David Lockwood
FY26 was another year of strong strategic, operational and financial progress. We delivered good underlying growth, improved margins and cash generation, and further strengthened Babcock’s position in defence and nuclear, which now account for around 80% of Group revenue. This reflects our focus on markets where our engineering expertise, critical infrastructure and customer relationships create durable competitive advantage.
That focus is increasingly aligned with the priorities of our customers. In a more uncertain world, defence and energy security have become strategic imperatives for the UK and its allies. Rapid technological change, the need for sovereign capability and greater operational agility are reshaping customer requirements. Babcock’s deep engineering know-how, proven operational delivery and close customer relationships position us well to deliver the mission-critical capabilities they need.
The Group’s strong underlying financial results were partly offset by a charge of £140 million on the Type 31 contract, which reflects the increase in cost over the remaining programme life, fully recognised in FY26 (see page 36).
Revenue grew 8% at constant currency, with particularly strong growth in Nuclear and Aviation. Underlying operating profit decreased to £293 million (FY25: £363 million) due to the Type 31 charge. Excluding this, operating profit increased 19%, driving a 70 basis point improvement in operating margin to 8.2%, with progress in all sectors.
Cash performance was also robust, with free cash flow increasing to £262 million (FY25: £153 million). This further strengthened the balance sheet, reducing net debt to £329 million (FY25: £373 million) and covenant gearing to 0.2x (FY25: 0.3x).
Sector performance (at constant FX) was resilient across the Group. Marine revenue grew 2%, with growth in LGE and Skynet offset by the revenue reversal due to the Type 31 charge. Excluding the Type 31 charge, margin improved 40 basis points to 6.5%. Nuclear delivered another strong year, with revenue up 14% and margin up 70 basis points to 9.5%. Land revenue declined 3% due to lower civil activity but returned to growth in the second half, delivering a 110 basis points increase in margin to 8.8%. Aviation delivered the highest growth, with revenue up 34% and margin up 90 basis points to 7.1%.