Babcock International Group PLC

Right, so good morning everybody and welcome to the Babcock Marine Investor Event at Recife Royal Dockyard near Edinburgh in Scotland. My name is Andrew Gollan, Director of Investor Relations. Firstly, a thank you to those who have made the journey here to Scotland. I know that some of you have come a long way. Also, to those on the webcast, a warm welcome to those. So just a few introductory words from me. Today's event is the next in a series of investor teach-ins around the Babcock Group, and they're designed to demonstrate our specialist capabilities, the growth drivers of our business, and the strategies to create shareholder value. Earlier this year, we shone a light on the exciting growth story of our Cavendish civil nuclear business. Today, it's all about Naval Marine. specifically our naval build and support capabilities, which together currently generate just under one billion of revenue, or around 20% of the Group. I know that some of you will have attended our Group Capital Markets Day in early 2024, which we hosted at our Devonport Royal Dockyard facility in the South West of England. There you learned that Devonport is a national critical asset, an asset that we own and where we provide unique technical support to the entirety of the UK's nuclear submarine fleet. Not to steal anyone's thunder today, but Recife Royal Dockyard here in Scotland is another of the group's highly valuable and strategic assets. It's an asset that underpins our marine business, and as you will hear today, has exciting growth potential over the medium and long term. This morning you will hear from another strong leadership team within Babcock with today's event led by CEO of our marine sector, Sir Nick Hine. For those in attendance, there will be a lot to see around the yard with the impressive QEC carrier HMS Queen Elizabeth in dock and the first Type 31 frigate HMS Ventura nearing build completion. There's an outline agenda shown on the screen. Today, there will be two presentation sessions this morning, followed by an early lunch and a facility tour this afternoon. The first session will last around an hour and a quarter, and the second around 45 minutes, with a 20-minute break in between. Both sessions will include plenty of time for Q&A for those in the room. So I'm sure you're keen to hear from the team. We'll start with some opening remarks and perspectives from our group CEO, David Lockwood. David.

So first, a health and safety announcement. If you Google Rosyth, it describes it as a garden town in Fife. You are north of the river. Andrew said you're in Edinburgh. If you suggest to any of the people you meet that you are in Edinburgh, you will probably end up at the bottom of the dock. So don't say you're in Edinburgh. So, over the last five years, we've transformed Babcock. We've focused on our core strengths, strengthened the balance sheet, and have substantially improved our risk management across the group. And as you will hear from the team, that's particularly true in marine operations. Recently we've seen demand in defence markets increase as evidenced by the SDR and also some interesting press commentary on export opportunities in Europe over the last few days where Ilgi will talk about how we are striving to win live active competitions and I'm sure that if it was a slam dunk or nailed on he'd have told you already. All of this backdrop, the improved operational performance and the improved market backdrop, have enabled us to upgrade our medium-term guidance and commence a £200 million buyback. But the subject today is marine, and when we arrived, marine was definitely a hold-your-nerve question. business discussions with investors in 21 were all about what are the termination clauses of type 31 how do you get out of it and we said then that we were building a world-class capability and a world-class product it was just going to cost us more than we thought because of the way we contracted but that the end point was still worth striving for and I think four years later the new management team that we've assembled will be able to explain why that decision was correct it is a magnificent facility and the sun is shining so we won't talk for too long we'll get you out there because that's the third time this year so I'm going to hand over to Nick Hine Nick as he will tell you a bit about his history was 2nd Sea Lord which is probably the best job in the Navy 1st Sea Lord is a kind of gin and tonic job Sorry, Gwyn. But second Sea Lord, you actually get to run the Navy. So when you leave the Navy, you've got to find something that's even more exciting. And I think there was only one job that could be even more exciting than being second Sea Lord, and that's being the CEO of Babcock Marine. So Nick is probably the luckiest person in the room. So I'll hand over to him. Thank you.

Ladies and gentlemen, good morning and David, thank you. You are absolutely right. This is the best job in the world. If I fail to get that across to you in the next couple of hours, then I have personally failed. I'd like to personally welcome you all here today to our Rosyth site. This is a fabulous opportunity for me and my team to showcase the work we do here today. What we do here in Rosyth is world class and we look forward to sharing that with you throughout the day. But let me start a bit with a bit about me first. I started my career in the Royal Navy as a submariner, although I am famously known for being one of the only individuals to ever have commanded both surface and subsurface ships and submarines, both conventional and nuclear. Therefore, the marine domain is something I know profoundly well and care deeply about. Following years of operational service, I progressed into the senior ranks, which led me to work for Her Majesty's Treasury, working directly for the Chancellor, That was followed by some time in policy and strategic development for the UK government. I then returned to the Navy to take up the very privileged position of Second Sea Lord, which again is a great title. For those of you not in the defence sector, I was the Chief Executive of the Royal Navy, which is a global organisation with about 35,000 employees, a £7 billion budget and a significant stakeholder base. Therefore, a natural step when I left the service was to join one of the UK's leading defence companies who specialises in the marine domain, and here I am. But I have a long history with Babcock. In fact, I recall being here in Rosyth in 1999 in HMS Splendid in a refit where we were the first submarine, UK submarine, to get the Tomahawk missile. And then we took it to sea, test-fired it in San Diego, and then into operational activity in Kosovo. And for those of you who wish, I am the subject of a BBC documentary series. called HMS Splendid Under the Sea, which is still available on Amazon Prime for those who are interested, and I have a concession stand as you leave. And I will touch on this later, but I was also the godfather of the Type 31 program. It was my creation, and I stand by my views today that the Type 31 is the platform that navies need. I joined Babcock initially to lead our AUKUS campaign and to focus on how we started to drive significant international growth across the group. And campaigns I started then, I am now delighted to lead across the marine sector. So I've had the privilege of leading the marine sector for the last 12 months, which is a year of change and transformation. I refreshed my top team and now have a brilliant group of people with some of industry's most credible leaders in their fields. And they include my Chief Operating Officer, Gareth Hedeker, who joined us from Rolls-Royce, an expert in manufacturing. Our Arrowhead Managing Director, Paul Watson, an expert in the delivery of complex programs, was deployed to Devonport four years ago to lead the site and crucially recover the UK Vanguard program, which he did successfully. And he is doing spades here in Type 31, delivering for us here. Phil Craig, who runs our programs business, previously ran Dunray Nuclear Site before running the Babcock UK aviation business. And my chief commercial officer, Ilgi Kim, headed up the big deals team in EY before joining us. So you'll see them today, and I've built a team who you'll meet of leaders experienced in delivering complex programs to time and cost consistently. This slide is one you will see and hear repeatedly throughout the day, and we'll keep returning to these five points. To put it simply, I stand here today confident that the marine sector is positioned to deliver strong, sustainable growth over the long term with significant margin improvement. This business will be a key contributor to the group's financial ambitions. Marine has a proud heritage, deeply rooted in naval capability, and you'll hear more about that during the site tour. But what I wanted to emphasise is the transformation we've been on over the last five years. The evolution of our engineering capability, our delivery model and our customer engagement has been nothing short of remarkable. We are now exceptionally well positioned to capitalise on a dramatically improved global naval marine backdrop. Defence budgets are rising, naval fleets are being recapitalised and sovereign capability is back at the top of the agenda. The ability to deliver to time and cost is now critical and we will continue to deliver what we say we will do. You can see here from the first bullet on the slide, we have a strong platform for growth built on differentiated engineering capabilities and high barriers to entry. This is not a market you can simply walk into and we are already here with proven delivery and trusted relationships. Secondly, the structural growth we're seeing from naval fleet recapitalisation is driving a significant increase in opportunity. You can see there from the third point, our pipeline now stands at 22 billion and is growing. And we're investing organically to support this growth, fully aligned with our group's capital allocation priorities. And this is disciplined investment targeted at capability, capacity and innovation. In short, Marine is a business with momentum, with ambition and with the capability to deliver. And I look forward to showing you more. Let me now situate Marine within the broader context of the group. You'll see here that we've split this slide into three to keep it simple. The group, sector and the high-level breakdown by segment. You will note that the mission systems and LG areas will be covered in a future planned IR event. But Marine is not just a business unit, it's a major part of Babcock's identity and future. It's a sector with significant international exposure and strategic relevance, not just in the UK, but I also have operational teams in our focus markets of Australia, Canada and New Zealand, and in other countries such as Brazil. This all plays a central role in our group's performance and ambition. And as reported, Marine accounts for roughly one-third of group revenue in FY25. That's a clear indicator of its scale and its importance, and it's becoming increasingly international. This is the trend we expect to accelerate, driven by growing demand for sovereign naval capability and significant export opportunities. Our footprint is growing and our relevance is expanding. Today, we're focusing specifically on two core business streams, our design and build capabilities and our support activities. Together, these represent around £0.9 billion in revenue that we have pulled out here on the slide on the left, approximately 20% of the group total. From this point forward, our conversation will centre on just these two areas. Why? Because these are the engines of growth, the foundation of our differentiation and the focus of our investment and strategic delivery. Marine is a global business built on trust, capability and performance and it's one of the clearest examples of how Babcock is delivering value today and building for tomorrow. I'm now going to outline what makes our marine business truly distinctive, and an easy visual way to break it down is design, build and support. However, at its core, marine is an integrated business that delivers highly complex equipment and support across long life cycles. This isn't just about building ships, it's about an engineering capability, systems integration and lifetime support. We offer the full spectrum of naval engineering. We design, build, and integrate complex naval systems and equipment, and we support them through life. From initial concept and construction, through upgrades, modernization, and second life programs, we are involved at every stage of the naval engineering lifecycle. But when I'm asked, Nick, what sets you apart, there are three things I want to highlight. Firstly, our technical capabilities are world-class. We operate at the cutting edge of naval engineering with deep expertise in systems integration, digital shipbuilding and complex program delivery. Secondly, our role spans the entire naval lifecycle. We're not just builders, we're long-term partners supporting platforms through decades of service. And third, we have strong, enduring customer relationships. These are built on trust, performance and delivery and they give us privileged access to future opportunities. In short, Marine is a business built on capability, complexity and continuity. It's a strategic asset for our customers and a long-term value driver for our group. This slide is a snapshot of where the Marine business stands today. We've covered the marine sector as a whole. We've spoken about how mission systems and energy will be covered at the next IR event. But this is now us focusing on the design and build and support businesses for marine. This is a large and strategically important area within our group, and we expect it to grow meaningfully over the medium and long term, driven by a strong design and build pipeline. To give you a sense of scale, marine contributes significantly to group revenues with a robust order book and a healthy pipeline of opportunities. It's a business with real weight behind it. Today, our revenue mix is approximately 25% build and 75% support, but that balance is set to shift significantly over time. Based on our current order booking pipeline, we expect build to become a much larger proportion of the business in the medium and longer term. Historically, Marine has delivered steady revenues underpinned by long-term build programs like Type 31 and enduring support contracts, and this has provided a stable foundation for our growth. Operationally, we've made material improvements. We've traded through legacy issues and executed a successful turnaround. Performance is up, delivery is sharper, and customer confidence is strong. And we believe there's still much further to go. It is simple. More money in, less money out. And the opportunity set ahead of us is substantial. Our pipeline, as I said, stands at $22 billion, and we expect strong growth over the medium and long term as global naval investment continues to rise. In short, Marine today is a business with scale, resilience and momentum, and it's poised for significant growth. Moving on to Marine's position on the global stage, we've built strong long-term relationships with a broad range of industrial and governmental partners across the world. And these aren't transactional engagements, they're strategic partnerships built on trust, delivery and shared ambition. And I can honestly say that we speak to these people daily, Remember, it's important to note here that these are partnerships of choice on both sides for the complementary skills we bring. These are not forced marriages. We are deeply embedded with our customers and our partners, and in many cases we work directly with militaries through their governments, supporting sovereign capability and national defence priorities. One of the things that sets Marine apart is the depth and breadth of our specialist capabilities. Our collective technical and operational expertise positions us exceptionally well to capture the growth opportunities ahead. And it's not just about scale, it's about the quality and the uniqueness of what we can offer. Rosyth is a standout example. It's one of the few sites in the UK and globally where we can deliver large-scale, modular, advanced manufacturing. That gives us flexibility, speed and precision at scale. And it's the combination of our capabilities that gives us a strong competitive edge. from advanced design and systems integration to complex program delivery and through life support. But it's not just about infrastructure. It's about how we operate. We live and breathe the asset life, from concept to build to decades of in-service support. And that operational asset knowledge combined with deep technical expertise and a flexible collaborative delivery model is what makes us a trusted partner to governments and navies around the world. Ross Scythe is the only site in the UK where our capabilities come together in one place across the group. Manufacturing, support, design, build, nuclear, it's all here together as one. And that's what adds to the magic of the site, as you will see during your tour later. So in short, Marine is not just capable, it's uniquely capable, and that's a powerful foundation for long-term value creation. I'd like to now highlight what makes Marine truly stand out in a competitive global market. First and foremost, there is a strong competitive barrier around this business. It's built on a combination of specialist capabilities, strategic assets, and deep customer relationships, and it's not easily or quickly replicated. We are fundamentally a people business. Our technical experts, engineers, program leaders, they are our number one asset. And as with the rest of the group, our people strategy is central to delivering on our growth ambitions. We're investing in skills, leadership and culture to ensure we stay ahead. Rosyth is a highly valuable strategic asset. It's a nuclear licensed site, home to large-scale advanced manufacturing and the largest dry dock in the UK, capable of, and indeed currently accommodating, HMS Queen Elizabeth. It's modern, well-invested and increasingly digitized, a true digital yard with high levels of automation and integration. And we are delivering for our customer, and I can say this honestly having been the customer, in doing what we say we will do, which is the most important thing. That's all the customer is after. Finally, it's a real advantage being part of the larger group. We're increasingly exploiting synergies across sectors, teaming with nuclear, mission systems and exploring further opportunities in land. And this cross-sector collaboration is unlocking new value and expanding our reach. For example, we currently deliver over 200 engineers to our nuclear colleagues to support critical nuclear engineering services. So together, these differentiators give Marina a unique position in the market and a powerful platform for long-term value and growth creation. Whilst we focus on the future of Marina, I always seek to look forward. I want to take a moment to reflect on the journey. Marine is a business with a long and rich history, one which stretches back decades, well before the timeline you see on the slide here. But what's most important for you today is the transformation we've driven over the last five years. We've evolved from a steady, reliable operation into a world-class naval build and support business. This transformation has been deliberate, strategic and highly effective. And the catalyst was the Type 31 programme. Following our acquisition of the Arrowhead 140 design rights, we reshaped our design and production model to deliver at scale with precision and speed. That programme has become a blueprint for how we will build and how we will win. The result is a business that now competes at the highest level globally. We have the infrastructure, the talent and the delivery model to support complex naval programmes and we're doing so with increasing confidence and capability. So Marine's journey here is one of transformation, resilience, ambition. And I can say honestly, we're only just getting started. Let me take a moment to explain how we built what is now recognised as a leading naval shipbuilding capability. The key message here is simple. Through the Type 31 contract, we've transformed our approach and capability to meet emerging global naval demand. This programme has been a catalyst for innovation, investment and operational excellence. We own the design rights to the Arrowhead 140, a proven exportable platform. In simplistic terms, we have the design rights of what will become an Arrowhead wider family. The UK version of the Arrowhead is, of course, the Type 31 program, but as we grow internationally, this portfolio will expand. And that ownership gives us flexibility, control, and strategic advantage. We've built a modular production model around it, supported by significant investment in our site, turning it into a modern, highly capable shipbuilding facility. But let's be honest, that journey has not been without challenge. We've navigated the design and mobilisation of a first-in-class ship, stood up a new yard during lockdown and managed through Brexit-related labour disruptions and inflationary pressures. Every lesson learned has been fed back into the system and the result is a highly efficient, resilient production model. Today we operate a world-class design, build and support model. And you'll see today, Rosyth features a covered build hall, automated steel cutting and welding, modular construction and automated painting systems. It's a digital yard with integrated planning, real-time production tracking and predictive maintenance tools that bring data and delivery together. So this capability is not just fit for today, it's built for the future and it positions us to win and deliver the next generation of naval programmes, both in the UK and internationally. Let me now turn to the Type 31 Inspiration Class programme, a cornerstone of our naval shipbuilding capability. From contract award to delivery to the customer within 10 years has never been done before anywhere in the world. The key message here is that programme risk has been materially reduced. We've made consistent operational progress and we're now well into the delivery phase with strong momentum. We recently passed a major milestone with a successful float-off of the first vessel in class, a significant achievement that demonstrates our capability and readiness. We expect the second ship to float off before the end of FY26. Three ships are currently in build. This is a no-change programme, a testament to the robustness of the design and delivery model. It features a proven open architecture combat system and we're progressing down the learning curve exactly as planned. Production units 3, 4 and 5 are tracking to target with unit cost profiles in line with our original expectations. Our relationship with the customer remains strong and collaborative. And that trust was recently reinforced when we were awarded the Capability Insertion Programme on a sole source basis, a clear vote of confidence in our performance and in our partnership. In future programmes, we have learned from Type 31. And whilst the customer is happy, we recognise the shareholder was not. We will of course address the contract issues. We learnt significant amounts through the mobilisation period and our risk management and supply chain resilience is in a different place from two years ago. We now have real shipbuilding experience and we will learn from our mistakes. So in short, the Type 31 programme is delivering. It's stable, it's efficient and it's an attractive platform for future growth both in the UK and internationally. Arrowhead, in its simplest form, is a strategic export platform. So now let me turn to the export strategy and specifically the success to date of the Arrowhead 140 frigate design. The key message here is our flexible, affordable Arrowhead 140 model is proving highly attractive in naval export markets. It's a platform that meets the needs of modern navies. It's adaptable, affordable and available. Importantly, we've not yet lost a campaign where the Arrowhead 140 design was in competition with similar vessels. And that speaks volumes about the strength of the platform and the confidence our customers have already in our delivery model. Why are we winning? Because Arrowhead 140 is a multi-role frigate that can be tailored to meet specific national requirements. It's supported by a flexible production and sales model, including in-country build via licensed sales and varying levels of Babcock engineering support and program participation. And that's attractive to the customer. This flexibility is a key differentiator in today's market. You'll hear more today about the export programs already underway. Importantly, both have follow-on potential. You can see from the slide. That includes further license sales, additional building engineering support, and over the longer term, through-life support opportunities. So Arrowhead 140 is not just a ship. It's a strategic export platform, and it's helping us to open new markets, deepen international partnerships, and drive long-term value for the group. I'd now like to walk you through our growth strategy for Marine, a strategy that is clear, focused and fully aligned with the group's broader ambitions. We've built our approach around a set of interrelated strategic pillars, each reinforcing the other. These pillars are designed to drive sustainable growth, to expand our global footprint and deepen our capability across the naval domain. International expansion is a key pillar. We're growing our global alliances and developing strategic build and support partnerships. You'll be familiar with PGZ in Poland, Saab in Sweden and OMT in Denmark. All are strong examples of how we're leveraging local partnerships to deliver capability and unlock new markets. And we're actively exploring further opportunities to replicate this model across the globe. We see significant growth potential in shipbuilding as global navies continue to recapitalize. So our strategy is targeted. We're pursuing opportunities where we know we can compete and win, and we're backing that up with continued investment in our build and manufacturing facility, much of which you will see later. And you'll hear more shortly about the scale of international opportunities we're engaging with from ILGI, but ultimately our ambition here is to become a multi-domain naval prime, designing, building, supporting and maintaining platforms across both the surface and subsea arenas. And we believe we have the expertise, the assets and the delivery model to make that ambition a reality. So Marine is not just growing, it's evolving. And we're building a business that's fit for the future, globally competitive and strategically aligned with the group's long-term vision. I'll now define the growth dynamics underpinning our Marine business. The key message here is that we have significant medium-term potential in design and build, particularly across shipbuilding and advanced manufacturing industries. This growth has been driven by the global naval fleet recapitalisation and we are well positioned to compete for and to win these opportunities. Our modular build model, advanced manufacturing capability and proven delivery track record give us a clear edge. Beyond the medium term, we see substantial long-term growth potential in our support opportunities. You'll hear more about that as we go through today. As new fleets enter service, the demand for through-life support, maintenance and capability upgrades will grow, and we're already embedded with customers to deliver that. So in short, Marines' growth is not just forecast, it's structured. We have the pipeline, we have the capability, and we have the strategy to deliver sustained value over the medium and long term. To close, let me bring together the key messages from today. To reiterate from the first bullet on the slide, we have a strong platform for growth built on differentiated engineering capabilities and high barriers to entry. This is not a market you can simply walk into and we are already there with proven delivery and trusted relationships. Secondly, the structural growth we're seeing from naval fleet recapitalisation is driving a significant increase in opportunity. Our pipeline now stands at 22 billion and it's growing. And we're investing organically to support this growth, fully aligned with our group capital allocation priorities, disciplined investment targeted at capability, capacity and innovation. Lastly on this slide, Marine is well positioned to pursue significant growth opportunities over both the long and medium term. I hope you can see that we have the strategy and the capability and the momentum to deliver. We've transformed the business over the past five years into a world-class naval build and support operation. We're a major player in the global naval marine sector with strong international partnerships and a growing export footprint. Our differentiators from our people to our infrastructure create a clear competitive advantage that's hard to replicate. We've developed a leading shipbuilding capability through the Type 31 programme and Arrowhead 140 is already leading the way in global markets. So in closing, in short, Marine is a business with scale, resilience and ambition and we're building for the future with confidence. I'm now going to hand you over to my delivery director, Paul Watson, who is going to deliver a storm here this morning and who leads our Arrowhead family. So Paul, over to you.