The Babcock International Group has provided a post close trading update for the financial year ending March 31, 2026 (FY2026), and an update on the Type 31 frigate contract.
Babcock delivered a strong underlying operational and financial performance in FY2026, reflecting continued momentum and particularly strong performances in nuclear and aviation. The company said its strong underlying financial results were partly offset by a non-recurring charge on the Type 31 contract, estimated to be £140 million (US$190 million), fully recognised in FY26.
Based on unaudited management accounts, subject to detailed review by the Audit Committee and the external audit process, Babcock expects the FY2026 results to be: £5.273 billion (US$7.12 billion) in revenue (£10.4 billion (US$14.1 billion) in FY2025); underlying operating profit of £293 million (US$396 million) (£363 million (US$490 million) in FY2025); and underlying free cash flow of £262 million (US$354 million) (£153 million (US$207 million) in FY 2025).
FY2027 expectations are unchanged, supported by good revenue visibility with around 70 per cent revenue under contract April 1, 2026, a similar percentage to the prior year.
"We remain confident in our medium-term guidance of average revenue growth of mid-single digit, underlying operating margin of at least nine per cent and average underlying operating cash conversion of at least 80 per cent," said Babcock.
Marine segment revenue increased eight per cent (at constant FX) to £1.687 billion (US$2.28 billion) (FY25: £1.576 billion/US$2.13 billion), before a c.£100 million (US$140 million) revenue reversal as a result of the Type 31 charge. Underlying operating profit increased 15 per cent (at constant FX) to £110 million (US$150 million) (FY25: £97 million/US$130 million), excluding the Type 31 charge of £140 million (US$190 million), generating an underlying margin of 6.5 per cent. Including the charge, the underlying operating loss was £30 million (US$40 million), generating an underlying margin of negative 1.9 per cent.
During the year, Babcock floated off the first and second ships in the five-ship programme, laid the keel of ship three and formally commenced the build of ship four at its steel cutting ceremony.
"As we finish structural completion of ship one, the bulk of the remaining work now relates to outfitting and commissioning. During the outfitting stage we have experienced higher than expected levels of rework as a result of changes to the design and the long-term impacts of out-of-sequence build activity earlier in the programme."
Babcock said that whilst the number of such rework events is not entirely unexpected, the work is being performed in the later stages of completion and therefore is more complex and more costly. The ability to enable the work to be performed to support increasing levels of programme productivity has also been impacted.
As the build of ship two is close behind ship one, there is also some cross over in the design-related rework necessary to this ship. With ships three and four still in the early construction stages, the extent of impact on these and future vessels is comparatively reduced.
As a consequence, we have performed an engineering maturity review, and we have updated our financial estimates to complete the programme, given the elevated levels of work due to engineering change and productivity. These re-estimates not only cover the production costs of material and personnel, but also an increased programme risk contingency.
This is reflected in an expected charge on the contract (subject to audit) of £140 million for the revised costs to complete delivery of the Type 31 design and build contract, which is fully recognised in FY2026, but the cash costs of which will be incurred over the remainder of the programme. Babcock estimates c.£100 million of this £140 million will be recognised as a revenue reversal in FY2026 with the balance increasing the contract loss provision.
