Babcock reports strong FY25 operating profit and revenue growth driven by nuclear and marine divisions

How Did Babcock’s FY25 Financials Perform?

Babcock International Group PLC has released a robust post-close trading update for the financial year ending 31 March 2025, indicating a stronger-than-expected operating and cash performance across its portfolio. Based on unaudited draft management accounts, the company anticipates total revenue of approximately £4.83 billion, marking an 11% year-on-year organic growth at constant currency. This uptick follows the momentum reported in the third quarter, with the company highlighting its Nuclear and Marine divisions as the primary growth drivers.

Underlying operating profit for FY25 is projected at £363 million, reflecting a 17% increase over the £311 million recorded in FY24. The previous year’s profit figure excluded a £90 million loss related to the Type 31 frigate programme and a £17 million gain from a property disposal. As a result, the group’s operating margin rose to 7.5%, up from an adjusted 7.0% in FY24, with all four sectors demonstrating solid performances in the final quarter of the year. This includes a one-time £5 million uplift within the Marine segment.

The business also delivered a robust underlying cash conversion ratio of approximately 80%, supported by favourable working capital timing. Despite making an accelerated pension deficit repair contribution of £40 million, Babcock generated an underlying free cash flow of £153 million for the year.

Net debt including leases declined to £373 million by the end of March 2025, down from £435 million a year earlier. When leases are excluded, the net debt stood at £101 million compared to £211 million at the end of FY24, underlining the group’s enhanced liquidity position and improved balance sheet health.

What Contracts and Backlog Are Driving Future Growth?

Babcock’s business momentum continued to strengthen throughout the final quarter, with its contracted backlog rising to £10.1 billion by 31 March 2025, compared to £9.5 billion at the half-year mark. This growing pipeline provides the company with a solid platform to sustain and potentially accelerate revenue growth in the upcoming fiscal year.

The quarter also saw the announcement of two significant multi-year contracts. In January, Babcock secured a key deal with the French Ministry of Armed Forces, dubbed ‘Mentor 2′, to deliver and support military air training solutions for the French Air and Space Force and the French Navy. This contract is valued at up to €800 million, with £310 million already incorporated into the company’s backlog. It signifies Babcock’s expanded footprint in European defence, particularly in military aerospace services.

In March, the company was awarded a sole-source five-year extension to its military land equipment support contract for the British Army. Valued at approximately £1 billion, the renewal aims to enhance readiness, asset regeneration, and lifecycle management of critical army equipment. The extension is structured to deliver improved outcomes across the board, further solidifying Babcock’s status as a strategic partner in the United Kingdom’s army modernisation programme.

How Is Babcock Strengthening Its Pension Position?

Babcock has made additional progress in reducing long-term pension liabilities by finalising long-term funding arrangements (LTFA) for all three of its principal pension schemes. The most recent agreement involved the Rosyth Royal Dockyard Pension Scheme. The company contributed a further £40 million during FY25 as part of these funding commitments, which also had an immediate effect on reported free cash flow.

The result of these funding arrangements is a material reduction in Babcock’s ongoing pension repair obligations. From FY26, the company expects annual payments for deficit repair to fall from around £40 million to approximately £20 million for the next six years, which will support further cash flow resilience and balance sheet flexibility.

What Are the CEO’s Remarks on Strategic Progress?

Chief Executive Officer David Lockwood stated that the group’s performance in the final quarter of FY25 exceeded internal expectations. He pointed to the continued global volatility and the importance of Babcock’s role in supporting government defence capabilities. According to Lockwood, the strength across all divisions—combined with the company’s technological expertise and sectoral experience—positions Babcock as a critical partner in addressing global security challenges.

He highlighted that the positive results were not only driven by operational improvements but also by Babcock’s unique value proposition in defence, marine, and nuclear sectors. This strategic alignment with government priorities has allowed the group to deepen relationships with defence ministries and position itself for long-term contract wins.

How Is the Market Responding to Babcock’s Performance?

Investor sentiment towards Babcock International Group PLC has remained positive following its FY25 update. As of 22 April 2025, the company’s share price stood at 748.50 GBX, representing a year-on-year increase of 47.5%. This places the stock just below its 52-week high of 772.50 GBX, signalling consistent investor confidence.

The average 12-month analyst price target is currently 823.00 GBX, implying an upside of over 11% from current levels. Analysts have largely issued “Strong Buy” recommendations, citing Babcock’s strengthening fundamentals, improved cash flow generation, and the growing defence and nuclear backlog as compelling investment indicators.

Institutional sentiment has also been supportive. Over 100 institutions hold approximately 15.7% of the company’s equity. Leading shareholders include Goldman Sachs Asset Management and Abrams Bison Investments. This level of institutional backing highlights long-term confidence in the company’s strategic direction and future performance.

In light of the positive earnings trajectory, reduced pension liabilities, and expanding multi-national defence portfolio, the consensus outlook remains favourable. For investors considering exposure to the defence, aerospace, and critical infrastructure sectors, Babcock offers a strategically positioned, cash-generating, and contractually secure proposition.

What’s Next for Babcock?

Babcock confirmed it will publish its full FY25 preliminary results on 25 June 2025, which will include a detailed breakdown of financials and strategic outlook for FY26. Ahead of that, the company plans to host an investor and analyst “teach-in” session on its civil nuclear operations on 20 May 2025 at the London Stock Exchange. The event will also be webcast to allow broader market participation.

The decision to spotlight its civil nuclear division underscores the company’s intent to further leverage opportunities in the nuclear sector, particularly in light of increased government focus on energy security, carbon neutrality, and domestic nuclear infrastructure development.

With operating margins rising, pension liabilities reduced, and major contract wins secured, Babcock enters the next financial year on strong footing. As geopolitical uncertainty continues to influence global defence priorities, the company is strategically aligned to play a central role in delivering national and allied military capabilities across its key operating regions.