compliant with the 11 TCFD recommendations.
Metrics and targets
Metrics and targets used to
assess climate-related risks and
opportunities
a) Disclose the metrics used by
the organisation to assess
climate-related risks and
opportunities in line with its
strategy and risk management
process.
b) Disclose Scope 1, Scope 2 and,
if appropriate, Scope 3 GHG
emissions and the related risks.
c) Describe the targets used by
the organisation to manage
climate-related risks and
opportunities and performance
against targets.
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 71. Details of the target and our progress
is detailed on page 66.
Electricity from renewable sources is an externally reported metric. In 2024, electricity
from renewable sources equated to 30% across our global operations. This is an increase
from 29% in 2023.
Executive remuneration – In FY26, the basis of the remuneration targets will be updated
to reflect and align with the new sustainability strategy. Further details can be found on
page 69. For further details on remuneration linked to sustainability-related targets, please
refer to page 171.
Capital deployment is a 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.
Internal carbon price – During the previous year we introduced Internal Carbon Pricing into
the organisation, initially opting to utilise a Shadow Carbon Price. We used a March 2025
spot price of the UK Emission Trading Scheme (UKETS) to set the shadow carbon price
for FY25. The spot price of £43.51 per tonne was applied to the Group's Scope 1 and 2
emissions (103,653 tCO
2
e) to calculate the FY25 shadow cost of carbon for the organisation,
equating to £4.505 million.
We are working as part of our improvement plan to develop metrics associated with
transition risks, physical risks and climate-related opportunities.
● Details on our environmental sustainability targets can be found on pages 66, 80, 82
Sustainability (continued)
74 Babcock International Group PLC Annual Report and Financial Statements 2025
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Governance
○
Financial statements
○

Climate-related risks and opportunities
Physical risks
Physical risks are assessed against eight climate hazards.
Acute physical risks were considered, which are event-driven,
including increased frequency and severity of extreme
weather events:
• Riverine flooding
• Forest fire
• Extreme wind
• Soil subsidence
• Surface water flooding
• Freeze-thaw
Two chronic physical risks were also considered which refer
to longer-term shifts in climate patterns: extreme heat and
coastal inundation.
Transitional risks
Economic analysis was used in FY23 to assess transition risks.
The global economic model analysed the potential carbon
emissions of economic activities and the consequential impact
on macroeconomics of constraining these emissions, in order
to achieve the target global-mean temperature at 2100.
The economic model disaggregated 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 working
to update our assessment during 2025.
Opportunities
Over the last few years, we have pushed to capitalise on
opportunities which will support the development of a greener
economy:
• Babcock’s Liquid Gas Equipment (LGE) business has won
a milestone contract from a ship owner in South Korea to
deliver its first cutting-edge ecoCO
2
® cargo handling system
for two 22,000m³ liquefied CO
2
(LCO
2
) carriers. In an exciting
development for the business, the ecoCO
2
® cargo handling
system is the world’s first cargo handling and reliquefaction
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 CO
2
from current
emitters (ie end-to-end solutions for liquefied CO
2
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.
We will work to deliver on our Energy Action Plans during
2025. 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, we are working
with the RAF to 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
investigating the use and environmental impact of Sustainable
Aviation Fuel with an air ambulance charity.
• Babcock UK Aviation is working with Defence to evaluate how
to develop materials circularity in a circular economy model.
Together with a UK SME we are aiming to demonstrate and
assess the scalability of extracting critical materials from
composite materials in 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
presents commercial opportunities for Babcock; however due
to sensitivities, we are not able to disclose further information.
Babcock International Group PLC Annual Report and Financial Statements 2025 75
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Governance
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Financial statements
○

Climate risk and
opportunity
Description Affected sectors and regions Impact horizon Findings Control measures
People welfare
(Physical risk)
Disruption to
operations
Disruption to staff and operations due
to weather conditions with difficult/unsafe
working conditions.
All
(Global)
Short / medium
Site disruptions due to physical risks are dominated by flooding
at Bristol Ashton Vale and forest fires in Manitoba. The likelihood
of extreme heat increases at other sites.
Although physical hazards represent a greater percentage
of revenue in the 4°C scenario, we could experience greater
overall growth in the 1.5°C scenario. Therefore, physical
hazards could still result in high levels of lost revenue in
both scenarios.
Our control measures are unchanged from the previous year.
At our three sites exposed to 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 as well as greater
growth overall. Supply chain disruption because of the
transition to a Net Zero economy is therefore considered
a significant risk.
In 2024, we broadened our analysis to encompass 1,000 of
Babcock’s key suppliers. This comprehensive analysis allowed
us to map the trajectories of six critical physical hazards and
socioeconomic risks. Despite 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 platform. This platform standardises our sourcing
and onboarding processes, ensuring a consistent approach
across the majority of our operations. Furthermore, we have
updated our Supplier Code of Conduct to incorporate
sustainable practices as a standard requirement. This step
reaffirms our commitment to sustainability 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
Nuclear
(UK & 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 desktop
assessment does not consider all aspects of dockyard
construction and further on-site analysis for key sites is
recommended.
Similar to the dynamics of “People welfare”, sea level rise is
greater in the 4°C scenario. However, potential greater demand
for services in the 1.5°C scenario could result in higher levels
of lost revenue from a coastal inundation event. Therefore,
in both scenarios coastal inundation could cause similar levels
of financial impact.
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 onsite 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 Defence-Related Environmental
Assessment Methodology (DREAM) assessments and
Best Available Technique (BAT) reviews where applicable.
We are working to improve our understanding of physical risks
as part of our Climate Risk Working Group.
Future services
(Transition and
physical risks)
Global energy mix
changes
Demand impact to LGE, Civil Nuclear
services and emergency services.
All
(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. Demand
for Civil Nuclear could fall in the 4°C scenario and grow in 1.5°C
because of changes to the competitiveness of nuclear power.
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, Babcock Australia
has identified the opportunity to provide Emergency Medical
Support and aid to new geographies in Australia. Babcock
Canada has identified the opportunities associated with
infrastructure development, resource extraction, and marine
access due to 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
2
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
liquefied natural gas demand.
To maximise these opportunities, the given sectors have
identified the need to monitor any changes or surges in
requirements, the need to conduct careful feasibility planning/
assessment, and the need to respond rapidly and agilely to
customer requirements, such as the redeployment of assets,
in the medium to long term.
Sustainability (continued)
76 Babcock International Group PLC Annual Report and Financial Statements 2025
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●
Governance
○
Financial statements
○

Climate risk and
opportunity
Description Affected sectors and regions Impact horizon Findings Control measures
People welfare
(Physical risk)
Disruption to
operations
Disruption to staff and operations due
to weather conditions with difficult/unsafe
working conditions.
All
(Global)
Short / medium
Site disruptions due to physical risks are dominated by flooding
at Bristol Ashton Vale and forest fires in Manitoba. The likelihood
of extreme heat increases at other sites.
Although physical hazards represent a greater percentage
of revenue in the 4°C scenario, we could experience greater
overall growth in the 1.5°C scenario. Therefore, physical
hazards could still result in high levels of lost revenue in
both scenarios.
Our control measures are unchanged from the previous year.
At our three sites exposed to 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 as well as greater
growth overall. Supply chain disruption because of the
transition to a Net Zero economy is therefore considered
a significant risk.
In 2024, we broadened our analysis to encompass 1,000 of
Babcock’s key suppliers. This comprehensive analysis allowed
us to map the trajectories of six critical physical hazards and
socioeconomic risks. Despite 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 platform. This platform standardises our sourcing
and onboarding processes, ensuring a consistent approach
across the majority of our operations. Furthermore, we have
updated our Supplier Code of Conduct to incorporate
sustainable practices as a standard requirement. This step
reaffirms our commitment to sustainability 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
Nuclear
(UK & 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 desktop
assessment does not consider all aspects of dockyard
construction and further on-site analysis for key sites is
recommended.
Similar to the dynamics of “People welfare”, sea level rise is
greater in the 4°C scenario. However, potential greater demand
for services in the 1.5°C scenario could result in higher levels
of lost revenue from a coastal inundation event. Therefore,
in both scenarios coastal inundation could cause similar levels
of financial impact.
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 onsite 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 Defence-Related Environmental
Assessment Methodology (DREAM) assessments and
Best Available Technique (BAT) reviews where applicable.
We are working to improve our understanding of physical risks
as part of our Climate Risk Working Group.
Future services
(Transition and
physical risks)
Global energy mix
changes
Demand impact to LGE, Civil Nuclear
services and emergency services.
All
(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. Demand
for Civil Nuclear could fall in the 4°C scenario and grow in 1.5°C
because of changes to the competitiveness of nuclear power.
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, Babcock Australia
has identified the opportunity to provide Emergency Medical
Support and aid to new geographies in Australia. Babcock
Canada has identified the opportunities associated with
infrastructure development, resource extraction, and marine
access due to 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
2
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
liquefied natural gas demand.
To maximise these opportunities, the given sectors have
identified the need to monitor any changes or surges in
requirements, the need to conduct careful feasibility planning/
assessment, and the need to respond rapidly and agilely to
customer requirements, such as the redeployment of assets,
in the medium to long term.
Babcock International Group PLC Annual Report and Financial Statements 2025 77
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Climate risk Description Affected sectors and regions Impact horizon Findings Control measures
Increased
regulation and
demand for
low-carbon
solutions
(Transition risk)
Regulatory pressures and low-carbon
requirements cause changes to customer
contracts and business models, leading
to demand reduction for Babcock services
and rendering existing technology unable
to meet requirements.
All
(Global)
Short / medium
Under both scenarios, the air transport sector may grow, albeit at
different rates. Falling carbon intensity of the air transport sector
occurs under both scenarios with the greatest decarbonisation in
the 1.5°C scenario.
Failure to decarbonise in line with the increased rate and extent of
decarbonisation within the aviation sector in the 1.5°C scenario
could result in greater lost market share when compared with the
4°C scenario.
We are working to identify risks of changes in stakeholder
attitudes towards climate change which will likely be coupled with
increased regulation. The Marine sector has identified increased
regulation to be a risk in the short term, whilst on a similar
timescale, both Marine and Land have identified the requirement
to provide low-carbon solutions. In the medium term, South Africa
has identified an increased demand for construction equipment
and plant services for low-carbon energy developments because
of changes in powerplant regulations, an increase in electricity
production requirements, and the increase in mining of wider
materials. In the medium term, Canada has identified likely new
low-carbon fuel opportunities with existing and new clients
associated with this transition.
We are investing to ensure regulatory compliance within
new sustainable fuel and platform contracts, such as Project
MONET, currently mobilised to investigate synthetic fuel
application within Defence, specifically light aircraft for
elementary flight training. Babcock Aviation is also
continuing to work with industry leaders such as Vertical
Aerospace, to look at the applications of Electric Vertical
Take off and Landing (eVTOL) aircraft within our current and
future capabilities.
Marine has invested in the Engineering Concept and created
the Clean Maritime Subject Matter Expert (SME) group. Land
is pursuing both Zero Fuels and the electrification of
emergency service vehicles / EV conversion capability,
including delivery of a pilot project for electrifying Land
Rovers, and has developed working relationships with
leading electric propulsion technology partners.
South Africa will continue to monitor the offering of new
Original Equipment Manufacturer (OEM) technologies to
customers as and when they become available. Canada is
monitoring the realistic possibility of government funding
and incentives to capitalise on low-carbon fuel opportunities,
whilst the business continues to investigate synthetic fuel
applications in Defence and eVTOL aircraft.
Shifting energy
generation
markets
(Transition risk)
Shifting energy generation markets result
in disruption to customer base and demand
for Babcock services.
Customers change business models because
of regulatory/physical impacts on operations
and demand reduces for Babcock services/
products.
South Africa Short / medium
In Africa, electricity generating technologies may vary between
the 1.5°C and 4°C scenarios. Babcock’s established support
services with steam-based energy generators is seen to be
constrained in the 1.5°C scenario. The potential shift from thermal
electrical generation to renewables in the 1.5°C scenario may
result in reduced revenues for Babcock’s South Africa
engineering services when compared with the 4°C scenario. In
the short term, the opportunity is identified to own and/or operate
part of a 100MW power plant with the possibility of producing
renewable energy in certain areas of the plant. It has also
identified the opportunity for energy storage and green hydrogen
storage deployment in the long term.
We currently undertake emissions abatement projects such
as an enhancement strategy to maximise all opportunities
within nitrogen oxides (NOx), sulphur oxides (SOx) and
particulate matter (PM), and are working with technological
partners to identify further abatement projects.
Possible further opportunities are now being assessed such
as the conversion of fossil fuel boilers to “Clean Coal
Technologies” over the next 10 to 20 years, the repurposing
of current coal-fired stations, and the next steps to evaluate
the nuclear energy market regarding our entry levels and
required qualifications.
South Africa’s market opportunity in power generation is being
investigated through the engagement with local initiatives,
forums, and the creation of a specific Customer Relationship
Management system. Exploring the opportunity for energy
storage and hydrogen storage is being managed with the early
engagement of potential energy technology partners.
Technology
adaptation
(Transition risk)
Babcock may need to increase its spend
on R&D and new technology activities
to adapt to climate change.
All
(Global)
Short / medium
Under both scenarios the water transport sector may grow.
However, growth will be greater under a 4°C scenario.
Nonetheless, decarbonisation occurs under both scenarios
with greater decarbonisation in the 1.5°C. Failure to decarbonise
in line with the increased rate and extent of decarbonisation
across the economy in the 1.5°C scenario could result in greater
lost market share when compared with the 4°C scenario.
Climate-related regulation, policy, and physical risks arising from
climate change will require new technical approaches. The
transition to a low-carbon economy is likely to introduce disruptive
new low-carbon solutions. Babcock’s R&D into low-carbon
technologies and resilience measures against physical changes to
the environment likely places Babcock in a leading position.
Through projects such as Neptune, Babcock Marine is
building our market awareness of new marine-based
technologies available. Our newly formed Clean Maritime
SME Group is the knowledge focal point in marine
engineering for new green technologies and low-emission
fuels. The combination of our high-level engineering skill,
with LGE and the Nuclear expertise, provides Babcock with
the opportunity of being at the forefront of the green
technology race, with potential capitalisation in IP and skills.
Failure to
decarbonise
Devonport
(Transition risk)
Low-carbon electricity will be required to
deliver Babcock’s decarbonisation targets.
Marine
Nuclear
(UK)
Medium / long
The Devonport site experiences significant cost increases under
a 1.5°C scenario due to the impact of direct carbon prices. Energy
and gas costs would increase, most notably following the expiry
of the Energy from Waste contract in 2040 and a switch to the
market mix. The introduction and increase in carbon taxes in the
1.5°C scenario could result in higher costs to Babcock when
compared with the 4°C scenario. In the medium term, not
achieving our decarbonisation targets could result in Babcock
failing to meet customer expectations.
Across the organisation we are developing carbon reduction
plans, which map out the decarbonisation activities required
to deliver our emission reduction objectives. We have also
identified opportunities for the installation of renewable
energy assets across various sites which will drive
operational efficiency.
Sustainability (continued)
78 Babcock International Group PLC Annual Report and Financial Statements 2025
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●
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Financial statements
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Climate risk Description Affected sectors and regions Impact horizon Findings Control measures
Increased
regulation and
demand for
low-carbon
solutions
(Transition risk)
Regulatory pressures and low-carbon
requirements cause changes to customer
contracts and business models, leading
to demand reduction for Babcock services
and rendering existing technology unable
to meet requirements.
All
(Global)
Short / medium
Under both scenarios, the air transport sector may grow, albeit at
different rates. Falling carbon intensity of the air transport sector
occurs under both scenarios with the greatest decarbonisation in
the 1.5°C scenario.
Failure to decarbonise in line with the increased rate and extent of
decarbonisation within the aviation sector in the 1.5°C scenario
could result in greater lost market share when compared with the
4°C scenario.
We are working to identify risks of changes in stakeholder
attitudes towards climate change which will likely be coupled with
increased regulation. The Marine sector has identified increased
regulation to be a risk in the short term, whilst on a similar
timescale, both Marine and Land have identified the requirement
to provide low-carbon solutions. In the medium term, South Africa
has identified an increased demand for construction equipment
and plant services for low-carbon energy developments because
of changes in powerplant regulations, an increase in electricity
production requirements, and the increase in mining of wider
materials. In the medium term, Canada has identified likely new
low-carbon fuel opportunities with existing and new clients
associated with this transition.
We are investing to ensure regulatory compliance within
new sustainable fuel and platform contracts, such as Project
MONET, currently mobilised to investigate synthetic fuel
application within Defence, specifically light aircraft for
elementary flight training. Babcock Aviation is also
continuing to work with industry leaders such as Vertical
Aerospace, to look at the applications of Electric Vertical
Take off and Landing (eVTOL) aircraft within our current and
future capabilities.
Marine has invested in the Engineering Concept and created
the Clean Maritime Subject Matter Expert (SME) group. Land
is pursuing both Zero Fuels and the electrification of
emergency service vehicles / EV conversion capability,
including delivery of a pilot project for electrifying Land
Rovers, and has developed working relationships with
leading electric propulsion technology partners.
South Africa will continue to monitor the offering of new
Original Equipment Manufacturer (OEM) technologies to
customers as and when they become available. Canada is
monitoring the realistic possibility of government funding
and incentives to capitalise on low-carbon fuel opportunities,
whilst the business continues to investigate synthetic fuel
applications in Defence and eVTOL aircraft.
Shifting energy
generation
markets
(Transition risk)
Shifting energy generation markets result
in disruption to customer base and demand
for Babcock services.
Customers change business models because
of regulatory/physical impacts on operations
and demand reduces for Babcock services/
products.
South Africa Short / medium
In Africa, electricity generating technologies may vary between
the 1.5°C and 4°C scenarios. Babcock’s established support
services with steam-based energy generators is seen to be
constrained in the 1.5°C scenario. The potential shift from thermal
electrical generation to renewables in the 1.5°C scenario may
result in reduced revenues for Babcock’s South Africa
engineering services when compared with the 4°C scenario. In
the short term, the opportunity is identified to own and/or operate
part of a 100MW power plant with the possibility of producing
renewable energy in certain areas of the plant. It has also
identified the opportunity for energy storage and green hydrogen
storage deployment in the long term.
We currently undertake emissions abatement projects such
as an enhancement strategy to maximise all opportunities
within nitrogen oxides (NOx), sulphur oxides (SOx) and
particulate matter (PM), and are working with technological
partners to identify further abatement projects.
Possible further opportunities are now being assessed such
as the conversion of fossil fuel boilers to “Clean Coal
Technologies” over the next 10 to 20 years, the repurposing
of current coal-fired stations, and the next steps to evaluate
the nuclear energy market regarding our entry levels and
required qualifications.
South Africa’s market opportunity in power generation is being
investigated through the engagement with local initiatives,
forums, and the creation of a specific Customer Relationship
Management system. Exploring the opportunity for energy
storage and hydrogen storage is being managed with the early
engagement of potential energy technology partners.
Technology
adaptation
(Transition risk)
Babcock may need to increase its spend
on R&D and new technology activities
to adapt to climate change.
All
(Global)
Short / medium
Under both scenarios the water transport sector may grow.
However, growth will be greater under a 4°C scenario.
Nonetheless, decarbonisation occurs under both scenarios
with greater decarbonisation in the 1.5°C. Failure to decarbonise
in line with the increased rate and extent of decarbonisation
across the economy in the 1.5°C scenario could result in greater
lost market share when compared with the 4°C scenario.
Climate-related regulation, policy, and physical risks arising from
climate change will require new technical approaches. The
transition to a low-carbon economy is likely to introduce disruptive
new low-carbon solutions. Babcock’s R&D into low-carbon
technologies and resilience measures against physical changes to
the environment likely places Babcock in a leading position.
Through projects such as Neptune, Babcock Marine is
building our market awareness of new marine-based
technologies available. Our newly formed Clean Maritime
SME Group is the knowledge focal point in marine
engineering for new green technologies and low-emission
fuels. The combination of our high-level engineering skill,
with LGE and the Nuclear expertise, provides Babcock with
the opportunity of being at the forefront of the green
technology race, with potential capitalisation in IP and skills.
Failure to
decarbonise
Devonport
(Transition risk)
Low-carbon electricity will be required to
deliver Babcock’s decarbonisation targets.
Marine
Nuclear
(UK)
Medium / long
The Devonport site experiences significant cost increases under
a 1.5°C scenario due to the impact of direct carbon prices. Energy
and gas costs would increase, most notably following the expiry
of the Energy from Waste contract in 2040 and a switch to the
market mix. The introduction and increase in carbon taxes in the
1.5°C scenario could result in higher costs to Babcock when
compared with the 4°C scenario. In the medium term, not
achieving our decarbonisation targets could result in Babcock
failing to meet customer expectations.
Across the organisation we are developing carbon reduction
plans, which map out the decarbonisation activities required
to deliver our emission reduction objectives. We have also
identified opportunities for the installation of renewable
energy assets across various sites which will drive
operational efficiency.
Babcock International Group PLC Annual Report and Financial Statements 2025 79
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Sustainability (continued)
Babcock uses a wide range of resources across its global
operations, and the consumption of materials and resources
is a significant contributor to Babcock’s environmental footprint.
We understand our responsibility to minimise the impacts
of our operations. Therefore, delivering responsible resource
management is one of our sustainability priorities, yielding
improved cost and efficiency benefits as well as reduced
environmental impacts.
Our approach to resource management considers our use of
materials and interaction with natural resources. We are working
to ensure all aspects of responsible resource management are
embedded throughout our product lifecycles and integrated into
our business operations.
We previously communicated a range of issue-specific targets
and commitments including:
• Preparing waste management plans across all significant sites
by 2024 – 41% delivered
• Preparing water management plans across all significant sites
by 2024 – 40% delivered
• Achieving zero controlled waste to landfill by 2025 – data
on progress not available
• Eliminating the use of avoidable single-use plastic by 2027
– data on progress not available
Whilst these remain key enablers to our sustainable transition,
moving forward we have decided to focus our external reporting
on the six sustainability priorities and associated targets.
Within our new sustainability strategy, our Group-wide targets
are initially focused on reducing the consumption of energy
across our global operations.
We have set a 15% energy efficiency improvement
target by 2030 against a 2024 baseline.
This new energy efficiency target is the equivalent of the
Group achieving an energy intensity of 51kWh consumed per
£1k revenue generated by 2030, down from the 2024 baseline
of 60kWh per £1k revenue.
Over the coming 12 months, our focus is to deliver the Energy
Action Plans across the organisation and to run an awareness-
raising and behaviour change campaign to highlight opportunities
to improve efficiency and eliminate energy leakage.
Innovating to deliver high levels of
recycling – submarine dismantling project
Through collaboration with our supply chain, Babcock
has applied a new and innovative methodology which will
enable around 90% of the dismantled submarine structure
and components to be reused or recycled.
Babcock’s innovation will lead the way for the UK,
providing a proven approach for recycling of the current
UK decommissioned fleet of submarines.
IT re-use energy efficiency
We’re proud to work with suppliers that align with
our environmental priorities and support our mission
to identify trends and opportunities to re-use and recycle
our IT services where feasible.
Over the last year, we have saved the equivalent
of 70 tonnes through the re-use and recycling of IT
equipment alone. We have remained consistent with
our previous year (71 tonnes) and we have achieved
over a one-third increase in saved landfill from the
previous year (from 306m
3
to 433m
3
).
This was driven in part by refresh equipment initiatives,
particularly for laptops, that enabled us to modernise
our estate for the future, create increased opportunity
for re-use of equipment and support our agile working
environment.
Looking forward, we are identifying further opportunities
to increase our use of re-useable, sustainable IT
equipment that will support the functionality delivered
to our users through our Athena programme.
A total of
2,346 trees
would be needed to offset
the carbon emissions
The carbon emissions saving is
equivalent to the yearly emissions of
112 cars
The energy saving is equivalent
to the annual energy supplied to
136 homes
A total saving of
433m
3
landfill
space, avoiding a cost of £45,010
in landfill tax
Managing our resources responsibly
Data 06/04/2024 – 31/03/2025
80 Babcock International Group PLC Annual Report and Financial Statements 2025
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Babcock Africa’s commitment to sustainable energy solutions
At our Middelburg site, one of our largest operational hubs,
we invested in a solar power system that became fully
operational in April 2024. The system consists of a
150-kilowatt hybrid inverter and 198 x 550-watt solar panels.
Since its installation, it has generated 100,489 kWh of
electricity, reducing our CO₂ emissions by 109.73 tonnes.
This system not only reduces our reliance on the grid during
the day but also integrates battery storage to ensure power
availability at night and during power outages, effectively
reducing the need for diesel-powered generators.
Further reinforcing our commitment to sustainability,
Babcock Africa supported the installation of a solar energy
solution at our Bedfordview head office. This system,
featuring 106 × 525-watt solar panels, has generated
81,133 kWh to date, reducing CO₂ emissions by 82.3 tonnes.
This initiative complements our broader efforts to transition
to renewable energy, enhance operational resilience,
and reduce carbon emissions across our operations.
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Throughout our global operations, we interact with a diverse
range of habitats. We recognise their value to society and
the planet. Preserving and enhancing the biodiversity of the
environments in which we operate is a priority that underpins
our efforts to safeguard the environment.
Our efforts are guided by global drivers which introduce
targets for businesses to assess their interactions with nature.
We are actively exploring new disclosure regimes including
the Taskforce on Nature-related Financial Disclosures (TNFD),
applying the Locate, Evaluate, Assess and Prepare (LEAP)
framework across our key estates and assets to better
understand and address nature-related risks and opportunities.
As a member of the UK Business and Biodiversity Forum, we
continue to engage with UK companies to understand new legal
and voluntary requirements and to assess the value of biodiversity
and nature for business. By drawing upon frameworks such as
the TNFD, we aim to systematically manage our nature-related
dependencies, while proactively identifying and mitigating risks,
and unlocking opportunities that foster long-term sustainability.
We implement environmental management systems across our
operations to minimise our impact on, and address risks around,
the natural environment. As our awareness of nature-related
impacts and dependencies evolves, and as new legislation
comes into force, we continue to identify innovative opportunities
to enhance natural habitats and integrate nature-based goals
and objectives into our governance and operational frameworks.
We previously communicated a range of commitments and
targets which include:
• Conduct biodiversity assessments across all significant sites
by 2024 – 31% complete
• Deliver a 10% biodiversity increase across the estate by 2030
– data on progress not available
Our new sustainability strategy reinforces the Group-wide
priority to protect and enhance the natural environment.
Our new natural environment target is to deliver a 10%
biodiversity Net Gain across our most significant sites
(where we have full operational control) by 2030
Building on our previous biodiversity assessments, our teams
are developing evidence-based guidance and implementing
plans to enhance the habitats across these key locations.
Environmental protection
Babcock is committed to upholding the highest standards
of environmental management across all operations.
We ensure the protection of the environment through the
implementation of Environmental Management Systems (EMS)
across our sites. Using EMS, Babcock is able to deliver a wide
range of environmental improvements, such as:
• Reducing energy demand
• Restoring and enhancing biodiversity
• Improving waste management practices
• Managing water consumption
• Reducing pollution events
Progress against our nature targets will be reported in a
qualitative manner whilst we develop our plans and mature
our calculation methodologies.
As sustainability becomes ever more integral to our decision-
making processes, we will continue to explore how nature-
related priorities can align with a wider range of commitments
including supporting mental health and wellbeing issues,
addressing climate change, and enabling resource efficiency.
Notably, our nature-based improvements are being developed
in tandem with these wider objectives and commitments,
ensuring an interconnected and holistic approach to sustainability.
We are driving the adoption of ISO 14001-certified
Environmental Management Systems across our business.
Currently, Babcock operates 24 ISO 14001-certified EMS
that cover 66% of the business, with over 90% EMS coverage
when factoring in non-certified EMS. This demonstrates
our dedication to embedding robust practices that continually
improve our environmental performance, while addressing
risks and opportunities related to sustainability.
We have also introduced Group-wide Environmental
Management Requirements that provide a clear framework
to ensure consistency, accountability and progress across all
our Environmental Management Systems. These requirements
are reviewed annually along with our Group-wide programme
of activities under the Environmental Protection Working Group.
Cavendish Nuclear partnership
with The Eden Foundation
In FY25, Cavendish Nuclear set up a
partnership with a social enterprise organisation,
The Eden Foundation (previously called Eden Greenspace),
in order to enable the opportunity for staff to support a
range of UK-based environmental improvement projects.
Three projects have been identified through the partnership:
1. Climate – peatland restoration, Scottish Lowlands
2. Nature – wildflower meadows, Wales
3. Pollution – marine plastic removal, Cornwall
Work will continue over FY26 to support these three
projects. Furthermore, Babcock is increasingly establishing
partnerships with local charities to put nature at the heart
of action in key locations:
• Working with the Bristol Avon Rivers Trust, where over
the past year volunteers have donated 315 hours in
support of balsam bashing, river restoration and clearing.
• Volunteering with the South West Peatland Partnership
on Dartmoor, to increase the water table and to provide
conditions for new peat to generate.
Protecting the natural environment
Sustainability (continued)
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Babcock’s Purpose – to create a safe and secure world, together
– includes our unwavering commitment to the health, safety and
wellbeing of our people. We strive to achieve the highest standards
in all areas to ensure everyone can go home safe every day.
Having made significant progress in reducing the number
of accidents, we are now broadening our focus to reduce
absences through improvements in occupational health provision
and individual case management to support colleagues back
to work safely.
Governance and assurance
Working across the enterprise, we continue to collaborate across
sectors, functions and throughout the value chain to embed
consistent processes and share good practices that support safe
operations. We have completed the baseline organisational
assurance of all sectors and Direct Reporting Countries, transitioned
to a single certifying body for ISO 9001, 45001 and 14001
accreditations across Babcock, and continue to expand the use
of Synergi Life, our integrated management information system.
We have conducted reviews across our working environments,
including where we are co-located with customers and suppliers,
and are working together to raise the workplace standards.
Setting Babcock expectations and embedding common
approaches have strengthened our risk controls and brought
multiple benefits.
Through building an assured risk picture across Babcock,
we have identified areas for targeted interventions and shared
lessons to enable continuous improvement.
Having introduced a consistent framework for operational
resilience, we are identifying focus areas to improve resilience
and responsiveness, including emergency response. We have
developed and are delivering impactful Senior Leader safety
and compliance training to our leaders from across the
business, reinforcing the importance of including health
and safety considerations in every decision and action.
Maturing as a learning organisation, we learn from assurance,
events and proactive observations. By taking actions to
continuously improve we have successfully reduced the
number of work-related injuries and illnesses, as evidenced by
the significant reduction in TRIR, DACR and severity of injuries
during the year.
Ensuring the health, safety and wellbeing of our people
Total Recordable Injury (TRIR) and Days Away Case (DACR) Rates
Severity of reported injuries
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Mar-25Feb-25Jan-25Dec-24Nov-24Oct-24Sep-24Aug-24Jul-24Jun-24May-24Apr-24
TRIR DACR
InsignificantMinorModerateMajorSevere
2022/23 2023/24 2024/25
61.0%
56.2%
55.5%
30.9%
31.2%
34.1%
7.7%
12.0%
9.5%
0.5% 0.6%
0.6%
0.0% 0.0%
0.2%
1. Number of recordable work-related injuries and illnesses multiplied by 200,000/total working hours (200,000 hours represents 100 employees
working 40 hours for 50 weeks per year).
2. Number of recordable work-related injuries and illnesses resulting in one or more days away from work multiplied by 200,000/total working hours
(200,000 hours represents 100 employees working 40 hours for 50 weeks per year).
Therefore, as part of the new sustainability strategy we have
set ourselves the target:
Reduce the number of days lost due to work-related
injuries and occupational illnesses by 10% by 2030
using FY25 as the baseline.
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We launched common Home Safe Awareness and Human
Factors training for all, leaders held team discussions about
each commitment, and the Home Safe Summit in November
saw more than 3,500 people participate globally in interactive
learning by applying the commitments in realistic scenarios.
We continued to celebrate positive safety behaviours through
our Safety Stars recognition scheme with Stars across
the globe.
The annual Safety Stand-down theme was ‘looking after our
health at work’ and this started with a live-streamed Executive
Committee Question and Answer session. We encouraged
teams to discuss the potential impacts of physical and mental
health hazards and how the commitments help to manage
these. The Home Safe campaign was commended in the
UK Safety and Health Excellence Awards.
In line with our new sustainability target on reducing days lost
due to work-related injuries and illnesses, we will continue
to develop our focus on health and wellbeing. We will validate
our absence data from multiple sources to baseline and give
insights for targeted plans for supporting our people back to
work safely. Developing the Whole Person Approach, which
recognises the interconnectedness of mental and physical
health as well as internal and external factors that affect our
people, we will continue to collaborate across the enterprise
to drive improvements to our working environments.
Home Safe Commitments
Building upon the Safety Starts with Me
behaviours programme, we set out on a
campaign to engage everyone in seven core
safety behaviours, and for every leader to
create the right environment for those behaviours
to thrive.
These behaviours are our Home Safe
Commitments and they reinforce the personal
safety behaviours that
‘I always…’
plan work with safety in mind
make sure I am fit and trained
to safely carry out my work
protect myself, others and the
planet from safety, health and
environmental hazards
use the correct and safest tools
and equipment for the job
assess and control risks before
I set to work
speak up if I see something
unsafe
pause or stop work if things
change, or I have a safety
concern
Home Safe Every Day
Sustainability (continued)
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Our people are the foundation of our success. Our ability to
deliver for our customers and stakeholders depends on the
skills, resilience and diversity of our workforce. In a dynamic
world, we are committed to fostering an inclusive, equitable
and high-performing culture where every colleague can thrive.
As part of our ongoing commitment to building an engaging and
rewarding colleague experience, we are excited to launch a free
share award programme for all colleagues. This initiative will
allow eligible colleagues to share directly in Babcock’s success,
recognising their contributions and strengthening their
connection to the Company’s future. By offering shares, we aim
to foster a deeper sense of ownership, boost morale, and align
colleague and shareholder interests. Over time, colleagues
could benefit financially from the appreciation of Babcock
shares, receive dividends, and enjoy associated tax advantages
where applicable, helping them to build personal wealth while
contributing to a culture of shared success.
Our strategy continues to prioritise inclusion and diversity (I&D),
leadership and wider capability development, wellbeing and
early careers, supported by robust governance and measurable
goals. Through targeted initiatives, strategic partnerships and
inclusive policies, we are creating a workplace where talent
is recognised, supported and developed, reflecting the
communities in which we operate.
Embedding lasting change
Diversity strengthens our business. It enables innovation,
supports decision-making, and reflects the customers and
communities we serve. We are embedding I&D across our
operations by taking action throughout the colleague lifecycle,
focusing on attraction, recruitment, career development,
leadership and cultural change.
This year, we reinforced our commitment to I&D through a
range of initiatives. We continued to grow our eight colleague
networks, which include B4ME (Babcock for Minority Ethnics),
the Gender Balance Network, the Disability & Carers Networks
and Pride in Babcock, our colleague network that represents
the LGBTQ+ community. All our networks play a vital role
in amplifying colleague voices, shaping inclusive policy and
fostering belonging.
Colleague wellbeing is embedded in our approach, with
continued investment in initiatives such as our Employee
Assistance Programme, mental health first aiders and proactive
wellbeing support.
As part of our new sustainability strategy, a core priority remains
increasing female representation. We are actively working
towards our target of:
30% women in our workforce by 2030
In calendar year 2024, women represented 19.5% of our total
workforce, up from 18% in 2023. While progress is evident,
we recognise the need for continued focus to attract, retain
and develop women at all levels of the organisation.
To support this, we launched tailored initiatives. This included
our ‘Mentor Match’, a digital platform designed to inspire and
support the professional growth of our people. We piloted
‘Illuminate’, a women’s empowerment and development
programme designed to enhance confidence, capability
and career mobility. We also sponsored the Women in
Manufacturing event in Bristol and supported multiple industry
forums aimed at increasing female participation in STEM.
We continue to build inclusive recruitment processes, including
the use of diverse interview panels and targeted outreach
to underrepresented communities. Our commitment extends
to veterans, early careers, and individuals with disabilities.
In FY25, we welcomed over 727 veterans and service leavers,
recognising the unique skills and perspectives they bring
to Babcock.
We achieved Level 2 accreditation in the UK Government’s
Disability Confident scheme and are working towards Level 3,
demonstrating our commitment to attracting, recruiting,
on-boarding and retaining disabled people and those with
caring responsibilities, and supporting them in the workplace to
achieve their full potential.
“The mentoring scheme has been
exceptional; I’ve learned some
invaluable lessons; developed
a great working relationship with
my mentor; and achieved the goals
I had set out for myself.”
“This has been extremely valuable
for my growth and development
over the past year. My mentor has
enabled me to build my confidence,
have an independent person to
speak to outside my team with
any concerns I had, and this has
significantly helped me as
someone new into Babcock.
I do not think I would feel as
I do now without the support
and conversations of my mentor.”
Building an inclusive, diverse and resilient workforce
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Gender Pay Gap (2017–2024)
Gender Pay Gap report
Our 2024 Gender Pay Gap report reflects the ongoing work to address representation and progression. We are pleased to report our
median gender pay gap has once again narrowed, down from 6.7% to 5.9% this year. This figure stands well below the UK national
average of 13.1%, reflecting our ongoing efforts towards gender parity.
Looking ahead
We remain committed to driving meaningful change and
fostering a culture of inclusion where all colleagues can thrive.
While progress continues, we acknowledge there is more work
to do. Our focus remains on improving gender representation,
creating pathways for career progression, and building an
equitable workplace for all.
Please see our Gender Pay Gap report
to learn more
Our commitment to change
We recognise that the gender pay gap is primarily an issue of
representation rather than equal pay for equal work. Our efforts
to improve gender balance therefore include:
• Expanding outreach programmes to encourage more women
into STEM careers
• Strengthening career development initiatives to support
women’s progression
• Continuing our focus on inclusive hiring practices and
leadership development
• Enhancing policies such as flexible working and
inclusive leave
We are also committed to strengthening our pathways for
career progression and ensuring gender balance through
structured succession planning and leadership accountability.
20242023202220212020201920182017
ONS UK Gender Pay Gap Babcock Mean Pay Gap Babcock Median Pay Gap
5.0%
10.0%
15.0%
20.0%
25.0%
Sustainability (continued)
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Gender Balance
Illuminate has been more than
a development programme –
it has been a learning journey for
participants and us as a business.
It has shown what’s possible when
we back our people, create space
for growth, and amplify potential.
And it connects directly to our
wider ambition: to have 30%
women in our business by 2030.
Illuminate is one of the ways
we’re making that happen –
by supporting, investing in, and
championing women at every level.
“I have been inspired and
feel valued by the business
for this!”
“Ultimately, the programme
has been amazing. The time
frame felt good – if
anything, I’d say it was
tooshort but that’s just
because I have loved it
somuch that I am sad
itneeds to end.”
1. Our total workforce is 29,381, which includes 23,694 men, 5,610 women, 20 people identifying as non-binary, or ‘I use another term’, 20 who
‘did not specify’ and 37 who chose ‘prefer not to say’. This figure includes both permanent staff and agency employees.
2. Executive Committee total is 12. This figure excludes Executive Committee members on the Board.
3. Executive Committee and direct reports in management roles total 139. This excludes Executive Committee members on the Board.
4. Senior management is defined as colleagues (excluding Executive Directors) who have responsibility for planning, directing and controlling
the activities of the Group (Executive Committee) or a strategically significant part of the Group (sector/functional leadership teams) and/or
who are directors of subsidiary business units (BU leadership).
5. Senior management total is 124.
6. Graduate intake is 388 (264 UK, 111 Australasia, 11 South Africa, 2 Poland).
7. Non-Executive Directors are only included in total headcount and Board figures.
We have redefined our senior leadership communities. In addition to our Senior Leadership Team (SLT), we are also focusing
on increasing female representation across our broader leadership community, which currently stands at 28%. Our goal is to reach
30% female representation within this group.
Building an inclusive, diverse and resilient workforce is a priority. We are driving gender balance through targeted efforts in recruitment,
succession planning, support, retention and celebration – ensuring all colleagues can thrive.
Total workforce
19%
5,439 22,704
4 6
4 11
32 99
76 201
61 206
81%
40% 60%
27% 73%
24% 76%
27% 73%
23% 77%
19%
5,610 23,694
4 6
2 10
44 95
102 282
38 86
81%
40% 60%
17% 83%
32% 68%
27% 73%
31% 69%
Board
Executive Committee
Executive Committee
and direct reports in
management roles
Graduate intake
Senior management
FY 2024 FY 2025
Female Male
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Ethnicity and Global Inclusion
In the UK, we are signatories of the Race at Work Charter and
continue to promote diversity education and awareness through
our B4ME network.
We have previously targeted 80% disclosure of diversity data
by 2025. In line with the new sustainability strategy, we will stop
reporting on this metric, focusing our efforts on promoting
ethnic diversity.
Promoting inclusive leadership is essential to this, ensuring our
managers are educated on diversity and equipped to address
unacceptable behaviours, while our policies and processes
remain inclusive and fair. Beyond our organisation, we are
focused on sharing best practices with our customers, suppliers
and industry peers. We also recognise the importance of
supporting our local communities, engaging in initiatives across
STEM, skills development and charity partnerships to foster
greater inclusion.
The appointment of John Howie (Chief Corporate Affairs
Officer) as the Executive Committee sponsor for the B4ME
network marks an important step in strengthening inclusion
and diversity at Babcock. His sponsorship elevates the visibility
and impact of the work the network is doing, providing leadership
support to accelerate our strategy. This demonstrates our
commitment at every level of the organisation – from the
workshop floor to the Executive Committee – ensuring that
inclusion and diversity remain a priority (see page 133).
We recognise the importance of indigenous and historically
disadvantaged communities within our global operations.
Their diversity brings a richness of ideas and perspectives
to the business and provides us with a unique competitive
advantage.
These initiatives are just a few examples of our commitment
to supporting and uplifting these communities:
South Africa
Corporate Social Responsibility (CSR) strategy: Our CSR
initiatives align with Broad-Based Black Economic Empowerment
(BBBEE) objectives, focusing on socio-economic transformation
through inclusive education, enterprise development and
community upliftment. These efforts enhance our BBBEE
scorecard and sustainability agenda.
Community upliftment: Supporting local communities through
school infrastructure development and economic investment,
including the provision of over 700 chairs and tables for
under-resourced schools, and direct business investment
in small enterprises.
STEM education: Partnering with the Thandulwazi Trust
to uplift women in leadership and engineering, sponsoring
high-potential learners from disadvantaged backgrounds,
and participating in the Eskom Science Expo to inspire future
STEM leaders.
Supply chain development: Running the Entrepreneurial
Development Programme to support small businesses within
our supply chain, providing tools, training and mentorship
for long-term success.
Our CSR strategy demonstrates our commitment to helping to
build a more inclusive, equitable and sustainable South Africa,
contributing to national transformation goals and strengthening
our business resilience.
Australia
Babcock supports indigenous communities through long-term
partnerships with Engineering Aid Australia (EAA) and Yalari,
enabling access to engineering education and scholarships.
Engineering Aid Australia (EAA): EAA is a non-profit
organisation dedicated to increasing the participation of First
Nation young people in engineering and technology. It conducts
week-long Indigenous Australian Engineering Schools (IAES) in
Sydney and Perth, provides financial assistance for high school
and university studies, and helps students find work experience
and career opportunities. Babcock has sponsored EAA since
2018, supporting the IAES programme, which has benefited
1,000 students to date.
Yalari partnership: Yalari offers secondary education
scholarships at leading boarding schools for indigenous children
from regional, rural and remote communities. Babcock has
supported Yalari since 2015, providing full scholarships and
sponsoring its Gala Dinner. To date, Babcock has supported
four indigenous students.
Sustainability governance: Babcock has established new
internal sustainability governance structures, including
Australian and Torres Strait Islander and Māori and Pasifika
Working Groups, to engage staff and drive performance in
these areas.
Canada
Indigenous people’s engagement: Babcock strives to be
inclusive, reflecting the communities it serves. In Canada,
Babcock participates in the CCIB’s Partnership Accreditation in
Indigenous Relations (PAIR) programme, achieving Committed
status in 2024 and working towards full certification.
Investment in indigenous skills and education: Babcock
Canada supports indigenous youth in STEM education through
multi-year sponsorship agreements with academic institutions,
the Verna J Kirkness foundation, and by promoting STEM career
awareness via co-op terms, internships and apprenticeships.
Supply chain commitment: Babcock Canada is expanding
its supply chain, focusing on indigenous suppliers, particularly
for the Emergency Health Services Rotary Wing Air Ambulance
contract in British Columbia.
Across our global footprint, we are embedding inclusive
practices and celebrating cultural diversity, ensuring our
organisation reflects the communities we serve. We are working
towards improved ethnicity data transparency. In 2024, we
enhanced our HR systems to enable better tracking of ethnic
representation across our workforce.
Looking ahead, we aim to improve our data disclosure rates
working in partnership with our B4ME network.
Sustainability (continued)
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Skills and Babcock Academy
In 2024, the UK Government, in partnership with industry,
announced a £763 million investment in nuclear skills, jobs and
education to help the sector fill 40,000 new jobs by the end
of the decade. In collaboration across the UK enterprise, the
Government and industry developed the 10-year National
Nuclear Strategic Plan for Skills (NNSPS) which sets out how
this will be achieved and identifies regional collaboration as
a key enabler to delivering this successfully.
The Right Honourable Maria Eagle MP, Minister of State for
Defence Procurement and Industry, opened the Babcock
Engineering & Nuclear Skills building at City College Plymouth in
September. As part of the Babcock Skills Academy, this modern
facility enhances our growing workforce’s capabilities in the
UK’s nuclear programmes by continuing to build a new pipeline
of talent, while upskilling the existing workforce on the complex
skills required to perform deep submarine maintenance.
The Jackal Skills-based Work Academy Programme (SWAP)
was developed in conjunction with Plymouth City Council, On
Course South West, and the local Department for Work and
Pensions. The objective of SWAP is to help people back into
employment, providing opportunities for individuals to gain
qualifications and skills, with the potential for securing
employment with Babcock after completion of the programme.
Twenty seven individuals were welcomed across two
programmes, with eleven finding opportunities to work on the
Jackal Programme. With tranche two of the follow-on order for
53 Jackal 3 Extenda Variant, the contract continues to support
those successful in securing a position following the SWAP.
This model has also been replicated and successfully run within
Babcock Vehicle Engineering, Walsall.
As part of our commitment to skills development and
recruitment, we partnered with the Air and Space Institute (ASI)
to provide industry work experience. This collaboration aimed
to boost the educational journey of ASI students by providing
practical experience and insight into working in the aviation
industry within Babcock.
We supported two of the largest student engineering events
in Europe by teaming up with the Institution of Mechanical
Engineers on its Uncrewed Aerial Systems (UAS) challenge
and Formula Student as its official AI partner. Thousands of
undergraduate engineering students from all over the world
took part in the competitions. Supporting events like these
meant we could directly work with future talent and help
them transition from university to the workplace, providing
real-world experience.
We continue to align our learning and development strategy
with business goals to deliver a modernised, fit-for-purpose
skills strategy. Our goal is to grow capability, enhance our
colleague experience and ensure we can deliver for our
customers. Expanding and rebranding the Babcock Academy
will make learning accessible and relevant for all across
Babcock. The Learning Hub, our new learning platform
launching in 2025, will offer personalised, interactive and
modular training aligned with evolving customer and workforce
needs. Improving our systems and processes will align best
practices and reduce duplication.
Embedding our principles has been a focus this year, enabling
leaders to role model them. During the period, principled
leadership was launched through our performance management
process. For senior leaders, a part of their annual incentive
is now aligned with how effectively and frequently principled
leadership is demonstrated in their habits and practices.
Working with our suppliers ensures we get value for money and
improve the quality of the products we buy. Embedding learning
into the flow of work supports individual growth through
structured and informal development opportunities.
Early careers
We welcomed a record intake of early careers colleagues
this year across the Group with large numbers forecast to join
us within our nuclear sector, as part of our commitment to the
Government’s National Nuclear Endeavour.
We have continued to widen the entry pools for our early
careers talent. In Devonport, we welcomed 18 people onto our
new engineering pre-apprenticeship programme. Delivered in
partnership with City College Plymouth, the programme is aimed
at providing an alternative route into Babcock for a broader
range of talented people that just need a little additional support
to start their career. At the end of the year-long programme,
those taking part are guaranteed a place on our apprenticeship
programme in the following year, assuming they meet the
requirements of the programme.
In addition to this, we are launching eight new apprenticeship
programmes across Levels 2 – 6 as part of our 2025 campaign,
which will attract a broader talent pool from the local area and
beyond, and significantly raise our annual intake numbers.
This year at HMNB Clyde, Babcock has doubled its apprentice
intake, and is recruiting additional roles for the 2025 programme.
Alongside these opportunities, at Clyde this year we have
welcomed 24 people onto our second year-long pre-
apprenticeship programme. Delivered in partnership with
West College Scotland, the pre-apprenticeship programme
increases social mobility, diversity and access to a broader
range of talented people. Last year, the programme saw 90%
of those who completed the course successfully offered
a modern apprenticeship with Babcock.
More than one hundred apprentices joined our Naval Marine
business in Rosyth in 2024, and we will continue to recruit
large numbers, including the expansion of the Graduate
Apprenticeship Programme to include Commissioning. Babcock
apprentices have also been gaining international experience
through an exchange programme connecting Babcock’s Rosyth
site with academic institute CKZiU in Gdynia, Poland. The
exchange runs alongside Babcock’s support to the Miecznik
frigate programme in Poland, following the successful
agreement to export the Arrowhead 140 licence for three
frigates, supporting the country’s investment in defence.
We have continued to expand our Group-wide graduate
development programme, welcoming a number of engineering
disciplines to the Group programme, as well as more business-
led disciplines.
The intent of the Group-wide programme is to encourage and
support mobility.
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Support for armed forces, veterans and
reservists
Babcock remains a trusted partner to the armed forces
community. In 2024, we received the ‘Employer of the Year’
award at the British Ex-Forces in Business Awards, and ranked
third in the Top 50 Great British Employers of Veterans.
Since signing the Armed Forces Covenant in 2013, we have
upheld our promise to support the armed forces community.
Our Gold Award status in the Ministry of Defence’s Armed
Forces Covenant Employer Recognition Scheme, held since
2015, reflects our active role in championing defence support
and encouraging similar commitments across other organisations.
To enable reservist colleagues to balance their military and
civilian responsibilities, we offer up to 10 days of special paid
leave annually for reservist duties. We also continue to expand
our sponsorship of the Inter-Service Rugby Championship, now
supporting the U23, Veterans, Men’s and Women’s categories
– helping to develop emerging talent and strengthen bonds
within the armed forces community.
Furthering our support, we have established a multi-year
partnership with the Army Benevolent Fund (ABF)
(see also pages 93 and 95).
Colleague recognition and awards
Recognising and valuing our people is fundamental to our
culture. In FY25, we introduced BRAVO – Babcock Recognition
for Achievement, Value and Outstanding contribution – our
new UK recognition platform. BRAVO was designed to enable
peer-to-peer recognition and celebrate excellence through
the lens of our principles, whether that’s delivering a complex
project or a simple act of kindness. We want to ensure that
every contribution matters and that all colleagues feel seen
and heard.
We also celebrated exceptional contributions through the
‘Ignite’ pilot, our Group-wide awards programme that highlights
individuals and teams who go above and beyond to deliver
outstanding results. The Ignite Awards showcase achievements
across multiple categories, reflecting our principles as well
as safety and a special CEO Award.
Ignite will be rolled out in FY26 to the whole of Babcock,
giving every colleague a chance to nominate a colleague for
exceptional work.
This focus on listening and recognition is also reflected in
our Global People Survey, where we achieved an outstanding
80% participation rate with over 106,000 individual comments.
Our positive engagement score demonstrates that our people
are increasingly engaged and connected to our Purpose.
In addition to local recognition schemes across our markets,
our colleagues and teams have received external honours that
highlight their excellence and commitment. This year:
• Babcock was named ‘Employer of the Year’ at the British
Ex-Forces in Business Awards
• We were ranked third in the Top 50 Great British Employers
of Veterans
• Several colleagues were recognised in industry awards
for their leadership, innovation and technical achievements.
These accolades reflect the extraordinary work our people
deliver every day and the culture of excellence we are
committed to cultivating.
Armed forces hires FY25
502
359
106
Veteran Service
Leaver
Reservists Forces
Families
Cadet
Instructor
76
24
FY24 FY25
368
225
82
37
15
Sustainability (continued)
Through these efforts, we remain committed to recognising,
supporting and empowering those who have served in the
armed forces.
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Taking a proactive approach to our people’s
wellbeing
We care about our people’s wellbeing and want them to feel
their absolute best. This helps improve business performance
and encourages colleagues to make a long-term commitment
to the Company.
This year, using insights from our Global People Survey and in
collaboration with colleagues across the organisation, we have
worked to enhance our provisions across our four wellbeing
pillars (Mental, Physical, Financial, and Social). We promote
a proactive approach to wellbeing wherever possible, whilst
providing support to our people in those moments that matter.
Examples include:
Enhancing our colleague benefits provisions:
• Introducing annual health assessments, online GP
appointments and nutritional consultations to all UK
colleagues.
• Launching a new recognition programme, encouraging
peer-to-peer recognition for living up to our principles in
our day-to-day work.
Delivering proactive and engaging wellbeing tools and
events:
• Covering a range of topics from menopause to mindfulness
to suicide prevention.
• Inspiring our people across the Group to be active through
our global ‘Move More’ challenge.
Developing wellbeing conversation guides:
• Inspiring our managers to create a positive and supportive
work environment for their teams.
• Introducing neonatal paid leave to support our colleagues
during the challenging times when their newborns require
neonatal care.
Continuing to invest and support our Mental Health First
Aiders network:
• Ensuring they feel connected, confident and empowered
to effectively support our people.
• Expanding our clinical mental health by rolling out our
Colleague Assistance Programme and proactive wellbeing
platform to colleagues in Australasia and France.
Social
Wellbeing
Financial
Wellbeing
Physical
Wellbeing
Mental
Wellbeing
Be courageous Be curious Be kindCollaborate Own & deliver
Think: outcomes
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As a major employer, we have the power to provide positive benefits in the communities in which we operate. Not only through
employment but also by working with local suppliers, local groups and charities, through volunteering and education.
While the needs of the communities we operate in are varied, and therefore the type of actions we take are decided at a local level,
we are proud of the culture of volunteering within Babcock which is common across the business.
Working with SMEs
Babcock continues to recognise the vital role of SMEs in
building a sustainable and resilient supply chain. Partnering with
SMEs can enhance our resilience through flexibility, innovation
and cost efficiency, as these smaller enterprises can quickly
adapt to changing market conditions and offer specialised
expertise in areas such as advanced materials, cyber security,
unmanned aerial systems, AI and additive manufacturing.
This collaboration fosters robust and prosperous relationships,
ensuring high levels of customer service and reliability.
Additionally, working with local SMEs supports job creation
and economic growth within our communities, as money spent
with these businesses tends to stay within the local economy.
Volunteering
We continue to emphasise the importance of volunteering,
recognising the mutual benefits it brings to both our
communities and our colleagues. Since launching our global
volunteering policy, Be Kind Day, we have provided every
colleague with one paid day per year to support a charity
or community organisation of their choice.
Building on the success of Be Kind Day, we have seen growing
engagement across the business and achieved key milestones,
with 8,800 hours of volunteer time being requested in FY25.
This year, we are setting a new target of
50,000 hours of volunteering per year in our
communities by 2030
to further embed a culture of giving back.
To increase participation, we are improving awareness,
simplifying the process of getting involved, and tracking
the impact more regularly.
This not only strengthens the regional economy but also promotes
community development and sustainability, contributing to
a more resilient and socially responsible supply chain.
In 2024, we have increased our engagement with SMEs, with
our SME spend rising from 28% in FY24 to 31% in FY25.
By sharing stories of how our colleagues are making a
difference, we aim to inspire even more people to take part.
Volunteering is an integral part of how we contribute to the
communities where we live and work. As we continue to expand
and evolve our approach, we remain committed to making a
meaningful and lasting commitment.
Supporting our communities
Devonport colleagues used their Be Kind Day
to transform the facilities of Headway Plymouth,
a charity to improve life after brain injuries.
Watch this video for more information
Our colleagues used their Be Kind Day in partnership with
Eat-Up, an Australian non-profit organisation that provides
healthy and free lunches to vulnerable children.
Colleagues at Rosyth have the opportunity every month to
use their Be Kind Day to support The Big House Multibank.
Typical tasks include sifting and organising donations from
the large deliveries, and creating tailored packages for
those in the local community.
Sustainability (continued)
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Charity
Our donations and charitable sponsorship policy is designed
to support our communities.
Babcock has always supported our armed services and it
remains core to our values. We work with several charities
which support both the serving and veteran community across
all services, for example:
• Soldiers’, Sailors’ and Airmen’s Families Association
(SSAFA) – Babcock has been a sponsor of SSAFA since
2016, and became a Corporate Partner in 2025, providing
funds for volunteer mentor training to support veterans
transitioning to civilian life
• Army Benevolent Fund (ABF) – We sponsored two of its
flagship fundraising events, the Cataren Yomp and
Operation Bletchley
• Royal Navy and Royal Marines Charity (RNRMC) – Babcock
has joined its Bridge Partnership scheme as a platinum
partner, supporting it to work towards its vision of a world
in which our sailors, marines, and their families are valued
and supported, for life
But we recognise that serving personnel also have families
who are another community that also need support, especially
when the worst happens. Consequently, we also support:
• Families’ Activity Breaks (FAB) – This is our second year
helping the charity to provide fun and challenging activity
camps around the UK for bereaved military families
• Scotty’s Little Soldiers – We are entering our first year
supporting the charity to provide long-term, holistic care
for bereaved military children
We also support our local communities, partnering with charities
operating where we have our sites and attract our employees
from. For example:
• Rapaid – Actively enabling and participating in its roll out
of life-saving pressure bandages in Plymouth taxis
• Plymouth Argyle Community Trust – We sponsored both
the development of its new Foulston Park Community hub
and integral Babcock Esports Arena, a fantastic community
space for young people (see also page 24).
We are part of the global community and our international
operations also support their communities, for example:
• Thandulwazi Trust – in South Africa, we have partnered
with the trust to uplift women in leadership and engineering
• Canadian Forces Base Esquimalt Military Families
Resource Center – in addition to a donation, Babcock Canada
participated in a charity hockey game between colleagues
and the Canadian Armed Forces
We also continue our long-standing support for:
• The Vine Trust – We converted a former UK Royal Navy
patrol ship into a medical vessel which is expected to provide
one million medical consultations over the next 20 years
to remote island communities in Tanzania
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STEM and future talent
Babcock is helping to address the UK’s STEM skills shortage
through strategic outreach.
Research has shown that not enough young people are
studying the STEM subjects needed to pursue a STEM career.
To help tackle this, Babcock has External Engagement Teams
situated across the UK. They are responsible for collaborating
with our volunteer STEM ambassadors, young people, parents
and teachers to raise awareness, engagement and inspiration
with the intent of sparking interest in STEM.
Our STEM strategy is based on three objectives:
1. Increase diversity and inclusion in STEM
2. Drive early careers applications through engagement
3. Build relationships with educational institutions in areas
of high social deprivation
We use a 5E engagement model, developed with Plymouth
City Council, to create age-appropriate and inclusive content,
and have an objective of delivering over 300 targeted activities
within the South West alone.
Festival of engineering
During FY25, Babcock delivered the Festival of Engineering
across three major locations: Devonport, Bristol and Rosyth,
welcoming approximately 900 eager schoolchildren from
multiple local schools to immerse themselves in the two-day
celebration. The Festival of Engineering was a powerful
platform that allowed Babcock to challenge preconceptions
that children might have held about the world of engineering.
We do this through engaging and interactive experiences,
with the aim of increasing their understanding of what STEM
is and inspiring them to enter a STEM career path.
Our approach to STEM
EXPLORE
5–7 years
Growing skills
• School visit
• Workshop
ENCOURAGE
7–11 yrs
Growing skills
• School visit
• Workshops
• STEM Club (local
competition)
Attracting
local talent
• Site visit
• Teacher in place
(industry
placement)
EMPOWER
11–14 yrs
Growing skills
• School visit
• Workshops
• STEM Club
(regional
competition)
Attracting
local talent
• Labour market
information
• Workshops
• Careers advice
• Site visit
• Teacher in place
(industry
placement)
EQUIP
14–16 yrs
Growing skills
• Workshops
• STEM Club
(regional
competition)
• Careers fair
• Mock interviews
Attracting
local talent
• Careers advice
• Work experience
• Industry taster day
• Site visit
EMPLOY
16+ yrs
Growing skills
• Careers fair
• Mock interviews
Attracting
local talent
• Work experience
• Mentoring in
the workplace
• Networking
opportunities for
students, teachers
and carers
Sustainability (continued)
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Partnerships and memberships
Collaboration is at the heart of our approach, enabling us to
drive innovation, strengthen industry capabilities, and foster
a more inclusive and diverse workforce. Through strategic
partnerships and memberships, we work with leading
organisations across defence, engineering, education and
inclusion to create meaningful impact.
Our commitment to gender balance and inclusion is reflected
in our partnerships with Women in Defence UK. As a signatory
to the Women in Defence Charter, we are dedicated to
improving gender representation at all levels in the sector.
Our role as a Pankhurst Partner allows us to actively support
initiatives like the Critical Mass Summit 2024, promoting
diversity across the defence industry. Additionally, Babcock
Australasia is a Platinum Sponsor of the Women in Defence
Association (WiDA), furthering gender equity through
programmes and events across the region.
Beyond gender diversity, we work closely with educational
institutions and industry bodies to advance innovation and
develop future talent. Our strategic partnership with the
University of Strathclyde focuses on cutting-edge research
in nuclear, advanced manufacturing, space and security-related
technologies. Similarly, our three-year partnership with
EngineeringUK is designed to inspire young people to pursue
STEM careers, engaging with students from primary school
through to apprenticeships and graduate programmes.
We are also committed to supporting the wider armed forces
community. As a Platinum Partner of the Royal Navy & Royal
Marines Charity (RNRMC), we help fund initiatives that improve
the lives of Royal Navy and Royal Marines personnel and their
families. Our participation in the Armed Forces Covenant
reinforces our dedication to those who serve. Additionally,
our work with the Army Benevolent Fund (ABF) ensures
continued support for soldiers, veterans, and their families.
See also pages 90 and 93.
Our engagement extends to the evolving space sector through
our membership of the Space Data Association (SDA), where
we collaborate on the responsible use of space and the safety
of satellite operations.
Further reflecting our commitment to responsible business
practices, we are proud members of The Valuable 500,
The Prince’s Responsible Network, and ADS (Aerospace,
Defence, Security & Space), aligning ourselves with industry-
leading organisations that share our values of sustainability,
inclusion and innovation.
These partnerships and memberships are integral to our
success, enhancing our ability to influence positive change
across our industry, supply chain and communities.
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Oxford Economics Impact Assessment
Published April 2025
Responsible business
Scan here to
find out more
about the
Oxford
Economics
report
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Commercial integrity
We are committed to conducting business honestly,
transparently and with integrity. It is the right and proper way to
behave, ensuring we uphold high ethical standards across the
Group. It also supports our long-term success. We understand
our reputation and good name are amongst our greatest assets
and could easily be lost by actual or suspected unprincipled
behaviour.
Our policies
To support good governance and ethical behaviour across our
Group, our actions and those of our colleagues, suppliers and
partners are guided by a series of Group policies. These include
our Code of Business Conduct and Ethics policy (see page 100)
and Human Rights policy (see page 101), which are available
on our website.
Our policies are periodically reviewed to ensure that they
continue to meet current best practice principles and legislative
needs. By establishing transparent policies and procedures,
we can reduce risk to our business and to our customers.
We treat breaches of our Codes or associated guidance seriously.
We implement appropriate training and procedures designed to
ensure that we, and others working for us, understand what our
Code of Business Conduct and our Suppliers’ Code of Business
Conduct (see also page 101 and our website) mean in practice.
This training includes mandatory completion of courses on an
annual basis in all our geographies, translated where applicable,
such as anti-bribery and corruption, security and data
protection. Completion of these courses is monitored.
Whistleblowing
Colleagues can raise any concerns that our Code or its associated
guidance is not being followed without fear of unfavourable
consequences for themselves.
To ensure that anyone with a concern is able to access advice
and support, our independent whistleblowing hotline,
EthicsPoint (operated by NAVEX Global), allows for confidential
and anonymous reporting and is available 24 hours a day,
seven days a week, in all territories where we are based
(see also page 102). Further details are available on our website.
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Supply chain governance
Effective supply chain governance is key to Babcock’s business
strategy, promoting integrity as well as ethical, sustainable and
transparent operations. In FY25, we published our Supplier
Assurance Handbook to improve transparency. This handbook
provides our suppliers with detailed insights into our
assessments, audits and development processes, to help
enhance collaboration and responsible practices across our
supply chain.
We have also implemented ESG ratings for our suppliers,
assessing their environmental impact, social responsibility
and governance practices. These ratings provide suppliers
with the guidance required to improve their scores, thereby
strengthening our commitment to sustainability, enhancing
supply chain resilience, reducing environmental impact,
and contributing to global sustainability goals.
Our diverse portfolio of over 10,500 suppliers continues to
be a key strength. Rigorous due diligence and continuous
improvement efforts ensure compliance and risk management
across our supply chain. This involves thorough supplier
assessments, regular audits and continuous monitoring
to ensure adherence to our standards.
Cyber security
Babcock acknowledges the significant threat posed by cyber-
attacks and the potential consequences, such as operational
disruption, unlawful access or theft of information, and damage
to its reputation. To mitigate and reduce cyber-related risks,
Babcock has established a Cyber and Information Security
Framework that provides governance, direction and assurance
that the Company’s security posture is both appropriate
and effective.
Collaboration with both external stakeholders and the internal
Group Executive Risk and Controls Committee ensures that
cyber and information risk management is appropriately
managed across all levels of the organisation. Our security
risk appetite is underpinned by a set of unified security controls
which can be implemented across our corporate technology
stack. Processes and controls are pragmatic, replicable and
auditable to protect Babcock and our customers’ assets
through their lifecycles, and adhere to the principles
of secure-by-design.
Babcock adheres to all required international and government
security standards for the secure installation and operation
of information systems. Cyber security operations are in place
to identify threats and protectively monitor risks to information,
systems and networks.
Our core IT services maintain certification to ISO 27001
(Information Security) and ISO 22301 (Business Continuity)
standards, as well as Cyber Essentials Plus, a requirement
for UK Government work.
We engage with our internal and external customers and our
supply chain to ensure that security principles are embedded
within programmes of work. Security enables the effective and
efficient delivery of projects and programmes, and provides our
customer community with confidence in our security practices
and capabilities.
Babcock informs and empowers our colleagues to be
knowledgeable about information security risk and cyber
threat both at work and at home, to better prepare them for
an increasingly interconnected digital environment. Babcock
actively seeks to address the challenges faced by the cyber
industry to source suitably qualified experts through investment
and development of its own workforce.
Our AI-driven risk resilience solution that provides real-time
monitoring of our supply chain is continually developed to
provide the most up-to-date and relevant tracking of our supply
chain, allowing us to proactively address potential disruptions.
Ethical practices are at the core of our supply chain governance.
By adhering to our Supplier Code of Conduct, we ensure that
our suppliers engage in fair labour practices, respect human
rights and commit to environmental stewardship. This ethical
foundation helps mitigate risks, safeguard our reputation
and promote long-term value creation.
Combining ethical practices with on-time delivery, cost
efficiency, compliance and quality is essential for Babcock’s
success. Reliable and timely delivery ensures that our projects
stay on schedule, while cost efficiency helps us remain
competitive. High-quality standards aim to assure that we
deliver exceptional products and services to our customers.
See our Supplier
Assurance handbook
for more information
Responsible business (continued)
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Fair operating practices
At Babcock, we are committed to fair operating practices
throughout our supply chain, ensuring all business activities
are ethical and comply with our Supplier Code of Conduct.
This commitment maintains the integrity, transparency and
sustainability of our operations, fostering trust and accountability
among suppliers, customers and stakeholders.
We expect our supply chain to be ethical and compliant, which
mitigates risks, safeguards reputations and promotes long-term
value creation. Our suppliers are required to engage in fair
labour practices, environmental stewardship, social
responsibility and respect for human rights. We conduct
thorough compliance checks during supplier onboarding
and periodic revalidations to maintain these standards.
In the UK, we use the Joint Supply Chain Accreditation Register
(JOSCAR) due diligence tool to maintain high standards of
accountability and sustainability. In 2024, we also implemented
JOSCAR in Australia, enhancing supply chain transparency
and efficiency.
Babcock treats suppliers with fairness and respect, providing
clear guidelines, timely payments and development support.
This strengthens partnerships, enhances collaboration and
contributes to a resilient and responsible supply chain.
Payments to suppliers
Babcock adheres to the UK Prompt Payment Code to
demonstrate our commitment to ethical business practices
and corporate responsibility. By processing timely payments
to our suppliers, we build and maintain strong, trust-based
relationships that are essential to maintain a stable and resilient
supply chain. Timely payments ensure that our suppliers
have the necessary cash flow to sustain their operations,
invest in innovation and continue delivering high-quality
products and services.
We continue to encourage our suppliers to adopt prompt
payment throughout their supply chains, promoting financial
stability and trust. In FY25, we achieved an average payment
term of 16.3 days to our suppliers, which has remained
consistent year to year.
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Reporting on material yet non-financial measures is important in understanding the performance, opportunities and long-term
sustainability of Babcock and our ability to generate value for all our stakeholders. We disclose non-financial information in the
Sustainability report and throughout the Strategic report.
The following summarises where to find further information on each of the key areas of disclosure required by Sections 414CA and
414CB of the Companies Act. This includes the requirement to include Climate Financial Disclosures (CFD) within the Annual Report
and Financial Statements. These have been incorporated throughout our TCFD disclosures. See page 72.
Policy /
Statement
Description
Environment
Safety, Health
and
Environmental
Protection
policy
Babcock aims to ensure the highest Safety, Health and Environmental Protection (SH&EP)
standards, in all its activities, by meeting and exceeding global regulatory requirements
associated with SH&EP and those additionally pertinent to Aviation and Nuclear. The SH&EP
policy ensures we manage the risks of harm to people and the planet through organisational
arrangements, and competent people working within an engaged safety culture. Our risk
controls are assessed by routine and risk-based, internal and external assurance to verify
compliance and identify areas of learning and improvement.
● Learn more on page 83
Environmental
statement
Our Group Environmental statement clarifies that Babcock will strive to achieve and maintain
the highest standards in the management of environmental matters. We recognise the impact
our operations may have on the environment and will seek to minimise or eliminate adverse
effects. Accreditation to the appropriate standard will, wherever within Babcock’s reasonable
control, be obtained and maintained by each operation. The statement also clarifies that our
Sectors and DRCs shall devise and implement procedures appropriate to their specific business
and in line with this policy.
● Learn more on page 64
Sustainable
Procurement
policy
Our supply chain is key to successfully delivering our sustainability plan. When selecting
suppliers and subcontractors, we seek evidence of their ability to meet our requirements
against 12 priorities for sustainable procurement. The effectiveness is assured through our
Supplier Information Management process, where suppliers are required to agree to our
sustainability standards. To further ensure adherence, we have incorporated sustainability
criteria into our supplier audits and assessments, and maintain continuous engagement
with our suppliers.
● Learn more on pages 69, 92 and 98
CFD
disclosures
s414CB(2A)
See Climate-related Financial Disclosures.
● Learn more on page 72
Employees
Code of
Business
Conduct
The Code of Business Conduct states clearly that Babcock will conduct its business to the
highest standards of honesty and integrity. It sets out the minimum expectations for the
behaviour of our colleagues, business advisors and business partners. This includes treating
others with respect, ensuring the safety of others at work, being honest in our dealings and
complying with the law. The Code of Business Conduct must be displayed at all Babcock
facilities and be included in all new colleagues’ induction packs. See also Anti-Bribery and
corruption below.
● Learn more on page 97
Be Kind Day –
volunteering
policy
‘Be Kind Day’ is our way of encouraging and supporting our colleagues to volunteer their time
and skills when they want, where they want. Our policy provides guidance for colleagues
on how to use their ‘Be Kind Day’, enabling us to make a positive difference to our local
communities. The usage of the policy is tracked on a quarterly basis by sectors and DRCs.
This policy is also associated with social reporting requirements.
● Learn more on page 92
Gender Pay
Gap report
Our Gender Pay Gap report reflects our continued commitment to creating and maintaining a
working environment that is inclusive, diverse and supportive and that provides opportunities
for all our colleagues. This is assured by setting and implementing inclusive policies, supporting
employee networks, promoting women’s mentorship programmes and engaging in industry
partnerships.
● Learn more on page 86
Non-financial and sustainability
information statement
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Policy /
Statement
Description
Human
rights
Supplier Code
of Conduct
This responsible sourcing policy outlines the principles and expectations we hold for our
suppliers, reflecting our commitment to ethical, responsible and sustainable business practices.
Aligned with global best practices, this details our shared responsibility in creating a
transparent, inclusive and resilient supply chain. The effectiveness of our policy is assured
through our Supplier Information Management process, where suppliers are required to agree
to our policy or provide equivalent standards they will adhere to. To ensure further adherence,
we conduct regular audits and maintain continuous engagement with our suppliers.
● Learn more on page 98
Human Rights
policy
We recognise our responsibility to conduct our dealings with the utmost integrity. We are
committed to the protection of human rights, and we comply with all national laws in the
jurisdictions in which we operate, in our operations across the world. Where national law and
international human rights standards differ, we will where possible follow the higher standard;
where they are in conflict, we will adhere to national law, while seeking ways to respect
international human rights to the greatest extent possible. The effectiveness of our policy is
assured by assessing actual and potential human rights impacts, integrating and acting upon
the findings, tracking responses, and communicating how impacts are addressed.
Modern
Slavery
Transparency
statement
Our annual Modern Slavery Transparency statement sets out the approach taken to understand
the potential modern slavery risks associated with our business, and explains the actions taken
to prevent slavery and human trafficking within the Group’s operations and supply chains.
We continue to believe that our exposure to the risks of modern slavery is low within our
own business and supply chain. This assessment is under continuous review so that we can
determine if circumstances change that require us to take additional actions. Our strategic
Risk Resilience tool enables real-time monitoring through AI and machine-learning technology.
It enables us to map our supply chain ecosystem, monitor activities, and proactively identify
hidden risks in our sub-tier supply chain, tracking and generating alerts for indicators such as
unethical labour practices including modern slavery. Additionally, approximately 1,000 suppliers
are monitored for their ESG scores, inclusive of individual attribute scores for forced and child
labour as well as human rights, to identify any exposures in our supply chain.
Our statement is available on our website or through the QR code at the end of this section.
Social
Australasia
Indigenous
Peoples
Engagement
policy
This policy outlines the overarching Indigenous Peoples Engagement commitments for the
region. Babcock Australasia strives to improve social and economic outcomes for indigenous
peoples within the region, to create a more equitable and fair future for all, and is committed
to embedding opportunities for indigenous peoples and their businesses in our day-to-day
business. We recognise that specific initiatives are required for the geographic areas in which
Babcock Australasia operates. For the geographic area of Australia, this refers to Aboriginal
and Torres Strait Islanders, and for New Zealand, Māori and Pasifika.
● Learn more on page 88
Canada
Indigenous
People policy
As a corporate citizen doing business within Canada and working in areas that are protected
and lived on by indigenous people, Babcock Canada is committed to strengthening
relationships with indigenous people and their communities.
Babcock Canada is recognised by the Canadian Council for Indigenous Business (CCIB) as
achieving Partnership Accreditation in Indigenous Relations (PAIR) Committed Status. Aligned
with those CCIB PAIR criteria, our policies and actions focus on corporate leadership action,
indigenous workforce investment, business engagement with indigenous communities and
community outreach to strengthen existing relationships. These are responsive to the spirit and
intent of the reconciliation frameworks within the United Nations Call to Action 92 to Canada’s
corporate sector and leaders. Oversight of the operation of the Indigenous People policy is
managed by the Indigenous Relations and Participation Governance Committee. It, along with
the Canada EXCO, ensures that awareness training and functional strategies support the
Company’s continual improvement against the CCIB PAIR certification objectives.
● Learn more on page 88
Charities
policy
Babcock is committed to the communities in which we operate and the broader interests of the
customers we serve. We want to make a positive impact on the communities in which we
operate. Sectors and DRCs retain responsibility and management of their charitable donations /
sponsorship from their own budget, to ensure it goes where it can serve the greatest need and
be of most value to that community within our guidelines and criteria. Our Group Charities
policy aligns with Babcock’s corporate Purpose “To create a safe and secure world, together”,
permitting donations and charitable sponsorship under two broad criteria: military charities and
events; and supporting our local communities. Oversight of the operation of the policy is
managed by the Corporate Sustainability Committee.
● Learn more on page 93
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Policy / Statement Description
Anti-bribery
and Anti-
corruption
Anti-Bribery
and Corruption
/ Ethics policy
The intent of this policy is to ensure that Babcock at all times acts responsibly and ethically
when pursuing and awarding business, and that we fulfil the principles expressed in our Code
of Business Conduct relating to avoiding acts of bribery and corruption.
The policy contains rules, procedures and guidelines that Babcock colleagues must follow
in order to help ensure that we do not become involved, either directly or indirectly, in bribery
or corruption and that we do what we reasonably can to reduce the risk of those we work
with engaging in corrupt or unethical activities in connection with their dealings for us.
It sets out the Group’s zero tolerance policy in relation to bribery and corruption, including
prohibitions on improper and facilitation payments, and penalties for breach of policy.
The effectiveness of the Code of Business Conduct and Anti-Bribery and Corruption Policy
is assured by the annual training of our staff and the monitoring of compliance through
full-year and half-year letters of representation from all Sectors and Direct Reporting
Countries. Whistleblowing lines are in place in all jurisdictions for reporting any wrongdoing.
See also Code of Business Conduct above.
● Learn more on page 97
Whistleblowing
policy
Encourages colleagues to report any concerns they may have in relation to health and safety
matters, the environment, or any other unethical, unfair, dangerous or illegal behaviour and
sets out how to do so. The policy also confirms no action will be taken against a colleague
who alerts management to these concerns if they turn out to be unfounded so long as the
information and any allegations made were passed on in good faith; in the genuine belief
that they were substantially true; with no intention of personal gain; and without malice.
The effectiveness of our policy is assured by the availability and promotion of the
whistleblowing lines throughout the business, ongoing review by the Group Company
Secretary and regular reporting to the Board. During the year, our Whistleblowing policy
and processes were subject to an Internal Audit.
● Learn more on page 97
Data Protection
policy
Babcock International Group PLC and its subsidiary undertakings need to collect and use
certain information about individuals in order to run our businesses effectively. This
information comes from colleagues, workers, job applicants, students, customers, suppliers,
and other individuals with whom Babcock communicates and does business. Our Data
Protection policy sets out Babcock’s commitment to its colleagues, other personnel and
individuals whose information Babcock processes, and the ways in which each colleague
must process personal data to ensure that Babcock, and the colleagues themselves, do not
breach their obligations under the data protection laws. In support of our policy, specialist
staff have been appointed and colleagues are required to complete mandatory data protection
training on an annual basis.
Supply Chain
Cyber Security
policy
As part of the Babcock commitment to creating a safe and secure world, our supply chain
security is vital. Any compromise of information poses a serious threat to the reputational and
economic standing of Babcock and our customers. Our Supply Chain Cyber Security policy
ensures that the cyber security arrangements among delivery partners, third-party suppliers
and supply chains are appropriate to the requirements of the goods and services being
procured. This includes appropriate governance and management arrangements to manage
risk, monitor compliance, report and respond effectively to any security incidents. Babcock’s
approach to ensuring security in our supply chain includes through-life management.
All purchases of goods and services must follow the appropriate Babcock process, ensuring
due diligence is carried out and managed throughout the supplier’s relationship with Babcock
in accordance with policy requirements. The effectiveness of our policy is assured by
external certification audit (ISO27001).
● Learn more on page 98
Non-financial and sustainability information statement (continued)
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Policy / Statement Description
Description of principal risks and
impact on business activity
Group Risk
Management
policy
See “Our principal risks and management controls”
● Learn more on page 104
Description of our business
model
See “Our business model”
● Learn more on page 12
Non-financial KPIs
See “Key Performance Indicators”
● Learn more on page 27
Please see our Modern
Slavery Transparency
statement.
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Principal risks and management controls
Our principal risks
and management controls
●
“FY25 has been a further year
ofadvanced risk maturity to aid
ourdelivery and overall resilience,
witha focus on the enhancement
of our internal control’s structure”.
David Lockwood
Chief Executive Officer
Heightened risk control to support risk resilience
The Risk Management Framework exists to manage the risk and
opportunities inherent within the Group’s strategy. As explained
at our 2024 Capital Markets Day, risk management is at the core
of the Group’s management practice and an integral part of all
our activities, helping us to deliver our commitments to
customers, colleagues and communities.
FY25 saw further valuable enhancements in the quality of the
Group’s Risk Registers and heightened understanding of the
importance of effective risk mitigation. There has been an
enhanced understanding of the benefits of Enterprise Risk
Management (ERM) across the Group’s senior leadership team.
The Risk and Controls Committee has continued to develop
ERM practice with a healthy level of cross-functional challenge
around principal risks and their collective mitigation.
Effective risk management starts with the right conversations,
to enable better risk-based decision-making. The Group’s Risk
Management Framework considers management of risk in the
round, top-down and bottom-up correlated through a series
of risk conversations with the members of the Group Executive
Committee and critical risk influencers.
Risk is considered regularly at Board level. As part of its business
planning and annual strategy review process, the Board
conducted a robust assessment of principal and emerging risks.
FRC revisions to Corporate Governance Code
The Financial Reporting Council (FRC) has published the 2024
UK Corporate Governance Code and associated guidance.
Provision 29 of the new Code relating to risk management and
internal control comes into effect for the Group for the year
ending 31 March 2027. The Audit, Risk and Internal Controls
section of the updated Code now includes the requirement for
a declaration on the effectiveness of the material controls at the
balance sheet date, a requirement effective for the March 2027
Annual Report. The Group continues to proactively assess current
maturity and develop plans to specifically address requirements
under Provision 29 for Board declaration of effectiveness of risk
management and internal controls.
Risk Management Framework
The Risk Management Framework (below) is used consistently
across the Group, clarifying ownership and the differing levels
of assurance. The risk framework includes a Risk and Controls
Committee where all principal risks are comprehensively
challenged throughout the year, providing leadership and
oversight of the Group’s risk profile. The Group have invested
in continuous improvement of the Global Risk Management
policy and User Requirements manual, which are embedded
via tailored training and awareness sessions across the Group.
Risk and internal control enhancement
highlights in the year
• Continued enhancement of the Group, Sector, Direct
Reporting Countries (DRCs) and Function Risk Registers
including context and evidence to support control
effectiveness and controls prioritisation
• Further enhancement of the outputs of the Risk Leads
community, leading to more granular risk data shared to
inform risk-based decisions
• Investment in Fraud Risk Management Framework,
facilitated through the Risk Leads community
• Training delivered to aid understanding of the new
Economic Crime and Corporate Transparency Act
(ECCTA) with enhanced understanding of fraud
categorisation
• A programme of risk workshops to support Sectors,
DRCs and functions in understanding their risk maturity
journey, and defining current and target position
• Initial identification of material controls in advance of the
revised UK Corporate Governance Code
• Review and update to the controls contained within the
Document of Controls
• Addition of controls as a competency across all
management layers within the Global Competency
Framework (GCF)
• Exercise to review Governance Risk Compliance (GRC)
tool options which resulted in partnership with a global
GRC platform provider
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The Board sets the Group’s strategy on page 8. To help deliver
this strategy, the Board has in place procedures for identifying,
evaluating and managing the inherent risks in our strategy,
alongside the emerging risk landscape. As part of those
procedures, the Board reviews and approves the principal risks
on an annual basis. It makes this determination using a
consistently applied risk-rating matrix, which assesses the
likelihood and impact of each risk occurring and its target state,
after taking into consideration the controls and mitigations
in place. Work has continued on clearly detailing the path
to reaching effective controls within articulated timescales.
Co-ordinated by a network of Global Risk Leads, the Group
builds the hierarchy of risk by bringing together the Risk
Registers of our Sectors, DRCs and functions. These Risk
Registers include principal, strategic, operational and emerging
risks and are compiled using the Global ERM Framework for
consistency in approach. The framework requires the risks
to be described along with the measures in place to control
or manage each risk and an assessment of their effectiveness.
The Group Risk function consolidates the Risk Registers to
prepare the Group’s Risk Register. The Risk Registers show
the inherent and current rating of each risk as well as the target
state. Risks are monitored for adherence to risk tolerance
ratings and those that fall outside of this are managed back to
tolerance with oversight from Group Risk. Risk ratings measure
risks for likelihood and impact, using a five-by-five matrix.
Please see the following graphic for definitions.
Likelihood
Very likely
More than
90% chance
Impact
Severe
Likely
60–90%
chance
Major
Possible
30–60%
chance
Moderate
Unlikely
10–30%
chance
Minor
Very
unlikely
Less than
10% chance
Insignificant
Group Risk engages with Sectors, DRCs and functions at least
quarterly, providing guidance and ensuring a common approach
as to how to measure likelihood and impact. The Group has
included the current rating for each principal risk alongside
its description on page 111.
On an annual basis, the Risk and Controls Committee reviews
the scoring matrix. Following the Risk and Controls Committee
evaluation, the Board, on an annual basis, considers the matrix
and reviews the Group’s principal and emerging risks.
The review includes a description of the risk, as well as the
mitigating controls and the associated risk appetite. In addition
to the review of the risk-rating matrix, the Board also undertakes
‘deep dives’ bi-annually on specific risks.
Our internal control environment
In FY25, the Group has continued to make progress in its
internal control environment which aims to protect the Group’s
assets and to check the reliability and integrity of the Group’s
information, thereby providing assurance that the Group
appropriately manages the risks in our business model and
the delivery of our strategy.
Internally published policies set the framework for the Group’s
internal controls. These policies cover a range of matters
intended to mitigate risk, such as health and safety, project
management, information security, trade controls, contracting
requirements, financial transactions and financial reporting.
The Document of Controls continues to be the cornerstone
of internal control systems over financial, reporting and
compliance controls operating as the risk and control matrix for
the Group, defining the risk, control design and control owners.
Internal audit performed a review of the Document of Controls
process during the year and work is ongoing to respond
to those findings. The key areas of focus have involved a
reduction in the number of controls, clarification of the control
descriptions and review of the control owners.
The Blueprint Fundamentals – 15 key contract review, bid review
and financial reporting controls – were designed and implemented
in late FY23 and have continued to operate throughout the year
as part of the Document of Controls. The standardisation of the
contract review process has been rolled out across all contracts
during FY25 and further enhancements are planned for FY26.
A central repository and dashboard monitoring process has
been established for all Group and Sector watchlist reviews.
During the year, IT general controls have continued to be
enhanced through the migration of operational areas onto the
central Neptune estate, and by the review and strengthening
of controls around segregation of duties.
Following the publishing by the FRC of the 2024 UK Corporate
Governance Code and associated guidance in January 2024,
the Group has continued to develop its response to the Code.
An initial assessment of material controls has been performed
and shared with the Audit Committee together with a roadmap
to ensure compliance with Provision 29 at 31 March 2027.
The key areas planned for FY26 relate to the enhancement
and development of the material controls and development
of the proposed assurance plan.
In addition, the Group has enhanced its Fraud Risk Management
Framework following an external assessment in response to the
publication of the Economic Crime and Corporate Transparency
Act 2023. The key activities undertaken as part of this review
involve Sector, DRC and Function submissions of material fraud
risks via the quarterly risk returns, conducting fraud risk training
to Sector, DRC and Function Risk Leads, formalising a Fraud
Risk Management Policy (including a definition of fraud),
completing a Group led fraud risk assessment exercise linking
specific controls to each of the identified fraud risks and
updating relevant training materials.
In FY25, the newly insourced internal audit function continued
to operate as an independent third line of assurance. The status
of the internal audit work programme and the results of each
audit are presented at every Audit Committee meeting.
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Principal risks and management controls (continued)
Risk assurance
The Group use the three lines model to assure ourselves about
the management of the risks that we face. The first line is
management control, policies and procedures, together with
management oversight. The second line is internal assurance
activities including Group risk management and compliance
teams who deliver functional oversight. The third line is
independent assurance activities, such as internal audits.
Risk management and internal control annual
review
To provide assurance, the Audit Committee performs an annual
review of our risk management and internal control systems
to assess their effectiveness. After this year’s review, the
Committee concluded the Company has implemented several
control improvements and has a structured plan to implement
further control enhancements covering lessons learnt and
progressively meeting the 2024 UK Corporate Governance
Code requirements. The Board, following robust assessment,
concluded that the risk management process within the Group
provides effective management of the principal, emerging and
underlying risks. This assessment allows the Board to monitor
and review the effectiveness of these processes in adherence
to the UK Corporate Governance Code.
Group Executive Risk and Controls Committee
The Risk and Controls Committee provides executive
management leadership and oversight of the Group’s ERM
Framework, acting as an interface between the Audit Committee
and the business. This Committee has developed from the Risk
Committee to become the Risk and Controls Committee in
acknowledgement of the Committee’s heightened focus on
controls design and effectiveness, driven in part by the new
requirements listed in provision 29 of the UK Corporate
Governance Code. The Committee has as its principal
deliverable the review and challenge of the mitigation and
control of the principal risks. All principal risks have an allocated
Committee member owner and are presented and discussed on
a rolling annual basis. Discussion includes the risk, risk appetite,
mitigating controls and their associated effectiveness. The
Committee also has standing agenda items, considering
Corporate Governance Code requirements and a review of
significant operational risks as articulated in the bottom-up risk
register process.
The Committee undertook a dedicated thought leadership
session with an external specialist on AI ethics entitled
“Why AI Ethics matter for effective risk oversight”, to reduce
the likelihood of unintended consequences.
The Committee also commissions ‘deep dives’ in relation to
the businesses’ Risk Registers submitted within the Group’s
quarterly reviews, commissions externally focused emerging
risk reports (produced by the Group Risk team) and reviews the
Group’s approach to high-impact, low-likelihood, black swan,
and grey rhino events.
A ‘black swan’ event refers to an unforeseen and unlikely
occurrence that typically has extreme consequences. A ‘grey
rhino’ event is a slowly emerging, highly probable and high-
impact threat that is ignored.
Risk appetite
Low – Avoidance of risk and uncertainty with low appetite
for risk that is likely to have adverse consequences and aim
to eliminate or substantially reduce such risks.
Medium – A degree of risk is tolerated with some appetite
for risk and a balance of mitigation effects, with a view of the
potential rewards and opportunities.
High – Open to opportunities that may result in a higher residual
risk where we have the capability and capacity to manage
that risk.
Forward-looking risk and control priorities –
FY26
• Enhancement and development of material controls
• Development of the proposed assurance plan to underpin
the declaration of effectiveness
• Continued review and refinement of the Document of Controls
• Further refinement of the Fraud Risk Management Framework
and its operational effectiveness under the 2024 UK
Corporate Governance Code
• Embedding of the GRC ERM and Internal Audit platform
• Further investment in the risk maturity journey to support
stakeholders in achieving target risk maturity level
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First line – management Second line – internal assurance Third line – independent assurance
The Group has written policies
covering a range of matters to
mitigate risk, such as health and
safety, information security,
contracting requirements and
accounting policies. The Group
underpins these policies with a
comprehensive scheme of delegated
authorities, which the Board annually
reviews and approves. Twice a year,
the Sectors and DRCs complete a
letter of representation to provide
confirmation of compliance with
the Group’s policies.
Management reports up from the
Group’s business units through the
Sectors and DRCs to the Board on
operational and financial
performance.
The Board and the Group Executive
Committee review the Group’s
financial and operational performance
on a regular basis through the
monthly reporting packs, which
include monthly management
accounts, and can compare that
performance against the Group’s
budget, which the Board approves
on an annual basis.
Group reviews the Sectors’ and
DRCs’ letters of representation and
Document of Control compliance
submissions to identify any control
weaknesses.
Group functions and specific
committees monitor certain risks,
such as health and safety, finance,
tax and treasury.
The Group maintains a comprehensive
international insurance programme.
The Group Director of Internal Audit,
Risk Assurance & Insurance reports
to the Board annually on the strategic
approach to that programme.
The Internal Audit function, which
reports to the Audit Committee,
provides assurance of the
effectiveness of the Group’s control
environment.
The Audit Committee agrees both
the external and internal audit plans
on an annual basis.
A number of external regulators and
other bodies, such as national Civil
Aviation Authorities, the UK Office
of Nuclear Regulation, and the
International Office for
Standardisation, regularly inspect
parts of the Group.
All colleagues have access to a
whistleblowing line to allow them to
report any concerns that they may
have. The Board receives all the
reports to the line along with an
explanation of how the Group is
investigating them and the outcome
of the investigation.
Our risk assurance – Three Lines Model
• Overall responsibility for the Group’s
strategy and risk management.
• Reviews and approves the Group’s
risk-rating matrix and principal risks
on an annual basis to ensure
alignment with the Group’s strategy.
• Reviews the Group’s financial
reports, including annual budget and
five-year plan, to monitor financial
performance and identify potential
issues/emerging risks.
• Global Risk Leads Forum for sharing
risk, feedback from governance
meetings, reviewing the effectiveness
of the Risk Management Framework
and process, sharing of good practice
and development of risk visualisation
reporting tools, reviewing central
policies and processes to consider
specialist and regional applications
and organisational learning.
• Projects, programmes, portfolio
and operational risks are managed
and escalated to their Sectors, DRCs
and Function then escalated as
appropriate to Group Risk and
Controls Committee.
• Strategic and Business Unit Risk
Registers are reported to Group Risk
on a quarterly basis.
• Reviews and monitors the adequacy
and effectiveness of the Group’s
Risk Management Framework
and internal control environment.
• Approves the Annual Audit Plan
for the external and internal audits.
• Authorised to provide the internal audit
function with the appropriate authority,
role and responsibilities, and ensure
adequate funding and headcount.
• Provides consistent, visible and
positive tone from the top and ensures
risk management is integrated into
all Babcock’s activities.
External audit
Provides external assurance:
its aim is to detect material errors
and material irregularities in our
financial statements.
Internal audit
Provides independent and objective
assurance on governance,
risk management and internal
control to the Board
and the Group.
Our ERM framework and internal control environment
Board
Sectors, Direct Reporting
Countries and Functions
Audit Committee
Group Executive Committee
• The Risk and Controls Committee
provides executive management
leadership and oversight of the
Group’s Risk Management
Framework, risk profile, risk appetite,
emerging risks, the UK Corporate
Governance Code, and other
legislative requirements relating to
risk, and acts as an interface between
the Audit Committee and the business.
• Operational risk is formally considered
quarterly through the Sectors,
DRCs and functions Risk Register
submission prepared by the Group
Risk function and also summarises the
Group’s principal and emerging risks.
• Committee members sponsor and
own the principal risks.
• Annual risk workshop to produce the
recommended strategic principal risks
for submission to the Board.
Group Executive Risk and Controls Committee
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Enterprise Risk Management is delivered throughout the Group
supported by a network of Risk Leads representing Sectors,
DRCs and principal functions such as HR and IT. The Risk Leads
network was established in early 2023 with a mandate to embed
a solid risk culture within the Group and drive consistency of
approach, to better enable risk data to support our risk-based
decision-making. The Risk Leads meet six times a year with
meetings chaired by the Group Director of Internal Audit,
Risk Assurance & Insurance.
The Risk Leads are the ambassadors for the promotion of
effective enterprise risk management practices, the eyes and
ears on the ground for an embedded risk culture. They have
as a key output the collation of their operational and strategic
risk registers on a quarterly basis. They support Executive
Committee members to deliver their target risk maturity action
plans and maintenance of principal risks, ensuring consistency
of quality and format — they are the risk ‘go to’ for their Senior
Leadership Team.
Training and knowledge sharing
Key to the success of the network is a programme
of training and knowledge sharing from both internal
subject matter experts and external specialists, examples
of which include:
• Cyber risk (incident and response) organisational
learning and costing model
• Security risk management and assurance process
• Trade controls
• Climate risk
• Group Project Management Framework
• Global engineering
• Operational resilience and crisis management
• Fraud risk framework
• Material controls
The Risk Leads case study
Furthering of enterprise risk management
Ambassadors for the
promotion of ERM
Sector, DRC and Function
Risk Register routine reporting
Reviewing risk management
framework/manual effectiveness
Fraud risk
management
champions
Continuous
improvement
of risk data quality
Monitoring the performance
of the risk maturity plan
Emerging
risk focus
Implementing the
GRC risk and controls
tool
Sharing of learning from
experience to improve
organisational learning
Thought leadership
sessions to maintain
risk competence
Risk
Leads
Principal risks and management controls (continued)
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Open and transparent sharing of relevant risk information from
all governance committees such as the Audit Committee and
the Risk and Controls Committee is included as a standard
agenda item for Risk Lead meetings to ensure that they are
apprised of current risk matters. Sharing of knowledge and
lessons learnt is also a standard agenda item. An example
of this is sharing of lessons learnt from a recent successful
major SAP implementation, with the project lead sharing
outputs from on-site learning from experience events, and
importance of devised non negotiables, ongoing training and
business engagement.
The Risk Leads are engaged in key decisions for risk practice,
ensuring that the risk frameworks and policies we operate
to are best in class and operating effectively. They were a key
component of the final decision on our choice of Governance
Risk and Compliance (GRC) tool.
“Embracing the role of a risk champion
empowers me to proactively identify,
assess, and mitigate risks. This not
only sharpens my personal risk
management skills but also fosters
aculture of resilience and strategic
foresight within my sector and
function. By leading by example,
Iinspire others to prioritise risk
management, ultimately driving better
outcomes and sustainable success.”
Wayne Read
IT Security and Compliance Risk Lead
“As a DRC Risk Lead, I champion
theembedding of effective and
consistent risk management
practices. The Risk Leads forum
provides a space for us to share
knowledge and practices, support
thedevelopment and embedding
ofbetter practice frameworks across
the organisation and provide
assurance that the Group’s risks
areowned, better understood,
andproactively managed.”
Suzanne James
Australasia Risk Lead
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Our principal and emerging risks
The Risk Management Framework is described on page 107. Using this framework, the Board has identified on pages 112 to 123 the
principal risks that it currently believes to be of greatest significance to the Group, as they have the potential to undermine our ability
to achieve our strategic goals and to have a detrimental effect on our financial performance. As part of the Group’s ongoing risk
analysis, two emerging risks have been identified which are kept under review by the Risk and Controls Committee.
Emerging risks are considered by the Risk and Controls Committee, Risk Leads and through the Group’s ERM Framework formally
on a bi-annual basis by Group Risk and bi-monthly through the Risk Leads Forum. Identification and reporting of emerging risk
themes or issues is encouraged across Babcock with the process detailed in the ERM Group Manual including the tools to support
emerging risk identification. Last year’s emerging risks were geopolitical tension, supply chain global sanctions circumvention,
artificial intelligence, and personal security, all of which remain on the Groups risk radar; however, the following two risks are
demanding particular focus.
Emerging risk Description and management
Geopolitical
tension
We mostly operate in, or export to, stable and peaceful democracies, closely allied with the UK through
NATO or other structures. Nevertheless, the international geopolitical situation is constantly evolving,
so we keep abreast of developments globally, working with governments and independent advisors.
For new territories, this due diligence includes country risk reports and a formal approval process requiring
Board-level authorisation to proceed. In the short to medium term, there are many factors causing volatility
within domestic and global markets. These include, but are not limited to, the ongoing wars in Ukraine and
the Middle East, growing instability in the Euro-Atlantic and Indo-Pacific, and changes to the foreign and
trade policy of the new US Administration. This volatility could increase commodity prices, disrupt supply
chains and increase cyber threats from state actors. The changing threat environment is driving a
significant increase in expenditure on defence globally, although some markets, including the EU, are
also adopting a more protectionist approach to defence procurement. The changing nature of warfare
may also see a reprioritisation of budgets away from traditional large, complex platforms to smaller,
uncrewed platforms and cyber.
Speed of
technology
advancement
including AI
The speed of technology evolution across multiple domains, including AI, is unprecedented and this brings
with it unprecedented levels of risk and opportunity. Opportunities can include productivity gains, new
and enhanced capabilities, and speed to market, among others. However, if adequate time is not given to
identifying, understanding and managing the potential risks to within acceptable levels, the benefits of new
technology will be offset by potentially significant negative unintended consequences arising from privacy,
ethical, sustainability, data and information security, technical integrity, product safety, cost and compliance
issues. The Group is adopting a proactive and responsible approach to development and adoption of
advanced technologies through appropriate technical governance and assurance processes, and a
‘responsible-by-design’ approach where potential risks are identified and mitigated early in the engineering
and technology lifecycle.
Changes to the principal risks
Last year’s principal risks and uncertainties remain valid. Of last year’s thirteen principal risks, three have decreased in risk score
as follows:
• Contract and project performance likelihood has decreased with the enhanced review and gating processes, ensuring alignment
with the Group’s capabilities and risk appetite.
• Defined benefits pension likelihood has decreased due to closure of the Devonport and Babcock International Group PLC defined
benefit schemes to future service accruals.
• Corporate technology disruption impact has decreased due to the advancement of the mitigation programme in place, including
the delivery of the Group’s cyber and information security strategies.
One principal risk has increased in risk score as follows:
• Supply chain management likelihood has increased due to the volatile geopolitical climate, which has introduced new challenges
and heightened risks. Despite targeted controls and enhanced governance, continuous monitoring and adaptive strategies are
necessary to mitigate potential disruptions.
One new principal risk has been identified:
• Engineering integrity, product technology disruption and product safety principal risk reflects a re-grouping of product safety and
product technology disruption risk together with an explicit articulation of engineering integrity risk. While the engineering integrity
risk, resulting from our engineering and technical risk management approach, has always been present, the Group’s increasing
focus on Systems Integration Programmes, such as Arrowhead, Type 31 Frigates and C5ISR Programmes, which have inherently
high levels of technical complexity and risk, has increased the Company’s risk exposure in this area, with both an increased
likelihood of the risks being encountered, and increased consequence if the risks are realised. The product safety risk and product
technology disruption risks had previously been incorporated into the health, safety and environment risk and technology
disruption risk respectively, but since the root causes of these risks, and the types of controls and mitigations required to manage
these risks, are synonymous with those for the Engineering integrity risk, and different from the HSE and IT technology disruption
risks, the decision was made to combine these three technical risks into a single principal risk, which allows a coordinated and
consistent risk management approach to be applied to effectively to manage these three risk elements.
Principal risks and management controls (continued)
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Principal risk trend
The Group operates in a complex global environment and
is exposed to a wide range of risks that may undermine our
ability to execute our strategy.
Enterprise Risk Management is an evolving and dynamic
process; therefore, the Group might identify new risks, or
better understand the significance of existing risks, or identify
a change in a risk. This means that the risks identified on pages
112 to 123, which are listed as per the table below, are not
and cannot be an exhaustive list of all principal risks that could
affect the Group. Risks are plotted on a net basis including
current mitigations.
2024
Principal risks
2025
Principal risks
Overall annual risk
score trend
1
Contract and
project
performance
Contract and
project
performance
2
Market Market
3
IT and cyber
security
Cyber and
information
security
4
Defined benefit
pensions
Defined benefit
pensions
5
Supply chain
management
Supply chain
management
6
Operational
resilience and
business
interruption
Operational
resilience
and business
interruption
7
Financial
resilience
of the Group
Financial
resilience
of the Group
8
Safety, health,
and
environmental
protection
including product
safety
Safety, health,
and
environmental
protection
9
Climate and
environmental
sustainability
Climate and
environmental
sustainability
10
Corporate
technology
disruption
Corporate
technology
disruption
11
Resourcing,
retention and
skills
Resourcing,
retention and
skills
12
Compliance with
legislation or
other regulatory
requirements
Compliance
with legislation or
other regulatory
requirements
13
Acquisitions and
divestments
Acquisitions and
divestments
14
N/A Engineering
integrity, product
technology
disruption and
product safety
N
Key
Increased Decreased
No movement
N
New
Impact
Likelihood
13
1, 2, 4,
6, 9
7
12
Insignificant Minor Major
Very unlikely
Severe
Very likelyPossible LikelyUnlikely
Moderate
3, 14
10 8
5, 11
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1. Contract and project performance
Likelihood: Possible Impact: Major
The Group executes large contracts and complex programmes, which often require us to price
for the long term and for risk transfer. The Group’s contracts can include fixed prices.
Risk appetite: Medium
Contract and project performance risk appetite is classified as ‘medium’ due to the intricate nature of our work in the defence and
emergency services sectors. As a Company, we are in the business of strategically accepting and managing risks that are within
our control to mitigate effectively. While the Group’s aim is to minimise risks to a manageable level, it is important to acknowledge
that uncertainties are inherent in project delivery. The Group prioritises robust risk management to mitigate these uncertainties,
where possible, and ensure successful outcomes. It is important to make clear that despite our vast efforts, some level of risk
remains unavoidable. The key is to understand and accept risks which are the Group’s to manage.
Potential impact
The Group’s business model revolves around securing and executing
long-term, high-value contracts for complex, integrated programmes.
These contracts often involve outcome-based agreements, and our
medium risk appetite is rewarded with appropriate margins.
Contract terms from the Group’s customer base can be stringent,
with strict conditions and clauses. Underestimating or under-pricing
risk exposure, unforeseen costs or supply chain disruptions can impact
our contract delivery costs. Fixed-price contracts can exacerbate this,
especially if actual costs exceed projections due to factors like inflation
or extended programme durations.
The nature of the complex work the Group performs and the terms
under which industry contracts with government departments (and the
sometimes onerous terms and conditions that apply) mean there is a
residual risk. Additionally, as we drive to move up the integration value
chain, this will require the Group to accept, manage and mitigate more
complex risks.
The Group’s projects and extensive supply chains expose the Group
to risks such as shortages in raw materials or electronic components,
which can lead to increased costs or missed deadlines. Furthermore,
long-term contracts often undergo changes in scope or emergent work,
requiring diligent change management to avoid additional costs and
maximise contract opportunities. If key risks materialise, they can
escalate the Group’s delivery costs, trigger penalties or damage our
reputation, jeopardising current and future contracts.
International conflicts and geopolitical changes are driving increased
management of supply chain risks which, if left unmanaged, could
significantly influence contract and performance risks in defence. Such
conflicts often escalate costs due to heightened security measures,
leading to uncertainties in project planning and execution. Sub-
contractors may face challenges in interpreting and fulfilling contractual
obligations amidst legal uncertainties and reputational risks.
Mitigation
To mitigate these risks, the Group has significantly
enhanced our review and gating processes,
ensuring alignment with our capabilities and risk
appetite. The Group conducts thorough reviews
at contract, business unit, sector and (where
appropriate) Group executive level, continuously
managing risks and opportunities throughout
contract lifecycles.
The Group closely monitors contractual
performance at various levels of the organisation,
identifying high-risk contracts for special attention
and implementing remediation plans when
performance falls short.
To further enhance the Group’s business controls
and active risk management, we have been actively
embedding deep dives, conducted by resources
independent of the business area, in order to
challenge assumptions and maintain best practices.
In summary, navigating the complexities of the
defence and emergency services sectors requires
a proactive approach to risk management, thorough
contract evaluation, and continuous performance
monitoring to ensure successful project delivery.
Whilst residual risk remains in complex contracts
and programmes, our controls and drive for awareness
and knowledge share are having a positive effect
throughout the organisation. This is critical to
successfully deliver the objective to move up the
value chain and accept more integration risks within
the Group’s future contracts.
Principal risks,
their impact and mitigation
Principal risks and management controls (continued)
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2. Market risk
Likelihood: Possible Impact: Major
The Group relies on winning and retaining large contracts in both existing and new markets,
often characterised by a relatively small number of major customers, which are owned
or controlled by local or national governments.
Risk appetite: Medium
This reflects that the successful pursuit and maintenance of a secure and assured pipeline is essential for continued growth,
and the Group may therefore choose to accept the challenge of market risks that we can confidently and securely manage.
Potential impact
Major customers, particularly those government-owned or with
government backing, have significant bargaining power and can exert
pressure to change, amend or even cancel programmes and contracts.
As governments own, fund or are many of our major customers, political
and public spending decisions may have a significant impact on our
contracts and pipeline. For example, the UK Government’s national security
and international policy objectives control the budget of the MOD.
Whilst changes in customer policy or budgets can potentially offer more
opportunities, they can also present risks in terms of spending which
may include:
• Reductions in the number, frequency, size, scope, profitability and/or
duration of future contract opportunities
• In the case of existing contracts, early termination, non-extension
or non-renewal or lower contract spend than anticipated and pressure
to renegotiate contract terms in the customer’s favour
• Favouring small or medium-sized suppliers or adopting a more
transactional rather than a cooperative, partnering approach to
customer/supplier relationships
• Favouring overseas competitors, potentially benefitting from lower
production costs and state ownership or subsidies
• Imposing new or extra eligibility requirements as a condition of doing
business with the customer that we may not be able readily to comply
with, or that might involve significant extra costs, thereby affecting the
profitability of doing business with them
All defence contracts have regulations covering contract terms and
pricing. A number of the Group’s contracts with the MOD are subject to
the Single Source Contract Regulations (SSCR), which the Single Source
Regulations Office (SSRO) administers. The SSRO sets the baseline
profit rate for single source contracts let by the MOD on an annual basis.
These regulations and their implementation are subject to review by the
UK Government, which could lead to lower returns for industry.
The Group may face challenges in securing contracts in new markets.
These include the risk of failing to ensure the required level of market
understanding or customer intimacy to anticipate and shape future
market requirements; failure to align approaches with customer expectations;
and a preference for, or state funding of, domestic suppliers.
The delivery of contracts may be further challenged by commercial,
legal and licensing issues which have the potential to impact bidding
success, operations, recruiting, etc.
Factors which may affect existing and new markets equally, some
of which have been evident in recent years, include:
• Unforeseen regional or global economic developments
• International conflict and subsequent impacts on global and regional
economy, trade and defence requirements
• Changes in governments resulting in changing political priorities,
geostrategic relationships and defence posture
• Change in competitor landscapes
Mitigation
The Group’s focus on defence, aerospace and
security markets, together with our geographical
presence, provides a degree of portfolio
diversification and potential up-side to changing
market dynamics. The Group pursues ongoing
dialogue with key customers to understand their
requirements, objectives and constraints, so that
we can develop the necessary customer intimacy
and remain as aligned to them as possible.
The Group monitors expenditure changes in
our markets to allow us to make the appropriate
adjustments. In the UK, we maintain a public listing,
as we believe it is an important factor in winning
contracts and retaining our business position,
particularly with government customers.
The Group has a clear business strategy to maintain
a substantial bid pipeline, both in the UK and,
increasingly, internationally. The Group bids for
contracts we consider are aligned to the Group
strategy and where we believe we stand a realistic
chance of success due to our market offering,
customer intimacy and value proposition. As
appropriate, the Group invests in the development
of our capabilities, innovation and people, to ensure
our products and services are competitive, and
meet global market and customer requirements.
The Group maintains consistent engagement with
our current and prospective customers in our
markets. Nearly all of the Group’s customers are
governments in established, stable democracies.
They face regular elections, which often lead to
changes in leadership, policy and spending priorities.
In our principal markets, we use in-house and
external advisors to monitor developments from
across the political spectrum. Instability in the
Euro-Atlantic region, the Indo-Pacific and the
Middle East will continue to create volatility within
domestic and global markets, and we keep abreast
of developments globally, working with governments
and independent advisors. When seeking business
in new territories, our due diligence includes
country risk reports and a formal approval process
requiring Board-level authorisation to proceed.
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3. Cyber and information security
Likelihood: Likely Impact: Major
A key factor for the Group’s customers is our ability to deliver secure IT and other information
assurance systems to maintain the confidentiality of sensitive information.
Risk appetite: Low
IT and information security are fundamental components in the Group’s operations; we continually review the emergence of cyber
threats, in an effort to eradicate and mitigate the risk as far as possible.
Potential impact
The impact of an IT or cyber security breach or compromise may be
loss of reputation, loss of business advantage, disruptions in business
operations or inability to meet contractual obligations.
The nature of the Group’s operations and the requirement to hold and
process sensitive and confidential information on behalf of our
customers makes the Group a target for cyber attackers. Despite
controls designed to protect such information, there can be no
guarantee that security measures will be sufficient to prevent security
attacks being successful in their attempts to breach or compromise
IT systems and misappropriate sensitive and confidential information,
or otherwise cause destructive or disruptive harm to the Group.
The Group may be seen as a threat target for attack by ’state actors’
from overseas countries because of the nature of the Group’s activities
for its government customers. In addition, failure to invest in our IT
infrastructure, for example in replacing legacy systems or introducing
new technologies, could create vulnerabilities that may lead to a breach.
The risk of loss of information or data by other means (such as physical
loss) is also a risk that we cannot entirely eliminate. Significant data
breaches or losses could lead to litigation and fines for breach of
applicable regulations such as data protection laws. This could have
an adverse effect on the Group’s operations and its ability to win future
contracts, which may affect our overall financial condition.
Mitigation
The Group continues to build on the historical
investments made to enhance our IT security,
and work has also been undertaken in boosting the
security awareness to further increase our cyber
resilience. Work on the next-generation security
platform is underway and this will be correlated
directly to future business needs for secure
collaboration and sharing of resource and knowledge,
in support of the international growth strategy.
The Group seeks to assure our data security
through a multi-layered approach that provides
a hardened environment, including robust physical
security arrangements and data resilience strategies.
We have formal security and information assurance
governance structures in place to oversee and
manage IT, cyber and information security-related
risks. We employ specialists in threat intelligence
and conduct comprehensive internal and external
testing and remediation of potential vulnerabilities.
To maintain organisational awareness around
cyber security, the Group provides cyber security
education to our staff, which includes awareness
of social engineering and insider threat. The Group
maintains business continuity plans that cover a
range of scenarios (including loss of IT availability)
and we regularly test the plans that relate to IT
and cyber security.
Principal risks and management controls (continued)
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4. Defined benefit pensions
Likelihood: Possible Impact: Major
The Group has significant defined benefit pension schemes in the UK, which provide for
a specified level of pension benefits to scheme members.
Risk appetite: Low
The Group utilises engagement with the pensions schemes’ trustees and a balanced pension management approach that
looks to mitigate and reduce the risks associated with pensions over the journey to settling the pension obligations.
Potential impact
Member and employer contributions paid into pension scheme funds
and the investment returns made in those funds over time have to meet
the cost of the defined benefit obligations.
Various assumptions underpin the level of our contributions. These
assumptions are subject to change, such as life expectancy of members,
gilt yields, investment returns, inflation, and regulatory changes.
Based on the assumptions used at any time, there is always a risk of
a significant shortfall in the schemes’ assets below the calculated cost
of the pension obligations. For example, pension liabilities can increase
due to rising life expectancy, higher-than-expected inflation rates in
the future and lower interest rates.
If the pension trustees believe that the assets in the pension schemes
are insufficient to meet pension liabilities or if the Group’s balance sheet
strength does not meet the pension trustees’ expectations, they may
require us to make increased contributions and/or lump sum cash
payments into the schemes or provide additional security from the
Group. The toughening stance of the UK Pensions Regulator may
influence our pension trustees’ perspectives. Increased contributions
or lump sum cash payments may reduce the cash available to meet our
other obligations or business needs and may restrict our future growth.
Accounting standard rules governing the measurement of pension
liabilities can lead to significant accounting volatility from year to year,
due to the need to take account of macroeconomic circumstances
beyond the control of the company. Companies, including Babcock,
do not calculate actuarial valuations used for funding on the same basis
as IFRS accounting standards. This means the future cash contributions
are difficult to derive from the Group’s IFRS balance sheet.
When accounting for the Group’s defined benefit schemes, corporate
bond-related discount rates are used to value the pension liabilities.
Variations in bond yields and inflationary expectations can materially
affect the pensions charge in our income statement from year to year,
as well as the value of the net difference between the pension assets
and liabilities shown on our balance sheet.
There is a risk that future accounting, regulatory and legislative changes
may also adversely impact pension valuations, both accounting and
funding, and, hence, costs and cash for the Group.
Mitigation
The Group’s senior management undertakes
continuous strategic monitoring and evaluation
of the assets and liabilities of the pension scheme.
Management aims to increase its engagement
with the scheme trustee chairs and with the
UK Pensions Regulator.
The pension scheme mitigates the risk of liability
increases by having investment strategies that hedge
against interest rate and inflation risk, by using
longevity swaps to limit exposure to increasing life
expectancy. The Trustees also use professional
advisors to assist in the hedging of risks.
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5. Supply chain management
Likelihood: Likely Impact: Moderate
Supply chains today face a variety of risks that can disrupt operations. The global financial
market has been marked by persistent inflation, an economic uncertainty and shifting global
tariff policies, leading to the risk of increased costs and operational challenges for suppliers.
Geopolitical tensions, including conflicts and trade tensions, can significantly disrupt supply
chains by affecting trade routes, increasing transportation costs, and causing delays in
the movement of goods. Extreme weather events can impact logistics and manufacturing
processes. Cybersecurity threats pose significant risks to data security and operational continuity.
Risk appetite: Low
Avoidance of risk and uncertainty, with low appetite for risk that is likely to have adverse consequences, and aim to eliminate
or substantially reduce such risks.
Potential impact
Potential impacts include inflation, geopolitical tensions, supply chain
disruptions, cybersecurity threats and parts obsolescence, all of which
can affect industry growth, productivity and operational stability.
Persistent inflation poses risks to industry growth and productivity.
Tight labour markets with ongoing wage inflation, fluctuating energy
prices, constrained global supply chains and heightened demand
contribute to economic uncertainties. Global tariff adjustments and
perceived “trade wars” are increasing input costs and adding complexity
to cross-border procurement. These conditions can also stress
suppliers, impacting their ability to meet contractual obligations and
maintain operational stability.
Ongoing global conflicts and rising tensions in regions such as the
Middle East, Eastern Europe and the Taiwan Strait pose significant risks
to the global economic outlook. The evolving landscape of global trade,
marked by reciprocal tariffs and trade wars, adds further uncertainty
to international relations. The United States’ influence on the geopolitical
landscape remains uncertain as it navigates these complex challenges.
These disruptions impact oil markets and commodities, potentially
introducing additional inflationary pressures.
Supply chain disruptions can arise from various factors including natural
disasters like earthquakes, hurricanes or floods that damage infrastructure
and cause transportation delays. Industrial actions, such as strikes,
can severely disrupt business operations. Additionally, global supply
constraints can jeopardise the ability to secure supplies within agreed
lead times, potentially resulting in missed delivery schedules.
Cybersecurity threats present notable risks to supply chains, as increasingly
sophisticated attacks, such as ransomware and AI-powered cybercrime
can disrupt operations and compromise sensitive data. Weak security
protocols, reliance on sub-tier suppliers and outdated technologies
can also increase these vulnerabilities.
Maintaining older customer assets presents challenges when key
parts become unobtainable due to high costs or extended lead times,
impacting the ability to ensure timely repairs and continued functionality.
Mitigation
Effective controls are essential for reducing
strategic procurement risks, ensuring compliance,
safeguarding assets and enhancing operational
efficiency. The Group’s identified risks are managed
through the Supply Chain management risk register
and governance process.
To minimise the impact of market volatility, inflation
and global tariff charges, the Group aims to negotiate
flexible contract terms, monitor supplier performance
and strengthen our supplier relationships. The Group
conducts ongoing surveillance of financial alerts
within the supply chain using risk resilience and
credit monitoring tools.
To moderate geopolitical risks, including those
arising from global trade wars and tariff adjustments,
the Group monitors supplier business alerts and
geopolitical developments using risk resilience tools.
The Group also conducts supplier information
management and due diligence, including verification
of new suppliers and periodic revalidation to review
commitments to ethical behaviour and compliance
with international regulations.
To alleviate interruptions caused by natural disasters,
logistics issues and economic disruptions, we
employ several controls. These include continuous
monitoring of supplier disruption alerts utilising
risk resilience tools and conducting supplier
quality assurance processes, including audits
and assessments of supplier business maturity
and resilience.
Controls include continuous monitoring of cyber
alerts within the supply chain using risk resilience
tools, tracking incidents in collaboration with the
Group’s Security Operations Centre and maintaining
a dedicated supplier cyber incident hotline for
self-reporting cyber incidents. These measures help
identify and mitigate cybersecurity vulnerabilities,
such as malware and ransomware attacks, and
facilitate timely responses to potential threats.
The Group manages parts for older assets through
obsolescence management terms in contracts,
our risk management process and supplier
performance monitoring.
Principal risks and management controls (continued)
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6. Operational resilience and business
interruption
Likelihood: Possible Impact: Major
The Group provides critical support to governments and commercial customers, requiring a
high level of resilience in operational systems and processes. The Group operates in an
increasingly volatile, uncertain and complex environment, where a diverse range of internal
and external threats could disrupt our business, affecting our ability to operate safely,
effectively and to the high standards expected by our customers, regulators and partners. To
address these challenges, the Group continues to enhance its Operational Resilience
programme, ensuring it remains capable, adaptable, and aligned to mitigate multiple forms of
business interruption.
Risk appetite: Low
Ineffective operational resilience arrangements can undermine safety, financial stability and regulatory compliance, as well as
damage our reputation. Given the critical nature of our operations, Babcock seeks to eliminate risks where possible and applies
stringent controls to mitigate remaining risks to as low as reasonably practicable (ALARP).
Over the past year, the Group has made significant progress in strengthening its Operational Resilience programme. A new
Operational Resilience Strategy and Framework has been developed to provide greater consistency, adaptability and capability
across the organisation. This is supported by the launch of a new Operational Resilience Policy, ensuring a clear governance
structure and accountability, as well as a Requirements and Guidance Manual to support Sectors/DRCs in implementing
Operational Resilience elements within their respective areas and drive standardisation.
Additionally, Key Control Indicators (KCIs) for Operational Resilience have been identified, enabling more effective monitoring and
risk mitigation. To further drive these improvements, a dedicated Operational Resilience Working Group has been formed, supported
by Operational Resilience Leads across Sectors and DRCs, ensuring a coordinated approach to resilience across the Group.
Potential impact
Operations can be disrupted by the loss of key dependencies,
including people, infrastructure, utilities, information, technology
and supply chain provisions. In highly regulated domains,
approvals to operate are critical dependencies, requiring robust
resilience measures to maintain compliance.
Following any safety or operational incident, the Group’s ability
to respond and recover effectively is vital to minimising operational,
financial and reputational consequences. Ineffective response
and recovery measures can amplify business disruption, leading
to increased costs, regulatory scrutiny and potential penalties.
Without strong resilience arrangements, financial and regulatory
repercussions could be severe. Business interruptions can result
in significant revenue losses, regulatory non-compliance and
reputational harm, impacting long-term brand value, market
position and future business opportunities.
Mitigation
The Group recognises the importance of an integrated
and robust Operational Resilience programme. The Group
maintains established resilience disciplines – including
Business Continuity, Emergency Response, and Crisis
Management – to protect its operations. Across Sectors,
DRCs and sites, various emergency response and business
continuity plans are in place, aligned to the specific risks
and regulatory requirements of each operational area.
With the introduction of the new Operational Resilience
Strategy and Framework, The Group is focused on
increasing standardisation, alignment and proactive
resilience activities across the Group. The identification
of Key Control Indicators (KCIs) provides clear metrics
to measure and enhance resilience performance. The
formation of the Operational Resilience Working Group and
Leads across the business ensures stronger governance,
collaboration and accountability for resilience initiatives.
The Group’s IT services continue to provide secure
technology and access to information, supported by a
range of IT Disaster Recovery Plans accredited to the ISO
22301 standard, ensuring critical systems and data can
be restored within agreed recovery time objectives.
To mitigate reputational risks, the Group’s crisis
communication protocols remain embedded within the
organisation. These protocols define clear processes for
internal and external communications, ensuring information
is shared accurately, transparently and in a timely manner
with stakeholders, customers and regulatory bodies.
Additionally, operational resilience plans and procedures
continue to be tested through regular exercises and drills,
conducted in collaboration with key stakeholders and relevant
authorities. These exercises ensure that resilience capabilities
remain effective, well-practised and continuously improved.
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7. Financial resilience of the Group
Likelihood: Very unlikely Impact: Major
The Group is exposed to a number of financial risks, some of which are of a macroeconomic
nature (for example, foreign currency and interest rates) and some of which are more specific
to the Group (for example, liquidity and credit risks).
Risk appetite: Low
The Group recognises the adverse effects of the financial resilience risk on the balance sheet, and actively manages the risk via
the capital allocation policy, substantial committed debt facilities and maintaining an investment-grade credit rating, allowing access
to debt capital markets. However, this risk cannot be eliminated and will always require management.
Potential impact
A lack of financial resilience may hinder us in raising debt funding
to invest in existing or future business. The weakness also may cause
our existing banks to increase the cost of our funding. If our debt is
denominated in a currency other than Sterling, movements in exchange
rates may make that debt more costly when we repay it.
Customers and/or suppliers may question our long-term sustainability
if we have a weak balance sheet. This may tighten the terms of business
on which they are prepared to contract with us or, in the extreme,
cause them to not award work to Babcock due to their perception
of risk. Credit rating agencies may downgrade our rating, which could
increase our cost of borrowing.
The lack of financial resilience may trigger certain pension scheme
financial thresholds, requiring us to allocate further resource to
the schemes.
The Group could face capital allocation constraints and consequently
have reduced capital to invest in the business to meet all our obligations
or to pay a dividend.
In addition, if companies working in the defence or nuclear sectors
were deemed not suitable for investment by certain investment funds
(eg due to extremely strict ESG policies) the cost and/or availability
of capital to the Group could be adversely affected.
Mitigation
The rationalisation of the Group’s portfolio,
raising proceeds from disposals, and ongoing
improvement in trading performance has
strengthened our balance sheet, resulting in the
only material debt of the Group being long-term
Eurobonds, which are uneconomic to repay.
In respect of immediate liquidity, the Group
has a committed bank revolving credit facility
of £775 million which was not drawn as of
31 March 2025.
The Group is proactive in its dealings with credit
rating agencies and lenders. The Board reviews the
financial position of the Group on a monthly basis
against the Board-approved three-year plan.
The Group has a very proactive ESG agenda and
regularly communicates Group activities to assist
in more-informed investment decisions by
providers of capital.
Principal risks and management controls (continued)
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8. Safety, health and environmental protection
Likelihood: Unlikely Impact: Severe
The Group’s operations entail the potential risk of significant harm to people and the planet,
wherever we operate across the world.
Risk appetite: Low
For moral, financial and reputational reasons we should keep the risk exposure as low as reasonably practicable.
Potential impact
Many parts of the Group’s business involve colleagues and contractors
working in potentially hazardous environments, including work with
hazardous materials, high-energy systems and in challenging locations.
Furthermore, many of the activities that we undertake are in high-hazard
industries with inherent risk of harm, such as aerial emergency services
and heavy industrial production including shipbuilding. The risks associated
with the Group’s activities and workplace can cause harm to our people,
those affected by our operations and the environment; we work
to minimise the risk exposure to as low as reasonably practicable.
The Group has moral, regulatory and legal obligations to prevent harm
to people and the planet, and there could be significant impacts if we
fail to reach the standards and mandated requirements to adequately
mitigate safety, health and environmental risks. Accidents and debilitating
health conditions can have major, long-term impacts on the lives of
those directly affected, and on their families, friends, colleagues and
community. Releases of harmful chemicals and emissions can have
significant effects on our local environments and wildlife. The Group
may face criminal and civil prosecution, which could result in substantial
penalties and fines (some of which are uninsurable); and there may also
be serious damage to our reputation with both the public and with our
customers (whether justified or not). The Group could be prevented
from operating due to colleagues being unavailable for work, workplaces
being unusable, investigations being conducted, or if regulatory
approval, permits and certification are withdrawn. These could
potentially lead to contractual penalties due to loss of productivity
or inability to deliver the contract, which could lead to a loss of business
or future opportunities.
These impacts could occur if we cause or contribute to an incident
due to a failing on our part; or it is found that we have failed to meet
the requirements to adequately mitigate these risks, even if an incident
did not occur. These could be caused by failing to prevent critical
equipment failure; inadequate information and communication; poor
training and supervision; or the inadequate management of change
and learning from previous events.
Mitigation
Harm to individuals and the environment may arise
from issues with the working environment, the tools
and equipment in use, people’s behaviours or the
organisation and its processes. Many situations have
elements of all of these, so our mitigations strive
to work across these areas to reduce the probability
of occurrence and the severity of the impact.
Safety, health and environmental protection is our
priority with a low tolerance for risk of harm. It has
oversight by the Babcock Board and Executive
Committee through monthly review of events and
monitoring of leading and lagging performance
indicators, and a quarterly Executive Safety
Committee where performance and improvement
actions are reviewed in-depth. The function is
centrally led, with teams in each Sector and DRC
working under the direction of the Group Director
and the Corporate Safety Leadership Team to
support operations to implement improvements
in safety, health and environmental protection
performance through both central and local
improvement plans. Induction and task-specific
training builds competency of personnel, health
surveillance and support programmes assist workers
to protect themselves in the short and long term,
whilst at home, on sites and working away. The
Group’s Home Safe commitments can be applied
across all activities to support our people to protect
themselves, one another and the environment, and
our communications and behaviours programmes
are developing an engaged culture of openness
and fairness.
The Group’s global management system enables
reporting and investigation of all events, near misses,
observations and findings to identify and address
issues and causes, and to share lessons. The
development of standardised processes and ways
of working provide continuous improvements and
greater consistency and quality across the Group.
These mitigations are integral to our management
systems, which are delivered and certified to
international standards, and assured through
a programme of internal and external assurance
activities. These mitigations enable everyone
to go ‘Home Safe Every Day’.
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9. Climate and environmental sustainability
Likelihood: Possible Impact: Major
Climate change is impacting every corner of the earth and poses an existential threat to global
stability. Sustainability is an integral part of the Group’s corporate strategy and we are working
hard to address the climate crisis and minimise the impacts of our operations.
Risk appetite: Low
Across the Group’s global operations we are working to continually improve our understanding of climate and environmental risks,
and we are committed to mitigating risks, unlocking opportunities and reducing our environmental impacts.
Potential impact
Climate-related risks may materialise and cause a wide range of
adverse impacts to the Group over the short, medium and long term.
Unmitigated risks are forecast to deliver financial, commercial,
reputational and operational impacts. The severity of the impacts varies
depending on the climate scenario and a range of local and macro
factors. Climate and environmental sustainability risks to the
organisation have been categorised into physical and transition risks.
Physical risks related to climate change can be considered as shocks
and stresses:
• Shocks are generally short-term impacts from extreme weather
events such as extreme heat, flooding, wildfires, hurricanes etc
• Stresses are generally longer-term risks such as sea level rise,
global rise in temperatures and biodiversity loss.
Transition risks relate to risks associated with the transition to a
low-carbon economy, including policy and legal changes, technological
advancements and market movements to address mitigation and
adaptation requirements. Transition risks are commonly broken down
into four aspects:
• Policy and legal risks are associated with climate policies, carbon pricing
and regulations that restrict negative contributors to climate change
• Technology risks are driven by the development of new technology
to support a low-carbon economy
• Market risks are driven by economic and social changes that impact
supply and demand, such as changing consumer preferences around
supporting fossil fuels
• Reputational risk refers to the impact of negative public perceptions
of high-emissions sectors or organisations which are not deemed
to be supporting the Net Zero transition.
Mitigation
Within each of our international entities, The Group
is regulated by, and adheres to, increasing levels of
national and international climate-related legislation,
as well as strict disclosure requirements pertaining
to key sustainability themes such as environmental
protection, employee safety, community
engagement, commercial integrity and responsible
procurement. The Group’s workforce is protected
by the required insurance and standards, and it will
continue to be fundamental for us to provide a safe
environment for all the Group’s employees and
future generations. Climate and environmental
sustainability risks are recorded by the business
on a quarterly basis, with mitigation plans
developed to mitigate risks.
Whilst the Group’s approach to climate risk
management is currently at a lower level of maturity,
our Climate Risk Working Group has been working
with industry specialists over the past 12 months
to refine and enhance our approach. Following
investigations, we have refined our approach to the
identification of physical and transitional climate-
related risks and opportunities, and we shall continue
to embed this approach into our Enterprise Risk
Management system during FY26.
The Group’s new Sustainability Strategy provides
clear direction to the organisation, ensures we have
the resource in place to deliver on our sustainability
targets, and positions Babcock to effectively address
risks, unlock opportunities and deliver the Net
Zero transition.
Principal risks and management controls (continued)
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10. Corporate technology disruption
Likelihood: Unlikely Impact: Major
The Group has identified three main attributes to potential technological disruption: the digital
change agenda, both within our customers and internal to the Group; our approach to data
management; and finally the disruption of new technology offerings.
Risk appetite: Low
Given the materially adverse nature of digital and data risks, the Group looks to recognise and eradicate the emergence of risks
to operations where possible, hence the risk appetite being set at low. Exploiting new technology in an appropriate manner can
open new markets. However, the Group surveys the market for new technology to develop into new opportunities. These are
assessed for benefit individually and, if deemed of interest, integrated into the Group’s research and development programme
and managed with project management.
Potential impact
Failure to respond to developing trends may reduce opportunities to
augment existing contracts or build new commercial offerings. Digital
change is our response to the advancement of modern IT and solutions.
The Group’s ability to be responsive to these developments, in a
commercially sensitive way, has a material impact on our ability to
unlock new business and enhance existing contracts. The Group’s
products/services will lag behind competitors and customer
requirements if we are unable to incorporate appropriate data and
technology-enabled capabilities. If the Group lags behind in our ability
to embrace change and exploit a range of new products and
capabilities, then staff retention may also be an issue, exacerbating
the risk of losing important knowledge.
Mitigation
Focus is retained on developing key programmes
to increase the resilience and effectiveness of our
corporate IT solutions, information management
and data analytics. The Group is also continuing
to work in partnership with our key suppliers to
understand the potential of new technologies on
the market, and to develop and maintain roadmaps
for our key products and platforms. This includes
understanding how best to safely exploit relevant
emerging technologies such as machine learning,
automation and artificial intelligence.
11. Resourcing, retention and skills
Likelihood: Likely Impact: Moderate
The Group operates in many specialised engineering and technical domains, which require
appropriate skills and experience.
Risk appetite: Medium
Avoidance of the risk would increase costs through significant wage inflation, which would have an industry-wide impact,
and require over-resourcing and potential negative workforce engagement and retention. Some risk is accepted given the high
cost of avoidance and the potential mitigations within the Group’s control, such as sharing capability across our global business
and compensating for skills shortages in particular areas through investment in training and early careers.
Potential impact
The Group’s business delivery and future growth depend on our ability
to recruit, develop and retain an experienced, highly skilled and diverse
leadership team and workforce across a broad range of disciplines.
A number of the competencies and skills we rely on are deeply
specialist and in scarce supply in the territories we operate in.
This is exacerbated by the additional restrictions related to our sector
including security and nationality. Changes to visa requirements have
also impacted our ability to easily transfer people from EU nations and to
deploy our people internationally. If the Group has insufficient qualified
and experienced employees, this could impair our service delivery to
customers or our ability to pursue new business, with consequent risks
to our financial results, growth, strategy and reputation, and the risk
of contract claims. Industry salary benchmarks are increasing due to
both scarcity of supply and increased demand, which could impact
contract profitability.
Mitigation
The Group has a People Strategy, which is being
delivered through our people programme, led by
the Group’s Chief People Officer. This programme
is informed by workforce planning and includes
the upskilling of our workforce to meet future
requirements; reinforcing of leadership capability;
enhancing our ability to attract talent; investment
in early careers; engagement and reward strategies
to improve retention; and building better career
development opportunities for our colleagues.
The Group has a number of specific targeted
programmes running to drive attraction and
retention of a more diverse pool of talent, and
to deliver accelerated development to our people
to enable them to progress their careers and add
more value to the Company and our communities.
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12. Compliance with legislation or other regulatory
requirements
Likelihood: Very unlikely Impact: Severe
The Group’s businesses are subject to the laws, regulations and restrictions of the many
jurisdictions in which we operate.
Risk appetite: Low
As a diverse global organisation, the Group operates in multiple highly regulated industries for customers with specialist requirements.
The compliance landscape is vast and complex with many regulations, legal obligations, contractual and certification requirements
in each area including export controls, data protection and site licences. The laws and regulations that the Group is subject to
include anti-bribery laws, import and export controls, tax, procurement rules, human rights laws, and data protection regulations.
Potential impact
The laws and regulations that we are subject to include, but are not
limited to, anti-bribery laws, import and export controls, tax,
procurement rules, human rights laws, and data protection regulations.
Failure to maintain compliance with applicable requirements could result
in fines and criminal prosecution; the removal of a licence to operate;
reputational damage; cost of rectification; debarment from bidding;
loss of access to markets; loss of substantial business streams; possible
damages claims; and opportunities for future business. If an applicable
law or regulation changes, it may cause the Group substantial
expenditure to comply, which may not be recoverable (either fully
or at all) under customer contracts.
Compliance with some regulatory requirements is a precondition
for being able to carry on a business activity at all, for example in our
Nuclear business and our Aviation business. Given the nature of the
Group’s customers and the markets in which we operate, as well as the
services that we provide, the Group believes that our reputation, not
only in terms of delivery but also in terms of behaviour, is a fundamental
business asset.
Failings or misconduct (perceived or real) in dealing with a customer
or in providing services to them or on their behalf could substantially
damage our reputation with that customer or more generally.
Mitigation
The Group maintains internal policies and procedures
to ensure compliance with all applicable laws and
regulations. The Group has suitably qualified and
experienced colleagues and expert external advisors
to assist on regulatory compliance. The Group’s
management systems comprise competent
personnel with clear accountabilities for operational
regulatory compliance.
Senior management at Group and sector level are
keenly aware of reputational risks, which can come
from many sources. The Group’s Code of Conduct,
together with our Ethics policy, sets out the clear
expectations that we have of our employees. We
seek to reinforce these values with all employees
through a number of different processes, for
example our training. We encourage all our
employees to use our whistleblowing reporting
lines if they see evidence of behaviour which
is not in keeping with our values.
The Group holds indemnities from the UK Nuclear
Decommissioning Authority and the UK MOD for
nuclear risks to protect against liability for injury or
damage caused by nuclear contamination or incidents.
The Board monitors and reviews all reports and
their investigations.
13. Acquisitions and divestments
Likelihood: Possible Impact: Moderate
The Group has built its core strengths organically and through acquisition. Decisions to acquire
companies, as well as the process of their acquisition and integration, are complex, time-consuming
and expensive. If the Group believes that a business is not ‘core’, we may decide to sell that
business.
Risk appetite: Medium
The Group will continue to review potential opportunities within the market in a considered and measured way; M&A activity
continues to be inherently high risk. Future M&A activity will be undertaken only where it is possible to reduce inherent risk
to an acceptable level when balanced against potential rewards and opportunity.
Potential impact
If the Group acquires companies, we may not realise the financial
benefits of the acquisition as expected, due to poor integration
execution or to acquisition business cases relying on market conditions
or other business assumptions that subsequently do not materialise,
challenging the logic of the acquisition decision. Those companies that
the Group considers to be non-core, and therefore disposal candidates,
may become distracted or demotivated or lose key employees, which
may lead to poor performance whilst also undermining their value
to their customers and a potential buyer.
Mitigation
While the Group’s focus remains primarily on
operational execution, we continue to review
potential acquisition opportunities that align
with our strategy. We will work to enhance our
acquisition and integration capability so that we
are ready at the appropriate time in the future.
Principal risks and management controls (continued)
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14. Engineering integrity, product
technology disruption and product safety
Likelihood: Likely
N
Impact: Major
N
The Group has a corporate and legal responsibility to ensure the technical products and
services we develop and/or deliver to our customers and end-users are legally and
contractually safe, compliant, secure and high quality.
Risk appetite: Low
As a complex systems developer, integrator and provider of critical operations, in-service support and training across all defence
sectors and civil emergency operations, the Group’s customers and end-users must have confidence in the integrity of our
technical products and services. The Group’s technical risk management frameworks must be rigorous as well as adaptable.
The Group works to develop our technical capabilities and secure access to advanced technologies, to position ourselves and
our customers well for the future. The Group also actively identifies, understands and manages the risks and opportunities as
a responsible developer and adopter of rapidly emerging advanced technologies.
Potential impact
It is important that the Group, our customers and shareholders
have confidence that all our technical products (goods and
services) have high levels of technical integrity, meaning
that they are safe for our customers and end-users to own,
operate, maintain, store and dispose of over their life, perform
as they are intended to, are secure from physical and cyber
threats, and are high quality to ensure that they perform to
expectations. Without that confidence, we expose ourselves
and others to potentially significant safety, compliance,
financial, reputational and legal risk.
Safety risks can materialise if our technical products cause
harm to people or the environment. Financial risks can result
from re-work and product recalls as well as from non-
compliance. Legal risks, including to our licence to operate
in regulated areas, can arise from Product Safety issues or
contractual issues associated with a non-compliant product.
Reputational issues can arise from any of these, or from poor
quality and/or poor performance of products, for example,
if our products do not meet customer expectations and
requirements around capability, reliability or availability
(among others).
The nature of the complex technical work the Group
undertakes also means that we need to be embedded in the
forefront of advanced technology deployment. However we
must do this in a responsible way. This means identifying,
understanding and managing the uncertainties and potential
risks and opportunities associated with rapidly evolving
technologies. These considerations include areas such as
privacy, ethics, sustainability, data and information security,
technical integrity, product safety, cost and compliance.
Mitigation
To mitigate the risks and successfully deliver our projects and
technical products, the Group requires a network of suitably
qualified and experienced people, within our teams and
across our extensive network of partners and supply chains,
working with access to the appropriate processes, materials,
tools and systems, and within enabling organisations with
appropriate accountabilities and technical governance and
assurance systems in place.
Accordingly, the Group is implementing a rigorous Technical
Risk Management framework consisting of the following
elements:
1. The Group’s Technical Governance & Assurance (TG&A)
Framework ensures we are identifying, understanding and
managing technical risk to within acceptable levels
through independent technical assurance management
systems, with a focus on Product Safety, Product Security,
Product Quality and Responsible AI Use, and reporting
across a range of technical performance metrics to
enhance our understanding of the technical risk profile
across our Company, and to inform and prioritise controls
and mitigations.
2. The Group has an increased focus on the development of
our engineering people, processes and tools, including a
global set of engineering policies and processes, common
enterprise and engineering digital tools and a tailored
capabilities and skills matrix supported by capability-
building initiatives across critical skills needs such as
systems engineering.
3. The Group is putting an increased focus on ensuring
projects and contracts have the required resources and
organisational capacity/capability through an Independent
Technical Authority network, designing effective
engineering organisations and operating models,
and managing engineering resources effectively and
efficiently across the organisation including through
technical Strategic Workforce Planning (SWP).
4. To ensure the Group understands and can access relevant
advanced technologies, our Technology function has
been strengthened, including through the implementation
of a Technology Horizon Scan activity; strengthened and
focused engagement with academia, research
establishments and SMEs, and expanding our reach
back into our global footprint, to develop our advanced
technology capability in a coordinated way that draws
on best practice globally.
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Going concern and viability statement
Overview
The Directors have undertaken reviews of the business financial
forecasts, in order to assess whether the Group has adequate
resources to continue in operational existence for the
foreseeable future and as such can continue to adopt the going
concern basis of accounting.
The Directors have also looked further out to consider the
viability of the business, to test whether they have a reasonable
expectation that the Group will continue in operation and meet
its liabilities as they fall due.
For assessing going concern, the Board considered the
12 month period from the date of signing the Group’s financial
statements for the year ended 31 March 2025. For viability,
the Board looked at a five-year view as this is the period over
which the Group prepares its strategic plan forecasts.
The use of a five-year period provides a planning tool against
which long-term decisions can be made concerning strategic
priorities, addressing the Group’s stated Net Zero target and
climate-related risks and opportunities, funding requirements
(including commitments to Group pension schemes),
returns made to shareholders, capital expenditure and
resource planning.
The annually prepared budgets and forecasts are compiled
using a bottom-up process, aggregating those from the
individual business units into sector-level budgets and
forecasts. Those sector submissions and the consolidated
Group budget and forecasts are then reviewed by the Board
and used to monitor business performance.
The Board considered the budgets alongside the Group’s
available finances, strategy, business model, market outlook
and principal risks. The process for identifying and managing
the principal risks of the Group is set out in the Principal risks
and management controls section on page 104. The Board also
considered the mitigation measures being put in place and
potential for further mitigation.
The Board considers that the long-term prospects of the Group
underpin its conclusions on viability. As outlined in our strategy,
business model and markets summaries on pages 8, 12 and 22
of this report, our prospects are supported by:
• a diverse portfolio of businesses based on well-established
market positions, focused on naval engineering, support and
systems, and on critical services in our core defence and civil
markets. In FY25, 74% of Group sales were defence-related
and 26% civil;
• a geographically diverse business with a high proportion
of sales to governments and other major prime defence
contractors. In FY25, 71% of sales were to defence and civil
customers in the UK, and 29% were international;
• long-term visibility of sales and future sale prospects through
an order backlog of £10.4 billion as at 31 March 2025, including
incumbent positions on major defence programmes; and
• market positions underpinned by a highly skilled workforce,
intellectual property assets and proprietary know-how, which
are safeguarded and developed for the future by customer
and Group-funded investment.
Available financing
As at 31 March 2025, net debt excluding operating leases was
£(101.2) million and the Group therefore had liquidity headroom
of £1.4 billion, including net cash of £0.6 billion and undrawn
facilities of £0.8 billion. These facilities are considered more
than adequate to meet current and other liabilities as they fall
due, and support the Group’s negative working capital position
largely arising from securing customer advances ahead of
contract work starting. All of the Group’s facilities mature during
the viability period, and therefore, in assessing liquidity in future
periods, we have assumed that it will be possible to re-finance
the Group’s facilities at current market rates.
As of June 2025, the Group’s facilities and bonds totalling
£1.6 billion were as follows:
• £775 million revolving credit facility (RCF), of which
£45 million matures on 28 August 2025 and £730 million
matures 28 August 2026
• £300 million bond maturing 5 October 2026
• €550 million bond, hedged at £493 million, maturing
13 September 2027
• One overdraft facility totalling £50 million
The RCF is the only facility with covenants attached. The key
covenant ratios are (i) net debt to EBITDA (gearing ratio) of 3.5x
(ii) and EBITDA to net interest (interest cover) of 4.0x. These
are measured twice per year – on 30 September and 31 March.
The RCF lenders are fully committed to advance funds under
the RCF to the Group, provided that the Group has satisfied the
usual ongoing undertakings, and the creditworthiness of the
Group’s relationship banks is closely monitored. Based on their
credit ratings, we have no credit concerns with our relationship
banks. Given the importance of the RCF to the Group’s liquidity
position, our assessments of going concern and viability have
tested the Group’s gearing ratio, interest cover and liquidity
headroom throughout the period under review up to their
current maturity dates and to the end of the five-year plan,
assuming renewal of the RCF with consistent covenants to
those currently applied.
Base case scenario
The base case budgets and forecasts show significant levels
of headroom against both financial covenants, and liquidity
headroom based on the current committed facilities outlined
above. That base case largely assumes we maintain our incumbent
programme positions if re-let during the five-year period, with
margin recovery if they are currently below the Group average.
Many opportunities available to the Group, where we do not yet
have high conviction of securing the work, have been excluded
from the base case to maintain a degree of caution.
The base case assumes no further reshaping of the business
portfolio, so it is not dependent upon any future cash proceeds
from divestments. It also reflects pension deficit contributions
in excess of income statement charges of around £20 million
in each period of the model.
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Reverse stress testing of the base case
To assess the level of headroom within the available facilities,
a reverse stress test was performed to see what level of
performance deterioration against the base case budgets
and forecasts (in both EBITDA and net debt) was required
to challenge covenant levels.
Of the remaining measurement points within the available facility
period, the lowest required reduction in forecast EBITDA to hit
the gearing covenant level was £397 million and the lowest
net debt increase was 920%. The lowest required reduction
in forecast EBITDA to hit the interest cover covenant was
£363 million. Given the mitigating actions that are available
and within management’s control, such movements are not
considered plausible.
Severe but plausible downside scenarios
The Directors also considered a series of severe but plausible
downside scenarios which are sensitivities run against the base
case budget and forecasts for the duration of the assessment
period. These sensitivities include – separately – a reduction in
bid pipeline closure (business winning), a deterioration in large
programme performance across the Group, a deterioration in
the Group’s working capital position, and a regulator-imposed
cessation in flying two of the largest aircraft fleets in the Group.
All of these separate scenarios showed compliance with the
financial covenants throughout the period.
As with any company or group, it would be possible, however
unlikely, to model individual risks or combinations of risks that
would threaten the financial viability of the Group. The Board
has not sought to model events where it considers the likelihood
of such events not to be plausible. In preparing a combined
severe but plausible (SBP) downside case, the Board
considered the feed of individual risks from the sectors covering
the above sensitivities. Overall there were c.90 profit and cash
flow risks identified.
A simple aggregation of all of these risks is not considered
plausible as the Group operates businesses and contracts which
run largely independently of each other, albeit with a relatively
small number of customers within each geography.
These identified risks were seen as ‘sector independent’ (ie
there is no direct read across from one sector to another). The
Board decided to reduce the aggregation of the risks by 25% to
reflect the implausibility of all such risks fully crystallising within
the same period.
If such a severe downturn were to occur in the Group’s
performance, the Board would take mitigation measures
to protect the Group in the short term. Such profit and cash
mitigation measures that are deemed entirely within the control
of the Group and identified as part of the sector budgeting
exercise have been included in the SBP scenario (eg cancelling
pay rises and bonus awards, curtailing uncommitted capital
expenditure and operational spend including R&D and
other investment).
Despite the severity of the above combined SBP scenario,
the Group maintained a sufficient amount of headroom against
the financial covenants within its borrowing facilities, and
sufficient liquidity when compared against existing facilities
(both before and after mitigation measures).
Going concern assessment and viability
conclusion
Based on our review, the Directors have concluded that the
Group has adequate resources to continue as a going concern
for at least 12 months from the date of these financial
statements. The Directors have not identified any material
uncertainties concerning the Group’s ability to continue as
a going concern.
As such, these financial statements have been prepared on the
going concern basis. The Directors do not believe there are any
material uncertainties to disclose in relation to the Group’s ability
to continue as a going concern.
In concluding on the financial viability of the Group, having
considered the scenarios outlined above, the Directors have
a reasonable expectation that the Company and the Group
will be able to continue in operation and meet all its liabilities
as they fall due up to March 2030.
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Chair’s introduction
to Governance
Dame Ruth Cairnie
Chair
Dear fellow Shareholder
I am pleased to start my introduction to our Governance report
by saying that we have continued to make significant progress
over the year.
The Board’s governance focus through FY25 has been to
continue delivery of our control enhancement plan and to drive
improvements in operational delivery. Our progress made over
several years provides the solid platform from which we can
now develop the growth opportunities we see before us,
as well as the tools to navigate the uncertainties arising in
an increasingly turbulent world.
Risk and controls
Since FY21, we have been focused on improving our risk
management and control environment. Over this time, we have
made significant steps to achieve our ambition to be in line with
the best-in-class peer FTSE companies. We have invested
in our risk management capability, establishing a dedicated
function to improve the quality of risk data and assurance
evidence for both controls and overall risk performance.
We have designed and implemented our Blueprint
Fundamentals, 15 key controls covering contract reviews,
bid reviews and financial reporting controls.
Statement of compliance
The Board confirms that for the year ended 31 March 2025,
the principles of good corporate governance contained in
the 2018 UK Corporate Governance Code (the Code) have
been consistently applied and all provisions complied with.
Further information on the Code can be found on the
Financial Reporting Council’s website at: www.frc.org.uk.
We have structured this Governance report to describe
how the Company has applied the Code principles in line
with its five categories:
● 132-138 Board leadership and company purpose
● 139 Division of responsibilities
● 140-145 Composition, succession and evaluation
● 146-149 Audit, risk and internal control
● 150-177 Remuneration
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126 Babcock International Group PLC Annual Report and Financial Statements 2025

In FY25, we have been building on these and other
improvements to prepare for the changes introduced by
the Financial Reporting Council in its 2024 UK Corporate
Governance Code. Provision 29 of the new Code will require
the Board to identify material controls over financial and
non-financial reporting as well as our principal risks, and then
to provide a declaration of effectiveness as at our balance
sheet date.
In response, we have undertaken an exercise led by the Audit
Committee to review our material transactional and broader
framework controls. We have made an initial identification of our
material controls, which we will continue to refine, and are now
building out our control activities as well as defining the testing
and assurance plan. We aim to have our process designed and
operational well in advance of the implementation of Provision
29 in FY27.
As well as working on our risk management and internal controls
programme, the Audit Committee has led on the appointment
and on-boarding of our new auditors, Forvis Mazars. I would
like to thank the Audit Committee for all their hard work
in ensuring a smooth transition.
Growth and stakeholder engagement
Now that the changes we have implemented over the last five
years are embedded in the organisation, we can increasingly
focus on our strategy for growth. We believe that we are well
positioned in markets that show sustainable growth potential.
Over the year, we have developed our strategy by refining our
strategic framework, against which we can evaluate the
Company’s growth opportunities. Building on this, we are now
enhancing our approach to monitoring our strategic progress.
This will be an important aid to help us navigate an increasingly
uncertain world with transparency and discipline.
As we develop our strategy and look at growth opportunities,
the interests of our stakeholders are an important consideration.
We engage with our stakeholders in numerous ways, including
face-to-face meetings with shareholders, multiple channels to
hear from colleagues such as our site visits, our Director
designated for workforce engagement, and our Global People
Survey. In respect of our customers, we understand their
priorities through the direct contact we have with them as well
as the regular business updates that we receive.
Board membership and effectiveness
At a time of uncertainty, a critical driver of a board’s
effectiveness is how well it works together to address new and
unforeseen issues, effectively harnessing the skills of all its
members. This was a particular focus of our Board review
during last year, which was externally led. The review
concluded that the Board had continued to operate effectively
with a collegiate and transparent culture, and made some
helpful recommendations about how to enhance further the
Board’s performance. We will provide an update on progress
against these recommendations in next year’s report.
There were no changes to Board membership during the year.
Looking ahead, after seven years of service Lucy Dimes has
decided to retire from the Board and will not seek re-election at
this year’s AGM. I would like to thank Lucy for her commitment
and advice over the last seven years and wish her well for the
future. We will be looking to appoint a new Non-Executive
Director and a recruitment process is underway.
People and culture
Babcock is a people business. For us to succeed, we must
ensure that we have the right people, with the right skills
and experience, to deliver the products and services that our
customers require. Over the year, the Board agenda (via the
Nominations Committee) includes a number of sessions
focused on different aspects of our People Strategy, including
the restructuring of our People function and its priorities,
to ensure its alignment with the priorities of our businesses.
This year, in response to the Global People Survey findings,
we have focused on leadership and talent development.
The development programme for the Senior Executive team
has been refreshed and will be used as a template for a
consistent approach to leadership and its development
throughout the Group. This new approach will give us a closer
view of the talent we have across the organisation and naturally
feeds into our succession planning, which has been significantly
enhanced during the year.
Sustainability
ESG remains important to our stakeholders: our people want to
work for responsible employers, our customers want help in
delivering their ESG targets, and our shareholders want to invest
in a sustainable business. In FY21, we set ourselves a target to
achieve Net Zero carbon emissions for our estate, assets and
operations by 2040. This year, we decided the time was right
to review our strategy to deliver this and other sustainability
objectives, as our approach had been evolving with the
inclusion of additional commitments and targets. Recognising
the importance of simplicity and prioritisation, we have updated
the strategy to focus on just six specific targets.
These targets reflect both regulatory requirements and business
imperatives: emissions reduction, improvement of energy efficiency,
increased biodiversity, reduced number of lost workdays,
increased volunteering, and increased female representation.
We believe that each of these resonates with our stakeholders
and adds value to our proposition as a responsible business.
The simpler strategy will enable us to harness resources across
the Group more effectively.
The year ahead
The business is demonstrating strong momentum and our plan
is to continue to build on this. To support this, we will be careful
to maintain and further strengthen our governance, from the
continued focus on risk management and controls I have
discussed, to ensuring rigour and discipline in our evaluation
and, where appropriate, execution of growth opportunities
to secure benefit for our stakeholders.
I hope this summary has given a good sense of the Board’s activities
during FY25 and our ambitions for the future. I look forward
to meeting you at our AGM on Thursday, 25 September 2025.
Dame Ruth Cairnie
Chair
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4
3
9
7
5
Board of Directors
Creating a safe
and secure world,
together
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2
6
1
10
8
1. Dame Ruth Cairnie DBE
Chair
2. David Lockwood OBE
Chief Executive Officer
3. Carl-Peter Forster
Senior Independent Director
4. John Ramsay
Independent Non-Executive Director
5. David Mellors
Chief Financial Officer
6. The Right Honourable The Lord
Parker of Minsmere, GCVO, KCB
Independent Non-Executive Director
7. Lucy Dimes
Independent Non-Executive Director
8. Sir Kevin Smith CBE
Independent Non-Executive Director
9. Jane Moriarty
Independent Non-Executive Director
10. Dr Claudia Natanson MBE
Independent Non-Executive Director
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Key contribution: Extensive experience of the engineering
sector, strong strategic vision and leadership.
Skills and experience: Ruth brings experience of the engineering
sector gained from a 37-year international career spanning senior
functional and line roles at Royal Dutch Shell plc. She has also
advised government departments on strategic development
and capability building. She has been a Non-Executive Director
of Rolls-Royce Holdings plc, Associated British Foods plc,
ContourGlobal plc and Keller Group PLC as well as a member
of the finance committee of the University of Cambridge.
Ruth is a Master of Advanced Studies in Mathematics from
the University of Cambridge and holds a BSc Joint Honours
in Mathematics and Physics from the University of Bristol.
Current appointments: Non-Executive Director of BT Group plc
and Serendipity Capital, a venture capital investor focused on
critical technologies. She is a patron of the Women in Defence
Charter and a member of the CBI Board.
Key contribution: Extensive manufacturing and international
experience.
Skills and experience: Carl-Peter held senior leadership
positions in some of the world’s largest automotive
manufacturers, including BMW, General Motors and Tata Motors
(including Jaguar Land Rover). He was also previously a Non-
Executive Director of Rexam PLC and Rolls-Royce plc, and
Senior Independent Director of IMI plc, as well as being Chair
of Chemring Group PLC.
Current appointments: Chair of Vesuvius plc and Keller
Group Plc.
Dame Ruth Cairnie DBE
Chair
N
Appointed
April 2019
Nationality
British
Appointed
June 2020
Nationality
German and British
Carl-Peter Forster
Senior Independent Director
R
N
Key contribution: Wide-ranging knowledge of defence and
aviation markets, and a wealth of experience in both technology
and innovation.
Skills and experience: David was CEO of Cobham plc (from
2016 to March 2020), and prior to that he was CEO of Laird
PLC (from 2012 to September 2016). His career includes senior
management roles at BT Global Services, BAE Systems and
Thales Corporation. He received an OBE for services to industry
in Scotland in 2011. David has a Degree in Mathematics from the
University of York and is a Chartered Accountant. He is a Fellow
of the Royal Aeronautical Society and the Royal Society of Arts
and Commerce.
Current external appointments: President of ADS, the UK
trade association for the aerospace, defence, security and
space industry.
David Lockwood OBE
Chief Executive Officer
E
Appointed
September 2020
Nationality
British
Key contribution: Extensive financial, international and
boardroom experience.
Skills and experience: John, a Chartered Accountant, brings
with him over 30 years of international business and finance
experience. He served as Chief Financial Officer of Syngenta
AG from 2007 to 2016, and interim Chief Executive Officer
of Syngenta from October 2015 to June 2016. Prior to joining
Syngenta, he held senior international finance roles with Zeneca
Agrochemicals and ICI. He was also the chair of the Audit
Committee for Croda International Plc.
Current appointments: Member of the Supervisory Board
at DSM Firmenich AG and Non-Executive Director of RHI
Magnesita N.V. He is Audit Committee Chair at each of
these companies.
Appointed
January 2022
Nationality
British
John Ramsay
Independent Non-Executive
Director
A
R N
Key contribution: Extensive CFO experience in defence,
aerospace, and commercial markets.
Skills and experience: David was previously CFO of Cobham
plc and prior to that he was CFO of QinetiQ Group plc from
2008 to 2016, where he also served as interim Chief Executive
for a period. His career includes several roles at Logica PLC,
CMG plc and Rio Tinto PLC. David has a degree in Physics from
Oxford University and is a member of the Institute of Chartered
Accountants in England and Wales.
Current external appointments: None.
David Mellors
Chief Financial Officer
E
Appointed
November 2020
Nationality
British
Board of Directors (continued)
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Key contribution: Extensive experience of working at the
highest level of public service, including a focus on new
technology-centred change and championing inclusion.
Skills and experience: Lord Parker has had a long career in
a wide range of national security and intelligence roles in the
UK, which culminated in him becoming the Director General
of MI5, the UK Government’s national security agency, in 2013.
He retired from this role in 2020 after which he served
as Lord Chamberlain (head of the Royal Household).
Current appointments: Member of the House of Lords,
a Non-Executive Director of Vertical Aerospace and Board
Adviser to Telicent Ltd. Lord Parker is a Distinguished Fellow
at the Royal United Services Institute.
Key contribution: Experience in industries at the forefront of
growth and technology-based innovation, and an understanding
of complex outsourcing and global strategic partnerships.
Skills and experience: Lucy has been the CEO of Iomart plc,
the Chief Strategy and Transformation Officer of Virgin Money
UK Plc, the CEO of UBM EMEA and Chief Executive Officer, UK
& Ireland, of Fujitsu. She has also held senior roles at Equiniti
Group, Alcatel Lucent (now Nokia) and BT. Lucy was a Non-
Executive Director of Berendsen PLC and a member of its Audit,
Remuneration and Nominations Committees. Lucy holds an
MBA from London Business School and a degree in Business
Studies from Manchester Metropolitan University.
Current appointments: None.
Key contribution: Expertise in aerospace, defence and
engineering sectors and board room experience.
Skills and experience: Sir Kevin spent almost 20 years at BAE
Systems plc predominantly in its Military Aircraft Division and
BAe Defence, before becoming Group Managing Director with
responsibilities for new business and international strategy.
Following this, Sir Kevin joined the Board of GKN PLC, the
FTSE-listed global engineering and manufacturing company,
initially leading the Aerospace and Defence businesses, and
then serving nine years as Group Chief Executive. He went on
to spend four years in Hong Kong as a Partner at Unitas Capital.
His non-executive career includes eight years at Rolls Royce
where he served as Senior Independent Director.
Current appointments: Member of L.E.K. Consulting’s
European Advisory Board.
The Right Honourable
The Lord Parker of
Minsmere, GCVO, KCB
Independent Non-Executive
Director
N D
Appointed
November 2020
Nationality
British
Appointment key
E
Executive Committee
R
Remuneration Committee
D
Director designated for workforce engagement
A
Audit Committee
N
Nominations Committee
Board Committee Chair
Appointed
April 2018
Nationality
British
Appointed
June 2023
Nationality
British
Lucy Dimes
Independent Non-Executive
Director
R A N
Sir Kevin Smith CBE
Independent Non-Executive
Director
A N
Key contribution: Extensive international business and finance
experience.
Skills and experience: Jane, a Chartered Accountant, brings
with her over 30 years of international business and finance
experience. After a long executive career with KPMG, where
she was a senior advisory partner, Jane has held a number of
Non-Executive roles, including Quarto Group Inc where she was
Vice-Chair and Chair of the audit and remuneration committees.
Current appointments: Non-Executive Director, Chair of the
audit committee and Senior independent Director of Mitchells
& Butlers plc.
Jane Moriarty
Independent Non-Executive
Director
A R N
Appointed
December 2022
Nationality
Irish
Key contribution: Extensive information and cybersecurity
expertise.
Skills and experience: Claudia works internationally as an
information and cybersecurity professional, and brings over
20 of experience in this field across globally diverse industries
in the public and private sectors. She has previously held senior
roles in cyber security, as security strategic advisor and chief
security officer with Aramark Corporation in the USA, the
Department for Work and Pensions, Smiths Group plc and
Diageo Global. Claudia holds a PhD in computing and education
from the University of Birmingham. In 2022, she was awarded
an MBE for services to the cyber security profession.
Current appointments: Chair of the Board of Trustees of the
UK Cyber Security Council, Board member of the UK National
Cyber Advisory Board and a registered European Commission
Security and Cyber expert.
Appointed
March 2024
Nationality
British and Jamaican
Dr Claudia Natanson MBE
Independent Non-Executive
Director
N
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Board leadership and company purpose
Board leadership
Maintaining the highest standards of governance is integral to the successful delivery of our strategy. Our governance framework
ensures that the Board provides effective leadership in both making decisions and maintaining oversight, mapping where
accountability resides and playing a key role in our internal controls.
Executive Safety Committee Group Executive Risk and
Controls Committee
Corporate Sustainability Committee
Reviews and discusses all matters of material significance to the Group’s management, operational and financial performance,
as well as strategic development. The Committee consists of the CEO, the CFO, the Chief Corporate Affairs Officer, the Chief
Executive Marine, the Chief Executive Nuclear, the Chief Executive Land, the Chief Executive Aviation and France, the Chief
Executive Mission Systems, the Chief Executive Africa, the Chief Executive Australasia, the Chief People Officer, the Chief
Engineering & Technology Officer, the Chief Delivery Officer and the Group Company Secretary and General Counsel.
For more information see www.babcockinternational.com/who we are/leadership-and-governance
Audit Committee Remuneration Committee Nominations Committee
The Board’s role is to lead the Group for the long-term sustainable success of Babcock, by setting our strategy and supervising
the conduct of the Group’s activities within a framework of prudent and effective internal controls.
The Board has adopted a schedule of matters reserved for its, or its Committees’, specific approval (see page 136). For other
matters, authority is delegated to management according to a delegation matrix.
The Board
Responsible for overseeing the
Company’s systems for internal financial
control, risk management and financial
reporting.
● See pages 146 to 149
Determines and applies the
Remuneration policy for the Executive
Directors, as well as the Group Executive
Committee, and is responsible for
oversight of the remuneration policies
and practices relating to the wider
workforce.
● See pages 150 to 177
Reviews the composition of the Board
and leads on Board appointments, as well
as considering succession planning at
both Board and senior management level
and leading on the Company’s Diversity
and Inclusion policy.
● See pages 144 to 145
Group Executive Committee
Principal Board Committees
Principal Management Committees
Responsible for Group-wide
sustainability initiatives, the
management of climate-related issues
and driving the wider sustainability
agenda. The Committee is chaired by
the Chief Executive Land and members
include the Chief Financial Officer,
sector Chief Executives, Chief People
Officer, the Group General Counsel,
the Group Director of Sustainability and
the Group Health and Safety Director.
● See page 64
Provides direction and executive
management of the safety, health and
environmental protection framework
controls to ensure risks are as low as
reasonably practicable and our approach
is coherent to enable continuous
improvement in performance across
Babcock. The Committee is chaired
by the Group Health & Safety Director
and members include sector and DRC
CEOs, the Chief People Officer and the
Chief Delivery Officer.
● See page 119
Provides leadership and oversight of
the Group’s Enterprise Risk Management
Framework, acting as an interface
between the Audit Committee and
the business. The Committee has as
its principal deliverable the review and
challenge of the mitigation and control
of the principal risks. The Committee
membership includes the Executive
Committee, Group Financial Controller,
Group Director of Internal Audit, Risk
Assurance & Insurance and the Group
Director of Controls.
● See page 106
132 Babcock International Group PLC Annual Report and Financial Statements 2025
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Company purpose
The Board sets the Company’s Purpose and reviews how the
Company aligns to it, including assessing how the Company’s
strategy is set to fulfil the Purpose. Our principles of be curious,
think: outcomes, be kind, collaborate, be courageous, and own
and deliver underpin our Purpose and the culture the Board
is seeking to embed in the Company.
Effective decision-making and oversight
The Board has an annual plan of business around which the
Chair, CEO and Company Secretary structure agendas and
consider the status of projects, strategic workstreams and
the overarching operating context. Standing agenda items and
papers are presented at each Board meeting; other matters
are considered on a less frequent but regular basis.
Appropriate amounts of time are allocated to items of business
to allow for open and frank debate and encourage informed
decision-making.
All scheduled meetings consider:
• Health and safety reports
• Operational update
• Financial update
• Investor relations update
• Legal/governance reports
• Conflicts of interest review
• Reports from Chairs of Remuneration, Audit and Nominations
Committees.
The Board regularly considers:
• Strategy update, including Sustainability
• Review of major risks and emerging risks
• Review of financial and non-financial controls
• Delegated authorities
• Committee terms of reference
• Annual ethics review
• Whistleblowing reports (with an additional annual review
in the context of the ethics review)
• Tax policy
• Treasury arrangements
• Modern Slavery Transparency Statement
• Deep-dive presentations from sectors, direct reporting
countries and Group Functions, for example IT and cyber
security, procurement and pensions
• Results announcements, Annual Report and Notice of Annual
General Meeting.
Setting and overseeing strategy
The Board held its dedicated strategy review meeting in
June 2024, offsite. At the meeting, the Board reviewed the
Company’s strategic aims and tested their alignment to the
interests of the Company’s stakeholders. In addition to its
dedicated review, the Board has regular updates throughout
the year, as the Board believes that strategy should be a
dynamic process, benefiting from regular Board engagement
and supported by dedicated deep-dive review sessions.
How the Board monitors culture
The Board believes that a company’s culture must align
with and support its strategy. The Board monitors the
Company’s culture throughout the Group in the
following ways:
Leading by example
Our Directors and senior managers act with integrity
and lead by example, promoting our culture to our
colleagues through living our principles and
demonstrating them in action.
Listening to our people
Our Non-Executive Directors regularly visit our sites.
At least once a year, the Board holds one of its meetings
at a site to give the Non-Executive Directors the
opportunity to engage with colleagues together. As well
as the Board site visit, individual Non-Executive Directors
take time to visit other sites to engage with colleagues.
In addition, our designated Non-Executive Director for
workforce engagement has his own programme of site
visits. His programme includes extensive engagement
with colleagues and he feeds back the key themes to
the Board. As well as visiting sites, the Non-Executive
Directors engage in other ways with colleagues, such
as meeting with different colleague groups such as the
upcoming talent cohort and attendance at leadership
events. The Board also hears from colleagues through the
questions and feedback received by the CEO’s dedicated
email ’Ask David’, as well as from employee forums and
surveys. This year, the Company conducted its third
Group-wide employee engagement survey. The Board
reviewed the results of the survey along with an action
plan for responding to the key themes.
● See page 134
Ethics and whistleblowing
Whistleblowing lines are available throughout our
business for reporting any departure from our principles.
The Board reviews all whistleblowing reports, together
with their outcomes, on a regular basis as well as via
an annual review.
Other cultural indicators
The Board regularly receives health and safety metrics
and thematic reviews through its regular ‘People’ sessions.
These sessions also cover Diversity and Inclusion.
● More information on the implementation of the strategy
overseen by the Board can be seen on pages 8 and 9
and throughout the Strategic report.
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Board leadership
To deliver the best outcome for the Company, we seek to understand our stakeholders’ priorities and factor these into our
decision-making. Accordingly, the Board works to establish and maintain strong stakeholder relationships. An understanding
of stakeholder views at Board level is gathered via a combination of direct and indirect engagement.
Details of how the Directors receive information on our key stakeholders, and how they engage with them directly to support
effective decision-making and oversight, are set out below.
This section, through to page 138, forms part of the s172(1) statement which can be found in the Strategic report on page 62.
● Further information on how the Company engages with its stakeholders can be found on pages 62 and 63.
How the Board engages
Information flow
to the Board
Direct Board
engagement
Measures reviewed
by the Board to assess
effectiveness of engagement
1
Customers
• Monthly written reports from
Executive Directors include
material customer matters
• Sector CEOs and the Executive
Directors give briefings at
Board meetings
During the year the Executive
Directors had regular meetings
with the Group’s key customers.
These meetings happen
throughout the year and across
all levels of our key customers.
• Order intake by sector
• Safety balanced scorecard
• Major operational
programmes’ RAG status
Investors
• Reports from Investor Relations
• Treasury reports
• Investor meetings/roadshow
• AGM
The Board engaged directly with
its investors, principally through
meetings with the Executive
Directors and the Chair. In
addition, the Board receives
regular feedback from the Group
Head of Investor Relations. The
Committee Chairs are available to
meet shareholders when
required. This year, the Chair of
our Remuneration Committee
consulted with shareholders on
the Committee’s proposals to
amend its Remuneration Policy.
Please see pages 161 and 162 for
more details. Our AGM gives the
Board an annual opportunity to
meet with private investors and
for them to ask questions directly
to the Board.
• Underlying operating profit
• Operating cash flow
• Analysis of share register
movements
• Investor feedback from results
presentations and investor
meetings
• AGM feedback and voting from
shareholders and proxy agencies
Employees
• Bottom-up reports from Lord
Parker, the Director designated
for workforce engagement
• Global People Survey, our
Group-wide employee survey
• Top-down reports from the
Chief People Officer
• Principal trade union meeting
with the CEO and the Chief
People Officer
• Whistleblowing reports
Lord Parker visited four sites
during the year and engaged with
over 200 colleagues over
12 meetings. After his visits, Lord
Parker gave an overview of his
findings to the Board. Other
members of the Board meet with
colleagues during their visits to
our sites. Additionally, the CEO
engages with colleagues
Group-wide via vlogs, and
colleagues can contact him
directly via a dedicated email
address. Members of the senior
leadership team regularly present
to the Board.
• Participation rate and
engagement score in Global
People Survey
• Safety balanced scorecard
together with monthly
overview of significant safety
events and Total Recordable
Injury Rate
• Ethics training compliance rate
• Gender pay gap
• Subject matter of
whistleblowing reports
Board leadership and company purpose (continued)
134 Babcock International Group PLC Annual Report and Financial Statements 2025
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Information flow
to the Board
Direct Board
engagement
Measures reviewed
by the Board to assess
effectiveness of engagement
1
Communities
• Health, safety and environment
updates
• Material issues are included
in the monthly reports from
Executive Directors or in sector
CEO briefings
• Annual Report review
In the main, the sectors hold
these relationships at a local level
where the most relevant
knowledge is concentrated, with
no direct engagement by the
Board of Directors. The Board
continues to believe that this level
of engagement is appropriate as
any material issues are brought to
the Board’s attention through the
monthly operational reports or the
functional reports to the Board.
However, the Board does take the
opportunity to engage when
appropriate. For example, on site
visits, the Board seeks to engage
the community leaders as well as
colleagues.
• Safety balanced scorecard
including Total Recordable
Injury Rate and updates on
any environmental issues
• Diversity performance against
target
• Performance against carbon
emissions target
Suppliers
• Briefings from the Chief Delivery
Officer on an annual basis
• Supply chain risk considered
in reports on major tenders
• Approval of the Modern Slavery
Transparency Statement
Principal engagement is undertaken
by operational management,
which reports annually to the
Board to give it oversight of the
function and its operation.
• Subject matter of
whistleblowing reports
• Modern slavery review
1. Measures in bold are reviewed at every Board meeting, others at least once a year.
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How the Board took stakeholders’ interests into account in its decision-making
When the Board makes its decisions, it seeks to consider the Company’s stakeholders and their interests. Sometimes these interests
are aligned, but on other occasions the Board must balance different stakeholder interests and take the decision that it believes is
most likely to promote the long-term success of the Company in accordance with its duties under s172 of the Companies Act 2006.
In all its decisions, the Board keeps in mind the Company’s Purpose and principles to ensure alignment. Set out below is a description
of how the Board addressed stakeholder interests in its discussions and decision-making in relation to the Board’s key areas of focus.
Matters considered Discussion and outcome Stakeholders most
affected and relevant
s172 (1)
a-f factors
1
More
information
1
New
Sustainability
Strategy
The approach to corporate sustainability has evolved since the
Board adopted a new Sustainability Strategy in FY21. Over this
period, the Company has added additional commitments and
targets, while our focus now is increasingly on delivery and
harnessing our resources to achieve our goals. As a result,
the Board decided that it was an appropriate time to review
the Company’s strategy to ensure that it meets the demands
of stakeholders as well as the needs of the Company. As inputs,
the Board considered how stakeholder demand has developed,
building on insights from its engagement with them (please see
pages 134 and 135 for more information as to the ways in which
the Board engages with its stakeholders). The Board’s assessment
was that: (i) shareholders continue to expect the Company to
focus on compliance with current and emerging regulations,
they want to understand the financial risks and opportunities
that sustainability may pose, and to see focused action; (ii) our
colleagues (and the communities in which we operate and they
live) expect the Company to provide environmental and social
improvements alongside the economic benefits the Company
provides through its employment; and (iii) our customers want
to see continued improvement in sustainability performance,
to support them in their sustainability strategies but without incurring
excess cost as a result. The Board concluded that, while the
sustainability demands of our stakeholders might have evolved,
their level of ambition remains the same. The Board then assessed
the effectiveness of its strategy and decided that it would focus
on six strategic priorities reflecting both regulatory requirements
and business imperatives: emissions reduction, improvement of
energy efficiency, increased biodiversity, reduced number of lost
workdays, increased volunteering, and increased female
representation. For more information on the six strategic priorities,
please see page 164. The Board believes the simpler strategy
will enable better engagement with our stakeholders as well
as driving business improvement.
• Shareholders
• Employees
• Customers
• a, b, c, d, e,
and f
● Pages 64
and 65
1. s172(1) a-f factors are detailed in the s172(1) statement on page 62.
Board leadership and company purpose (continued)
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Matters considered Discussion and outcome Stakeholders most
affected and relevant
s172 (1)
a-f factors
1
More
information
2
People
Strategy
In FY21, the Board decided that, while the Company had key
fundamental strengths, it needed to adapt its business model
to meet the needs of a changing market. Part of this change was
the implementation of a new People Strategy. The aim of this
strategy was to create an agile and inclusive workplace with
harmonised processes and policies, improved diversity, and
a new approach to talent management. Stakeholders supported
this strategy as it was one of five strategic actions to unlock the
Company’s potential: for shareholders it would lead to improved
returns; for customers to improved delivery; and for colleagues,
a better place to work. Over the last five years, the Board has
worked hard to implement its People Strategy and in FY25 took
further decisions to continue its work.
A focus for FY25 was the Company’s early careers programmes.
The Board approved a record intake of early careers colleagues
across the Group, with a significant investment in our nuclear
sector as part of our commitment to the Government’s National
Nuclear Endeavour. We also opened the Babcock Engineering
& Nuclear Skills building in Devonport. This modern facility will
enhance our growing workforce capabilities in the UK’s nuclear
programmes by building a new pipeline of talent, while also
upskilling the existing workforce with the complex skills required
to perform our work at Devonport. We have also expanded our
successful pre-apprenticeship programme at Clyde, which saw
a 90% success rate of participants continuing onto our modern
apprenticeship programme, with further plans to roll this out
at Rosyth. These programmes provide an alternative route into
Babcock for a broader range of talented people to start their
career. We have also formally signed up to Interchange, a
collaborative secondment initiative enabling the sharing of skills
and talent across the nuclear enterprise, providing development
and upskilling opportunities for our people.
However, before making any decision regarding its People
Strategy, the Board considered the interests of the Company’s
stakeholders and agreed that those decisions were aligned
with stakeholder interests, as shareholders want to invest in
organisations that have access to the best talent; colleagues
want to work in organisations that support and develop talent
that reflects the communities they serve; and customers want
to receive their services from the best talent available.
• Shareholders
• a, b, and c
● Pages 19
and 86
1. s172(1) a-f factors are detailed in the s172(1) statement on page 62.
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Matters considered Discussion and outcome Stakeholders most
affected and relevant
s172 (1)
a-f factors
1
More
information
3
Our capital
allocation
strategy
In FY23, the Board set out its refreshed capital allocation
framework, which was underpinned with a commitment to
maintain a strong balance sheet and an investment-grade credit
rating. If there was any capital available after investing
organically in the business and adhering to these commitments,
the Board would apply it to three clearly identified areas: bolt-on
M&A, pensions, and returns to shareholders. In developing the
framework, the interests of stakeholders had been taken into
account: shareholders appreciated the alignment of the
framework with our strategy to maximise value, while customers
and colleagues recognised how the Board’s commitment to
maintaining a strong balance sheet and investment-grade credit
rating would make the Company a more stable and sustainable
business. As the Company has returned to growth, over FY25
the Board has considered possible M&A opportunities. Bearing
in mind the priorities of our stakeholders, the Board has applied
strict discipline in its review of these opportunities: a strong fit
with the Company’s strategy and existing portfolio is seen as
essential, and strong scrutiny is applied to assure that any
opportunity will strengthen the business in accordance with
stakeholder interests and will not undermine the Board’s commitment
to balance sheet strength and an investment-grade credit rating.
To ensure that this discipline is reflected throughout the Company,
during the year the Board has refreshed its governance requirements
for M&A. The Board has retained the right of approval for all
acquisitions or disposals above £10 million. Over the year, the
disciplined approach has led to several decisions to decline
M&A growth opportunities that were being considered.
• Employees
• Shareholders
• Customers
• a, b, c, d, e, f
● Pages 7 and
19 to 20
1. s172(1) a-f factors are detailed in the s172(1) statement on page 62.
How the Board keeps s172 on its agenda
The Board makes sure that in its decisions it considers the long-term success of the Company and considers the interests of its
stakeholders as follows:
• The Board sets the Company’s Purpose and strategy. Every year, it carries out an annual strategy review to assess the
long-term sustainable future of the Group and its impact on key stakeholders. As part of those discussions, it considers the
matters the Directors must have regard to as part of their Section 172 duties
• The Board’s risk management procedures identify the principal risks facing the Group and the mitigations in place to manage
the impact of these risks. Many of these risks relate to our stakeholder groups
• The Board’s standing agenda covers areas of stakeholder interest, such as sector operational reports, functional reports,
financial reports, health and safety reports, and litigation reports, to ensure that the Board receives relevant updates on
matters of interest to our stakeholders
• There are regular reports from the Audit Committee Chair and the Remuneration Committee Chair on items within their remit
• When making decisions which require judgement to balance the interests of different stakeholder interests, the Board is
careful to consider the interests of each different stakeholder in the context of the long-term consequences: for examples,
please see above. Members of the Board regularly engage with our investors and colleagues, and the Board uses the
stakeholder engagement summarised on pages 62 and 63 and on pages 134 and 135 to ensure that it understands the
priorities of each stakeholder group and then uses that understanding to inform its decision-making process.
Board leadership and company purpose (continued)
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Defining Board responsibilities
The role specifications below set out the clear division of responsibility between the Executive and Non-Executive members
of the Board, which supports the integrity of the Board’s operations.
A more detailed description of these roles is available online at www.babcockinternational.com.
Non-Executive Executive
Chair
• Independent on appointment;
• Leads the Board and sets the tone and agenda, promoting a culture
of openness and debate;
• Ensures the effectiveness of the Board and that Directors receive
accurate, timely and clear information;
• Ensures effective communication with shareholders;
• Acts on the results of the Board performance evaluation and leads
on the implementation of any required changes; and
• Holds periodic meetings with Non-Executive Directors without the
Executive Directors present.
Senior Independent Director
• Acts as a sounding board for the Chair;
• Available to shareholders if they have any concerns which require
resolution;
• Leads the annual evaluation of the Chair’s performance; and
• Serves as an intermediary to other Directors when necessary.
Independent Non-Executive Directors
• Support and constructively challenge the Executive team;
• Contribute to the development of the Company’s strategy;
• Provide an external perspective and bring a diverse range of skills
and experience to the Board’s decision-making;
• Contribute to Board discussions on the nature and extent of the risks
the Company is willing to take to achieve its strategic objectives;
• Satisfy themselves as to the integrity of financial information;
• Ensure financial controls and systems of risk management are robust
and defensible; and
• Play a primary role in appointing and, where necessary, removing
Executive Directors, setting their remuneration and succession planning.
Designated Non-Executive Director for workforce engagement
• Gauges the views and feedback of the workforce and identifies
any areas of concern;
• Communicates the views of the workforce to the Board;
• Ensures the views of the workforce are considered in Board decision-
making; and
• Ensures the Board takes appropriate steps to evaluate the impact of any
proposals that influence the experiences of the workforce, and considers
what steps the Board should take to mitigate any adverse impact.
Chief Executive Officer
• Oversees the day-to-day operation and
management of the Group’s businesses
and affairs;
• Responsible for the implementation of Group
strategy as approved by the Board, including
driving performance and optimising the
Group’s resources;
• Accountable to the Board for the Group’s
operational performance; and
• Takes primary responsibility for managing
the Group’s risk profile, identifying and
executing new business opportunities,
and management development and
remuneration.
Chief Financial Officer
• Accountable to the Board for the Group’s
financial performance;
• Responsible for raising the finance required
to fund the Group’s strategy, and servicing
the Group’s financing whilst maintaining
compliance with its covenants; and
• Maintains a financial control environment
capable of delivering robust financial
reporting information to indicate the Group’s
financial position.
Division of responsibilities
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Articles of Association
The powers of the Directors are set out in the Company’s
Articles of Association (the Articles), which the members of
the Company may amend by a Special Resolution. The Board
may exercise all powers conferred on it by the Articles, in
accordance with the Companies Act 2006 and other applicable
legislation. The Articles are available for inspection online
at www.babcockinternational.com.
The Board has established a formal schedule of matters
specifically reserved for its approval. It has delegated other
specific responsibilities to its Committees. These are clearly
defined in their terms of reference (available online at www.
babcockinternational.com). Other responsibilities are delegated
to management under a delegated authorities matrix.
Summary of key matters reserved for the Board
• Group strategy
• Interim and final results announcements and the
Annual Report
• Dividend policy
• Acquisitions, disposals and other transactions outside
delegation limits
• Significant contracts not in the ordinary course of business
• Major changes to the Group’s management or control
structure
• Changes relating to the Company’s capital structure
or status as a listed PLC
• Annual budgets
• Major capital expenditure
• Major changes in governance, accounting, tax or
treasury policies
• Internal controls and risk management (advised by
the Audit Committee)
• Major press releases and shareholder circulars
Meetings and attendance
Each financial year, the Board has eight scheduled full Board
meetings held in person, which includes a meeting dedicated
to strategy, and two operational updates held by video
conference or in person. The Chair also meets separately with
Non-Executive Directors without Executive Directors or other
managers present. See the table opposite for further information
about the meetings held during the year. There was 100%
attendance at scheduled Board and Nominations Committee
meetings and 95% and 97% respectively for Audit and
Remuneration Committees.
Conflicts of interest and independence
Babcock has a procedure for the disclosure, review,
authorisation and management of Directors’ actual and potential
conflicts of interest or related party transactions in accordance
with the Companies Act 2006. The procedure requires Directors
formally to notify the Board (via the Company Secretary)
as soon as they become aware of any new actual or potential
conflict of interest, or when there is a material change in any
of the conflicts of interest they have already disclosed.
A register is maintained of all the disclosures made and the terms
of any authorisations granted. Authorisations can be revoked,
or the terms on which they were given varied, at any time if
judged appropriate.
In the event of any actual conflict arising in respect of a particular
matter, mitigating action would be taken (for example, non-
attendance of the Director concerned at all or part of Board
meetings and non-circulation to him/her of relevant papers).
Possible conflicts of interest authorised by the Board are reviewed
annually on behalf of the Board by the Nominations Committee.
The Committee also considers the circumstances set out in the Code
which could compromise an individual’s position of independence.
The Board is satisfied that throughout the year all Non-Executive
Directors remained independent and accordingly the Company
is compliant with Provision 10 of the Code.
Time commitment
The expected time commitment of the Chair and Non-Executive
Directors is agreed and set out in writing in their respective
letters of appointment, at which point the existing external
demands on an individual’s time are assessed to confirm their
capacity to take on the role. Further appointments can only be
accepted with the approval of the Board following consideration
of whether there would be an impact on the independence and
objectivity required to discharge the agreed responsibilities of
each role, and whether the resultant position is believed to be
consistent with recognised proxy advisor guidelines.
The Board is satisfied that each Director has the necessary time
to effectively discharge their responsibilities and that, between
them, the Directors have a blend of skills, experience, knowledge
and independence suited to the Company’s needs and its
continuing development.
Board and Committee membership, meetings
and attendance
Board Nominations
Committee
Audit
Committee
Remuneration
Committee
Number of scheduled
meetings held 8 4 11 9
Dame Ruth Cairnie 8/8 4/4 – –
Carl-Peter Forster 8/8 4/4 – 9/9
John Ramsay 8/8 4/4 11/11 9/9
Lucy Dimes
1
8/8 4/4 10/11 8/9
Lord Parker 8/8 4/4 – –
Jane Moriarty 8/8 4/4 11/11 9/9
David Lockwood 8/8 – – –
David Mellors 8/8 – – –
Sir Kevin Smith
2
8/8 4/4 10/11 –
Claudia Natanson 8/8 4/4 – –
1. Lucy Dimes was unable to attend one Audit and one Remuneration
Committee meeting due to prior commitments.
2. Sir Kevin Smith was unable to attend one Audit Committee due to
a prior commitment.
Composition, succession and evaluation
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Composition
The Nominations Committee keeps the composition of the Board under constant review to ensure a balance of skills, experience
and knowledge to lead the Group. As at 31 March 2025, the Board comprised the Chair, who was independent on appointment,
seven Independent Non-Executive Directors and two Executive Directors. All continuing Directors are required to offer themselves
for re-election by shareholders each year at the Annual General Meeting and each appointment is put to a separate vote.
Biographical details can be found on pages 130 and 131 and there is more information on appointments to the Board in the
Nominations Committee report on pages 144 and 145.
Diversity policy
Our policy is that to be effective in delivering our customers’ needs and our future ambitions, the Company must attract, retain,
motivate and develop highly capable colleagues. Attracting talent is competitive and therefore the Company must work to ensure
that it attracts potential colleagues from every part of society. This requires the Company to foster an inclusive culture where all
colleagues feel valued and welcomed. Our aim is to build talented teams with a range of backgrounds, skills and experience,
but all aligned around our Purpose “To create a safe and secure world, together”.
Board diversity
Throughout FY25, the Board was in line with the Financial Conduct Authority’s diversity and inclusion Listing Rules of having at least
40% female representation on the Board, at least one senior Board position held by a female and at least one member of the Board
being from an ethnic minority background, as well as those for the FTSE Women Leaders Review (at least 40% female representation
on the Board) and the Parker Review (at least one Board member being from an ethnic minority background). For more information
on the Group’s diversity policy and its objectives, please see pages 85 to 95.
Board and executive management ethnicity
Number of
Board
members
Percentage
of the Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
Executive
Committee
Percentage of
Executive
Committee
White British or other White (including minority-white groups) 9 90% 4 14 100%
Mixed/Multiple Ethnic Groups – – – – –
Asian/Asian British – – – – –
Black/African/Caribbean/Black British 1 10% – – –
Other ethnic group, including Arab – – – – –
Not specified/prefer not to say – – – - –
Board and executive management gender
Number of
Board
members
Percentage of
the Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
Executive
Committee
Percentage of
Executive
Committee
Men 6 60% 3 12 86%
Women 4 40% 1 2 14%
Non-binary – – – – –
Use another term – – – – –
Not specified/prefer not to say – – – - –
The tables and charts in this section show the position at 31 March 2025. The Company has collected the data on which the tables
above are based by the individuals concerned self-reporting their data on being asked about their ethnicity and gender in the
categories listed.
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Board tenure
The average Board tenure at 31 March 2025 was four years.
Independence Gender Ethnicity Nationality
Lucy Dimes
Dame Ruth Cairnie
Carl-Peter Forster
David Lockwood
David Mellors
Lord Parker
John Ramsay
Jane Moriarty
Sir Kevin Smith
Claudia Natanson
Years served at 31 March 2025
6
4.8
4.6
4.4
4.4
3.25
2.3
1.8
1.1
7
UK
Non-UK/dual national
Men
Women
White British or other
white (including
minority-white groups)
Black/African/
Caribbean/Black British
Chair
Executive Directors
Independent
Board information
Succession
The Chair, Senior Independent Director and Independent
Non-Executive Directors are appointed for a three-year term,
subject to annual re-election by the shareholders. At the end
of the first three-year term, the Nominations Committee reviews
each Non-Executive Director’s tenure to make sure that renewing
the appointment is the right decision. The Nominations Committee
will usually renew the appointment for a further three years.
After the second three-year term, the Nominations Committee
reviews the appointment annually.
The ongoing replenishment of the Board is a key focus for the
Nominations Committee and more information about succession
planning can be found in its report on page 145.
Director training
With the ever-changing environment in which Babcock
operates, it is important for our Executive and Non-Executive
Directors to remain aware of recent and upcoming
developments, and keep their knowledge and skills up to date.
Each Non-Executive Director is expected to participate in their
own continuous professional development.
Non-Executive Directors may at any time make visits to Group
businesses or operational sites and are encouraged to do so
at least once per year. Visits are coordinated by the Group Company
Secretary’s office. Presentations on the Group’s businesses
and specialist functions are made regularly to the Board.
Our Company Secretary also provides updates to the Board and
its Committees on regulatory and corporate governance matters.
Our new Directors receive comprehensive and tailored
induction programmes. The programmes for Non-Executive
Directors typically involve:
• Meetings with the Executive Directors, the sector CEOs
and functional leads
• An overview of the Group’s governance policies, corporate
structure and business functions
• Details of risks and operating issues facing the Group
• Visits to key operational sites
• Briefings on key contracts and customers
Composition, succession and evaluation (continued)
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Evaluation
FY25 Board performance review
Each year we conduct an evaluation to assess the Board’s ways of working as well as its skills, experience, independence and
knowledge, to confirm it is able to discharge its duties and responsibilities effectively. The composition and diversity of the Board
and its Committees and how well the Directors are working together is considered, as well as the individual performance of the
Directors and the Chair. This year the review was externally led by Better Boards. The review identified that the key strengths of the
Board were its breadth and depth of experience and knowledge, and its collegiate ways of working, with open debate between
members based on mutual respect facilitated by the Chair. The review did identify actions for the Board to work on over FY26,
which are discussed below:
Progress made on actions identified in the FY24 review
Recommendations for FY24 Update
As the Company moves through its turnaround,
the Board should consider moving the focus of
its strategy from the turnaround to the growth
opportunities available to the Company and their
alignment to the Company’s capabilities.
The Board has refined its strategic framework against which it will evaluate
future growth potential.
The Nominations Committee should consider
refreshing its agenda to build visibility of talent
management and succession for the senior
leadership.
The Nominations Committee devoted time in FY25 reviewing a new leadership
framework based on our Purpose and principles that the Company will use
for career development for senior leadership. The framework makes clear
the accountabilities and competencies that the Nominations Committee
expects to see at all levels of leadership and will use it as a core underpin
for its succession planning.
In light of the ambitious diversity targets that
the Nominations Committee has set for the
Company, the Committee should consider
carefully reviewing the Company’s progress
and the plans it has in place to meet its targets.
The Nominations Committee has kept under close review the progress that
the Company has made to improve its diversity performance despite the
sectors and locations in which the Company operates. Notwithstanding
these challenges, the Company has made progress, including over 30%
of senior management (ie the Group Executive Committee and their direct
reports) being female, and a further decrease in our gender pay gap.
Actions identified in the FY25 review
For FY25, the areas identified for action were:
• Review the Company’s brand as a tool to establish a joint vision for the Company
• Review the Board’s monthly reports to increase the focus on key KPIs
• Agree an approach to tracking progress on the steps that the Company is taking to embed the Board’s plans for the Company’s culture
• Continue to develop a single leadership framework for implementation across all levels of the Company
• Discuss the best way for the Board to leverage the strengths of each of its members
Babcock International Group PLC Annual Report and Financial Statements 2025 143
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Nominations
Committee
report
Dame Ruth Cairnie
Chair of the
Nominations
Committee
Review of the structure, size
and composition of the Board
Review of new leadership
framework
Highlights
Composition, succession and evaluation (continued)
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144 Babcock International Group PLC Annual Report and Financial Statements 2025

Dear fellow Shareholder
I am pleased to present the Nominations Committee’s report
for the year ending 31 March 2025.
Board composition
FY25 has been a year of consolidation for Board composition,
with no changes to Board or Committee membership since
Claudia Natanson’s appointment in March 2024. Claudia has
been completing her induction programme, with some Board
members accompanying her on selected induction visits.
Sir Kevin Smith continues to expand his familiarity with the
business with an ongoing schedule of visits. This year’s
externally led Board evaluation assessed the performance
and effectiveness of the Board as good, with its composition
well-aligned to the Company’s strategy.
Looking ahead, after seven years’ service Lucy Dimes has
decided to retire from the Board and will not stand for re-election
at the 2025 AGM. I would like to thank Lucy for her service over
the last seven years and wish her well for the future. With Lucy’s
departure, we will look to bring on board a new Non-Executive
Director, drawing up a profile based on our recently refreshed
skills matrix and some observations and suggestions from the
Board evaluation. The search will be supported by an external
independent recruitment consultant.
Senior leadership and succession
We have dedicated time over the year to refreshing the Company’s
approach to the development of our senior leadership. This started
with a reinvigoration of the development framework for the
Senior Executive team, with a particular focus on learning and
growth plans. Having settled on our new framework for the
Senior Executive team, this is now being used as a template
for a consistent approach to leadership and its development
throughout the Group. This work will give us a good view of
the pipeline of talent deep down into the Company, and will also
provide all those who have ambition to progress their careers
with a clear view of the development requirements for their
chosen path.
All of our colleagues on the Group Executive Committee have
had the opportunity of an external, independent leadership
assessment which is feeding into strengthened, bespoke
development plans. This work is informing our succession
planning capability for the most senior roles, with significant
Committee involvement in reviewing and challenging these
plans. Active work is now underway to commence the
development of succession plans for a wider range of critical
roles in the organisation.
Inclusion, diversity and talent
At Board level, we have three externally set targets: the FTSE
Women Leaders Review target to have 40% women by 2025;
the Parker Review target for at least one minority ethnic Board
member; and the Financial Conduct Authority target to have
at least one of the senior Board roles (Chair, SID, CEO, CFO)
being a woman. We met all of these in FY25. We believe that
the Board’s effectiveness is enhanced by consisting of highly
capable and successful individuals with a wide variety of skills
and experience, who also bring other aspects of diversity
including gender and ethnic background, as well as a focus
on difference in styles and thought processes. Supported by
a strong culture, this diversity enhances the quality of debate
and protects against groupthink.
For the broader organisation, our imperative is to attract, retain,
motivate, and develop the staff we need to fulfil our customers’
needs and our future ambitions. Attracting talent is highly
competitive and we must ensure we are attractive to potential
colleagues from every part of society; to achieve this, we focus
on fostering an inclusive culture where all staff will feel welcome,
valued and able to contribute, and able to learn and develop
their careers. We want vibrant teams comprising outstanding
people who, whatever their backgrounds and perspectives, are
aligned around our Purpose “to create a safe and secure world,
together” and our principles.
We have put our policy into action in a variety of different ways,
from supporting veterans to fostering early career talent by
expanding our STEM outreach efforts. In FY25, we welcomed
a record intake of early careers colleagues, particularly in the
nuclear sector as part of our commitment to the National
Nuclear Endeavour. We achieved this by widening the entry
pools for our early careers talent by extending our pre-
apprenticeship programme. We have also given some of our
apprentices the opportunity to gain international experience
by partnering with a Polish institute in Gdynia.
On gender, we remain committed to increasing female
representation; this is essential to enable us to compete strongly
for female talent, given the need to combat perceptions of the
sector and the generally low representation of women. We are
making progress but have much still to do, and the Committee
continues to provide challenge and advice. We are pleased to
report that this year we have reduced our gender pay gap again.
Culture
The Committee has continued to monitor progress on changing
the culture of the organisation, through the mechanisms
highlighted on page 133: for example, site visits by Non-Executive
Directors, review of the results of the Global People Survey,
and reports from the Director designated for workforce
engagement and the Chief People Officer.
In addition, this year the Committee has given consideration to
how best to pull the multiple indicators of culture into a clearer
way of tracking progress on a regular basis. We have selected
a subset of measures from the People Survey which will give us
a measurable indicator and trend, which we can then supplement
with the more qualitative information sources we receive.
I hope this report gives you an understanding of the work of the
Committee over FY25. If you do have any questions, I would
welcome hearing them at this year’s AGM.
Dame Ruth Cairnie
Chair of the Nominations Committee
The Committee
Dame Ruth chairs the Committee.
The other members throughout the year were all the
Non-Executive Directors.
● For biographies of the members,
please see pages 130 and 131
● For attendance, please see page 140
Key responsibilities
• Board and Committee composition
• Succession and talent
• Culture
• Inclusion
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Audit
Committee
report
Review of the key management
judgements and estimates for
the FY25 financial statements
Oversight of the on-boarding
ofForvis Mazars as our
externalauditor
Review of the Company’s
approach to the new 2024 UK
Corporate Governance Code
requirements
Highlights
John Ramsay
Chair of the Audit
Committee
Audit, risk and
internal control
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146 Babcock International Group PLC Annual Report and Financial Statements 2025

Dear fellow Shareholder
On behalf of the Committee, I am pleased to present to you our
report for the work that we have done in FY25. While this has
been a year requiring the Committee to support the on-boarding
of a new external auditor, it has also been one of capitalising
on the determined efforts of previous years to upgrade internal
controls and professional standards.
FY25 audit
As we reported last year, we decided to move the external audit
to Forvis Mazars. We were delighted shareholders at the 2024
AGM supported the decision with a 99.98% vote approving their
appointment.
Following their appointment, our attention swiftly moved to
ensuring a smooth and effective transition from Deloitte to Forvis
Mazars to avoid the transition compromising our commitment
to audit quality and effectiveness.
To enable the best transition possible, we took certain key
steps. We agreed a scope of interaction between Deloitte and
Forvis Mazars, which included Forvis Mazars attending key
audit meetings and observing the FY24 audit. Alongside this
workstream, Forvis Mazars had multiple meetings with key
members of the Company’s finance team, including the CFO,
the Group finance teams and the Sector finance teams.
These meetings included all-day familiarisation and ways of
working sessions. They quickly helped to build a good working
relationship between the Company and the new external audit
team, while at the same time allowing Forvis Mazars to build
their knowledge of our business. This was essential in
facilitating their scoping and planning for the FY25 audit.
I have no doubt that this early work helped the transition, and
we were pleased that with the relationship built up between the
Company and Forvis Mazars to deliver the audit, the FY25 audit
will provide a solid foundation for us to accelerate our year-end
reporting without sacrificing quality.
Internal controls
As well as the FY25 audit, our other key focus was to prepare
the Company for the reforms introduced last year by the 2024
UK Corporate Governance Code, in particular, the new
requirement that will come into effect for our FY27 year end.
This new requirement will require the Board to monitor the
Company’s risk management and internal control framework,
and at least annually to carry out a review of its effectiveness.
This review will cover all material controls, whether financial,
operational, reporting or compliance controls. Following this
review, on advice from the Committee, the Board will describe
how it has monitored and reviewed the effectiveness of the
Company’s framework, and will make a declaration about the
effectiveness of its risk management and material controls as
at the year end, including a description of any material controls
which have not operated effectively.
The work that we are doing to prepare for this new requirement
is building on our internal controls improvements that I have
described in my previous reports and which have continued this
year. The Company has appointed a dedicated senior finance
professional to lead our preparation plans, which will include
“dry run” testing in the second half of FY26 and FY27 to test our
readiness for the declaration as of 31 March 2027. We monitor
progress through regular updates and reports on the work the
Company is doing.
Priorities for FY26
Our main priority for FY26 is to continue with our improvement
plan, both in controls and in the audit process, and hopefully
to further advance the year-end reporting timetable without
sacrificing audit quality or effectiveness. Alongside that work,
we will continue to prepare for the introduction of the new 2024
UK Corporate Governance Code requirement.
As ever, I am available to all shareholders to discuss any significant
matter related to our work. Alternatively, all the Committee will
be at the 2025 AGM, and I hope to meet as many of you as
possible there. We will be available to answer any questions you
may have on this report or the Committee’s activities.
John Ramsay
Chair of the Audit Committee
The Committee
John Ramsay chairs the Committee.
John is a Chartered Accountant, formerly the Chief
Financial Officer of Syngenta AG, and an experienced Audit
Committee chair (see page 130 for John’s full biography).
The Board has designated him as the financial expert on
the Committee for the purposes of the UK Corporate
Governance Code.
In FY25, the other members of the Committee were Lucy
Dimes, Jane Moriarty and Sir Kevin Smith. All members of
the Committee are Independent Non-Executive Directors.
Please see pages 130 and 131 for their biographies and
page 140 for attendance and number of meetings.
During the year, the Committee invited the Chair of the
Board, other Non-Executive Directors, the CEO, the CFO,
the Group Financial Controller, the external audit team,
the internal audit team, and key senior management
to attend its meetings, as appropriate.
From time to time, the Committee meets separately with the
external audit lead partner as well as meeting with internal
audit, to give them the opportunity to discuss matters
without management being present.
In addition, the Committee Chair maintains regular contact
with the external audit lead partner and internal audit
between meetings, often without the presence of
management.
Key responsibilities
• Ensuring the independence and quality of the audit
conducted by the external auditor
• Reviewing the Company’s Annual Report and Financial
Statements, as well as any announcements relating
to financial performance
• Challenging the accounting policies, judgements and
estimates, as well as disclosures, in those statements
• Reviewing the scope, remit, objectivity and effectiveness
of the internal audit function
• Reviewing the effectiveness of the Group’s internal
control and risk management systems
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Audit Committee report
Below is our report on our activities over FY25. The report, along
with my letter, describes the activities during the year including
meeting the requirements of the Financial Reporting Council’s
Audit Committees and External Audit: Minimum Standard.
Audit independence
One of our key responsibilities is to ensure the independence
and objectivity of the Company’s external auditors. To do this,
we have set a policy to control the mandates the Company
can give its external auditors outside the external audit itself.
We recognise that there may be some element of non-audit
services for which the Company might wish to use its external
auditors. However, before instructing its external auditors,
the Company must obtain prior approval as follows: for the
provision of non-audit services for fees up to £10,000, the CFO
may give the approval; for fees between £10,000 and £100,000,
the approval must come from the Committee Chair; and, for
fees of more than £100,000, the Company will need the
approval of the Committee.
In addition to the protection provided by our policy, we also ask
Forvis Mazars for a confirmation that they comply with their
relevant ethics codes and believe themselves to be independent.
Forvis Mazars have provided this confirmation. The only
non-audit service that they have supplied to the Company
related to Babcock Australia, which engaged Forvis Mazars
to provide an audit of a grant claim for immaterial compensation
in the context of the Company and the audit fee. They have also
confirmed that, if any issue with their independence did arise
during the audit, they would formally report this to us in their
Audit Completion Report. Accordingly, we are satisfied that
Forvis Mazars are independent and have the required objectivity
to deliver the Company’s external audit. For the FY25 audit,
Louis Burns was the lead audit partner and is in his first year.
Audit quality
We are committed to doing all that we can to ensure the quality
of the Company’s audits. That was why, as we reported last
year, we were so pleased with the conclusion of the review by
the Financial Reporting Council (the FRC) of our FY23 Annual
Report. Although the scope of their review is limited as it was
based solely on our FY23 Annual Report without the benefit
of detailed knowledge of the Company’s business, or an
understanding of the underlying transactions and it does not
provide any assurance that the FY23 Annual Report is correct in
all material respects, the review is conducted by FRC staff who
understand the relevant legal and accounting framework and
their conclusion was that they did not wish to raise any questions
or queries with the Company, although they did make certain
minor observations regarding improvements to our disclosures.
The Committee has ensured that the Company addressed all
these observations in its FY24 accounts, for example, by the
inclusion of additional definitions in the glossary.
Our commitment to quality played a key role in the selection
criteria when we were considering appointing Forvis Mazars
as the Company’s external auditors. As part of the process,
we asked Forvis Mazars to demonstrate why they believed that
they had the capability and capacity to deliver the Company’s
audit to the standard that we require. This included a presentation
on the significant investments Forvis Mazars are making to
strengthen their audit quality. At the end of the selection
process, we were satisfied that Forvis Mazars did have this
capability and the capacity. Since their appointment, we have
asked Forvis Mazars to update us on their quality improvement
plans including the investments that they continue to make to
their teams, tools and processes, to assure ourselves that they
are making progress to being able to provide consistent
high-quality audits.
In addition to reviewing Forvis Mazars’ audit quality
transformation plan, at the start of this year, as it was Forvis
Mazars’ first year as the Company’s external auditors, we took
particular care to make sure that both the Company and Forvis
Mazars were agreed on the approach to the audit, its scope,
and its timeline. Forvis Mazars provided us with their plan for
the audit that documented the procedures that they would adopt
at different stages of the audit, as well as the work they would
perform on the Company’s material components. They also
listed the significant risks, key audit matters, and other key
judgement areas that would be relevant to their work. For their
audit, they set a financial statement materiality of £24 million
with a performance materiality of £12 million and a “de minimis”
of £0.7 million. Their plan applied a full scope of work over all
key and material components of our business that covered
approximately all our revenues.
Having agreed the plan, we tested its progress by monitoring
Forvis Mazars’ performance against certain quality indicators
covering their responsiveness, their adherence to timetable,
and the consistency of their team throughout the audit. At the
end of the process, we were satisfied that Forvis Mazars have
delivered an audit to the standard that we require.
FY25 external audit
A central responsibility for our Board is to confirm that the
Company has prepared its financial statements in accordance
with the relevant financial reporting framework and that those
statements give a true and fair view of the assets, liabilities,
financial position, and profit or loss of the Company as well as
ensuring that its annual report including the financial statements
are fair, balanced, and understandable and provide the
information necessary for shareholders to assess the
Company’s position, performance, business model and strategy.
To assist the Board in complying with this responsibility,
we reviewed the Company’s Annual Report and Financial
Statements and recommended them for approval to the Board.
Our review considered the basis for the preparation of the
Company’s financial statements through our consideration of
the Going Concern and Viability statement (please see pages
124 and 125 for more detail). Having confirmed that the
Company should prepare its financial statements as a going
concern, we then reviewed the judgements and estimates that
the Company had incorporated into those statements, together
with the related disclosures, to ensure that the financial statements
gave a true and fair view as required. Finally, we considered the
totality of the Annual Report alongside the Company’s financial
statements to decide whether they, taken as a whole, were fair,
balanced, and understandable. During our review, we ensured
that we challenged and tested the positions the Company takes.
In our review, the areas that we considered most significant were:
• The Company’s Type 31 programme: in FY23, the Company
announced that its Type 31 programme would be a loss-
making contract. As such, the accounting standards require
the Company to base its loss provision on its best estimate
of the costs of delivering the programme with no bias towards
prudence or optimism. Since then, we have taken great care
to review the judgements and estimates the Company has
used to calculate its loss provision. This year, the key
judgements and estimates that we reviewed were delay
liquidated damages, performance liquidated damages,
production hours, procurement actions, labour, risk, price
Audit, risk and internal control (continued)
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indexation, and wage inflation. We tested and challenged the
assumptions the Company used in its calculation of the loss
provision as well as the process that the Company had used
to formulate it. In our review, we were aware of the
complexity involved in making the judgements and estimates
as not only was there a range of possible outcomes for each
judgement and estimate, but, in addition, the judgements and
estimates were often inter-related. This complexity could
result in a material increase or decrease in the value of the
programme’s loss provision. The programme has about
£800 million of estimated cost still to go. If actual recoveries
or costs were to differ from those the Company has assumed
by 10%, the potential impact on the contract outturn could be
about £80 million. For more information, please see page 201.
• The Company’s Future Maritime Support Programme:
the Company has a five-year contract ending March 2026
to deliver engineering and other services to support the MOD
principally at Devonport and Clyde. As part of this contract,
the Company must deliver transformation savings. Failure to
deliver the savings would result in a deduction to the price of
the programme. We tested the Company’s assumption that it
would deliver almost all the savings. We considered that the
Company was in its last year of the contract with the savings
embedded in its cost base, and were satisfied that it was
highly probably that the savings would not be reversed.
• Other contract judgements: we reviewed the accounting
for a number of other key programmes including the Deep
Maintenance Programme for the Vanguard class submarines,
with work now underway on HMS Victorious, our Australian
High Frequency Communications System programme
(JP9101), the Defence Support Group programme to support
the British Army’s armoured vehicle fleet which enters
a five-year extension from the end of March 2025, and
our SKYNET contract to operate the UK’s military satellite
communications capability. We were satisfied that the key
judgements and estimates applied were appropriate.
The conclusion of our review was that we were pleased
to recommend to the Board that the FY25 Annual Report and
Financial Statements were representative of the Company’s
year and presented a fair, balanced, and understandable
overview of the year. A key support for our review is Forvis
Mazars’ audit (please see page 185 for their independent
auditor’s report). The total fees paid to Forvis Mazars in respect
of their audit of the Company’s FY25 financial statements
was £9.1 million.
FY25 internal audit
This was the first year that the Company had conducted its
internal audit with its in-house team following the full insourcing
of the internal audit function last year. We have made good
progress ensuring that the function is resourced so that it can
deliver effective quality reviews. At the start of this year,
following the release of the new Global Internal Audit Standards,
we reviewed internal audit’s terms of reference and approved
a new Global Internal Audit Charter. This charter defines internal
audit’s role, authority and responsibilities, in line with the standards
set by the Internal Audit Standards Board. We will review
the charter on an annual basis to ensure that our internal audit
is in line with best practice.
At the start of FY25, we agreed an internal audit plan for FY25.
The plan delivered 13 audits split across sectors, direct reporting
countries, and Group Functions. As you would expect, these
audits make recommendations for improvements. We monitor
the implementation of these improvements to make sure that
the Company has actioned them. We ensure that each action
has an owner responsible for the implementation of the
improvement as well as a date for implementation. If any action
becomes overdue, the internal audit team chases progress on
our behalf until the recommendation is in place, while keeping
us abreast of developments.
Through our review of the internal audit plans and the reports
that we receive from the internal audit team, we are satisfied
that the team is both objective and effective.
Risk management and internal control systems
The Board has ultimate responsibility for risk management and
internal control processes, and has delegated to the Committee
the review of the effectiveness of these systems to assist it
in discharging this responsibility.
We describe the Company’s risk management framework
in detail on pages 104 to 107. The Group’s internal control
processes have been under a multi-year improvement
programme, which was reported upon in prior years’ Committee
reports. The centrepiece of our internal control framework is
our Document of Controls, which summarises in one place our
key reporting, financial, compliance and operational controls.
Each business reports adherence to the Document on a
bi-annual basis. In FY25, there was no significant non-adherence
that would undermine the reported financial statements.
To carry out our review of the risk management and internal
control processes for the Board, we receive regular reports
on both over the course of the year, which the Director of Risk
and the Group Director of Controls prepare and present to us,
giving us the opportunity to challenge and test these reports.
This year, like last year, we were satisfied with the progress
that the Company was making both with its improvement plan
and preparations for the introduction of the new reporting
requirement under the 2024 UK Corporate Governance Code,
in respect of effectiveness of the Company’s risk management
and internal controls framework. We have reviewed the exercise
used to identify the Group’s material controls and were pleased
that the Company had delivered control enhancements against
the matters raised by Deloitte in their FY24 external audit report.
FY26
The Committee has two priorities for FY26: first, to build on the
on-boarding of Forvis Mazars and on their experience from their
first year of auditing the Company, to hopefully advance our
reporting timetable without sacrificing audit quality or effectiveness;
and second, to monitor and support management in embedding
the control improvements of recent years, while continuing
preparations for the introduction of Provision 29 of the 2024
UK Corporate Governance Code.
Babcock International Group PLC Annual Report and Financial Statements 2025 149
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Remuneration
Committee
report
Carl-Peter Forster
Chair of the
Remuneration
Committee
Review of the Company’s
Remuneration policy
Engagement with shareholders
to consult on changes to the
Company’s Remuneration policy
Review of FY25 remuneration
outcomes
Deciding on the FY26
implementation of the
Remuneration policy
Highlights
Remuneration
150 Babcock International Group PLC Annual Report and Financial Statements 2025
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150 Babcock International Group PLC Annual Report and Financial Statements 2025

Dear fellow Shareholder
We as a Committee have had another busy year. This has
principally been due to our review of the Company’s Remuneration
policy, to assure ourselves that the policy incentivises value
creation for the benefit of all our stakeholders. This year
we were happy that the current policy, which shareholders
approved at our 2023 AGM with a 98% vote in favour, was
serving us well regarding aligning pay with the fundamental
drivers of value. However, following feedback from some
shareholders in late 2024, we felt that we could do more to
send a strong message to the market to support the Board’s
focus on addressing the gap between the value which the Board
believe the Company’s shares warrant and the Company’s
actual share price. Therefore, at the start of 2025, we engaged
with our shareholders as to whether we could make changes
to our policy to reinforce the confidence that the Board has
in the Company’s prospects, without diluting our focus on the
sustainable growth and margin expansion that underpins the
Company’s warranted value.
In January, we wrote to shareholders representing approximately
60% of the Company’s share capital, to invite feedback on our
proposals. This gave us the opportunity to test whether our proposals
aligned with shareholder priorities and interests, and we were
delighted with the responses and engagement that we received.
We incorporated all the feedback we received into our final
proposals, set out in detail below, which the Committee signed
off in principle in March. However, in the intervening period up
to the date of finalising this report, the Group’s share price has
performed strongly and the valuation gap to our closest FTSE
comparators has reduced. This caused the Committee to
re-evaluate whether our proposed changes, conceived in late
2024 in response to the prevailing and persistent valuation gap
at the time, retained their merit. We concluded from this in-depth
assessment that the proposals remain valid and should be submitted
for shareholder approval at the 2025 AGM; while the valuation
gap has narrowed, as a Board we believe that there remains
a significant opportunity ahead for the creation of further and
material shareholder value by executing and striving to outperform
our ambitious medium-term strategic plan. By proceeding with
our proposals, we are seeking to ensure that our well-regarded
and strong-performing management team is incentivised and
rewarded to deliver our strategic ambitions in a manner that creates
sustainable and material value for shareholders. As a result,
we are proceeding to put our proposals to all shareholders
for took part in our consultation for their contributions.
Proposed changes to the Remuneration policy
Following our consultation, we propose the following changes
to our policy for shareholder approval at the 2025 AGM:
Changes to our Performance Share Plan (PSP): Our policy
includes a PSP, under which we make annual awards of shares
that vest according to three-year performance targets; following
vesting, we require the Executive Directors to hold any awards
for a further two years. In recent cycles, vesting of the awards
has been based on a scorecard of measures, capturing cashflow,
margin, revenue and ESG metrics. We consider the basic
structure and scorecard basis of the PSP to be fit-for-purpose.
However, to send a strong message about closing the valuation
gap, we are proposing to introduce an additional absolute Total
Shareholder Return (TSR) ‘kicker’ to the award opportunity.
If approved by shareholders at the 2025 AGM, we will continue
to apply our existing ‘core’ scorecard to determine the vesting
of PSP awards up to the existing ‘core’ opportunities (of 250%
and 200% of salary for the CEO and CFO, respectively).
Starting with the FY26 awards, an additional multiplier, based
on the Company’s absolute TSR performance, would then be
applied to the vested core PSP awards. At 10% pa absolute TSR,
the multiplier would be 1.0x, meaning that there would be no
increase in value beyond that earned under the core PSP award.
The maximum multiplier of 2.0x (ie we would double the core
PSP award outcome) would require absolute TSR to be at least
30% pa. The performance periods for the core scorecard
measures and the TSR kicker would be the same (ie 1 April 2025
to 31 March 2028 for the FY26 awards), in line with our past
practice and our preference to align the performance periods
for all measures captured in a single PSP cycle.
Analysis of historical returns across FTSE companies indicates
that the performance range for the TSR kicker would be broadly
equivalent to median (10% pa) to upper decile (30% pa) outcomes.
Based on the current salaries of the Executive Directors, the
cumulative value of the maximum PSP kicker in any one PSP
cycle would be approximately 0.2% of the incremental value
created. Furthermore, as the kicker is a multiplier to the core
award, the kicker’s value also relies on Babcock achieving strong
vesting against the measures captured in the core PSP scorecard.
It is for this reason that we are proposing to introduce absolute
TSR as a kicker to the existing PSP core award opportunity.
We debated whether instead to add TSR as a further measure
to the scorecard for the core award, but concluded that it was
not desirable to have to downweight the other measures to
accommodate the linkage to TSR. The multiplicative combination
of the measures also creates a sharper link between performance
and pay, because strong vesting outcomes under the PSP require
both the achievement of the stretch targets set for the core
measures as well as upper decile shareholder returns. As the
maximum kicker, earned at 30% pa absolute TSR, would double
the current PSP award opportunity, we are proposing to raise
the PSP award opportunity in the policy to 500% of salary,
which requires shareholder approval, to be sought at the 2025
AGM, for a revised Remuneration policy and PSP rules.
Shareholders’ feedback on the proposed TSR kicker ranged
from support for increasing the maximum kicker even further,
to a preference for the kicker to apply on a one-off basis in FY26.
We also welcomed the support indicated for calibrating the TSR
kicker on an absolute, rather than relative, basis. Having considered
this feedback in the round, the Committee proposes to maintain
the proposed maximum kicker of 2.0x, which we feel provides
the right balance between reinforcing the drivers of our strategy
(through the ‘core’ award scorecard) and closing the valuation
gap (through the kicker).
The Committee
Carl-Peter Forster has chaired the Committee since
September 2022 and has been a member of the Committee
since joining the Board in June 2020. The other Committee
members are currently John Ramsay, Lucy Dimes
and Jane Moriarty. Please see pages 130 and 131 for
biographies and page 140 for attendance.
Key responsibilities
• Setting the Company’s Remuneration policy
• Oversight of reward matters across the Group
• Maintenance of a strong link between strategy,
stakeholder experience and Executive Director reward
• Approval of reward outcomes for the Executive Directors
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The kicker also provides additional performance leverage in
the package while ensuring the aggregate incentive opportunity
remains within the range seen in the UK market. If approved
by shareholders, we will apply the kicker to the FY26 PSP award.
However, in response to the preference expressed for the
kicker to be a one-off in FY26, for future years of the policy
we are committed to carefully reviewing whether it is still
appropriate to apply the kicker before doing so.
Changes to our annual bonus scheme: We are proposing two
changes to our annual bonus scheme: (i) to increase the annual
bonus opportunity for the Executive Directors from 150% to 180%
of salary to ensure competitiveness with companies of similar size
and in our market; and (ii) to retain a requirement for mandatory
bonus deferral provisions (currently 40% of earned bonus deferred
into shares for three years), but to disapply the deferral provision
for those Executive Directors who have achieved their shareholding
requirements. In such a scenario, we would pay any bonus earned
in cash. The overwhelming majority of shareholders who were
consulted did not express any concerns about this proposal.
The changes to the annual bonus structure would be effective
from the FY26 bonus cycle (ie they would not be applied to the
current FY25 cycle). In respect of the waiver of the mandatory
bonus deferral, both the CEO and the CFO have already exceeded
their shareholding guidelines, so we would expect to pay any
bonus for FY26 and future years in cash. As a reminder, the
CEO is required to maintain a shareholding of 300% of salary,
and the CFO 200%.
Regarding the waiver, we view bonus deferral as a means
of aligning the interests of shareholders and executives over
the medium term through exposure to Babcock’s share price.
Where an Executive Director has acquired (through self-purchases)
or earned (through share-based incentives) a significant total
holding of Babcock shares, we believe it is appropriate to waive
the mandatory deferral requirement and instead allow the bonus
earned to be paid entirely in cash. We believe this approach
is fairer overall, without diluting our clear emphasis on the
importance of an alignment of executive and shareholder
interests through meaningful share ownership. We are also
satisfied that, notwithstanding this change, we retain sufficient
powers to exercise malus and clawback which apply to the cash
bonus (and PSP awards during the three-year performance
period and mandatory two-year post-vesting holding period)
should the need arise.
Conclusion: We are convinced that these changes will help drive
an enhanced focus on shareholder returns. As mentioned above,
the Board believes that the proposals remain appropriate
notwithstanding the re-rating of our share price since January
2025, with only modest increases in the costs of the pay
arrangements; our modelling suggests that the proposals would
increase overall target pay for the Executive Directors by c.19%
(CFO 10%) and bring pay to around the upper quartile of sector
peers, reflective of the proven experience, quality and
performance of our Executive Directors. We consider this to be an
appropriate trade-off given the PSP kicker will have value only if
significant further returns have been delivered to shareholders;
based on the Company’s closing market capitalisation on 31 March
2025, threshold performance (absolute TSR of 10% pa, for which
no incremental reward will be delivered relative to the existing PSP
arrangement) would deliver c.£1.2 billion of shareholder value at
the end of the FY26 PSP performance period; full vesting of the
TSR kicker opportunity would result in c.£4.4 billion of shareholder
value created over the three-year period. We also considered very
carefully the feedback received from one shareholder about
whether TSR should be measured from the date of grant, rather
than the start of FY26, given the strong share price performance
in recent months. As a Committee, we concluded that our proposal
as originally designed (ie to align the performance period with
three financial years commencing 1 April 2025) remains appropriate;
the value of the proposed PSP awards remains conditional on
achieving the stretching three-year performance targets set for
each core award measure, as well as further improvements in TSR
being delivered – and sustained – over the remaining c.34 months
of the performance period. Our preference is to measure TSR using
starting and ending values based on an averaging period of at least
three months, to ensure incentive outcomes are not unduly impacted
by short-term volatility in share price. However, in recognition of
the share price appreciation through the months of 2025, we have
resolved to use a one-month average (to 31 March 2025) as the
starting point for the FY26 PSP TSR kicker calculation; this is c.20%
higher than the three-month average we would set ordinarily. Our
intention is also to apply these changes to our Remuneration policy
for other members of the senior leadership team as appropriate
to ensure alignment of interest down through the organisation.
Remuneration (continued)
Up to 250% of salary
(200%CFO) can be earned for
achieving the PSP scorecard...
Core PSP scorecard
Measure Weighting*
Underlying free cash flow 30%
Underlying operating margin 30%
Organic revenue growth 25%
ESG 15%
*
weighting proposed for FY26 cycle
X
10%
pa
30%
pa
3-year TSR
Award multiplier
1.0x
2.0x
...and this would be subject to a kicker
which could double the core award if
strong TSR is delivered over the three
years of the PSP performance period
TSR kicker
Illustration of kicker approach
152 Babcock International Group PLC Annual Report and Financial Statements 2025
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Remuneration in FY25
When we discuss the implementation of our Remuneration
policy over the year, we always consider the business context
to assure ourselves that our remuneration outcomes reflect the
Company’s performance and the broader context, including
shareholders’ experience and interests.
Following our discussions, in summary, we approved the
following outcomes:
FY25 salary: In my letter last year, we reported that, due to his
consistently strong performance and the limited salary increases
that he had taken since his appointment, we had granted Mr Lockwood
an increase in salary of 11% with effect from 1 July 2024. We were
pleased to note that shareholders overwhelmingly supported
this decision by voting (97%) in favour of our remuneration
report at last year’s AGM. In respect of Mr Mellors, the Committee
increased his salary by 4%, in line with the average increase
for those UK colleagues not subject to collective pay bargaining.
FY25 annual bonus: As we reported last year, we kept the same
structure for the FY25 annual bonus for Executive Directors as
used over the last three years. Underlying financial performance
measures comprise 80% of the bonus, split equally between
underlying operating cash flow (OCF) and underlying operating
profit (OP) with the remaining 20% allocated to non-financial
measures. As in previous years, we adopted a wide range for
the performance targets and retained discretion to ensure that
the outcome aligned to the experience of the Group’s stakeholders.
We as a Committee, and as a Board more generally, are delighted
to report the strong OCF and OP performance as described on
page 26, which resulted in an annual bonus payout for FY25 of
100% of maximum being awarded to David Lockwood and 100%
of maximum being awarded to David Mellors. This outcome was
approved by the Committee, following our assessment of the
formulaic outcome in the wider performance context for the
Company, and the experience of our key stakeholders. Please
see page 165 for more detail.
FY23 PSP vesting: We granted the FY23 PSP award in August
2022 with the same performance measures as the FY21 and FY22
PSP grants – underlying FCF and relative TSR, equally weighted
and both over the same three-year performance period ending
on 31 March 2025. As we do every year, at the time of grant,
we reviewed the Company’s share price performance to satisfy
ourselves that the award of the full opportunity (then 200% of
salary) was appropriate. We are pleased to say that the outturn
for the FY23 PSP award will be 100% of the overall award,
reflecting Babcock’s strong performance over the performance
period. In approving this vesting outcome, we undertook our
normal assessment for windfall gains, using a range of
quantitative tests to do so. These tests supported our view that
the value at vesting which we are reporting for the FY23 PSP in
respect of the Executive Directors is not a windfall, but instead
reflects the intrinsic value of the business following its successful
reset and transformation under the leadership of David Lockwood
and David Mellors. For more information, please see page 168.
FY25 PSP grant: We granted the FY25 PSP award for the Executive
Directors in August 2024. In line with our approach to the FY24 PSP
grant, we set the award opportunity for the CEO at 250% of salary
and at 200% for the CFO (within the limits approved by shareholders
at the 2023 AGM). We retained the same PSP measures to align
closely with the drivers of the Company’s long-term performance
and strategy. The measures include underlying free cash flow
(an indicator of cash generation), underlying operating margin
(an important indicator of operating efficiency), organic revenue
growth (an indicator of business growth) and ESG (reflecting the
strategic importance of visible improvements, due both to
shareholder sentiment that companies need to play their part in
improving the UK’s performance in this area and to the increasing
importance of the ESG agenda to our people). We have set the
targets for each measure to ensure that they are appropriately
stretching. For more detail, please see page 169.
Remuneration for FY26
I have explained the changes that we are proposing to our
Remuneration policy at the start of my letter. If shareholders
approve these changes at the 2025 AGM, we will implement
them for FY26. Subject to receiving shareholder approval,
we propose the following, which balances the wish of
shareholders that we incentivise our Executive Directors
to deliver the Board’s strategic actions with the need to align the
implementation of the policy with shareholder interests.
FY26 salary increase: In keeping with our usual practice, we
reviewed the Executive Directors’ base salaries at the same time
as other UK colleagues not covered by collective bargaining,
being the population that we believe is the best internal
comparator for the Executive Directors. Our review was informed
by the range of increases awarded to those colleagues of up to
5% for our highest performers (and 3% on average). We believed
that both the Executive Directors merited consideration for a
maximum award of 5% following their performance over the year.
However, as the Committee had awarded Mr Lockwood a 11%
increase last year, the conclusion of our review was to award Mr
Lockwood a salary increase of 3% to £932,933. Mr Mellors was
awarded a salary increase of 5% to £645,582, which remains
below that which would have resulted if increases had been
awarded annually at a lower rate than the average workforce
increase over his tenure. Mr Mellors’ salary is considered
appropriate in the context of his contribution to Babcock as well
as competitive practice in our key talent markets.
FY26 annual bonus: We will keep the structure of the Executive
Directors’ annual bonus consistent with that for FY25, with
measures based on underlying OCF, underlying OP and
non-financial objectives. If shareholders approve our proposed
policy changes, we will set the maximum award opportunity
at 180% of salary and will pay the bonus in cash, provided the
Executive Directors continue to meet their shareholding
guidelines. We will disclose the targets in full in our report
next year. Please see page 170 for more detail.
FY26 PSP grant: We will grant awards under the PSP to the
Executive Directors after the 2025 AGM and, subject to shareholder
approval, introduce the absolute TSR kicker. The award will
cover the three-year period FY26 to FY28. Vesting of the core
PSP award will continue to be based on the measures we
adopted for the FY24 and FY25 PSP awards (underlying free
cash flow, underlying operating margin, organic revenue growth
and ESG), as we believe they still align closely with the drivers
of the Company’s long-term performance and strategy. We
have set the targets for each measure to ensure that they are
appropriately stretching. For more detail, please see page 171.
Focus for FY26
We hope that you find our description of the work done by the
Committee to further the interests of shareholders helpful. We
believe that the changes we are proposing are in the best interests
of all our shareholders, as not only will they continue to incentivise
a strong and high-performing executive team to continue to deliver
value for shareholders, but they will also send a strong message
to the market of our underlying view of the value of the Company.
On behalf of the Committee, I recommend and hope that you do
vote in favour of the changes.
I will be at the 2025 AGM and would be happy to discuss any
aspects of this report at the meeting.
Carl-Peter Forster
Chair of the Remuneration Committee
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This section provides an overview of the Company’s performance over FY25, and the remuneration received by our Executive
Directors. You can find full details in the Annual report on remuneration on pages 163 to 177.
FY25 remuneration outcomes
FY25 annual bonus
The Committee based the FY25 bonus on a mix of financial and non-financial measures; the performance targets for which
(and actual performance against these) are set out below. For a full description of the FY25 annual bonus, please see page 165.
Measures Warranted payout (% of maximum bonus) Performance targets
D Lockwood D Mellors
Underlying
operating profit
(OP)
1
40% Max 40% Outturn 40% Max 40% Outturn
Threshold £313.5m
Target £330.0m
Stretch £363.0m
Outturn £365.3m
Underlying
operating cash
flow (OCF)
1
40% Max 40% Outturn 40% Max 40% Outturn Threshold £170.0m
Target £200.0m
Stretch £230.0m
Outturn £296.1m
Non-financial
2
20% Max 20% Outturn 20% Max 20% Outturn
Total 100% Max 100% Outturn 100% Max 100% Outturn
1. For definitions, please see the fuller description of the FY25 bonus on page 165.
2. The Committee has merged several measures into an overall assessment in this table for disclosure purposes.
FY23 PSP
The Committee approved the FY23 PSP grant in August 2022. Vesting was based 50% on underlying free cash flow (FCF) and 50%
on relative Total Shareholder Return (TSR), both over three years to 31 March 2025. Performance against both measures warranted
100% vesting.
% weighting
Threshold performance
(16.7% vesting)
Stretch performance
(100% vesting) Outturn
Vesting
(% of overall award)
3-year FCF post exceptional items 50% £176m £264m £389m 50%
3-year TSR vs FTSE 350 (excluding
investment trusts and financial services) 50% Median TSR
Median TSR +
9% pa
Median TSR +
27.4% pa 50%
Total vesting 100%
Remuneration at a glance
Remuneration (continued)
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Implementation of the Remuneration policy in FY26
For the current financial year, the Committee intends to implement the Remuneration policy as set out in the table below.
Base salary Pension Benefits
David Lockwood: £932,933 10% of salary Unchanged from FY25
David Mellors: £645,582 10% of salary Unchanged from FY25
The Committee reviewed the base salary of the Executive Directors in June 2025 and increased Mr Lockwood’s salary by 3% and
Mr Mellors’ salary by 5%.
Annual bonus and Deferred Bonus Plan (DBP) PSP
The bonus structure will be consistent with that used for FY25,
but, subject to shareholder approval at the 2025 AGM, with
awards of up to 180% of salary based on the achievement of
financial targets (underlying operating profit (OP) and underlying
operating cash flow (OCF), each a 40% weighting) and non-
financial measures (a 20% weighting).
Subject to shareholder approval, the bonus will be paid in cash if
an Executive Director continues to meet their shareholding
guidelines. For more information about the guidelines please see
page 160.
PSP ‘core’ awards of 250% and 200% of salary for the CEO and
CFO respectively, with vesting based on measures the Committee
believes are most appropriate: underlying FCF (weighted 30%),
underlying operating margin (weighted 30%), organic revenue
growth (weighted 25%, and subject to a discretionary operating
margin underpin) and ESG (weighted 15%).
Subject to shareholder approval, an absolute TSR “kicker”, of up
to 2.0x, will be applied to the core award. For more information,
please see pages 151 and 152.
Compliance statement
This report has been prepared in compliance with all relevant remuneration reporting regulations in force at the time and in respect
of the financial year under review.
This report contains both auditable and non-auditable information. The information subject to audit is marked.
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Shareholders approved our current Remuneration policy at our 2023 AGM with a vote
infavour of 98%. Following consultation with our shareholders, we now wish to make
certain changes to the policy. The changes require shareholder approval, which we will
seek at the 2025 AGM. We set out the changes to the Remuneration policy for Executive
Directors in italics below. We also set out a minor change to the Remuneration policy
forNon-Executive Directors to include additional flexibility to pay travel allowances.
Youcan find the current policy at www.babcockinternational.com/who-we-are/
leadership-and-governance.
Key principles of the Remuneration policy
Our Remuneration policy for Executive Directors reflects a preference that we believe the majority of our shareholders share – to rely
more heavily on the value of variable performance-related rewards than on the fixed elements of pay, to incentivise and reward
success. The Committee, therefore, weights the focus of executive remuneration towards performance-related pay with a particular
emphasis on long-term performance. The Committee believes that, properly structured and with suitable safeguards, variable
performance-related rewards are the best way of linking pay to strategy, risk management and shareholders’ interests.
Remuneration policy for Executive Directors
Base salary
Purpose and link to
strategy
To recruit and retain the best executive talent to execute our strategic objectives at appropriate cost.
Operation The Committee reviews base salaries annually, with reference to the individual’s role, experience and
performance; salary levels at relevant comparators are considered, but do not in themselves drive decision-
making.
Opportunity The Committee anticipates that increases in salary for the wider employee population over the term of this policy
will guide it on any increases for the Executive Directors. In certain circumstances (including, but not limited to,
a material increase in job size or complexity, market forces, promotion or recruitment), the Committee has discretion
to make appropriate adjustments to salary levels to ensure they remain fair and competitive.
Performance
metrics
Business and individual performance are considerations in setting base salary.
Pension
Purpose and link to
strategy
To provide market-competitive retirement benefits.
Operation Cash supplement in lieu (wholly or partly) of pension benefits for ongoing service and/or membership of the
Group’s defined benefit or defined contribution pension scheme.
Opportunity Executive Directors receive pension benefits up to the value (10% of salary, as of FY25) equivalent to the
maximum level of pension benefits provided under the Company’s regular defined contribution pension plans
as offered to the wider workforce in the relevant market as may be in effect or amended from time to time.
Performance
metrics
Not performance-related.
Remuneration policy report
Remuneration (continued)
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Benefits
Purpose and link to
strategy
Designed to be competitive in the market in which the Group employs the individual, or to meet costs effectively
incurred at the Company’s request.
Operation The Group provides a range of benefits, which may include (but are not limited to): life insurance; medical
insurance; car and fuel benefits and allowances; home-to-work travel and related costs; and accommodation
benefits and related costs.
The Group may offer other benefits (eg relocation) if the Committee considers it appropriate and reasonable.
Opportunity Benefit values vary by role and are periodically reviewed and set at a level that the Committee considers
appropriate in light of relevant market practice for the role and individual circumstances.
The cost of the benefits provided changes in accordance with market conditions, which will determine the maximum
amount that the Company would pay in the form of benefits during the period of this policy. The Committee
retains discretion to approve a higher cost in certain circumstances (eg relocation) or in circumstances where
factors outside the Company’s control have changed materially.
Performance
metrics
Not performance-related.
Annual bonus
Purpose and link to
strategy
To underpin delivery of year-on-year financial performance and progress towards strategic non-financial
objectives, being structured to motivate delivery against targets and achievement of stretching outperformance,
whilst mindful of the achievement of long-term strategy and longer-term risks to the Company.
The requirement to defer a substantial part of the bonus into Company shares, while building up a holding
to meet the in-post shareholding guideline, strengthens the link to long-term sustainable growth.
Operation Performance targets are set at the start of the year and reflect the responsibilities of the Executive Directors
in relation to the delivery of our strategy.
At the end of the year, the Committee determines the extent to which the Group has achieved these targets.
The Committee has the discretion to adjust the outcome (up or down) within the limits of the plan for corporate
transactions, unforeseen events, factors outside reasonable management control, and changes to business
priorities or operational arrangements, to ensure targets represent and remain a fair measure of performance.
In addition, the Committee considers health and safety performance and may reduce or cancel any annual bonus
otherwise payable if it considers it appropriate to do so in light of that performance.
At least 40% of annual bonus payments for Executive Directors are deferred into Company shares for three
years. Dividend equivalents accrued during the deferral period are payable in respect of deferred shares when
(and to the extent) these vest. The Committee may waive the requirement to defer any element of annual bonus
in respect of any Executive Director who has met their shareholding guideline.
Malus and clawback provisions apply to cash and deferred bonus awards until the third anniversary of the
payment/vesting date: if the accounts used to determine the bonus level have to be materially corrected; if the
Committee subsequently comes to a view that bonus year performance was materially worse than originally
believed; in the event of gross misconduct; or if the award holder leaves employment in circumstances in which
the deferred bonus did not lapse and facts emerge which, if known at the time, would have caused the deferred
bonus to lapse on leaving or would have caused the Committee to exercise any discretion differently.
Opportunity Maximum bonus opportunity is 180% of salary, increased from 150% subject to shareholder approval at the 2025 AGM.
For achievement of threshold, the Executive Directors earn up to 15% of maximum bonus; for achievement of target,
they earn up to 55% of maximum bonus.
Performance
metrics
The Committee determines performance on an annual basis by reference to Group financial measures,
eg underlying operating profit, underlying OCF, as well as the achievement of non-financial objectives.
The weighting of non-financial objectives is limited to 20%, unless the Committee believes exceptional
circumstances merit a higher weighting.
The Committee retains discretion to vary the financial measures and their weightings annually, to ensure
alignment with the business priorities for the year.
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Performance Share Plan (PSP)
Purpose and link to
strategy
To incentivise delivery of sustainable value creation over the longer term.
Long-term measures guard against the Company taking short-term steps to maximise annual rewards at the
expense of future performance.
Operation The Committee has the ability to grant nil-cost options or conditional share awards under the PSP.
The Committee reviews award levels and performance conditions, on which vesting depends, from time to time
to ensure they remain appropriate.
Participants will receive cash or shares equal to the value of any dividends that they would have received over
the vesting period on awards that vest.
The Committee has the ability to exercise discretion to override the PSP outcome in circumstances where strict
application of the performance conditions would produce a result inconsistent with the Company’s remuneration
principles.
An additional two-year holding period will apply to Executive Directors’ vested PSP awards, whether or not these
are exercised before the expiry of the period.
Malus and clawback provisions apply to PSP awards until the third anniversary of the payment/vesting date:
if there is a misstatement of the Group’s financial results for any period; if the Committee subsequently comes
to a view that performance was materially worse than originally believed; in the event of gross misconduct; or if
the award holder leaves employment in circumstances in which the award did not lapse and facts emerge which,
if known at the time, would have caused the award to lapse on leaving or caused the Committee to exercise
any discretion differently.
Subject to shareholder approval at the 2025 AGM, the Committee will introduce an absolute “TSR kicker”,
acting as a multiplier to the core PSP awards based on the Company’s absolute Total Shareholder Return.
Opportunity The maximum annual PSP award opportunity is, whether or not these are exercised before the expiry of this
period, 500% of salary if the TSR kicker is applied in full to the core PSP award. This represents an increase from
250% of salary under the 2023 Remuneration policy.
The core PSP award for the CEO is 250% of salary, with a further 250% of salary if the TSR kicker is applied.
It is the current intention that the CFO’s core award will be set at 200% of salary, with an overall maximum
of 400% of salary after application of the TSR kicker.
The TSR kicker will be a feature of the FY26 PSP cycle. The Committee will reserve the discretion at each
subsequent award cycle as to whether that PSP cycle will be subject to the TSR kicker.
16.7% of the core award will vest for threshold performance.
Performance
metrics
Vesting of PSP awards is subject to continued employment and Company performance over a three-year
performance period.
Core PSP awards made during the life of this policy will vest on the achievement of stretching targets that align
to key drivers of strategy (including, but not limited to, free cash flow, operating margin, organic revenue growth
and ESG). The vesting of the TSR kicker will be based on absolute total shareholder return, with full vesting of the
TSR kicker at 30% pa and with no kicker below 10% pa (with a straight-line sliding scale between these points).
The Committee will review the performance measures, their weightings and performance targets annually
to ensure continued alignment with Company strategy.
All-employee plans – Babcock Colleague Share Plan
Purpose and link to
strategy
To encourage employee ownership of Company shares.
Operation Open to all UK tax-resident employees, including Executive Directors, of participating Group companies.
The plan is an HMRC-approved share incentive plan that allows an employee to purchase shares out of pre-tax salary.
The Company can also make matching awards on purchased shares as well as make awards of free shares
that are not conditional on employees purchasing shares. If held for a period approved by HMRC (currently three
to five years) awards are taxed on a favourable basis.
Opportunity Participants can purchase shares up to the prevailing HMRC limit from time to time.
The Company currently offers to match purchases made through the plan at the rate of one free matching share
for every 10 shares purchased. The Committee reviews the matching rate periodically, but it will remain bound
by the prevailing HMRC limit. The Company may also make awards of free shares to eligible employees,
the value of which will be determined by the Committee within the prevailing HMRC limit.
Performance
metrics
Not performance-related.
Remuneration (continued)
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Approach to recruitment remuneration
In the case of hiring or appointing a new Executive Director, the Committee may make use of any of the components of remuneration
(and subject to the same limits) set out in the policy above.
In determining appropriate remuneration for new Executive Directors, the Committee will take into consideration all relevant factors
(including quantum, the nature of remuneration and from where the Company recruited the candidate) to ensure that arrangements
are in the best interests of the Company and its shareholders. The Committee may also make an award in respect of a new external
appointment to ‘replace’ incentive arrangements forfeited on leaving a previous employer over and above the limits set out in the
policy in the table above. In doing so, the Committee will consider relevant factors, including any performance conditions attached
to these awards, time to vesting and the likelihood of those conditions being met. The fair value of the compensatory award would
not be greater than the awards the Company was replacing. In order to facilitate like-for-like compensatory awards on recruitment,
the Committee may avail itself of the relevant Listing Rule, if required.
When appointing a new Executive Director by way of promotion from an internal role, the pay structure will be consistent with the
policy for external hires detailed above. Where an individual has contractual commitments, outstanding incentive awards and/or
pension arrangements prior to their promotion to Executive Director, the Company may honour those arrangements; however,
where appropriate the Committee would expect these to transition over time to the arrangements stated above.
When recruiting a new Non-Executive Director, the Committee or Board will structure pay in line with the existing policy, namely
a base fee in line with the current fee schedule, with additional fees for fulfilling the role of Senior Independent Director, Chair of the
Audit and Remuneration Committees, and Director designated for workforce engagement.
Payments from existing awards and commitments
Executive Directors are eligible to receive payment from any award or other commitment made prior to the approval and implementation
of the Remuneration policy detailed in this report.
Performance measure selection and approach to target setting
The Committee selects measures used under the annual bonus plans annually to reflect the Group’s main strategic objectives
for the year. They reflect both financial and non-financial priorities.
The Committee sets performance targets to be stretching but achievable, considering the Company’s strategic priorities and the
economic environment in which the Company operates. The Committee sets financial targets taking into account a range
of reference points, including the Group’s strategic and operating plan.
The Committee considers at length the appropriate financial conditions and non-financial objectives to attach to annual bonus
awards as well as the financial targets to attach to share awards to ensure they continue to be: (i) relevant to the Group’s strategic
objectives and aligned with shareholders’ interests, mindful of risk management; and (ii) fair by being suitably stretching whilst
realistic.
The Committee has discretion to adjust the calculation of short- and long-term performance outcomes in circumstances where
application of the formula would produce a result inconsistent with the Company’s remuneration principles. Such circumstances
may include changes in accounting standards and certain major corporate events such as rights issues, share buybacks, special
dividends, corporate restructurings, acquisitions and disposals.
The Committee reviews the performance conditions for share awards prior to the start of each cycle to ensure they remain
appropriate. The Committee would not make a material reduction in long-term incentive targets for future awards without prior
consultation with our major shareholders.
Executive Director and general employee remuneration
The policy with regard to the remuneration of senior executives below the Board is broadly consistent with that for the Executive
Directors, in that it weights remuneration to variable components which are delivered through an annual bonus and equity-based
incentives, albeit that the Company reserves the discretion to use restricted stock awards, and not the PSP, for some participants
below Board level, when appropriate. The Committee considers the Remuneration policy for our Executive Directors with the remuneration
philosophy and principles that underpin remuneration for the wider Group in mind. The remuneration arrangements for other
employees reflect local market practice and the seniority of each role. As a result, the levels and structure of remuneration for
different groups of employees will differ from the policy for Executive Directors as set out above, but with the common intention
that remuneration arrangements for all groups might reasonably be considered to be fair having regard to such factors.
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Balance of remuneration for Executive Directors
The charts below provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split
between the different elements of remuneration under four different performance scenarios: ‘Minimum’, ‘On-target’, ‘Maximum’
and ‘Maximum+50%’.
Potential reward opportunities are based on the Company’s Remuneration policy and implementation in FY26, as outlined in the
Committee Chair’s statement and later in the Annual report on remuneration, applied to base salaries as at 1 July 2025. Note that the
projected values exclude the impact of any share price movements except in the ‘Maximum+50%’ scenario.
The ‘Minimum’ scenario shows base salary, pension
(and/or pay in lieu of pension) and taxable benefits (ie fixed
remuneration). These are the only elements of the Executive
Directors’ remuneration packages that are not at risk.
The ‘On-target’ scenario reflects fixed remuneration as above,
plus a payout of 55% of the annual bonus and threshold vesting
of 16.7% of the maximum core award under the PSP (ie c.42%
of salary for the CEO, c.33% for the CFO).
The ‘Maximum’ scenario reflects fixed remuneration, plus full
payout under the annual bonus (of 180% of salary), and full
vesting of the core PSP award (250% of salary for the CEO and
200% for the CFO). None of the PSP TSR kicker, which is based
on absolute TSR, vests in this scenario given the assumption
of no share price growth.
The ‘Maximum+50%’ scenario reflects fixed remuneration,
full payout under the bonus, plus full vesting of the core PSP
award (250% of salary for the CEO and 200% for the CFO) and
a c.1.22x TSR kicker (equivalent to a further PSP award of 56%
of salary for the CEO and 45% for the CFO), with PSP awards
also reflecting an increase of 50% in the share price from grant.
Note: under this scenario the TSR kicker does not fully vest as
this would require the share price to grow by c.120% (assuming
no dividends) over the three-year performance period.
Shareholding guidelines for
Executive Directors
The Committee sets shareholding guidelines for the Executive
Directors. The current guideline is to build and maintain, over
time, a personal (and/or spousal) holding of shares in the Company
equivalent in value to at least twice the Executive Director’s
annual base salary (three times for the CEO). Executive Directors
are expected to retain at least half of any shares acquired on the
exercise of a share award that remain after the sale of sufficient
shares to cover tax and national insurance triggered by the
exercise (and associated dealing costs) until the guideline level
is achieved and thereafter maintained.
The shareholding requirements include a post-cessation extension
such that departing Executive Directors will be required to hold
vested Company shares, received through incentive plans
granted from FY21 onwards, for two years at a level equal to the
lower of their actual shareholding on cessation and the in-post
shareholding requirement. Any shares purchased by an
Executive Director will not be part of this holding requirement.
Details of Directors’ service contracts and
exitpayments and treatment of awards
onachange of control
The following summarises the key terms (excluding
remuneration) of the Executive Directors’ service contracts:
Executive Directors
Name Date of service contract Notice period
David Lockwood
(Chief Executive)
29 July 2020 12 months from
Company, 12 months
from Director
David Mellors
(Chief Financial
Officer)
29 September 2020 12 months from
Company, 12 months
from Director
The latest service contracts are available for inspection at the
Company’s registered office and will also be available at the
Company’s Annual General Meeting.
The Company’s policy is that Executive Directors’ service contracts
should be capable of being terminated by the Company on not
more than 12 months’ notice. The Executive Directors’ service
contracts entitle the Company to terminate their employment
without notice by making a payment of salary and benefits
in lieu of notice. Under the Executive Directors’ contracts, the
Company may choose to make the payment in lieu by monthly
instalments and mitigation applies such that the Committee may
decide to reduce or discontinue further instalments.
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Minimum
On-target
Maximum
Maximum
+50%
0
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
Minimum
On-target
Maximum
Maximum
+50%
Chief Executive
David Lockwood (£ʼ000)
22%
47%
33%
38% 15%
45%
100%
Chief Financial Officer
David Mellors (£ʼ000)
23%
46%
37%
40% 14%
40% £3,178
16% 24%
60%
17% 27%
56%
£4,257
£1,579
100%
£725
Fixed Bonus PSP
£5,159
£2,460
£1,147
£7,107
Remuneration (continued)
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In addition to the contractual provisions regarding payment on termination set out above, the Company’s incentive plans contain
provisions for termination of employment, where the Committee has the discretion to determine the level of award vesting
as described in the table below.
Name Treatment on a change of control Treatment for a good leaver* Treatment for other leavers
Annual bonus
Will be paid a time pro-rated
proportion, subject to
performance during the year,
generally paid immediately,
with Committee discretion
to treat otherwise.
Will be paid a time pro-rated
proportion, subject to
performance during the year,
generally paid at the year end,
with Committee discretion to
treat otherwise.
No annual bonus entitlement,
unless the Committee
exercises discretion to treat
otherwise.
Deferred bonus
awards
Participants may exercise award
in full on the change of control,
with Committee discretion to
treat otherwise.
Entitled to retain any award,
which will generally vest at the
normal vesting date, with
Committee discretion to treat
otherwise.
Outstanding awards are
forfeited unless the
Committee exercises
its discretion to treat
otherwise.
PSP
Awards generally vest
immediately and, for
performance-related awards, will
be pro-rated for time and remain
subject to performance
conditions, with Committee
discretion to treat otherwise.
Entitled to retain a time pro-rated
proportion, which remains
subject to performance
conditions tested at the normal
vesting date. In very exceptional
circumstances, the Committee
has discretion to allow immediate
vesting, but time pro-rating will
always apply.
Outstanding awards are
forfeited unless the
Committee exercises its
discretion to treat otherwise.
*
An individual would generally be considered a ‘good leaver’ if they leave the Group’s employment by reason of injury, ill-health, disability,
redundancy or retirement. The treatment of share awards held by Directors who leave on other grounds is entirely at the discretion of the Committee,
and in deciding whether (and the extent to which) it would be appropriate to exercise that discretion the Committee will have regard to all the
circumstances.
External appointments of Directors
The Directors may accept external appointments with the prior approval of the Chair, provided that such appointments do not
prejudice the individual’s ability to fulfil their duties for the Group. Any fees for outside appointments are retained by the Director.
The Chair will approve such appointments, as the Board believes it is beneficial for Directors to gain experience of practice in other
organisations. However, before approving any appointment, she must satisfy herself that there are no conflict issues with the
Company (or they can be appropriately dealt with) and the Director will have sufficient time to devote to the Company.
Chair and Non-Executive Directors
Name Date of appointment as a Director Date of current appointment letter
Anticipated expiry of present term of
appointment (subject to annual re-election)
Dame Ruth Cairnie (Chair) 3 April 2019 25 March 2025 AGM 2026
Lucy Dimes 1 April 2018 25 March 2025 AGM 2026
Carl-Peter Forster 1 June 2020 30 March 2023 AGM 2026
Lord Parker 10 November 2020 30 March 2023 AGM 2026
John Ramsay 6 January 2022 25 March 2025 AGM 2028
Jane Moriarty 1 December 2022 25 March 2025 AGM 2028
Sir Kevin Smith 1 June 2023 26 April 2023 AGM 2026
Claudia Natanson 1 March 2024 12 February 2024 AGM 2027
The Group’s Non-Executive Directors serve under letters of appointment as detailed in the table above, normally for no more than
three-year terms at a time; however, in all cases appointments are terminable at will at any time by the Company or the Director.
All Non-Executive Directors are subject to annual re-election by the Company in general meeting in line with the UK Corporate
Governance Code.
The latest written terms of appointment are available for inspection at the Company’s registered office and at the Company’s Annual
General Meeting. The expected time commitment of Non-Executive Directors is set out in their current written terms of appointment.
Details of the Non-Executive Directors’ terms of appointment are shown in the table. The appointment and re-appointment, and the
remuneration, of Non-Executive Directors are matters reserved for the Nominations Committee and Executive Directors, respectively.
The remuneration of the Chair is a matter reserved for the Remuneration Committee.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order
to carry out their duties as members of the Board and its Committees. The Non-Executive Directors are not eligible to participate
in the Company’s performance-related incentive plans and do not receive any pension contributions.
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Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Function Operation Opportunity Performance
measures
To attract and
retain high-calibre
Non-Executive
Directors with
commercial and
other experience
relevant to the
Company
Fee levels are reviewed against market practice from
time to time (by the Chair and the Executive Directors
in the case of Non-Executive Director fees and by the
Committee in respect of fees payable to the Chair).
Additional fees are payable for additional
responsibilities such as acting as Senior Independent
Director, Chair of the Audit Committee, Chair of the
Remuneration Committee and Director designated for
workforce engagement. Allowances may also be paid
to reflect the time commitment of travel required to
fulfil the role.
Non-Executive Directors do not participate in any
incentive schemes, nor do they receive any pension
or benefits (other than the cost of travel and
accommodation expenses).
The Company reviews fee levels by reference to
FTSE-listed companies of similar size and complexity.
It takes into account time commitment, level of
involvement required and responsibility when it
reviews fee levels. This may result in higher fee levels
for overseas Directors.
Non-Executive Director fee
increases are applied in line
with the outcome of the periodic
fee review.
Any increases to the Non-
Executive Director fee will
typically be in line with general
movements in market levels of
Non-Executive Director fees. In
the event that there is a material
misalignment with the market
or a change in the complexity,
responsibility or time
commitment required to fulfil a
Non-Executive Director role, the
Board has discretion to make
an appropriate adjustment to
the fee level.
None
Consideration of employee views
When reviewing Executive Directors’ remuneration, the Committee is aware of the proposals for remuneration of all colleagues.
When considering executive pay, the Committee takes into account the experience of colleagues and their pay. The Committee
considers these matters when it conducts its annual review of executive remuneration.
The Company seeks to promote and maintain good relationships with employee representative bodies as part of its employee
engagement strategy and consults on matters affecting colleagues and business performance as required. The Committee engages
with colleagues through its Annual Report, which sets out in detail executive pay. However, in addition, the Company also engages
directly with colleagues through the Global People Survey and through the ‘ask David’ email. The Committee takes any feedback
it receives into account in its decision-making on executive remuneration.
Consideration of shareholder views
When determining remuneration, the Committee takes into account the views of shareholders and best practice guidelines issued
by institutional shareholder bodies. The Committee welcomes feedback from shareholders on the Remuneration policy and
arrangements. It commits to consulting with leading shareholders in advance of any significant changes to the Remuneration policy.
In developing the policy set out in this report, we consulted with shareholders representing c.60% of our issued share capital,
and also engaged shareholder representative bodies. We had a good level of engagement and are pleased to report that virtually
all investors who provided feedback indicated support for the approach initially proposed.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the structure
of executive remuneration remains appropriate.
Remuneration (continued)
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The Committee
The Board appoints the members of the Committee on the recommendation of the Nominations Committee. In accordance with
the UK Corporate Governance Code, only independent Non-Executive Directors are members of the Committee.
In total there were nine meetings in the year to 31 March 2025. The Chair and the CEO attend meetings by invitation, as does the
CFO on occasion, but they are not present when their own remuneration is being decided. The Chief People Officer also attends
meetings.
The terms of reference for the Committee are available for inspection on the Company’s website. The Committee reviewed them
during the year. Duties of the Committee include the setting of the policy for the remuneration of the Executive Directors and the
Chair, as well as their specific remuneration packages. In determining the Remuneration policy, the Committee takes into account all
factors which it deems necessary to ensure that the Company provides members of the senior executive management of the Group
with appropriate incentives to encourage strong performance and rewards them for their individual contributions to the success
of the Company in a fair and responsible manner. The composition of the Committee and its terms of reference comply with the
provisions of the UK Corporate Governance Code.
Advisors
Ellason advised the Committee during the year. Ellason reports directly to the Committee Chair and provides objective and independent
analysis, information and advice on all aspects of executive remuneration and market practice, within the context of the objectives
and policy set by the Committee. A representative from Ellason typically attends Committee meetings. Ellason also provides
participant communications, performance reporting and Non-Executive Directors’ fee benchmarking services to the Company.
Ellason is a member of the Remuneration Consultants Group and a signatory to the Code of Conduct for consultants to remuneration
committees of UK listed companies. Please see www.remunerationconsultantsgroup.com for details.
Ellason adheres to this Code of Conduct. The Company paid fees to Ellason in respect of work for the Committee carried out in the
year under review totalling £125,988 based on time and materials, excluding expenses and VAT.
The Committee reviews Ellason’s involvement each year and considers any other relationships that it has with the Company that
may limit its independence. Ellason has no relationship with the Company or its Directors beyond those formed in its capacity as
appointed advisor to the Committee. The Committee is satisfied that the advice provided by Ellason is objective and independent.
Matters considered
The Committee considered a number of matters during the year to 31 March 2025, including:
• renewing the Remuneration policy bearing in mind market trends and corporate governance best practice
• reviewing the Committee’s terms of reference
• considering trends in executive remuneration, remuneration governance and investor views
• reviewing share ownership guidelines for senior executives
• approving the Directors’ Remuneration report
• reviewing the continued appointment of the Committee’s independent advisors
• making share awards under the Company’s share plans
• approving the performance measures and targets to be applied under the Company’s PSP
• approving Executive Director salaries for the financial year
• considering performance targets and non-financial objectives for the FY26 annual bonus plan
• approving the level of vesting of the FY22 PSP awards
• considering performance against the measures applied to, and level of payout of, the FY24 annual bonus
• agreeing the level of, and targets for, FY26 PSP awards
Summary of shareholder voting
The following table shows the results of the last binding shareholder vote on the Remuneration policy (at the 2023 AGM), as well
as the advisory vote on the Annual report on remuneration (at the 2024 AGM):
2023 Remuneration policy 2024 Annual report on remuneration
Votes cast
Total number
of votes
% of votes cast
for and against
Total number
of votes
% of votes cast
for and against
For (including discretionary) 363,326,457 98.29% 364,997,185 97.11%
Against 6,310,888 1.71% 10,857,090 2.89%
Total votes cast (excluding withheld votes) 369,637,345 100% 375,854,275 100%
Votes withheld 230,578 4,349,953
Total votes cast (including withheld votes) 369,867,923 380,204,228
Annual report on remuneration
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Single total figure of remuneration for Executive Directors for FY25 (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director.
David Lockwood David Mellors
FY25 £’000 FY24 £’000 FY25 £’000 FY24 £’000
Fixed remuneration
Salary
1
883 816 609 586
Benefits in kind and cash
2
120 120 15 15
Pension
3
88 82 61 59
Annual variable remuneration
Annual bonus (cash)
4
795 438 548 306
DBP (deferred annual bonus plan)
5
530 292 365 204
Long-term incentives
PSP
6
2,918 2,391 2,042 1,674
Dividends
7
33 23 23 16
Total (of which) 5,367 4,162 3,663 2,860
Total fixed remuneration
1,2,3
1,091 1,018 685 660
Total variable remuneration
4,5,6,7
4,276 3,143 2,978 2,200
The figures have been calculated as follows:
1. Salary: Base salary amount paid in the year.
2. Benefits in kind and cash: The value of benefits and salary supplements (other than those in lieu of pensions) including medical insurance, home to
work travel expenses incurred at the request of the Company, accommodation-related benefits, and car and fuel benefits. David Lockwood in FY25
received £98k in connection with his accommodation costs in London, which were, at the Company’s request, to enable him to lead the business
effectively.
3. Pension: The numbers above represent for each year the value of the cash supplement, which for David Lockwood and David Mellors was 10% of
base salary.
4. Annual bonus (cash): This is the 60% of total annual bonus earned for performance during the year (see pages 165 to 167) that is not required to be
mandatorily deferred into shares under the DBP (see page 157) and is paid in cash.
5. DBP: This is the mandatorily deferred element of the annual bonus earned for performance during the year (40% of earned bonus), which will vest
after three years.
6. PSP: The FY23 PSP award was granted in August 2022 with a three-year performance period to 31 March 2025 and will vest in August 2025. The
values in the table are based on 100% of the award vesting at an average share price for the three months to 31 March 2025 of 615.02p. The values
attributable to share price appreciation over the FY23 PSP vesting period are presently estimated to 31 March 2025, at £1,286k and £900k for David
Lockwood and David Mellors, respectively. The PSP FY24 value has been updated to reflect the share price of 528.50p on the vest date of the FY22
PSP award.
7. Dividends: Since HY24 the Company has returned to the dividend list. All dividends accrued to the FY23 PSP will be payable in cash on exercise
of the award. The FY24 PSP value has been updated to reflect the August 2024 dividend of 3.3p which accrued to awards prior to vesting.
Neither of the Executive Directors participated in a Group pension scheme or otherwise received pension benefits from the Group
for service during the year to 31 March 2025. They instead received a cash supplement equal to 10% of salary. There are no additional
early retirement benefits.
Supplements paid in lieu of pension do not count for pension, share award or bonus purposes.
Directors benefit from life assurance cover of four times base salary. The cost of providing that life assurance cover was:
Director FY25 £’000 pa FY24 £’000
David Lockwood 5 4
David Mellors 3 3
Remuneration (continued)
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FY25 annual bonus (audited)
The Committee based the FY25 annual bonus on a mix of financial and non-financial measures. The financial element, weighted
80%, was based equally on Group underlying operating profit performance and Group underlying operating cash flow (based on
budgeted foreign exchange rates). There was a 100% payout under the underlying operating profit element due to the Company’s
strong performance over the year. The payout under the underlying operating cash flow element was equally strong at 100%. Please
see pages 26 to 39 for more information on the Company’s performance. The non-financial measures were principally the themes
that the Committee considers to be of material importance to the continued success of the Company. The Committee concluded
that the outturn for the non-financial measures should be a 100% payout for Mr Lockwood and a 100% payout for Mr Mellors.
The Committee was satisfied that the total outturn of the FY25 bonus, of 100% of maximum for Mr Lockwood and 100% of maximum
for Mr Mellors, reflected the Company’s performance over the year and aligned to shareholders’ experience.
The table below summarises performance against each financial measure, and the bonus outcome.
Bonus element Threshold
1
Target Maximum Outturn David Lockwood David Mellors
Achieving budgeted underlying
operating profit
2
£313.5m £330.0m £363.0m £365.3m
Maximum potential
(% of salary) 60% 60%
Outturn (% of salary) 60% 60%
Achieving budgeted underlying
operating cash flow
3
£170.0m £200.0m £230.0m £296.1m
Maximum potential
(% of salary) 60% 60%
Outturn (% of salary) 60% 60%
Non-financial objectives
4
Maximum potential
(% of salary) 30% 30%
Outturn (% of salary) 30% 30%
Total Maximum potential
(% of salary) 150% 150%
Outturn (% of salary) 150% 150%
1. Threshold vesting is 18.8% of maximum for the operating profit and cash flow elements, and 0% for non-financial measures. In line with our policy,
overall vesting at threshold is no more than 15% when all measures are considered. Vesting outcomes are determined on a straight-line sliding scale
for performance outturns between threshold and target, and between target and maximum.
2. For the definition, please see page 1.
3. For the definition, please see page 1.
4. Further details on the non-financial objectives set for FY25 are given below.
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FY25 annual bonus non-financial measures
The Committee set non-financial objectives for David Lockwood and David Mellors at the start of the year around strategic management
‘Themes’ of strategy, people and culture, and ESG, as the Committee believed these themes align to the Company’s turnaround.
David Lockwood
Theme Progress Assessment
Strategy
Provided visible and unifying leadership during a year of exceptional strategic momentum,
including Babcock’s promotion to the FTSE 100:
• H&B Defence launched, a JV with HII, supporting AUKUS priorities and securing the first
contract win in Australia.
• Led the strategic reset of organisational capability to enable future international growth.
Aligning structure, leadership, and ambition to drive global business winning.
Exceeded
Expectations
Performance
Led a step change in performance focus across all sectors and major programmes. Driving
alignment between ambition, delivery and accountability:
• Provided visible support and challenge to accelerate maturity in risk management practices
both at corporate and programme levels.
• Promoted a culture of proactive issue identification, championing the use of tools like the
Global and Sector watchlist to identify earlier insight and intervention.
Exceeded
Expectations
Growth
Provided strategic oversight to drive strong, profitable growth across all sectors, both in the UK
and internationally:
• DSG contract extension secured including additional option years, and follow-on contract
to build additional 53 High Mobility Transporter Jackal Vehicles.
• Supported expansion in Civil Nuclear through the build and decommissioning opportunities,
and strengthened strategic relationships in Submarine Support.
Exceeded
Expectations
People and
Culture
Continued tangible improvement in performance culture:
• Sponsoring the development of the Leadership Framework and supported the relaunch
of learning access to global colleagues.
• Championed the embedding of our Purpose and Principles, ensuring they shape behaviours
and leadership standards at all levels.
• Building a stronger performance and leadership culture across the organisation. Significant
increase in the use of formal performance ratings connected to reward.
Exceeded
Expectations
Sustainability
Provided strategic leadership in the re-setting of our Sustainability Strategy. Focusing the agenda
on fewer, higher-impact goals aligned with our Purpose:
• Reset Sustainability Strategy with high-impact goals.
• Achieved 30% women in the Senior Leadership Team.
• Prioritised climate accountability with clear expectations and ownership.
Exceeded
Expectations
Remuneration (continued)
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David Mellors
Theme Progress Assessment
Strategy
Supported exceptional strategic delivery through strong financial governance and disciplined
planning during Babcock’s promotion to the FTSE 100:
• Provided financial and risk oversight for the formation of H&B Defence as a key board
member, and the successful bid for the initial AUKUS-related contract in Australia.
• Signing of the DSG contract extension including additional option years.
Exceeded
Expectations
Performance
Drove significant improvements in performance focus across Babcock through enhanced
financial oversight and reporting:
• Led the advancement of risk management maturity. Embedding consistent practices at both
the corporate and programme levels.
• Successfully de-risked the pension position, and further strengthened the balance sheet
through disciplined financial planning.
• Strengthened the internal controls environment and enhanced the effectiveness of the Global
and Sector watchlist as an early warning mechanism for emerging risks.
Exceeded
Expectations
Growth
Enabled strong profitable growth through disciplined commercial oversight and robust financial
evaluation of all substantial growth opportunities:
• Ensured financial planning and controls supported strong growth in new build and
decommissioning work in Civil Nuclear, and the scaling of submarine support operations.
• Played a key role in ensuring financial visibility and risk management of the extended
Miecznik frigate programme contract in Poland through to 2031.
• Some organic and potential inorganic opportunities passed due to disciplined approach.
Exceeded
Expectations
People and
Culture
Continued tangible improvement in performance culture including:
• Supported the development and implementation of the Leadership Framework.
• Played a key role in succession planning for critical roles across Finance and other functions,
focusing on continuity, depth and leadership strength.
Exceeded
Expectations
Sustainability
Provided financial oversight and governance to support the re-set of the Sustainability Strategy,
ensuring a focus on achievable, high-impact goals:
• Supported tracking and uptake of “Be Kind” days, through reporting and data on volunteering
engagement.
• Oversaw the detailed mapping and baselining of carbon emissions. Delivering credible plan,
measurement and investment to support long-term carbon reduction.
Exceeded
Expectations
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Remuneration (continued)
As it does every year, the Committee reviewed the Company’s health and safety performance as it is an underpin for the annual
bonus. The Committee considered the totality of the Group’s health and safety environment over the year and decided not
to exercise its discretion.
The FY25 bonus outcomes for each Executive Director are as follows (40% of which will be deferred under the DBP):
Payment for financial
targets (% salary)
Payment for non-financial
targets (% salary) Total bonus (% salary) Total bonus (£’000)
David Lockwood 120% 30% 150% 1,325
David Mellors 120% 30% 150% 913
Long-term incentive scheme (PSP) awards vesting during the year (audited)
FY23 PSP
The Committee granted the Executive Directors PSP awards in August 2022 over 474,418 shares for David Lockwood and 332,093
shares for David Mellors. Vesting of the awards is based on cumulative underlying free cash flow (FCF) and relative Total Shareholder
Return (TSR), equally weighted. The performance period for these awards was the three financial years 1 April 2022 through
to 31 March 2025.
% weighting
Threshold performance
(16.7% vesting)
Stretch performance
(100% vesting) Outcome
Vesting (% of
overall award)
3-year underlying FCF 50% £176m £264m £389m 50%
3-year TSR vs FTSE 350 (excluding
investment trusts and financial services) 50% Median TSR
Median TSR
+ 9% pa
Median TSR
+ 27.4% pa 50%
In line with its standard practice, the Committee considered whether any windfall gains have arisen on this vesting PSP cycle.
After assessing the vesting of the FY23 PSP from a range of perspectives, the Committee was satisfied that the outcomes against
the measures were reflective of the strong underlying performance of the Company and there were no windfall gains. Accordingly,
there was no requirement for the Committee to apply its discretion. As a result, the Executive Directors’ FY23 awards will vest in full
in August 2025 (though subject to a two-year holding period from that date). Dividends were accrued on these awards, which will
also vest in August 2025.
168 Babcock International Group PLC Annual Report and Financial Statements 2025
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Long-term incentive scheme (PSP) award granted during FY25 (audited)
The Committee granted PSP awards in the form of nil-cost options in August 2024 to the Executive Directors, consistent with the
Remuneration policy.
Director Number of shares
1
Face value
2
Face value (% of salary)
3
% of award receivable for
threshold performance
David Lockwood 425,905 £2,264,409 250% 16.7%
David Mellors 231,287 £1,229,684 200% 16.7%
1. Awards are in the form of nil-cost options.
2. Based on three-day average share price (of 531.67p) at time of grant.
3. Expressed as a percentage of salary at the date of the award (1 August 2024).
The FY25 PSP awards are subject to a scorecard of measures comprising underlying free cash flow (weighted 30%), underlying
operating margin (30%), organic revenue growth (25%, subject also to a discretionary underpin if operating margin performance
is below threshold), and ESG (15%). The performance period for these awards is the three financial years 1 April 2024 through
to 31 March 2027.
% weighting
Threshold performance
(16.7% vesting)
Stretch performance
(100% vesting)
3-year organic revenue growth 25% 15.0% 23.0%
3-year weighted average underlying operating margin
1
30% 8.0% 9.0%
3-year cumulative underlying free cash flow 30% £394.4m £591.6m
1. Weighted to focus more heavily on the final year of the performance period: FY25 and FY26 each accounts for 25% of the measure whereas
FY27 accounts for 50%.
Awards vest on a straight-line sliding scale between threshold and stretch.
The targets for the ESG measures are:
• A reduction in the Company’s carbon emissions in FY27 within a range of (9.4)% and (11.8)% from 2020 baseline. This measure
will have a weighting of 7.5% (ie half of the ESG total weighting of 15%). A reduction of (9.4)% will result in 16.7% vesting of this
portion of the ESG element, with a reduction of (11.8)% warranting full vesting.
• The achievement of senior management gender diversity range in FY27 of between a threshold of 29.5% and a maximum
of 32.6%. This measure will have a 7.5% weighting, with 16.7% vesting at threshold and full vesting at maximum. The definition
of senior management is employees, excluding Executive Directors, who have responsibility for planning, directing or controlling
activities of the Group or a strategically significant part of the Group (sector/functional leadership teams) and/or are directors
of subsidiary business units (business unit leadership).
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Deferred Bonus Plan awards made during FY25 (audited)
In 2024, the Committee approved the payment of annual bonuses to both Executive Directors under the FY24 annual bonus plan.
For more detail, please see the single total figure table on page 164.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the total remuneration received by each Non-Executive Director. For details of the fees that applied during
FY25, please see page 172:
Base fee Additional fee
1
Total
2
Total fixed remuneration Total variable remuneration
FY25
£’000
FY24
£’000
FY25
£’000
FY24
£’000
FY25
£’000
FY24
£’000
FY25
£’000
FY24
£’000
FY25
£’000
FY24
£’000
Fixed remuneration
Dame Ruth Cairnie 346 336 – – 346 336 346 336 – –
Lucy Dimes 65 62 – – 65 62 65 62 – –
Carl-Peter Forster
3
76 73 15 15 91 88 91 88 – –
Lord Parker 65 62 15 12 80 74 80 74 – –
John Ramsay
4
65 62 23 22 88 84 88 84 – –
Jane Moriarty 65 62 – – 65 62 65 62 – –
Sir Kevin Smith 65 52 – – 65 52 65 52 – –
Claudia Natanson 65 5 – – 65 5 65 5 – –
1. Relating to role as Chair of the Audit Committee (John Ramsay), Remuneration Committee (Carl-Peter Forster), and Director designated for workforce
engagement (Lord Parker).
2. Non-Executive Directors did not receive any taxable benefits in FY24 or FY25.
3. Carl-Peter Forster is the Senior Independent Director and Remuneration Committee Chair.
4. A Committee of the Chair and the Executive Directors decided to grant John Ramsay additional ex gratia payments of £5,000 in FY24 and FY25
in thanks for the material additional time and commitment shown by John, which was significantly above that expected in his letter of appointment.
Sourcing of shares
Shares needed to satisfy share awards for Directors are shares that the Company either newly issues to the Group’s employee share
trusts or are shares that those trusts purchase in the market using funds advanced by the Company. The Company finalises the
source selection on or before vesting, depending on the Board’s view of the best interests of the Company at the time, within the
limits of available headroom and dilution restrictions.
Executive Directors’ remuneration for FY26
The Committee has set the remuneration for Executive Directors for FY26 in line with the 2025 Remuneration policy being presented
for shareholder approval at the 2025 AGM.
Fixed pay
As explained in the Committee Chair’s opening remarks at the start of the Remuneration Committee report on page 153, the Committee
reviewed the Executive Directors’ base salaries and resolved to increase Mr Lockwood’s salary by 3% and Mr Mellors’ salary by 5%
from 1 July 2025.
Salary 1 July 2025 1 July 2024 1 April 2024
David Lockwood £932,933 £905,760 £816,000
David Mellors £645,582 £614,840 £591,192
The Executive Directors will receive the same pension arrangements (ie at 10% of salary) and the same benefits as in FY25.
FY26 annual bonus
The scorecard of the Executive Director annual bonus for FY26 is consistent with that for FY25, with measures based on underlying
operating cash flow, underlying operating profit and non-financial objectives. The Committee has agreed the targets but, due to their
commercial sensitivity, it will only disclose them in next year’s Annual report on remuneration.
Following our consultation with shareholders, we are proposing certain changes to the FY26 bonus. These changes are subject to
shareholder approval at the 2025 AGM. If shareholders approve the changes, we will increase the annual bonus opportunity for both
Executive Directors from 150% to 180% of salary and we will disapply the 40% deferral provision for those Executive Directors who,
at the time of deciding the FY26 bonus outcome, have achieved their shareholding requirements.
Remuneration (continued)
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FY26 PSP awards
The Committee intends to grant awards under the PSP to the Executive Directors in 2025 covering the three-year period FY26
to FY28, with the measures for the core award scorecard being underlying free cash flow (weighted 30%), underlying operating
margin (30%), organic revenue growth (25%, subject also to a discretionary underpin if operating margin performance is below
threshold), and ESG (15%), as follows:
% weighting
Threshold performance
(16.7% vesting)
Stretch performance
(100% vesting)
3-year organic revenue growth 25% 16.9% 25.4%
3-year weighted average underlying operating margin
1
30% 8.0% 9.2%
3-year cumulative underlying free cash flow 30% £538.4m £807.6m
1. Weighted to focus more heavily on the final year of the performance period: FY26 and FY27 each account for 25% of the measure whereas
FY28 accounts for 50%. In determining the range for the underlying operating margin measure, the Committee approved the setting of threshold
in line with the Company’s medium-term guidance, to incentivise achievement of this goal.
Awards vest on a straight-line sliding scale between threshold and stretch.
The targets for the ESG measures are:
• Environment: The last two PSP cycles have incorporated a measure based on reduction in the Company’s carbon emissions.
On reviewing the mechanics of this measure again this year, the Committee noted that it was heavily reliant on only one or two
of the Company’s sites, and concluded that it is no longer an appropriate measure for a pan-Group scheme, as only a limited
subset of the participants in the scheme would have any influence over the delivery of the measure. Therefore, the Committee
is proposing for the FY26 PSP cycle to align the environmental measure to the new energy efficiency improvement target that
the Company has adopted (please see page 80 for more detail). The new target will not only support our journey to Net Zero
but also deliver cost savings by incentivising efforts across the Group to improve energy efficiency and reduce energy waste.
This measure will have a weighting of 7.5% (ie half of the ESG total weighting of 15%). The target range is a cumulative reduction
over the three-year performance period of (8.6)% to (9.5)%. A reduction of (8.6)% will result in 16.7% vesting of this portion
of the ESG element, while a reduction of (9.5)% will warrant full vesting.
• Gender diversity: we want to build on the good work that the Company has done at the senior leadership team level and for the
FY26 PSP cycle have expanded the scope of this measure to take in the next level of senior management, which will include
functional and business unit leadership teams that typically sit three layers below the CEO. This measure will have a 7.5%
weighting, with 16.7% vesting at threshold and full vesting at maximum. The target range will be 28.5% to 31.5% of this senior
leadership community being female by FY28.
Subject to shareholder approval of the proposed Remuneration policy, the FY26 PSP core award opportunities (of 250% and
200% of salary for the CEO and CFO, respectively) will be subject to an additional TSR kicker of up to 2.0x if absolute TSR over
the three-year period to 31 March 2028 is at least 30% pa. If absolute TSR over that period is 10% pa or less, the TSR kicker will be
1.0x, ie there will be no uplift to the vesting outcome approved by the Committee in respect of the FY26 PSP core award opportunity.
For absolute TSR of between 10% and 30% pa, the TSR kicker will be interpolated on a straight-line sliding scale basis between
1.0x and 2.0x.
A two-year holding period will apply to Executive Directors’ FY26 PSP awards to the extent that they vest. Malus and clawback
provisions apply. In keeping with its typical practice, the Committee will assess for any windfall gains at vesting.
Payments for loss of office (audited)
There were no payments for loss of office during the year ended 31 March 2025.
Payments to past Directors (audited)
There were no payments to past Directors during the year ended 31 March 2025.
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Non-Executive Directors’ fees (including the Chair)
The Committee reviewed the Chair’s fee and resolved to increase it by 9% from 1 September 2025. The basic fee for Non-Executive
Directors was reviewed by the Chair and the Executive Directors and it was resolved to increase it by 21.2% from 1 September 2025,
as set out below. These increases were deemed appropriate, following several years of fee constraint, to help ensure the fee remains
competitive as well as the time commitment required of the Board Directors.
Annual rate fee
1 September 2025
£
1 September 2024
£
1 April 2024
£
Chair 381,000 349,440 336,000
Senior Independent Director (inclusive of basic fee) 91,000 77,000 74,000
Basic Non-Executive Director’s fee
1
80,000 66,000 63,000
Chair of Audit Committee
2
18,000 18,000 18,000
Chair of Remuneration Committee
2
15,000 15,000 15,000
Director designated for workforce engagement
2
15,000 15,000 15,000
1. For those Non-Executive Directors who, due to their residence, have long-distance commutes to fulfil their duties, the Company has decided to pay
an additional £13,000 pa on top of the basic Non-Executive Director’s fee to compensate for the extra time commitment involved in attending
meetings.
2. The Company pays fees for chairing Board Committees in addition to the basic applicable Non-Executive Director’s fee and for acting as the Director
designated for workforce engagement. The Company does not pay additional fees for membership of Committees.
Percentage change in the remuneration of all Directors compared to the workforce
The table below shows the annual percentage changes in remuneration over the last five years for each individual who was a
Director during the year ended 31 March 2025, compared to the average UK colleague, as required under the Companies (Directors’
Remuneration policy and Directors’ Remuneration Report) Regulations 2019 (the Regulations).
The Regulations require this disclosure to provide a comparison of year-on-year changes in Directors’ remuneration compared
to all other colleagues of the parent company in the Group. However, the Company does not have any employees, meaning there
would be no data to disclose for the broader colleague population. The Committee has therefore elected to compare the change
in Directors’ remuneration with the change in remuneration for the average of the UK colleague population, as a suitable comparator
group for this purpose.
The Committee monitors this information to ensure that there is appropriate alignment over time in fixed pay between Executive
Directors, Non-Executive Directors and UK colleagues.
Base salary/fees Taxable benefits Single-year variable
FY24 to
FY25
FY23 to
FY24
1
FY22 to
FY23
FY21 to
FY22
FY20 to
FY21
FY24 to
FY25
FY23 to
FY24
1
FY22 to
FY23
FY21 to
FY22
FY20 to
FY21
FY24 to
FY25
FY23 to
FY24
1
FY22 to
FY23
FY21 to
FY22
FY20 to
FY21
Executive Directors
David Lockwood 8% 0% 1% 1% n/a 0% (1)% 1% 1% n/a 82% 1% (25)% n/a n/a
David Mellors 4% 3% 1% 1% n/a 0% 0% 0% 1% n/a 79% 3% (26)% n/a n/a
Non-Executive
Directors
2
Dame Ruth Cairnie 3% 0% 0% 5% 26% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Lucy Dimes 4% 2% 0% 5% (5)% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Carl-Peter Forster 3% 6% 16% 11% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Lord Parker 8% 10% 10% 5% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
John Ramsay 5% 11% 0% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Jane Moriarty
3
4% 2% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Sir Kevin Smith
4
4% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Claudia Natanson
4
4% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Average for all
UK employees
5
5% 7% 5% 2% 2% 0% 0% 0% 0% 0% 34% 11% (18)% 100% (100)%
1. It should be noted that the Directors received an increase in pay or fee part-way through the year.
2. A Committee, made up of the Chair and the Executive Directors, reviews the Non-Executive fees and agrees increases in the basic fee, the fee for
the Senior Independent Director, the Audit Committee Chair and the Director designated for workforce engagement, as well as the one-off payment
for the Audit Committee Chair in recognition of the material additional time the role required. Non-Executive Directors receive fees only. They do not
receive taxable benefits and do not participate in incentive schemes.
3. Jane Moriarty joined the Board in December 2022. To facilitate a comparison with FY24, her FY23 fee has been annualised.
4. Sir Kevin Smith and Claudia Natanson joined during FY24. To facilitate a comparison with FY25 their FY24 fees have been annualised.
5. The single-year variable figure for our UK colleagues is provided in respect of our annual bonus plan, which has been estimated based on our
expected bonus outturn for FY25 at the time of disclosure. This estimate is prior to any discretionary adjustments and for prior years has been trued
up once actual results known.
Remuneration (continued)
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Relative importance of spend on pay
FY25 FY24 % change
Distribution to shareholders £33m £25m 32%
Employee remuneration £1,660m £1,584m 4.8%
Distribution to shareholders includes all amounts distributed to shareholders.
CEO pay ratio
The table below provides disclosure of the ratio between the CEO’s total remuneration and that of the lower quartile, median and
upper quartile UK-based colleagues.
Figures for the CEO come from the Executive Directors’ single figure table on page 164. The Committee determined total
remuneration figures for the lower quartile (P25), median (P50) and upper quartile (P75) colleagues on 31 March 2025 using the
‘single figure’ methodology to provide a like-for-like comparison with CEO remuneration.
The reporting regulations offer three calculation approaches for determining the P25, P50 and P75 colleagues – Options A, B and C.
Since FY23, the Committee has adopted Option B, in recognition of the significant workload placed on our colleagues of the previous
methodology in adopting Option A. The Company used the data collected for gender pay gap reporting purposes to identify the
three colleagues representing P25, P50 and P75, calculating the total full-time equivalent remuneration for these three colleagues
on a similar basis to that adopted for the CEO’s single figure of total remuneration.
As with last year, the Company excluded bonus payments from the calculations, because it was not feasible to identify those
payments for services delivered within the financial year, and because the Company does not know all bonus pay relating to FY25
at the time of publication. Analysis of past data indicates that the three colleagues would not typically be eligible for a bonus and
the exclusion of this element is unlikely to have a significant impact on the ratios reported.
To validate that the figures presented are representative of the pay and benefits of the UK workforce, the Company considered the
pay and benefits of colleagues centred on each of the three colleagues. Whilst there can be variation in the pay mix for individuals
throughout the organisation, the Committee believes that the information presented fairly reflects pay at the relevant quartiles amongst
our UK workforce. The three individuals identified were full-time colleagues during the year and none received an exceptional
incentive award, which would otherwise inflate their pay figures. The Company made no adjustments or assumptions to the total
remuneration of these colleagues and calculated the total remuneration in accordance with the methodology used to calculate the
single figure of the CEO.
The median CEO pay ratio in FY25 was 119:1, compared to 94:1 in FY24 (based on the restated FY24 single figure remuneration for CEO).
The Committee calculated the CEO pay ratio by comparing the CEO’s pay to that of Babcock’s UK-based workforce. The increase
in the ratios reported for FY25, when compared to previous years, is primarily driven by strong incentive vesting outcomes received
by the CEO in respect of performance periods ending in FY25.
As the remuneration of the CEO has a significant weighting towards variable pay to align his remuneration with Company performance,
it is likely that there will be greater variability in his pay year to year than that observed at other levels which have a greater
proportion of their pay linked to fixed components. This is consistent with market practices and the Company’s reward policies
across the organisation. In respect of the general workforce, Babcock understands the need to ensure competitive pay packages
across the organisation. For the Committee, it considers the ratios below when making its decisions around the remuneration
of the Executive Directors.
Financial year Calculation methodology P25 (lower quartile) P50 (median) P75 (upper quartile)
FY25 Option B 141:1 119:1 94:1
FY24 Option B 111:1 94:1 75:1
FY23 Option B 102:1 84:1 62:1
FY22 Option A 61:1 48:1 36:1
FY21 Option A 30:1 22:1 17:1
FY20 Option C 47:1 37:1 27:1
Financial year
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
FY25 Total remuneration (£’000) £38.2 £45.1 £57.1
Salary (£’000) £35.0 £42.5 £50.9
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Performance graphs
The following graph shows the TSR for the Company compared to the FTSE 250 and FTSE 350 Aerospace & Defence index,
assuming an investor invested £100 on 31 March 2015. The Board considers that the FTSE 250 Index (excluding investment trusts)
and FTSE 350 Aerospace & Defence Index currently represent the most appropriate indices (of which Babcock was a constituent
for much of the period under review) against which to compare Babcock’s performance.
The table below details the historical CEO pay over a 10-year period.
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25
Peter Rogers
1
Single figure (£’000) 2,491 1,091
Bonus vesting (% max) 60% 66%
DBMP matching shares vesting (% max) 57.8% 17.0%
PSP/CSOP vesting (% max) 37.3% 26.5%
Archie Bethel
2,3
Single figure (£’000) 1,012 2,079 1,969 1,385 334
Bonus vesting (% max) 66% 61% 58% 14% 0%
DBMP matching shares vesting (% max) 17.0% 20.0% n/a n/a n/a
PSP vesting (% max) 26.5% 23.9% 15.1% 0% 0%
David Lockwood
4
Single figure (£’000) 547 1,975 3,288 4,161 5,367
Bonus vesting (% max) 0% 80% 59% 59.6% 100%
PSP vesting (% max) n/a n/a 100% 100% 100%
1. Until retirement on 31 August 2016.
2. Excludes remuneration received whilst undertaking the role of Chief Operating Officer until August 2016.
3. Until he stepped down as CEO on 14 September 2020.
4. Excludes his salary between joining the Company in August and joining the Board as CEO on 14 September 2020.
0
50
100
150
200
250
300
350
400
20252024202320222021202020192018201720162015
Value of £100 invested on 31 March 2015
Babcock FTSE 250 Index FTSE 350 Aerospace & Defence Index
Remuneration (continued)
174 Babcock International Group PLC Annual Report and Financial Statements 2025
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Directors’ share ownership (audited)
The Committee sets out below the interests of the Directors (and/or their spouses) in the ordinary shares of the Company as at
31 March 2025:
At 31 March 2024 At 31 March 2025
Shares held Shares held Options held
Director
Owned outright
by Director or
spouse
1
Owned
outright by
Director or
spouse
1
Vested but
subject to
holding period
Vested but
not exercised
Unvested and
subject to
performance
conditions
Unvested and
subject to
continued
employment
S/holding req.
(% salary)
Current
shareholding
(% of salary)
2
Req. met?
David Lockwood 276,174 719,465 – – 1,420,731 243,905 300% 576% Yes
David Mellors 188,679 501,017 – – 865,008 168,791 200% 591% Yes
Dame Ruth Cairnie 120,000 120,000
Lucy Dimes 5,000 5,000
Carl-Peter Forster 10,000 10,000
Lord Parker – –
John Ramsay 30,000 40,000
Jane Moriarty – –
Sir Kevin Smith 6,000 6,000
Claudia Natanson – –
1. Beneficially held shares of Director and/or spouse.
2. Current shareholdings for comparison with the shareholding requirements for Executive Directors are calculated based on salary as at 31 March
2025 and by reference to shares owned outright by Director or spouse, options vested but subject to holding periods, options vested but not
exercised and options unvested but subject only to continued employment. Holdings are valued assuming options are exercised on 31 March 2025
and a three-month average share price to 31 March 2025 of 615.02p and are calculated post tax.
There have been no changes to the continuing Directors’ (or their spouses’) shareholdings between 31 March 2025 and 1 July 2025.
Babcock International Group PLC Annual Report and Financial Statements 2025 175
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Directors’ share-based awards and options (audited)
The tables below show the various share awards held by Directors under the Company’s various share plans. The Company’s
mid-market share price at close of business on 31 March 2025 was 724.00p. The highest and lowest mid-market share prices
in the year ended 31 March 2025 were 755.50p and 462.40p, respectively.
Director
Plan and
year of award
1
Number of
shares subject
to award at
1 April 2024
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Number of
shares subject
to award at
31 March 2025
Exercise
price
(pence)
2
Market value
of each share
at date of
award (pence)
Exercisable
from Expiry date
3
David
Lockwood PSP FY21 385,848 385,848 0 529.00 352.47 Aug 2024 Aug 2025
PSP FY22 452,450 452,450 0 529.00 353.63 Aug 2024 Aug 2025
PSP FY23 474,418 474,418 344.00 Aug 2025 Aug 2026
DBP FY23
4
112,549 112,549 344.00 Aug 2025 Aug 2026
PSP FY24 520,408 520,408 392.00 Sept 2026 Sept 2027
DBP FY24 76,472 76,472 377.73 Aug 2026 Aug 2027
PSP FY25 425,905 425,905 531.67 Aug 2027 Aug 2028
DBP FY25
4
54,884 54,884 531.67 Aug 2027 Aug 2028
Director
Plan and
year of award
1
Number of
shares subject
to award at
1 April 2024
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Number of
shares subject
to award at
31 March 2025
Exercise
price
(pence)
2
Market value
of each share
at date of
award (pence)
Exercisable
from Expiry date
3
David
Mellors PSP FY21 270,093 270,093 0 500.58 352.47 Aug 2024 Aug 2025
PSP FY22 316,715 316,715 0 500.58 353.63 Aug 2024 Aug 2025
PSP FY23 332,093 332,093 344.00 Aug 2025 Aug 2026
DBP FY23
4
77,798 77,798 344.00 Aug 2025 Aug 2026
PSP FY24 301,628 301,628 392.00 Sept 2026 Sept 2027
DBP FY24
4
52,623 52,623 377.73 Aug 2026 Aug 2027
PSP FY25 231,287 231,287 531.67 Aug 2027 Aug 2028
DBP FY25
4
38,370 38,370 531.67 Aug 2027 Aug 2028
1. PSP is the Company’s Performance Share Plan. Further details about these plans and, where applicable, performance conditions attaching to the
awards listed are to be found on page 168. As stated in last year’s Annual Report, the Committee decided that, in line with market practice, it would
vest any PSP award, including in-flight awards, after the three-year performance period and allow the Executive Directors to exercise their awards
so long as they hold them in trust for the two-year holding period, so that the Executive Directors cannot sell the net number of shares until the
end of the holding period. The expiry dates have accordingly been updated to be the anniversary of the date on which awards can be exercised.
The FY21 and FY22 PSP awards completed their performance period during FY24 and FY25 respectively and the awards vested in full. Both David
Lockwood and David Mellors exercised their vested awards following the completion of the performance period, selling sufficient shares to pay
the tax, and the remaining balance is being held in Trust until the completion of the holding period, ie the end of the five-year period from grant.
2. The PSP awards are structured as nil-priced options and are subject to the rules of the PSP, including as to meeting performance targets for PSP awards.
3. Where this date is less than 10 years from the date of award, the Committee may extend the expiry date on one or more occasions, but not beyond
the tenth anniversary of the award.
4. The Company currently requires the Executive Directors to defer 40% of any annual bonus awarded into shares, which vest after three years.
The remaining 60% of any annual bonus is paid in cash. If approved by shareholders at the 2025 AGM, this will no longer be a requirement with
effect from the FY26 annual bonus if the Executive Directors have met their shareholding requirement.
Remuneration (continued)
176 Babcock International Group PLC Annual Report and Financial Statements 2025
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Summary of share-based awards and options vested during the year
During the year to 31 March 2025 the following awards vested:
Director Award Number vesting Vesting date
Market value of
vested shares on
award
£
Market value of
vested shares on
vesting date
£
Exercise price
payable for vested
shares (if any)
£
David Lockwood PSP FY21 385,848 Aug 2024 1,359,998 2,048,853 Nil
David Lockwood PSP FY22 452,450 Aug 2024 1,599,999 2,402,510 Nil
David Mellors PSP FY21 270,093 Aug 2024 951,997 1,434,194 Nil
David Mellors PSP FY22 316,715 Aug 2024 1,119,999 1,681,757 Nil
Closing share price on the last dealing date before vesting was 531.00p (23 August 2024).
Other interests
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts
of the Group.
External appointments of Executive Directors in FY25
During the year and until his standing down on 18 June 2025 David Lockwood was a Non-Executive Director of John Wood Group
PLC. He retained the fees payable in respect of that appointment. In January 2024, David Lockwood became President of ADS,
the UK trade association for the aerospace, defence, security and space industry. There were no other fees received by Executive
Directors for any external appointment during the year.
The Board approved this Remuneration report on 1 July 2025.
Carl-Peter Forster
Committee Chair
Babcock International Group PLC Annual Report and Financial Statements 2025 177
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Other statutory information
Directors’ report and other disclosures
The Directors’ report comprises this section, the principal risks and management controls section in the Strategic report, as well as the
rest of the Governance section, the Directors’ responsibility statement on page 184 and those sections incorporated by reference below.
Disclosures required by UKLR 6.6.4 and which form part of the Directors’ report can be found as provided in the table below:
Listing Rule Topic Location
6.6.4 Shareholder waivers of dividends and future dividends Financial statements, note 23 on page 249
Other disclosure requirements set out in UKLR 6.6.4 are not applicable to the Company.
Disclosures required pursuant to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
as updated by the Companies (Miscellaneous Reporting) Regulations 2018 can be located as follows:
Topic Location
Financial risk management regarding financial instruments
● Note 22, page 242
Greenhouse gas emissions
● Page 71
Employee engagement
● Pages 63 and 134
Fostering business relationships with suppliers, customers and others
● Pages 62 to 63, 134 to 135 and throughout the
Strategic report
Subsequent events
● Note 32 on page 262
Likely future developments in the business of the Group
● Pages 22 and 23
Details of important events affecting the Group
● Strategic and Directors’ reports, in particular
pages 16 to 20 and 28 to 45
For the purposes of DTR 4.1.5 R (2) and DTR 4.1.8 R, the required content of the Management report can be found in the Strategic
report and the Directors’ report including the sections of the Annual Report and Financial Statements incorporated by reference.
The Company
Babcock International Group PLC, registered and domiciled in England and Wales, with the registered number 02342138, is the
holding company for the Babcock International Group of companies.
Dividends
An interim dividend of 2.0p per share was declared during the year (2024: 1.7p). The Directors are recommending that shareholders
approve at the forthcoming Annual General Meeting a final dividend of 4.5 pence (2024: 3.3p) on each of the ordinary shares of
60 pence to be paid on Tuesday, 30 September 2025 to shareholders on the register at close of business on Friday, 22 August 2025.
Major shareholdings
As at 31 March 2025, the Company has been notified pursuant to the Disclosure and Transparency Rules (DTR) of the following major
interests in voting rights attached to its ordinary shares.
Name Number of 60 pence
ordinary shares on date of
notification
% of issued share capital
on date of notification
Abrams Bison Investments, L.L.C. 29,311,332 5.80%
Invesco Ltd 25,264,613 4.99%
Fidelity International Limited 24,450,762 4.84%
Oaktree Capital Management (UK) LLP 15,330,960 3.03%
Since 31 March 2025, the Company has been notified by The Capital Group Companies, Inc. on 9 June 2025 that it had an interest
of 27,874,188 shares, representing 5.51% of the share capital of the Company. The Company has also been notified by Abrams
Bison Investments, L.L.C. on 16 June 2025, that it had reduced its interest to 24,564,081 shares representing 4.9% of the share
capital. There have been no further notifications between then and the date of this report.
The holdings set out above relate only to notifications of interests in the issued share capital received by the Company pursuant
to DTR 5 and consequently do not necessarily represent current levels of interest.
178 Babcock International Group PLC Annual Report and Financial Statements 2025
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Employment of disabled persons/equal opportunities
Equal opportunities are available for all at Babcock including
a commitment to providing a fair and inclusive environment
for our colleagues with a disability or caring for a close family
member with a disability.
We recognise that disability covers a broader range of both
visible and non-visible conditions, and we define disability as:
a person is disabled under the Equality Act 2010 if they have
a physical or mental impairment that has a ‘substantial’ and
‘long-term’ negative effect on their ability to do normal daily
activities. This does not mean a person must be registered
as disabled. A long-term disability might include something
physical (such as a mobility issue, hearing or sight impairment
or long-term illness). It also covers people with mental health
conditions. Additionally, neurodivergence (for example dyslexia,
dyspraxia, Asperger’s, and autism) are caught within the
definition, including where someone is undergoing diagnosis.
We are committed to fostering an inclusive environment where
every colleague feels supported, respected and able to be their
authentic self at work. We do not tolerate discrimination in any
form. Guided by our principles, we embed this commitment
into our everyday practices, and across our interactions with
colleagues, customers and partners. We continue to support
the employment, development and progression of disabled
colleagues, while also engaging all other colleagues to build
awareness, challenge assumptions and remove barriers;
whether physical, procedural or cultural to ensure equal
opportunity for all.
We are a Disability Confident Employer Level 2, demonstrating
our commitment to attracting, recruiting, onboarding and
retaining disabled people and those with caring responsibilities,
and supporting them in the workplace to achieve their full
potential. We have a dedicated Group-wide employee-led
Disability Network, supported through a number of peer-support
groups delivering on members’ needs.
For more information about our inclusion strategy, see pages
85 to 95.
Research and development
The Group commits resources to research and development
to the extent management considers necessary for the evolution
and growth of its business.
Political donations
No donations were made during the year for political purposes.
Authority to purchase own shares
At the Annual General Meeting in September 2024, members
authorised the Company to make market purchases of up
to 50,559,660 of its own ordinary shares of 60 pence each.
That authority expires at the forthcoming Annual General
Meeting when a resolution will be put to renew it so as to allow
purchases of up to a maximum of 10% of the Company’s issued
share capital. No shares in the Company have been purchased
by the Company in the period from 19 September 2024 (the
date the current authority was granted) to the date of this report.
The Company currently does not hold any treasury shares.
Details of purchases of the Company’s shares made during
the year to 31 March 2025 by the Babcock Employee Share
Trust in connection with the Company’s executive share plans
are to be found in note 23 on page 249.
Qualifying third-party indemnity provisions
The Company has entered into deeds of indemnity with each
of its Directors (who served during the year and/or who are
currently Directors) which are qualifying third-party indemnity
provisions for the purposes of the Companies Act 2006 in
respect of their directorships of the Company and, if applicable,
of its subsidiaries.
Under their respective Articles of Association, Directors of Group
UK subsidiary companies may be indemnified by the company
concerned of which they are or were Directors, against liabilities
and costs incurred in connection with the execution of their
duties or the exercise of their powers, to the extent permitted
by the Companies Act 2006.
Qualifying pension scheme indemnity provisions are also in place
for the benefit of Directors of the Group companies that act
as trustees of Group pension schemes.
Significant agreements that take effect,
alter or terminate upon a change of control
Many agreements entered into by the Company or its
subsidiaries contain provisions entitling the other parties
to terminate them in the event of a change of control of the
Group company concerned, which could be triggered by
a takeover of the Company.
Although the Group has some contracts that on their own are
not significant to the Group, several may be with the same
customer. If, upon a change of control, the customer decided
to terminate all such agreements, the aggregate impact could be
very material. In addition, the National Security and Investment
Act 2021 that came into force on 4 January 2022 provides the
UK Government with new powers to scrutinise and potentially
make void transactions on the grounds of national security.
The legislation is part of a global trend towards introducing
investment laws which has seen a number of other countries
introduce similar protections.
The following agreements are those individual agreements which
the Company considers to be significant to the Group as a whole
that contain provisions giving the other party a specific right to
terminate them if the Company is subject to a change of control.
Borrowing facilities
The Group has a Revolving Credit Facility of up to £775 million
where £45 million matures in August 2025 and £730 million
matures in August 2026, providing funds for general corporate
and working capital purposes. In the event of a change of control,
the facility provides that the lenders may, within a certain period,
call for the payment of any outstanding loans and cancel the facilities.
£1,800,000,000 Euro Medium-Term Note
Programme
The Company has a Euro Medium-Term Note Programme under
which it has issued three tranches: €550,000,000 1.75% Notes
redeemed in 2022; £300,000,000 1.875% Notes due in 2026;
and €550,000,000 1.375 % Notes due in 2027.
If there is a change of control of the Company and the Notes then
in issue carry an investment-grade credit rating which is either
downgraded to non-investment-grade, or carry a non-investment-
grade rating which is further downgraded or withdrawn, or do
not carry an investment-grade rating and the Company does not
obtain an investment-grade rating for the Notes, a Note holder
may require that the Company redeem or, at the Company’s
option, repurchase the Notes.
Babcock International Group PLC Annual Report and Financial Statements 2025 179
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Share plans
The Company’s share plans contain provisions as a result
of which options and awards may vest and become exercisable
on a change of control of the Company in accordance with
the rules of the plans.
Contracts with employees or Directors
A description of those agreements with Directors that contain
provisions relating to payments in the event of a termination
of employment following a change of control of the Company
is set out on pages 160 and 161.
Articles of Association of DRDL and RRDL
The Articles of Association of Devonport Royal Dockyard
Limited (DRDL) and Rosyth Royal Dockyard Limited (RRDL),
both subsidiaries of the Company, grant the MOD as the holder
of a special share in each of those companies certain rights
in certain circumstances. Such rights include the right to require
the sale of shares in, and the right to remove Directors of, the
company concerned. The circumstances in which such rights
might arise include where the MOD considers that unacceptable
ownership, influence or control (domestic or foreign) has been
acquired over the company in question and that this is contrary
to the essential security interests of the UK. This might apply,
for example, in circumstances where any non-UK person(s)
directly or indirectly acquire control over more than 30% of the
shares of the relevant subsidiary, although such a situation is
not of itself such a circumstance unless the MOD in the given
situation considers it to be so.
Surface Ship Support Alliance Agreement (SSSA)
dated 23 September 2009 between (1) The Secretary
of State for Defence, (2) Devonport Royal Dockyard
Limited and (3) BAE Surface Ships Limited
(as amended)
Any change of control of Devonport Royal Dockyard Limited
must be approved in advance by the Secretary of State for
Defence. Consent may be withheld to prevent an unsuitable
third party taking control. Breach may result in exclusion
from the alliance.
Terms of Business Agreement (ToBA) dated
25 March 2010 between (1) The Secretary of State
for Defence, (2) Babcock International Group PLC,
(3) Devonport Royal Dockyard Limited, (4) Babcock
Marine (Clyde) Limited and (5) Rosyth Royal
Dockyard Limited (as amended)
The ToBA confirms Babcock as a key support partner of the
MOD in the maritime sector and covers the 15-year period from
2010 to 2025. The MOD may terminate the ToBA in the event
of a change in control of a relevant operating company or any
holding company including the Company in circumstances
where, acting on the grounds of national security, the MOD
considers that it is inappropriate for the new owners to become
involved, or interested, in the work that is the subject of the
ToBA. ‘Change in control’ occurs where a person or group
of persons that controls the relevant company ceases to do
so or if another person or group of persons acquires control.
Competitive Design Phase Contract for the Type 31
Programme dated 7 December 2018 (as amended
and restated on 15 November 2019) between
(1) The Secretary of State for Defence and (2) Rosyth
Royal Dockyard Limited
The Secretary of State for Defence may terminate if, in its
reasonable opinion, a change of control of Rosyth Royal
Dockyard Limited or any holding company will be contrary
to the defence, national security or national interest of the UK.
Design and Build Contract for the Type 31 Programme
dated 7 December 2018 (as amended and restated
on 15 November 2019) between (1) The Secretary
of State for Defence and (2) Rosyth Royal
Dockyard Limited
The Secretary of State for Defence may terminate if, in its
reasonable opinion, a change of control of Rosyth Royal
Dockyard Limited or any holding company will be contrary to
the defence, national security or national interest of the UK.
Future Maritime Support Programme Lot 11
(Warehousing and Distribution at HMNB Clyde) dated
30 March 2021 between (1) The Secretary of State
for Defence and (2) Babcock Marine (Clyde) Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of Babcock Marine (Clyde) Limited or any other
company in the Group that it objects to and in respect of which
its concerns have not been addressed.
Future Maritime Support Programme Lot 1 (Naval
Bases) dated 28 July 2021 between (1) The Secretary
of State for Defence and (2) Devonport Royal
Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change
of control of any of Devonport Royal Dockyard Limited, the
Company or a critical key sub-contractor and the Secretary of
State’s concerns are not addressed or, if relevant, Devonport
Royal Dockyard Limited does not terminate the sub-contract.
Future Maritime Support Programme Lot 2
(Ships Engineering) dated 30 September 2021
between (1) The Secretary of State for Defence
and (2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of any of Devonport Royal Dockyard Limited, the
Company or a critical key sub-contractor and the Secretary of
State’s concerns are not addressed or, if relevant, Devonport
Royal Dockyard Limited does not terminate the sub-contract.
Future Maritime Support Programme Lot 3
(Submarine Engineering) dated 30 September 2021
between (1) The Secretary of State for Defence
and (2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change
of control of any of Devonport Royal Dockyard Limited, the
Company or a critical key sub-contractor and the Secretary of
State’s concerns are not addressed or, if relevant, Devonport
Royal Dockyard Limited does not terminate the sub-contract.
Other statutory information (continued)
180 Babcock International Group PLC Annual Report and Financial Statements 2025
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Future Maritime Support Programme Lot 4 (Hard
Facilities Management and Alongside Services
at HMNB Clyde) dated 30 September 2021 between
(1) The Secretary of State for Defence and
(2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change
of control of any of Devonport Royal Dockyard Limited, the
Company or a critical key sub-contractor and the Secretary of
State’s concerns are not addressed or, if relevant, Devonport
Royal Dockyard Limited does not terminate the sub-contract.
Integration Partner Framework Agreement relating
to the provision of professional services and works
at Devonport Royal Dockyard dated 2 December
2020 and pursuant to a Contract of Accession and
Variation of Contract dated 13 March 2025 between
(1) The Secretary of State for Defence, (2) Devonport
Royal Dockyard Limited and (3) Rosyth Royal
Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of any of Devonport Royal Dockyard Limited or Rosyth
Royal Dockyard Limited and the Secretary of State’s concerns
are not addressed.
Interim Support to the AUKUS Programme agreement
dated 1 March 2024 between (1) The Secretary
of State for Defence and (2) Devonport Royal
Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of any of Devonport Royal Dockyard Limited and the
Secretary of State’s concerns are not addressed.
Dreadnought Supply and Support Contract (DSSC)
Dreadnought Phase 3 (DP3) agreement dated
1 October 2023 between (1) The Secretary of State
for Defence and (2) Devonport Royal Dockyard
Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of any of Devonport Royal Dockyard Limited and the
Secretary of State’s concerns are not addressed.
Future Naval Design Partnership (FNDP) dated
13 September 2024 between (1) The Secretary of State
for Defence and (2) Devonport Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of any of Devonport Royal Dockyard Limited or Rosyth
Royal Dockyard Limited and the Secretary of State’s concerns
are not addressed.
Ship Submersible Nuclear (AUJUS) (SSN(A)) Detailed
Design and Long Lead (D2L2) – design for support
contract dated 1 August 2023 between (1) The
Secretary of State for Defence and (2) Devonport
Royal Dockyard Limited
The Secretary of State for Defence may terminate on certain
grounds, including national security, if there is a change of
control of any of Devonport Royal Dockyard Limited and the
Secretary of State’s concerns are not addressed.
Victoria Class In-Service Support Contract (VISSC)
dated 30 June 2008 between (1) Public Services
and Procurement Canada (PSPC) and (2) Babcock
Canada Inc (BCI)
The Minister of PSPC may terminate, either for convenience
or possibly default, including on a change of control, if there
is a risk of change in foreign ownership control or influence
(FOCI) that the Minister considers contrary to the best interests
of Canada’s security needs. The Minister may also deny the
assignment of contracts and subcontracts which would be
required if a change of control were to be pursued.
Volvo Construction Equipment Dealer Agreement
dated February 2018 between (1) Volvo Construction
Equipment AB and (2) Babcock Africa Services
Pty Limited
Volvo Construction Equipment may terminate on certain grounds
including if there is a change of control of Babcock Africa
Services without prior written consent. Share capital and rights
attaching to the Company’s shares.
General
Under the Company’s Articles of Association, any share in
the Company may be issued with such rights or restrictions,
whether in regard to dividend, voting, return of capital or
otherwise, as the Company may from time to time by ordinary
resolution determine (or, in the absence of any such determination,
as the Directors may determine). The Directors’ practice is to
seek authority from shareholders at each year’s Annual General
Meeting to allot shares (including authority to allot free of statutory
pre-emption rights) up to specified amounts and also to buy
back the Company’s shares, again up to a specified amount.
At a general meeting of the Company, every member has one vote
on a show of hands and, on a poll, one vote for each share held.
The notice of general meeting specifies deadlines for exercising
voting rights, either by proxy or by being present in person,
in relation to resolutions to be proposed at a general meeting.
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No member is, unless the Board decides otherwise, entitled
to attend or vote, either personally or by proxy, at a general
meeting or to exercise any other right conferred by being a
shareholder if they or any person with an interest in their shares
has been sent a notice under s793 of the Companies Act 2006
(which confers upon public companies the power to require the
provision of information with respect to interests in their voting
shares) and they or any interested person have failed to supply
the Company with the information requested within 14 days
after delivery of that notice. The Board may also decide that
no dividend is payable in respect of those defaulting shares
and that no transfer of any defaulting shares shall be registered.
These restrictions end seven days after receipt by the Company
of a notice of an approved transfer of the shares or all the
information required by the relevant Section 793 notice,
whichever is the earlier.
The Directors may refuse to register any transfer of any share
which is not a fully-paid share, although such discretion may
not be exercised in a way which the Financial Conduct Authority
regards as preventing dealings in the shares of the relevant
class or classes from taking place on an open or proper basis.
The Directors may likewise refuse to register any transfer of
a share in favour of more than four persons jointly.
The Company is not aware of any other restrictions on the
transfer of shares in the Company other than certain restrictions
that may from time to time be imposed by laws and regulations
(for example, insider trading laws) or by the nationality-related
restrictions, more particularly described below.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer
of securities or voting rights in the Company.
At the date of this report 505,596,597 ordinary shares of
60 pence each have been issued and are fully paid up and
quoted on the London Stock Exchange.
Nationality-related restrictions on share ownership
Companies which provide aviation services in the EU must
comply with the requirements of EC Regulation 1008/2008
(the Regulation) which, amongst other matters, requires those
companies to be majority-owned and majority-controlled by
EEA nationals (the licensed companies).
At the Company’s Annual General Meeting in July 2014,
shareholders approved the amendment of the Company’s
Articles of Association (the Articles) to include provisions
intended to assist the Company in ensuring continuing
compliance with these obligations by giving the Company
and the Directors powers to monitor and, in certain
circumstances, actively manage nationality requirements as
regards ownership of its shares with a view to protecting the
value of the Group undertakings that hold the relevant operating
licences. A summary of these powers is set out below.
Reference should, however, also be made to the Company’s
Articles, a copy of which may be found on its website at
www.babcockinternational.com. In the event of any conflict
between the Articles and this summary, the Articles shall prevail.
Relevant Shares
Relevant Shares are any shares which the Directors have
determined or the holders have acknowledged are shares
owned by non-EEA nationals for the purposes of the Regulation
(Relevant Shares). It is open to shareholders to make
representations to the Directors with a view to demonstrating
that shares should not be treated as Relevant Shares.
Maintenance of a register of non-EEA shareholders
The Company maintains a register (which is separate from the
statutory register of members) containing details of Relevant
Shares. This assists the Directors in assessing, on an ongoing
basis, whether the number of Relevant Shares is such that
action (as outlined below) may be required to prevent or remedy
a breach of the Regulation.
The Directors will remove from the separate register particulars
of shares where they are satisfied that either the share is no longer
a Relevant Share or that the nature of the interest in the share
is such that the share should not be treated as a Relevant Share.
Disclosure obligations on share ownership
The Articles empower the Company to, at any time, require
a shareholder (or other person with a confirmed or apparent
interest in the shares) to provide in writing such information
as the Directors determine is necessary or desirable to ascertain
such person’s nationality and, accordingly, whether details
of the shares should be entered in the separate register
as Relevant Shares or are capable of being ‘Affected Shares’
(see below).
If the recipient of a nationality information request from the
Company does not respond satisfactorily to the request within
the prescribed period (being 21 days from the receipt of the notice),
the Company has the power to suspend the right of such
shareholder to attend or speak (whether by proxy or in person)
at any general or class meeting of the Company or to vote
or exercise any other right attaching to the shares in question.
Where the shares represent at least 0.25% of the aggregate
nominal value of the Company’s share capital, the Company
may also (subject to certain exceptions) refuse to register the
transfer of such shares. The Articles also require that a declaration
(in a form prescribed by the Directors) relating to the nationality
of the transferee is provided to the Directors upon the transfer
of any shares in the Company, failing which the Directors may
refuse to register such transfer (see further below).
Power to treat shares as ‘Affected Shares’
The Articles empower the Directors, in certain circumstances,
to treat shares as ‘Affected Shares’. If the Directors determine
that any shares are to be treated as Affected Shares, they
may serve an ‘Affected Share Notice’ on the registered
shareholder and any other person that appears to have an
interest in those shares.
The recipients of an Affected Share Notice are entitled to make
representations to the Directors with a view to demonstrating
that such shares should not be treated as Affected Shares.
The Directors may withdraw an Affected Share Notice if they
resolve that the circumstances giving rise to the shares being
treated as Affected Shares no longer exist.
Consequences of holding or having an interest
in Affected Shares
A holder of Affected Shares is not entitled, in respect of those
shares, to attend or speak (whether by proxy or in person)
at any general or class meeting of the Company or to vote
or to exercise any other right at such meetings, and the rights
attaching to such shares will vest in the Chair of the relevant
meeting (who may exercise, or refrain from exercising,
such rights at his/her sole discretion).
Other statutory information (continued)
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The Affected Shares Notice may, if the Directors determine,
also require that the Affected Shares must be disposed of within
10 days of receiving such notice (or such longer period as the
Directors may specify) such that the Affected Shares become
owned by an EEA national, failing which the Directors may
arrange for the sale of the relevant shares at the best price
reasonably obtainable at the time. The net proceeds of any
sale of Affected Shares would be held in trust and paid
(together with such rate of interest as the Directors deem
appropriate) to the former registered holder upon surrender
of the relevant share certificate in respect of the shares.
Circumstances in which the Directors may determine
that shares are Affected Shares
The Articles provide that where the Directors determine that it is
necessary to take steps in order to protect an operating licence
of the Group they may: (i) seek to identify those shares which
have given rise to the determination and to deal with such shares
as Affected Shares; and/or (ii) specify a maximum number of
shares (which will be less than 50% of the Company’s issued
share capital) that may be owned by non-EEA nationals and
then treat any shares owned by non-EEA nationals in excess
of that limit as Affected Shares (the Directors will publish a
notice of any specified maximum within two business days of
resolving to impose such limit). In deciding which shares are to
be dealt with as Affected Shares, the Directors shall be entitled
to determine which Relevant Shares in their sole opinion have
directly or indirectly caused the relevant determination.
However, so far as practicable, the Directors shall have regard
to the chronological order in which the Relevant Shares have
been entered in the separate register.
Right to refuse registration
The Articles provide the Directors with the power to refuse
registration of a share transfer if, in their reasonable opinion,
such transfer would result in shares being treated or continuing
to be treated as Affected Shares.
The Articles also provide that the Directors shall not register
any person as a holder of any share in the Company unless the
Directors receive a declaration of nationality relating to such
person and such further information as they may reasonably
request with respect to that nationality declaration.
The Directors believe that, following the restructuring of the
Aviation sector, those companies in which the Company has
an interest and which are required to comply with the Regulation
(being those companies operating aviation services in the EU)
do meet the requirement of the Regulation, including those
relating to nationality.
This belief is based on the Company’s understanding of the
application of the Regulation. There can, however, be no
guarantee that this will continue to be their assessment and that
it will not be necessary to declare a Permitted Maximum or
exercise any other of their or the Company’s powers in the
Articles referred to above.
Internal controls and risk management
There is a robust process in place to enable the Board to have
assurance around the overall risk management, including the
determination of the nature and extent of the Group’s principal
risks. Management monitors the financial reporting process and
the process for preparing the consolidated accounts through
regular reporting and review. Management reviews data for
consolidation into the Group’s financial statements to ensure
that it gives a true and fair view of the Group’s results in
compliance with applicable accounting policies.
The Board, through the Audit Committee, reviews the
effectiveness of the Group’s internal control processes formally
at least once a year. In FY25, the Board reviewed the
enhancements made by the Group over the year, as more
particularly described in pages 104 and 105, and was satisfied
with the improvements made in FY25. Work in FY26 will be
focused particularly on the continuing work to prepare the
Group for the introduction of the new reporting requirement
under the 2024 UK Corporate Governance Code in respect
of effectiveness of the Company’s risk management and
internal controls framework that will come into effect for FY27.
For more detailed information on the improvements in internal
controls, please see the Audit Committee report on page 147
and page 149. Further information on the principal internal
controls and risk assurances in use in the Group can be found
in the Strategic report on pages 104 to 123.
Auditor
Following appointment as Independent Auditor of the Company
last year, Forvis Mazars LLP is willing to continue in office.
A resolution to reappoint Forvis Mazars LLP as Independent Auditor
will be proposed at the forthcoming Annual General Meeting.
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The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
are required to prepare the Group financial statements
in accordance with United Kingdom adopted international
accounting standards. The Directors have chosen to prepare
the parent company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law),
including FRS 101 ‘Reduced Disclosure Framework’. Under
company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing the parent company financial statements,
the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company
will continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements of the financial reporting framework
are insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the
entity’s financial position and financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any
time the financial position of the Company and enable them to
ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
So far as the Directors are aware there is no relevant audit
information of which the Company’s auditor is unaware.
The Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information.
Responsibility statement
Each of the Directors, being each Director who is in office at
the date the Directors’ report is approved and whose names
and functions are listed below, confirms that, to the best of
their knowledge:
• the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole;
• the Strategic report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• the Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
Dame Ruth Cairnie Chair
Carl-Peter Forster Non-Executive Director
John Ramsay Non-Executive Director
Lucy Dimes Non-Executive Director
Lord Parker Non-Executive Director
Jane Moriarty Non-Executive Director
Sir Kevin Smith Non-Executive Director
Claudia Natanson Non-Executive Director
David Lockwood Chief Executive Officer
David Mellors Chief Financial Officer
Approval of the Strategic report and the
Directors’ report
The Strategic report and the Directors’ report (pages 1 to 184)
for the year ending 31 March 2025 have been approved by the
Board and signed on its behalf by:
Dame Ruth Cairnie
Chair
David Lockwood
Chief Executive Officer
1 July 2025
Directors’ responsibility statement
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Independent auditor’s report to the members
of Babcock International Group PLC
Opinion
We have audited the financial statements of Babcock International Group PLC (the ‘Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 March 2025 which comprise the Group income statement, Group statement of comprehensive income, Group
and Company statements of changes in equity, Group and Company statements of financial position, Group cash flow statement
and notes to the Group and Company financial statements, including material accounting policy information.
The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted International
Accounting Standards and, as regards the Company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion, the financial statements:
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2025 and of the Group’s profit
for the year then ended;
• have been properly prepared in accordance with UK-adopted International Accounting Standards and, as regards the Company
financial statements, as applied in accordance with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the financial statements”
section of our report. We are independent of the Group and the Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and public
interest entities and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the Directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going
concern basis of accounting included but were not limited to:
• Undertaking an initial assessment at the planning stage of the audit to identify events or conditions that may cast significant doubt
on the Group and the Company’s ability to continue as a going concern;
• Determining the period covered by management’s going concern assessment to ensure it extends at least twelve months from
the date of the financial statements and appropriately reflects the entity’s operating cycle;
• Understanding and evaluating the process used by management in preparing its going concern assessment, including the
appropriateness and supportability of underlying cash flow forecasts, covenant measure and liquidity headroom calculations;
• Assessing the reasonableness of key assumptions used in management’s assessment and challenging them where necessary,
using both internal and external sources of evidence;
• Assessing the historical accuracy of forecasts prepared by management;
• Evaluating the feasibility of management’s plans for addressing identified going concern risks and assessing whether these plans
are realistic and achievable within the relevant timeframe;
• Ensuring consistency between management’s going concern assessment and other areas of the audit, such as work on goodwill
impairment, budgeting, and strategic planning;
• Reviewing the severe but plausible downside scenarios considered by management to ensure they capture all material and
relevant risks identified during the risk assessment process;
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• Evaluating whether the downside scenarios are sufficiently severe, diverse, and include an assessment of likelihood, and whether
they are proportionate to the nature, size, and complexity of the Group’s business and risk profile. This included assessing the
viability of mitigating actions within the Directors’ control;
• Evaluating the reasonableness of management’s stress testing to assess the Group’s resilience under adverse conditions.
• Evaluating the appropriateness of the disclosures in the financial statements on going concern;
• Conducting industry analysis for the sectors in which the Group operates to identify any economic risks relevant to the going
concern assessment;
• Evaluating market sentiment by reviewing movements in the Group’s share price;
• Reviewing and challenging the contract backlog and forecasted contract wins to support the revenue pipeline included in cash
flow forecasts;
• Evaluating the Group’s financial performance and position, including key metrics such as cash flows, liquidity, debt structure,
and covenant compliance;
• Considering whether compliance with laws and regulations presents a risk to the Group’s ability to continue as a going concern;
• Evaluating the Group’s contractual obligations and assessing their ability to meet these obligations as they fall due;
• Assessing the Group’s supply chain management and operational risks, both current and emerging, with reference to industry
analysis and identified economic risks;
• Reviewing technological risks faced by the Group, including those related to IT infrastructure and cyber security;
• Reviewing environmental risks that may impact the Group’s operations or financial stability; and
• Evaluating any matters raised by component auditors that may indicate a going concern risk.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
In relation to Babcock International Group PLC’s reporting on how it has applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the
Director’s considered it appropriate to adopt the going concern basis of accounting.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) we identified, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit
procedures performed to address each matter and our key observations arising from those procedures.
These matters, together with our findings, were communicated to those charged with governance through our Audit Committee Report.
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Key Audit Matter How our scope addressed this matter
Contract revenue and margin recognition (Group)
Key information is provided in the following notes in the
financial statements:
• Note 1(a)(i) – Critical accounting judgements
• Note 1(b)(i) – Key sources of estimation uncertainty
• Note 3 – Segmental information and revenue recognition
• Note 16 – Trade and other receivables and contract assets
• Note 18 – Trade and other payables and contract liabilities
The Group’s contract portfolio comprises of a number of
multi-year, highly material projects and programmes. The
estimation of lifetime contract margin and the appropriate
level of revenue and profit to recognise in any single
accounting period requires the exercise of management
judgement. We consider that revenue and margin recognition
and the associated accounting for contract assets, liabilities,
provisions, contingent liabilities and contingent assets, within
contracts with indicators of heightened audit risk, represent
a significant audit risk and a key audit matter.
We performed contract risk assessment procedures on the
Group’s revenue portfolio to identify contracts which exhibit
indicators of heightened audit risk. An area of heightened
audit risk could be illustrated by, and not limited to, one of
the following characteristics:
• Fixed priced contracts which use the estimate at completion
(EAC) method to determine revenue and profit margin;
• Contracts with a loss provision;
• “Design and build” contract;
• Risk of schedule delivery or technical complexity;
• Judgment of whether the Group is the principle or agent in
the transaction;
• Complex IFRS 15 accounting treatment;
• Cost-plus style contracts with significant disallowed costs
or costs subject to potential disallowance; and
• Variable consideration.
A number of revenue contracts were determined to be a
significant risk for the group audit. There is one contract in
the portfolio with a range of heightened risk factors, Type 31.
This is a key contract for the users of the financial
statements, and we have included this as a separate key
audit matter per below.
Due to the nature of the Group’s portfolio of revenue contracts
and their associated risk, we developed a specific set of audit
procedures to address the identified audit risks. The procedures
have been designed after reflecting on control remediation
activity in the year which in particular allowed reliance to
be placed on IT General Controls within the SAP environment:
• Type of revenue contract
• Type of service provided
• Whether there is homogeneity between services provided
• Whether a contract has a unique audit risk, for example a
cost saving assumption where the business aims to reduce
expected production hours due to a technological investment.
A specific procedure may be required if the unique
assumption has a material impact on revenue recognition
Our audit procedures relevant across the contract portfolio
included, but were not limited to:
• Gaining an understanding of the Group’s accounting policy
and considering its compliance with IFRS 15 “Revenue from
Contracts with Customers”;
• Obtaining an understanding of the design and
implementation of the key controls throughout the contract
cycle, including any IT-related controls;
• Where possible, supplementing our substantive procedures
by tests of effectiveness on project related controls,
including bid controls, project reviews, variation approvals
and cost allocation controls;
• Enquiring with in-house legal counsel regarding contract
related litigation and claims and analysing legal opinions
where applicable; and
• Comparing underlying inflation assumptions to other
relevant benchmarks.
The procedures for contracts selected for testing included,
where relevant, but were not limited to:
• Meeting the contract teams to gain an understanding
of the contract, including principal opportunities and risks;
• Attending contract review meetings and performing site visits;
• Evaluating the key contract terms and conditions;
• Obtaining an understanding of delivery progress against
contractual timetables;
• Assessing the historic and current contract financials and
understanding any significant in-year movements or changes;
• Performing an IFRS 15 assessment to assess whether
management is accounting for the contract appropriately;
• Comparing forecast revenue with the signed initial contract
value and any contract modifications, including signed
contract amendments;
• Testing a sample of variations to contractual terms as
appropriate;
• Assessing the appropriateness of the recognition of
variable revenue;
• Comparing year end contract assets against subsequent
evidence, including billing and cash receipts;
• Where relevant, challenging the completeness of
management’s EAC calculations, as well as provisions
for onerous contracts, by reference to projected outturns;
• Obtaining evidence for entries included in contract risk
registers and challenging management’s assumptions
through assessment against historical performance, known
technical issues and the stage of completion of the contract;
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Key Audit Matter How our scope addressed this matter
• Testing the accuracy of the calculation of revenue recognised,
contract asset and/or liability through reperformance;
• Substantive testing on actual costs incurred in the year;
• Where relevant, comparing the contractual completion
date together with any agreed extension-of-time with
the Group’s anticipated completion date to assess any
exposure to potential liquidated damages; and
• Assessing any judgements made in respect of significant
principle versus agent considerations where relevant
to a specific contract.
Our observations
No material misstatement has been identified in respect of the
judgements and estimates to determine revenue and profit
recognition. There was a restatement identified whereby prior
year contract asset and liability balances required offsetting.
This has been adjusted in the comparative period within the
Group financial statements.
Type 31 Estimates (Group)
Key information is provided in the following notes in the
financial statements:
• Note 1(a)(iii) – Critical accounting judgements
• Note 1(b)(i) – Key sources of estimation uncertainty
The Type 31 programme is a design and build contract for
the provision of five general-purpose frigates, the first of its
class. It is a part of the United Kingdom Government’s
National Shipbuilding Strategy and is a closely monitored
contract by users of the accounts. The contract is principally
firm price with revenue recognised using an input method
based on actual and forecast costs.
The contract became onerous in previous reporting periods
due to a variety of factors, including high inflation, design
maturity and resource constraints. The expected loss for the
contract as a whole has been stable in the current year.
Management’s estimate of the costs to complete totals
c£0.8bn and includes a range of individually key assumptions.
These assumptions include but are not limited to:
• Assumptions around production norms and the expected
level of re-work;
• Achievability of forecasted productivity gains throughout
the life of the programme;
• Achievability of build schedule and vessel acceptance
date (VAD) within contractual timelines relevant for
liquidated damages;
• Assumptions around performance related liquidated
damages;
• Assumptions surrounding the cost of labour, including
workforce mix;
• Supply chain related improvement assumptions.
• Items included in the risk register; and
• Price and cost inflation assumptions.
The overall significance of the provision recognised coupled
with the range of critical judgements and key estimates leads
to a significant risk of material misstatement. Additionally,
there has been heightened user focus on this contract in recent
years. We have therefore identified this as a key audit matter.
Our key audit procedures to audit this contract are set out
below. We have split this across the procedures applicable
for the contract as a whole and then focussing on the key
areas of estimation uncertainty.
General
• Multiple physical site visits to inspect work performed to date;
• Enquiries of various operational team members including
the Programme Director, Ship Directors, management
experts in design, engineering, weight, Group Procurement
and Group Human Resources to obtain a detailed
understanding of the build schedule and planned build
activities;
• Inspection of the signed contract and the IFRS 15 assessment
prepared by management in order to understand the
contractual terms;
• Obtaining an understanding of relevant controls in place to
review the financial performance of the contract, including
the forecast future revenue and costs and to account for
the onerous contract in the Group’s financial statements;
• Evaluating the reasonableness of future cash flow forecasts
with reference to current performance, both in year and
post year end to date, and performing trend analysis,
assessing historical forecasting accuracy, and forecast
operational improvements in the contract to test the future
build cost and schedule duration;
• Comparing management’s forecast inflation assumptions
with reference to alternative benchmarks;
• Assessing management’s sensitivity analysis against
our own sensitivity calculations to challenge the
reasonableness of the loss provision;
• Assessing the appropriateness of judgements taken due to
in-year events such as offsets against the loss provision for
expected benefits from the additional work relating to the
Capability Insertion Period, as well as considerations
around the Employer National Insurance changes;
• Assessing the modelling approach taken in line with the
accounting standard and industry norms, as well as testing
the arithmetic accuracy of the cost model; and
• Assessing the Group’s onerous contract disclosures and
their compliance with the requirements of IAS 37
“Provisions, Contingent Liabilities and Contingent Assets”
and IAS 1 “Presentation of Financial Statements”.
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Key Audit Matter How our scope addressed this matter
Production hours
• Assessing lifetime contract production hour estimates
to complete the build and fit-out of the five ships;
• Evaluating the achievability of forecasted operational,
design and engineering improvements (including, in some
cases, the learning curve to outperform norms and savings
from change in build strategy) over the remaining contract
term that are expected to reduce production costs. This
was tested through assessing design change requests and
re-work required to date; and
• Assessing programme support hour estimates against current
trends and assessing the impact of planned design changes
and re-work assumptions on engineering support time.
Labour assumptions
• Assessing management’s resourcing plans and assumed
labour cost by assessing recruitment trends and workforce
mix by sampling starters and leavers and assessing
whether actual staffing is in line with management
workforce mix assumptions;
• Testing the assumptions per the Resourcing Model to ensure
the forecasted hours and headcount are reasonable;
• Recalculating the assumptions using actual data, comparing
these recalculations to the forecasted assumptions;
• Assessing the achievability of assumptions that differ from
the recalculations; and
• Assessing the appropriateness of central overhead rates
which are allocated to the onerous contract provision based
on hours incurred.
Supply chain costs
• Assessing the achievability of assumed procurement
savings by sampling forecast procurement savings
to underlying evidence such as correspondence with
suppliers and sub-contractors;
• Evaluating the reasonableness of the uncommitted costs
held in the budget to ensure the EAC is not misstated,
which involved an analytical review and testing a sample
of uncommitted costs as per the breakdown. Obtaining
supporting evidence including forecasted costs to incur
based on actuals and the required bill of materials; and
• Testing a sample of committed costs and tracing through
to signed contracts to ensure accuracy of amounts.
Schedule and final acceptance
• Challenging schedule assumptions against the current build
progress, which included assessments around assumptions
for typical costed timelines to complete each ship;
• Assessing the achievability of the schedule through
extrapolation of actual timelines versus contractual delivery
dates, considering the impact of key dependencies in the
build plan. Sampling was performed on workstreams
to interrogate the expected timetables; and
• Evaluating expected compliance against performance-
related liquidated damages.
Our observations
No material misstatement has been identified in respect of the
estimates to determine the onerous contract provision for the
Type 31 programme. We consider the provision to be in
accordance with IAS 37, and that the revenue and margin for
this contract has been recognised in accordance with IFRS 15.
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Our application of materiality and an overview of the scope of our audit
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements,
both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group materiality
Overall materiality
£24m
How we determined it
0.5% of total revenue
Rationale for
benchmark applied
Total revenue was selected as the basis for materiality. The key considerations supporting our
judgement for selection of this benchmark were:
• Volatility of results in recent financial years;
• Revenue is a key metric of user focus;
• No market consensus of benchmarks selected for the audits of the Group’s competitors; and
• Consistency with materiality levels applied in previous audits.
Performance
materiality
Performance materiality is set to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements in the financial statements exceeds
materiality for the financial statements as a whole.
We set performance materiality at £12m, which represents 50% of overall materiality.
In determining performance materiality, we considered the fact that this is our first year as
auditor, together with a number of other factors such as the history of misstatements detected
in previous years, and the effectiveness of the control environment.
Reporting threshold
We agreed with those charged with governance that we would report to them misstatements
identified during our audit above £0.7m as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
Company materiality
Overall materiality
£40m
How we determined it
1% of total assets
Rationale for
benchmark applied
The Company does not trade, with its main operations being that of a holding company.
We believe that total assets are the primary measure used by shareholders in assessing the
performance of the entity and is a generally accepted auditing benchmark.
Performance
materiality
Performance materiality is set to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements in the financial statements exceeds
materiality for the financial statements as a whole.
We set performance materiality at £20m, which represents 50% of overall materiality.
In determining performance materiality, we considered the fact that this is our first year as
auditor, together with a number of other factors such as the history of misstatements detected
in previous years, and the effectiveness of the control environment.
Reporting threshold
We agreed with those charged with governance that we would report to them misstatements
identified during our audit above £0.7m as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
Independent auditor’s report to the members of Babcock International Group PLC (continued)
190 Babcock International Group PLC Annual Report and Financial Statements 2025
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An overview of the scope of our audit
As part of designing our audit, we assessed the risk of material misstatement in the financial statements, whether due to fraud
or error, and then designed and performed audit procedures responsive to those risks. In particular, we looked at where the
Directors made subjective judgements, such as assumptions on significant accounting estimates.
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial
statements as a whole. We used the outputs of our risk assessment, our understanding of the Group and the Company, their
environment, controls, and critical business processes, to consider qualitative factors to ensure that we obtained sufficient coverage
across all financial statement line items.
Our Group audit scope included an audit of the Group and the Company financial statements. The Group consists of four sectors:
Marine, Nuclear, Land and Aviation, and within sectors there are more disaggregated business units across multiple geographies.
Each business unit prepares individual group reporting packages. We combined reporting packages to create components based
on sectors and geographies, for example Marine UK. There were 14 components in-scope for audit procedures, including
the Company.
Two components of the Group were subject to full scope audit performed by the Group audit team. Under the direction and
oversight of the Group audit partner, component audit teams performed full scope audit procedures on nine components and
specific scope audit procedures were performed on three others. All component auditors are integrated partners of Forvis Mazars
Group SC.
The Group audit team issued instructions to component auditors, once at the planning phase given this was our first year audit
and another set of instructions prior to the commencement of year-end procedures. The Group audit partner visited Canada,
South Africa and Australasia component teams to direct and supervise the audit procedures, as well as regularly visiting the
UK-based components. There were frequent remote communications throughout the audit and the Group audit team reviewed
all appendices submitted by components and directly reviewed key working papers.
The Group audit team tested certain areas centrally, such as IT-related procedures, treasury, UK defined benefit pension schemes,
UK tax, assessment of incremental borrowing and discount rates, and share-based payments. The Group audit team also tested the
consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material
misstatement of the aggregated financial information.
The components within scope of our work accounted for 99% of the Group’s revenue, 99% of Group’s profit before taxation,
98% of the Group’s total assets and 99% of the Group’s net assets.
Other information
The other information comprises the information included in the Annual Report other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Babcock International Group PLC Annual Report and Financial Statements 2025 191
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Independent auditor’s report to the members of Babcock International Group PLC (continued)
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements and those reports have been prepared in accordance with applicable legal
requirements;
• the information about internal control and risk management systems in relation to financial reporting processes and about share
capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency Rules sourcebook
made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared
in accordance with applicable legal requirements; and
• information about the Company’s corporate governance code and practices and about its administrative, management and
supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the
audit, we have not identified material misstatements in the:
• Strategic report or the Directors’ report; or
• information about internal control and risk management systems in relation to financial reporting processes and about share
capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a corporate governance statement has not been prepared by the Company.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to Babcock International Group PLC’s compliance with the provisions of the UK Corporate
Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
• Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified, set out on page 124 to 125;
• Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why the period
is appropriate, set out on page 124;
• Directors’ statement on fair, balanced and understandable, set out on page 184;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks, set out on page 104;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems,
set out on page 149; and
• The section describing the work of the Audit Committee, set out on page 146.
192 Babcock International Group PLC Annual Report and Financial Statements 2025
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Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 184, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
Based on our understanding of the Group and the Company and their industry, we considered that non-compliance with the
following laws and regulations might have a material effect on the financial statements: employment regulation, health and safety
regulation, anti-money laundering regulation, export controls and government contracting rules.
To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks of
material misstatement in respect to non-compliance, our procedures included, but were not limited to:
• Gaining an understanding of the legal and regulatory framework applicable to the Group and the Company, the industry in which
they operate, and the structure of the Group, and considering the risk of acts by the Group and the Company which were contrary
to the applicable laws and regulations, including fraud;
• Inquiring of the Directors, management and, where appropriate, those charged with governance, as to whether the Group and the
Company is in compliance with laws and regulations, and discussing their policies and procedures regarding compliance with
laws and regulations;
• Reviewing minutes of Directors’ meetings in the year; and
• Discussing amongst the engagement team the laws and regulations listed above, and remaining alert to any indications of
non-compliance.
We also considered those laws and regulations that have a direct effect on the preparation of the financial statements, such as
financial reporting legislation (including related companies’ legislation such as the Companies Act 2006), Financial Conduct Authority
(FCA) regulations including the Listing Rules, taxation legislation, and pensions legislation.
In addition, we evaluated the Directors’ and management’s incentives and opportunities for fraudulent manipulation of the financial
statements, including the risk of management override of controls, and determined that the principal risks related to posting manual
journal entries to manipulate financial performance, management bias through judgements and assumptions in significant
accounting estimates, in particular in relation to revenue recognition, inventory in the Africa component, and significant one-off
or unusual transactions.
Our procedures in relation to fraud included but were not limited to:
• Making enquiries of the Directors and management on whether they had knowledge of any actual, suspected or alleged fraud;
• Gaining an understanding of the internal controls established to mitigate risks related to fraud;
• Discussing amongst the engagement team the risks of fraud;
• Addressing the risks of fraud through management override of controls by performing journal entry testing; and
• For the Africa inventory, assessing the design and implementation of key controls for inventory counts, specific control
environment assessments and physical verification sampling.
The primary responsibility for the prevention and detection of irregularities, including fraud, rests with both those charged with
governance and management. As with any audit, there remained a risk of non-detection of irregularities, as these may involve
collusion, forgery, intentional omissions, misrepresentations or the override of internal controls.
The risks of material misstatement that had the greatest effect on our audit are discussed in the “Key audit matters” section
of this report.
A further description of our responsibilities is available on the Financial Reporting Council’s website at
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Babcock International Group PLC Annual Report and Financial Statements 2025 193
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Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the members on 19 September 2024 to audit
the financial statements for the year ended 31 March 2025 and subsequent financial periods. The period of total uninterrupted
engagement is 1 year.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company and we remain
independent of the Group and the Company in conducting our audit.
Our audit opinion is consistent with our additional report to the audit committee.
Use of the audit report
This report is made solely to the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body for our audit work, for this report,
or for the opinions we have formed.
As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rules, these financial statements will form
part of the electronic reporting format prepared annual financial report filed on the National Storage Mechanism of the Financial
Conduct Authority. This auditor’s report provides no assurance over whether the annual financial report will be prepared using
the correct electronic reporting format.
Louis Burns (Senior Statutory Auditor)
for and on behalf of Forvis Mazars LLP
Chartered Accountants and Statutory Auditor
Two Chamberlain Square,
Birmingham,
B3 3AX
1 July 2025
Independent auditor’s report to the members of Babcock International Group PLC (continued)
194 Babcock International Group PLC Annual Report and Financial Statements 2025
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Group income statement
For the year ended 31 March
2,3
4,831.3
4,390.1
(4,468.9)
(4,145.0)
1.5
(3.5)
2,3,4
363.9
241.6
(2.7)
9.2
29.1
22.1
(61.2)
(56.2)
2
329.1
216.7
(80.2)
(48.5)
248.9
168.2
247.1
165.7
1.8
2.5
49.1p
32.9p
48.0p
32.2p
Group statement of comprehensive income
For the year ended 31 March
248.9
168.2
(12.7)
(13.4)
(2.5)
–
(1.2)
(4.0)
4.8
6.6
(1.7)
0.3
(2.7)
(0.6)
15.5
(155. 1)
(3.9)
38.4
(4.4)
(127.8)
244.5
40.4
242.6
39.1
1.9
1.3
244.5
40.4
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Group statement of changes in equity
303.4
873.0
768.8
30.6
(1,568.8)
3.0
(56.1)
353.9
17.0
370.9
–
–
–
–
165.7
–
–
165.7
2.5
168.2
–
–
–
–
(116.7)
2.3
(12.2)
(126 .6)
(1.2)
(127.8)
–
–
–
–
49.0
2.3
(12.2)
39.1
1.3
40.4
8
–
–
–
–
(8.5)
–
–
(8.5)
(1.8)
(1 0.3)
–
–
–
–
–
–
–
–
0.7
0.7
–
–
–
–
(12.5)
–
–
(12.5)
–
(12.5)
24
–
–
–
–
12.4
–
–
12.4
–
12.4
–
–
–
–
4.5
–
–
4.5
–
4.5
–
–
–
–
44.9
2.3
(12.2)
35.0
0.2
35.2
303.4
873.0
768.8
30.6
(1,523.9)
5.3
(68.3)
388.9
17.2
406.1
303.4
873.0
768.8
30.6
(1,523.9)
5.3
(68.3)
388.9
17.2
406.1
–
–
–
–
247.1
–
–
247.1
1.8
248.9
–
–
–
–
11.6
1.0
(17.1)
(4.5)
0.1
(4.4)
–
–
–
–
258.7
1.0
(17.1)
242.6
1.9
244.5
–
–
–
–
(26. 7)
–
–
(26.7)
(1.3)
(28.0)
–
–
–
–
–
–
–
–
(0.4)
(0.4)
–
–
–
–
(18.8)
–
–
(18.8)
–
(18.8)
–
–
–
–
14.3
–
–
14.3
–
14.3
–
–
–
–
4.1
–
–
4.1
–
4.1
–
–
–
–
231.6
1.0
(17.1)
215.5
0 .2
215.7
303.4
873.0
768.8
30.6
(1,2 92.3)
6.3
(85.4)
604.4
17.4
621.8
The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates to the
issue and redemption of redeemable ‘B’ preference shares in 2001.
196 Babcock International Group PLC Annual Report and Financial Statements 2025
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Group statement of financial position
Goodwill
10
778. 2
780. 1
Other intangible assets
11
142.4
148.8
Property, plant and equipment
12
558.9
517.1
Right of use assets
13
228.8
175.6
Investment in joint ventures and associates
14
43.5
59.7
Loan to joint ventures and associates
14
3.6
3.9
Retirement benefits surpluses
25
98.8
107. 3
Other financial assets
4.2
5.3
Lease receivables
13, 21
26.2
22.5
Derivatives
21
5.1
2.8
Deferred tax asset
7
102.8
132.3
Trade and other receivables
16
18.1
13.0
2,010.6
1,968.4
Inventories
15
162.2
187.4
Trade and other receivables
16
507.4
487.2
Contract assets
16
329.7
260.9
Income tax recoverable
4.8
10. 6
Lease receivables
13, 21
18.4
13.0
Other financial assets
1.2
1.1
Derivatives
21
9.3
4.4
Cash and cash equivalents
17, 26
646.6
570.6
1,679.6
1,535.2
3,690.2
3,503.6
Share capital
23
303.4
303.4
Share premium
873.0
873.0
Capital redemption and other reserves
720.3
736.4
Retained earnings
(1,292.3)
(1,523.9)
604.4
388.9
Non-controlling interest
17.4
17.2
621 .8
406.1
Bank and other borrowings
19
750.7
74 7.1
Lease liabilities
13, 19
227.4
185.9
Trade and other payables
18
4.2
5.4
Deferred tax liabilities
7
5.9
6.4
Derivatives
21
44.8
51.9
Retirement benefit deficits
25
107.2
217.0
Provisions for other liabilities, including other employee benefits
20
58.1
79.1
1,1 98.3
1,292.8
Bank and other borrowings
19
0.6
20.4
Lease liabilities
13, 19
47.2
44.6
Trade and other payables
18
948.0
949.2
Contract liabilities
18
759.4
685.3
Income tax payable
25.6
16.6
Derivatives
21
9.1
9.5
Provisions for other liabilities, including other employee benefits
20
80.2
79.1
1,870.1
1,804.7
3,068.4
3,097.5
3,690.2
3,503.6
The notes on pages 199 to 265 are an integral part of the consolidated financial statements. The Group financial statements
on pages 195 to 265 were approved by the Board of Directors on 1 July 2025 and are signed on its behalf by:
David Lockwood OBE David Mellors
Director Director
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Group cash flow statement
For the year ended 31 March
248.9
168.2
2.7
(9.2)
80.2
48.5
(29.1)
(22.1)
61.2
56.2
59.0
54.1
33.0
39.8
27.5
24.0
14.3
12.4
(5.6)
(4.9)
(3.6)
(2.0)
(1.5)
3.5
(0.7)
(17. 1)
0.1
(3.6)
–
0.1
486.4
347.9
25.3
(67.1)
(53.5)
6.1
(71.7)
58.2
6.0
56.1
78.7
72.6
(23.5)
8.1
(90.3)
(107.6)
357.4
374.3
(21.8)
(27.4)
(55.8)
(54. 3)
29.0
22.1
308.8
314.7
(1.1)
(1.3)
12.2
7.1
6.1
30.6
(105.3)
(109.7)
(23.0)
(32.7)
0.3
7.5
–
(2.1)
(110 .8)
(100.6)
(26.7)
(8.5)
(45.4)
(49.6)
(8.4)
(13.1)
7.9
–
(1.3)
(1.8)
(18.8)
(12.5)
(92.7)
(85.5)
105.3
128.6
26
552.6
429.5
(11.4)
(5.5)
26
646.5
552.6
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Notes to the Group financial statements
1. Preparation of the Group financial statements
Basis of preparation
Babcock International Group PLC (the parent and ultimate parent company) is a public company limited by shares incorporated
in the United Kingdom under the Companies Act. Babcock International Group PLC is listed on the London Stock Exchange and
is incorporated and domiciled in England, UK. A description of the nature of the Group’s operations and principal activities is set
out on page 2.
The financial statements have been prepared in accordance with United Kingdom adopted International Accounting Standards,
and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been
prepared under the historical cost basis, except for certain financial instruments that have been measured at fair value.
Going concern
After making enquiries, the Directors, at the time of approving the financial statements, have a reasonable expectation that the
Company and the Group have adequate financial resources to continue in operational existence for the foreseeable future.
As such, the consolidated financial statements have been prepared on a going concern basis. The Board considered 12 months from
the date of signing in its assessment of going concern.
New and amended standards adopted by the Group
The following standards and amendments to IFRSs became effective for the annual reporting period beginning on 1 April 2024
and did not have a material impact on the consolidated financial statements:
•
Amendments to IAS 7 and IFRS 7 – Supplier Finance Arrangements: These amendments add disclosure objectives to IAS 7
requiring disclosure of information about supplier finance arrangements that enable users to assess the effect of such
arrangements on the Group’s liabilities and cash flows. Additionally, the amendments revise IFRS 7 to add supplier finance
arrangements as an example of liquidity risk within financial risk management.
The Group does not currently participate in any supplier finance arrangements and therefore these amendments have had no
impact on the current or prior period Income Statement or Statement of Financial Position.
•
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current: These amendments affect only the presentation
of liabilities as current or non-current in the statement of financial position and not the amount or timing of recognition of any
asset, liability, income or expenses, or the information disclosed about those items.
The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the
end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its right
to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the reporting
period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash,
equity instruments, other assets or services.
•
Amendments to IAS 1 – Non-current Liabilities with Covenants: These amendments specify that only covenants that an entity
is required to comply with on or before the end of the reporting period affect the entity’s right to defer settlement of a liability for
at least twelve months after the reporting date (and therefore must be considered in assessing the classification of the liability as
current or non-current). Such covenants affect whether the right exists at the end of the reporting period, even if compliance with
the covenant is assessed only after the reporting date (e.g. a covenant based on the entity’s financial position at the reporting date
that is assessed for compliance only after the reporting date).
The IASB also specifies that the right to defer settlement of a liability for at least twelve months after the reporting date is not
affected if an entity only has to comply with a covenant after the reporting period. However, if the entity’s right to defer settlement
of a liability is subject to the entity complying with covenants within twelve months after the reporting period, an entity discloses
information that enables users of financial statements to understand the risk of the liabilities becoming repayable within twelve
months after the reporting period. This would include information about the covenants (including the nature of the covenants
and when the entity is required to comply with them), the carrying amount of related liabilities and facts and circumstances, if any,
that indicate that the entity may have difficulties complying with the covenants.
•
Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback: These amendments to IFRS 16 add subsequent measurement
requirements for sale and leaseback transactions that satisfy the requirements in IFRS 15 Revenue from Contracts with Customers
to be accounted for as a sale. The amendments require the seller-lessee to determine ‘lease payments’ or ‘revised lease payments’ such
that the seller-lessee does not recognise a gain or loss that relates to the right of use retained by the seller-lessee, after the
commencement date.
The amendments do not affect the gain or loss recognised by the seller-lessee relating to the partial or full termination of a lease.
Without these new requirements, a seller-lessee may have recognised a gain on the right of use it retains solely because of a
remeasurement of the lease liability (for example, following a lease modification or change in the lease term) applying the general
requirements in IFRS 16. This could have been particularly the case in a leaseback that includes variable lease payments that do
not depend on an index or rate.
A seller-lessee applies the amendments retrospectively in accordance with IAS 8 to sale and leaseback transactions entered
into after the date of initial application, which is defined as the beginning of the annual reporting period in which the entity first
applied IFRS 16.
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(continued)
1. Preparation of the Group financial statements (continued)
New IFRS accounting standards, amendments and interpretations not yet adopted
The Group has not early adopted any other amendment, standard or interpretation that has been issued but is not yet effective.
It is expected that these standards and amendments will be adopted on the applicable effective date. The following new or amended
IFRS accounting standards, amendments and interpretations not yet adopted are not expected to have a significant impact on the
Group:
•
Amendments to IAS 21 – Lack of Exchangeability: Effective from 1 April 2025 and not assessed to have any impact on the
Group’s Income Statement or Statement of Financial Position.
•
IFRS 18 – Presentation and Disclosures in Financial Statements: Replaces IAS 1 and makes minor changes to IAS 8, IFRS 7,
IAS 7 and IAS 33. Introduces new requirements regarding specific categories and subtotals in the Group Income Statement and
further disclosures on management performance measures (MPMs) and disclosures aimed at improving aggregation and
disaggregation.
IFRS 18 is yet to be formally endorsed by the UK endorsement board but is expected to be applicable for annual reporting periods
beginning on or after 1 January 2027 with earlier adoption permitted. The Group does not currently intend to adopt this standard
early and therefore this standard is expected to be first presented within the Annual Report for the period ended 31 March 2028.
It is anticipated that the application of IFRS 18 may have an impact on the presentation and disclosure of the Group’s consolidated
financial statements from the point of adoption.
•
IFRS 19 – Subsidiaries without Public Accountability: Disclosures: IFRS 19 is only permitted to be applied by subsidiaries with
no public accountability. As the Group is not a subsidiary, application of the standard is not permitted and therefore will have no
impact on the Group’s Consolidated Financial Statements. IFRS 19 is applicable for annual reporting periods beginning on or after
1 January 2027 with earlier adoption permitted (subject to formal endorsement by the UK endorsement board).
•
Amendments to IFRS 7 and IFRS 9 - Classification and Measurement of Financial Instruments & Contracts referencing
nature-dependant electricity: Effective from 1 January 2026 and not assessed to have a material impact on the Group’s Income
Statement or Statement of Financial Position.
•
Annual improvements to IFRS accounting standards (volume 11): Effective from 1 January 2026 and not assessed to have
a material impact on the Group’s Income Statement or Statement of Financial Position.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings together
with its share of joint ventures’ and associates’ results. Intra-Group transactions, balances, income and expenses are eliminated
on consolidation.
(a) Subsidiaries
A subsidiary is an entity controlled by the Group. An entity is controlled by the Group regardless of the level of the Group’s equity
interest in the entity, when the Group is exposed or has rights to variable returns from its involvement with the entity and has the
ability to impact those returns through its power over the entity.
In determining whether control exists, the Group considers all relevant facts and circumstances to assess its control over an entity
such as contractual commitments and potential voting rights held by the Group if they are substantive.
Subsidiaries are fully consolidated from the date control has been transferred to the Group and de-consolidated from the date
control ceases. Where control ceases, the results for the year up to the date of relinquishing control or closure are analysed as
continuing or discontinued operations.
(b) Joint ventures and associates
Associates are those entities over which the Group exercises its significant influence when it has the power to participate in the
financial and operating policy decisions of the entity but it does not have the power to control or jointly control the entity.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the arrangement, rather than rights to its assets and obligations for its liabilities.
Materiality
Various disclosures make reference to items considered as material or immaterial to the financial statements. The Group considers
information to be material if omitting it or misstating it could influence decisions that users make on the basis of the financial
information provided. Materiality is considered from both a quantitative and qualitative factor perspective. In addition to subsequent
specific references to materiality, and in compliance with IFRS, certain disclosures have not been provided where the information
resulting from that disclosure is not material.
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1. Preparation of the Group financial statements (continued)
Critical accounting estimates and judgements
In the course of preparation of the financial statements, judgements and estimates have been made in applying the Group’s
accounting policies that have had a material effect on the amounts recognised in the financial statements. The application of the
Group’s accounting policies requires the use of estimates and the inherent uncertainty in certain forward-looking estimates may
result in a material adjustment to the carrying amounts of assets and liabilities in the next financial year. Critical accounting estimates
are subject to continuing evaluation and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable in light of known circumstances. Critical accounting estimates and judgements in relation
to these financial statements are considered below:
(a) Critical accounting judgements
Critical accounting judgements, apart from those involving estimations, that are applied in the preparation of the consolidated
financial statements are discussed below. Detail of the Group’s key judgements involving estimates are included in the Key sources
of estimation uncertainty section.
(i) Acting as principal or agent
A number of the Group’s contracts include promises in relation to procurement activity undertaken on behalf of customers at low
or nil margin, sub-contractor arrangements, and other pass-through costs. Management is required to exercise judgement on these
revenue streams in considering whether the Group is acting as principal or agent. This is based on an assessment as to whether
the Group controls the relevant goods or services under the performance obligations prior to transfer to customers. Factors that
influence this judgement include the level of responsibility the Group has under the contract for the provision of the goods or
services, the extent to which the Group is incentivised to fulfil orders on time and within budget, either through gain share
arrangements or KPI deductions in relation to the other performance obligations within the contract, and the extent to which the
Group exercises responsibility in determining the selling price of the goods and services. Taking all factors into consideration, the
Group then comes to a judgement as to whether it acts as principal or agent on a performance obligation-by-performance obligation
basis with both principal and agent conclusions being reached across the Group’s portfolio of revenue arrangements. Any changes
in this judgement would not have a material impact on profit, although there may be a material impact to revenue and operating
costs.
(ii) Determining the groups of cash generating units to which goodwill is allocated
IFRS 8 requires that, for the purpose of subsequent impairment testing, goodwill acquired in business combinations be allocated to
cash generating units (‘CGUs’) or groups of CGUs expected to benefit from the synergies of the combination. Such CGUs or groups
of CGUs shall represent the lowest level at which goodwill is monitored for internal management purposes and shall not be larger
than an operating segment.
This determination is generally straightforward and factual, however in some cases judgement is required.
The Group has identified four operating segments – Aviation, Land, Marine and Nuclear – and in the case of Aviation, Marine
and Nuclear, goodwill is allocated and monitored at the operating segment level (with these three operating segments each also
comprising a group of CGUs).
Although Land is considered a single operating segment, goodwill is separately allocated and monitored between the Africa
business (as one group of CGUs) and the remainder of Land (as a second group of CGUs). This distinction exists due to historic
assessments of the Group’s operating segments and the fact that previous Africa business combinations were only anticipated
to provide synergies and benefits across the Africa CGUs.
Other territories may represent separate CGUs or groups of CGUs but are neither separate operating segments nor is goodwill
separately allocated or monitored at these territory levels.
Over time management reviews the basis upon which goodwill is allocated to ensure it remains appropriate as businesses are
acquired and divested and reporting structures change, including how information is reported to the Chief Operating Decision
Maker. If there was a change in this judgement this could result in a material adjustment to goodwill. Further detail is included
in notes 3 and 10.
(iii) Additional work expected under the Type 31 contract
There is judgement in determining whether the Type 31 onerous contract provision should reflect the benefit of the expected
continuation of the programme. IAS 37.10 states that “a contract is onerous when the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received under it.” Judgement is required in determining whether
additional work is treated as a benefit expected to be received under the Type 31 contract, reducing the onerous contract provision.
The key factors considered in making this judgement are the additional work expected at contract inception and the economic
linkage with the pricing and other terms of the Type 31 contract. Having carefully considered the available evidence against the
evidential bar required to recognise future benefits, it was concluded that the expected continuation of the programme should not
be treated as a benefit expected under the Type 31 contract.
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(continued)
1. Preparation of the Group financial statements (continued)
(b) Key sources of estimation uncertainty
The key sources of estimation uncertainty at the reporting period end that may result in significant risk of material adjustment to
the carrying amount of assets and liabilities within the next financial year are set out below:
(i) Revenue and profit recognition
The following represent the notable assumptions impacting upon revenue and profit recognition as a result of the Group’s contracts
with customers:
•
Stage of completion & costs to complete – The Group’s revenue recognition policies require management to make an estimate
of the cost to complete for long-term contracts. Management estimates outturn costs on a contract-by-contract basis and
estimates are carried out by suitably qualified and experienced personnel. Estimates of cost to complete include assessment
of contract contingencies arising out of technical, commercial, operational and other risks. The assessments of all significant
contract outturns are subject to review and challenge, and judgements and estimates are reviewed regularly throughout the
contract life based on latest available information with adjustments made where necessary. As contracts near completion,
often less judgement is required to determine the expected outturn. The most significant estimate of contract outturn relates
to the Type 31 programme as outlined below.
•
Variable consideration – the Group’s contracts are often subject to variable consideration including performance-based penalties
and incentives, gain/pain share arrangements and other items. Variable consideration is added to the transaction price only to the
extent that it is highly probable that there will not be a significant reversal in the amount of cumulative revenue recognised once
the underlying uncertainty is resolved.
•
Inflation – The level to which the Group’s revenue and cost for each contract will be impacted by inflation is a key accounting
estimate, as this could cause the revenue and cost of contract delivery to be greater than was expected at the time of contracting.
The Group’s contracts are exposed to inflation due to rising employment costs, as well as increased costs of raw materials.
The Group endeavours to include cost recovery mechanisms or index-linked pricing within its contracts with customers in order
to mitigate any inflation risk arising from increasing employment and raw material costs.
The above assumptions all impact upon each individual contract to varying extents depending on the risk profile of the contract and
the individual contract terms and conditions. As such sensitivities to these assumptions are not provided as to do so is not
considered practicable.
Type 31 contract estimates
The contract to produce 5 Type 31 frigates was won under competitive tender in 2019, based on Babcock’s Arrowhead 140 design.
The contract is important in providing access to an expected pipeline of Type 31 work and developing our Arrowhead 140 design
for opportunities overseas. Although the contract contained certain escalation clauses, it provided limited protection from the
macroeconomic changes of recent years relating to Brexit, Covid, raw material prices and UK labour shortages, which have
significantly increased our costs. This has resulted in the contract being loss-making, together with increases in estimated costs
due to the maturing of the design and the forecast cost of labour.
Determining the contract outturn, and therefore revenue and onerous contract provision recognised, requires assumptions and
complex judgements to be made about the future performance of the contract. The level of uncertainty in the estimates made
in assessing the outturn is linked to the complexity of the underlying contract.
The estimates made in assessing the outturn are set out below, along with the related estimation methods, data sources and
management actions to offset the increases in the year.
a)
The number of production hours – which requires estimation of a standard level of hours for manufacturing, structural and
outfitting activities, determined with reference to previous experience of comparable programmes and industry data where
available. The estimation of the time taken to improve to this standard level is also relevant, based on a detailed enablement plan
which is a key output of the operational improvement programme. The volume of activities is based on a detailed assessment
of the Bill of Materials, supported by dedicated engineering software
b)
The ability to improve operational performance through process efficiencies, quality and engineering improvements over
the five ships – which requires actions to reduce re-work, optimise the location in which outfitting is performed, deliver specific
productivity initiatives and make engineering changes to reduce the cost of manufacture, structural assembly and outfitting
c)
The cost of labour – which is dependent on our ability to recruit, the mix of the workforce between permanent and contingent
workers from the UK and overseas, the utilisation of semi-skilled and apprentice workers and shift patterns and premiums.
A detailed resourcing plan is used to support this estimate with actions required to achieve an efficient labour mix
d)
The cost of bought-in parts and services through suppliers and sub-contractors – which includes the outcome of
procurement tenders, finalisation of other areas of unagreed pricing and the agreement of discounts and incentive arrangements
e)
The number of hours required by support functions – primarily in engineering which requires effective management of
production support and change requests. A detailed engineering scope review has been performed to support this estimate
f)
The determination of non-incremental costs which relate directly to fulfilling the contract and are therefore partially
allocated to the contract to determine the loss provision – including facility and overhead costs
g)
The impact of inflation on the contract price and costs to fulfil the contract – particularly in relation to labour which may
be impacted by changes in the local, UK and overseas labour markets, competitor activity and government policy
h)
The achievement of the build schedule to completion and final acceptance – including the satisfaction of all contractual
performance criteria. The schedule analysis is based on detailed modelling and the performance of multiple scenario analysis
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1. Preparation of the Group financial statements (continued)
The cost estimation process has involved a number of key elements:
•
Regular governance at the Group level to monitor progress and enable support as required
•
Bottom-up costing at the activity level performed by individual business areas
•
Reassessment of risk based on the updated cost estimates, considering ranges of outcomes and probabilities
•
Input from functional specialists from across the Group
•
Development of financial models based on cost drivers, using actual data and other evidence to inform the forecast outturn
•
Detailed documentation of estimates made, including process followed, sources of evidence and basis for conclusions
•
Review and challenge at the Programme, Sector and Group levels, culminating in a number of dedicated reviews with
the Audit Committee
The range of possible future outcomes in respect of assumptions made to determine the contract outturn could result in a material
increase or decrease in revenue and the value of the onerous contract provision, and hence on the Group’s profitability, in the next
financial year. The estimates described above are by their nature inter-related for this programme and are unlikely to change with
everything else constant. However, for illustrative purposes, we have provided sensitivities to certain isolated changes in key
estimates on the basis that all other factors remain constant:
•
Production hours – which are impacted by production norms, rate of improvement, process efficiencies and quality/engineering
improvements (see a) and b) above). A 10% increase/decrease in production hours would increase/decrease the loss by £30m
•
Labour rate – which is impacted by our ability to recruit permanent staff, the mix of the workforce, ancillary costs and inflation
(see c) and g) above). A 10% increase/decrease in the average labour rate would increase/decrease the loss by £40m
•
Supply chain costs (see c) above) – which are impacted by the agreement of remaining pricing, discounts and incentive
arrangements. A 10% increase/decrease in supply chain costs would increase/decrease the loss by £25m
•
Schedule (see e), f) and h) above) - which are impacted by the build schedule. A 6-month delay beyond the current planning
assumption would increase the loss by £24m
Overall, with c£0.8bn of estimated costs to go over the life of the contract, if actual costs were to differ from those assumed by
10%, the potential impact on the contract outturn could be c£80m. Any increase in loss would cause a commensurate deterioration
in the balance sheet through a combination of an increase to the onerous loss provision (note 20), reductions in contract assets
(note 16) or increases in contract liabilities (note 18).
To mitigate this, comparisons of actual contract performance and previous forecasts used to assess the contract outturn are
performed regularly, with consideration given to whether any revisions to assumptions are required. The uncertainty over the
contract outturn will reduce in the next financial year but there will be substantial activity and risk over the remaining years.
In a major ship build programme of this nature, it is inherently possible that there may be changes in circumstances which cannot
reasonably be foreseen at the present time.
(ii) Defined benefit pension schemes obligations
The Group’s defined benefit pension schemes are assessed annually in accordance with IAS 19 and the valuation of the defined
benefit pension obligations is sensitive to the inflation, discount rate, actuarial and life expectancy assumptions used. There is
a range of possible values for the assumptions and small changes to the assumptions may have a significant impact on the valuation
of the defined benefit pension obligations. In addition to the inflation, discount rate and life expectancy estimates, management
is required to make an accounting judgement relating to the expected availability of future accounting surpluses under IFRIC 14.
Further information on the key assumptions, sensitivities and judgements is included in note 25.
(c) Other estimates which are not key sources of estimation uncertainty
(i) The carrying value of goodwill
Goodwill is tested annually for impairment, in accordance with IAS 36, Impairment of Assets (‘IAS 36’). The impairment assessment
is based on assumptions in relation to future cash flows expected to be generated by the groups of cash generating units to which
goodwill is allocated, together with appropriate discounting of the cash flows.
In both the current and prior years, we have not identified a key source of estimation uncertainty in respect of goodwill. The
headroom across all identified groups of CGUs against which goodwill is allocated and monitored is such that, under all modelled
sensitivities, no reasonably possible changes in assumptions could result in the complete elimination of the headroom. The key
assumptions in estimating the carrying value of goodwill are discount rate, long-term growth rate and growth rate in the short-term
cash flows.
Inflation rates are incorporated into the impairment assessment through their inclusion within the growth rates in cash inflows and
outflows and through the methodology by which discount rates are determined. Were inflation to impact upon all cash flows equally,
an impairment assessment should be neutral to the impact of inflation. The Group has a number of protections and exposures to
the impact of inflation across its portfolio of revenue arrangements and supply chain agreements resulting in an indirect impact
of inflation on the impairment outturn.
Further information on key assumptions and sensitivity analyses are included in note 10.
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(continued)
1. Preparation of the Group financial statements (continued)
(ii) Impact of climate change
In preparing the Group financial statements, consideration has been given to the potential impact of climate change. Climate-related
matters create risks and opportunities for the Group as set out on pages 75 to 79 of the Strategic Report. Climate-related matters
are not considered to have a material impact on the Group’s critical accounting judgements or key sources of estimation uncertainty.
Climate-related matters primarily impact the Group through their potential impact on the Group’s budgets and forecasts. Budgets and
forecasts affect the current year financial statements through their impact on the following areas:
•
Going concern and viability of the Group;
•
Cash flow forecasts used in impairment assessments of including goodwill, intangible assets and property, plant & equipment;
•
Cash flow forecasts used in the Impairment assessments of financial assets; and
•
The assessed useful economic lives of the Group’s non-current assets
Revised budgets and forecasts, incorporating an estimated financial impact on the climate-related risks and opportunities (described
on pages 75 to 79 of the Strategic Report) have been modelled to understand the possible financial impact and the resilience to
these sensitivities is the basis for why climate-related matters have been concluded to not have a material impact on the critical
accounting judgements or key sources of estimation uncertainty. Whilst there is currently no significant short- to medium-term
impact expected from climate change, the Group is aware of the ever-changing risks attached to climate change and will regularly
assess these risks against judgements and estimates made in preparing the Group consolidated financial statements.
Material accounting policy information
The material accounting policy information relevant to specific accounting areas is set out within the associated note. Other general
policy information is set out below. Material accounting policies have been applied consistently throughout the year and the
comparative year except as otherwise stated.
(a) Transactions with non-controlling interest
The Group’s policy is to treat transactions with non-controlling interest as transactions with owners of the Company. These are
therefore reflected as movements in reserves.
(b) Foreign currencies
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Sterling,
which is the Company’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency of subsidiaries of the Group using the exchange rates
prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into
the functional currency at the year-end exchange rates. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at exchange rates ruling at the reporting date of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement.
Exchange differences arising from the translation of the statement of financial positions and income statements of foreign operations
into Sterling are recognised as a separate component of equity on consolidation. Results of foreign operations are translated using
the average exchange rate for the month of the applicable results, the net assets translated at year-end exchange rates and equity
held at historic exchange rates. When a foreign operation is sold, such exchange differences are recognised in the income
statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at period-end exchange rates.
(c) Government grants and contributions
In the course of our business we receive certain grants or contributions from governments. These are deducted from the related
expenses in the income statement. These amounts total £48.3 million (FY24: £40.0 million).
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2. Adjustments between statutory and underlying information
Definition of underlying measures and specific adjusting items
The Group provides alternative performance measures, including underlying operating profit, underlying earnings per share
and net debt (note 26), to enable users to have a more consistent view of the performance and earnings trends of the Group.
These measures are considered to provide a consistent measure of business performance from year to year. They are used
by management to assess operating performance and as a basis for forecasting and decision-making, as well as the planning
and allocation of capital resources. They are also understood to be used by investors in analysing business performance.
Other alternative performance measures are presented in the Financial Review on pages 28 to 45 where reconciliations to statutory
information are also provided.
The Group’s alternative performance measures are not defined by IFRS and are therefore considered to be non-GAAP measures.
The measures may not be comparable to similar measures used by other companies and they are not intended to be a substitute for,
or superior to, measures defined under IFRS. The Group’s alternative performance measures are consistent with the year ended
31 March 2024.
Underlying operating profit
In any given year the statutory measure of operating profit includes a number of items which the Group considers to either be
one-off in nature or otherwise not reflective of underlying performance. Underlying operating profit therefore adjusts statutory
operating profit to provide readers with a measure of business performance which the Group considers more consistently analyses
the underlying performance of the Group by removing these one-off and other items not reflective of underlying performance
that otherwise add volatility to performance.
Underlying operating profit eliminates potential differences in performance caused by purchase price allocations on business
combinations in prior periods (amortisation of acquired intangibles), business acquisition, merger and divestment related items,
large, infrequent restructuring programmes and fair value movements on derivatives. Transactions such as these may happen
regularly and could significantly impact the statutory result in any given year. Adjustments to underlying operating profit may include
both income and expenditure items.
Specific adjusting items include:
•
Amortisation of acquired intangibles;
•
Business acquisition, merger and divestment related items (being amounts related to corporate transactions and gains or losses
on disposal of assets or businesses);
•
Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography, including closure costs,
severance costs, the disposal of assets and termination of leases;
•
The costs of large restructuring programmes that significantly exceed the minor restructuring which occurs in most years as part
of normal operations. Restructuring costs incurred as a result of normal operations are included in operating costs and are not
excluded from underlying operating profit;
•
Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes;
•
Fair value gain/(loss) on forward rate contracts that are open during the period; and
•
Exceptional items that are significant, non-recurring and outside of the normal operating practice. These items are described as
exceptional in order to appropriately represent the Group’s underlying business performance. No exceptional items have been
identified in the current or comparative period.
Underlying earnings per share
Basic underlying earnings per share are calculated by dividing the underlying profit after tax attributable to ordinary shareholders by
the weighted average number of ordinary shares in issue less the weighted average number of shares held by the Employee Share
Trust as treasury shares.
Diluted underlying earnings per share is calculated by dividing the underlying profit after tax attributable to ordinary shareholders by
the weighted average number of ordinary shares in issue less the weighted average number of shares held by the Employee Share
Trust, plus the number of ordinary shares which are considered potentially dilutive ordinary shares in respect of share incentive
schemes, should the vesting conditions have been met as at the year end. Details of share incentive schemes are provided in note
23 and note 24.
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(continued)
2. Adjustments between statutory and underlying information (continued)
Income statement including underlying results
The below table, disclosed as supplementary information, reconciles the non-GAAP measure of underlying operating profit
to statutory profit.
Year ended 31 March 2025
Year ended 31 March 2024
3
4,831.3
–
4,831.3
4,390.1
–
4,390.1
3,4
362.9
1.0
363.9
237.8
3.8
241.6
7.5%
–
7.5%
5.4%
–
5.5%
8.4
(11.1)
(2.7)
9.2
–
9.2
(31.9)
(0.2)
(32.1)
(35.9)
1.8
(34.1)
339.4
(10.3)
329.1
211.1
5.6
216.7
(84.1)
3.9
(80.2)
(53.5)
5.0
(48.5)
255.3
(6.4)
248.9
157.6
10.6
168.2
Earnings per share including underlying measures
Year ended 31 March 2025
Year ended 31 March 2024
255.3
(6.4)
248.9
157.6
10.6
168.2
253.5
(6.4)
247.1
155.1
10.6
165.7
Amount attributable to non-controlling
interests
1.8
–
1.8
2.5
–
2.5
503.6
503.5
503.5
10.8
11.8
11.8
514.4
515.3
515.3
50.3p
49.1p
30.8p
32.9p
49.3p
48.0p
30.1p
32.2p
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2. Adjustments between statutory and underlying information (continued)
Details of specific adjusting items
The impact of specific adjusting items is set out below:
(8.2)
(10.8)
1.5
8.2
1.2
–
6.5
6.4
1.0
3.8
(11.1)
–
(0.2)
1.8
(10.3)
5.6
2.2
3.9
–
(1.0)
(0.3)
–
(1.6)
(2.0)
–
4.7
3.6
(0.6)
3.9
5.0
Reconciliation of statutory to underlying tax rate
Year ended 31 March 2025
Year ended 31 March 2024
339.4
(10.3)
329.1
211.1
5.6
216.7
and associates
14
(8.4)
11.1
2.7
(10.3)
–
(10.3)
331.0
0.8
331.8
200.8
5.6
206.4
(84.1)
3.9
(80.2)
(53.5)
5.0
(48.5)
25.4%
24.2%
26.6%
23.5%
Explanation of specific adjusting items
Amortisation of acquired intangibles
Underlying operating profit excludes the amortisation of acquired intangibles. This item is excluded from underlying results as it
arises as a result of purchase price allocations on business combinations and is a non-cash item which does not change each year
dependent on the performance of the business. It is therefore not considered to represent the underlying activity of the Group and
is removed to aid comparability with peers who have grown organically as opposed to through acquisition. Intangible assets arising
as a result of the purchase price allocation on business combinations include customer lists, technology-based assets, order book
and trade names. Amortisation of internally generated intangible assets is included within underlying operating profit.
Business acquisition, merger and divestment related items
Transaction related costs and gains or losses on acquisitions, mergers and divestments of businesses are excluded from underlying
operating profit as business combinations and divestments are not considered to result from underlying business performance.
The total net profit relating to business acquisition, merger and divestment related items for the year ended 31 March 2025 was
£1.5 million (2024: £8.2 million). The prior year profit relates to changes in the cash consideration and provision balances following
settlement of certain warranties in respect of historic disposals. The current year balance comprises the disposal of the Group’s
interest in the NTI business in Oman. Further detail is included in note 27.
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2. Adjustments between statutory and underlying information (continued)
Fair value movement on derivatives and related items
These are open forward currency contracts, taken out in the ordinary course of business to manage foreign currency exposures,
where the transaction will occur in future periods. Hedge accounting under IFRS is not applied, however these do represent
economic hedges. On maturity the currency contract will be closed and recognised in full within underlying operating profit at the
same time as the hedged sale or purchase. The net result, at that time, will then more appropriately reflect the related sales price
or supplier cost being hedged.
Hedge ineffectiveness on debt and debt-related derivatives that are designated in a hedge relationship are also presented as a
specific adjusting item in finance costs. This is presented as a specific adjusting item as this ineffectiveness is caused by a historic
off-market designation, the transactions are considered by the Group to represent an economic hedge.
The fair value movement on lease-related derivatives and foreign exchange movements on lease liabilities are also presented
as a specific adjusting item in finance costs, as hedge accounting under IFRS is also not applied to these transactions but are also
considered by the Group to represent an economic hedge.
Tax
Specific adjusting items in respect of tax comprises a credit of £3.6 million (2024: charge of £0.6 million) arising from the impact of
the increase in the rate of corporation tax and a credit of £nil (2024: £4.7 million) arising from the release of uncertain tax positions
in respect of historic group reorganisation activities. The rate change impact arises from adjustments to the Group’s UK tax position
for years ended before 1 April 2023.
Results from joint ventures and associates
Our Ascent flight training joint venture is in the process of aligning its accounting to IFRS principles and completed the work required
to determine the accounting for revenue under IFRS 15 in the year. This resulted in a c1% lower overall measure of contract
completion than we previously applied when including the Group’s share of Ascent’s results under IFRS 15. The reduction in share
of profits from JVs has been reported as a Specific Adjusting Item as it is meets our criteria for an exceptional item, being significant,
non-recurring and outside of the normal operating practice, in order to appropriately represent the Group’s underlying business
performance. This adjustment has no impact on dividends received within our underlying Free Cash Flow.
3. Segmental information and revenue recognition
Revenue recognition
Revenue recognised represents income derived from contracts with customers for the provision of goods and services in the
ordinary course of the Group’s activities. The Group recognises revenue in line with IFRS 15, Revenue from Contracts with
Customers. IFRS 15 requires the identification of performance obligations in contracts, determination of contract price, allocation
of the contract price to the performance obligations and recognition of revenue as performance obligations are satisfied.
(i) Performance obligations
Contracts are assessed to identify each promise to transfer either a distinct good or service or a series of distinct goods or
services that are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct
if the customer can benefit from them either on their own or together with other resources readily available to the customer
and they are separately identifiable in the contract.
In assessing whether the performance obligations are separately identifiable, the services are reviewed to determine the extent
to which the goods or services within a contract are interrelated and whether they modify other goods or services within a
contract. The Group also considers whether the goods and/or services are integrated and represent a combined output for
which the customer has contracted. The integrated output nature of many of the services provided by the Group results in some
contracts only having one performance obligation.
(ii) Determination of contract price
The contract price represents the amount of consideration which the Group expects to be entitled to in exchange for delivering
the promised goods or services to the customer. Contracts can include both fixed and variable consideration.
Inclusion of variable consideration in the contract price requires the exercise of judgement in relation to the amount to be
received through unpriced contract variations and claims (see section (v) below for further details) and variable elements
of existing contracts, such as performance-based penalties and incentives, and gain/pain share arrangements where cost
under/over spends are shared with the customer.
Given the long-term nature of the Group’s contracts with customers, a number of arrangements include clauses to allow
for inflation within the transaction price. Such inflation clauses are treated as variable consideration.
Elements of variable consideration are estimated at contract inception and at the end of each reporting period. Any required
adjustment is made against the contract price in the period in which the adjustment occurs.
208 Babcock International Group PLC Annual Report and Financial Statements 2025
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3. Segmental information and revenue recognition (continued)
Revenue recognition (continued)
Variable consideration is estimated using either the expected value or the most likely amount and is added to the transaction
price only to the extent that it is highly probable that there will not be a significant reversal in the amount of cumulative revenue
recognised once the underlying uncertainty is resolved. This judgement is made by suitably qualified and experienced personnel
based on the contract terms, status of negotiations with customers and historical experience with customers and with similar
contracts. As part of this judgement, variable consideration may be constrained until the uncertainty is resolved. In the case
of unpriced variations these will be constrained to the extent that such variable consideration is not considered highly probable.
Variable consideration may be included in the total transaction price or, in certain circumstances, may be allocated to a specific
time period. Where variable consideration is allocated to a specific time period this will typically be in relation to performance
related deductions.
(iii) Allocation of contract price to performance obligations
Given the bespoke nature of many of the goods and services the Group provides, standalone selling prices are generally
not observable and, in these circumstances, the Group allocates the contract price to performance obligations based on cost
plus margin. This amount would be the standalone selling price of each performance obligation if contracted with a customer
separately.
(iv) Revenue and profit recognition
Performance obligations are satisfied, and revenue recognised, as control of goods and services is transferred to the customer.
Control can be transferred at a point in time or over time and the Group determines, for each performance obligation, whether
it is satisfied over time or at a point in time.
Revenue recognised over time
Performance obligations are satisfied over time if any of the following criteria are satisfied:
•
the customer simultaneously receives and consumes the benefits of the Group’s performance as it performs; or
•
the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable
right to payment for work done; or
•
the Group’s performance creates or enhances an asset controlled by the customer.
Typical performance obligations in the Group’s contracts that are recognised over time include the delivery of services (such
as maintenance, engineering and training), as the customer simultaneously receives and consumes the benefits of the Group’s
performance as it performs the services. Revenue from the design, manufacture and enhancement of bespoke assets is also
recognised over time, as the Group’s performance does not create an asset with an alternative use to the Group and the Group
has an enforceable right to payment for performance completed to date, being recovery of costs incurred in satisfying the
performance obligation plus a reasonable profit margin.
Where the Group satisfies performance obligations over time, the Group primarily uses an input method to measure satisfaction
of each performance obligation based on costs incurred compared to total estimated contract costs. For the majority of the
Group’s contracts, this is deemed to be the most appropriate method to measure Babcock’s effort in satisfying the applicable
performance obligations. Costs are included in the measurement of progress towards satisfying the performance obligation
to the extent that there is a direct relationship between the input and satisfaction of the performance obligation. For contracts
where costs incurred is not deemed to be the most appropriate measure, the Group uses time elapsed to measure satisfaction
of the performance obligation.
Under most of the Group’s contracts, the customer pays in accordance with a pre-arranged payment schedule or once
milestones have been met. If the amount of revenue recognised (as measured by the methods described above) exceeds the
amount of cash received from the customer then the difference will be held on the statement of financial position. This will
typically be comprised of a mixture of contract assets and trade receivables. If the amount of cash collected together with
amounts due under the contract but uncollected exceeds the amount of revenue recognised then the difference is also held on
the statement of financial position as a contract liability. See note 16 and note 18 for further details on how contract assets and
liabilities are recognised.
Revenue recognised at a point in time
If control of the goods or services is not transferred to the customer over time, then revenue is recognised at the point in time
that control is transferred to the customer.
Point in time recognition mainly applies to sale of goods. Control typically transfers to the customer when the customer has legal
title to the goods and this is usually coincident with delivery of the goods to the customer and right to receive payment by the
Group. These revenues are delivered predominantly by the Aviation and Land sectors and include sales of equipment to
commercial customers and procurement of consumables on behalf of the Ministry of Defence (MOD). Sale of goods at a point
in time represents approximately 7% of Group revenues (2024: 7%).
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3. Segmental information and revenue recognition (continued)
Revenue recognition (continued)
Assessment of contract profitability
Profit is recognised to the extent that the final outcome on contracts can be reliably assessed. Contract outturn assessments
are carried out on a contract-by-contract basis, including consideration of technical and other risks, by suitably qualified and
experienced personnel and the assessments of all significant contracts are subject to review and challenge.
Estimating contract revenues can involve judgements around whether the Group will meet performance targets and/or earn
incentives, as well as consideration as to whether it is necessary to constrain variable revenues to meet the highly probable
not to significantly reverse test set out in paragraph 56 of IFRS 15. When considering variations, claims and contingencies, the
Group analyses various factors including the contractual terms, status of negotiations with the customer and historical
experience with that customer and with similar contracts. Estimates of costs include assessment of contract contingencies
arising out of technical, commercial, operational and other risks. The assessments of all significant contract outturns are subject
to review and challenge and estimation uncertainty is resolved on a contract-by-contract basis as contracts near the end of the
project lifecycle.
If a contract is deemed to be loss making the present obligation is recognised and measured as provision. Further detail is
included in the Provisions accounting policy.
(v) Contract modifications
Claims and variations
The Group’s contracts are often amended for changes in the customers’ requirements. Contract modifications can relate to
changes in both contract scope and price arising in the ordinary course of delivering contracts, which are referred to as contract
variations. Such variations may arise as a result of customer requests or instructions or from requests from the Group in
response to matters arising during the delivery of contracts. For example, some contracts include the requirement to conduct
surveys and to report on or to recommend additional work as required. Some contracts may require the Group to proceed
with variations and to agree pricing subsequently. See further detail on accounting for contract modifications below.
Contract modifications can also refer to changes in price only, with no change in scope, where there is a difference of view
or dispute in relation to interpretation of contracts. These contract claims and variations are considered to be modifications
as referred to in paragraph 18 of IFRS 15.
Accounting for contract modifications
The Group accounts for contract modifications in one of three ways, based on the facts and circumstances of the contract
modification:
1.
Prospectively, as an additional, separate contract;
2.
Prospectively, as a termination of the existing contract and creation of a new contract; or
3.
As part of the original contract using a cumulative catch-up.
The Group recognises contract variations, which impact both scope and price, when they are approved in accordance with IFRS
15. The Group’s preferred approach is to approve contract modifications by formal contract amendment. However, the approval
of contract modifications may be required to be carried out at pace and other mechanisms, informed by established customer
relationships and local working arrangements, can be used to achieve approval of contract modifications. In approving contract
modifications in these circumstances, the Group considers the scope of the contract modification in the context of the contract
scope and contract terms. Contract variations where the formal contract amendment has not been received but which are,
in management’s judgement, approved are accounted for as a contract modification in accordance with IFRS 15 paragraph 18.
Revenue from these contract variations is treated as variable consideration and subject to constraint as outlined in section (ii)
above, until the pricing is agreed. Contract claims are also considered to be contract modifications in accordance with IFRS 15,
and revenue is subject to constraint as outlined in section (ii).
Claims and variations which are not deemed to be contract modifications
Claims can also be raised by Babcock against third-party sub-contractors or suppliers to the Group. As these do not relate to
contracts with customers, but rather relate to contracts with suppliers, they are not accounted for under IFRS 15. The Group’s
accounting policy is to account for such claims in accordance with the contingent asset guidance per IAS 37. Income in relation
to these claims will only be recognised once it is virtually certain.
210 Babcock International Group PLC Annual Report and Financial Statements 2025
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3. Segmental information and revenue recognition (continued)
The Group has four operating and reportable segments, determined by reference to the goods and services they provide and the
markets they serve.
Marine – through-life support of naval ships, equipment and marine infrastructure in the UK and internationally.
Nuclear – through-life support of submarines and complex engineering services in support of major decommissioning programmes
and projects, training and operation support, new build programme management and design and installation in the UK.
Land – large-scale critical vehicle fleet management, equipment support and training for military and civil customers.
Aviation – critical engineering services to defence and civil customers worldwide, including pilot training, equipment support,
airbase management and operation of aviation fleets delivering emergency services.
The executive members of the Board, the chief operating decision maker as defined by IFRS 8, monitor the results of these
operating and reportable segments and makes decisions about the allocation of resources.
The accounting policies of the reportable segments are the same as the group’s accounting policies described in note 1. The table
below presents the underlying results for each reportable segment in accordance with the definition of underlying operating profit,
as set out in note 2, and reconciles the underlying operating profit/(loss) to the statutory profit/(loss) before tax.
1,576.4
1,816.0
1,116.6
322.3
–
4,831.3
96.5
160.3
86.2
19.9
–
362.9
(5.5)
–
–
(2.7)
–
(8.2)
1.5
–
–
–
–
1.5
Fair value gain/(loss) on forward rate contracts to be
settled in future periods
6.8
–
–
(0.3)
–
6.5
Profit or loss from amendment, curtailment, settlement or
equalisation of Group pension schemes
–
1.1
0.1
–
–
1.2
99.3
161.4
86.3
16.9
–
363.9
(0.5)
0.3
–
(2.5)
–
(2.7)
–
–
0.4
–
–
0.4
–
–
–
–
(32.5)
(32.5)
98.8
161.7
86.7
14.4
(32.5)
329.1
£m
i
1,429.1
1,520.9
1,098.6
341.5
–
4,390.1
13.1
109.2
96.3
19.2
–
237.8
(7.5)
–
–
(3.3)
–
(10.8)
(1.5)
–
(0.2)
9.9
–
8.2
Fair value gain/(loss) on forward rate contracts to be
settled in future periods
6.9
–
–
(0.5)
–
6.4
11.0
109.2
96.1
25.3
–
241.6
(2.3)
0.2
0.3
11.0
–
9.2
–
–
0.5
–
–
0.5
–
–
–
–
(34.6)
(34.6)
8.7
109.4
96.9
36.3
(34.6)
216.7
* Other net finance costs are not allocated to a specific sector.
Revenues of £3.0 billion (2024: £2.5 billion) are derived from a single external customer. These revenues are attributable across
all reportable segments.
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(continued)
3. Segmental information and revenue recognition (continued)
Segment assets and liabilities
The reportable segment assets and liabilities at 31 March 2025 and 31 March 2024 and capital expenditure and lease principal
payments for the years then ended are as follows:
Assets
Liabilities
Capital expenditure
Lease payments
845.9
784.9
901.8
886.9
18.9
31.0
4.4
4.5
Nuclear
761.9
705.5
378.3
337.9
69.8
67.4
5.7
4.3
665.9
686.4
424.5
474.1
6.1
6.4
10.3
12.2
453.5
382.3
313.0
227.8
25.3
13.6
17.9
22.8
Unallocated *
963.0
944.5
1,050.8
1, 170.8
8.2
24.0
7.1
5.8
3,690.2
3,503.6
3,068.4
3,097.5
128.3
142.4
45.4
49.6
* All assets and liabilities are allocated to their appropriate reportable segments except for cash, cash equivalents, borrowings, income and deferred
tax balances and retirement benefit surpluses which are included in the unallocated segment. Lease liabilities were unallocated within the 2024
Annual Report and have been restated within the above comparative amounts to consistently present across the Group’s operating segments in both
the current and prior reporting period.
In addition to the Segment liabilities balances being re-presented to allocate lease liabilities across the Group’s operating segments, both Segment
assets and Segment liabilities have been restated to present contract assets and liabilities on a net basis for each contract as described in more
detail in notes 16.
Capital expenditure represents additions to property, plant and equipment and intangible assets. Proceeds from the sale of assets
totalling £6.1 million (2024: £30.6 million) are not included above, and are predominantly in the Land sector (2024: Land sector).
See note 18 relating to the treatment of amounts payable in respect of capital expenditure.
The segmental analysis of joint ventures and associates is detailed in note 14.
Segmental depreciation and amortisation
The segmental depreciation on property, plant and equipment, right of use assets and amortisation of intangible assets for the years
ended 31 March 2025 and 31 March 2024 is as follows:
12.1
11.9
3.1
4.0
8.7
13.3
28.1
23.7
6.2
4.7
3.5
0.2
Land
4.4
3.7
7.3
9.3
0.6
0.7
7.2
7.3
11.3
14.8
2.8
3.4
7.2
5.4
3.3
7.0
11.9
6.4
59.0
52.0
31.2
39.8
27.5
24.0
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3. Segmental information and revenue recognition (continued)
Segmental asset impairments
The segmental impairment on property, plant and equipment, right of use assets and intangible assets for the years ended 31 March
2025 and 31 March 2024 is as follows:
–
–
–
–
–
–
Nuclear
–
–
–
–
–
–
–
–
0.1
–
–
–
–
2.1
–
–
–
–
Unallocated
–
–
1.7
–
–
–
–
2.1
1.8
–
–
–
Geographic analysis of non-current assets
The geographic analysis for non-current assets by location of those assets for the years ended 31 March 2025 and 31 March 2024
is as follows:
1,473.3
1,464.5
64.9
54.3
26.0
27.5
58.3
16.4
154.3
137.7
0.9
3.1
1,777.7
1,703.5
98.8
107.3
26.2
22.5
5.1
2.8
102.8
132.3
2,010.6
1,968.4
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3. Segmental information and revenue recognition (continued)
Geographic analysis of revenue
The geographic analysis of revenue by origin of customer for the years ended 31 March 2025 and 31 March 2024 is as follows:
853.3
1,815.8
628.4
150.8
3,448.3
40.6
–
31.0
95.7
167.3
–
–
348.6
–
348.6
197.7
0.2
–
13.0
210.9
195.4
–
108.6
62.8
366.8
289.4
–
–
–
289.4
1,576.4
1,816.0
1,116.6
322.3
4,831.3
United Kingdom
765.8
1,519.9
641.0
154.4
61.5
–
37.7
102.8
–
–
331.6
–
172.8
0.3
–
20.1
Australasia
207.6
–
88.3
64.2
221.4
0.7
–
–
1,429.1
1,520.9
1,098.6
341.5
4,390.1
Market sector analysis of revenue
The analysis of revenue split between market sectors for the years ended 31 March 2025 and 31 March 2024 is as follows:
1,296.4
1,575.0
547.3
160.8
3,579.5
280.0
241.0
569.3
161.5
1,251.8
1,576.4
1,816.0
1,116.6
322.3
4,831.3
1,200.4
1,338.4
483.4
174.2
228.7
182.5
615.2
167.3
1,429.1
1,520.9
1,098.6
341.5
4,390.1
During the year, the Group has recognised £45.3 million of revenue in respect of performance obligations satisfied or partially
satisfied in previous periods (2024: reversal £34.4m).
The current year figure is driven by forecast margin improvements and the impact of variable consideration being unconstrained
as the highly probable test under IFRS 15 has been satisfied in the period.
The prior year figure was significantly impacted by the reduction in margin and consequential revenue reversal on the T31 contract
as described in Note 1. This was offset by a number of cumulative catch-ups on a number of other key programmes driven by
forecast margin improvements and the impact of variable consideration being unconstrained as the highly probable test under
IFRS 15 has been satisfied in the period.
At 31 March 2025, there is £7.7 billion (2024 restated: £7.1 billion) of transaction price on contracts with customers that has been
allocated to unsatisfied or partially satisfied performance obligations (note this metric has been prepared for IFRS 15 disclosure
purposes and therefore does not align to the Group’s contract backlog). Contract backlog is based on the full contractual term of the
Group’s agreements whilst the IFRS 15 disclosure may be a shorter contractual period in the event that the customer has the ability
to exit contracts prior to the full term for non-substantive penalty payments. Management expects that 39.9% (2024: 42.9%) of the
transaction price allocated to unsatisfied performance obligations as at 31 March 2025 will be recognised as revenue during the next
reporting period. A further 47.1% (2024: 49.4%) of the transaction price allocated to unsatisfied performance obligations is expected
to be recognised as revenue in years two to five after 31 March 2025.
214 Babcock International Group PLC Annual Report and Financial Statements 2025
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4. Operating profit for the year
The following items have been included in arriving at operating profit for the year:
2,093.0
2,053.1
29.4
(61.1)
578.9
482.9
1,659.3
1,583.5
59.0
52.0
31.2
39.8
8.2
10.8
19.3
13.2
–
–
–
2.1
1.8
–
(0.7)
(17.1)
–
0.1
0.1
(3.6)
(0.4)
(3.0)
(1.5)
3.5
(6.6)
(5.7)
(3.6)
(2.0)
4,467.4
4,148.5
Services provided by the Group’s auditor and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor:
2.7
2.6
6.4
10.7
Audit related assurance fees
–
–
–
–
9.1
13.3
Amounts disclosed in the comparative period represent amounts paid to the Group’s auditor for that period – Deloitte LLP.
As outlined in the Audit Committee report on page 146, the Group changed auditor commencing with the audit of the Consolidated
Financial Statements for the year ended 31 March 2025 and the current period disclosures represent the amounts paid to the
Group’s new auditor (Forvis Mazars LLP) and their network firms.
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5. Net finance costs
37.1
38.5
15.1
9.6
2.1
3.0
4.5
0.8
7.4
8.2
(5.0)
(3.9)
61.2
56.2
28.7
21.6
0.4
0.5
29.1
22.1
32.1
34.1
Net finance costs decreased to £32.1 million (2024: £34.1 million). Included in finance costs are £0.5 million (2024: £4.4 million)
relating to the factoring of receivables for the Mentor contract in France (within other finance costs). All finance income is calculated
on an effective Interest Rate basis. All finance costs are calculated on an effective interest rate basis with the exception of
£4.6 million (2024: £2.8 million) of fair value costs on fair value remeasurement of the Group’s interest rate derivatives and the
Retirement benefit interest cost (measured under IAS 19 – see Note 25).
6. Employee costs
1,379.6
1,305.2
Social security costs
147.1
131.3
14.3
12.4
101.6
110.7
Pension charges – defined benefit plans (note 25)
16.7
23.9
1,659.3
1,583.5
The average monthly number of people employed by the Group was:
Marine
7,358
6,801
9,326
8,681
6,346
6,042
Aviation
2,558
2,494
1,270
1,145
26,858
25,163
Emoluments of the Executive Directors are included in employee costs above and reported in the Remuneration report.
Finance costs
Finance costs are recognised as an expense in the period in which they are incurred unless they are attributable to an asset
under construction, in which case finance costs are capitalised. Further detail on the capitalisation of borrowing costs is given
in Note 12.
Finance income
Finance income is recognised in the period to which it relates using the effective interest rate method.
Employee costs are recognised as an expense in the period in which they are incurred with the exception of long-term
employee benefits which are recognised in accordance with IAS 19 (see Note 25 for more details) and share based payment
charges which are recognised in accordance with IFRS 2 (see Note 24 for more details).
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6. Employee costs (continued)
Key management compensation
Key management is defined as those employees who are directly responsible for the operational management of the operating
segments. The employees would typically report to the Chief Executive. The key management figures given below include Directors.
16.1
13.5
Post-employment benefits
0.6
0.6
0.8
0.5
6.5
5.9
24.0
20.5
7. Taxation
Current income tax
Current income tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates
and laws that have been enacted or substantively enacted by the reporting date.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company and its subsidiaries and associates operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment.
The Group measures its tax balances either based on the most likely amount or the expected value, depending on which
method provides a better prediction of the resolution of the uncertainty.
Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to
settle on a net basis, or to realise the asset and settle the liability simultaneously.
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of
assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax
arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using
tax rates and laws that have been enacted, or substantively enacted, by the reporting date and are expected to apply when the
related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised. Deferred tax assets are recognised where deferred tax liabilities exist and are
expected to reverse in the same period as the deferred tax asset or in periods into which a loss arising from a deferred tax asset
can be carried forward or back. In the absence of sufficient deferred tax liabilities, deferred tax assets are recognised where it is
probable that there will be future taxable profits from other sources against which a loss arising from the deferred tax asset can
be offset. In assessing the availability of future profits, the Group uses profit forecasts consistent with those used for goodwill
impairment testing.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities
and where the deferred tax balances relate to the same taxation authority.
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in either other
comprehensive income or in equity.
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7. Taxation (continued)
Income tax expense
15.7
–
2.5
–
20.6
21.8
–
(0.1)
38.8
21.7
53.0
26.1
(9.1)
0.5
1.7
1.8
(0.6)
(2.2)
(3.6)
0.6
41.4
26.8
80.2
48.5
The tax for the year is lower (2024: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
329.1
216.7
82.3
54.2
5.7
3.4
(3.6)
0.6
Difference in respect of share of results of joint ventures and associates’ results
0.7
(2.6)
(7.1)
(1.8)
1.4
2.0
Unrecognised deferred tax movements
6.3
2.5
(0.9)
(3.1)
(0.2)
(2.1)
Pillar Two top-up tax
0.5
–
(4.9)
(4.6)
80.2
48.5
Further information on exceptional items and tax on exceptional items is detailed in note 2.
The Group is subject to taxation in several jurisdictions. The complexity of applicable rules may result in legitimate differences
of interpretation between the Group and taxing authorities, especially where an economic judgement or valuation is involved.
The outcome of tax authority disputes in such areas is not predictable, and to reflect the effect of these uncertain tax positions
a provision is recorded which represents management’s assessment of the most likely outcome of each issue. At 31 March 2025
the Group held uncertain tax positions of £44.6 million (2024: £23.7 million). Of this amount, £32.3 million (2024: £11.6 million)
relates to ongoing discussions with HMRC regarding prior periods.
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7. Taxation (continued)
Income tax expense (continued)
In July 2023, the UK enacted legislation to introduce the ‘Pillar Two’ global minimum tax model rules of the OECD’s Inclusive
Framework on Base Erosion and Profit Shifting and a UK qualified domestic minimum top-up tax. The legislation applies to the Group
with effect from 1 April 2024. Under the Pillar Two rules, a top-up tax liability arises where the Group’s effective tax rate
in a jurisdiction is below 15%. The Group has applied the temporary mandatory relief from deferred tax accounting for the impacts of
the top-up tax and accounts for it as a current tax when it is incurred.
The Group has recorded a Pillar Two global minimum tax charge of £0.5 million for the period, relating to the Group’s earnings
in Oman. This top-up tax will be borne by Babcock International Group Limited. It is not expected that Pillar Two top-up taxes will
significantly increase the Group’s tax charge in future periods.
Deferred tax
Deferred tax assets and deferred tax liabilities have been offset if, and only if, there is a legally enforceable right in that jurisdiction
to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes
levied by the same Taxation Authorities:
102.8
132.3
(5.9)
(6.4)
96.9
125.9
The movements in deferred tax assets and liabilities during the year are shown below.
(45.1)
27.0
128.0
16.0
125.9
Income statement credit/(debit)
4.0
(21.6)
(33.6)
6.0
(45.2)
–
(3.9)
–
(0.4)
(4.3)
–
–
17.2
–
17.2
Disposal of business
–
–
–
(0.1)
(0.1)
–
–
4.2
(0.6)
3.6
Exchange differences
(0.1)
–
(0.3)
0.2
(0.2)
(41.2)
1.5
115.5
21.1
96.9
(40.9)
15.3
128.0
2.8
105.2
(6.9)
(26.7)
(2.7)
10.1
(26.2)
–
38.4
–
4.0
42.4
Transfer from income tax receivable
–
–
5.3
–
5.3
0.6
–
0.3
(0.9)
–
1.7
–
(2.4)
0.1
(0.6)
0.4
–
(0.5)
(0.1)
(0.2)
(45.1)
27.0
128.0
16.0
125.9
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7. Taxation (continued)
Deferred tax (continued)
The net deferred tax assets of £96.9 million (2024: £125.9 million) include deferred tax assets of £12.5 million (2024: £14.0 million)
and deferred tax liabilities of £5.9 million (2024: £6.5 million) in respect of the Group’s non-UK operations.
Deferred tax assets have been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets
because the Directors believe that it is probable that these assets will be recovered. The recognition of deferred tax assets in
respect of losses can be subjective. The Group’s approach to the recognition of deferred tax assets in respect of losses, including
how the Group assesses future profitability for recognition purposes, is set out in the accounting policy above.
Net deferred tax assets have been recognised principally in respect of operations in the following jurisdictions: United Kingdom
(£90.4 million), Australia (£3.6 million), France (£0.9 million), South Africa (£7.4 million) and New Zealand (£0.5 million). In the prior
year net deferred tax assets were recognised principally in the following jurisdictions: United Kingdom (£118.2 million), Australia
(£4.8 million), France (£0.9 million), South Africa (£7.4 million) and New Zealand (£0.8 million). The UK was in a net tax loss position
for each of the years ended 31 March 2021 to 31 March 2024. The losses for the years ended 31 March 2021 and 2022 reflected the
contract profitability and balance sheet review carried out in 2021 and the restructuring of the business in 2022. The tax losses in
the years ended 31 March 2023 and 31 March 2024 were principally attributable to the provisions in respect of the Type 31 contract,
together with timing differences between the reporting and taxable result. The UK has taxable profits in the year ended 31 March
2025. The Directors do not consider that the results for these earlier periods are representative of future trading performance and
are satisfied that these net deferred tax assets are recoverable based on future profit forecasts.
No deferred tax has been recognised in respect of temporary differences associated with investments in subsidiaries, branches,
associates and interests in joint ventures and joint operations where the Group is in a position to control the timing of the reversal of
the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate amount
of temporary differences associated with such investments in subsidiaries, branches, associates and interests in joint ventures
and joint operations is represented by their post acquisition retained earnings and amounted to £283 million (2024: £137 million).
At the statement of financial position date, deferred tax assets of £115.5 million (2024: £128.0 million) have been recognised in
respect of unused tax losses available for carry forward. No deferred tax asset has been recognised in respect of further unutilised
tax losses carried forward (excluding capital losses) and interest of £124.2 million (2024: £110.5 million). In addition to these
amounts, UK capital losses of £201.3 million (2024: £190.4 million) are being carried forward, with no deferred tax asset having been
recognised. Where a deferred tax asset has not been recognised in respect of losses, this is because management considers that
those jurisdictions are not likely to generate sufficient taxable income of the appropriate type in the foreseeable future. The amounts
shown can be carried forward indefinitely.
8. Dividends
9.7
8.5
Final dividend for the year ended 31 March 2024 of 3.3p (2024: nil p) per 60p share
17.0
–
26.7
8.5
After the balance sheet date, the directors proposed a final dividend of 4.5p per ordinary share. The dividend proposed amounts to
approximately £22.7m, although the exact final payment will vary depending on the level of shares held by the Babcock Employee
Share Trust. The dividend, which is subject to shareholder approval, will be paid on 30 September 2025 to shareholders registered
on 22 August 2025. The payment of this dividend will not have any tax expense consequences for the Group
Dividends are recognised as a liability in the Group’s financial statements in the period in which they are approved. Interim
dividends are recognised when paid.
220 Babcock International Group PLC Annual Report and Financial Statements 2025
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9. Earnings per share
Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS
503,557,679
503,452,989
10,854,861
11,869,860
514,412,540
515,322,849
Earnings per share
Year ended 31 March 2025
Year ended 31 March 2024
247.1
49.1
48.0
165.7
32.9
32.2
10. Goodwill
Accounting policy information
When the fair value of the consideration for an acquired undertaking exceeds the fair value of its separable net assets, the
difference is treated as purchased goodwill and capitalised. Goodwill is allocated to the cash generating unit (or group of cash
generating units) expected to benefit from the business combination’s synergies.
Goodwill is predominantly monitored at the operating segment level (Marine, Nuclear and Aviation). Land is a singular operating
and reporting segment however goodwill is separately monitored and allocated between the Group’s Africa operations and those
of the other Land operations. Goodwill is therefore separately tested for impairment between these two groups of cash
generating units.
When the fair value of the consideration for an acquired undertaking is less than the fair value of its separable net assets,
the difference is taken directly to the income statement.
Goodwill relating to acquisitions prior to 1 April 2004 is maintained at its net book value on the date of transition to IFRS.
From that date goodwill is not amortised but is reviewed at least annually for impairment.
Goodwill is reviewed for impairment annually at 31 March by assessing the recoverable amount of cash generating units
(or groups of cash generating units) by reference to value-in-use calculations or fair value less cost to dispose if such
information exists at the balance sheet date (typically only where the Group is progressed with disposal related activities
that allow a fair value less cost to dispose to be readily determinable). Goodwill impairments are not subsequently reversed.
On disposal of a subsidiary, joint venture or associate, the attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
Impairment
Goodwill is reviewed for impairment at least annually. As goodwill does not generate cash flows that are separately identifiable
from other assets, the Group estimates the recoverable amount of the CGU, or group of CGUs, to which the asset belongs.
The recoverable amount is the higher of fair value less costs of disposal, and value-in-use. When the recoverable amount is less
than the carrying amount, an impairment loss is recognised immediately in the Group income statement. Subsequent reversal
of historic impairments to goodwill are not permissible.
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue less the weighted average number of shares held by the Employee Share Trust as treasury
shares.
Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue less the weighted average number of shares held by the Employee Share Trust, plus the
number of ordinary shares which are considered potentially dilutive ordinary shares in respect of share incentive schemes,
should the vesting conditions have been met as at the year end. Details of share incentive schemes are provided in note 23
and note 24.
Weighted average is calculated by reference to the date of transactions which increase or reduce the number of shares in issue
or the number of shares held by the Employee Share Trust.
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10. Goodwill (continued)
1,822.0
1,823.3
(0.5)
–
Exchange adjustments
(1.4)
(1.3)
1,820.1
1,822.0
1,041.9
1,041.9
1,041.9
1,041.9
778.2
780.1
Goodwill was tested for impairment at 31 March 2025 in accordance with IAS 36.
Goodwill is allocated to groups of cash generating units (‘CGUs’) as set out in the table below:
293.6
295.5
Nuclear
233.1
233.1
217.8
218.0
32.0
32.0
Africa
1.7
1.5
778.2
780.1
The goodwill allocated to the Africa group of CGUs is immaterial and the Directors do not consider there to be any reasonably possible
changes in estimates that would result in impairment of this goodwill. No further disclosures are provided in relation to Africa.
Results of goodwill impairment test
The current year impairment test results have not resulted in an impairment for any of the Group’s cash generating units. The
recoverable amount of the Group’s goodwill was assessed by reference to value-in-use calculations. The value-in-use calculations
are derived from risk-adjusted cash flows from the Group’s five-year plan. Terminal value assessments are included based on year
five and an estimated long-term, country-specific growth rate of 1.9 – 4.7% (2024: 2.0 – 4.6%). The process by which the Group’s
budget is prepared, reviewed and approved benefits from historical experience, visibility of long term work programmes in relation
to work undertaken for the UK Government, available government spending information (both UK and overseas), the Group’s
contract backlog, bid pipeline and the Group’s tracking pipeline which monitors opportunities prior to release of tenders. The budget
process includes consideration of risks and opportunities at contract and business level, and considered matters such as inflation.
Furthermore, in preparing this assessment the Group has considered the potential impact of climate change. In particular, the Group
have considered the impact of climate change on the useful economic lives of assets, disruption to key operating sites and supply
chain, and potential asset impairments. The Group identified climate risks (see pages 75 to 79 for details) predominantly result in
adverse cash outflows to the business and have been modelled as such within our sensitivity analysis. The Group anticipates that
a number of these climate risks may result in additional cash inflows as associated climate related costs could be passed onto our
customers offsetting the climate risk and a conservative assessment of such cash inflow is also modelled within the sensitivity.
These considerations did not have a material impact on the goodwill impairment assessment.
Key assumptions
Key assumptions are based on past experience and expectations of future changes in the market, expected outturn on in-progress
significant contracts and pipeline reflecting prevailing economic forecasts, industry specific data, competitor activity and market
dynamics.
Pre-tax discount rates derived from the Group’s post-tax weighted average cost of capital were used to discount the estimated
risk-adjusted cash flows. These pre-tax discount rates reflect the market assessment as at the period end date of the time value
of money and the risks specific to the cash-generating units.
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10. Goodwill (continued)
Country-specific long-term growth rates are determined based on external analyst assessments of long-term real GDP outlooks in
the associated countries. The country-specific real long-term growth rates and discount rates for the Group’s operating segments
are as follows:
31 March 2025
31 March 2024
Aviation
Land
Marine
Nuclear
Aviation
Land
Marine
Nuclear
12.6
11.9
11.5
11.9
13.2
12.2
12.2
12.6
9.3
8.8
8.5
8.8
9.8
9.0
9.0
9.3
Long-term real growth rate
2.0
2.0
2.0
2.0
2.0
2.2
2.1
2.0
Expected future cash flows used in discounted cash flow models are inherently uncertain and could materially change over time.
They are significantly affected by a number of factors, such as demand for the Group’s services, together with economic factors such
as estimates of costs of revenue and future capital expenditure requirements. Expected future cash flows are also subject to
estimation with regard to the impact of inflation – albeit a significant proportion of the Group’s longer term revenue contracts include
variable consideration in respect of inflation and therefore there is a natural offset on the impact of inflation on both costs and
revenue.
Key assumptions in relation to future cash flows included in the value-in-use models are set out below:
Group of CGUs
Key future cash flow assumption
Nuclear
Continuing delivery of naval nuclear services to the UK Ministry of Defence, including the FMSP contract.
Land
Continuing demand for equipment support and training from both military and civil customers, noting that significant
Aviation
Continuing delivery of long-term contracts with the UK Ministry of Defence. Expansion of activities in key
We have performed sensitivity analysis incorporating reasonably possible changes in each of the above key assumptions.
Sensitised cases all continue to show headroom and no required impairment as at 31 March 2025.
11. Other intangible assets
Acquired intangibles
Acquired intangibles are the estimated fair value of customer relationships and brands which are in part contractual, represented
by the value of the acquired order book, and in part non-contractual, represented by the risk-adjusted value of future orders
expected to arise from the relationships.
The carrying value of the contractual element is amortised on a straight-line basis over the remaining period of the orders that
are in process or the future period in which the orders will be fulfilled, as the case may be. The amortisation periods, reflecting
the lengths of the various contracts, are mainly in the range one year to five years, with a minority of contracts and hence
amortisation periods, up to 15 years.
The carrying value of the non-contractual element is amortised over the period in which it is estimated that the relationships
are likely to bring economic benefit via future orders.
Relationships are valued on a contract-by-contract and customer-by-customer basis and the pattern of amortisation reflects the
expected pattern of benefit in each case. The amortisation profile is determined on a case-by-case basis and in all cases results
in a front-loaded profile, reflecting the greater certainty of future orders in the near term compared with the longer term.
The amortisation period is in the range between one year to fifteen years.
Acquired brand names are valued dependent on the characteristics of the market in which they operate and the likely value a
third party would place on them. Useful lives are likewise dependent on market characteristics of the acquired business brand.
These are amortised on a straight-line basis over a period of up to five years.
Amortisation charges for the year are recorded in operating costs.
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(continued)
11. Other intangible assets (continued)
Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects are recognised as
intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility,
and only if the cost can be measured reliably. Other development expenditure is recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development
costs that have been capitalised are amortised from the date the product is available for use on a straight-line basis over the
period of its expected benefit but not exceeding seven years. Amortisation of development costs is expensed within operating
costs in the Group income statement.
Total research and development costs expensed in the period was £214.7 million (2024: £244.2 million). Amounts recognised
as an expense are recorded within operating costs.
Computer software
Computer software, excluding the Group’s Enterprise Resource Planning (ERP) system, includes software licences acquired.
Configuration and customisation costs relating to Software-as-a-service agreements are expensed as incurred. Computer
software is measured at cost less accumulated amortisation and is amortised on a straight-line basis over its expected useful
life of between three and ten years. Amortisation of software costs is expensed within operating costs in the Group
income statement.
The Group is implementing an ERP system in phases over several years. The ERP system is being amortised over a period
of up to 13 years to coincide with the expected support period from the software provider. The core asset commenced
amortisation when it was available for use, which occurred once implementation was completed. Additional capitalisation
for improved functionality as the platform is tailored and deployed at each respective business unit commences amortisation
when those improved functionalities are available for use (when the ERP is implemented at the respective business unit).
Impairment
Indefinite life intangibles are reviewed for impairment at least annually. For all other intangible assets (including acquired
intangible assets, capitalised development costs and software assets) the Group performs impairment testing where indicators
of impairment are identified. Impairment testing is performed at the individual asset level unless the asset does not generate
cash flows that are separately identifiable from other assets. In such cases, the Group estimates the recoverable amount
of the CGU to which the asset belongs.
The recoverable amount is the higher of fair value less costs of disposal, and value-in-use. When the recoverable amount
is less than the carrying amount, an impairment loss is recognised immediately in the Group income statement.
Where an impairment loss on other non-financial non-current assets subsequently reverses, the carrying amount of the asset
is increased to the revised estimate of the recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined if no impairment loss had been recognised in prior years.
224 Babcock International Group PLC Annual Report and Financial Statements 2025
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11. Other intangible assets (continued)
850.9
124.0
25.6
42.6
1,043.1
–
2.5
1.3
18.5
22.3
–
2.6
1.8
–
4.4
–
56.5
0.1
(56.6)
–
(2.9)
–
–
–
(2.9)
(6.5)
(4.2)
–
–
(10.7)
(9.5)
2.6
0.1
(1.3)
(8.1)
832.0
184.0
28.9
3.2
1,048.1
797.8
85.6
10.9
–
894.3
8.2
16.6
2.7
–
27.5
–
1.1
1.8
–
2.9
(6.5)
(4.2)
–
–
(10.7)
(2.9)
–
–
–
(2.9)
(7.0)
1.5
0.1
–
(5.4)
789.6
100.6
15.5
–
905.7
42.4
83.4
13.4
3.2
142.4
861.0
231.3
15.0
–
1,107.3
–
(113.0)
0.6
24.9
(87.5)
861.0
118.3
15.6
24.9
1,019.8
–
6.9
10.0
16.4
33.3
(note 12)
–
–
–
1.4
1.4
–
–
0.1
(0.1)
–
–
(1.0)
–
–
(1.0)
(10.1)
(0.2)
(0.1)
–
(10.4)
850.9
124.0
25.6
42.6
1,043.1
794.4
166.5
5.6
–
966.5
–
(88.1)
0.6
–
(87.5)
794.4
78.4
6.2
–
879.0
10.8
8.6
4.6
–
24.0
–
(0.9)
–
–
(0.9)
(7.4)
(0.5)
0.1
–
(7.8)
797.8
85.6
10.9
–
894.3
53.1
38.4
14.7
42.6
148.8
Included in Internally generated software development costs and licences is £79.1 million (2024: £36.9 million) relating to the
Group’s ERP system, which is amortised over a period of up to 13 years with 6 years remaining. Included in the acquired intangibles
– relationships balance is £35.0 million (2024: £42.8 million) relating to the acquisition of Naval Ship Management (Australia) Pty Ltd.
This is being amortised over a total period of 15 years with 12 years remaining.
During the year, intangible asset classification has been restated to correct for £41.3 million of assets under construction previously
presented within Internally generated software development costs and licences as at 31 March 2024. This comprised £24.9 million
as at 1 April 2023 and £16.4 million during the year ended 31 March 2024.
In addition, the Group has identified that a number of fully amortised assets are no longer in use. These assets have been
derecognised through restatement of the 1 April 2023 opening balances as shown above.
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12. Property, plant and equipment
Property, plant and equipment is shown at cost less subsequent depreciation and impairment, except for land, which is shown
at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items after the deduction
of trade discounts and rebates.
Items of property, plant and equipment are depreciated over their estimated useful lives to any estimated residual value, using
the following rates:
Freehold property
2.0% to 8.0%
Aircraft airframes
2%
Major strategic aircraft spares are classified within property, plant and equipment. Aircraft assets, including spares, are
disaggregated into separate components where the components have differing useful lives with the value of each rotable
component being measured at the cost of replacement or overhaul of the component and the remaining value of the asset
being attributed to the airframe component.
Depreciation is provided on a straight-line basis, or in the case of certain aircraft components on an hours flown basis, to write
off the cost of PPE over the estimated useful lives to their estimated residual value (reassessed at each financial year end).
Subsequent expenditure on the replacement or overhaul of aircraft components is capitalised with the carrying value of the part
replaced being written off. Subsequent expenditure on maintenance which enhances the performance of aircraft airframes is
capitalised whilst expenditure on replacing elements of aircraft airframes is expensed. Components of owned aircraft which
are maintained under Power-by-the-hour maintenance arrangements are not depreciated with the associated payments to the
maintenance provider instead being expensed as incurred, as the residual value of the asset is deemed to be equivalent to the
cost of the asset. Any additional payments made to or received from maintenance providers at the conclusion of Power-by-the-
hour maintenance arrangements are recognised as an expense or as income at the time at which they are incurred or received.
The useful economic life of aircraft is based on management’s estimate of how long the aircraft will continue to be operated
in the same manner or a similar manner, typically not exceeding 30 years. Where the Group acquires aircraft which have
already been used, and may already exceed the typical useful economic life, an individual assessment of useful economic
life is performed.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale. Qualifying assets include both internally
generated intangible assets and property, plant and equipment.
To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow
hedge of interest rate risk, the effective portion of the derivative is recognised in Other Comprehensive Income and reclassified
to the Income Statement when the qualifying asset impacts profit or loss. To the extent that fixed rate borrowings are used to
finance a qualifying asset and are hedged in an effective fair value hedge of interest rate risk, the capitalised borrowing costs
reflect the hedged interest rate. For the year ended 31 March 2025, the average capitalisation rate of borrowing costs was 4.0%
(2024: 3.7%).
All other borrowing costs are recognised in the Income Statement in the period in which they are incurred.
Impairment
For property, plant and equipment the Group performs impairment testing where indicators of impairment are identified.
Impairment testing is performed at the individual asset level. Where an asset does not generate cash flows that are separately
identifiable from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs.
The recoverable amount is the higher of fair value less costs of disposal, and value-in-use. When the recoverable amount
is less than the carrying amount, an impairment loss is recognised immediately in the Group income statement.
Where an impairment loss on other non-financial non-current assets subsequently reverses, the carrying amount of the asset
is increased to the revised estimate of the recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined if no impairment loss had been recognised in prior years.
226 Babcock International Group PLC Annual Report and Financial Statements 2025
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12. Property, plant and equipment (continued)
220.9
15.4
572.6
87.4
124.1
1,020.4
Additions
2.3
1.0
11.8
17.8
72.1
105.0
–
–
(4.4)
–
–
(4.4)
–
–
5.0
–
0.5
5.5
Reclassification from AUC to in-use assets
2.5
18.6
36.2
13.5
(70.8)
–
(0.4)
(0.7)
(13.3)
(3.6)
(1.7)
(19.7)
–
–
(3.6)
–
–
(3.6)
Capitalised borrowing costs
–
–
–
–
5.0
5.0
(0.1)
–
(1.9)
(2.8)
(0.5)
(5.3)
225.2
34.3
602.4
112.3
128.7
1,102.9
79.8
13.0
378.8
25.4
6.3
503.3
13.7
2.9
37.8
4.6
–
59.0
Transfers to other intangible assets (note 11)
–
–
(2.9)
–
–
(2.9)
–
–
5.0
–
–
5.0
(3.4)
–
(4.3)
7.7
–
–
Disposal of business
–
–
(3.6)
–
–
(3.6)
–
(0.7)
(11.0)
(2.6)
–
(14.3)
0.2
(0.1)
(1.2)
(1.4)
–
(2.5)
90.3
15.1
398.6
33.7
6.3
544.0
134.9
19.2
203.8
78.6
122.4
558.9
212.2
15.2
571.0
97.5
90.8
986.7
0.3
–
(39.7)
7.5
–
(31.9)
212.5
15.2
531.3
105.0
90.8
954.8
2.3
0.1
22.2
5.3
77.7
107.6
–
–
(1.4)
–
–
(1.4)
Reclassification from AUC to in-use assets
10.4
0.2
37.2
0.3
(48.1)
–
(4.1)
–
(12.0)
(21.0)
–
(37.1)
–
–
–
–
3.9
3.9
Exchange adjustments
(0.2)
(0.1)
(4.7)
(2.2)
(0.2)
(7.4)
220.9
15.4
572.6
87.4
124.1
1,020.4
74.4
12.1
390.6
24.9
6.2
508.2
0.3
–
(39.7)
7.5
–
(31.9)
74.7
12.1
350.9
32.4
6.2
476.3
Depreciation charge for the year
7.4
1.0
39.1
4.5
–
52.0
–
–
–
2.1
–
2.1
(2.2)
–
(8.7)
(12.7)
–
(23.6)
Exchange adjustments
(0.1)
(0.1)
(2.5)
(0.9)
0.1
(3.5)
79.8
13.0
378.8
25.4
6.3
503.3
141.1
2.4
193.8
62.0
117.8
517.1
During the year, the Group has identified that a number of fully depreciated assets are no longer in use. These assets have been
derecognised through restatement of the 1 April 2023 opening balances as shown above.
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13. Leases
Group as a lessee
Leases represent rentals payable by the Group for certain operational, distribution and office properties and other assets such as
aircraft. The leases have varying terms, purchase options, escalation clauses and renewal rights.
Right of use assets
140.1
74.1
153.1
367.3
12.3
9.5
75.8
97.6
–
(5.5)
–
(5.5)
(9.7)
(8.4)
(4.1)
(22.2)
(2.0)
–
–
(2.0)
(2.2)
(0.3)
(9.6)
(12.1)
138.5
69.4
215.2
423.1
53.9
49.3
88.5
191.7
13.0
8.9
9.3
31.2
1.7
0.1
–
1.8
–
(5.0)
–
(5.0)
(8.3)
(7.4)
(3.4)
(19.1)
(0.8)
–
–
(0.8)
(1.0)
(0.1)
(4.4)
(5.5)
58.5
45.8
90.0
194.3
80.0
23.6
125.2
228.8
For all leases in which the Group is a lessee (other than those meeting the criteria detailed below), the Group recognises a right
of use asset and corresponding lease liability at commencement of the lease.
The lease liability is the present value of future lease payments discounted at the rate implicit in the lease, if available, or the
applicable incremental borrowing rate. The incremental borrowing rate is determined at lease inception based on a number
of factors including asset type, lease currency and lease term. Lease payments include fixed payments and variable lease
payments dependent on an index or rate, initially measured using the index or rate at the commencement date. The lease term
reflects any extension or termination options that the Group is reasonably certain to exercise.
The lease liability is subsequently measured at amortised cost using the effective interest rate method, with interest on the lease
liability being recognised as a finance expense in the income statement. The lease liability is remeasured, with a corresponding
adjustment to the right of use asset, if there is a change in future lease payments, for example resulting from a rent review,
change in a rate/index or change in the Group’s assessment of whether it is reasonably certain to exercise an extension,
termination or purchase option.
The right of use asset is initially recorded at cost, being equal to the lease liability, adjusted for any initial direct costs, lease
payments made prior to commencement date, lease incentives received and any dilapidation costs. Depreciation of right of
use assets is recognised as an expense in the income statement on a straight-line basis over the shorter of the asset’s useful
life or expected term of the lease.
Right of use assets arising from sale and leaseback transactions are measured at the proportion of the previous carrying amount
of the asset that relates to the right of use retained by the Group. Gains arising on sale and leaseback transactions are
recognised to the extent that they relate to the rights transferred to the buyer-lessor whilst losses arising on sale and leaseback
transactions are recognised in full.
Right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable, with the impairment expense being recognised in the income statement. Where a lease is terminated
early, any termination fees or gain or loss relating to the release of right of use asset and lease obligation are recognised as a
gain or loss through the income statement.
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13. Leases (continued)
141.6
67.7
138.0
347.3
(0.2)
(4.7)
(6.8)
140.1
74.1
153.1
367.3
49.5
45.7
93.0
188.2
(0.1)
(3.4)
(4.5)
53.9
49.3
88.5
191.7
86.2
24.8
64.6
175.6
Lease liabilities
The following tables show the discounted Group lease liabilities and a reconciliation of opening to closing lease liabilities:
Disposals
(3.0)
Lease interest
14.1
Non-current lease liabilities
227.4
Disposals
(12.8)
Lease repayments
(59.4)
Current lease liabilities
44.6
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13. Leases (continued)
See note 22 for a maturity analysis of the contractual undiscounted lease payments.
Amounts recognised in the Group income statement
Interest on lease liabilities
14.1
9.8
31.2
39.8
1.8
–
Loss/(gain) on disposal of right-of-use assets
0.1
(3.6)
The total expense for short term and low value leases was £39.6 million (2024: £52.0 million). The expense is deemed approximate
to the cash outflow for short term and low value leases.
Amounts recognised in the Group cash flow statement
Total cash outflow for principal element of leases
45.4
49.6
14.1
9.8
59.5
59.4
Group as a lessor
The Group is the lessor in an arrangement for the lease of vehicles and sub-lease of leased properties. There have been no new
material lease arrangements as a lessor in the current year (2024: none).
Amounts recognised in the Group income statement
5.0
4.4
Finance lease payments receivable
18.8
16.9
18.7
13.1
Greater than two years but less than three years
9.2
8.8
2.9
4.3
0.2
0.1
49.8
43.2
(5.2)
(7.7)
44.6
35.5
There was no material impairment of lease receivables in the year ended 31 March 2025 (2024: £nil).
As a lessor, the Group classifies lessor arrangements as finance or operating leases. Leases are classified as finance leases
when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are
classified as operating leases.
Amounts due from lessees under a finance lease are held on the statement of financial position as a financial asset at an amount
equal to the Group’s net investment in the lease. The finance lease payments received are treated as finance income and a
repayment of principal including initial direct costs. Finance income is allocated over the lease term, with the gross receivable
being reviewed for impairment on a regular basis.
230 Babcock International Group PLC Annual Report and Financial Statements 2025
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14. Investment in and loans to joint ventures and associates
The Group’s material joint ventures and associates are:
Year end
Business activity
Associate
31 Dec
23.5%
23.5%
Joint venture
31 Mar
50.0%
50.0%
Summarised financial information for joint ventures and associates
The summarised financial information below reflects the amounts presented in the financial statements of the relevant joint ventures
and associates, and not the Group’s share of those amounts. These amounts have been adjusted to conform to the Group’s
accounting policies where required. The summarised financial information has been aggregated to provide useful information
to users without excessive detail. Joint ventures that are not considered material to the Group are not shown below.
31 March 2025
31 March 2024
165.3
239.6
168.8
254.7
Depreciation and amortisation
(0.6)
(3.3)
(0.5)
(1.7)
3.7
3.7
3.4
1.8
(2.3)
(0.2)
(2.7)
(0.2)
Income tax expense
(5.9)
(1.8)
(5.7)
(5.0)
(2.6)
1.0
16.7
11.2
(3.2)
–
0.4
–
(5.8)
1.0
17.1
11.2
48.5
75.7
45.8
87.8
25.0
65.4
59.5
59.9
57.3
111.8
55.4
86.6
(91.6)
(55.0)
(94.9)
(60.7)
Current liabilities
(12.6)
(79.3)
(7.9)
(56.0)
26.6
118.6
57.9
117.6
Ownership
50%
23.5%
50%
23.5%
13.3
27.9
29.0
27.6
The Group’s interests in joint ventures and associates are accounted for by the equity method of accounting and are initially
recorded at cost. The Group’s investment in joint ventures and associates includes goodwill (net of any accumulated impairment
loss) identified on acquisition. The carrying values of associates and joint ventures are reviewed on a regular basis and if there
is objective evidence that an impairment in value has occurred as a result of one or more events during the period, the
investment is impaired.
The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses after tax is recognised in the income
statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition
movements are adjusted against the carrying amount of the investment. If the Group’s share of losses in a joint venture or
associate equals or exceeds its investment in the joint venture or associate, the Group does not recognise further losses unless
it has incurred obligations to do so.
Unrealised gains and losses on transactions between the Group and its joint ventures and associates are eliminated to the extent
of the Group’s interest in the joint venture and associate. Loans to joint ventures are valued at amortised cost less provision for
impairment.
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14. Investment in and loans to joint ventures and associates (continued)
Reconciliation to carrying amounts
59.7
57.4
3.9
9.5
63.6
66.9
Share of (losses)/profits of joint ventures and
associates
(2.7)
10.3
–
–
(2.7)
10.3
–
(1.1)
–
–
–
(1.1)
(2.7)
9.2
–
–
(2.7)
9.2
Acquisition and disposal of joint ventures and
associates (note 27)
0.4
–
–
–
0.4
–
–
–
(0.3)
(7.5)
(0.3)
(7.5)
Increase in loans to joint ventures and associates
–
–
–
2.1
–
2.1
–
–
0.2
0.3
0.2
0.3
–
–
(0.2)
(0.5)
(0.2)
(0.5)
Dividends received
(12.2)
(7.1)
–
–
(12.2)
(7.1)
(2.2)
0.3
–
–
(2.2)
0.3
0.5
(0.1)
–
–
0.5
(0.1)
43.5
59.7
3.6
3.9
47.1
63.6
The total investments in joint ventures and associates and loans to joint ventures and associates is attributable to the following
reportable segments:
3.2
3.3
0.9
1.6
Land
0.2
0.2
42.8
58.5
47.1
63.6
The joint ventures and associates have no significant contingent liabilities to which the Group is exposed. The Group does not
have any commitments that have been made to the joint ventures or associates and not recognised at the reporting date.
Joint arrangements are classified as joint ventures where the Group has the right to net assets of the joint arrangement rather than
separate rights and obligations to the assets and liabilities of the joint arrangement, respectively. There has been no impairment to
loans to joint ventures and associates during the year (2024: £nil). Total cumulative expected credit losses in respect of loans to
joint ventures and associates are also £nil (2024: £nil) as the joint ventures and associates are considered to have low credit risk
and as such impairment risk is considered minimal.
There are no significant restrictions on the ability of joint ventures and associates to transfer funds to the owners, other than those
imposed by the Companies Act 2006 or equivalent local regulations.
15. Inventories
Inventory is valued at the lower of cost and net realisable value, being the estimated selling price of the assets in the ordinary
course of business less estimated costs of completion and costs of sale. In the case of finished goods and work in progress,
cost comprises direct material and labour and an appropriate proportion of overheads. Certain purchases of inventory may be
subject to cash flow hedges for foreign exchange risk. The initial cost of hedged inventory is adjusted by the associated hedging
gain or loss transferred from the cash flow hedge reserve (“basis adjustment”). Inventory is valued using a first-in, first-out
(‘FIFO’) basis.
Spare parts that are consumed in the sale of goods or in the rendering of services are classified as inventory.
232 Babcock International Group PLC Annual Report and Financial Statements 2025
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15. Inventories (continued)
62.3
58.1
5.4
4.6
Finished goods and goods for resale
94.5
124.7
162.2
187.4
Write-downs of inventories amounted to £18.7 million (2024: £13.8 million). These were recognised as an expense during the year
ended 31 March 2025 and included in operating costs in the income statement. Inventory recognised as an expense in the year
amounted to £354.7 million (2024: £357.2 million).
16. Trade and other receivables and contract assets
Trade and other receivables
Trade receivables are measured at amortised cost. Other receivables are generally measured at amortised cost as they are
held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal
and interest on the principal amount outstanding. An immaterial amount of other receivables are held at fair value through profit
and loss. The measurement basis is disclosed in note 21.
Debt factoring
The Group engages in factoring of trade receivables in relation to certain non-UK operations of its Aviation sector as part of
its working capital management arrangements. Under these arrangements, the Group transfers the rights to receive factored
receivables to the factor in exchange for cash. The Group does not retain late payment or credit risk, and therefore trade
receivables are not recognised under the applicable contracts. Any cash received from customers under these contracts
is received as agent and transferred directly to the debt factoring counterparty.
Contract assets and liabilities
Contract assets represent amounts for which the Group has a conditional right to consideration in exchange for goods or
services that the Group has transferred to the customer. Contract liabilities represent the obligation to transfer goods or services
to a customer for which consideration has been received, or consideration is due, from the customer.
Payment terms are set out in the contract and reflect the timing and performance of service delivery. For substantially all
contracts the payment terms are broadly in line with expected satisfaction of performance obligations, and therefore recognition
of revenue. Contract assets or liabilities arise on short term timing differences or in those more limited instances where payment
terms do not reflect timing and performance of service delivery. In such cases, consideration is given to whether the contract
includes a significant financing component with appropriate accounting.
Provisions for expected credit losses
Trade receivables, contract receivables and amounts due from related parties include a provision for expected credit losses.
Provisions for expected credit losses are measured at an amount equal to lifetime expected credit losses, estimated by
reference to past experience and relevant forward-looking factors.
Costs of obtaining a contract
Directly attributable costs to obtain a contract with a customer that the Group would not have incurred if the contract had not
been won are recognised as an asset and amortised on a straight-line basis. Costs to obtain a contract that would have been
incurred regardless of whether the contract was won or lost are recognised as an expense when incurred.
Costs to fulfil a contract
Costs to fulfil a contract which do not fall within the scope of another standard are recognised under IFRS 15 as an asset and
amortised on a straight-line basis when they meet all of the following criteria:
(i)
the costs relate directly to a contract or to an anticipated contract that can be specifically identified;
(ii)
the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance
obligations in the future; and
(iii)
the costs are expected to be recovered.
Costs of recruiting or training staff are expensed as incurred.
Babcock International Group PLC Annual Report and Financial Statements 2025 233
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N
N
o
o
t
t
e
e
s
s
t
t
o
o
t
t
h
h
e
e
G
G
r
r
o
o
u
u
p
p
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
s
s
t
t
a
a
t
t
e
e
m
m
e
e
n
n
t
t
s
s
(continued)
16. Trade and other receivables and contract assets (continued)
0.1
0.3
8.6
10.2
9.4
2.5
18.1
13.0
303.4
266.4
(8.4)
(8.5)
295.0
257.9
8.8
6.1
3.3
2.3
Other debtors
1
22.1
25.0
63.2
98.1
96.8
88.2
0.1
–
18.1
9.6
507.4
487.2
329.7
260.9
837.1
748.1
1.
Included in Other debtors are rebates receivable and other sundry receivables. No individual balance within other debtors is material.
Details of expected credit losses on trade receivables are provided in note 22. There has been no impairment to either other
receivables or contract assets during the year ended 31 March 2025 (2024: £nil).
In the year ended 31 March 2025, amortisation of costs to obtain a contract and costs to fulfil a contract totalled £6.2 million
(2024: £2.1 million). An impairment of £nil was recorded in relation to costs to obtain a contract or costs to fulfil a contract
(2024: £nil).
The Group recognises that there is an inherent element of estimation uncertainty and judgement involved in assessing contract
profitability, as disclosed in note 1. Management have taken a best estimate view of contract outcomes based on the information
currently available, after allowing for contingencies, and have applied a constraint to the variable consideration within revenue
resulting in a revenue estimate that is suitably cautious under IFRS 15.
Significant changes in contract assets during the year are as follows:
Transfers from contract assets recognised at the beginning of the year to
receivables
(279.3)
Details on the Group’s approach to assess credit risk are included in note 22.
234 Babcock International Group PLC Annual Report and Financial Statements 2025
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16. Trade and other receivables and contract assets (continued)
Prior year restatement
During the year, it was identified that balances at 31 March 2024 included certain contract assets and contract liabilities which were
not presented on a net basis at the contract level as required by IFRS 15. The Group Statement of Financial Position for the year
ended 31 March 2024 has been restated as required by IAS 8 to reduce both contract assets and contract liabilities by £76.5 million.
This has no impact on the Group Income Statement or the Group’s net assets. The Group Cash Flow Statement has been similarly
restated for the movement in contract assets and contract liabilities, with no impact on Cash generated from operations.
The Statement of Financial Position as at 1 April 2023 has not been represented under IAS 1 as this change is less significant
and has no impact on net assets.
17. Cash and cash equivalents
Cash at bank and in hand
167.9
218.4
478.7
352.2
646.6
570.6
The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:
Currency
31 March 2025
31 March 2024
Sterling
420.6
420.6
341.0
341.0
4.8
4.8
35.4
35.4
14.0
14.0
18.7
18.7
South African Rand
43.5
43.5
25.9
25.9
63.7
63.7
64.1
64.1
1.1
1.1
3.8
3.8
Australian Dollar
65.9
65.9
56.3
56.3
2.4
2.4
0.5
0.5
5.0
5.0
1.7
1.7
New Zealand Dollar
12.4
12.4
15.2
15.2
13.2
13.2
8.0
8.0
646.6
646.6
570.6
570.6
Expected credit losses of cash and cash equivalents is £nil (2024: £nil). Included within cash and cash equivalents is £56.4 million
(2024: £63.5 million) which is subject to statutory, contractual or regulatory restrictions which limit the ways in which these balances
can be utilised.
Group cash and cash equivalents consist of cash at bank and cash in hand, together with short-term deposits with an original
maturity of three months or less and money market funds. Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are treated as cash equivalents for the purpose of the cash flow statement. In the
statement of financial position such overdrafts are presented as current bank and other borrowings.
Cash and cash equivalents are classified as financial assets held at amortised cost and bank overdrafts are classified as
financial liabilities held at amortised cost.
Babcock International Group PLC Annual Report and Financial Statements 2025 235
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o
o
t
t
e
e
s
s
t
t
o
o
t
t
h
h
e
e
G
G
r
r
o
o
u
u
p
p
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
s
s
t
t
a
a
t
t
e
e
m
m
e
e
n
n
t
t
s
s
(continued)
18. Trade and other payables and contract liabilities
759.4
685.3
229.2
314.3
3.3
1.5
12.2
13.5
8.2
8.3
84.6
71.1
610.5
540.5
948.0
949.2
1,707.4
1,634.5
3.8
4.8
0.4
0.6
4.2
5.4
Included in creditors is £10.4 million (2024: £11.4 million) relating to capital expenditure which has therefore not been included
in working capital movements within the cash flow statement.
Significant changes in contract liabilities during the year are as follows:
Revenue recognised that was included in the contract liability balance at the
beginning of the year
Revenue recognised that was included in the contract liability balance at the
beginning of the year
(540.8)
Prior year restatement
During the year, it was identified that balances at 31 March 2024 included certain contract assets and contract liabilities which were
not presented on a net basis at the contract level as required by IFRS 15. Further detail on this restatement is provided in Note 16.
Trade and other creditors are measured at amortised cost.
236 Babcock International Group PLC Annual Report and Financial Statements 2025
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19. Bank and other borrowings
0.6
4.5
Unsecured
–
15.9
0.6
20.4
47.2
44.6
47.8
65.0
Secured
6.2
2.5
744.5
744.6
750.7
747.1
Lease obligations*
227.4
185.9
978.1
933.0
* Leases are secured against the assets to which they relate.
The Group’s overdraft totalled £0.1 million at 31 March 2025 (2024: £18.0 million). The Group holds one overdraft facility of 50m
which is otherwise undrawn as at 31 March 2025.
The Group has £2.5 million (2024: £2.8 million) of secured debt in the Land operating segment that is secured against a property
owned by the Group and £4.3 million (2024: £4.2 million) of debt that is secured against contracts with customers, which will cede
to the bank in the event of default.
Unsecured bank loans are subject to covenants which are tested six monthly on a rolling basis. Covenants comprise of Net Debt
(covenant basis) to EBITDA and Interest Cover. The Net Debt (covenant basis) to EBITDA ratio must be lower than 3.5x at each
testing date whilst the Interest Cover must be at least 4.0x at each testing date. There are no breaches in the Group’s base case
forecasts as prepared for going concern purposes.
Drawn facilities at the period end date primarily comprise the €550 million Eurobond and the £300 million UK bond.
Repayment details
The total borrowings of the Group at 31 March are repayable as follows:
31 March 2025
31 March 2024
0.6
47.2
20.4
44.6
297.7
41.4
0.6
38.2
Between two and three years
453.0
32.9
296.0
33.2
–
25.6
449.8
24.8
–
25.0
0.7
19.5
Greater than five years
–
102.5
–
70.2
751.3
274.6
767.5
230.5
Babcock International Group PLC Annual Report and Financial Statements 2025 237
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o
o
t
t
e
e
s
s
t
t
o
o
t
t
h
h
e
e
G
G
r
r
o
o
u
u
p
p
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
s
s
t
t
a
a
t
t
e
e
m
m
e
e
n
n
t
t
s
s
(continued)
19. Bank and other borrowings (continued)
The Group has entered into interest rate and currency swaps, details of which are included in note 21.
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
31 March 2025
31 March 2024
394.6
–
394.6
415.0
7.8
407.2
500.4
93.9
406.5
514.4
99.1
415.3
46.6
–
46.6
7.3
–
7.3
8.4
4.2
4.2
8.9
4.2
4.7
3.3
–
3.3
4.8
–
4.8
71.1
–
71.1
44.0
–
44.0
1.2
–
1.2
1.4
–
1.4
0.2
–
0.2
0.5
–
0.1
–
0.1
1.7
–
1.7
1,025.9
98.1
927.8
998.0
111.1
886.9
* €550 million (2024: €550 million) has been swapped into Sterling, with €140.0 million equivalent (2024: €140.0 million equivalent) into floating rates
and €410.0 million equivalent (2024: €410.0 million equivalent) into fixed rates. This is included in the Euro amount above. The split above includes
the impact of hedging.
The weighted average interest rate of Sterling fixed rate borrowings is 1.9% (2024: 1.9%). The weighted average period for which
these interest rates are fixed is 1.5 years (2024: 2.5 years).
The floating rate for borrowings is linked to SONIA in the case of Sterling, EURIBOR in the case of Euro, the prime rate in the case of
South African Rand and the local prime rate for other currencies.
The effective interest rates at the statement of financial position dates, including the impact of hedging, were as follows:
N/A
6.4
2.9
2.9
6.7
6.9
1.9
1.9
5.6 – 10.0
5.6 – 11.1
3.3 – 14.6
2.2 – 11.8
Borrowing facilities
The Group had the following undrawn committed borrowing facilities available at 31 March:
775.0
775.0
775.0
775.0
20. Provisions for other liabilities, including other employee benefits
A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation
as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and the
amount can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash
flows at an appropriate discount rate.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been publicly announced. Future operating costs are not provided for.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are
lower than the unavoidable cost of meeting its obligations under the contract. Onerous contract provisions are recognised after
impairment of any assets directly related to the onerous contract. A provision for warranties is recognised on completed
contracts and disposals when there is a realistic expectation of the Group incurring further costs.
238 Babcock International Group PLC Annual Report and Financial Statements 2025
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20. Provisions for other liabilities, including other employee benefits (continued)
117.8
12.4
23.5
4.5
158.2
31.5
8.3
7.1
5.3
52.2
(13.9)
(1.3)
(9.9)
(0.7)
(25.8)
(42.3)
(5.0)
(0.5)
(0.8)
(48.6)
1.4
0.7
(2.3)
0.2
–
–
–
(0.3)
–
(0.3)
2.7
0.1
–
–
2.8
(0.2)
–
–
–
(0.2)
97.0
15.2
17.6
8.5
138.3
100.4
30.5
15.1
2.7
148.7
66.4
10.3
10.3
2.7
89.7
(19.4)
(3.6)
(0.5)
(0.1)
(23.6)
(31.3)
(6.2)
(1.4)
(0.7)
(39.6)
Reclassified to accruals
1
–
(18.0)
–
–
(18.0)
2.4
0.3
–
–
2.7
(0.7)
(0.9)
–
(0.1)
(1.7)
117.8
12.4
23.5
4.5
158.2
79.1
79.1
a. Contract/warranty provisions relate to onerous contracts and warranty obligations on completed contracts and disposals.
Warranty provisions are provided in the normal course of business and recognised when the underlying products and services
are sold. The provision is based on an assessment of future claims with reference to historical warranty data and a weighting
of possible outcomes. Onerous contracts relate to expected future losses on contracts with customers – notably T31 as outlined
in note 1.
b. Employee related and business reorganisation costs relate to business restructuring activities including announced
redundancies in addition to employee related provisions other than employee benefits.
c. Property and other provisions primarily relate to dilapidation costs and contractual obligations in respect of infrastructure.
d. Other provisions include provisions for insurance claims arising within the Group’s captive insurance company, Chepstow
Insurance Limited. They relate to specific claims assessed in accordance with the advice of independent actuaries.
1
Immaterial amounts related to employee benefits were reclassified from provisions to current and non-current accruals during
the prior period.
Included within employee related and business reorganisation provisions is £7.0 million (2024: £6.7 million) expected to be utilised
over approximately 10 years. Other than these provisions the Group’s non-current provisions are expected to be utilised within two
to five years.
Provisions for onerous revenue contracts are recorded when it becomes probable that total remaining contract fulfilment costs
will exceed total remaining revenue not yet recognised. Provisions for losses on contracts are recognised after impairment
of any assets directly related to fulfilling the loss-making contract. Losses are determined on the basis of estimated results
on completion of contracts and are updated regularly.
A provision for the contractual maintenance, overhaul and repair requirements of right of use aircraft and specific associated
aircraft components arising from return condition obligations in aircraft lease contracts is recognised as the obligation to perform
contractual maintenance arises with each hour flown. Where lease contracts contain contractual penalties in the event that the
Group returns leased aircraft in a condition that does not meet the contractual return condition obligation, the associated
provision is measured at the lower of the restoration cost and the detriment penalty in the lease. When maintenance of a leased
aircraft component is performed, if the component’s remaining flying hours are greater than the return condition outlined in the
lease contract then a leasehold improvement asset is recognised in proportion to the excess flying hours above the contractual
return condition. Maintenance provisions are not recognised in respect of aircraft components which are maintained under
Power-by-the-hour maintenance arrangements, instead the associated payments to the maintenance provider are expensed
as incurred. Any additional payments made to or received from maintenance providers at the conclusion of Power-by-the-hour
maintenance arrangements are recognised as an expense or as income at the time at which they are incurred or received.
Babcock International Group PLC Annual Report and Financial Statements 2025 239
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N
o
o
t
t
e
e
s
s
t
t
o
o
t
t
h
h
e
e
G
G
r
r
o
o
u
u
p
p
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
s
s
t
t
a
a
t
t
e
e
m
m
e
e
n
n
t
t
s
s
(continued)
21. Financial instruments and fair value measurement
Financial assets and liabilities at amortised cost
Cash and cash equivalents, trade receivables (except trade receivables under factoring arrangements), amounts due from
related parties and other debtors are classified as financial assets held at amortised cost as they are held within a business
model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal
amount outstanding.
Trade receivables, contract assets and lease receivables include a provision for expected credit losses. The Group measures
the provision at an amount equal to lifetime expected credit losses, estimated by reference to past experience and relevant
forward-looking factors. For all other financial assets carried at amortised cost, including loans to joint ventures and associates
and other debtors, the Group measures the provision at an amount equal to 12-month expected credit losses. See note 22
for further information on how the Group assesses credit risk.
Trade creditors, amounts due to related parties, other creditors, accruals and bank loans and overdrafts are classified as
financial liabilities held at amortised cost.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into and are subsequently remeasured at fair
value. The Group designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised
assets or liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. For derivatives that
qualify as cash flow hedges, the effective portion of fair value gains or losses are recognised in other comprehensive income
until the underlying transaction is recognised. Any ineffective portion is recognised in the income statement. Changes in the
value of derivatives that are carried at fair value through profit or loss are recorded in the income statement.
Fair value measurement
The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the year-end date. Fair value measurements are used on a recurring basis except
where used in the acquisition of assets and liabilities through a business combination.
The fair values of derivative financial instruments are determined by the use of valuation techniques based on assumptions
that are supported by observable market prices or rates. The fair values of non-financial assets and liabilities are based on
observable market prices or rates.
The carrying values of financial assets and liabilities which are not held at fair value in the Group statement of financial position
are assumed to approximate to fair value due to their short-term nature, with the exception of fixed rate bonds.
There have been no changes to the valuation techniques used during the year.
240 Babcock International Group PLC Annual Report and Financial Statements 2025
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21. Financial instruments and fair value measurement (continued)
The following table presents the Group’s assets and liabilities:
–
3.6
–
–
3.6
3.6
2.4
5.7
–
–
8.1
8.1
–
4.2
–
–
4.2
4.2
5.1
–
–
–
5.1
5.1
–
26.2
–
–
26.2
26.2
–
317.1
–
–
317.1
317.1
–
1.2
–
–
1.2
1.2
–
18.4
–
–
18.4
18.4
9.3
–
–
–
9.3
9.3
–
646.6
–
–
646.6
646.6
–
–
–
(750.7)
(750.7)
(721.8)
–
–
(44.8)
–
(44.8)
(44.8)
–
–
–
(0.6)
(0.6)
(0.6)
–
–
–
(830.6)
(830.6)
(830.6)
–
–
(9.1)
–
(9.1)
(9.1)
16.8
1,023.0
(53.9)
(1,581.9)
(596.0)
(567.1)
* Trade and other receivables and trade and other payables only include balances which meet the definition of a financial instrument.
3.9
3.9
5.3
5.3
2.8
2.8
22.5
22.5
283.0
283.0
13.0
13.0
4.4
4.4
570.6
570.6
(747.1)
(686.4)
(51.9)
(51.9)
(20.4)
(20.4)
(593.7)
(593.7)
(9.5)
(9.5)
8.1
897.4
(61.4)
(1,361.2)
(517.1)
(456.4)
* Trade and other receivables and trade and other payables only include balances which meet the definition of a financial instrument.
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(continued)
21. Financial instruments and fair value measurement (continued)
The fair value hierarchy is as follows:
•
Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
•
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is,
as prices) or indirectly (that is, derived from prices) (Level 2); and
•
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
All of the financial assets and liabilities measured at fair value are classified as Level 2 or Level 3 using the fair value hierarchy.
There were no transfers between levels during the period. Additional disclosures in respect of financial assets measured using
Level 3 techniques are not provided as such assets are not material.
The fair values of financial instruments held at fair value have been determined based on available market information at the period
end date, and the valuation methodologies listed below:
•
The fair values of forward foreign exchange contracts are calculated by discounting the contracted forward values and translating
at the appropriate period end rates; and
•
The fair values of cross-currency interest rate swaps are calculated by discounting expected future principal and interest cash
flows and translating at the appropriate period end rates.
Financial assets and liabilities in the Group’s Consolidated statement of financial position are either held at fair value or their carrying
value approximates to fair value, with the exception of loans, which are held at amortised cost. Amortised cost items whose fair
value or carrying value approximate to fair value are at Level 2 in the fair value hierarchy. Due to the variability of the valuation
factors, the fair values presented at 31 March may not be indicative of the amounts the Group would expect to realise in the current
market environment.
Derivative financial instruments and hedging activities
The Group enters into forward foreign currency contracts and cross-currency interest rate swaps to hedge the currency exposures
that arise on sales, purchases, deposits, borrowings and leasing arrangements denominated in foreign currencies as the
transactions occur. Where derivatives do not meet the hedge accounting criteria, they are accounted for at fair value through profit
or loss. Derivatives not designated in hedge relationships have a net fair value asset of £3.5 million (2024: net liability of £6.8
million), of which £2.1 million (2024: £6.7 million) were economically hedging £1.1 billion (2024 restated – see note 22: £0.8 billion)
denominated in foreign currencies purchases and sales, £0.8 million (2024: £0.1 million) was economically hedging interest rates on
borrowings (see also note 22) and £0.6 million (2024: £nil) was economically hedging interest rates on invoice discounting facilities.
The Group’s policy regarding classification of derivatives is set out in note 1. The full fair value of hedging derivatives is classified
as a non-current asset or liability where the remaining maturity of the hedged item is more than 12 months. It is classified as a
current asset or liability where the remaining maturity of the hedged item is less than 12 months.
Cash flow hedges
The Group uses cross-currency swap contracts to hedge the foreign currency risk on debt issued by the Group. These are formally
designated in cash flow hedge relationships and hedge ineffectiveness is recognised immediately in the income statement. The fair
value of cash flow hedges at 31 March 2025 was a net liability of £11.6 million (2024: £11.1 million). Further detail is give in note 22.
Fair value hedges
The Group maintains cross-currency interest rate swap contracts as fair value hedges of the interest rate and currency risk on fixed-
rate debt issued by the Group. These derivative contracts receive a fixed rate of interest and pay a variable rate of interest. These
are formally designated in fair value hedging relationships and are used to hedge the exposure to changes in the fair value of debt
which has been issued by the Group at fixed rates. The fair value of such hedges at 31 March 2025 was a liability of £31.4 million
(2024: £36.3 million). Further detail is give in note 22.
22. Financial risk management
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term
debt obligations with floating interest rates and the Group’s cash and cash equivalents.
The Group’s risk management objective, policy and performance are as follows:
As at 31 March 2024, the Group had 90% fixed rate debt (2024: 89%)
and 10% floating rate debt (2024: 11%)
242 Babcock International Group PLC Annual Report and Financial Statements 2025
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22. Financial risk management (continued)
The following balances are exposed to interest rate risk as shown below:
31 March 2025
31 March 2024
Cash and cash equivalents
646.6
–
–
570.6
–
–
47.8
339.2
638.9
65.0
38.8
894.2
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and
borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before tax
is affected through the impact on floating rate borrowings, as follows:
Year ended 31 March 2025
Year ended 31 March 2024
GBP
3.0%
2.8
3.0%
3.4
The effect of fair value hedges on the Group’s financial position and performance for the year is as follows:
Year ended 31 March 2025
Year ended 31 March 2024 - restated
Cross currency interest rate swap
1
246.7
(31.4)
5.3
246.7
(36.7)
5.9
1. The Group has entered into three cross-currency interest rate swaps to convert €275 million of fixed rate (1.375%) debt to GBP debt linked to SONIA.
This matures on 13 September 2027. Additionally, as part of the Group’s financial risk management response in relation to interest rate risk, the group
has entered into further interest rate swaps to fix interest rate on floating rate sterling debt – ie, the aggregated exposure that was created with €140
million fixed rate debt and the cross-currency swaps which receive Euro fixed and pay GBP floating. These new interest rate swaps were not
designated in the hedge relationship and therefore they are accounted for at fair value through profit and loss.
Year ended 31 March 2025
Year ended 31 March 2024
230.3
12.7
(4.7)
(0.5)
235.1
22.3
(8.2)
(7.1)
Ineffectiveness is included in the income statement in finance costs.
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(continued)
22. Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Group becomes unable to meet payment obligations in a timely manner when they become due.
The Group’s risk management objective, policy and performance are as follows:
The contracted cash outflows on bank and other borrowings, derivatives and lease liabilities at the reporting date are shown below,
based on contractual undiscounted payments. Interest payments predominantly relate to repayments on the €550m Eurobond and
the £300m bond and have been calculated based on the contractual fixed interest rates. Eurobond interest has been translated
based on the prevailing exchange rates at the balance sheet date.
0.6
299.8
453.0
–
753.4
12.5
9.7
3.4
–
25.6
590.7
274.5
897.2
8.4
1,770.8
55.5
53.7
106.0
130.0
345.2
principal (restated
1
)
22.5
0.6
749.9
–
773.0
Bank and other borrowings – interest payments (restated
1
)
12.2
12.2
12.6
–
37.0
Derivatives cash outflows settled gross (restated
2
)
372.0
258.6
586.4
6.4
1,223.4
49.3
46.1
90.7
85.3
271.4
1.
‘Bank and other borrowings – interest payments’ between 2 and 5 years has been restated to remove £24.1 million of additional interest payments
incorrectly calculated in the prior year based on incorrect application of loan term expiry.
2.
‘Derivatives cash outflows settled gross’ has been restated as a a result of errors in the derivative data from which the was prior year figure was
calculated
The impact of discounting for lease payments is £53.7 million (2024: £40.9 million) resulting in lease liabilities of £274.6 million
(2024: £230.5 million). Other financial liabilities not included in the table above such as trade and other payables are all expected
to be settled within one year.
244 Babcock International Group PLC Annual Report and Financial Statements 2025
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22. Financial risk management (continued)
Currency risk
Currency risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign
exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating
activities, when revenue or expense is denominated in a foreign currency, and the Group’s net investments in foreign subsidiaries.
The functional currency of Babcock International Group PLC and its UK subsidiaries is GBP. The presentation currency of the Group
is GBP. The Group has exposure primarily to EUR, ZAR, AUD and CAD.
The Group’s risk management objective, policy and performance are as follows:
The effect of cash flow hedges on the Group’s financial position and performance in the year was as follows:
value
Maturity
€275m
(£11.6)
13/09/27
1.115
1.9
(1.9)
4.8
–
Hedged item: EUR-denominated debt
€275m
N/A
13/09/27
N/A
(4.8)
N/A
N/A
N/A
As outstanding cash flow hedges matured in 2023, the amount previously recognised in the hedging reserve has been reclassified
to the income statement. Any new derivatives executed to hedge purchases and sales in foreign currencies have been treated as
economic hedges with the fair value changes recognised in the income statement rather than through other comprehensive income
and therefore disclosure has not been provided on such items.
Babcock International Group PLC Annual Report and Financial Statements 2025 245
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(continued)
22. Financial risk management (continued)
value
Maturity
Hedge instrument: Cross currency swap
€275m
Year ended 31 March 2025
Year ended 31 March 2024
EUR *
5%
(1.0)
(1.0)
5%
(0.6)
(0.6)
5%
(1.6)
(1.6)
5%
(1.5)
(1.5)
5%
(0.3)
(0.3)
5%
(0.5)
(0.5)
CAD
5%
(0.7)
(0.7)
5%
(0.6)
(0.6)
* This sensitivity analysis excludes the impact of the disposal of the Group’s Aerial Emergency Services business, as this is a one-off transaction
which is not expected to re-occur.
Sensitivity analysis on currency risk has been prepared based on an approximation of reasonably possible changes in foreign
exchange rates relative to the Group’s functional and reporting currency.
Under the Group’s economic hedging policy, the terms of the forward contracts are arranged to align with the expected timing, currency
and amounts of the hedged items. The Group typically enters into forward contracts where the hedge ratio is 1:1 on the basis that the
notional amount of the designated hedging instruments matches the principal amount of the forecast foreign currency transaction.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations to the Group, which would result in a loss for the Group. Credit
risk arises from trade and other receivables, cash and cash equivalents, investments and derivative financial instruments.
The Group’s risk management objective, policy and performance are as follows:
Objective The Group’s objective is to ensure that the Group continues to operate with an acceptable level of credit risk,
based on management’s judgement, associated with its operating activities, such as customer trade
receivables, and financial activities, including cash deposits and financial instruments.
Policy The Group’s policy is to manage credit risk by setting and reviewing appropriate credit limits for non-
government commercial customers, being the Group’s main exposure to credit risk. With regards to financial
institutions, credit limits will be set according to the respective financial institution’s credit rating. Counterparty
bank credit risk is closely monitored on a systematic and ongoing basis.
Risk management
Credit risk management includes performing credit checks on non-government commercial customers and
setting and only performing financial transactions with approved investment grade counterparties.
Performance Expected credit loss on trade receivable portfolio/provisions of £8.4 million (2024: £8.5 million). The carrying
amount of the Group’s financial assets represents the maximum exposure to credit risk.
Cash and cash equivalents and derivative financial instruments
The Group utilises approved investment-grade counterparties to carry out treasury transactions, including investments of cash
and cash equivalents, with counterparty bank credit risk being monitored closely on a systematic and ongoing basis. A credit limit
is allocated to each institution taking account of its market capitalisation and credit rating, and as such credit risk on these
counterparties is not considered to be material to the financial statements.
The Group’s counterparty credit rating is as follows:
31 March 2025
31 March 2024
14.8%
13.2%
77.4%
76.9%
BBB+ to BB-
7.8%
9.9%
246 Babcock International Group PLC Annual Report and Financial Statements 2025
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22. Financial risk management (continued)
Trade receivables
The Group’s assessment is that credit risk in relation to customers or sub-contractors to governments is limited as their probability
of default is considered to be extremely low. The provision for expected credit losses for receivables from governments and sub-
contractors to government customers is therefore considered immaterial in the context of the receivables balance. The Group
manages credit risk in relation to trade and other receivables for all non-government commercial customers through various
mitigating controls including credit checks, credit limits and ongoing monitoring. Expected credit losses are assessed for all non-
government customers, however this is not considered to be material to the financial statements.
For trade receivables, the Group measures a provision for expected credit losses at an amount equal to lifetime expected credit
losses, estimated by reference to past experience and relevant forward-looking factors. For all other assets the loss allowance
is measured using 12-months expected credit losses unless there was a significant increase in credit risk since initial recognition.
Forward-looking factors are applied to homogenous groups of receivables which share characteristics and are based on an estimate
of how corporate failure rates may change relative to historic levels given the current economic environment.
The Group considers that default has occurred when receivables are more than 90 days overdue and recognises a provision of
100% against all such receivables unless there is evidence of recoverability at the individual receivable level. The movement on the
provision for expected credit losses is as follows:
(8.5)
(7.3)
(1.0)
(1.9)
0.3
0.4
Disposal of businesses
0.6
–
0.1
–
0.1
0.3
(8.4)
(8.5)
The creation and release of provisions for impairment of receivables have been included in operating costs in the income statement.
The Group writes off a receivable when there is evidence that the debtor is in significant financial difficulty and there is no realistic
prospect of recovery, for example, when a debtor enters bankruptcy or financial reorganisation. The ageing of trade receivables
is detailed below:
Year ended 31 March 2025
Year ended 31 March 2024
Not past due
250.0
–
250.0
241.5
–
241.5
29.6
(0.3)
29.3
15.0
(0.1)
14.9
23.8
(8.1)
15.7
9.9
(8.4)
1.5
303.4
(8.4)
295.0
266.4
(8.5)
257.9
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The
Group does not hold any collateral as security other than retention of title clauses issued as part of the ordinary course of business.
For contract assets the expected credit loss provision is immaterial as the probability of default is insignificant. No expected loss
provision has been recorded in respect of loans to joint ventures and associates.
Babcock International Group PLC Annual Report and Financial Statements 2025 247
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(continued)
22. Financial risk management (continued)
Offsetting financial assets and liabilities
Year ended 31 March 2025
Year ended 31 March 2024
offset
1
offset
1
646.6
(0.1)
646.5
570.6
(18.0)
552.6
14.4
(14.4)
–
7.2
(7.2)
–
(0.1)
0.1
–
(18.0)
18.0
–
(53.9)
14.4
(39.5)
(61.4)
7.2
(54.2)
1.
The Group has the legal right of offset within certain of its banking arrangements, however there is no intention to net settle these balances shortly after
the period end and therefore these have been presented gross in accordance with IAS 32. The Group also has derivative assets and liabilities with
the same financial institutions which also have offset language to allow for net settlement, however the Group has no intention to net settle and therefore
the IAS 32 criteria are not satisfied and the derivative asset and derivative liabilities have been presented gross in the statement of financial position.
Capital risk
Capital risk is the risk that the entity may not be able to continue as a going concern. The capital structure of the Group consists
of net debt (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) and equity of the Group (comprising
issued capital, reserves, retained earnings and non-controlling interests. The Group is not subject to any externally imposed capital
requirements.
The Group’s risk management objective, policy and performance are as follows:
248 Babcock International Group PLC Annual Report and Financial Statements 2025
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23. Share capital
505,596,597
303.4
505,596,597
303.4
Potential issues of ordinary shares
The table below shows conditional share awards existing over the Company’s shares as at 31 March 2025 that are capable of being
met on exercise or vesting by the issue of new shares. They represent outstanding awards granted under the Company’s executive
share plans. The awards were granted directly by the Company and satisfied by the Trustees of the Babcock Employee Share
Trust (BEST) – a total of 11,624,363 shares (2024: 12,490,853 shares). The Company decides from time to time whether to satisfy
the awards by way of a fresh issue of shares (either to the award holder or to the employee share trust) or by way of financing the
employee share trusts to purchase already issued shares in the market. This decision is made according to available headroom
within the dilution limits contained in the relevant share plan rules and what the Directors consider to be in the best interest of the
Company at the time.
Grant date
Type
Exercise period
13 August 2020
DBP
2
–
27,026
1 December 2020
PSP
1
01/12/2025 – 01/12/2026
318,585
1,197,393
1 December 2020
PSP
1
9,089
532,695
24 August 2021
PSP
1
–
769,165
24 September 2021
DBP
2
24/09/2024 – 24/09/2025
–
45,312
24 September 2021
PSP
1
224,829
1,290,265
24 September 2021
PSP
1
80,948
515,803
1 August 2022
DBP
2
01/08/2025 – 01/08/2026
218,895
218,895
1 August 2022
PSP
1
1,841,596
2,007,994
1 August 2022
PSP
1
1,328,136
1,328,136
1 August 2023
PSP
1
01/08/2026 – 01/08/2027
2,032,234
2,353,826
1 August 2023
DBP
2
129,095
129,095
1 August 2023
DBP
3
27,212
179,247
1 August 2023
PSP
1
01/08/2028 – 01/08/2029
598,677
694,057
29 September 2023
PSP
1
900,607
900,607
15 December 2023
PSP
1
42,077
42,077
15 December 2023
PSP
1
15/12/2026 – 15/12/2027
121,460
127,553
15 December 2023
PSP
1
54,183
131,707
1 August 2024
DBP
2
93,254
–
1 August 2024
DBP
3
01/08/2025 – 01/08/2026
142,343
–
1 August 2024
PSP
1
3,364,295
–
1 August 2024
PSP
1
15,634
–
2 December 2024
PSP
1
02/12/2025 – 02/12/2026
4,860
–
2 December 2024
PSP
1
14,582
–
2 December 2024
PSP
1
61,772
–
11,624,363
12,490,853
Options granted to Directors are summarised in the Remuneration report on pages 150 to 153 and are included in the outstanding
options set out above.
1.
2019 Performance Share Plan (‘PSP’).
2.
DBP – Award issued without matching shares, has three-year vesting period.
3.
DBP – Award issued without matching shares, has one-year vesting period.
Babcock International Group PLC Annual Report and Financial Statements 2025 249
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(continued)
23. Share capital (continued)
The table below shows shares already held by the trustees of the BEST in order to meet these awards.
31 March 2025
31 March 2024
BEST
–
1,196,571
–
1,872,433
–
1,196,571
–
1,872,433
A reconciliation of PSP and DBP movements is shown below:
31 March 2025
31 March 2024
12,491
10,347
Granted
4,095
4,742
(3,917)
(1,947)
(1,045)
(651)
11,624
12,491
261
27
The weighted average share price for awards exercised during the year was 514.8p per share (2024: 406.2p per share).
The weighted average fair value of awards granted in the year was 497.1p per share (2024: 362.6p per share)
During the year 3,267,012 ordinary shares (2024: 3,721,467 ordinary shares) were acquired or subscribed for through the Babcock
Employee Share Trust (‘the Trust’). The Trust holds shares to be used towards satisfying awards made under the Company’s
employee share schemes. During the year ended 31 March 2025, 3,942,874 shares (2024: 1,918,551 shares) were disposed of by
the Trust resulting from options exercised. At 31 March 2025, the Trust held a total of 1,196,571 ordinary shares (2024: 1,872,433
ordinary shares). Shares held by the trust have a nominal value of £717,943 (2024: £1,123,460) and a total market value of
£8,663,174 (2024: £9,736,652) representing 0.24% (2024: 0.4%) of the issued share capital at that date. The Company did not pay
dividends to the Trust during the year. The Company meets the operating expenses of the Trust.
The Trust enables shares In the Company to be held or purchased and made available to employees through the exercise of rights
or pursuant to awards made under the Company’s employee share scheme. The Trust is a discretionary settlement for the benefit
of employees within the Group. The Company is excluded from benefitting under it. It is controlled and managed outside the UK and
has a single corporate trustee which is an independent trustee services organisation. The right to remove and appoint the trustees
rests ultimately with the Company. The trustee of the Trust is required to waive both voting rights and dividends payable on any
share in the Company in excess of 0.001p, unless otherwise directed by the Company.
Own shares held, including treasury shares and shares held by the Trust are recognised as a deduction from retained earnings.
24. Share-based payments
For awards which are subject to performance conditions, the charge to the income statement has been based on the assumptions
below and is based on the application of Black Scholes model or on the binomial model as adjusted, allowing for a closed form
numerical-integrated solution, which makes it analogous to the Monte Carlo simulations, including performance conditions as
deemed necessary. The detailed description of the plans below is included within the Remuneration report. For other awards not
subject to performance conditions, the charge is based on the share price on grant issue or modification date.
During the year the total charge relating to employee share-based payment plans was £14.3 million (2024: £12.4 million), all of which
related to equity-settled share-based payment transactions.
After tax, the income statement charge was £10.7 million (2024: £9.6 million).
The Group operates equity-settled, share-based compensation plans. The economic cost of awarding shares and share options
to employees is recognised as an expense in the income statement equivalent to the fair value of the benefit awarded. The fair
value is determined by reference to option pricing models. The charge is recognised in the income statement over the vesting
period of the award.
The shares purchased by the Group’s Employee Stock Ownership Plan (ESOP) trusts are recognised as a deduction to equity.
Dividends paid on these shares are accounted for as a deduction to equity.
250 Babcock International Group PLC Annual Report and Financial Statements 2025
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24. Share-based payments (continued)
The fair value per option granted and the assumptions used in the calculation are as follows:
PSP and DBP
1
2024
DBP
93,254
523
–
4.0
100.0%
–
523
–
01/08/24
2024
DBP
162,444
523
–
2.0
100.0%
–
523
–
01/08/24
2024
PSP
1,799,822
523
–
4.0
100.0%
–
523
–
01/08/24
2024
PSP
1,887,244
523
31.5%
4.0
100.0%
–
470
–
01/08/24
2024
PSP
70,742
523
31.5%
6.0
100.0%
–
470
–
01/08/24
2024
PSP
61,772
510
–
4.0
100.0%
–
510
–
02/12/24
2024
PSP
4,860
510
–
2.0
100.0%
–
510
–
02/12/24
2024
PSP
14,582
510
–
3.0
100.0%
–
510
–
02/12/24
2023
PSP
1,259,675
371
32.6%
4.0
100.0%
–
334
–
01/08/23
2023
PSP
1,234,901
371
–
4.0
100.0%
–
371
–
01/08/23
2023
PSP
737,280
371
32.6%
6.0
100.0%
–
334
–
01/08/23
2023
PSP
78,571
413
32.0%
6.0
100.0%
–
372
–
29/09/23
2023
PSP
822,036
413
–
6.0
100.0%
–
413
–
29/09/23
2023
PSP
42,077
385
–
3.0
100.0%
–
385
–
15/12/23
2023
PSP
127,553
385
–
4.0
100.0%
–
385
–
15/12/23
2023
PSP
131,707
385
32.0%
6.0
100.0%
–
347
–
15/12/23
2023
DBP
129,095
371
–
4.0
100.0%
–
371
–
01/08/23
2023
DBP
179,247
371
–
2.0
100.0%
–
371
–
01/08/23
2022
PSP
2,302,009
351
19.0%
4.0
100.0%
–
351
–
01/08/22
2022
PSP
613,078
351
19.0%
6.0
100.0%
–
316
–
01/08/22
2022
PSP
806,511
351
19.0%
6.0
100.0%
169
316
55.0%
01/08/22
2022
DBP
218,895
351
19.0%
4.0
100.0%
–
351
–
01/08/22
2022
DBP
551,420
351
19.0%
2.0
100.0%
–
351
–
01/08/22
2021
PSP
769,165
372
19.0%
6.0
100.0%
149
316
55.0%
24/08/21
2021
PSP
626,704
380
19.0%
6.0
100.0%
–
325
–
24/09/21
2021
PSP
1,780,849
380
19.0%
4.0
100.0%
–
380
–
24/09/21
2021
DBP
45,312
380
19.0%
4.0
100.0%
–
380
–
24/09/21
2020
PSP
695,458
350
19.0%
6.0
100.0%
–
305
–
01/12/20
2020
PSP
2,091,247
350
19.0%
4.0
100.0%
–
350
–
01/12/20
2020
PSP
1,341,477
350
19.0%
6.0
100.0%
138
305
55.0%
01/12/20
2020
DBP
118,320
289
19.0%
4.0
100.0%
–
289
–
03/08/20
2020
DBP
192,096
284
19.0%
4.0
100.0%
–
284
–
13/08/20
1.
PSP = 2019 Performance Share Plan and DBP = 2022 Deferred Bonus Plan.
All awards have an exercise price of £nil and as such the weighted average exercise price for shares granted, exercised, forfeited
and outstanding are all £nil.
The vesting period and the expected life of PSP awards are between one and three years. The vesting period and expected life of
DBP awards was one year for awards made in August 2022 and two years for previous, other than for Executives where the vesting
period is three years. The holders of all awards receive dividends.
For PSP awards made in December 2020, 2,786,705 were made via the use of restricted shares with a three-year vesting period.
There are no performance conditions attached. A further 1,341,477 awards were made where the performance criteria is 50%
against free cash flow and 50% TSR.
PSP awards made in August 2021 of 769,165 shares include performance criteria weighted to 50% against free cash flow targets
and 50% against TSR performance.
PSP awards made in September 2021 of 2,407,553 shares were made via the use of restricted shares with a three-year vesting
period. There are no performance conditions attached.
For PSP awards made in August 2022, 3,318,343 were made via the use of restricted shares with a three-year vesting period.
There are no performance conditions attached. A further 403,255 awards were made where the performance criteria is 50% against
free cash flow and 50% TSR.
Babcock International Group PLC Annual Report and Financial Statements 2025 251
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(continued)
24. Share-based payments (continued)
For PSP awards made in August to December 2023, 3,611,764 were made via the use of restricted shares with a three-year to five
year vesting period. There are no performance conditions attached. A further 822,036 awards were made where the performance
criteria is 30% against free cash flow, 30% underlying operating margin, 25% organic revenue growth and 15% ESG.
For PSP awards made in August to December 2024, 1,881,036 were made via the use of restricted shares with a three-year to five
year vesting period. There are no performance conditions attached. A further 1,957,986 awards were made where the performance
criteria is 30% against free cash flow, 30% underlying operating margin, 25% organic revenue growth and 15% ESG.
There are no performance conditions attached to the DBP.
The expected volatility is based on historical volatility over the last one to three years. The expected life is the average expected
period to exercise. The risk-free rate of return is the yield on zero-coupon government bonds of a term consistent with the assumed
option life.
The Group also operates the Babcock Employee Share Plan which allows employees to contribute up to £150 per month to the fund,
which then purchases shares on the open market on the employees’ behalf. The Group provides matching shares, purchased on the
open market, of one share for every 10 purchased by the employee. During the year the Group bought 92,641 matching shares
(2024: 116,711 matching shares) at a cost of £0.5 million (2024: £0.4 million).
The Group also operates the Babcock Employee Share Plan International which reflects the structure of the UK Plan. During the
year no matching shares were purchased on the open market (2024: no matching shares) and 1,182 matching shares vested (2024:
2,192 matching shares) leaving a balance of 2,544 matching shares (2024: 3,726 matching shares).
25. Retirement benefits and liabilities
Defined contribution schemes
Pension costs for defined contribution schemes are as follows:
101.6
110.7
Defined benefit schemes
Statement of financial position assets and liabilities recognised are as follows:
98.8
107.3
Retirement benefits – funds in deficit
(107.2)
(217.0)
(8.4)
(109.7)
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 (together, ‘the Principal schemes’). Each of these schemes is predominantly a final salary plan
in which future pension levels are defined relative to number of years’ service and final salary. Retirement age varies by scheme.
The nature of these schemes is that the employees only contribute whilst they are active employees of a scheme, with the employer
paying the balance of the cost required. The contributions required and the assessment of the assets and the liabilities that have
accrued to members and any deficit recovery payments required are agreed by the Group with the trustees of each scheme who
are advised by independent, qualified actuaries.
The Group operates a number of pension schemes. The schemes are generally funded through payments to trustee-
administered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution
plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on
retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution
plan is a pension plan under which the Group pays fixed contributions into a separate entity.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement
as incurred.
For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit actuarial
valuation method. The service cost and associated administration costs of the Group’s pension schemes are charged to
operating profit. In addition, a retirement benefit interest charge on the net pension deficit or interest credit on the net pension
surplus is included in the income statement as a finance cost or finance income, respectively. Actuarial gains and losses are
recognised directly in equity through the statement of comprehensive income so that the Group’s statement of financial position
reflects the IAS 19 measurement of the schemes’ surpluses or deficits at the reporting date.
252 Babcock International Group PLC Annual Report and Financial Statements 2025
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25. Retirement benefits and liabilities (continued)
On 30 November 2024, future accrual of benefits in DRDPS ceased, with benefits for service from 1 December 2024 being provided
through a defined contribution scheme. In respect of their accrued benefits active members in DRDPS were given an option to either
retain their salary link or break the salary link for a cash lump sum. The reduction in liability resulting from members who chose to
break their salary link has been accounted for as a curtailment gain. There is also reduced service cost for the Group at 31 March
2025 as a result of the closure to future accrual. This is however accompanied by an increase in the cost of defined contribution
benefits for the Group.
On 30 September 2024, future accrual of benefits in BIGPS ceased and the active members of the BIGPS were then included in a bulk
transfer to the newly created Citrus BIG2024 scheme. The bulk transfer included all past service liabilities for these members and
retained the salary link and future benefit accrual is provided on the same basis in the Citrus BIG2024. A transfer of assets was made
as part of the bulk transfer. The bulk transfer has been treated as a settlement loss in BIGPS, and an equal and opposite gain in the
Citrus BIG2024 scheme. This means that the overall Group level impact of this change is neutral. In addition on 30 September 2024
the salary link was severed for active employees whose benefit accrual creased in 2019 – this resulted in a small past service gain.
The Group also participates in the Babcock Rail Ltd Shared Cost Section of the Railways Pension Scheme (‘the Railways scheme’).
This scheme is a multi-employer shared cost scheme with the contributions required, the assessment of the assets and the liabilities
that have accrued to members and any deficit recovery payments all agreed with the trustees who are advised by an independent,
qualified actuary. The costs are, in the first instance, shared such that the active employees contribute 40% of the cost of providing
the benefits and the employer contributes 60%. However, the assumption is that as the active membership reduces, the liability
will ultimately revert to the Group, and as such, it is assumed that the entire cost of the Railways Scheme is met by the Group.
The Group’s share of the assets and liabilities is separately identified to those of other employers in the scheme and therefore the
Group cannot be held liable for the obligations of other entities that participate in the Railways scheme.
Defined benefit scheme risks
Through its defined benefit pension schemes, the Group is exposed to a number of risks, the most notable of which are as follows:
Risk
Mitigation
assumptions as applied to pension obligations are a long-
term assessment of inflation over the life of the scheme.
changes in life expectancy of the scheme participants will
impact the liability position.
In 2019,
the Group closed the Babcock International Group Pension
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(continued)
25. Retirement benefits and liabilities (continued)
The defined benefit schemes are prudently funded by payments to legally separate trustee-administered funds. The trustees
of each scheme are required by law to act in the best interests of each scheme’s members. In addition to determining future
contribution requirements (with the agreement of the Group), the trustees are responsible for setting the schemes’ investment
strategy (subject to consultation with the Group). All the schemes have at least one independent trustee and member nominated
trustees. The schemes are subject to regulation under the funding regime set out in Part III of the Pensions Act 2004. The details
of the latest formal actuarial valuation of the scheme are as follows (the actuarial valuations of the Devonport Royal Dockyard
Scheme as at 31 March 2023 and Rosyth Royal Dockyard Scheme as at 31 March 2024 have been completed, while the actuarial
valuation of the Babcock International Group Scheme as at 31 March 2025 has commenced):
31/03/2023
31/03/2022
31/03/2024
31/12/2022
1,181
308
–
131
Actuarial valuation method
Projected unit
Projected unit
Projected unit
Attained age
£1,330m
£1,529m
£653m
£262m
Level of funding
92%
105%
89%
100%
The Group also participates in or provides a number of other smaller pension schemes including a number of sections of the local
government pension schemes where in most cases the employer contribution rates are fully reimbursed by the administering
authorities. It also participates in the Magnox Electric Group Section of the Electricity Supply Pension Scheme and runs the Babcock
Naval Services Pension Scheme, which commenced winding up in 2021, and for which the MOD retains liability.
The Group’s cash contribution rates payable to the schemes are expected to be as follows:
Other
Total
–
–
–
–
–
Future service cash contributions
–
–
–
£0.2m
£5.2m
£5.4m
£12.7m
–
£4.5m
–
£1.6m
£18.8m
£1.8m
–
-
–
–
£1.8m
£14.5m
–
£4.5m
£0.2m
£6.8m
£26.0m
–
–
–
£0.1m
£1.1m
£1.2m
£14.5m
–
£4.5m
£0.3m
£7.9m
£27.2m
Where salary sacrifice arrangements are in place, the Group effectively meets the members’ contributions. The above level of funding
is expected to continue until the next actuarial valuation of each scheme is completed; valuations are carried out every three years.
The expected payments from the schemes are primarily pension payments and lump sums. Most of the pensions increase at a fixed
rate or in line with RPI or CPI inflation when in payment. Benefit payments commence at retirement, death or incapacity and are
predominantly calculated with reference to final salary. The levels of deficit contributions reflected above are expected to continue
until technical provisions (self-sufficiency for the Babcock International Group Pension Scheme) funding levels are met either
through asset performance or funding.
Although the Group anticipates that scheme surpluses will be utilised during the life of the scheme to address member benefits,
the Group recognises its retirement benefit surpluses in full in respect of schemes in surplus, on the basis that it is management’s
judgement that there are no substantive restrictions on the return of residual scheme assets in the event of a winding-up of the
scheme after all member obligations have been met. The Group also considers that the trustees do not have the power to unilaterally
wind-up the schemes or vary benefits.
254 Babcock International Group PLC Annual Report and Financial Statements 2025
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25. Retirement benefits and liabilities (continued)
Virgin Media Case
The Group is aware of the ‘Virgin Media v NTL Pension Trustees Ltd and others’ case and that there is a potential for it to have an
impact on the Group’s UK pension schemes. The case affects defined benefit schemes that provided contracted-out benefits before
6 April 2016 based on meeting the reference scheme test. Where scheme rules were amended prior to 6 April 2016, potentially
impacting benefits accrued from 6 April 1997 to 6 April 2016, schemes needed the actuary to confirm that the reference scheme test
was still being met by providing written confirmation for the purposes of Section 37 of the Pension Schemes Act 1993. In the Virgin
Media case the High Court ruled that alterations to the scheme rules were void and ineffective because of the absence of written
actuarial confirmation required under Section 37 of the Pension Schemes Act 1993. The case was appealed and, in a judgment
delivered in July 2024, the Court of Appeal upheld the High Court's decision. However, the Group is aware that there is continued
uncertainty on various points of detail that were not explored in the Virgin Media case and that a further case was heard in 2025
(judgment for which has not yet been delivered) which may give guidance on issues connected with the Virgin Media case. In addition,
on 5 June 2025 the DWP issued a statement confirming that the Government will introduce legislation to give affected pension
schemes the ability to retrospectively obtain written actuarial confirmation that historic benefit changes met the necessary standards.
Prior to this Government announcement, the Group and the trustees of its defined benefit pension schemes had taken initial advice
on the implications of this for the Group's defined benefit pension schemes. For one scheme we received confirmation that there
is no evidence to conclude that pension scheme liabilities have been understated as a result of non-compliance with section 37 of
the Pension Schemes Act 1993 during the relevant period. For the others, there is a process to identify areas that may require further
investigation, depending on developing case law and the introduction of legislation on this point. The potential impact on the Group
is therefore not yet known and continues to be assessed.
The latest full actuarial valuations of the Group’s defined benefit pension schemes have been updated to 31 March 2025 by
independent qualified actuaries for IAS 19 purposes, on a best estimate basis, using the following assumptions:
2.9%
–
–
0.5%
2.7%
3.0%
3.1%
2.7%
5.7%
5.7%
5.7%
5.7%
3.1%
3.1%
3.1%
3.1%
2.7%
2.7%
2.7%
2.7%
11
10
11
12
85.2
86.1
84.5
84.9
87.3
88.8
86.8
87.2
86.2
87.1
85.6
85.9
88.5
89.9
88.0
88.4
Babcock International Group PLC Annual Report and Financial Statements 2025 255
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(continued)
25. Retirement benefits and liabilities (continued)
The fair value of the assets and the present value of the liabilities of the Group pension schemes at 31 March were as follows:
2025
2024
56.2
9.5
27.4
93.1
68.7
9.8
30.6
109.1
Property funds
147.7
0.1
5.1
152.9
251.7
0.2
4.8
256.7
–
–
0.4
0.4
–
–
0.4
0.4
1.5
110.7
30.9
143.1
1.7
140.8
17.0
159.5
992.6
10.7
52.5
1,055.8
1,234.4
82.8
52.3
1,369.5
1,513.0
68.5
48.9
1,630.4
1,423.4
1.5
15.0
1,439.9
Longevity swaps and annuities
(234.6)
–
(10.1)
(244.7)
(240.9)
–
(9.9)
(250.8)
2,476.4
199.5
155.1
2,831.0
2,739.0
235.1
110.2
3,084.3
83%
–
33%
74%
76%
–
71%
70%
Percentage of assets unquoted (restated)
17%
100%
67%
26%
24%
100%
29%
30%
–
27.4
71.9
99.3
436.9
30.6
26.2
493.7
Deferred pensioners
819.6
58.0
26.3
903.9
640.5
64.7
31.3
736.5
1,668.5
125.7
42.0
1,836.2
1,778.8
142.1
42.9
1,963.8
2,488.1
211.1
140.2
2,839.4
2,856.2
237.4
100.4
3,194.0
Net (liabilities)/assets recognised in the
statement of financial position
(11.7)
(11.6)
14.9
(8.4)
(117.2)
(2.3)
9.8
(109.7)
* The matching assets for the Babcock International Group Pension Scheme, Devonport Royal Dockyard Pension Scheme and Rosyth Royal Dockyard
Pension Scheme primarily comprise a “Liability Driven Investment” portfolio for each scheme, which invest in gilts, Network Rail bonds, gilt
repurchase agreements, interest rate and inflation swaps, asset swaps and cash, on a segregated basis. For the Babcock International Group
Pension Scheme and the Devonport Royal Dockyard Pension Scheme, there are also investments in investment grade credit, via both segregated
portfolios and pooled investment vehicles. The various segregated portfolios and pooled investment vehicle each utilise derivative contracts. The
Trustee has authorised the use of derivatives by the investment managers for efficient portfolio management purposes including to reduce certain
investment risks such as interest rate risk and inflation risk. The principal investment in derivatives is gilt repurchase agreements, interest rate and
inflation swaps in the matching portfolios; total return swaps in the return seeking portfolios. These derivatives are included within the matching
assets and equities classifications. The matching assets category includes gross assets of £2,605 million (2024: £2,326 million) and associated
repurchase agreement liabilities of £1,092 million (2024: £903 million). Repurchase agreements are entered into with counterparties to better offset
the scheme’s exposures to interest and inflation rates, whilst remaining invested in assets of a similar risk profile.
The schemes do not invest directly in assets or shares of the Group.
The longevity swaps have been valued in line with assumptions that are consistent with the requirements of IFRS 13 using Level 3
inputs. The key inputs to the valuation are the discount rate and mortality assumptions.
Amounts recorded in the Group income statement
2025
2024
7.9
0.1
3.1
11.1
12.7
0.8
1.9
15.4
Incurred expenses
6.1
0.4
0.3
6.8
7.8
0.4
0.3
8.5
(1.2)
–
–
(1.2)
–
–
–
–
12.8
0.5
3.4
16.7
20.5
1.2
2.2
23.9
Net interest cost/(credit)
5.1
0.1
(0.7)
4.5
2.1
(0.7)
(0.6)
0.8
17.9
0.6
2.7
21.2
22.6
0.5
1.6
24.7
256 Babcock International Group PLC Annual Report and Financial Statements 2025
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25. Retirement benefits and liabilities (continued)
Amounts recorded in the Group statement of comprehensive income
Year ended 31 March 2025
Year ended 31 March 2024
(239.8)
(34.8)
(18.0)
(292.6)
(175.7)
(21.6)
(3.3)
(200.6)
Experience (losses)/gains arising on
scheme liabilities
(9.4)
(0.5)
(1.9)
(11.8)
(26.8)
0.3
(4.3)
(30.8)
276.4
26.1
17.4
319.9
69.7
3.0
3.6
76.3
27.2
(9.2)
(2.5)
15.5
(132.8)
(18.3)
(4.0)
(155.1)
Analysis of movement in the Group statement of financial position
Year ended 31 March 2025
Year ended 31 March 2024
2,739.0
235.1
110.2
3,084.3
2,825.2
255.7
107.1
3,188.0
124.4
11.0
6.7
142.1
134.1
12.0
5.2
151.3
(239.8)
(34.8)
(18.0)
(292.6)
(175.7)
(21.6)
(3.3)
(200.6)
Employer contributions
99.7
0.5
6.8
107.0
123.9
2.3
5.3
131.5
–
–
–
–
0.1
–
–
0.1
(192.0)
(12.3)
(5.5)
(209.8)
(168.6)
(13.3)
(4.1)
(186.0)
Settlements
(54.9)
–
54.9
–
–
–
–
–
2,476.4
199.5
155.1
2,831.0
2,739.0
235.1
110.2
3,084.3
2,856.2
237.4
100.4
3,194.0
2,910.9
241.5
97.0
3,249.4
7.9
0.1
3.1
11.1
12.7
0.8
1.9
15.4
6.1
0.4
0.3
6.8
7.8
0.4
0.3
8.5
Past service cost
(1.2)
–
–
(1.2)
–
–
–
–
129.5
11.1
6.0
146.6
136.2
11.3
4.6
152.1
–
–
–
–
0.1
–
–
0.1
Experience loss/(gain)
9.4
0.5
1.9
11.8
26.8
(0.3)
4.3
30.8
(4.0)
(0.4)
(0.3)
(4.7)
(38.6)
(0.2)
(0.9)
(39.7)
(272.4)
(25.7)
(17.1)
(315.2)
(31.1)
(2.8)
(2.7)
(36.6)
Benefits paid
(192.0)
(12.3)
(5.5)
(209.8)
(168.6)
(13.3)
(4.1)
(186.0)
(51.4)
–
51.4
–
–
–
–
–
2,488.1
211.1
140.2
2,839.4
2,856.2
237.4
100.4
3,194.0
(11.7)
(11.6)
14.9
(8.4)
(117.2)
(2.3)
9.8
(109.7)
The movement in net deficits for the year ended 31 March 2025 is as a result of the movement in assets and liabilities shown above.
The disclosures below relate to post-retirement benefit schemes which are accounted for as defined benefit schemes in accordance
with IAS 19. The changes to the Group statement of financial position at 31 March 2025 and the changes to the Group income
statement for the year to March 2026, if the assumptions were sensitised by the amounts below, would be:
Initial assumptions
2,839.4
8.7
(148.2)
(9.6)
161.3
8.7
Inflation rate assumptions increased by 0.5%
116.5
6.8
(111.8)
(6.5)
50.0
2.9
Total life expectancy decreased by half a year
(50.4)
(2.9)
6.6
0.4
(6.4)
(0.4)
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25. Retirement benefits and liabilities (continued)
The figures in the table above have been calculated on an approximate basis, using information about the expected future benefit
payments out of the schemes. The analysis above may not be representative of actual changes to the position since changes in
assumptions are unlikely to happen in isolation. The change in inflation rates is assumed to affect the assumed rate of RPI inflation,
CPI inflation and future pension increases by an equal amount. The fair value of the schemes’ assets are assumed not to be affected
by any sensitivity changes shown and so the statement of financial position values would increase or decrease by the same amount
as the change in the defined benefit obligations. There have been no changes in the methodology for the calculation of the
sensitivities since the prior year.
26. Changes in net debt
movement
1
Cash and bank balances
570.6
87.1
–
–
–
(11.1)
646.6
(18.0)
18.2
–
–
–
(0.3)
(0.1)
552.6
105.3
–
(11.4)
646.5
Debt
(749.5)
0.5
–
(2.1)
–
(4.7)
4.6
(751.2)
(11.1)
–
–
–
–
0.3
–
(10.8)
(230.5)
45.4
(96.2)
–
1.1
–
5.6
(274.6)
(991.1)
45.9
(96.2)
(2.1)
1.1
(4.4)
10.2
(1,036.6)
35.5
(15.7)
24.7
–
–
–
0.1
44.6
3.9
(0.3)
–
–
–
–
–
3.6
Derivatives hedging interest on Group debt
(36.3)
–
–
–
–
4.9
–
(31.4)
(435.4)
135.2
(71.5)
(2.1)
1.1
0.5
(1.1)
(373.3)
movement
1
451.7
124.6
–
–
–
(5.7)
Bank overdrafts
(22.2)
4.0
–
–
–
0.2
429.5
128.6
–
–
–
(5.5)
552.6
(765.8)
13.1
–
(3.0)
Derivatives hedging Group debt
(8.3)
–
–
(2.8)
(228.8)
49.6
–
–
(1,002.9)
62.7
(55.2)
(3.0)
(2.3)
9.6
(991.1)
Lease receivables
38.6
(32.0)
–
–
9.5
(5.4)
–
(0.2)
(39.1)
–
–
–
2.8
(564.4)
153.9
(22.8)
(3.2)
0.5
0.6
(435.4)
1. Other non-cash movements predominantly relate to the disposal of lease liabilities and associated lease receivables as part of the disposal
transactions described in note 27.
Net debt, including loans to joint ventures and associates and lease receivables is an alternative performance measure of the
Group and consists of the total of loans, including the interest rate and foreign exchange derivatives which hedge the loans,
bank overdrafts, cash and cash equivalents, loans to joint ventures and associates, lease receivables and lease obligations.
The Group’s key performance indicators exclude certain lease obligations in order to more closely align with the Group’s debt
covenants which are prepared on a pre-IFRS 16 basis and the Financial review presents net debt and related performance
measures including and excluding certain lease obligations for this purpose.
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27. Acquisition and disposal of subsidiaries, businesses and joint ventures and associates
Acquisitions
There have been no acquisitions in the year ended 31 March 2025 nor in the prior financial year.
Disposals
During the year the Group disposed of its 70.0% investment in National Training Institute LLC in Oman (‘NTI’). The details of the
disposal are provided in the table below.
In addition, Airwork Technical Services & Partners LLC (‘ATS’), a partly owned subsidiary registered in Oman, entered liquidation
proceedings. As a result of the liquidation (combined with the Group only holding a 51.0% interest that limits the ability to further
influence or unwind the liquidation process), the Group has concluded that the IFRS 10 criteria regarding control are no longer
satisfied and, as such, the entity has been deconsolidated. Details are provided in the table below.
Net assets disposed (excluding cash & goodwill)
0.2
(0.4)
0.5
–
0.4
0.8
Recycling of translation reserve
(2.5)
–
(1.4)
0.4
Cash consideration
0.1
–
–
0.4
1.5
–
Disposal related items – release of provisions
–
–
1.5
–
There were no disposals in the prior financial year. During the prior year, the Group settled certain warranty related items and
provisions in respect of prior disposals. These resulted in the release and/or utilisation of warranty related provisions. The cash
consideration of prior disposals was also revised.
Adjustment to historic net assets disposed
(2.2)
28. Transactions with non-controlling interests
There were no material transactions with non-controlling interests in the current or prior year.
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29. Contingent liabilities
There are a number of contingent liabilities that arise in the normal course of business, including:
a. The nature of the Group’s long-term contracts means that there are reasonably frequent contractual issues, variations and
renegotiations that arise in the ordinary course of business, including liabilities that arise on completion of contracts and on
conclusion of relationships with joint ventures and associates. The Group takes account of the advice of experts, both internal and
external, in making judgements on contractual issues and whether the outcome of negotiations will result in an obligation
to the Group. The Directors do not believe that the outcome of these matters will result in any material adverse change in the
Group’s financial position.
b. As a large contracting organisation, the Group has a significant number of contracts with customers to deliver services and
products, as well as with its supply chain, where the Group cannot deliver all those services and products itself. The Group
is involved in disputes and litigation, which have arisen in the course of its normal trading in connection with these contracts.
Whilst the Directors do not believe that the outcome of these matters will result in any material adverse change in the Group’s
financial position, it is possible that, if any of these disputes come to court, the court may take a different view to the Group.
c. The Group is subject to corporate and other tax rules in the jurisdictions in which it operates. Changes in tax rates, tax reliefs and
tax laws, or interpretation of the law, by the relevant tax authorities may result in financial and reputational damage to the Group.
This may affect the Group’s financial condition and performance if such matters result in charges in excess of those already
provided in the financial statements – see notes 7 and 20 for further details of amounts provided.
d. The Group has given certain indemnities and warranties in the course of disposing of businesses and companies and in
completing contracts. The Group believes that any liability in respect of these is unlikely to have a material effect on the Group’s
financial position.
e. Corporate rules in certain jurisdictions may extend to compensatory trade agreements, or economic offset rules, where we may
have to commit to use local content in delivering programmes of work. Delivery of offset is also subject to interpretations of law
and agreement with local authorities, which we monitor closely but may give rise to financial and reputational damage to the
Group if not undertaken appropriately.
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence
or non-occurrence of uncertain future events outside the Group’s control, or a present obligation that is not recognised because
it is not probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured reliably.
The Group does not recognise contingent liabilities in its statement of financial position – such matters are only recognised
in the statement of financial position when the obligation rises from possible to probable and the outflow of economic benefits
becomes probable and can be measured reliably.
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30. Capital and other financial commitments
Capital commitments
17.1
6.7
Subsidiary audit exemptions
The following UK subsidiary undertakings are exempt from the requirements of the Companies Act 2006 (the Act) relating to the
audit of individual accounts by virtue of section 479A of the Act.
Legal entity name
Company
Babcock International Group PLC will guarantee all outstanding liabilities that these subsidiaries are subject to as at the financial year
ended 31 March 2025 in accordance with section 479C of the Act, as amended by the Companies and Limited Liability Partnerships
(Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012.
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(continued)
31. Related party transactions
Related party transactions for the year ended 31 March 2025 are:
2.8
–
1.2
–
Rotary Wing Training Limited
6.5
–
0.5
–
5.3
–
0.5
–
3.3
–
–
–
Rear Crew Training Limited
1.2
–
0.1
–
12.1
–
0.1
–
–
–
0.5
–
Alkali Metal Processing Limited
1.7
(4.9)
0.4
(3.3)
32.9
(4.9)
3.3
(3.3)
Ascent Flight Training (Management) Limited
5.6
Advanced Jet Training Limited
2.6
Alert Communications Limited
6.7
52.6
(6.5)
2.3
(1.5)
a. All transactions noted above arise in the normal course of business – typically revenue transactions (including those part of the
year-end debtor balance) are non-interest bearing and on standard 30-day payment terms.
b. Loans to Joint Ventures and Associates are set out in note 14.
c. Defined benefit pension schemes. Please refer to note 25 for transactions with the Group defined benefit pension schemes.
d. Key management compensation is shown in note 6.
e. Transactions in employee benefits trusts are shown in note 23.
32. Events after the reporting period
The Group announced a £200 million share buyback programme on 25 June 2025, to be executed over the course of FY26.
This will reduce cash and the number of shares in issue and impact future earnings per share.
There are no other events after the reporting period which would materially impact the balances reported in this Annual Report.
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33. Group entities
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries and equity accounted investments as at
31 March 2025 is disclosed below. Unless otherwise stated, the Group’s interest in the voting share capital is represented by one
type of ordinary share and is 100%, the entities are unlisted, the year end is 31 March and the address of the registered office is 33
Wigmore Street, London, W1U 1QX. Babcock (UK) Holdings Limited is the only entity held directly by Babcock International Group
PLC. No subsidiary undertakings have been excluded from the consolidation.
Subsidiaries, wholly owned
Airwork Limited
Appledore Shipbuilders (2004) Limited
1
Armstrong Technology Associates
Limited*
Babcock (Ireland) Treasury Limited
Custom House Plaza, Block 6, IFSC, Dublin, 1,
Ireland
Babcock (NZ) Limited
C/O Babcock Central Office, HMNZ Dockyard,
Devonport Naval Base, Queens Parade,
Devonport, Auckland, 0744, New Zealand
Babcock (UK) Holdings Limited
3
Babcock Aerospace Limited
Babcock Africa Investments (Pty) Ltd
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Airports Limited
Babcock Assessments Limited
Babcock Australia Holdings Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
Babcock Aviation Services (Holdings)
Limited
1
Babcock B.V.
Bezuidenhoutseweg 1, 2594 AB The Hague,
The Netherlands
Babcock Canada Inc.
45 O’Connor Street, Suite 1500, Ottawa, Ontario
K1P 1A4, Canada
Babcock Communications Cyprus Limited
Spyrou Kyprianou, 47, 1
st
Floor, Mesa Geitona,
4004 Limassol, Cyprus
Babcock Communications Limited
Babcock Company Holdings Limited
Babcock Contractors Limited
1
Babcock Corporate Secretaries Limited*
Babcock Corporate Services Limited
Babcock Critical Assets Holdings LLP
Babcock Critical Services Limited
103 Waterloo Street, Glasgow, Scotland, G2
7BW, United Kingdom
Babcock Defence & Security
Holdings LLP
Babcock Defence and Security
Investments Limited
Babcock Defence Systems Limited
Babcock Defense (USA) Incorporated
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Babcock Design & Technology Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock DS 2019 Limited
Babcock Education & Training
Holdings LLP
Babcock Education and Skills Limited
Babcock Education Holdings Limited
Babcock Engineering Limited*
Babcock Europe Finance Limited
1
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Fire Services (SW) Limited
Babcock Fire Services Limited
Babcock Fire Training (Avonmouth)
Limited
Babcock Group (US Investments) Limited
Babcock Holdings (USA) Incorporated
7
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Babcock Holdings Limited
3
Babcock Information Analytics and
Security Holdings Limited*
Babcock Information Analytics and
Security Limited
5
Babcock Integrated Technology (Korea)
Limited
Babcock Integrated Technology GmbH
Am Zoppenberg 23, 41366 Schwalmtal,
Germany
Babcock Integrated Technology Limited
Babcock Integration LLP
Babcock International France
Aviation SAS
Lieu dit le Portaret, 83340, Le Cannet-des-
Maures, France
Babcock International France SAS
21 Rue Leblanc 75015, Paris, France
Babcock International France Terre SAS
21 Rue Leblanc 75015, Paris, France
Babcock International Holdings BV
Bezuidenhoutseweg 1, 2594 AB The Hague,
The Netherlands
Babcock International Holdings Limited
1
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock International Limited
5
Babcock International Belgium SRL
11 rue de colonies, Brussels, Belgium, 1000
Babcock International Estonia OU
Harju maakond,, Tallinn, Kesklinna linnaosa,,
Pärnu mnt 139e/2-8, 11317, Estonia
Babcock International Support Services
Limited
Babcock International US Inc
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Babcock Investments (Fire Services)
Limited
Babcock Investments (Number Four)
Limited
Babcock Investments Limited
Babcock IP Management (Number One)
Limited
Babcock IP Management (Number Two)
Limited
Babcock Ireland Finance Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Korea Limited
72-1, Shinsan-ro, Saha-gu, Busan, 49434, South
Korea
Babcock Land Limited
Babcock Land Defence Limited
Babcock Luxembourg Investments I
S.a.r.l.
12F rue Guillaume Kroll, L – 1882 Luxembourg
Babcock Luxembourg Investments S.a.r.l.
12F rue Guillaume Kroll, L – 1882 Luxembourg
Babcock M 2019 Limited
Babcock Marine Shipbuilding Limited
Babcock Malta Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Malta (Number Two) Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Babcock Malta Finance Limited
2
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Malta Holdings (Number Two)
Limited
2
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Malta Holdings Limited
2
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Management 2019 Limited
Babcock Management Limited
Babcock Marine (Clyde) Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Marine (Devonport) Limited
1
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG, England
Babcock Marine (Rosyth) Limited
Rosyth Business Park, Rosyth,
Dunfermline, Fife,
KY11 2YD, Scotland
Babcock Marine Holdings (UK) Limited
5
Babcock Marine Limited
Babcock Marine Products Limited*
Babcock Marine Training Limited
1
Babcock MCS Congo SA
Avenue Charles de Gaulle, PB 5871, Pointe-
Noire, PB 5871, The Republic of Congo
Babcock Mission Critical Services
Australasia Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
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(continued)
33. Group entities (continued)
Subsidiaries, wholly owned (continued)
Babcock Mission Critical Services Design
and Completions Limited
Babcock Mission Critical Services
Germany GmbH
Bismarckstraße 100, 41061 Mönchengladbach
Babcock Mission Critical Services Leasing
Limited
Babcock Mission Critical Services Ltd
Babcock Mission Critical Services
Onshore Limited
Babcock Mission Critical Services
Topco Ltd
1
Babcock Mission Critical Services
UK Limited
Babcock MSS Limited
Babcock Nuclear Limited
Babcock Oman LLC
P.O. Box 2315, Ghala, Muscat, 130, Oman
Babcock Overseas Investments Limited
Babcock Polska sp. z o.o.
Plac Trzech Krzyzy 10/14, 00-499,
Warszawa, Poland
Babcock Project Investments Limited
Babcock Project Services Limited
Babcock Pty Ltd
Level 9, 70 Franklin Street, Adelaide SA 5000,
Australia
Babcock Rail Limited
Babcock Rail Ireland Limited
Block 1, Harcourt Centre, Harcourt Street,
Dublin, DUBLIN 2, Ireland
Babcock Services Group Limited
Babcock Services Limited
Babcock Southern Careers Limited*
2
Babcock Southern Holdings Limited
6
Babcock Support Services (Investments)
Limited
Babcock Support Services GmbH (in
liquidation)
Bismarckstraße 100, 41061 Mönchengladbach
Babcock Support Services Limited
8
103 Waterloo Street, Glasgow, Scotland, G2
7BW, United Kingdom
Babcock Support Services s.r.l.
(in liquidation)
Corso Vercelli, 40, 20145, Milano, Italy
Babcock Training Limited
Babcock UK Finance
Babcock Ukraina LLC
Nazalezhnosti Maidan, Building 2, Kyiv City,
01012, Ukraine
Babcock Ukraine Limited
Babcock USA LLC
1
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Babcock US Investments
(Number Two) LLC
1
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Babcock US Investments Inc.
1
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Babcock US Investments Limited
5
Babcock Vehicle Engineering Limited
4
BNS Pension Trustees Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
BNS Pensions Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Bond Aviation Topco Limited
5
Brooke Marine Shipbuilders Limited
Cavendish Nuclear (Overseas) Limited*
Cavendish Nuclear (USA) Incorporated
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Cavendish Nuclear Japan KK
Regus Tokyo, Arca Central – Office 104, Arca
Central Building 14F 1-2-1, Kinshi , Sumida-ku,
Tokyo, Japan
Cavendish Nuclear Limited
5
Chepstow Insurance Limited
PO Box 155, Mill Court, La Charroterie, St Peter
Port, GY1 4ET, Guernsey
Crucible Training Systems Limited*
Devonport Royal Dockyard Limited
9
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG, United Kingdom
Devonport Royal Dockyard Pension
Trustees Limited*
Devonport Royal Dockyard, Devonport,
Plymouth, PL1 4SG, United Kingdom
FBM Babcock Marine Holdings (UK)
Limited
FBM Babcock Marine Limited
FBM Marine International (UK) Limited
Flagship Fire Fighting Training Limited
INAER Helicopter Chile S.A.*
2880 Americo Vespucio Norte Avenue, Suite
1102, Conchali, Santiago, Chile
LGE IP Management Company Ltd
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Scotland, KY11 2YD, United Kingdom
Liquid Gas Equipment Limited
Rosyth Business Park, Rosyth, Dunfermline, Fife,
Scotland, KY11 2YD, United Kingdom
Liquid Gas Equipment LLC
1
251 Little Falls Drive, Wilmington, Delaware
19808, United States
Marine Engineering & Fabrications
(Holdings) Limited*
Marine Engineering & Fabrications
Limited*
Marine Industrial Design Limited
c/o Babcock Central Office, HMNZ Dockyard,
Devonport Naval Base, Queens Parade,
Devonport, Auckland, 0744, New Zealand
Naval Ship Management (Australia) Pty Ltd
9, 70 Franklin Street, Adelaide, SA 5000, Australia
Peterhouse Group Limited
Port Babcock Rosyth Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Limited
10
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
Rosyth Royal Dockyard Pension Trustees
Limited*
Rosyth Business Park, Rosyth, Dunfermline, Fife,
KY11 2YD, Scotland
SBRail Limited*
Vosper Thornycroft (UK) Limited
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33. Group entities (continued)
Subsidiaries, partly owned:
Babcock Africa (Pty) Limited (90.0%)
7
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Africa Holdings (Pty) Ltd
(90.0%)
11
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Africa Services (Pty) Ltd (90.0%)
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Aviation Services Holdings
International Limited (49.82%)
11
52 St Christopher Street, Valletta, VLT 1462, Malta
Babcock Dyncorp Limited
9
(56.0%)
Babcock Education and Training (Pty) Ltd
(90.0%)
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Financial Services (Pty) Ltd
(90.0%)
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Learning and Development
Partnership LLP (80.1%)
Babcock MCS Ghana Limited (90.0%)
No. 9, Carrot Avenue, Adjacent Lizzy Sport
Complex, East Legon, Accra, Ghana
Babcock Mission Critical Services (Ireland)
Limited (49.82%)
13-18 City Quay, Dublin 2, Ireland
Babcock Mission Critical Services France
SA (49.82%)
Lieu dit le Portaret, 83340, Le Cannet-des-
Maures, France
Babcock Moçambique Limitada (90.0%)
Av. Samora Machel 3380/1, Mozambique
Babcock Namibia Services Pty Ltd
(90.0%)
Unit 3 Ground Floor, Dr Agostinho Neto Road,
Ausspann Plaza, Ausspanplatz, Windhoek,
Namibia
Babcock Ntuthuko Aviation (Pty) Limited
(66.78%)*
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Ntuthuko Engineering (Pty)
Limited (46.37%)
9
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock Ntuthuko Powerlines (Pty)
Limited (46.81%)*
Unit G3 Victoria House, Plot 132 Independence
Avenue, Gaborone, Botswana
Babcock Plant Services (Pty) Ltd
(64.82%)
5
Riley Road Office Park, 15E Riley Road,
Bedfordview, Gauteng, 2007, South Africa
Babcock TCM Plant (Proprietary) Limited
(90.0%)
7
Unit G3 Victoria House, Plot 132 Independence
Avenue, Gaborone, Botswana
Babcock Zambia Limited (90.0%)
16 Arusha, Town Centre, Ndola, Copper Belt,
Zambia
Cognac Formation Aero (90.0%)
Base Aérienne 709 Cognac 16100
Châteaubernard, France
Joint ventures and associates
(equity accounted):
ABC Electrification Ltd (33.3%)
9
8th Floor, The Place, High Holborn, London,
WC1V 7AA
AirTanker Services Limited (23.5%)
12
AirTanker Hub RAF Brize Norton, Carterton,
Oxfordshire, England, OX18 3LX, United Kingdom
Alert Communications Group Holdings
Limited (20%)
Alkali Metal Processing Limited (50.0%)
Ascent Flight Training (Holdings) Limited
(50.0%)
Cavendish Boccard Nuclear Limited
(51.0%)
Cavendish Dounreay Partnership Limited
(50.0%)
9
Cavendish Fluor Partnership Limited
(65.0%)
Debut Services (South West) Limited
(50.0%)
20 Triton Street, Regent’s Place, London, NW1
3BF, United Kingdom
Duqm Naval Dockyard SAOC (49.0%)
The Special Economic Zone at Duqm, Al-Duqm,
Al-Wusta’a, 3972 112, Oman
H&B Defence Pty Ltd (49%)
Unit G3, 55 Blackall Street, Barton ACT 2600,
Australia
FSP (2004) Limited (50.0%)
1
8 Stephenson Place, Hamilton International
Technology Park, Blantyre, G72 0LH, Scotland
Okeanus Vermogensverwaltungs
GmbH & Co. KG (50.0%)
Vorsetzen 54, 20459, Hamburg, Germany
Subsidiaries in Members Voluntary
Liquidation:
Airwork Technical Services & Partners
LLC (51.0%)
PO Box 248 (Muaskar Al Murtafa’a (MAM)
Garrison), Muscat, 100, Sultanate of Oman
Babcock Malta Finance (Number Two)
Limited
2
Trident Park, Notabile Gardens, No. 2 – Level
3, Mdina Road, Zone 2, Central Business
District, Birkirkara CBD 2010, Malta
Babcock Malta Holdings Limited
2
Trident Park, Notabile Gardens, No. 2 – Level 3,
Mdina Road, Zone 2, Central Business District,
Birkirkara CBD 2010, Malta
Babcock Marine & Technology Holdings
Limited
5 Temple Square, Temple Street, Liverpool, L2 5RH
INAER Helicopter Peru S.A.C.
1118 Av. Los Conquistadores, Santa Cruz, San
Isidro, Lima, Peru
Peterhouse GmbH
Bismarckstraße 100, 41061 Mönchengladbach
Skills2Learn Limited
5 Temple Square, Temple Street, Liverpool, L2 5RH
Notes
* Dormant entity.
1. Holding of two types of ordinary shares.
2. Holding of three types of ordinary shares.
3. Holding of four types of ordinary shares.
4. Holding of six types of ordinary shares.
5. Holding of ordinary and preference shares.
6. Holding of ordinary and deferred shares.
7. Holding of ordinary and redeemable
preference shares.
8. Holding of ordinary and five types of
preference shares.
9. Holding of one type of ordinary share only,
where more than one type of share is
authorised or in issue.
10. Holding of two types of ordinary shares,
where more than two types of share are
authorised or in issue.
11. Holding of one type of ordinary share and
one type of preference share, where more
than two types of share are authorised or
in issue.
12. Year end 31 December.
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Note
31 March 2025
£m
31 March 2024
£m
Non-current assets
Investment in subsidiaries
5
3,451.4 3,450.7
Right of use assets
6
2.6 –
Trade and other receivables
7
324.5 463.4
3,778.5 3,914.1
Current assets
Trade and other receivables
7
201.3 165.1
Other financial assets
0.8 1.1
Cash and cash equivalents
– –
202.1 166.2
Total assets
3,980.6 4,080.3
Non-current liabilities
Bank and other borrowings
8
744.5 742.5
Lease liabilities
6
2.4 –
Provisions
0.3 –
Other financial liabilities
9
43.0 48.6
790.2 791.1
Current liabilities
Trade and other payables
10
490.4 518.2
Lease liabilities
6
0.9 –
491.3 518.2
Total liabilities
1,281.5 1,309.3
Net assets
2,699.1 2,771.0
Equity
Called up share capital
11
303.4 303.4
Share premium account
873.0 873.0
Capital redemption reserve
30.6 30.6
Other reserve
768.8 768.8
Retained earnings
723.3 795.2
Total equity
2,699.1 2,771.0
The accompanying notes are an integral part of this Company statement of financial position. Company number 02342138.
The Company has taken advantage of the exemption granted by Section 408 of the Companies Act 2006 whereby no
individual income statement of the Company is disclosed. The Company’s loss (2024: profit) for the financial year was £44.5
million (2024: £35.5 million).
The financial statements on pages 266 to 274 were approved by the Board of Directors on 1 July 2025 and are signed on
its behalf by:
David Lockwood OBE David Mellors
Director Director
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Share
capital
£m
Share
premium
£m
Other
reserve
£m
Capital
redemption
£m
Retained
earnings
£m
Total
equity
£m
At 31 March 2023
303.4 873.0 768.8 30.6 761.0 2,736.8
Profit for the year
– – – – 35.5 35.5
Other comprehensive income
(1)
– – – – 2.8 2.8
Total comprehensive income
– – – – 38.3 38.3
Dividends
– – – – (8.5) (8.5)
Share-based payments
– – – – 12.4 12.4
Tax on share-based payments
– – – – 4.5 4.5
Purchase of own shares
– – – – (12.5) (12.5)
Net movement in equity
– – – – 34.2 34.2
At 31 March 2024
303.4 873.0 768.8 30.6 795.2 2,771.0
Loss for the year
– – – – (44.5) (44.5)
Other comprehensive income
(1)
– – – – 1.6 1.6
Total comprehensive income
– – – – (42.9) (42.9)
Dividends
– – – – (26.7) (26.7)
Share-based payments – – – – 14.3 14.3
Tax on share-based payments
– – – – 2.2 2.2
Purchase of own shares
– – – – (18.8) (18.8)
Net movement in equity
– – – – (71.9) (71.9)
At 31 March 2025
303.4 873.0 768.8 30.6 723.3 2,699.1
1. Other comprehensive income relates to hedge reserve movements net of deferred tax of £1.6 million (2024: £2.8 million).
The other reserve relates to the rights issue of new ordinary shares on 7 May 2014 and the capital redemption reserve relates
to the issue and redemption of redeemable ‘B’ preference shares in 2001.
The retained earnings account includes £290.9 million (2024: £289.3 million), the distribution of which is limited by statutory
or other restrictions.
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Notes to the Company financial statements
1. General information
Babcock International Group PLC (‘the Company’) is incorporated and domiciled in England, UK. The address of the registered office
is 33 Wigmore Street, London, W1U 1QX. The Company has no ultimate controlling party. The principal activity of the Company
is that of a holding company. The Company also arranges certain borrowing facilities on behalf of the wider Group.
2. Material accounting policy information
The material accounting policy information relevant to specific notes is set out within the associated note. Other general policy
information is set out below. Material accounting policies have been applied consistently throughout the year and the comparative
year except as otherwise stated.
Basis of accounting
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial
Reporting Council. Accordingly, these financial statements have been prepared in accordance with Financial Reporting Standard 101
‘Reduced Disclosure Framework’ (FRS 101). In preparing these financial statements, the company applies the recognition and
measurement requirements of International Financial Reporting Standards (IFRS) as adopted by the UK, but makes amendments
where necessary in order to comply with the Companies Act 2006 and sets out below where advantage of the FRS 101 disclosure
exemptions has been taken:
•
Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payments’
•
IFRS 7, ‘Financial instruments: Disclosures’
•
Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities)
•
Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information in respect of:
•
paragraph 79(a) (iv) of IAS 1, ‘Share capital and reserves’;
•
paragraph 73(e) of IAS 16, ‘Property, plant and equipment’; and
•
paragraph 118(e) of IAS 38, ‘Intangible assets’ (reconciliations between the carrying amount at the beginning and end of the year).
•
The following paragraphs of IAS 1, ‘Presentation of financial statements’:
•
10(d), 10(f), 16, 38A-38D, 40A-40D, 111, and 134-136.
•
IAS 7, ‘Statement of cash flows’
•
Paragraphs 30 and 31 of IAS 8, ‘Accounting policies, changes in accounting estimates and errors’
•
Paragraph 17 of IAS 24, ‘Related party transactions’ in respect of key management compensation
•
The requirements of IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more
members of a group.
The financial statements have been prepared on a going concern basis using the historical cost convention, as modified by
the revaluation of certain financial instruments. The financial statements are prepared in Sterling which is the functional currency
of the Company and rounded to the nearest £0.1 million.
There were no changes to accounting standards that had a material impact on these Financial Statements. New accounting
standards, amendments and interpretations not yet adopted are also not anticipated to have a material impact on future periods.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Company’s accounting policies.
After making enquiries, the Directors, at the time of approving the financial statements, have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors
consider it appropriate to continue to adopt the going concern basis in preparing these financial statements.
Taxation
Current income tax
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted by the statement of financial position date.
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets
and liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial
recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects
neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws)
that have been enacted, or substantively enacted by the statement of financial position date and are expected to apply when the
related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in either other
comprehensive income or in equity.
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2. Material accounting policy information (continued)
Finance costs
Finance costs are recognised as an expense in the year in which they are incurred.
Employee benefits
(a) Share-based compensation
The Company operates equity-settled, share-based compensation plans which are either recharged to the relevant subsidiaries or
recognised as capital contributions in the associated investments. Full details of the share-based compensation plans are disclosed
in note 24 to the Group financial statements.
(b) Pension arrangements
The Company operates a multi-employer defined benefit pension scheme, however all assets and liabilities are recognised in the
relevant subsidiary in which the employee operates. See note 25 to the Group financial statements for further details.
Financial risk management
All treasury transactions are carried out only with investment grade counterparties as are investments of cash and cash equivalents.
Company guarantees
The Company had previously guaranteed or had joint and several liability for bank facilities that were shared across multiple Group
companies, these were cancelled in the period to 31 March 2025 (2024: £8.3 million). The Company reviewed and concluded that
these arrangements constitute financial guarantee contracts. IFRS 17 allows an accounting policy choice to account for such
contracts under either IFRS 9 or IFRS 17. This policy choice can vary from contract to contract however the choice for each contract
is irrevocable. The Company has elected to apply IFRS 9 (rather than IFRS 17) to such arrangements. These guarantees are
measured initially at their fair values, and subsequently measured at the higher of the expected credit loss and the amount initially
recognised less cumulative amortisation.
The Company has guaranteed the performance of certain contracts by subsidiaries with their customers. The Company has
reviewed and concluded that some of these performance guarantee contracts also meet the definition of financial guarantee
contracts (thereby granting a policy choice between IFRS 9 and IFRS 17), whilst others do not meet the definition of a financial
guarantee contract (thereby requiring accounting under IFRS 17). In all instances, the Company has elected to apply IFRS 17
(rather than IFRS 9) to performance guarantee contracts in issue as at 31 March 2025.
The probability of losses on performance guarantees has been assessed and it has been determined that the probability is remote
after consideration of both historical and forward-looking triggers. As such the estimated liability is immaterial.
Dividends
Dividends are recognised in the Company’s financial statements in the year in which they are approved and in the case of interim
dividends, when paid.
Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the
amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and
expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. We have not identified any key sources of estimation
uncertainty impacting the reporting period. Other estimates that are not key sources of estimation uncertainty are discussed below.
Estimates which are not key sources of estimation uncertainty
The carrying value of investment in subsidiaries is tested annually for impairment, in accordance with IAS 36. The impairment
assessment is based on assumptions in relation to the cash flows expected to be generated by the subsidiaries, together with
appropriate discounting of the cash flows.
In the current and prior years, we have not identified the carrying value of investments in subsidiaries as a critical accounting
estimate as the headroom in the base case increased from the year ended 31 March 2023 such that no reasonably possible changes
in assumptions could result in the complete elimination of the headroom.
Critical accounting judgements
There are not considered to be any critical accounting judgements in respect of the Company for the current period.
3. Company loss/profit
The Company has no employees other than the Directors.
The Company has taken advantage of the exemption granted by section 408 of the Companies Act 2006 whereby no individual
profit and loss account of the Company is disclosed. The Company’s loss (2024: profit) for the financial year was £44.5 million
(2024: £35.5 million).
Fees payable to the parent auditor and its associates in respect of the audit of the Company’s financial statements were £1.8 million
(2024: £1.8 million).
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4. Directors’ emoluments
Under Schedule 5 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (Schedule 5),
total Directors’ emoluments, excluding Company pension contributions, were £5.2 million (2024: £4.9 million); these amounts are
calculated on a different basis from emoluments in the Remuneration report which are calculated under Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (Schedule 8 (2013)). These
emoluments were paid for the Directors’ services on behalf of Babcock International Group. No emoluments relate specifically
to their work for the Company. Under Schedule 5, the aggregate gain made by Directors from the exercise of Long Term Incentive
Plans in 2025 as at the date of exercise was £5.0 million (2024: £1.0 million) and the net aggregate value of assets received by
Directors in the year ended 31 March 2025 from Long Term Incentive Plans as calculated at the date of vesting was £7.6 million
(2024: £1.1 million); these amounts are calculated on a different basis from the valuation of share plan benefits under Schedule 8
(2013) in the Remuneration report.
5. Investment in subsidiary undertakings
31 March
2025
£m
31 March
2024
£m
Cost at 1 April
3,450.7 3,449.5
Additions 0.7 1.2
Cost at 31 March
3,451.4 3,450.7
Investment additions in the current year and prior year relate to the capitalisation of share-based payments charges not recharged
to the associated Group undertaking.
At 31 March 2025, the carrying amount of the Company’s net assets of £3.9 billion exceeded the Group’s market capitalisation of
£3.7 billion (2024: £2.6 billion). As a result, management performed an impairment test of the Company’s investments in line with
the requirements of IAS 36 ‘Impairment of assets’.
Babcock (UK) Holdings Limited is the only entity held directly by Babcock International Group PLC. Babcock International Group PLC
holds 100% of the ordinary shares and voting rights in Babcock (UK) Holdings Limited which has a place of domicile of the United
Kingdom and registered office of 33 Wigmore Street, London, W1U 1QX.
Results of the impairment test for the year ended 31 March 2025
This impairment test for the year ended 31 March 2025 did not result in an impairment.
Impairment methodology
Cash-generating units
The CGU for the purpose of this analysis is the Group as a whole, as the Company has an investment in a single holding company
through which it indirectly owns the rest of the Group. The recoverable amount of the CGU is the higher of its value-in-use and its
fair value less costs of disposal.
Calculation of recoverable amount
The recoverable amount of the Company’s investment in subsidiary undertakings was assessed by reference to value-in-use
calculations. Note 10 of the Group financial statements sets out further details in relation to how the value-in-use calculations are
determined.
Key assumptions
The key assumptions to which the recoverable amount of the Company’s investment in subsidiary undertakings is most sensitive
are future cash flows, long-term growth rates and discount rates. Further details on how these inputs are determined are set out in
note 10 of the Group financial statements.
The discount rates and long-term growth rates used to determine the recoverable amount of the Company’s investment in
subsidiary undertakings are set out below.
Investments are stated at cost less provision for impairment in value.
Investments are reviewed for impairment at least annually. The recoverable amount is measured as the higher of fair value
less costs of disposal, and value-in-use. In assessing value in use, the estimated future cash flows of the underlying investment
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
When the recoverable amount is less than the carrying amount, an impairment loss is recognised immediately in the Company
income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of the
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined if no impairment loss had been recognised in prior years.
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5. Investment in subsidiary undertakings (continued)
31 March 2025 31 March 2024
Aviation Land Marine Nuclear Aviation Land Marine Nuclear
Pre-tax discount rate 12.6 11.9 11.5 11.9 13.2 12.2 12.2 12.6
Post-tax discount rate
9.3 8.8 8.5 8.8 9.8 9.0 9.0 9.3
Long-term growth rate
2.0 2.0 2.1 2.0 2.0 2.2 2.1 2.0
Sensitivity
The Directors carried out sensitivity analyses on the reasonably possible changes in key assumptions used to determine the
recoverable value of the Company’s investment in subsidiary undertakings. No reasonably possible changes in estimates led to any
potential impairment being identified with headroom remaining under these reasonably possible sensitivities.
6. Leases
Right of use assets
Leasehold
property
£m
Total
£m
Cost
At 1 April 2023 and 2024
– –
Additions
3.4 3.4
At 31 March 2025
3.4 3.4
Accumulated depreciation
At 1 April 2023 and 2024
– –
Depreciation charge for the year
0.8 0.8
At 31 March 2025
0.8 0.8
Net book value at 31 March 2025
2.6 2.6
For all leases in which the Company is a lessee (other than those meeting the criteria detailed below), the Company recognises
a right of use asset and corresponding lease liability at commencement of the lease.
The lease liability is the present value of future lease payments discounted at the rate implicit in the lease, if available, or the
applicable incremental borrowing rate. The incremental borrowing rate is determined at lease inception based on a number of
factors including asset type, lease currency and lease term. Lease payments include fixed payments and variable lease
payments dependent on an index or rate, initially measured using the index or rate at the commencement date. The lease term
reflects any extension or termination options that the Company is reasonably certain to exercise.
The lease liability is subsequently measured at amortised cost using the effective interest rate method, with interest on the lease
liability being recognised as a finance expense in the income statement. The lease liability is remeasured, with a corresponding
adjustment to the right of use asset, if there is a change in future lease payments, for example resulting from a rent review,
change in a rate/index or change in the Group’s assessment of whether it is reasonably certain to exercise an extension,
termination or purchase option.
The right of use asset is initially recorded at cost, being equal to the lease liability, adjusted for any initial direct costs, lease
payments made prior to commencement date, lease incentives received and any dilapidation costs. Depreciation of right of use
assets is recognised as an expense in the income statement on a straight-line basis over the shorter of the asset’s useful life or
expected term of the lease.
Right of use assets arising from sale and leaseback transactions are measured at the proportion of the previous carrying amount
of the asset that relates to the right of use retained by the Group. Gains arising on sale and leaseback transactions are
recognised to the extent that they relate to the rights transferred to the buyer-lessor whilst losses arising on sale and leaseback
transactions are recognised in full.
Right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable, with the impairment expense being recognised in the income statement. Where a lease is terminated
early, any termination fees or gain or loss relating to the release of right of use asset and lease obligation are recognised as
a gain or loss through the income statement.
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o
o
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C
C
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m
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m
m
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n
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t
t
s
s
(continued)
6. Leases (continued)
Lease liabilities
The following tables show the discounted Group lease liabilities and a reconciliation of opening to closing lease liabilities:
Total
£m
At 1 April 2023 and 2024
–
Additions
4.1
Lease interest 0.2
Lease repayments
(0.8)
At 31 March 2025
3.3
Non-current lease liabilities 2.4
Current lease liabilities
0.9
At 31 March 2025
3.3
7. Trade and other receivables
31 March
2025
£m
31 March
2024
£m
Non-current
Amounts due from subsidiary undertakings
314.5 454.8
Deferred tax 10.0 8.6
Total non-current trade and other receivables
324.5 463.4
Current
Amounts due from subsidiary undertakings
201.0 164.8
Prepayments
0.3 0.3
Total current trade and other receivables
201.3 165.1
Amounts due from subsidiary undertakings that do not carry interest are repayable on demand.
Amounts due from subsidiary undertakings are held at amortised cost less expected credit losses. The Company’s profit for the year
includes expected credit losses of £9.7 million (2024: reversal of £69.9 million). As at 31 March 2025, the amount due from
subsidiary undertakings is stated net of an expected credit loss provision of £57.2 million (2024: £47.5 million).
Interest rates on amounts owed by subsidiary operations:
Non-current Current
31 March
2025
£m
31 March
2024
£m
31 March
2025
£m
31 March
2024
£m
SONIA + 1.5%
221.6 93.0 – –
SONIA + 4.0% – 29.2 – –
4.5%
92.9 100.8 – –
Interest-free
– 231.8 201.0 164.8
314.5 454.8 201.0 164.8
Financial assets at amortised cost
Amounts due from subsidiary undertakings are classified as financial assets held at amortised cost. These balances are initially
recognised at fair value and then held at amortised cost using the effective interest rate method.
The Company assesses on a forward-looking basis the expected credit losses associated with financial assets held at amortised
cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. As at 31
March 2025, we have not assessed any significant increase in credit risk and therefore a 12-month expected credit loss has
been measured.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
272 Babcock International Group PLC Annual Report and Financial Statements 2025
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8. Bank and other borrowings
31 March
2025
£m
31 March
2024
£m
Non-current
Bank loans and other borrowings
744.5 742.5
The Company has £1,519.5 million (2024: £1,517.5 million) of committed borrowing facilities, of which £744.5 million (2024:
£742.5 million) was drawn at the year end. The effective interest rates applying to bank loans and other borrowings were as follows:
31 March
2025
%
31 March
2024
%
UK bank overdraft
N/A 6.4
8-year Eurobond September 2027 – fixed 2.9 2.9
8-year Eurobond September 2027 – floating
6.7 6.9
£300 million bond 2026
1.9 1.9
9. Other financial liabilities
31 March
2025
£m
31 March
2024
£m
Non-current
Other financial liabilities – currency and interest rate swaps
43.0 48.6
Disclosures in respect of the fair value of other financial assets and liabilities are provided in note 21 to the Group accounts.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative is entered into, and they are subsequently remeasured
at their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether
the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged.
The Company designates certain of the derivative instruments within its portfolio to be hedges of the fair value of recognised
assets or liabilities or unrecognised firm commitments.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that qualify as cash flow hedges, the effective portion of gains and losses are deferred in equity until such time
as the firm commitment is recognised. The gain or loss relating to the ineffective portion is recognised in the income statement
immediately.
The full fair value of hedging derivatives is classified as a non-current asset or liability where the remaining maturity of the
hedged item is more than 12 months. It is classified as a current asset or liability where the remaining maturity of the hedged
item is less than 12 months.
Certain derivatives do not qualify or are not designated as hedging instruments and any movement in their fair value is
recognised in profit or loss immediately.
Financial liabilities at amortised cost
Amounts due to subsidiary undertakings and bank loans and overdrafts are classified as financial liabilities held at amortised cost.
These balances are initially recognised at fair value and then held at amortised cost using the effective interest rate method.
Babcock International Group PLC Annual Report and Financial Statements 2025 273
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N
N
o
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t
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s
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(continued)
10. Trade and other payables
31 March
2025
£m
31 March
2024
£m
Current
Amounts due to subsidiary undertakings
480.4 512.4
Accruals and deferred income
10.0 5.8
490.4 518.2
The amounts due to subsidiary undertakings are repayable on demand and £480.4 million (2024: £512.4 million) is interest-free.
11. Share capital
Ordinary shares
of 60p
Number
Total
£m
Allotted, issued and fully paid
At 1 April 2024 and 31 March 2025
505,596,597 303.4
Allotted, issued and fully paid
At 1 April 2023 and 31 March 2024
505,596,597 303.4
12. Contingent liabilities, financial guarantee contracts and performance guarantee contracts
a) The Company had previously guaranteed or had joint and several liability for bank facilities that are shared across multiple Group
companies, these were cancelled in the period to 31 March 2025 (2024: £8.3 million)
b) Throughout the Group, guarantees exist in respect of performance bonds and indemnities issued on behalf of Group companies
by banks and insurance companies in the ordinary course of business. At 31 March 2025 these amounted to £293.2 million
(2024: £277.5 million), of which the Company had counter-indemnified £177.9 million (2024: £236.5 million).
c) The Company has given guarantees on behalf of Group companies in connection with the completion of contracts
within specification. The liability recognised in respect of these guarantees in the balance sheet as at both 31 March 2025
and 31 March 2024 is immaterial.
d) The company has given guarantees on behalf of certain Group companies in connection with payments due into their pension
schemes. The liability recognised in respect of these guarantees in the balance sheet as at both 31 March 2025 and 31 March
2024 is immaterial.
e) The company has provided specific guarantees to the Group’s banking partners that Group companies will honour certain
derivative and other performance obligations. The liability recognised in respect of these guarantees in the balance sheet
as 31 March 2025 is immaterial (2024: £nil).
13. Group entities
See note 33 of the Group financial statements for further details.
14. Events after the reporting period
See note 32 of the Group financial statements for further details.
Financial liabilities at amortised cost
Amounts due to subsidiary undertakings and bank loans and overdrafts are classified as financial liabilities held at amortised cost.
These balances are initially recognised at fair value and then held at amortised cost using the effective interest rate method.
A contingent liability is a possible obligation arising from past events whose existence will be confirmed only on the occurrence
or non-occurrence of uncertain future events outside the Company’s control, or a present obligation that is not recognised
because it is not probable that an outflow of economic benefits will occur or the value of such outflow cannot be measured
reliably. The Company does not recognise contingent liabilities.
274 Babcock International Group PLC Annual Report and Financial Statements 2025
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Shareholder information
Financial calendar
Financial year end 31 March 2025
2024/25 preliminary results announced
25 June 2025
Annual General Meeting
25 September 2025
Final dividend payment date (record date 22 August 2025) 30 September 2025
Registered office and
Company number
33 Wigmore Street
London, W1U 1QX
Registered in England
Company number 02342138
Registrars
MUFG Corporate Markets
Central Square
29 Wellington Street
Leeds, LS1 4DL
Email:
shareholderenquiries@cm.mpms.mufg.com
www.babcock-shares.com
Shareholdings can be managed by
registering for the Share Portal at
www.babcock-shares.com. Alternatively,
shareholder enquiries relating to
shareholding, dividend payments,
change of address, loss of share
certificate etc, can be addressed
to MUFG using their postal or email
addresses given above.
Tel: +44 (0)37 1664 0300
(Calls are charged at standard
geographic rate and will vary by provider.
Calls outside the United Kingdom will be
charged at the applicable international
rate. Lines are open 9.00am – 5.30pm,
Monday to Friday excluding public
holidays in England and Wales.)
www.babcock-shares.com
ShareGift
If you have only a small number of
shares which would cost more for you
to sell than they are worth, you may wish
to consider donating them to the charity
ShareGift (Registered Charity 1052686)
which specialises in accepting such
shares as donations.
Further information about ShareGift may
be obtained on 020 7930 3737 or from
www.ShareGift.org
Babcock International Group PLC Annual Report and Financial Statements 2025 275
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Babcock International Group PLC Annual Report and Financial Statements 2025
babcockinternational.com
Babcock International Group PLC
33 Wigmore Street
London
W1U 1QX
United Kingdom
+44(0)20 7355 5300