Babcock International Group PLC
Half year results for the six months ended 30 September 2024

13 November 2024

Successfully delivering performance and growth

David Lockwood, Chief Executive Officer, said:

"This is another strong set of results, with continued positive momentum across the Group. Our operational and financial performance in the first half of the year underpins my confidence that we will deliver our expectations for the full year, as we progress towards our medium-term guidance.

We continue to focus on driving performance and sustainable growth. Working closely with our customers, we are consistently delivering key programmes and contracts, with enhanced standards of execution. Meanwhile, a backdrop of geopolitical instability means demand for what we do continues to increase, resulting in an expanding and attractive long-term opportunity set. We are selecting the right opportunities and are being disciplined in how we deploy capital to deliver growth which maximises shareholder value."

Financial highlights

Outlook

Strategic highlights

Operational highlights

Marine

Nuclear

Land

Aviation

1. Alternative Performance Measures (APMs) - notes to statutory and underlying results on page 1:

The Group provides APMs, including underlying operating profit, underlying margin, underlying earnings per share, underlying operating cash flow, underlying free cash flow, net debt, net debt excluding leases and contract backlog 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 25.

CEO REVIEW

Continued positive momentum

Positive momentum has continued across the Group over the period. Financial and operational performance has been strong, which underpins our expectations for the year, and we have made strategic progress, supporting medium-term ambitions of delivering mid-single digit organic growth, at least 8% operating margin and average operating cash conversion of at least 80%.

The complex geopolitical backdrop means that demand for our specialist capabilities remains high, driving increased, higher quality growth opportunities. Our strategy is focused on delivering sustained, profitable and cash generative growth which we enhance through selectively deploying capital on those opportunities with the right commercial and technical risk profiles to maximise long-term shareholder value.

Strong underlying HY25 results

We have delivered another encouraging set of financial results with year-on-year increase in revenue, underlying operating profit, underlying earnings and underlying free cash flow.

Group revenue increased 11% on an organic basis to £2,409 million with good growth in our three largest sectors, which represent over 90% of our operational business. Nuclear, our largest sector by revenue, representing 36% of the Group, continued its strong trajectory, up 22% in the first half, with Land and Marine up by 9% and 6% respectively. Aviation revenue declined slightly, as expected, due to the completion of aircraft delivery phases within a French defence contract.

The 10% organic increase in underlying operating profit to £169 million reflects the strong revenue performance, more than offsetting the prior year receipt of high margin AH140 frigate licence fees associated with the Polish Miecznik programme. As a result, underlying operating margin was flat at 7.0% (HY24: 7.1%).

Strong operating cash conversion of 80% and lower pension deficit payments following the long-term funding agreements reached earlier this year drove a 41% increase in underlying free cash flow to £95 million, further strengthening our balance sheet. Net debt excluding leases reduced to £146 million and our gearing ratio at the end of the period had reduced to 0.6x, below our target leverage range of 1.0x - 2.0x.

Well positioned in a supportive market

Geopolitical instability is driving growth in defence budgets. However, the pace and extent of budget growth is insufficient to match the growth in demand for military spend, making Babcock's ability to affordably add value, essential. Additionally, there is a timing mismatch between the present threats that governments face and the new product development programmes which typically take years to deliver. Therefore, Babcock's ability to deliver increased availability and capability from existing assets has become critically important, further reinforcing our value to customers.

Our people have a deep understanding of our customers' needs, their assets and the environment in which they operate, creating high barriers to entry. As a through-life capability partner, we not only support assets but deliver capability and system upgrades and apply our own product development capabilities to deliver through-life engineering.

The new UK Government is committed to spending on defence. In the 2024 Autumn budget, it reiterated its commitment to a defence budget of 2.5% of GDP and a £2.9 billion increase to defence spending for 2026. It also confirmed the additional £3 billion annually to support Ukraine. The Government is currently undertaking a Strategic Defence Review (SDR) which is expected to conclude in the first half of 2025. The SDR is intended to determine how UK defence will meet the challenges, threats and opportunities of the twenty-first century, whilst taking account of the commitment to increase defence spend.

As the sole-source provider of complex, through-life support and sustainment, Babcock is critical to the delivery of the UK's nuclear deterrent, which has been confirmed as a national security priority. The Government' is committed to building four new Dreadnought Class submarines to replace the Vanguard Class and ensuring the Continuous At Sea Deterrent (CASD), with one submarine always at sea. Alongside the Government as our customer, we continue to invest in the nuclear submarine infrastructure required for the transition to the Dreadnought Class and next generation AUKUS attack submarines and the delivery of through-life support and availability of the UK's entire nuclear submarine fleet over future decades.

Sustainable growth

We have a clear strategy to deliver sustainable growth across the Group by leveraging our technical capability, developing our people and building strategic partnerships, whilst remaining a responsible corporate citizen. Current market dynamics, in particular the growth in defence budgets driven by the need to recapitalise, re-equip and modernise militaries, have resulted in a broadening opportunity set as outlined at our Capital Markets Day and FY24 full year results. Our five strategic growth priorities are as follows:

We are focused on aligning our growing opportunity set, both in the UK and internationally, with our core capabilities, through leveraging our strong balance sheet and the disciplined deployment of capital. During the period, we have made good progress on a number of strategic growth initiatives.

Optimise our UK position

The ongoing recapitalisation of our Devonport facility, the Major Infrastructure Programme (MIP), continues at pace and will enable delivery of the UK's future nuclear submarine support capability over the next 50+ years. During the period, we completed an extensive regeneration of 9-Dock, the dry dock facility to support the ongoing life extension programme for the Vanguard Class submarines which is critical for the future support of the Continuous At Sea Deterrent (CASD). We also marked a significant milestone to fully dismantle a nuclear-powered submarine at Rosyth, with our award of a recycling contract to KDC Veolia Decommissioning Services.

The Type 31 Inspiration Class frigate programme continues to make good progress, with three ships now in simultaneous construction following first steel cut of HMS Formidable in October 2024. We have increased the industrial workforce to over 900 people, with further recruitment planned. Through the Type 31 programme and other AH140 programmes, we are building a world class shipbuilding capability that will position us for future global naval opportunities. We are already seeing such opportunities emerge, through strategic partnerships such as with Saab, which in May 2024 led to the first contract to support the development of the Swedish Navy's new Lulea Class Surface Combatant, and with PGZ, the Polish Armaments Group, in support of the Polish Miecznik Class frigate programme, where we were awarded an extension to support delivery of three ships.

Strong operational delivery of the DSG defence vehicle support contract in Land has further de-risked the final phase of the ten-year contract, which completes March 2025, contributing to the improved profit performance in the sector. We continue to progress commercial discussions with the UK MOD as we transition to a new contract extension for up to five years. This asset support model forms the basis of our approach to other emerging asset support opportunities both in the UK and internationally.

Selective new programmes in the UK

The Skynet contract, won in 2023 with an initial value of more than £400 million, to upgrade and operate the UK Government's military satellite and space operations has significantly broadened our secure communications capability and strengthened our leading position in digital defence. In the period, we successfully completed the first six months of in-service delivery. We believe that the successful implementation of the critical service will create opportunities for further growth.

In partnership with Supacat, we have been awarded a contract to build 53 modular four to six-wheeled 'Extendas' variants of the High Mobility Transporter Jackal 3 for the British Army. This is in addition to the 70 Jackal 3 (HMT 400 series) vehicles which we began producing at our new facility within the freeport of Devonport earlier this year. Production is ramping up and we see opportunity to provide further vehicles to the British Army, whilst also pursuing international opportunities with Supacat.

Following a comprehensive evaluation of the tender and its 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 (ACTS), demonstrating our disciplined approach to only target opportunities that have the right commercial and technical risk profile. Our growth strategy is predicated on selecting the right opportunities and only bidding for contracts where the risk-reward profile is appropriate and manageable.

Expansion in focus countries

As a provider of first-generation military outsourcing, we are targeting emerging opportunities in France based on our proven track record of delivery in the country. Following the success of the military fighter pilot training programme, the French Air Force is outsourcing further training support opportunities. This week, we were selected as preferred bidder by the French Direction générale de l'armement (DGA) to deliver MENTOR2, a c.€800 million 15-year contract to provide initial pilot training to the French Air Force, Navy and Army. The new contract, due to be awarded before the end of FY25, will involve the deployment of over 100 employees at the Salon de Provence air force base. We are also in the final bidding stages of an opportunity to support fighter pilot training for the Belgian Air Force from France.

Direct exports

During the period we signed a contract extension with PGZ to continue our support to Poland's Miecznik three-ship frigate programme until 2031, providing engineering services, supply chain support, transfer of knowledge and project management. We see further opportunities to add value to our partner's programme and, through our developing relationship, we are exploring potential opportunities in land asset support, again using our expertise and strong track record as a reference.

Babcock is fully committed to providing critical support to Ukraine's military operations. In May 2024, we established a facility in Ukraine to deliver engineering support, including the repair and overhaul of military vehicles, to be delivered in partnership with UDI, Ukraine's state-owned defence industry. In July 2024, we were awarded an extension, with further options to extend, to our initial one-year contract to support urgent operational requirements for Ukraine's UK-gifted military land assets.

Strategic partnerships

Our ability to form partnerships with leading global industry players with particular local market strengths is a key part of our growth strategy. Working with a strong local partner often presents the highest-value, lowest-risk and fastest route to market entry. In the period we launched H&B Defence, a JV with Huntington Ingalls Industries (HII) to support and accelerate the AUKUS endeavour, focusing on building Australia's sovereign capabilities in nuclear infrastructure, workforce and skills development, submarine sustainment and decommissioning.

In September 2024, we unveiled our 120mm Ground Deployed Advanced Mortar System, based on world-leading technology from our partner, ST Engineering. The vehicle-mounted, digitised mortar system is designed to meet the urgent requirements of the British Army and NATO nations. We are also working with Denmark's OMT to develop a new product concept, SMARTHatch, which allows the at-sea launch and recovery of manned and unmanned systems, amongst other defence applications.

Developing our people to support long term growth

Our c.27,000 people are fundamental to the successful delivery of sustained growth. With their deep engineering expertise, operational asset knowledge and strong customer relationships, we are focused on building this valuable resource for the future.

We are a key industrial partner on the UK's Nuclear Skills Taskforce, taking a leading role in helping to secure the critical nuclear skills needed across the defence and civil nuclear enterprise. In September the UK Minister for Defence Procurement Maria Eagle opened the Babcock Engineering & Nuclear Skills building at City College Plymouth where we will grow our workforce's capabilities, focusing initially on building a pipeline of talent and upskilling the existing workforce on the complex skills required to perform deep submarine maintenance. This marks the next phase of our own Babcock Skills Academy, which is initially focused on addressing the current and future nuclear skills demand for our defence programmes. We also delivered the second skills-based Work Academy Programme at our Devonport facility.

In the period we welcomed our largest ever early careers intake in the UK, launched a pre-apprenticeship programme at Devonport and participated in an international apprentice exchange programme with our Polish partner PGZ. We were pleased to be named one of the UK's top 10 employers in 2024 by industry publication The Engineer.

Capital allocation - to support long term growth

We have built a strong platform from which to drive long-term growth in our core defence and civil markets, which we address through leveraging the strength of our balance sheet and disciplined allocation of capital under our capital allocation policy to maximise shareholder value. Our principal priorities remain organic investment, maintaining financial strength and ordinary dividend returns. We will also consider options for inorganic growth in areas aligned with our core capabilities, and further accelerating the reduction in our pension scheme liabilities, where we believe we can create shareholder value. We continually assess our capital requirements and will consider additional shareholder returns should we determine that we have surplus capital.

Outlook

Our expectations for FY25 remain unchanged, noting that full year underlying free cash flow will be significantly H1 weighted. With c.90% of FY25 expected revenue under contract at 1 October 2024, we enter the second half of the year strongly positioned with good momentum and are confident of making further progress against our medium-term guidance: to deliver mid-single digit average annual revenue growth and achieve underlying operating margins of at least 8% and underlying operating cash conversion of at least 80%.

David Lockwood OBE

Chief Executive

OTHER INFORMATION

Dividend

An interim dividend of 2.0 pence per ordinary share (HY24: 1.7 pence per share) is payable on Friday 17 January 2025 to shareholders whose names appear on the register at the close of business on Thursday 05 December. Shareholders may participate in the dividend re-investment plan and elections must be made by Tuesday 24 December. Details of the dividend re-investment plan can be found, and shareholders can make elections, at www.babcock-shares.com.

FINANCIAL REVIEW

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 25.

The reconciliation from the IFRS statutory income statement to the underlying income statement is shown below.

Income statement

A full statutory income statement can be found on page 32.

As described on page 2, 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 preliminary financial statements.

Revenue of £2,409 million grew 11% organically offset by a (0.4)% currency translation effect. The increase was driven by strong growth in Nuclear followed by Land and Marine, while Aviation was slightly down year on year as expected. By sector:

Underlying operating profit increased by 9% to £168.8 million driven by strong performance across Nuclear and Land. By sector:

See segmental analysis tables on page 14.

Statutory operating profit of £183.8 million increased from £144.2 million in HY24, driven by improved underlying performance outlined above and specific adjusting items listed in the table below, including a c.£19.1 million non-cash fair value movement on derivatives.

Reconciliation of statutory to underlying operating profit

Operating margin

Further analysis of financial performance is included in each sector's operational review on page 15 to 24.

Net finance costs

Income tax expense

Basic earnings per share

Reconciliation of statutory profit and basic EPS to underlying profit and basic EPS

Exchange rates

The translation impact of foreign currency movements resulted in a decrease in revenue of £8 million and a decrease in underlying operating profit of £1 million. The main currencies that have impacted our results are the Canadian Dollar, South African Rand, Euro and Australian Dollar. The currencies with the greatest potential to impact results are the South African Rand and the Australian and Canadian Dollar:

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.

A full statutory cash flow statement can be found on page 36 and a reconciliation to net debt on page 11.

Underlying operating cash flow increased to £134.9million (HY24: £126.6 million). The conversion ratio to underlying operating profit of 80% (HY24: 82%) primarily reflects working capital and provision outflows.

Underlying free cash flow increased to an inflow £94.7 million (HY24: £67.2 million inflow), reflecting higher underlying operating cash flow, lower pension contributions and higher dividends received from joint ventures.

New lease arrangements

In addition to net capital expenditure, and not included in underlying free cash flow, £38.2 million (HY24: £16.4 million) of additional lease liabilities were entered into in the period, higher than HY24 as a result of the addition of leased aircraft due to new contracts in Australia. These represent new lease obligations and so are 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

Statutory cash flow summary

Net cash flow from operating activities was £153.2 million, an increase of £16.4 million. The main drivers were higher Group operating profit and lower pension deficit payments.

Net cash flow from investing activities was an outflow of £35.6 million (HY24: outflow of £38.0 million), reflecting continued capital investment across the Group and lower proceeds from asset disposals. On a gross basis, capital expenditure decreased to £50.6 million (HY24: £61.7 million).

Net cash flow from financing activities was an outflow of £53.0 million (HY24: outflow of £45.0 million), including
£22.8 million lease payments (HY24: £24.5 million), £13.3 million purchase of own shares (HY24: £7.5) and £16.6 million dividends paid (HY24: £nil).

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

Net debt

Net debt at 30 September 2024 was £385.6 million, a reduction of £49.8 million compared to the beginning of the financial year. This was driven primarily by underlying free cash flow, less payment of the final FY24 dividend, purchase of own shares, new lease arrangements in the period and revaluation of derivatives and exchanges impacts on debt. Net debt excluding leases was £145.8 million, representing a reduction of £65.1 million compared to the beginning of the financial year.

Components of net debt

Balance sheet

Property, plant and equipment (PP&E) and right of use assets was £724.9 million, an increase of £32.2 million, reflecting continued investment in capital expenditure and a net increase of £19.1 million in right of use assets to £194.7 million associated with new aircraft leases.

Working capital was £(683.0) million, an increase of £8.4 million, with small increases in receivables being largely offset with a decrease in inventories.

Net retirement benefit deficit was £52.6 million, a decrease of £57.1 million. The fair value of plan assets of £3,027.6 million decreased by £56.7 million, driven by an actuarial loss on scheme assets less contributions. The present value of pension benefit obligations of £3,080.2 million decreased by £113.8 million driven by an increase in the discount rate.

Funding and liquidity

As of 30 September 2024, the Group had access to a total of £1.6 billion of borrowings and facilities. These comprised:

At 30 September 2024, our net cash (cash and cash equivalents less overdrafts) balance was £614 million. This, combined with the undrawn amounts under our committed RCFs and overdraft facilities, gave us liquidity headroom of around £1.4 billion.

Net debt to EBITDA (covenant basis)

There are several facets to balance sheet strength, a primary measurement relevant to Babcock is the net debt/EBITDA gearing ratio within our debt covenant of 3.5x. This measure is used in the covenant in our RCF facility and includes several adjustments from reported net debt and EBITDA. The net debt/EBITDA gearing ratio (covenant basis) at 30 September 2024 reduced to 0.6x (FY24: 0.8x) due to positive net cash flow and higher underlying operating profit.

¹Various 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.

²Removing 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.

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

Return on invested capital, pre-tax (ROIC)

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

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 30 September 2024, the IAS 19 valuation for accounting purposes was a net deficit of £53 million (FY24: a net deficit of £110 million). The decrease is a result of a greater reduction in present value of pension benefit obligations (by £114 million to £3,080 million) than the reduction in fair value of plan assets (by £57 million to £3,028 million, net of £248 million longevity swaps). The reduction in pension benefit obligations was mainly a result of modest changes in discount rate. The reduction in fair value of plan assets was driven by an actuarial loss on scheme assets , partly offset by scheme contributions. The fair value of the assets and liabilities of the Group pension schemes at 30 September 2024 and the key assumptions used in the IAS 19 valuation of our schemes are set out in note 13.

Income statement charge

The charge included within underlying operating profit in HY25 was £10.2 million (HY24: £11.6 million), of which £7.1 million related to service costs (HY24: £7.4 million) and £3.4 million related to expenses (HY24: £4.2 million). In addition to this, there was an interest charge of £2.0 million (HY24: charge of £0.4 million) and a past service credit of £0.3 million (HY24: £nil).

Technical provision

An estimate of the aggregate actuarial deficits of the Group's defined benefit pension schemes, including all longevity swap funding gaps, calculated using each scheme's technical provision basis, as at HY25 was approximately £160 million (FY24: c.£200 million, HY24: c.£300 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 proposed assumptions for the actuarial valuation of Rosyth Royal Dockyard Pension Scheme as at 31 March 2024, and for the other schemes uses assumptions within the latest agreed valuation prior to 30 September 2024.

Actuarial valuations are carried out every three years to determine the Group's cash contributions to the schemes. The valuation dates of the three largest schemes are set so that only one scheme is undertaking its valuation in any one year, to spread the financial impact of market conditions. The valuation of the BIGPS as at 31 March 2022 was completed in the last financial year, the valuation of the DRDPS as at 31 March 2023 has been completed in this financial year and work has commenced on the valuation of the RRDPS as at 31 March 2024.

We continue to expect the total annual pension deficit repair payments of around £40 million in FY25.

Cash contributions

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

Segmental analysis

The Group reports its performance through four reporting sectors.

OPERATIONAL REVIEWS

Marine

We design, develop, manufacture and integrate specialist systems, and deliver technical through-life support for complex platforms in the marine sector. Around 85% of Marine's revenue is derived from defence, with the remainder primarily comprising our Liquid Gas Engineering (LGE) business.

Operational highlights

Financial review

*Alternative Performance Measures are defined in the Financial Glossary on page 25

Revenue increased 5% to £789.8 million, up 6% on an organic basis, with a 1% impact from FX translation. Growth was led by the first six months of Skynet in-service delivery and increased LGE volumes, offsetting reduced throughput of Type 31 due to contract phasing, and the impact of Arrowhead 140 licence fee revenues in the prior period. Canada submarine support revenue also grew in the period.

Underlying operating profit of £40 million was £23 million lower than the prior period which included a strong contribution from Arrowhead 140 licenses. This represents an underlying operating margin of 5.1% (HY24: 8.4%) partly reflecting the lower initial margin recognition on the Skynet programme. The prior period margin was disproportionately impacted by the positive contribution from the licence fees.

Contract backlog of £2,991 million was unchanged year on year and also in the period (FY24: 2,993 million) reflecting strong LGE intake and additional missile tube assemblies, offsetting trading of revenue on long-term contracts.

Operational review

Defence

UK defence

We made further operational progress across the Type 31 inspiration class frigate programme in the first half of this year. With three ships now in construction the industrial workforce on site now comprises over 900 people, with further recruitment planned over the coming months.

The superstructure of ship 1, HMS Venturer, is largely complete including the majority of welded outfitting. Ship 2, HMS Active, has moved through structural consolidation and the pace of outfitting is benefitting from the experience gained from work on the first ship. In October 2024 we celebrated cutting steel on ship 3, HMS Formidable.

We continue to deliver further missile compartment tube assemblies for both the UK Dreadnought and US Columbia submarine classes, in support of the common programme. As a result of our market leading position in submarine missile tube assembly, and our deployment of advanced manufacturing technology, in April 2024, we were awarded a contract to deliver an additional 58 integrated tube and hull assemblies, a significant component of the overall assembly.

Also, at our site in Rosyth we successfully completed docking support periods for the aircraft carrier HMS Queen Elizabeth. In our support business, we achieved a major milestone for the UK Royal Navy with HMS Sutherland's crew now able to live and work on board as we regenerate the ship ready for sea. The period also saw the successful docking of HMS Kent and the start of maintenance and through-life support that will deliver significant capability updates and sustainment support.

Our contract to manage and operate Skynet, the UK MOD's military communication system, is progressing well. Since formally taking over the management and operation of the system in March 2024, we have fully mobilised the team and conducted a full review of the Skynet estate and assets.

In October 2024, we were awarded a contract to provide technical support to the in-service TLAM Tomahawk missile system installed on both operational platforms and a number of shore sites.

Our contract to deliver the UK Royal Navy's next-generation Maritime Electronic Warfare Systems Integrated Capability (MEWSIC) continues to be on track, with first hardware expected in the coming months.

We delivered the first two Maritime Interdiction Craft to the UK Royal Marines in September 2024 under our Hurracan contract. We expect 24 vessels to be delivered over the next two years.

In the Autumn, we were chosen by the UK MOD to take part in a major industry technology event involving all three Armed Forces, Project Acheron, demonstrating how a multi-domain integrated network can be used in a real-world conflict environment. We successfully demonstrated our system integration capabilities by delivering medium to long range remote allocation systems and an unmanned aerial vehicle enabled network alongside other defence and technology partners. Taking part in events like this helps position Babcock for future tactical communications opportunities.

Our contract to support the UK Royal Navy Gun System Automation (GSA) was extended for six months to enable continued support to the Type 45 destroyers including electro-optical controls, sensor platforms and other onboard systems.

International defence

In Australasia, we continue to work with ASC on Collins Class submarine sustainment activities. ASC has been named as the sovereign sustainment partner to support the nation's inaugural nuclear-powered AUKUS submarines.

During the period, 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. HMAS Stuart departed Darwin for Australia's fifth Indo-Pacific deployment in October 2024.

Our new contract with KBR 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.

In New Zealand, we are now in our third year of the New Zealand Maritime Fleet Sustainment Services (MFSS) contract which supports the country's entire naval fleet. We are focusing on strategic partnerships to deliver enhanced availability and value. We continue to work closely with the NZ Ministry of Defence on the Fixed High Frequency Radio Refresh program. Factory acceptance testing of the system was delivered in October 2024, in advance of the system arriving in country in 2025.

In Canada, our Victoria In-Service Support Contract (VISSC) engineering support work was rescheduled and re-baselined following the 2024 defence budget. We have improved performance on VISSC and continue to position for the next generation contract to support the Victoria Class submarine fleet (VISSC II).

Canada has progressed its process to acquire the next generation of conventionally powered submarines. A contract to build 8 to 12 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 establish partnerships with multiple submarine OEMs.

In Poland, we signed a 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. Babcock and the Polish Naval Academy in Gdynia, Poland, also signed of a Memorandum of Understanding (MoU) and Cooperation Agreement for a new programme of professional internships.

In Sweden, we continue to work 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.

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. The first support period has been delivered successfully.

In South Korea, our work on the Jangbogo submarines continues to meet all milestones, with delivery of Boat 3 in the period and all the deliverables for Boat 4 completed on schedule.

Civil

Our LGE business saw record order intake of more than £300 million in the first half, with 63 contracts from international shipyard customers driven by major LNG projects in the Middle East and growing demand in China, supporting strong revenues over the coming years. This is supported by ongoing technology development which has seen applications for two technology patents and three trademarks granted.

Sales have also had a strong period across the portfolio including the ecoSMRT® for LNG reliquefaction, ecoETHN® for Ethane Cargo Handling Systems and 18 Ammonia Cargo Handling Systems. Current order backlog is strong with 150 projects in planning (16 projects delivered in period). The success of our LGE business was recognised by the formal award of King's Award for Enterprise in the Innovation category.

Also, at Rosyth we welcomed two of the UK's fleet of National Environmental Research Council (NERC) scientific research vessels for planned maintenance. Royal Research Ship (RRS) Discovery and RSS Sir David Attenborough spent a total of six weeks at Rosyth undergoing through-life support. RSS Sir David Attenborough will return to Rosyth later in 2024 with all three vessels in the NERC fleet returning in 2025. In parallel, we have also delivered an engineering programme to support the future decarbonisation of NERCs fleet.

Nuclear

We provide complex through-life engineering support to the entirety of the UK's nuclear submarine fleet, own and manage critical national infrastructure and provide engineering integration support to AWE. We operate across UK civil nuclear, including new build, generation support and decommissioning.

Operational highlights

Financial review

*Alternative Performance Measures are defined in the Financial Glossary on page 25

Revenue increased £155 million or 22% to £866 million. There was good growth across key programmes where the main drivers were around 30% growth across our civil nuclear decommissioning and new build businesses, ramp up of HMS Victorious LIFEX programme, higher submarine support activity through our Future Maritime Support Programme (FMSP) and the Major Infrastructure Programme (MIP), where revenue increased to £273 million (HY24: £218 million).

Underlying operating profit grew to £76 million, a 67% organic increase, driven by the revenue growth outlined above, better inflation recovery in some contracts and achieving some risk retirement on contract milestones (c.£5 million). As a result, underlying operating margin improved 230 basis points to 8.7%.

Contract backlog was up 3% year on year but decreased 21% in the period to £2,461 million (FY24: £3,105 million), reflecting revenue traded on long term contracts, including large MIP orders placed in FY24 and FMSP.

Operational review

Defence

UK defence

The UK is going through a phase of class transition for nuclear submarines. Astute Class submarines are currently replacing the Trafalgar Class and the future Dreadnought Class will replace the Vanguard Class. We continue to make progress in meeting the current and future requirements of the UK MOD and Royal Navy and are working closely with them to jointly develop long-term strategies for people, infrastructure and transformation.

We are delivering substantial upgrades to existing critical infrastructure at Devonport to support the UK's future capability through a Major Infrastructure Programme (MIP). In September 2024, we reopened 9 Dock following completion of the most significant package of infrastructure work since the early 2000's. The maintenance, life extension and facility improvements will support the UK's Vanguard Class submarines, which are critical in supporting the UK's Continuous at Sea Deterrent and securing the long-term defence of the nation. The upgraded facility will support the delivery of the current £560 million programme to extend the operational life of HMS Victorious.

Following the award of the manufacturing phase contract in FY24, the programme to upgrade 10 Dock with a new dock, berth, and logistics and production support facilities is progressing well. Further infrastructure upgrades are underway at 15 Dock, in preparation to deliver the Base Maintenance Period (BMP) of the first Astute Class submarine to Devonport. These projects will enable our Devonport teams to support the Astute fleet for deep maintenance cycles over the coming years.

We are entering our fourth year of the Future Maritime Support Programme, through which we sustain the entirety of the UK's submarine fleet, and where we work with the customer to enable continuous improved delivery into the future. At HMNB Clyde, we continue to deliver a strong performance on submarine maintenance periods against a backdrop of increasing operational demands.

We are supporting the UK's Submarine Delivery Agency (SDA) on the Submarine Dismantling Project, working towards the full dismantling of the ex-HMS Swiftsure at Rosyth which will be a UK first. During the period we completed the final hazard and operability study, enabling the preparation of detailed programme design. We are engaging to shape the future Submarine Disposal Capability programme with the SDA.

Work continues on the design, installation and commissioning of complex plant and engineering equipment for AWE Aldermaston. We have successfully achieved Concept Design Approval on the Material Recovery Project, the first design approval to pass through the client's gated approval process.

We are a key industrial partner on the UK's Nuclear Skills Taskforce, taking a leading role in helping to secure the critical nuclear skills needed across the defence and civil nuclear enterprise. As part of our ongoing commitment to securing skills, we established the Babcock Engineering & Nuclear Skills building at City College Plymouth. 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. Officially opened in September 2024 by the UK Minister for Defence Procurement, Maria Eagle, it marks the next phase of the Babcock Skills Academy, which is focused on addressing the current and future nuclear skills demand for our defence programmes and supporting the national nuclear endeavour across the defence and civil nuclear enterprise.

International defence

Babcock and HII have combined forces in Australia to create joint venture H&B Defence which will support the development of the critical capabilities required to deliver Australia's conventionally armed, nuclear powered submarine programme, a tripartite programme with Australia, the UK and the US (AUKUS). We will collaborate to develop the optimal models for a nuclear-powered submarine capability, including infrastructure, sustainment, and the necessary skills development of the workforce.

Civil

UK civil nuclear

We support Sellafield with their decommissioning programme and have submitted proposals for two key lots of the 15-year Decommissioning and Nuclear Waste Partners programme. We have also signed contracts for the provision of radiometric support which secures our position as a critical service supplier to Sellafield over the next four years.

We have diversified our customer portfolio in the UK, securing opportunities with both Westinghouse and Urenco, supporting the Government's focus on security of 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, we have now mobilised a team of around 50 people to further develop our partner X-Energy's Advanced Modular Reactor (AMR). The funding award, which was matched by X-energy, is being 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 are also developing opportunities with other AMR technology providers and continue to support Rolls Royce and GE-Hitachi, two of the four Small Modular Reactor (SMR) vendors whose designs have advanced to the next phase 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. At HPC our team has increased rapidly over the last three months to over 400, working on the installation of mechanical and electrical services.

International civil nuclear

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.

In the US, we have negotiated and executed a subcontractor teaming agreement for dismantling the first nuclear-powered aircraft carrier for the US Navy Enterprise Class, USS Enterprise. We are positioning for other Tier 1 clean-up opportunities.

Land

We provide essential services to our customers through three core capabilities, Build, Support and Train. We do this through management, 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 highlights

Financial review

*Alternative Performance Measures are defined in the Financial Glossary on page 25

Revenue increased 8% to £591 million, up 9% on an organic basis. Growth was driven by a number of contracts and regions, primarily activity through the DSG UK land support contract, the Jackal production ramp up, Ukraine support, and higher activity in Australia and South Africa, offsetting reduced volumes in Rail and contracts that completed in FY24.

Underlying operating profit of £45 million was up 22% on a constant currency basis, driven by revenue growth outlined above, strong performance on DSG in the final year of the contract, and improved inflation recovery on certain contracts. Underlying margin improved 80 basis points to 7.7% (HY24: 6.9%).

Contract backlog decreased 12% year on year to £2,410 million, and by 7% compared to the beginning of the year (FY24: £2,594 million) due to revenue traded on long-term contracts with the DSG follow on contract expected to be signed in H2 FY25.

Operational review

Defence

UK defence

We delivered strong operational performance on the DSG contract for the maintenance, repair and asset management of British Army vehicles and equipment. Following notification of its intention to extend the contract by up to five years, we are now in advanced negotiations with our UK MOD customer as we move towards contract signature, expected this financial year. The transition will result in better outcomes for all stakeholders through the rest of the decade.

We continue to support the UK in the provision of critical support to Ukraine's Armed Forces, delivering the training of personnel and refurbishment and renewal of equipment through our Project HECTOR contract. In June 2023, we were awarded a contract to support the UK's gifted platforms to Ukraine, we achieved full operational capability and contract expansion in the period.

In May 2024, we announced work was underway on the establishment of an in-country facility to deliver engineering support, including the repair and overhaul of military vehicles, to be delivered in partnership with UDI, Ukraine's state-owned defence industry. In July 2024, we were awarded an extension, with further options to extend, to our initial one-year contract to support urgent operational requirements for Ukraine's UK-gifted military land assets. In addition to maintaining military vehicles and equipment, Babcock is managing the supply chain and spares. We also support Operation Interflex, the British-led multinational military operation to train and support the Armed Forces of Ukraine.

Babcock, in partnership with Supacat, has been awarded a contract to build 53 modular four to six-wheeled 'Extendas' variants of the High Mobility Transporter Jackal 3 for the British Army. This is in addition to the 70 Jackal 3 (HMT 400 series) vehicles which we began producing at our new facility within the freeport of Devonport earlier this year.

In June 2024, we launched the second variant of our General Logistics Vehicle, a medium wheelbase variant, and expect to add a six-wheel drive version next year. The first GLV variant was unveiled in 2023, with an initial focus on the upcoming tender to replace the British Army's legacy Land Rover fleet. We are also actively pursuing international opportunities.

Our dedicated armoured vehicle conversion facility celebrated the successful conversation of the 100th civilian armoured Land Cruiser in July 2024. We have facilitated the continuous production of armoured Land Cruisers for the past 15 years and remain the principal supplier of Toyota LC300 civilian armoured vehicles to the UK Government.

In September 2024, we unveiled our 120mm Ground Deployed Advanced Mortar System. Based on the world-leading technology of our partner ST Engineering, the vehicle-mounted, digitised mortar system is designed to meet the urgent requirements of the British Army and NATO partner nations.

Our Defence Training business has had a successful first half with the award of several key contract extensions. These include the Marine Engineering Training Group contract for UK Navy Command, the continuation of the 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.

The Babcock Immersive Training Experience (BITE) was launched in the UK and Europe and is expected to be unveiled in the US later this year. BITE is an immersive training environment which replicates the physical, sensory and cognitive challenges of operating in a high stress environment. It produces layered soundscapes, seismic simulation, visual stimuli, generated aromas and environmental controls which enable real-time operationally accurate scenarios.

Following the Enterprise Agreement with Palantir Technologies, we continue to strengthen our data capabilities in defence. Investing in our people's data skills and working closely with Palantir, we are on a journey of better coherence and understanding thousands of data-points underpinning key decisions regarding the design, build and support of critical, complex assets and their value chains across their lifecycles.

Following a comprehensive evaluation of the tender and its commercial terms, Babcock and its partners in Team Crucible made the decision to the exit the bid to become the Strategic Training Partner for the Army Collective Training System (ACTS).

International defence

In France, we continue to strengthen our relationship with the French MOD as we delivered the transition phases on our two Land contracts. Our Land military team in France continues to grow, we have recently opened a new central office in Bordeaux monitoring our Land activities and opportunities to ensure a continuous and excellent service delivery.

In Australasia, Babcock celebrated the first anniversary of its Australian Defence High Frequency Communications contract (JP9101). We achieved the preliminary design review milestone in September 2024 with the first capability milestone, commissioning of the transportable node, the following month.

We continue to provide asset management services to the Australian Defence Force (ADF) for leading-edge counter-chemical, biological, radiological, nuclear and explosive (C-CBNRE) technologies. The scope of the programme has increased by over 40% since contract award in 2019 and includes working closely with the ADF and industry to identify capability gaps caused by technology obsolescence, as well as sourcing and acquiring new C-CBRNE tools to sharpen ADF's response to existing and emerging threats.

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 continue to add technicians to the workforce to grow maintenance support in Queensland, New South Wales and South Australia. This additional resourcing has secured positive outcomes across several programmes where we are providing base and remote support to fast jet fleets, including emergency aircraft arrestor cables and deployable mission shelters.

Civil

UK civil

In our training business in July, the first Recruit Police Officers graduated from the Police Constable Degree Apprenticeship, a tailored programme which Babcock delivers for the Metropolitan Police Service (MPS). We also developed content for the first year of the Police Constable Entry Programme, becoming an integral part of delivering the course, alongside our MPS colleagues, through a new co-delivery model.

Babcock is working with the London Fire Brigade (LFB) on reviewing its future, strategic ambitions for modern firefighting. The first stage of this process was to design, develop and implement a new tactical ventilation course, providing firefighters with a more comprehensive understanding of the theoretical principles and significance of tactical ventilation in firefighting operations. We have also initiated a data enablement project with LFB, optimising our current processes and improving overall efficiency.

Rail Systems Alliance Scotland (Babcock, in partnership with Network Rail and Arcadis) volumes were lower in the period as we started Control Period 7 (2024 - 2029). In Northern Ireland we have successfully commissioned the railway systems upgrades supporting Translink's major investment in the new Belfast Grand Central Station after a major summer blockade. Ireland continues to be a focus with the all-island rail strategy published this summer, and positive engagement with industry stakeholders around a range of renewals and major engineering programmes continues.

International civil

South Africa performance in HY25 was in line with expectations, mainly driven by exceptional performance in the mining equipment business. This reflected high commodity prices in the mining sector driving vehicle demand, new customer orders and successful supplier negotiations. The business also saw a strong period supported by improvements on the Sasol Low NOx burner contract and delivery of spares and products. Work continues on operational excellence initiatives and on enhancing our people's performance, experience, development and capability throughout Africa.

Aviation

We deliver military pilot training support for the two largest Air Forces in Europe (France and UK), through-life support to operational military flying assets and critical air operations for government customers.

Operational highlights

Financial review

*Alternative Performance Measures are defined in the Financial Glossary on page 25.

Revenue declined 4% organically to £162 million primarily due to the completion of aircraft delivery phase in the prior period within the H160 French defence contract, and flat trading across the UK. There was also an adverse FX translation impact of (1)% on revenue.

Underlying operating profit declined 11% to £8 million, or 13% on a constant currency basis, reflecting a one-off inflation adjustment in the prior period and the revenue profile of the H160 French defence contract. As a result, underlying operating margin decreased 30 basis points to 4.8% (HY24: 5.1%).

Contract backlog increased 5% year on year and was up slightly in the period to £1,655 million (FY24: £1,641 million), reflecting and extension of the RAF ground support contract and revenue traded on long term contracts.

Operational review

Defence

UK defence

Performance on our Royal Air Force (RAF) HADES contract remains strong against a background of customer site laydown and base closures. As a result, we were awarded a two-year contract extension to provide technical airbase support services across the Armed Forces.

Despite some fleet challenges at the start of 2024, operations on the RAF Light Aircraft Flying Task contract (LAFT2) are continuing with high levels of availability. We delivered the final two (of three) phases of Elementary Flying Training for the Ukrainian Pilot Force, ensuring trainers and pilots had full aircraft availability as they prepare to fly F-16 jets.

Project MONET, a two-year research and development project to explore the application of emerging technologies to minimise the environmental impact of the Light Aircraft Flying Task, concluded its first year with a successful environmental impact assessment of the Grob Tutor. Preparation is underway to test the technologies in the air.

As part of Ascent Flight Training joint venture, we have submitted a bid to continue to deliver Information and Communications Technology together with the infrastructure element of the Future ISTAR and Rear Crew Training Service programme for the UK Military Flying Training System (UKMFTS).

In the period we signed a partnership agreement with Uplift360, which develops chemical technologies, to recycle advanced materials. Together we will explore solutions for managing and recycling composite materials from defence equipment.

We are exploring the use of uncrewed air system technologies to support UK defence, security and government aviation. We are working on methods of integrating autonomous and collaborative platforms, a set of multiple platforms communicating and operating together autonomously towards a set of objectives into the RAF.

International defence

In France, we are delivering the MENTOR1 and FOMEDEC contracts in line with expectations, with the Fighter Jet Pilot Academy Forecast reaching over 7,000 flying hours and 2,200 synthetic hours in the period. We are now extremely proud to have reached the key milestone of 50,000 flight hours on our PC-21 aircraft. We also contributed to air surveillance during the 80th World War II anniversary in Normandy and the Paris Olympic Games.

In November 2024, we were selected as the preferred bidder by the French Direction générale de l'armement to deliver MENTOR2, a c.€800 million 15-year contract to provide initial pilot training to the French Air Force, Navy and Army. The contract covers initial training before pilots specialise in either fighter pilot training (which Babcock already delivers in Cognac, France), transport pilot or helicopter pilot training. The new contract, due to be awarded before the end of FY25, will involve the deployment of over 100 employees at the Salon de Provence air force base.

Also working with the French ministry of defence, the militarised H160 helicopter fleet has now carried out more than 100 rescue missions on both coasts with around 2,700 flight hours.

During the period, we started the ramp up phase of our 12-year contract to support the fleet of 48 EC145s aircraft for the Direction Générale de la Sécurité Civile and the French Gendarmerie Nationale, delivering major maintenance inspections in our facilities.

Our partnership with Airbus Helicopters remains strong, with an additional contract awarded in the period for the in-service support for nine upcoming Sécurité Civile H145D3 aircraft. We are also currently preferred bidder to deliver in-service support services to the French Army Gazelle Fleet. This places us in a leading position to support the French Armed Forces' flying assets and training.

Civil

UK civil

We recently signed a 10-year contract with Midlands Air Ambulance Charity (MAAC) to continue as the charity's aviation partner, operating MAAC's fleet of helicopters as well as providing ground support, engineering and pilots. We have been by MAAC's side since the charity started operating over 33 years ago, responding to over 75,000 lifesaving missions. We are performing our other air ambulance activities in the country with a fleet availability in excess of 98%.

International civil

In France, we successfully delivered HEMS services during a busy summer period which included the Olympic Games.

In Australasia, we provided the Queensland Government with two AW139 helicopters, custom fitted with specialist medical equipment, in support of our 12-year contract to provide aeromedical retrieval and search and rescue.

In July 2024, we delivered a new Airbus H145 helicopter to increase capability for law enforcement as part of our South Australia State Helicopter Rescue Service contract.

In Canada, are performing well on our firefighting contract for the Province of Manitoba, delivering over 450 missions whilst providing 98% aircraft availability.

In the period we ramped up support for British Columbia's new aerial emergency services contract with a new fleet of AW169 aircraft. Facility construction is underway, and aircraft are being accepted and transported to Canada for the installation of their technical medical capabilities. The programme is expected to achieve initial operating capability in 2025.

Financial glossary - Alternative Performance Measures (APMs)

The Group provides APMs, including underlying operating profit, underlying margin, underlying earnings per share, underlying operating cash flow, underlying free cash flow, net debt and net debt excluding leases to enable users to have a more consistent view of the performance and earnings trends of the Group. These measures are considered to provide a consistent measure of business performance from year to year. They are used by management to assess operating performance and as a basis for forecasting and decision-making, as well as the planning and allocation of capital resources. They are also understood to be used by investors in analysing business performance.

The Group's APMs are not defined by IFRS and are therefore considered to be non-GAAP measures. The measures may not be comparable to similar measures used by other companies, and they are not intended to be a substitute for, or superior to, measures defined under IFRS. The Group's APMs are consistent with the prior year. Measures, definitions and reconciliations to relevant IFRS measures are included below, where appropriate.

Organic revenue growth - Group KPI             

Closest equivalent IFRS measure: Revenue growth year on year

Definition: Growth excluding the impact of foreign exchange (FX) and contribution from acquisitions and disposals over the year.

Purpose: A good indicator of business growth.

Contract backlog

Closest equivalent IFRS measure: No direct equivalent

Definition: The remaining transaction price on contracts with customers that has been allocated to unsatisfied or partially satisfied performance obligations adjusted for the impact of termination for convenience clauses and excluding orders not yet secured on framework agreements.

Purpose: Contract backlog is used to support future years' sales performance.

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.

Specific adjusting items (note 2)

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.

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.        

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.

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.

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.

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.

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.

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 25, excluding depreciation and amortisation and including certain covenant adjustments) plus JV and associate dividends. See page 12.

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 12.

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 12.

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.

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 9.

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

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.

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 9.

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

Risks and uncertainties

The principal risks and uncertainties affecting the Group are listed below and are set out in more detail in the Company's Annual Report and Financial Statements 2024, which should be read in conjunction with this announcement when published. This list is not a substitute for reading the Company's Annual Report and Financial Statements 2024 in full. The Group's principal risks and uncertainties are:

Contract and project performance: We execute large contracts, which often require us to price for the long term and for risk transfer. Our 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 defence and emergency services sectors. As a company, we are in the business of strategically taking on risks that we can manage effectively. While our aim is to minimise risks to a manageable level, it is important to acknowledge that uncertainties are inherent in project delivery. We prioritise robust risk management within our contracts to mitigate these uncertainties and ensure successful outcomes. It is important to make clear that despite our vast efforts, some level of risk remains unavoidable.

Market: We rely 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 we may therefore choose to accept the challenge of market risks that we can confidently and securely manage.

IT & cyber security: A key factor for our 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 Cyber Security are fundamental components to Babcock's operations; we continually review the emergence of cyber threats, in an effort to eradicate and mitigate the risk as far as possible.

Defined benefit pensions: 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. Babcock utilises engagement with the pension 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.

Supply chain management: The Group is exposed to several risks within its supply chain, and these can typically be the following. Volatile markets such as inflation, supplier financial risks and energy costs. Disruptions to established supply chains such as natural hazards, logistics and mass layoffs. Geopolitical and regulatory risk inclusive of conflicts, industrial action, and sanctions. Supply chain cyber security including increased alerts of potential disruption from cyber-attacks in our multi-tiered supply chain. Part availability for aged customer assets such as maintaining assets that are too old to source essential parts, or where cost is prohibitive. Risk appetite: Low. Babcock has a preference for safe delivery options that have a low degree of inherent risk and only for limited reward potential.

Operational resilience and business interruption: Babcock provides critical support to governments and commercial customers, requiring a high level of resilience in operational systems and processes. We provide this support in an increasingly volatile, uncertain, and complex operating environment. A diverse range of internal and external threats could severely interrupt our business, reducing our ability to operate safely and effectively and to the high standards expected by our customers, regulators, and partners. As a result, Babcock, must ensure it maintains an Operational Resilience programme that is capable and adaptable to multiple forms of business interruption events. Risk appetite: Low. Ineffective operational resilience arrangements can significantly undermine safety, financial stability, reputation and meeting our regulatory requirements. Given the context in which we operate, Babcock seeks to identify and eliminate risks to its operations where possible and applies stringent controls to mitigate remaining areas of residual risk to as low as reasonably practical (ALARP). Babcock is committed to continually improving and building upon the foundations of our Operational Resilience programme. Investment is being made to assess and enhance the effectiveness of our plans and procedures through development of an overarching framework within FY25 in order to provide greater consistency, adaptability, and capability across Babcock.

Financial resilience of the Group: The Group is exposed to a number of financial risks, some of which are of a macroeconomic nature (for example, foreign currency, interest rates) and some of which are more specific to the Group (for example, liquidity and credit risks). Risk appetite: Low. Babcock recognises the adverse effects of the financial resilience risk on our balance sheet and actively manages this risk via its 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 aways require management.

Safety, health, and environmental protection including product safety Our operations entail the potential risk of significant harm to people and property, wherever we operate across the world. Risk appetite: Low. For moral, financial, and reputational reasons we should keep the risk as low as possible.

Climate and environmental sustainability: Climate change is impacting every corner of the earth and poses an existential threat to global stability. Sustainability is an integral part of our corporate strategy, and we are working hard to address the climate crisis and minimise the impacts of our operations. Risk appetite: Low. Across our global operations we are looking to continually improve our understanding of climate and environmental risks and we are committed to mitigating risks, unlocking opportunities, and reducing our environmental impacts.

Corporate technological disruption: We have identified three main attributes to potential technological disruption that potentially effects Babcock: the digital change agenda, both within our customers and internal to Babcock; 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, Babcock looks to recognise and eradicate the emergence of risks to operations where possible, hence risk appetite being set at low. Exploiting new technology in an appropriate manner can open new markets. However, Babcock does survey the market for new technology to develop into new opportunities. These are assessed for benefit individually and if deemed of interest, integrated into our research and development programme, and managed with project management.

Compliance with legislation or other regulatory requirements: Our businesses are subject to the laws, regulations, and restrictions of the many jurisdictions in which they operate. Risk appetite: Low. As a diverse global organisation, Babcock 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 we are subject to include anti-bribery laws, import, and export controls, tax, procurement rules, human rights laws, and data protection regulations.

Resourcing, retention & skills: We operate 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 our control, such as sharing capability across our global business and compensating for skills shortages in particular areas through investment in training and early careers.

Acquisitions and divestments: We have built our 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 we believe that a business is not 'core', we may decide to sell that business. Risk appetite: Medium. Babcock 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.

The risks listed above, together with their potential impacts and mitigating actions we have taken in respect of them, are explained and described in detail in the 2024 Annual Report, a copy of which will be available at www.babcockinternational.com

Forward-looking statements

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

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

The Group financial statements were approved by the Board of Directors on 12 November 2024 and are signed on its behalf by:

D Lockwood                                                                    D Mellors

Director                                                                             Director

Group Income Statement

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of comprehensive income (unaudited)

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.

Condensed consolidated statement of financial position (unaudited)