Babcock International Stock

Good morning, ladies and gentlemen, and welcome to the Babcock Full Year '26 Results. I'm David Lockwood, the CEO. We'll do the normal format. I'll do a brief intro. David will go through the numbers, and then we have a special star turn from Harry, who is going to replace me shortly, and then we'll do Q&A. So please pay attention to me and David while you wait with bated breath for Harry because I'm sure that's what you really care about. So when we were rehearsing, we went through what are we trying to achieve with these results. And really, it's to make people look through 2 things, which is the near-term turbulence in the U.K. and the Type 31 and see the strong results of the company as it moves into an even better position. So if you look at the underlying results, they are really good. I'll come on to a slide with those later. And we've reconfirmed the medium-term guidance. That includes the cash guidance whilst absorbing the Type 31 charge.

We have really strong differentiated defense and nuclear capabilities. And when I come back after David's done the numbers and talk about the external drivers to our growth, I think you'll see a really tight fit between what we're capable of delivering and what the market wants. And that's come through with real strategic momentum. The opportunity set across everything we do is growing quite significantly. And the most important, particularly for a business-to-government organization is to ensure that you retain strong disciplined capital allocation to make sure that we never lose sight of our core responsibility to shareholders.

So I thought we'd take Type 31 upfront so that we can then talk about the balance of the business, and David and I don't keep saying after Type 31 all the way through. So from a contract point of view, in the last 12 months, rework and productivity did not proceed as planned, particularly on Outfit, which really only kicked off in [ Anger ] in the financial year we're reporting. So particularly on rework, although the number of instances that were at the top end of the expected range, they were sort of out of range. The cost of rectification was higher than we thought. So we've got a revised cost estimate that involves taking GBP 140 million charge. A significant portion of that, we haven't split it, but it is an increase in contingency. So we have a very clear set of base operating assumptions to get the program back on track. But clearly, we have to work through curves of improved productivity and reduced rework. So we have -- we have a contingency to cover that going slower than we -- than the base plan says.

And as I said earlier, the cash impact is over the remaining life of the program and is absorbed within the medium-term guidance. The program itself, however, is making progress. Ship 1 is now outfitting, as I've said, Ship 2 is floated off and is in the final top structural phase. Ship 3 Keel Laying has taken place and block assembly is underway and ship 4 has commenced. So the program itself continues to progress to deliver the capability the Navy needs. So when you look through that, this is the strong underlying performance I started with, which is organic revenue growth of 8% above our mid-single digit margin improvement stepping towards our 9% plus, cash conversion continuing above 80% and a strong balance sheet. Given the number of big programs we are looking at and some of the discussions with governments plural, it's really important to maintain a strong balance sheet. Customers need to have very strong confidence that we will be a reliable supplier for multiyear critical programs for the defense of their nations.

And the fact that we can absorb the Type 31 charge inside our guidance is one of the things that gives people confidence that we are that strong company. So to take you through the numbers that underpin that strong company, my long-term partner in crime, Mr. Mellors.

Thank you, David. Good morning, everyone. As this is David's last set of results, I thought I'd take a minute to reflect on his Babcock career. And I'll do it from a shareholder perspective because this is an investor meeting, and I'm a shareholder, he's a shareholder. So we'll do it from a shareholder perspective. So David joined in FY '21. And when we did these results 5 years ago at the end of '21, the only topic of debate was whether we could survive without a rescue rights issue. The share price touched GBP 1.99 and the market cap was about GBP 1 billion. So we were quite low down in the GBP 250 million. And as the track record shows, if I can click it on. There we go. As the track record shows, not only did he not take money from shareholders in a rescue in his time here, he's returned or is returning GBP 0.5 billion to shareholders. And that's on top of a 400% increase in the market capitalization of the group. So huge value creation in the time.

From a strength point of view, we were in quite a weak position 5 years ago. The balance sheet now is much stronger. So again, not just surviving, he's built a platform that's really solid for the future success of the group. And whilst doing all of that, we grew the group over 50% organically, increased the level of profitability and all at a high cash conversion. And that was all done in an ever-changing external environment. So it started off in lockdown with lockdowns and semi-lockdowns in different countries. We've had wars. We've had in the U.K. alone, 4 prime ministers at the moment and 4 Secretary of State and 6 defense ministers, all of whom David's had to build relationships with. So from the outside, it's been an extremely impressive performance. But having had the privilege of being on the inside and seeing all the things every day he's had to deal with, particularly in the early years I think you've made it look a lot easier than it really was. So from my point of view, it's been a really exceptional innings.

So as a shareholder and on behalf of my fellow shareholders, and there's quite a lot of them here, I'd like to congratulate you on, and thank you for what you've done for the group, and I think you deserve around of applause.

Right. That's enough for that. Let's do the numbers. Okay. So FY '26 was a very positive year from a performance point of view as these highlights show, meeting or beating expectations on all metrics. The majority of the underlying financials I'll present here exclude the Type 31 charge, and that's not because I'm ignoring it. David touched on it earlier. We spent time on it last month. Happy to spend more time on it. But I'd like to give the right amount of time on the rest of the group performance. So stepping through these quickly and before going into detail, Organic revenue growth was 8%. Operating profit margin improved again by 70 basis points to 8.2%. These first 2 delivered operating profit up 19% to GBP 433 million and all the above led to earnings per share up 20%. Cash conversion was 84%, delivering free cash flow of GBP 262 million. And on shareholder returns, we completed the GBP 200 million buyback just after the year-end, and we've announced a further GBP 200 million to be executed in FY '27, and the dividend is up 15%.

So let's break down the revenue growth first. This summarizes the organic growth by sector. Three of the 4 sectors grew in the period, led by nuclear, as you can see, but with good performances in marine and aviation. The land sector revenues were lower in the period as a result of the nondefense businesses. I'll come back to that. And as the graph shows, all of this led to a 10% organic growth before the Type 31 revenue reversal and 8% after. And I'll come back to the sectors in a moment.

Next is a summary of profit. In absolute profit terms, all the sectors contributed to the profit improvement, resulting in the group delivering GBP 433 million for the year, up 19%. Furthermore, as you can see from the slide, all sectors improved their profit margins in the year, helping the group to 8.2% overall. As I've said before, each sector can get to the 9% target in the medium term and are moving in the right direction, and nuclear has made it already. And whilst we're on margin, as you know, we set ourselves 2 targets a year ago. The first to get to 8% margin for FY '26. And the second, we raised our medium-term margin guidance to 9% plus. As the graph on this slide shows, we hit the 8% in FY '26. And as the trend line shows, we make progress every year toward the medium-term 9% plus. The drivers of the margin improvement are on the right-hand side here. Basically, they boil down to 3 things: growth of quality business, and that means price and terms as well as other things, the productivity of our people and the efficiency of our processes and overheads.

And none of these drivers are new. They're the ones that have delivered the improvements to date, but there's still much more to do across the group. So we're confident in the 9% plus. So we have the usual sector slides now with plenty of content for reference, but I'll just pick out some key points. I've set out the Marine numbers before and after the Type 31 charge for clarity, but I'll concentrate on the numbers, excluding the charges I said earlier. So it was a good performance from Marine with revenue growing 8% organically profit up 14% and margins moving upwards by 40 basis points. As we said at H1, the revenue and profit performance improvement was largely driven by the LGE business and the Skynet contract in FY '26. On LGE, you may remember in FY '25, we won over GBP 400 million of orders, which was a record period. And we flagged at the time that this was a short-term surge in new contracts following the new shipbuild market.

LGE delivered GBP 358 million of revenue in FY '26, and that's the biggest reason for the revenue and profit variances in Marine year-on-year. On top of that, though, the Skynet contract, which mobilized in FY '25, had additional services contracted in the year. Just as a modeling point, Type 31 revenue before the reversal was GBP 190 million in the year, which was booked at 0%. Nuclear, this has been another very good year in Nuclear in both the civil and naval nuclear businesses with good progress on all measures. Just a note on order intake and backlog first. The main reason why the backlog looks low is that we traded the final full year of the FMSP contract revenue in the year, but only booked the 6-month extension order. So apart from FMSP, Nuclear had a book-to-bill of comfortably above 1 in the year. And once we sign the new contract, the multiyear contract that follows FMSP, the backlog will be substantially more than it is now.

On revenue, both Cavendish and submarine support activity grew well, more than offsetting the expected reduction in infrastructure revenues. But just expanding on all these points a little. Cavendish grew 18%, largely in Clean Energy with more work at Hinkley Point, but also growth in AWE. Submarine support work grew 26% with activity increases at both Clyde and Devonport benefiting from some of the infrastructure upgrades as well as productivity improvements in both locations. Infrastructure or MIP revenues reduced as we expected following the opening of 9 Dock last year and then 15 Dock. And all of the above enabled the profit increase of 23% and the margins to reach 9.5%.

Moving to land. Revenue decreased 3% organically in the year due to the declines in rail and the South African vehicle business in our civil revenues. Defense revenues grew 6% in the year after a slow H1 as the new DSG contract mobilized. And additionally, we received some small but important GLV orders, some of which were delivered in Q4. Margins in land improved well in the year, partly due to the change in revenue mix as civil revenues reduced and defense increased but also profits had a small net benefit of around GBP 4 million from some contract completions.

Aviation had another good year on all metrics. The 34% revenue growth was due mainly to 3 things. Firstly, the growth in France from the mobilization of Mentor 2 as well as increasing military helicopter support activity; second, scope growth and additional services in the U.K. defense contracts; and third, the mobilization of the Canadian BC HEMS contract. The profit and margin in Aviation are benefiting from the absolute growth in revenues and the increasing proportion of defense revenues. Now 55% of aviation revenues are from defense contracts.

Moving to the cash flow. Again, this is a detailed slide for reference. I'll only pick out a couple of the key numbers. The most important number is the free cash flow number, GBP 262 million at the bottom of the slide, substantially up on prior year. Two things really drove this. Firstly, a good operating cash conversion of 84%, as you can see in the middle of the table. And secondly, substantially reduced pension deficit payments in the bottom half of the table, and this is a result of all the work in prior years on pension deficits. And lastly, I'll put some full year guidance on this slide here for FY '27. Capital allocation. This is the same capital allocation policy that we published some years ago, and the priority order hasn't changed. We always repeat it to assure you that it hasn't changed and that we continue to apply it.

Priority #1 remains organic investment in the business. On top of the traditional CapEx for productivity improvements and the like, we're working on a number of relatively significant investment opportunities to enhance growth. An example of this would be in Rosyth with the upgrade of the missile tubes facility to allow higher production volumes. We normally expect a strong customer demand signal for such investments, so which ones we end up backing and when will remain fluid until we know. The amount of capital we might need for such investments in the next 12 to 18 months is a key part of our assessment of whether we have surplus capital or not at any one time.

The status of priority 2 here in the policy, the balance sheet strength is good, BBB+ and as David said, this is essential for customer and supplier confidence as well as investors and other stakeholders. So we'll retain the investment grade. Dividend is number three. And then on the 3 capital options at the bottom, on the left, we've looked at a number of potential bolt-ons, but nothing has yet met our requirements. No new news on pensions this year in the middle. And on shareholder returns, you know we completed the GBP 200 million buyback just after the year-end, and we announced a further GBP 200 million to be done in FY '27. And the buyback also provides an investment return floor for the higher priority options to beat.

So just summarizing before I hand back to David, it's been a really strong performance in FY '26, meeting or beating on all metrics, except obviously the Type 31. We're confident in the FY '27 expectations given the revenue cover at the 1st of April of 70%. We're reaffirming our medium-term guidance of mid-single-digit organic revenue growth, 9% plus margins and 80% plus operating cash conversion, and we'll execute another GBP 200 million of buyback for FY '27.

And now for the final turn, I'll hand back to David.

Yes, for the final. So at the risk of making this a bit yucky, over a beer, David and I worked at -- so we've worked together for 10 years. We have done over 1,000 investor meetings, over 20 investor conferences, over 200 Board meetings. So he was very nice about me, but it has been a team sport. And then just to finish the yuckiness about Babcock, not Babcock is yucky, but I'm being a bit yucky. I would say that you cannot deal with what we dealt with without a Chair who knows how to be supportive at the right time and challenging at the right time and Ruth completes the team. So that's been a fortunate thing in dealing what we dealt with and now for Harry in taking this platform to somewhere really exciting. Enough of that niceness.

And I have to say that Brent already sorted, so there was nothing in there, just to be clear. Right. So start outside in. These are very much the things we said a year ago, and they've only become more exaggerated in the last 12 months, leading to, I guess, 2 big things that drive opportunity. One is the scale of budgets. And however they increase and when they increase, they are increasing. We're not in the U.K. talking about cuts. We're talking about the size of the increase and whether it funds everything people want to do, not that the number isn't getting bigger and no one is walking away from their longer-term aspirations.

The second is this move to hybrid warfare that Harry will touch on when I think our core strength is that we intimately understand the existing portfolio of equipment and therefore, are in a tremendous position to look at how that equipment is integrated into the new equipment that comes along to create the hybrid warfare. In civil energy, we've seen tremendous progress actually, not just policy announcements, but genuine progress, orders being placed for small modular reactors, sites being identified, planning regulations being changed to speed up the deployment. Government gets a lot of criticism what it's not doing. But actually, the way it is enabling the resurgence of nuclear energy in the U.K., actually, I think, is a real success story that's probably undersold. And we see that both in large reactors like Sizewell C and in SMRs and indeed in AMRs in things like the announcement we made about working with X-energy and Centrica in Hartlepool.

For the U.K., our core revenue stream in the U.K. is around conventional equipment to support and supply of mostly support. As you can see on the Babcock current role, we support all the army's land vehicles, all the nuclear submarines, 60% of the surface ships. We do Skynet. So we are a major, major element of the U.K.'s war fighting capacity today, and we are supplying new kit and bidding to supply new kit on things like the General Logistics vehicle and the Patria 6x6. So our -- and then we have a good training business that sits -- high-end training sits behind that. So as we look at getting ready for war fighting in the kind of conventional sense, the core skills could not be more important. And you get volume increase through increased utilization and by the need to adapt the new war fighting.

Underneath that, the big growth opportunities is the move to hybrid warfare with autonomous uncrewed and so on. And here, I think Babcock does have a very unusual position because we are not a core technology OEM, we are a very benign partner to tech SMEs. So we can turn defense tech into defense capability by both productionizing and indeed offering build support and by integrating it into the overall system. And you will have seen through the year, if you follow our press releases, a number of announcements, most recently last week in France with a French drone SME when that is the role we play. These tech SMEs do not want to build lots of factories. They don't want to manage the defense customer. They want an interface. So they focus on what they can do well, which is high-speed tech generation, and we focus on what we do well, which is turning that high-speed tech into high-speed capability.

And I think there isn't -- because we're not a tech builder of our own, we're not predatory to these companies. So we are a very benign partner. And that leads to what I think is the Babcock advantage, which is we deliver mission-critical defense and strategic resilience by that lifetime capability, the tech conversion. And we can do that because we are deeply embedded with the customers. If you have that degree of support to your customers, you know everything about not just the equipment, but how they want to use the equipment today and tomorrow. And then we can -- we have flexible partnering models, whether it's with big companies like HII or smaller SMEs like we do with Supacat to deliver vehicles. They are a tech SME.

We do volume, we do integration. We work with the Army on capability. It's a perfect model for us. So I think Babcock's advantage is very different from most of our peers. And that's led to a building of momentum. So four examples here. Indonesia, you've heard about the 4 million frame. In fact, Harry and I meeting the Indonesians this afternoon to move this through to the individual contracts. This is a classic example of taking some of our core capability, which is the Type 31 and then combining it with offshore patrol vessels, inshore patrol vessels, fishing vessels, long-range surveillance to create President [indiscernible] vision of maritime and protein security for an archipelago nation.

The government -- U.K. government export finance is secure. This is about delivery of a complex program that delivers a national imperative for a close ally of the U.K. Submarine build, we're now qualified on the Virginia-class submarine as well as obviously qualified on the Colombia. Initial engineering contract has been placed and then we're moving forward, and there's a detailed slide on this, but the HII relationship, really important. Light utility vehicle, we call it the GLV general logistics vehicle. We've won contracts in Albania and the U.K. As David said, we started to deliver. We are Toyota's global partner, and there are a range of other opportunities in the U.K., obviously, Land Rover replacement, but more broadly. One Army office in one country said to me, having done a trial, I now know why the bad guys have used this for so long. And I think it is a fantastic platform. And then in nuclear, we have the SMR rollout. We've won the owner's engineer contract in a JV model. Whoever buys SMRs is going to need an owner's engineer, a government side person.

No one's ever done this before. So everyone needs engineering support on the buying side. Having won the first contract for supporting the Rolls-Royce reactor, clearly, we're in a strong position to support any government who wants to buy the equivalent reactor. And that adds up to a 25-year growth story. So not just short-term perturbations or even medium-term guidance, but in almost everything we do, whether it's defense, nuclear or defense programs, we can see a range of opportunities that means as a Board, the company can plan, obviously, for a budget year, a planning period, but also have a long-term vision. And this is before you layer on the world as it evolves. And just to go a bit deeper on a couple of those. So the HII collaboration is, I think, a really good example of the direction of travel of the company. So from nothing except this general conversations 2 or 3 years ago off the back of AUKUS, we now have the H&B Defense joint venture in Australia, which has its first contract, small, but it's up and running.

We obviously have -- and is the bridgehead almost certainly into infrastructure at Henderson as the Australians build out. We have the -- what we call ARMOR Force, the hybrid navies, where HII already have an uncrewed platform, which is big enough to keep up with a frigate the size of the Type 31, but small enough to operate as a slave to the command ship. So we're collaborating on that. We have a UUV launch and recovery system, which we are taking into Europe. We are working together on civil nuclear, particularly decommissioning. And as I've already mentioned, we have Virginia-class submarine build. So we're broadly similar size in our markets. We have a very similar culture and some very significant opportunities in a relatively short period of time for our industry.

And for Virginia-class submarine build in particular, the lack of capacity in the U.S. system is well known. The President and indeed previous President's desire to get the build rate up is well known. Rosyth is, I think, the only shipyard, nuclear qualified shipyard outside the U.S., which is approved to build for either Virginia or Colombia. So it has fantastic potential to help fill that capacity gap in the U.S. And the aim is to get up to block build. So we started with a faring and we're getting -- the aim is to get up to block build and really exciting opportunity where everyone, the customer, HII is the prime, we as a partner, everyone has the same objective.

And obviously, U.K. nuclear is entering a multi-decade growth cycle. I touched on it earlier, and Cavendish Nuclear is already scaling in that -- it is the U.K.'s premier nationally owned nuclear contracting business. So outside any production that we might do of AMRs for people or any other partnerships we might have on the production side, you only have to look at that left-hand demand for nuclear-powered energy that sits in the government's clean energy plan to know that there is tremendous market potential. And even if that curve can't be achieved and it's slightly flatter, the potential for Babcock in clean energy is just enormous.

And that's not a bad place to hand over to Harry because obviously, he's just finished in our nuclear business. He's now operating as Deputy soon to take over. And a lot of what's happened in nuclear on his watch has been that quiet transformation of Cavendish. So with that, let's start.

Thank you, David. Hi, everybody. So I've met many of you before at the Capital Markets Day event that we held down in Devonport actually a couple of years ago and then more recently at the nuclear teach-in that we did in May of last year. But for those of you that I haven't met, I'm Harry Holt. I'm the Deputy CEO, and I'm the incoming Chief Executive Officer. I've had a career of 2 halves. I spent over 20 years as an officer in the British Army, spending time leading men and women on operations around the world as well as filling some of the key roles in the Ministry of Defense.

So I understand our key customer very well as well as understanding our ultimate end user community. Since then, I've had over 15 years in industry, the majority of that time spent with Rolls-Royce on their executive leadership team in a number of senior P&L and functional leadership roles, notably running Rolls-Royce's Nuclear division, where I set up and initiated Rolls-Royce's SMR business all those years ago, and then laterly, as their Chief People Officer, driving a group-wide transformation. I then spent a year in an electric aviation start-up called Vertical Aerospace doing eVTOL aircraft before joining Babcock some 3 years ago, where, as David said, I've been running the nuclear sector.

So it's a huge privilege to be taking over from David. I am fortunate to know the business pretty well, and I'm also fortunate to have had a decent amount of time in transition, a period of time where I've been able to orientate around parts of the business that I know less well, particularly overseas, a period of time where David and I have been able to do work together to signal continuity and stability internally within the organization and a period of time where I've been able to get out, talk to customers, talk to stakeholders and talk to our people to assess where we might further develop opportunities for the future. And I think it's testament to how well the transition has gone that I've actually been able to put out a series of internal organization announcements under my signature, but on David's watch which has ensured that we maintain momentum. We don't have a lull as we go through this handover.

And the organizations see David and I in strong alignment with one another, and they get that core theme of continuity and stability. So a lot of people ask me how do I feel about taking on the reins at Babcock? Well, I feel both purposeful and excited. Purposeful because what we do really matters. We are living through a pivotal moment in history where all of the major vectors of global change, whether that's climate change, societal change, technological change or geopolitical change are all currently fueling and feeding off one another to create one of the most uncertain unstable and dangerous periods in recent history. And that's what gives our purpose such relevance. And those underlying trends that I've just described, I think, are unlikely to diminish irrespective of whether the various flash points in the world flare up or cool down.

And it's those underlying trends that I think make what we do so purposeful and excited because, of course, it's those same underlying trends that are driving growth in our core markets of defense and civil nuclear. So purposeful and excited. So this next chapter for Babcock under my leadership is going to be built on the strong foundations that I've inherited and that I've helped to build. And those strong foundations are made up of a core strategy that is still valid, made up of strong alignment between the Board and the management team and made up of a business that has strong capabilities and attractive positions to grow a resilient -- to address a growing and a resilient market. That new chapter will have some enduring themes, obviously, growth and performance to continue the trajectory that we've been on over the last few years.

That growth will require strategic clarity and capital discipline. It will require us to stay very close to our customers, understand deeply their requirements and then only invest in the areas where we have strong competitive advantage and we can generate attractive returns. I expect focus on the new nature of warfare. This is more sophisticated and complex than simply drones. This new nature of warfare is about increasingly autonomous uncrewed combatant platforms fighting alongside their crewed combatant counterparts in all of the fighting domains on land at sea and in the air. And it's this connective tissue between the 2, the communications, the cyber, the systems integration and indeed the training and simulation as well as the platforms themselves where I expect us to grow. Expect focus on war fighting readiness. Warfighting readiness is really code for sweating the availability, the readiness, the integration and effect that we can achieve with today's suite of platforms and equipment.

And as David said, and as you know, that is our core business. and expect focus on national strategic resilience. So the U.K., other NATO partners and key allies are all focused on energy security. They're focused on critical national infrastructure. They are focused on their industrial and supply chain capacity and resilience. So national strategic resilience. And then the other theme of performance to maintain our focus on operational execution. We have commitments to the market. We have customers who rely on us for their products and services. And what we do is mission-critical in an ever more dangerous world. So a continued focus on operational execution and an ambition to go on raising that performance bar over time. So my initial priorities are indeed on operational performance. I've been really clear with the company. They need to keep their head in the game and not get distracted by all the excitement of a CEO transition.

Talent and team to make sure that I've got the right people in the right roles for this next chapter and also managing the top team through this period of change and strategic clarity to make sure that we take stock of the dynamically changing world in which we live. We assess where we've got the strongest right to win, and we identify the opportunities for high-quality, sustainable midterm growth. So I will come back in November when we do our half year with more on all of the above. As I said, my very immediate focus over the next weeks and months is to make sure that we maintain our discipline, we maintain our direction, we maintain our delivery, and we don't get distracted by David's departure. That gives me enough time to continue this engagement that I've been on with customers, stakeholders and indeed shareholders and the Board so that I can come back in a few months' time in November and lay out our strategic priorities in a disciplined way to make sure that we maximize the opportunity set and maximize value in the midterm.

Thank you. Back to David.

So given the news flash that's just come up, I desperately want to say that we've handled our succession rather better than some other people, but I probably will resist saying that. So as you, I hope, can see from what I've presented, what Harry has presented here, we the Board ran a really thorough process that led to Harry's appointment in January. By the time I leave next January, we will have had a fade in, fade out transition that I think enables continuity where it makes sense and change where it makes sense. If I had been staying, there would have been changes to deal with the changing external events. So change is not -- change is necessary in all companies. So I just want to say that I am supremely confident in the next phase with Harry at the helm. We'll enjoy watching it and we'll actually not miss my 1000 investor meeting.

So the summary is where we started, which is strong underlying results that underpin a range of choices for the company and the ability to invest in that exciting future Harry has just outlined, differentiated capabilities, which I hope you've heard from both of us, that clear strategic momentum with a pipeline of opportunities, which means it's about choices. It's not about searching for things to do. But also, as Harry said, that ongoing capital allocation, so only going for areas which deliver the appropriate returns with the appropriate risk and the appropriate opportunities to win. So I think, not on my watch, but I think a truly great future for a truly great company is just opening up.

And with that, I shall hand over for questions. I remember we do -- well, I should say anything but religion, but since it's my last one, we'll do anything.

Sash Tusa from Agency Partners. I wonder if you could give us an update in as much as one is possible, particularly given very recent news about FMSP and just lay out the process for renewal of the contract and what happens if for political reasons, the government is incapable of signing a new contract by the end of September, which is the current deadline.

So I'll do a little bit with that, and I'll hand over to Harry because he's led a lot of the negotiation. But we support nuclear submarines to have nuclear reactors in and also retired submarines with nuclear reactors in. There is no way that is going to stop. So if for whatever reason we couldn't get under contract, there will just be an extension to the extension. From a financial point of view, it's not a particularly big deal. The really big thing is once we get under the long-term contract, there are opportunities for both us and the government in terms of performance that can be released. So it's a delay in an opportunity, not a threat, I would describe it as. But Harry?

Yes, I agree. What we do down in Devonport and up in Clyde is absolutely at the center of what defense does. I mean we all know that the continuous sea deterrent is the cornerstone of the U.K.'s deterrence and defense policy. So as David said, that work is not going to stop. We're currently on a 6-month extension. The majority of the actual work to get us to the gateway agreement is done. But as David said, it requires, obviously, funding certainty. And also given the size of the deal is going to require pan-Whitehall approval. So those 2 things have to happen over the next few months.

So if I could just follow up on that. When you say that it needs funding certainty, does that mean that this is all tied up inside the defense industrial plan? Or is it broader -- I mean, what's the nature of the funding certainty that this particular deal needs?

So no matter what the static matter is, the list of everything they would like to do is bigger than the budget and the sequencing of that budget on the fringes always is an issue. So there used to be -- so nuclear is a bit different from conventional. But on the other hand, it all has to coexist in a defense budget. So I think there's moving around the fringes between years and so on. And there are -- there is some discretionary scope, which could be in or out. So it's that. It's not the core being of the facilities, the boats and so on.

James Beard, Deutsche Bank. Two questions, please. I was wondering if you could give us a little bit more color on progress with frigate export sales. We obviously had slightly negative news from Sweden. So any more color around that and sort of potential decision time frames in Denmark now that they have a new government installed? And then second question for David Mellors. In terms of the progression towards the 9% medium-term margin target, just wondering if you could give us some color on the expected time frame there and also the drivers of future margin uplift, how materially do they differ from how you've delivered margin uplift historically?

Well, I'll answer David's question. So David will say to you that the 9% plus will be delivered in the medium term.

I would actually.

Yes, Sweden was obviously a disappointment. It's not a Type 31. It's obviously a new frigate design, actually a frigate or a large corvette, take your pick. If you read the Swedish press release, Naval Group and the kind of ship actually comes quite a long way down. It starts with a lot of the geopolitical stuff, the government to government. And we have always said that these competitions comprise 3 elements. And the weighting is different between the 3 elements, but there's an industrial element, there's a Navy to Navy element and there's a political element. And these decisions almost always get made by head of state, not Secretaries of Defense. So we believe we had a very compelling -- probably the most compelling industrial offer, but there are other forces at play in Sweden, as you can -- the easiest thing is to read their press release.

Denmark is different because it is -- the spec is a Type 31 type spec. So that's the first thing. Secondly, the origins of Type 31 are the Iver Huitfeldt, the current incumbent Danish frigate. And the industrial element matters a lot more in Denmark than it does in Sweden. So the weighting is different in Denmark and the core drivers are different. It is a head of state -- I mean, this is a new government. It's a head of state decision ultimately. So difficult to put a time line on it. I think if you ask their procurement agency, they would say their work is done. So it's when it gets the top of a Prime Minister's inbox. And I'm not going to guess that.

David, your question?

Right. As David said, it's in the medium term. The drivers are the same. They're the ones I laid out. We said a year ago the medium term. We deliberately don't time box these things because we're all human, it does lead you into silly things. Margin and risk go together. There will be times when we deliberately take, say, cost-plus type arrangements, which typically would be lower margin because that's the sensible thing to do given the risk profile. So the margin progression will continue. Obviously, it's slightly easier when you're down at 5% than 8.2%. So it won't always be at the same rate that we've done historically. So for example, I'll give you an illustration. When we did the Capital Markets Day in Devonport, we said that -- the new team at the time had reduced the number of operational processes on the site from 5,000 to 2,000. And they've done that quite quickly. Now there are still plenty of productivity improvements to make, but you can't keep taking big steps like that, the higher up you get. So the medium term, which last year was, say, 3 to 5 years away, was about the right time frame.

Told you so. Next question?

David Farrell from Jefferies. I actually think both of my questions are for David Mellors. I'm afraid. Just when you look at the 30% delta for this year's guidance in terms of the top line, can you just kind of explain what fills that 30%? I think you said you're 70% covered for the current year from a revenue perspective. And then I think I read a couple of weeks ago that the SSRO calculation had changed around the profit uplift on the risk side of things, potential uplift kind of being potentially 10%, not 2%. Can you just kind of talk to any changes in the SSRO calculation and how that might benefit.

I'll do the second one actually because I'm just feeling like I can. So there is currently what is known as a Sprint, although it's not really a sprint, led by the Defense Joint Industrial Council looking at the whole SSRO consultation thing, and there was one of those 2 years ago that led to no change. So there is lots of talk. But at the moment, I can't remember who you've nominated for the Sprint, but...

Linda.

Linda. So we're -- it's a joint government. Linda is really good. There's a joint government industry, what makes sense for everyone review. I think it's foolhardy to prejudge it because at the end of the last one, nothing changed. Sorry, do you want to give a different answer to that?

No, I'll give you one. So the other 30%, which is normally just slightly higher than 30%, we still have really good visibility of. We have framework agreements. But as you know, we don't count orders until they're contracted. So a lot of it is the contracting of expected work under frameworks, which happens regularly. There will be work that can't stop, but is just let on a slightly shorter-term basis. And so a lot of that we would expect to just come through over time. Normally, we're at about 90% of the year under contract by the half year. That's another measurement point I always put in. And then we should have it all by kind of end of January, February as it comes through. There are some smaller businesses which have much less of a forward load like the vehicles business in South Africa, but very much more marginal. So for the defense businesses, we've got pretty good visibility, and it's mainly the contracting of stuff that we can see or is under frameworks anyway.

Chris Bamberry, Peel Hunt. Just want to give a bit more flavor on the M&A pipeline. You had a couple of potential opportunities in NDAs that they've obviously not come through. Just to give you any more flavor on what happened there and what you -- and some of the current opportunities you have.

Yes. I mean maybe Harry should talk about the current opportunities because they're going to happen on his watch. But I think if I talk about the discipline, which I'm sure will remain, so there were one in particular, which was outside the U.K. in a country we're very keen on. We've got a long way through diligence and spent a decent amount of money. And then we found a very significant accounting issue that was both a valuation point, but also we were very much believe we were acquiring a strong management team, probably stronger than our own. And over time, as we got underneath the skin of the problem, that led us to conclude both that we couldn't get to the price, but also particularly in terms of the people capital, we weren't sure we were getting what we thought we were getting. So that's a good example of just doing proper diligence, taking time to reflect on what that diligence tells you and then acting in the interest of shareholders. So I mean that's the kind of thing that happened. Pipeline, Harry?

Yes. So we've got a strong pipeline, which we keep under constant review. Obviously, given what's going on in the world, the valuations in our core markets of defense and civil nuclear are quite high at the moment. As David said, it's really important that we maintain discipline. We haven't done M&A for a while. So we need to make sure that when we get back into the acquisition market, it's with a business that makes sense for us, and we can integrate it properly.

I was going to say we've got probably good time for one more.

So I just wonder if you could give some color on where the major infrastructure program goes from here. Revenues down last year. Does that just continue to fade out? Or does it stay at broadly current levels for a bit? And what's the phasing of the last 2 docks at Devonport under that?

Do you want me to numbers? Okay. So from a numbers point of view, you know we can't forecast this accurately. So we'll give you a range. I would expect somewhere between GBP 400 million and GBP 450 million this year, and we'll keep you updated. So similar-ish. And again, as far as the out years are concerned, we'll keep you updated as we go along.

Yes. And more generally, at Devonport, obviously, we've got the 10 Dock program, and we've got the 5-basin berth program. But outside of Devonport, the requirement for the defense nuclear estate to recapitalize is well known. So we would expect recapitalization both at Clyde and maybe even in Rosyth. And then as David mentioned earlier, the whole AUKUS opportunity is heavily focused in these early years on infrastructure at both Osborne and Henderson. And so we would hope to be able to address that market as well.

Yes. And the other thing we have mentioned in the past is although they haven't decided how to contract it yet, there's potential infrastructure opportunities with AWE as well. So thank you all very much for your time. And for those of you who I've known for a very long time, who've come up with all the questions that have made these things interesting. Thank you for your participation.

Good morning, ladies and gentlemen, and welcome to the Babcock F '26 Post-Close Trading Update Conference Call. [Operator Instructions]

I would like to remind all participants that this call is being recorded. I will now hand over to David Lockwood, Group CEO, to begin the call. Please go ahead.

Thank you very much, and good morning, ladies and gentlemen. Thank you for joining this call at relatively short notice to discuss our financial year '26 results. I'd start by saying we're still in close period. So we are not doing a full results presentation today, and we can't give any financial information beyond what's in the statement.

As usual, I'll do an overview, some of the key strategic points from today's announcements before I hand over to David to talk about some numbers. Obviously, you all know this is my last calendar year. So I'm -- it is a bittersweet for me because so much is going really, really well.

And that actually includes some Type 31 stuff when we get to it. But we have got the Type 31 provision, which David will talk about. But overall, the financial year was really strong performance across all of the underlying businesses, across all of our medium-term targets.

And in November, I talked about the good momentum in delivering growth. And obviously, we are significantly past our mid-single-digit guidance. And encouragingly, that's across a range of activities. And that's because what we do in defense and security is still really relevant. And even as different wars ebb and flow and different debates happen about different capabilities, the core of what Babcock delivers is going to remain and become more relevant for at least a decade, I would say, and probably much, much longer.

We're delivering the growth strategy with an ever-expanding set of opportunities across all the divisions, and that's helped deliver the top line growth of 10%. And if you look at the underlying results, we're making significant progress in all areas against our margin targets.

And finally, on the cash flow, obviously, you will have seen the balance sheet remains very, very strong. So we've been able to announce a further GBP 200 million buyback program on top of the GBP 200 million program we completed recently.

At a strategic level, I think some of the most encouraging developments are in the way we've approached some of the international business. The relationship with Saab continues to strengthen. The relationship our French company has with a number of innovative companies in France and working on how to go to market, the relationship with HII around AUKUS, Virginia and so on, which has led -- and things like the Indonesia program for the initial GBP 4 billion, but with plenty more to follow.

So what would I pick out? Well, firstly, Indonesia, I was there quite recently. This is a whole government effort on behalf of Indonesia, multiple cabinet ministers and led by the President and with real impetus to get that under contract across the whole range of activities. We talked before about the opportunity for U.S. Virginia class build. And despite some of the noises out of the U.S., one of the consistent things is the need highlighted by both the political and the official class to grow the supply chain into the Virginia class to accelerate production.

We won our initial GLV orders, both U.K. and export. This is the Land Rover replacement vehicle, general logistics vehicle, which has, we believe, huge potential and where we are Toyota's global partner. The FMSP bridging contract is quite important. It's unfortunate that we had to have a bridging contract and not move to the next long-term relationship.

But within it, we see the moves to the new ways of working, which are beneficial for us and for the government. And finally, in a joint venture, we became the government's owner's engineer partner in Civil Nuclear for the SMR. So across a range of activities turning prospects into business wins.

As I said, the bittersweet is obviously Type 31. At the highest level, when you look at all of the reprogram, the reevaluation, we still end up with certainly Europe's and possibly the world's most affordable, most capable general-purpose frigate. So the endpoint still remains a highly desirable endpoint. As we've said before, the way we're getting there isn't the most desirable way to get there.

And I've said for some time now, Ship 1 is really the prototype where we debug both engineering and production. We debug a lot of the stuff that took place from the bid phase in '17 through contract award in '19, engineering through COVID and ship 1 project after that, we're into program.

There is some contamination of ship 2 by ship 1 because it's caught up because we are getting better. So although we've hit a very significant number of operational and delivery milestones, as part of that debugging, we have identified the need, particularly in outfit for rework, which has led to updated drawings, which has created additional costs and in particular, has made us reevaluate our risk contingency to make sure that we have a properly balanced financial view of the program going forward, but David will talk about that.

Rework isn't unexpected, but because of where it's occurred, some of the cost of fixing it because we've had to borrow deep into the ship has been more complex and more expensive than we thought. One of the things we've done is entered into an up-to-date engineering maturity review. So to take the learning from the compartments we've reviewed and therefore, be able to tackle the issues earlier elsewhere. The charge is obviously GBP 140 million. You've seen that in accounting, you provide for it now, but the cash cost will go out over the rest of the period.

It is really disappointing. I can't tell you how disappointed I am. It's not what I would have wanted in this year. But I think it demonstrates that as an executive team and as a Board, to be honest, having been on a Board call last night, we are determined to always do the right thing and always be straight with you about the state of the business, all the good stuff I've been through, but also some of the less good in particular this.

So with that, I will hand over to David.

Thanks very much, David. Good morning, everyone. So as usual, I'll start with 3 performance messages. We've had strong underlying performance, excluding the Type 31 charge. obviously, good growth across the board and margin expansion. Number two, we've had very strong cash generation, which I'll come on to. And number three, we've got a positive outlook.

So FY '27 opening backlog was good, and we're reconfirming both our medium-term guidance and obviously, no change to FY '27 expectations. As I've done before, I'll start with cash flow and balance sheet numbers because these aren't impacted by Type 31, and then I'll come back to the income statement afterwards.

So if I start with free cash flow, we delivered underlying free cash flow of GBP 262 million, which was a significant improvement on last year. And this was driven by underlying operating cash conversion of 85% before the charge, and that's ahead of our medium-term target of 80% on average, as you know.

We can come back to the detail of that later. We've achieved this while continuing to invest in the business through the CapEx line in line with our capital allocation priorities. And we've looked at the short-term investment pipeline as well as the year-end balance sheet when deciding if we have surplus capital, as we've talked you through before, and we work through our capital allocation policy.

As a result of the cash and what we see in the very near-term pipeline, we've decided we do have GBP 200 million that we will commence buying back our shares after the preliminary results with, and that will be executed over FY '27. The balance sheet at the year-end remains strong. So gearing is 0.2. Net debt is GBP 329 million.

I'll now move to the income statement. At a group level, organic revenues grew 10%. We will take an estimated revenue reversal of about GBP 100 million on this Type 31 charge. It goes into revenue and cost provisions. It will be about GBP 100 million in revenue and about GBP 40 million in cost. But before that, 10%. And this organic growth was driven by strong performances in Nuclear and Aviation, which grew at 14% and 34%, respectively.

In Marine, revenues grew at 8% on a constant currency basis, largely a continuation of what we saw in the first half. And whilst Land declined overall 3%, it returned to growth in H2. And if you remember, in H1, we were mobilizing the new DSG contract. So the defense business has picked up in the second half despite the lag in the civil businesses of Rail and South Africa.

Underlying profit for the year increased 19% from GBP 363 million to GBP 433 million before Type 31, resulting in an 8.2% margin, which is 70 basis points up on FY '25. And looking at the sector performance, we put the detail -- some of the detail in the statement. We'll obviously give you more at the preliminary results. But if we look at operating profit improvements across the sectors, Nuclear increased 23%, Land was up 10%; Aviation, 52% and Marine was up 15% before the Type 31 charge.

And also at the sector level, Nuclear's margin increased 70 basis points to 9.5%. So they're already meeting the group medium-term target of at least 9%. Land increased 110 basis points to 8.8%. Aviation was up 90 basis points to 7.1%. And in Marine, underlying margin improved to 6.5% before obviously the charge.

So a good performance across the business, revenue, profit, margin, cash, which we'll obviously give you far more detail of at the preliminary results. So now on to the Type 31 charge, which David has talked about the causes. So this GBP 140 million is a full reestimate of the program given recent performance as ship 1 completed the structural build and moved into the outfit and commission stage.

The revised estimates cover not only production costs, material and labor, but also a revised program risk contingency for future risk. Obviously, the charge will be subject to audit. It will be fully recognized as a charge in FY '26 with the cash costs being incurred over the life of the program.

The GBP 140 million, as I said before, will be recognized -- we estimate about GBP 100 million of revenue reversal just because of the technical accounting way we do it and around GBP 40 million as a charge within the income statement. So the whole thing will be recognized in FY '26.

And so we'll give more guidance at the preliminary results, but our expectations for FY '27 today are unchanged. We started the year with a good revenue cover of around 70% of FY '27 revenue under contract at the 1st of April. It's a similar percentage to last year, but it is good. If I look back over the last few years, it's usually high 60s. So 70% is a good start point.

We reconfirmed our medium-term guidance of average revenue growth of mid-single digit, underlying operating margin of at least 9% and underlying operating cash conversion of at least 80%. And obviously, these numbers are subject to audit and the detailed review by the Audit Committee. That will all happen in the proper way before we announce our preliminary results.

And with that, I'll now hand back to David.

So we're open for questions.

[Operator Instructions] We will take our first question from the line of David Farrell from Jefferies.

David Farrell from Jefferies. I've got 2 questions, please. Just firstly, in relation to the Type 31, could you just explain a little bit how the combat mission system gets integrated at the same time as doing the rework that you have to do on ship 1? And then my second question was in relation to the Indonesian licenses. I think you kind of previously alluded to the fact they might drop in '26 or '27, where you stand on realizing those 2 licenses, please?

Okay. I'll have a go at the first one. So part of the reprogram David talked about in agreement with the customer is to ensure that we don't have what is in engineering and production terms referred to as concurrency. So you don't want to be doing engineering and build and integration simultaneously because it compounds the risk.

So we are as far as possible, and there will always be some overlap in ship 1. We have deconflicted structural fit out and we'll fit and we will deconflict as far as possible fit out from combat systems integration. So it's a very good question and part of the risk analysis we've been through and the reprogramming has been to mitigate that risk. David, do you want to answer the license?

Yes. So we said in the fourth quarter, the license may well drop into -- we did -- we thought we might get it by the year-end, but we couldn't be sure. So we didn't get it by the year-end. So the GBP 433 million wasn't as a result of the Indonesian licenses. We're expecting those in early FY '27.

Your next question comes from the line of David Perry with JPMorgan.

I've got 3 questions, I think. The first one is, I know it's not a full results release, so we're going to have to wait to see some of the detail. But any comment at all on what led to the free cash flow beat where we're going to see that on the cash flow statement would be helpful.

The next one is your outlook statement, you say expectations are unchanged for '27, year-end March '27. I just wonder what those expectations are. I mean, whether they're the same as what investors and analysts are expecting because you've beaten your EPS versus consensus 7%.

The new share buyback will add a few percent to EPS. You just mentioned Indonesia wasn't booked in '26. I mean, I don't know what that is, but my estimate is it's about GBP 20 million of license fees.

So just wondering if you can give any color on what you think we should expect for '27 or what your expectations are? And then the last one is, I think you've kept your guidance for cash operating cash conversion unchanged in the medium term. But obviously, you've got to digest this charge, which I think is going to be post tax is going to be about GBP 100 million over, say, 4, 5 years. So I just want to check if this cash conversion guidance includes swallowing Type 31 or whether it excludes that.

Rather wonderfully, David, I think those are all questions for Mr. Mellors.

Yes. Yes, let me try all of those, so David doesn't. Free cash flow, we will give you all the detail. So on operating cash conversion, which was 85%, so it is slightly up. CapEx would be a little bit down on where we guided. So that will probably be nearer 110 million than 130 million. Working capital was the other moving part, which was very good, and that was across the board. There was no single one-off in that.

So that drove operating cash. Interest tax and pensions overall were about where we thought they were. So it's mainly about the operating cash conversion. In terms of FY '27, I take your point, we've obviously only just started the year. We started it with a good backlog of 70%. As I said, that's a good place to start, but it still leaves 30% to book and bill.

So I think it's a little early to change our view of the world, say, for example, with the license popping out of '26 and into '27, that will certainly help. But let's get further down that book and bill before we revise any of our expectations because it is a good start, but it is only the start. I think in terms of where...

Sorry...

Having said everything, leaving it all to you, just to add to that one. The other thing I would say is there is still a fair degree of uncertainty about how the U.K. will balance its defense investment plan. And I think with our guidance where it is and our expectations where they are, we can accommodate any outcome of that. I think we -- once that is -- however, it becomes public, once that plan becomes clearer, then it will be much easier for us to articulate how things go forward. Sorry, David.

And then the third one is kind of the same answer, but the other way around. So yes, of course, the cash on the Type 31 thing won't help. But as you say, you spread that over the life of the program, and we'll just have to manage that. So it's not helpful, but it's not big enough for us to knock us off course.

Your next question comes from the line of Sash Tu (sic) [ Sash Tusa ] from Agency Partners.

I've just got a question on the Type 31. And what I'm sort of slightly concerned about from today is that you don't -- or you don't seem to have had terribly good visibility into the program. And what I'm looking back at is notes from the Investor Day that you did at the beginning of September last year. And quite a lot of comments haven't aged very well, I'm afraid.

It was described as being a no change program. The learning curve is exactly as planned, very stable. We got first 80% wrong, getting the last 20% right. Okay. Maybe it's just 90% wrong and the last 10% right. But why do you think that your visibility has been consistently so low in this program? You've had to have 3 sets of charges over the last 4 years. And why should investors come away from today thinking that this is it, particularly given that the combat management system is outstanding as an issue?

That's a really good question, Sash. So if I'll go back to my Type 1 is the prototype. We identified when I arrived, we talked about 3 major engineering assumptions that were made in the bid and were subsequently implemented in the design phase, which partly took place prebid, so in the '17 to '19 period and then in the kind of primarily in the '19 to '21 period.

And particularly in fit-out, that included assessments around things like firefighting, things like the -- I think I've said many times, the original design was for a 50 percentile male, we designed for 90 percentile, i.e., 90% of women. So that leads to design change and also a different regulatory environment.

What the debugging in ship 1 has done is identified noncompliance with some of those during the stuff that took place prebid and during COVID. Why should you believe because that is a really good question because if you go back to the earlier assumptions, they were largely assumption-based because we are now well into the fit-out of ship 1, they're now fact-based and the fit-out is what drives the mission system integration because obviously, that's where you put in everything that the mission system then integrates into.

So I think I've said many times, we know that the factory acceptance test, the sure test of the mission system has been completed. So we know it works as a system. So it's about getting the physical integration of that system onto the ship right. And one of the reasons I mentioned about the deconflicting earlier on of engineering, build outfit and integration is to exactly address that situation.

So if I look at the data set we have now compared with even a year ago, we have a lot more data. It is not good. I mean no one is trying to pretend this is good. It's not good that we have identified through the prototype engineering areas going back multiple years.

That's not good. But in doing so, we derisk the balance of the fit-out and the integration. And the other thing I would say is David talked about the risk provisioning we've taken to recognize what is to go based on that data. But do you want to add anything, David?

I'm not sure there's anything I can add actually. I think that's -- Sash, does that answer the question?

Yes.

[Operator Instructions] And your next question comes from the line of Josh (sic) [ Joel Spungin ] from Investec.

I've just got one broad question. I wanted to ask you. Basically, just thinking about some of the media coverage, what's going on in Iran and some of the stuff that's been out there, criticism of the Royal Navy and the inability to, it appears, get more than one ship out to sea in an emergency.

I'm just wondering like what conversations you've had with your customer, with the government about the state of readiness of the Royal Navy, whether there's been any blowback to you about the state of readiness or indeed whether or not the government is willing to consider actually spend more money to improve the situation we're in?

Yes. Okay. So there's lots of questions there. So in terms of war fighting, obviously, there's not much I can -- so do we have lots of conversations? Yes, we do. None of them I can really talk about here. I mean the size of the Royal Navy's capital ship fleet, frigates and destroyers is public information, and it's a recognized thing that the retirement of old vessels and the introduction of new has led the fleet to be smaller than normal.

So we do have discussions about what we can do to keep the existing fleet more available. We largely -- we maintain the 23s. We don't maintain the 45s and the OPVs. So we maintain less than half of the ships that are in use. Is there a discussion? Absolutely. So you may have seen reported, for example, our concept of so-called Armor Force for the hybrid Navy when you can force multiply a frigate or a destroyer with having uncrewed auxiliary vessels alongside it operating as a like a mini fleet.

So we're having strategic discussions and we're having now availability discussions. In terms of what that might mean, that was what I was really alluding to in terms of defense investment plan. how much money the Navy gets for near-term capability is still not clear until that plan is published. So it's difficult to -- we are doing, obviously, operational things all the time. But in terms of a bigger strategic move that might affect us strategically, we'll have to wait and see what comes out of the defense investment plan.

There are no further questions. I want to hand back to -- apologies. Your next question comes from the line of Sash Su (sic) [ Sash Tusa ] from Agency Partners.

You have to have 2, Sash. Otherwise, it's not a proper call.

Well, I mean, there's no point in ending much before about [indiscernible] is that?

No, absolutely not.

So I'd just like to pick up on the point that you made about DIP. And I mean, first of all, just do you have any view -- clearly got any understanding at the moment of DIP. But do you -- I mean, do you think it is likely this year? Or do you think it's possible that it just gets cut up into smaller parts?

But probably more importantly for you, are your negotiations about the submarine part of FMSP tied at all to the timings of DIP? Or are you confident that they are separate from that? And if it's the latter, do you think you can get FMSP over the line within the 6-month extension period?

So the second part is easier than the first. So I'll do that while I think about the first. The -- there is still a Nuclear financial ring-fence and FMSP Nuclear sits inside that. And we've already got the 2-year extension on the surface fleet, which partly goes back to the previous question about the surface fleet.

So the defense investment plan should not contaminate, meaning -- should not contaminate the discussion, can we get it over the line? That is everyone's intent. Everyone understands the benefit for both the government and for us in terms of getting it done.

So it's a genuine win-win thing. Obviously, something of that scale needs to go right to the top of government, and there are some preoccupations at the moment. So we'll need to get it signed the government outside the MOD. I don't think there will be any problem getting it through the MOD. It's sort of -- how is going to get all the way through government? So -- so I would never -- I wouldn't say it's done until it's done. But I don't think the defense investment plan is in the way, and I don't think that we don't have major disagreement, but we don't have disagreements actually. We have any disagreements. We know what we want to do together.

Your next question comes from the line of David Perry from JPMorgan.

I thought David Lockwood, I should ask you a question. Can you just talk a little bit about the pipeline? I think a lot of investors and I were certainly excited about the pipeline chart you showed back in November. And at the time, you talked about some of those or many of those being secured within 12 to 15 months, and we're 6 months on and none of them have really been announced, although Indonesia, clearly, there's been some quite a lot of progress.

Can you just comment on how things are going there and which ones look hotter and whether you still think we're going to see some good new business before -- I guess it would be before the end of this calendar year.

Certainly. Well, I hope it's on my watch, actually, to be honest. So the -- if we do Civil Nuclear, lots of good stuff going on there or [indiscernible] more broadly. And you have seen there the owner engineer contract for the first SMRs, which puts us in a really strong position, both as the Rolls-Royce SMRs roll out in the U.K., but also they seem to be having significant export success.

And every government will need the equivalent, however they structure it. So once you're established, particularly if it's a kind of government-to-government relationships they like in Czech, we're in a very strong position there. So I think that I would describe that as that is something we have won and which has further growth potential, along with a lot of other stuff in Cavendish in Marine.

We have won a number of smaller things, but we did get the FMSP surface ship extension for 2 years, which again shows kind of our importance to government in the surface ship domain. Every -- so the Swedes published the agenda for the cabinet meeting every fortnight. And every fortnight, we're expecting to see the decision on their ship on there.

Every fortnight, we're told it's going to happen, and then it's not there. So yes, that's Sweden and Denmark. That's just government. And as you know, the Danish in the last 6 months called a snap general election, which also put a delay in which no one could have foreseen, but those continue. You're right about Indonesia, we make -- I was out there.

We were doing an industry day for local industry with full cabinet minister support, fantastic session. I mean that really is beginning to accelerate. In naval nuclear, we've talked about the FMSP extension. That is not only an extension, but it's also a stepping stone to the new contract structure. So that was good.

In Land, we have won our first GLV orders, both in the U.K. and export. So that's really good. So that's underway. That's a good example actually the defense investment plan because we're obviously the U.K. partner for the Patria 6x6 vehicle and we've got the GLV competition.

That's a good example of where government might do both simultaneously or they might sequence them. So it's quite difficult to go back to the guidance question to know until we see the defense investment plan, how they position those 2 programs in their operational priority.

The both are military priorities, but you've got to pick an order. Aviation, you've seen has had a very good period, and we are actually winning quite a few smallish things, but building real international momentum in aviation, including in Australia. Yes. So actually, there's been no headline grabbing big thing. But if you look at the size of the order book and you think we've consumed a whole year of FMSP, but only added 6 months, and it should have been adding 5 years. If we'd added 5 years, i.e., we've got another 4.5 years of FMSP naval nuclear, the order book would be stonking.

Okay. And just one very quick follow-on. You said hopefully on your watch. When is your last official day, David?

That isn't agreed sometime after Harry joins the Board before I leave it. We're just -- I mean, to be honest, the transition is going really well. Harry is now fully up and running as my Deputy Chair and staff. He joins the Board in June.

There are a bunch of both internal but also external sort of government thinks. We'll find the right time to hand over sometime through the summer. And then I'm around early next year to support Harry and in particular, to support the -- some of the international stuff. So it couldn't be going better actually. I didn't know that I would like him this much.

Your next question comes from the line of David Farrell from Jefferies.

Pretty much everyone else is having another turn, so I thought I would as well. Just in terms of kind of the international opportunities for Type 31, when do those need to land to ensure that you sustain the right level of utilization at your shipyard in Rosyth because presumably, you'll start work on ship 5 of the U.K. order at some point this year.

Sorry, carry on.

No. And my second question was just maybe thoughts around in terms of capital allocation, how you're thinking about any M&A opportunities that might be on the horizon?

Yes. So the first of those is it's more complicated than 31. So if you came up to Rosyth at the Capital Markets Day, I can't remember if you did, missile tubes is very significant. There's still a big support activity that is ongoing there.

We've got the HII work ramping up. And we've got whatever is next for the Royal Navy because the government have said existing '26 and '31 doesn't complete the Royal Navy. So 31 exports are only part of the picture.

And so when we do workforce planning with the Scottish government, we don't really have a downsizing option, but we do have a kind of how big could big be option and how do they help us with workforce planning. So I would phrase the question slightly differently, which is, do we have a good plan for managing chunky workload assumptions because Rosyth has a relatively small number of relatively chunky opportunities.

And I think one of the things we've been putting in place in the background, which going back to one of the earlier questions gives you more confidence about the existing 31 program is a very sophisticated skills management system in Rosyth, so that we can manage the load.

So I think from a -- when you look at it from a Rosyth perspective, I don't think we worry overly about one or other particular opportunity because you don't need to win many to have an upsizing problem, not a downsizing problem. And the second question, which I've forgotten was?

Just around kind of thoughts on M&A given the kind of the capital allocation, GBP 200 million buyback. I know it's something that you've kind of...

Yes, there are a couple of things that are ongoing. I would describe them as regional and capability bolt-ons, which we are taking very seriously. In a market that has been very hot, there are some fairly average businesses people are touting around for extraordinary prices.

And I think that's always a good way to destroy shareholder value. So we are not losing our discipline even though we've now got money to spend. And that's why we're doing the buyback. So we will continue to look for areas where they are more readily addressed through acquisition rather than organically, but we won't destroy shareholder values to follow them up.

There are no further questions. I will hand back to David Lockwood for closing remarks.

Yes. Well, thank you for that set of questions and particularly for moving away from 31 at the end. That was a relief. And we look forward to seeing you again with the full set of results.

So good morning, everyone, and welcome to the half year results for the period to 30th September 2025. My name is David Lockwood, CEO of Babcock. We've got a very exciting 29.5 minutes coming and then a super exciting minute after that because apparently, there is a fire alarm test, which may or may not be canceled because we -- obviously, health and safety comes first in our company. And if it does happen, it will go on for a minute. So you need to pay attention for 29.5 minutes, and then you can do your e-mails for a minute, okay? And if you're online and the fire alarm test happens, I hope they're going to mute it for you, but if they don't, I'm sorry.

So what to say about this half? It's been a really good half. It's been a good half to be part of actually because all of the groundwork we've put in place over the last few years, we're really seeing come to bear. So good momentum across all of the business in the defense area, driving some really strong financial results with year-on-year increases across all of our metrics that David has decided he wants to explain to you, but they are really good.

Constantly delivering to customers. When I come back up, I think it's this -- we always said that the market was there for us. What we needed to do was deliver well. That would expand margin. That would then expand the market and that would drive growth. And I've got a couple of examples later. But we're seeing that happen across the business. We have some very interesting market dynamics, commitments to budget growth, but also fiscal pressures sort of counteracting that and seeing interesting behaviors in governments, but net positive in all of our markets actually. And that's left us with a confident outlook for '26 and also an ability to recommit to our medium-term guidance.

So before I come back into all of that color, David will put that into a financial context.

Thank you very much. Good morning, everyone. Okay. My main 3 messages for today are: this is a really good set of interim results on all financial measures, number one; number two, the margin improvement of 7.9% is encouraging and gives us confidence in the 8% full year target; and number three, with a good level of full year revenue under contract at H1, we're confident in the full year expectations.

Summary numbers first and there are some pretty positive numbers on this summary slide, and I'll move through them fairly quickly before we come back to detail. So organic revenue growth was 7%. Operating profit margin increased 90 basis points, to 7.9%. These first 2 delivered an underlying operating profit up 19%, to GBP 201 million. All the above led to earnings per share up 21%, enabling a 25% increase in the dividend. Cash conversion was 83%, delivering free cash flow of GBP 141 million, and we've executed GBP 49 million of the share buyback in H1, and we'll complete the rest over the course of H2.

So let's break down the organic revenue growth first. This summarizes the 7% organic growth by sector. Three of the four sectors grew in the period, led by Nuclear, as you can see, but with good performances in Marine and Aviation. The Land sector revenues were lower in the period as a result of the nondefense businesses, and I'll come back to the sector detail in a moment.

Next, the summary of profit. In absolute terms, Marine, Nuclear and Aviation drove the profit improvement, resulting in the group delivering GBP 201 million for the half, a 19% improvement on H1 last year, as I mentioned. The other bit of good news on here is that all four sectors contributed to margin progression in the period, helping the group to 7.9%.

And whilst we're on margin, we set ourselves a target of 8% for this year, as you know, and 9% plus for the medium term. And hopefully, this slide will give you some confidence that we're on track. As you can see from the line graph on the left-hand side, we make progress every period, and we'll continue to do this. On the right-hand side are the activities that deliver the margin across the group. You've seen these before. There's nothing new here. They're all still relevant, and there's plenty more to do in these areas across the group. So that gives us confidence in the 8% for this year and the 9% plus in the medium term.

And one other thing that we noticed when we put this slide together is that we delivered in absolute terms in H1, the same amount of profit that we did in full year '21. And I know full year '21 was a low base for all sorts of reasons, but we have had a few issues to deal with along the way. So doubling in those 5 years wasn't bad at all. So that's the summary.

On to the sectors. These are the usual busy sector slides with lots of content for reference. So I'll just pick out the key points. It was a good performance in Marine, with revenue growing 6% organically, profit up 38% and margins moving upwards by 160 basis points. Compared to last year, the performance improvement was largely driven by the LGE business and by the Skynet contract.

On LGE, you remember last year that it booked a record order intake of over GBP 400 million, and we knew that was a surge following the sort of new ship-build market dynamics, and we're delivering that over this period and the start of next. And also the Skynet contract, which successfully mobilized last year. In the period, we had additional services contracted and that also helped drive revenue and profit growth for Marine. And just for reference, the Type 31 revenues that go through here, we did about GBP 100 million in the first half, which is flat on the same period last year. And you know we booked the revenues at 0% margin on Type 31.

So on Nuclear. Nuclear had another strong period with both Cavendish and submarine support activity growing very well and more than offsetting the expected reduction in infrastructure revenues. So I'll just expand on those a little. So Cavendish grew 25%, largely in clean energy with more work at Hinkley Point. The submarine support work grew 31%, with activity increases both at Clyde and Devonport, benefiting from some of the infrastructure upgrades at Devonport as well as productivity improvements at both locations. Infrastructure or MIP revenues reduced as expected following the opening of 9 dock last year and 15 dock nearing completion. And all of the above enabled the profit increase of 18% and the margins to reach 9.1%, so the first sector in the group to hit the 9% mark.

Moving to Land. Revenue decreased 11% organically in the half. Defense revenues in the U.K. were largely flat due in part to the mobilization period of the DSG reframe contract, and we're expecting this to start to grow in the second half. The nondefense revenues that weighed on the sector were the rail business and the South African vehicle business, and we have a cautious view of the rail business revenue, in particular, in the second half. But pleasingly, despite the top line, margins still managed to progress 20 basis points, with the overall sector now at 7.9%.

On to Aviation. We've been waiting for Aviation to take a step forward for some time. And for me, the winning of Mentor 2 in France at the end of last year was the start. So the 26% organic growth was due to 3 main factors: firstly, the mobilization of Mentor 2 as well as increasing aircraft support contracts in France as the defense business takes root; secondly, scope growth and additional services in the U.K. defense contracts; and third, the mobilization of the new Canadian BC HEMS contract.

Moving to profit. Achieving some sort of scale on the top line has allowed profits and margins to approach a sensible level. This was assisted by some renegotiation of old contracts in the period, allowing margins to rise to 7.2%.

Moving to the cash flow. Again, this is another detailed slide because you need the detail for reference, but I'll just pick out the key numbers. The most important is the free cash flow number at the bottom, GBP 141 million. This is substantially better than we've ever done in H1 before. This is, of course, partly due to the growth in the profit, but it's also due to the reduction in pension deficit payments following the long-term deals we did last year. Only 3 years ago, the pension cash outflow was GBP 90 million in the half. And now as you can see, it's GBP 7 million. So much more of the cash that we earn in the operations is now available for the group to invest.

Moving back up to the middle of the table, we have operating cash flow of GBP 166 million with a conversion of 83%. Within that, we managed to keep working capital pretty flat. So there was an outflow of GBP 32 million. There's a little bit of inventory increase in there and then the usual pattern of payments, VAT and annual licenses and what have you. So basically, the rest of working capital was largely flat, which is good. CapEx was GBP 46 million for the half, very similar to the first half of last year. And again, CapEx will be H2 weighted. And lastly, I've put some full year guidance on the slide here. As usual, pensions, interest and tax are H2 weighted.

I'll come on to capital allocation in a moment, but you know one of our top priorities is a strong balance sheet, and that's important for customers and other stakeholders given the critical things we do. Getting from a weak balance sheet to a strong one was always essential, but getting there by now was even more critical because all of our debt and bank facilities fall due over the next 18 to 24 months. So to get ahead of this, we've already gone out and refinanced the revolver in the last couple of months. We now have a new GBP 600 million 5-year facility with extension options, and we expect to refinance the first of the bonds in Q4.

So on to capital allocation. This is the same capital allocation policy we've been -- published a few years ago, and we keep repeating. The priority order hasn't changed, but I'll just pick out a few status updates. Priority #1, organic investment. We're working on a number of relatively significant investment opportunities to enhance growth, so-called strategic growth CapEx.

The kind of things that we're looking at are facility expansion and build and operate models to enable new work or greater capacity. An example of this would be in Rosyth, where we're looking at a new build hall and also to upgrade the missile tube facility to allow greater production. The status of priority 2 and 3, the balance sheet, the dividend, we've already mentioned. Then on the 3 capital allocation options on the bottom.

On the left, we have a pipeline of potential bolt-on acquisitions that we're tracking, and we are working on a couple, and we'll keep you posted as they progress. Moving to the middle box, pensions, there's no news. That's tracking really well. So all going okay. And on the right-hand side, shareholder returns, you know we're executing the GBP 200 million share buyback. And the buyback also serves as an investment return floor for other options to beat before they get considered.

So before I hand back to David, I'll just go back to the summary again. So point one, really strong half on every measure. Two, margin progression, very encouraging, and the 8% margin for the year is in sight. And three, given the revenue cover at the half, we're confident in the full year.

And with that, I'll now hand back to David.

I'm not doing my e-mails. It's just checking for the alarm. Right. Actually, before I go to my slides, when David was going through that, it occurred to me I haven't got a Type 31 slide, which kind of shows that it's become business as usual. But I just thought because we're bound to get questions, I'd try and not get questions by talking about it quickly here.

So I see the next 12 months for Type 31 is important, but then every 12 months is important. And the way we see Type 31 is in 2 chunks. So chunk 1 is ship 1. We need to finish ship 1, which is always going to be the prototype because it's first of class, first of yard. We all knew that. We also knew that a lot of the build was done during lockdown, and we talked before about how we had to adjust our processes. So that's a project. I don't think -- that's a project, to finish ship 1. And it's really important that gets done in the next 12 months because that's the flagship for all the export orders and the growth.

Ships 2 to 5 are all about production, production norms and so on. And if we look at ship 3 because that's the one that's right down the production curve, that's the one that becomes the reference, and that's going really well. So there's 2 distinct things: driving a production facility; building a pipeline of ships and finishing the prototype. Those 2 things we'll report on the full year. They're both where we want them to be at the moment, but there's a lot to do on both of those. So that's kind of how we see it. And that's why there's sort of nothing to talk about. So I haven't got a slide because the project on finishing 1 is the project and then the production build is the production build. So no questions on Type 31, please.

The over -- so David did a couple of history charts. We said 5 years ago, 2 things: one is that this is a people business; and secondly, that our growth and our margin expansion is delivered by those people working in the best possible way to improve our delivery to customers. There was no lack of sort of -- no lack of market. We just had to perform. And our performance, as you have seen, has improved and improved.

And I've just got a couple of examples of how that's worked. So 5 years ago, the DSG contract was in a lot of trouble. We had external reports and Boatman and all this stuff. The first thing we did was fix the delivery. That led to growth through the order we booked for the 5-year extension, which is quite a different contract in terms of mindset from the original contract in that it's all about driving output, and it's more customer focused. That's gone really well.

That improved performance means we've won the contracts for frontline support in places like Ukraine, where we have people deployed, but also that confidence people have in us as an engineering company. In the Land domain, means we've delivered the Jackal program. And what all of that has meant is we are now Toyota's sole partner in Europe, for taking the Land Cruiser into a military variant. We call it the GLV, the General Logistics Vehicle. The big program in the U.K. is the Land Rover replacement, but there are multiple programs outside the U.K. as well.

Toyota are one of the world's great engineering companies. There would -- there is no way they would have agreed to work with us without us solving our engineering pedigree by fixing the past. The same is true with the Common Armoured Vehicle program in Europe led by Patria, the 6x6 variant, which the U.K. has just joined -- DSEI joined the program, the technical program, which is a step towards buying the vehicle, where we are the U.K. build partner and engineering partner. Again, couldn't have happened with our performance of 5 years ago. Now we're the natural choice.

And then finally, for the 120-millimeter mortar program, that's Singapore Technologies, Singaporean engineering, world renowned. They don't work with companies that aren't -- don't match their engineering standards. So we've gone from fixing a legacy U.K. program which the outside world thought was a disaster case through to 3 really, really major companies, Patria, Toyota and Singapore Technologies deciding we are the exclusive partner for the European market because our engineering meets their standards. And that's how delivery doesn't just drive margin and growth in what you do, but it changes your reputation.

And the same is true. David talked about expanding missile tubes. Missile tubes, we have 80% of the joint Columbia Dreadnought program. So this is a key component of -- in fact, it's central to -- literally central, it goes right in the middle of the submarine. It's central to the next-generation deterrent submarine for the U.K. and the U.S., and we have 80% of the delivery when the program is dominated by Columbia. Obviously, they buy a lot more Columbia's than the U.K. buy Dreadnought because our engineering is the best in the world at doing these things.

And that's been -- that growth gets driven by our investment in automation, all the things David talked about. But those techniques are the ones that are driving the improvements in Type 31 so that ship 3 is this real high-value, low-cost production build ship, and you can take production norms across because you know you can do complex things well. But also because it's nuclear, it gets us into a whole pile of nuclear build opportunities for radioactive handling because people know we can do -- we can build nuclear stuff. And then if you look into the opportunities, Rosyth is probably the most capable facility in the U.K. for building -- supporting the build of AMRs and SMRs, obviously, Rosyth build reactors, but everything that goes around it, which is very significant, it's the most obvious place to build it. And because of our pedigree and because of the lack of build capacity in the world, moving into broader submarine build.

So going from an okay high-integrity engineering program to being a recognized world-class high-integrity engineering facility in 5 years is quite a thing and drives a whole host of opportunities. And there are multiple other areas in the business where we could make the same track through. But it starts with, there is no lack of demand as the next few slides will show, the question is, have you got the pedigree to own that demand?

So what is the demand? It's driven, as we said at the full year, by global insecurity and threats, and share prices move around, but is there a peace in Ukraine, isn't there a peace? Europe will continue to want to strengthen its defenses. It may be a few basis points up or down on the high-level statement, but the world is materially less secure now than it was 5 years ago.

And for all the reasons I've just outlined in 2 areas, but we could go across a whole range of things. Babcock is, I think, as well-positioned as anyone and better positioned than most to take advantage of that because we're now combining -- as those who came to DSEI, we're now combining some innovative digital. And in fact, we launched our first AI product at DSEI. We're combining the ability to get the best out of legacy while delivering new at the same time. And I think that's a unique combination.

And across into civil and -- civil nuclear, we are the U.K.'s only significant nationally owned nuclear business at a time when sovereignty and security and energy is at the forefront. So whether it's AMRs, SMRs, building out large reactors, as David said, clean energy has driven huge growth this half and will continue to drive it. In my mind, the civil nuclear business is -- we're only just beginning to tap the opportunities. So I think all of that is really good.

And if you look at us in U.K. Defense, having a resilient industrial base is really important. That is physical -- that is facilities, it's the equipment and infrastructure we have on those facilities and it's people. We are a people-based business.

So David said there's some strategic investment necessary to drive this growth, and it's true. But there's also our commitment to people and investing in skills. So a couple of things, which as -- I said to the press this morning I get quite frustrated about because I think this is one of our biggest achievements, people. And I think the people pipeline will drive our high-quality growth.

So just a couple of facts. So we were Company of the Year for the Association of Black and Minority Ethnic Engineers. Is that a big thing or not? Well, it wasn't Google. It wasn't Oracle. It wasn't people -- it wasn't people with big bases here. It was an engineering company working in defense and nuclear that does some quite heavy stuff, that operates in some quite difficult to get to facilities, Plymouth is not the easiest place to go. It's not the M4 corridor. It's not that. And we won, okay? I think that's pretty cool from where we came from.

We've got a 35% increase in minority representation in our early careers. I think that's pretty cool. And this year, we had our highest intake over early careers. That's apprentices and grads to you and me, highest intake. And we also had the highest subscription. So not only did we take more, but we have more candidates for every post than ever before. And for the first year ever, our intake was 50-50 gender balanced. So from where we were 5 years ago as an employer, we are in just an utterly different place. And that pipeline of people is necessary to drive the pipeline of growth. So I think that's really cool.

And then you can see all the other things that, that leads to. We spend GBP 550 million with small and medium enterprises. So we drive the economy in the regions we work in. As I've just said in the growth thing, we partner with a whole bunch of really high-quality engineering companies who see us as the best of breed in the U.K. We contribute GBP 4.3 billion to the U.K. economy, which is pretty important in the current climate. And you can read the whole slide at your leisure.

And we are working with the government. I spend a lot of time with the government, and I'm a core member of the Defense Industrial Joint Council, there are some permanent and rotating members, driving how the U.K. Defense does its business differently. So we are right across U.K. Defense, from the people, the supply chain and into the government.

And then Nuclear, it's great that Nuclear is in our core. I think civil nuclear, there's the big stuff, Hinkley and Sizewell C. There's SMRs, MEH is mechanical, electrical, handling, which is, if you like, the mechanical and electrical plumbing of a major nuclear power station, which is quite a complex thing. So we are the lead in the alliance. That's growing dramatically. And we have seen actually real progress more than I would have guessed 6 months ago. So we know where the first 3 SMRs are going to go. We did funded work for Centrica and X-energy, X-energy is U.K. partner, for AMRs in Hartlepool, which is a massive rollout. So real momentum -- more momentum, I would say, in civil nuclear than I was expecting in the last 6 months. I think that's really positive.

And then we all know about defense nuclear. David has touched on the numbers. I will talk about the FMSP follow-on. So FMSP is Future Maritime Support Program. That's how we support the nuclear fleet. There's some surface ship stuff in there, but it's basically the submarine fleet. That contract comes to an end at the 31st of March next year. So we've been busy with funded work to work with the customer on the successor program.

If you look at -- so 5 years ago, when we were doing the work, 2020-ish, just as I was coming in, that was pre forceful invasion, pre the current Chinese activity. It was -- FMSP is very much a cost-driven program. The metrics are very cost driven. The successor is going to be very output driven because 5 years later, what we really need is submarine availability, not cost out. And that's just the changing environment. And so it's not surprising that we and the government are taking a lot of time to make sure that, that program is going to work for us and for them to drive a new set of outcomes. So you should not, in any way -- in fact, I had a call with the government yesterday on this, and we are completely aligned that the job is to get the right contract for both of us and that -- the fact it might take us right -- we might end up using every minute through to midnight on the 31st of March when I should be relaxed and David probably having kittens. You shouldn't worry about that. It's because we are trying to -- this is genuine transformation.

And then AUKUS, H&B Defense, our joint venture with HII has finally got its first orders. There's a lot of activity now in Australia. I think the Trump -- President Trump review definitely shone a light on some of the areas where we were moving forward, but not fast enough as the 3 nations. So I think we'll see a lot more progress on infrastructure, training and support in the next 12 to 18 months.

So all together, Nuclear looking really positive. And where does that lead us then? For those of you who came to the Rosyth Capital Markets Day teach-in, whatever we call it, you will have seen the scale of our capability, but also the scale of opportunities in Denmark, Sweden, Indonesia, and New Zealand. And there's a lot to be decided in the next 12 to 18 months. I think since we stood up at the full year, all of them have progressed positively from our point of view. Nothing is done until it's done, and these are big governmental decisions. So you've got to win the officials over, and then you've got to win the political debate. So it's not done until it's done, but they're all pointing in the right direction, I think.

Advanced manufacturing, you've seen the journey we've been on. We have a range of really significant opportunities there. AUKUS, I've just touched on. FMSP, I've just touched on. And the land vehicles, we went through as an example. So if you just look across that without even thinking about the fact we've won our first defense order in South Africa on submarines or -- yes, we've won all the stuff that -- the churning of the engine that generates smaller orders, which is still going really well.

I think the growth opportunities are really significant. And the fact that we are now in discussions with Korean companies to do the kind of things we've done with Singaporean and European companies and Japanese companies, it just shows that we are now firmly established on the international stage as one of the credible partners.

So summary. I'll summarize, David's summary. By the way, it's 9:32, so no alarm, that was cool, and that shows our influence. Strong financial results. Metrics, great. I hope you've got a flavor of how delivery is driving this business forward, not just 6 months to 6 months, but establishing multiyear relationships with governments and industrial partners that will underpin sustained consistent growth. And that helps us get the best out of the market dynamic, but also going back to that kind of fiscal versus defense pressures helps us manage those, which is why we kind of feel confident about this year and beyond.

So with that, we'll go to the appendix. No, we won't. There should have been a question slide. We'll have questions instead of going to the appendix. If it's Type 31, I probably will get upset. I'm just warning you, I'm just putting it out there.

Sash Tusa from Agency Partners. It's a Marine question, but not a Type 31 question. You specifically referenced this big slug of liquid gas equipment orders that you won last year and are now delivering out. Should we see that as being a bubble? Or is that now the ongoing run rate of the business? Are you replenishing those orders at broadly that rate so that you can keep up this sort of level of revenues? That's my first question.

So it's definitely a record order intake. If you remember, for 2 or 3 years, we were waiting for them to come, and then it all came in a period. So the next 12 months, 18 months or so will be the delivery of those. We are obviously winning new orders, but not at that rate, and we never expected to because it matches the ship-build market.

Okay. And then Aviation question. BA, Boeing, Saab announced teaming to offer T-7 for the U.K. How does that affect your involvement with MFTS? Because they are pitching this as a very, very broad military pilot training contract rather than just supply of aircraft. Where does the replacement of the Hawks fit in with MFTS?

So as you know, the Hawk is outside the scope of MFTS anyway. So we go up to the Textron -- we go up to the Textron and then we do some -- we do the maintenance of the legacy Hawk fleet, but BAE Systems supply it. So it's not a particularly big thing. And there's still a debate about how government will procure the next jet trainer.

But there's always overlap, or rather there's a wavy line in terms of the capabilities of different aircraft types and therefore, how much of the syllabus you can do? So clearly want to grab more of the syllabus.

So that's true. If you look at most -- so the Germans are now coming out, for example, if you look at most pilot training, the cost per hour in the lead-in jet is multiple times the cost per hour in the turbo -- turboprop. So I would say, on a cost and actually also for those governments who report emissions, from a cost and emissions point of view, you want to maximize simulator, then you want to maximize turboprop, and you want to minimize jet for both cost and emissions.

At the front, on your right.

It's James Beard from Deutsche Bank. Two questions, please. Can you talk through the building blocks from a margin perspective in H2? Obviously, you've done a 90 basis point margin uplift in H1, which given that you've retained your 8% margin guidance for the full year implies relatively modest or circa 10 basis point margin uplift in the second half.

And then second question, you gave some interesting color around the people agenda during the presentation. Can you talk about the other side of the funnel in terms of churn rates? And I guess, in particular, in the U.K. Nuclear business, one would guess that demand for labor significantly outstrips supply at the moment and what you're doing. What initiatives you're taking to sort of combat any unwanted attrition in that side of the business?

I'll do the people one and David can do the number one. So you're right. So our churn rates are significantly down. It is a bit regional. So it's not so much the business is in. It's the business location. So if you're in civil nuclear in Warrington, we're probably the highest paying employer. My Warrington colleagues may not agree with that, but we probably are. In Bristol, it's quite different because there's a lot of high-paying jobs in the Bristol. So it's more a regional issue than an activity issue.

But we've done a bunch of things from -- you will remember from the full year, we've had our first ever all employee free share scheme, to start anchoring people in. We've historically had very low take-up on a lot of the benefit schemes we've had. And so we've got a Babcock bus actually, the blue double-decker bus that is going around all our sites, doing open sessions. We've got 10,000, I think, more inquiries in the U.K. onto that -- onto all our employee platforms now as a result of that compared with a year ago. So we're taking all of those. And I could go on and on and on. There's a whole bunch of things we're doing to make people realize the full benefit of being part of Babcock.

And if I look at our global people survey, which we do every year, which finished a couple of -- finished a month ago, a lot of those measures, which are kind of indicators of attrition, would I recommend the company as a place to work? Am I going to -- do I think I'm going to be here in 5? All of those continue in a positive direction. And interestingly, when we did the Board presentation 2 days ago, there were a number of those metrics were against the benchmark. So our partner who does all the independent survey, they give you these benchmarks.

In the U.K., a number of these engagement scores are going backwards over the last 3 or 4 years. Ours are going forward. So we're kind of bucking the trend on engagement. So lots of stuff actually.

And on the margins, so lots still to do. Obviously, very encouraging in the first half. The building blocks are largely the same, actually. If you look back, maybe just comparing against first half of last year isn't that helpful. If you look back, the margins really sort of inflected about a year ago. So if you look at second half of last year, first half of this year, you'll see a trajectory that 20, 30 basis points for the second half maybe -- it would be achievable in some of the sectors. There's no particular building block in the second half that wasn't there in the first. It's the same dynamics. LGE and Skynet and Marine, the businesses going forward in Nuclear, infrastructure coming off a bit, rail in Land, and everything going well in Aviation. So we're very confident in the 8%, but I think just comparing against the first half of last year misses the shape of the curve, if you see what I mean.

David Farrell from Jefferies. I think I've got 3 questions. Firstly, in the release, you talked about GBP 300 million tender related to the SMRs for owner engineering services. Could you explain a little bit more what that entails and then the potential for that to grow into other areas?

Yes. So that's the customer side work basically to support the delivery of the SMR program. One of the things you may have seen in Great British Nuclear's announcement is, the kind of conflict of interest, the thing that they're managing. So you can't sit both sides of the equation. You can't set the question and answer it. So I think that's just for the current rollout. So there's -- the opportunity is, if you look at the expectation of SMR volumes, you can kind of multiply that by the volume. So it's quite significant.

Okay. Some of your peers have obviously suffered in the wake of the SDR and the release of contracts from the U.K. MOD. Just wondering to what degree you've seen kind of any impact there, acknowledging you have slightly different kind of characteristics in your order book?

Yes. Well, I think you've answered the question almost. We have a very different characteristics. So like some others, we have a framework and then call off. But for us, the framework is the dominant bit, and the call-off is kind of the icing. Whereas in some other contracts, the framework is a smaller partner, for the call-off, is more important. So I think it's just the structure of the contracts really. We have more resilient contract structures.

Okay. And then probably for the other, David, a question around the bond refinancing.

No, I'd like to answer that -- I wouldn't.

It's quite simple.

You're saying he can't do simple, is what you're saying.

He's saying you can't do simple.

Probably right.

Do you need to refinance both of them at the same size?

No. So I think size and duration are things that we will work on over the next few months.

George Mcwhirter from Berenberg. You mentioned about some bolt-on M&A that you have been looking at. Can you just go into a bit more detail about that, please? Firstly, that's the first question.

So sort of, but we can't -- obviously, any specifics, as David said, there are a couple in process. They're covered by NDAs and confidentialities. We can't be specific, except to say when we did the Capital Markets Day 18 months ago, we talked about areas that we wanted to move into. So we've already done -- we talked about the need to become more digital. We've talked about the need to have greater access to autonomy and so on. So you could imagine that anything we're looking at is consistent with the strategy we laid out 18 months ago.

The second one is on FMSP successor. In terms of the length of the contract and size and the contracting terms that you're looking at, can you just go into a bit of detail about that, please?

So what can I say that I haven't already said? So the terms will be, as I've said, output not -- will be more heavily weighted towards output rather than cost. Obviously, cost really matters. Government wants to do a lot with its money, wants to do it efficiently. So I'm not saying cost doesn't matter, but it will be weighted more heavily towards output.

I think duration is still unclear about what is optimal. And it kind of depends who does what on investment profile and some of the things that David talked about what -- and there could also be scenarios where you would have things outside -- a bit like MIP is outside FMSP, and yet it exists, as David described, to drive it. There's kind of what's inside and outside the envelope.

So that's all the stuff we want to get right so that we don't create -- we create a framework that can deal with anything that might happen in the period the contract covers and not suddenly wonder who does what on something.

Chris Bamberry. Three questions, if I may. First, in terms of the pipeline, what are the major decisions you're expecting over the next 12 months?

So we said at the Marine Capital Markets Day that if a number of customers want to hit their in-service dates, they have to make their decisions in the next 12 to 18 months, and that was 3 months ago. We had that -- so that's probably still about true. So it's now 9 to 15 months.

It is a fact of working with all governments that they like to hold the end date, but take longer than they thought to make the decision. So we're encouraging all of those decisions to get made early. And I think because of the situation in the world, whether you're in the South China Sea or whether you're in Europe, there are external pressures encouraging decision-making. So I'm optimistic those decisions will get made in that period and hopefully towards the front end of that period.

Second, you won your first defense contract in South Africa. I was wondering if you could give us a bit more color on that market and the potential there.

Yes. So I mean, I think almost since the Rainbow Nation started, South Africa hasn't really had an identified need for a defense force. So it's kind of gone backwards for a period. And now whether it's pirates moving further and further down the Western Coast of Africa, whether it's incursions into their territorial waters by other people, there is a bigger and bigger need. So I think, actually, for different reasons from some other markets, there's now a recognition that they need to reactivate.

So if we execute this program well, I'm very optimistic that it's kind of a good market for us because it's big enough to be meaningful, but it's not big enough to interest a Lockheed Martin or someone like that. So it's an ideal sort of market for us.

And final question. Could you give us perhaps a bit more color on how DSG has performed under the new contract?

Yes. So far, so good, really. Nothing else to say. It's going well. I can't think of...

It is going -- well, we're not going to give all the internal KPIs. But yes, mobilization is good.

Hitting all the KPIs, et cetera?

Sorry?

Hitting all the KPIs, et cetera?

No one hits all the KPIs.

A reasonable number?

Yes. If we hit all the KPIs, they would argue they set the wrong KPIs. So you can't hit all the KPIs, but hitting the volume, we'd expect to.

Behind you.

Ben Varrow from RBC. First one, just on -- you've made a point about the CapEx projects here. Can you shed any more light on those at this point?

And they're not all in the U.K. So if you take Mentor 2, for example, we buy the platforms and then there's a progressive sort of handover. So that's a good example. If you look at modernization in New Zealand, there's a big debate about who funds what. They probably can't fund everything. If you look at infrastructure for AUKUS in Australia, who funds what.

So there's just a lot of -- and it's similar in the U.K., but there's a kind of the whole build -- I don't think anyone wants to do a PFI, which is kind of a build and forget, which is just kind of an off-balance sheet financing thing where the financing is more important than the thing. But I think what people are looking at now is a kind of build and operate so that you have operate skin in the game for doing the build properly. So that's the sort of direction of travel.

Okay. And also with regard to your sort of 2 specific ones, obviously, with Rosyth.

David mentioned those, so you better talk about the Rosyth's expansions.

Sorry, what was the question?

So the actual -- the CapEx projects that you mentioned for Rosyth. Can you give any more sense?

Yes. So obviously, we've got a pipeline of ship-build activities that we talked about in the Capital Markets Day. We'll need extra capacity. So we're looking at a new build hall for that. We want to ramp up the missile production volume.

Missile tubes.

Sorry.

Not missiles.

Missiles. That's what we want to ramp up. So we'll be looking to invest in that as well. So this is all stuff to enable greater scale, growth and productivity.

I assume you can't say anything on sort of decision points or when you pull the trigger on missile tubes?

Well, I mean, it's -- those two. Well, the first one is our decision, and we've got to make that decision based on what we see in the pipeline and how close it is and how certain we are. So we'll just have to keep you posted on that. The missile tubes, obviously, we will do in tandem with the customer. So -- but again, we'll talk in the next few months, certainly within the next 12.

Because we built the last build hall so recently, we have -- what can cause delay in a build hall? Things like the condition of the ground. You got to put foundations in, and you have to make them stronger because the ground is -- but because it will be right next to the existing one, we know everything about that. We know how we build it. We would use the same contractors. So it's a -- although it will be a big thing, it's relatively quick. So we can align it quite closely to the order intake maturing.

And last one, just a bit on visibility. Obviously, in the first half, you've had Nuclear, I guess, in particular, come in a bit stronger. So can you chat through just about the visibility on that and how that perhaps comes in a bit quicker sort of in submarine support and also on the Cavendish side? And I guess the question sort of rolls in, can you maintain those growth rates?

Yes. So we've got pretty good visibility. I mean, I always look at the revenue under contract for forecasting. So -- but we generally have very good visibility of stuff that isn't under contract yet. So you can't necessarily be absolutely sure of timing, but you've got a pretty good idea. So I start with what's under contract.

In terms of visibility in Nuclear, it's good. We've got a pretty good idea on both naval and civil, what's coming down the track. Timing isn't always precise, but you've got a pretty good idea. They're obviously doing extremely well, but a 14% growth rate is pretty punchy to be -- to straight line out into the future. It's definitely all sustainable revenue. There's nothing one-off in there. But it can't keep going at 14%. But it is the high-performing business, and it will continue to be for the near term at least.

Just a follow-up question to the last one on civil nuclear. You've given it a lot of prominence in the presentation. It's only about 5% of the group. I think at the teaching you did in May, you talked about sales at least doubling over the medium term. given how much is going on there and the prominence you've given it today, are you thinking more positively? I mean, can you update on the at least double? Is it now going to be a meaningfully bigger opportunity?

So that was a teach-in on Cavendish, which is the nuclear consulting business. So it excluded -- we made reference to, but the numbers excluded build opportunities for building elements of SMRs and AMRs. So can I give an update? I think the risk is on the upside, how about that? Is that enough? Do you want to?

Yes. Look, I mean, I don't think we can -- we said we'd double the business by 2030, just to be precise. I don't think we're going to change that right now. Everything we've seen in the market is encouraging. And there are some potentially big things there, but I think we have to just wait a little bit longer to see how they -- how and when those things crystallize before we start changing numbers.

Just to follow up. I actually didn't know that. I'm not an expert on nuclear engineering, say the least. So what is -- when you talked about the business doubling, I thought it was civil nuclear in its entirety. So just how big is the buildup? And maybe if we look beyond the medium term because it might take longer. I mean, just how big can the civil nuclear holistically get to for you?

If you include build -- so one of the interesting things is how we choose to report it because typically, everything that happens in Rosyth gets reported in Marine because Marine owns Rosyth. So it would depend how we reported it. But if you believe -- if you just look at the Hartlepool 6 gigawatts of AMRs, if we were a material build partner of that, and we are X-energy's partner in the U.K., then we're talking about civil nuclear production would probably become bigger than the consulting -- the engineering consulting business of Cavendish. That's a huge if, but just to give you a scale thing.

Sorry. That's for one of the SMRs, is it?

No. This is AMRs. This is just Hartlepool AMR thing.

This is just Hartlepool? So if Hartlepool, AMRs go ahead, SMRs go ahead in the numbers, it's multiples then of Cavendish, is what you're saying?

If we win the build because we don't build that either at the moment. So there's a huge if.

And who else could do the build?

Well, it kind of partly depends whether the U.K. Government decide that U.K. SMRs and AMRs have to be built in the U.K. Because if they decided not, which -- if there's a change in government, it might be the case, and there could be -- there are places outside the U.K. you could build them. There aren't -- there's not that much U.K. competition.

David from Jefferies. A follow-up question, please. Just around kind of the share buyback. We've obviously talked about kind of CapEx potential. You talked about kind of M&A. Do you think that you could do both of those and still reload the buyback at the end of this year?

Yes. So the great thing about having cash is that you actually have a capital allocation problem, which is relatively new for this company for a long time. In my mind, the buyback creates the hurdle for all other investments. So we know what return the buyback gives shareholders. And therefore, our job as management is to find alternatives to recommend to the Board, which we believe provides superior returns to buyback. And if we don't find them, then buyback becomes a likely option.

So I think it's hard to say, can you do both because it depends how many superior options we come up with. But I think that's -- I think I'm looking at Ruth, and she's nodding. It is our job as management to come up with superior options to buyback. That's our job.

In 1 minute's time, this will be the longest half year presentation I've done in 14 years. I just thought I'd let you know that.

I'll drag the question out then.

Go on then, record-breaking you.

First of all, continuing on nuclear. I probably may have missed -- you said that MIP was basically flat. Did you actually give an absolute number for MIP revenues in the half year?

For the half? Yes, it's on the slide. So it's GBP 215 million. Yes. It was down. It wasn't flat. It was down.

Okay. And then the other side of David's question about Cavendish. You actually haven't talked very much about the Nuclear side of Cavendish in this set of numbers. What's happening at the moment with AWE and particularly with the 2 very big AWE capital projects as part of the Fissile Materials Campus?

Yes. So those are still evolving. I think all of our debates with AWE about what our role should be, a very positive. Yes, very, very positive. They've ultimately got to decide how to chunk up those 2 big programs. I think there's no doubt that AWE wants to be the overall contractor. So it's not going to go to a GOCO or anything like it. But the question is then, how do they chunk it up underneath? And I think so far, those are very intelligent and sensible conversations between us and them. I couldn't put a number or duration on it. But you're right, I didn't mention it, but it's going -- it's a very positive conversation.

And I mean, just to extend that, if you had to estimate whether ultimately that scale of build work is bigger or smaller than the AMRs and SMRs?

Gosh.

Go on.

That's an impossible question and a very unfair way to finish. And I'm never going to talk to you again.

Great. Well, thank you for your questions. That's an hour up. If you've got any more questions, I'm sure Andrew will answer them. Thank you.