Babcock International Group (BAB) H2 2025 earnings summary

Executive summary

• Revenue and profit grew strongly in FY25, both exceeding initial expectations, with double-digit organic revenue growth and a 17% increase in underlying operating profit.

• Balance sheet strengthened, supporting significant business investment and enhanced shareholder returns.

• Dividend increased by 30% and a £200 million share buyback was announced, reflecting confidence in ongoing performance and capital allocation discipline.

• Upgraded medium-term guidance, targeting an 8% margin earlier than planned and raising the target to at least 9% within the medium term.

• Positive global market conditions, especially in defence and nuclear, underpin growth strategy.

Financial highlights

• Organic revenue grew 11% year-over-year to £4.8bn, with Marine and Nuclear sectors as primary drivers.

• Underlying operating profit rose 17% to £363m, with margins up 50 basis points to 7.5%.

• Free cash flow reached £153 million after high capital investment and £40 million in accelerated pension contributions; cash conversion at 82%.

• Earnings per share increased by 23% to 50.3p; dividend up 30% to 6.5p.

• Gearing ratio improved to 0.3x, reflecting rapid deleveraging and strong cash generation.

Outlook and guidance

• Upgraded medium-term guidance: organic revenue growth mid-single-digit, operating margin ≥9%, and ≥80% average cash conversion.

• 8% margin now expected in FY2026, ahead of previous plans.

• FY26 guidance: gross capex £130m–£150m, pension deficit repair c.£20m, interest c.£40m, tax c.£60m.

• Cash conversion expected to remain above 80%, with some working capital unwind anticipated.

• Long-term growth opportunities exist beyond the medium-term window, driven by increased government defense spending commitments.